nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒05‒11
106 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Model of Asset Price Spirals and Aggregate Demand Amplification of a "Covid-19" Shock By Ricardo J. Caballero; Alp Simsek
  2. Monetary and Fiscal Policy Interactions in a Frictional Model of Money, Nominal Public Debt and Banking By Saroj Dhital; Pedro Gomis-Porqueras; Joseph H. Haslag
  3. The government spending multiplier at the zero lower bound: Evidence from the United States By Di Serio, Mario; Fragetta, Matteo; Gasteiger, Emanuel
  4. The Riddle of the Natural Rate of Interest By Weshah Razzak
  5. Post Covid-19: Recovering and sustaining India's growth By Ashima Goyal
  6. Common and Idiosyncratic Inflation By Matteo Luciani
  7. The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy By Jane E. Ihrig; Zeynep Senyuz; Gretchen C. Weinbach
  9. The Effects of Macroprudential Policy on Banks' Profitability By E Philip Davis; Dilruba Karim; Dennison Noel
  10. Big G By Lydia Cox; Gernot Müller; Ernesto Pasten; Raphael S. Schoenle; Michael Weber; Michael Weber
  11. Unconventional monetary policy shocks in the euro area and the sovereign-bank nexus By Hristov, Nikolay; Hülsewig, Oliver; Scharler, Johann
  12. Big G By Lydia Cox; Gernot Müller; Ernesto Pastén; Raphael Schoenle; Michael Weber
  13. A comparison of Swiss, German and Polish fiscal rules using Monte Carlo simulations By Adam Pigoñ; Micha³ Ramsza
  14. Dynamic Beveridge Curve Accounting By Hie Joo Ahn; Leland Crane
  15. A theory of the nominal character of stock securities By Bernard Dumas; Marcel R. Savioz
  16. Macroeconomic Dynamics and Reallocation in an Epidemic By Dirk Krueger; Harald Uhlig; Taojun Xie
  17. Viral Shocks to the World Economy By Konstantin A. Kholodilin; Malte Rieth
  18. Foreign exchange interventions under a one-sided target zone regime and the Swiss franc By Hertrich, Markus
  19. Forecasting in the presence of instabilities: How do we know whether models predict well and how to improve them By Barbara Rossi
  20. Online Estimation of DSGE Models By Michael Cai; Marco Del Negro; Edward P. Herbst; Ethan Matlin; Reca Sarfati; Frank Schorfheide
  21. Do Household Finances Constrain Unconventional Fiscal Policy? By Scott R. Baker; Lorenz Kueng; Leslie McGranahan; Brian Melzer
  22. Optimal policy perturbations By Régis Barnichon; Geert Mesters
  23. Mitigating Disaster Risks to Sustain Growth By Harrison Hong; Neng Wang; Jinqiang Yang
  24. When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases By Travis J. Berge; Maarten de Ridder; Damjan Pfajfar
  25. Family Job Search and Wealth: The Added Worker Effect Revisited By J. Ignacio Garcia-Perez; Sílvio Rendon
  26. COVID-19 and Emerging Markets: The Case of Turkey By Cem Cakmakli; Selva Demiralp; Sebnem Kalemli Ozcan; Sevcan Yesiltas; Muhammed Ali Yildirim
  27. Monetary Policy Uncertainty and Monetary Policy Surprises By Michiel De Pooter; Giovanni Favara; Michele Modugno; Jason J. Wu
  28. Could Fiscal Policies Overcome a Deep Recession at the Zero Lower Bound? By Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
  29. Internal and External Effects of Social Distancing in a Pandemic By Maryam Farboodi; Gregor Jarosch; Robert Shimer
  30. Taking the challenge: A joint European policy response to the corona crisis to strengthen the public sector and restart a more sustainable and social Europe By Ritzen, Jo; Lopez, Javi; Knottnerus, Andre; Perez Moreno, Salvador; Papandreou, George; Zimmermann, Klaus F.
  31. On Public Spending and Unions By Fernando Broner; Alberto Martin; Jaume Ventura
  32. Currency appreciation, distance to border and price changes: Evidence from Swiss retail prices By Foellmi, Reto; Jaeggi, Adrian; Schnell, Fabian
  33. The Economics of Helicopter Money By Pierpaolo Benigno; Salvatore Nisticò
  34. Housing Wealth or Collateral: How Home Value Shocks Drive Home Equity Extraction and Spending By Soeren Leth-Petersen; Henrik Yde Andersen
  35. Patience Breeds Interest: The Rise of Societal Patience and the Fall of the Risk-free Interest Rate By Radoslaw (Radek) Stefanski; Alex Trew
  36. Health versus Wealth: On the Distributional Effects of Controlling a Pandemic By Andrew Glover; Jonathan Heathcote; Dirk Krueger; José-Víctor Ríos-Rull
  37. Innocent Bystanders? Monetary Policy and Inequality in the U.S. By Olivier Coibion; Yuriy Gorodnichenko; Lorenz Kueng; John Silvia
  38. Inflation expectations and consumer spending: the role of household balance sheets (RM/19/022-revised-) By Lieb, Lenard; Schuffels, Johannes
  39. Sequential Lifting of COVID-19 Interventions with Population Heterogeneity By Adriano A. Rampini
  40. Monetary Policy Implementation with an Ample Supply of Reserves By Kyungmin Kim; Antoine Martin; Gara Minguez-Afonso; Ed Nosal; Simon M. Potter; Sam Schulhofer-Wohl
  41. Koronaviruskriisi leikkaa syvän loven Suomen talouteen By Kilponen, Juha
  42. News, sentiment and capital flows By Kenza Benhima; Rachel Cordonier
  43. Long-term outlook for the German statutory pension system By Schön, Matthias
  44. How Well Does Economic Uncertainty Forecast Economic Activity? By John H. Rogers; Jiawen Xu
  45. Macroeconomic impacts of the public health response to COVID-19 By Eric Kemp-Benedict
  46. Republic of Moldova; Staff Report for the 2020 Request for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund
  47. Measuring price dynamics of package holidays with transaction data By Henn, Karola; Islam, Chris-Gabriel; Schwind, Patrick; Wieland, Elisabeth
  48. The Effect of the China Connect By Chang Ma; John H. Rogers; Sili Zhou
  49. Cryptocurrency Market Reactions to Regulatory News By Raphael A. Auer; Stijn Claessens
  50. Effects of macroprudential policies on bank lending and credit risks By Stefanie Behncke
  51. Samoa; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Samoa By International Monetary Fund
  52. The Linkages between Inflation and Inflation Uncertainty in Selected Asian Economies: Evidence from Quantile Regression By Jiranyakul, Komain
  53. Costly Commuting and the Job Ladder By Jean Flemming
  54. Extreme weather events and economic activity: The case of low water levels on the Rhine river By Ademmer, Martin; Jannsen, Nils; Mösle, Saskia
  55. Bosnia and Herzegovina; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Bosnia and Herzegovina By International Monetary Fund
  56. Influence of Central Bank Regulations on Interbank Competition in Association with EU By Abuselidze, George
  57. Herding cycles By Edouard Schaal; Mathieu Taschereau-Dumouchel
  58. A note on financialization from a Classical-Keynesian standpoint By Stefano Di Bucchianico
  59. Pandemic Lockdown: The Role of Government Commitment By Christian A. Moser; Pierre Yared
  60. Panel Remarks: The Fed and Main Street during the Coronavirus Pandemic By Anna Kovner
  61. Loan Types and the Bank Lending Channel By Victoria Ivashina; Luc Laeven; Enrique Moral-Benito
  62. Income Volatility and Portfolio Choices By Yongsung Chang; Jay. H. Hong; Marios Karabarbounis; Yicheng Wang
  63. Assessment of the change in the trajectory of adaptation of the real ruble exchange rate to the equilibrium due to a change in the monetary policy regime By Fokin, Nikita (Фокин, Никита)
  64. Panama; 2020 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  65. Republic of North Macedonia; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Republic of North Macedonia By International Monetary Fund
  66. Growing through Spinoffs. Corporate Governance, Entry, and Innovation By Maurizio Iacopetta; Raoul Minetti; Pierluigi Murro
  67. Chad; Requests for Disbursement under the Rapid Credit Facility, Extension of the Extended Credit Facility Arrangement, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  68. Economic Activity and the Value of Medical Innovation during a Pandemic By Casey B. Mulligan
  69. Durables and Lemons: Private Information and the Market for Cars By Richard Blundell; Ran Gu; Soeren Leth-Petersen; Hamish Low; Costas Meghir
  70. Negative interest rates, deposit funding and bank lending By Tan Schelling; Pascal Towbin
  71. Price Discovery and Liquidity Recovery: Forex Market Reactions to Macro Announcements By Masahiro Yamada; Takatoshi Ito
  72. Modeling R&D spillovers to productivity. The effects of tax policy By Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen
  73. The Gambia; Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Gambia By International Monetary Fund
  74. Inventories, Debt Financing and Investment Decisions: A Bayesian Analysis for the US Economy By Ettore Gallo; Gustavo Pereira Serra
  75. Excess Sensitivity of High-Income Consumers By Lorenz Kueng
  76. Nigeria; Request for Purchase under the Rapid Financing Instrument -Press Release; Staff Report; and Statement by the Executive Director for Nigeria By International Monetary Fund
  77. Macroeconomic and distributional consequences of energy supply shocks in Nigeria By Adeola F. Adenikinju; Niyi Falobi
  78. Reforming capitalist democracies: Which way? By Bhaduri, Amit
  79. Fiscal Flow Volatility and Reserves By Jeff W. Huther; Luke Pettit; Mark Wilkinson
  80. Europe’s debate on fiscal policy - Too much yet too little By Messori, Marcello
  81. Labor Markets during the Covid-19 Crisis: A Preliminary View By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
  82. New Productivity Drivers: Revisiting the Role of Digital Capital, FDI and Integration at Aggregate and Sectoral Levels By Amat Adarov; Robert Stehrer
  83. Beliefs About Public Debt and the Demand for Government Spending By Christopher Roth; Sonja Settele; Johannes Wohlfart
  84. Islamic Republic of Mauritania; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania By International Monetary Fund
  85. Collateral eligibility of corporate debt in the Eurosystem By Pelizzon, Loriana; Riedel, Max; Simon, Zorka; Subrahmanyam, Marti G.
  86. We examine how an innovation in payment technology impacts on consumer payment choice and cash demand. We study the staggered introduction of contactless debit cards between 2016-2018. The timing of access to the contactless technology is quasi-random across clients, depending only on the expiry date of the existing debit card. Our analysis is based on administrative data for over 21’000 bank clients and follows a pre-analysis plan. Average treatment effects show that the receipt of a contactless card increases the use of debit cards especially for small-value payments. However, we find only a moderate average reduction in the cash share of payments and no reduction of average cash demand. Treatment effects on payment choice are strongest among consumers with an intermediate pre-treatment use of cash. Explorative analyses reveal that effects are largely driven by young consumers in urban locations. By Martin Brown; Nicole Hentschel; Hannes Mettler; Helmut Stix
  87. Haiti; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Haiti By International Monetary Fund
  88. Are the poor more impatient than the rich? Experimental evidence on the effect of (lab) wealth on intertemporal preferences By Siebert, Jan
  89. The Perceived Well-being and Health Costs of Exiting Self-Employment By Nikolova, Milena; Nikolaev, Boris; Popova, Olga
  90. The growing digital divide in Europe and the United States By Rückert, Désirée; Veugelers, Reinhilde; Weiss, Christoph
  91. The German housing market cycle: Answers to FAQs By Kajuth, Florian
  92. Analyzing the Asymmetric Effects of Inflation and Exchange Rate Misalignments on the Petrochemical Stock index: The Case of Iran By Zarei, Samira
  93. Compilation of commercial property price indices for Germany tailored for policy use By Knetsch, Thomas A.
  94. Urban food markets and the lockdown in India By Sudha Narayanan; Shree Saha
  95. Tax News Shocks and Consumption By Lorenz Kueng
  96. Should the U.S. Government Issue Floating Rate Notes? By Jonathan S. Hartley; Urban Jermann
  97. The Effect of Unfair Chances and Gender Discrimination on Labor Supply By Gagnon, Nickolas; Bosmans, Kristof; Riedl, Arno
  98. Time Discounting and Wealth Inequality By Thomas Epper; Ernst Fehr; Helga Fehr-Duda; Claus Thustrup Kreiner; David Dreyer Lassen; Soeren Leth-Petersen; Gregers Nytoft Rasmussen
  99. Online Appendix to "Microeconomic Sources of Real Exchange Rate Variation" By Mario Crucini; Christopher Telmer
  100. Foreign visa salary requirement and natives’ reservation wages By Zahra Murad; Robert Dowell
  101. Economic Resources, Mortality and Inequality By Orazio P. Attanasio; Torben Heien Nielsen
  102. Endogenous Education and Long-Run Factor Shares By Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  103. Should Contact Bans Be Lifted in Germany? A Quantitative Prediction of Its Effects By Donsimoni, Jean Roch; Glawion, René; Plachter, Bodo; Weiser, Constantin; Wälde, Klaus
  104. Modeling Trade and Income Distribution in Six Developing Countries A dynamic general equilibrium analysis up to the year 2050 By Wolfgang Britz; Yaghoob Jafari; Alexandr Nekhay; Roberto Roson
  105. Covid-19 in Deutschland – Erklärung, Prognose und Einfluss gesundheitspolitischer Maßnahmen By Jean Roch Donsimoni; Tobias Hartl; René Glawion; Jens Timmer; Bodo Plachter; Constantin Weiser; Enzo Weber; Klaus Wälde
  106. What type of crisis is this? The coronavirus crisis as a crisis of the economicised society By Ötsch, Walter

  1. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We provide a model of endogenous asset price spirals and severe aggregate demand contractions following a large supply shock. The key mechanism stems from the drop in the wealth share of the economy’s risk-tolerant agents: as a recessionary supply shock hits the economy, their wealth declines and their leverage rises endogenously, causing them to offload some risky assets. When monetary policy is unconstrained, it can offset the decline in risk tolerance with an interest rate cut that boosts the market’s Sharpe ratio. However, if the interest rate policy is constrained, new contractionary feedbacks arise: recessionary supply shocks not only feed into reduced risk tolerance but also into further asset price and output drops, which feed the risk-o¤ episode and trigger a downward loop. When pre-shock leverage ratios are high, multiple equilibria are possible, including one where risk-tolerant agents go bankrupt. A large-scale asset purchases (LSAPs) policy can be highly effective in this environment, as it reverses the downward asset price spiral. The Covid-19 shock and the large response by all the major central banks provide a vivid illustration of the environment we seek to capture.
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2020–04
  2. By: Saroj Dhital (Economics and Business Department, Southwestern University); Pedro Gomis-Porqueras (Department of Economics, Deakin University, Geelong, Australia); Joseph H. Haslag (Department of Economics, University of Missouri-Columbia)
    Abstract: In this paper we examine the interactions between fiscal and monetary policy in an economy with financial frictions, where fiat money, bank deposits and short and long-term nominal bonds coex-ist. Because agents face information frictions and bankers have limited commitment, fiat money is always accepted and bank deposits can be used in some trades. Within this frictional environment, we study how consumption inequality varies when the central bank pursues an active monetary pol-icy and when the fiscal authority is active. Specifically, we find that consumption wedges across the different states of the world are more severe when an active central bank pursues expansionary monetary policy. Moreover, we find a unique stationary equilibrium when the monetary authority follows an active policy, while multiple stationary equilibria exist when the fiscal authority pursues an active regime. Consequently, such indeterminacy can result in greater volatility in economies in which the fiscal authority is active and the central bank is passive.
    Keywords: taxes; inflation; liquidity premium
    JEL: E40 E61 E62 H21
    Date: 2020–04
  3. By: Di Serio, Mario; Fragetta, Matteo; Gasteiger, Emanuel
    Abstract: We estimate state-dependent government spending multipliers for the United States. We use a Factor-Augmented Interacted Vector Autoregression (FAIVAR) model. This allows us to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle, and to address the limited information problem typically inherent in VARs. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification, we find that government spending multipliers in a recession range from 3:56 to 3:79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2:31 to 3:05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB.
    Keywords: Interacted VAR,Fiscal Policy,Government Spending,Zero Interest Rate Lower Bound
    JEL: C32 E21 E32 E52 E62 H50
    Date: 2020
  4. By: Weshah Razzak (School of Economics and Finance, Massey University, Palmerston North)
    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
  5. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper discusses past virtuous growth cycles in India and argues that the post Covid-19 macro-financial package is an opportunity to trigger another such cycle, by raising marginal propensities to spend above those to save. It is feasible since the major constraints that aborted such cycles in the past are waning. Among these constraints are commodity price shocks and other supply-side bottlenecks; financial repression, mono-culture and discretionary allocation; and fiscal space. While the first is relieved, and there is adequate progress on the others, fiscal space is still constrained. Even so, the Covid-19 crisis necessitates a large macroeconomic stimulus. In order not to overstrain government finances it should be targeted, temporary and self-limiting. Financing features can aid this, as well as improve financial stability. Specific implications for policy are drawn out.
    Keywords: Covid-19; virtuous growth cycles; commodity price shocks; macro-financial stimulus
    JEL: E32 E44 E52 E62 O11 O16
    Date: 2020–04
  6. By: Matteo Luciani
    Abstract: We use a dynamic factor model to disentangle changes in prices due to economy-wide (common) shocks, from changes in prices due to idiosyncratic shocks. Using 146 disaggregated individual price series from the U.S. PCE price index, we find that most of the fluctuations in core PCE prices observed since 2010 have been idiosyncratic in nature. Moreover, we find that common core inflation responds to economic slack, while the idiosyncratic component does not. That said, even after filtering out idiosyncratic factors, the estimated Phillips curve is extremely flat post-1995. Therefore, our results suggest that the flattening of the Phillips curve is the result of macroeconomic forces.
    Keywords: Core inflation; Dynamic factor model; Disaggregated consumer prices; Monetary policy
    JEL: C32 C43 C55 E31 E37
    Date: 2020–03–05
  7. By: Jane E. Ihrig; Zeynep Senyuz; Gretchen C. Weinbach
    Abstract: We describe the Federal Reserve’s (the Fed’s) approach to implementing monetary policy in an ample-reserves regime. We use a stylized model to explain the factors the Fed considers and the tools it uses to ensure interest rate control when the quantity of reserves is ample. Then, we take a close look at the Fed’s experience operating in this regime in the post-crisis period, both as it has raised and lowered its policy rate. Looking ahead, we highlight some considerations relevant for maintaining a level of reserves consistent with the efficient and effective implementation of monetary policy, and conclude with an overview of the benefits of an ample-reserves regime. This primer is intended to enhance discussions and understanding of the Fed’s actions and communications regarding monetary policy implementation, as many resources on this topic may be out of date given the recent evolution of the policy environment.
    Keywords: Monetary policy implementation; Reserve balances; Ample-reserves regime; Administered rates; Interest on reserves; Open market operations
    JEL: E58 E52 E43
    Date: 2020–02–27
  8. By: Peter Andre (University of Bonn); Carlo Pizzinelli (IMF); Christopher Roth (Department of Economics, University of Warwick); Johannes Wohlfart (CEBI, Department of Economics, University of Copenhagen)
    Abstract: Using a sample of 2,200 households representative of the US population and a sample of more than 1,000 experts, we measure beliefs about how aggregate unemployment and in ation respond to different macroeconomic shocks. Expert predictions are quantitatively close to standard DSGE models and VAR evidence. While households' beliefs are directionally aligned with those of experts in the case of oil supply shocks and government spending shocks, they predict an opposite reaction of in ation to monetary policy and income tax shocks. A substantial fraction of deviations of household predictions can be explained by the use of a simple affective heuristic.
    Keywords: Expectation Formation, Subjective Models, Heuristics, Macroeconomic Shocks, Monetary Policy, Fiscal Policy
    JEL: D83 D84 E31 E52
    Date: 2019–11–20
  9. By: E Philip Davis; Dilruba Karim; Dennison Noel
    Abstract: Despite the importance of profitability to banks' growth and stability, there have, to our knowledge, been no studies which assess the effect of macroprudential regulation on banks' profitability, a key aspect of the transmission of macroprudential measures. We seek to fill this lacuna with empirical estimates for a sample of 6,010 global banks. These suggest that over 2000-2013, a number of measures of macroprudential policy had a negative and significant effect on banks' profitability as measured by return of average assets and return on average equity. Furthermore, the effect of macroprudential policy on banks' profitability varies between advanced and emerging market economies, with some differences also apparent between retail and universal banks. Assessing our results in combination with existing estimates of the impact of macroprudential policy on credit expansion, some measures such as interbank restrictions, concentration limits and taxes on financial institutions are found to affect lending negatively but not profitability; others, such as loan-to-value ratios, the debt-to-income ratio, domestic currency loan limits and the general countercyclical capital buffer affect both negatively; and some, such as reserve requirements and capital surcharges on SIFIs, affect profitability with no significant effect on lending. Since it is probably desirable for banks to make profits and build up capital from retained earnings, according to our results, the first group are more desirable than the second, and the third is the least desirable.
    Keywords: Macroprudential policy, bank profitability, return of average assets, return on average equity
    JEL: E44 E58 G17 G28
    Date: 2020–05
  10. By: Lydia Cox; Gernot Müller; Ernesto Pasten; Raphael S. Schoenle; Michael Weber; Michael Weber
    Abstract: “Big G” typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular, that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation of spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark aligning the model with the empirical evidence.
    Keywords: government spending, federal procurement, granularity, sectoral heterogeneity, fiscal policy transmission, monetary policy
    JEL: E62 E32
    Date: 2020
  11. By: Hristov, Nikolay; Hülsewig, Oliver; Scharler, Johann
    Abstract: We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
    Keywords: European Central Bank,unconventional monetary policy,panel vector autoregressive model,sovereign-bank nexus
    JEL: C32 E30 E52 E58 G21 H63
    Date: 2020
  12. By: Lydia Cox; Gernot Müller; Ernesto Pastén; Raphael Schoenle; Michael Weber
    Abstract: Big G typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular, that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation of spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark aligning the model with the empirical evidence.
    JEL: E32 E62
    Date: 2020–04
  13. By: Adam Pigoñ; Micha³ Ramsza
    Abstract: Authors assess the economic implications of existing fiscal rules in Poland, Switzerland and Germany. In the analysis they establish economic relationships between output, government revenues and expenditures estimating a VAR model on US data for the years 1960-2015. Imposing fiscal policies implied by a given rule on those relationships, they analyze the consequences for the simulated paths of debts, deficits and expenditures in terms of stability and cyclicality. They find that the Swiss and German rules are strict and stabilize deficits at low levels. However, this may still not be sufficient to stabilize debt, in the long run, in a strict sense. The Polish rule stabilizes the debt level at about 40-50% of the GDP in the long run. All rules imply an anticyclical fiscal policy: an increase of the deficit to GDP ratio implied by changes in the output gap equals, at most, 2.2 pp, 3.3 pp and 3.9 pp over the whole business cycle for the Polish, Swiss and German rules, respectively. These results can be perceived as satisfactory for the Swiss and German rules.
    Keywords: fiscal policy, fiscal rules
    JEL: C32 E62 H62 H63
    Date: 2019–11
  14. By: Hie Joo Ahn; Leland Crane
    Abstract: We develop a dynamic decomposition of the empirical Beveridge curve, i.e., the level of vacancies conditional on unemployment. Using a standard model, we show that three factors can shift the Beveridge curve: reduced-form matching efficiency, changes in the job separation rate, and out-of-steady-state dynamics. We find that the shift in the Beveridge curve during and after the Great Recession was due to all three factors, and each factor taken separately had a large effect. Comparing the pre-2010 period to the post-2010 period, a fall in matching efficiency and out-of-steady-state dynamics both pushed the curve upward, while the changes in the separations rate pushed the curve downward. The net effect was the observed upward shift in vacancies given unemployment. In previous recessions changes in matching efficiency were relatively unimportant, while dynamics and the separations rate had more impact. Thus, the unusual feature of the Great Recession was the deterioration in matching efficiency, while separations and dynamics have played significant, partially offsetting roles in most downturns. The importance of these latter two margins contrasts with much of the literature, which abstracts from one or both of them. We show that these factors affect the slope of the empirical Beveridge curve, an important quantity in recent welfare analyses estimating the natural rate of unemployment.
    Keywords: Beveridge curve; Job separation; Job openings; Natural rate of unemployment; Matching efficiency; Unemployment
    JEL: E24 E32 J60
    Date: 2020–03–27
  15. By: Bernard Dumas; Marcel R. Savioz
    Abstract: We construct recursive solutions for, and study the properties of the dynamic equilibrium of an economy with three types of agents: (i) household/investors who supply labor with a finite elasticity, consume a large variety of goods that are not perfect substitutes and trade government bonds; (ii) firms that produce those varieties of goods, receive productivity shocks and set prices in a Calvo manner; (iii) a government that collects an exogenous fiscal surplus and acts mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this setting we show that stock market returns are much less than one-for-one related to inflation over a one-year holding period, which means that stock securities have a strong nominal character. We also show that their nominal character diminishes as the length of the stock-holding period increases, in accordance with empirical evidence.
    Keywords: Stock market, monetary policy, inflation-targeting
    JEL: E44 E52
    Date: 2020
  16. By: Dirk Krueger; Harald Uhlig; Taojun Xie
    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 different parameter configurations 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 flattens, it gets reversed.
    JEL: E20 E30 E52
    Date: 2020–04
  17. By: Konstantin A. Kholodilin; Malte Rieth
    Abstract: We construct a news-based viral disease index and study the dynamic impact of epidemics on the world economy, using structural vector autoregressions. Epidemic shocks have persistently negative effects, both directly and indirectly, on affected countries and on world output. The shocks lead to a significant fall in global trade, employment, and consumer prices for three quarters, and the losses are permanent. In contrast, retail sales increase. Country studies suggest that the direct effects are four times larger than the indirect effects and that demand-side dominate supply-side contractions. Overall, the findings indicate that expansionary macroeconomic policy is an appropriate crisis response.
    Keywords: Coronavirus, Covid 19, text analysis, world economy, structural vector autoregressions, epidemics
    JEL: C32 E32 F44 I18
    Date: 2020
  18. By: Hertrich, Markus
    Abstract: From September 2011 to January 2015, the Swiss National Bank (SNB) implemented a minimum exchange rate regime (i.e. a one-sided target zone) vis-a-vis the euro to fight deflationary pressures in the aftermath of the Great Financial Crisis. During this period of unconventional monetary policy, the SNB faced mounting criticism from the media and the public on the sizable balance sheet risks that it was incurring. Motivated by this episode, I present a structural model embedded within the target zone framework developed by Krugman (1991) that allows monetary authorities to determine ex-ante the maximum size of foreign exchange market interventions that are expected to be necessary to implement and maintain a one-sided target zone. An empirical application of the proposed model to the aforementioned episode reveals that it is well suited to explain the actual size of these interventions and that, in January 2015, the SNB's euro purchases might indeed have been large without the abandonment of the minimum exchange rate regime, which is consistent with the official statements of the SNB in the aftermath of that episode.
    Keywords: Foreign exchange interventions,minimum exchange rate,reaction function,reflected Brownian motion,Swiss franc,Swiss National Bank,target zone,unconventional monetary policy
    JEL: C43 C51 E32 E37 E43 G12 R21 R28 R31
    Date: 2020
  19. By: Barbara Rossi
    Abstract: This article provides guidance on how to evaluate and improve the forecasting ability of models in the presence of instabilities, which are widespread in economic time series. Empirically relevant examples include predicting the nancial crisis of 2007-2008, as well as, more broadly, uctuations in asset prices, exchange rates, output growth and ination. In the context of unstable environments, I discuss how to assess modelsforecasting ability; how to robustify modelsestimation; and how to correctly report measures of forecast uncertainty. Importantly, and perhaps surprisingly, breaks in modelsparameters are neither necessary nor su¢ cient to generate time variation in modelsforecasting performance: thus, one should not test for breaks in modelsparameters, but rather evaluate their forecasting ability in a robust way. In addition, local measures of modelsforecasting performance are more appropriate than traditional, average measures.
    Keywords: forecasting, instabilities, time variation, inflation, structural breaks, density forecasts, great recession, forecast confidence intervals, output growth, business cycles
    JEL: E4 E52 E21 H31 I3 D1
    Date: 2019–11
  20. By: Michael Cai; Marco Del Negro; Edward P. Herbst; Ethan Matlin; Reca Sarfati; Frank Schorfheide
    Abstract: This paper illustrates the usefulness of sequential Monte Carlo (SMC) methods in approximating DSGE model posterior distributions. We show how the tempering schedule can be chosen adaptively, document the accuracy and runtime benefits o fgeneralized data tempering for “online” estimation (that is, re-estimating a model asnew data become available), and provide examples of multimodal posteriors that are well captured by SMC methods. We then use the online estimation of the DSGE model to compute pseudo-out-of-sample density forecasts and study the sensitivity ofthe predictive performance to changes in the prior distribution. We find that making priors less informative (compared to the benchmark priors used in the literature) by increasing the prior variance does not lead to a deterioration of forecast accuracy.
    Keywords: Adaptive algorithms; Bayesian inference; Density forecasts; Online estimation; Sequential Monte Carlo methods
    JEL: C11 C32 C53 E32 E37 E52
    Date: 2020–02–28
  21. By: Scott R. Baker (Northwestern University, Kellogg School of Management, Department of Finance); Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management); Leslie McGranahan (Federal Reserve Bank of Chicago); Brian Melzer (Federal Reserve Bank of Chicago)
    Abstract: When the zero lower bound on nominal interest rate binds, monetary policy makers may lack traditional tools to stimulate aggregate demand. We investigate whether "unconventional" fiscal policy, in the form of p re-announced consumption tax changes, has the potential to meaningfully shift durables purchases intertemporally and how it is affected by consumer credit. In particular, we test whether car sales react in anticipation of future sales tax changes, leveraging 57 pre-announced changes in state sales tax rates from 1999-2017. We find evidence for substantial tax elasticities, with car sales rising by over 8% in the month before a 1% increase in the sales tax rate. Responses are heterogeneous across households and sensitive to supply of credit. Consumers with high credit risk scores are most able to pull purchases forward. At the same time, other effects such as customer composition and attention lead to an even larger tax elasticity during recessions, despite these credit frictions. We discuss policy implications and the likely magnitudes of tax changes necessary for any substantive long-term responses.
    Keywords: consumer durables, counter-cyclical fiscal policy, intertemporal substitution
    JEL: D12 E21 G01 G11 H31
    Date: 2020–04
  22. By: Régis Barnichon; Geert Mesters
    Abstract: Model mis-specification remains a major concern in macroeconomics, and policy makers must often resort to heuristics to decide on policy actions; combining insights from multiple models and relying on judgment calls. Identifying the most appropriate, or optimal, policy in this manner can be challenging however. In this work, we propose a statistic -the Optimal Policy Perturbation (OPP)- to detect "optimization failures" in the policy decision process. The OPP does not rely on any specific underlying economic model, and its computation only requires (i) forecasts for the policy objectives conditional on the policy choice, and (ii) the impulse responses of the policy objectives to shocks to the policy instruments. We illustrate the OPP in the context of US monetary policy decisions. In forty years, we only detect one period with major optimization failures; during 2010-2012 when unconventional policy tools should have been used more intensively.
    Keywords: macroeconomic stabilization, optimal policy, impulse responses, sufficient statistics, forecast targeting
    JEL: C14 C32 E32 E52
    Date: 2020–04
  23. By: Harrison Hong; Neng Wang; Jinqiang Yang
    Abstract: We provide the planner's solution to a model where households learn from exogenous natural disaster arrivals about arrival rates and spend to mitigate future damages. Mitigation cannot be decentralized due to positive externalities from curtailing aggregate risks. First-best can be implemented by capital taxes and mitigation subsidies. Willingness-to-pay, toward public health for pandemics or environmental protection for climate disasters, depends on mitigation efficacy. Efficacy can be inferred from damage functions that depend on prior arrivals which determine preparedness. Regulatory risks arise since disaster leads to pessimistic arrival-rate beliefs and taxes or mandates to fund mitigation, which reduce consumption, investment and stock-market value.
    JEL: E21 E22 E23 G12 G28 H23 H41
    Date: 2020–04
  24. By: Travis J. Berge; Maarten de Ridder; Damjan Pfajfar
    Abstract: We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. states.
    Keywords: Fiscal multiplier; Countercyclical policy; Cross-sectional analysis; Local projections
    JEL: E62 C31 C32
    Date: 2020–03–27
  25. By: J. Ignacio Garcia-Perez; Sílvio Rendon
    Abstract: We propose and estimate a model of family job search and wealth accumula-tion with data from the Survey of Income and Program Participation (SIPP). This dataset reveals a very asymmetric labor market for household members who share that their job nding is stimulated by their partners job separa-tion. We uncover a job search-theoretic basis for this added worker effect, which occurs mainly during economic downturns, but also by increased non-employment transfers. Thus, our analysis shows that the policy goal of in-creasing non-employment transfers to support a workers job search is partially offset by the spouses cross e¤ect of decreased non-employment and wages. The added worker e¤ect is robust to having more children and more education in the household and does not just result as a composition of heterogeneous indi-viduals. We also show that the interdependency between household members is understated if wealth and savings are not considered. Finally, we show that gender equality in the labor market not only improves womens labor market performance, but it also increases mens accepted wages and non-employment rates.
    Keywords: non-employment; asset accumulation; estimation of dynamic structural models.; household economics; job search; consump-tion
    JEL: C33 E21 E24 J64
    Date: 2020–04–30
  26. By: Cem Cakmakli (Koç University); Selva Demiralp (Koç University); Sebnem Kalemli Ozcan (University of Maryland, NBER and CEPR); Sevcan Yesiltas (Koç University); Muhammed Ali Yildirim (Koç University & Center for International Development at Harvard University)
    Abstract: The COVID-19 crisis can turn into the biggest emerging market (EM) crisis ever. EMs are observing record capital outflows and depreciating currencies, while trying to come up with fiscal resources necessary to fight the pandemic. This paper focuses on a large EM, Turkey. Turkey provides us with a good laboratory given its low foreign currency reserves, high foreign currency debt and a questionable record on monetary policy credibility, all of which are the characteristics of several EMs. We develop a simple framework incorporating a SIR model in a reduced form economic model. We proxy supply shocks with a measure that synthesizes infection rates with teleworkers, physical job proximity and lockdown policies. Demand shocks are captured with credit card purchases. We also incorporate the fact that Turkey is a small open economy with trade linkages. Our estimates show that the lowest economic cost, which saves the maximum number of lives, can be achieved under an immediate full lockdown. Partial lockdowns, which is the current policy, amplify the economic toll because the normalization takes longer. We highlight that it is necessary for the economic units to be compensated during the lockdown and yet Turkey’s policy options are limited given its low fiscal space, and reliance on capital flows that require both external and domestic funding. The external funds can be secured through international financial institutions. On the domestic front, the Turkish Central Bank can provide funding with a well-targeted and transparent asset purchase program (QE). As an example of such a policy, we provide the details of a successful historical episode: Turkish Central Bank monetized the government debt with a clearly communicated disinflation program under an IMF Stand-By Agreement, in the aftermath of 2001 triple crisis (banking, sovereign, balance of payments).
    Keywords: COVID-19; Financial Crisis; SIR; Input-Output Tables; Emerging Markets.
    JEL: E61 F00 C51
    Date: 2020–05
  27. By: Michiel De Pooter; Giovanni Favara; Michele Modugno; Jason J. Wu
    Abstract: Monetary policy uncertainty affects the transmission of monetary policy shocks to longer-term nominal and real yields. For a given monetary policy shock, the reaction of yields is more pronounced when the level of monetary policy uncertainty is low. Primary dealers and other investors adjust their interest rate positions more when monetary policy uncertainty is low than when uncertainty is high. These portfolio adjustments likely explain the larger pass-through of a monetary policy shock to bond yields when uncertainty is low. These findings shed new light on the role that monetary policy uncertainty plays in the transmission of monetary policy to financial markets.
    Keywords: Monetary policy surprises; Monetary policy uncertainty; Interest rates; Primary dealers
    JEL: E40 E50 G10
    Date: 2020–04–17
  28. By: Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
    Abstract: This paper sets up a New Keynesian model in which the monetary authority implements a zero lower bound interest rate policy, and uses it to explore whether the supportive fiscal instruments (including expansionary government spending, a payroll tax cut, and a financial assets tax cut) are effective in overcoming a deep recession. The salient feature of this study is that it provides a new dynamic viewpoint of regime switching by evaluating each of several supportive fiscal policies in terms of their performance in alleviating a deep recession. Two main findings emerge from the analysis. First, when the monetary authority implements the zero lower bound interest rate policy to dampen the negative natural rate shock, the economy will sink into a deep recession with deflation. Second, to overcome the deep recession, of the three supportive fiscal tools (i.e., expansionary government spending, a payroll tax cut, and a financial assets tax cut), only expansionary government spending is effective in alleviating the deep recession. More specifically, the implementation of fiscal policy in the form of either the payroll tax cut or the financial assets tax cut will only further deepen the recession.
    Keywords: Zero lower bound, New Keynesian model, fiscal stimulus, regime switching
    JEL: E62 E63 H20
    Date: 2020–04–24
  29. By: Maryam Farboodi; Gregor Jarosch; Robert Shimer
    Abstract: We use a conventional dynamic economic model to integrate individual optimization, equilibrium interactions, and policy analysis into the canonical epidemiological model. Our tractable framework allows us to represent both equilibrium and optimal allocations as a set of differential equations that can jointly be solved with the epidemiological model in a unified fashion. Quantitatively, the laissez-faire equilibrium accounts for the decline in social activity we measure in US micro-data from SafeGraph. Relative to that, we highlight three key features of the optimal policy: it imposes immediate, discontinuous social distancing; it keeps social distancing in place for a long time or until treatment is found; and it is never extremely restrictive, keeping the effective reproduction number mildly above the share of the population susceptible to the disease.
    JEL: E1 H0 I1
    Date: 2020–04
  30. By: Ritzen, Jo (UNU-MERIT, Maastricht University); Lopez, Javi (European Parliament); Knottnerus, Andre (Maastricht University); Perez Moreno, Salvador (UNU-MERIT, Maastricht University, and University of Malaga); Papandreou, George (Greek Parliament); Zimmermann, Klaus F. (UNU-MERIT, Maastricht University, and University of Bonn)
    Abstract: Towards the end of 2020 the economies of many EU countries will be in serious disarray due to the corona crisis. In the attempt to regain employment and production, EU member state governments will be tempted to fall back into the 'old normal' - over the thorny alternative of employing a policy of 'creative destruction'. Here we argue in favour of a more visionary strategy to achieve sustainability and to further a social Europe with a stronger public sector. A strong Europe is the solution and not the problem for the future of the continent. EU cooperation implies joint Euro area monetary funding (ECB) and joint Euro area borrowing (ESM or otherwise), but only conditional on strong commitments for sustainable development, an improvement of the public sector, joint taxation as well as for sound fiscal behaviour.
    Keywords: Corona crisis, Europe, employment, economic development, environmental sustainability, social Europe, education, health, ECB, sovereign long-term interest rates, conditionalities, taxation
    JEL: I00 J20 H63 H74 O38 O40 O43 O44 E62 E43 Q58 F18 F23 O52 R30 I25 F30 G15 H25 H87
    Date: 2020–04–21
  31. By: Fernando Broner; Alberto Martin; Jaume Ventura
    Abstract: We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to investment, governments care mostly about the (depressed) interest rate they face. In other words, the crowding out effects of public spending are partly "exported" to the rest of the union. We argue that it may be hard for the union to deal with this externality through the design of fiscal rules, which are bound to be shaped by the preferences of the median country and not by efficiency considerations. We also analyze how this overspending externality - and the unions ability to deal with it effectively changes when the union is financially integrated with the rest of the world. Finally, we extend our model by introducing a zero lower bound on interest rates and show that, it financial frictions are severe enough, the union is pushed into a liquidity trap and the direction of the spending externality is reversed. At such times, fiscal rules that are appropriate during normal times might backre.
    Keywords: public spending, crowding out, financial frictions, fiscal union, spending externalities, fiscal coordination
    JEL: E62 F32 F34 F36 F41 F42 F45
    Date: 2020–02
  32. By: Foellmi, Reto; Jaeggi, Adrian; Schnell, Fabian
    Abstract: How does the exchange rate affect the way that firms adjust their prices? We use quarterly firm and product price data, underlying the Swiss sectoral consumer price index. The data allows us to trace the pricing decisions of the identified firm over time and as a function of the distance to the border distance. The appreciation of the Swiss franc results in an increase in the probability of both positive and negative price changes. When a firm is more closely located to the border, the probability of a negative price change is higher. On the intensive margin, we document that an appreciation of the Swiss Franc leads to price reductions, and that this effect is stronger the closer a firm is located to the nearest border. However, for firms located far away from the border, an appreciation of the Swiss Franc leads to no price reductions or even increases. We rationalise this by the relative strengths of income and substitution effects. The substitution effect dominates for firms close to the border, while the income effect dominates for firms located further away from the border.
    Keywords: Price setting behavior of firms, exchange rate, distance to border
    JEL: E30 E31
    Date: 2020–04
  33. By: Pierpaolo Benigno (University of Bern and EIEF); Salvatore Nisticò
    Abstract: An economy plagued by a slump and in a liquidity trap has some options to exit the crisis. We discuss “helicopter money†and other equivalent policies that can reflate the economy and boost consumption. In the framework analysed – where lump-sum transfers may be the only e↵ective fiscal response, like in the current pandemic crisis – the central bank, and only the central bank, is the rescuer of last resort of the economy. Fiscal policy is bounded by solvency constraints unless the central bank backs treasury’s debt.
    Keywords: Helicopter money, ZLB, Pandemic Crisis
    JEL: E50
    Date: 2020–04
  34. By: Soeren Leth-Petersen (CEBI, Department of Economics, University of Copenhagen); Henrik Yde Andersen (Danmarks Nationalbank)
    Abstract: We examine whether unanticipated changes in home values drive spending and mortgage-based equity extraction. To do this we use longitudinal survey data with subjective information about current and expected future home values to calculate unanticipated home value changes. We link this information at the individual level to high quality administrative records containing information about mortgage borrowing as well as savings in various financial instruments. We find that the marginal propensity to increase mortgage debt is 3-5% of unanticipated home value gains. We find no adjustment to other components of the portfolio, and we find that mortgage extraction leads to an increase in spending. The effect is driven by young households with high loan-to-value ratios which is consistent with the effect being driven by collateral constraints. Further, we find that the effect is driven by home owners who actively take out a new mortgage. The price effect is magnified among FRM borrowers who have an incentive to refinance their loans to lock in a lower market rate. These results point to the importance of the mortgage market in transforming price increases into spending and suggest that monetary policy can play an important role in transforming housing wealth gains into spending by affecting interest rates on mortgage loans.
    Keywords: Housing wealth effects, Mortgage market, House price expectations, Analysis of survey and administrative data
    JEL: D12 D14 E21 E52
    Date: 2019–09–12
  35. By: Radoslaw (Radek) Stefanski; Alex Trew
    Abstract: The risk-free rate of return has been declining in real terms over millennia. We isolate the role of time preference – or patience – in explaining this decline. Three facts support our approach: experimental evidence finds significant heterogeneity in patience; individual preference characteristics are highly intergenerationally persistent; and, longitudinal data shows that patience is positively related with fertility decisions. Together these suggest we should expect average societal levels of patience to increase over time as the composition of the population shifts towards ever more patient dynasties. We test this mechanism in a Barro-Becker model of fertility with heterogeneous dynasties. We use the present day distribution of patience to calibrate the model. We are able match – both quantitatively and qualitatively – the decline in the risk-free return over the last eight centuries.
    Keywords: Heterogeneous agents, interest rates, patience, selection
    JEL: E21 E43 J11 N30 O11
    Date: 2020–02
  36. By: Andrew Glover; Jonathan Heathcote; Dirk Krueger; José-Víctor Ríos-Rull
    Abstract: To slow the spread of COVID-19, many countries are shutting down non-essential sectors of the economy. Older individuals have the most to gain from slowing virus diffusion. Younger workers in sectors that are shuttered have the most to lose. In this paper, we build a model in which economic activity and disease progression are jointly determined. Individuals differ by age (young and retired), by sector (basic and luxury), and by health status. Disease transmission occurs in the workplace, in consumption activities, at home, and in hospitals. We study the optimal economic mitigation policy of a utilitarian government that can redistribute across individuals, but where such redistribution is costly. We show that optimal redistribution and mitigation policies interact, and reflect a compromise between the strongly diverging preferred policy paths of different subgroups of the population. We find that the shutdown in place on April 12 is too extensive, but that a partial shutdown should remain in place through July.
    JEL: E20 E30
    Date: 2020–04
  37. By: Olivier Coibion (University of Texas at Austin); Yuriy Gorodnichenko (University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics); Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management); John Silvia (Wells Fargo)
    Abstract: We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy.
    Keywords: Monetary policy, income inequality, consumption inequality
    JEL: E3 E4 E5
    Date: 2020–04
  38. By: Lieb, Lenard (RS: GSBE Theme Data-Driven Decision-Making, General Economics 2 (Macro)); Schuffels, Johannes (RS: GSBE Theme Data-Driven Decision-Making, General Economics 2 (Macro))
    Abstract: Research interest in the reaction of consumption to expected inflation has increased in recent years due to efforts by central banks to kick-start demand by steering inflation expectations. We contribute to this literature by analysing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Two channels in particular are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We investigate these channels empirically using household-level information on balance sheets, durable consumption, and inflation expectations from the Dutch Central Bank’s Household Survey. We find that household net worth moderates the relation between expected inflation and durable spending decisions. This effect is particularly strong for households with fixed interest rate mortgages.
    JEL: D84 E31 E21
    Date: 2020–03–02
  39. By: Adriano A. Rampini
    Abstract: This paper analyzes a sequential approach to lifting interventions in the COVID-19 pandemic taking heterogeneity in the population into account. The population is heterogeneous in terms of the consequences of infection (need for hospitalization and critical care, and mortality) and in terms of labor force participation. Splitting the population in two groups by age, a less affected younger group that is more likely to work, and a more affected older group less likely to work, and lifting interventions sequentially (for the younger group first and the older group later on) can substantially reduce mortality, demands on the health care system, and the economic cost of interventions.
    JEL: E32 E44 E65 H12 I10 I18
    Date: 2020–04
  40. By: Kyungmin Kim; Antoine Martin; Gara Minguez-Afonso; Ed Nosal; Simon M. Potter; Sam Schulhofer-Wohl
    Abstract: Methods of monetary policy implementation continue to change. The level of reserve supply---scarce, abundant, or somewhere in between---has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-09 financial crisis. We find that the optimal level of reserve supply likely lies somewhere between scarce and abundant reserves, thus highlighting the benefits of implementation with what could be called "ample" reserves. The Federal Reserve's announcement in October 2019 that it would maintain a level of reserve supply greater than the one that prevailed in early September is consistent with the implications of our framework.
    Keywords: Federal funds market; Monetary policy implementation; Ample reserve supply
    JEL: E42 E58
    Date: 2020–02–25
  41. By: Kilponen, Juha
    Abstract: Koronaviruksen taltuttamisen seurauksena talouttamme on kohdannut samanaikaisesti en-nennäkemätön tarjonta-, kysyntä- ja rahoitusmarkkinahäiriö, joka leikkaa ison loven ta-louteemme. Talousvaikutusten arviointi edellyttää tietoa epidemian kestosta, jota mallinne-taan epidemiakäyrän avulla. Epidemian kesto, rajoitustoimien tehokkuus, talouspolitiikka ja kansalaisten valinnat yhdessä ratkaisevat, kuinka suureksi koronakriisin kansantaloudelliset kustannukset lopulta muodostuvat. Yksityisen ja julkisen sektorin taseiden heikkeneminen kriisin aikana hidastaa talouden elpymistä taantumasta. Osa tuotantomenetyksistä jää pysy-viksi.
    Keywords: Suomen talous,Covid-19,ennusteet,koronakriisi
    JEL: E10 E23 E60 J48
    Date: 2020
  42. By: Kenza Benhima; Rachel Cordonier
    Abstract: We examine empirically the effect of two types of expectations-related shocks - "news" (increases in expected future productivity) and "sentiment" (surges in optimism unrelated to future productivity) - on gross capital flows. We find that news shocks lead to a decrease in both gross capital inflows and outflows, while sentiment shocks lead to an increase in both gross inflows and outflows. Both these shocks drive a positive correlation between gross inflows and outflows but only sentiments shocks generate procyclical gross flows. These effects are not driven by global shocks or financial shocks. They are consistent with the existence of asymmetric information between domestic and foreign investors about the country's fundamentals.
    Keywords: Capital flows, SVAR, asymmetric information
    JEL: D82 E32 F32
    Date: 2020
  43. By: Schön, Matthias
    Abstract: This paper presents long term projections of the German pension system that are based on a general equilibrium model with overlapping generations (OLG). This framework takes into account the two way feedback of both micro and macroeconomic relationships, meaning that households, for example, react to changes in the statutory pension system, such as the retirement age or the replacement rate. Changes in households' behaviour, in turn, impact on macroeconomic developments and public finances. One approach to parametrically reform the pension system would be linking (indexing) the retirement age systematically to increasing life expectancy. The model shows that the resulting increase in employment would also bolster social security contributions and taxes. Moreover, with a rising retirement age and the associated longer periods of work, pension entitlements would increase.
    Keywords: Demographic Change,Pension System,OLG Models
    JEL: E27 E62 H55 J11 J26
    Date: 2020
  44. By: John H. Rogers; Jiawen Xu
    Abstract: Despite the enormous reach and influence of the literature on economic and economic policy uncertainty, one surprisingly under-researched topic has been the forecasting performance of economic uncertainty measures. We evaluate the ability of seven popular measures of uncertainty to forecast in-sample and out-of-sample over real and financial outcome variables. We also evaluate predictive content over different quantiles of the GDP growth distribution. Real-time data and estimation considerations are highly consequential, and we devote considerable attention to them. Four main findings emerge. First, there is some explanatory power in all uncertainty measures, with relatively good performance by macroeconomic uncertainty (Jurado, Ludvigson, and Ng, 2015). Second, macro uncertainty has additional predictive content over the widely-used excess bond premium of (Gilchrist and Zakrajsek, 2012) and the National Financial Conditions Index. Third, quantile regressions for GDP growth indicate strong predictive power, especially at the lower ends of the distribution, for all uncertainty measures except the VIX. Finally, we construct new real-time versions of both macroeconomic and financial uncertainty and compare them to their ex-post counterparts used in the literature. Real-time uncertainty measures have comparatively poor forecasting performance, even to the point of overturning some of the conclusions that emerge from using ex-post uncertainty measures.
    Keywords: Forecasting; Uncertainty; Factor model; Real-time data; Quantile regression
    JEL: C22 C53
    Date: 2019–12–16
  45. By: Eric Kemp-Benedict (Stockholm Environment Institute (SE))
    Abstract: The economic impact of public health measures to contain the COVID-19 novel coronavirus is a matter of contentious debate. Given the high uncertainties, there is a need for combined epidemiological-macroeconomic scenarios. We present a model in this paper for developing such scenarios. The epidemiological sub-model is a discrete-time matrix implementation of an SEIR model. This approach avoids known problems with the more usual set of continuous-time differential equations. The post-Keynesian macroeconomic sub-model is a stylized representation of the United States economy with three sectors: core, social (most impacted by social distancing), and hospital, which may experience excessive demand. Simulations with the model show the clear superiority of a rigorous testing and contact tracing regime in which infected individuals, symptomatic or not, are isolated. Social distancing leads to an abrupt and deep recession. With expanded unemployment benefits, the drop is shallower. When testing and contact tracing is introduced, social spending can be scaled back and the economy recovers quickly. Ending social distancing without a testing and tracing regime leads to a high death toll and severe economic impacts. Results suggest that social distancing and fiscal stimulus have had their desired effects of reducing the health and economic impacts of the disease.
    Keywords: SARS-CoV-2; coronavirus; COVID-19; macroeconomy; post-Keynesian; SEIR model
    JEL: E00 E11 I18
    Date: 2020–05
  46. By: International Monetary Fund
    Abstract: Thanks to recent reforms, Moldova entered the current crisis with strong fiscal, financial, and external buffers. However, the economic outlook has deteriorated sharply due to the COVID-19 pandemic. GDP is expected to fall by 3 percent due to lower external and domestic demand, aggravated by a significant slowdown in remittances. This, together with negative shocks to confidence and spillovers from global financial channels, has created an urgent balance of payments need. Fiscal, exchange rate, and financing pressures—already significant—are likely to worsen in the coming weeks. On March 11, the Executive Board concluded the 2020 Article IV consultation and completed the final review under the 2016 ECF/EFF arrangements.
    Date: 2020–04–22
  47. By: Henn, Karola; Islam, Chris-Gabriel; Schwind, Patrick; Wieland, Elisabeth
    Abstract: In Germany, package holidays are an important driver of consumer prices. Several challenges arise when measuring the price development of these bundled travel and accommodation services, such as the quality of accommodation and the timing of booking. Statistical practices are currently based on sampling offer prices. By using actual bookings, this paper analyses the possibilities and challenges in compiling a price index out of transaction data for flight package holidays. Our dataset comprises both online bookings and bookings made via stationary travel agencies on a daily basis. The large sample size allows for a disaggregation by individual holiday destination. Several methodological issues such as product definition, the grouping of unstructured text information, and weighting are addressed. Moreover, various index aggregation methods are analysed, which include hedonic regressions, stratification, and also a multilateral index method. Applied to six major holiday destinations for German travellers, all transaction-based methods under consideration exhibit similar price dynamics, pointing to robust results for destinationbased price indicators for package holidays.
    Keywords: Consumer prices,transaction data,hedonic regressions,quality adjustment,multilateral index number methods
    JEL: C14 C43 E31
    Date: 2020
  48. By: Chang Ma; John H. Rogers; Sili Zhou
    Abstract: We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China's overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are economically large, robust, and stronger for firms whose stock return has a higher covariance with the world market return. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.
    Keywords: Capital controls; Global financial cycle; Foreign spillovers; FOMC shocks; China connect; Corporate investment
    JEL: E40 E52 F38 G15
    Date: 2019–12–30
  49. By: Raphael A. Auer; Stijn Claessens
    Abstract: Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains. These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions.
    Keywords: digital currencies, cryptocurrencies, bitcoin, ethereum, distributed ledger technology, regulation, financial markets, event studies
    JEL: E42 E51 F31 G12 G28 G32 G38
    Date: 2020
  50. By: Stefanie Behncke
    Abstract: I analyse the effects of two macroprudential policy measures implemented in Switzerland: the activation of the countercyclical capital buffer (CCyB) and a cap on the loan-to-value (LTV) ratios. I use a difference-in-differences method to estimate the effects of these measures on risk indicators, such as their LTV and loan-to-income (LTI) ratios and mortgage growth rates. I find that both the CCyB and the LTV cap led to a reduction in high LTV mortgages. The banks affected by the CCyB also reduced their mortgage growth rates. I do not find any evidence that these measures had unintended consequences on LTI risks or on non-mortgage credit growth.
    Keywords: Banks, countercyclical capital buffer, financial stability, loan-to-value ratio, macroprudential policy, mortgages
    JEL: E5 G21 G28
    Date: 2020
  51. By: International Monetary Fund
    Abstract: Samoa, with a population of around 0.2 million, suffered from a severe measles outbreak in late-2019 (claimed 83 lives and resulted in over 5,700 cases), which led to a much larger economic contraction than that of past episodes of natural disasters. The global pandemic of COVID-19 has exacerbated the downturn and will devastate the Samoan economy as it heavily depends on now-banned inbound tourism. Staff supports the authorities’ planned policy measures to help the private sector. The Fund’s support for Samoa’s balance of payment (BOP) needs (US$ 22 million or 100 percent of quota) will provide a significant short-term buffer.
    Date: 2020–04–28
  52. By: Jiranyakul, Komain
    Abstract: Using monthly data from 1979M1 to 2019M12, this paper employs the AR(p)-EGARCH model and quantile regression to examine the linkages between inflation and inflation uncertainty in nine Asian countries. The results show that inflation positively causes inflation uncertainty in all economies regardless whether economies are inflation or non-inflation targeting. The Friedman-Ball hypothesis is thus supported. In addition, inflation uncertainty positively causes inflation in most economies. Therefore, the Cukierman-Meltzer likely to be supported. The findings signal the possibility of the real cost of inflation for these economies.
    Keywords: Inflation, inflation uncertainty, GARCH, quantile regression, Asian economies
    JEL: C22 E31
    Date: 2020–04
  53. By: Jean Flemming
    Abstract: Even though workers in the UK spent just 1,000 pounds on commuting in 2017, the economic loss may be far higher because of the congestion externality arising from the way in which one worker's commute affects the commuting time of others. I provide empirical evidence that commuting time affects job acceptance, pointing to large indirect costs of congestion. To interpret the empirical facts and quantify the costs of congestion, I build a model featuring a frictional labor market within a metropolitan area. By endogenizing commuting congestion in a labor search model, the model connects labor market responses to urban policies. Workers evaluate job offers based on their productivity and commuting costs, taking congestion as given, but by accepting and commuting to distant jobs, affect other workers' labor market outcomes. Through this mechanism, equilibrium moving decisions, housing rent, and wages are tightly linked to congestion. Calibrating the model to the local labor market around London, I show that the effect of the congestion externality is to significantly decrease welfare and increase wage inequality. I quantify the effects of a congestion tax on labor market outcomes, and show that the welfare-maximizing tax has substantial negative effects on inequality, but comes at a cost of higher unemployment.
    Keywords: Job search; Wage distribution; Congestion externality; Commuting
    JEL: E24 J32 J62 R13 R41
    Date: 2020–03–27
  54. By: Ademmer, Martin; Jannsen, Nils; Mösle, Saskia
    Abstract: In this paper, we exploit exogenous variation in navigability of the Rhine river to analyze the impact of weather-related supply shocks on economic activity in Germany. Our analysis shows that low water levels lead to transportation disruptions that cause a significant and economically meaningful decrease of economic activity. In a month with 30 days of low water, industrial production in Germany declines by about 1 percent, ceteris paribus. Our analysis highlights the importance of extreme weather events for business cycle analysis and contributes to gauging the costs of extreme weather events in advanced economies. Furthermore, we provide a specific example for an idiosyncratic supply shock to a small sector that amplifies to an economically meaningful effect at the macroeconomic level.
    Keywords: Climate,extreme weather events,low water,supply shocks,business cycle effects
    JEL: E32 Q54
    Date: 2020
  55. By: International Monetary Fund
    Abstract: Economic conditions have deteriorated rapidly as a result of the COVID-19 crisis. GDP in 2020 is projected to decline by 5 percent (a 7½ percentage point reduction relative to pre-crisis) due to plummeting external and domestic demand, aggravated by a significant slowdown in remittances. The fiscal balance in 2020 is expected to drop by 6½ percentage points of GDP, to a deficit of 4½ percent of GDP, and the current account deficit to widen to about 7½ percent of GDP due to a decline in exports and remittances. The strong fiscal position, achieved over the last few years, provides room for a temporarily increased deficit. The projections are subject to an unprecedented high level of uncertainty.
    Date: 2020–04–23
  56. By: Abuselidze, George
    Abstract: In the work it is focused on the determining factor of interbank competition, the level of competitiveness between banks and legislative regulations. They are also studied in the banking system of Baltic states. The purpose of the work is to identify existence of interbank competition, its causing reasons determining and reviewing regulatory ways, as well as identifying the impacts of National Bank regulations and developing recommendations. During the survey, in-depth analysis of the issue, to identify the existing problems and determine the ways of its solution, to comprehend the comparative analysis, conclusions and recommendations, was studied Georgian and EU (including the Baltic countries) public information about commercial banks, regulation documents, internet sources, which are characterized by a high degree of reliability. At the final stage, it was evaluated the existence of competition in the Georgian banking system and determined its stimulating factors.
    Keywords: Central Banks and their policies; Commercial banks; Interbank competition; EU; Georgia
    JEL: E52 E58 G21 G28
    Date: 2019
  57. By: Edouard Schaal; Mathieu Taschereau-Dumouchel
    Abstract: This paper explores whether rational herding can generate endogenous business cycle fluctuations. We embed a tractable model of rational herding into a business-cycle framework. In the model, technological innovations arrive with unknown quality. New innovations are not immediately productive and agents have dispersed information about how productive the technology will be. Investors decide whether to invest in the technology or not based on their private information and the investment behavior of others. Herd-driven boom-bust cycles may arise endogenously in this environment out of a single impulse shock when the technology is unproductive but investors' initial information is optimistic and highly correlated. When the technology appears, investors mistakenly attribute the high observed investment rates to high fundamentals, leading to a pattern of increasing optimism and investment until the economy reaches a peak, followed by a crash as agents ultimately realize their mistake. As such, the theory can shed light on bubble-like episodes in which excessive optimism about uncertain technology fueled general macroeconomic expansions that were followed by sudden recessions. We calibrate the model to the U.S. economy and show that the theory can explain boom-and-bust cycles in line with historical episodes like the Dot-Com Bubble of the late 1990s. Leaning-against-thewind policies can be beneficial in this environment as they improve the diffusion of information over the cycle.
    Keywords: endogenous business cycles, information cascade, social learning, imperfect information, boom-and-bust
    JEL: E32 D80
    Date: 2020–01
  58. By: Stefano Di Bucchianico
    Abstract: In this paper we present a Classical-Keynesian viewpoint on financialization by using Garegnani’s ‘integrated wage-commodity sector’ method. We focus on three aspects. First, we argue that financial instruments such as derivatives have played the role of ‘luxury’ goods, unnecessary and/or detrimental to the direct and indirect production of the wage-basket. Second, we show that the accumulation of household debt can result in a higher normal rate of profit. Third, there is scope to reconsider the connection between financialization and labour market institutions, which makes labour bargaining strength wane. Labour market relationships need not be strictly tied to financialization.
    Keywords: financialization, household debt, labour market, rate of profit, financial markets
    JEL: B51 E44 F65
    Date: 2020–04
  59. By: Christian A. Moser; Pierre Yared
    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.
    JEL: E61 H12 I18
    Date: 2020–04
  60. By: Anna Kovner
    Abstract: Panel Remarks at The Fed and Main Street during the Coronavirus Pandemic, WebEx event, April 23, 2020.
    Keywords: Municipal Liquidity Facility; Main Street Lending Program; households; Term Asset-Backed Securities Loan Facility (TALF); small business; Paycheck Protection Program Liquidity Facility (PPPLF); liquidity; COVID-19; fiscal policy; PPP loans
    Date: 2020–04–23
  61. By: Victoria Ivashina; Luc Laeven; Enrique Moral-Benito
    Abstract: Using credit-registry data for Spain and Peru, we document that four main types of commercial credit—asset-based loans, cash-flow loans, trade finance and leasing—are easily identifiable and represent the bulk of corporate credit. We show that credit dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banks’ balance sheets are primarily driven by cash-flow loans, whereas asset-based credit is mostly insensitive to these types of effects.
    JEL: E0 G21
    Date: 2020–04
  62. By: Yongsung Chang; Jay. H. Hong; Marios Karabarbounis; Yicheng Wang
    Abstract: Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial portfolios around structural breaks in income volatility. When the standard deviation of labor-income growth doubles, the share of risky assets decreases by 4 percentage points. We ask whether this estimated marginal effect is consistent with a standard model of portfolio choice with idiosyncratic volatility shocks. The standard model generates a much more aggressive portfolio response than we see in the data. We show that Bayesian learning about the underlying volatility regime can reconcile the gap between the model and the data.
    Keywords: Income Volatility; Portfolio Choice; Risky Share; Bayesian Learning;
    JEL: E2 G1 J3
    Date: 2020–03
  63. By: Fokin, Nikita (Фокин, Никита) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: In this paper, a Bayesian error correction model is proposed based on which the change in the trajectory of adaptation of the real ruble exchange rate to equilibrium in response to oil shock after changing the monetary policy regime is estimated. At the end of 2014, the Bank of Russia switched to the inflation targeting regime released the ruble into free float. Against the backdrop of rapidly falling oil prices, the nominal exchange rate devalued by about 2 times. In 2017, the Ministry of Finance introduced a budget rule, according to which, with oil prices above $ 40 dollars in 2017 prices, the currency is purchased for the excess profits, thereby affecting the nominal ruble exchange rate. Given that since 2017, oil prices have not fallen below the threshold level, the budget rule permanently affected the ruble exchange rate. Thus, the current monetary policy regime is not a free exchange rate regime, but a quasi-free or quasi-fixed rate regime. In this paper, the task is to assess how the current regime of the monetary policy affected the reaction of the real ruble exchange rate to the shock of oil prices over the past 5 years.
    Keywords: real ruble exchange rate, monetary policy, Bayesian methods
    Date: 2020–03
  64. By: International Monetary Fund
    Abstract: The Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on March 24, 2020. The staff report reflects discussions with the Panamanian authorities during February 4–17, 2020 and is based on the information available as of February 21, 2020. It focuses on Panama’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Panama and globally.
    Date: 2020–04–21
  65. By: International Monetary Fund
    Abstract: North Macedonia’s economic outlook has deteriorated substantially due the COVID-19 pandemic. Real GDP is expected to decline by 4 percent due to a fall in both domestic and external demand. This, together with negative shocks to confidence and spillovers from global financial channels, has created an urgent balance of payments need. The elections planned for April 2020 have been postponed, implying that the caretaker government will remain in place for the next months. The Executive Board concluded the 2019 Article IV consultation on a lapse-of-time basis on January 22.
    Date: 2020–04–21
  66. By: Maurizio Iacopetta (SKEMA Business School and OFCE Sciences Po); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University)
    Abstract: New firms are often based on ideas that the founders developed while working for incumbent firms. We study the macroeconomic effects of spinoffs through a growth model of product variety expansion, driven by firm entry, and product innovation. Spinoffs stem from conflicts of interest between incumbent firms' shareholders and employees. The analysis suggests that incumbents invest more in product innovation when knowledge protection is stronger. An inverted-U shape relationship emerges, however, between the intensity of spinoff activities and the strength of the rule of law. A calibration experiment indicates that, with a good rule of law, loosening knowledge protection by 5\% reduces product innovation by one fifth in the short run and one seventh in the long run, but boosts the spinoff rate by one tenth and one sixth in the short and long run, respectively. Nevertheless, per capita income growth drops and welfare deteriorates. The trade-offs are broadly consistent with evidence from Italian firm.
    Keywords: Corporate governance, Endogenous growth, Spinoffs
    JEL: E44 O40 G30
    Date: 2020–04
  67. By: International Monetary Fund
    Abstract: The outbreak of COVID-19 and concurrent collapse in oil prices are having a severe economic and social impact on Chad and could jeopardize the gains achieved under the current Extended Credit Facility (ECF) arrangement. By end-March, several cases of Covid-19 had been reported. Chad has a weak and seriously under-resourced healthcare system. Economic activity has slowed down and large fiscal and external financing needs have emerged.
    Date: 2020–04–23
  68. By: Casey B. Mulligan
    Abstract: The “shutdown” economy of April 2020 is compared to a normally functioning economy both in terms of market and nonmarket activities. Three novel methods and data indicate that the shutdown puts market production 25-28 percent below normal in the short run. At an annual rate, the shutdown is costing $7 trillion, or about $15,000 per household per quarter. Employment already fell 28 million by early April 2020. These costs indicate, among other things, the value of innovation in both health and general business sectors that can accelerate the time when normal activity resumes.
    JEL: E01 I18 O31
    Date: 2020–04
  69. By: Richard Blundell (University College London and Institute for Fiscal Studies); Ran Gu (University of Essex and Institute for Fiscal Studies); Soeren Leth-Petersen (CEBI, Department of Economics, University of Copenhagen); Hamish Low (University of Oxford and Institute for Fiscal Studies); Costas Meghir (Yale University, NBER and Institute for Fiscal Studies)
    Abstract: We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.
    Keywords: Lemons penalty, car market, estimated life-cycle equilibrium model
    JEL: D82 E21
    Date: 2019–09–12
  70. By: Tan Schelling; Pascal Towbin
    Abstract: In a negative interest rate environment, banks have generally proved reluctant to pass on negative interest rates to their retail depositors. Thus, banks that are more dependent on deposit funding face higher funding costs relative to other banks. This raises questions about the effect of negative interest rates on bank lending and monetary policy transmission. To study the transmission of negative interest rates, we use an unexpected policy decision by the Swiss National Bank in combination with a comprehensive and granular micro data set on individual Swiss corporate loans. We find that banks relying more heavily on deposit funding take more risks and offer looser lending terms than other banks. This result is consistent with the risk-taking channel, where a lower policy rate spurs bank risk-taking to maintain profits.
    Keywords: Negative interest rates, bank lending, deposit funding, monetary transmission
    JEL: G21 G28 E58
    Date: 2020
  71. By: Masahiro Yamada; Takatoshi Ito
    Abstract: We examine whether the forex market quality, measured by the speed of price discovery and liquidity recovery after macro statistics announcements, has improved using the EBS high-frequency data for 20 years. Considering the recent rise of computer-based trading, a popular conjecture is that the market quality has improved. Our empirical analysis, however, suggests that an improving trend is only observed in price discovery. Moreover, two measures are negatively correlated because an increasing number of traders improves liquidity but slows down price discovery. Theoretically, the latter finding implies that “fast” traders have a poor interpretation of how the news will impact prices.
    JEL: E44 F31 G14 G15
    Date: 2020–04
  72. By: Thomas von Brasch; Ådne Cappelen; Håvard Hungnes; Terje Skjerpen (Statistics Norway)
    Abstract: We study the role of R&D spillovers when modelling total factor productivity (TFP) by industry. Using Norwegian industry level data, we find that for many industries there are significant spillovers from both domestic sources and from technological change at the international frontier. International spillovers contributed with 38 per cent to the total growth in TFP from 1982 to 2018 while domestic channels contributed with 44 per cent. The remaining 18 per cent is due to interaction effects. We include these channels into a large-scale econometric model of the Norwegian economy to study how R&D policies can promote economic growth. We find that current R&D policies in the form of generous tax deductions have increased growth in productivity and income in the Norwegian economy. The simulation results lend some support to the view that there are fiscal policy instruments that may have very large multipliers, even in the case of a fully financed policy change.
    Keywords: R&D spillovers; total factor productivity; innovation policies
    JEL: C32 C51 D24 E17 O32
    Date: 2020–04
  73. By: International Monetary Fund
    Abstract: On March 23, 2020, the Executive Board of the IMF approved a 39-month Extended Credit Facility (ECF) arrangement for The Gambia in the amount of SDR 35.0 million (equivalent to 56.3 percent of quota). Faced with the COVID-19 pandemic, the authorities’ initial policy response has focused on public health preparedness and containment. Staff has lowered the 2020 real GDP growth projection for The Gambia from 6.3 percent to 2.5 percent, although this assessment is subject to elevated downside risks.
    Date: 2020–04–23
  74. By: Ettore Gallo (Department of Economics, New School for Social Research); Gustavo Pereira Serra (Department of Economics, New School for Social Research)
    Abstract: The recent debate in Post-Keynesian theories of investment has mainly focused on the endogenous nature of the degree of capacity utilization, overlooking Steindl’s and Minsky’s insights on the role of inventories and debt financing in shaping investment decisions. In order to fill this gap, this paper develops a Steindl-Minsky SFC model by including inventories, as well as firm’s deposits and debt financing into the investment function. The role of investment decisions in shaping economic growth is assessed by considering a model populated by five types of economic actors: workers, firms, rentiers, commercial banks and the central bank. First, business cycle fluctuations are investigated assuming a deterministic steady growth path in the long period, in line with recent developments in heterodox growth theory. Second, we simulate the model, calibrating it for the US economy.
    Date: 2020–05
  75. By: Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)
    Abstract: Using new transaction data, I find considerable deviations from consumption smoothing in response to large, regular, predetermined, and salient payments from the Alaska Permanent Fund. On average, the marginal propensity to consume (MPC) is 25% for nondurables and services within one quarter of the payments. The MPC is heterogeneous, monotonically increasing with income, and the average is largely driven by high-income households with substantial amounts of liquid assets, who have MPCs above 50%. The account-level data and the properties of the payments rule out most previous explanations of excess sensitivity, including buffer stock models and rational inattention. How big are these "mistakes"? Using a sufficient statistics approach, I show that the welfare loss from excess sensitivity depends on the MPC and the relative payment size as a fraction of income. Since the lump-sum payments do not depend on income, the two statistics are negatively correlated such that the welfare losses are similar across households and small (less than 0.1% of wealth), despite the large MPCs.
    Keywords: consumption excess sensitivity, MPC heterogeneity, welfare loss
    JEL: D12 E21 G11
    Date: 2020–04
  76. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is severely impacting economic activity. The sharp fall in international oil prices and reduced global demand for Nigeria’s oil products are worsening the fiscal and external positions, as Nigeria’s oil and gas exports (84 percent of total exports) are expected to fall by more than $26½ billion. The economy is projected to contract by almost 3½ percent in 2020, a six-percentage point drop relative to pre-COVID-19 projections. The already high downside risks—particularly from sharper and protracted falls in oil prices, a declining oil production from future OPEC caps or inability to sell oil cargoes, and more protracted disruptions to economic activity due to a more expansive effect of the pandemic—have heightened.
    Date: 2020–04–29
  77. By: Adeola F. Adenikinju; Niyi Falobi (Department of Economics and Centre for Econometric and Allied Research University of Ibadan Ibadan, Nigeria)
    Abstract: In spite of its vast oil endowments, Nigeria continues to experience sporadic domestic oil supply shortages. These oil shortages manifest in regular queues at fuel stations that are often empty and in thriving parallel markets that sprout all over the country. The shortages have resulted in huge economic and non-economic costs to the economy. Thisstudy investigates the causes of the shortages and provides quantitative estimates of theeconomic costs to the Nigerian economy using a survey and a computable general equilibrium (CGE) model. The findings from this study show very clearly that oil sector supply shocks are costly both directly and indirectly. Oil supply shocks result in lower real GDP, higher average prices and greater balance of payment deficits. Other macroeconomic variables such as private consumption, investment, government revenueand employment also decline. In addition, the distributional impact of the quantitative energy supply shocks is higher for poor households than rich households. We also findthat the sectoral impacts are mixed, often depending on the oil intensity of the sector. Finally, our survey results show that many economic agents on the demand side arewilling to pay higher prices if that will guarantee a stable oil supply. Few players in the market chain benefit from supply disruptions, while consumers and the poor bear themain burden of these shocks.
  78. By: Bhaduri, Amit
    Abstract: The debate about how to reconcile political with economic democracy is translated in the framework of wage- and profit-led growth in this paper. The inherent tension between providing sufficient profit incentive to motivate investment by the capitalist class and maintaining electoral accountability to the economically less privileged majority is examined through an analysis of policies towards raising the social wage. The paper shows how wider circumstances characterising a regime as wage- or profit-led is of consequence for determining the possibility of combining a higher profit share with a higher social wage through the effectiveness of such policies.
    Keywords: Profit and wage led,social wage,investment,disinvestment,ideology
    JEL: E11 E12 H30 P16 H40
    Date: 2020
  79. By: Jeff W. Huther; Luke Pettit; Mark Wilkinson
    Abstract: In this note, we explain what changed in terms of fiscal flows into and out of the U.S. Treasury’s account and describe implications for monetary policy.
    Date: 2019–12–16
  80. By: Messori, Marcello
    Abstract: The initiatives taken by the ECB in mid-March 2020 flatten the structure of interest rates and ensure short-term sustainability for the EMU countries with high government debt/GDP ratios. But the challenges posed by the pandemic require a huge amount of public spending and therefore threaten this sustainability in the long term. This paper proposes ‘contractual arrangements’ between high-debt countries and European institutions, namely the Commission and the ESM as financial donor, which transfer grants (a ‘gift’) to high-debt countries to cover the national public expenditures resulting from the impact of the pandemic. In exchange, the beneficiary countries would share the design and implementation of these public expenditures with the European institutions, thereby giving up a portion of their fiscal sovereignty.
    Date: 2020–04
  81. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; 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 8th, 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. Early retirement almost fully explains the drop in labor force participation both for those survey participants previously employed and those previously looking for work.
    Keywords: labor market, unemployment, employment, covid-19
    JEL: E31 C83 D84 J21 J26
    Date: 2020
  82. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
    Keywords: Productivity, digitalisation, ICT, intangible capital, FDI, capital accumulation, global value chains
    JEL: F14 F15 F21 E22 O47
    Date: 2020–04
  83. By: Christopher Roth (Department of Economics, University of Warwick); Sonja Settele (CEBI, Department of Economics, University of Copenhagen); Johannes Wohlfart (CEBI, Department of Economics, University of Copenhagen)
    Abstract: We examine how beliefs about the debt-to-GDP ratio affect people's attitudes towards government spending and taxation. Using representative samples of the US population, we run a series of experiments in which we provide half of our respondents with information about the debt-to-GDP ratio in the US. Based on a total of more than 4,000 respondents, we find that most people underestimate the debt-to-GDP ratio and reduce their support for government spending once they learn about the actual amount of debt, but do not substantially alter their attitudes towards taxation. The treatment effects seem to operate through changes in expectations about fiscal sustainability and persist in a four-week follow-up.
    Keywords: Government Debt, Political Attitudes, Beliefs, Expectations, Information
    JEL: P16 E60 Z13
    Date: 2020–01–30
  84. By: International Monetary Fund
    Abstract: The Covid-19 pandemic is having a dramatic human, economic, and social impact on Mauritania. The short-term economic outlook has weakened rapidly owing to the sharp deterioration in global conditions and the impact of domestic containment measures. Growth is expected to turn negative this year, with severe hardships on the population. Risks are tilted to the downside given the possibility of a more extensive global and domestic Covid-19 outbreak, a much steeper economic decline this year, and more gradual recovery thereafter.
    Date: 2020–04–29
  85. By: Pelizzon, Loriana; Riedel, Max; Simon, Zorka; Subrahmanyam, Marti G.
    Abstract: We study how the Eurosystem Collateral Framework for corporate bonds helps the European Central Bank (ECB) fulfill its policy mandate. Using the ECBs eligibility list, we identify the first inclusion date of both bonds and issuers. We find that due to the increased supply and demand for pledgeable collateral following eligibility, (i) securities lending market trading activity increases, (ii) eligible bonds have lower yields, and (iii) the liquidity of newly-issued bonds declines, whereas the liquidity of older bonds is una↵ected/improves. Corporate bond lending relaxes the constraint of limited collateral supply, thereby making the market more cohesive and complete. Following eligibility, bond-issuing firms reduce bank debt and expand corporate bond issuance, thus increasing overall debt size and extending maturity.
    Keywords: Collateral Policy,ECB,Corporate Bonds,Corporate Debt Structure,Eligibility premium
    JEL: G12 G14 G32 E58
    Date: 2020
  86. By: Martin Brown; Nicole Hentschel; Hannes Mettler; Helmut Stix
    Keywords: Financial innovation, cash, money demand, payment choice, pre-analysis plan
    JEL: E41 G20 O33 D14
    Date: 2020–04
  87. By: International Monetary Fund
    Abstract: Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on January 24, 2020. The staff report reflects discussions with the Haiti authorities in November 2019 and is based on the information available as of December 20, 2019. It focuses on Haiti near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Haiti and globally.
    Date: 2020–04–20
  88. By: Siebert, Jan
    Abstract: Poor people have, on average, a higher marginal propensity to consume. One (out of many) possible explanations for this is that poverty affects impatience. This would have important implications for monetary and fiscal policy. While some macroeconomists simply assume lower individual discount factors for poorer households, little is known about this phenomenon from a behavioural point of view. This paper presents a laboratory experiment to test whether the poor show more impatient behaviour. In the experiment, half of the participants gets a high participation fee, while the other half gets a low participation fee. All participants perform an intertemporal multiple price list task. The participation fee has a significant effect. Surprisingly, participants with a lower participation fee are less impatient.
    Keywords: Intertemporal preferences,patience,saving,consumption,experiments
    JEL: C9 D9 E2
    Date: 2020
  89. By: Nikolova, Milena; Nikolaev, Boris; Popova, Olga
    Abstract: We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimation. Our findings suggest that while transitioning from self-employment to salaried employment (i.e., a voluntary self-employment exit) brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job (i.e., switching from salaried employment to unemployment). Meanwhile, leaving self-employment has no consequences for selfreported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are largely psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even two or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the costs of business failure.
    Keywords: entrepreneurship,self-employment,health,well-being,unemployment,job switches
    JEL: E24 I10 I31 J28 L26
    Date: 2020
  90. By: Rückert, Désirée; Veugelers, Reinhilde; Weiss, Christoph
    Abstract: Using a new survey on digitalisation activities of firms in the EU and the US, we identify digitalisation profiles based on the current use of digital technologies and future investment plans in digitalisation. Our analysis confirms the trend toward digital polarisation and a growing digital divide in the corporate landscape with, on one side, many firms that are not digitally active, and on the other side, a substantial number of digitally active firms forging ahead. Old small firms, with less than 50 employees and more than 10 years old, are significantly more likely to be persistently digitally non-active. We show that these persistently non-digital firms are less likely to be innovative, increase employment or command higher mark-ups. These trends are likely to exacerbate the digital divide across firms in the EU and the US.
    Keywords: digital technology,investment,firm performance
    JEL: D22 E22 L25
    Date: 2020
  91. By: Kajuth, Florian
    Abstract: This paper analyses the behaviour of prices and supply on the German housing market taking into account the interaction between prices and quantities. A novel price index for residential property prices covering the whole country going back to 1993 is used in a macroeconomic model to estimate key housing market elasticities for Germany. A decomposition suggests that the land price component of house prices is relatively elastic with respect to income and interest rates, while the construction price component responds to income and the level of construction activity. The decomposition also highlights countervailing house price effects of a supply increase: A dampening effect via land prices and a stimulating effect via construction prices.
    Keywords: Residential property prices,residential investment,housing market cycle
    JEL: R21 R31 E32
    Date: 2020
  92. By: Zarei, Samira
    Abstract: While the petrochemical products and their revenues have been the most important part of Iranian non-oil exports, after imposing the international sanctions on Iran’s economy, these revenues, reflected in the petrochemical stock index, have fluctuated. In line with this, the effects of some main macroeconomic variables on the petrochemical stock index have become more crucial than before. Among the macroeconomic variables, inflation and exchange rate are the most effective. Hence, To investigate whether the exchange rate misalignments and inflation are significant indicators of changes in the petrochemical stock index, this paper has been applied the time series data from January 2012 to January 2020 and an asymmetric and non-linear framework, NARDL. The empirical results in addition to prove the existence of asymmetric and significant relationships between the research variables, confirm that the impacts of negative components of exchange rate misalignments and, conversely, positive components of inflation have been stronger than the effects of their decomposed counterparts both in the long run and short run.
    Keywords: Petrochemical Stock Index, Exchange Rate Mis-alignments, Inflation, NARDL Model
    JEL: C22 E31 F31 G11 G17
    Date: 2020–02
  93. By: Knetsch, Thomas A.
    Abstract: The compilation of commercial property price indices is a big challenge. In Germany, substantive data gaps prevent the calculation of official figures by the national statistical authority. By contrast, policymakers urge for timely, reliable and comprehensive data. In this paper, proposals are made as to how to aggregate and classify individual price information in order to best serve the intended policy uses. Experimental price indices according to various definitions of commercial real estate are constructed on the basis of two components: (i) the appraisals for transaction prices of houses, apartments, multi-family dwellings, office buildings and retail space in 127 German towns and cities provided by bulwiengesa, a real estate consulting company; and (ii) corresponding data on floor space which make it possible to derive coherent weighting schemes. The overall price developments revealed by the various indices are rather similar in terms of central time series characteristics, while differences in detail can be explained by their specific compositions. Analysts may find these indices helpful to better understand price developments in German commercial real estate markets. Statisticians may acquire from this exercise further knowledge about measurement practices, as official statistics are encouraged to take steps towards establishing thorough reporting on commercial real estate markets.
    Keywords: Commercial property price indices,private data,stock weighting,policy use
    JEL: C43 E31 R33
    Date: 2020
  94. By: Sudha Narayanan (Indira Gandhi Institute of Development Research); Shree Saha (Indira Gandhi Institute of Development Research)
    Abstract: On March 24, 2020, the Government of India announced a 21-day national lockdown that has since been extended to May 3, 2020. The lockdown has left urban food markets in disarray with severe supply bottlenecks and restrictions on doing business. At a time when food prices in India were declining consistently, supply disruptions consequent to the lockdown have reversed the trend. Based on an analysis of publicly available data on wholesale and retail prices for 22 commodities from 114 Centres, we find that prices have increased since the lockdown and show no signs of reverting to the pre-lockdown levels as of April 21, 2020. Average price increases are to the tune of over 6 for several pulses, over 3.5 for most edible oils, 15 for potato 28 for tomato in the 28 days post- lockdown compared to prices during the month preceding the lockdown. We also find that smaller cities have seen a much higher increase in prices with at least a few cities seeing a rise in retail food prices by as much as 20. A survey of 50 food retailers in 14 cities reveal serious operational challenges associated with sourcing supplies, transportation and police harassment. At the same time, several innovative arrangements have evolved as well. The paper reviews these briefly and outlines some policy concerns.
    Keywords: urban food system, retail, wholesale, prices, agrifood supply chain, India
    JEL: D12 E31 Q11
    Date: 2020–04
  95. By: Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)
    Abstract: How predictable are personal income tax rates in the U.S., and does household spending respond to news about future taxes even before the rates change? To answer these questions, this paper uses novel historical high-frequency data of tax-exempt municipal bonds and develops a model of the term structure of municipal yield spreads to taxable bonds as a function of future top income tax rates and a risk premium. Testing the model using the presidential elections of 1980, 1992 and 2000 shows that financial markets forecast future tax reforms remarkably well in both the short and long run. Combining these market-based tax expectations or "tax news shocks'' with data from the Consumer Expenditure Survey shows strong evidence of anticipation effects to future tax changes among higher-income consumers, well before the tax rates change. Consumer spending changes about one-for-one with changes in expected lifetime tax liabilities. These findings imply that ignoring anticipation effects can substantially bias estimates of the total effect of a tax change.
    Keywords: expected taxes, municipal yields, household consumption
    JEL: E21 G12 H31
    Date: 2020–04
  96. By: Jonathan S. Hartley; Urban Jermann
    Abstract: Since January 2014 the U.S. Treasury has been issuing floating rate notes (FRNs). We estimate that the U.S. FRNs have been paying excess interest between 5 and 39 basis points above the implied cost for other Treasury securities. We find a strong positive relation between our estimated excess spreads on FRNs and the subsequent realized excess returns of FRNs over related T-bill investment strategies. With more than 300 billion dollars of FRNs outstanding, the yearly excess borrowing costs are estimated to be several hundreds of millions of dollars. To rationalize this finding, we examine the role of FRNs from the perspective of optimal government debt management to smooth taxes. In the model, bills can be cheaper to issue than FRNs, and the payoffs for FRNs are perfectly correlated with future short rates. FRNs can be used to manage the refinancing risk from rolling over short-term debt. We derive conditions under which the issuance of FRNs can optimally be positive.
    JEL: E4 G12 H63
    Date: 2020–04
  97. By: Gagnon, Nickolas (RS: GSBE other - not theme-related research, General Economics 1 (Micro)); Bosmans, Kristof (RS: GSBE Theme Human Decisions and Policy Design, General Economics 1 (Micro)); Riedl, Arno (RS: GSBE Theme Human Decisions and Policy Design, General Economics 1 (Micro))
    Abstract: Labor market opportunities and wages may be unfair for various reasons, and how workers respond to different types of unfairness can have major economic consequences. Using an online labor platform, where workers engage in an individual task for a piece-rate wage, we investigate the causal effect of neutral and gender-discriminatory unfair chances on labor supply. We randomize workers into treatments where we control relative pay and chances to receive a low or a high wage. Chances can be fair, unfair based on an unspecified source, or unfair based on gender discrimination. Unequal pay reduces labor supply of low-wage workers, irrespective of whether the low wage is the result of fair or unfair chances. Importantly, the source of unfair chances matters. When a low wage is the result of gender-discriminatory chances, workers matched with a high-wage worker substantially reduce their labor supply compared to the case of equal low wages (−22%). This decrease is twice as large as those induced by low wages due to fair chances or unfair chances coming from an unspecified source. In addition, exploratory analysis suggests that in response to unequal pay, low-wage male workers reduce labor supply irrespective of the source of inequality, whereas low-wage female workers reduce labor supply only if unequal pay is due to gender-discriminatory chances. Our results concerning gender discrimination indicate a new reason for the lower labor supply of women, which is a prominent explanation for the gender gap in earnings.
    JEL: D90 E24 J22 J31 J71 M50
    Date: 2020–02–20
  98. By: Thomas Epper (University of St.Gallen, School of Economics and Political Science); Ernst Fehr (University of Zurich, Department of Economics); Helga Fehr-Duda (University of Zurich, Department of Banking and Finance); Claus Thustrup Kreiner (CEBI, Department of Economics, University of Copenhagen); David Dreyer Lassen (CEBI, Department of Economics, University of Copenhagen); Soeren Leth-Petersen (CEBI, Department of Economics, University of Copenhagen); Gregers Nytoft Rasmussen (CEBI, Department of Economics, University of Copenhagen)
    Abstract: This paper documents a large association between individuals� time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish high-quality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory.
    Keywords: Wealth inequality, savings behavior, time discounting, experimental methods, administrative data
    JEL: C91 D31 E21
    Date: 2019–10–07
  99. By: Mario Crucini (Vanderbilt University); Christopher Telmer (Carnegie Mellon University)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2020
  100. By: Zahra Murad (University of Portsmouth); Robert Dowell (Funding Circle)
    Abstract: We study whether reservation wages of native workers are affected by the information about visa salary requirements for foreign workers. We conduct two experiments to test the hypothesis, a survey experiment on university students and an incentivized experiment with workers on an online labour platform. We find that native workers’ reservation wages are higher when exposed to a high than low visa salary requirement for foreign workers. We test for several mechanisms behind this finding. Our results can partly be explained by the visa salary requirement information acting as an anchor reference point for fair wage perceptions which in turn affects reservation wages. Our results highlight the importance of unintended consequences of immigration policies on local labour markets.
    Keywords: reservation wages, fair wages, visa salary requirement, immigration policy, experiment
    JEL: C90 E24 C83
    Date: 2020–04–30
  101. By: Orazio P. Attanasio (University College London, Department of Economics, Institute for Fiscal Studies and NBER); Torben Heien Nielsen (CEBI, Department of Economics, University of Copenhagen)
    Abstract: Using full-population register data from Denmark, this study shows that estimates of the economic gradient in mortality depends on the specific measure of economic resources used, where we investigate permanent income, annual income or financial and housing wealth. Our favorite measure is what we call �Permanent income�, that is the average level of income over a long interval. We find that when using annual income or current wealth, the gradient is overestimated, unless one controls for a number of additional variables, such as education, civil status and initial health. In the last part of the paper, we compare the results from Denmark to results from the UK. Although the countries are very different in terms of inequality, the estimates of the gradient we find are very similar, suggesting that differential levels of resources (including information), rather than inequality itself, determine the gradient in survival and mortality.
    Keywords: Mortality, Permanent Income, Economic resources and Inequality
    JEL: P16 E60 Z13
    Date: 2020–01–13
  102. By: Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
    Abstract: We study the determinants of factor shares in a neoclassical environment with capital- skill complementarity and endogenous education. When more physical capital raises the marginal product of skills relative to that of raw labor, an increase in a broad measure of embodied human capital raises the capital share in national income for any given rental rate. When education is chosen optimally, a dynamic equilibrium is characterized by an inverse relationship between the level of human capital and both the rental rate on capital and the difference between the interest rate and the growth rate of wages. As a consequence, estimates of the elasticity of substitution that fail to account for levels of human capital will be biased upward. We develop a model with overlapping generations, ongoing increases in educational attainment, and technology-driven neoclassical growth, and show that for a class of production functions with capital-skill complementarity, a balanced growth path exists and is characterized by an inverse relationship between the rates of capital- and labor-augmenting technological progress and the capital share in national income.
    JEL: E25
    Date: 2020–04
  103. By: Donsimoni, Jean Roch (University of Mainz); Glawion, René (University of Hamburg); Plachter, Bodo (University of Mainz); Weiser, Constantin (University of Mainz); Wälde, Klaus (University of 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 in 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: COVID-19, SARS-CoV-2, forecast Germany, epidemic, pandemic
    JEL: I18 E17 C63
    Date: 2020–04
  104. By: Wolfgang Britz (University of Bonn); Yaghoob Jafari (University of Bonn); Alexandr Nekhay (Loyola Andalusia University, Seville); Roberto Roson (Department of Economics, University Of Venice Cà Foscari; Loyola Andalusia University, Seville; GREEN Bocconi University, Milan)
    Abstract: This paper presents an empirical exercise, aimed at investigating the implications on poverty and income distribution of a reference scenario (SSP2) of economic development. It does so by coupling a dynamic general equilibrium model of the global economy, specifically designed to capture structural change dynamics in the medium and long run, with detailed micro data on household income in six countries: Albania, Bolivia, Ethiopia, Malawi, Nicaragua and Vietnam. We also consider an alternative scenario of accelerated international trade integration, with a higher degree of trade openness. We found that long run structural change widens income inequality in all six developing countries. Accelerated trade integration amplifies the effect further, but most of it is already generated in the baseline scenario. A decrease in the relative value of land property and an increase in the relative value of capital ownership appear as key determinants. We decompose income differentials in three dimensions. Structural change worsens the income gap between male and female headed households, but the additional impact of trade is minimal. The effect of structural change is not uniform across countries when income of rural households is contrasted with the one of urban households, yet more trade reduces the relative rural income. Relative poverty increases in both the baseline and the larger trade volume case. However, we found that absolute poverty would be eradicated in almost all countries by the year 2050.
    Keywords: Shared socioeconomic pathways, dynamic computable general equilibrium models, structural change, development scenarios, Albania, Bolivia, Ethiopia, Malawi, Nicaragua, Vietnam, income inequality, microsimulation, poverty
    JEL: C68 E17 F17 I32 O11 O15 O41
    Date: 2020
  105. By: Jean Roch Donsimoni (Johannes Gutenberg University Mainz); Tobias Hartl (University of Regensburg); René Glawion (Hamburg University); Jens Timmer (University of Freiburg); Bodo Plachter (Johannes Gutenberg University Mainz); Constantin Weiser (Johannes Gutenberg University Mainz); Enzo Weber (Bundesagentur für Arbeit); Klaus Wälde (Johannes Gutenberg University Mainz)
    Abstract: Die Autoren erklären den bisherigen Verlauf von Covid-19 in Deutschland durch Regressionsanalysen und epidemiologische Modelle. Sie beschreiben und quantifizieren den Effekt der gesundheitspolitischen Maßnahmen (GPM), die bis zum 19. April in Kraft waren. Sie berechnen den erwarteten Verlauf der Covid-19-Epidemie in Deutschland, wenn es diese Maßnahmen nicht gegeben hätte, und zeigen, dass die GPM einen erheblichen Beitrag zur Reduktion der Infektionszahlen geleistet haben. Die seit 20. April gelockerten GPM sind zwischen den Bundesländern relativ heterogen, was ein Glücksfall für die Wissenschaft ist. Mittels einer Analyse dieser Heterogenität kann aufgedeckt werden, welche Maßnahmen für eine Bekämpfung einer eventuellen zweiten Infektionswelle besonders hilfreich und besonders schädlich sind.
    Keywords: Covid-19, SARS-CoV-2, Corona-Epidemie Deutschland, Prognose, Strukturbruchanalyse, epidemiologische Modelle
    JEL: I18 E17 C63 C22
    Date: 2020–04–27
  106. By: Ötsch, Walter
    Abstract: The paper addresses the following questions: what type of crisis is this? How can we put the events together in our minds so that we have a coherent, complete picture of the crisis? How can we put this crisis in its historical context and what are the consequences for the future of our society? The paper consists of three parts: (1) a background to the crisis, esp. economic facts, (2) an interpretation of the crisis and (3) an outlook to the future and potential scenarios for how society will react to the crisis.
    Keywords: Corona crisis,scenarions,society,Neoliberalism,market fundamentalism
    JEL: A11 B25 E65 F02 F60 H10 I18 N01 P16 Z13
    Date: 2020

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