nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒05‒18
111 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Effects of credit restrictions in the Netherlands and lessons for macroprudential policy By Gabriele Galati; Jan Kakes; Richhild Moessner
  2. Are flexible working hours helpful in stabilizing unemployment? By Marcin Kolasa; Michał Rubaszek; Małgorzata Walerych
  3. Words and deeds in managing expectations: empirical evidence on an inflation targeting economy By Paweł Baranowski; Wirginia Doryń; Tomasz Łyziak; Ewa Stanisławska
  4. Quantifying Goodwin Growth Cycles with Minimum Wage Shares By Sasaki, Hiroaki; Asada, Yasukuni
  5. Monetary Policy, Self-Fulfilling Expectations and the U.S. Business Cycle By Giovanni Nicolo
  6. The Inflation Target and the Equilibrium Real Rate By Christopher D. Cotton
  7. Dynamic Effects of Monetary Policy Shocks on Macroeconomic Volatility in the United Kingdom By Afees A. Salisu; Rangan Gupta
  8. Can Pandemic-Induced Job Uncertainty Stimulate Automation? By Sylvain Leduc; Zheng Liu
  9. Time-Varying Impact of Monetary Policy Shocks on U.S. Stock Returns: The Role of Investor Sentiment By Oguzhan Cepni; Rangan Gupta
  10. Identifying the Phillips Curve in Georgia By Lasha Arevadze; Tamta Sopromadze; Giorgi Tsutskiridze; Shalva Mkhatrishvili
  11. Do ECB introductory statements help to predict monetary policy: evidence from tone analysis By Paweł Baranowski; Hamza Bennani; Wirginia Doryń
  12. Is housing collateral important to the business cycle? Evidence from China By Minford, Patrick; Gai, Yue; Ou, Zhirong
  13. Productivity News, Wages, and Labor Market Fluctuations By Chahrour, Ryan; Chugh, Sanjay K.; Potter, Tristan
  14. Does Low Inflation Pose a Risk to Economic Growth and Central Banks Reputation? By Marek Dabrowski
  15. The Macroeconomics of Automation: Data, Theory, and Policy Analysis By Nir Jaimovich; Itay Saporta-Eksten; Henry E. Siu; Yaniv Yedid-Levi
  16. Is Central Bank Currency Fundamental to the Monetary System? By Hanna Armelius; Carl Andreas Claussen; Scott Hendry
  17. On the instability of banking and other financial intermediation By Chao Gu; Cyril Monnet; Ed Nosal; Randall Wright
  18. The Phillips Curve at the ECB By Eser, Fabian; Karadi, Peter; Lane, Philip R.; Moretti, Laura; Osbat, Chiara
  19. InSTA – integrated stress-testing approach at NBP. The past, present and future perspectives By Marcin Borsuk; Oskar Krzesicki
  20. Sources of Macroeconomic Fluctuations in a Franc Zone Country: A Bayesian estimation By NANA DAVIES, Charles
  21. Life Cycle, Financial Frictions and Informal Labor Markets: The Case of Chile By Enrique Kawamura; Damián Pierri
  22. The Economics and Politics of Social Democracy: A Reconsideration By Servaas Storm
  23. Endogenous TFP, business cycle persistence and the productivity slowdown in the euro area By Spitzer, Martin; Schmöller, Michaela
  24. Land Collateral and Rule-of-Thumb Households in a Franc Zone Country: A Bayesian Appraisal By NANA DAVIES, Charles
  25. Is There News in Inventories? By Christoph Gortz; Christopher Gunn; Thomas A. Lubik
  26. International confidence spillovers and business cycles in small open economies By Michał Brzoza-Brzezina; Jacek Kotłowski
  27. The Taylor Curve: International Evidence By Semih Emre Cekin; Rangan Gupta; Eric Olson
  28. Endogenous Time Variation in Vector Autoregressions By Danilo Leiva-Leon; Luis Uzeda
  29. The Effects of Public Expenditures on Labour Productivity in Europe By Igor Fedotenkov; Rangan Gupta
  30. Entry vs. Rents By David Baqaee; Emmanuel Farhi
  31. The Unprecedented Fall in U.S. Revolving Credit By Gajendran Raveendranathan; Georgios Stefanidis
  32. Lead-lag relationship between macroeconomic variables and stock market: evidence from Korea By Aziz, Abdul; Masih, Mansur
  33. Household heterogeneity and the value of government spending multiplier By Paweł Kopiec
  34. Distributional consequences of conventional and unconventional monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  35. Spillovers of the Conventional and Unconventional Monetary Policy from the US to South Africa By Alain Kabundi; Tumisang Loate; Nicola Viegi
  36. An Analysis of the 2008 Subprime Mortgage Crisis: Causes, Effects and Policy Response By Naape, Baneng
  37. Credit Markets, Relationship Banking, and Firm Entry By Minetti, Raoul; Cao, Qingqing; Giordani, Paolo; Murro, Pierluigi
  38. The Gambia; First Review of the Staff-Monitored Program and Request for a 39-Month Arrangement under the Extended Credit Facility By International Monetary Fund
  39. Credit Markets, Relationship Banking, and Firm Entry By Qingqing Cao; Paolo Giordani; Raoul Minetti; Pierluigi Murro
  40. COVID-19 Is Also a Reallocation Shock By Jose Maria Barrero; Nicholas Bloom;
  41. Exchange rate regimes and inflation in Tanzania By Longinus Rutasitara
  42. Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy By Jean-Bernard Chatelain; Kirsten Ralf
  43. Why Are Average Hours Worked Lower in Richer Countries? By Bick, Alexander; Fuchs-Schündeln, Nicola; Lagakos, David; Tsujiyama, Hitoshi
  44. The Darwinian Returns to Scale By David Baqaee; Emmanuel Farhi
  45. Systems Estimation of a Structural Model of Distribution and Demand in the US Economy By Robert A Blecker; Michael Cauvel; Yun Kim
  46. Three Comments on Storm “The Economics and Politics of Social Democracy: A Reconsideration” By Joseph Halevi; Peter Kriesler; Duncan Foley; Thomas Ferguson
  47. Jordan; 2020 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility-Press Releases; Staff Report; and Statement by the Alternate Executive Director for Jordan By International Monetary Fund
  48. The Myth of Competitive Devaluations in the 1930s By Ljungberg, Jonas
  49. Drivers of Bank Default Risk: Bank Business Models, the Sovereign and Monetary Policy By Nicolas Soenen; Rudi Vander Vennet
  50. The Impact of Oil Price Shocks on the Term Structure of Interest Rates: Evidence from a Panel of Emerging Economies By Oguzhan Cepni; Rangan Gupta; Cenk C. Karahan
  51. The Effect of Oil Price Shocks on Asset Markets: Evidence from Oil Inventory News By Ron Alquist; Reinhard Ellwanger; Jianjian Jin
  52. Heterogeneity in corporate debt structures and the transmission of monetary policy By Holm-Hadulla, Fédéric; Thürwächter, Claire
  53. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016 By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
  54. The Cost of the Covid-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
  55. Non-linear Relation between External Debt and Economic Growth in Nigeria: Does the Investment Channel Matter? By Adeniyi, Oluwatosin; Adekunle, Wasiu; Orekoya, Samuel
  56. El Salvador; Staff Report-Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for El Salvador By International Monetary Fund
  57. Impacto en el mercado laboral de las medidas de aislamiento para combatir el COVID-19 By Cristina Fernández
  58. Sterilized FX interventions may not be so sterilized By Shalva Mkhatrishvili; Giorgi Tsutskiridze; Lasha Arevadze
  59. Beyond Cobb-Douglas: Flexibly Estimating Matching Functions with Unobserved Matching Efficiency By Lange, Fabian; Papageorgiou, Theodore
  60. Household Portfolios and Financial Preparedness for Retirement By Rowena Crawford; Cormac O'Dea
  61. Economic downturns and mental wellbeing By Avdic, Daniel; de New, Sonja C.; Kamhöfer, Daniel A.
  62. Does Quantitative Easing Affect People’s Personal Financial Situation and Economic Inequality? The View of the German Population By Bernd Hayo
  63. Measuring Economic Policy Uncertainty in Pakistan By Choudhary, M. Ali; Pasha, Farooq; Waheed, Mohsin
  64. Misclassification-Errors-Adjusted Sahm Rule for Early Identification of Economic Recession By Feng, Shuaizhang; Sun, Jiandong
  65. Senegal; 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 Senegal By International Monetary Fund
  66. DE LA CRISIS DE ‘FIN DE SIGLO’ A LA DEL ‘CORONAVIRUS’. La economía colombiana en las primeras dos décadas del siglo XXI By Carlos Caballero Argáez y Germán Darío Machado Rodríguez; Germán Darío Machado Rodríguez
  67. Sectoral Impact of COVID-19: Cascading Risks By Sophie Osotimehin; Latchezar Popov
  68. International and domestic interactions of macroprudential and monetary policies: the case of Chile By Tomás Gómez; Alejandro Jara; David Moreno
  69. Papua New Guinea; 2019 Article IV Consultation and Request for Staff Monitored Program-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea By International Monetary Fund
  70. The impact of low interest rates on banks’ non-performing loans By Matěj Maivald; Petr Teplý
  71. Impacto económico del COVID19 en una economía regional. El caso del confinamiento para Galicia By González Laxe, Fernando; Armesto Pina, José Francisco; Lago-Peñas, Santiago; Sanchez-Fernandez, Patricio
  72. The First Weeks of the Coronavirus Crisis: Who Got Hit, When and Why? Evidence from Norway By Annette Alstadsæter; Bernt Bratsberg; Gaute Eielsen; Wojciech Kopczuk; Simen Markussen; Oddbjorn Raaum; Knut Røed
  73. What Keeps Stablecoins Stable? By Richard K. Lyons; Ganesh Viswanath-Natraj
  74. The contribution of immigration from Ukraine to economic growth in Poland By Paweł Strzelecki; Jakub Growiec; Robert Wyszyński
  75. The (de)Stabilizing Role of Fiscal and Monetary Policy By Francesco MAGRIS; Daria ONORI
  76. Inequality of Fear and Self-Quarantine: Is There a Trade-off between GDP and Public Health? By Sangmin Aum; Sang Yoon (Tim) Lee; Yongseok Shin
  77. Firm-level Expectations and Behavior in Response to the COVID-19 Crisis By Buchheim, Lukas; Dovern, Jonas; Krolage, Carla; Link, Sebastian
  78. A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables By Jean-Bernard Chatelain; Kirsten Ralf
  79. Gabon; Request for a Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Gabon By International Monetary Fund
  80. 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
  81. The long Norwegian boom: Dutch disease after all? By Knut Anton Mork
  82. Quantitative easing and the price-liquidity trade-off By Ferdinandusse, Marien; Freier, Maximilian; Ristiniemi, Annukka
  83. Uncertainty and Growth Disasters By Boyan Jovanovic; Sai Ma
  84. The EUÕs Green Deal: Bismarck`s `what is possible` versus Thunberg`s `what is imperative` By Servaas Storm
  85. Measuring Oil Price Shocks By Vlastakis, Nikolaos; Triantafyllou, Athanasios; Kellard, Neil
  86. Labor Markets during the COVID-19 Crisis: A Preliminary View By Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael
  87. Proyecciones de corto plazo para el PIB trimestral: Desempeño reciente de una serie de modelos estándar By Marcus Cobb; Jennifer Peña
  88. Solving non-linear dynamic models (more) efficiently: application to a simple monetary policy model By Shalva Mkhatrishvili; Douglas Laxton; Davit Tutberidze; Tamta Sopromadze; Saba Metreveli; Lasha Arevadze; Tamar Mdivnishvili; Giorgi Tsutskiridze
  89. The Global Transmission of U.S. Monetary Policy By Degasperi,Riccardo; Hong, Seokki Simon; Ricco, Giovanni
  90. Emerging Markets and the New Geography of Trade: The Effects of Rising Trade Barriers By Ricardo M. Reyes-Heroles; Sharon Trailberman; Eva Van Leemput
  91. Estimating the distribution of household wealth in South Africa By Aroop Chatterjee; Léo Czajka; Amory Gethin
  92. The crucial flaw in the bank system. By Musgrave, Ralph S.
  93. Unemployment Paths in a Pandemic Economy By Nicolas Petrosky-Nadeau; Robert G. Valletta
  94. Ghana; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  95. Republic of Madagascar; Request for Disbursement under the Rapid Credit Facility-Press Release and Staff Report; and Statement by the Executive Director for the Republic of Madagascar By International Monetary Fund
  96. On the Response of Inflation and Monetary Policy to an Immigration Shock By Benjamín García; Juan Guerra-Salas
  97. Income Inequality in Mexico 1895-1940: Industrialization, Revolution, Institutions By Castañeda Garza, Diego; Bengtsson, Erik
  98. Global value chains and exchange rate pass-through: the role of non-linearities By Jan Hagemejer; Aleksandra Hałka; Jacek Kotłowski
  99. Albania; Request for Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Albania By International Monetary Fund
  100. The Wealth of Generations, With Special Attention to the Millennials By William G. Gale; Hilary Gelfond; Jason J. Fichtner; Benjamin H. Harris
  101. Nepal; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nepal By International Monetary Fund
  102. Structural transformation, inequality dynamics, and inclusive growth in Bangladesh By Selim Raihan; Sunera Saba Khan
  103. Social Stability Challenged: Pandemics, Inequality and Policy Responses By Perugini, Cristiano; Vladisavljevic, Marko
  104. Ghana : quels défis économiques ? By Selin ÖZYURT
  105. On Green Growth with Sustainable Capital By Basu, Parantap; Jamasb, Tooraj
  106. The developer's dilemma: A survey of structural transformation and inequality dynamics By Armida Alisjahbana; Kyunghoon Kim; Kunal Sen; Andy Sumner; Arief Yusuf
  107. What Determines the Capital Share over the Long Run of History? By Bengtsson, Erik; Rubolino, Enrico; Waldenström, Daniel
  108. Presque 30 ans après son indépendance, où en est l’économie arménienne ? By Marion HEMAR
  109. Argentine : nouveau modèle, nouvelle dynamique ? By David CHETBOUN
  110. Online Appendix to "Involuntary Unemployment and the Business Cycle" By Lawrence Christiano; Mathias Trabandt; Karl Walentin
  111. Implicaciones macroeconómicas y presupuestarias del Covid-19: algunas proyecciones ilustrativas By Angel de la Fuente

  1. By: Gabriele Galati; Jan Kakes; Richhild Moessner
    Abstract: Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. We study the effects of credit restrictions being active on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the installment of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal, i.e. containing money growth.
    Keywords: Credit restrictions; Monetary policy; Macroprudential policy
    JEL: E42 E51 E52 E58 G28
    Date: 2020–03
  2. By: Marcin Kolasa (Narodowy Bank Polski); Michał Rubaszek (SGH Warsaw School of Economics); Małgorzata Walerych (Narodowy Bank Polski)
    Abstract: In this paper we challenge the conventional view that increasing working time flexibility limits the amplitude of unemployment fluctuations. We start by showing that hours per worker in European countries are much less procyclical than in the US, and in some economies even co-move negatively with output. This is confirmed by the results from a structural VAR model for the euro area, in which working hours increase after a contractionary monetary shock, exacerbating the upward pressure on unemployment. To understand these counterintuitive results, we develop a structural search and matching macroeconomic model with endogenous job separation. We show that this feature is key to generate countercyclical adjustments in working hours. When we augment the model with frictions in working hours adjustment and estimate it using euro area time series, we find that increasing flexibility of working time amplifies cyclical movements in unemployment.
    Keywords: labor market, search and matching, job separation, working time, business cycle fluctuations
    JEL: E24 E32 J22 J64
    Date: 2019
  3. By: Paweł Baranowski (University of Łódź); Wirginia Doryń (University of Łódź); Tomasz Łyziak (Narodowy Bank Polski); Ewa Stanisławska (Narodowy Bank Polski)
    Abstract: The conduct of monetary policy nowadays involves not only interest rate decisions but also central bank communication, aimed at managing the expectations of the private sector. In this paper, we apply epidemiological model to private-sector experts’ forecasts regarding interest rates and inflation in Poland—an economy with over 20 years of inflation targeting history. We show that both of these factors affect interest rates and inflation expectations. Our study contributes to the literature by including a wide set of factors affecting expectations with a special focus on central bank decisions, projections and the tone of official documents. In general, the textual content of monetary policy minutes affects experts’ expectations more at the shortest horizons (nowcasts and one quarter ahead), while GDP and inflation projections released by the central bank play a larger role for slightly longer horizons (two quarters ahead or longer). As far as monetary policy actions are concerned, a positive interest rate surprise produces an upward shift in the whole path of interest rate expectations and leads to a decrease in one-year-ahead inflation expectations.
    Keywords: central bank communication, inflation expectations, interest rate expectations, text mining
    JEL: E52 E58
    Date: 2020
  4. By: Sasaki, Hiroaki; Asada, Yasukuni
    Abstract: This study extends Goodwin's (1967) growth cycle model to consider two types of workers, low- and high-skilled workers. Using Japanese data from 1989 to 2018, we theoretically and empirically investigate how the introduction of the minimum wage share affects the wage shares and employment rates. Introducing the minimum wage share diminishes the amplitude of fluctuations of both the wage shares and the employment rates, and in this sense, it has a stabilizing effect. Reducing the wage gap between low- and high-skilled workers increases the amplitude of fluctuations of the wage shares and employment rates.
    Keywords: growth cycles; low-skilled and high-skilled workers; minimum wage share
    JEL: E11 E24 E25 E32 J31
    Date: 2020–04–28
  5. By: Giovanni Nicolo
    Abstract: I estimate a medium-scale New-Keynesian model and relax the conventional assumption that the central bank adopted an active monetary policy by pursuing inflation and output stability over the entire post-war period. Even after accounting for a rich structure, I find that monetary policy was passive prior to the Volcker disinflation. Sunspot shocks did not represent quantitatively relevant sources of volatility. By contrast, such passive interest rate policy accommodated fundamental productivity and cost shocks that de-anchored inflation expectations, propagated via self-fulfilling inflation expectations and constituted the primary sources of the run-up in inflation from the 1960s through the late 1970s.
    Keywords: Monetary policy; Business cycle; Expectations; Indeterminacy; Bayesian methods
    JEL: C11 C52 C54 E31 E32 E52
    Date: 2020–05–05
  6. By: Christopher D. Cotton
    Abstract: Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both a common assumption and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that in the New Keynesian model, once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall. This implies that raising the inflation target will increase the nominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ZLB. The channel involves a rise in the inflation target lowering the average markup by price rigidities and a fall in the average markup lowering the equilibrium real rate by household heterogeneity, which could come from overlapping generations or idiosyncratic labor shocks. I find that raising the inflation target from 2 percent to 4 percent lowers the equilibrium real rate between 3 and 28 basis points. Since raising inflation lowers the equilibrium real rate, it might seem optimal to raise inflation by more in response to the ZLB. However, this channel also implies that the marginal benefit of raising inflation is lower because a given increase in inflation raises the nominal interest rate by less and thus is less effective at preventing the ZLB. In a welfare simulation, these two effects approximately cancel out each other. Therefore, even though this channel implies that raising the inflation target is less effective in preventing the ZLB, the inflation target should still be raised by a similar amount in response to the problem of the ZLB.
    Keywords: inflation target; steady state real interest rate; equilibrium real rate; heterogeneity; zero lower bound
    JEL: E31 E52 E58
    Date: 2020–02–01
  7. By: Afees A. Salisu (Department for Management of Science and Technology Development, Ton Duc Thang University, Ho Chi Minh City, Vietnam; Faculty of Business Administration, Ton Duc Thang University, Ho Chi Minh City, Vietnam); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: We use constant and time-varying parameters vector autoregressive models that allow the estimation of the impact of monetary policy shocks on volatility of macroeconomic variables in the United Kingdom. Estimates suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about 10% on average, with peaks observed during episodes of local and global crises.
    Keywords: Non-Linear SVAR, Stochastic Volatility, Monetary Policy Shock
    JEL: C32 E30 E40 E52
    Date: 2020–05
  8. By: Sylvain Leduc; Zheng Liu
    Abstract: The COVID-19 pandemic has raised concerns about the future of work. The pandemic may become recurrent, necessitating repeated adoptions of social distancing measures (voluntary or mandatory), creating substantial uncertainty about worker productivity. But robots are not susceptible to the virus. Thus, pandemic-induced job uncertainty may boost the incentive for automation. However, elevated uncertainty also reduces aggregate demand and reduces the value of new investment in automation. We assess the importance of automation in driving business cycle dynamics following an increase in job uncertainty in a quantitative New Keynesian DSGE framework. We find that, all else being equal, job uncertainty does stimulate automation, and increased automation helps mitigate the negative impact of uncertainty on aggregate demand.
    Keywords: Uncertainty; pandemic; robots; automation; productivity; unemployment; business cycles; monetary policy
    JEL: E24 E32 O33
    Date: 2020–05–07
  9. By: Oguzhan Cepni (Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: This paper investigates how monetary policy shock affects the stock market of the United States (US) conditional on states of investor sentiment. In this regard, we use a recently developed estimator that uses high-frequency surprises as a proxy for the structural monetary policy shocks, which in turn is achieved by integrating the current short-term rate surprises, which are least affected by an information effect, into a vector autoregressive (VAR) model as an exogenous variable. When allowing for time-varying model parameters, we find that, compared to the low investor sentiment regime, the negative reaction of stock returns to contractionary monetary policy shocks is stronger in the state associated with relatively higher investor optimism. Our results are robust to alternative sample period (which excludes the zero lower bound) and model specification and also have important implications for academicians, investors, and policymakers.
    Keywords: Investor sentiment; External instruments; Monetary policy surprises; Time-varying parameter VAR model
    JEL: E44 E52 G12 G14
    Date: 2020–05
  10. By: Lasha Arevadze (Macroeconomic Research Division, National Bank of Georgia); Tamta Sopromadze (Macroeconomic Research Division, National Bank of Georgia); Giorgi Tsutskiridze (Macroeconomic Research Division, National Bank of Georgia); Shalva Mkhatrishvili (Macroeconomic Research Division, National Bank of Georgia)
    Abstract: There is an ongoing debate around the flattening of the Phillips Curve throughout the world. One of the most important challenges in looking at the statistical relationship between inflation and cyclical position of the economy is the endogenous nature of monetary policy. If monetary policy is successful in insulating the economy from demand shocks, all we are left with in the data is the effects of supply shocks. This makes the link between inflation and aggregate demand look negative, even if the underlying positively-sloped Phillips Curve relationship is alive and well. That's why it is important to take the endogeneity of monetary policy into account when estimating the Phillips Curve econometrically. In this paper we attempt to do that on the Georgian data using two econometric approaches: GMM and ARDL. Our results indicate that the slope of the Phillips Curve in Georgia is positive but relatively flat (despite the fact that it is still steeper than in the developed world). The resulting high sacrifice ratio makes it all the more important for the National Bank of Georgia to remain vigilant and proactive in anchoring inflation expectations. In addition, we show that half of economic agents' inflation expectations in Georgia are backward-looking (with the other half being forwardlooking). This, despite important improvements during the last decade, implies still significant room for monetary policy to further anchor inflation expectations to its target.
    Keywords: Phillips Curve; Inflation; Monetary policy; GMM; ARDL
    JEL: C13 E3 E52
    Date: 2020–01
  11. By: Paweł Baranowski (Institute of Econometrics, University of Lodz); Hamza Bennani (EconomiX-CNRS, Universite Paris Nanterre); Wirginia Doryń (Institute of Economics, University of Lodz)
    Abstract: In this paper, we examine whether a tone shock derived from ECB communication helps to predict ECB monetary policy decisions. For that purpose, we first use a bag-of-words approach and several dictionaries on the ECB’s Introductory Statements to derive a measure of tone. Next, we orthogonalize the tone measure on the latest data available to market participants to compute the tone shock. Finally, we relate the tone shock to future ECB monetary policy decisions. We find that the tone shock is significantly and positively related to future ECB monetary policy decisions, even when controlling for market expectations of economic conditions and monetary policy and the ECB’s Governing Council inter-meeting communication. Further extensions show that the predictive power of the tone shock regarding future monetary policy decisions is robust to (i) the normalization of the tone measure, (ii) alternative market expectations about monetary policy and (iii) the macroeconomic variables used in the Taylortype monetary policy. These findings thus highlight an additional channel by which ECB communication improves monetary policy predictability, and suggest that the ECB may have private information that it communicates through its Introductory Statements.
    Keywords: Central Bank Communication; European Central Bank; Tone; Forecasts; Taylor Rule
    JEL: E43 E52 E58
    Date: 2020
  12. By: Minford, Patrick (Cardiff Business School); Gai, Yue (Cardiff Business School); Ou, Zhirong (Cardiff Business School)
    Abstract: This paper investigates whether housing collateral is important to the business cycle in China. We develop two models, one without housing collateral as benchmark and one variant allowing for it. Indirect Inference procedure tests these two modelsÕ compatibility with the data. We find that the benchmark model passes the test, while the collateral model is strongly rejected. According to the benchmark model, shocks from the housing market have limited impact on the Chinese business cycle. By contrast, the exogenous spending shock from gov- ernment and net exports, the monetary policy shock and the goods-sector cost/productivity shock, all in turn most likely connected to world business cycle shocks (especially the global financial crisis), are found to be the main drivers.
    Keywords: Housing market; DSGE model; Housing collateral; Indirect Inference; China;
    JEL: E32 E44 E52 R31
    Date: 2020–05
  13. By: Chahrour, Ryan (Department of Economics); Chugh, Sanjay K. (Department of Economics); Potter, Tristan (Drexel University)
    Abstract: We identify the main shock driving the covariance of the labor market and output. The shock drives strong business cycle comovement among output, consumption, investment, hours, and stock prices but is essentially orthogonal to business cycle fluctuations in TFP. Yet, the shock is associated with future persistent TFP fluctuations, consistent with theories of technology news. A standard labor search model in which wages are determined by a cash flow sharing rule, rather than the net present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with the empirical responses of a broad panel of wage series
    Keywords: News Shocks; Wages; Search and Matching; Business Cycles
    JEL: E24 E32
    Date: 2020–05–02
  14. By: Marek Dabrowski
    Abstract: Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
    Keywords: monetary policy, inflation, inflation target, economic growth, central bank independence
    JEL: E31 E51 E52 E58 F62
    Date: 2020
  15. By: Nir Jaimovich; Itay Saporta-Eksten; Henry E. Siu; Yaniv Yedid-Levi
    Abstract: During the last four decades, the U.S. has experienced a fall in the employment in middle-wage, "routine-task-intensive," occupations. We analyze the characteristics of those who used to be employed in such occupations and show that this type of individual is nowadays more likely to be out of the labor force or working in low-paying occupations. Based on these findings, we develop a quantitative, general equilibrium model, with heterogeneous agents, labor force participation, occupational choice, and investment in physical and automation capital. We first use the model to evaluate the distributional consequences of automation. We find heterogeneity in its impact across different occupations, leading to a significant polarization in welfare. We then use this framework as a laboratory to evaluate various public policies such as retraining, and explicitly redistributive policies that transfer resources from those who benefit from automation to those who bear the brunt of its costs. We assess the tradeoffs between the aggregate impact and welfare distributional consequences of such policies.
    JEL: E24 E25 E61
    Date: 2020–05
  16. By: Hanna Armelius; Carl Andreas Claussen; Scott Hendry
    Abstract: In this paper, we discuss whether the ability of individuals to convert commercial bank money (i.e., bank deposits) into central bank money is fundamentally important for the monetary system. This is a significant question since the use of cash—the only form of central bank money that the public currently has access to—is declining rapidly in many countries. The question is highly relevant to the discussion around whether central banks need to issue a retail central bank digital currency (CBDC). We conclude that depositors’ need for control could be a reason why cash or a CBDC is essential, even in countries with strong measures safeguarding commercial bank money.
    Keywords: Bank notes; Digital Currencies and Fintech; Financial services; Payment clearing and settlement systems
    JEL: E4 E41 E42 E5
    Date: 2020–05
  17. By: Chao Gu; Cyril Monnet; Ed Nosal; Randall Wright
    Abstract: Are financial intermediaries inherently unstable and, if so, why? To address this, we analyse whether model economies with financial intermediation are particularly prone to multiple, cyclic or stochastic equilibria. Several formalisations are considered: a dynamic version of Diamond-Dybvig banking incorporating reputational considerations; a model with fixed costs and delegated investment as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos-Wright; and one with intermediaries as dealers in decentralised asset markets, similar to Duffie et al. Although the economics and mathematics differ across specifications, in each case financial intermediation engenders instability in a precise sense.
    Keywords: banking, financial intermediation, instability, volatility
    JEL: D02 E02 E44 G21
    Date: 2020–05
  18. By: Eser, Fabian; Karadi, Peter; Lane, Philip R.; Moretti, Laura; Osbat, Chiara
    Abstract: We explain the role of the Phillips Curve in the analysis of the economic outlook and the formulation of monetary policy at the ECB. First, revisiting the structural Phillips Curve, we highlight the challenges in recovering structural parameters from reduced-form estimates and relate the reduced-form Phillips Curve to the (semi-)structural models used at the ECB. Second, we identify the slope of the structural Phillips Curve by exploiting cross-country variation and by using high-frequency monetary policy surprises as instruments. Third, we present reduced-form evidence, focusing on the relation between slack and inflation and the role of inflation expectations. In relation to the recent weakness of inflation, we discuss the role of firm profits in the pass-through from wages to prices and the contribution of external factors. Overall, the available evidence supports the view that the absorption of slack and a firm anchoring of inflation expectations remain central to successful inflation stabilisation. JEL Classification: E31, E52
    Keywords: European Central Bank, inflation, monetary policy, Phillips Curve
    Date: 2020–05
  19. By: Marcin Borsuk (Narodowy Bank Polski); Oskar Krzesicki (Narodowy Bank Polski)
    Abstract: Stress testing is one of the fastest growing fields in the prudential world. It has recently gained importance as a tool for both microprudential and macroprudential purposes. In recent years Narodowy Bank Polski (NBP) has been developing an integrated stress-testing approach (InSTA), which captures the various sources of risk to solvency and liquidity as well as spillover effects that banks operating in Poland may face. The aim of this article it to present and discuss NBP’s approach to conducting macro stress tests. We also point out the main areas where further analytical work should be focused on.
    Keywords: stress-tests, financial stability, systemic risk, macroprudential policy
    JEL: E47 E44 E58 G21
    Date: 2020
  20. By: NANA DAVIES, Charles
    Abstract: The Central African Economic and Monetary Community (CEMAC) is a constituent of the Franc Zone (FZ), whose roots may be traced back to 1901 when France created the West African Bank. Since its inception, FZ's monetary authorities' objective and monetary policy instruments have been evolving. Nevertheless, some FZ's features have endured, namely the fixed exchange rate between that monetary union's common currency (CFAF) and France's currency, the free capital mobility between Franc Zone countries (FZC) and France, the ceiling on the monetary budget financing and the obligation of FZC to entrust a share of their foreign exchange reserves to the French Treasury in exchange for the convertibility of CFAF into France's currency. Using Cameroon's data over 1979 and 2014, we estimate a DSGE model of a small open economy model that takes into account some of those features. We find that technology and fiscal shocks drive the bulk of economic fluctuations.
    Keywords: Franc Zone - Cameroon - DSGE model - Metropolis-Hasting
    JEL: C68 E32 F41 F45
    Date: 2018–09–10
  21. By: Enrique Kawamura (Universidad de San Andres); Damián Pierri (Universidad de San Andres & IIEP-BAIRES (UBA-CONICET))
    Abstract: In this paper we study the implications of economic policies that affect household’s income. We focus on Chile after the massive demonstrations against the existing standard of living observed in 2019. Using a search model with life-cycle features and survey data, we found that an equivalent change in labor tax rates and non-contributary pensions have opposite effects on labor markets, specifically on informality and unemployment duration. Non-contributary pensions offers a milder trade-off as it produces a second order increase in informality. However, due to the presence of informal labor markets and financial frictions, non-retired agents increase their current consumption only after a tax cut. That is, in this framework, a positive wealth shock can reduce consumption. Thus, when we take into account the impact on welfare, as households are assumed to value only consumption, cutting taxes seems to be preferred. We characterize labor market and consumption-savings decisions. We found 2 effects operating simultaneously and in opposite directions: substitution and wealth. Due to the presence of risk averse agents and incomplete capital markets, the latter prevails suggesting that the life cycle aspects of the labor market are critical to understand policy trade-offs.
    Keywords: search models, life-cycle, simulation-based estimation, social-security reform.
    JEL: E21 E24 E26 E64
    Date: 2020–05
  22. By: Servaas Storm (Delft University of Technology)
    Abstract: Questions about the decline of Social democracy continue to excite wide interest, even in the era of Covid-19. This paper takes a fresh look at topic. It argues that social democratic politics faces a fundamental dilemma: short-term practical relevance requires it to accept, at least partly, the very socio-economic conditions which it purports to change in the longer run. Bhaduri’s (1993) essay which analyzes social democracy’s attempts to navigate this dilemma by means of ‘a nationalization of consumption’ and Keynesian demand management, was written before the rise of New (‘Third Way’) Labor and before the Great Financial Crisis of 2007-8. This paper provides an update, arguing that New Labor’s attempt to rescue ‘welfare capitalism’ entailed a new solution to the dilemma facing social democracy based on an expansion of employment, i.e. an all-out emphasis on “jobs, jobs, jobs”. The flip-side (or social cost) of the emphasis on job growth has been a stagnation of productivity growth—which, in turn, has put the ‘welfare state’ under increasing pressure of fiscal austerity. The popular discontent and rise of ‘populist’ political parties is closely related to the failure of New Labor to navigate social democracy’s dilemma.
    Keywords: social democracy, wage-led growth, profit-led growth, NAIRU economics, Europe 1945- , New Labor.
    JEL: E6 E10 E12 N10 P11
    Date: 2020–04
  23. By: Spitzer, Martin; Schmöller, Michaela
    Abstract: This paper analyses the endogeneity of euro area total factor productivity and its role in business cycle amplification by estimating a medium-scale DSGE model with endogenous productivity mechanism on euro area data. In this framework, total factor productivity evolves endogenously as a consequence of costly investment in R&D and adoption of new technologies. We find that the endogeneity of TFP induces a high degree of persistence in the euro area business cycle via a feedback mechanism between overall economic conditions and investment in productivity-enhancing technologies. As to the sources of the euro area productivity slowdown, we conclude that a decrease in the efficiency of R&D investment is among the key factors generating the pre-crisis productivity slowdown, while starting from the Great Recession a shock to liquidity demand is identified as the most important driving force. The endogenous technology mechanism further exerts a dampening effect on the inflation response following a recessionary shock and hence has important implications for both the negligible fall in inflation during the Great Recession, as well as the sluggish increase of inflation in the subsequent recovery. JEL Classification: E24, E32, O31
    Keywords: endogenous productivity, euro area business cycles, low inflation, weak growth
    Date: 2020–05
  24. By: NANA DAVIES, Charles
    Abstract: We model the supply side of the banking sector, two types of households, and a land asset collateral in a small open economy model that accounts for some of the most enduring features and provisions of the Franc Zone. The model is estimated using the Metropolis-Hasting algorithm and Cameroon's annual data from 1979 to 2016. Four findings stand out. First, sensible posteriors of some deep parameters are obtained when the proportion of rule-of-thumb households is set to forty-eight percent. Second, permanent technology, bank profit, consumption, and foreign inflation shocks are the main drivers of macroeconomic fluctuations. Third, among those shocks, only a bank profit shock, which is associated with a sharp drop of wholesale interest rates, leads to an output expansion. Fourth, fiscal policy matters but through its effects on banks' balance sheet.
    Keywords: Cameroon - Franc Zone - Land Collateral - Metropolis-Hasting - Rule-of-Thumb households
    JEL: C68 E32 F41 F45
    Date: 2020–04–23
  25. By: Christoph Gortz (University of Birmingham); Christopher Gunn (Carleton University); Thomas A. Lubik (Federal Reserve Bank of Richmond)
    Abstract: We identify total factor productivity (TFP) news shocks using standard VAR method- ology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggre- gates. We show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, we therefore develop a framework that relies on the pres- ence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement we document supports the view that news shocks are an important driver of aggregate fluctuations.
    Keywords: News shocks, business cycles, inventories, knowledge capital, VAR.
    JEL: E2 E3
    Date: 2020–05
  26. By: Michał Brzoza-Brzezina; Jacek Kotłowski
    Abstract: The economic literature has for a long time been looking for explanations of a very strong international correlation of business cycles. This paper shows empirically that common fluctuations can to some degree be the effect of confidence shocks beeing transmitted internationally. We focus on a large (euro area) and a small, nearby economy (Poland). Our results show that euro area confidence fluctuations account for approximately 40-70% of business cycle fluctuations both in the euro area and in Poland. More importantly, their transmission happens not only via traditional channels (e.g. by confidence affecting euro area GDP and then Polish GDP via trade), but to a large extent occurs directly (e.g. by news spreading via media).
    Keywords: International spillovers, animal spirits, sentiments, business cycle
    JEL: C32 E32 F44
    Date: 2020–05
  27. By: Semih Emre Cekin (Department of Economics, Turkish-German University, Istanbul, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Eric Olson (College of Business, University of Tulsa, Tulsa, Oklahoma, United States)
    Abstract: We use the Taylor curve to gauge deviations of monetary policy from an efficiency locus for the United Kingdom (UK) and the four largest economies of the eurozone (Germany, France, Italy, Spain) for the period 2000-2018. For this purpose, we use shadow interest rates, which is a common metric for both conventional and unconventional monetary policies, and the newly proposed Hamilton-filter to measure output gap, which improves upon the drawbacks of the traditionally used Hodrick-Prescott filter. Our findings suggest that deviations in the UK mostly occurred amid the global financial crisis and the post-Brexit period, whereas eurozone members experienced more volatile deviations around 2001, during the global financial crisis and the eurozone sovereign debt crisis.
    Keywords: Taylor curve, Monetary policy, eurozone
    JEL: E31 E58 C32
    Date: 2020–05
  28. By: Danilo Leiva-Leon; Luis Uzeda
    Abstract: We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence — contemporaneously and with a lag — the dynamics of the intercept and autoregressive coefficients in these models. An estimation algorithm and a parametrization conducive to model comparison are also provided. We apply our framework to the US economy. Scenario analysis suggests that the effects of monetary policy on economic activity are larger and more persistent in the proposed models than in an otherwise standard TVP-VAR. Our results also indicate that costpush shocks play an important role in understanding historical changes in inflation persistence.
    Keywords: Econometric and statistical methods; Inflation and prices; Transmission of monetary policy
    JEL: C32 E52
    Date: 2020–05
  29. By: Igor Fedotenkov (Joint Research Center, European Commission, Rue du Champ de Mars, 21, 1050 Brussels, Belgium); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries. We also control for the share of expenditures made by central governments. We find that productivity growth in industry decreases with government expenditures on environmental protection and increases with the decentralisation of government expenditures on recreation, culture and religion. As for services, productivity growth declines with military expenditures and increases with the centralisation of expenditures on public order and safety, and with the decentralisation of expenditures on economic affairs. The former two effects are mainly noted in Eastern European countries, while the latter is stronger in Western Europe. Lower corruption increases productivity growth. Furthermore, our estimates suggest that there is a convergence in productivities across EU member states, with convergence faster in the service sector than in the industrial sector. These findings carry important policy implications.
    Keywords: Labour productivity, government expenditures, decentralisation, services
    JEL: E24 E62 H50 H76 O14
    Date: 2020–05
  30. By: David Baqaee; Emmanuel Farhi
    Abstract: We show that the tension between entry and rents lies at the core of a general theory of aggregation with scale effects. We characterize the responses of macro aggregates to micro shocks in disaggregated economies with general forms of entry, internal or external returns to scale, input-output linkages, and distortions. In particular, we decompose changes in aggregate productivity into changes in technical and allocative efficiency, and show that the latter depend on changes in rents and quasi-rents across markets. In addition, we give formulas for the social costs of distortions. Finally, we prove that while first-best industrial policy is network-independent, second-best policy supports the more “networked” parts of the economy by boosting the backward linkages of markets with high forward linkages and returns to scale. As an application, we quantify the misallocation from markups in the U.S.: accounting for entry raises the aggregate efficiency loss from 20% to 40% This number depends sensitively on how entry is modeled, in ways that we make precise.
    JEL: E0 E1 E3 O0 O11 O21 O25 O3 O4 O41
    Date: 2020–05
  31. By: Gajendran Raveendranathan; Georgios Stefanidis
    Abstract: Revolving credit in the U.S. declined drastically in the last decade after several years of upward trending growth. We show that the Ability to Pay provision of the Credit CARD Act of 2009, which places restrictions on credit card limits, accounts for this decline. Extending a model of revolving credit to analyze this policy, we account for changes in credit statistics by income and age. Although the goal was consumer protection, the policy has led to welfare losses. Even consumers with time inconsistent preferences who could benefit from tighter credit constraints are worse off. An alternative policy considered by policymakers - an interest rate cap - improves welfare.
    Keywords: revolving credit; credit limits; Ability to Pay; Credit CARD Act
    JEL: E21 E44 E65 G28
    Date: 2020–05
  32. By: Aziz, Abdul; Masih, Mansur
    Abstract: This study attempts to investigate whether share price index, specifically KOSPI of Korean Exchange, can be considered as a mirror or reflection of economic activities in Korea. The purpose is to make a finer point with respect to the relationship between economic growth and stock market especially in terms of stock prices. The present study proceeds with a single point investigative agenda as to what is the relationship between the health of the real economy and the health of the stock market? Does a rally in share prices reflect better health of the economy or it is the pink economic health that causes share prices to change? We have examined the causal relationships between the share price index and other crucial macroeconomic variables namely money supply, exchange rate, consumer price index, and money market rate for the reason of right and robust model specification. The standard time series techniques have been employed. The present study reports causality running from economic growth to share price index and not the other way round. It may therefore be stated that the stock markets in Korea are demand driven and industry led which means that demand for greater equity finance is led by higher and improved economic performance. That is, the state of the economy has a bearing on the share prices but the health of the stock market in the sense of a rising share price index is not reflective of an improvement in the health of the economy. In other words, a Bull Run or rising prices in the stock market cannot be taken to be a leading indicator of the revival of the economy in Korea.
    Keywords: Lead-lag relationship, stock markets, macroeconomic variables, time series techniques, Korea
    JEL: C22 C58 E44
    Date: 2018–10–18
  33. By: Paweł Kopiec (Narodowy Bank Polski)
    Abstract: This paper provides an analytical decomposition of the fiscal multiplier in economy populated with heterogeneous households, uninsured idiosyncratic income risk and frictional product market. Similarly to Auclert (2019), the derived expression consists of interpretable, model-based channels that describe the transmission of government spending shocks by private consumption. Calibrated model is used to estimate the magnitude of multipliers and their structure under alternative fiscal and monetary rules. Analytical and quantitative comparison to the multiplier’s formula in economy with identical agents indicates that household heterogeneity plays a crucial role in the propagation of fiscal expenditures shocks.
    Keywords: Heterogeneous Agents, Fiscal Stimulus
    JEL: D30 E62 H23 H30 H31
    Date: 2019
  34. By: Marcin Bielecki (Narodowy Bank Polski); Michał Brzoza-Brzezina (Narodowy Bank Polski); Marcin Kolasa (Marcin Kolasa)
    Abstract: This paper uses a life-cycle model with a rich asset structure, and standard nominal and real rigidities, to investigate the distributional consequences of traditional monetary policy and communication about its future course (forward guidance). The model is calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the lifecycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of both anticipated and unanticipated monetary shocks. Even though house prices respond strongly to monetary policy easing, hurting young households, their distributional effects are dwarfed by changes in returns on nominal assets and labor market revival that work in the opposite direction. Both anticipated and unanticipated policy easing hence redistribute welfare from older to younger generations. The scale of this redistribution is larger for forward guidance if nominal interest rates are constrained by the effective lower bound.
    Keywords: monetary policy, forward guidance, life-cycle models, redistribution
    JEL: E31 E52 J11
    Date: 2020
  35. By: Alain Kabundi (Senior Economist, The World Bank Group); Tumisang Loate (Department of Economics, University of Pretoria); Nicola Viegi (Department of Economics, University of Pretoria)
    Abstract: This paper assesses the effect of US monetary policy on South Africa during the period 1990- 2018. We separately analyse and compare the effect of conventional monetary policy, before the Global Financial Crisis, and unconventional monetary policy, after the US monetary policy reached the zerolower bound. Our impulse response function results indicate that monetary policy in South Africa is somewhat independent, responding to local inflation, economic activity and financial conditions. However, the variance decomposition also indicates that the US monetary policy accounts for some variation of the South African policy rate. Finally, we find a sluggish response of industrial production and credit differ post the global financial crisis. We see this as an indication of the effects of structural issues to the real economy, political uncertainty and constrained households’ balance sheet which has prevented the local economy to take advantage of low local interest rates and the global economic recovery after the crisis.
    Keywords: International spillovers, unconventional monetary policy, zero-lower bound, South Africa
    JEL: E52 F36
    Date: 2020–04
  36. By: Naape, Baneng
    Abstract: This essay scrutinized the effects of Quantitative Easing (QE) on selected macroeconomic and financial variables. By means of a desktop approach, we find that QE1 had a strong and beneficial impact on the real economy through credit easing whereas QE2 and QE3 had small positive or neutral effects on banks and life Insurers. Although QE did not close the gap left by the 2008 global financial crisis, it helped reduce the rate at which the crisis was rising and proved to be an effective crisis management tool. QE boosts the economy in the short run but weakens the economy in the long run.
    Keywords: global financial crisis, quantitative easing, central banks, zero lower bound
    JEL: E4 E5 G1
    Date: 2020–05–02
  37. By: Minetti, Raoul (Michigan State University, Department of Economics); Cao, Qingqing (Michigan State University, Department of Economics); Giordani, Paolo (Luiss University); Murro, Pierluigi (Luiss University)
    Abstract: Credit frequently flows to the business sector through information-intensive bank-firm relationships. This paper studies the impact of relationship banking on firm entry. Exploiting Italian data, we document that relationship-oriented local credit markets feature lower firm entry, larger size at entry, and relatively more spin-offs than de novo entrepreneurs' entries. Information spillovers from credit relationships to entrants contribute to these effects. A dynamic general equilibrium model calibrated to the Italian data can match the effects when information spillovers are allowed for. Relationship banks' information on incumbents is trans-ferable to incumbents' spin-offs but crowds out information acquisition on de novo entrants. The buildup of incumbents' business wealth during credit relationships can outweigh the aggregate output effect of reduced entry.
    Keywords: Credit Relationships; Firm Entry; Information Spillovers; Spin-offs
    JEL: E44 G21 O16
    Date: 2020–05–12
  38. By: International Monetary Fund
    Abstract: The Gambia remains a fragile state, grappling with a large public debt burden and the legacy of mismanagement left by the previous regime. Considerable progress has been achieved under the transitional justice agenda and broader initiatives aimed at improving governance. Building on successful macroeconomic stabilization with financial support from the IMF, the World Bank, and other international partners, the authorities established a satisfactory performance track record through the Staff-Monitored Program (SMP) covering 2019, approved by the IMF Management in April 2019.
    Keywords: Central banks;Credit;External sector;International reserves;Financial and Monetary Sector;ISCR,CR,SOEs,primary balance,CBG,ECF,T-bill
    Date: 2020–04–13
  39. By: Qingqing Cao (Michigan State University); Paolo Giordani (LUISS University); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University)
    Abstract: Credit frequently flows to the business sector through information-intensive bank-firm relationships. This paper studies the impact of relationship banking on firm entry. Exploiting Italian data, we document that relationship-oriented local credit markets feature lower entry, larger size at entry, and relatively more spin-offs than de novo entrepreneurs' entries. Information spillovers from credit relationships to entrants contribute to these effects. A dynamic general equilibrium model calibrated to the Italian data can match these effects when information spillovers are allowed for. Relationship banks' information on incumbents is transferable to incumbents' spin-offs but crowds out information acquisition on de novo entrants. The buildup of incumbents' business wealth during credit relationships can outweigh the aggregate output effect of reduced entry.
    Keywords: Credit Relationships, Firm Entry, Information Spillovers, Spin-offs
    JEL: E44 G21 O16
    Date: 2020–05
  40. By: Jose Maria Barrero; Nicholas Bloom;
    Abstract: Drawing on firm-level expectations at a one-year forecast horizon in the Survey of Business Uncertainty (SBU), we construct novel, forward-looking reallocation measures for jobs and sales. These measures rise sharply after February 2020, reaching rates in April that are 2.4 (3.9) times the pre-COVID average for jobs (sales). We also draw on special questions in the April SBU to quantify the near-term impact of the COVID-19 shock on business staffing. We find 3 new hires for every 10 layoffs caused by the shock and estimate that 42 percent of recent layoffs will result in permanent job loss. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at some firms, with contemporaneous evidence on gross business formation, and with a sharp pandemic-induced rise in equity return dispersion across firms. After developing the evidence, we consider implications of our evidence for the economic outlook and for policy responses to the pandemic. Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock.
    JEL: D22 D84 E24 H12 H25 J21 J62 J63 J65
    Date: 2020–05
  41. By: Longinus Rutasitara (Department of Economics University of Dar es Salaam Tanzania)
    Abstract: The study examines the influence of the major determinants of inflation with a particular focus on the role of exchange rate policy changes. The gradual change in policy orientation from “controls” to “market” in Tanzania is associated with a change from a highly controlled exchange rate (until 1985) to a more liberalized regime from 1986 to the present (2002). The parallel exchange rate dominated price changes from the late 1970s to 1985; the parallel premium tapered off gradually from 1986, almost disappearing by 1992. The problem of inflation cuts across both regimes despite improvements in the past four to five years. The model estimations using quarterly data for 1967–1995 show that the parallel rate had a stronger influence on inflation up until the early 1990s compared with the official rate. Continued macroeconomic (tighter monetary and fiscal), trade and exchange rate reforms, and slow but steady improvements in the growth rates of GDP, may explain the recent (1993–2002) fall in inflation and a more “stable” market for foreign exchange in the inter-bank foreign exchange market (IFEM) arrangement. The charged debates of the 1980s about devaluation are no longer fashionable, but the exchange rate remains potentially sensitive to exogenous shocks and certainly any policy reversal or similar lapse.
  42. By: Jean-Bernard Chatelain (PSE - Paris School of Economics); Kirsten Ralf (ESCE International Business School, INSEEC U. Research Center)
    Abstract: This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory.
    Keywords: Bifurcations,Commitment,Taylor Rule,Taylor Principle,New-Keynesian Model,Ramsey Optimal Policy
    Date: 2020–01–17
  43. By: Bick, Alexander (Arizona State University); Fuchs-Schündeln, Nicola (Goethe University Frankfurt); Lagakos, David (National Bureau of Economic Research); Tsujiyama, Hitoshi (Goethe University Frankfurt)
    Abstract: Why are average hours worked per adult lower in rich countries than in poor countries? We consider two natural explanations: income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
    Keywords: income effects, hours worked, taxation
    JEL: E24 J22 O11
    Date: 2020–04
  44. By: David Baqaee; Emmanuel Farhi
    Abstract: How does an increase in the size of the market due to fertility, immigration, or trade integration, affect welfare and real GDP? We study this question using a model with heterogeneous firms, fixed costs, and monopolistic competition. We decompose the change in welfare into changes in technical and allocative efficiency due to reallocation. We non-parametrically identify residual demand curves with firm-level data and, using these estimates, quantify our theoretical results. We find that somewhere between 70% to 90% of the aggregate returns to scale are due to changes in allocative efficiency. In bigger markets, competition endogenously toughens and triggers Darwinian reallocations: big firms expand, small firms shrink and exit, and new firms enter. However, important as they are, the improvements in allocative efficiency are not driven by oft-emphasized reductions in markups or deaths of unproductive firms. Instead, they are caused by a composition effect that reallocates resources from low-markup to high-markup firms. Our analysis implies that the aggregate return to scale is an endogenous outcome shaped by frictions and market structure and likely varies with time, place, and policy. Furthermore, even mild increasing returns to scale at the micro level can give rise to large increasing returns to scale at the macro level.
    JEL: E0 E1 E23 O24 O4 O41
    Date: 2020–05
  45. By: Robert A Blecker (American University (US)); Michael Cauvel; Yun Kim
    Abstract: Empirical studies of income distribution and aggregate demand using a structural modeling approach typically find that demand is wage-led in most large, advanced economies. These studies have been criticized for estimating the individual equations for consumption, investment, and net exports separately, treating total output and the wage share as exogenous, which could lead to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM estimation applied to annual US data for 1963-2016. This paper is also the first to provide separate estimates of nonresidential and residential investment functions and to distinguish the effects of shocks to different underlying determinants of the wage share (unit labor costs and firms' monopoly power). Surprisingly, the GMM estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models.
    Keywords: Income distribution, wage-led demand, profit-led demand, US economy, systems estimation
    JEL: C36 E12 E25 N12 O51
    Date: 2020–05
  46. By: Joseph Halevi (International University College of Turin); Peter Kriesler (University of New South Wales); Duncan Foley (New School for Social Research); Thomas Ferguson (Institute for New Economic Thinking)
    Abstract: This Working Paper presents three separate comments on Servaas Storm’s “The Economics and Politics of Social Democracy: A Reconsideration”. The first is by Joseph Halevi and Peter Kriesler; the second is by Duncan Foley; and the third is by Thomas Ferguson.
    Keywords: social democracy, wage-led growth, profit-led growth, NAIRU economics, Europe 1945- , New Labor.
    JEL: E6 E10 E12 N10 P11
    Date: 2020–05
  47. By: International Monetary Fund
    Abstract: Jordan has made progress in reforming its economy since the 2017 Article IV consultation, but significant challenges remain. Despite a difficult environment, macroeconomic stability has been preserved, external imbalances have improved markedly, and reserves buffers have remained adequate. The exchange rate peg continues to serve the economy well, and the financial system is sound. While structural reforms advanced, notably to improve Jordan’s business climate, key impediments to growth remain, reflected in weak growth outcomes and high unemployment. Notwithstanding some early progress, fiscal consolidation also proved difficult to maintain, amid persistent fiscal slippages and tax administration deficiencies, and public debt was not reduced. Regional conflicts and the hosting of Syrian refugees weigh on social conditions, public finances, investment, and the external accounts.
    Keywords: Balance of payments;External sector;Economic conditions;Public financial management;Social safety nets;ISCR,CR,CBJ,NEPCO,Proj,article IV consultation,Jordanian authority
    Date: 2020–04–16
  48. By: Ljungberg, Jonas (Department of Economic History, Lund University)
    Abstract: Conventional wisdom pretends that currency devaluations contributed to the Great Depression of the 1930s. This paper examines the impact of nominal exchange rates on foreign trade of 14 industrialized countries 1929-1939. If the idea of competitive devaluation holds, one should expect an increase in exports, along with a decline in imports, to trading partners against which the exchange rate epreciated. Tests show that the beggar-thy-neighbour effects of exchange rate adjustments were at most marginal. Moreover, there is evidence that currency depreciations were expansionary not only for countries that devalued but for the international economy as a whole.
    Keywords: interwar; Europe; exchange rates; trade; depression
    JEL: E31 E52 F31 N14
    Date: 2020–03–05
  49. By: Nicolas Soenen; Rudi Vander Vennet (-)
    Abstract: In this paper we empirically analyze the determinants of bank default risk (measured by the banks’ CDS spreads) for European banks during the period 2008-2018. We examine the effect of (1) bank business model characteristics, (2) sovereign default risk and (3) ECB monetary policy. We disentangle the effect of monetary policy in a direct channel and an indirect effect operating through a sovereign risk channel. In terms of business model variables, we find that the capital ratio and the reliance on stable deposits lowers the perceived default risk of banks, while non-performing loans significantly increase the CDS spreads. Hence, the CDS market distinguishes resilient banks from risky banks. In terms of monetary policy, we document that accommodative ECB actions in general lower bank default risk. We also show that the downward effect of monetary policy on bank risk is mainly transmitted through the sovereign risk channel. Our findings confirm the importance of the Basel 3 capital and stable funding rules and they suggest policy implications in terms of bank business model choices as well as approaches to tackle the bank-sovereign loop in Europe.
    Keywords: banks, credit risk, bank business model, monetary policy, sovereign risk
    JEL: G01 G1 G12 G21 E52
    Date: 2020–05
  50. By: Oguzhan Cepni (Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Cenk C. Karahan (College of Business, University of Tulsa, Tulsa, Oklahoma, United States)
    Abstract: In a local projections framework, we study the impact of oil price shocks, based on a refined approach to disentangle oil price movements, on the dynamics of the entire yield curve in nineteen emerging economies with different positions on the oil market. Responses of the term structure factors to oil market shocks are shown to differ conditional on not only the underlying sources that drive oil price, but also based on the oil-dependence of these economies. In particular, we find that oil price risk shocks put upward pressure on the level, slope, and curvature of interest rates across the board. Supply-driven shocks in oil markets cause a rise in the level of interest rates in oil-importing economies more significantly, yet the downward impact on yield curve slope is more pronounced in oil-exporting countries. Demand-driven shocks have a significant and persistent upward impact on level factors in oil-importing countries. Furthermore, the effect of precautionary demand shocks on the curvature factor is more pronounced in oil-importing countries vis-vis oil-exporters. Significance, direction, and duration of our results may guide monetary policymakers in emerging countries as well as international investors in portfolio and hedging decisions.
    Keywords: Emerging markets, Local projections, Oil price, Supply and demand shocks, Yield curve factors
    JEL: E43 E44 G12 G15 Q43
    Date: 2020–05
  51. By: Ron Alquist; Reinhard Ellwanger; Jianjian Jin
    Abstract: We quantify the reaction of U.S. equity, bond futures, and exchange rate returns to oil price shocks driven by oil inventory news. Across most sectors, equity prices decrease in response to higher oil prices before the 2007/08 crisis but increase after it. Positive oil price shocks cause a depreciation of the U.S. dollar against a broad range of currencies but have only a modest effect on bond futures returns. The evidence suggests that changes in risk premia help to explain the time-varying effect of oil price shocks on U.S. equity returns.
    Keywords: Financial markets; Recent economic and financial developments
    JEL: D83 E44 G14 G15 Q41 Q43
    Date: 2020–03
  52. By: Holm-Hadulla, Fédéric; Thürwächter, Claire
    Abstract: We study how differences in the aggregate structure of corporate debt financing affect the transmission of monetary policy. Using high-frequency financial market data to identify monetary policy shocks in a panel of euro area countries, we find that: bond finance dampens the overall response of firm credit to monetary policy shocks in economies with a high initial share of bond- relative to bank-based finance; this effect weakens, and may even reverse, in economies with a low share of bond financing; and the dampening effect of a larger bond financing share also attenuates the ultimate impact of monetary policy on economic activity. These findings point to corporate bond markets acting as a “spare tire” in situations when bank lending contracts. JEL Classification: E44, E52, G21, G23
    Keywords: bank lending, corporate bonds, firm financing structure, high-frequency identification, local projections
    Date: 2020–05
  53. By: Alina K. Bartscher (University of Bonn); Moritz Kuhn (University of Bonn); Moritz Schularick (University of Bonn); Ulrike I. Steins (University of Bonn)
    Abstract: inequality and financial fragility. We exploit a new household-level dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
    Keywords: household debt, inequality, household portfolios, financial fragility
    JEL: E21 E44 D14 D31
    Date: 2020–04
  54. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
    Abstract: We study how the differential timing of local lockdowns due to COVID-19 causally affects households’ spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President.
    JEL: C83 D84 E31 J26
    Date: 2020–05
  55. By: Adeniyi, Oluwatosin; Adekunle, Wasiu; Orekoya, Samuel
    Abstract: Large external debt stock has been identified as one of the most important factors which have restricted the development of many poor countries. The consensus in the literature remains that external debt promotes growth to the extent that a country does not exceed its debt carrying capacity. Otherwise, additional debt accumulation would serve as a tax on future investment returns capable of creating disincentive to invest in the highly indebted countries. In the light of these arguments, this study investigated the possible role of domestic investment in the non-linear relation between external debt and economic growth in Nigeria over the period from 1981 to 2015. Based on the results of threshold regression analysis employed in this study, the overall findings showed that the impact of external debt on economic growth is sensitive to both measures of external debt used, and whether or not the role of domestic investment is accounted for. Specifically, this study confirmed the existence of the debt Laffer curve associated with the debt overhang theory arising from excessive external debt accumulation. Similarly, empirical support was obtained for the crowding-out effect of excessive external debt servicing. Also, accounting for the role of domestic investment in the non-linear relation between external debt and economic growth reduces the optimal debt carrying capacity of the country. It is therefore suggested that the Nigerian government internalizes a maximum ceiling of 6.81% as the share of external debt stock in gross national income (GNI) so as to enjoy the resulting growth benefits. External debt financing sources that are free of interest charge could also be explored so as to circumvent the burden imposed by excessive external debt servicing.
    Keywords: External debt, Economic growth, Domestic investment, and Threshold analysis
    JEL: C24 E22 F21
    Date: 2018–11–22
  56. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is causing serious stress on the economy due to containment measures. In 2020 the Salvadoran economy is expected to contract by 5.4 percent—7¾ percentage points below pre-COVID projections. A recovery is projected to start in 2021 and continue over the medium term.
    Keywords: Fiscal responsibility law;Fiscal adjustment;Balance of payments;Economic sectors;Public debt;ISCR,CR,GDP,multilaterals,percent of GDP,disbursement,finance gap
    Date: 2020–04–16
  57. By: Cristina Fernández
    Abstract: Este artículo analiza el efecto sobre el empleo de las medidas de aislamiento para enfrentar el contagio del COVID-19 en las dos etapas de la cuarentena que se han presentado -a partir del 24 de marzo y a partir del 27 de abril-. Para realizar este análisis se consideran tres aspectos fundamentales: 1) si el sector/actividad fue declarado como prioritario el 24 de marzo o el 24 de abril; 2) si el sector/ actividad es susceptible de ser realizada a distancia y 3) si el sector/actividad funciona de manera independiente o asalariada y formal o informal.
    Keywords: Mercado Laboral, COVID-19, Coronavirus, Empleo, Colombia, Labor Market, COVID-19, Employment
    JEL: J40 E24
    Date: 2020–04–27
  58. By: Shalva Mkhatrishvili (Macroeconomic Research Division, National Bank of Georgia); Giorgi Tsutskiridze (Macroeconomic Research Division, National Bank of Georgia); Lasha Arevadze (Macroeconomic Research Division, National Bank of Georgia)
    Abstract: It is widely believed that sterilized interventions do not affect domestic currency interest rates. The reason is the word "sterilized". Yet we show in this paper that when collateral base for central bank operations isn't huge, sterilized interventions may still affect interest rates, loan extension and, hence, real economy (beyond the effects of altered exchange rate). The mechanism is simple: when banks make decisions about loan extension and, hence, deposit (money) creation, they take liquidity risk into account. When collateral base for central bank operations isn't big enough, even if collateral constraint isn't currently binding, banks may still fear (massive) withdrawals that, in principle, can get them to the constraint. This fear is reduced when they get permanent liquidity (from the central bank that buys FX) as opposed to getting the same amount of liquidity by borrowing from the central bank (that requires collateral). Reduction in this fear will then result in loan interest rate reduction and/or easier terms for loans. We demonstrate the importance of this mechanism through three different approaches: accounting, theoretical and empirical. The quantitative importance of this channel depends on the amount of unused collateral: the more the collateral the lower the liquidity risk and associated interestrate-effects of FX interventions. In addition, the framework provides other interesting insights about the relationship between liquidity risk and reserve requirements.
    Keywords: Sterilized FX interventions; Interest rates; Collateral constraint; Central bank operations
    JEL: E43 E58 F31
    Date: 2020–04
  59. By: Lange, Fabian (McGill University); Papageorgiou, Theodore (Boston College)
    Abstract: Exploiting results from the literature on non-parametric identification, we make three methodological contributions to the empirical literature estimating the matching function, commonly used to map unemployment and vacancies into hires. First, we show how to non-parametrically identify the matching function. Second, we estimate the matching function allowing for unobserved matching efficacy, without imposing the usual independence assumption between matching efficiency and search on either side of the labor market. Third, we allow for multiple types of jobseekers and consider an "augmented" Beveridge curve that includes them. Our estimated elasticity of hires with respect to vacancies is procyclical and varies between 0.15 and 0.3. This is substantially lower than common estimates suggesting that a significant bias stems from the commonly-used independence assumption. Moreover, variation in match efficiency accounts for much of the decline in hires during the Great Recession.
    Keywords: matching function, search, unemployment, hiring, vacancy
    JEL: E24 J6
    Date: 2020–04
  60. By: Rowena Crawford (Institute for Fiscal Studies); Cormac O'Dea (Cowles Foundation, Yale University)
    Abstract: Using a lifecycle model of consumption, saving and portfolio choice combined with linked survey and administrative data on wealth and lifetime earnings we evaluate measures of retirement preparedness. We estimate heterogeneous discount factors for households and compare the estimates of their patience to their replacement rates { the simple measure of- ten used to evaluate the adequacy of retirement savings. We ï¬ nd ï¬ rst that the speciï¬ cation of the model’s asset structure matters quantitatively for preference parameter estimates { households appear to be much more patient when they are assumed to have access only to a risk-free asset compared to when we account for the fact that much of their wealth is stored in higher-return tax-advantaged private pensions and in housing. Second we ï¬ nd that only the most patient households achieve the replacement rates out of ï¬ nal earnings that are often recommended by policy-makers and industry as sensible benchmarks for retirement preparedness. Notwithstanding this, we ï¬ nd that even quite impatient households in the population we study achieve high replacement rates out of lifetime average income { a more sensible summary measure of preparedness for retirement.
    JEL: D91 D31 E21 D14 H55
    Date: 2020–01
  61. By: Avdic, Daniel; de New, Sonja C.; Kamhöfer, Daniel A.
    Abstract: We study the impact of the business cycle on mental wellbeing by linking rich German survey data to over a decade of detailed gross domestic product information. Endogeneity concerns are tackled using a shift-share instrumental variables approach in which exposure to macroeconomic fluctuations is estimated from regional variations in historical industry sector composition. Estimation results reveal strong negative effects of economic downturns on both life satisfaction and a multidimensional measure of mental health. We provide evidence that these effects are mediated by fear of job loss and income reductions, while actual unemployment effects are negligible. A case study of the impact of the global financial crisis reveals that adverse effects on mental wellbeing are persistent and remained even after the economy recovered.
    Keywords: business cycle,mental health,life satisfaction,global financial crisis,shift-share instrument
    JEL: C36 E32 I15
    Date: 2020
  62. By: Bernd Hayo (University of Marburg)
    Abstract: Using representative survey data collected in 2018, I study how laypersons in Germany perceive the effects of quantitative easing (QE) on their personal financial situation and on national economic inequality. Almost 40% think that their economic situation is unaffected by QE, whereas 20% and 6% believe that QE has made them worse off or better off, respectively. Regarding economic inequality, about one-third of the population is of the opinion that QE contributes to inequality, only 10% think it does not, and 13% cannot perceive an impact. These groups with the different views are characterised using multivariate ordered logit models. First, respondents who feel that their personal economic situation has deteriorated as a result of QE tend to be savers and those with better objective knowledge about monetary policy affairs, whereas those who feel their situation has improved have more trust in the ECB and support conservative (CDU/CSU) and liberal (FDP) parties. Second, the view that QE increases economic inequality in Germany is favoured by Left Party supporters, East Germans, and those with a relatively high level of monetary policy knowledge, whereas those who have more trust in the ECB have the opposite view. Third, persons with a high level of monetary policy knowledge and formal education are more likely to answer the questions on the effects of QE.
    Keywords: Economic inequality, income distribution, quantitative easing, QE, monetary policy, ECB, population survey, Germany
    JEL: E58 D31 Z1
    Date: 2020
  63. By: Choudhary, M. Ali; Pasha, Farooq; Waheed, Mohsin
    Abstract: We develop an economic policy uncertainty (EPU) index for Pakistan in accordance with Baker, Bloom and Davis (2016) by extracting newspaper articles from Websites (i.e., Web-scraping) and we divided this into two indices. The main index, is based on four leading English-language Pakistan newspapers for the period of January 2015 to April 2020. To cover more historical ground, we also present a second index which uses two of the four newspapers and for which Web harvesting is plausible for a longer period of August 2010 to April 2020. The two indices are highly correlated thus they move in tandem and between them they capture events such as: the great floods of 2010; high terrorism activity; heightened exchange rate volatility; political turmoil; reshuffling of economic managers; the IMF program of 2019, and most recently the COVID-19 pandemic.
    Keywords: Uncertainty Index, Developing Economy, Event Study
    JEL: D80 E22 E66 G18 L50
    Date: 2020–05–01
  64. By: Feng, Shuaizhang (Shanghai University of Finance and Economics); Sun, Jiandong (Jinan University)
    Abstract: Accurate identification of economic recessions in a timely fashion is a major macroeconomic challenge. The most successful early detector of recessions, the Sahm rule, relies on changes in unemployment rates, and is thus subject to measurement errors in the U.S. labor force statuses based on survey data. We propose a novel misclassification-error-adjusted Sahm recession indicator and provide empirically-based optimal threshold values. Using historical data, we show that the adjusted Sahm rule offers earlier identification of economic recessions. Based on the newly released U.S. unemployment rate in March 2020, our adjusted Sahm rule diagnoses the U.S. economy is already in recession, while the original Sahm rule does not.
    Keywords: economic recession, Sahm rule, misclassification errors, unemployment rate
    JEL: J64 E32
    Date: 2020–04
  65. By: International Monetary Fund
    Abstract: The COVID-19 pandemic has weakened the macroeconomic outlook for Senegal’s economy. Containment measures to avoid the propagation of the virus, lower external demand, reduced remittances, and the sudden stop of travel and tourism are having a significant impact on growth and generating an urgent budgetary and balance-of-payments (BOP) needs. The authorities have taken strong actions to address the pandemic by declaring a state of emergency, closing schools, suspending flights, banning public gatherings, and imposing a curfew. They are implementing a comprehensive plan to upgrade the health system and contain the economic impact, including by setting up a national solidarity fund and providing targeted support to vulnerable households and firms.
    Keywords: Financial and Monetary Sector;Economic conditions;Debt sustainability;Credit;Balance of payments need;ISCR,CR,percent of GDP,Proj,RCF,pandemic,finance gap
    Date: 2020–04–16
  66. By: Carlos Caballero Argáez y Germán Darío Machado Rodríguez; Germán Darío Machado Rodríguez
    Abstract: Los veinte años transcurridos entre 2000 y 2019 fueron testigos de cambios importantes en la economía mundial y en la colombiana. El período comenzó en la crisis de ‘fin de siglo’ y terminó unas semanas antes de propagarse por el mundo entero la pandemia del coronavirus con su profunda crisis sanitaria y económica. El coronavirus modificó las perspectivas futuras, enmarcando las dos décadas entre dos crisis y convirtiéndolas en un período único de la historia económica colombiana. En este documento se describe la evolución económica y social de Colombia con base en los principales indicadores y, consecuentemente, se realiza un balance de los principales desafíos que tendrá el país durante la tercera década del siglo XXI.
    Keywords: Economía colombiana, política económica, crisis económica, crecimiento económico.
    JEL: E62 H5 H12 N16
    Date: 2020–05–06
  67. By: Sophie Osotimehin; Latchezar Popov
    Abstract: Workers are unequal in the face of the COVID-19 pandemic: Those who work in essential sectors face higher health risk whereas those in non-essential social-consumption sectors face greater economic risk. We study how these health and economic risks cascade into other sectors through supply chains and demand linkages. In the U.S., we find the cascading effects account for about 25-30% of the exposure to both risks. The cascading effect increases the health risk faced by workers in the transportation and retail sectors, and it increases the economic risk faced by workers in the textile and petroleum sectors. We provide sectoral estimates of the health and economic risk for 42 other countries in an online interactive document.
    Keywords: COVID-19; Input-output; Production network; Demand complementarity; Demand shocks
    JEL: E24 E23 D57
    Date: 2020–05–07
  68. By: Tomás Gómez; Alejandro Jara; David Moreno
    Abstract: In this paper, we study whether prudential and monetary policy interactions play a role in the dynamic of domestic banks' lending growth rates in Chile. We look at a group of internationally active banks during 2000q1-2017q4. We ask whether the stance of domestic prudential (monetary) policies in Chile changes international monetary (prudential) policy spillovers and if the transmission of domestic monetary policy shocks to bank credit is affected by the stance of domestic prudential policy. We stress the importance of analysing each prudential policy separately, as results may vary due to banks' exposure to such policies as well as different mechanisms of transmission in place. Overall, tight foreign-currency reserve requirements seem to dampen the transmission of foreign monetary policy shocks significantly, while reinforcing that of local monetary policy. However, this result is less robust for other prudential policies considered. Finally, adverse spillovers from tightening capital requirements abroad may be amplified by a tight monetary policy at home.
    Date: 2020–04
  69. 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 9, 2020. The staff report reflects discussions with the PNG authorities in October 28-November 9, 2019 and is based on the information available as of November 21, 2019. It focuses on PNG 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 PNG and globally.
    Keywords: Financial and Monetary Sector;Fiscal policy;Central banks;Economic indicators;Economic sectors;ISCR,CR,PNG,percent of GDP,SOEs,net lend,Proj
    Date: 2020–04–06
  70. By: Matěj Maivald; Petr Teplý
    Abstract: The paper examines the impact of a low interest rate environment on banks’ credit risk measured by the non-performing loan (NPL)/total loans ratio. We analyse a unique sample of annual data on 823 banks from the Eurozone, Denmark, Japan, Sweden, and Switzerland for the 2011-2017 period, which also covers the period of zero and negative rates. We conclude that after 1 year of low interest rates, the NPL ratio increases. Our results are mostly consistent with the findings of previous research, and the majority of differences can be explained by the changes in the economic environment during the period with low interest rates.
    Keywords: banks, credit risk, low interest rates, non-performing loans
    JEL: C33 E43 G21
    Date: 2020–02–17
  71. By: González Laxe, Fernando; Armesto Pina, José Francisco; Lago-Peñas, Santiago; Sanchez-Fernandez, Patricio
    Abstract: The health crisis caused by COVID-19 in China and its wide-spread to world, has caused from an economic point of view, a global and symmetrical crisis, which affects both supply and demand. In addition, it has caused a significant loss of financial wealth and tensions in the liquidity of families and companies, which will require a greater effort to face the reduction of income, to a greater or lesser degree, thus avoiding, in what productive fabric refers to business closings for not being able to overcome the short term.
    Keywords: COVID-19, economic impact, lock-down, GDP, Galicia
    JEL: E00 E01 H00 H50 O47
    Date: 2020–04
  72. By: Annette Alstadsæter; Bernt Bratsberg; Gaute Eielsen; Wojciech Kopczuk; Simen Markussen; Oddbjorn Raaum; Knut Røed
    Abstract: Using real-time register data we document the magnitude, dynamics and socio-economic characteristics of the crisis-induced temporary and permanent layoffs in Norway. We find evidence that the effects of social distancing measures quickly spread to industries that were not directly affected by policy. Close to 90% of layoffs are temporary, although this classification may change as the crisis progresses. Still, there is suggestive evidence of immediate stress on a subset of firms that manifests itself in permanent rather than temporary layoffs. We find that the shock had a strong socio-economic gradient, hit a financially vulnerable population, and parents with younger children, and was driven by layoffs in smaller, less productive, and financially weaker firms. Consequently though, the rise in unemployment likely overstates the loss of output associated with the layoffs by about a third.
    JEL: E24 J11 J4 J6
    Date: 2020–05
  73. By: Richard K. Lyons; Ganesh Viswanath-Natraj
    Abstract: We take this question to be isomorphic to, "What Keeps Fixed Exchange Rates Fixed?" and address it with analysis familiar in exchange-rate economics. Stablecoins solve the volatility problem by pegging to a national currency, typically the US dollar, and are used as vehicles for exchanging national currencies into non-stable cryptocurrencies, with some stablecoins having a ratio of trading volume to outstanding supply exceeding one daily. Using a rich dataset of signed trades and order books on multiple exchanges, we examine how peg-sustaining arbitrage stabilizes the price of the largest stablecoin, Tether. We find that stablecoin issuance, the closest analogue to central-bank intervention, plays only a limited role in stabilization, pointing instead to stabilizing forces on the demand side. Following Tether's introduction to the Ethereum blockchain in 2019, we find increased investor access to arbitrage trades, and a decline in arbitrage spreads from 70 to 30 basis points. We also pin down which fundamentals drive the two-sided distribution of peg-price deviations: Premiums are due to stablecoins' role as a safe haven, exhibiting, for example, premiums greater than 100 basis points during the COVID-19 crisis of March 2020; discounts derive from liquidity effects and collateral concerns.
    JEL: E02 E4 E5 F3 F4 G12 G14 G15 G2 O16 O33
    Date: 2020–05
  74. By: Paweł Strzelecki (Narodowy Bank Polski); Jakub Growiec (Narodowy Bank Polski); Robert Wyszyński (Narodowy Bank Polski)
    Abstract: Since 2014 Poland witnessed an unprecedented inflow of immigrant workers from Ukraine. Coupled with strong labour demand, this surge in labour supply provided a major contribution to Poland’s economic growth. However, due to problems with capturing immigration in Labour Force Survey (LFS) data this contribution has remained hitherto largely unaccounted in official data. In this paper we use a range of alternative official data sources to estimate the actual number of immigrants, and survey data on migrant characteristics, collected in four Polish cities, to estimate the effective labour supply of Ukrainian immigrants in terms of productivityadjusted hours worked. We find that the arrival of Ukrainian workers was increasing the effective labour supply in Poland in 2013-18 by 0.8% per annum. Imputing this additional labour supply in a growth accounting exercise we find that the (previously unaccounted) contribution of Ukrainian workers amounted to about 0.5 pp. per annum, i.e., about 13% of Poland’s GDP growth in 2013-18. The same figure should be subtracted from the residual contribution of total factor productivity (TFP) growth, suggesting that recent growth in Poland has been in fact much more labour-intensive than previously interpreted.
    Keywords: growth accounting, immigration, labour input, Poland, Ukraine
    JEL: E24 O47 F22 O15
    Date: 2020
  75. By: Francesco MAGRIS; Daria ONORI
    Keywords: , Cash-in-advance , Fiscal Policy Indeterminacy, Nominal rigidities, Taylor rule
    Date: 2020
  76. By: Sangmin Aum (Myongji University); Sang Yoon (Tim) Lee (Queen Mary University of London and CEPR); Yongseok Shin (Washington University in St. Louis and Federal Reserve Bank of St. Louis)
    Abstract: We construct a quantitative model of an economy hit by an epidemic. People differ by age and skill, and choose occupations and whether to commute to work or work from home, to maximize their income and minimize their fear of infection. Occupations differ by wage, infection risk, and the productivity loss when working from home. By setting the model parameters to replicate the progression of COVID-19 in South Korea and the United Kingdom, we obtain three key results. First, government-imposed lock-downs may not present a clear trade-off between GDP and public health, as commonly believed, even though its immediate effect is to reduce GDP and infectionsby forcing people to work from home. A premature lifting of the lock-down raises GDP temporarily, but infections rise over the next months to a level at which many people choose to work from home, where they are less productive, driven by the fear of infection. A longer lock-down eventually mitigates the GDP loss as well as flattens the infection curve. Second, if the UK had adopted South Korean policies, its GDP loss and infections would have been substantially smaller both in the short and the long run. This is not because Korea implemented policies sooner, but because aggressive testing and tracking more effectively reduce infections and disrupt the economy less than a blanket lock-down. Finally, low-skill workers and self-employed lose the most from the epidemic and also from the government policies. However, the policy of issuing "visas" to those who have antibodies will disproportionately benefi t the low-skilled, by relieving them of the fear of infection and also by allowing them to get back to work.
    Keywords: Covid-19, SIR model, quarantine, antibody test, occupations and sectors, economic inequality
    JEL: E24 J22 J24
    Date: 2020–04–27
  77. By: Buchheim, Lukas (University of Munich); Dovern, Jonas (University of Erlangen-Nuremberg); Krolage, Carla (Ifo Institute for Economic Research); Link, Sebastian (Ifo Institute for Economic Research)
    Abstract: This paper studies the determinants of firms' business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdown—which, at this point of the crisis, exhibit plausibly random variation—are an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.
    Keywords: expectations, firm behavior, COVID-19, shutdown, employment, investment
    JEL: D22 D84 E23
    Date: 2020–05
  78. By: Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE, INSEEC U. Research Center - ESCE International Business School, INSEEC U. Research Center)
    Abstract: This article presents an algorithm that extends Ljungqvist and Sargent's (2012) dynamic Stackelberg game to the case of dynamic stochastic general equilibrium models including forcing variables. Its first step is the solution of the discounted augmented linear quadratic regulator as in Hansen and Sargent (2007). It then computes the optimal initial anchor of "jump" variables such as inflation. We demonstrate that it is of no use to compute non-observable Lagrange multipliers for all periods in order to obtain impulse response functions and welfare. The algorithm presented, however, enables the computation of a history-dependent representation of a Ramsey policy rule that can be implemented by policy makers and estimated within a vector auto-regressive model. The policy instruments depend on the lagged values of the policy instruments and of the private sector's predetermined and "jump" variables. The algorithm is applied on the new-Keynesian Phillips curve as a monetary policy transmission mechanism.
    Keywords: forcing variables,new-Keynesian Phillips curve,Stackelberg dynamic game,augmented linear quadratic regulator,Ramsey optimal policy,algorithm
    Date: 2019–10–25
  79. By: International Monetary Fund
    Abstract: The COVID-19 pandemic and concurrent collapse in oil prices are expected to put the economy under extreme stress, particularly in a context of limited buffers. Economic growth will slow, and the fiscal and external positions will weaken, creating significant additional financing needs in 2020.
    Date: 2020–04–16
  80. 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: 2020–04–20
  81. By: Knut Anton Mork (Department of Economics, Norwegian University of Science and Technology)
    Abstract: The Norwegian non-oil economy has benefitted greatly from the presence of the oil sector. Compared to neighboring and otherwise similar Sweden, Norwegian non-oil (“mainland”) firms on average receive significantly higher product prices and pay higher wages. This development can be explained by a model where oil companies drive up the prices of domestic suppliers as they consider foreign suppliers imperfect and inferior substitutes. Although productivity also improved, the resulting increased prosperity is mainly the result of higher prices and wages. Despite a tax system designed to channel the entire resource rent into the sovereign wealth fund, more than half of the resource rent may have leaked to the private, non-oil economy because of the mechanisms studied here. Because the bonanza must end with the oil industry, important productivity gains have not saved Norway from the Dutch disease.
    Keywords: Resource boom, Rent diversion, Duch disease
    JEL: Q33 Q43 E01
    Date: 2020–05–08
  82. By: Ferdinandusse, Marien; Freier, Maximilian; Ristiniemi, Annukka
    Abstract: We consider the effects of quantitative easing on liquidity and prices of bonds in a search-and matching model. The model explicitly distinguishes between demand and supply effects of central bank asset purchases. Both are shown to lead to a decline in yields, while they have opposite effects on market liquidity. This results in a price-liquidity trade-off. Initially, liquidity improves in reaction to central bank demand. As the central bank buys and holds bonds, supply becomes scarcer and other buyers are crowded out. As a result, liquidity can fall below initial levels. The magnitude of the effects depend on the presence of preferred habitat investors. In markets with a higher share of these investors, bonds are scarcer and central bank asset purchases lower yields more. With a lower share of preferred habitat investors and a relatively illiquid market, central bank demand has a stronger positive effect on liquidity. We are the first to construct an index from bond holding data to measure the prevalence of preferred habitat investors in each euro area country. Subsequently, we calibrate the model to the euro area and show how yields and liquidity are affected by the European Central Banks asset purchase programme. JEL Classification: E52, E58, G12
    Keywords: asset purchases, liquidity, search and matching
    Date: 2020–05
  83. By: Boyan Jovanovic; Sai Ma
    Abstract: This paper documents several stylized facts on the real effects of economic uncertainty. First, higher uncertainty is associated with a more dispersed and negatively skewed distribution of output growth. Second, the response of economic growth to an increase in uncertainty is highly nonlinear and asymmetric. Third, higher asset volatility magnifies the negative impact of uncertainty on growth. We develop and estimate an analytically tractable model in which rapid adoption of new technology may raise economic uncertainty which causes measured productivity to decline. The equilibrium growth distribution is negatively skewed and higher uncertainty leads to a thicker left tail.
    Keywords: Uncertainty and growth; Volatility; Downside risk; Growth at risk
    JEL: D80 E44 O40 O47
    Date: 2020–05–07
  84. By: Servaas Storm (Delft University of Technology)
    Abstract: The European UnionÕs Green Deal, a Û1 trillion, 10-year investment plan to reduce greenhouse gas emissions by 55% in 2030 (relative to 1990 levels), has been hailed as the first comprehensive plan to achieve climate neutrality at a continental scale. The Deal also constitutes the UnionÕs new signature mission, providing it with a new raison dÕetre and a shared vision of green growth and prosperity for all. Because the stakes are high, a dispassionate, realistic look at the Green Deal is necessary to assess to what extent it reflects Ôwhat is politically attainableÕ and to what degree it does Ôwhat is requiredÕ in the face of continuous global warming. This paper considers the ambition, scale, substance and strategy of the Deal. It finds that the Green Deal falls short of Ôwhat is imperativeÕ but also of Ôwhat is politically possibleÕ. By choosing to make the Green Deal dependent on global finance, the European Commission itself closes down all policy space for systemic change as well as for ambitious green macroeconomics and green industrial policies, which would enable achieving climate neutrality in a socially and economically inclusive manner. Hence, Otto von Bismarck would have been as unpersuaded by the Green Deal proposal as Greta Thunberg, who dismisses it as mere Òempty wordsÓ.
    Keywords: European Green Deal; green finance; climate transition; green macroeconomics
    JEL: E60 H50 O52 Q54
    Date: 2020–03
  85. By: Vlastakis, Nikolaos; Triantafyllou, Athanasios; Kellard, Neil
    Abstract: The role of oil price shocks in US economic activity and inflation is controversial but a key input to current economic policy. To clarify these relations, we employ a more refined measure of oil shocks based on decomposing highly accurate realized volatility estimated using intraday oil futures data. In reconciling prior results, we find that shocks driven by price increases (decreases) are associated with rising (falling) inflation while only a symmetric volatility channel affects economic activity.
    Date: 2020–05–07
  86. By: Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley); Weber, Michael (University of Chicago)
    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: 2020–04
  87. By: Marcus Cobb; Jennifer Peña
    Abstract: This paper evaluates the performance of a suite of traditional models used to forecast short-term quarterly GDP, going from SARIMA, BVAR, dynamic factors, Bridge models to MIDAS. In total, 155 specifications are considered, and the accuracy of the forecasts is evaluated by means of a rolling out-of-sample prediction exercise for a four-quarter horizon. The main results suggest that forecasts improve as information from the current quarter is incorporated. Also that IMACEC is particularly useful given that it allows expressing GDP in monthly frequency. And finally, that relative performance of models can change abruptly with economic conditions, meaning that combinations of models tend to outperform most of the individual models, which is consistent with the literature.
    Date: 2020–04
  88. By: Shalva Mkhatrishvili (Macroeconomic Research Division, National Bank of Georgia); Douglas Laxton (NOVA School of Business and Economics, Saddle Point Research, The Better Policy Project); Davit Tutberidze (Macroeconomic Research Division, National Bank of Georgia); Tamta Sopromadze (Macroeconomic Research Division, National Bank of Georgia); Saba Metreveli (Macroeconomic Research Division, National Bank of Georgia); Lasha Arevadze (Macroeconomic Research Division, National Bank of Georgia); Tamar Mdivnishvili (Macroeconomic Research Division, National Bank of Georgia); Giorgi Tsutskiridze (Macroeconomic Research Division, National Bank of Georgia)
    Abstract: There has been an increased acceptance of non-linear linkages being the major driver of the most pronounced phases of business and financial cycles. However, modelling these non-linear phenomena has been a challenge, since existing solutions methods are either efficient but not able to accurately capture non-linear dynamics (e.g. linear methods), or accurate but quite resource-intensive (e.g. stacked system or stochastic Extended Path). This paper proposes two new solution approaches that try to be accurate enough and less costly. Moreover, one of those methods lets us do Kalman filtering on nonlinear models in a non-linear way, which is also important for this kind of models, in general, to be more policy-relevant. Impulse responses, simulations and Kalman filtering exercises show the advantages of those new approaches when applied to a simple, but strongly non-linear, monetary policy model.
    Keywords: Non-linear dynamic models, Solution methods, Monetary policy
    JEL: C60 C61 C63 E17
    Date: 2019–10
  89. By: Degasperi,Riccardo (University of Warwick); Hong, Seokki Simon (University of Warwick); Ricco, Giovanni (University of Warwick, CEPR, OFCE-SciencesPo and Now-Casting Economics)
    Abstract: This paper studies the transmission of US monetary shocks across the globe by employing a high-frequency identification of policy shocks and large VAR techniques, in conjunction with a large macro-financial dataset of global and national indicators covering both advanced and emerging economies. Our identification controls for the information effects of monetary policy and allows for the separate analysis of tightenings and loosenings of the policy stance. First, we document that US policy shocks have large real and nominal spillover effects that affect both advanced economies and emerging markets. Policy actions cannot fully isolate national economies, even in the case of advanced economies with flexible exchange rates. Second, we investigate the channels of transmission and find that both trade and financial channels are activated and that there is an independent role for oil and commodity prices. Third, we show that effects are asymmetric and larger in the case of contractionary US monetary policy shocks. Finally, we contrast the transmission mechanisms of countries with different exchange rates, exposure to the dollar, and capital control regimes
    Keywords: Monetary policy ; Trilemma ; Exchange Rates ; Foreign Spillovers JEL codes: E5 ; F3 ; F4 ; C3
    Date: 2020
  90. By: Ricardo M. Reyes-Heroles; Sharon Trailberman; Eva Van Leemput
    Abstract: Protectionist sentiments have been rising globally in recent years. The consequences of a surge in protectionist measures present policy challenges for emerging markets (EMs), which have become increasingly exposed to global trade. This paper serves two main purposes. First, we collect several stylized facts that characterize EMs' role in the new geography of trade. We focus on differences between advanced economies (AEs) and EMs in trade linkages, production structures, and factor supplies. Second, we build a dynamic, general equilibrium, quantitative trade model featuring multiple countries, sectors and factors of production. The model is motivated by and geared to jointly match the facts we present. We use the model to estimate the long-run global impacts of rising trade barriers on EMs|both direct impacts and spillovers through third-country effects. Heterogeneity in openness, production structure, trade linkages, and factor supplies leads to large differences between the impacts on AEs versus EMs. We find that variations in both technological comparative advantage and factor supplies play key roles in shaping these differences.
    Keywords: Emerging market economies; Trade barriers; Comparative advantage; Dynamics
    JEL: E22 F10 F40 F62 O11
    Date: 2020–05–07
  91. By: Aroop Chatterjee; Léo Czajka; Amory Gethin
    Abstract: This paper estimates the distribution of personal wealth in South Africa by combining tax microdata, household surveys, and macroeconomic balance sheet statistics. We systematically compare estimates of the wealth distribution obtained by direct measurement of net worth, rescaling of reported wealth to balance sheet totals, and capitalization of income flows. We document major inconsistencies between available data sources, in particular regarding the measurement of dividends, corporate assets, and wealth held through trusts.
    Keywords: Administrative data, households balance sheets, income capitalization, micro-macro gap, national accounts, wealth distribution, wealth surveys
    Date: 2020
  92. By: Musgrave, Ralph S.
    Abstract: One of the main activities of banks is accepting deposits, lending on most of the money concerned, while telling depositors their money is safe, which it quite clearly is not, because loaned on money is never totally safe. That is fraud: indeed when any other financial institution does that (e.g. a mutual fund or private pension scheme), that activity is classed as fraud. The latter problem can be dealt with via taxpayer backed deposit insurance and billion dollar bail-outs for banks in trouble, but that puts banks in a privileged position relative to other financial institutions, and indeed non-financial institutions and corporations. I.e. taxpayer backed deposit insurance and bailouts amount to a subsidy for banks. Plus taxpayer backing for depositors who want their money loaned out with a view to earning interest flouts a widely accepted principle, namely that it is not normally the job of governments / taxpayers to stand behind commercial activities, and having a bank lend on your money is certainly a commercial activity. The solution is full reserve banking (also known as Sovereign Money), which consists of abandoning deposit insurance and bailouts, and giving depositor / investors the choice between, first, a totally safe method of storing money, which consists simply of having money lodged with government or the central bank, with that money earning little or no interest, and second, an account where money is loaned out, with the result that a higher rate of interest is earned, but depositor / investors carry the risks.
    Keywords: banks; fraud; full reserve; fractiona reserve.
    JEL: E58 G2 G21
    Date: 2020–04–23
  93. By: Nicolas Petrosky-Nadeau; Robert G. Valletta
    Abstract: The COVID-19 pandemic has upended the U.S. economy and labor market. We assess the initial spike in unemployment due to the virus response and possible paths for the official unemployment rate through 2021. Substantial uncertainty surrounds the path for measured unemployment, depending on the path of the virus and containment measures and their impact on reported job search activity. We assess potential unemployment paths based on historical patterns of monthly flows in and out of unemployment, adjusted for unique features of the virus economy. The possible paths vary widely, but absent hiring activity on an unprecedented scale, unemployment could remain in double-digits into 2021. We also find that the increase in measured unemployment could be meaningfully tempered by a substantial reduction in labor force participation.
    Keywords: Labor market; unemployment; employment; labor force; COVID-19
    JEL: E24 J21 J60
    Date: 2020–05–05
  94. By: International Monetary Fund
    Abstract: The impact of the COVID-19 pandemic on the Ghanaian economy will be severe. The economic shock initially materialized through trade disruptions with China, the decline in commodity prices, and tightening of financial conditions, even before the first confirmed case on March 12. The authorities’ policy response to the pandemic has been timely and proactive, focusing on public health preparedness measures, partial lockdowns, and a targeted economic relief package. The pandemic and ensuing containment and behavioral responses are dampening domestic growth, affecting revenue mobilization, and putting significant pressures on foreign exchange reserves.
    Date: 2020–04–16
  95. By: International Monetary Fund
    Abstract: The Covid-19 pandemic is having a severe impact on Madagascar’s economy. During the last two months, tourist arrivals have declined dramatically, and disruptions are beginning to materialize in mining and manufacturing exports, as well as international supply chains which are impacting trade and investment. The first Covid-19 cases were recently confirmed in the country. Even before this, the public health system faced many challenges, including coping with yearly outbreaks of the plague.
    Keywords: Balance of payments;Credit;Economic policy;External debt;Macroprudential policies and financial stability;ISCR,CR,RCF,pandemic,finance gap,Proj,percent of GDP
    Date: 2020–04–10
  96. By: Benjamín García; Juan Guerra-Salas
    Abstract: An immigration shock has an ambiguous effect on inflation. On one hand, aggregate consumption increases with a suddenly larger population; this “demand channel” creates inflationary pressures. On the other hand, the labor market becomes more slack as immigrants search for jobs, containing wage growth; this “labor supply channel” creates disinflationary pressures. The response of an inflationtargeting central bank to an immigration shock is, therefore, not obvious. We study these competingchannels in a New Keynesian model of a small open economy with search frictions in the labor market. Our simulations are designed to characterize the possible response of inflation and monetary policy in Chile, a small open emerging country that has experienced a substantial immigration flow in recent years.
    Date: 2020–04
  97. By: Castañeda Garza, Diego; Bengtsson, Erik (Department of Economic History, Lund University)
    Abstract: This paper, building on new archival research, presents the first comprehensive estimates of income inequality in Mexico before 1950.We usethe social tables method of combining census information with group-level income data to reconstructMexican incomesand their distributionfor four benchmark years, 1895,1910,1930 and 1940.The Gini coefficient for incomes is 0.48in 1895, 0.47in 1910, 0.41in 1930 and 0.51in 1940.The evidence points to inequality as a multi-faceted phenomenon. Mexican incomeinequalitywas shaped by the economic policies of the various regimes, as well as the growth possibilities of various sectors. The revolution of the 1910s entailed reforms(of the labormarket and of land ownership) which equalized incomes, but when these reforms were substantially reversed, inequality rose again.The developments are in line with a new branch of the literature that recognizesthe importance for inequality dynamics of land ownership.The levelsof inequality in the long term display ratherstrong persistence, in line with institutionalist arguments.
    Keywords: Income inequality; Income distribution; Socialtables; Mexico; Mexican revolution; Political economy
    JEL: D63 E01 N36 O15
    Date: 2020–03–06
  98. By: Jan Hagemejer (University of Warsaw); Aleksandra Hałka (Narodowy Bank Polski); Jacek Kotłowski (SGH Warsaw School of Economics)
    Abstract: We examine the relationship between development of global value chains and changes in the exchange rate pass-through to producer prices. In contrast to the existing research we assume that the decline in ERPT resulting from the enhanced participation in GVC may be nonlinear with respect to the country’s position in the global value chain, reflecting divergent firms’ market power at various stages of vertical specialization process. We investigate a panel of 43 advanced and emerging economies using a panel smooth transition regression (PSTR) model and WIOD data and find that growing backward GVC participation of the suppliers of imported intermediate input results in the reduction of the ERPT to producer prices. We also provide evidence that this effect is non-linear. The exchange rate pass-through for countries, whose suppliers are strongly involved in the production along the global value chains is significantly (four times) smaller than for economies with suppliers not participating in GVC. We document that the decline in the aggregate ERPT in recent years has been mainly due to changes in the exchange rate pass-through for the EU members states due to increased backward GVC participation of their major trading partners. For other countries, the ERPT remained roughly the same throughout the analyzed period.
    Keywords: Global value chains, exchange rate pass-through, inflation, PSTR model
    JEL: C23 E31 F14 F62
    Date: 2020
  99. By: International Monetary Fund
    Abstract: Albania has been hit by two consecutive major shocks. On November 26, 2019 Albania was struck by a severe earthquake that killed 51 people and caused significant physical damage. In addition, the ongoing COVID-19 pandemic is severely disrupting economic activity, with the expectation of sharp declines in tourism, FDI, remittances, and temporarily restrained financing amid a tightening of global financial conditions. The authorities’ policy response to the shocks has been timely and targeted. Nonetheless, real GDP is expected to contract severely this year. The earthquake and COVID-19 pandemic, and the planned fiscal expansion to help cushion these shocks, have created urgent fiscal and external financing needs.
    Date: 2020–04–17
  100. By: William G. Gale; Hilary Gelfond; Jason J. Fichtner; Benjamin H. Harris
    Abstract: We examine household wealth across birth cohorts and over time using data from the Survey of Consumer Finances. We show that although the Great Recession reduced wealth in every age group, longer-term trends indicate that the wealth of older age groups has increased while the wealth of younger age groups has declined. A substantial share of these changes, in both directions, can be explained by changes in household demographic and economic characteristics. As for the millennial generation, their median wealth in 2016 was lower than the wealth of any similarly aged cohort between 1989 and 2007. Millennials will have several advantages in wealth accumulation relative to previous generations, such as more education and longer working lives, but also several disadvantages, including weak prospects for economic growth and delays in home purchase and marriage. The millennial generation contains a significantly higher percentage of minorities than previous generations. We estimate that minority households have tended to accumulate less wealth than whites in the past, controlling for household characteristics, and the difference appears to be growing over time for Blacks relative to whites. These results apply to the period before the COVID-19 pandemic and are best interpreted as addressing generational wealth patterns through 2016 and providing a pre-COVID benchmark against which future studies can be compared.
    JEL: D1 E2
    Date: 2020–05
  101. By: International Monetary Fund
    Abstract: This Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on March 17, 2020 on a lapse-of-time basis. The staff report reflects discussions with the Nepali authorities in Kathmandu during January 5-17, 2020 and is based on the information available as of end-January 2020. It focuses on Nepal’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. The report, 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 Nepal and globally.
    Keywords: External sector;Financial statistics;Credit;Economic indicators;Economic sectors;ISCR,CR,NRB,percent of GDP,fiscal federalism,remittance,Nepalese rupee
    Date: 2020–04–06
  102. By: Selim Raihan; Sunera Saba Khan
    Abstract: The Bangladesh economy has undergone significant structural changes over the last four decades. The share of agriculture in GDP has declined, while the significance of industry and service sectors has increased. These structural changes have been associated with persistent challenges such as lack of diversification, poor working conditions, low productivity, and high degree of informality, obstructing the progress towards inclusive economic growth.
    Keywords: Bangladesh, Structural transformation, Inclusive growth, Inequality, ready-made garments
    Date: 2020
  103. By: Perugini, Cristiano (University of Perugia); Vladisavljevic, Marko (Institute of Economic Sciences, Belgrade)
    Abstract: The public health measures implemented by governments to limit the spread of the COVID-19 pandemic will produce significant economic consequences that are likely to exacerbate social and economic inequalities. In this paper we provide a framework to analyse how income inequality, besides other structural and policy-related features, shapes the trade-off between economic lockdown and contagion. We then supply empirical evidence, by means of simulation analysis, on the distributive effects of the lockdown for 31 European countries. Our results confirm that the lockdown is likely to significantly increase inequality and poverty and that the magnitude of the change is larger in more unequal countries. Such a cumulative process shapes a serious challenge for social and economic stability in the most vulnerable countries, which needs adequate policy response. However, the magnitude of the compensating measures is likely to be financially unsustainable, forcing them to lift necessary public health measures prematurely in order to avoid social collapse. This is likely to increase the risk of a new spread of the pandemic that might easily spill over to other countries. A supranational, coordinated health and fiscal policy effort is therefore in the interest of all economies willing to be part of a globalised economy.
    Keywords: COVID-19, pandemic, lockdown, inequality, social stability, supranational policy coordination
    JEL: D31 E61 H31 I30
    Date: 2020–05
  104. By: Selin ÖZYURT
    Abstract: Le Ghana se distingue des autres économies de l’Afrique par ses acquis démocratiques consolidés ainsi que par le renforcement de son régime de croissance depuis les années 2000. Le démarrage de la production pétrolière au cours des années 2010 a significativement transformé le paysage économique du pays, ayant pour conséquences d’accélérer le rythme de croissance mais également d’exposer le pays aux fluctuations des cours de pétrole. À ce jour, le modèle économique du Ghana repose excessivement sur l’exploitation des ressources naturelles et les activités des services peu qualifiés. Certes, le renforcement de croissance depuis les deux dernières décennies s’est traduit par une hausse du revenu par habitant mais a aussi creusé les inégalités au sein de la population. De ce fait, le développement d’un secteur industriel diversifié devient primordial pour assurer une croissance économique pérenne et inclusive et pour générer des emplois.
    Keywords: Ghana
    JEL: E
    Date: 2019–06–26
  105. By: Basu, Parantap (Durham University Business School, Durham University); Jamasb, Tooraj (Department of Economics, Copenhagen Business School)
    Abstract: We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. Although the model is general we relate it to the UK’s green growth policy objective. In our model, final output is produced with two reproducible inputs, green and man-made capital. The growth of man-made capital causes depreciation of green capital via carbon emissions and related externalities which the private sector does not internalize. A benevolent government uses carbon taxes to encourage firms to substitute man-made capital with green capital in so far the production technology allows. Doing so, the damage to natural capital by emissions can be partly reversed through a lower socially optimal long run growth. The trade-off between environmental quality and long-run growth can be overcome by a pollution abatement technology intervention. However, if the source of pollution is consumption, the optimal carbon tax is zero and there is no trade-off between environment policy and growth. A corrective consumption tax is then needed to finance a public investment programme for replenishing the green capital destroyed by consumption based emissions.
    Keywords: Green growth; Sustainability; Carbon tax; Clean growth; Resource substitution
    JEL: E10 O30 O40 Q20
    Date: 2020–05–01
  106. By: Armida Alisjahbana; Kyunghoon Kim; Kunal Sen; Andy Sumner; Arief Yusuf
    Abstract: This paper discusses the 'developer's dilemma'?a tension emerging from the fact that developing countries are simultaneously seeking structural transformation and broad-based growth to raise incomes of the poor. Simon Kuznets originally hypothesized that structural transformation may have a tendency?in the absence of policy intervention?to put upward pressure on income inequality. However, broad-based economic growth requires steady or even falling income inequality to maximize the growth of incomes at the lower end of the distribution.
    Keywords: Income inequality, Structural transformation, Economic development, Kuznets, Lewis
    Date: 2020
  107. By: Bengtsson, Erik (Lund University); Rubolino, Enrico (Institute for Social and Economic Research (ISER), University of Essex); Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: This paper analyzes the determinants of the labor-capital split in national income for 20 countries since the late 1800s. Our main identification strategy focuses on unique historical quasi-experimental events: i) the introduction of universal suffrage, ii) close election wins of left-wing governments, iii) decolonization, iv) unionization shocks, and v) wars. We also run instrumented panel regressions. Our findings show that the capital share decreased in response to radical institutional and political shifts, such as the introduction of universal suffrage in the early 1900s, the undoing of colonialism and the implementation of redistributive policies during the post-war period. By contrast, the capital share increased following the erosion of trade unionism since the 1980s. Wars, despite destroying the capital stock, generated windfall profits that increased the capital share.
    Keywords: Inequality; Factor shares; Event study; Economic history; Institutions
    JEL: D33 E02 N00
    Date: 2020–05–05
  108. By: Marion HEMAR
    Abstract: À la suite de son indépendance en 1991, l’Arménie a dû faire face à plusieurs défis pour réorienter son économie planifiée vers une économie de marché. Le pays a adopté une stratégie de transition rapide. Il a introduit, dans un délai très court, une série de réformes permettant la libéralisation des prix et du commerce, et a implémenté une politique monétaire rigoureuse contrôlant l’inflation et réduisant les dépenses publiques. Ainsi, entre 1994 et 2008, le taux de croissance annuelle moyen s’élève à presque 9 %. Au cours de cette période, le pays a connu des avancées sociales considérables mais des enjeux sociaux et démographiques majeurs demeurent. Le taux de chômage est élevé et près d’un tiers de la population vit en dessous du seuil de pauvreté. Conséquence de l’absence de débouchés sur le marché du travail et du conflit au Haut-Karabagh, les vagues migratoires se sont succédé et la population arménienne a significativement baissé au cours des dernières années.
    Keywords: Arménie
    JEL: E
    Date: 2019–12–11
  109. By: David CHETBOUN
    Abstract: La fin de l’année 2015 et le début de 2016 ont constitué un tournant historique pour l’Argentine à bien des égards. Sur le plan politique tout d’abord puisque, pour la première fois depuis le retour de la démocratie en 1983, un candidat – Mauricio Macri (coalition de centre-droit) – qui n’est ni membre du parti péroniste, ni du parti radical, a été élu à la présidence de la République en novembre 2015. Sur le plan économique également, dans la mesure où, après 12 ans d’un modèle axé sur le protectionnisme, l’interventionnisme de l’État et le soutien à la consommation des ménages, la politique économique mise en place par le gouvernement Macri induit un changement de cap par rapport à celle de l’administration précédente. Elle se veut en effet davantage extravertie, misant sur le libéralisme économique et la relance de l’investissement financé par le recours à de l’endettement externe.
    Keywords: Argentine
    JEL: E
    Date: 2018–10–18
  110. By: Lawrence Christiano (Northwestern University); Mathias Trabandt (Free University Berlin); Karl Walentin (Riksbank)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2020
  111. By: Angel de la Fuente
    Abstract: En las últimas semanas se han ido publicando los primeros datos que permiten comenzar a cuantificar los efectos económico de la pandemia de Covid. Utilizando estos datos, en esta nota se construyen algunas proyecciones ilustrativas del impacto que la crisis sanitaria podría tener sobre la evolución del PIB español y sobre nuestras cuentas públicas en función de la duración del proceso de normalización económica que ahora comienza.
    Date: 2020–05

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