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on Macroeconomics |
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Issue of 2020‒05‒25
94 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | PINSHI, Christian P. |
| Abstract: | The uncertainty of COVID-19 seriously disrupts the Congolese economy through various macroeconomic channels. This pandemic is influencing the management of monetary policy in its role as regulator of aggregate demand and guarantor of macroeconomic stability. We use a Bayesian VAR framework (BVAR) to provide an analysis of the COVID uncertainty shock on the economy and the monetary policy response. The analysis shows important conclusions. The uncertainty effect of COVID-19 hits unprecedented aggregate demand and the economy. In addition, it undermines the action of monetary policy to soften this fall in aggregate demand and curb inflation impacted by the exchange rate effect. We suggest a development of unconventional devices for a gradual recovery of the economy. |
| Keywords: | Uncertainty, COVID-19, Monetary policy, Bayesian VAR |
| JEL: | C32 E32 E51 E52 E58 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100184&r=all |
| By: | Saki Bigio; Mengbo Zhang; Eduardo Zilberman |
| Abstract: | The Covid-19 crisis has lead to a reduction in the demand and supply of sectors that produce goods that need social interaction to be produced or consumed. We interpret the Covid-19 shock as a shock that reduces utility stemming from “social” goods in a two-sector economy with incomplete markets. We compare the advantages of lump-sum transfers versus a credit policy. For the same path of government debt, transfers are preferable when debt limits are tight, whereas credit policy is preferable when they are slack. A credit policy has the advantage of targeting fiscal resources toward agents that matter most for stabilizing demand. We illustrate this result with a calibrated model. We discuss various shortcomings and possible extensions to the model. |
| JEL: | E32 E44 E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27118&r=all |
| By: | Dirección General de Economía y Estadística (Banco de España) |
| Abstract: | The Spanish economy prolonged its expansionary phase in 2019. However, its growth rate moderated, due to the loss of momentum of domestic demand, which counteracted the larger contribution of the external sector. The deceleration of internal demand reflected the lower dynamism of private consumption and investment, while the external demand contribution was the result of an easing in imports and some acceleration in exports. In line with these developments, employment creation grew at a slower pace. In any case, the Spanish economy showed greater resilience to the deterioration of the external context than the euro area, and hence kept its positive growth differential. Inflationary pressures remained contained in spite of the increase in unit labour costs. Against this background, the Spanish economy moved in early 2020 on a progressively decelerating path towards its potential growth rate. This outlook has been completely changed by the global health crisis caused by COVID-19. It has affected with virulence a large number of countries, including Spain, and is severely disrupting economic activity. The duration and intensity of the crisis is currently shrouded in great uncertainty. |
| Keywords: | Spanish economy, investment, exports, imports, deficit, prices, employment |
| JEL: | A10 E21 E22 E24 H6 E31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2011&r=all |
| By: | Axelle Arquié; Jérôme Héricourt; Fabien Tripier |
| Abstract: | The scale of public expenditure to be incurred in the Covid-19 health crisis is raising heated debates about the appropriate funding. Long rejected by mainstream macroeconomics due to its possible inflationary consequences, monetization is currently undergoing a surprising rehabilitation. Defined as the financing of public expenditure by money issuance -without the government ever reimbursing the central bank-, monetization appears as an attractive solution in a context where the burden of public debt could become particularly problematic due both to the persistent threat of secular stagnation and the massive Covid-19 shock. This policy brief offers some theoretical insights into this debate opposing monetization and issuance of additional public debt. We first clarify what is happening to current debt and how its sustainability can be assessed, before examining how current mainstream macroeconomics can be used to rehabilitate the use of monetization of public spending. In conclusion, we draw attention to the particular democratic challenges implied by such a policy in the Euro area context, in terms of balance of powers between European institutions. |
| Keywords: | Monetization;Covid-19;Seignorage;Government spending;Fiscal multipliers;Helicopter drop |
| JEL: | E32 E52 E62 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepipb:2020-31&r=all |
| By: | Bauermann, Tom |
| Abstract: | The persistently low and (partly) negative output growth in Germany in 2019 evoked memories of the recent global economic crisis and, by this, sparked debates about measures to counter the growing number of unemployed, for example changing the generosity of unemployment benefits (UB) and short-time work. This paper aims to contribute to the theoretical literature of policy responses to recessions by analyzing three prominent instruments: a) a permanent (simultaneous) reduction of unemployment benefits and increasing search efforts, b) a fiscal stimulus and c) short-time work. In contrast to other studies that use, e.g., search (and matching) models, I build an agent-based macroeconomic model (ABM). Using an ABM allows me to analyze the macro- and microeconomic effects of such policies as well as their interplay. Further, I can analyze the effects from the heterogeneity of agents. I find four main results: 1) a) has nearly no effect on unemployment in the short run and its effects are limited in the long run. This is contrary to the canonical search and matching models, even though the policy reveals the same 'desired' effects, e.g. shorter unemployment spells. Nevertheless, it confirms recent research on the topic. 2) However, contrary policies, i.e. increasing the unemployment benefits, do not improve the situation either. Unemployment rather increases in the long run. 3) In comparison to a), policies b) and c) can dampen unemployment in the short run. 4) In contrast to representative agent (equilibrium) models, I can show that short-time work supports the economic recovery through demand stabilization and distributive effects among heterogeneous firms. Especially, the distributive effects of short-time work have not been shown in other papers so far. |
| Keywords: | Agent-based model,governmental policy responses,macroeconomics,recession,unemployment |
| JEL: | E12 E24 C63 E32 H12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:847&r=all |
| By: | Francesco Bianchi; Renato Faccini; Leonardo Melosi |
| Abstract: | The COVID pandemic hit the US economy at a time in which the ability of policymakers to react to adverse shocks is greatly reduced. The current low interest rate environment limits the tools the central bank can use to stabilize the economy, while the large public debt curtails the efficacy of fiscal interventions by inducing expectations of costly fiscal adjustments. Against this background, we study the implications of a coordinated fiscal and monetary strategy aiming at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under the coordinated strategy, the fiscal authority introduces an emergency budget with no provisions on how it will be balanced, while the monetary authority tolerates a temporary increase in inflation to accommodate the emergency budget. The coordinated strategy enhances the efficacy of the fiscal stimulus planned in response to the COVID pandemic and allows the Federal Reserve to correct a prolonged period of below-target inflation. The strategy results in only moderate levels of inflation by separating long-run fiscal sustainability from a short-run policy intervention. |
| JEL: | E30 E52 E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27112&r=all |
| By: | Stéphane Dupraz; Emi Nakamura; Jón Steinsson |
| Abstract: | In standard models, economic activity fluctuates symmetrically around a ``natural rate'' and stabilization policies can dampen these fluctuations but do not affect the average level of activity. An alternative view–labeled the ``plucking model'' by Milton Friedman–is that economic fluctuations are drops below the economy's full potential ceiling. If this view is correct, stabilization policy, by dampening these fluctuations, can raise the average level of activity. We show that the dynamics of the unemployment rate in the US display a striking asymmetry that strongly favors the plucking model: increases in unemployment are followed by decreases of similar amplitude, while the amplitude of the increase is not related to the amplitude of the previous decrease. We develop a microfounded plucking model of the business cycle. The source of asymmetry in our model is downward nominal wage rigidity, which we embed in an explicit search model of the labor market. Our search framework implies that downward nominal wage rigidity is consistent with optimizing behavior and equilibrium. In our plucking model, stabilization policy lowers average unemployment and thereby yields sizable welfare gains. |
| Keywords: | : Downward Nominal Rigidity, Stabilization Policy, Labor Search. |
| JEL: | E24 E30 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:748&r=all |
| By: | Christophe Blot (Sciences Po-OFCE, Université Paris Nanterre - EconomiX); Paul Hubert (Sciences Po-OFCE); Fabien Labondance (Université de Bourgogne Franche-Comté – CRESE, Sciences Po-OFCE) |
| Abstract: | Is the effect of US monetary policy on stock price bubbles asymmetric? We use a range of measures of excessive stock price variations that are unrelated to business cycle fluctuations. We find that the effects of monetary policy are asymmetric so responses to restrictive and expansionary shocks must be differentiated. The effects of restrictive monetary policy are more powerful than the effects of expansionary policies. We also find evidence that the asymmetric effect of monetary policy is state-contingent and depends on monetary, credit and business cycles as well as stock price boom -bust dynamics. |
| Keywords: | Non-linearity, Equity, Booms and busts, Federal Reserve. |
| JEL: | E44 G12 E52 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2012&r=all |
| By: | Congressional Budget Office |
| Abstract: | CBO estimates that real (adjusted for inflation) gross domestic product (GDP) will contract by 11 percent in the second quarter of this year, which is equivalent to a decline of 38 percent at an annual rate. In the second quarter, the number of people employed will be almost 26 million lower than the number in the fourth quarter of 2019. |
| JEL: | E20 E23 E60 E62 E66 H20 H50 H60 |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:56351&r=all |
| By: | Kyriakos T. Chousakos; Gary B. Gorton; Guillermo Ordoñez |
| Abstract: | A financial crisis is an event of sudden information acquisition about the collateral backing short-term debt in credit markets. When investors see a financial crisis coming, however, they react by more intensively acquiring information about firms in stock markets, revealing those that are weaker, which as a consequence end up cut off from credit. This cleansing effect of stock markets’ information on credit markets’ composition discourage information acquisition about the collateral of the firms remaining in credit markets, slowing down credit growth and potentially preventing a crisis. Production of information in stock markets, then, acts as a macroprudential tool in the economy. |
| JEL: | E32 E44 G01 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27113&r=all |
| By: | Pauline Gandré |
| Abstract: | In the US, the linkages between the housing market, the credit market and the real sector have been striking in the past decades. To explain these linkages, I develop a small-scale DSGE model in which agents update non-rational beliefs about future house price growth, in accord with recent survey data evidence. Conditional on subjective house price beliefs, expectations are model-consistent. In the model with non-rational expectations, both standard productivity shocks and shocks in the credit sector generate endogenously persistent booms in house prices. Long-lasting excess volatility in house prices, in turn, affects the financial sector (because housing assets serve as collateral for household and entrepreneurial debt), and propagates to the real sector. This amplification and propagation mechanism improves the ability of the model to explain empirical puzzles in the US housing market and to explain the macro-financial linkages during 1985-2019. The learning model can also replicate the predictability of forecast errors evidenced in survey data. |
| Keywords: | Housing booms, Financial Accelerator, Business Cycles, Non-rational Expectations, Learning. |
| JEL: | D83 D84 E32 E44 G12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-10&r=all |
| By: | Oreste Napolitano (University of Naples Parthenope); Salvatore Capasso (University of Naples Parthenope); Ana Laura Viveros (Universidad Nacional Autónoma de México) |
| Abstract: | The nature of the ?nancial crisis in 2008 imposed new challenges for macroe-conomic theory and policy-makers. In this context, a ?nancial conditions index(FCI) could be a useful tool to identify the state of ?nancial conditions in acountry. We construct a FCI for Mexico to analyse the role of prices of ?nancialassets in the formulation of monetary policy under the in?ation-targeting regime.We estimate FCIs by two di?erent methodologies using monthly data from 1990to 2017. The variables are considered according to the mechanismof transmission of monetary policy and incorporating other important ?nancialvariables, those characterise developing countries. Our results show that FCI isa good predictor in a low/non-in?ation environment. |
| Keywords: | Financial Conditions, Monetary policy, Vector autoregressive models |
| JEL: | E52 E58 C01 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:10012456&r=all |
| By: | Pinshi, Christian P. |
| Abstract: | This article aims to consolidate strategic importance of communication in managing expectations and stabilizing the congolese economy. We propose a reinforcement in terms of communication, on the one hand by using not only french as a language, but also the national languages, such as Lingala, and on the other hand by using a maximum of television broadcasts on dedication from the congolese central bank to stabilize the economy. These instruments could restore confidence and allow the bank central of the Congo to better manage exchange rate and inflation expectations. In addition, there are reportedly no studies in the Democratic Republic of the Congo related to the influence of central bank communication on expectations. Thus, this analysis contributes to the Central bank theoretical literature. In prospect a development of a new communication index of the Bank central of the Congo is desirable in order to reinforce the effectiveness of the monetary policy. |
| Keywords: | Monetary policy, communication, expectation |
| JEL: | E52 E58 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100262&r=all |
| By: | Lacina Balma (Research Department, African Development Bank); Mthuli Ncube (Minister of Finance and Economic Development, Republic of Zimbabwe) |
| Abstract: | It is well recognized that infrastructure investment is vital for growth. However, its financial implications could be huge, which could not be met by traditional sources of financing only. Using a general equilibrium model applied to Ghana, this paper combines four fiscal rules for managing oil revenue for public investment spending: i) the government combines both oil proceeds and borrowing (baseline experiment); ii) the government saves all oil proceeds and resort to borrowing (Bird-in-Hand experiment); iii) the government invests all oil proceeds and does not borrow (Hand-to-Mouth experiment); iv) aggressive investment approach; and v) baseline with structural reforms. We find that the baseline rule is susceptible to generate an intermediate impact on non-oil GDP growth and non-oil fiscal balance while minimizing the macroeconomic and fiscal volatility. We find that the baseline rule is susceptible to generate an intermediate impact on non-oil GDP growth and non-oil fiscal balance while minimizing macroeconomic and fiscal volatilities. In contrast, the Bird-in-Hand approach generates a smooth and long lasting non-oil GDP growth, and is susceptible to contain absorptive capacity constraints and Dutch disease effects. The Hand-to-Mouth approach leads to macroeconomic volatility, lower non-oil GDP growth and declining non-oil fiscal balance as a share of GDP. The aggressive investment approach is likely to produce higher non-oil GDP growth compared to the baseline but will accentuate downside risks in the baseline. Furthermore, we find that structural reforms that improve the efficiency of the baseline scaling up of public investment create sizable increase in public capital stock, which has additional positive spillover effect to the rest of the economy. JEL classification: Q32; E22; E62 |
| Keywords: | Oil Revenue, Public Investment, Sustainable Development, Ghana |
| Date: | 2019–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2448&r=all |
| By: | Hein, Eckhard |
| Abstract: | We introduce a gender wage gap into basic one-good textbook versions of the neo-Kaleckian distribution and growth model and examine the effects of improving gender wage equality on income distribution, aggregate demand, capital accumulation and productivity growth. For the closed economy model, reducing the gender wage gap has no effect on the profit share, and a gender equality-led regime requires the propensity to save out of female wages to fall short of the propensity to save out of male wages. For the open economy model this condition is modified by the effects of improved gender wage equality on exports and - through changes of the profit share - on domestic demand. Finally for the open economy with productivity growth we find an unambiguously expansionary effect of narrowing the gender wage gap on long-run equilibrium capital accumulation and productivity growth if the demand growth regime is gender equality-led. A gender equality-burdened demand growth regime, however, may generate different long-run effects of improving gender wage equality on capital accumulation and productivity growth: expansionary, intermediate or contractionary. |
| Keywords: | gender wage gap,distribution,growth,Kaleckian model |
| JEL: | E11 E21 E22 O40 O41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1412020&r=all |
| By: | Markus K. Brunnermeier; Sebastian A. Merkel; Yuliy Sannikov |
| Abstract: | This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy's growth rate. |
| JEL: | E44 E52 E63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27116&r=all |
| By: | Pierre Aldama; Jean-François Ouvrard |
| Abstract: | his paper presents a set of Basic Model Elasticities (BMEs) of the Banque de France's new macroeconomic model for France, FR-BDF. A detailed description of the model is provided in Lemoine et al (2019) and this "BMEs workbook" is designed as a tool for practitioners of economic policy forecasting or analysis in France. It describes the model's response to a number of shocks grouped into three families: external shocks (oil prices, world demand, competitors’ prices), monetary and financial shocks (exchange rates, short-term interest rates, long-term interest rates, housing prices), public finance shocks (public consumption, public investment, social benefits, direct taxes, social contributions) and structural shocks (labor efficiency, labor force, equilibrium unemployment rate). These different BMEs also illustrate the convergence properties of the model, in particular the importance of monetary and financial channels and the link between the real and nominal spheres in the transmission and absorption of shocks. |
| Keywords: | : Semi-Structural Modelling, Macroeconomic Forecasting, Macroeconomic Policy Analysis économiques. |
| JEL: | E17 E6 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:750&r=all |
| By: | Christopher Heiberger (University of Augsburg, Department of Economics); Daniel Fehrle (University of Augsburg, Department of Economics) |
| Abstract: | A The risk premium puzzle is even worse than previously reported if housing is also taken into consideration next to equity. While housing premia are only moderately smaller than equity premia, they are significantly less volatile and the Sharpe ratio of housing is significantly larger. Hence, three question arise: i) are existing approaches to explain the equity premium puzzle also capable of explaining even larger Sharpe ratios than previously required, ii) can return rates and volatilities of various assets be differentiated, and iii) can different Sharpe ratios between the two risky assets be matched. We analyze these questions, next to business cycle statistics, by including housing into seminal approaches to solve the risk premium puzzle in production economies. Non-disaster economies with habit formation, capital adjustment costs and limited factor mobility fail to generate a Sharpe ratio of housing of the empirically observed size and do not explain co-moving economic activity. A basic model with time-varying disaster risk can reproduce the large Sharpe ratio of housing. Moreover, the model can explain different means and volatilities of the risky assets, economic activity comoves and the model explains the volatility ratio of business investments, residential investments and house prices. However, the model does not allow to disentangle the Sharpe ratios of the risky assets and premia on equity remain too involatile. |
| Keywords: | equity premium puzzle, housing, rare disasters, production CAPM, real business cycle literature |
| JEL: | C63 E32 E44 G12 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:aug:augsbe:0338&r=all |
| By: | Richard Dennis; Oleg Kirsanov |
| Abstract: | We study discretionary monetary policy in an economy where economic agents have quasi-hyperbolic discounting. We demonstrate that a benevolent central bank is able to keep inflation under control for a wide range of discount factors. If the central bank, however, does not adopt the household’s time preferences and tries to discourage early-consumption and delayed-saving, then a marginal increase in steady state output is achieved at the cost of a much higher average inflation rate. Indeed, we show that it is desirable from a welfare perspective for the central bank to quasi-hyperbolically discount by more than households do. Welfare is improved because this discount structure emphasizes the current-period cost of price changes and leads to lower average inflation. We contrast our results with those obtained when policy is conducted according to a Taylor-type rule. |
| Keywords: | Quasi-hyperbolic discounting, Monetary policy, Time-consistency |
| JEL: | E52 E61 C62 C73 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_05&r=all |
| By: | Lilit Popoyan (Institute of Economics (LEM), Scuola Superiore Sant’Anna, Pisa (Italy)); Mauro Napoletano (Sciences Po-OFCE, and SKEMA Business School); Andrea Roventini (EMbeDS and Institute of Economics (LEM)) |
| Abstract: | We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in different markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market which interact with the financial accelerator possibly leading to firm bankruptcies, banking crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential frame-work is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banks’ liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial in- stability by employing a new unconventional monetary-policy tool involving active management of the interest-rate corridor in the interbank market. |
| Keywords: | Financial instability; interbank market freezes; monetary policy; macro-prudential policy; Basel III regulation; Tinbergen principle; agent-based models. |
| JEL: | C63 E52 E6 G01 G21 G28 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2014&r=all |
| By: | Laine, Olli-Matti; Lindblad, Annika |
| Abstract: | We analyse the performance of financial market variables in nowcasting Finnish quarterly GDP growth. Especially, we assess if prediction accuracy is affected by the sampling frequency of the financial variables. Therefore, we apply MIDAS models that allow us to forecast quarterly GDP growth using monthly or daily data without temporal aggregation in a parsimonious way. Our results show that financial market data nowcasts Finnish GDP growth relatively well. When it comes to individual variables, ratios like average price-to-earnings, average price-to-book or average dividend yield track GDP growth well. Our results suggest that the sampling frequency of financial market variables is not crucial: the forecasting accuracy of daily, monthly and quarterly data is similar. |
| Keywords: | MIDAS,Nowcasting,Financial markets,GDP |
| JEL: | E44 G00 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:42020&r=all |
| By: | Juan Carlos Parra-Alvarez; Hamza Polattimur; Olaf Posch |
| Abstract: | In this paper we use the property that certainty equivalence, as implied by a first-order approximation to the solution of stochastic discrete-time models, breaks in its equivalent continuous-time version. We study the extent to which a first-order approximated solution built by perturbation methods accounts for risk. We show that risk matters economically in a real business cycle (RBC) model with habit formation and capital adjustment costs and that neglecting risk leads to substantial pricing errors. A first-order approximation in continuous time reduces pricing errors by 90 percent relative to the certainty equivalent linear solution. |
| Keywords: | certainty equivalence, perturbation methods, pricing errors |
| JEL: | C02 C61 C63 E13 E32 G12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8250&r=all |
| By: | Juan Carlos Parra-Alvarez (Aarhus University, CREATES and the Danish Finance Institute); Hamza Polattimur (Universität Hamburg); Olaf Posch (Universität Hamburg and CREATES) |
| Abstract: | In this paper we use the property that certainty equivalence, as implied by a first-order approximation to the solution of stochastic discrete-time models, breaks in its equivalent continuous-time version. We study the extent to which a first-order approximated solution built by perturbation methods accounts for risk. We show that risk matters economically in a real business cycle (RBC) model with habit formation and capital adjustment costs and that neglecting risk leads to substantial pricing errors. A first-order approximation in continuous time reduces pricing errors by 90 percent relative to the certainty equivalent linear solution. |
| Keywords: | Certainty equivalence, Perturbation methods, Pricing errors |
| JEL: | C02 C61 C63 E13 E32 G12 |
| Date: | 2020–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2020-02&r=all |
| By: | Jakob Grazzini; Lorenza Rossi |
| Abstract: | This paper considers a two sectors heterogeneous firms model where firms’ specific production technology and capital intensity are endogenously determined through business dynamics. It shows that a shock to the relative price of investment goods is followed by the entrance of new firms characterized by higher capital intensity of production and lower labor income share. Using ORBIS firm-level data of the US economy, the paper finds strong and robust evidence confirming that new firms enter the market with higher capital intensity. Furthermore, firms-level data are used to show that the labor share is significantly affected by capital intensity, as well as by firms’ size and firms’ mark-up. |
| Keywords: | firms dynamics, firms heterogeneity, labor income share, capital intensity, capital technological change, ORBIS microdata |
| JEL: | E21 E22 E25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8255&r=all |
| By: | Jean Barthélemy; Eric Mengus; Guillaume Plantin |
| Abstract: | This paper studies how private demand for public liquidity affects the independence of a central bank vis-à-vis the fiscal authority. Whereas supplying liquidity to the private sector creates degrees of freedom for fiscal and monetary authorities vis-à-vis each other, we show that the authority that is most able to attract private liquidity demand can ultimately impose its views to the other. |
| Keywords: | : Central Bank Independence, Low Rates, Game of Chicken, Demand for Liquidity. |
| JEL: | E50 E42 E63 C72 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:747&r=all |
| By: | Naudé, Wim |
| Abstract: | Entrepreneurship in advanced economies is in decline. This comes as a surprise: many scholars have anticipated an upsurge in entrepreneurship, and expected an "entrepreneurial economy" to replace the post-WW2 "managed" economy. Instead of the "entrepreneurial economy" what has come into being may perhaps better be labelled the "ossified economy." This paper starts by document the decline. It then critically presents the current explanations offered in the literature. While having merit, these explanations are proximate and supply-side oriented. Given these shortcomings, this paper contributes a new perspective: it argues that negative scale effects from rising complexity, as well as long-run changes in aggregate demand due to inequality and rising energy costs, are also responsible. Implications for entrepreneurship scholarship are drawn. |
| Keywords: | Entrepreneurship,start-ups,development,economic complexity,growth theory |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:539&r=all |
| By: | Nicoletta Berardi; Federico Ravenna; Mario Samano |
| Abstract: | Using a novel dataset from a large supermarket retailer in a European country that never engages in temporary sales, we establish that prices are actually as sticky as regular prices. Circumventing the debate on whether sales have to be included or excluded from price adjustments, we find evidence consistent with state-dependent price setting in a multiproduct firm. In particular, our data exhibit responsiveness of prices to changes to aggregate demand shifts, a more than trivial share of very small price changes, synchronization of price changes across items especially within the same product category. Price rigidity and the extent of state-dependence is heterogeneous across items. In particular, we find that pricing of top sales items (and even more of private label ones) is more flexible and state-dependent, which is consistent with price setting in a multiproduct firm characterized by rational inattention. |
| Keywords: | : Price Setting, Multiproduct Firm, State-Dependence, Synchronization, Rational Inattention, Sales Price, Regular Price. |
| JEL: | E31 D22 E4 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:746&r=all |
| By: | Tom van Veen |
| Abstract: | Macroeconomic theory has developed into increasingly sophisticated mathematical models. In the words of Mankiw, macroeconomics has developed from engineering into science. The Global Financial Crisis (GFC) revealed that the empirical relevance and the usefulness of these models is debatable. Why has this occurred? Who have been the key players in this development? What have been the policy implications of this development? This paper addresses these points by providing an overview of the development of macroeconomic theory over the past 40 years. The focus is on the main lines of thinking and the story behind the models more so than on the mathematical details of these models. I argue that crises have been the main driver of changes in macroeconomic theory and that the current debates after the GFC will be the start of a more plural approach to macroeconomics, in which engineers will regain their place. |
| Keywords: | macroeconomic theory, Keynes, Friedman, Lucas |
| JEL: | B22 E12 E60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8256&r=all |
| By: | Mario Alloza (Banco de España); Marien Ferdinandusse (European Central Bank); Pascal Jacquinot (European Central Bank); Katja Schmidt (Banque de France) |
| Abstract: | The paper describes the main transmission channels of the spillovers of national fiscal policies to other countries within the euro area and investigates their magnitude using different models. In the context of Economic and Monetary Union (EMU), fiscal spillovers are relevant for the accurate assessment of the cyclical outlook in euro area countries, as well as in the debates on a coordinated change in the euro area fiscal stance and on a euro area fiscal capacity. The paper focuses on spillovers from expenditure-based expansions by presenting two complementary exercises. The first is an empirical investigation of spillovers based on a new, long quarterly dataset for the largest euro area countries and on new estimates based on annual data for a panel of 11 euro area countries. The second uses a multi-country general equilibrium model with a rich fiscal specification and the capacity to analyse trade spillovers. Fiscal spillovers are found to be heterogeneous but generally positive among euro area countries. The reaction of interest rates to fiscal expansions is an important determinant of the magnitude of spillovers. |
| Keywords: | fiscal spillovers, fiscal policy, monetary policy, VAR, DSGE |
| JEL: | F42 F45 H50 E62 E63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2012&r=all |
| By: | Delis, Manthos; Iosifidi, Maria; Mylonidis, Nikolaos |
| Abstract: | We examine the transmission of the risk-taking channel to different industries using syndicated loans to U.S. borrowers from 1984 to 2018. We find that a one percentage point decrease in the shadow rate increases loan spreads by more than 30 basis points in the mining & construction and manufacturing sectors. The equivalent effect is lower in the services and trade industries, whereas the effect on the transportation & utilities and finance industries is less pronounced. Our results survive in several sensitivity tests and are immune to time-varying demand-side explanations. The identified differences in the potency of the risk-taking channel explain a significant part of the inferior performance of highly affected sectors compared to less-affected sectors in the year after a loan origination. |
| Keywords: | Bank risk-taking; Monetary policy; U.S.; Syndicated loans; Different industries |
| JEL: | E43 E52 G01 G21 |
| Date: | 2020–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100433&r=all |
| By: | George J. Hall; Thomas J. Sargent |
| Abstract: | From decompositions of U.S. federal fiscal accounts from 1790 to 1988, we describe differences and patterns in how expenditure surges were financed during 8 wars between 1812 and 1975. We also study two insurrections. We use two benchmark theories of optimal taxation and borrowing to frame a narrative of how government decision makers reasoned and learned about how to manage a common set of forces that bedeviled them during all of the wars, forces that included interest rate risks, unknown durations of expenditure surges, government creditors' debt dilution fears, and temptations to use changes in units of account and inflation to restructure debts. Ex post real rates of return on government securities are a big part of our story. |
| JEL: | E52 E62 H56 N41 N42 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27115&r=all |
| By: | Radoslaw (Radek) Stefanski; Alex Trew |
| Abstract: | The risk-free rate of return has been declining in real terms over millennia. We isolate the role of time preference – or patience – in explaining this decline. Three facts support our approach: experimental evidence finds significant heterogeneity in patience; individual preference characteristics are highly intergenerationally persistent; and, longitudinal data shows that patience is positively related with fertility decisions. Together these suggest we should expect average societal levels of patience to increase over time as the composition of the population shifts towards ever more patient dynasties. We test this mechanism in a Barro-Becker model of fertility with heterogeneous dynasties. We use the present day distribution of patience to calibrate the model. We are able match – both quantitatively and qualitatively – the decline in the risk-free return over the last eight centuries. |
| Keywords: | Heterogeneous agents, interest rates, patience, selection |
| JEL: | E21 E43 J11 N30 O11 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_03&r=all |
| By: | Anna Burova (Bank of Russia, Russian Federation) |
| Abstract: | A new micro-level database was used to estimate the debt service ratio (DSR)for the private non-banking sector in Russia. This is the first work presenting a loan-based DSR estimate for Russia. The micro-level database contains information on the remaining maturities and lending rates for each loan issued in 2017–2019 by resident banks to the private non-banking sector in Russia. Estimated levels of the DSR were considerably higher than previous results obtained with the assumptions of constant maturity structure and prevailing lending rates. New results revealed that the aggregate assumptions are not sufficiently granular. Utilisation of actual remaining maturity at each estimation point improved the accuracy of DSR estimates by 10 p.p. (from 16% to 26% for 2019 Q4). The loan-level database provides new insight into the composition of the corporate debt servicing burden in Russia: prevalence of domestic currency loans, higher debt servicing cost for debt with shorter remaining maturity, and the sectoral heterogeneity of the DSRs. |
| Keywords: | DSR, debt servicing burden, micro-level database, credit registry. |
| JEL: | E44 F34 G21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps55&r=all |
| By: | Iñaki Aldasoro; Stefan Avdjiev; Claudio Borio; Piti Disyatat |
| Abstract: | We compare and contrast two prominent notions of financial cycles: a domestic variant, which focuses on how financial conditions within individual economies lead to boom-bust cycles there; and a global variant, which highlights how global financial conditions affect individual economies. The two notions share a common analytical basis - the "procyclicality" of the financial system. Yet a number of distinguishing features stand out. These include differences in: (i) the underlying components - financial asset prices and capital flows for the global financial cycle (GFCy) versus credit and property prices for the domestic financial cycle (DFC); (ii) their empirical properties - the GFCy has a shorter duration and is primarily linked with traditional business cycles, while the DFC has a longer duration and is predominantly linked with medium-term business cycles; and (iii) the policy focus - "dilemma versus trilemma" for the GFCy, "lean versus clean" for the DFC. Despite these differences, the two cycles tend to come together around crises. Finally, we show that traditional GFCy measures mainly reflect developments in advanced economies and that a simple alternative measure is much more relevant for emerging market economies. |
| Keywords: | global financial cycle, financial cycle, business cycle, capital flows |
| JEL: | F30 F40 E32 E50 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:864&r=all |
| By: | International Monetary Fund |
| Abstract: | The Covid-19 outbreak aggravates Tunisia’s already elevated macroeconomic imbalances. The crisis is expected to reduce growth to an unprecedented -4.3 percent. It will also give rise to urgent fiscal and BOP financing needs of 2.6 and 4.7 percent of GDP in 2020, respectively, with large downside risks due to exceptional uncertainty. If not addressed, these gaps cause immediate and severe economic disruption. |
| Keywords: | Social safety nets;Unemployment;Monetary policy;Public investments;Economic conditions;ISCR,CR,pct,Proj,RFI,pandemic,percent of GDP |
| Date: | 2020–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/103&r=all |
| By: | Alfredo García-Hiernaux (DANAE AND ICAE); María T. González-Pérez (Banco de España); David E. Guerrero (CUNEF) |
| Abstract: | This article provides a methodology to test absolute and relative price convergence (in mean and variance) based on a model of relative prices that includes a transition path, and offers a way to measure the speed of price convergence across countries. By applying this test to the European Monetary Union (EMU) price indices from 2001 to 2011, we find empirical evidence of different price level patterns and the lack of price level convergence in the long run for most countries. In terms of the price gap between countries, only when we compare the German with French and Italian prices, we do get zero-gap (absolute) price level convergence. A few other countries report relative price level convergence. These results underscore the existence of a “convergence cost” that EMU countries with lower price levels paid and that does not tend toward zero in the long-term in the absence of convergence. This finding might be of particular interest to European monetary policymakers as it implies that implemented monetary policy does not affect (benefit/harm) all EMU members equally. Monitoring the relative and absolute price level convergence is advised to understand the monetary policy efficiency in the long run. |
| Keywords: | price level convergence, mean convergence, variance convergence, inflation, monetary union, monetary policy |
| JEL: | C22 C32 N70 E3 E4 E5 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2010&r=all |
| By: | Dmitry Levando (National Research University, Moscow, Russia) |
| Abstract: | The paper explicitly discusses the key differences between a demand for consumables and demand for (non-consumable) credit money; why this matters. For example, in contrast to consumables, money can not be demanded by only one agent; it is a stock variable; credit requires special arrangements to implement trust now to clear up a debt later; for a finite time period there is zero demand for non-consumable money (Hahn paradox). These issues are important for developing micro-foundations of monetary macroeconomics, including those for a liquidity trap and credit crunches, not well investigated in existing literature. Contemporary economic theory already has some answers, initiated by works of Martin Shubik. These micro-foundations are vitally important for understanding the 2020 credit crisis, and the concept of a credit cycle as a long-run interaction between real and financial sectors of economic systems. |
| Keywords: | Demand for goods, demand for money, Martin Shubik, micro-foundations of macroeconomics, monetary economics, liquidity trap |
| JEL: | E40 E41 E49 D11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2020:05&r=all |
| By: | João Granja; Christos Makridis; Constantine Yannelis; Eric Zwick |
| Abstract: | This paper takes an early look at the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 pandemic. We use new data on the distribution of PPP loans and high-frequency micro-level employment data to consider two dimensions of program targeting. First, we do not find evidence that funds flowed to areas more adversely affected by the economic effects of the pandemic, as measured by declines in hours worked or business shutdowns. If anything, funds flowed to areas less hard hit. Second, we find significant heterogeneity across banks in terms of disbursing PPP funds, which does not only reflect differences in underlying loan demand. The top-4 banks alone account for 36% of total pre-policy small business loans, but disbursed less than 3% of all PPP loans. Areas that were significantly more exposed to low-PPP banks received much lower loan allocations. As data become available, we will study employment and establishment responses to the program and the impact of PPP support on the economic recovery. Measuring these responses is critical for evaluating the social insurance value of the PPP and similar policies. |
| JEL: | E6 E62 G2 G21 G28 G38 H25 H32 H81 I38 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27095&r=all |
| By: | International Monetary Fund |
| Abstract: | Costa Rica has been hit hard by the Covid-19 pandemic, owing to its highly open economy that has large exposures to trade, tourism, foreign direct investment, and global supply chains. Tourism exports, which account for over 6 percent of GDP and 19 percent of exports, have collapsed with border closures, while other exports have also slowed owing to a slump in demand from trading partners. A severe local outbreak, which saw confirmed Covid-19 cases jump to 669 in just over six weeks, has led to large domestic labor restrictions, aimed at preventing a spreading of the virus, and is poised to cause additional widespread and prolonged disruptions to economic activity, balance of payments (BOP), and fiscal accounts, at a time when the fiscal space is very limited. |
| Keywords: | Rapid Financing Instrument (RFI); |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/145&r=all |
| By: | Xing Guo |
| Abstract: | This paper identifies the aggregate financial shocks and quantifies their effects on business investment based on an estimated DSGE model with firm-level heterogeneity. On average, financial shocks contribute only 1.1% of the variation in U.S. public firms' aggregate investment. The negligible aggregate relevance of financial shocks mainly results from the interaction between firm-level heterogeneity and general equilibrium effects. Following a contractionary financial shock, financially constrained firms are directly forced to cut investment, which dampens the aggregate investment demand and lowers the capital good price. The lower capital good price motivates the financially unconstrained firms to invest more, which largely cancels out the financial shock's direct effect in aggregation. If the firm-level heterogeneity is removed, the implied relevance of financial shocks to aggregate investment will be 50 times larger. This sharp difference indicates that representative firm models could overstate the relevance of financial shocks in driving the business cycle fluctuation and highlights the importance of micro-level heterogeneity in identifying the aggregate shocks. |
| Keywords: | Business fluctuation and cycles; Firm dynamics |
| JEL: | E22 G32 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-17&r=all |
| By: | Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama |
| 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: | hours worked, income effects, taxation |
| JEL: | E24 J22 O11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8251&r=all |
| By: | Stephie Fried; David Lagakos |
| Abstract: | The lack of reliable electricity in the developing world is widely viewed by policymakers as a major constraint on firm productivity. Yet most empirical studies find modest short-run effects of power outages on firm performance. This paper builds a dynamic macroeconomic model to study the long-run general equilibrium effects of power outages on productivity. The model captures the key features of how firms acquire electricity in the developing world, in particular the rationing of grid electricity and the possibility of self-generated electricity at higher cost. Power outages lower productivity in the model by creating idle resources, by depressing the scale of incumbent firms and by reducing entry of new firms. Consistent with the empirical literature, the model predicts that the short-run partial-equilibrium effects of eliminating outages are small. However, the long-run general-equilibrium effects are many times larger, supporting the view that eliminating outages is an important development objective. |
| JEL: | E13 E23 O11 O41 Q43 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27081&r=all |
| By: | Jose Vicente Romero (Banco de la República de Colombia); Hernando Vargas-Herrera (Banco de la República de Colombia); Pamela Cardozo (Banco de la República de Colombia); Andrés Murcia (Banco de la República de Colombia) |
| Abstract: | Since 2014 the Colombian local public bond market experienced a substantial increase in the participation of foreign investors due to a reduction of the tax rates on foreign portfolio investment returns and the increase in the weight of Colombia in the JP Morgan GBI-GD. Some evidence is presented suggesting that the resulting inflows reduced bond and loan interest rates and raised loan supply. There is also evidence of an increased sensitivity of local public bond yields to CDS and EMBI, although the influence of external financial conditions on domestic lending rates has remained subdued. Finally, no evidence is found of a shift in the transmisión of domestic monetary policy shocks to public bond and lending interest rates after the increase in foreign participation in the local bond market. **** RESUMEN: Desde 2014 el mercado de deuda pública colombiana experimentó un incremento sustancial en la participación de inversionistas extranjeros como resultado de la reducción de las tasas impositivas aplicables a las inversiones de portafolio y al incremento de la ponderación de Colombia en el índice GBI-GD de JP Morgan. En este artículo se presenta evidencia que sugiere que los flujos de inversión de portafolio redujeron las tasas de interés de los bonos y las tasas de interés activas, aumentando la oferta de crédito. También se presentan algunos resultados que sugieren un incremento en la sensibilidad de las tasas de interés de la deuda pública local a los CDS y al EMBI, aunque la influencia de factores externos hacia las tasas de interés activas locales se ha mantenido baja. Finalmente, no se encuentra evidencia que el incremento de la participación de los inversionistas extranjeros en el mercado de deuda pública local haya generado cambios en la transmisión de la política monetaria hacia las tasas de interés. |
| Keywords: | Monetary Policy, Interest Rates and Transmission Mechanism, Portfolio Choice and Investment Decisions, Portfolio inflows, Política monetaria, tasas de interés y mecanismos de transmisión, decisiones de portafolio e inversión, flujos de inversión de portafolio |
| JEL: | E52 E58 G11 G19 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1115&r=all |
| By: | Katya Kartashova; Xiaoqing Zhou |
| Abstract: | We study the causal effect of mortgage rate changes on consumer spending, debt repayment, and defaults during an expansionary and a contractionary monetary policy episode in Canada. Our identification takes advantage of the fact that the interest rates of short-term fixed-rate mortgages (the dominant product in Canada’s mortgage market) have to be reset according to the prevailing market interest rates at predetermined time intervals. Our empirical strategy exploits this exogenous variation in the timing of mortgage rate resets. We find asymmetric responses of consumer durable spending, deleveraging, and defaults. These results can be rationalized by the cash-flow effect in conjunction with changes in consumers’ expectations about future interest rates. Our findings help us to understand the responses of the household sector to changes in the interest rate, especially in countries where variable-rate, adjustable-rate, and short-term fixed-rate mortgages are prevalent. |
| Keywords: | Credit and credit aggregates; Interest rates; Monetary policy; Transmission of monetary policy |
| JEL: | D14 E52 G21 R31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-18&r=all |
| By: | Domènech Feliu, Jordi; Roses Vendoiro, Juan Ramon; Basco Mascaro, Sergi |
| Abstract: | This paper examines the impact of a pandemic in a developing economy. Measured by excess deaths relative to the historical trend, the 1918 influenza in Spain was one of the most intense in Western Europe. However, aggregate output and consumption were only mildly affected. In this paper we assess the impact of the flu by exploiting within-country variationin "excess deaths" and we focus on the returns to factors of production. Our main result is that the effect of flu-related "excess deaths" on real wages is large, negative, and shortlived.The effects are heterogeneous across occupations, from none to a 15 per cent decline, concentrated in 1918. The negative effects are exacerbated in more urbanized provinces. In addition, we do not find effects of the flu on the returns to capital. Indeed, neither dividends nor real estate prices (houses and land) were negatively affected by flu-related increases inmortality. Our interpretation is that the Spanish Flu represented a negative demand shock that was mostly absorbed by workers, especially in more urbanized regions. |
| Keywords: | Returns to capital; Real wages; Spanish flu; Pandemics |
| JEL: | N30 N10 I00 E32 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:30465&r=all |
| By: | Fabian Lange (McGill University); Theodore Papageorgiou (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, unemployment, hires |
| JEL: | E32 J63 J64 |
| Date: | 2020–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1006&r=all |
| By: | Fabio Ghironi; G. Kemal Ozhan |
| Abstract: | We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external accounts between short-term securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate pass-through. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary. |
| JEL: | E32 F21 F32 F38 G15 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27084&r=all |
| By: | Caporin, Massimiliano; Pelizzon, Loriana; Plazzi, Alberto |
| Abstract: | We show that FED policy announcements lead to a significant increase in international comovements in the cross-section of equity and in particular sovereign CDS markets. The relaxation of unconventionary monetary policies is felt strongly by emerging markets, and by countries that are open to the trading of goods and flows, even in the presence of floating exchange rates. It also impacts closed economies whose currencies are pegged to the dollar. This evidence is consistent with recent theories of a global financial cycle and the pricing of a FED's put. In contrast, ECB announcements hardly affect comovements, even in the Eurozone. |
| Keywords: | Unconventional Monetary policy,Quantitative easing,Mundellian trilemma,Comovements,Sovereign credit risk |
| JEL: | E58 G12 G15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:276&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | The study examines the use of governance tools to fight capital flight by reducing the capital flight trap. Two overarching policy syndromes are addressed in the study. It first assesses whether governance is an effective deterrent to the capital flight trap in Africa, before examining what thresholds of government quality are required to fight the capital flight trap in the continent. The following findings are established. Evidence of a capital flight trap is apparent because past values of capital flight have a positive effect on future values of capital flight. The net effects from interactions of the capital flight trap with political stability, regulation quality, economic governance and corruption-control on capital flight are positive. The critical masses at which “voice & accountability” and regulation quality can complement the capital flight trap to reduce capital flight are respectively, 0.120 and 0.680, which correspond to the best performing countries. Policy implications are discussed. |
| Keywords: | governance; capital flight; capital flight trap; Africa |
| JEL: | C50 E62 F34 O55 P37 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/024&r=all |
| By: | John Michael, Riveros Gavilanes |
| Abstract: | The present paper aims to test empirically the theory of Kaldor during 2000-2016 in Colombia from his three laws of economic endogenous growth in order to provide a study of the industrial sector, observing the theory of distribution of income and the intuitive relations from the kaldorian model indicating the behavior of the benefits and wages in the industrial sector. The methodology uses a panel data regression in a departmental level. The results confirm the theory in general however Chocó, Caquetá, Quindío, Sucre and La Guajira the first law gets rejected, it is confirmed the presence of increasing returns in scale of the industrial sector and the wages presents a lower elasticity than the benefits in the industrial output. |
| Keywords: | Kaldor; Wages; Growth; Returns; Industry |
| JEL: | E24 F14 L16 O41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100424&r=all |
| By: | Abuselidze, George |
| Abstract: | The main function of the state in nowadays-civilized world is to maintain the macroeconomic proportions throughout the country and avoid financial and economic crisis in regions that have priority in the formation of the new economic system in Georgia. The object of the research is the formation and use of Budget policy of Georgia; One of the most problematic places is socio-economic development of territorial units. As a result of the research it is shown that current economic and political system’s radical transformation process, creation of new economic system and ensuring its efficiency, requires mobilization of huge financial resources, which is impossible without proper functioning of the financial mechanism. This in turn requires implementation of sufficient financial and economic policy. The government should take responsibility of supporting financial-economic independence for territorial units. In the future, the proposed forms of financial mechanisms and features of use for the arrangement and territorial integrity of the government. |
| Keywords: | Fiscal policy; State and local budget; Intergovernmental relations; Forms of financial mechanisms; Georgia |
| JEL: | E62 H61 H72 H75 H76 H77 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99889&r=all |
| By: | International Monetary Fund |
| Abstract: | Macroeconomic developments in 2019 were favorable, although the outlook was challenging owing to large fiscal and external imbalances. While still weak, the banking sector was recovering from the 2015-16 shocks. Against this background, trade and transportation disruptions associated with the COVID-19 pandemic have had a severe impact on the macroeconomic outlook. Remittances have dropped sharply, and government revenues have declined while health and social spending is being ramped up. The impact of the shock is expected to be the greatest in 2020Q2-Q3. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/151&r=all |
| By: | Scott R. Baker; R. A. Farrokhnia; Steffen Meyer; Michaela Pagel; Constantine Yannelis |
| Abstract: | In response to the ongoing COVID-19 pandemic, the US government brought about a collection of fiscal stimulus measures: the 2020 CARES Act. Among other provisions, this Act directed cash payments to households. We analyze households’ spending responses using high-frequency transaction data. We also explore heterogeneity by income levels, recent income declines, and liquidity. We find that households respond rapidly to receipt of stimulus payments, with spending increasing by $0.25-$0.35 per dollar of stimulus during the first 10 days. Households with lower incomes, greater income drops, and lower levels of liquidity display stronger responses. Liquidity plays the most important role, with no observed spending response for households with high levels of bank account balances. Relative to the effects of previous economic stimulus programs in 2001 and 2008, we see much smaller increases in durables spending and larger increases in spending on food, likely reflecting the impact of shelter-in-place orders and supply disruptions. We hope that our results inform the current debate about appropriate policy measures. |
| JEL: | D14 E21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27097&r=all |
| By: | Ali, Amjad; Bibi, Chan |
| Abstract: | This article attempts to analyze the impact of public policies about taxes, defense expenditures, loans and grants on crimes in Pakistan over the period from 1980 to 2019. Autoregressive Distributed Lag (ARDL) approach has utilized to check cointegration among the variables of the model and Vector Error-Correction model is applied for estimating short run dynamics of the model. The outcomes of the analysis show that defense expenditures, loans and grants more taxes and rising economic misery have a positive and significant impact on crime rates in the case of Pakistan. For the reduction of crime rate government of Pakistan must reduce taxes, defense expenditures, loans and grants and economic misery in the country. For reducing unemployment, government of Pakistan must establish such economic environment which boost new jobs and stable inflation. Moreover, skill development programs must be initiated, so that youth can get self-employment rather than searching government and private jobs. Inflation can be controlled by putting checks on rising production costs. |
| Keywords: | inflation, unemployment, crime rate, public policy |
| JEL: | E31 J18 J64 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100216&r=all |
| By: | International Monetary Fund |
| Abstract: | Ethiopia is facing a pronounced economic slowdown and an urgent balance of payments need owing to the COVID-19 pandemic. The economy was growing robustly prior to the pandemic, and progress under the ECF-EFF arrangements was encouraging. The shock is expected to significantly reduce growth this fiscal year and next. It has already materially weakened external accounts as services exports, remittances, and foreign direct investment declined. The authorities are taking measures to combat the spread of the virus, mitigate its fallout, and support vulnerable groups. The fiscal deficit will have to expand temporarily to accommodate the additional spending. |
| Keywords: | Rapid Financing Instrument (RFI); |
| Date: | 2020–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/150&r=all |
| By: | Maurizio Iacopetta (Sciences Po-OFCE and SKEMA Business School); Raoul Minetti (Michigan State University); Pierluigi Murro (LUISS University) |
| Abstract: | New firms are often based on ideas that the founders developed while working for incumbent firms. We study the macroeconomic effects of spinoffs through a growth model of product variety expansion, driven by firm entry, and product innovation. Spinoffs stem from conflicts of interest between incumbent firms' shareholders and employees. The analysis suggests that incumbents invest more in product innovation when knowledge protection is stronger. An inverted-U shape relationship emerges, however, between the intensity of spinoff activities and the strength of the rule of law. A calibration experiment indicates that, with a good rule of law, loosening knowledge protection by 53 reduces product innovation by one fifth in the short run and one seventh in the long run, but boosts the spinoff rate by one tenth and one sixth in the short and long run, respectively. Nevertheless, per capita income growth drops and welfare deteriorates. The trade-offs are broadly consistent with evidence from Italian firms. |
| Keywords: | Corporate Governance, Endogenous Growth, Spinoffs. |
| JEL: | E44 O40 G30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2013&r=all |
| By: | David Martinez Turegano (European Commission - JRC) |
| Abstract: | This paper presents a novel methodology that combines different datasets to decompose estimated changes in labour earnings inequality into the contributions of a number of employment characteristics. Based on this approach, we provide empirical evidence for recent developments in 18 EU countries starting in 2000. We find that the common upward trend in inequality is related to shifts in the composition of employment within sectors, rather than to sectoral reallocation. In particular, we estimate that the expansion of part-time and fixed-term contracts, as well as the higher share of tertiary educated workers within sectors, have been the main contributors to the rise of earnings inequality. Cross-country differences are exacerbated when taking into account unemployed population due to divergent capacities to create jobs in face of successive economic crises and external competition. In policy terms, a specific concern deals with the possibility that a higher share of flexible contractual arrangements is masking the rise of underemployment. On a broader perspective, we deem that the overall growth and competitiveness strategies are essential within the fairness agenda, while the enhancement of education, social and income-redistribution tools is needed to face economic and technological challenges in the most inclusive way possible. |
| Keywords: | Inequality, Labour Market, Employment Structure, Economic Crisis, Structural Change. |
| JEL: | D31 E24 J21 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc120255&r=all |
| By: | Nadal Egea, Alejandro |
| Abstract: | Este informe examina las consecuencias, bases teóricas y restricciones que impone el modelo de política macroeconómica neoliberal en México. En sus diferentes capítulos se ofrece un análisis crítico de la economía mexicana en los últimos 30 años, se examina el corazón teórico del ideal del libre mercado y se abordan componentes específicos del paquete de políticas dominante: política monetaria, dinero endógeno y política macroeconómica, política fiscal y comercial. En cada uno se examinan las implicaciones de una teoría del mercado defectuosa y se identifican problemas subsecuentes como contradicciones internas, supuestos irreales o francamente equivocados. La conclusión general es que el paquete de políticas dominante impone restricciones poderosas para empujar el sistema económico en la dirección de un estilo de desarrollo distinto, más sustentable. La liberalización y desregulación financiera imponen una postura macroeconómica del banco central que se sujeta a las preferencias de los bancos privados y los flujos de capital, las políticas monetaria y fiscal pasivas son incapaces de manejar la demanda agregada de forma socialmente sustentable y el cambio estructural requerido para enfrentar la crisis social y ambiental exige políticas selectivas severamente restringidas por el marco legal. Pero existen alternativas. La reflexión crítica sobre la teoría y política económicas es indispensable para buscar opciones que abran nuevos espacios de política. |
| Keywords: | CONDICIONES ECONOMICAS, MACROECONOMIA, NEOLIBERALISMO, POLITICA MONETARIA, POLITICA ECONOMICA, POLITICA FISCAL, POLITICA COMERCIAL, DESARROLLO ECONOMICO, DESARROLLO SOSTENIBLE, INDICADORES ECONOMICOS, ECONOMIC CONDITIONS, MACROECONOMICS, NEOLIBERALISM, MONETARY POLICY, ECONOMIC POLICY, FISCAL POLICY, TRADE POLICY, ECONOMIC DEVELOPMENT, SUSTAINABLE DEVELOPMENT, ECONOMIC INDICATORS |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col031:45550&r=all |
| By: | Shuaizhang Feng (Jinan University); Jiandong Sun (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, unemployment rate |
| JEL: | J64 E37 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-029&r=all |
| By: | International Monetary Fund |
| Abstract: | Before the Covid-19 pandemic and subsequent global disruption, Colombia’s recovery showed resilience despite a weak external environment thanks to its very strong economic policy framework and timely policy actions. The flexible exchange rate, combined with an inflation-targeting regime, effective financial sector supervision and regulation, and adherence to the fiscal rule, allowed the country to smooth the impact of a large permanent terms of trade deterioration between 2014-2016, laying the foundations for the economic recovery that was underway. Moreover, Colombia made remarkable efforts to receive and integrate a substantial number of migrants from Venezuela that helped boost domestic demand and imports. However, exports were weighed down by unfavorable commodity prices and weak partner country growth. Thus, the external deficit widened, though it was comfortably financed, largely through FDI. |
| Keywords: | Flexible Credit Line; |
| Date: | 2020–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/148&r=all |
| By: | Puriya Abbassi; Rajkamal Iyer; José-Luis Peydró; Paul E. Soto |
| Abstract: | Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB's asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities and credit (also overall securities and credit supply), with largest impact on riskiest securities (not on riskiest credit), and immediate negative spillovers on asset prices and firm-level credit supply. Exposed (unregulated) nonbanks buy the shed risk. AQR drives the results, not the end-of-year. After AQR compliance, reviewed banks reload riskier securities, but not riskier credit, with medium-term negative firm-level real effects (costs of supervision/safe-assets increase). |
| Keywords: | Asset quality review; stress tests; supervision; risk-masking; costs of safe assets |
| JEL: | E58 G21 G28 H63 L51 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1721&r=all |
| By: | Abbassi, Puriya; Iyer, Rajkamal; Peydró, José-Luis; Soto, Paul |
| Abstract: | Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB’s asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities and credit (also overall securities and credit supply), with largest impact on riskiest securities (not on riskiest credit), and immediate negative spillovers on asset prices and firm-level credit supply. Exposed (unregulated) nonbanks buy the shed risk. AQR drives the results, not the end-of-year. After AQR compliance, reviewed banks reload riskier securities, but not riskier credit, with medium-term negative firm-level real effects (costs of supervision/safe-assets increase). |
| Keywords: | asset quality review,stress tests,supervision,risk-masking,costs of safe assets |
| JEL: | E58 G21 G28 H63 L51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:217048&r=all |
| By: | Puriya Abbassi; Rajkamal Iyer; José-Luis Peydró; Paul E. Soto |
| Abstract: | Regulation needs effective supervision; but regulated entities may deviate with unobserved actions. For identification, we analyze banks, exploiting ECB’s asset-quality-review (AQR) and supervisory security and credit registers. After AQR announcement, reviewed banks reduce riskier securities and credit (also overall securities and credit supply), with largest impact on riskiest securities (not on riskiest credit), and immediate negative spillovers on asset prices and firm-level credit supply. Exposed (unregulated) nonbanks buy the shed risk. AQR drives the results, not the end-of-year. After AQR compliance, reviewed banks reload riskier securities, but not riskier credit, with mediumterm negative firm-level real effects (costs of supervision/safe-assets increase). |
| Keywords: | asset quality review, stress tests, supervision, risk-masking, costs of safe assets |
| JEL: | E58 G21 G28 H63 L51 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1178&r=all |
| By: | Barrie, Mohamed Samba |
| Abstract: | The purpose of the research was the exploration of macroeconomic determinants of economic growth in Sierra Leone for the period, 1980- 2018, and whether there exist an association between the determinants and economic growth is long-term and short-term. The research methodology was quantitative and it was limited to eight mostly macro-fiscal variables and the empirical model employed was the Autoregressive Distributed Lag model. The findings revealed foreign direct investment was positive in both the short and long run but only statistically significant at the 10% level in the short-run dynamic model. Gross capital formation and population growth were also positive and statistically significant in determining RGDP growth in both the static long-run and dynamic short-run models. Openness to trade has a negative and significant impact on RGDP growth in the short run but insignificant in the long run. On the other hand, real exchange fluctuations, domestic credit rate, private remittances are negative and statistically significant towards RGDP growth. The dummy variable war is significant in both long and short-run but exerted no negative impact on RGDP. The other dummy variable Ebola had the expected negative sign both in the long run and short-run but it is also statistically insignificant. Also, applying the Bounds test Cointegration model, the findings revealed a statistically significant long-run association between economic growth and the specified determinants (F-statistics value= 15.18749, and an upper bound value or I(1) value = 2.08). Furthermore, the error correction model applied to determine the short-run deviation from the long-run had the expected sign, and was statistically insignificant (ECM = -0.131559), indicating convergence towards equilibrium occurred at the rate of 13% in the period under review. However, the research was limited to predominantly macro-fiscal variables, future research must also look at the impact of monetary variables. |
| Keywords: | Growth determinants,Sierra Leone,ARDL approach,applied econometrics,macro-fiscal variables |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esrepo:216885&r=all |
| By: | International Monetary Fund |
| Abstract: | Kenya is facing a pronounced economic slowdown and an urgent balance of payments need owing to the COVID-19 pandemic. Kenya’s economy was performing well prior to the global shock with accelerating growth, contained inflation and current account deficits, and a resumption of fiscal adjustment to tackle rising public debt vulnerabilities. The COVID-19 pandemic is expected to significantly reduce growth in 2020, with a large impact on agricultural exports, services, remittances, and the financial account thus weakening the external position. The authorities are taking measures to combat the spread of the virus and mitigate its adverse effects on the economy and vulnerable segments of the population. Staff expects that additional spending and lower revenue collection would entail a pause in fiscal consolidation. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/156&r=all |
| By: | Jesús Fernández-Villaverde; Charles I. Jones |
| Abstract: | We use data on deaths in New York City, various U.S. states, and various countries around the world to estimate a standard epidemiological model of COVID-19. We allow for a time-varying contact rate in order to capture behavioral and policy-induced changes associated with social distancing. We simulate the model forward to consider possible futures for various countries, states, and cities, including the potential impact of herd immunity on re-opening. Our current baseline mortality rate (IFR) is assumed to be 0.8% but we recognize there is substantial uncertainty about this number. Our model fits the death data equally well with alternative mortality rates of 0.3% or 1.0%, so this parameter is unidentified in our data. However, its value matters enormously for the extent to which various places can relax social distancing without spurring a resurgence of deaths. |
| JEL: | E0 I0 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27128&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic is having a severe impact on Nepal’s economy. During recent months, remittances have fallen considerably, tourist arrivals collapsed, and domestic activity has taken a hit amidst social distancing measures. As a result, immediate external financing and fiscal financing gaps have emerged of 3 percent of GDP and 2.6 percent of GDP, respectively. Given the ongoing uncertainty and still-large downside risks, it is crucial for Nepal to maintain a strong level of foreign reserves. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/155&r=all |
| By: | Geert Bekaert; Eric Engstrom; Andrey Ermolov |
| Abstract: | The equity variance risk premium is the expected compensation earned for selling variance risk in equity markets. The variance risk premium is positive and shows moderate persistence. High variance risk premiums coincide with the left tail of the consumption growth distribution shifting down. These facts, together with a positive, yet moderate, difference between the risk-neutral entropy and variance of the aggregate market return, refute the bulk of the extant consumption-based asset pricing models. We introduce a tractable habit model that does fit the data. In the model, the variance risk premium depends positively (negatively) on “bad” (“good”) consumption growth uncertainty. |
| JEL: | E44 G12 G13 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27108&r=all |
| By: | Hashimoto, Ken-ichi; Ono, Yoshiyasu; Schlegl, Matthias |
| Abstract: | We introduce a preference for wealth into the standard search and matching model to analyze the labor market when there is persistent demand shortage. We show that, under some conditions, a secular stagnation steady state exists in which the economy permanently operates below capacity due to both structural unemployment and underemployment. The latter is a direct consequence of the lack of aggregate demand. Our findings are as follows. In the absence of demand shortage, the preference for wealth creates a new transmission channel for shocks and policy measures due to induced changes in the real interest rate, in addition to the job creation channel of the standard matching model. Turning to the stagnation equilibrium, the effects of demand and supply shocks are opposite to those of the standard case and result in a co-movement of unemployment and underemployment. In contrast, the effects of wage and cost shocks depend on the degree of aggregate demand shortage, but they can explain movements of unemployment and underemployment in opposite directions. Finally, we show that fluctuations in the total employment gap under stagnation are primarily driven by fluctuations in underemployment instead of structural unemployment. Our analysis helps to understand why the unemployment rate in Japan has been surprisingly low during its lost decades and highlights the need for further policy interventions in support of aggregate demand despite a seemingly decent employment record. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1088&r=all |
| By: | Brueckner, Markus (Research School of Economics, Australian National University); Van Long, Ngo (Department of Economics, McGill University); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania) |
| Abstract: | This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population are educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education. |
| Keywords: | non-gravity trade, inequality, education |
| JEL: | F1 E2 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:32962&r=all |
| By: | Victoria Gregory; Guido Menzio; David G. Wiczer |
| Abstract: | We develop and calibrate a search-theoretic model of the labor market in order to forecast the evolution of the aggregate US labor market during and after the coronavirus pandemic. The model is designed to capture the heterogeneity of the transitions of individual workers across states of unemployment, employment and across different employers. The model is also designed to capture the trade-offs in the choice between temporary and permanent layoffs. Under reasonable parametrizations of the model, the lockdown instituted to prevent the spread of the novel coronavirus is shown to have long-lasting negative effects on unemployment. This is so because the lockdown disproportionately disrupts the employment of workers who need years to find stable jobs. |
| JEL: | E0 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27105&r=all |
| By: | Normann Rion (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | I build a New-Keynesian dynamic stochastic general-equilibrium model with a dual labor market. Firms and workers meet through a matching technology à-la Diamond-Mortensen-Pissarides and face a trade-off between productivity and flexibility at the hiring stage. All else equal, open-ended contracts are more productive than fixed-term contracts, but they embed a firing cost. The share of fixed-term contracts in job creation fluctuates endogenously, which enables to assess the resort to temporary contracts along the cycle and its response to different shocks. I estimate the model using a first-order perturbation method and classic Bayesian procedures with macroeconomic data from the Euro area. I find that the share of fixed-term contracts in job creation is counter-cyclical. The agents react to shocks essentially through the job creation margin and the contractual composition of the hires. Moreover, a general-equilibrium effect arises ; the substitution between fixed-term and open-ended contracts at the hiring stage influences the job seekers' stock, which in turn impacts job creation. Using my previous estimates and solving the model with a third-order perturbation method, I find that fixed-term employment reacts to negative aggregate demand shocks and uncertainty shocks oppositely. This result suggests that fixed-term employment could be used to identify uncertainty shocks in future research. As for inflation, changes in firing costs do not alter its dynamics as long as open-ended and fixed-term matches do not differ much in productivity all else equal. |
| Keywords: | Fixed-term contracts,Employment protection,New Keynesian model,Inflation dynamics,Uncertainty |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-02570540&r=all |
| By: | Martin S. Eichenbaum; Sergio Rebelo; Mathias Trabandt |
| Abstract: | Epidemiology models used in macroeconomics generally assume that people know their current health status. In this paper, we consider a more realistic environment in which people are uncertain about their health status. We use our model to study the impact of testing with and without quarantining infected people. We find that testing without quarantines can worsen the economic and health repercussions of an epidemic. In contrast, a policy that uses tests to quarantine infected people has very large social benefits. Critically, this policy ameliorates the sharp tradeoff between declines in economic activity and health outcomes that is associated with broad-based containment policies like lockdowns. This amelioration is particularly dramatic when people who recover from an infection acquire only temporary immunity to the virus. |
| JEL: | E1 H0 I1 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27104&r=all |
| By: | Daniel Borup (Aarhus University, CREATES and the Danish Finance Institute (DFI)); Bent Jesper Christensen (Aarhus University, CREATES and the Dale T. Mortensen Center); Nicolaj N. Mühlbach (Aarhus University and CREATES); Mikkel S. Nielsen (Columbia University) |
| Abstract: | Random forest regression (RF) is an extremely popular tool for the analysis of high-dimensional data. Nonetheless, its benefits may be lessened in sparse settings, due to weak predictors, and a pre-estimation dimension reduction (targeting) step is required. We show that proper targeting controls the probability of placing splits along strong predictors, thus providing an important complement to RF’s feature sampling. This is supported by simulations using representative finite samples. Moreover, we quantify the immediate gain from targeting in terms of increased strength of individual trees. Macroeconomic and financial applications show that the bias-variance tradeoff implied by targeting, due to increased correlation among trees in the forest, is balanced at a medium degree of targeting, selecting the best 10–30% of commonly applied predictors. Improvements in predictive accuracy of targeted RF relative to ordinary RF are considerable, up to 12–13%, occurring both in recessions and expansions, particularly at long horizons. |
| Keywords: | Random forests, LASSO, high-dimensional forecasting, weak predictors, targeted predictors |
| JEL: | C53 C55 E17 G12 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2020-03&r=all |
| By: | Simon Mongey; Laura Pilossoph; Alex Weinberg |
| Abstract: | What are the characteristics of workers in jobs likely to be initially affected by broad social distancing and later by narrower policy tailored to jobs with low risk of disease transmission? We use O NET to construct a measure of the likelihood that jobs can be conducted from home (a variant of Dingel and Neiman, 2020) and a measure of low physical proximity to others at work. We validate the measures by showing how they relate to similar measures constructed using time use data from ATUS. Our main finding is that workers in low-work-from-home or high-physical- proximity jobs are more economically vulnerable across various measures constructed from the CPS and PSID: they are less educated, of lower income, have fewer liquid assets relative to income, and are more likely renters. We further substantiate the measures with behavior during the epidemic. First, we show that MSAs with less pre-virus employment in work-from-home jobs experienced smaller declines in the incidence of `staying-at-home', as measured using SafeGraph cell phone data. Second, we show that both occupations and types of workers predicted to be employed in low work-from-home jobs experienced greater declines in employment according to the March 2020 CPS. For example, non-college educated workers experienced a 4ppt larger decline in employment relative to those with a college degree. |
| JEL: | E24 J01 J22 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27085&r=all |
| By: | Stefan Ederer; Stefan Humer; Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Emanuel List |
| Abstract: | The paper builds Distributional National Accounts (DINA) using household survey data. We present a transparent and reproducible methodology to construct DINA whenever administrative tax data are not available for research and apply it to various European countries. By doing so, we build synthetic microdata files which cover the entire distribution, include all income components individually aligned to national accounts, and preserve the detailed socioeconomic information available in the surveys. The methodology uses harmonized and publicly available data sources (SILC, HFCS) and provides highly comparable results. We discuss the methodological steps and their impact on the income distribution. In particular, we highlight the effects of imputations and the adjustment of the variables to national accounts totals. Furthermore, we compare different income concepts of both the DINA and EG-DNA approach of the OECD in a consistent way. Our results confirm that constructing DINA is crucial to get a better picture of the income distribution. Our methodology is well suited to build synthetic microdata files which can be used for policy evaluation like social impact analysis and microsimulation. Disclaimer This research has been conducted as a project at the Research Institute for Economics of Inequality (INEQ -- Vienna University for Economics and Business) and was supported by funds from the Oesterreichische Nationalbank (Oesterreichische Nationalbank anniversary fund, project 16728). |
| Keywords: | Distributional national accounts, survey data, income inequality |
| JEL: | C55 D31 E01 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:180&r=all |
| By: | Giambona, Erasmo; Matta, Rafael; Peydró, José-Luis; Wang, Ye |
| Abstract: | We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders' payouts associated to QE. The robust findings are consistent with a model in which reducing the supply of government debt lowers "safe" corporate bond yields, stimulating investment. |
| Keywords: | Quantitative Easing,Corporate-bond lending channel,Investment,Safe assets,Financing |
| JEL: | E5 G01 G31 G32 G38 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:217049&r=all |
| By: | Erasmo Giambona; Rafael Matta; José-Luis Peydró; Ye Wang |
| Abstract: | We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed's large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders' payouts associated to QE. The robust findings are consistent with a model in which reducing the supply of government debt lowers "safe" corporate bond yields, stimulating investment. |
| Keywords: | quantitative easing (QE), corporate-bond lending channel, investment, safe assets, financing |
| JEL: | E5 G01 G31 G32 G38 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1179&r=all |
| By: | Alexander Dobrinevski (OECD); Raphaël Jachnik (OECD) |
| Abstract: | Mitigating climate change requires aligning real economy investments with climate objectives. This pilot study measures the climate consistency of investments in transport infrastructure and vehicles in Latvia between 2008 and 2018, estimated at EUR 1.5 billion per year on average. To do so, three complementary mitigation-related reference points are used. Applying the criteria defined by the European Union Taxonomy for Sustainable Activities results in 4.2% of investments assessed as making a substantial contribution to climate change mitigation. Comparing actual greenhouse gas trajectories for each transport mode to a 2°C scenario from the International Energy Agency’s for the European Union and to projections from Latvia’s 5th National Communication to the UNFCCC, indicates 32% climate-consistent and up to 9% climate-inconsistent investments. The majority of investments volumes could at this stage not be characterised due to limitations relating to the granularity or coverage of the reference points. Comparing current trends to 2030 and 2050 decarbonisation targets nevertheless highlights future investment and financing challenges, especially for road transport. The methodology piloted in this study can be replicated and scaled up across countries and sectors, using different or complementary reference points specifically aligned to the temperature goal of the Paris Agreement. |
| Keywords: | capital expenditure, climate change, emissions, energy efficiency, finance, investment, Latvia, low-greenhouse gas development, measurement, scenarios, taxonomy, tracking, transport |
| JEL: | Q54 Q56 H54 E01 E22 G31 G32 L91 |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:163-en&r=all |
| By: | Erik Ens; Craig Johnston |
| Abstract: | This paper adapts climate-economy models that have been applied in other contexts for use in climate-related scenario analysis. We consider illustrative scenarios for the global economy that could generate economic and financial risks. Our results suggest there are significant economic risks from climate change and the move to a low-carbon economy. |
| Keywords: | Climate change; Economic models; Financial stability; International topics |
| JEL: | C6 C68 D5 D58 E5 E50 O4 O44 P1 P18 Q4 Q5 Q54 Q55 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-3&r=all |
| By: | Franziska Hampf; Marc Piopiunik; Simon Wiederhold |
| Abstract: | We investigate the short- and long-term effects of economic conditions at high-school graduation as a source of exogenous variation in the labor-market opportunities of potential college entrants. Exploiting business cycle fluctuations across birth cohorts for 28 developed countries, we find that bad economic conditions at high-school graduation increase college enrollment and graduation. They also affect outcomes in later life, increasing cognitive skills and improving labor-market success. Outcomes are affected only by the economic conditions at high-school graduation, but not by those during earlier or later years. Recessions at high-school graduation narrow the gender gaps in numeracy skills and labor-market success. |
| Keywords: | business cycle, college enrollment, skill formation, labor-market outcomes, PIAAC, gender gap |
| JEL: | I23 I21 J24 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8252&r=all |
| By: | Mary Amiti; Sang Hoon Kong; David Weinstein |
| Abstract: | We develop a new method of quantifying the impact of policy announcements on investment rates that makes use of stock market data. By estimating the effect of U.S.-China tariff announcements on aggregate returns and the differential returns of firms exposed to China, we identify their effect on treated and untreated firms. We show theoretically and empirically that estimates of policy-induced stock-market declines imply lower returns to capital, which lowers investment rates. We estimate that the tariff actions through 2018 and 2019 will lower the investment growth rate of listed U.S. companies by 1.9 percentage points by the end of 2020. |
| JEL: | E22 F13 F14 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27114&r=all |
| By: | Antoine Bozio (PSE - Paris School of Economics, 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, IPP - Institut des politiques publiques); Sophie Cottet (PSE - Paris School of Economics, 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, IPP - Institut des politiques publiques); Clément Malgouyres (IPP - Institut des politiques publiques) |
| Abstract: | The competitiveness and employment tax credit (CICE) is a corporate tax credit of 6% on salaries that are lower than 2.5 times the minimum wage (Smic). Its conversion into an additional reduction in employer contributions is a key measure in the 2019 budget. It will give rise to a temporary increase in the public deficit amounting to 0.8% of GDP in 2019, the year during which the State must finance the CICE tax credit applicable to 2018 salaries as well as the reduction in employer contributions calculated on the basis of 2019 salaries. The measure does, however, have effects beyond the additional cost to public finances in 2019. The reduction in social contributions benefits the not-for-profit sector more than the tax credits that it is replacing. The shift also generates an increase in corporate tax (CT) and income tax (IT): a one-euro reduction in social contributions will give rise to one euro of taxable profit for profit-making companies. As this additional CT and IT is dependent on company profitability, the net effect of the shift is more beneficial to young and small companies. Lastly, converting part of the additional CT into an additional 4% reduction in Social Security contributions at the level of the minimum wage amounts to a refocussing of expenditure on low wage-intensive sectors. Impact assessments of the CICE have produced mixed results, pointing to positive effects on the profit margins of companies, but modest effects on employment, and virtually no effects on investment. Several potentially contradictory explanations could justify these results: ineffectiveness of labour cost reduction policies; longer transmission channels than anticipated; poor targeting of the CICE. The explanation that seems to tally most with the empirical results available today is the fact that the CICE has primarily been seen as a CT reduction rather than a reduction in the cost of labour. Based on this interpretation, the conversion of the CICE could have a significant effect on employment through the effect it has on the cash flow situation of companies and on the salience of the labour cost reduction, an effect that is heightened by targeting the measure at low-wage intensive sectors. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:halshs-02520785&r=all |
| By: | Bryon Higgins; Matthew Higgins; Thomas Klitgaard |
| Abstract: | People across the world have cut back sharply on travel due to the Covid-19 pandemic, working from home and cancelling vacations and other nonessential travel. Industrial activity is also off sharply. These forces are translating into an unprecedented collapse in global oil demand. The nature of the decline means that demand is unlikely to respond to the steep drop in oil prices, so supply will have to fall in tandem. The rapid increase in U.S. oil production of recent years was already looking difficult to sustain before the pandemic, as evidenced by the limited profitability of the sector. Now, U.S. producers may have to bear the brunt of the global supply adjustment needed over the near term. |
| Keywords: | oil; fracking; OPEC; United States; consumption; supply; prices; pandemic; coronavirus; International Energy Agency (IEA); COVID-19 |
| JEL: | E2 G1 |
| Date: | 2020–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87885&r=all |
| By: | Egemen Eren; Andreas Schrimpf; Vladyslav Sushko |
| Abstract: | Dislocations in domestic US dollar money markets reverberated globally. Non-US banks lost a substantial part of funding from money market funds and had to borrow at shorter maturities. Nevertheless, the severity of dollar funding strains varied substantially across banks, and eased for banks from jurisdictions with standing swap lines with the Federal Reserve. The impact of policy measures to quell the stress was felt unevenly across different funding markets. The divergence between key rates resulted in an unusual divergence of funding cost metrics, with some indicating a "dollar glut" while others a "dollar shortage". |
| Date: | 2020–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisblt:15&r=all |
| By: | Erasmo Giambona; Rafael Matta; José-Luis Peydró; Ye Wang |
| Abstract: | We show that Quantitative Easing (QE) stimulates investment via a corporate-bond lending channel. Fed’s large-scale asset purchases of MBS and treasuries through QE creates a vacuum of safe assets, prompting safer firms to invest more by issuing relatively "safe" bonds. Using micro-data around QE, we find that QE increases firm-level investment by 7.4 percentage points for firms with bond market access. This growth is financed with senior bonds. We find no evidence of higher shareholders’ payouts associated to QE. The robust findings are consistent with a model in which reducing the supply of government debt lowers "safe" corporate bond yields, stimulating investment. |
| Keywords: | Quantitative Easing (QE), Corporate-Bond Lending Channel, Investment, Safe Assets, Financing |
| JEL: | E5 G01 G31 G32 G38 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1722&r=all |
| By: | Federico Sturzenegger (Universidad de San Andres) |
| Abstract: | There has been substantial research on the benefits of accumulating foreign reserves, but less on the relative merits of how to finance those reserves. Does it matter if reserves are accumulated through unsterilized purchases, by issuing domestic currency liabilities or by issuing foreign currency liabilities? This paper explores this question by looking at the impact of different ways to finance reserve accumulation on country spreads. The results suggest that the financing source is not irrelevant. Accumulating reserves through unsterilized interventions or by issuing domestic debt, do reduce country risk. On the contrary accumulating reserves by issuing foreign liabilities seems not to have a meaningful effect. |
| Keywords: | reserves, spreads, central banking |
| JEL: | F3 F4 E5 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:sad:wpaper:139&r=all |
| By: | Lustenhouwer, Joep |
| Abstract: | I study liquidity traps in a model where agents have heterogeneous expectations and finite planning horizons. Backward-looking agents base their expectations on past observations, while forward-looking agents have fully rational expectations. Liquidity traps that are fully or partly driven by expectations can arise due to pessimism of backward-looking agents. Only when planning horizons are finite, these liquidity traps can be of longer duration without ending up in a deflationary spiral. I further find that fiscal stimulus in the form of an increase in government spending or a cut in consumption taxes can be very effective in mitigating the liquidity trap. A feedback mechanism of heterogeneous expectations causes fiscal multipliers to be the largest when the majority of agents is backward-looking but there also is a considerable fraction of agents that are forward-looking. Labor tax cuts are always deflationary and are not an effective tool in a liquidity trap. |
| Keywords: | bounded rationality; fiscal policy; liquidity trap; heterogeneous expectations |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0683&r=all |
| By: | Pennings,Steven Michael |
| Abstract: | US federal transfers to individuals are large, countercyclical, vary geographically, and are often credited for helping stabilize regional economies. This paper estimates the short-run effects of these transfers using plausibly exogenous regional variation in temporary stimulus packages and earlier permanent Social Security increases. States that received larger transfers tended to grow faster contemporaneously, with a multiplier of around 1.5 for permanent transfers and 1/3 for temporary transfers. Results are broadly consistent with an open-economy New Keynesian model. At business-cycle frequencies, cross-region transfer multipliers are not large, suggesting only modest gains in regional stabilization from US federal automatic stabilizers. |
| Keywords: | Plastics&Rubber Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,Food&Beverage Industry,Pulp&Paper Industry,General Manufacturing,Textiles, Apparel&Leather Industry,Economic Growth,Economic Theory&Research,Industrial Economics,Employment and Shared Growth,Wages, Compensation&Benefits |
| Date: | 2020–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9244&r=all |
| By: | Manuel Adelino; Miguel A. Ferreira; Mariassunta Giannetti; Pedro Pires |
| Abstract: | We show that trade credit in production networks is important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank’s Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms. |
| JEL: | E50 G30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27077&r=all |
| By: | Jézabel Couppey-Soubeyran; Erica Perego; Fabien Tripier |
| Abstract: | European banks are stronger today than they were on the eve of the 2007-2008 financial crisis, thanks to the reforms that have taken place since then. But will they be strong enough in the face of a health crisis closer to the Great Depression of the 1930s than the stress-test scenarios envisaged by the European Banking Authority for 2020? Access to central bank liquidity probably eliminates the risk of bank illiquidity, but it is not unthinkable that a bank insolvency crisis would have to be managed. The non-repayment of one in five loans would be enough to exhaust the current level of capital. The resolution mechanism would then have to be mobilised, which is unlikely to be sufficient in a context where, according to the European Systemic Risk Board, the risk of simultaneous defaults is increasing sharply. It would then be possible to mobilise the European Stability mechanism. Should this instrument prove insufficient, the risk of the re-emergence of a sovereign debt crisis would increase. |
| Keywords: | Banks;Banking regulation;Basel Agreements;Monetary policy;Macroprudential policy;Europe |
| JEL: | G21 G28 E58 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepipb:2020-32&r=all |
| By: | Haoyang Liu; Desi Volker |
| Abstract: | The Paycheck Protection Program (PPP) is a central piece of the CARES Act. In the program’s first round, $349 billion in forgivable government-guaranteed loans were extended to small businesses to cover costs related to payroll and utilities, as well as mortgage and rent payments. The program opened for applications on April 3 and was oversubscribed by April 16. Because of its popularity, lawmakers passed a new bill replenishing the fund with another $310 billion and the Small Business Administration (SBA) started approving loans again on April 27. With a new round of PPP lending underway, it is natural to examine the allocation of credit in the first round and ask: Have PPP loans gone to the areas of the country and sectors of the economy hardest hit by COVID-19? |
| Keywords: | Paycheck Protection Program (PPP); CARES Act; small business loans; COVID-19 |
| JEL: | E51 |
| Date: | 2020–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87915&r=all |
| By: | Torben M. Andersen; Joydeep Bhattacharya; Qing Liu |
| Abstract: | In the real world, public pay-as-you-go pension (PAYG) schemes are popular and co-exist with private, retirement-saving schemes. This is true even in dynamically efficient economies where such pensions offer a lower return. The classic Aaron-Samuelson result argues that, in theory, this is impossible. Later work has shown that it may be possible if agents, left on their own, undersave due to myopia or time-inconsistency. In that case, if the government is paternalistic, a welfare rationale for PAYG pensions arises but only if voluntary retirement saving is fully crowded out because of a binding borrowing constraint. This paper generalizes the Aaron-Samuelson discussion to the reference-dependent utility setup of Kőszegi and Rabin (2009) where undersaving happens naturally. No borrowing constraint is imposed. In this case, it is possible to offer a non-paternalistic, welfare rationale for return-dominated, PAYG pensions to coexist with private retirement saving. |
| Keywords: | reference-dependence, crowding-out, pensions, dynamic efficiency |
| JEL: | H55 E60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8260&r=all |
| By: | International Monetary Fund |
| Abstract: | Georgia’s performance under the Extended Arrangement has been good, but the country is now facing a pronounced economic slowdown and an urgent balance of payments need due to the COVID-19 pandemic. Real GDP is expected to decline by 4 percent in 2020, but projections are subject to more than the usual uncertainty. Lower exports, no tourism, and weaker remittances are expected to widen the current account deficit to 11? percent of GDP in 2020. Rising global risk aversion is likely to reduce private financial inflows and delay investment. The authorities have sought to contain the COVID-19 pandemic and cushion its economic impact but face a balance of payments gap of $1.8 billion for 2020-21 (11.4 percent of GDP). |
| Date: | 2020–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:20/149&r=all |