|
on Macroeconomics |
|
Issue of 2020‒06‒08
93 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | De Koning, Kees |
| Abstract: | Among the European Union countries, there are some that already have reached their peak of the corona virus pandemic, while others are still struggling to get a grip on the epidemic. In a number of countries, at the time of writing, a lock down situation is still in place. How will the economies look like after the pandemic is tamed? The IMF in its latest blog on the world’s financial stability came to the following conclusions: “Central banks will remain crucial to safeguarding the stability of global financial markets and maintaining the flow of credit to the economy. But this crisis is not simply about liquidity. It is primarily about solvency—at a time when large segments of the global economy have come to a complete stop. As a result, fiscal policy has a vital role to play. Together, monetary, fiscal, and financial policies should aim to cushion the impact of the COVID-19 shock and to ensure a steady, sustainable recovery once the pandemic is under control. Close, continuous international coordination will be essential to support vulnerable countries, to restore market confidence, and to contain financial stability risks. The IMF is ready to assert the full weight of its resources—first, to help protect the world’s most vulnerable economies, and, for the long term, to strengthen the eventual recovery.” In two previous papers by this author: one about the U.S. economy and the other about the U.K.’s one, the author did illustrate that there is a substantial illiquid element of households’ savings incorporated in the homes people live in. In these papers, the why and how of turning such savings into cash was demonstrated. Such conversion of an illiquid asset into current cash can stimulate consumer expenditure, without having to fall back on additional government expenditure to achieve such goal. The help of central banks through Quantitative Easing will be vital. The E.U consists of 27 countries; for 19 countries out of the 27 it has one currency from one Central Bank (ECB). In this paper, the how and why for two countries in particular: Italy and Spain will be set out. This does not imply that the same method cannot be used in all the other E.U countries. |
| Keywords: | European Central Bank, National central banks, Home equity, Italy, Spain, effects of corona virus, consumer expenditure, home equity release method |
| JEL: | D1 D11 D14 E2 E21 E3 E32 E5 E51 E58 |
| Date: | 2020–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99910&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100147&r=all |
| By: | Philipp Kirchner (University of Kassel); Benjamin Schwanebeck (University of Hagen) |
| Abstract: | This paper studies the interaction of international shadow banking with monetary and macroprudential policy in a two-country currency union DSGE model. We fiÂ…nd evidence that cross-country fiÂ…nancial integration through the shadow banking system is a source of fiÂ…nancial contagion in response to idiosyncratic real and fiÂ…nancial shocks due to harmonization of fiÂ…nancial spheres. The resulting high degree of business cycle synchronization across countries, especially for Â…financial variables, makes union-wide policy tools more ffective. Nevertheless, optimal monetary policy at the union-level is too blunt an instrument to adequately stabilize business cycle downturns and needs to be accompanied by macroprudential regulation. Our welfare analysis reveals that the gains from the availability of country-speciÂ…c prudential tools vanish with the degree of fiÂ…nancial integration as union-wide macroprudential regulation is able to effectively reduce losses among the union members. |
| Keywords: | fiÂ…nancial frictions; shadow banking; currency union; Â…financial integration; macroprudential policy |
| JEL: | E32 E44 E58 F45 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202024&r=all |
| By: | De Koning, Kees |
| Abstract: | The corona virus pandemic has caused and will cause severe hardship for nearly all countries in the world. Government expenditures have gone up dramatically in many countries and tax revenues will drop substantially. Unemployment levels will reach historical highs according to the International Labour Office. Worldwide some 1.6 billion workers will be severely affected . Governments have helped companies to furlough staff and pay such staff from government budgets. Central banks have expanded Quantitative Easing activities and lowered interest rates to practically zero or in case of the ECB to below zero. On April 29th this year, the Fed left its target range for its federal funds rate unchanged at 0-0.25 percent and reiterated it is committed to using its full range of tools to support the economy hit by the coronavirus crisis. U.S. policymakers said that the on-going public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. Savings incorporated as equity in homes constitute a very substantial source of wealth in many countries. To give a few examples: in the U.S. the net worth embedded in homes was approximately U.S. $23 trillion as per February of 2020. The U.S. GDP for 2019 was $21.2 trillion. In 2018 in the U.K. the total household sector had a net worth in non-financial assets of £4.74 trillion. U.K.’s GDP was £2.11 trillion in the same year. In another example: in 2018, Italy had a home equity level of approximately €3.28 trillion with a GDP level of €1.757 trillion. Spain has a home ownership level of 76.2% far above Germany with 51.5% of households. In many countries, the collective levels of home equity wealth -or in other words the savings locked into homes- are often a multiple of annual GDP levels. Why is it that these savings are not used at all to stimulate economies? There are two reasons for it: The first one is linked to the banking sector. The latter can only turn an asset into a liability. The second reason is that part sales of a home are an untested territory in economic terms. This paper will explain the economic option of a Temporary Equity Spend and Save Again (Tessa) system. |
| Keywords: | Quantitative Easing (QE); Quantitative Tightening (QT); home equity; Tessa; Federal Reserve, ECB; Bank of England; Bank of Japan; Italy; ILO; IMF; |
| JEL: | D1 D11 D14 E2 E21 E3 E32 E5 E51 E58 |
| Date: | 2020–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100182&r=all |
| By: | Silvo, Aino; Verona, Fabio |
| Abstract: | In this paper we present Aino 3.0, the latest vintage of the dynamic stochastic general equilibrium (DSGE) model used at the Bank of Finland for policy analysis. Aino 3.0 is a small-open economy DSGE model at the intersection of the recent literatures on so-called TANK (“Two-Agent New Keynesian”) and MONK (“Mortgages in New Keynesian”) models. It aims at capturing the most relevant macro-financial linkages in the Finnish economy and provides a rich laboratory for the analysis of various macroeconomic and macroprudential policies. We show how the availability of a durable consumption good (housing), on the one hand, and the presence of credit-constrained households, on the other hand, affect the transmission of key macroeconomic and financial shocks. We also illustrate how these new transmission channels affect model dynamics compared to the previous model vintage (the Aino 2.0 model of Kilponen et al., 2016). |
| JEL: | E21 E32 E44 F41 R31 |
| Date: | 2020–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_009&r=all |
| By: | Brinca, Pedro; Costa-Filho, João; Loria, Francesca |
| Abstract: | What drives recessions and expansions? Since it was introduced in 2007, there have been hundreds of business cycle accounting (BCA) exercises, a procedure aimed at identifying classes of models that hold quantitative promise to explain a certain period of economic fluctuations. First, we exemplify the procedure by studying the U.S. recessions in 1973 and 1990 using and reflect upon the critiques BCA has been subject to. Second, we look into the many equivalence theorems that the literature has produced and that allow BCA practitioners to identify the theories that are quantitatively relevant for the economic period under study. Third, we describe the methodological extensions that have been brought forth since BCA’s original inception. We end by providing some broad conclusions regarding the relative contribution of each wedge: GDP and aggregate investment are usually driven by an efficiency wedge, hours of work are closely related to the labor wedge and, in an open economy, the investment wedge helps to explain country risk spreads on international bonds. Larger changes in interest rates and currency crises are usually associated with the investment and/or the labor wedge. Finally, we contribute with a graphical user interface that allows practitioners to perform business cycle accounting exercises with minimal effort. |
| Keywords: | Business Cycle Accounting, business cycles, wedges |
| JEL: | E27 E30 E32 E37 |
| Date: | 2020–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100180&r=all |
| By: | Jan Willem van den End; Paul Konietschke; Anna Samarina; Irina Stanga |
| Abstract: | This paper examines the link between interest rates and expenditures, known as the IS-curve. Specifically, we analyse whether the reaction of spending behaviour to monetary policy changes is different in a low compared to a normal interest rate environment. We estimate the nonlinear IS-curve for the euro area and the five largest euro area countries over the period 1999q2-2019q1 and study whether the IS-curve relationship is regime-dependent. We employ smooth-transition local projections to estimate the impulse responses of the output gap, the growth of consumption, investment, and savings to a contractionary monetary policy shock under normal and low interest rate regimes. Our results point to a possible flattening of the IS-curve, related to substitution effects becoming weaker relative to income effects in a low interest rate regime. |
| Keywords: | IS-curve; monetary policy; low interest rate environment |
| JEL: | E21 E22 E43 E52 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:684&r=all |
| By: | Jens Klose (THM Business School Giessen); Peter Tillmann (Justus Liebig University Giessen) |
| Abstract: | In order to fight the economic consequences of the COVID-19 pandemic, monetary and fiscal policy announced a large variety of support packages which are often unprecedented in size. In this paper, we provide an empirical analysis of the responses of European financial markets to these policy announcements. The key contribution is a very granular set of policy announcements, both at the national and the European level. We also differentiate between the first announcement in a series of policies and the subsequent announcements because the initial steps were often seen as bad news about the state of the economy. In a panel model we find that monetary policy, in particular through asset purchases, is effective in supporting the real economy and easing the pressure on governmental finances. Across all subsets of polices, it seems that monetary policy is more effective in supporting the stock market than national fiscal policy, though markets clearly distinguish between different types of policies. |
| Keywords: | event study, announcements, fiscal policy, monetary policy, European Monetary Union |
| JEL: | E44 E52 E62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202025&r=all |
| By: | Kick, Thomas; Malinkovich, Swetlana; Merkl, Christian |
| Abstract: | In the presence of financial frictions, banks' capital position may constrain their ability to provide loans. The banking sector may thus have important feedback effects on the macroeconomy. To shed new light on this issue, we combine two approaches. First, we use microeconomic balance sheet data from Germany and estimate banks' loan supply response to capital changes. Second, we modify the model of Gertler and Karadi (2011) such that it can be calibrated to the estimated partial equilibrium elasticity of bank loan supply with respect to bank capital. Although the targeted elasticity is remarkably different from the one in the baseline model, banks continue to be an important originator and amplifier of macroeconomic shocks. Thus, combining microeconometric results with macroeconomic modeling provides evidence on the effects of the banking sector on the macroeconomy. |
| Keywords: | DSGE,Bank Capital,Loan Supply,Financial Frictions |
| JEL: | E24 E32 E44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:272020&r=all |
| By: | Lopez Buenache, German; Borsi, Mihály Tamás; Rosa-García, Alfonso |
| Abstract: | We model unemployment and credit cycle dynamics as a Markov-switching process with two states to identify labor market slacks i.e., periods of unemployment above its natural rate. Our results for the US economy between 1955 and 2015 show that credit contractions improve the identification of high unemployment states. Moreover, we find that credit cycles have a sizable out-of-sample predictive power on labor market slacks. This implies that the evolution of credit can be used as a leading indicator for economic policies. |
| Keywords: | credit cycle; unemployment; forecast; Markov-switching |
| JEL: | C32 E24 E32 E51 |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100362&r=all |
| By: | Manuel M. F. Martins (Faculty of Economics, University of Porto and CEF.UP); Fabio Verona (Bank of Finland - Monetary Policy and Research Department and University of Porto - CEF.UP) |
| Abstract: | We show that the New Keynesian Phillips Curve (NKPC) outperforms standard benchmarks in forecasting U.S. inflation once frequency-domain information is taken into account. We do so by decomposing the time series (of inflation and its predictors) into several frequency bands and forecasting separately each frequency component of inflation. The largest statistically significant forecasting gains are achieved with a model that forecasts the lowest frequency component of inflation (corresponding to cycles longer than 16 years) flexibly using information from all frequency components of the NKPC inflation predictors. Its performance is particularly good in the returning to recovery from the Great Recession. |
| Keywords: | Inflation forecasting; New Keynesian Phillips curve; Frequency domain; Wavelets |
| JEL: | C53 E31 E37 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:2001&r=all |
| By: | Stephen J. Cole (Department of Economics, Marquette University); Fabio Milani (Department of Economics, University of California-Irvine) |
| Abstract: | The adaptive learning approach has been fruitfully employed to model the formation of aggregate expectations at the macroeconomic level, as an alternative to rational expectations. This paper uses adaptive learning to understand, instead, the formation of expectations at the micro-level, by focusing on individual expectations and, in particular, trying to account for their heterogeneity. We exploit survey data on output and inflation expectations by individual professional forecasters. We link micro and macro by endowing forecasters with the same information set that they would have as economic agents in a benchmark New Keynesian model. Forecasters are, however, allowed to differ in the constant gain values that they use to update their beliefs. We estimate the best-fitting constant gain for each forecaster. We also extract individual measures of sentiment, defined as the degrees of excess optimism and pessimism that cannot be justified by the near-rational learning model, given the state of the economy and the updated beliefs. Our results highlight the heterogeneity in the gain coefficients adopted by forecasters, which is particularly pronounced at the beginning of the sample. The median values are consistent with those typically estimated using aggregate data, and display some moderate time variation: they occasionally jump to higher values in the 1970-80s, and stabilize in the 1990s and 2000s. Individual sentiment is persistent and heterogeneous. Differences in sentiment, however, don't simply cancel out in the aggregate: the majority of forecasters exhibit excess optimism, or excess pessimism, at the same time. |
| Keywords: | Individual Survey Forecasts; Heterogeneous Expectations; Constant-Gain Learning; New Keynesian Model; Sentiment Shocks; Waves of Optimism and Pessimism; Evolving Beliefs |
| JEL: | C52 D84 E32 E50 E60 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:192005&r=all |
| By: | Christian Pinshi (UNIKIN - University of Kinshasa) |
| 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. Jels code: C32, E32, E51, E52, E58 |
| Keywords: | Uncertainty,COVID-19,Monetary policy,Bayesian VAR |
| Date: | 2020–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02566796&r=all |
| By: | Lydia Cox; Gernot J. Muller; Ernesto Pasten; Raphael Schoenle |
| Abstract: | “Big G” typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular; that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation in spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark, aligning the model with the empirical evidence. |
| Keywords: | Government Spending; Granularity; Sectoral Heterogeneity; Federal Procurement; Monetary Policy; Fiscal Policy Transmission |
| JEL: | E32 E62 |
| Date: | 2020–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88068&r=all |
| By: | Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis |
| Abstract: | We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans. |
| Keywords: | negative rates,non-standard monetary policy,reach-for-yield,securities,banks |
| JEL: | E43 E52 E58 G01 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216806&r=all |
| By: | Christopher Busch; David Domeij; Fatih Guvenen; Rocio Madera |
| Abstract: | Recent studies have shown that idiosyncratic labor income risk becomes more left-skewed during recessions. This procyclical skewness arises from a combination of higher downside risk and lower chances of upward surprises during recessions. While this much is known, some important open questions remain. For example, how robust are these patterns across countries that differ in their institutions and policies, as well as across genders, education groups, and occupations, among others? What is the contribution of wages versus hours to procyclical skewness of earnings changes? To what extent can skewness fluctuations in individual earnings be smoothed within households or with government policies? Using panel data from the United States, Germany, Sweden, and France, we find four main results. First, the skewness of individual income growth (before-tax/transfer) is procyclical while its variance is flat and acyclical in all three countries. Second, this result holds even for full-time workers continuously employed in the same establishment, indicating that the hours margin is not the main driver; additional analyses of hours and wages confirm that both margins are important. Third, within-household smoothing does not seem effective at mitigating skewness fluctuations. Fourth, tax-and-transfer policies blunt some of the largest declines in incomes, reducing procyclical fluctuations in skewness. |
| Keywords: | idiosyncratic income risk, skewness, countercyclical risk |
| JEL: | D31 E24 E32 H31 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1180&r=all |
| By: | BLINOV, Sergey |
| Abstract: | Today, increasing the growth rate of the Russian economy is more relevant than ever. Consideration of any macroeconomic phenomena that in a historical perspective would provide an economic recovery and increase the economic power of our country is of undoubted interest. One of the important aspects of this problem is the influence of monetary policy and specifically the increase in real money supply on economic growth in a broad historical perspective. The dynamics of the real money supply explains well the rapid growth of the Russian economy in 1999–2008 and the slow one from 2009 to 2019. Some features of monetary policy, in particular ignoring the important role of public debt as a stabilizer of the monetary system, can be considered as causes of economic policy failures in the recent past. From the perspective of a historical analysis of these recent events and a deeper immersion in economic history, we will try to find out what measures in the field of monetary and financial strategies and tactics can most effectively help accelerate Russia's economic development. |
| Keywords: | деньги; история; финансы; |
| JEL: | E40 E42 E50 E58 N00 N10 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100401&r=all |
| By: | Busch, Christopher; Ludwig, Alexander |
| Abstract: | We extend the canonical income process with persistent and transitory risk to shock distributions with left-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household data from the United States. We find countercyclical variance and procyclical skewness of persistent shocks. All shock distributions are highly leptokurtic. The existing tax and transfer system reduces dispersion and left-skewness of shocks. We then show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications, which depend crucially on risk attitudes of households; second, higher-order risk matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, higher-order risk has non-trivial implications for the degree of self-insurance against both transitory and persistent shocks. |
| Keywords: | Labor Income Risk,Business Cycle,GMM Estimation,Skewness,Persistent and Transitory Income Shocks,Risk Attitudes,Life-Cycle Model |
| JEL: | D31 E24 E32 H31 J31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20022&r=all |
| By: | Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis |
| Abstract: | By adjusting lending, banks can smooth the macroeconomic impact of deposit fluctuations. This may however lead to extended periods of disproportionately high lending relative to deposit intake, resulting in the accumulation of risk in the banking system. Using bank-level data for 8,477 banks in 129 countries for the 24-year period from 1992 to 2015, we examine how individual banks’ market power and other characteristics may contribute to smoothing or amplification of shocks and to the accumulation of risk. We find that the higher their market power the lower is the growth rate of lending relative to deposits. As a result, in periods of falling deposits, higher market power for the average bank would be associated with a greater fall in lending resulting in amplification of adverse effects as deposits fall during relatively bad times. Strikingly, at very high levels of market power there is a threshold past which the effect of market power on the growth rate of lending relative to deposits turns positive so that “superpower” banks contribute to smoothing of adverse effects when deposits are falling. In periods of rising deposits, however, such banks lead to amplification and accumulation of risk in the economy |
| Keywords: | smoothing, amplification, risk accumulation, market power, competition, crisis. |
| JEL: | E44 E51 F3 F4 G21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2018_03&r=all |
| By: | Abban, Stanley |
| Abstract: | The ECOWAS in a quest to form a currency union prompted the set out nominal convergence criteria for member states. The study seeks to delineate the importance of the nominal convergence criteria to ensure price and exchange rate stability. In this context, the revised ECOWAS convergence criteria were elaborated to unveil the degree of convergence. Also, the study computed for the realistic nominal convergence targets supposing the union is formed and suggested ex-ante steps to fast track convergence. Additionally, the study showed the exigency for trade and institutional convergence through policy coordination. The study concludes that countries should commit to attaining the convergence criteria in the shortest possible time to aid in the realization of the policy. The study recommends that relatively exposing the large informal sector, ensuring political ramification, and encouraging savings is key to achieving the nominal convergence criteria. |
| Keywords: | nominal convergence criteria, currency union, large informal sector, Optimal Currency Area, inflation, public deficits, public debts, reserves. |
| JEL: | E5 E52 E61 E63 H2 |
| Date: | 2020–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100215&r=all |
| By: | Altavilla, Carlo; Boucinha, Miguel; Peydró, José-Luis; Smets, Frank |
| Abstract: | We analyse the effects of supranational versus national banking supervision on credit supply, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change leading to the centralisation of European banking supervision; (iii) high-frequency monetary policy surprises; (iv) differences across euro area countries, also vis-à-vis non-euro area countries. We show that supranational supervision reduces credit supply to firms with very high ex-ante and ex-post credit risk, while stimulating credit supply to firms without loan delinquencies. Moreover, the increased risk-sensitivity of credit supply driven by centralised supervision is stronger for banks operating in stressed countries. Exploiting heterogeneity across banks, we find that the mechanism driving the results is higher quantity and quality of human resources available to the supranational supervisor rather than changes in incentives due to the reallocation of supervisory responsibility to the new institution. Finally, there are crucial complementarities between supervision and monetary policy: centralised supervision offsets excessive bank risk-taking induced by a more accommodative monetary policy stance, but does not offset more productive risk-taking. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity. |
| Keywords: | supervision,banking,AnaCredit,monetary policy,Euro Area crisis |
| JEL: | E51 E52 E58 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216793&r=all |
| By: | Schüler, Yves |
| Abstract: | The Basel III framework advises considering a reference indicator at the country level to guide the setting of the countercyclical capital buffer: the credit-to-GDP gap. In this paper, I provide empirical evidence suggesting that the credit-to-GDP gap is subject to spurious medium-term cycles, i.e. artificial boom-bust cycles with a maximum duration of around 40 years. |
| Keywords: | Basel III,Hodrick-Prescott filter,detrending |
| JEL: | C10 E32 E58 G01 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:282020&r=all |
| By: | Natalia Levenko |
| Abstract: | The European Survey of Professional Forecasters (SPF) is a dataset that is widely used to derive measures of forecast uncertainty. Participants in the SPF provide not only point estimates but also density forecasts for key macroeconomic variables. The mean individual variance, defined as the average of the variances of individual forecasts, shifted up during the Great Recession and has remained elevated since the crisis. This shift is not typical since proxies for uncertainty are usually counter-cyclical. The paper seeks to explain this puzzling lack of countercyclicality by applying a smooth transition analysis on data from the European SPF. The analysis indicates that the mean individual variance has a non-linear relationship with the share of non-rounded responses in the survey and consequently the upward shift in individual variance is likely to be associated with changes in the modelling preferences of forecasters. The results remain robust after potential endogeneity has been accounted for |
| Keywords: | survey uncertainty; forecast disagreement; density forecasts; surveys of professional forecasters; Great Recession; smooth transition; instrumental variables |
| JEL: | C25 C32 C83 D81 E32 E37 |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2020-2&r=all |
| By: | Dempsey, Kyle P. |
| Abstract: | I analyze the impact of raising capital requirements on the quantity, composition, and riskiness of aggregate investment in a model in which firms borrow from both bank and non-bank lenders. The bank funds loans with insured deposits and costly equity, monitors borrowers, and must maintain a minimum capital to asset ratio. Non-banks have deep pockets and competitively price loans. A tight capital requirement on the bank reduces risk-shifting and decreases bank leverage, reducing the risk of costly bank failure. In response, though, the bank can change both price and non-price contract terms. This may induce firms to substitute out of bank finance, leading to a theoretically ambiguous effect on the profile of aggregate investment. Quantitatively, I find that the bank's incentive to insure itself against issuing costly equity and competition from the non-bank sector mutes the long run impact of raising capital requirements. Increasing the capital requirement from 8% to 26% eliminates bank failures with effectively no change in the quantity or riskiness of aggregate investment. JEL Classification: G2, E5, E6, E32, E44 |
| Keywords: | banking, business cycles, capital requirements |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202415&r=all |
| By: | Ahmed, Ali (Division of Economics, Department of Management and Engineering, Linköping University); Granberg, Mark (Division of Economics, Department of Management and Engineering, Linköping University); Troster, Victor (Universitat de les Illes Balears); Uddin, Gazi Salah (Division of Economics, Department of Management and Engineering, Linköping University) |
| Abstract: | This paper examines how different uncertainty measures affect the unemployment level, inflow, and outflow in the U.S. across all states of the business cycle. We employ linear and nonlinear causality-in-quantile tests to capture a complete picture of the effect of uncertainty on U.S. unemployment. To verify whether there are any common effects across different uncertainty measures, we use monthly data on four uncertainty measures and on U.S. unemployment from January 1997 to August 2018. Our results corroborate the general predictions from a search and matching framework of how uncertainty affects unemployment and its flows. Fluctuations in uncertainty generate increases (upper-quantile changes) in the unemployment level and in the inflow. Conversely, shocks to uncertainty have a negative impact on U.S. unemployment outflow. Therefore, the effect of uncertainty is asymmetric depending on the states (quantiles) of U.S. unemployment and on the adopted unemployment measure. Our findings suggest state-contingent policies to stabilize the unemployment level when large uncertainty shocks occur. |
| Keywords: | Uncertainty; Unemployment; Nonlinear dynamics; Granger-causality; Quantile regression; U.S. labor market. |
| JEL: | C22 D80 E24 E32 J64 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:liuewp:0007&r=all |
| By: | Shahriyar Aliyev (Institute of Economic Studies, Charles University, Opletalova 26, 110 00 Prague, Czech Republic.); Evzen Kocenda (Institute of Economic Studies, Charles University, Opletalova 26, 110 00 Prague, Czech Republic; Institute of Information Theory and Automation of the CAS, Prague; CESifo, Munich; IOS Regensburg; and the Euro Area Business Cycle Network.) |
| Abstract: | We analyze the impact of the ECB monetary policies on global aggregate and sectoral commodity prices using monthly data from January 2001 till August 2019. We employ a SVAR model and assess separately period of conventional monetary policy before global financial crisis (GFC) and unconventional monetary policy during post-crisis period. Our key results indicate that contractionary monetary policy shocks have positive effects on the aggregate and sectoral commodity prices during both conventional and unconvetional monetary policy periods. The effect is statistically significant for aggregate commodity prices during post-crisis period. In terms of sectoral impact, the effect is statistically significant for food prices in both periods and for fuel prices during post-crisis period; other commodities display positive but statistically insignificant responses. Further, we demonstrate that the impact of the ECB monetary policy on commodity prices increased remarkably after the GFC. Our results also suggest that the effect of the ECB monetary policy on commodity prices does not transmit directly through market demand and supply expectations channel, but rather through the exchange rate channel that influences the European market demand directly. |
| Keywords: | European Central Bank, commodity prices, short-term interest rates, unconventional monetary policy, Structural Vector Autoregressive model, exchange rates. |
| JEL: | C54 E43 E58 F31 G15 Q02 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_08&r=all |
| By: | Giacomo Candian (Department of Applied Economics, HEC Montréal); Mikhail Dmitriev (Department of Economics, Florida State University) |
| Abstract: | In models with financial frictions, state-contingent contracts stabilize the business cycle relative to contracts with predetermined rates. We show that this finding depends on whether predetermined rates are set in real or nominal terms. State-contingent contracts can amplify supply-driven recessions compared to contracts set in nominal terms. |
| Keywords: | collateral constraints, financial accelerator, financial frictions, optimal contracts |
| JEL: | C68 E44 E61 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2020_05_01&r=all |
| By: | Dassatti Camors, Cecilia; Peydró, José-Luis; R.-Tous, Francesc; Vicente, Sergio |
| Abstract: | We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies |
| Keywords: | macroprudential policy,reserve requirements |
| JEL: | E51 E52 F38 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216795&r=all |
| By: | Stefano Fasani (Queen Mary University); Haroon Mumtaz (Queen Mary University); Lorenza Rossi (University of Pavia) |
| Abstract: | This paper uses a FAVAR model with external instruments to show that policy uncertainty shocks are recessionary and are associated with an increase in the exit of firms and a decrease in entry and in the stock price with total factor productivity rising in the medium run. To explain this result, we build a medium scale DSGE model featuring firm heterogeneity and endogenous firm entry and exit. These features are crucial in matching the empirical responses. Versions of the model with constant firms or constant firms' exit are unable to re-produce the FAVAR response of firms' entry and exit and suggest a much smaller effect of this shock on real activity. |
| Keywords: | Monetary policy uncertainty shocks, FAVAR, DSGE. |
| JEL: | C5 E1 E5 E6 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0190&r=all |
| By: | R. Anton Braun; Daisuke Ikeda |
| Abstract: | The COVID-19 pandemic has had an exceptionally large and negative impact on economic activity around the world. We show that cash transfers can be a useful policy tool during a pandemic. Cash transfers mitigate consumption inequality induced by the pandemic and provide incentives to individuals who are most negatively affected by lockdown policies to adhere to them. |
| Keywords: | COVID-19 pandemic; cash transfers; stimulus payments; inequality |
| JEL: | E21 E62 H84 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:87974&r=all |
| By: | Marc Burri; Daniel Kaufmann |
| Abstract: | Because macroeconomic data is published with a substantial delay, assessing the health of the economy during the rapidly evolving Covid-19 crisis is challenging. We develop a fever curve for the Swiss economy using publicly available daily financial market and news data. The indicator can be computed with a delay of one day. Moreover, it is highly correlated with macroeconomic data and survey indicators of Swiss economic activity. Therefore, it provides timely and reliable warning signals if the health of the economy takes a turn for the worse. |
| Keywords: | Covid-19, Leading indicator, Financial market data, News sentiment, Forecasting, Switzerland |
| JEL: | E32 E37 C53 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:20-05&r=all |
| By: | Peydró, José-Luis; Polo, Andrea; Sette, Enrico |
| Abstract: | Monetary policy transmission may be impaired if banks rebalance their portfolios towards securities to e.g. risk-shift or hoard liquidity. We identify the bank lending and risk-taking channels by exploiting – Italian’s unique – credit and security registers. In crisis times, with higher ECB liquidity, less capitalized banks react by increasing securities over credit supply, inducing worse firm-level real effects. However, they buy securities with lower yields and haircuts, thus reaching-for-safety and liquidity. Differently, in pre-crisis time, securities do not crowd-out credit supply. The substitution from lending to securities in crisis times helps less capitalized banks to repair their balance-sheets and then restart credit supply with a one year-lag. |
| Keywords: | securities,credit supply,bank capital,monetary policy,reach-for-yield,haircuts,held to maturity,available for sale,trading book,Euro Area Sovereign Debt Crisis |
| JEL: | G01 G21 G28 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216808&r=all |
| By: | Sarah Mouabbi; Jean-Paul Renne; Jean-Guillaume Sahuc |
| Abstract: | We study the debt-stabilizing properties of indexing debt to GDP using a consumption-based macro-finance model. Three results stand out: (i) GDP-linked bond prices would embed sizeable and time-varying risk premiums of about 40 basis points, (ii) for a fixed budget surplus, issuing GDP-linked bonds does not necessarily imply more beneficial debt-to-GDP ratios in the medium- to long-run, and (iii) the debt-stabilizing budget surplus is more predictable under such issuances at the expense of being higher on average. Our findings call into question the view that GDP-linked bonds tame debt. |
| Keywords: | GDP-linked bonds, debt stabilization, consumption-based model, term structure |
| JEL: | H62 H63 E43 E44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-13&r=all |
| By: | Elliott, David; Meisenzahl, Ralf; Peydró, José-Luis; Turner, Bryce C. |
| Abstract: | We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment. |
| Keywords: | nonbank lending,shadow banks,monetary policy,syndicated loans,consumer loans,mortgages |
| JEL: | E51 E52 G21 G23 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216796&r=all |
| By: | Óscar Arce (Banco de España); Iván Kataryniuk (Banco de España); Paloma Marín (Banco de España); Javier J. Pérez (Banco de España) |
| Abstract: | La Unión Europea (UE) requiere de una acción rápida, duradera y suficiente ante la crisis sanitaria y económica provocada por el Covid-19. Las respuestas dadas por el Banco Central Europeo (BCE) y el Consejo de la UE han sido efectivas para mitigar la incidencia de la crisis en el corto plazo y reducir los riesgos de su propagación, facilitando que los Estados miembros (EEMM) puedan movilizar un volumen significativo de recursos. No obstante, la dimensión de la crisis ha puesto en evidencia la falta de instrumentos clave de política económica comunes. En este documento se analizan las condiciones necesarias para una respuesta europea eficaz ante la crisis y sus posibles consecuencias futuras. En primer lugar, se esbozan los elementos básicos sobre los que debería pivotar la estrategia de recuperación, basada en dar una respuesta conjunta a los retos estructurales comunes —como la lucha contra el cambio climático, la digitalización, el aumento del nivel de inversión en salud pública y prevención sanitaria o una reestructuración de amplias áreas del tejido productivo—, con nuevos recursos y con un renovado impulso reformista. En segundo lugar, se detalla una propuesta para el diseño de un «Fondo de Recuperación» que permita movilizar recursos, con el doble objetivo de facilitar el mantenimiento de unas condiciones de financiación adecuadas para la deuda soberana de los EEMM —lo que exige dotar al Fondo de una capacidad de compra de títulos de deuda pública durante plazos dilatados— y de impulsar la financiación de proyectos específicos de naturaleza estructural afines a las necesidades estratégicas del conjunto de la UE. Este instrumento debe ser eficiente (regido por el principio de uso adecuado y proporcional de los recursos públicos), solidario (haciendo especialmente accesibles sus recursos a aquellos que más lo necesiten), equilibrado (eliminando riesgos de transferencias permanentes inducidos por comportamientos oportunistas de los miembros) y con una condicionalidad en el uso de sus recursos ligada a los propios objetivos de la estrategia de recuperación, con especial énfasis en potenciar las palancas de crecimiento. En la medida en que nace ligado a una estrategia europea de medio y largo plazo, el Fondo debería tener una vocación de vigencia durante un horizonte muy amplio, dando lugar posiblemente a una estructura permanente, y estar respaldado por el presupuesto de la UE, debidamente reforzado mediante recursos adicionales de los EEMM y por ingresos procedentes de la eventual implantación de nuevas figuras tributarias a escala de la UE. |
| Keywords: | Fondo de Recuperación, deuda soberana, gobernanza económica europea, Unión Europea, política fiscal |
| JEL: | E02 E62 F55 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2014&r=all |
| By: | Juan Carlos Parra-Alvarez (Aarhus University and CREATES and Danish Finance Institute); Olaf Posch (Hamburg University and CREATES); Mu-Chun Wang (Deutsche Bundesbank) |
| Abstract: | We study the statistical properties of heterogeneous agent models. Using a Bewley-Hugget-Aiyagari model we compute the density function of wealth and income and use it for likelihood inference. We study the finite sample properties of the maximum likelihood estimator (MLE) using Monte Carlo experiments on artificial cross-sections of wealth and income. We propose to use the Kullback-Leibler divergence to investigate identification problems that may affect inference. Our results suggest that the unrestricted MLE leads to considerable biases of some parameters. Calibrating weakly identified parameters allows to pin down the other unidentified parameter without compromising the estimation of the remaining parameters. We illustrate our approach by estimating the model for the U.S. economy using wealth and income data from the Survey of Consumer Finances. |
| Keywords: | Heterogeneous agent models, Continuous-time, Fokker-Planck equations, Kullback-Leibler divergence, Maximum likelihood |
| JEL: | C10 C13 C63 E21 E24 |
| Date: | 2020–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2020-05&r=all |
| By: | Pedro Brinca; Joao B. Duarte; Miguel Faria-e-Castro |
| Abstract: | We measure labor demand and supply shocks at the sector level around the COVID-19 outbreak by estimating a Bayesian structural vector autoregression on monthly statistics of hours worked and real wages. Our estimates suggest that two-thirds of the 16.24 percentage point drop in the growth rate of hours worked in April 2020 are attributable to supply. Most sectors were subject to historically large negative labor supply and demand shocks in March and April, but there is substantial heterogeneity in the size of shocks across sectors. We show that our estimates of supply shocks are correlated with sectoral measures of telework. |
| Keywords: | Sign Restrictions; Supply and Demand Shocks; COVID-19; Structural Vector Autoregressions |
| JEL: | E24 E30 J20 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:87978&r=all |
| By: | Ketenci, Natalya |
| Abstract: | This study investigates the level of capital mobility in European Union members and the impact of the global financial crisis on the capital mobility indicators. The capital mobility is examined by testing the Feldstein-Horioka puzzle. This study estimates quarterly data for 27 European countries for the period of 1995-2013 and employs the standard and dynamic generalized method of moments (GMM) estimation techniques. The results of the standard GMM estimations did not provide the evidence to support the Feldstein-Horioka puzzle, where the saving retention coefficient demonstrates the high capital mobility in European Union countries. However the results of the dynamic GMM estimations indicates that inclusion of historical values of investment and savings in the regression decreases the level of capital mobility in European countries. The consideration of the global financial crisis in the model revealed insignificant changes in capital mobility indicators, which means that the inclusion of the global financial crisis does not have an impact on the capital mobility analysis in European countries. |
| Keywords: | Capital mobility, Feldstein-Horioka puzzle, saving-investment association, generalized method of moments (GMM), EU |
| JEL: | E22 E6 |
| Date: | 2018–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100075&r=all |
| By: | Robert E. Hall; Marianna Kudlyak |
| Abstract: | It is a remarkable fact about the historical US business cycle that, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.55 percentage points per year. The economy seems to have had an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth, but little variation in the rate of decline of unemployment. We explore models of the labor market's self-recovery that imply gradual working off of unemployment following a recession shock. These models explain why the recovery of market-wide unemployment is so much slower than the rate at which individual unemployed workers find new jobs. The reasons include the fact that the path that individual job-losers follow back to stable employment often includes several brief interim jobs, sometimes separated by time out of the labor force. We show that the evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock--unemployment during the recovery is elevated for people who did not lose jobs during the recession. |
| Keywords: | Business cycle; Recovery; Unemployment; Recession |
| JEL: | E32 J63 J64 |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:88050&r=all |
| By: | Bottero, Margherita; Minoiu, Camelia; Peydró, José-Luis; Polo, Andrea; Presbitero, Andrea; Sette, Enrico |
| Abstract: | We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply—and the real economy—through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero-lower-bound. For identification, we exploit ECB’s NIRP and matched administrative datasets from Italy. NIRP affects banks with higher net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRPaffected banks reduce liquid assets, expand credit supply (to ex-ante riskier firms), and cut rates, inducing sizable firm-level real effects. By contrast, there is no evidence of a contractionary retail deposit channel. |
| Keywords: | negative interest rates,portfolio rebalancing,bank lending channel and of monetary policy,liquidity management,Eurozone crisis |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216807&r=all |
| By: | Lacina Balma (Research Department, African Development Bank); Daniel Gurara (International Monetary Fund, United) |
| Abstract: | We study the macroeconomic impacts of public investment surges and fiscal policy adjustments to debt-financed public investment using a neoclassical growth model. We focus on two important issues that are pervasive in publicly financed investment projects in low-income countries: gestation delays and public investment inefficiencies. The model is estimated for a typical low-income country. Three central messages emerge. First, assumptions about which fiscal instruments may adjust to stabilize debt are crucial for the ultimate impacts of changes in fiscal policy. Covering the cost of the investment program and stabilizing debt with tax increases or spending cuts can make government investment contractionary at longer horizons, by crowding out private investment and consumption. Second, government investment spending delivers small, positive, labor and output responses in the presence of time-to-build delays. Third, high-yielding public investment can substantially raise output and consumption, and be self-financing in the long run. JEL classification: E62, H63 |
| Keywords: | Public investment, time-to-build, fiscal stimulus |
| Date: | 2019–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:2450&r=all |
| By: | Corina Boar (New York University); Matthew Knowles (University of St Andrews) |
| Abstract: | We study optimal capital taxation in a model with financial frictions, where the distribution of wealth across heterogeneous entrepreneurs affects how efficiently capital is used in the economy. The government sets linear taxes on wealth, consumption, capital and labor income to maximize the steady state welfare of workers, who own no wealth. In our setting, capital income taxes are particularly costly, because these taxes lead to a more inefficient allocation of capital and, ultimately, lower aggregate total factor productivity. We model financial frictions as arising endogenously as a result of an asymmetric information problem and find that the tightness of financial frictions is affected by tax rates. In our setting, optimal tax rates can be written as simple closed-form functions of pre-tax prices and parameters. We find that the optimal total tax burden on entrepreneurs should be zero, even though the government cares only about workers’ welfare. |
| Keywords: | Optimal Taxation, Capital Taxation, Entrepreneurship, Financial Frictions |
| JEL: | E44 H21 D31 D82 |
| Date: | 2020–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:2004&r=all |
| By: | Fraumeni, Barbara M. (Central University of Finance and Economics); Christian, Michael S. (Education Analytics, Madison); Samuels, Jon D. (U.S. Department of Commerce) |
| Abstract: | Over the 1948–2013 period, many factors significantly impacted on human capital, which in turn affected economic growth in the United States. This chapter analyzes these factors within a complete national income accounting system which integrates Jorgenson-Fraumeni human capital into the accounts. By including human capital, a fresh perspective on economic growth across time and within specific subperiods is revealed, notably regarding the 1995–2000 and 2007–2009 periods. During the 1995–2000 period, the reduction in human capital investment significantly reduced apparent economic growth. In the 2007–2009 period, the increase in human capital investment tempered the negative impact of the Great Recession. Over the longer time period, first the post-World War baby boom and then the substantial increase in education led to higher economic growth than otherwise expected. As the pace of increase in education slowed and the workforce aged toward the end of the period, human capital induced growth was reduced. |
| Keywords: | human capital, integrated economic accounts, U.S. post-war sources of growth, education, labor force participation |
| JEL: | E01 E24 J24 I21 J21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13239&r=all |
| By: | Haelim Anderson; Jin-Wook Chang; Adam Copeland |
| Abstract: | The coronavirus outbreak raises the question of how central bank liquidity support affects financial stability and promotes economic recovery. Using newly assembled data on cross-county flu mortality rates and state-charter bank balance sheets in New York State, we investigate the effects of the 1918 influenza pandemic on the banking system and the role of the Federal Reserve during the pandemic. We find that banks located in more severely affected areas experienced deposit withdrawals. Banks that were members of the Federal Reserve System were able to access central bank liquidity, enabling them to continue or even expand lending. Banks that were not System members, however, did not borrow on the interbank market, but rather curtailed lending, suggesting that there was little-to-no pass-through of central bank liquidity. Further, in the counties most affected by the 1918 pandemic, even banks with direct access to the discount window did not borrow enough to offset large deposit withdrawals and so liquidated assets, suggesting limits to the effectiveness of liquidity provision by the Federal Reserve. Finally, we show that the pandemic caused only a short-term disruption in the financial sector. |
| Keywords: | 1918 influenza; pandemics; financial stability; bank lending; economic recovery; COVID-19 |
| JEL: | E32 G21 N22 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88088&r=all |
| By: | Maria Cristina Barbieri Góes (Department of Economics, Università degli Studi Roma Tre); Ettore Gallo (Department of Economics, New School for Social Research) |
| Abstract: | The paper presents a predator-prey model which captures the interactions between unemployment rate and COVID-19 infection rate. The model shows that lockdown measures can effectively reduce the infection rate, but at the cost of higher unemployment rate. The solution of the system makes the case for an endemic equilibrium of COVID-19 infections, hence producing waves in the unemployment rate in the absence of widespread immunity and/or vaccination. Furthermore, we simulate the model, calibrating it for the US. The simulation shows the dramatic effects on unemployment and on overall economic activity produced by potential recurrent waves of COVID-19, leading to a series of W-shaped recessions that - in absence of adequate policy response - jeopardize the coming back to the normal trend in the medium run. |
| Keywords: | COVID-19, unemployment rate, jobless recovery, W-shaped recession |
| JEL: | E24 E60 H51 I18 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:2006&r=all |
| By: | Luisito Bertinelli (CREA, Université du Luxembourg); Olivier Cardi (Lancaster University Management School, UK); Romain Restout (Université de Lorraine (CNRS UMR 7522), Nancy, F) |
| Abstract: | Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition ef- fects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a perma- nent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the in- crease in traded TFP are those where capital relative to labor efficiency increases. Keywords: Sectoral technology shocks; factor-augmenting efficiency; Open economy; Labor reallocation across sectors; CES production function; Labor income share. |
| Keywords: | Sectoral technology shocks; factor-augmenting efficiency; Open economy;Labor reallocation across sectors; CES production function; Labor income share. |
| JEL: | E22 F11 F41 F43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:19-18&r=all |
| By: | Xiaoshan Chen; Eric M. Leeper; Campbell Leith |
| Abstract: | We estimate a model in which both fiscal and monetary policy behavior arise from the optimizing behavior of distinct monetary and fiscal authorities. Optimal time-consistent policy behavior fits U.S. time series at least as well as rules-based behavior. American policy makers have often been in conflict. After the Volcker disinflation, policies did not achieve the conventional mix of a conservative monetary policy paired with a debt-stabilizing fiscal policy. If credible, a conservative central bank that follows a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. Enhancing cooperation between policy makers without an ability to commit would be detrimental to welfare. |
| Keywords: | Bayesian Estimation, Monetary and Fiscal Policy Interactions, Optimal Policy, Markov Switching |
| JEL: | C11 E31 E63 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_04&r=all |
| By: | Charles, Sébastien; Dallery, Thomas; Marie, Jonathan |
| Abstract: | This note has one main ambition. It seeks to provide a very simple macroeconomic framework to explain the economic impact of the COVID-19 pandemic. The explanation for the unprecedented magnitude of the recession over a short span of time is to be found in the peculiar form of the shock due to the various lockdowns involving two recessive shocks simultaneously. Besides, this model is original in that although it is driven by demand it is capable of dealing with supply issues without entailing any additional technical difficulties. |
| Keywords: | COVID-19, lockdown, recession, simultaneous shocks |
| JEL: | E12 E22 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100399&r=all |
| By: | Akihiko Ikeda (Department of Economics, Kyoto University of Advanced Science) |
| Abstract: | This paper studies the effects of an international currency swap agreement, or an exchange of hard currencies between countries, on the probability of financial crises. The analysis is based on a small open economy model with a financial constraint. A currency swap is described as a mutual provision of collateral goods between two countries. The results show that there are cases where a currency swap agreement can lower the probability of financial crises. Whether it can benefit both member countries depends on their difference in the size or probability of recessions, as well as the amount of collateral goods exchanged. Contracts of currency swaps should be designed in consideration of these factors. |
| Keywords: | Emerging economy, Financial crisis, Currency swap |
| JEL: | E32 F41 F44 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1033&r=all |
| By: | Christian Pinshi (UNIKIN - University of Kinshasa) |
| 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,expectations |
| Date: | 2020–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02568635&r=all |
| By: | Gaggl, Paul (University of North Carolina at Charlotte); Gray, Rowena (University of California, Merced); Marinescu, Ioana E. (University of Pennsylvania); Morin, Miguel (The Alan Turing Institute) |
| Abstract: | Electricity is a general purpose technology and the catalyst for the second industrial revolution. What was its impact on the structure of employment? We use U.S. Census data from 1910 to 1940 and measure electrification with the length of higher-voltage electricity lines. Instrumenting for electrification using hydro-electric potential, we find that the average expansion of high-voltage transmission lines between 1910 and 1940 increased the share of operatives in a county by 3.3 percentage points and decreased the share of farmers by 2.1 percentage points. Electrification can explain 50.5% of the total increase in operatives, and 18.1% of the total decrease in farmers between 1910 and 1940. At the industry level, electrification drove 15.7% of the decline in the share of agricultural employment and 28.4% of the increase in the share of manufacturing employment between 1910 and 1940. Electrification was thus a key driver of structural transformation in the U.S. economy. |
| Keywords: | technological change, electrification, structural change |
| JEL: | E25 E22 J24 J31 N32 N72 O33 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13243&r=all |
| By: | Trabelsi, Mohamed Ali; Ahmed, Salah |
| Abstract: | This paper examines the role of democracy in strengthening the resilience of developing economies in the face of exogenous external shocks. Our study uses the duration model to estimate how external shocks and democracy determine the probable duration of a spell of economic growth. Examining a panel of 96 developing countries observed over the 1965-2015 period, we found that democracy is a resilience factor, insofar as it helps to support growth spells in the event of negative external shocks. |
| Keywords: | Resilience; Economic growth; Developing countries; Democracy; Survival models. |
| JEL: | E32 E60 F43 O11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100382&r=all |
| By: | Craig Burnside; Mario Cerrato; Zhekai Zhang |
| Abstract: | This paper proposes a set of novel pricing factors for currency returns that are mo- tivated by microstructure models. In so doing, we bring two strands of the exchange rate literature, namely market-microstructure and risk-based models, closer together. Our novel factors use order fl ow data to provide direct measures of buying and selling pressure related to carry trading and momentum strategies. We find that they appear to be good proxies for currency crash risk. Additionally, we show that the association between our order-fl ow factors and currency returns differs according to the customer segment of the foreign exchange market. In particular, it appears that financial cus- tomers are risk takers in the market, while non-financial customers serve as liquidity providers. |
| Keywords: | foreign, exchange, order fl ow, risk factor. |
| JEL: | E44 E51 F3 F4 G21 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2018_04&r=all |
| By: | Carrillo-Tudela, Carlos (University of Essex); Gartner, Hermann (Institute for Employment Research (IAB), Nuremberg); Kaas, Leo (Goethe University Frankfurt) |
| Abstract: | Recruitment behavior is important for the matching process in the labor market. Using unique linked survey-administrative data, we explore the relationships between hiring and recruitment policies. Faster hiring goes along with higher search effort, lower hiring standards and more generous wages. To analyze the mechanisms behind these patterns, we develop a directed search model in which firms use different recruitment margins in response to productivity shocks. The calibrated model points to an important role of hiring standards for matching efficiency and for the impact of labor market policy, whereas search effort and wage policies play only a minor role. |
| Keywords: | vacancies, recruitment, labor market matching |
| JEL: | E24 J23 J63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13240&r=all |
| By: | Adamopoulou, Effrosyni (University of Mannheim); De Philippis, Marta (Bank of Italy); Sette, Enrico (Bank of Italy); Viviano, Eliana (Bank of Italy) |
| Abstract: | This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly aected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favorable labor market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavorable labor market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent eects on the earnings distribution. |
| Keywords: | credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data |
| JEL: | E24 E44 G21 J21 J31 J63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13185&r=all |
| By: | Kohei Okada (Graduate School of Economics, Osaka University) |
| Abstract: | Ever since the onset of the Industrial Revolution,automation has had signicant impacts on economic growth,labor,the education decision-making of individuals,and education policy. In this study,we aim to examine the complex relationship between education,automation,and economic growth. We employ an overlapping-generations model with endogenous education decision-making and automation. Our fndings show that an economy converges to a steady state where automation occurs and per capita output is high if productivity is high.On the other hand,we show that an economy converges to a steady state where automation does not occur and per capita output is low if productivity is low. In addition,we examine how education subsidy policy affects the economy when productivity is low. If the efficiency of education is high,the government can steer an economy away from a steady state without automation by investing more resources in education.If the efficiency of education is low,there can exist multiple steady states where automation occurs in one but not in the other. |
| Keywords: | Education,Automation,Economicgrowth |
| JEL: | E22 J24 O10 O30 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2009&r=all |
| By: | Jérôme Creel (OFCE Sciences Po and ESCP Business School) |
| Abstract: | Numerical simulations of fiscal space in the euro area, based on 12 different situations, point to the large uncertainty surrounding the capacity of Member States to pay back their public debts. Debt sustainability appears to depend crucially on long-term nominal interest rate being lower than nominal growth for a long period. Only in this case do major European countries experience some additional fiscal space. Although the analytics behind this exercise is common knowledge among macroeconomists, it gives an order of the magnitude of fiscal space in the euro area and it confirms that interactions between the ECB and governments are key to escape the public finances consequences of an exogenous global shock like Covid-19. |
| Keywords: | Fiscal policy; public debt; fiscal deficit; Covid-19. |
| JEL: | E62 H62 H63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2017&r=all |
| By: | Cangoz, Mehmet Coskun; Sulla, Olga; Wang, ChunLan; Dychala, Christopher Benjamin |
| Abstract: | An asset and liability management framework for managing risks arising from sovereign foreign exchange obligations requires a joint analysis of (i) the external financial liabilities resulting from a country’s sovereign debt and (ii) the foreign exchange assets of its central bank. Governments often issue sizable amounts of debt denominated in foreign currencies, subjecting their fiscal positions to foreign exchange volatilities. Prudent management of a sovereign’s foreign exchange position under an asset and liability management framework enables governments to mitigate risks at the lowest possible cost, hence increasing resilience to external shocks. Based on the challenges associated with the implementation of an asset and liability management framework, this study recommends a practical approach that includes analysis of the foreign exchange positions of central bank reserves and central government debt portfolios and optimization of the net position. The proposed model is tested, using the foreign exchange reserve and external debt data of seven countries (Albania, Ghana, FYR Macedonia, South Africa, the Republic of Korea, Tunisia, and Uruguay). The paper employs quantitative methods to explore the impact of an overarching asset and liability management strategy and integrated approach on the efficient management of foreign exchange risk. It provides policy recommendations on ways to minimize the risk of foreign exchange mismatches and increase the return on foreign exchange reserves. |
| Keywords: | Exchange Rate Risk, Asset and Liability Management, Public Debt, Sovereign Balance Sheet, Macro Hedging, Portfolio Optimization, International Reserves, Strategic Asset Allocation |
| JEL: | E61 E63 F31 F34 F37 G11 G15 G17 G18 H63 H68 |
| Date: | 2019–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100311&r=all |
| By: | Seungyoon Lee (Economic Research Institute, Bank of Korea) |
| Abstract: | We measure impact of real estate housing prices on household consumption and investigate channels in operation, making use of panel data from Korea. Our baseline finding is that households expand their consumption by 0.194 percentage points in response to a 1 percentage point increase in the real house price index. This result is driven to a larger extent by home-owning households rather than non home-owning households, and by falling prices rather than rising prices. In an attempt to find clues as to the operation of relevant channels, we further breakdown total households into subgroups based on multi-house ownership, ages of the householders, size of the housing unit, and borrowing constraints that the household may face. In examining these subgroups of homeowners, we find evidence consistent with the operation of the wealth effect channel, but we do not find evidence supporting the operation of the collateral effect channel. Estimates for non home-owning households are broadly consistent with the precautionary saving effect channel, but we also find results that might be interpreted as there being a discouragement effect channel for a subgroup of non home-owning households. |
| Keywords: | House price, Consumption, Wealth effect, Household panel data |
| JEL: | D21 E21 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:2011&r=all |
| By: | Rammer, Christian; Roth, Felix; Trunschke, Markus |
| Abstract: | Organisation capital is one of the key intangible assets of firms, driving innovation and firm performance. Measuring this asset has been notoriously difficult, however. Differently to other intangible assets, firms do not build up organisation capital primarily by monetary investment but rather through establishing new organisational routines and building up trust, which often do not coincide with any financial expenditure. Quantifying such efforts at the firm level has largely failed so far. This paper takes up a traditional production function approach which includes, in addition to labour and tangible assets, investment in all measurable intangible assets (technological and non-technological knowledge, software and databases, firm-specific human capital, brand equity), but excluding organisation capital. The residuum of the estimation is considered as a measure of a firm' organisation capital. Using panel data from the German innovation survey, we find higher organisation capital in young and small firms. Our measure tends to show a u-shaped link to qualitative indicators such as organisational innovation. |
| Keywords: | Organisation Capital,Production Function,CIS |
| JEL: | D24 E22 L25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20021&r=all |
| By: | Laurent Ferrara; Anna Simoni |
| Abstract: | We analyse whether, and when, a large set of Google search data can be useful to increase GDP nowcasting accuracy once we control for information contained in official variables. We put forward a new approach that combines variable pre-selection and Ridge regularization and we provide theoretical results on the asymptotic behaviour of the estimator. Empirical results on the euro area show that Google data convey useful information for pseudo-real-time nowcasting of GDP growth during the four first weeks of the quarter, when macroeconomic information is lacking. However, as soon as official data become available, their relative nowcasting power vanishes. In addition, a true real-time analysis confirms that Google data constitute a reliable alternative when official data are lacking. |
| Keywords: | Nowcasting, Big data, Google search data, Sure Independence Screening, Ridge Regularization |
| JEL: | C53 C55 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-11&r=all |
| By: | Bauer, Anja (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "This paper evaluates the short-term labour market impact of the COVID-19 Containment measures in Germany. We take the closure of economic sectors such as restaurants and retail as a treatment, which enables difference-in-difference estimation. Additionally considering input-output linkages between the sectors, we find that 60 percent of the considerably increased inflows from employment into unemployment in April 2020 were due to the containment measures. In a second approach, we make use of the fact that sector closures and curfews were implemented at different times by the German state governments. In a regional regression setup based on treatment intensity, we find that the hiring margin accounted for additional 82 percent of the unemployment effect coming from the separations margin. In sum, the lockdown measures increased unemployment in the short run by 117,000 persons." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | E24 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:202016&r=all |
| By: | Leiashvily, Paata |
| Abstract: | В данной статье рассмотрена проблема самоорганизации экономических процессов в условиях совершенной конкуренции, основанной на взаимодействии индивидуальных и общественных экономических ценностей и рыночных цен. На основе диалектического анализа показано глубокое внутреннее единство проиозводства и потребления, спроса и предложения, полезности и затрат и др. категорий, которые обуславливают функциональную замкнутость и целостность экономической системы, как необходимое условие для понимания процесса формирования макроэкономического порядка из микроэкономического хаоса. На методологической основе диалектики дается новое понимание механизма саморегулирования рыночных процессов и экономической оптимизации. Предлагаемое теоретическое объяснение экономических процессов позволит создать более адекватные прикладные экономические модели и выработать эффективную экономическую политику. In this article, the problem of self-organization of economic processes in conditions of perfect competition, based on the interaction of individual and public economic values and market prices, is considered. On the basis of dialectical analysis, the deep internal unity of production and consumption, supply and demand, utility and costs, and other categories that determine the functional closeness and integrity of economic system as a necessary condition for to understand the formation process of a macroeconomic order from microeconomic chaos is shown. A new understanding of market processes' self-regulation mechanism and economic optimization on the methodological basis of dialectics is given. The proposed theoretical explanation of economic processes makes it possible to create more adequate applied economic models and develop an effective economic policy. |
| Keywords: | диалектика, саморегулирование, экономическое равновесие, экономическая ценность, рыночные цены, критерии оптимальности. dialectics, self-regulation, economic equilibrium, economic value, market prices, optimality criteria. |
| JEL: | A10 C00 D50 E00 |
| Date: | 2018–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100431&r=all |
| By: | Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley); Weber, Michael (University of Chicago) |
| Abstract: | We study how the differential timing of local lockdowns due to COVID-19 causally affects households' spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households' expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President. |
| Keywords: | labor market, consumer spending, subjective expectations, employment, COVID-19, surveys |
| JEL: | E31 C83 D84 J26 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13224&r=all |
| By: | Pashchenko, Svetlana; Porapakkarm, Ponpoje |
| Abstract: | A major challenge in the study of saving behavior is how to disentangle different motives for saving. We approach this question in the context of an entire life-cycle model. Specifically, we identify the importance of different saving motives by simultaneously accounting for wealth accumulation during working period, wealth decumulation during retirement, and labor supply behavior. We show that exploiting all of these data features can sharpen our identification, thus complementing previous studies that focus only on wealth accumulation or decumulation. We calibrate our model using several micro datasets and use the estimated model to evaluate the contribution of life-cycle, bequest, and precautionary motives to total savings. We also emphasize the importance of accounting for state-contingent assets when analyzing the precautionary saving motive. |
| Keywords: | savings, self-insurance, bequest motives, life-cycle models, medical spending |
| JEL: | D52 D91 E21 H53 I13 I18 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100208&r=all |
| By: | Basco, Sergi; Domenech, Jordi; Roses, Joan R. |
| 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 variation in “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 short-lived. The effects are heterogeneous across occupations, from null 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 in mortality. Our interpretation is that the Spanish Flu represented a negative demand shock that was mostly absorbed by workers, especially in more urbanized regions. |
| Keywords: | pandemics; Spanish flu; real wages; returns to capital |
| JEL: | E32 I00 N10 N30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:104605&r=all |
| By: | Falk Bräuning; J. Christina Wang |
| Abstract: | Many policymakers have expressed concerns about the rise in nonfinancial corporate leverage and the risks this poses to financial stability, since (1) high leverage raises the odds of firms becoming a source of adverse shocks, and (2) high leverage amplifies the role of firms in propagating other adverse shocks. This policy brief examines alternative indicators of leverage, focusing especially on the somewhat disparate signals they send regarding the current state of indebtedness of nonfinancial corporate businesses. Even though the aggregate nonfinancial corporate debt-to-income ratio is at a historical high, these firms’ ability to service the debt, as measured by the interest coverage ratio, looks healthy. A simple model shows that this pattern can be consistent with firms’ optimal choice of leverage in response to an exogenous decline in interest rates. On the other hand, the model also reveals that the fall in the interest coverage ratio due to a given yield increase is magnified when interest rates are at low levels. The implication is that the elevated nonfinancial corporate debt-to-income ratio that has been present in recent years raises the downside risk of firms becoming unable to service their debt following any adverse shock, such as a decline in income or an increase in risk premia. |
| Keywords: | financial stability; low interest rate; monetary policy; interest coverage; business leverage |
| JEL: | C60 E43 E58 G32 |
| Date: | 2020–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbcq:87795&r=all |
| By: | Schreiner, Lena (RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)) |
| Abstract: | This paper provides an approach to incorporate planned investments in power grid infrastructure in Germany, which intend to provide the necessary flexibility to integrate large shares of variable renewable energy sources into the power system, into a dynamic stochastic equilibrium model. Since the investments’ economic impact remains unclear, this paper sheds light on two questions: Do power grid infrastructure investments in Germany have the potential to positively impact economic performance, particularly GDP and employment? Is power grid infrastructure investment an efficient way to provide flexibility to the electricity system? We find the potential for negative effects of power grid infrastructure investments on economic outcomes, which can, however, be mitigated by an adequate design of the investments and its framework conditions. |
| Keywords: | DSGE analysis; infrastructure; Germany; electric grid; energy transition; flexibility |
| JEL: | C68 E61 O13 P18 Q43 Q48 Q56 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:fcnwpa:2019_011&r=all |
| By: | Battistin, Erich (University of Maryland); De Nadai, Michele (University of Padova); Krishnan, Nandini (World Bank) |
| Abstract: | While household well-being derives from long-term average rates of consumption, welfare comparisons typically rely on shorter-duration survey measurements. We develop a new strategy to identify the distribution of these long-term rates by leveraging a large-scale randomization in Iraq that elicited repeated short-duration measurements from diaries and recall questions. Identification stems from diary-recall differences in reports from the same household, does not require reports to be error-free, and hinges on a research design with broad replicability. Our strategy delivers practical and costeffective suggestions for designing survey modules to yield the closest measurements of consumption well-being. In addition, we find little empirical support for the claim that acquisition diaries yield the most accurate measurement of poverty and inequality and offer new insights to interpret and reconcile diary-recall differences in household surveys. |
| Keywords: | modes of data collection, measurement of inequality and poverty, household surveys |
| JEL: | C81 D31 D63 E21 I32 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13222&r=all |
| By: | Bhattacharya, Amar; Stern, Nicholas |
| Abstract: | The COVID-19 pandemic has underlined the fragility and dangers of the old growth path. There can be no going back to the old normal, argue Amar Bhattacharya and Nicholas Stern. |
| Keywords: | coronavirus; Covid-19; green growth; net zero; sustainable development; zero emissions growth |
| JEL: | E6 |
| Date: | 2020–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:104540&r=all |
| By: | Hensvik, Lena (IFAU); Le Barbanchon, Thomas (Bocconi University); Rathelot, Roland (University of Warwick) |
| Abstract: | This paper measures the job-search responses to the COVID-19 pandemic using realtime data on vacancy postings and ad views on Sweden's largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts. |
| Keywords: | COVID-19, coronavirus, search intensity, search direction, labour demand shock, job vacancies, online job board |
| JEL: | J22 J23 J21 J62 J63 J64 E24 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13237&r=all |
| By: | Abbassi, Puriya; Iyer, Rajkamal; Peydró, José-Luis; Soto, Paul E. |
| 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:bubdps:262020&r=all |
| By: | Andrea Lučić (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | Primjena orijentacije prema dionicima «nužna je za uspostavljanje i napredak etičkog donošenja odluka u svim marketinškim aktivnostima». Proaktivnost u društvenoj odgovornosti povezana je sa sve većim pritiscima organizacijskih dionika i dionika zajednice. Cilj ovog rada je istražiti održivu marektinšku orijentaciju iz perspektive višestrukih dionika procesa koji nepobitno utječu na oblikovanje strategije i to iz percepcije meandžera o pritisku različitih dionika na oblikovanje strategije. Održiva marketinška orijentacija promatrana je i mjerena kroz njena tri sastavna formativna elementa: strateška integracija, društvena uključenost i etičke sposobnosti. Istovremeno, pratio se percipirani pritisak izdvojenih interesno-utjecajnih skupina: vlasnika, zaposlenika, potrošača, dobavljača, konkurencije, državnih institucija, neprofitnih udruga te Europske Unije. U sklopu kvanitativnog istraživanaj prikupljeno je 172 poduzeća iz populacije 1000 najuspješnihih hrvatskih poduzeća. Rezultati analize upućuju na to da na stratešku integriranost statistički značajno, a pozitivno utječu zakon i zaposlenici, na društvenu uključenost zakon dok na etičke sposobnosti zakon, vlasnici i zaposlenici pozitivno dok nevladine neprofitne organizacije utječu negativno i statistički znčajno. |
| Keywords: | Održiva marketinška orijentacija, interesno-utjecajne skupine, održivi marketing, Hrvatska |
| JEL: | C11 C32 E62 H61 |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:zag:wpaper:2004&r=all |
| By: | Daniel Avdic; Sonja C. de New; Daniel A. Kamhöfer |
| Abstract: | We study the impact of the business cycle on mental wellbeing by linking rich German survey data to over a decade of detailed gross domestic product information. Endogeneity concerns are tackled using a shift-share instrumental variables approach in which exposure to macroeconomic fluctuations is estimated from regional variations in historical industry sector composition. Estimation results reveal strong negative effects of economic downturns on both life satisfaction and a multidimensional measure of mental health. We provide evidence that these effects are mediated by fear of job loss and income reductions, while actual unemployment effects are negligible. A case study of the impact of the global financial crisis reveals that adverse effects on mental wellbeing are persistent and remained even after the economy recovered. |
| Keywords: | Business cycle, mental health, life satisfaction, global financial crisis, shift-share instrument |
| JEL: | C36 E32 I15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp1081&r=all |
| By: | Mary A. Burke; Alicia Sasser Modestino; Shahriar Sadighi; Rachel B. Sederberg; Bledi Taska |
| Abstract: | Using a novel database of 159 million online job postings, we examine changes in employer skill requirements for education and specific skillsets between 2007 and 2017. We find that upskilling—in terms of increasing demands for bachelor’s degrees as well as software skills—was a persistent trend among high-skill occupations, but either a temporary or non-existent phenomenon among middle-skill and low-skill occupations. We also find evidence that persistent upskilling in the high-skill sector contributed to greater occupational mismatch that remained elevated during the recovery from the Great Recession. In contrast, labor market mismatch had largely dissipated within the low-skill and middle-skill sectors by 2017. |
| Keywords: | labor demand; skills; vacancies; unemployment; firm behavior |
| JEL: | D22 E24 J23 J24 J64 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:88080&r=all |
| By: | Paulo M.M. Rodrigues; João Nicolau; Pedro Raposo |
| Abstract: | In this paper we investigate potential changes which may have occurred over the last two decades in the probability mass of the right tail of the wage distribution, through the analysis of the corresponding tail index. In specific, a conditional tail index estimator is introduced which explicitly allows for right tail censoring (top-coding), which is a feature of the widely used current population survey (CPS), as well as of other surveys. Ignoring the top-coding may lead to inconsistent estimates of the tail index and to under or over statements of inequality and of its evolution over time. Thus, having a tail index estimator that explicitly accounts for this sample characteristic is of importance to better understand and compute the tail index dynamics in the censored right tail of the wage distribution. The contribution of this paper is threefold: i) we introduce a conditional tail index estimator that explicitly handles the top-coding problem, and evaluate its finite sample performance and compare it with competing methods; ii) we highlight that the factor values used to adjust the top-coded wage have changed over time and depend on the characteristics of individuals, occupations and industries, and propose suitable values; and iii) we provide an in-depth empirical analysis of the dynamics of the US wage distribution’s right tail using the public-use CPS database from 1992 to 2017. |
| JEL: | C18 C24 E24 J11 J31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202008&r=all |
| By: | Pablo de Pedraza (AIAS, University of Amsterdam and JRC European Commission); Martin Guzi (Masaryk University, CELSI and IZA); Kea Tijdens (AIAS, University of Amsterdam) |
| Abstract: | Di Tella et al. (2001) show that temporary fluctuations in life satisfaction (LS) are correlated with macroeconomic circumstances such as gross domestic product, unemployment, and inflation. In this paper, we bring attention to labour market measures from search and matching models (Pissarides 2000). Our analysis follows the two-stage estimation strategy used in Di Tella et al. (2001) to explore sectoral unemployment levels, labour market tightness, and matching efficiency as LS determinants. In the first stage, we use a large sample of individual data collected from a continuous web survey during the 2007-2014 period in the Netherlands to obtain regression-adjusted measures of LS by quarter and economic sector. In the second-stage, we regress LS measures against the unemployment level, labour market tightness, and matching efficiency. Our results are threefold. First, the negative link between unemployment and an employee’s LS is confirmed at the sectoral level. Second, labour market tightness, measured as the number of vacancies per job-seeker rather than the number of vacancies per unemployed, is shown to be relevant to the LS of workers. Third, labour market matching efficiency affects the LS of workers differently when they are less satisfied with their job and in temporary employment. Our results give support to government interventions aimed at activating demand for labour, improving the matching of job-seekers to vacant jobs, and reducing information frictions by supporting match-making technologies. |
| Keywords: | life satisfaction; matching efficiency; tightness; unemployment |
| JEL: | E24 J21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:mub:wpaper:2020-02&r=all |
| By: | Dostie, Benoit (HEC Montreal); Li, Jiang (Statistics Canada); Card, David (University of California, Berkeley); Parent, Daniel (HEC Montreal) |
| Abstract: | We use longitudinal data from the income tax system to study the impacts of firms' employment and wage-setting policies on the level and change in immigrant-native wage differences in Canada. We focus on immigrants who arrived in the early 2000s, distinguishing between those with and without a college degree from two broad groups of countries – the U.S., the U.K. and Northern Europe, and the rest of the world. Consistent with a growing literature based on the two-way fixed effects model of Abowd, Kramarz, and Margolis (1999), we find that firm-specific wage premiums explain a significant share of earnings inequality in Canada and contribute to the average earnings gap between immigrants and natives. In the decade after receiving permanent status, earnings of immigrants rise relative to those of natives. Compositional effects due to selective outmigration and changing participation play no role in this gain. About one-sixth is attributable to movements up the job ladder to employers that offer higher pay premiums for all groups, with particularly large gains for immigrants from the "rest of the world" countries. |
| Keywords: | wage differentials, immigrants, linked employer-employee data, firm effects |
| JEL: | J15 J31 J71 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13245&r=all |
| By: | Aziz, Nur Aziah; Masih, Mansur |
| Abstract: | This paper is intended to identify the determinants of Islamic Interbank Money Market (IIMM) rate in Malaysia with a specific focus on Mudharabah Interbank Investment (MII) transactions. The nature of Mudharabah outlined is that profit for this contract is based on Profit Sharing Ratio (PSR) pre-agreed between two contracting parties which are capital provider and enterpreneur. Basically, it should be based on real business case. On the other hand, IIMM is operated within the framework of financial transactions and governed by Bank Negara Malaysia (BNM). The main issue here is the justification of whether MII rate of return is moving in line with the movement of real economy rather than moving in parallel with any policized or quoted rate.Time series standard methodology will be applied in testing the relationships and causality between the factors affecting the determination of MII rate. Factors include real economy represented by Gross Domestic Product (GDP) and Consumer Price Index (CPI) while Overnight Policy Rate (OPR) and conventional interbank money market rate representing the policized and quoted rate. Another independant variable that may affect MII rate is the volumes of MII transaction. This study evidences the long-run relationship between the MII rate and various economic units, financial and economic variables. Findings suggest that MII rate are not influenced by the financial variables but mostly influenced by the economic variables which is in contrast with the nature of banking industries. It is strongly viewed that MII rate will move depending on the movement of the conventional money market rate which is also benchmarking against the overnight policy rate (OPR) but it is proven otherwise. |
| Keywords: | Mudharabah interbank investment, overnight policy rate, VECM, VDC, Malaysia |
| JEL: | C22 C58 E44 G21 |
| Date: | 2018–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100263&r=all |
| By: | Frederic Boissay; Daniel Rees; Phurichai Rungcharoenkitkul |
| Abstract: | Containment policies save lives but restrict economic activity. Standard approaches to accounting for the value of human lives lend support to these policies despite their high short-term economic costs. Integrated epidemic-macroeconomic models provide a coherent framework for quantifying the costs and benefits of containment policies. Part of the benefit comes from limiting externalities that would otherwise arise if social distancing were purely voluntary. Standard epidemiological and economic parameters suggest that several months of strict containment policies that lead to as much as a 30% decline in GDP for the period of the lockdown could be preferable to alternatives with more casualties and a less severe recession. |
| Date: | 2020–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisblt:19&r=all |
| By: | Moser, Christian; Saidi, Farzad; Wirth, Benjamin; Wolter, Stefanie |
| Abstract: | We study the distributional effects of a monetary policy-induced firm-level credit supply shock on individual wages and employment. To this end, we construct a novel dataset that links worker employment histories to firms' bank credit relationships in Germany. We document that firms in relationships with banks that were more exposed to negative monetary policy rates in 2014 see a relative reduction in credit supply. A negative credit supply shock in turn is associated with lower firm-level average wages and employment. These effects are concentrated among distinct worker groups within firms, with initially lower-paid workers more likely to be fired and initially higher-paid workers more likely to receive wage cuts. At the same time, wages decline by more at initially higher-paying firms. Consequently, wage inequality within and between firms decreases. Our results suggest that monetary policy has important distributional effects in the labor market. |
| Keywords: | Credit Supply, Monetary Policy, Negative Interest Rates, Bank Relationships, Worker and Firm Heterogeneity, Employment, Wages, Linked Employer-Employee Data, Earnings Inequality |
| JEL: | D22 G21 G31 G32 J31 |
| Date: | 2020–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100371&r=all |
| By: | Agu, Chinonso .V.; Aguegboh, Ekene .S. |
| Abstract: | This paper aims at investigating the impact of information and communication technology (ICT) on bank performance in Sub-Saharan African (SSA) banking industry. The data set entails panel data for 35 Sub-Saharan African countries and we employ the system generalized method of moment (GMM) estimation technique for dynamic panel models. ICT variables understudied include: number of automated teller machines (ATMs), ATMs per 100,000 adults, ATM per 1,000 km2 and mobile money transaction; while bank performance was proxied using returns on assets (ROA), returns on earning (ROE), and net interest margin (NIM). The result reveals that ICT is negatively associated with bank performance except for ATMs per 100,000 adults and ATM per 1,000km2, which had positive impact on ROE and NIM. The findings suggest that ICT largely affects bank performance in the short run; in long run these investments become very beneficial to improving bank performance. |
| Keywords: | ICT, bank performance, return on assets, return on equity, net interest margin |
| JEL: | E44 G20 O31 |
| Date: | 2020–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100355&r=all |
| By: | Doerr, Sebastian; Gissler, Stefan; Peydró, José-Luis; Voth, Hans-Joachim |
| Abstract: | Do financial crises radicalize voters? We study Germany’s banking crisis of 1931, when two major banks collapsed and voting for radical parties soared. We collect new data on bank branches and firm-bank connections of 5,610 firms. Incomes plummeted in cities affected by the bank failures; connected firms curtailed payrolls. Nazi votes surged in locations exposed to Danatbank, led by a Jewish manager – but not in those suffering from the other bank’s failure. Unobservables or pre-trends do not explain the results. Danatbank’s collapse boosted Nazi support, especially in cities with deep-seated anti-Semitism, suggesting a synergy between cultural and economic channels. |
| Keywords: | financial crises,political extremism,populism,anti-Semitism,Great Depression |
| JEL: | E44 G01 G21 N20 P16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216784&r=all |
| By: | Julien Hanoteau (KEDGE Business School [Marseille], AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université); Jean‐jacques Rosa (Institut d'Études Politiques [IEP] - Paris) |
| Abstract: | This article shows how the increase of information availability due to new technologies positively affects aggregate entrepreneurship in national economies. We rely on an "occupational choice" model of managerial production, extended to include the managerial use of information, to explain variations in the number of entrepreneurs, and thus of firms, as measured by the aggregate new business creation data. We present evidence that supports such a theory of industrial organization dynamics for a sample of 78 economies over the period 2004–2012 using panel data instrumental variable regressions. |
| Keywords: | Entrepreneurship,Information and communication technologies,Managerial information,Industrial organization |
| Date: | 2019–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02067736&r=all |
| By: | Camila Figueroa; Michael Pedersen |
| Abstract: | The present paper discusses the extent to which business and consumer survey observations are useful for predicting the Chilean activity. The two surveys examined are called IMCE and IPEC, after their Spanish abbreviations, for the business and consumer survey, respectively. The baseline exercises consist in simple calculations of cross correlations between the surveys and activity variables, test for Granger causality and augmentation of autoregressive activity models with survey data to evaluate if the now- and forecast performances are improved. The evidence suggests that both surveys, in general, contain useful information for making predictions of the Chilean activity, particularly for the longer horizons. An additional exercise indicates that the data in the two surveys are complementary in the sense that the longer horizon forecasts improve further when both of them are included in the econometric model. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:832&r=all |
| By: | Milena Nikolova (Institute of Labor Economics (IZA), Bonn, Germany. The Brookings Institution, Washington, DC, USA. Global Labor Organization (GLO).); Boris Nikolaev; Olga Popova |
| Abstract: | We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimation. Our findings suggest that while transitioning from self-employment to salaried employment (i.e., a voluntary selfemployment exit) brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job (i.e., switching from salaried employment to unemployment). Meanwhile, leaving self-employment has no consequences for self-reported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are largely psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even two or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the costs of business failure. |
| Keywords: | entrepreneurship, self-employment, health, well-being, unemployment, job switches |
| JEL: | E24 I10 I31 J28 L26 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:386&r=all |
| By: | Anna Lipinska; Musa Orak |
| Abstract: | In the historic Brexit referendum on June 23, 2016, U.K. citizens voted in favor of leaving the European Union (EU), a result that created substantial uncertainty regarding the future economic relationship between the United Kingdom and the EU. As can be seen in Figure 1, uncertainty, measured by the Economic and Policy Uncertainty (EPU) index of Baker et al. (2016), spiked around the Brexit referendum date and has remained elevated relative to its pre-referendum levels since then. |
| Date: | 2020–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-05-11&r=all |
| By: | Geis, André; Moder, Isabella; Schuler, Tobias |
| Abstract: | After a first phasing out of the ECB’s net asset purchases at end-2018, the question of how a future tightening of the ECB’s monetary policy may affect countries located in the vicinity of the euro area has gained prominence, but has been left largely unanswered so far. Our paper aims to close this gap for the CESEE region by employing shock-specific conditional forecasts, a methodology that has been little exploited in this context. Besides demonstrating the usefulness of our framework, we obtain three key findings characterising the spillovers of ECB monetary policy to CESEE economies: first, a euro area monetary tightening does trigger sizeable spillovers to the CESEE region. Second, we show that in the context of a demand shock-induced monetary tightening, which is more realistic than the usual approach taken in the literature, CESEE countries’ output and prices actually respond positively. Third, spillovers on output and prices in CESEE countries are heterogeneous, and depend on the trajectory of euro area tightening. JEL Classification: C11, C32, E52, F42 |
| Keywords: | BVAR, EU integration, international shock transmission, monetary policy |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202416&r=all |
| By: | Nikolova, Milena (University of Groningen); Nikolaev, Boris (Emory University); Popova, Olga (Leibniz Institute for East and Southeast European Studies (IOS)) |
| Abstract: | We explore how involuntary and voluntary exits from self-employment affect life and health satisfaction. To that end, we use rich longitudinal data from the German Socio-Economic Panel from 1985 to 2017 and a difference-in-differences estimation. Our findings suggest that while transitioning from self-employment to salaried employment (i.e., a voluntary self-employment exit) brings small improvements in health and life satisfaction, the negative psychological costs of business failure (i.e., switching from self-employment to unemployment) are substantial and exceed the costs of involuntarily losing a salaried job (i.e., switching from salaried employment to unemployment). Meanwhile, leaving self-employment has no consequences for selfreported physical health and behaviors such as smoking and drinking, implying that the costs of losing self-employment are largely psychological. Moreover, former business owners fail to adapt to an involuntary self-employment exit even two or more years after this traumatic event. Our findings imply that policies encouraging entrepreneurship should also carefully consider the costs of business failure. |
| Keywords: | entrepreneurship, self-employment, health, well-being, unemployment, job switches |
| JEL: | E24 I10 I31 J28 L26 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13187&r=all |
| By: | Holton, Sarah (Central Bank of Ireland); Phelan, Gillian (Central Bank of Ireland); Stuart, Rebecca (Central Bank of Ireland) |
| Abstract: | Policy makers and governments across the world are taking exceptional measures against the ongoing health and economic crisis resulting from the spread of COVID-19. The Central Bank has taken action within all aspects of its mandate, including through participation in monetary policy decision-making in the Eurosystem. This Letter describes the monetary policy actions taken to combat the crisis, in particular liquidity policies and asset purchases, and outlines what these measures mean for Ireland. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:02/el/20&r=all |
| By: | Mendicino, Caterina; Nikolov, Kalin; Suarez, Javier; Supera, Dominik; Ramirez, Juan-Rubio |
| Abstract: | We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited upside but significant downside risk. The asymmetric distribution of these returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of twin default crises – simultaneous rises in firm and bank defaults associated with sizeable negative effects on economic activity. As a result, our model implies higher optimal capital requirements than common specifications of bank asset returns, which neglect or underestimate the impact of borrower default on bank solvency. JEL Classification: G01, G28, E44 |
| Keywords: | bank capital requirements, bank default, financial crises, firm default |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202414&r=all |
| By: | Leandro Prados de la Escosura (Universidad Carlos III, CEPR); Carlos-Vladimir Rodríguez-Caballero (IITAM, Mexico, and CREATES, Aarhus University) |
| Abstract: | This paper contributes to the debate on the origins of modern economic growth in Europe from a very long-run perspective using econometric techniques that allow for a long-range dependence approach. Different regimes, defined by endogenously estimated structural shocks, coincided with episodes of pandemics and war. The most persistent shocks occurred at the time of the Black Death and the twentieth century’s world wars. Our findings confirm that the Black Death often resulted in higher income levels, but reject the view of a uniform long-term response to the Plague while evidence a negative reaction in non-Malthusian economies. Positive trend growth in output per head and population took place in the North Sea Area (Britain and the Netherlands) since the Plague. A gap between the North Sea Area and the rest of Europe, the Little Divergence, emerged between the early seventeenth century and the Napoleonic Wars lending support to Broadberry-van Zanden’s interpretation. |
| Keywords: | Long-run Growth, Little Divergence, War, Pandemics, Malthusian |
| JEL: | E01 N10 N30 N40 O10 O47 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hes:wpaper:0185&r=all |
| By: | Oussou Kouassy; Bouabre Bohoun (University of Abidjan) |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:15&r=all |