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on Macroeconomics |
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Issue of 2020‒06‒15
142 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Ivan Mendieta-Munoz, Doguhan Sundal |
| Abstract: | This paper proposes a conceptualization of business cycle fluctuations in which the role of financial conditions and nonlinear dynamics are explicitly incorporated. We highlight the role of investment demand in driving economic fluctuations, consider its endogenous dynamic interactions with profitability and aggregate demand levels as well as financial conditions, emphasize that the sources of instability in an economy cannot be associated exclusively with the real or financial sectors, and incorporate the idea that financial conditions are both important sources of instability and possible nonlinear propagators of other sources of instability. We test the propagation mechanisms of such conceptualization using a Bayesian Threshold Vector Autoregression model for the US economy. The results support the characterization of nonlinear dynamics in the transmission of shocks since there is evidence of asymmetric responses of the variables across two different regimes of financial stress, responding more strongly during loose financial conditions. |
| Keywords: | Business cycles; investment fluctuations; financial conditions; nonlinear dynamics; Bayesian Threshold Vector Autoregression. JEL Classification: B50; E10; E22; E32; E43. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2020_04&r=all |
| By: | Kaiji Chen; Patrick C. Higgins; Tao Zha |
| Abstract: | Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this measure and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was an important reason that a majority of banks tightened bank lending standards during the Great Recession. Our extensive data analysis disciplines how we introduce credit frictions in the banking sector into a macroeconomic model. The model estimation reveals that an exogenous shock to credit supply drives cyclical lending standards and accounts for a significant portion of fluctuations in bank loans and aggregate output. |
| Keywords: | endogenous regime switching; asymmetric credit allocation; land prices; heavy GDP; debt-to-GDP ratio; nonlinear effects; GDP growth target; heavy loans; real estate |
| JEL: | C51 C81 C82 E32 E44 G21 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:88035&r=all |
| By: | Olga Bilyk; Anson T. Y. Ho; Mikael Khan; Geneviève Vallée |
| Abstract: | COVID-19 presents challenges for indebted households. We assess these by drawing parallels between pandemics and natural disasters. Taking into account the financial health of the household sector when the pandemic began, we run model simulations to illustrate how payment deferrals and the labour market recovery will affect mortgage defaults. |
| Keywords: | Climate change; Credit and credit aggregates; Econometric and statistical methods; Financial stability; Fiscal policy; Housing; Recent economic and financial developments; Sectoral balance sheet |
| JEL: | C2 C21 D1 D12 D14 E2 E24 E27 E6 E62 G2 G21 G28 R2 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-8&r=all |
| By: | Jianjun Miao; Pengfei Wang; Tao Zha |
| Abstract: | The price-rent ratio in commercial real estate is highly volatile, and its variation comoves with the business cycle. To account for these two facts, we develop a dynamic general equilibrium model that explicitly introduces a rental market and incorporates the liquidity constraint on an individual firm's production as a key ingredient. Our estimation identifies the discount shock as the most important factor in driving price-rent dynamics and linking the dynamics in the real estate market to those in the real economy. We illustrate the importance of the liquidity premium and endogenous total factor productivity (TFP) in the nexus of the financial and real sectors. |
| Keywords: | comovements; liquidity premium; stochastic discount factor; asset pricing; production economy; heterogenous firms; endogenous TFP; general equilibrium |
| JEL: | E22 E32 E44 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:88036&r=all |
| By: | Yunjong Eo (Department of Economics, Korea University, Seoul 02841, South Korea); Denny Lie (School of Economics, The University of Sydney, NSW 2006, Australia) |
| Abstract: | Would raising the inflation target require an increase in the nominal interest rate in the short run? We answer this policy question, first analytically in a small-scale New Keynesian model with backward-looking components where a closed-form solution exists, and then in a medium-scale model of Smets and Wouters (2007) calibrated to the U.S. economy. Our analysis shows that the short-run comovement between inflation and the nominal interest rate conditional on changes in the inflation target is more likely to be positive, all else equal, as the monetary authority reacts less aggressively to the deviation of inflation from its target. Meanwhile, features of the model that enhance backward-looking behavior, such as backward price indexation and habit formation in consumption, are shown to reduce the likelihood of the positive comovement. However, our investigations reveal that in both models, this positive comovement or so-called Neo-Fisherism is prevalent across a wide-range of empirically-plausible parameter values. Using the Smets and Wouters model with a zero lower bound constraint (ZLB) on the nominal interest rate, we show that raising the inflation target could be an effective alternative policy framework to reduce the possibility of a binding ZLB constraint and to mitigate the potentially large output loss. |
| Keywords: | Neo-Fisherism; zero lower bound; inflation expectations; Taylortype rule; hybrid NKPC; hybrid IS curve; |
| JEL: | E12 E32 E58 E61 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:2003&r=all |
| By: | Juan Carlos Medina Guirado (UACJ); ; ; |
| Abstract: | Since the 2007-2009 financial recession and up until the present day, the main central banks have resorted to nontraditional policy tools to stimulate economic activity. A distinctive example was the expansion of the size of their balance sheets through the purchase of long-term government securities. In this paper I analyze the effect on credit markets of this “unconventional” monetary policy tool and compare it with that of conventional instruments such as open market operations. Our findings suggest that central bank purchases of long-term government securities stimulate credit market activity and reduce the cost of public and private borrowing only under a low interest rate and reduced fiscal debt regime. Otherwise, this policy increases the cost of servicing debt resulting in a contraction of lending. In contrast, open market operations aid credit availability but negatively affect the amount of risk-sharing in the economy. |
| Keywords: | Central Banking, unconventional monetary policy, financial intermediation, credit markets. |
| JEL: | E31 E44 E52 E58 |
| Date: | 2020–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:cjz:ca41cj:57&r=all |
| By: | B De Rezende, Rafael (Bank of England); Ristiniemi, Annukka (Sveriges Riksbank and European Central Bank) |
| Abstract: | We propose a shadow rate that measures the overall stance of monetary policy when the lower bound is not necessarily binding. Using daily yield curve data we estimate shadow rates for the US, Sweden, the euro area and the UK, and document that they fall (rise) as monetary policy becomes more expansionary (contractionary). This ability of the shadow rate to track the stance of monetary policy is identified on announcements of policy rate cuts (hikes), balance sheet expansions (contractions) and forward guidance, with shadow rates responding in a timely fashion, and in line with government bond yields. We show two applications for our shadow rate. First, we decompose shadow rate responses to monetary policy announcements into conventional and unconventional monetary policy surprises, and assess the pass-through of each type of policy to exchange rates. We find that exchange rates respond more to conventional than to unconventional monetary policy. Lastly, a counterfactual experiment in a DSGE model suggests that inflation in Sweden would have been around half a percentage point lower had unconventional monetary policy not been used since February 2015. |
| Keywords: | Monetary policy stance; unconventional monetary policy; term structure of interest rates; short-rate expectations; term premium; exchange rates |
| JEL: | E43 E44 E52 E58 |
| Date: | 2020–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0864&r=all |
| By: | Aliaga Miranda, Augusto |
| Abstract: | Este documento evalúa la política monetaria óptima en un modelo nuevo Keynesiano para una economía abierta con fricciones financieras. En el modelo, la demanda agregada está compuesta por el promedio ponderado de las tasas de interés a corto y largo plazo. Establezco un conjunto integral de reglas de política monetaria, todas adecuadas para pequeñas economías abiertas, como Perú. Se encuentra que una regla basada en el pronóstico de inflación y una regla basada en el tipo de cambio funcionan bien. Además, choques internacionales pueden afectar la competitividad e implican co-movimientos en las tasas de interés domésticas. Finalmente, las estimaciones, sugieren que adicionar el tipo de cambio nominal a la regla monetaria mejora significativamente el ajuste del modelo. En consecuencia, los parámetros estimados indican que los choques internacionales introducidos en este modelo pueden replicar hechos empíricos clave observados en el ciclo de negocios de la economía doméstica. |
| Keywords: | Comparación de reglas; Economía abierta; Estimación Bayesiana; Fricciones financieras; Política monetaria óptima |
| JEL: | C11 E31 E32 E44 E52 E58 |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100545&r=all |
| By: | Marcelo Arbex (Department of Economics, University of Windsor); Michael Batu (Department of Economics, University of the Fraser Valley); Sidney Caetano (Department of Economics, Federal University of Juiz de Fora) |
| Abstract: | We study the macroeconomic effects of a pandemic-induced time-varying job separation rate (JSR). Governments have imposed mandatory stay-at-home orders to reduce the spread of COVID-19. Uncertainties affecting labor market dynamics and the economy are tied to uncertainties surrounding the pandemic and stay-at-home orders. We compare the pandemic-induced JSR with other events that generated large increases in unemployment. We show that the economic effects of unexpected changes in the JSR and the dispersion of these changes depend crucially on the Taylor-rule type adopted by the monetary authority - more severe recessions following JSR shocks under rules with no interest rate smoothing. The generosity of fiscal policy alleviates the negative effects of pandemic-induced job separation shocks. |
| Keywords: | Uncertainty, pandemic, unemployment, business cycles, monetary policy. |
| JEL: | E24 E31 E32 E52 E58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:2002&r=all |
| By: | Cukierman, Alex |
| Abstract: | The huge actual and prospective expansionary fiscal policies triggered by the corona crisis are expected to substantially raise debt/GDP ratios. This led a number of economists to reconsider the taboo on using seignorage (or more colorfully helicopter money (HM)). Following a brief documentation of the economic impact of the crisis and the responses of aggregate demand policies the paper surveys the views of economists and policymaker in the past and present on HM. Optimal taxation considerations imply that the decision on allocating deficit financing between debt and HM falls within the realm of fiscal authorities â?? a fact that infringes on central bank (CB) autonomy. The paper explores ideas aimed at improving the tradeoff between implementation of the optimal taxation principle and CB autonomy. Implication of cross-country variations in the need to use seignorage are discussed. Comparison of the indirect contribution of quantitatve easing (QE) to deficit financing with the direct contribution of HM implies that the latter can be implemented under central bank dominance without much change in existing monetary institutions. Empirical evidence from the US during the global financial crisis with the post WWI German inflation supports the view that for countries experiencing deflationary pressure HM is more potent in moving inflation toward its target than QE. Given the current outlook temporary use of HM where badly needed does not appear to involve a substantial risk of inflation. |
| Keywords: | central bank independence; COVID-19; Deficits; Fiscal institutions; Government Debt; inflation and deflation; optimal taxation; Seignorage |
| JEL: | E31 E5 E62 E63 H12 H21 H6 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14734&r=all |
| By: | Aliaga Miranda, Augusto |
| Abstract: | Este documento evalúa la política monetaria óptima en un modelo nuevo Keynesiano para una economía abierta con fricciones financieras. En el modelo, la demanda agregada está compuesta por el promedio ponderado de las tasas de interés a corto y largo plazo. Establezco un conjunto integral de reglas de política monetaria, todas adecuadas para pequeñas economías abiertas, como Perú. Se encuentra que una regla basada en el pronóstico de inflación y una regla basada en el tipo de cambio funcionan bien. Además, choques internacionales pueden afectar la competitividad e implican co-movimientos en las tasas de interés domésticas. Finalmente, las estimaciones, sugieren que adicionar el tipo de cambio nominal a la regla monetaria mejora significativamente el ajuste del modelo. En consecuencia, los parámetros estimados indican que los choques internacionales introducidos en este modelo pueden replicar hechos empíricos clave observados en el ciclo de negocios de la economía doméstica. |
| Keywords: | Comparación de reglas; Economía abierta; Estimación Bayesiana; Fricciones financieras; Política monetaria óptima |
| JEL: | C11 E31 E32 E44 E52 E58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:062&r=all |
| By: | David Baqaee; Emmanuel Farhi |
| Abstract: | We study the effects of supply and demand shocks in a general disaggregated model with multiple sectors, factors, and input-output linkages, as well as downward nominal wage rigidities and a zero lower bound constraint. In response to shocks, some sectors become tight and operate at full capacity while others become slack and under-utilize the resources available to them. We use the model to understand how the Covid-19 crisis, an omnibus of various supply and demand shocks, affects output, unemployment, and inflation. Throughout the analysis, we focus on the role of the production network and of the elasticities of substitution. We establish that under some conditions, the details of the production network can be summarized by simple sufficient statistics. We use these sufficient statistics to conduct global comparative statics, and illustrate the intuition for our results using a nonlinear ASAD representation of the model. Negative sectoral supply shocks and shocks to the sectoral composition of demand are necessarily stagflationary, whereas negative aggregate demand shocks are deflationary. The effects of the former are stronger and the effects of the latter are weaker with stronger complementarities in production and in consumption. These shocks interact and are amplified or mitigated through nonlinearities. We quantify our results using disaggregated data from the U.S. |
| JEL: | E0 E12 E2 E23 E24 E3 E52 E6 E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27152&r=all |
| By: | Blanco Barroso, Joao; Barbone Gonzalez, Rodrigo; Peydró, José-Luis; Nazar van Doornik, Bernardus |
| Abstract: | We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply. |
| Keywords: | liquidity,reserve requirements,credit cycles,macroprudential and monetary policy |
| JEL: | E51 E52 E58 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216792&r=all |
| By: | Stuart, Rebecca |
| Abstract: | The ability of the term structure (specifically the term spread, or the difference between the long and short ends of the yield curve) to predict economic activity is empirically well-established for the US, but less so for small open economies. The literature emphasizes the role of monetary policy for this predictive ability. Between 1972-2018, Ireland experienced three monetary regimes: first, the Irish Pound was fixed to Sterling (1972-1979); second the Pound floated in a band when Ireland was a member of the EMS (1979-1998); and third, as a member of the euro area (1999-2018). Using dynamic probit models and monthly data, I show that the term spread only had predictive power during the second regime, the only one in which the Central Bank of Ireland had any discretion to set interest rates based on domestic conditions. |
| Keywords: | Ireland,term structure,recessions,monetary regimes |
| JEL: | C25 E00 E43 N14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:202003&r=all |
| By: | Francesco Bianchi; Renato Faccini; Leonardo Melosi |
| Abstract: | The Covid-19 pandemic found policymakers facing constraints on their ability to react to an exceptionally large negative shock. The current low interest rate environment limits the tools the central bank can use to stabilize the economy, while the large public debt curtails the efficacy of fiscal interventions by inducing expectations of costly fiscal adjustments. Against this background, we study the implications of a coordinated fiscal and monetary strategy aimed at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under this coordinated strategy, the fiscal authority introduces an emergency budget with no provisions on how it will be balanced, while the monetary authority tolerates a temporary increase in inflation to accommodate the emergency budget. In our model, the coordinated strategy enhances the efficacy of the fiscal stimulus planned in response to the Covid-19 pandemic and allows the Federal Reserve to correct a prolonged period of below-target inflation. The strategy results in only moderate levels of inflation by separating long-run fiscal sustainability from a short-run policy intervention. |
| Keywords: | Monetary policy; fiscal policy; emergency budget; shock specific rule; Covid-19 |
| JEL: | E30 E50 E62 |
| Date: | 2020–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:88000&r=all |
| By: | Clements, Michael P. (University of Reading); Galvao, Ana Beatriz (University of Warwick) |
| Abstract: | We show that expectation shocks -- revisions in expectations unrelated to changes in current economic fundamentals -- have positive significant effects on US economic activity. To measure the expectation shocks, we estimate a mixed-frequency VAR model that allows economic conditions in the current quarter to affect current-quarter GDP expectations. The expectations shock is estimated with real-time data so such shocks do not suffer a “look-forward” bias by incorporating future data revisions. Dynamic responses are estimated with the aid of a quarterly VAR and using older vintages as instruments to account for measurement errors in the observed values. Expectations shocks explain 10% of the two-year variation of output, investment, consumption and hours. We find that expectations shocks are correlated with alternative belief-based shocks, but nevertheless have significant additional short-run effects. |
| Keywords: | mixed-frequency Vector Autoregressive Models ; real-time data ; measurement errors ; expectational shocks |
| JEL: | E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:31&r=all |
| By: | Baqaee, David Rezza; Farhi, Emmanuel |
| Abstract: | We study the effects of supply and demand shocks in a general disaggregated model with multiple sectors, factors, and input-output linkages, as well as downward nominal wage rigidities and a zero lower bound constraint. In response to shocks, some sectors become tight and operate at full capacity while others become slack and under-utilize the resources available to them. We use the model to understand how the Covid-19 crisis, an omnibus of various supply and demand shocks, affects output, unemployment, and inflation. Throughout the analysis, we focus on the role of the production network and of the elasticities of substitution. We establish that under some conditions, the details of the production network can be summarized by simple sufficient statistics. We use these sufficient statistics to conduct global comparative statics, and illustrate the intuition for our results using a nonlinear AS-AD representation of the model. Negative sectoral supply shocks and shocks to the sectoral composition of demand are necessarily stagflationary, whereas negative aggregate demand shocks are deflationary. The effects of the former are stronger and the effects of the latter are weaker with stronger complementarities in production and in consumption. These shocks interact and are amplified or mitigated through nonlinearities. We quantify our results using disaggregated data from the U.S. |
| Keywords: | COVID-19; demand and supply shocks; input-output linkages; Keynesian economics; Multi-Sector |
| JEL: | E1 E2 E3 E5 E6 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14743&r=all |
| By: | Yunjong Eo (Department of Economics, Korea University, Seoul 02841, South Korea); James Morley (School of Economics, University of Sydney, NSW 2006, Australia) |
| Abstract: | Since the Great Recession in 2007-09, U.S. real GDP has failed to return to its previously projected path, a phenomenon widely associated with secular stagnation. We investigate whether this stagnation was due to hysteresis effects from the Great Recession, a persistent negative output gap following the recession, or slower trend growth for other reasons. To do so, we develop a new Markov-switching time series model of output growth that accommodates two different types of recessions, those which permanently alter the level of real GDP and those with only temporary effects. We also account for structural change in trend growth. Estimates from our model suggest that the Great Recession generated a large persistent negative output gap rather than any substantial hysteresis effects, with the economy eventually recovering to a lower trend path which appears to be due to a reduction in productivity growth that began prior to the onset of the Great Recession. |
| Keywords: | Secular stagnation; Great Recession; output gap; trend growth; Markov switching; structural breaks |
| JEL: | C22 C51 E32 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:2001&r=all |
| By: | Pierre L. Siklos |
| Abstract: | There is no consensus over the importance of “global forces” on inflation. This study explores the role of structural breaks in the inflation process, and their timing, whether it is common across countries, and the extent to which ‘global forces’ are relevant. Three conclusions stand out. Global inflation impacts inflation in both AE and EME, but the impact is more heterogeneous than existing narratives have argued. One’s interpretation of global influences on domestic inflation differs, according to whether poorly performing economies in inflation terms are considered as opposed to the standard practice of examining mean inflation performance. A focus on observed inflation alone ignores that inflation expectations, including a global version of this variable, also plays a critical in inflation dynamics. Finally, there are significant spillovers in inflation between AE and EME, but these too are sensitive according to relative inflation performance. Some policy implications are also drawn. |
| Keywords: | Inflation, Globalization, monetary policy, Vector autoregressions, local projections, quantile regressions |
| JEL: | E31 E52 E58 C31 C32 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-53&r=all |
| By: | Tino Berger; Julia Richter; Benjamin Wong |
| Abstract: | We study how financial factors shape and interact with the U.S. business cycle through a unified empirical approach where we jointly estimate financial and business cycles as well as identify their underlying drivers using a medium-scale Bayesian Vector Autoregression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role in driving the output gap post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheating the business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles. |
| Keywords: | Business Cycle, Financial Cycle, Financial shocks |
| JEL: | C18 E51 E32 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-44&r=all |
| By: | Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, via Mersin 10, Northern Cyprus, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Theshne Kisten (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | This article examines the connection between economic uncertainty and financial market conditions in South Africa, documenting that the macroeconomic implications of an uncertainty shock differs across financial regimes. A non-linear VAR is estimated where uncertainty is captured by the average volatility of structural shocks in the economy, and the transmission mechanism is characterised by two distinct financial regimes (i.e. financially stressful versus normal periods). We find that while the deterioration of output following an uncertainty shock is much more prominent during normal periods than during stressful periods, it is much more persistent during stressful financial times. The share of output variance explained by the volatility shocks in good financial times is more than double the share in bad times. Uncertainty shocks are found to be inflationary in both regimes, with the impact being larger in the stress regime. While our estimates reveals that financial frictions do not amplify the impact of uncertainty on real output, it does increase the impact on prices. |
| Keywords: | Uncertainty, Financial regimes, South Africa, Non-linear VAR, Stochastic volatility |
| JEL: | C32 E32 E44 G00 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202046&r=all |
| By: | Alberto Caruso; Lucrezia Reichlin (London Business School); Giovanni Ricco (Observatoire français des conjonctures économiques) |
| Abstract: | This paper highlights the anomalous characteristics of the Euro Area ‘twin crises’ by contrasting the aggregate macroecosnomic dynamics in the period 2009–2013 with the business cycle fluctuations of the previous decades. We report three novel stylised facts. First, the contraction in output was marked by an anomalous downfall in private investment and an increase in households’ savings, while consumption and unemployment followed their historical relation with GDP. Second, households’ and financial corporations’ debts, and house prices deviated from their pre-crisis trends, while non-financial corporations’ debt followed historical regularities. Third, the jumps in the public deficit-GDP and debt-GDP ratios in 2008–2009 were unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the ‘anomalous’ increase in public debt is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors. |
| Keywords: | Euro Area; Government debt; Recessions; Financial crises; Business cycles |
| JEL: | C11 C32 E52 E62 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4u5amfvji89k4pj64fk8bf01dm&r=all |
| By: | Richhild Moessner; Előd Takáts |
| Abstract: | We study the anchoring properties of long-term inflation expectations in emerging and advanced economies, as a measure of monetary policy credibility. We proxy anchoring by how short-term expectations relate to long-term inflation expectations. We find that long-term inflation expectations are less well anchored in emerging than in advanced economies for the period 1996-2019. These findings do not significantly differ between before and after the global financial crisis or away from and at the effective lower bound. We also find that persistent deviations of inflation from target affect long-term inflation expectations in advanced economies. Yet, persistent deviations do not have a stronger impact at the effective lower bound. Moreover, we find evidence for asymmetry: higher than targeted inflation has a larger impact on long-term inflation expectations. |
| Keywords: | inflation expectations, anchoring, ZLB, monetary policy credibility |
| JEL: | E31 E58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:869&r=all |
| By: | GalÌ, Jordi; van Rens, Thijs (University of Warwick, CAGE Centre) |
| Abstract: | We document two changes in postwar US macroeconomic dynamics : the procyclicality of labour productivity vanished, and the relative volatility of employment rose. We propose an explanation for these changes that is based on educed hiring frictions due to improvements in information about the quality of job matches and the resulting decline in turnover. We develop a simple model with hiring frictions and variable effort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics. |
| Keywords: | labour hoarding ; hiring frictions ; effort choice JEL codes: E24 ' E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1271&r=all |
| By: | Kajal Lahiri (Department of Economics, University at Albany, State University of New York); Yongchen Zhao (Department of Economics, Towson University) |
| Abstract: | We reformulate the Nordhaus test as a friction model where the large number of zero revisions are treated as censored, i.e., unknown values inside a small region of “imperceptibility.†Using Blue Chip individual forecasts of U.S. real GDP growth, inflation, and unemployment over 1985-2020, we find pervasive over- reaction to news at most of the monthly forecast horizons from 24 to 1, but the degree of inefficiency is very small. The updaters, i.e., those who make non-zero revisions, are not found to perform better than their “inattentive†peers do. |
| Keywords: | Nordhaus test, Expectations updating, Forecast efficiency, Fixed-event forecasts, Inattentive forecasters. |
| JEL: | C53 E27 E37 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2020-05&r=all |
| By: | Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University) |
| Abstract: | This paper estimates a non-linear Interacted VAR model to assess whether the real effects of stimulative monetary policy shocks are milder during times of high uncertainty. Crucially, uncertainty is modeled endogenously in the VAR, thus allowing to take account of two unexplored channels of monetary policy transmission working through uncertainty mitigation and uncertainty mean reversion. Generalized Impulse Response Functions à la Koop, Pesaran and Potter (1996) reveal that monetary policy shocks are significantly less powerful during uncertain times, the peak reactions of a battery of real variables being about two-thirds milder than those during tranquil times. Failing to account for endogenous uncertainty would bias responses and imply twice as powerful monetary policy during uncertain times as during tranquil times, mainly because of the non-consideration of uncertainty mean reversion. |
| Keywords: | Monetary policy shocks, Non-Linear Structural Vector Auto-Regressions, Interacted VAR, Generalized Impulse Response Functions, Endogenous Uncertainty |
| JEL: | C32 E32 E52 |
| Date: | 2020–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2020-05&r=all |
| By: | Camille Cornand (Centre National de la Recherche Scientifique (CNRS)); Paul Hubert (Observatoire français des conjonctures économiques) |
| Abstract: | Establishing the external validity of experimental inflation forecasts is essential if laboratory experiments are to be used as decision-making tools for monetary policy. Our contribution is to document whether different measures of inflation expectations, based on various categories of agents (participants in experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers), share common patterns. We do so by analyzing the forecasting performance of these different categories of data, their deviations from full information rational expectations, and the variables that enter the determination of these expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, and forecast errors and forecast revisions are predictable from past information, suggesting the presence of some form of bounded rationality or information imperfections. Finally, lagged inflation positively affects the determination of inflation expectations. While experimental forecasts are relatively comparable to survey and financial market data, more heterogeneity is observed compared to central bank forecasts. |
| Keywords: | Inflation expectations; Experimental forecasts; Survey forecasts; Market-based forecasts; Central bank forecasts |
| JEL: | E3 E5 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7t8isspkbs8hk8kol9kk9sjdl6&r=all |
| By: | Viral V. Acharya; Matteo Crosignani; Tim Eisert; Christian Eufinger |
| Abstract: | We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, “zombie credit” can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in zombie credit post 2012, annual inflation in Europe during 2012-2016 would have been 0.45 percentage points higher. |
| JEL: | E31 E44 G21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27158&r=all |
| By: | Galvao, Ana Beatriz (University of Warwick); Garratt, Anthony (University of Warwick); Mitchell, James (University of Warwick) |
| Abstract: | This paper presents empirical evidence on how judgmental adjustments affect the accuracy of macroeconomic density forecasts. We aim to separate the effects of judgments made about the first three moments of a set of professional forecasters’ density forecasts for UK output growth and inflation. Using entropic tilting methods, we evaluate whether judgmental adjustments about the mean, variance and skewness improve the accuracy of density forecasts from statistical models. We find that not all judgmental adjustments improve density forecasts: overall, density forecasts from statistical models prove hard to beat. Judgments about point forecasts tend to improve density forecast accuracy at short horizons and at times of heightened macroeconomic uncertainty. Judgments about the variance clearly hinder at short horizons, but can help deliver better tail risk forecasts at longer horizons. Finally, judgments about skew in general take value away, with gains seen only for longer horizon output growth forecasts when statistical models took longer to learn that downside risks had reduced with the end of the Great Recession. |
| Keywords: | density forecasting ; judgment forecasting ; skewness ; exponential tilting ; forecasting uncertainty ; |
| JEL: | C32 C53 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:33&r=all |
| By: | Popov, Vladimir |
| Abstract: | 2020 world economic downturn associated with the restrictions intended to fight COVID-19 pandemic is a structural recession caused by adverse supply shock. It is similar to recessions caused (or aggravated) by post war conversion of defense industries, by oil price shocks (1973, 1979, 2007), and by the transition to the market in post-communist countries in the 1990s (transformational recession). Whereas traditional Keynesian policy (absorption of adverse supply shock by means of expansionary fiscal and monetary policy) can help, best results are achieved by government industrial policies promoting restructuring – transferring resources (capital and labor) from the contracting industries to the expanding. The experience of China and some other East Asian countries that seem to be more successful in overcoming the coronavirus recession provides additional evidence. |
| Keywords: | Structural recession, adverse supply shock, demand shock, conventional Keynesian response to recession,restructuring, industrial policy |
| JEL: | E32 E6 O25 P20 P51 |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100485&r=all |
| By: | Rangan, Divy (National Institute of Public Finance and Policy); Chakraborty, Lekha (National Institute of Public Finance and Policy) |
| Abstract: | We analysed the macroeconomic policy responses to COVID-19 pandemic and the impact of the pandemic on economic growth, and the level of consumption. The COVID-19 crisis is a dual crisis - public health crisis and a macroeconomic crisis. The policy responses to this crisis have been a `life versus livelihood' sequencing and the findings are such that global cooperation, and domestic macroeconomic policies complementing with exit strategy to solve the economic disruptions in supply chains can be helpful. |
| Keywords: | COVID-19 ; Monetary Policy ; Fiscal Policy ; Macroeconomic Responses |
| JEL: | E5 E6 I15 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:20/304&r=all |
| By: | Stefano Fasani (Queen Mary University London); Haroon Mumtaz (Queen Mary University London); Lorenza Rossi (University of Pavia) |
| Abstract: | This paper uses a FAVAR model with external instruments to show that the 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 scale DSGE module 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 firm' 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: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:903&r=all |
| By: | Andersson, Tommy (Department of Economics, Lund University); Erlanson , Albin (Department of Economics, University of Essex); Spiro, Daniel (Department of Economics, Uppsala University); Östling, Robert (Department of Economics, Stockholm School of Economics) |
| Abstract: | Abstract: This paper considers a simple model where a social planner can influence the spread-intensity of an infection wave, and, consequently, also the economic activity and population health, through a single parameter. Population health is assumed to only be negatively affected when the number of simultaneously infected exceeds health care capacity. The main finding is that if (i) the planner attaches a positive weight on economic activity and (ii) it is more harmful for the economy to be locked down for longer than shorter time periods, then the optimal policy is to (weakly) exceed health care capacity at some time. |
| Keywords: | Covid-19 pandemic; SI-model; economic activity; health; optimal policy |
| JEL: | E23 E27 E60 E65 |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2020_008&r=all |
| By: | Funke, Michael; Tsang, Andrew |
| Abstract: | The People’s Bank of China (PBoC) has taken numerous measures to cushion the impacts of the COVID-19 health crisis on the Chinese economy. As the current monetary policy framework features a multi-instrument mix of liquidity tools and pricing signals, we employ a dynamic-factor modeling approach to derive an indicator of China’s monetary policy stance. Our approach assumes that comovements of several monetary policy instruments share a common element that can be captured by an underlying unobserved component. We use the derived indicator to trace the response of the PBoC to the coronavirus pandemic. The estimates reveal that the PBoC has implement novel policy measures to ensure that commercial banks maintain liquidity access and credit provision during the COVID-19 crisis. |
| JEL: | C54 E32 E52 I15 |
| Date: | 2020–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2020_012&r=all |
| By: | Cho, Deaha; Han, Yoonshin; Oh, Joonseok; Rogantini Picco, Anna |
| Abstract: | We study optimal monetary policy in response to uncertainty shocks in standard New Keynesian models under Calvo and Rotemberg pricing schemes. We find that optimal monetary policy achieves joint stabilization of inflation and the output gap in both pricing schemes. We show that a simple Taylor rule that puts high weight on inflation stability approximates optimal monetary policy well. This rule mutes firms’ precautionary pricing incentive, the key channel that makes responses under Calvo and Rotemberg pricing schemes differ under the empirically calibrated Taylor rule. |
| Keywords: | Optimal monetary policy; Uncertainty shocks |
| JEL: | E12 E52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:061&r=all |
| By: | Gebauer, Stefan; Mazelis, Falk |
| Abstract: | Macroprudential policies are often aimed at the commercial banking sector, while a host of other non-bank financial institutions, or shadow banks, may not fall under their jurisdiction. We study the effects of tightening commercial bank regulation on the shadow banking sector. We develop a DSGE model that differentiates between regulated, monopolistic competitive commercial banks and a shadow banking system that relies on funding in a perfectly competitive market for investments. After estimating the model using euro area data from 1999 – 2014 including information on shadow banks, we find that tighter capital requirements on commercial banks increase shadow bank lending, which may have adverse financial stability effects. Coordinating macroprudential tightening with monetary easing can limit this leakage mechanism, while still bringing about the desired reduction in aggregate lending. In a counterfactual analysis, we compare how macroprudential policy implemented before the crisis would have dampened the business and lending cycles. JEL Classification: E32, E58, G23 |
| Keywords: | financial frictions, macroprudential policy, monetary policy, non-bank financial institutions, policy coordination |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202406&r=all |
| By: | Stephanie Ettmeier; Alexander Kriwoluzky |
| Abstract: | We reexamine whether pre-Volcker U.S. fiscal policy was active or passive. To do so, we estimate a DSGE model with monetary and fiscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive fiscal policy regime and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inflation build-up. |
| Keywords: | Bayesian Analysis, DSGE Models, Monetary-Fiscal Policy Interactions, Monte Carlo Methods |
| JEL: | C11 C15 E63 E65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1872&r=all |
| By: | Altug, Sumru; Collard, Fabrice; Cakmakli, Cem; Mukerji, Sujoy; Ozsöylev, Han |
| Abstract: | In this paper, we examine the cyclical dynamics of a Real Business Cycle model with ambiguity averse consumers and investment irreversibility using the smooth ambiguity model of Klibanoff et al. (2005, 2009). Ambiguity of belief about the productivity process arises as agents do not know the process driving variation in aggregate TFP, and they must make inferences regarding the true process at the same time as they infer the behavior of the unobserved temporary component using a Kalman filtering algorithm. Our findings may be summarized as follows. First, the standard business cycle facts hold in our framework, which are not altered significantly by changes in the degree of ambiguity aversion. Second, we demonstrate a role for information and learning effects, and show that lower initial ambiguity or greater confidence coupled with learning dynamics lowers the volatility and increases the persistence in all of the key macroeconomic variables. Third, comparing the performance of our model to the New Keynesian business cycle model of Ilut and Schneider (2014) with maxmin expected utility, we find that the version of their model without nominal and real frictions turns out to have limited success at matching the moments for the quantity variables. In the maxmin expected utility framework, the worst case scenario instills too much caution on the part of agents who, in the absence of a key set of nominal and real frictions, end up excessively reducing their responses to TFP shocks. |
| JEL: | C6 D8 E2 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124312&r=all |
| By: | Giovanni Dell'Ariccia; Dalida Kadyrzhanova; Camelia Minoiu; Lev Ratnovski |
| Abstract: | We study the composition of bank loan portfolios during the transition of the real sector to a knowledge economy where firms increasingly use intangible capital. Exploiting heterogeneity in bank exposure to the compositional shift from tangible to intangible capital, we show that exposed banks curtail commercial lending and reallocate lending to other assets, such as mortgages. We estimate that the substantial growth in intangible capital since the mid-1980s explains around 30% of the secular decline in the share of commercial lending in banks' loan portfolios. We provide suggestive evidence that this reallocation increased the riskiness of banks' mortgage lending. |
| Keywords: | Bank lending; Corporate intangible capital; Real estate loans; Commercial loans |
| JEL: | E22 E44 G21 |
| Date: | 2020–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-40&r=all |
| By: | Cem Çakmaklı; Selva Demiralp; Ṣebnem Kalemli-Özcan; Sevcan Yesiltas; Muhammed A. Yildirim |
| Abstract: | The COVID-19 crisis has the potential to turn into the biggest emerging market (EM) crisis since 1980s. We quantify the macroeconomic effects of COVID-19 for a small open economy by calibrating a SIR-multi-sector-macro model to Turkey. We measure sectoral supply shocks utilizing teleworking and physical job proximity, and sectoral demand shocks with credit card purchases. Both shocks are also affected from changing infection rates under different lockdown scenarios. Our results show that the optimal policy, which yields the lowest economic cost and saves the maximum number of lives, can be achieved under a full lockdown. Being an open economy amplifies the economic costs through two main channels. First, the demand shock has domestic and external components. Second, the initial shock is magnified due to domestic and international input-output linkages. The policy options are limited given the low fiscal space to fight the pandemic and urgent external finance needs to rollover the foreign currency debt. We draw parallels between the policies employed during 2001 crisis in Turkey and discuss pros and cons of policy options to deal with the economic fallout from COVID-19. |
| JEL: | E01 F23 F41 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27191&r=all |
| By: | Chukwuma Agu (African Institute for Applied Economics Nigeria) |
| Abstract: | In the past decade, models have been developed to explain the monetary policy formulation behaviour of central banks. As expected, propositions for rules abound, among which the Taylor rule has almost come to be accepted as a benchmark, because of its simplicity, efficiency and insight into tracking historical monetary policy in many countries. However, it is accepted in the literature that some of the peculiarities of developing countries make a rigid application of the rule improper. For developing countries, therefore, the specific policy reaction function in each economy needs to be tracked. This paper specifies two simple models of monetary policy reaction functions for Nigeria: The first, a tracking model based on the revealed processes at the Central Bank of Nigeria (CBN), and an alternate model which closely follows the Taylor rule. The results confirm the primacy of inflation and credit to the private sector in the CBN’s monetary policy reaction function, which is consistent with the literature. Apart from these, however, none of the key macroeconomic variables that CBN indicates in its policy documents actually seem to have been considered in setting the interest rate policy. Empirical estimates could also not confirm interest rate smoothing, or the relevance of fiscal dominance in the reaction function. However, inflation and credit to the private sector do matter to the bank – although the first only retroactively. It is therefore apt to infer that the CBN acts consistent with its price stability and private sector-led growth objectives, but accommodates discrepancies in its goals and outcomes and, possibly without intending to do so, follows the Taylor rule |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:230&r=all |
| By: | Morais, Bernardo; Peydró, José-Luis; Roldán-Peña, Jessica; Ruiz-Ortega, Claudia |
| Abstract: | We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm-level real effects. Results support an international risk-taking channel and spill overs of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk-taking by foreign banks) and in the tightening part (with negative local firm-level real effects). |
| Keywords: | monetary policy,financial globalization,quantitative easing (QE),credit supply,risk-taking,foreign banks |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216785&r=all |
| By: | González Laxe, Fernando; Da Rocha Alvarez, Jose Maria; Armesto Pina, José Francisco; Sanchez-Fernandez, Patricio; Lago-Peñas, Santiago |
| Abstract: | This work estimates the impact of COVID-19 in the year 2020, drawing possible recovery scenarios in the medium term. For this purpose, two methodologies are combined: on the one hand, it anticipates the quarterly evolution throughout 2020 of the 30 branches of activity; on the other, scenario simulation is based on a dynamic general equilibrium model that anticipates the reaction of an economy to an exogenous shock. The results for the Galician economy show that the contraction in economic activity ranges between 8.5% of GDP in an optimistic scenario and 12.7% in a pessimistic one. |
| Keywords: | COVID-19, economic impact, forecasting, GDP, Galicia |
| JEL: | A10 C53 E00 E01 R11 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100483&r=all |
| By: | Paolo Gelain; Simone Manganelli |
| Abstract: | We consider two approaches to incorporate judgment into DSGE models. First, Bayesian estimation indirectly imposes judgment via priors on model parameters, which are then mapped into a judgmental interest rate decision. Standard priors are shown to be associated with highly unrealistic judgmental decisions. Second, judgmental interest rate decisions are directly provided by the decision maker and incorporated into a formal statistical decision rule using frequentist procedures. When the observed interest rates are interpreted as judgmental decisions, they are found to be consistent with DSGE models for long stretches of time, but excessively tight in the 1980s and late 1990s and excessively loose in the late 1970s and early 2000s. |
| JEL: | E50 E58 E47 C12 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88033&r=all |
| By: | Barbone Gonzalez, Rodrigo; Khametshin, Dmitry; Peydró, José-Luis; Polo, Andrea |
| Abstract: | We show that local central bank policies attenuate global financial cycle (GFC)’s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (followed by strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, a large FX intervention program supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local related policies confirm these results. |
| Keywords: | foreign exchange,monetary policy,central bank,bank credit,hedging |
| JEL: | E5 F3 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216798&r=all |
| By: | Cristiana Belu Manescu; Elva Bova |
| Abstract: | This study reviews national expenditure rules currently in force in the EU, examining their design, effectiveness and the extent to which they have been complied with. Based on evidence from the Commission’s Fiscal Governance Database and using a novel database on compliance and econometric estimation, this study finds that out of the 14 expenditure rules covering general and central governments, half mirror the EU expenditure benchmark while four rules are multi-annual expenditure ceilings, with varying binding force. Empirical estimates over the 1999-2016 period confirm that while fiscal policy is indeed pro-cyclical in the EU, the magnitude of the pro-cyclical bias is lower in presence of expenditure rules. Moreover, the better the expenditure rule design in terms of legal base, independent monitoring, consequences for non-compliance or coverage, the stronger the mitigating effect. Finally, we find that expenditure rules were complied with in about 78 percent of cases, with compliance being better for multiannual expenditure ceilings than for rules specified as growth rates. |
| JEL: | E62 E63 H5 H6 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:124&r=all |
| By: | John Ballingall; Enrico Dorigo; James Hogan; Kirdan Lees (University of Canterbury) |
| Abstract: | Firms’ investment in infrastructure or new staff is not easy to reverse. These irreversible costs mean firms prefer to wait and watch rather than investing in uncertain times. But how large are these effects in a small open economy such as New Zealand? We construct a Trade Policy Uncertainty Index from New Zealand media articles to gauge trade policy uncertainty over time. The index matches known historical periods of heightened trade policy uncertainty. Our results show that an increase in trade policy uncertainty decreases investment and slows hiring decisions by New Zealand firms, who prefer to wait rather than invest in uncertain times. We estimate uncertainty due to the early stages of the China-US trade war in 2018 decreased business investment by $315 million and delayed 2,240 job hires. This points to the value of using the index to monitor trade policy uncertainty for (i) early warning signs of investment and hiring slowdowns; and (ii) calibrating government action to reduce uncertainty on global trade conditions and New Zealand’s own trade policy initiatives. These initiatives are likely to be become more important if COVID-19 leads to increased trade protectionism. |
| Keywords: | Trade policy uncertainty, Uncertainty shocks, Textual analysis, Investment |
| JEL: | E2 E32 E66 F13 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:20/09&r=all |
| By: | Ca' Zorzi, Michele; Dedola, Luca; Georgiadis, Georgios; Jarociński, Marek; Stracca, Livio; Strasser, Georg |
| Abstract: | This paper estimates and compares the international transmission of European Central Bank (ECB) and Federal Reserve System monetary policy in a unified and methodologically consistent framework. It identifies pure monetary policy shocks by purging them of the bias stemming from contemporaneous central bank information effects. The results suggest that there is a hierarchy in the global spillovers from ECB and Federal Reserve monetary policy: while the spillovers to consumer prices are relatively small in both directions, Federal Reserve monetary policy shocks have a larger impact on euro area financial markets and real activity. Federal Reserve monetary policy also has a significantly larger impact than ECB monetary policy on real and financial variables in the rest of the world. JEL Classification: E44, E52, F3, E58, F42 |
| Keywords: | international monetary policy coordination, international shock transmission, monetary policy shocks, monetary policy spillovers |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202407&r=all |
| By: | Maximilian Bock; Martin Feldkircher; Pierre L. Siklos |
| Abstract: | This paper explores the domestic and international effects of an increase in observed interest rates (conventional monetary policy) and expected interest rates (forward guidance). We find significant spillovers to a broad range of countries when both are subject to a tightening shock: Output growth and inflation decelerate and equity returns decline. Currencies of euro area neighboring countries tend to depreciate against the euro. A tightening forward guidance shock triggers more persistent effects on euro area and international interest rates. We find that international effects vary over the sample period when either interest rates are shocked. |
| Keywords: | Spillovers, interest rate expectations, forward guidance, GVAR |
| JEL: | E5 F3 C11 C30 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-54&r=all |
| By: | Van Bekkum, Sjoerd; Gabarró, Marc; Irani, Rustom; Peydró, José-Luis |
| Abstract: | We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households. |
| Keywords: | macroprudential policy,residential mortgages,solvency vs. liquidity tradeoff,household leverage,loan-to-valud ratio |
| JEL: | E21 E58 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216797&r=all |
| By: | Kortelainen, Mika |
| Abstract: | We study the yield curve control in Eurozone. We apply Chen, Cúrdia and Ferrero (2012) model that uses a financial friction to break Wallace's neutrality. We calibrate a bond supply shock that corresponds to the observed change in the time premium in euro area when the APP program was introduced. With some model simulations, we show that the effectiveness of both unconventional monetary policy and fiscal policy are enhanced, when the yield curve control is applied. Thus, we find that the yield curve control can be an effective tool, if applied in a credible manner for a long enough time period during an effective lower bound episode. |
| Keywords: | Yield curve control,monetary policy,fiscal policy,efficient lower bound,liquidity trap |
| JEL: | E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:52020&r=all |
| By: | Bista, Raghu |
| Abstract: | Economic Reforms towards economic liberalization and privatization is a good prescription to attract FDI in productive sectors. In 1990, Nepal liberalized her economy to create investment environment and destination of FDI by minimizing structural and institutional barriers and constraints for promoting TFP of productive sectors. This study investigates empirically what is TFP growth of FDI in Nepal in 1990 after economic liberalization process. We use econometric model based on Cobb Douglas production function and theoretical model of TFP growth accounting method. The econometric and non-parametric TFP estimation provides mostly positive TFP growth of FDI firms in Nepal. Few cases were influenced by political and security disturbances. Almost positive TFP growths have increasing productivity but there are still lower than expectation. There are still problems of massive inferior labor, no significant technological and financial transfer and poor business environment. Issues of continuity and stability between two periods indicate unpredictable situation of productivity. |
| Keywords: | FDI, TFP growth, economic reform, liberalization |
| JEL: | C54 C6 C61 E2 E23 E24 J5 O4 O47 |
| Date: | 2019–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100279&r=all |
| By: | Jim Malley; Ulrich Woitek |
| Abstract: | To better understand the quantitative implications of human capital externalities at the aggregate level, we estimate a two-sector endogenous growth model with knowledge spill-overs. To achieve this, we account for trend growth in a model consistent fashion and employ a Markov-chain Monte-Carlo (MCMC) algorithm to estimate the model’s posterior parameter distributions. Using U.S. quarterly data from 1964-2017, we find significant positive externalities to aggregate human capital. Our analysis further shows that eliminating this market failure leads to sizeable increases in education-time, endogenous growth and aggregate welfare. |
| Keywords: | Human capital externalities, endogenous growth, Bayesian estimation |
| JEL: | C11 C52 E32 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2019-04&r=all |
| By: | Tomaz Cajner; Leland D. Crane; Ryan A. Decker; John Grigsby; Adrian Hamins-Puertolas; Erik Hurst; Christopher Kurz; Ahu Yildirmaz |
| Abstract: | Using weekly, anonymized administrative payroll data from the largest U.S. payroll processing company, we measure the deterioration of the U.S. labor market during the first two months of the global COVID-19 pandemic. We find that U.S. private-sector employment contracted by about 22 percent between mid-February and mid-April. Businesses suspending operations---perhaps temporarily---account for a significant share of employment losses, particularly among smaller businesses. Hours worked for continuing workers fell by 4.5 percent. We highlight large differences in employment declines by industry, business size, state of residence, and demographic group. Workers in the bottom quintile of the wage distribution experienced a 35 percent employment decline while those in the top quintile experienced only a 9 percent decline. Large differences across the wage distribution persist even after conditioning on worker age, business industry, business size, and worker location. As a result, average base wages increased by over 5 percent, though this increase arose entirely through a composition effect. Overall, we document that the speed and magnitude of labor market deterioration during the early parts of the pandemic were unprecedented in the postwar period, particularly for the bottom of the earnings distribution. |
| JEL: | E24 E3 J21 L25 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27159&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Xin Sheng (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, UK); Renee van Eyden (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA) |
| Abstract: | This paper examines the predictive power of oil supply, demand and risk shocks over the realized volatility of intraday oil returns. Utilizing the heterogeneous autoregressive realized volatility (HAR-RV) framework, we show that all shock terms on their own, and particularly financial market driven risk shocks, significantly improve the forecasting performance of the benchmark HAR-RV model, both in- and out-of-sample. Incorporating all three shocks simultaneously in the HAR-RV model yields the largest forecasting gains compared to all other variants of the HAR-RV model, consistently at short-, medium-, and long forecasting horizons. The findings highlight the predictive information captured by disentangled oil price shocks in accurately forecasting oil market volatility, offering a valuable opening for investors and corporations to monitor oil market volatility using information on traded assets at high frequency. |
| Keywords: | Oil shocks, state-level consumption, oil dependency, local projection model, impulse response functions |
| JEL: | C23 E21 Q41 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202045&r=all |
| By: | Oliver Rehbein; Steven Ongena |
| Abstract: | This paper demonstrates that low bank capital carries a negative externality because it ampli es local shock spillovers. We exploit a natural disaster that is transmitted to rms in non-disaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization signi cantly re- duce total borrowing by 4.8 %, employment by 2.7% and tangible assets by 7.5% compared to similar rms connected to a well-capitalized bank. These ndings translate to negative regional e ects on GDP and unemployment. Banks also par- ticularly reduce their exposure to this-time-una ected but in general disaster-prone areas following a disaster. |
| Keywords: | natural disaster, real e ects, shock transmission, bank capital |
| JEL: | G21 G29 E44 E24 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_043v2&r=all |
| By: | Lenarčič, Črt; Papadopoulos, Georgios |
| Abstract: | This paper examines the role of corporate balance sheet positions in determining Slovenian firms' investment behaviour. The analysis is based on the theoretical framework of the financial accelerator which suggests that firms' financial positions influence their real behaviour. The underlying hypotheses of the financial accelerator are tested, namely its asymmetric effect during crises and in respect to firms' size. In addition, the existence of differences in the relationship between the balance sheet variables and investment across various sectors is examined. The results indicate that indeed balance sheet strength is an important determinant of Slovenian firms' investment behaviour. Moreover, this relationship is affected by a firm's size but the effect of the crisis or its sectoral specialization do not seem to materially affect it. |
| Keywords: | Firm investment; financial accelerator; firm-level data |
| JEL: | C33 D22 E22 |
| Date: | 2020–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100478&r=all |
| By: | Valentin Haddad; Alan Moreira; Tyler Muir |
| Abstract: | We study disruptions in debt markets during the COVID-19 crisis. The safer end of the credit spectrum experienced significant losses that are hard to fully reconcile with standard default or risk premium channels. Corporate bonds traded at a large discount to their corresponding CDS, and this basis widened most for safer bonds. Liquid bond ETFs traded at a large discount to their NAV, more so for Treasuries, municipal bonds, and investment-grade corporate than high-yield corporate. These facts suggest investors tried to sell safer, more liquid securities to raise cash. These disruptions disappeared nearly as fast as they appeared. We trace this recovery back to the unprecedented actions the Fed took to purchase corporate bonds rather than its interventions in extending credit. The March 23rd announcement to buy investment-grade debt boosted prices and lowered bond spreads (particularly at shorter maturities and the safer end of investment-grade) while having virtually no effect on high-yield debt. April 9th, in contrast, had a large effect on both investment-grade and high-yield, even for the riskier end of high yield which would only indirectly benefit from the policy. These facts highlight the importance of financial frictions early on in the crisis, but also challenge existing theories of these frictions. |
| JEL: | E5 E58 G01 G1 G12 G18 G21 G23 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27168&r=all |
| By: | Dave, Chetan (University of Alberta, Department of Economics); Dressler, Scott J. (Villanova University); Zhang, Lei (North Dakota State University) |
| Abstract: | Has paying interest on excess reserves (IOER) impacted monetary policy transmission? We employ a factor augmented VAR (i.e. FAVAR) to analyze a traditional bank lending channel (BLC) as well as a potential reserves channel. Our main results are: (i) the bank-lending response to an exogenous monetary policy innovation in the Federal Funds rate (i.e. the BLC) remains active but smaller than pre-2008 measures; (ii) the bank-lending response to any IOER-based liquidity innovations (i.e. the reserves channel) either mimics the BLC or is largely insignificant. These results provide little evidence that IOER has significantly impacted bank lending or monetary transmission. |
| Keywords: | Bank Lending Channel; FAVAR; IOER; Monetary Policy |
| JEL: | C32 E51 E52 |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_006&r=all |
| By: | José-Luis Peydró; Francesc R Tous; Jagdish Tripathy; Arzu Uluc |
| Abstract: | Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders—not households—for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies—via lower pre-correction debt—better house prices and mortgage defaults during an episode of house price correction. |
| Keywords: | macroprudential policy, mortgages, credit cycles, Inequality, house prices |
| JEL: | E5 G01 G21 G28 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1183&r=all |
| By: | Angelika Welte; Jozsef Molnar |
| Abstract: | This note uses industry data and a unique dataset of small and medium-sized merchants to provide insights into the acquirer-merchant market in Canada. Three main findings are presented. First, smaller merchants pay their acquirer more for every dollar of card payment than larger merchants. Second, this finding is mainly explained by high fixed costs. Third, the acquiring market in Canada is concentrated and has remained fairly stable since 2010. |
| Keywords: | Financial services; Market structure and pricing; Payment clearing and settlement systems |
| JEL: | C2 D2 E4 E42 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-5&r=all |
| By: | Barbara M. Fraumeni; Michael S. Christian; Jon D. Samuels |
| 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. |
| JEL: | E01 E24 I21 J21 J24 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27170&r=all |
| By: | Potjagailo, Galina (Bank of England); Wolters, Maik H (University of Wuerzburg, Kiel Institute, and IMFS at Goethe University Frankfurt) |
| Abstract: | With the aim to provide a detailed understanding of global financial cycles and their relevance over time, we analyse co-movement in credit, house prices, equity prices, and interest rates across 17 advanced economies over 130 years. Using a time-varying dynamic factor model, we observe global co-movement across financial variables as well as variable-specific global cycles of different lengths and amplitudes. Global cycles have gained relevance over time. For equity prices, they now constitute the main driver of fluctuations in most countries. Global cycles in credit and housing have become much more pronounced and protracted since the 1980s, but their relevance increased for a sub-group of financially open and developed economies only. Panel regressions indicate that a country’s susceptibility to global financial cycles tends to increase with financial openness and financial integration, the extent of mortgage-related lending, and the efficiency of stock markets. Understanding the cross-country heterogeneity in financial market characteristics therefore matters for the design of appropriate financial stabilization policies across countries and sectors. |
| Keywords: | Financial cycles; financial crisis; global co-movement; dynamic factor models; time-varying parameters; macro-finance |
| JEL: | C32 C38 E44 F44 F65 G15 N10 N20 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0867&r=all |
| By: | Barbara Mbire Barungi (Makerere University) |
| Abstract: | This paper examines the determinants of inflation in Uganda. High inflation, an economic virus of the Ugandan economy for most of the 1 980s, has been recorded at annual rates of less than 10% since 1993/94. A competitive exchange rate has also been sustained since 1990. The paper analyses the relative importance of monetary, cost/push and supply-related causes of inflation. A striking observation of the study is that inflation in Uganda is persistently a monetary phenomenon the monetary financing of the fiscal deficit is the main cause of sustained inflation in the economy. In addition to the links between fiscal deficits and monetization, the study investigated the causal relationship between the exchange rate and fiscal balance. The major conclusions are that monetary expansion as dominated by the financing of the fiscal deficit is instrumental in determining the pace of inflation. The exchange rate continues to be a key policy tool. During the 1 980s parallel exchange rate induced inflation was significant. Since liberalization of the foreign exchange market in 1990, there still remains a heavy focus on the exchange rate policy as key to maintenance of macroeconomic stability. It is suggested that the exchange rate policy tool should be used together with appropriate monetary and fiscal instruments so as to enable domestic and external stability of the Ugandan economy. |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:49&r=all |
| By: | International Monetary Fund |
| Abstract: | The National Bank of the Republic of Belarus (NBRB) is reforming its monetary policy framework in line with recommendations of past IMF TA missions and its Road Map for Transitioning to Inflation Targeting with the aim of eventually adopting inflation targeting (IT). Transitioning to IT would require, among other measures and reforms, strengthening the monetary policy forecasting and analysis system (FPAS) and better integrating the core quarterly projection model (QPM) into the decision-making process. This TA mission was the fifth from series of quarterly IMF TA missions focused on the FPAS capacity building. It was mainly aimed to simulate initial conditions and compile a QPM-based forecast scenario as a part of a practical forecasting round at the NBRB in March. Moreover, the mission worked with the modeling team to deepen its understanding of the QPM’s role in policy decision making and in internal communication. |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/163&r=all |
| By: | Jena, Pratap Ranjan (National Institute of Public Finance and Policy); Singh, Abhishek (National Institute of Public Finance and Policy) |
| Abstract: | State finances of Madhya Pradesh mirrors the fiscal situation of states in India and emerging challenges that include lack of buoyancy of internal revenue, prolonged slow economic growth and uncertainties regarding central transfers, and impact of recommendations of the 15th Finance Commission. While the State adhered to fiscal rules, the fiscal space available has been shrinking and coming years will test the ability of the Government to adhere to numerical fiscal targets and to avoid fiscal stress. The State's achievement with regard to human development, particularly education and health indicators have not been impressive. The fiscal policy of the State Government in the future needs to be calibrated keeping these areas in consideration. The ability to generate resources and develop and implement clear fiscal strategy will lead to achieving stated goals. Building up of fiscal pressure at state level in recent years makes it imperative to improve efficiency of public spending to get best value from utilization of public resources. Government of Madhya Pradesh should utilize the opportunities available from the budgeting innovations initiated in earlier years for institutional development. |
| Keywords: | Fiscal policy ; Budgeting system ; tax effort ; public expenditure management ; fiscal rules ; MTEF |
| JEL: | E62 H50 H61 H70 H71 H72 H76 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:20/303&r=all |
| By: | Thibaut Duprey |
| Abstract: | I construct a new composite measure of systemic financial market stress for Canada. Compared with existing measures, it better captures the 1990 housing market correction and more accurately reflects the absence of diversification opportunities during systemic events. The index can be used for monitoring. For instance, it reached a peak during the COVID-19 pandemic second only to the 2008 global financial crisis. The index can also be used to introduce non-linear macrofinancial dynamics in empirical macroeconomic models of the Canadian economy. Macroeconomic conditions are shown to deteriorate significantly when the Canadian financial stress index is above its 90th percentile. |
| Keywords: | Central bank research; Financial markets; Financial stability; Monetary and financial indicators |
| JEL: | C3 C32 E4 E44 G0 G01 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-4&r=all |
| By: | pierre Aldama (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques) |
| Abstract: | The sustainability of US public debt has been widely discussed since the Great Recession. Using annual data since 1940, we estimate and compare different specifications of fiscal rules. Estimates of constant-parameter fiscal rules show no evidence of sustainability. This may be due to the instability of government's behaviour over time. Thus, we estimate a Markov-switching fiscal rule in order to identify periods of unsustainable and sustainable fiscal policies. First, we show that the government stabilizes public debt only periodically. Second, during these periods, the government's reaction is sufficiently tight to stabilize public debt over the entire horizon. We conclude that a relatively short-lived but tight fiscal contraction can be sufficient to ensure long-run US debt sustainability. |
| Keywords: | Fiscal rules; Fiscal regimes; Fiscal sustainability; Public debt; Markov-switching; Model-based sustainability |
| JEL: | E6 H6 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7suq9gqkp186e8d6eou29dipgk&r=all |
| By: | Jiaming Soh |
| Abstract: | This paper isolates the demand and supply factors of credit extension. We construct a new dataset that combines loan application information from the credit register with individuals' income and banks' balance sheet for the period 2014-2016. Using this dataset, we verify the importance of banks' balance sheet (supply factor) and individuals' income (demand factor) in determining housing and car loan approval empirically. We have two main findings. First, we find that banks' balance sheet matters. Banks with a higher funding ratio, higher capital ratio, and lower liquidity ratio are more likely to approve a housing and car loan. Among the supply factors, the funding ratio of the banks is the strongest determinant of household lending. Second, we find that the supply factors have a greater impact on household loan approval than the demand factor. Specifically, the effect of banks' funding ratio on loan approval is twice the size of income. Therefore, the declining funding ratio due to higher net external outflows may potentially explain the moderation in aggregate household loan approval growth in 2014-2016. The findings fill a research gap for the Malaysian economy and could serve to inform policies, especially in relation to the discussion on the role of banks' balance sheet in lending activities. |
| Keywords: | : Supply factor, demand factor, household loan approval, credit register, funding ratio |
| JEL: | G21 E51 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisiwp:17&r=all |
| By: | International Monetary Fund |
| Abstract: | Program implementation continues to be strong, with all end-December 2019 quantitative performance criteria (QPCs) and the structural benchmarks (SB) under review being met. Economic activity is expected to decelerate sharply in 2020 due to the COVID-19 pandemic. The authorities have prepared a response plan of 1.7 percent of GDP to contain health risks and support the economy. As a result of the projected revenue shortfall and the new measures, the 2020 fiscal deficit is revised upward to 3.5 percent of GDP. |
| Keywords: | Extended Credit Facility; |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/175&r=all |
| By: | Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley |
| Abstract: | This paper establishes new evidence on the cyclical behaviour of household income risk in Great Britain and assesses the role of social insurance policy in mitigating against this risk. We address these issues using the British Household Panel Survey (1991-2008) by decomposing stochastic idiosyncratic income into its transitory, persistent and fixed components. We then estimate how income risk, measured by the variance and the skewness of the probability distribution of shocks to the persistent component, varies between expansions and contractions of the aggregate economy. We first find that the volatility and left-skewness of these shocks is a-cyclical and counter-cyclical respectively. The latter implies a higher probability of receiving large negative income shocks in contractions. We also find that while social insurance (tax-benefits) policy reduces the levels of both measures of risk as well as the counter-cyclicality of the asymmetry measure, the mitigation effects work mainly via benefits. |
| Keywords: | household income risk, social insurance policy, aggregate áuctuations |
| JEL: | D31 E24 J31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2019-03&r=all |
| By: | Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley |
| Abstract: | We develop a theoretical framework where the cross-sectional distributions of hours, earnings, wealth and consumption are determined jointly with a set of expenditure targets defining peer and aspirational pressure for members of different social classes. We show existence of a stationary socio-economic equilibrium, under idiosyncratic stochastic productivity and socio-economic class participation. We calibrate a model belonging to this framework using British data and find that it captures the main patterns of inequality, between and within the social groupings. We find that the effects of peer pressure on within group inequality differ between groups. We also find that wealth and consumption inequality increase within groups who aspire to match social targets from a higher class, despite a reduction in within-group inequality in hours and earnings. |
| Keywords: | inequality, incomplete markets, peer pressure, aspirations |
| JEL: | E21 E25 D01 D31 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2019-06&r=all |
| By: | Antolin-Diaz, Juan (London Business School); Petrella, Ivan (University of Warwick); Rubio-Ramirez, Juan F. (Emory University) |
| Abstract: | Macroeconomists seeking to construct conditional forecasts often face a choice between taking a stand on the details of a fully-specified structural model or relying on empirical correlations from vector autoregressions and remain silent about the underlying causal mechanisms. This paper develops tools for constructing “structural scenarios” that can be given an economic interpretation using identified structural VARs. We provide a unified and transparent treatment of conditional forecasting and structural scenario analysis and relate our approach to entropic forecast tilting. We advocate for a careful treatment of uncertainty, making the methods suitable for density forecasting and risk assessment. We also propose a metric to assess and compare the plausibility of alternative scenarios. We illustrate our methods with two applications: assessing the power of forward guidance about future interest rate policies and stress testing the reaction of bank profitability to an economic recession. |
| Keywords: | conditional forecasts ; SVARs ; Bayesian Methods ; Forward Guidance ; stress testing ; |
| JEL: | E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:32&r=all |
| By: | Gardberg, Malin (Research Institute of Industrial Economics (IFN)) |
| Abstract: | This paper investigates the impact of financial liberalization on the relationship between consumption and total wealth (i.e., the sum of asset wealth and human wealth). We propose a heterogeneous agent framework with incomplete markets where financial liberalization, by signalling a future reduction in the incomplete markets component of consumption growth, increases the current consumption-wealth ratio. From the model, an aggregate long-run relationship is derived between consumption, total wealth and financial liberalization which is estimated by state space methods using quarterly US data. The results show that the trend in the consumption-wealth ratio is well-captured by our baseline liberalization indicator. We find that the increase in this indicator over the sample period has increased the consumption-wealth ratio with about ten to sixteen percent. Additional estimations suggest that financial liberalization has predictive power for aggregate consumption growth, a result that provides support for the incomplete markets channel put forward in the paper. |
| Keywords: | Consumption; Wealth; Financial liberalization; Incomplete markets; State space model |
| JEL: | C11 C32 E21 |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1339&r=all |
| By: | Jonathan Benchimol; Sergey Ivashchenko |
| Abstract: | Uncertainty about an economy’s regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how U.S. shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers. |
| Keywords: | DSGE; Volatility Shocks; Markov Switching; Open Economy; Financial Crisis; Nonlinearities |
| JEL: | C61 E32 F21 F41 |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88093&r=all |
| By: | Mariarosaria Comunale |
| Abstract: | In this paper, we make use of the results from Structural Bayesian VARs taken from several studies for the euro area, which apply the idea of a shock-dependent Exchange Rate Pass-Through, drawing a comparison across models and also with respect to available DSGEs. On impact, the results are similar across Structural Bayesian VARs. At longer horizons, the magnitude in DSGEs increases because of the endogenous response of monetary policy and other variables. In BVARs particularly, shocks contribute relatively little to observed changes in the exchange rate and in HICP. This points to a key role of systematic factors, which are not captured by the historical shock decomposition. However, in the APP announcement period, we do see demand and exogenous exchange rate shocks countribute significantly to variations in exchange rates. Nonetheless, it is difficult to find a robust characterization across models. Moreover, the modelling challenges increase when looking at individual countries, because exchange rate and monetary policy shocks (also taken relative to the US) are common to the whole euro area. Hence, we provide a local projection exercise with common euro area shocks, identified in euro area-specific Structural Bayesian VARs and in DSGE, extrapolated and used as regressors. For common exchange rate shocks, the impact on consumer prices is the largest in some new member states, but there are a wide range of estimates across models. For core consumer prices, the coefficients are smaller. Regarding common relative monetary policy shocks, the impact is larger than for exchange rate shocks in any case. Generally, euro area monetary policy plays a big role for consumer prices, and this is especially so for new member states and the euro area periphery. |
| Keywords: | euro area, exchange rate pass-through, Bayesian VAR, local projections, monetary policy |
| JEL: | E31 F31 F45 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-32&r=all |
| By: | Palanca, Thais; João Ricardo, Costa Filho |
| Abstract: | Este trabalho pretende examinar o impacto macro-financeiro da saída do Reino Unido da União Europeia (Brexit) sobre o crescimento econômico alemão. Por conta do possível redesenho do mercado financeiro europeu, em decorrência da evasão de capital financeiro ocasionada pelo Brexit, que, em certa medida, pode ocasionar o deslocamento do atual centro financeiro europeu – a City London- para Frankfurt, na Alemanha. O potencial para a cidade alemã se tornar a nova capital financeira da região, poderia proporcionar à Alemanha uma nova fonte de crescimento econômico, este impulsionado pela relação entre o mercado financeiro alemão e os bancos, responsáveis pelo financiamento e vetores do investimento nas empresas do país. |
| Keywords: | Macroeconomia financeira, Alemanha, Brexit, Mercado financeiro, Crescimento Econômico, Painel Dinâmico. |
| JEL: | E44 G15 O47 |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100494&r=all |
| By: | International Monetary Fund |
| Abstract: | The National Bank of the Republic of Belarus (NBRB) is reforming its monetary policy framework in line with recommendations of past IMF TA missions and its Road Map for Transitioning to Inflation Targeting with the aim of eventually adopting inflation targeting (IT). Transitioning to IT would require, among other strengthening the monetary policy forecasting and analysis system (FPAS) and better integrating the core quarterly projection model (QPM) into the decision-making process. This mission was the seventh in a planned series of quarterly FPAS TA missions. It was mainly aimed at helping with reviewing the initial conditions and compiling a QPM-based forecast as a part of the NBRB’s September forecasting round. The mission, in addition, worked on strengthening processes within the FPAS. |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/162&r=all |
| By: | Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley |
| Abstract: | Incomplete markets models imply heterogeneous household savings behaviour which in turn generates pecuniary externalities via the interest rate. Conditional on differences in the processes determining household earnings for distinct groups in the population, these savings externalities may contribute to inequality. Working with an open economy heterogenous agent model, where the interest rate only partially responds to domestic asset supply, we find that differences in the earnings processes of British households with university and non-university educated heads entail savings externalities that increase wealth inequality between the groups and within the group of the non-university educated households. We further find that while the inefficiency effects of these externalities are quantitatively small, the distributional effects are sizeable. |
| Keywords: | incomplete markets, productivity di§erences, savings externalities |
| JEL: | E21 E25 H23 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2019-05&r=all |
| By: | Jiménez, Gabriel; Peydró, José-Luis; Repullo, Rafael; Saurina, Jesús |
| Abstract: | We analyze a small, new credit facility of a Spanish state-owned bank during the crisis, using its continuous credit scoring system, its firm-level scores, and the credit register. Compared to privately-owned banks, the state-owned bank faces worse applicants, (softens) tightens its credit supply to (un)observed riskier firms, and has much higher defaults, especially driven by unobserved ex-ante borrower risk. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive. Overall, our results provide evidence on the existence of significant adverse selection problems in credit markets. |
| Keywords: | adverse selection,state-owned banks,credit crunch,real effects of public credit,crowding-in |
| JEL: | E44 G01 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:216801&r=all |
| By: | Hénock Katuala Muanza (Université protestante au Congo - Université protestante au Congo) |
| Abstract: | This paper assesses the macroeconometric properties of the Congolese Congolese monetary multiplier through the analysis of its stability and predictability from 1990 to 2019. It has an acceptable value, and its evolution is connected to the macroeconomic, monetary and fi nancial situation of the Democratic Republic of Congo. To achieve this, We used the unit root test ADF to rule on the stationarity of the series, the cointegration test in the sense of Engle-Granger (1987) to analyze the existence of a longterm relationship between the variables and four (4) ARIMA (Box-Jenkins) models to assess the quality of the predictability of this multiplier. We have found that money supply and the money base are linked in the long term, which indicates some stability in the money multiplier. This could justify the use of the multiplier in the conduct of policy and monetary targeting in DR Congo. The existence of the long-term relationship between the base and the money supply confirms its predictability which is better predicted by its trend and seasonal components by using the Hodrick-Prescott (HP) filter. |
| Abstract: | Ce papier évalue les propriétés macroéconométriques du multiplicateur monétaire congolais congolais à travers l'analyse de sa stabilité et sa prédictibilité de 1990 à 2019. Celui-ci possède une valeur acceptable, et son évolution est connectée à la situation macroéconomique, monétaire et financière de la République démocratique du Congo. Pour y arriver, Nous avons utilisé le test de racine unitaire ADF pour statuer sur la stationnarité des séries, le test de cointégration au sens d'Engle-Granger (1987) pour analyser l'existence d'une relation de long terme entre les variables et quatre (4) modèles de type ARIMA (Box-Jenkins) pour évaluer la qualité de la prédictibilité de ce multiplicateur. Nous avons trouvé que la masse monétaire et la base monétaire sont liées à long terme, ce qui dénote d'une certaine stabilité du multiplicateur monétaire. Ce qui pourrait justifier l'utilisation du multiplicateur dans la conduite de la politique et du ciblage monétaire en R.D. Congo. L'existence de la relation de long terme entre la base et la masse monétaire confirme sa prédictibilité laquelle est mieux prédite par ses composantes tendancielle et saisonnière en recourant au filtre Hodrick-Prescott (HP). Mots-clés : Multiplicateur monétaire, base monétaire, masse monétaire, stationnarité, cointégration, prévision du multiplicateur. Classification JEL : E40, E41, E51, E47, C41. Abstract (Stability and predictability of the monetary multiplier in the Democratic Republic of the Congo). This paper assesses the macroeconometric properties of the Congolese Congolese monetary multiplier through the analysis of its stability and predictability from 1990 to 2019. It has an acceptable value, and its evolution is connected to the macroeconomic, monetary and fi nancial situation of the Democratic Republic of Congo. To achieve this, We used the unit root test ADF to rule on the stationarity of the series, the cointegration test in the sense of Engle-Granger (1987) to analyze the existence of a long-term relationship between the variables and four (4) ARIMA (Box-Jenkins) models to assess the quality of the predictability of this multiplier. We have found that money supply and the money base are linked in the long term, which indicates some stability in the money multiplier. This could justify the use of the multiplier in the conduct of policy and monetary targeting in DR Congo. The existence of the long-term relationship between the base and the money supply confirms its predictability which is better predicted by its trend and seasonal components by using the Hodrick-Prescott (HP) filter. * Mai 2020. Les propos développés dans cet article n'engagent que l'auteur et ne représentent pas nécessairement l'opinion de son institution d'attache. † Étudiant au Département des sciences économiques, Option : Économie mathématique, Université Protestante |
| Date: | 2020–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02610767&r=all |
| By: | Julia Darby (Department of Economics, University of Strathclyde); Jun Gao (Department of Economics, University College Cork, Ireland); Siobhan Lucey (Department of Economics, University College Cork, Ireland); Sheng Zhu (Department of Economics and Centre for Investment Research, University College Cork, Ireland) |
| Abstract: | We contribute to a growing literature on economic and financial impacts of political uncertainty by assessing whether heightened uncertainty associated with an important political event is priced into stock returns. Our particular study looks at the period surrounding the 2014 Scottish Independence Referendum, although we argue that our approach and findings have wider relevance to assessing impacts of other political events, including Brexit. Using company data and portfolio-level analysis we document significant variation in returns and demonstrate that uncertainty betas help predict the cross-sectional dispersion of returns. These findings are robust to inclusion of controls (standard risk factors), but no longer hold when a Scottish specific uncertainty measure is replaced with UK-wide measures of either economic policy uncertainty or stock market uncertainty, adding support to the hypothesis that our findings are driven by referendum related uncertainty. We conclude that heightened political uncertainty was priced during the period surrounding the referendum, i.e. that uncertainty averse investors succeeded in gaining compensation for holding the volatile stocks of Scottish headquartered companies. |
| Keywords: | Political uncertainty, stock market volatility |
| JEL: | E65 G12 G18 P16 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1913&r=all |
| By: | Enrique Martínez-García |
| Abstract: | This paper considers the characterization of the reduced-form solution of a large class of linear rational expectations models. I show that under certain conditions, if a solution exists and is unique, it can be cast in finite-order VAR form. I also investigate the conditions for the VAR form to be stationary with a well-defined residual variance-covariance matrix in equilibrium, for the shocks to be recoverable, and for local identification of the structural parameters for estimation from the sample likelihood. An application to the workhorse New Keynesian model with accompanying Matlab codes illustrates the practical use of the finite-order VAR representation. In particular, I argue that the identification of monetary policy shocks based on structural VARs can be more closely aligned with theory using the finite-order VAR form of the model solution characterized in this paper. |
| Keywords: | Linear Rational Expectations Models; Finite-Order Vector Autoregressive Representation; Sylvester Matrix Equation; New Keynesian Model; Monetary Policy Shocks |
| JEL: | C32 C62 C63 E37 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88096&r=all |
| By: | Florian Léon (CREA, Université du Luxembourg) |
| Abstract: | This paper has two main objectives. First, it attempts to distinguish the effects of house- hold and enterprise credit on economic growth for a large sample of developing and developed countries. Second, it investigates the channels through which household credit affects economic growth. To do so, a new database covering 143 countries over the period 1995-2014 is employed. Econometric results show that household credit has a negative effect on growth, while business credit has a positive, albeit non significant, impact on growth. The literature provide two possi- ble explanations to justify the negative effect of household credit. On the one hand, household credit expansion can induce more financial fragility. On the other hand, the negative impact of household credit could be explained by its effect on saving behaviors. Results provide some evidence indicating that the negative effect of household credit is more driven by the latter than the former. |
| Keywords: | Financial development; Household credit; Growth; Savings. |
| JEL: | E44 G21 O16 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:19-02&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | The study examines the use of governance tools to fight capital flight by reducing the capital flight trap. Two overarching policy syndromes are addressed in the study. It first assesses whether governance is an effective deterrent to the capital flight trap in Africa, before examining what thresholds of government quality are required to fight the capital flight trap in the continent. The following findings are established. Evidence of a capital flight trap is apparent because past values of capital flight have a positive effect on future values of capital flight. The net effects from interactions of the capital flight trap with political stability, regulation quality, economic governance and corruption-control on capital flight are positive. The critical masses at which “voice & accountability†and regulation quality can complement the capital flight trap to reduce capital flight are respectively, 0.120 and 0.680, which correspond to the best performing countries. Policy implications are discussed. |
| Keywords: | governance; capital flight; capital flight trap; Africa |
| JEL: | C50 E62 F34 O55 P37 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/024&r=all |
| By: | Andrea Carriero; Todd E. Clark; Marcellino Massimiliano |
| Abstract: | This paper focuses on tail risk nowcasts of economic activity, measured by GDP growth, with a potentially wide array of monthly and weekly information. We consider different models (Bayesian mixed frequency regressions with stochastic volatility, classical and Bayesian quantile regressions, quantile MIDAS regressions) and also different methods for data reduction (either the combination of forecasts from smaller models or forecasts from models that incorporate data reduction). The results show that classical and MIDAS quantile regressions perform very well in-sample but not out-of-sample, where the Bayesian mixed frequency and quantile regressions are generally clearly superior. Such a ranking of methods appears to be driven by substantial variability over time in the recursively estimated parameters in classical quantile regressions, while the use of priors in the Bayesian approaches reduces sampling variability and its effects on forecast accuracy. From an economic point of view, we find that the weekly information flow is quite useful in improving tail nowcasts of economic activity, with initial claims for unemployment insurance, stock prices, a term spread, a credit spread, and the Chicago Fed’s index of financial conditions emerging as particularly relevant indicators. Additional weekly indicators of economic activity do not improve historical forecast accuracy but do not harm it much, either. |
| Keywords: | mixed frequency; big data; pandemics; downside risk; forecasting; quantile regression. |
| JEL: | C53 E17 E37 F47 |
| Date: | 2020–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:87955&r=all |
| By: | Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | Although the literature has provided evidence of the predictive power of credit for financial and banking crises, this article aims to investigate the grounds of this link by assessing the interrelationships between credit and banking fragility. The main identification assumption represents credit and banking fragility as a system of simultaneous joint data generating processes whose error terms are correlated. We test the null hypotheses that credit positively affects banking fragility—a vulnerability effect—and that banking fragility has a negative effect on credit—a trauma effect. We use seemingly unrelated regressions and 3SLS on a panel of European Union (EU) countries from 1998 to 2012 and control for the financial and macroeconomic environment. We find a positive effect of credit on banking fragility in the EU as a whole, in the Eurozone, in the core of the EU but not at its periphery, and a negative effect of banking fragility on credit in all samples. |
| Keywords: | Banking fragility; Credit growth; Nonperforming loans; SUR model |
| JEL: | E44 G20 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7cesh5fts89ft984viovct5djb&r=all |
| By: | Cletus K. Dordunoo; Alex Donkor (Achimota, Ghana) |
| Abstract: | The policy of credit ceilings coupled with the use of imposed velocity in monetary management in Ghana was fraught with failures and undesirable effects during the decade of economic reform (1983–1992). The failures necessitated the removal of credit ceilings and the adoption of indirect control of money supply. An important requirement for monetary management using an indirect control is the determination of the absorptive capacity of the economy as well as the identification of the appropriate intermediate targets, operating variables and policy instruments. An ideal policy instrument is one that can be precisely measured, is achievable by the monetary authorities within a short period of time, serves as a visible signal regarding intent of policy to economic agents, and is related to intermediate targets. This paper proposes a financial programming model (encompassing both demand and supply of money) that may be used to target growth in monetary stock, identify the key sources of assets and forecast the portfolio of the corresponding bank liabilities. The major instruments identified include financial papers (Bank of Ghana and government treasury bills and bonds), discount quotas and reserve ratios. These may be supplemented with directives and moral suasion. The leading indicators for determining whether monetary policy is on track include changes in the rate of foreign exchange and the rate of inflation. |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:77&r=all |
| By: | International Monetary Fund |
| Abstract: | A Technical Assistance (TA) mission was conducted by the Regional Technical Assistance Center for Central America, Panama, and the Dominican Republic (CAPTAC-DR) from February 26–March 2, 2018, to assist the Central Reserve Bank of El Salvador (BCRES) with concluding the compilation of the Monthly Volume Indicator of Economic Activity (Índice Mensual de Volumen de la Actividad Económica – IMVAE)1 for dissemination and the development of annual institutional sector accounts (AISAs). The purpose of this mission was to follow up on the recommendations made by a previous mission that took place in September 2017: to compile the IMVAE with base year 2005, and to assess the data sources available for AISA compilation, using the data previously compiled for 2005 as background. The mission considered the BCRES decision to start regular compilation as of 2014. |
| Date: | 2020–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/169&r=all |
| By: | Timothy Hills (New York University); Taisuke Nakata (University of Tokyo); Takeki Sunakawa (Hitotsubashi University) |
| Abstract: | This paper characterizes optimal commitment policy in the New Keynesian model using a recursive formulation of the central bank's in finite horizon optimization problem in which promised inflation and output gap - as opposed to lagged Lagrange multipliers - act as pseudo-state variables. Our recursive formulation is motivated by Kydland and Prescott (1980). Using three well known variants of the model - one featuring inflation bias, one featuring stabilization bias, and one featuring a lower bound constraint on nominal interest rates - we show that the proposed formulation sheds new light on the nature of the intertemporal trade-off facing the central bank. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf481&r=all |
| By: | Michael Puglia; Adam Tucker |
| Abstract: | We use machine learning methods to examine the power of Treasury term spreads and other financial market and macroeconomic variables to forecast US recessions, vis-à-vis probit regression. In particular we propose a novel strategy for conducting cross-validation on classifiers trained with macro/financial panel data of low frequency and compare the results to those obtained from standard k-folds cross-validation. Consistent with the existing literature we find that, in the time series setting, forecast accuracy estimates derived from k-folds are biased optimistically, and cross-validation strategies which eliminate data "peeking" produce lower, and perhaps more realistic, estimates of forecast accuracy. More strikingly, we also document rank reversal of probit, Random Forest, XGBoost, LightGBM, neural network and support-vector machine classifier forecast performance over the two cross-validation methodologies. That is, while a k-folds cross-validation indicates tha t the forecast accuracy of tree methods dominates that of neural networks, which in turn dominates that of probit regression, the more conservative cross-validation strategy we propose indicates the exact opposite, and that probit regression should be preferred over machine learning methods, at least in the context of the present problem. This latter result stands in contrast to a growing body of literature demonstrating that machine learning methods outperform many alternative classification algorithms and we discuss some possible reasons for our result. We also discuss techniques for conducting statistical inference on machine learning classifiers using Cochrane's Q and McNemar's tests; and use the SHapley Additive exPlanations (SHAP) framework to decompose US recession forecasts and analyze feature importance across business cycles. |
| Keywords: | Shapley; Probit; XGBoost; Treasury yield curve; Neural network; LightGBM; Recession; Tree ensemble; Support-vector machine; Random forest |
| JEL: | C45 C53 E37 |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-38&r=all |
| By: | Jean Imbs; Laurent L. Pauwels |
| Abstract: | Conventional measures of openness are based on direct trade. They imply foreign shocks are irrelevant to sectors that do not trade directly across borders, e.g., services. But shocks propagate via the supply chain: Sectors that trade indirectly across borders via downstream linkages are affected by foreign shocks. We introduce a measure of openness based on indirect trade, computing the fraction of downstream linkages that cross a border. The measure, labeled “High Order Trade” (HOT), is computed using recently released data on international input-output linkages for 50 sectors in 43 countries, including services. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. Some services are among the most open sectors in some economies, and services generally rank at the middle of the distribution. HOT correlates significantly with sector productivity, growth, and synchronization; conventional measures of trade do not. We introduce an instrument for HOT using network theory. We show HOT causes productivity and synchronization, but not growth. |
| Keywords: | Measuring Openness, Global supply chains, Growth, Productivity, Synchronisation |
| JEL: | E32 F44 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-48&r=all |
| By: | Hess Chung (Board of Governors of the Federal Reserve System); Etienne Gagnon (Board of Governors of the Federal Reserve System); Taisuke Nakata (University of Tokyo); Matthias Paustian (Board of Governors of the Federal Reserve System); Bernd Schlusche (Board of Governors of the Federal Reserve System); James Trevino (Board of Governors of the Federal Reserve System); Diego Vilán (Board of Governors of the Federal Reserve System); Wei Zheng (Visa Inc.) |
| Abstract: | We simulate the FRB/US model and a number of statistical models to quantify some of the risks stemming from the effective lower bound (ELB) on the federal funds rate and to assess the efficacy of adjustments to the federal funds rate target, balance sheet policies, and forward guidance to provide monetary policy accommodation in the event of a recession. Over the next decade, our simulations imply a roughly 20 to 50 percent probability that the federal funds rate will be constrained by the ELB at some point. We also find that forward guidance and balance sheet polices of the kinds used in response to the Global Financial Crisis are modestly effective in speeding up the labor market recovery and return of inflation to 2 percent following an economic slump. However, these policies have only small effects in limiting the initial rise in the unemployment rate during a recession because of transmission lags. As with any model-based analysis, we also discuss a number of caveats regarding our results. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf483&r=all |
| By: | Oliver Reiter (The Vienna Institute for International Economic Studies, wiiw); Monika Schwarzhappel (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This policy brief provides results regarding productivity levels and dynamics in the Western Balkan countries in a comparative perspective, drawing on the newly established wiiw Western Balkan Productivity Database. We construct this database from data obtained from the national statistical institutes of the Western Balkan countries (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia). The database provides time series of value added, gross output and intermediate inputs as well as labour productivity and unit labour costs. We present the most important indicators comparing productivity performance of the Western Balkan countries with Bulgaria and Romania (which became EU Members in 2007) and Croatia (which became an EU Member in 2013). |
| Keywords: | Productivity, unit labour costs, Western Balkan countries, accession |
| JEL: | E01 O11 O40 O47 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:wii:pnotes:pn:37&r=all |
| By: | Marius Clemens; Stefan Gebauer; Tobias König |
| Abstract: | While the first two pillars of the European Banking Union have been implemented, a European deposit insurance scheme (EDIS) is still not in place. To facilitate its introduction, recent proposals argue in favor of a reinsurance scheme. In this paper, we use a regime-switching open-economy DSGE model with bank default and bank-government linkages to assess the relative efficiency of such a scheme. We find that reinsurance by both a national fiscal backstop and EDIS is efficient in stabilizing the macro economy, even though welfare gains are slightly larger with EDIS and debt-to-GDP ratios rise under the fiscal reinsurance. We demonstrate that risk-weighted contributions to EDIS are welfare-beneficial for depositors and discuss trade-offs policy makers face during the implementation of EDIS. In a counterfactual exercise, we find that EDIS would have stabilized economic activity in Germany and the rest of the euro area just as well as a fiscal backing of insured deposits during the financial crisis. However, the debt-to-GDP ratio would have been lower with EDIS. |
| Keywords: | Banking Union, Deposit Insurance, Risk-Sharing |
| JEL: | E61 F42 F45 G22 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1873&r=all |
| By: | Chakraborty, Lekha (National Institute of Public Finance and Policy); Thomas, Emmanuel (St Thomas College) |
| Abstract: | The macroeconomic uncertainty created by COVID-19 is hard to measure. The situation demands simultaneous policy intervention in terms of public health infrastructure and livelihood. Along with the global community, India too has announced its initial dose of fiscal and monetary policy responses. However, more fiscal-monetary policy coordination is required to scale up the policy response to the emerging crisis. Innovative sources of financing the deficit, including money financing of fiscal programmes, a variant of "helicopter money," need to be explored. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:20/302&r=all |
| By: | Bardt, Hubertus; Hüther, Michael; Schmidt, Christoph M.; Schmidt, Torsten |
| Abstract: | Nordrhein-Westfalen ist wie das gesamte Land massiv von den Auswirkungen der Corona-Krise betroffen. Während die Verbreitung der Erkrankung spürbar zurückgeht, befindet sich die Wirtschaft weiterhin in der tiefsten Rezession in der Geschichte des Landes. Zur Stabilisierung und Verbesserung der wirtschaftlichen Lage sind die Auflösung bestgehender angebotsseitiger Restriktionen, die Sicherung von akut gefährdeten Unternehmen und ggf. gezielte Impulse zur Stabilisierung der Nachfrage notwendig. Um kurzfristig die Erwartung in dynamische Wachstumsperspektive zu stärken und damit die Voraussetzungen für unternehmerische Investitionen zu schaffen, ist ein Wachstums- und Modernisierungsprogramm für Nordrhein-Westfalen notwendig. Nur so kann das Land aus der Krise herauswachsen und zugleich den Strukturwandel bewältigen, der durch Digitalisierung und Dekarbonisierung forciert wird. Die aktuelle Krise führt tendenziell zu einer Beschleunigung der Veränderungsnotwendigkeit, während die Fähigkeiten zur Investition durch den Kapitalverzehr zurückgehen. Klare, investitionsfreundliche Rahmenbedingungen sind notwendig, um heute die Basis für Wachstum und Wohlstand von morgen zu legen. Dazu zählen die Förderung von Innovationen und Unternehmensgründungen, gut ausgebaute Infrastrukturen und ein Kostenrahmen, der auch industrielle Produktion unter den Bedingungen der Dekarbonisierung wettbewerbsfähig möglich macht. Nordrhein-Westfalen hat mit seiner starken industriellen Basis gute Voraussetzungen dafür, bei diesem grundlegenden Wandel eine führende Rolle zu spielen, wenn jetzt die wirtschaftspolitischen Weichen entschlossen gestellt werden |
| JEL: | E3 E6 O4 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:112020&r=all |
| By: | Taisuke Nakata (University of Tokyo); Takeki Sunakawa (Hitotsubashi University) |
| Abstract: | How can the central bank credibly implement a "lower-for-longer" strategy? To answer this question, we analyze credible forward guidance policies in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates by solving a series of optimal sustainable policy problems indexed by the duration of reputational loss. Lower-for-longer policies - while effective in stimulating the economy at the ELB - are potentially time-inconsistent, as the associated overheating of the economy in the aftermath of a crisis is undesirable ex post. However, if reneging on a lower-for-longer promise leads to a loss of reputation and prevents the central bank from effectively using lower-for-longer policies in future crises, these policies can be time-consistent. We fi nd that, even without an explicit commitment technology, the central bank can still credibly keep the policy rate at the ELB for an extended period - though not as extended under the optimal commitment policy - and meaningfully mitigate the adverse effects of the ELB constraint on economic activity. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf484&r=all |
| By: | Jaqueson K. Galimberti |
| Abstract: | This paper evaluates how adaptive learning agents weight different pieces of information when forming expectations with a recursive least squares algorithm. The analysis is based on a renewed and more general non-recursive representation of the learning algorithm, namely, a penalized weighted least squares estimator, where a penalty term accounts for the effects of the learning initials. The paper then draws behavioral implications of alternative specifications of the learning mechanism, such as the cases with decreasing, constant, regime-switching, adaptive, and age-dependent gains, as well as practical recommendations on their computation. One key new finding is that without a proper account for the uncertainty about the learning initial, a constant-gain can generate a time-varying profile of weights given to past observations, particularly distorting the estimation and behavioral interpretation of this mechanism in small samples of data. In fact, simulations and empirical estimation of a Phillips curve model with learning indicate that this particular misspecification of the initials can lead to estimates where inflation rates are less responsive to expectations and output gaps than in reality, or “flatter” Phillips curves. |
| Keywords: | bounded rationality, expectations, adaptive learning, memory |
| JEL: | D83 D84 D90 E37 C32 C63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-46&r=all |
| By: | Afees A. Salisu (Department for Management of Science and Technology Development, Ton Duc Thang University, Ho Chi Minh City, Vietnam; Faculty of Business Administration, Ton Duc Thang University, Ho Chi Minh City, Vietnam); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Elie Bouri (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon) |
| Abstract: | In this study, we examine the role of global economic conditions in forecasting gold market volatility using alternative measures. Based on the available data frequency for the relevant series, we adopt the GARCH-MIDAS approach which allows for mixed data frequencies. We find that global economic conditions contribute significantly to gold market volatility albeit with mixed outcomes. While the results lend support to the safe-haven properties of the gold market, the outcome is influenced by the choice of measure of global economic conditions. For completeness, we extend the analyses to other precious metals such as silver, platinum, palladium, and rhodium and find that global economic conditions forecast the volatility of gold returns better than other precious metals. Our results are robust to multiple forecast horizons and offer useful insights into plausible investment choices in the precious metals market. |
| Keywords: | Precious Metals Volatility, Global Economic Conditions, Mixed-Frequency |
| JEL: | C32 C53 E32 Q02 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202043&r=all |
| By: | Jacob K. Atta; Keith R. Jefferis; Ita Mannathoko (Department of Economics, University of Zambia) |
| Abstract: | The dominant influence of South African goods on the Botswana CPI basket leads to the expectation that South African prices have a significant role in determining prices in Botswana. This paper examines Botswana's price and inflation relationships and their interaction. Cointegration analysis is used to develop a dynamic error correction model that establishes the link between long-run equilibrium prices and short-run inflation. Results show that the exchange rate (and South African prices), rather than money, are cointegrated with prices, supporting theoretical predictions of a dominant long-run equilibrium relationship between prices and the exchange rate in a pegged exchange rate regime with capital controls. In the short run, both domestic prices and imported inflationary pressures determine growth in the price level each month. This suggests that monetary, exchange rate and fiscal policy can be used to temper inflation in the short run. Changes in the exchange rate and prices will only have short-term price competitiveness effects, however. Over time adjustment back to the equilibrium real exchange rate occurs. |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:93&r=all |
| By: | Hippolyte d'Albis (PSE - Paris School of Economics); Jean-Pierre Drugeon (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The purpose of this contribution is to consider a discrete time formulation that would allow for clarifying some salient features of a vintage based understanding of the capital stock..ree main lines of conclusions are established on an analytical basis. First and for an elementary conguration with linear utility, it is proved that the rate of growth of investment is prone to andoscillating—convergent, sustained or unstable—motions. Second and for an environment with a linear production technology and a AK setup, the dynamics of investment is explicitly solved and it is established that the rate of growth of investment may either converge to the steady growth solution in oscillating way, diverge from that solution in a oscillating way, or even undergo permanent sustained oscillations with a periodicity of two. .ird, it is proved that no perennial .uctuations can emerge within a benchmark environment with strictly concave utilities and production technologies. On a methodological basis, few restrictions are superimposed, the arguments remain fairly general and the proofs are elementary. |
| Keywords: | Vintage Capital,Optimal Growth,Discrete Time |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02570648&r=all |
| By: | Markus Brueckner; Ngo Van Long; Joaquin Vespignani |
| Abstract: | This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population are educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education. |
| Keywords: | Non-Gravity Trade, Inequality, Education |
| JEL: | F1 E2 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-52&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo; Richard Kima |
| Abstract: | We estimate a three-variate VAR using proxies of global financial uncertainty, the global financial cycle, and world industrial production to simulate the effects of the jump in financial uncertainty observed in correspondence of the Covid-19 outbreak. We predict the cumulative loss in world output one year after the uncertainty shock due to Covid-19 to be about 14%. |
| Keywords: | Covid-19, Financial Uncertainty, Vector AutoRegressions, Global financial cycle, World industrial production |
| JEL: | C32 E32 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-50&r=all |
| By: | Jones, Melanie (Cardiff Business School); Kaya, Ezgi (Cardiff Business School) |
| Abstract: | Northern Ireland forms an important outlier to the established international pattern of a pronounced gender pay gap in favour of men. Using contemporary data from the Quarterly Labour Force Survey we provide a comprehensive analysis of the gender pay gap in Northern Ireland and make comparisons to the rest of the UK. Despite the relatively common institutional and policy context, the gender pay gap in Northern Ireland is found to be far smaller than in the rest of the UK. This can largely be attributed to the superior productivity-related characteristics of women relative to men in Northern Ireland, which partially offset the influence of gender differences in the returns to these characteristics. Our analysis highlights the importance of occupation Ð both in terms of occupational allocation and the returns to occupations Ð in explaining the cross-country differential. This is reinforced by the impact of lower earnings inequality in Northern Ireland. |
| Keywords: | consumption; citizenship; informality; (un)documented immigrants; work permit |
| JEL: | D12 E21 F22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2020/9&r=all |
| By: | Normann Rion (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | I build a New-Keynesian dynamic stochastic general-equilibrium model with a dual labor market. Firms and workers meet through a matching technology à-la Diamond-Mortensen-Pissarides and face a trade-off between productivity and flexibility at the hiring stage. All else equal, open-ended contracts are more productive than fixed-term contracts, but they embed a firing cost. The share of fixed-term contracts in job creation fluctuates endogenously, which enables to assess the resort to temporary contracts along the cycle and its response to different shocks. I estimate the model using a first-order perturbation method and classic Bayesian procedures with macroeconomic data from the Euro area. I find that the share of fixed-term contracts in job creation is counter-cyclical. The agents react to shocks essentially through the job creation margin and the contractual composition of the hires. Moreover, a general-equilibrium effect arises ; the substitution between fixed-term and open-ended contracts at the hiring stage influences the job seekers' stock, which in turn impacts job creation. Using my previous estimates and solving the model with a third-order perturbation method, I find that fixed-term employment reacts to negative aggregate demand shocks and uncertainty shocks oppositely. This result suggests that fixed-term employment could be used to identify uncertainty shocks in future research. As for inflation, changes in firing costs do not alter its dynamics as long as open-ended and fixed-term matches do not differ much in productivity all else equal. |
| Keywords: | Fixed-term contracts,Employment protection,New Keynesian model,Inflation dynamics,Uncertainty |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02570540&r=all |
| By: | Markus Brueckner; Ngo Van Long; Joaquin L. Vespignani |
| Abstract: | This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population is educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases, the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education. |
| Keywords: | Non-Gravity Trade; Inequality; Education |
| JEL: | F1 E2 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88095&r=all |
| By: | Gomez-Gonzalez, Jose Eduardo; Hirs-Garzon, Jorge; Uribe, Jorge M. |
| Abstract: | We explore the higher order linkages between energy commodity markets and global financial markets. Our focus is on spillovers of realized good and bad volatilities, realized signed jump variation, realized skewness and realized kurtosis. Our results show that the measurement of risk spillovers is sensitive to the definition of risk used in their construction. Asymmetries between good and bad volatility transmission matter, and results when jumps and higher order risk measures are considered are substantially different from those obtained when traditional volatility measures are used. We provide empirical support for theoretical asset pricing models that conduct the optimization required for portfolio balancing in the mean-variance-skewness space by showing that risk diversification opportunities vary greatly when one considers variance or skewness as the fundamental proxy for risk. |
| Keywords: | Energy commodity markets; Risk spillover; Higher order risk measure; LASSO methods |
| JEL: | E44 F31 G01 G12 G15 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:46&r=all |
| By: | Paolo Cavallino; Fiorella De Fiore |
| Abstract: | Central banks in advanced economies reacted swiftly and forcefully to the Covid-19 pandemic, deploying the full range of crisis tools within weeks. The initial response focused primarily on easing financial stress and ensuring a smooth flow of credit to the private non-financial sector.The pandemic triggered complementary responses from monetary and fiscal authorities. Fiscal backstops and loan guarantees supported central bank actions. Asset purchases, designed to achieve central banks' objectives, helped contain the costs of fiscal expansions. The footprint of central banks' measures will be sizeable. Across the five largest advanced economies, balance sheets are projected to grow on average by 15-23% of GDP before end-2020 and to remain large in the near future. |
| Date: | 2020–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisblt:21&r=all |
| By: | International Monetary Fund |
| Abstract: | In recent years, economic growth has been robust and inflation low, while the external and fiscal positions have improved. These hard-won gains, supported by three successive Fund financial programs, followed by the Policy Coordination Instrument (PCI), which was approved in 2017, are at risk of being eroded by the severe impact of the COVID-19 pandemic. The authorities have taken decisive measures to prevent a local outbreak and to mitigate the economic impact on affected businesses and the most vulnerable households. Nonetheless, given Seychelles’ heavy dependence on tourism, the economy is being very badly hit, with GDP likely to drop by over 10 per-cent this year. |
| Keywords: | Rapid Financing Instrument (RFI); |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/170&r=all |
| By: | Philip Coyle (University of Wisconsin – Madison); Taisuke Nakata (University of Tokyo) |
| Abstract: | In expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption. As a result, introducing the possibility of expectations-driven liquidity traps to an otherwise standard model lowers the optimal inflation target. Using a calibrated New Keynesian model with an effective lower bound (ELB) constraint on nominal interest rates, we find that even a very small probability of falling into an expectations-driven liquidity trap lowers the optimal inflation target nontrivially. Our analysis provides a reason to be cautious about the argument that central banks should raise their inflation targets in light of a higher likelihood of hitting the ELB. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf485&r=all |
| By: | Stanley, Abban |
| Abstract: | Currency union with a common policy is welfare superlative to the use of sovereign currencies even if a member of the East African Community uses a convertible currency. In this background, the study evaluates whether adopting a common currency will lead to trade using an augmented gravity model of international trade. Additionally, the study investigates the effect of tariffs and nontariff on trade in EAC. The results show that adopting a common currency will lead to trade. Also, the study showed that trade will be enhanced by six-folds when tariffs and nontariff is eliminated. The study concludes that a currency union with a common policy could serve as a panacea when the appropriate institutional policy framework is adopted to ensure transparency by reducing trade and non-trade barriers. |
| Keywords: | Currency union, Sovereign currencies, tariff, nontariff, gravity model of international trade, panacea, Optimal Currency Area, intra-regional trade |
| JEL: | E6 F1 F15 F4 F45 |
| Date: | 2020–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100512&r=all |
| By: | Kristle Cortés (The University of New South Wales); Andy Glover (Federal Reserve Bank of Kansas City); Murat Tasci (Federal Reserve Bank of Cleveland) |
| Abstract: | Over the last 15 years, 11 states have restricted employers' access to the credit reports of job applicants. We estimate that county-level job vacancies have fallen by 5.5 percent in occupations affected by these laws relative to exempt occupations in the same counties and national-level vacancies for the same occupations. Cross-sectional heterogeneity suggests that employers use credit reports as signals of a worker's ability to perform the job: vacancies fall more in counties with a large share of subprime residents, while they fall less for occupations with other commonly available signals. Vacancies fall most for occupations involving routine tasks, suggesting that credit reports contain information relevant for these types of jobs. |
| Keywords: | vacancies, credit score, credit check |
| JEL: | E24 E65 J23 J63 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-037&r=all |
| By: | António Rua; Francisco Dias; Maximiano Pinheiro |
| Abstract: | Along with the advances of statistical data collection worldwide, dynamic factor models have gained prominence in economics and finance when dealing with data rich environments. Although factor models have been typically applied to two-dimensional data, three-way array data sets are becoming increasingly available. Motivated by the tensor decomposition literature, we propose a dynamic factor model for three-way data. We show that this modeling strategy is flexible while remaining quite parsimonious, in sharp contrast with previous approaches. We discuss identification and put forward a set of identifying restrictions that enhance the interpretation of the model. We propose an estimation procedure based on maximum likelihood using the Expectation-Conditional Maximization algorithm and assess the finite sample properties of the estimator through a Monte Carlo study. In the empirical application, we apply the model to inflation data for nineteen euro area countries and fifty-five products covering the last two decades. |
| JEL: | C38 C51 E31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202007&r=all |
| By: | Mary Amiti; Sang Hoon Kong; David E. Weinstein |
| Abstract: | Starting in early 2018, the U.S. government imposed tariffs on over $300 billion of U.S. imports from China, increasing the average tariff rate from 2.7 percent to 17.5 percent. Much of the escalation in tariffs occurred in the second and third quarters of 2019. In response, the Chinese government retaliated, increasing the average tariff applied on U.S. exports from 5.7 percent to 20.4 percent. Our new study finds that the trade war reduced U.S. investment growth by 0.3 percentage points by the end of 2019, and is expected to shave another 1.6 percentage points off of investment growth by the end of 2020. In this post, we review our study of the trade war’s effect on U.S. investment. |
| Keywords: | protection; event studies; adjustment costs |
| JEL: | F4 E2 F00 |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88070&r=all |
| By: | Gordon Y. Liao; Tony Zhang |
| Abstract: | We document the exchange rate hedging channel that connects country-level measures of net external financial imbalances with exchange rates. In times of market distress, countries with large positive external imbalances (e.g. Japan) experience domestic currency appreciation, and crucially, forward exchange rates appreciate relatively more than the spot after adjusting for interest rate differentials. Countries with large negative foreign asset positions experience the opposite currency movements. We present a model demonstrating that exchange rate hedging coupled with intermediary constraints can explain these observed relationships between net external imbalances and spot and forward exchange rates. We find empirical support for this currency hedging channel of exchange rate determination in both the conditional and unconditional moments of exchange rates, option prices, large institutional investors' disclosure of hedging activities, and central bank swap line usage during the COVID-19 market turmoil. |
| Keywords: | Global imbalance; Exchange rate; Forward; Hedging; Covered interest rate parity; Currency options; COVID19 |
| JEL: | E44 F31 F32 F41 G11 G15 G18 G20 |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1283&r=all |
| By: | Taisuke Nakata (University of Tokyo); Takeki Sunakawa (Hitotsubashi University) |
| Abstract: | We present a calibrated DSGE model with an occasionally binding effective lower bound (ELB) constraint on yields that matches key features of the aggregate economy and the term structure of interest rates in the United States. The ELB constraint induces state dependency in term premiums by affecting macroeconomic uncertainty and interest rate sensitivity to economic activities, typically lowering the absolute size of term premiums and increasing their volatility around liftoff. The central bank's forward guidance at the ELB lowers the expected short-rate path, but its effect on term premiums depends on the risk exposure of bonds to the macroeconomy. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf482&r=all |
| By: | Hénock Katuala (Université protestante au Congo - Université protestante au Congo) |
| Abstract: | This paper attempts to assess the impact of monetary policy on monetary stability (internal and external) and economic growth in DR Congo from 1990-2019. In this sense, we evaluated the empirical properties of the Congolese monetary multiplier through the analysis of its stability and its predictability. The ADF unit root, cointegration (Engle-Granger, 1987) and four (4) ARIMA (Box-Jenkins) models were used for these purposes. The Bayesian estimation of the structural VAR model (B-SVAR) was carried out on the quarterly series obtained after disaggregation (Denton, 1971). The causality of Granger (1969) and the cointegration of Johansen (1991) made it possible to rule on the links between variables. The identification of model shocks is inspired by the work of Binning (2013) which combines the restrictions of signs and zeros both in the short term and in the long term within the framework of under-identified structural VAR models. Our results revealed the following stylized facts: (i) the existence of a long-term relationship between the base and the money supply. This could justify the use of the multiplier in the conduct of policy and monetary targeting in DR Congo; (ii) the shocks on the key rate have not had any expected impact on economic growth; (iii) oil prices have remained rigid and (iv) demand shocks impact the dynamics of monetary stability. |
| Abstract: | Ce papier tente d'apprécier l'incidence de la politique monétaire sur la stabilité monétaire (interne et externe) et la croissance économique en R.D. Congo de 1990-2019. Dans ce sens, nous avons évalué les propriétés empiriques du multiplicateur monétaire congolais à travers l'analyse de sa stabilité et sa prédictibilité. Les tests de racine unitaire ADF, de cointégration (Engle-Granger, 1987) et quatre (4) modèles de type ARIMA (Box-Jenkins) ont servi à ces fins. L'estimation bayésienne du modèle VAR structurels (B-SVAR) a été effectuée sur les séries trimestrielles obtenues après désagrégation (Denton, 1971). La causalité de Granger (1980) et la cointégration de Johansen (1991) ont permis de statuer sur les liens entre variables. L'identification des chocs du modèle est inspirée des travaux de Binning (2013) qui combinent les restrictions de signes et de zéros tant à court terme qu'à long terme dans le cadre de modèles VAR structurels sous-identifiés. Nos résultats ont révélé les faits stylisés suivants : (i) l'existence d'une relation de long terme entre la base et la masse monétaire. Ce qui pourrait justifier l'utilisation du multiplicateur dans la conduite de la politique et du ciblage monétaire en R.D. Congo ; (ii) les chocs sur le taux directeur n'ont pas donné des retombées escomptées sur la croissance économique ; (iii) les cours du pétrole sont restés rigides et (iv) les chocs de demande impactent la dynamique de la stabilité monétaire. Abstract (Monetary policy, monetary stability and economic growth in the Democratic Republic of Congo). This paper attempts to assess the impact of monetary policy on monetary stability (internal and external) and economic growth in DR Congo from 1990-2019. In this sense, we evaluated the empirical properties of the Congolese monetary multiplier through the analysis of its stability and its predictability. The ADF unit root, cointegration (Engle-Granger, 1987) and four (4) ARIMA (Box-Jenkins) models were used for these purposes. The Bayesian estimation of the structural VAR model (B-SVAR) was carried out on the quarterly series obtained after disaggregation (Denton, 1971). The causality of Granger (1969) and the cointegration of Johansen (1991) made it possible to rule on the links between variables. The identification of model shocks is inspired by the work of Binning (2013) which combines the restrictions of signs and zeros both in the short term and in the long term within the framework of under-identified structural VAR models. Our results revealed the following stylized facts: (i) the existence of a long-term relationship between the base and the money supply. This could justify the use of the multiplier in the conduct of policy and monetary targeting in DR Congo; (ii) the shocks on the key rate have not had any expected impact on economic growth; (iii) oil prices have remained rigid and (iv) demand shocks impact the dynamics of monetary stability. * Mai 2020. Les propos développés dans cet article n'engagent que leurs auteurs et ne représentent pas nécessairement l'opinion de leurs institutions d'attache. † Étudiant au Département des sciences économiques, Option : Économie mathématique, Université Protestante au Congo, Kinshasa, RDC. Fax : +243 828-651-114. |
| Keywords: | Monetary policy,Inflation,International exchange reserves,Economic growth,Bayesian analysis,Politique monétaire,Réserves internationales de changes,Croissance économique,Analyse bayésienne |
| Date: | 2020–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02616124&r=all |
| By: | Peydró, José-Luis (Imperial College London); Rodriguez-Tous, Francesc (Cass Business School); Tripathy, Jagdish (Bank of England); Uluc, Arzu (Bank of England) |
| Abstract: | Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders — not households — for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (eg increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies — via lower pre-correction debt — better house prices and mortgage defaults during an episode of house price correction. |
| Keywords: | Macroprudential policy; mortgages; credit cycles; inequality; house prices |
| JEL: | G01 G21 G28 |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0866&r=all |
| By: | Grégory LEVIEUGE; Jose David GARCIA REVELO |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:leo:wpaper:2749&r=all |
| By: | Bonciani, Dario (Bank of England); Ricci, Martino (European Central Bank) |
| Abstract: | In this paper, we analyse the effects of a shock to global financial uncertainty and risk aversion on real economic activity. To this end, we extract a common factor from the realised volatilities of about 1,000 risky asset returns from around the world. We then study how shocks to the factor affect economic activity in 44 advanced and emerging small open economies by estimating local projections in a panel regression framework. We find that the output responses are quite heterogeneous across countries but, in general, negative and persistent. Furthermore, the effects of shocks to the global factor are stronger in countries with a higher degree of trade and/or financial openness, as well as in countries with a higher level of vulnerabilities. |
| Keywords: | Global uncertainty; global risk aversion; global financial cycle; small open economies |
| JEL: | E32 F41 F65 |
| Date: | 2020–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0863&r=all |
| By: | Finn E. Kydland; Enrique Martínez-García |
| Abstract: | This paper examines the impact of the behavioral changes and governments' responses to the spread of the COVID-19 pandemic using a unique dataset of daily private forecasters' expectations on a sample of 32 emerging and advanced economies from January 1 till April 13, 2020. We document three important lessons from the data: First, there is evidence of a relation between the stringency of the policy interventions and the health outcomes consistent with slowing down the spread of the pandemic. Second, we find robust evidence that private forecasters have come to anticipate a sizeable contraction in economic activity followed by a check mark recovery as a result of the governments' increasingly stringent response. The evidence suggests also that workplace restrictions have further contributed to the downturn and to the subsequent sluggish recovery—opening up the question about the costs of tighter work restrictions. Finally, we argue inflation expectations have not changed significantly so far. Through the lens of the neoclassical growth model, these changes in macro expectations can result from the resulting work disruptions and the potential productivity slowdown from the gradual de-escalation of the confinement. |
| Keywords: | COVID-19; Macro Expectations; Flattening the Curve; Policy Response Stringency; Google Mobility |
| JEL: | I18 F62 E30 C23 C83 |
| Date: | 2020–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:87966&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic has severely impacted Uzbekistan. Growth is projected to slow to 1.5 percent in 2020, while lower exports and remittances are expected to widen the current account deficit to almost 10 percent of GDP. Addressing the external shock and the domestic impact of COVID-19 is expected to require additional external financing of about US$ 4 billion (7 percent of GDP). At the same time, weaker than expected revenues and additional crisis-related expenditures are expected to widen the fiscal deficit from near balance to about 4 percent of GDP. Uncertainty about the severity and length of the global downturn and the impact on Uzbekistan’s economy is large. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/171&r=all |
| By: | Petrosky-Nadeau, Nicolas (Carnegie Mellon University); Valletta, Robert G. (Federal Reserve Bank of San Francisco) |
| Abstract: | The COVID-19 pandemic has upended the U.S. economy and labor market. We assess the initial spike in unemployment due to the virus response and possible paths for the official unemployment rate through 2021. Substantial uncertainty surrounds the path for measured unemployment, depending on the path of the virus and containment measures and their impact on reported job search activity. We assess potential unemployment paths based on historical patterns of monthly flows in and out of unemployment, adjusted for unique features of the virus economy. The possible paths vary widely, but absent hiring activity on an unprecedented scale, unemployment could remain in double-digits into 2021. We also find that the increase in measured unemployment could be meaningfully tempered by a substantial reduction in labor force participation. |
| Keywords: | labor market, unemployment, employment, labor force, COVID-19 |
| JEL: | E24 J21 J60 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13294&r=all |
| By: | Li, Fanghui; Wang, Gaowang; Zou, Heng-fu |
| Abstract: | The paper reexamines the famous Chamley-Judd zero capital tax theorem in model economies where the agents are endowed with the spirit of capitalism. It is shown that the limiting capital income tax is not zero in general and depends on the utility specifications rather than the production technology. The similar formulas of optimal capital taxes are derived in more general settings with multiple physical capitals or heterogeneous agents (capitalists and workers). |
| Keywords: | the Spirit of Capitalism; Capital Income Taxation; Heterogeneous Agents |
| JEL: | E62 H21 |
| Date: | 2020–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100539&r=all |
| By: | Tobias Hartl; Rolf Tschernig; Enzo Weber |
| Abstract: | We develop a generalization of correlated trend-cycle decompositions that avoids prior assumptions about the long-run dynamic characteristics by modelling the permanent component as a fractionally integrated process and incorporating a fractional lag operator into the autoregressive polynomial of the cyclical component. We relate the model to the Beveridge-Nelson decomposition and derive a modified Kalman filter estimator for the fractional components. Identification and consistency of the maximum likelihood estimator are shown. For US macroeconomic data we demonstrate that, unlike non-fractional correlated unobserved components models, the new model estimates a smooth trend together with a cycle hitting all NBER recessions. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.05266&r=all |
| By: | Gizem Koşar; Kyle Smith; Wilbert Van der Klaauw |
| Abstract: | The New York Fed’s Center for Microeconomic Data released results today from its April 2020 SCE Public Policy Survey, which provides information on consumers' expectations regarding future changes to a wide range of fiscal and social insurance policies and the potential impact of these changes on their households. These data have been collected every four months since October 2015 as part of our Survey of Consumer Expectations (SCE). Given the ongoing COVID-19 pandemic, households face significant uncertainty about their personal situations and the general economic environment when forming plans and making decisions. Tracking individuals’ subjective beliefs about future government policy changes is important for understanding and predicting their behavior in terms of spending and labor supply, which will be crucial in forecasting the economic recovery in the months ahead. |
| Keywords: | expectations; pandemic; fiscal policy; COVID-19 |
| JEL: | D84 H3 J6 |
| Date: | 2020–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88049&r=all |
| By: | Flora Budianto (Bank for International Settlements); Taisuke Nakata (University of Tokyo); Sebastian Schmidt (European Central Bank and CEPR) |
| Abstract: | Assigning a discretionary central bank a mandate to stabilize an average inflation rate - rather than a period-by-period inflation rate - increases welfare in a New Keynesian model with an occasionally binding lower bound on nominal interest rates. Under rational expectations, the welfare-maximizing averaging window is infinitely long, which means that optimal average inflation targeting (AIT) is equivalent to price level targeting (PLT). However, AIT with a finite, but sufficiently long, averaging window can attain most of the welfare gain from PLT. Under boundedly-rational expectations, if cognitive limitations are sufficiently strong, the optimal averaging window is finite, and the welfare gain of adopting AIT can be small. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf486&r=all |
| By: | Sangmin Aum (Myongji University); Sang Yoon (Tim) Lee (Queen Mary University of London and CEPR); Yongseok Shin (Washington University in St. Louis, Federal Reserve Bank of St. Louis and NBER) |
| Abstract: | Unlike most countries, Korea did not implement a lockdown in its battle against COVID-19, instead successfully relying on testing and contact tracing. Only one region, Daegu-Gyeongbuk, had a signi cant number of infections, traced to a religious sect. This allows us to estimate the causal effect of the outbreak on the labor market using difference-in-differences. We nd that a one per thousand increase in infections causes a 2 to 3 percent drop in local employment. Non-causal estimates of this coeffcient from the US and UK, which implemented large-scale lockdowns, range from 5 to 6 percent, suggesting that at most half of the job losses in the US and UK can be attributed to lockdowns. We also nd that employment losses caused by local outbreaks in the absence of lockdowns are (i) mainly due to reduced hiring by small establishments, (ii) concentrated in the accommodation/food, education, real estate, and transportation industries, and (iii) worst for the economically vulnerable workers who are less educated, young, in low-wage occupations, and on temporary contracts, even controlling for industry effects. All these patterns are similar to what we observe in the US and UK: The unequal effects of COVID-19 are the same with or without lockdowns. Our nding suggests that the lifting of lockdowns in the US and UK may lead to only modest recoveries in employment unless COVID-19 infection rates fall. |
| Keywords: | COVID-19, regional difference-in-differences, labour market, inequality |
| JEL: | E24 I14 J2 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:904&r=all |
| By: | Andrii Babii; Eric Ghysels; Jonas Striaukas |
| Abstract: | This paper introduces structured machine learning regressions for high-dimensional time series data potentially sampled at different frequencies. The sparse-group LASSO estimator can take advantage of such time series data structures and outperforms the unstructured LASSO. We establish oracle inequalities for the sparse-group LASSO estimator within a framework that allows for the mixing processes and recognizes that the financial and the macroeconomic data may have heavier than exponential tails. An empirical application to nowcasting US GDP growth indicates that the estimator performs favorably compared to other alternatives and that the text data can be a useful addition to more traditional numerical data. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.14057&r=all |
| By: | Pablo A. Guerron-Quintana; Tomohiro Hirano; Ryo Jinnai |
| Abstract: | We study a regime-switching recurrent bubble model with endogenous growth. The economy experiences both bubbly and bubbleless regimes recurrently. Innitely lived households expect future bubbles, which crowds out investment and reduces economic growth. Because realized bubbles crowd in investment, their overall impact on economic growth and welfare crucially depends on both the level of nancial development and the frequency of bubbles. We examine the U.S. economic data through the lens of our model, nding evidence of recurrent bubbles. Furthermore, counterfactual simulations suggest that 1) the IT and housing bubbles together lifted U.S. GDP by almost 2 percentage points permanently; and 2) the U.S. economy could have grown even faster if people had believed that asset bubbles would not arise. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:20-005e&r=all |
| By: | Eugene Kouassi (University of Abijan) |
| Abstract: | This paper analyses the effects of inflation on Ivoiran fiscal variables by using the Aghevli- Khan model (1978) to estimate the time required for a change in the consumer price index to be fully reflected in the variables. The predictability of time-dependent adjustment coefficients is also investigated using the Kalman filter approach. Simulation experiments (e.g., temporary decrease or increase in GDP) are also used for policy implications. Estimations obtained from the study seem very useful for Côte d'Ivoire policy makers. |
| URL: | http://d.repec.org/n?u=RePEc:aer:wpaper:52&r=all |
| By: | Magaji Abba (Faculty of Management Sciences, A.T.B.U. Bauchi); Muhammad Auwal Kabir (Faculty of Social and Management Sciences, Bauchi State University, Gadau); Abdulkadir Abubakar (Faculty of Social and Management Sciences, Bauchi State University, Gadau) |
| Abstract: | The paper examined the relationship between environmental disclosure and cost of capital structure financing of the Nigerian listed companies. This is due to a concern about the environmental behaviour of the companies that result in stakeholders? interest in environmental disclosure. Though the disclosure is voluntary (to a certain extent) its inadequacy creates information asymmetric and risk that affect the cost of capital structure financing. The study was on listed Nigerian companies whose activities have an environmental repercussion. Where the data was gathered from content analysis of the companies? annual reports. A regression analysis based on the pool, 2SLS and 3SLS were made to improve the robustness of the results. It provides evidence in support of companies? stakeholders? engagement through disclosure to manage the cost of capital structure financing. The disclosure level effect on the cost of capital structure will help curtailed negative environmental activities of the companies. However, the sample size is small due to the limited number of publically listed companies in the Nigerian. Additionally, the data is cross-sectional which may not be stable over time and across industries level. Recommend for further study that will look into financial stakeholders? perception about the environmental disclosure and its value relevance in financing decision. |
| Keywords: | Environmental Disclosure; Information Asymmetric; Disclosure Quality; Cost of Capital Structure Financing; Nigerian Listed Companies |
| JEL: | M41 Q56 E22 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:sek:ibmpro:10112442&r=all |
| By: | Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michéle Tertilt |
| Abstract: | This paper investigates the role of testing and age-composition in the Covid-19 epidemic. We augment a standard SIR epidemiological model with individual choices regarding how much time to spend working and consuming outside the house, both of which increase the risk of transmission. Individuals who have flu symptoms are unsure whether they caught Covid-19 or simply a common cold. Testing reduces the time of uncertainty. Individuals are heterogeneous with respect to age. Younger people are less likely to die, exacerbating their willingness to take risks and to impose externalities on the old. We explore heterogeneous policy responses in terms of testing, confinements, and selective mixing by age group. |
| Keywords: | Covid-19, testing, social distancing, age-specific policies |
| JEL: | E17 C63 D62 I10 I18 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_175&r=all |
| By: | Rodríguez Caballero, Carlos Vladimir; Prados de la Escosura, Leandro |
| 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 Low Countries) 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: | Malthusian; Pandemics; War; Little Divergence; Long-Run Growth |
| JEL: | O47 O10 N40 N30 N10 E01 |
| Date: | 2020–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:30574&r=all |
| By: | Tyler Atkinson; James Dolmas; Christoffer Koch; Evan F. Koenig; Karel Mertens; Anthony Murphy; Kei-Mu Yi |
| Abstract: | We develop a Social Distancing Index (SDI) based on a range of mobility metrics from Safegraph geolocation data, and validate the index with mobility data from Google and Unacast. We construct SDIs at the county, MSA, state and nationwide level, and link these measures to indicators of economic activity. According to our measures, the bulk of social distancing occurred during the week of March 15 and simultaneously across the U.S. At the national peak of social distancing in early April, localities that engaged in 10% more social distancing than average saw an additional 0.6% of their populations claiming unemployment insurance, an additional 2.8 pp reduction in small businesses employment, an additional 2.6 pp increase in small business closures, and an additional 3.2 pp reduction in new-business applications. A gradual and broad-based reduction in social distancing started in the third week of April. |
| Keywords: | Social Distancing Index; Location Data; COVID-19; SARS-Cov-2; Social Distancing and Economic Activity |
| JEL: | E66 C15 R11 R19 |
| Date: | 2020–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:88040&r=all |
| By: | Bengtsson, Erik (Lund University); Rubolino, Enrico (ISER, University of Essex); Waldenström, Daniel (Research Institute of Industrial Economics, Stockholm) |
| Abstract: | This paper analyzes the determinants of the labor-capital split in national income for 20 countries since the late 1800s. Our main identification strategy focuses on unique historical quasi-experimental events: i) the introduction of universal suffrage, ii) close election wins of left-wing governments, iii) decolonization, iv) unionization shocks, and v) wars. We also run instrumented panel regressions. Our findings show that the capital share decreased in response to radical institutional and political shifts, such as the introduction of universal suffrage in the early 1900s, the undoing of colonialism and the implementation of redistributive policies during the post-war period. By contrast, the capital share increased following the erosion of trade unionism since the 1980s. Wars, despite destroying the capital stock, generated windfall profits that increased the capital share. |
| Keywords: | inequality, factor shares, event study, economic history, institutions |
| JEL: | D33 E02 N00 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13199&r=all |
| By: | Olivier Damette (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UL - Université de Lorraine - UNISTRA - Université de Strasbourg); Stéphane Goutte (Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines) |
| Abstract: | We investigate, for the first time, the empirical drivers of the Covid-19 crosscountry mortality rates at a macroeconomic level. The intensity of the pandemic (number of infected people), the demographic structure (proportion of people age 65 or above) and the openness degree (number of tourists arrivals) seem to be significant predictors in addition to health infrastructures (number of hospital beds, physicians). We also find that the subprime crisis and the austerity policies conducted in certain countries, by reducing the public health expenditures in the last ten years and altering the adaptation capacity of the health system, have probably intensified the tragic consequences of the Covid-19 pandemic. Pollution seems to have only played a marginal role as well as control strategies (travel restrictions, testing policy). We do not find consistent effects against the Covid-19 virus due to past exposal to other types of epidemics like Malaria or Tuberculosis. |
| Keywords: | Covid-19 pandemic,fatalities,macroeconomic drivers,health infrastructure,health spending,Covid-19 control strategies,pollution,immunity,austerity policies |
| Date: | 2020–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02620834&r=all |
| By: | Heller Sahlgren, Gabriel (Research Institute of Industrial Economics (IFN)); Wennström, Johan (Research Institute of Industrial Economics (IFN)) |
| Abstract: | In the aftermath of the Second World War, Sweden dismantled an education system that was strongly influenced by German, Neo-Humanist pedagogical principles in favor of a progressive, student-centered system. This article suggests this was in large part due to a fatal misinterpretation of the education policy on which Nazism was predicated. Contrary to scholarly and popular belief, Nazi schools were not characterized by discipline and run top-down by teachers. In fact, the Nazis encouraged a nationwide youth rebellion in schools. Many Nazi leaders had themselves experienced the belligerent, child-centered war pedagogy of 1914–1918 rather than a traditional German education. Yet, Swedish school reformers came to regard Neo-Humanism as a fulcrum of the Third Reich. The article suggests this mistake paved the way for a school system that inadvertently came to share certain traits with the true educational credo of Nazism and likely contributed to Sweden’s recent educational decline. |
| Keywords: | National Socialism; Neo-Humanism; Progressivism; Sweden; War pedagogy |
| JEL: | D70 E65 I20 I28 N44 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1338&r=all |
| By: | Alex Dickson (Department of Economics, University of Strathclyde); Iain A Mackenzie (School of Economics, University of Queensland, Brisbane, Australia, 4072.) |
| Abstract: | This article investigates the cost effectiveness of cap-and-trade markets in the presence of both political and market distortions. We create a model where dominant firms have the ability to rent seek for a share of pollution permits as well as influence the market equilibrium with their choice of permit exchange because of market power. We derive the subgame-perfect equilibrium and show the interaction of these two distortions has consequences for the resulting allocative efficiency of the market. We find that if the dominant rent-seeking firms are all permit buyers (or a composition of buyers and sellers) then allocative efficiency is improved relative to the case without rent seeking; by contrast, if the dominant rent-seeking firms are all permit ellers then allocative efficiency reduces. |
| Keywords: | pollution market, market power, rent-seeking. |
| JEL: | E65 G12 G18 P16 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:2001&r=all |
| By: | Tobias Hartl |
| Abstract: | We combine high-dimensional factor models with fractional integration methods and derive models where nonstationary, potentially cointegrated data of different persistence is modelled as a function of common fractionally integrated factors. A two-stage estimator, that combines principal components and the Kalman filter, is proposed. The forecast performance is studied for a high-dimensional US macroeconomic data set, where we find that benefits from the fractional factor models can be substantial, as they outperform univariate autoregressions, principal components, and the factor-augmented error-correction model. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.04897&r=all |
| By: | Diane Alexander; Ezra Karger |
| Abstract: | We link the county-level rollout of stay-at-home orders to anonymized cell phone records and consumer spending data. We document three patterns. First, stay-at-home orders caused people to stay at home: County-level measures of mobility declined 9–13% by the day after the stay-at-home order went into effect. Second, stay-at-home orders caused large reductions in spending in sectors associated with mobility: restaurants and retail stores. However, consumers sharply increased spending on food delivery services after orders went into effect. Third, while the response of residents to stay-at-home orders was fairly uniform across the country, there is substantial county-level heterogeneity in consumer behavior in the days before and after a stay-at-home order. |
| Keywords: | Covid-19; consumer spending; high-frequency data; stay-at-home orders |
| JEL: | E21 I12 R20 R50 |
| Date: | 2020–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:87999&r=all |