nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒06‒22
164 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Unexpected Effects: Uncertainty, Unemployment, and Inflation By Freund, Lukas; Rendahl, Pontus
  2. Monetary Policy Independence and the Strength of the Global Financial Cycle By Christian Friedrich; Pierre Guérin; Danilo Leiva-Leon
  3. Do Credit Supply Shocks Have Asymmetric Effects? By David Finck; Paul Rudel
  4. Disasters Everywhere: The Costs of Business Cycles Reconsidered By Òscar Jordà; Moritz Schularick; Alan M. Taylor
  5. The unique benefits of a Tessa system: the U.S. case By De Koning, Kees
  6. A Model of Asset Price Spirals and Aggregate Demand Amplification of a "Covid-19" Shock By Caballero, Ricardo; Simsek, Alp
  7. The Macroeconomics of Hedging Income Shares By Grasso, Adriana; Passadore, Juan; Piguillem, Facundo
  8. Corona Policy According to HANK By Hagedorn, Marcus; Mitman, Kurt
  9. Trade, Growth, and the International Transmission of Financial Shocks By Ohdoi, Ryoji
  10. Uncertainty, Wages, and the Business Cycle By Cacciatore, Matteo; Ravenna, Federico
  11. "A Stock-Flow Consistent Quarterly Model of the Italian Economy" By Francesco Zezza; Gennaro Zezza
  12. Shotgun Wedding: Fiscal and Monetary Policy By Marco Bassetto; Thomas J. Sargent
  13. Fiscal Policy Innovations In Advanced Economies By Ackon, Kwabena Meneabe
  14. Monetary and Fiscal Policies in Times of Large Debt: Unity is Strength By Bianchi, Francesco; Faccini, Renato; Melosi, Leonardo
  15. Corporate Debt Maturity, Repayment Structure and Monetary Policy Transmission By Hatice Gokce Karasoy Can
  16. "An Empirical Analysis of Long-Term Brazilian Interest Rates" By Tanweer Akram; Syed Al-Helal Uddin
  17. Interest Rate Pegging, Fluctuations, and Fiscal Policy in China By Tong, Bing; Yang, Guang
  18. Public debt and crowding-out: the role of housing wealth By Andrea Camilli; Marta Giagheddu
  19. A Pitfall of Cautiousness in Monetary Policy By Stéphane Dupraz; Sophie Guilloux-Nefussi; Adrian Penalver
  20. Unemployment and Endogenous Reallocation over the Business Cycle By Carrillo-Tudela, Carlos; Visschers, Ludo
  21. Revised Macro-Mincer Model for Human Capital Investment in Economic Growth By Jayasooriya, Sujith
  22. Autonomie des Banques Centrales et Finances Publiques en Afrique subsaharienne By Tadadjeu Wemba, Dessy-Karl; Essiane, Patrick-Nelson Daniel
  23. Fiscal Consolidations and Informality in Latin America and the Caribbean By Thibault Lemaire
  24. Monetary and Prudential Policy Coordination: impact on Bank's Risk-Taking By Olivier Bruno; Melchisedek Joslem Ngambou Djatche
  25. On public debt in the euro area By Catherine Mathieu; Henri Sterdyniak
  26. Public Opinion on Central Banks when Economic Policy is Uncertain By Klodiana Istrefi; Anamaria Piloiu
  27. Cross-border Investments and Uncertainty: Firm-level Evidence By Rafael Cezar; Timothée Gigout; Fabien Tripier
  28. Exchange rate pass-through in the euro area and EU countries By Eva Ortega; Chiara Osbat
  29. Monetary policy, productivity, and market concentration By Andrea Colciago; Riccardo Silvestrini
  30. Does the Liquidity Trap Exist? By Stéphane Lhuissier; Benoît Mojon; Juan Rubio-Ramírez
  31. When the Fed sneezes, the whole world catches the cold, when the ECB - only Europe By Walerych, Małgorzata; Wesołowski, Grzegorz
  32. Job-to-Job Flows and Wage Dynamics in France and Italy By Clémence Berson; Marta de Philippis; Eliana Viviano
  33. Fiscal multipliers with financial fragmentation risk and interactions with monetary policy By Darracq Pariès, Matthieu; Papadopoulou, Niki; Müller, Georg
  34. Explaining Inflation and Unemployment By Farm, Ante
  35. The Rise of US Earnings Inequality: Does the Cycle Drive the Trend? By Jonathan Heathcote; Fabrizio Perri; Giovanni L. Violante
  36. Job Polarization, Skill Mismatch and the Great Recession By Riccardo Zago
  37. Secular stagnation and low interest rates under the fear of a government debt crisis By Keiichiro Kobayashi; Kozo Ueda
  38. The return on everything and the business cycle in production economies By Daniel Fehrle; Christopher Heiberger
  39. Unconventional Monetary Policy and Wealth Inequalities in Great Britain By Evgenidis, Anastasios; Fasianos, Apostolos
  40. Measuring Real Consumption and CPI Bias under Lockdown Conditions By W. Erwin Diewert; Kevin J. Fox
  41. Common shocks in stocks and bonds By Cieslak, Anna; Pang, Hao
  42. Una introducción al debate actual sobre la moneda digital de banco central (CBDC) By Juan Ayuso Huertas; Carlos Antonio Conesa Lareo
  43. The role of financial journalists in the expectations channel of the monetary transmission mechanism By Monique Reid; Pierre Siklos; Timothy Guetterman; Stan Du Plessis
  44. Stablecoins: A Brave New World? By Anastasia Melachrinos; Christian Pfister
  45. Deciphering the macroeconomic effects of internal devaluations in a monetary union By Javier Andrés; Óscar Arce; Samuel Hurtado; Jesús Fernández-Villaverde
  46. Financial frictions and the wealth distribution By Jesús Fernández-Villaverde; Samuel Hurtado; Galo Nuño
  47. Long-term growth impact of climate change and policies: the Advanced Climate Change Long-term (ACCL) scenario building model By Claire Alestra; Gilbert Cette; Valérie Chouard; Rémy Lecat
  48. Nonlinear Production Networks with an Application to the Covid-19 Crisis By Baqaee, David Rezza; Farhi, Emmanuel
  49. Questioning the puzzle: Fiscal policy, exchange rate and inflation By Laurent Ferrara; Luca Metelli; Filippo Natoli; Daniele Siena
  50. Distributional Effects of the COVID-19 Lockdown By Marius Clemens; Maik Heinemann
  51. COVID-19 pandemic: A snapshot of global economic repercussions and possible retaliation By Khaled, Md. Khaled Bin Amir
  52. Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States By Gerald A. Carlino; Thorsten Drautzburg; Robert P. Inman; Nicholas Zarra
  53. Is there a Harrod-Balassa-Samuelson effect? New panel data evidence from 28 European countries By Lenarčič, Črt; Masten, Igor
  54. Why so Negative? Belief Formation and Risk Taking in Boom and Bust Markets By Kieren, Pascal; Mueller-Dethard, Jan; Weber, Martin
  55. Impacto de la inversión extranjera directa en el crecimiento económico, las exportaciones y el empleo de República Dominicana By Cruz Mejía, Jose Vidal; Cruz-Rodríguez, Alexis
  56. Savings and Saving Rates: Up or Down? By Guillermo Ordoñez; Facundo Piguillem
  57. Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles By Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo
  58. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016 By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
  59. Volatile Hiring: Uncertainty in Search and Matching Models By Den Haan, Wouter; Freund, Lukas; Rendahl, Pontus
  60. The 2017 Diary of Consumer Payment Choice By Claire Greene; Joanna Stavins
  61. Macroeconometric Approach: Optimal Taxation Policies for Economic Growth in Emerging Asia By Jayasooriya, Sujith
  62. Unequal Consequences of COVID-19 across Age and Income: Representative Evidence from Six Countries By Belot, Michèle; Choi, Syngjoo; Tripodi, Egon; van den Broek-Altenburg, Eline; Jamison, Julian C.; Papageorge, Nicholas W.
  63. How does Financial Vulnerability amplify Housing and Credit Shocks? By Cyril Couaillier; Valerio Scalone
  64. Estimated Human Capital Externalities in an Endogenous Growth Framework By Jim Malley; Ulrich Woitek
  65. Using Disasters to Estimate the Impact of Uncertainty By Scott R. Baker; Nicholas Bloom; Stephen J. Terry
  66. Transmission of US and EU Economic Policy Uncertainty Shock to Asian Economies in Bad and Good Times By Balcilar, Mehmet; Ozdemir, Zeynel Abidin; Ozdemir, Huseyin; Wohar, Mark E.
  67. Unconventional Monetary Policies: A Stock-Taking Exercise By Christian Pfister; Jean-Guillaume Sahuc
  68. Covid-19 Infections and the Performance of the Stock Market: An Empirical Analysis for Australia By Markus Brueckner; Joaquin Vespignani
  69. Pandemic pushes polarisation: The Corona crisis and macroeconomic divergence in the Eurozone By Gräbner, Claudius; Heimberger, Philipp; Kapeller, Jakob
  70. Demographics and the natural interest rate in the euro area By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  71. Debunking the granular origins of aggregate fluctuations : from real business cycles back to Keynes By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  72. Financial conditions and the risks to economic growth in the United States since 1875 By Patrick J. Coe; Shaun P. Vahey
  73. A fiscal capacity for the euro area: lessons from existing fiscal-federal systems By Pablo Burriel; Panagiotis Chronis; Maximilian Freier; Sebastian Hauptmeier; Lukas Reiss; Dan Stegarescu; Stefan Van Parys
  74. U.S. Consumers' Use of Personal Checks: Evidence from a Diary Survey By Claire Greene; Marcin Hitczenko; Brian Prescott; Oz Shy
  75. Central Bank Digital Currency: Central Banking for All? By Jesus Fernandez-Villaverde; Daniel R. Sanches; Linda Schilling; Harald F. Uhlig
  76. Have the Fed Swap Lines Reduced Dollar Funding Strains during the COVID-19 Outbreak? By Nicola Cetorelli; Linda S. Goldberg; Fabiola Ravazzolo
  77. The return of fiscal policy and the euro area fiscal rule By Vítor Constâncio
  78. Do sticky wages matter? New evidence from matched firm-survey and register data By Anne Kathrin Funk; Daniel Kaufmann
  79. The Size of Government By António Afonso; Ludger Schuknecht; Vito Tanzi
  80. Cyclical income risk in Great Britain By Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley
  81. The distributional effects of peer and aspirational pressure By Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley
  82. 2018 Survey of Consumer Payment Choice By Kevin Foster; Claire Greene; Joanna Stavins
  83. The Life-cycle Growth of Plants: The Role of Productivity, Demand and Wedges By Marcela Eslava; John C. Haltiwanger
  84. Recruitment Policies, Job-Filling Rates and Matching Efficiency By Carrillo-Tudela, Carlos; Hermann, Gartner; Kaas, Leo
  85. 2018 Diary of Consumer Payment Choice By Claire Greene; Joanna Stavins
  86. Is capacity utilization variable in the long run? An agent-based sectoral approach to modeling hysteresis in the normal rate of capacity utilization By Federico Bassi; Tom Bauermann; Dany Lang; Mark Setterfield
  87. Savings externalities and wealth inequality By Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley
  88. Macroeconomic factors for inflation in Argentine 2013-2019 By Manuel Lopez Galvan
  89. Le Pont de Londres: interactions between monetary and prudential policies in cross-border lending By Matthieu Bussière; Robert Hills; Simon Lloyd; Baptiste Meunier; Justine Pedrono; Dennis Reinhardt; Rhiannon Sowerbutts
  90. Identifying the Real Effects of Zombie Lending By Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
  91. Real-time weakness of the global economy: a first assessment of the coronavirus crisis By Danilo Leiva-Leon; Gabriel Perez-Quiros; Eyno Rots
  92. El Salvador; Technical Assistance Report-Capacity Development on National Accounts Statistics Mission By International Monetary Fund
  93. Job Search during the COVID-19 Crisis By Hensvik, Lena; Le Barbanchon, Thomas; Rathelot, Roland
  94. A Note on Uncertainty due to Infectious Diseases and Output Growth of the United States: A Mixed-Frequency Forecasting Experiment By Afees A. Salisu; Rangan Gupta; Riza Demirer
  95. Text-mining IMF country reports - an original dataset By Mihalyi, David; Mate, Akos
  96. Did the 2017 Tax Reform Discriminate against Blue State Voters? By David Altig; Alan Auerbach; Patrick Higgins; Darryl Koehler; Laurence Kotlikoff; Ellyn Terry; Victor Ye
  97. The Insights and Illusions of Consumption Measurements By Battistin, Erich; De Nadai, Michele; Krishnan, Nandini
  98. U.S. Economic Activity during the Early Weeks of the SARS-Cov-2 Outbreak By Daniel J. Lewis; Karel Mertens; James H. Stock
  99. Nexus of infrastructure investment, economic growth and domestic credit level: evidence from China based on nonlinear ARDL approach By Zichu, Jin; Masih, Mansur
  100. Inclusive Growth and Absolute Intragenerational Mobility in the United States, 1962-2014 By Berman, Yonatan
  101. Nowcasting Turkish GDP Growth with Targeted Predictors: Fill in the Blanks By Mahmut Gunay
  102. Debt and growth: Historical evidence By Breuer, Christian; Colombier, Carsten
  103. The Hammer and the Scalpel: On the Economics of Indiscriminate versus Targeted Isolation Policies during Pandemics By V. V. Chari; Rishabh Kirpalani; Christopher Phelan
  104. External imbalances and recoveries By Mariam Camarero; María Dolores Gadea-Rivas; Ana Gómez-Loscos; Cecilio Tamarit
  105. The Redistributive Effects of Pandemics: Evidence on the Spanish Flu By Basco, Sergi; Domenech, Jordi; Rosés, Joan R.
  106. The problem of gross receipts taxes in Indonesia: Economic distortions and policy options By Iswahyudi, Heru
  107. The Covid-19 crisis response helps the poor: the distributional and budgetary consequences of the UK lock-down By Bronka, Patryk; Collado, Diego; Richiardi, Matteo
  108. Uganda; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Uganda By International Monetary Fund
  109. On the Performance of US Fiscal Forecasts: Government vs. Private Information By Zidong An; João Tovar Jalles
  110. The Socio-Economics of Pandemics Policy By Snower, Dennis J.
  111. Monetary policy with judgment By Gelain, Paolo; Manganelli, Simone
  112. Consumption in the time of Covid-19: Evidence from UK transaction data By Hacioglu, Sinem; Känzig, Diego R; Surico, Paolo
  113. Financial Crises and Climate Change By Serhan Cevik; João Tovar Jalles
  114. Forecasting Oil Volatility Using a GARCH-MIDAS Approach: The Role of Global Economic Conditions By Afees A. Salisu; Rangan Gupta; Elie Bouri
  115. Financial Crises and Climate Change By João Tovar Jalles
  116. What and how did people buy during the Great Lockdown? Evidence from electronic payments By Bruno Carvalho; Susana Peralta; Joao Pereira dos Santos
  117. The 2016 and 2017 Surveys of Consumer Payment Choice: Technical Appendix By Marco Angrisani; Kevin Foster; Marcin Hitczenko
  118. Financialization and Endogenous Technological Change: a Post-Kaleckian Perspective By Parui, Pintu
  119. Intergenerational wealth inequality: the role of demographics By António R. Antunes; Valerio Ercolani
  120. Carbon Tax in a Production Network: Propagation and Sectoral Incidence By Antoine Devulder; Noëmie Lisack
  121. Consumer Taxes on Alcohol: An International Comparison over Time By Kym Anderson
  122. COVID-19: macroeconomic dimensions in the developing world By Tony Addison; Kunal Sen; Finn Tarp
  123. Measuring Commuting and Economic Activity inside Cities with Cell Phone Records By Gabriel E. Kreindler; Yuhei Miyauchi
  124. Non-Gravity Trade By Markus Brueckner; Ngo Van Long; Joaquin Vespignani
  125. Djibouti; Requests for Disbursement Under the Rapid Credit Facility and Debt Relief Under the Catastrophe Containment and Relief Trust-Press Release; and Staff Report; and Statement by the Executive Director for Djibouti By International Monetary Fund
  126. The Effect of the U.S.-China Trade War on U.S. Investment By Amiti, Mary; Kong, Sang Hoon; Weinstein, David E.
  127. Fear of Hazards in Commodity Futures Markets By Fernandez-Perez, Adrian; Fuertes, Ana-Maria; Gonzalez-Fernandez, Marcos; Miffre, Joelle
  128. How Boltzmann Entropy Improves Prediction with LSTM By Grilli, Luca; Santoro, Domenico
  129. The global effects of Covid-19-induced uncertainty By Caggiano, Giovanni; Castelnuovo, Efrem; Kima, Richard
  130. The Global Disinflation Puzzle A Selective Review of the Theory and Evidence in an Historical Context By Emilio Ocampo
  131. The Macroeconomics of Testing and Quarantining By Eichenbaum, Martin; Rebelo, Sérgio; Trabandt, Mathias
  132. Social Distancing and Supply Disruptions in a Pandemic By Bodenstein, Martin; Corsetti, Giancarlo; Guerrieri, Luca
  133. A Proposal for Asia Digital Common Currency By Taiji Inui; Wataru Takahashi; Mamoru Ishida
  134. How Consumers Get Cash: Evidence from a Diary Survey By Claire Greene; Oz Shy
  135. The effectiveness of macroprudential policies and capital controls against volatile capital inflows By Jon Frost; Hiro Ito; René van Stralen
  136. A note on the impact of the inclusion of an anchor number in the inflation expectations survey question By Monique Reid; Hanjo Odendaal; Stan Du Plessis; Pierre Siklos
  137. Automation, Automatic Capital Returns, and the Functional Income Distribution By José L. Torres; Pablo Casas
  138. A constraint-satisfaction agent-based model for the macroeconomy By Dhruv Sharma; Jean-Philippe Bouchaud; Marco Tarzia; Francesco Zamponi
  139. Strategic interactions and price dynamics in the global oil market By Irma Alonso Álvarez; Virginia Di Nino; Fabrizio Venditti
  140. Forecasting natural gas prices using highly flexible time-varying parameter models By Shen Gao; Chenghan Hou; Bao H. Nguyen
  141. Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 By Hassan, Tarek Alexander; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
  142. Economic gender gap in the Global South: how institutional quality matters By Bárcena‐Martín, Elena; Medina‐Claros, Samuel; Pérez‐Moreno, Salvador
  143. Estimating the costs and benefits of mandated business closures in a pandemic By Barrot, Jean-Noël; Grassi, Basile; Sauvagnat, Julien
  144. Higher education funding, welfare and inequality in equilibrium By Gustavo Mellior
  145. The effectiveness of currency intervention in a commodity-exporter: Evidence from Mongolia By Victor Pontines; Davaajargal Luvsannyam; Enkhjin Atarbaatar; Ulziikhutag Munkhtsetseg
  146. The Capital as Power Aproach: An Invited-then-Rejected Interview with Shimshon Bichler and Jonathan Nitzan By Bichler, Shimshon; Nitzan, Jonathan
  147. Deadly Debt Crises: COVID-19 in Emerging Markets By Cristina Arellano; Yan Bai; Gabriel Mihalache
  148. An economic model of the Covid-19 epidemic: The importance of testing and age-specific policies By Brotherhood, Luiz; Kircher, Philipp; Santos, Cezar; Tertilt, Michèle
  149. The role of exchange rate and monetary policy in the monetary approach to the balance of payments: Evidence from Malawi By Exley B.D. Silumbu
  150. Monetary and Exchange Rate Policy in Kenya By Njunguna Ndung'u
  151. Auswirkungen des Corona-Konjunkturprogramms auf Wirtschaft und Erwerbstätigkeit By Wolter, Marc Ingo; Helmrich, Robert; Schneemann, Christian; Weber, Enzo; Zika, Gerd
  152. Heterogeneity in the Marginal Propensity to Consume: Evidence from Covid-19 Stimulus Payments By Ezra Karger; Aastha Rajan
  153. Do lockdowns work? A counterfactual for Sweden By Born, Benjamin; Dietrich, Alexander; Müller, Gernot
  154. Flickering lifelines: Electrification and household welfare in India By Ashish Kumar Sedai; Rabindra Nepal; Tooraj Jamasb
  155. The Hammer and the Dance: Equilibrium and Optimal Policy during a Pandemic Crisis By Assenza, Tiziana; Collard, Fabrice; Dupaigne, Martial; Fève, Patrick; Hellwig, Christian; Kankanamge, Sumudu; Werquin, Nicolas
  156. The Determinants of Inflation in Sudan By Kabbashi M. Suliman
  157. Monetary Policy Rules: Lessons Learned from ECOWAS Countries By Alain Siri
  158. What Determines the Capital Share over the Long Run of History? By Bengtsson, Erik; Rubolino, Rocco Enrico; Waldenström, Daniel
  159. Short-run macroeconomic effects of bank lending rates in Nigeria,1987-91: A computable general equilibrium analysis By D. Olu Ajakaiye
  160. The Paycheck Protection Program Liquidity Facility (PPPLF) By Haoyang Liu; Desi Volker
  161. Policy opportunities and challenges from the Covid-19 pandemic for economies with large informal sectors By Narula, Rajneesh
  162. Local multipliers in a selection of Sub-Saharan countries By Charpe, Matthieu.
  163. Neurometrics applied to banknote and security features design By Rubén Ortuño; José M. Sánchez; Diego Álvarez; Miguel López; Fernando León
  164. Inflationary Trends and control in Ghana By Nii K. Sowa; John K Kwakye; Asaf Adebua

  1. By: Freund, Lukas; Rendahl, Pontus
    Abstract: This paper studies the role of uncertainty in a search-and-matching framework with risk-averse households. A mean-preserving spread to future productivity contracts current economic activity even in the absence of nominal rigidities, although the effect is reinforced by the presence of the latter. That is, uncertainty shocks carry both contractionary demand- and supply effects. The reason is that a more uncertain future increases the precautionary behavior of households, which reduces interest rates and contracts demand. At the same time, as future asset prices becomes more volatile and positively covary with aggregate consumption, households demand a larger risk premium, which puts negative pressure on current asset values and thereby contracts supply. Thus, in comparison to a pure negative demand shock, an uncertainty shock puts less deflationary pressure on the economy and, as a result, renders a flatter Phillips curve.
    Keywords: inflation; search frictions; uncertainty; unemployment
    JEL: E21 E32 J64
    Date: 2020–05
  2. By: Christian Friedrich; Pierre Guérin; Danilo Leiva-Leon
    Abstract: We propose a new strength measure of the global financial cycle by estimating a regime-switching factor model on cross-border equity flows for 61 countries. We then assess how the strength of the global financial cycle affects monetary policy independence, which is defined as the response of central banks' policy interest rates to exogenous changes in inflation. We show that central banks tighten their policy rates in response to an unanticipated increase in the inflation gap during times when global financial cycle strength is low. During times of high financial cycle strength, however, the responses of the same central banks to the same unanticipated changes in the inflation gap appear muted. Finally, by assessing the impact of different policy tools on countries' sensitivities to the global financial cycle, we show that using capital controls, macroprudential policies, and the presence of a flexible exchange rate regime can increase monetary policy independence.
    Keywords: Business fluctuations and cycles; Exchange rate regimes; Financial system regulation and policies; International financial markets; Monetary policy
    JEL: E4 E5 F3 F32 F4 F42 G1 G15 G18
    Date: 2020–06
  3. By: David Finck (Justus Liebig University Giessen); Paul Rudel (Justus Liebig University Giessen)
    Abstract: They do. Partly. We identify credit supply shocks via sign restrictions in a Bayesian VAR and separate them into positive and negative. Using local projections, we find that positive credit supply shocks leave notably different prints in private debt, mortgage debt, and debt: GDP, as opposed to negative credit supply shocks. This pattern is caused by the response of household mortgage debt. Furthermore, we find evidence that positive credit supply shocks are the driving force behind boom-bust cycles. Yet, developments behind the boom-bust cycle cannot explain the strong and persistent response in debt; but house prices tend to. However, if we abstract from potential asymmetries, we get rather mild results, which underestimate the true effects of credit supply shocks.
    Keywords: credit supply shocks, household debt, asymmetry, local projections
    JEL: C11 E21 E22 E32
    Date: 2020
  4. By: Òscar Jordà; Moritz Schularick; Alan M. Taylor
    Abstract: Business cycles are costlier and stabilization policies more beneficial than widely thought. This paper shows that all business cycles are asymmetric and resemble mini “disasters.” By this we mean that growth is pervasively fat-tailed and non-Gaussian. Using long-run historical data, we show empirically that this is true for all advanced economies since 1870. Focusing on the peacetime sample, we develop a tractable local projection framework to estimate consumption growth paths for normal and financial-crisis recessions. Using random coefficient local projections we get an easy and transparent mapping from the estimates to the calibrated simulation model. Simulations show that substantial welfare costs arise not just from the large rare disasters, but also from the smaller but more frequent mini-disasters in every cycle. In postwar America, households would sacrifice more than 10 percent of consumption to avoid such cyclical fluctuations.
    Keywords: fluctuations; asymmetry; local projections; random coefficients; macroprudential policy
    JEL: E13 E21 E22 E32
    Date: 2020–05–01
  5. By: De Koning, Kees
    Abstract: In the U.S., the previous financial crisis of 2008 can be interpreted in two ways. The first one is that economic growth –defined as two consecutive quarters of expanding GDP- was achieved in Q3 and Q4 in 2009. However, the second one -households’ equity in their homes- showed that the households’ financial crisis lasted from Q3 2006 to Q2 2016. The net worth level –the owners’ equity in their homes- reached a peak in Q3 2006 with a level of $14.260 trillion. Between Q3 2006 and Q1 2012 households lost collectively $6.048 trillion in net worth savings; a savings loss of 42.4%. It took to Q2 2016 before this loss was overcome and the homeowners’ net worth had returned to $14.392 trillion. The latest data show a further savings level increase to $18.715 trillion as per the end of Q4 2019. The unemployment levels in the U.S. show a similar pattern as the home net worth picture. In October 2006 the unemployment level measured 6.727 million unemployed persons. By October 2009 15.352 million persons were unemployed. It took to September 2017 to return to 6.841 million unemployed persons. The savings losses and gains made -reflected in the collective households’ net worth in homes- show that overcoming a financial crisis is not a short term but a much longer-term process. The same applies to the rise and falls in unemployment levels. Perhaps the conclusion may be drawn from these data that the financial health of households is closely related to the savings embedded in their homes, as well as to being employed or unemployed. Economic growth levels do not reflect such variations properly. With the latest corona virus pandemic, unemployment levels have gone through the roof. The latest data show that there were more than 40 million applicants for unemployment benefits in the U.S. over the last ten weeks. 21 million actually received benefits. The main economic objective is to shorten the downturn. The adjustment period could be shortened by making it possible for households to have access to some of their equity embedded in their homes. The quicker such system can be implemented, the shorter the recession period will be. In a previous paper the author has already explained how a Tessa system- a Temporary Spend and Save Again system- can be applied. This paper will develop the concept further.
    Keywords: U.S. financial crisis; Tessa system; QE and QT; U.S. home equity levels; U.S. unemployment levels; Corona virus pandemic; shorten the economic downturn
    JEL: D1 D11 D14 E2 E21 E3 E32 E5 E51 E58
    Date: 2020–05–30
  6. By: Caballero, Ricardo; Simsek, Alp
    Abstract: We provide a model of endogenous asset price spirals and severe aggregate demand contractions following a large supply shock. The key mechanism stems from the drop in the wealth share of the economy's risk-tolerant agents: as a recessionary supply shock hits the economy, their wealth declines and their leverage rises endogenously, causing them to offload some risky assets. When monetary policy is unconstrained, it can offset the decline in risk tolerance with an interest rate cut that boosts the market's Sharpe ratio. However, if the interest rate policy is constrained, new contractionary feedbacks arise: recessionary supply shocks not only feed into reduced risk tolerance but also into further asset price and output drops, which feed the risk-off episode and trigger a downward loop. When pre-shock leverage ratios are high, multiple equilibria are possible, including one where risk-tolerant agents go bankrupt. A large-scale asset purchases (LSAPs) policy can be highly effective in this environment, as it reverses the downward asset price spiral. The Covid-19 shock and the large response by all the major central banks provide a vivid illustration of the environment we seek to capture.
    Keywords: aggregate supply and demand; asset price spirals; conventional and unconventional monetary policy; COVID-19; leverage; LSAPs; multiple equilibria; Recessions; the Fed put; volatility
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2020–04
  7. By: Grasso, Adriana; Passadore, Juan; Piguillem, Facundo
    Abstract: The recent debate about the falling labor share has brought the attention to the income shares' trends, but less attention has been devoted to their variability. In this paper, we analyze how their fluctuations can be insured between workers and capitalists, and the corresponding implications for financial markets. We study a neoclassical growth model with aggregate shocks that affect income shares and financial frictions that prevent firms from fully insuring idiosyncratic risk. We examine theoretically how aggregate risk sharing is distorted by the combination of idiosyncratic risk and moving shares. Accumulation of safe assets by firms and risky assets by households emerges naturally as a tool to insure income shares' risk. We calibrate the model to the U.S. economy and show that low rates, rising capital shares, and accumulation of safe assets by firms and risky assets by households can be rationalized by persistent shocks to the labor share.
    Keywords: Income shares fluctuation. Risk Sharing. Asset prices. Corporate Savings Glut
    JEL: E20 E32 E44 G11
    Date: 2020–05
  8. By: Hagedorn, Marcus; Mitman, Kurt
    Abstract: In this note, we analyze the role of the European Central Bank through the lens of the Heterogenous-agent New Keynesian Model (HANK), a new paradigm of fiscal and monetary policy that abandons the assumption of perfectly functioning financial markets. We emphasize three principles that emerge from this view: 1) the effect of fiscal and monetary financing on inflation; 2) the close interaction between fiscal and monetary policy in the determination of inflation; and 3) an economic perspective on Art.123(1) TFEU, the "prohibition of monetary financing."
    Keywords: Art.123(1) TFEU; Fiscal/monetary policy interaction; HANK; inflation; monetary financing
    JEL: D52 E31 E52 E62 E63
    Date: 2020–05
  9. By: Ohdoi, Ryoji
    Abstract: This study develops a two-country model to explore how financial shocks in one country affect its partner country's business cycles through international trade. Unlike existing studies, I introduce the mechanism of endogenous trade patterns, by which a shock can affect both the intensive and extensive margins of trade. I also embed the mechanism of endogenous growth into the model to indicate the potential for prolonged recessions, even for a transitory shock. I obtain the following four main findings. First, an adverse financial shock in one country induces a global recession, even in the absence of international financial transactions. Second, although the downward shift of real GDP in the partner country is not so large, it can be very prolonged. Third, the real value of exports in the partner drops more seriously than its real GDP. Finally, this drop is caused mainly by a change at the intensive margin rather than the extensive margin.
    Keywords: Eaton–Kortum model; Endogenous growth; Financial frictions; Financial shocks; International business cycles; Margins of trade
    JEL: E22 E32 E44 F11 F44 O4 O41
    Date: 2020–05
  10. By: Cacciatore, Matteo; Ravenna, Federico
    Abstract: We show that occasional deviations from efficient wage setting generate strong and state-dependent amplification of uncertainty shocks and can explain the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market and an occasionally binding constraint on downward wage adjustment. The wage constraint enhances the concavity of firms' hiring rule, generating an endogenous profit-risk premium. In turn, uncertainty shocks increase the profit-risk premium when the economy operates close to the wage constraint. This implies that higher uncertainty can severely deepen a recession, although its impact is weaker on average. Additionally, the variance of the unforecastable component of future economic outcomes always increases at times of low economic activity. Thus, measured uncertainty rises in a recession even in the absence of uncertainty shocks.
    Keywords: Business cycle; occasionally binding constraints; uncertainty; unemployment
    JEL: E2 E32 E6
    Date: 2020–05
  11. By: Francesco Zezza; Gennaro Zezza
    Abstract: Macroeconomists and political officers need rigorous, albeit realistic, quantitative models to forecast the future paths and dynamics of some variables of interest while being able to evaluate the effects of alternative scenarios. At the heart of all these models lies a standard macroeconomic module which, depending on the degree of sophistication and the research questions to be answered, represents how the economy works. However, the complete absence of a realistic monetary framework, along with the abstraction of banks and more generally of real-financial interactions, not only in dynamic stochastic general equilibrium (DSGE) models but also in central banks' structural econometric models, made it impossible to detect the rising financial fragility that led to the Great Recession. In this paper, we show how to address the missing links between the real and financial sectors within a post-Keynesian framework, presenting a quarterly stock-flow consistent (SFC) structural model of the Italian economy. We set up the accounting structure of the sectoral transactions, describing our "transaction matrix" and "balance sheet matrix," starting from the appropriate sectoral data sources. We then "close" all sectoral financial accounts, describe portfolio choices, and define the buffer stocks for each class of assets and sector in the model. We describe our estimation strategy, present the main stochastic equations, and, finally, discuss the main channels of transmissions in our model.
    Keywords: Empirical Stock-Flow Consistent Models; Monetary Policy; Italy
    JEL: C54 E12 E17 E44 E58
  12. By: Marco Bassetto; Thomas J. Sargent
    Abstract: This paper describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a “nominal anchor” in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government issued bonds and money with complete theories whose inputs are bond-money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that conform the theoretical insight that lines of authority between a Treasury and a Central Bank can be ambiguous, obscure, and fragile.
    Keywords: Government budget; Central Bank; Nominal anchor; Monetary-fiscal coordination
    JEL: E61 E62 E63 E52
    Date: 2020–04–08
  13. By: Ackon, Kwabena Meneabe
    Abstract: Unprecedented is a word that best describes the current state of advanced economies. Interest rates are low in many advanced countries and negative in a few others suggesting that monetary policy has lost its effectiveness. The economic policy tool that has not been implemented yet by many advanced economies is fiscal policy. This thesis studies the effect of fiscal policy in USA, UK and Germany and find positive effects of extra government purchases on output, inflation, private consumption, business investment and wages. As a contribution to the academic literature on fiscal policy, this thesis estimates the impact of automatic stabilisers on economic activity and finds it holds predictive content for the path of output and inflation with both showing a positive response. Furthermore, this thesis adds to the literature on state-dependence fiscal policy by using a novel econometric approach to study the effect of expansionary fiscal policy during recessions.
    Keywords: Fiscal Policy, Econometrics, Investment, Economic Growth, Interest Rates, Inflation
    JEL: E0 E00 E02 E03 E1 E12 E17 E4 E43 E44 E6 E62 F0 H1 H11 H2 H23 H3 H31 H32 H5 H51 H52 H53 H54 H55
    Date: 2020–02–01
  14. By: Bianchi, Francesco; Faccini, Renato; Melosi, Leonardo
    Abstract: The COVID 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 aiming 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 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: COVID; emergency budget; Fiscal policy; monetary policy; shock specific rule
    JEL: E30 E50 E62
    Date: 2020–05
  15. By: Hatice Gokce Karasoy Can
    Abstract: Taking a theoretical stand, this paper studies the role of corporate debt maturity and its repayment structure in monetary policy transmission mechanism. It builds on a stylized New Keynesian dynamic stochastic general equilibrium (NK-DSGE) model and discusses the transmission under various corporate debt structures. The results show that a given contractionary monetary policy is less effective in terms of stabilizing inflation when debt contracts are written on a floating rate basis. Moreover, increased corporate debt burden amplifies the real effects of the credit channel. Extending the maturity of floating rate debt aggravates these effects and makes firms even more vulnerable to adverse shocks.
    Keywords: Floating rate debt, Debt maturity, Monetary policy transmission, Credit channel
    JEL: E43 E44 E52 E58 G30
    Date: 2020
  16. By: Tanweer Akram; Syed Al-Helal Uddin
    Abstract: This paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data in the context of the evolution of Brazil’s key macroeconomic variables. The results show that the current short-term interest rate has a decisive influence on BGBs’ long-term interest rates after controlling for various key macroeconomic variables, such as inflation and industrial production or economic activity. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.
    Keywords: Brazilian Government Bonds; Long-Term Interest Rate; Bond Yields; Monetary Policy; Short-Term Interest Rate; Banco Central do Brasil (BCB)
    JEL: E43 E50 E58 E60 G10 G12
  17. By: Tong, Bing; Yang, Guang
    Abstract: This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime. The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging.
    Keywords: New Keynesian model; Chinese economy; Interest rate peg; Fiscal policy; Rational expectation
    JEL: E31 E32 E43 E62
    Date: 2020–05–15
  18. By: Andrea Camilli; Marta Giagheddu
    Abstract: We investigate the role of housing wealth concentration for the transmission of macroeconomic shocks in high-debt economies. We build a general equilibrium model with housing and heterogeneous agents who differ in their saving and investment opportunities. Banks optimizing their portfolio between mortgages and sovereign securities are characterized by financial frictions operating as a transmission mechanism, as households' collateralized debt links sovereign debt with the real economy, through interest rates and housing prices. We find that the more concentrated wealth is the worse the recession is, however associated with less consumption inequality due to a smaller crowding out of households' lending. We also show that a similar positive effect across agents can be obtained at different levels of inequality through financial repression and that a relevant distributional trade-off between macroprudential policy and households collateral requirements is present.
    Keywords: Sovereign risk, housing, lending crowding-out, regulation, liquidity, heterogeneity.
    JEL: E32 E44 G11 G18 R21
    Date: 2020–05
  19. By: Stéphane Dupraz; Sophie Guilloux-Nefussi; Adrian Penalver
    Abstract: Central banks are often reluctant to take immediate or forceful actions in the face of new information on the economic outlook. To rationalize this cautious approach, Brainard’s attenuation principle is often invoked: when a policy-maker is unsure of the effects of his policies, he should react less than he would under certainty. We show that the Brainard principle, while a wise recommendation for policy-making in general, runs into a pitfall when it is applied to a central bank setting monetary policy. For a central bank, concerns over uncertainty create a cautiousness bias: acting less is justified when taking as given the private sector’s expectations of inflation, but acting less shifts these inflation expectations away from the central bank’s inflation target. In response to the de-anchoring of expectations, the central bank can easily end up acting as much as it is initially reluctant to do, but without succeeding in putting inflation back on target. This pattern is a feature of policy under discretion: the central bank would often be better off tying its hands not to listen to its concerns about uncertainty.
    Keywords: Uncertainty, Inflation Expectations, Discretion vs. Commitment.
    JEL: E31 E52 E58
    Date: 2020
  20. By: Carrillo-Tudela, Carlos; Visschers, Ludo
    Abstract: This paper studies the extent to which the cyclicality of gross and net occupational mobility shapes that of aggregate unemployment and its duration distribution. Using the SIPP, we document the relation between workers' (gross and net) occupational mobility and unemployment duration over the long run and business cycle. To interpret this evidence, we develop an analytically and computationally tractable stochastic equilibrium model with heterogenous agents and occupations as well as aggregate uncertainty. The model is quantitatively consistent with several important features of the US labor market: procyclical gross and countercyclical net occupational mobility, the large volatility of unemployment and the cyclical properties of the unemployment duration distribution, among others. Our analysis shows that "excess" occupational mobility due to workers' changing career prospects interacts with aggregate conditions to drive fluctuations of aggregate unemployment and its duration distribution.
    Keywords: Business cycle; Occupational Mobility; Rest; search; unemployment
    JEL: E24 E30 J62 J63 J64
    Date: 2020–05
  21. By: Jayasooriya, Sujith
    Abstract: Theoretical verdict of the economic growth evolved extensively over last decades in the growth literature. Despite the numerous explanations of growth empiric, macro economic perspectives to understand the role of human capital in economic growth needs to be thoroughly understood to make prudent economic policies for investment. The paper intends to identify the empirical specification and estimation for effect of human capital on economic growth. The rationale for the research is to provide pragmatic evidences that lead economic growth under the human capital investment policies. Empirical approach is applied to (i) construct revised-Macro-Mincer model (ii) estimate revised Macro-Mincer model with instrumental variable 2SLS approach to reveal the effect of human capital growth on economic growth using macroeconomic data from ASEAN and South Asian region from 1960 to 2014. The revised Macro-Mincer model provides theoretical specification and empirical validation of the human capital in economic growth derived from Solow growth model. Then, it is used for finding the signaling effect of the Investment, dependency, industry-services and rural-urban population changes of the Macro-Mincer model. Further, the revised version is applied for the Lucasian growth model to confirm the effects of human capital in economic growth progress. The revised Macro-Mincer model, across estimation methods and specifications, predicts a strong relationship between human capital and economic growth, and estimates the coefficients robustly than recent models in the literature. The results of the model exposes that, in addition to the growth of the previous year and its difference, human capital also paly a significant role on the growth rate of the economy. Further, life expectancy and trade openness included in new version of the model are significant predictors of growth rate of GDP per capita. Insignificance of the binary for regional variation implies that spatial disparities are not a driver of economic growth. The implications of the study are to deliberate on the investment in human capital to promote economic growth in the economies. Finally, the paper guides policymakers to reform human capital, in terms of educational reforms in human development policies to achieve advancement in economic growth.
    Keywords: Human Capital, Economic Growth, Signaling, Revised Macro-Mincer Model, IV 2SLS estimation
    JEL: E2 E24 E61 O47
    Date: 2020–05–29
  22. By: Tadadjeu Wemba, Dessy-Karl; Essiane, Patrick-Nelson Daniel
    Abstract: The purpose of this article is to analyze the impact of the degree of autonomy of central banks on the level of budget deficits in sub-Saharan Africa (SSA) over the period 1980-2017. For this, we rely on two (02) quantified indicators of the degree of autonomy developed by the literature and on the econometrics of panel data. The results of the estimates indicate an ambiguous relationship between the degree of autonomy and the level of fiscal deficit, and nevertheless confirm that the average orientation of fiscal policy is determined more by the budgetary procedure itself than by the statutes of the Central Bank.
    Keywords: Autonomy of the Central Bank, fiscal deficits, Sub-Saharan Africa, panel data
    JEL: E58 E61 E62 O43 O55
    Date: 2018–10
  23. By: Thibault Lemaire
    Abstract: The transmission mechanisms of fiscal policy are significantly affected by informality in the labour market. Extending a narrative database of fiscal consolidations in 14 countries from Latin America and the Caribbean between 1989 and 2016 in order to account for heterogeneity in terms of commitment to the reforms, this paper shows that tax-based and spending-based multipliers are both recessionary and do not significantly differ one from another in this region. Furthermore, these multipliers decline in absolute value as the level of labour informality increases in the economy, although evidences are less robust for spending-based consolidations. An analysis of the effects of tax-based consolidations on private demand suggests that labour market informality constitutes a short-term social buffer that attenuates the contractionary effects of this type of policy by increasing investment opportunities through tax evasion and entrepreneurial alternatives to unemployment for dismissed workers.
    Keywords: Fiscal consolidation, taxation, informality, emerging market economies.
    JEL: E62 E26 E32 H5 H6
    Date: 2020
  24. By: Olivier Bruno (Université Côte d'Azur; GREDEG CNRS; Skema Business School); Melchisedek Joslem Ngambou Djatche (Université Côte d'Azur; GREDEG CNRS)
    Abstract: This paper models monetary policy's transmission to bank risk in presence of a capital requirement ratio. We show that the impact of a change in monetary policy rate on bank's risk level is not independent from the strength of the capital requirement ratio. A monetary easing, as well as a monetary contraction, may lead bank to take more risk according to some effecs related to the risk sensitivity of its intermediation margin and risk sensitivity of the prudential tool. We show that the combination of monetary policy with prudential policy has different outcomes in terms of financial stability and expected cost of bank failure.
    Keywords: Monetary policy, prudential policy, financial stability, bank's risktaking, partial equilibrium model
    JEL: E43 E52 E61 G01 G21 G28
    Date: 2020–06
  25. By: Catherine Mathieu (Observatoire français des conjonctures économiques); Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: The 2008 crisis led to a strong rise in public deficits and debts in most developed economies. These debts and deficits are currently Keynesian (i.e. required for macroeconomic stabilisation), as shown by low inflation and interest rates levels. Euro area public debts are not guaranteed by a lender of last resort. The rules enshrined in the Stability Pact and the Fiscal Treaty have no economic basis. The paper discusses federalist proposals such as a European Debt Agency or a European Treasury, and unconventional solutions, such as debt monetisation, buyback by the ECB, and even debt cancellation. It concludes in advocating for a rule-free economic policy coordination.
    Keywords: Public debt; Euro area governance; Euro area fiscal policy; Debt management
    JEL: E42 E62 H63
    Date: 2019
  26. By: Klodiana Istrefi; Anamaria Piloiu
    Abstract: This paper investigates whether uncertainty about economic policy plays a role in shaping the credibility and reputation of the central bank in the eyes of the public. In particular, we look at the effect of policy uncertainty for the dynamics of citizens’ opinion, being trust, satisfaction or confidence, in the European Central Bank, the Bank of England and the Bank of Japan. Estimating Bayesian VARs for the period 1999-2014, we find that shocks to economic policy uncertainty induce economic contractions and relatively sharp deterioration in trust or satisfaction measures, which in general take longer than economic growth to rebuild.
    Keywords: Policy Uncertainty; Central Banks; Public Opinion; Structural VAR.
    JEL: E02 E31 E58 E63 P16
    Date: 2020
  27. By: Rafael Cezar; Timothée Gigout; Fabien Tripier
    Abstract: This paper studies the impact of uncertainty on cross-border investments. We build a dataset of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average e_ect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.
    Keywords: Uncertainty; Asymmetric Uncertainty; FDI Flows; FDI Returns; Volatility; Multinational Firms.
    JEL: E02 E31 E58 E63 P16
    Date: 2020
  28. By: Eva Ortega (Banco de España); Chiara Osbat (European Central Bank)
    Abstract: Aggregate exchange rate pass-through (ERPT) to import and consumer prices in the EU is currently lower than it was in the 1990s and is non-linear. Low estimated aggregate ERPT to consumer prices does not at all mean that exchange rate movements do not have an impact on inflation, as aggregate rules of thumb mask substantial heterogeneities across countries, industries and time periods owing to structural, cyclical and policy factors. Looking also at new micro evidence, four key structural characteristics explain ERPT across industries or sectors: (i) import content of consumption, (ii) share of imports invoiced in own currency or in a third dominant currency, (iii) integration of a country and its trading partners in global value chains, and (iv) market power. In the existing literature there is also a robust evidence across models showing that each shock which causes the exchange rate to move has a different price response, meaning that the combination of shocks that lies behind the cycle at any point in time has an impact on ERPT. Finally, monetary policy itself affects ERPT. Credible and aggressive monetary policy reduces the observed ex post ERPT, as agents expect monetary policy to counteract deviations of inflation from target, including those relating to exchange rate fluctuations. Moreover, under the effective lower bound, credible non-standard monetary policy actions result in greater ERPT to consumer prices. This paper recommends moving away from rule-of-thumb estimates and instead using structural models with sufficient feedback loops, taking into account the role of expectations and monetary policy reactions, to assess the impact of exchange rate changes when forecasting inflation.
    Keywords: exchange rates, import prices, consumer prices, inflation, pass-through, euro area, monetary policy
    JEL: C50 E31 E52 F31 F41
    Date: 2020–06
  29. By: Andrea Colciago; Riccardo Silvestrini
    Abstract: This paper builds a New Keynesian industry dynamics model for the analysis of macroeconomic fluctuations and monetary policy. A continuum of heterogeneous firms populates the economy, markets are imperfectly competitive and nominal wages are sticky. An expansionary monetary policy shock triggers a response in labor productivity. By reducing borrowing costs, the shock initially attracts low productivity firms in the market. As a result, aggregate productivity decreases on impact. It then overshoots its initial level since, after the initial over-crowding, competition cleanses the market from low productivity firms. The overshooting amplifies the response of the main macroeconomic variables to the shock. A high ex-ante degree of market concentration partially impairs the transmission of monetary policy by disrupting the entry and exit mechanism.
    Keywords: Market Concentration; Monetary Policy; Competition; Productivity
    JEL: D42 E52 E58 L16
    Date: 2020–05
  30. By: Stéphane Lhuissier; Benoît Mojon; Juan Rubio-Ramírez
    Abstract: The liquidity trap is synonymous with ineffective monetary policy. The common wisdom is that, as the short-term interest rate nears its effective lower bound, monetary policy cannot do much to stimulate the economy. However, central banks have resorted to alternative instruments, such as QE, credit easing and forward guidance. Using state-of-the-art estimates of the effects of monetary policy, we show that monetary easing stimulates output and inflation, also during the period when short-term interest rates are near their lower bound. These results are consistent across the United States, the euro area and Japan.
    Keywords: Liquidity Trap, Effective Lower Bound, Monetary Transmission.
    JEL: E44 E52
    Date: 2020
  31. By: Walerych, Małgorzata; Wesołowski, Grzegorz
    Abstract: This paper presents evidence that the international spillovers of Fed's conventional monetary policy to emerging markets are global, while their ECB's counterparts are local. The result comes from panel Bayesian Vector Autoregressive model estimated separately for two groups of countries: Central Eastern Europe (CEE) and Latin America (LA). In this setup, we investigate the impact of unanticipated and anticipated Fed and ECB montetary policy shocks, showing that the former affect both regions, while the latter are important for CEE and insignificant for LA.
    Keywords: Monetary policy spillovers, international business cycles, emerging economies
    JEL: E32 E58 F44
    Date: 2020–06–05
  32. By: Clémence Berson; Marta de Philippis; Eliana Viviano
    Abstract: Some recent literature about the U.S. shows that wage dynamics are more influenced by jobto-job flows than by flows into or out of employment. In this paper, we evaluate whether this result holds also for France and Italy, characterized by a different structure of the labor market. Using comparable administrative data we find that, as in the U.S., in both France and Italy realized job-to-job contribute positively to wage growth. However, since these flows are smaller and display much lower cyclicality than in the U.S., their contribution to aggregate wage dynamics is low, while the contribution of flows into and out of employment remains sizeable. We then look closely at the heterogeneity in the probability of changing job and in the associated wage premium by types of workers and firms. We find that job-to-job flows and the associated gain tend to be larger in high-skilled occupations and for permanent workers. Moreover, as in the U.S., individuals are more likely to move to younger firms, which intensively poach workers from other firms.
    Keywords: : Wage Dynamics, Job-to-Job Flows, Transition Probabilities, Phillips Curve.
    JEL: E24 E32 J63
    Date: 2020
  33. By: Darracq Pariès, Matthieu; Papadopoulou, Niki; Müller, Georg
    Abstract: We quantify the size of fiscal multipliers under financial fragmentation risk and demonstrate how non-standard monetary policy can support the macroeconomic transmission of fiscal interventions. We employ a DSGE model with financial frictions whereby the interplay of corporate, banks and sovereign solvency risk affect the transmission of fiscal policy. The output multiplier of fiscal expansion is found to be significantly dampened by tighter financial conditions in case households are less certain about implicit and explicit state-guarantees for the banking system, or banks are weakly capitalized and highly exposed to the government sector. In this context, we show that central bank asset purchases or liquidity operations designed to ensure favourable bank funding conditions can restore fiscal multipliers. JEL Classification: E44, E52, E62
    Keywords: DSGE models, fiscal stabilization, sovereign-bank nexus, sovereign risk
    Date: 2020–06
  34. By: Farm, Ante (Swedish Institute for Social Research, Stockholm University)
    Abstract: This paper explains inflation and unemployment starting from new baseline models of price formation and labor demand. Inflation is always and everywhere a pricing phenomenon. Unemployment is every year determined as a residual, as people in the labor force without employment. Employment is determined by production and labor productivity, while production is determined by spending (as measured by nominal GDP) at prices set by firms.
    Keywords: Inflation; employment; unemployment
    JEL: E24 E31
    Date: 2020–05–31
  35. By: Jonathan Heathcote; Fabrizio Perri; Giovanni L. Violante
    Abstract: We document that declining hours worked are the primary driver of widening inequality in the bottom half of the male labor earnings distribution in the United States over the past 52 years. This decline in hours is heavily concentrated in recessions: hours and earnings at the bottom fall sharply in recessions and do not fully recover in subsequent expansions. Motivated by this evidence, we build a structural model to explore the possibility that recessions cause persistent increases in inequality; that is, that the cycle drives the trend. The model features skill-biased technical change, which implies a trend decline in low-skill wages relative to the value of non-market activities. With this adverse trend in the background, recessions imply a potential double-whammy for low skilled men. This group is disproportionately likely to experience unemployment, which further reduces skills and potential earnings via a scarring effect. As unemployed low skilled men give up job search, recessions generate surges in non-participation. Because non-participation is highly persistent, earnings inequality remains elevated long after the recession ends.
    Keywords: Earnings losses upon displacement; Inequality; Non-participation; Recession; Skill-biased technical change; Zero earnings
    JEL: E24 E32 J24 J64
    Date: 2020–06–04
  36. By: Riccardo Zago
    Abstract: This paper shows that job polarization has a persistent negative effect on employment opportunities, labor mobility and skill-to-job match quality for mid/low-skilled workers, in particular during downturns. I introduce a model generating an endogenous mapping between skills and jobs, that I estimate to match solely occupational dynamics during the Great Recession, a major episode of polarization in the US economy. Yet, this is sufficient for the model to replicate well the reallocation patterns of all workers on the job ladder and the mismatch dynamics observed in the data. Comparison with the planner solution reveals that 1/4 of mismatches is efficient and attenuates polarization and unemployment over the cycle.
    Keywords: : Job Polarization, Business Cycle, Job Quality, Skill Demand.
    JEL: E24 E32 J21 J24 J62 O33
    Date: 2020
  37. By: Keiichiro Kobayashi; Kozo Ueda
    Abstract: In this study, we explain the driving forces behind the secular stagnation associated with a persistent decrease in interest rates. To do so, we employ a model that incorporates a crisis risk triggered by an accumulation of government debt. The model shows that the fear of large-scale taxation on capital and misallocations of capital in future debt crises explains almost half the economic slowdown in Japan over the past two decades. Over the same period, the government bond yield decreases, because the uncertainty in returns on capital makes investing in government bonds becomes less risky than investing in capital.
    Keywords: Default, government bond, capital levy, lost decades, bank run
    JEL: E32 E62 G18 H12 H63
    Date: 2020–04
  38. By: Daniel Fehrle; Christopher Heiberger
    Abstract: The risk premium puzzle is even worse than previously reported if housing is also taken into consideration next to equity. While housing premia are only moderately smaller than equity premia, they are signi?cantly less volatile and the Sharpe ratio of housing is signi?cantly larger. Hence, three question arise: i) are existing approaches to explain the equity premium puzzle also capable of explaining even larger Sharpe ratios than previously required, ii) can return rates and volatilities of various assets be differentiated, and iii) can different Sharpe ratios between the two risky assets be matched. We analyze these questions, next to business cycle statistics, by including housing into seminal approaches to solve the risk premium puzzle in production economies. Non-disaster economies with habit formation, capital adjustment costs and limited factor mobility fail to generate a Sharpe ratio of housing of the empirically observed size and do not explain co-moving economic activity. A basic model with time-varying disaster risk can reproduce the large Sharpe ratio of housing. Moreover, the model can explain different means and volatilities of the risky assets, economic activity comoves and the model explains the volatility ratio of business investments, residential investments and house prices. However, the model does not allow to disentangle the Sharpe ratios of the risky assets and premia on equity remain too involatile
    Keywords: Equity premium puzzle, housing, rare disasters, production CAPM, real business cycle literature
    JEL: C63 E32 E44 G12
    Date: 2020–03
  39. By: Evgenidis, Anastasios; Fasianos, Apostolos
    Abstract: This paper explores whether unconventional monetary policy operations have redistributive effects on household wealth. Drawing on household balance sheet data from the Wealth and Asset Survey, we construct monthly time series indicators on the distribution of different asset types held by British households for the period that the monetary policy switched, as the policy rate reached the zero-lower bound. Using this series, we estimate the response of wealth inequalities on monetary policy, taking into account the effect of unconventional policies conducted by the Bank of England in response to the Global Financial Crisis. Our evidence reveals that unconventional monetary policy shocks have significant and lingering effects on wealth inequality: the shock raises wealth inequality across households, as measured by their Gini coefficients, percentile shares, and other standard inequality indicators. Additionally, we explore the effects of different transmission channels simultaneously. We find that the portfolio rebalancing channel and house price effects widen the wealth gap, outweighing the counterbalancing impact of the savings redistribution and inflation channels. The findings of our analysis help to raise awareness of central bankers about the redistributive effects of their monetary policy decisions.
    Keywords: Household portfolios; monetary policy; Quantitative easing; survey data; VAR; Wealth Inequality
    JEL: D31 E21 E52 H31
    Date: 2020–04
  40. By: W. Erwin Diewert; Kevin J. Fox
    Abstract: Millions of goods and services are now unavailable in many countries due to the current coronavirus pandemic, dramatically impacting on the construction of key economic statistics used for informing policy. This situation is unprecedented; hence methods to address it have not previously been developed. Current advice to national statistical offices from the IMF, Eurostat and the UN is shown to result in downward bias in the CPI and upward bias in real consumption. We conclude that the only way to produce a meaningful CPI within the lockdown period is through establishing a continuous consumer expenditure survey.
    JEL: C43 E21 E31
    Date: 2020–05
  41. By: Cieslak, Anna; Pang, Hao
    Abstract: We propose a new approach to identify economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yields. The method allows us to study the drivers of asset prices at a daily frequency over the last three-and-a-half decades. We analyze the content of news from the Fed, major macro announcements, and sources of time-varying stock-bond comovement. The results emphasize the importance of two risk-premium shocks-compensation for discount-rate and cash-flow news-which have different effects on stocks and bonds. The impact of the Fed on both risk premiums explains why stocks but not bonds earn high FOMC-day returns.
    Keywords: Federal Reserve; risk premia; stock-bond comovement
    JEL: E43 E44 G12 G14
    Date: 2020–05
  42. By: Juan Ayuso Huertas (Banco de España); Carlos Antonio Conesa Lareo (Banco de España)
    Abstract: Este documento ofrece una visión general sobre el significado de una central bank digital currency (CBDC) que pueda servir de base para una discusión ordenada que permita profundizar en los diferentes aspectos relevantes del debate actualmente abierto sobre este activo financiero digital. El objetivo fundamental es revisar las motivaciones que pueden justificar la emisión de CBDC y llevar a cabo un análisis preliminar de sus principales implicaciones, especialmente de las vinculadas a los modelos de CBDC que parecen más probables, a tenor de las motivaciones de los bancos centrales que, en estos momentos, han avanzado más seriamente hacia su emisión.
    Keywords: moneda digital de banco central, stablecoins, criptomonedas, criptoactivos
    JEL: E42 E52 E58
    Date: 2020–03
  43. By: Monique Reid; Pierre Siklos; Timothy Guetterman; Stan Du Plessis
    Abstract: Monetary policy relies on managing the inflation expectations of the public in order to influence prices (inflation). Relying on the South African experience we argue that most of the general public are only exposed to the communication of the South African Reserve Bank (SARB) via the media. This state of affairs is fairly typical around the globe. We explore the role and biases of the journalists in transmitting the SARB’s communication to the rationally inattentive general public. Our aim is to obtain insights about the factors that influence media articles that deal with monetary policy issues. Using interviews and qualitative content analysis, we explore the extent of the journalists’ knowledge about inflation and monetary policy, their views concerning the credibility of the SARB, the sources of information they use, and the constraints and incentives they face in writing the articles.
    Keywords: monetary policy, central bank communication, journalists
    JEL: E52 E58
    Date: 2020–04
  44. By: Anastasia Melachrinos; Christian Pfister
    Abstract: At the root of the notion of stablecoin (SC) lies a desire to reconcile two different worlds: that of legal currency, whose essential attributes are hierarchical order, the vocation to uniqueness and stability of the purchasing power, and that of crypto-assets, featuring decentralization, multiplicity and thus the possibility of choice, and the instability of value. Do SCs fulfill their promises? With regard to their volatile prices, limited number, small total amount, and concentrated market, SCs have so far met with a mixed success. They rather represent a complement to the crypto-assets market. However, the arrival of very large issuers, securing a higher degree of confidence to users, and apt to reach a wide public, could give their projects a potentially systemic impact. These global SCs would create risks, in particular for financial stability and monetary policy, and in lesser-developed economies. This paper reviews these risks and the way the private sector, regulators and central banks can address them.
    Keywords: Stablecoins, monetary policy, financial stability.
    JEL: E42 E52 E58
    Date: 2020
  45. By: Javier Andrés (Universidad de Valencia); Óscar Arce (Banco de España); Samuel Hurtado (Banco de España); Jesús Fernández-Villaverde (University of Pennsylvania, NBER, and CEPR)
    Abstract: We study the macroeconomic effects of internal devaluations undertaken by a periphery of countries belonging to a monetary union. We find that internal devaluations have large and positive output effects in the long run. Through an expectations channel, most of these effects carry over to the short run. Internal devaluations focused on goods markets reforms are generally more powerful in stimulating growth than reforms aimed at moderating wages, but the latter are less deflationary. For a monetary union with a periphery the size of the euro area’s, the countries at the periphery benefit from internal devaluations even at the zero lower bound (ZLB) of the nominal interest rate. Nevertheless, when the ZLB binds, there is a case for a sequencing of reforms that prioritizes labor policies over goods markets reforms.
    Keywords: monetary union, internal devaluation, structural reforms, zero lower bound, policy sequencing
    JEL: E44 E63 D42
    Date: 2020–06
  46. By: Jesús Fernández-Villaverde (University of Pennsylvania, NBER and CEPR); Samuel Hurtado (Banco de España); Galo Nuño (Banco de España)
    Abstract: We postulate a nonlinear DSGE model with a financial sector and heterogeneous households. In our model, the interaction between the supply of bonds by the financial sector and the precautionary demand for bonds by households produces significant endogenous aggregate risk. This risk induces an endogenous regime-switching process for output, the risk-free rate, excess returns, debt, and leverage. The regime-switching generates i) multimodal distributions of the variables above; ii) time-varying levels of volatility and skewness for the same variables; and iii) supercycles of borrowing and deleveraging. All of these are important properties of the data. In comparison, the representative household version of the model cannot generate any of these features. Methodologically, we discuss how nonlinear DSGE models with heterogeneous agents can be efficiently computed using machine learning and how they can be estimated with a likelihood function, using inference with diffusions.
    Keywords: heterogeneous agents, wealth distribution, financial frictions, continuoustime, machine learning, neural networks, structural estimation, likelihood function
    JEL: C45 C63 E32 E44 G01 G11
    Date: 2020–06
  47. By: Claire Alestra; Gilbert Cette; Valérie Chouard; Rémy Lecat
    Abstract: This paper provides a tool to build climate change scenarios to forecast Gross Domestic Product (GDP), modelling both GDP damage due to climate change and the GDP impact of mitigating measures. It adopts a supply-side, long-term view, with 2060 and 2100 horizons. It is a global projection tool (30 countries / regions), with assumptions and results both at the world and the country / regional level. Five different types of energy inputs are taken into account according to their CO2 emission factors. Full calibration is possible at each stage, with estimated or literature-based default parameters. In particular, Total Factor Productivity (TFP), which is a major source of uncertainty on future growth and hence on CO2 emissions, is endogenously determined, with a rich modeling encompassing energy prices, investment prices, education, structural reforms and decreasing return to the employment rate. We present four scenarios: Business As Usual (BAU), with stable energy prices relative to GDP price; Decrease of Renewable Energy relative Price (DREP), with the relative price of non CO2 emitting electricity decreasing by 2% a year; Low Carbon Tax (LCT) scenario with CO2 emitting energy relative prices increasing by 1% per year; High Carbon Tax (HCT) scenario with CO2 emitting energy relative prices increasing by 3% per year. At the 2100 horizon, global GDP incurs a loss of 12% in the BAU, 10% in the DREP, 8% in the Low Carbon Tax scenario and 7% in the High Carbon Tax scenario. This scenario exercise illustrates both the “tragedy of the horizon”, as gains from avoided climate change damage net of damage from mitigating policies are negative in the mediumterm and positive in the long-term, and the “tragedy of the commons”, as climate change damage is widely dispersed and particularly severe in developing economies, while mitigating policies should be implemented in all countries, especially in advanced countries modestly affected by climate change but with large CO2 emission contributions.
    Keywords: Climate, Global warming, Energy prices, Government policy, Growth, Productivity, Long-term projections.
    JEL: H23 Q54 E23 E37 O11 O47 O57 Q43 Q48
    Date: 2020
  48. By: Baqaee, David Rezza; Farhi, Emmanuel
    Abstract: This paper studies the effect of negative supply and demand shocks on aggregate output in a neoclassical model. We show how nonlinearities associated with complementarities in consumption and production amplify the effect of negative supply and demand shocks. These nonlinearities are particularly potent when they are heterogeneous and affect the composition of demand as well as supply, features that are important for thinking about the Covid-19 crisis. We show how complementarities amplify the worst shocks, as the worst-affected sectors drag down other sectors. These complementarities are further strengthened if households change the composition of their demand in favor of the crippled sectors. A quantitative model suggests that nonlinearities may amplify the impact of the Covid-19 shock by between 20%-100%, depending on the horizon of analysis and the size of the underlying shocks. This analysis implies that reductions in labor supply are less costly to aggregate output if they are spread out across many sectors.
    Keywords: complementarities; COVID-19; input-output linkages; production networks
    JEL: E1 E3
    Date: 2020–05
  49. By: Laurent Ferrara; Luca Metelli; Filippo Natoli; Daniele Siena
    Abstract: The paper re-investigates the effects of government spending shocks on the real exchange rate and inflation. In contrast with some previous puzzling results, we find that an increase in government spending appreciates the real exchange rate and is inflationary; besides, it induces a trade balance deficit and a decrease in consumption. The discrepancy with the existing literature lies in the identification of fiscal shocks: embedding a narrative approach in a proxy-SVAR is what makes the difference. Empirical findings are then well explained by a standard estimated open real business cycle model.
    Keywords: : Fiscal Shocks, Real Exchange Rate, Inflation, Proxy SVAR, Narrative Shocks.
    JEL: E62 F41
    Date: 2020
  50. By: Marius Clemens; Maik Heinemann
    Abstract: A two-sector incomplete markets model with heterogeneous agents can be used to study the distributional effects of the COVID-19 lockdown. While negative aggregate welfare effects of the lockdown are unavoidable, the size of aggregate welfare effects as well as the distribution of the welfare effects across agents turn out to depend on the specific economic environment of the affected economy as well as the response of the government to the shock. We use the model to simulate the lockdown effects based on a calibration to German data. First, we find that without state aid and limited access to international financial markets especially poor household suffer large welfare losses, while wealthy house- hold could even benefit from the lockdown. Second, a state aid program reduces large parts of the welfare losses of workers across all income groups in the affected sectors by forcing loss sharing with agents working in the non-affected sector. However, wealthy households no matter in which sector still benefit more than the average household. Third, access to international financial markets is key to shift relative welfare gains from superrich to poorer households in both sectors. Once the country is able to borrow internationally, the benefit for superrich diminishes. Our results implicate that countries with rather limited access to financial markets and less stable government budget positions will suffer higher welfare losses and increases in inequality.
    Keywords: COVID-19, Income and Wealth Inequality, Heterogeneous Agents, Fiscal Policy
    JEL: D31 E21 E62 I14
    Date: 2020
  51. By: Khaled, Md. Khaled Bin Amir
    Abstract: Both human and economic cost of COVID-19 tsunami has continued to peak as nobody can even envisage when and how the shock will be solved. The value of life is uncountable on the other hand every sign clears that economic plunge will be prolonged and painful. The purpose of this paper is to provide a snapshot of global economic disaster, focusing especially on major regions (China, USA, and Italy) due to COVID-19 and possible economic responses to mitigate the severity of this pandemic. The paper first provides an overview of global economic imbalances reflected by growing medical and financial emergencies, falling asset prices, tightening financial conditions, abatement of global GDP, world trade and supply chain disruptions, the constraint on tourism and traveling, raising uneven inflation, augmenting poverty, the suffering of migrants, political discord and antagonism may lead to being the unexpected worst economic downturn in the history. Along with identifying these imbalances, possible economic responses have been presented amid shock of COVID-19 and strategies for recoveries. The paper concludes that containing initiatives and economics of pandemics is not enough to beat the novel coronavirus (COVID-19) without solidarity and consensus among nations around the globe.
    Keywords: COVID-19; Financial crisis; Recession; Helicopter money; Monetary policies
    JEL: F6 O2
    Date: 2020–05–01
  52. By: Gerald A. Carlino; Thorsten Drautzburg; Robert P. Inman; Nicholas Zarra
    Abstract: In economic unions the fiscal authority consists not of one, but many governments. We analyze whether partisanship of state-level politicians affects federal policies, such as fiscal stimulus in the U.S. Using data from close elections, we find partisan differences in the marginal propensity to spend federal transfers: Republican governors spend less. This partisan difference has tended to increase with measures of polarization. We quantify the aggregate effects in a New Keynesian model of Republican and Democratic states in a monetary union: Lowering partisan differences to levels prevailing during less polarized times increases the transfer multiplier by 0.30. The observed changes in the share of Republican governors lead to variation in the multiplier of 0.20 in the model. Local projection methods support this prediction.
    Keywords: partisanship; flypaper effect; intergovernmental transfers; fiscal multiplier; monetary union; regression discontinuity.
    JEL: C24 E62 F45 H72 H77
    Date: 2020–06–01
  53. By: Lenarčič, Črt; Masten, Igor
    Abstract: Harrod-Balassa-Samuelson phenomenon describes the relationship between productivity and price inflation within different sectors of a particular economy, where the sectoral productivity differential stands as one of the possible drivers of the (structural) price inflation. The Harrod-Balassa-Samuelson effect could therefore represent an additional inflation source of the economy. From an economic policy perspective it is important to address this issue, in order to contain inflation sufficiently low with adequate policy measures. Using a dynamic panel data model the Harrod-Balassa-Samuelson hypothesis is tested and confirmed by applying a strict distinction between the sectoral price inflation and the average labour productivity growth data from the 1990-2017 period for 28 European countries. Additionally, we provide inflation simulations based on the results that confirm the existence of the Harrod-Balassa-Samuelson effect.
    Keywords: Harrod-Balassa-Samuelson effect, productivity, inflation, dynamic panel data model
    JEL: C12 C23 E31
    Date: 2020–05–12
  54. By: Kieren, Pascal; Mueller-Dethard, Jan; Weber, Martin
    Abstract: What determines investors' risk-taking across macroeconomic cycles? Researchers have proposed rational expectations models that introduce countercyclical risk aversion to generate the empirically observed time variation in risk-taking. In this study, we test whether systematic deviations from rational expectations can cause the same observed investment pattern without assuming unstable risk preferences. We let subjects form beliefs in two different market environments which resemble key characteristics of boom and bust markets, followed by an independent investment task. Those subjects who learned in the negative domain form overly pessimistic beliefs and invest significantly less in an unrelated ambiguous investment option. However, similar investment patterns cannot be observed for an unrelated risky investment option, where expectations are fixed. The proposed mechanism presents an alternative explanation for time-varying risk-taking and provides new implications for both theory and policy makers.
    Keywords: Belief formation; Market Cycles; Return Expectations; risk-taking
    JEL: D83 D84 E32 E44 G01 G11
    Date: 2020–04
  55. By: Cruz Mejía, Jose Vidal; Cruz-Rodríguez, Alexis
    Abstract: The aim of this article is to identify the impact of foreign direct investment (FDI) on the gross domestic product (GDP), exports and employment of the Dominican Republic, using panel data models, during 2010-2018. The controlled results show that the inflow of FDI is an important factor for the development of the Dominican economy, because it promotes growth, employment and exports. The participation in the factors of production was also found, both for capital income and for labor income.
    Keywords: Foreign Direct Investment, Exports, Employment, Panel Data.
    JEL: E22 E24 F43 O40
    Date: 2020–06–05
  56. By: Guillermo Ordoñez; Facundo Piguillem
    Abstract: It depends what we want to measure. Most literature has focused on observed flow of savings (per-period savings as fraction of GDP), which has declined persistently since 1980. Even though this decline means that fewer funds are available for investment in each period, it does not follow that the households’ actual savings (underlying, not observed, savings determined by dynamic optimization) also go down. We theoretically link these two concepts, discuss the conditions under which they move in opposite directions, and show that indeed the actual savings has sharply increased since 1980.
    JEL: E01 E21
    Date: 2020–05
  57. By: Rodrigo Barbone Gonzalez (Banco Central do Brasil and Bank for International Settlements); Dmitry Khametshin (Banco de España); José-Luis Peydró (ICREA-UPF, Imperial College, CREI, Barcelona GSE and CEPR); Andrea Polo (LUISS, UPF, EIEF, Barcelona GSE, CEPR and ECGI)
    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: 2020–06
  58. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
    Abstract: This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. housing debt between the 1980s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
    Keywords: household portfolios; inequality; financial fragility; household debt
    JEL: D14 D31 E21 E44
    Date: 2020–05–01
  59. By: Den Haan, Wouter; Freund, Lukas; Rendahl, Pontus
    Abstract: This paper analyzes in detail the role of uncertainty shocks in search and matching models of the labor market, both when uncertainty actually increases and when it is only expected to do so. The non-linear nature of search frictions increases average unemployment rates during periods with higher volatility. However, they are by themselves not sufficient to raise the unemployment rate in response to an increase in perceived uncertainty. We show that key to understanding the result of Leduc and Liu (2016) that perceived uncertainty does affect the unemployment rate is the particular form of wage bargaining chosen, Nash bargaining; option value considerations play no role.
    Keywords: Option value; search frictions; uncertainty; unemployment
    JEL: E24 E32 J64
    Date: 2020–05
  60. By: Claire Greene; Joanna Stavins
    Abstract: This paper describes key results from the 2017 Diary of Consumer Payment Choice (DCPC), the fourth in a series of diary surveys that measure payment behavior through the daily recording of U.S. consumers' spending. The DCPC is the only diary survey of U.S. consumer payments available free to the public. In October 2017, consumers paid mostly with cash (30.3 percent of payments), debit cards (26.2 percent), and credit cards (21.0 percent). These instruments accounted for three-quarters of the number of payments, but only about 40 percent of the total value of payments, because they tend to be used more for smaller-value payments. In contrast, electronic payments accounted for 30.3 percent of the value of total payments but only 8.9 percent of the number of payments. Checks, at 17.7 percent, continued to account for a relatively high percentage of the value of payments. The average value of a cash transaction was $23.4, compared with $109.3 for the average noncash transaction (and $83.3 for all transactions). The average value of consumers' holdings of cash on their persons (in pocket, purse, or wallet) was about $60.
    Keywords: debit cards; Diary of Consumer Payment Choice; prepaid cards; checks; checking accounts; cash; payment preferences; credit cards; electronic payments
    JEL: D12 D14 E42
    Date: 2020–04–01
  61. By: Jayasooriya, Sujith
    Abstract: Innovative and evidence-based public economic policies are vital for the provision of efficient public services in emerging economies. Many developing countries require privation of optimal taxation system to promote economic growth. The research question intends to identify the optimal taxation policies and impact of taxation on economic growth in emerging Asia. Rationale for the research is to provide pragmatic evidences to build up tax systems that generate optimal tax revenues in an equitable manner and facilitation of taxation for economic growth. Macroeconometric approach is used to (i) estimate the Laffer curve for Asia with Generalized Method of Moments (GMM) in factors affecting optimal taxation. (ii) Fully Modified OLS (FMOLS), Dynamic OLS (DOLS) and Conical Cointegration Regression (CCR) are used to estimate the cointegration equation for the impact of taxation on economic growth using the World Bank data from 1990 to 2015. The empirical results indicate, across estimation methods and specifications, that the determinants of optimal taxation over estimation of Laffer curve are tax-rate, tax-rate2 and debt negatively significant, while tax-rate*debt, unemployment rate, foreign direct investment, and openness are positively significant. Further, comparative empirical evidences show that the positive economic growth promoting factors is tax revenue, trade openness and foreign direct investment, whereas negatively significant factors are tax-rate, unemployment rate and debt. The implications of the study are to deliberate on the macroeconomic determinants of the optimal taxation for reform the tax systems in emerging Asia. Finally, the paper guides policymakers to reform tax systems with empirical evidences on impacts of public economic policies to improve optimal taxation for the economic growth in Asia.
    Keywords: Optimal taxation, Economic Growth, Generalized Methods of Moments estimation
    JEL: B23 C51 E60 F43 H2 H21 O47
    Date: 2020–05–29
  62. By: Belot, Michèle (European University Institute); Choi, Syngjoo (Seoul National University); Tripodi, Egon (European University Institute); van den Broek-Altenburg, Eline (University of Vermont); Jamison, Julian C. (University of Exeter); Papageorge, Nicholas W. (Johns Hopkins University)
    Abstract: Covid-19 and the measures taken to contain it have led to unprecedented constraints on work and leisure activities, across the world. This paper uses nationally representative surveys to document how people of different ages and incomes have been affected across six countries (China, South Korea, Japan, Italy, UK and US). We first document changes in income/work and leisure. Second, we document self-reported negative and positive non-financial effects of the crisis. We then examine attitudes towards recommendations (wearing a mask in particular) and the approach taken by public authorities. We find similarities across countries in how people of different generations have been affected. Young people have experienced more drastic changes to their lives, and overall they are less supportive of these measures. These patterns are less clear across income groups: while some countries have managed to shield lower income individuals from negative consequences, others have not. We also show that how people have been affected by the crisis (positively or negatively) does little to explain whether or not they support measures implemented by the public authorities. Young people are overall less supportive of such measures independently of how they have been affected.
    Keywords: COVID-19, inequality, age, income, cross-country comparison
    JEL: E24 I14 I31
    Date: 2020–06
  63. By: Cyril Couaillier; Valerio Scalone
    Abstract: In this paper we study how households’ financial vulnerability affects the propagation of housing and credit shocks. First, we estimate a non-linear model generating impulse responses that depend on the evolution of households' Debt to Service Ratio, i.e. the fraction of income that households use to pay back their debt. Second, we use sign restrictions to jointly identify a wide set of financial and economic shocks. We find that financial vulnerability: i) amplifies the response of the economy to housing shock, ii) makes the response to expansionary credit shocks less persistent and even negative after the first year since the arrival of the shock. Finally, overall recessionary shocks have larger effects with respect to expansionary ones of the same size.
    Keywords: Financial Vulnerability, Macroprudential Policy, non-linear Models, Housing, Credit.
    JEL: C32 E51 G01
    Date: 2020
  64. 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
  65. By: Scott R. Baker; Nicholas Bloom; Stephen J. Terry
    Abstract: Uncertainty rises in recessions and falls in booms. But what is the causal relationship? We construct cross-country panel data on stock market levels and volatility and use natural disasters, terrorist attacks, and political shocks as instruments in regressions and VAR estimations. We find that increased volatility robustly lowers growth. We also structurally estimate a heterogeneous firms business cycle model with uncertainty and disasters and use this to analyze our empirical results. Finally, using our VAR results we estimate COVID-19 will reduce US GDP by 9% in 2020 based on the initial stock market returns and volatility response.
    JEL: C23 D8 D92 E22
    Date: 2020–05
  66. By: Balcilar, Mehmet (Eastern Mediterranean University); Ozdemir, Zeynel Abidin (Ankara HBV University); Ozdemir, Huseyin (Gazi University); Wohar, Mark E. (University of Nebraska Omaha)
    Abstract: This study empirically examines the fragility of five major Asian economies (China, Hong Kong, India, Japan, and South Korea) to economic policy uncertainty (EPU) of US and EU, and oil prices in different state of the economies. To investigate these dynamics, we use the relative tail dependence by means of the spillover index of Diebold and Yilmaz (2009, 2012) obtained from Quantile Vector Autoregressive (QVAR) model, a robust and semiparametric model, which does not require specification of the full distribution of error terms. The distinguishing feature of our approach from the previous studies is the determination of sign and intensity of asymmetric spillover dynamics from external shocks to Asian economies and variables covering a wide range of macroeconomic aspects. Our results indicate that the spillover indices from EPU and oil price shocks to Asian economies significantly vary across quantiles. The results from sub-sample analysis show that the US EPU has an asymmetric effect on macro variables of China, Hong Kong, and South Korea during the quantitative easing period (QE) and the reverse QE (RQE) periods while the EU EPU makes Asian markets vulnerable during the Eurozone debt crisis. The large-scale asset purchases (LSAPs) of ECB and BoJ seem to reduce Asian market fragilities after 2015. Last but not least, we get partial evidence to support an asymmetric effect of the crude oil shocks on some Asian markets.
    Keywords: quantile VAR, oil price change, economic policy uncertainty, relative-tail-dependence
    JEL: C32 E44 F42 G01
    Date: 2020–05
  67. By: Christian Pfister; Jean-Guillaume Sahuc
    Abstract: This paper takes stock of the literature on the unconventional monetary policies, from their implementation to their effects on the economy. In particular, we discuss in detail the two main measures implemented in most developed economies, namely forward guidance and large-scale asset purchases. Overall, there is near consensus that these measures have been useful, although there are a few dissenting views. Because unconventional monetary policies have left their mark on economies and on the balance sheets of central banks, we offer insights into their legacy and ask whether they have led to a change in "the rules of the game" for setting interest rates and choosing the size and composition of central banks’ balance sheets. Finally, we discuss whether to modify the objectives and the instruments of monetary policy in the future, in comparison with the pre-crisis situation.
    Keywords: Unconventional Monetary Policies.
    JEL: E52 E58
    Date: 2020
  68. By: Markus Brueckner; Joaquin Vespignani
    Abstract: Using daily data, we estimate a vector autoregression model to characterize the dynamic relationship between Covid-19 infections in Australia and the performance of the Australian stock market, specifically, the ASX-200. Impulse response functions show that Covid-19 infections in Australia have a significant positive effect on the performance of the stock market: a one standard deviation increase in new registered cases of Covid-19 infections in Australia increases the daily growth rate of the ASX-200 by around half a percentage point. This result is robust to alternative lag selections of the VAR model as suggested by alternative information criteria; including in the model the USD-AUD exchange rate and the international oil price; including in the model news by the World Health Organization regarding a Covid-19 pandemic and public health emergency; and including in the model the government-imposed shutdown of parts of the Australian economy. We also present estimates of the dynamic relationship between the daily growth rate of the Dow Jones and daily new cases of Covid-19 infections in the US. The US data show, similar to the Australian data, that there is a significant positive effect of Covid-19 infections on the performance of the stock market.
    JEL: E62 G12 I00
    Date: 2020–06
  69. By: Gräbner, Claudius; Heimberger, Philipp; Kapeller, Jakob
    Abstract: This paper discusses the uneven consequences of the macroeconomic fallout from the coronavirus and related economic policy responses against the background of an analysis of longer-term macroeconomic divergence in the Eurozone. We show that the macroeconomic impact of the Corona crisis is estimated to be more severe in Southern Eurozone countries than in Northern Eurozone countries, which further reinforces the tendency of an increasing economic polarisation. This polarisation process can be traced back to existing differences in production structures and uneven vulnerabilities of the underlying growth models. As a consequence, any policy response to the Corona crisis that does not take the deeper problems of structural polarisation into account will suffer from limited impact in the medium to long run.
    Keywords: Polarisation,Coronavirus,Eurozone
    JEL: E6 F4 O3
    Date: 2020
  70. By: Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
    Abstract: We investigate the impact of demographics on the natural rate of interest (NRI) in the euro area, with a particular focus on the role played by economic openness, migrations and pension system design. To this end, we construct a life-cycle model and calibrate it to match the life-cycle profiles from HFCS data. We show that population aging contributes significantly to the decline in the NRI, explaining about two-thirds of its secular decline between 1985 and 2030. Openness to international capital flows has not been important in driving the EA real interest rate so far, but will become a significant factor preventing its further decline in the coming decades, when aging in Europe accelerates relative to the rest of the world. Of two possible pension reforms, only an increase in the retirement age can revert the downward trend on the equilibrium interest rate while a fall in the replacement rate would make its fall even deeper. The demographic pressure on the Eurozone NRI can be alleviated by increased immigration, but only to a small extent and with a substantial lag.
    Keywords: population aging, natural interest rate, life-cycle models, pension systems, migrations
    JEL: E31 E52 J11
    Date: 2020–06
  71. By: Giovanni Dosi (LEM - Laboratory of Economics and Management - Sant'Anna School of Advanced Studies); Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Andrea Roventini; Tania Treibich (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: In this work we study the granular origins of business cycles and their possible underlying drivers. As shown by Gabaix (Econometrica 79:733–772, 2011), the skewed nature of firm size distributions implies that idiosyncratic (and independent) firm-level shocks may account for a significant portion of aggregate volatility. Yet, we question the original view grounded on "supply granularity", as proxied by productivity growth shocks – in line with the Real Business Cycle framework–, and we provide empirical evidence of a "demand granularity", based on investment growth shocks instead. The role of demand in explaining aggregate fluctuations is further corroborated by means of a macroeconomic Agent-Based Model of the "Schumpeter meeting Keynes" family Dosi et al. (J Econ Dyn Control 52:166–189, 2015). Indeed, the investigation of the possible microfoundation of RBC has led us to the identification of a sort of microfounded Keynesian multiplier.
    Keywords: Business cycles,Granular residual,Granularity hypothesis,Agent-based models,Firm dynamics,Productivity growth,Investment growth
    Date: 2019–03
  72. By: Patrick J. Coe; Shaun P. Vahey
    Abstract: We explore the historical relationship between financial conditions and real economic growth for quarterly U.S. data from 1875 to 2017 with a flexible empirical copula modelling methodology. We compare specifications with both linear and non-linear dependence, and with both Gaussian and non-Gaussian marginal distributions. Our results indicate strong statistical support for models that are both non-Gaussian and nonlinear for our historical data, with considerable heterogeneity across sub-samples. We demonstrate that ignoring the contribution of financial conditions typically understates the conditional downside risks to economic growth in crises. For example, accounting for financial conditions more than doubles the probability of negative growth in the year following the 1929 stock market crash.
    Keywords: Probabilities of economic events, Vulnerable growth, Growth at risk, Great Depression
    JEL: C14 C32 C53 E37 E44 N10 N20
    Date: 2020–04
  73. By: Pablo Burriel (Banco de España); Panagiotis Chronis (Bank of Greece); Maximilian Freier (European Central Bank); Sebastian Hauptmeier (European Central Bank); Lukas Reiss (Öesterreichische Nationalbank); Dan Stegarescu (Deutsche Bundesbank); Stefan Van Parys (Nationale Bank van België/Banque Nationale de Belgique)
    Abstract: After the financial and economic crisis in Europe, a broad consensus has emerged that a stronger fiscal dimension may be needed to complete the architecture of Economic and Monetary Union (EMU). This paper analyses the performance of interregional transfers in existing fiscal-federal systems, notably in Austria, Belgium, Germany, Spain and the United States, and aims to draw lessons for the design of a euro area fiscal instrument. The empirical risk-sharing analysis in this paper suggests that effective cross-regional stabilisation of asymmetric shocks tends to work via direct cash transfers to households, such as unemployment benefits, which are financed out of cyclical central government taxes and social security contributions. This would suggest that a euro area budgetary instrument for stabilisation should be designed as a tool that enhances the automatic stabilisation capacity in the single currency area. At the same time, it seems important that a prospective central stabilisation instrument for the euro area would be integrated in an overall fiscal policy framework that ensures proper incentives for national policymakers.
    Keywords: euro area fiscal capacity, fiscal risk-sharing, fiscal federalism
    JEL: E62 H11 H77
    Date: 2020–06
  74. By: Claire Greene; Marcin Hitczenko; Brian Prescott; Oz Shy
    Abstract: This paper presents a snapshot of U.S. consumers’ use of paper checks in 2017 and 2018, combining data from the 2017 and 2018 Diaries of Consumer Payment Choice. Other data sources have tracked the decline in the use of paper checks since 2000. This report adds to that data by delving into the characteristics of 1,600 individual transactions—in particular, dollar amount, payee, and payer—made by a representative sample of U.S. consumers using checks. Among the findings: •Consumers used checks for 7 percent of transactions overall in 2017 and 2018 and wrote about three checks a month. •Check payments had a relatively high average dollar value, around $300, compared to other payments ($87). •Three-quarters of checks in this sample were for less than $250. All things being equal, older, low-income, nonminority group members are more likely to pay with paper checks. Allowing for demographics and household income, consumers are more likely to use checks for higher-dollar-value payments for utilities, rent, charitable donations, government taxes and fees and building contractors. Compared with other types of income, rental income and self-employment income are more likely to be paid by check. From 2015 to 2018, the proportion of consumers who state checks are their preferred payment method declined by 23 percent for bills and 8 percent for purchases. (Keep in mind that consumers’ stated responses on payment instrument preference could be unrelated to their behavior in the moment.)
    Keywords: Diary of Consumer Payment Choice; paycheck; personal checks; paper checks; U.S. consumer check use
    JEL: D14 D9 E42
    Date: 2020–04–15
  75. By: Jesus Fernandez-Villaverde; Daniel R. Sanches; Linda Schilling; Harald F. Uhlig
    Abstract: The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial interme-diaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. Dur-ing a panic, however, we show that the rigidity of the central bank’s contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endanger maturity transformation.
    Keywords: central bank digital currency; central banking; intermediation; maturity transformation; bank runs; lender of last resort.
    JEL: E58 G21
    Date: 2020–06–01
  76. By: Nicola Cetorelli; Linda S. Goldberg; Fabiola Ravazzolo
    Abstract: In March 2020, the Federal Open Market Committee (FOMC) made changes to its swap line facilities with foreign central banks to enhance the provision of dollars to global funding markets. Because the dollar has important roles in international trade and financial markets, reducing these strains helps facilitate the supply of credit to households and businesses, both domestically and abroad. This post summarizes the changes made to central bank swap lines and shows when these changes were effective at bringing down dollar funding strains abroad.
    Keywords: dollar; swap; central bank; COVID-19
    JEL: E5 E51
    Date: 2020–05–22
  77. By: Vítor Constâncio
    Abstract: The text describes the theoretical developments of the assignment rules regarding fiscal and monetary policies and the respective roles in macroeconomics stabilisation. Monetary policy emerged as the dominant policy, reducing the active macro role of fiscal policy to taking care of debt sustainability. This consensus started to change, and a new view has appeared, giving a more active role to fiscal policy. The article concludes with a brief analysis of fiscal rules, followed by a discussion about the European Union fiscal framework, and its necessary revision.
    Date: 2020–05
  78. By: Anne Kathrin Funk; Daniel Kaufmann
    Abstract: This paper provides novel evidence on downward nominal wage rigidities and their allocative effects in Switzerland. We match individual wages from a bi-annual firm survey with information on annual income and employment from social security register data. We relevant downward nominal wage rigidities in the base wage, which accounts for more than 90% of employment income. We then identify the allocative effects of downward nominal wage rigidities on income and employment after an unexpected 1% decline of the consumer price level. Base wage rigidities cause a decline of aggregate income (-0.39%) and employment income (-0.97%), as well as an increase of unemployment (2.11%).
    Keywords: Downward nominal wage rigidity, income, unemployment, deflation.
    JEL: E30 E40 E50
    Date: 2020–06
  79. By: António Afonso; Ludger Schuknecht; Vito Tanzi
    Abstract: We discuss and provide an overview of the size and role of the government, notably in terms of what the government “should” do, how the government could spend and intervene in the economy, how much governments spend and what they spend their money on.This is done from a historical perspective and also in a stylized way via assessing total expenditure, the composition of public expenditure for advanced, emerging and developing countries.
    Keywords: public spending; size of government; expenditure composition; public sector efficiency
    JEL: B00 E62 H11 H50 H62
    Date: 2020–05
  80. 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
  81. 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
  82. By: Kevin Foster; Claire Greene; Joanna Stavins
    Abstract: In 2018, U.S. consumers made 72 payments per month on average, not a significant change from 2017. As in 2017, the most frequently used payment instruments were debit cards (34 percent of all transactions), cash (24 percent), and credit cards (23 percent). Over the 11 years of the survey, debit, cash, and credit have consistently been the most popular ways to pay. For the first time in 2018, debit cards replaced cash as the payment instrument used most frequently for in-person purchases. Some key findings about medium-term trends from 2015 to 2018 include the following: • The share of consumers adopting mobile apps or mobile online accounts (such as Android Pay, Apple Pay, Samsung Pay) increased from 40 percent to 60 percent. • The share making a mobile payment at least once in the previous 12 months increased from one-fourth to one-third of consumers. • There was a statistically significant increase in the use of mobile banking, from 45 percent of consumers to 56 percent. • The share of credit card adopters who carried an unpaid balance steadily declined to 44 percent in 2018. Notable findings within the last year include the following: • While the number of online purchases per month increased slightly, from 5.6 per consumer in 2017 to 5.9 in 2018, the change was not statistically significant. • There was a statistically significant decline in the use of cash, from 19 payments per month to 17. • The use of paper checks continued to decline, from 6 percent of payments per month to 5 percent. • The share of consumers using bank account number payment (BANP) at least once in a month increased from 59 percent to 66 percent. Interactive charts, showing payment use by transaction type, income, and age, are posted on the Atlanta Fed website.
    Keywords: unbanked; credit cards; checks; cash; prepaid cards; checking accounts; payment preferences; debit cards; Survey of Consumer Payment Choice; electronic payments
    JEL: D14 E42 D12
    Date: 2020–04–01
  83. By: Marcela Eslava; John C. Haltiwanger
    Abstract: We develop a framework that uses price and quantity information on both firms' outputs and inputs to assess the roles, on firm dynamics and welfare, of efficiency, input prices, demand/quality, idiosyncratic markups, and residual wedges. Our strategy nests previous approaches limited by data availability. In our application, demand/quality is found to dominate the cross sectional variability of sales growth, while quality-adjusted input prices and residual wedges play dampening roles, especially at birth. Markups play only a modest role for cross-sectional variability of sales growth but are important in explaining welfare losses from revenue productivity dispersion.
    JEL: E24 L24 O47
    Date: 2020–05
  84. By: Carrillo-Tudela, Carlos; Hermann, Gartner; Kaas, Leo
    Abstract: Recruitment behavior is important for the matching process in the labor market. Using unique linked survey-administrative data, we explore the relationships between hiring and recruitment policies. Faster hiring goes along with higher search effort, lower hiring standards and more generous wages. To analyze the mechanisms behind these patterns, we develop a directed search model in which firms use different recruitment margins in response to productivity shocks. The calibrated model points to an important role of hiring standards for matching efficiency and for the impact of labor market policy, whereas search effort and wage policies play only a minor role.
    Keywords: Labor market matching; Recruitment; Vacancies
    JEL: E24 J23 J63
    Date: 2020–05
  85. By: Claire Greene; Joanna Stavins
    Abstract: This paper describes key results from the 2018 Diary of Consumer Payment Choice (DCPC), the fifth in a series of diary surveys that measure payment behavior through the daily recording of the spending of U.S. consumers. The DCPC is the only diary survey of U.S. consumer payments with data and results that are available to the public without a fee. In October 2018, consumers made more payments with debit cards than with any other payment instrument (28 percent of payments). Cash, in all prior diary years the most-used payment instrument, followed with 26 percent of payments. Together with credit cards (23 percent), these instruments accounted for slightly more than three-quarters of the number of payments. By value, electronic payments accounted for 36 percent of the value of total payments, a statistically significant increase from 2017. The value share of payments made with paper instruments continued its steady decline, from 31 percent in 2015 to 23 percent in 2018. The average value of a cash transaction was $21, compared with $206 for the average noncash transaction (and $92 for all transactions). The average value of consumers' holdings of cash on their persons (in pocket, purse, or wallet) was about $60.
    Keywords: electronic payments; prepaid cards; credit cards; checking accounts; checks; payment preferences; cash; Diary of Consumer Payment Choice; debit cards
    JEL: E42 D14 D12
    Date: 2020–04–01
  86. By: Federico Bassi (Centre de recherche en économie de l’Université Paris Nord (CEPN) and Université Sorbonne Paris Nord); Tom Bauermann (Ruhr-University Bochum and Ruhr-Graduate School in Economics); Dany Lang (Université Sorbonne Paris Nord); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: Post Keynesian macrodynamic models make various assumptions about the normal rate of capacity utilization. Those rooted in the Classical and neo-Keynesian traditions assume the normal rate is fixed, whereas Kaleckian models treat it as a variable that is endogenous to the actual rate of capacity utilization. This paper contributes to the debate about the normal rate of capacity utilization by developing a model of strong or genuine hysteresis, in which firms make discrete decisions about the normal rate depending on the degree of uncertainty about demand conditions. An agent-based model based on empirical analysis of 25 sectors of the US economy is used to show that hysteresis can cause variation in the normal rate of capacity utilization within a subset of the range of observed variation in the actual capacity utilization rate. This suggests that the economy exhibits both constancy and (endogenous) variability in the normal rate of utilization over different ranges of variation in the actual rate. More broadly speaking, the genuine hysteresis model is shown to provide the basis for a synthesis of Post Keynesian macrodynamics that draws on both the Classical/neo-Keynesian and Kaleckian modeling traditions.
    Keywords: Normal rate of capacity utilization, Harrodian instability, genuine hysteresis, Kaleckian growth theory
    JEL: C63 E11 E12 L6 L7 L9
    Date: 2020–06
  87. 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
  88. By: Manuel Lopez Galvan
    Abstract: The aim of this paper is to investigate the use of the Factor Analysis in order to identify the role of the relevant macroeconomic variables in driving the inflation. The Macroeconomic predictors that usually affect the inflation are summarized using a small number of factors constructed by the principal components. This allows us to identify the crucial role of money growth, inflation expectation and exchange rate in driving the inflation. Then we use this factors to build econometric models to forecast inflation. Specifically, we use univariate and multivariate models such as classical autoregressive, Factor models and FAVAR models. Results of forecasting suggest that models which incorporate more economic information outperform the benchmark. Furthermore, causality test and impulse response are performed in order to examine the short-run dynamics of inflation to shocks in the principal factors.
    Date: 2020–05
  89. By: Matthieu Bussière; Robert Hills; Simon Lloyd; Baptiste Meunier; Justine Pedrono; Dennis Reinhardt; Rhiannon Sowerbutts
    Abstract: We examine how euro area (EA) monetary policy and recipient-country prudential policy interact to influence cross-border lending of French banks. We find that monetary spillovers via cross-border lending can be partially offset by prudential measures in receiving countries. We then explore heterogeneities, specifically by bank size and location of the affiliate (French HQ vs. affiliates based in the UK). We find that the response of lending from French HQ to EA monetary policy is less sensitive to recipient-country prudential policy for systemic banks (GSIBs) than for non-GSIBs’. In contrast, the response of lending from GSIBs’ affiliates in the UK is sensitive to recipient-country prudential policy. French GSIBs’ crossborder lending from French HQ responds differently than lending from international financial centres. We also find evidence that French GSIBs channel funds towards the UK in response to EA monetary policy, in a manner dampened by global prudential policy setting. These findings suggest the existence of a ‘London Bridge’: conditional on EA monetary policy, French GSIBs adjust their funds in the UK depending on global prudential policies and, from there, lend to third-party countries according to local prudential policies. Finally, we have similar findings for all EA-owned banks UK affiliates, suggesting a broader relevance for the London Bridge.
    Keywords: : Monetary Policy, Prudential Policy, Policy Interactions, Spillovers, Financial Centre.
    JEL: E52 F34 F36 F42 G18 G21
    Date: 2020
  90. By: Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
    Abstract: Several papers study the real effects of zombie lending based on regressions showing that the performance of healthy firms relative to zombie firms deteriorates as the fraction of zombie firms increases. This finding is interpreted as evidence of a negative spillover from zombies to healthy firms. We argue that this commonly used approach faces a serious identification problem. Under general conditions on the distribution of firm performance, the deterioration of the relative performance of healthy firms is a mechanical consequence of an increase in the fraction of zombies and cannot be interpreted as evidence of negative spillovers.
    Keywords: capital misallocation; zombie lending
    JEL: E44 G21
    Date: 2020–05
  91. By: Danilo Leiva-Leon (Banco de España); Gabriel Perez-Quiros (European Central Bank and CEPR); Eyno Rots (Magyar Nemzeti Bank)
    Abstract: We propose an empirical framework to measure the degree of weakness of the global economy in real-time. It relies on nonlinear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia, Brazil, Mexico and South Africa). Based on such inferences, we construct a Global Weakness Index that has three main features. First, it can be updated as soon as new regional data is released, as we show by measuring the economic effects of coronavirus. Second, it provides a consistent narrative of the main regional contributors of world economy’s weakness. Third, it allows to perform robust risk assessments based on the probability that the level of global weakness would exceed a certain threshold of interest in every period of time. With information up to March 2nd 2020, we show that the Global Weakness Index already sharply increased at a speed at least comparable to the experienced in the 2008 crisis.
    Keywords: international, business cycles, factor model, nonlinear
    JEL: E32 C22 E27
    Date: 2020–06
  92. By: International Monetary Fund
    Abstract: A Technical Assistance (TA) Mission from the Regional Technical Assistance Center for Central America, Panama, and the Dominican Republic, visited the city of San Salvador, El Salvador, on August 13–24, 2018, to provide TA to the Central Reserve Bank of El Salvador (BCRES) on compiling annual accounts by institutional sectors (AAIS) from 2014 onwards, as part of the data series from the base year of 2005. In March 2018, the BCRES published a dataset of quarterly and annual national accounts series by economic activity; a monthly volume indicator; backcasted series from 1990–2014; and Supply and Use Tables (SUT) from 2005 and 2014, with a base year of 2005. As part of the dataset to be prepared and disseminated in the new 2005 base year, the authorities requested TA to compile annual accounts focusing on institutional sectors starting in 2014.
    Date: 2020–03–24
  93. By: Hensvik, Lena; Le Barbanchon, Thomas; Rathelot, Roland
    Abstract: This paper measures the job-search responses to the COVID-19 pandemic using real-time data on vacancy postings and ad views on Sweden's largest online job board. First, the labour demand shock in Sweden is as large as in the US, and affects industries and occupations heterogeneously. Second, the scope and direction of search change. Job seekers respond to the shock by searching less intensively and by redirecting their search towards less severely hit occupations, beyond what changes in labour demand would predict. The redirection of job search changes relative hiring costs, and has the potential to amplify labour demand shifts.
    Keywords: Coronavirus; job vacancies; labour demand shock; online job board; search direction; Search Intensity
    JEL: E24 J21 J22 J23 J62 J63 J64
    Date: 2020–05
  94. 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); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA)
    Abstract: Utilizing a mixed data sampling (MIDAS) approach, we show that a daily newspaper based index of uncertainty associated with infectious diseases can be used to predict, both in- and out-of-sample, low-frequency movements of output growth for the United States (US). The predictability of monthly industrial production growth and quarterly real Gross Domestic Product (GDP) growth during the current period of heightened economic uncertainty due to the COVID-19 pandemic is likely to be of tremendous value to policymakers.
    Keywords: Infectious Diseases Related Uncertainty, Output Growth, Forecast, Mixed-Frequency
    JEL: C22 C53 D80 E23 E32
    Date: 2020–05
  95. By: Mihalyi, David; Mate, Akos
    Abstract: This article introduces an original panel dataset based on the text of country reports by the International Monetary Fund. It consists of a total of 5561 Article IV consultation and program review documents, published between 2004 and 2018 on 201 countries. The text of these reports provide indications of the perceived policy weaknesses, economic risks, ongoing reforms and implemented or neglected policy advice. Thus the content of IMF reports are widely used in the economics, political science and IR literature. To our knowledge this is the first comprehensive dataset that aggregates these country reports. The paper gives a detailed account on the data acquisition and management process. To demonstrate and validate the dataset’s application for research we present three validation exercises. We find that Article IV reports can indicate incoming institutional reforms, show changes in IMF policy advice overtime and identify potential gains from recently discovered natural resources in certain cases. Taken together, this paper contributes an original dataset of IMF country reports and demonstrates how it can be a useful foundation for further research into the role of international financial institutions.
    Keywords: economic policy, IMF, text analysis, original dataset
    JEL: E60 F53
    Date: 2019–08–02
  96. By: David Altig (Federal Reserve Bank of Atlanta); Alan Auerbach (University of California at Berkeley); Patrick Higgins (Federal Reserve Bank of Atlanta); Darryl Koehler (Economic Security Planning Inc.); Laurence Kotlikoff (Boston University); Ellyn Terry (Federal Reserve Bank of Atlanta); Victor Ye (Boston University)
    Abstract: The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating all major federal and state fiscal policies. We find that the average percentage increase in remaining lifetime spending under the TCJA is 1.6 percent in red states versus 1.3 percent in blue states. Among the richest 10 percent of households, this differential is larger. Rich households in red states enjoyed a 2.0 percent increase compared to a 1.2 percent increase among the rich in blue-state households. This gap is driven almost entirely by the limitation on the SALT deduction. Excluding the SALT limitation from the TCJA results in a spending gain of 2.6 percent for rich red-state households compared to 2.7 percent for rich blue-state households.
    Keywords: fiscal policy, elections, Tax Cuts and Jobs Act, resource distribution, federal tax reform, state and local taxes, life cycle model
    JEL: D31 D72 E62 H20 H22 H71
    Date: 2019–04
  97. By: Battistin, Erich; De Nadai, Michele; Krishnan, Nandini
    Abstract: While household well-being derives from long-term average rates of consumption, welfare comparisons typically rely on shorter-duration survey measurements. We develop a new strategy to identify the distribution of these long-term rates by leveraging a large-scale randomization that elicited repeated short-duration measurements from diaries and recall questions. Identification stems from diary-recall differences in reports from the same household, does not require reports to be error-free, and hinges on a research design with broad replicability. Our strategy delivers cost-effective suggestions for designing survey modules that yield the closest measurements of consumption well-being, and offers new insights to interpret and reconcile diary-recall differences in household surveys.
    Keywords: Household Surveys; Measurement of Inequality and Poverty; Modes of Data Collection
    JEL: C81 D31 D63 E21 I32
    Date: 2020–05
  98. By: Daniel J. Lewis; Karel Mertens; James H. Stock
    Abstract: This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the response to the novel coronavirus in the United States. The WEI shows a strong and sudden decline in economic activity starting in the week ending March 21, 2020. In the week ending April 4, the WEI indicates economic activity has fallen further to -8.89 percent, scaled to four-quarter growth in GDP.
    Keywords: COVID-19; measurement of economic activity; weekly economic index; high frequency
    JEL: E66 E01 C51
    Date: 2020–04–01
  99. By: Zichu, Jin; Masih, Mansur
    Abstract: Infrastructure has experienced a rapid development in China over the past decade. The economic contribution of infrastructure investment has been widely examined in the literature using various data and models. However, the results are inconclusive. This paper using Nonlinear ARDL tests the effect of infrastructure investment on both GDP and domestic private credit level. The paper finds that an increase in infrastructure investment will increase GDP but push the domestic credit level higher. The contribution of this paper is that a stable investment in infrastructure is needed, while the efficiency of the management is also important. Government should take care of the debt level and reduce the debt leverage, as more debt will eventually drag the economy down.
    Keywords: Infrastructure, GDP, domestic credit, NARDL, China
    JEL: C22 C58 E51 H41
    Date: 2018–12–20
  100. By: Berman, Yonatan
    Abstract: This paper combines historical cross-sectional and longitudinal income and wealth data in the United States to present the evolution of absolute intragenerational mobility from the 1960s onward. That is, the fraction of families with higher income or wealth over a given period. We find that the rates of absolute mobility over periods of two to four years are largely confined within 45%-55%. This occurs over all the phases of the business cycle. Absolute mobility is higher for lower percentiles, also during periods of increasing inequality. These results stem from the importance of the changes in the composition of income and wealth percentiles even over short time periods. We offer a simplified model to mathematically describe these findings.
    Keywords: Mobility, inequality, copula modeling
    JEL: C2 D3 E2 H0 J6
    Date: 2018–10–18
  101. By: Mahmut Gunay
    Abstract: This paper analyzes four dimensions of forecasting GDP growth using monthly data. Firstly, we use AR, VAR, BVAR, mean-growth and zero month-on-month change for forecasting the missing monthly data at the end of forecasting sample due to asynchronous nature of the release of the indicators. Second dimension is using a relatively large data set and testing some indicators that are not frequently used for forecasting GDP growth but due to timeliness have the potential to contribute to the forecasting performance. We analyze data from a career website, freight information from maritime transportation, capacity utilization of available plane seats, tax revenues of the central government and credit and debit card transaction volumes. Third dimension is comparing the performance of model averaging and factor models that are used to incorporate information content of large data sets to the forecasting process. Finally, we look at the forecasting performance of a core data set that is selected by a shrinkage method, namely LASSO. Our findings show that using VAR models with financial and survey indicators for forecasting missing monthly data improves short term GDP forecasting performance relative to other alternatives. We find that forecasting using targeted predictors rather than using an unscreened large data set helps to reduce forecasting errors considerably. Factor model approach performs better than forecast combination. So, using a targeted data set for factor extraction and forecasting missing monthly data with VAR performs relatively better than other specifications for producing timely and accurate nowcasts.
    Keywords: GDP forecasting, Bridge models, Factor models, LASSO, Targeted predictors
    JEL: C52 C53 E20
    Date: 2020
  102. By: Breuer, Christian; Colombier, Carsten
    Abstract: In this present paper, we examine the relationship between public debt and economic growth in a large historical panel dataset of 17 OECD economics over the period from 1870 to 2016. In contrast, the relevant literature focuses on the postWW-II period. Several empirical studies provide evidence in support of the 'conventional view' that public debt is adversely associated with economic growth. We show that the relationship between government debt and per-capita GDP growth is neither statistically significant and robust nor unambiguous regarding the sign. While our baseline regressions support the 'conventional view', particularly in the aftermath of World War II, these results are not robust to alternative specifications. This holds for a linear as well as a non-linear relationship between public debt and economic growth. Our outcome suggests that politicians should exercise great caution in using empirical studies on the debt-growth nexus as a guidance for fiscal policy and that further in-depth analyses are needed.
    Keywords: Government debt,economic growth,historical dataset,panel regressions,robustness analysis,Staatsschulden,Wirtschaftswachstum,historischer Datensatz,Panelregressionen,Sensitivitätsanalyse
    JEL: E62 H63 C23
    Date: 2020
  103. By: V. V. Chari; Rishabh Kirpalani; Christopher Phelan
    Abstract: We develop a simple dynamic economic model of epidemic transmission designed to be consistent with widely used SIR biological models of the transmission of epidemics, while incorporating economic benefits and costs as well. Our main finding is that targeted testing and isolation policies deliver large welfare gains relative to optimal policies when these tools are not used. Specifically, we find that when testing and isolation are not used, optimal policy delivers a welfare gain equivalent to a 0.6% permanent increase in consumption relative to no intervention. The welfare gain arises because under the optimal policy, the planner engineers a sharp recession that reduces aggregate output by about 40% for about 3 months. This sharp contraction in economic activity reduces the rate of transmission and reduces cumulative deaths by about 0.1%. When testing policies are used, optimal policy delivers a welfare gain equivalent to a 3% permanent increase in consumption. The associated recession is milder in that aggregate output declines by about 15% and cumulative deaths are reduced by .3%. Much of this welfare gain comes from isolating infected individuals. When individuals who are suspected to be infected are isolated without any testing, optimal policy delivers a welfare gain equivalent to a 2% increase in permanent consumption.
    Keywords: Social distancing; Epidemiology; SIR model; COVID-19
    JEL: Q59 E69 H41
    Date: 2020–05–15
  104. By: Mariam Camarero (University Jaume I and INTECO); María Dolores Gadea-Rivas (University of Zaragoza); Ana Gómez-Loscos (Banco de España); Cecilio Tamarit (University of Valencia and INTECO)
    Abstract: A decade after the beginning of the Great Recession, flow external imbalances, measured by the current account (CA) have narrowed markedly. However, stock or net foreign assets (NFA) imbalances have kept increasing and have created challenges for future macroeconomic and financial stability. To date, early warning systems (scoreboards) have focused more on flow than on the stock variables. To approach this problem, in this paper we analyze expansions using two complementary sets of indicators proposed by Harding and Pagan (2002) and Gadea et al. (2017). After controlling for a large set of explanatory variables, we find that the effect of CA imbalances is limited, except when the measures selected take into account past CA developments or some degree of persistence. In contrast, the evolution of NFA seems to be much more explanatory of the time it takes to regain the level of output previous to the recession, as well as the amplitude and the cumulation of the recoveries. Therefore, we conclude that future macro-prudential policies should pay more attention to stock variables to measure external imbalances due to their effects on the characteristics of recoveries.
    Keywords: business cycles, recoveries, NFA, external imbalances, current account
    JEL: F21 R12 C23
    Date: 2020–05
  105. By: Basco, Sergi; Domenech, Jordi; Rosés, Joan R.
    Abstract: This paper examines the impact of a pandemic in a developing economy. Measured by excess deaths relative to the historical trend, the 1918 influenza in Spain was one of the most intense in Western Europe. However, aggregate output and consumption were only mildly affected. In this paper we assess the impact of the flu by exploiting within-country variation in "excess deaths" and we focus on the returns to factors of production. Our main result is that the effect of flu-related "excess deaths" on real wages is large, negative, and short-lived. The effects are heterogeneous across occupations, from null to a 15 per cent decline, concentrated in 1918. The negative effects are exacerbated in more urbanized provinces. In addition, we do not find effects of the flu on the returns to capital. Indeed, neither dividends nor real estate prices (houses and land) were negatively affected by flu-related increases in mortality. Our interpretation is that the Spanish Flu represented a negative demand shock that was mostly absorbed by workers, especially in more urbanized regions.
    Keywords: Pandemics; real wages; Returns to capital; Spanish flu
    JEL: E32 I00 N10 N30
    Date: 2020–05
  106. By: Iswahyudi, Heru
    Abstract: This article examines the experience of Indonesia in adopting gross receipts taxes as one of the elements in the architecture of its tax system. Although Indonesian income tax law and value-added tax law do not explicitly impose gross receipts taxes, however, these laws authorize the use of presumptive taxation methods, which in practice are essentially gross receipts taxes. In the past three decades there have been expansions in the use of these presumptive methods in the tax system. As gross receipts tax is considered to be one of the most distortive tax systems, its expansions may also mean that its distortive effects may have expanded throughout the economy. Nevertheless, if well-designed and properly managed, gross receipts taxes might serve as an effective instrument to broadening the tax base particularly in countries with a significant presence of the informal sector, while still minimizing its adverse impacts on the economy.
    Keywords: Gross Receipts Taxes, Economic Distortion, Hard-to-Tax, Administrative Capacity, Informal Sector
    JEL: E62 H21 H30 O17
    Date: 2020–05–23
  107. By: Bronka, Patryk; Collado, Diego; Richiardi, Matteo
    Abstract: We nowcast the economic effects of the Covid-19 pandemic and related lock-down measures in the UK and then analyse the distributional and budgetary effects of the estimated individual income shocks, distinguishing between the effects of automatic stabilisers and those of the emergency policy responses. Under conservative assumptions about the exit strategy and recovery phase, we predict that the rescue package will increase the cost of the crisis for the public budget by an additional £26 billion, totalling over £60 billion. However, it will allow to contain the reduction in the average household disposable income to 1 percentage point, and will reduce poverty rate by 1.1 percentage points (at a constant poverty line), with respect to the pre-Covid situation. We also show that this progressive effect is due to the increased generosity of Universal Credit, which accounts for only 20% of the cost of the rescue package.
    Date: 2020–06–09
  108. By: International Monetary Fund
    Abstract: The Ugandan economy is being severely affected by the covid pandemic, although the number of confirmed cases has so far remained relatively low, at 79 on April 27. The economic impact of the pandemic started to be felt even before the first case was reported on March 21, through supply chain disruptions. The authorities’ policy response has been timely, scaling up health spending and putting in place bold measures to help contain and mitigate the spread of the disease. The pandemic is exacerbating the economic difficulties caused by heavy rains at the beginning of the year, and the locust infection in the northern part of the country—whose full impact is still unfolding. The pandemic and the related response are dampening revenue collection and putting pressure on the exchange rate and foreign exchange reserves.
    Keywords: Rapid Credit Facility (RCF);
    Date: 2020–05–14
  109. By: Zidong An; João Tovar Jalles
    Abstract: This paper contributes to shed light on the quality and performance of US fiscal forecasts. The first part inspects the causes of official (CBO) fiscal forecasts revisions between 1984 and 2016 that are due to technical, economic or policy reasons. Both individual and cumulative means of forecast errors are relatively close to zero, particularly in the case of expenditures. CBO averages indicate net average downward revenue and expenditure revisions and net average upward deficit revisions. Focusing on the causes of the technical component, we uncover that its revisions are quite unpredictable which casts doubts on inferences about fiscal policy sustainability that rely on point estimates. Comparing official with private-sector (Consensus) forecasts, despite the informational advantages CBO might have, one cannot unequivocally say that one or the other is more accurate. Evidence also seems to suggest that CBO forecasts are consistently heavily biased towards optimism while this is less the case for Consensus forecasts. Not only is the extent of information rigidity is more prevalent in CBO forecasts, but evidence also seems to indicate that Consensus forecasts dominate CBO’s in terms of information content.
    Keywords: forecasting performance, encompassing tests, CBO, Consensus
    JEL: C53 E17 H62
    Date: 2020–05
  110. By: Snower, Dennis J. (Hertie School of Governance)
    Abstract: In response to the Covid-19 pandemic, governments around the world have provided a massive fiscal and monetary stimulus. While this policy is welcome in the short run, it does not address the underlying problem in the medium and long run. The reason is that the pandemic has not given rise to a generalized shortfall in aggregate demand. Rather, it has generated a Great Economic Mismatch, characterized by deficient demand for things requiring close physical interactions among people and deficient supply of things compatible with social distancing, where appropriate. Expansive macroeconomic policy can stimulate aggregate demand, but when social distancing is enforced, it will not stimulate production and consumption whenever this demand is satisfied through physically interactive activities. To overcome the Great Economic Mismatch, "readaptation policies" are called for. In the medium run, these policies promote a redirection of resources to activities compatible with social distancing; the long run, these policies make economies more resilient to unforeseen shocks that generate a Great Economic Mismatch. Once the pandemic is over, a more profound rethinking of decision making - in public policy, business and civil society - is called for. First, decision makers will need to supplement the current focus on economic efficiency by greater emphasis on economic resilience. Second, economic policies and business strategies will need to focus less on incentives for selfish individuals and more on the mobilization of people's prosocial motives. Finally, to encourage people around the world to cooperate globally in tackling global problems, policy makers at local, national and global levels will need to encourage people around the world to cooperate globally in tackling global problems, with the aid of two powerful tools that humans throughout history have used to coordinate their efforts: identity-shaping narratives and institutions of multi-level governance.
    Keywords: COVID-19, pandemics policy, macroeconomic policy, economic mismatch, economic resilience
    JEL: E61 H12 J2
    Date: 2020–06
  111. By: Gelain, Paolo; Manganelli, Simone
    Abstract: Two approaches are considered to incorporate judgment in 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 Classification: E50, E58, E47, C12, C13
    Keywords: DSGE, maximum likelihood, monetary policy, statistical decision theory
    Date: 2020–05
  112. By: Hacioglu, Sinem; Känzig, Diego R; Surico, Paolo
    Abstract: Using transaction data from a large Fintech company, we document a decline of 40% to 50% in the spending of British households during the Covid-19 crisis. The fall is concentrated in services such as retail, restaurants and transportation. The initial rise in on-line shopping and groceries purchases has been subsequently reverted. Income reductions have become far more frequent, with a median decline around 30%. The share of borrowers facing financing issues has increased significantly for both secured and unsecured lending. Consumption and income inequality have surged, with the most economically vulnerable groups experiencing the largest percentage decline. Mortgagors and higher earners in London record the most sizable pound change.
    Keywords: Access to finance; expenditure; Income; real-time indicators
    JEL: D12 E21
    Date: 2020–05
  113. By: Serhan Cevik; João Tovar Jalles
    Abstract: Climate change is already a systemic risk to the global economy. While there is a large body of literature documenting economic consequences, there is scarce research on the link between climate change and sovereign risk. This paper investigates the impact of climate change vulnerability and resilience on sovereign bond yields and spreads in 98 countries over the period 1995–2017. We find that the vulnerability and resilience to climate change have a significant impact on the cost government borrowing, after controlling for conventional determinants of sovereign risk. That is, countries that are more resilient to climate change have lower bond yields and spreads relative to countries with greater vulnerability to climate change. Furthermore, partitioning the sample into country groups reveals that the magnitude and statistical significance of these effects are much greater in developing countries with weaker capacity to adapt to and mitigate the consequences of climate change.
    Keywords: climate change; vulnerability; resilience; government bond yields and spreads
    JEL: C23 C83 E30 E43 F41 G15 H60
    Date: 2020–05
  114. 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 offer two main innovations. First, we subject six alternative indicators of global economic activity, including the one recently developed by Baumeister et al. (2020), to empirical tests of their relative predictive powers for crude oil market volatility. Second, we accommodate all the relevant series at their available data frequencies using the GARCH-MIDAS approach, thereby circumventing information loss and any associated bias. We find evidence in support of the ability of global economic activity to predict energy market volatility. Our forecast evaluation of the various indicators places a higher weight on the newly developed indicator of global economic activity by Baumeister et al. (2020), based on a set of 16 variables covering multiple dimensions of the global economy, than other indicators. The results leading to these conclusions are robust to multiple forecast horizons and consistent across alternative energy sources.
    Keywords: Energy Markets Volatility, Global Economic Conditions, Mixed-Frequency
    JEL: C32 C53 E32 Q41
    Date: 2020–05
  115. By: João Tovar Jalles
    Abstract: We empirically assess by means of the local projection method, the impact of financial crises on climate change vulnerability and resilience. Using a new dataset covering 178 countries over the period 1995–2017, we observe that resilience to climate change shocks has been increasing and that advanced economies are the least vulnerable. Our econometric results suggest that financial crises (particularly systematic banking ones) tend to lead to a short-run deterioration in a country´s resilience to climate change. This effect is more pronounced in developing economies. In downturns, if an economy is hit by a financial crisis, climate change vulnerability increases. Results are robust to several sensitivity checks.
    Keywords: climate change; vulnerability; resilience, local projection method, impulse response functions, recessions, financial crises
    JEL: C23 C83 E30 G10 O30 Q40
    Date: 2020–05
  116. By: Bruno Carvalho; Susana Peralta; Joao Pereira dos Santos
    Abstract: This paper uses novel and comprehensive data on electronic payments from SIBS, the main provider of point of sale terminals and on-line payments in Portugal, to study the impact of the Great Lockdown on purchases. The data aggregates all individual transactions into monthly observations, by municipality and sector, between 2018 and 2020. We employ a difference-in-differences event study that relies on the assumption that the monthly evolution of purchases in the first four months of 2020 would be parallel to that of the two previous years. We identify a massive causal impact on overall purchases, from a baseline year-on-year monthly growth rate of 10% to a decrease of 45%. The sign and magnitude of the impact varies considerably across sectors. Purchases of essential goods such as supermarkets and groceries increase mildly, contrasting with severe contractions in sectors that were closed by government order or depend heavily on tourism, including the leisure industry and restaurants. We find suggestive evidence of initial stockpiling of goods, postponing of essential expenditures, and rapid recovery of purchases in tech and entertainment, possibly to adapt to the confinement. Transactions with foreign-owned cards cause an even greater negative contraction. We disentangle the total effect into the intensive margin of the average transaction and the extensive margin of the number of transactions. Buyers adjust their shopping strategies in rational ways to minimize public health risks: they go less often to supermarkets and buy more each time, and visit local groceries more.
    Keywords: Portugal; Covid-19; transaction data; consumer behavior; sectoral impacts
    JEL: R10 D12 E21
    Date: 2020–06
  117. By: Marco Angrisani; Kevin Foster; Marcin Hitczenko
    Abstract: This document serves as the technical appendix to the 2016 and 2017 Surveys of Consumer Payment Choice administered by the Dornsife Center for Economic and Social Research (CESR). The Survey of Consumer Payment Choice (SCPC) is an annual study designed primarily to collect data on attitudes toward and use of various payment instruments by consumers over the age of 18 in the United States. The main report, which introduces the survey and discusses the principal economic results, is on our website at In this data report, we detail the technical aspects of the survey design, implementation, and analysis.
    Keywords: survey cleaning; sample selection; raking; poststratification estimates; survey design
    JEL: E4 D12 D14
    Date: 2020–04–01
  118. By: Parui, Pintu
    Abstract: In post-Keynesian literature, Hein (2012a) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological change negatively as well. We capture both the positive as well as the negative effect of financialization on technological change which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model we endogenize the financialization parameter as well and get richer dynamics than Hein (2012a). We show that under certain circumstances, the higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.
    Keywords: Capital accumulation, Distribution, Financialization, Kaleckian model, technological change, Andronov–Hopf bifurcation, Limit cycles
    JEL: C62 C69 D33 E12 G01 O16 O41
    Date: 2018–10–05
  119. By: António R. Antunes; Valerio Ercolani
    Abstract: During the last three decades in the US, the older part of the population has become significantly richer, in contrast with the younger part, which has not. We show that demographics account for a significant part of this intergenerational wealth gap rise. In particular, we develop a general equilibrium model with an OLG structure which is able to mimic the wealth distribution of the household sector in the late 1980s, conditional on its age structure. Inputting the observed rise of life expectancy and the fall in population growth rate into the model generates an increase in wealth inequality across age groups which is between one third and one half of that actually observed. Furthermore, the demographic factors help explain the change of the wealth concentration conditional on the age structure; for example, they account for more than one third of the rise of the share of the elderly within the top 5% wealthiest households. Finally, consistent with a stronger life-cycle motive and an increase of the capital-labor ratio, the model produces an interest rate fall of 1 percentage point.
    JEL: E21 J1
    Date: 2020
  120. By: Antoine Devulder; Noëmie Lisack
    Abstract: We analyse the propagation of carbon taxation through input-output production networks. To do so, we use a static multi-sector general equilibrium model including France, the rest of the European Union and the rest of the world to simulate the impact of carbon tax scenarios on economic activity. We find that a tax increase on sectors' and households' greenhouse gas emissions corresponding to a carbon price of 100 euros per ton of carbon dioxide equivalent entails a decrease in French aggregate real value added by 1.2% at a 5-to10-year horizon when implemented in France only, vs. 1.5% when implemented in the whole EU. Impacts on sectoral real value added range from -20% to negligible. The most affected sectors are generally the most polluting ones, but the tax also propagates across sectors via intermediate inputs. Specifically, the network structure tends to affect comparatively more upstream sectors than downstream ones, given their taxation levels. International financial markets also play an important role by neutralizing the positive response of final demand that would result from the redistribution of the tax proceeds to domestic households.
    Keywords: Carbon tax, multi-sector model, international production networks.
    JEL: D57 F11 H23
    Date: 2020
  121. By: Kym Anderson (Wine Economics Research Centre, School of Economics, University of Adelaide, Australia, and Arndt-Corden Dept of Economics, Australian National University, Canberra ACT 2601, Australia)
    Keywords: Consumer tax equivalents, Excise taxes, Alcohol import tariffs
    JEL: D12 D62 E62 H23 I18 P46
    Date: 2019–11
  122. By: Tony Addison; Kunal Sen; Finn Tarp
    Abstract: The COVID-19 pandemic represents an unprecedented global crisis. The task for economic policy is to help keep people alive, enterprises afloat, and households out of poverty. The pandemic has macroeconomic dimensions. First, it affects macroeconomic stability and growth. Second, the tools of macroeconomic policy?fiscal and monetary policy together with debt management and exchange rate policy?must deal with the economic shock. Simultaneously, policy makers must find fiscal space to fund health, social protection, and livelihood support.
    Keywords: commodities, COVID-19, Debts, Growth, Inequality, Macroeconomic policy, Poverty
    Date: 2020
  123. By: Gabriel E. Kreindler (Harvard University); Yuhei Miyauchi (Boston University)
    Abstract: We show how commuting flows can be used to infer the spatial distribution of income within a city. We use a simple workplace choice model, which predicts a gravity equation for commuting flows whose destination fixed effects correspond to wages. We implement this method with cell phone transaction data from Dhaka and Colombo. Model-predicted income predicts separate income data, at the workplace and residential level. Unlike machine learning approaches, our method does not require training data, yet achieves comparable predictive power. In an application, we show that hartals (transportation strikes) in Dhaka lower commuting, leading to 5-8% lower predicted income.
    JEL: C55 E24 R14
    Date: 2019–02
  124. 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: 2020–06
  125. By: International Monetary Fund
    Abstract: The COVID-19 pandemic has considerably weakened macroeconomic prospects for Djibouti. The country is facing a large negative external demand shock due to the global recession. Domestically, virus prevention and containment measures are affecting both demand and supply. Output is contracting, while lower exports of services and foreign direct investment have opened an urgent balance of payments need of the order of US$164 million (4.8 percent of GDP). The pandemic has also created urgent spending needs and is set to reduce government revenue.
    Keywords: Rapid Credit Facility (RCF);Catastrophe Containment and Relief Trust (CCRT);
    Date: 2020–05–12
  126. By: Amiti, Mary; Kong, Sang Hoon; Weinstein, David E.
    Abstract: We develop a new method of quantifying the impact of policy announcements on investment rates that makes use of stock market data. By estimating the effect of U.S.-China tariff announcements on aggregate returns and the differential returns of firms exposed to China, we identify their effect on treated and untreated firms. We show theoretically and empirically that estimates of policy-induced stock-market declines imply lower returns to capital, which lowers investment rates. We estimate that the tariff actions through 2018 and 2019 will lower the investment growth rate of listed U.S. companies by 1.9 percentage points by the end of 2020.
    Keywords: adjustment costs; Event studies; protection
    JEL: E22 F13 F14
    Date: 2020–05
  127. By: Fernandez-Perez, Adrian; Fuertes, Ana-Maria; Gonzalez-Fernandez, Marcos; Miffre, Joelle
    Abstract: We examine the commodity futures pricing role of active attention to weather, disease,geopolitical or economic threats or “hazard fear” as proxied by the volume of internet searches by 149 query terms. A long-short portfolio strategy that sorts the cross-section of commodity futures contracts according to a hazard fear signal captures a significant premium. This commodity hazard fear premium reflects compensation for extant fundamental, tail, volatility and liquidity risks factors, but it is not subsumed by them. Exposure to hazard-fear is strongly priced in the cross-section of commodity portfolios. The hazard fear premium exacerbates during periods of adverse sentiment or pessimism in financial markets.
    Keywords: Commodity futures; Fear; Attention; Hazards; Internet searches; Sentiment; Longshort portfolios.
    JEL: Q02
    Date: 2019–09–27
  128. By: Grilli, Luca; Santoro, Domenico
    Abstract: In this paper we want to demonstrate how it is possible to improve the forecast by using Boltzmann entropy like the classic financial indicators, throught neural networks. In particular, we show how it is possible to increase the scope of entropy by moving from cryptocurrencies to equities and how this type of architectures highlight the link between the indicators and the information that they are able to contain.
    Keywords: Neural Network; Price Forecasting; LSTM; Entropy
    JEL: C45 E37 F17 G17
    Date: 2020–05–22
  129. By: Caggiano, Giovanni; Castelnuovo, Efrem; Kima, Richard
    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%.
    JEL: C32 E32
    Date: 2020–06–08
  130. By: Emilio Ocampo
    Abstract: In the last three decades average inflation rates have declined around the world. Since 1995 the number of countries with inflation rates below 10% a year increased from 98 (54% of the total) to an average of 178 in 2015-2019 (90% of the total). In the aftermath of the 2008 Global Financial Crisis (GFC), inflation in the US has averaged 1.8% a year despite an unprecedented monetary expansion, and more recently, a drop in the unemployment rate to historical lows. In the last decades, two of modern macroeconomic theory’s most important relationships appear to have broken down: the Quantity Theory of Money (QTM) and the Phillips Curve (PC). This paper i) presents evidence that confirms the global disinflationary trend of the last three decades, ii) identifies previous historical episodes during which the QTM appeared to break down in the US and the UK and the theoretical reassessment that it provoked, iii) examines experts’ reaction to the apparent current breakdown of the QTM and the PC and the alternative paradigms that have emerged, and iv) reviews the alternative hypotheses that have been proposed to explain global disinflation, focusing particularly on the effects of technological innovation and globalization.
    Date: 2020–06
  131. By: Eichenbaum, Martin; Rebelo, Sérgio; Trabandt, Mathias
    Abstract: Epidemiology models used in macroeconomics generally assume that people know their current health status. In this paper, we consider a more realistic environment in which people are uncertain about their health status. We use our model to study the impact of testing with and without quarantining infected people. We find that testing without quarantines can worsen the economic and health repercussions of an epidemic. In contrast, a policy that uses tests to quarantine infected people has very large social benefits. Critically, this policy ameliorates the sharp trade-offs between declines in economic activity and health outcomes that is associated with broad-based containment policies like lockdowns. This amelioration is particularly dramatic when people who recover from an infection acquire only temporary immunity to the virus.
    Keywords: containment; COVID-19; Epidemic; Quarantine; Recessions; Testing
    JEL: E1 H0 I1
    Date: 2020–05
  132. By: Bodenstein, Martin; Corsetti, Giancarlo; Guerrieri, Luca
    Abstract: Drastic public health measures such as social distancing or lockdowns can reduce the loss of human life by keeping the number of infected individuals from exceeding the capacity of the health care system but are often criticized because of the social and the economic cost they entail. We question this view by combining an epidemiological model, calibrated to capture the spread of the COVID-19 virus, with a multisector model, designed to capture key characteristics of the U.S. Input Output Tables. Our two-sector model features a core sector that produces intermediate inputs not easily replaced by inputs from the other sector, subject to minimum-scale requirements. We show that, by affecting workers in this core sector, the high peak of an infection not mitigated by social distancing may cause very large upfront economic costs in terms of output, consumption and investment. Social distancing measures can reduce these costs, especially if skewed towards non-core industries and occupations with tasks that can be performed from home, helping to smooth the surge in infections among workers in the core sector.
    Keywords: COVID-19; Epidemic; Infectious disease; Recession
    JEL: E1 E3 I1
    Date: 2020–05
  133. By: Taiji Inui (Chief Advisor, JICA CBM TC Project, Central Bank of Myanmar and ADB consultant for Cross-border Settlement Infrastructure Forum (CSIF)); Wataru Takahashi (Faculty of Economics, Osaka University of Economics and Research Fellow, RIEB, Kobe University); Mamoru Ishida (Advisor, Itochu Corporation and Former Professor, Hannan University)
    Abstract: This paper proposes to provide Asian common currency in the form of digital currency using technology such as blockchain by an international organization (eg AMRO) in East Asia. In this proposal, we assume that each present currency and the new digital common currency coexist in the respective economies for the time being. With the advent of digital currency, the common currency has become more technically feasible. Our proposal has the following three advantages; (1) merits as a digital currency, (2) merits as a common currency, and (3) a currency that is managed in a multilateral flamework. By the last point, it could prevent dominant control of an international currency by large countries, and political fairness can be secured. This proposal has a perspective to develop into a global digital currency in the future.
    Keywords: Digital currency; Asia common currency; Distributed ledger technology; Blockchain, Account-based, Token-based
    JEL: E42 F36
    Date: 2020–06
  134. By: Claire Greene; Oz Shy
    Abstract: Most research on payment instruments focuses on how consumers pay or spend their money using a wide variety of payment instruments including cash. This report focuses on the inverse of the question of spending, that is, how do consumers obtain cash? Data from the 2017 Diary of Consumer Payment Choice shows that, over a three-day period, about 21 percent of survey respondents get cash via various methods, such as getting cash from a family member or friend, using an ATM, getting cash back at retail, visiting a bank teller, etc. We find that consumers mostly get cash from family and friends, followed by ATM withdrawals, and the average amount they get is around $100. The median is $40, and, in about half of the cases, consumers get cash in exact multiples of $20. Friday is the most popular day for getting cash in any way, while day-of-week differences are less pronounced for ATM withdrawals.
    Keywords: Diary of Consumer Payment Choice; ATMs; cash
    JEL: E42 D9 D14
    Date: 2020–04–01
  135. By: Jon Frost; Hiro Ito; René van Stralen
    Abstract: This paper compares the effectiveness of macroprudential policies (MaPs) and capital controls (CCs) in influencing the volume and composition of capital inflows, and the probability of banking and currency crises. We distinguish between foreign exchange (FX)-based MaPs, which may be similar to some types of CCs, and non-FX-based MaPs. Using a panel of 83 countries over the period 2000-17, and a propensity score matching model to control for selection bias, we find that capital inflow volumes are lower where FX-based MaPs have been activated. The imposition of CCs does not have a significant effect on the volume or composition of capital inflows. Further, we find that the activation of MaPs is associated with a lower probability of banking crises and surges in capital inflows in the following three years.
    Keywords: capital account openness; capital flows; capital controls; macroprudential policy; banking crises; currency crises
    JEL: F38 G01 G28
    Date: 2020–06
  136. By: Monique Reid; Hanjo Odendaal; Stan Du Plessis; Pierre Siklos
    Abstract: Inflation expectations surveys are receiving increasing attention. There is no optimal approach and often limited discussion of key characteristics of individual surveys. We use a South African dataset to argue that survey design should be given far more attention as it may undermine our ability to use the data with confidence. Users of survey data need to understand existing differences in survey design and the extent to which survey data reflect decision-making shortcuts under uncertainty as opposed to a true belief about what the public more generally really thinks expected inflation will be.
    Date: 2020–04
  137. By: José L. Torres (Department of Economics, University of Málaga); Pablo Casas (Department of Economics, University of Huelva, and UNIA)
    Abstract: This paper studies the economic implications of automation. We consider that automation is affected by disruptive technologies which entail a structural change consisting in the introduction of a new physical capital input (a combination of artifficial intelligence and autonomous robots), additional to ``traditional'' capital assets and labor. This new ``automatic'' physical capital is assumed to carry out production activities without the need to be combined with labor. We propose a simple production function and show that the consequences of automation depend on the combination of the automatic capital adoption rate and the elasticity of substitution between traditional and automatic technology. We find out that, if the adoption rate is below a threshold that matches the marginal productivity of automatic capital, little effects are derived from automation, independently of the elasticity of substitution of the new capital to the traditional capital and labor. However, if the automatic capital adoption rate is above the threshold level and the elasticity of substitution is higher enough, the automation process can lead to a robocalypse scenario with a total shift of both traditional capital and labor. We estimate, through the benchmark calibration of the model, that the adoption rate threshold for automatic capital is about $22.5%$.
    Keywords: Automatic capital; Traditional inputs; Automation; Technological change; Income distribution
    JEL: O14 O33 E23 E25
    Date: 2020–05
  138. By: Dhruv Sharma; Jean-Philippe Bouchaud; Marco Tarzia; Francesco Zamponi
    Abstract: We introduce a prototype agent-based model of the macroeconomy, with a budgetary constraint at its core. The model is related to a class of constraint satisfaction problems, which has been thoroughly investigated in computer science. We identify three different regimes of our toy economy upon varying the amount of debt that each agent can accumulate before defaulting. In presence of a very loose constraint on debt, endogenous crises leading to waves of synchronized bankruptcies are present. In the opposite regime of very tight debt constraining, the bankruptcy rate is extremely high and the economy remains structure-less. In an intermediate regime, the economy is stable with very low bankruptcy rate and no aggregate-level crises. This third regime displays a rich phenomenology: the system spontaneously and dynamically self-organizes in a set of cheap and expensive goods (i.e. some kind of "speciation"), with switches triggered by random fluctuations and feedback loops. Our analysis confirms the central role that debt levels play in the stability of the economy.
    Date: 2020–05
  139. By: Irma Alonso Álvarez (Banco de España); Virginia Di Nino (European Central Bank); Fabrizio Venditti (European Central Bank)
    Abstract: In a simplied theoretical framework, we model the strategic interactions between OPEC and non-OPEC producers and the implications for the global oil market. Depending on market conditions, OPEC may find it optimal to act either as a monopolist on the residual demand curve, to move supply in-tandem with non-OPEC, or to offset changes in non-OPEC supply. We evaluate the implications of the model through a Structural Vector Auto Regression (VAR) that separates non-OPEC and OPEC production and allows OPEC to respond to supply increases in non-OPEC countries. This is done by either increasing production (Market Share Targeting) or by reducing it (Price Targeting). We find that Price Targeting shocks absorb half of the fluctuations in oil prices, which have left unexplained by a simpler model (where strategic interactions are not taken into account). Price Targeting shocks, ignored by previous studies, explain around 10 percent of oil price fluctuations and are particularly relevant in the commodity price boom of the 2000s. We confirm that the fall in oil prices at the end of 2014 was triggered by an attempt of OPEC to re-gain market shares. We also find the OPEC elasticity of supply three times as high as that of non-OPEC producers.
    Keywords: OPEC, shale, oil, VAR
    JEL: Q41 Q43
    Date: 2020–03
  140. By: Shen Gao; Chenghan Hou; Bao H. Nguyen
    Abstract: The growing disintegration between the natural gas and oil prices, together with shale revolution and market financialization, lead to continued fundamental changes in the natural gas markets. To capture these structural changes, this paper considers a wide set of highly flexible time-varying parameter models to evaluate the out-of-sample forecasting performance of the natural gas spot prices across the US, European and Japanese markets. The results show that for both Japan and EU markets, the best forecasting performance is found when the model allows for drastic changes in the conditional mean and gradual changes in the conditional volatility. For the US market, however, no model performs systematically better than the simple autoregressive model. Full sample estimation results further confirm that allowing t-distributed error is important in modelling the natural gas prices, especially for EU markets.
    Keywords: Natural gas price, Structural breaks, Forecasting, Time-varying parameter, Markov switching, Stochastic volatility
    JEL: C32 E32 Q43
    Date: 2020–03
  141. By: Hassan, Tarek Alexander; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence
    Abstract: Using tools described in our earlier work Hassan et al. (2019,2020), we develop text-based measures of the costs, benefits, and risks listed firms in the US and over 80 other countries associate with the spread of Covid-19 and other epidemic diseases. We identify which firms expect to gain or lose from an epidemic disease and which are most affected by the associated uncertainty as a disease spreads in a region or around the world. As Covid-19 spreads globally in the first quarter of 2020, we find that firms' primary concerns relate to the collapse of demand, increased uncertainty, and disruption in supply chains. Other important concerns relate to capacity reductions, closures, and employee welfare. By contrast, financing concerns are mentioned relatively rarely. We also identify some firms that foresee opportunities in new or disrupted markets due to the spread of the disease. Finally, we find some evidence that firms that have experience with SARS or H1N1 have more positive expectations about their ability to deal with the coronavirus outbreak.
    Keywords: Epidemic diseases; exposure; firms; Machine Learning; Pandemic; sentiment; uncertainty; virus
    JEL: D22 E0 F0 G15 I15 I18
    Date: 2020–04
  142. By: Bárcena‐Martín, Elena (University of Malaga, Dept. Applied Economics); Medina‐Claros, Samuel (University of Malaga, Dept. Applied Economics); Pérez‐Moreno, Salvador (UNU-MERIT, Maastricht University, and University of Malaga, Dept. Applied Economics)
    Abstract: One of the most challenging gender gaps in the Global South remains in the economic sphere. This paper examines how public institutional quality affects the gender gap in economic participation and opportunities in 74 developing and emerging countries during the period 2006-2016. We find that the quality of public institutions is closely associated with the economic gender gap. Specifically, the protection of property rights, security guarantees and government efficiency seem to be the main factors associated to lower values of the economic gender gap. Nevertheless, public institutions do not matter equally throughout economically backward countries. Whereas in emerging countries, particularly in Latin America and the Caribbean, a broad variety of institutional aspects, including undue influence on judicial and government decisions, are closely related to the economic gender gap, in low-income developing countries, such as Sub-Saharan countries, the problems of ethics and corruption stand out as a key element against economic gender equality. Some significant policy implications are derived from our findings on the potential of public institutions reforms to reduce economic gender gap.
    Keywords: economic gender gap, economic participation, economic opportunities, public institutions, developing and emerging countries
    JEL: E02 J16 O34
    Date: 2020–06–05
  143. By: Barrot, Jean-Noël; Grassi, Basile; Sauvagnat, Julien
    Abstract: Typical government responses to pandemics involve social distancing measures implemented to curb disease propagation. We evaluate the impact of state-mandated business closures in the context of the Covid-19 crisis in the US. Using state-level variations in the set of sectors defined as non-essential and forced to shut down, and geographic variations in industry composition, we estimate the effects of business closure decisions on firms' market value, and on infection and death rates. We find that a 10 percentage point increase in the share of restricted labor is associated with a drop by 3 percentage points in April 2020 employment, a 1.87% drop in firms' market value, and 0.15 and 0.011 percentage points lower Covid-19 infection and death rates, respectively. An extrapolation of these preliminary findings suggests that state-mandated business closures might have cost $700 billion and saved 36,000 lives so far.
    Keywords: business closures; COVID-19; non-essential businesses; Pandemic
    JEL: E32 H1 I10 I18
    Date: 2020–05
  144. By: Gustavo Mellior
    Abstract: This paper analyses theoretically and quantitatively the effect that different higher education funding policies have on welfare (on aggregate and at the individual level) and wealth inequality. A heterogeneous agent model in continuous time, which has uninsurable income risk and endogenous educational choice is used to evaluate ï¬ ve different higher education ï¬ nancing schemes. Educational investments can be self ï¬ nanced, supported by government guaranteed student loans - that may come with or without income contingent support - or be covered by the public sector. When educational costs are small, differences in outcomes amongst systems are negligible. On the other hand, when these costs rise to realistic levels we see that there can be large gains in welfare and signiï¬ cant drops in inequality by moving to a system with more public sector support. This support can come in the form of tuition subsidies and/or income contingent student loans. However, as the cost of education and the share of debtors in society gets larger, it is preferable to increase public support in the form of tuition subsidies. The reason is that there is a pecuniary externality of debt that gets magniï¬ ed when student loans become excessive. While I identify large steady state welfare gains from more public sector ï¬ nancing, I show that the transition costs can be large enough to justify the status quo.
    Keywords: Incomplete markets, Higher education funding, Human capital
    JEL: D52 D58 E24 I22 I23
    Date: 2020–05–27
  145. By: Victor Pontines; Davaajargal Luvsannyam; Enkhjin Atarbaatar; Ulziikhutag Munkhtsetseg
    Abstract: Although EME central banks actively intervene in currency markets, there is a long-running debate as to its effectiveness in affecting exchange rates. In this study, we use unique daily data on currency interventions in Mongolia to analyze the impact of these interventions on the changes in the MNT/USD exchange rate. The results indicate that currency intervention is effective in Mongolia, although it differs in certain ways. Currency sales are effective in moving changes in the MNT/USD in the correct direction, especially when carried out in larger amounts and when implemented frequently. This effect can last from one to three weeks, although we find the magnitude of the daily effect to be relatively small. We do not find evidence, however, that currency purchases are effective. These findings are comparable to the existing literature on the effectiveness of intervention in EMEs.
    Keywords: Currency intervention, exchange rate, treatment effect, causal effect, local projection, Mongolia
    JEL: C14 C32 E58 F31
    Date: 2020–03
  146. By: Bichler, Shimshon; Nitzan, Jonathan
    Abstract: This interview was commissioned in October 2019 for a special issue on ‘Accumulation and Politics: Approaches and Concepts’ to be published by the Revue de la régulation. We submitted the text in March 2020, only to learn two months later that it won’t be published. The problem, we were informed, wasn’t the content, which everyone agreed was ‘highly interesting and stimulating’. It was the format. To begin with, the text was suddenly deemed ‘too long’. Although the length was agreed on beforehand, the special-issue editors – or maybe it was their bosses on the Editorial Board – now insisted that we cut it by no less than two-thirds. They also instructed us to make our answers more ‘interview-like’ and ‘personal’. Finally and perhaps most tellingly, they demanded that we change our ‘tone’, which they found ‘unfair’ and ‘one-sided’. Translation: we should take a hike. This encounter with two-minded editors wasn’t our first. The added epilogue at the end of this interview, titled ‘Manuscripts Don’t Burn’, sketches our history with Jekyll & Hyde editors who have often used ‘length’ and ‘tone’ to reject articles they’ve invited but can’t stomach. But first, the original interview, in full.
    Keywords: capital as power,liberalism,marxism,neoclassical economics,political economy
    JEL: P16 B14 E13 B E11 B52 B25 B
    Date: 2020
  147. By: Cristina Arellano; Yan Bai; Gabriel Mihalache
    Abstract: The COVID-19 epidemic in emerging markets risks a combined health, economic, and debt crisis. We integrate a standard epidemiology model into a sovereign default model and study how default risk impacts the ability of these countries to respond to the epidemic. Lockdown policies are useful for alleviating the health crisis but they carry large economic costs and can generate costly and prolonged debt crises. The possibility of lockdown induced debt crises in turn results in less aggressive lockdowns and a more severe health crisis. We find that the social value of debt relief can be substantial because it can prevent the debt crisis and can save lives.
    Keywords: Default risk; Pandemic mitigation; Sovereign debt; Partial default; Debt relief; COVID-19
    JEL: E52 F34 F41
    Date: 2020–05–22
  148. By: Brotherhood, Luiz; Kircher, Philipp; Santos, Cezar; Tertilt, Michèle
    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: age-specific policies; COVID-19; social distancing; Testing
    JEL: C63 D62 E17 I10 I18
    Date: 2020–05
  149. By: Exley B.D. Silumbu (University of Malawi)
  150. By: Njunguna Ndung'u (University of Nairobi)
  151. By: Wolter, Marc Ingo; Helmrich, Robert; Schneemann, Christian (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Zika, Gerd (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This article gives an interim estimation of the effects of the German government's economic stimulus and crisis management program (3 June 2020) on the economy and the labour market in Germany. The economic stimulus program is intended to mitigate the economic consequences of the COVID-19 pandemic. It is intended to stimulate the economy, preserve jobs and reduce economic and social hardship. With the help of the scenario technique, a number of assumptions are made which relate to the economic stimulus package. Where the measures are specific enough, we make a number of scenario assumptions and integrate them into the QINFORGE analysis tool. The results show that the economic growth in 2020 will be 1.4 percent and another 1.7 percent in 2021 higher than without the package. In addition, the number of people in employment will increase with 200,000 people during 2020 and 240,000 in 2021. In terms of the industries, it is above all the public administration, the education and training industry and the construction industry that are increasingly in demand as a result of the economic stimulus package. In 2021, in addition to the industries mentioned, health care, architecture and engineering offices, land transport as well as the industry of homes and social services will benefit from the economic stimulus package." (Author's abstract, IAB-Doku) ((en))
    JEL: C53 E27 J21
  152. By: Ezra Karger; Aastha Rajan
    Abstract: We identify 16,016 recipients of Covid-19 Economic Impact Payments in anonymized transaction-level debit card data from Facteus. We use an event study framework to show that in the two weeks following a sudden $1,200 payment from the IRS, consumers immediately increased spending by an average of $577, implying a marginal propensity to consume (MPC) of 48%. Consumer spending falls back to normal levels after two weeks. Stimulus recipients who live paycheck-to-paycheck spend 68% of the stimulus payment immediately, while recipients who save much of their monthly income spend 23% of the stimulus payment immediately. Consumer age and location are only marginally correlated with individual MPCs after controlling for each individual’s pre-pandemic propensity to save. We use the 2018 American Community Survey to re-weight our data to match the U.S. population. Ignoring equilibrium effects and assuming a constant MPC for each person, we estimate that the CARES Act’s $296 billion of payments to individuals will increase consumer spending by $138 billion (47% of total outlays). A stimulus bill of the same size targeted at individuals with the highest MPCs would have instead increased consumer spending by $201 billion (68% of total outlays).
    Keywords: Covid-19; CARES Act; high-frequency data; stimulus payments; marginal propensity to consume
    JEL: D04 D12 E21
    Date: 2020–05–28
  153. By: Born, Benjamin; Dietrich, Alexander; Müller, Gernot
    Abstract: Is a lockdown an effective means to limit the spread of the COVID-19 pandemic? We study the case of Sweden---one of the few countries without a lockdown---and use synthetic control techniques to develop a counterfactual lockdown scenario. First, we use a "donor pool" of European countries to construct a doppelganger that behaves just like Sweden in terms of infections before the lockdown. Second, we find that infection dynamics in the doppelganger since the lockdown do not systematically differ from the actual dynamics in Sweden. Third, we study Google mobility data and find that Swedes adjusted their activities in similar ways as in the doppelganger, although to a somewhat lesser extent.
    Keywords: counterfactual; COVID-19; doppelganger; Google mobility reports; infections; lockdown; social restraint; synthetic control
    JEL: E60
    Date: 2020–05
  154. By: Ashish Kumar Sedai; Rabindra Nepal; Tooraj Jamasb
    Abstract: Access to reliable energy is central to improvements in living standards and is a recognized Sustainable Development Goal. This study moves beyond counting the electrified households and examines the effect of the hours of electricity households receives on their welfare. We hypothesize that additional hours of electricity have different effects on the poor, the middle income and the rich, in rural and urban areas. The methods used are panel fixed effects instrumental variables, cross sectional fixed effects instrumental variables, and logistic regression with data from the Indian Human Development Survey 2005-2012. We focus on extensive and the intensity margins, i.e. how access and additional hours of electricity affect household welfare in terms of consumption expenditure, income, assets and poverty status. The results show large gaps between benefits and costs of electricity supply among consumer groups. We also find that electricity theft is positively correlated with the net returns from electrification. A progressive pricing mechanism with targeted subsidies for the poor could therefore increase household welfare while reducing the financial losses of the State Electricity Boards.
    Keywords: Reliable Energy, Electrification, Household Welfare, Panel Fixed Effects, Instrumental Variables Approach
    JEL: D12 D31 E2 I32
    Date: 2020–04
  155. By: Assenza, Tiziana; Collard, Fabrice; Dupaigne, Martial; Fève, Patrick; Hellwig, Christian; Kankanamge, Sumudu; Werquin, Nicolas
    Abstract: We develop a comprehensive framework for analyzing optimal economic policy during a pandemic crisis in a dynamic economic model that trades off pandemic-induced mortality costs against the adverse economic impact of policy interventions. We use the comparison between the planner problem and the dynamic decentralized equilibrium to highlight the margins of policy intervention and describe optimal policy actions. As our main conclusion, we provide a strong and novel economic justification for the current approach to dealing with the pandemic, which is different from the existing health policy rationales. This justification is based on a simple economic concept, the shadow price of infection risks, which succinctly captures the static and dynamic trade-offs and externalities between economic prosperity and mortality risk as the pandemic unfolds.
    Keywords: optimal policy; pandemic crisis
    JEL: E1 H0 I1
    Date: 2020–05
  156. By: Kabbashi M. Suliman (Department of Economics Faculty of Economic and Social Studies University of Khartoum Sudan)
  157. By: Alain Siri (CEDRES, University of Ouaga II, Burkina Faso)
  158. By: Bengtsson, Erik; Rubolino, Rocco Enrico; Waldenström, Daniel
    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: economic history; event study; Factor shares; inequality; institutions
    JEL: D33 E02 N00
    Date: 2020–05
  159. By: D. Olu Ajakaiye (Nigerian Institute of Social and Economic Research)
  160. By: Haoyang Liu; Desi Volker
    Abstract: On April 9, 2020, the Federal Reserve announced that it would take additional actions to provide up to $2.3 trillion in loans to support the economy in response to the COVID-19 crisis. Among the measures taken was the establishment of a new facility intended to facilitate lending to small businesses via the Small Business Administration's Paycheck Protection Program (PPP). Under the Paycheck Protection Program Liquidity Facility (PPPLF), Federal Reserve Banks are authorized to supply liquidity to financial institutions participating in the PPP in the form of term financing on a non-recourse basis while taking PPP loans as collateral. The facility was launched April 16, 2020. As of May 7, it had issued over $29 billion in loans (see the H.4.1 Statistical Release). This post lays out the background for the PPPLF and discusses its intended effects.
    Keywords: Paycheck Protection Program (PPP); Paycheck Protection Program Liquidity Facility (PPPLF); COVID-19; Federal Reserve facilities; CARES Act
    JEL: E5
    Date: 2020–05–20
  161. By: Narula, Rajneesh (John H. Dunning Centre for International Business, Henley Business School, University of Reading)
    Abstract: In the developing world, the informal economy can account for as much as 80% of the population. I focus on the urban component of informality, where both informal employment and informal enterprises are especially vulnerable to the pandemic-induced economic shock. I explain the complex nature of informality, some of the reasons for its persistence, and its interdependency with the formal economy, especially in the manufacturing sector, through global value chains. Large firms (whether MNEs or domestic firms) sub-contract considerable activity to informal enterprises, but this is precarious in character. I suggest the crisis provides the circumstances for greater active engagement with informal actors, by placing informal enterprises on par with formal firms within industrial policy. I propose integration and registration, as opposed to formalization, and the provision of state support without taxation. The role of the state is also crucial in matchmaking, creating incentives for GVCs to engage with informal actors systematically, and to reduce the transaction costs for informal actors in such engagement. These actions are likely to provide benefits in the longer run, even if they prove costly in the short run.
    Keywords: informal enterprises, dual economies, urban poor, linkages, employment, policy
    JEL: E26 O17 O19 O25
    Date: 2020–05–29
  162. By: Charpe, Matthieu.
    Date: 2019
  163. By: Rubén Ortuño (Banco de España); José M. Sánchez (Banco de España); Diego Álvarez (Banco de España); Miguel López (Banco de España); Fernando León (Banco de España)
    Abstract: The aim of this paper is to present a methodology on the application of neuroanalysis to the design of banknotes and security features. Traditionally, evaluation of the perception of banknotes is based on explicit personal responses obtained through questionnaires and interviews. The implicit measures refer to methods and techniques capable of capturing people's implicit mental processes. Neuroscience has shown that, in most brain processes regulating emotions, attitudes, behaviours and decisions, human consciousness does not intervene. That is to say, these implicit processes are brain functions that occur automatically and without conscious control. The methodology on neuroanalysis can be applied to the design of banknotes and security features, and used as an effective analysis tool to assess people's cognitive processes, namely: visual interest, attention to certain areas of the banknote, emotions, motivation and the mental load to understand the design and level of stimulation. The proposed neuroanalysis methodology offers a criterion for making decisions about which banknote designs and security features have a more suitable configuration for the public. It is based on the monitoring of conscious processes, using traditional explicit measures, and unconscious processes, using neurometric techniques. The neuroanalysis methodology processes quantifiable neurometric variables obtained from the public when processing events, such as eye movement, sight fixation, facial expression, heart rate variation, skin conductance, etc. A neuroanalysis study is performed with a selected group of people representative of the population for which the design of a banknote or security features is made. In the neurometric study, suitably prepared physical samples are shown to the participants to collect their different neurometric responses, which are then processed to draw conclusions.
    Keywords: neuroscience, eye tracking, biometrics, neurometrics, banknotes, neurodesign, security feature, perception, human behaviour
    JEL: C13 D87 E42
    Date: 2020–04
  164. By: Nii K. Sowa; John K Kwakye; Asaf Adebua (University of Ghana, Legon)

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