nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒06‒29
117 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Anatomy of the Transmission of Macroprudential Policies By Viral V. Acharya; Katharina Bergant; Matteo Crosignani; Tim Eisert; Fergal J. McCann
  2. Monetary Policy with Opinionated Markets By Ricardo J. Caballero; Alp Simsek
  3. A structural investigation of quantitative easing By Böhl, Gregor; Goy, Gavin; Strobel, Felix
  4. What's up with the Phillips Curve? By Del Negro, Marco; Lenza, Michele; Primiceri, Giorgio E; Tambalotti, Andrea
  5. A Simple Macro-model of Covid-19 with Special Reference to India By Parui, Pintu
  6. Unexpected Effects: Uncertainty, Unemployment, and Inflation By Freund, L. B; Rendahl, P.
  7. Disasters Everywhere: The Costs of Business Cycles Reconsidered By Jordá, Óscar; Schularick, Moritz; Taylor, Alan M.
  8. The Economics of the Fed Put By Cieslak, Anna; Vissing-Jørgensen, Annette
  9. La sensibilité de l'économie congolaise face aux chocs monétaire et budgétaire : une approche en modèle var standard By ASIANI, Freddy
  10. Systemic Banking Crises Database: A Timely Update in COVID-19 Times By Laeven, Luc; Valencia, Fabian
  11. Nonlinear Production Networks with an Application to the Covid-19 Crisis By David Baqaee; Emmanuel Farhi
  12. The credibility of the ECB's inflation target in times of Corona: New evidence from an online survey By Coleman, Winnie; Nautz, Dieter
  13. Can the Covid Bailouts Save the Economy? By Vadim Elenev; Tim Landvoigt; Stijn Van Nieuwerburgh
  14. On the stability of euro area money demand and its implications for monetary policy By Barigozzi, Matteo
  15. Big G By Cox, Lydia; Müller, Gernot; Pasten, Ernesto; Schoenle, Raphael; Weber, Michael
  16. Unemployment and Endogenous Reallocation over the Business Cycle By Carlos Carrillo-Tudela; Ludo Visschers
  17. The Fiscal Theory of the Price Level with a Bubble By Brunnermeier, Markus K; Merkel, Sebastian; Sannikov, Yuliy
  18. The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy By Anna Stansbury; Lawrence H. Summers
  19. Consumption insurance over the business cycle By Broer, Tobias
  20. The costs of macroprudential deleveraging in a liquidity trap By Chen, Jiaqian; Finocchiaro, Daria; Lindé, Jesper; Walentin, Karl
  21. Inflation Expectations in Times of COVID-19 By Olivier Armantier; Gizem Koşar; Rachel Pomerantz; Daphne Skandalis; Kyle Smith; Giorgio Topa; Wilbert Van der Klaauw
  22. The Bond Lending Channel of Monetary Policy By Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
  23. The Bond Lending Channel of Monetary Policy By Darmouni, O.; Giesecke, O.; Rodnyansky, R.
  24. When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases By Berge, T.; De Ridder, M.; Pfajfar, D.;
  25. Oil price assumptions for macroeconomic policy By Degiannakis, Stavros; Filis, George
  26. Privacy in CBDC technology By Sriram Darbha; Rakesh Arora
  27. A No-Arbitrage Perspective on Global Arbitrage Opportunities By Patrick Augustin; Mikhail Chernov; Lukas Schmid; Dongho Song
  28. How Should Policy Responses to the COVID-19 Pandemic Differ in the Developing World? By Titan M. Alon; Minki Kim; David Lagakos; Mitchell VanVuren
  29. Financial Deepening, Credit Crises, Human Capital and Growth By Sergio Salas; Kathleen Odell
  30. On Recessive and Expansionary Impact of Financial Development: Empirical Evidence By Nguena, Christian-Lambert; Kodila-Tedika, Oasis
  31. The Murder-Suicide of the Rentier: Population Aging and the Risk Premium By Kopecky, Joseph V.; Taylor, Alan M.
  32. The Vanishing Procyclicality of Labour Productivity By GalÌ, Jordi; van Rens, Thijs
  33. Macro-Financial Linkages in a Structural Model of the Irish Economy By McInerney, Niall
  34. Macroeconomic Dynamics and Reallocation in an Epidemic By Krueger, Dirk; Uhlig, Harald; Xie, Taojun
  35. Security of a CBDC By Cyrus Minwalla
  36. Gewaltiger Einbruch und nur allmähliche Erholung: IW-Konjunkturprognose Frühsommer 2020 By Bardt, Hubertus; Beznoska, Martin; Demary, Markus; Grömling, Michael; Hüther, Michael; Kolev, Galina V.; Matthes, Jürgen; Pimpertz, Jochen; Schäfer, Holger
  37. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016 By Bartscher, Alina; Kuhn, Moritz; Schularick, Moritz; Steins, Ulrike
  38. Startups and Employment Following the COVID-19 Pandemic: A Calculator By Sedlacek, Petr; Sterk, Vincent
  39. IW Financial Expert Survey: Second Quarter 2020 By Demary, Markus; Hasenclever, Stefan
  40. Accounting for U.S. post-war economic growth By del Río, Fernando; Lores, Francisco-Xavier
  41. Macroprudential Policy and Household Debt: What is Wrong with Swedish Macroprudential Policy? By Svensson, Lars E.O.
  42. The Macroeconomic Stabilization Of Tariff Shocks: What Is The Optimal Monetary Response? By Bergin, P. R.; Corsetti, G.
  43. Forecasting Consumption Spending Using Credit Bureau Data By Dean Croushore; Stephanie M. Wilshusen
  44. Bank Lending, Monetary Policy Transmission, and Interest on Excess Reserves: a FAVAR Analysis By Chetan Dave; Scott J. Dressler; Lei Zhang
  45. Rent Creation and Rent Sharing: New Measures and Impacts on Total Factor Productivity By Gilbert Cette; Jimmy Lopez; Jacques Mairesse
  46. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016 By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Ulrike I. Steins
  47. The Supply of Hours Worked and Endogenous Growth Cycles By Ka-Kit Iong; Andreas Irmen
  48. The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response? By Bergin, Paul R; Corsetti, Giancarlo
  49. Robust Identification of Investor Beliefs By Xiaohong Chen; Lars P. Hansen; Peter G. Hansen
  50. Monetary Policy and Income Inequality in the United States: The Role of Labor Unions By Kilman, Josefin
  51. Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years? By Robert E. Hall; Marianna Kudlyak
  52. Macroprudential policy, mortgage cycles and distributional effects: Evidence from the UK By José-Luis Peydró; Francesc R. Tous; Jagdish Tripathy; Arzu Uluc
  53. Why Fiscal Regimes Matter for Fiscal Sustainability By Pierre Aldama; Jérôme Creel
  54. Optimal Unemployment Benefits in the Pandemic By Mitman, Kurt; Rabinovich, Stanislav
  55. Coping with Disasters: Two Centuries of International Official Lending By Sebastian Horn; Carmen M. Reinhart; Christoph Trebesch
  56. Macroeconomic determinants of Household Consumption in selected West African Countries By Chimere O. Iheonu; Tochukwu Nwachukwu
  57. Cryptocurrency market reactions to regulatory news By Auer, Raphael; Claessens, Stijn
  58. The Cyclicality of Labor Force Participation Flows: The Role of Labor Supply Elasticities and Wage Rigidity By Isabel Cairo; Shigeru Fujita; Camilo Morales-Jimenez
  59. Macroeconomic determinants of Household Consumption in selected West African Countries By Chimere O. Iheonu; Tochukwu Nwachukwu
  60. How do the Tax Burden and the Fiscal Space in Latin America look like? Evidence through Laffer Curves By Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
  61. The Coronavirus Stimulus Package: How large is the transfer multiplier? By Bayer, Christian; Born, Benjamin; Luetticke, Ralph; Müller, Gernot
  62. Fiscal Rules as Bargaining Chips By Piguillem, Facundo; Riboni, Alessandro
  63. Endogenous Task-Based Technical Change - Factor Scarcity and Factor Prices By Andreas Irmen
  64. Economic Policy Uncertainty: Persistence and Cross-Country Linkages By Emmanuel Joel Aikins Abakah; Guglielmo Maria Caporale; Luis A. Gil-Alana
  65. Putting the Current Oil Price Collapse into Historical Perspective By Jan J. J. Groen; Michael Nattinger
  66. An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies By Jonathan S. Hartley; Alessandro Rebucci
  67. Foreign Direct Investment, Information Technology and Economic Growth Dynamics in Sub-Saharan Africa By Asongu, Simplice; Odhiambo, Nicholas
  68. High Order Openness By Imbs, Jean; Pauwels, Laurent
  69. Health Shocks and the Evolution of Earnings over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  70. The Macroeconomics of a Pandemic: A Minimalist Model By Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
  71. The Cost of the COVID-19 Crisis: Lockdowns, Macroeconomic Expectations, and Consumer Spending By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
  72. COVID-19 Infection Externalities: Trading Off Lives vs. Livelihoods By Bethune, Zachary; Korinek, Anton
  73. The Hammer and the Scalpel: On the Economics of Indiscriminate versus Targeted Isolation Policies during Pandemics By Varadarajan V. Chari; Rishabh Kirpalani; Christopher Phelan
  74. Digital Currency and the Economic Crisis: Helping States Respond By Geoffrey Goodell; Hazem Danny Al-Nakib; Paolo Tasca
  75. Measuring Macroeconomic Uncertainty: A Cross-Country Analysis By Andreas Dibiasi; Samad Sarferaz
  76. The Long Run Stability of Money in the Proposed East African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  77. The Long Run Stability of Money in the Proposed East African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  78. Post-Covid 19 economic development and policy: submitted as recommendations to the Scottish economic recovery group By Anand, Paul; Blanchflower, Danny; Bovens, Luc; De Neve, Jan-Emmanuel; Graham, Carol; Nolan, Brian; Krekel, Christian; Thoma, Johanna
  79. Do macroeconomic factors affect the credit risk of islamic banks? evidence from Malaysia By Sapian, Safeza; Masih, Mansur
  80. Firm-Level Expectations and Behavior in Response to the COVID-19 Crisis By Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
  81. Ukraine; Request for Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Ukraine By International Monetary Fund
  82. Sierra Leone; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone By International Monetary Fund
  83. A two-phase dynamic contagion model for Covid-19 By Chen, Zezhun; Dassios, Angelos; Kuan, Valerie; Lim, Jia Wei; Qu, Yan; Surya, Budhi; Zhao, Hongbiao
  84. Automation, Growth, an Factor Shares in the Era of Population Aging By Andreas Irmen
  85. The Commercial Paper Funding Facility By Nina Boyarchenko; Richard K. Crump; Anna Kovner
  86. The Impact of Inflation Targeting on Inflation and Growth: How Robust Is the Evidence? By Junankar, Pramod N. (Raja); Wong, Chun Yee
  87. Designing a CBDC for universal access By John Miedema; Cyrus Minwalla; Martine Warren; Dinesh Shah
  88. Endogenous Business Cycles with Bubbles By ASAOKA Shintaro
  89. Optimal COVID-19 Quarantine and Testing Policies By Piguillem, Facundo; Shi, Liyan
  90. Not all Terms of Trade Shocks are Alike By Juvenal, Luciana; Petrella, Ivan
  91. The unequal scarring effects of a recession on young people's life chances By Jake Anders; Lindsey Macmillan
  92. The Real Side of the High-Volume Return Premium By Israeli, Doron; Kaniel, Ron; Sridharan, Suhas A.
  93. Reopening Scenarios By David Baqaee; Emmanuel Farhi; Michael J. Mina; James H. Stock
  94. Macro-Finance Decoupling: Robust Evaluations of Macro Asset Pricing Models By Xu Cheng; Winston Wei Dou; Zhipeng Liao
  95. Sovereign Default Risk and Credit Supply: Evidence from the Euro Area By Olli Palm\'en
  96. Spatial Misallocation in Chinese Housing and Land Markets By Yongheng Deng; Yang Tang; Ping Wang; Jing Wu
  97. Wealth effect on consumption during the sovereign debt crisis: Households heterogeneity in the Euro area By Bertrand Garbinti; Pierre Lamarche; Charlélie Lecanu; Frédérique Savignac
  98. Capital Dynamics, Global Value Chains, Competitiveness and Barriers to FDI and Capital Accumulation in the EU By Amat Adarov; Robert Stehrer
  99. Monetary Policy and Asset Price Bubbles: A Laboratory Experiment By Jordi Galí; Giovanni Giusti
  100. Barbados; Third Review Under the Extended Arrangement, Requests for Augmentation of Access, and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Barbados By International Monetary Fund
  101. The Primary Dealer Credit Facility By Antoine Martin; Susan McLaughlin
  102. The Open-Economy ELB: Contractionary Monetary Easing and the Trilemma By Cavallino, Paolo; Sandri, Damiano
  103. The Credit Spread Curve Distribution and Economic Fluctuations in Japan By OKIMOTO Tatsuyoshi; TAKAOKA Sumiko
  104. The Dynamics of Corporate Debt Structure By Halling, Michael; Yu, Jin; Zechner, Josef
  105. Inflation Dynamics of Financial Shocks By Olli Palm\'en
  106. Social Distancing and Supply Disruptions in a Pandemic By Bodenstein, M.; Corsetti, G.; Guerrieri, L.
  107. Central bank independence and systemic risk By Andrieș, Alin Marius; Podpiera, Anca Maria; Sprincean, Nicu
  108. The cost of CO2 abatement from Britain’s only PWR: Sizewell B By Newbery, D.
  109. Pareto-improving transition to fully funded pensions under myopia By Andersen, Torben M; Bhattacharya, Joydeep; Gestsson, Marias H
  110. Trade Credit and the Transmission of Unconventional Monetary Policy By Adelino, Manuel; Ferreira, Miguel; Giannetti, Mariassunta; Pires, Pedro
  111. A World Divided: Refugee Centers, House Prices, and Household Preferences By Koster, Hans R.A.
  112. On Green Growth with Sustainable Capital By Basu, P.; Jamasb, T.
  113. Short-Term Impact of COVID-19 on Consumption and Labor Market Outcomes: Evidence from Singapore By Kim, Seonghoon; Koh, Kanghyock; Zhang, Xuan
  114. African Continental Free Trade Area : What Implications for African Central Banks? By PINSHI, Christian P.
  115. 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
  116. Blowing against the Wind? A Narrative Approach to Central Bank Foreign Exchange Intervention By Alain Naef
  117. Zambie : entre ressources abondantes et vulnérabilité aux chocs By Meghann Puloc’h

  1. By: Viral V. Acharya; Katharina Bergant; Matteo Crosignani; Tim Eisert; Fergal J. McCann
    Abstract: We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.
    JEL: E21 E44 E58 G21 R21
    Date: 2020–05
  2. By: Ricardo J. Caballero; Alp Simsek
    Abstract: Central banks (the Fed) and markets (the market) often disagree about the path of interest rates. We develop a model that explains this disagreement and study its implications for monetary policy and asset prices. We assume that the Fed and the market disagree about expected aggregate demand. Moreover, agents learn from data but not from each other---they are opinionated and information is fully symmetric. We then show that disagreements about future demand, together with learning, translate into disagreements about future interest rates. Moreover, these disagreements shape optimal monetary policy, especially when they are entrenched. The market perceives monetary policy "mistakes" and the Fed partially accommodates the market's view to mitigate the financial market fallout from perceived "mistakes." We also show that differences in the speed at which the Fed and the market react to the data---heterogeneous data sensitivity---matters for asset prices and interest rates. With heterogeneous data sensitivity, every macroeconomic shock has an embedded monetary policy "mistake" shock. When the Fed is more (less) data sensitive, the anticipation of these mistakes dampen (amplify) the impact of macroeconomic shocks on asset prices.
    JEL: E00 E12 E21 E32 E43 E44 G11 G12
    Date: 2020–06
  3. By: Böhl, Gregor; Goy, Gavin; Strobel, Felix
    Abstract: Did the Federal Reserves' Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, the authors estimate a large-scale DSGE model over the sample from 1998 to 2020, including data of the Fed's balance sheet. The authors allow for QE to affect the economy via multiple channels that arise from several financial frictions. Their nonlinear Bayesian likelihood approach fully accounts for the zero lower bound on nominal interest rates. They find that between 2009 to 2015, QE increased output by about 1.2 percent. This reflects a net increase in investment of nearly 9 percent, that was accompanied by a 0.7 percent drop in aggregate consumption. Both, government bond and capital asset purchases were effective in improving financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated which led to a mild disinflationary effect of about 0.25 percent annually.
    Keywords: Quantitative Easing,Liquidity Facilities,Zero Lower Bound,Nonlinear Bayesian Estimation
    JEL: E63 C63 E58 E32 C62
    Date: 2020
  4. By: Del Negro, Marco; Lenza, Michele; Primiceri, Giorgio E; Tambalotti, Andrea
    Abstract: The business cycle is alive and well, and real variables respond to it more or less as they always did. Witness the Great Recession. Inflation, in contrast, has gone quiescent. This paper studies the sources of this disconnect using VARs and an estimated DSGE model. It finds that the disconnect is due primarily to the muted reaction of inflation to cost pressures, regardless of how they are measured-a flat aggregate supply curve. A shift in policy towards more forceful inflation stabilization also appears to have played some role by reducing the impact of demand shocks on the real economy. The evidence rules out stories centered around changes in the structure of the labor market or in how we should measure its tightness.
    JEL: E31 E32 E37 E52
    Date: 2020–04
  5. By: Parui, Pintu
    Abstract: Motivated by the prevailing severe situation in India, we extend the SIR(S) model of infectious diseases to incorporate demand dynamics and its interaction with Covid-19 spread. We argue that, on one hand, spread of Covid-19 creates panic among consumers and firms and negatively affects economic activity. On the other hand, economy activity intensifies the spread of the infection. Initially assuming that recovered individuals do not develop antibody and become susceptible again, we capture the interaction between economic activity and spread of the disease in a two-dimensional dynamical system. We show that a large fiscal expansion combined with measures to boost community health as well as improve health sector's capacity to provide critical care can at the same time improve the economy and control the spread of the disease. We also find a slightly counter-intuitive result that a fiscal contraction can, under certain conditions, increase output and reduce number of infected individuals. However, we show that such a policy also increases fragility in the system. Finally assuming that only a fraction of recovered individuals become susceptible to contracting the diseases again, we obtain richer dynamics in a three-dimensional dynamical system. The paper also highlights the important role of speed of adjustment in the goods market in stability properties of steady state including emergence of limit cycles.
    Keywords: Effective Demand, Animal Spirits, Consumer Confidence, Cycles, Fiscal Policy, Public Health, Covid-19
    JEL: E21 E32 E62 H51
    Date: 2020–05–25
  6. By: Freund, L. B; Rendahl, P.
    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: COVID-19, Uncertainty, unemployment, inflation, search frictions
    JEL: J64 E21 E32
    Date: 2020–05–04
  7. By: Jordá, Óscar; Schularick, Moritz; Taylor, Alan M.
    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: Asymmetry; Fluctuations; local projections; macroprudential policy; Random coefficients
    JEL: E13 E21 E22 E32
    Date: 2020–04
  8. By: Cieslak, Anna; Vissing-Jørgensen, Annette
    Abstract: Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed's growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.
    Keywords: Fed put; monetary policy; Stock market; Taylor rules; textual analysis
    JEL: E44 E52 E58
    Date: 2020–04
  9. By: ASIANI, Freddy
    Abstract: In this paper, we will analyze the sensitivity of economic activity to monetary and bugetary shocks in the Democratic Republic of the congo, based on a method of extracting the cycles of real activity, inflation, monetary and budgetary variables, a granger causality and an autoregressive vector methodology (var). in terms of analysis of macroeconomic policies in the Democratic Republic of Congo, taking into account the objectives and means defined for each policy, the results obtained show that monetary policy has difficulty in achieving its objectives of price stability, while budgetary policy was in deficit.
    Keywords: Congolese economy, standard var model, monetary policy, fiscal policy, economic growth, causality, impulse reponse
    JEL: E01 E22 E23 E62
    Date: 2020–06–20
  10. By: Laeven, Luc; Valencia, Fabian
    Abstract: This paper updates the database on systemic banking crises presented in Laeven and Valencia (2013a). Drawing on 151 systemic banking crises episodes around the globe during 1970-2017, the database includes information on crisis dates, policy responses to resolve banking crises, and the fiscal and output costs of crises. We provide new evidence that crises in high-income countries tend to last longer and be associated with higher output losses, lower fiscal costs, and more extensive use of bank guarantees and expansionary macro policies than crises in low- and middle-income countries. We complement the banking crises dates with sovereign debt and currency crises dates to find that sovereign debt and currency crises tend to coincide with or follow banking crises.
    Keywords: Bank Restructuring; Banking Crisis; Crisis Resolution; financial crisis
    JEL: E50 E60 G20
    Date: 2020–04
  11. By: David Baqaee; Emmanuel Farhi
    Abstract: We study the effects of negative supply shocks and shocks to the composition of final demand on aggregate output in a disaggregated neoclassical model with multiple sectors, factors, and input-output linkages. We show how nonlinearities associated with complementarities in consumption and production amplify the effect of negative supply shocks by creating supply bottlenecks and disrupting supply chain networks. These nonlinearities are particularly potent when the shocks are more heterogeneous as the worst-affected sectors drag down the other sectors. Nonlinearities are strengthened when changes in preferences lead households to tilt the composition of their demand towards the crippled sectors directly and indirectly through their supply chains. And nonlinearities are further intensified when factors cannot easily be reallocated across sectors to reinforce weak links. A quantitative investigation suggests that nonlinearities may amplify the impact of the Covid-19 shock by between 10\%-100\%, depending on the horizon of analysis and the exact size of the shocks.
    JEL: E0 E1 E2 E30
    Date: 2020–05
  12. By: Coleman, Winnie; Nautz, Dieter
    Abstract: Evidence on the credibility of a central bank's inflation target typically refers to the anchoring of survey-based measures of inflation expectations. However, both the survey question and the anchoring criteria are only loosely connected to the actual inflation target used in monetary policy practice. By using the exact wording of the ECB's definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure the time-varying credibility of the inflation target. Our results indicate that credibility has significantly decreased in our sample period, particularly in the course of the coronavirus pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term.
    Keywords: Credibility of Inflation Targets,Household Inflation Expectations,Online Surveys,Coronavirus pandemic
    JEL: E31 E52 E58
    Date: 2020
  13. By: Vadim Elenev; Tim Landvoigt; Stijn Van Nieuwerburgh
    Abstract: The covid-19 crisis has led to a sharp deterioration in firm and bank balance sheets. The government has responded with a massive intervention in corporate credit markets. We study equilibrium dynamics of macroeconomic quantities and prices, and how they are affected by government policy. The interventions prevent a much deeper crisis by reducing corporate bankruptcies by about half and short-circuiting the doom loop between corporate and financial sector fragility. The additional fiscal cost is zero since program spending replaces what would otherwise have been spent on intermediary bailouts. The model predicts rising interest rates on government debt and slow debt pay-down. We analyze an alternative intervention that targets aid to firms at risk of bankruptcy. While this policy prevents more bankruptcies and has lower fiscal cost, it only enjoys marginally higher welfare. Finally, we study longer-run consequences for firm leverage and intermediary health when pandemics become the new normal.
    JEL: E3 E4 E44 E6 G1
    Date: 2020–05
  14. By: Barigozzi, Matteo
    Abstract: On the Stability of Euro Area Money Demandand its Implications for Monetary PolicyFebruary 27, 2018AbstractWe employ a recent time-varying cointegration test to revisit the usefulness of long-runmoney demand equations for the ECB, addressing the issue of their instability by meansof a model evaluation exercise. Building on the results, we make a twofold contribution.First, we propose a novel stable money demand equation relying on two crucial factors:a speculative motive, represented by domestic and foreign price-earnings ratios, and aprecautionary motive, measured by changes in unemployment. Second, we use the modelto derive relevant policy implications for the ECB, since excess liquidity looks more usefulfor forecasting stock market busts than future inflation. Overall, this evidence pointsto (i) a possible evolution of the monetary pillar in the direction of pursuing financialstability and (ii) the exclusion of a sudden liquidity–driven inflationary burst after theexit from the prolonged period of unconventional monetary measures.
    Keywords: money demand; time-varying cointegration; monetary policy; financial stabil-ity; price stability
    JEL: C32 E41 E52
    Date: 2018–08–01
  15. By: Cox, Lydia; Müller, Gernot; Pasten, Ernesto; Schoenle, Raphael; Weber, Michael
    Abstract: ``Big G'' typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular, that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation of spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark aligning the model with the empirical evidence.
    Keywords: federal procurement; fiscal policy transmission; government spending; granularity; monetary policy; sectoral heterogeneity
    JEL: E32 E62
    Date: 2020–04
  16. By: Carlos Carrillo-Tudela; Ludo Visschers
    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: unemployment, business cycle, rest, search, occupational mobility
    JEL: E24 E30 J62 J63 J64
    Date: 2020
  17. By: Brunnermeier, Markus K; Merkel, Sebastian; Sannikov, Yuliy
    Abstract: This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy's growth rate.
    Keywords: Fiscal policy; Monetary Economics
    JEL: E44 E52 E63
    Date: 2020–04
  18. By: Anna Stansbury; Lawrence H. Summers
    Abstract: Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.
    JEL: E02 E2 E25 J01 J3 J31 J42 J51 L12
    Date: 2020–05
  19. By: Broer, Tobias
    Abstract: How do business cycle fluctuations affect the ability of households to smooth consumption against idiosyncratic shocks? To answer this question, we first document that, in U.S.\ micro-data, individual consumption reacts more to income changes in booms. Standard incomplete markets models, in contrast, where individuals borrow and save to smooth consumption, predict a lower sensitivity of consumption to individual income changes during times of high output. This motivates us to consider an alternative environment where financial frictions are endogenous and arise from lack of contract enforcement, whose business cycle properties have so far not been studied. We show analytically that this model is consistent with a wide variety of cyclical patterns of insurance. In a quantitative application with unemployment risk, we show that the response of individual consumption to job losses differs strongly between times of high and low output, and identify the conditions under which it is procyclical, as in the data.
    Keywords: business cycles; Consumption Smoothing; Limited Enforcement; Risk Sharing
    JEL: E32 G22
    Date: 2020–04
  20. By: Chen, Jiaqian; Finocchiaro, Daria; Lindé, Jesper; Walentin, Karl
    Abstract: We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate.
    Keywords: Collateral and borrowing constraints; Household Debt; housing prices; Mortgage interest deductibility; New Keynesian Model; zero lower bound
    JEL: E52 E58
    Date: 2020–04
  21. By: Olivier Armantier; Gizem Koşar; Rachel Pomerantz; Daphne Skandalis; Kyle Smith; Giorgio Topa; Wilbert Van der Klaauw
    Abstract: As an important driver of the inflation process, inflation expectations must be monitored closely by policymakers to ensure they remain consistent with long-term monetary policy objectives. In particular, if inflation expectations start drifting away from the central bank’s objective, they could become permanently “un-anchored” in the long run. Because the COVID-19 pandemic is a crisis unlike any other, its impact on short- and medium-term inflation has been challenging to predict. In this post, we summarize the results of our forthcoming paper that makes use of the Survey of Consumer Expectations (SCE) to study how the COVID-19 outbreak has affected the public’s inflation expectations. We find that, so far, households’ inflation expectations have not exhibited a consistent upward or downward trend since the emergence of the COVID-19 pandemic. However, the data reveal unprecedented increases in individual uncertainty—and disagreement across respondents—about future inflation outcomes. Close monitoring of these measures is warranted because elevated levels may signal a risk of inflation expectations becoming unanchored.
    Keywords: inflation expectations; COVID-19
    JEL: E52 E31
    Date: 2020–05–13
  22. By: Darmouni, Olivier; Giesecke, Oliver; Rodnyansky, Alexander
    Abstract: The share of firms' borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."
    Keywords: Banking relationships; corporate bonds; Corporate Finance; financial distress; monetary policy
    JEL: E44 E52 G21 G23
    Date: 2020–04
  23. By: Darmouni, O.; Giesecke, O.; Rodnyansky, R.
    Abstract: The share of firms’ borrowing from bond markets has been rising globally, and notably in the Eurozone. How does debt structure affect the transmission of monetary policy? We present a high-frequency framework that combines identified monetary shocks with a cross-sectional firm-level stock price reaction. Firms with more bonds are disproportionately affected by surprise monetary actions relative to other firms in the Eurozone. This finding stands in contrast to the predictions of a standard bank lending channel and points toward bond financing not being a frictionless "spare tire."
    Keywords: Monetary policy, corporate bonds, banking relationships, corporate finance, financial distress
    JEL: E44 E52 G21 G23
    Date: 2020–05–29
  24. By: Berge, T.; De Ridder, M.; Pfajfar, D.;
    Abstract: This paper compares the effect of fiscal spending on economic activity across four phases of the business cycle. We show that the fiscal multiplier is higher when unemployment is increasing than when it is decreasing. Conversely, fiscal multipliers do not depend on whether the unemployment rate is above or below its long-term trend. This result emerges both in the analysis of long time-series at the U.S. national level as well as for a post-Vietnam War panel of U.S. states. Our findings synthesize previous, at times conflicting, evidence on the state-dependence of fiscal multipliers and imply that fiscal intervention early on in economic downturns is most effective at stabilizing output.
    Keywords: Fiscal multipliers, countercyclical policy, cross-sectional analysis, local projections
    JEL: E62 C31 C32
    Date: 2020–05–14
  25. By: Degiannakis, Stavros; Filis, George
    Abstract: Despite the arguments that are put forward by the literature that oil price forecasts are economically useful, such claim has not been tested to date. In this study we evaluate the economic usefulness of oil price forecasts by means of conditional forecasting of three core macroeconomic indicators that policy makers are predicting, using assumptions about the future path of the oil prices. The chosen indicators are the core inflation rate, industrial production and purchasing price index. We further consider two more indicators, namely inflation expectation and monetary policy uncertainty. To do so, we initially forecast oil prices using a MIDAS framework and subsequently we use regression-based models for our conditional forecasts. Overall, there is diminishing importance of oil price forecasts for macroeconomic projections and policy formulation. An array of arguments is presented as to why this might be the case, which relate to the improved energy efficiency, the contemporary monetary policy tools and the financialisation of the oil market. Our findings remain robust to alternative oil price forecasting frameworks.
    Keywords: Conditional forecasting; oil price forecasts; MIDAS; core inflation; inflation expectations
    JEL: C53 E27 E37 Q47
    Date: 2020–05–27
  26. By: Sriram Darbha; Rakesh Arora
    Abstract: Privacy is a key aspect of a potential central bank digital currency system. We outline different technical choices to enact various privacy models while complying with the appropriate regulations. We develop a framework to evaluate privacy models and list key risks and trade-offs in privacy design.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E42 E5 E51 O3
    Date: 2020–06
  27. By: Patrick Augustin; Mikhail Chernov; Lukas Schmid; Dongho Song
    Abstract: We revisit covered interest parity (CIP) deviations using a no-arbitrage framework. We show theoretically that CIP violations imply arbitrage opportunities only if uncollateralized interbank lending rates are risk free. Empirically, we treat discount rates as latent. We extract them from each country's interest rate swaps and use them to evaluate term structures of forward premiums and cross-currency basis swaps. We match observed forward currency premiums and generate time-series patterns and magnitudes of cross-currency basis swap rates that are broadly consistent with the evidence. We connect our evidence to other prominent phenomena: non-zero Treasury cross-currency forward basis and negative interest rate swap spreads over Treasuries. Our model-implied discount rates are explained by a linear combination of Treasury interest rate and credit risk, convenience premium, and interbank risk. Our residual pricing errors line up with measures of intermediary constraints and the expensiveness of the U.S. dollar, lending support to models of intermediary based asset pricing for quantitatively realistic results.
    JEL: C01 E43 E44 G12 H60
    Date: 2020–05
  28. By: Titan M. Alon; Minki Kim; David Lagakos; Mitchell VanVuren
    Abstract: The COVID-19 pandemic has already led to dramatic policy responses in most advanced economies, and in particular sustained lockdowns matched with sizable transfers to much of the workforce. This paper provides a preliminary quantitative analysis of how aggregate policy responses should differ in developing countries. To do so we build an incomplete-markets macroeconomic model with epidemiological dynamics that features several of the main economic and demographic distinctions between advanced and developing economies relevant for the pandemic. We focus in particular on differences in population structure, fiscal capacity, healthcare capacity, the prevalence of ``hand-to-mouth'' households, and the size of the informal sector. The model predicts that blanket lockdowns are generally less effective in developing countries at reducing the welfare costs of the pandemic, saving fewer lives per unit of lost GDP. Age-specific lockdown policies, on the other hand, may be even more potent in developing countries, saving more lives per unit of lost output than in advanced economies.
    JEL: E2 E6 I15 I28 O17 O41
    Date: 2020–05
  29. By: Sergio Salas; Kathleen Odell
    Abstract: In spite of extensive research exploring the implications of financial matters for economic growth, a general equilibrium macroeconomic model of financial frictions with human capital as an engine of growth is lacking in the literature. This paper helps to fill this gap, proposing a model that includes endogenous growth, human capital, and financial constraints. We derive short-term and long-term predictions from the model. From a long run perspective, we explore the relationship between financial depth and growth, and predict that this relationship is non-monotonic. Higher financial depth is initially associated with higher growth, but at diminishing rates. Further increases in financial depth become growth detrimental. From a short-run perspective, we analyze the role of transitory financial disruptions in producing persistent economic changes, a phenomenon that arguably happened during the Great Recession and the years that followed. We propose an explanation for these persistent effects based on human capital.
    Keywords: endogenous growth, financial depth, credit crunch, human capital, heterogeneous agents, fiscal policy
    JEL: O4 E44
    Date: 2020–06
  30. By: Nguena, Christian-Lambert; Kodila-Tedika, Oasis
    Abstract: This paper mainly examines the effect of financial development on the recession, while controlling for potential recession factors. Using panel data of 129 countries spanning 1990-2010, we implemented “Locally Weighted Scatterplot Smoothing”, “Local Linear” and “Iteratively Reweighted Least Squares” regression methods along with a Sasabuchi test to verify the inverse U-shape to estimate the extreme point for the non-linear specification. We mainly found a nonlinear and thus U-shaped relationship between recession and financial development with a threshold effect of 1.1528, which validate financial development recessive and expansionary real impacts. The financial development process presents an expansionary impact for countries with financial performance less than 1.1528, and countries with financial performance above the threshold of 1.1528 present a recessionary impact of financial development. Moreover, we found that trade openness contributes to increasing recession independently to the estimation method. Thus during economic crises of recession, policymakers should hold-on regional integration along with globalization doctrines. On the contrary, fuels for South Asia (SASIA) and Latin America and Caribbean (LAC) countries and financial openness for sub-Saharan Africa (SSA) countries impact negatively recessions; countries who manage their oil production in a good manner will also reduce the probability and impact of recessions, and appear to have an expansionary real impact only. Thus, to fight against recession, SASIA and LAC countries should well manage oil production and usage while SSA countries may manage their financial openness. Verifying the robustness permit us to confirm the baseline and extended model specification findings in terms of coefficients sign and significance; furthermore, to highlight SSA, SASIA and LAC as the order of continental/regional importance in increasing magnitude. Finally, the semiparametric regression shows that the results of the parametric part converge with the previous results in general, and bear out with illustration the functional form of the nonlinear relation between recession and financial development.
    Keywords: Economic recession,Financial development,Macroeconomic disaster,Barro & Ursha database
    JEL: E32 E44 O16 O50
    Date: 2020
  31. By: Kopecky, Joseph V.; Taylor, Alan M.
    Abstract: Population aging has been linked to global declines in interest rates. A similar trend shows that equity risk premia are on the rise. An existing literature can explain part of the decline in the trend in safe rates using demographics, but has no mechanism to speak to trends in relative asset prices. We calibrate a heterogeneous agent life-cycle model with equity markets, showing that this demographic channel can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing premium attached to risky assets. This is because the life cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue push the risk free rate further into negative territory, while the equity risk premium remains elevated.
    Keywords: demographics; Life-Cycle Model; OLG model; Rates of return; risky assets; safe assets; secular stagnation
    JEL: E21 E43 G11 J11
    Date: 2020–04
  32. By: GalÌ, Jordi (CREI, UPF and Barcelona GSE); van Rens, Thijs (University of Warwick)
    Abstract: We document two changes in postwar US macroeconomic dynamics: the procyclicality of labour productivity vanished, and the relative volatility of employment rose. We propose an explanation for these changes that is based on reduced hiring frictions due to improvements in information about the quality of job matches and the resulting decline in turnover. We develop a simple model with hiring frictions and variable e§ort to illustrate the mechanisms underlying our explanation. We show that our model qualitatively and quantitatively matches the observed changes in business cycle dynamics
    Keywords: labour hoarding, hiring frictions, e§ort choice JEL Classification: E24; E32
    Date: 2020
  33. By: McInerney, Niall (Central Bank of Ireland)
    Abstract: We specify and estimate a system of macro-financial linkages that incorporate transmission channels for both borrower- and lender-based macroprudential instruments. We then embed these linkages in a structural macro model of the Irish economy. To illustrate the usefulness of the model for policy analysis, we simulate several scenarios. We first show that regulatory changes to LTI and LTV ratios have a relatively large impact on the real economy, primarily through consumption. We next examine the stabilising properties of the countercyclical capital buffer. We find that releasing this buffer in response to an adverse real and financial shock can partially attenuate of the ensuing contraction in credit and output. Finally, we consider the impact of an exogenous fall in commercial real estate prices and demonstrate that this sector can generate significant macro-financial volatility.
    Keywords: Banking, macroprudential, house prices, structural modelling
    JEL: E5 E53 E52 G21
    Date: 2020–05
  34. By: Krueger, Dirk; Uhlig, Harald; Xie, Taojun
    Abstract: In this paper we argue that endogenous shifts in private consumption behavior across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. Extending the theoretical framework proposed by Eichenbaum-Rebelo-Trabandt (2020), we distinguish goods by their degree to which they can be consumed at home rather than in a social (and thus possibly contagious) context. We demonstrate that, within the model the "Swedish solution" of letting the epidemic play out without government intervention and allowing agents to shift their sectoral behavior on their own can lead to a substantial mitigation of the economic and human costs of the COVID-19 crisis, avoiding more than 80 of the decline in output and of number of deaths within one year, compared to a model in which sectors are assumed to be homogeneous. For different parameter configurations that capture the additional social distancing and hygiene activities individuals might engage in voluntarily, we show that infections may decline entirely on their own, simply due to the individually rational re-allocation of economic activity: the curve not only just flattens, it gets reversed.
    Keywords: Coronavirus; Epidemic; Macroeconomics; Sectoral Substitution
    JEL: E30 E52
    Date: 2020–04
  35. By: Cyrus Minwalla
    Abstract: Security is an important element in ensuring public confidence in a central bank digital currency (CBDC). This note highlights the required security properties of a CBDC system and the challenges encountered with existing solutions, should the Bank of Canada choose to issue one.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E42 E5 E51 O3 O31
    Date: 2020–06
  36. By: Bardt, Hubertus; Beznoska, Martin; Demary, Markus; Grömling, Michael; Hüther, Michael; Kolev, Galina V.; Matthes, Jürgen; Pimpertz, Jochen; Schäfer, Holger
    Abstract: Die Corona-Pandemie trifft die Welt mit multiplen Angebots- und Nachfrageschocks zugleich. Das gab es in dieser Breite, Heftigkeit und Schnelligkeit noch nie. Eine schnelle Rückkehr auf die vorherigen Wachstumsspuren ist in allen Weltregionen nicht zu erwarten. Im Jahr 2020 wird die globale Wirtschaftsleistung um über 4 Prozent unter dem Vorjahresniveau liegen. Dies markiert den stärksten Einbruch in der Nachkriegszeit. Das Vorkrisenniveau dürfte erst gegen Ende des Jahres 2021 erreicht werden. Dies setzt voraus, dass es zu keiner zweiten Welle der Virusaus-breitung und einem 'second lockdown' kommt. Das globale Wirtschaftswachstum im Jahr 2021 dürfte dann in der Größenordnung von etwa 6 Prozent liegen. Der Einbruch der weltweiten Wirtschaftsaktivitäten hat gravierende Folgen für die Dynamik des Welthandels. Dieser bricht 2020 um 9 Prozent ein. 2021 ist ein Plus beim globalen Güteraustausch in Höhe von 8 Prozent zu erwarten. Die Erholung der deutschen Konjunktur wird sich nach den starken Beeinträchtigungen im zwei-ten Quartal 2020 auf weite Teile des kommenden Jahres erstrecken. Beim Export wirkt - trotz der sich wieder stabilisierenden Weltkonjunktur - die stark beeinträchtigte globale Investitions-tätigkeit hemmend. Beim Konsum deckeln zunächst fehlende Nachholmöglichkeiten, zum Teil sich nur allmählich auflösende Angebotsrestriktionen und Verunsicherungen die Dynamik. Mit der Festigung der konjunkturellen Erholung trägt der private Konsum mit seinem hohen Gewicht an der Inlandsnachfrage maßgeblich zum Aufschwung bei. Bei den Inlandsinvestitionen ist eine längere Erholungsphase zu erwarten. Eine entscheidende Rolle spielen dabei die Perspektiven für die Weltwirtschaft, denn das schwache globale Umfeld dämpft auch die Investitionsanreize in Deutschland. Anziehende Insolvenzzahlen können zusätzlich die Investitionen bremsen. Durch das Zusammenspiel dieser derzeit retardierenden Momente geht das reale Bruttoinlands-produkt in Deutschland im Jahr 2020 um 9 Prozent zurück. Unter der Annahme, dass es keinen erneuten globalen Schock geben wird, hält die zur Jahresmitte 2020 einsetzende Erholung an und die deutsche Produktionsleistung wird im Jahr 2021 um 8 Prozent über dem Vorjahr liegen. Die Corona-Pandemie hinterlässt tiefe Spuren auf dem deutschen Arbeitsmarkt. Trotz umfas-sender Nutzung des Instruments der Kurzarbeit wird die Erwerbstätigkeit zum ersten Mal seit 2005 wieder zurückgehen. Die Arbeitslosigkeit wird im Jahresverlauf 2020 die 3-Millionen-Grenze überschreiten. Die Erholung im Jahr 2021 wird zwar einen großen Teil des Einbruchs wieder wettmachen können, der Beschäftigungsstand von 2019 wird allerdings noch nicht wie-der erreicht. Der Staatshaushalt erwartet nach sechs Jahren, die von Überschüssen geprägt wa-ren, einen starken Dämpfer im Zuge der Corona-Krise. Steuermindereinnahmen und Mehraus-gaben werden zu einem Defizit von 265 Milliarden Euro in diesem Jahr führen. Durch die erwar-tete einsetzende wirtschaftliche Erholung kann die Finanzierungslücke im Jahr 2021 wieder auf gut 130 Milliarden Euro zurückgeführt werden...
    JEL: E2 E3 E5 E6
    Date: 2020
  37. By: Bartscher, Alina; Kuhn, Moritz; Schularick, Moritz; Steins, Ulrike
    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 dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
    Keywords: financial fragility; Household Debt; Household portfolios; inequality
    JEL: D14 D31 E21 E44
    Date: 2020–04
  38. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: Early indicators suggest that startup activity is heavily disrupted by the COVID-19 pandemic and the associated lockdown. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups, and (iii) the survival rate of young firms. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived.
    Keywords: COVID-19; employment; Macroeconomics; Startups
    JEL: D22 E23 E24 I10
    Date: 2020–04
  39. By: Demary, Markus; Hasenclever, Stefan
    Abstract: Pessimism related to the outbreak of the Coronavirus Disease 2019 and its development in 2020 determines the experts' predictions for the second and third quarter of 2020. The pessimistic outlook can be inferred from the downward revisions of the experts' forecasts. More downward revisions than upward revisions for almost all indicators illustrate that the survey participants assume that the corona crisis will plunge the economy into recession over the next two quarters. Consequently, all experts have revised their growth outlooks for Germany and the Euro Area downwards. The same applies for the prediction of Germany's and the Eurozone's inflation rates with one exception. At a first glance, it may seem counterintuitive that the subdued inflation and growth outlooks associated with the corona crisis are not reflected in the experts' short-term interest rates forecasts as most experts revised these upwards. Obviously, this is related to the previous pessimistic projections of the short-term rate after it has plunged in September 2019 as a reaction to the ECB's cut of the deposit rate to -0.5 percent. Though, most of the experts expect the short-term to rise but the projected rates are still lower than the current rate at the end of March 2020. These projections cover the forecasters expected path of monetary policy. Following the corona crisis, the FED has cut the FED Funds Rate aggressively so that both the FED Funds rate and the EZB main policy rate have been at their effective lower bound at the end of March. Most experts predict that neither the ECB nor the FED will adjust their short-term policy rate during the second quarter of 2020. Hence, the main policy instrument of these cen-tral banks is expected to remain accommodative. The participants still expect the yield curve to become flatter. The lower average forecasts for the short-term interest rate are consistent with the experts' lower inflation and growth expec-tations. For 2020, the experts expect 0.7 percent inflation in the Eurozone and a growth rate of real gross domestic product of -4.9 percent, which indicates a plunge of economic growth and a failure of the European Central Bank (ECB) to meet its inflation target. Given that, the fore-casters have lowered their outlook for the long-term interest rate to -0.57 percent at the end of the second quarter of 2020. The yield on US Treasury bonds with 10-years maturity is expected to increase slightly from 0.67 percent at the end of March 2020 to 0.76 percent by the end of the second quarter 2020. In the light of the global flight to safety in government debt due to the outbreak of the corona crisis, the US long-term rate has hit a new low in March 2020. The Fed-eral Funds Rate is anticipated to remain at 0.00-0.25 percent, i.e. its effective lower bound. The increase in demand for safety assets together with the investors' needs to raise cash for debt repayments denominated in USD have been leading to an appreciation of the USD in the first quarter 2020. Until the end of the second quarter, the participants predict a small depreciation of the US-Dollar against the Euro from 1.103 Euros at the end of the first quarter 2020 to 1.096 Euros at the end of the second quarter 2020...
    JEL: G12 G17
    Date: 2020
  40. By: del Río, Fernando; Lores, Francisco-Xavier
    Abstract: We apply the Chari et al. (2002, 2007) methodology to develop a growth accounting exercise for the U.S. economy during 1954--2017. Unlike them, we focus on perfect foresight models. We obtain three primary findings. First, the efficiency wedges in the entire period accurately account for the evolution of U.S. productivity and labor share. Second, the labor wedge was the main force driving the recovery of output and worked hours per capita in the eighties and nineties as well as after the Great Recession. Finally, if we replace the Cobb-Douglas assumption with a production function, which allows the factor shares to adjust competitively, the forces driving the U.S. Great Recession might not be very different from those in other OECD economies, and the forces driving the 1982 recession in the United States.
    Keywords: Growth Accounting, Capital-Efficiency Wedge, Labor-Efficiency Wedge, Labor Wedge, Investment Wedge, Resource Constraint Wedge, Productivity, Labor Share, Worked Hours.
    JEL: E1 E3 O4
    Date: 2020–05–27
  41. By: Svensson, Lars E.O.
    Abstract: Much is right with Swedish macroprudential policy. But regarding risks associated with household debt, the policy does not pass a cost-benefit test. The substantial credit tightening that Finansinspektionen (the FI, the Swedish Financial Supervisory Authority) has achieved â?? through amortization requirements and more indirect ways â?? has no demonstrable benefits but substantial costs. The FI - and the international organizations that have commented on risks associated with Swedish household debt - use a flawed theoretical framework for assessing macroeconomic risks from household debt. The tightening was undertaken for mistaken reasons. Several reforms are required for a better-functioning mortgage market. A reform of the governance of macroprudential policy â?? including a decision-making committee and improved accountability â?? may reduce risks of policy mistakes.
    Keywords: Household Debt; Housing; Macroeconomic Risk; macroprudential policy; Mortgages
    JEL: E21 G1 G21 G23 G28 R21
    Date: 2020–04
  42. By: Bergin, P. R.; Corsetti, G.
    Abstract: In the wake of Brexit and the Trump tariff war, central banks have had to reconsider the role of monetary policy in managing the economic effects of tariff shocks, which may induce a slowdown while raising inflation. This paper studies the optimal monetary policy responses using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates.
    Keywords: tariff shock, tariff war, optimal monetary policy, comparative advantage, production chains
    JEL: F40
    Date: 2020–04–06
  43. By: Dean Croushore; Stephanie M. Wilshusen
    Abstract: This paper considers whether the inclusion of information contained in consumer credit reports might improve the predictive accuracy of forecasting models for consumption spending. To investigate the usefulness of aggregate consumer credit information in forecasting consumption spending, this paper sets up a baseline forecasting model. Based on this model, a simulated real-time, out-of-sample exercise is conducted to forecast one-quarter ahead consumption spending. The exercise is run again after the addition of credit bureau variables to the model. Finally, a comparison is made to test whether the model using credit bureau data produces lower or higher root-mean-squared-forecast errors than the baseline model. Key features of the analysis include the use of real-time data, out-of-sample forecast tests, a strong parsimonious benchmark model, and data that span more than two business cycles. Our analysis reveals evidence that some credit bureau variables may be useful in improving forecasts of consumption spending in certain subperiods and for some categories of consumption spending, especially for services. Also, the use of credit bureau variables sometimes makes the forecasts significantly worse by adding noise into the forecasting models.
    Keywords: consumption spending; real-time data; consumer credit information; forecasting
    JEL: C53 C55 D12 D14 E27
    Date: 2020–06–04
  44. By: Chetan Dave (Department of Economics, University of Alberta); Scott J. Dressler (Department of Economics, Villanova School of Business, Villanova University); Lei Zhang (Department of Agribusiness and Applied Economics, North Dakota State University)
    Abstract: Has paying interest on excess reserves (IOER) impacted monetary policy transmission? We employ a factor-augmented VAR (i.e. FAVAR) to analyze a traditional bank lending channel (BLC) as well as a potential reserves channel. Our main results are: (i) the bank-lending response to an exogenous monetary policy innovation in the Federal Funds rate (i.e. the BLC) remains active but smaller than pre-2008 measures; (ii) the bank-lending response to any IOER-based liquidity innovations (i.e. the reserves channel) either mimics the BLC or is largely insignificant. These results provide little evidence that IOER has significantly impacted bank lending or monetary transmission.
    Keywords: Bank Lending Channel; FAVAR; IOER; Monetary Policy
    JEL: E51 E52 C32
    Date: 2020–05
  45. By: Gilbert Cette (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Jimmy Lopez (DGEI-DEMS - Banque de France - Direction Générale des Etudes et des relations Internationales, Direction des Etudes Microéconomique et Structurelles); Jacques Mairesse (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - CNRS - Centre National de la Recherche Scientifique - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: This analysis proposes new measures of rent creation and rent sharing and assesses their impact on productivity on cross-country-industry panel data. We find first that: (1) anticompetitive product market regulations positively affect rent creation and (2) employment protection legislation boosts hourly wages, particularly for low-skill workers. However, we find no significant impact of this employment legislation on rent sharing, as the hourly wage increases are offset by a negative impact on hours worked. Second, using regulation indicators as instruments, we find that rent creation and rent sharing both have a substantial negative impact on total factor productivity. (JEL E22, E24, O30, L50, O43, O47, C23)
    Keywords: product market regulations,labor market regulations,mark-up,rent-sharing,TFP
    Date: 2019–10
  46. 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 dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
    Keywords: household debt, inequality, household portfolios, financial fragility
    JEL: E21 E44 D14 D31
    Date: 2020
  47. By: Ka-Kit Iong (Department of Economics and Management, Université du Luxembourg); Andreas Irmen (Department of Economics and Management, Université du Luxembourg)
    Abstract: We show that declining hours of work per worker in conjunction with a growing work force may give rise to growth cycles. This is accomplished in an overlapping generations model where individuals are endowed with Boppart-Krusell preferences (Boppart and Krusell (2020)), i. e., the wage elasticity of their supply of hours worked is negative. On the supply side, economic growth is due to the expansion of consumption-good varieties through endogenous research. We show that a sufficiently negative equilibrium elasticity of the individual supply of hours worked to an expansion in the set of consumption-good varieties opens up the possibility of growth cycles where the economy fluctuates between two regimes, one with and the other without an active research sector. We identify period-2 and period-3 cycles, conclude with Li and Yorke (1975) that cycles of any periodicity exists, and generalize our findings to period-n cycles. We show that the possibility of cycles occurs under empirically plausible conditions. Throughout, we emphasize that the economics of cycles is linked to the intergenerational trade of shares and their pricing in the asset market
    Keywords: Endogenous Cycles, Technological Change, Endogenous Labor Supply, OLG-Model.
    JEL: E32 J22 O33 O41
    Date: 2020
  48. By: Bergin, Paul R; Corsetti, Giancarlo
    Abstract: In the wake of Brexit and the Trump tariff war, central banks have had to reconsider the role of monetary policy in managing the economic effects of tariff shocks, which may induce a slowdown while raising inflation. This paper studies the optimal monetary policy responses using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates.
    Keywords: comparative advantage; Optimal monetary policy; production chains; tariff shock; tariff war
    JEL: F4
    Date: 2020–04
  49. By: Xiaohong Chen; Lars P. Hansen; Peter G. Hansen
    Abstract: This paper develops a new method informed by data and models to recover information about investor beliefs. Our approach uses information embedded in forward-looking asset prices in conjunction with asset pricing models. We step back from presuming rational expectations and entertain potential belief distortions bounded by a statistical measure of discrepancy. Additionally, our method allows for the direct use of sparse survey evidence to make these bounds more informative. Within our framework, market-implied beliefs may differ from those implied by rational expectations due to behavioral/psychological biases of investors, ambiguity aversion, or omitted permanent components to valuation. Formally, we represent evidence about investor beliefs using a novel nonlinear expectation function deduced using model-implied moment conditions and bounds on statistical divergence. We illustrate our method with a prototypical example from macro-finance using asset market data to infer belief restrictions for macroeconomic growth rates.
    JEL: E03 E22 E44 G02 G12 G14
    Date: 2020–05
  50. By: Kilman, Josefin (Department of Economics, Lund University)
    Abstract: There is a growing literature investigating if and how monetary policy impacts income inequality. Labor unions are generally found to mitigate income inequality and a recent literature highlight that changing labor market structures, such as deunionization, may be important for monetary policy. This paper tests whether labor unions influence the impact of monetary shocks on income inequality in the United States over the period 1970-2008, and the channels this effect runs through. It is the first paper to identify variation in unionization rates as a moderator to the impact of monetary policy on income inequality. I measure income inequality and unionization on the state level and can therefore exploit that unionization rates vary both within and across states while monetary shocks are common to all states. The main finding is that contractionary monetary shocks increase income inequality, but the impact is weaker with a higher union density. A one percentage point monetary shock increases the Gini coefficient with 5.4 % when union density is 5 %, while it increases Gini with 1.7 % when union density is 15 %. I find evidence that both wages and employment are two channels explaining how unions mitigate the monetary policy - income inequality relationship. The findings of the channels suggest that unions make the adjustment to monetary shocks more even across workers, rather than mitigating the aggregate effect of the shocks. This suggests that the structure of the labor market impacts the relationship between monetary policy and income inequality.
    Keywords: Monetary policy; income inequality; labor unions
    JEL: D31 E24 E52 J51
    Date: 2020–06–06
  51. By: Robert E. Hall; Marianna Kudlyak
    Abstract: It is a remarkable fact about the historical US business cycle that, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.55 percentage points per year. The economy seems to have had an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth, but little variation in the rate of decline of unemployment. We explore models of the labor market's self-recovery that imply gradual working off of unemployment following a recession shock. These models explain why the recovery of market-wide unemployment is so much slower than the rate at which individual unemployed workers find new jobs. The reasons include the fact that the path that individual job-losers follow back to stable employment often includes several brief interim jobs, sometimes separated by time out of the labor force. We show that the evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock---unemployment during the recovery is elevated for people who did not lose jobs during the recession.
    JEL: E32 J63 J64
    Date: 2020–05
  52. By: José-Luis Peydró; Francesc R. Tous; Jagdish Tripathy; Arzu Uluc
    Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders—not households—for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies—via lower pre-correction debt—better house prices and mortgage defaults during an episode of house price correction.
    Keywords: macroprudential policy; mortgages; credit cycles; inequality; house prices.
    JEL: E5 G01 G21 G28
    Date: 2020–06
  53. By: Pierre Aldama; Jérôme Creel
    Abstract: This paper introduces a Regime-Switching Model-Based Sustainability test allowing for periodic (or local) violations of Bohn (1998, QJE)’s sustainability condition. We assume a Markov-switching fiscal policy rule whose parameters stochastically switch between sustainable and unsustainable regimes. We demonstrate that long-run (or global) fiscal sustainability not only depends on regime-specific feedback coefficients of the fiscal policy rule but also on the average durations of fiscal regimes. Evidence on French data suggests that both the No-Ponzi Game condition and the Debt-stabilizing condition hold in the long run, when accounting for fiscal regimes, contrary to standard MBS tests. Drawing on former evidence about the characteristics of monetary policy in France, we discuss about the proper specification of the monetary-fiscal policy mix since 1965.
    Keywords: Fiscal Rules, Fiscal Regimes, Public Debt Sustainability, Time-Varying Parameters, Markov-Switching Models .
    JEL: E6 H6
    Date: 2020
  54. By: Mitman, Kurt (Stockholm University); Rabinovich, Stanislav (University of North Carolina, Chapel Hill)
    Abstract: How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unemployment insurance response to the COVID-induced recession.We compare the optimal policy to the provisions under the CARES Act—which substantially expanded unemployment insurance and sparked an ongoing debate over further increases—and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen — despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment.
    Keywords: COVID-19, epidemic, unemployment insurance, optimal policy
    JEL: J65 E6 H1
    Date: 2020–06
  55. By: Sebastian Horn; Carmen M. Reinhart; Christoph Trebesch
    Abstract: Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
    JEL: E42 E5 F02 F3 F35 G01 G15 N1 N20
    Date: 2020–06
  56. By: Chimere O. Iheonu (University of Nigeria, Nsukka); Tochukwu Nwachukwu (Abuja, Nigeria)
    Abstract: This study investigates the macroeconomic determinants of household consumption in selected West African countries. The study employed the panel augmented mean group procedure which accounts for heterogeneity and cross sectional dependence in the modelling exercise for the period 1989 to 2018. Empirical results reveal that “gross domestic product per capita” and “domestic credit to the private sector” significantly improve household consumption in the selected West African countries as a whole. However, country-specific results show differences in terms of the magnitude of the coefficients, the significance and even the signs of the regressors. Policy recommendations based on these findings are discussed.
    Keywords: Household consumption; West Africa
    JEL: E21 O10
    Date: 2020–01
  57. By: Auer, Raphael; Claessens, Stijn
    Abstract: Cryptocurrencies are often thought to operate out of the reach of national regulation, but in fact their valuations, transaction volumes and user bases react substantially to news about regulatory actions. The impact depends on the specific regulatory category to which the news relates: events related to general bans on cryptocurrencies or to their treatment under securities law have the greatest adverse effect, followed by news on combating money laundering and the financing of terrorism, and on restricting the interoperability of cryptocurrencies with regulated markets. News pointing to the establishment of specific legal frameworks tailored to cryptocurrencies and initial coin offerings coincides with strong market gains. These results suggest that cryptocurrency markets rely on regulated financial institutions to operate and that these markets are segmented across jurisdictions.
    Keywords: cryptocurrency; Digital Currencies; Event studies; regulation; valuations
    JEL: E42 E51 F31 G12 G28 G32 G38
    Date: 2020–04
  58. By: Isabel Cairo; Shigeru Fujita; Camilo Morales-Jimenez
    Abstract: Using a representative-household search and matching model with endogenous labor force participation, we study the cyclicality of labor market transition rates between employment, unemployment, and nonparticipation. When interpreted through the lens of the model, the behavior of transition rates implies that the participation margin is strongly countercyclical: the household’s incentive to send more workers to the labor force falls in expansions. We identify two key channels through which the model delivers this result: (i) the procyclical values of non-market activities and (ii) wage rigidity. The smaller the value of the extensive-margin labor supply elasticity is, the stronger the first channel is. Wage rigidity helps because it mitigates increases in the return to market work during expansions. Our estimated model replicates remarkably well the behavior of transition rates between the three labor market states and thus the stocks, once these two features are in place.
    Keywords: Labor force participation; unemployment; labor supply elasticity
    JEL: E24 J64
    Date: 2020–06–04
  59. By: Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Tochukwu Nwachukwu (Abuja, Nigeria)
    Abstract: This study investigates the macroeconomic determinants of household consumption in selected West African countries. The study employed the panel augmented mean group procedure which accounts for heterogeneity and cross sectional dependence in the modelling exercise for the period 1989 to 2018. Empirical results reveal that “gross domestic product per capita†and “domestic credit to the private sector†significantly improve household consumption in the selected West African countries as a whole. However, country-specific results show differences in terms of the magnitude of the coefficients, the significance and even the signs of the regressors. Policy recommendations based on these findings are discussed.
    Keywords: Household consumption; West Africa
    JEL: E21 O10
    Date: 2020–01
  60. By: Ignacio Lozano-Espitia (Banco de la República de Colombia); Fernando Arias-Rodríguez (Banco de la República de Colombia)
    Abstract: How much fiscal space do Latin American countries have to increase their tax burdens in the long term? This paper provides an answer through Laffer curves estimates for taxes on labor, capital, and consumption for the six largest emerging economies of the region: Argentina, Brazil, Chile, Colombia, Mexico, and Peru. Estimates are made using a neoclassical growth model with second-generation human capital and employing data from the national accounts system for the period from 1994 to 2017. Our findings allow us to compare the recent effective tax rates on factor returns against those which would maximize the government's revenues, and therefore to derive the potential tax-related fiscal space. Results suggest that joint fiscal space on labor and capital taxes would reach 6.5% of GDP for the region, on average, and that there are important differences among the countries. **** RESUMEN: ¿Cuánto espacio fiscal tienen los países de América Latina para incrementar su carga tributaria en el largo plazo? Este documento ofrece una respuesta mediante la estimación de las Curvas de Laffer para los impuestos al trabajo, al capital y al consumo de las economías más grandes de la región: Argentina, Brasil, Chile, Colombia, México y Perú. Los cálculos se realizan empleando un modelo de crecimiento con capital humano de 2da generación, que es calibrado para cada país con información de las cuentas nacionales para el período 1994 a 2017. Los resultados nos permiten comparar las tarifas efectivas recientes con aquellas que maximizarían los recaudos del gobierno, para así derivar el espacio fiscal de largo plazo. Nuestros hallazgos sugieren que el espacio fiscal conjunto sobre los impuestos al trabajo y al capital alcanzaría el 6.5% del PIB de la región, en promedio, y que existen diferencias importantes entre los países.
    Keywords: Laffer curves; fiscal policy; taxes on consumption, taxes on labor and capital incomes.Curvas de Laffer, política fiscal, impuestos sobre el consumo, las rentas laborales y los rendimientos del capital.
    JEL: E13 E62 H20 H30 H60
    Date: 2020–05
  61. By: Bayer, Christian; Born, Benjamin; Luetticke, Ralph; Müller, Gernot
    Abstract: In response to the COVID-19 pandemic, large parts of the economy have been locked down and, as a result, households' income risk has risen sharply. At the same time, policy makers have put forward the largest stimulus package in history. In the U.S., it amounts to $2 trillion, a quarter of which are transfers to households. To the extent that these transfers are conditional on being unemployed, they mitigate income risk and the adverse impact of the lockdown ex ante. Unconditional transfers, in contrast, stabilize income ex post only. The conditional and unconditional transfer component of the Coronavirus stimulus package are of equal size. We quantify their effect in an estimated HANK model. For unconditional transfers, the multiplier ranges between 0.1 and 0.5, for conditional transfers between 1 and 2. The actual transfers of the stimulus reduce the output loss due to the lockdown by about 50 percent.
    Keywords: CARES Act; Coronavirus; COVID-19; Fiscal policy; lockdown; Quarantine; Stimulus; targeted transfer; transfer multiplier
    JEL: E32 E62
    Date: 2020–04
  62. By: Piguillem, Facundo; Riboni, Alessandro
    Abstract: Most fiscal rules can be overridden by consensus. We show that this does not make them ineffectual. Since fiscal rules determine the outside option in case of disagreement, the opposition uses them as ``bargaining chips" to obtain spending concessions. We show that under some conditions this political bargain mitigates the debt accumulation problem. We analyze various rules and find that when political polarization is high, harsh fiscal rules (e.g., government shutdown) maximize the opposition's bargaining power and leads to lower debt accumulation. When polarization is low, less strict fiscal limits (e.g, balanced-budget rule) are preferable. Moreover, we find that the optimal fiscal rules could arise in equilibrium by negotiation. Finally, by insuring against power fluctuations, negotiable rules yield higher welfare than strict ones.
    Keywords: fiscal rules; Government Debt; Government shutdown=; legislative bargaining; Political Polarization
    JEL: D72 H2 H6
    Date: 2020–04
  63. By: Andreas Irmen (Department of Economics and Management, Université du Luxembourg)
    Abstract: This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labor scarcity induces labor productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a micro-foundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage
    Keywords: "Economic Growth, Endogenous Technical Change, Direction of Technical Change, Biased Technology "
    JEL: O31 D92 O33 O41
    Date: 2020
  64. By: Emmanuel Joel Aikins Abakah; Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: This paper provides new evidence on the stochastic behaviour of the EPU (Economic Policy Uncertainty (EPU) index constructed by Baker et al. (2016) in six of the biggest economies (Canada, France, Japan, US, Ireland, and Sweden) over the period from January 1985 to October 2019. In particular, it uses fractional integration methods to shed light on its degree of persistence, and also carries out appropriate break tests. Further, the possible co-movement of this index between countries is examined applying a fractional cointegration method which tests for the possible existence of a long-run equilibrium relationship linking the individual indices. EPU is found to be in most cases a non-stationary, mean-reverting series which is characterised by long memory. Several breaks are also detected in each country. Finally, there is very little evidence of cross-country linkages.
    Keywords: economic policy uncertainty, persistence, long memory, fractional integration, fractional cointegration.
    JEL: C15 C32 C51 C52 E60
    Date: 2020
  65. By: Jan J. J. Groen; Michael Nattinger
    Abstract: Since the outbreak of the COVID-19 pandemic in late January, oil prices have fallen sharply. In this post, we compare recent price declines with those seen in previous oil price collapses, focusing on the drivers of such episodes. In order to do that, we break oil price shocks down into demand and supply components, applying the methodology behind the New York Fed’s weekly Oil Price Dynamics Report.
    Keywords: oil demand and supply; oil prices; COVID-19
    JEL: E2 F0 G1
    Date: 2020–05–14
  66. By: Jonathan S. Hartley; Alessandro Rebucci
    Abstract: Amid the COVID-19 outbreak and related expected economic downturn, many developed and emerging market central banks around the world engaged in new long-term asset purchase programs, or so-called quantitative easing (QE) interventions. This paper conducts an event-study analysis of 24 COVID-19 QE announcements made by 21 global central banks on their local 10-year government bond yields. We find that the average developed market QE announcement had a statistically significant -0.14% 1-day impact, which is slightly smaller than past interventions during the Great Recession era. In contrast, the average impact of emerging market QE announcements was significantly larger, averaging -0.28% and -0.43% over 1-day and 3-day windows, respectively. Across developed and emerging bond markets, we estimate an overall average 1-day impact of -0.23%. We also show that all 10-year government bond yields in our sample rose sharply in mid-March 2020, but fell substantially after the period of QE announcements that we study in the paper.
    JEL: E52 E58 F42 G14 I28
    Date: 2020–06
  67. By: Asongu, Simplice; Odhiambo, Nicholas
    Abstract: The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone”-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed.
    Keywords: Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2019–01
  68. By: Imbs, Jean; Pauwels, Laurent
    Abstract: Conventional measures of openness are based on direct trade. They imply foreign shocks are irrelevant to sectors that do not trade directly across borders, e.g., services. But shocks propagate via the supply chain: Sectors that trade indirectly across borders via downstream linkages are affected by foreign shocks. We introduce a measure of openness based on indirect trade, computing the fraction of downstream linkages that cross a border. The measure, labeled "High Order Trade" (HOT), is computed using recently released data on international input-output linkages for 50 sectors in 43 countries, including services. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. Some services are among the most open sectors in some economies, and services generally rank at the middle of the distribution. HOT correlates significantly with sector productivity, growth, and synchronization; conventional measures of trade do not. We introduce an instrument for HOT using network theory. We show HOT causes productivity and synchronization, but not growth.
    Keywords: Global supply chains; growth; Measuring Openness; productivity; Synchronisation
    JEL: E32 F44
    Date: 2020–04
  69. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Australian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: We study the contribution of health shocks to earnings inequality and uncertainty in labor market outcomes. We calibrate a life-cycle model of labor supply and savings that incorporates health and health shocks. Our model features endogenous wage formation via human capital accumulation, employer sponsored health insurance, and meanstested social insurance. We find a substantial part of the impact of health shocks on earnings arises via reduced human capital accumulation. Health shocks account for 15% of lifetime earnings inequality for U.S. males, with two-thirds of this due to behavioral responses. In particular, it is optimal for low-skill workers – who often lack employer sponsored insurance – to curtail labor supply to maintain eligibility for means-tested transfers that protect them from high health care costs. This causes low-skill workers to invest less in human capital. Provision of public health insurance can alleviate this problem and enhance labor supply and human capital accumulation.
    Keywords: Health, Health Shocks, Human Capital, Income Risk, Precautionary Saving, Earnings Inequality, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2020–06
  70. By: Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
    Abstract: We build a minimalist model of the macroeconomics of a pandemic, with two essential components. The first is productivity-related: if the virus forces firms to shed labor beyond a certain threshold, productivity suffers. The second component is a credit market imperfection: because lenders cannot be sure a borrower will repay, they only lend against collateral. Expected productivity determines collateral value; in turn, collateral value can limit borrowing and productivity. As a result, adverse shocks have large magnification effects, in an unemployment and asset price deflation doom loop. There may be multiple equilibria, so that pessimistic expectations can push the economy to a bad equilibrium with limited borrowing and low employment and productivity. The model helps identify policies to fight the effects of the pandemic. Traditional expansionary fiscal policy has no beneficial effects, while cutting interest rates has a limited effect if the initial real interest rate is low. By contrast, several unconventional policies, including wage subsidies, helicopter drops of liquid assets, equity injections, and loan guarantees, can keep the economy in a full-employment, high-productivity equilibrium. Such policies can be fiscally expensive, so their implementation is feasible only with ample fiscal space or emergency financing from abroad.
    JEL: E6 F4 H8
    Date: 2020–05
  71. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
    Abstract: We study how the differential timing of local lockdowns due to COVID-19 causally affects households’ spending and macroeconomic expectations at the local level using several waves of a customized survey with more than 10,000 respondents. About 50% of survey participants report income and wealth losses due to the corona virus, with the average losses being $5,293 and $33,482 respectively. Aggregate consumer spending dropped by 31 log percentage points with the largest drops in travel and clothing. We find that households living in counties that went into lockdown earlier expect the unemployment rate over the next twelve months to be 13 percentage points higher and continue to expect higher unemployment at horizons of three to five years. They also expect lower future inflation, report higher uncertainty, expect lower mortgage rates for up to 10 years, and have moved out of foreign stocks into liquid forms of savings. The imposition of lockdowns can account for much of the decline in employment in recent months as well as declines in consumer spending. While lockdowns have pronounced effects on local economic conditions and households’ expectations, they have little impact on approval ratings of Congress, the Fed, or the Treasury but lead to declines in the approval of the President.
    Keywords: subjective expectations, consumer spending, labor market, employment, COVID-19, surveys
    JEL: E31 C83 D84 J26
    Date: 2020
  72. By: Bethune, Zachary; Korinek, Anton
    Abstract: We analyze the externalities that arise when social and economic interactions transmit infectious diseases such as COVID-19. Individually rational agents do not internalize that they impose infection externalities upon. In an SIR model calibrated to capture the main features of COVID-19 in the US economy, we show that private agents perceive the cost an additional infection to be around $80k whereas the social cost including infection externalities is more than three times higher, around $286k. This misvaluation has stark implications for how society ultimately overcomes the disease: individually rational susceptible agents act cautiously to "flatten the curve" of infections, but the disease is not overcome until herd immunity is acquired, with a slow recovery over several years. By contrast, the socially optimal approach in our model contains and eradicates the disease, producing a much milder recession. Eradication is optimal even if the infected and susceptible cannot be targeted independently, although the economic cost is much higher.
    Keywords: cost of disease; COVID-19; infection externalities; social distancing
    JEL: E1 E65 H12 H23 I18
    Date: 2020–04
  73. By: Varadarajan 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.
    JEL: E69 H41 Q59
    Date: 2020–05
  74. By: Geoffrey Goodell; Hazem Danny Al-Nakib; Paolo Tasca
    Abstract: The current crisis, at the time of writing, has had a profound impact on the financial world, introducing the need for creative approaches to revitalising the economy at the micro level as well as the macro level. In this informal analysis and design proposal, we describe how infrastructure for digital assets can serve as a useful monetary and fiscal policy tool and an enabler of existing tools in the future, particularly during crises, while aligning the trajectory of financial technology innovation toward a brighter future. We propose an approach to digital currency that would allow people without banking relationships to transact electronically and privately, including both internet purchases and point-of-sale purchases that are required to be cashless. We also propose an approach to digital currency that would allow for more efficient and transparent clearing and settlement, implementation of monetary and fiscal policy, and management of systemic risk. The digital currency could be implemented as central bank digital currency (CBDC), or it could be issued by the government and collateralised by public funds or Treasury assets. Our proposed architecture allows both manifestations and would be operated by banks and other money services businesses, operating within a framework overseen by government regulators. We argue that now is the time for action to undertake development of such a system, not only because of the current crisis but also in anticipation of future crises resulting from geopolitical risks, the continued globalisation of the digital economy, and the changing value and risks that technology brings.
    Date: 2020–06
  75. By: Andreas Dibiasi; Samad Sarferaz
    Abstract: This paper constructs internationally consistent measures of macroeconomic uncertainty. Our econometric framework extracts uncertainty from revisions in data obtained from standardized national accounts. Applying our model to quarterly post-WWII real-time data, we estimate macroeconomic uncertainty for 39 countries. The cross-country dimension of our uncertainty data allows us to identify the effects of uncertainty shocks on economic activity under different employment protection legislation. Our empirical findings suggest that the effects of uncertainty shocks are stronger and more persistent in countries with low employment protection compared to countries with high employment protection. These empirical findings are in line with a theoretical model under varying firing cost.
    Date: 2020–06
  76. By: Simplice A. Asongu (Yaounde, Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa)
    Abstract: This study investigates the stability of money in the proposed East African Monetary Union (EAMU). The study uses annual data for the period 1981 to 2015 from five countries making up the East African Community (EAC). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries. This divergence is articulated in terms of differences in CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long term determinants and error correction in event of a shock. Specifically, the results show that the demand for money is stable in the cases of Burundi, Rwanda and Tanzania based on the CUSUM and CUSUMSQ tests, while for the remaining countries (Kenya and Uganda) only partial stability is apparent. In event of a shock, Kenya will restore its long run equilibrium fastest, followed by Tanzania and Burundi.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22 O55
    Date: 2020–01
  77. By: Simplice A. Asongu (Yaounde, Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa)
    Abstract: This study investigates the stability of money in the proposed East African Monetary Union (EAMU). The study uses annual data for the period 1981 to 2015 from five countries making up the East African Community (EAC). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries. This divergence is articulated in terms of differences in CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long term determinants and error correction in event of a shock. Specifically, the results show that the demand for money is stable in the cases of Burundi, Rwanda and Tanzania based on the CUSUM and CUSUMSQ tests, while for the remaining countries (Kenya and Uganda) only partial stability is apparent. In event of a shock, Kenya will restore its long run equilibrium fastest, followed by Tanzania and Burundi.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22 O55
    Date: 2020–01
  78. By: Anand, Paul; Blanchflower, Danny; Bovens, Luc; De Neve, Jan-Emmanuel; Graham, Carol; Nolan, Brian; Krekel, Christian; Thoma, Johanna
    Keywords: coronavirus; Covid-19
    JEL: E6
    Date: 2020–06–01
  79. By: Sapian, Safeza; Masih, Mansur
    Abstract: This paper makes an attempt to investigate whether the macroeconomic factors contribute to the credit risk exposure and non-performing financing (NPF) of Islamic banks. Malaysia is taken as a case study. The standard time series techniques are used to analyze the issue. The variables that have been chosen for the study are gross domestic product (GDP), Non-Performing Financing rate, Islamic financing rate (IFR) and unemployment rate (UMPT). The findings tend to indicate that Islamic Financing rate (IFR) stands out as the only factor that had a significant impact on the credit risk exposure and non-performing financing as well as the performance of Islamic banks in the context of Malaysia.
    Keywords: Islamic Banks, Credit Risk, Non-performing Financing, Time Series Analysis, Malaysia
    JEL: C22 C58 E44 G21
    Date: 2018–11–25
  80. By: Lukas Buchheim; Jonas Dovern; Carla Krolage; Sebastian Link
    Abstract: This paper studies the determinants of firms’ business outlook and managerial mitigation strategies in the wake of the COVID-19 crisis using a representative panel of German firms. We first demonstrate that the crisis amplifies pre-crisis weaknesses: Firms that appear relatively weak before the crisis are harder hit initially, and, on top of the initial impact, expect more difficulties for their businesses going forward. Consequently, such firms are first to cut employment and investment. Second, our results highlight that expectations regarding the duration of the shutdown—which, at this point of the crisis, exhibit plausibly random variation—are an important determinant of the chosen mitigation strategies: Firms that expect the shutdown to last longer are more likely to lay off workers and to cancel or postpone investment projects.
    Keywords: expectations, firm behaviour, COVID-19, shutdown, employment, investment
    JEL: D22 D84 E23
    Date: 2020
  81. By: International Monetary Fund
    Abstract: Ukraine’s track record in macro-stabilization over the last 5 years and under successive Fund programs has been strong, but the goal of robust and inclusive growth remains elusive in the absence of sustained and comprehensive structural reform. Political circumstances were auspicious to address this long-standing challenge, with the President’s anti-corruption platform supported by an unprecedented absolute majority in parliament. However, the outbreak of the COVID-19 pandemic has significantly worsened the outlook and has refocused government policies on containment and stabilization. Uncertainty is large, and the economy is projected to contract sharply as strict containment measures—in Ukraine and globally—led to sizable falls in domestic and external demand. The budget is expected to be hit hard, with a sharp decline in revenues and large emergency spending needs to address the crisis. This, together with the de facto closure of capital markets, has created an urgent balance of payments need.
    Keywords: Stand-by arrangements;
    Date: 2020–06–11
  82. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is severely impacting the Sierra Leonean economy, threatening to wipe out the hard-won gains since the Ebola health crisis just five years ago. The sharp contraction in external demand, and disruptions to mining production and exports are straining the external and fiscal accounts. Proactive measures vital to contain the spread of the crisis are dampening economic activity. The already tight financing situation and fragile health sector, and vast development needs, limit the authorities’ ability to reallocate resources within and across sectors.
    Keywords: Rapid Credit Facility (RCF);
    Date: 2020–06–10
  83. By: Chen, Zezhun; Dassios, Angelos; Kuan, Valerie; Lim, Jia Wei; Qu, Yan; Surya, Budhi; Zhao, Hongbiao
    Abstract: In this paper, we propose a continuous-time stochastic intensity model, namely, two-phase dynamic contagion process (2P-DCP), for modelling the epidemic contagion of COVID-19 and investigating the lockdown effect based on the dynamic contagion model introduced by Dassios and Zhao (2011). It allows randomness to the infectivity of individuals rather than a constant reproduction number as assumed by standard models. Key epidemiological quantities, such as the distribution of final epidemic size and expected epidemic duration, are derived and estimated based on real data for various regions and countries. The associated time lag of the effect of intervention in each country or region is estimated. Our results are consistent with the incubation time of COVID-19 found by recent medical study. We demonstrate that our model could potentially be a valuable tool in the modeling of COVID-19. More importantly, the proposed model of 2P-DCP could also be used as an important tool in epidemiological modelling as this type of contagion models with very simple structures is adequate to describe the evolution of regional epidemic and worldwide pandemic.
    Keywords: Covid-19; coronavirus; stochastic intensity model; two-phase dynamic contagion process; lockdown
    JEL: I10 H00 E60
    Date: 2020–06–10
  84. By: Andreas Irmen (Department of Economics and Management, Université du Luxembourg)
    Abstract: How does population aging affect economic growth and factor shares in times of increasingly automatable production processes? The present paper addresses this question in a new macroeconomic model of automation where competitive firms perform tasks to produce output. Tasks require labor and machines as inputs. New machines embody superior technological knowledge and substitute for labor in the performance of tasks. The incentive to automate is stronger if wages are higher. Automation is shown to boost the aggregate demand for labor if and only if the incentives to automate are strong enough and to reduce the labor share. These predictions obtain even though automation is labor-augmenting in the reduced-form production function. Population aging due to a higher longevity or a decline in fertility may strengthen or weaken the incentives to automate. Irrespective of its source, population aging is predicted to increase the growth rate of per-capita GDP in the short and in the long run. The short-run effect of higher longevity on the labor share is positive whereas the effect of a declining fertility is negative. In the long run, population aging reduces the labor share.
    Keywords: Population Aging, Automation, Factor Shares, Endogenous Technical Change, Endogenous Labor Supply.
    JEL: E22 J11 J22 J23 O33 O41
    Date: 2020
  85. By: Nina Boyarchenko; Richard K. Crump; Anna Kovner
    Abstract: In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the dislocations in the commercial paper market that motivated the creation of this facility, and tracks the subsequent improvement in market conditions.
    Keywords: commercial paper; Commercial Paper Funding Facility (CPFF); COVID-19
    JEL: E51
    Date: 2020–05–15
  86. By: Junankar, Pramod N. (Raja) (University of New South Wales); Wong, Chun Yee (International University of Japan)
    Abstract: This paper evaluates the success of Inflation Targeting on inflation and growth on a large panel data set of both developing and developed countries. Earlier studies have found contradictory results depending on the methodology used, different authors have used different estimation methods on different samples of data. Some of the differences in results may also be due to the different time periods (or different frequencies of data) used in the estimation. In this paper, we provide evidence to show that the support for a successful Inflation Targeting policy is very weak or non-existent. We use various estimation methods on panel data on a large sample of countries. We note that the results depend critically on the sample selected, the method of estimation employed, and the procedure used to control for outliers. Section 2 of the paper outlines the process by which inflation targeting is hypothesised to influence inflation and growth, Section 3 surveys this literature, and Section 4 describes the data and provides descriptive statistics comparing the performance of Inflation Targeting countries and non-Inflation Targeting countries, Section 5 uses panel estimation methods including GMM techniques on different samples of data and demonstrates the fragile nature of the results. Section 6 provides the conclusions that suggest that IT policy does not necessarily help to reduce inflation and certainly does not stimulate economic growth.
    Keywords: Inflation Targeting, inflation, growth
    JEL: E31 J68 J08
    Date: 2020–05
  87. By: John Miedema; Cyrus Minwalla; Martine Warren; Dinesh Shah
    Abstract: If the Bank of Canada issues a central bank digital currency, the technology should be designed for universal access.
    Keywords: Central bank research; Digital currencies and fintech
    JEL: E4 E41 O3 O31
    Date: 2020–06
  88. By: ASAOKA Shintaro
    Abstract: By using a simple macroeconomic model, this study demonstrates the possibility that a bubble exists whether the economy is in a boom or a recession. We use an overlapping-generations model with endogenous growth. The results demonstrate that in an economy where banks can lend to consumers, there exists a single equilibrium path in which the economic growth rate fluctuates with the bubble. On the contrary, in an economy where banks cannot lend to consumers, the equilibrium path does not exist.
    Date: 2020–05
  89. By: Piguillem, Facundo; Shi, Liyan
    Abstract: Many countries are taking measures stopping productive activities to slow down the spread of COVID-19. At times these measures have been criticized as being excessive and too costly. In this paper we make an attempt to understand the optimal response to an infectious disease. We find that the observed policies are very close to a simple welfare maximization problem of a planner who tries to stop the diffusion of the disease. These extreme measures seem optimal in spite of the high output cost that it may have in the short run, and for various curvatures of the welfare function. The desire for cost smoothing reduces the intensity of the optimal quarantine while extending it for longer, but it still amounts to reducing economic activity by at least 40%. We then study the possibility of either complementing or substituting the quarantine policy with random testing. We find that testing is a very close substitute of quarantine and can substantially reduce the need for indiscriminate quarantines.
    Keywords: COVID-19; Optimal quarantine; Optimal testing; Welfare cost of quarantines
    JEL: E1 E65 H12 I1
    Date: 2020–04
  90. By: Juvenal, Luciana; Petrella, Ivan
    Abstract: When analyzing terms of trade shocks, it is implicitly assumed that the economy responds symmetrically to changes in export and import prices. Using a sample of developing countries our paper shows that this is not the case. We construct export and import prices using commodity and manufacturing price data matched with trade shares and separately identify export price, import price and global demand shocks using sign and narrative restrictions. Our findings indicate that, taken together, export and import price shocks account for around 40 percent of output fluctuations. We also find that global demand shocks, which simultaneously affect export and import prices, are often undetected in the terms of trade measure despite having a large effect on business cycles.
    Keywords: business cycles; commodity prices; terms of trade; World Shocks
    JEL: F41 F44
    Date: 2020–04
  91. By: Jake Anders (Centre for Education Policy and Equalising Opportunities, UCL Institute of Education, University College London); Lindsey Macmillan (Centre for Education Policy and Equalising Opportunities, UCL Institute of Education, University College London)
    Abstract: Large parts of the economy were suspended from late March - June 2020 due to the COVID-19 pandemic. The UK economy shrank by 20% in April 2020 as a result (ONS, 2020a). Given a 2% decline in GDP in the first three months of 2020, a severe recession is inevitable. NIESR's main-case scenario is a 7% economic contraction across 2020 (Lenoel & Young, 2020). The UK Government has sought to buffer the economic effects of this crisis through support such as the Coronavirus Job Retention Scheme (CJRS), allowing employers to place employees on "furlough". However, such schemes are designed to support those already in work, plus likely effects of the increase in employer contributions in August, suggests young people face an extremely challenging job market. Job vacancies were estimated to be 637,000 in February-April 2020; this is a fall of 170,000 compared to the previous 3-month period, which is the largest fall since comparable records began (ONS, 2020b). Henehan (2020) estimates that an additional 640,000 18-24-year-olds could find themselves unemployed this year alone. This note summarises the evidence on the effects of youth unemployment on later outcomes, of father's unemployment on child outcomes, and the unequal effects of recessions on life chances. It then highlights what the literature suggests about how policymakers could buffer some of these negative consequences, and why this may save money in the long run.
    Keywords: Scarring; Recession; Unemployment effects; Wage losses; COVID-19.
    JEL: J30 J60 J62 J68
    Date: 2020–06
  92. By: Israeli, Doron; Kaniel, Ron; Sridharan, Suhas A.
    Abstract: Prior literature demonstrates that an increased trading activity of a firm's stock is associated with abnormal future stock returns (the high-volume return premium) and interprets this phenomenon as evidence that increased visibility generates reductions in cost of capital. Motivated by this interpretation, we investigate whether increased trading activity entails changes in real corporate actions. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.
    Keywords: corporate investment; Financing cash flows; Investor recognition; trading volume
    JEL: E22 G12 G14 M41
    Date: 2020–04
  93. By: David Baqaee; Emmanuel Farhi; Michael J. Mina; James H. Stock
    Abstract: We use a five-age epidemiological model, combined with 66-sector economic accounting, to address a variety of questions concerning the economic reopening. We calibrate/estimate the model using contact survey data and data on weekly historical individual actions and non-pharmaceutical interventions in the weeks ending March 8 – May 16, 2020. Going forward, we model a decision-maker (governor) as following reopening guidelines like those proposed by the White House and the CDC. The sectoral accounting, combined with information on personal proximity and ability to work from home by sector, make it possible to construct a GDP-to-Risk index of which sectors provide the greatest increment in GDP per marginal increase in R0. Through simulations, we find that: a strong economic reopening is possible; a “smart” reopening, preferencing some sectors over others, makes only modest improvements over a broad reopening; and all this hinges on retaining strong restrictions on non-work social contacts. If non-work contacts – going to bars, shopping without social distancing and masks, large group gatherings, etc. – return only half-way to the pre-COVID-19 baseline, the current decline in deaths reverses leading to a second wave of business closures.
    JEL: E60 I10
    Date: 2020–05
  94. By: Xu Cheng (University of Pennsylvania); Winston Wei Dou (University of Pennsylvania); Zhipeng Liao (University of California, Los Angeles)
    Abstract: This paper shows that robust inference under weak identi?cation is important to the evaluation of many in?uential macro asset pricing models, including long-run risk models, disaster risk models, and multifactor linear asset pricing models. Building on recent developments in the conditional inference literature, we provide a new speci?cation test by simulating the critical value conditional on a su?cient statistic. This su?cient statistic can be intuitively interpreted as a measure capturing the macroeconomic information decoupled from the underlying content of asset pricing theories. Macro-?nance decoupling is an e?ective way to improve the power of our speci?cation test when asset pricing theories are di?cult to refute due to an imbalance in the information content about the key model parameters between macroeconomic moment restrictions and asset pricing cross-equation restrictions.
    Keywords: Asset Pricing, Conditional Inference, Disaster Risk, Long-Run Risk, Factor Models, Speci?cation Test, Weak Identi?cation
    JEL: C12 C32 C52 G12
    Date: 2020–05–24
  95. By: Olli Palm\'en
    Abstract: Did sovereign default risk affect macroeconomic activity through firms' access to credit during the European sovereign debt crisis? We investigate this question by a estimating a structural panel vector autoregressive model for Italy, Spain, Portugal, and Ireland, where the sovereign risk shock is identified using sign restrictions. The results suggest that decline in the creditworthiness of the sovereign contributed to a fall in private lending and economic activity in several euro-area countries by reducing the value of banks' assets and crowding out private lending.
    Date: 2020–06
  96. By: Yongheng Deng; Yang Tang; Ping Wang; Jing Wu
    Abstract: Housing and land prices in China have experienced dramatic hikes over the past decade or two. Moreover, housing and land prices have also become more dispersed across Chinese cities. This paper intends to explore how housing and land market frictions may affect not only the aggregate but also the spatial distribution of housing and land prices and hence the extent of spatial misallocation. We first document the spatial variations of housing and land market frictions. In particular, larger tier-1 cities receive less housing and land subsidies, compared to tier-2 and tier-3 cities, whereas land frictions have been mitigated over time. We then embed both types of market frictions into a dynamic competitive spatial equilibrium framework featured with endogenous rural-urban migration. The calibrated model can reasonably mimic the price hikes in the data. Our counterfactual analysis reveals that, in a frictionless economy, the levels of housing and land prices would both be higher; while the housing price hike would slow down, the land price would grow more rapidly. Moreover, the housing price would not be slow down unless housing frictions can be largely mitigated.
    JEL: E20 R20
    Date: 2020–05
  97. By: Bertrand Garbinti; Pierre Lamarche; Charlélie Lecanu; Frédérique Savignac
    Abstract: This paper studies the heterogeneity of the marginal propensity to consume out of wealth (MPC) both across and within countries. We estimate the MPC based on a cross-country harmonized household level dataset which combines surveys on wealth, income and consumption. We use panel regressions and an instrumental variable approach. First, our panel-based MPC estimates are very similar to those obtained on aggregate data and show substantial heterogeneity across countries. The wealth effect is coming both from housing and financial assets, while the main asset channel varies between countries. Second, the MPC is higher for low-wealth households, whatever the country. Third, we find some asymmetries across countries regarding the reaction to losses versus gains. Fourth, higher MPC is obtained for the two main consumption expenditure categories. Fifth, we find evidences that housing prices shock decreases consumption inequality while financial wealth shocks have a limited effect on consumption inequality. Classification-JEL: D12, E21, C21
    Keywords: : Consumption, Marginal Propensity to Consume out of Wealth, Policy Distributive Effects, Household Surveys.
    Date: 2020
  98. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The study analyses the relationships between capital dynamics, productivity, global value chains and foreign direct investment using panel data techniques. Among other results, we confirm the high importance of tangible and intangible ICT capital for productivity and GVC integration. We examine the extent of underinvestment in ICT in the EU relative to other major economies and identify bottlenecks for efficient capital allocation. The sluggish economic performance of the EU in the post-crisis period has been further challenged by the COVID-19 outbreak. Consolidating policy efforts to facilitate ICT investment, tackling the barriers to ICT adoption and broad-based digitalisation are critical for the EU in order to maintain a competitive edge and unlock new growth opportunities in the new normal.
    Keywords: Productivity, digitalisation, ICT capital, FDI, global value chains, barriers to ICT investments, intangible capital
    JEL: F14 F15 F21 E22 O47
    Date: 2020–06
  99. By: Jordi Galí; Giovanni Giusti
    Abstract: Advocates of a Leaning-Against-the-Wind monetary policy have claimed that such a policy can moderate asset price bubbles. On the other hand, there are compelling theoretical arguments that the policy would have the opposite effect. We study the effect of monetary policy on asset prices in a laboratory experiment with an overlapping generations structure. Participants in the role of the young generation allocate their endowment between two investments: a risky asset and a one-period riskless bond. The risky asset pays no dividend and thus capital gains are its only source of value. Consequently, its price is a pure bubble. We study how variations in the interest rate affect the evolution of the bubble in an experiment with three treatments. One treatment has a fixed low interest rate, another a fixed high interest rate, and the third has a Leaning-Againstthe-Wind interest rate policy in effect. We observe that the bubble increases (decreases) when interest rates are lower (higher) in the period of a policy change. However, the opposite effect is observed in the following period, when higher (lower) interest rates are associated with greater (smaller) bubble growth. Direct measurement of expectations reveals a Trend-Following component.
    Date: 2020–05
  100. By: International Monetary Fund
    Abstract: Recent Developments and Outlook. Barbados has continued to make good progress in implementing its Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth—but now faces a major challenge owing to the global coronavirus pandemic. Since May 2018, international reserves have recovered, helping rebuild confidence in the country’s macroeconomic framework. This has helped rebuild confidence in the country’s macroeconomic framework, though reserves are expected to be negatively impacted by the crisis in the months ahead. The completion of the external debt restructuring in December 2019 has reduced economic uncertainty, and the agreed terms with creditors have put public debt on a clear downward trajectory. On December 11, 2019, Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B-. However, prospects for 2020 have deteriorated significantly owing to the global pandemic, and risks to the outlook are now very high and tilted to the downside.
    Date: 2020–06–08
  101. By: Antoine Martin; Susan McLaughlin
    Abstract: On March 17, 2020, the Federal Reserve announced that it would re-establish the Primary Dealer Credit Facility (PDCF) to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households. The PDCF started offering overnight and term funding with maturities of up to ninety days on March 20. It will be in place for at least six months and may be extended as conditions warrant. In this post, we provide an overview of the PDCF and its usage to date.
    Keywords: primary dealer credit facility (PDCF); Federal Reserve; market functioning; COVID-19
    JEL: E5
    Date: 2020–05–19
  102. By: Cavallino, Paolo; Sandri, Damiano
    Abstract: Contrary to the trilemma, we show that international financial integration can undermine the transmission of monetary policy even in countries with flexible exchange rates due to an open-economy Effective Lower Bound. The ELB is an interest rate threshold below which monetary easing becomes contractionary due to the interaction between capital flows and collateral constraints. A tightening in global monetary and financial conditions increases the ELB and may prompt central banks to hike rates despite output contracting. We also show that the ELB gives rise to a novel inter-temporal trade-off for monetary policy and calls for supporting monetary policy with additional policy tools.
    Keywords: carry trade; Collateral constraints; Currency mismatches; monetary policy; Spillovers
    JEL: E5 F3 F42
    Date: 2020–04
  103. By: OKIMOTO Tatsuyoshi; TAKAOKA Sumiko
    Abstract: Predicting the future economy is of great interest for practitioners and policymakers. This study challenges this problem by examining the relation between credit spread curves and future economic activity. To this end, we calculate the credit spreads of corporate bonds at the firm level to construct an empirical distribution of credit spread curves covering every month from April 2004 to March 2019. Then we examine which deciles of this empirical distribution have more predictive power for economic growth rates. Our results indicate that the credit spread curve information in higher-ranked deciles (implying lower credit quality) is the most useful and economically important for the business cycle. We also distinguish between two regimes according to credit spread uncertainty by employing a smooth-transition model to determine whether this uncertainty affects the predictive relationship between credit spread curves and the business cycle in Japan. Our results suggest that the predictive power of credit spread curves heavily depends on uncertainty in the corporate bond market. More specifically, our results demonstrate that the credit spread curves have more predictive power for economic growth rates under the low corporate bond market uncertainty regime.
    Date: 2020–04
  104. By: Halling, Michael; Yu, Jin; Zechner, Josef
    Abstract: We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further decrease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approximately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of frms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions.
    Keywords: business cycle variation; clus- ter analysis; corporate debt structure dynamics; debt concentration
    JEL: G01 G32
    Date: 2020–04
  105. By: Olli Palm\'en
    Abstract: We study the effects of financial shocks on the United States economy by using a Bayesian structural vector autoregressive (SVAR) model that exploits the non-normalities in the data. We use this method to uniquely identify the model and employ inequality constraints to single out financial shocks. The results point to the existence of two distinct financial shocks that have opposing effects on inflation, which supports the idea that financial shocks are transmitted to the real economy through both demand and supply side channels.
    Date: 2020–06
  106. By: Bodenstein, M.; Corsetti, G.; Guerrieri, L.
    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 economic costs 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: infectious disease, epidemic, recession, COVID-19
    JEL: E10 E30 I10
    Date: 2020–04–15
  107. By: Andrieș, Alin Marius; Podpiera, Anca Maria; Sprincean, Nicu
    Abstract: We investigate the relationship of central bank independence and banks’ systemic risk measures. Our results support the case for central bank independence, revealing that central bank independence has a robust, negative, and significant impact on the contribution and exposure of a bank to systemic risk. Moreover, the impact of central bank independence is similar for the stand-alone risk of individual banks. Secondarily, we study how the central bank independence affects the impact of selected country and banking system indicators on these systemic measures. The results show that central bank independence may exacerbate the effect of a crisis on the contribution of banks to systemic risk. However, central bank independence seems to mitigate the harmful effect of a bank’s high market power on its systemic risk contribution.
    JEL: G21 E58 G28
    Date: 2020–06–16
  108. By: Newbery, D.
    Abstract: This paper calculates the cost per tonne of CO2 abated by Sizewell B (SZB, the nuclear power station commissioned in 1995). Other zero-carbon renewables received contractual support. A long-term Contract-for-Difference (CfD) is modelled with a strike price reset every 5 yrs. by the regulator under the Regulatory Asset Base model of electric utilities. The answer depends on the Weighted Average Cost of Capital (WACC), given the range of observed utility WACCs. At a low WACC the cost is £201934.1/tonne CO2 abated and £201949.2/t. CO2 at the high WACC, compared with the roughly £40/t. CO2 paid by GB generators in 2019. Had the design for SZB been replicated for the 6.4 GW new nuclear the saving might have been £9-18 billion.
    Keywords: Cost of CO2, Nuclear power, RAB, WACC, Cost Benefit Analysis
    JEL: D61 H23 L94 C54 E43 H54 L94 Q54
    Date: 2020–05–21
  109. By: Andersen, Torben M; Bhattacharya, Joydeep; Gestsson, Marias H
    Abstract: Under dynamic efficiency, a pay-as-you-go (PAYG) pension scheme helps the current generation of retirees but hurts future generations because they are forced to save via a return-dominated scheme. Abandoning it is deemed welfare-improving but typically not for all generations. But what if agents are present-biased (hence, undersave for retirement) and the "paternalistically motivated forced savings" component of a PAYG scheme motivated its existence in the first place? This paper shows it is possible to transition from such a PAYG scheme on to a higher return, mandated fully-funded scheme; yet, no generation is hurt in the process. The results inform the debate on policy design of pension systems as more and more policy makers push for the transition to take place but are forced to recognize that current retirees may get hurt along the way.
    Keywords: mandatory pensions; Pareto criterion pension crowding out; Present-Biased Preferences; transition
    JEL: D3 D91 E6 H55
    Date: 2020–04
  110. By: Adelino, Manuel; Ferreira, Miguel; Giannetti, Mariassunta; Pires, Pedro
    Abstract: We show that trade credit in production networks is important for the transmission of unconventional monetary policy. We find that firms with bonds eligible for purchase under the European Central Bank's Corporate Sector Purchase Program act as financial intermediaries and extend more trade credit to their customers. The increase in trade credit flows is more pronounced from core countries to periphery countries and towards financially constrained customers. Customers increase investment and employment in response to the additional financing, while suppliers with eligible bonds increase their customer base, potentially favoring upstream industry concentration. Our findings suggest that the trade credit channel of monetary policy produces heterogeneous effects on regions, industries, and firms.
    Keywords: corporate bonds; employment; investment; monetary policy; trade credit
    JEL: E50 G30
    Date: 2020–04
  111. By: Koster, Hans R.A.
    Abstract: Using detailed housing transactions data from the Netherlands over the period 1990-2015, we examine the disamenity effect associated with the opening of refugee centers (RCs). This effect captures a negative externality but also reflects the attitudes of incumbent households towards immigration. Using a differencein-differences methodology, we show that the opening of an RC decreases house prices within 2km by 3-6%. This effect has become stronger over the past decade and is correlated with the local share of nationalist, anti-immigration, votes. Using micro-data on home buyers' characteristics and employing a non-parametric hedonic pricing method, we identify households' individual preferences. The willingness to pay is more negative for larger RCs, suggesting stronger negative externalities. However, we also show that the willingness to pay of foreign-born households is more positive. This is indicative of a more positive attitude towards immigration. Overall, these results imply that when opening RCs, it is advisable to keep them relatively small and locate them in more ethnically diverse areas.
    Keywords: House Prices; household preferences; Immigration; refugee centers
    JEL: E02 O18 R31
    Date: 2020–04
  112. By: Basu, P.; Jamasb, T.
    Abstract: We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. Although the model is general we relate it to the UK’s green growth policy objective. In our model, final output is produced with two reproducible inputs, green and man-made capital. The growth of man-made capital causes depreciation of green capital via carbon emissions and related externalities which the private sector does not internalize. A benevolent government uses carbon taxes to encourage firms to substitute man-made capital with green capital in so far the production technology allows. Doing so, the damage to natural capital by emissions can be partly reversed through a lower socially optimal long run growth. The trade-off between environmental quality and long-run growth can be overcome by a pollution abatement technology intervention. However, if the source of pollution is consumption, the optimal carbon tax is zero and there is no trade-off between environment policy and growth. A corrective consumption tax is then needed to finance a public investment programme for replenishing the green capital destroyed by consumption based emissions.
    Keywords: Green growth, sustainability, carbon tax, clean growth, resource substitution
    JEL: E1 O3 O4 Q2
    Date: 2020–05–21
  113. By: Kim, Seonghoon (Singapore Management University); Koh, Kanghyock (Korea University); Zhang, Xuan (Goethe University Frankfurt)
    Abstract: We examine the short-term impact of COVID-19 on consumption spending and labor market outcomes. Using monthly panel data of individuals mainly aged 50–70 in Singapore, we find that COVID-19 reduced consumption spending and labor market outcomes immediately after its outbreak, and its negative impact quickly evolved. At its peak, the pandemic reduced total household consumption spending by 22.8% and labor income by 5.9% in April. Probability of full-time work also went down by 1.2 pp and 6.0 pp in April and May, respectively, but employment and self-employment were only mildly affected. Our heterogeneity analysis indicates that the reduction in consumption spending was greater among those with higher net worth, while the decreases in labor market outcomes were greater among those with lower net worth. However, we find little evidence that those in worse health status experienced larger reductions in consumption spending and labor market outcomes. Reductions in consumption spending correlated with increased risk avoidance behavior, the nationwide partial lockdown, worsening economic outlook, and reduced income.
    Keywords: COVID-19, pandemic, consumption spending, labor market, monthly panel data
    JEL: E2 I12 H2 J01
    Date: 2020–06
  114. By: PINSHI, Christian P.
    Abstract: The Eighteenth Ordinary Session of the Conference of Heads of State and Government of the African Union concluded with the adoption of a strategy aimed at creating a continental free trade area, which aims to deepen the economic integration of Africa; intensify intra-African trade; improve competitiveness; contribute to the movement of capital and people; promote sustainable and inclusive socio-economic development; transform the structural structure of African economies and promote industrialization. To this order we analyze the implications of African central banks and their strategic roles in the process of the continental free trade area. We note that much of the analysis of the continental free trade area in Africa has turned to the implications for government revenue, tariff and non-tariff barriers, welfare, uneven distribution. This note examines the implications of central banks in the continental free trade area.
    Keywords: African Continental Free Trade Area, African Central Banks
    JEL: E58 E59 F13
    Date: 2019–12–27
  115. By: Brotherhood, Luiz (University of Barcelona); Kircher, Philipp (European University Institute); Santos, Cezar (Getulio Vargas Foundation, Brazil); Tertilt, Michèle (University of Mannheim)
    Abstract: This paper investigates the role of testing and age-composition in the Covid-19 epidemic. We augment a standard SIR epidemiological model with individual choices regarding how much time to spend working and consuming outside the house, both of which increase the risk of transmission. Individuals who have flu symptoms are unsure whether they caught Covid-19 or simply a common cold. Testing reduces the time of uncertainty. Individuals are heterogeneous with respect to age. Younger people are less likely to die, exacerbating their willingness to take risks and to impose externalities on the old. We explore heterogeneous policy responses in terms of testing, confinements, and selective mixing by age group.
    Keywords: COVID-19, testing, social distancing, age-specific policies
    JEL: E17 C63 D62 I10 I18
    Date: 2020–05
  116. By: Alain Naef (University of California, Berkeley)
    Abstract: Few studies on foreign exchange intervention convincingly address the causal effect of intervention on exchange rates. By using a narrative approach, I address a major issue in the literature: the endogeneity of intraday news which influence the exchange rate alongside central bank operations. Some studies find that interventions work in up to 80% of cases. Yet, by accounting for intraday market moving news, I find that in adverse conditions, the Bank of England managed to influence the exchange rate only in 8% of cases. I use both machine learning and human assessment to confirm the validity of the narrative approach.
    Keywords: intervention, foreign exchange, natural language processing, central bank, Bank of England.
    JEL: F31 E5 N14 N24
    Date: 2020–06
  117. By: Meghann Puloc’h
    Abstract: La Zambie, pays situé au nord de l’Afrique australe et peuplé par moins de 18 millions d’habitants, a construit son modèle de développement sur d’abondantes ressources naturelles, minières en premier lieu. Le pays est le deuxième producteur africain de cuivre et se classe parmi les dix premiers producteurs mondiaux. Mais le pays dispose également de ressources hydrauliques abondantes – qu’il exploite au travers d’une production d’électricité reposant à plus de 80 % sur l’hydroélectricité – et d’un important potentiel agricole. Si l’économie zambienne repose désormais majoritairement sur lesecteur tertiaire, elle reste vulnérable aux chocs affectant ses secteurs traditionnels.
    Keywords: Zambie
    JEL: E
    Date: 2020–06–22

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