|
on Macroeconomics |
|
Issue of 2020‒07‒13
146 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Pinshi, Christian P. |
| Abstract: | The COVID-19 pandemic is influencing the management of monetary policy in its role as regulator of aggregate demand and guarantor of macroeconomic stability. We use a Bayesian VAR framework (BVAR) to provide an analysis of the COVID-19 uncertainty shock on the economy and monetary policy response. This analysis shows important conclusions. The uncertainty effect of COVID-19 hits unprecedented aggregate demand and the economy. In addition, it undermines monetary policy action to soften this fall in aggregate demand and curb inflation impacted by the exchange rate effect. We suggest a development of unconventional devices for a gradual recovery of the economy. |
| Keywords: | Monetary policy, Uncertainty, COVID-19, Bayesian VAR |
| JEL: | C32 E32 E51 E52 E58 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100836&r=all |
| By: | Tatiana Kirsanova; Celsa Machado; Ana Paula Ribeiro |
| Abstract: | Using optimising policy framework, we build and estimate a small-scale DSGE model of the US, and tell the story of monetary and fiscal policy interactions in 1955-2018. We find that fiscal policy is important to identify shifts in monetary policy preferences, and it is shaped by the political color. We use this model to analyse the episode of zero lower bound on interest rate in 2008-15. We find that the bound constrained monetary policy, explain some observed irregularities in macroeconomic data, and demonstrate that a change to price level targeting could have generated a powerful lift-off from the constraint. |
| Keywords: | Optimal Noncooperative Monetary and Fiscal Policy, Zero Lower Bound, Price Level Targeting, Political Color, Bayesian Estimation with Markov Switching |
| JEL: | E31 E52 E62 E63 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_14&r=all |
| By: | Valeriu Nalban; Andra Smadu |
| Abstract: | We examine whether the response of the euro area economy to uncertainty shocks depends on the state of financial conditions. We find strong evidence that uncertainty shocks have much more powerful effects on key macroeconomic variables in episodes marked by financial distress than in normal times. We document that the recovery of economic activity is state-dependent following an adverse uncertainty shock. More precisely, it is gradual in normal times, but displays a more accelerated rebound when the shock hits during financial distress. These findings are based on a non-linear data-driven model that accounts for regime switching and time-varying volatility. Finally, from a policy perspective, we argue that whether financial markets are calm or distressed matters when it comes to the appropriate policy responses to uncertainty shocks. |
| Keywords: | Uncertainty; financial regime asymmetries; non-linear VAR; time-varying volatility |
| JEL: | C32 E32 E44 E52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:687&r=all |
| By: | Schupp, Fabian |
| Abstract: | I propose a new term structure model for euro area real and nominal interest rates which explicitly incorporates a time-varying lower bound for nominal interest rates. Results suggest that the lower bound is of importance in structural analyses implying time-varying impulse responses of yield components. With short-term rate expectations at or close to the lower bound, premium components are less reactive to inflation shocks, while real rate responses change their sign from positive to negative. However, it is further shown that the lower bound is of only little relevance for decomposing yields into their expectations and premium components once survey information is incorporated. Overall, results support the conclusion that reaching the effective lower bound may change the way macroeconomic shocks propagate along the term structure of nominal as well as real interest rates. |
| Keywords: | Joint real-nominal term structure modelling,lower bound,inflation expectations,inflation risk premium,survey information,yield curve decomposition,monetary policy,euro area |
| JEL: | E31 E43 E44 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:322020&r=all |
| By: | Mandler, Martin; Scharnagl, Michael |
| Abstract: | We assess the macroeconomic effects of the Eurosystem's asset purchases on the four largest euro area economies using simulation exercises that combine unconventional monetary policy shocks with a fixed policy rate for the duration of the purchase programme. We identify unconventional monetary policy shocks in a large Bayesian vector autoregressive (BVAR) model as shocks to the term structure of interest rates using zero and sign restrictions. We propose a multi-country model in which we impose identification assumptions mainly on euro area aggregate financial variables and on country averages of output and price responses. Furthermore, the multi-country structure allows testing for cross-country differences in the effects of the asset purchase programme in a statistically rigorous way using the posterior of the difference between the country-specific effects. We estimate positive output effects in all countries as well as positive effects on bank lending to firms. Effects on HICP inflation, generally, are much weaker. We find substantial cross-country heterogeneity with the largest price level effects in Spain while output effects were smallest in France and inflation effects were smallest in Italy. |
| Keywords: | asset purchase programme,unconventional monetary policy,euro area,Bayesian vector autoregression,regional effects of monetary policy |
| JEL: | C32 E47 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:292020&r=all |
| By: | Donato Masciandaro |
| Abstract: | We have helicopter money when there is a one-shot creation of irredeemable fiat money through intended central bank capital losses and/or a permanent monetary base change. This extraordinary monetary policy option appears whenever there is a significant economic crisis. But then the helicopter never flies. This article shows that political reasons can explain such as outcome. An independent central bank can credibly define a social optimal helicopter money. But as the redistributive effects of helicopter money increase, the risk of citizen hostility towards the central bank policy increases and helicopter money becomes unlikely. Such situation is more likely to occur if the government in charge is made up of career-concerned politicians and citizens are heterogeneous. The framework is applied in discussing the possibility of having the European Central Bank as buyer of Perpetual Bonds. |
| Keywords: | helicopter helicopter money, monetary policy, fiscal policy, political economy, central bank independence, modern monetary theory, populism, European Central Bank |
| JEL: | D72 D78 E31 E52 E58 E62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20138&r=all |
| By: | Kaiji Chen; Patrick C. Higgins; Tao Zha |
| Abstract: | Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this measure and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was an important reason that a majority of banks tightened bank lending standards during the Great Recession. Our extensive data analysis disciplines how we introduce credit frictions in the banking sector into a macroeconomic model. The model estimation reveals that an exogenous shock to credit supply drives cyclical lending standards and accounts for a significant portion of fluctuations in bank loans and aggregate output. |
| JEL: | C51 C81 C82 E32 E44 G21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27214&r=all |
| By: | Cerra, Valerie; Fatás, Antonio; Saxena, Sweta |
| Abstract: | Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as "hysteresis," argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis, as GDP in advanced economies remains far below the pre-crisis trends. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects. |
| Keywords: | Booms; business cycles; Crises; growth; hysteresis; Macroeconomic Policy; Persistence; recovery; Stabilization Policy |
| JEL: | E32 E60 O47 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14531&r=all |
| By: | Donato Masciandaro |
| Abstract: | This article discusses a form of fiscal monetization that produces losses in the central bank’s balance sheet, without a permanent increase in the money base. If an independent central bank acts as a long-sighted policymaker, an optimal helicopter monetary policy can be identified. At the same time, if the government in charge is made up of career-concerned politicians and citizens are heterogenous, then the policy mix will produce distributional effects, and conflicts between politicians and central bankers will be likely. Political pressures will arise and the helicopter money option will be less likely. The framework is applied in a discussion of the economics and politics of issuing COVID-19 perpetual bonds with the European Central Bank as the buyer. |
| Keywords: | helicopter money, monetary policy, fiscal policy, political economy, central bank independence, modern monetary theory, populism, European Central Bank |
| JEL: | D72 D78 E31 E52 E58 E62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20137&r=all |
| By: | Reis, Ricardo |
| Abstract: | Monetary policy leaves a fiscal footprint. In some circumstances, relieving the fiscal burden becomes the main goal of policy, and inflation control is subordinate. This article notes that the same is true of macroprudential policy, and it characterizes the size and sign of its fiscal footprint, as well as the states of the world in which the temptation for fiscal goals to dominate may be higher. Macroprudential policies that increase the demand for government bonds by banks directly lower the cost of rolling over public debt, but decrease lending, real activity, and tax collections. They lower the incidence and fiscal cost of a financial crisis, but they may make a fiscal crisis more likely. |
| Keywords: | financial crisis,sovereign default,diabolic loop,capital and liquidity regulation |
| JEL: | E58 E62 G01 G28 H63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:312020&r=all |
| By: | Amélie BARBIER-GAUCHARD; Francesco De PALMA; Thierry BETTI |
| Abstract: | We assess the impact of union bargaining power on inflation and employment in the case of efficiency bargaining following Mac Donald & Solow (1981). We consider a Stackelberg two-stage game between the Central Bank and social partners (firms and union). Firms and unions negotiate employment and nominal wage, the Central Bank sets the inflation rate. We show that a decrease in union bargaining power tends to reduce nominal wage and employment. In such a context, where the Central Bank is concerned with inflation and employment, the optimal monetary policy consists in a stronger stabilization of employment at the expense of inflation stabilization. We then employ a panel data model for 36 OECD countries to empirically assess the link between the bargaining power of unions and inflation. Our estimates confirm this theoretical result by showing that a low degree of union bargaining power is associated with higher inflation. |
| Keywords: | monetary policy, employment, inflation, wage setting, union bargaining power, efficiency bargaining, conservatism. |
| JEL: | E02 E24 E52 E58 J51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2020-26&r=all |
| By: | Fornaro, Luca; Wolf, Martin |
| Abstract: | We provide a simple model to understand some macroeconomic implications of the coronavirus epidemic. We focus on a scenario in which the Covid-19 outbreak causes a persistent supply disruption, potentially extending beyond the end of the epidemic. We show that the spread of the virus might generate a demand-driven slump, give rise to a supply-demand doom loop, and open the door to stagnation traps induced by pessimistic animal spirits. Aggressive policies to support investment can reverse the supply-demand doom loop and jumpstart the economy out of stagnation traps. |
| Keywords: | coronavirus pandemic; COVID-19; Fiscal policy; hysteresis; monetary policy; Productivity Growth; stagnation traps; supply-demand doom loop |
| JEL: | E24 E32 E52 E62 F43 O42 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14529&r=all |
| By: | Ahiadorme, Johnson Worlanyo |
| Abstract: | This paper studies the behaviour of inflation, output and unemployment in Sub-Saharan Africa (SSA) countries. In a heterogenous panel data analysis, the short run estimates show significant inflation - unemployment and output - unemployment relationships, consistent with the predictions of the Phillips curve and Okun’s law. In the long run however, the Okun’s law coefficient declines greatly and turns positive while the Phillips curve phenomenon gravitates towards the New Keynesian Phillips Curve (NKPC) but with a negative relationship. The short-term behaviour of inflation, output and unemployment can be attributed to economic slackness reflecting subdued demand while the long run outturns may be explained by supply shocks reflecting shifts in productivity. In the country specific analysis, I find that the coefficients on both past and expected inflation are positive and significant in all countries. However, the coefficients on expected inflation dominate the coefficients on past inflation, suggesting that inflation dynamics in the sub region are more forward looking in line with the theoretical predictions of the NKPC. |
| Keywords: | Phillips curve, Okun’s law, Panel ARDL |
| JEL: | E24 E31 |
| Date: | 2020–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100906&r=all |
| By: | Donato Masciandaro; Davide Romelli; Gaia Rubera |
| Abstract: | This paper explores the relationship between central bank communication and market sentiment, and proposes a new measure. Market sentiment is proxied using a Twitter-based metric: the Central Bank Surprise Index. The empirical study covers three cases: the Federal Reserve, the European Central Bank and the Bank of England. |
| Keywords: | monetary policy, central bank communication, financial market, social media, Twitter, Federal Reserve System, European Central Bank, Bank of England, Bank of Japan |
| JEL: | E44 E52 E58 G14 G15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20134&r=all |
| By: | Nakatani, Ryota |
| Abstract: | The ultimate purpose of macroprudential policy is to avoid financial instability, such as banking crises, which have a long-lasting and devastating effect on the economy. Although a growing number of studies have examined the effects of macroprudential policy on credit growth, few empirical studies have analyzed its effect on the probability of a banking crisis. Does macroprudential policy actually affect the probability of a banking crisis? Do other macroeconomic policies matter for the effectiveness of macroprudential policy? To answer these questions, this paper empirically investigates the effect of macroprudential policy on the probability of a banking crisis and its relationship with other macroeconomic policies. Specifically, using data on 65 countries from 2000 to 2016, we employ a probit model to analyze the effect of changes in the loan-to-value (LTV) ratio on crisis probability. Our results show that macroprudential policy is effective in changing the probability of a banking crisis via a credit channel and that its effectiveness depends on other macroeconomic policies. Changes in the LTV ratio are found to be effective in influencing the probability of a banking crisis in countries that have inflation targeting frameworks, floating exchange rate regimes, and/or no capital controls. Our results underscore the importance of policy coordination among different government bodies to design an appropriate macroprudential policy, especially in the current context of the Covid-19 crisis. |
| Keywords: | macroprudential policy; loan-to-value (LTV) ratio; banking crisis; probit model; monetary policy; exchange rate regime; capital control |
| JEL: | E52 E61 F33 F38 G01 G28 R31 R38 |
| Date: | 2020–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101157&r=all |
| By: | Florian Böser (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland); Chiara Colesanti Senni (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland) |
| Abstract: | We use a dynamic general equilibrium model to study a climate-oriented monetary policy in the form of emission-based interest rates set by the central bank. Liquidity costs of banks increase with the emission intensity of their asset portfolio, leading banks to favor low-carbon assets and to improve the financing conditions for clean sectors. We show that such a monetary policy supports the decarbonization of the economy and reduces climate damage, as more resources are channeled to low-carbon sectors and incentives to adopt cleaner technologies increase across all sectors. We illustrate these effects by calibrating our model to data for the Euro Area. |
| Keywords: | climate change, monetary policy, banks, innovation, financial stability |
| JEL: | E42 E52 E58 O44 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:20-337&r=all |
| By: | Cloyne, James; Jordá, Óscar; Taylor, Alan M. |
| Abstract: | Unusual circumstances often coincide with unusual fiscal policy actions. Much attention has been paid to estimates of how fiscal policy affects the macroeconomy, but these are typically average treatment effects. In practice, the fiscal "multiplier" at any point in time depends on the monetary policy response. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to evaluate these monetary-fiscal effects. In the data, the fiscal multiplier varies considerably with monetary policy: it can be zero, or as large as 2 depending on the monetary offset. We show how to decompose the typical macro impulse response function into (1) the direct effect of the intervention on the outcome; (2) the indirect effect due to changes in how other covariates affect the outcome when there is an intervention; and (3) a composition effect due to differences in covariates between treated and control subpopulations. This Blinder-Oaxaca-type decomposition provides convenient way to evaluate the effects of policy, state-dependence, and balance conditions for identification. |
| Keywords: | balance; Blinder-Oaxaca decomposition; Fiscal policy; identification; interest rates; local projections; State-Dependence |
| JEL: | C54 C99 E32 E62 H20 H5 N10 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14544&r=all |
| By: | Oliver de Groot (University of Liverpool Management School & CEPR); Grzegorz Wesołowski (Narodowy Bank Polski) |
| Abstract: | We investigate business cycle implications of banking system complexity and bank heterogeneity in individual leverage. We show that a more complex banking network generates higher individual bank leverage and increases economic volatility. Then, we build a general equilibrium business cycle model with three types of banks: deposittaking, intermediary and lending. Keeping constant aggregate leverage in the banking system, we vary individual leverage and show that an increase in lending bank leverage increases costs of business cycle fluctuations. We argue that this can be mitigated by policymakers taxing the returns of lending banks. |
| Keywords: | Financial intermediation; Network theory; Leverage; Welfare |
| JEL: | E32 E44 E51 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:330&r=all |
| By: | Donato Masciandaro; Federico Faveretto |
| Abstract: | This paper builds a model of populism called Democratic Rioting in which citizens - i.e., the poor and teh rich - are assumed to be heavily influenced by psychological group dynamics that result from banking shocks. We highlight a display of anger that is channelled through an election instead of in the streets. In turn the anger - a self-serving bias - can be influenced by non-financial news about immigration, welfare plans and housing plans. Therefore after a banking shock the consensus on a myopic populisr policy can depend on many issues that have nothing to do with the bailout decision itself. We describe a mechanism that can be applied to the aftermath of both the Great Recession and the Great Depression. |
| Keywords: | Populism, Political Economics, Behavioural economics, Financial inequality, Banking policy |
| JEL: | D72 D78 E31 E52 E58 E62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20133&r=all |
| By: | Taguchi, Hiroyuki |
| Abstract: | This paper aims to reassess the performances of inflation targeting adopted by emerging ASEAN countries, Indonesia, the Philippines and Thailand, by examining their monetary policy rules, both through generalized-method-of-moments (GMM) estimations of policy reaction functions and through Bayesian estimations of the New Keynesian dynamic-stochastic-general-equilibrium (DSGE) model. The main findings are summarized as follows. First, the GMM estimations identified inflation-responsive rules fulfilling the Taylor principle, with a forward-looking manner in Indonesia and Thailand and with a contemporaneous way in the Philippines. Second, the Bayesian estimations of the New Keynesian DSGE could reassure the GMM estimation results, as the former estimations produced consistent outcomes with the latter ones on the policy rate reactions to inflation with the Taylor principle. |
| Keywords: | Taylor principle; Inflation targeting; Emerging ASEAN; Generalized method of moments (GMM); New Keynesian dynamic stochastic general equilibrium (DSGE) |
| JEL: | E52 E58 O53 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100847&r=all |
| By: | Busch, Christopher; Ludwig, Alexander |
| Abstract: | We extend the canonical income process with persistent and transitory risk to shock distributions with left-skewness and excess kurtosis, to which we refer as higher- order risk. We estimate our extended income process by GMM for household data from the United States. We find countercyclical variance and procyclical skewness of persistent shocks. All shock distributions are highly leptokurtic. The existing tax and transfer system reduces dispersion and left-skewness of shocks. We then show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications, which depend crucially on risk attitudes of households; second, higher-order risk matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, higher-order risk has non-trivial implications for the degree of self-insurance against both transitory and persistent shocks. |
| Keywords: | Business cycle; GMM estimation; labor income risk; Life-Cycle Model; Persistent and Transitory Income Shocks; Risk attitudes; Skewness |
| JEL: | D31 E24 E32 H31 J31 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14538&r=all |
| By: | Gadea Rivas, Maria Dolores; Laeven, Luc; Pérez-Quirós, Gabriel |
| Abstract: | We study the effects of credit over the business cycle, distinguishing between expansions and contractions. We find that there is a growth and risk trade-off in the pace of credit growth over the business cycle. While rapid credit growth tends to be followed by deeper recessions, we also find that credit growth has a positive impact on the duration of expansions. This poses a trade-off for the policymaker: Limiting the buildup of financial risk to avoid a deep recession can negatively affect the cumulation of economic growth during the expansion. We show that intermediate levels of credit growth maximize long-term growth while limiting volatility. Macroprudential policies should be used to manage this growth and risk trade-off, striking a balance between allowing expansions to last longer and avoiding deep recessions. |
| Keywords: | business cycles; credit growth; macroprudential policies |
| JEL: | C22 E32 E61 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14492&r=all |
| By: | David Popp; Francesco Vona; Giovanni Marin; Ziqiao Chen |
| Abstract: | We evaluate the employment effect of the green part of the largest fiscal stimulus in recent history, the American Recovery and Reinvestment Act (ARRA). Each $1 million of green ARRA created 15 new jobs that emerged especially in the post-ARRA period (2013-2017). We find little evidence of significant short-run employment gains. Green ARRA creates more jobs in commuting zones with a greater prevalence of pre-existing green skills. Nearly half of the jobs created by green ARRA investments were in construction or waste management. Nearly all new jobs created are manual labor positions. Nonetheless, manual labor wages did not increase. |
| JEL: | E24 E62 H54 H72 Q58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27321&r=all |
| By: | Rohwer, Götz; Behr*, Andreas |
| Abstract: | The paper argues that an important contribution of private banks to the expansion of government debts, and thereby to the increase in the money supply, is based on their being mediators of government expenditures. In order to develop the argument the paper distinguishes between two money circuits: one, which includes the government, starts from the central bank, and another one, which includes the final recipients of government expenditures, starts from private banks and is based on their deposit money. Presupposing then an institutional setting in which only private banks are permitted to initially purchase government bonds on the primary market, the paper shows that private banks can finance these purchases with their own deposit money. |
| Keywords: | Government debts, taxes, banks, money circuits |
| JEL: | E5 E51 E58 |
| Date: | 2020–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100935&r=all |
| By: | Kose, Ayhan; Nagle, Peter; Ohnsorge, Franziska; Sugawara, Naotaka |
| Abstract: | Episodes of debt accumulation have been a recurrent feature of the global economy over the past fifty years. Since 2010, emerging and developing economies have experienced another wave of historically large and rapid debt accumulation. Similar past debt buildups have often ended in widespread financial crises in these economies. This paper examines the factors that are likely to determine the outcome of the most recent debt wave, and considers policy options to help reduce the likelihood that it ends again in widespread crises. It reports two main results. First, the rapid increase in debt has made emerging and developing economies more vulnerable to shifts in market sentiment, notwithstanding historically low global interest rates. Second, policy options are available to lower the likelihood of financial crises, and to help manage the adverse impacts of crises when they do occur. These include sound debt management, strong monetary and fiscal frameworks, and robust bank supervision and regulation. The post-crisis debt buildup has coincided with a period of subdued growth as well as the emergence of non-traditional creditors. As a result, policy priorities also need to ensure that debt is spent on productive purposes to improve growth prospects and that all debt-related transactions are transparently reported. |
| Keywords: | banking crises; Currency Crises; Debt crises; External Debt; financial crises; private debt; public debt |
| JEL: | E32 E62 F34 G01 H12 H63 N20 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14528&r=all |
| By: | Christoph Görtz; Christopher Gunn; Thomas A. Lubik |
| Abstract: | We identify total factor productivity (TFP) news shocks using standard VAR methodology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. We show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, we therefore develop a framework that relies on the presence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement we document supports the view that news shocks are an important driver of aggregate fluctuations. |
| Keywords: | news shocks, business cycles, inventories, knowledge capital, VAR |
| JEL: | E20 E30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8284&r=all |
| By: | Bodenstein, M.; Corsetti, G.; Guerrieri, L. |
| Abstract: | The consensus in the recent literature is that the gains from international monetary cooperation are negligible, and so are the costs of a breakdown in cooperation. However, when assessed conditionally on empirically-relevant dynamic developments of the economy, the welfare cost of moving away from regimes of explicit or implicit cooperation may rise to multiple times the cost of economic fluctuations. In economies with incomplete markets, the incentives to act non-cooperatively are driven by the emergence of global imbalances, i.e., large net-foreign-asset positions; and, in economies with complete markets, by divergent real wages. |
| Keywords: | monetary policy cooperation, global imbalances, open-loop Nash games |
| JEL: | E44 E61 F42 |
| Date: | 2020–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2006&r=all |
| By: | Rossi, Barbara |
| Abstract: | This article provides guidance on how to evaluate and improve the forecasting ability of models in the presence of instabilities, which are widespread in economic time series. Empirically relevant examples include predicting the financial crisis of 2007-2008, as well as, more broadly, fluctuations in asset prices, exchange rates, output growth and inflation. In the context of unstable environments, I discuss how to assess models' forecasting ability; how to robustify models' estimation; and how to correctly report measures of forecast uncertainty. Importantly, and perhaps surprisingly, breaks in models' parameters are neither necessary nor sufficient to generate time variation in models' forecasting performance: thus, one should not test for breaks in models' parameters, but rather evaluate their forecasting ability in a robust way. In addition, local measures of models' forecasting performance are more appropriate than traditional, average measures. |
| Keywords: | business cycles; Density forecasts; Forecast Confidence Intervals; Forecasting; great recession; inflation; Instabilities; output growth; Structural Breaks; Time variation |
| JEL: | D1 E21 E4 E52 H31 I3 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14472&r=all |
| By: | Markus K. Brunnermeier; Sebastian Merkel; Yuliy Sannikov |
| Abstract: | This paper incorporates a bubble term in the standard FTPL equation to explain why countries with persistently negative primary surpluses can have a positively valued currency and low inflation. It also provides an example with closed-form solutions in which idiosyncratic risk on capital returns depresses the interest rate on government bonds below the economy’s growth rate. |
| JEL: | E44 E52 E63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8278&r=all |
| By: | Benigno, Gianluca; Foerster, Andrew; Otrok, Christopher; Rebucci, Alessandro |
| Abstract: | We estimate a workhorse DSGE model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between being the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico's business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt, Tequila, and Global Financial Crises. The crisis episodes generated by the estimated model display sluggish and long-lasting build-up and stagnation phases driven by cocktails of shocks. Different sets of shocks explain different variables over the business cycle and the three historical episodes of sudden stops identified. |
| Keywords: | Bayesian estimation; business cycles; Endogenous Regime-Switching; financial crises; Mexico; occasionally binding constraints |
| JEL: | C11 E3 F41 G01 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14545&r=all |
| By: | Michael Frenkel; Haiko Stefan |
| Abstract: | We examine the effects of the COVID-19 pandemic on the economic decline expected in Germany in 2020. The magnitude of the economic slump that will occur in 2020 depends on the extent of the slump during the shutdown, on the point in time, at which a significant easing of shutdown occurs, and on the length of adjustment process towards the structures that prevailed before the pandemic. We derive several scenarios and find that the shutdown will only remain in the single-digit percentage range if we apply very optimistic assumptions about the extent of the initial decline in GDP during the shutdown and the speed of adjustment after opening up of the economy. However, assuming that the economic crisis cannot end before the medical crisis ends, which medical experts project not to happen before the end of 2020, such optimistic assumptions do not appear realistic. Hence, we find it more likely that the percentage decline of GDP in Germany will be two-digit in 2020. Our findings are in contrast to the growth projections recently issued by the German Council of Economic Experts or by the Federal Ministry of Economic Affairs and Energy of Germany. |
| Keywords: | COVID-19, Recession, Germany |
| JEL: | E01 E20 E37 O52 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:whu:wpaper:20-03&r=all |
| By: | International Monetary Fund |
| Abstract: | Chile’s very strong fundamentals, policy frameworks, and macroeconomic track record have been instrumental in helping the economy absorb the impact of recent shocks, including the social unrest in late 2019. Over the past three decades, Chile has been enjoying a very solid macroeconomic performance. The robust growth has resulted in one of the largest reductions in poverty and highest incomes per capita in the region. Owing to the fiscal rule and the long record of prudent fiscal policy, public debt is low by international standards and the country enjoys steady sovereign access to capital markets at favorable terms. The credible inflation-targeting framework has delivered low and stable inflation with well-anchored inflation expectations. The sound financial system is supported by an effective regulatory and supervisory framework. International reserves are at a comfortable level. The authorities remain fully committed to maintaining very strong policies and policy frameworks. Despite showing one of the highest levels of resilience among emerging market economies, Chile’s open economy remains exposed to substantial external risks, such as those stemming from a prolonged Covid-19 outbreak. |
| Keywords: | International reserves;Financial crises;Economic policy;Financial systems;External debt;ISCR,CR,FCL,percent of GDP,percent,Haver,total external debt |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/183&r=all |
| By: | Shingo Watanabe (Associate Director-General and Head of Economic and Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shingo.watanabe@boj.or.jp)) |
| Abstract: | The relative-price approach to identifying investment-specific technology shocks is inconsistent with a two-sector model with permanent markup change, consumption-specific technology, or sector-specific factor shares. This paper proposes a new approach by finding the model's long- run properties that link labor productivity and the relative price of investment to sector-specific technology change and nontechnology change and by developing a new Max Share identification strategy to exploit these properties. The identified shocks play a large role in both short- and long-run economic fluctuations. This paper also highlights the implications of a broadly overlooked identity between TFP and aggregate sectoral technology. |
| Keywords: | investment-specific technology, total factor productivity, labor productivity, relative price of investment, structural vector autoregression, Max Share |
| JEL: | E22 E32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:20-e-08&r=all |
| By: | Jerzmanowski, Michal; Tamura, Robert |
| Abstract: | We estimate the elasticity of substitution between high-skill and low-skill workers using panel data from 32 countries during 1970-2015. Most existing estimates, which are based only on U.S. micro data, find a value close to 1.6. We bring international data together with a theory-informed macro approach to provide new evidence on this important macroeconomic parameter. Using the macro approach we find that the elasticity of substitution between tertiary-educated workers and those with lower education levels falls between 1.8 and 2.6, which is higher than previous estimates but within a plausible range. In some specifications, estimated elasticity is above the value required for strong skill-bias of technology, suggesting strong skill-bias is not implausible. |
| Keywords: | elasticity of substitution, high-skill labor, low-skill labor, skill premium, strong skill-bias, endogenous directed technology |
| JEL: | E24 E25 J31 O11 |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100768&r=all |
| By: | Robert Lehmann |
| Abstract: | The ifo Institute is Germany’s largest business survey provider, with the ifo Business Climate Germany as one of the most important leading indicators for gross domestic product. However, the ifo Business Survey is not solely limited to the Business Climate and also delivers a multitude of further indicators to forecast several important economic variables. This paper gives a literature overview over existing studies that deal with the forecasting power of various ifo indicators both for gross domestic product and further economic variables such as exports. Overall, the various indicators from the ifo Business Survey can be seen as leading indicators for a multitude of variables representing the German economy, making them a powerful tool both for an in-depth business cycle diagnosis and for applied forecasting work. |
| Keywords: | economic forecasting, business surveys, leading indicators |
| JEL: | E17 E27 E37 F17 J11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8291&r=all |
| By: | Ogawa, Shogo |
| Abstract: | In this study, we present a baseline monetary growth model for disequilibrium macroeconomics. Our model is similar to the existing Keynes-Wicksell models, but we highlight a characteristic of disequilibrium (non-Walrasian) macroeconomics, that is, the regime dividing in the static model. In addition, since we synthesize demand-side factors (Keynesian) and supply-side factors (neo-classical), we find a new effect on dynamical feedback loops, that is, the dual-decision effect. This new effect stabilizes (resp. destabilizes) an unstable (resp. a stable) feedback loop when the regime switches from the demand-side to the supply-side. Moreover, this dual-decision effect partly works on the real wage adjustment process and it enhances the instability if the economy is in Keynesian regime. We implement numerical experiments to confirm these results, and find that Walrasian equilibrium itself is not always stable. |
| Keywords: | Disequilibrium macroeconomics; Non-Walrasian analysis; Keynes-Wicksell model; Economic growth |
| JEL: | E12 E40 O42 |
| Date: | 2020–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101236&r=all |
| By: | Afonso, Gara; Cipriani, Marco; Copeland, Adam; Kovner, Anna; La Spada, Gabriele; Martin, Antoine |
| Abstract: | This paper studies the mid-September 2019 stress in US money markets: on September 16 and-17, unsecured and secured funding rates spiked up and, on the 17, the effective federal funds rate broke the ceiling of the FOMC target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions' reserve holdings may have been close to, or lower than, their desired level. Moreover frictions in the interbank market may have prevented the efficient allocation of reserves across institutions, so that although aggregate reserves may have been higher than the sum of reserves demanded by each institution, they were still scarce given the market's inability to allocate reserves efficiently. Second, we provide evidence that some large domestic dealers likely experienced an increase in intermediation costs, which lead them to charge higher spreads to ultimate cash borrowers. This increase was due to a temporary reduction in lending from money market mutual funds, including through the Fixed Income Clearing Corporation's (FICC's) sponsored repo program. |
| Keywords: | central bank reserves; Federal funds market; Monetary policy implementation; regulation; repo market |
| JEL: | E42 E58 G14 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14467&r=all |
| By: | Zhiguo He; Stefan Nagel; Zhaogang Song |
| Abstract: | In sharp contrast to most previous crisis episodes, the Treasury market experienced severe stress and illiquidity during the COVID-19 crisis, raising concerns that the safe-haven status of U.S. Treasuries may be eroding. We document large shifts in Treasury ownership during this period and the accumulation of Treasury and reverse repo positions on dealer balance sheets. To understand the pricing consequences, we build a model in which balance sheet constraints of dealers and demand/supply shocks from habitat agents determine the term structure of Treasury yields. A novel element of our model is the inclusion of levered investors' repo financing as part of dealers' intermediation activities. Both direct holdings of Treasuries and reverse repo positions of dealers are subject to a regulatory balance sheet constraint. According to the model, Treasury inconvenience yields, measured as the spread between Treasuries and overnight-index swap (OIS) rates, as well as spreads between dealers' reverse repo and repo rates, should be increasing in dealers' balance sheet costs. Consistent with model predictions, we find that both spreads are large and positive during the COVID-19 crisis. We further show that the same model, adapted to the institutional setting in 2007-2009, also helps explain the opposite signs of repo spreads and Treasury convenience yields during the financial crisis. |
| JEL: | E4 E5 G01 G21 G23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27416&r=all |
| By: | Francis X. Diebold (University of Pennsylvania) |
| Abstract: | We study the real-time signals provided by the Aruoba-Diebold-Scotti Index of Business conditions (ADS) for tracking economic activity at high frequency. We start with exit from the Great Recession, comparing the evolution of real-time vintage beliefs to a “?nal” late-vintage chronology. We then consider entry into the Pandemic Recession, again tracking the evolution of real-time vintage beliefs. ADS swings widely as its underlying economic indicators swing widely, but the emerging ADS path as of this writing (late June) indicates a return to growth in May. The trajectory of the nascent recovery, however, is highly uncertain – particularly as COVID-19 spreads in the South and West – and could be revised or eliminated as new data arrive. |
| Keywords: | Aruboba-Dieold-Scotti index, ADS index, nowcasting, business cycle, recession, expansion, coincident indicator, real economic activity, forecasting, Big Data |
| JEL: | E32 E66 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-023&r=all |
| By: | Eric R. Sims; Jing Cynthia Wu |
| Abstract: | The Federal Reserve has reacted swiftly to the COVID-19 pandemic. It has resuscitated many of its programs from the last crisis by lending to the financial sector, which we refer to as “Wall Street QE.” The Fed is now proposing to also lend directly to, and purchase debt directly from, non-financial firms, which we label “Main Street QE.” Our paper develops a new framework to compare and contrast these different policies. In a situation in which financial intermediary balance sheets are impaired, such as the Great Recession, Main Street and Wall Street QE are perfect substitutes and both stimulate aggregate demand. In contrast, for situations like the one we are now facing due to COVID-19, where the production sector is facing significant cash flow shortages, Wall Street QE becomes almost completely ineffective, whereas Main Street QE can be highly stimulative. |
| JEL: | E52 E58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27295&r=all |
| By: | Gabriele Galati; Richhild Moessner; Maarten van Rooij |
| Abstract: | We provide new evidence on the level and probability distribution of consumers' longterm expectations of inflation in the euro area and the Netherlands, using a representative Dutch survey. We find that consumers' long-term (ten years ahead) euro area inflation expectations are not well anchored at the ECB's inflation aim. First, median long-term euro area inflation expectations are 4%, 2pp above the ECB's inflation aim of 2%. Second, individual probability distributions of long-term euro area inflation expectations show that expected probabilities of higher inflation (2pp or more above the ECB's inflation aim) are much higher, at 28% on average, than those of lower inflation (2pp or more below the ECB's inflation aim), at 12%. This suggest that the de-anchoring of Dutch consumers' long-term euro area inflation expectations is mainly due to expected high inflation, rather than to expected low inflation (or deflation). This finding is in contrast to recent concerns by ECB monetary policymakers about a possible de-anchoring of long-term inflation expectations on the downside. Furthermore, we find that consumers' long-term euro area inflation expectations are significantly higher if respondents have lower incomes. Based on measures of anchoring calculated directly from individual consumers' probability distributions of expected long-term inflation, namely the probability of inflation being close to target, the probability of inflation being far above target, and the probability of deflation, we also find that long-term euro area inflation expectations are better anchored for consumers with higher net household income. |
| Keywords: | Inflation expectations |
| JEL: | E31 E58 F62 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:688&r=all |
| By: | Fuchs-Schündeln, Nicola (Goethe University Frankfurt); Kuhn, Moritz (University of Bonn); Tertilt, Michèle (University of Mannheim) |
| Abstract: | The COVID19 crisis has hit labor markets. School and child-care closures have put families with children in challenging situations. We look at Germany and quantify the macroeconomic importance of working parents. We document that 26 percent of the German workforce have children aged 14 or younger and estimate that 11 percent of workers and 8 percent of all working hours are affected if schools and child-care centers remain closed. In most European countries, the share of affected working hours is even higher. Policies to restart the economy have to accommodate the concerns of these families. |
| Keywords: | COVID-19, labor market, children, child-care, parents, workforce |
| JEL: | E24 E32 J22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13353&r=all |
| By: | Philippe Andrade; Olivier Coibion; Erwan Gautier; Yuriy Gorodnichenko |
| Abstract: | We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document two novel features. First, the adjustment of firms’ expectations is more rapid after industry-specific shocks than aggregate shocks. This is consistent with rational inattention models which predict that firms should pay more attention to industry variation than aggregate conditions. Second, in response to industry shocks that have no aggregate effects, firms’ aggregate expectations respond. This is consistent with “island” models in which firms use the specific prices they observe to make inferences about broader aggregate conditions. We also study how these results vary across industries. |
| JEL: | E2 E3 E4 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27317&r=all |
| By: | Edward J. Kane (Boston College) |
| Abstract: | This paper analyzes the characteristics of the ad hoc credit facilities provided by the Federal Reserve System, newly authorized by the CARES Act of 2020, and expresses concerns about those programs' effectiveness. The paper stresses the importance of resolving unaddressed re-contracting problems in the real-estate sector. |
| Keywords: | Covid-19, Federal Reserve, credit allocation, monetary policy |
| JEL: | E52 E61 E65 |
| Date: | 2020–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1012&r=all |
| By: | Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Xavier Fairise (GAINS, University of Le Mans); Anthony Terriau (GAINS, University of Le Mans) |
| Abstract: | In the US, almost half of unemployment spells end through recall. In this paper, we show that the probability of being recalled is much higher among unemployment benefit recipients than nonrecipients. We argue that a large part of the observed difference in recall shares is accounted for by the design of the unemployment insurance financing scheme characterized by an experience rating system. We develop a search and matching model with different unemployment insurance status, endogenous separations, recalls and new hires. We quantify what would have been the labor market under alternative financing scheme. In the absence of the experience rating, the hiring and separations would have been higher in the long run and more volatile. Experience rating system contributes significantly to the difference in recalls between the recipients and the nonrecipients. |
| Keywords: | Search and matching, Layoffs, Recalls, Experience rating, Unemployment insurance |
| JEL: | E23 E32 J63 J64 J65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2014&r=all |
| By: | Takeo Hoshi; Anil K Kashyap |
| Abstract: | We take some well-known observations about the structure of the Japanese labor market and add new evidence about how it has evolved to study inflation in Japan. Our key finding is that labor market dynamics shifted after 1998 so that correlations between labor market tightness and wages weakened noticeably. This change was accompanied in a break in the relationship between wages and prices, so wage inflation has become a much less important determinant of price inflation. |
| JEL: | E31 E50 J31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27332&r=all |
| By: | Leiva, Danilo; Pérez-Quirós, Gabriel; Rots, Eyno |
| Abstract: | We propose an empirical framework to measure the degree of weakness of the global economy in real-time. It relies on nonlinear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia, Brazil, Mexico and South Africa). Based on such inferences, we construct a Global Weakness Index that has three main features. First, it can be updated as soon as new regional data is released, as we show by measuring the economic effects of coronavirus. Second, it provides a consistent narrative of the main regional contributors of world economy's weakness. Third, it allows to perform robust risk assessments based on the probability that the level of global weakness would exceed a certain threshold of interest in every period of time. |
| Keywords: | Coronavirus; factor model; International Business Cycles; Nonlinear |
| JEL: | C22 E27 E32 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14484&r=all |
| By: | Degasperi, Riccardo; Hong, Simon; Ricco, Giovanni |
| Abstract: | This paper studies the transmission of US monetary shocks across the globe by employing a high-frequency identification of policy shocks and large VAR techniques, in conjunction with a large macro-financial dataset of global and national indicators covering both advanced and emerging economies. Our identification controls for the information effects of monetary policy and allows for the separate analysis of tightenings and loosenings of the policy stance. First, we document that US policy shocks have large real and nominal spillover effects that affect both advanced economies and emerging markets. Policy actions cannot fully isolate national economies, even in the case of advanced economies with flexible exchange rates. Second, we investigate the channels of transmission and find that both trade and financial channels are activated and that there is an independent role for oil and commodity prices. Third, we show that effects are asymmetric and larger in the case of contractionary US monetary policy shocks. Finally, we contrast the transmission mechanisms of countries with different exchange rates, exposure to the dollar, and capital control regimes. |
| Keywords: | Exchange Rates; Foreign Spillovers; monetary policy; trilemma |
| JEL: | C3 E5 F3 F4 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14533&r=all |
| By: | Zbigniew Polański (SGH Warsaw School of Economics and Narodowy Bank Polski (NBP)); Mikołaj Szadkowski (Narodowy Bank Polski (NBP) and SGH Warsaw School of Economics) |
| Abstract: | In this paper, we estimate seigniorage and compare it with central banks’ financial results and the size of transfers to the government, adopting the view of seigniorage as the monetary authority’s net income from cash (currency) issuance. Based on the accounting data from the 2003-18 period, the paper analyzes seven monetary authorities: four of the larger economies (Bank of England, Bank of Japan, Eurosystem, Federal Reserve System), and three of the smaller ones (Narodowy Bank Polski, Swedish Riksbank, Swiss National Bank). With the exception of the Polish central bank, following the Global Financial Crisis and the euro area sovereign debt crisis, all of them have adopted unconventional monetary policy measures extensively. Since 2008 we have observed growing divergences between estimates of seigniorage (being typically well below 0.5 per cent of GDP) and financial results (reaching in some cases and years well above 0.5 per cent of GDP), and implied transfers to governments, the latter subject also to different rules of central banks’ profit distribution. We attribute these differences primarily to unconventional activities of central banks in the case of larger economies, and to strong volatility of exchange rates in the case of smaller ones (the Riksbank being an intermediate case). We close our analysis by showing that cash and the resulting seigniorage can play the role of a buffer during the monetary policy normalization process. |
| Keywords: | seigniorage, financial result, central bank finances, central bank profits, global financial crisis, great recession, euro area sovereign debt crisis, unconventional monetary policy, exit policies, normalization |
| JEL: | E52 E58 E65 G01 N20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:331&r=all |
| By: | Vargas-Herrera, Hernando; Cardozo, Pamela; Romero, Jose Vicente; Murcia, Andrés |
| Abstract: | Since 2014 the Colombian local public bond market experienced a substantial increase in the participation of foreign investors due to a reduction of the tax rates on foreign portfolio investment returns and the increase in the weight of Colombia in the JP Morgan GBI-GD. Some evidence is presented suggesting that the resulting inflows reduced bond and loan interest rates and raised loan supply. There is also evidence of an increased sensitivity of local public bond yields to CDS and EMBI, although the influence of external financial conditions on domestic lending rates has remained subdued. Finally, no evidence is found of a shift in the transmission of domestic monetary policy shocks to public bond and lending interest rates after the increase in foreign participation in the local bond market. |
| Keywords: | Monetary Policy; Interest Rates and Transmission Mechanism; Portfolio Choice and Investment Decisions; Portfolio inflows |
| JEL: | E52 E58 G11 G19 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:44&r=all |
| By: | Frederik Neugebauer |
| Abstract: | This paper documents that ECB announcements on monetary policy increase stock market volatility in the euro area (EA) using several volatility measures from January 1999 to December 2019. Employing event study methods, a more pronounced impact exists following the global financial crisis starting in 2007. All assets react similarly so that no national peculiarities arise. The effects also spill over to 12 non-EA markets analyzed. Stock markets are more sensitive to negative monetary policy news than to positive ones. Further weighting the announcements by financial market reactions, stock markets behave in a more heterogeneous way. |
| Keywords: | ECB announcements, asset price volatility, event study |
| JEL: | E52 E58 G12 G14 |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:whu:wpaper:20-02&r=all |
| By: | Whittaker, John |
| Abstract: | Loans to Italy from other eurozone countries will not increase their risk exposure, irrespective of the method of financing. This is because loans will displace an equal amount of Italy’s Target2 debt, leaving unchanged the total claim of the eurozone creditors. Italy currently has Target2 debt of €513bn to other eurozone countries through its central bank. If Italy receives grants, this will amount to forgiveness of some of its Target2 debt, which will be no loss to the creditors because its Target2 debt is unlikely ever to be repaid at full value. |
| Keywords: | Target2, eurosystem, Italian debt, recovery plan, ECB |
| JEL: | E42 E58 F33 F34 |
| Date: | 2020–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101025&r=all |
| By: | Anne Kathrin Funk (IHEID, Graduate Institute of International and Development Studies, Geneva); Daniel Kaufmann (Universite de Neuchâtel) |
| Abstract: | This paper provides novel evidence on downward nominal wage rigidities and their allocative effects in Switzerland. We match individual wages from a bi-annual firm survey with information on annual income and employment from social security register data. We find relevant downward nominal wage rigidities in the base wage, which accounts for more than 90% of employment income. We then identify the allocative effects of downward nominal wage rigidities on income and employment after an unexpected 1% decline of the consumer price level. Base wage rigidities cause a decline of aggregate income (-0.39%) and employment income (-0.97%), as well as an increase of unemployment (2.11%). |
| Keywords: | Downward nominal wage rigidity, income, unemployment, deflation |
| JEL: | E30 E40 E50 |
| Date: | 2020–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp11-2020&r=all |
| By: | Boehm, Johannes; Oberfield, Ezra |
| Abstract: | The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and have a greater vertical span of production. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale. |
| JEL: | E32 F12 O11 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14482&r=all |
| By: | Abid, Abir (University of Orléans); Rault, Christophe (University of Orléans) |
| Abstract: | We examine the Exchange Rate Volatility (ERV) response to the Economic Policy Uncertainty (EPU) shocks from a panel VAR perspective used for the first time in this context. Focusing on Emerging Market Economies (EME), our noteworthy findings postulate that (a) both home and foreign EPU shocks are highly significant in explaining the ERV, (b) the contribution of the foreign EPU to the ERV fluctuation overcomes the local EPU's share, (c) the ERV acts as a significant transmission channel of the US-EPU to the economic activity, (d) the home EPU increases with higher US-EPU and vice versa and (e) the latter is surprisingly and markedly sensitive to EME macroeconomic conditions. Our findings are robust to different sensitivity analyses, provide novel insights into EPU international spillovers, and have interesting policy implications for EME decisions makers and investors. |
| Keywords: | emerging markets, economic policy uncertainty, exchange rates volatility, Panel VAR |
| JEL: | G15 E44 C22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13365&r=all |
| By: | Lise Clain-Chamosset-Yvrard (Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Xavier Raurich (University of Barcelona, Department of Economics, Av. Diagonal 696, 08034 Barcelona (Spain)); Thomas Seegmuller (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE. 5 Boulevard Maurice Bourdet CS 50498 F-13205 Marseille cedex 1, France) |
| Abstract: | Several recent papers introduce different mechanisms to explain why asset bubbles are observed in periods of larger growth. These papers share common assumptions, heterogeneity among traders and credit market imperfection, but differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. In this paper, we introduce heterogeneous traders by considering an overlapping generations model with households living three periods. Young households cannot invest in capital, while adults have access to investment and face a borrowing constraint. Introducing bubbles in a quite general way, encompassing the different roles they have in the existing literature, we show that the bubble may enhance growth when the borrowing constraint is binding. More significantly, our results do not depend on the - liquidity or collateral role attributed to the bubble. We finally extend our analysis to a stochastic bubble, which may burst with a positive probability. Because credit and bubble are no more perfectly substitutable assets, the liquidity and collateral roles of the bubble are not equivalent. Growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to agents who invest in capital. |
| Keywords: | Bubble, Liquidity, Collateral, Crowding-in effect, Growth |
| JEL: | E44 G11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2013&r=all |
| By: | William D. Larson (Federal Housing Finance Agency); Tara M. Sinclair (George Washington University) |
| Abstract: | Near term forecasts, also called nowcasts, are most challenging but also most important when the economy experiences an abrupt change. In this paper, we explore the performance of models with different information sets and data structures in order to best nowcast US initial unemployment claims in spring of 2020 in the midst of the COVID-19 pandemic. We show that the best model, particularly near the structural break in claims, is a state-level panel model that includes dummy variables to capture the variation in timing of state-of-emergency declarations. Autoregressive models perform poorly at first but catch up relatively quickly. Models including Google Trends are outperformed by alternative models in nearly all periods. Our results suggest that in times of structural change there may be simple approaches to exploit relevant information in the cross sectional dimension to improve forecasts. |
| Keywords: | land prices, price gradient, land value taxation, price dynamics |
| JEL: | C53 E24 E27 J64 R23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:hfa:wpaper:20-02&r=all |
| By: | Hyeongwoo Kim; Ying Lin; Henry Thompson |
| Abstract: | A number of researchers have found that the rate of exchange rate pass-through (ERPT) to domestic prices has declined substantially over the last few decades. We revisit this claim of a shrinking exchange rate effect on the Consumer Price Index (CPI) in a vector autoregressive (VAR) model for US macroeconomic data under the current floating exchange rate regime. Our VAR approach nests the conventional single equation method and reveals statistically significant evidence of ERPT to the CPI only during later observations, sharply contrasting with previous findings. After confirming structural breaks in ERPT via statistical tests by Hansen (2001) and Qu and Perron (2007), we seek the source with disaggregated level CPIs, and pin down a key role of energy prices. US energy imports increased from the 1990s until the recent recession. This market changes magnify the effects of the exchange rate shocks on domestic energy prices, resulting in greater responses of the total CPI via the energy price channel. |
| Keywords: | Exchange Rate Pass Through; Disaggregated CPI Inflation; Structural Break; Real Exchange Rate Shock |
| JEL: | E31 F31 F41 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2020-03&r=all |
| By: | George-Marios Angeletos; Zhen Huo; Karthik A. Sastry |
| Abstract: | We document a new fact about expectations: in response to the main shocks driving the business cycle, expectations under-react initially but over-shoot later on. We show how previous, seemingly conflicting, evidence can be understood as different facets of this fact. We finally explain what the cumulated evidence means for macroeconomic theory. There is little support for theories emphasizing under-extrapolation or two close cousins of it, cognitive discounting and level-K thinking. Instead, the evidence favors the combination of dispersed, noisy information and over-extrapolation. |
| JEL: | E03 E3 G02 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27308&r=all |
| By: | Andri Chassamboulli; Xiangbo Liu |
| Abstract: | How do legal and illegal immigrants affect the fiscal balance and welfare of natives in the host country? To answer this question we develop a general equilibrium model with search frictions in the labor market that accounts for both the direct net contribution of immigrants to the fiscal balance and their indirect fiscal effects through their labor market impact. We calibrate the model to the US economy and find that legal immigrants increase native welfare, mainly due to their positive direct net contribution to the fiscal balance. On the other hand, illegal immigrants' positive welfare impact stems mainly from their positive effect on job creation, which helps improve the fiscal balance, but also increases income to natives and in turn consumption. A legalization program leads to a fiscal gain and increases native welfare and it is more beneficial to the host country's citizens than a purely restrictive immigration policy that reduces the illegal immigrant population. |
| Keywords: | Immigration, Search Frictions, Fiscal Impact, Welfare, Job creation, Immigration Policies |
| JEL: | J61 J64 E20 F22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:07-2020&r=all |
| By: | Yifei Wang; Toni M. Whited; Yufeng Wu; Kairong Xiao |
| Abstract: | We quantify the impact of bank market power on monetary policy transmission through banks to borrowers. We estimate a dynamic banking model in which monetary policy affects imperfectly competitive banks’ funding costs. Banks optimize the pass-through of these costs to borrowers and depositors, while facing capital and reserve regulation. We find that bank market power explains much of the transmission of monetary policy to borrowers, with an effect comparable to that of bank capital regulation. When the federal funds rate falls below 0.9%, market power interacts with bank capital regulation to produce a reversal of the effect of monetary policy. |
| JEL: | E51 E52 G21 G28 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27258&r=all |
| By: | Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley); Weber, Michael (World Bank) |
| Abstract: | Using a large-scale survey of U.S. households during the Covid-19 pandemic, we study how new information about fiscal and monetary policy responses to the crisis affects households' expectations. We provide random subsets of participants in the Nielsen Homescan panel with different combinations of information about the severity of the pandemic, recent actions by the Federal Reserve, stimulus measures, as well as recommendations from health officials. This experiment allows us to assess to what extent these policy announcements alter the beliefs and spending plans of households. In short, they do not, contrary to the powerful effects they have in standard macroeconomic models. |
| Keywords: | subjective expectations, fiscal policy, monetary policy, COVID-19, surveys |
| JEL: | E31 C83 D84 J26 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13355&r=all |
| By: | Michał Gradzewicz |
| Abstract: | The article presents a generalization of an identification scheme of a monopolistic markup proposed by De Loecker and Warzynski (2012). We showed the relation between a price markup and factor wedges arising either due to firm's monopsony power and/or factor adjustment costs. The joint estimation of both kind of wedges (or price markup only) is subject to an identification problem and we discussed the possible restrictions identifying all wedges jointly. We argue that the identification restriction implicitly imposed in the empirical literature is reasonable, but in specific circumstances (or with additional information introduced) different choices may lead to better estimates of not only price markups, but also factor wedges if available data allow to measure multiple variable production factors. |
| Keywords: | markup, wedge, monopsony power, identification |
| JEL: | E31 E52 J11 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2020051&r=all |
| By: | Gilles Bertrand Umba (BCC - Banque Centrale du Congo) |
| Abstract: | The purpose of this work is to examine the impact of external shocks on economic activity in DR Congo. Using a dynamic and stochastic general equilibrium model, the author simulates four main types of external shocks, namely: (i) the shock on the risk premium; (i) the shock on world inflation; (iii) the global productivity shock; (iv) the global monetary policy shock. Quarterly frequency data was used for the period from January 2005 to December 2017. The results suggest that external shocks leading to a slowdown in global demand have a significant impact on economic activity at the local level. Furthermore, the shock to the world interest rate does not seem to influence domestic economic activity, at least directly. This could be justified by the country's limited financial openness, international trade being the main channel for transmitting external shocks. |
| Abstract: | Le présent travail a pour objectif d'examiner l'impact des chocs externes sur l'activité économique en RD Congo. En utilisant un modèle d'équilibre général dynamique et stochastique, l'auteur simule quatre principaux types de chocs externes à savoir : (i) le choc sur la prime de risque ;(i) le choc sur l'inflation mondiale ;(iii) le choc de productivité mondiale ; (iv) le choc de politique monétaire au niveau mondial. Les données de fréquence trimestrielle ont été utilisées pour la période allant de janvier 2005 à décembre 2017. Les résultats suggèrent que les chocs externes amenant à un ralentissement de la demande mondiale ont un impact sensible sur l'activité économique au niveau local. Par ailleurs, le choc sur le taux d'intérêt au niveau mondial ne semble pas influencer, au moins directement, l'activité économique intérieure. Ceci pourrait se justifier par une faible ouverture financière du pays, le commerce international étant le principal canal de transmission des chocs externes. |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02864846&r=all |
| By: | International Monetary Fund |
| Abstract: | Peru’s very strong policy framework has helped it achieve impressive macroeconomic outcomes and reduce vulnerabilities. Growth has been particularly robust, averaging nearly 5¼ percent over the past 15 years, consistently above the average for the LAC region, while the inflation targeting regime has helped keep inflation low and expectations well anchored. Prudent fiscal management has reduced government debt to very low levels. Very strong financial sector regulation and supervision have contributed to preserving financial stability. External vulnerabilities have been reduced and poverty has been cut by more than half since the turn of the century. In recent years, macroeconomic performance has been adversely affected by a combination of external, domestic, and weather-related shocks that have slowed Peru’s growth momentum. Against this background, the Covid-19 pandemic has posed an unprecedented challenge, which is pushing the economy into a recession. Peru has to date shown remarkable financial resilience when compared to other emerging market economies, both within and outside the region, not least because large buffers have allowed the government to respond with a very strong policy package to contain the pandemic and mitigate the economic fallout. |
| Keywords: | Flexible Credit Line;Economic policy;Monetary policy;Macroprudential policies and financial stability;Inflation targeting;Credit;ISCR,CR,FCL,total external debt,percent of GDP,percent,domestic currency |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/181&r=all |
| By: | Belton, Daniel; Gambacorta, Leonardo; Kokas, Sotirios; Minetti, Raoul |
| Abstract: | We empirically assess the responses of banks in the United States to a regulatory change that influenced the distribution of funding in the banking system. Following the 2011 FDIC change in the assessment base, insured banks found wholesale funding more costly, while uninsured branches of foreign banks enjoyed cheaper access to wholesale liquidity. We use quarterly bank balance sheet data and a rich data set of syndicated loans with borrower and lender characteristics to show that uninsured foreign banks, which faced a relatively positive shock, engaged in liquidity hoarding. Hence, they accumulated more reserves but extended fewer total syndicated loans and became more passive in the syndicated loan deals in which they participated. These results contribute to the discussion on the role of foreign banks in credit creation, especially in a country like the United States where foreign banks also have a crucial role in managing USD money market operations at the group level. |
| Keywords: | foreign banks; liquidity shocks; syndicated loans; Wholesale funding |
| JEL: | E44 G21 G28 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14504&r=all |
| By: | Mitchener, Kris James; Richardson, Gary |
| Abstract: | The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression. |
| Keywords: | banking panics; contagion; Great Depression; monetary deflation |
| JEL: | E44 G01 G21 N22 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14510&r=all |
| By: | Eichenbaum, Martin; Rebelo, Sérgio; Trabandt, Mathias |
| Abstract: | We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people's decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark model, the best simple containment policy increases the severity of the recession but saves roughly half a million lives in the U.S. |
| Keywords: | containment policies; COVID-19; Epidemic; Recessions |
| JEL: | E1 H0 I1 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14520&r=all |
| By: | Lippi, Francesco |
| Abstract: | There are several real world examples of local governments that, faced with budget problems, circulate a fiat token in parallel to the official currency. A well known case is the Argentinian "Patacon", printed by the province of Buenos Aires during the crisis of 2001. We present a simple model to analyze the workings of monetary equilibria where the parallel currency is valued in equilibrium and discuss its consequence for real allocations in terms of an equivalent fiscal policy. We briefly discuss different model specifications and their fit to alternative historic experiences. |
| Keywords: | Chartalism; dual currency; monetary economy; Parallelcurrency; pure currency; scrip |
| JEL: | E3 E5 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14657&r=all |
| By: | Tomasz Chmielewski (Narodowy Bank Polski); Andrzej Kocięcki (Narodowy Bank Polski); Tomasz Łyziak (Narodowy Bank Polski); Jan Przystupa (Narodowy Bank Polski); Ewa Stanisławska (Narodowy Bank Polski); Małgorzata Walerych (Narodowy Bank Polski); Ewa Wróbel (Narodowy Bank Polski) |
| Abstract: | The monetary policy of Narodowy Bank Polski (NBP)—pursued in accordance with the assumptions of the inflation targeting strategy—remains conventional. The Polish central bank has the capacity to change the basic monetary policy instrument, i.e. the short-term interest rate, in both directions. Therefore, the aim of this report—similarly to its previous editions— is to analyse the transmission mechanism of the conventional monetary policy.1 However, this does not mean that the analysis of the monetary policy transmission mechanism faces no limitations. The main problem constraining modelling in this area is related to the lack of variability of the NBP reference rate, very low volatility of monetary policy shocks identified with various methods, full predictability of monetary policy decisions in recent years and wellestablished expectations of private sector concerning stability of the NBP reference rate in the near future. Under these circumstances, drawing conclusions on the strength and delays of the mechanism through which potential changes in the short-term interest rate would affect the economy is more difficult and more uncertain than before. Thus, the hypothesis seems likely that economic agents used to stable interest rates and expecting their maintenance at the current level, can respond to potential changes in monetary policy parameters in another way than in the past. This is illustrated by the high uncertainty of the current response functions of various variables to monetary policy shocks, obtained from models with time-varying parameters. For the above reasons, our view of the monetary policy transmission mechanism in Poland is multi-faceted in this report. Although we show the results of standard models estimated on long samples, we attach greater importance to models with time-varying coefficients and we extend studies of the transmission mechanism at the microeconomic level, taking into account the heterogeneity of entities and their response to monetary policy decisions. In addition, we analyse the importance of various forms of central bank communication, including the text content (tone) of decision-makers’ documents, enabling the central bank to influence the expectations of private sector entities even if short-term interest rates do not change. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:329&r=all |
| By: | Benigno, Pierpaolo; Nisticò, Salvatore |
| Abstract: | An economy plagued by a slump and in a liquidity trap has some options to exit the crisis. We discuss helicopter money and other equivalent policies that can reflate the economy and boost consumption. In the framework analysed - where lump-sum transfers may be the only effective fiscal response, like in the current pandemic crisis - the central bank, and only the central bank, is the rescuer of last resort of the economy. Fiscal policy is bounded by solvency constraints unless the central bank backs treasury's debt. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14555&r=all |
| By: | Carlos Carrillo-Tudela; Hermann Gartner; Leo Kaas |
| Abstract: | Recruitment behavior is important for the matching process in the labor market. Using unique linked survey-administrative data, we explore the relationships between hiring and recruitment policies. Faster hiring goes along with higher search effort, lower hiring standards and more generous wages. To analyze the mechanisms behind these patterns, we develop a directed search model in which firms use different recruitment margins in response to productivity shocks. The calibrated model points to an important role of hiring standards for matching efficiency and for the impact of labor market policy, whereas search effort and wage policies play only a minor role. |
| Keywords: | vacancies, recruitment, labor market matching |
| JEL: | E24 J23 J63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8299&r=all |
| By: | Ordoñez, Guillermo; Piguillem, Facundo |
| Abstract: | It depends what we want to measure. Most literature has focused on observed flow of savings (per-period savings as fraction of GDP), which has declined persistently since 1980. Even though this decline means that fewer funds are available for investment in each period, it does not follow that the households' actual savings (underlying, not observed, savings determined by dynamic optimization) also go down. We theoretically link these two concepts, discuss the conditions under which they move in opposite directions, and show that indeed the actual savings rate has sharply increased since 1980. |
| Keywords: | capital gains; Human Capital; Savings rates |
| JEL: | E1 E2 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14662&r=all |
| By: | Ademir Rocha; Cleomar Gomes da Silva, Fernando Perobelli |
| Abstract: | The Venezuelan hyperinflation process has caused serious economic and social consequences. The wave of migrants and refugees fleeing the country is one of the most obvious and important faces of the problem. The objective of this paper is to develop a model that can explain labor migration flow from changes in price level and apply it to the Venezuelan reality. We make use of a theoreticalmethodological framework related to the New Economic Geography. Results from our model's simulations show that, in the short run (1-year simulation horizon), Venezuelan industrial and agricultural workers will tend to migrate to nearby countries, such as Colombia, Brazil, Ecuador and Peru. However, in the long run (10-year simulation horizon), agents seem to decide based on real wage differential. This explains why industrial workers have a propensity to migrate to Chile, Panama, Peru and Mexico, while agricultural workers have an incentive to move to Argentina, Chile, Mexico and Brazil. |
| Keywords: | Inflation; Migration; Venezuela; New Economic Geography |
| JEL: | J61 E31 R10 |
| Date: | 2020–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2020wpecon5&r=all |
| By: | Janke, Katharina; Lee, Kevin; Propper, Carol; Shields, Kalvinder K; Shields, Michael |
| Abstract: | We estimate a model that allows for dynamic and interdependent responses of morbidity in different local areas to economic conditions at the local and national level, with statistical selection of optimal local area. We apply this approach to quarterly British data on chronic health conditions for those of working age over the period 2002-2016. We find strong and robust counter-cyclical relationships for overall chronic health, and for five broad types of health conditions. Chronic health conditions therefore increase in poor economic times. There is considerable spatial heterogeneity across local areas, with the counter-cyclical relationship being strongest in poorer local areas with more traditional industrial structures. We find that feedback effects are quantitatively important across local areas, and dynamic effects that differ by health condition. Consequently, the standard panel data model commonly used in the literature considerably under-estimates the extent of the counter-cyclical relationship in our context. |
| Keywords: | aggregation; dynamics; health; Heterogeneity; macroeconomic conditions; Morbidity |
| JEL: | C33 E32 J10 J21 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14507&r=all |
| By: | Barbara Annicchiarico (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Valentina Antonaroli (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy); Alessandra Pelloni (Department of Economics and Finance, University of Rome “Tor Vergata”, Italy; Rimini Centre for Economic Analysis) |
| Abstract: | The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed. |
| Keywords: | Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect |
| JEL: | O41 E62 H21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:20-20&r=all |
| By: | William Anthony Allen (National Institute of Economic and Social Research London, England, United Kingdom) |
| Abstract: | The paper uses archive material, mainly from the Bank of England, to give an account of the relationship between Poland and the international monetary system between 1921 and 1939, as seen from the United Kingdom. It describes the 1923 – 1924 Hilton Young mission of ‘money doctors’ and its role in the establishment of the Bank Polski and the introduction of the złoty in 1924; the abandonment of the złoty’s gold parity in 1925; the tortuous negotiations leading to the stabilisation programme and stabilisation loan of 1927, including the Bank of England’s unsuccessful efforts to induce Poland to accept the oversight of the League of Nations; Poland’s gold purchases after the stabilisation loan; the process of deflation during the Great Depression; the abortive discussions in 1934 – 1936 of the possibility of Danzig, Germany and Poland pegging their exchange rates to sterling; the imposition of exchange restrictions in 1936; debt default in 1937; and the approach of war. It also provides information about the management of Poland’s gold and foreign exchange reserves. The narrative makes clear that it is impossible to understand Poland’s international financial affairs without reference to the international political tensions of the period. |
| Keywords: | Poland, United Kingdom, international monetary system, Bank Polski, Bank of England, złoty, gold exchange standard, foreign exchange, sterling bloc, exchange restrictions, default, Genoa conference, money doctors, stabilisation, League of Nations, Polish Corridor, Federal Reserve, Bank of France, Reichsbank, J.P. Morgan, Council of Foreign Bondholders, Danzig, Germany, France, Norman, Hilton Young, Grabski, Karpiński, Młynarski, Barański, Koc, Strong, Harrison, Moreau, Niemeyer, Siepmann, Schacht, Kemmerer. |
| JEL: | E42 E58 F33 F34 F52 N34 N44 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:328&r=all |
| By: | Giancarlo Corò (Department of Economics, University Of Venice Cà Foscari); Monica Plechero (Department of Economics, University Of Venice Cà Foscari); Francesco Rullani (Department of Management, University Of Venice Cà Foscari); Mario Volpe (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | The development of the technological space of a manufacturing region relates to its human capital. However, the dynamic relation between local firms’ workforce composition and their adoption of Industry 4.0 enabling technologies over time is still under investigated. The paper contributes to filling this gap analysing the relation over 10 years between technology adoption and the occupational choices of 1800 firms from one of the most industrialized regions of Italy: the Veneto Region. The results from descriptive as well as inferential analysis show that such relational dynamics are a multifaceted phenomenon, presenting a series of counterintuitive features. |
| Keywords: | Digital technologies, Industry 4.0; manufacturing region, workforce, SME |
| JEL: | R11 O33 E24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2020:12&r=all |
| By: | John Ammer; John Rogers; Gang Wang; Yang Yu |
| Abstract: | Although many central banks in the 21st century have become more transparent, Chinese monetary policy communications have been relatively opaque, making it more difficult for financial market participants to make decisions that depend on the future path of interest rates. We conduct a novel systematic textual analysis of the discussion in the quarterly reports of China fund managers, from which we infer their near-term expectations for monetary policy. We construct an aggregate index of manager expectations and show that, as a forecast of Chinese monetary policy, it compares favorably with both market-based and model-based alternative projections. We find that expectations are more accurate for funds that commit more analytical resources, have higher management fees, and with stronger managerial educational background. We also show that fund managers act on these expectations, and that correctly anticipating shifts in Chinese monetary policy improves fund performance. Our results imply that manager skill is an important determinant of fund returns, providing the first evidence from China on a question for which studies of asset management in other countries have reached conflicting conclusions. economy. |
| Keywords: | Chinese monetary policy; Fund managers; Textual analysis |
| JEL: | E52 G23 |
| Date: | 2020–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1285&r=all |
| By: | Venables, Anthony |
| Abstract: | Economic adjustment to trade and policy shocks is hampered by the fact that some sectors tend to cluster, so are hard to initiate in new places. This can give rise to persistent spatial disparities between cities within a country. The paper sets out a two-sector model in which cities divide into those producing tradable goods or services subject to agglomeration economies, and those only producing non-tradables for the national market. If import competition destroys some established tradable sectors, then affected cities fail to attract new tradable activities and switch to just produce non-tradables. Full employment is maintained (we assume perfect markets and price flexibility) but disparities between the two types of cities are increased. All non-tradable cities experience real income loss, while remaining tradable cities boom. The main beneficiaries are land-owners in remaining tradable cities, but there may be aggregate loss as the country ends up with too many cities producing non-tradables, and too few with internationally competitive activities. Fiscal policy has opposite effects in the two types of cities, with fiscal contraction causing decline in cities producing non-tradables, increasing activity in cities producing tradable goods, widening spatial disparities, and in the process increasing the share of rent in the economy |
| Keywords: | deindustrialisation; Divergence; Fiscal policy; lagging regions; Urban Economics |
| JEL: | E62 F60 R11 R12 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14474&r=all |
| By: | Konstantin Egorov; Dmitry Mukhin |
| Abstract: | Recent empirical evidence shows that most international prices are sticky in dollars. This paper studies the optimal policy implications of this fact in the context of an open economy model, allowing for an arbitrary structure of asset markets, general preferences and technologies, time-or state-dependent price setting, a rich set of shocks, and endogenous currency choice. We show that although monetary policy is less efficient and cannot implement the flexible-price allocation, inflation targeting remains robustly optimal in non-U.S. economies. The implementation of this non-cooperative policy results in a “global monetary cycle” with other countries partially pegging their exchange rates to the dollar and importing the monetary stance of the U.S. In spite of the aggregate demand externality, capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. The optimal U.S. policy, on the other hand, deviates from inflation targeting to take advantage of its effects on global product and asset markets, generating negative spillovers on the rest of the world. International cooperation benefits other countries by improving global demand for dollar-invoiced goods, but may be hard to sustain because it is not in the self-interest of the U.S. At the same time, countries can still gain from local forms of policy coordination — such as forming a currency union like the Eurozone. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8272&r=all |
| By: | Kilic Celik, Sinem; Kose, Ayhan; Ohnsorge, Franziska |
| Abstract: | Global potential output growth has been flagging. At 2.5 percent in 2013-17, post-crisis potential growth is 0.5 percentage point below its longer-term average and 0.9 percentage point below its average a decade ago. Compared with a decade ago, potential growth has declined 0.8 percentage point in advanced economies and 1.1 percentage point in emerging market and developing economies. The slowdown mainly reflected weaker capital accumulation but is also evidence of decelerating productivity growth and demographic trends that dampen labor supply growth. Unless countered, these forces are expected to continue and to depress global potential growth further by 0.2 percentage point over the next decade. A menu of policy options is available to help reverse this trend, including comprehensive policy initiatives to lift physical and human capital and to encourage labor force participation by women and older workers. |
| Keywords: | Advanced economies; emerging market and developing economies; Potential growth; Potential Output |
| JEL: | E20 O40 O47 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14527&r=all |
| By: | Fohlin, Caroline; Jaremski, Matthew |
| Abstract: | Concentration plays a key role in banking efficiency and stability, yet the literature lacks any long-run analysis of U.S. banking industry structure. This paper uses newly-collected archival data to provide the first study of banking concentration from the early years of the republic through 2019. While concentration was declining or stable before the mid-1920s, statistical tests identify a structural break thereafter, as concentration started steadily rising as a result of growth at the nation's largest five banks, particularly those located in New York City. A second structural break in the mid-1990s further accelerated the upward trend in concentration before slowing down during the Great Recession. |
| Keywords: | bank concentration; Too Big To Fail |
| JEL: | E44 G20 N11 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14516&r=all |
| By: | Jayasooriya, Sujith |
| Abstract: | The economic growth depends on changes in the demographic profile of a country. However, the demographic change over economic growth has positive and negative relationships in the literature. Further, testing a Kuznets model of economic growth is not adequately estimated in the field of demographic and structural transformation in South Asia. The study uses panel data model for understanding the structural change over the demographic changes of the South Asian economies. A panel unit root test and GMM dynamic panel data model will be evaluated with the use of Kuznets curve approach. The results of GMM dynamic panel data estimation show a strong relationship among CO2 emission, demographic profile and economic growth. It revealed that 1% increase in GDP increases 3.033% of the CO2 emission. However, increase of 1% demographic profile of the South Asia decreases CO2 emission by 0.058%. Thereby, the changes of demographic profile with respect to the changes of economic growth can reduce the environmental degradation and promote sustainability in development policies. |
| Keywords: | Panel Data, GMM, Kuznets Curve, Demographic Profile, Economic Growth |
| JEL: | C5 C51 E6 J1 O4 O44 |
| Date: | 2020–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100831&r=all |
| By: | Grilli, Luca; Santoro, Domenico |
| Abstract: | In this paper we want to describe a model of the dynamics of the Bitcoin cryptocurrency system. We can define a duality in these dynamics: Bitcoin mostly behaves as a deterministic system and in some time intervals, much shorter, it enters a stochastic regime. In particular, using Poincaré’s recurrence theorem, it was possible to study when the transition from one regime to another occurs. Furthermore, by applying our hypothesis to real data it was possible to explain a reason why the Bitcoin system is affected by such a "high volatility". |
| Keywords: | Ergodic Theory, Bitcoin, Finance, Deterministic, Stochastic |
| JEL: | C44 E37 F17 G17 |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101057&r=all |
| By: | International Monetary Fund |
| Abstract: | Ecuador is facing urgent and immediate balance of payment (BOP) needs driven by the sharp propagation of the Covid-19 outbreak— Ecuador is one of the hardest hit countries in Latin America—a plummeting of oil prices, and a dramatic collapse of global demand. This confluence of shocks is expected to significantly reduce Ecuador’s export revenues, put considerable strain on the budget, curtail external financing flows, dampen economic activity, which is expected to contract by 6.7 percent in 2020, and create substantial risks to debt sustainability. The resulting external financing gap is about 8.4 percent of GDP in 2020 and 7.6 percent of GDP in 2021. If not addressed promptly, the immediate BOP need could cause significant socio-economic disruptions. |
| Keywords: | Rapid Financing Instrument (RFI);Economic conditions;Social safety nets;Public financial management;Debt sustainability;Oil prices;ISCR,CR,EFF,primary balance,non-oil,net international reserve,percent of GDP |
| Date: | 2020–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/178&r=all |
| By: | Mirko Abbritti, Ivan Kim, Tommaso Trani |
| Abstract: | In the data, emerging market economies’ exports tend to grow after real devaluations, but even when these are large, the rise in export revenues is low and delayed. We examine this fact by in- troducing long-term trade relationships and bargaining into a standard small open economy model. Both domestic exporters and foreign importers need to spend time and resources to establish trade relationships. Once a relationship is formed, export prices and quantities are decided through bilat- eral bargaining. The presence of search frictions and bargaining alters the transmission mechanism of shocks. The long-term nature of trade relationships reduces the expenditure-switching effect re- sulting from exchange rate fluctuations and the allocative role of intermediate export prices. These elements improve the ability of the model to explain export growth following a large devaluation as well as other second moments. Moreover, our sensitivity analysis suggests that higher exporters’ bargaining power or lower trade adjustment costs would make an economy more resilient to interest rate shocks. |
| Keywords: | Search and Matching, Price Bargaining, Real Exchange Rate, Devaluation, Export Dynamics. |
| JEL: | E32 F41 F31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nva:unnvaa:wp04-2020&r=all |
| By: | Michael Barnett; Greg Buchak; Constantine Yannelis |
| Abstract: | We examine how policymakers should react to a pandemic when there is significant uncertainty regarding key parameters relating to the disease. In particular, this paper explores how optimal mitigation policies change when incorporating uncertainty regarding the Case Fatality Rate (CFR) and the Basic Reproduction Rate (R0) into a macroeconomic SIR model in a robust control framework. This paper finds that optimal policy under parameter uncertainty generates an asymmetric optimal mitigation response across different scenarios: when the disease’s severity is initially underestimated the planner increases mitigation to nearly approximate the optimal response based on the true model, and when the disease’s severity is initially overestimated the planner maintains lower mitigation as if there is no uncertainty in order to limit excess economic costs. |
| JEL: | E1 H0 I1 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27289&r=all |
| By: | Constantin Bürgi; Dorine Boumans |
| Abstract: | This paper introduces a new test of the predictive performance and market timing for categorical forecasts based on contingency tables when the user has non-categorical loss functions. For example, a user might be interested in the return of an underlying variable instead of just the direction. This new test statistic can also be used to determine whether directional forecasts are derived from non-directional forecasts and whether point forecast have predictive value when transformed into directional forecasts. The tests are applied to the categorical exchange rate forecasts in the ifo-Institute’s World Economic Survey and to the point forecasts for quarterly GDP in the Philadelphia Fed's Survey of Professional Forecasters. We find that the loss function matters as exchange rate forecasters perform better under non-categorical loss functions, and the GDP forecasts have value up to two quarters ahead. |
| Keywords: | contingency tables, categorical forecast, profitability, World Economic Survey, directional accuracy, market timing, forecast value |
| JEL: | C12 C52 E37 F37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8266&r=all |
| By: | Kilian, Lutz; Zhou, Xiaoqing |
| Abstract: | Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact in the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the identifying assumptions and methods of inference. We not only explain how the workhorse models in this literature have evolved, but also examine alternative oil market VAR models. We help the reader understand why the latter models sometimes generated unconventional, puzzling or erroneous conclusions. Finally, we discuss the construction of extraneous measures of oil demand and oil supply shocks that have been used as external or internal instruments for VAR models. |
| Keywords: | Bayesian estimation; Elasticity; identification; Model specification; structural VAR; textual analysis |
| JEL: | C36 C52 Q41 Q43 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14460&r=all |
| By: | Arigoni, Filippo; Lenarčič, Črt |
| Abstract: | This paper sets up a Bayesian SVAR model on Euro Area data and identifies trade policy uncertainty shocks using a minimum set of sign restrictions. We find that rising trade policy uncertainty adversely affects the real business cycle in the Euro Area mostly in short term, while it has more persistent effects on the Euro effective exchange rate and, to a lesser extent, on prices. In line with the recent geo-political events, the evidence suggests an increasing contribution to Euro Area fluctuations towards the end of the sample period. The results are robust to alternative measures of trade policy uncertainty. Furthermore, we show that sectors exhibit heterogeneous responses to trade policy uncertainty shocks. |
| Keywords: | Trade policy uncertainty; Euro Area; uncertainty shocks; Bayesian SVAR; sign restrictions. |
| JEL: | C32 D80 E30 F13 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100832&r=all |
| By: | Yoshiyuki ARATA |
| Abstract: | What drives macroeconomic fluctuations? The recent macroeconomic literature (e.g. Gabaix (2011); Acemoglu et al. (2012)) shows that microeconomic shocks are an important source for macroeconomic fluctuations because of the granularity of an economy. I provide probabilistic results that quantify the role of the granularity in the variance of aggregate output and macroeconomic tail probability. First, in the linear model of Hulten's theorem, I show that the limiting behavior of the variance of aggregate output as the number of firms goes to infinity is equivalent to that of the contribution of the largest firm when the distribution of firm size has a Pareto-like tail. Empirical data in Japan also indicates the significance of the granularity in terms of the variance of aggregate output. Second, I obtain a formula that links the macroeconomic tail probability and the tail probability of microeconomic shocks. Utilizing the formula, I find that the empirical granularity is too low to lead to the large deviation of aggregate output in Japan. Third, I consider non-linear models and obtain the upper bounds for the variance of aggregate output and the macroeconomic tail probability. This shows that without the granularity, macroeconomic fluctuations decay very rapidly as the number of firms increases, which is the diversification argument in the non-linear models. In summary, my results imply that the granularity is a necessary condition both in linear and non-linear models, and that both granularity and non-linear terms are needed to explain the micro-originated large deviation of aggregate output. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:20027&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo; Richard Kima |
| Abstract: | We estimate a three-variate VAR using proxies of global financial uncertainty, the global financial cycle, and world industrial production to simulate the effects of the jump in financial uncertainty observed in correspondence of the Covid-19 outbreak. We predict the cumulative loss in world output one year after the uncertainty shock due to Covid-19 to be about 14%. |
| Keywords: | Covid-19, financial uncertainty, vector autoregressions, global financial cycle, world industrial production |
| JEL: | C32 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8280&r=all |
| By: | Michael R. Roberts; Michael Schwert |
| Abstract: | We show that variation in short-term nominal interest rates produces an endogenous response in the design of and commitment to corporate loan contracts. Interest rates are negatively related to the cash flow rights and positively related to the control rights granted to creditors. An implication of this contractual response is a sharp increase in the ex post renegotiation of contracts originated in low interest rate environments, as well as a muted effect of interest rate variation on the cost of debt capital. Our findings illustrate how the design of financial contracts in practice reflects a multi-dimensional tradeoff among contract features that aligns incentives and apportions risk among the contracting parties in a state-contingent manner. |
| JEL: | E44 G21 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27195&r=all |
| By: | Angeletos, George-Marios; Iovino, Luigi; La'O, Jennifer |
| Abstract: | This paper studies the policy implications of the endogeneity of information about the state of the economy. The business cycle can be made less noisy, and more efficient, by incentivizing firms to vary their pricing and production decisions more with their beliefs about the state of the economy. This calls for countercyclical taxes complemented by a monetary policy that "leans against the wind." The optimal policies trade-off allocative efficiency for informational efficiency. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14577&r=all |
| By: | Yan Liu; Jing Cynthia Wu |
| Abstract: | The constant-maturity zero-coupon Treasury yield curve is one of the most studied datasets. We construct a new dataset using a non-parametric kernel-smoothing method with a novel adaptive bandwidth specifically designed to fit the Treasury yield curve. Our curve is globally smooth while still capturing important local variation. Economically, we show that applying our data leads to different conclusions from using the leading alternative data of Gurkaynak et al. (2007) (GSW) when we repeat two popular studies of Cochrane and Piazzesi (2005) and Giglio and Kelly (2018). Statistically, we show our dataset preserves information in the raw data and has much smaller pricing errors than GSW. Our new yield curve is maintained and updated online, complemented by bandwidths that summarize information content in the raw data: https://sites.google.com/view/jingcynthi awu/yield-data. |
| JEL: | E43 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27266&r=all |
| By: | Alberto Coco; Nicola Viegi |
| Abstract: | This paper analyses the evolution of the monetary policy stance, communication and credibility of the South African Reserve Bank (SARB) since 2000, when it adopted a flexible Inflation Targeting (IT) regime to facilitate the achievement of its price stability mandate. Empirical results indicate that the stance became accommodative after the global financial crisis of 2009, with a tendency of the implicit inflation target to increase, while after 2014 it turned tighter and the implicit target started declining. In addition, after the crisis the monetary policy has become less active, with a lower response of policy rates to output and inflation gaps. At the same time, applying Natural Language Processing techniques to the SARB monetary policy statements shows a move towards a more ‘forward-looking’ and balanced communication strategy, complementing to some extent the less frequent changes of monetary policy rates. Finally, the behavior of market interest rates and inflation expectations shows that monetary policy has been gradually better at anchoring expectations, especially in the last few years. The analysis helps to understand the interaction between policy, communication and credibility by showing a consistent picture across all different aspects of monetary policy making. |
| Date: | 2020–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:10024&r=all |
| By: | David Newbery (Faculty of Economics, University of Cambridge) |
| Keywords: | Cost of CO2, Nuclear power, RAB, WACC, Cost Benefit Analysis |
| JEL: | D61 H23 L94 C54 E43 H54 L94 Q54 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg2013&r=all |
| By: | Mauro Caselli (Università di Trento); Stefano Schiavo (Observatoire français des conjonctures économiques); Lionel Nesta (Observatoire français des conjonctures économiques) |
| Abstract: | This paper studies the high yet undocumented incidence of firms displaying markups lower than unity, i.e., prices lower than marginal costs, for protracted periods of time. Using a large sample of French manufacturing firms for the period 1990–2007, the paper estimates markups at the firm level and documents in a robust way the extent to which firms exhibit negative price-cost margins. The paper also investigates the relationship between the incidence and persistence of negative price-cost margins and candidate explanations, such as subsidies, strategic behaviour, uncertainty and irreversibility. |
| Keywords: | Markups; Irreversibility; Uncertainty; Negative price-cost margins; French manufacturing data |
| JEL: | D24 D81 E22 L11 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/j27962rn8r5qgvg0f7t0vk5q&r=all |
| By: | Lin William Cong; Ye Li; Neng Wang |
| Abstract: | We develop a dynamic asset-pricing model of cryptocurrencies/tokens that allow users to conduct peer-to-peer transactions on digital platforms. The equilibrium value of tokens is determined by aggregating heterogeneous users' transactional demand rather than discounting cashflows as in standard valuation models. Endogenous platform adoption builds upon user network externality and exhibits an S-curve — it starts slow, becomes volatile, and eventually tapers off. Introducing tokens lowers users' transaction costs on the platform by allowing users to capitalize on platform growth. The resulting intertemporal feedback between user adoption and token price accelerates adoption and dampens user-base volatility. |
| JEL: | E42 G12 L86 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27222&r=all |
| By: | Michelacci, Claudio; Paciello, Luigi |
| Abstract: | Using the Bank of England Inflation Attitudes Survey we find that households with preferences for higher inflation and higher interest rates have lower expected inflation. The wedge is mildly correlated with existing measures of uncertainty and increases after major economic events such as the failure of Lehman Brothers or the Brexit referendum. We interpret the wedge as due to Knightian uncertainty about future monetary policy and the underlying economic environment. If households had treated uncertainty as measurable risk, consumption and output would have been around 1 percent higher both during the Great Recession and in recent years. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14557&r=all |
| By: | Jordá, Óscar; Singh, Sanjay R.; Taylor, Alan M. |
| Abstract: | How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater precautionary savings. |
| Keywords: | depressions; local projections; Natural rate; Pandemics; Real interest rate; wars |
| JEL: | E43 F41 N10 N30 N40 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14543&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic is expected to severely affect the Bangladeshi economy. Remittance inflows have already started to decline in March. Exports also declined sharply in April with cancellation of several billion USD orders for the Ready-Made Garment industry. As a result, an immediate external financing gap of about USD 2.9 billion has emerged along a fiscal financing gap of about USD 2.8 billion. |
| Keywords: | Rapid Credit Facility (RCF);Rapid Financing Instrument (RFI); |
| Date: | 2020–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/187&r=all |
| By: | Kuvshinov, Dmitry; Zimmermann, Kaspar |
| Abstract: | This paper studies long-run trends in stock market capitalization and their drivers. New annual data for 17 advanced economies reveal a striking time series pattern: the ratio of stock market capitalization to GDP was roughly constant between 1870 and 1980, tripled with a historically unprecedented "big bang" in the 1980s and 1990s, and remains high to this day. We use data on equity returns, yields and cashflows to explore the underlying forces behind this structural shift. We show that the big bang is driven by two factors: a secular decline in the equity discount rate from 1980 onwards, and an upward shift in cashflows paid by listed firms. Equity issuance and new listings make next to no contribution to the structural increase in market cap. We also show that high market capitalization forecasts low equity returns, low dividend growth and a high risk of a stock market crash. This suggests that the currently high valuations and capitalization are a sign of high, rather than low risk in equity markets. |
| Keywords: | equity valuations; return predictability; risk premiums; stock market capitalization; wealth-to-income ratios |
| JEL: | E44 G10 N20 O16 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14468&r=all |
| By: | Hashim, Norhaziah; Masih, Mansur |
| Abstract: | This paper investigated the impact of interest rate changes, specifically the base lending rate (BLR) on the demand for Islamic home financing in a dual banking system. Malaysia is taken as a case study. Theoretically, any increase in the interest rate (base lending rate), would lead customers who are guided by the profit motive to substitute Islamic home financing for conventional bank home loans and vice versa. Using a 109 monthly data series covering ten years, the study found that an increase in the base lending rate would trigger customers to obtain financing from Islamic banks. Conversely, any decrease in the base lending rate would induce customers to shift to the conventional home loans. The paper concludes that because customers are profit motivated, Islamic banks in the dual banking system, such as in Malaysia are exposed to interest rate risks despite operating on an interest free principle. |
| Keywords: | Islamic financing, Bai-Bithaman Ajil, interest rates, base lending rates, Malaysia |
| JEL: | C22 C58 E44 G21 |
| Date: | 2018–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100644&r=all |
| By: | Eurilton Araujo; Ricardo D. Brito, Antonio Z. Sanvicente |
| Abstract: | This paper tells the history of Brazilian stock market returns since the creation of the Ibovespa (the main Brazilian stock market index). From 1968 to 2019, the arithmetic mean return of the Brazilian stock market is 21.3% per year. The equity premium is 20.1% per year, with a huge standard deviation of 67% . Surprisingly, such numbers are compatible with investors’ risk aversions that accommodate the very different U.S. market evidence, reinforcing the belief that national investors are similar in nature. The equity premium has been higher in Brazil than in the U.S., but the much higher Brazilian volatility discourages heavier investments in stocks. |
| Keywords: | Equity returns; Equity risk premium; Emerging market; Lifetime portfolio selection |
| JEL: | E21 G10 G12 |
| Date: | 2020–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2020wpecon6&r=all |
| By: | Faia, Ester |
| Abstract: | Using PISA data for all waves and countries, it is shown that family cultural and economic background has bigger influence than school characteristics and quality on adolescents' math, reading and science scores. Women education, a proxy for women empowerment, has an added and increasing effect, when controlling for assortative mating. Their added value peaks at intermediate levels of education, but declines afterwards, when controlling for educational homogamy. A model with households' collective bargaining, warm glow preferences and human capital accumulation can rationalize the evidence. Through the lens of the model, mothers' higher impact is due either to higher devotion to child-rearing, which increases in presence of a gender wage gap, or to a within-household bargaining that raises in education, or else the empowerment externality. |
| Keywords: | collective bargaining; educational inequality; women empowerment |
| JEL: | E0 E5 G01 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14547&r=all |
| By: | Guo, Lu; Yang, Wei |
| Abstract: | Without the assumption on the factor linear growth equation and keeping other assumptions in the endogenous growth theory, we prove the growth rate and interest rate endogenous, and then we give general conditions for the existence and uniqueness of the growth rate. Under the condition of the constant returns to scale, the growth rate of every variable and interest rate are constant in the steady state. In addition, we give primary analyses on the stochastic economy with growth. |
| Keywords: | Endogenous Growth, Existence, Uniqueness, equilibrium |
| JEL: | C62 O41 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100703&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic is having a severe impact on Solomon Islands’ economy. The global economic slowdown has reduced demand for its commodity exports, including logging exports, and tourism. The authorities have enacted strong and timely containment measures to limit the risk of a local outbreak while orienting additional spending towards health care and support for the economy. The necessary containment measures have hampered domestic activities. The disruption of activity, together with loss in revenue from exports, are resulting in a sharp decline in foreign exchange reserves and an immediate external financing gap. The need for sufficient external buffers is urgent, particularly in the context of the basket exchange rate peg regime, a weak fiscal position, ongoing uncertainty and still large downside risks. |
| Keywords: | Rapid Financing Instrument (RFI);Rapid Credit Facility (RCF);Balance of payments need;Central banks;Balance of payments;Credit;Development;ISCR,CR,percent of GDP,disbursement,Proj,grant-funded,alternative scenario |
| Date: | 2020–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/190&r=all |
| By: | Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Oyolola, Maharouf; Pantin, Machel; Skerrette, Nyasha; Tokuda, Hidenobu |
| Abstract: | This overview examines the economic performance of economies of the Caribbean in 2019 and comprises four chapters. The first chapter provides a comparative analysis across Caribbean economies of the main macroeconomic variables, namely GDP growth, monetary indicators, as well as fiscal and external accounts. The second chapter looks at areas of focus in the Caribbean. The third chapter concludes, while the annex includes individual country briefs that give an overview of the economic situation for the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname and a subregional assessment of the countries of the Eastern Caribbean Currency Union. |
| Keywords: | CONDICIONES ECONOMICAS, CRECIMIENTO ECONOMICO, MACROECONOMIA, POLITICA FISCAL, DEUDA PUBLICA, POLITICA MONETARIA, CREDITO, INFLACION, COMERCIO EXTERIOR, POLITICA ECONOMICA, DESASTRES NATURALES, INDICADORES ECONOMICOS, ECONOMIC CONDITIONS, ECONOMIC GROWTH, MACROECONOMICS, FISCAL POLICY, PUBLIC DEBT, MONETARY POLICY, CREDIT, INFLATION, FOREIGN TRADE, ECONOMIC POLICY, NATURAL DISASTERS, ECONOMIC INDICATORS |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col033:45729&r=all |
| By: | Ivashina, Victoria; Laeven, Luc; Moral-Benito, Enrique |
| Abstract: | Using credit-registry data for Spain and Peru, we document that four main types of commercial credit-asset-based loans, cash flow loans, trade finance and leasing-are easily identifiable and represent the bulk of corporate credit. We show that credit growth dynamics and bank lending channels vary across these loan types. Moreover, aggregate credit supply shocks previously identified in the literature appear to be driven by individual loan types. The effects of monetary policy and the effects of the financial crisis propagating through banks' balance sheets are primarily driven by cash flow loans, whereas asset-based credit appears to be largely insensitive to these types of effects. |
| Keywords: | Bank credit; bank lending channel; Credit registry; Loan types |
| JEL: | E5 G21 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14459&r=all |
| By: | International Monetary Fund |
| Abstract: | Cameroon is facing urgent financing needs driven by the twin Covid-19 pandemic and terms of trade shocks. Externally, Cameroon is exposed to demand and supply shocks due to the slowdown in major trading partners (China and Europe) and falling oil prices. Domestically, containment efforts to slow the number of Covid-19 cases, which have grown rapidly since March 6, 2020, are expected to further slow growth and widen the fiscal and current account deficits. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/185&r=all |
| By: | Philipp Baumann; Enzo Rossi; Alexander Volkmann |
| Abstract: | We analyze which forces explain inflation and how in a large panel of 124 countries from 1997 to 2015. Models motivated by economic theory are compared to an approach based on model-based boosting and non-linearities are explicitly considered. We provide compelling evidence that the interaction of energy price and energy rents stand out among 40 explanatory variables. The output gap and globalization are also relevant drivers of inflation. Credit and money growth, a country's inflation history and demographic changes are comparably less important while central bank related variables as well as political variables turn out to have the least empirical relevance. In a subset of countries public debt denomination and exchange rate arrangements also play a noteworthy role in the inflation process. By contrast, other public-debt variables and an inflation targeting regime have weaker explanatory power. Finally, there is clear evidence of structural breaks in the effects since the financial crisis. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.06274&r=all |
| By: | Kei-Ichiro Inaba (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: keiichirou.inaba@boj.or.jp)) |
| Abstract: | This article investigates the determinants of cash holdings by publicly-traded firms for 20 advanced and emerging countries over the last decade, with a focus on ratios of the firms' aggregate cash to their total assets. Panel-data regressions find that higher cash ratios were associated with fewer non-cash current assets, smaller costs of carry, larger contemporaneous cash inflows, fewer interest-bearing liabilities, greater expected investment opportunities, including research and development projects, greater uncertainty, and the state of corporate governance. Regarding the last result, higher cash ratios were associated with managers with worse ethical behavior, lower accountability to investors and board members, weaker investor protection, harsher auditing and reporting standards, and greater potential to face holdup problems by lending banks. The agency motive was greater than the precautionary and transaction-costs motives in terms of marginal impact while being limited in terms of explanatory power over total variation in the cash ratios. |
| Keywords: | Corporate finance, Cash holdings, Precautionary saving motive, Corporate governance, Agency problem |
| JEL: | C23 E41 G32 G34 H32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:20-e-07&r=all |
| By: | Afees A. Salisu (Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Ahamuefula E. Ogbonna (Centre for Econometric & Allied Research, University of Ibadan; Department of Statistics, University of Ibadan, Ibadan, Nigeria) |
| Abstract: | We forecast macroeconomic and financial uncertainties of the US over the period of 1960:Q3 to 2018:Q4, based on a large data set of 303 predictors using a wide array of constant parameter and time varying models. We find that uncertainty is indeed forecastable, but while accurate point forecasts can be achieved without incorporating time-variation in the parameters of the small-scale models for macroeconomic uncertainty and large-scale models for financial uncertainty, it is indeed a requirement, along with a large data set, when producing precise density forecasts for both types of uncertainties. |
| Keywords: | Macroeconomic and financial uncertainties, large number of predictors, constant parameter and time-varying models, forecasting |
| JEL: | C22 C53 C55 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202058&r=all |
| By: | Bertrand Achou; David Boisclair; Philippe d'Astous; Raquel Fonseca; Franca Glenzer; Pierre-Carl Michaud |
| Abstract: | Series: Survey of Household Finances in a Time of Pandemic – Part 2 At the beginning of the pandemic many households hit a wall. In Quebec, over 21 per cent of them experienced job loss.[1] To deal with this situation the Government of Canada reacted rapidly by setting up an emergency fund (the Canada Emergency Response Benefit) that had to be delivered on very short notice. We learned from conversations with government sources that the employment insurance program would have been unable to handle this volume of demand in such a short time. Targeted tax measures would have been difficult to implement because, with few exceptions, the tax system is based on an information cycle that is annual, not monthly or even weekly. It would have been challenging to implement more complicated income- or asset-based criteria including claw-back provisions, etc. This gave rise to a program that issued cheques to over eight million Canadians who applied under very flexible conditions. As we enter the recovery phase we perceive a need to better understand the impact this assistance has had on households. To that end, we have chosen to sketch an overview of CERB recipient households by incorporating several questions to into the Survey of Household Finances in a Time of Pandemic, jointly conducted by the Retirement and Savings Institute, the Research Chair in Intergenerational Economics, and CIRANO. [1] For an overview of the impacts of the pandemic on personal finances, the reader is encouraged to consult the first of our series of Notes on the survey: http://cirano.qc.ca/en/summaries/2020PE- 25. |
| Keywords: | COVID-19, |
| Date: | 2020–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:cir:circah:2020pe-30&r=all |
| By: | International Monetary Fund |
| Abstract: | The impact of the COVID-19 pandemic and the tightening of global financial conditions have disrupted the, until recently, favorable macroeconomic conditions. The near-term outlook has significantly weakened, with growth expected to decline to -1½ percent in 2020, and the fiscal and the current account deficits widening considerably this year. These projections are subject to more than the usual uncertainty. The authorities’ response has been timely and proactive, focusing on strengthening the provision of public health services, limiting domestic contagion, and introducing targeted economic relief measures aimed at assisting viable businesses and vulnerable people weather the crisis. |
| Keywords: | External sector;Economic conditions;National income;Economic indicators;Real sector;ISCR,CR,percent change,Armenian authority,percent of GDP,performance criterion,CBA |
| Date: | 2020–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/176&r=all |
| By: | De Grauwe, Paul; Ji, Yuemei |
| Abstract: | We show that in a world where agents have limited cognitive abilities and, as a result, are prevented from having rational expectations the answer to this question is negative. We find that in "tranquil periods" when market sentiments (animal spirits) are neutral a forward-looking Taylor rule produces similar results as current-looking Taylor rule in terms of output and inflation volatility. However, when the economy is in a regime of booms and bust produced by extreme values of animal spirits the forward-looking central bank will make many policy errors that have to be corrected afterwards. Thus in a regime of extreme uncertainty the use of a forward Taylor rule reduces the quality of policy-making, leading to greater variability of the output and inflation. It is then better for the central bank to use currently observed output and inflation to set the interest rate. The empirical evidence suggests that central banks are often not forward looking. Our model provides the theoretical justification for this. |
| Keywords: | animal spirits; behavioural macroeconomics; Taylor rule |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14540&r=all |
| By: | Kitov, Ivan |
| Abstract: | Income inequality between different races in the U.S. is especially large. This difference is even larger when gender is involved. In a complementary study, we have developed a dynamic microeconomic model accurately describing the evolution of male and female incomes since 1930. Here, we extend our analysis and model the disparity between black and white population in the U.S., separately for males and females. Unfortunately, income microdata provided by the U.S. Census Bureau for other races and ethnic groups are not time compatible or too short for modelling purposes. We are forced to constrain our analysis to black and white population, but all principal results can be extrapolated to other races and ethnicities. Our analysis shows that black females and white males are two poles of the overall income inequality. The prediction of income distribution for two extreme cases with one model is the main challenge of this study. |
| Keywords: | personal income, evolution, age, race, GDP per capita, USA |
| JEL: | D01 D31 E17 E64 J1 O12 |
| Date: | 2020–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101019&r=all |
| By: | Robert E. Hall; Charles I. Jones; Peter J. Klenow |
| Abstract: | This note develops a framework for thinking about the following question: What is the maximum amount of consumption that a utilitarian welfare function would be willing to trade off to avoid the deaths associated with the pandemic? The answer depends crucially on the mortality rate associated with the coronavirus. If the mortality rate averages 0.81%, taken from the Imperial College London study, our answer is 41% of one year's consumption. If the mortality rate instead averages 0.44% across age groups, our answer is 28%. |
| JEL: | E0 I10 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27340&r=all |
| By: | Matthias Doepke; Ruben Gaetani |
| Abstract: | Why has the college wage premium risen rapidly in the United States since the 1980s, but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model where firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less-educated workers in the United States, but not for better-protected workers in Germany. |
| JEL: | E24 J24 J31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27331&r=all |
| By: | Dimitris Papanikolaou; Lawrence D.W. Schmidt |
| Abstract: | We analyze the supply-side disruptions associated with Covid-19 across firms and workers. To do so, we exploit differences in the ability of workers across industries to work remotely using data from the American Time Use Survey (ATUS). We find that sectors in which a higher fraction of the workforce is not able to work remotely experienced significantly greater declines in employment, significantly more reductions in expected revenue growth, worse stock market performance, and higher expected likelihood of default. In terms of individual employment outcomes, lower-paid workers, especially female workers with young children, were significantly more affected by these disruptions. Last, we combine these ex-ante heterogeneous industry exposures with daily financial market data to create a stock return portfolio that most closely replicate the supply-side disruptions resulting from the pandemic. |
| JEL: | E23 G10 J00 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27330&r=all |
| By: | Parantap Basu (Durham University Business School, Durham University); Tooraj Jamasb (Copenhagen Business School) |
| Keywords: | Green growth, sustainability, carbon tax, clean growth, resource substitution |
| JEL: | E1 O3 O4 Q2 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:enp:wpaper:eprg2011&r=all |
| By: | Murillo Campello; Gaurav Kankanhalli; Pradeep Muthukrishnan |
| Abstract: | Big data on job-vacancy postings reveal several dimensions of the impact of COVID-19 on the U.S. job market. Firms have cut back on postings for high-skill jobs more than for low-skill jobs, with small firms nearly halting their new hiring altogether. New-hiring cuts and downskilling are most pronounced in local labor markets lacking depth (where employment is concentrated within a few firms), in low-income areas, and in areas with greater income inequality. Cuts are deeper in industries where workers are more unionized and in the non-tradable sector. Access to finance modulates corporate hiring, with credit-constrained firms curtailing their job postings the most. Our study shows how the early-2020 global pandemic is shaping the dynamics of hiring, identifying the firms, jobs, places, industries, and labor markets most affected by it. Our results point to important challenges to the scale and speed of a recovery. |
| JEL: | E24 G31 J23 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27208&r=all |
| By: | David Altig; Scott R. Baker; Jose Maria Barrero; Nicholas Bloom; Philip Bunn; Scarlet Chen; Steven J. Davis; Julia Leather; Brent H. Meyer; Emil Mihaylov; Paul Mizen; Nicholas B. Parker; Thomas Renault; Pawel Smietanka; Greg Thwaites |
| Abstract: | We consider several economic uncertainty indicators for the US and UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future GDP growth. Three results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly – from a rise of around 100% (relative to January 2020) in two-year implied volatility on the S&P 500 and subjective uncertainty around year-ahead sales for UK firms to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: Implied volatility rose rapidly from late February, peaked in mid-March, and fell back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting the difference in uncertainty measures between Wall Street and Main Street. |
| JEL: | E0 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27418&r=all |
| By: | David O. Argente; Chang-Tai Hsieh; Munseob Lee |
| Abstract: | South Korea publicly disclosed detailed location information of individuals that tested positive for COVID-19. We quantify the effect of public disclosure on the transmission of the virus and economic losses in Seoul. We use detailed foot-traffic data from South Korea's largest mobile phone company to document the change in the flows of people across neighborhoods in Seoul in response to information on the locations of positive cases. We analyze the effect of the change in commuting flows in a SIR meta-population model where the virus spreads due to these flows. We endogenize these flows in a model of urban neighborhoods where individuals commute across neighborhoods to access jobs and leisure opportunities. Relative to a scenario where no information is disclosed, the change in commuting patterns due to public disclosure lowers the number of cases by 400 thousand and the number of deaths by 13 thousand in Seoul over two years. Compared to a city-wide lock-down that results in the same number of cases over two years, the economic cost is 50% lower with full disclosure. |
| JEL: | E0 I0 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27220&r=all |
| By: | Laura Liu; Hyungsik Roger Moon; Frank Schorfheide |
| Abstract: | We use dynamic panel data models to generate density forecasts for daily Covid-19 infections for a panel of countries/regions. At the core of our model is a specification that assumes that the growth rate of active infections can be represented by autoregressive fluctuations around a downward sloping deterministic trend function with a break. Our fully Bayesian approach allows us to flexibly estimate the cross-sectional distribution of heterogeneous coefficients and then implicitly use this distribution as prior to construct Bayes forecasts for the individual time series. According to our model, there is a lot of uncertainty about the evolution of infection rates, due to parameter uncertainty and the realization of future shocks. We find that over a one-week horizon the empirical coverage frequency of our interval forecasts is close to the nominal credible level. Weekly forecasts from our model are published at https://laurayuliu.com/covid19-panel-for ecast/. |
| JEL: | C11 C23 C53 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27248&r=all |
| By: | International Monetary Fund |
| Abstract: | The fallout from the global pandemic crisis is hitting St. Vincent and the Grenadines hard. Tourism receipts (accounting for nearly 30 percent of GDP) have dried up, as tourism arrivals have come to a complete halt. The economy is now projected to contract by 5.5 percent —7.8 percentage points below pre-COVID-19 projections. Local outbreaks of COVID-19 have thus far been contained. |
| Keywords: | Rapid Credit Facility (RCF); |
| Date: | 2020–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/179&r=all |
| By: | Ralph S. J. Koijen; Motohiro Yogo |
| Abstract: | Using international holdings data, we estimate a demand system for financial assets across 36 countries. The demand system provides a unified framework for decomposing variation in exchange rates, long-term yields, and stock prices; interpreting major economic events such as the European sovereign debt crisis; and estimating the convenience yield on US assets. Macro variables and policy variables (i.e., short-term rates, debt quantities, and foreign exchange reserves) account for 55 percent of the variation in exchange rates, 57 percent of long-term yields, and 69 percent of stock prices. The average convenience yield is 2.15 percent on US long-term debt and 1.70 percent on US equity. |
| JEL: | E52 F31 G12 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27342&r=all |
| By: | Yunfang Hu; Takuma Kunieda; Kazuo Nishimura; Ping Wang |
| Abstract: | We develop a unified theory with endogenous technology choice in human/knowledge capital accumulation to establish a rich array of equilibrium development paradigms, including poverty trap, middle income trap and flying geese growth. We then generalize the baseline structure and establish conditions for different development paradigms to arise. By calibrating the general model to fit the data from several representative economies with different income and growth patterns, we identify various prolonged flying geese episodes and middle income traps. By performing growth accounting, we find that improving human capital accumulation efficacy and mitigating barriers to human capital accumulation are most rewarding for advancing the economy and avoiding the middle income trap. |
| JEL: | D2 E2 O4 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27278&r=all |
| By: | Alexander M. Chinco; Samuel M. Hartzmark; Abigail B. Sussman |
| Abstract: | Textbook finance theory assumes that investors strategically try to insure themselves against bad future states of the world when forming portfolios. This is a testable assumption, surveys are ideally suited to test it, and we develop a framework for doing so. Our framework combines survey experiments with field data to test this assumption as it pertains to any candidate risk factor. We study consumption growth to demonstrate the approach. While participants strategically respond to changes in the mean and volatility of stock returns when forming their portfolios, there is no evidence that investors view this canonical risk factor as relevant. |
| JEL: | D81 D91 E21 G11 G12 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27227&r=all |
| By: | Sasaki, Hiroaki |
| Abstract: | In economic growth theory, product innovation and process innovation are important factors behind technological progress. This study builds an economic growth model that considers product and process innovation and theoretically investigates how these two types of innovation affect the economic growth rate and unemployment rate. Our model, based on that developed by Zagler (2004), allows us to make the following three main findings. We find that (1) an increase in the efficiency of product innovation increases both the economic growth rate and the unemployment rate; (2) an increase in the efficiency of process innovation increases the economic growth rate and does not affect the unemployment rate; and (3) in the R\&D sector, a decrease in the labor allocation to product innovation and an increase in the labor allocation to process innovation increase the economic growth rate and decrease the unemployment rate depending on the conditions. These findings suggest that to both raise employment and increase economic growth, we need not only a policy for fostering product innovation but also another policy to improve employment. |
| Keywords: | effective demand; notional demand; unemployment; economic growth; product and process innovation; monopolistic competition |
| JEL: | E12 O31 O41 |
| Date: | 2020–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101031&r=all |
| By: | Paola D'Orazio; Lilit Popoyan |
| Abstract: | The awareness about climate-related financial risks is gaining momentum both in the policy and academic debates. The role of countriesù institutional dimension and central bank governance structures in the adoption of green prudential regulation is, however, overlooked in the current discussion. The paper fills this gap by proposing an analysis of the state-of-the-art, challenges and perspectives, of ''green'' central banking. The study complements existing research that usually points to an ''extended'' monetary policy mandate, including, for example, sustainability objectives or green growth, as the primary motivation for a central bank to engage in ''green'' financial policymaking. According to our research, the decision to implement green regulations is not exclusively related to the mandate per se, but on the central bank's independence and on how the interaction between the monetary and prudential policy is structured. Moreover, the higher exposure to climate-related adverse events also plays a crucial role in the adoption of green prudential regulations. To avoid potential conflicts between monetary policy and green prudential regulation caused by existing intertwined transmission mechanisms, on the one hand, our analysis emphasizes the importance of having a central bank that hosts the green prudential regulation under its governance roof. On the other hand, when the ''green'' governance models studied in the paper are in place, the Tinbergen principle is safeguarded. |
| Keywords: | Central banking; Policy mandate; Macroprudential policy; Central bank governance; Climate change. |
| Date: | 2020–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2020/19&r=all |
| By: | Cristina Arellano; Yan Bai; Gabriel P. Mihalache |
| Abstract: | The COVID-19 epidemic in emerging markets risks a combined health, economic, and debt crisis. We integrate a standard epidemiology model into a sovereign default model and study how default risk impacts the ability of these countries to respond to the epidemic. Lockdown policies are useful for alleviating the health crisis but they carry large economic costs and can generate costly and prolonged debt crises. The possibility of lockdown induced debt crises in turn results in less aggressive lockdowns and a more severe health crisis. We find that the social value of debt relief can be substantial because it can prevent the debt crisis and can save lives. |
| JEL: | E52 F34 F41 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27275&r=all |
| By: | Davoli, Maddalena (Goethe University Frankfurt); Rodríguez-Planas, Núria (Queens College, CUNY) |
| Abstract: | Using a US nationally representative sample of over 6,000 adults from 26 countries of ancestry, we find a strong association between their financial literacy in the US and the financial literacy level in their self-reported country of ancestry. More specifically, if an individual from a country of ancestry with "average" financial literacy had instead come from a country with financial literacy one-standard deviation above the mean, his or her likelihood of answering correctly basic financial literacy questions regarding inflation, risk diversification, and interest rate in the US would have increased by 4 percentage points, a 9% increase relative to the average financial literacy in our sample of 43%. The cultural components behind this observed association include a strong emphasis on patience, long-term orientation and risk-aversion in the country of ancestry. We also find that the association is driven by financial literacy on risk diversification and interest compounding. |
| Keywords: | financial literacy, culture, epidemiological approach, economic decisions |
| JEL: | D14 E2 I22 Z10 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13349&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic and massive external spillovers are expected to hit Honduras hard, with deep social and economic implications. They are projected to prompt a recession and create large additional financing needs, including due to a deterioration in external financing conditions amid large public sector rollover needs. These shocks are compounding existing strong headwinds to growth in Honduras from exogenous factors, notably related to climate change. To support the policy response to the crisis, the authorities decided to draw on available Fund resources for SDR 104.92 million in late March, used for budget support. |
| Keywords: | Standby Credit Facility; |
| Date: | 2020–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/186&r=all |
| By: | Tsutomu Watanabe (Graduate School of Economics, University of Tokyo); Yuki Omori (Nowcast Inc.; M.A. candidate, Graduate School of Information Science and Technology, University of Tokyo.) |
| Abstract: | The spread of novel coronavirus (COVID-19) infections has led to substantial changes in consumption patterns. While demand for services that involve face-to-face contact has decreased sharply, online consumption of goods and services, such as through e-commerce, is increasing. The aim of this study is to investigate whether online consumption will continue to increase even after COVID-19 subsides, using credit card transaction data. Online consumption requires upfront costs, which have been regarded as one of the factors inhibiting the diffusion of online consumption. However, if many consumers made such upfront investments due to the coronavirus pandemic, they would have no reason to return to offline consumption after the pandemic has ended, and high levels of online consumption should continue. Our main findings are as follows. First, the main group responsible for the increase in online consumption are consumers who were already familiar with online consumption before the pandemic and purchased goods and service both online and offline. These consumers increased the share of online spending in their spending overall and/or stopped offline consumption completely and switched to online consumption only. Second, some consumers that had never used the internet for purchases before started to use the internet for their consumption activities due to COVID-19. However, the share of consumers making this switch was not very different from the trend before the crisis. Third, by age group, the switch to online consumption was more pronounced among youngsters than seniors. These findings suggest that it is not the case that during the pandemic a large number of consumers made the upfront investment necessary to switch to online consumption, so a certain portion of the increase in online consumption is likely to fall away again as COVID-19 subsides. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf487&r=all |
| By: | Peter Ganong; Pascal J. Noel; Joseph S. Vavra |
| Abstract: | We use micro data on earnings together with the details of each state’s UI system under the CARES Act to compute the entire distribution of current UI benefits. The median replacement rate is 134%. Two-thirds of UI eligible workers can receive benefits which exceed lost earnings and one-fifth can receive benefits at least double lost earnings. There is sizable variation in the effects of the CARES Act across occupations and states, with important distributional consequences. We show how alternative UI expansion policies would change the distribution of UI benefits and thus affect resulting liquidity provision, progressivity, and labor supply incentives. |
| JEL: | E24 J65 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27216&r=all |
| By: | Dendramis, Yiannis; kapetanios, george; Marcellino, Massimiliano |
| Abstract: | In the aftermath of the recent financial crisis there has been considerable focus on methods for predicting macroeconomic variables when their behavior is subject to abrupt changes, associated for example with crisis periods. In this paper we propose similarity based approaches as a way to handle parameter instability, and apply them to macroeconomic forecasting. The rationale is that clusters of past data that match the current economic conditions can be more informative for forecasting than the entire past behavior of the variable of interest. We apply our methods to predict both simulated data in a set of Monte Carlo experiments, and a broad set of key US macroeconomic indicators. The forecast evaluation exercises indicate that similarity-based approaches perform well, in general, in comparison with other common time-varying forecasting methods, and particularly well during crisis episodes. |
| Keywords: | empirical similarity; Forecast comparison; Kernel estimation ; Macroeconomic forecasting; parameter time variation |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14469&r=all |
| By: | Hari Sharma (University of Waikato); John Gibson (University of Waikato) |
| Abstract: | In the last two decades, Nepal experienced a significant rise in work-related migration and subsequent remittance inflows. We examine the impacts on child education and child labour in a two-wave panel constructed from the 2008 Nepal Labour Force Survey and the 2010 Nepal Living Standards Survey. We use grade-specific net enrolment rates rather than the more commonly studied attendance rate, and exploit variation in destination-driven predicted migration as an instrumental variable. Migration and remittances appear to raise net enrolment of children in secondary education. The positive effect on school outcomes is complemented by a fall in child labour force participation. The effects appear larger for children aged ten and above, and seem to predominantly operate through remittances. |
| Keywords: | human capital; child labour; migration; school enrolment; Nepal |
| JEL: | E20 J22 F22 I21 O15 |
| Date: | 2020–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:20/07&r=all |
| By: | Álvarez-Nogal, Carlos; Prados de la Escosura, Leandro; Santiago-Caballero, Carlos |
| Abstract: | Research in economic history has lately challenged the Malthusian depiction of preindustrial European economies, highlighting 'efflorescences', 'Smithian' and 'growth recurring' episodes. Do these defining concepts apply to preindustrial Spain? On the basis of new yearly estimates of output and population for nearly 600 years we show that preindustrial Spain was far from stagnant and phases of per capita growth and shrinkage alternated. Population and output per head evolved along supporting the hypothesis of a frontier economy. After a long phase of sustained and egalitarian growth, a collapse in the 1570s opened a new era of sluggish growth and high inequality. The unintended consequences of imperial ambitions in Europe on economic activity, rather than Malthusian forces, help to explain it. |
| Keywords: | Black Death; Frontier economy; Growth recurring; Malthusian; Preindustrial Spain |
| JEL: | E10 N13 O10 O47 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14479&r=all |
| By: | Erik Bengtsson; Enrico Rubolino; Daniel Waldenström |
| Abstract: | This paper analyzes the determinants of the labor-capital split in national income for 20 countries since the late 1800s. Our main identification strategy focuses on unique historical quasi-experimental events: i) the introduction of universal suffrage, ii) close election wins of left-wing governments, iii) decolonization, iv) unionization shocks, and v) wars. We also run instrumented panel regressions. Our findings show that the capital share decreased in response to radical institu-tional and political shifts, such as the introduction of universal suffrage in the early 1900s, the undoing of colonialism and the implementation of redistributive policies during the post-war period. By contrast, the capital share increased following the erosion of trade unionism since the 1980s. Wars, despite destroying the capital stock, generated windfall profits that increased the capital share. |
| Keywords: | inequality, factor shares, event study, economic history, institutions |
| JEL: | D33 E02 N00 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8281&r=all |
| By: | Guilherme Lichand; Eric Bettinger; Nina Cunha; Ricardo Madeira |
| Abstract: | Poverty focuses attention on present needs. Does that mean that poor parents respond inefficiently to future returns on investments in their children's human capital - even when they would have the financial means to invest optimally? We study this question in the context of an educational program in Brazil whose predicted child-specific returns are known to the researchers, allowing us to compute optimal decisions. Using a lab-in-the-field experiment to make some parents worry more than others about pressing financial needs, we find that those in the treatment condition offered the opportunity to invest in that program misallocate resources relative to the control group: they not only invest significantly less when the program has high returns, but also, significantly more when predicted returns are low. We show that such inefficient responses are driven by poverty-induced attention misa/Jocation, since (1) parents in the treatment condition perform better in cognitive tests that yield small but immediate returns, and (2) increasing the salience of returns before the experiment eliminates differential responses by those parents. Our results suggest that poiicy instruments to boost human capital investments among the poor, such as credit lines earmarked for education, may be insufficient to spark such investments when returns are high, and even lead to over-investment by those not expected to benefit from it. |
| Keywords: | Psychology of poverty, attention misallocation, human capital, poverty trap |
| JEL: | C93 D91 E24 I25 I26 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:349&r=all |
| By: | Francesco Flaviano Russo (Università di Napoli Federico II and CSEF) |
| Abstract: | I propose a stochastic SIR-Macro model to study the effects of alternative policies to cope with an epidemic. Lockdowns that order firms to close and that discontinues social activities slow down the epidemic progression at the cost of reducing GDP and increasing debt and, on average, decrease mortality. Testing strategies that identify and isolate a large number of infected but asymptomatics decrease mortality at a lower cost, but they are effective only if thorough. The more aggressive the pathogen, and the smaller the capacity of the health system, the bigger the gains from both policies. I also find that lockdowns work best in case of bigger average family size, diffused participation to the job market and bigger average workplace size. |
| Keywords: | Lockdown, Testing, Pathogen, Pandemic |
| JEL: | E1 I1 H12 |
| Date: | 2020–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:570&r=all |
| By: | Julia P Araujo; Mauro Rodrigues |
| Abstract: | Plano Real put an end to hyperinflation in 1994 and significantly altered price-setting behavior in Brazil. This paper investigates the impact of Plano Real on search frictions. I estimate a nonsequential search model for homogeneous goods to structurally retrieve consumers' search costs. The dataset comprises 11,673 store-level price quotes collected from 1993 to 1995 by FIPE to calculate the Consumer Price Index (CPI) in the city of São Paulo. I choose 15 brands to analyze: 7 food items, 4 industrial goods, and 4 services. To quantify the extension of search costs, I focus only on geographically isolated markets, defined as all stores that sell a certain brand within a radius of 6 km. The empirical strategy consists of using Plano Real as a structural breakpoint in the data. I estimate the model splitting the data into before (January 1993 to June 1994) and after (August 1994 to December 1995) the plan, and I find evidence on first-order stochastic dominance of the search-cost ibution of the former into the latter; that is, search costs are higher during hyperinflation. The majority of consumers search only once or twice before buying an item, but this share is marginally higher during hyperinflation (84% vs 79%). In addition, after Plano Real, a larger share of consumers is willing to quote prices in all stores before committing to a purchase. I also document evidence of the effect of the plan on shrinking price-cost margins. When searching is less costly, stores lose market power. |
| Keywords: | Hyperinflation; Search costs; Price dispersion; Structural estimation |
| JEL: | C14 D4 D83 E31 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2020wpecon9&r=all |
| By: | Vinicius Curti Cicero; Gilberto Tadeu Lima |
| Abstract: | This paper develops a general extended version of the balance-of-payments constrained growth model that takes into consideration some often ignored aspects of growth in open economies - namely, the importance of capital flows in the long run, terms of trade changes and trade and payments interdependence among regions. Furthermore, this paper incorporates Thirlwall's analysis into a North-South model that takes into account four intrinsically connected channels through which FDI inflows can affect the productive structure of Southern region - capital accumulation, balance-of-payments components, technological change and income distribution - finding that it still explains uneven development, although reducing the distance between regions by easing the external restriction, that is indicate a more even development path. In addition, this article presents an empirical exercise that, although not conclusive when considering the income elasticities of import ratio, points to a quite relevant result: the non-consideration of income distribution effects in the import functions represents not only the omission of a relevant variable on econometric estimations but, mainly, the omission of an important theoretical channel to understand growth in open economies. |
| Keywords: | Foreign direct investment; Economic growth; Uneven development; North-South relations; Balance-of-Payments constraint; Functional distribution of income |
| JEL: | F21 E12 O11 F14 |
| Date: | 2020–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2020wpecon4&r=all |