nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒08‒10
163 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound By Gabriele Galati; Richhild Moessner
  2. The Leverage Factor: Credit Cycles and Asset Returns By Davis, Josh; Taylor, Alan M.
  3. Permanent Income Shocks and Inflation By Balazs Zelity
  4. Local Autonomy and Government Spending Multipliers: Evidence from European Regions By Brueckner, Markus; Pappa, Evi; Valentinyi, Akos
  5. COVID-19 and Tasmanian Youth Unemployment: A Policy Recommendation By Vespignani, Joaquin L.; Yanotti, Maria Belen
  6. US business cycle dynamics at the zero lower bound By Böhl, Gregor; Strobel, Felix
  7. A Structural Investigation of Quantitative Easing By Gregor Boehl; Gavin Goy; Felix Strobel
  8. Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound By Gabriele Galati; Richhild Moessner
  9. The Credit Line Channel By Daniel L. Greenwald; John Krainer; Pascal Paul
  10. Central bank digital currency and informal economy By Eun Young Oh; Shuonan Zhang
  11. Monetary Policy, Price Setting, and Credit Constraints By Balleer, Almut; Zorn, Peter
  12. What Matters in Households’ Inflation Expectations? By Philippe Andrade; Erwan Gautier; Eric Mengus
  13. Inefficient Relative Price Fluctuations By Daeha Cho; Kwang Hwan Kim
  14. Central Bank Communication: Information and Policy shocks By Ostapenko, Nataliia
  15. Crecimiento y ciclos de la economía colombiana (2005 – 2019) By Carlos Esteban Posada Posada
  16. Virtually everywhere? Digitalisation and the euro area and EU economies By Anderton, Robert; Jarvis, Valerie; Labhard, Vincent; Morgan, Julian; Petroulakis, Filippos; Vivian, Lara
  17. Effects of credit restrictions in the Netherlands and lessons for macroprudential policy By Gabriele Galati; Jan Kakes; Richhild Moessner
  18. The Lack of Convergence of Latin-America Compared with CESEE: Is Low Investment to Blame? By Bakker, Bas; Ghazanchyan, Manuk; Ho, Alex; Nanda, Vibha
  19. Is democracy affecting the economic policy responses to COVID-19? A cross-country analysis By Costa-Filho, João; Neto, António
  20. Dollar shortages and central bank swap lines By Eguren-Martin, Fernando
  21. Hot Money for a Cold Economy By David Andolfatto
  22. Asymmetric macroeconomic effects of QE-induced increases in excess reserves in a monetary union By Horst, Maximilian; Neyer, Ulrike; Stempel, Daniel
  23. Identifying indicators of systemic risk By Hartwig, Benny; Meinerding, Christoph; Schüler, Yves
  24. The importance of beliefs in shaping macroeconomic outcomes By Farmer, Roger E A
  25. Macroeconomic stabilisation properties of a euro area unemployment insurance scheme By Kaufmann, Christoph; Attinasi, Maria Grazia; Hauptmeier, Sebastian
  26. A Macroeconometric Model for Kazakhstan By Nurdaulet Abilov; Alisher Tolepbergen; Klaus Weyerstrass
  27. The Importance of Terms of Trade Shocks: Kazakhstan By Alisher Tolepbergen
  28. Macro-Financial Spillovers By John Cotter; Mark Hallam; Kamil Yilmaz
  29. Monetary policy transmission over the leverage cycle: evidence for the euro area By Rünstler, Gerhard; Bräuer, Leonie
  30. Benchmark interest rates when the government is risky By Augustin, Patrick; Chernov, Mikhail; Schmid, Lukas; Song, Dongo
  31. Structural Change and Aggregate Employment Fluctuations in China By Wen Yao; Xiaodong Zhu
  32. The Risk-Taking Channel in the US: A GVAR Approach By Alzuabi, Raslan; Caglayan, Mustafa; Mouratidis, Kostas
  33. Endogenous Financial Uncertainty and Macroeconomic Volatility: Evidence from the United States By Awijen, Haithem; Ben Zaied, Younes; Nguyen, Duc Khuong; Sensoy, Ahmet
  34. Nueva Clasificación del BANREP de la Canasta del IPC y revisión de las medidas de Inflación Básica en Colombia By Eliana R. González-Molano; Ramón Hernández-Ortega; Edgar Caicedo-García; Nicolás Martínez-Cortés; Jose Vicente Romero; Anderson Grajales-Olarte
  35. A Liquidity Crunch in an Endogenous Growth Model with Human Capital By Sergio Salas
  36. Asset bubble and endogenous labor supply: a clarification By Kathia Bahloul Zekkari; Thomas Seegmuller
  37. Does Hamilton’s OLS regression provide a “better alternative” to the Hodrick-Prescott filter? A New Zealand business cycle perspective By Viv B Hall; Peter Thomson
  38. Monetary Policy Strategies for the Federal Reserve By Svensson, Lars E.O.
  39. ¿Keynes salvó al mundo de la Gran Depresión? By Emilio Ocampo
  40. Government Debt Limits and Stabilization Policy By Daniel Murphy; Eric R. Young
  41. Dynamics of Czech Inflation: The Role of the Trend and the Cycle By Michal Franta; Ivan Sutoris
  42. Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data By Daniel Schäfer; Carl Singleton
  43. Inflation – Harrod-Balassa-Samuelson effect in a DSGE model setting By Lenarčič, Črt
  44. Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines By Aydin, Deniz
  45. Inflation expectations and the pass-through of oil prices By Knut Are Aastveit; Hilde C. Bjørnland; Jamie L. Cross
  46. Designing the Policy Mix in a Monetary Union By Hubert Kempf
  47. Credit-to-GDP gap: Local versus foreign currency credit By Gjergj Legisi
  48. The Effects of Financing Rules in Pay-As-You-Go Pension Systems on the Life and the Business Cycle By Christian Scharrer
  49. Oil Curse By Majumderad, Monoj Kumar; Raghavan, Mala; Vespignani, Joaquin
  50. Gender Roles and the Gender Expectations Gap By Francesco D'Acunto; Ulrike Malmendier; Michael Weber
  51. Repenser la communication dans la politique monétaire : Vers une orientation stratégique pour la BCC By KIBADHI, Plante; PINSHI, Christian P.
  52. The Welfare of Ramsey Optimal Policy Facing Auto-Regressive Shocks By Jean-Bernard, Chatelain; Kirsten, Ralf
  53. Horrible Trade-offs in a Pandemic: Lockdowns, Transfers, Fiscal Space, and Compliance By Ricardo Hausmann; Ulrich Schetter
  54. Time-varying Effects of Global and Domestic Uncertainty on the Korean Economy By So Jung Hwang; Hyunduk Suh
  55. Could Fiscal Policies Overcome a Deep Recession at the Zero Lower Bound? By Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
  56. Are fiscal multipliers estimated with proxy-SVARs robust? By Giovanni Angelini; Giovanni Caggiano; Efrem Castelnuovo; Luca Fanelli
  57. Embedded supervision: how to build regulation into blockchain finance By Auer, Raphael
  58. Fundamental Disagreement about Monetary Policy and the Term Structure of Interest Rates By Shuo Cao; Richard K. Crump; Stefano Eusepi; Emanuel Moench
  59. Forecasting Financial Vulnerability in the US: A Factor Model Approach By Hyeongwoo Kim; Wen Shi
  60. The impact of real economic activity on the effectiveness of monetary policy transmission: The case of Tunisia By Ons Mastour
  61. Economic consequences of high public debt: evidence from three large scale DSGE models By Burriel, Pablo; Checherita-Westphal, Cristina; Jacquinot, Pascal; Stähler, Nikolai; Schön, Matthias
  62. One Foe, So Many Fights. Making Sense of Covid-19 Policies By Hubert Kempf
  63. Exchange Rates and Consumer Prices: Evidence from Brexit By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
  64. What drives shariah (islamic) stock index? a case study of Malaysia By Anuar, Khairul; Masih, Mansur
  65. Are fiscal multipliers estimated with proxy-SVARs robust? By Angelini, Giovanni; Caggiano, Giovanni; Castelnuovo, Efrem; Fanelli, Luca
  66. Central banks' voting contest By Charemza, Wojciech
  67. Agnostic Output Gap Estimation and Decomposition in Large Cross-Sections By Florian Eckert; Samad Sarferaz
  68. Has monetary policy made you happier? By Bunn, Philip; Haldane, Andrew; Pugh, Alice
  69. How Monetary Policy Shaped the Housing Boom By Drechsler, Itamar; Savov, Alexi; Schnabl, Philipp
  70. Seigniorage and Sovereign Default: The Response of Emerging Markets to COVID-19 By Emilio Espino; Julian Kozlowski; Fernando M. Martin; Juan M. Sanchez
  71. Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data By Sangyup Choi; Davide Furceri; João Tovar Jalles
  72. The Populist Economic Policy Paradigm: Early Peronism as an Archetype By Emilio Ocampo
  73. Lessons from the Monetary and Fiscal History of Latin America By Carlos Esquivel; Timothy J. Kehoe; Juan Pablo Nicolini
  74. On the Essentiality of Credit and Banking at the Friedman Rule By Paola Boel; Christopher J. Waller
  75. Mitigating the forward guidance puzzle: inattention, credibility, finite planning horizons and learning By de Groot, Oliver; Mazelis, Falk
  76. Création du FED : réunir la gestion de la monnaie et de la liquidité By Anne-Marie Rieu-Foucault
  77. A Framework for Studying the Monetary and Fiscal History of Latin America, 1960–2017 By Timothy J. Kehoe; Juan Pablo Nicolini; Thomas J. Sargent
  78. Tolerance of Informality and Occupational Choices in a Large Informal Sector Economy By Marcelo Arbex; Marcio V. Correa; Marcos R. V. Magalhaes
  79. Fiscal Implications of Interest Rate Normalization in the United States By Huixin Bi; Wenyi Shen; Shu-Chun Susan Yang
  80. Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers By Huremovic, Kenan; Jiménez, Gabriel; Moral-Benito, Enrique; Vega-Redondo, Fernando; Peydró, José-Luis
  81. An Approach to Predicting Regional Labor Market Effects of Economic Shocks: The COVID-19 Pandemic in New England By Osborne Jackson
  82. Deterministic Debt Cycles in Open Economies with Flow Collateral Constraints By Schmitt-Grohé, Stephanie; Uribe, Martin
  83. Modern pandemics : Recession and recovery By Ma, Chang; Rogers, John; Zhou, Sili
  84. Impact of COVID-19 pandemic on labour supply and gross value added in India By Xavier Estupinan; Mohit Sharma; Sargam Gupta; Bharti Birla
  85. Towards an effective fiscal stimulus: evidence from Botswana By Timuno, Sayed O.M; Eita, Joel Hinaunye
  86. Anchor Me: The Benefits and Challenges of Fiscal Responsibility By Serhan Cevik
  87. Why are Average Hours Worked Lower in Richer Countries? By Bick, Alexander; Fuchs-Schündeln, Nicola; Lagakos, David; Tsujiyama, Hitoshi
  88. Dynamic Equity Slope By Matthijs Breugem; Stefano Colonello; Roberto Marfè; Francesca Zucchi
  89. Euro-Benchmarkreform - Neue Referenzzinssätze in der Eurozone By Heidorn, Thomas; Schäfer, Niklas
  90. Nowcasting unemployment insurance claims in the time of COVID-19 By William D. Larson; Tara M. Sinclair
  91. Nonlinear Occupations and Female Labor Supply Over Time By Youngsoo Jang; Minchul Yum
  92. Monetary Policy Is Not Always Systematic and Data-Driven: Evidence from the Yield Curve By Ales Bulir; Jan Vlcek
  93. Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy By Francesca G Caselli; Julien Reynaud
  94. Las necesidades de liquidez y la solvencia de las empresas no financieras españolas tras la perturbación del Covid-19 By Roberto Blanco; Sergio Mayordomo; Álvaro Menéndez; Maristela Mulino
  95. Bank Risk-Taking and Monetary Policy Transmission: Evidence from China By Xiaoming Li; Zheng Liu; Yuchao Peng; Zhiwei Xu
  96. Minimum wage and financially distressed firms: another one bites the dust By Fernando Alexandre; Pedro Bação; João Cerejeira; Hélder Costa; Miguel Portela
  97. Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock By Rudolfs Bems; Francesca G Caselli; Francesco Grigoli; Bertrand Gruss
  98. The Economic Effects of COVID-19 and Credit Constraints: Evidence from Italian Firms’ Expectations and Plans By Pierluigi Balduzzi; Emanuele Brancati; Marco Brianti; Fabio Schiantarelli
  99. Trust in the Central Bank and Inflation Expectations By Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; Van Rooij, Maarten
  100. Bank capital regulation in a zero interest environment By Döttling, Robin
  101. A SIR Macro Model: Comparing the Decentralized Economy and the Optimal Policy By Alejandro Rodríguez
  102. Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets By Martinez, Joseba; Philippon, Thomas; Sihvonen, Markus
  103. Real-Time Perceptions of Historical GDP Data Uncertainty By Galvao, Ana Beatriz; Mitchell, James
  104. Age Diversity and Aggregate Productivity By Balazs Zelity
  105. Real-time inequality and the welfare state in motion: Evidence from COVID-19 in Spain By Oriol Aspachs; Ruben Durante; Alberto Graziano; Josep Mestres; José Garcia Montalvo; Marta Reynal-Querol
  106. Routinization and Covid-19: a comparison between United States and Portugal By De Dominicis, Piero
  107. Monetary policy, markup dispersion, and aggregate TFP By Reinelt, Timo; Meier, Matthias
  108. Modelling and Forecasting Macroeconomic Downside Risk By Delle-Monache, Davide; De-Polis, Andrea; Petrella, Ivan
  109. How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries By Tigran Poghosyan
  110. Bank lending in the knowledge economy By Dell’Ariccia, Giovanni; Minoiu, Camelia; Ratnovski, Lev; Kadyrzhanova, Dalida
  111. Globalization, Market Power, and the Natural Interest Rate By Jean-Marc Natal; Nicolas Stoffels
  112. Implications of state-dependent pricing for DSGE model-based policy analysis in Indonesia By Lie, Denny
  113. Conceptual Issues in Calibrating the Basel III Countercyclical Capital Buffer By Torsten Wezel
  114. Pirates without Borders: The Propagation of Cyberattacks through Firms’ Supply Chains By Matteo Crosignani; Marco Macchiavelli; Andre Silva
  115. Household Balance Sheets in South Africa By Reza C. Daniels; Safia Khan
  116. Reference chronology of Business cycles for the UEMOA economies By Gohou Danon
  117. Fiscal Policy Multipliers in Small States By Ali Alichi; Ippei Shibata; Kadir Tanyeri
  118. Long run comparison analysis and Short run Stability sensitivity: Empirical Evidence from Tunisian Banks By NEIFAR, MALIKA
  119. Enabling Deep Negative Rates to Fight Recessions: A Guide By Ruchir Agarwal; Miles Kimball
  120. The Great Divide: Regional Inequality and Fiscal Policy By William Gbohoui; W. Raphael Lam; Victor Duarte Lledo
  121. Fiscal Rules in Times of Crisis By Bandaogo,Mahama Abdel Samir Sidbewende
  122. Unemployment Surges in the EU: The Role of Risk Premium Shocks By Bas B. Bakker; Marta Korczak; Krzysztof Krogulski
  123. The Federal Reserve’s Large-Scale Repo Program By Kevin Clark; Antoine Martin; Timothy Wessel
  124. Política comercial y salarios reales: una aproximación empírica al caso argentino durante el período 2005 - 2011 By José Luis Espert
  125. The use of the Eurosystem’s monetary policy instruments and its monetary policy implementation framework between the first quarter of 2018 and the fourth quarter of 2019 By Sylvestre, Julie; Coutinho, Cristina
  126. Exploring the Output Effect of Fiscal Policy Shocks in Low Income Countries By Jiro Honda; Hiroaki Miyamoto; Mina Taniguchi
  127. Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics By Dean Corbae; Pablo D'Erasmo
  128. Optimal Capital Taxation in an Economy with Innovation-Driven Growth By Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong
  129. Sectoral Digital Intensity and GDP Growth After a Large Employment Shock: A Simple Extrapolation Exercise By Giovanni Gallipoli; Christos Makridis
  130. Cash Use Across Countries and the Demand for Central Bank Digital Currency By Tanai Khiaonarong; David Humphrey
  131. The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform By Alok Johri; Md Mahbubur Rahman
  132. Debt Is Not Free By Marialuz Moreno Badia; Paulo Medas; Pranav Gupta; Yuan Xiang
  133. The Global Economic Recovery 10 Years After the 2008 Financial Crisis By Wenjie Chen; Mico Mrkaic; Malhar S Nabar
  134. Trade, global value chains and development: What role for national development banks? By Dünhaupt, Petra; Herr, Hansjörg
  135. High Order Openness By Jean Imbs; Laurent L. Pauwels
  136. Financial uncertainty and real activity: The good, the bad, and the ugly By Giovanni Caggiano; Efrem Castelnuovo; Richard Kima; Silvia Delrio
  137. Predicting Downside Risks to House Prices and Macro-Financial Stability By Andrea Deghi; Mitsuru Katagiri; Sohaib Shahid; Nico Valckx
  138. Disciplining expectations and the forward guidance puzzle By Christoffel, Kai; Mazelis, Falk; Montes-Galdón, Carlos; Müller, Tobias
  139. Measuring the Natural Rate of Interest: The Role of Inflation Expectations By J. David Lopez-Salido; Gerardo Sanz-Maldonado; Carly Schippits; Min Wei
  140. Choc externes et activité économique en RD Congo : une analyse en équilibre général dynamique et stochastique (DSGE) By Umba, Gilles Bertrand
  141. The Unintended Consequences of Employer Credit Check Bans for Labor Markets By Kristle Romero Cortes; Andrew Glover; Murat Tasci
  142. Dissecting Time-Varying Risk Exposures in Cryptocurrency Markets By Daniele Bianchi; Massimo Guidolin; Manuela Pedio
  143. Twenty years of official dollarization in Ecuador: a blessing or a curse? By Selin ÖZYURT; Simon CUEVA (TNK Economics)
  144. Liquidity Management under Fixed Exchange Rate with Open Capital Account By Mariam El Hamiani Khatat; Romain M Veyrune
  145. Optimal Forbearance of Bank Resolution By Schilling, Linda Marlene
  146. Labor Market Frictions and Lowest Low Fertility By Guner, Nezih; Kaya, Ezgi; Sánchez-Marcos, Virginia
  147. MBS Market Dysfunctions in the Time of COVID-19 By Jiakai Chen; Haoyang Liu; David Rubio; Asani Sarkar; Zhaogang Song
  148. Indonesia's Public Wealth: A Balance Sheet Approach to Fiscal Policy Analysis By Majdeline El Rayess; Avril Halstead; Jason Harris; John Ralyea; Alexander F. Tieman
  149. The Aggregate Consequences of Default Risk: Evidence from Firm-level Data By Besley, T.; Roland, I.; Van Reenen, J.
  150. Intervention Under Inflation Targeting--When Could It Make Sense? By David J Hofman; Marcos d Chamon; Pragyan Deb; Thomas Harjes; Umang Rawat; Itaru Yamamoto
  151. How Do Member Countries Receive IMF Policy Advice: Results from a State-of-the-art Sentiment Index By Ghada Fayad; Chengyu Huang; Yoko Shibuya; Peng Zhao
  152. Does Excess Bank Liquidity Impact Non-Performing Loan? A Study on Bangladeshi Economy By Amir, Md. Khaled
  153. Tech in Fin before FinTech: Blessing or Curse for Financial Stability? By Nicola Pierri; Yannick Timmer
  154. Income polarization and stagnation in astochastic model of growth: When the demand side matters By Thomas Gries
  155. Convergence and divergence in dynamic voting with inequality By Guilmi, Corrado Di; Galanis, Giorgos
  156. The (Subjective) Well-Being Cost of Fiscal Policy Shocks By Kodjovi M. Eklou; Mamour Fall
  157. Federal Reserve Agency CMBS Purchases By Julia Gouny; Haoyang Liu; Woojung Park
  158. The role of stickiness, extrapolation and past consensus forecasts in macroeconomic expectations By Hagenhoff, Tim; Lustenhouwer, Joep
  159. The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  160. Cash Flow at Risk Assessment for the Banking Sector of Georgia By Tamar Mdivnishvili; Shalva Mkhatrishvili; Davit Tutberidze
  161. Decoupling of Labour Productivity Growth from Median Wage Growth in Central and Eastern Europe By Joris M. Schröder
  162. COVID-19 Pandemic: Socio-economic Response, Recovery and Reconstruction Policies on Major Global Sectors By Amir, Md. Khaled; Amir, Md Zobayer
  163. Industrial pattern and robot adoption in European regions By Massimiliano Nuccio; Marco Guerzoni; Riccardo Cappelli; Aldo Geuna

  1. By: Gabriele Galati; Richhild Moessner
    Abstract: We study the effects of quantitative policy rate forecasts by the Federal Reserve on real yields and inflation expectations at the zero lower bound (ZLB). We study the effects of surprises in policy rate forecasts from the Summary of Economic Projections (SEP) on real yields and breakeven inflation rates derived from government bonds for forward rates across the yield curve. We find that surprises in the SEP policy rate forecasts significantly affect real yields in the expected direction across the yield curve. By contrast, breakeven inflation rates are little affected across the yield curve. In particular, five-year breakeven inflation rates five years ahead, a common measure of monetary policy credibility, are not significantly affected by surprises in SEP policy rate forecasts. This suggests that policy rate forecasts by the Fed at the ZLB managed to affect real yields without adversely affecting monetary policy credibility.
    Keywords: Forward guidance; policy rate forecasts; zero lower bound
    JEL: E52 E58
    Date: 2020–07
  2. By: Davis, Josh; Taylor, Alan M.
    Abstract: Research finds strong links between credit booms and macroeconomic outcomes like financial crises and output growth. Are impacts also seen in financial asset prices? We document this robust and significant connection for the first time using a large sample of historical data for many countries. Credit boom periods tend to be followed by unusually low returns to equities, in absolute terms and relative to bonds. Return predictability due to this leverage factor is distinct from that of established factors like momentum and value and generates trading strategies with meaningful excess profits out-of-sample. These findings pose a challenge to conventional macro-finance theories.
    Keywords: asset allocation; Asset Pricing; Cycles; debt; leverage; return predictability
    JEL: E17 E20 E21 E32 E44 G01 G11 G12 G17 G21 N10
    Date: 2019–11
  3. By: Balazs Zelity (Department of Economics, Wesleyan University)
    Abstract: A puzzle in the literature on the macroeconomic effects of permanent income shocks is that exogenous permanent Social Security shocks do not have a sustained positive effect on real aggregate consumption. It has been argued that this is due to the implementation of contractionary monetary policy in wake of these benefit increases. This paper documents an alternative, potentially complementary explanation for the puzzle. Namely, using exogenous permanent Social Security shocks as well as minimum wage increases, I show that these permanent income shocks lead to an increase in inflation. Thus while nominal aggregate consumption gains can be observed in the data, real gains are small to non-existent due to the higher price level.
    Keywords: permanent income shocks, Social Security, minimum wage, inflation
    JEL: E31 E21 E62 E63 H31
    Date: 2020–06
  4. By: Brueckner, Markus; Pappa, Evi; Valentinyi, Akos
    Abstract: Using a panel of 268 European regions during 1990-2014, we document that the degree of local autonomy has a significant effect on the government spending multiplier. Measured with the "Local Autonomy Index" constructed by a panel of experts under the auspices of the European Commission, the estimated effect of regional government spending on regional output is on average close to zero in countries with the lowest degree of local autonomy, while it is around one in countries with the highest degree of local autonomy. Consistent with literature, we find that regional government spending multipliers are state dependent: larger when labor markets are slack and output is below trend than when labor markets are tight and output is above trend. Greater local autonomy increases the multipliers in all states, and more so when labor markets are slack and output is below trend. To explain the empirical findings, we build a DSGE model where both local and central government spending contributes to a public good that enhances productivity of the private sector.
    Keywords: elasticity of output to changes in government spending; Fiscal Decentralization; local autonomy index; multipliers; New Keynesian model of a monetary union; public spending hypothesis
    JEL: E12 E32 E62 F33 R12
    Date: 2019–11
  5. By: Vespignani, Joaquin L.; Yanotti, Maria Belen
    Abstract: The unemployment rate in Australia is expected to be at historically high levels in Australia because of Covid-19 and policies associated with social distance. Youth unemployment is generally twice the general unemployment rate. Tasmania youth unemployment is likely to reach 25-30% by the end of the year as the main industries affected by this crisis are tourism and hospitality, which employ a large share of young workers. This will have a significant impact on future skills and social costs for years to come. The literature on youth unemployment indicates that long-term unemployment after high-school leads to higher structural unemployment, poverty, crime, drug and alcohol abuse and welfare dependency. Consequently, it is vital to provide good opportunities for upskilling the youth population in Tasmania by providing income support to those young Tasmanians to pursue further education, in particular those who historically are not engaged in tertiary education. Achieving this imperative support will avoid a cohort of structural unemployment in Tasmania and higher income inequality
    Keywords: COVID-19, Youth unemployment, Tasmania
    JEL: E0 E02 E4 E40 E6 E60
    Date: 2020
  6. By: Böhl, Gregor; Strobel, Felix
    Abstract: Using a nonlinear Bayesian likelihood approach that fully accounts for the zero lower bound on nominal interest rates, the authors analyze US post-crisis business cycle dynamics and provide reference parameter estimates. They find that neither the inclusion of financial frictions nor that of household heterogeneity improve the empirical fit of the standard model, or its ability to provide a joint explanation for the post-2007 dynamics. Associated financial shocks mis-predict an increase in consumption. The common practice of omitting the ZLB period in the estimation severely distorts the analysis of the more recent economic dynamics.
    Keywords: Zero Lower Bound,Bayesian Estimation,Great Recession,Business Cycles
    JEL: C11 C63 E31 E32 E44
    Date: 2020
  7. By: Gregor Boehl; Gavin Goy; Felix Strobel
    Abstract: Did the Federal Reserves' Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, we estimate a large-scale DSGE model over the sample from 1998 until 2020, including data of the Fed's balance sheet. We allow for QE to affect the economy via multiple channels that arise from several financial frictions. Our nonlinear Bayesian likelihood approach fully accounts for the zero lower bound on nominal interest rates. We find that QE increased output by about 1.2 percent, reflecting a net increase in investment of nearly 9 percent accompanied by a 0.7 percent drop in aggregate consumption. Both government bond and capital asset purchases effectively improved financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated, leading to a disinflationary effect of about 0.25 percent annually.
    Keywords: Quantitative Easing; Liquidity Facilities; Zero Lower Bound; Nonlinear Bayesian Estimation
    JEL: E63 C63 E58 E32 C62
    Date: 2020–08
  8. By: Gabriele Galati; Richhild Moessner
    Abstract: We study the effects of quantitative policy rate forecasts by the Federal Reserve on real yields and inflation expectations at the zero lower bound (ZLB). We study the effects of surprises in policy rate forecasts from the Summary of Economic Projections (SEP) on real yields and breakeven inflation rates derived from government bonds for forward rates across the yield curve. We find that surprises in the SEP policy rate forecasts significantly affect real yields in the expected direction across the yield curve. By contrast, breakeven inflation rates are little affected across the yield curve. In particular, five-year breakeven inflation rates five years ahead, a common measure of monetary policy credibility, are not significantly affected by surprises in SEP policy rate forecasts. This suggests that policy rate forecasts by the Fed at the ZLB managed to affect real yields without adversely affecting monetary policy credibility.
    Keywords: forward guidance, policy rate forecasts, zero lower bound
    JEL: E52 E58
    Date: 2020–07
  9. By: Daniel L. Greenwald; John Krainer; Pascal Paul
    Abstract: Aggregate bank lending to firms expands following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening, at odds with canonical models. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large firms. Banks that experience larger drawdowns restrict term lending more — an externality onto smaller firms. Using a structural model, we show that credit lines are necessary to reproduce the flow of credit toward less constrained firms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.
    Keywords: covid-19; Banks; Firms; Credit Lines; Monetary Policy
    JEL: E32 E43 E44 E52 E60 G21 G32
    Date: 2020–07
  10. By: Eun Young Oh (University of Portsmouth); Shuonan Zhang (University of Portsmouth)
    Abstract: The central bank digital currency (CBDC) attracts discussions on its merits and risks but much less attention is paid to the adoption of a CBDC. In this paper, we show that the CBDC may not be widely accepted in the presence of a sizeable informal economy. Based on a two-sector monetary model, we show an L-shaped relationship between the informal economy and CBDC. The CBDC can formalize the informal economy but this effect becomes marginally significant in countries with significantly large informal economies. In order to promote CBDC adoption and improve its effectiveness, tax reduction and the positive CBDC interest rate can be useful tools. We further show that CBDC policy rate adjustment triggers a reallocation effect between formal and informal sectors, through which improves the effectiveness of both conventional monetary policy and fiscal policy.
    Keywords: Central Bank Digital Currency, Informal Economy, Quantitative Analysis
    JEL: E26 E40 E42 E58
    Date: 2020–07–21
  11. By: Balleer, Almut; Zorn, Peter
    Abstract: We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. We find a strong degree of monetary non-neutrality. After expansionary monetary policy, the mass of additional price adjustments is economically small and the average absolute size across all price changes falls. The aggregate price level hardly adjusts, and monetary policy has real effects. These estimates rule out quantitative structural models that generate small and transient effects of monetary policy through selection on large price adjustments. We provide evidence that monetary policy propagates primarily through production units with weak financial positions.
    Keywords: credit constraints; extensive margin; intensive margin; local projections; Menu cost; monetary policy; Price Setting
    JEL: E30 E31 E32 E44 E52
    Date: 2019–12
  12. By: Philippe Andrade; Erwan Gautier; Eric Mengus
    Abstract: We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.
    Keywords: Inflation Expectations, Euler Equation, Survey Data, Imperfect Information, Adjustment Costs, Stabilization Policies .
    JEL: D12 D84 E21 E31 E52
    Date: 2020
  13. By: Daeha Cho (University of Mellbourne); Kwang Hwan Kim (Yonsei Univ)
    Abstract: We measure inefficient fluctuations in the relative price of investment in the US using an estimated two-sector New Keynesian model. In the presence of these fluctuations, we find that monetary policy faces a quantitatively significant trade-off among the sectoral output gaps and the sectoral price and wage inflation rates. While optimal monetary policy is effective in stabilizing the sectoral inflation rates, it has a limited effect on stabilizing the sectoral output gaps.
    Keywords: Relative price of investment; Policy trade-off;Optimal monetary policy
    JEL: E32 E58 E61
    Date: 2020–03
  14. By: Ostapenko, Nataliia
    Abstract: The study proposes an alternative way to decompose Federal Reserve (Fed) information shocks from monetary policy shocks by employing a textual analysis to Federal Open Market Committee (FOMC) statements. I decompose Fed statements into economic topics using Latent Dirichlet Allocation (LDA). The model was trained on the business section from major US newspapers. After decomposing surprises in Fed futures into a part that is explained by topics from the Fed statements and that is not explained, the study employs these purged series as proxies for monetary policy and Fed information shocks. The results show that, compared to surprises in 3-month federal funds futures, a policy shock identified in this study has a more negative effect on GDP and a more prolonged negative effect on inflation. In the short-run it causes S&P500 to decline and the Fed to raise its interest rate. Identified Fed information shock affects the macroeconomy as the standard news shock: it has positive long-run effects on S&P500, interest rates, and real GDP, whereas it has a negative short-run effect on inflation. Moreover, the Fed information shock reduces credit costs.
    Keywords: FOMC, statements, Latent Dirichlet Allocation, monetary policy, information, shocks
    JEL: E52
    Date: 2020–05–22
  15. By: Carlos Esteban Posada Posada
    JEL: E01 E20 E22 E25 E32
    Date: 2020–07–24
  16. By: Anderton, Robert; Jarvis, Valerie; Labhard, Vincent; Morgan, Julian; Petroulakis, Filippos; Vivian, Lara
    Abstract: Digitalisation can be viewed as a major supply/technology shock affecting macroeconomic aggregates that are important for monetary policy, such as output, productivity, investment, employment and prices. This paper takes stock of developments in the digital economy and their possible impacts across the euro area and European Union (EU) economies. It also compares how these economies fare relative to other major economies such as that of the United States. The paper concludes that: (i) there is significant country heterogeneity across the EU in terms of the adoption of digital technologies, and most EU countries are falling behind competitors, particularly the United States; (ii) digitalisation is affecting the economy through a number of channels, including productivity, employment, competition and prices; (iii) digitalisation raises productivity and lowers prices, similarly to other supply/technology shocks; (iv) this has implications for monetary policy and its transmission; and (v) structural and other policies may need to be adapted for the euro area and EU countries to fully reap the potential gains from digitalisation, while maintaining inclusiveness. JEL Classification: E22, E24, E31, E32, O33, O52
    Keywords: digital technology, euro area and EU economies, human/intangible capital, inflation, labour market, potential growth, productivity, technology shocks/adoption/diffusion
    Date: 2020–06
  17. By: Gabriele Galati; Jan Kakes; Richhild Moessner
    Abstract: Credit restrictions were used as a monetary policy instrument in the Netherlands from the 1960s to the early 1990s. We study the effects of credit restrictions being active on the balance sheet structure of banks and other financial institutions. We find that banks mainly responded to credit restrictions by making adjustments to the liability side of their balance sheets, particularly by increasing the proportion of long-term funding. Responses on the asset side were limited, while part of the banking sector even increased lending after the installment of a restriction. These results suggest that banks and financial institutions responded by switching to long-term funding to meet the restriction and shield their lending business. Arguably, the credit restrictions were therefore still effective in reaching their main goal, i.e. containing money growth.
    Keywords: credit restrictions, monetary policy, macroprudential policy
    JEL: E42 E51 E52 E58 G28
    Date: 2020–07
  18. By: Bakker, Bas; Ghazanchyan, Manuk; Ho, Alex; Nanda, Vibha
    Abstract: In the last few decades there has been little convergence of income levels in Latin America with those in the United States, in sharp contrast with both emerging Asia and emerging Europe. This paper argues that lack of convergence was not the result of low investment. Latin America is poorer because of lower human capital levels and lower TFP—not because of a lower capitaloutput ratio. Cross-country differences of TFP in turn are associated with differences in human capital, governance and business climate indicators. We demonstrate that once levels of human capital and governance are taken into account, there is strong conditional cross-country convergence. Poor countries with high levels of human capital, governance or business climate indicators converge rapidly. Poor countries without those attributes do not. We show that low investment is the result of low TFP and thus GDP growth—not the cause.
    Keywords: Economic Convergence, Growth, TFP
    JEL: C53 E23 E27 E3 E32 E6 E62
    Date: 2020–06–19
  19. By: Costa-Filho, João; Neto, António
    Abstract: How does democracy relate to the initial economic policy responses to Covid-19? Using a cross-country analysis, we find that countries with a higher degree of democracy have stronger economic policy responses than their peers. However, when we separate monetary and financial policies from fiscal policy, democracy is not associated with the latter when we control for the income level of a country. Finally, for countries with lower levels of labor participation, high levels of income inequality are associated with weaker policy responses.
    Keywords: Covid-19, Democracy, Economic Policy
    JEL: E02 E52 E60 E62
    Date: 2020–06–18
  20. By: Eguren-Martin, Fernando (Bank of England)
    Abstract: We explore the role of ‘dollar shortage’ shocks and central bank swap lines in a two-country New Keynesian model with financial frictions. Domestic banks issue both domestic and foreign currency debt and lend in domestic currency. Foreign currency-specific funding shocks, which are amplified via their effect on the exchange rate given balance sheet mismatches, lead to uncovered interest rate parity deviations, a contraction in lending and have a significant negative effect on macroeconomic variables. We show that central bank swap lines can attenuate these dynamics provided they are large enough.
    Keywords: Central bank swap lines; liquidity facilities; dollar shortages; uncovered interest rate parity condition; financial frictions
    JEL: E32 E44 E58 F33 F41 G15
    Date: 2020–07–10
  21. By: David Andolfatto
    Abstract: What is the theoretical justification for taxing unspent money transfers in a recession? To examine this question, I study a model economy where fiat money is necessary as a medium of exchange and, incidentally, serves as a store of value. This latter property is shown to open the door to business cycles and depressions driven entirely by speculation. Unconditional money transfers do not guarantee escape from a psychologically-induced depression. I demonstrate how money transfers subject to a short expiration date do eliminate speculative equilibria. This hot money policy compares favorably to negative interest rate policy because the latter taxes all money savings whereas the former only threatens to tax gifted money.
    Keywords: Money; hoarding; depression; sunspot equilibria
    JEL: B1 B2 E3 E4 E5 E6
    Date: 2020–07
  22. By: Horst, Maximilian; Neyer, Ulrike; Stempel, Daniel
    Abstract: The Eurosystem's large-scale asset purchases (quantitative easing, QE) induce a strong and persistent increase in excess reserves in the euro area banking sector. These excess reserves are heterogeneously distributed across euro area countries. This paper develops a two-country New Keynesian model { calibrated to represent a high- and a low-liquidity euro area member { to analyze the macroeconomic effects of (QE-induced) heterogeneous increases in excess reserves and deposits in a monetary union. QE triggers economic activity and increases the union-wide consumer price level after a negative preference shock. However, its efficacy is dampened by a reverse bank lending channel that weakens the interest rate channel of QE. These dampening effects are higher in the high-liquidity country. We find similar results in response to a monetary policy shock. Furthermore, we show that a shock in the form of a deposit shift between the two countries, interpreted as capital ight, has negative (positive) effects for the economy of the country receiving (losing) the deposits.
    Keywords: unconventional monetary policy,quantitative easing (QE),monetary policytransmission,excess liquidity,credit lending,heterogeneous monetary union,New Keynesianmodel
    JEL: E51 E52 E58 F41 F45
    Date: 2020
  23. By: Hartwig, Benny; Meinerding, Christoph; Schüler, Yves
    Abstract: We operationalize the definition of systemic risk provided by the IMF, BIS, and FSB and derive testable hypotheses to identify indicators of systemic risk. We map these hypotheses into a two-stage hierarchical testing framework, combining insights from the early-warning literature on financial crises with recent advances on growth-at-risk. Applying this framework to a set of candidate variables, we find that the Basel III credit-to-GDP gap does not indicate systemic risk coherently across G7 countries. Credit growth and house price growth also do not pass our test in many cases. By contrast, a composite financial cycle signals systemic risk consistently for all countries except Canada. Overall, our results suggest that systemic risk may be consistently measured only once the turning points of indicators have been observed. Therefore, pre-emptive countercyclical macroprudential policy may smooth the financial cycle in boom phases, which then indirectly mitigates the amount of systemic risk in the future.
    Keywords: systemic risk,macroprudential regulation,forecasting,growth-at-risk,financial cycles
    JEL: E37 E44 G17
    Date: 2020
  24. By: Farmer, Roger E A
    Abstract: For the past thirty years of the history of macroeconomic thought, the Indeterminacy School of Macroeconomics has used general equilibrium models with indeterminate equilibria to understand the independent role of beliefs in shaping macroeconomic outcomes. In this paper I describe the most recent advances in the indeterminacy agenda, Keynesian Search Theory, in which the steady-state unemployment rate is indeterminate as a consequence of labour-market frictions. In Keynesian Search Theory, the belief of market participants is an independent exogenous variable that selects a steady-state equilibrium. I study two assumptions about beliefs, one where investment is exogenous and one where the belief about the stock market is exogenous and I examine their implications for fiscal policy.
    Keywords: Fiscal policy; Keynesian economics; unemployment
    JEL: D50 E12 E24 E32
    Date: 2019–12
  25. By: Kaufmann, Christoph; Attinasi, Maria Grazia; Hauptmeier, Sebastian
    Abstract: In this paper we use a medium-scale DSGE model to quantitatively assess the macroeconomic stabilisation properties of a supranational unemployment insurance scheme. The model is calibrated to the euro area's core and periphery and features a rich fiscal sector, sovereign risk premia and labour market frictions. Adopting both simple policy rules and optimal policies, our simulations point to enhanced business cycle synchronisation and interregional consumption smoothing. Depending on the exact specification, the results suggest a reduction in the volatility of consumption by up to 49% at the region-level, while the cross-regional correlation of unemployment and inflation increases by up to 52% and 27%, respectively, compared to the decentralised setting. The higher degree of inter-regional risk-sharing comes at the cost of sizable fiscal transfers. Limiting such transfers via claw-back mechanisms implies a much weaker degree of stabilisation across countries. JEL Classification: F45, E63, E62, E24
    Keywords: fiscal union, monetary union, optimal policy, unemployment insurance
    Date: 2020–06
  26. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University); Alisher Tolepbergen (NAC Analytica, Nazarbayev University); Klaus Weyerstrass (Institute for Advanced Studies, Macroeconomics and Public Finance Group)
    Abstract: The paper builds a structural macroeconometric model for Kazakhstan to generate short-term and medium-term forecasts for main macroeconomic variables and conduct scenario analyses based on dynamic simulation of the model. Due to the poor quality of quarterly data on GDP and its expenditure components, they have been adjusted using volume indexes. The model consists of aggregate supply, aggregate demand, labor market, asset market, the central bank policy and government side equations. Most equations are estimated via econometric techniques and identities are explicitly introduced in line with economic theory. We combine all the regression equations into a single model and solve for the baseline scenario from 2003 to 2017. The simulation results show that the structural macroeconometric model approximates Kazakhstani economy reasonably well. Ex-ante forecasts under oil prices remaining around 50 and 60 US dollars per barrel are generated and compared with the baseline forecast of the National Bank of the Republic of Kazakhstan.
    Keywords: Macroeconometric model; Cowles Commission approach; Forecasting; Simulation.
    JEL: B32 E17 E27
    Date: 2018–12
  27. By: Alisher Tolepbergen (NAC Analytica, Nazarbayev University)
    Abstract: The conventional wisdom assumes that terms of trade shocks are the main drivers of business cycle dynamics in emerging exporting economies. This paper studies the effect of terms of trade shocks on key macroeconomic variables for the Kazakhstani economy. Empirical SVAR model estimates suggest that the terms of trade shocks account for 12 % of output variation for the economy. Further, three sectoral DSGE model with estimated structural parameters predict the modest importance of the terms of trade shocks for small open economy.
    Keywords: Terms of Trade; DSGE; SVAR; Kazakhstan
    JEL: B22 C32 C61 E17 E32 F41
    Date: 2019–12
  28. By: John Cotter (Graduate School of Business, University College Dublin); Mark Hallam (Essex Business School, University of Essex); Kamil Yilmaz (Department of Economics, Koç University)
    Abstract: We analyse spillovers between the real and financial sides of the US economy allowing for differences in sampling frequency between financial and macroeconomic data. We find that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions. Our macro-financial spillover measures are found to have significant predictive ability for future US macroeconomic conditions in both in-sample and out-of-sample forecasting environments. Furthermore, the predictive ability of our macro-financial measures frequently exceeds that of purely financial systemic risk measures previously employed in the literature for the same task.
    Keywords: spillovers, connectedness, macro-financial, mixed-frequency, forecasting
    JEL: G10 G01 E30 E44 C13 C32
    Date: 2020–07–07
  29. By: Rünstler, Gerhard; Bräuer, Leonie
    Abstract: We study state dependence in the impact of monetary policy shocks over the leverage cycle for a panel of 10 euro area countries. We use a Bayesian Threshold Panel SVAR with regime classifications based on credit and house prices cycles. We find that monetary policy shocks trigger a smaller response of GDP, but a larger response of inflation during low states of the cycle. The shift in the inflation-output trade-off may result from higher macro-economic uncertainty in low leverage states. For an alternative regime classification based on turning points we find larger effects on GDP during contractions. JEL Classification: C32, E32, E44
    Keywords: Bayesian Threshold Panel VAR, financial cycle, monetary policy
    Date: 2020–06
  30. By: Augustin, Patrick; Chernov, Mikhail; Schmid, Lukas; Song, Dongo
    Abstract: Since the Global Financial Crisis, rates on interest rate swaps have fallen below maturity matched U.S. Treasury rates across different maturities. Swap rates represent future un- collateralized borrowing between banks. Treasuries should be expensive and produce yields that are lower than those of maturity matched swap rates, as they are deemed to have supe- rior liquidity and to be safe, so this is a surprising development. We show, by no-arbitrage, that the U.S. sovereign default risk explains the negative swap spreads over Treasuries. This view is supported by a quantitative equilibrium model that jointly accounts for macroeco- nomic fundamentals and the term structures of interest and U.S. credit default swap rates. We account for interbank credit risk, liquidity effects, and cost of collateralization in the model. Thus, the sovereign risk explanation complements others based on frictions such as balance sheet constraints, convenience yield, and hedging demand.
    Keywords: negative swap rates; recursive preferences; sovereign credit risk; term structure
    JEL: C1 E43 E44 G12 H60
    Date: 2019–11
  31. By: Wen Yao; Xiaodong Zhu
    Abstract: In developed countries, aggregate employment is strongly pro-cyclical and almost as volatile as output. In China, the correlation of aggregate employment and output is close to zero, and the volatility of aggregate employment is very low. We argue that the key to understanding the aggregate employment fluctuations in China is the labour reallocation between the agricultural and non-agricultural sectors, and that income effect plays an important role in determining the labour reallocation dynamics in both the long-run and short-run.
    Keywords: Structural Change, Income Effect, Labour Reallocation, Employment Fluctuations, China
    JEL: E24 E32 O41
    Date: 2020–07–14
  32. By: Alzuabi, Raslan; Caglayan, Mustafa; Mouratidis, Kostas
    Abstract: Using a panel of large US banks, we examine banks' risk-taking behaviour in response to monetary policy shocks. Our investigation provides support for the presence of a risk-taking channel: banks' nonperforming loans increase in the medium to long-run following an expansionary monetary policy shock. We also find that banks' capital structure plays an important role in explaining bank's risk-taking appetite. Impulse response analysis shows that shocks emanating from larger banks spillover to the rest of the sector but no such effect is observed for smaller banks. These findings are confirmed for banks' Z-score.
    Keywords: Risk-taking channel: GVAR: Monetary policy shocks; Spillover effects; Impulse response analysis
    JEL: E44 E52 G01
    Date: 2020–06–01
  33. By: Awijen, Haithem; Ben Zaied, Younes; Nguyen, Duc Khuong; Sensoy, Ahmet
    Abstract: We propose an extended SVAR model to investigate the responses of the macroeconomic volatility to financial uncertainty shocks. The empirical model features the time-varying stochastic volatility-in-mean process where parameters allow for (i) the bilateral simultaneity between the shocks hitting the level and volatility of the endogenous variables, and (ii) the feedback from the endogenous variables to the volatility. Using the U.S. data, our findings show that macroeconomic volatility arises as an endogenous response to a rise in financial uncertainty. Moreover, shutting down the volatility feedback leads financial uncertainty shocks to react more strongly to macroeconomic variables. Consequently, the effects of financial uncertainty on macroeconomic volatility become more severe, especially in the short horizon.
    Keywords: Stochastic volatility; Bayesian SVAR; financial uncertainty; macroeconomic volatility.
    JEL: C51 D80 E44 E60 G10
    Date: 2020–03
  34. By: Eliana R. González-Molano (Banco de la República de Colombia); Ramón Hernández-Ortega (Banco de la República de Colombia); Edgar Caicedo-García (Banco de la República de Colombia); Nicolás Martínez-Cortés (Banco de la República de Colombia); Jose Vicente Romero (Banco de la República de Colombia); Anderson Grajales-Olarte (Banco de la República de Colombia)
    Abstract: En este documento se propone actualizar las desagregaciones del IPC que el Banco de la República monitorea regularmente. Esta nueva clasificación contribuye a la identificación oportuna de las diferentes presiones inflacionarias, está en línea con las prácticas internacionales, es compatible con la Clasificación del Consumo Individual por Finalidades (COICOP), adoptada por el DANE, y facilita la comparabilidad internacional y la comunicación por parte de la autoridad monetaria. Adicionalmente, se evalúan los indicadores de inflación básica monitoreados por el Banco de la República. Para ello, se estudia el desempeño de las medidas actuales y otras propuestas con base a 10 criterios, o características deseables, que deben satisfacer las medidas de inflación subyacente, y se presenta una actualización de los indicadores que actualmente monitorea el equipo técnico del Banco de la República. Las cuatro medidas de inflación básica que actualmente utiliza el Banco de la República muestran aún un desempeño relativamente bueno. Sin embargo, se propone cambiar estos indicadores por tres nuevas medidas que se ajustan a la nueva canasta del IPC, lo cual facilita el proceso de comunicación al estar alineadas con la estructura COICOP y con la nueva clasificación propuesta. **** ABSTRACT: This paper proposes an update of the CPI disaggregations that Banco de la República implements and analyzes regularly. This new classification contributes to the timely identification of different inflationary pressures, it stands in accordance with international practices, it is compatible with the Classification of Individual Consumption According to Purpose (COICOP) and it facilitates international comparability and communication by the monetary authority. Additionally, the core inflation indicators monitored by Banco de la República are evaluated. The performance of the current measures and new ones is studied based on 10 criteria, or desirable characteristics, that the underlying inflation measures must satisfy, and an update of the indicators currently monitored by the Banco de la República technical team is presented. The four measures of core inflation currently monitored by the Banco de la República still have a good performance. However, those measures are replaced by three new measures, according to the recent changes in the CPI basket, which facilitates the communication process by being aligned with the COICOP structure and with the proposed new classification.
    Keywords: Inflación, desagregación índice precios al consumidor, banco central, autoridad monetaria, inflación básica, propiedades inflación básica, efectos temporales en precios, Inflation, consumer price index disaggregation, central bank, monetary authority, basic inflation, basic inflation properties, temporary effects on prices
    JEL: C00 C01 C10 E31 E52 E58
    Date: 2020–07
  35. By: Sergio Salas
    Abstract: There is by now reasonable evidence that supports the notion of a trend break in the US GDP since the Great Recession. To explain this phenomenon, I construct a version of the Lucas endogenous growth model, amplified with financial frictions and financial disruptions in the firms' sector. I then show how a transitory liquidity crunch is capable, at least qualitatively, of producing a similar pattern of a persistent downward shift in the GDP trend as one could infer happened in the US since 2008. The main mechanism by which such a result is found relies on workers' decisions on providing labor to firms versus accumulating human capital. I show that a transitory liquidity crunch reduces the demand of labor. Workers anticipating a phase of depressed wages make the decision of accumulating more human capital in the short run, thereby reducing labor supply to firms. In the long run, however, incentivized by a strong recovery, workers decrease human capital accumulation and increase labor supply. Under plausible parametrizaions of the model, this situation produces a net effect of a decrease in overall productivity that permanently reduces the trend at which the economy was growing prior to the crisis.
    Keywords: endogenous growth, liquidity crises, human capital
    JEL: O4 G01 E44
    Date: 2020–07
  36. By: Kathia Bahloul Zekkari (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Thomas Seegmuller (Aix-Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: This paper analyzes the link between asset bubbles, endogenous labor and capital. The question is whether endogenous labor, per se, can explain a crowding-in effect of the bubble, i.e. higher levels of capital and labor. With respect to the existing literature, our contribution is twofold. First, we explicitly and theoretically derive the conditions to have a crowding-in effect of the bubble. Second, the utility function we consider allows us to show that this result does not require an arbitrarily high elasticity of intertemporal substitution in consumption. Our result still holds for a unit value of this elascticity (Cobb-Douglas utility).
    Keywords: asset bubbles, crowding-in effect, endogenous labor, overlapping generations
    JEL: E22 E44 J22
    Date: 2020–07
  37. By: Viv B Hall; Peter Thomson
    Abstract: Within a New Zealand business cycle context, we assess whether Hamilton’s (H84) OLS regression methodology produces stylised business cycle facts which are materially different from HP1600 measures, and whether using the H84 predictor and other forecast extensions improves the HP filter’s properties at the ends of series. In general, H84 produces exaggerated volatilities and less credible trend movements during key economic periods so there is no material advantage in using H84 de-trending over HP1600. At the ends, the forecast-extended HP filter almost always performs better than the HP filter with no extension which performs slightly better than H84 forecast extension.
    Keywords: Hamilton regression filter, stylised business cycle facts, New Zealand, end-point issues
    JEL: E32 E37 C10 G01
    Date: 2020–07
  38. By: Svensson, Lars E.O.
    Abstract: The paper finds that the general monetary policy strategy of "forecast targeting" is more suitable for fulfilling the Federal Reserve's dual mandate of maximum employment and price stability than following a simple "instrument" rule such as a Taylor-type rule. Forecast targeting can be used for any of the more specific strategies of annual-inflation targeting, price-level targeting, temporary price-level targeting, average-inflation targeting, and nominal-GDP targeting. These specific strategies are examined and evaluated according to how well they may fulfill the dual mandate, considering the possibilities of a binding effective lower bound for the federal funds rate and a flatter Phillips curve. Nominal-GPD targeting has substantial both principal and practical disadvantages and is found to be inferior to the other strategies. Average-inflation targeting is found to have some advantages over the other strategies.
    JEL: E52 E58
    Date: 2019–12
  39. By: Emilio Ocampo
    Abstract: Desde hace décadas se debate que grado de influencia tuvo John Maynard Keynes sobre las políticas de expansión del gasto adoptadas por los gobiernos de los principales países industrializados para salir de la Gran Depresión, especialmente en Estados Unidos. El asincronismo de la publicación de la Teoría General (1936) y el lanzamiento del New Deal (1933) no permite descartar que la haya tenido, ya que venía abogando públicamente por esas políticas desde al menos 1924 para reducir el alto desempleo en Gran Bretaña. El presente trabajo tiene dos objetivos. Primero, describir la evolución de las ideas de Keynes respecto al problema del desempleo durante el período 1920-1935 en el contexto político y económico de Gran Bretaña. Segundo, demostrar que antes de 1930 tanto en Estados Unidos como en Alemania surgieron de manera independiente ideas y propuestas similares a las de Keynes. Por lo cual tampoco es posible confirmar su influencia.
    Keywords: Keynes, Gran Depresión, Austeridad, Déficit, Políticas Anti-cíclicas
    JEL: N14 E24 E32
    Date: 2020–07
  40. By: Daniel Murphy; Eric R. Young
    Abstract: We evaluate alternative public debt management policies in light of constraints imposed by the effective lower bound on interest rates. Replacing the current limit on gross debt issued by the fiscal authority with a limit on consolidated debt of the government can ensure that output always reaches its potential, but it may permit excess government spending when the economy is away from the effective lower bound. The welfare-maximizing policy sets the gross debt limit to the level implied by Samuelson (1954), while the central bank finances government spending with money when the economy is at the effective lower bound.
    Keywords: Government debt limits; zero lower bound; stabilization policy; inefficiency
    JEL: E52 E58 E63
    Date: 2020–07–31
  41. By: Michal Franta; Ivan Sutoris
    Abstract: We decompose the Czech inflation time series into the trend and short-lived deviations from the trend by means of an unobserved component stochastic volatility model. We then carry out a regression analysis to interpret the two inflation components. The results indicate a fall in the inflation trend since the start of the sample (1998) which coincides with the introduction of the inflation targeting regime and with subsequent changes to the inflation target pursued by the Czech National Bank. Moreover, the regression analysis suggests that inflation expectations play a dominant role in the evolution of the trend. The behavior of the deviations from the trend exhibits features of an open-economy Phillips curve.
    Keywords: Czech inflation, inflation trend, Phillips curve, UCSV
    JEL: E5 E31
    Date: 2020–07
  42. By: Daniel Schäfer (Economics Department at Johannes Kepler University); Carl Singleton
    Abstract: TWe use representative payroll data from Great Britain to document novel facts about nominal wage adjustments, focusing on workers who stayed in the same firm and job from one year to the next. The richness of these data allows us to analyse basic pay and the other components of earnings, such as overtime and incentive pay, while accounting for hours worked. Weekly and hourly basic pay show signs of downward nominal rigidity, but non-basic pay components adjust more commonly. Unusually, these payroll-based data also report the wage rates of hourly-paid employees. A quarter of these workers typically see no change in their wage rates from one year to the next in the same job, and very few experience wage cuts. We exploit the employer-employee link in the data and find evidence of state-dependent pay setting, depending on the business cycle and whether firms are shrinking or expanding. Finally, we show that the basic and non-basic wages of new hires and existing employees are similarly flexible.
    Keywords: downward nominal wage rigidity, components of pay, hourly pay rates, hiring wages, allocative wages
    JEL: E24 E32 J31 J33
    Date: 2020–06
  43. By: Lenarčič, Črt
    Abstract: This paper sets up a two-country two-sector dynamic stochastic general equilibrium model that introduces sector specific productivity shocks with quality improvement mechanism of goods. It provides a model-based theoretical background for the Harrod-Balassa-Samuelson phenomenon that describes the relationship between productivity and price inflation within different sectors of a particular economy. Both, the calibrated and the estimated model are able to show that the induced tradable sector productivity shocks drive the non-tradable and tradable sector price inflation upwards. By doing this, we overcome the problem that the tradable productivity increase in a typical open economy specification reduces the relative price of domestic tradable goods relative to the foreign ones.
    Keywords: Harrod-Balassa-Samuelson effect, DSGE model, inflation, productivity, quality improvement
    JEL: C32 E31 E32
    Date: 2019
  44. By: Aydin, Deniz
    Abstract: I design and implement a large scale field experiment in an economy that had been experiencing a decade-long debt-driven consumption boom, in which I construct a randomized credit line extension that isolates selection and interest rate effects, and track impulse responses using comprehensive data on spending and consumer balance sheets. I document substantial indirect effects of credit, and that the propensity to borrow and spend out of credit remains quantitatively large for those with substantial slack in borrowing capacity, as well as those with a sizable buffer of assets. I use data on the dynamics of the response and expenditure composition to distinguish two classes of potential explanations: one embracing precautionary savings in response to a credit constraint that may bind in the future; and the other invoking behavioral explanations based on myopia or dynamically inconsistent behavior. The reduced form findings provide strong support for a buffer-stock model emphasizing the importance of precautionary savings.
    Keywords: consumption,credit,MPC,precautionary saving,field experiment
    JEL: D12 E21 E51
    Date: 2020
  45. By: Knut Are Aastveit; Hilde C. Bjørnland; Jamie L. Cross
    Abstract: Do inflation expectations and the associated pass-through of oil price shocks depend on demand and supply conditions underlying the global market for crude oil? We answer this question with a novel structural vector autoregressive model of the global oil market that jointly identifies transmissions of oil demand and supply shocks through the real price of oil to both expected and realized inflation. Our main insight is that US households form their expectations of inflation differently when faced with long sustained increases in the price of oil, such as the early millennium oil price surge of 2003 to 2008, as compared to short and sharp price fluctuations that characterized much of the twentieth century. We also find that oil demand and supply shocks can explain a large proportion of expected and realized inflation dynamics during multiple periods of economic significance, and resolve disagreements around the role of oil prices in explaining the missing deflation puzzle of the Great Recession.
    Keywords: Inflation expectations, inflation pass-through, oil prices
    JEL: E31 D84 Q41 Q43
    Date: 2020–07
  46. By: Hubert Kempf
    Abstract: This paper studies the design of the policy mix in a monetary union, that is, the institutional arrangement specifying the relationships between the various policymakers present in the union and the extent of their capacity of action. It is assumed that policymakers do not cooperate. Detailing several institutional variants imposed on an otherwise standard macromodel of a monetary union, we prove that there is no Pareto-superior design when cooperation between policymakers is impossible.
    Keywords: monetary union, fiscal policy, monetary policy, cooperation, policy mix
    JEL: E58 E62 F45 H76
    Date: 2020
  47. By: Gjergj Legisi (Bank of Albania)
    Abstract: The credit-to-GDP gap is a fundamental indicator used to identify credit bubbles. Currently, the indicator takes into account aggregate credit as a ratio of GDP, without distinguishing between local and foreign currency. In the Albanian financial system, foreign currency loans comprise about fifty percent of the total credit. Due to the large share of foreign currency loans, this paper evaluates the credit-to-GDP gap by local (Albanian lek) and foreign (Euro and US dollar) currency to assess their performance in identifying credit bubbles. This study concludes that using a modified version of credit-to-GDP gap, which extracts foreign currency fluctuations, provides a better overall performance than the standard approach. In addition, a split credit-to-GDP gap according to local and foreign currency provides similar performance to the standard and modified approach, but offers a more structure-based approach.
    Keywords: credit-to-GDP gap, foreign currency credit, countercyclical capital buffer.
    JEL: E44 G01 G18
    Date: 2020–08–05
  48. By: Christian Scharrer (University of Augsburg, Department of Economics)
    Abstract: I study the impacts of financing rules for financial surpluses in pay-as-you-go pension systems on the business cycle and the life cycle in a dynamic stochastic large-scale overlapping generations model, where households take the inter-temporal links between contributions and pension benefits explicitly into account. The results point out that sluggish adjustments of contribution rates that are implemented by adjusting a financial buffer stock both stabilize an economy and decrease the volatility of life-time utilities of retirees and workers close to retirement. Such a policy allows these households a better hedge against macroeconomic shocks over the business cycle. Moreover, I show that the impacts of higher fluctuations of aggregate variables on the volatility of individual lifetime utilities can rather be negligible.
    Keywords: overlapping generations, pay-as-you-go pension systems, financing rules, business cycle, life cycle, rbc-model
    JEL: H55 E21 E30
    Date: 2020–07
  49. By: Majumderad, Monoj Kumar; Raghavan, Mala; Vespignani, Joaquin
    Abstract: An important economic paradox in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the ‘resource curse’, is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resources abundance for the period 1980–2017. In addition, the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth. The study finds trade openness is a possible avenue to reduce the resource curse, in our sample, trade openness reduces oil curse by around 25%. Trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently. Therefore, natural resource–rich economies can reduce the resource curse by increasing exposure to international trade.
    Keywords: Oil Course, Economic Growth, Trade Openness
    JEL: E0 E00 E4 E42 Q4
    Date: 2020
  50. By: Francesco D'Acunto (Carroll School of Management, Boston College); Ulrike Malmendier (Department of Economics and Haas School of Business, University of California at Berkeley and NBER); Michael Weber (University of Chicago - Booth School of Business and NBER)
    Abstract: Expectations about macro-finance variables, such as ination, vary significantly across genders, even within the same household. We conjecture that traditional gender roles expose women and men to different economic signals in their daily lives, which in turn produce systematic variation in expectations. Using unique data on the contributions of men and women to household grocery chores, their resulting exposure to price signals, and their in ation expectations, we show that the gender expectations gap is tightly linked to participation in grocery shopping. We also document a gender gap in other economic expectations and discuss how it might affect economic choices.
    Keywords: Gender Gap, Expectations, Perceptions, Experiences, Exposure.
    JEL: C90 D14 D84 E31 E52 G11
    Date: 2020
  51. By: KIBADHI, Plante; PINSHI, Christian P.
    Abstract: The ability of a central bank to influence the economy depends on its ability to manage the expectations of the general public and the financial system regarding the future development of macroeconomic indicators. The communication strategy (in this time of crisis and uncertainty) increases transparency, improves public understanding and support for the monetary policy and democratic accountability of the Central Bank of Congo (BCC), which serves to convergence towards the balance of expectations. This paper approves that a strategic communication orientation, focused on coherent messages, can help break down pessimistic expectations, maintain confidence, reduce the cost of the crisis and stabilize the economy. In conclusion, the article suggests a dozen recommendations, to be able to strengthen and redirect the BCC’s communication strategy and contribute to the effectiveness of monetary policy.
    Keywords: Communication, Monetary policy
    JEL: E58
    Date: 2020–06–01
  52. By: Jean-Bernard, Chatelain; Kirsten, Ralf
    Abstract: With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Ricatti equation of a linear quadratic regulator. The existing theory by Hansen and Sargent (2007) refers to an additional Sylvester equation but miss another equation for computing the block matrix weighting the square of non-controllable variables in the welfare function. There is no need to simulate impulse response functions over a long period, to compute period loss functions and to sum their discounted value over this long period, as currently done so far. Welfare is computed for the case of the new-Keynesian Phillips curve with an auto-regressive cost-push shock.
    Keywords: Ramsey optimal policy, Stackelberg dynamic game, algorithm, forcing variables, augmented linear quadratic regulator, new-Keynesian Phillips curve.
    JEL: C61 C62 C73 E47 E52 E61 E63
    Date: 2020–06–24
  53. By: Ricardo Hausmann (Center for International Development at Harvard University); Ulrich Schetter (Center for International Development at Harvard University)
    Abstract: In this paper, we develop a heterogeneous agent general equilibrium framework to analyze optimal joint policies of a lockdown and transfer payments in times of a pandemic. In our model, the effectiveness of a lockdown in mitigating the pandemic depends on endogenous compliance. A more stringent lockdown deepens the recession which implies that poorer parts of society find it harder to subsist. This reduces their compliance with the lockdown, and may cause deprivation of the very poor, giving rise to an excruciating trade-offbetween saving lives from the pandemic and from deprivation. Lump-sum transfers help mitigate this trade-off. We identify and discuss key trade-offs involved and provide comparative statics for optimal policy. We show that, ceteris paribus, the optimal lockdown is stricter for more severe pandemics and in richer countries. We then consider a government borrowing constraint and show that limited fiscal space lowers the optimal lockdown and welfare, and increases the aggregate death burden during the pandemic. We finally discuss distributional consequences and the political economy of fighting a pandemic.
    Keywords: COVID-19, lockdown, fiscal policy, government borrowing constraint, political economy, inequality, developing countries
    JEL: E62 F4 H12 I14 I18
    Date: 2020–07
  54. By: So Jung Hwang (Inha University); Hyunduk Suh (Inha University)
    Abstract: This study analyzes the overall and time-varying effects of global and domestic uncertainty on the Korean economy by estimating constant parameter and time-varying parameter vector autoregressive models. Global and Korea-specific uncertainty are measured using the method proposed by Mumtaz and Theodoridis (2017). We find a substantial increase in domestic uncertainty during the 1997–1998 Asian Financial Crisis and in global uncertainty during the 2008–2009 Global Financial Crisis. These uncertainty shocks account for a significant part of macroeconomic fluctuations in Korea during the crisis periods. A rise in both the uncertainty measures has an adverse impact on the Korean economy by lowering stock market returns and output growth, and by creating inflation caused by the depreciation of the Korean won. Although the results provide indications that the adverse impact of uncertainty shocks has weakened over time, the degree of structural change is quantitatively small.
    Keywords: Global uncertainty, Korea-specific uncertainty, Korean economy, TVP-VAR
    JEL: E20 F44
    Date: 2020–08
  55. By: Liu, Shih-fu; Huang, Wei-chi; Lai, Ching-chong
    Abstract: This paper sets up a New Keynesian model in which the monetary authority implements a zero lower bound interest rate policy, and uses it to explore whether the supportive fiscal instruments (including expansionary government spending, a payroll tax cut, and a financial assets tax cut) are effective in overcoming a deep recession. The salient feature of this study is that it provides a new dynamic viewpoint of regime switching by evaluating each of several supportive fiscal policies in terms of their performance in alleviating a deep recession. Two main findings emerge from the analysis. First, when the monetary authority implements the zero lower bound interest rate policy to dampen the negative natural rate shock, the economy will sink into a deep recession with deflation. Second, to overcome the deep recession, of the three supportive fiscal tools (i.e., expansionary government spending, a payroll tax cut, and a financial assets tax cut), only expansionary government spending is effective in alleviating the deep recession. More specifically, the implementation of fiscal policy in the form of either the payroll tax cut or the financial assets tax cut will only further deepen the recession.
    Keywords: Zero lower bound, New Keynesian model, fiscal stimulus, regime switching
    JEL: E62 E63 H20
    Date: 2020–06–22
  56. By: Giovanni Angelini; Giovanni Caggiano; Efrem Castelnuovo; Luca Fanelli
    Abstract: How large are government spending and tax multipliers? The fiscal proxy- SVAR literature provides heterogenous estimates, depending on which proxies - fiscal or non-fiscal - are used to identify fiscal shocks. We reconcile the existing estimates via a flexible vector autoregressive model that allows to achieve identification in presence of a number of structural shocks larger than that of the available instruments. Our two main findings are the following. First, the estimate of the tax multiplier is sensitive to the assumption of orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this correlation is assumed to be zero, the tax multiplier is found to be around one. If such correlation is non-zero, as supported by our empirical evidence, we find a tax multiplier three times as large. Second, we find the spending multiplier to be robustly larger than one across different models that feature different sets of instruments. Our results are robust to the joint employment of different fiscal and non-fiscal instruments.
    Keywords: Fiscal multipliers, fiscal policy, identification, instruments, structural vector autoregressions
    JEL: C52 E62
    Date: 2020–07
  57. By: Auer, Raphael
    Abstract: The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, ie a regulatory framework that provides for compliance in tokenised markets to be automatically monitored by reading the market's ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralised market is modelled that replaces today's intermediary-based verification of legal data with blockchain-enabled data credibility based on economic consensus. The key results set out the conditions under which the market's economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger's data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms.
    Keywords: Basel III; blockchain; central bank digital currencies; cryptocurrencies; economic finality; regtech; stablecoins; tokenisation
    JEL: D20 D40 E42 E51 F31 G12 G18 G32 G38 K22 L10 L50
    Date: 2019–11
  58. By: Shuo Cao; Richard K. Crump; Stefano Eusepi; Emanuel Moench
    Abstract: Using a unique data set of individual professional forecasts, we document disagreement about the future path of monetary policy, particularly at longer horizons. The stark differences in short rate forecasts imply strong disagreement about the risk-return trade-off of longer-term bonds. Longer-horizon short rate disagreement co-moves with term premiums. We estimate an affine term structure model in which investors hold heterogeneous beliefs about the long-run level of rates. Our model fits U.S. Treasury yields and the short rate paths predicted by different groups of professional forecasters very well. About one-third of the variation in term premiums is driven by short rate disagreement.
    Keywords: disagreement; heterogeneous beliefs; noisy information; speculation; survey forecasts; yield curve; term premium
    JEL: D83 D84 E43 G10 G12
    Date: 2020–07–01
  59. By: Hyeongwoo Kim; Wen Shi
    Abstract: This paper presents a factor-based forecasting model for the financial market vulnerability, measured by changes in the Cleveland Financial Stress Index (CFSI). We estimate latent common factors via the method of the principal components from 170 monthly frequency macroeconomic data in order to out-of-sample forecast the CFSI. Our factor models outperform both the random walk and the autoregressive benchmark models in out-of-sample predictability at least for the short-term forecast horizons, which is a desirable feature since financial crises often come to a surprise realization. Interestingly, the first common factor, which plays a key role in predicting the financial vulnerability index, seems to be more closely related with real activity variables rather than nominal variables. We also present a binary choice version factor model that estimates the probability of the high stress regime successfully.
    Keywords: Financial Stress Index; Method of the Principal Component; Out-of-Sample Forecast; Relative Root Mean Square Prediction Error; Diebold-Mariano-West Statistic; Ordered Probit Model
    JEL: E44 E47 G01 G17
    Date: 2020–07
  60. By: Ons Mastour (Central Bank of Tunisia)
    Abstract: We study the relationship between the strength of the bank credit channel (BCC) of monetary policy transmission and real GDP growth in Tunisia using quarterly commercial bank-level data between 2008 and 2019. We find evidence of the existence of the bank credit channel in Tunisia in both its broad and strict senses. Classification of banks by total assets allows us to conclude that funding-constrained banks are very reactive to changes in the policy rate regardless of the economic cycle. However, identification of the strength of the BCC during different economic cycles is not possible in our case due to the lack of significance of the coefficients of interest. Furthermore, we find that the BCC operated exclusively through specific loan categories and banks during the sample period.
    Keywords: Bank lending channel; monetary policy transmission; bank balance sheet channel; GDP growth.
    JEL: E3 E5 G2
    Date: 2020–08–04
  61. By: Burriel, Pablo; Checherita-Westphal, Cristina; Jacquinot, Pascal; Stähler, Nikolai; Schön, Matthias
    Abstract: The paper reviews the economic risks associated with regimes of high public debt through DSGE model simulations. The large public debt build-up following the 2009 global financial and economic crisis acted as a shock absorber for output, while in the recent and more severe COVID19-crisis, an increase in public debt is even more justified given the nature of the crisis. Yet, once the crisis is over and the recovery firmly sets in, keeping debt at high levels over the medium term is a source of vulnerability in itself. Moreover, in the euro area, where monetary policy focuses on the area-wide aggregate, countries with high levels of indebtedness are poorly equipped to withstand future asymmetric shocks. Using three large scale DSGE models, the simulation results suggest that high-debt economies (1) can lose more output in a crisis, (2) may spend more time at the zero-lower bound, (3) are more heavily affected by spillover effects, (4) face a crowding out of private debt in the short and long run, (5) have less scope for counter-cyclical fiscal policy and (6) are adversely affected in terms of potential (long-term) output, with a significant impairment in case of large sovereign risk premia reaction and use of most distortionary type of taxation to finance the additional debt burden in the future. Going forward, reforms at national level, together with currently planned reforms at the EU level, need to be timely implemented to ensure both risk reduction and risk sharing and to enable high debt economies address their vulnerabilities. JEL Classification: E62, H63, O40, E43
    Keywords: economic growth, fiscal sustainability, government debt, interest rates
    Date: 2020–07
  62. By: Hubert Kempf
    Abstract: This paper develops a tractable model of a society hit by a viral pandemic. It is sufficiently rich so as to relate the optimal decisions of the policymaker to the underlying characteristics of this society, in terms of preferences, social mores and economic structures. This allows us to make sense of the diversity of policies adopted worldwide with respect to the Covid-19 pandemic.
    Keywords: Covid-19, public policy, trust, compliance, uncertainty
    JEL: E58 E62 F45 H76
    Date: 2020
  63. By: Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
    Abstract: This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.
    Keywords: Brexit; exchange rate pass-through; import costs; inflation
    JEL: E31 F15 F31
    Date: 2019–12
  64. By: Anuar, Khairul; Masih, Mansur
    Abstract: Islamic finance has been rising rapidly as an alternative investment outlet since the subprime crisis. Although there are many papers on the determinants of conventional stock prices, there is relatively much less attention paid to the determinants of Shariah (Islamic) stock indices. This paper analyses the relationship between the major macroeconomic variables and the Shariah Stock Index. Malaysia is taken as a case study. This study examines the determinants of Shariah stock exchange and to what extent each variable influences the prices of the stocks. We use the standard time series method to analyse the data. The findings tend to indicate that inflation rate is the most leading macroeconomic variable followed by Shariah stock index. All other variables are led by them. That implies that inflation rate is the most important driver of Shariah stock
    Keywords: Islamic stock index, inflation rate, money supply, interest rate, exchange rate, Malaysia
    JEL: C22 C58 E44 G15
    Date: 2018–07–30
  65. By: Angelini, Giovanni; Caggiano, Giovanni; Castelnuovo, Efrem; Fanelli, Luca
    Abstract: How large are government spending and tax multipliers? The fiscal proxy-SVAR literature provides heterogeneous estimates, depending on which proxies - fiscal or non-fiscal - are used to identify fiscal shocks. We reconcile the existing estimates via flexible vector autoregressive model that allows to achieve identification in presence of a number of structural shocks larger than that of the available instruments. Our two main findings are the following. First, the estimate of the tax multiplier is sensitive to the assumption of orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this correlation is assumed to be zero, the tax multiplier is found to be around one. If such correlation is nonzero, as supported by our empirical evidence, we find a tax multiplier three times as large. Second, we find the spending multiplier to be robustly larger than one across different models that feature different sets of instruments. Our results are robust to the joint employment of different fiscal and non-fiscal instruments.
    JEL: C52 E62
    Date: 2020–07–13
  66. By: Charemza, Wojciech
    Abstract: This paper compares how effective different voting algorithms are for the decisions taken by monetary policy councils. A voting activity index is proposed and computed as the ratio of the number of all possible decisions to the total number of different combinations of decisions available to a given composition of an MPC. The voting systems considered are these used by the US Federal Reserve Board and the central banks of the UK, Australia, Canada, Sweden and Poland. In the dynamic simulation model, which emulates voting decisions, the heterogeneous agents act upon individual forecast signals and optimise a Taylor-like decision function. The selection criterion is based on the simulated probability of staying within the bounds that define the inflationary target. The general conclusion is that the voting algorithm used by the Bank of Sweden is the best given the criteria applied, especially when inflation is initially outside the target bounds. It is observed that a decrease in inflation forecast uncertainty, which is inversely proportional to the correlation between the forecast signals delivered to members of the monetary policy board, makes the voting less effective.
    Keywords: voting algorithms, monetary policy, inflation targeting, forecast uncertainty
    JEL: D72 E4 E47 E58
    Date: 2020–05–31
  67. By: Florian Eckert (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper uses a Bayesian non-stationary dynamic factor model to extract common trends and cycles from large datasets. An important but neglected feature of Bayesian statistics allows to treat stationary and non-stationary time series equally in terms of parameter estimation. Based on this feature we show how to extract common trends and cycles from the data by ex-post processing the posterior output and describe how to derive an agnostic output gap measure. We apply the procedure to a large panel of quarterly time series that covers 158 macroeconomic and financial series for the United States. We find that our derived output gap measure tracks the U.S. business cycle well, exhibiting a high correlation with alternative estimates of the output gap. Since the factors are extracted from a comprehensive dataset, the resulting output gap estimates are stable at the current edge and can be decomposed in a new and meaningful way.
    Keywords: Non-Stationary Dynamic Factor Model, Potential Output Estimation, Output Gap Decomposition
    JEL: C11 C32 E32
    Date: 2019–12
  68. By: Bunn, Philip (Bank of England); Haldane, Andrew (Bank of England); Pugh, Alice (Bank of England)
    Abstract: Concerns were raised about the distributional impact of the loosening in UK monetary policy following the financial crisis. We assess the impact of this loosening on well-being using household-level data and estimated utility functions. The welfare benefits are found to have been positive, in aggregate and across most of the household distribution, relative to what otherwise would have happened. They are significantly larger than when looking at financial factors alone due to the non-financial benefits of lower unemployment and financial distress. Most people were made better-off in welfare terms from the monetary loosening, rich and poor, although the young have benefited more than the old.
    Keywords: Monetary policy; households; inequality; well-being
    JEL: D12 D31 E52 E58
    Date: 2020–07–17
  69. By: Drechsler, Itamar; Savov, Alexi; Schnabl, Philipp
    Abstract: Between 2003 and 2006, the Federal Reserve raised rates by 4.25%. Yet it was precisely during this period that the housing boom accelerated, fueled by rapid growth in mortgage lending. There is deep disagreement about how, or even if, monetary policy impacted the boom. Using heterogeneity in banks' exposures to the deposits channel of monetary policy, we show that Fed tightening induced a large reduction in banks' deposit funding, leading them to contract new on-balance-sheet lending for home purchases by 26%. However, an unprecedented expansion in privately-securitized loans, led by nonbanks, largely offset this contraction. Since privately-securitized loans are neither GSE-insured nor deposit-funded, they are run-prone, which made the mortgage market fragile. Consistent with our theory, the re-emergence of privately-securitized mortgages has closely tracked the recent increase in rates.
    Keywords: banks; deposits; monetary policy; Mortgage lending; Private- label securitization; Securitization
    JEL: E43 E52 G21 G31
    Date: 2019–12
  70. By: Emilio Espino; Julian Kozlowski; Fernando M. Martin; Juan M. Sanchez
    Abstract: Monetary policy affects the tradeoffs faced by governments in sovereign default models. In the absence of lump-sum taxation, governments rely on both disortionary taxes and seigniorage to finance expenditure. Furthermore, monetary policy adds a time-consistency problem in debt choice, which may mitigate or exacerbate the incentives to accumulate debt. A deterioration of the terms-of-trade leads to an increase in sovereign-default risk and inflation, and a reduction in growth, which are consistent with the empirical evidence for emerging economies. An unanticipated shock resembling the COVID-19 pandemic generates a significant currency depreciation, increased inflation, and distress in government finances.
    Keywords: Crises; Default; Sovereign Debt; Exchange Rate; Country Risk; Inflation; Seigniorage; Fiscal Policy; Emerging Markets; Time-consistency; COVID-19
    JEL: E52 E62 F34 F41 G15
    Date: 2020–07–10
  71. By: Sangyup Choi (Yonsei Univ); Davide Furceri (IMF); João Tovar Jalles (IMF)
    Abstract: Empirical evidence to date suggests a positive relationship between fiscal policy countercyclicality and growth. But do all industries gain equally from countercyclical fiscal policy? What are the channels through which countercyclical fiscal policy affects industry-level growth? We answer these questions by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 countries—including both advanced and developing economies—during the period 1970-2014. Among the nine industry characteristics that we consider based on different theoretical channels, we find that the credit constraint channel—proxied by asset fixity—identifies the best transmission mechanism through which countercyclical fiscal policy enhances growth. This channel becomes stronger during periods of weak economic activity when credit constraints are more likely to bind.
    Keywords: countercyclical fiscal policy; time-varying coefficients; industry growth, technologies of production, credit constraints
    JEL: E62 H50 H60
    Date: 2020–07
  72. By: Emilio Ocampo
    Abstract: Before Hugo Chavez burst into the political scene in Venezuela, Argentina’s Juan Peron (1895- 1974) was considered the quintessential Latin American populist leader. He ruled Argentina from mid 1943 until September 1955 and between 1973 and 1974 and his political party has been in power two thirds of the time since the reestablishment of democracy in 1983. Perón’s economic policies between 1946 and 1949 are also considered archetypical. The Peronist economic policy paradigm (PEPP) emphasized income redistribution and a fiscally induced expansion of aggregate demand at the expense of productivity and allocative efficiency. Although the ideological roots of Peronism can be directly traced back to Fascism, when it came to his economic policies, Perón claimed to have been inspired by FDR’s New Deal and Keynes’s General Theory. However, in mosts respects, in their early stage, Peronist economic policies resemble more those proposed by Sir Oswald Mosley (1896-1980) in 1930. This paper describes the PEPP, its implementation and results and evaluates several hypothesis regarding its intellectual roots.
    Keywords: Peronism, Fascism, Economic Policy, Argentina
    JEL: B00 B29 E60 E65 N14 N16 O23 P40 B29 E60 E65 N14 N16 O23 P40 P47
    Date: 2020–06
  73. By: Carlos Esquivel; Timothy J. Kehoe; Juan Pablo Nicolini
    Abstract: Studying the modern economic histories of eleven of the largest countries in Latin America teaches us that a lack of fiscal discipline has been at the root of most of the region's macroeconomic instability. The lack of fiscal discipline, however, takes various forms, not all of them measured in the primary deficit. Especially important have been implicit or explicit guarantees to the banking system; denomination of the debt in US dollars and short maturity of the debt; and transfers to some agents in the private sector, which are large in times of crisis and are not part of the budget approved by the national congresses. Comparing the histories of our eleven countries, we see that rather than leading to an economic contraction, fiscal stabilization generally leads to growth. On the other hand, rising commodity prices are no guarantee of economic growth, nor are falling commodity prices a guarantee of economic contraction.
    Keywords: Monetary policy; Fiscal policy; Debt crisis; Banking crisis; Off-budget transfers
    JEL: E52 E63 H63 N16
    Date: 2020–07–27
  74. By: Paola Boel; Christopher J. Waller
    Abstract: We investigate the essentiality of credit and banking in a microfounded monetary model in which agents face heterogeneous idiosyncratic time preference shocks. Three main results arise from our analysis. First, the constrained-efficient allocation is unattainable without banks. Second, financial intermediation can improve the equilibrium allocation even at the Friedman rule because it relaxes the liquidity constraints of impatient borrowers. Third, changes in credit conditions are not necessarily neutral in a monetary equilibrium at the Friedman rule. If the debt limit is sufficiently low, money and credit are perfect substitutes and tightening the debt limit is neutral. As the debt limit increases, however, patient agents always hold money but impatient agents prefer not to since it is costly for them to do so given they are facing a positive shadow rate. Borrowing instead is costless when interest rates are zero and increasing the debt limit improves the allocation.
    Keywords: Money; Credit; Banking; Heterogeneity; Friedman rule
    JEL: E40 E50
    Date: 2020–07
  75. By: de Groot, Oliver; Mazelis, Falk
    Abstract: This paper develops a simple, consistent methodology for generating empirically realistic forward guidance simulations using existing macroeconomic models by modifying expectations about policy announcements. The main advantage of our method lies in the exact preservation of all other shock transmissions. We describe four scenarios regarding how agents incorporate information about future interest rate announcements: “inattention”, “credibility”, “finite planning horizon”, and “learning”. The methodology consists of describing a single loading matrix that augments the equilibrium decision rules and can be applied to any standard DSGE, including large-scale policy-institution models. Finally, we provide conditions under which the forward guidance puzzle is resolved. JEL Classification: C63, E32, E52
    Keywords: expectations, monetary policy, unconventional policy
    Date: 2020–06
  76. By: Anne-Marie Rieu-Foucault
    Abstract: The process of creating the Federal Reserve System (FED) was the result of a series of monetary and financial dysfunctions, which resulted in a succession of liquidity crises in the second half of the 19th century in the United States. This paper presents these dysfunctions and the means found by clearing houses to manage liquidity crises in the absence of a central bank. He discusses the reasons that ultimately led to the creation of the FED, putting into perspective the political and financial dimensions of this creation. It concludes, with regard to history, on the contributions of the FED and the shortcomings which the central bank faced, when the 2008 crisis broke out.
    Keywords: central banks, money, liquidity, financial crises
    JEL: E58 G01 N21
    Date: 2020
  77. By: Timothy J. Kehoe; Juan Pablo Nicolini; Thomas J. Sargent
    Abstract: We develop a conceptual framework for analyzing the interactions between aggregate fiscal policy and monetary policy. The framework draws on existing models that analyze sovereign debt crises and balance-of-payments crises. We intend this framework as a guide for analyzing the monetary and fiscal history of a set of eleven major Latin American countries—Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela—from the 1960s until now.
    Keywords: Debt crisis; Monetary policy; Off-budget transfers; Banking crisis; Fiscal policy
    JEL: E52 E63 H63 N16
    Date: 2020–07–21
  78. By: Marcelo Arbex (Department of Economics, University of Windsor); Marcio V. Correa (CAEN - Graduate Studies in Economics, Federal University of Ceara); Marcos R. V. Magalhaes (CAEN - Graduate Studies in Economics, Federal University of Ceara)
    Abstract: We study an equilibrium occupational choice model where heterogeneous agents decide to become either workers or entrepreneurs in the formal or informal sector. Informal output is subjected to taxation determined by a combination of managers capital choice and the society's tolerance of informality. The model is consistent with empirical evidence for the Brazilian informal sector. The counterfactual analysis shows substantial heterogeneity of policy effects on occupational choices (entrepreneur-worker) and within the entrepreneurial choices (formal-informal). Changes in the society's tolerance of informality lead agents to shift between the two entrepreneurial choices rather than in the entrepreneur-worker dimension.
    Keywords: Informal Sector; Social Norms; Credit Constraints; Limited Enforcement
    JEL: E6 E26 O11 O17 H26 Z13
    Date: 2020–07
  79. By: Huixin Bi; Wenyi Shen; Shu-Chun Susan Yang
    Abstract: This paper studies the main channels through which interest rate normalization has fiscal implications in the United States. While unexpected inflation reduces the real value of government liabilities, a rising policy rate increases government financing needs because of higher interest payments and lower real bond prices. After an initial decline, the real government debt burden rises even with higher tax revenues in an expansion. Given the current net debt-to-GDP ratio at around 80 percent, interest rate normalization leads to a negligible increase in the sovereign default risk of the U.S. federal government, despite a much higher federal debt-to-GDP ratio than the post-war historical average.
    Keywords: Economic growth;Business cycles;Capital income;Real interest rates;Interest rate increases;interest rate normalization,monetary and fiscal policy interaction,fiscal sustainability,non linear DSGE models,New Keynesian model,limit distribution,active rule,debt level,bond price,government debt
    Date: 2019–05–03
  80. By: Huremovic, Kenan; Jiménez, Gabriel; Moral-Benito, Enrique; Vega-Redondo, Fernando; Peydró, José-Luis
    Abstract: We show that bank shocks originating in the fi nancial sector propagate upstream and downstream along the production network and triple the impact of direct bank shocks. Our identi fication relies on the universe of both supplier-customer transactions and bank loans in Spain, a standard operationalization of credit-supply shocks during the 2008-09 global crisis, and the proposed theoretical framework. The impact on real effects is strong, and similarly so, when considering: (i) direct bank shocks to firms versus fi rst-order inter firm contagion; (ii) first-order versus higher-order network effects; (iii) downstream versus upstream propagation; (iv) firm-speci fic versus economy-wide shocks. Market concentration ampli fies these effects.
    Keywords: networks,supply chains,shock propagation,credit supply,real effects of finance
    JEL: D85 E44 E51 G01 G21
    Date: 2020
  81. By: Osborne Jackson
    Abstract: The emergence of the COVID-19 pandemic led state and local governments throughout New England and much of the nation to issue ordinances restricting activity that might otherwise contribute to the spread of the disease. Individuals also freely adjusted their behavior, hoping to reduce the chances of infecting themselves or others. As a result, many employers have experienced substantial reductions in sales revenue, which were expected to generate harmful effects on the labor market. Even though the reversal of mandated policies and voluntary behavior changes are well under way, the initial effects and ongoing public health concerns may extend the time needed for labor market outcomes to improve substantially. This study uses pre-pandemic employment data by occupation and a conceptual framework focused on labor costs to identify the subpopulation most vulnerable to the economic shock and predict layoffs and unemployment in the second quarter of 2020. The analysis allows for the possibility of wage cuts mitigating job losses. Further extensions incorporate indirect effects due to reduced product demand from directly affected workers, as well as offsetting effects of a federal policy response. Predicted second-quarter layoffs and unemployment due to the pandemic vary throughout New England, and such adverse labor market effects tend to be somewhat smaller in the region than in the country as a whole. Additionally, official estimates of unemployment from available second-quarter data fall within the range of predictions, after accounting for plausible measurement error. This approach, which builds on the work of other recent analysis, should be helpful in estimating the regional labor market impact of future economic shocks.
    Keywords: COVID-19; wages; New England; labor costs; unemployment rates
    JEL: J30 I18 E24
    Date: 2020–06–29
  82. By: Schmitt-Grohé, Stephanie; Uribe, Martin
    Abstract: This paper establishes the existence of deterministic cycles in infinite-horizon open economy models with a flow collateral constraint. It shows that for plausible parameter configurations, the economy has a unique equilibrium exhibiting deterministic cycles in which periods of debt growth are followed by periods of debt deleveraging. In particular, three-period cycles exist, which implies by the Li-Yorke Theorem the presence of cycles of any periodicity and chaos. The paper also shows that deterministic cycles are absent in the Ramsey optimal allocation providing a justification for macroprudential policies even in the absence of uncertainty.
    Keywords: capital controls; Chaos; Credit Booms; Deleveraging; Deterministic cycles; flow collateral constraints; Pecuniary externality
    JEL: E32 F38 F41 H23
    Date: 2019–12
  83. By: Ma, Chang; Rogers, John; Zhou, Sili
    Abstract: We examine the immediate effects and bounce-back from six modern health crises: 1968 Flu, SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016). Time-series models for a large cross-section of countries indicate that real GDP growth falls by around three percentage points in affected countries relative to unaffected countries in the year of the outbreak. Bounce-back in GDP growth is rapid, but output is still below pre-shock level five years later. Unemployment for less educated workers is higher and exhibits more persistence, and there is significantly greater persistence in female unemployment than male. The negative effects on GDP and unemployment are felt less in countries with larger first-year responses in government spending, especially on health care. Affected countries’ consumption declines, investment drops sharply, and international trade plummets. Bounce-back in these expenditure categories is also rapid but not by enough to restore pre-shock trends. Furthermore, indirect effects on own-country GDP from affected trading partners are significant for both the initial GDP decline and the positive bounce back. We discuss why our estimates are a lower bound for the global economic effects of COVID-19 and compare contours of the current pandemic to the historical episodes.
    JEL: I10 E60 F40
    Date: 2020–07–03
  84. By: Xavier Estupinan (International Labour Organization, New Delhi); Mohit Sharma (Collaborative Research and Dissemination, Delhi); Sargam Gupta (Indira Gandhi Institute of Development Research); Bharti Birla (International Labour Organization, New Delhi)
    Abstract: This paper estimates the first order supply shock through labour supply reduction associated with the containment measures taken by the Government of India to control COVID-19 spread. We make use of two metrics to estimate the labour supply shock. The first metric is based on whether a worker is employed in an essential or a non-essential industry and second measures the extent to which a worker can perform the work activities remotely. For the latter, we construct a Remote Labour Index (RLI) following Rio-Chanona et al. (2020). Using PLFS (2017-18) we find that 116.18 million (25 percent) and 78.93 million (17 percent) workers were affected in Lockdown 1.0 and Lockdown 2.0, respectively, and are at risk of job loss. To get an extensive impact of COVID-19 pandemic on the labour market in India we carry out an in-depth analysis of labour supply shocks by employment status, industry level, and occupation. The expected monthly wage loss of casual workers and regular and salaried employees is estimated to be Rs. 33.8 thousand crores (in 2017-18 prices). Further, the loss in Gross Value Added (GVA) (at 2011-12 prices) is predicted to be between 13 percent and 19 percent during the lockdown period from 25th March to 31st May 2020. The y-o-y quarterly growth rate forecast of GVA (at 2011-12 prices) for Q1:2020-21 is expected to be between -4.6 percent and -8.8 percent, using the baseline model.
    Keywords: COVID-19 Pandemic, Remote Labour Index, Labour Supply Shock, Gross Value Added, ARIMA Modelling
    JEL: C35 C53 E25 E01 J21 J22 J24 J33 J38
    Date: 2020–06
  85. By: Timuno, Sayed O.M; Eita, Joel Hinaunye
    Abstract: While there is a general agreement on the effectiveness of fiscal stimulus, there is no consensus on which stimulus is better. To address this concern, this paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to propose a fiscal stimulus that Botswana can adopt given the slowing mining productivity. The results suggest that short-run macroeconomic stabilisation can be achieved through a cut in labour taxes. This fiscal stimulus generates larger growth multipliers and contributes relatively more employment compared to a cut in consumption tax and increases in government spending. The findings also revealed that a cut in labour taxes improves trade balance, resulting in a greater accumulation of international reserves and has no Dutch disease effects. These results suggests the need for a labour tax policy reform. These results also offer some policy options for other developing countries which may face similar fiscal risks in future.
    Keywords: fiscal stimulus; fiscal policy, DSGE; Botswana
    JEL: C61 E62 H30
    Date: 2020–02–28
  86. By: Serhan Cevik
    Abstract: This paper discusses the benefits and challenges of implementing a rule-based fiscal responsibility framework, using the Philippines as a case study. It estimates structural measures of the fiscal stance over the period 1980–2016 and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis indicates that discretionary fiscal policy has been procyclical, and the degree of procyclicality has increased in recent years. While the national government’s non-binding ceiling on the overall budget deficit is helpful, it does not constitute an appropriate operational target to guide fiscal policy over the economic cycle and necessarily ensure that the fiscal stance meets the government’s intertemporal budget constraint. To this end, using stochastic simulations, this paper makes the case for a well-designed fiscal responsibility law that enshrines explicit fiscal rules designed for countercyclical policy and long-term debt sustainability, and an independent fiscal council to improve accountability and transparency.
    Keywords: Economic stabilization;Fiscal policy;National budgets;Budgetary policy;Fiscal stimulus;procyclicality,structural budget balances,fiscal rules,output gap,countercyclical,budget balance,fiscal operation,rule-based
    Date: 2019–03–25
  87. By: Bick, Alexander; Fuchs-Schündeln, Nicola; Lagakos, David; Tsujiyama, Hitoshi
    Abstract: Why are average hours worked per adult lower in rich countries than in poor countries? Two natural candidates to consider are income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
    JEL: E24 J21 J22 O11
    Date: 2019–12
  88. By: Matthijs Breugem (Collegio Carlo Alberto; University of Turin); Stefano Colonello (Department of Economics, University Of Venice Cà Foscari; Halle Institute for Economic Research); Roberto Marfè (Collegio Carlo Alberto; University of Turin); Francesca Zucchi (Federal Reserve Board of Governors)
    Abstract: The term structure of equity and its cyclicality are key to understand the risks driving equilibrium asset prices. We propose a general equilibrium model that jointly explains four important features of the term structure of equity: (i) a negative unconditional term premium, (ii) countercyclical term premia, (iii) procyclical equity yields, and (iv) premia to value and growth claims respectively increasing and decreasing with the horizon. The economic mechanism hinges on the interaction between heteroskedastic long-run growth – which helps price long-term cash flows and leads to countercyclical risk premia – and homoskedastic short-term shocks in the presence of limited market participation – which produce sizeable risk premia to short-term cash flows. The slope dynamics hold irrespective of the sign of its unconditional average. We provide empirical support to our model assumptions and predictions.
    Keywords: Term Structure of Equity, Dynamics, General Equilibrium, Expected Growth Volatility
    JEL: D51 D53 E30 G10 G12
    Date: 2020
  89. By: Heidorn, Thomas; Schäfer, Niklas
    Abstract: Referenzzinssätze spielen als Grundlage für zahlreiche Finanzprodukte eine wichtige Rolle in der Funktionsweise der weltweiten Finanzmärkte. Im Zuge des LIBOR-Skandals ist das Vertrauen in die Robustheit der Sätze erheblich gesunken. Infolgedessen haben Finanzregulierungsbehörden Prinzipien zur zukünftigen Gestaltung der Indizes entwickelt. Darauf basierend sind die bestehenden Benchmarks von Arbeitsgruppen der Zentralbanken in verschiedenen wichtigen Währungsräumen überarbeitet bzw. durch alternative Referenzzinssätze abgelöst worden. €STR, SONIA und SOFR ersetzen in der Eurozone, Großbritannien und den USA, die bis dato gültigen Tagesgeld-Benchmarks. Als Nachfolger für den ursprünglichen EURIBOR hat das European Money Markets Institute eine hybride Variante der Benchmark entwickelt. Der Arbeitsbericht diskutiert die Bestimmungsmethodik der neuen Referenzzinssätze. Um das implizite Kreditniveau der neuen Benchmarksätze zu verstehen, werden die zugrunde liegenden Berechnungen und Märkte ausführlich dargestellt. Der größte Unterschied im Euroraum liegt bei Übergang vom Overnight-Zins EONIA zu €STR, der als Einlagenzins jetzt 0,085% tiefer liegt.
    Keywords: Benchmarkreform,Euro short-term rate,€STR,Referenzzinssätze,EURIBOR,SONIA,SOFR
    JEL: E43 E47 G15
    Date: 2020
  90. By: William D. Larson; Tara M. Sinclair
    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: panel forecasting, time series forecasting, forecast evaluation, structural breaks, Google Trends
    JEL: C53 E24 E27 J64 R23
    Date: 2020–07
  91. By: Youngsoo Jang; Minchul Yum
    Abstract: High hours worked and higher returns to longer hours worked are common in many occupations, namely nonlinear occupations (Goldin 2014). Over the last four decades, both the share and relative wage premium of nonlinear occupations have been rising. Females have been facing rising experience premiums especially in nonlinear occupations. To quantitatively explore how these changes affected female labor supply over time, we build a quantitative, dynamic general equilibrium model of occupational choice and labor supply at both extensive and intensive margins. A decomposition analysis finds that the rising returns to experience, especially in nonlinear occupations, and technical change biased towards nonlinear occupations are important to explain the intensive margin of female labor supply that keeps rising even in the recent period during which female employment stagnates. Finally, a counterfactual experiment suggests that if the nonlinearities were to be gradually vanishing, female employment could have been higher at the expense of significantly lower intensive margin labor supply.
    Keywords: Female labor supply, occupational choice, Roy model, experience premium
    JEL: E2 J2 J1
    Date: 2020–07
  92. By: Ales Bulir; Jan Vlcek
    Abstract: Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.
    Keywords: Bank rates;Central banks;Monetary policy;Central banking and monetary issues;Central bank policy;Monetary transmission,yield curve,rule-based monetary policy,WP,output gap,inflation expectation,inflation-targeting,policy innovation
    Date: 2020–01–17
  93. By: Francesca G Caselli; Julien Reynaud
    Abstract: This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985-2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may affect the adoption of domestic reforms through peer pressure and imitational effects. We find that fiscal rules correlate with lower deficits, but the positive link disappears when endogeneity is correctly addressed. However, when considering an index of fiscal rules’ design, we show that well-designed rules have a statistically significant impact on fiscal balances. We conduct several robustness tests and show that our results are not affected by weak instrument problems.
    Keywords: Fiscal rules;Fiscal balance;Fiscal consolidation;Fiscal framework;Fiscal sustainability;Instrument variable (IV) estimation, Fiscal rules,Fiscal balances.,endogeneity,instrumental variable,neighbor country,domestic reform,robustness
    Date: 2019–03–05
  94. By: Roberto Blanco (Banco de España); Sergio Mayordomo (Banco de España); Álvaro Menéndez (Banco de España); Maristela Mulino (Banco de España)
    Abstract: La epidemia de Covid-19 está teniendo un impacto negativo sin precedentes sobre la actividad económica y, en particular, sobre los ingresos de las empresas, provocando que en algunos casos estos sean insuficientes para hacer frente a los pagos comprometidos. En este documento se presentan los resultados de un ejercicio de simulación de las necesidades de liquidez de las empresas no financieras españolas, para los cuatro trimestres de este año, derivadas tanto de los posibles déficits generados por la evolución de la actividad de explotación como de las inversiones en activos fijos y los pagos asociados a las amortizaciones de deuda. De acuerdo con los resultados, dichas necesidades de liquidez podrían superar los 230 mm de euros entre abril y diciembre. Se estima que, a través de los programas de avales públicos para los créditos a las empresas, podrían cubrirse cerca de las tres cuartas partes de dicho déficit. Para financiar el resto, las empresas podrían utilizar sus colchones de liquidez o recurrir a nueva deuda sin avalar. En este sentido, hay que tener en cuenta que, durante los últimos meses, las compañías con un mejor acceso al crédito han conseguido captar un volumen elevado de fondos sin recurrir a garantías públicas. Por otra parte, a pesar de la caída sin precedentes de la facturación empresarial, un porcentaje no desdeñable de empresas (en torno a un 40?%) habrían podido hacer frente a esta situación sin registrar déficit de liquidez ni experimentar un deterioro de su situación patrimonial. No obstante, en el resto de las compañías el retroceso de la actividad habría llevado a elevar significativamente los niveles de vulnerabilidad financiera, haciéndolo con mayor intensidad dentro del segmento de las pymes y, especialmente, entre las empresas de los sectores más afectados por la pandemia, como los de turismo y ocio, vehículos de motor, y transporte y almacenamiento.
    Keywords: Covid-19, necesidades de liquidez de las empresas, crédito, avales, riesgo de insolvencia
    JEL: E51 E52 G21
    Date: 2020–07
  95. By: Xiaoming Li; Zheng Liu; Yuchao Peng; Zhiwei Xu
    Abstract: We present evidence that monetary policy easing reduces bank risk-taking but exacerbates capital misallocation in China after implementing the Basel III capital regulationsin2013. Thenewregulationstightenedbankcapitalrequirementsandintroduced a new risk-weighting approach to calculating the capital adequacy ratio (CAR). To meet tightened capital requirements, a bank can boost its effective CAR by raising capital or by increasing the share of lending to low-risk borrowers. Using confidential loan-level data from a large Chinese commercial bank, merged with firm-level data on a large set of manufacturing firms, we document robust evidence that a monetary policy expansion raises the share of new bank loans to state-owned enterprises (SOEs) after 2013, but not before, because SOE loans receive high credit ratings under government guarantees. Since SOEs are on average less productive than private firms, shifts in bank lending toward SOEs exacerbate capital misallocations, reducing aggregate productivity. We construct a two-sector general equilibrium model with bank portfolio choices and show that, under calibrated parameters, an expansionary monetary policy shock raises the share of bank lending to SOEs, leading to persistent declines in total factor productivity that partially offset the expansionary effects of monetary policy.
    Keywords: risk assessment; Monetary policy - China; risk management; china
    JEL: E52 G18 G21 O42
    Date: 2020–08
  96. By: Fernando Alexandre (NIPE and University of Minho); Pedro Bação (University of Coimbra, CeBER, FEUC); João Cerejeira (NIPE and University of Minho); Hélder Costa (NIPE/University of Minho); Miguel Portela (NIPE and University of Minho)
    Abstract: Since late 2014, Portuguese Governments adopted ambitious minimum wage policies. Using linked employer-employee data, we provide an econometric evaluation of the impact of those policies. Our estimates suggest that minimum wage increases reduced employment growth and profitability, in particular for financially distressed firms. We also conclude that minimum wage increases had a positive impact on firms’ exit, again amplified for financially distressed firms. According to these results, minimum wage policies may have had a supply side effect by accelerating the exit of low profitability and low productivity firms and, thus, contributing to improve aggregate productivity through a cleansing effect.
    Keywords: minimum wage, financially distressed firms, productivity
    JEL: E24 J38 L25
    Date: 2020
  97. By: Rudolfs Bems; Francesca G Caselli; Francesco Grigoli; Bertrand Gruss
    Abstract: Many argue that improvements in monetary policy frameworks in emerging market economies over the past few decades, have made them more resilient to external shocks. This paper exploits the May 2013 taper tantrum in the United States to study the reaction of 18 large emerging markets to an external shock, conditioning on their degree of inflation expectations' anchoring. We fi nd that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring, countries with weakly anchored inflation expectations experienced larger exchange rate pass-through to consumer prices, hence comparatively higher inflation. We conclude that efforts to improve the extent of anchoring of inflation expectations in emerging markets pay off, as they ease the trade-off that central banks face when external shocks weaken growth prospects and trigger currency depreciations.
    Keywords: Exchange rate pass-through;Consumer price indexes;Inflation expectations;Capital outflows;Monetary policy;Taper Tantrum,Exchange Rate Pass-Through.,inflation expectation,tantrum,pass-through,shaded area,emerge market
    Date: 2019–03–28
  98. By: Pierluigi Balduzzi (Boston College); Emanuele Brancati (Sapienza University of Rome); Marco Brianti (Boston College); Fabio Schiantarelli (Boston College; IZA)
    Abstract: We investigate the economic effects of the COVID-19 pandemic and the role played by credit constraints in the transmission mechanism, using a novel survey of expectations and plans of Italian firms, taken just before and after the outbreak. Most firms revise downward their expectations for sales, orders, employment, and investment, while prices are expected to increase at a faster rate than previously anticipated, but there is geographical and sectoral heterogeneity in the magnitude of the effects. Importantly, we show that credit constraints amplify the effects on factor demand and sales of the shocks associated with COVID-19. Moreover, credit-constrained firms expect to charge higher prices, relative to unconstrained firms. The search for and availability of liquidity is a key determinant of firms’ plans. Finally, there is evidence that both supply and demand shocks play a role in shaping firms’ expectations and plans, with supply shocks being slightly more important in the aggregate.
    Keywords: COVID-19, pandemic, firms’ expectations, firms’ plans, credit constraints, prices, employment, investment, sales, orders
    JEL: E2 E3 G30 I10
    Date: 2020–07–27
  99. By: Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; Van Rooij, Maarten
    Abstract: Using micro data from the 2015 Dutch CentERpanel, we examine whether trust in the European Central Bank (ECB) influences individuals' expectations and uncertainty about future inflation, and whether it anchors inflation expectations. We find that higher trust in the ECB lowers inflation expectations on average, and significantly reduces uncertainty about future inflation. Moreover, results from quantile regressions suggest that trusting the ECB increases (lowers) inflation expectations when the latter are below (above) the ECB's inflation target. These findings hold after controlling for people's knowledge about the objectives of the ECB.
    Keywords: anchoring; Inflation expectations; Inflation uncertainty; subjective expectations; trust in the ECB
    JEL: D12 D81 E03
    Date: 2019–12
  100. By: Döttling, Robin
    Abstract: How do near-zero interest rates affect optimal bank capital regulation and risk-taking? I study this question in a dynamic model, in which forward-looking banks compete imperfectly for deposit funding, but households do not accept negative deposit rates. When deposit rates are constrained by the zero lower bound (ZLB), tight capital requirements disproportionately hurt franchise values and become less effective in curbing excessive risk-taking. As a result, optimal dynamic capital requirements vary with the level of interest rates if the ZLB binds occasionally. Higher inflation and unconventional monetary policy can alleviate the problem, though their overall welfare effects are ambiguous. JEL Classification: G21, G28, E44, E58
    Keywords: capital regulation, franchise value, search for yield, unconventional monetary policy, zero lower bound
    Date: 2020–06
  101. By: Alejandro Rodríguez
    Abstract: We present a Simple SIR Macro Model to study the economic impact of an epidemic in a model were agent types are unobservable. We solve for the decentralized economy equilibrium and for optimal solution (subject to the constraint that the planner cannot differentiate between agent types). We find that decentralized economy produces an endogenous lockdown in which economic activity decreases. We find that the decentralized economy will begin its lockdown sooner than what the optimal policy prescribes because agents have an incentive to selfishly avoid infection while waiting for others to get infected, recover and contribute to herd-immunity. The optimal policy in this model is not necessarily about forcing people to stay at home but to force people to get infected early on.
    Keywords: Epidemic, COVID-19, recessions, lockdown, SIR macro model
    JEL: E1 I1 H0
    Date: 2020–07
  102. By: Martinez, Joseba; Philippon, Thomas; Sihvonen, Markus
    Abstract: We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a banking union; a capital market union; and complete financial markets. We show that a banking union is efficient at sharing all domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). Using a calibrated model we provide evidence of substantial welfare gains from a banking union and, in the presence of supply shocks, from a capital market union.
    Keywords: Banking Union; capital market union; Currency Union; incomplete markets; Risk Sharing
    JEL: E44 F36 F45
    Date: 2019–12
  103. By: Galvao, Ana Beatriz (University of Warwick); Mitchell, James (University of Warwick)
    Abstract: GDP is measured with error. But data uncertainty is rarely communicated quantitatively in real-time. An exception are the fan charts for historical GDP growth published by the Bank of England. To assess how well understood data uncertainty is, we first evaluate the accuracy of the historical fan charts and compare them with models of past revisions data. Secondly, to gauge perceptions of GDP data uncertainty across a wider set of experts, we conduct a new online survey. Our results call for greater communication of data uncertainties, to anchor dispersed expectations of data uncertainty. But they suggest that transitory data uncertainties can be adequately quantified, even without judgement, using past revisions data.
    Keywords: data revisions ; fan charts ; expectations survey ; backcasts ; density forecast calibration ;
    JEL: C53 E32
    Date: 2020
  104. By: Balazs Zelity (Department of Economics, Wesleyan University)
    Abstract: This research explores theoretically, empirically and quantitatively the role of age diversity in determining aggregate productivity and output. Age diversity has two conflicting effects on output. On the one hand, due to skill complementarity across different cohorts, age diversity may be beneficial. On the other hand, rapid skill-biased technological change makes age diversity costly as up-to-date education tends to be concentrated among younger cohorts. To study this trade-off, I first build an overlapping-generations (OLG) model which, in view of these two opposing forces, predicts a hump-shaped relationship between age diversity and GDP per capita. This prediction is established analytically, and also quantitatively using real-world population data in an extended computational version of the model. The prediction is then tested using country-level panel data with a novel instrument, and regional data from Europe. Moving one standard deviation closer to the optimal level of age diversity is associated with a 1.5% increase in GDP per capita. In addition, consistent with the predictions of the model, the optimal level of age diversity is lower in economies where skill-biased technological change is more prevalent.
    Keywords: age diversity, education, experience, human capital, demographics, skill-biased
    JEL: E24 O40 J24 O15
    Date: 2020–07
  105. By: Oriol Aspachs; Ruben Durante; Alberto Graziano; Josep Mestres; José Garcia Montalvo; Marta Reynal-Querol
    Abstract: Most official economic statistics have a relatively low frequency. The measures of inequality, in particular, are not only produced with low frequency but also with significant lags. This poses an important challenge for policymakers in their objective to mitigate the effects of a rapidly moving epidemic as the COVID-19. We propose a methodology for tracking the evolution of income inequality in the aftermath of the COVID-19 pandemic using high-frequency, high-quality microdata from bank-records. Using this approach we study the evolution of inequality since the beginning of the COVID-19 pandemic, and its effect on different groups of the population. First, we show that the payroll data managed by banks are an extremely useful source of information to detect, timely and accurately, changes in the distribution of wages. Our data replicate very closely the distribution of wages from the official wage surveys. Second, we show that, in absence of public benefits schemes, inequality would have increased dramatically. The impact of the crisis on inequality is explained mostly by its effect on low-wage workers. Pre-benefits wage inequality has increased significantly among foreign-born individuals, and regions that have a heavy economic dependence on touristic activities. Finally, we show that the public benefits activated soon after the beginning of the pandemic have substantially mitigated the impact of the COVID-19 crisis on inequality.
    Keywords: Inequality, COVID-19, administrative data, high frequency
    JEL: C81 D63 E24 J31
    Date: 2020–07
  106. By: De Dominicis, Piero
    Abstract: The purpose of this paper is to identify what is the role of automatization in increasing wage inequality, making a comparison between the two countries. Using PSID and Quadros de Pessoal, we find that labor income dynamics are strongly determined by the variance of the individual fixed component. This effect is drastically reduced by adding information on workers' occupational tasks, confirming that decreasing price of capital and the consequent replacement of routine manual workers have deepened wage inequality. During the current crisis, we find that the ability to keep working is strongly related with the occupation type. As such, we simulate the impact of a permanent demand shock using an overlapping-generations model with incomplete markets and heterogeneous agents to quantitatively predict the impact of Covid-19 and lockdown measures on wage premium and earnings inequality. We find that wage premia and earnings dispersion increase, suggesting that earnings inequality will increase at the expenses of manual workers.
    Keywords: Routinization, Wage Inequality, Covid-19, Income processes, Teleworking
    JEL: E21 J23 J31
    Date: 2020–06
  107. By: Reinelt, Timo; Meier, Matthias
    Abstract: We document three new empirical facts: (i) monetary policy shocks increase the markup dispersion across firms, (ii) they increase the relative markup of firms with stickier prices, and (iii) firms with stickier prices have higher markups. This is consistent with a New Keynesian model in which price rigidity is heterogeneous across firms. In the model, firms with more rigid prices optimally set higher markups and their markups increase by more after monetary policy shocks. The consequent increase in markup dispersion explains a negative aggregate TFP response. In a calibrated model, monetary policy shocks generate substantial fluctuations in aggregate productivity. JEL Classification: E30, E50
    Keywords: aggregate productivity, heterogeneous price rigidity, markup dispersion, monetary policy
    Date: 2020–06
  108. By: Delle-Monache, Davide (Bank of Italy); De-Polis, Andrea (University of Warwick); Petrella, Ivan (University of Warwick)
    Abstract: We investigate the relation between downside risk to the economy and the financial markets within a fully parametric model. We characterize the complete predictive distribution of GDP growth employing a Skew-t distribution with time- varying location, scale, and shape, for which we model both secular trends and cyclical changes. Episodes of downside risk are characterized by increasing negative asymmetry, which emerges as a clear feature of the data. Negatively skewed pre- dictive distributions arise ahead and during recessions, and tend to be anticipated by tightening of financial conditions. Indicators of excess leverage and household credit outstanding are found to be significant drivers of downside risk. Moreover, the Great Recession marks a significant shift in the unconditional distribution of GDP growth, which has featured a distinct negative skewness since then. The model delivers competitive out-of-sample (point and density) forecasts, improving upon standard benchmarks, especially due to financial conditions providing a strong signal of increasing downside risk.
    Keywords: business cycles ; financial conditions ; downside risk ; skewness ; score-driven models ;
    JEL: E37
    Date: 2020
  109. By: Tigran Poghosyan
    Abstract: This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.
    Keywords: Monetary policy instruments;Exchange rate policy;Central banks;Monetary policy;Monetary expansion;macroprudential regulation,financial stability,credit,house price,Kleibl,target variable,type of measure,real GDP growth,dependent variable
    Date: 2019–03–01
  110. By: Dell’Ariccia, Giovanni; Minoiu, Camelia; Ratnovski, Lev; Kadyrzhanova, Dalida
    Abstract: We study the composition of bank loan portfolios during the transition of the real sector to a knowledge economy where firms increasingly use intangible capital. Exploiting heterogeneity in bank exposure to the compositional shift from tangible to intangible capital, we show that exposed banks curtail commercial lending and reallocate lending to other assets, such as mortgages. We estimate that the substantial growth in intangible capital since the mid-1980s explains around 30% of the secular decline in the share of commercial lending in banks' loan portfolios. We provide suggestive evidence that this reallocation increased the riskiness of banks' mortgage lending. JEL Classification: E22, E44, G21
    Keywords: bank lending, commercial loans, corporate intangible capital, real estate loans
    Date: 2020–06
  111. By: Jean-Marc Natal; Nicolas Stoffels
    Abstract: We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation. An important implication of our analysis is that increased competition in goods and labor market since the 1970s can help explain both the large increase in real interest rates up to the mid-1980s and—as globalization forces mature and may even go into reverse, leading to incrementally rising market power—its subsequent and protracted decline accompanied by lower inflation. The analysis has important implications for monetary policy and the optimal pace of normalization.
    Keywords: Real interest rates;Market interest rates;Economic integration;Interest rates;Total factor productivity;low interest rate puzzle,globalization,natural interest rate,markups,real interest rate,markup,interest rate,global integration,productivity growth
    Date: 2019–05–06
  112. By: Lie, Denny
    Abstract: This paper studies the implications of state-dependent pricing in a small open-economy dynamic stochastic general equilibrium (DSGE) model for Indonesia. I show that variations in the timing and frequency of price adjustment inherent in a state-dependent pricing assumption could have important implications for DSGE model-based policy analysis in Indonesia. This extensive margin effect produces disparities in the conditional variance decompositions and the impulse responses to various shocks responsible for business cycle fluctuations. An investigation into the impact of COVID-19 pandemic shocks indicates that such variations non-trivially affect the analysis on the appropriate degree of monetary policy response to the shocks. A state-dependent pricing model would call for a greater degree of monetary easing in response to the COVID-19 pandemic, than that prescribed by a traditional time-dependent pricing model. The broader implication is clear. For modelling and analyzing the Indonesian economy, in which the inflation rates have historically been moderate-to-high and highly variable, state-dependent pricing is an essential model feature.
    Keywords: state-dependent pricing; monetary policy; DSGE model for Indonesia; COVID-19 pandemic
    Date: 2020–07
  113. By: Torsten Wezel
    Abstract: This paper discusses issues in calibrating the countercyclical capital buffer (CCB) based on a sample of EU countries. It argues that the main indicator for buffer decisions under the Basel III framework, the credit-to-GDP gap, does not always work best in terms of covering bank loan losses that go beyond what could be expected from economic downturns. Instead, in the case of countries with short financial cycles and/or low financial deepening such as transition and developing economies, the Basel gap is shown to work best when computed with a low, smoothing factor and adjusted for the degree of financial deepening. The paper also analyzes issues in calibrating an appropriate size of the CCB and, using a loss function approach, points to a tradeoff between stability of the buffer size and cost efficiency considerations.
    Keywords: Credit booms;Developing countries;Bank credit;Credit;Bank capital;Macroprudential Policy,Procyclicality,Basel III,CCB,RWA,buffer size,transition economy,regression
    Date: 2019–05–01
  114. By: Matteo Crosignani; Marco Macchiavelli; Andre Silva
    Abstract: We document the propagation effects through supply chains of the most damaging cyberattack in history and the important role of banks in mitigating its impact. Customers of directly hit firms saw reductions in revenues, profitability, and trade credit relative to similar firms. The losses were larger for customers with fewer alternative suppliers and suppliers producing high-specificity inputs. Internal liquidity buffers and increased borrowing, mainly through bank credit lines at higher rates due to increased risk, helped affected customers to maintain investment and employment. However, the shock led to persisting adjustments to the supply chain network.
    Keywords: cyberattacks; supply chains; credit lines
    JEL: E23 G21 G23 L14
    Date: 2020–07–01
  115. By: Reza C. Daniels (School of Economics, University of Cape Town); Safia Khan (School of Economics, University of Cape Town)
    Abstract: This paper evaluates the composition of household portfolios including assets, liabilities and net worth in the National Income Dynamics Study (NIDS) wave 5 (SALDRU, 2018). The inclusion of a top up sample of 1005 households made the sample more representative of the South African population – particularly the higher end of the wealth distribution, which was previously under-represented because of panel attrition between Waves 1-4. This resulted in an increase in the estimates of real total household assets and liabilities (after the removal of outliers), bringing the distribution closer to the macroeconomic household balance sheet estimates of assets and liabilities provided by the SA Reserve Bank (SARB), which implies that the top-up sample also improved the external validity of the wealth data. We find that household balance sheets are dominated by real estate and vehicular assets and debts, with notable exceptions in different covariate domains. In terms of inequality between waves 4 and 5 of NIDS, there has been a slight decrease in the Gini coefficient on net-worth despite the top-up sample, but an increase in the Gini coefficient on financial assets. The overall conclusion of the paper is that the NIDS Wave 5 wealth module is fit for purpose and researchers can conduct a wide range of analyses with the data, but researchers still need to conduct their own outlier detection checks before commencing analyses.
    Date: 2019
  116. By: Gohou Danon (BETA - Bureau d'Économie Théorique et Appliquée - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We construct an index of business cycle dffusion for the economy of Cote d'Ivoire. Such a dating process is aimed at assessing the extent of cyclical movements throughout a developing economy and particularly in the West African Economic and Monetary Union (WAEMU). This analysis of key turning points from a reference economic cycle is built upon several works, including Burns et Michel (1946) who identified, in a relatively simple process, common turning points of many variables. This visual localisation of turning points was later formalised in an algorithm by Bry-Boschan in 1971. The so-called "BB algorithm" was followed by a cluster approach which analysed the turning point dates from a population of time series concepts (Harding et Pagan (2006) andStock et Watson , 2010). Recently, Camacho, Gadea et Loscos (2018) augmented the existing framework by implementing a mixed, multiple-point change (MMC) model . The authors simultaneously determine pairs of peaks and troughs of the cycles and the corresponding dates of turning points . This chapter considers these twoapproaches (BB algorithm and MMC model) to identify business cycles' turning points in a small open economy from the WAEMU countries . We find that the two algorithms capture approximately the same number of cycles in Cote d'Ivoire between 1996 and 2018. However,unlike the BB algorithm, the MMC model failed to capture the recession from November 2005 to January 2007, but detected two new periods of contraction in 2008 and 2015.
    Keywords: Mixture Multiple-Point Change Model,WAEMU economies,Bry-Boschan algorithm,Business cycles
    Date: 2020–06–19
  117. By: Ali Alichi; Ippei Shibata; Kadir Tanyeri
    Abstract: Government debt in many small states has risen beyond sustainable levels and some governments are considering fiscal consolidation. This paper estimates fiscal policy multipliers for small states using two distinct models: an empirical forecast error model with data from 23 small states across the world; and a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to a hypothetical small state’s economy. The results suggest that fiscal policy using government current primary spending is ineffective, but using government investment is very potent in small states in affecting the level of their GDP over the medium term. These results are robust to different model specifications and characteristics of small states. Inability to affect GDP using current primary spending could be frustrating for policymakers when an expansionary policy is needed, but encouraging at the current juncture when many governments are considering fiscal consolidation. For the short term, however, multipliers for government current primary spending are larger and affected by imports as share of GDP, level of government debt, and position of the economy in the business cycle, among other factors.
    Keywords: Business cycles;Real interest rates;Exchange rate depreciation;Government consumption;Public investments;Government Spending,Fiscal Policy,Fiscal Multipliers.,WEO,government investment,level of GDP,small state,percent of GDP
    Date: 2019–03–26
    Abstract: This paper consider Tunisian banks case study over the period 2005–2014. The long run comparison analysis based on t-test between interest-free banks (IFB) and conventional banks (CB) of bank specific factors indicates that there are difference between Islamic and conventional banks behavior. CB are found to be more stable, while IFB have better liquidity and are riskier than CB. In long run, It is found alo that 2011 Yesameen revolution has negative effect on CB stability and 2008 GFC has positive effect on IFB stability. This paper investigates also the short run stability question based on dynamic model for Z-score ratio of tunisian banks during the same period. The paper finds that the level of Z-score can be attributed to both macroeconomic conditions and banks’ specific factors. Z-score is found to respond in short term to macroeconomic conditions. Z-scores tends to increase when Interest rate (INTER) and Foreign Direct Investment (FDI) rise. While instability increase when Unemployment rises, Exchange rate depreciates, and Inflation is high. It is found alo that in short run, 2011 Yesameen revolution and 2008 GFC have a significant positive effect on tunisian bank stability.
    Keywords: Financial stability, Z-score, 2008 Global financial crisis (GFC), 2011 Yesameen tunisian revolution, Tunisia, Islamic bank (IB), conventional bank (CB), macroeconomic factors, and banks’ specific factors.
    JEL: E32 E44 G01 G21 G32 Z12
    Date: 2020–06–10
  119. By: Ruchir Agarwal; Miles Kimball
    Abstract: The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
    Keywords: Central bank independence;Reserve requirements;Interest rate policy;Central banks;Negative interest rates;electronic money,monetary policy,negative rate,paper currency,negative interest rate,rental fee,cash withdrawal
    Date: 2019–04–29
  120. By: William Gbohoui; W. Raphael Lam; Victor Duarte Lledo
    Abstract: Growing regional inequality within countries has raised the perception that “some places and people” are left behind. This has prompted a shift toward inward-looking policies and away from pro-growth reforms. This paper presents novel stylized facts on regional inequality for OECD countries. It shows that regional disparity in per-capita GDP is large (even after adjusting for regional price differences), persistent, and widening over time. The paper also finds that rising nationwide income inequality is associated with both rising within-region income inequality and widening average income across regions. The rise in inequality is related to declining incentives for interregional labor mobility, especially for poor households in lagging regions, which are estimated to reduce by as much as one-third in the United States. Against these facts, the paper proposes a framework to identify whether, how and by whom fiscal policies can be used to tackle regional inequality. It outlines conditions under which those policies should be spatially-targeted and illustrates how they can be complementary to conventional means-testing methods in mitigating income inequality.
    Keywords: Cost of living;National income;Social security;Development;Social indicators;Regional inequality,fiscal redistribution,mobility,intergovernmental relations,regional disparity,means-testing,lead region,OECD country
    Date: 2019–05–02
  121. By: Bandaogo,Mahama Abdel Samir Sidbewende
    Abstract: As governments around the world struggle to piece together the most effective fiscal response to counter the economic and social impact of the COVID-19 outbreak, some are facing constraints imposed by fiscal rules enacted in the past to ensure fiscal discipline. The outbreak has revealedthe weaknesses and inappropriateness of many existing fiscal rules, and authorities should take the opportunity to strengthen their fiscal rules by adopting features that make them more flexible, operational, and enforceable. Research shows that the de facto strength and credibility of the fiscal rule is what matters for fiscal discipline, not the mere de jure existence of one. As important as it is that fiscal rules include contingencies to accommodate large and effective fiscal responses to severe and unprecedented crises, it is also as important that fiscal rules provide clear guidance for building up savings in times of positive shocks.
    Keywords: Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Public Finance Decentralization and Poverty Reduction,Economic Adjustment and Lending,Public Sector Economics,Macro-Fiscal Policy,Fiscal&Monetary Policy,Public Health Promotion,Health Care Services Industry
    Date: 2020–07–16
  122. By: Bas B. Bakker; Marta Korczak; Krzysztof Krogulski
    Abstract: In the last decade, over half of the EU countries in the euro area or with currencies pegged to the euro were hit by large risk premium shocks. Previous papers have focused on the impact of these shocks on demand. This paper, by contrast, focuses on the impact on supply. We show that risk premium shocks reduce the output level that maximizes profit. They also lead to unemployment surges, as firms are forced to cut costs when financing becomes expensive or is no longer available. As a result, all countries with risk premium shocks saw unemployment surge, even as euro area core countries managed to contain unemployment as firms hoarded labor during the downturn. Most striking, wage bills in euro area crisis countries and the Baltics declined even faster than GDP, whereas in core euro area countries wage shares actually increased.
    Keywords: Risk premium;Market interest rates;Interest rates;Real interest rates;Unemployment;Risk premia,Euro area crisis,global economic and fincanial crisis,premia,euro area,pre-crisis,Baltics,GDP decline
    Date: 2019–03–18
  123. By: Kevin Clark; Antoine Martin; Timothy Wessel
    Abstract: The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.
    Keywords: pandemic; COVID-19; repo market; Federal Reserve inventions
    JEL: G1 E5
    Date: 2020–08–03
  124. By: José Luis Espert
    Abstract: El presente trabajo estudia la relación entre la política tarifaria y los salarios reales. A través de un marco conceptual que incorpora supuestos competitivos se explica la relación empírica encontrada. El análisis da cuenta de una relación negativa no monótona entre nivel de tarifas y salarios reales. A la especificación estándar de la literatura, se la sometió a diferentes pruebas de robustez mostrando su sensibilidad a problemas de especificación. Se muestra una forma de corregir por los sesgos introducidos por este tipo de especificaciones. El trabajo concluye demostrando que, controlando por características relativas a la distribución de la variable exógena de interés, los resultados son robustos y se obtiene información más certera respecto a la relación bajo estudio.
    JEL: F14 F16 E24
    Date: 2020–07
  125. By: Sylvestre, Julie; Coutinho, Cristina
    Abstract: This paper provides a comprehensive overview of the use of the Eurosystem’s monetary policy instruments and the operational framework, from the first quarter of 2018 to the last quarter of 2019. It reviews the context of Eurosystem market operations; the design and operation of the Eurosystem’s counterparty and collateral frameworks; the fulfilment of minimum reserve requirements; participation in credit operations and recourse to standing facilities; and the conduct of outright asset purchase programmes. The paper also discusses the impact of monetary policy on the Eurosystem's balance sheet, excess liquidity and money market liquidity conditions. JEL Classification: D02, E43, E58, E65, G01
    Keywords: central bank collateral framework, central bank counterparty framework, central bank liquidity management, monetary policy implementation, non-standard monetary policy measures
    Date: 2020–06
  126. By: Jiro Honda; Hiroaki Miyamoto; Mina Taniguchi
    Abstract: What do we know about the output effects of fiscal policy in low income countries (LICs)? There are very few empirical studies on the subject. This paper fills this gap by estimating the output effects of government spending shocks in LICs. Our analysis—based on the local projection method—finds that the output effects in LICs are markedly lower than those in AEs and marginally smaller than those in EMs. We also find that in LICs, the output effects are larger (i) during recessions; (ii) under a fixed exchange rate regime; and/or (iii) with higher quality of institutions. Our analysis could not confirm any statistically significant output effect under floating exchange rate regimes. For the estimation of the output effects of fiscal spending shocks, it is thus important to consider the state of the economy and the country’s structural characteristics. Our results imply that the output costs of fiscal adjustment in LICs may not be as large as previously thought, especially if adopted outside of a recession, based on cutting public consumption, and accompanied by reform to enhance institutions.
    Keywords: Exchange rate regimes;Business cycles;Fixed exchange rates;Floating exchange rates;Flexible exchange rates;Fiscal Policy,Fiscal Multipliers,Low Income Countries,WP,exchange rate regime,institutional quality,public debt level,projection method,fixed exchange rate regime
    Date: 2020–01–17
  127. By: Dean Corbae; Pablo D'Erasmo
    Abstract: In this paper, we ask how bankruptcy law affects the financial decisions of corporations and its implications for firm dynamics. According to current U.S. law, firms have two bankruptcy options: Chapter 7 liquidation and Chapter 11 reorganization. Using Compustat data, we first document capital structure and investment decisions of non-bankrupt, Chapter 11, and Chapter 7 firms. Using those data moments, we then estimate parameters of a general equilibrium firm dynamics model with endogenous entry and exit to include both bankruptcy options. Finally, we evaluate a bankruptcy policy change similar to one recommended by the American Bankruptcy Institute that amounts to a "fresh start" for bankrupt firms. We find that changes to the law can have sizable consequences for borrowing costs and capital structure which via selection affects productivity, as well as long run welfare.
    Keywords: Corporate bankruptcy; Capital structure; Firm dynamics; Capital misallocation
    JEL: G30 G33 E22
    Date: 2020–07–28
  128. By: Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong
    Abstract: This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D.
    Keywords: Optimal capital taxation; R&D externalities; innovation
    JEL: E62 O31 O41
    Date: 2019–02
  129. By: Giovanni Gallipoli (Vancouver School of Economics, UBC); Christos Makridis (Arizona State University)
    Abstract: We examine the dynamics of GDP following an economy-wide pandemic shock that curtails physical mobility and the ability to perform certain tasks at work. We examine whether greater reliance on digital technologies has the potential to mediate employment and productivity losses. We employ industry-level indices of task-based digital intensity and ability to work from home (“home-shorability”), in conjunction with publicly available data on employment and GDP for Canada, and document that: (i) employment responses after the onset of the shock are milder in digitally-intensive sectors; (ii) conditional on the size of employment changes, GDP responses are less extreme in IT-intensive sectors. We suggest a simple state-dependent algorithm for predicting output dynamics as a function of employment across industries and locations with different digital intensity. In our baseline scenario, aggregate output returns to pre-crisis levels eight quarters after the initial shock onset, although we find significant heterogeneity in recovery patterns across sectors.
    Keywords: output, digital intensity, employment, Canada, coronavirus, Structural change
    JEL: E32 E66 J21 J23
    Date: 2020–07
  130. By: Tanai Khiaonarong; David Humphrey
    Abstract: The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.
    Keywords: Bank credit;Central banks;Central bank policy;Central bank accounting;Bank accounting;digital cash,e-money,physical cash,non-cash,giro
    Date: 2019–03–01
  131. By: Alok Johri; Md Mahbubur Rahman
    Abstract: India's relative price of investment rose 44% from 1981 to 1991 and fell 26% from 1991 to 2006. We build a simple DGE model calibrated to Indian data in order to explore the impact of capital import substitution policies and their reform post-1991, in accounting for this rise and fall. Our model delivers a 23% rise before reform and a 31% fall thereafter. GDP per effective labor was 3% lower in 1991 compared to 1981 due to import restrictions on capital goods. Their removal and a 71 percentage point reduction in tariff rates raised GDP per effective labor permanently by 20%.
    Keywords: Relative price of investment; Policy reform in India
    JEL: O11 E17 E2
    Date: 2020–07
  132. By: Marialuz Moreno Badia; Paulo Medas; Pranav Gupta; Yuan Xiang
    Abstract: With public debt soaring across the world, a growing concern is whether current debt levels are a harbinger of fiscal crises, thereby restricting the policy space in a downturn. The empirical evidence to date is however inconclusive, and the true cost of debt may be overstated if interest rates remain low. To shed light into this debate, this paper re-examines the importance of public debt as a leading indicator of fiscal crises using machine learning techniques to account for complex interactions previously ignored in the literature. We find that public debt is the most important predictor of crises, showing strong non-linearities. Moreover, beyond certain debt levels, the likelihood of crises increases sharply regardless of the interest-growth differential. Our analysis also reveals that the interactions of public debt with inflation and external imbalances can be as important as debt levels. These results, while not necessarily implying causality, show governments should be wary of high public debt even when borrowing costs seem low.
    Keywords: Domestic debt;Financial statistics;Public debt;Negative interest rates;Economic analysis;crisis,debt,default,fiscal,machine learning,WP,fiscal crisis,predictor,income group,debt level,Reinhart
    Date: 2020–01–03
  133. By: Wenjie Chen; Mico Mrkaic; Malhar S Nabar
    Abstract: This paper takes stock of the global economic recovery a decade after the 2008 financial crisis. Output losses after the crisis appear to be persistent, irrespective of whether a country suffered a banking crisis in 2007–08. Sluggish investment was a key channel through which these losses registered, accompanied by long-lasting capital and total factor productivity shortfalls relative to precrisis trends. Policy choices preceding the crisis and in its immediate aftermath influenced postcrisis variation in output. Underscoring the importance of macroprudential policies and effective supervision, countries with greater financial vulnerabilities in the precrisis years suffered larger output losses after the crisis. Countries with stronger precrisis fiscal positions and those with more flexible exchange rate regimes experienced smaller losses. Unprecedented and exceptional policy actions taken after the crisis helped mitigate countries’ postcrisis output losses.
    Keywords: Supply and demand;Public sector borrowing requirements;Negative interest rates;Bank credit;Central banks;Financial crisis,GDP trend,output deviations,employment deviations,bank crisis,advanced economy,WEO,TFP,deviation
    Date: 2019–04–26
  134. By: Dünhaupt, Petra; Herr, Hansjörg
    Abstract: The catching-up of countries in the Global South to productivity levels and living standards of the Global North is the exception. There are two main economic explanations for this. First, developing countries are pushed to low-tech-labor-intensive productions and tasks in global value chains. This offers some advantages, for example easier industrialisation, but also prevents upgrading. Foreign direct investment only partially helps to overcome this problem. Second, low trust in national currencies in the Global South leads to distorted financial markets which do not provide sufficient credit for investment. As part of needed industrial policy, national development banks can play a key role in triggering the economic catching-up of the Global South. They can alleviate distortions in the financial system and at the same time support the transformation of the economy towards higher productivity and ecological transformation. The German development bank KfW can serve as a useful example of an effective development bank.
    Keywords: Trade Theory,Economic Development,Global Value Chains,Industrial Policy,Financial Systems,Dollarisation,Development Banks
    JEL: E44 F10 F63
    Date: 2020
  135. By: Jean Imbs; Laurent L. Pauwels (Division of Social Science)
    Abstract: We propose a new measure of high order trade, labeled HOT, based on the fraction of a sector's downstream uses that cross a border. Because it decomposes gross output, HOT evaluates a sector's exposure to foreign shocks abstracting altogether from observed direct trade, which we exploit to construct instruments for openness. For the same reason, we can evaluate HOT with precision for activities where measured direct trade is essentially zero, like some services. We compute HOT and its instruments for 50 sectors in 43 countries using recently released data on international input-output linkages. We compare its properties with conventional measures that all rely on observed direct trade. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. HOT correlates significantly with sector productivity, growth, and synchronization; none of the conventional measures do. Once instrumented, we show high order openness causes productivity and synchronization, but not growth. JEL Codes: E32, F44
    Date: 2020–06
  136. By: Giovanni Caggiano; Efrem Castelnuovo; Richard Kima; Silvia Delrio
    Abstract: This paper quantifies the finance uncertainty multiplier (i.e., the magnifying effect of the real impact of uncertainty shocks due to financial frictions) by relying on two historical events related to the US economy, i.e., the large jump in financial uncertainty occurred in October 1987 (which was not accompanied by a deterioration of the credit supply conditions), and the comparable jump in financial uncertainty in September 2008 (which went hand-in-hand with an increase in financial stress). Working with a VAR framework and a set-identification strategy which focuses on - but it is not limited to - restrictions related to these two dates, we estimate the finance uncertainty multiplier to be equal to 2, i.e., credit supply disruptions are found to double the negative output response to an uncertainty shock. We then employ our model to estimate the overall economic cost of the COVID-19-induced uncertainty shock under different scenarios. Our results point to the possibility of a cumulative yearly loss of industrial production as large as 31% if credit supply gets disrupted. Liquidity interventions that keep credit conditions as healthy as they were before the COVID-19 uncertainty shock are found to substantially reduce such loss.
    Keywords: Uncertainty shocks, finance-uncertainty multiplier, set-identification, VAR, financial frictions, COVID-19
    JEL: C32 E32
    Date: 2020–07
  137. By: Andrea Deghi; Mitsuru Katagiri; Sohaib Shahid; Nico Valckx
    Abstract: This paper predicts downside risks to future real house price growth (house-prices-at-risk or HaR) in 32 advanced and emerging market economies. Through a macro-model and predictive quantile regressions, we show that current house price overvaluation, excessive credit growth, and tighter financial conditions jointly forecast higher house-prices-at-risk up to three years ahead. House-prices-at-risk help predict future growth at-risk and financial crises. We also investigate and propose policy solutions for preventing the identified risks. We find that overall, a tightening of macroprudential policy is the most effective at curbing downside risks to house prices, whereas a loosening of conventional monetary policy reduces downside risks only in advanced economies and only in the short-term.
    Keywords: Global financial crisis, 2008-2009;Demand;Interest rate increases;Housing prices;Financial crises;House Prices,Growth at Risk,Panel Quantile Regression,Early Warning Models,Macroprudential Policy,Monetary Policy,WP,emerge market economy,quantile,house price,financial condition,policy measure
    Date: 2020–01–17
  138. By: Christoffel, Kai; Mazelis, Falk; Montes-Galdón, Carlos; Müller, Tobias
    Abstract: Forward guidance operates via the expectations formation process of the agents in the economy. In standard quantitative macroeconomic models, the expectations are unobserved state variables and little scrutiny is devoted to analysing the dynamic behaviour of these expectations. We show that the introduction of survey and financial market-based forecasts in the estimation of the model disciplines the expectations formation process in DSGE models. When the model-implied expectations are matched to observed expectations, the additional information of the forecasts restrains the agents’ expectations formation. We argue that the reduced volatility of the agents’ expectations dampens the model reactions to forward guidance shocks and improves the out-of-sample forecast accuracy of the model. Furthermore, we evaluate the case for introducing a discount factor as a reduced form proxy for a variety of microfounded approaches, proposed to mitigate the forward guidance puzzle. Once data on expectations is considered, the empirical support to introduce a discount factor dissipates. JEL Classification: C13, C52, E3, E47, E52
    Keywords: Bayesian estimation, DSGE models, expectations formation, forecasting, monetary policy
    Date: 2020–06
  139. By: J. David Lopez-Salido; Gerardo Sanz-Maldonado; Carly Schippits; Min Wei
    Abstract: The "natural" or equilibrium real rate of interest is an important concept in macroeconomics. On the one hand, the natural (real) rate provides a description of the real interest rate path consistent with the eventual full capacity of utilization of available resources in the context of low and stable inflation.
    Date: 2020–06–19
  140. By: Umba, Gilles Bertrand
    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 ; (ii) 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.
    Keywords: Choc externes; Cycle économique; Macroéconomie nouvelle keynésienne
    JEL: C32 C51 E3 F49 O55
    Date: 2020–07
  141. By: Kristle Romero Cortes; Andrew Glover; Murat Tasci
    Abstract: Over the last 15 years, 11 states have restricted employers’ access to the credit reports of job applicants. We estimate that county-level job vacancies have fallen by 5.5 percent in occupations affected by these laws relative to exempt occupations in the same counties and national-level vacancies for the same occupations. Cross-sectional heterogeneity suggests that employers use credit reports as signals of a worker’s ability to perform the job: vacancies fall more in counties with a large share of subprime residents, while they fall less for occupations with other commonly available signals. Vacancies fall most for occupations involving routine tasks, suggesting that credit reports contain information relevant for these types of jobs.
    Keywords: Vacancies; Credit score; Credit check
    JEL: E24 E65 J23 J63
    Date: 2020–07–15
  142. By: Daniele Bianchi; Massimo Guidolin; Manuela Pedio
    Abstract: In this paper we take an empirical asset pricing perspective and investigate the dominant view (possibly, an instinctive reflection of the media hype surrounding the surge of Bitcoin valuations) that cryptocurrencies represent a new asset class, spanning risks and payoffs sufficiently different from the traditional ones. Methodologically, we rely on a flexible dynamic econometric model that allows not only time-varying coefficients, but also allow that the entire forecasting model be changing over time. We estimate such model by looking at the time variation in the exposures of major cryptocurrencies to stock market risk factors (namely, the six Fama French factors), to precious metal commodity returns, and to cryptocurrency-specific risk-factors (namely, crypto-momentum, a sentiment index based on Google searches, and supply factors, i.e., electricity and computer power). The main empirical results suggest that cryptocurrencies are not systematically exposed to stock market factors, precious metal commodities or supply factors with the exception of some occasional spikes of the coecients during our sample. On the contrary, crypto assets are characterized by a time-varying but significant exposure to a sentiment index and to crypto-momentum. Despite the lack of predictability compared to traditional asset classes, cryptocurrencies display considerable diversification power in a portfolio perspective and as such they can lead to a moderate improvement in the realized Sharpe ratios and certainty equivalent returns within the context of a typical portfolio problem.
    Keywords: Cryptocurrencies, predictability, portfolio diversification, dynamic model averaging, time-varying, parameter regressions.
    JEL: E40 E52
    Date: 2020
  143. By: Selin ÖZYURT; Simon CUEVA (TNK Economics)
    Abstract: Ecuador adopted the U.S. dollar as its legal tender in January 2000, in a context of deep economic and political crisis. Almost two decades later in December 2019, the Executive Board of the International Monetary Fund (IMF) approved a total disbursement of US$498 million after the completion of the second and third reviews under the Extended Fund Facility Arrangement. The financial agreement with the IMF had been concluded in March 2019, under the presidency of Lenin Moreno, in order to address the country’s growing external financing needs. Within the framework of the macroeconomic program supported by the IMF, Ecuadorian authorities committed to ensure fiscal sustainability, re-build the international reserves of the Central Bank of Ecuador (BCE), and strengthen the institutional foundations of official dollarization.
    Keywords: Équateur
    JEL: E
    Date: 2020–07–24
  144. By: Mariam El Hamiani Khatat; Romain M Veyrune
    Abstract: This paper introduces a theoretical framework for liquidity management under fixed exchange rate arrangement, derived from the price-specie flow mechanism of David Hume. The framework highlights that the risk of short-term money market rates un-anchoring from the uncovered interest rate parity due to money and foreign exchange market frictions could jeopardize financial stability and market development. The paper then discusses operational solutions that stabilize money market rates close to the level implied by the Uncovered Interest Rate Parity (UIP). Liquidity management under fixed exchange rate with an open capital account presents specific challenges due to: (1) the larger liquidity shocks induced by foreign reserve swings that challenge the development of money markets; and (2) more complicated liquidity forecasts. The theoretical framework is empirically tested based on the estimate of “offset” coefficients for Denmark and Hong Kong SAR.
    Keywords: Central banks;Central bank operations;Monetary policy operational framework;Central bank policy;Bank rates;Fixed exchange rate regime,price-specie flow mechanism,uncovered interest rate parity,offset coefficients,monetary operations,autonomous factors,money and foreign exchange markets,bank reserve,NFA,HKMA,fixed exchange rate,counterparties
    Date: 2019–03–18
  145. By: Schilling, Linda Marlene
    Abstract: We analyze optimal strategic delay of bank resolution ('grq forbearance') and deposit insurance coverage. After bad news on the bank's assets, depositors fear for the uninsured part of their deposit and withdraw while the regulator observes withdrawals and needs to decide when to intervene. Optimal policy maximizes the joint value of the demand deposit contract and the insurance fund to avoid inefficient risk-shifting towards the fund while also preventing inefficient runs. Under low insurance coverage, the optimal intervention policy is never to intervene (laissez-faire). Optimal deposit insurance coverage is always interior. The paper sheds light on the differences between the U.S. and the European Monetary Union concerning their bank resolution policies.
    Keywords: bank resolution; bank run; deposit freeze; deposit insurance; Forbearance; global games; mandatory stay; Recovery Rates; suspension of convertibility
    JEL: D8 E6 G21 G28 G33
    Date: 2019–12
  146. By: Guner, Nezih; Kaya, Ezgi; Sánchez-Marcos, Virginia
    Abstract: The total fertility rate is well below its replacement level of 2.1 children in high-income countries. Why do women choose such low fertility levels? We study how labor market frictions affect the fertility of college-educated women. We focus on two frictions: uncertainty created by dual labor markets (the coexistence of jobs with temporary and open-ended contracts) and inflexibility of work schedules. Using rich administrative data from the Spanish Social Security records, we show that women are less likely to be promoted to permanent jobs than men. Temporary contracts are also associated with a lower probability of first birth. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules, which come with a fixed time cost. We then build a life-cycle model in which married women decide whether to work or not, how many children to have, and when to have them. In the model, women face a trade-off between having children early and waiting and building their careers. We show that reforms that reduce the labor market duality and eliminate split-shift schedules increase the completed fertility of college-educated from 1.52 to 1.88. These reforms enable women to have more children and have them early in their life-cycle. They also increase the labor force participation of women and eliminate the employment gap between mothers and non-mothers.
    Keywords: Fertility; Labor market frictions; Split-Shift Schedules; Temporary contracts
    JEL: E24 J13 J21 J22
    Date: 2019–11
  147. By: Jiakai Chen; Haoyang Liu; David Rubio; Asani Sarkar; Zhaogang Song
    Abstract: The COVID-19 pandemic elevated financial market illiquidity and volatility, especially in March 2020. The mortgage-backed securities (MBS) market, which plays a critical role in the housing market by funding the vast majority of U.S. residential mortgages, also suffered a period of dysfunction. In this post, we study a particular aspect of MBS market disruptions by showing how a long-standing relationship between cash and forward markets broke down, in spite of MBS dealers increasing the provision of liquidity. (See our related staff report for greater detail.) We also highlight an innovative response by the Federal Reserve that seemed to have helped to normalize market functioning.
    Keywords: mortgage-backed securities (MBS) market; liquidity; COVID-19
    JEL: G1 E5
    Date: 2020–07–17
  148. By: Majdeline El Rayess; Avril Halstead; Jason Harris; John Ralyea; Alexander F. Tieman
    Abstract: Public sector balance sheets (PSBS) provide a framework for comprehensive and deep analysis of fiscal risks and policies. To illustrate these benefits, this paper shows how PSBS analysis can be applied to assess risks to Indonesia’s public sector stemming from its public corporations. The paper also shows that the government’s plans to finance a ramp-up in public investment with additional tax revenue increases both economic growth and public wealth.
    Keywords: Financial soundness indicators;Economic growth;Interest rate increases;Real interest rates;Public financial corporations;Public Sector Balance Sheet,Intertemporal Fiscal Balances,Public Investment,Indonesia.,intertemporal,tax-financed,public corporation,percent of GDP,non-financial
    Date: 2019–04–24
  149. By: Besley, T.; Roland, I.; Van Reenen, J.
    Abstract: This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm’s probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor’s PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm’s future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms.
    Keywords: productivity, default risk, credit frictions, misallocation
    JEL: D24 E32 L11 O47
    Date: 2019–12–02
  150. By: David J Hofman; Marcos d Chamon; Pragyan Deb; Thomas Harjes; Umang Rawat; Itaru Yamamoto
    Abstract: We investigate the motives inflation-targeting central banks in emerging markets may have for intervening in foreign exchange markets and evaluate the case for such interventions based on the existing literature. Our findings suggest that the rationale for interventions depends on initial conditions and country-specific circumstances. The case is strongest in the presence of large currency mismatches or underdeveloped markets. While interventions can have benefits in the short-term, sustained over time they could entrench unfavorable initial conditions, though more work is needed to establish this empirically. A first effort to measure the cost of interventions to the credibility of policy frameworks suggests that the negative impact may be smaller than often assumed—at least for the set of more sophisticated inflation-targeting emerging-market central banks considered here.
    Keywords: Central banks;Exchange rate policy;Central bank policy;Exchange markets;Central banking and monetary issues;emerging markets,monetary and exchange rate policies,inflation targeting,foreign exchange intervention,capital flows,WP,EME,inflation target,policy instrument,exchange rate,targeter
    Date: 2020–01–17
  151. By: Ghada Fayad; Chengyu Huang; Yoko Shibuya; Peng Zhao
    Abstract: This paper applies state-of-the-art deep learning techniques to develop the first sentiment index measuring member countries’ reception of IMF policy advice at the time of Article IV Consultations. This paper finds that while authorities of member countries largely agree with Fund advice, there is variation across country size, external openness, policy sectors and their assessed riskiness, political systems, and commodity export intensity. The paper also looks at how sentiment changes during and after a financial arrangement or program with the Fund, as well as when a country receives IMF technical assistance. The results shed light on key aspects on Fund surveillance while redefining how the IMF can view its relevance, value added, and traction with its member countries.
    Keywords: Fiscal sector;External sector;Economic conditions;Real sector;Commodity price indexes;IMF,Surveillance,Economic Policy,Sentiment Analysis,Natural Language Processing,WP,article IV,article IV consultation,paragraph,sector-specific
    Date: 2020–01–17
  152. By: Amir, Md. Khaled
    Abstract: This study endeavored to find out the impact of excess bank liquidity on non-performing loans (NPL) by using both technical and empirical analysis. The paper found that explanatory variable (excess bank liquidity) has moderate influence on the dependent variable (NPL), suggesting some other hypothetical and psychological aspects such as the intention to fraud, immoral lending, lack of loan monitoring, capital injection and nepotism, etc. which may affect the current economic and banking system in Bangladesh. The study conducts simple linear regression analysis where the beta coefficient of excess bank liquidity is -0.435 clearly indicates, the inverse movement of both the variables which supports the real banking system. The model equation supports an economical relation between excess bank liquidity and non-performing loan (NPL) because loan recovery is the meaning of reducing non-performing loan (NPL) amount and boosts up the bank liquidity of any bank again.
    Keywords: Bank Liquidity, Bank Run, Inflation, Investment, OLS, Interest Rates, Loanable Funds.
    JEL: A1 E5 L6
    Date: 2019–04–06
  153. By: Nicola Pierri; Yannick Timmer
    Abstract: Motivated by the world-wide surge of FinTech lending, we analyze the implications of lenders’ information technology adoption for financial stability. We estimate bank-level intensity of IT adoption before the global financial crisis using a novel dataset that provides information on hardware used in US commercial bank branches after mapping them to their parent bank. We find that higher intensity of IT-adoption led to significantly lower non-performing loans when the crisis hit: banks with a one standard deviation higher IT-adoption experienced 10% lower non-performing loans. High-IT-adoption banks were not less exposed to the crisis through their geographical footprint, business model, funding sources, or other observable characteristics. Loan-level analysis indicates that high-IT-adoption banks originated mortgages with better performance and did not offload low-quality loans. We apply a simple text-analysis algorithm to the biographies of top executives and find that banks led by more “tech-oriented” managers adopted IT more intensively and experienced lower non-performing loans during the crisis. Our results suggest that technology adoption in lending can enhance financial stability through the production of more resilient loans.
    Keywords: Financial crises;Macroprudential policies and financial stability;Financial markets;Financial institutions;Financial systems;Technology,Financial Stability,IT Adoption,Non-Performing Loans,WP,pre-crisis,GFC,non-performing loan,Rajan
    Date: 2020–01–17
  154. By: Thomas Gries (Paderborn University)
    Abstract: The paper explains the growth — inequality nexus for China’s provinces. The theoretical model of provincial development consists of two regions and studies the interactions of a mutually depending development process. Due to positive externalities, incoming trade and FDI induce imitation and hence productivity growth. The regional government can influence the economy by changing international transaction costs and providing public infrastructure. Due to mobile domestic capital, disparity effects are reinforced. The implications of the theoretical model are tested. As the central intention of the paper is to explain provincial disparity we directly relate income disparity (indicated by the contribution to the per capita income Theil index) to the disparity of selected income determining factors (indicated by the contribution to every other Theil index of the determinants). We examine the determinants of income and inequality for 28 Chinese provinces over the period 1991-2004 and apply a fixed effects panel estimation. Our analysis is based on revised GDP and investment data from Hsueh and Li (1999) and various sources of Chinese official statistics provided by the National Bureau of Statistics (NBS). The results confirm the theoretical framework and suggest a direct linkage between the factors that determine regional income and regional disparity. More specific, it is apparent that trade, foreign and domestic capital and government expenditure have an impact on the provincial inequality. Moreover, it is the success of the coastal regions and hence potentially geography with the low international transaction costs that drives the provincial inequality of China.
    Keywords: imperfect markets; market matching; product-variety model; demand-restricted growth; semi-endogenous growth
    JEL: O40 E10 D33
    Date: 2020–08
  155. By: Guilmi, Corrado Di (Economics Discipline Group, University of Technology Sydney, Australia, and Centre for Applied Macroeconomic Analysis, Australian National University, Canberra, Australia.); Galanis, Giorgos (Goldsmiths, University of London, UK, and Centre for Applied Macroeconomic Analysis, Australian National University.)
    Abstract: The original formulation of the median voter theorem predicts parties’ political convergence in a static setup, under two key assumptions : voters preferences being fixed and parties being opportunistic (purely office-motivated). Drawing on recent empirical findings about the evolution of voters’ political preferences, this paper verifies whether the median voter theorem’s results hold when (i) the control variables that influence voters’ preferences endogenously evolve over time, and (ii) parties are not opportunistic. We present a dynamic two-party voting model in which voters’ preferences evolve over time depending on observable common factors and unobservable idiosyncratic characteristics. In such a setting, the convergence of parties’ platforms to the centre is a special case within a range of results that include instability and equilibria at one of the extremes. Moreover, convergence of parties’ platforms is achieved not as the result of electoral strategies, but when neither party has enough support to pursue its agenda.
    Keywords: median voter ; dynamic voting ; political preferences JEL codes: C62 ; D72 ; E71
    Date: 2020
  156. By: Kodjovi M. Eklou; Mamour Fall
    Abstract: Do discretionary spending cuts and tax increases hurt social well-being? To answer this question, we combine subjective well-being data covering over half a million of individuals across 13 European countries, with macroeconomic data on fiscal consolidations. We find that fiscal consolidations reduce individual well-being in the short run, especially when they are based on spending cuts. In addition, we show that accompanying monetary and exchange rate policies (disinflation, depreciations and the liberalization of capital flows) mitigate the well-being cost of fiscal consolidations. Finally, we investigate the well-being consequences of the two well-knowns expansionary fiscal consolidations episodes taking place in the 80s (in Denmark and Ireland). We find that even expansionary fiscal consolidations can have well-being costs. Our results may therefore shed some light on why some governments may choose to consolidate through taxes even at the cost of economic growth. Indeed, if spending cuts are to generate a large well-being loss, they can trigger an opposition and protest against a fiscal consolidation plan and hence making it politically costly.
    Keywords: Fiscal consolidation;Tax increases;Fiscal policy;Gross capital formation;Economic conditions;Fiscal Consolidations,Subjective Well-Being,Spending cuts,Tax hikes,WP,life satisfaction,spend cut,tax hike,well-being
    Date: 2020–01–17
  157. By: Julia Gouny; Haoyang Liu; Woojung Park
    Abstract: On March 23, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York initiated plans to purchase agency commercial mortgage-backed securities (agency CMBS) at the direction of the FOMC in order to support smooth market functioning of the markets for these securities. This post describes the deterioration in market conditions that led to agency CMBS purchases, how the Desk conducts these operations, and how market functioning has improved since the start of the purchase operations.
    Keywords: SOMA; agency; agency commercial mortgage-backed securities (agency CMBS); Open Market Trading Desk; COVID-19; the Desk
    JEL: E5 G1
    Date: 2020–07–16
  158. By: Hagenhoff, Tim; Lustenhouwer, Joep
    Abstract: We propose a simple model of expectation formation with three distinct deviations from fully rational expectations. In particular, forecasters’ expectations are sticky, extrapolate the most recent news about the current period, and depend on the lagged consensus forecast about the period being forecast. We find that all three biases are present in the Survey of Professional Forecaster as well as in the Livingston Survey, and that their magnitudes depend on the forecasting horizon. Moreover, in an over-identified econometric specification, we find that the restriction on coefficients implied by our model is always close to being satisfied and in most cases not rejected. We also stress the point that using the past consensus forecast to form expectations is a rather smart thing to do if cognitive limitations and biases cause any attempt to build an own rational forecast to fail.
    Keywords: expectation formation; sticky expectations; consensus forecasts; survey data; extrapolation
    Date: 2020–07–31
  159. By: Simplice A. Asongu (Yaounde, Cameroonj); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Paul N. Acha-Anyi (Walter Sisulu University, South Africa)
    Abstract: This study investigates the simultaneous openness hypothesis by assessing the importance of trade openness in modulating the effect of foreign direct investment (FDI) on economic dynamics of gross domestic product (GDP) growth, real GDP and GDP per capita. The focus of the study is on 25 countries in Sub-Saharan Africa over the period spanning from 1980 to 2014. First, trade imports modulate FDI to induce net positive effects on GDP growth and GDP per capita. Second, trade exports moderate FDI to generate overall positive impacts on GDP growth, real GDP and GDP per capita. Implications of the study are discussed, inter alia: (i) both FDI and trade infrastructures are necessary for FDI-focused measures to engender positive economic development outcomes in host communities and countries. (ii) Macroeconomic conditions that are relevant for promoting economic development are necessary for the interactions between trade openness and FDI to generate favorable outcomes in terms of GDP growth, real GDP and GDP per capita.
    Keywords: Economic Output; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  160. By: Tamar Mdivnishvili (Macroeconomic Research Division, National Bank of Georgia); Shalva Mkhatrishvili (Macroeconomic Research Division, National Bank of Georgia); Davit Tutberidze (Macroeconomic Research Division, National Bank of Georgia)
    Abstract: The aim of our study is to estimate the distribution of the profitability of the Georgian banking sector, in order to determine liquidity risk, for which we use Cash Flow at Risk (CFaR). In our estimation, we took into account possible nonlinear impact of monetary policy on banks' profit, which allows us also to estimate the neutral interest rate. According to our results, the relationship between bank profits on the one hand and short- and long-term interest rates on another is nonlinear indeed. In addition to median estimates, we also use quantile regression, which allows us to estimate tail risks. According to the results in a "normal" (median) situation, when interest rates are below neutral rate, decreasing policy rate reduces banks' profits, while if banks suffer from low liquidity (on a lower percentile), reduction of policy rate increases banks' profits. According to the quantile regression output, the relationship between bank profitability and yield curve is asymmetric. The results also show the dependence of bank liquidity risk on other macro variables. Estimates are made for the entire banking sector as well as for the two largest banks in Georgia.
    Keywords: Quantile regression, Forecasting, Monetary policy, Bank profitability, CFaR
    JEL: C21 C53 E52 G21
    Date: 2020–07
  161. By: Joris M. Schröder
    Abstract: The US-centred debate on the decoupling of productivity from workers’ compensation has given rise to the question whether this decoupling has also taken place in other countries, and if so, to what degree. However, in-depth analyses of the extent and the underlying causes of wage-productivity decoupling within Europe are still sparse. This is particularly the case for the Central and East European members of the EU (EU-CEE11), where trickle down of increased labour productivity to local workers in the form of compensation and wage growth has been questioned. Existing analyses provide little explanation as to why the gains in productivity are (not) fully passed on in the form of higher compensation, and why this is more pronounced in some countries than in others. This study thus provides an overview of the extent and underlying factors of wage-productivity decoupling with a focus on the EU-CEE11 countries. In general, the results reveal strong cross-country variation in the amount and underlying reasons for decoupling. Further, we find that the extent of decoupling within the EU-CEE11 is strongly related to the industry structures of these countries, as it is mostly a phenomenon which occurs in countries that have followed an export- and manufacturing-focused development path, while other countries have experienced “reverse decoupling”. We provide further insights into this finding by contrasting productivity and compensation developments in industry and construction with those in the service sector and by looking at each EU-CEE11 country individually.
    Keywords: Labour productivity, compensation, wages, economic growth, wage inequality, labour share
    JEL: E24 J3 D3 J24
    Date: 2020–07
  162. By: Amir, Md. Khaled; Amir, Md Zobayer
    Abstract: Since adopting all the possible plans, strategies, and containing measures to defy the outbreak of COVID-19 pandemic, the world fails to prevent rapid contagion of a novel coronavirus, breaks down the regular all-inclusive socio-economic channels, damages countless lives and livelihoods and forces global economic downturn could be facing world’s worst depression since the 1930s. This research paper has two phases amid and after the impact of novel coronavirus on global Scio-economy, can be mitigated by focusing and implementing effective responsive and reconstructive socio-economic plans and frameworks covering emergency financing, robust capital market, independence of the central bank, and sound banking sector, currency swap, liquidity facilities, tax relief, loan forbearance, and expanded unemployment insurance, concessional financing, grants, debt relief, global collaboration, innovating new diversified technologies, job transition, reskilling, re-deployment, setting watchdog for corruption, global collaboration, adding resilience, response, and re-configurability in existing supply chain metrics are essential to lighten the global socio-economic imbalances including financial distress, economic stress, food crisis, rising hunger, job layoffs, educational institutions closure, supply chain interruptions and shutting down businesses. Declining Carbon dioxide (CO2) emission creating an opportunity of establishing a low carbon economy and reducing air pollution and environmental crisis, a chance on focusing clean energy, and emphasize more on hi-tech like cloud computing and artificial intelligence are positive outcomes from coronavirus pandemic, will help to accelerate response and recovery plans against COVID-19.
    Keywords: COVID-19, Socio-Economy, Clean Energy, Cloud Computing, Job Transition, Fiscal Aid JEL Code: A120, B55, L86, J62, H87
    JEL: A13 D6 E61 H3 M2 M21 O2
    Date: 2020–06–17
  163. By: Massimiliano Nuccio (BLISS – Digital Impact Lab, Department of Management, Università Ca' Foscari Venice); Marco Guerzoni (DESPINA Big Data Lab, Department of Economics and Statistics Cognetti De Martiis, University of Torino); Riccardo Cappelli (Department of Economics and Social Sciences, Polytechnic University of Marche); Aldo Geuna (Department of Culture, Politics and Society, University of Torino)
    Abstract: Recent literature on the diffusion of robots mostly ignores the regional dimension. The contribution of this paper at the debate on Industry 4.0 is twofold. First, IFR (2017) data on acquisitions of industrial robots in the five largest European economies are rescaled at regional levels to draw a first picture of winners and losers in the European race for advanced manufacturing. Second, using an unsupervised machine learning approach to classify regions based on their composition of industries. The paper provides novel evidence of the relationship between industry mix and the regional capability of adopting robots in the industrial processes.
    Keywords: Robots, Industry 4.0., Innovation, Industry Mix, Self-Organizing Maps
    JEL: E32 O33 R11 R12
    Date: 2020–07

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