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on Macroeconomics |
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Issue of 2020‒08‒17
198 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Maryam Farboodi; Péter Kondor |
| Abstract: | We propose a rational model of endogenous cycles generated by the two-way interaction between credit market sentiments and real outcomes. Sentiments are high when most lenders optimally choose lax lending standards. This leads to low interest rates and high output growth, but also to the deterioration of future credit application quality. When the quality is sufficiently low, lenders endogenously switch to tight standards, i.e. sentiments become low. This implies high credit spreads and low output, but a gradual improvement in the quality of applications, which eventually triggers a shift back to lax lending standards and the cycle continues. The equilibrium cycle might feature a long boom, a lengthy recovery, or a double-dip recession. It is generically different from the optimal cycle as atomistic lenders ignore their effect on the composition of the pool of borrowers. Carefully chosen macro-prudential or countercyclical monetary policy often improves the decentralized equilibrium cycle. |
| JEL: | D82 E32 E44 G01 G10 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27472&r=all |
| By: | Davide Melcangi; Vincent Sterk |
| Abstract: | What role does stock investment play in the transmission of monetary policy to the real economy? We study this question using a New Keynesian model with heterogeneous households. Following a monetary tightening, stock market participants rebalance their investments away from stocks, in line with empirical evidence on mutual fund flows. This response depresses aggregate investment and hence aggregate output and income, which feeds back into an even larger decline in stock investment. The strength of this channel is, however, highly sensitive to household heterogeneity. Therefore, we design the model to account endogenously for the observed population share of stockholders, their income characteristics, and their saving behavior. We find that, quantitatively, the stock investment channel of monetary policy dominates the consumption channels often emphasized in the literature, and also that it has become more powerful since the 1980s, as stock market participation increased. |
| Keywords: | monetary policy; stock investment; heterogeneity |
| JEL: | E21 E30 E50 E58 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88284&r=all |
| By: | Constantine, Collin; Direye, Eli; Khemraj, Tarron |
| Abstract: | This paper presents a simple model of how the sale of central bank bills (CBBs) serves as an effective tool of exchange rate management in the case of Papua New Guinea. We employ a VAR approach and find that the quantity of CBBs rather than the short-term interest rate elicits the largest movement in the exchange rate. Moreover, we find evidence that banks hold non-remunerated excess reserves at a non-zero lower bound rate of interest. This is indirect evidence that policymakers must sterilize excess reserves not for fear of losing control of interest rate but for exchange rate management. Our model and empirical results make a strong case that the sale of CBBs can simultaneously support exchange rate stability and money-financed fiscal deficits. The CBBs help to quarantine the excess reserves injected through monetary financing. |
| Keywords: | central bank bills; exchange rate; excess reserves; monetary policy |
| JEL: | E02 E5 E52 E58 F41 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101264&r=all |
| By: | Kevin L. Kliesen; David C. Wheelock |
| Abstract: | In October 1979, Federal Reserve Chairman Paul Volcker persuaded his FOMC colleagues to adopt a new policy framework that i) accepted responsibility for controlling inflation and ii) implemented new operating procedures to control the growth of monetary aggregates in an effort to restore price stability. These moves were strongly supported by monetarist-oriented economists, including the leadership and staff of the Federal Reserve Bank of St. Louis. The next three years saw inflation peak and then fall sharply, but also two recessions and considerable volatility in interest rates and money supply growth rates. This article reviews the episode through the lens of speeches and FOMC meeting statements of Volcker and St. Louis Fed president Lawrence Roos, and articles by Roos’ staff. The FOMC adopted monetarist principles to establish the Fed’s anti-inflation credibility but Volcker was willing to accept deviations of money growth from the FOMC’s targets, unlike Roos, who viewed the targets as sacrosanct. The FOMC abandoned monetary aggregates in October 1982, but preserved the Fed’s commitment to price stability. The episode illustrates how Volcker used a change in operating procedures to alter policy fundamentally, and later adapt the procedures to changed circumstances without abandoning the foundational features of the policy. |
| Keywords: | monetarism; inflation; money supply; Federal Open Market Committee; monetary policy; recession |
| JEL: | E42 E52 E58 N22 |
| Date: | 2020–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88437&r=all |
| By: | Quast, Josefine; Wolters, Maik H. |
| Abstract: | We propose a simple modification of Hamilton's (2018) time series filter that yields reliable and economically meaningful real-time output gap estimates. The original filter relies on 8 quarter ahead forecast errors of a simple autoregression of real GDP. While this approach yields a cyclical component that is hardly revised with new incoming data due to the one-sided filtering approach, it does not cover typical business cycle frequencies evenly, but mutes short and amplifies medium length cycles. Further, as the estimated trend contains high frequency noise, it can hardly be interpreted as potential GDP. A simple modification based on the mean of 4 to 12 quarter ahead forecast errors shares the favorable real-time properties of the Hamilton filter, but leads to a much better coverage of typical business cycle frequencies and a smooth estimated trend. Based on output growth and inflation forecasts and a comparison to revised output gap estimates from policy institutions, we find that real-time output gaps based on the modified and the original Hamilton filter are economically much more meaningful measures of the business cycle than those based on other simple statistical trend-cycle decomposition techniques, such as the HP or bandpass filter, and should thus be used preferably. |
| Keywords: | business cycle measurement,potential output,trend-cycle decomposition,real-time data,inflation forecasting,output growth forecasting |
| JEL: | C18 E32 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2158&r=all |
| By: | Tanweer Akram; Huiqing Li |
| Abstract: | This paper models the dynamics of Japanese government bond (JGB) nominal yields using daily data. Models of government bond yields based on daily data, such as those presented in this paper, can be useful not only to investors and market analysts, but also to central bankers and other policymakers for assessing financial conditions and macroeconomic developments in real time. The paper shows that long-term JGB nominal yields can be modeled using the short-term interest rate on Treasury bills, the equity index, the exchange rate, commodity price index, and other key financial variables. |
| Keywords: | Japanese Government Bonds; JGBs; Long-Term Interest Rates; Nominal Bond Yields; Monetary Policy; Bank of Japan; John Maynard Keynes |
| JEL: | E43 E50 E58 E60 G10 G12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_962&r=all |
| 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 to 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 between 2009 to 2015, QE increased output by about 1.2 percent. This reflects a net increase in investment of nearly 9 percent, that was accompanied by a 0.7 percent drop in aggregate consumption. Both, government bond and capital asset purchases were effective in improving financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated which led to a mild disinflationary effect of about 0.25 percent annually. |
| Keywords: | Quantitative Easing, Liquidity Facilities, Zero Lower Bound, Nonlinear Bayesian Estimation |
| JEL: | E63 C63 E58 E32 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_193&r=all |
| By: | Lena Drager; Michael J. Lamla; Damjan Pfajfar |
| Abstract: | Using a new consumer survey dataset, we document a new dimension of heterogeneity in inflation expectations that has implications for consumption and saving decisions as well as monetary policy transmission. We show that German households with the same inflation expectations differently assess whether the level of expected inflation and of nominal interest rates is appropriate or too high/too low. The `hidden heterogeneity' in expectations stemming from these opinions is related to demographic characteristics and affects current and planned spending in addition to the Euler equation effect of the perceived real interest rate. Furthermore, these differences in opinions affect German households differently depending on whether they are renters or homeowners. |
| Keywords: | Macroeconomic expectations; Monetary policy perceptions; Survey microdata |
| JEL: | D84 E31 E52 E58 |
| Date: | 2020–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-54&r=all |
| By: | cyril Dell'Eva (University of Pretoria, Department of Economics); Eric Girardin (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.); Patrick Pintus (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.) |
| Abstract: | This paper investigates how different monetary policy designs alter the effect of carry trades on a host small open economy. Capital inflows are expansionary, leading the central bank to raise the interest rate, increasing carry trades' returns, and generating further capital inflows (carry trades' vicious circle). This paper shows how monetary authorities can mitigate or suppress this vicious circle, when agents do not have full information about the central bank's objectives. The best way to deal with the destabilizing effect of carry trades is to target both inflation and capital inflows. |
| Keywords: | capital inflows, carry trades, interest rate differential, vicious circle, inflation targeting |
| JEL: | E44 E52 E58 F31 G15 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2022&r=all |
| By: | Angela Abbate; Sandra Eickmeier; Esteban Prieto |
| Abstract: | We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a Bayesian vector autoregressive model to US data and identify financial shocks through a combination of narrative and short-run sign restrictions. Our main finding is that contractionary financial shocks temporarily increase inflation. This result withstands a large battery of robustness checks. Negative financial shocks help therefore to explain why inflation did not drop more sharply in the aftermath of the financial crisis. Our analysis suggests that higher borrowing costs after negative financial shocks can account for the modest decrease in inflation after the financial crisis. A policy implication is that financial shocks act as supply-type shocks, moving output and inflation in opposite directions, thereby worsening the trade-off for a central bank with a dual mandate. |
| Keywords: | Financial shocks, inflation dynamics, monetary policy, financial frictions, cost channel, sign restrictions |
| JEL: | E31 E44 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-13&r=all |
| By: | Shigeru Fujita; Giuseppe Moscarini; Fabien Postel-Vinay |
| Abstract: | We revisit measurement of Employer-to-Employer (EE) transitions, the main engine of labor market competition and employment reallocation, in the monthly Current Population Survey (CPS). We follow Fallick and Fleischman (2004) and exploit a key survey question introduced with the 1994 CPS redesign. We detect a sudden and sharp increase in the incidence of missing answers to this question starting in 2007, when the U.S. Census Bureau introduced a change in survey methodology, the Respondent Identification Policy (RIP). We show evidence of selection into answering the EE question by both observable and unobservable worker characteristics that correlate with EE mobility. We propose a selection model and a procedure to impute missing answers to the key survey question, thus EE transitions, after the introduction of the RIP. Our imputed aggregate EE series restores a close congruence with the business cycle, especially with the onset of the Great Recession, exhibits a much less dramatic drop in 2008-2009 and a full recovery by 2016, and eliminates the spurious appearance of declining EE dynamism in the US labor market after 2000. We also offer the first evidence of the (large and negative) impact of the COVID-19 crisis on EE reallocation. |
| JEL: | E2 E24 E32 J62 J63 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27525&r=all |
| By: | Saroj Bhattarai; Jae Won Lee; Woong Yong Park; Choongryul Yang |
| Abstract: | We study aggregate, distributional and welfare effects of a permanent reduction in the capital tax rate in a quantitative equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects, but is coupled with an increase in wage and income inequality. Moreover, the expansionary aggregate effects are smaller when distortionary labor or consumption tax rates have to increase to finance the capital tax rate cut, driven by effects on labor supply decisions. An extension to a model with heterogeneous households shows that consumption inequality also increases in the long run, which leads to a further rise in wage inequality. We study transition dynamics and show that joint modeling of monetary and fiscal policy response is important for analyzing short-run effects. Finally, we contrast the long-term aggregate welfare gains with short-term losses, regardless of how the tax cut is financed. In the model with heterogeneous households, we additionally show that welfare gains for the skilled go together with welfare losses for the unskilled. |
| Keywords: | Capital tax rate; Capital-skill complementarity; Inequality; Transition dynamics; Welfare implications |
| JEL: | E62 E63 E52 E58 E31 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88259&r=all |
| By: | Gregor Boehl; Felix Strobel |
| Abstract: | Using a nonlinear Bayesian likelihood approach that fully accounts for the zero lower bound on nominal interest rates, we analyze US post-crisis business cycle dynamics and provide reference parameter estimates. Contradicting the gist of the literature, we 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: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_192&r=all |
| By: | Bilbiie, Florin Ovidiu; Känzig, Diego R; Surico, Paolo |
| Abstract: | A novel complementarity between capital and income inequality leads to a significant amplification of the effects of monetary policy on consumption: a multiplier of the multiplier. We characterize this finding analytically, in a simple saver-spender model, and quantitatively, in a framework featuring nominal rigidities, capital investment, idiosyncratic risk and heterogeneity in household saving and income. A fiscal policy that redistributes profits dampens the monetary policy effects, whereas redistributing capital income yields further amplification. Our model's testable prediction that consumption inequality is more counter-cyclical than income inequality in response to an interest rate shock is consistent with the available empirical evidence. |
| Keywords: | aggregate demand; Capital; Complementarity; Heterogeneity; Income inequality; monetary policy; multiplier |
| JEL: | E21 E22 E32 E44 E52 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14118&r=all |
| By: | Matthias S. Hertweck (Deutsche Bundesbank); Vivien Lewis (Deutsche Bundesbank); Stefania Villa (Bank of Italy) |
| Abstract: | We introduce two types of effort into an otherwise standard labor search model to examine equilibrium determinacy. Indeterminacy occurs when wages rise sharply in response to a labor market tightening. Variable labor effort gives rise to short-run increasing returns to hours in production. This raises workers’ marginal product and wages, expanding the region of indeterminacy. Variable search effort makes workers search more intensively in a tighter labor market, which limits the rise in wages and shrinks the region of indeterminacy. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs. |
| Keywords: | Determinacy, Effort, Hours, Labor, Search intensity |
| JEL: | E23 E24 E32 E64 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1277_20&r=all |
| By: | Shobande, Olatunji; Shodipe, Oladimeji; Simplice, Asongu |
| Abstract: | The study examines the role of global predictors on national monetary policy formation for Kenya and Ghana within the New Keynesian DSGE framework. We developed and automatically calibrated our DSGE model using the Bayesian estimator, which made our model robust to rigorous stochastic number of subjective choices. Our simulation result indicates that global factors account for the inability of national Central Banks to predict the behaviour of macroeconomic and financial variables among these developing nations. |
| Keywords: | Business Cycle, Macroeconomic policy, Financial crises |
| JEL: | E32 E60 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101794&r=all |
| By: | Alejandro García; Bena Lands; Xuezhi Liu; Joshua Slive |
| Abstract: | A retail central bank digital currency denominated in Canadian dollars could, in theory, create competition for bank deposit funding. We look at the potential implications increased competition for deposit funding could have on income and liquidity for the six largest Canadian banks, using regulatory data from 2018 and 2019. |
| Keywords: | Digital currencies and fintech; Financial institutions; Financial stability |
| JEL: | E4 E41 E44 E5 G1 G10 G17 G2 G21 G3 G32 O |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-15&r=all |
| By: | Michael Woodford; Yinxi Xie |
| Abstract: | This paper reconsiders the degree to which macroeconomic stabilization is possible when the zero lower bound is a relevant constraint on the effectiveness of conventional monetary policy, under an assumption of bounded rationality. In particular, we reconsider the potential role of countercyclical fiscal transfers as a tool of stabilization policy. Because Ricardian Equivalence no longer holds when planning horizons are finite (even when relatively long), we find that fiscal transfers can be a powerful tool to reduce the contractionary impact of an increased financial wedge during a crisis, and can even make possible complete stabilization of both aggregate output and inflation under certain circumstances, despite the binding lower bound on interest rates. However, the power of such policies depends on the degree of monetary policy accommodation. We also show that a higher level of welfare is generally possible if both monetary and fiscal authorities commit themselves to history-dependent policies in the period after the financial disturbance that causes the lower bound to bind has dissipated. Hence forward guidance continues to play an important role in increasing the effectiveness of stabilization policy. |
| JEL: | E52 E63 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27521&r=all |
| By: | Bianchi, Francesco; Melosi, Leonardo; Rottner, Matthias |
| Abstract: | Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of the current symmetric monetary policy strategy that fails to recognize the risk of encountering the zero-lower-bound. An asymmetric rule according to which the central bank responds less aggressively to above-target inflation corrects the bias, improves welfare, and reduces the risk of deflationary spirals -- a pathological situation in which inflation keeps falling indefinitely. This approach does not entail any history dependence or commitment to overshoot the inflation target and can be implemented with an asymmetric target range. |
| JEL: | E31 E52 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14161&r=all |
| By: | Omoshoro-Jones, Oyeyinka Sunday |
| Abstract: | This paper examines the government revenue–expenditure nexus for the Free State Province in a multivariate modelling framework using real GDP and inflation as control variables over the period 2004Q2–2018Q1. Cointegration and intertemporal (causal) links among variables were established employing Johansen-Juselius (1990) within a vector error correction model (VECM) and Toda-Yamamoto (1995) non-Granger causality test. Cointegration analysis affirms the existence of a long-run relationship between variables. The results of the causal analyses show a bidirectional causality between government revenues and expenditures in both the long-run and short-run, supporting the fiscal synchronization hypothesis. Real GDP and inflation individually Granger-causes government revenues in both the long-run and short-run, stressing their importance on generating revenue. Based on these findings, an isolated fiscal measure to raise tax-revenues or cut expenditure will exacerbate fiscal imbalance. The Free State government through its provincial treasury should adhere to a planned budget process, devise innovative revenue-generating strategies to circumvent the burden of producing inflation revenue, and effectively use its autonomy on fiscal instruments to maintain a sustainable fiscal policy path and stimulate economic activity level. |
| Keywords: | VECM, Expenditure, Revenue, Causality, Cointegration, Free State province. |
| JEL: | C5 C54 E00 E61 E62 |
| Date: | 2020–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101349&r=all |
| By: | Eckhard Hein (Berlin School of Economics and Law (DE)); Ryan Woodgate |
| Abstract: | Sraffian supermultiplier models, as well as Kaleckian distribution and growth models making use of non-capacity creating autonomous demand growth in order to cope with Harrodian instability, have paid little attention to the financial side of autonomous demand growth as the driver of the system. Therefore, we link the issue of Harrodian instability in Kaleckian models driven by non-capacity creating autonomous demand growth with the associated financial dynamics. For a simple model with autonomous government expenditure growth, zero interest rates and no consumption out of wealth, we find that adding debt dynamics does not change the results obtained by Lavoie (2016) for a model without debt, i.e. the long-run equilibrium is stable if Harrodian instability is not too strong and the autonomous growth rate does not exceed a maximum given by the long-run equilibrium saving rate. Introducing interest payments on government debt as well as consumption out of wealth into the model, however, changes the stability requirements: First, the autonomous growth rate of government expenditures should not fall short of the exogenous monetary interest rate. Second, this growth rate should not exceed a maximum given by the saving rate in long-run equilibrium minus the propensity to consume out of wealth. Third, Harrodian instability may be stronger than in the simple model without violating long-run overall stability, in particular, if the rate of interest is very low and the growth rate of government expenditures is close to the mentioned upper limit. We claim that, irrespective of the relevance or irrelevance of Harrodian instability, it is necessary to introduce financial variables into models driven by non-capacity creating autonomous demand in order to assess the long-run (in-)stability and sustainability of growth. |
| Keywords: | Supermultiplier, autonomous demand growth, Kaleckian models, Harrodian instability, financial (in)stability |
| JEL: | E11 E12 E25 E62 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2014&r=all |
| By: | Alessio Ciarlone (Bank of Italy); Daniela Marconi (Bank of Italy) |
| Abstract: | Financial integration of emerging economies is on the rise and so are financial and monetary spillovers, especially those originating from US economic policy decisions and the (related) evolution of the US dollar. We revisit the “trilemma” vs. “dilemma” hypothesis and assess whether, and to what extent, exchange rate regimes and other relevant country fundamentals affect the sensitivity of domestic financial conditions to global risk aversion and US financial conditions. Results for a sample of 17 emerging economies over the period 1990-2018 suggest that the trilemma hypothesis appears to be still valid, as more flexible exchange rate regimes help in mitigating spillovers to stock market returns, sovereign spreads and real credit growth. However, other country fundamentals such as the current account, trade integration and US dollar debt exposure are also important factors. |
| Keywords: | trilemma, global financial cycle, financial conditions, emerging market economies, international policy transmission, spillovers |
| JEL: | E42 E44 E52 F31 F36 F41 G15 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_571_20&r=all |
| By: | Clémence Berson (Banque de France); Marta De Philippis (Banca d'Italia); Eliana Viviano (Banca d'Italia) |
| Abstract: | Some recent literature about the U.S. shows that wage dynamics are more influenced by job-to-job flows than by flows into or out of employment. In this paper, we evaluate whether this result holds also for France and Italy, characterized by a different labor market structure. Using comparable administrative data we find that, as in the U.S., in both France and Italy realized job-to-job transitions contribute positively to wage growth. However, since these flows are smaller and display much lower cyclicality than in the U.S., their contribution to aggregate wage dynamics is low, while the contribution of flows into and out of employment remains sizeable. We then look closely at the heterogeneity in the probability of changing job and in the associated wage premium by types of workers and firms. We find that job-to-job flows and the associated gain tend to be larger in high-skilled occupations and for permanent workers. Moreover, as in the U.S., individuals are more likely to move to younger firms, which intensively poach workers from other firms. |
| Keywords: | wage dynamics, job-to-job flows, transition probabilities, Phillips curve |
| JEL: | E24 E32 J63 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_563_20&r=all |
| By: | Paola Mariell Brens Ortega |
| Abstract: | The aim of this paper is to quantify the effects of an unanticipated monetary policy shock in key macroeconomic variables for the Dominican Republic. The modelling framework in the paper is based on Del Negro and Schorfheide (2004) DSGE-VAR procedure. The procedure allows the addition of theory to empirical models, characterized by a high degree of data fit. Given that the Dominican Republic’s key economic variables time series have a relative short span; this procedure represents a more suitable framework for monetary policy macroeconomic modelling as it incorporates policymaker's initial belief to the observed data. The results are aligned with macroeconomic theory and with previous empirical papers for the Dominican Republic that measure the impact of a monetary policy shock in output growth and in inflation. |
| Keywords: | DSGE-VAR, Monetary Policy, New Keynesian Models |
| JEL: | C32 C51 C53 C54 C61 E52 |
| Date: | 2020–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:col:000518:018253&r=all |
| By: | Vladislav Abramov (Bank of Russia, Russian Federation) |
| Abstract: | Russian monetary policy could translate on the countries of Eurasian Economic Union (EAEU) through different channels. However, there is still a lack of evidence of the significance of so called spillover effects of Russian monetary policy. This work investigates the influence of Russian monetary policy shocks, proxied by shocks of MIACR, on the EAEU countries. For that purpose, firstly, monetary policy shocks were identified via FAVAR model for the Russian economy, estimated on the monthly data of more than 50 indicators. Further, separately for each country of the union VAR models with previously extracted MP shocks were estimated and both impulse response functions (IRF) and forecast error variance decomposition (FEVD) were analysed. The main result of the work is that effects of shocks in MIACR on industrial production and inflation are not statistically significant. At the same time, such shocks have statistically significant effect on money supply, nominal exchange rates and money market rates in some union’s countries. However, obtained effects are mostly small and heterogeneous. |
| Keywords: | Transmission effects, monetary policy, Eurasian economic union |
| JEL: | E52 E58 E59 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps60&r=all |
| By: | John Gibson; Garth Heutel |
| Abstract: | We study the relationship between unemployment, environmental policy, and business cycles. We develop a dynamic stochastic general equilibrium real business cycle model that includes both a pollution externality and congestion externalities from labor market search frictions, which generate unemployment. We consider two policies to address the market failures: an emissions tax and a tax or subsidy on job creation. With both policies present, the efficient outcome can be achieved. When one policy is constrained or absent, we solve for the second best. The absence of a vacancy policy to address the congestion externalities substantially affects the value of the emissions tax, both in steady state and over the business cycle. |
| JEL: | E24 E32 Q58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27445&r=all |
| By: | Lhuillier, Jean-Paul; Schoenle, Raphael |
| Abstract: | Less than intended. Therefore, in order to get, say, 2 pp. of extra room for monetary policy, the target needs to be raised to more than 4%. In this paper, we investigate the constraints on a policy aimed at achieving more monetary policy room by raising the inflation target. A theoretical analysis shows that the actual effective room gained when raising the target is always smaller than the intended room. The reason is a shift in the behavior of the private sector: Prices adjust more frequently, lowering the potency of monetary policy. We derive a simple formula for the effective gain expressed in terms of the potency of monetary policy. We then quantitatively investigate this channel across different models, based on a calibration using micro data. We find that, by raising the target to 4%, the monetary authority only gains between 0.51 and 1.60 percentage points (pp.) of policy room (not 2 pp. as intended). In order to achieve 2 pp. additional policy room, the target needs to be raised to approximately 5%. The quantitative models allow to derive the Bayesian distribution of the effective room under parameter uncertainty. |
| Keywords: | central bank design; Inflation targeting; liquidity traps; Lucas proof; price stability; Timidity trap; zero lower bound |
| JEL: | E31 E52 E58 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14142&r=all |
| By: | Benjamin Pugsley; Hannah Rubinton |
| Abstract: | We use an incomplete markets economy to quantify the distribution of welfare gains and losses of the US "Volcker" disinflation. In the long run households prefer low inflation, but disinflation requires a transition period and a redistribution from net nominal borrowers to net nominal savers. Even with perfectly flexible prices, welfare costs may be significant for households with nominal liabilities. When calibrated to match the micro and macro moments of the early 1980s high inflation environment, almost half of all borrowers (14 percent of all households) would prefer to avoid the redistribution and equilibrium effects of the disinflation. This share depends negatively on the liquidity value of money and positively on the average duration of nominal borrowing. |
| Keywords: | Monetary Policy; Inequality; Redistribution |
| JEL: | E31 E52 |
| Date: | 2019–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88436&r=all |
| By: | Tiago Miguel Guterres Neves Sequeira (University of Coimbra, Centre for Business and Economics Research, CeBER andFaculty of Economics) |
| Abstract: | Despite some recent evidence according to which different inflation rates have effects on long run growth, endogenous growth theory had advanced little on explaining the mechanics of monetary influence on economic growth. We follow the increasing interest in the issue offering a new explanation for the influence of monetary policy on growth in both long and short run: the cash requirements for households expenditures in education. Quantitatively, the model replicates both the small influence of monetary policy on growth while also highlighting the effects it can have on welfare and allocations of resources throughout different sectors in the economy. |
| Keywords: | endogenous economic growth, inflation, interest rate, monetary policy, cash-in-advance (CIA). |
| JEL: | O30 O40 E13 E17 E61 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2020-12&r=all |
| By: | Lagos, Ricardo; Zhang, Shengxing |
| Abstract: | We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence. |
| JEL: | E44 E52 G12 G14 G35 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105095&r=all |
| By: | Takushi Kurozumi; Willem Van Zandweghe |
| Abstract: | In staggered price models, a non-CES aggregator of differentiated goods generates empirically plausible short- and long-run trade-offs between output and inflation: lower trend inflation flattens the Phillips curve and decreases steady-state output by increasing markups. We show that the aggregator reduces both the steady-state welfare cost of higher trend inflation and the inflation-related weight in a model-based welfare function for higher trend inflation. Consequently, optimal trend inflation is moderately positive even without considering the zero lower bound on nominal interest rates. Moreover, the welfare difference between 2 percent and 4 percent inflation targets is much smaller than in the CES aggregator case. |
| Keywords: | non-CES aggregator; output-inflation trade-off; optimal trend inflation |
| JEL: | E52 E58 |
| Date: | 2020–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88286&r=all |
| By: | Maliar, Lilia; Naubert, Christopher |
| Abstract: | We show that the standard two-agent new Keynesian (TANK) model without capital is able to produce monetary policy amplification and no forward guidance puzzle. This finding contrasts with the previous literature that argued that both results cannot be achieved simultaneously. Our key ingredient is output stabilization in the Taylor rule, and we do not rely on the presence of idiosyncratic uncertainty. For both deterministic and stochastic versions, we derive novel closed form solutions for all conceivable cases of eigenvalues and analyze the effects of redistribution between participants and non-participants in asset markets. A stochastic version of the model predicts that positive productivity shocks always worsens consumption inequality, which is counterfactual. Finally, we built a version of the model with capital which realistically predicts that consumption inequality can either increase or decrease in response to shocks. Moreover, the forward guidance puzzle is resolved even without output stabilization in the Taylor rule. |
| Keywords: | forward guidance; New Keynesian Model; redistribution; TANK |
| JEL: | C61 C63 C68 E31 E52 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14159&r=all |
| By: | Martin M. Guzman; Joseph E. Stiglitz |
| Abstract: | Most macroeconomic crises, such as the 2008 Global Financial Crisis, are associated with endogenous large changes in beliefs and understandings about the workings of the economy. Such downturns and crises are not consistent with the standard paradigm of a well-functioning competitive economy, and macroeconomic equilibrium models based on that paradigm have failed to predict the possibility of those downturns, to explain them, or even to design appropriate policy responses. The framework assumes there are no macroeconomic inconsistencies—all plans are realized, all budget constraints honored. In this paper, we present a dynamic disequilibrium theory with randomness that is based on the premise that a better way to understand deep downturns is to think of the economy experiencing a constant evolution, marked by uncertainty, in which there is continual learning about the economic system. Our framework explains why macroeconomic inconsistencies may arise and investigates their consequences. We explain why decentralized market forces may be disequilibrating. We identify the crucial departures from the Arrow-Debreu assumptions and those underlying DSGE models, emphasizing the limitations in the assumption of equilibrium and the absence of a coherent theory of how it is attained, the incompleteness of markets and the non-stationarity of the stochastic processes describing the economy. We analyze the policy implications of this alternative theory, which typically differ markedly from those of the standard model: In particular, the consequences for the effectiveness of different monetary and fiscal policies, and the eventual need of debt restructuring policies to restore macroeconomic consistency. |
| JEL: | E0 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27453&r=all |
| By: | Moahmed Hassan, Hisham; Haleeb, Amin |
| Abstract: | This paper aims to obtain an appropriate ARIMA model for the Sudan GDP using the Box- Jenkins methodology during the period 1960-2018 the various ARIMA models with different order of autoregressive and moving-average terms were compared. The appropriate model for Sudan is an ARIMA (1,1,1), the results of an in-sample forecast showed that the relative and predicted values were within the range of 5%, and the forecasting effectiveness of this model, its relatively adequate and efficient in modeling the annual GDP of the Sudan. |
| Keywords: | ARIMA Modelling, Box-Jenkins methodology, forecasting, GDP, Sudan. |
| JEL: | E00 E01 E60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101207&r=all |
| By: | Piergiorgio Alessandri (Bank of Italy); Pierluigi Bologna (Bank of Italy); Maddalena Galardo (Bank of Italy) |
| Abstract: | The Basel III regulation explicitly prescribes the use of Hodrick-Prescott filters to estimate credit cycles and calibrate countercyclical capital buffers. However, the filter has been found to suffer from large ex-post revisions, raising concerns over its fitness for policy use. To investigate this problem, we studied the credit cycles of a panel of 26 countries between 1971 and 2018. We reached two conclusions. The bad news is that the limitations of the one-sided HP filter are serious and pervasive. The good news is that they can easily be mitigated. The filtering errors are persistent and hence predictable. This can be exploited to construct real-time estimates of the cycle that are less subject to ex-post revisions, forecast financial crises more reliably, and stimulate the build-up of bank capital before a crisis. |
| Keywords: | Hodrick-Prescott filter, credit cycle, macroprudential policy |
| JEL: | E32 G01 G21 G2 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_567_20&r=all |
| By: | Fraccaroli, Nicolò; Giovannini, Alessandro; Jamet, Jean-Francois |
| Abstract: | As the role of central banks expanded, demand for public scrutiny of their actions increased. This paper investigates whether parliamentary hearings, the main tool to hold central banks accountable, are fit for this purpose. Using text analysis, it detects the topics and sentiments in parliamentary hearings of the Bank of England, the European Central Bank and the Federal Reserve from 1999 to 2019. It shows that, while central bank objectives play the most relevant role in determining the topic, unemployment is negatively associated with the focus of hearings on price stability. Sentiments are more negative when uncertainty is higher and when inflation is more distant from the central bank’s inflation aim. These findings suggest that parliamentarians use hearings to scrutinise the performance of central banks in line with their objectives and economic developments, but also that uncertainty is associated with a higher perceived risk of under-performance of central banks. JEL Classification: E02, E52, E58 |
| Keywords: | central bank accountability, monetary policy, text analysis, uncertainty |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202442&r=all |
| By: | Joao Galindo da Fonseca (Université de Montréal) |
| Abstract: | Are there differences between firms created by unemployed individuals relative to otherwise identical employed individuals? The answer is crucial for understanding the impact of policies that promote entrepreneurship among the unemployed. I develop an equilibrium model of entrepreneurship. Different outside options imply the unemployed are more likely to start firms, but these are smaller and fail more often. I verify these implications using a new administrative Canadian matched owner-employer-employee dataset. I use firm closures to identify random assignments of individuals to unemployment. I find that subsidies for firms started by the unemployed induce a reallocation of resources to low-productivity firms. The mechanism is further tested empirically by verifying that wage workers are more responsive to wages than the unemployed in their decision to start a firm. |
| Keywords: | Firm dynamics, Unemployment, Macroeconomics, Labor markets |
| JEL: | E24 E23 J63 J64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2019-04&r=all |
| By: | International Monetary Fund |
| Abstract: | This paper presents 2019 Article IV Consultation with the Republic of Moldova and its Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements. Moldova’s economic growth remained solid in the first three quarters of 2019, with output expanding nearly 5 percent, supported by strong domestic demand. The three-year program has been broadly successful in achieving its objectives. Comprehensive reforms have rehabilitated the banking system and strengthened financial sector governance, entrenching macrofinancial stability. Prudent and well-coordinated policies are needed to safeguard the progress achieved. Decisive governance and institutional reforms are necessary for faster, sustainable, and inclusive growth. Safeguarding central bank independence is a priority. The inflation-targeting (IT) regime remains appropriate, but additional efforts are needed to improve policy credibility, promote exchange rate flexibility, and disincentivize foreign currency intermediation. Widespread governance and institutional vulnerabilities are major impediments to accelerating income convergence. Addressing these could have significant growth dividends through faster capital accumulation, reduced labor and human capital headwinds from emigration, and higher productivity. |
| Keywords: | External sector;Real sector;Banking sector;Fiscal policy;Central banks;ISCR,CR,NBM,percent of GDP,Proj,SOEs,ECF |
| Date: | 2020–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/076&r=all |
| By: | Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (University of Tokyo) |
| Abstract: | This paper examines the implications of consumer inventory for cost-of-living indices (COLIs) and business cycles. We begin by providing stylized facts about consumer inventory using scanner data. We then construct a quasi-dynamic model to describe consumers’ purchase, consumption, and inventory behavior. A key feature of our model is that inventory is held by household producers, not by consumers, which enables us to construct a COLI in a static manner even in an economy with storable goods. Based on this model, we show that stockpiling during temporary sales generates a substantial bias, or so-called chain drift, in conventional price indices, which are constructed without paying attention to consumer inventory. However, the chain drift is greatly mitigated in our COLI, which is based on consumption prices (rather than purchase prices) and quantities consumed (rather than quantities purchased). We provide empirical evidence supporting these theoretical predictions. We also show empirically that consumers’ inventory behavior tends to depend on labor market conditions and the interest rate. |
| Keywords: | consumer inventory; cost-of-living index; temporary sales; inflation; price elasticity |
| JEL: | C43 E31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:025&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2020 Article IV Consultation with Kuwait highlights that non-oil growth strengthened to estimated 3 percent in 2019, propelled by government and consumer spending. The challenge to reduce dependence on oil and boost savings has become more urgent. The subdued forecast for oil revenues is weighing on near-term growth and fiscal and external balances. Embedding fiscal measures in a comprehensive reform package that promotes private sector growth, strengthens governance and accountability, and improves public services would help build broad support for reforms. A rules-based fiscal framework would improve management of oil revenues. A rule-based framework would help anchor fiscal policy on a long-term objective of intergenerational equity. It should include a well-calibrated operational rule that helps reconcile long-term savings and near-term economic stabilization objectives. Financial sector reforms should focus on bolstering resilience and deepening inclusion. Sustaining reforms to foster private sector-led and diversified growth will be critical. With limited scope for public employment going forward, a vibrant private sector must emerge to absorb the large number of Kuwaitis entering the labor market in coming years. |
| Keywords: | External sector;National accounts;Economic indicators;Financial and Monetary Sector;Credit;ISCR,CR,investment income,CBK,FGF,staff report,GRF |
| Date: | 2020–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/089&r=all |
| By: | Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp)); Shangshang Li (Department of Economics, University of Oxford (E-mail: shangshang.li@economics.ox.ac.uk)); Sophocles Mavroeidis (Professor, Department of Economics, University of Oxford and INET (E-mail: sophocles.mavroeidis@economics.ox.ac.uk)); Francesco Zanetti (Associate Professor, Department of Economics, University of Oxford (E-mail: francesco.zanetti@economics.ox.ac.uk)) |
| Abstract: | The effective lower bound (ELB) on a short term interest rate may not constrain a central bank's capacity to achieve its objectives if unconventional monetary policy (UMP) is powerful enough. We formalize this 'irrelevance hypothesis' using a dynamic stochastic general equilibrium model with UMP and test it empirically for the United States and Japan using a structural vector autoregressive model that includes variables subject to occasionally binding constraints. The hypothesis is strongly rejected for both countries. However, a comparison of the impulse responses to a monetary policy shock across regimes shows that UMP has had strong delayed effects in each country. |
| Keywords: | Effective lower bound, unconventional monetary policy, structural VAR |
| JEL: | E52 E58 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:20-e-10&r=all |
| By: | Sanjeev Gupta; João Tovar Jalles |
| Abstract: | We explore the impact of major revenue mobilization episodes on income distribution dynamics using a new “narrative” database of major policy changes in tax and revenue administration systems, covering 45 emerging and low-income countries from 2000 to 2015. Our main finding is that after a tax reform (particularly those affecting the personal income or the operation of the revenue administration), the Gini index falls and the bottom income share rises. This result does not hold for sub-Saharan Africa, calling into question the design of tax reforms implemented in the region (mostly fragile states in the sample). In general, to reduce more rapidly income inequality (and improve the income prospects of the poorest strata of the population), it would be more effective to implement tax reforms when the economy is growing relatively slowly. Finally, the smaller the government and the smaller the tax system, the larger the beneficial impact of tax reforms on income distribution. Our results are robust to a battery of sensitivity and robustness tests. |
| Keywords: | income distribution; Gini; fiscal policy; impulse response functions; endogeneity;nonlinearities; government size |
| JEL: | C33 C36 D63 E32 E62 H20 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01372020&r=all |
| By: | Borri, Nicola; Reichlin, Pietro |
| Abstract: | We consider optimal taxation in a model with wealth-poor and wealth-rich households, where wealth derives from business capital and homeownership, and investigate the consequences on these tax rates of a rising wealth inequality at steady state. The optimal tax structure includes some taxation of labor, zero taxation of financial and business capital, a housing wealth tax on the wealth-rich households and a housing subsidy on the wealth-poor households. When wealth inequality increases, the optimal balance between labor and housing wealth taxes depends on the source of the increasing wealth. |
| Keywords: | Housing; taxation; Wealth |
| JEL: | E21 E62 G1 H2 H21 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14144&r=all |
| By: | Joao Galindo da Fonseca (Université de Montréal); Charles Berube (Innovation, Science and Economic Development Canada) |
| Abstract: | Does having a spouse influence an individual’s decision to start a firm and what firms they create? The answer to this question is crucial for our understanding of how recent changes to family composition influence firm creation. We develop a model of endogenous entrepreneurship with spousal labour supply decisions and endogenous marriage. Married individuals have three channels, that go in opposite directions, which influence their choice to start a firm relative to the unmarried. Firstly, spouses work less when the business is more profitable partially offsetting the benefit of higher profits (spousal substitution effect). Secondly, if the business fails, the spouse works more hours (spousal insurance effect). Finally, a married individual shares their income with their spouse which decreases their income as a worker, their cost to entrepreneurship (spousal opportunity cost effect). We proceed to test empirically the relative strength of these channels. The model is informative of the components of the error term and the conditions for validity of our instrumental variable strategy. Using city level variation in the past composition of immigrants we show higher marriage rates are associated to more entry and lower average size of startups. |
| Keywords: | Firm dynamics, Macroeconomics, Labor markets, Family economics |
| JEL: | E24 E23 J63 J64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2019-05&r=all |
| By: | Gießler, Stefan |
| Abstract: | This paper investigates the forward-lookingness of monetary policy related to stabilising inflation over time under different degrees of central bank credibility in the four largest Latin American economies, which experienced a different transition path to the full-fledged inflation targeting regime. The analysis is based on an interest rate-based hybrid monetary policy rule with time-varying coefficients, which captures possible shifts from a backward-looking to a forward-looking monetary policy rule related to inflation stabilisation. The main results show that monetary policy is fully forward-looking and exclusively reacts to expected inflation under nearly perfect central bank credibility. Under a partially credible central bank, monetary policy is both backward-looking and forward-looking in terms of stabilising inflation. Moreover, monetary authorities put increasingly more priority on stabilising expected inflation relative to actual inflation if central bank credibility tends to improve over time. |
| Keywords: | forward-lookingness,central bank credibility,inflation targeting,hybrid monetary policy rule,time-varying coefficients |
| JEL: | C32 E42 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:92020&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | Using two types of overlapping generations (OLG) model, we show that involuntary unemployment is in a Nash equilibrium of a game with a firm and consumers, and we can achieve full-employment by fiscal policy financed by seignorage not tax. Once we achieve it, it is maintained without government expenditure. Also we show that a fall in the nominal wage rate may not decrease involuntary unemployment. |
| Keywords: | Involuntary unemployment, Nash equilibrium, Fiscal policy |
| JEL: | E12 E24 |
| Date: | 2020–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102049&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2020 Article IV Consultation with Belgium highlights that economic activity has held up relatively well over the last year, but the outlook is clouded by unusual uncertainty and risks. The coronavirus outbreak is expected to reduce growth this year, and the outlook is highly uncertain and subject to risks, including more widespread and damaging effects of the coronavirus, escalating trade tensions, a sharper euro-area growth slowdown, and prolonged domestic political gridlock. Policies should focus on addressing the coronavirus outbreak in the near term and rebuilding resilience and addressing structural challenges in the medium run. The immediate policy priority is to contain the spread and damaging effects of the coronavirus through targeted temporary support measures to affected firms and individuals, while ensuring that the healthcare system has adequate resources to address the crisis. Reversing the declining trend in productivity growth is essential to support higher standards of living and safeguard fiscal sustainability. Thus, reform efforts would need to focus on reducing red tape for start-ups, lowering regulatory barriers to competition in key sectors, supporting access to venture capital for innovative firms, and boosting public investment in infrastructure, fiscal space permitting. |
| Keywords: | Credit;Financial crises;Economic indicators;Gross domestic product;Financial sector;ISCR,CR,NBB,coronavirus,medium-term,productivity growth,labor-market |
| Date: | 2020–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/091&r=all |
| By: | Giovanni Angelini (University of Bologna); Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Melbourne and University of Padova); Luca Fanelli (University of Bologna) |
| 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: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0257&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8438&r=all |
| By: | Joao Galindo da Fonseca (Université de Montréal); Charles Berubé (Innovation, Science and Economic Development Canada) |
| Abstract: | We develop a model of endogenous entrepreneurship and marriage. Spouses influence entrepreneurship via three channels: they reduce benefits by working less the more profitable the business is, they reduce costs by working more in case of business failure, and children, associated with a spouse, increase the cost of failure. We use administrative matched owner-employer-employee spouse data to estimate the specifications derived from our model. The model is informative on the sources of endogeneity and the IV strategy. We show that higher marriage rates induce less entry but larger firms on average. Through the lens of our model, marriage increases firm productivity. |
| Keywords: | Labor markets, Family economics, Macroeconomics, Firm dynamics |
| JEL: | E24 E23 J12 J60 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2020-03&r=all |
| By: | Toni Beutler; Matthias Gubler; Simona Hauri; Sylvia Kaufmann |
| Abstract: | We study the bank lending channel in Switzerland over three decades using unbalanced quarterly bank-individual data spanning 1987 to 2016. In contrast to the usual empirical approach, we take an agnostic stance on which bank characteristic drives the heterogenous lending response to interest rate changes. In addition, our empirical model allows for a changing lending reaction occurring over time in a state-dependent manner. Our results are consistent with the existence of a bank lending channel, which is however muted in specific periods. Such episodes are characterized by increased economic uncertainty, which negatively impacts loan growth. |
| Keywords: | Bank lending channel, economic uncertainty, Markov switching model, Bayesian econometrics, unbalanced panels |
| JEL: | C11 C34 E44 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-12&r=all |
| By: | Daniel Borup (Aarhus University, CREATES and the Danish Finance Institute (DFI)); Jonas N. Eriksen (Aarhus University, CREATES and the Danish Finance Institute (DFI)); Mads M. Kjær (Aarhus University and CREATES); Martin Thyrsgaard (Northwestern University and CREATES) |
| Abstract: | We document predictable shifts in bond return predictability. Bond returns are predictable in high (low) economic activity (uncertainty) states, implying that the expectations hypothesis of the term structure holds periodically. These predictable performance differences, established using a new multivariate test for equal conditional predictive ability, can be used in real-time to improve out-of-sample bond risk premia estimates and investors’ economic value by means of a novel dynamic forecast combination scheme. Consistent with standard financial theory, the resulting forecasts are strongly countercyclical and peaks in recessions. The empirical findings are explained within a non-linear term structure model. |
| Keywords: | Bond excess returns, forecasting, state-dependencies, multivariate test, equal conditional predictive ability |
| JEL: | C12 C52 E43 E44 G12 |
| Date: | 2020–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2020-09&r=all |
| By: | Michaillat, Pascal; Saez, Emmanuel |
| Abstract: | This paper measures the unemployment gap (the difference between actual and efficient unemployment rates) using the Beveridge curve (the negative relationship between unemployment and job vacancies). We express the unemployment gap as a function of current unemployment and vacancy rates, and three sufficient statistics: elasticity of the Beveridge curve, recruiting cost, and nonpecuniary value of unemployment. In the United States, we find that the efficient unemployment rate started around 3% in the 1950s, steadily climbed to almost 6% in the 1980s, fell just below 4% in the early 1990s, and remained at that level until 2019. These variations are caused by changes in the level and elasticity of the Beveridge curve. Hence, the US unemployment gap is almost always positive and highly countercyclical---indicating that the labor market tends to be inefficiently slack, especially in slumps. |
| JEL: | E24 E32 J63 J64 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14132&r=all |
| By: | Marco Missaglia (University of Pavia (IT)); Alberto Botta |
| Abstract: | In this paper we build a simple, almost pedagogical, Keynesian model about the role of liquidity preference in the determination of economic performance. We assume a world of endogenous money, where the banking system is able to fix the interest rate at a level of its own willing. Even in this framework, we show that the Keynesian theory of liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a fundamental piece of theory for the determination of the level and evolution of aggregate income over time, both in the short and in the medium run. However powerful, the banking system and monetary authorities are not the deus ex-machina of our economies and financial markets are likely to exert a permanent influence on our economic destiny. |
| Keywords: | Liquidity preference, endogenous money, finance dominance |
| JEL: | C62 E12 E44 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2015&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2020 Article IV Consultation focuses on Nepal’s near and medium-term challenges and policy priorities and was prepared before coronavirus disease 2019 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. During recent years, strong growth in Nepal has been supported by greater political stability, improved electricity supply, and reconstruction activity following the devastating earthquakes in 2015. Additional policies are needed to continue to support inclusive growth, while safeguarding macroeconomic and financial stability. Fiscal policy should remain prudent, and the transition to fiscal federalism carefully managed. Macroprudential measures should remain in place to limit the build-up of financial sector risk. Recent reforms to boost foreign investment need a supportive implementation environment. Strengthening the implementation of monetary policy requires a well-functioning interest rate framework that reduces volatility in short-term interest rates. Less short-term interest rate volatility would support financial market development and improve policy signaling and transmission. The IMF staff emphasizes the need to introduce a standing deposit facility as a first step toward establishing a reliable implementation track record for the interest rate corridor. |
| Keywords: | External sector;Financial statistics;Credit;Economic indicators;Economic sectors;ISCR,CR,NRB,percent of GDP,fiscal federalism,remittance,Nepalese rupee |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/096&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Kingsley O. Odo (University of Nigeria, Nsukka, Nigeria); Patrick K. Ojiem (University of Nigeria, Nsukka, Nigeria) |
| Abstract: | This study investigated the impact of financial sector development on domestic investment in selected Economic Community of West African States (ECOWAS) countries for the years 1985 to 2017. The study employed the Augmented Mean Group procedure which accounts for country specific heterogeneity and cross sectional dependence, and the Granger non-causality test robust to cross sectional dependence. The result reveals that (1) the impact of financial sector development on domestic investment depends on the measure of financial sector development utilised, (2) domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS while banking intermediation efficiency (i.e. ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment, (3) cross country differences exist on the impact of financial sector development on domestic investment in the selected ECOWAS countries, and (4) domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends cautiousness in terms of the measure of financial development which is being utilised as a policy instrument to foster domestic investment as well as the importance of employing country-specific domestic investment policies in order to avoid blanket policy measures. Also, domestic credit to the private sector should be given priority when forecasting domestic investment into the future. |
| Keywords: | Financial Sector Development; Domestic Investment; Augmented Mean Group; Granger non-causality test; ECOWAS |
| JEL: | C5 E2 E5 G0 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/045&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Kingsley O. Odo (University of Nigeria, Nsukka, Nigeria); Patrick K. Ojiem (University of Nigeria, Nsukka, Nigeria) |
| Abstract: | This study investigated the impact of financial sector development on domestic investment in selected Economic Community of West African States (ECOWAS) countries for the years 1985 to 2017. The study employed the Augmented Mean Group procedure which accounts for country specific heterogeneity and cross sectional dependence, and the Granger non-causality test robust to cross sectional dependence. The result reveals that (1) the impact of financial sector development on domestic investment depends on the measure of financial sector development utilised, (2) domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS while banking intermediation efficiency (i.e. ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment, (3) cross country differences exist on the impact of financial sector development on domestic investment in the selected ECOWAS countries, and (4) domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends cautiousness in terms of the measure of financial development which is being utilised as a policy instrument to foster domestic investment as well as the importance of employing country-specific domestic investment policies in order to avoid blanket policy measures. Also, domestic credit to the private sector should be given priority when forecasting domestic investment into the future. |
| Keywords: | Financial Sector Development; Domestic Investment; Augmented Mean Group; Granger non-causality test; ECOWAS |
| JEL: | C5 E2 E5 G0 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/045&r=all |
| By: | Jin, Gu; Zhu, Tao |
| Abstract: | Abstract Real effects of long-run inflation are studied in a standard matching model. The sign and degree of the output-inflation correlation depend on the cause of inflation and, more specifically, on how the underlying policy assigns money among agents. The correlation may be negative and weak and may be positive and strong. Although inflation increases inequality in wealth, whether it increases inequality or the social difference in welfare depends on the underlying policy. The strong and positive output effect can be compatible with a steep and positively sloped Phillips curve. Policy may be chosen in a way that inflation improves both output and ex ante welfare and there is some base for such a policy to be adopted by policy makers. |
| Keywords: | Heterogeneity, Phillips Curve, Decentralized Trade, Inequality |
| JEL: | E40 E50 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101927&r=all |
| By: | Nicola Fuchs-Schündeln; Moritz Kuhn; Michèle Tertilt |
| Abstract: | The COVID19 crisis has hit labor markets. School and child-care closures have put families with children in challenging situations. We look at Germany and quantify the macroeconomic importance of working parents. We document that 26 percent of the German workforce have children aged 14 or younger and estimate that 11 percent of workers and 8 percent of all working hours are affected if schools and child-care centers remain closed. In most European countries, the share of affected working hours is even higher. Policies to restart the economy have to accommodate the concerns of these families. |
| Keywords: | COVID-19, labor market, children, child-care, parents, workforce |
| JEL: | E24 E32 J13 J22 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_183&r=all |
| By: | Alexey Ponomarenko (Bank of Russia, Russian Federation); Stas Tatarintsev (Bank of Russia, Russian Federation) |
| Abstract: | We set up an early warning system for financial crises based on the Random Forrest approach. We use a novel set of predictors that comprises financial development indicators (e.g. levels of credit to GDP ratio) in addition to conventional imbalances measures (e.g. credit gaps). The evaluation of the model is conducted using a three-step procedure (i.e. training, validation and testing sub-samples). The results indicate that combining financial imbalances and financial development indicators helps to improve the out-of-sample accuracy of the early warning system |
| Keywords: | Early warning indicators, financial crisis, financial development, credit gap, random forest |
| JEL: | C40 C52 G01 E44 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps58&r=all |
| By: | Janet Hua Jiang |
| Abstract: | This note discusses insights from historical launches of new payment methods and related laboratory experiments on the potential adoption and use of a central bank digital currency in the Canadian context. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | C9 E4 E5 E58 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-12&r=all |
| By: | Lucía Cuadro-Sáez (Banco de España); Fernando S. López-Vicente (Banco de España); Susana Párraga Rodríguez (Banco de España); Francesca Viani (Banco de España) |
| Abstract: | La crisis epidemiológica provocada por la pandemia de Covid-19 ha supuesto una perturbación sin precedentes. Las medidas de contención adoptadas por las autoridades implicaron el cierre temporal de muchas actividades productivas y el confinamiento general de la población. Estos acontecimientos motivaron la implementación de medidas extraordinarias de política fiscal, con el objetivo de reforzar el sistema sanitario, paliar los efectos adversos de la pandemia sobre la economía y apoyar la actividad económica en la posterior fase de recuperación. En este documento se realiza un análisis descriptivo y comparado de las medidas adoptadas en algunas de las principales economías avanzadas occidentales (Alemania, Francia, Italia, España, Reino Unido y Estados Unidos). El objetivo es contar con una visión estructurada de las similitudes y diferencias en las respuestas nacionales a la crisis sanitaria en el ámbito de la política fiscal. A tal efecto, se describen las medidas presupuestarias y «extrapresupuestarias» (sin un coste presupuestario directo inmediato, como los avales y las garantías) adoptadas según su objetivo y funcionalidad (financiación del gasto sanitario, apoyo a la liquidez y solvencia de las empresas, protección del empleo y apoyo a los hogares), su instrumentación y, en menor medida, su tamaño. El análisis evidencia la presencia de una elevada heterogeneidad por países en cuanto a la cuantía de los paquetes anunciados, aunque no tanto en el tipo de medidas adoptadas. Del análisis realizado cabe resaltar dos mensajes. Primero, respecto a las medidas presupuestarias, destaca la mayor apuesta de los países por las subvenciones y transferencias directas a empresas y familias, frente a otras alternativas de sostenimiento de renta más indirectas. Segundo, en relación con las medidas extrapresupuestarias, la principal novedad de esta crisis frente a otras previas se refiere a la prominencia dada a los programas de garantías públicas para la provisión de liquidez a las empresas, instrumentados generalmente a través de los bancos públicos de desarrollo, frente a otros mecanismos de apoyo gestionados, por ejemplo, por los bancos centrales en colaboración con los tesoros nacionales. Finalmente, durante la fase de recuperación, los apoyos públicos se están centrando en sostener la renta de los hogares y la liquidez de las empresas —extendiendo, en algunos casos, las medidas temporales previamente adoptadas— mientras se estabiliza la economía, apoyar la solvencia de sectores estratégicos y fomentar la inversión empresarial. |
| Keywords: | crisis sanitaria, política fiscal, ayudas de Estado, subvenciones directas, garantías públicas, mecanismos de empleo parcial |
| JEL: | E62 E65 H00 H81 J08 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2019&r=all |
| By: | Marco Missaglia (University of Pavia (IT)) |
| Abstract: | What does “dollarization” mean in a world of endogenous money, i.e. a world where money is not (only) created by printing pieces of paper, but (mainly) by making loans? Is it true that dollarization only constitutes a limitation of sovereignty in the short run (making it harder to run standard stabilization macro policies) or can it slow the growth process of a country? The paper builds a theoretical, Keynesian-Kaleckian growth model for a dollarized economy in a framework of endogenous money to answer these questions. We will show that, ceteris paribus, the steady-state medium-term growth rate of a dollarized economy is lower than that of a country with its own currency. We will also show that a dollarized economy is more likely to be unstable than an economy with its own currency, in the specific sense that, everything else being equal, it is more likely for a dollarized economy to fall into a debt trap. |
| Keywords: | Dollarization, Keynesian Macro Models |
| JEL: | E12 F41 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2016&r=all |
| By: | Raj Chetty; John N. Friedman; Nathaniel Hendren; Michael Stepner; The Opportunity Insights Team |
| Abstract: | We build a publicly available platform that tracks economic activity at a granular level in real time using anonymized data from private companies. We report daily statistics on consumer spending, business revenues, employment rates, and other key indicators disaggregated by county, industry, and income group. Using these data, we study the mechanisms through which COVID-19 affected the economy by analyzing heterogeneity in its impacts across geographic areas and income groups. We first show that high-income individuals reduced spending sharply in mid-March 2020, particularly in areas with high rates of COVID-19 infection and in sectors that require physical interaction. This reduction in spending greatly reduced the revenues of businesses that cater to high-income households in person, notably small businesses in affluent ZIP codes. These businesses laid o↵ most of their low-income employees, leading to a surge in unemployment claims in affluent areas. Building on this diagnostic analysis, we use event study designs to estimate the causal effects of policies aimed at mitigating the adverse impacts of COVID. State-ordered reopenings of economies have little impact on local employment. Stimulus payments to low-income households increased consumer spending sharply, but had modest impacts on employment in the short run, perhaps because very little of the increased spending flowed to businesses most affected by the COVID-19 shock. Paycheck Protection Program loans have also had little impact on employment at small businesses. These results suggest that traditional macroeconomic tools – stimulating aggregate demand or providing liquidity to businesses – may have diminished capacity to restore employment when consumer spending is constrained by health concerns. During a pandemic, it may be more fruitful to mitigate economic hardship through social insurance. More broadly, this analysis illustrates how real-time economic tracking using private sector data can help rapidly identify the origins of economic crises and facilitate ongoing evaluation of policy impacts. |
| JEL: | E0 H0 J0 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27431&r=all |
| By: | International Monetary Fund |
| Abstract: | This Technical Assistance report on Argentina sets out IMF staff’s views on a feasible macroeconomic framework that could underpin a debt restructuring operation that would restore debt sustainability with high probability. Given that the authorities are in the process of elaborating the precise content of their policy agenda, the feasible macroeconomic framework is anchored around the authorities’ broad policy announcements and predicated on the IMF staff’s view that a set of policies could be fully developed and implemented to render the macroeconomic framework achievable. However, there are important downside risks to the feasible macroeconomic framework, especially if the adverse global and domestic economic effects of the fast-moving COVID-19 pandemic are larger and more prolonged than assumed in this note. Economic conditions are rapidly worsening, and financial conditions are characterized by very high volatility. This greatly increases the uncertainty about the macroeconomic framework, with potential implications for the IMF staff’s assessment of debt sustainability. |
| Keywords: | Financial soundness indicators;Economic stabilization;Consumption;Economic conditions;Economic recovery;ISCR,CR,debt-to-GDP,GFN,debt-to-GDP ratio,percent of GDP,international reserve |
| Date: | 2020–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/083&r=all |
| By: | Óscar Afonso (CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto); Tiago Miguel Guterres Neves Sequeira (University of Coimbra, Centre for Business and Economics,CeBER, Faculty of Economics) |
| Abstract: | We devise a North-South endogenous growth model with international trade and money to study the effects of inflation (and monetary policy) on wage inequality, specialization, and growth. The relationship between monetary policy and wage inequality depends on the fact that skilled-production firms are less credit constrained than unskilled-production firms. Interestingly, inflation affects the structure of production by increasing the production share made by skilled-intensive firms, and decreases economic growth. Furthermore, inflation decreases the difference of wage inequality between countries; shrinking the skill premia difference. Moreover, inflation and trade have opposite effects on wage inequality and on specialization: while trade tends to decrease intra-South wage inequality, inflation tends to increase it; while trade tends to increase the number of different intermediate goods produced with unskilled technology in the South; inflation acts the other way around. Results are confirmed quantitatively. |
| Keywords: | Inflation; Wage inequality; North-South trade; CIA constraints; Technological knowledge bias. |
| JEL: | F16 F43 O31 O33 O40 E41 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2020-09&r=all |
| By: | Jennifer Bennett; Robert Kornfeld; Daniel Sichel; David Wasshausen |
| Abstract: | Infrastructure provides critical support for economic activity, and assessing its role requires reliable measures. This paper provides an overview of U.S. infrastructure data in the National Economic Accounts. After developing definitions of basic, social, and digital infrastructure, we assess trends in each of these categories and their components. Results are mixed depending on the category. Investment in some important types of basic infrastructure has barely or not kept up with depreciation and population growth in recent decades, while some other categories look better. We also show that the average age of most types of infrastructure in the U.S. has been rising, and the remaining service life has been falling. This paper also presents new prototype estimates of state-level investment in highways, highlighting the wide variation across states. In addition, we present new prototype data on maintenance expenditures for highways. In terms of future research, we believe that deprecation rates warrant additional attention given that current estimates are based on 40-year old research and are well below those used in Canada and other countries. We also believe that additional creative work on price indexes for infrastructure would be valuable. Finally, all of the data in this paper will be downloadable on the BEA website, and we hope that the analysis in this paper and the availability of data will spur additional research. |
| JEL: | E01 H4 H54 O4 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27446&r=all |
| By: | Alok Johri; Shahed Khan; Cesar Sosa-Padilla |
| Abstract: | International data suggests that fluctuations in the level and volatility of the world interest rate (as measured by the US treasury bill rate) are positively correlated with both the level and volatility of sovereign spreads in emerging economies. We incorporate an estimated time-varying process for the world interest rate into a model of sovereign default calibrated to a panel of emerging economies. Time variation in the world interest rate interacts with default incentives in the model and leads to state contingent effects on borrowing and sovereign spreads which resemble those found in the data. The model delivers up to one-half of the positive comovement between the level and volatility of world interest rate and the level of sovereign spreads seen in emerging economies. Moreover, the model also delivers significant positive co-movements between the volatility of the spread and the process for the world interest rate which is also consistent with the data. Our model provides one potential source for the observed bunching in default probabilities observed across nations, namely the world interest rate process. Our model generates a positive and significant correlation (0.51) between the spreads of two nations with uncorrelated income processes. This is close to the observed mean correlation in the data (0.61). |
| Keywords: | Sovereign Debt; Sovereign Default; Interest Rate Spread; Time-varying Volatility; Uncertainty Shocks |
| JEL: | F34 F41 E43 E32 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2020-13&r=all |
| By: | International Monetary Fund |
| Abstract: | This paper presents Papua New Guinea’s (PNG) 2019 Article IV Consultation and Request for Staff Monitored Program. The economy is estimated to have rebounded in 2019 following the contraction triggered by the large earthquake in 2018. Inflation is projected to fall in 2019 but to pick up temporarily thereafter. The staff report reflects discussions with the PNG authorities in October 28–November 9, 2019 and is based on the information available as of November 21, 2019. It focuses on PNG near- and medium-term challenges and policy priorities and was prepared before coronavirus disease 2019 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in PNG and globally. |
| Keywords: | Financial and Monetary Sector;Fiscal policy;Central banks;Economic indicators;Economic sectors;ISCR,CR,PNG,percent of GDP,SOEs,net lend,Proj |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/095&r=all |
| By: | Andrea Orame (Bank of Italy) |
| Abstract: | The work analyses the characteristics of supply in the Italian credit market with a focus on the years 2009-2014. By using a new survey, I find that approximately 40 percent of the decline in business lending originates in the tightening of bank credit standards, with a significant decrease in supply after the first semester of 2011. The data also reveal a substantial supply-side heterogeneity: illiquid, profitable, efficient and group-member banks reduce their supply further, as do banks with a low dependence on interest income. Banks in larger groups also display a different supply pattern, with greater tightenings and easings. Capital and funding seem to play no significant role. |
| Keywords: | financial crisis, supply of credit, bank lending, bank fragility, universal banking, capital, regulation, governance |
| JEL: | E32 E51 G01 G21 G28 G32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1279_20&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Samba Diop (Alioune Diop University, Bambey, Senegal); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | This study has: (i) analysed the economic impact of the Covid-19 pandemic, (ii) evaluated the effectiveness and relevance of different measures against the pandemic and (iii) examined nexuses between the corresponding measures and economic outcomes. The study uses a sample of 186 countries divided into four main regions, notably: Asia-Pacific and the Middle East, Europe, Africa and America. 34 preventing and mitigating measures against the Covid-19 pandemic are classified into five main categories: lockdown, movement restrictions, governance and economic, social distancing, and public health measures. The empirical evidence is based on comparative difference in means tests and correlation analyses. The findings show how the effectiveness and consequences of the Covid-19 measures are different across regions. In adopting the relevant policies to fight the ongoing pandemic, the comparative insights from the findings in the study are worthwhile. Inter alia: (i) from a holistic perspective, only European countries have favourably benefited from the Covid-19 measures; (ii) lockdown measures at the global level have not been significant in reducing the pandemic; (iii) the restriction of movement measure has been relevant in curbing the spread in the American continent; (iv) social distancing has been productive in Europe and counter-productive in Africa; (v) governance and economic measures have exclusively been relevant in Europe and (vi) overall public health measures have not had the desired outcomes in flattening the infection curve probably because most of the underlying measures are awareness decisions or oriented toward people already infected. |
| Keywords: | Novel Coronavirus, Social Distance, Macroeconomics effects |
| JEL: | E10 E12 E20 E23 I10 I18 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/054&r=all |
| By: | Florian Exler; Michéle Tertilt |
| Abstract: | In this survey, we review the quantitative macroeconomic literature analyzing consumer debt and default. We start by providing an overview of consumer bankruptcy law in the US and document the relevant institutional changes over time. We proceed with a comprehensive empirical section, describing key facts about consumer debt, defaults and delinquencies, as well as charge-off and interest rates for the United States. In addition to the evolution of these variables over time, we construct life-cycle profiles using data from the Survey of Consumer Finances and show that debt and defaults display a clear hump-shaped profile by age. Third, we show how credit card debt has evolved along the income distribution. Finally, we document a large amount of heterogeneity in credit card interest rates across consumers. In the second part of the survey, we describe what has by now become the workhorse model of consumer credit and default. We discuss a quantitative version of the model and use it to decompose the main reasons for default. We also use the model to illustrate how the details of default costs matter. The remainder of the survey then discusses the literature centered around two questions. First, what are the welfare implications of various bankruptcy laws? And second, what caused the rise in filings over time? We end with a discussion of open questions and fruitful avenues for future research. |
| Keywords: | Consumer Debt, Default, Bankruptcy, Chapter 7, Bankruptcy Law, Delinquency, Credit Cards, Unsecured Debt, Charge-Offs, Interest Rates |
| JEL: | C60 E20 G20 O30 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_153v2&r=all |
| By: | Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga |
| Abstract: | At the aggregate level, the evidence that deviations from purchasing power parity (PPP) are too persistent to be explained solely by nominal rigidities has long been a puzzle (Rogoff, 1996). Another puzzle from the micro price evidence of the law of one price (LOP), which is the basic building block of PPP, is that LOP deviations are less persistent than PPP deviations. To reconcile the empirical evidence, we adapt the model of behavioral inattention in Gabaix (2014, 2020) to a simple two-country sticky-price model. We propose a simple test of behavioral inattention and find strong evidence in its favor using micro price data from US and Canadian cities. Calibrating behavioral inattention with our estimates, we show that our model reconciles the two puzzles relating to the PPP and LOP. First, the PPP deviations are more than twice as persistent as PPP deviations explained only by sticky prices. Second, the LOP deviations decrease to less than two-thirds of the PPP deviations in the degree of persistence. |
| JEL: | D40 E31 F31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27420&r=all |
| By: | Karahan, Fatih; Mitman, Kurt; Moore, Brendan |
| Abstract: | We develop a method to jointly measure the response of worker search effort (individual effect) and vacancy creation (market-level effect) to changes in the duration of unemployment insurance (UI) benefits. To implement this approach, we exploit an unexpected cut in UI durations in Missouri and provide quasi-experimental evidence on the effect of UI on the labor market. The data indicate that the cut in Missouri significantly increased job finding rates by both raising the search effort of unemployed workers and the availability of jobs. The latter accounts for at least a third and up to 100 of the total effect. |
| Keywords: | search; unemployment; Unemployment insurance; Vacancies |
| JEL: | E24 J63 J64 J65 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14158&r=all |
| By: | Corinna Ghirelli (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | We construct Economic Policy Uncertainty (EPU) indexes for a number of Latin American (LA) economies (Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela) and the region as a whole based on the Spanish press. Our measures are comparable across countries. We study the macroeconomic effects of LA EPU shocks on the analyzed American economies and the Spanish economy. To study the international spillover effects on the Spanish economy we carry out two exercises by means of vector autoregression models. First, we estimate responses to unexpected shocks in LA EPU of the quotations of Spanish companies which are highly exposed to Latin America. Second, we study the impact of LA EPU shocks on Spanish macroeconomic aggregates. Unexpected shocks in LA EPU dampen signicantly the commercial relationship between Spain and LA countries. Spanish firms decrease their exports and foreign direct investments towards LA countries that experience negative shocks in EPU. |
| Keywords: | economic policy uncertainty, uncertainty shocks, Latin America’s economies |
| JEL: | D8 C43 E2 E3 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2024&r=all |
| By: | L. Randall Wray |
| Abstract: | Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp's state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, "endogenous money theory," as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the "Kansas City" approach to MMT at the University of Missouri-Kansas City (UMKC) and the Levy Economics Institute of Bard College. |
| Keywords: | Modern Money Theory (MMT); Functional Finance; Chartalism; State Theory of Money; Sectoral Balances; Kansas City Approach; Job Guarantee; Sovereign Currency |
| JEL: | B1 B2 B52 E12 E5 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_961&r=all |
| By: | Victor S. Venida (Economics Department, Ateneo de Manila University) |
| Abstract: | The economies of developing countries have a dualist structure in which feudal and capitalist modes coexist and interact. For the Philippines, this dualism is evident. This paper analyzes the Philippines’s economic structure through a theoretical framework that draws on a Marxian theory interpreted by Wolff (1977, 1979): the model of social disarticulation and the creation of relative surplus value. Adding on to estimates for 1961–2000 for further analysis, this paper updates the estimated Marxian categories for the Philippines using the Input-Output tables from 1961 to 2012 and the formal model used by Venida (2007, 2011). Results of the estimates show labor productivity improvements from 2000 to 2012, which point to the possibility that the Philippine economy could have begun to transition to further capitalist expansion. |
| Keywords: | input-output, labor productivity, Marxian theory, Philippines, relative surplus value |
| JEL: | D57 E11 E24 J24 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:agy:dpaper:202011&r=all |
| By: | Miroslav Gabrovski; Victor Ortego-Marti (Department of Economics, University of California Riverside) |
| Abstract: | This paper develops a model of the housing market with search and credit frictions. The interaction between the two sources of friction gives rise to a novel channel through which the financial sector affects prices and liquidity in the housing market and leads to multiple equilibria. In a numerical exercise, we gauge the relative contribution of credit market shocks to the observed patterns in housing prices, time-to-sell, and mortgage debt-to-price ratio in the U.S. data prior to the $2007$ housing market crash. Our results suggest that shocks associated with the credit frictions channel had a relatively larger impact on the observed build-up in mortgage debt and lack of change in time-to-sell than on the increase in prices. |
| Keywords: | Housing market; Credit Frictions; Search and Matching; Multiple Equilibria; Mortgages |
| JEL: | E2 E32 R21 R31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:202016&r=all |
| By: | Amélie Barbier-Gauchard; Meixing Dai; Claire Mainguy; Jamel Saadaoui; Moïse Sidiropoulos; Isabelle Terraz; Jamel Trabelsi |
| Abstract: | The pandemic crisis constitutes an unprecedented challenge for the European Union and for the Euro Area. Indeed, European institutional architecture can be viewed as being half-way between an association of sovereign states (like the United Nations, for example) and a politically integrated federation (like the United States for example). In this original construction, competences on several matters (such as economic, political, social and health issues, etc.) are shared at the European level, but also at the national and local levels in more complex ways than in fully integrated federations. To improve the resilience of the European Union to violent external shocks, the main objective of this paper is to determine to what extent these competences have to be transferred to the federal level. In this respect, we will consider whether a federal leap is necessary in several areas namely (i) monetary and fiscal policy (rules), (ii) labor markets policy and social models, migratory flows and skill shortages, and cooperation policy and (iii) renewed industrial policy and exchange rates. Despite a highly uncertain context, we outline some perspectives for the future of the European Union. |
| Keywords: | European union, Pandemic crisis, Economic policy, Resilience. |
| JEL: | F33 E52 E62 F22 J61 L52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2020-33&r=all |
| By: | Abeti, Wilson |
| Abstract: | This paper reviews the state of the Ghanaian economy by putting the searchlight on key areas that contribute to the growth of the economy. The paper also adduces key sectors that contribute to the development of Ghana's economy. |
| Keywords: | Economic Growth, Inflation, Interest Rate, Fiscal Policy |
| JEL: | E4 E6 O4 |
| Date: | 2020–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102131&r=all |
| By: | Hippolyte W. Balima; Amadou N Sy |
| Abstract: | This paper studies the role of IMF-supported programs in mitigating the likelihood of subsequent sovereign defaults in borrowing countries. Using a panel of 106 developing countries from 1970 to 2016 and an entropy balancing methodology, we find that IMF-supported programs significantly reduce the likelihood of subsequent sovereign defaults. This finding is robust to different specifications of the entropy balancing and alternative identification strategies. Our results suggest that a country that signs a program with the IMF, typically experiences a slight improvement in its sovereign credit rating and a decrease in both government debt-to-GDP and fiscal deficit-to-GDP. |
| Keywords: | Sovereign debt defaults;Bank bailouts;Developing countries;External sector;Financial crises;Sovereign debt;Economic conditions;IMF-supported programs,entropy balancing,International Lending and Debt Problems,International Monetary Arrangements and Institutions,debt crisis,sovereign default,covariates,debt-to-GDP,SDC |
| Date: | 2019–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/002&r=all |
| By: | Tomaz Cajner; Andrew Figura; Brendan M. Price; David Ratner; Alison E. Weingarden |
| Abstract: | In the spring of 2020, many observers relied heavily on weekly initial claims for unemployment insurance benefits (UI) to estimate contemporaneous reductions in US employment induced by the COVID-19 pandemic. Though UI claims provided a timely, high-frequency window into mounting layoffs, the cumulative volume of initial claims filed through the May reference week substantially exceeded realized reductions in payroll employment and likely contributed to the historically large discrepancy between consensus expectations of further April-to-May job losses and the strong job gains reflected in the May employment report. Analyzing the relationship between UI claims and underlying employment, we argue that insured unemployment--an alternative high-frequency indicator that responds to gross job gains as well as gross job losses--offers important advantages as a barometer of labor market conditions. Adjusting for reporting artifacts and for time lags between employment flows and associated claims, we show that insured unemployment comoved strongly with payroll employment throughout the first months of the pandemic, as it did during the Great Recession. |
| Keywords: | Unemployment insurance; Unemployment; Emergency unemployment benefits; Employment; Business cycle; Economic indicators; COVID-19 |
| JEL: | E24 J65 |
| Date: | 2020–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-55&r=all |
| By: | Alessio Anzuini (Banca d’Italia) |
| Abstract: | The Federal Reserve responded to the global financial crisis of 2008 with the deployment of new monetary policy tools, the most notable of them being the expansion of its balance sheet. In a recent paper, Weale and Wiladeck (2016) show that the asset purchases were effective in stimulating economic activity, inflation and asset prices. In this paper, we show that the results of asset purchases are state-dependent: large scale purchases are effective only when financial markets are impaired. Using an estimated threshold vector autoregressive model conditional on the volatility regime, we show that an increase in the balance sheet has expansionary effects on GPD and inflation when volatility is high, but not when it is low (in which case its effects become mostly insignificant). We argue that high volatility can be interpreted as a proxy of market dysfunction, and therefore only when this transmission channel is active is unconventional monetary policy particularly effective. This suggest that models of transmission mechanisms of unconventional policies that are based on asset purchases should focus more on the market functioning channel and not only on the portfolio rebalance channel. |
| Keywords: | threshold vector autoregression, unconventional monetary policy. |
| JEL: | C32 E52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1280_20&r=all |
| By: | Oscar Claveria (AQR-IREA, Department of Econometrics, Statistics and Applied Economics, University of Barcelona, 08034 Barcelona, Spain.) |
| Abstract: | This paper evaluates the dynamic response of economic activity to shocks in agents’ perception of uncertainty. The study focuses on the comparison between manufacturers 'and consumers' perception of economic uncertainty. Since uncertainty is not directly observable, we approximate it using the geometric discrepancy indicator of Claveria et al. (2019). This approach allows us quantifying the proportion of disagreement in business and consumer expectations of eleven European countries and the Euro Area. First, we compute three independent indices of discrepancy corresponding to three dimensions of uncertainty (economic, inflation and employment) and we average them to obtain aggregate disagreement measures for businesses and for consumers. Next, we use a bivariate Bayesian vector autoregressive framework to estimate the impulse response functions to innovations in disagreement in every country. We find that the effect on economic activity of shocks to the perception of uncertainty differ markedly between manufacturers and consumers. On the one hand, shocks to consumer discrepancy tend to be of greater magnitude and duration than those to manufacturer discrepancy. On the other hand, innovations in disagreement between the two collectives have an opposite effect on economic activity: shocks to manufacturer discrepancy lead to a decrease in economic activity, as opposed to shocks to consumer discrepancy. This finding is of particular relevance to researchers when using cross-sectional dispersion of survey-based expectations, since the effect on economic growth of shocks to disagreement depend on the type of agent. |
| Keywords: | Economic uncertainty, Production, Inflation, Employment, Expectations, Disagreement. JEL classification: C32, E23, E24, E31. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202011&r=all |
| By: | Gorbanev, Mikhail |
| Abstract: | Most notable claims linking events on Earth with solar cycle phases relate to solar maximums. Cyclical maximums of solar activity could be associated with economic recessions (W.S.Jevons) or revolutions (A.L.Chizhevsky). However, both the diminishing magnitude of solar cycles and the recent crisis events warrant closer attention to solar minimums. The ongoing global economic and financial crisis—caused by the “great lockdown” response to the new COVID-19 coronavirus pandemic—coincided with cyclical minimum of solar activity, as did the previous Global Financial Crisis of 2007-09. And before that, Asian crisis of 1997-98 began shortly after solar minimum. These events point to the new emerging pattern of global economic and financial crises coinciding with cyclical minimums of solar activity. |
| Keywords: | revolution, recession, business cycle, sunspot, solar cycle |
| JEL: | E32 F44 Q51 Q54 |
| Date: | 2020–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102163&r=all |
| By: | Meredith M. Paker |
| Abstract: | The brief recession from 1980–1981 in the UK led to a prolonged employment downturn, with the unemployment rate continuing to increase through 1984. A large literature has developed around the concept of jobless recoveries and their possible causes, focused primarily on the US from the 1990s. This paper argues that the employment recovery from the 1980–1981 recession in the UK can be considered an early example of a jobless recovery. Then, taking the US as a comparison case, possible causes of this jobless recovery are evaluated. Labor reallocation across industries, regional effects, and job polarization are considered in depth for the UK. Industry labor reallocation emerges as the major difference between the UK and the US during the early 1980s recession and recovery period, suggesting this was the key factor driving the UK’s jobless recovery. |
| Keywords: | jobless recovery; industry labor reallocation; structural change; job polarization |
| JEL: | N14 N34 J64 J21 E24 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:esohwp:_182&r=all |
| By: | Grömling, Michael |
| Abstract: | Bleibende ökonomische Auswirkungen der Corona-Pandemie werden an der Entwicklung der gesamtwirtschaftlichen Produktionsfaktoren - dem Arbeitseinsatz, Sach- und Humankapital sowie dem Bestand an technischem Wissen - sichtbar werden. Verhaltensänderungen, wie etwa eine höhere Technikakzeptanz, können das Produktionspotenzial dauerhaft stärken. Dem stehen die negativen Effekte von verstärkten protektionistischen Haltungen gegenüber. Jedenfalls hat die Krise einen Technologieschub induziert. Dieser kann sich verstärken, wenn die Digitalisierung zusätzliche Unterstützung durch Infrastrukturinvestitionen erfährt oder die Pandemie eine Renaissance der Naturwissenschaften - mit den entsprechenden Auswirkungen auf die Bestände an Human- und Sachkapital sowie auf das technische Wissen - einläutet. Die Auswirkungen von Restrukturierungen und dem säkularen Strukturwandel auf das Produktionspotenzial sind zunächst offen. Gefahren lauern jedoch durch eine Forcierung von Protektionismus und zunehmende Staatseingriffe, die insgesamt gesehen Innovationen und Investitionen hemmen. |
| JEL: | E20 E22 F20 I15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:352020&r=all |
| By: | Florian Exler; Michéle Tertilt |
| Abstract: | In this survey, we review the quantitative macroeconomic literature analyzing consumer debt and default. We start by providing an overview of consumer bankruptcy law in the US and document the relevant institutional changes over time. We proceed with a comprehensive empirical section, describing key facts about consumer debt, defaults and delinquencies, as well as charge-off and interest rates for the United States. In addition to the evolution of these variables over time, we construct life-cycle profiles using data from the Survey of Consumer Finances and show that debt and defaults display a clear hump-shaped profile by age. Third, we show how credit card debt has evolved along the income distribution. Finally, we document a large amount of heterogeneity in credit card interest rates across consumers. In the second part of the survey, we describe what has by now become the workhorse model of consumer credit and default. We discuss a quantitative version of the model and use it to decompose the main reasons for default. We also use the model to illustrate how the details of default costs matter. The remainder of the survey then discusses the literature centered around two questions. First, what are the welfare implications of various bankruptcy laws? And second, what caused the rise in filings over time? We end with a discussion of open questions and fruitful avenues for future research. |
| Keywords: | Consumer Debt, Bankruptcy, Chapter 7, Default, Credit Cards, Charge-offs |
| JEL: | C60 E20 G20 O30 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_153v1&r=all |
| By: | Liu, Emily; Niepmann, Friederike; Schmidt-Eisenlohr, Tim |
| Abstract: | This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks' capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is larger when they have a bigger capital buffer. We conjecture that bank lending to emerging markets during the zero-lower bound period would have been even higher had the United States not introduced stress tests for their banks. |
| Keywords: | emerging markets; monetary policy spillovers; stress tests; U.S. bank lending |
| JEL: | E44 F31 G15 G21 G23 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14128&r=all |
| By: | Mathias Lé; Frédéric Vinas |
| Abstract: | How do firms finance their investment? To what extent does the financing mix depends on the nature or the size of investment? To what extent does the funding mix of investment vary along firm size? Relying on a unique database of firms covering 72% of the value added in France over three decades, this paper addresses those questions and provides a comprehensive picture of the financial resources used by firms to finance their investment. We uncover significant cross-sectional heterogeneity in the financing mix of investment along firm size, asset tangibility and investment size. In particular, we show that the commonly held view that "firms strongly rely on bank credit in a bank-based economy" weakens significantly as we consider larger firms or when it comes to finance intangible investments or relatively small investments. |
| Keywords: | Investment, Working Capital, Firm Financing, Bank Credit, Equity Finance, Retained Earnings, Firm Size, Investment Spikes . |
| JEL: | E22 G21 G30 G31 G32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:777&r=all |
| By: | Burjack, Rafael; Qu, Ritong; Timmermann, Allan |
| Abstract: | We use a unique Brazilian dataset on daily survey expectations to obtain direct measures of shocks to central bank target rates and changes in economic uncertainty. Using these measures, we gauge the effect of monetary policy shocks on economic uncertainty, term premia, inflation expectations, and bond yields in Brazil. We find strong evidence that inflation uncertainty is key to transmitting monetary policy shocks to the yield curve via time-varying term premia. Finally, Fed announcements have sizeable spillover effects on the Brazilian bond market, as positive shocks to US yields significantly raise term premia in Brazil through elevated exchange rate risk. |
| Keywords: | Inflation uncertainty; monetary policy shocks; term structure |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14097&r=all |
| By: | Julian Kozlowski; Laura Veldkamp; Venky Venkateswaran |
| Abstract: | The largest economic cost of the COVID-19 pandemic could arise from changes in behavior long after the immediate health crisis is resolved. A potential source of such a long-lived change is scarring of beliefs, a persistent change in the perceived probability of an extreme, negative shock in the future. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run costs for the U.S. economy from this channel is many times higher than the estimates of the short-run losses in output. This suggests that, even if a vaccine cures everyone in a year, the Covid-19 crisis will leave its mark on the US economy for many years to come. |
| JEL: | E0 G12 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27439&r=all |
| By: | Roman Horvath (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic) |
| Abstract: | We provide a new explanation for why central banks have become transparent over the last three decades. We apply recently developed social interaction panel regression models for the observational data, which allow the identification of peer effects. The identification is based on variations in the past monetary policy régime exogenously determined with respect to transparency. Previous literature has argued that domestic factors such as macroeconomic stability were behind the trend toward greater transparency. In contrast, our results indicate that transparency primarily increased because of a favorable global environment and, importantly, because of the peer effects among central bankers. Central bankers thus learned from each other's experiences regarding transparency. To our knowledge, our paper is the first econometric analysis of peer effects among public institutions or in the macroeconomic literature. Despite being the best available, existing data is still imperfect, and we therefore call for better data in the form of MNCs’ unconsolidated, public country-by-country reporting data. |
| Keywords: | peer effects, central banks, transparency |
| JEL: | C31 D83 E58 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_24&r=all |
| By: | Cappelletti, Giuseppe; Reghezza, Alessio; d’Acri, Costanza Rodriguez; Spaggiari, Martina |
| Abstract: | We investigate the impact of macroprudential capital requirements on bank lending behaviour across economic sectors, focusing on their potentially heterogenous effects and transmission channel. By employing confidential loan-level data for the euro area over 2015-18, we find that the reaction of banks to structural capital surcharges depends on the level of the required capital buffer and the economic sector of the borrowing counterpart. Although tighter buffer requirements correspond to stronger lending contractions, targeted banks curtail their lending towards credit institutions the most, while leaving loan supply to non-financial corporations almost unchanged. We find that this lending is mitigated when banks resort to central bank funding. These results have important policy implications as they provide evidence on the impact of macroprudential policy frameworks and their interaction with unconventional monetary policies. JEL Classification: E51, E58, E60, G21, G28 |
| Keywords: | credit supply, large exposure, loan-level data, macroprudential policy, unconventional monetary policy |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202440&r=all |
| By: | Masahiko Shibamoto (Research Institute for Economics and Business Administration, Kobe University, Japan); Wataru Takahashi (Faculty of Economics, Osaka University of Economics, Japan); Takashi Kamihigashi (Research Institute for Economics and Business Administration, Kobe University, Japan) |
| Abstract: | Although various studies examine how monetary policy affects the economy using real-world data, a consensus has yet to be reached. This study reviews and assesses the monetary policy implemented by the Bank of Japan, focusing on policies that employ short-term interest rate as the operational target. Our review of empirical studies on monetary policy that influenced the policy of the Bank of Japan prior to and during the 1980s reveals that the studies focused on (1) bank behavior, (2) the interest rate mechanism, (3) financial deregulation and monetary aggregates, and (4) the systematic reaction regarding the achievement of the ultimate goal. Our empirical results on the causal effect of monetary policy in the framework of a structural vector autoregressive model attest to the significant impact of Japan’s monetary policy on the financial market and macroeconomy from the 1980s onward. Our counterfactual simulations affirm that the central bank should consistently shift its policy stance to achieve macroeconomic stability. Moreover, even tiny policy rate cuts in a low-interest-rate environment make significant contributions to economic recovery. |
| Keywords: | Japanese macroeconomy; Short-term interest rate; Causal effect of monetary policy; Counterfactual simulation; Vector autoregressive model |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2020-15&r=all |
| By: | Paolo Martellini; Guido Menzio; Ludo Visschers |
| Abstract: | We revisit the hypothesis that cyclical fluctuations in unemployment are caused by shocks to the discount rate. We use a rich search-theoretic model of the labor market in which the UE, EU and EE rates are all endogenous. Analytically, we show that an increase in the discount rate lowers the UE rate and, under some natural conditions, it lowers the EU rate. Quantitatively, we show that an increase in the discount rate from 4 to 10% generates a 3.5% decline in the UE rate and a 6% decline in the EU rate. The response of the unemployment rate is minuscule. These findings are at odds with the actual behavior of the US labor market over the business cycle, which features a negative comovement between the UE and EU rates and large unemployment fluctuations. We show that aggregate productivity shocks generate the correct comovement between the UE and EU rates, as well as large unemployment fluctuations. |
| JEL: | E24 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27428&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2019 Article IV Consultation focuses on Curaçao and Sint Maarten’s near and medium-term challenges and policy priorities and was prepared before coronavirus disease 2019 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. The fiscal position in Curaçao improved in the past two years, in part due to implemented fiscal measures. Both Curaçao and Sint Maarten would benefit from introducing a Fiscal Responsibility Framework. It could incorporate a central government debt ratio as a long-term anchor and operational rules calibrated to meet it. The report suggests that risks in the financial sector need to be addressed as a matter of priority. The authorities should develop a strategy for addressing financial sector vulnerabilities with the objective of preserving financial stability while minimizing fiscal costs. Significant strengthening of supervision and a complete overhaul of the bank resolution framework are also urgently needed. An across-the board improvement in the governance framework should be a key priority in both countries. Vulnerabilities in the financial system point to the need to strengthen governance in the financial sector. |
| Keywords: | Balance of payments;Financial soundness indicators;Economic indicators;Financial statistics;Public financial management;ISCR,CR,percent change,percent of GDP,overall balance,Proj,primary balance |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/094&r=all |
| By: | Bruce C. Fallick; Murat Tasci |
| Abstract: | We estimate trend unemployment rates for Ohio, Pennsylvania, Kentucky, and West Virginia, states that span parts of the Fourth District of the Federal Reserve System. Our estimated unemployment rate trend for the District as a whole stood at 5.7 percent in 2020:Q1 compared to a 4.7 percent observed unemployment rate within the District, implying a tight labor market by historical standards. |
| Keywords: | unemployment rate; trend; Federal Reserve district |
| JEL: | E32 E24 D21 J6 R1 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88278&r=all |
| By: | Charles Goodhart (London School of Economics); Dimitrios Tsomocos (University of Oxford); Xuan Wang (Vrije Universiteit Amsterdam) |
| Abstract: | A sizeable proportion of enterprises, especially SMEs, in receipt of financial assistance from the government, will fail to repay. In this paper we asked whether, and to what extent, it may be beneficial to apply a screening mechanism to deter those mostly likely to fail to repay from seeking such financial assistance in the first place. The answer largely turns on the relative weights attached for the objectives of stabilisation as compared with allocative efficiency. For this purpose, we develop a two-sector infinite horizon model featuring oligopolistic small businesses and a screening contract in the presence of a pandemic shock with asymmetric information. The adversely affected sector with private information can apply for government loans to reopen businesses once the pandemic has passed. First, we show that a pro-allocation government sets a harsh default sanction to deter entrepreneurs with bad projects from reentering and improves aggregate productivity in the long run, but the economy suffers persistent unemployment in the near term. However, a pro stabilisation government sets a lenient default sanction or provides full guarantees to reach full employment in the short term, but the economy will be shifted to a lower equilibrium in the long run. The optimal default sanction balances the trade-off between allocation and stabilisation. Then, we derive an analytic measure of “Stabilisation Proclivity†and characterise the parameter space and the macro-financial frictions that render the government either more pro-allocation or more pro-stabilisation. Finally, we solve for the optimal default sanction numerically and conducts comparative statics for various policy analyses. |
| Keywords: | COVID-19, Government Guarantees, optimal default sanction, unemployment, productivity, Adverse Selection, private information, screening |
| JEL: | H81 D82 E44 |
| Date: | 2020–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200044&r=all |
| By: | Mar Delgado-Téllez (Banco de España); Esther Gordo (AIReF); Iván Kataryniuk (Banco de España); Javier J. Pérez (Banco de España) |
| Abstract: | Public investment in advanced economies is at historical lows, and shows a declining trend since at least the 1980s. Two main hypotheses have been posed to rationalize this fact. On the one hand, the “social dominance hypothesis” claims that this is related to structural factors, given the upward social expenditure trends related to ageing populations and social preferences, and the operation of the government budget constraint (limits to further increase significantly tax revenues and public debt, in a context of secular stagnation). On the other hand, another branch of the literature indicates that too-rigid fiscal rule frameworks cause fiscal retrenchment episodes to hinge heavily on public capital expenditure, which does not recover enough in the subsequent expansion, creating a sort of downward hysteresis behaviour in this budgetary item. In this paper we look jointly at both sets of duelling explanatory factors, and show that both are key to understanding public investment dynamics in advanced economies over the past decades. |
| Keywords: | social dominance, fiscal rules, public investment |
| JEL: | H6 E62 C53 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2025&r=all |
| By: | Valentina Flamini; Pierluigi Bologna; Fabio Di Vittorio; Rasool Zandvakil |
| Abstract: | Credit is key to support healthy and sustainable economic growth but excess aggregate credit growth can signal the build-up of imbalances and lead to systemic financial crisis. Hence, monitoring the credit cycle is key to identifying vulnerabilities, particularly in emerging markets, which tend to be more exposed to sudden external shocks and reversal in capital flows. We estimate the credit cycle in Central America, Panama, and the Dominican Republic and find that the creadit gap is a powerful predictor of systemic vulnerability in the region. We simulate the activation of the Basel III countercyclical capital buffers and discuss the macroprudential policy implications of the results, arguing that countercyclical macroprudential policies based on the credit gap could prove useful to enhance the resilience of the region’s financial sector but the activation of macroprudential instruments should also be informed by the development of other macrofinancial variables and by expert judgment. |
| Keywords: | Exchange rate policy;Credit booms;Central banks;Credit pricing;Credit risk;Credit cycle,Financial crises,Countercyclical capital buffer,Basel III,CPI inflation,GFC,countercyclical,synchronicity |
| Date: | 2019–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/039&r=all |
| By: | Stuart A. Gabriel; Matteo Iacoviello; Chandler Lutz |
| Abstract: | We investigate the impact of Great Recession policies in California that substantially increased lender pecuniary and time costs of foreclosure. We estimate that the California Foreclosure Prevention Laws (CFPLs) prevented 250,000 California foreclosures (a 20% reduction) and created $300 billion in housing wealth. The CFPLs boosted mortgage modifications and reduced borrower transitions into default. They also mitigated foreclosure externalities via increased maintenance spending on homes that entered foreclosure. The CFPLs had minimal adverse side effects on the availability of mortgage credit for new borrowers. Altogether, findings suggest that policy interventions that keep borrowers in their homes may be broadly beneficial during times of widespread housing distress. |
| Keywords: | Foreclosure crisis; Mortgage forbearance; Mortgage modification; Great recession |
| JEL: | E52 E58 R20 R30 |
| Date: | 2020–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-53&r=all |
| By: | Andrea Conte (European Commission - JRC); Patrizio Lecca (European Commission - JRC); Stylianos Sakkas (European Commission - JRC); Simone Salotti (European Commission - JRC) |
| Abstract: | The European Commission's Joint Research Centre (JRC) is supporting the ongoing effort by the European Commission in coordinating a common European response to the COVID-19 outbreak. Epidemiological research as well as socio-economic analyses focus on the multi-dimensional consequences of this pandemic in Europe and beyond. The European Commission presented on May 27th a proposal for a rescue and recovery plan at the European Parliament. The analysis reported here is based on the Rhomolo economic model, and has been used to support the Commission proposal and to inform the policy discussion between EU institutions and Member States’ governments. |
| Keywords: | rhomolo, region, growth, COvid-19, impact assessment |
| JEL: | C63 E61 E62 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc121261&r=all |
| By: | Fernando Alexandre (Universidade do Minho, NIPE, Escola de Economia e Gestão); Pedro Miguel Avelino Bação (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics); João Cerejeira (Universidade do Minho, NIPE, Escola de Economia e Gestão); Hélder Costa (Universidade do Minho, NIPE, Escola de Economia e Gestão); Miguel Portela (Universidade do Minho, NIPE, Escola de Economia e Gestão) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:papers:2020-14&r=all |
| By: | Joao Galindo da Fonseca (Université de Montréal); Iain Snoddy (Vancouver School of Economics, University of British Columbia) |
| Abstract: | The literature on search frictions has often adopted the assumption of free entry. In this paper we forgo of this restriction by proposing a more realistic framework in which individuals are constantly making the decision whether or not to open a firm. Namely, firms are created through endogenous choices and business-owners and workers are drawn from the same pool. We show that in this framework, the Nash bargaining parameter is crucial for internal dynamics. In particular, workers and business owners share the same outside-options. As a result, the wage is no longer unambiguously positively related to the value of unemployment. The constrained efficient solution to this model takes the same form as the standard search model implying the same form for the Hosios condition. However, at this efficient solution changes in the rate of unemployment are either exacerbated or muted conditional on the value of the match elasticity parameter. |
| Keywords: | Search and matching, Entrepreneurship, Outside options, Constrained efficiency |
| JEL: | E24 J63 J64 D61 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2019-06&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2019 Article IV Consultation with the Republic of Fiji highlights that economic activity slowed sharply in 2019 due to lower government spending, tighter domestic financial conditions, weak sentiment, and the global deceleration. The slowdown followed several years of relatively strong growth, boosted by reconstruction spending after a major cyclone in 2016, which resulted in rising external and fiscal imbalances. Fiscal space is now at risk and external vulnerabilities remain significant. Fiji has large investment needs to strengthen resilience to natural disasters and climate change. A key priority should be to rebuild fiscal buffers in a growth-friendly way to create space to respond to future natural disasters and to ensure public debt sustainability. Fiscal consolidation should focus on reining in current spending given limited scope for further revenue mobilization and the need for capital spending to improve resilience to climate change. Improvements in the business environment and in governance are essential to raise potential growth and boost private investment, and to enhance productivity and competitiveness. |
| Keywords: | External sector;National accounts;Financial institutions;International reserves;Balance of payments;ISCR,CR,RBF,potential growth,percent of GDP,business confidence,medium-term |
| Date: | 2020–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/080&r=all |
| By: | Tullio Jappelli (Università di Napoli Federico II, CSEF, CFS, CEPAR and Netspar); Luigi Pistaferri (Stanford University, SIEPR, NBER and CEPR) |
| Abstract: | We test the key implication of the buffer stock model, namely that any revision in permanent income leads to a proportionate revision in target wealth. We use panel data on the amount of wealth held for precautionary purposes available in the 2002-2016 SHIW. Using an instrumental variable approach to overcome measurement error issues and direct estimates of the permanent component of income, we find that households indeed revise approximately one-for-one their target wealth in response to permanent income shocks. We explore heterogeneity of the response across the cash-on-hand distribution, for positive and negative shocks, and for shocks of different size. We also find that the change in the ratio of cash-on-hand to permanent income is negatively correlated with the “wealth gap”, particularly for individuals whose wealth is substantially above target. |
| Keywords: | Buffer Stock Model; Target Wealth; Wealth Gap; Permanent Income Shocks; Panel Data. |
| JEL: | D12 D14 E21 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:574&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2019 Article IV Consultation focuses on Zimbabwe’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic that has resulted in unprecedented strains in global trade, commodity, and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. The IMF staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Zimbabwe and globally. With another poor harvest expected, growth in 2020 is projected at near zero, following a sharp contraction in 2019, with food shortages continuing. With no progress on clearing longstanding external arrears, the authorities face a difficult balance of pursuing tight monetary, to reduce very high inflation, and fiscal policies to address the macroeconomic imbalances and build confidence in the currency, while averting a crisis. Pressures are mounting to increase spending on wages and for social protection to mitigate the impact of the weather shocks and high inflation. While the 2020 budget includes a significant increase in social spending, it is likely insufficient to meet the pressing needs. |
| Keywords: | Central banks;Monetary statistics;Financial and Monetary Sector;Balance of payments;Inflation;ISCR,CR,arrears,text figure,percent of GDP,RTGS,net lend |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/082&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2019 Article IV Consultation focuses on Botswana near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. Gross domestic product growth is forecasted to pick up to 4.4 percent in 2020 and 5.6 percent in 2021 as the diamond industry recovers somewhat, and a new copper mine comes on stream. Growth will ease back to around 4 percent over the medium term. Risks to the outlook include faster-than-anticipated slowdown in key trading partners, shifts in consumer preferences to synthetic diamonds, and climate shocks. The size and pace of the planned adjustment are consistent with Botswana’s fiscal space, but the composition of the adjustment should protect efficient capital and social spending. Furthermore, given that buffers are being eroded, it is critical that consolidation starts as envisaged in FY2020, as it would help start addressing external imbalances and contribute to a gradual rebuilding of buffers over the medium term. In order to strengthen the monetary transmission mechanism and deepen the domestic financial market, there is a need to develop the secondary market for government securities, leverage Fintech, facilitate the attachment of collateral, and improve credit information. |
| Keywords: | Economic sectors;Fiscal policy;External sector;Macroprudential policies and financial stability;Economic indicators;ISCR,CR,SACU,non-mineral,net lend,AFS,SACU revenue |
| Date: | 2020–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/078&r=all |
| By: | Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE, INSEEC U. Research Center - International business school) |
| Abstract: | With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Riccati 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. JEL classi…cation numbers: C61, C62, C73, E47, E52, E61, E63. |
| Keywords: | Ramsey optimal policy,Stackelberg dynamic game,algorithm,forcing variables,augmented linear quadratic regulator,new-Keynesian Phillips curve |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02881216&r=all |
| By: | Fernando E. Alvarez; Francesco Lippi; Aleksei Oskolkov |
| Abstract: | We give a thorough analytic characterization of a large class of sticky-price models where the firm’s price setting behavior is described by a generalized hazard function. Such a function provides a tractable description of the firm’s price setting behavior and allows for a vast variety of empirical hazards to be fitted. This setup is microfounded by random menu costs as in Caballero and Engel (1993) or, alternatively, by information frictions as in Woodford (2009). We establish two main results. First, we show how to identify all the primitives of the model, including the distribution of the fundamental adjustment costs and the implied generalized hazard function, using the distribution of price changes or the distribution of spell durations. Second, we derive a sufficient statistic for the aggregate effect of a monetary shock: given an arbitrary generalized hazard function, the cumulative impulse response to a once-and-for-all monetary shock is given by the ratio of the kurtosis of the steady-state distribution of price changes over the frequency of price adjustment times six. We prove that Calvo’s model yields the upper bound and Golosov and Lucas’ model the lower bound on this measure within the class of random menu cost models. |
| JEL: | C41 C61 E31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27434&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2020 Article IV Consultation discusses that San Marino is now facing very significant challenges owing to the recent coronavirus disease 2019 (COVID-19) outbreak, which has taken a heavy toll on local population and businesses. The staff report reflects discussions with the Sammarinese authorities in January 2020 and is based on the information available as of January 31, 2020. It focuses on San Marino’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in San Marino and globally. With no credible measures to restore banking system health and in the face of a continued weak external environment, economic growth is projected to remain subdued in the coming years. Slow progress in repairing the banking system and failure to restore fiscal sustainability are the key and material risks. |
| Keywords: | Financial and Monetary Sector;Financial statistics;Central banks;Monetary statistics;Fiscal sector;ISCR,CR,bank system,percent of GDP,NPL,BNS,percent change |
| Date: | 2020–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/093&r=all |
| By: | He, Qichun |
| Abstract: | In this paper, we investigate how the presence of the COVID-19 pandemic---the increase in the probability of death, following Blanchard and Fischer (1989)---may affect growth and welfare in a scale-invariant R&D-based Schumpeterian model. Without money, the increase in the probability of death has no effect on long-run growth and a negative effect on welfare. By contrast, when money is introduced via the cash-in-advance constraint on consumption, the increase in the probability of death decreases long-run growth and welfare under elastic labor supply. Calibration shows that the quantitative effect of an increase in the probability of death on welfare is much larger compared to that on growth. |
| Keywords: | the COVID-19 pandemic; cash-in-advance constraint on consumption; Schumpeterian model |
| JEL: | E52 O42 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101965&r=all |
| By: | International Monetary Fund |
| Abstract: | This Joint Staff Advisory Note on the Poverty Reduction Strategy Paper discusses that Somalia has made noteworthy progress since 2012 to recover from decades of conflict and state fragmentation. The country has succeeded in rebuilding core state capabilities and organized two democratic national elections in 2012 and 2017. Somalia has now reached the stage where it seeks to fully reengage the international community and is requesting debt relief through the heavily indebted poor countries initiative. The authorities developed the Ninth National Development Plan (NPD9) through a highly consultative, participatory process that ensured full country ownership. The macroeconomic policy objectives of NDP9 are to promote economic growth in an environment of low inflation, sustainable fiscal and current account balances, and healthy foreign exchange reserves. The IMF staff recommends updating framework to incorporate greater support for poverty reduction and additional financing from development partners during the interim period. The IMF staff supports the authorities’ commitment to issuing new Somali shilling banknotes, while maintaining de facto dollarization. |
| Keywords: | Financial and Monetary Sector;Economic policy;Economic conditions;Economic reforms;Economic growth;ISCR,CR,FGS,HIPC,SHFS,MTFF,prioritization |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/087&r=all |
| By: | Keuschnigg, Christian; Kirschner, Linda; Kogler, Michael; Winterberg, Hannah |
| Abstract: | Using a DSGE model with nominal wage rigidity, we investigate two scenarios for the Italian economy. The first considers sustained policy commitment to reform. The results indicate the possibility of `growing out of bad initial conditions', if fiscal consolidation is combined with a program for bank recovery and for competitiveness and growth. The second scenario involves a strong asymmetric recession. It is likely to be very severe under the restrictions of the currency union. A benign exit from the Eurozone with stable investor expectations could substantially dampen the short-run impact. Stabilization is achieved by monetary expansion, combined with exchange rate depreciation. However, investor panic may lead to escalation. Capital market reactions would offset the benefits of monetary autonomy and much delay the recovery. |
| Keywords: | Monopoly, price setting, spatial interaction, natural experiment, yardstick competition |
| JEL: | L12 L43 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2020:10&r=all |
| By: | Ramaharo, Franck M. |
| Abstract: | We propose a scenario for computing the real gross domestic product in a macroeconomic framework. The scenario is designed upon simple assumptions while ensuring basic algebraic relationships between the four usual macroeconomic accounts. |
| Keywords: | macroeconomic framework, financial programming, macroeconomic model |
| JEL: | C63 E1 |
| Date: | 2020–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102086&r=all |
| By: | Fei Han |
| Abstract: | Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan. |
| Keywords: | Real interest rates;Negative interest rates;Interest rate policy;Economic growth;Interest rate increases;Demographic change,natural rate of interest,monetary policy,Japan,natural rate,Turunen,potential growth,Pescatori,real interest rate |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/031&r=all |
| By: | Beetsma, Roel; Van Spronsen, Josha |
| Abstract: | We provide evidence that the ECB's unconventional monetary policy dampens yield cycles in secondary markets for Eurozone sovereign debt around new sovereign debt auctions. This dampening effect tends to be larger when market volatility is higher. Cycles caused by domestic auctions and the role of market volatility are largest for countries with low credit ratings. Auctions by these countries also generate highly-significant auction cycles in other countries. Auction cycles can have a non-negligible effect on debt-servicing costs, but these may be contained by concentrating debt issuance in tranquil periods and by coordinating auction calendars among countries, so as to maximize the dispersion of auction activity in time. |
| Keywords: | asset purchase programs; auction cycles; market volatility; primary market; Secondary market; Sovereign debt |
| JEL: | E43 G12 G15 G18 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14099&r=all |
| By: | International Monetary Fund |
| Abstract: | This paper presents an Ex-Post Evaluation (EPE) of the 2015 Extended Fund Facility (EFF) arrangement with Ukraine. The four-year EFF—amounting to SDR 12.348 billion (900 percent of quota)—was approved in March 2015, after it had become clear that the conflict in the East had pushed Ukraine’s balance of payments and adjustment needs beyond what could be addressed under the 2014 Stand-By Agreement (SBA). The new ambitious program supported by the 2015 EFF was seen by many as a unique opportunity for Ukraine to fundamentally reform its economy. |
| Keywords: | Balance of payments;Central bank independence;Economic indicators;Fiscal policy;Economic policy;ISCR,CR,SBA,Naftogaz,conditionality,program design,prior action |
| Date: | 2020–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/204&r=all |
| By: | International Monetary Fund |
| Abstract: | This paper discusses Somalia’s Second Review Under the Staff-Monitored Program and Request for Three-Year Arrangements Under the Extended Credit and the Extended Fund Facility. The three-year financing package will support the implementation of the authorities’ National Development Plan and anchor reforms between the heavily indebted poor countries Decision and Completion Points. Reforms will focus on a continued strengthening of public finances to meet Somalia’s development needs in a sustainable manner; a deepening of central bank capacity; improvement of the business environment and governance; and enhancing statistics. Risks to the program and outlook remain elevated, although there is also upside potential. The immediate political risks concern the upcoming elections, while frequent climate shocks continue to contribute to agricultural loss and human displacement. On the upside, greater-than-expected impact from reforms under the program and additional development financing, together with the development of new industries, could lead to higher and more inclusive growth than the baseline. |
| Keywords: | Financial and Monetary Sector;Public financial management;Social safety nets;Central banks;Debt management;ISCR,CR,HIPC,arrears,FGS,Proj,fiscal operation |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/085&r=all |
| By: | Cristina Fernández; Juan Benavides |
| Abstract: | "el presente trabajo debe considerarse como una primera aproximación al estudio económico de las plataformas del país. Una segunda fase, que se construya sobre la línea base que crea este estudio, además de poder lograr una mayor cobertura para realizar estimativos más precisos, podrá abordar asuntos vitales para la dinámica económica de país, como: 1) la importancia de tener un sector de la economía más flexible que pueda adaptarse rápidamente a cambios bruscos en las condiciones económicas y servir de amortiguador al resto de sectores; 2) el carácter central que pueden tener las plataformas digitales en el rediseño y la reestructuración de sectores que no son compatibles con las nuevas normas de distanciamiento social que ha impuesto la pandemia; 3) una profundización en las características de una regulación de plataformas que parta de criterios de costo-beneficio para promover los ecosistemas en los que la economía colaborativa y digital puedan desarrollarse, y en particular, un análisis de la posibilidad de crear cajas de arena o “sandboxes” regulatorios." |
| Keywords: | Plataformas Digitales, Productividad, Empleo, Economía Digital, Economía Colaborativa, Medio Ambiente, Política Pública, Colombia |
| JEL: | D24 E24 J24 O47 J48 Q51 |
| Date: | 2020–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:col:000124:018276&r=all |
| By: | Carlos Montoro (Banco Central de Reserva del Perú); Marco Ortiz (Universidad del Pacífico) |
| Abstract: | In this paper we extend a new Keynesian small open economy model to include risk-averse FX dealers and FX intervention by the monetary authority. The former ingredients generate deviations from the uncovered interest parity (UIP) condition. More precisely, in this setup portfolio decisions of the dealers add endogenously a time variant risk-premium element to the traditional UIP that depends on FX intervention by the central bank and FX orders by foreign investors. We analyse the effectiveness of different strategies of FX intervention (e.g., unanticipated operations or via a pre-announced rule) to affect the volatility of the exchange rate and the transmission mechanism of the interest rate. Our findings are as follows: (i) FX intervention has a strong interaction with monetary policy in general equilibrium; (ii) FX intervention rules can have stronger stabilisation power than discretion in response to shocks because they exploit the expectations channel; (iii) there are some trade-offs in the use of FX intervention, since it can help to isolate the economy from external financial shocks, but it prevents some necessary adjustments on the exchange rate as a response to nominal and real external shocks; and (iv) the interaction between the portfolio balance channel and current account dynamics reduces the presence of a explosive response of exchange rate volatility, generating more stable equilibria. |
| JEL: | E4 E5 F3 G15 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:168&r=all |
| By: | Oriol Aspachs; Ruben Durante; Alberto Graziano; Josep Mestres; José García-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 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1196&r=all |
| By: | International Monetary Fund |
| Abstract: | Guatemala has enjoyed a prolonged period of macroeconomic stability underpinned by prudent fiscal management and a credible monetary policy. Despite strong fundamentals, Guatemala’s social and economic model has proved vulnerable to the COVID-19 outbreak. Limited healthcare coverage, especially of the poor and rural populations, pose a substantial challenge to contain the spread of the virus. Amidst plummeting remittances and essential containment measures, growth prospects have deteriorated markedly, creating large fiscal and external financing needs. Risks to the outlook are firmly tilted to the downside. |
| Keywords: | Rapid Financing Instrument (RFI);Financial systems;External sector;Flexible exchange rates;Monetary policy;Economic models;ISCR,CR,RFI,remittance,fiscal deficit,monetization,pandemic |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/201&r=all |
| By: | Jonathan Benchimol; Makram El-Shagi |
| Abstract: | Governments, central banks and private companies make extensive use of expert and market-based forecasts in their decision-making processes. These forecasts can be affected by terrorism, a factor that should be considered by decision-makers. We focus on terrorism as a mostly endogenously driven form of political uncertainty and assess the forecasting performance of market-based and professional inflation and exchange rate forecasts in Israel. We show that expert forecasts are better than market-based forecasts, particularly during periods of terrorism. However, the performance of both market-based and expert forecasts is significantly worse during such periods. Thus, policymakers should be particularly attentive to terrorism when considering inflation and exchange rate forecasts. |
| Keywords: | inflation; exchange rate; forecast performance; terrorism; market forecast; expert forecast |
| JEL: | C53 E37 F37 F51 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88258&r=all |
| By: | Lei Fang; Pedro Silos |
| Abstract: | This article looks at the wage growth associated with a spell of unemployment during the past three recessions. Our main findings are threefold. First, half of all unemployed workers experience a lower hourly wage once they regain employment. Second, after an unemployment spell, older workers and those without a college degree experience lower wage rowth. Third, workers who regain employment in a different industry than they were in previously tend to experience a substantial wage decline. The analysis suggests that the COVID-19 pandemic not only led to unprecedented job losses, but it could also result in sizable wage losses for a large fraction of unemployed workers as they return to employment. |
| Keywords: | wage growth; unemployment spell; recession; industry switching |
| JEL: | J31 E24 |
| Date: | 2020–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:88482&r=all |
| By: | Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt |
| Abstract: | This paper uses a multi-region, forward-looking, DSGE model to estimate the macroeconomic impact of a tax reform that replaces a corporate income tax (CIT) with a destination-based cash-flow tax (DBCFT). Two key channels are at play. The first channel is the shift from an income tax to a cash-flow tax. This channel induces the corporate sector to invest more, boosting long-run potential output, GDP and consumption, but crowding out consumption in the short run as households save to build up the capital stock. The second channel is the shift from a taxable base that comprises domestic and foreign revenues, to one where only domestic revenues enter. This leads to an appreciation of the currency to offset the competitiveness boost afforded by the tax and maintain domestic investment-saving equilibrium. The paper demonstrates that spillover effects from the tax reform are positive in the long run as other countries’ exports benefit from additional investment in the country undertaking the reform and other countries’ domestic demand benefits from improved terms of trade. The paper also shows that there are substantial benefits when all countries undertake the reform. Finally, the paper demonstrates that in the presence of financial frictions, corporate debt declines under the tax reform as firms are no longer able to deduct interest expenses from their profits. In this case, the tax shifting results in an increase in the corporate risk premia, a near-term decline in output, and a smaller long-run increase in GDP. |
| Keywords: | Corporate income taxes;Tax reforms;Tax policy;Cash-flow taxes;General equilibrium models;External sector;Fiscal policy;Tax revenue;Tax incentives;business taxation,corporate leverage,dynamic stochastic general equilibrium models,macroeconomic interdependence,Forecasting and Simulation,Monetary Policy (Targets,Instruments,and Effects),Open Economy Macroeconomics,CFT,deductibility,distortionary,export price,tax reform |
| Date: | 2019–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/013&r=all |
| By: | Emiliano Brancaccio (Universita' degli studi del Sannio); Fabiana De Cristofaro (Institute of Economics and EMbeDS Department, Scuola Superiore Sant’Anna, Pisa); Raffaele Giammetti (Department of Economics and Social Sciences, Universita' Politecnica delle Marche (Italy)) |
| Abstract: | The so-called 'IMF-OECD consensus' suggests that labour market deregulations increase employment and reduce unemployment. We present a first meta-analysis on the subject based on MAER-NET guidelines. We examine the relation between Employment Protection Legislation indexes on one hand and employment and unemployment on the other. Among 53 academic papers published between 1990 and 2019 and contained in the Web of Science, only 28% supports the 'consensus' while the remaining 72% report results that are controversial (21%) or contrary to the 'consensus' (51%). The decline in 'consensus' is particularly evident in the last decade. Results are independent of the citations of the papers examined, the impact factor of the journals and the techniques used. A FAT-PET meta-regression model confirms these outcomes. |
| Keywords: | Labour market, Employment protection legislation, Unemployment, Meta-analysis, Meta-Regression |
| JEL: | B5 C83 E24 J48 K31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:445&r=all |
| By: | Trivin, Pedro |
| Abstract: | Understanding the way households modify their consumption is essential to address the impact of different economic policies. In this paper we use a panel of Spanish households spanning the period 2002-2011 to study the marginal propensity to consume (MPC) out of wealth. The wealth effect is identified by exploiting within-household variations in a period of relatively large volatility in asset prices. We estimate a MPC out of total wealth of around 1 cent with changes in housing wealth affecting consumption more than other assets. We also find supporting evidence on the concavity of the consumption function, showing that the MPC is a decreasing function of net wealth. Finally, in line with theoretical models accounting for liquidity constraints and precautionary savings, our results confirm the existence of sign and magnitude asymmetries in the MPC. |
| Keywords: | Marginal propensity to consume out of wealth; Wealth distribution; Household survey; Panel data. |
| JEL: | D12 E21 |
| Date: | 2020–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102079&r=all |
| By: | Hombert, Johan; Matray, Adrien |
| Abstract: | Using matched employer-employee data from France, we uncover an "ICT boom-cohort discount" on the long-term wage of the large cohort of skilled workers entering in the Information and Communication Technology (ICT) sector during the late 1990s technology boom. Despite starting with 5% higher wages, these workers experience lower wage growth and end up with 6% lower wages fifteen years out, relative to similar workers who started outside the ICT sector. Other moments of the wage distribution are inconsistent with selection effects. These workers accumulate human capital early in their career that rapidly depreciates, implying that labor reallocation during technology booms can have long-lasting effects. |
| JEL: | E24 J24 O33 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14136&r=all |
| By: | Dave, Chetan (University of Alberta, Department of Economics); Sorge, Marco (University of Salerno) |
| Abstract: | Competing explanations for the fat-tailed empirical distribution of aggregate time series range from exogenous stochastic volatility, boundedly rational agents reflecting a lot of structural change or that exogenous structural shocks are themselves extreme. We build on this literature and show that sunspots in dynamic models can accumulate as linear recursions with multiplicative noise. Thus, using known results from the large deviations literature allows us to conclude that even small sunspot shocks can lead to large movements in endogenous variables. We apply these results to models that admit indeterminacies to investigate the empirical relevance of sunspots in accounting for observed fat-tails in output. |
| Keywords: | Fat tails; Indeterminacy; Sunspots |
| JEL: | E30 E40 |
| Date: | 2020–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_012&r=all |
| By: | Guerrazzi, Marco |
| Abstract: | In this paper, I develop a dynamic version of the efficient bargaining model grounded on optimal control in which a firm and a union bargain over the wage in a continuous-time environment under the supervision of an infinitely lived mediator. Overturning the findings achieved by means of a companion right-to-manage framework, I demonstrate that when employment is assumed to adjust itself in the direction of the contract curve implied by the preferences of the two bargainers, increases in the bargaining power of the firm (union) accelerate (delay) the speed of convergence towards the stationary solution. In addition, confirming the reversal of the results obtained when employment moves over time towards the firm's labour demand, I show that the dynamic negotiation of wages tends to penalize unionized workers and favour the firm with respect to the bargaining outcomes retrieved with a similar static wage-setting model. |
| Keywords: | Wage-employment bargaining; Optimal control; Local dynamics. |
| JEL: | E24 J52 |
| Date: | 2020–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102012&r=all |
| By: | Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph |
| Abstract: | Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines. |
| Keywords: | international capital flows,disaster response,global financial safety net,bail-outs |
| JEL: | E42 F33 F34 F35 F36 G01 G20 N1 N2 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2157&r=all |
| By: | Martin S. Eichenbaum; Sergio Rebelo; Mathias Trabandt |
| Abstract: | We analyze the effects of an epidemic in three standard macroeconomic models. We find that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Introducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely flexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model. |
| JEL: | E1 H0 I1 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27430&r=all |
| By: | Marcelo Dabós; Jorge Barreto; Daniel Mosquera |
| Abstract: | El presente trabajo estima econométricamente las relaciones de causalidad entre la creación de dinero (evolución de M1), la inflación (evolución del IPC) y las variaciones del tipo de cambio nominal peso-dólar (evolución del TCN) en Argentina en el siglo XXI usando datos mensuales. Dados los resultados empíricos obtenidos el objetivo es evaluar cuáles teorías explican mejor la causalidad observada. Las correlaciones simples entre las variables en niveles de la muestra muestran que existe una correlación positiva y significativa entre las variables. Estos resultados son los esperados ya que las variables comporten una tendencia creciente. Por esto los tests de Dickey-Fuller aumentados y de Phillips-Perron indican que las variables son integradas de orden uno. Los tests de causalidad de Granger muestran que los efectos de los valores rezagados de las distintas variables estacionarias son los siguientes: los rezagos del crecimiento monetario causan inflación pero los valores rezagados de la inflación no causan crecimiento monetario por lo que la dirección de causalidad sería unidireccional de creación monetaria a inflación. La devaluación causa inflación pero la inflación no causa devaluación. La causalidad sería unidireccional de devaluación a inflación. El crecimiento monetario causa devaluación pero esta no causa crecimiento monetario en el sentido de Granger. La causalidad sería unidireccional de creación de dinero a devaluación. Un análisis multivariado revela que la relación de causalidad en el sentido de Granger quedaría definida de crecimiento monetario y devaluación a inflación. Se estima un modelo VAR para analizar las tres variables en forma conjunta y comprender su dinámica analizando las funciones de impulso respuesta y la descomposición de varianza. Nuestro modelo VAR estimado exhibe adecuadas propiedades estadísticas y los resultados están en línea con los tests de causalidad de Granger realizados. Dados nuestros resultados ,en base a los datos usados para el período analizado, las teorías que mejor explicarían los resultados para Argentina en el siglo XXI, son la teoría cuantitativa del dinero, la teoría monetaria de la inflación y la existencia de “pass through” de las devaluaciones sobre la tasa de inflación. |
| JEL: | C3 E5 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4126&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2019 Article IV Consultation focuses on Myanmar’s near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. These developments have greatly amplified uncertainty and could heighten downside risks around the outlook. The IMF staff is closely monitoring the situation, including related policy responses from the authorities, and will continue to work on assessing its impact in the Myanmar economy. Although long-term prospects remain favorable, near-term growth is likely to remain below potential as the correction in real estate market and continued uncertainty weighs on investor sentiment in the runup to the 2020 elections. Starting FY2020/21, bank deleveraging will further slow credit and constrain gross domestic product growth as borrower’s true ability to repay is revealed with term loans coming due and banks restructure in earnest. |
| Keywords: | Balance of payments;Economic indicators;Central banks;Financial institutions;Financial and Monetary Sector;ISCR,CR,CBM,percent of GDP,PPPs,Proj,investor sentiment |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/088&r=all |
| By: | Vidal-Tomás, David; Ruiz-Buforn, Aba; Blanco-Arroyo, Omar; Alfarano, Simone |
| Abstract: | We analyse the time evolution of the empirical cross-sectional distribution of firms profit and growth rates. In particular, we analyse the conditional properties of the empirical distributions depending on the size of the firms and business cycle phase. In order to do so, we employ the Laplace distribution as a benchmark, further considering the Subbotin and Asymmetric Exponential Power (AEP hereafter) distributions, to capture the potential asymmetry and leptokurtosis of the empirical distribution. Our results show that the profit rates of large firms are characterised by an asymmetric Laplace distribution with parameters largely independent of the business cycle phase. Small firms, instead, are characterised by the AEP distribution, which accounts for the conditional dependence of distribution on the phase of the business cycle. We observe that the largest firms are more robust to downturns compared to the small firms, given their invariant distributional characteristics during crisis periods. |
| Keywords: | Profit rates ; Growth rates ; Firm size ; Business cycle ; Laplace distribution ; Asymmetric Exponential Power distribution |
| JEL: | C10 D21 E10 L10 |
| Date: | 2020–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102065&r=all |
| By: | Bernardin Akitoby; Jiro Honda; Hiroaki Miyamoto |
| Abstract: | Would countercyclical fiscal policy during recessions improve or worsen the gender employment gap? We give an answer to this question by exploring the state-dependent impact of fiscal spending shocks on employment by gender in the G-7 countries. Using the local projection method, we find that, during recessions, a positive spending shock of 1 percent of GDP would, on average, lift female employment by 1 percent, while increasing male employment by 0.6 percent. Consequently such a shock would improve the female share of employment by 0.28 percentage point during recessions. Our findings are driven by disproportionate employment changes in female-friendly industries, occupations, and part-time jobs in response to fiscal spending shocks. The analysis suggests that fiscal stimulus, particularly during recessions, could achieve the twin objectives of supporting aggregate demand and improving gender gaps. |
| Keywords: | Fiscal policy;Gender;Employment;Labor markets;Labor force participation;Income distribution;Government expenditures;Group of seven;Total factor productivity;Labor market institutions;Employment policy;Labor supply;Human capital;Fiscal Policy Shock,Gender Gap,Technology,Economics of Gender,female share,female employment,total employment,Bredemeier,state-dependent |
| Date: | 2019–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/004&r=all |
| By: | Chahrour, Ryan; Gaballo, Gaetano |
| Abstract: | We provide a new theory of demand-driven business cycles based on learning from prices in an otherwise frictionless real model. In our model, house price increases caused by aggregate disturbances may be misinterpreted as a signal of improved local consumption prospects, leading households to demand more current consumption and housing. Higher demand reinforces the initial price increase in an amplification loop that drives comovement in output, labor, residential investment, and house prices even in response to aggregate supply shocks. The model's qualitative implications are consistent with observed business cycles, and it can explain apparently autonomous changes in sentiment without resorting to non-fundamental shocks. |
| Keywords: | animal spirits; Demand Shocks; House Prices; imperfect information |
| JEL: | D82 D83 E03 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14120&r=all |
| By: | International Monetary Fund |
| Abstract: | During the three-year EFF which expired at end-May, Mongolia experienced rapid economic growth and was able to make some progress in the reduction of key vulnerabilities. However, with the outbreak of the global pandemic, the outlook has now deteriorated sharply. There are few domestic cases of the virus, but real GDP is expected to contract by 1 percent in 2020 due to a collapse in external demand and the domestic impact of social distancing measures. With still high public debt, net international reserves near zero, and a difficult near-term amortization schedule, Mongolia has limited buffers to withstand a large and sustained external shock. |
| Keywords: | Rapid Financing Instrument (RFI);Balance of payments need;Balance of payments;Foreign exchange reserves;Financial assistance;Public debt;ISCR,CR,primary balance,percent of GDP,Proj,BOM,overall balance |
| Date: | 2020–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/205&r=all |
| By: | Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Melbourne and University of Padova); Silvia Delrio (Bank of Italy); Richard Kima (Monash University) |
| Abstract: | This paper quantiÖes 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: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0255&r=all |
| By: | Pretnar, Nick |
| Abstract: | Using endogenous, age-dependent measures of the value of statistical lives (VSL), this paper examines the demographic implications of recessions driven by disease contagions. Depending on the age-distribution mortality profile of the disease, long-run welfare losses resulting from the recession may outweigh lost VSL’s directly attributable to the disease. This is because disease contagions that induce high levels of hospitalization simultaneously impact aggregate output, via a recession caused by social-distancing, and the productivity of health care services. The efficiency of health investment falls driving down life expectancy (LE). VSL’s fall both because LE’s fall and the marginal value of health care investment falls. Using the Hall and Jones (2007) model of age-specific, endogenous health investment, it is shown that the COVID-19 crisis of 2020 will lead to lost welfare for young agents that exceeds VSL’s lost from the disease. If COVID-19 had the same age-mortality profile as the 1918 Spanish Flu, where more young agents died, contagion-mitigation policies that cause deep recessions would still be socially optimal since more of the high-valued lives of young people would be saved. |
| Keywords: | health, inequality, general welfare, value of statistical life, macroeconomics |
| JEL: | E2 I14 J17 |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101862&r=all |
| By: | Alfredo Schclarek; Jiajun Xu; Jianye Yan |
| Abstract: | This paper theoretically discusses why state-owned national develop- ment banks (NDBs) may be better able to provide longer-term lending to firms (investors), in comparison to private commercial banks (CBs). NDBs can grant longer-term lending to firms (investors) because NDB bonds have more value than the bonds issued by CBs, thus allowing banks to better cope with maturity mismatch risks and liquidity problems in case of needing to make interbank payments. The reason that NDB bonds have more value than the bonds issued by CBs is that NDBs are owned by the government, hence there is a higher recapitalization willingness and capac- ity compared to private bank owners. Regarding the maturity lengthening role of NDBs, it is positively related to the amount of liquid asset holdings by NDBs, the collateral value of the investment projects that receive NDB financing, and the recapitalization willingness (or perceived willingness) and financial strength, and net worth, of the government. |
| Keywords: | Bank lending; Maturity lengthening; Debt or collateral capacity; Asset-based leverage; Interbank markets; Recapitalization; National development banks |
| JEL: | G01 G21 G28 H81 E51 E44 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4197&r=all |
| By: | Sena Coskun |
| Abstract: | In a number of European countries, unemployment rates for young college graduates are higher than for young high school graduates. This presents a challenge for canonical models of unemployment that suggest that unemployment should decrease with education. I disentangle two potential explanations for the pattern: “labor market frictions” versus “relative productivity.” Here, labor market frictions are obstacles to labor market flows (such as employment protection regulation), whereas relative productivity refers to features that lower the output of educated workers already matched to firms (such as an education system that does not provide the right skills or a lack of jobs that make good use of workers’ skills). The analysis builds on a search and matching model with endogeneous productivity differences and the possibility of mismatch (educated workers working in low skilled jobs). I show that when young educated workers have productivity levels close to uneducated workers, they have higher unemployment rates, because firms create fewer skilled jobs. My counterfactual analysis shows that the relative productivity channel explains a substantial part in accounting for unemployment of young educated workers. The results suggest that improving education policy and fostering firms’ demand for skills may have important roles to play in addressing high unemployment among young workers. |
| Keywords: | unemployment, labor market frictions, European labor markets, education, productivity, skill premium |
| JEL: | E24 J21 J24 J31 J64 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_134v2&r=all |
| By: | International Monetary Fund |
| Abstract: | This paper discusses Kyrgyz Republic’s Request for Purchase Under the Rapid Financing Instrument and Disbursement Under the Rapid Credit Facility. The COVID-19 pandemic has been hitting the Kyrgyz economy very hard and created an urgent balance of payments need. All sectors are being impacted with extreme severity as measures are being taken to stop the spread of the virus. Given the unprecedented high level of uncertainty, IMF emergency support under the Rapid Financing Instrument and the Rapid Credit Facility helps provide a backstop and increase buffers and shore up confidence. It also helps to preserve fiscal space for essential COVID- 19-related health expenditure and catalyze donor support. Banks’ capital and liquidity buffers need to be used to absorb credit losses and the liquidity squeeze. Once these buffers are exhausted, the central bank needs to show flexibility on the timing of bringing capital and liquidity above the minimum required, considering the length of the crisis. Expeditious donor support is needed to close the remaining balance of payments gap and ease the adjustment burden. |
| Keywords: | External sector;Balance of payments;Central banks;Monetary policy;External debt;Rapid Financing Instrument (RFI);ISCR,CR,percent of GDP,Proj,finance gap,net lend,alternative scenario |
| Date: | 2020–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/090&r=all |
| By: | Isiaq O. Oseni (Olabisi Onabanjo University, Ogun State, Nigeria); Ibrahim A. Adekunle (Olabisi Onabanjo University, Ogun State, Nigeria); Ayomide O. Ogunade (Olabisi Onabanjo University, Ogun State, Nigeria) |
| Abstract: | In spite of the massive revenue emanating from oil wealth, the successive government of Nigeria failed to give to its citizenry the dividend of democracy owing in large part to their inability to establish a market clearing situation because of inadequate linkage between the sources and the markets (transport infrastructures). An enquiry into the cause and potential solutions to the problems of transport infrastructure development in Nigeria informed the need to regress indices of fiscal vulnerability on the indicator of transport infrastructure development in Nigeria from 1986 through 2017 using the dynamic ordinary least squares regression technique. Results show that high-levelfiscal vulnerability deters optimal government expenditure on transport infrastructure development in Nigeria. Based on the findings of the study, itis recommended that government should do more to block all leakages of fiscal revenues and subsequently ensure that more allocation is channelled into transporting infrastructure development because of its forward and backward linkages. |
| Keywords: | Fiscal Vulnerability; Transport Infrastructure Development; Nigeria |
| JEL: | H5 E44 H12 R4 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/051&r=all |
| By: | Daleep Singh |
| Abstract: | Remarks at Hudson Valley Pattern for Progress (delivered via videoconference). |
| Keywords: | COVID-19; Federal Reserve; facilities; markets; credit; financial conditions; liquidity; lending; Treasury; programs; pandemic; Primary Dealer Credit Facility (PDCF); Money Market Liquidity Facility (MMLF); Commercial Paper Funding Facility (CPFF); Municipal Liquidity Facility (MLF); Term Asset-Backed Securities Loan Facility (TALF); Secondary Market Corporate Credit Facility (SMCCF); CARES Act |
| Date: | 2020–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88366&r=all |
| By: | Robert J. Gordon; Hassan Sayed |
| Abstract: | We examine the role of the ICT revolution in driving productivity growth behavior for the United States and an aggregate of ten Western European nations (the EU-10) from 1977 to 2015. We find that the standard growth accounting approach is deficient when it separates sources of growth between ICT capital deepening and TFP growth, because much of the effect of the ICT revolution was channeled through spillovers to TFP growth rather than being limited to the capital deepening pathway. Using industry-level data from EU KLEMS, we find that most of the 1995-2005 U.S. productivity growth revival was driven by ICT-intensive industries producing market services and computer hardware. In contrast the EU-10 experienced a 1995-2005 growth slowdown due to a paucity of ICT investment, a failure to capture the efficiency benefits of ICT, and performance shortfalls in specific industries including ICT production, finance-insurance, retail-wholesale, and agriculture. After 2005 both the U.S. and the EU-10 suffered a growth slowdown, indicating that the benefits of the ICT revolution were temporary rather than providing a new permanent era of faster productivity growth. This joint transatlantic post-2005 slowdown is consistent with the broader view that ongoing innovation has been less potent in boosting productivity growth compared to earlier decades of the postwar era. |
| JEL: | E01 E24 O33 O47 O51 O52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27425&r=all |
| By: | Michael Papadopoulos (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | This study relates the rise of alternative work arrangements, particularly among older workers, with low reservation wages, a result of low bargaining power brought on by decreased attachment to career jobs and growing retirement income inadequacy. I utilize a linked sample between the RAND-Princeton Contingent Worker Survey and the American Life Panel’s Health and Retirement Study, to estimate reservation wages via a two step process. I first estimate market wages on offer for non-employed people, then estimate the gap between market and reservation wages via a probit explaining probability of employment. I first confirm that my estimations for reservation wages follow expected patterns as exemplified in Hofler and Murphy (1995)’s “seven tests.” I then show that work in alternative work arrangements (on-call, temp agency, contract firm and gig work) is associated with a decrease in reservation wages of $4.47- $4.53 per hour, whereas work as an independent contractor or self-employed worker is associated with increased reservation wages by $3.72-$3.89 per hour. Whereas prior literature focuses on firm-centric explanations for an increase in alternative work, these findings point to supply-side factors which also contribute to an increase. Proposals to reform established surveys to better track work arrangements and policies to increase financial preparedness for retirement are discussed. |
| Keywords: | alternative work, bargaining power, retirement, wages, labor |
| JEL: | J29 J81 J30 J31 J38 E24 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepawp:2020-01&r=all |
| By: | Laura A Harvey (University of East Anglia); James Rockey (University of Leicester) |
| Abstract: | While real US GDP per capita has increased around 80% since 1980, median incomes have remained roughly constant. However, as this paper documents, this stagnation masks an important decline. Male median real incomes have been lower than that of their forebears, at every age, for the last 30 years. We show that this is true across the life cycle and across the wage distribution. Moreover, that younger generations have also had to wait longer to reach peak earnings. Further analysis shows that this decline is particularly concentrated on high school graduates. The same pattern is found for female high school graduates yet, African American and Hispanic American women are an important exception. Variance decompositions suggest that these intergenerational differences are quantitatively important. While reductions in hours worked cannot explain the decline, substantial decreases in the labour share are consistent with decreasing incomes in the face of productivity growth. Calculations suggest that hedonic improvements in the quality of goods and services would have to have been equivalent to 30% of lifetime consumption younger cohorts consumption levels to match those of their predecessors. |
| Keywords: | Wages, Intergenerational Differences, Labour Share, Stagnation, Jobs |
| JEL: | E24 J24 J31 D33 D31 |
| Date: | 2020–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2019_08&r=all |
| By: | Heise, Arne |
| Abstract: | Pluralism in economics appears to be a double-edged sword: we need more than one theory to grasp and explain the entire economic world, yet a plurality of possible explanations undermines the aspiration of the economic discipline to provide 'objective knowledge' in the singular of the 'one world one truth' conception. Therefore, pluralism is often equated with relativism and obscurantism. In this article, I will explore both the demand for pluralism and the fear of relativism and obscurantism, scrutinising each position in order to evaluate their respective justification and devising a methodological proposal that may appease both the defender and the sceptic of economic pluralism. |
| Keywords: | Pluralism,Methodology,Paradigm |
| JEL: | A11 B40 B50 E11 E12 E13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cessdp:78&r=all |
| By: | John C. Williams |
| Abstract: | Remarks at the Institute of International Finance: Central Banking in the Age of COVID-19 Summit (delivered via videoconference). |
| Keywords: | economic conditions; finance; COVID-19; pandemic; recovery; recession; businesses; markets; unemployment; spending; households; Federal Reserve |
| Date: | 2020–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88275&r=all |
| By: | Jaqueson Galimberti (Faculty of Business, Economics and Law at AUT University); Stefan Pichler (KOF Swiss Economic Institute, ETH Zurich); Regina Pleninger (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | The main challenge in studying economic inequality is limited data availability, which is particularly problematic in developing countries. We construct a measure of economic inequality for 234 countries and territories from 1992 to 2013 using satellite data on nighttime light emissions as well as gridded population data. Key methodological innovations include the use of varying levels of data aggregation, and a parsimonious calibration of the lights-prosperity relationship to match traditional inequality measures based on income data. Indeed, we obtain a measure that is significantly correlated with cross-country variation in income inequality. Subsequently, we provide three applications of the data in the fields of health economics and international finance. Our results show that light- and income-based inequality measures lead to similar results in terms of cross-country correlations, but not for the dynamics of inequality measure can capture more enduring features of economic activity that are not directly captured by income. |
| Keywords: | Nighttime lights, inequality, gridded population |
| JEL: | D63 E01 I14 O11 O47 O57 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:aut:wpaper:202007&r=all |
| By: | Pagan, Adrian; Wickens, Michael R. |
| Abstract: | This paper discusses, and provides new evidence on, the view that "theory, while essential, should be regarded as a flexible framework rather than a straightjacket, because features that the theory abstracts from may be important in practice". It considers how best to assess the empirical performance of tightly specified models such as DSGE models, and loosely specified models such as SVARs. These issues are illustrated using various New Keynesian models. We conclude that the challenge is to incorporate flexibility into the theory in such a way as to be compatible with both the theory and the data. |
| Keywords: | DSGE models; Model testing; SVARs |
| JEL: | C52 E3 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14140&r=all |
| By: | Daiki Maeda |
| Abstract: | Based on findings in the behavioral economics literature, I incorporate non-unitary discounting into a monetary search model to study optimal monetary policy. I apply non-unitary discounting, that is, discount rates that are different across goods. With this extension to the model, I find that there are cases where optimal monetary policy deviates from the Friedman rule. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1062r&r=all |
| By: | International Monetary Fund |
| Abstract: | This Financial System Stability Assessment paper on Italy highlights that substantial progress has been made in recent years in strengthening the financial sector, however, important weaknesses remain. Bank capitalization and asset quality have improved considerably but are still below the European Union average and the financial sector has large exposures to the Italian sovereign. The financial sector faces important vulnerabilities and a challenging baseline outlook. The sector is highly dependent on the European Central Bank’s Targeted Longer-Term Refinancing Operations. Profitability is also still low, particularly in segments of small and mid-sized banks. This reflects in part weak economic growth in Italy over the past decade, as well as high structural operating costs, unsustainable business models and corporate governance weaknesses. Solvency stress tests indicate that many banks with material aggregate total asset share continue to be vulnerable to an adverse scenario. Efforts should focus on further enhancing banks’ capitalization, operational efficiency, governance, and business models. Specifically, the authorities should consider more escalated corrective measures for weak banks, utilizing the full gamut of their toolkit, to ensure that banking sector weaknesses do not linger, and costs are contained. |
| Keywords: | Financial markets;Macroprudential policies and financial stability;Financial institutions;Financial systems;Bank liquidity;ISCR,CR,NPL,SIs,weak bank,solvency,popolari |
| Date: | 2020–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/081&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2020 Article IV Consultation with Italy reflects discussions with the Italian authorities in January 2020 and is based on the information available as of January 28, 2020. It focuses on Italy’s medium-term challenges and policy priorities and was prepared prior to the outbreak of COVID-19 in Italy. It, therefore, does not cover the outbreak or the related policy response, which has since become the overarching near-term priority. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring this health crisis and will continue to work on assessing its impact and the related policy response in Italy and globally. The overarching challenges are to raise growth and enhance resilience. The IMF staff projects growth in Italy to be the lowest in the European Union over the next five years. High public debt remains a key source of vulnerability. Substantial progress has been made in strengthening bank balance sheets, but important weaknesses remain. In order to durably raise growth and reduce vulnerabilities, Italy needs faster potential growth and medium-term fiscal consolidation. |
| Keywords: | Economic indicators;Balance of payments;Unemployment;International investment position;Gross domestic product;ISCR,CR,staff report,potential growth,bank of Italy,weak bank,GDP |
| Date: | 2020–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/079&r=all |
| By: | Juan S Corrales; Patrick A. Imam |
| Abstract: | Using a newly complied and extended database from International Financial Statistics, and applying different panel-regression techniques, this paper documents the evolution of households’ and firms’ dollarization over the past decade. We assess the macroeconomic determinants of dollarization for households and firms and explore differences between high and low-income countries. We find that households’ and firms’ dollarization in loans and deposits are weakly explained by the currency substitution model, except in low income countries, where inflation plays a significant role. Instead, market development variables such as financial deepening, access to external debt and FX finance as well as other market considerations are key to explain the dynamics of deposits and loans dollarization, regardless of the level of income.These factors can account for a significant fraction of the dollarization, but using a variance decomposition model, there is evidence that a non-negligible portion has yet to be explained. This suggests that there are key determinants for household and firm dollarization that are not fully captured by traditional macroeconomic explanatory variables. |
| Keywords: | Dollarization;Foreign exchange;Monetary policy;Exchange rate policy;Central banks;Financial crises;Real interest rates;Interest rate differential;Household,Firm,Financial deepening,Monetary Policy (Targets,Instruments,and Effects),General,International Monetary Arrangements and Institutions,low income country,income country,high income country,deposit rate,p-value |
| Date: | 2019–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/019&r=all |
| By: | Diego A. Comin; Ana Danieli; Martí Mestieri |
| Abstract: | We propose a mechanism for labor-market polarization based on the nonhomotheticity of demand that we call the income-driven channel. Our mechanism builds on a novel empirical fact: expenditure elasticities and production intensities in low- and high-skill occupations are positively correlated across sectors. Thus, as income grows, demand shifts towards expenditure-elastic sectors, and the relative demand for low- and high-skill occupations increases, causing labor-market polarization. A calibrated general-equilibrium model suggests this mechanism accounts for 90% and 35% of the increase in the wage-bill share of low- and high-skill occupations observed in the US during 1980-2016, and for 64% and 28% of the rise in the employment shares of low- and high-skill occupations. This mechanism is similarly important for the polarization of labor markets in Western Europe during 1980-2016, as well as in the US during earlier decades and, possibly, the near future. |
| JEL: | E21 E23 J23 J31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27455&r=all |
| By: | Alexandros Vardoulakis |
| Abstract: | Banks add value by monitoring borrowers. High funding costs make banks reluctant to lend. A central bank can ease funding by purchasing loans, but cannot distinguish which loans require more or less monitoring, exposing it to adverse selection. A multi-tier loan pricing facility arises as the optimal institutional design setting both the purchase price and banks' risk retention for given loan characteristics. This design dominates uniform (flat) structure for loan purchases, provides the right incentives to banks and achieves maximum lending at lower rates to businesses. Both the multi-tier and flat structures deliver welfare gains compared to no intervention, but the relative gain between the two depends on three sufficient statistics: the share of loans requiring monitoring, the risk-retention ratio, and the liquidity premium. |
| Keywords: | Main Street; Central bank lending facilities; Monitoring; Small business; Sufficient statistics; COVID-19 |
| JEL: | E58 G01 G28 |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-52&r=all |
| By: | Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Melbourne and University of Padova); Richard Kima (Monash University) |
| Abstract: | We estimate a VAR with world-level variables to simulate the effects of the Covid-19 outbreak-related uncertainty shock. We find a peak (cumulative over one year) negative response of world output of 1.6% (14%). |
| Keywords: | Covid-19, Financial Uncertainty, Vector AutoRegressions, Global financial cycle, World industrial production |
| JEL: | C32 E32 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0256&r=all |
| By: | Amat Adarov (The Vienna Institute for International Economic Studies); Robert Stehrer (The Vienna Institute for International Economic Studies) |
| Abstract: | The study analyses the relationships between capital dynamics, productivity, global value chains and foreign direct investment using panel data techniques. Among other results, we confirm the high importance of tangible and intangible ICT capital for productivity and GVC integration. We examine the extent of underinvestment in ICT in the EU relative to other major economies and identify bottlenecks for efficient capital allocation. The sluggish economic performance of the EU in the post-crisis period has been further challenged by the COVID-19 outbreak. Consolidating policy efforts to facilitate ICT investment, tackling the barriers to ICT adoption and broad-based digitalisation are critical for the EU in order to maintain a competitive edge and unlock new growth opportunities in the new normal. |
| Keywords: | productivity, digitalisation, ICT capital, FDI, global value chains, barriers to ICT investments, intangible capital |
| JEL: | F14 F15 F21 E22 O47 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc121096&r=all |
| By: | Andrea Carriero (Queen Mary, University of London); Francesco Corsello (Bank of Italy); Massimiliano Marcellino (Università Bocconi, Milano) |
| Abstract: | We introduce a time-series model for a large set of variables in which the structural shocks identified are employed to simultaneously explain the evolution of both the level (conditional mean) and the volatility (conditional variance) of the variables. Specifically, the total volatility of macroeconomic variables is first decomposed into two separate components: an idiosyncratic component, and a component common to all of the variables. Then, the common volatility component, often interpreted as a measure of uncertainty, is further decomposed into three parts, respectively driven by the volatilities of the demand, supply and monetary/financial shocks. From a methodological point of view, the model is an extension of the homoscedastic Multivariate Autoregressive Index (MAI) model (Reinsel, 1983) to the case of time-varying volatility. We derive the conditional posterior distribution of the coefficients needed to perform estimations via Gibbs sampling. By estimating the model with US data, we find that the common component of volatility is substantial, and it explains at least 50 per cent of the overall volatility for most variables. The relative contribution of the demand, supply and financial volatilities to the common volatility component is variable specific and often time-varying, and some interesting patterns emerge. |
| Keywords: | Multivariate autoregressive Index models, stochastic volatility, reduced rank regressions, Bayesian VARs, factor models, structural analysis |
| JEL: | C15 C32 C38 C51 E30 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1285_20&r=all |
| By: | Guerino Ardizzi (Banca d'Italia); Elisa Bonifacio (Banca d'Italia); Laura Painelli (Banca d'Italia) |
| Abstract: | The expansion of retail trade at global level, spurred by online transactions (e-commerce), has led the European legislator to strengthen safety//security measures. This paper aims to assess the trend of card fraud in recent years, taking into account the latest regulations. After an extended period of growth, since 2016 the online fraud rate has recorded a decline in Italy and Europe. Empirical analyses of banks’ data carried out in Italy show that the decrease is correlated with successive improvements in anti-fraud measures over recent years. The paper also shows the main anti-fraud measures adopted by intermediaries (e.g. strong authentication and risk mitigation models) as well as protection mechanisms for customers in the event of fraud (e.g. exercise of the right to a refund within one day after filing the request), making it safer to buy online. |
| Keywords: | Internet, fraud, payment cards, card fraud rate, online transactions, security |
| JEL: | C22 C23 D12 E21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_562_20&r=all |
| By: | Valerio Dotti; Eckhard Janeba |
| Abstract: | We study a fiscal policy model in which the government is present-biased, leading to an excessive public deficit. An optimally designed fiscal rule needs to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to shocks to tax revenues. Unlike prior work, we characterize a rule that is enforced through political incentives: the punishment for a violation of the rule consists in a reduction of the politician’s payoff from being in office during the following period. We show that the optimal fiscal rule prescribes a zero structural deficit and only partially accounts for revenue shocks. Moreover - and somewhat surprising - a government with a stronger ex ante deficit bias should be granted a higher degree of flexibility. Flexibility leads to more rather than less fiscal discipline because the punishment for a rule violation is less driven by luck and more dependent on actual policy choices. Thus a trade-off between fiscal discipline and fiscal rule flexibility, as often claimed in the context of the EU's Stability and Growth Pact, does not typically exist in our model. |
| Keywords: | fiscal rule, deficit bias, Stability and Growth Pact |
| JEL: | D72 E61 H60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8440&r=all |
| By: | Delle Monache, Davide; Petrella, Ivan; Venditti, Fabrizio |
| Abstract: | In this paper we develop a general framework to analyze state space models with time-varying system matrices, where time variation is driven by the score of the conditional likelihood. We derive a new filter that allows for the simultaneous estimation of the state vector and of the time-varying matrices. We use this method to study the time-varying relationship between the price dividend ratio, expected stock returns and expected dividend growth in the US since 1880. We find a significant increase in the long-run equilibrium value of the price dividend ratio over time, associated with a fall in the long-run expected rate of return on stocks. The latter can be attributed mainly to a decrease in the natural rate of interest, as the long-run risk premium has only slightly fallen. |
| Keywords: | Equity premium; present-value models; score-driven models; State space models; time-varying parameters |
| JEL: | C32 C51 C53 E44 G12 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14107&r=all |
| By: | Tolulope T. Osinubi (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study examines the effect of globalization on female economic participation (FEP) in MINT (Mexico, Indonesia, Nigeria & Turkey) and BRICS (Brazil, Russia, India, China & South Africa) countries between 2004 and 2018. Four measures of globalization are employed and sourced from KOF globalization index, 2018, while the female labour force participation rate is a proxy for FEP. The empirical evidence is based on Pooled Mean Group (PMG) estimators. The findings of the PMG estimator from the Panel ARDL method reveal that political and overall globalization in MINT and BRICS countries have a positive impact on FEP, whereas social globalization exerts a negative impact on FEP in the long-run. It is observed that economic globalization has no long-run effect on FEP. Contrarily, all the measures of globalization posit no short-run effect on FEP in the short-run. This supports the argument that globalization has no immediate effect on FEP. Thus, it is recommended that both MINT and BRICS countries should find a way of improving the process of globalization generally to empower women to be involved in economic activities. This study complements the extant literature by focusing on how globalization dynamics influence FEP in the MINT and BRICS countries. |
| Keywords: | Globalization; female; gender; labour force participation; MINT and BRICS countries |
| JEL: | E60 F40 F59 D60 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/058&r=all |
| By: | John C. Williams |
| Abstract: | Remarks at the 16th Meeting of the Financial Research Advisory Committee for the Treasury’s Office of Financial Research (delivered via videoconference). |
| Keywords: | pandemic; COVID-19; Federal Reserve; securities; facilities; businesses; financial conditions; economic conditions; markets; credit; banks; households |
| Date: | 2020–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88418&r=all |
| By: | Ansel Schiavone |
| Abstract: | The aim of this paper is to determine how wage inequality is likely to be affected by thecurrent COVID-19 pandemic. I first estimate the impact that social distancing will have onUS state-level employment using pre-crisis industry data. I then consider the joint impactof states’ unemployment benefit programs and the federal CARES Act on national inequalityusing representative sampling and Markov-Chain-Monte-Carlo estimations. I find that whilewage inequality is likely to improve in the short-run with the added federal subsidy, allowingthis support to expire prematurely will result in a worsening of pre-crisis wage inequality. |
| Keywords: | Wage inequality, unemployment, COVID-19, Markov-Chain-Monte-Carlo, Gibbs sam-pling, structuralist method JEL Classification:E24, E27, C15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2020_06&r=all |
| By: | Ott, Ingrid; Soretz, Susanne |
| Abstract: | This paper analyzes within a spatial endogenous growth setting the impact of public policy coordination on agglomeration. Governments in each of the two symmetric regions provide a local public input that becomes globally effective due to integration. Micro-foundation of governmental behavior is based on three different coordination schemes: autarky, full or partial coordination. Scale effects act as agglomeration force and in addition to private capital agglomeration increase the concentration of the public input. Integration promotes dispersion forces with respect to the distribution of physical capital which are based on decreasing private returns. However, within the governments' decision on the concentration of the public input, increasing integration reinforces agglomeration because it promotes the interregional productive use of the public input. Taking feedback effects between the private and the public sector into account leads to mutual reinforcement, hence agglomeration forces almost always dominate and the spreading equilibrium becomes unstable. If convergence is a separate (additional) political objective, it needs sustained additional political effort. |
| Keywords: | income convergence,integration,micro foundation of public policy,policycoordination,productive public input,multiple equilibria,bifurcation,spatial economicgrowth,stability of spatial equilibrium,global public input |
| JEL: | H10 E60 O40 R50 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:142&r=all |
| By: | International Monetary Fund |
| Abstract: | Tanzania faces exceptional balance of payments needs resulting from the impact of COVID-19 and has requested support under the Catastrophe Containment window of the CCRT. At present, there is no IMF-supported program. |
| Keywords: | External sector;Balance of payments need;Debt service;Debt relief;Balance of payments;ISCR,CR,Proj,percent of GDP,pandemic,containment,GDP |
| Date: | 2020–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/203&r=all |
| By: | Constance de Soyres; Anna Rogantini Picco; Randa Sab |
| Abstract: | This paper focuses on the debt build-up that frontier low-income developing countries (LIDCs) have faced since 2012. First, it documents a 20-percentage point increase in the external and government debt-to-GDP ratios, a composition shift toward higher non-concessional debt, and a rise in interest rate payments. Second, using panel regressions, it shows that while both global and country-specific factors are correlated with debt-to-GDP ratios over 1998–2016, global factors dominate for the period 2012–16. Third, through a small open-economy model, it shows that the projected tightening in global financial conditions would reduce debt-to-GDP ratios by less than the increase associated with the expected rise in investment. |
| Keywords: | Domestic debt;Real interest rates;Economic growth;Heavily indebted poor countries;Interest rate increases;Debt build-up,Frontier LIDCs,global and country-specific factors,debt-to-GDP ratio,debt-to-GDP,country-specific,federal fund rate,fund rate |
| Date: | 2019–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/037&r=all |
| By: | Byrne, Joseph P; Ibrahim, Boulis Maher; Zong, Xiaoyu |
| Abstract: | An asset pricing model using long-run capital share growth risk has recently been found to successfully explain U.S. stock returns. Our paper adopts a recursive preference utility framework to derive an heterogeneous asset pricing model with capital share risks.While modeling capital share risks, we account for the elevated consumption volatility of high income stockholders. Capital risks have strong volatility effects in our recursive asset pricing model. Empirical evidence is presented in which capital share growth is also a source of risk for stock return volatility. We uncover contrasting unconditional and conditional asset pricing evidence for capital share risks. |
| Keywords: | Asset Pricing, Capital Share, Recursive Preference, Consumption Growth, Bayesian Methods. |
| JEL: | C21 C30 E25 G11 G12 |
| Date: | 2020–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101781&r=all |
| By: | Ali Alichi; Hayk Avetisyan; Douglas Laxton; Shalva Mkhatrishvili; Armen Nurbekyan; Lusine Torosyan; Hou Wang |
| Abstract: | This paper extends the multivariate filter approach of estimating potential output developed by Alichi and others (2018) to incorporate labor market hysteresis. This extension captures the idea that long and deep recessions (expansions) cause persistent damage (improvement) to the labor market, thereby reducing (increasing) potential output. Applying the model to U.S. data results in significantly smaller estimates of output gaps, and higher estimates of the NAIRU, after the global financial crisis, compared to estimates without hysteresis. The smaller output gaps partly explain the absence of persistent deflation despite the slow recovery during 2010-2017. Going forward, if strong growth performance continues well beyond 2018, hysteresis is expected to result in a structural improvement in growth and employment. |
| Keywords: | Business cycles;Unemployment;Potential output;Capacity utilization;Production growth;Macroeconomic Modeling,output gap,NAIRU,hysteresis,potential growth,Volcker |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/035&r=all |
| By: | Deniz Sevinc (University of Birmingham); Edgar Mata Flores (University of Leicester); Simon Collinson (University of Birmingham) |
| Abstract: | This paper's distinctive feature is a shift towards a novel definfinition of a measure of income inequality that provides a holistic understanding of income distribution supplemented with a specification through the reflection of governments' redistributive roleplayed by the means of provision of social transfers. Modified inequality indicator is constructed to gain more meaningful quantitative assessments in terms of inequality rankings and subsequently used to measure income inequality spillovers within the European spacein order to achieve a better understanding of the variety of factors that influence developments in inequality. Another aspect is a novel multidimensional interdependency approach that matches physical, economic and social distances between European economies, aiming to model multifaceted interdependencies and account for their joint contribution to the changes in income inequality across the continent. We observe changes in inequalityrankings of several European countries as there is a differentiated degree of response to social transfers within the sample. Our findings provide further evidence on the heterogeneous magnitude of responses to inequality and growth developments across European economies. Evidence has been provided that intra-EU inequalities have a pro-cyclicalcharacter, where the transmission of a change in Eurozone economic performances into the extent of income inequality is statistically significant. In terms of the dynamics between monetary policy and income distribution, our results suggest that the effects ofmonetary shocks on inequality are transmitted relatively rapidly, and often get ampli fied as they travel within the European region. |
| Keywords: | Inequality, Global modelling, international interdependencies, income inequality, Europe. |
| JEL: | C32 E52 I30 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2020-545&r=all |
| By: | Kevin Hjortshøj O’Rourke; Sang Seok Lee; Martin Ellison (Division of Social Science) |
| Abstract: | How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 30 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1,500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. Synthetic matching techniques suggest that the relationship is causal. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20200035&r=all |
| By: | International Monetary Fund |
| Abstract: | This Selected Issues paper analyzes Belgium’s fiscal stance using a structural stochastic model. This note uses a theoretical model that explicitly accounts for the trade-offs between the short-term cost of fiscal tightening and the long-term gains associated with higher fiscal buffers. This paper shows that once the current crisis is over, rebuilding fiscal buffers is essential to helping Belgium confront the next shock from a stronger fiscal position. Overall, this illustrates a major motivation for a credible medium-term fiscal consolidation strategy. When a government reduces debt, it increases its capacity to react to shocks later. This entails a short-term cost that is, in the case of Belgium, worth the effort as this capacity to smooth future shocks increases future welfare. In addition, a large capacity to react with fiscal policy reduces the risk of long-lasting effects of a large crisis. Historical data show that in the past, the Belgium government’s reaction to the cycle was limited to a single event. By contrast, if Belgium could firmly anchor public debt on a downward path, future governments would be able to offset downturns while keeping debt sustainability concerns under control. |
| Keywords: | Economic stabilization;Interest rate differential;Business cycles;Financial crises;Interest rates;ISCR,CR,output gap,medium-term,high debt,short-term cost,debt level |
| Date: | 2020–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/092&r=all |
| By: | Margherita Bottero; Camelia Minoiu; José-Luis Peydro; Andrea Polo; Andrea F Presbitero; Enrico Sette |
| Abstract: | We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB. |
| Keywords: | Bank credit;Reserve requirements;Interest rates on loans;Central banks;Bank liquidity;Negative interest rates,portfolio rebalancing,bank lending channel,liquidity management,Eurozone crisis,interbank,credit supply,ex-ante,rebalance,negative rate |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/044&r=all |
| By: | Jean-Sébastien Fontaine; Hayden Ford; Adrian Walton |
| Abstract: | The disruption due to COVID-19 reverberated through the bond markets in three phases. In the first phase, dealers met the rising demand for liquidity. In the second, dealers reduced the supply of liquidity, and trading conditions worsened significantly. Finally, the market returned to relative stability following several interventions by the Bank of Canada. |
| Keywords: | Financial markets; Monetary policy |
| JEL: | E4 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-14&r=all |
| By: | Longmei Zhang; Sally Chen |
| Abstract: | China’s digital economy has expanded rapidly in recent years. While average digitalization of the economy remains lower than in advanced economies, digitalization is already high in certain regions and sectors, in particular e-commerce and fintech, and costal regions. Such transformation has boosted productivity growth, with varying impact on employment across sectors. Going forward, digitalization will continue to reshape the Chinese economy by improving efficiency, softening though not reversing, the downward trend of potential growth as the economy matures. The government should play a vital role in maximizing the benefits of digitalization while minimizing related risks, such as potential labor disruption, privacy infringement, emerging oligopolies, and financial risks. |
| Keywords: | Asia and Pacific;Supply and demand;National accounts;Unemployment;Labor market policy;Financial services;Digital economy,Fintech,Productivity,Employment,Financial stability,Government Policy and Regulation,Macroeconomic Analyses of Economic Development,General,digitalization,Tencent,Alibaba,ICT |
| Date: | 2019–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/016&r=all |
| By: | David CHETBOUN |
| Abstract: | El final del año 2015 y los primeros meses de 2016 constituyeron un punto de inflexión histórico para Argentina en muchos aspectos. En primer lugar en el plano político: en noviembre de 2015 fue la primera vez desde el regreso de la democracia en 1983 que un candidato, Mauricio Macri (coalición de centro-derecha), quien no es miembro del partido peronista ni del partido radical, es elegido como presidente de la República. En el plano económico igualmente. Tras 12 años con un modelo centrado en el proteccionismo, el intervencionismo del Estado y el apoyo al consumo de los hogares, la política económica establecida por el gobierno de Macri indujo un cambio de rumbo con respecto a la de la administración anterior. En efecto, pretende ser más extrovertida, apostando por el liberalismo económico y la reactivación de la inversión financiada mediante el endeudamiento externo. |
| Keywords: | Argentine |
| JEL: | E |
| Date: | 2018–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:avg:wpaper:es9115&r=all |
| By: | Christian Ewerhart |
| Abstract: | This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect. |
| Keywords: | Blockchain, proof-of-work, Nash equilibrium, subgame perfection, selfish mining |
| JEL: | C72 C73 D72 E42 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:355&r=all |
| By: | Tharcisio Leone |
| Abstract: | This work uses a nationally representative household survey conducted by phone during the COVID-19 pandemic to estimate the short-term impacts of lockdown measures on employment and income in Brazil. In May 2020, 18 percent of the employed population (around 15.7 million workers) were temporarily absent from their jobs due to the lockdown policies while 56.6 percent of them were no longer earning an income from work. Similar figures were registered in June 2020. This decrease in employment has generated a fall of 18 percent in the average work income and an increase of 0.014 points in the Gini coefficient. The vulnerable among the population have been hit hardest by the pandemic: the average earnings of the lowest income decile decreased from BRL 389.07 to 0 while for the second-lowest a 70.2 percent reduction has been seen (from BRL 878.08 to BRL 262.06). Thanks to the implementation of the COVID-19 Emergency Aid, the Brazilian government has been able to reduce the losses in income for all social classes. Nevertheless, the average income of the first decile is 5 percent lower than the value pre-pandemic while for the second decile the equivalent figure is 15.2 percent. |
| Keywords: | COVID-19, lockdown effects, income, employment, emergency aid, Brazil |
| JEL: | D31 E24 H12 O15 |
| Date: | 2020–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000518:018291&r=all |
| By: | Filippo Gusella |
| Abstract: | Thomas Piketty’s Capital in the Twenty-First Century is primarily an empirical investigation into the history of the distribution of income and wealth in developed countries. Piketty, however, goes beyond this approach, presenting a theory of the long-run tendency of wealth inequality and rooting his work deeply in economic theory. In this paper we review and develop the theoretical model of Piketty’s book. We can divide the model into two parts: firstly, the "fundamental laws of capitalism" and the change in the functional distribution of income are analysed. Secondly, the evolution of personal wealth distribution is examined. Alongside the development of the model, the paper points out two shortcomings. We show the contradiction of the original model in explaining the increase of the capital/income ratio with the change in the functional distribution of income. Moreover, we highlight the inconsistency between the definition of capital and the model proposed. The paper concludes by outlining alternative approaches to the problem, calling for a major rethinking about the causes of rising wealth inequality. |
| Keywords: | Piketty; economic inequality; fundamental laws of capitalism; functional distribution of income; economic growth |
| JEL: | D31 E25 P10 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:830&r=all |
| By: | Michal Andrle |
| Abstract: | This paper presents and discusses the estimates of the present value of corporate profits in the United States from 1984 to 2018. To value the expected income stream, it uses the long-range forecasts of professional forecasters for pre-tax corporate earnings and long-term Treasury note yields, sourced from the Blue Chip Economic Indicators survey. The appraised value of corporate earnings can point in real time at periods where market prices are deviating from valuations implied by expected earnings and interest rates. Market participants' forecasts seem to interpret most of the earnings fluctuations as permanent, underestimating the cyclical fluctuations The over-reaction to transitory shocks and changes in long-term outlook leads to swings in the valuation, in line with swings in the observed market prices. |
| Keywords: | Asset prices;Corporate profits;Forecasting;Real interest rates;Economic indicators;Interest rate increases;Interest rates;present value,corporate earnings,General,Asset Pricing,Forecasting and Simulation,valuation,long-term interest rate,forecaster,long-run |
| Date: | 2019–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/012&r=all |
| By: | Andrew N. Greenland; Mihai Ion; John W. Lopresti; Peter K. Schott |
| Abstract: | We outline a method for using asset prices to identify firm exposure to changes in policy. We highlight the benefits of this approach for studying trade agreements and apply it to two US trade liberalizations, with China and Canada. We find that abnormal equity returns during key events associated with these liberalizations are correlated with standard measures of import competition, vary across firms even within industries, predict subsequent firm outcomes, and provide a more complete view of distributional implications. In both cases, predicted relative increases in operating profit among the largest firms dwarf the relative losses of smaller firms. |
| JEL: | E0 F13 F14 G12 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27510&r=all |
| By: | Manuel Adelino; William B. McCartney; Antoinette Schoar |
| Abstract: | We show that the distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages in the U.S. has been remarkably stable over the last 25 years. But there was a dramatic shift during the housing boom of the 2000s in the provision of high- CLTV loans through private sources, which replaced almost one-for-one the share of high-CLTV loans directly guaranteed by the government, via FHA and VA. Post 2008, FHA/VA loans increased back to 30% of all purchase mortgages. This substitution between government and privately backed high-CLTV loans holds within ZIP codes, properties and borrower types over the full sample period. We also show that the increase in private high-CLTV lending follows local house price increases rather than preceding them. These findings suggest that the housing boom was not accompanied by a shift towards more high-CLTV loans, and instead favor models that rely on changes in collateral values or broad changes in house price expectations. |
| JEL: | E03 G21 G28 G30 R30 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27499&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); 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 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/056&r=all |
| By: | Böing, Philipp; Hünermund, Paul |
| Abstract: | In a recent paper, Bloom et al. (2020) find evidence for a substantial decline in research productivity in the U.S. economy during the last 40 years. In this paper, we replicate their findings for China and Germany, using detailed firm-level data spanning three decades. Our results indicate that diminishing returns in idea production are a global phenomenon, not just confined to the U.S. |
| Keywords: | Productivity,Growth,Innovation,R&D,Technological Change |
| JEL: | D24 E23 O31 O47 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20030&r=all |
| By: | Ramey, Valerie A |
| Abstract: | This paper takes stock of what we have learned from the “Renaissance” in fiscal research in the ten years since the financial crisis. I first discuss the new innovations in methodology and various strengths and weaknesses of the main approaches to estimating fiscal multipliers. Reviewing the estimates, I come to the surprising conclusion that the bulk of the estimates for average spending and tax change multipliers lie in a fairly narrow range, 0.6 to 1 for spending multipliers and -2 to -3 for tax change multipliers. However, I identify economic circumstances in which multipliers lie outside those ranges. Finally, I review the debate on whether multipliers were higher for the 2009 Obama stimulus spending in the United States or for fiscal consolidations in Europe. |
| Keywords: | Economics |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsdec:qt6cd687wc&r=all |
| By: | Florencia Verónica Pedroni; Anahí Briozzo; Gabriela Pesce |
| Abstract: | El presente trabajo tiene por objetivo identificar los factores determinantes de la subdeclaración de ingresos en firmas argentinas formalmente registradas y su evolución desde la óptica de los empresarios. Se propone un modelo conceptual y se estima empíricamente mediante una regresión logística a partir de datos fusionados de secciones cruzadas independientes de los años 2010 y 2017 de las bases Enterprise Surveys del Banco Mundial. Los resultados muestran que la subfacturación es un fenómeno multicausal donde los impuestos pierden importancia a la luz de otros determinantes tales como: corrupción, regulación y burocracia, calidad de los servicios públicos y gubernamentales, probabilidad de detección, informalidad del sector e inestabilidad política. De esta forma, se brinda sustento a la escuela de pensamiento que reconoce a las instituciones políticas y sociales que regulan la economía como causantes del sector informal, por sobre aquella corriente que identifica a los elevados impuestos (Johnson et al., 2000). Asimismo, los hallazgos reconocen las características de las empresas con mayor propensión a subdeclarar ventas (menor tamaño, ventas al mercado interno, sector manufacturero, sin financiamiento externo, con empresarios del género masculino y escasa experiencia en el rubro). La presente investigación representa un aporte a la literatura empírica pues estudia la informalidad en compañías registradas con un enfoque cuantitativo microeconómico a nivel empresa en una economía emergente como la Argentina. Los hallazgos resultan de relevancia para el desarrollo de políticas públicas tendientes a reducir la subdeclaración de ingresos. |
| Keywords: | economía informal; subdeclaración de ingresos; impuestos; corrupción; burocracia; calidad institucional; datos microeconómicos |
| JEL: | D22 E26 H26 H32 M21 O17 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:aep:anales:4186&r=all |
| By: | Nicola Fusari; Wei Li; Haoyang Liu; Zhaogang Song |
| Abstract: | Agency mortgage-backed securities (MBS) with diverse characteristics are traded in parallel with individualized contracts in the specified pool (SP) market and with standardized contracts in the to-be-announced (TBA) market. We find that this unique parallel trading environment substantially affects MBS returns: (1) Greater heterogeneity in MBS values increases the yields of all MBS because it exacerbates the cheapest-to-deliver concerns for TBA buyers and reduces the value of the TBA market as a backup selling venue for SP buyers; (2) high selling pressure amplifies the impact of MBS heterogeneity on MBS yields; (3) greater MBS heterogeneity dampens trading activities on both the SP and TBA markets and increases the ratio between the two. We provide strong evidence that these effects differ from the impacts of prepayment risks. |
| Keywords: | E58; G12; G18; G21 |
| JEL: | E58 G12 G18 G21 |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88279&r=all |
| By: | Pierre Bachas; Lucie Gadenne; Anders Jensen |
| Abstract: | Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries. |
| JEL: | E26 H21 H23 O12 O23 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27429&r=all |
| By: | Escanciano, J C.; Hoderlein, S.; Lewbel, A.; Linton, O.; Srisuma, S. |
| Abstract: | We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions (without imposing functional restrictions or just assuming completeness). We also propose a novel nonparametric estimator based on our identification analysis, which combines standard kernel estimation with the computation of a matrix eigenvector problem. Our estimator avoids the ill-posed inverse issues associated with nonparametric instrumental variables estimators. We derive limiting distributions for our estimator and for relevant associated functionals. A Monte Carlo shows a satisfactory finite sample performance for our estimators. |
| Keywords: | uler equations, marginal utility, pricing kernel, Fredholm equations, integral equations, nonparametric identification, asset pricing |
| JEL: | C14 D91 E21 G12 |
| Date: | 2020–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2064&r=all |
| By: | R. G Gelos; Tommaso Mancini Griffoli; Machiko Narita; Federico Grinberg; Umang Rawat; Shujaat Khan |
| Abstract: | Has monetary policy in advanced economies been less effective since the global financial crisis because of deteriorating household balance sheets? This paper examines the question using household data from the United States. It compares the responsiveness of household consumption to monetary policy shocks in the pre- and post-crisis periods, relating changes in monetary transmission to changes in household indebtedness and liquidity. The results show that the responsiveness of household consumption has diminished since the crisis. However, household balance sheets are not the culprit. Households with higher debt levels and lower shares of liquid assets are the most responsive to monetary policy, and the share of these households in the population grew. Other factors, such as economic uncertainty, appear to have played a bigger role in the decline of households’ responsiveness to monetary policy. |
| Keywords: | Monetary policy;Household consumption;Monetary transmission mechanism;Balance sheets;Financial crises;Monetary policy instruments;Interest rate policy;Economic policy;transmission,households,real estate,leverage,Financial Markets and the Macroeconomy,Monetary Policy (Targets,Instruments,and Effects),Consumer Economics: Empirical Analysis,post-crisis,non-durable,consumption growth,indebtedness,liquid asset |
| Date: | 2019–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2019/011&r=all |
| By: | Luca Rossi (Banca d'Italia) |
| Abstract: | This work examines the benefits and risks of using available classes of uncertainty indexes for policy purposes, clustered in three broad categories: survey-based, model-based, and news-based. In both policy discussions and the academic literature news-based indexes are the ones that have recently gained the most attention. We argue that the reasons behind this are their intuitiveness, transparency and real-time characteristics. The main trouble with these indexes, as they are constructed today, is their noisiness. We then suggest that, for policy purposes, it would be better to disregard very high frequency movements in the series. Finally, we highlight that well-developed probabilistic surveys still represent a hard-to-beat benchmark when one is interested in uncertainty concerning specific variables as opposed to more abstract concepts such as Economic Policy Uncertainty. |
| Keywords: | uncertainty, filtering, economic surveys, news |
| JEL: | E60 H30 H68 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_564_20&r=all |
| By: | Mauricio de Rosa (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Joan Vilá (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | Most personal income distribution studies present estimates that account for only a fraction of National Income, which prevents us from analyzing inequality and the distribution of growth in a coherent framework. To overcome this caveat, this paper presents inequality estimates accounting for the totality of National Income for Uruguay over the period 2009-2016. We assemble a database that, for the first time, combines all available income data from tax records, household surveys and a variety of ancillary sources, which is then scaled up in order to match National Income. Results show that inequality fell during the period, led by a moderate increase in the National Income share of the bottom 90%, in contrast with the decline in the shares of the top 10% and much moderate for the top 1%. Top 1%’ share shows a decreasing pattern only when undistributed profits are imputed, showing that the inequality trend depends on the complex interplay of income allocation between household and firms. Even with falling inequality, around 45% of the income growth between 2009 and 2016 was accrued by the top 10%, whilst bottom 50% captured less than 14% of new income –a barely higher share than the top 0.1%–, hence widening the absolute incomes gap between groups. |
| Keywords: | Income inequality, National Accounts, tax records, developing countries, Uruguay |
| JEL: | D31 D33 E01 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-05-20&r=all |
| By: | Gloria Allione (Banca d’Italia); Raffaello Bronzini (Banca d’Italia); Claire Giordano (Banca d’Italia) |
| Abstract: | According to international trade statistics, the pharmaceutical sector, in which Italy has a significant degree of specialization, has contributed markedly to the rebound in Italy’s goods exports since 2010; in 2019 foreign sales of these products recorded a sharp increase, even by international comparison, which was boosted by Italy’s main exporting region, Lazio. The growth in exports benefited from a significant expansion in the productive capacity of a number of firms in the region and to the spread of contract manufacturing, both at the national and regional level. This activity, when it occurs without a change in ownership of the contracted good between the foreign contractee and the contractor in Italy, is defined as “processing” and is included in goods exports sourced from international trade statistics but not in the corresponding series in national accounts. The pharmaceutical sector’s contribution to the growth in total goods exports in Italy in 2019 is smaller when computed net of processing, yet still larger than that recorded in the previous two-year period, confirming the structural soundness of the sector. |
| Keywords: | international trade, pharmaceutical products, contract manufacturing |
| JEL: | E01 F10 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_566_20&r=all |