nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒08‒31
135 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Demand or Supply? Price Adjustment during the Covid-19 Pandemic By Almut Balleer; Sebastian Link; Manuel Menkhoff; Peter Zorn
  2. Uncertain accommodative policies as tools for financial stability: recent developments By Ojo, Marianne; Roedl, Marianne
  3. The distributive cycle: Evidence and current debates By Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim
  4. Banks, Money, and the Zero Lower Bound on Deposit Rates By Michael Kumhof; Xuan Wang
  5. Savings; the least understood economic concept, the U.S. case By De Koning, Kees
  6. Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? By Qazi Haque; Nicolas Groshenny; Mark Weder
  7. Financial Shocks to Banks, R&D Investment, and Recessions By Ohdoi, Ryoji
  8. Sustainability and Solvency of Government Finances under the Euro: Illustrations and Policy Options By Heikki Oksanen
  9. Uruguay; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Uruguay By International Monetary Fund
  10. Economic consequences of high public debt: evidence from three large scale DSGE models By Pablo Burriel; Cristina Checherita-Westphal; Pascal Jacquinot; Matthias Schön; Nikolai Stähler
  11. TFP news, stock market booms and the business cycle: Revisiting the evidence with VEC models By Di Casola, Paola; Sichlimiris, Spyridon
  12. Global Liquidity Traps By Kollmann, Robert
  13. Liquidity Traps in a Monetary Union By Kollmann, Robert
  14. CBDC: A systemic perspective By Bofinger, Peter; Haas, Thomas
  15. Consumers’ Mobility, Expenditure and Online-Offline Substitution Response to COVID-19: Evidence from French Transaction Data By David Bounie; Youssouf Camara; John Galbraith
  16. Doubts about the Model and Optimal Policy By Anastasios G. Karantounias
  17. The Liquidity Channel of Fiscal Policy By Christian Bayer; Benjamin Born; Ralph Luetticke
  19. The interbank market, Keynes’s degree of confidence and the link between banks’ liquidity and solvency By Konstantinos Loizos
  20. Ghana; Seventh and Eighth Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  21. Drivers of consumer prices and exchange rates in small open economies By Corbo, Vesna; Di Casola, Paola
  22. Leverage Cycles, Growth Shocks, and Sudden Stops in Capital Inflows By Emter, Lorenz
  23. Модель зависимости обменного курса рубля от цен на нефть с марковскими переключениями режимов By Polbin, Andrey; Shumilov, Andrei
  24. Patent Puzzle, Inflation, and Internal Financial Constraint By Suzuki, Keishun
  25. The Global Economic Barometers: Composite indicators for the world economy By Klaus Abberger; Michael Graff; Jan-Egbert Sturm; Oliver Müller; Aloisio Campelo Jr; Anna Carolina Lemos Gouveia
  26. The Pre-FOMC Announcement Drift and Private Information: Kyle Meets Macro-Finance By Chao Ying
  27. The Impact of Quantitative Easing on Liquidity Creation By Supriya Kapoor; Oana Peia
  28. Worker Household Debt, Functional Income Distribution and Growth: a neo-Kaleckian Perspective By Parui, Pintu
  29. Central African Republic; Request for a Three-Year Arrangement under the Extended Credit Facility-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Central African Republic By International Monetary Fund
  30. The simpler the better: measuring financial conditions for monetary policy and financial stability By Bobasu, Alina; Venditti, Fabrizio; Arrigoni, Simone
  31. The interaction of monetary and financial tasks in different central bank structures By Houben, Aerdt; Kakes, Jan; Petersen, Annelie
  32. Somalia; First Review Under the Staff-Monitored Program-Press Release; and Staff Report By International Monetary Fund
  33. The Short-Run Macro Implications of School and Child-Care Closures By Nicola Fuchs-Schündeln; Moritz Kuhn; Michèle Tertilt
  35. Greece; First Post-Program Monitoring Discussions-Press Release; Staff Report; and Statement by the Executive Director for Greece By International Monetary Fund
  36. Short and long-run determinants of inflation in Tunisia By Boukraine, Wissem
  37. Republic of Madagascar; Fourth Review Under the Extended Credit Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Madagascar By International Monetary Fund
  38. The Advantages of an Independent Currency for Mitigating the Economic Impact of External Shocks Using the Example of the Coronavirus Pandemic: A Comparison of the Czech Republic and Slovakia By Miroslav Sevcik; Adela Zubikova; Pavel Smolak
  39. Sweden; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Sweden By International Monetary Fund
  40. Liquidity, the Mundell-Tobin Effect, and the Friedman Rule By Lukas Altermatt; Christian Wipf
  41. Sovereign Default, Taxation, and the Underground Economy By Almuth Scholl; Liang Tong
  42. Municipal Debt Markets and the COVID-19 Pandemic By Marco Cipriani; Andrew F. Haughwout; Benjamin Hyman; Anna Kovner; Gabriele La Spada; Matthew Lieber; Shawn Nee
  43. West African Economic and Monetary Union (WAEMU); Staff Report on Common Policies for Member Countries-Press Release; Staff Report; and Statement by the Executive Director for the WAEMU By International Monetary Fund
  44. Australia; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Australia By International Monetary Fund
  45. A decomposition of structural revenue developments for euro area member states By Morris, Richard; Reiss, Lukas
  46. Heterogeneous Paths of Industrialization By Federico Huneeus
  47. Evaluation of the Expansion of Housing Credit in Japan By Charles Yuji HORIOKA; Yoko NIIMI
  48. Malaysia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malaysia By International Monetary Fund
  49. Argentina; Third Review under the Stand-By Arrangement, Request for Waivers of Applicability of Performance Criteria, Financing Assurances Review, and Request for Modification of Performance Criteria-Press Release and Staff Report By International Monetary Fund
  50. Dynamic Factor Trees and Forests – A Theory-led Machine Learning Framework for Non-Linear and State-Dependent Short-Term U.S. GDP Growth Predictions By Daniel Wochner
  51. Política y Sostentabilidad Fiscal en tiempos de Covid-19: El Caso de Chile By Cordero, Alvaro; Villena, Mauricio
  52. The Impact of Forced Displacement on Host Communities. A Review of the Empirical Literature in Economics By Verme, Paolo; Schuettler, Kirsten
  53. The Agricultural Productivity Gap and Self-Employment Bias in the Labor Income Share By Paul, Saumik; Thomas, Liam
  54. Owe a Bank Millions, the Bank Has a Problem: Credit Concentration in Bad Times By Sumit Agarwal; Ricardo Correa; Bernardo Morais; Jessica Roldán; Claudia Ruiz
  55. Macroprudential policy and the role of institutional investors in housing markets By Muñoz, Manuel A.
  56. Public Pension Reforms and Fiscal Foresight: Narrative Evidence and Aggregate Implications By Huixin Bi; Sarah Zubairy
  57. Lower bound uncertainty and long-term interest rates By Christian Grisse
  58. Leaning Against the Wind: A Cost-Benefit Analysis for an Integrated Policy Framework By Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
  59. This Time It’s Different: The Role of Women’s Employment in a Pandemic Recession By Titan Alon; Matthias Doepke; Jane Olmstead-Rumsey
  60. Relación entre las características de los mercados de trabajo latinoamericanos y la ley de Okun By María Sylvina Porras; Ángel L. Martín-Román
  61. Heterogeneous Paths of Industrialization By Federico Huneeus; Richard Rogerson
  62. The Asymmetric Unemployment Response of Natives and Foreigners to Migration Shocks By Nicolo Maffei Faccioli; Eugenia Vella
  63. Low pass-through and high spillovers in NOEM : What does help and what does not By Gregory de Walque; Thomas Lejeune; Ansgar Rannenberg; Raf Wouters
  64. Unemployment Insurance during a Pandemic By Jun Nie; Zoe Xie
  65. Malta; Selected Issues By International Monetary Fund
  66. Oil Prices, Gasoline Prices and Inflation Expectations: A New Model and New Facts By Lutz Kilian; Xiaoqing Zhou
  67. R&D, Market Power and the Cyclicality of Employment By Adam Honig; Zeynep Yom
  68. Measuring the Effectiveness of US Monetary Policy during the COVID-19 Recession By Martin Feldkircher; Florian Huber; Michael Pfarrhofer
  69. Mali; First Review Under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  70. Labor Market Effects of Tax Changes in Times of High and Low Unemployment: Working Paper 2020-05 By U. Devrim Demirel
  71. Belgium; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belgium By International Monetary Fund
  72. Eastern Caribbean Currency Union; 2018 Discussion on Common Policies of Member Countries-Press Release; Staff Report; and Statement by the Executive Director for the Eastern Caribbean Currency Union By International Monetary Fund
  73. Capital Flows, Asset Prices, and the Real Economy: A "China Shock" in the U.S. Real Estate Market By Zhimin Li; Leslie Sheng Shen; Calvin Zhang
  74. Government Banks, Household Debt, and Economic Downturns: The Case of Brazil By Gabriel Garber; Atif Mian; Jacopo Ponticelli; Amir Sufi
  75. Probability Forecast Combination via Entropy Regularized Wasserstein Distance By Ryan Cumings-Menon; Minchul Shin
  76. Does Policy Communication During COVID Work? By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
  77. Structural modeling and forecasting using a cluster of dynamic factor models By Glocker, Christian; Kaniovski, Serguei
  78. Independent or lonely? Central banking in crisis By Mabbett, Deborah; Schelkle, Waltraud
  79. No Transables, Contracciones y Gasto Pro-Cíclico. ¿Impacto de las devaluaciones a nivel Sub-Nacional? By Juan Manuel Tabuenca
  80. Papua New Guinea; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea By International Monetary Fund
  81. Myanmar; Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Myanmar By International Monetary Fund
  82. Kuwait; 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Kuwait By International Monetary Fund
  83. Kenya; Fiscal Transparency Evaluation Update By International Monetary Fund
  84. Fiscal Decentralization and Interregional Capital Misallocation: Evidence from China By Zheng Li; Jorge Martinez-Vazquez
  85. Economic Growth and the Environment: A Theoretical Reappraisal By Maxime Menuet; Alexandru Minea; Patrick Villieu; Anastasios Xepapadeas
  86. Republic of San Marino; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of San Marino By International Monetary Fund
  87. Why Do Borrowers Default on Mortgages? A New Method For Causal Attribution By Peter Ganong; Pascal J. Noel
  88. Arab Republic of Egypt; Fourth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund
  89. Influência Metodológica na Desindustrialização Brasileira e Correções na Composição Setorial do PIB By Morceiro, Paulo César
  90. Which credit gap is better at predicting financial crises? A comparison of univariate filters By Mathias Drehmann; James Yetman
  91. Republic of Belarus; Technical Assistance Report-Enhancing Monetary Policy Modeling Capacity, Monetary Policy Implementation, and the Forecasting and Policy Analysis System By International Monetary Fund
  92. Burkina Faso; Third Review under the Extended Credit Facility Arrangement-Press Release; and Staff Report By International Monetary Fund
  93. Solving theWage Puzzle: Does the “Non-Employment Index” Explain European Wage Dynamics Since the Global Financial Crisis? By Byrne, Stephen; Zakipour-Saber, Shayan
  94. Nowcasting with large Bayesian vector autoregressions By Cimadomo, Jacopo; Giannone, Domenico; Lenza, Michele; Sokol, Andrej; Monti, Francesca
  96. Heterogeneity and the Dynamic Effects of Aggregate Shocks By Andreas Tryphonides
  97. Ecuador; Selected Issues Paper and Analytical Notes By International Monetary Fund
  98. Eurodollar Futures, LIBOR and the SFOR By Rashid, Muhammad Mustafa
  99. Forward Guidance Matters: disentangling monetary policy shocks By Leonardo N. Ferreira
  100. Blueprint for the European Fiscal Union: State of knowledge and Challenges. By Amélie BARBIER-GAUCHARD
  101. The Translog Utility Function and the Tornqvist Quantity Index By John Hartwick
  102. The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency: Pre-Crisis Era Revisited By Asongu, Simplice; Nnanna, Joseph; Tchamyou, Vanessa
  103. Economic Uncertainty before and during the COVID-19 Pandemic By David E. Altig; Scott Baker; Jose Maria Barrero; Nick Bloom; Phil Bunn; Scarlet Chen; Steven J. Davis; Brent Meyer; Emil Mihaylov; Paul Mizen; Nicholas B. Parker; Pawel Smietanka; Greg Thwaites
  104. Economic Reality, Economic Media and Individuals' Expectations By Kristoffer Persson
  105. Optimal social distancing in SIR based macroeconomic models By Getachew, Yoseph
  106. Bulgaria; 2019 Article IV Consultation-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Bulgaria By International Monetary Fund
  107. Niger; Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Niger By International Monetary Fund
  108. Determinantes del dinero secundario en Bolivia: 2005-2017 By Julio Humérez Quiroz; Tatiana Rocabado Palomeque
  109. Trust in financial institutions: A survey By Carin van der Cruijsen; Jakob de Haan; Ria Roerink
  110. Outcomes and costs of skilled support for people with severe or profound intellectual disability and complex needs By Beadle-Brown, Julie; Beecham, Jennifer; Leigh, Jennifer; Whelton, Rebecca; Richardson, Lisa
  111. A Quantitative Model for the Integrated Policy Framework By Tobias Adrian; Christopher J. Erceg; Jesper Lindé; Pawel Zabczyk; Jianping Zhou
  112. Fiscal Responsibility and Debt Sustainability. Preparedness for External Shock: The Case of the Czech Republic and Slovakia By Martin Zeman; Jan Kozak; Stepan Pekarek; Jan Vondracek; Miroslav Sevcik
  113. Eastern Caribbean Currency Union; Selected Issues Paper By International Monetary Fund
  114. Trade, Education, and Income Inequality By Markus Brueckner; Ngo Van Long; Joaquin Vespignani; Ngo Van Long
  115. House Price Cycles, Wealth Inequality and Portfolio Reshuffling By Clara Toledano
  116. St. Vincent and the Grenadines; 2018 Article IV Consultation-Press Release; Staff Report and Statement by the Executive Director for St. Vincent and the Grenadines By International Monetary Fund
  117. Factors Affecting the Competitive Capacity of Commercial Banks: A Critical Analysis in an Emerging Economy By Dao, Kieu Oanh; Kieu, Le; Tu, Pham Thuy; Nguyen, V.C.
  118. Multiple Yield Curve Modelling with CBI Processes By Claudio Fontana; Alessandro Gnoatto; Guillaume Szulda
  119. Peru; 2019 Article IV Consultation-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for Peru By International Monetary Fund
  120. Wage Differentials in EU Transition Economies (2009-2016): How Large a Penalty for Females and Informal Employees? By Philippe Adair; Oksana Nezhyvenko
  121. Malta; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malta By International Monetary Fund
  122. Globalization and Female Economic Participation in MINT and BRICS countries By Tolulope T. Osinubi; Simplice A. Asongu
  123. Alternative Methods for Studying Consumer Payment Choice By Oz Shy
  124. Finland; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  125. Supply and demand in Kaldorian growth models: a proposal for dynamic adjustment By Machago, Guilherme R.; Spinola, Danilo
  126. Liquidity requirement and banks' lending By Okahara, Naoto
  127. COVID-19 and EU Climate Targets: Going Further with Less? By Tensay Meles; L. (Lisa B.) Ryan; Joe Wheatley
  128. Ecuador; Staff Report for the 2019 Article IV Consultation and Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Ecuador By International Monetary Fund
  129. Malaysia; Selected Issues By International Monetary Fund
  130. A New Reserves Regime? COVID-19 and the Federal Reserve Balance Sheet By Gara Afonso; Marco Cipriani; Gabriele La Spada; Will Riordan
  131. News on Stock Market Returns and Conditional Volatility in Nigeria: An EGARCH-in-Mean Approach. By Okpara, Godwin Chigozie
  132. Banking Sector Performance During the COVID-19 Crisis By Demirguc-Kunt,Asli; Pedraza Morales,Alvaro Enrique; Ruiz Ortega,Claudia
  133. "Quick Response" Economic Stimulus: The Effect of Small-Value Digital Coupons on Spending By Jianwei Xing; Eric Zou; Zhentao Yin; Yong Wang
  134. Ecuador; 2016 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  135. Kingdom of Lesotho; Technical Assistance Report—Government Finance Statistics Mission (January 14–25, 2019) By International Monetary Fund

  1. By: Almut Balleer; Sebastian Link; Manuel Menkhoff; Peter Zorn
    Abstract: We study planned price changes in German firm-level survey data to infer the relative importance of supply and demand during the Covid-19 pandemic. Supply and demand forces coexist, but demand deficiencies dominate in the short run. Quarter-on-quarter producer price inflation is predicted to decline by as much as 1.5 percentage points through August 2020. These results imply a role for demand stimulus policy to buffer the Covid-19 economic crisis.
    Keywords: producer price setting, firm behaviour, supply, demand, Covid-19
    JEL: E31 E32 E37 E60 D22
    Date: 2020
  2. By: Ojo, Marianne; Roedl, Marianne
    Abstract: The need to address issues pertaining to legal uncertainty, sound governance, public policy considerations – as well as forecasting techniques as a means of mitigating uncertainties in an environment where confidence the inflation target is low, are amongst some of the objectives which this paper aims to address. Innovative possibilities and opportunities of e digital currencies are then considered – particularly growing considerations of certain central banks to issue their own central bank digital currencies. Questions which still need to be addressed relating to the interest rates to be attached to such currencies and whether or not such interest rates should apply. Further considerations relate to whether the inflation targets should be raised. These innovative possibilities are considered – with further recommendations for research – before a conclusion is drawn. This paper constitutes a chapter to the volume “Rethinking Regulation and Monetary Policies”.
    Keywords: Leaning Against the Wind Policy; financial stability; monetary policies; interest rates; inflation targeting; stable coins; central banks; regulation; crypto assets
    JEL: E43 E44 F6 K20
    Date: 2020–08–04
  3. By: Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim
    Abstract: This paper surveys current debates on the distributive cycle. The literature builds on R.M. Goodwin's seminal 1967 chapter titled “A growth cycle.†We review theoretical motivations for the distributive cycle, which, despite significant differences, all imply that macroeconomic activity leads the labor share. Subsequently, we summarize and update evidence on the existence of a distributive cycle, with a focus on the post-war US macroeconomy. We analyze activity and labor share series and their interaction in the frequency domain, and also employ standard vector autoregressions. Results confirm the distributive cycle across the entire US post-war period. We contextualize results vis-à -vis current topics, including a financial cycle, technical change and secular stagnation.
    Keywords: Distributive cycle; US labor share of income; neo-Goodwin. JEL Classification:E12; E24; E25; E32.
    Date: 2020
  4. By: Michael Kumhof (Bank of England); Xuan Wang (Vrije Universiteit Amsterdam)
    Abstract: We develop a New Keynesian model where all payments between agents require bank deposits through deposits-in-advance constraints, bank deposits are created through disbursement of bank loans, and banks face a convex lending cost. At the zero lower bound on deposit rates (ZLBD), changes in policy rates affect activity through both real interest rates and banks’ net interest margins (NIM). At estimated credit supply elasticities, the Phillips curve is very flat at the ZLBD, because inflationary pressures increase NIM. This strongly increases credit and thereby output, but it dampens inflation by relaxing price setters’ credit rationing constraint. At the ZLBD, monetary policy has far larger effects on output relative to inflation, and Taylor rules stabilize output less effectively than rules that also respond to credit. For post-COVID-19 policy, this suggests urgency in returning inflation to targets, avoidance of negative policy rates, and a strong influence of credit conditions on rate setting.
    Keywords: Banks, money creation, inside money, money demand, deposits-in-advance, Phillips curve, zero lower bound, monetary policy rules, Taylor rules, post-COVID-19 reforms
    JEL: E41 E44 E51 G21
    Date: 2020–08–20
  5. By: De Koning, Kees
    Abstract: Savings, in a financial sense, can be defined as postponed consumption. This definition implies that a household has to have an income first, before contemplating whether to spend such income in the current or in a future period. In the U.S., the two largest accumulations of savings are in pension savings and in the net worth of homes. In 2019 the total pension savings added up to $32.3 trillion and the net worth in homes to $ 19.656 trillion; a combined savings of nearly $52 trillion. There are other household savings: in bank deposits and in shares and bonds. The current other debts by households are $4.6 trillion (car loans, student loans, personal loans). The Federal government’s financial power derives from its tax income of $3.706 trillion plus its borrowings of an additional $1.1 trillion. These are no match for restoring a savings and spending equilibrium. The combined U.S. households are asset rich, but can, at times, be cash poor. Should the U.S. government with the help of the Federal Reserve come to the rescue of the economy? It would need to borrow huge amounts. It would also need to create many new projects to spend such money. The result would be a substantially increased government debt, which at the moment is already at 106.9% of GDP or in other words already more than six times current government revenues. Future tax income will need to be used just to get the level of borrowings down, rather than for general expenses. Would it not be better to use a small share of households’ own savings currently locked up in homes? The Federal Reserve, as a QE activity, could fund the scheme at 0% interest. Such a Tessa scheme: a Temporary Spend and Save Again method could release some equity out of a home, to be used for consumption in the current period. Current savings are turned into cash and future incomes can be used to replenish the stock of savings and repay the Fed. The experiences from the last financial crisis in terms of adjustments are: the unemployment crisis took 10 years, before the number of unemployed was back to the level of December 2006. The recovery period over the losses made on the housing stock took nearly 10 years. Perhaps it is worth considering using household savings for household benefits. Such method can shorten the adjustment period dramatically.
    Keywords: U.S. recession threat, U.S savings in pension funds, U.S.home equity levels, U.S. unemployment levels; U.S. financial crisis adjustment periods
    JEL: D1 D10 D14 D5 E2 E21 E24 E5 E52 E58 E6 E65 O1
    Date: 2020–07–16
  6. By: Qazi Haque (University of Western Australia and CAMA); Nicolas Groshenny (University of Adelaide and CAMA); Mark Weder (Department of Economics and Business Economics, Aarhus University and CAMA)
    Abstract: The paper re-examines whether the Federal Reserve’s monetary policy was a source of instability during the Great Inflation by estimating a sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage rigidity and finds that the Federal Reserve responded aggressively to inflation but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era. However, had the Federal Reserve in the Seventies followed the policy rule of the Volcker-Greenspan-Bernanke period, inflation volatility would have been lower by one third.
    Keywords: Monetary policy, Trend inflation, Great Inflation, Cost-push shocks, Indeterminacy
    JEL: E32 E52 E58
    Date: 2020–08–14
  7. By: Ohdoi, Ryoji
    Abstract: In some classes of macroeconomic models with financial frictions, an adverse financial shock successfully explains a drop in GDP, but simultaneously induces a stock price boom. The latter theoretical result is not consistent with data from actual financial crises. This study develops a simple macroeconomic model featuring a banking sector, financial frictions, and R&D-led endogenous growth to examine the impacts of an adverse financial shock to banks on firms' R&D investments and equity prices. Both the analytical and numerical investigations show that a shock that hinders the banks' financial intermediary function can be a key to generating both a prolonged recession and a drop in the firms' equity prices.
    Keywords: Banks; Endogenous growth; Financial frictions; Financial shocks; Quality-ladder growth model
    JEL: E32 E44 G01 O31 O41
    Date: 2020–07–22
  8. By: Heikki Oksanen
    Abstract: In this paper, sound public finances under the euro means sustainability in the long term instead of short- and medium-term fiscal discipline. The challenges to sustainability are identified for the four largest euro area member states, and several policy options for sustainability are illustrated with scenarios. Sustainability of the government finances is required for being solvent and having continuous access to credit at acceptable interest rates. Solvency in the long term is the key link between coherent fiscal and monetary policies. A main tool of the Eurosystem for setting an appropriate monetary stance is purchasing bonds issued by the solvent governments. It also must assess their solvency if it needs to act as the lender of last resort for a euro area government under liquidity shortage to prevent it from developing into a general financial crisis. Resolving the crisis caused by the Covid-19 pandemic requires confidence that the public finances will be steered towards sustainability and the Eurosystem can take its proper role as a central bank.
    Keywords: euro, fiscal policy, monetary policy
    JEL: E42 E62 E63 H10
    Date: 2020
  9. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that Uruguay has preserved macroeconomic stability in the wake of the turbulence in the region due to prudent policies and the accumulation of buffers over the years. With the worsening outlook and less friendly external environment, in the near term, policies should focus on maintaining resilience. In this context, additional efforts are needed to put debt on a firm downward trajectory and reduce inflation to within the target band. The IMF staff assesses that the external position is broadly consistent with fundamentals and desirable policy settings. The authorities and IMF staff have remained in broad agreement on the macroeconomic policy objectives, including maintaining public debt on a sustainable trajectory, keeping inflation low, and allowing exchange rate to adjust in line with fundamentals. Fiscal adjustment, however, has not proceeded as quickly as had been originally expected, and inflation has proven difficult to contain within the authorities’ target range.
    Keywords: Central banks;Monetary policy;Development;Gross domestic product;Public sector;Economic indicators;Economic policy;Macroprudential policies and financial stability;International reserves;percent of GDP,medium-term,non-financial,primary balance,BCU
    Date: 2019–02–22
  10. By: Pablo Burriel (Banco de España); Cristina Checherita-Westphal (ECB); Pascal Jacquinot (ECB); Matthias Schön (Bundesbank); Nikolai Stähler (Bundesbank)
    Abstract: The paper reviews the economic risks associated with regimes of high public debt through DSGE model simulations. The large public debt build-up following the 2009 global financial and economic crisis acted as a shock absorber for output, while in the recent and more severe COVID19-crisis, an increase in public debt is even more justified given the nature of the crisis. Yet, once the crisis is over and the recovery firmly sets in, keeping debt at high levels over the medium term is a source of vulnerability in itself. Moreover, in the euro area, where monetary policy focuses on the area-wide aggregate, countries with high levels of indebtedness are poorly equipped to withstand future asymmetric shocks. Using three large scale DSGE models, the simulation results suggest that high-debt economies (1) can lose more output in a crisis, (2) may spend more time at the zero-lower bound, (3) are more heavily affected by spillover effects, (4) face a crowding out of private debt in the short and long run, (5) have less scope for counter-cyclical fiscal policy and (6) are adversely affected in terms of potential (long-term) output, with a significant impairment in case of large sovereign risk premia reaction and use of most distortionary type of taxation to finance the additional debt burden in the future. Going forward, reforms at national level, together with currently planned reforms at the EU level, need to be timely implemented to ensure both risk reduction and risk sharing and to enable high debt economies address their vulnerabilities.
    Keywords: government debt, interest rates, economic growth, fiscal sustainability
    JEL: E62 H63 O40 E43
    Date: 2020–08
  11. By: Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden); Sichlimiris, Spyridon (Research Department, Central Bank of Sweden)
    Abstract: Beaudry and Portier (2006) provide support for the "news view" of the business cycle, using a vector error correction model. We show that this result hinges on a cointegrating relationship between TFP and stock prices that is not stationary, thus making the estimates not reliable. If we alter the TFP measure and change the model specification, we can recover the news shock through their identification. However, the news shock leads to a stock market boom with a negligible impact on economic activity. Our findings are in line with studies that identify news shocks without relying on VEC models.
    Keywords: cointegration; technology news shocks; stock prices; TFP; VEC model
    JEL: C32 E32 E44 G12
    Date: 2020–03–01
  12. By: Kollmann, Robert
    Abstract: This paper studies fluctuations of interest rates, inflation and output in a two-country New Keynesian business cycle model with a zero lower bound (ZLB) constraint for nominal interest rates. The presence of the ZLB generates multiple equilibria driven by self-fulfilling changes in domestic and foreign inflation expectation. Each country randomly switches in and out of a liquidity trap. In a floating exchange rate regime, liquidity traps can either be synchronized or unsynchronized across countries. This is the case even if countries are perfectly financially integrated. By contrast, in a monetary union, self-fulfilling fluctuations in inflation expectations must be perfectly correlated across countries.
    Keywords: Zero lower bound, liquidity trap, global business cycles
    JEL: E3 E4 F2 F3 F4
    Date: 2020–04–15
  13. By: Kollmann, Robert
    Abstract: The closed economy macro literature has shown that a liquidity trap can result from the self-fulfilling expectation that future inflation and output will be low (Benhabib et al. (2001)). This paper investigates expectations-driven liquidity traps in a two-country New Keynesian model of a monetary union. In the model here, country-specific productivity shocks induce synchronized responses of domestic and foreign output, while country-specific aggregate demand shocks trigger asymmetric domestic and foreign responses. A rise in government purchases in an individual country lowers GDP in the rest of the union. The result here cast doubt on the view that, in the current era of ultra-low interest rates, a rise in fiscal spending by Euro Area (EA) core countries would significantly boost GDP in the EA periphery (e.g. Blanchard et al. (2016)).
    Keywords: Zero lower bound, liquidity trap, monetary union, terms of trade, international fiscal spillovers, Euro Area.
    JEL: E3 E4 F2 F3 F4
    Date: 2020–08–08
  14. By: Bofinger, Peter; Haas, Thomas
    Abstract: In this study, we provide a systemic perspective on central bank digital currencies (CBDC). We separate existing proposals for CBDCs into the perspective of new payment objects, made available by central banks to a broader public, and new payment systems, operated by central banks. From a systemic perspective, CBDC proposals need to be examined to see how they would fit into the existing ecosystem of national, supra-regional, and international payment systems. To analyze the main implications of introducing CBDCs, we provide a price-theoretical banking model, which allows private non-banks to switch between holding bank deposits and CBDCs. In addition to the CBDC payment objects, we also present the option of a store-of-value CBDC. While most CBDC proposals incorporate new payment objects with new or existing payment systems, we discuss whether central banks could establish new payment systems without offering a new payment object.
    Keywords: central bank digital currency,central banks,payment systems
    JEL: E42 E52 E58 G21
    Date: 2020
  15. By: David Bounie (CNRS, Telecom Paris, Institut Polytechnique de Paris); Youssouf Camara (CNRS, Telecom Paris, Institut Polytechnique de Paris); John Galbraith (McGill University, CIRANO and CIREQ)
    Abstract: This paper investigates a number of general phenomena connected with consumer behaviour in response to a severe economic shock, using billions of French card transactions measured before and during the COVID-19 epidemic. We examine changes in consumer mobility, anticipatory behaviour in response to announced restrictions, and the contrasts between the responses of online and traditional point-of-sale (offline) consumption expenditures to the shock. We track hourly, daily and weekly responses as well as estimating an aggregate fixed-period impact effect via a differencein-difference estimator. The results, particularly at the sectoral level, suggest that recourse to the online shopping option diminished somewhat the overall impact of the shock on consumption expenditure, thereby increasing resiliency of the economy.
    Keywords: COVID-19, consumption expenditure, consumer mobility, online commerce, resiliency, transaction data
    JEL: E21 E62 E61
    Date: 2020–05
  16. By: Anastasios G. Karantounias
    Abstract: This paper analyzes optimal policy in setups where both the leader and the follower have doubts about the probability model of uncertainty. I illustrate the methodology in two environments: a) an industry populated with a large firm and many small firms in a competitive fringe, where both types of firms doubt the probability model of demand shocks, and b) a general equilibrium economy, where a policymaker taxes linearly the labor income of a representative household in order to finance an exogenous stream of stochastic spending shocks. The policymaker can distrust the probability model of spending shocks more, the same, or less than the household. Whenever there are doubts about the model, cautious agents form endogenous worst-case beliefs by assigning high probability on low profitability or low-utility events. There are two forces that shape optimal policy results: the manipulation of the endogenous beliefs of the follower to the benefit of the leader, and the discrepancy (if any) in the pessimistic beliefs between the leader and the follower. Depending on the application, the leader may amplify or mitigate the worst-case beliefs of the follower.
    Keywords: model uncertainty; ambiguity aversion; multiplier preferences; misspecification; robustness; martingale; monopolist; competitive fringe; demand uncertainty; Ramsey taxation
    JEL: D80 E62 H21 H63
    Date: 2020–07–31
  17. By: Christian Bayer; Benjamin Born; Ralph Luetticke
    Abstract: We provide evidence that expansionary fiscal policy lowers the return difference between more and less liquid assets—the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice, in which public debt affects private liquidity. In this environment, the short-run fiscal multiplier is amplified by the countercyclical liquidity premium. This liquidity channel stabilizes investment and crowds in consumption. We then quantify the long-run effects of higher public debt, and find a sizable decline of the liquidity premium, increasing the fiscal burden of debt, but little crowding out of capital.
    Keywords: fiscal policy, liquidity premium, business cycles, Bayesian estimation, incomplete markets, HANK
    JEL: C11 D31 E32 E63
    Date: 2020
  18. By: Stefan Raychev (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Blaga Madzhurova (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Dobrinka Stoyanova (Department of Economic Science, University of Plovdiv Paisii Hilendarski)
    Abstract: Over the last two decades, economic relations have been marked by fundamental changes. Globalization, the fourth technological revolution, the global economic crisis of 2008 are only part of the challenges facing each national economy.Methods have been used to illustrate the dynamics of the time series by major economic indicators through graphical and tabular visualization tools. Cross - correlation analysis using statistical software is applied to investigate the relationship and the relationship between the indicators used. The survey was conducted in the context of Bulgaria and the EU28 over a ten-year period by economic sectors and demographic groups.In certain sectors, an increase or decrease in the overall trend during the study period is observed. The nature of jobs in terms of sectoral employment is clearly changing from primary and secondary to tertiary. There is a clear significant link between investment in innovation and lifelong learning on economic growth and the dynamics of the labor market.In today's rethinking economic doctrines, the need to redefine economic policies is crucial in order to find the right path to manage the economic system through innovation, to enhance wealth through sustainable economic growth and an efficient labor market.
    Keywords: Innovation; Economic growth; Employment; Employment policies; EU; Bulgaria
    JEL: E01 E60 E24
  19. By: Konstantinos Loizos (University of Athens (GR))
    Abstract: The link between banks’ liquidity and solvency is not adequately addressed in the literature, despite the central role of the interbank market in the spread of the recent crisis. This paper proposes a possible way by which the interbank rate and the required return on equity capital are determined, and are related to each other. Thereby, a link between liquidity and insolvency risk is derived on the grounds of Keynes's concept of ‘degree of confidence’ on held expectations about economic prospects. High degree of confidence and trust prevailing in the interbank market makes risk sharing possible at prices which render bank capital regulation ineffective in the rising phase of the cycle, and overly restricted in the downswing. Basel’s III higher capital, liquidity and leverage ratios might not be enough if measures, in the sense of Minsky’s Big Government-Big Bank, targeting overconfidence in booms and redressing the lack of confidence in the downturns are not taken into account.
    Keywords: Degree of confidence, Interbank market, Liquidity preference, Insolvency risk, Financial cycles
    JEL: E12 E32 G21
    Date: 2020–08
  20. By: International Monetary Fund
    Abstract: This paper discusses Ghana’s Seventh and Eighth Reviews Under the Extended Credit Facility Arrangement and Request for a Waiver of Nonobservance of Performance Criterion (PC). Ghana’s macroeconomic performance has significantly improved in the last two years under the ECF-supported program. The elevated debt burden and fiscal risks from the financial and energy sectors limit policy space. The large loss of foreign exchange reserves in 2018 is a pointed reminder of Ghana’s exposure to shifting investors’ sentiment and external shocks, amplified by the government’s still elevated financing needs. Ghana’s legacy of political budget cycles will test the authorities’ commitment to macroeconomic discipline and reform in 2020—a challenge that the authorities intend to face head on. Corrective measures have been put in place to address the PCs missed at end-June (three) and end-December (two) and the continuous PC on credit to the government by the Bank of Ghana.
    Keywords: Credit;Revenue mobilization;Fiscal risk;Debt sustainability;Monetary policy;primary balance,SOEs,Proj,percent of GDP,excl
    Date: 2019–04–05
  21. By: Corbo, Vesna (Monetary Policy Department, Central Bank of Sweden); Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden)
    Abstract: We study the fluctuations of exchange rates and consumer prices in two small open economies, Sweden and Canada, using a structural Bayesian VAR. Four domestic and two global shocks are identified through zero and sign restrictions. For both economies, we find that the main driver of consumer price inflation is the global demand shock. A negative global demand shock is not only deflationary for the small open economy, but also depreciates its currency. Hence, the observed exchange rate pass-through following this shock is of opposite sign to what is usually expected. Finally, exogenous shocks to the Exchange rate are less important drivers of exchange rate movements than in many other structural models.
    Keywords: Exchange rate pass-through; consumer prices; import prices; monetary policy; global shocks; SVAR
    JEL: E31 E52 F31 F41
    Date: 2020–03–01
  22. By: Emter, Lorenz (Central Bank of Ireland and Trinity College Dublin)
    Abstract: Using a quarterly panel of 98 advanced as well as emerging and developing countries from 1990 to 2017, this paper shows that domestic variables are significantly related to the probability of incurring sharp reversals in capital inflows controlling for global push factors. In particular, negative growth shocks combined with high levels of leverage in the domestic private sector are a significant determinant of sudden stops. This is in line with real business cycle models including an occasionally binding credit constraint and income trend shocks.
    Keywords: international capital flows, sudden stops, financial stability.
    JEL: E32 F30 F32 F34 G15
    Date: 2020–07
  23. By: Polbin, Andrey; Shumilov, Andrei
    Abstract: This paper examines the relationship between the Russian ruble/US dollar exchange rate and global oil prices using autoregressive model with Markovian regime shifts. Empirical analysis on daily data for 2009–2019 shows that exchange rate dynamics is best described by three regimes, characterized as follows: 1) weak exchange rate reaction to oil price shocks – low conditional volatility of exchange rate changes; 2) strong reaction – moderate volatility; 3) strong reaction – high volatility. Regime 3 covers crisis periods, when ruble depreciated substantially. Regime 1 prevailed during the period of managed exchange rate arrangement lasted until November 2014. After adoption of a floating exchange rate and inflation targeting policy, regime 1 became regularly identified since mid-2017. This result can be attributed to the introduction in 2017 of a new budget rule, aimed to reduce dependence of exchange rate on oil price fluctuations. Switches between regimes could also be due to fluctuations in the uncertainty measured by the indices of geopolitical risk and economic policy uncertainty for Russia. It is also shown that the model with three regimes outperforms the random walk and linear models of the ruble exchange rate in an out-of-sample fit exercise. The proposed model can be used for identifying the current exchange rate regime in real time, scenario analysis of the consequences for the ruble exchange rate under alternative oil price trajectories, as well as in developing strategies for hedging currency risks by the private sector.
    Keywords: exchange rate; Russian ruble; oil prices; autoregressive Markov regime switching model; out-of-sample fit
    JEL: C22 C51 E58 F31 Q43
    Date: 2020
  24. By: Suzuki, Keishun
    Abstract: Although Schumpeterian growth models typically predict that stronger patent protection enhances innovation-driven economic growth, the empirical evidence does not support this idea. We explore the unclear relationship at work by shedding light on the financing of R&D investment. Empirically, R&D-intensive firms preferentially rely on their internal cash flows rather than external funds. We develop a simple monetary Schumpeterian growth model in which R&D firms face an endogenous financing choice that is consistent with this evidence. In our model, the scale of R&D investment may be financially constrained by internal cash because external financing is costly. Our model shows that the relationship between patent protection and growth can be either N-shaped, inverted-U shaped, or positive depending on the inflation rate. Specifically, we find that the growth effect of the pro-patent policy is likely to be negative under a high inflation rate, while the growth effect is always positive under the Friedman rule.
    Keywords: Innovation, Patent Protection, Inflation, Financing of R&D
    JEL: E44 O31 O34
    Date: 2020–07
  25. By: Klaus Abberger (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Graff (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Oliver Müller (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Aloisio Campelo Jr; Anna Carolina Lemos Gouveia
    Abstract: This paper presents a coincident and a leading composite monthly indicator for the world business cycle − the Global Economic Barometers. Both target the world’s output growth rate cycle. The calculation of these indicators comprises two main stages. The first consists of a variable selection procedure, in which a pre-set correlation threshold and the targeted leads to a reference series are used as selection criteria. In the second stage, the selected variables are combined and transformed into the respective composite indicators, computed as the first partial least squares factor with the reference series as response variable. In the last vintage referred to in this paper (December 2018), out of 6605 transformations from 1681 variables tested in the first stage, 1275 are selected to enter into the coincident and 1228 into the leading composite indicator. We analyse the characteristics of the two new indicators in a pseudo real-time setting and demonstrate that both are useful additions to the small number of indicators for the global business cycle published so far.
    Keywords: Business cycles, growth rate cycles, composite indicators, leading indicators, coincident indicators; partial least squares; real-time simulations
    JEL: E32 E37
    Date: 2020–02
  26. By: Chao Ying
    Abstract: This paper proposes and tests the private information explanation for the time series of pre-FOMC announcement drift. I document the informed trading is in the same direction of the realized returns in the 24-hour window before FOMC announcements, coinciding with the pre-FOMC uncertainty reduction. I integrate Kyle's (1985) model into a standard consumption-based asset pricing framework where the market makers are compensated for the risk of assets' fundamentals. Observing aggregate order flow, they update the belief about the marginal utility-weighted asset value, which resolves uncertainty gradually and results in an upward drift in market prices before announcements. I demonstrate that there is a strictly positive pre-FOMC drift if and only if the market makers require risk compensation.
    JEL: G14 E44 G12
    Date: 2020–08–22
  27. By: Supriya Kapoor; Oana Peia
    Abstract: We study the effects of the US Federal Reserve's large-scale asset purchase programs during 2008-2014 on bank liquidity creation. Banks create liquidity when they transform the liquid reserves resulted from quantitative easing into illiquid assets. As the composition of banks' loan portfolio affects the amount of liquidity it creates, the impact of quantitative easing on liquidity creation is not a priori clear. Using a difference-in-difference identification strategy, we find that banks that were more exposed to the policy increased lending relative to a control group. However, while the increase in lending was present across all three rounds of quantitative easing, we only find a strong effect on liquidity creation during the last round. This points to a weaker impact of quantitative easing on the real economy during the first two rounds, when affected banks transformed the reserves created through the asset purchase program into less illiquid assets, such as real estate mortgages.
    Keywords: Large-scale asset purchases; Quantitative easing; Liquidity creation; Bank lending
    JEL: E52 E58 G21
    Date: 2020–04
  28. By: Parui, Pintu
    Abstract: In a stock-flow consistent neo-Kaleckian macro-model, along with worker households' debt dynamics, in the long-run, we incorporate distributional dynamics and demonstrate the possibility of multiple equilibria. Dynamic stability of the economy is also examined. Both debt-led and debt-burdened demand and growth regimes are possible in short-run as well as in the long-run. We find that mergers, acquisitions and hostile takeovers play a crucial role for (de)stabilizing the economy. In some instances, the speed of the adjustment parameter of the distributional dynamics becomes crucial for stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles.
    Keywords: Capital Accumulation, Income Distribution, Worker Household Debt, Kaleckian Model, Limit Cycle, Stock-flow Consistency
    JEL: C62 E12 E25 G34 O41
    Date: 2020–08–12
  29. By: International Monetary Fund
    Abstract: This paper discusses Central African Republic’s (CAR) Request for a Three-Year Arrangement Under the Extended Credit Facility. Consistent with the IMF’s Country Engagement Strategy, the IMF-supported program is expected to support the implementation of the peace agreement and of CAR’s medium-term development strategy. Its main objectives are to maintain macroeconomic stability, strengthen administrative capacity, governance, and the business climate, and address CAR’s protracted balance of payments needs. Fiscal policy will focus on revenue mobilization, spending prioritization, and strengthening public financial management, with a view to allow, over the medium term, the durable financing of CAR’s considerable security, social, and infrastructure spending needs. Structural reforms will aim at improving the government’s capacity to design and implementing policies and reforms, at enhancing governance, including through strengthening anticorruption institutions, and at removing bottlenecks and regulatory impediments to private investment. The new arrangement will also help catalysing external concessional financing from other development partners, which is critical to support CAR’s path out of fragility. The IMF will also continue its extensive capacity development on priorities that are aligned with the program objectives.
    Keywords: Fiscal policy;Public financial management;Development;Financial and Monetary Sector;Revenue mobilization;ISCR,CR,C.A.R.,percent of GDP,arrears,parafiscal,Proj
    Date: 2020–01–13
  30. By: Bobasu, Alina; Venditti, Fabrizio; Arrigoni, Simone
    Abstract: In this paper we assess the merits of financial condition indices constructed using simple averages versus a more sophisticated alternative that uses factor models with time varying parameters. Our analysis is based on data for 18 advanced and emerging economies at a monthly frequency covering about 70% of the world’s GDP. We use four criteria to assess the performance of these indicators, namely quantile regressions, Structural Vector Autoregressions, the ability of the indices to predict banking crises and their response to US monetary policy shocks. We find that averaging across the indicators of interest, using judgemental but intuitive weights, produces financial condition indices that are not inferior to, and actually perform better than, those constructed with more sophisticated statistical methods. JEL Classification: E32, E44, C11, C55
    Keywords: banking crises, financial conditions, quantile regressions, spillovers, SVARs
    Date: 2020–08
  31. By: Houben, Aerdt; Kakes, Jan; Petersen, Annelie
    Abstract: This article describes how the institutional set-up of central bank tasls policies differs across Europe and discusses central bank involvement. In some jurisdictions (like Austria) the central bank continues to focus on its core monetary tasks, whereas in other jurisdictions (like the Netherlands) the central bank also plays a prominent role in non-monetary financial policy fields. The purpose of this article is to i) map out how traditional and new policy tools are organized across Europe, ii) discuss how these policy instruments interact, iii) review the pros and cons of central bank involvement, and iv) discuss how the organization of policies – particularly the role of the central bank – may be related to country-specific features (like the importance of large, systemic banks).
    Keywords: Central banks, monetary policy, lender of last resort, macroprudential policy, supervision, resolution
    JEL: E52 E58 G28 G38
    Date: 2020–08
  32. By: International Monetary Fund
    Abstract: This first review under the Staff-Monitored Program (SMP) of Somalia highlights that supported by a favorable rainy season, economic growth is recovering and inflation easing. However, unemployment is very high, and development and social needs are very large. Policy discussions centered on the 2018 supplementary budget, the 2019 budget, as well as the macroeconomic framework. Discussions also laid the groundwork for the second and final review under SMP III and on near-term policy priorities. All end-June and end-September 2018 indicative targets and all structural benchmarks (SBs) have been met. Of the 10 remaining SBs, due end-December 2018 and end-March 2019, preliminary information suggests that two have already been met, progress has been made towards achieving seven others, but completion of one SB is likely to be delayed. Considering satisfactory performance under the SMP and the authorities’ continued strong commitment to reform implementation, the IMF staff supports the completion of the first review under SMP III. Risks to the program and the outlook remain elevated; however, a continued commitment to reform and donors’ sustained support will help mitigate the risks.
    Keywords: National income;Heavily indebted poor countries;External sector;Financial indicators;Economic conditions;arrears,percent of GDP,Proj,FGS,MTBs
    Date: 2019–02–26
  33. 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 J22
    Date: 2020
  34. By: Havvanur Feyza Erdem (Department of Econometrics, Karadeniz Technical University); George Tawadros (Department of Economics and Management, DePauw University)
    Abstract: In this article, an optimal macroeconomic uncertainty index is constructed for the Australian economy. This index is derived from a small structural macroeconomic model. The structural model is first estimated using GMM to extract the parameter estimates, which are then used to initialise maximum likelihood techniques in order to obtain the optimal coefficient values for the relevant variables. The relevant variables are then weighted by the obtained optimal coefficients and, finally, are aggregated to produce the optimal macroeconomic uncertainty index for Australian economy. The empirical results show that the uncertainty index constructed is a good indicator of the optimal economic conditions in Australia, providing a useful tool to assist the Reserve Bank of Australia in its decision-making process.
    Keywords: Optimal Uncertainty Index; Central Bank; GMM; Optimization Algorithm
    JEL: C36 C61 E58
    Date: 2020–08
  35. By: International Monetary Fund
    Abstract: This paper discusses Greece’s First Post-Program Monitoring discussions. The economic recovery in Greece is accelerating and broadening. Growth and job creation in Greece are expected to accelerate further in 2019. However, vulnerabilities remain significant and downside risks are rising. Policies to promote stronger growth and strengthen the economy’s resilience were the focus of the discussions. The discussion report emphasises on the importance of enhancing labor market flexibility and boosting productivity and competitiveness. Greece should reconsider recent changes in collective bargaining policies and press ahead with its unfinished reform agenda. This would also help mitigate any negative effects on competitiveness and employment from rising wage pressures. Speeding up efforts to clean up bank balance sheets, restore lending, and improve Greece’s weak payment culture is also of prime importance. Medium-term public debt repayment capacity remains robust, but subject to rising risks amid still significant vulnerabilities.
    Keywords: Economic recovery;Fiscal policy;Credit;Unemployment;Labor market flexibility;NPE,European partner,percent of GDP,IMF,ANFA
    Date: 2019–03–12
  36. By: Boukraine, Wissem
    Abstract: The depreciation of the national currency, the higher wage costs passed on to prices and the growing external debt, has characterized the Tunisian economy for almost a decade. In this context we investigate its inflation dynamics to understand which variables affects it in the short and the long run. We apply the Autoregressive Distributed-lagged model over quarterly data from 2010 to 2019 alongside the bound testing approach. Our results suggest a significant impact of external debt and loans on inflation in the short and long run, while GDP growth affects inflation only in the long run.
    Keywords: Inflation, ARDL, Tunisia
    JEL: C01 E31
    Date: 2020
  37. By: International Monetary Fund
    Abstract: This paper discusses Madagascar’s Fourth Review under the Extended Credit Facility (ECF) and Request for Modification of Performance Criteria. Madagascar’s economic recovery continued in 2018, notwithstanding challenges related to the presidential election in November/December 2018. While some economic pressures developed in the second half of 2018, economic conditions remained generally positive. The discussions focused on maintaining progress on the key objectives of the program, especially boosting fiscal space for priority investment and social spending by containing lower priority spending. The main challenges involved fuel pricing and transfers to the public utility, JIRAMA. Other issues included structural reforms to promote inclusive growth, most notably in investment capacity, the financial sector, and governance. The outlook continues to be generally positive. Pursuit of economic reforms should yield results, while the pressures in 2018 from higher oil prices and pre-electoral weakness in confidence abate under the baseline. As a low-income country with an open economy, Madagascar remains vulnerable to exogenous shocks.
    Keywords: Credit;Fiscal policy;Development;Economic growth;Revenue mobilization;performance criterion,Proj,prior action,ECF,SDRs
    Date: 2019–03–29
  38. By: Miroslav Sevcik (Faculty of Economics, University of Economics, Prague); Adela Zubikova (Faculty of Economics, University of Economics, Prague); Pavel Smolak (Faculty of Economics, University of Economics, Prague)
    Abstract: The content of the paper defines and characterizes five key arguments for why, given the absence of an optimal monetary area, it is advantageous for an economy to be able to dispose of its own currency during periods of crisis, such as the current coronavirus pandemic. The article bases its arguments on the optimal currency area theory and the Mundell-Fleming model. The analytical part of the article approaches the example of the Czech Republic and the Slovak Republic, a well-matched comparison given that they are both small open economies with a common history but also because they faced the coronavirus pandemic at the same time and were affected to a similar extent. Unlike its Czech neighbour, the Slovak Republic adopted a single currency, the Euro, in 2009 and therefore became a member of the eurozone. Therefore, the use of its own currency to mitigate the coronavirus pandemic effects can be approximated by comparing the two countries. The analysis in this article results in the identification of the following five arguments for the advantage of having an independent currency: 1) absence of an optimal monetary area in the eurozone, 2) an independent monetary policy, 3) foreign trade support, 4) mitigating the effects of the coronavirus pandemic on price level changes, 5) supporting domestic production and services. The coronavirus pandemic has deepened the already existing problems of the eurozone and has clearly demonstrated the benefits of maintaining an independent currency in the case of the Czech Republic.
    Keywords: Monetary union, Czech crown, Euro area, International trade, Czech Republic, Slovakia, COVID-19, pandemic crisis
    JEL: E42 E58 F40
  39. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that Sweden’s growth is expected to slow in 2019, with material downside risks from the global economy and domestic demand. A data-dependent approach to monetary policy is appropriate. Although underlying inflation is expected to rise gradually, uncertainties around this outlook have widened. Automatic fiscal stabilizers should operate fully, and the surplus should decline to the new medium-term target by 2020. The fiscal surplus is estimated to have declined to just under 1 percent of GDP in 2018. The report also discussed that labor market reforms should enhance employment of migrants and the low skilled. The social partners should update wage formation to reflect structural changes in the Swedish economy. Reforms to improve housing affordability are needed even as macroprudential measures help contain household debt vulnerabilities. The tightening of amortization requirements is well-targeted, and its effectiveness should be monitored. Plans to eliminate rent controls on new construction should be complemented by phasing out controls on existing apartments.
    Keywords: Financial soundness indicators;Financial statistics;Price indexes;Monetary statistics;Economic growth;Riksbank,percent of GDP,HICP,percent change,Haver
    Date: 2019–03–26
  40. By: Lukas Altermatt; Christian Wipf
    Abstract: We investigate how the Mundell-Tobin effect, i.e., a positive relation between in flation and capital investment, changes the optimal monetary policy prescription in a framework that combines overlapping generations and new monetarist models. We find that the Friedman rule is optimal if and only if there is no Mundell-Tobin effect. A Mundell-Tobin effect is more likely to occur at the Friedman rule if capital is relatively liquid, and if the agents' risk aversion is relatively low. If the Friedman rule is not optimal, the optimal money growth rate lies between the Friedman rule and a constant money stock. We also show that it is more efficient to implement de flationary monetary policies by raising lump-sum taxes on old agents only.
    Keywords: New monetarism, overlapping generations, optimal monetary policy
    JEL: E4 E5
    Date: 2020–08
  41. By: Almuth Scholl (Department of Economics, University of Konstanz); Liang Tong (Department of Economics, University of Konstanz)
    Abstract: This paper studies the dynamic interaction between sovereign default risk, taxation, and the un-derground economy. For a large sample of countries, we find that the size of the underground economy is positively correlated with sovereign debt and interest spreads. We rationalize these empirical regularities within a quantitative model of sovereign default that explicitly accounts for underground activities. We highlight a vicious circle: Higher sovereign risk premia tighten the endogenous borrowing constraint and force the government to raise taxes. Tax hikes, however, induce the private sector to invest less and to evade taxes by producing in the underground sector. Eventually, falling tax revenues force the government to either implement further tax hikes or to default. Our quantitative findings suggest that the underground economy fosters sovereign default risk and deepens debt crises.
    Keywords: sovereign debt, default, fiscal policy, underground economy, tax evasion
    JEL: E62 F34 H26
  42. By: Marco Cipriani; Andrew F. Haughwout; Benjamin Hyman; Anna Kovner; Gabriele La Spada; Matthew Lieber; Shawn Nee
    Abstract: In March, with the outbreak of the COVID-19 pandemic in the United States, the market for municipal securities was severely stressed: mutual fund redemptions sparked unprecedented selling of municipal securities, yields increased sharply, and issuance dried up. In this post, we describe the evolution of municipal bond market conditions since the onset of the COVID-19 crisis. We show that conditions in municipal markets have improved significantly, in part a result of the announcement and implementation of several Federal Reserve facilities. Yields have decreased substantially, mutual funds have received significant inflows, and issuance has rebounded. These improvements in municipal market conditions help ensure that state and local governments have better access to funding for critical capital investments.
    Keywords: state and local governments; municipal debt; MLF; municipal debt markets; COVID-19
    JEL: E58 E62 H0
    Date: 2020–06–29
  43. By: International Monetary Fund
    Abstract: This regional consultation IMF staff report for West African Economic and Monetary Union (WAEMU) highlights that growth remained strong in 2018, the fiscal deficit narrowed by 1/2 percentage point of GDP, external reserves increased, and important banking reforms were put in place, including the introduction of Basel II/III standards. The medium-term outlook remains positive despite somewhat less favorable global conditions, but critically hinges on planned fiscal consolidation and structural reforms to improve competitiveness and allow the private sector to become the main engine of growth. Other risks relate to terms-of-trade and weather shocks, and a difficult security situation in some countries. The report also discusses that collectively adhering to fiscal consolidation commitments, with a greater focus on domestic revenue mobilization and more effective control of below-the-line operations, is essential to lower risks of public debt distress, support international reserves, and preserve external viability. Structural policies aimed at improving competitiveness and growth inclusiveness are critical to reducing vulnerabilities to external shocks, building external buffers, stimulating private-sector-led growth, and making the growth momentum sustainable.
    Keywords: Central banks;Bank accounting;Monetary policy;External sector;Credit;WAEMU,BCEAO,Basel II,Eurobond,member-countries
    Date: 2019–03–29
  44. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that Australia experienced only a minor downturn after the end of the mining investment and commodity price boom but, as elsewhere, the adjustment and rebalancing has been slow, with below-target inflation and low wage growth amid economic slack. Macro-financial vulnerabilities relating to high household debt and low housing affordability have become major concerns after a recent housing boom. The baseline forecasts entail a soft landing in the housing market, but a stronger market correction remains a risk. Overall, near-term risks to growth are to the downside, mirroring the global risk picture, with the impact of shocks potentially being amplified by high household debt. The IMF staff welcomes the authorities’ continued commitment to working actively with international partners to promote the global multilateral trading system. Macroeconomic policy support should remain in place until full employment and inflation in the target range are firmly within reach. The structural policy agenda appropriately targets innovation, infrastructure gaps, tax reform, and energy policy, although progress has been limited in some areas.
    Keywords: Economic growth;Credit;Unemployment;Fiscal policy;Employment;household debt,RBA,wage growth,interest-only,Haver
    Date: 2019–02–21
  45. By: Morris, Richard; Reiss, Lukas
    Abstract: This paper presents a framework for analysing the evolution of the structural government deficit estimated using the official EU methodology relevant for the Stability and Growth Pact. The focus of our framework lies in the analysis of the main driving forces of changes in estimated structural government revenue, including the impact of changes to tax legislation, fiscal drag (caused e.g. by the non-indexation of income tax brackets), the composition of economic growth, and a residual. This approach allows us to scrutinise estimates of discretionary revenue measures and fiscal elasticities, both of which play a crucial role in the current EU fiscal governance framework. Between 2010 and 2018, Germany's structural revenue ratio increased substantially even though the estimated impact of changes to tax legislation was close to zero. In most other larger euro area countries, by contrast, structural revenue performed worse than could have been expected based on the estimated impact of discretionary revenue measures. Our approach shows that the composition of economic growth was unfavorable for generating revenue in all analysed countries over this time span. Moreover, in most countries actual revenue grew by less than what could have been expected in view of the discretionary measures taken and developments in the macroeconomic aggregates used to approximate tax bases. JEL Classification: H3, H6, E32, E62
    Keywords: cyclical adjustment, fiscal policy, revenue windfalls
    Date: 2020–08
  46. By: Federico Huneeus (Central Bank of Chile; Princeton University)
    Abstract: Industrialization experiences differ significantly across countries. We use a benchmark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the manufacturing sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for a large share of the variation in peak manufacturing employment shares.
    Keywords: Structural transformation, Productivity growth, Industrialization
    JEL: E24 O11 O13 O14 O33 O41
    Date: 2020–08
  47. By: Charles Yuji HORIOKA (Research Institute for Economics and Business Administration, Kobe University, Institute of Social and Economic Research, Osaka University, Asian Growth Research Institute); Yoko NIIMI (Doshisha University and Asian Growth Research Institute)
    Abstract: In this paper, we show that there was a rapid expansion of housing credit in Japan after 1970 and then consider what benefits and costs the rapid expansion of housing credit conferred on Japanese households and whether it was, on balance, a good thing or a bad thing for them. On the one hand, the rapid expansion of housing credit made it easier for households to purchase housing, which in turn enabled them to purchase housing at a younger age and enabled them to avoid the need to pay rent. On the other hand, the rapid expansion of housing credit increased the housing loan repayment burden of households, which in turn forced them to cut back on non-housing consumption and weakened their ability to accumulate financial assets in preparation for retirement. We conclude that, until now, the benefits of the expansion of housing credit seems to have outweighed the costs thereof, as a result of which it has increased the welfare of households but that there are some areas of concern and that the government should take the necessary steps to alleviate these concerns.
    Keywords: Homeownership rate; Housing finance; Housing loans; Housing purchase; Mortgages; Rent
    JEL: D14 E21 R21
    Date: 2020–08
  48. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that the Malaysian economy has shown resilience and continues to perform well. Policy priorities are governance reforms and fiscal consolidation while safeguarding growth and financial stability. Structural reforms are needed to boost productivity and help further rebalancing growth towards domestic demand. Domestic demand is expected to remain the main driver of growth over the medium term. Risks to the outlook are to the downside and stem mainly from external sources. The paper also discusses that with growth returning to sustainable levels and no underlying inflation pressures, maintaining the current broadly neutral monetary policy stance is appropriate. Exchange rate flexibility should remain the first line of defence against external shocks. Also, governance reforms should be anchored in legislation to ensure the independence of anti-corruption institutions and appropriate separation of powers. Focus should be on improving the transparency and efficiency of public services.
    Keywords: Economic growth;Real sector;Expenditures;Financial soundness indicators;Financial statistics;percent of GDP,tax refund,percent,medium term,household debt
    Date: 2019–03–08
  49. By: International Monetary Fund
    Abstract: This paper discusses Argentina’s Third Review under the Stand-By Arrangement, Request for Waivers of Applicability of Performance Criteria, Financing Assurances Review, and Request for Modification of Performance Criteria. Discussions centered on the risks to the fiscal position, how best to counter the rise in inflation and inflation expectations, how best to mitigate debt rollover risks, and what more can be done to mitigate the impact of the economic downturn on the most vulnerable. The paper highlights that the Argentina economy continues to contract, albeit at a modestly slower pace than had been expected under the program. After a brief period of falling monthly inflation, price pressures and inflation expectations are again rising. Financial conditions improved in January, with declining sovereign spreads and a rally in the local equity market, but have since then erased much of those gains, with rising volatility in both currency and interest rates in March. All end-March performance criteria and fiscal targets are expected to be met.
    Keywords: Central banks;Monetary policy;Poverty;Tax revenue;Monetary base;performance criterion,BCRA,percent change,percent of GDP,capital spend
    Date: 2019–04–05
  50. By: Daniel Wochner (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Machine Learning models are often considered to be “black boxes†that provide only little room for the incorporation of theory (cf. e.g. Mukherjee, 2017; Veltri, 2017). This article proposes so-called Dynamic Factor Trees (DFT) and Dynamic Factor Forests (DFF) for macroeconomic forecasting, which synthesize the recent machine learning, dynamic factor model and business cycle literature within a unified statistical machine learning framework for model-based recursive partitioning proposed in Zeileis, Hothorn and Hornik (2008). DFTs and DFFs are non-linear and state-dependent forecasting models, which reduce to the standard Dynamic Factor Model (DFM) as a special case and allow us to embed theory-led factor models in powerful tree-based machine learning ensembles conditional on the state of the business cycle. The out-of-sample forecasting experiment for short-term U.S. GDP growth predictions combines three distinct FRED-datasets, yielding a balanced panel with over 375 indicators from 1967 to 2018 (FRED, 2019; McCracken & Ng, 2016, 2019a, 2019b). Our results provide strong empirical evidence in favor of the proposed DFTs and DFFs and show that they significantly improve the predictive performance of DFMs by almost 20% in terms of MSFE. Interestingly, the improvements materialize in both expansionary and recessionary periods, suggesting that DFTs and DFFs tend to perform not only sporadically but systematically better than DFMs. Our findings are fairly robust to a number of sensitivity tests and hold exciting avenues for future research.
    Keywords: Forecasting, Machine Learning, Regression Trees and Forests, Dynamic Factor Model, Business Cycles, GDP Growth, United States
    JEL: C45 C51 C53 E32 O47
    Date: 2020–05
  51. By: Cordero, Alvaro; Villena, Mauricio
    Abstract: The fiscal stimulus initially proposed by the Chilean government to support COVID-19 measures contemplates US$ 17.105 billion and corresponds to 6.9% of GDP. This paper seeks to contribute to the discussion on fiscal policy in times of pandemic by analyzing the country's fiscal measures to address COVID-19 and comparing them with those applied by other countries, and with those used to address the 2009 subprime financial crisis. It also discusses what measures could complement the government's Emergency Plan. The second part of the paper presents a discussion of the evolution of the central government's finances (as a percentage of GDP) from 1990 to 2019. Together with this, the ex post calculation of vulnerability and fiscal sustainability indicators adapted to the Chilean fiscal reality is discussed. In particular, we estimate the following Sustainability indicators: (I) Gross Debt / GDP (Chilean experience and a comparative analysis with countries with a GDP per capita similar to the national one, and emerging countries with a reputation of solid fiscal positions); (II) Net Debt / GDP; (III) Debt Service; (IV) Acid Test for Debt Service; (V) Primary Balance (IMF methodology); (VI) Adapted Sustainable Primary Balance and (VII) Macro-Adjusted Primary Balance.
    Keywords: Public Finances, Macroeconomics, Public Debt, Fiscal Sustainability, COVID-19, Chile.
    JEL: E62 H60 O1 O11 O23
    Date: 2020–05–20
  52. By: Verme, Paolo; Schuettler, Kirsten
    Abstract: The paper reviews the literature that estimated the impact of forced displacement on host communities. A comparative analysis of the empirical models used in 59 studies and a meta-analysis of 972 results collected from these studies are the main contributions of the paper. Coverage extends to 19 major forced displacement crises that occurred between 1922 and 2018, high, medium and low-income host countries and different types of forced migrants. Results refer to outcomes related to employment, wages, prices and household well-being. The meta-analysis finds that most results on employment and wages are non-significant. When significant, decreases in employment and wages are more likely to occur than increases with decreases strongly associated with the short-term, middle-income countries, females, young and informal workers. Food and rent prices tend to increase in the short-term. The probability of observing a decrease in household well-being among hosts is lower than 1 in 5.
    Keywords: Refugees,Returnees,Expellees,Escapees,Internally Displaced Persons (IDPs),Forced Migration,Forced Displacement,Host Communities,Labor Markets,Wages,Prices,Employment,Unemployment,Well-being
    JEL: D12 E24 F22 F66 J08 J1 J2 J3 J4 J7 J8 N3 O15 P46 R2
    Date: 2020
  53. By: Paul, Saumik (Newcastle University); Thomas, Liam (University of Tokyo)
    Abstract: We propose a theory-based adjustment to the labor income share to correct for the self-employment bias. Through a two-sector neoclassical framework with agriculture and non-agriculture, we derive the productivity-adjusted aggregate labor income share in terms of the agricultural productivity gap, and the labor income share in non-agriculture and value-added factor shares. We then construct a novel dataset on the labor income share at a sector level comprising of 53 countries. By applying the theory-based adjustment to our data, the average values for the aggregate and agricultural productivity-adjusted labor income share are 0.42 and 0.51, respectively. The gap between the productivity-adjusted and unadjusted figures are statistically significant only in agriculture, which can be attributed to the heavily underreported income from self-employed workers in agriculture. These findings appear robust at a more disaggregated level of non-agricultural sectors, as self-employment explains almost 98% of the variation in this gap.
    Keywords: labor income share, cross-country data, income distribution, self-employment
    JEL: E24 E25 J30
    Date: 2020–06
  54. By: Sumit Agarwal; Ricardo Correa; Bernardo Morais; Jessica Roldán; Claudia Ruiz
    Abstract: How does a bank react when a substantial share of its borrowers suffer a large negative shock? To answer this question we exploit the 2014 collapse of energy prices using the universe of Mexican commercial bank loans. We show that, after the drop in energy prices, banks exposed to the energy sector increased their exposure to these borrowers even more, relaxing credit margins to their larger debtors in the sector. An increase of one standard deviation in a bank's ex-ante exposure to the energy sector increased the loan volume to borrowers in the sector by 18 percent and reduced interest rates by 6 percent, even though borrower's credit default swap spreads were widening. Highly exposed banks amplified this sector-specific shock to the rest of the economy by contracting lending to other sectors, with important real effects, as the borrowers could not switch credit suppliers. Finally, the energy price shock had a large negative impact on macro outcomes, especially in the capital-intensive secondary sector. Quantitatively, a one standard deviation increase in the exposure of a state's banks to the energy sector reduced its GDP by 1.8 percent.
    Keywords: Credit exposure; Bank lending; Financial stability; Commodity prices; Emerging markets
    JEL: E52 E58 G01 G21 G28
    Date: 2020–07–07
  55. By: Muñoz, Manuel A.
    Abstract: Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment firms leverage large-scale buy-to-rent investments in real estate assets that enable them to set prices in rental housing markets. A significant fraction of this funding is being provided in the form of non-bank lending (i.e., lending that is not subject to regulatory LTV limits). I develop a quantitative two-sector DSGE model that incorporates the main features of the real estate fund industry in the current context to study the effectiveness of dynamic LTV ratios as a macroprudential tool. Despite the comparatively low fraction of total property and debt held by REIFs, optimized LTV rules limiting the borrowing capacity of such funds are more effective in smoothing property prices, credit and business cycles than those affecting (indebted) households – borrowing limit. This finding is remarkably robust across alternative calibrations (of key parameters) and specifications of the model. The underlying reason behind such an important and unexpectedly robust finding relates to the strong interconnectedness of REIFs with various sectors of the economy. JEL Classification: E44, G23, G28
    Keywords: leverage, loan-to-value ratios, real estate funds, rental housing
    Date: 2020–08
  56. By: Huixin Bi; Sarah Zubairy
    Abstract: We explore the evolution of pension policy across countries and investigate the macroeconomic effects of pension structural reforms in recent decades, in particular those with implementation delays. We first document chronological changes in pension policy for 10 OECD countries between 1962 and 2017. The new data set shows that pension systems rapidly expanded between the 1960s and 1980s, followed by a wave of retrenchments since the 1990s. Structural pension reforms, which are motivated by long-run fiscal sustainability concerns, often come with significant implementation delays. We find that when structural pension retrenchments are implemented without delays, people close to retirement stay in the workforce longer to compensate for the decline in their pensions, leading to a decline in old-age pension spending. News about structural pension retrenchments in the future, however, leads people close to retirement to exit the labor market prior to the reform being implemented. As a result, government spending on old-age pensions tends to increase, rather than decrease, over the medium term. This effect is particularly prevalent for pension reforms that change retirement age and contribution years and that come with longer implementation delays.
    Keywords: Fiscal foresight; Pension reform; Narrative approach
    JEL: E62 H3 H55
    Date: 2020–07–31
  57. By: Christian Grisse
    Abstract: Nominal interest rates are constrained by an effective lower bound, but the level of the lower bound is uncertain. This paper uses a simple shadow rate term structure model to study how lower bound uncertainty affects long-term interest rates. The main result is that a decline in lower bound uncertainty, in the sense of a mean-preserving contraction of the lower bound distribution, is associated with a drop in expected future short rates. The effect on the variance of future short rates, and hence the term premium, is ambiguous. A calibration to Canadian data suggests that a decline in lower bound uncertainty is associated with a modest drop in long-term interest rates.
    Keywords: Monetary policy, negative interest rates, lower bound, uncertainty, term structure
    JEL: E43 E52
    Date: 2020
  58. By: Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
    Abstract: This paper takes a new approach to assess the costs and benefits of using different policy tools—macroprudential, monetary, foreign exchange interventions, and capital flow management—in response to changes in financial conditions. The approach evaluates net benefits of policies using quadratic loss functions, estimating policy effects on the full distribution of future output growth and inflation with quantile regressions. Tightening macroprudential policy dampens downside risks to growth stemming from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses, calling for caution in the use of monetary policy to “lean against the wind.” These findings hold when policies are used in response to easing global financial conditions. Buying foreign-exchange or tightening capital controls has small net benefits.
    Date: 2020–07–07
  59. By: Titan Alon (University of California San Diego); Matthias Doepke (Northwestern University); Jane Olmstead-Rumsey (Northwestern University)
    Abstract: In recent US recessions, employment losses have been much larger for men than for women. Yet, in the current recession caused by the Covid-19 pandemic, the opposite is true: unemployment is higher among women. In this paper, we analyze the causes and consequences of this phenomenon. We argue that women have experienced sharp employment losses both because their employment is concentrated in heavily affected sectors such as restaurants, and due to increased childcare needs caused by school and daycare closures, preventing many women from working. We analyze the repercussions of this trend using a quantitative macroeconomic model featuring heterogeneity in gender, marital status, childcare needs, and human capital. Our quantitative analysis suggests that a pandemic recession will i) feature a strong transmission from employment to aggregate demand due to diminished within-household insurance; ii) result in a widening of the gender wage gap throughout the recovery; and iii) contribute to a weakening of the gender norms that currently produce a lopsided distribution of the division of labor in home work and childcare.
    Keywords: COVID-19, gender, marital status, human capital
    JEL: I14 J16 E24
    Date: 2020–08
  60. By: María Sylvina Porras (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Ángel L. Martín-Román (Facultad de Ciencias Sociales, Jurídicas y de la Comunicación)
    Abstract: The Okun's law has been confirmed in several Latin American countries, regardless of the model used, and the estimated coefficients indicate a weaker relationship between GDP and unemployment than in developed countries. On the other hand, there is a group of countries where the coefficients are not significant, or the values are very close to zero. These countries have the highest values of the following variables that characterize their labour markets: own-account employment, unpaid family workers, informal employment and employment in the agricultural sector.
    Keywords: Okuns’s law, unemployment, GDP growth, own-account employment, unpaid family workers, informal employment, employment in the agricultural sector
    JEL: E23 E24 E26 J64
    Date: 2020–06
  61. By: Federico Huneeus; Richard Rogerson
    Abstract: Industrialization experiences differ significantly across countries. We use a bench-mark model of structural change to shed light on the sources of this heterogeneity and, in particular, the phenomenon of premature deindustrialization. Our analysis leads to three key findings. First, benchmark models of structural change robustly generate hump-shaped patterns for the evolution of the manufacturing sector. Second, heterogeneous patterns of catch-up in sectoral productivities across countries can generate variation in industrialization experiences similar to those found in the data, including premature deindustrialization. Third, differences in the rate of agricultural productivity growth across economies can account for a large share of the variation in peak manufacturing employment shares.
    JEL: E24 O11
    Date: 2020–07
  62. By: Nicolo Maffei Faccioli (Universitat Autonoma de Barcelona and Barcelona GSE); Eugenia Vella (Centre for Health Economics and Department of Economics and Related Studies, University of York, UK)
    Abstract: This paper provides new evidence on the macroeconomic effects of net migration shocks in Germany. Using monthly data from 2006 to 2019 and a variety of identification strategies in a structural vector autoregressive model, we show that migration shocks are expansionary. Net migration increases persistently industrial production, per capita net exports and tax revenue. In the labor market, migra- tion boosts persistently job openings and, after a year and a half, hourly wages in manufacturing. Total unemployment declines but the response is asymmetric be- tween natives and foreigners. Unemployment falls persistently for natives while it rises a year after the shock for foreigners as the newly settled migrants enter the labor market gradually. Using also quarterly data in a mixed-frequency SVAR, we shed light on the employment and participation responses for natives and foreign- ers. We also show that migration shocks increase per capita GDP, investment, and hourly wages of the aggregate economy. Taken together, our results highlight a job-creation effect for natives and a job-competition effect for foreigners.
    Keywords: Migration, unemployment, job creation, job competition, mixed-frequency SVAR.
    JEL: C11 C32 E32 F22 F41
    Date: 2020–08
  63. By: Gregory de Walque (Research and Economics Department - National Bank of Belgium); Thomas Lejeune (Research and Economics Department - National Bank of Belgium and and HEC-University of Liège.); Ansgar Rannenberg (Research and Economics Department - National Bank of Belgium); Raf Wouters (Research and Economics Department - National Bank of Belgium)
    Abstract: This paper jointly analyses two major challenges of the canonical NOEM model: i) combining a relatively important exchange rate pass-through at the border with low pass-through at the consumer level, and ii) generating significant endogenous international business cycle synchronization. These issues have been separately analysed in the literature, with extension of the NOEM with a distribution sector for mitigating the exchange-rate pass-through, and foreign input trade for spillovers. We show that introducing input trade for price-maker firms rehabilitate the model regarding the pass-through disconnect, which is especially helpful to model very open economies, while adding a distribution sector lacks flexibility to do so. Moreover, these two extensions of the canonical model mitigate the expenditure switching effect, with implications in terms of international synchronization.
    Keywords: Exchange rate pass-through, International trade in intermediate goods, International correlations, Small open economies.
    JEL: E31 E32 F41 F44
    Date: 2020–07
  64. By: Jun Nie; Zoe Xie
    Abstract: The CARES Act implemented in response to the COVID-19 crisis dramatically increased the generosity of unemployment insurance (UI) benefits, triggering concerns about substantial effects on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of the CARES Act UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment but also reduce infection and save lives. Economic shutdown policies further amplify these effects of UI policies. Quantitatively, the CARES UI policies raise unemployment by an average of 3.7 percentage points over April to December 2020, but also reduce cumulative death by 4.7 percent. Eligibility expansion and the extra $600 increase in benefit level account for over 90 percent of the total effects, while the 13-week benefit duration extension plays a much smaller role. Overall, UI policies improve the welfare of workers and reduce the welfare of non-workers, both young and old.
    Keywords: COVID-19; Unemployment insurance; CARES Act; Search and matching models
    JEL: E24 J64 J65
    Date: 2020–08–06
  65. By: International Monetary Fund
    Abstract: This Selected Issues paper assesses the marginal impact of promoting inclusive growth in Malta. The paper uses a multi-country simulation model, the IMF’s Flexible System of Global Models calibrated for Malta, is used to analyze the macroeconomic impacts of ongoing and potential future reforms. Three different policies are analyzed, namely: increasing childcare and after care benefits; extending working lives; and upskilling the labor force. The model shows that the reduction of absolute poverty has been accompanied by rising inequality. The simulation evaluates the macroeconomic impact of introducing free childcare, which is the actual government policy since 2015. Simulations show that policies that are primarily aimed at improving social inclusion also end up boosting potential output, thereby mitigating the fiscal cost of such policies in the long term. Recent declines in poverty rate can partly be ascribed to the cycle, however, recent structural reforms likely have had a significant impact on growth.
    Keywords: Economic growth;Labor market reforms;Social security;Poverty;Business cycles;low-skilled,percent of population,childcare,social inclusion,risk of poverty
    Date: 2019–02–27
  66. By: Lutz Kilian; Xiaoqing Zhou
    Abstract: The conventional wisdom that inflation expectations respond to the level of the price of oil (or the price of gasoline) is based on testing the null hypothesis of a zero slope coefficient in a static single-equation regression model fit to aggregate data. Given that the regressor in this model is not stationary, the null distribution of the t-test statistic is nonstandard, invalidating the use of the normal approximation. Once the critical values are adjusted, these regressions provide no support for the conventional wisdom. Using a new structural vector regression model, however, we demonstrate that gasoline price shocks may indeed drive one-year household inflation expectations. The model shows that there have been several such episodes since 1990. In particular, the rise in household inflation expectations between 2009 and 2013 is almost entirely explained by a large increase in gasoline prices. However, on average, gasoline price shocks account for only 39% of the variation in household inflation expectations since 1981.
    Keywords: household survey; Inflation; anchor; oil price; missing disinflation; gasoline price; expectations
    JEL: E31 E52 Q43
    Date: 2020–08–18
  67. By: Adam Honig (Amherst College, Amherst, MA); Zeynep Yom (School of Business, Villanova University)
    Abstract: This paper provides a first look into the joint effects of research and development (R&D) and market power on the cyclicality of employment. It presents a theoretical model with R&D and monopolistically competitive firms which shows that firms smooth their R&D activities when they face large R&D adjustment costs. This smoothing behavior comes at the expense of higher labor volatility, and it is stronger for firms with high R&D intensity and low market power. Firm-level data support these predictions. Dynamic panel estimations reveal that employment at competitive firms engaging in a high level of R&D is more procyclical.
    Keywords: R&D, employment volatility, firm-level data, COMPUSTAT
    JEL: E30 E32 O30 O33
    Date: 2020–08
  68. By: Martin Feldkircher; Florian Huber; Michael Pfarrhofer
    Abstract: The COVID-19 recession that started in March 2020 led to an unprecedented decline in economic activity across the globe. To fight this recession, policy makers in central banks engaged in expansionary monetary policy. This paper asks whether the measures adopted by the US Federal Reserve (Fed) have been effective in boosting real activity and calming financial markets. To measure these effects at high frequencies, we propose a novel mixed frequency vector autoregressive (MF-VAR) model. This model allows us to combine weekly and monthly information within an unified framework. Our model combines a set of macroeconomic aggregates such as industrial production, unemployment rates and inflation with high frequency information from financial markets such as stock prices, interest rate spreads and weekly information on the Feds balance sheet size. The latter set of high frequency time series is used to dynamically interpolate the monthly time series to obtain weekly macroeconomic measures. We use this setup to simulate counterfactuals in absence of monetary stimulus. The results show that the monetary expansion caused higher output growth and stock market returns, more favorable long-term financing conditions and a depreciation of the US dollar compared to a no-policy benchmark scenario.
    Date: 2020–07
  69. By: International Monetary Fund
    Abstract: This paper discusses Mali’s First Review Under the Extended Credit Facility Arrangement, Request for a Waiver of NonObservance of a Performance Criterion and Modification of Performance Criteria. Mali’s economic growth has remained solid and the authorities have steadfastly implemented their revenue mobilization program and structural reforms are underway. Continued commitment to sound policies and reforms will be critical to achieving the program’s objectives. Security and social conditions in Mali have steadily deteriorated in recent years, especially in the central and northern regions. Implementation of the 2015 peace agreement is challenging, rendering the return of effective state control to these regions difficult. The agreed fiscal framework reflects the impact of the difficult security situation on public finances. The overall fiscal deficit for 2020 has been increased to 3.5 percent of gross domestic product (GDP), from the previously agreed 3 percent of GDP, to prevent crowding out of social and development spending. The primary focus of the program remains on increasing revenue mobilization, strengthening cash management, improving governance, and pursuing the financial restructuring of the state electricity company. The mission paved the way for a governance assessment mission in early 2020.
    Keywords: Public financial management;Economic growth;Real sector;External sector;Balance of payments;ISCR,CR,Prog,official transfer,overall balance,net lend,Three-Year
    Date: 2020–01–16
  70. By: U. Devrim Demirel
    Abstract: This paper examines how the effects of legislated tax changes on labor market outcomes vary with the amount of slack in the economy, as measured by the rate of unemployment. I find that effects on hours worked, employment, and the unemployment rate become smaller in times of higher unemployment. I then develop a theoretical model in which changes in taxes on labor income directly affect the demand for labor by changing the costs that firms incur for employing workers. In the model, tax changes have smaller effects in times of higher unemployment because overall employee
    JEL: E20 E60 H20
    Date: 2020–08–27
  71. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that Belgium has experienced nine consecutive years of economic growth. Per capita GDP has surpassed pre-crisis levels, and unemployment is at its lowest level in four decades. The financial sector has also undergone structural changes and increased its resiliency to shocks. The authorities have implemented important reforms in recent years that have contributed to job creation, improved competitiveness, and lowered the deficit. However, the reform agenda is unfinished, and the new government should take advantage of the still favorable economic conditions to press ahead with further reforms to strengthen the resilience and growth potential of the economy. The priority should be to rebuild fiscal buffers by gradually moving toward a balanced budget in the medium term, supported by efficiency-oriented spending reforms. It is also imperative to boost productivity growth by supporting entrepreneurship, increasing investment in infrastructure, strengthening competition in services, and fostering innovation.
    Keywords: Credit;Financial crises;Central banks;Employment;Unemployment;NBB,percent of GDP,Haver,labor market reform,growth fund
    Date: 2019–03–11
  72. By: International Monetary Fund
    Abstract: This 2018 discussion on common policies of the Eastern Caribbean Currency Union (ECCU) highlights that the member countries are gradually recovering following the catastrophic impact of Hurricanes Irma and Maria in 2017. Conditions remain favorable to growth, however, risks are increasing. The fiscal balance for the region as a whole worsened in 2017, reflecting lower inflows from citizenship-by-investment programs and higher reconstruction and current spending. The IMF team made several policy recommendations including shifting focus from the current emphasis on recovery from natural disasters to building ex-ante resilience. The report also recommends intensifying decisive and timely actions to resolve weaknesses in the financial sector, including longstanding problems in the banking sector and emerging risks in the non-banking sector. The authorities expressed commitment to the acceleration of key reforms to upgrade and strengthen the financial sector regional oversight framework. In addition to fiscal consolidation, injecting new vigor into the structural policy agenda will help enhance competitiveness and make growth more inclusive.
    Keywords: External sector;Central banks;Financial soundness indicators;Financial statistics;Financial sector;ECCU,ECCB,grenadine,Kitts,percent of GDP
    Date: 2019–02–22
  73. By: Zhimin Li; Leslie Sheng Shen; Calvin Zhang
    Abstract: We study the effects of foreign real estate capital flows on local asset prices and employment using detailed housing transactions data. We document (i) a "China shock" in the U.S. real estate market after 2007 driven by the Chinese government's house purchase restrictions and (ii) "home bias" in foreign Chinese housing purchases in the United States as they are concentrated in ZIP codes historically populated by ethnic Chinese. Exploiting the quasi-random temporal and spatial variation of real estate capital inflows from China, we find that foreign Chinese housing purchases have a positive and significant effect on local housing and labor markets. A one standard deviation increase in exposure to these purchases explains 24% and 18% of the cross-ZIP-code variation in local house prices and employment, respectively, with the employment effect transmitted through a housing net worth channel. We also show that these purchases drive out lower-income residents. Our results highlight the role of foreign real estate capital flows in both stimulating the real economy and inducing gentrification in local economies.
    Keywords: Capital flows; House price; Employment; China shock
    JEL: E20 F61 J21 R21
    Date: 2020–06–30
  74. By: Gabriel Garber; Atif Mian; Jacopo Ponticelli; Amir Sufi
    Abstract: After the global financial crisis, government banks in Brazil boosted credit provision to households, generating a sharp increase in household debt which was followed by the most severe recession in recent Brazilian history in 2015-2016. Using a novel individual-level data set including matched credit registry and employer-employee information, we show that individuals with higher debt-to-income growth during the boom experienced lower subsequent credit card expenditure during the recession. To identify the credit-supply effect, we exploit individuals borrowing from both government-controlled and private banks. We show that, during the late stages of the boom period, government banks increased their lending more than private banks to the same individual. To study the effect of this credit supply shock on individual consumption, we exploit variation in the sector of employment of each borrower. Individuals employed by the public sector were disproportionately targeted by payroll loans offered by government banks and experienced larger decline in credit card spending during the subsequent recession.
    Keywords: credit booms, household credit, payroll loans, credit card expenditure
    JEL: D14 E21 G21 G28
    Date: 2020–08
  75. By: Ryan Cumings-Menon; Minchul Shin
    Abstract: We propose probability and density forecast combination methods that are defined using the entropy regularized Wasserstein distance. First, we provide a theoretical characterization of the combined density forecast based on the regularized Wasserstein distance under the Gaus-sian assumption. Second, we show how this type of regularization can improve the predictive power of the resulting combined density. Third, we provide a method for choosing the tuning parameter that governs the strength of regularization. Lastly, we apply our proposed method to the U.S. inflation rate density forecasting, and illustrate how the entropy regularization can improve the quality of predictive density relative to its unregularized counterpart.
    Keywords: Entropy regularization; Wasserstein distance; optimal transport; density fore-casting; model combination.
    JEL: C53 E37
    Date: 2020–08–06
  76. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
    Abstract: Using a large-scale survey of U.S. households during the Covid-19 pandemic, we study how new information about fiscal and monetary policy responses to the crisis affects households’ expectations. We provide random subsets of participants in the Nielsen Homescan panel with different combinations of information about the severity of the pandemic, recent actions by the Federal Reserve, stimulus measures, as well as recommendations from health officials. This experiment allows us to assess to what extent these policy announcements alter the beliefs and spending plans of households. In short, they do not, contrary to the powerful effects they have in standard macroeconomic models.
    Keywords: subjective expectations, fiscal policy, monetary policy, COVID-19, surveys
    JEL: E31 C83 D84 J26
    Date: 2020
  77. By: Glocker, Christian; Kaniovski, Serguei
    Abstract: We propose a modeling approach involving a series of small-scale dynamic factor models. They are connected to each other within a cluster, whose linkages are derived from Granger-causality tests. This approach merges the benefits of large-scale macroeconomic and small-scale factor models, rendering our Cluster of Dynamic Factor Models (CDFM) useful for model-consistent nowcasting and forecasting on a larger scale. While the CDFM has a simple structure and is easy to replicate, its forecasts are more precise than those of a wide range of competing models and those of professional forecasters. Moreover, the CDFM allows forecasters to introduce their own judgment and hence produce conditional forecasts.
    Keywords: Forecasting, Dynamic factor model, Granger causality, Structural modeling
    JEL: C22 C53 C55 E37
    Date: 2020–07
  78. By: Mabbett, Deborah; Schelkle, Waltraud
    Abstract: The financial crisis has called our understanding of central bank independence (CBI) into question. Central banks were praised for bold interventions but simultaneously criticized for overreaching their mandates. Central bankers themselves have complained that they are ‘the only game in town’. We develop the second generation theory of CBI to understand how independence can turn into loneliness when a financial crisis calls for cooperation between fiscal authorities and the central bank. Central banks are protected from interference when there are multiple political veto-players, but the latter can also block cooperation. Furthermore, central banks in multi-veto-player systems operate under legal constraints on their financial stabilization actions. They can circumvent these constraints, but this invites criticism and retribution. More surprisingly, central banks have strategically invoked their constraints to gain cooperation from political authorities.
    Keywords: central bank independence; delegation; financial crisis; monetary policy; veto-players; strategic agents
    JEL: E58
    Date: 2019–01–28
  79. By: Juan Manuel Tabuenca
    Abstract: Devaluar la moneda es una práctica común en los países en desarrollo con el objetivo de mejorar la competitividad de corto plazo de manera recurrente. Toma especial importancia cuando se trata de un país con grandes desbalances de cuenta corriente. Este trabajo analiza los efectos a nivel Sub-Nacional de una devaluación. La composición relativa de bienes no transables sobre el producto importa. Las exportaciones de ciertas economías mejoran con retardo de un período. Se observa efectos contractivos sobre el producto. Hay evidencia de un comportamiento Pro-Cíclico en el Gasto y la Recaudación Tributaria.
    Keywords: devaluaciones, provincias, contracciones, gasto pro-cíclico, proporción de no transables
    JEL: E3 E6
    Date: 2019–11
  80. By: International Monetary Fund
    Abstract: The COVID-19 pandemic erupted just as the government was beginning to implement wide-ranging fiscal, foreign exchange, structural, and governance measures under a Staff-Monitored Program (SMP). The authorities have reaffirmed their commitment to these reforms, but the impact of the crisis is generating balance of payments and fiscal gaps of 4 and 3 percent of GDP, respectively. In the near term, risks are primarily on the downside, especially if there is a widespread local outbreak of the virus. Papua New Guinea’s longer-term outlook remains positive, largely reflecting the likelihood of major resource sector projects.
    Keywords: Rapid Credit Facility (RCF);Real sector;External sector;Economic indicators;Credit;External debt;ISCR,CR,percent of GDP,PNG,net lend,SMP,prior action
    Date: 2020–06–26
  81. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is expected to hit hard Myanmar’s economy via weaker exports, tourism, remittances and domestic demand. The economic and social costs of a widespread outbreak could be large, against the backdrop of a frail healthcare system and inadequate social safety nets, as well as already low international reserves and a fragile banking system. The measures to contain and alleviate the effects of the pandemic open up sizeable BOP and fiscal financing gaps in the near term.
    Keywords: Rapid Credit Facility (RCF);Rapid Financing Instrument (RFI);Credit;External sector;Macroprudential policies and financial stability;Central banks;Flexible exchange rates;ISCR,CR,DSSI,percent of GDP,RCF,CBM,Proj
    Date: 2020–07–02
  82. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that growth has strengthened, and fiscal and external positions improved due to higher oil prices. The increased uncertainty about oil price prospects though underscores the need to reduce dependence on oil and increase savings for the future. The key priority is to build national consensus around equitable and well-sequenced reforms to underpin fiscal consolidation and promote the private sector. While authorities’ efforts to strengthen the fiscal accounts are welcomed, more ambitious reforms will be needed to secure adequate savings for future generations and reduce financing needs. Reforming the public wage bill, subsidies, and transfers, raising non-oil revenue, and enhancing the fiscal policy framework and governance are expected to support fiscal consolidation and increase the efficiency of spending on human and physical capital. Creating jobs for the large number of nationals joining the labor force over the next decade hinges on the emergence of a vibrant private sector.
    Keywords: Fiscal policy;Credit;Central banks;Financial and Monetary Sector;Expenditures;non-oil,CBK,investment income,FSSA,overall balance
    Date: 2019–04–02
  83. By: International Monetary Fund
    Abstract: This Fiscal Transparency Evaluation (FTE) assesses the quality of fiscal reporting in Kenya against the principles set out in the Fiscal Transparency Code. Kenya has experienced a lot of structural and economic changes since 2014. One of the key objectives of this FTE is to estimate Kenya’s balance sheet, and to cover as many as possible of the entities in the public sector. The coverage of Kenya’s reporting of fiscal statistics has improved considerably. The report discusses that Kenya continues to perform well in the overall transparency of its fiscal forecasting and budgeting practices (Pillar II of the Code), which is based on a strong legal framework. It does so against a backdrop of significant ongoing reforms, including far-reaching fiscal devolution to counties, and the introduction of performance-based budgeting. A recent important change in the law is expected to synchronize the submission and approval of the government’s spending proposals and the tax measures in the Finance Bill. The recommendations set out under each of the pillars of this report aim to address several challenges. The report also encourages the authorities to continue with the implementation of the recommendations set out in the 2014 report, on which good or satisfactory progress has been made in about half the cases.
    Keywords: Financial soundness indicators;Financial management information systems;Economic policy;Fiscal policy;Fiscal indicators;ISCR,CR,consolidated financial statement,tax expenditure,PPPs,percent of GDP,pending bill
    Date: 2020–01–15
  84. By: Zheng Li (Department of Economics, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: Misallocation of factors of production has been recently viewed as a promising explanation accounting for the large difference in total factor productivity (TFP) across countries. This paper differs from previous studies by concentrating on interregional capital misallocation and by focusing on the role of fiscal decentralization in shaping misallocation. Using a city-level panel data set, we measure intra-provincial and inter-municipal capital misallocation in China over 2003-18. The empirical results based on provincial-level panel data suggest that fiscal decentralization can lower inter-municipal capital misallocation while revenue decentralization performs better than expenditure decentralization. We further find that this positive effect is more significant and much larger when the market rather than government intervention is driving the flow of capital. The results are robust to subsample regressions, IV estimations, spatial autoregressions and alternative measurement of interregional misallocation. Our study complements the literature on the causes of misallocation and enriches the understanding of the consequences of fiscal decentralization, especially in terms of economic growth and interregional inequality.
    Date: 2020–08
  85. By: Maxime Menuet; Alexandru Minea; Patrick Villieu; Anastasios Xepapadeas
    Abstract: The relationship between economic growth and the environment is at the core of the theoretical and empirical researches since at least thirty years. This paper shows that a small-dimension ecological growth model can lead to a great diversity of relationships between pollution and growth, including the popular environmental Kuznets curve (EKC) and logistic curve (ELC). We exhibit multiple equilibria and complex local and global dynamics resulting in potential indeterminacy or long-lasting pollution cycles. Furthermore, our model reveals an ecological poverty trap associated with a possible irreversibility of the environmental degradation. Interestingly, our findings do not resort on some exogenous technological breaks but result from the endogenous interaction between households� saving behaviour and the natural resources' law of motion.
    Keywords: Growth, Environment, Bifurcation, Endogenous Cycles, Poverty Traps, Pollution
    JEL: E32 O44 Q50
    Date: 2020–08–27
  86. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that deep-rooted weaknesses in the banking system have undermined economic activity and are now threatening financial stability and fiscal sustainability. Significant deposit outflows have left the banking system with low liquidity, while persistent losses and high non-performing loans (NPLs) resulted in sizable recapitalization needs, particularly in the state-owned bank. Growth is projected to remain subdued in the coming years, reflecting continued banking sector deleveraging and a less favorable external environment, most notably in Italy. Slow progress in repairing the banking sector, and full and upfront recognition of the state’s financial commitments to the banking system are the key risks. Urgent actions are needed to restore banking sector viability and credit supply, safeguard public finances, and promote sustained economic growth. It is recommended to strengthen labor supply by better targeting social benefits and further relaxing the hiring process of non-residents.
    Keywords: Central banks;Financial statistics;Banking systems;Financial soundness indicators;Balance of payments statistics;NPL,percent of GDP,credit condition,recapitalization,final consumption
    Date: 2019–03–25
  87. By: Peter Ganong; Pascal J. Noel
    Abstract: There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive: borrowers with positive home equity. We implement the method using high-frequency administrative data linking income and mortgage default. Our central finding is that only 3 percent of defaults are caused exclusively by negative equity, much less than previously thought; in other words, adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models, we show that it can be rationalized in models with a high private cost of mortgage default.
    JEL: E20 G21 R21
    Date: 2020–07
  88. By: International Monetary Fund
    Abstract: This paper discusses Argentina’s Fourth Review under the Extended Arrangement under the Extended Fund Facility (EFF). The paper highlights that Egypt’s macroeconomic situation has improved markedly since the initiation of the authorities’ reform program in November 2016. The liberalization of the foreign exchange market, prudent monetary policy, and ambitious fiscal consolidation has helped stabilize the macroeconomic environment. Growth has accelerated; external and fiscal deficits have narrowed; international reserves have risen; and public debt, inflation, and unemployment have declined. The external environment has shifted in recent months, posing new policy challenges. The tightening of global financial conditions and heightened global risk aversion have contributed to a pullback by investors from emerging markets. The outlook remains favorable, provided policies agreed under the program are implemented, but the balance of risks has shifted. The authorities’ prudent policies have been instrumental in preserving macroeconomic stability, even as the external environment has weakened notably. The IMF staff supports the authorities’ request for the completion of the fourth review under the Extended Arrangement under the Extended Fund Facility.
    Keywords: External sector;Unemployment;Supply and demand;Employment;Inflation;Egyptian pound,overall balance,primary balance,finance gap,medium-term
    Date: 2019–04–06
  89. By: Morceiro, Paulo César
    Abstract: Users of Brazilian National Accounts, of the second half of the twentieth century, often incorrectly calculate sectoral participation in GDP. This inadequate calculation overestimates the sectoral share because the financial dummy doesn't be eliminated from the sectoral GDP. This affects the level, peak and format of the long-term sectoral participation series, thus, it has implications for the de-industrialization debate. Methodological changes also caused serial discontinuities between 1989 and 1990 and between 1990 and 1995. A method was created to eliminate the problem of the financial dummy and methodological changes, in this way, this study shows corrected series of GDP sectoral composition from 1947 to 2017 compatible with the IBGE's current methodology. Corrected series are more consistent with economic cycles and allow a better understanding of the Brazilian deindustrialization. This study also presents new and more extensive official series of the manufacturing sector's share in GDP in the same methodology that allow a better understanding of the Brazilian deindustrialization in the period before and after the trade opening, period of difficult interpretation due to the methodological changes.
    Keywords: structural change; deindustrialization; national accounts; methodological changes; financial dummy
    JEL: E23 L16 O14
    Date: 2019
  90. By: Mathias Drehmann; James Yetman
    Abstract: The credit gap, defined as the deviation of the credit-to-GDP ratio from a one-sided HP-filtered trend, is a useful indicator for predicting financial crises. Basel III therefore suggests that policymakers use it as part of their countercyclical capital buffer frameworks. Hamilton (2018), however, argues that you should never use an HP filter as it results in spurious dynamics, has end-point problems and its typical implementation is at odds with its statistical foundations. Instead he proposes the use of linear projections. Some have also criticised the normalisation by GDP, since gaps will be negatively correlated with output. We agree with these criticisms. Yet, in the absence of clear theoretical foundations, all proposed gaps are but indicators. It is therefore an empirical question which measure performs best as an early warning indicator for crises. We run a horse race using expanding samples on quarterly data from 1970 to 2017 for 41 economies. We find that credit gaps based on linear projections in real time perform poorly when based on country-by-country estimation, and are subject to their own end-point problem. But when we estimate as a panel, and impose the same coefficients on all economies, linear projections perform marginally better than the baseline credit-to-GDP gap, with somewhat larger improvements concentrated in the post-2000 period and for emerging market economies. The practical relevance of the improvement is limited, though. Over a ten year horizon policy makers could expect one less wrong call on average.
    Keywords: early warning indicators, credit gaps, HP filter, linear projection
    JEL: E44 G01
    Date: 2020–08
  91. By: International Monetary Fund
    Abstract: The NBRB has made substantial progress in improving its forecasting and policy analysis system (FPAS) and integrating it into monetary policy decision-making. The FPAS, and the model-based forecasts and policy analysis, is now well integrated into the policy-making process. Staff are well trained and have become experienced in using the tools developed for policy analysis and forecasting. The forecasting and decision-making process is well structured and has helped increase the two-way interaction between staff and the NBRB board—additional and less formal interaction between staff and board members in between the formal meetings may help enhance the process further.
    Keywords: Bank rates;Fiscal sector;Market interest rates;Central banks;Open market operations;ISCR,CR,external communication,interbank,RMP,medium-term,near-term
    Date: 2020–06–29
  92. By: International Monetary Fund
    Abstract: This paper discusses Burkina Faso’s Third Review Under the Extended Credit Facility (ECF) Arrangement. Policies and reform implementation under the ECF-supported program have been satisfactory. All end-June 2019 quantitative performance criteria and indicative targets were met as well as all, but one, structural benchmarks throughout end-November 2019. Notwithstanding security challenges, economic growth remains resilient and is expected to stabilize at 6 percent in 2019 and over the medium term. Inflation is expected to be negative in 2019, owing to food price deflation following recent good harvests, and to rebound in 2020. However, the security crisis poses risks to the growth outlook and to the authorities’ reform agenda. Reforms to curb wage bill growth are advancing in some areas, including the implementation of transitional measures to help bring down the wage bill relative to tax revenues. However, progress toward the adoption of the overall reform package is limited. Pending approval of this overall reform package, the authorities are committed to refrain from any new agreements on wages or allowances outside of the security sector.
    Keywords: External sector;Public financial management;Economic growth;Expenditures;Inflation;ISCR,CR,percent of GDP,Proj,WAEMU,CFAF,Burkinabè
    Date: 2019–12–30
  93. By: Byrne, Stephen (Central Bank of Ireland); Zakipour-Saber, Shayan (Central Bank of Ireland)
    Abstract: Contrary to the predictions of the traditional Phillips curve model, the euro-area experienced subdued wage growth despite a tightening labour market during the period 2013 to 2017. This has led to a debate around whether the standard unemployment rate, or indeed currently used broader measures, adequately capture the level of labour slack in an economy. In this paper, we construct a measure of labour market slack for twelve European countries, the Non-Employment Index (NEI). The NEI weighs each group outside the labour force by their relative probability of transitioning into employment. Using pseudo out-of-sample conditional forecasts, we show that the NEI is a better predictor of wage dynamics during the period 2013-2017 than other traditional measures of slack in countries exposed to the european sovereign debt crisis. The improvement is seen both in terms of point and density forecasts. We confirm this result in a panel framework, controlling for expectations, external factors, and productivity.
    JEL: J21 J30 J21 E37
    Date: 2020–07
  94. By: Cimadomo, Jacopo; Giannone, Domenico; Lenza, Michele; Sokol, Andrej; Monti, Francesca
    Abstract: Monitoring economic conditions in real time, or nowcasting, is among the key tasks routinely performed by economists. Nowcasting entails some key challenges, which also characterise modern Big Data analytics, often referred to as the three \Vs": the large number of time series continuously released (Volume), the complexity of the data covering various sectors of the economy, published in an asynchronous way and with different frequencies and precision (Variety), and the need to incorporate new information within minutes of their release (Velocity). In this paper, we explore alternative routes to bring Bayesian Vector Autoregressive (BVAR) models up to these challenges. We find that BVARs are able to effectively handle the three Vs and produce, in real time, accurate probabilistic predictions of US economic activity and, in addition, a meaningful narrative by means of scenario analysis. JEL Classification: E32, E37, C01, C33, C53
    Keywords: Big Data, business cycles, forecasting, mixed frequencies, real time, scenario analysis
    Date: 2020–08
  95. By: George Pasmangiu (Bucharest University of Economic Studies)
    Abstract: Often it is implied that financial stability is synonymous with macroeconomic stability, but the two concepts do not reflect the same context. A composite Financial Stability Index (FSI) should accurately represent the components of a financial market. In Romania, the money market along with the capital market, the insurance market, and the private pensions market form the entirety of the financial market. A macroeconomic stability index should represent the overall situation of all economic markets within a country. The main purpose of this paper is to design a better, more suitable aggregate index that best describes the notion of financial stability. The composite Financial Stability Index signals through its components, the general financial conditions of a nation?s economy. This paper explores the constituent economic variables for Romania that would lead to the completion of an improved aggregate index and the evolution of said index. Romania entered the last decade in the middle of a financial crisis that delayed its economic development and the accession to the euro area. To determine the trend of the financial market in Romania during the last decade, a VAR model and Principal Component Analysis (PCA) are used to conduct an econometric analysis for the 2010-2019 period. The results of this study demonstrate that, even though the Romanian financial market was weakened from the beginning of the analyzed period, it gradually managed to reach financial stability in the more recent years, although residual instability still remains a possibility in the near future. The modeled econometric data was collected from various international and national databases, such as Thomson Reuters Eikon platform, The National Bank of Romania (NBR) database, and The Financial Supervisory Authority (ASF) reports.
    Keywords: capital market, financial market, financial stability index, money market, VAR model
    JEL: C32 C38 E44
  96. By: Andreas Tryphonides
    Abstract: Using a semi-structural approach, the paper identifies how heterogeneity and financial frictions affect the transmission of aggregate shocks. Approximating a heterogeneous agent model around the representative agent allocation can successfully trace the aggregate and distributional dynamics and can be consistent with alternative mechanisms. Employing Spanish macroeconomic data as well as firm and household survey data, the paper finds that frictions on both consumption and investment have rich interactions with aggregate shocks. The response of heterogeneity amplifies or dampens these effects depending on the type of the shock. Both dispersion in consumption shares and the marginal revenue product of firms, as well as the proportion of investment constrained firms are key determinants of the fiscal multiplier.
    Date: 2020–07
  97. By: International Monetary Fund
    Abstract: This Selected Issues paper estimates Ecuador’s potential growth in the range of 1 3/4 to 3 percent. The lower estimate corresponds to an extrapolation of recent trends while the higher estimate could be achievable through the implementation of a reform agenda that addresses fiscal and competitiveness challenges of Ecuador. The paper also develops models to nowcast and forecast GDP to improve the accuracy of growth projections. The oil sector remains an important driver of economic activity; however, it is not as important as it once was. A simple growth accounting exercise is used to decompose Ecuador’s growth between production factors accumulation; capital and labor, and total factor productivity. The study shows that low total factor productivity is the reason behind Ecuador’s recent economic decline and has been a negative contributor to long-term growth. The paper also explores different vector autoregression models to identify the best one to forecast real GDP in Ecuador.
    Keywords: Central banks;Banking systems;Oil prices;Credit;Central banking;central bank,primary balance,oil price,dollarized,IMF
    Date: 2019–03–20
  98. By: Rashid, Muhammad Mustafa
    Abstract: The Chicago Mercantile Exchange is a global derivatives market place. The CME group is an order driven exchange that facilitates the trading of forward, futures and options contract on numerous products within key asset classes such as agriculture/ energy/metals, equities, interest rates, and exchange rates. Hence a very popular US interest rate futures contract is the three-month Eurodollar futures traded on the CME. The article historical in nature explores the Eurodollar, LIBOR, and the Secured Overnight Financing Rate which is to be the LIBOR replacement in 2021.
    Keywords: Eurodollar, LIBOR, Interest Rates, Financial Crises, Secured Overnight Financing Rate (SOFR).
    JEL: E4 E5 G21 N1 N14 N2
    Date: 2020–03–19
  99. By: Leonardo N. Ferreira
    Abstract: Central banks have usually employed short-term rates as the main instrument of monetary policy. In the last decades, however, forward guidance has also become a central tool for monetary policy. In an innovative way this paper combines two sources of extraneous information –high frequency surprises and narrative evidence – with sign restrictions in a structural vector autoregressive (VAR) model to fully disentangle the effects of forward guidance shocks from the effects of conventional monetary policy shocks. Results show that conventional monetary policy has the expected effects even in a recent US sample, in contrast with the evidence reported by Barakchian and Crowe (2013) and Ramey (2016), and that forward guidance is an effective policy tool. In fact, it is at least as strong as conventional monetary policy.
    Date: 2020–08
  100. By: Amélie BARBIER-GAUCHARD
    Abstract: Almost 30 years after the launch of the European Economic and Monetary Union (EMU) project in the Maastricht Treaty (1992), budgetary and fiscal union now appears to be the next milestone for the European integration process. In other words, what kind of European Fiscal Union project should decision-makers spearhead? This paper proposes to define precisely what fiscal integration consists of and to draw up a survey of the fiscal federalism theory. The next step is to compare the different possible models of fiscal federalism that exist in practice in the world, and then identify the threats and challenges for the European model in order to be able to describe the main features the future European fiscal union will have to check. Thus, it would be desirable for the future European fiscal union to be characterized by a substantial transfer of “allocative” public spending, particularly in the area of support for growth and employment, and in the area of external relations, by the creation of a fiscal capacity for the euro zone allowing the introduction of automatic European budgetary stabilizers and to replace the current rule of fiscal discipline by a rule that is smarter and more credible in terms of sanctions.
    Keywords: fiscal union, fiscal federalism, monetary union, European integration.
    JEL: E E H11 H61 H62 H77
    Date: 2020
  101. By: John Hartwick
    Abstract: We re-visit the proposition: utility-change for the translog utility function equals the corresponding Tornqvist quantity index. We observe that the "linear" terms in the translog function must be zero for the result to obtain. We also report on the role of the assumption of homogeneity for the utility function in allowing the result to obtain.
    Keywords: translog function, Tornqvist index
    JEL: O47 E01
    Date: 2020–07
  102. By: Asongu, Simplice; Nnanna, Joseph; Tchamyou, Vanessa
    Abstract: The study assesses the role of globalization-fuelled regionalization policies on financial allocation efficiency in four economic and monetary regions in Africa for the period 1980 to 2008. Banking system and financial system efficiency proxies are used as dependent variables whereas seven bundled and unbundled globalization variables are employed as independent indicators. The bundling exercise is achieved by means of principal component analysis while the empirical evidence is based on interactive Fixed Effects regressions. The following findings are established. First, financial allocation efficiency is more sensitive to financial openness compared to trade openness and most sensitive to globalization. The relationship between allocation efficiency and globalization-fuelled regionalization policies is: (i) Kuznets or inverted U-shape in the UEMOA and CEMAC zones (evidence of decreasing returns to allocation efficiency from globalization-fuelled regionalization) and (ii) U-shape overwhelmingly in the COMESA and scantily in the EAC (increasing returns to allocation efficiency from globalization-fuelled regionalization). Established shapes are relevant to specific globalization dynamics within regions. Economic and monetary regions are more prone to surplus liquidity than purely economic regions. Policy implications and measures of fighting surplus liquidity are discussed.
    Keywords: Globalization; Financial Development; Regional Integration; Panel; Africa
    JEL: A10 D60 E40 O10 P50
    Date: 2019–01
  103. By: David E. Altig; Scott Baker; Jose Maria Barrero; Nick Bloom; Phil Bunn; Scarlet Chen; Steven J. Davis; Brent Meyer; Emil Mihaylov; Paul Mizen; Nicholas B. Parker; Pawel Smietanka; Greg Thwaites
    Abstract: We consider several economic uncertainty indicators for the United States and the UK before and during the COVID-19 pandemic: implied stock market volatility, newspaper-based economic policy uncertainty, twitter chatter about economic uncertainty, subjective uncertainty about future business growth, and disagreement among professional forecasters about future gross domestic product growth. Three results emerge. First, all indicators show huge uncertainty jumps in reaction to the pandemic and its economic fallout. Indeed, most indicators reach their highest values on record. Second, peak amplitudes differ greatly—from an 80 percent rise (relative to January 2020) in two-year implied volatility on the S&P 500 to a 20-fold rise in forecaster disagreement about UK growth. Third, time paths also differ: implied volatility rose rapidly from late February and peaked in mid-March, falling back by late March as stock prices began to recover. In contrast, broader measures of uncertainty peaked later and then plateaued, as job losses mounted, highlighting the difference in uncertainty measures between Wall Street and Main Street.
    Keywords: volatility; COVID-19; coronavirus; forward-looking uncertainty measures
    JEL: E22 E66 G18 L50 D80
    Date: 2020–07–10
  104. By: Kristoffer Persson
    Abstract: This paper investigates the relationship between economic media sentiment and individuals' expetations and perceptions about economic conditions. We test if economic media sentiment Granger-causes individuals' expectations and opinions concerning economic conditions, controlling for macroeconomic variables. We develop a measure of economic media sentiment using a supervised machine learning method on a data set of Swedish economic media during the period 1993-2017. We classify the sentiment of 179,846 media items, stemming from 1,071 unique media outlets, and use the number of news items with positive and negative sentiment to construct a time series index of economic media sentiment. Our results show that this index Granger-causes individuals' perception of macroeconomic conditions. This indicates that the way the economic media selects and frames macroeconomic news matters for individuals' aggregate perception of macroeconomic reality.
    Date: 2020–07
  105. By: Getachew, Yoseph (Department of Economics, University of Pretoria)
    Abstract: The paper introduces voluntary social distancing to the canonical epidemiology model, integrated into a conventional macroeconomic model. The model is extended to include treatment, vaccination, and government-enforced lockdown. Infection-averse individuals face a trade-off between a costly social distancing and the risk of getting infected and losing next-period labour income. We find an individual's social distancing is proportional to the welfare loss she incurs when moving to the infected compartment. It increases in the individual's psychological discount factor but decreases in the probability of receiving a vaccination. Quantitatively, a laissez-faire social distancing flattens the infection curve that minimizes the economic damage of the epidemic. A government-enforced social distancing is more effective in flattening the infection curve but has a detrimental effect on the economy.
    Keywords: COVID-19, corona virus, pandemic, lockdown, social distancing, macroeconomics, epidemics
    JEL: E19 H20 I19
    Date: 2020–08–04
  106. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that economic performance remains robust but risks to the outlook are tilted to the downside amid slowing external demand. Sound macroeconomic policies notwithstanding, Bulgaria faces a sizable income gap vis-à-vis the EU average and unfavorable demographic prospects. The main policy challenge is to raise growth potential, which calls for broad-based structural reforms to improve public goods provision and institutions. The Article IV discussions focused on medium-term reforms to improve public goods provision and raise potential growth and on near-term policies to enhance financial sector stability. Fiscal policy is broadly appropriate, but the efficiency of spending and revenue administration could be further improved. Stronger public investment management would improve investment efficiency and transparency. Better performance of state-owned enterprises would help raise growth potential and mitigate fiscal risks. Bank profits have risen and non-performing loans (NPLs) have continued to decline, although they are still high among EU countries. The central bank should ensure that banks with high NPLs have adequate capital buffers.
    Keywords: Economic growth;Monetary statistics;Central banks;Gross domestic product;Consumption;BNB,staff report,HICP,ERM II,SOEs
    Date: 2019–03–22
  107. By: International Monetary Fund
    Abstract: This paper discusses Niger’s Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria. Niger faces daunting development challenges, aggravated by terrorist incursions, climate change, and low uranium export prices. Presidential elections are due in late 2020. Reforms are advancing and economic activity is reasonably strong. Program implementation has been broadly satisfactory. All quantitative targets for end-June 2019 were met. However, a subsequent weakening of revenues, partly due to Nigeria’s closure of its borders to trade, as well as topped-up budget support, required mitigating policy measures and the adjustment of end-December 2019 targets. Structural reforms are advancing with delays. Niger can strengthen prospects for a successful transition by securing favorable contractual arrangements with foreign investors; establishing a framework for administering oil resources in line with good practices, notably channeling all revenues directly through the Treasury; and increasing spending on physical and human capital, while being mindful of the inherent volatility in natural resource revenues.
    Keywords: Development;External debt;Economic growth;Fiscal policy;Credit;ISCR,CR,PPPs,performance criterion,WAEMU,percent of GDP,net lend
    Date: 2020–01–14
  108. By: Julio Humérez Quiroz; Tatiana Rocabado Palomeque (Banco Central de Bolivia)
    Abstract: Un tema que no ha sido abordado suficientemente en la literatura es el referido a los factores que determinan la creación del dinero secundario. En este sentido, el presente documento trata de llenar este vacío y responder a la interrogante de ¿cuáles son los determinantes de la creación del dinero secundario en Bolivia? para lo cual se realizan estimaciones econométricas con información estadística mensual del periodo 2010 – 2017. Los resultados muestran que, en Bolivia, los factores que habrían promovido la creación de dinero secundario son: la solvencia del sistema financiero y la brecha del producto, principalmente; el desarrollo del sistema de pagos y la bolivianización; y los factores que muestran un efecto opuesto son la tasa de interés de depósitos en caja de ahorro, el spread de tasas de interés, la tasa interbancaria y la tasa de letras del TGN.
    Keywords: Oferta de dinero, multiplicador monetario
    JEL: E51
    Date: 2018–12
  109. By: Carin van der Cruijsen; Jakob de Haan; Ria Roerink
    Abstract: Trust in financial institutions is widely considered important. However, a clear overview of studies on the drivers of trust is missing. We intend to fill this gap in the literature. After discussing why trust in financial institutions is important, we turn to its measurement, where we distinguish between trust in one's own institution and trust in institutions in general (narrow-scope and broad-scope trust), and discuss how these measures differ from generalized trust (i.e. trust in other people with whom there is no direct relationship). Finally, we survey the determinants of trust in financial institutions and discuss a wide range of drivers. First, trust in financial institutions depends on the economic situation: it behaves procyclically and is negatively affected by financial crises. Second, the behavior of the financial institutions matters: prudent conduct, the provision of good services and financial health have a positive effect on trust. Third, although consumer characteristics also relate to trust, many of these relationships are context-dependent. Fourth, there is a positive association between narrow-scope trust on the one hand and broad-scope trust and generalized trust on the other. Last, policy measures and supervisory actions can help prevent loss of trust.
    Keywords: trust in financial institutions; drivers of trust in financial institutions; survey
    JEL: D12 D83 E58 G21 G22
    Date: 2020–08
  110. By: Beadle-Brown, Julie; Beecham, Jennifer; Leigh, Jennifer; Whelton, Rebecca; Richardson, Lisa
    Abstract: Background: With increasing reductions in funding for social care across many countries, the need to ensure that resources are used to best effect is becoming increasingly important, in particular for those with severe and complex needs. Methods: In order to explore the outcomes and costs of skilled support for this group of people, quality of life was assessed for 110 people in 35 services in England. Information on costs was also collected. Results: People who received consistently good active support experienced better outcomes in terms of several quality of life domains. Good support did not require significantly more staff time, and there was no evidence of higher total costs for those receiving good support. Conclusions: The inclusion of active support in government guidance and local commissioning practices related to people with severe intellectual disabilities is likely to improve user outcomes. Observation should be an important element in measuring service quality.
    Keywords: complex needs; costs; outcomes; quality of life; severe and profound intellectual disability; skilled support
    JEL: E6
    Date: 2020–08–05
  111. By: Tobias Adrian; Christopher J. Erceg; Jesper Lindé; Pawel Zabczyk; Jianping Zhou
    Abstract: Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.
    Date: 2020–07–07
  112. By: Martin Zeman (University of Economics, Prague); Jan Kozak (University of Economics, Prague); Stepan Pekarek (University of Economics, Prague); Jan Vondracek (University of Economics, Prague); Miroslav Sevcik (University of Economics, Prague)
    Abstract: The article compares the development of the main government debt indicators in the Czech Republic and in Slovakia between 2014 and 2019 while evaluating their respective positions in at the beginning of the crisis caused by the spread of Covid-19 in early 2020. After a review of the characteristics and the nature of the external shock in comparison to previous crisis which took place from 2008 to 2009, the article discusses the preparedness of both economies for negative external shocks, primarily from the public finance perspective. The authors conclude that the Czech fiscal position is one of slightly higher overall preparedness to overcome possible economic problems than that of its Slovak counterpart. However, further assessment of the underlying tensions within Czech government deficit structure, past procyclical economic policy behavior and recent policy actions lessen the superiority of the Czech fiscal position and render both economies equally exposed to the negative effects of the coming crisis. In the current environment of uncertainity, it is difficult to establish a conclusive projection but the authors highlight the key risk areas for the medium-term horizon in the concluding discussion of the paper.Acknowledgment: The publication of this article was supported by the University of Economics, Prague research grant IGA no. IG504020
    Keywords: Covid-19; Fiscal Policy; General Government; Debt Management; Business Cycle
    JEL: H63 E62
  113. By: International Monetary Fund
    Abstract: This Selected Issues paper presents a quantification of the long-term benefits of ex-ante resilient investment and insurance needs against natural disasters (ND) in Eastern Caribbean Currency Union (ECCU). Cost-benefit analysis of resilient investment based on a dynamic stochastic general equilibrium model tailored to small states and calibrated to all ECCU economies is also discussed in the paper. The model’s aggregate production function illustrates the interaction among the participating sectors and their contribution to output, ultimately informing the role of resilient investment. The study also quantifies government insurance coverage needs and costs using an empirical stochastic model that simulates NDs fiscal costs. The insurance needs are framed within the World Bank insurance layering framework. The results in this paper underscore the importance of a shift from ex-post recovery to a focus on ex-ante resilience building. Ex-ante resilient investment and insurance are key to the welfare and financial sustainability of the ECCU, given high intensity and recurrence of NDs.
    Keywords: Public investments;Private investments;Return on investment;Investment incentives;Employment;Economic indicators;Fiscal policy;Economic policy;NDs,ECCU,ex-ante,resilience,private capital,percent of GDP,FRF
    Date: 2019–02–22
  114. By: Markus Brueckner; Ngo Van Long; Joaquin Vespignani; Ngo Van Long
    Abstract: This paper examines the relationship between countries’ bilateral trade with the United States that is not due to gravity (non-gravity trade) and the distribution of income within countries. In countries where only a small share of the population are educated, an increase in non-gravity trade is associated with a significant increase in income inequality. As education of the population increases the correlation between non-gravity trade and income inequality becomes smaller. Non-gravity trade has no significant effect on income inequality in countries that are world leaders in education.
    Keywords: non-gravity trade, inequality, education
    JEL: F10 E20
    Date: 2020
  115. By: Clara Toledano (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab)
    Abstract: Business cycle dynamics can shape the wealth distribution through asset price changes, saving responses, or a combination of both. This paper studies the implications of housing booms and busts for wealth inequality, examining two episodes over the last four decades in Spain. I combine fiscal data with household surveys and national accounts to reconstruct the entire wealth distribution and develop a new asset-specific decomposition of wealth ac- cumulation to disentangle the main forces behind wealth inequality dynamics (e.g., capital gains, saving rates). I find that the top 10% wealth share drops during housing booms, but the decreasing pattern reverts during busts. Differences in capital gains across wealth groups appear to be the main drivers of the decline in wealth concentration during booms. In contrast, persistent differences in saving rates across wealth groups and portfolio reshuf- fling towards financial assets among top wealth holders are the main explanatory forces behind the reverting evolution during housing busts. I show that the heterogeneity in saving responses is largely driven by differences in portfolio adjustment frictions across wealth groups and that tax incentives can exacerbate this differential behavior. Using a novel personal income and wealth tax panel, I explore the role of tax incentives exploiting quasi-experimental variation created by a large capital income tax reform in a differences- in-differences setting. I find that capital income tax cuts, largely benefiting top wealth holders, explain on average 60% of the increase in the top 10% wealth share during the re- cent housing bust. These results provide novel empirical evidence to enrich macroeconomic theories of wealth inequality over the business cycle.
    Keywords: Wealth distribution,wealth concentration,Spain,inequality,asset,housing,wealth tax
    Date: 2020
  116. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that following the opening of a modern international airport, signs of an economic recovery have emerged, with increased direct flights from major cities in the United States and Canada and renewed interests from foreign investors in tourism projects. The overall fiscal balance has improved over the past few years, and the debt to GDP ratio fell in 2017 for the first time since 2007. However, despite these positive developments, St. Vincent and the Grenadines faces challenges in sustaining the growth momentum over the longer-term. Like other Caribbean economies, its high exposure to natural disasters, limited land, narrow production and exports base, weak business competitiveness, and limited physical and human capital constrain potential growth. The financial system remains broadly stable but has vulnerable spots in the non-bank financial sector. It is important to implement structural reforms to foster private sector activity, by improving the investment environment and strengthening physical and human capital.
    Keywords: Economic growth;Capital expenditure;Gross domestic product;Capital;Credit;percent of GDP,grenadine,ECCB,primary balance,GDP
    Date: 2019–02–25
  117. By: Dao, Kieu Oanh; Kieu, Le; Tu, Pham Thuy; Nguyen, V.C.
    Abstract: This research was conducted to investigate the factors influencing the commercial bank’s competitive capacity in an emerging country. Data were collected from the domestic-owned commercial banks and foreign-owned commercial banks listed on Vietnam’s Stock Exchange over the period of nine years from 2010 to 2018. Three statistic approaches were employed to address econometrics issues and to improve the accuracy of the regression coefficients: Pooled Ordinary Least Square (Pooled OLS), Random Effects Model (REM), and Fixed Effects Model (FEM). To correct the diagnostics and endogeneity in the model, the study uses Generalized Least Square (GLS) and Generalized Method of Moments (GMM). In order to account for the degree of competitive capacity we use Lerner index. Results demonstrate that the impact of bank-specific characteristics on market power in banks is statistically significant, and there are substantial distinguishments of economic consideration among these factors. In addition, a bank with a higher level of competitive capacity in the previous year will outstandingly generate competitive capacity in the current year. Another possibility, a greater level foreign investment into the banks in the host country could further encourage competitive capacity in the banking system. Finally, economic growth rate has no impact on competitive capacity at a significant level of 5% while a positive effect from inflation on bank’s market power could be found.
    Date: 2020–07–06
  118. By: Claudio Fontana (Department of Mathematics “Tullio Levi Civita”, University of Padova); Alessandro Gnoatto (Department of Economics (University of Verona)); Guillaume Szulda (Laboratoire de Probabilités, Statistique et Mode ́lisation (LPSM), Paris Diderot University)
    Abstract: We develop a modelling framework for multiple yield curves driven by continuous-state branching processes with immigration (CBI processes). Exploiting the self-exciting behavior of CBI jump processes, this approach can reproduce the relevant empirical features of spreads between different interbank rates. We provide a complete analytical framework, including a detailed study of discounted exponential moments of CBI processes. The proposed framework yields explicit valuation formulae for all linear interest rate derivatives as well as semi-closed formulae for non- linear derivatives via Fourier techniques and quantization. We show that a simple specification of the model can be successfully calibrated to market data.
    Keywords: Branching process; self-exciting process; multi-curve model; interest rate; Libor rate; OIS rate; multiplicative spread; affine process.
    JEL: E43 G12
    Date: 2019–11
  119. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that Peru’s economic performance continues to be strong, however, external and domestic headwinds, including the fallout from Lava Jato corruption investigations, have reduced growth momentum and raised concerns about long-term growth prospects. Policy responses have been appropriate, but further reforms have been delayed by a political stalemate between the executive and legislative powers. After President Vizcarra dissolved Congress in September 2019, new parliamentary elections will be held in January 2020. The current slowdown in activity and heightened uncertainty justify policy stimulus. However, the fiscal stance is procyclical owing to higher-than-expected revenues and low execution of public investment. Against this background, monetary policy easing is particularly appropriate given the absence of inflationary pressures, while accelerated budget execution would mitigate the procyclical fiscal policy stance. In the medium term, additional fiscal space from tax revenues and effective expenditure control is needed to address priorities in infrastructure and social spending while a gradual transition to greater exchange rate flexibility would foster financial market development. In addition to infrastructure investment, key reforms are needed to improve governance and fight corruption, boost competitiveness, and reduce informality.
    Keywords: External sector;Financial and Monetary Sector;Financial crises;Economic policy;Real sector;ISCR,CR,output gap,percent,percent of GDP,national authority,trade tension
    Date: 2020–01–13
  120. By: Philippe Adair (University Paris-Est Créteil-UPEC; ERUDITE Research Team); Oksana Nezhyvenko (National University of Kyiv-Mohyla Academy-NaUKMA; ERUDITE Research Team)
    Abstract: The paper tackles the wage differentials issue upon a large sample of employees in eight EU transition countries over 2009-2016 with respect to human capital theory vs. labour market segmentation theory and according to gender. Using several measurement methods, the results display a significant penalty in average real monthly wages for informal employees, which is always higher for females; hence, informal female employees face a double penalty. In regard of individual and job characteristics, earnings functions investigate the wage penalty for informality, which declines respectively to 20 per cent and 12 per cent for males, and 27 per cent and 17 per cent for female employees. Next, fixed effects model demonstrates that wage penalty reaches 23 per cent for females and over 10 per cent for males. Last, according to the decomposition model, explained variables (individual and job characteristics) account for two-thirds of the wage differentials, which prove better explained on the demand side of firms and supports the segmentation theory.
    Keywords: Decomposition model; EU-SILC; informal employment; Mincer model; panel data; quantile regression; transition economy; wage differentials
    JEL: E26 J16 J31
  121. By: International Monetary Fund
    Abstract: This Article IV Consultation highlights that Malta has been one of the fastest growing countries in the European Union after the crisis, because of a rapid structural rebalancing towards export-oriented services—mainly remote gaming and tourism. The authorities are now exploring new development areas around the blockchain technology. As per the authorities, domestic demand would continue to be the main driver of growth, and persistent labor market tightness might eventually put some pressure on wages and prices. They consider global protectionism as a key external risk and emphasized ongoing actions to address domestic risks related to money laundering. The report also shows that Malta’s new development areas related to the distributed ledger technology present both opportunities and risks. The IMF team stresses that policies should focus on enhancing the economy’s resilience, ensuring financial stability and integrity and making growth more inclusive. It is important to promote strong and inclusive growth by encouraging further labor market participation of women and elderly workers.
    Keywords: Real sector;Central banks;Expenditures;Gross domestic product;Credit;MFSA,percent of GDP,Haver,central bank of Malta,CFT
    Date: 2019–02–27
  122. 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
  123. By: Oz Shy
    Abstract: Using machine learning techniques applied to consumer diary survey data, the author of this working paper examines methods for studying consumer payment choice. These techniques, especially when paired with regression analyses, provide useful information for understanding and predicting the payment choices consumers make.
    Keywords: studying consumer payment choice; point of sale; statistical learning; machine learning
    JEL: C19 E42
    Date: 2020–06–23
  124. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation highlights that Finland’s economy has performed well over the past three years, however, has slowed in 2019. There are some vulnerabilities in household finances, and productivity growth remains weak, with trend growth also constrained by adverse demographics. A new coalition government targets greater social support and inclusion, higher employment, carbon neutrality by 2035, and a balanced budget by 2023. A key challenge is to balance plans to increase spending with the need to maintain fiscal buffers. The fiscal expansion is expected to provide useful cyclical support in the short run, but offsetting measures will be required to ensure the structural balance reaches the government’s medium-term target. The government aims for a substantial increase in employment, but the effectiveness of the proposed wage subsidies is unclear. Alternatively, incentives from tax and benefit schedules could be improved, especially for younger women, older workers, and those out of the workforce. Risks in the banking system remain low overall, but some types of lending are increasing household vulnerabilities. The recent recommendation to limit the ratio of household debt to income is both sensible and in line with steps taken in many other countries.
    Keywords: Financial statistics;Balance of payments;International investment position;Economic indicators;Government finance statistics;ISCR,CR,percent of GDP,household debt,percent,GDP,pension liability,article IV consultation
    Date: 2020–01–16
  125. By: Machago, Guilherme R. (PPGE\UFABC and FGV); Spinola, Danilo (Maastricht University, UNU-MERIT)
    Abstract: This paper analyses the dynamic adjustment of supply and demand in Kaldorian growth models. We discuss how the growth rate of a country given by the demand constraints may adjust towards the growth rate given by the supply-side (and vice-versa), presenting the necessary conditions for this adjustment. Our main conclusion is that, for a monopolistic economy, where firms invest to maintain a constant level of capital utilisation, there are no capital constraints and hence the degree of capacity utilisation is not affected by this adjustment. Nevertheless, depending on specific conditions, an economy may face labour constraints, and thus an adjustment mechanism is necessary. The Palley-Setterfield approach for this dynamic adjustment brings a possible reconciliation to supply- and demand-side long-term growth rates. It emphasises the endogeneity of the income-elasticities of demand for imports and the Verdoorn coefficient to utilisation capacity. However, some considerations about labour market have to be discussed in order to understand the characteristics and limitations of this approach. In this sense, we draw from the McCombie (2011) critique, in which employment adjusts immediately to guarantee equilibrium between supply and demand. We propose reconciliation between the Palley-Setterfield and the McCombie approaches, and present a model with a labour market adjustment in which both types of adjustments represent extreme cases, discussing the existence and the characteristics of intermediate cases.
    Keywords: economic adjustment, demand-led growth, natural rate of growth, Kaldorian growth models
    JEL: E12 F43 O41
    Date: 2020–08–04
  126. By: Okahara, Naoto
    Abstract: This study proposes a model that describes banks' decisions about how much liquidity they hold and analyzes how liquidity regulations affect the amount of their lending. In literature, it is pointed out that banks are likely to hold ex-post excess liquidity under a liquidity regulation when some depositors make decisions based on the banks' soundness. This result implies that the regulation forces banks to suffer an unnecessary decrease of their lending, and thus, they would try to mitigate the loss by adjusting their portfolio. The aim of this study is to investigate whether banks' lending decreases or not when there exist multiple sets of assets that satisfy a liquidity regulation. In addition, we analyze two types of liquidity regulation; one focuses on banks' survivability, and the other focuses on continuity of their liquidity holding. The model shows that, even when there exist other ways to satisfy the regulations besides holding only reserves, banks still hold an ex-post excess amount of liquidity under either type of liquidity regulation. However, the model also shows that the amount of banks' lending varies according to how they satisfy the liquidity regulation and the probability that a severe reduction of lending happens depends partly on the regulation's type. These results implies that banks' decisions for mitigating losses caused by liquidity regulations lead to an undesired outcome, and thus, we consider more carefully banks' decisions under liquidity regulations.
    Keywords: Bank, Liquidity regulation, Excess liquidity
    JEL: E02 G21 G28
    Date: 2020–01–20
  127. By: Tensay Meles; L. (Lisa B.) Ryan; Joe Wheatley
    Abstract: The COVID-19 crisis comes at a complex moment for European climate policy as it pivots from a 40% 2030 emissions reduction target to a European Green Deal that is in better alignment with long-term Paris Agreement goals. Here, the implications of the dramatic fall in economic output associated with the crisis are examined using a representative range of growth scenarios. With lower economic activity resulting from the COVID-19 crisis, existing policy measures could achieve the 40% target sooner than 2030. However, we find that even in the most severe economic scenario examined, this falls well short of the 50-55% emissions reduction target under the Green Deal. Maintaining the existing 40% target in 2030 with reduced policy measures on the other hand would move European climate policy away from the required path. This analysis indicates the feasibility of increased climate ambition in the wake of the pandemic and supports the Green Deal 50-55% targets in 2030.
    Keywords: Climate change policy; Greenhouse gas emissions; Economic recovery; COVID-19 economic effects; Energy demand
    JEL: Q5 Q54 Q58 E6 Q43
    Date: 2020–05
  128. By: International Monetary Fund
    Abstract: This paper discusses Ecuador’s 2019 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility. The Article IV discussions focused on diagnosing the nature of the imbalances facing Ecuador and the policy changes that will be needed to address them. There was broad agreement that fundamental supply-side efforts will be needed to foster competitiveness, create jobs, rebuild institutions, and make Ecuador a more attractive destination for private investment. Consistent with the findings of the Article IV, the authorities’ policy plan seeks to decisively address the systemic vulnerabilities facing Ecuador. The goals of these policies are to boost competitiveness and job creation, protect the poor and most vulnerable, fortify the institutional foundations for dollarization, and to improve transparency and good governance to public sector operations while strengthening the fight against corruption. The report suggests that improving the social safety net and increasing the effectiveness of public spending, particularly on health and education, will be essential to achieving strong, sustained, and socially equitable growth.
    Keywords: Central banks;Fiscal policy;Monetary statistics;Financial statistics;Public financial management;non-oil,dollarized,fuel subsidy,primary balance,mil.
    Date: 2019–03–20
  129. By: International Monetary Fund
    Abstract: This Selected Issues paper analyzes saving to understand history and identify the drivers in Malaysia. IMF analysis suggests that Malaysia’s current account (CA) surplus is higher than warranted by medium-term fundamentals and desired policies. The changes in the corporate saving rate almost entirely reflect the changes within each group of firms of similar size or age. Leveraging firm-level data for listed firms, the paper focuses on the contribution to the CA surplus of private non-financial corporations. The trend analysis indicates a high dependence of listed firms in Malaysia on internal funds (savings) to finance their investments or, equivalently, a lower dependence on external funds. The results suggest that relaxing firms’ external financing constraints and lifting productivity growth could help encourage investment and reduce excess corporate saving. The regression results show that the transaction cost and precautionary saving motives, as well as their interaction with external financing dependence, could play an important role in explaining corporate net saving.
    Keywords: Fiscal policy;Gross domestic product;Business cycles;Investment;Economic growth;medium-term,external finance,MTFF,non-financial corporation,net save
    Date: 2019–03–08
  130. By: Gara Afonso; Marco Cipriani; Gabriele La Spada; Will Riordan
    Abstract: Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.
    Keywords: reserves; COVID-19; branches; foreign banking organizations (FBOs); global systemically important banks (GSIBs)
    JEL: E5 I18
    Date: 2020–07–07
  131. By: Okpara, Godwin Chigozie
    Abstract: This paper aims at exploring the relationship between news on the stock market returns and conditional volatility in Nigeria. To determine this relationship, the researcher employed the exponential generalized conditional Heteroscedasticity (EGARCH) in mean model since the model accommodates asymmetric and leverage property. The results of the analysis shows that there is a significant relationship between stock market returns and conditional volatility. Secondly, that the persistence of shocks in the market takes a short time to die out, thirdly, that the stock market volatility is less sensitive to market events while asymmetric effect is positive and significant indicating that good news lowers volatility in Nigeria. In the light of the findings, the researcher suggests that Nigeria stock exchange should ensure that company specific information should be reliable with maximum transparency and speedy dissemination. Also, with the already existing good news lowering volatility and cost of capital in the economy, Government should avoid unnecessary modifications of her policies that are capable of changing the market trading pattern. These measures, the researcher believes, will bridge up information asymmetry and enhance the sensitivity of volatility to market events.
    Keywords: Stock returns,EGARCH in mean, information asymmetry, bad news, good news.
    JEL: C32 E32 F65
    Date: 2020–08–12
  132. By: Demirguc-Kunt,Asli; Pedraza Morales,Alvaro Enrique; Ruiz Ortega,Claudia
    Abstract: This paper analyzes bank stock prices around the world to assess the impact of the COVID-19 pandemic on the banking sector. Using a global database of policy responses during the crisis, the paper also examines the role of financial sector policy announcements on the performance of bank stocks. Overall, the results suggest that the crisis and the countercyclical lending role that banks are expected to play have put banking systems under significant stress, with bank stocks underperforming their domestic markets and other non-bank financial firms. The effectiveness of policy interventions has been mixed. Measures of liquidity support, borrower assistance, and monetary easing moderated the adverse impact of the crisis, but this is not true for all banks or in all circumstances. For example, borrower assistance and prudential measures exacerbated the stress for banks that are already undercapitalized and/or operate in countries with little fiscal space. These vulnerabilities will need to be carefully monitored as the pandemic continues to take a toll on the world?s economies.
    Keywords: Financial Sector Policy,Macroeconomic Management,International Trade and Trade Rules,Finance and Development,Banks&Banking Reform
    Date: 2020–08–14
  133. By: Jianwei Xing; Eric Zou; Zhentao Yin; Yong Wang
    Abstract: We study a new consumption stimulus model that leverages mobile payment platforms to dispense massive amounts of small-value, use-it-this-week-or-lose-it digital coupons. We evaluate the effects of one such program in a large Chinese city using novel data of mobile platform transactions of 1 million program participants. Exploiting participants’ rush to the first-come, first-served digital portal, we compare spending among those who barely won coupons to those who barely lost because of minor differences in the timing of their arrival at the portal. We find that coupons generate an immediate increase in weekly consumption among winners by $3 additional out-of-pocket spending for every $1 in government subsidy – representing an order-of-magnitude improvement in fiscal cost-benefit relative to a traditional cash-based stimulus. Analysis of business customer flows suggests that coupons distort consumption toward more expensive options, leading the program to disproportionately favor big firms that sell pricier goods and services. Relaxing coupons’ minimum spending requirements would alleviate such distributional concern without sacrificing consumer welfare. We conclude that the coupon model can be a useful addition to policy makers’ stimulus toolbox.
    JEL: D12 E42 H30 O31
    Date: 2020–07
  134. By: International Monetary Fund
    Abstract: This Article IV Consultation discusses that declining oil prices, US dollar appreciation, and limited access to international financing have worsened the fiscal, economic, and financial outlook. The focus of discussions was that despite the weak prospects there are still downside risks in the event that oil prices fall again, external financing becomes even more constrained, or confidence in the economy and the banking system begins to weaken. In the financial system, the main concern resides in a short-term risk of liquidity shortfalls, but credit quality concerns dominate over the medium term. The authorities’ policy response to the imbalances has been timely but still insufficient given the size of the shocks, the urgent nature of the vulnerabilities, and reduced foreign currency reserves. Real GDP is expected to contract significantly this year and next. In order to prevent liquidity risks in the financial system, the authorities should limit recourse to domestic financing and, as necessary, assist in a timely way banks that develop liquidity or capital shortfalls, as well as enhance crisis preparedness and contingency planning.
    Keywords: Real sector;External sector;Central banks;Credit;Financial statistics;arrears,term of trade,central bank,percent of GDP,non-oil
    Date: 2019–03–21
  135. By: International Monetary Fund
    Abstract: This paper on government finance statistics (GFS) mission in Lesotho presents a review of progress against recommendations of previous GFS technical assistance (TA) missions and further assist with improving the quality of GFS currently compiled and disseminated. The mission reviewed progress with implementation of previous GFS TA recommendations and updated the public sector institutional table. The mission reviewed the new compilation methods and noted some improvements with the approach. Accounts payable are now recorded under financing, to bridge the timing difference of commitment basis expenditure. The report explains that the legal and institutional environment is conducive to compiling macroeconomic and financial statistics; the relevance and practical utility of existing macroeconomic and financial statistics are monitored; management processes are in place to monitor the quality of macroeconomic and financial statistics; and institutional integrity, transparency, and ethical practices meet statistical standards. There is still a need to correct recording to distinguish expense from acquisition of financial assets.
    Keywords: External sector statistics;Financial statistics;Financial management information systems;Monetary statistics;Fiscal sector;ISCR,CR,GFS,CBL,extrabudgetary,ministry of finance,MOF
    Date: 2019–11–04

This nep-mac issue is ©2020 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.