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on Macroeconomics |
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Issue of 2020‒09‒07
148 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Augustus J. Panton |
| Abstract: | Since the birth of the natural rate hypothesis, the conventional notion that short-term output simply fluctuates around a relatively stable long-term trend became the norm in modern macroeconomics, including in the standard New Keynesian DSGE model. However, the global financial crisis (GFC) led to a serious rethinking of this norm, giving rise to the re-emergence of the Blanchard-Summers’ hysteresis debate and a new business cycle paradigm in which the short-term output effects of financial crises permanently feed into long-term growth trends. Using a Bayesian-estimated structural multivariate filtering model calibrated to data for Australia and the United States, the innovation of this paper is the incorporation of climate hysteresis into the estimation of potential output and the output and unemployment gaps. The results suggest non-trivia implications for monetary policy in a carbon-constrained world. Not only are the model-based estimates of potential output and NAIRU more volatile with climate shock persistence, the climate-neutral output and unemployment gap estimates are much smaller than conventional estimates, with different implications for inflation signals during the upturn or downturn of the business cycle. For economies that are more susceptible to disruptive climate shocks, especially in the developing world, an environment in which both demand conditions and the underlying supply potential are rapidly changing will severely complicate the conduct of forward-looking macroeconomic policy. |
| Keywords: | Potential output, output gaps, NAIRU, physical climate risks |
| JEL: | C51 C52 E32 E52 Q51 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-76&r=all |
| By: | Sami Diaf (Universität Hamburg (University of Hamburg)); Jörg Döpke (Hochschule Merseburg (University of Applied Sciences Merseburg)); Ulrich Fritsche (Universität Hamburg (University of Hamburg)); Ida Rockenbach (Universität Hamburg (University of Hamburg)) |
| Abstract: | Using corpora of business cycle report sections dealing with monetary and fiscal policy issues from 1999 to 2017 we use methods of unsupervised text scaling (Slapin and Proksch, 2008; Lauderdale and Herzog, 2016), namely Wordfish and Wordshoal to scale the institutions’ theoretical/ ideological position over debates. The results are in line with findings from descriptive textual analysis. For monetary policy, we observe a strong but short-living consensus in debate-specific positions during the heat of the financial crisis in 2008 and a larger polarization after 2008 compared to the sample period before. For the fiscal policy textual corpus, the polarization was similarly high before and after the crisis. For both policy areas, the institutions DIW Berlin and IfW Kiel define the outer bounds of the observed spectrum of latent ideological positions. |
| Keywords: | Text Scaling Model, Wordfish, Wordshoal, Computational Content Analysis, Hierarchical Factor Model, Bayesian Estimation, Political Economy, Ideology, Polarization, Public Policy, Monetary Policy, Fiscal Policy |
| JEL: | E32 E52 E62 H3 C55 D7 P16 |
| Date: | 2020–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:202001&r=all |
| By: | Joshua Bernstein; Alexander W. Richter; Nathaniel A. Throckmorton |
| Abstract: | This paper estimates a real business cycle model with unemployment driven by shocks to labor productivity and the job separation rate. We make two contributions. First, we develop a new identification scheme based on the matching elasticity that allows the model to perfectly match a range of labor market moments, including the volatilities of unemployment and vacancies. Second, we use our model to revisit the importance of shocks to the job separation rate and highlight how their correlation with labor productivity affects their transmission mechanism. |
| Keywords: | Real Business Cycles; Estimation; Unemployment; Separation Rate; Vacancies |
| JEL: | C13 E24 E32 E37 J63 |
| Date: | 2020–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:88636&r=all |
| By: | Denny Lie |
| Abstract: | This paper studies the implications of state-dependent pricing in a small open-economy dynamic stochastic general equilibrium (DSGE) model for Indonesia. I show that variations in the timing and frequency of price adjustment inherent in a state-dependent pricing assumption could have important implications for DSGE model-based policy analysis in Indonesia. This extensive margin effect produces disparities in the conditional variance decompositions and the impulse responses to various shocks responsible for business cycle fluctuations. An investigation into the impact of COVID-19 pandemic shocks indicates that such variations non-trivially affect the analysis on the appropriate degree of monetary policy response to the shocks. A state-dependent pricing model would call for a greater degree of monetary easing in response to the COVID-19 pandemic, than that prescribed by a traditional time-dependent pricing model. The broader implication is clear. For modelling and analyzing the Indonesian economy, in which the inflation rates have historically been moderate-to-high and highly variable, state-dependent pricing is an essential model feature. |
| Keywords: | state-dependent pricing, monetary policy, DSGE model for Indonesia, COVID-19 pandemic |
| JEL: | E12 E32 E58 E61 F41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-73&r=all |
| By: | Aliaga, Augusto |
| Abstract: | This paper evaluates optimal monetary policy in a new Keynesian model for an open economy with financial frictions. In the model, aggregate demand is made up of the weighted average of the short and long-term interest rates. A comprehensive set of monetary policy rules is established, all suitable for small open economies, such as Peru. A domestic inflation forecast based rule and an exchange rate based rule are found to work well. Furthermore, international shocks can affect competitiveness and involve co-movements in domestic interest rates. Finally, the estimates suggest that adding the nominal exchange rate to the monetary rule significantly improves the model fit. Consequently, the estimated parameters indicate that international shocks introduced in this model can replicate key empirical facts observed in the domestic business cycle. |
| Keywords: | Comparación de reglas; Economía abierta; Estimación Bayesiana; Fricciones financieras; Política monetaria óptima |
| JEL: | C11 E31 E32 E44 E52 E58 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:100604&r=all |
| By: | Martín Uribe |
| Abstract: | Empirical studies using micro data find that about two thirds of all product prices do not change in a given quarter. This evidence has been interpreted as indicating the absence of price indexation. Further, models of staggered price setting without indexation interpret all price changes as optimal. However, the empirical evidence is mute with regard to whether price changes are optimal or not. To reconcile the possibility of price indexation with the micro evidence on the frequency of price changes, I modify the Calvo sticky price model by allowing each period a fraction of randomly picked prices to change optimally, another fraction of randomly picked prices to change due to indexation, and the remaining prices to be constant. The paper presents five main findings: (1) with staggered price indexation the Phillips curve includes a state variable that carries information about all past inflation rates; (2) as the degree of staggered price indexation increases, the Phillips curve becomes flatter; (3) staggered indexation dampens the short-run effect of monetary policy on inflation and amplifies its effect on output; (4) fixing the probability of a price change to 33% per quarter (in accordance with the empirical evidence), a small-scale new-Keynesian model estimated on U.S. data yields a probability of indexation of 19\% per quarter (and therefore a probability of an optimal price change of 14% per quarter); and (5) according to the estimated model, staggered indexation explains more than half of the observed persistence of inflation in the United States. |
| JEL: | E1 E3 E5 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27657&r=all |
| By: | Xiaoshan Chen; Eric M. Leeper; Campbell B. Leith |
| Abstract: | We estimate a model in which fiscal and monetary policy behavior arise from the optimizing behavior of distinct policy authorities, with potentially different welfare functions. Optimal time-consistent policy behavior fits U.S. time series at least as well as rules-based behavior. American policies often do not conform to the conventional mix of conservative monetary policy and debt-stabilizing fiscal policy. Even after the Volcker disinflation, policies did not achieve that conventional mix, as fiscal policy did not act to stabilize debt until the mid 1990s. A credible conservative central bank that follows a time-consistent fiscal policy leader would come close to mimicking the cooperative Ramsey policy. Had that strategic policy mix been in place, American might have avoided the Great Inflation. Enhancing cooperation between policy makers without an ability to commit may be detrimental to welfare. |
| JEL: | E31 E32 E52 E61 E62 E63 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27540&r=all |
| By: | Diego Rojas; Carlos A. Vegh; Guillermo Vuletin |
| Abstract: | We analyze the macroeconomic effects of macroprudential policy – in the form of legal reserve requirements – in three Latin American countries (Argentina, Brazil, and Uruguay). To correctly identify innovations in changes in legal reserve requirements, we develop a narrative approach – based on contemporaneous reports from the IMF and Central Banks in the spirit of Romer and Romer (2010) – that classifies each change into endogenous or exogenous to the business cycle. We show that this distinction is critical in understanding the macroeconomic effects of reserve requirements. In particular, we show that output falls in response to exogenous increases in legal reserve requirements but would seem not to be affected (or could even increase!) when using all changes and relying on traditional time-identifying strategies. This bias reflects the practical relevance of the misidentification of endogenous countercyclical changes in reserve requirements. We also push the empirical frontier along two important dimensions. First, in measuring legal reserve requirements, we take into account both the different types of legal reserve requirements in terms of maturity and currency of denomination as well as the structure of deposits. Second, since in practice reserve requirement policy is tightly linked to monetary policy, we also jointly analyze the macroeconomic effects of changes in central bank interest rates. To properly identify exogenous central bank interest rate shocks, we follow Romer and Romer (2004). |
| JEL: | E32 E52 E58 F31 F41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27687&r=all |
| By: | Valentina Colombo; Alessia Paccagnini |
| Abstract: | This study evaluates the effects of financial uncertainty shocks in the US, investigating the role of the monetary policy stance. Estimating a nonlinear Vector Autoregressive, we find that an uncertainty shock triggers asymmetric and negative effects across the business cycle. The reactions of consumption and investments are state-dependent and drive the fluctuations of GDP. The variance of macroeconomic variables due to the shock is from four to six times larger in recessions than in normal times. A counterfactual exercise shows that the Balance Sheet-related monetary policy mitigates the persistence and the magnitude of the recessionary effects of the shock. |
| Keywords: | Uncertainty, Smooth Transition VAR, Nonlinearities, Monetary Policy |
| JEL: | C50 E32 E52 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-72&r=all |
| By: | Dario Caldara; Etienne Gagnon; Enrique Martínez-García; Christopher J. Neely |
| Abstract: | We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools. |
| Keywords: | Global Financial Crisis 2007–09; monetary policy; effective lower bound; structural changes; forward guidance; balance sheet policies |
| JEL: | E31 E32 E52 E58 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88645&r=all |
| By: | John Muellbauer |
| Abstract: | Macroeconomic policy models should track the different channels of monetary transmission, providing a framework for Monetary Policy Committees. They should also be useful for assessing risks to financial stability, including for designing macroprudential stress tests and instrument settings in the new macroprudential toolkits. Current policy models, including the ‘semi-structural’ non-DSGE econometric models such as FRB-US, are seriously deficient in these respects, failing to capture the credit channel and the role of real estate in the financial accelerator that operated in the global financial crisis, and in key transmission channels in the recovery. Furthermore, developments in economic theory, greatly encouraged by new evidence, have rendered redundant the previously accepted micro-foundations for household behaviour in these policy models. A multi-purpose policy model needs to include a household-housing sub-system. This should contain a consumption function broadly consistent with the micro-evidence with equations for permanent income, for the balance sheet drivers, and for residential investment. To capture the credit channel, this block of the model needs to embed common credit conditions in the equations. Sub-system estimation is required to impose the cross-equation restrictions implied by these common factors. |
| Keywords: | macroeconomic policy models, micro foundations, consumption, finance and the real economy, financial crisis, credit constraints, household portfolios, asset prices |
| JEL: | E17 E21 E44 E51 E52 E58 G01 |
| Date: | 2020–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:916&r=all |
| By: | Boehm, Christoph E.; Pandalai-Nayar, Nitya |
| Abstract: | We provide evidence that industries' supply curves are convex. To guide our empirical analysis, we develop a model, in which capacity constraints at the plant level generate convex supply curves at the industry level. The industry's capacity utilization rate is a sufficient statistic for the supply elasticity. Using data on capacity utilization and three different instruments, we estimate the supply curve and find robust evidence for an economically sizable degree of convexity. The nonlinearity we identify has several macroeconomic implications: Responses to shocks are state-dependent, the Phillips curve is convex, and higher welfare costs of business cycles than Lucas (1987). JEL Classification: E22, E32, E52, E62, F44 |
| Keywords: | fiscal policy, monetary policy, slack, state-dependence, utilization |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202460&r=all |
| By: | Unidad Macroeconómica de Análisis UMAC |
| Abstract: | Este documento de la Unidad Macroeconómica de Análisis aborda los impactos de corto plazo sobre la actividad económica colombiana de las medidas de confinamiento implementadas desde marzo de 2020 para evitar una propagación masiva de la pandemia COVID-19. Realiza un análisis de la producción en particular con desagregaciones sectoriales y por demanda, analizando cómo cada sector se vio afectado en una forma particular de acuerdo con su naturaleza. La presión económica descrita ha generado que las cuarentenas totales se agoten como instrumento de política pública viable en términos económicos, sociales y políticos. *** This document from the Macroeconomic Analysis Unit addresses the short-term impacts on Colombian economic activity of the lockdown measures implemented since March 2020 to prevent a massive spread of the COVID-19 pandemic. It performs an analysis of production with descriptions by sector and by demand, analyzing how each sector was affected according to its nature. The economic pressure described has caused the total quarantines to be exhausted as a viable public policy instrument in economic, social, and political terms. |
| Keywords: | análisis macroeconómico, COVID-19, impacto, cuarentena, aislamiento, crisis, Colombia. |
| JEL: | E00 E01 E20 E23 E60 |
| Date: | 2020–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:col:000178:018350&r=all |
| By: | BLINOV, Sergey |
| Abstract: | Today, increasing the growth rate of the Russian economy is more relevant than ever. Consideration of any macroeconomic phenomena that in a historical perspective would provide an economic recovery and increase the economic power of our country is of undoubted interest. One of the important aspects of this problem is the influence of monetary policy and specifically the increase in real money supply on economic growth in a broad historical perspective. The dynamics of the real money supply explains well the rapid growth of the Russian economy in 1999–2008 and the slow one from 2009 to 2019. Some features of monetary policy, in particular ignoring the important role of public debt as a stabilizer of the monetary system, can be considered as causes of economic policy failures in the recent past. From the perspective of a historical analysis of these recent events and a deeper immersion in economic history, we will try to find out what measures in the field of monetary and financial strategies and tactics can most effectively help accelerate Russia's economic development. |
| Keywords: | деньги; история; финансы; теория реальных денег; |
| JEL: | E40 E42 E50 E58 N00 N10 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102386&r=all |
| By: | Serdar Birinci |
| Abstract: | I document a small spousal earnings response to the job displacement of the family head. The response is even smaller in recessions, when earnings losses are larger and additional insurance is most valuable. I investigate whether the small response is an outcome of the crowding-out effects of government transfers. To accomplish this, I use an incomplete markets model with family labor supply and aggregate fluctuations where predicted spousal labor supply elasticities with respect to transfers are in line with microeconomic estimates both in aggregate and across subpopulations. Counterfactual experiments indeed reveal that generous transfers in recessions discourage the spousal labor supply significantly. I then show that the optimal policy features procyclical means-tested and countercyclical employment-tested transfers, unlike the existing policy that maintains generous transfers of both types in recessions. Abstracting from the incentive costs of transfers on the spousal labor supply changes both the level and cyclicality of optimal transfers. |
| Keywords: | Unemployment; Job Search; Business Cycles; Fiscal Policy and Household Behavior |
| JEL: | E24 E32 H31 J64 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88548&r=all |
| By: | Alexander W. Bartik; Marianne Bertrand; Feng Lin; Jesse Rothstein; Matt Unrath |
| Abstract: | We use traditional and non-traditional data to measure the collapse and partial recovery of the U.S. labor market from March to early July, contrast this downturn to previous recessions, and provide preliminary evidence on the effects of the policy response. For hourly workers at both small and large businesses, nearly all of the decline in employment occurred between March 14 and 28. It was driven by low-wage services, particularly the retail and leisure and hospitality sectors. A large share of the job losses in small businesses reflected firms that closed entirely, though many subsequently reopened. Firms that were already unhealthy were more likely to close and less likely to reopen, and disadvantaged workers were more likely to be laid off and less likely to return. Most laid off workers expected to be recalled, and this was predictive of rehiring. Shelter-in-place orders drove only a small share of job losses. Last, states that received more small business loans from the Paycheck Protection Program and states with more generous unemployment insurance benefits had milder declines and faster recoveries. We find no evidence that high UI replacement rates drove job losses or slowed rehiring. |
| JEL: | E24 E32 J2 J63 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27613&r=all |
| By: | Shigeto KITANO (Research Institute for Economics and Business Administration, Kobe University) |
| Abstract: | This note examines how recent volatile fluctuations of world commodity prices due to the COVID-19 shock affect Asian commodity exporting economies. Our analysis shows that a drop in world commodity prices has a significant negative impact on output, consumption, and investment of sample countries. However, the impact on trade balance is positive in some countries and negative in others. The difference between these two groups is attributable to whether world commodity prices affect each country's interest rate spreads. |
| Keywords: | Commodity prices; Asian emerging economies; Financial frictions; SVAR; Interest rate spreads; Commodity exporting economies; Trade balances; COVID-19 shock |
| JEL: | E32 E37 E44 F32 F36 F41 F44 F62 O16 Q43 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2020-24&r=all |
| By: | Robert Kollmann |
| 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 countryspecific 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 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-75&r=all |
| By: | Kristin J. Forbes |
| Abstract: | Countries are using macroprudential tools more actively with the goal of improving the resilience of their broader financial systems. A growing body of evidence suggests that these tools can accomplish specific domestic goals and should reduce country vulnerability to many domestic and international shocks. The evidence also suggests, however, that these policies are not an elixir. They will not insulate economies from volatility and they generate leakages to the non-bank financial system and spillovers through international borrowing, lending and other cross-border exposures. Some of these unintended consequences can mitigate the effectiveness of macroprudential policies and generate new vulnerabilities and risks. The “Corona Crisis” provides a lens to evaluate the effectiveness of current macroprudential regulations during a period of extreme market volatility and economic stress. Experience to date suggests that macroprudential tools provide some benefits and can help achieve certain macroeconomic goals, but they have limitations and expectations of what they can accomplish must be realistic. |
| JEL: | E44 E5 F33 F36 F38 G21 G23 G28 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27698&r=all |
| By: | Federico Etro |
| Abstract: | I explore the technological foundations of dynamic entry models à la Bilbiie-Ghironi-Melitz where the endogenous creation of new inputs can generate either neoclassical business cycle dynamics or long run growth. Under a general CRS technology in labor and intermediate goods produced by monopolistic innovators, substitutability between inputs drives markups and profitability of innovations as functions of the number of firms. Decreasing profitability tends to generate a stable steady state associated with a propagation of shocks fostered by endogenous productivity. The decentralized equilibrium is inefficient and I characterize the optimal policy to fix static and dynamic inefficiencies. |
| Keywords: | Entry, monopolistic competition, variable markups, technology, business cycle. |
| JEL: | E1 E2 E3 F4 L1 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2020_12.rdf&r=all |
| By: | Atsushi Motohashi (Kyoto University) |
| Abstract: | This study analyzes the impact of the U.S. interest rate policy on the global economy. We extend the literature and build a global model consisting of a large country (the U.S.) and many small countries to investigate the mechanism by which economic growth and asset prices accelerate rapidly after a U.S. interest rate reduction. Specifically, we show that a U.S. interest rate reduction not only increases economic growth rates but also expands asset bubbles as long as the bubbles exist in small open economies. We also show, however, that this low interest rate policy has a large side effect, that is, a collapse of the asset bubbles causes a larger drop in the growth rate of small open countries than that in the case without a lower interest rate. This conclusion implies that small countries need to be prepared for overheated asset prices associated with U.S. interest policies. |
| Keywords: | Asset Bubbles; U.S. Interest Rate Policy; Economic Growth; Collapse of Asset Bubbles; Asset Prices |
| JEL: | E32 E44 F43 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1041&r=all |
| By: | Amir Kermani; Yueran Ma |
| Abstract: | The specificity of firms' assets affects a wide range of economic issues. We study asset specificity of U.S. non-financial firms using a new dataset on the liquidation recovery rates of all major asset categories across industries. First, we find that non-financial firms' assets are generally highly specific. The average recovery rate (liquidation value over cost net of depreciation) is 35% for plant, property, and equipment (PPE). Second, across industries, physical attributes such as mobility, durability, and standardization account for around 40% of variations in PPE recovery rates. Over time, macroeconomic and industry conditions have the most impact on recovery rates when PPE is not firm-specific. Third, higher asset specificity is associated with less asset sales, greater investment response to uncertainty, and more Q dispersion, consistent with theories of investment irreversibility. Finally, the data suggests that rising intangibles have had a limited impact on firms' liquidation values. |
| JEL: | E22 E32 G31 G33 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27642&r=all |
| By: | Allen, Sarah (Initiative for CryptoCurrencies and Contracts (IC3)); Capkun, Srdjan (Initiative for CryptoCurrencies and Contracts (IC3)); Eyal, Ittay (Initiative for CryptoCurrencies and Contracts (IC3)); Fanti, Giulia (Initiative for CryptoCurrencies and Contracts (IC3)); Ford, Bryan (Initiative for CryptoCurrencies and Contracts (IC3)); Grimmelmann, James (Initiative for CryptoCurrencies and Contracts (IC3)); Juels, Ari (Initiative for CryptoCurrencies and Contracts (IC3)); Kostiainen, Kari (Initiative for CryptoCurrencies and Contracts (IC3)); Meiklejohn, Sarah (Initiative for CryptoCurrencies and Contracts (IC3)); Miller, Andrew (Initiative for CryptoCurrencies and Contracts (IC3)); Prasad, Eswar (Cornell University); Wüst, Karl (Initiative for CryptoCurrencies and Contracts (IC3)); Zhang, Fan (affiliation not available) |
| Abstract: | Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a range of new financial instruments and monetary policy levers. CBDCs also give rise, however, to a host of challenging technical goals and design questions that are qualitatively and quantitatively different from those in existing government and consumer payment systems. A well-functioning CBDC will require an extremely resilient, secure, and performant new infrastructure, with the ability to onboard, authenticate, and support users on a massive scale. It will necessitate an architecture simple enough to support modular design and rigorous security analysis, but flexible enough to accommodate current and future functional requirements and use cases. A CBDC will also in some way need to address an innate tension between privacy and transparency, protecting user data from abuse while selectively permitting data mining for end-user services, policymakers, and law enforcement investigations and interventions. In this paper, we enumerate the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, we discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. We also present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users. |
| Keywords: | new financial technologies, digital money, cryptocurrencies, payment systems |
| JEL: | E42 E52 E58 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13535&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari |
| Abstract: | This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks by Bloom (Econometrica 2009(3): 623-685. doi: 10.3982/ECTA6248). We replicate the results in a narrow sense using Eviews. In a wide sense, we extend his study by working with a smooth transition-VAR framework that allows for business cycle-dependent macroeconomic responses to an uncertainty shock. We find a significantly stronger response of real activity in recessions. Counterfactual simulations point to a greater effectiveness of systematic monetary policy in stabilizing real activity in expansions. |
| Keywords: | Uncertainty shocks, nonlinear Smooth Transition Vector AutoRegressions, Generalized Impulse Response Functions, systematic monetary policy |
| JEL: | C32 E32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-74&r=all |
| By: | Adam Hale Shapiro |
| Abstract: | This paper proposes a simple framework to help monitor and understand movements in PCE inflation in real time. The approach is to decompose inflation using simple categorical-level regressions or systems of equations. The estimates are then used to group categories into components of PCE inflation. I review some applications of the methodology, and show how it can help explain inflation dynamics over recent episodes. The methodology shows that inflation remained low in the mid-2010s primarily because of factors unrelated to aggregate economic conditions. I also apply the methodology to the Covid-19 pandemic. The decomposition reveals that a majority of the drop in core PCE inflation after the onset of the pandemic was attributable to an initial strong decline in consumer demand, which more recently has rebounded somewhat. |
| Keywords: | inflation; covid-19; measurement; PCE |
| JEL: | E3 E01 |
| Date: | 2020–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:88609&r=all |
| By: | Sebastian Heise; Fatih Karahan; Ayşegül Şahin |
| Abstract: | Price inflation in the U.S. has been sluggish and slow to pick up in the last two decades. We show that this missing inflation can be traced to a growing disconnect between unemployment and core goods inflation. We exploit rich industry-level data to show that weakening pass-through from wages to prices in the goods-producing sector is an important source of the slow inflation pick-up in the last two decades. We set up a theoretical framework where markups and pass-through are a function of firms' market shares and show that increased import competition and rising market concentration reduce pass-through from wages to prices. We then use industry-level data and find strong support for these two channels consistent with the implications of our model. |
| JEL: | E24 E31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27663&r=all |
| By: | Takeo Hori (Tokyo Institute of Technology); Ryonghun Im (Kyoto University) |
| Abstract: | Uninsured investment risks are introduced into a textbook AK model. There are no financial frictions. Depending on insurance market development, asset bubbles emerge in an infinitely-lived agent economy. A collapse of bubbles has short-run impacts. At the moment of the collapse of bubbles, aggregate demand decreases immediately. This instantly triggers sharp declines in all of GDP, consumption, investment, capital utilization, and wealth-to-GDP, although capital remains constant in the short run. Consistently with data, investment decreases more than consumption. The bubbles also has long-run impacts. The decreased investment depresses long-run growth. The economy falls into a prolonged recession. |
| Keywords: | asset bubbles, uninsured idiosyncratic investment risks, instant contraction, aggregate demand, prolonged recession |
| JEL: | E32 E44 G1 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1036&r=all |
| By: | Justin Sandefur (Center for Global Development); Arvind Subramanian (Peterson Institute for International Economices; Harvard Kennedy School) |
| Abstract: | The International Monetary Fund’s forecasts of GDP growth in 2020 suggest a substantially muted impact of the COVID crisis—about 3 percentage points smaller—for developing countries compared to advanced economies. Simple cross-country regressions show this discrepancy cannot be explained by external vulnerabilities to trade disruptions, financial crises, or commodity price shocks, which mostly suggest a more severe crisis in the developing world. It also cannot be explained by the domestic shock, because—while current case totals are greater in advanced economies—the policy responses of social distancing and lockdowns which will directly constrain economic activity have been similar across both groups of countries, and fiscal policy responses have been significantly weaker in developing countries. We hope that the relative optimism will not induce complacency and elicit a less-than-forceful response by countries themselves nor legitimize an ungenerous, conditionality-addled response on the part of the international community in the face of an unprecedented calamity. |
| Keywords: | IMF, coronavirus, covid-19, growth forecasts |
| JEL: | I15 E37 O47 |
| Date: | 2020–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:533&r=all |
| By: | James A Kahn; Benjamin S Kay |
| Abstract: | We provide new evidence that credit supply shifts contributed to the U.S. subprime mortgage boom and bust. We collect original data on both government and private mortgage insurance premiums from 1999-2016, and document that prior to 2008, premiums did not vary across loans with widely different observable characteristics that we show were predictors of default risk. Then, using a set of post-crisis insurance premiums to fit a model of default behavior, and allowing for time-varying expectations about house price appreciation, we quantify the mispricing of default risk in premiums prior to 2008. We show that the flat premium structure, which necessarily resulted in safer mortgages cross-subsidizing riskier ones, produced substantial adverse selection. Government insurance maintained a flatter premium structure even post-crisis, and consequently also suffered from adverse selection. But after 2008 the government reduced its exposure to default risk through a combination of higher premiums and rationing at the extensive margin. |
| Keywords: | financial crisis, mortgage insurance, housing finance, default risk |
| JEL: | G21 E44 E32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:875&r=all |
| By: | Valerie A. Ramey |
| Abstract: | Can greater investment in infrastructure raise U.S. long-run output? Are infrastructure projects a good short-run stimulus to the economy? This paper uses insights from the macroeconomics literature to address these questions. I begin by analyzing the effects of government investment in both a stylized neoclassical model and a medium-scale New Keynesian model, highlighting the economic mechanisms that govern the strength of the short-run and long-run impacts. The analysis confirms earlier findings that the implementation delays inherent in infrastructure projects reduce short-run multipliers in most cases. In contrast, long-run multipliers can be sizable when government capital is productive. Moreover, these multipliers are greater if the economy starts from a point below the socially optimal amount of public capital. Turning to empirical estimation, I use the theoretical model to explain the econometric challenges to estimating the elasticity of output to public infrastructure. Using both artificial data generated by simulations of the model and extensions of existing empirical work, I demonstrate how both general equilibrium effects and optimal choice of public capital are likely to impart upward biases to output elasticity estimates. Finally, I review and extend some empirical estimates of the short-run effects, focusing on infrastructure spending in the ARRA. |
| JEL: | E62 H41 H54 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27625&r=all |
| By: | Daniel J. Lewis; Karel Mertens; James H. Stock |
| Abstract: | At the end of March, we launched the Weekly Economic Index (WEI) as a tool to monitor changes in real activity during the pandemic. The rapid deterioration in economic conditions made it important to assess developments as soon as possible, rather than waiting for monthly and quarterly data to be released. In this post, we describe how the WEI has measured the effects of COVID-19. So far in 2020, the WEI has synthesized daily and weekly data to measure GDP growth remarkably well. We document this performance, and we offer some guidance on evaluating the WEI’s forecasting abilities based on 2020 data and interpreting WEI updates and revisions. |
| Keywords: | high frequency; real activity; nowcasting; COVID-19 |
| JEL: | E2 C51 E01 E66 |
| Date: | 2020–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88514&r=all |
| By: | Serdar Birinci; Fatih Karahan; Yusuf Mercan; Kurt See |
| Abstract: | We study the effects and welfare implications of labor market policies that counteract the economic fall out from containment policies during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The small share of payroll subsidies is sufficient to preserve high-productivity jobs, but leaves room for social assistance to workers who face inevitable job loss. |
| Keywords: | COVID-19; Fiscal Policy; Labor Productivity; Unemployment; Job Search |
| JEL: | E24 E62 J64 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88526&r=all |
| By: | Sarah Allen; Srđjan Čapkun; Ittay Eyal; Giulia Fanti; Bryan A. Ford; James Grimmelmann; Ari Juels; Kari Kostiainen; Sarah Meiklejohn; Andrew Miller; Eswar Prasad; Karl Wüst; Fan Zhang |
| Abstract: | Central banks around the world are exploring and in some cases even piloting Central Bank Digital Currencies (CBDCs). CBDCs promise to realize a broad range of new capabilities, including direct government disbursements to citizens, frictionless consumer payment and money-transfer systems, and a range of new financial instruments and monetary policy levers. CBDCs also give rise, however, to a host of challenging technical goals and design questions that are qualitatively and quantitatively different from those in existing government and consumer payment systems. A well-functioning CBDC will require an extremely resilient, secure, and performant new infrastructure, with the ability to onboard, authenticate, and support users on massive scale. It will necessitate an architecture simple enough to support modular design and rigorous security analysis, but flexible enough to accommodate current and future functional requirements and use cases. A CBDC will also in some way need to address an innate tension between privacy and transparency, protecting user data from abuse while selectively permitting data mining for end-user services, policymakers, and law enforcement investigations and interventions. In this paper, we enumerate the fundamental technical design challenges facing CBDC designers, with a particular focus on performance, privacy, and security. Through a survey of relevant academic and industry research and deployed systems, we discuss the state of the art in technologies that can address the challenges involved in successful CBDC deployment. We also present a vision of the rich range of functionalities and use cases that a well-designed CBDC platform could ultimately offer users. |
| JEL: | E42 E52 E58 O31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27634&r=all |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Michael Weber |
| Abstract: | Using a large-scale survey of U.S. consumers, we study how the large one-time transfers to individuals from the CARES Act affected their consumption, saving and labor-supply decisions. Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15 percent reporting that they mostly spent it. When providing a detailed breakdown of how they used their checks, individuals report having spent or planning to spend only around 40 percent of the total transfer on average. This relatively low rate of spending out of a one-time transfer is higher for those facing liquidity constraints, who are out of the labor force, who live in larger households, who are less educated and those who received smaller amounts. We find no meaningful effect on labor-supply decisions from these transfer payments, except for twenty percent of the unemployed who report that the stimulus payment made them search harder for a job. |
| JEL: | E2 E3 E6 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27693&r=all |
| By: | João Alfredo Galindo da Fonseca (Université de Montréal, CIREQ) |
| Abstract: | Are there differences between firms created by unemployed individuals relative to otherwise identical employed individuals? The answer is crucial for understanding the impact of policies that promote entrepreneurship among the unemployed. I develop an equilibrium model of entrepreneurship. Different outside options imply the unemployed are more likely to start firms, but these are smaller and fail more often. I verify these implications using a new administrative Canadian matched owner-employer-employee dataset. I use firm closures to identify random assignments of individuals to unemployment. I find that subsidies for firms started by the unemployed induce a reallocation of resources to low-productivity firms. The mechanism is further tested empirically by verifying that wage workers are more responsive to wages than the unemployed in their decision to start a firm. |
| Keywords: | firm dynamics, unemployment, macroeconomics, labor markets |
| JEL: | E24 E23 J63 J64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:04-2019&r=all |
| By: | Natalie Bachas; Peter Ganong; Pascal J. Noel; Joseph S. Vavra; Arlene Wong; Diana Farrell; Fiona E. Greig |
| Abstract: | We use U.S. household-level bank account data to investigate the heterogeneous effects of the pandemic on spending and savings. Households across the income distribution all cut spending from March to early April. Since mid April, spending has rebounded most rapidly for low-income households. We find large increases in liquid asset balances for households throughout the income distribution. However, lower-income households contribute disproportionately to the aggregate increase in balances, relative to their pre-pandemic shares. Taken together, our results suggest that spending declines in the initial months of the recession were primarily caused by direct effects of the pandemic, rather than resulting from labor market disruptions. The sizable growth in liquid assets we observe for low-income households suggests that stimulus and insurance programs during this period likely played an important role in limiting the effects of labor market disruptions on spending. |
| JEL: | E21 E6 E62 H31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27617&r=all |
| By: | Ataur Rahaman (Bangladesh Bank (Central Bank of Bangladesh), Dhaka, Bangladesh.); Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan.) |
| Abstract: | This paper analyzes the macroeconomic effects of fiscal shocks in Bangladesh using the sign restriction approach in a Bayesian structural vector autoregression (SVAR) framework. We identify a generic business cycle shock to deal with the endogenous movement of fiscal variables along with a monetary policy shock to absorb the variations due to those shocks. Both unanticipated and anticipated fiscal shocks, that is, government expenditure and revenue shocks, are also identified by minimal sign restrictions. In identifying those shocks, we do not impose any restrictions on the sign of the key variable of interest. We find that private investment and consumption significantly increase due to expansionary government expenditure shock. Such an increase in private consumption is consistent with neo-Keynesian prediction. The fall in output due to the tax increase shock is highly robust. Private consumption also decreases due to a tax increase, although investment does not. The results suggest that fiscal policy, especially tax policy, is more effective than monetary policy in stabilizing output. Moreover, the fiscal authority could increase government expenditure without hurting private investment. |
| Keywords: | Fiscal policy, Monetary policy, Business cycle, Bayesian VAR, Sign restrictions, Bangladesh, Fiscal shocks, Tax policy |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:20-08&r=all |
| By: | António Rua; Nuno Lourenço |
| Abstract: | The SARS-CoV-2 outbreak has spread worldwide causing unprecedented disruptions in the economies. These unparalleled changes in economic conditions made clear the urgent need to depart from traditional statistics to inform policy responses. Hence, the interest in tracking economic activity in a timely manner has led economic agents to rely on high-frequency data as traditional statistics are released with a lag and available at a lower frequency. Naturally, taking on board such a novel data involves addressing some of the complexities of highfrequency data (e.g. marked seasonal patterns or calendar effects). Herein, we propose a daily economic indicator (DEI), which can be used to assess the behavior of economic activity during the lockdown period in Portugal. The indicator points to a sudden and sharp drop of economic activity around mid-March 2020, when the highest level of alert due to the COVID-19 pandemic was declared in March 12. It declined further after the declaration of the State of Emergency in the entire Portuguese territory in March 18, reflecting the lockdown of several economic activities. The DEI also points to an unprecedented decline of economic activity in the first half of April, with some very mild signs of recovery at the end of the month. |
| JEL: | C22 C38 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202013&r=all |
| By: | Kumhof, Michael (Bank of England); Rungcharoenkitkul, Phurichai (Bank for International Settlements); Sokol, Andrej (European Central Bank) |
| Abstract: | Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalise the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis, creditors stop financing debt rather than current accounts, and because following a crisis, current accounts are not the primary channel through which balance sheets adjust. Second, we reinterpret the global saving glut hypothesis by arguing that US households do not finance current account deficits with foreigners’ physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin’s current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by US and non-US banks rather than US current account deficits. Finally, we demonstrate that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate sets of economic decisions. |
| Keywords: | Bank lending; money creation; money demand; uncovered interest parity; exchange rate determination; international capital flows; gross capital flows |
| JEL: | E44 E51 F41 F44 |
| Date: | 2020–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0884&r=all |
| By: | Vahabi, Mehrdad |
| Abstract: | This paper studies two approaches to the Neoliberalism with regard to the state. The first one starts by critically assessing “too much state” from the vintage point of civil society (Michel Foucault, 2008). The second approach begins from Welfare State and considers Neoliberalism as a deviation from this “progressive State” (Harvey, 2003, 2005). The former distinguishes two types of Neoliberalism, the German one (Ordoliberalism) and the American one (the Chicago School). Foucault focuses on the German Neoliberalism and underlines its specific characteristics in opposition with Fascism and Soviet Socialism as “organized” capitalism. However, Foucault’s investigation about the Chicago school is insufficiently studied. Pyne (2012) and Olsen (2019) explored Foucault’s approach with regard to the Chicago school in terms of Sovereign Consumer. A reexamination of Foucault and his followers indicate the importance of monetary stabilization as the cornerstone of Neoliberalism. In fact, the architecture of the European Monetary Union is inspired by Ordoliberalism. The Chicago School is also marked by the Monetarist approach with regard to the inflation control. The present paper substantiates the policy change from full employment to the inflation control in the USA. It also documents the evolution of hyperinflations and mega inflations in three waves: 1) after the first and the second World Wars in the European continent; 2) in the Latin America during the eighties and the nineties; 3) in the central and Eastern Europe as well as Central Asia during post-Socialist transition. |
| Keywords: | Neoliberalism, Hyperinflation, Mega inflation, Monetarism, Structuralsm, Post-keynesian, Full Employment, Sovereign Consummer |
| JEL: | E2 E5 E51 H7 J6 N1 |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102539&r=all |
| By: | Budnik, Katarzyna |
| Abstract: | The paper inspects the credit impact of policy instruments that are commonly applied to contain systemic risk. It employs detailed information on the use of capital-based, borrower-based and liquidity-based instruments in 28 European Union countries in 1995—2017 and a macroeconomic panel setup. The paper finds a significant impact of capital buffers, profit distribution restrictions, specific and general loan-loss provisioning regulations, sectoral risk weights and exposure limits, borrower-based measures, caps on long-term maturity and exchange rate mismatch, and asset-based capital requirements on credit to the non-financial private sector. Furthermore, the business cycle and monetary policy influence the effectiveness of most of the macroprudential instruments. Therein, capital buffers and sectoral risk weights act countercyclically irrespectively of the prevailing monetary policy stance, while a far richer set of policy instruments can act countercyclically in combination with the appropriate monetary policy stance. JEL Classification: E51, E52, G21 |
| Keywords: | borrower-based instruments, capital requirements, liquidity requirements, macroprudential policy, monetary policy |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202462&r=all |
| By: | Joao Galindo da Fonseca (Université de Montréal and CIREQ); Charles Berubé (Innovation, Science and Economic Development Canada) |
| Abstract: | We develop a model of endogenous entrepreneurship and marriage. Spouses influence entrepreneurship via three channels: they reduce benefits by working less the more profitable the business is, they reduce costs by working more in case of business failure, and children, associated with a spouse, increase the cost of failure. We use administrative matched owner-employer-employee spouse data to estimate the specifications derived from our model. The model is informative on the sources of endogeneity and the IV strategy. We show that higher marriage rates induce less entry but larger firms on average. Through the lens of our model, marriage increases firm productivity. |
| Keywords: | labor markets, family economics, macroeconomics, firm dynamics |
| JEL: | E24 E23 J12 J60 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:05-2020&r=all |
| By: | International Monetary Fund |
| Abstract: | Despite robust GDP growth, projected at 4 percent in 2018, inflation remains below its 3 percent target. The fiscal deficit has stabilized around 2 percent of GDP, implying a modest gradual reduction in public debt, which remains high at close to 70 percent of GDP. Monetary policy was relaxed further in June 2018 following a rapid appreciation of the exchange rate. The current account deficit has moderated over recent years, to about 6.5 percent of GDP. The outlook is mostly positive, with GDP growth projected to converge to 4 percent over the medium term, with inflation stabilizing around its target by 2021. Further fiscal consolidation and an accommodative monetary policy, combined with growth-promoting structural reforms represent the right policy mix. |
| Keywords: | Real sector;Macroprudential policies and financial stability;Economic reforms;Central banks;Gross domestic product;ISCR,CR,PPPs,percent of GDP,arrears,IMF,GDP |
| Date: | 2019–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/029&r=all |
| By: | João Alfredo Galindo da Fonseca (Université de Montréal, CIREQ); Charles Berubé (Innovation, Science and Economic Development Canada) |
| Abstract: | Does having a spouse influence an individual’s decision to start a firm and what firms they create? The answer to this question is crucial for our understanding of how recent changes to family composition influence firm creation. We develop a model of endogenous entrepreneurship with spousal labour supply decisions and endogenous marriage. Married individuals have three channels, that go in opposite directions, which influence their choice to start a firm relative to the unmarried. Firstly, spouses work less when the business is more profitable partially offsetting the benefit of higher profits (spousal substitution effect). Secondly, if the business fails, the spouse works more hours (spousal insurance effect). Finally, a married individual shares their in-come with their spouse which decreases their income as a worker, their cost to entrepreneurship (spousal opportunity cost effect). We proceed to test empirically the relative strength of these channels. The model is informative of the components of the error term and the conditions for validity of our instrumental variable strategy. Using city level variation in the past composition of immigrants we show higher marriage rates are associated to more entry and lower average size of startups. |
| Keywords: | firm dynamics, macroeconomics, labor markets, family economics |
| JEL: | E24 E23 J63 J64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:05-2019&r=all |
| By: | Miguel Garza Casado; Britta Glennon; Julia Lane; David McQuown; Daniel Rich; Bruce A. Weinberg |
| Abstract: | Policymakers, faced with different options for replacing lost earnings, have had limited evidence to inform their decisions. The current economic crisis has highlighted the need for data that are local and timely so that different fiscal policy options on local economies can be more immediately evaluated. This paper provides a framework for evaluating real-time effects of fiscal policy on local economic activity using two new sources of near real-time data. The first data source is administrative records that provide universal, weekly, information on unemployment claimants. The second data source is transaction level data on economic activity that are available on a daily basis. We use shift-share approaches, combined with these two data sources and the novel cross-county variation in the incidence of the COVID-19 supplement to Unemployment Insurance to estimate the local impact of unemployment, earnings replacement, and their interaction on economic activity. We find that higher replacement rates lead to significantly more consumer spending – even with increases in the unemployment rate – consistent with the goal of the fiscal stimulus. Our estimates suggest that, based on the latest data, eliminating the Federal Pandemic Unemployment Compensation (FPUC) supplement would lead to a 44% decline in local spending. If the FPUC supplement is reduced to $200, resulting in a reduction of the replacement rate by 44%, spending would fall by 28%. Even if the FPUC supplement is reduced to $400, the replacement rate would fall by 29% and spending would fall by 12%. Because these data are available in every state, the approach can be used to inform decision making not just in this current crisis, but also in future recessions. |
| JEL: | E21 E62 H3 J65 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27576&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment based on consumers' utility maximization and firms' profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods. We also analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to realize full-employment under a situation with involuntary unemployment. We show the following results. 1) In order to maintain the steady state where employment increases at some positive rate, we need a budget deficit. Therefore, we need budget deficit to realize full-employment from a state with involuntary unemployment (Proposition 1). 2) If the full-employment state is realized, we do not need budget deficit to maintain full-employment (Proposition 2). Additionally we present a game-theoretic interpretation of involuntary unemployment and full-employment. |
| Keywords: | Involuntary unemployment, Three-periods overlapping generations model, Monopolistic competition, Nash equilibrium |
| JEL: | E12 E24 |
| Date: | 2020–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102507&r=all |
| By: | Chang Ma; John H. Rogers; Sili Zhou |
| Abstract: | We examine the immediate effects and bounce-back from six modern health crises: 1968 Flu, SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016). Time-series models for a large cross-section of countries indicate that real GDP growth falls by around three percentage points in affected countries relative to unaffected countries in the year of the outbreak. Bounce-back in GDP growth is rapid, but output is still below pre-shock level five years later. Unemployment for less educated workers is higher and exhibits more persistence, and there is significantly greater persistence in female unemployment than male. The negative effects on GDP and unemployment are felt less in countries with larger first-year responses in government spending, especially on health care. Affected countries' consumption declines, investment drops sharply, and international trade plummets. Bounce-back in these expenditure categories is also rapid but not by enough to restore pre-shock trends. Furthermore, indirect effects on own-country GDP from affected trading partners are significant for both the initial GDP decline and the positive bounce back. We discuss why our estimates are a lower bound for the global economic effects of COVID-19 and compare contours of the current pandemic to the historical episodes. |
| Keywords: | Fiscal policy; Health crises; Unemployment; COVID-19; Trade network; Output loss |
| JEL: | I10 E60 F40 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1295&r=all |
| By: | Alok Johri; Shahed Khan; César Sosa-Padilla |
| Abstract: | International data suggests that fluctuations in the level and volatility of the world interest rate (as measured by the US treasury bill rate) are positively correlated with both the level and volatility of sovereign spreads in emerging economies. We incorporate an estimated time-varying process for the world interest rate into a model of sovereign default calibrated to a panel of emerging economies. Time variation in the world interest rate interacts with default incentives in the model and leads to state contingent effects on borrowing and sovereign spreads which resemble those found in the data. The model delivers up to one-half of the positive comovement between the level and volatility of world interest rate and the level of sovereign spreads seen in emerging economies. Moreover, the model also delivers significant positive co-movements between the volatility of the spread and the process for the world interest rate which is also consistent with the data. Our model provides one potential source for the observed bunching in default probabilities observed across nations, namely the world interest rate process. Our model generates a positive and significant correlation (0.51) between the spreads of two nations with uncorrelated income processes. This is close to the observed mean correlation in the data (0.61). |
| JEL: | E32 E43 F34 F41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27639&r=all |
| By: | Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Moscarini, Giuseppe (Yale University); Postel-Vinay, Fabien (University College London) |
| Abstract: | We revisit measurement of Employer-to-Employer (EE) transitions, the main engine of labor market competition and employment reallocation, in the monthly Current Population Survey (CPS). We follow Fallick and Fleischman (2004) and exploit a key survey question introduced with the 1994 CPS redesign. We detect a sudden and sharp increase in the incidence of missing answers to this question starting in 2007, when the U.S. Census Bureau introduced a change in survey methodology, the Respondent Identification Policy (RIP). We show evidence of selection into answering the EE question by both observable and unobservable worker characteristics that correlate with EE mobility. We propose a selection model and a procedure to impute missing answers to the key survey question, thus EE transitions, after the introduction of the RIP. Our imputed EE aggregate series restores a close congruence with the business cycle, especially with the onset of the Great Recession, exhibits a much less dramatic drop in 2008-2009 and a full recovery by 2016, and eliminates the spurious appearance of declining EE dynamism in the US labor market after 2000. We also offer the first evidence of the (large and negative) impact of the COVID-19 crisis on EE reallocation. |
| Keywords: | workforce reallocation, job to job transitions, current population survey |
| JEL: | J63 E24 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13472&r=all |
| By: | International Monetary Fund |
| Abstract: | Political risks appear to have subsided with the completion of legislative and local elections in October. The economy is slowly recovering, fiscal consolidation has continued, inflation has remained low, and the trade balance has improved. The recovery is expected to firm up in 2019 and the medium-term outlook is still promising, although risks remain mostly tilted to the downside. |
| Keywords: | Extended Fund Facility;Fiscal policy;Fiscal consolidation;Revenue mobilization;Fiscal reforms;Financial sector;Extended arrangement reviews;Performance criteria modifications;Performance criteria waivers;Economic indicators;Letters of Intent;Press releases;Staff Reports;Public financial management;Economic recovery;External sector;Real sector;Economic policy;non-oil,arrears,extended arrangement,Proj,BEAC |
| Date: | 2019–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/017&r=all |
| By: | International Monetary Fund |
| Abstract: | This Selected Issues paper examines the degree to which inflation co-moves between India and a panel of countries in Asia. The paper shows that the considerable co-movement in headline inflation rates between India and Nepal is driven almost exclusively by food-inflation co-movement. By contrast, the role for inflation spillovers emanating from India in driving non-food inflation in Nepal appears limited. The implication is that Nepal should rely on domestic monetary policy rather than stable inflation in India to achieve stable domestic inflation. The main takeaway from the results is that food inflation co-movement between India and other countries is higher in cases where the co-movement in rainfall deviations from seasonal norms is highest. Since core inflation co-movement is weak, idiosyncratic domestic factors such as economic slack, exchange-rate movements, and differing degrees of passthrough from food- and energy-price shocks play an important role. This finding is critically important for monetary policy, especially since domestic policy is primarily effective only in controlling core inflation. Thus, domestic monetary policy needs to be calibrated to domestic inflationary pressures—Nepal cannot necessarily rely on stable inflation in India to achieve stable domestic inflation. |
| Keywords: | Financial sector development;Development;Intergovernmental fiscal relations;Fiscal policy;Financial sector;Macroprudential policies and financial stability;Public financial management;Financial services;Financial infrastructure;fiscal federalism,NRB,federalism,core inflation,subnational |
| Date: | 2019–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/061&r=all |
| By: | Boukraine, Wissem |
| Abstract: | The fact that inflation is still on the rise, despite measures undertaken by the Tunisian central bank, prompts questions as to whether or not inflation dynamics has changed, exhibiting higher levels of persistence and volatility. This paper employs the smooth transition autoregressive model (STAR) to analyze Tunisian inflation dynamics on monthly data over the last three decades. We distinguish three periods based on monetary reforms. The non-linearity tests suggest that the ESTAR specification describes better the behavior of inflation. Our results suggest changes in persistence and important shifts in volatility, which confirm the effectiveness of the monetary reforms to a certain extent given the past political instability and the democratic transition in Tunisia. |
| Keywords: | Inflation, persistence, volatility, Smooth Transition Autoregressive, Tunisia |
| JEL: | C1 E31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101886&r=all |
| By: | Nelly Popova (Department of Finance, University of National and World Economy, Sofia) |
| Abstract: | The economic, debt and banking crises had strongly asymmetric effects on euro area countries and revealed the vulnerabilities in the institutional setting of the EMU and created significant risks to the single currency. In the aftermath of the crises there were significant changes in EMU aimed at increased risk sharing but they did involve the introduction of supra-national macroeconomic stabilization function. It is suggested in the paper that deeper fiscal integration is necessary to complement the currency union and strengthen the economic integration in the EU. The paper outlines the theoretical background of risk sharing and examines the main alternatives for a common fiscal capacity in the euro area. |
| Keywords: | Fiscal Policy, Economic Integration, Fiscal Federalism |
| JEL: | E62 F15 H77 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:10913061&r=all |
| By: | Titan Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt |
| 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, Pandemics, Recessions, Business Cycle, Gender Equality, School closures, Childcare, Gender Wage Gap |
| JEL: | D13 E32 J16 J20 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_198&r=all |
| By: | International Monetary Fund |
| Abstract: | Weak growth and underlying structural vulnerabilities persist in both Curaçao and Sint Maarten. Worsened macroeconomic conditions—reflecting the spillovers from one of Curaçao’s largest trading partners and the devastation from Hurricanes Irma and Maria in Sint Maarten—make the need for policy adjustment and structural reforms aimed at ensuring fiscal sustainability, enhancing competitiveness, strengthening investor confidence, and developing capacity more urgent. |
| Keywords: | Article IV consultation reports;Fiscal framework;Fiscal sustainability;Global competitiveness;Financial regulation and supervision;Governance;Economic indicators;Debt sustainability analysis;Press releases;Staff Reports;Balance of payments;Government finance statistics;Economic conditions;International reserves;Proj,percent of GDP,percent change,percent,current balance |
| Date: | 2019–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/023&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Hardik A. Marfatia (Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany); Afees A. Salisu (Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria) |
| Abstract: | We analyze the role of macroeconomic uncertainty in predicting synchronization in housing price movements across all the United States (US) states plus District of Columbia (DC). We first use a Bayesian dynamic factor model to decompose the house price movements into a national, four regional (Northeast, South, Midwest, and West), and state-specific factors. We then study the ability of macroeconomic uncertainty in forecasting the comovements in housing prices, by controlling for a wide-array of predictors, such as factors derived from a large macroeconomic dataset, oil shocks, and financial market-related uncertainties. To accommodate for multiple predictors and nonlinearities, we take a machine learning approach of random forests. Our results provide strong evidence of forecastability of the national house price factor based on the information content of macroeconomic uncertainties over and above the other predictors. This result also carries over, albeit by a varying degree, to the factors associated with the four census regions, and the overall house price growth of the US economy. Moreover, macroeconomic uncertainty is found to have predictive content for (stochastic) volatility of the national factor and aggregate US house price. Our results have important implications for policymakers and investors. |
| Keywords: | Machine learning, Random forests, Bayesian dynamic factor model, Forecasting, Housing markets synchronization, United States |
| JEL: | C22 C32 E32 Q02 R30 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202077&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation highlights that following a prolonged period of tepid growth, economic activity in Nepal has picked up, reflecting cyclical factors and some structural improvements, especially in electricity supply. Discussions focused on policies needed to stem rising balance of payments pressures, safeguard financial stability, and structural reforms to ensure high, sustainable and inclusive growth. Continued improvements in revenue performance are seen to be important to maintain a strong fiscal position and meet capital spending needs. The IMF staff welcomed the authorities’ efforts to increase domestic revenue mobilization. The authorities broadly agreed with the IMF staff’s assessment and fiscal policy advice. The authorities noted that the transition to fiscal federalism and the pickup of reconstruction. Progress has been made with putting in place a fiscal federal framework but more needs to be done to ensure sustainability, make budgets more realistic and spending more efficient, and build implementation capacity. |
| Keywords: | External sector;Balance of payments;Economic growth;Fiscal policy;Credit;ISCR,CR,percent of GDP,NRB,reconstruction activity,medium-term,GDP |
| Date: | 2019–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/060&r=all |
| By: | International Monetary Fund |
| Abstract: | Burkina Faso faces large social and physical infrastructure gaps, a deteriorating security situation, and unease among the rapidly-expanding population about economic prospects. Growth has been robust, averaging more than 6 percent over the past two years. Activity has been supported by expansionary fiscal policy, including from a boost to capital spending in 2017. Revenue has not increased as expected and the wage bill has been rising. |
| Keywords: | Article IV consultation reports;Governance;Debt management;Revenue mobilization;Government expenditures;Fiscal reforms;Poverty reduction;Extended Credit Facility;Extended arrangement reviews;Performance criteria modifications;Performance criteria waivers;Letters of Intent;Press releases;Staff Reports;Credit;External sector;Development;Economic indicators;Gross domestic product;performance criterion,Proj,PPPs,percent of GDP,Burkinabe |
| Date: | 2019–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/015&r=all |
| By: | Nettekoven, Zeynep Mualla |
| Abstract: | After the Great Financial Crisis of 2007-2008, macroprudential policy has increasingly become the mainstream. New institutions and regulations were introduced for macroprudential supervision in the EU Member States as well as at the supranational level. This leads us to the research question: what are the blind spots of this new macroprudential institutional design in the EU? This question gained even more in substance due to the repercussions of Covid-19 pandemic. Based on desk research and talks with experts, we group the blind spots into three categories: shadow banking system, institutional power hierarchies, and monetary and macroprudential policy interactions. In this paper, we discuss these blind spots and some policy recommendations for a functional macroprudential institutional design. |
| Keywords: | macroprudential policy,institutions,Great Financial Crisis,shadow banking system |
| JEL: | E52 E58 G28 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1472020&r=all |
| By: | Asongu, Simplice; Nting, Rexon; Nnanna, Joseph |
| Abstract: | Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking. |
| Keywords: | Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101926&r=all |
| By: | Corina Boar; Virgiliu Midrigan |
| Abstract: | We ask: what are the most efficient means of redistribution in an unequal society? We answer this question by characterizing the optimal shape of non-linear income and wealth taxes in a dynamic general equilibrium model with uninsurable idiosyncratic risk. Our analysis reproduces the distribution of income and wealth in the United States and explicitly takes into account the long-lived transition dynamics after policy reforms. We find that a uniform flat tax on capital and labor income combined with a lump-sum transfer is nearly optimal. Though taxing wealth and allowing for increasing marginal income tax schedules raises utilitarian welfare, the incremental gains from doing so are small. This result is robust to changing household preferences, the distribution of ability, the planner's preference for redistribution, as well as to explicitly modeling private business ownership and the ensuing heterogeneity in rates of return across financially constrained entrepreneurs. |
| JEL: | E2 E6 H2 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27622&r=all |
| By: | Titan Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt |
| 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. |
| JEL: | D13 E32 J16 J20 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27660&r=all |
| By: | Onifade, Stephen; Ay, Ahmet; Asongu, Simplice; Bekun, Festus |
| Abstract: | The recent exacerbation of unemployment crisis in Nigeria stands to be a serious threat to both socio-economic stability and progress of the country just as the report from the nation’s bureau of statistics shows that at least over 8.5 million people had no gainful employment at all as at the last quarter of the year 2017. It is on the above premise, that the present study explores the link between trade and unemployment for the case of Nigeria with the intention of exploring how the unemployment crisis has been impacted within the dynamics of the country’s trade performance. The empirical evidence shows that the nation’s terms of trade were insignificant to unemployment rate while trade openness and domestic investment, on the other hand, have significant opposing impacts on unemployment in Nigeria over the period of the study. Further breakdowns from the empirical analysis also revealed that the Philips curves proposition is valid within the Nigerian economic context while the evidences for the validity of Okun’s law only exist in the short-run scenario. Based on the empirical results, we recommend that concerted effort should be geared toward stimulating domestic investment by providing adequate financial and infrastructural facilities that will promote ease of doing business while utmost precautions are taken to ensure that unemployment crisis is not exacerbated when combating inflation in the economy in the wake of dynamic trade relations. |
| Keywords: | Nigeria; Unemployment; Trade; Phillips Curves; Okun’s law |
| JEL: | E23 E30 F21 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101925&r=all |
| By: | D'Orazio, Paola; Dirks, Maximilian W. |
| Abstract: | This paper investigates the impact of climate-related fiscal and financial policies on CO2 emissions implemented by G20 countries in the period 2000-2017. The analysis show that the impact of various policy instruments is heterogeneous across the carbon emissions distribution. In particular, the effect of a green investment bank is significant across all percentiles and contributes to improving environmental quality. Moreover, our findings suggest that what matters is not the financial sector size per se or the amount of credit devoted to the private sector, but rather the type of finance. This suggests that policymakers and researchers should devote more effort to calibrate their policy instruments and develop an efficient policy mix to achieve climate change mitigation, especially in countries with high carbon emissions. |
| Keywords: | mitigation strategies,financial regulation,green investment banks,carbon dioxide emissions,climate risks,green financey |
| JEL: | E58 E62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:860&r=all |
| By: | Zheng, Zhijie; Huang, Chien-Yu; Wan, Xi |
| Abstract: | This paper investigates the effects of monetary policy on income inequality in a Schumpeterian growth model with endogenous human capital accumulation and household heterogeneity. The source of heterogeneity arises from both unequal distributions of (tangible) wealth and (intangible) human capital. We find that inflation unambiguously lowers economic growth rate, whereas its impact on the income inequality is quite diverse, depending on the relative dispersions of human capital and wealth, and the response of the relative interestwage income share to inflation. Inflation may increase income inequality when the dispersion of human capital dominates (is dominated by) that of wealth, and the relative interest-wage income share is decreasing (increasing) in inflation rate. One interesting scenario in our analysis is that the model can generate a non-monotonic U-shaped relationship between income inequality and inflation. Moreover, our quantitative example shows that this U-shaped relationship is likely to occur in a reasonable range of parameter configuration and the threshold level of inflation is consistent with the current empirical findings using the U.S. data. |
| Keywords: | Income Inequality; Inflation; Endogenous economic growth; Human capital. |
| JEL: | D31 E41 O30 O40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101912&r=all |
| By: | Roberto Perotti |
| Abstract: | Criticism of the Target system by a group of central European scholars has become a widespread argument against the policies of the European Central Bank and even the integrity of the monetary union, and even standard fare in the media and in the political debate in Germany. Most academics and practitioners that have participated in the debate have been dismissive of the German preoccupations. In this paper, I first try and clarify the many remaining misunderstandings about the workings and implications of the Target system. I propose a unified, systematic and simple approach to the study of the workings of the Target system in response to different shocks and in comparison with different alternative regimes. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously, both on theoretical grounds and for its political implications. |
| JEL: | E58 E63 F33 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27627&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2018 Article IV Consultation highlights that Italy has been struggling with low economic growth and poor social outcomes and structural weaknesses have been at the core of this economic underperformance. Growth is projected to slow further, and the risk of recession has risen. The extent to which risks materialize depends largely on Italy’s policies. The authorities felt strongly that a fiscal stimulus is needed to promote economic growth and improve social outcomes. The authorities are also seeking to reduce temporary employment and support job search. The report suggests that faster potential growth is the only durable way for Italy to improve outcomes and enhance resilience. A package of structural reforms, a credible fiscal consolidation based on growth-friendly and inclusive measures, and bank balance sheet strengthening structural reforms, fiscal policy, and financial stability are also recommended. As by facilitating re-alignment of wages with productivity at the firm and regional levels, Italy’s high structural unemployment would fall, as would the continued heavy resort to temporary employment. |
| Keywords: | Article IV consultation reports;Fiscal reforms;Productivity;Fiscal policy;Financial sector;Financial stability;Economic indicators;Press releases;Staff Reports;External sector;Fiscal indicators;Macroprudential policies and financial stability;Unemployment;staff report,GDP,basis point,public investment,IMF |
| Date: | 2019–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/040&r=all |
| By: | Andres Drenik; Diego Perez |
| Abstract: | This paper studies the dollarization of prices in retail markets of emerging economies. We develop a model of the firm’s optimal currency choice in retail markets in inflationary economies. We derive theoretical predictions regarding the optimality of dollar pricing, and test them using data from the largest e-trade platform in Latin America. Across countries, price dollarization is positively correlated with asset dollarization and inflation, and negatively correlated with exchange rate volatility. At the micro level, larger sellers are more likely to price in dollars, and more tradeable goods are more likely to be posted in dollars. We then show that prices are sticky, and hence the currency of prices determines the short-run reaction of both prices and quantities to a nominal exchange rate shock. |
| JEL: | E31 F41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27647&r=all |
| By: | Rod Garratt; Michael Junho Lee; Brendan Malone; Antoine Martin |
| Abstract: | Digital currencies, including potential central bank digital currencies (CBDC), have generated a lot of interest over the past decade, since the emergence of Bitcoin. The interest has only grown in recent months because of a desire for contactless payment methods, stemming from the coronavirus pandemic. In this post, we discuss a common distinction made between “token-based” and “account-based” digital currencies. We show that this distinction is problematic because Bitcoin and many other digital currencies satisfy both definitions. |
| Keywords: | account; token; cryptocurrency; bitcoin |
| JEL: | E42 |
| Date: | 2020–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88550&r=all |
| By: | Kristina Kocisova (Faculty of Economics, Technical University of Ko?ice); Martina Pastyriková (Faculty of Economics, Technical University of Ko?ice) |
| Abstract: | Using a panel data model, we study the macroeconomic and microeconomic determinants of non-performing loans across European Union countries during the period from 2005 to 2018. According to our estimation, the following variables are found to significantly affect NPL ratio: unemployment rate, gross domestic product per capita, capital adequacy, private debt ratio, nominal effective exchange rate and the net interest margin. As the NPL ratio is found to respond to macroeconomic conditions, such as GDP and unemployment, the analysis also indicates that there are substantial effects from the banking system to the real economy, thus suggesting that the high NPL that some European countries recorded after the financial crisis could be adversely affected in the future by the downturn in economic recovery due to the pandemic. |
| Keywords: | Non-performing loans, Microeconomic determinants, Macroeconomic determinants |
| JEL: | G21 E44 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:10913085&r=all |
| By: | Philippe Burger (University of the Free State); Estian Calitz (University of Stellenbosch) |
| Abstract: | Even before Covid-19 South African fiscal policy was unsustainable, following years of fast-rising debt levels. We show this estimating a fiscal reaction function in a Markov-switching model. However, the effects of the Covid-19 crisis worsened the fiscal position further. To restore fiscal sustainability in the aftermath of the crisis some commentators argue that higher government expenditure will grow GDP sufficiently to stabilise the debt/GDP ratio. We reject this, showing that although a real increase in expenditure stimulates economic growth (a short-run, once-off effect), the public expenditure/GDP ratio exceeds the level at which an increase in the ratio positively impacts growth. |
| Keywords: | Covid-19, Coronavirus, Public debt, budget deficit, primary balance, economic growth, government expenditure, tax revenue |
| JEL: | E62 E63 H62 H63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers350&r=all |
| By: | International Monetary Fund |
| Abstract: | Senegal’s main challenge is sustaining high GDP growth rates while maintaining fiscal sustainability and improving the business environment to create jobs for the fast-growing population. The second phase of the Plan Sénégal Emergent (PSE) covering 2019-23 sets out a comprehensive reform agenda to achieve these objectives. Fiscal reforms should aim to increase revenues, strengthen public financial management (PFM), and improve the composition and quality of spending. Structural reforms to facilitate private investment and competitiveness would provide durable sources of growth, while development of a fiscal framework for oil and gas aligned with international best practice would ensure that these natural resources provide high economic and social returns. Further progress on improving the business environment will require simplifying tax administration and reforms to facilitate SME access to finance, and further develop the Special Economic Zones (SEZs). Policies to address gender and inequality issues would contribute to poverty reduction and well-distributed growth. |
| Keywords: | External sector;Public financial management;Credit;Tax policy;Economic growth;WAEMU,percent of GDP,BCEAO,article IV consultation,Eurobond |
| Date: | 2019–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/027&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation discussions with the Republic of Palau focused on ensuring long-term fiscal sustainability, making potential growth more resilient and sustainable, and preserving financial stability and facilitating credit extension. The consultation discussions also highlight that the main economic policy priorities for Palau are to develop a medium-term fiscal framework and strategy to help manage fiscal risks and the expiration of the Compact grants, to raise public investment, to protect social spending, to make growth more resilient and sustainable through other reforms, and to preserve financial stability and integrity. The current fiscal policy approach is based on the legal requirement to maintain a balanced or surplus cash flow for various parts of the budget. While this fiscal policy strategy has resulted in overall budget surpluses and a decline in net debt, the move to a medium-term fiscal framework and strategy would help Palau to address future challenges. |
| Keywords: | Palau;Asia and Pacific;Monetary statistics;Balance of payments;Economic indicators;Financial institutions;Financial statistics;percent of GDP,medium-term,percent change,compact grant,CSPF |
| Date: | 2019–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/043&r=all |
| By: | Francisco José Pérez Torres |
| Abstract: | Por cerca de cuatro décadas el país exhibe un considerable nivel de ocupación generado en la Economía Informal con importantes vínculos relacionados con el salario mínimo, el desempleo urbano, el empleo en los sectores de manufactura, comercio y servicios y con el crecimiento económico. Como estas variables no se mueven en el tiempo independientemente unas de las otras y se influyen mutuamente, este trabajo estudia el grado de importancia de ellas para explicar la variabilidad en la ocupación informal. A través de un MVCE se comprueba la existencia de relaciones de equilibrio de largo plazo entre estas variables y mediante el análisis de las funciones impulso respuesta y de descomposición de varianza se muestra cómo responde cada una de ellas ante los choques estocásticos que puedan registrar. Los resultados encontrados tienen implicaciones para la formulación de políticas que buscan reducir la Economía Informal y la ocupación generada en ella. *** For just about four decades the country exhibits a considerable level of occupation generated in the Informal Economy with important links related to the minimum wage, urban unemployment, employment in the sectors of manufacturing, commerce and services and with the economic growth. Since these variables do not move in the time independently one of another and mutually influence each other, this work studies the degree of importance of them to explain the movements experienced in the occupation generated in the field of Informal Economy. Through a MVCE, is verified the existence of long-term equilibrium relationships between these variables, and by analyzing the impulse response and variance decomposition functions, it is shown how each one responds to stochastic shocks that may be registered. The results found have certain implications for the formulation of policies that seek to reduce the Informal Economy and the occupation generated in this. |
| Keywords: | economía informal, salario mínimo, desempleo urbano, empleo, modelo VEC |
| JEL: | C32 E24 E26 J21 O17 |
| Date: | 2020–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:col:000178:018356&r=all |
| By: | International Monetary Fund |
| Abstract: | This Selected Issues paper explores how intersectoral vulnerabilities and risks have shifted over 2001–17, and especially after the Global Financial Crisis. It analyzes financial positions at the sectoral levels deposit taking institutions and non-financial corporations, households, the public sector, and the Croatian National Bank by disaggregating them into instruments, currencies, and maturities. The paper has employed balance sheet analysis (BSA) to gauge cross-sectional exposures and risks. The BSA approach is a method to study an economy as a system of interlinked sectoral balance sheets. The policies to reduce the remaining vulnerabilities have also been discussed in the paper. Standard macroeconomic indicators demonstrate that Croatia’s overall external vulnerabilities have declined since 2010. However, the balance sheet matrix shows little improvement in reduction of important cross-sectoral dependencies and liabilities to the rest of the world over 2010–17. One of the recommendations made is to encourage deleveraging through specific policy options and strategies. |
| Keywords: | Europe;Croatia;Financial crises;Financial institutions;Macroprudential policies and financial stability;Central banks;Regional economics;domestic currency,CNB,GFC,NFP,foreign currency |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/047&r=all |
| By: | Marco Di Maggio; Amir Kermani; Rodney Ramcharan; Vincent Yao; Edison Yu |
| Abstract: | Using new employer-employee matched data, this paper investigates the impact of uncertainty, as measured by idiosyncratic stock market volatility, on individual outcomes. We find that firms provide at best partial insurance to their workers. An increase in firm-level uncertainty is associated with a decline in total compensation, especially in variable pay. In turn, individuals reduce their durable goods consumption in response to these uncertainty shocks. These shocks also lead to greater financial fragility among lower-income earners. We also construct a new county-level uncertainty shock and find that local uncertainty shocks reduce county level durable consumption. |
| JEL: | D12 D14 E21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27646&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation highlights that the economic expansion continues, driven primarily by private consumption and exports of goods and services. Discussions primarily focused on increasing the economy’s flexibility and resilience. Fiscal performance has been strong, however, the materialization of contingent liabilities from government guarantees is likely to reduce the overall surplus. Low public and private investment, and continued emigration appear to weigh on medium-term growth prospects. Downside risks in the near-term stem could be due to possible changes in regional or global economic and financial conditions, and the further realization of contingent liabilities. The IMF staff advocated for a moderately faster fiscal adjustment. The report recommends accelerating the pace of debt reduction that would build fiscal space and help reduce downside risks. The Central Bank may need to address potentially tighter external conditions while continuing with strong bank supervision and macroprudential policies. Additional measures to prevent excessive household borrowing could be considered if needed. |
| Keywords: | Europe;Croatia;Economic indicators;Balance of payments;Economic growth;Fiscal policy;Unemployment;CNB,medium-term,percent of GDP,article IV consultation,social benefit |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/046&r=all |
| By: | Marek Dabrowski |
| Abstract: | The euro is the second most important global currency after the US dollar. However, its inter-national role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractive-ness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union. |
| Keywords: | global currency, dominant currency, euro, US dollar, international monetary system, European Union, euro area, network externalities, power of incumbency |
| JEL: | E42 E58 F33 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:sec:report:0502&r=all |
| By: | International Monetary Fund |
| Abstract: | Hong Kong SAR’s economy benefitted from a strong cyclical upswing through the first half of 2018, supported by the continued global recovery, buoyant domestic sentiment, and the booming property market. However, near-term risks have significantly increased – including those from trade tensions, tighter global financial conditions, and capital outflows from emerging markets. Also, long-term challenges, including from aging, elevated inequality, and the persistent housing shortage, need to be tackled. Prudent macroeconomic policies and ample buffers are in place to help smoothen the transition and ensure continued stability. |
| Keywords: | Article IV consultation reports;Financial regulation and supervision;Exchange rates;Housing prices;Government expenditures;Labor markets;Fiscal sustainability;International trade;Economic indicators;Debt sustainability analysis;Press releases;Staff Reports;External sector;National accounts;Financial statistics;International investment position;HKMA,trade tension,percent of GDP,medium-term,Haver |
| Date: | 2019–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/020&r=all |
| By: | Plante Kibadhi; Christian Pinshi (UNIKIN - University of Kinshasa) |
| Abstract: | The ability of a central bank to influence the economy depends on its ability to manage the expectations of the general public and the financial system regarding the future development of macroeconomic indicators. The communication strategy (in this time of crisis and uncertainty) increases transparency, improves public understanding and support for the monetary policy and democratic accountability of the Central Bank of Congo (BCC), serving to convergence towards the balance of expectations. This paper agrees that a strategic direction of communication, focused on coherent messages, can help break down pessimistic expectations, maintain confidence, reduce the cost of the crisis and stabilize the economy. In conclusion, the article suggests a dozen recommendations, to be able to strengthen and redirect the BCC's communication strategy and contribute to the effectiveness of monetary policy. |
| Date: | 2020–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02892777&r=all |
| By: | Alexandre, Fernando (University of Minho); Bação, Pedro (University of Coimbra); Cerejeira, João (University of Minho); Costa, Hélder (University of Minho); Portela, Miguel (University of Minho) |
| Abstract: | Since late 2014, Portuguese Governments adopted ambitious minimum wage policies. Using linked employer-employee data, we provide an econometric evaluation of the impact of those policies. Our estimates suggest that minimum wage increases reduced employment growth and profitability, in particular for financially distressed firms. We also conclude that minimum wage increases had a positive impact on firms' exit, again amplified for financially distressed firms. According to these results, minimum wage policies may have had a supply side effect by accelerating the exit of low profitability and low productivity firms and, thus, contributing to improve aggregate productivity through a cleansing effect. |
| Keywords: | minimum wage, financially distressed firms, productivity |
| JEL: | E24 J38 L25 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13526&r=all |
| By: | Fernando Alexandre (NIPE/Universidade do Minho); Pedro Bação (Univ Coimbra, CeBER, FEUC); João Cerejeira (NIPE/Universidade do Minho); Hélder Costa (NIPE/Universidade do Minho); Miguel Portela (NIPE/Universidade do Minho and IZA Bonn) |
| Abstract: | Since late 2014, Portuguese Governments adopted ambitious minimum wage policies. Using linked employer-employee data, we provide an econometric evaluation of the impact of those policies. Our estimates suggest that minimum wage increases reduced employment growth and profitability, in particular for financially distressed firms. We also conclude that minimum wage increases had a positive impact on firms’ exit, again amplified for financially distressed firms. According to these results, minimum wage policies may have had a supply side effect by accelerating the exit of low profitability and low productivity firms and, thus, contributing to improve aggregate productivity through a cleansing effect. |
| Keywords: | minimum wage, financially distressed firms, productivity |
| JEL: | E24 J38 L25 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0154&r=all |
| By: | Serdar Birinci; Kurt See; Shu Lin Wee |
| Abstract: | Unemployment inflows have declined sharply since the 1980s while unemployment outflows have remained mostly steady despite a rise in workers' applications over time. Using a random search model of multiple applications with costly information, we show how rising applications incentivize more firms to acquire information, improving the realized distribution of match qualities. Higher concentrations of high productivity matches reduce the incidence of endogenous separations, causing unemployment inflow rates to fall. Quantitatively, our model replicates the relative change in inflow and outflow rates as well as the decline in acceptance rates, job offers and the rise in reservation wages. |
| Keywords: | Costly Information; Unemployment; Multiple Applications; Inflows; Outflows |
| JEL: | E24 J63 J64 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88525&r=all |
| By: | Jean-Bernard Chatelain (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); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE, INSEEC U. Research Center - International business school) |
| Abstract: | With non-controllable auto-regressive shocks, the welfare of Ramsey optimal policy is the solution of a single Riccati equation of a linear quadratic regulator. The existing theory by Hansen and Sargent (2007) refers to an additional Sylvester equation but miss another equation for computing the block matrix weighting the square of non-controllable variables in the welfare function. There is no need to simulate impulse response functions over a long period, to compute period loss functions and to sum their discounted value over this long period, as currently done so far. Welfare is computed for the case of the new-Keynesian Phillips curve with an auto-regressive cost-push shock. JEL classi…cation numbers: C61, C62, C73, E47, E52, E61, E63. |
| Keywords: | augmented linear quadratic regulator,forcing variables,algorithm,Stackelberg dynamic game,Ramsey optimal policy,new-Keynesian Phillips curve |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-02881216&r=all |
| By: | Koh,Wee Chian; Yu,Shu |
| Abstract: | Unprecedented monetary policy accommodation in advanced economies and a large, coordinated fiscal stimulus by G20 countries helped to support a solid rebound in global output right after the 2009 Global Recession. However, global growth subsequently slowed to a sluggish pace by pre-recession standards, and many emerging market and developing economies (EMDEs) have been struggling to unwind their fiscal stimulus and contain a buildup of debt. The experience of the global recession in 2009 highlights the need for well-timed, appropriately calibrated domestic stabilization policies, but also the benefits of international cooperation and coordination in support of strong and sustained global growth and financial system stability. Sound policy frameworks can help create room for stabilization policies, such as fiscal rules to safeguard fiscal sustainability or macroprudential policies and capital flow management measures to better manage systemic risks. |
| Date: | 2020–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9289&r=all |
| By: | Emilio Ocampo |
| Abstract: | Existe una noción bastante generalizada, incluso entre economistas e historiadores, que las naciones más industrializadas del planeta –Alemania, Estados Unidos y Gran Bretaña– lograron salir de la Gran Depresión gracias a políticas de expansión del gasto público y el déficit preconizadas por John Maynard Keynes. Esta noción no se sustenta en la evidencia. En primer lugar, las políticas empleadas por estos tres países entre 1930 y 1937 fueron heterogéneas y sus resultados significativamente distintos. En segundo lugar, en Estados Unidos, las políticas de expansión del gasto e intervención en los mercados, que podrían describirse genéricamente como keynesianas, retardaron la recuperación económica en vez de alentarla. En tercer lugar, los mejores resultados macroeconómicos se obtuvieron en Gran Bretaña donde el gobierno siguió una política de austeridad fiscal con fuerte expansión monetaria. El objetivo del presente trabajo es sustentar estas conclusiones con un análisis comparativo de las políticas aplicadas y resultados obtenidos en Alemania, Estados Unidos y Gran Bretaña entre 1930 y 1937. |
| Keywords: | Keynes, Gran Depresión, Austeridad, Déficit, Políticas Anti-cíclicas |
| JEL: | E3 J3 N1 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:741&r=all |
| By: | Raphael Auer; Giulio Cornelli; Jon Frost |
| Abstract: | Central bank digital currencies (CBDCs) are receiving more attention than ever before. Yet the motivations for issuance vary across countries, as do the policy approaches and technical designs. We investigate the economic and institutional drivers of CBDC development and take stock of design efforts. We set out a comprehensive database of technical approaches and policy stances on issuance, relying on central bank speeches and technical reports. Most projects are found in digitised economies with a high capacity for innovation. Work on retail CBDCs is more advanced where the informal economy is larger. We next take stock of the technical design options. More and more central banks are considering retail CBDC architectures in which the CBDC is a direct cash-like claim on the central bank, but where the private sector handles all customer-facing activity. We conclude with an in-depth description of three distinct CBDC approaches by the central banks of China, Sweden and Canada. |
| Keywords: | central bank digital currency, CBDC, central banking, digital currency, digital money, distributed ledger technology, blockchain |
| JEL: | E58 G21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:880&r=all |
| By: | Zhongchen Song; Tom Coupé (University of Canterbury); W. Robert Reed (University of Canterbury) |
| Abstract: | Researchers have long puzzled over China’s high household savings rate. Some have hypothesized that the explanation lies with China’s One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their savings to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies. These regions share many cultural, demographic and economic characteristics with China that suggest they can be used as a counterfactual for China. This approach enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our results suggest that the OCP decreased households’ proclivity to save. The estimated effects are generally small, in the range of one to two percentage points. We find no evidence to indicate that the OCP can explain China’s high saving rate. An implication of our findings is that they suggest that the recent relaxation of the OCP cannot be counted upon to substantially boost Chinese consumption. |
| Keywords: | China, One-Child Policy, Savings rate, Demographics, Blinder-Oaxaca decomposition |
| JEL: | D14 E21 J13 J18 O10 |
| Date: | 2020–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:20/14&r=all |
| By: | Buchheim, Lukas (University of Munich); Krolage, Carla (Ifo Institute for Economic Research); Link, Sebastian (Ifo Institute for Economic Research) |
| Abstract: | COVID-19 hit firms by surprise. In a high frequency, representative panel of German firms, the business outlook declined and business uncertainty increased only when the spread of the COVID-19 pandemic led to domestic policy changes: The announcement of nation-wide school closures on March 13 caused by far the largest change in business perceptions. In contrast, business perceptions hardly reacted to any other potential source of information: Firms did not learn from foreign policy measures, even if they relied on inputs from China or Italy. The local, county-level spread of COVID-19 cases affected expectations and uncertainty, albeit to a much lesser extent than the domestic policy changes. |
| Keywords: | expectations, uncertainty, policy, COVID-19, firms |
| JEL: | E66 E32 H32 D22 D84 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13457&r=all |
| By: | Eidam, Frederik |
| Abstract: | Do governments strategically choose debt maturity to fill supply gaps across maturities? Building on a new panel data set of more than 9,000 individual Eurozone government debt issues between 1999 and 2015, I find that governments increase long-term debt issues following periods of low aggregate Eurozone long-term debt issuance, and vice versa. This gap-filling behaviour is more pronounced for (1) less financially constrained and (2) higher rated governments. Using the ECB’s three-year LTRO in 2011-2012 as an event study, I find that core governments filled the supply gap of longer maturity debt, which resulted from peripheral governments accommodating banks’ short-term debt demand for “carry trades”. This gap-filling implies that governments act as macro-liquidity providers across maturities, thereby adding significant risk absorption capacity to government bond markets. JEL Classification: E58, E62, G11, H63 |
| Keywords: | financial stability, government bond market, liquidity provision, market segmentation |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2020110&r=all |
| By: | Patnaik, Ila (National Institute of Public Finance and Policy); Pandey, Radhika (National Institute of Public Finance and Policy) |
| Abstract: | India adopted a flexible inflation targeting framework as a formal legal mandate of the RBI in March 2016. The preamble to the RBI Act, as well as relevant sections in the Act were amended to enable this change. The frame- work entailed many details such as on the rate of inflation to be targeted, the band, the measure, the composition of the Monetary Policy Committee and the objective. One of these sections require that the rate of inflation to be targeted needs to be reviewed every five years. In March 2021, the central government along with the RBI is required to review the target. This paper presents the logic and rationale of the various elements of India's inflation targeting framework. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:20/316&r=all |
| By: | International Monetary Fund |
| Abstract: | This Selected Issues paper takes stock of the current level of dollarization, both in historic and international perspective. By looking at recent measures and international best practice, it draws some recommendations for a successful de-dollarization framework. Belarus has a high level of loan and deposit dollarization as a result of repeated external crises and hyperinflation. Dollarization in Belarus is much higher than many other countries, accounting for various drivers of dollarization. Dollarization has been decreasing but it is still higher than a decade ago. The authorities have been taking welcome steps to liberalize the foreign exchange (FX) market, such as, for example, eliminating the FX surrender requirement and easing the registration procedure for FX transactions. An overarching and publicly communicated national strategy to de-dollarize the economy is a missing piece of the puzzle. Such a strategy would be an important signaling and commitment device and would help educate borrowers about the risks (private and social) of FX borrowing. The strategy would contain an operational roadmap that would also ensure the coherence of existing policies, and coordinate policy and operational steps. |
| Keywords: | Dollarization;Macroprudential policies and financial stability;Capital markets;Currencies;Monetary policy;Selected issues;Central banks;Financial crises;Lender of last resort;Interest rates on loans;Financial markets;local currency,domestic currency,unhedged,borrower,recent measure |
| Date: | 2019–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/010&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation highlights that the continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth. Macro-financial legacy issues remain in bank and corporate balance sheets, including small and medium enterprises’ nonperforming loans. Structural challenges persist with low productivity growth, skills shortages, high tax wedge, heavy regulatory system, and extensive presence of state-owned enterprises. Policies should focus on fiscal and structural reforms to rebuild fiscal buffers and increase productivity. Slovenia’s external position in 2018 is assessed as substantially stronger than suggested by fundamentals and desirable policies; however the current account is expected to revert toward its norm in the medium term. Continued structural reforms are key to ensure long-term prosperity, while strengthening the economy’s resilience to shocks. Effective implementation of the recently enacted reforms of vocational training, apprenticeship, and adult education would help address skill shortages, support employment of younger and older people, and boost productivity growth. |
| Keywords: | Structural fiscal balance;Central banks;Gross domestic product;Balance of payments;Social security;Economic indicators;National accounts;Macroprudential policies and financial stability;account surplus,output gap,percent of GDP,SOEs,Haver,article IV consultation,article IV |
| Date: | 2019–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/058&r=all |
| By: | João Alfredo Galindo da Fonseca (Université de Montréal, CIREQ); Iain Snoddy (UBC, Vancouver School of Economics) |
| Abstract: | The literature on search frictions has often adopted the assumption of free entry. In this paper we forgo of this restriction by proposing a more realisitic framework in which individuals are constantly making the decision whether or not to open a firm. Namely, firms are created through endogenous choices and business-owners and workers are drawn from the same pool. We show that in this framework, the Nash bargaining parameter is crucial for internal dynamics. In particular, workers and business owners share the same outside-options. As a result, the wage is no longer unambiguously positively related to the value of unemployment. The constrained efficient solution to this model takes the same form as the standard search model implying the same form for the Hosios condition. However, at this efficient solution changes in the rate ofunemployment are either exacerbated or muted conditional on the value of the match elasticity parameter. |
| Keywords: | search and matching, entrepreneurship, outside options, constrained efficiency |
| JEL: | E24 J63 J64 D61 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:06-2019&r=all |
| By: | Ammar Farooq; Adriana D. Kugler; Umberto Muratori |
| Abstract: | We present new evidence on the impact of more generous unemployment insurance (UI) on workers’ ability to find jobs better suited to their skills. Using Longitudinal Employer-Household Dynamics data, we find the UI extensions introduced in the U.S. improved the quality of worker-job matches. Using Current Population Survey data, we also find that longer UI benefit durations decrease the mismatch between workers’ educational attainments and the educational requirements of jobs. We find bigger effects of UI on match quality for those more likely to be liquidity constrained—women, non-whites and less-educated workers—,suggesting UI extensions improve the functioning of the labor market. |
| JEL: | C55 E24 H23 J21 J31 J64 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27574&r=all |
| By: | International Monetary Fund |
| Abstract: | This 2018 Article IV Consultation discussions with the Republic of Poland focused on the strong growth upswing since 2017, which has been supported by three coincident cycles: a rebound in euro-area activity, a substantial increase in European Union transfers, and new large social benefit programs. It has been highlighted in the report that risks to the outlook for the Polish economy from external developments are elevated, while any slippage from prudent policies and sound governance principles could dent investors’ risk appetite. Substantial adjustment in recent years has brought the medium-term objective within reach. Remaining adjustment should rely on sustainable, growth-friendly measures. The team recommended that independent and well-resourced financial supervision is essential for effective and even-handed oversight, particularly in a state-dominated financial system. Sustaining rapid income convergence as working-age population declines calls for durable increases in investment and productivity. Reforms should focus on removing existing barriers to investment, facilitating more reliable access to skilled labor, enhancing predictability of policy changes, and providing a level playing field for all investors by protecting the rights of minority shareholders and ensuring competition. |
| Keywords: | Poland;Europe;Economic sectors;External sector;Balance of payments;Gross domestic product;Economic indicators;NBP,percent of GDP,foreign worker,percent,structural deficit |
| Date: | 2019–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/037&r=all |
| By: | Costa Cabral, Nazaré |
| Abstract: | The aim of this article is to verify whether the creation of safe assets (sovereign bond-backed securities, SBBS) proposed in 2012 by the so-called group of ‘euro-nomics’ is a way to promote financial safety and risk-sharing in the EMU. In particular, attention is given to the shortcomings associated with the process of securitization. This is important, because securitization was, prior to the subprime crisis, considered an innovative means of increasing safety in private debt markets. The question is whether sovereign debt is a candidate for securitization and, if so, what implications this carries over to the debt structure itself and respective contractual design. My conclusion is that the creation of SBBS really implies a ‘privatization’ of sovereign debt, with advantages to the functioning of financial markets in ‘normal’ times but with possible insufficiencies in moments of financial distress. Moreover, lessons from the subprime crisis should not be forgotten. |
| Keywords: | safe assets, sovereign bond-backed securities, securitization, subprime crisis, sovereign debt |
| JEL: | E6 G01 G1 G2 H63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102248&r=all |
| By: | International Monetary Fund |
| Abstract: | A technical assistance (TA) mission was conducted during June 18–22, 2018 to support the State Statistics Service of Ukraine (SSSU) in improving the residential property price indexes (RPPI) for Ukraine. This was the second of a series of SECO2 RPPI-funded TA missions to take place until mid-2019 that will assist in building staff capacity for further development of the RPPI. RPPIs have been identified as critical ingredients for financial stability policy analysis. The indexes are used by policy makers as an input into design of macroprudential policies, that is, those policies aim to reduce systemic risks arising from “excessive” financial procyclicality (such as asset bubbles). RPPIs are also used by policy makers to inform monetary policy and inflation targeting. |
| Keywords: | Technical assistance missions;Housing prices;Price indexes;Technical Assistance Reports;Asset bubbles;Real sector;Inflation targeting;Hedonic regression;secondary market,stratification,outlier,primary market,imputation |
| Date: | 2019–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/013&r=all |
| By: | Anusha Chari; Jennifer S. Rhee |
| Abstract: | In this paper, we use firm-level data to investigate the link between the marginal product of capital and financial rates of return across countries. Computed estimates from financial statement data show that capital-scarce countries display higher marginal products of capital. However, inflation-adjusted financial returns are roughly equal across capital-scarce and capital-abundant countries. The divergence between the marginal products of capital and financial returns implies that there may be little incentive for capital to flow to capital-scarce countries. We suggest that domestic capital-accumulation frictions such as sufficiently large capital adjustment costs can decouple financial rates of return from the marginal product of capital across countries. |
| JEL: | E13 F21 G15 G32 O16 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27675&r=all |
| By: | Ila Patnaik (National Institute of Public Finance and Policy); Rajeswari Sengupta (Indira Gandhi Institute of Development Research) |
| Abstract: | Amidst the economic slowdown triggered by the outbreak of the Covid-19 pandemic in India's there have been many demands for the government to announce a large fiscal stimulus to support the economy. Economic growth and tax revenues remain uncertain in 2020-21 making it challenging for thegovernment to finance any addition to the fiscal deficit. In this paper we work out alternative scenarios of fiscal deficit for 2020-21. We find that in our baseline scenario, assuming a 5 contraction in realGDP and a 14.4 contraction in net tax revenue, the fiscal deficit of the central government will be 6.2 of GDP. |
| Keywords: | Fiscal deficit, Covid-19, Fiscal projections, Government borrowing, Tax revenue |
| JEL: | E6 H2 H5 H6 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2020-026&r=all |
| By: | Md. Shahidul Islam (Department of Banking and Insurance, University of Dhaka); Shin-Ichi Nishiyama (Graduate School of Economics, Kobe University) |
| Abstract: | The study examines the determinants of net interest margins of commercial banks of China, India and Japan. Using the cross-country panel data of 418 commercial banks during the period of 2011 to 2017 (practically the post global financial crisis period); we classified the determinants as bank-specific, industry specific and macroeconomic-specific variables. In line of the ‘dealership model of margin determination’ of Ho and Saunders (1981) and its later extensions, we viewed net interest margins or spread as a function of liquidity, profitability, credit risk, risk aversion, size, business growth, regulatory response and off- balance sheet income in the bank-specific cluster whereas the industry concentration in industry specific cluster and call money rate, inflation and GDP growth rate in macroeconomic clusters. We found evidence that liquidity, profitability, risk aversion, required reserve ratio, yield spread and GDP affect interest margins positively but size and rate of inflation negatively. Our empirical findings support the traditional structure-conduct-performance (SCP) hypothesis of Bain (1956) for the banking markets of China, India and Japan for the post global financial crisis (GFC) era. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:2014&r=all |
| By: | Joaquín Bernal-Ramírez (Banco de la República de Colombia); José Antonio Ocampo (Banco de la República de Colombia) |
| Abstract: | It is increasingly recognized that climate change generates major macroeconomic and financial risks. There are physical risks associated to the disasters generated by hydrometeorological events and to gradual but persistent changes in temperatures that have structural impacts on economic activity, productivity and incomes. Additionally, the process of adjustment towards a lower-carbon economy, prompted by changes in climate-related policies, technological disruptions and changes in consumer preferences, generates transition risks. After a brief analysis of the macroeconomic, fiscal and tax policies to manage these risks, this paper concentrates on: (i) how financial policies can help improve transparency and climate-related risk disclosure in financial institutions’ balance sheets and assets prices, particularly with appropriate prudential regulation and supervision; and (ii) how those risks could be taken into account in monetary policy and central banks’ balance sheets and operations. The paper ends with some reflections on the Covid-19 pandemic and the will for a “green” recovery. **** ABSTRACT: Cada vez se reconoce con mayor claridad que el cambio climático genera importantes riesgos macroeconómicos y financieros. Existen riesgos físicos asociados a los desastres generados por eventos hidrometeorológicos y a cambios graduales pero persistentes en las temperaturas que tienen un impacto estructural en la actividad económica, la productividad y los ingresos. Además, el proceso de ajuste hacia una economía con bajas emisiones de carbono, inducido por cambios en las políticas relacionadas con el clima, cambios tecnológicos y cambios en las preferencias de los consumidores, genera riesgos de transición. Después de un breve análisis de las políticas macroeconómicas, fiscales y fiscales para gestionar estos riesgos, este documento se concentra en: (i) la forma como las políticas financieras pueden ayudar a mejorar la transparencia y la información de los riesgos relacionados con el clima en los balances de las instituciones financieras y los precios de los activos, particularmente con una política de regulación y supervisión prudencial apropiada; y (ii) cómo se podrían tener en cuenta esos riesgos en la política monetaria y en los balances y operaciones de los bancos centrales. El artículo termina con algunas reflexiones sobre la pandemia de Covid-19 y la voluntad de una recuperación “verde”. |
| Keywords: | Climate change, carbon tax, financial policy, monetary policy, central Banks, cambio climático, impuesto al carbono, política financiera, política monetaria, bancos centrales. |
| JEL: | E50 G18 H23 Q54 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1127&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation highlights that the economy is recovering well from several natural disasters, supported by accommodative fiscal and monetary policies. Growth performance picked up in recent years with improved political stability, though average growth rates were still lower than in other emerging and developing countries. Fiscal buffers have been used and external conditions, including oil prices and growth prospects of main trading partners, are becoming less favorable. Improving the overall business environment and governance is expected to raise potential growth by mobilizing private investment, enhancing productivity, and diversifying the economy. An improvement in the overall business environment is essential to achieve the ambitious growth targets laid out in the National Development Plan. Streamlining procedures to do business, accelerating the activation of the credit reporting agency, and reducing tax compliance costs has been recommended. |
| Keywords: | Statistics;External sector;Financial statistics;Government finance statistics;Consumer price indexes;Economic indicators;Economic growth;National accounts;Central banking and monetary issues;RBF,Proj,potential growth,percent of GDP,text figure,article IV consultation |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/057&r=all |
| By: | Elizabeth Caviness; Asani Sarkar |
| Abstract: | The asset-backed securities (ABS) market, by supporting loans to households and businesses such as credit card and student loans, is essential to the flow of credit in the economy. The COVID-19 pandemic disrupted this market, resulting in higher interest rate spreads on ABS and halting the issuance of most ABS asset classes. On March 23, 2020, the Fed established the Term Asset-Backed Securities Loan Facility (TALF) to facilitate the issuance of ABS backed by a variety of loan types including student loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA), thereby re-enabling the flow of credit to households and businesses of all sizes. In this post, we describe how the TALF works, its impact on market conditions, and how it differs from the TALF that the Fed established in 2009. |
| Keywords: | COVID-19; coronavirus; pandemic; Federal Reserve; ABS; Term Asset-Backed Securities Loan Facility (TALF); asset backed securities |
| JEL: | I18 E5 |
| Date: | 2020–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88523&r=all |
| By: | Henrique Alpalhão; Marta Lopes; João Pereira dos Santos; José Tavares |
| Abstract: | We investigate the causal relationship between local government expenditure and private firm performance, using the quantity and naming of civil parishes within each municipality as an instrumental variable. Religious denominations are taken as a proxy for strong local identity, which likely increases competition for resources between neighboring parishes. We explore a dataset on the universe of private firms, local government expenditure categories and socio-economic indicators for all mainland Portuguese municipalities, in a period encompassing both normal and crisis times. The number of parishes per municipality, as exogenously set by the central government, and the number of parishes that display religious denominations are both used as instruments that explain local government spending, indirectly impacting firm performance. We find that both display considerable power in determining total primary and current spending, which then positively impacts private firms' sales and value added. Using religious denominations is found to yield a particularly potent instrument, confirming and expanding the baseline results. In a field that mostly relies on natural experiments for instrumental variable frameworks, our proposed instruments are both easily obtainable and powerful. |
| Keywords: | instrumental variables, local governments, Local fiscal multiplier, firm performance, fragmentation,Local identity, religion |
| JEL: | D72 E62 H72 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0151&r=all |
| By: | Katharina Bergant; Francesco Grigoli; Niels-Jakob H Hansen; Damiano Sandri |
| Abstract: | We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains. |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/106&r=all |
| By: | Marina Azzimonti-Renzo; Alessandra Fogli; Fabrizio Perri; Mark Ponder |
| Abstract: | We develop an ECON-EPI network model to evaluate policies designed to improve health and economic outcomes during a pandemic. Relative to the standard epidemiological SIR set-up, we explicitly model social contacts among individuals and allow for heterogeneity in their number and stability. In addition, we embed the network in a structural economic model describing how contacts generate economic activity. We calibrate it to the New York metro area during the 2020 COVID-19 crisis and show three main results. First, the ECON-EPI network implies patterns of infections that better match the data compared to the standard SIR. The switching during the early phase of the pandemic from unstable to stable contacts is crucial for this result. Second, the model suggests the design of smart policies that reduce infections and at the same time boost economic activity. Third, the model shows that reopening sectors characterized by numerous and unstable contacts (such as large events or schools) too early leads to fast growth of infections. |
| Keywords: | Complex networks; COVID-19; Epidemiology; Social distance; SIR |
| JEL: | D85 E23 E65 I18 |
| Date: | 2020–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88604&r=all |
| By: | Oksana Leukhina (Federal Reserve Bank of St. Louis); Zhixiu Yu (University of Minnesota) |
| Abstract: | Between the months of February and April of 2020, average weekly market hours dropped by 6.25, meanwhile 35% of commuting workers reported switching to remote work arrangements. In this paper, we examine implications of these changes for the time allocation of different households, and on aggregate. We estimate that home production activity increased by 2.1 hours a week, or 34% of lost market hours, whereas leisure activity increased by 3.8 hours a week. The monthly value of home production increased by $30.83 billion – that is 10.5% of the concurrent $292.61 billion drop in monthly GDP. Although market hours declined the most for single, less educated individuals, the lost market hours were absorbed into home production the most by married individuals with children. |
| Keywords: | shutdown, COVID-19, pandemic, Home Production, remote work |
| JEL: | D13 E32 J22 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-060&r=all |
| By: | Peter Ganong; Damon Jones; Pascal J. Noel; Fiona E. Greig; Diana Farrell; Chris Wheat |
| Abstract: | We estimate the elasticity of consumption with respect to income using an instrument based on firm-wide changes in pay. While much of the consumption-smoothing literature uses variation in unusual windfall income, this instrument captures the temporary income variation that households typically experience. Furthermore, this estimator is precise, allowing us to address an open question about how much the elasticity varies with wealth. We find a much lower consumption response for high-liquidity households, which may help discipline structural models. We then use this instrument to study how wealth shapes racial inequality. An extensive body of work documents a substantial racial wealth gap. However, less is known about how this gap translates into differences in welfare on a month-to-month basis. We find that black (Hispanic) households cut their consumption 50 (20) percent more than white households when faced with a similarly-sized income shock. Nearly all of this differential pass-through of income to consumption is explained, in a statistical sense, by differences in liquid wealth. Combining our empirical estimates with a model, we show that the welfare cost of income volatility is at least 50 percent higher for black households and 20 percent higher for Hispanic households than it is for white households. |
| JEL: | E21 J15 J65 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27552&r=all |
| By: | Satyajit Chatterjee; Dean Corbae; Kyle P. Dempsey; José-Víctor Ríos-Rull |
| Abstract: | What is the role of credit scores in credit markets? We argue that it is a stand in for a market assessment of a person’s unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person’s type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both credit market data and the evolution of individual’s credit scores. We find a 3% difference in patience in almost equally sized groups in the population with significant turnover and a shift towards becoming more patient with age. If tracking of individual credit actions is outlawed, the benefits of bankruptcy forgiveness are outweighed by the higher interest rates associated with lower incentives to repay. |
| JEL: | D82 E21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27671&r=all |
| By: | Paul Jackson (National University of Singapore); Victor Ortego-Marti (Department of Economics, University of California Riverside) |
| Abstract: | We integrate the SIR epidemiology model into a search and matching framework in which workers lose human capital during unemployment. As the number of infections rises, fewer jobs are created, the unemployment rate increases and the composition of skills among the unemployed deteriorates, thereby reducing TFP. We calibrate the model to quantify the effect of a three month lockdown on TFP through loss of skill during unemployment. Sixty-two weeks after the pandemic begins, TFP reaches its lowest value with a decline of 0.56%, which is nearly 50% of the productivity losses typically seen in recessions. |
| Keywords: | COVID-19; Skill loss; TFP; Search and matching; Unemployment; Pandemics |
| JEL: | E2 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:202020&r=all |
| By: | Matteo Cacciatore; Nora Traum |
| Abstract: | We present novel insights on the role of international trade following unanticipated government spending and income tax changes in a flexible exchange rate environment. In a simple two-country, two-good model, we show analytically that fiscal multipliers can be larger in economies more open to trade, even when fiscal expansions imply a trade deficit. Cross-country comovement can be positive or negative. Three factors determine how trade linkages affect fiscal multipliers: the relative import share of public and private goods, how the government finances its budget, and the currency invoicing of exports. A Bayesian prior-predictive analysis shows a quantitative international business-cycle model bears the same predictions. Estimating the model on Canadian and U.S. data, we find support for larger multipliers relative to a counterfactually closed economy and positive cross-country spillovers. |
| JEL: | E2 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27652&r=all |
| By: | Plante Kibadhi; Christian Pinshi (UNIKIN - University of Kinshasa) |
| Abstract: | The ability of a central bank to influence the economy depends on its ability to manage the expectations of the general public and the financial system regarding the future development of macroeconomic indicators. The communication strategy (in this time of crisis and uncertainty) increases transparency, improves public understanding and support for the monetary policy and democratic accountability of the Central Bank of Congo (BCC), which serves to convergence towards the balance of expectations. This paper approves that a strategic communication orientation, focused on coherent messages, can help break down pessimistic expectations, maintain confidence, reduce the cost of the crisis and stabilize the economy. In conclusion, the article suggests a dozen recommendations, to be able to strengthen and redirect the BCC's communication strategy and contribute to the effectiveness of monetary policy. |
| Abstract: | La capacité d'une banque centrale à influer sur l'économie dépend de sa capacité à gérer les anticipations du grand public et du système financier quant à l'évolution future des indicateurs macroéconomiques. La stratégie de communication (en ce temps de crise et d'incertitude) accroît la transparence, améliore la compréhension et le soutien du grand public à la politique monétaire et à la responsabilité démocratique de la Banque centrale du Congo (BCC), servant à la convergence vers l'équilibre des anticipations. Ce papier approuve qu'une orientation stratégique de communication, axée sur des messages cohérents, peut contribuer à briser les anticipations pessimistes, maintenir la confiance, réduire le coût de la crise et stabiliser l'économie. En conclusion l'article suggère une douzaine des recommandations, pour pouvoir renforcer et réorienter la stratégie de communication de la BCC et contribuer à l'efficacité de la politique monétaire. |
| Date: | 2020–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02885902&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Sowmya Subramaniam (Indian Institute of Management Lucknow, Prabandh Nagar off Sitapur Road, Lucknow, Uttar Pradesh 226013, India); Elie Bouri (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China) |
| Abstract: | Using daily data from November 1985 to July 2020, we analyse the impact of a daily newspaper-based index of uncertainty associated with infectious diseases (EMVID) on the level, slope and curvature factors derived from the term structure of interest rates of the US covering maturities of 1 year to 30 years. Results from nonlinearity and structural break tests indicate the misspecification of the linear causality model and point to the suitability of applying a time-varying model that is robust to misspecification due to nonlinearity and regime change. We thus use a dynamic conditional correlation-multivariate generalised autoregressive conditional heteroskedasticity (DCC-MGARCH) framework and the results indicate significant predictability of the three latent factors from the EMVID index at each point of the entire sample, and also provide evidence of instantaneous spillover. Finally, we comprehensively determine the safe-haven characteristic of the US Treasury market by analysing the signs of the underlying time-varying conditional correlation between the level, slope and curvature factors and the EMVID index. Results show that US treasuries with long-term maturities as captured by the level factor are consistently negatively correlated with the EMVID index, i.e., they act as a safe-haven, with the slope factor (medium-term maturities) following this trend since 2007, and the slope factor (short-term maturities) also showing signs of a safe-haven since May of 2020. Overall, the findings provide reasonable evidence to imply that US Treasury securities can hedge the risks associated with the financial market in the wake of the current COVID-19 pandemic. |
| Keywords: | Yield Curve Factors, Financial Market Uncertainty, Infectious Diseases, COVID-19, Time-Varying Granger Causality |
| JEL: | C22 C32 E43 D80 G12 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202078&r=all |
| By: | International Monetary Fund |
| Abstract: | The current ECF arrangement (access of 160 percent of quota or SDR 224.32 million) was approved on June 30, 2017 in the context of a very difficult and deteriorating social, economic, and financial situation. The crisis was precipitated by the oil price and security shocks that began in 2014, and the heavy burden of external commercial debt with Glencore. The restructuring of this debt in June 2018 paved the way for the completion of the second review in July 2018. Chad’s stability is key for the regional security situation given its regional peace-keeping efforts. |
| Keywords: | Extended Credit Facility;Fiscal policy;Governance;Fiscal reforms;Corruption;Extended arrangement reviews;Performance criteria waivers;Economic indicators;Letters of Intent;Staff Reports;Press releases;Credit;Public financial management;Economic growth;Domestic debt;Economic policy;arrears,non-oil,performance criterion,Proj,BEAC |
| Date: | 2019–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/025&r=all |
| By: | Kirill Borissov; Mikhail Pakhnin; Ronald Wendner |
| Abstract: | We consider the Ramsey growth model with quasi-hyperbolic discounting where the agent cannot commit to future actions and is naive about her time inconsistency. We study the problem of observational equivalence, i.e., whether consumption paths are the same under quasi-hyperbolic and exponential discounting. To describe the behavior of a naive agent in a general equilibrium framework, we introduce the notion of a sliding equilibrium path and distinguish between two natural types of expectations: pseudo-prefect foresight and perfect foresight. Under pseudo-prefect foresight an agent at each date recalculates both her consumption path and expectations about prices, while under perfect foresight an agent correctly foresees prices on a sliding equilibrium path and is naive only about her time inconsistency. The main contribution of this paper is the study of a sliding equilibrium path under perfect foresight. We prove its existence for a general isoelastic utility function and show that, except for the well-known cases of a constant interest rate or logarithmic utility, there is no observational equivalence in general. In a number of important cases we also compare sliding equilibria under pseudo-perfect and perfect foresight in terms of long-run macroeconomic variables, and show that perfect foresight implies a higher capital stock and a higher consumption level than pseudo-perfect foresight. |
| Keywords: | quasi-hyperbolic discounting, observational equivalence, time inconsistency, naive agents, perfect foresight |
| JEL: | D91 E21 O40 |
| Date: | 2020–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:eus:wpaper:ec2020_03&r=all |
| By: | Viral V. Acharya; Lea Borchert; Maximilian Jager; Sascha Steffen |
| Abstract: | We analyze the determinants and the long-run consequences of government interventions in the eurozone banking sector during the 2008/09 financial crisis. Using a novel and comprehensive dataset, we document that fiscally constrained governments “kicked the can down the road” by providing banks with guarantees instead of full-fledged recapitalizations. We adopt an econometric approach that addresses the endogeneity associated with governmental bailout decisions in identifying their consequences. We find that forbearance caused undercapitalized banks to shift their assets from loans to risky sovereign debt and engage in zombie lending, resulting in weaker credit supply, elevated risk in the banking sector, and, eventually, greater reliance on liquidity support from the European Central Bank. |
| JEL: | E44 G21 G28 G32 G34 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27537&r=all |
| By: | Oksana Leukhina; Zhixiu Yu |
| Abstract: | Between the months of February and April of 2020, average weekly market hours dropped by 6.25, meanwhile 35% of commuting workers reported switching to remote work arrangements. In this paper, we examine implications of these changes for the time allocation of different households, and on aggregate. We estimate that home production activity increased by 2.1 hours a week, or 34% of lost market hours, whereas leisure activity increased by 3.8 hours a week. The monthly value of home production increased by $30.83 billion – that is 10.5% of the concurrent $292.61 billion drop in monthly GDP. Although market hours declined the most for single, less educated individuals, the lost market hours were absorbed into home production the most by married individuals with children. |
| Keywords: | Shutdown; COVID-19; pandemic; home production; remote work |
| JEL: | D13 E32 J22 |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88542&r=all |
| By: | International Monetary Fund |
| Abstract: | This Article IV Consultation highlights that the Dutch economy has grown faster than the euro area average over the past few years reflecting recovering consumption and investment, and strong net exports. Progress with tackling long-standing imbalances in the households and corporate sectors, and thus external imbalances, has lagged. Households remain highly leveraged and their consumption constrained by a stagnating disposable income. In the corporate sector, dominated by large multinational corporations, investment is low but savings are high, and developments are diverging with domestic small and medium enterprises relatively stagnant. Strong fiscal performance in recent years has boosted buffers that can now be used to reduce distortions and strengthen potential growth. The report recommends that it is important to harmonize tax benefits and social security contributions for different types of employment to reduce labor market duality while increasing overall labor market flexibility. Using fiscal space to address household and corporate imbalances is desirable and is unlikely to jeopardize long-term fiscal sustainability. |
| Keywords: | Europe;Netherlands;Fiscal policy;National accounts;Employment;Financial statistics;Expenditures;SMEs,Proj,self-employment,article IV consultation,household debt |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/044&r=all |
| By: | Ryosuke Shimizu (Aoyama Gakuin University); Shohei Momoda (Kyoto University) |
| Abstract: | This paper examines the relationship between automation technology diffusion and the wage. In this model, producers either choose automation or nonautomation technology, whichever is more profitable. When they introduce the automation technology, they have to pay fixed costs, which are different between industries. The main results of this paper are that the productivity improvement of automation technology, which promotes automation diffusion, decreases labor share, and this improvement also decreases the wage when the level of automation technology diffusion is high enough. |
| Keywords: | automation, the wage, labor share decline, technology choice |
| JEL: | E24 J23 O3 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1039&r=all |
| By: | Xin Sheng (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom); Hardik A. Marfatia (Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China) |
| Abstract: | This paper analyzes the impact of disentangled oil shocks on the synchronization in housing price movements across all the US states plus DC. Using a Bayesian dynamic factor model, the house price movements are decomposed into national, regional, and state-specific factors. We then study the impact of oil-specific supply and demand, inventory accumulation, and global demand shocks on the national factor using linear and nonlinear local projection methods. The impulse response analyses suggest that oil-specific supply and consumption demand shocks are most important in driving the national factor. Moreover, as observed from the regime-specific local projection model, these two shocks are found to have a relatively stronger impact in a bearish rather than a bullish national housing market. Our results have important policy implications. |
| Keywords: | Bayesian dynamic factor model, Housing market synchronization, Local projection method, Structural oil shocks |
| JEL: | C22 C32 E32 Q02 R30 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202076&r=all |
| By: | D'Orazio, Paola; Dirks, Maximilian W. |
| Abstract: | COVID-19 has quickly emerged as a novel risk, generating feverish behavior among investors, and posing unprecedented challenges for policymakers. The empirical analysis provides evidence for a significant negative effect on stock markets of COVID-19-related measures announced in the Euro Area from January 1st, 2020 to May 17th, 2020. Further negative effects are detected for movements in bond yields, EU volatility index, Google trends, and infection rates. Health measures have, instead, a significant positive effect, while fiscal policy announcements are not significant. |
| Keywords: | Coronavirus,COVID-19,investor behavior,stock market volatility,containment policies,policy announcements,fiscal policy |
| JEL: | E44 G15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:859&r=all |
| By: | Nicola Fuchs-Schündeln (Goethe University Frankfurt); Dirk Krueger (University of Pennsylvania); Alexander Ludwig (SAFE, University of Mannheim); Irina Popova (Goethe University Frankfurt) |
| Abstract: | Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role. |
| Keywords: | COVID-19, school closures, Inequality, intergenerational persistence |
| JEL: | D31 E24 I24 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-062&r=all |
| By: | Christopher Cotton (Queen's University); Bahman Kashi (Limestone Analytics); Huw Lloyd-Ellis (Queen's University); Frederic Tremblay |
| Abstract: | We develop a methodology to track and quantify the economic impacts of lock-down and re-opening policies by Canadian provinces in response to the COVID-19 pandemic, using data that is available with a relatively short time-lag. To do so, we adapt, calibrate and implement a dynamic, seasonally-adjusted, input-output model with supply constraints. Our framework allows us to quantify potential scenarios for the impacts of lock-down and reopening which allow for dynamic complementarities between industries, seasonal fluctuations, and changes in the composition of demand. Taking account of the observed variation in re-opening strategies across provinces, we estimate the costs of the policy response in term of lost hours of employment and production. |
| Keywords: | COVID-19, pandemic, lock-down, policy response, policy analysis, scenario analysis |
| JEL: | I18 C67 E61 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1441&r=all |
| By: | Brandt,Loren; Litwack,John; Mileva,Elitza Alexandrova; Wang,Luhang; Zhang,Yifan-000568579; Zhao,Luan |
| Abstract: | China?s economy grew by an impressive 10 percent per year over four decades. Productivity improvements within sectors and gains from resource reallocation between sectors and ownership groups drove that expansion. However, productivity growth has declined markedly in recent years. This paper extends previous macro and firm-level studies to show that domestic factors and policies contributed to the slowdown. The analysis finds that limited market entry and exit and lack of resource allocation to more productive firms were associated with slower manufacturing total factor productivity growth. Earlier reforms led to state-owned enterprises catching up to private sector productivity levels in manufacturing, but convergence stalled after 2007. Furthermore, the allocation of a larger share of credit and investment to infrastructure and housing led to lower returns to capital, a rapid buildup in debt, and higher risks to growth. China?s growth potential remains high, but its long-term growth prospects depend on reversing the recent decline in total factor productivity growth. |
| Keywords: | Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Construction Industry,General Manufacturing,Pulp&Paper Industry,Textiles, Apparel&Leather Industry,Common Carriers Industry,Business Cycles and Stabilization Policies,Plastics&Rubber Industry,Food&Beverage Industry,Labor Markets,International Trade and Trade Rules,Urban Governance and Management,Urban Housing and Land Settlements,Municipal Management and Reform,Urban Housing |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9298&r=all |
| By: | Hoang, Viet-Ngu; Nguyen, Duc Khuong; Pham, Tuan Anh |
| Abstract: | During and after the 2008-2009 global financial crisis, the growth cycle of Vietnam’s economy has shifted from an average annual growth rate of 7%-8% to an average annual growth rate of 5%-6% with a high level of macroeconomic instability and uncertainty from 2009 till 2016. Related studies have speculated that the operations of monetary policies during this period were not effective in recovering the economic growth and stabilizing the overall price level and total output level. This paper provides the first empirical examination of this speculation using the Trilemma framework. Our empirical results show that the State Bank of Vietnam has had adopted a set of policies aiming at maintaining exchange rate stability and interest rate independence while easing the restrictions on capital inflows. The combination of these three monetary policy approaches is found to violate the rule of Trilemma. Consequently, exchange rate and interest rate policies became less effective and failed to stabilize the economy in response to the global economic recession. |
| Keywords: | Vietnamese economy; Trilemma; monetary policy; economic recession; macroeconomic conditions. |
| JEL: | F31 F33 F36 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102521&r=all |
| By: | Figueres, Juan Manuel; Jarociński, Marek |
| Abstract: | This paper examines which measures of financial conditions are informative about the tail risks to output growth in the euro area. The Composite Indicator of Systemic Stress (CISS) is more informative than indicators focusing on narrower segments of financial markets or their simple aggregation in the principal component. Conditionally on the CISS one can reproduce for the euro area the stylized facts known from the US, such as the strong negative correlation between conditional mean and conditional variance that generates stable upper quantiles and volatile lower quantiles of output growth. JEL Classification: C12, E37, E44 |
| Keywords: | downside risk, macro-financial linkages, quantile regression |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202458&r=all |
| By: | Robert P. Bartlett III; Adair Morse |
| Abstract: | Using unique City of Oakland data during COVID-19, we document that small business survival capabilities vary by firm size as a function of revenue resiliency, labor flexibility, and committed costs. Nonemployer businesses rely on low cost structures to survive 73% declines in own-store foot traffic. Microbusinesses (1-to-5 employees) depend on 14% greater revenue resiliency. Enterprises (6-to-50 employees) have twice-as-much labor flexibility, but face 11%-to-22% higher residual closure risk from committed costs. Finally, inconsistent with the spirit of Chetty-Friedman-Hendren-Sterner (2020) and Granja-Makridis-Yannelis-Zwick (2020), PPP application success increased medium-run survival probability by 20.5%, but only for microbusinesses, arguing for size-targeting of policies. |
| JEL: | E61 G38 H32 J65 L26 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27629&r=all |
| By: | Jonathan Kearns (Reserve Bank of Australia); Mike Major (Reserve Bank of Australia); David Norman (Reserve Bank of Australia) |
| Abstract: | Household indebtedness has increased substantially over several decades and across a range of countries. It is commonly cited as a major risk to numerous countries, including Australia. We consider how much risk this debt poses to Australia by asking three questions: (i) what accounts for the rise in household debt-to-income ratios and its level in Australia relative to other countries?; (ii) what losses might the Australian banking system suffer from these exposures in the event of a severe stress?; and (iii) how does household debt affect the sensitivity of consumption in Australia to severe economic shocks? Our results suggest that risks arising from Australian household indebtedness are more subtle than sometimes conveyed. In particular: fundamental factors (higher real incomes, a fall in nominal interest rates, financial liberalisation and household ownership of the rental stock) mostly account for the current level of household debt; banks appear resilient to a severe downturn thanks to moderate loan-to-valuation ratios on residential mortgages; and the distribution of debt does not appear to heighten wealth effects on consumption. However, there are risks. Our model cannot account for the increase in debt over the past four or five years. In addition, we demonstrate that a large but plausible fall in asset prices could lead to a substantial fall in consumption and that the increase in indebtedness over the past decade has slightly increased the potential loss of consumption during periods of financial stress. |
| Keywords: | household debt; financial stability; stress testing; marginal propensity to consume; household survey data |
| JEL: | C15 D31 E44 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2020-05&r=all |
| By: | Giansante, Simone (School of Management, University of Bath); Fatouh, Mahmoud (Bank of England); Ongena, Steven (University of Zurich, Swiss Finance Institute) |
| Abstract: | We investigate the impact of the asset purchase program (APP) introduced by the Bank of England (BOE) in 2009 on the composition of assets of UK banks, and the implications for bank lending to the real economy, using a unique database on the program. Knowing the identity of the banks that receive reserves injections through the BOE’s APP (QE banks) provides us with an ideal empirical design for a difference-in-differences exercise. The Monetary Policy Committee (MPC) didn’t expect there to be strong transmission of the APP’s impact through the bank lending channel. In line with that, we find no evidence that suggests that QE directly boosted bank lending to the real economy, even when controlling fully for demand-side effects. The overall reduction of retail lending is more pronounced for treated (QE) banks than for the control group. QE banks reallocated their assets towards lower risk-weighted investments, such as government securities, as suggested by the increased sensitivity of their equity returns to peripheral EU bond returns. Overall, our findings suggest that, if banks are not adequately capitalised, risk-based capital constraints can limit the transmission of expansionary unconventional monetary policies via the bank lending channel, and provide incentives for carry trade activities. |
| Keywords: | Monetary policy; quantitative easing; bank lending |
| JEL: | E51 G21 |
| Date: | 2020–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0883&r=all |
| By: | François Langot (IZA - Institute for the Study of Labor, Gains - Groupe d’Analyse des Itinéraires et Niveaux Salariaux, PSE - Paris School of Economics) |
| Abstract: | This paper highlights the specics of a monetary union, such as the Euro area, regarding the possible choices of monetary and scal policies. As the dynamics of public debt are specic to the choices made by each government, I show that the dynamic stability of the area requires coordination of scal policies, particularly in the case of a liquidity trap situation. My results suggest that a scal union, taking the form of a common debt, guarantees the dynamic stability of the area, notwithstanding the monetary policy, chosen or constrainedthus improving institutional robustness of the European Union. |
| Keywords: | Euro area,Taylor rule,Fiscal rule,public debt,NK model,Fiscal theory of price level |
| Date: | 2020–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02895635&r=all |
| By: | Koh,Wee Chian; Yu,Shu |
| Abstract: | Emerging markets and developing economies (EMDEs) weathered the 2009 global recession relatively well. However, the impact of the global recession varied across economies. EMDEs with stronger pre-crisis fundamentals -- such as large foreign exchange reserves, sound fiscal positions, and low inflation -- suffered milder growth slowdowns, in part due to their greater capacity to engage in monetary and fiscal stimulus. Low-income countries were also resilient, as foreign aid and inflows of remittances remained relatively stable. In contrast, EMDEs that were heavily dependent on short-term capital flows -- such as portfolio investment and cross -- border bank lending?fared less well, especially those in Europe and Central Asia. A key lesson for EMDEs is the need to strengthen macroeconomic frameworks and create policy space to prepare for future global downturns. |
| Date: | 2020–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9290&r=all |
| By: | Jerome H. Powell |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:88646&r=all |
| By: | Ambrocio, Gene |
| Abstract: | Confidence dropped universally across countries and sectors during the height of the COVID-19 pandemic in Europe. Latest survey data suggest that confidence is on track for a v-shaped recovery. The swift implementation of stringent containment measures as well as economic stimulus policy measures, along with several other country characteristics, correlate well with both the drop and recovery of confidence across countries. |
| Keywords: | Confidence,Covid-19,Survey expectations |
| JEL: | D84 E65 I10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:62020&r=all |
| By: | Julián Caballero |
| Abstract: | This paper explores the effect of depreciations on investment when firms hold foreign currency debt. The paper employs a novel database of stocks of foreign currency bonds issued by seven thousand firms from emerging economies in 2000-2015. The results indicate that currency depreciations exert a significant negative effect on balance sheets. A depreciation of 10 percent is associated with a ratio of capital expenditures to assets of between 0.3 and 0.6 percentage points less for firms with outstanding stocks of foreign currency bonds in the year following the depreciation. This result is robust to different inference techniques and to controlling for a large number of potential confounders. |
| Keywords: | fixed investment, bond issuance, currency mismatch, balance sheets |
| JEL: | E22 F34 F40 G31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:879&r=all |
| By: | Adejumo, Akintoye; Asongu, Simplice |
| Abstract: | Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth. |
| Keywords: | Investments; Productivity; Sustainability; Growth |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101924&r=all |
| By: | Timothy N. Cason; Daniel Friedman; Ed Hopkins |
| JEL: | C73 C92 D83 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pur:prukra:1324&r=all |
| By: | Natalija Novta; Evgenia Pugacheva |
| Abstract: | We examine the extent to which declining manufacturing employment may have contributed to increasing inequality in advanced economies. This contribution is typically small, except in the United States. We explore two possible explanations: the high initial manufacturing wage premium and the high level of income inequality. The manufacturing wage premium declined between the 1980s and the 2000s in the United States, but it does not explain the contemporaneous rise in inequality. Instead, high income inequality played a large role. This is because manufacturing job loss typically implies a move to the service sector, for which the worker is not skilled at first and accepts a low-skill wage. On average, the associated wage cut increases with the overall level of income inequality in the country, conditional on moving down in the wage distribution. Based on a stylized scenario, we calculate that the movement of workers to low-skill service sector jobs can account for about a quarter of the increase in inequality between the 1980s and the 2000s in the United States. Had the U.S. income distribution been more equal, only about one tenth of the actual increase in inequality could have been attributed to the loss of manufacturing jobs, according to our simulations. |
| JEL: | D31 D63 E25 J31 L60 O33 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:lis:liswps:768&r=all |
| By: | Fausto Panunzi; Nicola Pavoni; Guido Tabellini |
| Abstract: | This paper studies electoral competition over redistributive taxes between a safe incumbent and a risky opponent. As in prospect theory, economically disappointed voters become risk lovers, and hence are intrinsically attracted by the more risky candidate. We show that, after a large adverse economic shock, the equilibrium can display policy divergence: the more risky candidate proposes lower taxes and is supported by a coalition of very rich and very disappointed voters, while the safe candidate proposes higher taxes. This can explain why new populist parties are often supported by economically dissatisfied voters and yet they run on economic policy platforms of low redistribution. We show that survey data on the German SOEP are consistent with our theoretical predictions on voters’ behavior. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:670&r=all |
| By: | Cheung, Alexander P. (University of Alberta, Department of Economics); Marchand, Joseph (University of Alberta, Department of Economics); Mark, Paddy (Nanaimo Regional General Hospital) |
| Abstract: | The purpose of this study is to measure and quantify the losses in labour productivity due to the Canadian opioid crisis. Since 2016, over 15,393 Canadians have lost their lives due to opioid overdose. It is estimated that 10,775 of these overdose victims were employed in the 5 years prior to their death. This study applies public data to a human capital (HC) model to estimate the total lost productivity to the Canadian economy. The HC model mathematically projects forward the future economic output of an individual overdose victim given their occupation and age (at time of death) until retirement. The total estimated productivity loss is at least $5.71 billion dollars. Given this, the opioid crisis has affected a whole working cross-section of society causing irreversible damage to the Canadian economy in addition to an immeasurable human cost. A multidisciplinary review of the literature regarding opioid use disorder was also undertaken to enhance understanding into the nature of the Canadian opioid crisis in relation to premature deaths and the subsequent losses in labor productivity. |
| Keywords: | opioid crisis; labour productivity; health economics |
| JEL: | E24 I10 J17 J24 O47 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2020_013&r=all |
| By: | Cuevas,Pablo Facundo; Lucchetti,Leonardo Ramiro; Nebiler,Metin |
| Abstract: | Fiscal policy is central to not only macroeconomic stability and growth, but also to poverty and inequality reduction. This paper provides the most comprehensive assessment of the distributional incidence of Turkey?s fiscal policy to date. It analyzes the combined and individual incidence of direct and indirect taxes, transfers, and social spending and benchmarks Turkey?s achievements against peer countries. The results show that fiscal policy significantly reduces income inequality in Turkey, driven by social spending on education and health, and complemented by direct taxes and transfer schemes that countervail the inequality-increasing impact of indirect taxes. At the bottom of the income distribution, targeted transfers are insufficient to compensate for the effect of taxes, resulting in net increases in poverty. In the context of upper-middle-income countries, Turkey?s performance is below the median. This is driven by the relatively larger negative impacts of indirect taxes and the more limited positive impacts of direct transfers and taxes. From a policy perspective, the paper contributes to identifying entry points for improving the equity impact of the fiscal package. Among these, targeting the minimum subsistence allowance (AGI) program toward the poor could be an efficient way forward. More broadly, the study represents a platform to simulate the distributional implications of a variety of fiscal changes to inform stakeholders and the policy debate. |
| Date: | 2020–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9300&r=all |
| By: | Calixte Ahokpossi; Agnes Isnawangsih; Md. Shah Naoaj; Ting Yan |
| Abstract: | Since the adoption of the inflation targeting framework by Bank Indonesia (BI), monetary policy communication has played an increasingly important role in BI’s policy toolkit. This paper assesses BI’s monetary policy communication from three perspectives: i) its transparency and clarity, ii) its ability to align market expectation and BI’s policy decisions (predictability), and iii) its impact on financial markets. In particular, we assess the impact of BI’s monetary policy practices by focusing on its monetary policy press releases and monetary policy reports. The results show that Bank Indonesia has made significant progress in the transparency of its communication as well as in the institutional framework to support this. Nonetheless, the results also suggest ways in which the impact of communication can be further improved, including by strengthening the clarity of policy messages, its consistency with the policy framework and the depth of the money market. |
| Date: | 2020–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:20/109&r=all |
| By: | Andrew Atkeson; Magnus Irie |
| Abstract: | We use a simple random growth model to study the role of changing dynamics of family firms in shaping the evolution of top wealth shares in the United States over the course of the past century. Our model generates a time path for top wealth shares. The path is remarkably similar to those found by Saez and Zucman (2016) and Gomez (2019) when the volatility of idiosyncratic shocks to the value of family firms is similar to that found for public firms by Herskovic, Kelly, Lustig, and Van Nieuwerburgh (2016). We also show that consideration of family firms contributes not only to overall wealth inequality but also to considerable upward and downward mobility of families within the distribution of wealth. We interpret our results as indicating that improving our understanding of how families found new firms and eventually diversify their wealth is central to improving our understanding of the distribution of great wealth and its evolution over time. |
| Keywords: | Wealth; Inequality; Family firms |
| JEL: | E21 |
| Date: | 2020–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88625&r=all |
| By: | Ariffian, Suffian; Masih, Mansur |
| Abstract: | Islamic finance has been growing well around the globe since the subprime crisis of 2007-2008. The Southeast Asia is one of the top areas of growth of Islamic finance but there has not been any research done yet as to which Islamic equity market has been the leading one in the Southeast Asia. This study makes an attempt to fill in that gap. In particular this study asks the following questions:(i)which Islamic equity market is the leading one in Southeast Asia ? (ii) whether the international and conventional equity markets had any bearing on the Islamic equity markets in South East Asia and (iii) which Islamic equity index in South East Asia could be used as the benchmark index? Our findings tend to indicate that (i) amongst the South East Asia countries, Malaysia is relatively the most leading Islamic equity market (ii) the international and conventional markets appear to have a significant impact on the Islamic markets in Southeast Asia (iii) for an investor interested in Islamic equity investment in South East Asia region, he/she could use the Malaysian Islamic market as the benchmark index. |
| Keywords: | Islamic equity markets, Southeast Asia, VECM, VDC |
| JEL: | C22 C58 E44 G15 |
| Date: | 2018–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101873&r=all |
| By: | Michael J. Fishman; Jonathan A. Parker; Ludwig Straub |
| Abstract: | We develop a tractable dynamic model of credit markets in which lending standards and the quality of potential borrowers are endogenous. Competitive banks privately choose their lending standards: whether to pay a cost to screen out some unprofitable borrowers. Lending standards have negative externalities and are dynamic strategic complements: tighter screening worsens the future pool of borrowers for all banks and increases their incentives to screen in the future. Lending standards can amplify and prolong temporary downturns, affecting lending volume, credit spreads, and default rates. We characterize constrained-optimal policy which can generally be implemented as a government loan insurance program. When markets recover, they may do so only slowly, a phenomenon we call “slow thawing.” Finally, we show that limits on lending such as from capital constraints naturally incentivize tight lending standards, further amplifying shocks to credit markets. |
| JEL: | D82 E51 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27610&r=all |
| By: | Asongu, Simplice; Uduji, Joseph; Okolo-Obasi, Elda |
| Abstract: | An April 2015 World Bank report on attainment of the Millennium Development Goal (MDG) extreme poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of the sub-region enjoying more than two decades of growth resurgence. This study builds on a critique of Piketty’s ‘capital in the 21st century’ and recent methodological innovations on reverse Solow-Swan to review empirics on the adoption of common policy initiatives against a cause of extreme poverty in SSA: capital flight. The richness of the dataset enables the derivation of 14 fundamental characteristics of African capital flight based on income-levels, legal origins, natural resources, political stability, regional proximity and religious domination. The main finding reveals that regardless of fundamental characteristic, from a projection date of 2010, a genuine timeframe for harmonizing policies is between 2016 and 2023. In other words, the beginning of the post-2015 agenda on sustainable development goals coincides with the timeframe for common capital flight policies. |
| Keywords: | Econometric modeling; Capital flight; Poverty; Africa |
| JEL: | C50 E62 F34 O19 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102034&r=all |
| By: | International Monetary Fund |
| Abstract: | This technical note reviews systematic risk oversight and macroprudential policy in Australia. The paper surveys key concerns affecting the Australian financial system, including the substantial increase in house prices and household indebtedness, the rising concentration of bank exposures, and potential volatility from the commercial real estate sector. The macroprudential policy response of the authorities has also been examined. Current arrangements have historically worked well and are based on a culture of strong inter-agency cooperation, and it is important that processes are appropriate to ensure ongoing focus on stability-related risks. The IMF team recommends that the authorities explore options for further extending their macroprudential toolkit, providing additional flexibility in responding to significant shocks, and reducing systemic vulnerabilities. The slowing in the growth of household indebtedness and lower house prices suggest that substantial new measures are not required at the current juncture, but a ‘readiness’ assessment would help to facilitate the introduction of new or expanded policy measures when required. |
| Keywords: | Real sector;Financial crises;Macroprudential policies and financial stability;Interest rates;Central banks;APRA,RBA,CFR,lend standard,LTV |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2019/050&r=all |
| By: | Scott R. Baker; Brian Baugh; Marco C. Sammon |
| Abstract: | This paper demonstrates that it is possible to construct accurate pictures of firm revenue, growth, geographic dispersion, and customer base characteristics using an increasingly accessible class of consumer financial transaction data. We develop two new measures which characterize firms' customer bases: the rate of churn in a firm's customer base and a metric of the pairwise similarity between firms' customer bases. We show that these measures provide important insights into the behavior of both real firm decisions and firm asset prices. Rates of customer churn affect the level and volatility of firm-level investment, markups, and profits. Churn also affects how quickly firms respond to shocks in the value of their growth options (i.e. Tobin's~Q). Moreover, high churn firms tended to face steeper declines in consumer spending during the recent COVID-19 outbreak. Similarity between firms' customer bases highlights one under-explored type of predictability among stock returns -- we demonstrate that significant alpha can be generated using a trading strategy that exploits our index of customer base similarity across firms. |
| JEL: | D22 E22 G32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27707&r=all |