nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒09‒14
119 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Capital-constrained loan creation, stock markets and monetary policy in a behavioral new Keynesian model By Kotb, Naira; Proaño Acosta, Christian
  2. Assessing the Role of Sentiment in the Propagation of Fiscal Stimulus By Hyeongwoo Kim; Bijie Jia
  3. State dependence of monetary policy across business, credit and interest rate cycles By Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
  4. Good Luck or Good Policy? An Analysis of the Effects of Oil Revenue and Fiscal Policy Shocks: The Case of Ecuador By García-Albán, Freddy; Gonzalez-Astudillo, Manuel; Vera-Albán, Cristhian
  5. The Power of Helicopter Money Revisited: A New Keynesian Perspective By Thomas J. Carter; Rhys R. Mendes; Kim Huynh; Gradon Nicholls; Mitchell Nicholson
  6. Trade, Unemployment, and Monetary Policy By Matteo Cacciatore; Fabio Ghironi
  7. The macroeconomic effects of forward communication By Brubakk, Leif; ter Ellen, Saskia; Robstad, Ørjan; Xu, Hong
  8. The Role of Money in Monetary Policy at the Lower Bound By Billi, Roberto M.; Söderström, Ulf; Walsh, Carl E.
  9. The interaction between macroprudential and monetary policies: The cases of Norway and Sweden By Cao, Jin; Dinger, Valeriya; Grodecka, Anna; Juelsrud, Ragnar; Zhang, Xin
  10. The Determinants of Fiscal and Monetary Policies During the Covid-19 Crisis By Efraim Benmelech; Nitzan Tzur-Ilan
  11. The shale oil boom and the U.S. economy: Spillovers and time-varying effects By Hilde C. Bjørnland; Julia Zhulanova
  12. Negative monetary policy rates and systemic banks' risk-taking: Evidence from the euro area securities register By Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis
  13. Confidence and the Propagation of Demand Shocks By George-Marios Angeletos; Chen Lian
  14. MAJA: A two-region DSGE model for Sweden and its main trading partners By Corbo, Vesna; Strid, Ingvar
  15. COVID-19 Pandemic Uncertainty Shock Impact on Macroeconomic Stability in Ethiopia By Demiessie, Habtamu
  16. Dynamic Oligopoly and Price Stickiness By Olivier Wang; Iván Werning
  17. The Riddle of the Natural Rate of Interest By Razzak, Weshah
  18. Money, inflation and the financial crisis: the case of Switzerland By Peter Kugler; Samuel Reynard
  19. “Leaning against the wind”, macroprudential policy and the financial cycle By Thore Kockerols; Christoffer Kok
  20. Demand or Supply? Price Adjustment during the COVID-19 Pandemic By Balleer, Almut; Link, Sebastian; Menkhoff, Manuel; Zorn, Peter
  21. LED: An estimated DSGE model of the Luxembourg economy for policy analysis By Alban Moura
  22. Medium-Term Money Neutrality and the Effective Lower Bound By Gauti B. Eggertsson; Marc Giannoni
  23. Distributional Effects of COVID-19 on Spending: A First Look at the Evidence from Spain By José García-Montalvo; Marta Reynal-Querol
  24. Liquidity Traps in a Monetary Union By Robert Kollmann
  25. The costs of macroprudential deleveraging in a liquidity trap By Chen, Jiaqian; Finocchiaro, Daria; Lindé, Jesper; Walentin, Karl
  26. Structuring Mortgages for Macroeconomic Stability By John Y. Campbell; Nuno Clara; João F. Cocco
  27. Regulatory Arbitrage and Economic Stability By Uluc Aysun; Sami Alpanda
  28. After 25 years as faithful members of the EU. Public support for the euro and trust in the ECB in Austria, Finland and Sweden By Roth, Felix; Jonung, Lars
  29. Does communication influence executives' opinion of central bank policy? By In Do Hwang; Thomas Lustenberger; Enzo Rossi
  30. The (conflict-augmented) Phillips Curve is alive and well By Ricardo Summa; Julia Braga
  31. La comunicación fiscal y sus efectos sobre los retornos de los títulos públicos: una aproximación empírica para el caso colombiano By Carlos Mauro Cárdenas Cardona; Juan Camilo Galvis Ciro
  32. New Evidence on the Anchoring of Inflation Expectations in the Euro Area By Sascha Möhrle
  33. Strengthening Inflation Targeting: Review and Renewal Processes in Canada and Other Advanced Jurisdictions By Robert Amano; Thomas J. Carter; Lawrence L. Schembri
  34. Central bank funding and credit risk-taking By Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja
  35. Commodity price volatility, fiscal balance and real interest rate By Majumder, Monoj Kumar; Raghavan, Mala; Vespignani, Joaquin
  36. Норма накопления и экономический рост: сдвиги после Великой рецессии By Grigoryev, Leonid; Makarova, Ekaterina
  37. Panama; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund
  38. Should Banks Create Money? By Christian Wipf
  39. Household savings, capital investments and public policies: What drives the German current account? By Ruppert, Kilian; Stähler, Nikolai
  40. Financial shocks and the relative dynamics of tangible and intangible investment: Evidence from the euro area By Gareis, Johannes; Mayer, Eric
  41. The Philippine Economy During the COVID Pandemic By Joseph Anthony Lim
  42. Robust inference intime-varying structural VAR models: The DC-Cholesky multivariate stochasticvolatility model By Hartwig, Benny
  43. COVID-19 and regional shifts in Swiss retail payments By Sébastien P. Kraenzlin; Christoph Meyer; Thomas Nellen
  44. Changing supply elasticities and regional housing booms By Knut Are Aastveit; Bruno Albuquerque; André Anundsen
  45. Macroeconomic Uncertainty and the COVID-19 Pandemic: Measure and Impacts on the Canadian Economy By Kevin Moran; Dalibor Stevanovic; Adam Abdel Kader Touré
  46. Explaining the Puzzling Behavior of Short-Term Money Market Rates By Antoine Martin; James J. McAndrews; Ali Palida; David R. Skeie
  47. Is the stock market pricing in a V‑shaped recovery? By James Kyeong
  48. The Short- and Long-Run Employment Impact of Covid-19 through the Effects of Real and Financial Shocks on New Firms By Christoph Albert; Andrea Caggese; Beatriz González
  49. The short- and long-run employment impact of Covid-19 through the effects of real and financial shocks on new firms By Christoph Albert; Andrea Caggese; Beatriz González
  50. Pandemic Shocks and Household Spending By David Finck; Peter Tillmann
  51. News-driven inflation expectations and information rigidities By Vegard H. Larsen; Leif Anders Thorsrud; Julia Zhulanova
  52. Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions By Daron Acemoglu; Alireza Tahbaz-Salehi
  53. Finland; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland By International Monetary Fund
  54. Is monetary policy always effective? Incomplete interest rate pass-through in a DSGE model By Binning, Andrew; Bjørnland, Hilde C.; Maih, Junior
  55. Are Shadow Rate Models of the Treasury Yield Curve Structurally Stable? By Don H. Kim; Marcel A. Priebsch
  56. MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models By Adrien Auclert; Bence Bardóczy; Matthew Rognlie
  57. Republic of Belarus; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Belarus By International Monetary Fund
  58. Lockdown Policies: A Macrodynamic Perspective for COVID-19 By Francesco Busato; Bruno Chiarini; Gianluigi Cisco; Maria Ferrara; Elisabetta Marzano
  59. Estimation of heterogeneous agent models: A likelihood approach By Parra-Alvarez, Juan Carlos; Posch, Olaf; Wang, Mu-Chun
  60. A Streamlined Procedure to Construct a Macroeconomic Uncertainty Index with an Application to the Ecuadorian Economy By Avellán, Guillermo; González-Astudillo, Manuel; Salcedo, Juan José
  61. Uncertainty and Monetary Policy during Extreme Events By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  62. Uncertainties in the Mongolian Economy in the Near Future By Ragchaasuren Galindev; Delgermaa Begz; Tsolmon Baatarzorig; Unurjargal Davaa; Nyambaatar Batbayar; Oyunzul Tserendorj
  63. Exchange-Rate Policy in a Dollarized Economy: Implications for Growth and Employment in Bolivia By Martin Cicowiez Author-Name: Carlos Gustavo Machicado Author-Name: Beatriz Muriel Author-Name: Alejandro Herrera Jiménez Author-Name: Alejandra Goytia
  64. International Coordination of Macroprudential Policies with Capital Flows and Financial Asymmetries By William Chen; Gregory Phelan
  65. Withering Cash: Is Sweden ahead of the curve or just special? By Armelius, Hanna; Claussen, Carl Andreas; Reslow, André
  66. This Time It's Different: The Role of Women's Employment in a Pandemic Recession By Alon, Titan; Doepke, Matthias; Olmstead-Rumsey, Jane; Tertilt, Michèle
  67. Fiscal sustainability duringthe COVID-19 pandemic By Hürtgen, Patrick
  68. Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK By Peydró, José-Luis; Rodriguez-Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu
  69. Credit Booms, Financial Crises and Macroprudential Policy By Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
  70. Predicting monetary policy using artificial neural networks By Hinterlang, Natascha
  71. Why a pandemic recession should boost asset prices (. . . according to standard economic theory) By Lucas Herrenbrueck
  72. When it Rains it Pours: Cascading Uncertainty Shocks By Anthony M. Diercks; Alex Hsu; Andrea Tamoni
  73. The Macroeconomic Impact of Europe’s Carbon Taxes By Gilbert E. Metcalf; James H. Stock
  74. Low Interest Rates, Policy, and the Predictive Content of the Yield Curve By Michael D. Bordo; Joseph G. Haubrich
  75. R&D, Market Power and the Cyclicality of Employment By Uluc Aysun; Melanie Guldi; Adam Honig; Zeynep Yom
  76. Lao People’s Democratic Republic; Technical Assistance Report-Report on National Accounts Statistics Mission By International Monetary Fund
  77. Real-Time Real Economic Activity: Exiting the Great Recession and Entering the Pandemic Recession By Francis X. Diebold
  78. Labour Productivity during the Great Depression and the Great Recession in UK Engineering and Metal Manufacture By Hart, Robert A.
  79. Rethinking Error Correction Model in Macroeconometric Analysis: A Relevant Review By PINSHI, Christian P.
  80. Uncertainty, Imperfect Information, and Expectation Formation over the Firms's Life Cycle By Cheng Chen; Tatsuro Senga; Chang Sun; Hongyong Zhang
  81. Multivariate Bayesian Predictive Synthesis in Macroeconomic Forecasting By Kenichiro McAlinn; Knut Are Aastveit; Jouchi Nakajima; Mike West
  82. Divergence in Labour Force Growth: Should Wages and Prices Grow Faster in Germany? By Beissinger, Thomas; Hellier, Joël; Marczak, Martyna
  83. Burying Libor By Sven Klingler; Olav Syrstad
  84. Ukraine; Request for Stand-By Arrangement and Cancellation of Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Ukraine By International Monetary Fund
  85. Public debt and economic growth nexus in the euro area: A dynamic panel ARDL approach By Chirwa, Themba G; Odhiambo, Nicholas M
  86. State Space Models with Endogenous Regime Switching By Yoosoon Chang; Junior Maih; Fei Tan
  87. “Evolution of business and consumer uncertainty in the midst of the COVID-19 pandemic. A sector analysis in 32 European countries” By Oscar Claveria
  88. Consumer Inventory and the Cost of Living Index: Theory and Some Evidence from Japan By Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  89. Optimal Asset Allocation for Commodity Sovereign Wealth Funds By Alfonso A. Irarrazabal; Lin Ma; Juan Carlos Parra-Alvarez
  90. España | Series largas de algunos agregados regionales: Actualizacio?n RegData hasta 2019 By Angel De la Fuente
  91. Las agencias de calificación y la deuda pública en la Comunidad Valenciana By Antoni Seguí Alcaraz; Ignacio Nieto Rodrigo
  92. Dollar Safety and the Global Financial Cycle By Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig
  93. Covid-19: Has the Time Come for Mainstream Macroeconomics to Rehabilitate Money Printing? By Axelle Arquié; Jérôme Héricourt; Fabien Tripier
  94. The Impact of Pessimistic Expectations on the Effects of COVID-19-Induced Uncertainty in the Euro Area By Giovanni Pellegrino; Federico Ravenna; Gabriel Züllig
  95. Negative nominal interest rates and the bank lending channel By Gauti B. Eggertsson; Ragnar E. Juelsrud; Lawrence H. Summers; Ella Getz Wold
  96. Paying Too Much? Price Dispersion in the U.S. Mortgage Market By Neil Bhutta; Andreas Fuster; Aurel Hizmo
  97. Financial Returns to Household Inventory Management By Scott R. Baker; Stephanie Johnson; Lorenz Kueng
  98. Market Function Purchases by the Federal Reserve By Kenneth D. Garbade; Frank M. Keane
  99. Snapshot de l’incidence de l’épidémie de coronavirus en Afrique By PINSHI, Christian P.
  100. Seychelles; Second Review Under the policy coordination Instrument and Request for Modification of Targets-Press Release; and Staff Report By International Monetary Fund
  101. Multinational Corporation Affiliates, Backward Linkages, and Productivity Spillovers in Developing and Emerging Economies : Evidence and Policy Making By Jordaan,Jacob Arie; Douw,Willem; Qiang,Zhenwei
  102. Intangible Capital, Markups and Pro fits By Sandström, Maria
  103. Finland; Selected Issues By International Monetary Fund
  104. Forward Looking Loan Provisions: Credit Supply and Risk-taking By Bernardo Morais; Gaizka Ormazabal; José-Luis Peydró; Mónica Roa; Miguel Sarmiento
  105. Optimal Monetary Policy in Production Networks By Jennifer La'O; Alireza Tahbaz-Salehi
  106. An Economic Model of the Covid-19 Pandemic with Young and Old Agents: Behavior, Testing and Policies By Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michéle Tertilt
  107. Corporate zombies: Anatomy and life cycle By Ryan Niladri Banerjee; Boris Hofmann
  108. Forward looking loan provisions: Credit supply and risk-taking By Morais, Bernardo; Ormazabal, Gaizka; Peydró, José-Luis; Roa, Monica; Sarmiento, Miguel
  109. Projecting Unemployment Durations: A Factor-Flows Simulation Approach With Application to the COVID-19 Recession By Gabriel Chodorow-Reich; John Coglianese
  110. Understanding 100 Years of the Evolution of Top Wealth Shares in the U.S.: What is the Role of Family Firms? By Andrew Atkeson; Magnus Irie
  111. World Economy Summer 2020 - Historic contraction of the world economy By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  112. U.S. Banks and Global Liquidity By Ricardo Correa; Wenxin Du; Gordon Y. Liao
  113. Procyclical asset management and bond risk premia By Barbu, Alexandru; Fricke, Christoph; Mönch, Emanuel
  114. Bayesian estimation of DSGE models with Hamiltonian Monte Carlo By Farkas, Mátyás; Tatar, Balint
  115. Economic Impact of Targeted Government Responses to COVID-19: Evidence from the First Large-scale Cluster in Seoul By Shin, Jinwook; Kim, Seonghoon; Koh, Kanghyock
  116. An Economic Model of the Covid-19 Epidemic: The Importance of Testing and Age-Specific Policies By Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michéle Tertilt
  117. Leçons macroéconomiques de la Covid-19: une analyse pour la RDC By Umba, Gilles Bertrand; Siasi, Yves; Lumbala, Grégoire
  118. Civil War and Labor-Market Outcomes in Sierra Leone By Vincent de Paul Mboutchouang Author-Name: Jorge Davalos Author-Name: James Fomba Sandy Author-Name: Isata Mahoi Author-Name: Jennifer Korie Chetachi
  119. Zambia: Resource-rich but vulnerable to shocks By Meghann Puloc’h

  1. By: Kotb, Naira; Proaño Acosta, Christian
    Abstract: In this paper we incorporate a stock market and a banking sector in a behavioral macro-finance model with heterogenous and boundedly rational expectations. Households' savings are diversified among bank deposits and stock purchases, and banks' lending to firms is subject to capital-related costs. We find that households' participation in the stock market, coupled to the existence of a capital-constrained banking sector affects the transmission of monetary policy to the economy significantly, and that households' deposits act as a critical spill-over channel between the real and the financial sectors. In other words, we relate the regulatory stance in the banking sector with the degree of pass-through of monetary policy shocks. Further, we investigate the performance of a leaning-against-the-wind (LATW) monetary policy which targets asset prices concerning macroeconomic and financial stability.
    Keywords: Behavioral Macroeconomics,Banking,Stock Markets,Monetary Policy
    JEL: E44 E52 G21
    Date: 2020
  2. By: Hyeongwoo Kim; Bijie Jia
    Abstract: This paper studies the dynamic effects of the fiscal policy shock on private activity using an array of vector autoregressive models for the post-war U.S. data. We are particularly interested in the role of consumer sentiment in the transmission of fiscal stimulus. Our major findings are as follows. Private spending fails to rise persistently in response to government spending shocks, while they exhibit persistent and significant increases when the sentiment shock occurs. Employing not only linear but also nonlinear state-dependent VAR model estimations, we show that the government spending shock generates consumer pessimism in all phases of business cycle resulting in subsequent decreases in private activity, which ultimately weakens the effectiveness of the fiscal policy. Our counterfactual simulation exercises confirm the important role of sentiment in propagating fiscal stimulus to private spending.
    Keywords: Government Spending; Sentiment Channel;Nonlinear VAR; Counterfactual Simulations; Survey of Professional Forecasters
    JEL: E32 E62
    Date: 2020–08
  3. By: Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
    Abstract: We investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.
    Keywords: Monetary Policy, Household Debt, Local Projections
    JEL: E21 E32 E52
    Date: 2019–11–12
  4. By: García-Albán, Freddy; Gonzalez-Astudillo, Manuel; Vera-Albán, Cristhian
    Abstract: This paper proposes a framework to estimate the effects of exogenous fiscal policy and oil revenue shocks on the macroeconomic activity of price-taking oil producers. We apply the methodology to Ecuador, using a structural vector autoregressive model estimated with Bayesian methods. Specifically, we investigate the effectiveness of taxes, government consumption spending, government investment spending, and oil revenues on economic activity. The results show that expansive fiscal policy either through taxes or government investment has positive effects on output. However, contrary to most studies in the literature, consumption spending does not seem to have a significant effect. We also find that oil revenue shocks are a key transmission channel that significantly affects all the variables in the model, evidencing the vulnerability of the Ecuadorian economy to fluctuations of oil revenues. In particular, oil revenue shocks have been the most important driving force to move output above or below trend historically.
    Keywords: Fiscal policy, Fiscal multipliers, Oil revenues, Structural VAR, Bayesian estimation
    JEL: C32 E32 E62 Q33 Q43
    Date: 2020–08–24
  5. By: Thomas J. Carter; Rhys R. Mendes; Kim Huynh; Gradon Nicholls; Mitchell Nicholson
    Abstract: We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook†model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves. In the textbook model with only non-interest-bearing money, we find the following: * A money-financed fiscal expansion can be more stimulative than a debt-financed fiscal expansion of equal magnitude. However, the extra stimulus requires that the central bank abandon its usual feedback rule for an extended period, allowing interest rates to instead be determined by the rate of money creation. * Moreover, the extra stimulus associated with money financing stems solely from its implications for the path of short-term interest rates and cannot be attributed to an oft-cited Ricardian-equivalence argument that money financing avoids the adverse wealth effects associated with higher taxes under debt financing. * Because the stimulative effects of money financing are driven by its implications for interest rates, a combination of debt financing and sufficiently accommodative forward guidance can replicate all welfare-relevant outcomes while bypassing the potential political-economic complications associated with helicopter money. * Apart from these complications, money financing also has the drawback that it would allow money-demand shocks to generate volatility in output and inflation, much as was the case under the money-targeting regimes of the 1970s and 1980s. In the model with interest-bearing reserves, we find the following: * The rate of money creation determines the interest rate on reserves, but broader interest rates are invariant across debt- and money-financing regimes. * As a result, money financing delivers no extra stimulus relative to debt financing. Overall, results suggest that helicopter money cannot be justified on the grounds that it would allow policy-makers to get more stimulus out of a given fiscal expansion: either money financing has no extra stimulative benefits to offer, or all potential benefits could be pursued more effectively and robustly using alternative policies.
    Abstract: The role of cash in Canadians’ lives has evolved over the past decade. During this period, two diverging trends have emerged in Canada: the use of cash for transactions at the point of sale has declined, but overall demand for cash has increased. The 2019 Cash Alternative Survey was designed to study these trends and update the Bank of Canada’s understanding of Canadians’ use of cash. We asked Canadians about their cash holdings, planned future use of cash and views on how they would be affected if cash were to disappear. In addition to declining cash use, the emergence of privately issued digital currencies has motivated many central banks to conduct research into central bank digital currencies (CBDCs). We contribute to the Bank of Canada’s research on CBDC by monitoring Canadians’ use of cash and their adoption of digital payment methods. We find that Canadians’ cash holdings are stable and the adoption of cryptocurrencies remains limited and concentrated in a few sub-demographics. Moreover, we find that few Canadians plan to stop using cash entirely and that a considerable share of them would find the disappearance of cash problematic.
    Keywords: Credibility; Economic models; Fiscal Policy; Inflation targets; Interest rates; Monetary Policy; Monetary policy framework; Transmission of monetary policy; Uncertainty and monetary policy; Bank notes, Central bank research, Digital currencies and fintech, Econometric and statistical methods
    JEL: E12 E41 E43 E51 E52 E58 E61 E63 C1 C12 C9 E4 O5 O51
    Date: 2020–02
  6. By: Matteo Cacciatore; Fabio Ghironi
    Abstract: We study how trade linkages affect the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. We show that the ability of the model to replicate key empirical regularities following trade integration---synchronization of business cycles across trading partners and reallocation of market shares toward more productive firms---is central to understanding how trade costs affect monetary policy trade-offs. First, productivity gains through firm selection reduce the need of positive inflation to correct long-run distortions. As a result, lower trade costs reduce the optimal average inflation rate. Second, as stronger trade linkages increase business cycle synchronization, country-specific shocks have more global consequences. Thus, the optimal stabilization policy remains inward looking. By contrast, sub-optimal, inward-looking stabilization---for instance too narrow a focus on price stability---results in larger welfare costs when trade linkages are strong due to inefficient fluctuations in cross-country aggregate demand.
    JEL: E24 E32 E52 F16 F41 J64
    Date: 2020–07
  7. By: Brubakk, Leif; ter Ellen, Saskia; Robstad, Ørjan; Xu, Hong
    Abstract: This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the “forward guidance puzzle”. Our identification strategy allows us to disentangle the change in future interest rates stemming from deviations from the systematic part of monetary policy (“target” and “forward guidance” shocks) and changes in future interest rates that are due to unanticipated revisions in the central bank’s economic outlook (“information” shocks). This enables us to make a qualitative assessment of the relative importance of forward guidance. We investigate to what extent the horizon of guidance matters for its macroeconomic effects, and find that the more forward the shock is, the weaker is its impact on output and inflation. This runs contrary to the prediction from standard New Keynesian models that the power of forward guidance increases with its horizon.
    Keywords: monetary policy, forward guidance puzzle, high-frequency identification, structural VAR, central bank information
    JEL: E43 E44 E52 E58
    Date: 2019–11–04
  8. By: Billi, Roberto M. (Research Department, Central Bank of Sweden); Söderström, Ulf (Research Department, Central Bank of Sweden); Walsh, Carl E. (University of California, Santa Cruz)
    Abstract: In light of the current low-interest-rate environment, we reconsider the merit of a money growth target (MGT) relative to a conventional ination targeting (IT) regime, and to the notion of price level targeting (PLT). Through the lens of a New Keynesian model, and accounting for a zero lower bound (ZLB) constraint on the nominal interest rate, we show, not surprisingly, that PLT performs best in terms of social welfare. However, the ranking between IT and MGT is not a foregone conclusion. In particular, although MGT makes monetary policy vulnerable to money demand shocks, it contributes to achieving price level stability and reduces the incidence and severity of the ZLB relative to both IT and PLT. We also show that MGT lessens the need for the scal authority to engage alongside the central bank in ghting recessions. To illustrate this scal bene t of MGT, we introduce a simple rule for the scal authority to raise government purchases when GDP falls below potential. If the government fails to make up for a substantial share of the shortfalls in GDP, then IT performs worse than MGT from the perspective of society.
    Keywords: Friedmans k-percent rule; ZLB constraint; scal policy; automatic stabilizers
    JEL: E31 E42 E52
    Date: 2020–06–01
  9. By: Cao, Jin (Norges Bank); Dinger, Valeriya (University of Osnarbruck and and Leeds University Business School); Grodecka, Anna (Department of Economics, Lund University and Knut Wicksell Centre for Financial Studies); Juelsrud, Ragnar (Norges Bank); Zhang, Xin (Research Department, Central Bank of Sweden)
    Abstract: To shed light on the interaction between macroprudential and monetary policies, we study the inward transmission of foreign monetary policy in conjunction with domestic macroprudential and monetary policies in Norway and Sweden. Using detailed bank-level data we show how Norwegian and Swedish banks' lending reacts to monetary policy surprises arising abroad, controlling for the domestic macroprudential stance and the interaction between monetary and macroprudential policies. In both countries, the domestic macroprudential policy helps mitigate the effects arising after foreign monetary surprises.
    Keywords: monetary policy; macroprudential policy; policy interactions; bank lending; inward transmission; international bank lending channel
    JEL: E43 E52 E58 F34 F42 G21 G28
    Date: 2020–07–01
  10. By: Efraim Benmelech; Nitzan Tzur-Ilan
    Abstract: As countries around the world grapple with Covid-19, their economies are grinding to a halt. For the first time since the Great Depression both advanced economies and developing economies are in recession. Governments and central banks have responded to the pandemic and the economic crisis using both fiscal and monetary tools on a scale that the world has not witnessed before. This paper analyzes the determinants of fiscal and monetary policies during the Covid-19 crisis. We find that high-income countries announced larger fiscal policies than lower-income countries. We also find that a country’s credit rating is the most important determinant of its fiscal spending during the pandemic. High-income countries entered the crisis with historically low interest rates and as a result were more likely to use nonconventional monetary policy tools. These findings raise the concern that countries with poor credit histories – those with lower credit ratings and, in particular, lower-income countries – will not be able to deploy fiscal policy tools effectively during economic crises.
    JEL: E43 E44 E52 E62 E63 G01 G28
    Date: 2020–07
  11. By: Hilde C. Bjørnland; Julia Zhulanova
    Abstract: We analyze if the transmission of oil price shocks on the U.S. economy has changed with the shale oil boom. To do so, we put forward a framework that allows for spillovers between industries and learning by doing (LBD) over time. We identify these spillovers using a time-varying parameter factor-augmented vector autoregressive (VAR) model with both state level and country level data. In contrast to previous results, we find considerable changes in the way oil price shocks are transmitted to the U.S economy: there are now positive spillovers to non-oil investment, employment and production from an increase in the oil price- effects that were not present before the shale oil boom.
    Keywords: Shale oil boom, Oil Prices, Time-varying factor-augmented VAR model, Spillovers, Geographical dispersion
    JEL: C11 C55 E32 E42 Q43
    Date: 2019–08–07
  12. By: Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis
    Abstract: We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans.
    Keywords: Negative Rates,Non-Standard Monetary Policy,Reach-for-Yield,Securities,Banks
    JEL: E43 E52 E58 G01 G21
    Date: 2020
  13. By: George-Marios Angeletos; Chen Lian
    Abstract: We revisit the question of why shifts in aggregate demand drive business cycles. Our theory combines intertemporal substitution in production with rational confusion (or bounded rationality) in consumption. The first element allows aggregate supply to respond to shifts in aggregate demand without nominal rigidity. The second introduces a “confidence multiplier,” namely a positive feedback loop between real economic activity, consumer expectations of permanent income, and investor expectations of returns. This mechanism amplifies the business-cycle fluctuations triggered by demand shocks (but not those triggered by supply shocks); it helps investment to comove with consumption; and it allows front-loaded fiscal stimuli to crowd in private spending.
    JEL: E03 E10 E13 E32
    Date: 2020–08
  14. By: Corbo, Vesna (Monetary Policy Department, Central Bank of Sweden); Strid, Ingvar (Monetary Policy Department, Central Bank of Sweden)
    Abstract: The Swedish economy is strongly dependent on global economic developments, which is reflected in generally strong empirical relationships between Swedish and foreign macroeconomic variables. It is, however, difficult for standard open-economy dynamic stochastic general equilibrium (DSGE) models to generate substantial cross-country spillovers; see e.g. the seminal paper of Justiniano and Preston (2010). We present a two-region DSGE model that better captures the dependence on global economic developments than previous models. It is estimated on data for Sweden and an aggregate of its main trading partners, the euro area and the United States, for the period 1995Q2.2018Q4. To capture the strong empirical relationships between Sweden and the foreign economy, we assume that global shocks to e.g. technology, real interest rates, financial risk, and firm and consumer sentiment directly affect both economies, while their impact on each economy may differ. We also allow for a flexible specification of the demand for Swedish exports to better account for the fluctuations in Swedish trade. Finally, headline and core inflation are distinguished by the introduction of consumption of energy goods, which allows for a more detailed and realistic analysis of inflation developments. This new model, named MAJA (Modell för Allmän JämviktsAnalys), is used by the Riksbank for interpretation of economic developments, forecasting, scenarios, and policy analysis. It builds on the work of Christiano, Eichenbaum, and Evans (2005) and Smets and Wouters (2003) and the Riksbank.s previous models, Ramses I and Ramses II (see Adolfson et al. (2007) and Adolfson et al. (2013), respectively).
    Keywords: DSGE model; Monetary Policy; Open economy; International spillovers; Bayesian estimation.
    JEL: C11 C32 C52 E30 E37 E40 E52 F41 F44
    Date: 2020–07–01
  15. By: Demiessie, Habtamu
    Abstract: This study investigated the impact of COVID-19 pandemic uncertainty shock on the macroeconomic stability in Ethiopia in the short run period. The World Pandemic Uncertainty Index (WPUI) was used a proxy variable to measure COVID-19 Uncertainty shock effect. The pandemic effect on core macroeconomic variables like investment, employment, prices (both food & non-food prices), import, export and fiscal policy indicators was estimated and forecasted using Dynamic Stochastic General Equilibrium (DSGE) Model. The role of fiscal policy in mitigating the shock effect of coronavirus pandemic on macroeconomic stability is also investigated. The finding of the study reveals that the COVID-19 impact lasts at least three years to shake the economy of Ethiopia. Given that the Ethiopian economy heavily relies on import to supply the bulk of its consumption and investment goods, COVID-19 uncertainty effect starts as supply chain shock, whose effect transmitted into the domestic economy via international trade channel. The pandemic uncertainty shock effect is also expected to quickly transcend to destabilize the economy via aggregate demand, food & non-food prices, investment, employment and export shocks. The overall impact of COVID-19 pandemic uncertainty shock impact is interpreted into the economy by resulting under consumption at least in the next three years since 2020. Therefore, the government is expected to enact incentives/policy directions which can boost business confidence. A managed expansionary fiscal policy is found to be key to promote investment, employment and to stabilize food & non-food prices. A particular role of fiscal policy was identified to stabilizing food, transport and communication prices. More importantly, price stabilization policies of the government can have spillover effects in boosting aggregate demand by spurring investments (and widening employment opportunities) in transport/logistics, hotel & restaurant, culture & tourism and export sectors in particular.
    Keywords: Ethiopia, COVID-19, Macroeconomic Stability, Fiscal Policy
    JEL: E6 E62 E64
    Date: 2020–08–20
  16. By: Olivier Wang; Iván Werning
    Abstract: How does market concentration affect the potency of monetary policy? The ubiquitous monopolistic-competition framework is silent on this issue. To tackle this question we build a model with heterogeneous oligopolistic sectors. In each sector, a finite number of firms play a Bertrand dynamic game with staggered price rigidity. Following an extensive Industrial Organization literature, we focus on Markov equilibria within each sector. Aggregating up, we study monetary shocks and provide a closed-form formula for the response of aggregate output, highlighting three measurable sufficient statistics: demand elasticities, market concentration, and markups. We calibrate our model to the empirical evidence on pass-through, and find that higher market concentration significantly amplifies the real effects of monetary policy. To separate the strategic effects of oligopoly from the effects this has on residual demand, we compare our model to one with monopolistic firms after modifying consumer preferences to ensure firms face comparable residual demands. Finally, the Phillips curve for our model displays inflation persistence and endogenous cost-push shocks.
    JEL: E0 E3 E5
    Date: 2020–07
  17. By: Razzak, Weshah
    Abstract: We rely on microeconomics theory to compute the natural rate of interest for the G7 countries from 2001 to 2017. The equilibrium natural rate of interest is determined by a parsimonious equation that is easily computed from readily observable data, hence no estimation errors. The model predicts that the natural rate of interest is equal to the consumption-leisure growth rate less the capital-labor growth rate, which is zero in the steady state, no growth. It is positive (negative) when the consumption-leisure growth gap is greater (smaller) than the capital-labor growth gap. The model predicts that fiscal expansion is an expensive policy to stimulate the economy when the Zero Lower Bound (ZLB) constraint is binding.
    Keywords: Natural rate of interest, Monetary policy
    JEL: C68 E43 E52
    Date: 2020–04
  18. By: Peter Kugler; Samuel Reynard
    Abstract: Unconventional monetary policies have sometimes raised inflation-related fears that have not materialized. Switzerland presents an interesting case, as the central bank reacted to an appreciating currency by injecting Swiss francs through foreign exchange interventions, and bank lending increased considerably throughout the financial crisis. The low inflation that occurred after the crisis can be reconciled with the substantial money growth during the crisis by accounting for the effects of the lower equilibrium velocity and portfolio shifts associated with the Swiss National Bank's foreign exchange interventions.
    Keywords: Monetary policy, monetary aggregates, inflation, equilibrium velocity, foreign exchange interventions
    JEL: E52 E58 E41 E30
    Date: 2020
  19. By: Thore Kockerols (Norges Bank); Christoffer Kok (European Central Bank)
    Abstract: Should monetary policy lean against financial stability risks? This has been a subject of fierce debate over the last decades. We contribute to the debate about “leaning against the wind” (LAW) along three lines. First, we evaluate the cost and benefits of LAW using the Svensson (2017) framework for the euro area and find that the costs outweigh the benefits. Second, we extend the framework to address a critique that Svensson does not consider the lower frequency financial cycle. Third, we use this extended framework to assess the costs and benefits of monetary and macroprudential policy. We find that macroprudential policy has net marginal benefits in addressing risks to financial stability in the euro area, whereas monetary policy has net marginal costs. This would suggest that an active use of macroprudential policies targeting financial stability risks would alleviate the burden on monetary policy to “lean against the wind”.
    Keywords: leaning against the wind, macroprudential policy, financial cycle
    JEL: E58 G01
    Date: 2019–01–10
  20. By: Balleer, Almut (RWTH Aachen University); Link, Sebastian (Ifo Institute for Economic Research); Menkhoff, Manuel (Ifo Institute for Economic Research); Zorn, Peter (LMU Munich)
    Abstract: We study price-setting behavior in German firm-level survey data to infer the relative importance of supply and demand during the Covid-19 pandemic. Supply and demand forces coexist, but demand shortages dominate in the short run. A reported negative impact of Covid-19 on current business is associated with a rise in the probability to decrease prices up to eleven percentage points. These results imply a role for aggregate demand stabilization policy to buffer the economic consequences of Covid-19 while containing the pandemic.
    Keywords: producer price setting, supply, demand, COVID-19, fiscal policy
    JEL: E31 E32 H50 E60 D22
    Date: 2020–08
  21. By: Alban Moura
    Abstract: This paper outlines a new estimated dynamic stochastic general equilibrium (DSGE) model of the Luxembourg economy named LED, for Luxembourg Estimated DSGE. The paper provides a thorough discussion of the model structure, explains how LED is solved and estimated, and shows how it can be used to study important properties of the Luxembourg economy. The empirical results are encouraging: parameter estimates take reasonable values, the model fits the data well, and its implications regarding the determinants of economic growth and cyclical fluctuations in Luxembourg are plausible.
    Keywords: DSGE models, open-economy macroeconomics, Bayesian inference, policy analysis, Luxembourg.
    JEL: C11 C32 E32 E37
    Date: 2020–08
  22. By: Gauti B. Eggertsson; Marc Giannoni
    Abstract: Conventional wisdom suggests that medium-term money neutrality imposes strong limitations on the effects of monetary policy. The point of this paper is that models with medium- and long-term money neutrality are prone to generate non-existence of equilibria at the effective lower bound (ELB) on interest rates. Non-existence is suggestive of sharp output contractions --- so-called contractionary black holes --- at the ELB. Paradoxically, the case for expansionary monetary policy at the ELB is even stronger in models that feature near money neutrality. The results highlight the benefits of a monetary policy regime in which the central bank temporarily overshoots its inflation target once confronted by the ELB.
    JEL: E0 E13 E40 E58
    Date: 2020–08
  23. By: José García-Montalvo; Marta Reynal-Querol
    Abstract: We use data from a a large Spanish personal finance management fintech to have a first look at the heterogeneous effects of the COVID-19 on spending. We show a large reduction on spending since mid-March, coinciding with the shutdown of the economy and the strict confinement of population. Since the end of April the is a recovery of spending although, by the end of June, it is still 20% below the level of the previous year. Opposite to what has been observed in other countries, the recovery of spending is not more intense in low-income families than in their high-income counterparts. However, there is some evidence of differences in the intensity of rebound by age and account balance. This suggest differences in the intensity of government benefits for low-income families and financial difficulties for low-liquidity families .
    Keywords: spending, income, liquidity, COVID-19, administrative data, high frequency
    JEL: E21 E62 E65 H31
    Date: 2020–09
  24. 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 country-specific aggregate demand shocks trigger asymmetric domestic and foreign responses. A rise in government purchases in an individual country lowers GDP in the rest of the union. The results 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: 2020–08–25
  25. By: Chen, Jiaqian (IMF); Finocchiaro, Daria (Research Department, Central Bank of Sweden); Lindé, Jesper (IMF and CEPR); Walentin, Karl (Research Department, Central Bank of Sweden)
    Abstract: We examine the effects of various borrower-based macroprudential tools in a New Keynesian environment where both real and nominal interest rates are low. Our model features long-term debt, housing transaction costs and a zero lower bound constraint on policy rates. We find that the long-term costs, in terms of forgone consumption, of all the macroprudential tools we consider are moderate. Even so, the short-term costs differ dramatically between alternative tools. Specifically, a loan-to-value tightening is more than twice as contractionary compared to a loan-to-income tightening when debt is high and monetary policy cannot accommodate.
    Keywords: Household debt; Zero lower bound; New Keynesian model; Collateral and borrowing constraints; Mortgage interest deductibility; Housing prices
    JEL: E52 E58
    Date: 2020–06–01
  26. By: John Y. Campbell; Nuno Clara; João F. Cocco
    Abstract: We study mortgage design features aimed at stabilizing the macroeconomy. We model overlapping generations of mortgage borrowers and an infinitely lived risk-averse representative mortgage lender. Mortgages are priced using an equilibrium pricing kernel derived from the lender's endogenous consumption. We consider an adjustable-rate mortgage (ARM) with an option that during recessions allows borrowers to pay only interest on their loan and extend its maturity. We find that this maturity extension option stabilizes consumption growth over the business cycle, shifts defaults to expansions, and is welfare enhancing. The cyclical properties of the maturity extension ARM are attractive to a risk-averse lender so the mortgage can be provided at a relatively low cost.
    JEL: E32 E52 G21
    Date: 2020–08
  27. By: Uluc Aysun (University of Central Florida, Orlando, FL); Sami Alpanda (University of Central Florida, Orlando, FL)
    Abstract: This paper shows that national bank regulation can ensure nancial and economy stability only if business cycles are driven by domestic and non- nancial global shocks. If global nancial shocks are more important, by contrast, national regulatory policies can be destabilizing. These inferences are drawn from a two-country DSGE model with global banking, nancial regulation and the nancial accelerator mechanism. The results indicate that bank regulation suppresses the ampli cation e¤ects of the nancial accelerator mechanism when countries face domestic and non- nancial global shocks. When there is a global nancial shock, however, highly-regulated countries are more vulnerable to the ebbs and ows of global bank lending since their rms are more leveraged and externally funded. More generally, the results imply that the nancial trilemma is not binding in economies where domestic and non- nancial global shocks drive the business cycle.
    Keywords: bank regulation, DSGE, nancial accelerator, global banks, nancial trilemma.
    JEL: E32 E44 F33 F44
    Date: 2020–08
  28. By: Roth, Felix; Jonung, Lars
    Abstract: Austria, Finland and Sweden became members of the EU in 1995. This paper examines how support for the euro and trust in the European Central Bank (ECB) have evolved in these three countries since their introduction at the turn of the century. Support for the euro in the two euroarea members Austria and Finland has remained high and relatively stable since the physical introduction of the new currency nearly 20 years ago, while the euro crisis significantly reduced support for the euro in Sweden. Since the start of the crisis, trust in the ECB was strongly influenced by the pronounced increase in unemployment in the euro area, demonstrating that the ECB was held accountable for macroeconomic developments. Our results indicate that citizens in the EU, both within and outside the euro area, judge the euro and the ECB based on the economic performance of the euro area. Thus, the best way to foster support for the euro and trust in the ECB is to pursue policies aimed at achieving low unemployment and high growth.
    Keywords: euro,trust,ECB,EU,monetary union,Austria,Finland,Sweden
    JEL: E42 E52 E58 F33 F45
    Date: 2020
  29. By: In Do Hwang; Thomas Lustenberger; Enzo Rossi
    Abstract: We analyze the economic impact of central banks sensed by business executives in a sample of 61 countries from 1998 to 2016. Based on a survey conducted by the Institute for Management Development (IMD), we find compelling evidence that intensive central bank communication worsens the perceived impact. During the global financial crisis (GFC), this effect became even stronger. In contrast, economic growth and a positive output gap improve the opinion executives have of their central bank's impact on the economy. Moreover, although less robustly, higher unemployment, and higher short-term interest rates worsen executives' opinion, while market uncertainty improves it. The level of inflation and an inflation targeting regime, central bank independence and transparency, financial crises, the zero lower bound constraint, forward guidance, the performance of the stock exchange, and the volatility of the exchange rate seem to be unimportant in this regard.
    Keywords: Central bank communication, economic impact, perceived competence and trust in central banks, panel data, executive survey
    JEL: E58 E52 D83 D80
    Date: 2020
  30. By: Ricardo Summa; Julia Braga
    Abstract: Blanchard recently stated that the old Phillips curve - a relation between the level of inflation and the level of the unemployment rate - is alive and well. In this paper we will argue that there are two routes to this old Phillips curve. We will compare and contrast them. The mainstream route assumes demand-pull inflation and full incorporation of inflation expectations into money wage increases, leading to an accelerationist behavior of inflation. Followers of this approach propose amendments to avoid this accelerationist relation between demand shocks and inflation without discarding the two crucial assumptions, based on introducing imperfections and anchored expectations. After a critical evaluation of these amendments in the accelerationist curve, we will argue in favor of an alternative route to the old Phillips curve that rejects any neoclassical assumptions. This alternative approach assumes that there is no labour scarcity and that inflation depends on conflicting claims over income. Therefore, expectations are not necessarily always fully passed on to nominal wages. Our general conflict-augmented Phillips curve is different from the conflicting-claims Heterodox NAIRU models as it is compatible both with the old Phillips curve but also with accelerating inflation, depending on the bargaining power of the workers.
    Keywords: Phillips curve, distributive conflict, natural rate of unemployment
    JEL: B51 E31 E13
    Date: 2020–08
  31. By: Carlos Mauro Cárdenas Cardona; Juan Camilo Galvis Ciro
    Keywords: comunicación; política fiscal; deuda pública; déficit fiscal; títulos de deuda pública. Keywords: communication; fiscal policy; public debt; fiscal deficit; titles of public debt.
    JEL: E60 E61 E62 E63
    Date: 2020–01–01
  32. By: Sascha Möhrle
    Abstract: This paper examines the anchoring of inflation expectations in the euro area based on data from the Survey of Professional Forecasters (SPF). The analysis shows that the overall distribution of medium- and long-term inflation forecasts has changed considerably following the global financial crisis. Moreover, micro level expectations of professional forecasters are found to be sensitive to short-term economic developments. These patterns suggest that euro area inflation expectations are significantly less anchored to the ECB’s definition of price stability in recent years compared to the pre-crisis period.
    Keywords: Inflation expectations, anchoring, euro area, ECB, financial crisis
    JEL: E31 E58
    Date: 2020
  33. By: Robert Amano; Thomas J. Carter; Lawrence L. Schembri
    Abstract: A growing number of advanced economies with monetary policy frameworks that involve inflation targeting have adopted formal processes of review and renewal. These allow policy-makers and other stakeholders to assess the current framework’s performance to date, explore the merits of potential alternative frameworks and reach decisions about how best to enhance design and implementation. In this paper, we argue that well-governed review and renewal processes can contribute importantly to the success of a monetary policy framework: (1) they help to adjust the framework in response to experience, theoretical developments and changes in the economy; and (2) they enhance the legitimacy and credibility of changes made to the framework. However, as these processes involve inputs from the government or legislature, they also create potential for tensions regarding central bank independence. We use an international comparison to show that these considerations have been balanced in different ways across countries and time, with a spectrum running from relatively technocratic processes to ones more closely linked to the political cycle. We also highlight several unique aspects of the modern review and renewal experience in Canada, where renewals of the Bank of Canada’s joint inflation-control agreement with the government have regularly been preceded by in-depth framework reviews, each involving a large amount of original research and significant levels of transparency.
    Keywords: Central bank research; Inflation targets; Monetary policy framework
    JEL: E E5 E52 E58
    Date: 2020–08
  34. By: Bednarek, Peter; Dinger, Valeriya; te Kaat, Daniel Marcel; von Westernhagen, Natalja
    Abstract: This paper examines the relationship between central bank funding and credit risk-taking. Employing comprehensive bank-firm-level data from the German credit registry during 2009:Q1-2014:Q4, we find that borrowing from the central bank is associated with rebalancing of bank portfolios towards ex-ante riskier firms. We further establish that this relationship is associated with the ECB's maturity extensions and that the risk-taking sensitivity of banks borrowing from the ECB is independent of idiosyncratic bank characteristics. Finally, we highlight that these shifts in bank lending might lead to an ex-post deterioration of bank balance sheets, but increase firm-level investment and employment.
    Keywords: Monetary Policy,LTRO,Bank Lending,Credit Risk-Taking,Real Effects,TFP Growth
    JEL: E44 E52 G21 O40
    Date: 2020
  35. By: Majumder, Monoj Kumar (Tasmanian School of Business & Economics, University of Tasmania); Raghavan, Mala (Tasmanian School of Business & Economics, University of Tasmania); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: The objective of this study is to explore the impact of commodity price volatility on the governments’ fiscal balance. Using a dynamic panel data model for 108 countries from 1993 to 2018, this study finds that governments’ fiscal balance deteriorates with commodity price volatility. A one standard deviation increase in commodity price volatility leads to a reduction of approximately 0.04 units in the fiscal balance as a percentage of gross domestic product. In addition, we examine the role of real interest rates in influencing the relationship between commodity price volatility and fiscal balance. The empirical results suggest that the negative impact of commodity price volatility on fiscal balance can be mitigated with lower real interest rate.
    Keywords: Commodity prices, commodity price volatility, fiscal balance, real interest rate
    JEL: E58 E62 G01
    Date: 2020
  36. By: Grigoryev, Leonid; Makarova, Ekaterina
    Abstract: The Great Recession in 2008—2009 and slow recovery after it became a significant challenge both for economic policy and theory, especially for economic growth studies. New circumstances have revealed new stylized facts, for instance, the decrease in growth rates and capital accumulation in advanced economies. The paper analyzes responses to and outcomes of the Great Recession for countries at different stages of development. The authors consider the investment impact on economic growth varying through seven clusters of countries, determined according to GDP (PPP) level per capita. An attempt has been made to reveal new stylized facts based on current trends and to revise some theoretical approaches to the analysis of economic growth.
    Keywords: capital accumulation, economic growth, Great Recession, neoclassical growth theory, institutions
    JEL: E20 E32 F21 F29 N10 O40
    Date: 2019
  37. By: International Monetary Fund
    Abstract: Panama has had the longest and fastest economic expansion in recent Latin American history. The economy has expanded at an average rate of about 6 percent per annum over the last quarter of a century, with Panama achieving one of the highest per capita income in Latin America. More recently, GDP grew by about 5½ percent in 2017 (driven by the expanded Canal), and then slowed to 3¾ percent (y/y) in H1-2018. Inflation remained subdued, reaching almost 1 percent (y/y) in September 2018. The external current account deficit stayed at 8 percent of GDP in 2017, mostly covered by FDI. The fiscal position continued to be strong, with the overall deficit of the non-financial public sector (NFPS) at about 1½ percent of GDP. Credit growth has decelerated as financial conditions have started to tighten.
    Keywords: Real sector;Fiscal policy;External sector;Fiscal responsibility law;Gross domestic product;CFT,AML,GDP,SBP,percent of GDP
    Date: 2019–01–17
  38. By: Christian Wipf
    Abstract: The paper compares the welfare properties of two competing organi- zations of the monetary system: The current fractional reserve banking system versus a narrow banking system where inside money is fully backed by outside money issued by the central bank. Using a New Monetarist model, the analysis shows that fractional reserve banking is bene cial because of the interest payments on inside money. Since inside money funds loans, it pays interest, compensating the agents for the in ation tax and thus reducing the welfare costs of in ation. Since narrow banking provides no such compensation fractional reserve banking typically domi- nates narrow banking in terms of welfare. This also holds if outside money pays interest. Only if fractional reserve banking is suciently constrained, narrow banking can yield higher welfare.
    JEL: E42 E51 G21
    Date: 2020–08
  39. By: Ruppert, Kilian; Stähler, Nikolai
    Abstract: In this article, we present a model that can account for the changes in the Germancurrent account balance since the 2000s. Our results suggest that an array of struc-tural tax and labor market reforms (Agenda 2010), population aging and pensionreforms led to an increase in the household savings rate in Germany until about2010. As domestic investment opportunities could not absorb these additional sav-ings, they were partly invested abroad. The German current account-to-GDP ratiorose. After 2010, private savings remained rather stable, but opportunities to investin Germany declined further. Our simulations suggest that a tight fiscal stance inGermany (combined with an expansionary stance in the rest of the world), under-investment in the corporate sector and productivity gains in emerging economiesafter 2010 significantly contributed to this.
    Keywords: Global Imbalances,Population Aging,Labor Market Reforms,Fiscal Policy,DSGE Modelling
    JEL: H2 J1 E43 E62
    Date: 2020
  40. By: Gareis, Johannes; Mayer, Eric
    Abstract: We develop an extended real business cycle (RBC) model with financially con-strained firms and non-pledgeable intangible capital. Based on a model-consistentseries for firms' borrowing conditions, we find, within a structural vector autoregres-sion (SVAR) framework, that, in response to an adverse financial shock, tangible in-vestment falls more than intangible investment. This positive co-movement betweentangible and intangible investment as well as the relative resilience of intangibleinvestment pose a challenge for the theoretical model. We show that investment-specific adjustment costs help in reconciling the model with the observed empiricalevidence. The estimation of the theoretical model using a Bayesian limited infor-mation approach yields support for the presence of much larger adjustment costsfor intangible investment than for tangible investment.
    Keywords: tangible investment,intangible investment,financial shocks,euro area
    JEL: C32 E32 E44
    Date: 2020
  41. By: Joseph Anthony Lim (Economics Department, Ateneo de Manila University)
    Abstract: This paper describes and analyzes the impact of the COVID pandemic and the subsequent hard and mild lockdowns on the Philippine economy at various stages from March, 2020 to early September, 2020. The COVID pandemic and resulting hard lockdown (Enhanced Community Quarantine) from March 17, 2020 to May 31, 2020 had resulted in the highest unemployment and biggest fall in Philippine GDP on the second quarter of 2020. The paper shows 90% of the labor force was affected by this hard lockdown. Bayanihan Acts 1 and 2 are the biggest Social Amelioration Program (SAP) ever legislated and implemented by the Philippine government. The paper discusses the need for a bill to prevent the danger of massive loan defaults, bankruptcies and potential financial crisis resulting from the deep recession. The paper goes on to discuss the debate between more conservative economic managers, on one hand, and legislators and NGOs who want a stronger and more encompassing fiscal stimulus to the distressed economy, on the other. It ends with a discussion on the crux of the debate, which is financing the fiscal deficits that will arise due to the pandemic and the economic stimuli.
    Keywords: COVID19; Philippines, recession, COVID pandemic, fiscal stimulus
    JEL: E60 E62
    Date: 2020–09
  42. By: Hartwig, Benny
    Abstract: This paper investigates how the ordering of variables affects properties of the time-varying covariance matrix in the Cholesky multivariate stochastic volatility model.It establishes that systematically different dynamic restrictions are imposed whenthe ratio of volatilities is time-varying. Simulations demonstrate that estimated co-variance matrices become more divergent when volatility clusters idiosyncratically.It is illustrated that this property is important for empirical applications. Specifically, alternative estimates on the evolution of U.S. systematic monetary policy andinflation-gap persistence indicate that conclusions may critically hinge on a selectedordering of variables. The dynamic correlation Cholesky multivariate stochasticvolatility model is proposed as a robust alternative.
    Keywords: Model uncertainty,Multivariate stochastic volatility,Dynamic correlations,Monetary policy,Structural VAR
    JEL: C11 C32 E32 E52
    Date: 2020
  43. By: Sébastien P. Kraenzlin; Christoph Meyer; Thomas Nellen
    Abstract: This paper analyzes card payments to the retail sector in Switzerland during the COVID-19 crisis. We provide evidence on aggregate effects and regional shifts. Pronounced shifts - which persisted post-lockdown - can be observed from urban to suburban and rural areas and among cantons. Data allow us to identify directly two sources of shifts: "tourists and business travelers," and "e-commerce." We indirectly identify additional sources: infection risk, lockdown measures, working from home, shopping tourism, and cash substitution. The COVID-19 crisis seems to have reinforced pre-existing trends that may have faster than anticipated effects on the economy. Our analysis underscores the usefulness of real-time card payment data to inform policy makers.
    Keywords: COVID-19, lockdown, card payment data, regional sale shifts
    JEL: E21 E42 E65 R10
    Date: 2020
  44. By: Knut Are Aastveit (Norges Bank and BI Norwegian Business School); Bruno Albuquerque (European Central Bank and Ghent University); André Anundsen (Housing Lab, Oslo Metropolitan University)
    Abstract: Recent developments in US house prices mirror those of the 1996-2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show hat housing supply elasticities have fallen markedly in recent years. Housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts. A lowering of the housing supply elasticity implies a strengthened price responsiveness to demand shocks, whereas quantity reacts less. Consistent with this, we find that an expansionary monetary policy shock has a considerably stronger effect on house prices during the recent recovery than during the previous housing boom. At the same time, building permits respond less.
    Keywords: House prices, Heterogeneity, Housing supply elasticities, Monetary policy
    JEL: C23 E32 E52 R31
    Date: 2019–04–12
  45. By: Kevin Moran; Dalibor Stevanovic; Adam Abdel Kader Touré
    Abstract: This paper constructs a measure of Canadian macroeconomic uncertainty, by ap-plying the Jurado et al. (2015) method to the large database of Fortin-Gagnon et al.(2020). This measure reveals that the COVID-19 pandemic has been associated with a very sharp rise of macroeconomic uncertainty in Canada, confirming other results showing similar big increases in uncertainty in the United States and elsewhere. The paper then uses a structural VAR to compute the impacts on the Canadian economy of uncertainty shocks calibrated to match these recent increases. We show that such shocks lead to severe economic downturns, lower inflation and sizeable accommodating measures from monetary policy. Important distinctions emerge depending on whether the shock is interpreted as originating from US uncertainty –in which case the down-turn is deep but relatively short– or from specifically Canadian uncertainty, which leads to shallower but more protracted declines in economic activity.
    Keywords: COVID-19 Pandemic,Uncertainty,Forecasting,Factors Models,Vector Autoregressions,
    JEL: C53 C55 E32
    Date: 2020–09–01
  46. By: Antoine Martin; James J. McAndrews; Ali Palida; David R. Skeie
    Abstract: Since 2008, the Federal Reserve has dramatically increased the supply of bank reserves, effectively adopting a floor system for monetary policy implementation. Since then, the behavior of short-term money market rates has been at times puzzling. In particular, short-term rates have been surprisingly firm in recent months, despite the large increase in reserves by the Fed as a part of its response to the coronavirus pandemic. In this post, we provide evidence that both the supply of reserves and the supply of short-term Treasury securities are important factors for explaining short-term rates.
    Keywords: Fed Funds; Treasury; Federal Reserve; liquidity
    JEL: E5 E4 G12
    Date: 2020–08–24
  47. By: James Kyeong
    Abstract: Major stock indexes have bounced back from their March 23 trough to about 10 percent below their peaks. However, stocks that are more sensitive to the business cycle have not performed as well during this market rally. This suggests that stock markets are pricing in a slower, shallower economic recovery.
    Keywords: Asset pricing; Financial markets
    JEL: E E4 E44 G G1 G12 G14
    Date: 2020–07
  48. By: Christoph Albert; Andrea Caggese; Beatriz González
    Abstract: The aim of this paper is 1) to use empirical evidence to make predictions about the impact of the Covid-19 shock on firm entry, its composition, and its short- and long-run impact on employment; and 2) to provide guidance on which policy tool would be more effective to counteract the negative impact of the shock on this margin. The Covid-19 shock caused a large GDP contraction and our predictions suggest that this would cause a reduction in firm entry that ranges from 60% in Germany to 80% in Spain. Moreover, if this collapse of GDP is also accompanied by an even moderate increase in financial frictions, this shock also reduces the share of high-growth firms among the new startups, implying substantially larger negative long-term consequences for the employment generated by the entering cohort. Our estimates for Spain predict employment losses of the entering cohort of nearly 80,000 jobs for 2021, which increase up to almost 115,000 in 2029. Finally, using a simple partial equilibrium model calibrated to match the empirical evidence, we show that a subsidy to initial financing costs is more effective to increase aggregate employment of the entering cohort in the long run than a wage subsidy, which is more effective in the short run only.
    Keywords: recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19
    JEL: E20 E32 D22 J23 M13
    Date: 2020–09
  49. By: Christoph Albert; Andrea Caggese; Beatriz González
    Abstract: The aim of this paper is 1) to use empirical evidence to make predictions about the impact of the Covid-19 shock on firm entry, its composition, and its short- and long-run impact on employment; and 2) to provide guidance on which policy tool would be more effective to counteract the negative impact of the shock on this margin. The Covid-19 shock caused a large GDP contraction and our predictions suggest that this would cause a reduction in firm entry that ranges from 60% in Germany to 80% in Spain. Moreover, if this collapse of GDP is also accompanied by an even moderate increase in financial frictions, this shock also reduces the share of high-growth firms among the new startups, implying substantially larger negative long-term consequences for the employment generated by the entering cohort. Our estimates for Spain predict employment losses of the entering cohort of nearly 80,000 jobs for 2021, which increase up to almost 115,000 in 2029. Finally, using a simple partial equilibrium model calibrated to match the empirical evidence, we show that a subsidy to initial financing costs is more effective to increase aggregate employment of the entering cohort in the long run than a wage subsidy, which is more effective in the short run only.
    Keywords: Recessions, Financial Crisis, Entrepreneurship, firm dynamics, Coronavirus, Covid-19
    JEL: E20 E32 D22 J23 M13
    Date: 2020–08
  50. By: David Finck (Justus Liebig University Giessen); Peter Tillmann (Justus Liebig University Giessen)
    Abstract: We study the response of daily household spending to the unexpected component of the COVID-19 pandemic, which we label as pandemic shock. Based on daily forecasts of the number of fatalities, we construct the surprise component as the difference between the actual and the expected number of deaths. We allow for state-dependent effects of the shock depending on the position on the curve of infections. Spending falls after the shock and is particularly sensitive to the shock when the number of new infections is strongly increasing. If the number of infections grows moderately, the drop in spending is smaller. We also estimate the effect of the shock across income quartiles. In each state, low-income households exhibit a significantly larger drop in consumption than high-income households. Thus, consumption inequality increase after a pandemic shock. Our results hold for the US economy and the key US states. The findings remain unchanged if we choose alternative state-variables to separate regimes.
    Keywords: COVID-19, pandemic, consumption, smooth-transition model, state-dependence
    JEL: E21 E32 I10
    Date: 2020
  51. By: Vegard H. Larsen (Norges Bank and Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School); Leif Anders Thorsrud (Norges Bank and Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School); Julia Zhulanova (Centre for Applied Macroeconomics and Commodity Prices, BI Norwegian Business School)
    Abstract: We investigate the role played by the media in the expectations formation process of households. Using a novel news-topic-based approach we show that news types the media choose to report on, e.g., fiscal policy, health, and politics, are good predictors of households' stated inflation expectations. In turn, in a noisy information model setting, augmented with a simple media channel, we document that the underlying time series properties of relevant news topics explain the time-varying information rigidity among households. As such, we not only provide a novel estimate showing the degree to which information rigidities among households varies across time, but also provide, using a large news corpus and machine learning algorithms, robust and new evidence highlighting the role of the media for understanding inflation expectations and information rigidities.
    Keywords: expectations, media, machine learning, inflation
    JEL: C11 C53 D83 D84 E13 E31 E37
    Date: 2019–02–20
  52. By: Daron Acemoglu; Alireza Tahbaz-Salehi
    Abstract: This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks. We develop a non-competitive model where customized supplier-customer relations increase productivity, and the relationship-specific surplus generated between firms and their suppliers is divided via bargaining. Changes in productivity alter the distribution of surplus throughout the economy and determine which firms are at the margin of failure. A firm’s failure may spread to its suppliers and customers and to firms in other parts of the production network. We provide existence, uniqueness, and a series of comparative statics results, and show how the response of the equilibrium production network may propagate recessionary shocks.
    JEL: D57 E23 E32
    Date: 2020–07
  53. By: International Monetary Fund
    Abstract: Recent growth has been healthy, and the unemployment rate has fallen to its lowest level since 2011. However, some underlying weaknesses remain. The rate in which new jobs are created and the “churn” of workers relocating across jobs has not picked up with the recovery, labor productivity growth remains weak, and the outlook for potential growth is constrained by a shrinking workforce. Household debt has been increasing as the economy has recovered, and some borrowers appear vulnerable to interest rate increases.
    Keywords: Article IV consultation reports;Labor markets;Labor market reforms;Unemployment;Fiscal policy;Financial sector;Credit;Housing;Macroprudential Policy;Economic indicators;Debt sustainability analysis;Press releases;Staff Reports;Financial statistics;Balance of payments;Financial crises;International investment position;percent of GDP,percent,article IV consultation,output gap,household debt
    Date: 2019–01–15
  54. By: Binning, Andrew; Bjørnland, Hilde C.; Maih, Junior
    Abstract: We estimate a regime-switching DSGE model with a banking sector to explain incomplete and asymmetric interest rate pass-through, especially in the presence of a binding zero lower bound (ZLB) constraint. The model is estimated using Bayesian techniques on US data between 1985 and 2016. The framework allows us to explain the time-varying interest rate spreads and pass-through observed in the data. We find that pass-through tends to be delayed in the short run, and incomplete in the long run. All this impacts the dynamics of the other macroeconomic variables in the model. In particular, we find monetary policy to be less effective under incomplete pass-through. Furthermore, the behavior of pass-through in the loan rate is different from that of the deposit rate shocks. This creates asymmetric dynamics at the zero lower bound, and incomplete pass-through exacerbates that asymmetry.
    Keywords: Banking sector, incomplete or asymmetric interest rate pass-through, DSGE
    JEL: C68 E52 F41
    Date: 2019–12–27
  55. By: Don H. Kim; Marcel A. Priebsch
    Abstract: We examine the structural stability of Gaussian shadow rate term structure models of Treasury yields over a period that includes the time during which the U.S. policy rate was at its effective lower bound. After a conceptual discussion of several potential sources of a structural break in the context of the shadow rate model, we document various pieces of evidence for structural instability based on predictive tests and Lagrange multiplier tests, as well as with separate estimations of the pre-ELB and post-ELB subsamples. In order to overcome the difficulties associated with the latent-factor nature of the model in testing for a structural break, we focus on objects that can be given intuitive interpretation, such as principal components, or that are constructed to be invariant to factor rotations.
    Keywords: Shadow rate term structure models; Treasury yields; ELB; Structural break; Structural instability; Factor rotations; Principal components;
    JEL: E43 E44 G12
    Date: 2020–08–20
  56. By: Adrien Auclert; Bence Bardóczy; Matthew Rognlie
    Abstract: We establish an impossibility result for New Keynesian models with a frictionless labor market: these models cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. A HANK model with sticky wages provides a solution to this trilemma.
    JEL: D52 E52 E62 H31
    Date: 2020–07
  57. By: International Monetary Fund
    Abstract: The Belarusian economy is in a cyclical recovery, inflation is at historically low levels and the exchange rate has been broadly stable. Although macroeconomic policy frameworks have improved, there is a need to reduce deep seated vulnerabilities such as rapidly rising public debt, high dollarization, and limited trade and financing diversification. In addition, reforms of the large state-owned enterprise sector are critical to tackle inefficiencies and increase potential growth. Risks ahead are elevated; notably, Belarus could lose significant oil-related discounts and transfers due to internal tax changes in Russia, but the authorities are confident of a successful outcome to the ongoing negotiations.
    Keywords: Article IV consultation reports;Fiscal policy;Monetary policy;Inflation targeting;Financial regulation and supervision;Dollarization;Fiscal reforms;Hydrocarbons;Energy taxes;Economic indicators;Debt sustainability analysis;Press releases;Staff Reports;Real sector;Central banks;Financial and Monetary Sector;Balance of payments;SOEs,medium-term,percent of GDP,net credit,rubel
    Date: 2019–01–17
  58. By: Francesco Busato; Bruno Chiarini; Gianluigi Cisco; Maria Ferrara; Elisabetta Marzano
    Abstract: The COVID-19 pandemic is producing a global health and economic crisis. The entire globe is facing the trade-off between health and recessionary effects. This paper investigates this trade-off according to a macro-dynamic perspective. We set up and simulate a Dynamic Stochastic General Equilibrium model to analyze the COVID-19 contagion within an economy with endogenous dynamics for the pandemic. There are three main results. First, the macroeconomic effects of the epidemic containment measures are much severe. The negative peak in aggregate production range from 11 percent with a soft containment measure to 35 percent with a strong containment measure; second, recovery from recession emerges when the lockdown policy is relaxed. On that basis, the output would return to its pre-lockdown level by the end of 2021; third, a return infection is expected after 36 weeks from the fist contagion contributing to exacerbates the size and duration of the economic crisis.
    Keywords: business cycle, COVID-2019 pandemic, DSGE
    JEL: E32 I12
    Date: 2020
  59. By: Parra-Alvarez, Juan Carlos; Posch, Olaf; Wang, Mu-Chun
    Abstract: We study the statistical properties of heterogeneous agent models. Using aBewley-Hugget-Aiyagari model we compute the density function of wealth and in-come and use it for likelihood inference. We study the finite sample properties of themaximum likelihood estimator (MLE) using Monte Carlo experiments on artificialcross-sections of wealth and income. We propose to use the Kullback-Leibler diver-gence to investigate identification problems that may affect inference. Our resultssuggest that the unrestricted MLE leads to considerable biases of some parameters.Calibrating weakly identified parameters allows to pin down the other unidentifiedparameter without compromising the estimation of the remaining parameters. Weillustrate our approach by estimating the model for the U.S. economy using wealthand income data from the Survey of Consumer Finances.
    Keywords: Heterogeneous agent models,Continuous-time,Fokker-Planck equations,Kullback-Leibler divergence,Maximum likelihood
    JEL: C10 C13 C63 E21 E24
    Date: 2020
  60. By: Avellán, Guillermo; González-Astudillo, Manuel; Salcedo, Juan José
    Abstract: This paper develops a macroeconomic uncertainty index based on the methodology proposed by Jurado, Ludvigson, and Ng (2015).Our approach streamlines the computation of the macroeconomic uncertainty index by using a state-space model that allows us to obtain the unforecastable component of the macroeconomic variables used to construct the index and the latent factors. Moreover, we estimate this state-space model by maximum likelihood, obtaining the parameters of the model and the latent factors in one step, which is more efficient, by construction, than a multi-stage estimation. Finally, with the forecast errors of the state-space model, we propose to estimate stochastic volatility models also by maximum likelihood, using a density filter that could be faster than a Bayesian estimation. After showing that our methodology produces reasonable results for the United States, we apply it to compute a macroeconomic uncertainty index for Ecuador. Our estimate is the first of this kind for a developing or middle-income country. The results show that the Ecuadorian economy is more volatile and less predictable during recessions. We also provide evidence that macroeconomic uncertainty is detrimental to economic activity, finding that the responses of non-oil GDP, the unemployment rate, and consumer prices to macro uncertainty shocks are sizable and persistent.
    Keywords: Macroeconomic uncertainty, state-space model, stochastic volatility, density filter
    JEL: C32 D80 E32
    Date: 2020–08–06
  61. By: Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University); Efrem Castelnuovo (University of Padova and University of Melbourne); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: How damaging are uncertainty shocks during extreme events such as the great recession and the Covid-19 outbreak? Can monetary policy limit output losses in such situations? We use a nonlinear VAR framework to document the large response of real activity to a financial uncertainty shock during the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We employ the DSGE model to quantify the impact on real activity of an uncertainty shock under different Taylor rules estimated with normal times vs. great recession data (the latter associated with a stronger response to output). We find that the uncertainty shock-induced output loss experienced during the 2007-09 recession could have been twice as large if policymakers had not responded aggressively to the abrupt drop in output in 2008Q3. Finally, we use our estimated DSGE framework to simulate different paths of uncertainty associated to different hypothesis on the evolution of the coronavirus pandemic. We find that: i) Covid-19-induced uncertainty could lead to an output loss twice as large as that of the great recession, ii) aggressive monetary policy moves could reduce such loss by about 50%.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession, Covid-19
    JEL: C22 E32 E52
    Date: 2020–08–31
  62. By: Ragchaasuren Galindev; Delgermaa Begz; Tsolmon Baatarzorig; Unurjargal Davaa; Nyambaatar Batbayar; Oyunzul Tserendorj
    Abstract: This paper examines the impact of three shocks (a commodity-price drop, fiscal expansion, and the termination of the biggest mine development) looming in Mongolia’s near future. We modified the PEP-1-t model and calibrated it to the IMF’s recent projections in a business-as-usual scenario. The alternative scenarios for the Mongolian economy, considering these shocks, suggest that the impacts may be significant.
    Keywords: CGE model, Mongolian economy, Commodity price, Fiscal policy
    JEL: D58 E62 I32 Q33
    Date: 2020
  63. By: Martin Cicowiez Author-Name: Carlos Gustavo Machicado Author-Name: Beatriz Muriel Author-Name: Alejandro Herrera Jiménez Author-Name: Alejandra Goytia
    Abstract: We analyzed the impact of currency devaluation on the Bolivian economy, employing a dynamic and extended version of the PEP 1-1 standard model to simulate effects impact on both the main macroeconomic aggregates and the financial stocks and flows of economic agents. We built a new Financial Social Accounting Matrix for the year 2014 and calibrated the model to it. Besides simulating a devaluation of the nominal exchange rate, we also analyzed a policy-response scenario, an external-shock scenario, and a gradual-devaluation scenario. In the policy-response scenario, devaluation was accompanied by a reduction in government expenses (fiscal adjustment); in the external-shock scenario, devaluation came with an increase in the export price of gas (main export commodity); and, in the gradual-devaluation scenario, the exchange-rate policy relaxed gradually. The external-shock scenario dominated the other scenarios in terms of higher average growth and less average unemployment. The fiscal-adjustment scenario, however, dominated in terms of inflation, though it implied an inflationary shock in 2020.
    Keywords: Foreign exchange policy, macroeconomic policy, CGE modelling, Bolivia
    JEL: C68 E61 O24 O54
    Date: 2020
  64. By: William Chen (Williams College); Gregory Phelan (Williams College)
    Abstract: Lack of coordination for prudential regulation hurts developing economies but benefits advanced economies. We consider a two-country macro model in which countries have limited ability to issue state-contingent contracts in international markets. Both countries have incentives to stabilize their economy by using prudential limits, but the emerging economy depends on the advanced economy to bear global risk. Financially developed economies are unwilling to intermediate global risk, which means bearing systemic risk, preferring financial stability over credit flows. Advanced economies prefer tighter prudential limits than would occur with coordination, giving them greater bargaining power when negotiating international agreements.
    Keywords: International Capital Flows, Capital Controls, Macroeconomic Instability, Macroprudential Regulation, Policy Coordination, Spillovers, Financial Crises.
    JEL: E44 F36 F38 F42 G15
    Date: 2020–05
  65. By: Armelius, Hanna (Payments Department); Claussen, Carl Andreas (Payments Department); Reslow, André (Payments Department, Sveriges Riksbank; Uppsala University and Uppsala Centre for Fiscal Studies (UCFS))
    Abstract: There is much in our increasingly digitized economies to suggest that the use of cash should fall. However, in almost all countries, it is constant or rising with a few notable excep- tions. Sweden, in particular, displays a divergent development. In this paper, we explore the drivers behind this development. We use a data set consisting of 129 developed and de- veloping countries and an extensive set of possible explanatory variables to estimate panel regressions for cash demand. In line with earlier studies, we find that economic develop- ment, demography, and the interest rate are important factors. A new finding is that our estimations point to a negative relationship between cash and corruption, and between cash and trust in government and financial institutions. However, this is not enough to fully explain the divergent development in Sweden. We therefore also discuss some recent events and policy measures in Sweden that seem to have accelerated the decline in cash during the last decade.
    Keywords: Cash Demand; Currency in Circulation; Money
    JEL: E41 E42 E51
    Date: 2020–08–01
  66. By: Alon, Titan (University of California, San Diego); Doepke, Matthias (Northwestern University); Olmstead-Rumsey, Jane (Northwestern University); Tertilt, Michèle (University of Mannheim)
    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
  67. By: Hürtgen, Patrick
    Abstract: The "Great Lockdown" implemented in response to the COVID-19 pandemic has led to a severe world-wide economic crisis. In euro area countries, sovereign debt-to-GDP ratios are on the rise and reductions in expected fiscal surpluses raise sustainability concerns amongst investors. This paper provides novel estimates of non-linear state-dependent fiscal limits based on Bi (2012) for the five largest euro area countries. Within the DSGE model I build a COVID-19 scenario calibrated to match the decline in real GDP growth forecasts between April and February2020 and the fiscal stimulus packages announced up to the end of March 2020. On average, fiscal space contracts by 58.4 percent of national GDP. In a worst-case scenario fiscal space is 28.6 percent for Italy and 65.9 percent of national GDP for Germany.
    Keywords: state-dependent fiscal limits,fiscal space,sovereign debt,Laffer curve,COVID-19
    JEL: E32 H30 H60
    Date: 2020
  68. By: Peydró, José-Luis; Rodriguez-Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu
    Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders — not households — for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (eg increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies — via lower pre-correction debt — better house prices and mortgage defaults during an episode of house price correction.
    Keywords: macrorpudential policy,mortgages,credit cycles,inequality,house prices
    JEL: E5 G01 G21 G28
    Date: 2020
  69. By: Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
    Abstract: We develop a model of banking crises which Is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in a crisis. That is, there are "good" booms as well as "bad" booms in the language of Gorton and Ordonez (2019). We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macropudential policy.
    JEL: E00
    Date: 2020–07
  70. By: Hinterlang, Natascha
    Abstract: This paper analyses the forecasting performance of monetary policy reaction functions using U.S. Federal Reserve's Greenbook real-time data. The results indicate that artificial neural networks are able to predict the nominal interest rate better than linear and nonlinearTaylor rule models as well as univariate processes. While in-sample measures usually imply a forward-looking behaviour of the central bank, using nowcasts of the explanatory variables seems to be better suited for forecasting purposes. Overall, evidence suggests that U.S. monetary policy behaviour between1987-2012 is nonlinear.
    Keywords: Forecasting,Monetary Policy,Artificial Neural Network,Taylor Rule,Reaction Function
    JEL: C45 E47 E52
    Date: 2020
  71. By: Lucas Herrenbrueck (Simon Fraser University)
    Abstract: Economic recessions are traditionally associated with asset price declines, and recoveries with asset price booms. Standard asset pricing models make sense of this: during a recession, dividends are low and the marginal value of wealth is high, causing low asset prices. Here, I develop a simple model which shows that this is not true during a recession caused by consumption restrictions, such as those seen during the 2020 pandemic: the restrictions drive the marginal value of wealth down, and thereby drive asset prices up, to an extent that tends to overwhelm the effect of low dividends.
    Keywords: Covid-19 pandemic; social distancing; asset prices; stock market
    JEL: E21 G12 I19
    Date: 2020–08
  72. By: Anthony M. Diercks; Alex Hsu; Andrea Tamoni
    Abstract: We empirically document that serial uncertainty shocks are (1) common in the data and (2) have an increasingly stronger impact on the macroeconomy. In other words, a series of bad (positive) uncertainty shocks exacerbates the economic decline significantly. From a theoretical perspective, these findings are puzzling: existing benchmark models do not deliver the observed amplification. We show analytically that a state dependent precautionary motive with respect to uncertainty shocks is required. Our derivations suggest that the state dependent precautionary motive only shows up at fourth order approximations or higher. Fundamentally, in DSGE models solved with perturbations, agents have always possessed a state dependent precautionary motive but typical solution methods were hiding this fact. Future studies need to consider solving the model via fourth (or higher) order perturbation in order to avoid understating the effect of uncertainty shocks that occur in succession.
    Keywords: Dynamic Equilibrium Economies; Stochastic Volatility; Perturbation
    JEL: C63 C68 E37
    Date: 2020–08–21
  73. By: Gilbert E. Metcalf; James H. Stock
    Abstract: Policy makers often express concern about the impact of carbon taxes on employment and GDP. Focusing on European countries that have implemented carbon taxes over the past 30 years, we estimate the macroeconomic impacts of these taxes on GDP and employment growth rates for various specifications and samples. Our point estimates suggest a zero to modest positive impact on GDP and total employment growth rates. More importantly, we find no robust evidence of a negative effect of the tax on employment or GDP growth. We examine evidence on whether the positive effects might stem from countries that used the carbon tax revenues to reduce other taxes; while the evidence is consistent with this view, it is inconclusive. We also consider the impact of the taxes on emission reductions and find a cumulative reduction on the order of 4 to 6 percent for a $40/ton CO2 tax covering 30% of emissions. We argue that reductions would likely be greater for a broad-based U.S. carbon tax since European carbon taxes do not include in the tax base those sectors with the lowest marginal costs of carbon pollution abatement.
    JEL: E62 H23 Q43 Q54
    Date: 2020–07
  74. By: Michael D. Bordo; Joseph G. Haubrich
    Abstract: Does the yield curve's ability to predict future output and recessions differ when interest rates are low, as in the current global environment? In this paper we build on recent econometric work by Shi, Phillips and Hurn that detects changes in the causal impact of the yield curve and relate that to the level of interest rates. We explore the issue using historical data going back to the 19th century for the US and more recent data for the UK, Germany, and Japan. This paper is similar in spirit to Ramey and Zubairy (2018) who look at the government spending multiplier in times of low interest rates.
    JEL: E32 G01 N10
    Date: 2020–08
  75. By: Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Melanie Guldi (Department of Economics, College of Business Administration, University of Central Florida); Adam Honig (Department of Economics, Amherst College); Zeynep Yom (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: This paper provides a first look into the joint effects of research and development (R&D) and market power on the cyclicality of employment. It presents a theoretical model with R&D and monopolistically competitive firms which shows that firms smooth their R&D activities when they face large R&D adjustment costs. This smoothing behavior comes at the expense of higher labor volatility, and it is stronger for firms with high R&D intensity and low market power. Firm-level data support these predictions. Dynamic panel estimations reveal that employment at competitive firms engaging in a high level of R&D is more procyclical.
    Keywords: R&D; employment volatility; firm-level data; COMPUSTAT
    JEL: E30 E32 O30 O33
    Date: 2020–08
  76. By: International Monetary Fund
    Abstract: A technical assistance mission was conducted during July 2–13, 2018 to support measurement of Lao PDR’s national accounts statistics. The mission assisted with the development of a quarterly GDP time series, reviewed the published annual GDP time series, and developed recommendations to continue improving national accounts statistics compiled by the Lao Statistics Bureau (LSB). The mission built upon previous national accounts statistics missions conducted in April 2017 and January 2018.
    Keywords: Technical assistance missions;National accounts;Statistics;Time series;Gross domestic product;Technical Assistance Reports;National income;Price indexes;Balance of payments;Development;intermediate consumption,Lao PDR,source data,LSB,ministry of energy
    Date: 2019–01–10
  77. By: Francis X. Diebold
    Abstract: We study the real-time signals provided by the Aruoba-Diebold-Scotti Index of Business conditions (ADS) for tracking economic activity at high frequency. We start with exit from the Great Recession, comparing the evolution of real-time vintage beliefs to a "final" late-vintage chronology. We then consider entry into the Pandemic Recession, again tracking the evolution of real-time vintage beliefs. ADS swings widely as its underlying economic indicators swing widely, but the emerging ADS path as of this writing (late June) indicates a return to growth in May. The trajectory of the nascent recovery, however, is highly uncertain (particularly as COVID-19 spreads in the South and West) and could be revised or eliminated as new data arrive.
    JEL: E32
    Date: 2020–07
  78. By: Hart, Robert A. (University of Stirling)
    Abstract: This paper compares labour productivity during the Great Depression (GD) and the Great Recession (GR) in engineering, metal working and allied industries. Throughout, it distinguishes between output per worker and output per hour. From the peak-to-trough of the GD cycle, hourly labour productivity was countercyclical, remaining above its 1929 starting point. In the GR peak-to-trough period, hourly productivity was procyclical, falling below its 2007/08 starting point. While employment and average weekly hours reductions were much more pronounced in the GD compared to the GR, the GD recovery was both stronger and more sustained. The discussion of the different experiences in the two eras concentrates on employment and hours flexibility, the comparative lengths of weekly hours, the behaviour of real wages, and human capital aspects of labour inputs.
    Keywords: labour productivity, Great Depression, Great Recession
    JEL: E32 J23 J24
    Date: 2020–07
  79. By: PINSHI, Christian P.
    Abstract: The cointégration methodology has bridged the growing gap between economists and econometricians in understanding dynamics, equilibrium and bias on the reliability of macroeconomic and financial analysis, which is subject to non-stationary behavior. This paper proposes a comprehensive literature review on the relevance of the error correction model. Econometricians and economists have shown that error-correction model is a powerful machine that provides the economic system and macroeconomic policy with a refinement in the econometric results
    Keywords: cointegration; error correction model; macroeconomics
    JEL: C32 E10
    Date: 2020
  80. By: Cheng Chen; Tatsuro Senga; Chang Sun; Hongyong Zhang
    Abstract: Using a long-panel dataset of Japanese firms that contains firm-level sales forecasts, we provide evidence on firm-level uncertainty and imperfect information over their life cycle. We find that firms make non-negligible and positively correlated forecast errors. However, they make more precise forecasts and less correlated forecast errors when they become more experienced. We then build a model of heterogeneous firms with endogenous entry and exit where firms gradually learn about their demand by using a noisy signal. In our model, informational imperfections lead firms to enter the market without being fully informed. Moreover, young firms tend to wait long before entering or exiting the market faced with high uncertainty about their demand. The former learning effect, combined with the latter real-options effect, adversely affect firms’ entry decisions and thus resource allocation. Our quantitative exercise substantiates the importance of accumulation of experience for firms’ post-entry dynamics and aggregate productivity.
    Keywords: firm expectations, forecast errors, uncertainty, learning, productivity
    JEL: D83 D84 E22 E23 F23 L20
    Date: 2020
  81. By: Kenichiro McAlinn (Booth School of Business, University of Chicago and Department of Statistical Science, Duke University); Knut Are Aastveit (Norges Bank and BI Norwegian Business School); Jouchi Nakajima (Bank for International Settlements); Mike West (Department of Statistical Science, Duke University)
    Abstract: We present new methodology and a case study in use of a class of Bayesian predictive synthesis (BPS) models for multivariate time series forecasting. This extends the foundational BPS framework to the multivariate setting, with detailed application in the topical and challenging context of multi-step macroeconomic forecasting in a monetary policy setting. BPS evaluates - sequentially and adaptively over time – varying forecast biases and facets of miscalibration of individual forecast densities for multiple time series, and – critically – their time-varying interdependencies. We define BPS methodology for a new class of dynamic multivariate latent factor models implied by BPS theory. Structured dynamic latent factor BPS is here motivated by the application context–sequential forecasting of multiple US macroeconomic time series with forecasts generated from several traditional econometric time series models. The case study highlights the potential of BPS to improve of forecasts of multiple series at multiple forecast horizons, and its use in learning dynamic relationships among forecasting models or agents.
    Keywords: Agent opinion analysis, Bayesian forecasting, Dynamic latent factors models, Dynamic SURE models, Macroeconomic forecasting, Multivariate density forecast combination
    JEL: C11 C15 C53 E37
    Date: 2019–01–16
  82. By: Beissinger, Thomas (University of Hohenheim); Hellier, Joël (LEMNA - University of Nantes); Marczak, Martyna (University of Hohenheim)
    Abstract: We develop a model which shows that wages, prices and real income should grow faster in countries with low increase in their labour force. If not, other countries experience growing unemployment and/or trade deficit. This result is applied to the case of Germany, which has displayed a significantly lower increase in its labour force than its trade partners, except in the moment of the reunification. By assuming that goods are differentiated according to their country of origin (Armington's hypothesis), a low growth of the working population constrains the production of German goods, which entails an increase in their prices and in German wages. This mechanism is magnified by the low price elasticity of the demand for German goods. Hence, the German policy of wage moderation could severely constrain other countries' policy options. The simulations of an extended model which encompasses offshoring to emerging countries and labour market imperfections suggest that (i) the impact of differences in labour force growth upon unemployment in Eurozone countries has been significant and (ii) the German demographic shock following unification could explain a large part of the 1995-2005 German economic turmoil.
    Keywords: population growth, labour force, inflation, wages, Germany
    JEL: E24 F16 J11 O57
    Date: 2020–07
  83. By: Sven Klingler; Olav Syrstad
    Abstract: We argue that the planned transition toward alternative benchmark rates gives reason to mourn Libor. Guided by a model in which banks and non-banks can lend to each other, subject to realistic regulatory constraints, we show empirically that tighter financial regulation increases interbank rates but lowers broad rates (in which lenders are non-banks) and that all market rates increase with more Treasury bill issuance. Hence, the proportion of non-bank lenders affects the alternative rates, introducing variation in the benchmark that is unrelated to banks’ marginal funding costs and creating a basis between regions with interbank rates and broad rates.
    Keywords: Benchmark rates, financial regulation, Libor, repo rates, collateral
    JEL: E43 G12 G18
    Date: 2019–08–09
  84. By: International Monetary Fund
    Abstract: The Ukrainian authorities have been able to restore macro-economic stability and growth following the severe economic crisis of 2014–15. However, efforts to create a more dynamic, open, and competitive economy have fallen short of expectations, and the economy still faces important challenges. Investment, particularly foreign direct investment, is held back by a difficult business environment, while large numbers of worker seek job opportunities abroad as economic growth is too low for incomes to noticeably close the gap with regional peers. Reserves have recovered, but remain relatively low, while the economy is still vulnerable to shocks.
    Keywords: Stand-by arrangement requests;Fiscal consolidation;Public debt;Inflation targeting;Energy sector;Monetary policy;Governance;Extended Fund Facility;Extended arrangement cancellations;Economic indicators;Debt sustainability analysis;Letters of Intent;Press releases;Staff Reports;Economic policy;Economic conditions;Macroprudential policies and financial stability;Economic stabilization;Proj,EFF,anticorruption,percent change,state-owned bank
    Date: 2019–01–08
  85. By: Chirwa, Themba G; Odhiambo, Nicholas M
    Abstract: This study investigates the relationship between public debt and economic growth in 10 European Countries in the presence of cross-sectional dependency. Using a panel ARDL approach, the results show that public debt and other covariates such as investment, government consumption, and inflation revealed significant but mixed country-specific results only in the short run. The results also show that the real exchange rate and the real interest rate are negatively and significantly associated with economic growth both in the short and the long run. Furthermore, population growth was found to be positively associated with economic growth only in the short run, while trade was negatively associated with income growth only in Spain. The creation of the EMU was detrimental to Greece as it revealed a significant negative relationship with income growth. These findings have significant policy implications for the Stability and Growth Pact of the Euro area. It is recommended that member states should ensure fiscal sustainability by balancing their fiscal budgets to effectively reduce the accumulation of public debt as well as implementing structural reforms that will improve the efficiency of investment as well as macroeconomic stability.
    Keywords: Euro Area; Panel ARDL Models; Cross-Section Dependence; Public Debt; Economic Growth
    Date: 2020–07
  86. By: Yoosoon Chang (Department of Economics, Indiana University); Junior Maih (Norges Bank and BI Norwegian Business School); Fei Tan (Department of Economics, Chaifetz School of Business, Saint Louis University and Center for Economic Behavior and Decision-Making, Zhejiang University of Finance and Economics)
    Abstract: This article studies the estimation of state space models whose parameters are switching endogenously between two regimes, depending on whether an autoregressive latent factor crosses some threshold level. Endogeneity stems from the sustained impacts of transition innovations on the latent factor, absent from which our model reduces to one with exogenous Markov switching. Due to the exible form of state space representation, this class of models is vastly broad, including classical regression models and the popular dynamic stochastic general equilibrium (DSGE) models as special cases. We develop a computationally efficient filtering algorithm to estimate the nonlinear model. Calculations are greatly simpli ed by appropriate augmentation of the transition equation and exploiting the conditionally linear and Gaussian structure. The algorithm is shown to be accurate in approximating both the likelihood function and filtered state variables. We also apply thr filter to estimate a small-scale DSGE model with threshold-type switching in monetary policy rule, and find apparent empirical evidence of endogeneity in the U.S. monetary policy shifts. Overall, our approach provides a greater scope for understanding the complex interaction between regime switching and measured economic behavior.
    Keywords: state space model, regime switching, endogenous feedback, filtering, DSGE model
    JEL: C13 C32 E52
    Date: 2018–11–24
  87. By: Oscar Claveria (AQR-IREA, University of Barcelona)
    Abstract: This paper examines the evolution of business and consumer uncertainty amid the Coronavirus pandemic in 32 European countries and the European Union (EU). Since uncertainty is not directly observable, we approximate it using the geometric discrepancy indicator of Claveria et al. (2019). This approach allows us quantifying the proportion of disagreement in business and consumer expectations of 32 countries. We have used information from all monthly forward-looking questions contained in Joint Harmonised Programme of Business and Consumer Surveys conducted by the European Commission (EC): the industry survey, the service survey, the retail trade survey, the building survey and the consumer survey. First, we have calculated a discrepancy indicator for each of the 17 survey questions analysed, which allows us to approximate the proportion of uncertainty about different aspects of economic activity, both form the demand and the supply sides of the economy. We then use these indicators to calculate disagreement indices at the sector level. We graphic the evolution of the degree of uncertainty in the main economic sectors of the analysed economies up to June 2020. We observe marked differences, both across variables, sectors and countries since the inception of the COVID-19 crisis. Finally, by adding the sectoral indicators, an indicator of business uncertainty is calculated and compared with that of consumers. Again, we find substantial differences in the evolution of uncertainty between managers and consumers. This analysis seeks to offer a global overview of the degree of economic uncertainty in the midst of the Coronavirus crisis at the sectoral level.
    Keywords: COVID-19, Economic uncertainty, Economic activity, Prices, Employment, Expectations, Disagreement. JEL classification: C14, C43, E20, E30, D84.
    Date: 2020–09
  88. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (University of Tokyo)
    Abstract: This paper examines the implications of consumer inventory for cost-of-living indices (COLIs) and business cycles. We begin by providing stylized facts about consumer inventory using scanner data. We then construct a quasi-dynamic model to describe consumers' purchase, consumption, and inventory behavior. A key feature of our model is that inventory is held by household producers, not by consumers, which enables us to construct a COLI in a static manner even in an economy with storable goods. Based on this model, we show that stockpiling during temporary sales generates a substantial bias, or so-called chain drift, in conventional price indices, which are constructed without paying attention to consumer inventory. However, the chain drift is greatly mitigated in our COLI, which is based on consumption prices (rather than purchase prices) and quantities consumed (rather than quantities purchased). We provide empirical evidence supporting these theoretical predictions. We also show empirically that consumers' inventory behavior tends to depend on labor market conditions and the interest rate.
    Date: 2020–08
  89. By: Alfonso A. Irarrazabal (BI Norwegian Business School); Lin Ma (CICERO, Center for International Climate Research); Juan Carlos Parra-Alvarez (Aarhus University, CREATES and Danish Finance Institute)
    Abstract: This paper studies the dynamic asset allocation problem faced by an infinitively-lived commodity-based sovereign wealth fund under incomplete markets. Since the non-tradable stream of commodity revenues is finite, the optimal consumption and investment strategies are time dependent. Using data from the Norwegian Petroleum Fund, we find that the optimal demand for equity should decrease gradually from 60 to 40 percent over the next 60 years. However, the solution is particularly sensitive to the correlation between oil and stock price changes. We also estimate wealth-equivalent welfare losses, relative to the optimal rule, when following alternative suboptimal investment rules.
    Keywords: Optimal asset allocation, sovereign wealth fund, commodities, income risk, suboptimal investments
    JEL: E21 G11 G23 Q32
    Date: 2020–09–03
  90. By: Angel De la Fuente
    Abstract: This note briefly describes the latest update of RegData, a database that collects the main economic and demographic aggregates of the Spanish regions over the last six decades. For the most part, the series begin in 1950 or 1955 and run until 2019. This note briefly describes the latest update of RegData, a database that collects the main economic and demographic aggregates of the Spanish regions over the last six decades. For the most part, the series begin in 1950 or 1955 and run until 2019.
    Keywords: jobs, empleos, regional population of Spain, población regional de España, income, renta, homogeneous series, series homogéneas, Spain, España, Regional Analysis Spain, Análisis Regional España, Working Papers, Documento de Trabajo
    JEL: E01 R1
    Date: 2020–09
  91. By: Antoni Seguí Alcaraz; Ignacio Nieto Rodrigo
    Keywords: agencias de calificación; deuda pública; comunidad autónoma; financiación; Generalitat Valenciana; sobreendeudamiento. Keywords: rating agencies; public debt; autonomous community; financing; Generalitat Valenciana; over indebtedness.
    JEL: H11 E62 D14 C35
    Date: 2020–01–01
  92. By: Zhengyang Jiang; Arvind Krishnamurthy; Hanno Lustig
    Abstract: We build a model of the global financial cycle with one key ingredient: the demand for safe dollar assets. The model matches patterns of dollar borrowing and currency mismatch, the U.S. external balance sheet, low U.S. interest rates and exorbitant privilege, spillovers of the U.S. monetary policy to the rest of the world, and the dollar as a global risk factor. In doing so, we lay out a novel transmission mechanism through which the U.S. monetary policy affects the currency market and the global economy.
    JEL: E4 F3 G15
    Date: 2020–08
  93. By: Axelle Arquié; Jérôme Héricourt; Fabien Tripier
    Abstract: The scale of public expenditure to be incurred in the Covid-19 health crisis is raising heated debates about the appropriate funding. Long rejected by mainstream macroeconomics due to its possible inflationary consequences, monetization is currently undergoing a surprising rehabilitation. Defined as the financing of public expenditure by money issuance -without the government ever reimbursing the central bank, monetization appears as an attractive solution in a context where the burden of public debt could become particularly problematic due both to the persistent threat of secular stagnation and the massive Covid-19 shock. This policy brief offers some theoretical insights into this debate opposing monetization and issuance of additional public debt. We first clarify what is happening to current debt and how its sustainability can be assessed, before examining how current mainstream macroeconomics can be used to rehabilitate monetization of public spending. In conclusion, we draw attention to the particular democratic challenges implied by such a policy in the Euro area context, in terms of balance of powers between European institutions.
    Date: 2020
  94. By: Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University); Federico Ravenna (Danmarks Nationalbank, University of Copenhagen, HEC Montreal, CEPR); Gabriel Züllig (Danmarks Nationalbank, University of Copenhagen)
    Abstract: We estimate an Interacted-VAR model allowing for the impact of uncertainty shocks to depend on the average outlook of the economy measured by survey data. We find that, in response to the same uncertainty shock, industrial production and inflation’s peak decrease is around three and a half times larger during pessimistic times. We build scenarios for a path of innovations in uncertainty consistent with the COVID-19-induced shock. Industrial production is predicted to experience a year-over-year peak loss of between 15:1% and 19% peaking between September and December 2020, and subsequently to recover with a rebound to pre-crisis levels between May and August 2021. The large impact is the result of an extreme shock to uncertainty occurring at a time of very negative expectations on the economic outlook.
    Keywords: COVID-19, Uncertainty shocks, Non-Linear Structural Vector AutoRegressions, Consumer Confidence
    JEL: C32 E32
    Date: 2020–09–09
  95. By: Gauti B. Eggertsson (Brown University); Ragnar E. Juelsrud (Norges Bank); Lawrence H. Summers (Harvard University); Ella Getz Wold (Brown University)
    Abstract: Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of - 0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points.
    Date: 2019–01–18
  96. By: Neil Bhutta; Andreas Fuster; Aurel Hizmo
    Abstract: We document wide dispersion in the mortgage rates that households pay on identical loans, and show that borrowers' financial sophistication is an important determinant of the rates obtained. We estimate a gap between the 10th and 90th percentile mortgage rate that borrowers with the same characteristics obtain for identical loans, in the same market, on the same day, of 54 basis points|equivalent to about $6,500 in upfront costs (points) for the average loan. Time-invariant lender attributes explain little of this rate dispersion, and considerable dispersion remains even within loan officer. Comparing the rates borrowers obtain to the real-time distribution of rates that lenders could offer for the same loan and borrower type, we find that borrowers who are likely to be the least financially savvy tend to substantially overpay relative to the rates available in the market. In the time series, the average overpayment decreases when overall market interest rates rise, suggesting that a rising level of borrowing costs encourages more search and negotiation. Furthermore, new survey data provide direct evidence that financial knowledge and shopping both affect the mortgage rates borrowers get, and that shopping activity increases with the level of market rates.
    Keywords: Financial literacy; Household finance; Interest rates; Mortgages; Price dispersion; Search; Shopping
    JEL: E43 G21
    Date: 2020–08–21
  97. By: Scott R. Baker (Northwestern University); Stephanie Johnson (Rice University, Jesse H. Jones Graduate School of Business, Department of Statistics, Students); Lorenz Kueng (University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management)
    Abstract: Households tend to hold substantial amounts of non-financial assets in the form of inventory. Households can obtain significant financial returns from strategic shopping and optimally managing these inventories of consumer goods. In addition, they choose to maintain liquid savings – household working capital – not just for precautionary motives but also to support this inventory management. We demonstrate that households earn high returns from inventory management at low levels of inventory, though returns decline rapidly as inventory levels increase. We provide evidence using scanner and survey data that supports this conclusion. High returns from inventory management that are declining in wealth offer a new rationale for poorer households not to participate in risky financial markets, while wealthier households invest in both financial assets and working capital.
    Keywords: household working capital, stock market participation, financial returns, inventory, stockpiling
    JEL: G11 D14 D13 D12 D11 E21
    Date: 2020–08
  98. By: Kenneth D. Garbade; Frank M. Keane
    Abstract: In response to disorderly market conditions in mid-March 2020, the Federal Reserve began an asset purchase program designed to improve market functioning in the Treasury and agency mortgage-backed securities (MBS) markets. The 2020 purchases have no parallel, but there are several instances of large SOMA purchases undertaken to support Treasury market functions in earlier decades. This post recaps three such episodes, one in 1939 at the start of World War II, one in 1958 in connection with a poorly received Treasury financing, and a third in 1970, also in connection with a Treasury financing. The three episodes, together with the more recent intervention, demonstrate the Fed’s long-standing and continuing commitment to the maintenance of orderly market functioning in markets where it conducts monetary policy operations—formerly limited to the Treasury market, but now also including the agency MBS market.
    Keywords: market function purchases; market liquidity; COVID-19; pandemic
    JEL: G1 E5
    Date: 2020–08–20
  99. By: PINSHI, Christian P.
    Abstract: This paper offers a snapshot of the impact of COVID-19 on the African economy. Using the Probit regression model, we found that economic growth, inflation, exchange rate, unemployment rate, and commodity prices were strongly affected. The study concluded that COVID-19 harmed the African economy. We suggest a rapid response of short-term macroeconomic policies and long-term economic diversification reforms to build resilience.
    Keywords: COVID-19, Africa, DRC
    JEL: E00 I15 I18 Z1
    Date: 2020–07
  100. By: International Monetary Fund
    Abstract: Economic developments since the completion of the first review under the Policy Coordination Instrument (PCI) in June 2018 have been broadly in line with expectations. The program is largely on track. Staff received renewed assurance from President Faure that the large infrastructure projects announced in his State of the Nation Address (SONA) in March 2018 would be implemented within the fiscal targets under the PCI.
    Keywords: Sub-Saharan Africa;Seychelles;Economic stabilization;Development;Central banks;Flexible exchange rate policy;Monetary policy;Proj,percent of GDP,Seychelles rupee,central bank of Seychelles,net lend
    Date: 2019–01–07
  101. By: Jordaan,Jacob Arie; Douw,Willem; Qiang,Zhenwei
    Abstract: Recent research on productivity spillovers from affiliates of multinational corporations in developing and emerging economies finds that backward linkages from affiliates of foreign-owned firms to local suppliers constitute the main channel transmitting productivity spillovers. This finding has important policy implications, given that host economy governments often spend considerable resources on attracting multinational corporation investments and promoting their impact on technological development and economic growth. This paper conducts a new and comprehensive survey of recent empirical studies that focus on the drivers and impacts of backward linkages between multinational corporation affiliates and their local suppliers. The literature survey reveals that several characteristics of multinational corporation affiliates and domestic firms, host economy conditions, and various mediating factors influence the level of use of local suppliers, the nature and degree of technology dissemination, and the materialization of productivity spillovers among domestic firms. These findings are used to identify the main areas where policy making can be effective. The paper discusses various types of soft or light-handed industrial policies that host economy governments can design and implement to foster the extent of linkages between multinational corporations and local suppliers, facilitate technology dissemination, and enhance productivity spillovers among domestic firms.
    Keywords: International Trade and Trade Rules,Macroeconomic Management,Economic Forecasting,Governance Diagnostic Capacity Building,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Access to Finance
    Date: 2020–08–24
  102. By: Sandström, Maria (Department of Economics)
    Abstract: Can an increasing importance of intangible capital in the economy explain increases in markups and profits? I use a heterogeneous firm model to show how intangible capital is related to markups and profits at the industry level. The uncertainty and scalability properties of intangible capital imply that firms that succeed in their intangible capital investment can charge high markups relative to other firms, whereas firms that fail will exit. However, the high markups do not lead to any economic profits in the industry as a whole if they only serve to cover the total fixed costs of intangible capital. To empirically examine the relationship between intangible capital, markups and profits, I study average markups and profit shares in a panel of Swedish industries. There is evidence of a positive relationship between intangible capital and average industry markups. However, the evidence of the relationship between intangible capital and profits is less conclusive.
    Keywords: Intangible capital; Markups; Profits; Labor share; Market Power
    JEL: D24 E22 L11
    Date: 2020–08–14
  103. By: International Monetary Fund
    Abstract: This Selected Issues paper summarizes Nordea’s operations and business model; the macroeconomic and prudential implications of the move; and policy responses taken so far. The IMF staff’s assessment is that banking supervision in the euro area has improved significantly following the creation of the Single Supervisory Mechanism, which should mitigate potential risks from Nordea’s move; meanwhile, the Nordic authorities have done much, in conjunction with the European Central Bank, to ensure that potential gaps and fragmentation across national jurisdictions are avoided. The resolution framework is designed to prevent taxpayers having to bail out banks, but is new, and work on building the crisis preparedness of euro area banks is still under way. The banking union is not yet complete, details of the backstop for the Single Resolution Fund need to be finalized and a common euro area deposit insurance should be made fully operational. At the same time, Nordea is also operating in non-euro area member states—maintaining cooperation between euro area and noneuro area institutions remains important.
    Keywords: Banking sector;Financial institutions;Systemic risk;Risk management;Bank supervision;Summing up;Macroprudential policies and financial stability;Financial services;Financial systems;Central banks;Nordea,credit institution,euro area,ECB,debt security
    Date: 2019–01–15
  104. By: Bernardo Morais; Gaizka Ormazabal; José-Luis Peydró; Mónica Roa; Miguel Sarmiento
    Abstract: e show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
    Keywords: loan provisions, IFRS9, ECL, corporate real and credit supply effects of accounting, bank risk-taking
    JEL: E31 G18 G21 G28
    Date: 2020–09
  105. By: Jennifer La'O; Alireza Tahbaz-Salehi
    Abstract: This paper studies the optimal conduct of monetary policy in a multi-sector economy in which firms buy and sell intermediate goods over a production network. We first provide a necessary and sufficient condition for the monetary policy’s ability to implement flexible-price equilibria in the presence of nominal rigidities and show that, generically, no monetary policy can implement the first-best allocation. We then characterize the constrained-efficient policy in terms of the economy’s production network and the extent and nature of nominal rigidities. Our characterization result yields general principles for the optimal conduct of monetary policy in the presence of input output linkages: it establishes that optimal policy stabilizes a price index with higher weights assigned to larger, stickier, and more upstream industries, as well as industries with less sticky upstream suppliers but stickier downstream customers. In a calibrated version of the model, we find that implementing the optimal policy can result in quantitatively meaningful welfare gains.
    JEL: C67 E5
    Date: 2020–07
  106. By: Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michéle Tertilt
    Abstract: This paper investigates the importance of the age composition in the Covid-19 pandemic. We augment a standard SIR epidemiological model with individual choices on work and non-work social distancing. Infected individuals are initially uncertain unless they are tested. We find that older individuals socially distance themselves substantially in equilibrium. Confining the old even more reduces their welfare. Confining the young extends the duration of the epidemic, with negative consequences on the old if the epidemic cannot be controlled after confinement. Testing and quarantines save lives, even if conducted just on the young, as does separation of activities by age. Combining policies can increase the welfare of both the young and the old.
    Keywords: Covid-19, testing, social distancing, age-specific policies
    JEL: E17 C63 D62 I10 I18
    Date: 2020–08
  107. By: Ryan Niladri Banerjee; Boris Hofmann
    Abstract: Using firm-level data on listed non-financial companies in 14 advanced economies, we document a rise in the share of zombie firms, defined as unprofitable firms with low stock market valuation, from 4% in the late 1980s to 15% in 2017. These zombie firms are smaller, less productive, more leveraged and invest less in physical and intangible capital. Their performance deteriorates several years before zombification and remains significantly poorer than that of non-zombie firms in subsequent years. Over time, some 25% of zombie companies exited the market, while 60% exited from zombie status. However, recovered zombies underperform compared to firms that have never been zombies and they face a high probability of relapsing into zombie status.
    Keywords: zombie companies, firm behaviour, economic dynamism, productivity growth, bankruptcy
    JEL: D22 D24 E43 G33
    Date: 2020–09
  108. By: Morais, Bernardo; Ormazabal, Gaizka; Peydró, José-Luis; Roa, Monica; Sarmiento, Miguel
    Abstract: We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected—rather than incurred—credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms— SMEs with shorter credit history, less tangible assets or more defaulted loans—but engage in “search-for-yield” within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification.
    Keywords: loan provisions,IFRS9,corporate real and credit supply effects of accounting,bank risk-taking
    JEL: E31 G18 G21 G28
    Date: 2020
  109. By: Gabriel Chodorow-Reich; John Coglianese
    Abstract: We propose a three-step factor-flows simulation-based approach to forecast the duration distribution of unemployment. Step 1: estimate individual transition hazards across employment, temporary layoff, permanent layoff, quitter, entrant, and out of the labor force, with each hazard depending on an aggregate component as well as an individual's labor force history. Step 2: relate the aggregate components to the overall unemployment rate using a factor model. Step 3: combine the individual duration dependence, factor structure, and an auxiliary forecast of the unemployment rate to simulate a panel of individual labor force histories. Applying our approach to the July Blue Chip forecast of the COVID-19 recession, we project that 1.6 million workers laid off in April 2020 remain unemployed six months later. Total long-term unemployment rises thereafter and eventually reaches more 4.5 million individuals unemployed for more than 26 weeks and almost 2 million individuals unemployed for more than 46 weeks. Long-term unemployment rises even more in a more pessimistic recovery scenario, but remains below the level in the Great Recession due to a high amount of labor market churn.
    JEL: E27 J64
    Date: 2020–07
  110. 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 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) over the past 100 years. 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 the economics of the process by which families found new firms and then, eventually, diversify their wealth is central to improving our understanding of the distribution of great wealth and its evolution over time.
    JEL: E21
    Date: 2020–07
  111. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: As a result of the Covid-19 pandemic, global economic activity is expected to have fallen by almost 10 percent in the first half of 2020. However, the low point seems to have been passed in the meantime, and in China the economy has even already made up a considerable part of the production slump of January and February. How quickly and decisively the global economy will recover depends not least on the epidemiological developments and on how policymakers change their epidemic policy measures in response. Assuming that the development of the pandemic allows a sustained broad-based easing of containment policies, and thanks to massive support from monetary and fiscal policy, output is expected to rebound in the second half of this year. Although the low point in global production is likely to have been reached already in April, the current year will probably see a decline of GDP (measured on the basis of purchasing power parities) of 3.8 percent, by far the sharpest contraction in the past 70 years. For 2021 we expect production to rise by 6.2 percent. The level of global production will, however, remain well below the path we expected at the beginning of the year for some time to come, due to the loss of income incurred in the course of the corona crisis and subdued investment as a result of reduced sales expectations and a diminished corporate equity base. We have drastically lowered our 2020 forecast by 5.6 percentage points compared with our regular spring forecast published in early March, but we have revised upwards by 0.3 percentage points with respect to the interim forecast presented in mid-May as incoming data suggest a slightly less negative outlook for the advanced economies.
    Keywords: Americas,Asia,Business Cycle World,China,Emerging Markets & Developing Countries,Europe,USA
    Date: 2020
  112. By: Ricardo Correa; Wenxin Du; Gordon Y. Liao
    Abstract: We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of "reserve-draining" intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subsequent response of U.S. GSIBs to recent policy interventions by the Federal Reserve.
    JEL: E4 F3 G2
    Date: 2020–07
  113. By: Barbu, Alexandru; Fricke, Christoph; Mönch, Emanuel
    Abstract: Institutional funds have concentrated ownership by a few institutional investors, infrequent outflows and essentially no leverage. Yet using unique granular data on the bond holdings of institutional funds, we show that their trading behavior is strongly procyclical: they actively move into higher yielding, longer duration and lower rated securities in response to lower in-terest rates, and vice versa. Institutional funds' risk-taking increases when interest rates turn negative, particularly in funds with explicit minimum return guarantees. Their trading has large and persistent price impact. We provide evidence that this procyclical behavior is driven by career concerns among institutional fund managers.
    Keywords: institutional funds,institutional accounts,procyclical asset management,portfolio rebalancing,price impact,demand pressures,asset price volatility,career concerns
    JEL: G11 G23 E43
    Date: 2020
  114. By: Farkas, Mátyás; Tatar, Balint
    Abstract: In this paper we adopt the Hamiltonian Monte Carlo (HMC) estimator for DSGE models by implementing it into a state-of-the-art, freely available high-performance software package. We estimate a small scale textbook New-Keynesian model and the Smets-Wouters model on US data. Our results and sampling diagnostics con firm the parameter estimates available in existing literature. In addition we combine the HMC framework with the Sequential Monte Carlo (SMC) algorithm which permits the estimation of DSGE models with ill-behaved posterior densities.
    Keywords: DSGE Estimation,Bayesian Analysis,Hamiltonian Monte Carlo
    JEL: C11 C15 E10
    Date: 2020
  115. By: Shin, Jinwook (Seoul National University); Kim, Seonghoon (Singapore Management University); Koh, Kanghyock (Korea University)
    Abstract: We estimate the economic impact of South Korea's targeted responses to the first large-scale COVID-19 cluster in Seoul. We find that foot traffic and retail sales decreased only within a 300 meter radius of the cluster and recovered to its pre-outbreak level after four weeks. The reductions appear to be driven by temporary business closures rather than the risk avoidance behavior of the citizens. Our results imply that less intense, but more targeted COVID-19 interventions, such as pin-pointed, temporary closures of businesses, can be a low-cost alternative after lifting strict social distancing measures.
    Keywords: COVID-19, pandemic, information disclosure, risk avoidance, foot traffic, retail sales, cell phone signal data, card transaction data
    JEL: E2 H12 I12 I18
    Date: 2020–08
  116. By: Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michéle Tertilt
    Abstract: This paper investigates the role of testing and age-composition in the Covid-19 epidemic. We augment a standard SIR epidemiological model with individual choices regarding how much time to spend working and consuming outside the house, both of which increase the risk of transmission. Individuals who have flu symptoms are unsure whether they caught Covid-19 or simply a common cold. Testing reduces the time of uncertainty. Individuals are heterogeneous with respect to age. Younger people are less likely to die, exacerbating their willingness to take risks and to impose externalities on the old. We explore heterogeneous policy responses in terms of testing, confinements, and selective mixing by age group.
    Keywords: Covid-19, testing, social distancing, age-specific policies
    JEL: E17 C63 D62 I10 I18
    Date: 2020–05
  117. By: Umba, Gilles Bertrand; Siasi, Yves; Lumbala, Grégoire
    Abstract: Le présent travail se propose d’étudier l’impact macroéconomique de la COVID-19 sur l’activité économique en RD Congo. Pour ce faire, un modèle d’équilibre général dynamique et stochastique en économie ouverte est utilisé et les paramètres du modèles sont estimés en recourant à l’approche bayésienne. Les données estimées couvrent la période allant du premier trimestre 2012 au deuxième trimestre 2020. Les tests de diagnostics, notamment le test de convergence des chaines de Monte-Carlo Markov (MCMC) amènent à considérer que les paramètres sont fiables. Les résultats indiquent que: (i) le choc COVID-19 entrainerait une baisse sensible de l’output gap (y_t) jusqu’au 8ème trimestre après la survenance du choc; (ii) le niveau de consommation (c_t) subit également un effet baissier à la suite de la crise sanitaire jusqu’à plus de 10 trimestres après le choc; (iii) Le taux de change nominal (e_t) se déprécie également avec un effet de plus en plus atténué à partir du 6ème trimestre après le choc, et (iv) le terme de change subit également un effet négatif mais avec un intervalle de confiance plus important, ce qui pourrait éventuellement traduire un effet peut significatif suite à l’arrêt des échanges résultant des mesures de confinement.
    Keywords: Macroeconomics; Covid-19; Growth
    Date: 2020–09
  118. By: Vincent de Paul Mboutchouang Author-Name: Jorge Davalos Author-Name: James Fomba Sandy Author-Name: Isata Mahoi Author-Name: Jennifer Korie Chetachi
    Abstract: This paper provides evidences of the lasting effects conflict exposure during different stages of life on the long-term labor-market outcomes of civilians in Sierra Leone. We took advantage of variations in time and location of the conflict and used a combination of data from the Sierra Leone Integrated Household Survey (2011) and various other data related to human-rights violations and loss of assets during war. Our results suggest a negative effect of conflict exposure during primary school age on long-term labor-market participation and employment. More precisely, exposure during this stage of life can reduce participation in the labor market or employment by up to 3%. The study also established the negative impact of conflict exposure from utero stage through primary-school age on hourly wages.
    Keywords: Conflict, Labor-market participation, Employment, wage, education
    JEL: N97 E24 I25
    Date: 2020
  119. By: Meghann Puloc’h
    Abstract: Zambia, located in the north of Southern Africa and home to fewer than 18 million people, has built its development model on the abundance of natural, mainly mineral, resources. The country ranks as Africa’s second and the world’s tenth largest copper producer. In addition, the country has a wealth of water resources – which it exploits to generate over 80% of the country’s electricity as hydropower – and high agricultural potential. Although the Zambian economy now rests largely on the tertiary sector, it remains vulnerable to shocks that affect its traditional sectors.
    Keywords: Zambie
    JEL: E
    Date: 2020–09–07

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