nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒09‒21
117 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Study of Financial Cycles and the Macroeconomy in Taiwan By Chen, Nan-Kuang; Cheng, Han-Liang
  2. The Macroeconomic Effects of Financialization and the Wage Gap between Blue and White Collar Workers By Parui, Pintu
  3. Fading the effects of coronavirus with monetary policy By MALATA, Alain K.; PINSHI, Christian P.
  4. Monetary Policy and Economic Performance Since the Financial Crisis By Dario Caldara; Etienne Gagnon; Enrique Martínez-García; Christopher J. Neely
  5. Vacancy Posting Costs in Search and Matching Models and in Data By Mehrab Kiarsi; Samuel Muehlemann
  6. Payments Crises and Consequences By Qian Chen; Christoffer Koch; Padma Sharma; Gary Richardson
  7. Does government-backed lending prevent unemployment? An assessment of the Swiss COVID-19 lending program By Daniel Kaufmann
  8. Narrative monetary policy surprises and the media By ter Ellen, Saskia; Larsen, Vegard H.; Thorsrud, Leif Anders
  9. Monetary Policy Announcements and Expectations: Evidence from German Firms By Enders, Zeno; Hünnekes, Franziska; Müller, Gernot J.
  10. Did the Federal Reserve Break the Phillips Curve? Theory and Evidence of Anchoring Inflation Expectations By Brent Bundick; Andrew Lee Smith
  11. The Distributional Effects of COVID-19 and Mitigation Policies By Sewon Hur
  12. Monetary rules in an open economy with distortionary subsidies and inefficient shocks: A DSGE approach for Bolivia By Jemio Hurtado, Valeria
  13. Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents By Bahl, Ojasvita; Ghate, Chetan; Mallick, Debdulal
  14. The Impact of the COVID-19 Pandemic on Business Expectations By Brent H. Meyer; Brian Prescott; Xuguang Simon Sheng
  15. A New Daily Federal Funds Rate Series and History of the Federal Funds Market, 1928-1954 By Sriya Anbil; Mark A. Carlson; Christopher Hanes; David C. Wheelock
  16. Reading a central banker's preference: A non parametric regression approach By Cheolbeom Park; Sookyung Park
  17. Market Power, Inequality, and Financial Instability By Isabel Cairo; Jae W. Sim
  18. Central Bank Independence and Inflation: An Empirical Analysis By Chiquiar Daniel; Ibarra-Ramírez Raúl
  19. The US, Economic News, and the Global Financial Cycle By Christoph E. Boehm
  20. International Evidence on Shock-Dependent Exchange Rate Pass-Through By Kristin Forbes; Ida Hjortsoe; Tsvetelina Nenova
  21. Supply-Side Effects of Pandemic Mortality: Insights from an Overlapping-Generations Model By Etienne Gagnon; Benjamin K. Johannsen; J. David Lopez-Salido
  22. Inflation at risk in advanced and emerging economies By Ryan Niladri Banerjee; Juan Contreras; Aaron Mehrotra; Fabrizio Zampolli
  23. The NAIRU and Informality in the Mexican Labor Market By Ana María Aguilar-Argaez; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
  24. Limitations on the Effectiveness of Monetary Policy Forward Guidance in the Context of the COVID-19 Pandemic By Andrew T. Levin; Arunima Sinha
  25. Long Live the Vacancy By Haefke, Christian; Reiter, Michael
  26. Long Live the Vacancy By Haefke, Christian; Reiter, Michael
  27. The golden rule of public finance under active monetary stance: endogenous setting for a developing economy By Shvets, Serhii
  28. Forecasting U.S. Economic Growth in Downturns Using Cross-Country Data By Yifei Lyu; Jun Nie; Shu-Kuei X. Yang
  29. Active, or passive? Revisiting the role of fiscal policy in the Great Inflation By Ettmeier, Stephanie; Kriwoluzky, Alexander
  30. Why Do Central Banks Make Public Announcements of Open Market Operations? By Narayan Bulusu
  31. Average is Good Enough: Average-inflation Targeting and the ELB By Robert Amano; Stefano Gnocchi; Sylvain Leduc; Joel Wagner
  32. Financial Frictions and the Wealth Distribution By Jesús Fernández-Villaverde; Samuel Hurtado; Galo Nuño
  33. Doubling Down on Debt: Limited Liability as a Financial Friction By Jesse Perla; Carolin Pflueger; Michael Szkup
  34. Volatility Depend on Market Trades and Macro Theory By Olkhov, Victor
  35. Fiscal multipliers in the most aged country: Empirical evidence and theoretical interpretation By Morita, Hiroshi
  36. How Did U.S. Consumers Use Their Stimulus Payments? By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
  37. Minerals are a shared inheritance: Accounting for the resource curse By Basu, Rahul; Pegg, Scott
  38. The decline of the labor share: new empirical evidence By Drago, Bergholt; Furlanetto, Francesco; Faccioli, Nicolò Maffei
  39. Monetary Policy and Cross-Border Interbank Market Fragmentation: Lessons from the Crisis By Tobias Blattner; Jonathan Swarbrick
  40. Measuring productivity: theory and British practice By Oulton, Nicholas
  41. Forecast Comparison of the Term Structure of Interest Rates of Mexico for Different Specifications of the Affine Model By Alejandra Lelo-de-Larrea
  42. FinTech and the COVID-19 Pandemic: Evidence from Electronic Payment Systems By Tut, Daniel
  43. Testing investment forecast efficiency with textual data By Foltas, Alexander
  44. Artificial Intelligence, Income Distribution and Economic Growth By Gries, Thomas; Naudé, Wim
  45. Long Live the Vacancy By Christian Haefke; Michael Reiter
  46. Involuntary unemployment under monopolistic competition and fiscal policy for full-employment By Tanaka, Yasuhito
  47. How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-scale Business Survey By Dovern, Jonas; Müller, Lena Sophia; Wohlrabe, Klaus
  48. Endogenous sigma-augmenting technological change: An R&D-based approach By Kemnitz, Alexander; Knoblach, Michael
  49. Monetary Stimulus Amidst the Infrastructure Investment Spree: Evidence from China's Loan-Level Data By Kaiji Chen; Haoyu Gao; Patrick C. Higgins; Daniel F. Waggoner; Tao Zha
  50. The Effect of Government Expenditure and Free Maternal Health Care Policy on Household Consumption in Ghana By Fosu, Prince
  51. Führt die Corona-Krise zu einer Bankenkrise? Anlass zu sorgsamer Beobachtung, nicht aber vorsorglicher Intervention By Demary, Markus; Hüther, Michael
  52. Optimal Dynamic Capital Requirements and Implementable Capital Buffer Rules By Matthew B. Canzoneri; Behzad T. Diba; Luca Guerrieri; Arsenii Mishin
  53. The role of IMF conditionality for central bank independence By Rau-Goehring, Matthias; Reinsberg, Bernhard; Kern, Andreas
  54. Heterogenous Gains from Countercyclical Fiscal Policy: New Evidence from International Industry-level Data By Sangyup Choi; Davide Furceri; João Tovar Jalles
  55. The great lockdown: pandemic response policies and bank lending conditions By Altavilla, Carlo; Barbiero, Francesca; Boucinha, Miguel; Burlon, Lorenzo
  56. Caught in the Cycle: Economic Conditions at Enrollment and Labor Market Outcomes of College Graduates By Bicakova, Alena; Cortes, Matias; Mazza, Jacopo
  57. The Saving and Employment Effects of Higher Job Loss Risk By Juelsrud, Ragnar E.; Wold, Ella Getz
  58. A Markov-Chain Measure of Systemic Banking Crisis Frequency By Tambakis, D.
  59. How Do Housing Markets Affect Local Consumer Prices? – Evidence from U.S. Cities By Chi-Young Choi; Soojin Jo
  60. From the Regional Economy to the Macroeconomy By Santiago Pinto; Pierre-Daniel G. Sarte
  61. Monetary Policy Independence and the Strength of the Global Financial Cycle By Jonathan Witmer
  62. Women's Empowerment: Aggregate Effects on Savings and Wealth By San Vicente Portes Luis; Atal Vidya; Juárez-Torres Miriam
  63. Climate Actions and Stranded Assets: The Role of Financial Regulation and Monetary Policy By Francesca Diluiso; Barbara Annicchiarico; Matthias Kalkuhl; Jan C. Minx
  64. Income distribution, technical change, and economic growth: A two-sector Kalecki--Kaldor approach By Nishi, Hiroshi
  65. Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses By David E. Bloom; Michael Kuhn; Klaus Prettner
  66. Financial development and Economic growth in the Democratic Republic of the Congo : Supply leading or Demand following? By PINSHI, Christian P.; KABEYA, Anselme M.
  67. Country default in a monetary union By Lovleen Kushwah
  68. L’inflation est-elle inégale en Belgique ? By GERMAIN Antoine,; HINDRIKS Jean,
  69. Global Business and Financial Cycles: A Tale of Two Capital Account Regimes By Julien Acalin; Alessandro Rebucci
  70. Is the Phillips curve framework still useful for understanding inflation dynamics in South Africa? By Byron Botha; Lauren Kuhn; Daan Steenkamp
  71. Mediating roles of institutions in the remittance-growth relationship: evidence from Nigeria By Ibrahim A. Adekunle; Tolulope O. Williams; Olatunde J. Omokanmi; Serifat O. Onayemi
  72. Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey By James Caddy; Luc Delaney; Chay Fisher
  73. Impact of Covid-19 on the Indian Economy: An Analysis of Fiscal Scenarios. By Patnaik, Ila; Sengupta, Rajeswari
  74. How Relevant are Capital Flows for House Prices in Emerging Economies? By Hernández Vega Marco A.
  75. Expectation Formation and the Persistence of Shocks By Constantin Bürgi
  76. Nonlinear Exchange Rate Pass-Through in Mexico By Jaramillo Rodríguez Jorge; Pech Moreno Luis Alberto; Ramírez Claudia; Sanchez-Amador David
  77. Bullard Discusses the Fed’s Monetary Policy Framework with Bloomberg By James B. Bullard; Mike McKee
  78. Bank reserves and broad money in the global financial crisis: a quantitative evaluation By Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
  79. Commodity Prices and Policy Stabilisation in South Africa By Byron Botha; Eric Schaling
  80. Dynamics of Mexican Inflation: A Wavelet Analysis By Cortés Espada Josué Fernando; Sámano Daniel; Gutiérrez Villanueva Rubí
  81. Heterogeneous Wealth Effects By Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij
  82. The role of information and experience for households' inflation expectations By Conrad, Christian; Enders, Zeno; Glas, Alexander
  83. Bullard Discusses Economy and Fed’s Response to COVID-19 in Central Banking Journal Interview By James B. Bullard; Christopher Jeffery
  84. "Evolution of business and consumer uncertainty in the midst of the COVID-19 pandemic. A sector analysis in 32 European countries" By Oscar Claveria
  85. An Update on the Economy and Monetary Policy By Loretta J. Mester
  86. Non-competing Data Intermediaries By Jason Allen; Jakub Kastl; Milena Wittwer
  87. Coping with Disasters: Two Centuries of International Official Lending By Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
  88. Pandemic Control in ECON-EPI Networks By Marina Azzimonti; Alessandra Fogli; Fabrizio Perri; Mark Ponder
  89. Financial Returns to Household Inventory Management By Scott R. Baker; Stephanie G. Johnson; Lorenz Kueng
  90. Investment Expenditures and the Transition from Feudalism to Capitalism By Lambert, Thomas
  91. Nowcasting the Trajectory of the COVID-19 Recovery By Peter Fuleky
  92. Rising Concentration and Wage Inequality By Cortes, Matias; Tschopp, Jeanne
  93. Real Exchange Rate Shocks and Export-Oriented Businesses in Iran: An Empirical Analysis Using NARDL Model By Saadati, Alireza; Honarmandi, Zahra; Zarei, Samira
  94. Macroeconomic pathways of the Saudi economy: the challenge of global mitigation action versus the opportunity of national energy reforms By Salaheddine Soummane; Frédéric Ghersi; Julien Lefèvre
  95. Implementing Monetary Policy in an "Ample-Reserves" Regime: Maintaining an Ample Quantity of Reserves (Note 2 of 3) By Jane E. Ihrig; Zeynep Senyuz; Gretchen C. Weinbach
  96. Keynes, Inflation, and the Public Debt: "How to Pay for the War" as a Policy Prescription for Financial Repression? By Teupe, Sebastian
  97. Optimal Management of a Pandemic in the Short Run and the Long Run By Andrew B. Abel; Stavros Panageas
  98. Jacks of All Trades and Masters of One: Declining Search Frictions and Unequal Growth By Paolo Martellini; Guido Menzio
  99. The Real Interest Rates Across Monetary Policy Regimes By Hernán D. Seoane
  100. Employment Strategies to Respond to COVID-19: Characterizing Input-Output Linkages of a Targeted Sector By Temel, Tugrul
  101. Vulnerabilități ale pieței muncii din România sub impactul COVID-19 By Chivu, Luminița; Georgescu, George
  102. Automation Technologies and Employment at Risk: The Case of Mexico By Alfonso Cebreros; Aldo Heffner-Rodríguez; René Livas; Daniela Puggioni
  103. Marshall Lerner condition for money demand By Saccal, Alessandro
  104. Business Incomes at the Top By Wojciech Kopczuk; Eric Zwick
  105. "The COVID-19 Crisis: A Minskyan Approach to Mapping and Managing the (Western?) Financial Turmoil" By Leonardo Burlamaqui; Ernani T. Torres Filho
  106. North-North Migration and Agglomeration in the European Union 15 By Daniela Costa; Maria Jose Rodriguez
  107. Measuring Global Financial Market Stresses By Jan J. J. Groen; Michael Nattinger; Adam I. Noble
  108. On Multi-Sector and Multi-Technique Models, Production Functions and Goodwin Cycles: A Reply to Libman By Robert Blecker; Mark Setterfield
  109. Investment for the Demographic Window in Latin America By Rodriguez Maria Jose
  110. Macroeconomic Order from Microeconomic Chaos By Leiashvily, Paata
  111. Biden versus Trump: Positionen in der Handels-, Wirtschafts- und Klimapolitik By Bardt, Hubertus; Kolev, Galina V.
  112. Enhancing Information Technology for Value Added Across Economic Sectors in Sub-Saharan Africa By Simplice A. Asongu; Mushfiqur Rahman; Joseph Nnanna; Mohamed Haffar
  113. Impact of COVID-19 on Indian economy and the road ahead By Jakhotiya, Girish
  114. Cheap Thrills: the Price of Leisure and the Global Decline in Work Hours By Alexandr Kopytov; Nikolai Roussanov; Mathieu Taschereau-Dumouchel
  115. Building ‘implicit partnerships’? Financial long-term care entitlements in Europe By Costa-Font, Joan; Zigante, Valentina
  116. BITCOIN: Systematic Force of Cryptocurrency Portfolio By Tomić, Bojan
  117. Survival Analysis of Banknote Circulation: Fitness, Network Structure and Machine Learning By Diego Rojas; Juan Estrada; Kim Huynh; David T. Jacho-Chávez

  1. By: Chen, Nan-Kuang; Cheng, Han-Liang
    Abstract: his paper studies the characteristics of financial cycles (credit and house prices) and their interactions with business cycles in Taiwan. We employ multivariate structural time series model (STSM) to estimate trend and cyclical components in real bank credit, real house prices, and real GDP. We find that financial cycles are roughly twice the length of the business cycles, and house price cycles lead both credit and business cycles. Nevertheless, the estimated length of business and financial cycles in Taiwan is much shorter than those in industrialized economies. We then use machine learning to evaluate the importance of a macroeconomic variable that predicts downturns of financial cycles, by conducting both in-sample fitting and out-of-sample forecasting. Those macro variables selected by machine learning reflects Taiwan's close linkage in trades and financial interdependence with other countries such as China and spillover effects from the Fed's monetary policy.
    Keywords: financial cycle, credit, house prices, wavelet analysis, machine learning
    JEL: E32 E37 E44
    Date: 2020–06–23
  2. By: Parui, Pintu
    Abstract: In a post-Keynesian growth model with two types of workers (blue and white-collar workers), an attempt is taken to understand changes in financial behaviour and income distribution and their macroeconomic causes and consequences. For a relatively strong speed of adjustment in the financial market and a relatively weak reserve army effect, a stable steady state is achieved in the wage-led demand regime. Unlike Sasaki et. al. (2013), an endogenous and perpetual business cycles may emerge even in the wage-led demand regime. For a relatively strong reserve army effect, a contraction in the wage gap between white and blue-collar employments can make the steady state unstable. On the contrary, in a profit-led demand regime, a rise in the wage gap can destabilize the economy. A rise in the saving propensity of rentiers (and capitalist) is detrimental to aggregate demand and worsens the income distribution. A more regulated labour market and a rise in unionization are desirable as these can mitigate income inequality.
    Keywords: Financialization, Blue and white-collar workers, Wage gap, Post-Keynesian growth model, Limit cycles
    JEL: E12 E25 E32 E44 J31
    Date: 2020–06–28
  3. By: MALATA, Alain K.; PINSHI, Christian P.
    Abstract: The Central Bank of Congo (BCC) reduced the policy rate in response to the uncertain effects of the coronavirus. The impact of the pandemic on the economy is still uncertain and depends on many factors. Using the Bayesian technique of the VAR model we notice that cutting the policy rate would not help the economy to cope with the consequences of COVID-19, we should rethink other tactics and strategies, such as a good communication strategy and / or try unconventional monetary policy measures. However, coordination with fiscal policy is a driver key in blurring the effects of the coronavirus crisis
    Keywords: Monetary policy, coronavirus, coordination
    JEL: C32 E32 E44 E52 E63
    Date: 2020–05
  4. By: Dario Caldara; Etienne Gagnon; Enrique Martínez-García; Christopher J. Neely
    Abstract: We review the macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools.
    Keywords: Global Financial Crisis 2007–09; monetary policy; effective lower bound; structural changes; forward guidance; balance sheet policies
    JEL: E31 E32 E52 E58
    Date: 2020–08–28
  5. By: Mehrab Kiarsi; Samuel Muehlemann
    Abstract: We first show that in any reconfigured matching models of the labor market low vacancy posting costs play a central role in generating large unemployment volatility as observed in the data. Moreover, we show that low vacancy costs play a critical role in inducing wage inertia in these models as well. We show that the seemingly important roles of the replacement ratio and fundamental surplus fraction in inducing high unemployment and market tightness volatility are confounded with the role of vacancy posting costs. They, per se, are not important for labor market volatility. We then use unique data on job vacancies in Germany and show that the ratio of vacancy costs to GDP is extremely low. The estimated low vacancy costs imply that the leading models of the labor market perhaps have not much empirical difficulty in accounting for cyclical behavior of wages and labor market activity observed in the data.
    Keywords: Search and matching model, vacancy posting costs, wage inertia, unemployment volatility
    JEL: E23 E24 E30 E32 E39 J24 J31 J63
    Date: 2020–09
  6. By: Qian Chen; Christoffer Koch; Padma Sharma; Gary Richardson
    Abstract: Banking-system shutdowns during contractions scar economies. Four times in the last forty years, governors suspended payments from state-insured depository institutions. Suspensions of payments in Nebraska (1983), Ohio (1985), and Maryland (1985), which were short and occurred during expansions, had little measurable impact on macroeconomic aggregates. Rhode Island’s payments crisis (1991), which was prolonged and occurred during a recession, lengthened and deepened the downturn. Unemployment increased. Output declined, possibly permanently relative to what might have been. We document these effects using a novel Bayesian method for synthetic control that characterizes the principal types of uncertainty in this form of analysis. Our findings suggest policies that ensure banks continue to process payments during contractions – including the bailouts of financial institutions in 2008 and the unprecedented support of the financial system during the COVID crisis – have substantial value.
    JEL: C01 C11 E02 E32 E44 E58 G01 G2 G21 G28
    Date: 2020–08
  7. By: Daniel Kaufmann
    Abstract: This paper identifies the effect of variation in government-backed loan supply on unemployment exploiting regional variation in the Swiss COVID-19 lending program. The rules of the program introduce variation in loan supply across Cantons. This variation helps disentangling supply from demand effects. Higher loan supply reduces unemployment. Increasing the volume by CHF 100,000 saves between 0.22 and 0.29 jobs. Therefore, loan supply has to expand by between CHF 344,800 and CHF 454,500 to save one job. Taking into account that some of the borrowers default, saving one job costs the government between CHF 39,700 and CHF 52,400 per year. These costs are somewhat lower than unemployment benefits associated with the median income.
    Keywords: Government-backed lending, targeted lending, unemployment, COVID-19
    JEL: E24 E32 E44 E58 E62 E61 G21 G23 G28 H12 R12
    Date: 2020–09
  8. By: ter Ellen, Saskia; Larsen, Vegard H.; Thorsrud, Leif Anders
    Abstract: We propose a method to quantify narratives from textual data in a structured manner, and identify what we label "narrative monetary policy surprises" as the change in economic media coverage that can be explained by central bank communication accompanying interest rate meetings. Our proposed method is fast and simple, and relies on a Singular Value Decomposition of the different texts and articles coupled with a unit rotation identification scheme. Identifying narrative surprises in central bank communication using this type of data and identification provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a significant effect on subsequent media coverage. In turn, narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication. Our study highlights the importance of written central bank communication and the role of the media as information intermediaries.
    Keywords: communication, monetary policy, factor idenification, textual data
    JEL: C01 C55 C82 E43 E52 E58
    Date: 2019–10–04
  9. By: Enders, Zeno; Hünnekes, Franziska; Müller, Gernot J.
    Abstract: We assess empirically whether monetary policy announcements impact firm expectations. Two features of our data set are key. First, we rely on a survey of production and price expectations of German firms, that is, expectations of actual price setters. Second, we observe the day on which firms submit their answers to the survey. We compare the responses of firms before and after monetary policy surprises and obtain two results. First, firm expectations respond to policy surprises. Second, the response becomes weaker as the surprise becomes bigger. A contractionary surprise of moderate size reduces firm expectations, while a moderate expansionary surprise raises them. Large surprises, both negative and positive, fail to alter expectations. Consistent with this result, we find that many of the ECB's announcements of non-conventional policies did not affect expectations significantly. Overall, our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise.
    Keywords: Monetary policy announcements,Firm expectations,Survey data,European Central Bank,Information effect
    JEL: E31 E52 E58
    Date: 2019
  10. By: Brent Bundick; Andrew Lee Smith
    Abstract: In a macroeconomic model with drifting long-run inflation expectations, the anchoring of inflation expectations manifests in two testable predictions. First, expectations about inflation far in the future should no longer respond to news about current inflation. Second, better-anchored inflation expectations weaken the relationship between unemployment and inflation, flattening the reduced-form Phillips curve. We evaluate both predictions and find that communication of a numerical inflation objective better anchored inflation expectations in the United States but failed to anchor expectations in Japan. Moreover, the improved anchoring of U.S. inflation expectations can account for much of the observed flattening of the Phillips curve. Finally, we present evidence that initial Federal Reserve communication around its longer-run inflation objective may have led inflation expectations to anchor at a level below 2 percent.
    Keywords: Monetary policy; Inflation; Inflation targeting; Central bank communication; Structural breaks; Phillips Curve
    JEL: E31 E52 E58
    Date: 2020–09–03
  11. By: Sewon Hur
    Abstract: This paper develops a quantitative life cycle model in which economic decisions impact the spread of COVID-19 and, conversely, the virus affects economic decisions. The calibrated model is used to measure the welfare costs of the pandemic across the age, income and wealth distribution and to study the effectiveness of various mitigation policies. In the absence of mitigation, young workers engage in too much economic activity relative to the social optimum, leading to higher rates of infection and death in the aggregate. The paper considers a subsidy-and-tax policy that imposes a tax on consumption and subsidizes reduced work compared to a lockdown policy that caps work hours. Both policies are welfare improving and lead to less infections and deaths. Notably, almost all agents favor the subsidy-and-tax policy, suggesting that there need not be a tradeoff between saving lives and economic welfare.
    Keywords: pandemic; coronavirus; COVID-19
    JEL: D62 E21 E32 E62 I14 I15
    Date: 2020–09–02
  12. By: Jemio Hurtado, Valeria
    Abstract: Through an estimated and calibrated DSGE model with imperfect competition and nominal rigidities, this work aims to assess the dynamic effects of exogenous perturbations in a small open economy to provide a prescription of a simple monetary policy rule associated with the minimal welfare losses in the case of Bolivia. Following Gali and Monacelli (2005) and De Paoli (2009), I display the baseline model in a canonical representation. Yet, unlike them, I consider the presence of efficient and inefficient perturbations, namely government spending, productivity, foreign demand, and cost-push shocks, to analyze its effects in terms of observable variables but also on the relevant output gap. Moreover, considering the significance of raw materials as a proportion of the Bolivian exports, I extend the model by taking into account a distortionary subsidy on consumption financed by the positive profits of the commodity sector, Further, in the style of Gali and Monacelli (2005), I compare the welfare implications under two scenarios: A monetary rule focus on maintain a nominal exchange rate peg (fixed) regime and a Taylor rule. The main results reveal that the latter outperforms the former when the full set of shocks occurs simultaneously, showing the importance of inflation targeting. Yet, by focusing only on inefficient exogenous perturbations, and taking into account a pegged regime and a simple Taylor rule based on consumer and producer price inflation, the ranking of monetary policy aligns in the first place an exchange rate peg. This scenario shows the potential success of alternative simple monetary rules under these circumstances.
    Keywords: Macroeconomics; Monetary Policy; Business Cycles; Bayessian Estimation
    JEL: C11 C13 C15 E0 E12 E32 E52 E58 F41 F44
    Date: 2020–07–14
  13. By: Bahl, Ojasvita; Ghate, Chetan; Mallick, Debdulal
    Abstract: Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse domestic or external shocks. Such interventions typically involve a large increase in the procurement and redistribution of food, which we call a redistributive policy shock. What is the impact of a redistributive policy shock on the sectoral and aggregate dynamics of inflation, and the distribution of consumption amongst rich and poor households? To address this, we build a tractable two-sector (agriculture and manufacturing) two-agent (rich and poor) New Keynesian DSGE model with redistributive policy shocks. We calibrate the model to the Indian economy. We show that for an inflation targeting central bank, consumer heterogeneity matters for whether monetary policy responses to a variety of shocks raises aggregate welfare or not. Our paper contributes to a growing literature on understanding the role of consumer heterogeneity in monetary policy.
    Keywords: TANK models, HANK Models, Inflation Targeting, Emerging Market and Developing Economies, Food Security, Procurement and Redistribution, DSGE.
    JEL: E31 E32 E44 E52 E63
    Date: 2020–07–07
  14. By: Brent H. Meyer (Federal Reserve Bank of Atlanta); Brian Prescott (Federal Reserve Bank of Atlanta); Xuguang Simon Sheng (American University)
    Abstract: We document and evaluate how businesses are reacting to the COVID-19 crisis through August 2020. First, on net, firms see the shock (thus far) largely as a demand rather than supply shock. A greater share of firms report significant or severe disruption to sales activity than to supply chains. We compare these measures of disruption to their expected changes in selling prices and find that, even for firms that report supply chain disruption, they expect to lower nearterm selling prices on average. We also show that firms are engaging in wage cuts and expect to trim wages further before the end of 2020. These cuts stem from firms that have been disproportionally negatively impacted by the pandemic. Second, firms (like professional forecasters) have responded to the COVID-19 pandemic by lowering their 1-year ahead inflation expectations. These responses stand in stark contrast to that of household inflation expectations (as measured by the University of Michigan or the New York Fed). Indeed, firms’ 1 year ahead inflation expectations fell precipitously (to a series low) following the onset of the pandemic, while household measures of inflation expectations jumped markedly. Third, despite the dramatic decline in firms’ near-term inflation expectations, their longer-run inflation expectations remain reasonably well-anchored.
    Keywords: Business Expectations, COVID-19, Demand Shock, Inflation, Pandemic, Supply Shock
    JEL: E31 E32
    Date: 2020–09
  15. By: Sriya Anbil; Mark A. Carlson; Christopher Hanes; David C. Wheelock
    Abstract: This article describes the origins and development of the federal funds market from its inception in the 1920s to the early 1950s. We present a newly digitized daily data series on the federal funds rate from April 1928 through June 1954. We compare the behavior of the funds rate with other money market interest rates and the Federal Reserve discount rate. Our federal funds rate series will enhance the ability of researchers to study an eventful period in U.S. financial history and to better understand how monetary policy was transmitted to banking and financial markets. For the 1920s and 1930s, our series is the best available measure of the overnight risk-free interest rate, better than the call money rate which many studies have used for that purpose. For the 1940s-1950s, our series provides new information about the transition away from wartime interest-rate pegs culminating in the 1951 Treasury-Federal Reserve Accord.
    Keywords: Federal funds rate; Call loan rate; Money market; Federal Reserve System;
    JEL: E43 E44 E52 G21 N22
    Date: 2020–08–19
  16. By: Cheolbeom Park (Department of Economics, Korea University, 145 Anamro, Seongbukgu, Seoul, Korea 02841); Sookyung Park (Institute of Economic Research, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul, 08826, Republic of Korea)
    Abstract: We examine the role of the Fed's preference in the understanding of inflation rate and unemployment rate evolution using US data over the period of 1960-2017. Facing the evidence of instability in a constant-coefficient regression, we run a nonparametric regression, and find that the Fed's preference parameters have moved, implying that its preference can be represented by the asymmetric preference model putting more weights on high unemployment rate approximately before the era of Volcker's chairmanship and by the inflation targeting model during the 1980s and 1990s. The Fed's preferences again seem concerned about higher unemployment after the Global Financial Crisis.
    Keywords: asymmetric preference, inflation, monetary policy, time-varying parameter, unemployment, nonparametric regression
    JEL: E31 E52 E61
    Date: 2020
  17. By: Isabel Cairo; Jae W. Sim
    Abstract: Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.
    Keywords: Market power; Factor shares; Income inequality; Financial instability
    JEL: E21 E25 G01
    Date: 2020–08–07
  18. By: Chiquiar Daniel; Ibarra-Ramírez Raúl
    Abstract: This paper analyzes the relationship between central bank independence and inflation in a panel of 182 countries for the period from 1970 to 2018. To measure the degree of independence, two measures are used, the Garriga (2016) index, constructed from the laws and internal regulations of central banks, and the Dreher et al. (2008) index, based on the turnover rate of governors. The results indicate that greater central bank independence is associated with lower levels of inflation, both for highincome countries and for low and middle-income countries. There is also a negative relationship between inflation volatility and central bank independence, although the results are statistically significant only when using the full sample of countries. The results are robust to the use of the two alternative measures of Independence and to the use of two alternative approaches to avoid simultaneity.
    Keywords: Central Bank Independence;Inflation
    JEL: E31 E52 E58
    Date: 2019–12
  19. By: Christoph E. Boehm (University of Texas, Austin)
    Abstract: We provide evidence for a causal link between the US economy and the global financial cycle. Using a unique intraday dataset, we show that US macroeconomic news releases have large and significant effects on global risky asset prices. Stock price indexes of 27 countries, commodity prices, and the VIX all jump instantaneously upon news releases. The responses of stock indexes co-move across countries and are large -- often comparable in size to the response of the S&P 500. Further, these effects are persistent. US macroeconomic news explain up to 22% of the quarterly variation in foreign stock markets. The joint behavior of stock prices and long-term bond yields suggests that systematic monetary policy responses to news play a limited role for explaining the behavior of international stock markets. Instead, the evidence is consistent with a direct effect on investors' risk-taking capacity. Overall, our findings show that a byproduct of the United States' central position in the global financial system is that news about its business cycle have large effects on global financial conditions.
    Keywords: Global Financial Cycle; Macroeconomic announcements; International spillovers; Stock returns; VIX; Commodity prices; High-frequency event study
    JEL: E44 E52 F40 G12 G14 G15
    Date: 2020–09–04
  20. By: Kristin Forbes; Ida Hjortsoe; Tsvetelina Nenova
    Abstract: We analyse the economic conditions (the “shocks”) behind currency movements and show how that analysis can help address a range of questions, focusing on exchange rate pass-through to prices. We build on a methodology previously developed for the United Kingdom and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of how this enriched methodology can be used to provide insights on pass-through and other questions. First, it shows that exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher pass-through than those caused by demand shocks in a cross-section of countries, confirming earlier results for the UK. Second, it shows that the underlying shocks (especially monetary policy shocks) are particularly important for understanding the time-series dimension of pass-through, while the standard structural variables highlighted in previous literature are most important for the cross-section dimension. Finally, the paper explores how the methodology can be used to shed light on the effects of monetary policy and the debate on "currency wars": it shows that the role of monetary policy shocks in driving the exchange rate has increased moderately since the global financial crisis in advanced economies.
    JEL: E31 E37 E52 F47
    Date: 2020–08
  21. By: Etienne Gagnon; Benjamin K. Johannsen; J. David Lopez-Salido
    Abstract: We use an overlapping generation model to explore the implications of mortality during pandemics for the economy's productive capacity. Under current epidemiological projections for the progression of COVID-19, our model suggests that mortality will have, in itself, at most small effects on output and factor prices. The reason is that projected mortality is small in proportion to the population and skewed toward individuals who are retired from the labor force. That said, we show that if the spread of COVID-19 is not contained, or if the ongoing pandemic were to follow a mortality pattern similar to the 1918-1920 Great Influenza pandemic, then the effects on the productive capacity would be economically significant and persist for decades.
    Keywords: Pandemics; Potential output; Real wage; Equilibrium real interest rate; Demographics; COVID-19
    JEL: E21 E27 E43
    Date: 2020–08–19
  22. By: Ryan Niladri Banerjee; Juan Contreras; Aaron Mehrotra; Fabrizio Zampolli
    Abstract: We examine how inflation risks have changed over time in a large panel of advanced and emerging market economies (EMEs). Quantile regressions show a general decline in upside inflation risks over time, reflecting successful disinflationary processes and the adoption of inflation targeting regimes. But important non-linearities remain. In advanced economies, the zero lower bound represents a prominent source of downside inflation risk. In EMEs, the exchange rate remains a powerful source of nonlinearity, with large exchange rate depreciations associated with upside inflation risks. Tightening financial conditions increase both up- and downside inflation risks.
    Keywords: inflation risk, monetary policy framework, zero lower bound, inflation targeting
    JEL: E31 E37 E52
    Date: 2020–09
  23. By: Ana María Aguilar-Argaez; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
    Abstract: The non-accelerating inflation rate of unemployment (NAIRU) is not directly observable and the presence of informal workers imposes an additional challenge in its estimation. Countries with large informal sectors, traditional measures might not depict labor slack properly, as it has the wage flexibility needed to incorporate formal workers that cannot find a formal job. In this paper, we present an estimation of the traditional NAIRU for Mexico and an alternative measure that includes informality as an indicator of labor underutilization. We find that both measures of NAIRU and the associated labor market slack indicators follow similar patterns over time. However, the slack estimated with the indicator that includes informality seems to predict inflationary pressures more accurately when the unemployment gap is close to zero.
    Keywords: Unemployment, Informality, NAIRU, Business cycle
    JEL: E26 E32 E52
    Date: 2020–07
  24. By: Andrew T. Levin; Arunima Sinha
    Abstract: We examine the effectiveness of forward guidance at the effective lower bound (ELB) in the context of the COVID-19 pandemic. Survey evidence underscores the myopia of professional forecasters at the initial stages of the pandemic and the extraordinary dispersion of their recent forecasts. Moreover, financial markets are now practically certain that U.S. short-term nominal interest rates will remain at the ELB for the next several years; consequently, forward guidance would have to refer to a much longer time horizon than in previous experience. To analyze the effects of these issues, we consider a canonical New-Keynesian model with three modifications: (1) expectations formation incorporates the mechanisms that have been proposed for addressing the forward guidance puzzle; (2) the central bank has imperfect credibility in making longer-horizon commitments regarding the path of monetary policy; and (3) the central bank may not have full knowledge of the true structure of the economy. In this framework, providing substantial near-term monetary stimulus hinges on making promises of relatively extreme overshooting of output and inflation in subsequent years, and hence forward guidance has only tenuous net benefits and may even be counterproductive.
    JEL: E52 E58
    Date: 2020–08
  25. By: Haefke, Christian; Reiter, Michael
    Abstract: We reassess the role of vacancies in a Diamond-Mortensen-Pissarides style search and matching model. In the absence of free entry long lived vacancies and endogenous separations give rise to a vacancy depletion channel which we identify via joint unemployment and vacancy dynamics. We show conditions for constrained efficiency and discuss important implications of vacancy longevity for modeling and calibration, in particular regarding match cyclicality and wages. When calibrated to the postwar US economy, the model explains not only standard deviations and autocorrelations of labor market variables, but also their dynamic correlations with only one shock.
    Keywords: Beveridge Curve,Business Cycles,Job Destruction,Random Matching,Separations,Unemployment Volatility,Wage Determination
    JEL: E24 E32 J63 J64
    Date: 2020
  26. By: Haefke, Christian (Social Science Division, New York University, Abu Dhabi, UAE); Reiter, Michael (Institute for Advanced Studies, Vienna, Austria and NYU Abu Dhabi)
    Abstract: We reassess the role of vacancies in a Diamond-Mortensen-Pissarides style search and matching model. In the absence of free entry long lived vacancies and endogenous separations give rise to a vacancy depletion channel which we identify via joint unemployment and vacancy dynamics. We show conditions for constrained efficiency and discuss important implications of vacancy longevity for modeling and calibration, in particular regarding match cyclicality and wages. When calibrated to the postwar US economy, the model explains not only standard deviations and autocorrelations of labor market variables, but also their dynamic correlations with only one shock.
    Keywords: Beveridge Curve, Business Cycles, Job Destruction, Random Matching, Separations, Unemployment Volatility, Wage Determination
    JEL: E24 E32 J63 J64
    Date: 2020–09
  27. By: Shvets, Serhii
    Abstract: The paper aims to verify the introduction of the golden rule of public finance under an active monetary stance for a developing economy using a dynamic stochastic general equilibrium model. Besides the two rigidities, namely the deep habit formation and Calvo-style price stickiness, the model structure incorporates real money holdings and welfare-enhancing government purchases in the utility-generating function and a modified Taylor rule. The simulation results have validated the visible crowding-out of private consumption and investment in the short run and a positive impact of the productive government spending on long-run growth, but with some important caveats. In the case of a developing economy that usually has low efficiency and high returns to public capital, the given factors prove significant in addressing the study issue. The results are robust in terms of the structure of utility-generating function, a relatively high share of liquidity-constrained households, and a degree of price stickiness. Moreover, to offset the debt accumulation as a result of increased public investment financing by persistent output growth, in the long run, the central bank should not only rely on response to the fluctuation of inflation and output but also account for a move of public debt.
    Keywords: endogenous growth, golden rule, monetary and fiscal policy, government spending, low-income countries, DSGE modeling
    JEL: E13 E63 H54 O41
    Date: 2020–06–18
  28. By: Yifei Lyu; Jun Nie; Shu-Kuei X. Yang
    Abstract: To examine whether including economic data on other countries could improve the forecast of U.S. GDP growth, we construct a large data set of 77 countries representing over 90 percent of global GDP. Our benchmark model is a dynamic factor model using U.S. data only, which we extend to include data from other countries. We show that using cross-country data produces more accurate forecasts during the global financial crisis period. Based on the latest vintage data on August 6, 2020, the benchmark model forecasts U.S. real GDP growth in 2020:Q3 to be −6.9 percent (year-over-year rate) or 14.9 percent (quarter-over-quarter annualized rate), whereas the forecast is revised upward to −6.1 percent (year-over-year) or 19.1 percent (quarter-over-quarter) when cross-country data are used. These examples suggest that U.S. data alone may fail to capture the spillover effects of other countries in downturns. However, we find that foreign variables are much less useful in normal times.
    Keywords: Forecasting; Dynamic factor model; GDP growth; Cross-country data; Global financial crisis; COVID-19
    JEL: C32 C38 C53 C55 E32 E37
    Date: 2020–08–20
  29. By: Ettmeier, Stephanie; Kriwoluzky, Alexander
    Abstract: We reexamine whether pre-Volcker U.S. fiscal policy was active or passive. To do so, we estimate a DSGE model with monetary and fiscal policy interactions employing a sequential Monte Carlo algorithm (SMC) for posterior evaluation. Unlike existing studies, we do not have to treat each policy regime as distinct, separately estimated, models. Rather, SMC enables us to estimate the DSGE model over its entire parameter space. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by a passive monetary/passive fiscal policy regime and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inflation build-up.
    Keywords: Bayesian Analysis,DSGE Models,Monetary-Fiscal Policy Interactions,MonteCarlo Methods
    JEL: C11 C15 E63 E65
    Date: 2020
  30. By: Narayan Bulusu
    Abstract: Central banks make public the results of open market operations (OMOs), which they use to adjust the liquidity available to the financial system to maintain the short-term borrowing rate in the range compatible with achieving their monetary policy objectives. This paper shows that such announcements are costly because they moderate the impact of changes in supply achieved through OMOs. Nevertheless, communication of OMOs is desirable because it improves the transparency of the funding market, which makes the price of liquidity—a key input into economic decision making—more reflective of underlying demand and supply of liquidity.
    Keywords: Central bank research; Monetary policy implementation
    JEL: D5 D52 E5 E58 G2 G21
    Date: 2020–09
  31. By: Robert Amano; Stefano Gnocchi; Sylvain Leduc; Joel Wagner
    Abstract: The Great Recession and current pandemic have focused attention on the constraint on nominal interest rates from the effective lower bound. This has renewed interest in monetary policies that embed makeup strategies, such as price-level or average-inflation targeting. This paper examines the properties of average-inflation targeting in a two-agent New Keynesian (TANK) model in which a fraction of firms have adaptive expectations. We examine the optimal degree of history dependence under average-inflation targeting and find it to be relatively short for business cycle shocks of standard magnitude and duration. In this case, we show that the properties of the economy are quantitatively similar to those under a price-level target.
    Keywords: Business fluctuations and cycles; Economic models; Monetary policy framework
    JEL: E52
    Date: 2020–07
  32. By: Jesús Fernández-Villaverde; Samuel Hurtado; Galo Nuño
    Abstract: We postulate a nonlinear DSGE model with a financial sector and heterogeneous households. In our model, the interaction between the supply of bonds by the financial sector and the precautionary demand for bonds by households produces significant endogenous aggregate risk. This risk induces an endogenous regime-switching process for output, the risk-free rate, excess returns, debt, and leverage. The regime-switching generates i) multimodal distributions of the variables above; ii) time-varying levels of volatility and skewness for the same variables; and iii) supercycles of borrowing and deleveraging. All of these are important properties of the data. In comparison, the representative household version of the model cannot generate any of these features. Methodologically, we discuss how nonlinear DSGE models with heterogeneous agents can be efficiently computed using machine learning and how they can be estimated with a likelihood function, using inference with diffusions.
    Keywords: heterogeneous agents, wealth distribution, financial frictions, continuous-time, machine learning, neural networks, structural estimation, likelihood function
    JEL: C45 C63 E32 E44 G01 G11
    Date: 2020
  33. By: Jesse Perla; Carolin Pflueger; Michael Szkup
    Abstract: We investigate how a combination of limited liability and preexisting debt distort firms’ investment and equity payout decisions. We show that equity holders have incentives to “double-sell” cash flows in default, leading to overinvestment, provided that the firm has preexisting debt and the ability to issue new claims to the bankruptcy value of the firm. In a repeated version of the model, we show that the inability to commit to not double-sell cash flows leads to heterogeneous investment distortions, where high leverage firms tend to overinvest but low leverage firms tend to underinvest. Permitting equity payouts financed by new debt mitigates overinvestment for high leverage firms, but raises bankruptcy rates and exacerbates low leverage firms’ tendency to underinvest—as the anticipation of equity payouts from future debt raises their cost of debt issuance. Finally, we provide empirical evidence consistent with the model.
    JEL: E20 E22 E44
    Date: 2020–08
  34. By: Olkhov, Victor
    Abstract: This paper presents probability distributions for price and returns random processes for averaging time interval Δ. These probabilities determine properties of price and returns volatility. We define statistical moments for price and returns random processes as functions of the costs and the volumes of market trades aggregated during interval Δ. These sets of statistical moments determine characteristic functionals for price and returns probability distributions. Volatilities are described by first two statistical moments. Second statistical moments are described by functions of second degree of the cost and the volumes of market trades aggregated during interval Δ. We present price and returns volatilities as functions of number of trades and second degree costs and volumes of market trades aggregated during interval Δ. These expressions support numerous results on correlations between returns volatility, number of trades and the volume of market transactions. Forecasting the price and returns volatilities depend on modeling the second degree of the costs and the volumes of market trades aggregated during interval Δ. Second degree market trades impact second degree of macro variables and expectations. Description of the second degree market trades, macro variables and expectations doubles the complexity of the current macroeconomic and financial theory.
    Keywords: price and returns volatility, price-volume relations, macro theory
    JEL: C02 C10 E00 E44 G00 G10 G11 G12 G17
    Date: 2020–08–15
  35. By: Morita, Hiroshi
    Abstract: This study investigates how population aging impacts the effectiveness of a government spending shock. We estimate a panel VAR model with prefectural data in Japan, the world’s fastest aging country and reveal that a government spending shock becomes less effective as the aging rate increases. Subsequently, we construct a New Keynesian model with workers and retirees, which can replicate our empirical findings. This highlights the role of the supply-side channel through which workers facing a liquidity constraint can benefit from increased disposable income, in generating the state-dependent effect of the government spending shock. Our theoretical finding may suggest that promoting labor market participation by elderly people could increase the effectiveness of a government spending shock amid a rapidly aging society.
    Keywords: Population aging, Panel VAR model, New Keynesian model, Fiscal policy
    JEL: E62 C11 C23
    Date: 2020–09
  36. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
    Abstract: Using a large-scale survey of U.S. consumers, we study how the large one-time transfers to individuals from the CARES Act affected their consumption, saving and labor-supply decisions. Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15 percent reporting that they mostly spent it. When providing a detailed breakdown of how they used their checks, individuals report having spent or planning to spend only around 40 percent of the total transfer on average. This relatively low rate of spending out of a one-time transfer is higher for those facing liquidity constraints, who are out of the labor force, who live in larger households, who are less educated and those who received smaller amounts. We find no meaningful effect on labor-supply decisions from these transfer payments, except for twenty percent of the unemployed who report that the stimulus payment made them search harder for a job.
    Keywords: expectations, surveys, marginal propensity to consume, labor supply, fiscal policy, COVID-19
    JEL: E30 E40 E50
    Date: 2020
  37. By: Basu, Rahul; Pegg, Scott
    Abstract: Many countries badly mismanage their natural resource endowments. We argue that a fundamental change in paradigm is needed. Specifically, we advocate treating non-renewable natural resources as a finite shared inheritance asset, and extraction as the sale of the inherited wealth. We identify several proposals that logically derive from treating natural resource proceeds as sales of a finite intergenerational inheritance rather than as revenues that can be spent. Such proposals suggest that mineral owners must strive for zero-loss when selling minerals, establish a passively invested future generations fund from the proceeds and distribute dividends from that fund to citizens as the rightful owners of the shared inheritance. The current dominant metaphor of proceeds from the exploitation of non-renewable mineral resources as being “windfall revenues” is underpinned by government accounting standards. The “windfall revenue” metaphor is not only inaccurate but also produces several pernicious effects that help explain the poor management of natural resource endowments in so many countries. We do not anticipate that our ideas will quickly overturn decades of established practice. We do, however, believe that the case needs to be made.
    Keywords: resource curse; government accounting standards; inter-generational equity; public sector net worth; shared inheritance
    JEL: B52 E2 E62 G02 G1 H2 H3 H4 H54 H6 H82 K0 Q3 Z1
    Date: 2020–06–08
  38. By: Drago, Bergholt; Furlanetto, Francesco; Faccioli, Nicolò Maffei
    Abstract: We estimate a structural vector autoregressive model in order to quantify four main explanations for the decline of the US labor income share: (i) rising market power of firms, (ii) falling market power of workers, (iii) higher investment-specific technology growth, and (iv) the widespread emergence of automation or robotization in production processes. Identification is achieved with theory robust sign restrictions imposed at medium-run horizons. The restrictions are derived from a stylized macroeconomic model of structural change. Across specifications we find that automation is the main driver of the long-run labor share. Firms’ rising markups can, however, account for a significant part of the accelerating labor share decline observed in the last 20 years. Our results also point to complementarity between labor and capital, thus ruling out capital deepening as a major force behind declining labor shares. If anything, investment-specific technology growth has contributed to higher labor income shares in our sample.
    Keywords: Labor income share, secular trends, technological progress, market power
    JEL: E2 D2 D4 J2 L1
    Date: 2019–10
  39. By: Tobias Blattner; Jonathan Swarbrick
    Abstract: We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases and central bank long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; International financial markets; Monetary policy framework; Transmission of monetary policy
    JEL: E52 F36
    Date: 2020–08
  40. By: Oulton, Nicholas
    Abstract: This paper lays out the basic theory behind productivity measurement, whether at the level of the country, region, industry or firm. The theory is illustrated using recent data from UK official publications. Productivity growth over time and differences in productivity levels between countries or regions at a point in time are both covered. Labour productivity and multi-factor productivity (MFP) are discussed. In the case of MFP special attention is paid to the measurement of capital inputs. Wherever possible, an accompanying spreadsheet supplies data from recent publications by the United Kingdom’s Office for National Statistics so that readers can reproduce official estimates or even employ alternative assumptions to produce their own estimates. Limitations in the underlying theory are highlighted as are empirical difficulties in implementing the theory.
    Keywords: productivity; measurement; MFP; capital; labour
    JEL: E23 E22 E24 O47
    Date: 2020–01–01
  41. By: Alejandra Lelo-de-Larrea
    Abstract: Four specifications of an affine model with risk aversion and no arbitrage conditions are estimated for the Mexican Term Structure of Interest Rates, contrasting their empirical properties and the accuracy of their in and out of sample forecasts. The traditional models are extended by adding macroeconomic variables to analyze if the latter provide sufficient information to improve the adjustment and the forecast of interest rates. Using monthly data of the Zero Coupon Bonds, VIX, WTI, exchange rate, inflation and growth in the period 2002-2017, it is found that, although there is no superiority of a single model for the in and/or out of sample forecast of the yield curve, adding macroeconomic variables helps to improve the short and medium term forecasts independently of the type of factors used.
    Keywords: Afin Model, Yield Curve Forecast, Principal Components, Kalman Filter, No-Arbitrage Condition.
    JEL: C12 C32 C53 E43 E47 G12
    Date: 2020–03
  42. By: Tut, Daniel
    Abstract: This paper investigates the effects of the Covid-19 pandemic on financial institutions and consumers’ adoption of FinTech in payments. We find that the pandemic: [1] Initially had a negative impact on the adoption of FinTech, but favorable short-term regulatory changes have reversed some of the negative effects [2] The use of all electronic payment cards has significantly declined during the pandemic except for charge cards. We find an increase in the use of charge cards as consumers shift towards cheaper forms of payment [3] The pandemic has magnified interbank contagion and liquidity risks and has reduced both domestic and international electronic fund transfers via RTGS. The pandemic has also resulted in a deterioration in the quality of commercial banks’ assets and balance sheets [4] Remittance inflows via FinTech platforms have significantly declined reflecting contractions in global economic activities.
    Keywords: Covid-19, Coronavirus, Fintech, Mobile Payment, Central Banks, Financial Intermediaries, Financial Technologies, Banks, Interbank transfers, Diaspora Remittances, Settlement and Liquidity risks, clearing houses, financial stability, Pandemic, M-PESA, Digital Banking.
    JEL: E32 E52 E58 G21 G28 G32 O16 O31 O32 O33 O38 O55
    Date: 2020–07
  43. By: Foltas, Alexander
    Abstract: I use textual data to model German professional macroeconomic forecasters' information sets and use machine-learning techniques to analyze the efficiency of forecasts. To this end, I extract information from forecast reports using a combination of topic models and word embeddings. I then use this information and traditional macroeconomic predictors to study the efficiency of investment forecasts.
    Keywords: Forecast Efficiency,Investment,Random Forest,Topic Modeling
    JEL: C53 E27 E22
    Date: 2020
  44. By: Gries, Thomas; Naudé, Wim
    Abstract: The economic impact of Artificial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard represen- tative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggre- gate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP.
    Keywords: Technology,artificial intelligence,productivity,labor demand,income distribution,growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2020
  45. By: Christian Haefke; Michael Reiter (Division of Social Science)
    Abstract: We reassess the role of vacancies in a Diamond-Mortensen-Pissarides style search and matching model. In the absence of free entry long lived vacancies and endogenous separations give rise to a vacancy depletion channel which we identify via joint unemployment and vacancy dynamics. We show conditions for constrained efficiency and discuss important implications of vacancy longevity for modeling and calibration, in particular regarding match cyclicality and wages. When calibrated to the postwar US economy, the model explains not only standard deviations and autocorrelations of labor market variables, but also their dynamic correlations with only one shock. JEL codes: E24, E32, J63, J64
    Date: 2020–09
  46. By: Tanaka, Yasuhito
    Abstract: We show the existence of involuntary unemployment based on consumers' utility maximization and firms' profit maximization behavior under monopolistic competition with increasing, decreasing or constant returns to scale technology using a three-period overlapping generations (OLG) model with a childhood period as well as younger and older periods. We also analyze the effects of fiscal policy financed by tax and budget deficit (or seigniorage) to realize full-employment under a situation with involuntary unemployment. We show the following results. 1) In order to maintain the steady state where employment increases at some positive rate, we need a budget deficit (Proposition 1). 2) If the full-employment state is realized, we do not need budget deficit to maintain full-employment (Proposition 2).
    Keywords: Involuntary unemployment, Three-period overlapping generations model, Monopolistic competition
    JEL: E12 E24
    Date: 2020–07–02
  47. By: Dovern, Jonas; Müller, Lena Sophia; Wohlrabe, Klaus
    Abstract: Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with di erences in firms' Investment and labor demand.
    Keywords: GDP expectations,expectation heterogeneity,firm,ifo business tendency survey
    JEL: D84 E32
    Date: 2020
  48. By: Kemnitz, Alexander; Knoblach, Michael
    Abstract: There is now increasing evidence that for the U.S. economy, the elasticity of substitution between capital and labor, "sigma", is rising over time. To account for this, we propose a microfounded model, where the evolution of "sigma", and, hence, the shape of the aggregate production function occur endogenously. We develop a Schumpeterian growth model in which firms can undertake R&D activities that stochastically lead to the discovery of production technologies characterized by a higher elasticity of substitution between capital and labor. Improved possibilities for factor substitution mitigate the diminishment of the marginal product of capital and spur capital accumulation. Due to successful innovations, the steady state of the economy entails higher levels of the capital stock and the output good. Moreover, our numerical simulations show that the timing of innovations is important: two economies with the same steady-state elasticity of substitution between capital and labor can differ in terms of their steady-state levels of the capital stock and the output good.
    Keywords: Monopolistic competition,Endogenous elasticity of substitution,Functional normalization,Schumpeterian growth model
    JEL: E24 J24 J31 O33 O41
    Date: 2020
  49. By: Kaiji Chen; Haoyu Gao; Patrick C. Higgins; Daniel F. Waggoner; Tao Zha
    Abstract: We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor SOEs over non-SOEs in credit access. Infrastructure investment driven by non-monetary factors, however, enhanced the monetary transmission to bank credit allocated to LGFVs in infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in sectors other than infrastructure.
    JEL: C13 C3 E02 E5
    Date: 2020–08
  50. By: Fosu, Prince
    Abstract: In Covid-19 pandemic era when most households’ members have lost their jobs and incomes, the government assistance and programs in ensuring consumption smoothing is imperative. The main objectives of this study are to analyze the impact of government expenditure and free maternal healthcare policy on household consumption expenditure in Ghana using the ARDL estimation technique and historical data from 1967 to 2018. The results revealed that government expenditure and free maternal healthcare policy had a negative and statistically significant effect of on household consumption expenditure in Ghana in both long run and short run. The result suggests that government expenditure and free maternal healthcare policy crowed-out private consumption in Ghana. In addition, the marginal propensity to consume in the long run is 0.690 while the marginal propensity to consume in the short run is 0.214 suggesting that real income have much higher effect on household consumption in the long run than in the short run. The study suggests the need to increase public spending on basic social amenities and also extend the free maternal healthcare policy to all pregnant women especially those in the rural areas of Ghana as these have a greater impact on household consumption in Ghana. The findings from the study have important implications for household savings and interest rate in Ghana.
    Keywords: Government Expenditure, Free Maternal HealthCare, Household Consumption, Ghana
    JEL: E0 E21 H50 H51 I1
    Date: 2020–07–04
  51. By: Demary, Markus; Hüther, Michael
    Abstract: Im Mittelpunkt der wirtschaftspolitischen Debatte über die Covid-19-Pandemie steht bisher die Realwirtschaft. Dort hatte sich der Lockdown direkt und schockartig ausgewirkt; der stationäre Einzelhandel war weitgehend unterbunden, Hotel und Gaststätten waren geschlossen, Lieferketten national wie international gestört, einige Wirtschaftsbereiche - wie die Automobilbranche - hatten vorübergehend die Produktion vollständig stillgelegt. Banken und andere Finanzintermediäre - z.B. Kreditversicherer - sind bisher allenfalls sekundär betroffen und politisch eher prospektiv von Interesse. Dabei wird zunehmend darüber spekuliert, ob und in welchem Ausmaß es im weiteren Verlauf der Krise über eine Insolvenzwelle zu Belastungen des Bankensystems kommen kann. [...]
    JEL: E32 E44 G21 G28
    Date: 2020
  52. By: Matthew B. Canzoneri; Behzad T. Diba; Luca Guerrieri; Arsenii Mishin
    Abstract: We build a quantitatively relevant macroeconomic model with endogenous risk-taking. In our model, deposit insurance and limited liability can lead banks to make risky loans that are socially inefficient. This excessive risk-taking can be triggered by aggregate or sectoral shocks that reduce the return on safer loans. Excessive risk-taking can be avoided by raising bank capital requirements, but unnecessarily tight requirements lower welfare by limiting liquidity producing bank deposits. Consequently, optimal capital requirements are dynamic (or state contingent). We provide examples in which a Ramsey planner would raise capital requirements: (1) during a downturn caused by a TFP shock; (2) during an expansion caused by an investment-specific shock; and (3) during an increase in market volatility that has little effect on the business cycle. In practice, the economy is driven by a constellation of shocks, and the Ramsey policy is probably beyond the policymaker's ken; so, we also consider implementable policy rules. Some rules can mimic the optimal policy rather well but are not robust to all the calibrations we consider. Basel III guidance calls for increasing capital requirements when the credit to GDP ratio rises, and relaxing them when it falls; this rule does not perform well. In fact, slightly elevated static capital requirements generally do about as well as any implementable rule.
    Keywords: Countercylical capital buffer; DSGE models; Bank capital requirements; Ramsey policy
    JEL: C51 E58 G28
    Date: 2020–08–06
  53. By: Rau-Goehring, Matthias; Reinsberg, Bernhard; Kern, Andreas
    Abstract: This paper studies the role of the International Monetary Fund (IMF) in promoting central bank independence (CBI). While anecdotal evidence suggests that the IMF has been playing a vital role for CBI, the underlying mechanisms of this influence are not well understood. We argue that the IMF has ulterior motives when pressing countries for increased CBI. First, IMF loans are primarily transferred to local monetary authorities. Thus, enhancing CBI aims to insulate central banks from political interference to shield loan disbursements from government abuse. Second, several loan conditionality clauses imply a substantial transfer of political leverage over economic policy making to monetary authorities. As a result, the IMF through pushing for CBI seeks to establish a politically insulated veto player to promote its economic policy reform agenda. We argue that the IMF achieves these aims through targeted lending conditions. We hypothesize that the inclusion of these loan conditions leads to greater CBI. To test our hypothesis, we compile a unique dataset that includes detailed information on CBI reforms and IMF conditionality for up to 124 countries between 1980 and 2014. Our findings indicate that targeted loan conditionality plays a critical role in promoting CBI. These results are robust towards varying modeling assumptions and withstand a battery of robustness checks. JEL Classification: E52, E58, F5
    Keywords: central bank independence, conditionality, International Monetary Fund, international political economy
    Date: 2020–08
  54. By: Sangyup Choi (Yonsei University); Davide Furceri (IMF); João Tovar Jalles (IMF)
    Abstract: Empirical evidence to date suggests a positive relationship between fiscal policy countercyclicality and growth. But do all industries gain equally from countercyclical fiscal policy? What are the channels through which countercyclical fiscal policy affects industry-level growth? We answer these questions by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 countries—including both advanced and developing economies—during the period 1970-2014. Among the nine industry characteristics that we consider based on different theoretical channels, we find that the credit constraint channel—proxied by asset fixity—identifies the best transmission mechanism through which countercyclical fiscal policy enhances growth. This channel becomes stronger during periods of weak economic activity when credit constraints are more likely to bind.
    Keywords: countercyclical fiscal policy; time-varying coefficients; industry growth, technologies of production, credit constraints
    JEL: E62 H50 H60
    Date: 2020–07–03
  55. By: Altavilla, Carlo; Barbiero, Francesca; Boucinha, Miguel; Burlon, Lorenzo
    Abstract: This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks’ ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms’ employment. JEL Classification: E51, E52, E58, G01, G21, G28
    Keywords: bank lending, COVID-19 crisis, monetary policy, prudential policy
    Date: 2020–09
  56. By: Bicakova, Alena (CERGE-EI); Cortes, Matias (York University, Canada); Mazza, Jacopo (European Commission, Joint Research Centre)
    Abstract: We find robust evidence that cohorts of male graduates who start college during worse economic times earn higher average wages than those who start during better times. This gap is not explained by differences in selection into employment, in economic conditions at the time of college graduation, or in field of study choices. Graduates who enroll in bad times are not more positively selected based on their high-school outcomes, but they achieve higher college grades, sort into higher-paying occupations, and earn higher wages conditional on their grades. We find similar but less robust patterns for female graduates. Our results suggest that individuals who enroll during economic downturns exert more effort during their studies.
    Keywords: business cycle, higher education, cohort effects
    JEL: I23 J24 J31 E32
    Date: 2020–07
  57. By: Juelsrud, Ragnar E.; Wold, Ella Getz
    Abstract: In this paper we use Norwegian tax data and a novel natural experiment to isolate the impact of job loss risk on saving behavior. We find that a one percentage point increase in job loss risk increases liquid savings by roughly 1.2 - 2.0 percent. Further, we show that employment falls in non-tradable industries not directly affected by the shock, also after controlling for intersectoral linkages and lower demand from affected industries, consistent with the household demand channel of recessions.
    Keywords: Precautionary savings, household finance, recessions
    JEL: D14 E20 E21
    Date: 2019–10
  58. By: Tambakis, D.
    Abstract: This study nests historical evidence for credit growth-fuelled financial instability in a 2-state non-homogeneous Markov chain with logistic crisis incidence. A long-run frequency measure is defined and calibrated for 17 advanced economies from 1870-2016. It is found that historical (implied) crisis frequencies display a V (J )-pattern over time. A key implication is that policies strengthening capital adequacy contribute more to systemic stability than expanding deposit insurance or curbing credit booms.
    Keywords: Credit cycle, Systemic banking crises, Markov chain
    JEL: C15 E30 E58 G01
    Date: 2020–09–03
  59. By: Chi-Young Choi; Soojin Jo
    Abstract: Analyzing city-level retail price data for a variety of consumer products, we find that house price changes lead local consumer price changes, but not vice versa. The transmission of the house price changes differs substantially across locations and products. It also hinges on the nature of housing market shocks; housing supply shocks propagate through the cost-push channel via local cost and markup effects, while housing demand shocks transmit through conventional wealth and collateral effects. Our findings suggest that housing may exert greater impacts on the local cost-of-living and consumer welfare than what is reflected in its share in CPI.
    Keywords: Housing market; Consumer price; U.S. cities; Pass-through; FAVAR model; VECM
    JEL: E21 E31 R20 R30
    Date: 2020–08–27
  60. By: Santiago Pinto (Federal Reserve Bank of Richmond); Pierre-Daniel G. Sarte (Federal Reserve Bank of Richmond)
    Abstract: This chapter describes how two fields that traditionally evolved mostly separately, regional economics and macroeconomics, have increasingly come together over the past decade and a half to yield new insights into the relevance of regional forces for the macroeconomy. This chapter gives an overview to the basic question: why should macroeconomists care about the spatial allocation of economic activity or spatial models? There are no simple spatial aggregation theorems that give rise to an aggregate production function, and this chapter describes the variety of ways in which granular considerations and shocks that are regional in nature shape aggregate outcomes and motivate a need for policy. The macroeconomics literature is increasingly heading in the direction of unpacking the exact nature of granular forces in a way that leaves the representative agent and firm framework with aggregate shocks as an early and poor approximation to how actual economies work.
    Keywords: Agglomeration, Externalities, Aggregation, Region, Nation
    JEL: R12 R38 R30 R5 E13
    Date: 2020–06–23
  61. By: Jonathan Witmer
    Abstract: 24/7 payment settlement may impact the demand for central bank reserves and thus could have an effect on monetary policy implementation. Using the standard workhorse model of monetary policy implementation (Poole, 1968), we show that 24/7 payment settlement induces a precautionary demand for central bank balances. Absent any changes or response by the central bank, this will put upward pressure on the overnight interest rate in a standard corridor system of monetary policy implementation. A floor system is much less sensitive to this change, as long as excess balances are large enough.
    Keywords: Monetary policy implementation; Payment clearing and settlement systems
    JEL: E43
    Date: 2020–06
  62. By: San Vicente Portes Luis; Atal Vidya; Juárez-Torres Miriam
    Abstract: This article explores the aggregate effects of women's empowerment on intra- and intertemporal household choices within a Bewley-style heterogeneous agent framework to aggregate household level decisions into macroeconomic variables. Emphasis is placed on the role of attitudes towards risk and subsistence consumption. In this context, we find that as women get more empowered, we assume that households show a higher risk aversion reflecting the more risk adverse women's preferences. Thus, households heighten self-insurance by increasing precautionary savings for smoothing consumption and, in turn, this higher level of savings tends to reduce wealth inequality. Also, regardless of income, women's preferences increase food intake in households as women get empowered. The model is calibrated with the 2014 National Survey of Household Income and Expenditures of Mexico.
    Keywords: Women empowerment;wealth;savings;subsistence consumption
    JEL: O11 E21 D70
    Date: 2019–12
  63. By: Francesca Diluiso; Barbara Annicchiarico; Matthias Kalkuhl; Jan C. Minx
    Abstract: Limiting global warming to well below 20C may result in the stranding of carbon-sensitive assets. This could pose substantial threats to financial and macroeconomic stability. We use a dynamic stochastic general equilibrium model with financial frictions and climate policy to study the risks a low-carbon transition poses to financial stability and the different instruments central banks could use to manage these risks. We show that, even for very ambitious climate targets, transition risks are limited for a credible, exponentially growing carbon price, although temporary “green paradoxes” phenomena may materialize. Financial regulation encouraging the decarbonization of the banks’ balance sheets via tax-subsidy schemes significantly reduces output losses and inflationary pressures but it may enhance financial fragility, making this approach a risky tool. A green credit policy as a response to a financial crisis originated in the fossil sector can potentially provide an effective stimulus without compromising the objective of price stability. Our results suggest that the involvement of central banks in climate actions must be carefully designed in compliance with their mandate to avoid unintended consequences.
    Keywords: climate policy, financial instability, financial regulation, green credit policy, monetary policy, transition risk
    JEL: E50 H23 Q43 Q50 Q58
    Date: 2020
  64. By: Nishi, Hiroshi
    Abstract: This paper presents a two-sector Kalecki--Kaldor model of income distribution, technical change, and economic growth. The model is Kaleckian in the sense that it incorporates mark-up pricing, investment independent of saving, and excess capacity. It is also Kaldorian in that labour productivity growth is led by Kaldor's technical progress function. In other words, productivity growth is endogenously realised through the technology embodied in new capital stock, which differentiates our model from previous two-sector models. Our extension drastically changes the standard Kaleckian implications. We find that although the economic activity levels in the short run are led by the demand and income distribution parameters, economic growth in the long run is realised by supply-side (i.e. technical change and the associated productivity and wage growth) parameters. The important implication of our findings is that a two-sector economy faces a trade-off between a high economic growth rate and the local stability of the steady state.
    Keywords: Two-sector model, Economic growth, Endogenous productivity growth, Technical change, Income distribution
    JEL: D33 E12 O41
    Date: 2020–07–02
  65. By: David E. Bloom; Michael Kuhn; Klaus Prettner
    Abstract: We discuss and review literature on the macroeconomic effects of epidemics and pandemics since the late 20th century. First, we cover the role of health in driving economic growth and well-being and discuss standard frameworks for assessing the economic burden of infectious diseases. Second, we sketch a general theoretical framework to evaluate the tradeoffs policymakers must consider when addressing infectious diseases and their macroeconomic repercussions. In so doing, we emphasize the dependence of economic consequences on (i) disease characteristics; (ii) inequalities among individuals in terms of susceptibility, preferences, and income; and (iii) cross-country heterogeneities in terms of their institutional and macroeconomic environments. Third, we study pharmaceutical and nonpharmaceutical policies aimed at mitigating and preventing infectious diseases and their macroeconomic repercussions. Fourth, we discuss the health toll and economic impacts of five infectious diseases: HIV/AIDS, malaria, tuberculosis, influenza, and COVID-19. Although major epidemics and pandemics can take an enormous human toll and impose a staggering economic burden, early and targeted health and economic policy interventions can often mitigate both to a substantial degree.
    JEL: D58 E10 E20 I12 I15 I18 I31 O40
    Date: 2020–08
  66. By: PINSHI, Christian P.; KABEYA, Anselme M.
    Abstract: The purpose of this paper is to verify the direction of the relationship between financial development and economic growth in the Democratic Republic of the Congo (DRC). Using Granger's causality framework, the results indicate that there is a robust, one-way relationship ranging from economic growth to financial development. This result validates Demand following hypothesis in the DRC. Consequently, policies aimed at supporting economic growth, such as the accumulation of endogenous factors (knowledge, education, research), macroeconomic stabilization, reconstruction of infrastructure, structural reforms, creation of a good economic environment for the private and regulatory sectors, and good governance are very important for improving financial development in the DRC.
    Keywords: Economic growth, financial development, Democratic Republic of the Congo
    JEL: C32 E44 G20 G28 O16 O38 O44
    Date: 2020–06
  67. By: Lovleen Kushwah
    Abstract: We develop a simple model of borrowing and lending within the monetary union. We characterize the default decision of the borrowing country and explore the impact that the monetary union has on the amount of borrowing, the rate of interest and the default probability. The key assumptions of the modelling strategy are that in the monetary union, the lender is risk averse with monopoly power rather than risk neutral with perfect competition. We find that the borrowing member country of the monetary union borrows more at cheaper cost vis-`a-vis a standalone borrowing country. Further, we find that forming a monetary union with high initial income disparity between the member countries leads to more and cheaper borrowing and higher default probabilities.
    JEL: F45 F41 F34 F33 E43
    Date: 2020–09
  68. By: GERMAIN Antoine, (ESL, Université catholique de Louvain); HINDRIKS Jean, (CORE, Université catholique de Louvain)
    Abstract: Nous célébrons cette année les 100 ans de l’indice des prix à la consommation belge (IPC). C’est l’occasion de nous pencher sur l’inflation et son impact sur le pouvoir d’achat. Sommes-nous tous égaux face à l’inflation ? Notre analyse a pour objectif de calculer cette inflation pour différents groupes en tenant compte du profil spécifique de consommation de ces différents groupes. Nous allons ainsi calculer une inflation pour les ménages bruxellois, flamands et wallons, ce qui est inédit à notre connaissance. Nous pourrons donc vérifier si l’inflation diffère selon les régions. Une autre distinction utile concerne le groupe d’âge ou de revenu. Nous souhaitons en particulier vérifier si l’inflation frappe plus sévèrement les familles modestes et les personnes âgées. Les résultats de notre analyse menée sur la période 2011-2018 révèlent plusieurs points intéressants. Nous obtenons une inflation cumulée de 16.86% entre 2011-2018 pour les bas revenus (premier quartile) contre 15.97% pour les hauts revenus (quatrième quartile). Nous montrons ensuite que cette inégalité sociale d’inflation est essentiellement déterminée par l’augmentation des prix de l’énergie et du logement – qui impactent plus durement les ménages les plus pauvres. Nous constatons aussi un différentiel régional d’inflation avec une inflation cumulée plus élevée en Flandre (16.37%) qu’à Bruxelles (15.78%), et qu’en Wallonie (16.08%). L’écart régional d’inflation s’explique par hausse plus rapide des prix du gaz et de l’électricité en Flandre. Notre étude révèle enfin des écarts significatifs d’inflation selon l’âge avec un taux d’inflation au niveau belge de 17% pour les ménages de plus de 60 ans et un niveau d’inflation minimum de 15.6% pour les ménages entre 30-39 ans.
    Keywords: inflation, inégalité, prix, budget des ménages
    JEL: D12 E31
    Date: 2020–02–11
  69. By: Julien Acalin; Alessandro Rebucci
    Abstract: Using a new equity price-based measure of the global financial cycle, this paper evaluates the relative importance of global financial shocks for quarterly equity returns and output growths in a large sample of advanced and emerging economies, as well as in South Korea and China--two countries on different sides of the trilemma triangle of international finance. We document that global financial shocks in both China and South Korea explain a substantial share of equity return variability (20 and 50 percent of the total variance, respectively), but a much smaller portion of real output fluctuations (less than 10 percent in Korea and negligible in the case of China). We also find that the combination of a closer capital account and a more rigid exchange rate regime, as in China, is associated with some costs in terms of diversification opportunities quantified by very large exposures to domestic financial and real shocks, dwarfing the contribution of any other shock in the model. More surprisingly, the combination of a relatively open capital account and a flexible exchange rate, as in South Korea, not only is associated with higher exposure to the global financial cycle than in China but also with a significant incidence of domestic financial shocks on output fluctuations.
    JEL: C38 E42 F44 G15
    Date: 2020–08
  70. By: Byron Botha; Lauren Kuhn; Daan Steenkamp
    Abstract: The Phillips curve is a commonly used benchmark for modelling inflation, based on the intuition that greater economic slack (i.e. a larger output gap) should be associated with decelerating inflation. But there is an ongoing debate about the usefulness of the Phillips curve to explain inflation. Explanations for an observed weakening between measures of slack and inflation have included- mis‐measurement of economic slack, the influence of other factors (such as the exchange rate, foreign inflation or wages) or whether some components of the inflation basket are more sensitive to the business cycle than other. To advance this discussion, we consider an augmented Phillips curve specification that accounts for various drivers of inflation and test different measures of economic slack in forecasting inflation and GDP outcomes. We show that a Phillips curve relationship continues to exist in South Africa. We find the slack measure that performs best is one that includes labour market indicators and indicated in 2019Q3 that capacity pressure was low. While the output gap-inflation channel continues to operate, the contributions to inflationary pressures of factors such as past inflation and inflation expectations have been much more important over recent years.
    Date: 2020–09–01
  71. By: Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Tolulope O. Williams (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Olatunde J. Omokanmi (Crown-Hill University, Eiyenkorin,Nigeria); Serifat O. Onayemi (Olabisi Onabanjo University, Ogun State, Nigeria)
    Abstract: In this study, we examine the mediating roles of institutions in the remittances growth relationship for some reasons. We found that no country-specific study has towed this line leaving a vacuum in the literature of development and international finance. Most studies along this dimension have been done as a continental panel study with significant attendant deficiencies. Heterogeneous nature of institutional arrangements in African nations makes findings on the moderation roles of institutions in the remittance-growth relationship regional specific. We rely on the autoregressive distributed lag (ARDL) estimation procedure to establish a clear line of thought on the interactions of the variables of interest. Short-run results revealed that remittances inflow positively influence growth, but when institutional factors interact with the remittances variables, only the regulatory quality measures from the product of interactions matters for growth. Nonetheless, long run results revealed that remittances inflow was negatively related with growth, but when interacted with institutional measures and regressed on growth outcomes, we found remittances to positively and statistically influence growth outcomes for all the institutional measures adopted. Therefore, recipient nations should improve on the design and enforcement of laws particularly about their regulatory quality and as well as quality assurance such that they could be positioned to attract increased remittances inflow as well as other sources of external financing needed to augment domestic productivity and growth.
    Keywords: Economic Growth, Remittances, Institutions, ARDL, Nigeria
    JEL: E01 E44 F24
    Date: 2020–01
  72. By: James Caddy (Reserve Bank of Australia); Luc Delaney (Reserve Bank of Australia); Chay Fisher (Reserve Bank of Australia)
    Abstract: Since 2007 the Reserve Bank has conducted a Consumer Payments Survey (CPS) every three years, which provides comprehensive information on how Australians make their payments. The 2019 CPS was conducted just before the emergence of COVID-19 in Australia and gives a detailed snapshot of consumer payment behaviour prior to the changes in spending patterns induced by the pandemic. The survey provided further evidence that Australian consumers increasingly prefer to use electronic payment methods rather than cash for their day-to-day payments. Many people now tap their cards (or sometimes phones) even for small purchases. When paying with a card in person or online, consumers are more often choosing to use a debit card rather than a credit card. As a result, debit cards were the most frequently used consumer payment method in the 2019 survey. Consumers are also increasingly taking advantage of the ability to make payments using a range of innovative new payment services that have emerged in recent years, often facilitated by mobile technology and the use of digital payment credentials. Despite the trend towards electronic payments, cash still accounted for a significant share of lower-value payments and a material proportion of the population continue to make many of their payments in cash.
    Keywords: consumer payment choice; consumer survey; method of payment; payment systems
    JEL: D12 D14 E42
    Date: 2020–09
  73. By: Patnaik, Ila (National Institute of Public Finance and Policy); Sengupta, Rajeswari (IGIDR)
    Abstract: Amidst the economic slowdown triggered by the outbreak of the Covid-19 pandemic in India there have been many demands for the government to announce a large fiscal stimulus to support the economy. Economic growth and tax revenues remain uncertain in 2020-21 making it challenging for the government to finance any addition to the fiscal deficit. In this paper we work out alternative scenarios of fiscal deficit for 2020-21. We find that in our baseline scenario, assuming a 5% contraction in real GDP and a 14.4% contraction in net tax revenue, fiscal deficit of the central government will be 6.2% of GDP.
    Keywords: Fiscal deficit ; Covid-19 ; Fiscal projections ; Government borrowing ; Tax revenue
    JEL: E6 H2 H5 H6
    Date: 2020–09
  74. By: Hernández Vega Marco A.
    Abstract: This work studies the impact of Foreign Direct Investment (FDI) and portfolio flows on house prices of emerging market economies using a static factors panel VARX model. The results show that an increase in both FDI and portfolio flows leads to higher house prices, but that portfolio flows have a more persistent effect. This work also finds that mortgage credit, as proxy of housing demand, is an important variable in house price dynamics in the sense that it has a higher positive impact on house prices than any of the other endogenous variables included. The results are robust to different specifications of the model, such as adding additional lags or changing the order in which the endogenous variables enter the model.
    Keywords: Emerging Markets;Capital Flows;House Prices
    JEL: C32 E44 F32 G21
    Date: 2019–12
  75. By: Constantin Bürgi (St. Mary's College of Maryland)
    Abstract: Persistence of economic shocks is commonly treated as deviations from rational expectations attributed to frictions like information rigidity or noisy information. This paper shows that there is persistence even without these information frictions. In the presence of uncertainty about the future, optimal forecasts place a positive weight on past predictions about the same event. The overall weight on the past prediction varies markedly over time and has an inverse relationship with the magnitude of shocks asthe larger revisions after large shocks reduce the weight. Empirical estimates show that agents put a significant weight on previous prediction of inflation and output and a substantial part of the weight and hence persistence cannot be attributed to information frictions.
    Keywords: Uncertainty, Information Rigidity, Information, Rational Expectations, Full Information
    JEL: C53 D80 E37 E66
    Date: 2020–08
  76. By: Jaramillo Rodríguez Jorge; Pech Moreno Luis Alberto; Ramírez Claudia; Sanchez-Amador David
    Abstract: This paper aims to investigate if the exchange rate pass-through (ERPT) to consumer prices follows a nonlinear behavior in Mexico. To look for nonlinearities, we employ a Threshold VAR approach (TVAR). The threshold allows us to differentiate regimes of "high" or "low" depreciation and the effect of exchange rate movements onto prices in each of these regimes. Our results suggest the existence of nonlinearities in Mexico only for the merchandise inflation measure, including the food and non-food subindices, with an estimated threshold that varies from an annual depreciation rate of 7.20 to 7.30 percent. Even though we find that these ERPT coefficients differ between regimes from a statistical point of view, the effect over headline inflation is small. Our results are consistent with the consolidation of a low ERPT in Mexico.
    Keywords: Exchange-Rate Pass-through;Threshold VAR;Inflation;Foreign Exchange
    JEL: C32 E31 F31
    Date: 2019–11
  77. By: James B. Bullard; Mike McKee
    Abstract: St. Louis Fed President James Bullard shared his views on the changes to the Fed’s monetary policy framework during an interview on “Bloomberg Markets.”
    Keywords: Inflation; Monetary policy; Monetary policy framework
    Date: 2020–08–27
  78. By: Chadha, Jagjit S.; Corrado, Luisa; Meaning, Jack; Schuler, Tobias
    Abstract: The Federal Reserve responded to the global financial crisis by initiating an unprecedented expansion of central bank money (bank reserves) once the policy rate had reached the lower bound. To capture the salient features of the crisis, we develop a model where the central bank can provide reserves on demand and also use reserves to buy government bonds. We show that the provision of reserves through either channel reduces the cost of providing loans as they act as a substitute for private sector collateral and costly monitoring activity. We illustrate this mechanism by examining the role of reserves in projecting stable growth in broad money after the financial crisis. We also run a counterfactual which suggests that, if the Federal Reserve had not provided bank reserves on such a large scale, broad money would have fallen, the economy might have experienced a deeper contraction, and the recovery would have been more protracted, taking perhaps twice as long to return to equilibrium. JEL Classification: E31, E40, E51
    Keywords: liquidity provision, non-conventional monetary policy, quantitative easing
    Date: 2020–08
  79. By: Byron Botha; Eric Schaling
    Abstract: In order to account for the effects of commodity exports on the South African business cycle we use a multivariate extension of the Hodrick Prescott (HP) filter that incorporates commodity prices. We find that ignoring commodity prices results in a monetary policy stance that is more dovish than the one implied by our multivariate measure of the business cycle. This may partly explain why inflation breached the inflation target from 2007Q2 to 2009Q4, and overshot the upper bound of the target again by mid-2014. In addition we find that incorporating information about commodity prices implies smaller revisions of the estimated output gap. This in turn, enables a more consistent narrative around economic slack and monetary policy over time.
    Date: 2020–09–04
  80. By: Cortés Espada Josué Fernando; Sámano Daniel; Gutiérrez Villanueva Rubí
    Abstract: This paper uses the wavelet methodology to analyze the dynamics of inflation in Mexico at different frequencies over time. First, we analyze the monthly behavior of the headline, core, and noncore inflation from January 2007 to December 2018. Subsequently, the decomposition shows that the shocks on headline inflation in 2017 were mainly associated with the high-frequency component and they did not generate changes in its low-frequency component.
    Keywords: Inflation;Wavelet decomposition;Wavelet variance;Trend inflation
    JEL: C19 C49 C65 E31
    Date: 2019–12
  81. By: Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij
    Abstract: We measure wealth effects on consumption using a novel research design: responses to direct survey questions asking how much a household would change consumption in response to unexpected (positive and negative) shocks to own home value. The average wealth effect is in the 2-5% range, in line with econometric estimates that associate changes in housing wealth with consumption realizations. However, our analysis uncovers significant heterogeneity. Extensive margin responses are limited: more than 90% of the sample reports no consumption adjustment to wealth shocks. On the other hand, conditioning on adjusting, intensive margin responses are substantial. Finally, the consumption response to positive wealth shocks is greater than the response to negative shocks.
    Keywords: Wealth Effect, Housing, Heterogeneity
    JEL: D12 D14 E21
    Date: 2020–09
  82. By: Conrad, Christian; Enders, Zeno; Glas, Alexander
    Abstract: Based on a new survey of German households, we investigate the role of information channels and lifetime experience for households' inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socio-economic characteristics. These information channels, in turn, have an important influence on the level of perceived past and expected future inflation, as well as uncertainty thereof. The expected future change of inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their 'economic model' is shaped by experience.
    Keywords: household expectations,inflation expectations,information channels,experience,Bundesbank household survey
    JEL: E31 D84
    Date: 2020
  83. By: James B. Bullard; Christopher Jeffery
    Abstract: St. Louis Fed President James Bullard shared his views on various aspects of the U.S. economy and the Fed’s response to the COVID-19 pandemic in an interview with Central Banking Journal.
    Keywords: COVID-19; Coronavirus; Federal Reserve System; Inflation; Growth; Interest rates; Financial stability; Quantitative easing; Investment; Financial crisis; Risk
    Date: 2020–08–11
  84. By: Oscar Claveria (AQR-IREA, Department of Econometrics, Statistics and Applied Economics, University of Barcelona, 08034 Barcelona, Spain.)
    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
  85. By: Loretta J. Mester
    Abstract: I last spoke at a NABE conference in February. That was only six short months ago, but it seems like a lifetime. Many things have changed since then, including current economic conditions and the outlook for the economy and monetary policy. I want to compliment NABE for maintaining its important programming throughout the pandemic. It is a demonstration of perseverance and resilience in the face of extraordinary circumstances, traits exhibited by many households, businesses, and organizations over the past several months. Such resilience is a hallmark of the U.S. economy, and it will prove useful as the economy makes its way to a sustainable recovery. Before we turn to the question and answer part of this session, I’ll give you a brief update on the economic outlook and monetary policy, and touch on the changes to the FOMC’s policy strategy that were announced last week.
    Date: 2020–09–02
  86. By: Jason Allen; Jakub Kastl; Milena Wittwer
    Abstract: Leveraging the fact that in many primary debt issuance markets securities of varying maturities are sold simultaneously, we recover participants' full demand systems by generalizing methods for estimating individual demands from bidding data. The estimated preference parameters allow us to partition primary dealers into two main classes. For the first class, which largely coincides with the largest money market players, we find significant complementarities in their demand for Treasury bills in primary markets, while for the second class, the patterns in their willingness to pay are mixed and time-varying. We present a dealer-client model that captures the interplay between the primary and secondary market to provide a rationale for our findings. We argue that the complementarity likely arises from the large dealers “making markets,” and hence requiring to hold inventory of all securities. Our results are useful both for minimizing the cost of financing of government debt and for optimally implementing financial regulation that is based upon partitioning financial institutions according to their downstream business strategies.
    Keywords: Debt management; Financial markets
    JEL: D44 C14 E58 G12
    Date: 2020–07
  87. By: Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official crossborder finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
    Keywords: International capital flows,disaster response,global financial safety net,bail-outs
    JEL: E42 F33 F34 F35 F36 G01 G20 N1 N2
    Date: 2020
  88. By: Marina Azzimonti; Alessandra Fogli; Fabrizio Perri; Mark Ponder
    Abstract: We develop an ECON-EPI network model to evaluate policies designed to improve health and economic outcomes during a pandemic. Relative to the standard epidemiological SIR set-up, we explicitly model social contacts among individuals and allow for heterogeneity in their number and stability. In addition, we embed the network in a structural economic model describing how contacts generate economic activity. We calibrate it to the New York metro area during the 2020 COVID-19 crisis and show three main results. First, the ECON-EPI network implies patterns of infections that better match the data compared to the standard SIR. The switching during the early phase of the pandemic from unstable to stable contacts is crucial for this result. Second, the model suggests the design of smart policies that reduce infections and at the same time boost economic activity. Third, the model shows that reopening sectors characterized by numerous and unstable contacts (such as large events or schools) too early leads to fast growth of infections.
    JEL: D85 E23 E65 I18
    Date: 2020–08
  89. By: Scott R. Baker; Stephanie G. Johnson; Lorenz Kueng
    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.
    JEL: D11 D12 D13 D14 E21 G11
    Date: 2020–08
  90. By: Lambert, Thomas
    Abstract: There is a great deal of literature on the role of capital investment in the economic transition from feudalism to capitalism. Investment in capital and new technology and agricultural techniques has not been considered worthwhile in a medieval economy because of a lack of strong peasant property rights and no incentive on the part of lords and barons to lend money to peasant farmers. Therefore, the medieval economy and standards of living at that time have been characterized as non-dynamic and static due to insufficient investment in innovative techniques and technology. The capital investment undertaken typically would have been in livestock, homes, or public investment in canals, bridges, and roads, although investment in the latter would have been hindered by a fragmented political system of fiefdoms and lack of a unified national government. This paper attempts to demonstrate empirically that a productive and sufficient level of investment out of accumulated capital income, taxation, and rents does not have a real impact on economic per capita growth until the 1600s in Britain perhaps due to the beginning of a strong, central government as well as to the level of capital, tax, and land income achieving an adequate threshold amount and providing some type of investment multiplier effect. A high wage share as a portion of national income also appears to be associated with higher investment levels. The types of investment, threshold amounts of investment out of profits and rents, and the price of labor seem to matter when it comes to raising GDP per capita to higher levels.
    Keywords: Baran Ratio, Brenner Debate, capitalism, Dobb-Sweezy Debate, feudalism, socialism, technology
    JEL: B51 E11 E12 N13
    Date: 2020–06–27
  91. By: Peter Fuleky
    Abstract: I develop a weekly coincident index of economic activity in the State of Hawaii. The purpose of the index is to nowcast the recovery from the COVID-19 induced downturn. The index is the first principal component extracted from 18 daily and weekly state-level time series, it captures about 80% of the variation in the sample, it is available with a four-day lag, and it leads the changes in nonfarm payrolls and the Philadelphia Fed coincident index.
    Keywords: coincident index; principal component analysis; high-frequency data; nowcasting; COVID-19
    JEL: C22 C53 C82 E27
    Date: 2020–09
  92. By: Cortes, Matias (York University, Canada); Tschopp, Jeanne (University of Bern)
    Abstract: Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that shocks that increase concentration will also lead to an increase in wage dispersion between firms. Empirically, we use industry-level data from 14 European countries over the period 1999-2016 and show robust evidence of a positive and statis-tically significant correlation between concentration and between-firm wage inequality, driven by increases in market shares and wages in high productivity firms.
    Keywords: wage inequality, market power, heterogeneous firms, Europe
    JEL: J31 L11 E24
    Date: 2020–07
  93. By: Saadati, Alireza; Honarmandi, Zahra; Zarei, Samira
    Abstract: In this paper, the asymmetric and nonlinear effects of the real exchange rate shocks on different export-oriented businesses, i.e. Petrochemical, Basic Metal, and Mining industries stock indexes, in Tehran Stock Exchange is examined. From the policymakers’ perspective, this idea is theoretically interpreted as a "fear of appreciation" hypothesis that refers to the intervention of central banks in foreign exchange markets to restrict currency appreciation rather than depreciation to defend export competitiveness. To this aim, in addition to the main variables, the monthly time series data of the control variables, i.e. inflation, OPEC oil price, and international sanctions, from 2012:01 to 2020:01 are used. Our findings based on the NARDL approach illustrate that not only have exchange rate shocks significant effects on different stock indexes, but these relationships are asymmetric and nonlinear. Moreover, the results have confirmed the fear of depreciations hypothesis in the export-oriented industries, that means the central bank of Iran tends to pursue the “leaning-against-the-depreciation-wind” policy rather than “leaning-against-the-appreciation-wind” one.
    Keywords: Exchange Rate Shocks, Export-Oriented Industries, fear of depreciation, NARDL Model.
    JEL: C58 E44 F31 G32
    Date: 2020–05–20
  94. By: Salaheddine Soummane (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - AgroParisTech - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Frédéric Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - AgroParisTech - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Julien Lefèvre (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - AgroParisTech - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)
    Abstract: Highlights We calibrate a hybrid dynamic recursive CGE model of Saudi Arabia on original data We acknowledge the Saudi specifics of currency peg and investment stability We explore 3 scenarios of international and domestic energy prices Low global prices affect Saudi GDP little but lower national and public savings Reformed domestic prices restore activity but not national or public savings Abstract We analyse the mid-term macroeconomic challenge to Saudi Arabia of a global low-carbon transition reducing oil revenues, versus the opportunity of national energy reforms. We calibrate a compact, dynamic recursive model of Saudi Arabia on original energy-economy data to explore scenarios. We first assess the consequences of oil prices declining from their levels in the New Policies Scenario (NPS) of the IEA, to their levels in its Sustainable
    Keywords: Administered energy prices,Low-carbon transition,Hybrid energy-economy modelling,Saudi Arabia
    Date: 2019–07
  95. By: Jane E. Ihrig; Zeynep Senyuz; Gretchen C. Weinbach
    Abstract: In this second note, we describe some important influences on the supply of and demand for reserves and how the Fed will need to account for these influences in maintaining an ample quantity of reserves over the long run. These considerations are most relevant in normal times, not in periods in which there are severe strains in financial markets or weakness in economic activity that necessitate aggressive policy actions by the Fed that substantially increase reserves.
    Date: 2020–08–28
  96. By: Teupe, Sebastian
    Abstract: This paper discusses whether John Maynard Keynes' "How to Pay for the War" provided prescriptions for the policies of "financial repression" that were implemented in England, and other countries, following World War II. It focuses on contemporary understandings of inflation which has been identified as a key factor for driving down public debt levels. Keynes has been widely acknowledged as influential in the management of public debt, and "How to Pay for the War" has been cited as proof for a widely held belief in "money illusion", suggesting the possibility of using inflation for driving down real interest rates of public bonds. It seems reasonable to suppose that Keynes' writings were instrumental in translating English monetary experiences of the 1920s and 1930s into expectations of policy makers during and after the Second World War, and thus provide an important explanation for the why and when of "financial repression". The paper argues that Keynes provided only partly ammunition for a policy of "financial repression", and none for using inflation as a "tax gatherer" to the detriment of domestic savers in general. Crediting him as a source for widespread "money illusion" is also out of line with the historical record.
    JEL: B20 E31 H63 N24 N44
    Date: 2020
  97. By: Andrew B. Abel; Stavros Panageas
    Abstract: Social policy to limit interactions can slow the spread of infection, but this benefit comes at the cost of reduced output. We solve an optimal control problem to choose the degree of interaction to maximize an objective function that rewards output and penalizes excess deaths. Optimal policy restricts the degree of interaction—permanently and perhaps substantially—but, surprisingly, not so much as to eradicate the disease. This finding holds regardless of how much weight the objective function places on excess deaths, provided the weight is finite. Complete eradication is optimal only if achieved by science or medicine.
    JEL: C61 E61 I18
    Date: 2020–08
  98. By: Paolo Martellini; Guido Menzio
    Abstract: Declining search frictions generate productivity growth by allowing workers to find jobs for which they are better suited. The return of declining search frictions on productivity varies across different types of workers. For workers who are “jacks of all trades”—in the sense that their productivity is nearly independent from the distance between their skills and the requirements of their job’ declining search frictions lead to minimal productivity growth. For workers who are “masters of one trade”—in the sense that their productivity is very sensitive to the gap between their individual skills and the requirements of their job—declining search frictions lead to fast productivity growth. As predicted by this view, we find that workers in routine occupations have low wage dispersion and growth, while workers in non-routine occupations have high wage dispersion and growth.
    JEL: E24 J24 J31 J64 O47
    Date: 2020–08
  99. By: Hernán D. Seoane
    Abstract: This paper reviews the main theories of interest rate determination and studies the dynamics of the real interest rate in US. Using cointegration techniques we search for equilibrium relationships between the real interest rate, monetary factors and real factors and we study how these relationships change with the policy regimes. We analyze monthly US data since early 20th century and find equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. Moreover, we find that the equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.
    Date: 2020
  100. By: Temel, Tugrul
    Abstract: On the conceptual account, this paper develops a methodology to identify input-output (IO)layers of a targeted sector, drawing on backward and forward multipliers of an IO matrix. On the implementation account, the methodology is applied to a sample of eight countries - China, Japan, India, Russia, Germany, Turkey, UK and USA, which together account for about 60 percent of the world GDP - with a view to characterizing the backward and forward linkages of manufacturing, real estate, wholesale, and accommodation sectors identified by ILO (2020) as key sectors likely to suffer from the highest level of youth unemployment due to the COVID-19 pandemic. New information is generated for the design of informed employment policy interventions to avoid the unemployment projected. The findings show that manufacturing sector, MA2, is vital for all the countries examined, followed by EST and WHS, and that these three sectors need to be coupled with at least one other sectors to capture the external employment effects from the interacting communities (or clusters).
    Keywords: COVID-19; input-output network analysis; employment policy design; China, Japan, Russia, India, Germany, UK, Turkey, USA;
    JEL: E61 F6 F62 O2 O5 O57
    Date: 2020–08–13
  101. By: Chivu, Luminița; Georgescu, George
    Abstract: The extremely fragile balance of the Romanian labor market is severely affected by the crisis caused by the COVID-19 pandemic and by the sudden and almost general deterioration of the macroeconomic context and the business environment. The present study aims to argue that, in times of crisis, such as the current one, the labor market policies need to be varied but also synergistic, in order to stimulate employment and capitalize the potential of each category, so as to contribute to the recovery of the country's macroeconomic and financial framework. Despite the Government's anti-crisis and economic support measures, in the short term, the Romanian labor market is facing the unemployment rate increase, at least in 2020, as a result of the restrictions in many activities, exacerbating the vulnerabilities of the employed population structure described in the study. The analyzes carried out revealed that, in Romania, the crisis affected practically all the members of society, but in a disproportionate manner, the most exposed being the vulnerable groups, namely people in the "gray" or informal area of the economy, those working in the most affected sectors and workers with low qualification, many deprived of the needed protection and social assistance. In the context of efforts to identify ways to reduce the distortions generated by the crisis, the integration of social security systems with social assistance can be a viable solution. As activities resume, the labor market tensions are expected to be mitigated both by labor market-specific measures, including those presented in the study, and at the macroeconomic level, adapted to the post-COVID-19 restructuring of the economy, with the necessary policy support at central and local level, including in terms of employment.
    Keywords: labor market; COVID-19 pandemic; employment; vulnerable groups; protection and social assistance; macroeconomic risks
    JEL: E24 F66 J10 J21 J46 O15
    Date: 2020–06
  102. By: Alfonso Cebreros; Aldo Heffner-Rodríguez; René Livas; Daniela Puggioni
    Abstract: Based on the methodology proposed by Frey and Osborne (2017), we use their estimates for the probability of automation of occupations together with household survey data on the occupational distribution of employment to provide a risk assessment for the threat that automation may pose to the Mexican labor market. We find that almost two thirds of total employment is at high risk of automation; slightly more than half if we only consider employment in the formal sector. We argue that, while these estimates provide a useful benchmark to start thinking about the impact that automation may have on the labor market, they should be interpreted with care as they are solely based on the technical feasibility to automate and do not reflect the economic incentives, or other factors such as the accumulation of human capital through education, to adopt automation technologies.
    Keywords: Automation; Human capital and occupational choice; Labor demand; Organization of production; Robots; Technological change.
    JEL: E24 E26 F16 J21 J23 J24 J62 L23 L86 O33 O38 N16
    Date: 2020–06
  103. By: Saccal, Alessandro
    Abstract: This article derives a twofold Marshall Lerner condition for money demand such that the current account may increase or decrease upon respective decrements or increments in the real exchange rate.
    Keywords: current account; exchange rate; Marshall Lerner condition; money demand; money supply; prices.
    JEL: E12 F13 F41 F52
    Date: 2020–07–03
  104. By: Wojciech Kopczuk; Eric Zwick
    Abstract: Business income constitutes a large and increasing share of income and wealth at the top of the distribution. We discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners, with the focus on closely-held and pass-through firms. These considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code. We discuss the importance of these issues in the US, and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere.
    JEL: D31 D33 E25 H24 H25 H32
    Date: 2020–08
  105. By: Leonardo Burlamaqui; Ernani T. Torres Filho
    Abstract: The COVID-19 crisis paralyzed huge parts of the planet in weeks. It not only infected the population but injected a gargantuan dose of uncertainty into the system. In that regard, as in many others, it is a phenomenon without precedent. As of the time of writing (May-June 2020), we are witnessing, simultaneously, a health crisis, an economic crisis, and a crisis of global governance as well. In the forthcoming months, it could well turn into a set of financial, social, and political crises most governments and international organizations are ill-prepared to handle. In this paper, what concerns us is the financial dimension of the crisis. The paper is divided into four sections. Following the introduction, the second section maps the financial dimension of the pandemic through an extension of Hyman Minsky's financial fragility analysis. The result is a three-pronged analytical framework that encompasses financial fragility, financial instability, and insolvency-triggered asset-liability restructuring processes. These are seen as three distinct but interconnected processes advancing financial fragility. The third section dissects how these three processes have been managed as they have unfolded since March 2020, underlining the key policy interventions and institutional innovations introduced so far, and suggesting further measures for addressing the forthcoming stages of the financial turmoil. The fourth section concludes the paper by pointing out the results as of June 2020 and highlights our intended analytical contribution to Minsky's theoretical framework.
    Keywords: COVID-19 Crisis; Financial Fragilization; Financial Instability; Asset-Liabilities Restructuring; Minsky
    JEL: E02 G01 G18 G20
    Date: 2020–09
  106. By: Daniela Costa; Maria Jose Rodriguez
    Abstract: This paper provides evidence on migration of workers within the European Union 15 (EU15), disaggregated by occupation. Using the European Labor Force Survey from 1983-2013, we find that in high-educated occupations, EU15 workers move to EU15 countries where their occupation is relatively more abundant among natives. This is at odds with traditional models of migration. We argue that a different framework is more suitable to analyze migration flows across highly educated high-income countries. In particular, we develop a model with external economies of scale that generates agglomeration of highly educated labor. The main implication of the model is that workers of high-educated occupations migrate to countries that are abundant in labor of their same occupation, in accordance with the data.
    Keywords: North-North Migration, Occupation, Agglomeration, European Union
    JEL: F12 F15 F22 E2
    Date: 2020–06
  107. By: Jan J. J. Groen; Michael Nattinger; Adam I. Noble
    Abstract: We propose measures of financial market stress for forty-six countries and regions across the world. Our measures indicate that worldwide financial market stresses rose significantly in March following the widespread economic shutdowns in the wake of the COVID-19 pandemic. However, hardly anywhere in the world did these March peaks in financial stresses reach those seen during the trough of the 2007-09 Global Financial Crisis. Since March, financial market conditions normalized rapidly with financial market stresses around average levels. We also show that our financial stress measures have predictive power for the near-term economic outlook across most parts of the world, with the exception of China. A structural Bayesian VAR analysis indicates that historically, financial stress shocks, irrespective of the source of the shock, have significant impact on global economic activity, but in particular that emerging market economies are usually hit more severely than advanced economies.
    Keywords: financial markets; financial stress indices; emerging markets; advanced economies; SVAR
    JEL: C32 C51 E44 F30 F65
    Date: 2020–09–04
  108. By: Robert Blecker (Department of Economics, American University); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: Emiliano Libman's constructive comments on our recent book, Heterodox Macroeconomics: Models of Demand, Distribution and Growth (HM), raise three main points of contention: the suitability of single-sector/single-technique (as opposed to multi-sector/multi-technique) models; the appropriate choice of production function; and the distinction between limit cycles and closed orbits as representations of Goodwinian dynamics. In this reply, we respond to Libman's critique in a manner that is designed to develop his arguments into a useful addendum to our book. In so doing, we hope that this exchange will engage interested students and other readers in issues and avenues of inquiry that lie beyond some of the first-pass simpli cations in HM.
    Keywords: Choice of technique, production functions, Goodwin cycles, multi-sectoral models, technological change, factor substitution
    JEL: E11 E12 O33 O41 B51 D24
    Date: 2020–09
  109. By: Rodriguez Maria Jose
    Abstract: This paper studies the behavior of investment during demographic transitions. In particular, I focus on the period where the working age to population ratio reaches its maximum, namely the demographic window. I document that in Europe, Asia, and Oceania investment rates are higher 15 years before and during the window than in other periods, whereas in Latin America they are lower. To understand the relation between investment and a demographic window, I build an overlapping generations model with demographic change and variable degree of financial openness. Within this framework, I conduct several exercises and counterfactuals involving potential drivers of the investment behavior. I find that the demographic behavior in conjunction with the region-specific financial openness can explain the main pattern of investment for the demographic window in Latin America vis-a-vis Europe and Asia.
    Keywords: Investment;Demographic Window;Latin America
    JEL: F21 E22 J10 O54 F41
    Date: 2019–10
  110. By: Leiashvily, Paata
    Abstract: In this article, the problem of self-organization of economic processes in conditions of perfect competition, based on the interaction of individual and social economic values and market prices, is considered. On the basis of dialectical analysis, the deep internal unity of production and consumption, supply and demand, utility and costs, and other categories that determine the functional closedness and integrity of economic system as a necessary condition to understand the formation process of a macroeconomic order from microeconomic chaos is shown. A new understanding of market processes' self-regulation mechanism and economic optimization on the methodological basis of dialectics is given. The proposed theoretical explanation of economic processes makes it possible to create more adequate applied economic models and develop an effective economic policy.
    Keywords: dialectics, self-regulation, equilibrium, economic value, market prices, optimality criteria.
    JEL: A10 B40 D50
    Date: 2020–05
  111. By: Bardt, Hubertus; Kolev, Galina V.
    Abstract: Die amerikanischen Wahlen im November 2020 werden nicht nur für die USA selbst, sondern auch für Europa und Deutschland von hoher Bedeutung sein. Während die transatlantische Kooperation unter der aktuellen Administration gelitten hat, besteht mit einem Regierungswechsel die Chance auf einen Neuanfang. In der Wirtschaftspolitik unterscheiden sich die beiden Kandidaten teils fundamental. Besonders in der Klima- und der Handelspolitik sind konkrete Auswirkungen auf die globale Politik zu erwarten, die für Europa von hoher Bedeutung sind. In der Klimapolitik wäre von einem Präsident Biden die Rückkehr zum Pariser Klimaabkommen zu erwarten. Auch die inländische Klimapolitik würde sich verschärfen. Eine Bepreisung von Emissionen, die analog zum Emissionshandel in Europa eine Annäherung der Wettbewerbsbedingungen bewirken könnte, ist aber nicht wahrscheinlich und taucht im Wahlprogramm der Demokraten nicht auf. Auch in der Handelspolitik würde ein Regierungswechsel Veränderungen mit sich bringen, obwohl das Programm der Demokraten stark protektionistisch geprägt ist. Dies würde vor allem im Konflikt mit China deutlich bleiben. Doch dürfte der Ansatz gegenüber der EU stärker kooperativer ausgerichtet sein. Chancen bestehen zudem in der Sicherung der multilateralen Handelsordnung, da eine größere Bereitschaft zur Zusammenarbeit und zur Regelbindung vorhanden ist als bei der gegenwärtigen Regierung.
    JEL: E6 F13 D72
    Date: 2020
  112. By: Simplice A. Asongu (Yaounde, Cameroon); Mushfiqur Rahman (University of Wales, London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Mohamed Haffar (University of Bradford, Bradford, UK)
    Abstract: This study investigates how enhancing information and communication technology (ICT) affects value added across sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. The following findings are established. First, the enhancement of mobile phone and internet penetrations respectively have net negative effects on value added to the agricultural and manufacturing sectors.Second, enhancing ICT (i.e. mobile phone penetration and internet penetration) overwhelmingly has positive net effects on value added to the service sector. From an extended analysis, enhancing ICT in the agricultural and manufacturing sectors should exceed certain thresholds for value added, notably: 114.375 of mobile phone penetration per 100 people for added value in the agricultural sector and 22.625 of internet penetration per 100 people for added value in the manufacturing sector.
    Keywords: Economic Output; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  113. By: Jakhotiya, Girish
    Abstract: COVID-19 has unexpectedly brought out the structural and cyclical flaws existing in many economies. India is certainly one of them. Till recently, India was a global engine of economic growth and prosperity. It was next to China on the parameter of ‘rate of growth in GDP’. Being the biggest democratic country, which has been carrying the baggage of poverty, illiteracy, systemic corruption and casteism, India is also a great matter of socio-economic analysis for many researchers world-wide. Before the Corona began, Indian economy was struggling with growing unemployment, crony capitalism, stagnation in the rural economy, serious inefficiency in the banking sector and an overall sluggishness in most of its sectors. This struggle is basically a result of structural flaws in this economy, which were not corrected through pragmatic economic reforms. The pandemic seriously added to the woes of Indian people, especially the poor. This paper attempts to summarily present the impact of COVID-19 on Indian economy in the background of the same impact on global economy. The paper presents various remedies to not only face COVID-19 but also remove some of the structural flaws. It is a humble request on my part that the readers should assess the present Indian condition, keeping in mind that this country is struggling on two fronts simultaneously viz. her old legacies and the latest pandemic.
    Keywords: Indian Economy, COVID-19, Global Economy, Eco-System, MSMEs, Agriculture, Service Sector, Manufacturing Sector, Banking & Insurance Sector
    JEL: E2 E24
    Date: 2020–06–30
  114. By: Alexandr Kopytov; Nikolai Roussanov; Mathieu Taschereau-Dumouchel
    Abstract: The real price of recreation goods and services has fallen dramatically over the last century. At the same time, hours per worker have also been on a steady decline. As recreation goods make leisure time more enjoyable, we investigate if the fall in their price has contributed to the decline in work hours. Using aggregate data from OECD countries, as well as disaggregated data from the United States, we provide evidence that the two are strongly related. To identify the effect of recreation prices on hours worked, we use variation in the bundle of recreational goods across demographic groups to instrument for the changing price of leisure faced by these groups over time. We then construct a macroeconomic model with general preferences that allows for trending relative prices and work hours along a balanced growth path. We estimate the model and find that a large part of the decline in hours worked can be explained by the declining price of leisure. In contrast, we find mixed evidence that higher wages contributed to the decline in hours worked over the last several decades.
    JEL: E24 J22 J32
    Date: 2020–08
  115. By: Costa-Font, Joan; Zigante, Valentina
    Abstract: The design of public subsidies for long-term care (LTC) programmes to support frail, elderly individuals in Europe is subject to both tight budget constraints and increasing demand preassures for care. However, what helps overcoming the constraints that modify LTC entitlements? We provide a unifying explanation of the conditions that facilitate the modifcation of public fnancial entitlements to LTC. We build on the concept of ‘implicit partnerships’, an implicit (or ‘silent’) agreement, encompassing the fnancial co-participation of both public funders, and families either by both allocating time and/or fnancial resources to caregiving. Next, we provide suggestive evidence of policy reforms modifying public entitlements in seven European countries which can be classifed as either ‘implicit user partnerships’ or ‘implicit caregiver partnerships’. Finally, we show that taxpayers attitudes mirror the specifc type of implicit partnership each country has adopted. Hence, we conclude that the modifcation of long-term care entitlements require the formation of some type of ‘implicit partnership’.
    Keywords: implicit partnership; user partnership; caregiver partnership; partial insurance; cost sharing; long-term care; financial sustainability; family; Europe; Springer
    JEL: E6
    Date: 2020–09–07
  116. By: Tomić, Bojan
    Abstract: Cryptocurrencies represent a new type of digital asset that cannot be linked to the framework of fundamental and systematic factors of existing financial instruments of the traditional capital market. Due to the lack of strictly defined fundamental indicators, supported by the results of research by the academic community, considering cryptocurrencies as investment opportunities can put investors in a subordinate position, a situation of complete uncertainty. Cryptocurrencies and their entire technical infrastructure are still a kind of unknown to the general public. Due to this, but also the lack of a regulatory framework, investors have to rely on sometimes uncertain information gathered through various media platforms. However, regardless of the type of assets and the mentioned shortcomings, when constructing a portfolio, investors should consider the dynamics of returns of potential components of the portfolio in order to identify and quantify the assumed investment risk and define the expected return. Cryptocurrencies are based on the idea of decentralization initially introduced by bitcoin blockchain technology and as such have their own historical sequence of origin. Since bitcoin is the first digital currency based on asymmetric cryptography, the change in its value can serve as a leading indicator of the movement of the cryptocurrency market as a whole. Accordingly, this paper will formally identify and describe the performance of the cryptocurrency portfolio with different optimization goals taking into account the assumption of a significant systematic impact of bitcoin cryptocurrency on the dynamics of the value of the aggregate secondary cryptocurrency market. For this purpose, six optimization targets will be formed: MinVar, MinCVaR, MaxSR, MaxSTARR, MaxUT and MaxMean. The results of the formed portfolios will be compared with the results of portfolios with the same allocation objectives, but which include a limitation on the impact of BTC as a systematic factor. The results suggest that by controlling the exposure by factor, better overall portfolio performance can be achieved through higher returns and Sharpe Ratio in four of the six implemented optimization strategies, while in terms of absolute risk measure five out of six portfolios achieved lower overall risk. Also, the obtained results confirm that the bitcoin transaction system plays a major role in defining the future movement of the value of the secondary cryptocurrency market.
    Keywords: cryptocurrencies, portfolio choice, factor investing, risk management, portfolio return
    JEL: E49 G11 P45
    Date: 2020–05–15
  117. By: Diego Rojas; Juan Estrada; Kim Huynh; David T. Jacho-Chávez
    Abstract: The efficient distribution of bank notes is a first-order responsibility of central banks. We study the distribution patterns of bank notes with an administrative dataset from the Bank of Canada's Currency Information Management Strategy. The single note inspection procedure generates a sample of 900 million bank notes in which we can trace the length of the stay of a banknote in the market. We define the duration of the bank note circulation cycle as beginning on the date the note is first shipped by the Bank of Canada to a financial institution and ending when it is returned to the Bank of Canada. In addition, we provide information regarding where the bank note is shipped and later received, as well as the physical fitness of the bank note upon return to the Bank of Canada's distribution centres. K-prototype clustering classifies bank notes into types. A hazard model estimates the duration in circulation of bank notes based on their clusters and characteristics. An adaptive elastic net provides an algorithm for dimension reduction. It is found that while the distribution of the duration is affected by fitness measures, those effects are negligible when compared with the influence exerted by the clusters related to bank note denominations.
    Keywords: Bank notes; Econometric and statistical methods; Payment clearing and settlement systems
    JEL: E51 C81
    Date: 2020–08

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.