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on Macroeconomics |
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Issue of 2020‒09‒28
118 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Andersson, Fredrik N.G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | Negative interest rates were once seen as impossible outside the realm of economic theory. However, several central banks have recently adopted negative policy rates. The Federal Reserve is coming under increasing pressure to follow suit in the wake of the coronavirus crisis. This paper investigates the actual effects of negative interest rates using the Swedish experience from 2015 to 2019. The Swedish Riksbank was one of the first central banks to introduce a negative interest rate in 2015 and the first central bank to abandon a negative rate in 2019. We find that negative rates had a modest effect on consumer price inflation due to globalization, but significant effects on the exchange rate and domestic asset prices, thus fostering financial imbalances. We conclude by discussing the implications of our results for larger economies such as the United States. |
| Keywords: | Monetary policy; inflation targeting; Sweden; United States; negative interest rates; forward guidance; quantitative easing |
| JEL: | D78 E40 E43 E47 E50 E52 E65 |
| Date: | 2020–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2020_015&r=all |
| By: | Jeffrey R. Campbell; Thomas B. King; Anna Orlik; Rebecca Zarutskie |
| Abstract: | We review two nonstandard uses of the policy rate tool, which provide additional stimulus when interest rates are close to or at the effective lower bound—forward guidance and negative interest rate policy. In particular, we survey the use of these tools since the star otf the Great Recession, review evidence of their effectiveness, and discuss key considerations that confront monetary policymakers while using them. |
| Keywords: | Monetary policy; Effective lower bound; Forward guidance; Central bank communication; Negative interest rate policy |
| JEL: | E32 E43 E44 E52 E58 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-70&r=all |
| By: | Fernando M. Duarte; Benjamin K. Johannsen; Leonardo Melosi; Taisuke Nakata |
| Abstract: | We analyze the framework for monetary policy in view of the effective lower bound (ELB). We find that the ELB is likely to bind in most future recessions and propose some ways that theoretical models imply that the framework could be strengthened. We also discuss ways that commitment strategies, which are not part of the framework, may improve economic outcomes. These policies can suffer from a time-inconsistency problem, which we analyze. |
| Keywords: | Monetary policy; Effective lower bound; Forward guidance; Balance sheet policies; Commitment policies; Time inconsistency |
| JEL: | E31 E32 E52 E58 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-67&r=all |
| By: | Jonas E. Arias; Martin Bodenstein; Hess Chung; Thorsten Drautzburg; Andrea Raffo |
| Abstract: | Several structural developments in the U.S. economy—including lower neutral interest rates and a flatter Phillips curve—have challenged the ability of the current monetary policy framework to deliver on the Federal Open Market Committee’s (FOMC) dual-mandate goals. This paper explores whether makeup strategies, in which policymakers seek to stabilize average inflation around the inflation target over some horizon, could strengthen the FOMC’s ability to fulfill its dual mandate. The quantitative analysis discussed here suggests that credible makeup strategies may provide some moderate stabilization gains. The practical implementation of these strategies, however, faces a number of challenges that would have to be surmounted for the full benefit of these strategies to be realized. |
| Keywords: | Inflation stabilization; Effective lower bound; Taylor rule; Alternative monetary policy strategies; Monetary policy communication |
| JEL: | E31 E52 E58 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-68&r=all |
| By: | Andrea Ajello; Isabel Cairó; Vasco Curdia; Thomas A. Lubik; Albert Queraltó |
| Abstract: | Some key structural features of the U.S. economy appear to have changed in the recent decades, making the conduct of monetary policy more challenging. In particular, there is high uncertainty about the levels of the natural rate of interest and unemployment as well as about the effect of economic activity on inflation. At the same time, a prolonged period of below-target inflation has raised concerns about the unanchoring of inflation expectations at levels below the Federal Open Market Committee’s inflation target. In addition, a low natural rate of interest increases the probability of hitting the effective lower bound during a downturn. This paper studies how these factors complicate the attainment of the objectives specified in the Federal Reserve’s dual mandate in the context of a DSGE (dynamic stochastic general equilibrium) model, taking into account risk-management considerations. We find that these challenges may warrant pursuing more accommodative policy than would be desirable otherwise. However, such accommodative policy could be associated with concerns about risks to financial markets. |
| Keywords: | U.S. monetary policy; Optimal policy; Discretion |
| JEL: | E32 E52 E58 E61 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-66&r=all |
| By: | Ricardo J. Caballero; Alp Simsek |
| Abstract: | We analyze optimal monetary policy when asset prices influence aggregate demand with a lag (as is well documented). In this context, as long as the central bank's main objective is to minimize the output gap, the central bank optimally induces asset price overshooting in response to the emergence of a negative output gap. In fact, even if there is no output gap in the present but the central bank anticipates a weak recovery dragged down by insufficient demand, the optimal policy is to preemptively support asset prices today. This support is stronger if the acute phase of the recession is expected to be short lived. These dynamic aspects of optimal policy give rise to potentially large temporary gaps between the performance of financial markets and the real economy. One vivid example of this situation is the wide disconnect between the main stock market indices and the state of the real economy in the U.S. following the Fed's powerful response to the Covid-19 shock. |
| JEL: | E21 E32 E43 E44 E52 G12 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27712&r=all |
| By: | William White (C D Howe Institute) |
| Abstract: | While recent reforms are welcome in many ways, there are still significant reasons to doubt that the post-crisis tightening of international financial regulation guarantees future financial and economic stability. The most important reason is that the reforms have focused too narrowly on ensuring that an unstable financial sector will not aggravate downturns by restricting the supply of credit. More attention needs to be paid to ensuring that an overly exuberant financial system does not weaken other parts of the economy by encouraging a rapid buildup of debt during upturns. Some combination of time-varying monetary and regulatory policies (a macrofinancial stability framework) will be required to do this. In addition, many of the individual regulatory measures taken to date, both macroprudential and microprudential, have shortcomings. Their coherence as a package has also been questioned. |
| Keywords: | Too big to fail, financial safety, financial reform, financial crises, implicit subsidies, political economy |
| JEL: | E02 E32 E42 E52 E58 |
| Date: | 2020–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp131&r=all |
| By: | Angelo Ranaldo; Benedikt Ballensiefen; Hannah Winterberg |
| Abstract: | We analyze and quantify how two forms of segmentation lead to the monetary policy disconnect. To do this, we study the monetary policy transmission through the main short-term funding market, the repurchase agreement (repo) market. First, the lending rates of banks with access to the central bank's deposit facility are less responsive to the monetary policy target rate. Second, rates of repos secured by assets eligible Quantitative Easing programs diverge more from the target rate. We also find that both forms of segmentation add to one another, suggesting an amplifying effect in weakening monetary policy transmission. |
| Keywords: | Interest rate pass-through, Monetary policy, Market segmentation, Short-term interest rates, Repo |
| JEL: | E40 E43 E50 E52 E58 G18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2020:03&r=all |
| By: | Dario Caldara; Etienne Gagnon; Enrique Martínez-García; Christopher J. Neely |
| Abstract: | We review macroeconomic performance over the period since the Global Financial Crisis and the challenges in the pursuit of the Federal Reserve’s dual mandate. We characterize the use of forward guidance and balance sheet policies after the federal funds rate reached the effective lower bound. We also review the evidence on the efficacy of these tools and consider whether policymakers might have used them more forcefully. Finally, we examine the post-crisis experience of other major central banks with these policy tools. |
| Keywords: | Global Financial Crisis 2007–09; Monetary policy; Effective lower bound; Structural changes; Forward guidance; Balance sheet policies |
| JEL: | E31 E32 E52 E58 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-65&r=all |
| By: | Lina El-Jahel (University of Auckland Business School); Robert MacCulloch (University of Auckland Business School); Hamed Shafiee (New Zealand Productivity Commission) |
| Abstract: | Models on the optimal design of monetary policy typically rely on a social welfare loss function defined over inflation and unemployment. Our estimates of such a function use measures of two different dimensions of well-being that have been distinguished by recent research. The first is Cantril’s ‘ladder-of-life’ question. The second captures the emotional quality of everyday experiences. Our Gallup World Poll sample includes one million people in 138 nations over 12 years. Unemployment and inflation reduce well-being, although the ratio of the size of the effect varies dramatically between 2 and 4.6, depending upon which dimension of well-being is chosen. |
| Keywords: | Social welfare; well-being; inflation; unemployment. |
| JEL: | E24 E31 E52 I31 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:20_06&r=all |
| By: | Dario Caldara; Etienne Gagnon; Enrique Martínez-García; Christopher J. Neely |
| Abstract: | The analysis in this paper was presented to the Federal Open Market Committee as background for its discussion of the Federal Reserve’s review of monetary policy strategy, tools, and communication practices. The Committee discussed issues related to the review at five consecutive meetings from July 2019 to January 2020. References to the FOMC’s current framework for monetary policy refer to the framework articulated in the Statement on Longer-Run Goals and Monetary Policy Strategy first issued in January 2012 and reaffirmed each January, most recently in January 2019. |
| Keywords: | Global Financial Crisis 2007–09; monetary policy; effective lower bound; structural changes; forward guidance; balance sheet policies |
| JEL: | E31 E32 E52 E58 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88673&r=all |
| By: | Mark A. Carlson; Stefania D'Amico; Cristina Fuentes-Albero; Bernd Schlusche; Paul R. Wood |
| Abstract: | This paper considers various ways of using balance sheet policy (BSP) to provide monetary policy stimulus, including the BSPs put in place by the Federal Reserve in the wake of the Global Financial Crisis, the choice between fixed-size and flow-based asset purchase programs, policies targeting interest rate levels rather than the quantity of asset purchases, and programs aimed at increasing more direct lending to households and firms. For each of these BSP options, we evaluate benefits and costs. We conclude by observing that BSPs’ relative effectiveness and thus optimal configuration will depend on the shocks affecting the economy. Consequently, it would be valuable for the Federal Reserve to keep a variety of tools at its disposal and employ the ones that best fit the situation that it faces. |
| Keywords: | Balance sheet policy; Quantitative easing; Yield curve control; Credit easing; Central bank lending authority |
| JEL: | E43 E44 E58 G12 G21 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-71&r=all |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University) |
| Abstract: | There is a never-ending quest for a stable economy with full employment and low inflation. Economists have suggested and policymakers have experimented with different fiscal and monetary policy regimes since at least the beginning of the industrial revolution. In this paper, we study Swedish stabilization policies through six policy regimes between 1873 and 2019. We focus on discretionary stabilization policies by estimating policy shocks. We then explore how Swedish stabilization policies have evolved over time through these shocks: how different institutional setups affected the policies and how policymakers responded to key economic events such as financial crises and wars. |
| Keywords: | monetary policy; fiscal policy; policy shocks; stabilization policies: financial crisis |
| JEL: | E42 E43 E52 E58 E62 E65 |
| Date: | 2020–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2020_016&r=all |
| By: | Matthias Burgert; Werner Roeger; Janos Varga; Jan in 't Veld; Lukas Vogel |
| Abstract: | This paper presents the structure and simulation properties of a core version of QUEST, an open-economy New Keynesian DSGE model developed and maintained by the European Commission. The multi-region model version with tradable goods, non-tradable goods and housing includes the euro area (EA), the nonEA EU plus the UK, the United States, Japan, Emerging Asia, and the rest of the world. The paper presents simulation results for a series of goods, factor, financial market, and policy shocks to illustrate how the structure of the model and its theoretical underpinnings shape the transmission of shocks to real and financial variables of the domestic economy and international spillover. In particular, the paper shows impulse responses for monetary policy, consumption, risk premia, productivity, credit, government spending, unconventional monetary policy and tariff shocks, and characterises their impact on real GDP, domestic demand components, trade, external balances, wages, employment, price levels, relative prices, interest rates, and public finances. While the scenarios are illustrative, they reflect important elements of the Global recession and the EA crisis (global risk shocks, private sector demand shocks and deleveraging) and of policy responses (fiscal policy, unconventional monetary policy) and challenges (protectionism) in recent years. In view of the macroeconomic conditions during this period, the paper shows simulations for an environment in which the zero lower bound on monetary policy is binding in addition to simulations under standard monetary policy. |
| JEL: | E37 E62 F47 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:126&r=all |
| By: | Hess Chung; Brian M. Doyle; James Hebden; Michael Siemer |
| Abstract: | We consider three ways that a monetary policy framework may employ a range for inflation outcomes: (1) ranges that acknowledge uncertainty about inflation outcomes (uncertainty ranges), (2) ranges that define the scope for intentional deviations of inflation from its target (operational ranges), and (3) ranges over which monetary policy will not react to inflation deviations (indifference ranges). After defining these three ranges, we highlight a number of costs and benefits associated with each. Our discussion of the indifference range is accompanied by simulations from the FRB/US model, illustrating the potential for long-term inflation expectations to drift within the range. |
| Keywords: | Forward guidance; Monetary policy |
| JEL: | E31 E52 E58 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-75&r=all |
| By: | Lydia Cox (Harvard University); Gernot J. MŸller (University of Tuebingen and CEPR); Ernesto Pasten (Central Bank of Chile and Toulouse School of Economics); Raphael Schoenle (Brandeis University, Cleveland Fed, and CEPR); Michael Weber (University of Chicago - Booth School of Business and NBER) |
| Abstract: | ÒBig G" typically refers to aggregate government spending on a homogeneous good. In this paper, we open up this construct by analyzing the entire universe of procurement contracts of the US government and establish five facts. First, government spending is granular, that is, it is concentrated in relatively few firms and sectors. Second, relative to private expenditures its composition is biased. Third, procurement contracts are short-lived. Fourth, idiosyncratic variation dominates the fluctuation of spending. Last, government spending is concentrated in sectors with relatively sticky prices. Accounting for these facts within a stylized New Keynesian model offers new insights into the fiscal transmission mechanism: fiscal shocks hardly impact inflation, little crowding out of private expenditure exists, and the multiplier tends to be larger compared to a one-sector benchmark aligning the model with the empirical evidence. |
| Keywords: | government spending, federal procurement, granularity, sectoral heterogeneity, fiscal policy transmission, monetary policy |
| JEL: | E62 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-36&r=all |
| By: | Edward J. Kane (Boston College) |
| Abstract: | Dodd-Frank is an example of counterfeit reform. It is designed principally to benefit very big banks and it has helped these banks to increase their market share greatly during the last 10 years. The Act provides lesser and contradictory forms of costs and comfort to smaller US bankers and taxpayers, foreign bankers (especially the managers of Deutsche Bank), and foreign governments. Small bankers and taxpayers are encouraged to believe that the 2007-2009 US rescue of the world’s biggest banks was a one-time maneuver. But an opposite message is sent through the press as (with great fanfare) the industry absolves and congratulates ex-officeholders: (1) for having transferred massive amounts of subsidized support not just to stakeholders in US megabanks, but also to European bankers and governments, and (2) for keeping the subsidies flowing long past the panic’s expiry date. Genuine reform will require changes in fraud laws and an effort to post on a continuing basis the value of the safety-net subsidies individual megabanks enjoy. |
| Keywords: | Too big to fail, financial safety, financial reform, financial crises, implicit subsidies, political economy |
| JEL: | E02 E32 E42 E52 E58 |
| Date: | 2020–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp130&r=all |
| By: | Goodness C. Aye (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | The study examines the effect of fiscal and monetary policies on economic activities in South Africa while attempting to identify the role of uncertainty. The study utilized quarterly time series data using the variables of income tax, consumption tax, capital tax, and government expenditure to measure fiscal policy uncertainty while interest and inflation rate variables were used to measure monetary policy uncertainty. Also, real gross domestic product, real consumption, real investment, and employment were used to measure economic activities. The partial least squares structural equation model (PLS-SEM) was used for analysis and result presented for measurement and structural models. Results revealed the existence of policy uncertainty in the South African economy which tends to reduce the level of economic activity as uncertainty increases. This result informs of the need for policy makers to minimally reduce uncertainties for both fiscal and monetary policies for the economy to improve. |
| Keywords: | Policy uncertainty, fiscal policy, monetary policy, economic activity, PLS-SEM |
| JEL: | C32 E32 E52 H32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202082&r=all |
| By: | Qian Chen; Christoffer Koch; Gary Richardson; Padma Sharma |
| 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. |
| Keywords: | Payments crisis; Money and banking; Depository institutions; Bank suspension; Synthetic control; Bayesian inference |
| JEL: | E51 E52 E58 G18 G21 |
| Date: | 2020–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:88700&r=all |
| By: | Martin Baumgaertner (THM Business School) |
| Abstract: | This paper shows that uncertainty has an impact on the effectiveness of monetary policy shocks. As uncertainty increases, so does the risk that a restrictive forward guidance shock will increase rather than decrease stock prices. This effect can be seen not only in high-frequency variables, but also in VAR models with external instruments. The results suggest that uncertainty is an alternative approach to explain the phenomena previously known as "information shock" and should therefore receive more attention in monetary policy measures. |
| Keywords: | Uncertainty, High-Frequency Identication, Structural VAR, ECB |
| JEL: | E44 E52 E58 G14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202041&r=all |
| By: | Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya, West Bengal) |
| Abstract: | Economists of Austrian School think that a few commodities (ultimately gold and silver) emerged as mediums of exchange out of the barter system. They think if money were commodity-money, only then exchanges will be done smoothly without causing any adverse effect on the economy. The supply of any amount of fiat-money proves to be over-supply of money, as no extra commodity is created corresponding to the creation of the fiat-money. Increase in fiat money reduces the value of the money and the price of commodities rises. They think, that to be able to spend more than its tax-receipts can support, the government will allow the central bank to fraudulently increase fiat-money. Austrian economists also think that the central bank (CB) allows the commercial banks to create credit-money. They think the government and the central bank jointly inflate (increase) the supply of fiat-money. This causes inflationary pressure on the economy and leads the economy to cycles of recessions. So, they prescribe that the government and the CB should be deprived of their monopoly power to create money and that only private banks should be allowed to create money. They think that private bankers will not increase supply of money to that extent that can harm the stability of money and the Consumer Price Index. The Austrian economists suggest how the private bankers will create money and how the people will accept or reject any money to hold. They argue that private banks will manage their own affairs if they were left without any external interference. The purpose of this paper is to show that the alternative processes suggested by the Austrian School of Economists are very much impractical and detrimental to the economy. In their private banking system, different banks will issue notes of different denominations. People will have to be always on alert to see which money becomes more stable than other moneys. Private Banks will also have to remain always on guard lest their money is devalued in competition to other banks? moneys. There is no guarantee that no private bank will fall. Thus, both private banks and the people will be puzzled in deciding what policy or action will be the best choice for keeping the value of their money stable or which money they should hold so that they do not face any future devaluation or any bank-failure. Therefore, the private banking system will lead to uncertainty and complete chaos in the monetary and financial systems. |
| Keywords: | Fractional reserve free banking, Ma, Mb, Commodity credit, Circulation credit, Fiduciary media, Abolition of Central Bank, Mal-investment, unemployment, concurrent currencies, boom-bust cycle, bunch of commodity reserve standard, ?a collection of raw material prices? standard, sound money, stable money, private banking |
| JEL: | B53 E52 E62 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:10613032&r=all |
| By: | Moritz Schularick; Lucas ter Steege; Felix Ward |
| Abstract: | Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies the state-dependent effects of monetary policy on financial stability. Based on the near-universe of advanced economy financial cycles since the 19th century, we show that discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them. |
| Keywords: | financial crises, instrumental variable, open economy trilemma, local projections |
| JEL: | E44 E50 G01 G15 N10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8484&r=all |
| By: | Richard K. Crump; Christopher J. Nekarda; Nicolas Petrosky-Nadeau |
| Abstract: | This paper discusses various concepts of unemployment rate benchmarks that are frequently used by policymakers for assessing the current state of the economy as it relates to the pursuit of both price stability and maximum employment. In particular, we propose two broad categories of unemployment rate benchmarks: (1) a longer-run unemployment rate expected to prevail after adjusting to business cycle shocks and (2) a stable-price unemployment rate tied to inflationary pressures. We describes how various existing measures used as benchmark rates fit within this taxonomy with the goal of facilitating the use of a common set of terms for assessments of the current state of the economy and deliberations among policymakers. |
| Keywords: | Labor market; Monetary policy; Unemployment; Business cycles |
| JEL: | E24 E32 J60 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-72&r=all |
| By: | José Garcia Montalvo; Marta Reynal-Querol |
| Abstract: | We use data from a a large Spanish personal finance management fintech to have a first look at the heterogeneous effects of the COVID-19 on spending. We show a large reduction on spending since mid-March, coinciding with the shutdown of the economy and the strict confinement of population. Since the end of April the is a recovery of spending although, by the end of June, it is still 20% below the level of the previous year. Opposite to what has been observed in other countries, the recovery of spending is not more intense in low-income families than in their high-income counterparts. However, there is some evidence of differences in the intensity of rebound by age and account balance. This suggest differences in the intensity of government benefits for low-income families and financial difficulties for low-liquidity families. |
| Keywords: | spending, income, liquidity, COVID-19, administrative data, high frequency |
| JEL: | E21 E62 E65 H31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1740&r=all |
| By: | Philipp Pfeiffer; Werner Roeger; Jan in ’t Veld |
| Abstract: | This paper uses a macroeconomic model to analyse the transmission of the COVID19-pandemic and its associated lockdown and quantify the stabilising effects of the economic policy response. Our simulations identify firm liquidity problems as crucial for shock propagation and amplification. We then quantify the effects of short-term work allowances and liquidity guarantees - central policy strategies in the European Union. The measures reduce the output loss of COVID19 and its associated lockdown by about one fourth. However, they cannot prevent a sharp but temporary decline in production. |
| JEL: | E32 E6 F45 J08 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:127&r=all |
| By: | Laura Feiveson; Nils Gornemann; Julie L. Hotchkiss; Karel Mertens; Jae W. Sim |
| Abstract: | We show that makeup strategies, such as average inflation targeting and price-level targeting, can be more effective than a flexible inflation targeting strategy in overcoming the obstacles created by the effective lower bound in a heterogeneous agent New Keynesian (HANK) model. We also show that the macroeconomic stabilization benefits from such alternative strategies can be substantially larger in a HANK environment than in a representative agent New Keynesian model. We argue that gains in employment outcomes from switching to an alternative strategy would generate disproportionate improvements for historically disadvantaged households and thus have potentially long-lasting effects on the economic well-being of these groups. |
| Keywords: | Heterogeneous agent New Keynesian model; Representative agent New Keynesian model; Effective lower bound; Inequality; Hand to mouth; Average inflation targeting; Price-level targeting |
| JEL: | D31 E30 E52 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-73&r=all |
| By: | Wang, Gaowang; Zou, Heng-fu |
| Abstract: | We reexamine the optimal fiscal and monetary policy in combined shopping-time monetary models with capital accumulation. Four models are constructed to examine how the production cost of money and the utility from physical capital affect the toolbox of the fiscal and monetary policy. It is shown that the optimality of the Friedman rule hinges on the producing cost of money and capital-in-utility overturns the Chamley-Judd zero capital income taxation theorem. When the production cost of money approaches zero, the Friedman rule is optimal; and when the consumer cares about the utility from capital, the limiting capital income tax is not zero in general. |
| Keywords: | Transactions technology; Inflation tax; Capital income tax; Friedman rule; Capital in utility. |
| JEL: | E40 E52 H20 H21 |
| Date: | 2020–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102753&r=all |
| By: | Michele Lenza; Giorgio E. Primiceri |
| Abstract: | This paper illustrates how to handle a sequence of extreme observations—such as those recorded during the COVID-19 pandemic—when estimating a Vector Autoregression, which is the most popular time-series model in macroeconomics. Our results show that the ad-hoc strategy of dropping these observations may be acceptable for the purpose of parameter estimation. However, disregarding these recent data is inappropriate for forecasting the future evolution of the economy, because it vastly underestimates uncertainty. |
| JEL: | C11 C32 E32 E37 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27771&r=all |
| By: | Terhi Jokipii; Reto Nyffeler; Stéphane Riederer |
| Abstract: | A growing body of literature has highlighted two important caveats to the credit-to-GDP gap as advocated by the Bank for International Settlements (BIS). The first relates to the approach used to normalise credit (i.e., dividing nominal credit by GDP). In this regard, critics have argued that a normalised measure of credit runs the risk of being affected by GDP movements that may or may not be relevant. The second relates to the use of the Hodrick-Prescott (HP) filter to estimate the gap's trend component. In this regard, critics have emphasised several measurement problems associated with using the HP filter. In this paper, we assess the relevance of these critiques for Switzerland. While we find no compelling evidence suggesting a need to deviate from using the BIS gap as a reliable excess credit measure, our findings do emphasise the need to interpret its signal with caution, particularly during long-lasting boom phases and subsequent bust phases. In these situations in particular, authorities should strengthen their decision-making frameworks with additional credit relevant indicators. |
| Keywords: | BIS gap, credit-to-GDP, macroprudential policy, HP filter |
| JEL: | E61 E44 E51 G01 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-19&r=all |
| By: | Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya, West Bengal) |
| Abstract: | The purpose of this paper is to explain MMT?s misconception and misrepresentation relating to money?s origin, character and function, and monetary & fiscal policies. The MMT is a conglomeration of different contradictory and already discarded theories put forward by earlier economists like Credit Theory of A. Mitchell Innes, State Theory or Chartalist Theory of money of Georg Friedrich Knapp, combination of Credit Theory and State Theory of money by Geoffrey Ingham (in his article ?Money is a Social Relation?), Functional Finance theory of Abba Lerner, Money theory of Keynes, Sectoral Balance Approach of Wynne Godley and so on. The MMT developed another unique theory called Consolidation between the Government and the Central Bank. Though MMT claims that it provides an alternative definition of money, yet, in reality, it does not want to explore what money is and how money had been evolved as a medium of exchange. The MMT argues that in the modern capitalist system, money is nothing but a numeraire or an account of credit (debt) and has no intrinsic value of its own and that money is neither pegged to any commodity nor a medium of exchange. The MMT, then, begins to impose this theory (money is a state-issued debt instrument) on the history of evolution of money. Therefore, their explanation does not reflect how money really evolved or what money really is.Other purpose of this paper is to explain that these concepts and theories of MMT are hypothetical and have no connection with how present economy is functioning. If the suggestion, of MMT for increasing budget-deficit without provisioning how the debt (for financing the deficit) will be redeemed, is followed blindly then the economy as a whole will be led to a catastrophe and collapse. This conceptual/ theoretical paper concludes that the MMT became a hotchpotch combination of impractical fanciful and arbitrarily concocted theories. Therefore, the MMT became the most un-intelligible theory. It is not at all functional. So, this exercise (criticism of MMT) is necessary in order to eliminate the negative impacts of the MMT on the theories and practices of economics at large.Another purpose of this paper is to show that the primary cause of most of the economic anomalies is money?s entrance into the economy from its issuer the central bank as debt. This paper suggests that economists should formulate such a theory that will free money from its debt nature. This paper concludes that the very nature of money?s origin as debt (from the central bank to the economy) is a systemic defect and this defect is primarily responsible for continuous economic downturn and frequent recession. However, the MMT does not try to find how this debt-nature of money can be eliminated. On the contrary, the MMT gives emphasis that money (even commodity money) should be recognized as nothing but a debt-instrument.Therefore, this paper implores that some theory should be constructed so that money can originate as ?debt-free?. If money originates free of debt only then sustainable economic growth can be secured. |
| Keywords: | Functional finance, hierarchy of money, Modern Money Theory, credit theory of money, state theory of money, printing money, theory of consolidation between the government and the central bank, full employment, High Powered Money, barter through caste system, sectoral balance approach |
| JEL: | B59 E52 E62 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:10613031&r=all |
| By: | Brenneisen, Jan-Niklas |
| Abstract: | Although it is generally accepted that consumer confidence measures are informative signals about the state of the economy, theoretical macroeconomic models designed for the analysis of monetary policy typically do not provide a role for them. I develop a framework with asymmetric information in which the efficacy of monetary policy can be improved, when the imperfectly informed central banks include confidence measures in their information set. The beneficial welfare effects are quantitatively substantial in both a stylized New Keynesian model with optimal monetary policy and an estimated medium-scale DSGE model. |
| Keywords: | Consumer confidence,Monetary policy,Asymmetric information,Imperfect Information,New Keynesian macroeconomics,DSGE models |
| JEL: | D82 D83 D84 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:202004&r=all |
| By: | Jonathan E. Goldberg; Elizabeth C. Klee; Edward Simpson Prescott; Paul R. Wood |
| Abstract: | This paper examines potential interactions between financial stability and the monetary policy strategies and tools considered in the Federal Reserve’s review of monetary policy strategy, tools, and communication practices. Achieving the Federal Reserve’s goals of full employment and price stability promotes financial stability. A key concern, however, is that with a low equilibrium real interest rate, a low policy rate will be necessary, and in turn, these low rates may contribute to an increase in financial system vulnerabilities. Our analysis suggests that there are typically significant macroeconomic and financial stability benefits of using these tools and strategies, but there are plausible situations in which financial vulnerabilities are such that it would be desirable to limit their use. A clear communications strategy can help minimize financial vulnerabilities. Should vulnerabilities arise, they are often best addressed with macroprudential tools. |
| Keywords: | U.S. monetary policy; Financial stability; Macroprudential policy |
| JEL: | E52 E58 G28 |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-74&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari |
| Abstract: | This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks by Bloom (Econometrica 2009(3): 623-685. doi: 10.3982/ECTA6248). We replicate the results in a narrow sense using Eviews. In a wide sense, we extend his study by working with a smooth transition-VAR framework that allows for business cycle-dependent macroeconomic responses to an uncertainty shock. We find a significantly stronger response of real activity in recessions. Counterfactual simulations point to a greater effectiveness of systematic monetary policy in stabilizing real activity in expansions. |
| Keywords: | uncertainty shocks, nonlinear smooth transition Vector AutoRegressions, generalized impulse response functions, systematic monetary policy |
| JEL: | C32 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8497&r=all |
| By: | Francisco Rivadeneyra; Nellie Zhang |
| Abstract: | This paper presents simulation results for Canada's new large-value payments system: Lynx. We simulate the settlement process of Lynx using a large sample of payments observed in the current system (LVTS), taking the initial level of liquidity as given. We calculate the resulting liquidity usage, the payment delay and the shares of payments settled on a gross or net basis. The behaviour of participants (timing of payment submission) is assumed to remain the same as in LVTS. With an initial liquidity comparable to the collateral amount currently pledged in LVTS ($14.6 billion), Lynx FIFO Bypass would result in 28 minutes of average weighted delay and $17.3 billion of liquidity usage (the sum of intraday maximum net debit positions). Given this configuration, on average, $1.9 billion would be needed to clear non-urgent payments delayed until the end of the day, equivalent to 4.1 percent of payment value and 0.06 percent of volume. Doubling the amount of initial liquidity (to $29.3 billion) would result in 12 minutes of weighted delay. This basic configuration of Lynx requires a higher level of liquidity than LVTS and a plain-vanilla RTGS with pooled liquidity. |
| Keywords: | Financial services; Financial system regulation and policies; Payment clearing and settlement systems |
| JEL: | C5 E4 E42 E5 E58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-9&r=all |
| By: | Christopher D. Carroll; Edmund Crawley; Jiri Slacalek; Matthew N. White |
| Abstract: | To predict the effects of the 2020 U.S. CARES act on consumption, we extend a model that matches responses of households to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during the lockdown, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear when it is lifted. We estimate that, if the lockdown is short-lived, the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. If the lockdown lasts longer, an extension of enhanced unemployment benefits will likely be necessary if consumption spending is to recover. |
| Keywords: | Consumption; Coronavirus; Stimulus |
| JEL: | D83 D84 E21 E32 |
| Date: | 2020–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-77&r=all |
| By: | Harald Badinger (Department of Economics, Vienna University of Economics and Business); Stefan Schiman (Austrian Institute of Economic Research (WIFO)) |
| Abstract: | We propose a novel identification strategy to measure monetary policy in a structural VAR. It is based exclusively on known past policy shocks, which are uncovered from high-frequency data, and does not rely on any theoretical a-priori restrictions. Our empirical analysis for the euro area reveals that interest rate decisions of the ECB surprised financial markets at least fifteen times since 1999. This information is used to restrict the sign and magnitude of the structural residuals of the policy rule equation at these shock dates accordingly. In spite of its utmost agnostic nature, this approach achieves strong identification, suggesting that unexpected ECB decisions have an immediate impact on the short-term money market rate, the narrow money stock, commodity prices, consumer prices and the Euro-Dollar exchange rate, and that real output responds gradually. Our close to assumption-free approach obtains as an outcome what traditional sign restrictions on impulse responses impose as an assumption. |
| Keywords: | Structural VAR, Set Identification, Monetary Policy, ECB |
| JEL: | C32 E52 N14 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp300&r=all |
| By: | Haelim Anderson; Selman Erol; Guillermo Ordoñez |
| Abstract: | Central banks provide public liquidity to traditional (regulated) banks with the intention of stabilizing the financial system. Shadow banks are not regulated, yet they indirectly access such liquidity through the interbank system. We build a model that shows how public liquidity provision may change the linkages between traditional and shadow banks, increasing systemic risk through three channels: reducing aggregate liquidity, expanding fragile short-term borrowing, and crowding out of private cross-bank insurance. We show that the creation of the Federal Reserve System and the provision of public liquidity changed the structure and nature of the U.S. interbank network in ways that are consistent with the model and its implications. We provide empirical evidence by constructing unique data on balance sheets and detailed disaggregated information on payments and funding connections in Virginia. |
| JEL: | D53 D85 E02 E44 G11 G21 G23 N21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27721&r=all |
| By: | Raut, Nirmal Kumar |
| Abstract: | This paper undertakes a descriptive review of the macroeconomic and microeconomic impact of COVID-19 and of the consequent lockdown imposed by the government in Nepal. The review shows that almost all macroeconomic indicators have either slowed down or become negative suggesting adverse effect of COVID-19 on Nepalese economy. Likewise, at micro level, the review shows that it has severely affected the household economy as well as the business firms. The effects are identified on health, education, food security and employment. At the firm level, the cost and unemployment have increased while the productivity, profit and income have decreased. This therefore calls for the concerted efforts on the part of all the stakeholders, more importantly the State to adopt a policy-mix that can adequately manage the health crisis on the one hand and the livelihood on the other, keeping in mind their long term effects on accumulation of financial, physical and human capital. |
| Keywords: | COVID-19, Economic Impact, Nepal |
| JEL: | D12 E2 E24 E52 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102778&r=all |
| By: | Andras Chabin; Sébastien Lamproye; Milan Výškrabka |
| Abstract: | In this paper, we present the results of the comprehensive assessment of the accuracy of European Economic Forecasts. High-quality macroeconomic forecasts are a prerequisite for economic surveillance of the European Commission. We evaluate forecasts for three key variables – GDP growth, consumer price inflation and the general government budget balance – on two forecast horizons – current year and oneyear-ahead – over the period 2000-2017. Pointing to some improvement in the accuracy recently, the forecasts continue to show a satisfactory track record which does not differ much from the forecast track records of other international institutions. The Commission’s forecasts present largely an unbiased outlook for near term economic developments, accurately foresee an acceleration and deceleration in the underlying variables and mostly contain information beyond a naïve forecast. There is room for improvement, however. The forecasts appear to be prone to repeating errors, which to some extent seems to be related to an overly conservative assessment of the business cycle dynamics and to a lesser extent to errors in technical assumptions. |
| JEL: | C1 E60 E66 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:128&r=all |
| By: | Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley); Weber, Michael (University of Chicago) |
| 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: | E3 E4 E5 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13604&r=all |
| By: | Gries, Thomas (University of Paderborn); Naudé, Wim (RWTH Aachen University) |
| Abstract: | The economic impact of Articial 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 representative 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 aggregate 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: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13606&r=all |
| By: | Ricardo Molina Díaz; Pablo Cachaga Herrera (Banco Central de Bolivia) |
| Abstract: | En el último decenio, la inversión pública aumentó notoriamente constituyéndose en un factor importante del crecimiento del producto. En este sentido, el presente documento realiza un análisis del efecto diferenciado de la inversión pública sectorial sobre el PIB para el periodo 1990 al 2016, asumiendo que el efecto de la inversión pública en la actividad económica dependerá del sector donde se destinen los recursos (productivo, infraestructura, social o multisectorial); asimismo, este efecto será diferenciado en el corto y largo plazo. Considerando las características de los datos, se utiliza un panel cointegrado y un modelo de Vector de Corrección de Errores (VEC) para estimar las elasticidades de corto y largo plazo. Los resultados muestran que la inversión en infraestructura tiene mayor efecto en el largo plazo, seguida por la inversión productiva. |
| Keywords: | Inversión, producción, política fiscal, gasto e inversión |
| JEL: | E22 E23 E62 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:blv:doctra:02/2018&r=all |
| By: | Ana B. Galvão; Michael T. Owyang |
| Abstract: | High-frequency financial and economic activity indicators are usually time aggregated before forecasts of low-frequency macroeconomic events, such as recessions, are computed. We propose a mixed-frequency modelling alternative that delivers high-frequency probability forecasts (including their confidence bands) for these low-frequency events. The new approach is compared with single-frequency alternatives using loss functions adequate to rare event forecasting. We provide evidence that: (i) weekly-sampled spread improves over monthly-sampled to predict NBER recessions, (ii) the predictive content of the spread and the Chicago Fed Financial Condition Index (NFCI) is supplementary to economic activity for one-year-ahead forecasts of contractions, and (iii) a weekly activity index can date the 2020 business cycle peak two months in advance using a mixed-frequency filtering. |
| Keywords: | mixed frequency models; recession; financial indicators; weekly activity index; event probability forecasting |
| JEL: | C25 C53 E32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88704&r=all |
| By: | Bram van Os (Erasmus University Rotterdam); Dick van Dijk (Erasmus University Rotterdam) |
| Abstract: | The dynamic factor Markov-switching (DFMS) model introduced by Chauvet (1998) has proven to be a powerful framework to measure the business cycle. We extend the DFMS model by allowing for time-varying transition probabilities, with the aim of accelerating the real-time dating of turning points between expansion and recession regimes. Time-variation of the transition probabilities is brought about endogenously using the accelerated score-driven approach and exogenously using the term spread. In a real-time application using the four components of The Conference Board’s Coincident Economic Index for the period 1959-2020, we find that signaling power for recessions is significantly improved. |
| Keywords: | business cycles, turning points, Markov-Switching, time-varying transition probabilities, generalized autoregressive score model |
| JEL: | E32 C32 |
| Date: | 2020–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200057&r=all |
| By: | Proaño Acosta, Christian; Lojak, Benjamin |
| Abstract: | In this paper we study the implementation of a state-dependent inflation target in a two-country monetary union model characterized by boundedly rational agents. In particular, we use the spread between the actual policy rate (which is constrained by the zero-lower-bound) and the Taylor rate (which can become negative) as a measure for the degree of ineffectiveness of conventional monetary policy as a stabilizing mechanism. The perception of macroeconomic risk by the agents is assumed to vary according to this measure by means of the Brock-Hommes switching mechanism. Our numerical simulations indicate a) that a state-dependent inflation target may lead to a better macroeconomic and inflation stabilization, and b) the perceived risk-sharing among the monetary union members influences the financing conditions of the member economies of the monetary union. |
| Keywords: | Monetary Policy,Monetary Unions,Zero Lower Bound,Inflation Targets,Behavioral Macroeconomics |
| JEL: | E52 F02 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:161&r=all |
| By: | Hasan, Iftekhar; Manfredonia, Stefano; Noth, Felix |
| Abstract: | This paper investigates the critical role of culture for economic recovery after natural disasters. Using Hurricane Katrina as our laboratory, we find a significant adverse treatment effect for plant-level productivity. However, local religious adherence and larger shares of ancestors with disaster experiences mutually mitigate this detrimental effect from the disaster. Religious adherence further dampens anxiety after Hurricane Katrina, which potentially spur economic recovery. We also detect this effect on the aggregate county level. More religious counties recover faster in terms of population, new establishments, and GDP. |
| Keywords: | natural disasters,plant-level productivity,religion,recovery |
| JEL: | E23 E32 Z12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:162020&r=all |
| By: | Anusha Chari; Peter Blair Henry; Hector Reyes |
| Abstract: | In 1985, James A. Baker III's “Program for Sustained Growth” proposed a set of economic policy reforms including, inflation stabilization, trade liberalization, greater openness to foreign investment, and privatization, that he believed would lead to faster growth in countries then known as the Third World, but now categorized as emerging and developing economies (EMDEs). A country-specific, time-series assessment of the reform process reveals three clear facts. First, in the 10-year-period after stabilizing high inflation, the average growth rate of real GDP in EMDEs is 2.2 percentage points higher than in the prior ten-year period. Second, the corresponding growth increase for trade liberalization episodes is 2.66 percentage points. Third, in the decade after opening their capital markets to foreign equity investment, the spread between EMDEs average cost of equity capital and that of the US declines by 240 basis points. The impact of privatization is less straightforward to assess, but taken together, the three central facts of reform provide empirical support for the Baker Hypothesis and suggest a simple neoclassical interpretation of the unprecedented increase in growth that has taken place in EMDEs since 1995. |
| JEL: | E13 E44 F21 F43 F6 F63 O1 O38 O47 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27708&r=all |
| By: | Francesco Zanetti; Masashige Hamano |
| Abstract: | This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy. |
| Keywords: | Monetary policy; firm heterogeneity; product variety; reallocation |
| JEL: | E32 E52 L51 O47 |
| Date: | 2020–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:917&r=all |
| By: | Corina Boar; Simon Mongey |
| Abstract: | The CARES Act resulted in many unemployed workers receiving benefits that exceeded wages at their previous job. Given this, would an unemployed worker reject an offer to return to their former job at the same wage? Qualitatively, we provide a very simple dynamic model that incorporates four reasons the answer could be ‘no’: (i) the temporary nature of the CARES Act, (ii) uncertainty that their return-to-work offer might expire, (iii) search frictions, and (iv) wage losses out of unemployment in a recession. Quantitatively, when evaluated under empirically relevant parameters, we find it unlikely a worker would reject an offer to return to work at the same wage. We show special cases where this is not true and relate these to anecdotal evidence. |
| JEL: | E24 J64 J68 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27727&r=all |
| By: | Saito, Yuta |
| Abstract: | This note investigates how the threat of a member’s exit from a monetary union affects the inflation bias of the common currency. The canonical Barro-Gordon model is extended to a currency union setting, where the monetary policy is determined by majority voting among the N member countries, which are heterogeneous with respect to the within- country output shocks. Once the policy is selected, each member decides whether to remain in the monetary union or not. If a country decides to exit, it has to pay a fixed social cost. If a member leaves the monetary union, it individually chooses the inflation of its own currency. It is shown that inflation bias is generated if more than one member exits. In other words, the optimal monetary policy, which does not generate inflation bias, can be implemented only if no members exit. |
| Keywords: | Currency Union; Time-Inconsistency; Barro-Gordon; Committee Policymaking |
| JEL: | E5 |
| Date: | 2020–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102717&r=all |
| By: | Cortes, Matias (York University, Canada); Forsythe, Eliza (University of Illinois at Urbana-Champaign) |
| Abstract: | Using data from the Current Population Survey (CPS), we show that the COVID-19 pandemic led to a loss of aggregate real labor earnings of more than $250 billion between March and July 2020. By exploiting the panel structure of the CPS, we show that the decline in aggregate earnings was entirely driven by declines in employment; individuals who remained employed did not experience any atypical earnings changes. We find that job losses were substantially larger among workers in low-paying jobs. This led to a dramatic increase in inequality in labor earnings during the pandemic. Simulating standard unemployment benefits and UI provisions in the CARES Act, we estimate that UI payments exceeded total pandemic earnings losses between March and July 2020 by $9 billion. Workers who were previously in the bottom third of the earnings distribution received 49% of the pandemic associated UI and CARES benefits, reversing the increases in labor earnings inequality. These lower income individuals are likely to have a high fiscal multiplier, suggesting these extra payments may have helped stimulate aggregate demand. |
| Keywords: | COVID-19, earnings inequality, unemployment insurance |
| JEL: | J31 J65 J68 H53 H84 E24 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13643&r=all |
| By: | Enzo Rossi; Vincent Wolff |
| Abstract: | We study the tightness of the link between U.S. monetary and macroeconomic communication events and the exchange rate movements against the USD of four major currencies - the euro, the Swiss franc, the Brazilian real and the Mexican peso - since the global financial crisis (GFC). We find three main results. Approximately 20 percent of the U.S. communications events were associated with statistically significant exchange rate effects. Unconventional and conventional monetary policy announcements had equal impacts. The reactions of the advanced countries' currencies were more in line with each another than with those of the emerging markets' currencies. |
| Keywords: | Central bank communication, macroeconomic news, exchange rates, event study |
| JEL: | C22 E58 F31 G14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-18&r=all |
| By: | Saito, Yuta |
| Abstract: | This paper studies a model of altruistic bequest in times of ambiguity. The parent is ambiguous about future economic conditions, which affects the probability of the child’s economic success. We show that an increase in the degree of ambiguity makes the parent leave more transfer. Our model implies that the amount of parental transfer grows during a pandemic or recession. |
| Keywords: | Bequest; Parental Transfer; Robust Control; Ambiguity |
| JEL: | D1 D8 E21 |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102718&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria); Tochukwu Nwachukwu (Preston Consults Limited, Abuja, Nigeria) |
| Abstract: | This study investigates the macroeconomic determinants of household consumption in selected West African countries. The study employed the panel augmented mean group procedure which accounts for heterogeneity and cross sectional dependence in the modelling exercise for the period 1989 to 2018. Empirical results reveal that “gross domestic product per capita†and “domestic credit to the private sector†significantly improve household consumption in the selected West African countries as a whole. However, country-specific results show differences in terms of the magnitude of the coefficients, the significance and even the signs of the regressors. Policy recommendations based on these findings are discussed. |
| Keywords: | Household consumption; West Africa |
| JEL: | E21 O10 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:20/031&r=all |
| By: | Lutz Kilian; Xiaoqing Zhou |
| Abstract: | The conventional wisdom that inflation expectations respond to the level of the price of oil (or the price of gasoline) is based on testing the null hypothesis of a zero slope coefficient in a static single-equation regression model fit to aggregate data. Given that the regressor in this model is not stationary, the null distribution of the t-test statistic is nonstandard, invalidating the use of the normal approximation. Once the critical values are adjusted, these regressions provide no support for the conventional wisdom. Using a new structural vector regression model, however, we demonstrate that gasoline price shocks may indeed drive one-year household inflation expectations. The model shows that there have been several such episodes since 1990. In particular, the rise in household inflation expectations between 2009 and 2013 is almost entirely explained by a large increase in gasoline prices. However, on average, gasoline price shocks account for only 39% of the variation in household inflation expectations since 1981. |
| Keywords: | inflation, expectations, anchor, missing disinflation, oil price, gasoline price, household survey |
| JEL: | E31 E52 Q43 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8516&r=all |
| By: | Bloom, David E. (Harvard University); Kuhn, Michael (Vienna Institute of Demography); Prettner, Klaus (University of Hohenheim) |
| 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. |
| Keywords: | inequality, pandemics, epidemics, COVID-19, HIV/AIDS, malaria, tuberculosis, influenza, infectious disease, economic burden of disease, economic growth, health, economic epidemiology, SIR Model, general equilibrium macroeconomic models, welfare, human capital, health policy |
| JEL: | D58 E10 E20 I12 I15 I18 I31 O40 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13625&r=all |
| By: | John C. Williams |
| Abstract: | Remarks at "In Conversation: New York Fed Presidents on COVID-19" (Bretton Woods Committee Webinar). |
| Keywords: | inflation; statement; target; expectations; neutral interest rate; maximum employment |
| Date: | 2020–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88675&r=all |
| By: | Gomis-Porqueras, Pedro; Rafiq, Shuddhasattwa; Yao, Wenying |
| Abstract: | This paper investigates how different commodity prices are affected by unconventional monetary policies (UMP) implemented by the Federal Reserve of the United States as a response to the Global Financial Crisis. We analyze impulse responses using local projections proposed by Jorda (2005) and follow Swanson (2017)’s identification strategy for UMP shocks. We show that forward guidance (FG) and large-scale asset purchase (LSAP) shocks lead to distinct responses from commodity prices. We find that asset-like commodities, such as gold and silver, respond to these UMP shocks most aggressively. While an easing FG shock leads to increases in their prices, an easing LSAP shock has the opposite effect. This differential response suggests that these asset-like commodities are being used as inflation and exchange rate hedges. In contrast, production-like and agricultural commodities respond to UMP shocks in the same way as conventional monetary policy shocks. Consistent with previous literature, we find that easing LSAP shocks, to some extent, signal a negative economic outlook. Policymakers can exploit these different commodities when evaluating the effectiveness of monetary policy in different sectors of the economy. |
| Keywords: | Unconventional monetary policy; Commodity price; Impulse response analysis. |
| JEL: | E5 G0 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102781&r=all |
| By: | Badinger, Harald; Schiman, Stefan |
| Abstract: | We propose a novel identification strategy to measure monetary policy in a structural VAR. It is based exclusively on known past policy shocks, which are uncovered from high-frequency data, and does not rely on any theoretical a-priori restrictions. Our empirical analysis for the euro area reveals that interest rate decisions of the ECB surprised financial markets at least fifteen times since 1999. This information is used to restrict the sign and magnitude of the structural residuals of the policy rule equation at these shock dates accordingly. In spite of its utmost agnostic nature, this approach achieves strong identification, suggesting that unexpected ECB decisions have an immediate impact on the short-term money market rate, the narrow money stock, commodity prices, consumer prices and the Euro-Dollar exchange rate, and that real output responds gradually. Our close to assumption-free approach obtains as an outcome what traditional sign restrictions on impulse responses impose as an assumption. |
| Keywords: | Structural VAR, Set Identification, Monetary Policy, ECB |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:7732&r=all |
| By: | Stefan Schiman; Harald Badinger (WIFO) |
| Abstract: | We propose a novel identification strategy to measure monetary policy in a structural VAR. It is based exclusively on known past policy shocks, which are uncovered from high-frequency data, and does not rely on any theoretical a-priori restrictions. Our empirical analysis for the euro area reveals that interest rate decisions of the ECB surprised financial markets at least fifteen times since 1999. This information is used to restrict the sign and magnitude of the structural residuals of the policy rule equation at these shock dates accordingly. In spite of its utmost agnostic nature, this approach achieves strong identification, suggesting that unexpected ECB decisions have an immediate impact on the short-term money market rate, the narrow money stock, commodity prices, consumer prices and the euro-dollar exchange rate, and that real output responds gradually. Our close to assumption-free approach obtains as an outcome what traditional sign restrictions on impulse responses impose as an assumption. |
| Keywords: | Structural VAR, Set Indentification, Monetary Policy, ECB |
| Date: | 2020–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2020:i:608&r=all |
| By: | David Gabauer (Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraße 69, 4040 Linz, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Jacobus Nel (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | In this paper, we analyze time-varying predictability of labor productivity for growth in income (and consumption) inequality of the United Kingdom (UK) based on a high-frequency (quarterly) data set over 1975:Q1 to 2016:Q1. Results indicate that the growth rate of an index of labor productivity has a strong predictive power on growth rate of income (and consumption) inequality in the UK. Interestingly, the strength of the predictive power is found to be higher towards the end of the sample period in the wake of the global financial crisis. In addition, based on time-varying impulse response function analysis, we find that inequality and labor productivity growth rates are in general negatively associated over our sample period, barring a short-lived positive impact initially. |
| Keywords: | Labor Productivity, Inequality, Time-Varying Predictions |
| JEL: | C32 D31 E24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202084&r=all |
| By: | Balduzzi, Pierluigi (Boston College); Brancati, Emanuele (Sapienza University of Rome); Brianti, Marco (Boston College); Schiantarelli, Fabio (Boston College) |
| Abstract: | We investigate the economic effects of the COVID-19 pandemic and the role played by credit constraints in the transmission mechanism, using a novel survey of expectations and plans of Italian firms, taken just before and after the outbreak. Most firms revise downward their expectations for sales, orders, employment, and investment, while prices are expected to increase at a faster rate, with geographical and sectoral heterogeneity in the size of the effects. Credit constraints amplify the effects on factor demand and sales of the COVID-19 generated shocks. Credit-constrained firms also expect to charge higher prices, relative to unconstrained firms. The search for and availability of liquidity is a key determinant of firms' plans. Finally, both supply and demand shocks play a role in shaping firms' expectations and plans, with supply shocks being slightly more important in the aggregate. |
| Keywords: | COVID-19, pandemic, firms' expectations, firms' plans, credit constraints, prices, employment, investment, sales, orders |
| JEL: | E2 E3 G30 I10 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13629&r=all |
| By: | David E. Bloom (Harvard T.H. Chan School of Public Health); Michael Kuhn (Wittgenstein Centre, Vienna Institute of Demogrpahy); Klaus Prettner (Vienna University of Economics and Business) |
| Abstract: | *This paper is part of a Symposium organized by Dr. Remi Jedwab of the George Washington University that will appear in the Journal of Economic Literature.* 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. |
| Keywords: | Pandemics, Epidemics, COVID-19, HIV/AIDS, Malaria, Tuberculosis, Influenza, Infectious Disease, Economic Burden of Disease, Economic Growth, Economic Epidemiology, SIR Model, General Equilibrium Macroeconomic Models, Health, Inequality, Welfare, Human Capital, Health Policy |
| JEL: | D58 E10 E20 I12 I15 I18 I31 O40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gwi:wpaper:2020-17&r=all |
| By: | Scott R. Baker (Northwestern University, Kellogg and NBER); R.A. Farrokhnia (Columbia Business School, Columbia Engineering School); Steffen Meyer (University of Southern Denmark and Danish Finance Institute); Michaela Pagel (Columbia Business School, NBER, and CPER); Constantine Yannelis (University of Chicago - Booth School of Business and NBER) |
| Abstract: | We explore how household consumption responds to epidemics, utilizing transaction-level household financial data to investigate the impact of the COVID-19 virus. As the number of cases grew, households began to radically alter their typical spending across a number of major categories. Initially spending increased sharply, particularly in retail, credit card spending and food items. This was followed by a sharp decrease in overall spending. Households responded most strongly in states with shelter-in-place orders in place by March 29th. We explore heterogeneity across partisan affiliation, demographics and income. Greater levels of social distancing are associated with drops in spending, particularly in restaurants and retail. |
| Keywords: | Consumption, Coronavirus, COVID-19, Household Finance, Transaction Data |
| JEL: | D14 E21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-30&r=all |
| By: | Tullio Jappelli; Luigi Pistaferri |
| Abstract: | We test the key implication of the buffer stock model, namely that any revision in permanent income leads to a proportionate revision in target wealth. We use panel data on the amount of wealth held for precautionary purposes available in the 2002-2016 SHIW. Using an instrumental variable approach to overcome measurement error issues and direct estimates of the permanent component of income, we find that households indeed revise approximately one-for-one their target wealth in response to permanent income shocks. We explore heterogeneity of the response across the cash-on-hand distribution, for positive and negative shocks, and for shocks of different size. We also find that the change in the ratio of cash-on-hand to permanent income is negatively correlated with the “wealth gap”, particularly for individuals whose wealth is substantially above target. |
| JEL: | D12 D14 E21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27709&r=all |
| By: | David S. Miller |
| Abstract: | This paper measures the probability of rare disasters by measuring the probability of the intermeeting federal funds rate cuts they provoke. Differentiating between months with Federal Open Market Committee (FOMC) meetings and months without identifies excess returns on federal funds futures averaging -1.5 bps per horizon month-ahead at short horizons, corresponding to a 3-5% per month risk-neutral probability of an intermeeting rate cut. The excess returns differ between months with and without meetings, suggesting a positive risk premium associated with meetings. The federal funds excess returns explain a significant portion of equity excess returns, and hence the equity premium puzzle. |
| Keywords: | Rare disasters; Equity premium; Risk premium; Federal funds futures; |
| JEL: | E44 G12 |
| Date: | 2020–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-76&r=all |
| By: | Michael Woodford |
| Abstract: | The COVID-19 pandemic presents a challenge for stabilization policy that is different from those resulting from either “supply” or “demand” shocks that similarly affect all sectors of the economy, owing to the degree to which the necessity of temporarily suspending some (but not all) economic activities disrupts the circular flow of payments, resulting in a failure of what Keynes (1936) calls “effective demand.” In such a situation, economic activity in many sectors of the economy can be much lower than would maximize welfare (even taking into account the public health constraint), and interest-rate policy cannot eliminate the distortions — not because of a limit on the extent to which interest rates can be reduced, but because monetary stimulus fails to stimulate demand of the right sorts. Fiscal transfers are instead well-suited to addressing the fundamental problem, and can under certain circumstances achieve a first-best allocation of resources without any need for a monetary policy response. |
| JEL: | E12 E52 E63 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27768&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | The study examines the use of governance tools to fight capital flight by reducing the capital flight trap. Two overarching policy syndromes are addressed in the study. It first assesses whether governance is an effective deterrent to the capital flight trap in Africa, before examining what thresholds of government quality are required to fight the capital flight trap in the continent. The following findings are established. Evidence of a capital flight trap is apparent because past values of capital flight have a positive effect on future values of capital flight. The net effects from interactions of the capital flight trap with political stability, regulation quality, economic governance and corruption-control on capital flight are positive. The critical masses at which “voice & accountability†and regulation quality can complement the capital flight trap to reduce capital flight are respectively, 0.120 and 0.680, which correspond to the best performing countries. Policy implications are discussed. |
| Keywords: | governance; capital flight; capital flight trap; Africa |
| JEL: | C50 E62 F34 O55 P37 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:20/024&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/063&r=all |
| By: | Jose Maria Barrero (ITAM - Business School); Nicholas Bloom (Stanford University and NBER); Steven J. Davis (University of Chicago, NBER, and Hoover Institution) |
| Abstract: | Drawing on firm-level forecasts at a one-year horizon in the Survey of Business Uncertainty (SBU), we construct novel, forward-looking reallocation measures for jobs and sales. These measures rise sharply after February 2020, reaching rates in April that are 2.4 (3.9) times the pre-COVID average for jobs (sales). We also draw on special SBU questions to estimate that the COVID-19 shock caused 3 new hires for every 10 layoffs, that 32-42% of COVID-induced layoffs will be permanent, and that one-tenth of all work days (one-fifth for office workers) will shift from business premises to residences in the post-pandemic world relative to the pre-pandemic situation. Our survey evidence aligns well with anecdotal evidence of large pandemic-induced demand increases at many firms, evidence on job openings, gross job creation and gross business formation, and a sharp pandemic-induced rise in equity return dispersion across firms. After developing the evidence, we consider implications for the economic outlook and for policy responses to the pandemic. Unemployment benefit levels that exceed worker earnings, policies that subsidize employee retention, land-use restrictions, occupational licensing restrictions, and regulatory barriers to business formation will impede reallocation responses to the COVID-19 shock. |
| Keywords: | COVID-19, coronavirus, reallocation shock, Survey of Business Uncertainty, CARES Act |
| JEL: | D22 D84 E24 H12 H25 J21 J62 J63 J65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-59&r=all |
| By: | Fairuz, Sharifah; Masih, Mansur |
| Abstract: | Repeated financial crises helped the growth of Islamic banks as an alternative asset for investment. Similar to conventional banks, Islamic banks also depend on depositors’ money as their source of funds. The profit rate of Islamic banks is expected to influence the amount of funds deposited for investment. This paper wants to investigate what drives the profit rates of Islamic banks. The standard time series techniques are used for the analysis. Malaysia is used as a case study. The findings tend to indicate that the profit rates are driven by the investment deposits of Islamic banks followed by the deposits of the conventional banks and their interest rates. The outcome of the results would be particularly of great interest to the regulators and Islamic bank CEOs to make decisions on whether to still depend on conventional rates and deposits in order to survive. |
| Keywords: | Islamic bank investment deposits, conventional bank deposits, interest rates, profit rates, Malaysia |
| JEL: | C22 C58 E44 G21 |
| Date: | 2018–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102599&r=all |
| By: | Parui, Pintu |
| Abstract: | In a stock-flow consistent neo-Kaleckian growth-model, we endogenize the dividend rate and debt-level in the long run and investigate the possibility of multiple equilibria and instability in the economy. We find that the economy is in a wage-led demand and debt-burdened growth regime. However, both debt-led and debt-burdened demand regimes are possible. In some instances, the speed of the adjustment parameter related to the dividend dynamics plays a crucial role in stabilizing the economy. Otherwise, the economy may lose its stability and gives birth to limit cycles. A significant rise in the interest rate may cause instability in the economy. |
| Keywords: | Capital Accumulation, Dividend Rate, Kaleckian Model, Instability, Limit Cycle |
| JEL: | C62 E12 O41 |
| Date: | 2020–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102724&r=all |
| By: | Oriol Aspachs; Ruben Durante; Alberto Graziano; Josep Mestres; José Garcia Montalvo; Marta Reynal-Querol |
| Abstract: | Most official economic statistics have a relatively low frequency. The measures of inequality, in particular, are not only produced with low frequency but also with significant lags. This poses an important challenge for policymakers in their objective to mitigate the effects of a rapidly moving epidemic as the COVID-19. We propose a methodology for tracking the evolution of income inequality in the aftermath of the COVID-19 pandemic using high-frequency, high-quality microdata from bank-records. Using this approach we study the evolution of inequality since the beginning of the COVID-19 pandemic, and its effect on different groups of the population. First, we show that the payroll data managed by banks are an extremely useful source of information to detect, timely and accurately, changes in the distribution of wages. Our data replicate very closely the distribution of wages from the official wage surveys. Second, we show that, in absence of public benefits schemes, inequality would have increased dramatically. The impact of the crisis on inequality is explained mostly by its effect on low-wage workers. Pre-benefits wage inequality has increased significantly among foreign-born individuals, and regions that have a heavy economic dependence on touristic activities. Finally, we show that the public benefits activated soon after the beginning of the pandemic have substantially mitigated the impact of the COVID-19 crisis on inequality. |
| Keywords: | inequality, COVID-19, administrative data, high frequency |
| JEL: | C81 D63 E24 J31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1741&r=all |
| By: | Bernal-Ramirez, Joaquin; Ocampo, José Antonio |
| Abstract: | It is increasingly recognized that climate change generates major macroeconomic and financial risks. There are physical risks associated to the disasters generated by hydrometeorological events and to gradual but persistent changes in temperatures that have structural impacts on economic activity, productivity and incomes. Additionally, the process of adjustment towards a lower-carbon economy, prompted by changes in climate-related policies, technological disruptions and changes in consumer preferences, generates transition risks. After a brief analysis of the macroeconomic, fiscal and tax policies to manage these risks, this paper concentrates on: (i) how financial policies can help improve transparency and climate-related risk disclosure in financial institutions’ balance sheets and assets prices,particularly with appropriate prudential regulation and supervision; and (ii) how those risks could be taken into account in monetary policy and central banks’ balance sheets and operations. The paper ends with some reflections on the Covid-19 pandemic and the will for a “green” recovery. |
| Keywords: | climate change; carbon tax; financial policy; monetary policy; central banks |
| JEL: | E50 G18 H23 Q54 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:63&r=all |
| By: | Greg Kaplan; Benjamin Moll; Giovanni L. Violante |
| Abstract: | We provide a quantitative analysis of the trade-offs between health outcomes and the distribution of economic outcomes associated with alternative policy responses to the COVID-19 pandemic. We integrate an expanded SIR model of virus spread into a macroeconomic model with realistic income and wealth inequality, as well as occupational and sectoral heterogeneity. In the model, as in the data, economic exposure to the pandemic is strongly correlated with financial vulnerability, leading to very uneven economic losses across the population. We summarize our findings through a distributional pandemic possibility frontier, which shows the distribution of economic welfare costs associated with the different aggregate mortality rates arising under alternative containment and fiscal strategies. For all combinations of health and economic policies we consider, the economic welfare costs of the pandemic are large and heterogeneous. Thus, the choice governments face when designing policy is not just between lives and livelihoods, as is often emphasized, but also over who should bear the burden of the economic costs. We offer a quantitative framework to evaluate both trade-offs. |
| JEL: | E0 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27794&r=all |
| By: | Mbara, Gilbert (University of Warsaw); Tyrowicz, Joanna (University of Warsaw); Kokoszczynski, Ryszard (University of Warsaw) |
| Abstract: | This paper develops a dynamic general equilibrium model where employers may avoid making social security contributions by offering some workers "secondary contracts". When calibrated using aggregate tax revenue data, the model delivers estimates of secondary "off the books" employment that are consistent with survey evidence for the EU14 and United States. We investigate the fiscal and welfare effects of varying the avoidable and unavoidable shares of labor income tax while keeping the total wedge constant, and find that increasing the employer component raises hours worked, output, and welfare. Partial labor tax evasion makes tax revenues more elastic, but full tax compliance need not be a welfare enhancing policy mix. |
| Keywords: | Laffer Curve, tax evasion, labor market duality |
| JEL: | H2 H26 H3 E13 E26 J81 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13631&r=all |
| By: | Ctirad Slavík; Hakki Yazici |
| Abstract: | The skill premium has increased significantly in the United States in the last five decades. During the same period, individual wage risk has also increased. This paper proposes a mechanism through which a rise in wage risk increases the skill premium. Intuitively, a rise in uninsured wage risk increases precautionary savings, thereby boosting capital accumulation, which increases the skill premium due to capital-skill complementarity. Using a quantitative macroeconomic model, we find that the rise in wage risk observed between 1967 and 2010 increases the skill premium significantly. This finding is robust across a variety of model specifications. |
| Keywords: | skill premium, wage risk, capital-skill complementarity, precautionary savings |
| JEL: | E25 J31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8520&r=all |
| By: | Sina J. Ogede (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Emmanuel O. George (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Ibrahim A. Adekunle (Olabisi Onabanjo University, Ogun State, Nigeria) |
| Abstract: | A range of explanations had been offered for the apparent change in oil price-inflation relationship outcomes ranging from the possible use of alternate energy sources, change in the structure of output regarding fewer oil intensive sectors and the role of fiscal and monetary in the affected oil-exporting countries. These changes had drawn the attention of stakeholders, government and the society at large to the anecdotal relationship among oil price volatility, inflation, and output in Africa oil-exporting countries. This study leans empirical credence to the impact of oil price volatility on inflation and economic performance in the Africa oil-exporting countries from 1995 through 2017. We employed the Pool Mean Group estimation procedure with the inference drawn at a 5% level of significance. We found that oil price volatility had a negative and significant effect on inflation in Africa oil-exporting countries. The study concluded that oil price volatility had a substantial impact on inflation in the Africa oil-exporting countries. The study, therefore, recommended that Africa oil-exporting countries should adopt precautionary measures to monitor inflation potentials due to different responses of inflation to positive and negative oil price shocks. |
| Keywords: | Oil Price Volatility; Inflation; Growth Outcomes; Pool Mean Group; Africa |
| JEL: | C33 O55 Q41 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:20/020&r=all |
| By: | Rebecca Westphal (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology) |
| Abstract: | Using an agent-based model (ABM) with fundamentalists and chartists, prone to develop bubbles and crashes, we demonstrate the usefulness of direct market intervention by a policy maker, documenting strong performance in preventing bubbles and drawdowns and augmenting significantly the welfare of all investors. In our ABM, the policy maker diagnoses burgeoning bubbles by forming an expectation of the future return of the risky asset in the form of an exponential moving average of the excess return over the long-term return. The policy maker invests in the risky asset when he detects a small deviation of the return from the long-term growth rate in order to construct an inventory that he draws upon later to fight future market exuberance. Then, when this deviation between the current growth rate and the long-term growth rate exceeds the policy maker's tolerance level, he starts to sell the risky asset that he has accumulated earlier, in a countercyclical fight against future price increase. We find that the policy maker succeeds in preventing bubbles and crashes in our ABM. In simulations without bubbles, the policy maker behaves similarly to the fundamentalists and his impact is negligible, following the principle of "Primum non nocere". In simulations where bubbles form spontaneously as a result of the noise traders's strategies, the policy maker's intervention reduces the average drawdown by a factor of two when his market impact becomes significant. We find that the policy maker intervention improves all analysed metrics of market returns, including volatility, skewness, kurtosis and VaR, making the market less turbulent and more stable. The combination of fewer bubbles and crashes, lower market risks and the stability of the long-term growth rate make the policy maker intervention to improve the welfare of all investors as measured by their risk-adjusted return, increasing the Sharpe ratios from approximately 0.3 to 0.5 for noise traders, from 0.6 to 0.8 for fundamentalists as the market impact of the policy maker increases to the level of the fundamentalists. We also test the sensitivity of these results to variations of the key parameters of the strategy of the policy maker and find very robust outcomes. In particular, the conclusions are unchanged even under very large miscalibrated long-term expected returns of the risky asset. |
| Keywords: | financial bubbles, agent-based model, arbitrageurs, prediction, noise traders, fundamentalists, market intervention |
| JEL: | C53 C63 E58 E60 G01 G17 G18 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2074&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa) |
| Abstract: | This study investigates the stability of money in the proposed East African Monetary Union (EAMU). The study uses annual data for the period 1981 to 2015 from five countries making up the East African Community (EAC). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries. This divergence is articulated in terms of differences in CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long term determinants and error correction in event of a shock. Specifically, the results show that the demand for money is stable in the cases of Burundi, Rwanda and Tanzania based on the CUSUM and CUSUMSQ tests, while for the remaining countries (Kenya and Uganda) only partial stability is apparent. In event of a shock, Kenya will restore its long run equilibrium fastest, followed by Tanzania and Burundi. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | E41 C22 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:20/034&r=all |
| By: | Lance Taylor (New School for Social Research) |
| Abstract: | A `global saving glut` was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. This trading situation had already emerged around 1980, and led to the Plaza Accord in 1985. One common explanation is based on the Mundell-Fleming IS/LM/BP model. But this model cannot be valid, since the `BP` equation is not independent of `IS`. Other champions of this saving glut hypothesis rely on loanable funds theory, which is institutionally inadequate. More plausible analyses of the persistent trade imbalance can be derived from a two-country IS/LM set-up devised by Wynne Godley, a Kaleckian description of the political economy of East Asia and the United States, and dissection of the terms of trade due to W. Arthur Lewis and Luigi Pasinetti. |
| Keywords: | Saving glut, net lending, IS/LM/BP, Mundell-Fleming, productivity growth, terms of trade. China, Japan |
| JEL: | E12 E16 F32 F41 |
| Date: | 2020–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp132&r=all |
| By: | Laura A Harvey (University of East Anglia); James Rockey (University of Leicester) |
| Abstract: | While real US GDP per capita has increased around 80% since 1980, median incomes have remained roughly constant. However, as this paper documents, this stagnation masks an important decline. Male median real incomes have been lower than that of their forebears, at every age, for the last 30 years. We show that this is true across the life cycle and across the wage distribution. Moreover, younger generations have also had to wait longer to reach peak earnings. Further analysis shows that this decline is particularly concentrated on high school graduates. The same pattern is found for female high school graduates yet, African American and Hispanic American women are an important exception. Variance decompositions suggest that these intergenerational differences are quantitatively important. While reductions in hours worked cannot explain the decline, substantial decreases in the labour share are consistent with decreasing incomes in the face of productivity growth. Calculations suggest that hedonic improvements in the quality of goods and services would have to have been equivalent to 30% of younger cohorts’ lifetime consumption for their consumption levels to match those of their predecessors |
| Keywords: | Wages, Intergenerational Differences, Labour Share, Stagnation, Jobs |
| JEL: | E24 J24 J31 D33 D31 |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2020-04&r=all |
| By: | Ortigueira, Salvador; Siassi, Nawid |
| Abstract: | Eligibility and benefits for anti-poverty income transfers in the U.S. are based on both the means and the household characteristics of applicants, such as their filing status, living arrangement, and marital status. In this paper we develop a dynamic structural model to study the effects of the U.S. tax-transfer system on the decisions of non-college-educated workers with children. In our model workers face uninsurable idiosyncratic risks and make decisions on savings, labor supply, living arrangement, and marital status. We find that the U.S. anti-poverty policy distorts the cohabitation/marriage decision of single mothers, providing incentives to cohabit. We also find quantitatively important effects on savings, and on the labor supply of husbands and wives. Namely, the model yields a U-shaped relationship between the earnings of one spouse and the labor supply of the other spouse, a result that we also find in the data. We show that these U-shaped relationships stem in part from the current design of anti-poverty income programs, and that the introduction of an EITC deduction on the earnings of secondary earners-as proposed in the 21st Century Worker Tax Cut Act-would increase the employment rate of the spouses of workers earning between $15K and $35K, especially of female spouses. |
| Keywords: | anti-poverty income transfers,household decisions,cohabitation and marriage |
| JEL: | E21 H24 H31 J12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuweco:062020&r=all |
| By: | Richard Blundell (University College London and Institute for Fiscal Studies); Monica Costa Dias (Institute for Fiscal Studies and University of Porto); David Goll (University College London and Institute for Fiscal Studies); Costas Meghir (Cowles Foundation, Yale University, NBER, IZA, CEPR, and Institute for Fiscal Studies) |
| Abstract: | We investigate the role of training in reducing the gender wage gap using the UK-BHPS. Based on a lifecycle model and using tax and welfare benefit reforms as a source of exogenous variation we evaluate the role of formal training and experience in defining the evolution of wages and employment careers, conditional on education. Training is potentially important in compensating for the e?ects of children, especially for women who left education after completing high school, but does not fundamentally change the wage gap resulting from labor market interruptions following child birth. |
| Keywords: | Workplace training, On the job training, Female labor supply, Gender wage differentials, Human capital, Fertility and the gender wage gap, Lifecycle labor supply |
| JEL: | E24 H24 I26 I28 J16 J22 J24 J31 J71 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2174r&r=all |
| By: | Nicola Fuchs-Schündeln; Dirk Krueger; Alexander Ludwig; Irina Popova |
| Abstract: | Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role. |
| JEL: | D31 E24 I24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27773&r=all |
| By: | Alexander W. Bartik (University of Illinois); Marianne Bertrand (University of Chicago - Booth School of Business and NBER); Zoe B. Cullen (Harvard Business School); Edward L. Glaeser (Harvard University - Department of Economics and NBER); Michael Luca (Harvard Business School and NBER); Christopher T. Stanton (Harvard Business School) |
| Abstract: | In addition to its impact on public health, COVID-19 has had a major impact on the economy. To shed light on how COVID-19 is affecting small businesses Ð and on the likely impact of the recent stimulus bill, we conducted a survey of more than 5,800 small businesses. Several main themes emerge from the results. First, mass layoffs and closures have already occurred. In our sample, 43 percent of businesses are temporarily closed, and businesses have Ð on average Ðreduced their employee counts by 40 percent relative to January. Second, consistent with previous literature, we find that many small businesses are financially fragile. For example, the median business has more than $10,000 in monthly expenses and less than one month of cash on hand. Third, businesses have widely varying beliefs about the likely duration of COVID related disruptions. Fourth, the majority of businesses planned to seek funding through the CARES act. However, many anticipated problems with accessing the aid, such as bureaucratic hassles and difficulties establishing eligibility. |
| JEL: | E65 L20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-42&r=all |
| By: | Kaitila, Ville |
| Abstract: | Abstract In order to fight the climate change, the European Union and Finland as its member country are seeking carbon neutrality by 2050, Finland already by 2035. In this brief, we assess the development of Finnish greenhouse gas emissions (CO2 equivalent) in 2019–2024 based on Etla’s most recent macroeconomic and industry sector forecasts. Technological change that will cut greenhouse gas emissions is paramount for the efforts to reach carbon neutrality. We use three technological assumptions that describe how the emission intensity of value added may develop. Our baseline scenario, based on how value added will change in each industry combined with their average development in emission intensity over the past few years, shows that the aggregate emissions will decrease on average by about four per cent annually in 2019–2024. Compared to our previous forecast, we have now calculated the development of CO2 emissions in the electricity, gas and steam producing sector and the development of carbon sinks in a new way. However, this good development is not yet enough to reach the carbon neutrality target which requires a speed of decline in emissions of around six per cent annually. Consequently, technological change needs to accelerate considerably. The public sector can support the efforts to reach carbon neutrality by, among other things, R&D funding, removing harmful subsidies, introducing environmental taxes, and being active in the development of the EU’s emissions trading system. Carbon neutrality can also be taken into account in public procurement and infrastructure investments. |
| Keywords: | Economic forecast, CO2, Carbon neutrality, Emissions trading |
| JEL: | E17 O11 O30 O44 O47 |
| Date: | 2020–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:rif:briefs:90&r=all |
| By: | Olkhov, Victor |
| Abstract: | This paper considers price volatility as the reason for description of the second-degree economic variables, trades and expectations aggregated during certain time interval Δ. We call it - the second-order economic theory. The n-th degree products of costs and volumes of trades, performed by economic agents during interval Δ determine price n-th statistical moments. First two price statistical moments define volatility. To model volatility one needs description of the squares of trades aggregated during interval Δ. To describe price probability one needs all n-th statistical moments of price but that is almost impossible. We define squares of agent’s trades and macro expectations those approve the second-degree trades aggregated during interval Δ. We believe that agents perform trades under action of multiple expectations. We derive equations on the second-degree trades and expectations in economic space. As economic space we regard numerical continuous risk grades. Numerical risk grades are discussed at least for 80 years. We propose that econometrics permit accomplish risk assessment for almost all economic agents. Agents risk ratings distribute agents by economic space and define densities of macro second-degree trades and expectations. In the linear approximation we derive mean square price and volatility disturbances as functions of the first and second-degree trades disturbances. In simple approximation numerous expectations and their perturbations can cause small harmonic oscillations of the second-degree trades disturbances and induce harmonic oscillations of price and volatility perturbations. |
| Keywords: | volatility; economic theory; market trades; expectations; price probability |
| JEL: | C1 D4 E4 G1 G2 |
| Date: | 2020–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102767&r=all |
| By: | Essi Eerola |
| Abstract: | The recent financial crisis and subsequent global recession have been followed by a wave of macroprudential measures in the housing market. At the same time, governments have a long tradition of conducting tax policies which encourage households to acquire owner-housing. These tax advantages may be at least partly responsible for the need to regulate borrowing. In terms of policy, the goal should be to identify instruments that reduce the negative effects of household leverage while minimizing the welfare costs to households. Therefore, it seems important to look into the joint effects of the tax system and credit regulation. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econpb:_17&r=all |
| By: | Mansour, Hani (University of Colorado Denver); Medina, Pamela (University of Toronto); Velasquez, Andrea (University of Colorado Denver) |
| Abstract: | We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. We find that exposure to Chinese imports led to short-run declines in the employment share of women and men. However, the adverse employment effects are only persistent for women, leading to a reduction in their labor force participation. Lack of job market opportunities in the non-tradable sector act as a significant friction that prevents women from fully offsetting trade-induced displacements. |
| Keywords: | import competition, female employment, gender discrimination |
| JEL: | E24 F14 J16 J71 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13608&r=all |
| By: | Szymborska, Hanna Karolina |
| Abstract: | This paper analyses the impact of household wealth heterogeneity on inequality and macroeconomic stability in financialized economies. Based on the case of the USA since the 1980s it argues that transformation of financial sector operations has generated inequality by influencing gains from wealth ownership and leverage levels across the income distribution. Securitization and the subprime lending expansion have led to the emergence of a new class of leveraged homeowners, experiencing large increases in wealth prior to the Great Recession, followed by substantial losses after the crisis. Simultaneously, capitalists have diversified their asset portfolios while earning the highest and fastest growing wages in the economy when employed as financial sector executives. In this light, the paper proposes a new conceptualization of households in macroeconomic models, defined by balance sheet composition rather than income sources alone. To inform this taxonomy, inequality and leverage indicators are simulated in a stock-flow consistent model calibrated to US data with three classes of households distinguished by their wealth composition, and a securitized financial sector. The proposed framework is found to produce more empirically accurate levels of income inequality and greater macroeconomic instability than the two-class division, and establishes an equalizing effect of housing for wealth distribution. |
| Keywords: | Household wealth; Inequality; Macroeconomic modelling; Financial system; USA |
| Date: | 2020–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:akf:cafewp:3&r=all |
| By: | Lucía Arango-Lozano; Lukas Menkhoff; Daniela Rodríguez-Novoa; Mauricio Villamizar-Villegas |
| Abstract: | There is ample empirical literature centering on the effectiveness of foreign exchange intervention (FXI). Given the mix of objectives and country-heterogeneity, the general lack of consensus thus far is no surprise. We shed light on this debate by conducting the first comprehensive meta-analysis in the FXI literature, with 279 reported effects that stem from 74 distinct empirical studies. We cover estimations conducted in 19 countries across five decades. Overall, our meta-survey reports an average depreciation of domestic currency of 1% and a reduction of exchange rate volatility of 0.6%, in response to a $1 billion US dollar purchase. Results are qualitatively confirmed but smaller in size under fixed and random-effect estimations. When narrowing in on different economic factors, we find that effects are magnified for cases consistent with the monetary trilemma (greater if financial openness and monetary independence are low). Effects are also larger in emerging than advanced economies, when banking crises remain mild, and when interventions are large in size and are announced. |
| Keywords: | Foreign exchange intervention, exchange rate, meta-analysis |
| JEL: | C83 E58 F31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1895&r=all |
| By: | Yu, Yewen (Peking University); Fan, Yi (National University of Singapore); Yi, Junjian (National University of Singapore) |
| Abstract: | This study finds that China's one-child policy (OCP), one of the most extreme forms of birth control in recorded history, has amplified economic inequality across generations in China since its introduction in 1979. Poor Chinese families, whose fertility choices are less constrained by the OCP than rich ones, have more children but invest less in human capital per child. Since human capital is a major determinant of earnings, the income inequality persists and enlarges across generations as a consequence. Based on nationally representative longitudinal household survey data, our estimation results show that the OCP accounts for 32.7%-47.3% of the decline in intergenerational income mobility. The OCP has significant ramifications for Chinese society, not only intragenerationally but also intergenerationally. |
| Keywords: | One-Child Policy, differential fertility, child quantity-quality tradeoff, intergenerational mobility |
| JEL: | E24 J13 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13617&r=all |
| By: | Pangestwo, Bima Arya; Widayati, Ratna |
| Abstract: | Credit implementation at PT. BPR Lubuk Raya Mandiri is quite good, as seen from the current credit collectibility which increased from 2013-2017 and non-performing loans decreased. The causes of non-performing loans caused by the economic downturn have caused the ability to repay principal payments and interest on loans that are experiencing problems so that they become substandard, doubtful and even bad. Non-performing loan settlement conducted by PT. BPR Lubuk Raya Mandiri has a policy on credit settlement by means of which the bank will give a warning in advance by telephone, otherwise the bank will send downs in the form of a warning letter to the debtor, if that is not ignored then the bank will take the decision to make a sale collateral or auctioning the collateral publicly in order to pay off debtor obligations to the bank. |
| Date: | 2020–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:vb9r5&r=all |
| By: | Olivier Coibion (University of Texas, Austin and NBER); Yuriy Gorodnichenko (University of California, Berkeley and NBER); Michael Weber (University of Chicago - Booth School of Business and NBER) |
| Abstract: | We use a repeated large-scale survey of households in the Nielsen Homescan panel to characterize how labor markets are being affected by the covid-19 pandemic. We document several facts. First, job loss has been significantly larger than implied by new unemployment claims: we estimate 20 million lost jobs by April 8th, far more than jobs lost over the entire Great Recession. Second, many of those losing jobs are not actively looking to find new ones. As a result, we estimate the rise in the unemployment rate over the corresponding period to be surprisingly small, only about 2 percentage points. Third, participation in the labor force has declined by 7 percentage points, an unparalleled fall that dwarfs the three percentage point cumulative decline that occurred from 2008 to 2016. Early retirement almost fully explains the drop in labor force participation both for those survey participants previously employed and those previously looking for work. |
| Keywords: | Labor market, unemployment, covid-19 |
| JEL: | E31 C83 D84 J21 J26 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-41&r=all |
| By: | Giray Gozgor |
| Abstract: | This paper examines the impact of economic uncertainty shocks on the populist voting behavior in the panel dataset of 24 European Union (EU) countries for the period from 1980 to 2020. In so doing, we focus on the shares of total populism, right-wing populism, and left-wing populism votes as well as a new indicator of economic uncertainty, so-called, the “World Uncertainty Index (WUI).” Using the fixed-effects, bias-corrected least-squares dummy variable (LSDVC), and Instrumental Variables (IV) estimations, we show that a higher level of the WUI is positively related to total populism and right-wing populist voting behavior. The baseline results remain consistent when we deal with potential issues of endogeneity, to address omitted variable bias, and to exclude the outliers. |
| Keywords: | populist attitudes in the European Union, voting behaviour, right-wing populism, left-wing populism, uncertainty shocks, economic policy uncertainty |
| JEL: | D72 D81 C33 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8499&r=all |
| By: | Carlos San Juan Mesonada; Carlos Sunyer Manteiga |
| Abstract: | The objective is to empirically assess the effects of the European Structural and Investment Funds (ESIF) on the regional convergence of income catching-up of the Objective 1 regions in Spain. The principal added value of the paper is that by using realized investment data, it allows comparison of the results in terms of real regional convergence of the two budgetary periods covering different phases of the business cycle and two ESIF operational programs. The panel data model’s results allow recommendations to assess economic and financial adjustments in the UE and the use of the ESIF. Changes in economic cycles seem to have a significant impact on the ability of funds to contribute to the growth of the regional economy. Possible use in the Eurozone of the future Crisis Fund of the multiannual budget 2021-27. The level of indebtedness in the region has a definite adverse effect on the effectiveness of European projects. Additionally, we identify an apparent spillover effect from the funds towards other border regions on those that are formally receiving. Therefore, it is essential to be able to adapt the funds according to the phase of the business cycle. Moreover, during the downturns, to ensure their effectiveness may not be co-finance by regions. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econwp:_47&r=all |
| By: | Elie Bouri (Adnan Kassar School of Business, Lebanese American University, Lebanon); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Clement Kweku Kyei (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Sowmya Subramaniam (Indian Institute of Management Lucknow, Prabandh Nagar off Sitapur Road, Lucknow, Uttar Pradesh 226013, India) |
| Abstract: | Using daily data from 3rd January, 2001 to 17th July, 2020, we analyse the impact of oil market uncertainty, computed based on realized volatility of 5-minute intraday oil returns, on the level, slope and curvature factors derived from the term structure of interest rates of the United States (US) covering maturities of 1 to 30 years. The results of the linear Granger causality tests detect no evidence of predictability of oil uncertainty on the three latent factors. However, evidence of nonlinearity and structural breaks indicates misspecification of the linear model. Accordingly, we use a data-driven approach, the nonparametric causality in-quantiles test, which is robust to misspecification due to nonlinearity and regime change. Notably, this test allows us to model the entire conditional distribution of the level, slope and curvature factors, and hence accommodate, via the lower quantiles, the zero lower bound situation observed in our sample period. Using this robust test, we find overwhelming evidence of causality from oil uncertainty for the entire conditional distribution of the three factors, suggesting the predictability of the entire US term structure based on information contained in oil market volatility. Our results have important implications for academics, investors and policymakers. |
| Keywords: | US Term Structure of Interest Rates, Yield Curve Factors, Oil Market Uncertainty, Causality-in-Quantiles Test |
| JEL: | C22 C32 E43 Q41 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202085&r=all |
| By: | Raheem, Ibrahim; le Roux, Sara; Asongu, Simplice |
| Abstract: | This study examines the asymmetry between capital flows and economic growth in 42 countries for the period 1990-2017. It further argues that uncertainty is an important channel through which asymmetry operates. As such, the three measures of uncertainty are macroeconomic, fiscal and institutional. The Generalised Method of Moments is used as an empirical strategy. The existence of an asymmetry is confirmed by the findings as capital flows are more reactive to economic drag when compared to economic growth. Furthermore, the channels through which asymmetry operate are heterogeneous to measures of capital flows and proxies for uncertainty. |
| Keywords: | Capital flows, Economic growth, Asymmetry, Uncertainty and Emerging countries |
| JEL: | C13 F30 G15 O16 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101525&r=all |
| By: | Elisabeth Paul; N'koué Emmanuel Sambiéni; Jean-Pierre Wangbe; Fabienne Fecher; Marc Bourgeois |
| Abstract: | Background: In its pursuance of universal health coverage (UHC), the government of Benin is piloting a project ofmandatory social insurance for health entitled “ARCH”.Methods: We analysed budget data and ARCH documents, and conducted four observation missions in Beninbetween March 2018 and January 2020. Results are presented in terms of the three classical objectives of publicexpenditure management.Results: The government of Benin faces important budgeting challenges when it comes to implementing theARCH social insurance project: (i) the fiscal space is quite limited, there is a limited potential for new taxes andthese may not benefit the ARCH funding, hence the need to prioritise fiscal resources without jeopardising otherareas; (ii) the purchasing of health services should be more strategic so as to increase allocative efficiency andequity; (iii) the efficiency of the expenditure process needs to be improved, and more autonomy needs to bedevoted to the operational level, so as to ensure that health facilities are reimbursed in a timely fashion in order tomeet insured people’s health costs, in such a way as to avoid jeopardizing the financial equilibrium of thesefacilities.Conclusion: The important budgeting challenges faced by Benin when it comes to implementing its UHC policyare also faced by many other African countries. It is important to avoid a situation in which the resources dedicatedby the government to the social health insurance system are at the expense of a reduction in the financing ofpreventive and promotional primary healthcare services. |
| Keywords: | Universal health coverage; Health financing; Budgeting; Public expenditure management; Strategic purchasing; Benin |
| Date: | 2020–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/312499&r=all |
| By: | Branko Boskovic (University of Alberta); Sacha Kapoor (Erasmus University Rotterdam); Agnieszka Markiewicz (Erasmus University Rotterdam); Auteur2 (University of Alberta) |
| Abstract: | What explains apparent price rigidity over the business cycle? This paper shows that price fluctuations may be hidden in prices of add ons. Using 10 years of extended warranty data from a nationwide Canadian retailer, we show that extended warranty prices respond strongly to changes in local economic activity whereas prices of underlying durable goods do not. The procyclicality is driven by a shift in price setting behavior, where local stores use extended warranty discounts to make base durable demand less price elastic and, as a result, increase sales of durable goods. Discounts on extended warranties were especially sharp during the Great Recession. |
| Keywords: | Add-on pricing, business cycles |
| JEL: | E30 L81 |
| Date: | 2020–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200060&r=all |
| By: | Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Public discontent with Mr. Lukashenko’s authoritarian rule had been piling up for years and came to the surface after the fraudulent presidential election held in August 2020. At present the country is in a political stalemate as the official election results are challenged by a large part of the population and by the West but recognised by Russia and China. In the present circumstances there are no straightforward ways to break the gridlock, and different scenarios are possible. At the same time the Belarusian economy is plagued with serious problems that call for radical economic reforms. Belarus’s economic and political problems are intertwined the way the political crisis will be resolved will shape the future of the Belarusian economy. |
| Keywords: | Belarus, elections, political stalemate, credibility and legitimacy of power, succession of power, economic reforms |
| JEL: | E65 P21 P30 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:wii:pnotes:pn:40&r=all |
| By: | Dao, Kieu Oanh; Nguyen, Thi Yen; Hussain, Sarfraz; Nguyen, V.C. |
| Abstract: | The recent crisis of non-performing loans in the banking system has hit the Vietnamese economy hard. The GDP has been fallen down, while the bad debt ratio in the banking system has risen dramatically to 17.2 percent, and it takes more time to restore the economy and banking system. This research aims to define aspects that impact non-performing commercial bank loans in Vietnam. It covers the period of 2008–2017 using 200 identified banks of Ho Chi Minh City Stock Exchange and Hanoi Stock Exchange, and applies methods based on the regression of pooled ordinary least squares, fixed and random effects models, in particular, generalized least squares to confirm the stability of the regression model. The results show that non-performing loans this year will positively affect those in the next year. In addition, a raise in bank performance and credit growth also leads to the reduction in non-performing loans from banks. Regarding macroeconomic factors, higher interest rates would have a major and beneficial influence on failed loans in terms of macroeconomic dynamics, and, therefore, little effect on economic activity and inflation. Therefore, Vietnamese banking system should reduce the systematic risk and improve monitoring processes, drawing on the experience of global banks with extensive experience in risk management. |
| Date: | 2020–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:6ykd8&r=all |
| By: | Bernardo Morais; Gaizka Ormazabal; José-Luis Peydró; Mónica Roa; Miguel Sarmiento |
| Abstract: | We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification. |
| Keywords: | Loan provisions, IFRS9, ECL, corporate real and credit supply effects of accounting, bank risk-taking |
| JEL: | E31 G18 G21 G28 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1737&r=all |
| By: | Asongu, Simplice |
| Abstract: | The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa. |
| Keywords: | Economic Output; Financial Development; Sub-Saharan Africa |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:101535&r=all |
| By: | Barth, Erling (Institute for Social Research, Oslo); Roed, Marianne (Institute for Social Research, Oslo); Schone, Pal (Institute for Social Research, Oslo); Umblijs, Janis (Institute for Social Research, Oslo) |
| Abstract: | Using novel matched employer-employee register data with firm-level information on the introduction of industrial robots, this paper analysis the impact of robots on the wages of workers in the manufacturing sector. The results show that industrial robots increase wages for high-skilled workers relative to low-skilled workers, hence robots increases the skill-premium within firms. Furthermore, we find that employees in managerial positions benefit more from robotisation than those in STEM or professional occupations. Overall, our results suggest that the introduction of industrial robots has a positive effect on the average wages of manufacturing workers in Norway. |
| Keywords: | automation, robotisation, labour economics, wages, technological change |
| JEL: | J01 J08 O33 E24 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13605&r=all |
| By: | Mohammad Akbarpour; Julien Combe; Yinghua He; Victor Hiller; Robert Shimer; Olivier Tercieux |
| Abstract: | For an incompatible patient-donor pair, kidney exchanges often forbid receipt-before-donation (the patient receives a kidney before the donor donates) and donation-before-receipt, causing a double-coincidence-of-wants problem. Our proposed algorithm, the Unpaired kidney exchange algorithm, uses “memory” as a medium of exchange to eliminate these timing constraints. In a dynamic matching model, we prove that Unpaired delivers a waiting time of patients close to optimal and substantially shorter than currently utilized state-of-the-art algorithms. Using a rich administrative dataset from France, we show that Unpaired achieves a match rate of 57 percent and an average waiting time of 440 days. The (infeasible) optimal algorithm is only slightly better (58 percent and 425 days); state-of-the-art algorithms deliver less than 34 percent and more than 695 days. We draw similar conclusions from the simulations of two large U.S. platforms. Lastly, we propose a range of solutions that can address the potential practical concerns of Unpaired. |
| JEL: | C78 D47 E49 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27765&r=all |
| By: | Francesco Flaviano Russo (Università di Napoli Federico II and CSEF) |
| Abstract: | I study how to increase the capacity to test for Covid-19 with the two-swabs group testing strategy. It consists in bunching first swabs in groups and processing the second swabs individually only in case the group result is positive. Using a simulation, I derive multipliers of the lab capacity in worse case scenario that indicate how many more tests a lab can be sure to perform each day. The results show that the gains can be substantial even in case the actual fraction of positive tests is bigger than the expected fraction used to set the optimal group size. |
| Keywords: | Group, Test |
| JEL: | E1 I1 H12 |
| Date: | 2020–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:575&r=all |
| By: | Holger Sieg; Chamna Yoon; Jipeng Zhang |
| Abstract: | Using newly available data, we document that internal migrants do not enjoy the same access to local public goods and services as city residents in China. We estimate a spatial overlapping generations model with heterogeneous households to quantify the impact of the Hukou system on urban fiscal policies and access to educational opportunities. We find that migrants provide large fiscal externalities to all major cities. We show the feasibility of alternative internal migration policies that offer the potential of decreasing the inequality within China while at the same time increasing the overall level of human capital in the economy. |
| JEL: | E6 H7 I25 J24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27764&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Mushfiqur Rahman (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 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/064&r=all |
| By: | Yuji Horioka, Charles |
| Abstract: | The selfish life-cycle model or hypothesis is, together with the dynasty or altruism model, the most widely used theoretical model of household behavior in economics, but does this model apply in the case of a country like Japan, which is said to have closer family ties than other countries? In this paper, we first provide a brief exposition of the simplest version of the selfish life-cycle model and then survey the literature on household saving and bequest behavior in Japan in order to answer this question. The paper finds that almost all of the available evidence suggests that the selfish life-cycle model applies to at least some extent in all countries but that there is more consistent support for this model in Japan than in the United States and other countries. It then explores possible explanations for why the life-cycle model is more consistently supported in Japan than in other countries, attributing this finding to government policies, institutional factors, economic factors, demographic factors, and cultural factors. Finally, it shows that the findings of the paper have many important implications for economic modeling and for government tax and expenditure policies. |
| Keywords: | Age structure, altruism, bequest motives, borrowing constraints, consumption, culture, dissaving, dynasty model, elderly, family ties, household saving, inheritances, intergenerational transfers, Japan, life-cycle model, religiosity, retirement, Ricardian equivalence, saving motives, selfishness, social norms, D11, D12, D14, D15, D64, E21, J14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:agi:wpaper:00000182&r=all |
| By: | Martin Beraja; David Y. Yang; Noam Yuchtman |
| Abstract: | Data-intensive technologies, like AI, are increasingly widespread. We argue that the direction of innovation and growth in data-intensive economies may be crucially shaped by the state because: (i) the state is a key collector of data and (ii) data is sharable across uses within firms, potentially generating economies of scope. We study a prototypical setting: facial recognition AI in China. Collecting comprehensive data on firms and government procurement contracts, we find evidence of economies of scope arising from government data: firms awarded contracts providing access to more government data produce both more government and commercial software. We then build a directed technical change model to study the implications of government data access for the direction of innovation, growth, and welfare. We conclude with three applications showing how data-intensive innovation may be shaped by the state: both directly, by setting industrial policy; and indirectly, by choosing surveillance levels and privacy regulations. |
| JEL: | E0 H4 L5 L63 O25 O30 O40 P00 P16 Z21 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27723&r=all |
| By: | Refk Selmi (ESC Pau); Jamal Bouoiyour (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Shawkat Hammoudeh (Bennett S. LeBow College of Business - Department of Economics and International Business - Drexel University) |
| Abstract: | In the wake of recent political developments around the world, the prospects of future oil supplies have become doubtful and the uncertainty has come to play a non-negligible role in determining the dynamics of major macroeconomic variables. This study carries out a factor model with time-varying loadings to decompose the variance of a set of important macroeconomic and financial series for the top ten oil-producing countries into contributions from country-specific uncertainty and common uncertainty. The relative importance of the uncertainty estimates in explaining the volatility of production, investment, total exports, exchange rate and stock prices seems to differ over time, with evidence of alternating periods of high and low persistent uncertainties. The global uncertainty plays the primary role for output growth, investment, exports and stock prices in all countries. The globalization and trade openness contribute in amplifying the international transmission of volatility, explaining therefore the increasing importance of the global uncertainty factor. |
| Keywords: | Common uncertainty,country-specific uncertainty,top ten oil-producing countries,dynamic factor model |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02929898&r=all |
| By: | Philippe Goulet Coulombe; Maxime Leroux; Dalibor Stevanovic; Stéphane Surprenant |
| Abstract: | Dans ce rapport nous appliquons de nombreuses techniques d’apprentissage automatique (Machine Learning) au problème de prévision de l’activité économique au Québec et au Canada. Six groupes de modèles sont considérés : les modèles à facteurs, régressions pénalisées, régressions régularisées par sous-ensembles complets, régressions à vecteurs de support, forêts d’arbres aléatoires et les réseaux de neurones. Tous ces modèles apportent différentes façons de gérer les grands ensembles de données et de générer les formes fonc-tionnelles hautement complexes. La prédiction de 16 variables macroéconomiques québécoises et canadiennes est évaluée dans un exercice de prévision hors échantillon. Les grands ensembles de données canadiennes et américaines sont considérés. Les résultats indiquent que les méthodes machine learning, combinées avec les grands ensembles de données, ont un bon pouvoir prédictif pour plusieurs variables d’activité réelle comme le PIB, la formation brute de capital fixe et la production industrielle. Les forêts d’arbres aléatoires sont particulièrement résiliantes, suivies des réseaux de neurones. La prévision des variables du marché d’emploi est améliorée par l’utilisation des régressions pénalisées, simples ou par sous-ensembles complets. Les taux d’inflation sont prévisibles avec les forêts aléatoires et les régressions pénalisées. Quant aux mises en chantier et le taux de change USD/CAD, les méthodes machine learning n’arrivent pas à améliorer la prévision ponctuelle, mais affichent des résultats intéressants au niveau de la prévision de la direction future de ces variables. |
| Keywords: | , Prévision,Macroéconomie,Données massives,Machine Learning |
| Date: | 2020–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirpro:2020rp-18&r=all |
| By: | Cameron LAPOINT; UNAYAMA Takashi |
| Abstract: | This paper documents heterogeneity in consumption responses to a large stimulus tax rebate based on household exposure to a housing price cycle. Linking geocoded household expenditure and financial transactions data to local housing price indices in Japan, we estimate a U-shaped pattern in the marginal propensity to consume with respect to housing price growth. Recipients living in areas with the smallest housing price gains during the 1980s spent 44% of the 1994 rebate within three months of payment, compared to 23% among recipients in areas which experienced the largest housing price gains. While we find limited heterogeneity in marginal propensities to consume among households in less-affected areas, MPCs are higher for younger, renter households with no debt residing in more-affected areas. These findings are consistent with near-rational households for which the pricing shock was small relative to permanent income spending a larger fraction of the tax rebate. Our analysis suggests fiscal stimulus payments primarily induce spending among "winner" households who face minimal exposure to housing price cycles. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:20067&r=all |
| By: | Francesco Flaviano Russo (Università di Napoli Federico II and CSEF) |
| Abstract: | I investigate whether cash thresholds that forbid cash payments on big transactions are effective at reducing tax evasion. I find that the 1000 euros threshold implemented in Italy in 2011 induced a bigger cash expenditure reduction for the households with self employed members, and the more so in case they work in cash intensive sectors. With the help of a simple model, I show that this empirical evidence suggests a tax evasion reduction, and I compute the tax revenue increase implied by the empirical estimates. Calibrating the model, I also perform a counterfactual exercise to quantify the potential effects of lower thresholds. |
| Keywords: | Self-employed, Transactions, Payments |
| JEL: | H26 E42 |
| Date: | 2020–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:579&r=all |
| By: | Stephen Boyle (Department of Economics, University of Strathclyde); Kevin Connolly (Department of Economics, University of Strathclyde); Peter G McGregor (Department of Economics, University of Strathclyde); Mairi Spowage (Department of Economics, University of Strathclyde) |
| Abstract: | A key current objective of Scottish policymakers is to increase the availability of affordable and social housing, with an expectation that this will have both societal and economic impacts. The purpose of this paper is to evaluate the potential economic impacts of meeting the projections of affordable housing needed in Scotland to combat homelessness. Typical economic impact assessments of social housing investment have focused exclusively on the effect of expenditures on demand, using input-output models (IO). However, recently some have argued that housing, like transport, should be treated as a type of infrastructure investment that is likely also to have potential supply side impacts – such as an increase in both labour supply and productivity. In this paper, we use both IO and Computable Generable Equilibrium (CGE) models to evaluate the economic impact of social housing investment, with a particular emphasis on the supply side impacts |
| Keywords: | Affordable housing, input-output, computable general equilibrium |
| JEL: | D58 E16 R13 R22 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:2013&r=all |
| By: | Djidonou, Gbenoukpo Robert (UNU-MERIT, Maastricht University); Foster-McGregor, Neil (UNU-MERIT, Maastricht University) |
| Abstract: | The growth of the manufacturing sector is important for overall productivity growth. Indeed, the rising importance of the manufacturing sector at early levels of development is considered one of the stylised facts of development. Recently, several developing countries have skipped this step however, with stagnant growth of the manufacturing sector. In this paper, we investigate the role of the informal segment in the stagnant growth of the manufacturing sector in the context of India. To do so, we initially compute the drag imposed by informality on the productivity growth of the manufacturing sector before investigating whether the movement of workers between the formal and informal segments of the manufacturing sector is having an impact on manufacturing productivity growth using a relatively long time series of data for the period 1980-2011. We find that the informal segment is harmful to the growth in productivity of the manufacturing sector. Using a modified shift-share analysis with the introduction of the informal segment, we find that labour reallocation to the informal segment of the manufacturing sector is growth reducing in the Indian manufacturing sector. The main source of this growth reduction is the within sub-sector structural change effect, indicating that workers move on average from productive formal to less productive informal employment within sub-sectors. In terms of movements across sub-sectors, there has been a movement towards more productive informal activities, but this has not been enough to offset the negative within sub-sector effect. Mainly, we have seen limited growth-reducing structural change after the 1994 liberalisation, implying that employment has moved to less productive informal firms after liberalisation. |
| Keywords: | Manufacturing, stagnation, formal economy, informal economy, productivity, worker's movement, India |
| JEL: | E26 L16 L60 O14 O17 O47 O53 |
| Date: | 2020–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2020041&r=all |