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on Macroeconomics |
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Issue of 2020‒10‒12
79 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Lechthaler, Wolfgang; Tesfaselassie, Mewael F. |
| Abstract: | We embed human capital-based endogenous growth into a New-Keynesian model with search and matching frictions in the labor market and skill obsolescence from long-term unemployment. The model can account for key features of the Great Recession: a decline in productivity growth, the relative stability of inflation despite a pronounced fall in output (the "missing disinflation puzzle"), and a permanent gap between output and the pre-crisis trend output. In the model, lower aggregate demand raises unemployment and the training costs associated with skill obsolescence. Lower employment hinders learning-by-doing, which slows down human capital accumulation, feeding back into even fewer vacancies than justified by the demand shock alone. These feedback channels mitigate the disinflationary effect of the demand shock while amplifying its contractionary effect on output. The temporary growth slowdown translates into output hysteresis (permanently lower output and labor productivity). |
| Keywords: | endogenous growth,search and matching,unemployment,nominal rigidity,monetary policy,output hysteresis |
| JEL: | E24 E31 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2162&r=all |
| By: | Pratiti Chatterjee (School of Economics, University of New South Wales Business School); Fabio Milani (Department of Economics, University of California-Irvine) |
| Abstract: | What are the effects of beliefs, sentiment, and uncertainty, over the business cycle? To answer this question, we develop a behavioral New Keynesian macroeconomic model, in which we relax the assumption of rational expectations. Agents are, instead, boundedly rational: they have a finite-planning horizon, and they learn about the economy over time. Moreover, we allow agents to have a potentially asymmetric loss function in forecasting, which creates a direct channel for expected variances to affect the economy. In forming expectations, agents may be subject to shifts in optimism and pessimism (sentiment) and their beliefs may be influenced by their perceptions about future uncertainty. We estimate the behavioral model using Bayesian methods and exploit a large number of subjective expectation series (both point and density forecasts) at different horizons from the Survey of Professional Forecasters. We find that sentiment shocks are the key source of business cycle fluctuations. Shifts in perceived uncertainty can also affect real activity and inflation through a confidence channel, as they play an important role in belief formation. Overall, the results shed light on the importance of behavioral forces over the business cycles, and on the contribution and interaction of first-moment - sentiment - shocks versus second-moment - perceived uncertainty - shocks. |
| Keywords: | Uncertainty Shocks; Sentiment; Animal Spirits; Learning; Behavioral New Keynesian Model; Sources of Business Cycle Fluctuations; Observed Survey Expectations; Optimism and Pessimism in Business Cycles; Probability Density Forecasts |
| JEL: | C32 E32 E50 E52 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:202101&r=all |
| By: | Joonyoung Hur (Department of Economics, Sogang University, Seoul); Jong-Suk Han (Department of Tax Policy Research, Korea Institute of Public Finance,) |
| Abstract: | This paper empirically examines the effect of the monetary policy stance toward inflation on the government spending multiplier when the nominal interest rate is not bound to zero. We estimate a time-varying coefficient vector autoregressive (TVC-VAR) model using 2000:Q1 to 2019:Q3 quarterly data of Korea, whose policy rate is distant from zero. We find that the medium-run government spending multiplier is dampened as the anti-inflationary stance of the central bank becomes more aggressive. The TVC-VAR estimate shows that Korea’s monetary policy became more hawkish until 2009 and attenuated afterward, which is consistent with the narrative evidence from the Bank of Korea. Meanwhile, the medium-run government spending multiplier declined until 2009, after which it started to increase. Our empirical result supports existing theoretical work such as Christiano et al. (2011) that posits a negative relationship between the degree of the monetary authority’s anti-inflationary stance and the size of government spending multipliers. |
| Keywords: | Government spending multiplier; Monetary policy; Time-varying coefficient VAR |
| JEL: | C11 E32 E62 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2004&r=all |
| By: | Victor Pontines (The South East Asian Central Banks (SEACEN) Research and Training Centre) |
| Abstract: | This study adds to a recent and growing literature that assess the effects of macroprudential policy. We compare the effects of monetary policy and loan-to-value ratio shocks for Korea, an inflation targeting economy and an active user of loan-to-value limits. We identify shocks using sign-restricted structural VARs and rely on a recent approach within this method to conduct structural inference. This study finds that both monetary policy and loan-to-value ratio shocks have effects on different measures of credit, i.e., real bank credit, real total credit and real household credit. We also find that both shocks have non-negligible effects on real house prices, including effects on real output, real consumption and real investment. We do, however, find that loan-to-value ratio shocks have negligible effects on the price level. These findings indicate that for the period covered by this study, limits on loan-to-value achieved its financial stability objectives in Korea in terms of limiting credit and house price appreciation under an inflation targeting regime. Furthermore, it attained these objectives without posing any threat to its price stability objective. Overall, these findings suggest that limits on loan-to-value have important aggregate consequences despite it being a sectoral, targeted policy instrument. |
| Keywords: | Macroprudential Policy, Limits on Loan-to-Value, Monetary Policy, Sign Restrictions, Impulse Response, Forecast Error Variance Decomposition |
| JEL: | E31 E32 E52 E58 G28 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp39&r=all |
| By: | Refet S. Gürkaynak; A. Hakan Kara; Burcin Kisacikoglu |
| Abstract: | Central banks unexpectedly tightening policy rates often observe the exchange value of their currency depreciate, rather than appreciate as predicted by standard models. We document this for Fed and ECB policy days using eventstudies and ask whether an information effect, where the public attributes the policy surprise to an unobserved state of the economy that the central bank is signaling by its policy may explain the abnormality. It turns out that many informational assumptions make a standard two-country New Keynesian model match this behavior. To identify the particular mechanism, we condition on multiple asset prices in the eventstudy and model implications for these. We find that there is heterogeneity in this dimension in the eventstudy and no model with a single regime can match the evidence. Further, even after conditioning on possible information effects driving longer term interest rates, there appear to be other drivers of exchange rates. Our results show that existing models have a long way to go in reconciling eventstudy analysis with model-based mechanisms of asset pricing. |
| Keywords: | exchange rate response to monetary policy, central bank information effect, open economy macro-finance modeling |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8557&r=all |
| By: | Joonyoung Hur (Department of Economics, Sogang University, Seoul) |
| Abstract: | Utilizing a sign-restricted VAR model, this paper studies how changes in the labor income share affect business cycle fluctuations for the US and Korea. Analyses of both countries’ annual data from 1970 to 2017 reveal that the effect is insignificant for the US, whereas the empirical evidence for Korea is significant and hinges critically upon how real wages change in times of a rising labor income share. This finding indicates that a higher labor income share accompanied by rising real wages tends to be expansionary as GDP, consumption and investment increase. In contrast, an increase in the labor income share coinciding with falling real wages results in lower GDP, consumption and investment in the short run as well as lower exports in the medium run. |
| Keywords: | Share of Labor Income; Aggregate Fluctuations; Sign-restricted VAR |
| JEL: | D33 E20 E32 C32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2002&r=all |
| By: | Tanweer Akram; Huiqing Li |
| Abstract: | This paper analyzes the nominal yields of UK gilt-edged securities ("gilts") based on a Keynesian perspective, which holds that the short-term interest rate is the primary driver of the long-term interest rate. Quarterly data are used to model gilts' nominal yields. These models bring to light the complex dynamics relating the nominal yields on gilts to the short-term interest rate, inflation, the growth of industrial production, and the government debt ratio. The results show that the short-term interest rate has a crucial influence on the nominal yields on gilts, even after controlling for various factors. Contrary to widely held views, a higher government debt ratio does not lead to higher nominal yields. |
| Keywords: | UK Gilt-Edged Securities; Government Bonds; Long-Term Interest Rates; Nominal Bond Yields; Government Debt |
| JEL: | E43 E50 E58 E60 G10 G12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_969&r=all |
| By: | Roman Horvath (Charles University in Prague); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (Vienna University of Economics and Business) |
| Abstract: | We develop a dynamic stochastic general equilibrium model calibrated to US data to examine how monetary policy shocks affect income inequality and the equity premium. The model features Ricardian and non-Ricardian households and shows that a monetary policy tightening causes an endogenous redistribution of income from non-Ricardians to Ricardians. Ricardians' consumption comoves more strongly with asset returns, giving rise to high equity premia. We extend our model with several frictions and estimate it with generalized method of moments using US macroeconomic and financial data from 1960-2007. We find that the estimated model jointly matches the bond and equity premia. We complement our theoretical model with vector autoregression estimations and show that a tightening of US monetary policy increases equity premia. |
| Keywords: | Limited Asset Market Participation, Monetary Policy, DSGE, Equity Premium |
| JEL: | E32 E44 G12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2020/3&r=all |
| By: | Kenny, Seán; Lennard, Jason; Turner, John D. |
| Abstract: | This paper analyses the macroeconomic effects of banking crises in the United Kingdom between 1750 and 1938. We construct a new annual chronology of banking crises, which we define as episodes of runs and panics combined with significant, geographically-dispersed failures and suspensions. Using a vector autoregression, we find that banking crises are associated with short, sharp and significant drops in economic growth. Using the narrative record to identify plausibly exogenous variation, we show that this finding is robust to potential endogeneity. |
| Keywords: | banking crisis; macroeconomy; narrative identification; United Kingdom; vector autoregression |
| JEL: | E32 E44 G21 N13 N14 N23 N24 |
| Date: | 2020–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:106585&r=all |
| By: | José Alves; Tomás Silva |
| Abstract: | Our paperaims at analysing the relation between monetary policy andits transmission channels on both income and wealthinequality for the Euro Area.We analysed three different channels identified by the literature (Income, Portfolio and Earnings Heterogeneity) that might explainhow monetary policy decisions may affect wealth and income distribution.In this empirical researchwe also set up a fourth regression combining all our selected explanatory variableswith the goal of studyingthe impact of the aforementionedchannels combined. For income inequality we analysed four different measures, namely Gini of disposable income(GDI), Gini of market income(GMI), share of income held by the top 1% and theshare of income of thetop 10%of society. In what regards to wealth inequality due to lack of data we had to createan alternative measure that can both translate the unequal savings rate of the Euro Area countries and evaluate the pace of capital accumulation in order to shed a lighton the gap between high-income and low-income household’sannual savings.So that our study could be conducted we developedan unbalancedpanel data analysis for the Eurozonecountriesbetween 1999 and 2017.The results we reached led us to conclude that the increase in asset prices, mainly equity, seems to be relevant to explain an increase in income inequality. However, it seems that the positive impact that MP had on unemployment by reducing it, contributed to avoid a higher increase on income inequality in the Euro Area. |
| Keywords: | Income inequalities; Wealth inequalities; Monetary Policy; Transmission Channels |
| JEL: | C23 D31 E25 E52 E58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01442020&r=all |
| By: | Cem Cakmakli (Department of Economics, Koc University); Selva Demiralp (Department of Economics, Koc University) |
| Abstract: | Central bank credibility is critical for the effectiveness of monetary policy. The measures of credibility that are based on the changes in actual inflation rate do not perform very well in environments of chronic inflation. We design an alternative measure that allows us to track the evolution of credibility in an inflationary environment. Credibility is defined as the central bank’s ability to lower inflation expectations towards its inflation target via current interest rate decisions. We adopt a Bayesian set up to exploit this definition and document how credibility changes over time. Our measure differs from the existing measures that are based on the deviation of inflation expectations from the inflation target. We show that the latter tests may be too blunt in the EM context and either overlook marginal improvements in credibility or incorrectly attribute the temporary reductions in the inflation rate to improvements in credibility. Utilizing a time varying parameters modeling structure, we show that the credibility of the Central Bank of the Republic of Turkey (CBRT) has declined significantly over time. Potential reasons for this deterioration could be the CBRT’s disappointing performance in hitting the inflation target and its exposure to political pressures. We apply our methodology to Brazil as well to highlight its advantages and draw a comparison to the existing literature. |
| Keywords: | Credibility, inflation expectations, Central Bank of the Republic of Turkey, Unobserved component models, TVP-VAR, Central Bank of Brazil. |
| JEL: | E52 E58 C32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2015&r=all |
| By: | Gouriéroux Christian; Monfort Alain; Mouabbi Sarah; Renne Jean-Paul |
| Abstract: | We define a disastrous default as the default of a systemic entity. Such an event is expected to have a negative effect on the economy and to be contagious. Bringing macroeconomic structure to a no-arbitrage asset-pricing framework, we exploit prices of disaster-exposed assets (credit and equity derivatives) to extract information on the expected (i) influence of a disastrous default on consumption and (ii) probability of a financial meltdown. We find that the returns of disaster-exposed assets are consistent with a systemic default being followed by a 3% decrease in consumption. The recessionary influence of disastrous defaults implies that financial instruments whose payoffs are exposed to such credit events carry substantial risk premiums. We also produce systemic risk indicators based on the probability of observing a certain number of systemic defaults or a sharp drop of consumption. |
| Keywords: | Disaster Risk, Systemic Entities, Default Dependencies, Credit Derivatives, Equilibrium Model. |
| JEL: | E43 E44 E47 G01 G12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:778&r=all |
| By: | Harald Badinger; Stefan Schiman |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8558&r=all |
| By: | John Michael, Riveros Gavilanes |
| Abstract: | The present article establishes an empirical approximation of the causality analysis between inflation and unemployment over the period of 2001 and 2019 for the Colombian economy from the theoretical contributions of Phillips (1957), Phelps (1967), Friedman (1968) and Ball & Mankiw (2002). The methodology based on time series through monthly data, incorporates cointegration analysis and the estimation of VAR models to proceed with the Granger causality tests. The estimations include the natural unemployment rate assumed by the NAIRU estimated with the Hodrick-Prescott (1997) filter. The results indicate the inexistence of long-run relationships between the variables, a decreasing tendency of the natural unemployment rate and the Granger causality reflects only one direction from the inflation to the unemployment. The conclusions establish a significative force from the adaptive expectations in Colombia probably linked with speculation, which through the changes in the price level rebound in the economy and in the variation of the unemployment rate. |
| Keywords: | Inflation; Unemployment; Expectations; Granger Causality; NAIRU |
| JEL: | C10 E31 E42 J69 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103231&r=all |
| By: | Yunmin Chen; YiLi Chien; Yi Wen; C.C. Yang |
| Abstract: | We design an infinite-horizon heterogeneous-agents and incomplete-markets model to demonstrate analytically that in the absence of any redistributional effects of government policies, optimal capital tax is zero despite capital overaccumulation under precautionary savings and borrowing constraints. Our result indicates that public debt is a better tool than capital taxation to restore aggregate productive efficiency. |
| Keywords: | Capital Taxation; Government Bonds; Heterogeneous Agents; Incomplete Markets; Modified Golden Rule; Ramsey Problem; Wealth Distribution. |
| JEL: | C61 E22 E62 H21 H30 |
| Date: | 2020–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:88813&r=all |
| By: | Bardt, Hubertus; Demary, Markus; Grömling, Michael; Hentze, Tobias; Hüther, Michael; Kolev, Galina V.; Schäfer, Holger |
| Abstract: | Die Corona-Pandemie hat infolge der gesundheitspolitischen Maßnahmen und der vielfältigen Auswirkungen auf die Angebots- und Nachfrageseite der rund um den Globus betroffenen Volkswirtschaften das weltweite Wirtschaftsleben im zweiten Quartal 2020 so stark beeinträchtigt, wie kein Ereignis zuvor in den letzten sieben Dekaden. Die Sommermonate 2020 brachten eine ausgeprägte konjunkturelle Erholung in vielen Industrieländern, vor allem auch in China. Wenn diese Erholung nicht durch einen erneuten Lockdown unterbrochen wird, dann kann die globale Wirtschaftsaktivität und der Welthandel gegen Jahresende 2021 das Vorkrisenniveau erreichen. Ein Impfstoff und geopolitische Entspannungen können dieses für 2021 insgesamt positive Erwartungsbild begünstigen und festigen. In Deutschland sind im zweiten Quartal 2020 die Exporte, die Ausrüstungsinvestitionen und der Private Konsum stark eingebrochen. Bis Ende 2021 wird bei diesen Aggregaten nicht wieder das Niveau von Ende 2019 erreicht. Positive Impulse kommen dagegen vom Staatsverbrauch und von der Bauwirtschaft. Das reale BIP in Deutschland wird im Jahr 2020 um knapp 6 ¼ Prozent zurückgehen, für 2021 wird ein Zuwachs von knapp 4 ½ Prozent prognostiziert. Die Inflations-rate wird 2020 auf ½ Prozent zurückgehen und 2021 werden die Verbraucherpreise um 1 ½ Prozent über dem Vorjahr liegen. Die Anzahl der Erwerbstätigen wird hierzulande im Jahresdurchschnitt 2020 um ¾ Prozent sinken und 2021 wieder leicht ansteigen. Das Beschäftigungsvolumen wird im Jahresdurchschnitt 2021 bei knapp 45 Millionen Erwerbstätigen liegen, die Anzahl der Arbeitslosen bei gut 2,7 Millionen. Das entspricht einer Arbeitslosenquote von rund 6 Prozent. Das staatliche Defizit wird 2020 auf 200 Milliarden Euro ansteigen. Dies entspricht knapp 6 ¼ Prozent der Wirtschaftsleistung. Im kommenden Jahr beläuft sich das Defizit auf knapp 4 Prozent. Die Staatsschuldenquote wird in Deutschland in beiden Jahren bei rund 75 Prozent des BIP liegen. |
| JEL: | E2 E3 E5 E6 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:462020&r=all |
| By: | Gianluca Cafiso |
| Abstract: | We study the contribution of loans, granted to different borrower groups, to economic activity in the USA over the period 1971q1-2018q4. Significant economic recessions occurred along the period considered, we center our discussion around the recent Global Financial Crisis. Results are delivered through a historical decomposition analysis based on the estimation of a large VAR through Bayesian techniques. Loans to households emerge as the most important driver of economic activity when compared to other groups, mortgages contribute the most with respect to other typologies. The analysis shows that loan shocks have truly undermined economic activity during the Global Financial Crisis. |
| Keywords: | loans, economic activity, households, corporate business, non-corporate business, Bayesian VAR, historical decomposition |
| JEL: | E44 E51 G20 G21 C11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8530&r=all |
| By: | Atalay, Kadir (University of Sydney); Edwards, Rebecca (University of Sydney); Schurer, Stefanie (University of Sydney); Ubilava, David (University of Sydney) |
| Abstract: | Worldwide, countries have been restricting work and social activities to counter an emerging public health crisis due to the coronavirus pandemic. These measures have caused dramatic increases in unemployment in the short run, with an expected deepening of the recession in the long run. Some commentators argue that the "draconian measures" will do more harm than good due to the economic contraction, despite a large literature that finds mortality rates decline during recessions. We estimate the relationship between unemployment, a widely accepted proxy for economic climate, and mortality in Australia, a country with universal health care. Using administrative time-series data on mortality that varies by state, age, sex, and cause of death collected for the years 1979-2017, we find no relationship between unemployment and mortality on average. However, we observe beneficial health effects in economic downturns for young men aged 25 to 34 associated with a reduction in vehicle transport accidents. Our estimates imply 425 fewer deaths if Reserve Bank of Australia expectations of a doubling of unemployment rates are realized by the end of 2020. For the early 1980s, we also find a procyclical pattern in the mortality rates of infants. However, this pattern disappears starting from the mid-1980s, coincident with the full implementation of universal health care in Australia in 1984. Our results suggest that universal health care may insulate individuals from the health effects of macroeconomic fluctuations. We conclude that the economic recession is an unlikely mediator for pandemic-related deaths in Australia. |
| Keywords: | mortality, health, recessions, unemployment, macroeconomic conditions, Australia, COVID-19, pandemic, universal health care |
| JEL: | I12 E32 E24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13742&r=all |
| By: | Andrzej Rzońca; Andrzej Halesiak |
| Abstract: | Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic. A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation. |
| Keywords: | COVID-19, fiscal stimulus, public debt, unconventional monetary policy, restructurisation, zombie companies, Po-land, debt crisis, sustainable development, technological development |
| JEL: | E62 H5 H6 O11 Q55 Q56 |
| Date: | 2020–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:sec:mbanks:0165&r=all |
| By: | Istrefi Klodiana; Odendahl Florens; Sestieri Giulia |
| Abstract: | This paper studies the informational content of publicly given speeches of FOMC members with a focus on financial stability, from 1997 to 2018. We document that presidents of Federal Reserve Banks spoke more than Board members around and after the financial crisis, and exhibit more variation in the topics of their speeches. Our speech-based indicators of financial stability-related topics show that, when added to a standard forward-looking Taylor rule, a higher speech intensity on these topics relates to a more accommodative monetary policy. This result is driven by the information in speeches of Fed presidents, not the Board or the Fed Chair. We discuss several channels that can rationalize this finding. |
| Keywords: | Monetary Policy, Federal Reserve, Financial Stability, Communication. |
| JEL: | E03 E50 E61 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:779&r=all |
| By: | Remzi Baris Tercioglu (Department of Economics, New School for Social Research) |
| Abstract: | The existing output gap estimations rely on aggregate output data, assume constant utilization over industries (see Coibion et al. (2018), Owyang et al. (2018) and Chen and Górnicka (2020)). However, each sector has its cycle, and missing sectoral dynamics creates underestimation of the economy-wide slack. By using a new peak to peak method, motivated by the business cycle analysis of Mitchell (1946), I estimate output gaps of 20 US industries over 1948-2019. To increase the last cycle measures’ precision, I estimate a generalized Poisson model with Bayesian statistical inference, predicting the next peaks’ timing and magnitude for 20 industries. I find a generally negative output gap at the aggregate except for the second half of the 1960s, and a persistent excess-capacity since 1990. For 2019, I estimate a negative output gap of 2.5%, coming from the under-utilization in utilities, manufacturing, wholesale trade, transportation-warehousing, finance-insurance and education, while the Congressional Budget Office and Hodrick–Prescott filter indicate overheating since 2017. My findings show that secular stagnation is not an inevitable future for the US economy and suggest demand supporting policies to eliminate the chronic output gap. |
| Keywords: | Sectoral output gap, generalized Poisson model, Bayesian statistics, secular stagnation |
| JEL: | E32 E60 C11 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:2012&r=all |
| By: | Ernesto Bernal Martínez (Docente e investigador del Instituto de Investigaciones Económicas de la F.C.E.F.A. de la U.T.O) |
| Abstract: | Esta investigación tiene como objetivo estimar el impacto de los choques estructurales de corto y largo plazo en el Producto Interno Bruto (PIB) y en los precios en Bolivia. La metodología utilizada fue de vectores autorregresivos estructurales con datos del Instituto Nacional de Estadística. Los resultados muestran que los choques de oferta generan un impacto positivo de largo plazo sobre el PIB de la economía, y una caída en el nivel de precios; mientras que los choques de demanda sobre el PIB y los precios en Bolivia son negativos. Además se encuentra que las crisis política, subprime y de los commodities han tenido un impacto negativo sobre el crecimiento del PIB. |
| Keywords: | Crecimiento, precios, vectores autorregresivos, choques transitorios, choques de largo plazo. |
| JEL: | E31 E32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:202005&r=all |
| By: | Koray Caglayan (American Institutes of Research); Steven M. Sheffrin (Tulane Economics and Murphy Institute) |
| Abstract: | Some states pay more in federal taxes than they receive in federal spending and have a negative balance of payments. While this uneven pattern of spending and taxation has been known for some time, little attention has been paid to the cyclical effects of these spending–tax differentials. Intuitively, “giver” states, those that pay more in taxes than they receive might have an extra cyclical buffer in the face of an economic downturn, as their balance of payments to the federal government may improve more than for “taker” states, those that receive more than they pay. In this study, we test the hypothesis of whether the giver status itself works as a potential stabilization mechanism during economic fluctuations. We use difference-in-differences methods to estimate the effect of giver status on the response of a state’s balance of payments during and after a recession. The Great Recession in 2008 serves as the exogenous shock in our identification strategy. To estimate the relationship between a state’s balance of payments and its gross domestic product growth, we take an instrumental variables approach. We use the variation in the response of federal fiscal measures to a recession that is attributable to giver status to estimate the effect of a state’s balance of payments on gross state product growth. The results from our difference-in-differences analysis indicate that after the 2008 recession, per capita balance of payments in giver states improved $808 more on average compared to taker states. The point estimates from our instrumental variable specification suggest that a thousand-dollar improvement in balance of payments increases the annual growth in gross domestic product by 2.2 percentage points. We also explore the milder 2001 recession. Although tax receipts of giver states fall more than taker states during the recession, spending also falls in these states relative to the taker states. The increase in defense and international spending after the 9/11 crisis most likely explains these results. |
| Keywords: | Giver and taker states, Fiscal balances, Stabilization. |
| JEL: | H72 E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:2001&r=all |
| By: | Marianna Endrész (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | This paper uses a natural experiment to study the impact of a loan supply shock on a Hungarian matched bank-firm dataset. The event studied is a funding shock Hungarian banks faced following the collapse of the Lehman Brothers. Banks were affected via their external funding and positions on the swap market. The existence of firms with multiple bank links is utilized to separate demand and supply, and to find instruments to calculate the impact of the supply shock on lending and firms’ real outcome. According to the results banks with large exposure on the swap market and with heavy reliance on foreign market funding cut their lending more, while foreign group funding provided a buffer. Firms were not able to fully offset the impact of the supply shock by shifting to less exposed banks, their overall lending fell too. The supply shock affected various groups of firms differently: banks reallocated lending towards larger firms. The squeeze on lending in turn had an impact on firms’ real performance, by lowering their net investment. The real impact was more detrimental for small and risky firms. |
| Keywords: | Financial crisis, Bank lending, Real effect of credit, Firm-level data, Hungarian economy. |
| JEL: | E22 E51 G01 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2020/5&r=all |
| By: | Andrade Philippe; Coibion Olivier; Gautier Erwan; Gorodnichenko Yuriy |
| Abstract: | We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document an important new stylized fact. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. We then assess the extent to which these patterns are related to observable characteristics of firms and the industries in which they reside. Finally, we extend the analysis to firms’ expectations over their own future price changes and document how these respond to both industry and aggregate variation. |
| Keywords: | Expectations, Rational Inattention. |
| JEL: | E2 E3 E4 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:780&r=all |
| By: | Giovanni Scarano |
| Abstract: | Some recent contributions to economic literature have highlighted the role of corporate savings decisions by big corporations in devoting their profits to direct investment in capital goods, showing how this role is affected by the features of corporate governance and the forms of competition, but also by the possibilities of holding liquid financial assets bearing high returns. However, at the macroeconomic level, some of these analyses show a fallacy of composition in explaining the effects of financialisation on real aggregate investment. The paper proposes an analytical framework in which the growing financialisation of big corporations, interacting with financial globalization, can play a major role in timing the rhythms of real investment in a part of the world economic system. Moreover, the paper shows how the liquidity degree of the assets can also be a very important determinant in portfolio choices by corporations, in close connection with business fluctuations. |
| Keywords: | Investment theory, Corporate Savings, Capital Movements, Financialisation, Financial Crises |
| JEL: | B51 E11 E12 E32 F23 G35 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0256&r=all |
| By: | Victor Nechifor (European Commission – JRC Seville); Emanuele Ferrari (European Commission – JRC Seville); Evelyne Kihiu (Kenya Institute for Public Policy Research and Analysis); Joshua Laichena (Kenya Institute for Public Policy Research and Analysis); Daniel Omanyo (Kenya Institute for Public Policy Research and Analysis); Rogers Musamali (Kenya Institute for Public Policy Research and Analysis); Benson Kiriga (Kenya Institute for Public Policy Research and Analysis) |
| Abstract: | This technical report focuses on the short-term implications on the wider Kenyan economy of the COVID-19 lockdown by taking into account several impact channels (labour productivity, export demand and tourism, remittances, internal demand and internal trade costs). It considers the uncertainty of lockdown durations both domestically and abroad and incorporates the government fiscal and spending measures implemented through the Tax Laws (Amendment) Act, 2020, the COVID Spending Plan and the Economic Stimulus Plan. In annualised terms, the modelling results of this study show that the April-June lockdown in Kenya would have an impact of 5.6% in GDP in 2020 relative to the pre-COVID baseline leading to close to zero economic growth for the year. The main drivers of the reduction in economic activity are the drops in labour productivity, in export commodities and in tourism. The GDP decrease is accompanied by a depreciation of the Kenya Shilling (KSh), a reduction of domestic investment and an increase in government deficit by 17.2 billion KSh. Employment reduces by 11.8% and real income decreases by 7.9% and 6.8% for rural and urban households respectively. The lower income determines a decrease in domestic demand and lowers market prices for the majority of commodities. The impacts of the pandemic would be amplified if a new COVID-19 wave were to emerge in the second part of 2020. The GDP would see a contraction of approximately 0.8% of GDP relative to 2019 in case this hypothetical wave would only occur outside Kenya, and a GDP contraction of 3.8% in case a new set of lockdown measures would need to be imposed in Kenya as well. Employment levels would see a significant reduction of 19.1% while the government deficit would further expand. Addressing the impacts of the April-June lockdown, the announced government spending measures and the reduction of rates for VAT, income, turnover and corporate taxes facilitated by an increase in foreign borrowing determine a short-term recovery at a macroeconomic level, with negative GDP impacts reduced from 5.6% to 4.8% of GDP, implying an approximately 0.9% growth rate for 2020. These measures have an even more pronounced effect for the recovery of household income and the food sectors. Government revenues nevertheless see a decline and, with an increase in public spending, the government deficit expands by a further 25.1 billion KSh. The extent to which this deficit will need to be covered through internal borrowing will influence private investment through crowding-out effects and will constrain medium-term recovery. The main findings of the report show the negative macroeconomic effects of the pandemic on the Kenyan economy and how the government short-term recovery package can support households in reducing these negative impacts. The report also shows that these measures will put under severe stress the government resources, in particular in case of double waves. This calls for a global reaction in front of the negative impacts of the pandemic to support more fragile countries. |
| Keywords: | covid-19, general equilibrium, public spending, food systems, trade |
| JEL: | C68 E62 E66 E69 F17 O13 O23 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc121284&r=all |
| By: | Ke Pang, Christos Shiamptanis (Wilfrid Laurier University) |
| Abstract: | This paper studies the Canadian fiscal finances in the aftermath of the pandemic. We use a rich set of fiscal categories to estimate their responsiveness to debt. We find that debt has been financed historically mainly by tax revenue. We use our estimates to derive the Canadian debt limit, the maximum level of debt beyond which debt solvency is in doubt. We use a small open economy model which is subject to exogenous pandemic shocks. The pandemic shocks reduce the hours worked and consumption, which in turn lower output, reduce the tax revenue and raise the debt level. We then investigate whether adverse shocks caused by the pandemic can push the debt beyond its debt limit. We find that even in the worst case scenario, the Canadian government will not breach its debt limit. |
| Keywords: | Fiscal limit; Solvency Crisis; Pandemic; Containment policies |
| JEL: | E62 F34 H30 H60 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:wlu:lcerpa:ec0122&r=all |
| By: | Ignacio P. Campomanes |
| Abstract: | How does the interaction between inequality and social mobility affect the choice of fiscal policy? I analyze this question in a model of democratic politics with imperfect tax enforcement, where the ability of individuals to evade taxes limits the amount of redistribution in the economy. Social mobility creates an insurance motive that increases voluntary compliance, favoring the tax enforcement process. In such an environment, redistributive pressures brought about by an increase in inequality are only implementable in highly mobile societies. On the contrary, when mobility is low, higher inequality reduces tax rates and does not translate into higher redistribution. I empirically analyze the predictions of the model for a sample of 72 countries during the period 1960-2015. Using cross-sectional as well as panel estimation techniques, the results point to a positive relation between market inequality and the level of redistribution only when social mobility is relatively high. |
| Keywords: | Inequality, Social Mobility, Fiscal Policy, Tax Evasion. |
| JEL: | E62 D31 J62 H26 P16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nva:unnvaa:wp05-2020&r=all |
| By: | Gustavo Adolfo HERNANDEZ-DIAZ; Luis Felipe QUINTERO |
| Abstract: | En este trabajo se presentan diferentes simulaciones para encontrar los efectos del confinamiento decretado por el Gobierno Nacional, para disminuir la propagación de contagios por el Covid–19. El análisis se realiza mediante una Matriz Insumo-Producto Regional, construida por la Dirección de Estudios Económicos del DNP, con la cual, mediante una variación del Método de Extracción Hipotética, se observan los efectos sobre producción y empleo. Se encuentra que los efectos sobre la producción alcanzan una caída de 8,2%, lo que conlleva a una disminución del empleo de 3,5 millones de personas. Además, se puede observar como las diferencias regionales, hacen que los efectos sean bastante diversos entre departamentos, así como se analiza los impactos sobre el comercio interdepartamental. |
| Keywords: | Covid–19, Economía regional, Matrices insumo–producto, Métodos de extracción hipotética. |
| JEL: | C67 E23 E24 |
| Date: | 2020–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000118:018428&r=all |
| By: | Taiji Inui (Japan International Cooperation Agency (JICA) advisor for Central Bank of Myanmar and Asian Development Bank (ADB) consultant for Cross-border Settlement Infrastructure Forum (CSIF)); Wataru Takahashi (Faculty of Economics, Osaka University of Economics and Research Fellow, Research Fellow, Research Institute for Economics and Business Administration, Kobe University, Japan); Mamoru Ishida (Itochu Corporation, Japan) |
| Abstract: | Following the previous paper by Inui, Takahashi, and Ishida (2020), this paper discusses possible measures and processes of Asia (ASEAN+3) digital common currency (ADCC) issued by central banks in ASEAN+3 countries/economies backed by the ADCC denominated bonds issued by an international organization (such as AMRO). This paper also tries to explain authors' views on some possible challenges which need to be solved from practical perspective such as anonymity, counterfeit, AML/CFT, etc. as well as weight of local currencies for the basket currency ACU which could be used as a currency unit for ADCC (AMRO coin for example). In recent years, central banks in many countries are interested in developing the individual digital currencies as their legal tenders. Also, considering the trend of borderless economy, a borderless (cross-border) currency will naturally be focused on sooner or later to meet such an economic trend. Because of the development of digital technologies, it is getting easier to issue and circulate such a borderless currency in a digital form. This paper is trying to propose an idea to meet such a trend. |
| Keywords: | Digital currency; Asia common currency; Anonymity; AML/CFT |
| JEL: | E42 F33 F36 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2020-27&r=all |
| By: | Tania Camila LAMPREA-BARRAGÁN; Vanessa OSPINA-CARTAGENA; Gustavo Adolfo HERNANDEZ-DIAZ; Ana RIVERA-MORENO |
| Abstract: | Evaluando los efectos potenciales del Covid-19 en el empleo de Colombia, se realizó una clasificación de las ocupaciones que contaban con las condiciones para desarrollar el trabajo desde sus hogares (Dingel, J, y Neiman, B, 2020), según la cual el 37,7% del total de ocupados a nivel nacional podrían continuar las labores productivas sin infringir el distanciamiento social. A los casi 14 millones de ocupados que no contaban con esta posibilidad, se les evaluó si se encontraban habilitados por las excepciones sectoriales que el Gobierno estableció a través de los Decretos de 457 y 593; encontrando que el primer Decreto beneficiaría a casi 7,2 millones de trabajadores, y a esto se le sumarían 2,7 millones más con la implementación del segundo Decreto. Con lo anterior, se identificó que, de los 16 millones de trabajadores habilitados, alrededor de 9 millones (el 56,4% del total de los habilitados) no podrían trabajar desde sus casas por lo que debían movilizarse a su lugar de trabajo. Entre los factores de riesgo que se evaluaron para estos trabajadores, se encontró que se exponen a mayores riesgos de contagio por el medio de transporte que utilizan y por el tamaño de su hogar, dejando en situación de vulnerabilidad a un mayor número de personas. Finalmente, por medio de un ejercicio de encadenamientos sectoriales se calculó el impacto de las medidas establecidas, arrojando que al mes de mayo éstas habrían mitigado el efecto negativo en la producción en casi la mitad y que por ende el mercado laboral habría pasado de prever unas pérdidas diarias de 35.436 a 21.408 puestos de trabajo. |
| Keywords: | Empleo; Producción; Salud; demografía; Covid-19; Coronavirus; Teletrabajo |
| JEL: | E24 E23 I10 J11 |
| Date: | 2020–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000118:018424&r=all |
| By: | Bozhechkova, Alexandra (Божечкова, Александра) (The Russian Presidential Academy of National Economy and Public Administration); Dobronravova, Elizaveta (Добронравова, Елизавета) (The Russian Presidential Academy of National Economy and Public Administration); Evseev, Alexey (Евсеев, Алексей) (The Russian Presidential Academy of National Economy and Public Administration); Shemyakina, Kira (Шемякина, Кира) (The Russian Presidential Academy of National Economy and Public Administration); Trunin, Pavel (Трунин, Павел) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | In this paper we estimate the level of price rigidity in Russian economy. First we review the main theoretical models of price setting, the methods used to estimate the level of price rigidity using micro-data on the prices of particular goods and services and indirectly using the data on the dynamics of macroeconomic indicators. Then we present the results of microestimates of price rigidity based on online-prices, which were collected using web-scrapping techniques. The average price duration for food commodities is estimated at 2.6 months. We also do the calibration of price rigidity parameters in a structural model of the production sector using macroeconomic data. According to our estimates, the average price duration in Russian economy doesn’t exceed 4.5 months, which is much less than standard values (3-4 quarters) used in DSGE-models. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:052013&r=all |
| By: | Victor Pontines (The SEACEN Centre) |
| Abstract: | Using a unique data on provincial net factor income flows disaggregated across the three asset classes of debt, equity and FDI reinvested earnings in Korea, we investigated how these asset channels impacted consumption risk sharing during the Global Financial Crisis and the European sovereign debt crisis. Adopting spatial panel methods, this study found that net receipts of debt, equity and FDI retained earnings have all contributed favorably to consumption risk sharing during these crises episodes, with FDI retained earnings robustly positive in its contribution in buffering shocks to consumption. We also found suggestive evidence that net equity receipts rather than net debt receipts contributed more to risk sharing during these episodes. Overall, our results indicate that different asset channels can provide the insurance needed to cushion the economy against adverse shocks. |
| Keywords: | Consumption Risk Sharing, Consumption Smoothing, Factor Income Flows, Spatial Panel |
| JEL: | E21 E25 F21 R12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:sea:wpaper:wp37&r=all |
| By: | Asongu, Simplice; Nnanna, Joseph |
| 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:pra:mprapa:103226&r=all |
| By: | Barbara Sadaba; Sunčica Vujič; Sofia Maier |
| Abstract: | In this paper, we present new evidence from unobserved components time-series models on the cyclical behavior of the demand for education relative to economic cycles. We investigate the cyclical properties of schooling decisions, the time-varying exposure of these decisions to changes in the state of the macro economy, and the relative importance of shocks that drive economic fluctuations on the demand for schooling. To this end, we perform a trend-cycle decomposition of enrollment ratios for the United Kingdom over the period 1995Q1 to 2019Q4. We first establish the presence of a persistent cyclical process in the demand for schooling independent of a slow-moving trend. We then show that the direction of the effect of the economic cycle on schooling decisions (i.e., pro-cyclical, counter-cyclical, a-cyclical) is largely time-dependent, together with the degree of synchronization. Importantly, we find that changes in the demand for schooling are largely explained by economic cycles. We note, however, that the effects are different for different subsamples based on demographic characteristics. |
| Keywords: | Business fluctuations and cycles; Econometric and statistical methods |
| JEL: | C3 C32 E3 I2 J2 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-38&r=all |
| By: | Claudio Campanale (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy) |
| Abstract: | Households appear to smooth consumption in the face of income shocks much more than implied by life-cycle versions of the standard incomplete market model under reference calibrations. In the current paper we uncover a related puzzle: households with different educational levels show similar insurance against permanent shocks in the model while in the data empirically estimated by Blundell et al. (2008) college educated households seem to smooth consumption much more than high school educated households. |
| Keywords: | Precautionary savings, Consumption insurance coefficients, Life-cycle, Education |
| JEL: | E21 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:069&r=all |
| By: | Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Asian Growth Research Institute, Institute of Social and Economic Research, Osaka University, and National Bureau of Economic Research, Japan) |
| 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 |
| JEL: | D11 D12 D14 D64 E21 J14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2020-28&r=all |
| By: | Danilo Leiva†Leon (Banco de España); Gabriel Perez†Quiros (European Central Bank and CEPR); Eyno Rots (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | We propose an empirical framework to measure the degree of weakness of the global economy in real†time. It relies on non†linear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia, Brazil, Mexico and South Africa). Based on such inferences, we construct a Global Weakness Index that has three main features. First, it can be updated as soon as new regional data is released, as we show by measuring the economic effects of coronavirus. Second, it provides a consistent narrative of the main regional contributors of world economy’s weakness. Third, it allows to perform robust risk assessments based on the probability that the level of global weakness would exceed a certain threshold of interest in every period of time. With information up to March 2nd 2020, we show that the Global Weakness Index already sharply increased at a speed at least comparable to the experienced in the 2008 crisis. |
| Keywords: | International, Business Cycles, Factor Model, Nonlinear. |
| JEL: | E32 C22 E27 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2020/4&r=all |
| By: | Anmol Bhandari; Ellen R. McGrattan |
| Keywords: | Intangibles; Business valuation |
| JEL: | E13 E22 H25 |
| Date: | 2020–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88799&r=all |
| By: | Tsutomu Watanabe (Graduate School of Economics, University of Tokyo) |
| Abstract: | This paper derives a money demand function that explicitly takes the costs of storing money into account. This function is then used to examine the consequences of the large-scale money injection conducted by the Bank of Japan since April 2013. The main findings are as follows. First, the opportunity cost of holding money calculated using 1-year government bond yields has been negative since the fourth quarter of 2014, and most recently (2020:Q2) was -0.2%. Second, the marginal cost of storing money, which was 0.3% in the most recent quarter, exceeds the marginal utility of money, which was 0.1%. Third, the optimum quantity of money, measured by the ratio of M1 to nominal GDP, is 1.2. In contrast, the actual money-income ratio in the most recent quarter was 1.8. The welfare loss relative to the maximum welfare obtained under the optimum quantity of money in the most recent quarter was 0.2% of nominal GDP. The findings imply that the Bank of Japan needs to reduce M1 by more than 30%, for example through measures that impose a penalty on holding money. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:028&r=all |
| By: | Anneke Kosse; Zhentong Lu; Gabriel Xerri |
| Abstract: | Canada currently has two core payment systems for processing funds transfers between financial institutions: the Large Value Transfer System (LVTS) and the Automated Clearing Settlement System (ACSS). These systems will be replaced over the next years by three new systems: Lynx, the Settlement Optimization Engine (SOE) and the Real-Time Rail (RTR). We employ historical LVTS and ACSS data to predict the demand for the future systems. The results show that small-value LVTS payments will likely migrate to SOE. Also, in the short run, about CAD 10,000 billion of LVTS and ACSS payments (per year) is anticipated to migrate to the RTR if not subject to maximum transaction values. These migration patterns raise important policy questions, such as whether the future systems should be subject to value caps and/or higher collateral requirements. |
| Keywords: | Financial institutions; Financial services; Financial stability; Financial system regulation and policies; Payment clearing and settlement systems |
| JEL: | C3 E4 E42 G1 G2 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-37&r=all |
| By: | Chudik, A.; Mohaddes, K.; Pesaran, M. H.; Raissi, M.; Rebucci, A. |
| Abstract: | This paper develops a threshold-augmented dynamic multi-country model (TG-VAR) to quantify the macroeconomic effects of Covid-19. We show that there exist threshold effects in the relationship between output growth and excess global volatility at individual country levels in a significant majority of advanced economies and in the case of several emerging markets. We then estimate a more general multi-country model augmented with these threshold effects as well as long term interest rates, oil prices, exchange rates and equity returns to perform counterfactual analyses. We distinguish common global factors from trade-related spillovers, and identify the Covid-19 shock using GDP growth forecast revisions of the IMF in 2020Q1. We account for sample uncertainty by bootstrapping the multi-country model estimated over four decades of quarterly observations. Our results show that the Covid-19 pandemic will lead to a significant fall in world output that is most likely long-lasting, with outcomes that are quite heterogenous across countries and regions. While the impact on China and other emerging Asian economies are estimated to be less severe, the United States, the United Kingdom, and several other advanced economies may experience deeper and longer-lasting effects. Non-Asian emerging markets stand out for their vulnerability. We show that no country is immune to the economic fallout of the pandemic because of global interconnections as evidenced by the case of Sweden. We also find that long-term interest rates could fall significantly below their recent lows in core advanced economies, but this does not seem to be the case in emerging markets. |
| Keywords: | Threshold-augmented Global VAR (TGVAR), international business cycle, Covid-19, global volatility, threshold effects |
| JEL: | C32 E44 F44 |
| Date: | 2020–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2088&r=all |
| By: | Capema, Giulio (European Commission); Colagrossi, Marco (European Commission); Geraci, Andrea (European Commission); Mazzarella, Gianluca (European Commission) |
| Abstract: | The economic crisis caused by the covid-19 pandemic is unprecedented in recent history. We contribute to a growing literature investigating the economic consequences of covid-19 by showing how unemployment-related online searches across the EU27 reacted to the introduction of lock-downs. We exploit Google Trends topics to retrieve over two thousand search queries related to unemployment in 27 countries. We nowcast the monthly unemployment rate in the EU Member States to assess the relationship between search data and the underlying phenomenon as well as to identify the keywords that improve predictive accuracy. Drawing from this finding, we use the set of best predictors in a Difference-in-Differences framework to document a surge of unemploymentrelated searches in the wake of lock-downs of about 30%. This effect persists for more than five weeks. We suggest that the effect is most likely due to an increase in unemployment expectations. |
| Keywords: | Unemployment, nowcast, random forest, covid-19, Google Trends, Difference-in-Differences |
| JEL: | E24 C21 C53 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202004&r=all |
| By: | Christian Conrad; Zeno Enders; Alexander Glas |
| Abstract: | Based on a new survey of German households, we investigate the role of information channels and lifetime experience for households’ inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socio-economic characteristics. These information channels, in turn, have an important influence on the level of perceived past and expected future inflation, as well as uncertainty thereof. The expected future change of inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their ‘economic model’ is shaped by experience. |
| Keywords: | household expectations, inflation expectations, information channels, experience, Bundesbank household survey |
| JEL: | E31 D84 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8528&r=all |
| By: | Bosankic, Alen; Hütten, Moritz; Klüh, Ulrich |
| Abstract: | Im Jahr 1974 verunsicherten eine Reihe von Bankenkrisen viele der größten Volkswirtschaften der Welt. Die Prominenteste, die Herstattkrise in Deutschland, verursachte große Schockwellen durch das entstehende globale Finanzsystem. Rückblickend markiert die Krise den Beginn eines langen Trends der diskontinuierlich steigenden Finanzinstabilität, der in der Krise 2007/08 gipfelte. Im Rückblick scheint die Krise ein Vorspiel oder Vorwort zu sein, wenn nicht sogar das erste Kapitel einer sich abzeichnenden Ära der Finanzialisierung und der Bankenverwirrung. Als solches hätte es die Reaktion derjenigen beeinflussen können, die die finanzielle Instabilität analysieren und darauf reagieren. Aber wie haben zeitgenössische Beobachter die Episode tatsächlich interpretiert und kontextualisiert? Welche Auswirkungen hat das auf die professionelle Sichtweise und die Politik für den Finanzsektor? Mit Schwerpunkt auf Deutschland überprüfen wir eine umfangreiche Sammlung von Zeitdokumenten, um die Auswirkungen der Krise von 1974 auf die Erwartungen der Experten an Banken und Finanzen zu analysieren. |
| Keywords: | Herstatt Crisis,banking crisis,banking regulation,accumulation regimes,financialization |
| JEL: | B26 E02 E65 G01 N24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:znwudp:1&r=all |
| By: | Klaus Gründler; Niklas Potrafke |
| Abstract: | Do experts adjust their policy recommendations when the facts change? We conduct a large-scale randomized experiment among 1,224 economic experts across 109 countries that includes two treatments. The first treatment is the geographic and temporal variation in the initial spread of Covid-19 during March 2020, which we use as a natural experiment. The second is a randomly assigned information treatment that informs experts about the past macroeconomic performance of their country. We find that greater exposure to Covid-19 decreases the probability to recommend contractionary fiscal policies. A better macroeconomic performance increases the probability to implement contractionary policies and reduces the exposure effect to Covid-19. While our results show that experts adjust their policy recommendations to changing environments, sentiment analyses of open-ended questions asked after the treatment suggest that these adjustments are caused by Bayesian information updating and not by a change in preferences. |
| Keywords: | epidemics, Covid-19, health, experts, fiscal preferences, randomized experiment |
| JEL: | A11 E62 H60 H63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8556&r=all |
| By: | Heather D. Gibson (Bank of Greece); Stephen G. Hall (University of Leicester, Bank of Greece and University of Pretoria); George S. Tavlas (Bank of Greece) |
| Abstract: | We provide a new way of deriving a number of dynamic unobserved factors from a set of variables. We show how standard principal components may be expressed in state space form and estimated using the Kalman filter. To illustrate our procedure we perform two exercises. First, we use it to estimate a measure of the current-account imbalances among northern and southern euro-area countries that developed during the period leading up to the outbreak of the euro-area crisis, before looking at adjustment in the post-crisis period. Second, we show how these dynamic factors can improve forecasting of the euro-dollar exchange rate. |
| Keywords: | Principal Components;Factor Models; Underlying activity; Forecasts |
| JEL: | E3 G01 G14 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:282&r=all |
| By: | Petra Landovska (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic) |
| Abstract: | Since the Czech healthcare system financing is based on Statutory Health Insurance scheme, it relies heavily on wage-based contributions from employers and employees and thus may be prone to business cycle fluctuations. This turned out to be a problem after the 2008 financialcrisis when the government had to issue loans to the insurance funds in order to cover the loss of revenue from the economically active population. This paper examines how the insurance funds' revenues react to economic downturns and expansions, and whether the effect is visible immediately or with a lag. The data from Ministry of Health, Czech Republic, are used, as well as several macroeconomic variables representing the business cycle. The static and lagged regression models on log differenced data are employed throughout the analysis. Significant pro-cyclicality in total health insurance funds' revenues and contributions from employers/employees is found, with the lagged effect being slightly stronger. On the contrary, contributions from state on behalf of economically inactive people do not display a significant relationship with business cycle. These results imply the need to increase state contributions during economic downturns in order to compensate for the loss of health insurance funds' revenues from economically active individuals. |
| Keywords: | health system financing, sensitivity analysis, business cycle, Czech Republic, social health insurance |
| JEL: | E32 G28 I13 I18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_33&r=all |
| By: | Yavuz Arslan; Bulent Guler; Burhan Kuruscu |
| Abstract: | Can shifts in the credit supply generate a boom-bust cycle similar to the one observed in the US around 2008? To answer this question, we develop a general equilibrium model that combines a rich heterogeneous agent overlapping-generations structure of households who make housing tenure decisions and borrow through long-term mortgages, firms that finance their working capital through short-term loans from banks, and banks whose ability to intermediate funds depends on their capital. Using a calibrated version of this framework, we find that shocks to banks' leverage can generate sizable boom-bust cycles in the housing market, the banking sector, and the rest of the macroeconomy, which provides strong support for the credit supply channel. The deterioration of bank balance sheets during the bust, the existence of highly leveraged households, and the general equilibrium feedback from the credit supply to household labor income significantly amplify the bust. Moreover, mortgage credit growth across the income distribution is consistent with recent findings that were otherwise argued to be against the credit supply channel. A comparison of the model outcomes across credit supply, house price expectation, and productivity shocks suggests that housing busts accompanied by severe banking crises are more likely to be generated by credit supply shocks. |
| Keywords: | credit supply, house prices, financial crises, household and bank balance sheets, leverage, foreclosures, mortgage valuations, consumption, and output |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:885&r=all |
| By: | Mouyad Alsamara (Qatar University); Zouhair Mrabet (Qatar University); Ahmad Shikh Ebid (UN ESCWA) |
| Abstract: | This paper investigates the relationship between the main macroeconomic indicators, namely real GDP, consumer prices and parallel market exchange rate in the Syrian economy during the period 1990-2017. We provide a comprehensive analysis for the macroeconomic policies and performance in the pre-conflict and during the conflict periods. For this purpose, we employ two advanced estimation approaches, namely, nonlinear ARDL and Structural VAR. these techniques are very useful to estimate how real GDP has reacted to shocks stemming from three major macroeconomic variables namely, money supply, consumer prices, and parallel exchange rate market. The empirical results indicate that the responses of real GDP to negative shocks in money supply are greater than its responses to positive shocks in money supply during the conflict period. Moreover, we distinguish four different scenario for money supply as possible views of rebuilding scenarios. The achievement of this scenario depends on the political settlement agreement and the size of capital inflow into the economy. |
| Date: | 2020–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1385&r=all |
| By: | Anneke Kosse; Zhentong Lu; Gabriel Xerri |
| Abstract: | Consumers, businesses and banks make millions of payments each day using a variety of instruments, such as debit cards, cheques and wires. Canada is currently developing three new systems to process these transactions: Lynx, Settlement Optimization Engine (SOE) and Real-Time Rail (RTR). |
| Keywords: | Financial services; Financial system regulation and policies; Payment clearing and settlement systems |
| JEL: | E4 E42 G2 G21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-24&r=all |
| By: | Schlag, Christian; Semenischev, Michael; Thimme, Julian |
| Abstract: | Many modern macro finance models imply that excess returns on arbitrary assets are predictable via the price-dividend ratio and the variance risk premium of the aggregate stock market. We propose a simple empirical test for the ability of such a model to explain the cross-section of expected returns by sorting stocks based on the sensitivity of expected returns to these quantities. Models with only one uncertainty-related state variable, like the habit model or the long-run risks model, cannot pass this test. However, even extensions with more state variables mostly fail. We derive conditions under which models would be able to produce expected return patterns in line with the data and discuss various examples. |
| Keywords: | asset pricing,cross-section of stock returns,predictability |
| JEL: | G12 E44 D81 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:289&r=all |
| By: | Cruz, Manuel Máximo |
| Abstract: | Se propone que el Banco Central de la República Argentina (BCRA), usando al Banco Nación como agente, provea una herramienta financiera a los productores agrícolas en la cual les ofrezca una tasa de interés comprensibles en términos físicos y relativos al valor de la producción depositada, es decir, valuada a precio de mercado y en dólares con la contrapartida de ceder los derechos sobre el grano físico. |
| Keywords: | Tipo de cambio, Banco Central, Argentina, exportación, acopio |
| JEL: | E58 G1 G18 H29 H32 H63 O24 Q02 |
| Date: | 2020–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103146&r=all |
| By: | P.S. Renjith (Research Scholar, Madras School of Economics); K. R. Shanmugam (Professor and Director, Madras School of Economics) |
| Abstract: | This article empirically tests whether the public debt is sustainable in 20 major Indian States during 2005-06 to 2014-15, using the Bohn framework for panel data and penalized spline techniques. Results of the study indicate that the debt of Indian State governments as a whole is sustainable. However, at the disaggregated level, the public debt is sustainable in only 12 States and in the remaining 8 States, it is unsustainable and they need corrective actions. Incidentally, in these 8 States, the debt growth is lower than the economic growth and the poverty ratio has come down significantly, indicating that they have seemed to use their debt policy to enhance the welfare of their citizens. We hope these results are useful to policy makers, international agencies and other stakeholders to take appropriate steps to sustain the debt of Indian States |
| Keywords: | Primary Balance, Sustainable Debt, Indian States, Bohn Framework |
| JEL: | E62 H63 H72 H74 |
| URL: | http://d.repec.org/n?u=RePEc:mad:wpaper:2016-171&r=all |
| By: | Burkhard Heer (University of Augsburg, D); Andreas Irmen (Department of Economics and Management, Université du Luxembourg); Bernd Süssmuth (University of Leipzig, D) |
| Abstract: | This study provides evidence for the US that the secular decline in the labor share is not only explained by technical change or globalization, but also by the dynamics of factor taxation, automation capital, and population growth. First, we empirically find indications of co-integration for the 1974-2008 period. Permanent effects on factor shares emanate from relative factor taxation. The latter also have a lasting effect on the use of robots. Variance decompositions reveal that taxing contributes to changes in the two income shares and in automation capital. Second, we analyse and calibrate a neoclassical growth model extended to include factor taxation, automation capital, and capital adjustment costs. The model is able to replicate the dynamics of the observed functional income distribution in the US during the 1965-2015 period. Counterfactual experiments suggest that the fall in the labor share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s. |
| Keywords: | Functional income distribution, labor income share, income taxes, automation capital, demography, growth |
| JEL: | D33 E62 O41 J11 J20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:20-20&r=all |
| By: | Tomoo Inoue (Seikei University); Tatsuyoshi Okimoto (ANU - Australian National University) |
| Abstract: | This study examines the effects of unconventional monetary policies (UMPs) by the major central banks, namely the Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB) and the Federal Reserve (Fed) on the international financial markets, taking global spillovers into account. To this end, we apply the Global Vector Autoregressive (GVAR) model to 35 countries and one region for the period from March 2009 to July 2019. Our results indicate that the effects vary across four asset classes and central banks. For example, the UMPs of the Fed and the BOJ have signicant impacts on the regional sovereign bond markets, while the ECB UMPs show relatively stronger and broader effects on global bond markets. The global equity markets were also considerably affected by UMPs of the Fed, ECB, and BOJ. Furthermore, we found some evidence of monetary policy interactions amongst the four major central banks. This resulted in the effects being less persistent on the global bond markets for the Fed and the ECB, but more persistent on equity and foreign exchange markets for the Fed and the BOJ. |
| Keywords: | Unconventional Monetary policy,Financial linkage,International spillover,Global VAR |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02938960&r=all |
| By: | Fuchs-Schündeln, Nicola; Krueger, Dirk; Ludwig, Alexander; Popova, Irina |
| Abstract: | Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role. |
| Keywords: | Covid-19,school closures,inequality,intergenerational persistence |
| JEL: | D31 E24 I24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20045&r=all |
| By: | Fuchs-Schündeln, Nicola; Krueger, Dirk; Ludwig, Alexander; Popova, Irina |
| Abstract: | Using a structural life-cycle model, we quantify the long-term impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize both the long-term earnings consequences on children from a Covid-19 induced loss of schooling, as well as the associated welfare losses. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role. |
| Keywords: | Covid-19,school closures,inequality,intergenerational persistence |
| JEL: | D31 E24 I24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:290&r=all |
| By: | Dufrénot Gilles; Gossé Jean-Baptiste; Clerc Caroline |
| Abstract: | This paper assesses the effectiveness of risk sharing mechanisms in Europe by breaking down the factor income components into their sub-components, and aims to further examine whether financial integration and international portfolio diversification boosts or dampens risk sharing. Using a panel of European countries, we compare the years before and after the 2008 financial crisis. We extend the literature by properly taking into account the heterogeneity (in both country and time dimensions) in the panel through new econometric models. Our results show that financial income has become a major channel of risk sharing in recent years and that a higher integration in the bond and equity markets significantly improves risk sharing in the long term. |
| Keywords: | Euro Area, Risk Sharing, Financial Integration, Cross-Sectional Dependence. |
| JEL: | C23 C51 E21 F36 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:781&r=all |
| By: | Jean Bernard Chatelain; Kirsten Ralf |
| Abstract: | This paper is a study of the history of the transplant of mathematical tools using negative feedback for macroeconomic stabilization policy from 1948 to 1975 and the subsequent break of the use of control for stabilization policy which occurred from 1975 to 1993. New-classical macroeconomists selected a subset of the tools of control that favored their support of rules against discretionary stabilization policy. The Lucas critique and Kydland and Prescott's time-inconsistency were over-statements that led to the "dark ages" of the prevalence of the stabilization-policy-ineffectiveness idea. These over-statements were later revised following the success of the Taylor rule. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.00212&r=all |
| By: | Kamiar Mohaddes (University of Cambridge); Mehdi Raissi (International Monetary Fund); Niranjan Sarangi (United Nations Economic and Social Commission for Western Asia (ESCWA)) |
| Abstract: | We develop a quarterly macro-econometric model for the Saudi economy over the period 1981Q2- 2018Q2 and integrate it within a compact model of the world economy (including the global oil market). This framework enables us to disentangle the size and speed of the transmission of growth shocks originating from the United States, China and the world economy to Saudi Arabia, as well as study the implications of stress in global financial markets, low oil prices and domestic fiscal adjustment on the Saudi economy. Results show that Saudi Arabia's economy is more sensitive to developments in China than to shocks in the United States—in line with the direction of evolving trade patterns and China's growing role in the global oil market. A global growth slowdown (e.g., from trade tensions or geopolitical developments) could have significant implications for Saudi Arabia (with a growth elasticity of about 2½ after one year) and the oil market (reducing prices by about 5 percent for 0.5 percentage point reduction in global growth). We also illustrate that a 10 percent lower oil prices and stress in global financial markets could both have a negative effect on the Saudi economy, but given the prevailing social contract in Saudi Arabia, their impact is countered by fiscal easing. Finally, we argue that a domestic fiscal adjustment in Saudi Arabia does not show a negative impact on economic growth in the data. The impact on growth would depend upon the quality of fiscal adjustment and whether it is complemented with structural reforms or not. |
| Date: | 2020–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1388&r=all |
| By: | Abi-Nassif,Christophe; Islam,Asif Mohammed; Lederman,Daniel |
| Abstract: | This paper investigates the empirical relationship between citizens'perceptions of economic and political conditions and the incidence of nonviolent uprisings. Perceptions are measured by aggregating individual-level data from regional barometer surveys. The main results show that negative perceptions of political conditions -- proxied by the share of the population that is generally dissatisfied with the way democracy works -- have a significant positive effect on the number of protests and strikes. Negative perceptions of economic conditions do not seem to be significantly related to the latter. This generally holds across a large sample of countries and is particularly the case for Western and Central European countries as well as high-income countries. In developing economies, however, social protests appear to be driven by dissatisfaction with economic and political conditions. The heterogeneous effects of perceptions on uprisings across geography and income groups, however, are not robust and susceptible to changes in estimators and model specification. In particular, the international contagion of protests eliminates this international heterogeneity, implying that the incidence of uprisings in nearby countries tends to generate protests at home through its effect on perceptions related to political conditions in high-income countries. Overall, the effect of perceptions about political conditions, along with protest contagion, is robust to the inclusion of numerous control variables that capture actual economic conditions and the quality of governance across countries. The results are also robust to the use of seemingly valid instrumental variables, alternative count-data estimators, and sample composition. |
| Keywords: | Inflation,National Governance,Government Policies,Youth and Governance,Governance Indicators,Reproductive Health,Early Child and Children's Health,Employment and Unemployment,Law and Justice Institutions |
| Date: | 2020–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9416&r=all |
| By: | Harold M. Hastings; Tai Young-Taft; Chih-Jui Tsen |
| Abstract: | In a seminal 1972 paper, Robert M. May asked: "Will a Large Complex System Be Stable?" and argued that stability (of a broad class of random linear systems) decreases with increasing complexity, sparking a revolution in our understanding of ecosystem dynamics. Twenty-five years later, May, Levin, and Sugihara translated our understanding of the dynamics of ecological networks to the financial world in a second seminal paper, "Complex Systems: Ecology for Bankers." Just a year later, the US subprime crisis led to a near worldwide "great recession," spread by the world financial network. In the present paper we describe highlights in the development of our present understanding of stability and complexity in network systems, in order to better understand the role of networks in both stabilizing and destabilizing economic systems. A brief version of this working paper, focused on the underlying theory, appeared as an invited feature article in the February 2020 Society for Chaos Theory in Psychology and the Life Sciences newsletter (Hastings et al. 2020). |
| Keywords: | Stability; Complexity; May-Wigner; Noise; Subprime Crisis; Liquidity Shock |
| JEL: | C02 C62 E17 H12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_971&r=all |
| By: | Paolo Martellini; Guido Menzio |
| Abstract: | Declining search frictions generate productivity growth by allowing workers to find jobs for which they are better suited. The return of declining search frictions on productivity varies across different types of workers. For workers who are "jacks of all trades" in the sense that their productivity is nearly independent from the distance between their skills and the requirements of their job—declining search frictions lead to minimal productivity growth. For workers who are "masters of one trade" in the sense that their productivity is very sensitive to the gap between their individual skills and the requirements of their job—declining search frictions lead to fast productivity growth. As predicted by this view, we find that workers in routine occupations have low wage dispersion and growth, while workers in non-routine occupations have high wage dispersion and growth. |
| Keywords: | Search frictions; Biased technical change; Growth; Inequality |
| JEL: | E24 J24 J31 J64 O47 |
| Date: | 2020–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88800&r=all |
| By: | Ali Alsamawi; Charles Cadestin; Alexander Jaax; Joaquim Guilhoto; Sébastien Miroudot; Carmen Zurcher |
| Abstract: | Intangible capital, a broad category of knowledge-based assets that lack physical embodiment, increasingly shapes the distribution of income in global value chains (GVCs). While some intangible assets are reported in national accounts (e.g. R&D or computer software and databases), others are hard to detect in conventional statistics (e.g. brand value or organisational capital). In this paper, we combine information on factor income from national accounts with the OECD Inter-Country Input-Output tables in order to estimate returns to measured (i.e. included in national accounts) and ‘unmeasured’ intangible capital (captured as a residual) in GVCs. We find that total intangible capital accounts for about 27% of income in manufacturing GVCs and that this share has increased between 2005 and 2015 in OECD countries. The paper highlights differences across GVC stages and specific types of GVCs. A significant share of income is captured at the distribution stage, particularly in buyer-driven value chains. An econometric analysis suggests that trade and investment openness are important determinants of patterns in returns to intangible capital in GVCs. Direct public funding of R&D and the quality of intellectual property protection are associated with higher returns to intangible assets. |
| JEL: | E1 E22 F23 F68 |
| Date: | 2020–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:240-en&r=all |
| By: | Milena Lavigne (IPC-IG); Luis Hernán Vargas (IPC-IG) |
| Abstract: | "During the 20th century, the political and social development of the Dominican Republic was marked by the dictatorship of Rafael Trujillo (1930–1961), who forged the institutional and legal bases of Dominican social policies, and successive governments headed by Joaquín Balaguer (1960–1962, 1966–1978 and 1986–1996). During the 1990s, the Dominican government started once more to implement social policies, among which we can highlight the Fund for the Promotion of Community Initiatives (PROCOMUNIDAD), the countrys first poverty reduction programme. During the 2000s, some social reforms were undertaken, such as the creation of the Social Cabinet and reform of the pension system, which set up a model of individual capitalisation. Finally, after the economic crisis that affected the Dominican Republic in 2003, programmes aiming to reduce malnutrition (Comer es Primero) and poverty (Solidaridad) began to be implemented".(…) |
| Keywords: | Social Protection Systems, Latin America, Caribbean, Dominican Republic |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:ipc:oparab:296&r=all |
| By: | John C. Williams |
| Abstract: | Remarks at the 2020 U.S. Treasury Market Conference (delivered via videoconference). |
| Keywords: | financial markets; economy; Treasury securities; rates; pandemic; funding markets; central banks; COVID-19; Federal Reserve |
| Date: | 2020–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:88804&r=all |
| By: | Luiz Brotherhood; Tiago Cavalcanti; Daniel da Mata; Cezar Santos |
| Abstract: | This paper studies the role of slums in shaping the economic and health dynamics of pandemics. Using data from millions of mobile phones in Brazil, an event-study analysis shows that residents of overcrowded slums engaged in less social distancing after the outbreak of Covid-19. We develop a choice-theoretic equilibrium model in which individuals are heterogeneous in income and some people live in high-density slums. The model is calibrated to Rio de Janeiro. Slum dwellers account for a disproportionately high number of infections and deaths. In a counterfactual scenario without slums, deaths increase in non-slum neighborhoods. Policy simulations indicate that: reallocating medical resources cuts deaths and raises output and the welfare of both groups; mild lockdowns favor slum individuals by mitigating the demand for hospital beds, whereas strict confinements mostly delay the evolution of the pandemic; and cash transfers benefit slum residents to the detriment of others, highlighting important distributional effects. |
| JEL: | C63 D62 E17 I10 I18 O18 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202015&r=all |
| By: | Luiz Brotherhood; Philipp Kircher; Cezar Santos; Michèle Tertilt |
| Abstract: | This paper investigates the importance of the age composition in the Covid-19 pandemic. We augment a standard SIR epidemiological model with individual choices on work and non-work social distancing. Infected individuals are initially uncertain unless they are tested. We find that older individuals socially distance themselves substantially in equilibrium. Confining the old even more reduces their welfare. Confining the young extends the duration of the epidemic, with negative consequences on the old if the epidemic cannot be controlled after confinement. Testing and quarantines save lives, even if conducted just on the young, as does separation of activities by age. Combining policies can increase the welfare of both the young and the old. |
| JEL: | C63 D62 E17 I10 I18 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202014&r=all |
| By: | Heather D. Gibson (Bank of Greece); Stephen G. Hall (University of Leicester, Bank of Greece and University of Pretoria); Deborah Gefang (University of Leicester); Pavlos Petroulas (Bank of Greece); George S. Tavlas (Bank of Greece) |
| Abstract: | The euro-area sovereign debt crisis was characterized by feedback loops between (1) sovereign bond ratings and sovereign spreads in single jurisdictions and (2) sovereign spreads and ratings among jurisdictions. One explanation of this circumstance is that the ECB was unable to perform the role of lender of last resort in the sovereign bond markets during the crisis. We provide a spatial framework that allows us to distinguish among European countries whose central banks were permitted to function as lender of last resort in those markets and countries whose central banks were not permitted to do so. Our results are consistent with the view that the absence of a central bank backstop in the sovereign bond markets exacerbated feedback loops. |
| Keywords: | euro-area crisis, simultaneous spatial model, European banks, spreads, sovereign ratings |
| JEL: | E3 G01 G14 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:281&r=all |
| By: | Vladyslav Filatov (National Bank of Ukraine); ; |
| Abstract: | This study improves on the methodology for calculating the financial stress index (FSI) for Ukraine by introducing time-varying correlation into the aggregation of 5 sub-indices (representing the banking sector, households, the corporate sector, government securities, and the foreign exchange (FX) market). The index consists of 20 indicators selected from an initial list of 47 potential candidates. To check the performance of the indicators, sub-indices, and index, we use area under the receiver operating characteristic curve (AUROC) and logit tests. Each sub-index is assigned a weight that reflects the impact of each market on the financial system. This new FSI peaks during periods of crisis that are in line with the consensus of financial experts and performs better than the previous FSI, which makes it more attractive for policy decisions. In particular, the new FSI can be used as a monitoring tool for the macroprudential policy of the National Bank of Ukraine. |
| Keywords: | financial stability, financial stress index, indicator performance |
| JEL: | E44 G01 G18 |
| Date: | 2020–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2020&r=all |
| By: | Ott, Ingrid; Soretz, Susanne |
| Abstract: | This paper analyzes within a spatial endogenous growth setting the impact of public policy coordination on agglomeration. Governments in each of the two symmetric regions provide a local public input that becomes globally effective due to integration. Micro-foundation of governmental behavior is based on three different coordination schemes: autarky, full or partial coordination. Scale effects act as agglomeration force and in addition to private capital agglomeration increase the concentration of the public input. Integration promotes dispersion forces with respect to the distribution of physical capital which are based on decreasing private returns. However, within the governments' decision on the concentration of the public input, increasing integration reinforces agglomeration because it promotes the interregional productive use of the public input. Taking feedback effects between the private and the public sector into account leads to mutual reinforcement, hence agglomeration forces almost always dominate and the spreading equilibrium becomes unstable. If convergence is a separate (additional) political objective, it needs sustained additional political effort. |
| Keywords: | income convergence,integration,micro foundation of public policy,policy coordination,productive public input,multiple equilibria,bifurcation,spatial economic growth,stability of spatial equilibrium,global public input |
| JEL: | H10 E60 O40 R50 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2163&r=all |
| By: | Ana Sequeira; Cristina Manteu; Nuno Monteiro |
| Abstract: | The COVID-19 pandemic and the necessary containment measures have caused a very severe shock on Portuguese businesses. This article uses the results of the Fast and Exceptional Enterprise Survey – COVID-19 (COVID-IREE) to characterise the short-term economic impact of the pandemic, in a context in which several support measures have been adopted by public authorities. The main results show a very significant decline in companies’ activity in the second quarter of 2020, with very adverse effects on their liquidity. Accommodation and food services stands out as the most affected sector. In this period, the impact on employment was relatively contained. However, there were marked declines in effectively working staff, albeit partially offset by remote work and alternate presence schemes in companies’ facilities. Finally, the survey reveals that companies in more fragile conditions were the ones that resorted the most to the support policy measures and that these measures played a very important role in safeguarding companies’ financial sustainability and preserving employment. |
| JEL: | D22 E65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:o202003&r=all |
| By: | ; Rod Garratt; Michael Junho Lee |
| Abstract: | Today, the majority of retail payments in the United States are digital. Practically all digital payments are tracked, collected, and aggregated by financial institutions, payment providers, and vendors. This trend has accelerated during the COVID-19 pandemic as payments that require physical contact, such as cash, have been discouraged. As cash gradually becomes obsolete, consumers are left with fewer alternatives for making private transactions. In this post, we outline some evidence on the impact of COVID-19 on consumer payment behavior and follow up in the second post in this Liberty Street Economics series with a look at the implications of cash obsolescence for privacy. |
| Keywords: | COVID-19; digital payments; cash; privacy |
| JEL: | D14 E42 I18 |
| Date: | 2020–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88792&r=all |
| By: | Konstantin Bu¨chel, Stefan Legge, Vincent Pochon, Philipp Wegmu¨ller |
| Abstract: | This study uses trade data from Switzerland's Federal Customs Administration to examine the impact of COVID-19 on international goods trade between January and July 2020. We show that Swiss trade during that period fell by 11% compared to 2019, and that the contraction following the “Federal Lockdown” in mid-March was considerably steeper than the Swiss trade collapse in the aftermath of the Lehman Brothers bankruptcy in September 2008. Exploiting country variation in the spread of COVID-19, the stringency of containment measures, and Swiss trade flows, we document that the pandemic adversely affected both the demand and supply side of foreign trade. We discuss several channels at work and show that our COVID-19 measures are correlated with country-specific consumer and producer confidence series, which explain considerable heterogeneity in the observed trade dynamics. |
| Keywords: | COVID-19, Trade, Switzerland |
| JEL: | E32 F14 H12 I18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rdv:wpaper:credresearchpaper30&r=all |
| By: | Anping Chen (School of Economics, Jinan University); Nicolaas Groenewold (Economics Discipline, Business School, University of Western Australia) |
| Abstract: | Since 2007 China’s real GDP growth rate has slowed from a level of over 10% per annum to below 7%. Given China’s regional diversity, an important aspect of the slowdown is the possible spatial variation in its experience. This is the issue we consider in this paper and we analyse this question in the context of the regional economic resilience framework. We proceed in two stages. In the first we analyse a measure of provincial slowdown (a sensitivity index) and of the variability of the slowdown based just on growth rates and examine the correlation of these measure with a number of commonly-used provincial characteristics. In the second stage we decompose regional growth rates into national and province-specific components using a VAR model and argue that since resilience concerns the response of provinces to a national shock, it is properly analysed using just the national component of the growth rate rather than the growth rate as such. We therefore analyse a sensitivity index and a variability index based just on the national component of growth and find that this extension is important both for ranking provinces according to resilience and for correlations of resilience with determinants capturing provincial characteristics. Generally we find that provinces close to the coast with new- rather than old-industry structures are less resilient and tended to suffered greater variability in growth during the slowdown. |
| Keywords: | China, growth, provincial growth, provincial response, regional resilience |
| JEL: | E37 O47 O53 R12 R15 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:20-15&r=all |
| By: | Giovanni Scarano |
| Abstract: | The share of surplus devoted to direct investment in capital goods by big corporations also depends on their corporate savings decisions, which are closely connected not only to the features of corporate governance and the forms of competition, but also to the possibilities of holding liquid financial assets bearing high returns. Financial globalization, multiplying the potential range of financial instruments available to big corporations’ portfolios and creating new ways to access the high profits produced in the emergent markets, can contribute to change the portfolio composition. The paper deals with some contributions that analyse the effects of financial globalization on portfolio management and investment decisions in big corporations, seeking to determine how they may be playing a major role in timing the rhythms of real investment. The main objective is to understand whether these models can account for the tendency to put growing shares of social surplus into speculative channels. |
| Keywords: | Investment theory, Corporate Savings, Capital Movements, Financialisation, Financial Crises |
| JEL: | B51 E11 E12 E32 F23 G35 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0255&r=all |
| By: | Joonyoung Hur (Department of Economics, Sogang University, Seoul); Kyunghun Kim (School of Economics, Hongik University) |
| Abstract: | This paper examines the effect of domestic monetary policy on capital flows after controlling for the effect of conventional push factors (global factors). We conduct a time-varying coefficient vector autoregressive (TVC-VAR) model analysis using monthly data (January 2010−July 2019) from Korea, a representative small open economy with monetary autonomy. Our empirical results show that an expansionary monetary policy shock has a short-run (1- and 3-month) negative impact on gross inflows to the equity market, which is the main driver of gross capital inflows to Korea. This negative effect increases throughout the sample period. Monetary policy easing is also associated with a decrease in outflows of equity, representing a reversal of Korean residents’ foreign equity investment as the domestic policy rate decreases. This effect dampens the negative impact on gross capital inflows, which leads to mild responses of net capital inflows in the short run. We also find a clear relationship between the level of the policy rate and its impact on gross capital inflows. The lower the policy rate, the greater the negative impact of the expansionary monetary policy shock on gross capital inflows. This time-varying effect reflects difficulties that many emerging market economies including Korea face in setting monetary policy when policy rates are low. |
| Keywords: | Monetary policy, Capital flows, Push factors, Time-varying effect |
| JEL: | F3 F4 E5 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2003&r=all |