|
on Macroeconomics |
|
Issue of 2020‒10‒19
ninety-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Ian Dew-Becker; Stefano Giglio |
| Abstract: | This paper presents a novel and unique measure of cross-sectional uncertainty constructed from stock options on individual firms. Cross-sectional uncertainty varied little between 1980 and 1995, and subsequently had three distinct peaks -- during the tech boom, the financial crisis, and the coronavirus epidemic. Cross-sectional uncertainty has had a mixed relationship with overall economic activity, and aggregate uncertainty is much more powerful for forecasting aggregate growth. The data and moments can be used to calibrate and test structural models of the effects of uncertainty shocks. In international data, we find similar dynamics and a strong common factor in cross-sectional uncertainty. The data is available on our websites. A companion paper [Dew-Becker and Giglio, "Real-time forward-looking skewness over the business cycle"] finds firm-level skewness is significantly procyclical. |
| JEL: | C58 D81 D84 E22 E30 E32 E37 G13 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27864&r=all |
| By: | Cantore, C.; Freund, L. B. |
| Abstract: | We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in a tractable environment. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model is consistent with micro data on empirical intertemporal marginal propensities to consume, and it avoids implausible profit income effects on labor supply. Relative to the traditional two-agent model, these features imply, respectively, a lower sensitivity of consumption to the composition of public financing; and smaller fiscal multipliers alongside pronounced redistributive effects. |
| Keywords: | Fiscal Policy, Heterogeneity, HANK, TANK |
| JEL: | E12 E21 E25 E32 E62 |
| Date: | 2020–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2095&r=all |
| By: | Schupp, Fabian |
| Abstract: | I propose a new term structure model for euro area real and nominal interest rates which explicitly incorporates a time-varying lower bound for nominal interest rates. Results suggest that the lower bound is of importance in structural analyses implying time-varying impulse responses of yield components. With short-term rate expectations at or close to the lower bound, premium components are less reactive to a typical 10 bp increase in inflation, while real rate responses change their sign from positive to negative. However, it is further shown that the lower bound is of only little relevance for decomposing yields into their expectations and premium components once survey information is incorporated. Overall, results support the conclusion that reaching the effective lower bound may change the way macroeconomic shocks propagate along the term structure of nominal as well as real interest rates. JEL Classification: E31, E43, E44, E52 |
| Keywords: | euro area, inflation expectations, inflation risk premium, joint real-nominal term structure modelling, lower bound, monetary policy |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202476&r=all |
| By: | Valerio Ercolani (Bank of Italy); Filippo Natoli (Bank of Italy) |
| Abstract: | This paper highlights the role of macroeconomic and financial uncertainty in predicting US recessions. In-sample forecasts using probit models indicate that these two variables are the best predictors of recessions at short horizons. Macroeconomic uncertainty has the highest predictive power up to 7 months ahead and becomes the second best predictor --- after the yield curve slope --- at longer horizons. Using data up to end-2018, out-of-sample forecasts show that uncertainty contributed significantly to lowering the probability of a recession in 2019, which indeed did not occur. |
| Keywords: | macroeconomic and financial uncertainty, yield curve slope, recession, probit forecasting model. |
| JEL: | D81 E32 E37 E44 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1299_20&r=all |
| By: | ALJARHI, Mabid |
| Abstract: | Islamic macro models are two categories. The first was inspired by Mannan (1970), Siddiqui (1981, 2006) and Chapra (1985, 1996). It is elaborated by Khan and Mirakhor (1994), Iqbal and Mirakhor (2011), in addition to Mirakhor and Zaidi (2007). It uses a pure equity-based system, keeping the concept of a stable equilibrium, to draw conclusions about efficiency, equilibrium and stability. It ignores the institutional details of the monetary and financial structure. The second proposes an institutional structure of the monetary of financial sector of an Islamic economic system, with distinctive features of money creation and finance allocation, with the necessary instruments for the anchor and conduct of monetary policy. Shari'ah behavioral rules have been translated into an institutional structure. It uses an updated Al-Jarhi (1981, 1983) with several consequent modifications and improvements to do away with the neoclassical IS-LM, and prepare to switch to a more realistic disequilibrium structure . Based on Al-Jarhi’s updated and modified model, is proposed for economic development and stabilization. Implementation highlights gradualism and institutional competition as driving forces. The legal and regulatory environment is modified to provide both conventional and Islamic institutions working side-by-side to have an equal opportunity, leaving competition to have the final say. |
| Keywords: | Islamic economics, Islamic finance, Islamic macroeconomics, monetary policy, fiscal policy, development policy, policy anchor, interest rate, lending based, debt money, investment based, investment money. |
| JEL: | E19 E42 E44 E51 E58 E61 E62 E63 Z12 |
| Date: | 2018–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103397&r=all |
| By: | Gürkaynak, Refet S.; Kara, Ali Hakan; Kısacıkoğlu, Burçin; Lee, Sang Seok |
| 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 event studies 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 event study and model implications for these. We find that there is heterogeneity in this dimension in the event study 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 event study 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:zbw:cfswop:642&r=all |
| By: | Carolin Pflueger; Gianluca Rinaldi |
| Abstract: | We build a new model integrating a work-horse New Keynesian model with investor risk aversion that moves with the business cycle. We show that the same habit preferences that explain the equity volatility puzzle in quarterly data also naturally explain the large high-frequency stock response to Federal Funds rate surprises. In the model, a surprise increase in the short-term interest rate lowers output and consumption relative to habit, thereby raising risk aversion and amplifying the fall in stocks. The model explains the positive correlation between changes in breakeven inflation and stock returns around monetary policy announcements with long-term inflation news. |
| JEL: | E43 E44 E52 G12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27856&r=all |
| By: | Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L. |
| Abstract: | We decompose global stock market volatility shocks into financial originated shocks and nonfinancial originated shocks. Global stock market volatility shocks arising from financial sources reduce substantially more global outputs and inflation than non-financial sources shocks. Financial stock market volatility shocks forecasts 16.85% and 16.88% of the variation in global growth and inflation, respectively. In contrast, the on-financial stock market volatility shocks forecasts only 8.0% and 2.19% of the variation in global growth and inflation. Beside this markable difference global interest/policy rate responds similarly to both shocks. |
| Keywords: | Global, Stock market volatility Shocks, Monetary Policy, FAVAR |
| JEL: | E00 E02 E3 E40 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103019&r=all |
| By: | Hein, Eckhard |
| Abstract: | In this contribution we link the recently re-discovered tendencies towards stagnation with the features of financialisation, which have started to dominate developed capitalist economies in the early 1980s. We review the main macroeconomic channels of transmission of financialisation-namely, the effects on distribution, investment in the capital stock, consumption and on the current and capital accounts. We distinguish three regimes, the debt-led private demand boom, the export-led mercantilist and the domestic demand-led regime and apply this to six countries, Germany, France, Spain, Sweden, the UK and the USA, as well as to the Eurozone, both for the period before (1999-2008) and after (2009-2018) the financial and economic crisis. We show that the dominance of the debt-led private demand boom regime, on the one hand, and the export-led mercantilist regime, on the other hand, has contributed to global current account imbalances before the financial and economic crisis 2007-9, which has demonstrated that these two regimes were unsustainable. For the period after the crisis we find a shift towards export-led mercantilist regimes and a move towards domestic demand-led regimes stabilized by government debt with global current account imbalances persisting. Finally, we elaborate on the challenges of these developments, a highly fragile global constellation with severe problems of aggregate demand generation and a tendency towards stagnation caused by high inequality and weak capital stock growth. |
| JEL: | E02 E60 E61 F62 G38 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1492020&r=all |
| By: | Gauti B. Eggertsson; Sergey K. Egiev; Alessandro Lin; Josef Platzer; Luca Riva |
| Abstract: | This paper presents a toolkit to solve for equilibrium in economies with the effective lower bound (ELB) on the nominal interest rate in a computationally efficient way under a special assumption about the underlying shock process, a two-state Markov process with an absorbing state. We illustrate the algorithm in the canonical New Keynesian model, replicating the optimal monetary policy in Eggertsson and Woodford (2003), as well as showing how the toolkit can be used to analyse the medium-scale DSGE model developed by the Federal Reserve Bank of New York. As an application, we show how various policy rules perform relative to the optimal commitment equilibrium. A key conclusion is that previously suggested policy rules – such as price level targeting and nominal GDP targeting – do not perform well when there is a small drop in the price level, as observed during the Great Recession, because they do not imply sufficiently strong commitment to low future interest rates (“make-up strategy”). We propose two new policy rules, Cumulative Nominal GDP Targeting Rule and Symmetric Dual-Objective Targeting Rule that are more robust. Had these policies been in place in 2008, they would have reduced the output contraction by approximately 80 percent. If the Federal Reserve had followed Average Inflation Targeting – which can arguably approximate the new policy framework announced in August 2020 – the output contraction would have been roughly 25 percent smaller. |
| JEL: | E31 E40 E50 E60 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27878&r=all |
| By: | André Marine Charlotte; Dai Meixing |
| Abstract: | We study the impact of adaptive learning for the design of a robust monetary policy using a small open-economy New Keynesian model. We find that slightly departing from rational expectations substantially changes the way the central bank deals with model misspecification. Learning induces an intertemporal trade-off for the central bank, i.e., stabilizing inflation (output gap) today or stabilizing it tomorrow. The central bank should optimally anchoring private agents expectations in the short term in exchange of easier future intratemporal trade-offs. Compared to the rational expectations equilibrium, the possibility to conduct robust monetary policy is limited in a small open economy under learning for any exchange rate pass-through level and any degree of trade openness. The misspecification that can be introduced into all equations of the model is lower in a small open economy, and approaches zero at high speed as the learning gain rises. |
| Keywords: | Robust control;model uncertainty;adaptive learning;small open economy |
| JEL: | C62 D83 D84 E52 E58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2020-12&r=all |
| By: | Dixit, Shiv; Subramanian, Krishnamurthy |
| Abstract: | We propose a new channel for the transmission of monetary policy shocks, the coordination channel. We develop a New Keynesian model in which bank lending is strategically complementary. Banks do not observe the distribution of loans but infer it using Gaussian signals. Under this paradigm, expectations of tighter credit conditions reduce banks’ lending response to monetary shocks. As a result, lack of coordination and information about other banks’ actions dampen monetary transmission. We test these predictions by constructing a dataset that links the evolution of interest rates to firms’ bank credit relationships in India. Consistent with our model, we find that the cross-sectional mean and dispersion of lending rates, which capture the expected value and the precision of the signals of credit extended by other banks, are significant predictors of monetary transmission. Our quantitative results suggest that lending complementarities reduce monetary transmission to inflation and output by about a third. |
| Keywords: | Monetary policy transmission, India, lending rates |
| JEL: | E43 E52 G21 |
| Date: | 2020–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103169&r=all |
| By: | Federico Bassi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | We develop a structural method for identifying the unobservable rate of capacity utilization in 14 EU countries, by simultaneously estimating the coefficients of a production function, an investment function, a labor productivity function and an unemployment function. Our results provide evidence of chronic underutilization of productive capacity and hysteresis in unemployment, especially after the 2008’ financial crisis. We show that our series of the rate of capacity utilization are significant predictors of capacity accumulation, productivity growth and unemployment rates. Moreover, they predict inflation as efficiently as the DG ECFIN series of capacity utilization and output gaps. |
| Keywords: | Capacity utilization, Potential GDP, Output gap, Hysteresis. |
| JEL: | C51 E22 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def091&r=all |
| By: | Takeshi Shinohara (Bank of Japan); Tatsushi Okuda (Bank of Japan); Jouchi Nakajima (Bank of Japan) |
| Abstract: | In macroeconomics, a variety of uncertainty indices have been proposed to quantitatively assess developments in uncertainty of the macroeconomy. This paper empirically investigates the time series properties of major uncertainty indices and their relationship with macroeconomic variables, using U.S. and Japanese data. Specifically, we analyze: (i) the Macroeconomic Uncertainty Index, (ii) the Economic Surprise Index, (iii) the Volatility Index, and (iv) the Economic Policy Uncertainty (EPU) Index. The empirical analysis for the U.S. shows that, except for EPU, these indices share similar developments and can significantly explain the business cycle fluctuations of investment, durable consumption, and the lending attitude of banks. In contrast, the empirical analysis for Japan reveals significant heterogeneities in the characteristics of the indices. The Macroeconomic Uncertainty Index (i), responds to various events and shows a significant relationship with investment and durable consumption. On the contrary, the Economic Surprise Index (ii), barely reacts to the events and exhibits limited performance in explaining business cycles. The Volatility Index (iii), tends to rise when the financial system is stressed, whereas the Economic Policy Uncertainty Index (iv), is likely to respond to overseas events, and both of these indices can significantly explain business cycle fluctuations of investment and the lending attitudes of banks. |
| Keywords: | Uncertainty; Business cycle |
| JEL: | E32 R52 |
| Date: | 2020–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp20e06&r=all |
| By: | Donato Masciandaro; Paola Profeta; Davide Romelli |
| Abstract: | We construct a new dataset on the presence of women on central bank monetary policy committees for a set of 103 countries, over the period 2002-2016. We document an increasing share of women in monetary policy committees, which is mainly associated with a higher overall presence of women in central banks and less so with other institutional factors or country characteristics. We then investigate the impact of this trend on monetary policymaking by estimating Taylor rules augmented to include the share of women on monetary policy committees. We show that central bank boards with a higher proportion of women set higher interest rates for the same level of inflation. This suggests that women board members have a more hawkish approach to monetary policy. We confirm this result by analysing the voting behaviour of members of the executive board of the Swedish Central Bank during the period 2000-2017. |
| Keywords: | Central banks; Monetary Policy Committees; Women on boards; Taylor rule |
| JEL: | E02 E52 E58 J16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp20148&r=all |
| By: | Marente Vlekke (CPB Netherlands Bureau for Economic Policy Analysis); Martin Mellens (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We assess the stability of the coefficient on the unemployment gap in various linear dynamic Phillips curve models. We allow the coefficient on the unemployment gap and the other variables in our model to be time-varying, so that we can monitor the importance of the Phillips curve over time. We compare the effects of different measures for inflation and inflation expectations on our estimation results. In our analysis, we use state space methods and adopt a practical approach to Bayesian estimation with feasible testing and diagnostic checking procedures. Empirical results are presented for the United States and the five largest euro area economies. Our main conclusion is that in the United States the Phillips curve for headline inflation has remained empirically relevant over the years while there are periods when its impact has been low. For measures of core inflation we find a declining Phillips curve. In the euro area the strength of the relationship differs per country and over time, but has overall been weak and volatile in the past three decades. For both the United States and the euro area countries, we find little evidence of the “anchored expectations"-hypothesis. |
| JEL: | C18 C32 C52 E24 E31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:416.rdf&r=all |
| By: | Brian Fabo; Martina Jančoková; Elisabeth Kempf; Ľuboš Pástor |
| Abstract: | Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production. |
| JEL: | A11 E52 E58 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27849&r=all |
| By: | Henkel, Lukas |
| Abstract: | This paper studies the role of sticky prices for the monetary transmission mechanism, using disaggregated industry-level data from 205 US industries. There is substantial heterogeneity in the output responses of industries to monetary policy surprises. I show that an industry's response to monetary policy surprises is systematically related to an industry's degree of price stickiness as measured by the average frequency of price adjustment. The size of the differential reaction is economically large and statistically significant. The results suggest that sticky prices play an important role in the transmission of monetary policy, consistent with New Keynesian macroeconomic models. This result is robust to the inclusion of further industry-level control variables. JEL Classification: E31, E32 |
| Keywords: | monetary transmission mechanism, sticky prices |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202473&r=all |
| By: | Pierre-Richard Agénor; Timothy Jackson; Luiz Awazu Pereira da Silva |
| Abstract: | This paper studies the effects of sterilized foreign exchange market intervention in a model with financial frictions and imperfect capital mobility. The central bank operates a managed float regime and issues sterilization bonds that are imperfect substitutes (as a result of economies of scope) to investment loans in bank portfolios. The model is parameterized and used to study the macroeconomic effects of, and policy responses to, capital inflows associated with a transitory shock to world interest rates. The results show that sterilized intervention can be expansionary through a bank portfolio effect and may increase volatility and financial stability risks. Full sterilization is optimal only when the bank portfolio effect is absent. The optimal degree of intervention is more aggressive when the central bank can choose simultaneously the degree of sterilization; in that sense, the instruments are complements. When the central bank's objective function depends on the cost of sterilization, and concerns with that cost are sufficiently high, intervention and sterilization can be substitutes---independently of whether exchange rate and financial stability considerations also matter. |
| JEL: | E32 E58 F41 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:889&r=all |
| By: | Erica X.N. Li; Tao Zha; Ji Zhang; Hao Zhou |
| Abstract: | We incorporate regime switching between monetary and fiscal policies in a general equilibrium model to explain three stylized facts: (1) the positive stock-bond return correlation from 1971 to 2000 and the negative one after 2000, (2) the negative correlation between consumption and inflation from 1971 to 2000 and the positive one after 2000, and (3) the coexistence of positive bond risk premiums and the negative stock-bond return correlation. We show that two distinctive shocks---the technology and investment shocks---drive positive and negative stock-bond return correlations under two policy regimes, but positive bond risk premiums are driven by the same technology shock. |
| JEL: | E52 E62 G12 G18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27861&r=all |
| By: | Enrique Esteban García-Escudero (Banco de España); Elisa J. Sánchez Pérez (Banco de España) |
| Abstract: | El dólar continúa desempeñando un papel central en el comercio y los mercados financieros internacionales. La dependencia de los mercados mayoristas de corto plazo (repos, papel comercial, certificados de depósito, swaps) para obtener financiación en dólares hace especialmente vulnerables a los bancos de fuera de Estados Unidos ante shocks en estos mercados, como los de la crisis financiera global o la más reciente del coronavirus. Los mecanismos de gestión de crisis vigentes antes de la crisis internacional (el Fondo Monetario Internacional y las reservas internacionales) se vieron desbordados por esta. Solo la rápida creación de una red internacional de swaps de divisas, surgida gracias a la cooperación que hubo entre los mayores bancos centrales del mundo, consiguió restaurar el equilibro entre demanda y oferta de dólares durante las últimas crisis, evitando así las graves consecuencias que podrían haber tenido en los bancos de fuera de Estados Unidos. |
| Keywords: | swaps de divisas entre bancos centrales, FMI, Sistema Monetario Internacional, financiación en dólares, bancos de fuera de Estados Unidos, crisis financiera global, crisis del coronavirus, cross-currency basis, prestamista de última instancia internacional |
| JEL: | E41 E51 E58 F34 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2025&r=all |
| By: | Sergii Kiiashko (National Bank of Ukraine) |
| Abstract: | Author develops a tractable model to study the optimal debt maturity structure and fiscal policy in an environment with incomplete markets, lack of commitment, and opportunity to default by the government. The default on public debt is endogenous and the real interest rate reflects the default risk and the marginal rate of substitution between present and future consumption. I show that the Lucas and Stokey (1983) time-consistency result can be extended to environments with an opportunity of outright default. The maturity is used to resolve the time-consistency problem: The present government can incentivize future governments to stick to an ex ante optimal sequence of fiscal policies and interest rates. I show that if both risk-free interest rates and risk premiums can be manipulated, the optimal maturity structure tends to have a decaying profile: The government issues debt at all maturity dates, but the distribution of payments over time is skewed toward the short end. The model allows for numerical characterization of the optimal maturity structure of debt with arbitrarily large number of maturities. Debt maturity data across countries are consistent with model predictions. |
| Keywords: | time consistency, maturity structure, sovereign debt, fiscal policy, default |
| JEL: | E43 E62 F22 F34 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:04/2019&r=all |
| By: | Kyle Handley; J. Frank Li |
| Abstract: | We construct a new measure of firm-level uncertainty from analyzing the text of mandatory reports filed with the U.S. Securities and Exchange Commission. Using firm and establishment level panel data on investment margins and employment dynamics, we find our uncertainty measure has large effects on investment even after controlling for industry and time-varying shocks. Periods of high firm uncertainty (1) reduce investment rates by 0.5% and attenuate the response to positive sales shocks by about half and (2) reduce employment growth rates by 1.4% and the response to positive sales shocks by 30%. Firms are less responsive to demand shocks at the firm level and across establishments within the firm. Consistent with “wait and see” dynamics, uncertainty affects new investment activity, e.g. plant births and acquisition, more than disinvestment margins. |
| JEL: | D81 E22 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27896&r=all |
| By: | Demary, Markus; Voigtländer, Michael |
| Abstract: | The new bank regulations generally summarised as Basel IV include the introduction of an out-put floor. This means that banks are allowed less deviation from standard approaches when using internal models. This change will have far-reaching consequences. According to estimates by the European Banking Authority (EBA), German banks alone will have to increase their minimum capital requirements by around 20 percent; overall, Basel IV will increase capital requirements by 38 percent in Germany and by an average of 26 percent across the EU.Banks are therefore facing major challenges. Due to the difficult economic situation, they cannot realise capital increases simply by withholding profits or through obtaining increased capital from investors. It is therefore likely that they will become more involved in government financing, since this does not require equity investment, and similarly likely that they will use their remaining equity primarily where they can achieve the highest margins,i.e. with relatively risky financing. In addition, securitisation and cooperation with credit funds are also becoming more likely, which means less transparency, along with more risk being shifted to the shadow banking sector. For borrowers, the reforms could go hand in hand with higher interest rates.These high costs are not offset by social advantages, since lending in the countries particularly affected by the reformsis relatively prudential. Overall, it is therefore advisable not only to postpone the reformsin their current conception, but to fundamentally reconsider them. |
| JEL: | E44 E51 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:182020&r=all |
| By: | Hirschbühl, Dominik; Krustev, Georgi; Stoevsky, Grigor |
| Abstract: | We estimate a modified version of the “Financial Business Cycles” model originally developed by Iacoviello (2015) in order to investigate the role played by financial factors in driving the business cycle in the euro area. In the model, financial shocks such as borrower defaults, collateral shocks and credit supply effects amplify economic downturns by reducing the flow of credit from banks to the real sector. In this novel application to the euro area, we introduce capital reallocation inefficiency, an innovation to the original set-up which allows for more realistic effects of entrepreneur defaults on economic activity. Our results suggest that financial factors, as captured by this model, played a smaller role in the euro area throughout the double-dip recession than in the United States during the 2008-09 global financial crisis. In a scenario on second-round effects implied by potential NFC loan losses due to the COVID-19 pandemic, we find large financial amplification risks to real economic activity. JEL Classification: E32, E44, E47 |
| Keywords: | Bayesian estimation, DSGE, financial frictions, housing |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202475&r=all |
| By: | Kazuhiro Hiraki (Bank of Japan); Wataru Hirata (Bank of Japan) |
| Abstract: | In Japan, the breakeven inflation rate (BEI), commonly used as a proxy for market-based long-term inflation expectations, has evolved lower than survey-based measures of long-term inflation expectations. The literature has pointed to three factors, other than long-term inflation expectations, that act as drivers of long-term BEI rates: (i) the deflation protection option premium of inflation-linked bonds, (ii) the liquidity premium of the bonds, and (iii) the spread between nominal and real term premia (the term premium spread). This paper estimates an affine term structure model to decompose Japan fs BEI into long-term inflation expectations and these three other driving factors. Our empirical results show that the deflation protection option premium for Japan fs Inflation-Indexed Bonds (JGBi) has pushed the BEI up, while the liquidity premium of JGBi and the term premium spread have pulled it down, all having non-negligible contributions to developments in the BEI. This indicates that the evolution of Japan fs BEI has been driven by these three factors as well as by the long-term inflation expectations of market participants. Consequently, the estimated long-term inflation expectations have evolved higher than the BEI throughout almost the entire estimation period. |
| Keywords: | Breakeven inflation rate; Inflation expectations; Liquidity premium; Deflation protection option premium; Term premium |
| JEL: | E31 E43 G12 |
| Date: | 2020–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp20e05&r=all |
| By: | Elien Meuleman; Rudi Vander Vennet (-) |
| Abstract: | We investigate the impact of macroprudential policy on the risk and return profile of Eurozone banks between 2008 and 2018, conditioning on the stance of monetary policy. Using local projections, we find that a tightening in macroprudential policy increases financial stability by curbing credit growth and increasing the resilience of the banks. With respect to the policy mix, we show that tight macroprudential and monetary policies reinforce each other. But even when monetary policy is accommodating, macroprudential policy is found to be effective in deterring excessive bank risk taking. However, we also document adverse consequences for bank franchise values. |
| Keywords: | Euro Area banks, macroprudential policy, monetary policy, inverse propensity score matching, local projections, bank risk profile |
| JEL: | C23 E52 E61 G21 G28 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:20/1004&r=all |
| By: | Foltas, Alexander; Pierdzioch, Christian |
| Abstract: | We use quantile random forests (QRF) to study the efficiency of the growth forecasts published by three leading German economic research institutes for the sample period from 1970 to 2017. To this end, we use a large array of predictors, including topics extracted by means of computational-linguistics tools from the business-cycle reports of the institutes, to model the information set of the institutes. We use this array of predictors to estimate the quantiles of the conditional distribution of the forecast errors made by the institutes, and then fit a skewed t-distribution to the estimated quantiles. We use the resulting density forecasts to compute the log probability score of the predicted forecast errors. Based on an extensive insample and out-of-sample analysis, we find evidence, particularly in the case of longer-term forecasts, against the null hypothesis of strongly efficient forecasts. We cannot reject weak efficiency of forecasts. |
| Keywords: | Growth forecasts,Forecast efficiency,Quantile-random forests,Density forecasts |
| JEL: | C53 E32 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:pp1859:21&r=all |
| By: | Robert E. Hall; Marianna Kudlyak |
| Abstract: | Potential workers are classified as unemployed if they desire to work but are not working. The unemployed population contains two groups–those with jobs and those without jobs. Those with jobs are on furlough or temporary layoff. They wait out periods of non-work with the understanding that their jobs still exist and they will be recalled. We show that the resulting recall-unemployment dissipates quickly following a shock. Those whose jobs no longer exist constitute what we call jobless-unemployment. Shocks that elevate jobless-unemployment have much more persistent effects. The unemployed without jobs often circle through short-term jobs, spells of unemployment. and spells out of the labor force, before finding stable employment. Historical major adverse shocks, such as the financial crisis in 2008, created mostly jobless-unemployment and consequently caused extended periods of elevated unemployment. The pandemic starting in March 2020 created a large volume of recall-unemployment, most of which dissipated by August. It also created a bulge in jobless-unemployment, which is lingering. |
| JEL: | E32 J63 J64 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27886&r=all |
| By: | Albertazzi, Ugo; Burlon, Lorenzo; Pavanini, Nicola; Jankauskas, Tomas |
| Abstract: | We quantify the impact that central bank refinancing operations and funding facilities had at reducing the banking sector’s intrinsic fragility in the euro area in 2014-2019. We do so by constructing, estimating and calibrating a micro-structural model of imperfect competition in the banking sector that allows for runs in the form of multiple equilibria, in the spirit of Diamond & Dybvig (1983), banks’ default and contagion, and central bank funding. Our framework incorporates demand and supply for insured and uninsured deposits, and for loans to firms and households, as well as borrowers’ default. The estimation and the calibration are based on confidential granular data for the euro area banking sector, including information on the amount of deposits covered by the deposit guarantee scheme and the borrowing from the European Central Bank (ECB). We document that the quantitative relevance of non-fundamental risk is potentially large in the euro area banking sector, as witnessed by the presence of alternative equilibria with run-type features, but also that central bank interventions exerted a crucial role in containing fundamental as well as non-fundamental risk. Our counterfactuals show that 1 percentage point reduction (increase) in the ECB lending rate of its refinancing operations reduces (increases) the median of banks’ default risk across equilibria by around 50%, with substantial heterogeneity of this pass-through across time, banks and countries. JEL Classification: E44, E52, E58, G01, G21, L13 |
| Keywords: | bank runs, central bank policies, imperfect competition, multiple equilibria, structural estimation |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202480&r=all |
| By: | Michael Kumhof; Phurichai Rungcharoenkitkul; Andrej Sokol |
| Abstract: | Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a two-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalise the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis, creditors stop financing debt rather than current accounts, and because following a crisis, current accounts are not the primary channel through which balance sheets adjust. Second, we reinterpret the global saving glut hypothesis by arguing that US households do not finance current account deficits with foreigners' physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin's current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by US and non-US banks rather than US current account deficits. Finally, we demonstrate that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate sets of economic decisions. |
| JEL: | E44 E51 F41 F44 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:890&r=all |
| By: | Christopher D. Carroll; Edmund Crawley; Jiri Slacalek; Matthew N. White |
| Abstract: | To predict the effects of the 2020 U.S. CARES Act on consumption, we extend a model that matches responses to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during lockdowns, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear. We estimate that, if the lockdown is short-lived (the median point of view as we are writing in April 2020), the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to pre-crisis levels. If the lockdown lasts longer (or there is a ‘second wave’), an extension of enhanced unemployment benefits will likely be necessary for consumption spending to recover quickly. |
| JEL: | D14 D83 D84 E21 E32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27876&r=all |
| By: | Davide Debortoli; Mario Forni; Luca Gambetti; Luca Sala |
| Abstract: | Monetary policy easing and tightening have asymmetric effects: a policy easing has large effects on prices but small effects on real activity variables. The opposite is found for a policy tightening: large real effects but small effects on prices. Nonlinearities are estimated using a new and simple procedure based on linear Structural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities. |
| Keywords: | monetary policy shocks, nonlinear effects, structural VAR models |
| JEL: | C32 E32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1205&r=all |
| By: | Luca Metelli (Bank of Italy); Kevin Pallara (University of Lausanne) |
| Abstract: | This paper investigates the interaction between fiscal policy transmission and fiscal sustainability, captured through the concept of fiscal space. In order to measure the evolution of fiscal space over time we propose four indicators, drawing from different concepts available in the literature. We use these indicators to define periods of ample and tight fiscal space. We then estimate the effects of government spending shocks in the United States according to the level of fiscal space, for the period 1929:Q1-2015:Q4. The main result of the paper is that fiscal multiplier is above one when fiscal space is ample, while it is below one when fiscal space is tight. Moreover, such difference is always significant. This result is very robust across different identification methods and samples. |
| Keywords: | Fiscal multipliers, Fiscal space, State-dependency, Local projection, Fiscal sustainability, Government spending |
| JEL: | E62 H50 H60 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1293_20&r=all |
| By: | Dall’Orto Mas, Rodolfo; Vonessen, Benjamin; Fehlker, Christian; Arnold, Katrin |
| Abstract: | This Occasional Paper analyses how significant expansions in central banks’ mandates, roles and instruments can result in challenges to the independence of monetary policy. The paper reviews, in particular, some of the key challenges to central bank independence brought about by the global financial crisis (GFC) of 2007 and assesses their impact on the de jure and de facto independence of selected central banks around the world in the past few years. It finds that although the level of de jure (legal) central bank independence did not deteriorate, the level of de facto (actual) independence of the central banks of some of the largest economies in the world may have weakened. The paper presents counterarguments to the key critiques raised against central banks due to their policy response during the GFC, and concludes that the case for central bank independence is as strong as ever. JEL Classification: B1, B2, C4, E3, E4, E5, E6, K3, N1, N2 |
| Keywords: | central bank independence, central bank mandate, financial stability, global financial crisis, price stability |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2020248&r=all |
| By: | Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L. |
| Abstract: | We investigate the time-varying dynamics of global stock market volatility, commodity prices, domestic output and consumer prices. We find (i) stock market volatility and commodity price shocks impact each other and the economy in a gradual and endogenous adjustment process, (ii) impact of commodity price shock on global stock market volatility is significant during global financial crises, (iii) effects of global stock market volatility on the US output are amplified by endogenous commodity price responses, (iv) effects of global stock market volatility shocks on the economy are heterogeneous across nations and relatively larger in twelve developed countries, (v) four developing/small economies are more vulnerable to commodity price shocks. |
| Keywords: | Global commodity prices, Global stock market volatility, Output, Heterogeneity |
| JEL: | E00 E3 E40 E66 |
| Date: | 2019–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103035&r=all |
| By: | Cóndor Richard |
| Abstract: | Shared-appreciation mortgage (SAM) contracts, which display payments indexed to a local house price, have been proposed as an alternative to alleviate the costs of recessions. Using a heterogeneous agent model with two types of agents (Borrowers and Savers), uninsurable idiosyncratic income risk, and calibrated to the US, this paper studies the effects, on both macroeconomic variables and welfare, of introducing such contracts. I find that equilibrium default rates, house price volatility, and welfare losses of both Borrowers and Savers following an unexpected negative shock on aggregate income, are smaller. Also, while this policy benefits Savers, only Borrowers with moderate/low mortgage and housing wealth levels are better-off (61% of Borrowers under the main calibration). Finally, if Borrowers are less patient, the fraction that benefits may never be above 50%. |
| Keywords: | Mortgage design;Heterogeneous agents;Housing policy |
| JEL: | G00 C61 E44 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2020-11&r=all |
| By: | Kang, Wensheng (Department of Economics at Kent State University, Ohio, USA); Ratti, Ronald A. (University of Missouri, Department of Economics, USA and Centre for Applied Macroeconomics Analysis, ANU, Australia); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania) |
| Abstract: | We investigate the time-varying dynamics of global stock market volatility, commodity prices, domestic output and consumer prices. We find (i) stock market volatility and commodity price shocks impact each other and the economy in a gradual and endogenous adjustment process, (ii) impact of commodity price shock on global stock market volatility is significant during global financial crises, (iii) effects of global stock market volatility on the US output are amplified by endogenous commodity price responses, (iv) effects of global stock market volatility shocks on the economy are heterogeneous across nations and relatively larger in twelve developed countries, (v) four developing/small economies are more vulnerable to commodity price shocks. |
| Keywords: | global commodity prices, global stock market volatility, output, heterogeneity |
| JEL: | D80 E44 E66 F62 G10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:34827&r=all |
| By: | Claudia Pacella |
| Abstract: | In this thesis I apply modern econometric techniques on macroeconomic time series. Forecasting is here developed along several dimensions in the three chapters. The chapters are in principle self-contained. However, a common element is represented by the business cycle analysis. In the first paper, which primarily deals with the problem of forecasting euro area inflation in the short and medium run, we also compute the country-specific responses of a common business cycle shock. Both chapters 2 and 3 deal predominately with business cycle issues from two different perspectives. The former chapter analyses the business cycle as a dichotomous non-observable variable and addresses the issue of evaluating the euro area business cycle dating formulated by the CEPR committee, while the latter chapter studies the entire distribution of GDP growth. |
| Keywords: | Inflation; Multi-country model; Forecasting; Bayesian estimation; Business fluctuations; Cycle; Factor model; Asymmetric least squares; Expectiles; Quantiles; Density forecasting |
| Date: | 2020–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/307579&r=all |
| By: | Christopher S. Sutherland |
| Abstract: | How forward guidance influences expectations is not yet fully understood. To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I find that, in response to a change in forward guidance, forecasters revise their interest rate forecasts in the intended direction by five basis points on average. The effect is not attributable to central bank information effects. Instead, when forming rate expectations, forecasters place full weight on their own inflation and growth forecasts and zero weight on those of the central bank. |
| Keywords: | Central bank research; Monetary policy; Monetary policy communications; Transmission of monetary policy |
| JEL: | D84 E58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-40&r=all |
| By: | Tarek Alexander Hassan; Tony Zhang |
| Abstract: | This article reviews the literature on currency and country risk with a focus on its macroeconomic origins and implications. A growing body of evidence shows countries with safer currencies enjoy persistently lower interest rates and a lower required return to capital. As a result, they accumulate relatively more capital than countries with currencies international investors perceive as risky. Whereas earlier research focused mainly on the role of currency risk in generating violations of uncovered interest parity and other financial anomalies, more recent evidence points to important implications for the allocation of capital across countries, the efficacy of exchange rate stabilization policies, the sustainability of trade deficits, and the spillovers of shocks across international borders. |
| JEL: | E22 E4 F31 F34 F4 G12 G15 G3 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27847&r=all |
| By: | Steven J. Davis; Stephen Hansen; Cristhian Seminario-Amez |
| Abstract: | Firm-level stock returns differ enormously in reaction to COVID-19 news. We characterize these reactions using the Risk Factors discussions in pre-pandemic 10-K filings and two text-analytic approaches: expert-curated dictionaries and supervised machine learning (ML). Bad COVID-19 news lowers returns for firms with high exposures to travel, traditional retail, aircraft production and energy supply -- directly and via downstream demand linkages -- and raises them for firms with high exposures to healthcare policy, e-commerce, web services, drug trials and materials that feed into supply chains for semiconductors, cloud computing and telecommunications. Monetary and fiscal policy responses to the pandemic strongly impact firm-level returns as well, but differently than pandemic news. Despite methodological differences, dictionary and ML approaches yield remarkably congruent return predictions. Importantly though, ML operates on a vastly larger feature space, yielding richer characterizations of risk exposures and outperforming the dictionary approach in goodness-of-fit. By integrating elements of both approaches, we uncover new risk factors and sharpen our explanations for firm-level returns. To illustrate the broader utility of our methods, we also apply them to explain firm-level returns in reaction to the March 2020 Super Tuesday election results. |
| JEL: | E44 G12 G14 G18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27867&r=all |
| By: | Lorenzo Codogno; Paul van den Noord |
| Abstract: | The only way to share common liabilities in the Eurozone is to achieve full fiscal and political union, i.e. unity of liability and control. In the pursuit of that goal, there is a need to smooth the transition, avoid unnecessary strains to macroeconomic and financial stability and lighten the burden of stabilisation policies from national sovereigns and the European Central Bank, while preserving market discipline and avoiding moral hazard. Both fiscal and monetary policy face constraints linked to the high legacy debt in some countries and the zero-lower-bound, respectively, and thus introducing Eurozone ‘safe assets’ and fiscal capacity at the centre would strengthen the transmission of monetary and fiscal policies. The paper introduces a standard Mundell-Fleming framework adapted to the features of a closed monetary union, with a two-country setting comprising a ‘core’ and a ‘periphery’ country, to evaluate the response of policy and the economy in case of symmetric and asymmetric demand and supply shocks in the current situation and following the introduction of safe bonds and fiscal capacity. Under the specified assumptions, it concludes that a safe asset and fiscal capacity, better if in combination, would remove the doom loop between banks and sovereigns, reduce the loss in output for both economies and improve the stabilisation properties of fiscal policy for both countries, and thus is welfare enhancing. |
| Keywords: | Fiscal policy, Business fluctuations, Safe sovereign assets, Fiscal capacity |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:144&r=all |
| By: | Alberto Caruso |
| Abstract: | The thesis contains four essays, covering topics in the field of real-time macroeconometrics, forecasting and applied macroeconomics. In the first two chapters, I use recent techniques developed in the "nowcasting" literature in order to analyse and interpret the macroeconomic news flow. I use them either to assess current macroeconomic conditions, showing the importance of foreign indicators dealing with small open economies, or linking macroeconomic news to asset prices, through a model that help us interpret macroeconomic data and explaining the linkages between macro variables and financial indicators. In the third chapter, I analyse the link between macroeconomic data in real-time and the yield curve of interest rates, constructing a forecasting model which takes into account the peculiar characteristics of the macroeconomic data flow. In the last chapter, I present a Bayesian Vector Autoregression model built in order to analyse the last two crisis in the Eurozone (2008-09, and 2011-12) identifying their unique characteristics with respect to historical regularities, an issue of great importance from a policy perspective. |
| Keywords: | Nowcasting; Forecasting; Macroeconomic news; Yield curve; Factor models; Public debt; Bayesian VAR; Macroeconometrics |
| Date: | 2020–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/308164&r=all |
| By: | William Ginn (Université de Nuremberg); Marc Pourroy |
| Abstract: | Monetary policy is generally viewed in the literature as the only institution responsible for price stability. This approach overlooks the importance of food price stabilization policies, which are particularly important in low-and middle-income economies. We estimate a Bayesian DSGE model that incorporates fiscal and monetary policy tailored to India. Fiscal policy is based on a consumer food price subsidy. The empirical evidence suggests that food subsidies create a policy-induced form of food price-stickiness that operates in parallel with, yet is different to, the classic Calvo monopolistic competition framework. We find that the food price subsidy reduces CPI volatility and monetary policy reaction: following a world food price shock, interest rate volatility would be 10% higher absent food subsidies. Putting this effect aside would lead to overestimate the effectiveness of inflation targeting in EMEs. A main finding is the subsidy policy reduces aggregate welfare, albeit we find heterogeneous distributional effects by households. |
| Keywords: | DSGE Model,Price stabilisation,Food prices,Commodities,Monetary Policy |
| Date: | 2020–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02944209&r=all |
| By: | Goenka, Aditya; Liu, Lin; Nguyen, Manh-Hung |
| Abstract: | This paper studies an optimal growth model where health expenditures (alternatively lockdowns) can be made to reduce infectivity of the disease when there is an infectious disease with SIR dynamics and infections can cause disease related mortality. We study implications of two different SIR models - with early mortality and with late mortality from the disease - on health outcomes, optimal response and on economic outcomes in equilibrium. We characterize the steady states and show how these vary when varying mortality. The outcomes are sensitive to the specification of the epidemiology model. We also study sufficiency conditions and provide the first results in economic models with SIR dynamics with and without disease related mortality - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable. |
| Keywords: | Infectious diseases, Covid-19, SIR model, mortality, sufficiency conditions, economic growth, lockdown, prevention, health expenditure. |
| JEL: | E13 E22 D50 D63 I10 I18 O41 C61 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124766&r=all |
| By: | Aditya Goenka (University of Birmingham); Lin Liu (University of Liverpool); Nguyen, Manh-Hung (Toulouse School of Economics) |
| Abstract: | This paper studies optimal quarantines (can also be interpreted as lockdowns or selfisolation) when there is an infectious disease with SIS dynamics and infections can cause disease related mortality in a dynamic general equilibrium neoclassical growth framework. We characterize the optimal decision and the steady states and how these change with changes in effectiveness of quarantine, productivity of working from home, contact rate of disease and rate of mortality from the disease. A standard utilitarian welfare function gives the counter-intuitive result that increasing mortality reduces quarantines but increases mortality and welfare while economic outcomes and infections are largely unaffected. With an extended welfare function incorporating welfare loss due to disease related mortality (or infections generally) however, quarantines increase, and the decreasing infections reduce mortality and increase economic outcomes. Thus, there is no optimal trade-off between health and economic outcomes. We also study sufficiency conditions and provide the first results in economic models with SIS dynamics with disease related mortality - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable. |
| Keywords: | Infectious diseases, Covid-19, SIS model, mortality, sufficiency conditions, economic growth, lockdown, quarantine, self-isolation. |
| JEL: | E13 E22 D50 D63 I10 I15 I18 O41 C61 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:20-24&r=all |
| By: | Farid, Moatazbellah |
| Abstract: | In this paper I analyse the effect of Brexit on UK labour productivity and its components using a synthetic control methodology. My results show that the Brexit vote had a negative impact on labour productivity, causing GDP per hour worked to decrease by 2.4% by 2019 in comparison to the absence of Brexit. The two components of labour productivity are GDP and hours worked. I find that the decrease in the GDP is more than the increase in hours worked per person, causing the labour productivity to decline |
| Keywords: | Brexit, Labour productivity, Productivity puzzle, Synthetic control method |
| JEL: | E24 E65 F13 O47 |
| Date: | 2020–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103165&r=all |
| By: | Diop, Samba; Asongu, Simplice |
| Abstract: | This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to weighting and aggregation of the indicator. This paper measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an Optimal Currency Area as theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time. The findings show that: (i) inflation and finance (trade and mobility) present the highest (lowest) score while ECOWAS is (EAC and IGAD are) the highest (least) performing. (ii) Surprisingly, in most RECs, the highest contributors to wealth creation are not the top performers in regional monetary integration. (iii) The RECs in Africa are characterized by a stable monetary integration which is different from the gradual process usually observed in monetary integration because with the exception of the EAC and UMA, the dynamics of IAMI show a steady trend in the overall index across time. Policy implications are discussed. |
| Keywords: | Monetary Integration; Currency Unions; Economic Communities; Africa |
| JEL: | E10 E50 O10 O55 P50 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103137&r=all |
| By: | Aditya Goenka (University of Birmingham); Lin Liu (University of Liverpool); Nguyen, Manh-Hung (Toulouse School of Economics) |
| Abstract: | This paper studies an optimal growth model where health expenditures (alternatively lockdowns) can be made to reduce infectivity of the disease when there is an infectious disease with SIR dynamics and infections can cause disease related mortality. We study implications of two different SIR models - with early mortality and with late mortality from the disease - on health outcomes, optimal response and on economic outcomes in equilibrium. We characterize the steady states and show how these vary when varying mortality. The outcomes are sensitive to the specification of the epidemiology model. We also study sufficiency conditions and provide the first results in economic models with SIR dynamics with and without disease related mortality - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable. |
| Keywords: | Infectious diseases, Covid-19, SIR model, mortality, sufficiency conditions, economic growth, lockdown, prevention, health expenditure. |
| JEL: | E13 E22 D50 D63 I10 I15 I18 O41 C61 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:20-25&r=all |
| By: | Michael D. Bordo |
| Abstract: | The COVID-19 pandemic spawned a global liquidity crisis in March 2020. The global liquidity crisis was alleviated by the Federal Reserve and other advanced country central banks cooperating by extending the swap lines they developed in the Global Financial Crisis 2007-2008. Central bank cooperation in 2020 evolved from a two-century history across several monetary regimes that is surveyed in this paper. I find that in monetary regimes which are rules-based cooperation was most successful. International currency swaps developed to manage exchange rates during the Bretton Woods era have evolved into the leading tool to manage international liquidity crises. The swap network can be viewed as a step in the direction of a global financial safety net. |
| JEL: | E58 F33 N20 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27898&r=all |
| By: | Bruno Ducoudre (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Guilhem Tabarly |
| Abstract: | This paper investigates whether economic activity dynamics predict GDP revisions using panel data from 15 OECD countries. We find that economic activity predicts GDP revisions: early releases tend to overestimate GDP growth during slowdowns — and vice-versa. We also find that the source of the predictability could be related to the sampling of information collection. Finally, the predictability comes from short-term economic activity dynamics rather than business cycle position. |
| Keywords: | Gross domestic product; National accounts; Revision analysis |
| JEL: | C5 C8 E3 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2q9catktmn91sabau2l9qji1as&r=all |
| By: | Muayad Ismail (Department of Economics, University of Reading) |
| Abstract: | This paper applies a combination of quantitative techniques, namely the Generalized Evaluation Estimator (GEE) and Synthetic Control Method (SCM), to assess the impact of IMF programs implemented in Sudan on the performance of real GDP growth, inflation, and the current account balance. The two applied methods provide empirical evidence that IMF programs in Sudan were effective in reducing inflation during program periods, albeit with short-lived effects thereafter. However, conclusions drawn by the two approaches are divergent regarding the effects of IMF programs on GDP growth and the current account balance. While the GEE approach fails to detect any significant effects of Fund programs on growth and the current account balance for the entire sample period, the SCM concludes that the effects on growth (current account) have been positive (negative). Further, the GEE approach finds positive and significant effects of IMF programs on GDP growth when the analysis is restricted to cover IMF Staff Monitored Program (SMP) periods only. Notwithstanding these positive effects, the analysis indicates that deliberately keeping inflation rates very low during SMP program periods could have possibly constrained higher rates of GDP growth during the same periods. |
| Keywords: | IMF Programs, Generalized Evaluation Estimator, Synthetic Control, Stand-By Arrangements, Staff Monitored Programs |
| JEL: | F33 E65 |
| Date: | 2020–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2020-21&r=all |
| By: | Funke, Michael; Loermann, Julius; Tsang, Andrew |
| Abstract: | We analyse volatility spillovers between the on- and offshore (CNY and CNH) Renminbi exchange rates towards the US dollar (USD). The volatility impulse response (VIRF) methodology introduced by Hafner and Herwatz (2006) is applied to several shocks between January 2012 and December 2019. Furthermore, we propose a novel way of estimating VIRFs based on Bayesian estimation of the MV-GARCH BEKK model. A simple Independence Chain Metropolis-Hastings algorithm allows drawing VIRFs in an efficient manner, allowing to analyse the significance and persistence of volatility shocks and associated volatility spillovers. The VIRF results show that the CNH exchange rate promptly reflects the global market demand and supply, while the CNY exchange rate reacts with a time lag. The VIRF results also show the existence of spillovers between the two markets as the co-volatility increases in response to shocks. |
| JEL: | C32 E58 F31 F51 |
| Date: | 2020–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2020_022&r=all |
| By: | jallow, ousman; Joof, Foday |
| Abstract: | Purpose - This paper aims to examine the asymmetric association between Sukuk returns and economic growth in Indonesia. Design/methodology/approach - The Non-linear autoregressive distributed lag (NARDL) model and Granger causality test are employed from the periods 2014:M1 to 2019:M4, using GDP Growth as a proxy of economic activities, Indonesia Sukuk return index as explanatory variables and inflation and interest rate as control variables. Findings - The results posit a long run asymmetric relationship between Sukuk return and economic growth and that a positive shock on Sukuk returns results to an increase in GDP growth by 0.31% in the long run. Moreover, the results also imply that Sukuk returns and economic growth moves at different magnitude in Indonesia. However, a negative shock in the long run has no impact on economic growth. Finally, the granger causality analysis reported a unidirectional causal association flowing from Sukuk returns to economic growth, while interest and inflation rate has a neutral association with economic growth. Research limitations/implications -The sample size used in this paper is relatively small due to data availability; therefore, contradicting results with other studies conducted with this regard may arise. Practical Implications - An increase in economic growth directly impact on Sukuk returns thereby maximizing the wealth of households and holding corporations. The economy can also feel the negative effect if the reverse happens. Originality/Value: This is one of the first time research is conducted using non-linear auto-regressive distributed lag NARDL to assess the impact of Sukuk issuance on economic growth with special concentration in Indonesia. |
| Keywords: | Keywords: Sukuk Return, Economic Growth, NARDL, Indonesia |
| JEL: | E44 |
| Date: | 2020–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102939&r=all |
| By: | Ewelina Osowska (Data Science Lab WNE UW, University of Warsaw); Piotr Wójcik (Faculty of Economic Sciences, Data Science Lab WNE UW, University of Warsaw) |
| Abstract: | This article examines the impact of FOMC statements on stock and foreign exchange markets with the use of text mining and modelling methods including linear and non-linear algorithms. Proposed methodology is based on calculating the FOMC statements’ tone called as sentiment and incorporate it as a potential predictor in the modelling process. Additionally, we incorporate the market surprise component as well as two financial indicators namely Purchasing Managers' Index and Consumer confidence index that gauge for corporate managers and retail customers assessment of the economic situation and potential fluctuations. Eight event windows around the event are considered: 60-minute and 20-minute windows before the event and also 15-minute, 20-minute, 25-minute, 30-minute, 60-minute and 120-minute windows after the event. Research has shown that given linear models the sentiment of FOMC statements does not generate a significant response in any of the analyzed event windows neither for the S&P 500 Index nor for the spot price on the EUR/USD currency pair. However, significant predictors occurred to be market shock in case of both S&P 500 Index and EUR/USD spot price, PMI in case of EUR/USD spot price and also CCI in case of EUR/USD spot price. Given non-linear models, the negative relation of statement’s sentiment score and the model prediction is observed for EUR/USD spot price. |
| Keywords: | FOMC Statements, event arbitrage, sentiment analysis, financial markets prediction |
| JEL: | G14 G15 C14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2020-33&r=all |
| By: | - |
| Abstract: | The U.S. economy shrank at a 32.7% annual rate in the second quarter of 2020 and at a 5% pace in the first. The decline was driven by a big collapse in private consumption, concentrated in the services sector. Shutdowns to stem the spread of the coronavirus had a deep impact on the economy, particularly on the services sector. Economic forecasts project a rebound in the third quarter that would recoup about half of the output lost in the first half of the year. To return to the previous peak recorded in the final quarter of last year, the economy would need to grow at roughly the same pace in the fourth quarter, but private forecasts point to a much lower (single-digit) growth rate, suggesting the recovery will be protracted. The economic policy response was prompt and strong in the early phase of the pandemic (equivalent to 13% of GDP).The size and content of another package of still much needed relief measures is currently under discussion. The economic outlook remains highly uncertain, as it depends on containing the spread of the virus, developing an effective vaccine, and on new policy measures to support the recovery. |
| Keywords: | CONDICIONES ECONOMICAS, INDICADORES ECONOMICOS, INDUSTRIA, EMPLEO, INFLACION, POLITICA MONETARIA, POLITICA FISCAL, COMERCIO INTERNACIONAL, TENDENCIAS ECONOMICAS, COVID-19, ECONOMIC CONDITIONS, ECONOMIC INDICATORS, INDUSTRY, EMPLOYMENT, INFLATION, MONETARY POLICY, FISCAL POLICY, INTERNATIONAL TRADE, ECONOMIC TRENDS, COVID-19 |
| Date: | 2020–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col896:46077&r=all |
| By: | Nauro Campos; Corrado Macchiarelli |
| Abstract: | The year 2019 marks the 20th anniversary of the euro as well as Brexit, the expected exit of the United Kingdom from the European Union. This paper examines the relationship between Brexit and the stability of the euro area. We look at stability from the perspective of the distance between core and periphery groups of countries which, we show, is mainly determined by the level of synchronization of economic activity among them. We provide new evidence that the UK economy, since 1990, has become significantly more integrated with the EU economy. The UK moved from being in the periphery before 1990 to being in the core afterwards. We also provide evidence that the level of business cycles synchronization of the UK economy with the EU has had the highest, among all countries, variability over time. We conclude with some policy implications from Brexit for the stability of the euro area. |
| Keywords: | European Monetary Union, Eurozone, Core-periphery |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:154&r=all |
| By: | Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander |
| Abstract: | We estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost-minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. We estimate a large increase in the failure rate of SMEs under COVID-19 of nearly 9 percentage points, absent government support. Accommodation & Food Services, Arts, Entertainment & Recreation, Education, and Other Services are among the most affected sectors. The jobs at risk due to COVID-19 related SME business failures represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets and resulting in a 0.75 percentage point decline in the common equity Tier-1 capital ratio. We evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at risk firms can be modest (0.54% of GDP). However, at a similar level of effectiveness, non-targeted subsidies can be substantially more expensive (1.82% of GDP). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery. |
| JEL: | D2 E65 G33 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27877&r=all |
| By: | Hinterlang, Natascha; Hollmayr, Josef |
| Abstract: | This paper identifies U.S. monetary and fiscal dominance regimes using machine learning techniques. The algorithms are trained and verified by employing simulated data from Markov-switching DSGE models, before they classify regimes from 1968-2017 using actual U.S. data. All machine learning methods outperform a standard logistic regression concerning the simulated data. Among those the Boosted Ensemble Trees classifier yields the best results. We find clear evidence of fiscal dominance before Volcker. Monetary dominance is detected between 1984-1988, before a fiscally led regime turns up around the stock market crash lasting until 1994. Until the beginning of the new century, monetary dominance is established, while the more recent evidence following the financial crisis is mixed with a tendency towards fiscal dominance. |
| Keywords: | Monetary-fiscal interaction,Machine Learning,Classification,Markov-switching DSGE |
| JEL: | C38 E31 E63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:512020&r=all |
| By: | Cheng, Terence Chai (University of Adelaide); Kim, Seonghoon (Singapore Management University); Koh, Kanghyock (Korea University) |
| Abstract: | We provide novel evidence on how the COVID-19 global health and economic crisis is affecting overall life satisfaction and domain-specific satisfaction using data from a monthly longitudinal survey of middle-aged and older Singaporeans. Using a difference-in-differences framework, we document large declines in overall life satisfaction and domain-specific satisfaction during the COVID-19 outbreak, except satisfaction with health. These declines coincide with the introduction of a nationwide lockdown, with life satisfaction remaining below its pre-pandemic levels even after the lockdown is lifted. We also find that individuals who report a drop in household income during the COVID-19 outbreak experience a decline in overall life satisfaction almost twice as large as those who do not report any income loss. |
| Keywords: | COVID-19, pandemic, life satisfaction, subjective well-being, individual-level monthly panel data, difference-in-differences |
| JEL: | E2 I12 I31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13702&r=all |
| By: | Nissilä, Wilma |
| Abstract: | This article surveys both earlier and recent research on recession forecasting with probit based time series models. Most studies use either a static probit model or its extensions in order toestimate the recession probabilities, while others use models based on a latent variable ap-proach to account for nonlinearities. Many studies find that the term spread (i.e, the difference between long-term and short-term yields) is a useful predictor for recessions, but some recent studies also find that the ability of spread to predict recessions in the Euro Area has diminished over the years. Confidence indicators and financial variables such as stock returns seem to provide additional predictive power over the term spread. More sophisticated models outper-form the basic static probit model in various studies. An empirical analysis made for Finland strengthens the findings of earlier studies. Consumer confidence is especially useful predictor of Finnish business cycle and the accuracy of the static single-predictor model can be improved by using multiple predictors and by allowing the dynamic extension. |
| Keywords: | business cycles,recession forecasting,probit models |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:72020&r=all |
| By: | Roger Guesnerie (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The paper puts emphasis on the so-called "eductive" approach for a critical assessment of the Rational Expectations hypothesis. Section 2 makes an intuitive unformal presentation, aimed at comparing the approach and the results of "eductive" learning and "real time" learning in two polar models, (a two period partial equilibrium model and a simple Real Business Cycle mode). A segment of theoretical literature, taking an eductive view of stability in the fields of finance, trade, general equilibrium, short term or long term macroeconomics….is reviewed in Section 3. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02951022&r=all |
| By: | Roger Guesnerie (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | The paper puts emphasis on the so-called "eductive" approach for a critical assessment of the Rational Expectations hypothesis. Section 2 makes an intuitive unformal presentation, aimed at comparing the approach and the results of "eductive" learning and "real time" learning in two polar models, (a two period partial equilibrium model and a simple Real Business Cycle mode). A segment of theoretical literature, taking an eductive view of stability in the fields of finance, trade, general equilibrium, short term or long term macroeconomics….is reviewed in Section 3. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-02951022&r=all |
| By: | Grégory Claeys; Chara Papioti; Andreas Tryphonides |
| Abstract: | Using a multi-unit uniform auction model, we combine bidding data from open market operations as well as macroeconomic information to recover the latent distribution of liquidity risk across banks and how it is affected by policy in Chile. We find that unanticipated shocks to foreign reserve accumulation and interest rates have significant effects on aggregate beliefs about a liquidity shock in the near future, while news about reserve accumulation are not effective. These results suggest the presence of a novel informational channel for macroeconomic policy, while we demonstrate that accounting for market power is important for uncovering these effects. |
| Keywords: | multi-unit auction, liquidity risk, reserve accumulation, signaling |
| JEL: | C57 D44 E50 G20 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1206&r=all |
| By: | Benavides Guillermo |
| Abstract: | In this research paper ARCH-type models and option implied volatilities (IV) are applied in order to estimate the Value-at-Risk (VaR) of a stock index futures portfolio for several time horizons. The relevance of the asymmetries in the estimated volatility estimation is considered. The empirical analysis is performed on futures contracts of both the Standard and Poors 500 Index and the Mexican Stock Exchange. According to the results, the IV model is superior in terms of precision compared to the ARCH-type models. Under both methodologies there are relevant statistical gains when asymmetries are included. The referred gains range from 4 to around 150 basis points of minimum capital risk requirements. This research documents the importance of taking asymmetric effects (leverage effects) into account in volatility forecasts when it comes to risk management analysis. |
| Keywords: | Asymmetric volatility;Backtesting;GARCH;TARCH;Implied volatility;Stock index futures;Value at Risk;Mexico |
| JEL: | C15 C22 C53 E31 E37 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2020-10&r=all |
| By: | Charles Yuji Horioka |
| 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. |
| JEL: | D11 D12 D14 D64 E21 J14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27869&r=all |
| By: | Charles M. Kahn; Francisco Rivadeneyra |
| Abstract: | An anonymous token-based central bank digital currency (CBDC) would pose certain security risks to users. These risks arise from how balances are aggregated, from their transactional use and from the competition between suppliers of aggregation solutions. The central bank could mitigate these risks in the design of the CBDC by limiting balances or transfers, modifying liability rules or imposing security protocols on storage providers. |
| Keywords: | Central bank research; Digital currencies and fintech; Financial system regulation and policies; Payment clearing and settlement systems |
| JEL: | E42 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-21&r=all |
| By: | Deven Bathia (School of Business and Management, Queen Mary University of London); Riza Demirer (Department of Economics & Finance, Southern Illinois University Edwardsville); Rangan Gupta (Department of Economics, University of Pretoria); Kevin Kotze (School of Economics, University of Cape Town) |
| JEL: | C10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2020-01&r=all |
| By: | Mototsugu Shintani (Faculty of Economics, the University of Tokyo, Japan; and Institute for Monetary and Economic Studies, Bank of Japan); Naoto Soma (Department of Economics, Yokohama National University) |
| Abstract: | This paper investigates whether a series of unconventional monetary policies conducted by the Bank of Japan in 2013 contributed to an increase in long-run inflation expectations, which had been below 0 percent. Using a panel dataset of professional forecasts, we estimate the dynamic Nelson-Siegel model and extract long-run inflation expectations as a common factor. We find that the introduction of Quantitative and Qualitative Monetary Easing (QQE) in April 2013, rather than raising the inflation target from 1 percent to 2 percent in January 2013, significantly increased long-run inflation expectations in Japan. In addition to this outcome, we find that the correlation between short-run and long-run expectations has been reduced since the introduction of QQE. Overall, our results suggest that inflation expectations have been "re-anchored" to the level around 1 percent since the introduction of QQE, while the level is still short of the 2 percent target. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf494&r=all |
| By: | Tarciso Gouveia da Silva; Osmani Teixeira de Carvalho Guillén; George Augusto Noronha Morcerf; Andre de Melo Modenesi |
| Abstract: | The impact of news related to the inflation targeting regime on the financial market is analyzed by estimating a bivariate VAR GARCH-BEKK-in-mean model. With daily data, from January 2006 to May 2017, of stock price index (IBOVESPA), exchange rate (BRL / USD) and interbank deposit rate (DI360), we have developed an index of positive and negative news to measure the impact of press releases based on Caporale et al. (2016) and Caporale et al. (2018). Although the literature on the subject is vast, this article fills relevant gaps in three ways (i) we investigate the two-way relationship between news releases related to monetary policy and the behavior of asset prices; (ii) we consider the relationship between the second moments of the variables of interest, using conditional volatility as a proxy for uncertainty; and (iii) we provide a time series approach to measure the effect of macroeconomic news releases on financial asset returns. The results indicate that there is an average spread effect of the news for the three variables used as proxies for asset prices in Brazil. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:536&r=all |
| By: | Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi; Alessandro Rebucci |
| Abstract: | This paper develops a threshold-augmented dynamic multi-country model (TGVAR) 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 heterogeneous 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. |
| JEL: | C32 E44 F44 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27855&r=all |
| By: | Daniele Bianchi; Mykola Babiak |
| Abstract: | We investigate the performance of funds that specialise in cryptocurrency markets. In doing so, we contribute to a growing literature that aims to understand the role of digital assets as an investment. Methodologically, we implement a novel bootstrap approach that samples jointly the cross-sectional distribution of alphas and controls for the nonnormality of fund returns and their within-strategy correlations. Empirically, we find that a sizable minority of managers are able to cover their costs and generate large alphas. However, there is weak statistical evidence of managers’ skills once withinstrategy common variation in returns is taken into account. |
| Keywords: | cryptocurrency; investments; active management; alternative investments; boot-strap methods; bitcoin; |
| JEL: | G12 G17 E44 C58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp672&r=all |
| By: | Tim Bulman |
| Abstract: | Greece’s labour market entered the COVID-19 shock following several years of sustained employment growth and with wages picking up. Unemployment remained high and employment rates were low, especially among women, the young and older workers. The shock led to a sharp fall in labour force activity and has stalled new hiring. The improved social protection and temporary support measures have helped to support households’ incomes and protect jobs during the COVID-19 crisis. However, high tax and social security contribution rates, together with little in-work support for the low-paid, continue abetting high structural informality. This heightens insecurity – by excluding many workers from activation policies or social and employment protection – and weakens productivity. Boosting the capacity of employment services and activation policies would support the recovery from the COVID-19 shock, in addition to durably improving employment prospects especially of long-term unemployed. Giving workplaces further flexibility to adapt collective agreements to specific circumstances would help align wage growth with productivity developments and help businesses to weather the COVID-19 shock. Building on the population’s solid education levels by equipping workers with the skills needed by the labour market can support employment and incomes. This will require a substantial boost to professional education and training at all levels and ages. This chapter applies the 2018 OECD Jobs Strategy to Greece to identify reforms that can help to overcome the COVID-19 crisis and create a virtuous cycle between productivity, job creation, and well-being. |
| JEL: | E24 H24 H26 A I38 J24 J31 J6 |
| Date: | 2020–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1622-en&r=all |
| By: | Simon Chazel; Sophie Bernard; Hassan Benchekroun |
| Abstract: | What are the consequences of primary mineral constraints on the energy transition? Low-carbon energy production uses green capital, which requires primary minerals. We build on the seminal framework for the transition from a dirty to a clean energy in Golosov et al. (2014) [9] to incorporate the role played by primary minerals and their potential recycling. We characterize the optimal paths of energy transition under various scenarios of mineral constraints. Mineral constraints limit the development of green energy in the long run: low-carbon energy production eventually reaches a plateau. We run our simulations using copper as the limiting mineral and we allow for its recycling. In all our scenarios, we find that allowing for mineral recycling delays by 40-60 years the plateau of green capital. After five to six decades, green energy production is 50% lower than in the benchmark model. GDP is 3-8% lower than in the infinite mineral scenario after 30 decades. |
| Keywords: | Energy Transition,Green Capital,Recycling,Circular Economy,Mineral Constraint,Dynamic General-Equilibrium Model, |
| Date: | 2020–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2020s-51&r=all |
| By: | Metiu, Norbert |
| Abstract: | This paper investigates the international spillover effects of U.S. trade protection. Using micro-level data on anti-dumping, countervailing duties, and safeguards, I develop a new measure of U.S. trade policy announcement shocks for the period 1988-2015 that is free of confounding factors. Estimates using the new measure indicate that announced, but not yet imposed, U.S. trade restrictions give rise to contractions in major trading partners' output and investment. Counterfactual results indicate that a decline in business confidence accounts for the lion's share of these anticipation effects. A narrative analysis that quantifies the extent of newspaper coverage of U.S. trade protection shows that media attention facilitates the propagation of protectionist shocks. The results are consistent with an expectations channel of trade policy. |
| Keywords: | Anticipation Effects,Business Cycles,Announcement Shocks,Protectionism,Trade |
| JEL: | E32 F13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:522020&r=all |
| By: | Dermot Hodson |
| Abstract: | The new intergovernmentalism seeks to understand the changing dynamics of contemporary European integration. It emphasises, inter alia, member states’ preference for deliberative modes of decision-making and their reluctance to delegate new powers to traditional supranational institutions. The euro crisis is sometimes seen as a difficult case for the new intergovernmentalism because of the perceived importance of hard bargaining over crisis measures during this episode and the new roles entrusted to the European Commission and the European Central Bank under crisis reforms. Such criticisms, this paper argues, overlook: the importance of high-level consensus-seeking and deliberation in saving the single currency; the disparate forms of delegation deployed to preserve member state influence over Economic and Monetary Union; and the extent to which the euro crisis has amplified the European Union’s political disequilibrium. Far from running counter to the new intergovernmentalism, it concludes, the euro crisis exemplifies the turbulent dynamics of the post-Maastricht period. |
| Keywords: | European integration, euro crisis, integration theory, new intergovernmentalism |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:145&r=all |
| By: | Samba Diop (Alioune Diop University, Bambey, Senegal); Simplice A. Asongu (Yaoundé, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | The study complements the extant literature by constructing Covid-19 economic vulnerability and resilience indexes using a global sample of 150 countries which are categorized into four principal regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. Seven variables are used for the vulnerability index and nine for the resilience index. Both regions and sampled countries are classified in terms of the two proposed and computed indexes. The classification of countries is also provided in terms of four scenarios pertaining to vulnerability and resilience characteristics, notably: low vulnerability-low resilience, high vulnerability-low resilience, high vulnerability-high resilience and low vulnerability-high resilience to respectively illustrate, sensitive, severe, asymptomatic and best cases. The findings are relevant to policy makers especially as it pertains to decision making in resources allocation in the fight against the global pandemic. |
| Keywords: | Novel coronavirus, Economic vulnerability, Economic resilience |
| JEL: | E10 E12 E20 E23 I10 I18 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/070&r=all |
| By: | Shai Bernstein; Richard R. Townsend; Ting Xu |
| Abstract: | This paper investigates how economic downturns affect the flow of human capital to startups. Using proprietary data from AngelList Talent, we study how individuals’ online job searches and applications changed during the emergence of the COVID-19 crisis. We find that job seekers shifted their searches toward larger firms and away from early-stage ventures, even within the same individual over time. Simultaneously, job seekers broadened their other search parameters, considering lower salaries and a wider variety of job types, roles, markets, and locations. Relative to larger firms, early-stage ventures experienced a decline in the number of applications per job posting, a decline driven by higher quality and more experienced job seekers. This led to a deterioration in the quality of the human capital pool available to early-stage ventures during the downturn. These declines hold within a firm as well as within a job posting over time. Our findings uncover a flight to safety channel in the labor market, which may amplify the pro-cyclical nature of entrepreneurial activities. |
| JEL: | E32 J22 J24 L26 M13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27907&r=all |
| By: | Asongu, Simplice; Acha-Anyi, Paul |
| Abstract: | The purpose of this research is to investigate the relevance of enhancing information and communication technology (ICT) on dynamics of total factor productivity (TFP) in 25 Sub-Saharan African countries using data covering the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. The following main findings are established. First, while enhancing ICT overwhelmingly has net positive effects on productivity, the corresponding marginal effects are negative. Second, anextended analysis is performed to establish thresholds for complementary policies. These thresholds are: 100 % mobile phone penetration for TFP; between 101.214 % and 101.419 % mobile phone penetration for welfare TFP and 15 % internet penetration for welfare real TFP. It follows that approximately 100% mobile penetration and 15% internet penetration are thresholds at which ICT should be complemented with other macroeconomic policies for favorable outcomes on productivity dynamics. Other policy implications are discussed. |
| Keywords: | Productivity; Information Technology; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103140&r=all |
| By: | Grym, Aleksi |
| Abstract: | Central banks worldwide are currently exploring so called Central Bank Digital Currencies (CBDC). The Avant smart card system created by the Bank of Finland in the 1990's can be considered the world's first CBDC and the only one so far that has gone into production. Avant cards were based on smart card technology similar to that used in debit and credit cards today. Even though the system was initiated, developed, and for the first few years operated by the central bank, it was eventually spun off and sold to commercial banks. Once debit cards became less expensive and were upgraded to use smart card technology, Avant became obsolete and was shut down. The story of Avant can give us valuable insight contributing to the ongoing discussion regarding CBDC. |
| Keywords: | CBDC,e-money |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:82020&r=all |
| By: | Patrick Baylis; Pierre-Loup Beauregard; Marie Connolly; Nicole Fortin; David A. Green; Pablo Gutierrez Cubillos; Sam Gyetvay; Catherine Haeck; Timea Laura Molnar; Gaëlle Simard-Duplain; Henry E. Siu; Maria teNyenhuis; Casey Warman |
| Abstract: | This paper documents two COVID-related risks, viral risk and employment risk, and their distributions across the Canadian population. The measurement of viral risk is based on the VSE COVID Risk/Reward Assessment Tool, created to assist policymakers in determining the impacts of economic shutdowns and re-openings over the course of the pandemic. We document that women are more concentrated in high viral risk occupations and that this is the source of their greater employment loss over the course of the pandemic so far. They were also less likely to maintain one form of contact with their former employers, reducing employment recovery rates. Low educated workers face the same virus risk rates as high educated workers but much higher employment losses. Based on a rough counterfactual exercise, this is largely accounted for by their lower likelihood of switching to working from home which, in turn, is related to living conditions such as living in crowded dwellings. For both women and the low educated, existing inequities in their occupational distributions and living situations have resulted in them bearing a disproportionate amount of the risk emerging from the pandemic. Assortative matching in couples has tended to exacerbate risk inequities. |
| JEL: | E32 I18 J15 J16 J21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27881&r=all |
| By: | Santiago Caicedo; Miguel Espinosa; Arthur Seibold |
| Abstract: | We study firm responses to a large-scale change in apprenticeship regulation in Colombia. The reform requires firms to train, setting apprentice quotas that vary discontinuously in firm size. We document strong heterogeneity in responses across sectors, where firms in sectors with high skill requirements tend to avoid training apprentices, while firms in low-skill sectors seek apprentices. Guided by these reduced-form findings, we structurally estimate firms’ training costs. Especially in high-skill sectors, many firms face large training costs, limiting their willingness to train apprentices. Yet, we find substantial overall benefits of expanding apprenticeship training, in particular when the supply of trained workers increases in general equilibrium. Finally, we show that counterfactual policies that take into account heterogeneity across sectors can deliver similar benefits from training while inducing less distortions in the firm size distribution and in the allocation of resources across sectors. |
| JEL: | E24 J21 J24 M5 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1743&r=all |
| By: | Michael Callaghan; Thomas van Florenstein Mulder (Reserve Bank of New Zealand) |
| Abstract: | In order to gauge economic activity in New Zealand the Reserve Bank uses GDP data, which are subject to measurement error and revisions over time. In this paper we develop an economic activity indicator that combines information from production GDP, expenditure GDP, and employment data. This new measure is smoother and less vulnerable to revisions over time. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbans:2020/01&r=all |
| By: | Santiago Caicedo; Miguel Espinosa; Arthur Seibold |
| Abstract: | We study firm responses to a large-scale change in apprenticeship regulation in Colombia. The reform requires firms to train, setting apprentice quotas that vary discontinuously in firm size. We document strong heterogeneity in responses across sectors, where firms in sectors with high skill requirements tend to avoid training apprentices, while firms in low-skill sectors seek apprentices. Guided by these reduced-form findings, we structurally estimate firms’ training costs. Especially in high-skill sectors, many firms face large training costs, limiting their willingness to train apprentices. Yet, we find substantial overall benefits of expanding apprenticeship training, in particular when the supply of trained workers increases in general equilibrium. Finally, we show that counterfactual policies that take into account heterogeneity across sectors can deliver similar benefits from training while inducing less distortions in the firm size distribution and in the allocation of resources across sectors. |
| JEL: | E24 J21 J24 M5 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1204&r=all |
| By: | Kuikeu, Oscar |
| Abstract: | If the Outbreak gives meaning on the conception about the level of economic development he do well also about the interest of civism (Kuikeu 2020c). Thus is this means that the lockdown is benefit under all view of economic development? In other words, there is no alternative to this? These are the main questions we rate trying to answer, here. Globally speaking, following the results economic analysis in particular made on the basis of the narrative approach is an unvaluable contribution in the making of tis kind of exercise, in particular facing the difficulty to conduct statistical analysis about the epidemiologic aspect of the economy. |
| Keywords: | epidemiologic Model, lockdown, narrative approach |
| JEL: | E52 O47 |
| Date: | 2020–10–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103313&r=all |
| By: | Breithaupt, Patrick; Kesler, Reinhold; Niebel, Thomas; Rammer, Christian |
| Abstract: | Knowledge-based capital is a key factor for productivity growth. Over the past 15 years, it has been increasingly recognised that knowledge-based capital comprises much more than technological knowledge and that these other components are essential for understanding productivity developments and competitiveness of both firms and economies. We develop selected indicators for knowledge-based capital, often denoted as intangible capital, on the basis of publicly available data from online platforms. These indicators based on data from Facebook and the employer branding and review platform Kununu are compared by OLS regressions with firm-level survey data from the Mannheim Innovation Panel (MIP). All regressions show a positive and significant relationship between survey-based firm-level expenditures for marketing and on-the-job training and the respective information stemming from the online platforms. We therefore explore the possibility of predicting brand equity and firm-specific human capital with machine learning methods. |
| Keywords: | Web Scraping,Knowledge-Based Capital,Intangibles |
| JEL: | C81 E22 O30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20046&r=all |
| By: | Sangmin Aum; Sang Yoon (Tim) Lee; Yongseok Shin |
| Abstract: | Shutting down the workplace is an effective means of reducing contagion, but can incur large economic losses. We construct an exposure index, which measures infection risks across occupations, and a work-from-home index, which gauges the ease with which a job can be performed remotely across both industries and occupations. Because the two indices are negatively correlated but distinct, the economic costs of containing a pandemic can be minimized by only sending home those jobs that are highly exposed but easy to perform from home. Compared to a lockdown of all non-essential jobs, the optimal policy attains the same reduction in aggregate exposure (32 percent) with one-third fewer workers sent home (24 vs. 36 percent) and with only half the loss in aggregate wages (15 vs. 30 percent). A move from the lockdown to the optimal policy reduces the exposure of low-wage workers the most and the wage loss of the high-wage workers the most, although everyone's wage losses become smaller. A constrained optimal policy under which health workers cannot be sent home still achieves the same exposure reduction with a one-third smaller loss in aggregate wages (19 vs. 30 percent). |
| JEL: | E24 I14 J21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27908&r=all |
| By: | Bagis, Bilal; Yumurtaci, Aynur |
| Abstract: | Despite little to no academic attention, widespread perception of the welfare state policies is a critical aspect of its evaluation, existence and the validity processes; especially that amongst youth and the new generations. This paper discusses welfare or the quality of life perceptions in Turkey and in particular the university students’ economic and social welfare concerns. The paper is based upon survey outcomes from two different cities’ university students, across Turkey; and analyzes the Turkish university students’ current welfare, happiness, contentment with life and the future financial wellness perceptions. We employ the standard chi-square test of independence to test our hypotheses. The research aims to contribute to the efforts towards a roadmap regarding the socio-economic policies to be implemented for the future of Turkey. The paper finds growing financial concerns among university students in terms of social and economic welfare. This is despite the recent economic, social and cultural transformation in modern Turkey. Meanwhile, the latest pandemic is likely to have deteriorated these perceptions. This research, meanwhile, is a worthy analysis to understand contentment regarding the current economic outlook, as well as the concerns and confidence in terms of financial future and wellness. Understanding these perceptions may potentially help in carving the middle and long-term national social and economic policies. |
| Keywords: | Welfare,Welfare perceptions,Financial well-being,Turkish economy,Social policy |
| JEL: | E6 I3 P46 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:671&r=all |
| By: | Juan C. Palomino (University of Oxford (UK), INET and Department of Social Policy and Intervention); Juan G. Rodríguez (Universidad Complutense de Madrid (Spain), EQUALITAS, ICAE and CEDESOG); Raquel Sebastian (Universidad Complutense de Madrid (Spain), EQUALITAS and ICAE) |
| Abstract: | Social distancing and lockdown measures taken to contain the spread of COVID-19 may have distributional economic costs beyond the contraction of GDP. Here we evaluate the capacity of individuals to work under a lockdown based on a Lockdown Working Ability index which considers their teleworking capacity and whether their occupation is essential or closed. Our analysis reveals substantial and uneven potential wage losses across the distribution all around Europe and we consistently find that both poverty and wage inequality rise in all European countries. Under four different scenarios (2 months of lockdown and 2 months of lockdown plus 6 months of partial functioning of closed occupations at 80%, 70% and 60% of full capacity) we estimate for 29 European countries an average increase in the headcount poverty index that goes from 4.9 to 9.4 percentage points and a mean loss rate for poor workers between 10% and 16.2%. The average increase in the Gini coefficient ranges between 3.5% to 7.3% depending on the scenario considered. Decomposing overall wage inequality in Europe, we find that lockdown and social distance measures produce a double process of divergence: both inequality within and between countries increase. |
| Keywords: | Wage inequality; Teleworking; Social distancing; Europe; COVID. |
| JEL: | D33 E24 J21 J31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:2003&r=all |
| By: | Asongu, Simplice; Nnanna, Joseph; Acha-Anyi, Paul |
| Abstract: | This study assesses the simultaneous openness hypothesis that trade modulates foreign direct investment (FDI) to induce positive net effects on total factor productivity (TFP) dynamics. Twenty-five countries in Sub-Saharan Africa and data for the period 1980 to 2014 are used. The empirical evidence is based on the Generalised Method of Moments. First, trade imports modulate FDI to overwhelmingly induce positive net effects on TFP, real TFP growth, welfare TFP and real welfare TFP. Second, with exceptions on TFP and welfare TFP where net effects are both positive and negative, trade exports modulate FDI to overwhelmingly induce positive net effects on real TFP growth and welfare real TFP. In summary, the tested hypothesis is valid for the most part. Policy implications are discussed. |
| Keywords: | Productivity; Foreign Investment; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103135&r=all |