nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒11‒02
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Disinflations and income distribution By Laura Gómez-Acevedo; Marc Hofstetter
  2. Sharks and minnows in a shoal of words: Measuring latent ideological positions of German economic research institutes based on text mining techniques By Diaf, Sami; Döpke, Jörg; Fritsche, Ulrich; Rockenbach, Ida
  3. Examining the Performance of Oman’s Economy By Razzak, Weshah
  4. Formation of inflation expectations: Does macroeconomic and policy environment matter? By Eda Gulsen; Hakan Kara
  5. Thrift and Credit Cooperative Lending Channel under Prolonged Low Interest Rates: The Case of Thailand By Kovit Charnvitayapong
  6. Economic activity, fiscal, and capital flow dynamics in Bulgaria 2007-2012: fiscal multiplier theory vs. “other things” By Ganev, Georgy
  7. Key Methods That CBO Used to Estimate the Effects of Pandemic-Related Legislation on Output: Working Paper 2020-07 By John Seliski; Aaron Betz; Yiqun Gloria Chen; U. Devrim Demirel
  8. Microeconomic foundation of the Phillips curve By Tanaka, Yasuhito
  9. Una breve revisón sobre la literatura de las metas de inflación By Tomás Marinozzi; Mariano Fernández
  10. Unfolding the monetary policy rule in Ghana: quantile-based evidence within time-frequency framework By Akosah, Nana; Alagidede, Imhotep; Schaling, Eric
  11. Bank Capital and Monetary Policy Transmission in India By Muduli, Silu; Behera, Harendra
  12. The Prospect of the Proposed Currency Union on Intra-regional Trade: Southern African Customs Union By Abban, Stanley
  13. Reconciled Estimates of Monthly GDP in the US By Koop, Gary; McIntyre, Stuart; Mitchell, James; Poon, Aubrey
  14. Bank Capital and Monetary Policy Transmission in India By Muduli, Silu; Behera, Harendra
  15. Microeconomic foundation for Phillips curve with three-periods overlapping generations model and negative real balance effect By Tanaka, Yasuhito
  16. German forecasters' narratives: How informative are German business cycle forecast reports? By Müller, Karsten
  17. The Corona Crisis - is this the time for Helicopter Money? By Marc C. Adam; Robert Gold
  18. Foreign Exchange Intervention and Financial Stability By Pierre-Richard Agénor; Timothy P. Jackson; Luiz Pereira da Silva
  19. Business-cycle reports and the efficiency of macroeconomic forecasts for Germany By Foltas, Alexander; Pierdzioch, Christian
  20. La respuesta de la política monetaria del Banco Central Europeo frente a la crisis del Covid-19 By Pablo Aguilar; Óscar Arce; Samuel Hurtado; Jaime Martínez-Martín; Galo Nuño; Carlos Thomas
  21. Evaluating the Effectiveness of Policies Against a Pandemic By Christian Alemán; Christopher Busch; Alexander Ludwig; Raül Santaeulàlia-Llopis
  22. Exchange rates and the information channel of monetary policy By Holtemöller, Oliver; Kriwoluzky, Alexander; Kwak, Boreum
  23. Reforming Islamic Finance By ALJARHI, Shadia
  24. Macroeconomics Determinants of Exchange Rate Pass-through: New Evidence from the Asia-Pacific Region By Vo, Duc
  25. Forecasting Low Frequency Macroeconomic Events with High Frequency Data By Koop, Gary; McIntyre, Stuart; Mitchell, James; Poon, Aubrey
  26. Asymmetric Interest Rate Transmission in an Inflation Targeting Framework: The Case of Colombia By Arturo J. Galindo; Roberto Steiner
  27. Effects of Banco de la Republica’s Communication on the Yield Curve By Luis Fernando Melo-Velandia; Juan J. Ospina-Tejeiro; Julian A. Parra-Polania
  28. Assessing the fiscal implications of banking crises By Claudio Borio; Juan Contreras; Fabrizio Zampolli
  29. The interaction between macroprudential policy and monetary policy: overview By Bussière, Matthieu; Cao, Jin; de Haan, Jakob; Hills, Robert; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Shina, Sonalika; Sowerbutts, Rhiannon; Styrin, Konstantin
  30. Risky Mortgages and Bank Runs By Nurlan Turdaliev; Yahong Zhang
  31. Aggregating Heterogeneous-Agent Models with Permanent Income Shocks By Harmenberg, Karl
  32. Okun's Law: Copula-based Evidence from G7 Countries By Benos, Nikos; Stavrakoudis, Athanassios
  33. Identifying the Sources of the Slowdown in Growth: Demand vs. Supply By Nicolo Maffei-Faccioli
  34. Risk Exposure and Acquisition of Macroeconomic Information By Christopher Roth; Sonja Settele; Johannes Wohlfart
  35. Density Forecasting with BVAR Models under Macroeconomic Data Uncertainty By Clements, Michael P.; Galvao, Ana Beatriz
  36. Competition, Profit Share and Concentration By J. BOUSSARD; R. LEE
  37. Proxy SVAR identification of monetary policy shocks: MonteCarlo evidence and insights for the US By Herwartz, Helmut; Rohloff, Hannes; Wang, Shu
  38. International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending By Sangyup Choi; Davide Furceri; Chansik Yoon
  39. Health Vulnerability versus Economic Resilience to the Covid-19 pandemic: Global Evidence By Simplice A. Asongu; Samba Diop; Joseph Nnanna
  40. The Distributional Consequences of Social Distancing on Poverty and Labour Income Inequality in Latin America and the Caribbean By Delaporte, Isaure; Escobar, Julia; Peña, Werner
  41. Comptabilité économique de la soutenabilité climatique By J.-M. GERMAIN; T. LELLOUCH
  42. Raising markups to survive: small Spanish firms during the Great Recession By Pilar García-Perea; Aitor Lacuesta; Pau Roldan-Blanco
  43. Synchronization, Concordance and Similarity between Business and Credit Cycles: Evidence from Turkish Banking Sector By Mehmet Selman Colak; Abdullah Kazdal; Muhammed Hasan Yilmaz
  44. Inflation, Output and Monetary Policy in South Africa By Harold Ngalawa; Coretha Komba
  45. La politique budgétaire en contexte de relance économique post-première vague de Covid-19 : Étude appliquée au Québec By Fabrice Dabiré; Mario Fortin; Hashmat Khan; Patrick Richard; Jean-François Rouillard
  46. Macroeconomics, firm dynamics and IPOs By Beatriz González
  47. Implications of cheap oil for emerging markets By Alain Kabundi; Franziska Ohnsorge
  48. An Analysis of International Shock Transmission: A Multi-level Factor Augmented TVP GVAR Approach By Bahar Sungurtekin Hallam
  49. La politique économique aujourd'hui face à la Nation, l'Etat et les rapports de classe By Jérôme Maucourant; Bruno Tinel
  50. Measurement of Investment Contribution of Service Sector in India’s Economic Growth By Thomas, Mini P
  51. The impact of US macroeconomic news on the prices of single stocks on the Vienna Stock Exchange By Gurgul, Henryk; Mitterer, Christoph; Wójtowicz, Tomasz
  52. Corona-Krise in China: Historischer Einbruch und die ersten sechs Monate danach By Beer, Sonja
  53. Global health care infrastructure and Africa in times of Covid-19: insights for sustainable development and future pandemics By Samba Diop; Simplice A. Asongu
  54. Age-dependent risk aversion: Re-evaluating fiscal policy impacts of population ageing By Phitawat Poonpolkul
  55. R&D and firm resilience during bad times By Gupta, Apoorva
  56. Global Flight-to-Safety Shocks By Ahmed, Rashad
  57. An annual index of Irish industrial production, 1800-1921 By Seán Kenny; Jason Lennard and Kevin Hjortshøj O’Rourke
  58. A counterfactual economic analysis of Covid-19 using a threshold augmented multi-country model By Alexander Chudik; Kamiar Mohaddes; M. Hashem Pesaran; Mehdi Raissi; Alessandro Rebucci
  59. Regional Differences in Retail Payment Habits in Italy By Guerino Ardizzi; Elisa Bonifacio; Cristina Demma; Laura Painelli
  60. Economics and Epidemics: Evidence from an Estimated Spatial Econ-SIR Model By Bognanni, Mark; Hanley, Doug; Kolliner, Daniel; Mitman, Kurt
  61. Brazil’s Agricultural Competitiveness: Recent Growth and Future Impacts Under Currency Depreciation and Changing Macroeconomic Conditions By Valdes, Constanza; Hjort, Kim; Seeley, Ralph
  62. A silent revolution: How central bank statistics have changed in the last 25 years By Riccardo De Bonis; Matteo Piazza
  63. The FR-BDF Model and an Assessment of Monetary Policy Transmission in France, Working Paper Series no. 736, Banque de France By Matthieu Lemoine; Harri Turunen; Mohammed Chahad; Antoine Lepetit; Anastasia Zhutova; Pierre Aldama; Pierrick Clerc; Jean-Pierre Laffargue
  64. Der neue Konjunkturindex "KonSens": Ein gleichlaufender, vierteljährlicher Sammelindikator für Liechtenstein By Brunhart, Andreas
  65. New life for an old framework: redesigning the European Union's expenditure and golden fiscal rules By Darvas, Zsolt; Anderson, Julia
  66. Redistributive Capital Taxation Revisited By Ozlem Kina; Ctirad Slavik; Hakki Yazici
  67. Break-even inflation rates: the Italian case By Alberto Di Iorio; Marco Fanari
  68. The Life-Cycle Effects of Pension Reforms: A Structural Approach By Claudio Daminato; Mario Padula
  69. Money Demand: The Guide to Monetary Policy in Russia, 1997-2020 By Olga Khon
  70. Subjective Uncertainty, Expectations, and Firm Behavior By Lautenbacher, Stefan
  71. Economic Conditions and the Path of Monetary Policy By Robert S. Kaplan
  72. The Times They Are A-Changing? Exploring the potential shift away from the neoliberal political-economic paradigm By Laurie Laybourn-Langton; Laurie Macfarlane; Michael Jacobs
  73. When does public debt impair economic growth? A literature review in search of a theory By Roberto Tamborini; Matteo Tomaselli
  74. Bottom-up Markup Fluctuations By Burstein, A.; Carvalho, V. M.; Grassi, B.
  75. Is the relationship between non-performing loans of banks and economic growth asymmetric ? Malaysia’s evidence based on linear and nonlinear ARDL approaches By Khalaf, Tasneem; Masih, Mansur
  76. GDP and its discontents By Richard S.J. Tol
  77. Environmental Domestic Product in theory By Richard S.J. Tol
  78. What Explains the Rising Profit Share in Canada? By Andrew Sharpe; Cristina Blanco Iglesias; Myeongwan Kim
  79. COVID-Town: An Integrated Economic-Epidemiological Agent-Based Model By Mellacher, Patrick
  80. Ecological Footprint By Richard S.J. Tol
  81. Should Emerging Economies Embrace Quantitative Easing during the Pandemic? By Gianluca Benigno; Jonathan Hartley; Alicia Garcia Herrero; Alessandro Rebucci; Elina Ribakova
  82. Fiscal transfers, local government, and entrepreneurship By Piotr Danisewicz; Steven Ongena
  83. Environmental Domestic Product in practice By Richard S.J. Tol
  84. Is there consumer risk-pooling in the open economy? The evidence reconsidered By Minford, Patrick; Ou, Zhirong; Zhu, Zheyi
  85. Anti-competitive and regulatory barriers in the United States labour market By Mikkel Hermansen
  86. News media vs. FRED-MD for macroeconomic forecasting By Jon Ellingsen; Vegard H. Larsen; Leif Anders Thorsrud
  87. Real-time estimation of the short-run impact of COVID-19 on economic activity using electricity market data By Carlo Fezzi; Valeria Fanghella
  88. Banking across borders: At the crossroads in the transition away from LIBOR - from overnight to term rates By Basil Guggenheim; Andreas Schrimpf
  89. Genuine savings By Richard S.J. Tol
  90. A Welfare Based Estimate of “Real Feel GDP” for Europe and the USA By J.-M. GERMAIN
  91. The Gradual Encroachment of Ideas: Lessons from the paradigm shift to embedded liberalism By Laurie Laybourn-Langton
  92. A Macroeconomic Theory of Banking Oligopoly By Dong, Mei; Huangfu, Stella; Sun, Hongfei
  93. The Direct and Indirect Effects of Financial Development on International Trade: Evidence from the CEEC-6 By Guglielmo Maria Caporale; Anamaria Sova; Robert Sova
  94. Survival and the ergodicity of corporate profitability By Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
  95. How protectionism harms workers under oligopoly By Rudsinske, Jonas F.
  96. Social Capital and Corporate Performance: Evidence from State Capital Enterprises in Vietnam By Ngo, Chin; Nguyen, Quyen Le Hoang Thuy To; Nguyen, Phong Thanh
  97. Portfolio diversification opportunities for U.S. Islamic investors with its trading partners when the world catches a cold: A Multivariate-GARCH and wavelet approach By Lim, Siok Jin

  1. By: Laura Gómez-Acevedo; Marc Hofstetter
    Abstract: Most countries in the world have brought inflation down to very low rates. While there is broad consensus regarding the fact that polices aimed at bringing down inflation have adverse consequences on aggregate output and unemployment, at least in the short run, we know little about the distributional impact of disinflations. We find that along with disinflation, the income distribution tends to worsen: the Gini increases and the income share of those at the top of the income distribution significantly increases. We discuss the implications of these findings for monetary policy.
    Keywords: Monetary Policy; Central Banks; Inflation; Disinflation; Income distribution
    JEL: E31 E32 E43 E52 E58 D31
    Date: 2020–10–15
  2. By: Diaf, Sami; Döpke, Jörg; Fritsche, Ulrich; Rockenbach, Ida
    Abstract: Using corpora of business cycle report sections dealing with monetary and fiscal policy issues from 1999 to 2017 and using methods of unsupervised text scaling (Slapin and Proksch, 2008; Lauderdale and Herzog, 2016), namely Wordfish and Wordshoal we scale the institutions' theoretical/ideological position over debates. The results are in line with the findings from descriptive textual analysis. For monetary policy, we observe a strong but short-lived consensus in debate-specific positions at the height of the financial crisis in 2008 and a larger polarization after 2008 compared to the sample period before. For the fiscal policy textual corpus, the polarization was similarly high before and after the crisis. For both policy areas, the institutions DIW Berlin and IfW Kiel define the outer bounds of the observed spectrum of latent ideological positions.
    Keywords: Text Scaling Model,Wordfish,Wordshoal,Computational Content Analysis,Hierarchical Factor Model,Bayesian Estimation,Political Economy,Ideology,Polarization,Public Policy,Monetary Policy,Fiscal Policy
    JEL: E32 E52 E62 H3 C55 D7 P16
    Date: 2020
  3. By: Razzak, Weshah
    Abstract: We examine the economic performance of Oman’s economy over the period from 1998 to 2016, where data are readily available. Our focus is on the performance of the non-hydrocarbon sector (NHC sector) relative to the hydrocarbon sector (HC sector), nominal versus real GDP growth, productivity measures, the drivers of growth, and the return to investments. We also compare Oman non-hydrocarbon sector performance to Dubai, which is the closet non-oil economy. We have a number of finding that could help policymakers.
    Keywords: Productivity, (un) skilled labor, investments, Oman, Dubai
    JEL: E0 E01 E22 E23 E24
    Date: 2020–10–08
  4. By: Eda Gulsen (Central Bank of Turkey); Hakan Kara (Bilkent University)
    Abstract: This paper investigates the changing behavior of inflation expectations in response to the macroeconomic and policy environment. Using a panel of professional forecasters covering thirteen years of inflation targeting period from Turkey, we present evidence on the behavioral shifts in the inflation expectations associated with evolving macroeconomic and policy performance. We use a unique survey with the feature of including matched policy rate and fixed-horizon inflation expectations at the individual level, therefore enabling to estimate the impact of monetary policy surprises on inflation expectations without reliance on strong identifying assumptions. Moreover, we employ a novel technique where direct feedback from survey respondents is used to determine the baseline empirical model governing expectations dynamics. Interpretation of the empirical findings joint with the direct feedback results from the survey indicate that the anchoring power of inflation targets depend on the policy performance. The weights attached to inflation targets in forming expectations are strongly associated with the size of the inflation deviation from the targets. When the targets no longer serve as a strong anchor, the survey participants assign increasingly higher weight to past inflation and the relationship between exchange rates and inflation expectations becomes stronger. Overall, our results imply that expectations behavior display significant and rapid shifts with the underlying economic and policy performance.
    Keywords: Inflation expectations; Monetary policy; Inflation; Survey data.
    JEL: C51 C53 E31 E37 E58
    Date: 2020–10
  5. By: Kovit Charnvitayapong (Faculty of Economics, Thammasat University, Bangkok 10200, Thailand Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Considerable research indicates that during times of prolonged low interest rates, commercial bank lending channels are less effective in conveying the impact of expansionary monetary policies. What is the impact of easy money policy through lending channels of non-banking financial institutions (NBFIs) such as thrift and credit cooperatives (TCCs) and why should this result occur? The objective of this study is to examine the effectiveness of monetary policy through TCC lending channels compared to bank lending channels from 2008 to 2017. Methodology/Technique - Annual data from 546 TCCs was used in this investigation. A fixed effects model for TCCs and random effect for banks were employed to examine the data. Two models of each institution, one with lagged interaction terms and the other with contemporaneous interaction terms, were tested and compared. The impact of institutional characteristics such as size, deposit, liquidity and equity, and macroeconomic variables such as GDP growth and yield spread, on lending channels were also examined. Findings - As expected, the results show that TCC lending channels respond positively to prolonged low interest rate policies, whilst bank lending channels respond negatively in one model. Thus, if monetary authorities wish to increase the effectiveness of expansionary monetary policy, TCCs should be allowed to develop under careful supervision. Novelty - This study concludes that incremental budgeting caused by regulation must be borne by TCCs. Type of Paper - Empirical.
    Keywords: Thrift and Credit Cooperatives (TCCs); Prolonged Low Interest Rates; Transmission Mechanism; Lending Channels; Fixed Effects.
    JEL: E44 E51 E52 E58
  6. By: Ganev, Georgy
    Abstract: When towards the end of 2008 the leading world economies found themselves in the grips of a severe global financial and economic crisis, their governments felt compelled to react. Most of them, especially in North America and Europe, did so by dramatic increases in government spending with two main goals: to bail our failing financial systems and to substitute dropping private demand with pumped-up public demand as a general support for the aggregate. At the same time central banks made large injections of liquidity to pump up the monetary base and thus counteract the severely contracting money multipliers – at the cost of putting on their balances assets of less than prime quality and thus in effect debasing the currencies of the respective economies.
    Keywords: fiscal policy; multiplier effect; capital flows; small open economy
    JEL: E12 E32 E62 F41
    Date: 2019
  7. By: John Seliski; Aaron Betz; Yiqun Gloria Chen; U. Devrim Demirel
    Abstract: This paper describes key methods that the Congressional Budget Office used to estimate the effects on real (inflation-adjusted) output, or gross domestic product, of the laws enacted in response to the 2020 coronavirus pandemic. Taken together, that legislation substantially changed policies governing taxes and spending and provided significant financial support to households, businesses, and state and local governments through various channels. To quantify the short-term effects that those laws had on output by means of their influence on overall demand for goods and
    JEL: E20 E32 E62 E63 H20 H30 H50 H60 J64
    Date: 2020–10–16
  8. By: Tanaka, Yasuhito
    Abstract: We show the negative relation between the unemployment rate and the inflation rate, that is, the Phillips curve using an overlapping generations model under monopolistic competition. We consider the effects of exogeneous changes in labor productivity. An increase (decrease) in the labor productivity in a period induces a decrease (increase) in the employment, an increase (decrease) in the unemployment rate and a falling (rising) in the price of the goods in the same period. Then, given the price in the previous period the inflation rate falls (rises). This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we have presented a microeconomic foundation of the Phillips curve.
    Keywords: Phillips Curve, Microeconomic foundation, Overlapping generations model, Monopolistic competition.
    JEL: E12 E24 E31
    Date: 2020–10–10
  9. By: Tomás Marinozzi; Mariano Fernández
    Abstract: En los últimos 20 años las metas de inflación se han establecido como uno de los esquemas monetarios más utilizados tanto por países desarrollados como emergentes. Existen tantos defensores del esquema como detractores, desde el ámbito académico como también en la práctica. Quizás el punto de partida de este esquema sea la contribución inicial de Taylor que reabre el debate sobre el uso discrecional de instrumentos, particularmente la tasa de interés, para estabilizar a los precios mediante una meta, en contraposición a una regla exógena de oferta monetaria o tipo de cambio. La aparición de los programas de metas de inflación a nivel global determinó el inicio de un profundo debate que llega hasta nuestros días sobre la efectividad del uso de las metas de inflación como mecanismo de estabilización. Este artículo intenta explicar en forma reducida y ordenada el centro de esta discusión, para ello se analizan las condiciones que garantizan, desde el punto de vista teórico, el funcionamiento de dichos programas, presentando de manera ordenada las contribuciones de distintos autores al debate. Por otro lado, y a la luz de dichas condiciones, se analiza brevemente el programa de estabilización fallido ensayado en Argentina a partir de 2016.
    Keywords: metas de inflación, inflation targeting, regla de taylor, inflación, estabilización de precios, credibilidad, tasa de interés, expectativas.
    JEL: E13 E31 E42 E43 E52 E58
    Date: 2020–10
  10. By: Akosah, Nana; Alagidede, Imhotep; Schaling, Eric
    Abstract: In this paper, we unfold the historical behaviour of monetary authority in Ghana by estimating the policy rule using the standard quantile regression techniques within wavelet multiscale framework. The results generally suggest an overriding bias towards positive inflation gap across time-scales and quantiles. This is an indication of asymmetric (nonlinear) monetary policy reaction function for Ghana. A policy preference for inflation stabilization is clearly conspicuous in the medium-to-long run, consistent with the medium–to-long term policy objective of price stability in Ghana. Nevertheless, policy reaction to positive inflation gap is woefully below the levels stipulated by the Taylor principle even in the long run, surmising broadly accommodative monetary policy rule and by extension a pursuant of flexible inflation targeting regime in Ghana. Our empirical results thus convey important implications for monetary policy implementation and outcomes in Ghana.
    Keywords: Price Stability, Policy Rule, Inertia, Quantile Regression, Wavelet, Multiscale, Time-Frequency
    JEL: E0 E4 E42 E52 E58
    Date: 2019–05–12
  11. By: Muduli, Silu; Behera, Harendra
    Abstract: This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Bank recapitalization to raise CRAR can improve the transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.
    Keywords: Monetary policy,Bank capital,Bank lending
    JEL: E44 E51 E52
    Date: 2020
  12. By: Abban, Stanley
    Abstract: Formal currency union with a common policy is welfare superlative to formal currency union due to relatively greater transparency. The study evaluates whether adopting a common currency will lead to trade. Additionally, the study estimates whether countries are under trading or overtrading to investigate whether there exists trade potential. The results show there exists greater trade potential due to geographic and economic fundamentals therefore adopting a common currency will lead to trade. Also, the study showed that the financial markets served as a buffer for the volatility of the currencies notably the Rand. The study concludes that a currency union with a common policy could serve as a panacea when the appropriate institutional policy framework is adopted to reduce trade and non-trade barriers.
    Keywords: Currency Union, Overtrading, under trading, trade potential, Southern Africa Customs Union (SACU).
    JEL: E2 E24 E26 E5 E52 E58 F1 F15
    Date: 2020–04–10
  13. By: Koop, Gary (University of Strathclyde); McIntyre, Stuart (University of Strathclyde); Mitchell, James (University of Warwick); Poon, Aubrey (University of Strathclyde)
    Abstract: In the US, income and expenditure side estimates of GDP (GDPI and GDPE) measure “true” GDP with error and are available at the quarterly frequency. Methods exist for producing reconciled quarterly estimates of GDP based on GDPI and GDPE. In this paper, we extend these methods to provide reconciled historical GDP estimates at the monthly frequency from 1960. We do this using a Bayesian Mixed Frequency Vector Autoregression involving GDPE, GDPI, unobserved true GDP and monthly indicators of short-term economic activity. We illustrate how the new monthly data contribute to our historical understanding of business cycles.
    Keywords: state-space model ; vector autoregressions ; Bayesian methods ; turning points ;
    JEL: E01 E32
    Date: 2020
  14. By: Muduli, Silu; Behera, Harendra
    Abstract: This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Recapitalization to raise CRAR can improve transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.
    Keywords: Monetary policy transmission, bank capital and bank lending
    JEL: E44 E51 E52
    Date: 2020–10–16
  15. By: Tanaka, Yasuhito
    Abstract: We show a negative relation between the inflation rate and the unemployment rate , that is, the Phillips curve using a three-periods overlapping generations (OLG) model with childhood period and pay-as-you-go pension for older generation under monopolistic competition. We consider the effects of a change in nominal wage rate with negative real balance effect and the effects of an exogeneous change in labor productivity. In a three periods OLG model there may exist a negative real balance effect. A fall (or rise) in nominal wage rate induces a fall (or rise) in the price, then by negative real balance effect the unemployment rate rises (or falls), and we get a negative relation between the inflation rate and the unemployment rate. This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we presented a microeconomic foundation of the Phillips curve. About the effects of a change in labor productivity we obtain similar results. We also examine the effects of fiscal policy financed by seigniorage.
    Keywords: Phillips Curve, Microeconomic foundation, Three-periods overlapping generations model, Monopolistic competition, Negative real balance effect.
    JEL: E12 E24 E31
    Date: 2020–10–16
  16. By: Müller, Karsten
    Abstract: Based on German business cycle forecast reports covering 10 German institutions for the period 1993-2017, the paper analyses the information content of German forecasters' narratives for German business cycle forecasts. The paper applies textual analysis to convert qualitative text data into quantitative sentiment indices. First, a sentiment analysis utilizes dictionary methods and text regression methods, using recursive estimation. Next, the paper analyses the different characteristics of sentiments. In a third step, sentiment indices are used to test the efficiency of numerical forecasts. Using 12-month-ahead fixed horizon forecasts, fixed-effects panel regression results suggest some informational content of sentiment indices for growth and inflation forecasts. Finally, a forecasting exercise analyses the predictive power of sentiment indices for GDP growth and inflation. The results suggest weak evidence, at best, for in-sample and out-of-sample predictive power of the sentiment indices.
    Keywords: Textual analysis,Sentiment,Macroeconomic forecasting,Forecast evaluation,Germany
    JEL: C53 E32 E37 E66
    Date: 2020
  17. By: Marc C. Adam (Forum New Economy); Robert Gold
    Abstract: This paper first describes the basic idea of Helicopter Money and the context in which it evolved from Milton Friedman’s famous 1969 essay until today. We discuss the challenges facing advanced economies, to which Helicopter Money has been proclaimed a possible solution. The paper provides a review of the recent debate around Helicopter Money and discusses the effectiveness of this tool in the current and future crises.
    Keywords: Helicopter Money; central bank; fiscal policy
    JEL: B2 E4 E5 E6 H6
    Date: 2020–04
  18. By: Pierre-Richard Agénor; Timothy P. Jackson; Luiz Pereira da Silva
    Abstract: This paper studies the effects of sterilized foreign exchange market intervention in an open-economy 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. Sterilized intervention can be expansionary through a bank portfolio effect and may therefore raise financial stability risks. 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 the optimal degree of exchange market intervention is more aggressive when the central bank can choose simultaneously the degree of sterilization; in that sense, the instruments are complements. At the same time, the presence of the bank portfolio effect implies that full sterilization is not optimal. By contrast, when the central bank’s objective function depends on the cost of sterilization, in addition to household welfare, intervention and sterilization are (partial) substitutes–independently of whether exchange rate and financial stability considerations also matter.
    JEL: E32 E58 F41
    Date: 2020–09
  19. By: Foltas, Alexander; Pierdzioch, Christian
    Abstract: We study the efficiency of growth and inflation forecasts published by three leading German economic research institutes during a period of time ranging from 1970 to 2017. To this end, we examine whether the information used by the research institutes when they formed their forecasts helps to explain the ex-post realized forecast errors. We identify the information that the research institutes used to set up their quantitative forecasts by applying computational-linguistics techniques to decompose the business-cycle reports published by the research institutes into various topics. Our results show that several topics have predictive value for the forecast errors.
    Keywords: Growth forecasts,Inflation forecasts,Forecast efficiency,Business-cycle reports
    JEL: C53 E32 E37
    Date: 2020
  20. By: Pablo Aguilar (Banco de España); Óscar Arce (Banco de España); Samuel Hurtado (Banco de España); Jaime Martínez-Martín (Banco de España); Galo Nuño (Banco de España); Carlos Thomas (Banco de España)
    Abstract: El Banco Central Europeo (BCE) ha desplegado una respuesta enérgica ante los desafíos planteados por la crisis del Covid-19 a la economía del área del euro. Este documento revisa las diferentes medidas de política monetaria adoptadas por el BCE desde la irrupción de la pandemia, y proporciona una explicación de su motivación, así como varios análisis del impacto de algunas de las principales medidas sobre la economía española y sobre el área del euro en su conjunto.
    Keywords: Banco Central Europeo, compra de activos, operaciones de refinanciación
    JEL: E44 E52 E58
    Date: 2020–10
  21. By: Christian Alemán; Christopher Busch; Alexander Ludwig; Raül Santaeulàlia-Llopis
    Abstract: We develop a novel empirical approach to identify the effectiveness of policies against a pandemic. The essence of our approach is the insight that epidemic dynamics are best tracked over stages, rather than over time. We use a normalization procedure that makes the pre-policy paths of the epidemic identical across regions. The procedure uncovers regional variation in the stage of the epidemic at the time of policy implementation. This variation delivers clean identification of the policy effect based on the epidemic path of a leading region that serves as a counterfactual for other regions. We apply our method to evaluate the effectiveness of the nationwide stay-home policy enacted in Spain against the Covid-19 pandemic. We find that the policy saved 15.9% of lives relative to the number of deaths that would have occurred had it not been for the policy intervention. Its effectiveness evolves with the epidemic and is larger when implemented at earlier stages.
    Keywords: macroeconomics, pandemic, stages, COVID-19, stay-home, policy effects, identification
    JEL: E01 E22 E25
    Date: 2020–10
  22. By: Holtemöller, Oliver; Kriwoluzky, Alexander; Kwak, Boreum
    Abstract: We disentangle the effects of monetary policy announcements on real economic variables into an interest rate shock component and a central bank information shock component. We identify both components using changes in interest rate futures and in exchange rates around monetary policy announcements. While the volatility of interest rate surprises declines around the Great Recession, the volatility of exchange rate changes increases. Making use of this heteroskedasticity, we estimate that a contractionary interest rate shock appreciates the dollar, increases the excess bond premium, and leads to a decline in prices and output, while a positive information shock appreciates the dollar, decreases prices and the excess bond premium, and increases output.
    Keywords: monetary policy,central bank information shock,identication through heteroskedasticity,high-frequency identication,proxy SVAR
    JEL: C36 E52 E58
    Date: 2020
  23. By: ALJARHI, Shadia
    Abstract: Pessimists would rather declare the Islamic finance industry as clinically dead. Such dim expectation would become a reality when the industry will completely switch to selling present for future money through contrived sale contracts. The writings are plenty on the wall. We need to listen and respond seriously. Calling for the reform of the industry could be the last attempt to save it. Rusni Hassan’s paper (2020) provides a good perspective of the current problem, albeit a little dispassionate. This comment provides a brief explanation of the theoretical rationale and the macroeconomic benefits of Islamic finance. It diagnoses the problem of Islamic finance as that of convergence. In addition, a few modest proposals are presented to mitigate the problem.
    Keywords: Islamic economics, Islamic finance, Interest rate, Monetary theory, Real and nominal transactions, Islamic finance regulation.
    JEL: E42 E43 G00 G20 G21 Z12
    Date: 2020–07
  24. By: Vo, Duc
    Abstract: Some recent studies observe an increasing degree of exchange rate pass-through (ERPT) to domestic prices, which has raised questions about the nature of the incompleteness and decline in pass- through. This article reexamines the degree of ERPT to the import, producer, and consumer price indices in Australia, New Zealand, Japan, and Korea in the Asia-Pacific region using up-to-date data, with several important findings. First, we reveal that ERPT to domestic prices follows the distribution chain, in that exchange rate movements alter import prices in the first stage and then producer and consumer prices in the second stage. Second, we offer valid evidence of an increase in ERPT to import prices after the global financial crisis in Japan, Korea, and New Zealand and of a relatively stable ERPT in Australia. Third, the changes in ERPT elasticities are most affected by macroeconomic determinants such as inflation volatility, interest rates, and trade openness, but this varies considerably across the surveyed countries and the three price indices. All our findings make a significant contribution to the empirical literature on ERPT and have policy implications.
    Keywords: Asia-Pacific region, exchange rate pass-through (ERPT), inflation
    JEL: E31 F31 F41
    Date: 2019–01–24
  25. By: Koop, Gary (University of Strathclyde); McIntyre, Stuart (University of Strathclyde); Mitchell, James (University of Warwick); Poon, Aubrey (University of Strathclyde)
    Abstract: High-frequency financial and economic activity indicators are usually time aggregated before forecasts of low-frequency macroeconomic events, such as recessions, are computed. We propose a mixed-frequency modelling alternative that delivers high-frequency probability forecasts (including their confidence bands) for these low-frequency events. The new approach is com- pared with single-frequency alternatives using loss functions adequate to rare event forecasting. We provide evidence that: (i) weekly-sampled spread improves over monthly-sampled to predict NBER recessions, (ii) the predictive content of the spread and the Chicago Fed Financial Condition Index (NFCI) is supplementary to economic activity for one-year-ahead forecasts of contractions, and (iii) a weekly activity index can date the 2020 business cycle peak two months in advance using a mixed-frequency filtering.
    Keywords: mixed frequency models ; recession ; financial indicators ; weekly activity index ; event probability forecasting ;
    JEL: C25 C53 E32
    Date: 2020
  26. By: Arturo J. Galindo (Banco de la República de Colombia); Roberto Steiner (Banco de la República de Colombia)
    Abstract: After adopting an inflation targeting framework for monetary policy at the turn of the century, the Central Bank of Colombia started actively using the monetary policy interest rate as its key policy tool. In this regard, this paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a nonlinear version of the ARDL (NARDL) model developed by Shin et al. (2014). Our findings show that the policy rate plays a key role in determining deposit and lending retail rates but the nature of the passthrough varies across different types of lending products. In the case of lending rates, the pass-through is usually a full one, and takes around 12 months to be nearly complete. Our results capture an asymmetric positive pass-through in deposit rates and an upward rigidity in the lending rates of consumer and ordinary corporate loans, key segments of the credit market. These findings imply that most retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments.. **** RESUMEN: El uso de la tasa de referencia de la política monetaria se convirtió en un elemento central para la formulación de política monetaria por parte del Banco de la República al adoptar un esquema de inflación objetivo a comienzos del siglo. Este trabajo estudia el canal de transmisión de dicha tasa a las tasas que perciben los usuarios del sistema financiero y explora posibles asimetrías utilizando una versión no lineal de los modelos ARDL (NARDL) desarrollada por Shin et al. (2014). Nuestras estimaciones muestran que la tasa de política juega un papel central en la determinación de tasas de interés de depósitos y préstamos y que su transmisión varía entre productos financieros. En el caso de tasas de préstamos, la transmisión es usualmente completa y tarda alrededor de doce meses en completarse. Los resultados sugieren que la mayoría de las tasas de interés de préstamos responden más fuertemente a reducciones en la tasa de política que a incrementos, lo que indica que los intermediarios financieros son menos propensos a subir tasas que a bajarlas tras ajustes de política. Por el contrario, las tasas de interés de los depósitos responden más a las alzas que a las reducciones en la tasa de interés de política.
    Keywords: Monetary policy, Interest rate pass-through, Asymmetry, Nonlinear autoregressive distributed lag (NARDL), Colombia, Política monetaria, pass-through de tasas de interés, Asimetría, Rezago distribuido autorregresivo no-lineal (NARDL), Colombia
    JEL: E4 E5 G2
    Date: 2020–10
  27. By: Luis Fernando Melo-Velandia (Banco de la República de Colombia); Juan J. Ospina-Tejeiro (Banco de la República de Colombia); Julian A. Parra-Polania (Banco de la República de Colombia)
    Abstract: We analyze the effect on the yield curve of Banco de la Republica’s communication through two specific outlets, the minutes of the monetary policy meetings and the inflation reports during the period 2011-Q2 to 2018-Q4. We extract numeric information from the inflation reports’ fan charts, and narrative information -using Latent Dirichlet Allocation, a computational linguistics tool- from the text of both outlets. We use an event-study approach to analyze the impact on four specific maturities: one-year spot, three-year forward, five-year forward and five-year ahead five-year forward rates. We find no evidence that numeric information has any effect on market yields. Regarding narrative variables we find that (i) for the inflation report, there is a significant effect on just two yields (one-year spot and five-year forward), and (ii) for the minute, there is a significant effect on all yields. We believe that these results may be explained by the publication lag of the inflation report during the period of analysis.. **** RESUMEN: Analizamos el efecto, sobre la curva de rendimientos, de la comunicación del Banco de la República mediante dos tipos de documentos, las minutas de las reuniones de política monetaria y los informes de política monetaria (anteriormente informes sobre inflación) durante el periodo 2011-II a 2018-IV. Extraemos información numérica de los fan charts publicados en los informes de política monetaria e información narrativa –usando Latent Dirichlet Allocation, una herramienta de lingüística computacional- tanto de las minutas como de los informes. Mediante la metodología de estudio de eventos analizamos el impacto sobre cuatro diferentes tasas: spot a un año, forward a 3 años, forward a 5 años y forward a 5 años, dentro de 5 años. No encontramos evidencia de que la información numérica tenga algún efecto sobre estas tasas. Con respecto a las variables narrativas encontramos que (i) para los informes de política, hay un efecto significativo solo sobre dos de las tasas (spot a un año y forward a 5 años) y (ii) para las minutas hay un efecto significativo sobre las cuatro tasas. Creemos que estos resultados pueden explicarse por el rezago de publicación que tenía el informe de política monetaria durante el periodo analizado.
    Keywords: Communication, monetary policy, text mining, event study, yield curve, comunicación, política monetaria, minería de texto, estudio de eventos, curva de rendimientos.
    JEL: E52 E58 C40 G14
    Date: 2020–10
  28. By: Claudio Borio; Juan Contreras; Fabrizio Zampolli
    Abstract: We propose a method for computing the distribution of the potential fiscal cost of a banking crisis - a key input in assessing the adequacy of a country's fiscal buffers. First, we use a cross-section of banking crises to identify the risk factors that predict the post-crisis increase in public sector debt - a measure of the overall fiscal cost of a crisis. Next, we use these risk factors to compute country-specific distributions of that cost in the event of a crisis. We find that the level and growth of credit to the private non-financial sector, foreign exchange reserves and the ratio of bank capital to assets are relevant predictors. As an illustration, we apply the method to the conditions prevailing in 2018 and find that the potential fiscal costs could be sizeable: with a probability of 95%, public debt could approach 40% of GDP on average across countries. Our illustrative estimates are probably upper bounds: while they indicate that higher bank capital can substantially reduce fiscal costs, they exclude the broader benefits of the wide-ranging reforms after the Great Financial Crisis.
    JEL: E62 G01 H68 H81
    Date: 2020–10
  29. By: Bussière, Matthieu (Banque de France); Cao, Jin (Norges Bank); de Haan, Jakob (De Nederlandsche Bank, University of Groningen and CESifo); Hills, Robert (Bank of England); Lloyd, Simon (Bank of England); Meunier, Baptiste (Banque de France); Pedrono, Justine (Banque de France); Reinhardt, Dennis (Bank of England); Shina, Sonalika (Reserve Bank of India); Sowerbutts, Rhiannon (Bank of England); Styrin, Konstantin (Bank of Russia)
    Abstract: This paper presents the main findings of an International Banking Research Network initiative examining the interaction between monetary policy and macroprudential policy in determining international bank lending. We give an overview on the data, empirical specifications and results of the seven papers from the initiative. The papers are from a range of core and smaller advanced economies, and emerging markets. The main findings are as follows. First, there is evidence that macroprudential policy in recipient countries can partly offset the spillover effects of monetary policy conducted in core countries. Meanwhile, domestic macroprudential policy in core countries can also affect the cross‑border transmission of domestic monetary policy via lending abroad, by limiting the increase in lending by less strongly capitalised banks. Second, the findings highlight that studying heterogeneities across banks provides complementary insights to studies using more aggregate data and focusing on average effects. In particular, we find that individual bank characteristics such as bank size or G‑SIB status play a first‑order role in the transmission of these policies. Finally, the impacts differ considerably across prudential policy instruments, which also suggests the importance of more granular analysis.
    Keywords: Cross-border bank lending; financial intermediation; monetary policy; macroprudential policy; policy interactions; spillovers
    JEL: E52 F21 F30 F42 G21
    Date: 2020–10–09
  30. By: Nurlan Turdaliev (Department of Economics, University of Windsor); Yahong Zhang (Department of Economics, University of Windsor)
    Abstract: The collapse of housing prices in the aftermath of the U.S. subprime mortgage crisis of 2008 not only worsened the balance sheet positions of the banking sector but also led to a “bank run” in some cases such as the collapse of Lehman Brothers in September 2008. We develop a theoretical model featuring household debt (mortgages) and banking sector frictions. We show that mortgage risks can potentially lead to a bank run equilibrium. Such an equilibrium exists since mortgage risks reduce the liquidation prices of bank assets. We further show that mortgage market regulations such as loan-to-value requirements reduce the likelihood of bank runs.
    Keywords: bank run, mortgage risk, loan-to-value ratio
    JEL: E32 E44 G01 G21 G33
    Date: 2020–10
  31. By: Harmenberg, Karl (Department of Economics, Copenhagen Business School)
    Abstract: I introduce a method for simulating aggregate dynamics of heterogeneous-agent models where log permanent income follows a random walk. The idea is to simulate the model using a counterfactual permanent-income-neutral measure which incorporates the effect that permanent income shocks have on macroeconomic aggregates. With the permanent-income-neutral measure, one does not need to keep track of the permanent-income distribution. The permanent-income-neutral measure is both useful for the analytical characterization of aggregate consumption-savings behavior and for simulating numerical models. Furthermore, it is trivial to implement with a few lines of code.
    Keywords: Permanent income; Consumption; Simulation
    JEL: C63 E21 E27
    Date: 2020–09–21
  32. By: Benos, Nikos; Stavrakoudis, Athanassios
    Abstract: In this paper we present evidence on the association between unemployment and output in the G7 economies, which has direct implications for the validity of Okun's Law. Specifically, we investigate dependence and asymmetry between the residuals of the output and unemployment first difference equations using the copula methodology. We find that dependence between GDP and unemployment disturbances is strong only in USA and France followed by Canada, the UK and Germany. There is no dependence in Italy and Japan. This enhances the validity of Okun's Law in the former countries without invalidating it in Italy and Japan, since there is still a negative relationship given by the systematic part of the output-unemployment difference equations estimates. Also, there is asymmetry in the former five countries. Output disturbances are associated with unemployment ones only during recessions, while they are completely disentangled throughout contractions in the US, France, Canada, the UK and Germany. These findings imply that USA and France, and less so Canada, Great Britain and Germany provide the most favorable environment for counter-cyclical economic policies. In these economies, policy makers should react more than output-unemployment dynamic equations dictate in case of output slumps. However, during recoveries in these countries and in Italy as well as Japan during the whole business cycle, authorities ought to base stabilization policies solely on the systematic part of the relation between output and unemployment changes. Our results provide guidance to policy makers in addition to what is suggested by traditional empirical approaches, which focus on the estimation of the deterministic part of the output-unemployment relationship.
    Keywords: Okun's Law; Dependence; Copula; Asymmetry
    JEL: C14 E10 E32
    Date: 2020
  33. By: Nicolo Maffei-Faccioli
    Abstract: This paper proposes an empirical approach to identify the structural forces behind the recent slowdown in US GDP growth. I use time series techniques to extract low-frequency fluctuations in GDP growth and inflation and identify their underlying drivers: demand and supply. Identification is achieved with a set of sign restrictions. While supply-side factors account entirely for the slowdown in trend GDP growth during the 1970s and its acceleration in the 1990s, ``super-hysteresis" effects explain half of its decline since 2000. Overall, this paper establishes an important role of demand factors as drivers of long-run GDP growth.
    JEL: C32 E3 O47
    Date: 2020–10–19
  34. By: Christopher Roth; Sonja Settele; Johannes Wohlfart
    Abstract: We conduct an experiment with a representative sample from the US to study households’ demand for macroeconomic information. Respondents who learn of a higher personal exposure to unemployment risk during recessions increase their demand for an expert forecast about the likelihood of a recession. Our findings are consistent with the basic premise of theories of rational inattention that demand for information depends on its expected benefit. Moreover, the fact that perceived risk exposure responds to information highlights frictions in households’ knowledge about the personal relevance of particular pieces of information. Our findings inform the modeling of information frictions in macroeconomics.
    Keywords: risk exposure, macroeconomic conditions, information acquisition, experiment
    JEL: D12 D14 D83 D84 E32 G11
    Date: 2020
  35. By: Clements, Michael P. (University of Reading); Galvao, Ana Beatriz (University of Warwick)
    Abstract: Macroeconomic data are subject to data revisions as later vintages are released. Yet, the usual way of generating real-time density forecasts from BVAR models makes no allowance for this form of data uncertainty. We evaluate two methods that consider data uncertainty when forecasting with BVAR models with/without stochastic volatility. First, the BVAR forecasting model is estimated on real-time vintages. Second, a model of data revisions is included, so that the BVAR is estimated on, and the forecasts conditioned on, estimates of the revised values. We show that both these methods improve the accuracy of density forecasts for US and UK output growth and inflation. We also investigate how the characteristics of the underlying data and revisions processes affect forecasting performance, and provide guidance that may benefit professional forecasters.
    Keywords: real-time forecasting ; inflation and output growth predictive densities ; real-time vintages ; stochastic volatility ;
    JEL: C53
    Date: 2020
  36. By: J. BOUSSARD (Banque de France); R. LEE (Insee- Crest)
    Abstract: This paper investigates the distributional impact of ’winner-takes-most’ competition and its role in shaping recent macroeconomic trends in advanced economies. We document a positive correlation between variations in industry labor and capital shares, and a positive correlation between variations in industry profit shares and industry concentration levels. However using micro-based industry data on firm-level profit margins, we find a negative correlation between industry concentration and a wide range of moments from the distribution of profit shares. We propose a dynamic general equilibrium model with heterogeneous firms, in which an increase in competition, whereby consumers become more price-sensitive and firm markups decrease, leads to a rise in concentration, a decrease in firm-level profit shares but an increase in industry-level profit shares. We study the effect of a change in the competitive environment on the Balanced Growth Path (BGP). In contrast with representative firm models, competition reduces the probability of successful entry and product diversity. If consumers value product diversity, we show that output growth, the natural interest rate, and welfare decrease with competition.
    Keywords: Competition, growth, labor share, markup.
    JEL: E10 E22 E25
    Date: 2020
  37. By: Herwartz, Helmut; Rohloff, Hannes; Wang, Shu
    Abstract: In empirical macroeconomics, proxy structural vector autoregressive models (SVARs) have become a prominent path towards detecting monetary policy (MP) shocks. However, in practice, the merits of proxy SVARs depend on the relevance and exogeneity of the instrumental information employed. Our Monte Carlo analysis sheds light on the performance of proxy SVARs under realistic scenarios of low relative signal strength attached to MP shocks and alternative assumptions on instrument accuracy. In an empirical application with US data we argue in favor of the specific informational content of instruments based on the dynamic stochastic general equilibrium model of Smets andWouters (2007). A joint assessment of the benchmark proxy SVAR and the outcomes of a structural covariance change model imply that from 1973 until 1979 monetary policy contributed on average between 2.2 and 2.4 units of inflation in the GDP deflator. For the so-called Volcker disinflation starting in 1979Q4, the benchmark structural model shows that the Fed's policy measures effectively reduced the GDP deflator within three years (i.e. by -3.06 units until 1982Q3). While the empirical analysis largely conditions ona small-dimensional trinity SVAR, the benchmark proxy SVAR shocks remain remarkably robust within a six-dimensional factor-augmented model comprising rich information from Michael McCracken's database (FRED-QD).
    Keywords: structural vector autoregression,external instruments,proxy SVAR,heteroskedasticity,monetary policy shocks
    JEL: C15 C32 C36 E47
    Date: 2020
  38. By: Sangyup Choi (Yonsei Univ); Davide Furceri (IMF); Chansik Yoon (Princeton Univerisity)
    Abstract: This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending and the size of the effect is comparable to an exogenous decline in the federal funds rate by about 25bp (50bp) for spending (revenue) shocks. The fiscal-financial spillovers we find are independent of changes in monetary policy or financial conditions measured by the VIX. The effects also depend on the sign of the fiscal shocks and the underlying economic conditions of a source country. While capital controls seem to play some moderating role, we do not find systematic and statistically significant differences in the spillover effects across recipient countries, depending on their exchange rate regime. The extension of the analysis to fiscal shocks for a panel of 16 small open economies largely confirms the U.S. economy’s findings.
    Keywords: Fiscal-financial spillovers; Cross-border banking flows; Local projections; Nonlinear effects; Trilemma
    JEL: E62 F21 F32 F42
    Date: 2020–10
  39. By: Simplice A. Asongu (Yaounde, Cameroons); Samba Diop (Alioune Diop University, Bambey, Senegal); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: The purpose of this study is to understand how countries have leveraged on their economic resilience to fight the Covid-19 pandemic. The focus is on a global sample of 150 countries divided into four main regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. The study develops a health vulnerability index (HVI) and leverages on an existing economic resilience index (ERI) to provide four main scenarios from which to understand the problem statement, namely: ‘low HVI-low ERI’, ‘high HVI-low ERI’, ‘high HVI-high ERI’ and ‘low HVI-high ERI’ quadrants. It is assumed that countries that have robustly fought the pandemic are those in the ‘low HVI-high ERI’ quadrant and to a less extent, countries in the ‘low HVI-low ERI’ quadrant. Most European countries, one African country (i.e. Rwanda), four Asian countries (Japan, China, South Korea and Thailand) and six American countries (USA, Canada, Uruguay, Panama, Argentina and Costa Rica) are apparent in the ideal quadrant.
    Keywords: Novel coronavirus, health vulnerability, economic resilience
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–09
  40. By: Delaporte, Isaure; Escobar, Julia; Peña, Werner
    Abstract: This paper evaluates the distributional consequences of social distancing due to the COVID-19 pandemic on poverty and labour income inequality in 20 Latin American and Caribbean (LAC) countries. We gather detailed information from national laws and decrees on the strictness and the duration of the lockdown in each country and use rich harmonised household surveys from the IADB. We estimate the share of individuals that are potentially able to remain active under the first phase of the lockdown by constructing the Lockdown Working Ability (LWA) index which takes into account individuals' ability to work from home but also whether their occupation is affected by workplace closures or mobility restrictions. We find that, on average, 1 worker out of 2 is able to work under the lockdown in the LAC region. We document considerable variation in the share of individuals able to work under the lockdown across countries and within countries across occupations, economic activities and specific population groups. Based on the LWA index, we then estimate individual's potential labour income losses and examine changes in poverty and labour income inequality. We find an increase in poverty and labour income inequality in the majority of the LAC countries due to social distancing. At the national level, the highest increase in the headcount poverty index is 1.4 pp and the highest increase in the Gini coefficient is 2 pp. Decomposing overall labour income inequality in the LAC region, we find that social distancing has lead to a small decrease (-0.1 pp) in inequality between countries but to an increase (2 pp) in inequality within countries. Finally, we document that 63% of the dispersion in the labour income loss across countries is explained by the sectoral/occupational structure of the economies, while the rest is explained by the type of lockdown policy that was implemented.
    Keywords: COVID-19,Social Distancing,Teleworking,Employment,Labour Income Inequality,Poverty
    JEL: D33 E24 I14 J31 J21
    Date: 2020
  41. By: J.-M. GERMAIN (Insee); T. LELLOUCH (Insee)
    Abstract: Respecter les engagements climatiques qui découlent des accords de Paris sur le climat nécessite des moyens financiers importants que l’on évalue ici à l’aide d’un modèle macroéconomique combinant un critère de répartition intergénérationnelle de l’effort climatique et des hypothèses sur l’efficacité des technologies de décarbonation. Les résultats montrent que pour la France, la trajectoire actuelle d’émissions de gaz à effet de serre n’est pas soutenable, au sens où pour atteindre l’engagement de neutralité carbone en 2050, le niveau annuel de dépenses pour le climat devrait augmenter de manière très substantielle, à 4.5 % du PIB contre 1.9 % actuellement. Ces évaluations permettent d’en déduire un prix social du carbone ou valeur de l’action climat,significativement réévaluée à la hausse par rapport aux évaluations précédentes, dans le sillage des résultats de la commission Quinet en 2019. De telles évaluations de trajectoire d’émissions et de prix social du carbone pourraient constituer le point d’entrée d’une comptabilité économique environnementale qui intègre la dégradation du patrimoine naturel induite par les activités économiques.
    Keywords: Soutenabilité, changement climatique, prix du carbone, épargne nette ajustée
    JEL: Q01 Q54 Q56 E01 E21 O13
    Date: 2020
  42. By: Pilar García-Perea (Banco de España); Aitor Lacuesta (Banco de España); Pau Roldan-Blanco (Banco de España)
    Abstract: A recent literature documents a secular increase in the sales-weighted markups in the United States, a phenomenon that was driven by large and productive firms at the top of the profit distribution. Using rich balance-sheet data, this paper documents the behavior of markups in Spain before, during, and in the aftermath of the Great Recession. We document that markups rose during the financial crisis. Unlike in the U.S., these dynamics were led by small firms: in response to a drop in sales, these firms were unable to increase their productive efficiency when average costs increased. As a consequence, and in order to escape a sharp decline in profit rates, they increased their markups. Simultaneously, large firms were able to increase efficiency, and their markups remained relatively constant. We argue that the increase of relative markups by small firms came at the expense of losing market share, which in the very short run proved to be preferred than exiting the market.
    Keywords: markups, market power, average costs, labour market, firm size
    JEL: D2 D4 E2 E3 J3 L1
    Date: 2020–10
  43. By: Mehmet Selman Colak; Abdullah Kazdal; Muhammed Hasan Yilmaz
    Abstract: In this study, we provide a comprehensive quantification of the co-movement between credit and business cycles in the Turkish case for the period 2007-2020. To this end, we construct synchronization, concordance and similarity index, which aim to measure the time-varying degree of coherence between credit and output dynamics. In specific, these indices are designed to capture the location, momentum and size aspects of the cyclical correlation respectively. Our empirical analysis also covers the cyclical association of 13 different loan sub-categories with the course of the output gap by employing disaggregated data. Overall, index results show that credit-output nexus in the Turkish case present heterogeneities across loan types, sample episodes and cyclical characteristics (location, momentum, and size). We also examine the impact of local and global macroeconomic and financial factors on cyclical coherence by utilizing Tobit regressions. The empirical results indicate that movements in local financial conditions, fluctuations in macroeconomic volatilities, and the course of capital flows are influential determinants of cyclical co-movements.
    Keywords: Credit cycle, Business cycle, Synchronization, Filtering, Tobit regression
    JEL: G21 E32 C35 C38
    Date: 2020
  44. By: Harold Ngalawa; Coretha Komba (University of KwaZulu Natal)
    Abstract: South Africa adopted inflation targeting as its monetary policy framework in February 2000. The country’s monetary authorities, however, have struggled to keep inflation within the targeted 3%-6% band. A review of the literature reveals that an understanding of the inflation-output trade-off is essential for the achievement of price stability. The effects of policy may be different depending on whether the inflation-output trade-off is symmetric or asymmetric; and when it is asymmetric, the outcome may vary contingent on whether the asymmetry is convex or concave. In South Africa, the nature of this relationship is not known. Estimation of the inflation-expectations augmented Phillips curve using the difference Generalized Method of Moments on quarterly time series data for the period 2000:3 to 2015:1 reveals that South Africa’s Phillips curve is concave asymmetric. These estimation results, however, may not be policy-invariant because they are obtained from “highly” aggregated historical data and the model parameters are not structural. Consistent with the Lucas Critique, we formulate a New Keynesian dynamic stochastic general equilibrium model calibrated on South African data. Simulation results of the model show that a negative demand shock reduces inflation and output while a positive demand shock of the same magnitude leads to a smaller increase in inflation and a larger increase in output, confirming the concave asymmetric inflation-output relationship found earlier. Concavity of the Phillip’s curve implies declining sensitivity of inflation to the strength of the economy, suggesting that any given change in inflation requires an increasingly larger adjustment in output.
    Date: 2020
  45. By: Fabrice Dabiré (Université de Sherbrooke); Mario Fortin (Université de Sherbrooke); Hashmat Khan (Carleton University); Patrick Richard (Université de Sherbrooke); Jean-François Rouillard (Université de Sherbrooke)
    Abstract: Nous examinons les effets de la politique budgétaire sur le territoire québécois à l’aide de données qui s’échelonnent entre T1-1981 et T1-2020. Pour ce faire, nous estimons des modèles VAR et extrayons des chocs de dépenses gouvernementales selon la méthode de restrictions de signes proposée par Uhlig (2005). Les réponses impulsionnelles du PIB réel, de la consommation des ménages, de l’investissement privé non-résidentiel et de l’indice de confiance des ménages à un choc temporaire et positif de dépenses gouvernementales sont toutes significativement positives à court terme. Nous trouvons des multiplicateurs élevés pour des chocs de dépenses gouvernementales totales---ils sont à plus de 2 à court terme, tandis que les dépenses gouvernementales en investissement sont au-dessus de 3,5 et affichent une plus grande persistance. Les conséquences possibles de la pandémie et des mesures de relance sur la trajectoire d’endettement du Québec complètent l’analyse. Enfin, les dépenses gouvernementales en investissement sont celles qui devraient être privilégiées pour stimuler l’activité économique et même réduire le ratio d’endettement en conformité avec les cibles prévues en 2026.
    Keywords: fiscal multipliers, covid-19, public debt dynamics, Québec's economy.
    JEL: E62 H20 H30 H63
    Date: 2020–10
  46. By: Beatriz González (Banco de España)
    Abstract: This paper extends a model of firm dynamics to incorporate heterogeneous privately held and publicly traded firms facing different financial frictions, and the decision to become publicly traded (Initial Public Offering, or IPO) is endogenous. This allows changes in the economic environment to affect these firms differently, impacting the selection into becoming publicly traded, and its macroeconomic outcomes. Firms are born privately held and small due to financial frictions. They finance investment with internal resources and debt and have the choice to go public (IPO). The main trade-off is access to external equity financing, at a one-off cost of IPO and an increased cost of operation. The calibrated model is successful in capturing the size distribution of firms, the share of publicly traded firms, and the dynamics around the IPO date. The decrease in corporate and dividend taxes experienced from the 1970s to the 1990s benefited more publicly traded firms financing with equity at the margin. This helps explaining the stock market boom, and the observed changes in the characteristics of firms going public, their investment and payout behavior. I perform some counterfactual exercises to understand what could be the reasons behind the decrease in publicly traded firms since the 2000s: increased cost of being public, increased access to debt, or changes in the idiosyncratic shock process. I find these changes are consistent with part (though not all) of the changes in IPO choice, payout and investment behavior of publicly traded firms in this period.
    Keywords: firm life cycle, macroeconomics, fiscal policy, corporate finance, IPO
    JEL: E23 G32 G35 H25 H32
    Date: 2020–10
  47. By: Alain Kabundi; Franziska Ohnsorge
    Abstract: The COVID-19-triggered collapse in oil prices in March and April 2020 was the seventh, and by far the most severe, in a series of such collapses since 1970. This paper, first, compares this most recent collapse and its drivers with previous ones in an event study. It finds that it was associated with an exceptionally severe plunge in oil demand. Second, in a local projections model, this paper estimates the implications of demand- and supply-driven oil price collapses for growth in emerging markets and developing economies (EMDEs). The paper finds that steep oil price collapses were associated with significant and lasting output losses in energy-exporting EMDEs but no meaningful output gains in energy-importing EMDEs. These results are robust to multiple robustness checks.
    Keywords: Oil price decline, COVID-19 pandemic, macroeconomic implications, supply factors, demand factors, local projections model.
    JEL: Q40 Q41 Q43 F40 E32
    Date: 2020–09
  48. By: Bahar Sungurtekin Hallam
    Abstract: We develop and apply a new methodology to study the transmission mechanisms of international macroeconomic and financial shocks in the context of emerging markets. Our approach combines aspects of factor analysis and GVAR models by replacing the cross-unit averages that serve as foreign variables in the GVAR model with macroeconomic and financial factors extracted from potentially unbalanced panels of country-level data. Factors are extracted at the country, region and global levels, with a natural hierarchical structure. Furthermore, we allow for time variation in both the model parameters and shock volatility. Our key empirical findings are as follows. First, there is substantial time-variation in the responses of our chosen emerging economies to foreign financial, interest rate and macroeconomic shocks. Second, in response to tighter global financial conditions, policy rates increase in most of our chosen emerging economies, particularly after the crisis. They appear more concerned with financial stability and capital inflows, given that they increase their short term rates more at the expense of large drops in equity prices and output. Third, financial tightening in other emerging market country groups has a loosening effect on domestic financial conditions. Fourth, as we include a global financial risk factor along with the US monetary policy rate, our results suggest that the contractionary effects of US interest rate shocks are taken over by the global financial risk shock. Lastly, we find some evidence that macroeconomic interdependencies among emerging economies have been increasing while their dependencies on advanced economies have been decreasing over time.
    Keywords: Time-varying parameter GVAR model, Factor analysis, Dual Kalman filter, Transmission channels of external shocks, Monetary policy
    JEL: C30 C32 C38 E44 F41
    Date: 2020
  49. By: Jérôme Maucourant (Université Jean-Monnet de Saint-Etienne et Triangle); Bruno Tinel (Centre d'Economie de la Sorbonne)
    Abstract: How can we characterize the contradictions between the state and the nation, while taking into account the fact that real society is divided into classes? This paper analyses these elements based on the implications of a full employment policy following Kalecki's analysis. We also find that to articulate the notions of state, nation and social classes it is relevant to examine the idea of a dual nature of the state, of which certain elements are found in Marx. Finally, we address the current challenges of economic policy taking into account the trends that tend to erode the role of the state and nations
    Keywords: State; nation; social classes; economic policy; full employment; sovereignty
    JEL: B51 E12 E62 H50 P34
    Date: 2020–10
  50. By: Thomas, Mini P
    Abstract: This paper aims to measure the investment contribution of service sector in India’s economic growth. This study brings in a novel approach by using the national income accounting framework and Harrod Domar Model to quantify services investment contribution. The study makes a distinction between public and private investment within service sector, and identifies the sub-sectors which are major contributors. The services contribution to Foreign Direct Investment into the Indian economy is also measured. This study finds that private investment started exceeding public investment within service sector from 1994-95 onwards. Public administration and defence is found to be the major sub-sector contributing to public investment during the pre-reform phase. Real estate and business services is found to be the major sub-sector contributing to private investment during the post-reform phase. Actual growth rate of service sector is found to be higher than the predicted growth rate during most of the study period.
    Keywords: Service sector, private investment, Indian economy, FDI
    JEL: E2 E22 O4
    Date: 2019–07–15
  51. By: Gurgul, Henryk; Mitterer, Christoph; Wójtowicz, Tomasz
    Abstract: Recent studies have shown that announcements of US macroeconomic news had significant impact on European stock markets. However, importance of information about the US economy may vary in time. In order to analyze this issue we examine impact of announcements of unexpected US macroeconomic news on the prices of selected stocks listed on the Vienna Stocks Exchange. Based on 5-minute returns of 13 stocks we examine how the strength and the significance of reaction of investors to unexpected macroeconomic news form the US has changed in the recent 15 years. Application of event study methodology allows us precisely describe such reaction in first minutes after news announcements.
    Keywords: event study, macroeconomic announcements, intraday data
    JEL: E44 G14
    Date: 2020–10–04
  52. By: Beer, Sonja
    Abstract: Die ersten Corona-Fälle in China sind im Dezember 2019 aufgetaucht. Um die Pandemie einzudämmen, musste die Regierung im Februar weitreichende Maßnahmen ergreifen. Diese Ma-nahmen haben zwar die Pandemie abgeschwächt, aber auch gleichzeitig dramatische Auswirkungen auf die Wirtschaft gehabt. China war das erste Land, das von der Pandemie und der daraus resultierenden Wirtschaftskrise getroffen wurde, und es ist auch das erste Land auf dem Weg zur Erholung. Nach dem historischen Einbruch der wirtschaftlichen Leistung von 6,8 Pro-zent im ersten Quartal 2020 gegenüber dem Vorjahreszeitraum, legte die chinesische Wirtschaft um 3,2 Prozent im zweiten Quartal zu. Kaum ein anderes Land dürfte eine solch große Wachstumsrate erzielen. Analysen der einzelnen BIP-Komponenten deuten darauf hin, dass Investitionen der Haupttreiber des Wachstums im zweiten Quartal waren. Die Infrastrukturinvestitionen und eine starke Bautätigkeit resultierten vor allem aus den konjunkturstützenden Maßnahmen der Regierung. Bei der Industrieproduktion zeichnet sich eine starke Erholung ab. Seit März erreichte auch der Einkaufsmanagerindex für die Industrie und den Dienstleistungssektor kontinuierlich mehr als 50 Punkte, was als Expansionsschwelle gilt. Im Juli und August hat der Shang-hai Stock Exchange Index teilweise sogar Werte um die 3500-Marke erreicht (die höchsten Werte innerhalb der letzten zwei Jahre) was das stärkere Vertrauen der Finanzmärkte zeigt. Jedoch besteht weiterhin eine Vielzahl von wirtschaftlichen Herausforderungen in China, wie zum Beispiel der zurückhaltende Konsum und die schwache Beschäftigung. Nach dem starken Einbruch des Handels im Januar und Februar erlebt China zurzeit einen Außenhandelsboom. Das gilt vor allem für die Exporte. Die Exporte Chinas sind im Januar und Februar um 17,2 Prozent gegenüber dem gleichen Vorjahreszeitraum eingebrochen. Im August verzeichneten sie ein Plus von 9,5 Prozent, was dem höchsten Zuwachs seit anderthalb Jahren entspricht. Der Außenhandel Chinas mit Deutschland und den USA wurde während der Pandemie auch stark beeinträchtigt. Nach dem Einbruch der Exporte von 24,1 beziehungsweise 27,7 Prozent im Januar und Februar im Vergleich zum Vorjahreszeitraum, nehmen die chinesischen Exporte seit März wieder zu. Im Mai und Juli überstiegen die Exporte Chinas nach Deutschland sogar die Marke von 8 Milliarden US-Dollar, was dem höchsten monatlichen Wert in den Jahren 2019 und 2020 entspricht. Damit sind in den Monaten Januar bis August die chinesischen Exporte nach Deutschland um 3,9 Prozent im Vergleich zum Vorjahr angestiegen, was eine deutliche Erholung signalisiert. Die Exporte in die USA zeigen einen ähnlichen Trend. Im August ex-portierte China Waren im Wert von fast 45 Mrd. US-Dollar in die USA, was dem höchsten Wert seit November 2018 entspricht. Die Hoffnung ist groß, dass das starke Exportwachstum das Wirtschaftswachstum Chinas in den nächsten Monaten weiter ankurbelt. Jedoch existiert auch die Gefahr, dass die starke ausländische Nachfrage nicht nachhaltig ist, da diese überwiegend auf dem Absatz von Schutzausrüstungen und Haushaltsgeräten basiert. Chinas Importe haben sich in den letzten Monaten weniger positiv entwickelt und befinden sich im Vergleich zum Vorjahreszeitraum immer noch im negativen Bereich. Das Gleiche gilt für Importe aus den USA und Deutschland, was auf eine schwache Inlandsnachfrage hinweist. Hinzu kommt, dass China nicht Maschinen, sondern überwiegend Rohstoffe und Agrarprodukte importiert hatte. Der Handelsbilanzüberschuss Chinas mit den USA erreichte im August die Marke von 34,2 Mrd. US-Dollar und fiel damit sogar höher aus als im Juni 2018 vor dem Beginn des Handelskriegs (29 Mrd. US-Dollar). Gleichzeitig hat sich der Handel mit den ASEAN-Länder im Jahr 2020 erhöht und damit überholten die ASEAN-Länder sogar die EU als den wichtigsten Handelspartner Chinas.
    JEL: E2 E66 F10
    Date: 2020
  53. By: Samba Diop (Alioune Diop University, Bambey, Senegal); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This exploratory study aims to assess Africa’s lagging position in global heath in relation to some health care infrastructure before critically examining the situation of Africa in the light of pressing Covid-19 healthcare infrastructural needs in terms of number of hospital beds, intensive care units (ICU) beds and ventilators per 100 000 people. A comparative analysis is provided to showcase which regions are leading in the health facilities in the world in general and Africa in particular as well as countries that are lagging in the attendant healthcare facilities. Analytical insights are provided to illustrate that the Covid-19 pandemic has revealed how Africa cannot reach most Sustainable Development Goals (SDGs), especially SDG-3 on health and wellbeing. Moreover, corresponding inferences suggest that the continent is unprepared for future pandemics in terms of health facilities.
    Keywords: Novel coronavirus, Socio-economic effects; Africa
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–06
  54. By: Phitawat Poonpolkul
    Abstract: This study revisits optimal fiscal policies in response to population ageing by introducing an age-dependent increasing risk aversion assumption into an OLG model with risk-sensitive preferences. Under this specification, the policy evaluation factors in the welfare cost of policy-induced uncertainties and suggests that, based on future generations’ welfare, financing population ageing by either reducing social security benefits or extending the retirement age may not be as strongly preferred over raising the payroll tax rate as prior studies have suggested. Varying risk aversion also emphasizes the role of precautionary savings that causes individuals to respond slightly differently to changes in demographic structures and price variables. This, in turn, influences the redistribution of life-cycle variables and transition dynamics of aggregate variables.
    Keywords: Overlapping generations model, Increasing risk aversion, Non-expected utility
    JEL: D81 E62 J11
    Date: 2020–10
  55. By: Gupta, Apoorva
    Abstract: Can being innovative help firms to shield themselves from the disruptive effects of a recession? Using data for Spanish manufacturing firms, this paper finds that innovative firms suffered considerably less compared to noninnovative firms during the Great Recession. The operating mechanism for the resilience of innovative firms to market disruption during a recession is product differentiation, and not reduction in marginal cost of production and prices with process innovation. The data does not support alternative explanations such as better access to capital, or difference in labour moving costs for innovative firms. The results provide evidence for the role of innovation in making firms dynamically capable and resilient to large negative shocks.
    Keywords: Innovation,Recession,Resilience,Product differentiation,Dynamic capability
    JEL: L25 O30 O31 E32
    Date: 2020
  56. By: Ahmed, Rashad
    Abstract: I develop a measure of changing tail risk perceptions based on global financial shocks reflecting 'flights-to-safety'. Large flight-to-safety shocks are defined as joint tail realizations of returns across major risky and safe asset classes. Flight-to-safety shocks are substantially distinct from VIX innovations, map to unexpected global events, inform future changes in world prices and interest rates, and reflect both risk sentiment and global demand. Estimating a multi-country structural VAR with country-specific heterogeneity, I show that global flight-to-safety shocks induce a sharp rise in sovereign risk and exchange market pressure, followed by a subsequent drop in economic activity in both emerging markets and the U.S. However, the macroeconomic effects of flight-to-safety shocks are far from uniform across emerging markets, with domestic financial factors moderating the transmission mechanism. Countries realizing larger sovereign risk adjustment or sharper currency depreciation from a flight-to-safety shock are subject to deeper subsequent economic contractions. The impact of flight-to-safety shocks on economic activity is four times larger for emerging markets with substantial presence in U.S. exchange traded funds. By contrast, leaning against the wind by aggressively expending international reserves limits the economic impact of global flight-to-safety shocks, with its effectiveness rising when the exchange rate is successfully stabilized.
    Keywords: Tail Risk, Risk-off, Risk Sentiment, Global Shocks, Contagion, International Spillovers, Sovereign Risk, Monetary Policy, Capital Flows, Emerging Markets
    JEL: E44 F30 F44 F60 G15
    Date: 2020–10–12
  57. By: Seán Kenny; Jason Lennard and Kevin Hjortshøj O’Rourke
    Abstract: We construct an annual index of Irish industrial output for 1800-1921, the period during which the entire island was in a political Union with Great Britain. We also construct a new industrial price index. Irish industrial output grew by an average of 1.4 per cent per annum over the period as a whole, and by 1.8 per cent per annum between 1800 and the outbreak of World War I. Industrial growth was more rapid than previously thought before the Famine, and slower afterwards. While Ireland did not experience deindustrialization either before the Famine or afterwards, its industrial growth was disappointing when considered in a comparative perspective.
    Keywords: Ireland, Industrial production, Famine, Historical national
    JEL: E01 N13 N14
    Date: 2020–10–21
  58. 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 heterogenous across countries and regions. While the impact on China and other emerging Asian economies are estimated to be less severe, the United States, the United Kingdom, and several other advanced economies may experience deeper and longer-lasting effects. Non-Asian emerging markets stand out for their vulnerability. We show that no country is immune to the economic fallout of the pandemic because of global interconnections as evidenced by the case of Sweden. We also find that long-term interest rates could fall significantly below their recent lows in core advanced economies, but this does not seem to be the case in emerging markets.
    Keywords: Threshold-augmented Global VAR (TGVAR), international business cycle, Covid-19, global volatility, threshold effects.
    JEL: C32 E44 F44
    Date: 2020–09
  59. By: Guerino Ardizzi (Bank of Italy); Elisa Bonifacio (Bank of Italy); Cristina Demma (Bank of Italy); Laura Painelli (Bank of Italy)
    Abstract: Economic operators have a number of different procedures and instruments for regulating their cashless monetary transactions safely and quickly. Nevertheless, divergences in the use of non-cash payment instruments persist among European countries and, in Italy, between the Centre and North and the southern regions. In this paper, we study which factors are associated with the backwardness of South and Islands in the use of non-cash payment instruments. We focus on the period 2013-18, when there was a widespread increase in non-cash transactions among the main advanced economies, spurred by technological innovation and the new legal framework supporting security, efficiency and transparency in digital payments. We find that the main factors associated with a lower demand for cash are technological innovation in payments and the population’s digital skills and education levels; criminality and tax evasion are also significantly and positively correlated to the use of cash, but their correlations with the observed heterogeneity among Italian provinces are not predominant.
    Keywords: payment instruments, cash demand, retail payments, technological innovation
    JEL: E41 E42 G21 G23
    Date: 2020–09
  60. By: Bognanni, Mark (Federal Reserve Board of Governors); Hanley, Doug (University of Pittsburgh); Kolliner, Daniel (University of Maryland); Mitman, Kurt (Stockholm University)
    Abstract: Economic analysis of effective policies for managing epidemics requires an integrated economic and epidemiological approach. We develop and estimate a spatial, micro-founded model of the joint evolution of economic variables and the spread of an epidemic. We empirically discipline the model using new U.S. county-level data on health, mobility, employment outcomes, and non-pharmaceutical interventions (NPIs) at a daily frequency. Absent policy or medical interventions, the model predicts an initial period of exponential growth in new cases, followed by a protracted period of roughly constant case levels and reduced economic activity. Nevertheless, if vaccine development proved impossible, and suppression cannot entirely eradicate the disease, a utilitarian policymaker cannot improve significantly over the laissez-faire equilibrium by using lockdowns. Conversely, if a vaccine will arrive within two years, NPIs can improve upon the laissez-faire outcome by dramatically decreasing the number of infectious agents and keeping infections low until vaccine arrival. Mitigation measures that reduce viral transmission (e.g., mask-wearing) both reduce the virus's spread and increase economic activity.
    Keywords: Econ-SIR, COVID-19, economic policy, epidemics
    JEL: E1 H0 I18
    Date: 2020–10
  61. By: Valdes, Constanza; Hjort, Kim; Seeley, Ralph
    Abstract: Macroeconomic reforms and policies have contributed to Brazil’s emergence as one of the world’s most competitive agricultural exporters. Brazil’s agricultural sector increased its exports in recent years, despite experiencing one of its worst recessions during 2014-16, falling international commodity prices, and slower demand growth in China and other foreign markets. To understand the forces behind this development, this report examines the effects of changing macroeconomic conditions on Brazil’s agricultural production and trade by simulating impacts of accelerated depreciation of its exchange rate and sustained macroeconomic growth. When the Brazilian currency weakens, higher prices in local currency stimulate production and exports of most major commodities. Simulations show that depreciation of Brazil’s currency results in greater world supplies, lower prices in global markets, and increased competition for U.S. exports. Finally, a simulation of stronger Brazilian economic growth shows that an increase in domestic consumption would have reduced Brazil’s exports of beef, corn, cotton, ethanol, pork, and soybean meal, easing downward pressure on world prices. However, Brazil’s soybean exports would not have been significantly affected by stronger economic growth.
    Keywords: Agricultural and Food Policy, Agricultural Finance, International Relations/Trade
    Date: 2020–09
  62. By: Riccardo De Bonis (Bank of Italy); Matteo Piazza (Bank of Italy)
    Abstract: This work provides a comprehensive overview of the giant leap made by European central bank statistics over the last quarter century. We illustrate, first, the work that led to a brand new set of central bank statistics for the implementation of the common monetary policy in the euro area. We then focus on the most significant developments brought up by the financial crisis and by the institutional changes that accompanied it. The final part look at challenges lying ahead for official statistics, namely how to deal with digitalization and globalization.
    Keywords: Central bank statistics, data harmonisation
    JEL: C82 E59
    Date: 2020–09
  63. By: Matthieu Lemoine (Centre de recherche de la Banque de France - Banque de France); Harri Turunen (Centre de recherche de la Banque de France - Banque de France); Mohammed Chahad (Centre de recherche de la Banque de France - Banque de France); Antoine Lepetit (Centre de recherche de la Banque de France - Banque de France); Anastasia Zhutova (Centre de recherche de la Banque de France - Banque de France); Pierre Aldama (Centre de recherche de la Banque de France - Banque de France); Pierrick Clerc (Centre de recherche de la Banque de France - Banque de France); Jean-Pierre Laffargue (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper presents the new model for France of the Banque de France (FR-BDF), as well as its key implications for the analysis of monetary policy transmission in France. Relative to our former model, this new semi-structural model has been improved along three dimensions: financial channels are richer, expectations now have an explicit role and simulations now converge toward a balanced growth path. We follow the approach of the FRB/US model, where agents can form their expectations in two different ways, VARbased or model-consistent, and where non-financial behavior react with polynomial adjustment costs. For standard monetary policy shocks, FR-BDF shows a stronger sensitivity than our former model, due to the widespread influence of expectations. Then, we show that, under model-consistent expectations, FR-BDF does not suffer from the forward guidance puzzle. Finally, Eurosystem asset purchase programmes have notable effects in FR-BDF, with a stronger transmission through exchange rates than term premia.
    Keywords: forward guidance,monetary policy,expectations,semi-structural modeling
    Date: 2019–10
  64. By: Brunhart, Andreas
    Abstract: Die Basis konjunkturell relevanter Daten ist für Liechtenstein spärlich, zudem ist die Publikationsverzögerung teilweise hoch und die Frequenz oft tief. Das BIP liegt nur auf Jahresbasis vor und weist eine Publikationsverzögerung von 15 Monaten auf. Im vorliegenden Papier wird durch die Erarbeitung eines vierteljährlichen Konjunkturindexes „KonSens“ („Konjunktursensor“) ein gemeinsames konjunkturelles Signal („Business Cycle as a Consensus“) generiert. Dies geschieht per Hauptkomponentenanalysen-Aggregation von 16 liechtensteinischen, konjunkturellen Einzelindikatoren, die zeitnah und auf Quartalsbasis zur Verfügung stehen. Dadurch wird eine wertvolle Ergänzung zum üblichen Konjunkturbegriff bereitgestellt, der sich meistens nur auf die zyklische Trendabweichung einer einzelnen Wirtschaftsreihe stützt (üblicherweise der BIP-Produktionslücke). Der KonSens schafft ein gesamtwirtschaftliches Konjunktursignal mit schnellerer Verfügbarkeit, höherer Frequenz, guter Verlässlichkeit und einfacher Interpretation sowie eine breiter abgestützte konzeptionelle analytische Grundlage als bis anhin verfügbar. Er verbessert darauf aufbauend die liechtensteinische Konjunkturanalyse und damit auch die Prognosebasis, sowohl für Liechtenstein wie möglicherweise auch für die Schweiz (gegenüber der die liechtensteinische Volkswirtschaft einen signifikanten Konjunkturvorlauf aufweist). Der KonSens könnte auch für andere Klein(st)staaten, welche ähnliche Datenrestriktionen kennen, oder für autonome Gebiete, subnationale Regionen und gar Städte als Vorbild dienen.
    Keywords: Liechtenstein,Konjunkturanalyse,Konjunkturindex,Hauptkomponentenanalyse,Sammelindikator,Saisonbereinigung
    JEL: C01 C32 E32
    Date: 2019
  65. By: Darvas, Zsolt; Anderson, Julia
    Abstract: In the context of the review of the EU economic governance framework, this study recommends a multi-year ahead expenditure rule anchored in an appropriate public debt target, augmented with an asymmetric golden rule that provides extra fiscal space only in times of a recession. An improved governance framework should strengthen national fiscal councils and include a European fiscal council, while financial sanctions should be replaced with instruments related to surveillance, positive incentives, market discipline and increased political cost of noncompliance.
    Keywords: expenditure rule, golden rule, structural budget balance
    JEL: E62 H20
    Date: 2020
  66. By: Ozlem Kina; Ctirad Slavik; Hakki Yazici
    Abstract: This paper shows that capital-skill complementarity provides a quantitatively significant rationale to tax capital for redistributive governments. The optimal capital income tax rate is 60%, which is significantly higher than the optimal rate of 48% in an identically calibrated model without capital-skill complementarity. The skill premium falls from 1.9 to 1.67 along the transition following the optimal reform in the capital-skill complementarity model, implying substantial indirect redistribution from skilled to unskilled workers. These results show that a government that cares about redistribution should take into account capital-skill complementarity in production when setting the tax rate on capital income.
    Keywords: capital taxation; capital-skill complementarity; inequality; redistribution;
    JEL: E25 J31
    Date: 2020–10
  67. By: Alberto Di Iorio (Bank of Italy); Marco Fanari (Bank of Italy)
    Abstract: This paper focuses on break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation, computed from government bonds. In the first part of the paper, we regress the Italian BEIR on several financial variables to assess the contribution of inflation, credit and liquidity components. In the second, in order to disentangle market participants’ inflation expectations from risk premia, we estimate a term structure model for the joint pricing of the Italian nominal and real yield curves, considering also credit and liquidity factors. The results show that BEIRs could be a misleading measure of the expected inflation due to the importance of inflation risk premium and credit risk effect. According to our estimates, the decrease in market-based measures of inflation observed in the last part of the sample period seems to reflect a lowering of both inflation expectations and risk premia. Inflation premia co-move with a measure of tail risk of the long-term inflation distribution signalling that investors become more concerned with downside risks.
    Keywords: inflation-linked bonds, government yields, break-even inflation rate, expected inflation, inflation risk premium, term structure model
    JEL: C32 E43 G12 H63
    Date: 2020–09
  68. By: Claudio Daminato (Department of Management, Technology and Economics, ETH Zurich); Mario Padula (Università "Ca' Foscari" Venezia and CSEF)
    Abstract: To assess the life-cycle welfare effects of pension reforms, we provide a dynamic stochastic model of saving, portfolio choice and retirement with a pension system that operates according to the notional defined contribution principle. Relying on the exogenous variation from a sequence of Italian pension reforms, we identify and estimate the model, which is then used to draw implications of alternative pension policies. Our results also shed further light on the mechanisms behind the offset between social security and private wealth and show the importance of labor supply at retirement as an insurance mechanism against shocks to pension wealth.
    Keywords: Pension reforms, Life-Cycle, Savings, Portfolio Choice, Retirement.
    JEL: E21 H31 H55 J26
    Date: 2020–10–23
  69. By: Olga Khon (Independent Researcher, Saint Petersburg)
    Abstract: We estimate a short-run demand function, using the quarterly data available for modern Russian market - on the one-quarter basis for 1997-2020. Empirical results provide a stable money demand function that explains the short-run money velocity movement. The approach is based on econometric models and dynamic least square methods evaluation within the Akaike criterion applied for the authors? choice of leads and lags. The prior innovation related to model comparison of interest rates in money demand function ? from research-common money market rate to interbank market rate, amplifying proxy better-fitted for the Russian market.
    Keywords: Monetary policy, money demand, money velocity, income elasticity, interest semi-elasticity
    JEL: E41 G28 C50
  70. By: Lautenbacher, Stefan
    Abstract: Based on a large and representative panel of German firms, this paper relates a novel measure of subjective uncertainty to business expectations and firm decisions. Uncertainty is measured by asking managers directly how uncertain they are about their future business development. I show that the relationship between perceived uncertainty and expectations is strongly negative at the micro level and almost perfectly inverse in the aggregate. It is also state-dependent: uncertainty co-moves less with expectations in bad times. In a case study at the onset of the COVID-19 recession, I exploit the between-firm variation in firms' uncertainty and expectations to examine the implications of the ``real options'' theory. I find that changes in uncertainty during the aggregate downturn do not predict ``wait and see'' behavior. By contrast, first moment changes are related to investments deferral and a reduction of the workforce.
    Keywords: subjective uncertainty; expectations; firms; corporate decisions; survey data; business cycles
    JEL: C83 D22 D84 E32
    Date: 2020–10–13
  71. By: Robert S. Kaplan
    Abstract: An essay by Robert S. Kaplan, President and CEO of the Federal Reserve Bank of Dallas.
    Date: 2020–09–29
  72. By: Laurie Laybourn-Langton (Institute for Public Policy Research (IPPR), University College London (UCL)); Laurie Macfarlane (Institute for Innovation and Public Policy (IIPP), University College London (UCL)); Michael Jacobs (Sheffield Political Economy Research Institute (SPERI), University of Sheffield)
    Abstract: Modern economic history can be roughly split into different eras in which certain sets of ideas dominate politics and policy-making. This paper seeks to understand if a shift in the ‘political economic paradigm’ is currently under way by inspecting the state of debates across a range of economic policy areas. It introduces the concept of ‘orthodox’, ‘modified’ and ‘alternative’ paradigms, corresponding to the status quo, its modification in the face of disruption or changed political goals, and a fundamental break from that status quo, respectively. Its central conclusion is that a significant shift is under way in many economic policy areas in many mainstream economic institutions. This shift has mainly occurred from ‘orthodox’ paradigm approaches – those that might broadly be described as based on neoclassical principles – to a ‘modified’ approach that alters the neoclassical approach in many ways but maintains its fundamental basis. Little to no movement towards what might be described as truly ‘alternative’ paradigm approaches is yet under way, though some mainstream institutions are exhibiting openness to these ideas. As such, an overall paradigm shift away from the dominant neoliberal paradigm is not yet underway.
    Keywords: political-economic paradigm; neoliberalism; heterodox economics
    JEL: B20 B25 E00 H10 P16 P50
    Date: 2019–06
  73. By: Roberto Tamborini; Matteo Tomaselli
    Abstract: Beyond inconclusive empirical research, this paper examines the theoretical literature concerning public debt and economic growth finding no univocal and straightforward answer. No meaningful assessment of debt and its effect on growth at any point in time is possible without reference to the whole debt trajectory and the specific state of the economy along the trajectory. An orderly and consistent analysis may be developed along two coordinates of debt assessment: sustainability/ unsustainability, and efficiency/inefficiency. In our view, research should concentrate on the study of specific conditions and cases, and abandon the pursuit of a general law.
    Keywords: Public debt, Debt burden, Debt sustainability, Economic growth, Endogenous growth models
    JEL: E62 H63 O40
    Date: 2020
  74. By: Burstein, A.; Carvalho, V. M.; Grassi, B.
    Abstract: We study markup cyclicality in a granular macroeconomic model with oligopolistic competition. We characterize the comovement of firm, sectoral, and economy-wide markups with sectoral and aggregate output following firm-level shocks. We then quantify the model’s ability to reproduce salient features of the cyclical properties of markups in French administrative firm-level data, from the bottom (firm) level to the aggregate level. Our model helps rationalize various, seemingly conflicting, measures of markup cyclicality in the French data.
    Keywords: Markup Cyclicality, Oligopolistic Competition, Firm Dynamics, Granularity, Aggregate Fluctuations
    Date: 2020–10–14
  75. By: Khalaf, Tasneem; Masih, Mansur
    Abstract: Banks play an important role as intermediaries between the savers and the borrowers in an economy. One issue, however, that the banks face during the development process is the increase in the non-performing loans (NPL) in the developing economies. In particular, during the financial crisis, many loans become non-performing loans (NPL) and the banks face liquidity crises. It is the focus of this paper to investigate whether (a) the relationship between the non-performing loans of banks and economic growth (GDP) is cointegrated or not i.e., whether they are theoretically related or not in the long term and (b) if they are, whether the relationship is symmetric or asymmetric in the short and long term. We use ARDL and nonlinear ARDL for the analysis. Malaysia is used as a case study. The findings tend to indicate that the NPL and GDP are indeed cointegrated as evidenced in both ARDL and Nonlinear ARDL. As to whether the relationship between the NPL and GDP is symmetric or not, the findings tend to indicate that the relationship is asymmetric in the long run but symmetric in the short run. These findings have important policy implications for the developing countries like Malaysia.
    Keywords: Non-performing loans of banks, GDP, Linear ARDL, Nonlinear ARDL, Malaysia
    JEL: C22 C58 E44 G21
    Date: 2018–12–18
  76. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Video discussion of Gross Domestic Product
    Keywords: environmental economics, GDP, undergraduate, video
    JEL: E01 Q50 Q56
    Date: 2020–09
  77. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Video discussion of the theory of the Environmental Domestic Product
    Keywords: environmental economics, environmental domestic product, undergraduate, video
    JEL: E01 Q50 Q56
    Date: 2020–09
  78. By: Andrew Sharpe; Cristina Blanco Iglesias; Myeongwan Kim
    Abstract: The distribution of the gains of economic growth among workers and corporations has evolved over time. While an extensive body of literature has studied the fall in the share of labour income in the gross domestic product (GDP), less attention has been paid to the development of the components of its counterpart, the capital share. In the system of National Accounts, the capital share of income can be broken down into net operating surplus and net mixed income (which includes corporate profits before taxes, net interest paid, net other payments and inventory valuation adjustment, and net mixed income) and capital consumption allowances (CCA). This report contributes to the discussion on the rising capital share by studying the evolution of the Canadian corporate profit share in the past three decades using both financial and national accounts data. We analyze trends at the aggregate and sectoral level and compare the aggregate trends to those in the United States during the same period. We also provide an overview of the structural factors affecting the corporate profit share in Canada. According to national accounts data, the corporate profit share before tax in Canada rose 3.8 percentage points between the 1961-1999 and 2000-2017 periods, an increment that significantly enhanced the surge in the capital share of income. Similarly, the financial corporate profit share of income increased by 7.2 percentage points between 1997 and 2017. This development was widespread, with the profit share increasing in all sectors except mining, quarrying and oil, and gas extraction. It was also concentrated. We find that the financial sector, which accounts for less than one tenth of GDP, was responsible for 33 per cent of the increase in the corporate profit share. Complete time series of the profits data used in this report can be found in a profits database developed as part of this research project.
    Keywords: profit share, economic growth, canada, gross domestic product
    JEL: O4 G3 D24 E22
    Date: 2020–07
  79. By: Mellacher, Patrick
    Abstract: I develop a novel macroeconomic epidemiological agent-based model to study the impact of the COVID-19 pandemic under varying policy scenarios. Agents differ with regard to their profession, family status and age and interact with other agents at home, work or during leisure activities. The model allows to implement and test actually used or counterfactual policies such as closing schools or the leisure industry explicitly in the model in order to explore their impact on the spread of the virus, and their economic consequences. The model is calibrated with German statistical data on demography, households, firm demography, employment, company profits and wages. I set up a baseline scenario based on the German containment policies and fit the epidemiological parameters of the simulation to the observed German death curve and an estimated infection curve of the first COVID-19 wave. My model suggests that by acting one week later, the death toll of the first wave in Germany would have been 180% higher, whereas it would have been 60% lower, if the policies had been enacted a week earlier. I finally discuss two stylized fiscal policy scenarios: procyclical (zero-deficit) and anticyclical fiscal policy. In the zero-deficit scenario a vicious circle emerges, in which the economic recession spreads from the high-interaction leisure industry to the rest of the economy. Even after eliminating the virus and lifting the restrictions, the economic recovery is incomplete. Anticyclical fiscal policy on the other hand limits the economic losses and allows for a V-shaped recovery, but does not increase the number of deaths. These results suggest that an optimal response to the pandemic aiming at containment or “holding out for a vaccine” combines early introduction of containment measures to keep the number of infected low with expansionary fiscal policy to keep output in lower risk sectors high.
    Keywords: Agent-based model, economic epidemiology, covid-19, pandemic
    JEL: C63 E17 H12 H30 I18 L83
    Date: 2020–10–19
  80. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Video discussion of the Ecological Footprint and similar indicators
    Keywords: environmental economics, ecological footprint, undergraduate, video
    JEL: E01 Q50 Q56 Q57
    Date: 2020–09
  81. By: Gianluca Benigno; Jonathan Hartley; Alicia Garcia Herrero; Alessandro Rebucci; Elina Ribakova
    Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.
    Keywords: emerging markets; quantitative easing; COVID-19
    JEL: E52
    Date: 2020–10–02
  82. By: Piotr Danisewicz (University of Bristol); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in municipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship.
    Keywords: Fiscal transfers, Local government spending, Entrepreneurship, “Fuzzy” Regression Discontinuity Design.
    JEL: E62 H71 H72 L26 P16
    Date: 2020–10
  83. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Video discussion of applications of the Environmental Domestic Product
    Keywords: environmental economics, environmental domestic product, undergraduate, video
    JEL: E01 Q50 Q56
    Date: 2020–09
  84. By: Minford, Patrick (Cardiff Business School); Ou, Zhirong (Cardiff Business School); Zhu, Zheyi (Cardiff Business School)
    Abstract: We revisit the evidence on consumer risk-pooling and uncovered interest parity. Widely used singleequation tests are strongly biased against both. Using the full-model, Indirect Inference test, which is unbiased and has Goldilocks power by Monte Carlo experiments, we …nd that both the risk-pooling hypothesis and its weaker UIP version are generally accepted as part of a full world DSGE model.The fact that the risk-pooling hypothesis, with its implication of strong cross-border consumer linkage,has passed this test with generally the highest p-value, suggests that it deserves serious attention from policy-makers looking for a relevant model to discuss international monetary and other business cycle issues.
    Keywords: Open economy; consumer risk-pooling; UIP; full-model test; Indirect Inference
    JEL: C12 E12 F41
    Date: 2020–10
  85. By: Mikkel Hermansen
    Abstract: Occupational licensing and non-competition agreements are two important types of labour market regulation in the United States, both covering around one fifth of all workers. While some regulation is needed to protect safety and ensure quality of services, it also creates entry barriers and reduces competition with important costs for job mobility, earnings and productivity growth. Employment opportunities for low-skilled workers and disadvantaged groups tend to be particularly affected by these barriers. The States are mainly responsible for labour market regulation and the variation across States is similar to the variation in the European Union. Harmonising requirements and scaling back occupational licensing as well as restricting the use of non-competition covenants could help to circumvent the secular decline in dynamism. However, attempts to reform often face stiff opposition from associations of professionals. The federal government has limited influence, but can in some cases help by shifting the burden from workers to meet regulatory requirements onto States and employers to show that high and differing regulatory standards are needed.
    Keywords: entry restrictions, job mobility, labour market regulation, non-competition agreements, Occupational licensing
    JEL: E24 J41 J44 J61 J62 K20 K31 L51
    Date: 2020–10–21
  86. By: Jon Ellingsen; Vegard H. Larsen; Leif Anders Thorsrud
    Abstract: Using a unique dataset of 22.5 million news articles from the Dow Jones Newswires Archive, we perform an in depth real-time out-of-sample forecasting comparison study with one of the most widely used data sets in the newer forecasting literature, namely the FRED-MD dataset. Focusing on U.S. GDP, consumption and investment growth, our results suggest that the news data contains information not captured by the hard economic indicators, and that the news-based data are particularly informative for forecasting consumption developments.
    Keywords: Forcasting, Real-time, Machine Learning, News, Text data
    Date: 2020–10
  87. By: Carlo Fezzi; Valeria Fanghella
    Abstract: The COVID-19 pandemic has caused more than 8 million confirmed cases and 500,000 death to date. In response to this emergency, many countries have introduced a series of social- distancing measures including lockdowns and businesses’ temporary shutdowns, in an attempt to curb the spread of the infection. Accordingly, the pandemic has been generating unprecedent disruption on practically every aspect of society. This paper demonstrates that high-frequency electricity market data can be used to estimate the causal, short-run impact of COVID-19 on the economy. In the current uncertain economic conditions, timeliness is essential. Unlike official statistics, which are published with a delay of a few months, with our approach one can monitor virtually every day the impact of the containment policies, the extent of the recession and measure whether the monetary and fiscal stimuli introduced to address the crisis are being effective. We illustrate our methodology on daily data for the Italian day-ahead power market. Not surprisingly, we find that the containment measures caused a significant reduction in economic activities and that the GDP at the end of in May 2020 is still about 11% lower that what it would have been without the outbreak
    Keywords: loss model, COVID-19, coronavirus, economic impacts, lockdown, GDP, electricity quantity, wholesale electricity markets, pandemic, fixed-effect regression, high-frequency estimates, real-time monitorin
    Date: 2020
  88. By: Basil Guggenheim; Andreas Schrimpf
    Abstract: This note evaluates ways of how new loans can be based on risk-free overnight (O/N) rates, the chosen successors to LIBOR (e.g. SOFR in the US). So far, O/N rates have not been widely adopted in the loan market, as this market is used to know the term rate at the beginning of an interest period. The loan market would prefer to replace LIBOR with another forward-looking term rate, i.e. a term rate that is known at the beginning and reflects expectation. However, these term rates currently do not exist and have several disadvantages. Instead of a forward-looking term rate one can also use past realizations of O/N rates to define a term rate at the beginning of an interest rate period. A common objection by using past realizations of O/N rates is that this introduces a lagged behavior (or 'basis'), which can be especially severe in periods when policy rates change rapidly. In this note, we evaluate the basis and show ways how to minimize it. We conclude that the ideal option to reduce the basis is to use a shortened observation period when computing term rates based on past O/N rate realizations.
    JEL: D47 E43 G21 G23
    Date: 2020–10
  89. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Video discussion of the Genuine Savings indicator
    Keywords: environmental economics, genuine savings, adjusted net savings, undergraduate, video
    JEL: E01 Q50 Q56
    Date: 2020–09
  90. By: J.-M. GERMAIN (Insee)
    Abstract: This paper attempts to define and compute a “Real Feel GDP”, by analogy with meteorologist’s Real Feel Temperature. It is in such terms that we interpret a standard Kolm-Atkinson social welfare function, estimated with life-satisfaction micro data reported in Euro-SILC surveys. Using long run World Inequality Lab distributional data, we find that USA haven’t seen any improvement of our Real Feel GDP for the past 40 years, meaning that economic growth did not result in a better aggregate monetary well-being. In the meantime, in most European countries, except over the recent years, Real Feel GDP and GDP evolved similarly. We also find that economic downturns have lasted much longer than measured by GDP. Indeed, US Real Feel GDP took 10 years to recover its pre- crisis level after the second petrol shock; almost 10 years after the 2008 downturn, European Real Feel GDP had not yet recovered its pre-crisis level.
    Keywords: economic indicator, welfare economics, inequality, distribution, beyond GDP
    JEL: D63 E01 O57
    Date: 2020
  91. By: Laurie Laybourn-Langton (Institute for Public Policy Research (IPPR), University College London (UCL))
    Abstract: Elements of the shift to embedded liberalism are of interest for those seeking to understand how political-economic paradigms shift or to precipitate such a shift today. Two policy programmes were particularly important: structural reform of the global financial system, manifest in the creation of the Bretton Woods system; and a shift in the balance of ownership across the economy, in favour of the public sector. As in other periods, those prosecuting the shift employed a wide-ranging ‘theory of change’ that included a diversity of groups, was ultimately successful upon the election of signal governments, and which benefited from the centralised power of the post-war state and the desire of electors for change. These favourable conditions stand in direct contrast to the outlook facing current change efforts.
    Keywords: political-economic paradigm; post-war consensus; embedded liberalism
    JEL: B20 E65 N12 N14 N92 N94
    Date: 2020–02
  92. By: Dong, Mei; Huangfu, Stella; Sun, Hongfei
    Abstract: We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. Our model features oligopolistic banks, which resembles the structure of the banking sector observed in most advanced economies. Banks interact strategically where they compete against each other in terms of the volume of loans to make. We find that it is welfare-maximizing to have the banking sector as oligopolistic, i.e., to have a small number of large banks. In addition, moderate inflation improves welfare because it helps to ease congestion in the banking sector.
    Keywords: banking; oligopoly; liquidity; market frictions
    Date: 2020–10
  93. By: Guglielmo Maria Caporale; Anamaria Sova; Robert Sova
    Abstract: Abstract
    Keywords: financial development, international trade, CEEC-6, system GMM estimator, PMG estimator
    JEL: E61 F13 F15 C25
    Date: 2020
  94. By: Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
    Abstract: The cross-sectional variation in corporate profitability has occupied research across fields as diverse as strategic management, industrial organization, finance, and accounting. Prior work suggests that industry affiliation as well as different forms of corporate idiosyncrasies are important determinants of profitability, but it disagrees widely on the quantitative importance of particular effects. This paper shows that industry and corporate specificities become irrelevant in the long run because profitability is ergodic conditional on survival, implying that there is a uniform, time-invariant regularity in profitability that applies across firms. Conditional on survival, we cannot reject the hypothesis that corporations are on average equally profitable and also experience equally volatile fluctuations in their profitability, irrespective of their individual characteristics. The same is not true for shorter-lived firms, even for up to 20 years after entry or before exit, and would explain the contradictory findings in the extant literature, which usually considers samples containing heterogeneous mixtures of surviving and shorter-lived companies. Therefore the mere fact of survival, rather than any previously suggested set of variables, becomes the only relevant information for corporate profitability in the long run.
    Keywords: performance,dynamic competition,corporate strategy,stochastic differential equation
    JEL: C14 L10 D21 E10
    Date: 2020
  95. By: Rudsinske, Jonas F.
    Abstract: I study welfare and distributional effects of import tariffs in a two-country asymmetric general oligopolistic equilibrium trade model. Tariffs have an anti-competitive effect that reduces labor demand because firms want to shorten supply. Unilaterally increasing the import tariff in absence of foreign retaliation raises domestic welfare at the foreign country's expense, but comes at the cost of favoring profit recipients as compared to workers, whose real wages fall. Only if initial symmetric tariffs are low, the tariff-increasing government could use its rising tariff revenue to neutralize the distributional effect or the negative effect on workers, an action the other country could never take because its tariff revenue declines. If supporting workers is the policy objective, tariffs do not appear to be a suitable tool under oligopoly and need to be accompanied by transfer payments or even profit taxation.
    Keywords: Trade Policy,labor share,general oligopolistic equilibrium,labor demand,strategic trade
    JEL: F13 E25 F12 J23 L13
    Date: 2020
  96. By: Ngo, Chin; Nguyen, Quyen Le Hoang Thuy To; Nguyen, Phong Thanh
    Abstract: The research has been conducted to explore the combination of three intangible resources, including social capital, entrepreneurship, and resilience capability on the performance of State Capital Enterprises (SCEs) in Vietnam. Both qualitative and quantitative approaches are applied in the study. An in-depth interview of ten CEOs at SCEs in Vietnam was made to explore new indicators for the contextual latent variables in the research models. By employing the data from the authors’ survey of 568 SCEs in Vietnam in 2019, using Cronbach’s alpha, confrmatory factor analysis (CFA) and path analysis (SEM), the mechanism that social capital impacts on SCE performance has been analyzed. In addition to the direct role, social capital indirectly affects corporate performance through entrepreneurship and resilience capability. It was found that social capital has a larger impact on entrepreneurship than resilience capacity. However, the contribution of resilience capacity to the frm performance is much more than the entrepreneurship’s in Vietnamese context. This study enriches the theory by proposing a measurement scale of the contextual latent variables as a result of in-depth interviews with experts using a qualitative analysis technique. In addition, the path analysis fndings suggest practical implications for managers to effectively use their resources in SCEs.
    Keywords: Social Capital, Entrepreneurship, Resilience Capability, Performance, State-Owned Enterprises, State-Capital Enterprises
    JEL: E24 J24 L31
    Date: 2020–04–07
  97. By: Lim, Siok Jin
    Abstract: The goal of this study is to analyse the co-movements and the portfolio diversification between the Islamic index of U.S. and its top trading partners, namely Canada, China, Mexico, Japan and Germany, using Morgan Stanley Capital International (MSCI) daily returns data from January 2013 to August 2020. We employed three main techniques: multivariate-GARCH-DCC, CWT and MODWT to analyse whether these markets have any diversification opportunities. Our findings reveal that, first, we observed that the U.S. Islamic index and its trading partners showed increased integration after U.S. implemented its first China-specific tariffs in 2018 and were closely integrated during the Covid-19 pandemic in 2020. Second, CWT results show that investors would gain diversification benefits in China and Mexico under specific investment horizons. Third, the results of MODWT shows Japan Islamic index provide short term diversification opportunity and Mexico Islamic index for longer term investments.
    Keywords: Islamic stocks; trade war; Covid-19; portfolio diversification; MGARCH-DCC; Wavelets
    JEL: C58 E44 G15
    Date: 2020–10–01

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