|
on Macroeconomics |
|
Issue of 2020‒11‒09
ninety-two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Dany Brouillette; Julien Champagne; Julien McDonald-Guimond |
| Abstract: | Après la crise de la COVID-19, la croissance de la production potentielle devrait se stabiliser à environ 1,2 %, ce qui est inférieur à la croissance moyenne de 1,8 % observée de 2010 à 2018. Le profil de croissance a été revu à la baisse par rapport à celui établi lors de la réévaluation d’avril 2019. Comme l’évolution de la pandémie est inconnue, ces estimations sont empreintes d’une plus grande incertitude que dans les années précédentes. |
| Keywords: | Marchés du travail; Production potentielle; Productivité |
| JEL: | E00 E2 E23 E24 E37 E6 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-25fr&r=all |
| By: | Bing Tong (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Guang Yang (School of Economics, Nankai University) |
| Abstract: | This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime. The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging. |
| Keywords: | New Keynesian model, Chinese economy, Interest rate peg, Fiscal policy, Rational expectation |
| JEL: | E31 E32 E43 E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202003&r=all |
| By: | Robert J. Hill (University of Graz, Austria); Miriam Steurer (University of Graz, Austria); Sofie R. Waltl (Luxembourg Institute of Socio-Economic Research, Luxembourg) |
| Abstract: | The ECB and Eurostat have been trying to bring owner-occupied housing (OOH) into the Harmonized Index of Consumer Prices (HICP) for two decades without success. OOH is now back on the agenda as part of the ECB's new monetary-policy strategy. A fresh perspective is needed. We argue that a viable way forward is using a simplified version of the user-cost method. This would improve the harmonization of the HICP, help close the credibility gap between measured in inflation and the public's perception of it, and make it easier for the ECB to achieve its inflation target. |
| Keywords: | Measurement of inflation; Owner occupied housing; User cost; Rental equivalence; Hedonic quantile regression; Housing booms and busts; Inflation targeting; Disinflation puzzle; Leaning against the wind; Secular stagnation. |
| JEL: | C31 C43 E01 E31 E52 R31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2020-18&r=all |
| By: | Dmitry Matveev; Julien McDonald-Guimond; Rodrigo Sekkel |
| Abstract: | The neutral rate of interest is important for central banks because it helps measure the stance of monetary policy. We present updated estimates of the neutral rate in Canada using the most recent data. We expect the COVID-19 pandemic to significantly affect the fundamental drivers of the Canadian neutral rate. |
| Keywords: | Economic models; Interest rates; Monetary policy |
| JEL: | E40 E43 E50 E52 E58 F41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-24&r=all |
| By: | Kang, Natasha; Marmer, Vadim |
| Abstract: | Recurrent boom-and-bust cycles are a salient feature of economic and finan- cial history. Cycles found in the data are stochastic, often highly persistent, and span substantial fractions of the sample size. We refer to such cycles as “long†. In this paper, we develop a novel approach to modeling cyclical behavior specifically designed to capture long cycles. We show that existing inferential procedures may produce misleading results in the presence of long cycles, and propose a new econometric procedure for the inference on the cycle length. Our procedure is asymptotically valid regardless of the cycle length. We apply our methodology to a set of macroeconomic and financial variables for the U.S. We find evidence of long stochastic cycles in the standard business cycle variables, as well as in credit and house prices. However, we rule out the presence of stochastic cycles in asset market data. Moreover, according to our result, financial cycles as characterized by credit and house prices tend to be twice as long as business cycles. |
| Keywords: | Stochastic cycles, autoregressive processes, local-to-unity asymptotics, confi- dence sets, business cycle, financial cycle |
| JEL: | C12 C22 C5 E32 E44 |
| Date: | 2020–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:vadim_marmer-2020-3&r=all |
| By: | Bozhechkova Alexandra (Gaidar Institute for Economic Policy); Trunin Pavel (Gaidar Institute for Economic Policy); Knobel Alexander (Gaidar Institute for Economic Policy) |
| Abstract: | In 2019, a sharp and largely unexpected slowdown in inflation led to a significant easing of monetary policy. Over the course of that year, the Bank of Russia reduced its key rate five times: four times by 0.25 percentage points on June 14, July 26, September 6, and December 13; and by 0.5 percentage points at a meeting of its Board of Directors on October 25. As a result, the key rate declined from 7.75% to 6.25% per annum, thus approaching, according to the estimates of the RF Central Bank,[1] its neutral level.[2] Over the course of 2019, the movement pattern of the key rate was shaped, on the one hand, by the rising inflation risks in the H2 2018 and early 2019 caused by the raise of the VAT rate at the beginning of 2019, a decline of the world market for energy prices, and an increase in inflationary expectations. As a result, in January-May 2019, the regulator did not ease its monetary policy, keeping the key rate unchanged. At the same time, the RF Central Bank’s rhetoric regarding future decisions began to somewhat relax in March-April 2019, as the inflation index passed a local peak (5.3% in March 2019 compared to March 2018). It was only in June 2019 that the Bank of Russia switched over to actually reducing the key rate. |
| Keywords: | Russian economy, monetary policy, money market, exchange rate, inflation, balance of payments |
| JEL: | E31 E43 E44 E51 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2020-1038&r=all |
| By: | Biagio Bossone (World Bank (US)) |
| Abstract: | Using an ISLM open-economy model based on Keynes’ liquidity preference theory, this article shows that, unless very specific country circumstances hold, Modern Money Theory (MMT) cannot work as an effective and sustainable macroeconomic policy program aimed to achieve and maintain full-employment output through persistent money-financed fiscal deficits in economies suffering from Keynesian unemployment or underemployment. Specific country circumstances include cases where the economy enjoys very high policy credibility in the eyes of the international financial markets or issues an international reserve currency; under such circumstances, the adverse outcomes of MMT policy can be prevented and expansionary demand shocks can be effective. Short of such features, an open and internationally highly financially integrated economy that implements MMT policy persistently would either see its money stock grow unsustainably large or would have to set domestic interest rates to levels that would be inconsistent with the policy objective of resource full employment and that would cause instead economic and financial instability. |
| Keywords: | Aggregate demand and output; Equilibrium prices; Fiscal deficits; Interest rate; Liquidity Preference Theory, Money; Policy credibility; Stocks and flows. |
| JEL: | E12 E20 E40 E52 E62 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2020&r=all |
| By: | Joseph E. Stiglitz |
| Abstract: | This paper analyzes the economic impact of the pandemic, providing insights into the consequences of alternative policies. Our framework focuses on three key features: (a) Covid-19 is a sectoral shock of unknown depth and duration affecting some sectors and technologies more than others; (b) there are constraints in shifting resources across sectors; and (c) there is a high level of uncertainty about the disease and its economic aftermath, inducing a high level of precautionary behavior by some agents and leading to others facing more severe credit constraints. Because of macroeconomic externalities, precautionary behavior exacerbates the downturn, and even sectors where Covid-19 does not directly affect consumption or production may face unemployment. Multipliers associated with different government expenditure programs differ markedly. The paper describes policies that can mitigate precautionary behavior, leading to reduced unemployment. Greater wage flexibility may lead to increased unemployment. The precautionary behavior is the antithesis of equilibrium behavior, suggesting that standard equilibrium approaches may not provide the appropriate framework for analyzing the pandemic: individuals know that they don’t know the future, that existing and newly made contracts and plans may be broken, and that they need to be able to respond to these unknowable contingencies. |
| JEL: | B22 E21 E23 E24 E61 E63 G28 J21 J23 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27992&r=all |
| By: | Dany Brouillette; Julien Champagne; Julien McDonald-Guimond |
| Abstract: | After COVID-19, we expect potential output growth to stabilize around 1.2 percent. This is lower than the 2010–18 average growth of 1.8 percent. Relative to the April 2019 reassessment, the growth profile is revised down. Given the unknown course of the pandemic, uncertainty around these estimates is higher than in previous years. |
| Keywords: | Labour markets; Potential output; Productivity |
| JEL: | E00 E2 E23 E24 E37 E6 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-25&r=all |
| By: | Izryadnova Olga (Gaidar Institute for Economic Policy) |
| Abstract: | In 2019, growth rates in fixed investments amounted to 1.7 percent relative to the previous year, while the corresponding indicator a year earlier reached the level of 5.4 percent. Despite certain success in the economic recovery growth in the previous two years, the dynamics of main components of the investment activity was negatively affected by persistence of crisis developments in the construction and investment sector, where fixed investments amounted to 99.2 percent in 2019, and the construction work volume was 97.2 percent against the indicator of 2013 (beginning of investment stagnation). |
| Keywords: | Russian economy, fixed investment |
| JEL: | E20 E21 E22 E60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2020-1048&r=all |
| By: | Andrew C. Chang; Trace J. Levinson |
| Abstract: | We introduce a new dataset of real gross domestic product (GDP) growth and core personal consumption expenditures (PCE) inflation forecasts produced by the staff of the Board of Governors of the Federal Reserve System. In contrast to the eight Greenbook forecasts a year the staff produces for Federal Open Market Committee (FOMC) meetings, our dataset has roughly weekly forecasts. We use these new data to study whether the staff forecasts efficiently and whether efficiency, or lack thereof, is time-varying. Prespecified regressions of forecast errors on forecast revisions show that the staff's GDP forecast errors correlate with its GDP forecast revisions, particularly for forecasts made more than two weeks from the start of a FOMC meeting, implying GDP forecasts exhibit time-varying inefficiency between FOMC meetings. We find some weaker evidence for inefficient inflation forecasts. |
| Keywords: | Federal Reserve; Forecast efficiency; Information Rigidities; High frequency forecasts; Preanalysis plan; Preregistration plan; Real-time data |
| JEL: | C53 C82 D79 E27 E37 E58 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-90&r=all |
| By: | Gregor Boehl |
| Abstract: | I study monetary policy in an estimated financial New-Keynesian model extended by behavioral expectation formation in the asset market. Credit frictions create a feedback between asset markets and the macroeconomy, and behaviorally motivated speculation can amplify fundamental swings in asset prices, potentially causing endogenous, nonfundamental bubbles. These features greatly improve the power of the model to replicate empirical-key moments. I find that monetary policy can indeed dampen financial cycles by carefully leaning against asset prices, but at the cost of amplifying their transmission to the macroeconomy, and of causing undesirable responses to movements in fundamentals. |
| Keywords: | Monetary policy, nonlinear dynamics, heterogeneous expectations, credit constraints, bifurcation analysis |
| JEL: | E44 E52 E03 C63 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_224&r=all |
| By: | Joost Bats; Massimo Giuliodori; Aerdt Houben |
| Abstract: | Do negative interest rates matter for bank performance? This paper investigates whether monetary policy surprises impact bank stock prices differently in times of positive and negative interest rates. The analysis controls for broad stock market movements and finds that an unanticipated downward shift in the yield curve and a flattening of the shorter-end of the yield curve resulting from monetary policy announcements reduce bank stock prices in a low and especially negative interest rate environment. The effects persist in the days after the monetary policy announcement and are larger for banks relatively dependent on deposit funding. By contrast, a surprise movement in the slope of the longer-end of the yield curve does not impact bank stock prices in a negative interest rate environment. The results indicate that when market interest rates are negative but deposit rates stuck at zero, monetary policy instruments that target the longer-end of the yield curve are less detrimental to bank performance than those that target the shorter-end of the yield curve. |
| Keywords: | Monetary policy; bank stock prices; negative interest rates |
| JEL: | E43 E44 E52 G12 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:694&r=all |
| By: | Dmitry Matveev; Julien McDonald-Guimond; Rodrigo Sekkel |
| Abstract: | Le taux d’intérêt neutre est important pour les banques centrales, car il aide à mesurer l’orientation de la politique monétaire. En nous fondant sur les plus récentes données, nous présentons des estimations actualisées du taux neutre canadien, dont les facteurs fondamentaux devraient être grandement touchés par la pandémie de COVID-19. |
| Keywords: | Modèles économiques; Politique monétaire; Taux d'intérêt |
| JEL: | E40 E43 E50 E52 E58 F41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:20-24fr&r=all |
| By: | Orazio Attanasio; Kieran P. Larkin; Morten O. Ravn; Mario Padula |
| Abstract: | US households’ consumption and car purchases collapsed during the Great Recession, for reasons that are still poorly understood. In this paper we use the Consumer Expenditure Survey to derive cohort and business cycle decompositions of consumption profiles. When decomposing the car expenditure data into its extensive and intensive margins, we find that the intensive margin contracted sharply in the Great Recession, a finding in stark contrast to conventional wisdom and to the experience of prior recessions. We interpret the evidence through the prism of a very rich life-cycle model where individuals are subject to idiosyncratic uninsurable income shocks, aggregate income shocks, wealth shocks, and credit shocks. We show that, because of their salience and the transaction costs, cars are particularly sensitive to changes in the perception of fu- ture expected income and its variability. We find that on top of a large aggregate income shock, life-cycle income profile shocks and wealth shocks are important determinants of consumption choices during the Great Recession. |
| JEL: | D12 D14 E21 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27956&r=all |
| By: | Andrea Carriero; Todd E. Clark; Massimiliano Marcellino; Elmar Mertens |
| Abstract: | We measure the effects of the COVID-19 outbreak on macroeconomic and financial uncertainty, and we assess the consequences of the latter for key economic variables. We use a large, heteroskedastic vector autoregression (VAR) in which the error volatilities share two common factors, interpreted as macro and financial uncertainty, in addition to idiosyncratic components. Macro and financial uncertainty are allowed to contemporaneously affect the macroeconomy and financial conditions, with changes in the common component of the volatilities providing contemporaneous identifying information on uncertainty. We also consider an extended version of the model, based on a latent state approach to accommodating outliers in volatility, to reduce the influence of extreme observations from the COVID period. The estimates we obtain yield very large increases in macroeconomic and financial uncertainty over the course of the COVID-19 period. These increases have contributed to the downturn in economic and financial conditions, but with both models, the contributions of uncertainty are small compared to the overall movements in many macroeconomic and financial indicators. That implies that the downturn is driven more by other dimensions of the COVID crisis than shocks to aggregate uncertainty (as measured by our method). |
| Keywords: | Bayesian VARs; stochastic volatility; pandemics; COVID-19 |
| JEL: | E32 E44 C11 C55 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88976&r=all |
| By: | Taeyoung Doh; Dongho Song; Shu-Kuei X. Yang |
| Abstract: | We apply a natural language processing algorithm to FOMC statements to construct a new measure of monetary policy stance, including the tone and novelty of a policy statement. We exploit cross-sectional variations across alternative FOMC statements to identify the tone (for example, dovish or hawkish), and contrast the current and previous FOMC statements released after Committee meetings to identify the novelty of the announcement. We then use high-frequency bond prices to compute the surprise component of the monetary policy stance. Our text-based estimates of monetary policy surprises are not sensitive to the choice of bond maturities used in estimation, are highly correlated with forward guidance shocks in the literature, and are associated with lower stock returns after unexpected policy tightening. The key advantage of our approach is that we are able to conduct a counterfactual policy evaluation by replacing the released statement with an alternative statement, allowing us to perform a more detailed investigation at the sentence and paragraph level. |
| Keywords: | FOMC; Alternative FOMC statements; Counterfactual policy evaluation; Monetary policy stance; Text analysis; Natural language processing |
| JEL: | E30 E40 E50 G12 |
| Date: | 2020–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:88946&r=all |
| By: | Christoph Görtz; John D. Tsoukalas; Francesco Zanetti |
| Abstract: | We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplification of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional ‘news view’ of aggregate fluctuations. |
| Keywords: | News shocks, Business cycles, DSGE, VAR, Bayesian estimation |
| JEL: | E2 E3 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-94&r=all |
| By: | Bańbura, Marta; Bobeica, Elena |
| Abstract: | This paper details the rationale and methodology behind the construction of the Persistent and Common Component of Inflation (PCCI), a measure of underlying inflation in the euro area. The PCCI reflects the view that underlying inflation captures widespread developments across the Harmonised Index of Consumer Prices (HICP) basket and that it is the persistent component of inflation. Methodologically, it relies on a generalised dynamic factor model estimated on a large set of disaggregated HICP inflation rates for 12 euro area countries. For each individual inflation rate, we estimate a low-frequency common component, i.e. a component driven by shocks or factors that are relevant for all inflation series and capturing cycles longer than three years. The PCCI is a weighted average of these common components. It is an alternative to the typical exclusion-based measures used to gauge underlying inflation (e.g. HICP excluding food and energy), as it does not a priori exclude any HICP items. It exhibits a set of desirable properties as a measure of underlying inflation, and it is a good tracker of more lasting inflationary developments (judging by smoothness and bias). Furthermore, it is timely and signals turning points with some lead, while acting as an attractor for headline inflation. JEL Classification: C32, E31, E32, E52 |
| Keywords: | dynamic factor model, frequency domain, Underlying (core) inflation |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbsps:202038&r=all |
| By: | Matteo Cacciatore; Federico Ravenna |
| Abstract: | We show that limited wage flexibility in economic downturns generates strong and state-dependent amplification of uncertainty shocks. It also explains the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market and an occasionally binding constraint on downward wage adjustment. The wage constraint enhances the concavity of firms' hiring rule, generating an endogenous profit-risk premium. In turn, uncertainty shocks increase the profit-risk premium when the economy operates close to the wage constraint. This implies that higher uncertainty can severely deepen a recession, although its impact is weaker on average. Non-linear local projections and VAR estimates support the model predictions. Additionally, the variance of the unforecastable component of future economic outcomes always increases at times of low economic activity. Thus, measured uncertainty rises in a recession even in the absence of uncertainty shocks. |
| JEL: | E2 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27951&r=all |
| By: | Gomez-Gonzalez, Jose Eduardo; Hirs-Garzon, Jorge; Uribe, Jorge M. |
| Abstract: | We estimate the effects of financial, macroeconomic and policy uncertainty from the United States on the dynamics of credit growth, stock prices, economic activity, bond yields and inflation in five of the main receptors of US foreign direct investment from 1950 to 2019: The United Kingdom, The Netherlands, Ireland, Canada and Switzerland. Our multicounty approach allows us to clearly identify the effects of the different sources of uncertainty by imposing natural contemporaneous exogenity restrictions which cannot be used in a single-country perspective, frequently undertaken by the literature. It also considers international common cycle factors that have been previously identified and which are key to adequately measure the dynamics of the effects of uncertainty shocks on financial and real markets, on a global basis. We use an international FAVAR model to carry out our estimations. This approach permits handling a large data set consisting of variables for more than 45 countries at once. Our results point out to financial uncertainty as the main driver (even more than real uncertainty or the US interest rate) of global economic cycles. We show that increases of US financial uncertainty deteriorate economic activity on a global scale, especially by reducing credit and stock prices, and therefore funding opportunities for firms and households (heterogeneously on a country level basis). Our results emphasize the importance of financial markets, and especially financial uncertainty in the United States, as the main origin of global economic fluctuations, which can be said to describe the recent history of the global economy. They also cast doubts on the ability of uncertainty indicators based on the counting of key words in the media as a barometer of traditional economic uncertainty, known to be theoretically associated to negative outcomes in terms of activity and prices. In this sense, uncertainty indicators based on the estimation and aggregation of forecast errors seem more appropriate, hence producing results in line with the understanding of uncertainty as a negative phenomenon on a macro level, especially for investment prospects. |
| Keywords: | macroeconomic uncertainty; financial uncertainty; credit markets; funding; global business cycles |
| JEL: | D80 E44 F21 F44 G15 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:69&r=all |
| By: | Sena Coskun; Husnu Dalgic |
| Abstract: | Fertility in the US exhibits a procyclical pattern since 80s. We argue that gender differences in employment risk leads to procyclical fertility; men mostly work in volatile and procyclical industries whereas women are likely to work in relatively stable and countercyclical industries. Our quantitative framework features a general equlibrium OLG model with endogeneous fertility and human capital choice and it shows that current gender industry composition in the US data accounts for all of this procyclicality. Moreover, we argue that gender income ratio (female to male) is higher in bad times which tilts the quality-quantity trade-off towards quality. |
| Keywords: | fertility, industry cyclicality, industry gender segregation, gender income gap, quality-quantity trade-off |
| JEL: | E24 E32 J11 J13 J16 J21 J24 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_142v1&r=all |
| By: | Jane E. Ihrig; Scott A. Wolla |
| Abstract: | The topic of the Federal Reserve’s (the Fed’s) implementation of monetary policy has a significant presence in economics textbooks as well as standards and guidelines for economics instruction. This presence likely reflects the fact that it is the implementation framework that helps ensure that the Fed’s desired level of its policy interest rate is transmitted to financial markets, which helps it steer the economy toward the Congressional dual mandate of maximum employment and price stability. Over the past decade or so, the Fed has purposefully shifted the way it implements monetary policy to an environment with ample reserves in the banking system, and it has introduced new policy tools along the way. This paper shows that, unfortunately, many teaching resources are not in sync with the Fed’s current framework. We review six, 2020 or 2021 edition, principles of economics textbooks, and we find they vary greatly in their coverage of the concepts associated with the way the Fed implements policy today and in the longer run. We provide recommendations on how the authors can improve the next editions of their textbooks. We also review standards and guidelines used by secondaryschool educators. All of these are out of date, and we provide proposals for how these materials can be updated. |
| Keywords: | Federal Reserve; Monetary policy; Economic education; Introductory economics; Macroeconomics |
| JEL: | E52 E43 A22 E58 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-92&r=all |
| By: | Christian Alemán (Universitat Autonoma de Barcelona); Christopher Busch (Universitat Autonoma de Barcelona); Alexander Ludwig (SAFE, University of Mannheim); Raül Santaeulàlia-Llopis (Universitat Autonoma de Barcelona) |
| 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, built around making the pre-policy paths of the epidemic identical across regions, to uncover 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 nd that the policy saved 15:9% of lives. 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 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2020-078&r=all |
| By: | Alessandro Cantelmo; Giovanni Melina |
| Abstract: | How should central banks optimally aggregate sectoral inflation rates in the presence of imperfect labor mobility across sectors? We study this issue in a two-sector New-Keynesian model and show that a lower degree of sectoral labor mobility, ceteris paribus, increases the optimal weight on inflation in a sector that would otherwise receive a lower weight. We analytically and numerically find that, with limited labor mobility, adjustment to asymmetric shocks cannot fully occur through the reallocation of labor, thus putting more pressure on wages, causing inefficient movements in relative prices, and creating scope for central bank’s intervention. These findings challenge standard central banks’ practice of computing sectoral inflation weights based solely on sector size, and unveil a significant role for the degree of sectoral labor mobility to play in the optimal computation. In an extended estimated model of the U.S. economy, featuring customary frictions and shocks, the estimated inflation weights imply a decrease in welfare up to 10 percent relative to the case of optimal weights. |
| Keywords: | optimal monetary policy, durable goods, labor mobility |
| JEL: | E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8638&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Holstenhofweg 85, P.O.B. 700822, 22008 Hamburg, Germany); Afees A. Salisu (Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria) |
| Abstract: | We analyze the predictive role of oil-price uncertainty for changes in the UK unemployment rate using more than a century of monthly data covering the period from 1859 to 2020. To this end, we use a machine-learning technique known as random forests. Random forests render it possible to model the potentially nonlinear link between oil-price uncertainty and subsequent changes in the unemployment rate in an entirely data-driven way, where it is possible to control for the impact of several other macroeconomic variables and other macroeconomic and financial uncertainties. Upon estimating random forests on rolling-estimation windows, we find evidence that oil-price uncertainty predicts out-ofsample changes in the unemployment rate, where the relative importance of oil-price uncertainty has undergone substantial swings during the history of the modern petroleum industry that started with the drilling of the first oil well at Titusville (Pennsylvania, United States) in 1859. |
| Keywords: | Machine learning, Random forests, Oil uncertainty, Macroeconomic and financial uncertainties, Unemployment rate, United Kingdom |
| JEL: | C22 C53 E24 E43 F31 G10 Q02 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202095&r=all |
| By: | Falk Bräuning; Jose Fillat; J. Christina Wang |
| Abstract: | Do firms lengthen the maturity of their borrowing following a flattening of the Treasury yield curve that results from monetary policy operations? We explore this question separately for the years before and during the zero lower bound (ZLB) period, recognizing that the same change in the yield curve slope signifies different states of the economy and monetary policy over the two regimes. We find that the answer is robustly yes for the pre-ZLB period: Firms extended the maturity of their bond issuance by nearly three years in response to a policy-induced reduction of 1 percentage point in the maturity-matched Treasury term spread between the current and previous bond issuance. By comparison, the answer is more nuanced for the ZLB period: The magnitude and significance of the maturity response were even more pronounced during the peak quarter of the financial crisis (the fourth quarter of 2008), but they were much more muted afterward. In addition, we find that the corporate bond credit spread declined consistently following a policy-induced flattening of the yield curve, albeit not significantly after 2008:Q4. Most of these effects are due to the lower term premium, not due to the expected short-term rate. Taken together, these findings indicate that firms tend to adjust the maturity and composition of their debt issuance in order to benefit from changes in the term spread induced by monetary policy. Our analysis illustrates one channel through which unconventional policy operations can affect economic activity, especially when markets are under distress. This can help us understand the transmission of unconventional monetary policy, which has become a vital issue in the low-interest, low-inflation environment that has prevailed since the financial crisis. |
| Keywords: | monetary policy; yield curve; corporate finance |
| JEL: | G32 E43 E58 |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbcq:88967&r=all |
| By: | Vaishali Garga |
| Abstract: | Low natural real interest rates limit the power of monetary policy to revive the economy due to the zero lower bound (ZLB) on the nominal interest rate. Fiscal stabilization via higher government debt is frequently recommended as a policy to raise the natural real interest rate. This paper builds a non-Ricardian framework to study the tradeoffs associated with a debt-financed fiscal expansion and show that even in a low real interest rate environment, higher debt doesn’t necessarily raise the real interest rate. The effect of the expansion is non-monotonic: Increasing debt raises the natural real interest rate at low levels of debt, while at high levels it perversely lowers the natural real interest rate. This threshold level of debt, beyond which the effect becomes perverse, is a function of the expected duration of the low interest rate state. In a calibrated 60-period quantitative life cycle model with aggregate uncertainty, if the low state is expected to last two years, this threshold level of debt is 250 percent of the GDP. The insights from this paper are directly applicable to a ZLB episode in a model with nominal frictions. |
| Keywords: | debt; fiscal policy; expectation; uncertainty |
| JEL: | E52 E62 E63 D84 |
| Date: | 2020–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:88966&r=all |
| By: | Sena Coskun; Husnu Dalgic |
| Abstract: | Fertility in the US has exhibited a procyclical pattern since the 1970s. We argue that gender differences in employment risk leads to procyclical fertility: men tend to work in volatile and procyclical industries, while women are more likely to work in relatively stable and countercyclical industries. The relative gender employment gap is countercyclical as women become breadwinners in recessions, producing an insurance effect of female income. Our quantitative framework features a general equilibrium OLG model with endogenous fertility and human capital choice and shows that the current gender industry composition in the US data fully accounts for the procyclicality observed. We can also generate countercyclical fertility, as observed in the 1960s, either when the female income share is low or procyclical. Finally, we argue that the insurance effect of female income in bad times tilts the quality-quantity trade-off towards quality. |
| Keywords: | fertility, fertility cyclicality, industry cyclicality, gender asymmetric employment, gender income gap, quality-quantity trade-off |
| JEL: | E24 E32 J11 J13 J16 J21 J24 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_142v2&r=all |
| By: | Enrique Martinez-Garcia |
| Abstract: | Much consideration has been given among scholars and policymakers to the decline in the U.S. natural rate of interest since the 2007 – 09 global financial crisis. In this paper, I investigate its determinants and drivers through the lens of the workhorse two-country New Keynesian model that captures the trade and technological interconnectedness of the U.S. with the rest of the world economy. Using Bayesian techniques, I bring the set of binding log-linearized equilibrium conditions from this model to the data, but augmented with survey-based forecasts in order to align the solution with observed expectations incorporating the macro effects of the zero-lower bound constraint. With this structural framework, I recover a novel open-economy estimate of the U.S. natural rate. The paper’s main results are: (a) the decline in the U.S. natural rate largely follows the slide of the long-run real interest rate in the forecast data, but is partly cushioned in the short run by the contribution of domestic and to a significant extent also foreign productivity shocks; (b) the fall of U.S. measured labor productivity during this time contributed to a concomitant fall in U.S. output potential; (c) the past decade is also characterized by the compression of markups (negative cost-push shocks) which accounts for much of the cyclical upswing in U.S. output in spite of the fall in its potential; and (d) monetary policy has shown its efficacy boosting U.S. output and sustaining U.S. inflation close to its 2 percent target against the drag on inflation from the negative cost-push shocks during this time. Finally, I also argue that ignoring the international linkages may result in biased estimates and can distort the empirical inferences on U.S. monetary policy in important ways. |
| Keywords: | Open Economy Model; New Keynesian; Monetary Policy; Wicksellian Natural Rate; Bayesian Estimation |
| JEL: | F41 F42 E12 E52 C11 |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:88968&r=all |
| By: | Serdar Birinci; Fatih Karahan; Yusuf Mercan; Kurt See |
| Abstract: | We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The small share of payroll subsidies is sufficient to preserve high-productivity jobs, but it leaves room for social assistance to workers who face inevitable job loss. |
| Keywords: | COVID-19; fiscal policy; labor productivity; unemployment; job search |
| JEL: | E24 E62 J64 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88957&r=all |
| By: | Christian R. Proaño; Benjamin Lojak |
| Abstract: | In this paper we study the implementation of a state-dependent inflation target in a two-country monetary union model characterized by boundedly rational agents. In particular, we use the spread between the actual policy rate (which is constrained by the zero-lower-bound) and the Taylor rate (which can become negative) as a measure for the degree of ineffectiveness of conventional monetary policy as a stabilizing mechanism. The perception of macroeconomic risk by the agents is assumed to vary according to this measure by means of the Brock-Hommes switching mechanism. Our numerical simulations indicate a) that a state-dependent inflation target may lead to a better macroeconomic and inflation stabilization, and b) the perceived risk-sharing among the monetary union members influences the financing conditions of the member economies of the monetary union. |
| Keywords: | Monetary Policy, Monetary Unions, Zero Lower Bound, Inflation Targets, Behavioral Macroeconomics |
| JEL: | E52 F02 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-89&r=all |
| By: | Puriya Abbassi; Falk Bräuning; Niels Schulze |
| Abstract: | We study the role of bargaining power and outside options with respect to the pricing of over-the-counter interbank loans using a bilateral Nash bargaining model, and we test the model predictions with detailed transaction-level data from the euro-area interbank market. We find that lender banks with greater bargaining power over their borrowers charge higher interest rates, while the lack of alternative investment opportunities for lenders lowers bilateral interest rates. Moreover, we find that when lenders that are not eligible to earn interest on excess reserves (IOER) lend funds to borrowers with access to the IOER facility, they do so at rates that are below the IOER rate; in turn, these borrowers put the funds in their reserve accounts to earn the spread. Our findings highlight that this persistent arbitrage opportunity is not merely a result of the lack of alternative outside options for some lenders, but rather it crucially depends on lenders’ limited bilateral bargaining power, leading to a persistent segmentation of prices in the euro-area interbank market. We examine the implications of these findings for the transmission of euro-area monetary policy. |
| Keywords: | bargaining power; over-the-counter market; monetary policy; money market segmentation |
| JEL: | E4 E58 G21 |
| Date: | 2020–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:88965&r=all |
| By: | Barnette, Justin |
| Abstract: | The goal of this paper is to provide a bridge between the job displacement literature that uses long time panel data and similar work with a limited panel. This paper finds that a worker needs to replace 120% of their predisplacement income in the first two years after the event to avoid a long-term fall in income. This marginal replacement rate has variation with lower rates having much larger marginal impacts than higher replacement rates. The two results hold up to several robustness checks and generally align with a standard labor income process that has displacements as a fall in the permanent component of the process. These results provide proper context of how the first job after displacement affects the worker’s later income growth. |
| Keywords: | Displaced Workers, Job Loss, Unemployment |
| JEL: | E24 J3 J31 J6 J63 |
| Date: | 2020–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103644&r=all |
| By: | Gianluca Benigno; Andrew T. Foerster; Christopher Otrok; Alessandro Rebucci |
| Abstract: | We estimate a workhorse dynamic stochastic general equilibrium (DSGE) model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico’s business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt Crisis in the early 1980s, the Peso Crisis in the mid-1990s, and the Global Financial Crisis in the late 2000s. These crisis episodes display sluggish and long-lasting build-up and recovery phases driven by plausible combinations of shocks. |
| Keywords: | financial crises; business cycles; endogenous regime-switching; Bayesian estimation; occasionally binding constraints; Mexico |
| JEL: | G01 E3 F41 C11 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88974&r=all |
| By: | Kevin Lee; Michael Mahony; Paul Mizen |
| Abstract: | This paper provides an overview of the data sample, structure and uses of the data collected monthly since 2000 through the CBI’s suite of business surveys. The surveys gather information from thousands of ?rms on various economic outcomes, both retrospectively and in expectation, and provide a rich source of real-time information on the state of the economy. This paper describes the questions posed, the sample frame – including details on the number and participation rates of respondents – the characteristics of the firm participants and a summary of the properties of the data relating to some key business cycle features, namely, movements in output, investment, capacity, and inventories. |
| Keywords: | survey data, expectations, output, capacity |
| JEL: | C80 E32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoet:escoe-tr-08&r=all |
| By: | Pierre Brochu (Department of Economics, University of Ottawa); Jonathan Créchet (Department of Economics, University of Ottawa, Ottawa, ON); Zechuan Deng (Statistics Canada and Department of Economics, University of Ottawa, Ottawa, ON) |
| Abstract: | We use the confidential-use files of the Labour Force Survey (LFS) to study the employment dynamics in Canada from the beginning of the COVID-19 pandemic through to mid-summer. Using the longitudinal dimension of this dataset, we measure the size of worker reallocation, and document the presence of high labour market churning, that persists even after the easing of social-distancing restrictions. As of July, many of the recent job losers - especially those who had been temporarily laid-off between February and April - have regained employment. However, this apparent strong recovery dynamics hides important heterogeneity, and large groups of workers, such as those who were not employed prior to the pandemic, face important difficulties with finding a job. Three factors appear to be key in accounting for the incomplete employment recovery of July: (1) the unusually high separation flows that characterize the labour market in the reopening phase; (2) the low reemployment probability of recent job losers who were classified as out of the labour force during the lockdown; and (3), the low job-finding rate of individuals who were out of work prior to the pandemic. Our results further suggest that gross job losses were higher among women and young workers during the shutdown, and that older workers were more likely to leave the labour force when the economy reopened. |
| Keywords: | COVID-19, Employment Flows, Labour-Market Transitions, Nonresponse |
| JEL: | C83 E24 J60 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:2005e&r=all |
| By: | Victoria Consolvo; Owen F. Humpage; Sanchita Mukherjee |
| Abstract: | During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years. |
| Keywords: | Even Keel; Great Inflation; Federal Reserve; US Treasury |
| JEL: | E5 N1 F3 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88977&r=all |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | Nine U.S. recessions and three expansions are analyzed in this paper using a structural macroeconometric model. With two exceptions and one partial exception, the episodes are predicted well by the model, including the 2008-2009 recession, conditional on the actual values of the exogenous variables. The main exogenous variables are stock prices, housing prices, import prices, exports, and exogenous government policy variables. Monetary policy is endogenous. Fluctuations in stock and housing prices (housing prices after 1995) are important drivers of output fluctuations—large wealth effects on household expenditures. |
| Keywords: | Business cycles, Recessions, Expansions |
| JEL: | E1 E2 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2260&r=all |
| By: | Edward S. Knotek; Saeed Zaman |
| Abstract: | We develop a flexible modeling framework to produce density nowcasts for US inflation at a trading-day frequency. Our framework: (1) combines individual density nowcasts from three classes of parsimonious mixed-frequency models; (2) adopts a novel flexible treatment in the use of the aggregation function; and (3) permits dynamic model averaging via the use of weights that are updated based on learning from past performance. Together these features provide density nowcasts that can accommodate non-Gaussian properties. We document the competitive properties of the nowcasts generated from our framework using high-frequency real-time data over the period 2000-2015. |
| Keywords: | mixed-frequency models; inflation; density nowcasts; density combinations |
| JEL: | C15 C53 E3 E37 |
| Date: | 2020–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:88961&r=all |
| By: | Paul Ilhak Ko |
| Abstract: | International business cycles have become highly synchronized across countries in the past three decades, yet there is a lack of consensus on whether this is due to an increase in the correlation of country-specific shocks or due to increased economic integration. To understand this empirical phenomenon, I develop a multi-country real business cycle model with international trade that captures several potential explanations: shocks to productivity, demand, leisure, investment, sectoral expenditures, and trade- linkages. By matching the data exactly with the endogenous outcomes of the model, shocks fully account for the data such as GDP and trade shares. Calibrating the model to a panel of developed (G7) countries during 1992-2014, I find that trade-linkage shocks, which capture the increased economic integration and volatility of trade flows, are essential in synchronizing international business cycles. In contrast, other correlated country-specific shocks play relatively minor roles. This suggests that trade shocks through economic integration have been the primary driver of the co-movement of international business cycles. Furthermore, I use my model to address the trade co-movement puzzle, which states that international real business cycle models should be predicting a much stronger link between trade and cross-country GDP correlations. Once I account for the trade-linkage shocks, the model predicts a strong link between trade and business cycle co-movement. This finding suggests that incorporating the dynamics of trade shocks is crucial when studying international business cycles. |
| JEL: | E3 F1 F4 F6 |
| Date: | 2020–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2020:pko1026&r=all |
| By: | Gilbert Cette; Jimmy Lopez; Jacques Mairesse; Giuseppe Nicoletti |
| Abstract: | This study investigates empirically how managerial practices have affected macroeconomic adjustment during the Great Recession after the 2008 economic crisis. We start by constructing a country*industry balanced panel data over the 2007-2015 period for eighteen industries in ten OECD countries, and complementing it by two indicators: an indicator of management quality at the country level based on the managerial practices categorical scores at firm level from Bloom et al. (2012); and an indicator at the industry level for the shocks stemming from the 2008 economic crisis. We then rely on the local projection method pioneered by Jordá (2005) to estimate the direct impacts of country management quality indicators and industry economic shocks as well as their joint impacts, on five variables of interest: value-added, employment, labor productivity, wage per employee and labor share during the Great Recession. We find that, in countries where management quality is higher, production and employment are more resilient during the Great Recession, with less production losses and employment damages, no effects on productivity, wage moderation and a slight increase in the labor shares. It appears, moreover, that this resilience is increasing with the size of industry shocks. |
| JEL: | E24 M11 M54 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27954&r=all |
| By: | Leandro Prados de la Escosura (Universidad Carlos III and CEPR); Joan R. Rosés (LSE and CEPR) |
| Abstract: | The current productivity slowdown has stimulated research on the causes of growth. We investigate here the proximate determinants of long-term growth in Spain. Over the last 170 years output per hour worked raised nearly 24-fold dominating GDP growth, while hours worked per person shrank by one-fourth and population trebled. Half of labour productivity growth resulted from capital deepening, one-third from total factor productivity, and labour quality contributed the rest. In phases of acceleration (the 1920s and 1954-85), TFP was labour productivity’s main driver complemented by capital deepening. Since Spain’s accession to the European Union (1985), labour productivity has sharply decelerated as capital deepening slowed down and TFP stagnated. Up to the Global Financial Crisis (2008) GDP growth mainly resulted from an increase in hours worked per person and, to a less extent, from sluggish labour productivity coming mostly from weak capital deepening. Institutional constraints help explain the labour productivity slowdown. |
| Keywords: | Growth, Labour Productivity, Capital Deepening, Labour Quality, Total Factor Productivity, Spain |
| JEL: | D24 E01 O47 N13 N14 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:hes:wpaper:0198&r=all |
| By: | Cette Gilbert; Lopez Jimmy; Mairesse Jacques; Nicoletti Giuseppe |
| Abstract: | This study investigates empirically how managerial practices have affected macroeconomic adjustment during the Great Recession after the 2008 economic crisis. We start by constructing a country*industry balanced panel data over the 2007-2015 period for eighteen industries in ten OECD countries, and complementing it by two indicators: an indicator of management quality at the country level based on the managerial practices categorical scores at firm level from Bloom et al. (2012); and an indicator at the industry level for the shocks stemming from the 2008 economic crisis. We then rely on the local projection method pioneered by Jordà (2005) to estimate the direct impacts of country management quality indicators and industry economic shocks as well as their joint impacts, on five variables of interest: value-added, employment, labor productivity, wage per employee and labor share during the Great Recession. We find that, in countries where management quality is higher, production and employment are more resilient during the Great Recession, with less production losses and employment damages, no effects on productivity, wage moderation and a slight increase in the labor shares. It appears, moreover, that this resilience is increasing with the size of industry shocks. |
| Keywords: | Economic adjustment, Employment, Wage, Management quality, Great Recession, Local projection cross-country analysis, Dynamic modelling. |
| JEL: | E24 M11 M54 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:784&r=all |
| By: | Itamar Drechsler; Alan Moreira; Alexi Savov |
| Abstract: | Liquidity provision is a bet against private information: if private information turns out to be higher than expected, liquidity providers lose. Since information generates volatility, and volatility co-moves across assets, liquidity providers have a negative exposure to aggregate volatility shocks. As aggregate volatility shocks carry a very large premium in option markets, this negative exposure can explain why liquidity provision earns high average returns. We show this by incorporating uncertainty about the amount of private information into an otherwise standard model. We test the model in the cross section of short-term reversals, which mimic the portfolios of liquidity providers. As predicted by the model, reversals have large negative betas to aggregate volatility shocks. These betas explain their average returns with the same risk price as in option markets, and their predictability by VIX in the time series. Volatility risk thus explains the liquidity premium among stocks and why it increases in volatile times. Our results provide a novel view of the risks and returns to liquidity provision. |
| JEL: | E44 G12 G23 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27959&r=all |
| By: | Camacho, Maximo; Perez-Quiros, Gabriel; Pacce, Matías |
| Abstract: | To analyze the international transmission of business cycle fluctuations, we propose a new multilevel dynamic factor model with a block structure that (i) does not restrict the factors to being orthogonal and (ii) mixes data sampled at quarterly and monthly frequencies. By means of Monte Carlo simulations, we show the high performance of the model in computing inferences of the unobserved factors, accounting for the spillover effects, and estimating the model's parameters. We apply our proposal to data from the G7 economies by analyzing the responses of national factors to shocks in foreign factors and by quantifying the changes in national GDP expectations in response to unexpected positive changes in foreign GDPs. Although the share of the world factor as a source of the international transmission of fluctuations is still significant, this is partially absorbed by the spillover transmissions. In addition, we document a pro-cyclical channel of international transmission of output growth expectations, with the US and UK being the countries that generate the greatest spillovers and Germany and Japan being the countries that generate the smallest spillovers. Therefore, policymakers should closely monitor the evolution of foreign business cycle expectations. JEL Classification: E32, C22, F42, F41 |
| Keywords: | Bayesian estimation, international business cycles, mixed frequency data, spillover effects |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202484&r=all |
| By: | João Barata R. Blanco Barroso; Rodrigo Barbone Gonzalez; José-Luis Peydró; Bernardus F. Nazar Van Doornik |
| Abstract: | We analyze how countercyclical liquidity policy – via reserve requirements (RRs) – affects the credit cycle. For identification, we exploit supervisory credit register data and changes in RRs in Brazil motivated by monetary and prudential purposes. Credit supply effects are binding for firms and twice as large when policy is eased during credit crunches – crisis – than when policy is tightened during credit booms. Effects are stronger for larger domestic banks. During crunches, more affected banks increase the supply of credit volume due to policy easing, but increase collateral requirements, while more financially constrained banks retrench. During booms, foreign banks bypass policy tightening. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:537&r=all |
| By: | Christiane Baumeister; Pierre Guérin |
| Abstract: | This paper evaluates the predictive content of a set of alternative monthly indicators of global economic activity for nowcasting and forecasting quarterly world GDP using mixed-frequency models. We find that a recently proposed indicator that covers multiple dimensions of the global economy consistently produces substantial improvements in forecast accuracy, while other monthly measures have more mixed success. This global economic conditions indicator contains valuable information also for assessing the current and future state of the economy for a set of individual countries and groups of countries. We use this indicator to track the evolution of the nowcasts for the US, the OECD area, and the world economy during the coronavirus pandemic and quantify the main factors driving the nowcasts. |
| Keywords: | MIDAS models, global economic conditions, world GDP growth, nowcasting, forecasting, mixed frequency |
| JEL: | C22 C52 E37 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-93&r=all |
| By: | Corradin, Stefano; Eisenschmidt, Jens; Hoerova, Marie; Linzert, Tobias; Schepens, Glenn; Sigaux, Jean-David |
| Abstract: | This paper analyses money market developments since 2005, and examines factors that have affected money market functioning. We consider several metrics of activity in both secured and unsecured euro area money markets, and study interactions with new Basel III regulations and with central bank policies (liquidity provision, asset purchases and the Securities Lending Programme). Using aggregate data, we document that, prior to 2015, heightened financial market volatility coincided with worsening money market conditions, while higher central bank liquidity provision was associated with reduced money market stress. After 2015, the evidence is consistent with central bank asset purchases inducing scarcity effects in some money market segments, and with active securities lending supporting money market functioning. Using transactions-level money market data combined with supervisory data, we further document that the leverage ratio regulation impacts money markets at quarter-ends due to “window-dressing” effects, reducing money market volumes and rates. We also consider the macroeconomic impact of changing money market conditions, finding that the impact depends on whether frictions originate in secured or unsecured markets and on central bank policies in place. JEL Classification: E44, E58, G12, G20, G28 |
| Keywords: | E44, E58, G12, G20, G28 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202483&r=all |
| By: | Ariel Burstein; Vasco M. Carvalho; Basile Grassi |
| 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. |
| JEL: | E0 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27958&r=all |
| By: | CHEN Cheng; SENGA Tatsuro; SUN Chang; ZHANG Hongyong |
| Abstract: | What makes prices sticky? While it is commonly understood that prices adjust only sluggishly to changes in economic conditions, the cause of sluggish price adjustment is underexplored empirically. In this paper, we argue that sluggish updating of information drives price stickiness. To this end, we use a panel dataset that contains information on both firm-level expectations and price adjustments and document the following facts: (1) there is a positive correlation between whether a firm updates its expectations and whether it adjusts prices; (2) firms update expectations more frequently and make less correlated forecast errors in downturns; and (3) firms adjust prices more frequently in downturns. We then extend an Ss price-setting model with second moment shocks to allow for endogenous information acquisition by the firm. The model predicts that firms acquire information more intensively during periods of high volatility, also adjusting expectations and prices more often. Countercyclical volatility, interacting with menu costs and information rigidity, is what drives our results. This implies that the flexibility of the aggregate price level is counter-cyclical, making monetary policy less effective in recessions. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:20078&r=all |
| By: | Diego A. Comin; Robert C. Johnson |
| Abstract: | Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration was inflationary. This result continues to hold when we extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, we demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation. |
| JEL: | E5 F1 F15 F4 F6 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27957&r=all |
| By: | Jose E. Gomez-Gonzalez (Escuela Internacional de Ciencias Económicas y Administrativas, Universidad de La Sabana, Chia. Colombia.); Jorge Hirs-Garzon (Inter-American Development Bank, Washington, D.C., USA.); Jorge M. Uribe (Faculty of Economics and Business, Open University of Catalonia, Riskcenter, Universitat de Barcelona, Spain.) |
| Abstract: | We estimate the effects of financial, macroeconomic and policy uncertainty from the United States on the dynamics of credit growth, stock prices, economic activity, bond yields and inflation in five of the main receptors of US foreign direct investment from 1950 to 2019: The United Kingdom, The Netherlands, Ireland, Canada and Switzerland. Our multicounty approach allows us to clearly identify the effects of the different sources of uncertainty by imposing natural contemporaneous exogenity restrictions which cannot be used in a single-country perspective, frequently undertaken by the literature. It also considers international common cycle factors that have been previously identified and which are key to adequately measure the dynamics of the effects of uncertainty shocks on financial and real markets, on a global basis. We use an international FAVAR model to carry out our estimations. This approach permits handling a large data set consisting of variables for more than 45 countries at once. Our results point out to financial uncertainty as the main driver (even more than real uncertainty or the US interest rate) of global economic cycles. We show that increases of US financial uncertainty deteriorate economic activity on a global scale, especially by reducing credit and stock prices, and therefore funding opportunities for firms and households (heterogeneously on a country level basis). Our results emphasize the importance of financial markets, and especially financial uncertainty in the United States, as the main origin of global economic fluctuations, which can be said to describe the recent history of the global economy. They also cast doubts on the ability of uncertainty indicators based on the counting of key words in the media as a barometer of traditional economic uncertainty, known to be theoretically associated to negative outcomes in terms of activity and prices. In this sense, uncertainty indicators based on the estimation and aggregation of forecast errors seem more appropriate, hence producing results in line with the understanding of uncertainty as a negative phenomenon on a macro level, especially for investment prospects. |
| Keywords: | Macroeconomic uncertainty, Financial uncertainty, Credit markets, Funding, Global business cycles. JEL classification: D80, E44, F21, F44, G15. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202015&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Yizhuang Zheng (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | In this paper, we provide conclusive evidence on the role of measurement and estimation techniques in money demand estimation. Over the past few decades, there have been 100s of papers assessing money demand in the main economies of the globe. We develop a pseudo-metastudy framework where, based on modeling choices found in the literature, we estimate thousands of different specifications for the US, China, the UK and the Euro area, allowing us to assess what has driven the diverging results in the previous literature. |
| Keywords: | US, China, UK, Euro area, money demand |
| JEL: | E41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202004&r=all |
| By: | Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante |
| Abstract: | We address this question in a heterogeneous-agent incomplete-markets model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to be log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription. |
| JEL: | E24 H21 J24 J3 J31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28006&r=all |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President James Bullard shared his views on several elements of the Fed’s monetary policy framework review, including the move to flexible average inflation targeting. He spoke during a Reinventing Bretton Woods Committee panel discussion. |
| Keywords: | monetary policy |
| Date: | 2020–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:88943&r=all |
| By: | Hunter L. Clark; Jeffrey B. Dawson; Maxim L. Pinkovskiy |
| Abstract: | China’s economy was the first to be hit by the COVID-19 outbreak, the first to be locked down, and the first to begin an economic recovery. We examine the impact of the COVID-19 crisis on China’s GDP growth using a set of alternative growth indicators. Our analysis finds that China’s official GDP growth figures over the first three quarters of this year have been broadly in line with alternative indicators and that growth presently is staging a strong rebound and providing a boost to the global economy. However, this rebound faces potential headwinds in the forms of high levels of debt, declining return to capital accumulation, and a shrinking working-age population in China. |
| Keywords: | China; COVID-19 |
| JEL: | E2 F00 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88973&r=all |
| By: | Scott R. Baker; Aniket Baksy; Nicholas Bloom; Steven J. Davis; Jonathan A. Rodden |
| Abstract: | We examine patterns of economic policy uncertainty (EPU) around national elections in 23 countries. Uncertainty shows a clear tendency to rise in the months leading up to elections. Average EPU values are 13% higher in the month of and the month prior to an election than in other months of the same national election cycle, conditional on country effects, time effects, and country-specific time trends. In a closer examination of U.S. data, EPU rises by 28% in the month of presidential elections that are close and polarized, as compared to elections that are neither. This pattern suggests that the 2020 US Presidential Election could see a large rise in economic policy uncertainty. It also suggests larger spikes in uncertainty around future elections in other countries that have experienced rising polarization in recent years. |
| JEL: | E0 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27961&r=all |
| By: | Todd Henry (University of Auckland); Peter C.B. Phillips (Cowles Foundation, Yale University) |
| Abstract: | Inversion of the yield curve has come to be viewed as a leading recession indicator. Unsurprisingly, some recent instances of inversion have attracted attention from economic commentators and policymakers about possible impending recessions. Using a variety of time series models and recent innovations in econometric method, this paper conducts quasi-real-time forecasting exercises to investigate whether the predictive capability of the yield curve extends to forecasting economic activity in general and whether removing the term premium component from yields affects forecast accuracy. The empirical ï¬ ndings for the US, Australia, and New Zealand show that forecast performance is not improved either by augmenting simplistic models with information from the yield curve or by making such a decomposition of yields. Results from similar research exercises in previous work in the literature are mixed. The results of the present analysis suggest possible explanations that reconcile these conflicting results. |
| Keywords: | Forecasting, Inversion, Recession indicator, Yield curve |
| JEL: | C53 E43 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2259&r=all |
| By: | Hassan Afrouzi; Andres Drenik; Ryan Kim |
| Abstract: | How are a firm’s size and market power related to one another? Combining micro-data about producers and consumers, we document that while firms mainly grow by selling to more customers, their markups are only associated with their average sales per customer. To study the macroeconomic implications of these facts, we develop a model of firm dynamics with endogenous customer acquisition and variable markups. Relative to a model without customer acquisition, our model generates higher concentration at the top, but a lower aggregate markup. Our quantitative analysis reveals large welfare and efficiency losses due to (mis)allocation of customers across firms. By increasing market concentration among the most productive firms, the efficient allocation achieves 11% higher aggregate productivity and 15% higher output. |
| Keywords: | customer acquisition, misallocation, concentration, markups |
| JEL: | D24 D42 D61 E22 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8633&r=all |
| By: | Szabolcs Deak (University of Exeter); Paul Levine (University of Surrey); Afrasiab Mirza (University of Birmingham); Joseph Pearlman (City University London) |
| Abstract: | We study the design of monetary policy rules robust to model uncertainty across a set of well-established DSGE models with varied financial frictions. In our novel forward-looking approach, policymakers weight models based on relative forecasting performance. We find that models with frictions between households and banks forecast best during periods of financial turmoil while those with frictions between banks and firms perform best during tranquil periods. However, a model without financial frictions outperforms all models on average. The optimal robust policy is close to a price-level rule which is key when facing uncertainty over the nature of financial frictions. |
| Keywords: | Bayesian estimation, DSGE models, Financial frictions, Forecasting, Prediction Pools, Optimal Simple Rules. |
| JEL: | D52 D53 E44 G18 G23 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:20-27&r=all |
| By: | Janine Boshoff; Xuxin Mao; Garry Young |
| Abstract: | The construction of consumer price indexes (CPI) has historically relied on manually and centrally collected price data. As point of sale (POS) scanner data and web-scraped data become more accessible, these alternative data represent a rich new source of information to produce consumer price information. While outlier detection methodologies are well established for traditional data sources, more research is required to better understand the unique quality and format of the alternative data. Several national statistical institutions (NSIs) have already started to conduct research into alternative data source and the outlier detection methodologies that are necessary before these data can be incorporated into CPI calculations. This report reviews the outlier detection methodologies adopted by NSIs that have started to incorporate alternative data sources in their calculation of CPI. |
| Keywords: | consumer price index, multilateral indices, outlier detection, scanner data, web-scraped data |
| JEL: | C43 E31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoet:escoe-tr-07&r=all |
| By: | Nathan Foley-Fisher; Gary Gorton; Stéphane Verani |
| Abstract: | Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt’s backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable for some agents to produce private information, and then the debt faces adverse selection when traded (i.e., it becomes information-sensitive). We empirically study these adverse selection dynamics in a very important asset class, collateralized loan obligations, a large symbiotic appendage of the regulated banking system, which finances loans to below investmentgrade firms. |
| Keywords: | Safe debt; Adverse selection; Information sensitivity; Collateralized loan obligations |
| JEL: | E44 G14 G23 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-88&r=all |
| By: | S. Borağan Aruoba; Pablo Cuba-Borda; Kenji Higa-Flores; Frank Schorfheide; Sergio Villalvazo |
| Abstract: | We develop an algorithm to construct approximate decision rules that are piecewise-linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle filter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle filter, the COPF significantly reduces the persistence of the Markov chain, improves the accuracy of Monte Carlo approximations of posterior moments, and drastically speeds up computations. We use the techniques to estimate a small-scale DSGE model to assess the effects of the government spending portion of the American Recovery and Reinvestment Act in 2009 when interest rates reached the zero lower bound. |
| JEL: | C5 E4 E5 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27991&r=all |
| By: | Barnette, Justin |
| Abstract: | Income drops permanently after an involuntary job displacement, but it has never been clear what happens to long-run wealth in the United States. This paper concludes that involuntary job displacement has large effects on wealth throughout a worker's lifetime. Upon displacement, wealth falls 14% relative to workers of a similar age and education from the PSID. Their wealth is still 18% lower 12 years after the event. A standard life cycle model calibrated to US data with permanent decreases in income after displacement behaves differently than these findings. The agents in the model also experience a large drop in wealth but they recover. The biggest culprit for these differences is the changes to consumption being small and statistically insignificant in the PSID whereas agents in the model decrease their consumption considerably. |
| Keywords: | Job Loss, Unemployment, Wealth, Consumption, Debt |
| JEL: | D31 E21 J3 J33 J6 J63 |
| Date: | 2020–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103642&r=all |
| By: | Tsukhlo Sergey (Gaidar Institute for Economic Policy) |
| Abstract: | Prolonged period of industrial business surveys conducted by the Gaidar Institute and representative range of indicators permit to resolve the first task – analyze the situation in the sector in 2019 – determine the place for the year 2019 in all the 28 years’ history of our monitoring the industrial sector. For this purpose, first of all, we will use aggregate indicators. The latter are usually calculated on a monthly basis on the findings obtained from monthly surveys and became widely popular owing to promptness of the findings and limitations of official data released on the Russian industrial sector. However, this approach to present surveys’ findings complicates assessment of each year as a whole. That is why we analyze all consolidated indicators in a year-on-year basis for the entire period of IET business surveys launched in 1992. |
| Keywords: | Russian economy, industrial sector, industrial output |
| JEL: | C53 E37 L21 L52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2020-1047&r=all |
| By: | Mark Bognanni; Douglas Hanley; Daniel Kolliner; Kurt Mitman |
| 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: | Epidemics; Covid-19; Econ-sir; Economic policy |
| JEL: | E60 I10 |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-91&r=all |
| By: | Polbin, Andrey; Shumilov, Andrei |
| Abstract: | This paper presents a review of foreign studies analyzing the role of entrepreneurs in the accumulation and distribution of wealth and approaches to modeling entrepreneurship as an integral part of the economy for evaluating the consequences of alternative economic policies. According to the main results of the empirical literature, entrepreneurs, first, own a substantial share of total household wealth, and many of the wealthiest people are entrepreneurs. Second, entrepreneurs have higher saving rates than other households, and, third, entrepreneurs face restrictions on borrowing. We survey dynamic general equilibrium models based on stylized facts about the behavior of entrepreneurs, where agents can choose the type of activity between entrepreneurship and wage labor. Mechanisms of encouraging entrepreneurial savings due to borrowing constraints, financial intermediation costs, and uninsured entrepreneurial risk allow calibrated versions of these models to successfully replicate the observed distribution of household wealth. Results of counterfactual experiments to evaluate the effects of various types of tax reforms and financial shocks in models with entrepreneurs are reviewed. The possibility of constructing a similar model for the Russian economy is discussed. |
| Keywords: | entrepreneurship; borrowing constraints; wealth distribution; savings behavior; occupational choice |
| JEL: | D31 E21 J24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103675&r=all |
| By: | Jesús Fernández-Villaverde; Charles I. Jones |
| Abstract: | This paper combines data on GDP, unemployment, and Google's COVID-19 Community Mobility Reports with data on deaths from COVID-19 to study the macroeconomic outcomes of the pandemic. We present results from an international perspective using data at the country level as well as results for individual U.S. states and key cities throughout the world. The data from these different levels of geographic aggregation offer a remarkably similar view of the pandemic despite the substantial heterogeneity in outcomes. Countries like Korea, Japan, Germany, and Norway and cities such as Tokyo and Seoul have comparatively few deaths and low macroeconomic losses. At the other extreme, New York City, Lombardy, the United Kingdom, and Madrid have many deaths and large macroeconomic losses. There are fewer locations that seem to succeed on one dimension but suffer on the other, but these include California and Sweden. The variety of cases potentially offers useful policy lessons regarding how to use non-pharmaceutical interventions to support good economic and health outcomes. |
| JEL: | E10 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28004&r=all |
| By: | Elie Bouri (Adnan Kassar School of Business, Lebanese American University, Lebanon); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Anandamayee Majumdar (Department of Physical Sciences, School of Engineering, Technology & Sciences, Independent University, Bangladesh, Dhaka 1229, Bangladesh); Sowmya Subramaniam (Indian Institute of Management Lucknow, Prabandh Nagar off Sitapur Road, Lucknow, Uttar Pradesh 226013, India) |
| Abstract: | In this paper, we analyse the forecasting ability of a time-varying metric of daily risk aversion for the entire term structure of interest rates of Treasury securities of the United States (US) as reflected by the three latent factors, level, slope and curvature. Using daily data covering the out-of-sample period 22nd June, 1988 to 3rd September, 2020 (given the in-sample period 30th May, 1986 to 21st June, 1988) within a quantiles-based framework, the results show statistically significant forecasting gains emanating from risk aversion for the tails of the conditional distributions of the level, slope and curvature factors at horizons of one-day, one-week, and one-month-ahead. Interestingly, a conditional mean-based model fails to detect any evidence of out-of-sample predictability. Our findings have important implications for academics, bond investors, and policymakers in their quest to better understand the evolution of future movement in US Treasury securities. |
| Keywords: | Yield Curve Factors, Risk Aversion, Out-of-Sample Forecasts |
| JEL: | C22 C53 E43 G12 G17 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202098&r=all |
| By: | Savina Princen; Athena Kalyva; Alexander Leodolter; Cécile Denis; Adriana Reut; Andreas Thiemann; Viginta Ivaskaite-Tamosiune |
| Abstract: | Taxation of capital, including the taxation of capital income and stocks, could play an important role in increasing revenue efficiency and making the tax system fairer. Recent international tax developments on automatic exchange of information and administrative co-operation have increased the capacity of Member States to raise taxes from mobile tax bases such as capital income. This paper first analyses the tax treatment of household capital income. It presents the theoretical features of the optimal taxation of capital income and describes the tax treatment of income from different capital assets in EU Member States. The paper then focusses on the taxation of owner-occupied housing and measures the impact of specific tax features on the cost of home ownership by using an indicator-based analysis. Then, it analyses specific issues in capital gains taxation and their macroeconomic effects. Finally, the paper explores the possibilities of increasing revenue efficiency through wealth transfer taxes, i.e. inheritance and gift taxes. It provides an up-to-date review of the theoretical arguments and the practical implementation of such taxes in EU Member States and tries to shed light on the reasons why these taxes contribute only little to raising revenues. |
| JEL: | D1 D2 D3 E6 H2 H21 J08 J2 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:130&r=all |
| By: | Bo Zhang; Bao H. Nguyen |
| Abstract: | This paper evaluates the real-time forecast performance of alternative Bayesian Vector Autoregressive (VAR) models for the Australian macroeconomy. To this end, we construct an updated vintage database and estimate a set of model specifications with different covariance structures. The results suggest that a large VAR model with 20 variables tends to outperform a small VAR model when forecasting GDP growth, CPI inflation and unemployment rate. We find consistent evidence that the models with more flexible error covariance structures forecast GDP growth and inflation better than the standard VAR, while the standard VAR does better than its counterparts for unemployment rate. The results are robust under alternative priors and when the data includes the early stage of the COVID-19 crisis. |
| Keywords: | Australia, real-time forecast, Non-Gaussian, Stochastic Volatility |
| JEL: | C11 C32 C53 C55 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-91&r=all |
| By: | Robert Clark (Queen's University); Shaoteng Li |
| Abstract: | Following the crisis, macroprudential regulations targeting mortgage-market vulnerabilities were widely adopted, their success often depending on intermediaries' responses. We show that Canadian banks behaved strategically to limit the potency of recently implemented mortgage stress tests, requiring borrower qualification based on the mode of 5-year rates posted by the Big 6 banks rather than transaction rates. The government aimed to cool credit markets, but since many mortgages are government-insured, Big 6 interests were not aligned. Using DiD comparing changes in 5-year spreads with 3-year spreads, unaffected by the policy, we find rates were lowered encouraging continued borrowing, muting the tests' impact. |
| Keywords: | macroprudential regulation, credit supply, mortgage market, mortgage stress tests, rate-benchmark manipulation |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1445&r=all |
| By: | Melchisedek Joslem Ngambou Djatche (Université Côte d'Azur; GREDEG CNRS) |
| Abstract: | The pre-crisis low interest rates environment is raising concerns among researchers and policymakers about its impact on the triangle prudential policy - monetary policy - bank's risk-taking. While interest rates is set at low level for inflationary and economic growth reasons, they may lead banks to take more risk, jeopardizing the financial system and impeding the recovery. This paper provides a literature review, on the one hand, on the interaction of monetary and prudential policies through their impacts on bank's risk-taking, and on the other hand, on the issues of their coordination. Monetary policy appears to have ambiguous effects on banks' profitability, and then, on banks' risk-taking behaviour. Despite monetary and prudential policies pursue different objectives, they inevitably interact, raising challenges that face policymakers. Albeit it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability, and that it should be coordinated with prudential policy, the form of this coordination is not clear-cut. |
| Keywords: | Monetary policy, prudential policy, financial stability, bank's risk-taking |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-40&r=all |
| By: | Özlem 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8627&r=all |
| By: | Jing Hang; Pravin Krishna; Heiwai Tang |
| Abstract: | This paper develops a framework for studying the macroeconomic costs of resource misallocation. The framework enables the assessment of the conditions under which the existing estimates in the misallocation literature, which are largely based on a value-added production structure and ignore inter-sectoral linkages, provide an unbiased estimate of misallocation costs in relation to a more general setting, in which production of gross output relies upon input-output linkages across sectors. We show that in the absence of intermediate input distortions, the two approaches are isomorphic and will yield the same estimated aggregate productivity loss. When firm-specific intermediate input distortions are present, however, the value-added model produces biased estimates of TFP losses due to both model misspecification and incorrect inferences of firms' productivity and distortions. Using Chinese and Indian enterprise data, we find quantitatively similar TFP losses from resource misallocation for China, regardless of the model used, while for India, we infer significantly larger TFP losses under the gross output model. |
| JEL: | E1 E23 L16 O11 O4 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27983&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Jiang Lunan (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan; Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | In recent years, one of the PBoC¡äs major issues was to avoid a generally conservative monetary policy that would jeopardize the central government¡äs poverty-alleviation strategy by limiting credit supply in rural areas where it is already scarce. We develop a range of new indicators to measure those aspects of the PBoC¡äs policy and demonstrate that the PBoC has successfully implemented policies targeted at poor counties. That is, we show that a central bank has the general potential to address regional diversity and distributional issues. |
| Keywords: | China, fuzzy regression discontinuity, regional, monetary policy |
| JEL: | E5 C2 I3 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202005&r=all |
| By: | Zubov Sergey (RANEPA) |
| Abstract: | At 2019-end, Russian banking sector numbered 442 lending institutions. Over the year the number of operational lending institutions decreased by 42 (in 2018 – down by 77). Seven years ago in early 2013 the number of operational institutions exceeded one thousand (1094). Consequently, the Central Bank of Russia consistently has been conducting the bank resolution process. As of January 1, 2020, 373 lending institutions’ profit hit RUB 2,196.4 billion and losses of 69 banks amounted to RUB 159.6 billion. On the whole, the share of loss-making institutions over the year went down from 29 to 16 percent. |
| Keywords: | Russian economy, banking sector, profit, capital, corporate loans, retail lending |
| JEL: | E41 E51 G28 G21 G24 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2020-1042&r=all |
| By: | Alessandra Cepparulo; Gilles Mourre |
| Abstract: | The paper analyses the growth-friendliness of public spending in EU countries over the decade 2007-2016. It looks into the composition, performance and efficiency of public expenditure across countries and specific functions of government. This approach allows for some granularity in the analysis. Using a literature survey, semi-disaggregated composite indicators of performance and an efficiency frontier approach, the analysis provides a rich set of results on the quality of public spending, giving first indications on where room for improvements appears to be large. The overall results turn out fairly mixed, providing a nuanced picture of the growth-friendliness of public expenditure in the EU both in terms of level and change. |
| JEL: | C14 E62 H11 H50 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:132&r=all |
| By: | Sylvain Leduc; Kevin Moran; Robert J. Vigfusson |
| Abstract: | Using expectations embodied in oil futures prices, we examine how expectations are formed and how they affect the macroeconomic transmission of shocks. We show that an empirical framework in which investors form expectations by learning about the persistence of oil-price movements successfully replicates the fluctuations in oil-price futures since the late 1990s. We then embed this learning mechanism in a model with oil usage and storage. Estimating the model, we document that an increase in the persistence of TFP-driven fluctuations in oil demand largely account for investors' perceptions that oil-price movements became increasingly permanent during the 2000s before declining thereafter. We show that the presence of learning alters the macroeconomic impact of shocks, making the responses time-dependent and conditional on the views of economic agents about the shocks' likely persistence. |
| Keywords: | futures; macroeconomics |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:88970&r=all |
| By: | Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | Africa remains the most affected by environmental degradation, thereby exacerbating the negative effect of climate change in the region. Little empirical credence has been leaned to the institutions-environmental sustainability relationship in Africa. This omission in the literature of environmental sustainability is abysmal, considering the role of institutions and government in ecological preservation. To inform policy and research on the subject matter, we estimated a balanced panel data of the indices of good governance and strong institutions to explain transformation to environmental sustainability using the dynamic system generalised method of moment estimator from 1996 through 2017. Findings suggested a positive relationship between the rule of law and regulatory quality and transformation to environmental sustainability. An inverse relationship between government effectiveness and environmental sustainability was established. We recommended concerted effort at an institutional level such that policy and punishment for violation of greenhouse strategies will be optimum. |
| Keywords: | Institutions, Governance, Environmental Sustainability, system GMM, Africa |
| JEL: | E62 G13 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/078&r=all |
| By: | Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | Africa remains the most affected by environmental degradation, thereby exacerbating the negative effect of climate change in the region. Little empirical credence has been leaned to the institutions-environmental sustainability relationship in Africa. This omission in the literature of environmental sustainability is abysmal, considering the role of institutions and government in ecological preservation. To inform policy and research on the subject matter, we estimated a balanced panel data of the indices of good governance and strong institutions to explain transformation to environmental sustainability using the dynamic system generalised method of moment estimator from 1996 through 2017. Findings suggested a positive relationship between the rule of law and regulatory quality and transformation to environmental sustainability. An inverse relationship between government effectiveness and environmental sustainability was established. We recommended concerted effort at an institutional level such that policy and punishment for violation of greenhouse strategies will be optimum. |
| Keywords: | Institutions, Governance, Environmental Sustainability, system GMM, Africa |
| JEL: | E62 G13 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/078&r=all |
| By: | Joshua C.C. Chan; Rodney W. Strachan |
| Abstract: | State space models play an important role in macroeconometric analysis and the Bayesian approach has been shown to have many advantages. This paper outlines recent developments in state space modelling applied to macroeconomics using Bayesian methods. We outline the directions of recent research, specifically the problems being addressed and the solutions proposed. After presenting a general form for the linear Gaussian model, we discuss the interpretations and virtues of alternative estimation routines and their outputs. This discussion includes the Kalman filter and smoother, and precision based algorithms. As the advantages of using large models have become better understood, a focus has developed on dimension reduction and computational advances to cope with high-dimensional parameter spaces. We give an overview of a number of recent advances in these directions. Many models suggested by economic theory are either non-linear or non-Gaussian, or both. We discuss work on the particle filtering approach to such models as well as other techniques that use various approximations - to either the time t state and measurement equations or to the full posterior for the states - to obtain draws. |
| Keywords: | State space model, filter, smoother, non-linear, non-Gaussian, high-dimension, dimension reduction. |
| JEL: | C11 C22 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-90&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon) |
| Abstract: | The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency. |
| Keywords: | Finance; Institutions; Investment: Property Rights; Africa |
| JEL: | G20 G24 E02 P14 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/080&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon) |
| Abstract: | The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency. |
| Keywords: | Finance; Institutions; Investment: Property Rights; Africa |
| JEL: | G20 G24 E02 P14 O55 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/080&r=all |
| By: | Jan Toporowski |
| Abstract: | In this policy note, Jan Toporowski provides an analysis of government debt management using fiscal principles derived from the work of Michal Kalecki. Dividing the government's budget into a "functional" and "financial" budget, Toporowski demonstrates how a financial budget balance--servicing government debt from taxes on wealth and profits that do not affect incomes and expenditures in the economy--allows a government to manage its debts without compromising the macroeconomic goals set in the functional budget. By splitting the budget into a functional budget that affects the real economy and a financial budget that just maintains debt payments and the liquidity of the financial system, the government can have two independent instruments that can be used to target, respectively, the macroeconomy and government debt-overcoming a dilemma that makes fiscal policy ineffective. This analysis also explains how pursuit of supply-side policies that result in a financial budget deficit and functional budget surplus can lead to slow growth, rising government debt, and financial instability. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:20-5&r=all |
| By: | Hahn, Elke |
| Abstract: | This paper explores whether the transmission mechanism between wages and prices in the euro area is affected by the growth regime. Since the great financial crisis inflation developments have posed major puzzles to economists as inflation declined by less than was widely expected during the past recessions and rose by less during the subsequent recoveries. This paper analyses whether the wage-price pass-through may have contributed to these inflation puzzles. Applying the Threshold VAR model proposed by Alessandri and Mumtaz (2017) to the analysis of the wage-price pass-through, the paper examines whether the transmission mechanim of different types of shocks differs between recessions and expansions. The results point to differences in the wage-price pass-through between growth regimes for demand shocks but not for wage mark-up shocks. They show a much smaller response of prices relative to wages, i.e. a smaller wage-price pass-through, for demand shocks in recessions than in expansions. This is accounted for by a smaller relative response of profit margins. More generally, the results suggest that the slope of the price Phillips curve flattens in recessions on account of the lower wage-price pass-through, while the wage Phillips curve appears to be broadly stable across growth regimes. Overall, the results contribute to solve or diminish the puzzle of the missing disinflation of the past two recessions suggesting that inflation should be expected to recede by less during recessions than indicated by standard linear models. JEL Classification: C32, E31, J30 |
| Keywords: | euro area inflation, growth regimes, threshold VAR, wage-price pass-through |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202485&r=all |
| By: | Sarah Ngo Hamerling; Donald P. Morgan; John Sporn |
| Abstract: | Did the 2007-09 financial crisis or the regulatory reforms that followed alter how banks change their underwriting standards over the course of the business cycle? We provide some simple, “narrative” evidence on that question by studying the reasons banks cite when they report a change in commercial credit standards in the Federal Reserve’s Senior Loan Officer Opinion Survey. We find that the economic outlook, risk tolerance, and other real factors generally drive standards more than financial factors such as bank capital and loan market liquidity. Those financial factors have mattered more since the crisis, however, and their importance increased further as post-crisis reforms were phased in in the middle of the following decade. |
| Keywords: | lending standards; credit cycle crisis; pro-cyclical; banks |
| JEL: | G21 E5 |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:88953&r=all |
| By: | F. Antonacci; C. Costantini; F. D'Ippoliti; M. Papi |
| Abstract: | We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting. We derive the valuation equation for a contingent claim and show that it has a unique solution. The contingent claim payoff may depend on all three economic factors of the model and the discount factor is allowed to include inflation. Taking as a benchmark the model of Ho, H.W., Huang, H.H. and Yildirim, Y., Affine model of inflation-indexed derivatives and inflation risk premium, (European Journal of Operational Researc, 2014), we show that our model performs better on market data from 2008 to 2015. Our model is not an affine model. Although in some special cases the solution of the valuation equation might admit a closed form, in general it has to be solved numerically. This can be done efficiently by the algorithm that we provide. Our model uses many fewer parameters than the benchmark model, which partly compensates the higher complexity of the numerical procedure and also suggests that our model describes the behaviour of the economic factors more closely. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2010.05462&r=all |
| By: | Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante |
| Abstract: | We address this question in a heterogeneous-agent incomplete-markets model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to be log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription. |
| Keywords: | Optimal taxation; Income distribution; Skill-biased technical change; Tax progressivity; Incomplete markets; Labor supply; Redistribution; Inequality |
| JEL: | J22 H20 E20 J24 I22 D30 |
| Date: | 2020–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:88945&r=all |
| By: | Koch, Insa; Fransham, Mark; Cant, Sarah; Ebrey, Jill; Glucksberg, Luna; Savage, Mike |
| Abstract: | Social security systems confront a central tension: how to reconcile welfare retrenchment with the political challenges of implementing unpopular reforms. One way in which policy makers have responded to this tension is by repurposing existing institutions to serve new ends. We investigate the system of Universal Credit (UC) in the UK as an example of such a ‘conversion’. UC expands the reach of ‘active citizenship’ policies to a much larger population than ever before. However, far from producing uniform outcomes, UC’s implementation has been marked by chaos and ultimately failure for individuals and communities. We argue that UC exemplifies a broader shift from social security to state- sanctioned social insecurity as policy reforms come to mimic the insecurities and risks commonly associated with the market. |
| Keywords: | Universal credit; austerity; active citizenship; policy conversion; social security; welfare states; mixed methods; forthcoming |
| JEL: | E6 |
| Date: | 2020–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107017&r=all |
| By: | Barinova Vera (Gaidar Institute for Economic Policy); Zemtsov Tsepan (Gaidar Institute for Economic Policy); Tsareva Yulia (Gaidar Institute for Economic Policy) |
| Abstract: | Government funding of the respective activities of small and medium-sized enterprises (SME) under the national project “Small and medium-sized entrepreneurship and support of entrepreneurial initiatives†increased in 2018-2020. However, in 2019, the number of SMEs subjects decreased by 118 thousand compared to 2018, and the number of people employed in the sector fell to 18.8 million, i.e. decreased by almost half a million people (the goal of the national project for 2024 is 25 million people). The share of the SME sector in GDP decreased to 20 percent in 2018 (the goal of the national project for 2024 is 32.5 percent). Generally, negative trends in the development of the sector, associated with an increase in the VAT rate, the introduction of online cash registers and almost zero growth in household incomes were observed in Russia in 2019. In 2020, near-zero economic growth and the coronavirus pandemic, which has already led to a significant drop in demand, especially in the restaurant business, tourism and entertainment, will negatively affect the development of the SME sector. A more significant reduction in performance of the sector’s activity is expected compared to 2019. However, the conditions for the development of entrepreneurship and, accordingly, the indicated trends vary significantly across Russia’s regions. |
| Keywords: | Russian economy, small businesses, medium-sized enterprises |
| JEL: | C53 E37 L21 L52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:ppaper-2020-1052&r=all |