nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒11‒23
72 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. U.K.’s economic variables over the last decade in the context of the current corona crisis By De Koning, Kees
  2. Rise of the Central Bank Digital Currencies: Drivers, Approaches and Technologies By Raphael A. Auer; Giulio Cornelli; Jon Frost
  3. The macroeconomics of hedging income shares By Adriana Grasso; Juan Passadore; Facundo Piguillem
  4. Forward Guidance and Durable Goods Demand By Alisdair McKay; Johannes F. Wieland
  5. Natural rate chimera and bond pricing reality By Brand, Claus; Goy, Gavin W; Lemke, Wolfgang
  6. The Phillips Curve at the ECB By Eser, Fabian; Lane, Philip; Moretti, Laura; Osbat, Chiara; Karadi, Peter
  7. The Micro-level Price Response to Monetary Policy By Balleer, Almut; Zorn, Peter
  8. Negative Interest Rates on Central Bank Digital Currency By Jia, Pengfei
  9. Tracing the impact of the ECB's asset purchase programme on the yield curve By Eser, Fabian; Lemke, Wolfgang; Nyholm, Ken; Vladu, Andreea
  10. Macroeconomic Surprises and the Demand for Information about Monetary Policy By Tillmann, Peter
  11. The Impact of Uncertainty and Financial Shocks in Recessions and Booms By Salzmann, Leonard
  12. Numerical Analysis of the Disequilibrium Monetary Growth Model: Secular Stagnation, Slow Convergence, and Cyclical Fluctuations By Ogawa, Shogo; Sasaki, Hiroaki
  13. Optimal Monetary Policy with Heterogeneous Agents By Galo Nuño; Carlos Thomas
  14. Do Expected Downturns Kill Political Budget Cycles? By Jan-Egbert Sturm; Frank Bohn
  15. Beyond LIBOR: Money Markets and the Illusion of Representativeness By Lilian Muchimba; Alexis Stenfors
  16. How Loose, how tight? A measure of monetary and fiscal stance for the euro area. By Nicoletta Batini; Alessandro Cantelmo; Giovanni Melina; Stefania Villa
  17. Factor shares and the rise in corporate net lending By Behringer, Jan
  18. Loss Averse Depositors and Monetary Policy around Zero By Christian Stettler
  19. Financial Stability and the Fed: Evidence from Congressional Hearings By Wischnewsky, Arina; Jansen, David-Jan; Neuenkirch, Matthias
  20. Do EU Fiscal Rules Support or Hinder Counter-Cyclical Fiscal Policy? By Martin Larch; Eloïse Orseau; Wouter van der Wielen
  21. Robust Inference in Time-Varying Structural VAR Models: The DC-Cholesky Multivariate Stochastic Volatility Model By Hartwig, Benny
  22. Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s By Elliott, David; Meisenzahl, Ralf; Peydro, Jose-Luis; Turner, Bryce
  23. Partisanship and Fiscal Policy in Federal Unions: Evidence from US States By Carlino, Gerald; Drautzburg, Thorsten; Inman, Robert; Zarra, Nicholas
  24. Measuring Macroeconomic Uncertainty: A Cross-Country Analysis By Samad Sarferaz; Andreas Dibiasi
  25. Public Debt in India: A Security Level Analysis By DAS, PIYALI; Ghate, Chetan
  26. Artificial Intelligence in Economic Growth: Modelling the Dynamic Impacts of Automation on income distribution and growth By Gries, Thomas; Naude, Wim
  27. Farm Product Prices, Redistribution, and the Early U.S. Great Depression By Joshua K. Hausman; Paul W. Rhode; Johannes F. Wieland
  28. Banking Crises under a Central Bank Digital Currency (CBDC) By Bitter, Lea
  29. Does the hashrate affect the bitcoin price? By Fantazzini, Dean; Kolodin, Nikita
  30. The Financial (In)Stability Real Interest Rate, R** By Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó
  31. A Review on the Leading Indicator Approach towards Economic Forecasting By Soh, Ann-Ni
  32. Sudden Stops and Reserve Accumulation in the Presence of International Liquidity Risk By Lutz, Flora; Zessner-Spitzenberg, Leopold
  33. COVID-19 and the growth potential By Grömling, Michael
  34. Involuntary unemployment under ongoing nominal wage rate decline in overlapping generations model By Tanaka, Yasuhito
  35. Reputation and Earnings Dynamics By Boyan Jovanovic; Julien Prat
  36. Demographics and the Decline in Firm Entry: Lessons from a Life-Cycle Model By Röhe, Oke; Stähler, Nikolai
  37. Uncertainty matters: evidence from a high-frequency identification strategy By Piergiorgio Alessandri; Andrea Gazzani; Alejandro Vicondoa
  38. The Mundell-Fleming Trilemma: Implications for the CBN and the financial markets By Okotori, Tonprebofa, Waikumo; Ayunku, Peter, Ego
  39. COVID-Induced Sovereign Risk in the Euro Area: When Did the ECB Stop the Contagion? By Aymeric Ortmans; Fabien Tripier
  40. Economic Adjustment during the Great Recession: The Role of Managerial Quality By Gilbert CETTE; Jimmy LOPEZ; Jacques MAIRESSE; Giuseppe NICOLETTI
  41. Fifty Shades of QE: Conflicts of Interest in Economic Research By Brian Fabo; Martina Jancokova; Elisabeth Kempf; Lubos Pastor
  42. On the cyclicity of the income distribution By Pasch, Sandra; Dany-Knedlik, Geraldine
  43. Surveying the Impact of the Covid-19 Recession on the Financial Situation of Indebted Households By Andrej Cupák; Ján Klacso; Martin Suster
  44. Productivity Shocks, Long-Term Contracts and Earnings Dynamics By Neele Balke; Thibaut Lamadon
  45. Economic Benefits of COVID-19 Screening Tests By Andrew Atkeson; Michael Droste; Michael J. Mina; James H. Stock
  46. Política Monetaria Expansiva: Efectos sobre márgenes, tasas de interés y subsidios crediticios By Sergio Clavijo
  47. A Comparison of Monthly Global Indicators for Forecasting Growth By Christiane Baumeister; Pierre Guérin
  48. Persistence and Long Memory in Monetary Policy Spreads By Guglielmo Maria Caporale; Luis A. Gil-Alana
  49. Do Sticky Wages Matter? New Evidence from Matched Firm-Survey and Register Data By Anne Kathrin Funk; Daniel Kaufmann
  50. Property Taxes and Dynamic Inefficiency: A Correction of a "Correction" By Martin F. Hellwig
  51. Monetary Policy and Firm Dynamics By Matthew Read
  52. Taxation, Automation Capital, and the Functional Income Distribution By Süssmuth, Bernd; Irmen, Andreas; Heer, Burkhard
  53. A Note on Recruiting Intensity and Hiring Practices: Cross-Sectional and Time-Series Evidence By Lochner, Benjamin; Merkl, Christian; Stüber, Heiko; Gürtzgen, Nicole
  54. Real-time forecasting of the Australian macroeconomy using Bayesian VARs By Zhang, Bo; Nguyen, Bao H.
  55. Asset Classes and Portfolio Diversification: Evidence from a Stochastic Spanning Approach By Nguyen, Duc Khuong; Topaloglou, Nikolas; Walther, Thomas
  56. Hat die Fehlallokation von Produktionsfaktoren zur Produktivitätsschwäche in Deutschland beigetragen? By Jannsen, Nils
  57. Stock Market Spillovers via the Global Production Network: Transmission of U.S. Monetary Policy By Julian di Giovanni; Galina Hale
  58. A simple model of liquidity By Emanuele Franceschi
  59. Price dividend ratio and long-run stock returns: a score driven state space model By Delle Monache, Davide; Petrella, Ivan; Venditti, Fabrizio
  60. Intangible Value By Andrea L. Eisfeldt; Edward Kim; Dimitris Papanikolaou
  61. Missing growth measurement in Germany By Schmidt, Vanessa; Schreiber, Sven
  62. Routine-Biased Technological Change and Hours Worked over the Business Cycle By Sébastien Bock; Idriss Fontaine
  63. Instrumental Variable Identification of Dynamic Variance Decompositions By Mikkel Plagborg-M{\o}ller; Christian K. Wolf
  64. Divergence in labour force growth: Should wages and prices grow faster in Germany? By Beissinger, Thomas; Hellier, Joël; Marczak, Martyna
  65. Épidémiologie de l’économie et confinement de l’Organisation COVID-19 By Kuikeu, Oscar
  66. Testing forecast rationality for measures of central tendency By Dimitriadis, Timo; Patton, Andrew J.; Schmidt, Patrick W.
  67. The Economics of Bernard Lonergan: Context, Modelling and Assessment By Oslington, Paul; Assistant, JHET
  68. Learning from Forecast Errors: A New Approach to Forecast Combinations By Tae-Hwy Lee; Ekaterina Seregina
  69. Parametric early warning system model for Ukraine By Shvets, Serhii
  70. The Structure of Business Taxation in China By Zhao Chen; Yuxuan He; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
  71. How Macroeconomists Lost Control of Stabilization Policy: Towards Dark Ages By Jean-Bernard Chatelain; Kirsten Ralf
  72. Pandemics and Economic Growth: Evidence from the 1968 H3N2 Influenza By Yothin Jinjarak; Ilan Noy; Quy Ta

  1. By: De Koning, Kees
    Abstract: In January 2007, U.K. Government debt to GDP stood at 32.5%. By December 2019 it had grown to 89.5% and the latest data from September 2020 show a government debt level of just over £2 trillion, while its debt to GDP level did increase to 103.5%. The Quantitative Easing program by the Bank of England started in November 2009 with a purchase of £200 billion U.K. gilts. The amounts were increased to £375 billion in July 2012; further to £435 billion by August 2016; to £645 by March 2020 and finally (so far) to £745 billion by June 2020. The current Bank’s base rate is 0.1% and discussions are ongoing about the desirability of introducing a negative base rate in future. The U.K. households’ main net wealth items were and are: private pensions and property wealth. Over the period July 2006-June 2008, property wealth was assessed at £3.537 trillion and private pension wealth at £2.886 trillion. By the period April 2016-March 2018 net property wealth had grown to £5.09 trillion and private pension wealth to £6.10 trillion. These items -together at £11.19 trillion- can be compared with the U.K.’s GDP of 2018 of £2.144 trillion. They show a multiple of 5.2 times GDP. If one includes individual households’ financial wealth of £2.12 trillion in 2018, the multiple increases to 6.2 times GDP. The above data show that collective and individual savings far outweigh GDP levels; in its most extreme case by more than 6 times. This raises the question why not more use is made of such savings. After all, U.K. government expenditure as a share of GDP “only” amounted to 39.4% in fiscal year 2018 to 2019. One element that will be explored in this paper is the difference between a profit or loss to a household or a company –an income gain or loss now or in the future- and a collective loss or gain. The first one represents the usual principles of profits; the second one can be defined as a country’s gain or loss: country profit. The two types of profit often do not overlap. This paper has as an objective to show that there are ways in which existing savings can be used to stimulate economic growth, without having to rely on increasing government debt levels. Government debt represents a future loss to all households directly or indirectly through companies.
    Keywords: U.K. government debt; Quantitative Easing; Bank of England base rate; U.K households' net wealth; pension savings and home equity; country profit
    JEL: D12 D14 D4 E2 E21 E3 E32 E5 E58 E6 E61 E62 E65
    Date: 2020–10–24
  2. By: Raphael A. Auer; Giulio Cornelli; Jon Frost
    Abstract: Central bank digital currencies (CBDCs) are receiving more attention than ever before. Yet the motivations for issuance vary across countries, as do the policy approaches and technical designs. We investigate the economic and institutional drivers of CBDC development and take stock of design efforts. We set out a comprehensive database of technical approaches and policy stances on issuance, relying on central bank speeches and technical reports. Most projects are found in digitised economies with a high capacity for innovation. Work on retail CBDCs is more advanced where the informal economy is larger. We next take stock of the technical design options. More and more central banks are considering retail CBDC architectures in which the CBDC is a direct cash-like claim on the central bank, but where the private sector handles all customer-facing activity. We conclude with an in-depth description of three distinct CBDC approaches by the central banks of China, Sweden and Canada.
    Keywords: central bank digital currency, CBDC, payments, central banking, digital currency, digital money, distributed ledger technology, blockchain
    JEL: E42 E44 E51 E58 G21 G28 F31
    Date: 2020
  3. By: Adriana Grasso (Bank of Italy); Juan Passadore (Einaudi Institute for Economics and Finance (EIEF)); Facundo Piguillem (Einaudi Institute for Economics and Finance (EIEF) and CEPR)
    Abstract: The recent debate about the falling share of labor income has brought attention to the trends in income shares, but less attention has been devoted to their variability. In this paper, we analyze how their fluctuations can be insured against between workers and capitalists, and the corresponding implications for financial markets. We study a neoclassical growth model with aggregate shocks that affect income shares and financial frictions that prevent firms from fully insuring idiosyncratic risk. We examine theoretically how aggregate risk sharing is distorted by the combination of idiosyncratic risk and moving shares. Accumulation of safe assets by firms and risky assets by households emerges naturally as a tool to insure income shares’ risk. We calibrate the model to the U.S. economy and show that low interest rates, rising capital shares, and accumulation of safe assets by firms and risky assets by households can be rationalized by persistent shocks to the labor share.
    Keywords: income shares fluctuation, risk sharing, asset prices, corporate savings glut
    JEL: E20 E32 E44 G11
    Date: 2020–06
  4. By: Alisdair McKay; Johannes F. Wieland
    Abstract: Durable goods attenuate the power of forward guidance. The extensive and intensive margins of durable goods demand are both more sensitive to the contemporaneous user cost than to future user costs. Changes in the contemporaneous real interest rate directly affect the contemporaneous user cost and durable demand, whereas promises of low future real interest rates have weaker effects through equilibrium price changes. Quantitatively, reducing the real interest rate one year from now increases output by only forty percent as much as reducing the real interest rate today. Our results are little affected by the maturity of financial assets that finance durable purchases.
    JEL: E21 E22 E43 E52 E58
    Date: 2020–11
  5. By: Brand, Claus; Goy, Gavin W; Lemke, Wolfgang
    Abstract: Incorporating arbitrage-free term-structure dynamics into a semi-structural macro-model, we jointly estimate the real equilibrium interest rate (r*), trend inflation, and term premia for the United States and the euro area, using a Bayesian approach. The natural real rate and trend inflation are cornerstones determining equilibrium yields across maturities and macroeconomic trends. Taking into account the secular decline in equilibrium rates, term premia exhibit cyclical behavior over the business cycle, rather than the commonly reported trend. Our estimates suggest a fall in r* from a pre-crisis level of about 3% to around zero, but estimates are subject to sizeable uncertainty. Including survey expectations can lift r* estimates for recent quarters by a margin.
    Keywords: Natural rate of interest,r*,equilibrium real rate,arbitrage-free Nelson-Siegel term structure model,term premia,unobserved components,Bayesian estimation
    JEL: C11 C32 E43 G12 E44 E52
    Date: 2020
  6. By: Eser, Fabian; Lane, Philip; Moretti, Laura; Osbat, Chiara; Karadi, Peter
    Abstract: We explain the role of the Phillips Curve at the ECB in the analysis of the economic outlook and the formulation of monetary policy. First, revisiting the structural Phillips Curve, we highlight the challenges in recovering structural parameters from reduced-form estimates and relate the reduced-form Phillips Curve to (semi-)structural models used at the ECB for policy analysis. Second, we identify the slope of the structural Phillips Curve following two approaches: one that exploits cross-country variation and the other using high-frequency monetary policy surprises as external instruments. Third, we present reduced-form evidence based on thick-modelling and dynamic model averaging techniques, focusing on the relation between slack and in ation and the role of in ation expectations. In relation to the recent weakness of in ation, we discuss the role of firm profits in the pass-through from wages to prices and the contribution of external factors. Overall, the available evidence supports the view that the absorption of slack and a firm anchoring of in ation expectations remain central to successful in ation stabilisation.
    Keywords: Inflation,Phillips Curve,Monetary Policy,European Central Bank
    JEL: E31 E52
    Date: 2020
  7. By: Balleer, Almut; Zorn, Peter
    Abstract: We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. After expansionary monetary policy, the increase in the frequency of price change is economically small, the average absolute size across all price changes falls, and the aggregate price level hardly adjusts as a result. These estimates imply a strong degree of monetary non-neutrality because they rule out quantitative structural models that generate small and transient effects of monetary policy through selection on large price adjustments.
    Keywords: price setting,extensive margin,intensive margin,monetary policy,local projections,menu cost
    JEL: E30 E31 E32 E52
    Date: 2020
  8. By: Jia, Pengfei
    Abstract: Paying negative interest rates on central bank digital currency (CBDC) becomes increasingly relevant to monetary operations, since several major central banks have been actively exploring both negative interest rate policy and CBDC after the Great Recession. This paper provides a formal analysis to evaluate the macroeconomic impact of negative interest rates on CBDC through the lens of a neoclassical general equilibrium model with monetary aggregates. In the benchmark model, agents have access to two types of assets: CBDC and productive capital. The demand for digital currency is motivated by a liquidity constraint. I show that paying negative interest on CBDC induces agents to save less and consume more via a substitution effect. A drop in savings in turn causes a fall in capital investment, subsequent output, and real money balances. To clear the money market, the price level increases. I then extend the model to include government bonds which deliver a positive return. This allows me to study a non-trivial portfolio effect: when the government pays a negative interest rate on CBDC, the tax on agents' capital spending increases, inducing a decrease in capital investment and an increase in government bonds in agents' portfolio. Such a policy causes a drop in investment and output. However, there is a transitory decline in the price level due to a "flight to quality".
    Keywords: CBDC, Negative interest rates, Monetary policy, Public money.
    JEL: E21 E22 E31 E42 E52 E63
    Date: 2020–10–26
  9. By: Eser, Fabian; Lemke, Wolfgang; Nyholm, Ken; Vladu, Andreea
    Abstract: We trace the impact of the European Central Bank (ECB) asset purchase programme (APP) on the yield curve. Exploiting granular information on sectoral asset holdings and ECB asset purchases, we construct a novel measure of the "free-float of duration risk" borne by pricesensitive investors. We include this supply variable in an arbitrage-free term structure model in which central bank purchases reduce the free-float of duration risk and hence compress term premia of yields. We estimate the stock of current and expected future APP holdings to reduce the 10y term premium by almost one percentage point. This reduction is persistent, with a half-life of five years. The expected length of the reinvestment period after APP net purchases has a significant impact on term premia.
    Keywords: Term structure of interest rates,term premia,central bank asset purchases,monetary policy,European Central Bank
    JEL: C5 E43 E52 E58 G12
    Date: 2020
  10. By: Tillmann, Peter
    Abstract: This paper studies the demand for information about monetary policy, while the literature on central bank transparency and communication typically studies the supply of information by the central bank or the reception of the information provided. We use a new data set on the number of views of the Federal Reserve's website to measure the demand for information. We show that exogenous news about the state of the economy as re ected in U.S. macroeconomic news surprises raise the demand for information about monetary policy. Surprises trigger an increase in the number of views of the policy-relevant sections of the website, but not the other sections. Hence, market participants do not only revise their policy expectations after a surprise, but actively acquire new information. We also show that attention to the Fed matters: a high number of views on the day before the news release weakens the high-frequency response of interest rates to macroeconomic surprises.
    Keywords: website traffic,nonfarm payroll,attention,event study,central bank communication
    JEL: E5
    Date: 2020
  11. By: Salzmann, Leonard
    Abstract: The literature has widely discussed the role of financial and economic uncertainty shocks for the macroeconomy. However, it has turned out to be difficult to isolate these shocks from financial market indicators and uncertainty proxies because any identifying restriction on their response profile requires strong assumptions. To obtain more robust results, I model financial and uncertainty shocks jointly in a state-dependent FAVAR setup for the U.S. and provide agnostic identification bounds on their effects. I document that (i) uncertainty shocks are of limited relevance for real activity and asset prices in boom periods but have significantly contractionary effects in recessions. (ii) By comparison, adverse financial shocks are contractionary both in recessions and boom periods. (iii) Identifying assumptions play a significant role in the effect magnitudes, especially for uncertainty shocks and in recessions. (iv) Financial conditions are generally a key transmission channel of uncertainty shocks. (v) Uncertainty transmits financial shocks to a noticeable degree in recessions.
    Keywords: Macroeconomic tail events,nonlinear FAVARs,uncertainty shocks,financial shocks
    JEL: E32 E37 E44
    Date: 2020
  12. By: Ogawa, Shogo; Sasaki, Hiroaki
    Abstract: This study presents a monetary disequilibrium growth model and conducts numerical simulations to investigate how dynamic paths are affected by the initial conditions and the parameters of expectation formation. The main results are as follows. First, dynamic properties such as stable convergence and cyclical fluctuations depend on the type of expectation formation rather than on the initial regimes. Stable convergence takes an excessively long time when expectation formation is too rational and cyclical fluctuations appear when it is too adaptive. Second, when the economy converges to the steady state (i.e., the Walrasian equilibrium), persistent Keynesian unemployment is likely to appear along the dynamic path. Third, the dynamics of inflation expectation that contain the price dynamics in the feedback loop might play an important role in convergence to the steady state.
    Keywords: Disequilibrium macroeconomics; Non-Walrasian analysis; Economic growth; Simulation
    JEL: E12 E17 E40 O42
    Date: 2020–10–29
  13. By: Galo Nuño; Carlos Thomas
    Abstract: We analyze optimal monetary policy under commitment in an economy with uninsurable idiosyncratic risk, long-term nominal bonds and costly inflation. Our model features two transmission channels of monetary policy: a Fisher channel, arising from the impact of inflation on the initial price of long-term bonds, and a liquidity channel. The Fisher channel gives the central bank a reason to inflate for redistributive purposes, because debtors have a higher marginal utility than creditors. This inflationary motive fades over time as bonds mature and the central bank pursues a deflationary path to raise bond prices and thus relax borrowing limits. The result is optimal inflation front-loading. Numerically, we find that optimal policy achieves first-order consumption and welfare redistribution vis-à-vis a zero inflation policy.
    Keywords: optimal monetary policy, incomplete markets, Gâteau derivative, nominal debt, inflation, redistributive effects, continuous time
    JEL: E50 E62 F34
    Date: 2020
  14. By: Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Frank Bohn (Radboud University, Nijmegen, Netherlands)
    Abstract: The political budget cycle (PBC) literature argues that governments expand de cits in election years. However, what happens when an economic downturn is expected? Will the government allow the de cit to expand even further, or will it resort to spending cuts and tax increases? When voters expect less than full automatic stabilization, our model shows that opportunistic government behavior leads to smaller de cits, thereby responding procyclically to expected downturns. Panel data evidence for 74 democracies covering the period 2000-2016 robustly supports the theoretical procyclicality prediction. Moreover, expected downturns remain signi cant when other context-conditional PBC e ects are included in the empirical analysis.
    Keywords: political budget cycles; elections; growth expectations; economic downturns; precautionary voters; automatic stabilization; fiscal deficits
    JEL: D72 E32 E62
    Date: 2020–06
  15. By: Lilian Muchimba (University of Portsmouth); Alexis Stenfors (University of Portsmouth)
    Abstract: Money market benchmarks are important indicators for economic agents. They are also crucial for central banks in assessing the functioning of the interest rate channel of the monetary transmission mechanism. However, whereas the unsecured interbank money market conventionally has been seen as encompassing instruments with maturities up to one year, it appears as if it consists of two markets. The ultra-short-term money market (typically just one day) is large, liquid and traded regularly. The term money market (one, three or six months), by contrast, is small, illiquid and rarely traded. This paper explores the feasibility of creating and maintaining a money market benchmark which does not represent an underlying liquid market. From a sociological perspective, it addresses two critical aspects of financial benchmarks: i) that they are related to but separate and distinct from the objects determining them and ii) that they are measurements and as such cannot be bought or sold (Stenfors and Lindo 2018). By doing so, the paper also reflects upon the desire by financial regulators following the LIBOR manipulation scandal to replace estimation-based by transaction-based benchmarks, as well as some challenges and contradictions in conventional central banking theory.
    Keywords: Bank of Zambia, banks, benchmarks, Eurodollar market, LIBOR, monetary transmission mechanism, reference rates
    JEL: B52 E43 E52 G15 G28
    Date: 2020–11–08
  16. By: Nicoletta Batini (International Monetary Fund); Alessandro Cantelmo (Bank of Italy); Giovanni Melina (International Monetary Fund); Stefania Villa (Bank of Italy)
    Abstract: This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint monetary and fiscal policy stance in the euro area (EA) and its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models also featuring financial intermediaries and long-term government debt. The analysis highlights the short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left as the 'only game in town' after 2013. Individual countries' DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at EA level, due to the different fiscal stances.
    Keywords: policy stance, euro area, monetary policy, fiscal policy.
    JEL: E4 E5 E6
    Date: 2020–09
  17. By: Behringer, Jan
    Abstract: The corporate sector has turned from a net borrowing position to a net lending position in many advanced countries over the past decades. This phenomenon is rather unusual as the corporate sector had historically borrowed funds from other sectors in the economy. In this paper, we analyze how changes in the distribution of income between wages and profits have affected corporate net lending in a sample of 40 countries for the period 1990-2016. A consistent finding is that an increase (decrease) in the corporate profit share leads to an increase (decrease) in corporate net lending, controlling for other corporate net lending determinants. We disentangle the effects of the profit share on corporate saving and investment and explore a number of alternative explanations of our results, including changes in the cost of capital, shifts in the composition of industrial sectors, the growing importance of intangible capital, and a temporary crisis phenomenon. We conclude that factor shares are an important driver of macroeconomic trends and that the rise in corporate profits has contributed considerably to the improvement in the corporate net lending position across countries.
    Keywords: Corporate saving,investment,income distribution,cost of capital
    JEL: E21 E22 E25 G30
    Date: 2020
  18. By: Christian Stettler (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Recent experience from Europe and Japan shows that commercial banks generally pass negative short-term policy rates on to wholesale depositors, such as insurances and pension funds. Yet, they refrain from charging negative rates to ordinary retail customers. This paper asks whether the existing evidence on the inverse relationship between market experience and the degree of loss aversion can explain this transmission pattern. To this end, I allow for loss averse depositors within a simple two-period di erentiated products duopoly with switching costs. It turns out that if depositors are especially averse to negative deposit rates, banks keep deposit rates at zero as policy rates decline, while accepting squeezed and possibly negative deposit margins. The lowest current policy rate at which the bankingsystem is willing to shield depositors from a negative deposit rate decreases with increasing i) degrees of loss aversion; ii) levels of switching costs; and iii) market expectations about the future policy rate. A calibration of the model indicates how low central banks could e ectively go without taking steps to make paper currency more costly.
    Keywords: Deposits, effective lower bound, loss aversion, negative interest rates
    JEL: D43 E43 E52 E58 G21 L13
    Date: 2020–04
  19. By: Wischnewsky, Arina; Jansen, David-Jan; Neuenkirch, Matthias
    Abstract: This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylorrule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.
    Keywords: monetary policy,financial stability,Taylor rule,text mining
    JEL: E52 E58 N12
    Date: 2020
  20. By: Martin Larch; Eloïse Orseau; Wouter van der Wielen
    Abstract: Rather than stabilising aggregate demand, discretionary fiscal policy tends to amplify cyclical fluctuations of output. The commonly accepted reasons are political economy and uncertainty. In the EU, the pro-cyclical nature of discretionary fiscal policy has also been associated with the commonly agreed fiscal rules, which, for some observers, unduly limit the scope for stabilising output. Using panel data covering close to 40 EU and non-EU countries, we provide evidence that the volatility of output gap estimates is not a convincing explanation for pro-cyclical policies. With the exception of very large shocks, discretionary measures remain ill-timed from a stabilisation perspective even when observable and politically more meaningful indicators of the cycle are used. We also show that deviations from fiscal rules and the accumulation of government debt foster pro-cyclical fiscal policy. Lawmakers can run discretionary fiscal policy measures based on political economy considerations up to a point. Once debt grows too high, the leeway to stabilise output with discretionary fiscal policy measures fades. Complying with fiscal rules that limit the increase in government debt or keep a steady course in the face of cyclical fluctuation is conducive to counter-cyclical fiscal policy making.
    Keywords: fiscal policy, fiscal rules, fiscal stabilisation, counter-cyclical policy, dynamic panel models.
    JEL: C23 E61 E62 H30 H62
    Date: 2020
  21. By: Hartwig, Benny
    Abstract: This paper investigates how the ordering of variables affects properties of the time-varying covariance matrix in the Cholesky multivariate stochastic volatility model. It establishes that systematically different dynamic restrictions are imposed when the ratio of volatilities is time-varying. Simulations demonstrate that estimated covariance matrices become more divergent when volatility clusters idiosyncratically. It is illustrated that this property is important for empirical applications. Specifically, alternative estimates on the evolution of U.S. systematic monetary policy and in ation-gap persistence indicate that conclusions may critically hinge on a selected ordering of variables. The dynamic correlation Cholesky multivariate stochastic volatility model is proposed as a robust alternative.
    Keywords: Model uncertainty,Multivariate stochastic volatility,Dynamic correlations,Monetary policy,Structural VAR
    JEL: C11 C32 E32 E52
    Date: 2020
  22. By: Elliott, David; Meisenzahl, Ralf; Peydro, Jose-Luis; Turner, Bryce
    Abstract: We show that nonbanks (funds, shadow banks, fintech) reduce the effectiveness of tighter monetary policy on credit supply and the resulting real effects, and increase risk-taking. For identification, we exploit exhaustive US loan-level data since 1990s and Gertler-Karadi monetary policy shocks. Higher policy rates shift credit supply from banks to less-regulated, more fragile nonbanks. The bank-to-nonbank shift largely neutralizes total credit and associated consumption effects for consumer loans and attenuates the response of total corporate credit (firm investment) and mortgages (house price spillovers). Moreover, different from the so-called risktaking channel, higher policy rates imply more risk-taking by nonbanks.
    Keywords: Nonbank Lending,Monetary Policy Transmission,Risk-Taking Channel
    JEL: E51 E52 G21 G23 G28
    Date: 2020
  23. By: Carlino, Gerald; Drautzburg, Thorsten; Inman, Robert; Zarra, Nicholas
    Abstract: In federal countries, such as the U.S., the fiscal authority consists not of one, but many governments, with state governments accounting for a sizable share of expenditures. We analyze how state partisanship of politicians affects state fiscal policy and quantify the possible macroeconomic consequences for federal fiscal policy. First, using data from close elections, we find strong partisanship effects in the marginal propensity to spend federal transfers, the so-called y-paper effect: Republican governors spend less. Second, this partisan difference has increased over time and is correlated with the political polarization of federal policymakers. Third, we calibrate a two-agent New Keynesian model of Republican and Democratic states in an open economy monetary union, calibrated to deliver defense spending multipliers as in the literature. Lowering back partisan differences to the less-polarized pre-Reagan era would increase the transfer multiplier by about 30 cents per dollar, and variation in governor's partisan composition similarly lead to variation in the multiplier of around to 20 cents. Fourth, we provide direct support for the structural model's partisan predictions using local-projection methods.
    Keywords: partisanship,flypaper effect,intergovernmental transfers,fiscal multiplier,monetary union,regression discontinuity
    JEL: C24 E62 F45 H72 H77
    Date: 2020
  24. By: Samad Sarferaz (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Andreas Dibiasi (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper constructs internationally consistent measures of macroeconomic un- certainty. Our econometric framework extracts uncertainty from revisions in data obtained from standardized national accounts. Applying our model to quarterly post-WWII real-time data, we estimate macroeconomic uncertainty for 39 coun- tries. The cross-country dimension of our uncertainty data allows us to identify the e ects of uncertainty shocks on economic activity under di erent employment pro- tection legislation. Our empirical ndings suggest that the e ects of uncertainty shocks are stronger and more persistent in countries with low employment pro- tection compared to countries with high employment protection. These empirical ndings are in line with a theoretical model under varying ring cost.
    Keywords: Uncertainty Shocks, Real-Time Data, Rational Forecast Error, System of National Accounts, Employment Protection Legislation
    JEL: C51 C53 C82 E32 J8
    Date: 2020–06
  25. By: DAS, PIYALI; Ghate, Chetan
    Abstract: We assemble a novel data-set on Indian public debt that contains consistently defined aggregate annual components from 1951-2018, and Centre-State security level data from 2000-2018. Using a standard debt-decomposition framework, we quantify the extent to which inflation, real GDP growth, nominal interest rates and the primary deficit/surplus explain Indian debt-dynamics. We show that inflation's contribution to lowering public debt has been substantial over time. We also undertake a Hall-Sargent(1997, 2011) style debt-decomposition using all outstanding Centre and State securities from 2000-2018. We show that nominal returns on the marketable and non-marketable portions of the Centre's debt account for the highest contribution in explaining the change in public debt. We show that while the adoption of flexible inflation targeting has diminished the role of inflation in debt liquidation, the large contribution of nominal returns pose a challenge to debt management.
    Keywords: Public Debt, Debt Decomposition, Macro-finance, Debt Sustainability, Debt Liquidation, Fiscal Dominance, Indian Economy
    JEL: E52 E62 E65 G12 G28
    Date: 2020–10–25
  26. By: Gries, Thomas; Naude, Wim
    Abstract: The economic impact of Artificial Intelligence (AI) is studied using a (semi) endogenous growth model with two novel features. First, the task approach from labor economics is reformulated and integrated into a growth model. Second, the standard represen- tative household assumption is rejected, so that aggregate demand restrictions can be introduced. With these novel features it is shown that (i) AI automation can decrease the share of labor income no matter the size of the elasticity of substitution between AI and labor, and (ii) when this elasticity is high, AI will unambiguously reduce aggre- gate demand and slow down GDP growth, even in the face of the positive technology shock that AI entails. If the elasticity of substitution is low, then GDP, productivity and wage growth may however still slow down, because the economy will then fail to benefit from the supply-side driven capacity expansion potential that AI can deliver. The model can thus explain why advanced countries tend to experience, despite much AI hype, the simultaneous existence of rather high employment with stagnating wages, productivity, and GDP.
    Keywords: Technology,artificial intelligence,productivity,labor demand,income distribution,growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2020
  27. By: Joshua K. Hausman; Paul W. Rhode; Johannes F. Wieland
    Abstract: We argue that falling farm product prices, incomes, and spending may explain 10-30 percent of the 1930 U.S. output decline. Crop prices collapsed, reducing farmers' incomes. And across U.S. states and Ohio counties, auto sales fell most in crop-growing areas. The large spending response may be explained by farmers' indebtedness. Reasonable assumptions about the marginal propensity to spend of farmers relative to nonfarmers and the pass-through of farm prices to retail prices imply that the collapse of farm product prices in 1930 was a powerful propagation mechanism worsening the Depression.
    JEL: E32 E65 N12 N52 Q11 Q12
    Date: 2020–11
  28. By: Bitter, Lea
    Abstract: One of the main concerns when considering Central Bank Digital Currency (CBDC) is the disintermediating effect on the banking sector in normal times, and even more the risk of a bank run in times of crisis. This paper extends the bank run model of Gertler and Kiyotaki (2015) by analyzing the impact of a CBDC. A CBDC is an additional type of liability to the central bank which, by accounting identity, must be accompanied by respective accommodations on the asset side. The model compares the effects of two different asset side policies with each other and to the economy without a CBDC. I find that a CBDC reduces net worth in the banking sector in normal times but mitigates the risk of a bank run in times of crisis. The prevailing concerns about the risk of a bank run turn out to be partial equilibrium considerations disregarding the asset side effects of a CBDC.
    Keywords: Central Bank Digital Currency (CBDC),Digital Currency,Central Banking,Financial Intermediation,Bank Runs,Lender of Last Resort
    JEL: E42 E58 G01 G21
    Date: 2020
  29. By: Fantazzini, Dean; Kolodin, Nikita
    Abstract: This paper investigates the relationship between the bitcoin price and the hashrate by disentangling the effects of the energy efficiency of the bitcoin mining equipment, bitcoin halving, and of structural breaks on the price dynamics. For this purpose, we propose a methodology based on exponential smoothing to model the dynamics of the Bitcoin network energy efficiency. We consider either directly the hashrate or the bitcoin cost-of-production model (CPM) as a proxy for the hashrate, to take any nonlinearity into account. In the first examined sub-sample (01/08/2016-04/12/2017), the hashrate and the CPMs were never significant, while a significant cointegration relationship was found in the second sub-sample (11/12/2017-24/02/2020). The empirical evidence shows that it is better to consider the hashrate directly rather than its proxy represented by the CPM when modeling its relationship with the bitcoin price. Moreover, the causality is always uni-directional going from the bitcoin price to the hashrate (or its proxies), with lags ranging from 1 week up to 6 weeks later. These findings are consistent with a large literature in energy economics, which showed that oil and gas returns affect the purchase of the drilling rigs with a delay of up to 3 months, whereas the impact of changes in the rig count on oil and gas returns is limited or not significant.
    Keywords: Bitcoin; energy e�ciency; mining; hashrate; bitcoin price
    JEL: C22 C32 C51 C53 E41 E42 E47 E51 G17
    Date: 2020
  30. By: Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó
    Abstract: We introduce the concept of a financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint, as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector, measured by an increase in leverage, are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial conditions index and show how it is related to the gap between the natural and financial stability interest rates.
    Keywords: r**; financial crises; financial stability; occasionally binding credit constraint
    JEL: E4 E5 G0
    Date: 2020–11–01
  31. By: Soh, Ann-Ni
    Abstract: Economic cycle is defined as the fluctuation of an economy via expansion and contraction periods, influenced by varies kinds of macroeconomic indicators. The repeatable movement of economic indicators enables the accurate detection of these cycles with a forecasting approach that aims to improve economic development, especially by specific industries. Thus, economists and researchers have focused on the usefulness of the composite leading indicator in economic forecasting. It is regarded as a good illustration of an economic cycle or trend. This is due to its ease of use during the interpretation process, as several indicators can be aggregated and explained at once. This may provide useful insights for policy planning, risk monitoring and community development using the information gained from macroeconomic aggregates.
    Keywords: leading indicator; growth cycle; forecasting; composite indicator; early warning system
    JEL: C53 E32 E37
    Date: 2020–10–29
  32. By: Lutz, Flora; Zessner-Spitzenberg, Leopold
    Abstract: We propose a small open economy model where agents borrow internationally and invest in liquid foreign assets to insure against liquidity shocks, which temporarily shut out the economy of short-term credit markets. Due to the presence of a pecuniary externality individual agents borrow too much and hold too little liquid assets relative to a social planner. This inefficiency rationalizes macroprudential policy interventions in the form of reserve accumulation at the central bank coupled with a tax on foreign borrowing. Unless combined with other measures, a tax on foreign borrowing is detrimental to welfare; it reduces agents' incentives to invest in liquid assets and thereby increases financial instability. Our model can quantitatively match the simultaneous depreciation of the exchange rate and contractions in output, gross trade ows, foreign liabilities and foreign reserves during sudden stop episodes.
    Keywords: international reserves,sudden stops,liquidity,macroprudential policy,pecuniary externalities
    JEL: D62 E44 F32 F34 F41
    Date: 2020
  33. By: Grömling, Michael
    Abstract: The lasting economic impact of the COVID-19 pandemic will become apparent in the development of the macroeconomic factors of production - labour, capital, human capital as well as the stock of technical knowledge. Changes in behaviour such as a greater acceptance of technology can strengthen potential output permanently. By contrast, negative effects may arise from growing protectionist attitudes or long-lasting uncertainties and 'scarring effects'. In any case, the crisis has induced a technology push. This may be intensified if digitisation gains additional support from investments in infrastructure or if the pandemic heralds a renaissance in the natural sciences - with a corresponding impact on human capital and physical capital as well as on technical knowledge. For the time being, it is unclear what the effects of restructuring and secular structural change will be on potential output. However, dangers are lurking in the acceleration of geopolitical tensions, a misunderstanding of technological sovereignty and increasing government interventions, which as a whole could hamper innovation and investment.
    JEL: I15 E23 E24 F20
    Date: 2020
  34. By: Tanaka, Yasuhito
    Abstract: We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit maximization behavior with ongoing nominal wage rate decline. We consider a three-periods overlapping generations (OLG) model with a childhood period as well as younger and older periods under monopolistic competition with increasing, decreasing or constant returns to scale technology. We examine the existenbce of involuntary unemployment in that model with ongoing mominal wage rate decline (or deflation). Even if the nominal wage rate declines, we have a steady state with involuntary unemployment and constant output and employment. We need budget deficit or budget surplus to maintain the steady state depending on whether real balance effect is positive or negative. Also we examine the possibility to achieve full-employment by fiscal policy
    Keywords: Involuntary unemployment, Three-periods overlapping generations model, Monopolistic competition, Ongoing nominal wage rate decline, Real balance effect.
    JEL: E12 E24
    Date: 2020–10–28
  35. By: Boyan Jovanovic; Julien Prat
    Abstract: Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
    JEL: E24
    Date: 2020–11
  36. By: Röhe, Oke; Stähler, Nikolai
    Abstract: Since the mid-1970s, firm entry rates in the United States have declined significantly. This also holds for other OECD countries over the past years. At the same time, these economies experienced a gradual process of population aging. Applying a tractable life-cycle model with endogenous firm dynamics, we show that falling US firm entry rates can be explained by demographic transition. Specifically, our model simulations suggest that aging can account for up to one third of the observed decrease in US firm entry rates. In addition to the negative effects of a slowdown in working-age population growth on firm entry, our analysis points out that an increase in longevity may also be an important factor contributing to the decline in business dynamism, weighing on both firm entry and exit rates.
    Keywords: Life expectancy,Demographic transition,Endogenous firm dynamics
    JEL: H25 L52 E20 E62 L10 O30
    Date: 2020
  37. By: Piergiorgio Alessandri (Bank of Italy); Andrea Gazzani (Bank of Italy); Alejandro Vicondoa (Instituto de Economía, Pontificia Universidad Católica de Chile)
    Abstract: Assessing the role of uncertainty shocks as a driver of business cycle fluctuations is challenging because spikes in uncertainty often coincide with news about economic fundamentals. To tackle this problem, we exploit daily data to identify uncertainty shocks that (i) impact the VXO volatility index, and (ii) are statistically independent from level shocks affecting stock prices. We then use the identified series of uncertainty shocks in a monthly VAR to estimate their macroeconomic effects on the US economy. An exogenous increase in uncertainty depresses economic activity and prices, significantly affecting both labor and capital goods markets. Uncertainty shocks account for about 20% of the cyclical fluctuations in employment and industrial production.
    Keywords: uncertainty shocks, high-frequency identification, SVAR, business cycle; mutual funds, mutual funds performance, distribution networks, conflict of interest
    JEL: C32 C36 E32
    Date: 2020–06
  38. By: Okotori, Tonprebofa, Waikumo; Ayunku, Peter, Ego
    Abstract: In this paper using monthly data for the period 1981-2018, we adopted VARmethodology to show the nexus of foreign direct investment(FDI), the exchange rate (EXR), and net exports in order to reveal the effect of one variable on the other. Granger causality test, impulse response functions as well as block wald/exogeneity were used to test the given hypothesis. The results show that FDI did not granger cause exchange rate (EXR), but exchange rate granger causes exchange rate volatility, but the exchange rate does not granger cause net exports and that net exports granger causes FDI, the FDI was found to granger net exports. The policy implication for the CBN can be seen in the fact that undermanaged capital flows and managed exchange rate regimes the bank might choose to influence growth in sectors of the economy such as the financial markets. It might not be certain that the CBN cannot thus operate an independent monetary policyasthecoreprescriptionsoftheMundell -Flemingmodelhavebeenbreached.
    Keywords: Foreign direct investment, VAR, CBN, Mundell-Fleming
    JEL: E58 E61 E65 E66 F62 N27 O16 O24
    Date: 2020–09–23
  39. By: Aymeric Ortmans; Fabien Tripier
    Abstract: This paper studies how the announcement of ECB’s monetary policies has stopped the contagion of the COVID-19 pandemic in the European sovereign debt markets. We show that up to March 9, the occurence of new cases in euro area countries has a sizeable and persistent effect on 10-years sovereign bond spreads relative to Germany: the occurrence of 1000 new cases is accompanied by an immediate increase in the spread which lasts 5 days after, reaching an increase of 0.54 percentage point. Afterwards, the effect is close to zero and not significant. We interpret this change as a successful outcome of the ECB’s press conference on March 12 despite the ”we are not here to close spreads” controversy. Indeed, a counterfactual shows that without this shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.4% in France, 9.6% in Spain, and 19.2% in Italy as early as March 18, when the ECB’s Pandemic Emergency Purchase Programme has finally been announced.
    Keywords: COVID-19;European Central Bank;Sovereign debt;Monetary policy;Local projections
    JEL: E52 E58 E65 H63
    Date: 2020–10
  40. By: Gilbert CETTE (Banque de France (France) and Université d'Aix-Marseille); Jimmy LOPEZ (LEDI, Université de Bourgogne-Franche-Comté (France) and Banque de France (France)); Jacques MAIRESSE (CREST ENSAE (France); UNU-MERIT, Maastricht University (Netherlands); EHESS (France); NBER (USA)); Giuseppe NICOLETTI (Economics Department, OECD (France))
    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: 2020–11–03
  41. By: Brian Fabo (National Bank of Slovakia); Martina Jancokova (European Central Bank); Elisabeth Kempf (Booth School of Business, University of Chicago); Lubos Pastor (National Bank of Slovakia Abstract: Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production. Length: 63 pages)
    JEL: A11 E52 E58 G28
    Date: 2020–10
  42. By: Pasch, Sandra; Dany-Knedlik, Geraldine
    Abstract: We investigate the cyclicity of the income distribution and quantify the relation with the business cycle. We apply standard turning point analysis and filtering techniques to a large microdataset of US individual incomes that combines survey data, tax records and national accounts. We document that the income distribution has a cyclical component, which is closely related to the business cycle. Due to longer-lived contractions, the average cycle of the income distribution lasts one to two years longer than aggregate business cycle. The contemporaneous interplay between the income distribution and the business cycle is most pronounced compared to leads and lags. The correlation with the aggregate business cycle is significantly stronger and more persistent for higher income percentiles than for the bottom ones. Also, cyclicity of lower income percentiles seems to lag the business cycle, whereas shorter run movements of the higher income percentiles seem to be leading the business cycle.
    Keywords: cyclicity of the income distribution,business cycle,turning points,income inequality
    JEL: E32 E01 C22
    Date: 2020
  43. By: Andrej Cupák (National Bank of Slovakia); Ján Klacso (National Bank of Slovakia); Martin Suster (National Bank of Slovakia Abstract: We study the situation of indebted households hit by the COVID-19-driven recession, utilizing a unique survey conducted by the National Bank of Slovakia. As many other countries, Slovakia implemented a wide moratorium on debt repayments to financial institutions. While this is an important policy stabilization tool, we need information on the prospects of the households that postponed their debt repayments. The survey shows that 9%-12% of households that took advantage of the moratorium, or any type of forbearance, expect serious difficulties with resuming payments of their debts in the beginning of 2021. We show that the households that were vulnerable already before the crisis were more likely to use the deferral, or other type of easing of credit conditions. We also show that households with steeper income drops, deteriorating DSTI, or self-employed, are more likely to be pessimistic about their debt payment prospects. Length: 19 pages)
    Keywords: financial stability; coronavirus pandemic; household credit risk; household expectations
    JEL: C20 E44 G18
    Date: 2020–11
  44. By: Neele Balke; Thibaut Lamadon
    Abstract: This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment in an economy with search frictions and firm commitment. We develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium, risk-neutral firms provide only partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. We prove that there exists a unique spot target wage, which serves as an attraction point for smooth wage adjustments. The structural model is estimated on matched employer-employee data from Sweden. The estimates indicate that firms absorb persistent worker and firm shocks, with respective passthrough values of 27 and 11%, but price permanent worker differences, a large contributor (32%) to variations in wages. A large share of the earnings growth variance can be attributed to job mobility, which interacts with productivity shocks. We evaluate the effects of redistributive policies and find that almost 40% of government-provided insurance is undone by crowding out firm-provided insurance.
    JEL: E24 J31 J41 J64
    Date: 2020–11
  45. By: Andrew Atkeson; Michael Droste; Michael J. Mina; James H. Stock
    Abstract: We assess the economic value of screening testing programs as a policy response to the ongoing COVID-19 pandemic. We find that the fiscal, macroeconomic, and health benefits of rapid SARS-CoV-2 screening testing programs far exceed their costs, with the ratio of economic benefits to costs typically in the range of 2-15 (depending on program details), not counting the monetized value of lives saved. Unless the screening test is highly specific, however, the signal value of the screening test alone is low, leading to concerns about adherence. Confirmatory testing increases the net economic benefits of screening tests by reducing the number of healthy workers in quarantine and by increasing adherence to quarantine measures. The analysis is undertaken using a behavioral SIR model for the United States with 5 age groups, 66 economic sectors, screening and diagnostic testing, and partial adherence to instructions to quarantine or to isolate.
    Keywords: Epidemiological models; Macroeconomics; Antigen testing; COVID-19
    JEL: E00 I0
    Date: 2020–11–09
  46. By: Sergio Clavijo
    Abstract: Este documento analiza la gran expansión monetaria global del periodo 2008-2020 y su impacto sobre los márgenes financieros, las tasas de interés y el papel de los subsidios de carácter financiero, con especial atención al caso de Bancoldex. En la primera sección se dimensionan los efectos de las hojas de balance de los bancos centrales, su “activismosectorial” en ese soporte financiero y la concomitante expansión fiscal. En la segunda sección concluimos que todo ello está teniendo importantes cambios en la operación monetaria y generando drásticas caídas en las tasas de interés nominales y reales, sin que hasta el momento ello haya generado rebrotes inflacionarios. Pero este descenso en las tasas de interés (2008-2021) arriesga con: i) generar nuevos ambientes de “represión financiera internacional”; ii) contracción de los márgenes financieros bancarios en medio de mayores exigencias de liquidez y capital por cuenta de Basilea III; y iii) eventual pérdida de eficacia en el otorgamiento de subsidios en tasas de interés, dado sus bajos niveles de 0%-0.5% anual en términos reales, pero esto será de carácter temporal. Por último, aquí se presentan los resultados de aplicar a Colombia un modelo de Regla de Taylor para avizorar la posible trayectoria de la tasa-repo del BR que comanda la estructura de todas las tasas de interés. Bajo pandemia (2020-2021), la repo estará cayendo -250 pbs hacia 1.75%, equivalente a 0%-0.5% real anual. Durante la recuperación de 2021-2022, la inflación estará repuntando de forma moderada y ello requerirá que la repo del BR regrese hacia el 3% (+125 pbs), pero la repo-real continuará sin mayores alteraciones en ese rango 0%-0.5%, lo cual debe tenerse en mente a la hora de evaluar la eficacia de los subsidios en tasas de interés.
    Keywords: Precios; intereses; política monetaria; Instituciones Financieras de AméricaLatina.
    JEL: E3 E4 E5 N26
    Date: 2020–11–06
  47. 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: C20 C52 E37
    Date: 2020
  48. By: Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: The overnight money market rate is a key monetary policy tool. In recent years, central banks worldwide have developed new monetary policy strategies aimed at keeping its deviations from the policy rate small and short-lived. This paper describes the main instruments used for this purpose by the US Fed, the ECB and the BoE and also their policy responses to the Great Financial Crisis (GFC). Fractional integration and long-memory methods are then applied to investigate how those affected the persistence of policy spreads (i.e., the difference between overnight rates and policy rates) during different sub-periods. It is found that this increased sharply during the GFC but has fallen back in recent years. In the case of the ECB the introduction of the new €-STR benchmark in particular appears to have made monetary policy more effective.
    Keywords: interest rates, persistence, central banks, long memory, fractional integration
    JEL: C22 E52
    Date: 2020
  49. By: Anne Kathrin Funk (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Daniel Kaufmann (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper provides novel evidence on downward nominal wage rigidities and their allocative effects in Switzerland. We match individual wages from a bi-annual firm survey with information on annual income and employment from social security register data. We find relevant downward nominal wage rigidities in the base wage, which accounts for more than 90% of employment income. We then identify the allocative effects of downward nominal wage rigidities on income and employment after an unexpected 1% decline of the consumer price level. Base wage rigidities cause a decline of aggregate income (-0.39%) and employment income (-0.97%), as well as an increase of unemployment (2.11%).
    Keywords: : Downward nominal wage rigidity, income, unemployment, deflation
    JEL: E30 E40 E50
    Date: 2020–06
  50. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: According to Homburg’s (2014) comment on Kim and Lee (1997), an ad-valorem property tax on land cannot cause dynamic ineffciency of equilibrium allocations in an overlapping-generations model unless the tax is "confiscatory", i.e., equal to or greater than land rents. With such a tax, Homburg claims, land would be intrinsically worthless and the market for land would be closed. The latter claims are invalid because, as a store of value, land can be traded at a positive price even if the net rate of return on land is negative.
    Keywords: Property taxes, dynamic inefficiency, overaccumulation of capital, land
    JEL: D9 E62 H21
    Date: 2020–06
  51. By: Matthew Read
    Abstract: Do firm dynamics matter for the transmission of monetary policy? Empirically, the startup rate declines following a monetary contraction, while the exit rate increases, both of which reduce aggregate employment. I present a model that combines firm dynamics in the spirit of Hopenhayn (1992) with New-Keynesian frictions and calibrate it to match cross-sectional evidence. The model can qualitatively account for the responses of entry and exit rates to a monetary policy shock. However, the responses of macroeconomic variables closely resemble those in a representative-firm model. I discuss the equilibrium forces underlying this approximate equivalence, and what may overturn this result.
    Date: 2020–11
  52. By: Süssmuth, Bernd; Irmen, Andreas; Heer, Burkhard
    Abstract: The functional income distribution in the US and most OECD countries has been characterized by an increasing capital income share and a declining wage share over the last decades. We present new evidence for the US economy that this fact is not only explained by technical change and globalization, but also by the dynamics of capital and labor income taxation, automation capital, and population growth. In the empirical analysis, we find indications for cointegrating equations for the 1974-2008 period. Permanent effects on factor shares emanate from labor (relative to capital) tax shocks. Changes in relative factor taxation also permanently affect the use of robots. Variance decompositions reveal that taxing accounts for up to 22% and up to 35% of observed changes in the two income shares and in automation capital, respectively. In a second step, we present a standard neoclassical growth model augmented by automation capital and capital adjustment costs that is able to replicate the dynamics of the observed functional income distribution in the US during the 1965-2015 period. In particular, we demonstrate that the fall in the wage share would have been significantly smaller if labor and capital income tax rates had remained at their respective level of the 1960s.
    Keywords: Functional income distribution,labor income share,income taxes,automation capital,demography,growth
    JEL: D33 E62 O41 J11 J20
    Date: 2020
  53. By: Lochner, Benjamin; Merkl, Christian; Stüber, Heiko; Gürtzgen, Nicole
    Abstract: Using the German IAB Job Vacancy Survey, we look into the black box of recruiting intensity and hiring practices from the employers' perspective. Our paper evaluates three important channels for hiring -namely vacancy posting, the selectivity of hiring (labor selection), and the number of search channels- through the lens of an undirected search model. Vacancy posting and labor selection show a U-shape over the employment growth distribution. The number of search channels is also upward sloping for growing establishments, but relatively flat for shrinking establishments. We argue that growing establishments react to positive establishment-specific productivity shocks by using all three channels more actively. Furthermore, we connect the fact that shrinking establishments post more vacancies and are less selective than those with a constant workforce to churn triggered by employment-to-employment transitions. In line with our theoretical framework, all three hiring margins are procyclical over the business cycle.
    Keywords: recruiting intensity,vacancies,labor selection,administrative data,survey data
    JEL: E24 J63
    Date: 2020
  54. By: Zhang, Bo (School of Economics, Shanghai University); Nguyen, Bao H. (Tasmanian School of Business & Economics, University of Tasmania)
    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
  55. By: Nguyen, Duc Khuong; Topaloglou, Nikolas; Walther, Thomas
    Abstract: We propose a stochastic spanning approach to assess whether a traditional portfolio of stocks and bonds spans augmented portfolios including commodities, foreign exchange, and real estate. We empirically show that in all seven portfolio combinations, the augmented portfolio is not spanned by the traditional one. Our results are further confirmed by both parametric and non-parametric tests in an out-of-sample setting. Therefore, traditional investors can generally benefit in terms of higher Sharpe ratios from augmenting their portfolio with alternative asset classes. Additional analysis demonstrates that diversification benefits can be explained by the current state of the U.S. economy and stock markets.
    Keywords: Stochastic Dominance, Stochastic Spanning, Commodities, FX, Real Estate, Diversification
    JEL: C1 C4 C6 E32 G10 G11 G12 G15
    Date: 2020–10–30
  56. By: Jannsen, Nils
    Abstract: Productivity growth in many advanced economies has decelerated in the last decades. There is increasing evidence that the misallocation of production function has contributed to the weakness in productivity. Factors behind this misallocation could include low interest rates or credit booms. In this paper, I evaluate the most recent findings on the impact of misallocation of production factors on productivity and assess their role for the weakness in productivity growth in Germany. Overall, the misallocation of production factors seem to have been less important in Germany than in other advanced economies. Behind the backdrop of the low interest environment has been in place for an extended period of time, the risks that productivity growth is damped due to the misallocation of production factors is increasing.
    Keywords: Produktivität,Fehlallokation,Produktionsfaktoren,Finanzkrisen,Productivity,misallocation,production factors,financial crises
    JEL: D24 E44 O47
    Date: 2019
  57. By: Julian di Giovanni; Galina Hale
    Abstract: We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks to stock returns of fifty-four sectors in twenty-six countries. We first present a conceptual framework based on a standard open-economy production network model that delivers a spillover pattern consistent with a spatial autoregression (SAR) process. We then use the SAR model to decompose the overall impact of U.S. monetary policy on stock returns into a direct and a network effect. We find that up to 80 percent of the total impact of U.S. monetary policy shocks on average country-sector stock returns is due to the network effect of global production linkages. We further show that U.S. monetary policy shocks have a direct impact predominantly on U.S. sectors and then propagate to the rest of the world through the global production network. Our results are robust to controlling for correlates of the global financial cycle, foreign monetary policy shocks, and to changes in variable definitions and empirical specifications.
    Keywords: global production network; asset prices; monetary policy shocks
    JEL: G15 F10 F36
    Date: 2020–11–01
  58. By: Emanuele Franceschi (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We introduce liquidity motives in an otherwise standard monetary model. The Central Bank's policy rule is adapted to target the interest rate on liquid bonds. These deviations are sufficient to relax the requirement for active monetary policy and warrant determi-nacy in both passive and active policy regimes. We compare this model of liquidity with workhorse models and find that it can substantially replicate usual dynamics. By means of stochastic simulations, we also study how monetary policy stance affect inflation dynamics and find evidence of increased persistence for passive monetary policy.
    Date: 2020–10–26
  59. By: Delle Monache, Davide (Bank of Italy); Petrella, Ivan (Univeristy of Warwick); Venditti, Fabrizio (European Central Bank)
    Abstract: In this paper we develop a general framework to analyse state space models with time-varying system matrices, where time variation is driven by the score of the conditional likelihood. We derive a new filter that allows for the simultaneous estimation of the state vector and of the time-varying matrices. We use this method to study the time-varying relationship between the price dividend ratio, expected stock returns and expected dividend growth in the US since 1880. We find a significant increase in the long-run equilibrium value of the price dividend ratio over time, associated with a fall in the long-run expected rate of return on stocks. The latter can be attributed mainly to a decrease in the natural rate of interest, as the long-run risk premium has only slightly fallen.
    Keywords: state space models, time-varying parameters, score-driven models, equity premium, present-value models
    JEL: C32 C51 C53 E44 G12
    Date: 2020–09
  60. By: Andrea L. Eisfeldt; Edward Kim; Dimitris Papanikolaou
    Abstract: Intangible assets are absent from traditional measures of value, despite their very large (and growing) importance in firms' capital stocks. As a result, the fundamental anchor for value that uses book assets is mismeasured. We propose a simple improvement to the classic value factor (HML^FF) proposed by Fama and French (1992, 1993). Our intangible value factor, HML^INT, prices assets as well as or better than the traditional value factor but yields substantially higher returns. This outperformance holds over the entire sample, as well as in more recent decades in which value has underperformed. We show that this is likely due to the intangible value factor sorting more effectively on productivity, profitability, financial soundness, and on other valuation ratios such as price to earnings or price to sales.
    JEL: E22 G12
    Date: 2020–11
  61. By: Schmidt, Vanessa; Schreiber, Sven
    Abstract: Using detailed establishment-level micro data, this paper analyzes the quantitative implications of the missing-growth hypothesis by Aghion, Bergeaud, Boppart, Klenow, and Li (2019) for Germany. This hypothesis states that actual growth rates of real output are systematically understated by official estimates, such that a part of real growth is missing in the published data. The underlying effect rests on overstated inflation estimates due to imputed prices for disappearing goods and services varieties, which is indirectly measured by plant entry and exit dynamics. Using different market share proxies our main results regarding understated real output growth lie in the range of 0:39 to 0:54 percentage points per year on average for the benchmark sample 1998-2016. These are quite closely in line with existing findings for France, the USA, and Japan (in different periods). We provide additional robustness analysis and discuss limitations of the approach.
    Keywords: creative destruction,price imputation,inflation measurement
    JEL: E31 O47
    Date: 2020
  62. By: Sébastien Bock (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Idriss Fontaine (UR - Université de La Réunion)
    Abstract: Technological change has been biased towards replacing routine labor over the past four decades. We study the implications of those shifts in the task composition of labor demand over the business cycle. We build quarterly time series on hours worked and task premiums from the CPS and assess the e_ects of routine-biased technological change by estimating a VAR model with long-run exclusion and sign restrictions. The decline in total hours worked is driven by routine-biased technology shocks through a decline in routine hours. These shocks appear quantitatively relevant and generate recognizable aggregate uctuations pointing out their relevance to business cycles.
    Keywords: Routine-biased technological change,Job polarization,VAR,Long- run restrictions,Hours worked,Business cycle
    Date: 2020–10
  63. By: Mikkel Plagborg-M{\o}ller; Christian K. Wolf
    Abstract: Macroeconomists increasingly use external sources of exogenous variation for causal inference. However, unless such external instruments (proxies) capture the underlying shock without measurement error, existing methods are silent on the importance of that shock for macroeconomic fluctuations. We show that, in a general moving average model with external instruments, variance decompositions for the instrumented shock are interval-identified, with informative bounds. Various additional restrictions guarantee point identification of both variance and historical decompositions. Unlike SVAR analysis, our methods do not require invertibility. Applied to U.S. data, they give a tight upper bound on the importance of monetary shocks for inflation dynamics.
    Date: 2020–11
  64. By: Beissinger, Thomas; Hellier, Joël; Marczak, Martyna
    Abstract: We develop a model which shows that wages, prices and real income should grow faster in countries with low increase in their labour force. If not, other countries experience growing unemployment and/or trade deficit. This result is applied to the case of Germany, which has displayed a significantly lower increase in its labour force than its trade partners, except in the moment of the reunification. By assuming that goods are differentiated according to their country of origin (Armington's hypothesis), a low growth of the working population constrains the production of German goods, which entails an increase in their prices and in German wages. This mechanism is magnified by the low price elasticity of the demand for German goods.Hence,the German policy of wage moderation could severely constrain other countries policy options. The simulations of an extended model which encompasses offshoring to emerging countries and labour market imperfections suggest that (i) the impact of differences in labour force growth upon unemployment in Eurozone countries has been significant and (ii) the German demographic shock following unification could explain a large part of the 1995-2005 German economic turmoil.
    Keywords: Population growth,Labour force,Inflation,Wages,Germany
    JEL: E24 F16 J11 O57
    Date: 2020
  65. By: Kuikeu, Oscar
    Abstract: Despite the among of comparison between the two geographic area in Europ and America on the convenience of fiscal and monetary stimulus of economies facing the shutdown linked to different constraints on the habits of its economics agents involved in the fighting against the Outbreak it is not straightforward that there is a convenience or convergence in the restrictions imposed on these habits. Therefore is this means that there is a need of convergence on these restrictions as for fiscal and monetary stimulus? In other words, what are the factors or the economic rationale behind these restrictions on the habits of economic agents? These are the main questions we are try to answer, here. Globally speaking, following the Results the taking into account of the Methodological demarche and approach is an unvaluable road to conduct this kind of analysis in front of the difficulty to engage comprehensively a analysis that belongs among social science and health, called generally by epidemiologic approach of the economy.
    Keywords: epidemiologic aspect of the economy, lockdown, narrative approach
    JEL: E52 O47
    Date: 2020–11–05
  66. By: Dimitriadis, Timo; Patton, Andrew J.; Schmidt, Patrick W.
    Abstract: Rational respondents to economic surveys may report as a point forecast any measure of the central tendency of their (possibly latent) predictive distribution, for example the mean, median, mode, or any convex combination thereof. We propose tests of forecast rationality when the measure of central tendency used by the respondent is unknown. We overcome an identification problem that arises when the measures of central tendency are equal or in a local neighborhood of each other, as is the case for (exactly or nearly) symmetric distributions. As a building block, we also present novel tests for the rationality of mode forecasts. We apply our tests to survey forecasts of individual income, Greenbook forecasts of U.S. GDP, and random walk forecasts for exchange rates. We find that the Greenbook and random walk forecasts are best rationalized as mean, or near-meanforecasts, while the income survey forecasts are best rationalized as mode forecasts.
    Keywords: forecast evaluation,weak identification,survey forecasts,mode forecasts
    JEL: D84 E27
    Date: 2020
  67. By: Oslington, Paul; Assistant, JHET
    Abstract: Bernard Lonergan S.J. (1904-84) is unusual among major theologians in engaging deeply with economic theory. In the 1940s he developed his own dynamic multisectoral macroeconomic model, informed by reading of Smith, Marx, Keynes, Hayek, Schumpeter, and later Kalecki. Lonergan’s economic research is little known because the economic manuscripts were not published in his lifetime, and his interactions with professional economists were limited. In the 1970s, however, when he returned to economics he engaged with Post-Keynesians and taught a graduate course on macroeconomics at Boston College until illness overtook him. This paper places Lonergan’s economic research in the context of his overall intellectual project, outlines his macroeconomic model and associated theory of the business cycle, then evaluates his contribution in relation to mid-twentieth century macroeconomics and considers whether it has anything to offer contemporary economists. Whatever view we take of his theoretical contributions, Lonergan’s work opens up connections between economics and theology.
    Date: 2020–11–03
  68. By: Tae-Hwy Lee; Ekaterina Seregina
    Abstract: This paper studies forecast combination (as an expert system) using the precision matrix estimation of forecast errors when the latter admit the approximate factor model. This approach incorporates the facts that experts often use common sets of information and hence they tend to make common mistakes. This premise is evidenced in many empirical results. For example, the European Central Bank's Survey of Professional Forecasters on Euro-area real GDP growth demonstrates that the professional forecasters tend to jointly understate or overstate GDP growth. Motivated by this stylized fact, we develop a novel framework which exploits the factor structure of forecast errors and the sparsity in the precision matrix of the idiosyncratic components of the forecast errors. The proposed algorithm is called Factor Graphical Model (FGM). Our approach overcomes the challenge of obtaining the forecasts that contain unique information, which was shown to be necessary to achieve a "winning" forecast combination. In simulation, we demonstrate the merits of the FGM in comparison with the equal-weighted forecasts and the standard graphical methods in the literature. An empirical application to forecasting macroeconomic time series in big data environment highlights the advantage of the FGM approach in comparison with the existing methods of forecast combination.
    Date: 2020–11
  69. By: Shvets, Serhii
    Abstract: There have been several crises in the world economy since the end of the last century. The developing economies were ones that have suffered the most, considering the level of openness, the weak institutional framework, and the market vulnerability to unpredictable shocks. One of the instruments widely used to prevent crises is Early Warning System models. The paper pursues a goal to develop a parametric logit/probit regression to determine early warning arguments and their appropriate thresholds for Ukraine. The logit/probit modeling corresponds to the determination of the dependent binary variable associated with an output gap followed by the selection of independent early warning arguments. The quarterly distribution of GDP transformed into monthly data by applying the Chow-Lin regression method of interpolating higher frequency values. The monthly GDP data employed for the evaluation of the output gap using a multivariate filter and Okun’s law definition. The average elasticity of change in the unemployment rate to GDP was 3. The 2% difference between the actual and potential GDP applied for generating binary data of the output gap. There were three independent variables favored to be early warning arguments of the logit/probit regression: supply-demand gap, the world price of raw materials, and broad money supply. The obtained econometric characteristics of the probit regression were more statistically significant in comparison to the logit model. There were similar culminating positions of the fitted indicator during the crises in 2008-2009 and 2014-2015 that were different in terms of the sources. The corresponding marginal effects for the supply-demand gap, the world price of raw materials, and the broad money supply were respectively 4.0%, 0.7%, and 0.4%. Regarding the higher marginal grade, the demand-supply gap is more significant among the given early warning components for predicting crises in Ukraine. In the following study, the new arguments of the logit/probit regression have to be examined to perform higher predicting validity.
    Keywords: early warning systems, logit/probit modeling, integral composite indicators, output gap, Okun's law
    JEL: C22 C25 E27
    Date: 2019
  70. By: Zhao Chen; Yuxuan He; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Yi Xu
    Abstract: This paper documents facts about the structure of business taxation in China using administrative tax data from 2007 to 2011 from the State Taxation Administration. We first document the importance of different business taxes across industries. While corporate income taxes play an important role for manufacturing firms, these firms also remit a large share of their tax payments through the value-added tax system, through the excise tax system and through payroll taxes. Gross receipts taxes play an important role for firms in other industries, leading to spillovers that may affect the overall economy. Second, we evaluate whether the structure of China’s tax revenue matches its stage of development. A cross-country comparison of sources of government revenue shows that China collects a high share of tax revenue from taxes on goods and services and a high share of income tax on corporations. Finally, we study whether firm-level differences in effective tax rates can be an important source of allocative inefficiencies. Decomposing the variation in effective tax rates across firms, we find that government policies, including loss carry-forward provisions and preferential policies for regional, foreign, small, and high-tech firms, have significant explanatory power. Nonetheless, while effective tax rates vary along a number of dimensions, tax policy does not explain the large dispersion in the returns to factors of production across firms.
    JEL: E22 H25
    Date: 2020–11
  71. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Kirsten Ralf (INSEEC SBE - INSEEC School of Business & Economics - INSEEC Business School - Institut des hautes études économiques et commerciales Business School (INSEEC), ESCE – International Business School)
    Abstract: This paper is a study of the history of the transplant of mathematical tools using negative feedback for macroeconomic stabilization policy from 1948 to 1975 and the subsequent break of the use of control for stabilization policy which occurred from 1975 to 1993. New-classical macroeconomists selected a subset of the tools of control that favored their support of rules against discretionary stabilization policy. The Lucas critique and Kydland and Prescott's time-inconsistency were overstatements that led to the "dark ages" of the prevalence of the stabilization-policy-ine¤ectiveness idea. These overstatements were later revised following the success of the Taylor (1993) rule. J
    Keywords: Control,Stabilization Policy Ine¤ectiveness,Negative feedback,Dynamic Games Keywords: Control,Dynamic Games
    Date: 2020–10
  72. By: Yothin Jinjarak; Ilan Noy; Quy Ta
    Abstract: We evaluate the 1968 H3N2 Flu pandemic’s economic cost in a cross-section of 52 countries. Using excess mortality rates as a proxy for the country-specific severity of the pandemic, we find that the average mortality rate (0.0062% per pandemic wave) was associated with declines in consumption (-1.9%), investment (-1.2%), output (-2.4%), and productivity (-1.9%). Our main findings highlight the role of both negative demand-side and supply-side shocks in the flu pandemic’s aftermath.
    Keywords: output loss, productivity, pandemics, Hong Kong Flu, H3N2
    JEL: E65 I15 Q54
    Date: 2020

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