nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒11‒30
133 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The macroeconomic effects of lockdown policies By Stéphane Auray; Aurélien Eyquem
  2. Monetary policy inertia and the paradox of flexibility By Bonciani, Dario; Oh, Joonseok
  3. Effective Policy Communication: Targets versus Instruments By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  4. If Monetary Aggregates, then Divisia By Naveen Srinivasan; Parush Arora
  5. Central bank tone and the dispersion of views within monetary policy committees By Paul Hubert; Fabien Labondance
  6. Flight to Safety in Business cycles By Yadav, Jayant
  7. No Quick Recovery in Sight, with Coronavirus Risks Looming Large By Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Richard Grieveson; Doris Hanzl-Weiss; Philipp Heimberger; Gabor Hunya; Branimir Jovanovic; Niko Korpar; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Bernd Christoph Ströhm
  8. The Scars of Supply Shocks By Luca Fornaro; Martin Wolf
  9. Macroeconomic Equilibriums, Crises and Fiscal Policy By Andersson, Fredrik N. G.
  10. INSTITUTIONAL DESIGN AND CREDIBILITY By Jyotsana Kala; Naveen Srinivasan
  11. Central Bank Tone and the Dispersion of Views within Monetary Policy Committees By Paul Hubert; Fabien Labondance
  12. A Constant Gain Learning Framework to understand the behaviour of US Inflation and Unemployment in the 2nd half of 20th century By M.Venkata Raamasrinivas; Naveen Srinivasan
  13. Reversal interest rate and macroprudential policy By Darracq Pariès, Matthieu; Kok, Christoffer; Rottner, Matthias
  14. Price Level Risk and Some Long-Run Implications of Alternative Monetary Policy Strategies By James A. Clouse
  15. "A Note Concerning Government Bond Yields" By Tanweer Akram
  16. Growth-at-Risk: Bayesian Approach By Milan Szabo
  17. Inventory Cycles and Business Cycles – Has the relationship lost its importance over the years: A Time-Varying Parameter Approach using U.S. Data By Parijat Maitra; Naveen Srinivasan
  18. The Unnatural Rate of Unemployment: Reflections on the Barro-Gordon and Natural Rate Paradigms By Abhiruchi Rathi; Naveen Srinivasan
  19. Monetary policy transmission and income inequality in Sub-Saharan Africa By Ahiadorme, Johnson Worlanyo
  20. Federal unemployment reinsurance and local labor-market policies By Marek Ignaszak; Philip Jung; Keith Kuester
  21. Assessing Short‑Term and Long‑Term Economic and Environmental Effects of the COVID‑19 Crisis in France By Paul Malliet; Frédéric Reynés; Gissela Landa; Meriem Hamdi‑cherif; Aurélien Saussay
  22. Inflation and Economic Activity in Suriname By Ooft, Gavin
  23. The role of households' borrowing constraints in the transmission of monetary policy By Fergus Cumming; Paul Hubert
  24. The asymmetric effects of monetary policy on stock price bubbles By Christophe Blot; Paul Hubert; Fabien Labondance
  25. The Macroeconomic Effects Of Lockdown Policies By Stéphane Auray; Aurélien Eyquem
  26. Inflation Targeting in the United Kingdom: Is there evidence for Asymmetric Preferences? By Parthajit Kayal; Naveen Srinivasan
  27. Leaning against the wind and crisis risk By Moritz Schularick; Lucas ter Steege; Felix Ward
  28. Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures By Mikel Bedayo; Gabriel Jiménez; José-Luis Peydró; Raquel Vegas
  29. An early stablecoin? The Bank of Amsterdam and the governance of money By Jon Frost; Hyun Song Shin; Peter Wierts
  30. An early stablecoin? The Bank of Amsterdam and the governance of money By Jon Frost; Hyun Song Shin; Peter Wierts
  31. Bargaining power and the Phillips curve: a micro-macro analysis By Marco Jacopo Lombardi; Marianna Riggi; Eliana Viviano
  32. Monetary Policy Rule and Taylor Principle by GMM and DSGE Approaches: The Case of Mongolia By Taguchi, Hiroyuki
  33. The role of long-term inflation expectations for the transmission of monetary policy shocks By Diegel, Max; Nautz, Dieter
  34. The Employment Impact of Green Fiscal Push: Evidence from the American Recovery Act By David Popp; Francesco Vona; Giovanni Marin; Ziqiao Chen
  35. Asymmetric Macroeconomic Stabilization And Fiscal Consolidation In The Oecd And The Euro Area By ​pierre Aldama; Jérôme Creel
  36. Financial Variables as Predictors of Real Growth Vulnerability By Lucrezia Reichlin; Giovanni Ricco; Thomas Hasenzagl
  37. Above, but close to two percent. Evidence on the ECB’s inflation target using text mining By Johannes Zahner
  38. Industrial Impact of Economic Uncertainty Shocks in Australia: Revised By Burrel, Hamish; Vespignani, Joaquin L.
  39. Reforms of Collective Bargaining Institutions in European Union Countries: Bad Timing, Bad Outcomes? By Yann Thommen
  40. Monetary Capacity By Adam Brzezinski; Roberto Bonfatti; K. KıvançKaraman; Nuno Palma
  41. Foreign shocks as granular fluctuations By Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
  42. Costos del comercio en el procesamiento de los pagos en Colombia By Carlos A. Arango-Arango; Yanneth Rocío Betancourt-García
  43. SHILNIKOV CHAOS, LOW INTEREST RATES, AND NEW KEYNESIAN MACROECONOMICS By Barnett, William A.; Bella, Giovanni; Ghosh, Taniya; Mattana, Paolo; Venturi, Beatrice
  45. Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis By Takushi Kurozumi; Willem Van Zandweghe
  46. Depressed Demand By Nghiem, Giang
  47. Political Constraints and Sovereign Default Premia By Mitra, Nirvana
  48. El Rol de la Inversión Pública: El Caso de Bolivia By Samuel Alarcón Gambarte
  49. Oil Price Shock and Fiscal-Monetary Policy Variables in Nigeria: A Structural VAR Approach By Okunoye, Ismaila; Hammed, Sabuur
  50. Long-run relationship between real consumption and real income in the Russian Federation: An ARDL bounds testing approach By Polbin, Andrey; Kuroedova, Anastasiia
  51. Bank reserves and broad money in the global financial crisis: a quantitative evaluation By Jagjit S. Chadha; Luisa Corrado; Jack Meaning; Tobias Schuler
  52. Government Spending in Uncertain and Slack Times: Historical Evidence for Larger Fiscal Multipliers By Goemans, Pascal
  53. Assessing Global Potential Output Growth: October 2020 By Xin Scott Chen; Ali Jaffery; Guillaume Nolin; Karim Salhab; Peter Shannon; Subrata Sarker
  54. The Amortization Elasticity of Mortgage Demand By Claes Bäckman; Peter van Santen
  55. North and South: A Regional Model of the UK By Minford, Patrick; Gai, Yue; Meenagh, David
  56. Cambio técnico y política económica: la teoría y el caso colombiano (1950-2019) By Carlos Esteban Posada
  57. Beyond Labor Market Polarization By Santiago Garcia-Couto
  58. Short-Run Dynamics in a Search-Theoretic Model of Monetary Exchange By Jonathan Chiu; Miguel Molico
  59. "Is It Time to Eliminate Federal Corporate Income Taxes?" By Edward Lane; L. Randall Wray
  60. Inequality and imbalances: a monetary union agent-based model By Alberto Cardaci; Francesco Saraceno
  62. A Plan for Dollarizing Argentina By Ávila, Jorge C.
  63. Income inequality and monetary policy in the Euro Area By Jérôme Creel; Mehdi El Herradi
  64. Pollution, Human Capital, and Growth Cycles By Takuma Kunieda; Kazuo Nishimura
  65. 中国通货膨胀预期及其影响因素分析——基于混频无套利Nelson-Siegel利率期限结构扩展模型 By 洪智武; 牛霖琳
  66. Behavior Biases in Macroeconomic Forecasting By Henry Nasses; Rodrigo De Losso
  67. Unemployment and Income Distribution: Some Extensions of Shaikh’s Analysis By Walter Paternesi Meloni; Antonella Stirati
  68. Green Stimulus in a Post‑pandemic Recovery: the Role of Skills for a Resilient Recovery By Ziqiao Chen; Giovanni Marin; David Popp; Francesco Vona
  69. Estimating the Causal Impact of Macroeconomic Conditions on Income-Related Mortality By Gerdtham, Ulf-G.; Heckley, Gawain; Lissdaniels, Johannes
  70. Measuring TFP: The Role of Profits, Adjustment Costs, and Capacity Utilization By Diego A. Comin; Javier Quintana Gonzalez; Tom G. Schmitz; Antonella Trigari
  71. Aggregate and Intergenerational Implications of School Closures: A Quantitative Assessment By Youngsoo Jang; Minchul Yum
  72. "The Palestinian Labor Market over the Last Three Decades" By Sameh Hallaq
  73. The Covid-19 Impact on Agricultural Market Arrivals and Prices in India: A Panel VAR Approach By Katsushi S. Imai; Nidhi Kaicker; Raghav Gaiha
  74. The Oil Story: Is it Still the Same? By Swati Singh; Naveen Srinivasan
  76. Fiscal And Monetary Policy Interactions In A Liquidity Trap When Government Debt Matters By Charles de Beauffort
  77. Macroeconomic forecasting in the euro area using predictive combinations of DSGE models By Jan Capek; Jesus Crespo Cuaresma; Niko Hauzenberger; Vlastimil Reichel
  78. An Annual Index of Irish Industrial Production, 1800-1921 By Kenny, Seán; Lennard, Jason; Hjortshøj O’Rourke, Kevin
  79. Trade Integration, Global Value Chains and Capital Accumulation By Michael Sposi; Kei-Mu Yi; Jing Zhang
  80. The Fed Funds Market during the 2007-09 Financial Crisis By Adam Copeland
  81. The Pass-Through of Temporary VAT Rate Cuts Evidence from German Retail Prices By Clemens Fuest; Florian Neumeier; Daniel Stöhlker
  82. A Comparison of Monthly Global Indicators for Forecasting Growth By Christiane Baumeister; Pierre Guérin
  83. Masters of Illusion: Bank and Regulatory Accounting for Losses in Distressed Banks By Edward J. Kane
  84. Economic Benefits of COVID-19 Screening Tests By Andrew Atkeson; Michael C. Droste; Michael Mina; James H. Stock
  85. A General Equilibrium Model of Earnings, Income, and Wealth By Glawion, Rene; Puche, Marc; Haller, Frédéric
  86. Switching Volatility in a Nonlinear Open Economy By Jonathan Benchimol; Sergey Ivashchenko
  87. Has the Paycheck Protection Program Succeeded? By R. Glenn Hubbard; Michael R. Strain
  88. La Magnitud y Duración del Efecto de la Intervención por Subastas sobre el Mercado Cambiario: El caso Colombiano By Valeria Bejarano-Salcedo; William Iván Moreno-Jimenez; Juan Manuel Julio-Román
  89. COVID-19 crisis and the public debt issue:The case of Italy By Schilirò, Daniele
  90. Sudden Stops and Optimal Foreign Exchange Intervention By J. Scott Davis; Michael B. Devereux; Changhua Yu
  91. Fiscal space in the euro area before Covid-19 By Jérôme Creel
  92. Recruiting Intensity and Hiring Practices: Cross-Sectional and Time-Series Evidence By Benjamin Lochner; Christian Merkl; Heiko Stüber; Nicole Guertzgen
  93. The Power of the Federal Reserve Chair By Alessandro Riboni; Francisco Ruge-Murcia
  95. The Balance Sheets of the Bank of the United States By Baker, Zackary; Gulino, George; Javat, Adil; Schuler, Kurt
  96. 中国地方债务的省级风险度量和网络外溢风险 By 牛霖琳; 夏红玉; 许秀
  97. Growing Through Spinoffs: Corporate Governance, Entry, And Innovation By Maurizio Iacopetta; Raoul Minetti; Pierluigi Murro
  98. Understanding the Determination of Severance Pay: Mandates, Bargaining, and Unions By Stéphane Auray; Samuel Danthine; Markus Poschke
  99. Bank credit and short-run economic growth: a dynamic threshold panel model for ASEAN countries. By Sy-Hoa Hoa; Jamel Saadaoui
  100. Dynamics and Determinants of Energy Intensity: Evidence from Pakistan By Malik, Afia
  101. Sustainable Debt Policies of Indian State Governments By P.S. Renjith; K. R. Shanmugam
  102. Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics By Dirk Niepelt
  103. Time-Varying Trend Models for Forecasting Inflation in Australia By Bo Zhang; Jamie Cross; Na Guo
  104. Income Tax Evasion: Tax Elasticity, Welfare, and Revenue By Max Gillman
  105. Adverse Selection Dynamics in Privately-Produced Safe Debt Markets By Nathan Foley-Fisher; Gary B. Gorton; Stéphane Verani
  106. Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa By Fisayo Fagbemi; Opeoluwa A. Adeosun
  107. Network topography and default contagion in China's financial system By Fittje, Jens; Wagner, Helmut
  108. Eligibility, experience rating, and unemployment insurance take‐up By Stéphane Auray; David Fuller
  109. How to re-design German fiscal policy rules after the COVID19 pandemic By Michael Huether; Jens Suedekum
  110. Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa By Fisayo Fagbemi; Opeoluwa A. Adeosun
  111. World Economy Autumn 2020 - Gradual recovery after partial rebound By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  112. Effects of fiscal devaluation in a closed economy By Sui, Jin
  113. Financial Profiles of Workers Most Vulnerable to Coronavirus-Related Earnings Loss in the Spring of 2020 By Brooke Helppie-McFall; Joanne W. Hsu
  115. Uncertainty and Growth Disasters By Boyan Jovanovic; Sai Ma
  116. Private Equity and Growth By Boyan Jovanovic; Sai Ma; Peter L. Rousseau
  117. Refinancing, Monetary Policy, and the Credit Cycle By Gene Amromin; Neil Bhutta; Benjamin J. Keys
  119. Stock Market Reactions to Legislated Tax Changes: Evidence from the United States, Germany, and the United Kingdom By Bernd Hayo; Sascha Mierzwa
  120. Macroeconomic forecasting in the euro area using predictive combinations of DSGE models By Capek, Jan; Crespo Cuaresma, Jesus; Hauzenberger, Niko; Reichel, Vlastimil
  121. Bank capital: excess credit and crisis incidence By Ray Barrell; Karim Dilruba
  122. Taxation of Consumption and Labor Income: a Quantitative Approach By Francesca Parodi
  124. JAMAICA'S CURRENCY BOARD, 1920-1961, AND A COMPARISON WITH ITS CENTRAL BANK By Gupta, Eashan; Auran, Matthew; Frankenfield, Dylan
  125. Challenge-driven economic policy: A new frame-work for Germany By Rainer Kattel; Mariana Mazzucato; Keno Haverkamp; Josh Ryan-Collins
  126. Le profil socioéconomique des utilisateurs de monnaies locales en France. Le cas particulier du Florain à Nancy. By Raphaël Didier
  127. Imperfect substitution in real estate markets and the effect of housing demand on corporate investment By J. Scott Davis; Kevin X. D. Huang; Ayse Sapci
  128. A COMPREHENSIVE OVERVIEW OF PAST CURRENCY BOARD CONSTITUTIONS By Nguyen, Huong; Susilo, Jonathan; Varier, Dominique
  129. Household Choice of Financial Borrowing and Its Source: Multinomial Probit Model with Selection By Kanika Rana; Brinda Viswanathan
  130. A BALANCE SHEET ANALYSIS OF THE CFA FRANC ZONE By Abrohms, Spencer; Schuler, Kurt
  131. Improving government and business coordination through the use of consistent SDGs indicators. A comparative analysis of national (Belgian) and business (pharma and retail) sustainability indicators. By Olivier E. Malay
  132. Addressing the productivity paradox with big data: A literature review and adaptation of the CDM econometric model By Schubert, Torben; Jäger, Angela; Türkeli, Serdar; Visentin, Fabiana
  133. Structural Breaks in an Endogenous Growth Model By Timothy Cogley; Boyan Jovanovic

  1. By: Stéphane Auray (Observatoire français des conjonctures économiques); Aurélien Eyquem (Groupe d'analyse et de théorie économique)
    Abstract: A tractable incomplete-marketmodel with endogenous unemployment risk, sticky prices, real wage rigidity and a fiscal side is calibrated to Euro Area countries and used to analyze the macroeconomic effects of lockdown policies. Modeling them as a shock to the extensive margin of labor adjustment – a rise in separations – produces large and persistent negative effects on output, unemployment and welfare, raises precautionary savings and lowers inflation, in line with early evidence about inflation dynamics. Modeling lockdowns as a shock to the intensive margin – a fall in labor utilization – produces small and short-lived macroeconomic and welfare effects, and implies a counterfactual rise in inflation. Conditional on a lockdown(separation) shock, raising public spending or extending UI benefits by large amounts is much more effective in stimulating the economy than during normal times. Quantitatively however, the ability of such policies to flatten the output and unemployment curves remains limited, even though these policies can alleviate a reasonable share of the aggregate welfare losses from the lockdown.
    Keywords: Lockdown; Unemployment; Borrowing constraints; Incomplete markets; Government spending; Unemployment insurance
    JEL: D52 E21 E62 J64 J65
    Date: 2020–10
  2. By: Bonciani, Dario (Bank of England); Oh, Joonseok (Freie Universität Berlin)
    Abstract: This paper revisits the paradox of flexibility, ie, the result that, in a liquidity trap, greater price flexibility amplifies output volatility in response to negative demand shocks. We argue this paradox is the consequence of a failure of standard models to correctly characterise monetary policy and that allowing for a smooth adjustment of the shadow policy rate eliminates the paradox and produces output responses to a negative demand shock that are in line with those under optimal monetary policy. The reason is that, under an inertial policy, a decline in the shadow rate implies that the future actual policy rate will remain relatively low, which increases expectations about the economic outlook and inflation. The rise in inflation expectations reduces the real rate, thereby sustaining real activity. As we raise the degree of price flexibility, a negative demand shock causes a sharper fall in the shadow rate and increase in inflation expectations, which leads to a more significant drop in the real rate and, hence, a milder decline in the output gap.
    Keywords: Interest rate smoothing; liquidity trap; zero lower bound; paradox of flexibility
    JEL: E32 E52 E61
    Date: 2020–11–06
  3. By: D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: Communication targeting households and firms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication manages expectations when it focuses on policy targets and objectives rather than on the instruments designed to reach such objectives. It is especially the least sophisticated demographic groups, whom central banks typically struggle to reach, who react more to target-based communication. When exposed to target-based communication, these groups are also more likely to believe that policies will benefit households and the economy. Target-based communication enhances policy effectiveness and contributes to strengthen the public’s trust in central banks, which is crucial to ensure the effectiveness of their policies.
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2020–11–10
  4. By: Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India); Parush Arora (Madras School of Economics, Chennai, India)
    Abstract: This paper empirically tests whether the inclusion of monetary aggregates in inflation forecasting models helps their forecasting ability or not. We have estimated the P-star model with Divisia M2, Divisia M3, simple sum M2, and simple sum M3 along with Phillips curve and ARIMA specifications to forecast inflation for India from April 1994 to December 2016. We find that inflation forecasting ability of both Divisia monetary aggregate and the simple sum monetary aggregates are similar. Though Divisia fits better than simple sum from 1993-2013, the information contained in Divisia does not explain the behaviour of inflation post-2013.
    Keywords: Divisia, Simple Sum, Monetary Aggregates, Phillips Curve,Inflation forecasting, P star model
    JEL: E31 E37 E47 E52 E58
  5. By: Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: Does policymakers’ choice of words matter? We explore empirically whether central bank tone conveyed in FOMC statements contains useful information for financial market participants. We quantify central bank tone using computational linguistics and identify exogenous shocks to central bank tone orthogonal to the state of the economy. Using an ARCH model and a high-frequency approach, we find that positive central bank tone increases interest rates at the 1-year maturity. We therefore investigate which potential pieces of information could be revealed by central bank tone. Our tests suggest that it relates to the dispersion of views among FOMC members. This information may be useful to financial markets to understand current and future policy decisions. Finally, we showthatcentral banktonehelps predicting future policy decisions.
    Keywords: Animal spirits; Optimism; Confidence; FOMC; Central bank communication; Interest rate expectations; ECB; Aggregate effects
    JEL: E43 E52 E58
    Date: 2019–11
  6. By: Yadav, Jayant
    Abstract: FTS in Business cycles examines the dynamic effects and empirical significance of Flight to Safety (FTS) shocks in the context of US business cycles. FTS represents a sudden preference for safe over risky investments and contains important information on agents’ time-varying risk-aversion and their expectations for future economic activity. This analysis presents an identification for FTS shocks using vector autoregressions (VAR). Sign restrictions are applied, while controlling for monetary policy and productivity shocks, on the price differential series between stocks and bonds in the US. Identified positive disturbances to this differential series are characterised as FTS shocks. The business cycle impact of FTS is calculated by applying the structural VAR model to the US economic data from 1955 to 2019. A sudden increase in risk aversion, which is displayed through the FTS shocks in the identified VAR model, has played a significant role in keeping investments low in the US. FTS shocks explain more than sixty per cent of the variation in US investments and they explain a higher proportion of macroeconomic fluctuations in periods around the Global financial crisis. This is a significant linkage when compared against the results of DSGE models enriched with time-varying risk-premium and investment technology. FTS also comes up ahead of news shocks in providing early signals of shifts in total factor productivity. This analysis is consistent with other comparable high-frequency, kernel-based measures of identifying FTS. The results also reveal the asymmetric impact on the business cycle of Flight to Safety and its complement Flight to Risk phenomenon. This asymmetry lends support to pursuing a cyclical risk-aversion driven view of business cycles.
    Keywords: Flight to Safety, Business Cycles, Structural VAR, Sign Restrictions,
    JEL: C32 C52 C58 E22 E32 E44 G11
    Date: 2020–10–31
  7. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanovic (The Vienna Institute for International Economic Studies, wiiw); Niko Korpar (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm
    Abstract: Most of CESEE withstood the first wave of the pandemic better than Western Europe. However, the medium-term outlook is hugely uncertain. After an estimated contraction of 4.5% this year, the region should grow by 3.1% in 2021 and by 3.3% in 2022, with risks clearly on the downside. Aside from the potential for further lockdowns, the pandemic will leave lasting legacies in the form of depressed demand for many services, requiring significant further government support.
    Keywords: CESEE, economic forecast, Central and Eastern Europe, Southeast Europe, Western Balkans, EU, euro area, CIS, China, Japan, US, convergence, business cycle, coronavirus, Next Generation EU funds, private consumption, credit, investment, digitalisation, exports, FDI, labour markets, unemployment, short-time work schemes, exchange rates, monetary policy, fiscal policy
    JEL: E20 E21 E22 E24 E32 E5 E62 F21 F31 H60 I18 J20 J30 O47 O52 O57 P24 P27 P33 P52
    Date: 2020–11
  8. By: Luca Fornaro; Martin Wolf
    Abstract: We study the effects of supply disruptions - for instance caused by the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By negatively affecting investment, even purely transitory negative supply shocks generate permanent output losses. The associated negative wealth effect depresses consumers' demand, which may even fall below the exogenous fall in supply. In this case, the optimal monetary policy response flips relative to conventional wisdom, as monetary expansions are needed to fight negative output gaps. If monetary policy is not expansionary enough a supply-demand doom loop emerges, causing a recession characterized by unemployment and weak productivity growth. Innovation policies, by fostering firms' investment, can restore full employment and healthy growth.
    Keywords: supply shocks, COVID-19, hysteresis, investment, endogenous growth, monetary policy, fiscal policy, zero lower bound, Keynesian growth.
    JEL: E22 E31 E32 E52 E62 O42
    Date: 2020–10
  9. By: Andersson, Fredrik N. G. (Department of Economics, Lund University)
    Abstract: Macroeconomic crises are common as well as economically, socially and politically costly. Fiscal policy plays an important role in alleviating the costs of the crisis. However, recent experiences suggest that the public finances often are unprepared for a crisis. Deficits and debt levels prior to the crisis are commonly too high, limiting the government’s ability to respond to the crisis. In this paper, we argue that theoretical macroeconomic models focus on stable equilibriums, may partially explain why governments underestimate the risk of economic crises and carry too much debt prior to such events. In the standard equilibrium models, crises are one-off events caused by external factors. These macro-models thus neither predict nor expect a future crisis, which creates a false impression of long-run economic stability. Using forecast data, we demonstrate how the equilibrium perspective dominates macroeconomic thinking and how it contributes to too-high debt ratios prior to a crisis. We end the paper by discussing how to design fiscal policy rules based on a crisis rather than an equilibrium approach.
    Keywords: crisis; equilibrium; macroeconomic models; fiscal policy; national debt; fiscal frameworks
    JEL: E17 E37 E62 E63
    Date: 2020–10–15
  10. By: Jyotsana Kala (JPMorgan Chase and Co.); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: The optimal design of a monetary institution to achieve policy effectiveness has been of utmost importance to policy-makers. This paper presents an empirical analysis of the link between the structure of a monetary institution and inflation persistence in an economy. It is well established in literature that governance structure of a monetary institution affects the stability of an economy. But the mechanism by which it operates remains unclear. In this paper, we claim this mechanism to be the credibility of the monetary institution. A Central Bank with an autonomous and transparent governance structure is deemed to be more credible by agents, which in turn leads to higher inflation stability in the economy. We investigate this hypothesis using data for the UK. Our results suggest that credibility is the missing link. The institutional design of the Central Bank contributes to its credibility, which subsequently affects the degree of inflation persistence in the economy.
    Keywords: central bank; central bank independence; inflation persistence;monetary policy credibility; policy making; time-inconsistency
    JEL: E52 E58 E31 E61 C32
  11. By: Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: Does policymakers’ choice of words matter? We explore empirically whether central bank tone conveyed in FOMC statements contains useful information for financial market participants. We quantify central bank tone using computational linguistics and identify exogenous shocks to central bank tone orthogonal to the state of the economy. Using an ARCH model and a high-frequency approach, we find that positive central bank tone increases interest rates at the 1-year maturity. We therefore investigate which potential pieces of information could be revealed by central bank tone. Our tests suggest that it relates to the dispersion of views among FOMC members. This information may be useful to financial markets to understand current and future policy decisions. Finally, we show that central bank tone helps predicting future policy decisions.
    Keywords: Optimism; FOMC; Dissent; Interest rate expectations; ECB
    JEL: E43 E52 E58
    Date: 2020
  12. By: M.Venkata Raamasrinivas (MSE); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: We build an adaptive learning model where policymakers use constant gain learning algorithm to update their knowledge/estimates of the model every time period. The optimal policy is enacted every time period by policymakers assuming their current knowledge of the model to be perfect. This framework is used to study the behavior of post war US inflation and unemployment. The model accurately explains the Great Inflation- while the rational expectations equilibrium is characterized by low inflation, learning leads to disequilibrium dynamics when initial knowledge of the model is incorrect. Specifically, under estimation of the natural rate, persistence of inflation and slope of Phillips Curve by policymakers explains the high and persistent nature of inflation from 1963 to 1980. The convergence of learning to rational expectations equilibrium explains the subsequent disinflation. We further show that, within the learning framework, policymakers exposed themselves to the time consistency problem. Between 1960-1979, they pursued an artificially low target for the unemployment rate. Since Volcker, policymakers have accepted the natural rate hypothesis and hence have avoided the inflationary bias arising from time consistency problem.
    Keywords: natural rate of unemployment, persistence, stagflation, time inconsistency, state space, kalman filter, maximum likelihood estimation, constant gain (CG) learning
    JEL: E32 E37 E58 E52
  13. By: Darracq Pariès, Matthieu; Kok, Christoffer; Rottner, Matthias
    Abstract: Could a monetary policy loosening entail the opposite effect than the intended expansionary impact in a low interest rate environment? We demonstrate that the risk of hitting the rate at which the effect reverses depends on the capitalization of the banking sector by using a non-linear macroeconomic model calibrated to the euro area economy. The framework suggests that the reversal interest rate is located in negative territory of around −1% per annum. The possibility of the reversal interest rate creates a novel motive for macroprudential policy. We show that macroprudential policy in the form of a countercyclical capital buffer, which prescribes the build-up of buffers in good times, can mitigate substantially the probability of encountering the reversal rate, improves welfare and reduces economic fluctuations. This new motive emphasizes also the strategic complementarities between monetary policy and macroprudential policy. JEL Classification: E32, E44, E52, E58, G21
    Keywords: macroprudential policy, monetary policy, negative interest rates, reversal interest rate, ZLB
    Date: 2020–11
  14. By: James A. Clouse
    Abstract: This note focuses on the longer-run implications of alternative monetary policy strategies for the evolution of the price level. The analysis compares the properties of optimal policy in regimes ranging from pure inflation targeting (IT), to a form of weighted-average inflation targeting (WAIT), to pure price level targeting (PLT). Strategies such as WAIT and PLT tend to limit the downward drift in the path of the price level and also mitigate the uncertainty surrounding the expected path of the price level. The influence of alternative monetary policy strategies on the evolution of the price level may have some important long-run implications for entities or groups that rely heavily on long-term nominal debt. Some simple empirical estimates suggest the real value of existing Treasury debt could be boosted significantly in moving from a world in which the ZLB constraint rarely binds to one in which it regularly binds. Similarly, data from the Survey of Consumer Finances indicate that households at lower income levels, and particularly those with mortgage or educational loans outstanding, are exposed to significant price level risk. As a result, such households can experience a significant reduction in their real wealth, on average, in the transition to a world with frequently binding ZLB constraints. The WAIT and PLT regimes significantly mitigate these potential costs for these groups.
    Keywords: Household debt; Inflation; Monetary policy; Wealth distribution
    JEL: E31 E52 E58
    Date: 2020–11–09
  15. By: Tanweer Akram
    Abstract: This paper relates Keynes's discussions of money, the state theory of money, financial markets, investors' expectations, uncertainty, and liquidity preference to the dynamics of government bond yields for countries with monetary sovereignty. Keynes argued that the central bank can influence the long-term interest rate on government bonds and the shape of the yield curve mainly through the short-term interest rate. Investors psychology, herding behavior in financial markets, and uncertainty about the future reinforce the effects of the short-term interest rate and the central bank's monetary policy actions on the long-term interest rate. Several recent empirical studies that examine the dynamics of government bond yields substantiate the Keynesian perspective that the long-term interest rate responds markedly to the short-term interest rate. These empirical studies not only vindicate the Keynesian perspective but also have relevance for macroeconomic theory and policy.
    Keywords: Money; State Theory of Money; Chartalism; Monetary Theory; Central Bank; Government Bond Yields; Interest Rate; John Maynard Keynes
    JEL: E12 E40 E43 E50 E58 E60 F30 G10 G12 H62 H63
    Date: 2020–11
  16. By: Milan Szabo
    Abstract: The paper proposes a novel application of Bayesian quantile regression to forecast a full distribution of macroeconomic variables that can be linked to, for example, an official projection of the variable published by a central bank, or a forecast from a survey of professional forecasters. The approach is employed to estimate the popular Growth-at-Risk, which maps current financial and economic conditions to the distribution of future GDP growth, focusing mainly on downside risks. The results show that the linkage improves distribution forecasting and, thanks to the additional information obtained from the linkage, reduces overfitting and makes Growth-at-Risk models more operational for countries with short time series. Additional improvements in consistency around the official projection enhance the credibility of the results when communicated by the central bank. The method can also be used to derive asymmetric fan charts around the official projection not only for real GDP growth as examined in the paper, but also for unemployment or inflation.
    Keywords: Downside risk, fan charts, growth-at-risk, quantile regression
    JEL: C53 E27 E32 E44
    Date: 2020–11
  17. By: Parijat Maitra (IIM-A); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: Despite widespread recognition that fluctuations in inventories are one of the primary drivers of business cycles and the introduction of Just-In-Time (JIT) Production system in the 1980s has resulted in declining inventory to sales ratio, suggesting that the role of inventories in generating business cycles may be diminishing, surprisingly very little empirical work has been done to investigate how this relationship has varied over the years. In this study we use U.S. Business cycle and Inventory to sales ratio data from 1967 Q1 to 1996 Q4 and estimate their relationship in a Time-Varying Parameter framework. We find that the importance of inventory cycles w.r.t business cycles has declined over the years, with multiple structural breaks observed in the 1970s and the 1980s. However, our estimates also show that despite the decline in the strength of the relationship, fluctuations in inventories are still an important factor in business cycles, particularly in recessions.
    Keywords: Inventory to Sales Ratios; Inventory; Business Cycles; Trend Breaks
    JEL: E00 E32 E37
  18. By: Abhiruchi Rathi (Madras School of Economics, Chennai, India); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: Unemployment and inflation exhibit a positive correlation during the 1970s in the United States. Ireland (1999) uses the time-inconsistency framework to study long and short run dynamics between the two rates. However, for the long-run, we find that the conditions for cointegration are not met whereas the short-run restrictions grounded in economic theory are strongly rejected. We look at the moving natural rate theory for an alternative explanation of the abnormal behavior of inflation and unemployment. We employ a structural vector autoregression (SVAR) model to study the impact of shocks to natural rate on the two series. We use the Beveridge-Nelson decomposition to extract short-run natural rate estimates from the unemployment series. Further, we identify factors affecting the short-run natural rate using regressions. We conclude that changes in labor-market institutions like unemployment benefits, labor productivity and real wages, as well as changes in labor force growth and real interest rates explain significant variation in the estimated natural rate of unemployment.
    Keywords: Phillips curve; Time-inconsistency; Natural rate; SVAR;Beveridge-Nelson decomposition; Labor-market institutions; IV estimation
    JEL: E31 E52 E61 C22 E24 C3
  19. By: Ahiadorme, Johnson Worlanyo
    Abstract: This paper evaluates the monetary policy transmission and income inequality in Sub-Saharan Africa (SSA) countries. We find procyclical response of income inequality to unanticipated monetary easing in the last two decades. Countercyclical monetary measures may have been efficient, but they have been dis-equalising as well. Taking cognisance of the explanations of the earnings heterogeneity channel, this evidence signals high concentration of assets and resources, limited employment of labour and limited distributive capacity of the state in SSA countries. Economic outturns may have favoured chiefly, the top of the distribution - entrepreneurs and their profit margin. Three main channels distinguish the transmission of standard and non-standard monetary measures: the reaction in the stock market, the response of the exchange rate and the fiscal response. Unconventional monetary policies appear to rely more on wealth effects than conventional policy measures. Unexpected non-standard monetary easing depreciates the exchange rate while unanticipated conventional accommodative monetary action appreciates the currency. Fiscal transfers increase in reaction to expansionary unconventional monetary policy shock. In contrast, a surprised standard monetary expansion decreases fiscal distributions, an effect that appears to underscore the limited fiscal space and tax revenues in most developing and emerging economies. The evidence demonstrates that the fiscal reaction to monetary policy action is important to the overall transmission of monetary policy to macroeconomic aggregates. Instructively, we find that the inflation cost of countercyclical monetary measures is comparatively less severe for standard monetary measures than non-standard monetary actions.
    Keywords: Monetary policy, Income inequality, Distributive channels
    JEL: D30 D31 D63 E50 E52 E58
    Date: 2020–08–20
  20. By: Marek Ignaszak (Goethe University Frankfurt, Theodor-W.-Adorno-Platz 3, 60323 Frankfurt, Germany,); Philip Jung (TechnicalUniversityofDortmund,FacultyofBusiness,EconomicsandSocialSciences,44221 Dortmund,Germany); Keith Kuester (University of Bonn Adenauerallee 24-42,53113 Bonn, Germany, and CEPR)
    Abstract: Consider a union of atomistic member states, each faced with idiosyncratic business-cycle shocks. Private cross-border risk-sharing is limited, giving a role to a federal unemployment-based transfer scheme. Member states control local labor-market policies, giving rise to a trade-off between moral hazard and insurance. Calibrating the economy to a stylized European Monetary Union, we find notable welfare gains if the federal scheme's payouts take the member states' past unemployment level as a reference point. Member states' control over policies other than unemployment benefits can limit generosity during the transition phase.
    Keywords: Unemployment reinsurance, labor-market policy, fiscal federalism, search and matching
    JEL: E32 E24 E62
    Date: 2020–11
  21. By: Paul Malliet (Observatoire français des conjonctures économiques); Frédéric Reynés (Observatoire français des conjonctures économiques); Gissela Landa (Observatoire français des conjonctures économiques); Meriem Hamdi‑cherif; Aurélien Saussay (Observatoire français des conjonctures économiques)
    Abstract: In response to the COVID-19 health crisis, the French government has imposed drastic lockdown measures for a period of 55 days. This paper provides a quantitative assessment of the economic and environmental impacts of these measures in the short and long term. We use a Computable General Equilibrium model designed to assess environmental and energy policies impacts at the macroeconomic and sectoral levels. We find that the lockdown has led to a significant decrease in economic output of 5% of GDP, but a positive environmental impact with a 6.6% reduction in CO2 emissions in 2020. Both decreases are temporary: economic and environmental indicators return to their baseline trajectory after a few years. CO2 emissions even end up significantly higher after the COVID-19 crisis when we account for persistently low oil prices. We then investigate whether implementing carbon pricing can still yield positive macroeconomic dividends in the post-COVID recovery. We find that implementing ambitious carbon pricing speeds up economic recovery while significantly reducing CO2 emissions. By maintaining high fossil fuel prices, carbon taxation reduces the imports of fossil energy and stimulates energy efficiency investments while the full redistribution of tax proceeds does not hamper the recovery.
    Keywords: Carbon tax; CO2 emissions; Macroeconomic modeling; Neo-Keynesian CGE model; Post-COVID economy
    JEL: E12 E17 E27 E37 E47 D57 D58
    Date: 2020
  22. By: Ooft, Gavin (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Maintaining a low rate of inflation and sustainable economic growth are at the core of monetary policymaking. Price stability is considered a condition for a healthy macroeconomic environment which promotes sustainable growth and a low rate of inflation is necessary to maintain stability in the financial sector as well as to boost investment activities. Motivated by the largely-discussed relationship between inflation and output, this paper examines this relationship for the economy of Suriname over the period 1975 to 2015, utilizing a vector autoregressive model and impulse response functions. The findings of the study reveal how the various sources of inflation impact on the economy of Suriname. Domestic price shocks and money-supply shocks, in particular, seem to substantially impact on economic activity. Exchange-rate shocks are detrimental to domestic prices. Based on the findings of this study, it is highly recommended for the Central Bank of Suriname to continue its prudent monetary policies in order to maintain a stable exchange rate and price stability. The study advocates for maintaining a healthy macroeconomic climate with price stability, which is a crucial condition for Suriname to follow a sustained path for economic growth and development.
    Keywords: Economic Growth; Inflation; Time-Series Models
    JEL: C32 E31 E47
    Date: 2019–01
  23. By: Fergus Cumming; Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: This paper investigates how the transmission of monetary policy to the real economy depends on the distribution of household debt. Using an original loan-level dataset covering the universe of UK mortgages, we assess the effect of monetary shocks on aggregate consumption by exploiting time variation in a measure of the proportion of households close to their borrowing constraint. We find that monetary policy is most potent when there is a large share of constrained households. In contrast, we find noevidence that the average level of borrowing relative-to-income of the household sector affects the transmission of monetary policy.
    Keywords: Heterogeneity; Distribution; Mortgage debt; State-dependence
    JEL: E21 E52 E58
    Date: 2019–11
  24. By: Christophe Blot (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques)
    Abstract: Is the effect of US monetary policy on stock price bubbles asymmetric? We use a range of measures of excessive stock price variations that are unrelated to business cycle fluctuations. We find that the effects of monetary policy are asymmetric so responses to restrictive and expansionary shocks must be differentiated. The effects of restrictive monetary policy are more powerful than the effects of expansionary policies. We also find evidence that the asymmetric effect of monetary policy is state-contingent and depends on monetary, credit and business cycles as well as stock price boom-bust dynamics.
    Keywords: Non-linearity; Equity; Booms and busts; Federal reserve
    JEL: E44 G12 E52
    Date: 2020–04
  25. By: Stéphane Auray (Observatoire français des conjonctures économiques); Aurélien Eyquem
    Abstract: A tractable incomplete-market model with unemployment, sticky prices, and a fiscal side is used to quantify the macroeconomic effects of lockdown policies and the miti-gating effects of raising government spending and implementing UI benefit extensions. We find that the effects of lockdown policies, although we are relatively conservative about the size of the lockdown, are huge: unemployment doubles on impact and al-most triples even for relatively short lockdown durations. Output falls dramatically and debt-output ratios increase by several tens of percentage points. In addition, the surge in unemployment risk triggers a rise in precautionary savings that make such shocks Keynesian supply shocks: aggregate demand falls by more than aggregate supply, and lockdown policies are deflationary. Unfortunately, we find that raising public spending and extending UI benefits stimulate aggregate demand or improve risk-sharing but has little effects on output and unemployment, although they do alleviate the welfare losses of lockdown policies for the households.
    Keywords: Lockdown; Unemployment; Borrowing constraints; Incomplete markets; Government spending; Unemployment insurance
    JEL: D52 E21 E62 J64 J65
    Date: 2020–04–16
  26. By: Parthajit Kayal (Madras School of Economics, Chennai, India); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: In recent times, inflation targeting has been one of the most successful monetary frameworks in advanced economics. However, critics claim that policy rates have been kept higher than necessary. They claim that central banks did not pursue a symmetric inflation target. If a central bank pursues symmetric inflation and output targets, the optimal monetary policy response is a linear forward-looking Taylor rule (Clarida et,. al 1999). We use the Linex Loss function as outlined in Nobay and Peel (2003) to relax the assumption of symmetric preferences. The presence of asymmetric preferences implies that monetary policy reacts not only to the conditional expectation of inflation and output gap but also to their conditional variances. Non-linear Taylor rules are estimated on UK data from 1995: Q2 and 2003: Q3. The results support the critics. Inflation targeting was indeed pursued with asymmetric preferences. The findings are robust to the Bank of England‘s ex-ante forecasts, ‗real-time‘ estimates of the output gap, non-linearities in the supply curve, and alternative forecast horizons. Policy rates have been about 30 basis points higher than necessary due to asymmetric preferences
    Keywords: Phillips curve; Taylor Rules; Asymmetric Preferences;Deflationary Bias; GMM estimation; Linex Loss Function; Rational Expectations; Monetary Policy
    JEL: E31 E52 E6
  27. By: Moritz Schularick (Federal Reserve Bank of New York and Department of Economics, University of Bonn; and CEPR); Lucas ter Steege (Department of Economics, University of Bonn); Felix Ward (Erasmus School of Economics, Erasmus University Rotterdam; and Tinbergen Institute)
    Abstract: Can central banks defuse rising stability risks in financial booms by leaning against the wind with higher interest rates? This paper studies the state-dependent effects of monetary policy on financial crisis risk. Based on the near-universe of advanced economy gonancial cycles since the 19th century, we show that discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.
    Keywords: financial stability, monetary policy, local projections
    JEL: E44 E50 G01 G15 N10
    Date: 2020–11
  28. By: Mikel Bedayo; Gabriel Jiménez; José-Luis Peydró; Raquel Vegas
    Abstract: We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks to stock returns of 54 sectors in 26 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% of the total impact of U.S. monetary policy shocks on average country-sector stock returns are 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: loan origination time, lending standards, credit cycles, defaults, bank failures, Screening
    JEL: G01 G21 G28 E44 E51
    Date: 2020–11
  29. By: Jon Frost; Hyun Song Shin; Peter Wierts
    Abstract: This paper draws lessons on the central bank underpinnings of money from the rise and fall of the Bank of Amsterdam (1609-1820). The Bank started out as a "stablecoin": it issued deposits backed by silver and gold coins, and settled payments by transfers across deposits. Over time, it performed functions of a modern central bank and its deposits took on attributes of fiat money. The economic shocks of the 1780s, large-scale lending and lack of fiscal support led to its failure. Using monthly balance sheet data, we show how confidence in Bank money gave way to a run equilibrium, where the fall of the premium on deposits over coins ("agio") into negative territory was swift and precipitous. This holds lessons for the governance of digital money.
    Keywords: stablecoins, crypto-assets, central banks, money.
    JEL: E42 E58 N13
    Date: 2020–11
  30. By: Jon Frost; Hyun Song Shin; Peter Wierts
    Abstract: This paper draws lessons on the central bank underpinnings of money from the rise and fall of the Bank of Amsterdam (1609-1820). The Bank started out as a "stablecoin": it issued deposits backed by silver and gold coins, and settled payments by transfers across deposits. Over time, it performed functions of a modern central bank and its deposits took on attributes of fiat money. The economic shocks of the 1780s, large-scale lending and lack of fiscal support led to its failure. Using monthly balance sheet data, we show how confidence in Bank money gave way to a run equilibrium, where the fall of the premium on deposits over coins ("agio") into negative territory was swift and precipitous. This holds lessons for the governance of digital money.
    Keywords: stablecoins; crypto-assets; central banks; money
    JEL: E42 E58 N13
    Date: 2020–11
  31. By: Marco Jacopo Lombardi; Marianna Riggi; Eliana Viviano
    Abstract: We use a general equilibrium model to show that a decrease in workers' bargaining power amplifies the relative contribution to the output gap of adjustments along the extensive margin of labour utilization. This mechanism reduces the cyclical movements of marginal cost (and inflation) relative to those of the output gap. We show that the relationship between bargaining power and adjustments along the extensive margin (relative to the intensive margin) is supported by microdata. Our analysis relies on panel data from the Italian survey of industrial firms. The Bayesian estimation of the model using euro-area aggregate data covering the 1970-1990 and 1991-2016 samples confirms that the decline in workers' bargaining power has weakened the inflation-output gap relationship.
    Keywords: low inflation, bargaining power, Phillips curve
    JEL: E31 E32 J23 J60
    Date: 2020–11
  32. By: Taguchi, Hiroyuki
    Abstract: This article aims to examine the monetary policy rule under inflation targeting in Mongolia with a focus on its conformity to the Taylor principle, through the two kinds of approaches: a monetary policy reaction function by the generalized-method-of-moments (GMM) estimation and the New Keynesian dynamic stochastic general equilibrium (DSGE) model with a small open economy version by the Bayesian estimation. The main findings are summarized as follows. First, the GMM estimation identified the inflation-responsive rule fulfilling the Taylor principle in the recent phase of the Mongolian inflation targeting. Second, the DSGE-model estimation endorsed the GMM estimation by producing a consistent outcome on the Mongolian monetary policy rule. Third, the Mongolian rule was estimated to have a weaker response to inflation than the rules of the other emerging Asian adopters of inflation targeting.
    Keywords: Monetary policy rule, Taylor Principle, Mongolia, Inflation targeting, monetary policy reaction function, GMM, the New Keynesian DSGE model
    JEL: E52 E58 O53
    Date: 2020–11
  33. By: Diegel, Max; Nautz, Dieter
    Abstract: This paper empirically investigates the role of long-term inflation expectations for the monetary transmission mechanism. In contrast to earlier studies, we confirm that U.S. long-term inflation expectations respond significantly to a monetary policy shock. In line with a re-anchoring channel of monetary policy, we find that long-term inflation expectations play an important role for the transmission of monetary policy shocks to the rate of inflation. Our results are robust with respect to the identification strategy and alternative monetary policy indicators applied during the zero lower bound period.
    Keywords: Long-Term Inflation Expectations,Monetary Policy,Structural Vector Autoregression,Sign and Zero Restrictions
    JEL: E31 E52 C32
    Date: 2020
  34. By: David Popp (Maxwell School of Citizenship and Public Affairs); Francesco Vona (Observatoire français des conjonctures économiques); Giovanni Marin (Università degli Studi di Urbino Carlo Bo); Ziqiao Chen
    Abstract: We evaluate the employment effect of the green part of the largest fiscal stimulus in recent history, the American Recovery and Reinvestment Act (ARRA). Each $1 million of green ARRA created 15 new jobs that emerged especially in the post-ARRA period (2013-2017). We find little evidence of significant short-run employment gains. Green ARRA creates more jobs in commuting zones with a greater prevalence of pre-existing green skills. Nearly half of the jobs created by green ARRA investments were in construction or waste management. Nearly all new jobs created are manual labor positions. Nonetheless, manual labor wages did not increase.
    Keywords: Employment effect; Green subsides; American Recovery Act; Heterogeneous effect; Distributional impacts
    JEL: E24 E62 H54 H72 Q58
    Date: 2020
  35. By: ​pierre Aldama (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques)
    Abstract: This paper presents empirical evidence of asymmetric fiscal policy along the business cycle, using a real-time panel data on 19 OECD countries. We estimate various specifications of fiscal policy rules, in which ex ante fiscal policy has two major objectives: macroeconomic stabilization and fiscal consolidation. First, we find that a symmetric fiscal policy rule may not be an accurate representation of real-time fiscal policy. We find evidence in favor of asymmetric fiscal policy, in particular regarding the response to output gap. Second, fiscal policy appears to be generally procyclical in downturns and a-cyclical in upturns, typically in the Euro Area and during the crisis. Third, we do not find significant evidence of a procyclical fiscal consolidation in the OECD and the Euro Area, although surplus-debt feedback coefficients are generally larger in downturns. Our results are robust to an alternative measure of business cycle and to country exclusion.
    Keywords: Fiscal policy rules; Real-time data; Asymmetric stabilization; Fiscal consolidation
    JEL: E61 E62 H6
    Date: 2020–03
  36. By: Lucrezia Reichlin (London Business School); Giovanni Ricco (Observatoire français des conjonctures économiques); Thomas Hasenzagl
    Abstract: We evaluate the role of financial conditions as predictors of macroeconomic risk first in the quantile regression framework of Adrian et al. (2019b), which allows for non-linearities, and then in a novel linear semi-structural model as proposed by Hasenzagl et al. (2018). We distinguish between price variables such as credit spreads and stock variables such as leverage. We find that (i) although the spreads correlate with the left tail of the conditional distribution of GDP growth, they provide limited advanced information on growth vulnerability; (ii) nonfinancial leverage provides a leading signal for the left quantile of the GDP growth distribution in the 2008 recession; (iii) measures of excess leverage conceptually similar to the Basel gap, but cleaned from business cycle dynamics via the lenses of the semi-structural model, point to two peaks of accumulation of risks – the eighties and the first eight years of the new millennium, with an unstable relationship with business cycle chronology.
    Keywords: Financial cycle; Business cycle; Credit; Financial crises; Downside risk; Entropy; Quantile regressions
    JEL: E32 E44 C32 C53
    Date: 2020
  37. By: Johannes Zahner (Philipps University Marburg)
    Abstract: Due to its official mandate, the European Central Bank (ECB) is assumed to maximize an implied objective function that leads it to pursue inflation with a subordinate focus on supporting the general economic policy of the European Union. This objective is – by its very nature – difficult to quantify. My paper tries to decipher information regarding the ECB’s objective through the use of text mining on all public speeches between 2002 and 2020. The estimation of a sentiment index through a ’bag-of-words’-approach yields the following results. First, the findings of my analysis suggest a concave objective regarding the inflation rate. The implied inflation target is best summarized as an inflation rate of ’above, but close to 2%’. Deviations from this target lead to a reduction in the sentiment of the institutions’ communication. Second, my findings suggest a convex objective towards output growth and a linear objective towards the unemployment rate, with a preference for higher GDP growth and employent independently of the current level. Furthermore, the hierarchical order in the the European Central Bank (ECB)’s mandate does not always appear to be consistent with my findings. Deviations from its primary objective, the inflation rate, appear to be of no greater concern than deviations in its subordinate objective. Third, in periods of heightened uncertainty, there is an additional decrease in the sentiment of speech. Last, over the last two decades, speeches have become more pessimistic, even when controlling for macroeconomic conditions.
    Keywords: Sentiment Analysis, ECB, Monetary Policy, Public Perception
    JEL: E53 E58 E61
    Date: 2020
  38. By: Burrel, Hamish; Vespignani, Joaquin L.
    Abstract: Understanding the impact of economic uncertainty shocks at the industrial disaggregated level is critical for both fiscal and monetary policy response to economic uncertainty shocks. We estimate an SVAR model using quarterly Australian data from 1987:2 to 2018:4. The results of this paper emphasise that individual industries have unique responses to economic uncertainty shocks and do not necessarily reflect the response of the broader aggregate macroeconomy. We found the following stylized facts; i) The construction industry is the most negatively impacted industry by an economic uncertainty shock in terms of investment, output and employment in Australia; ii) The financial and insurance services industry also endures a substantial decline to these shocks, particularly on investment and employment indicators; iii) Economic uncertainty is shown to have less impact on the mining, health care and social assistance and public administration and safety industry, where the government plays a significant role.
    Keywords: Economic Uncertainty, Economic Uncertainty Shocks, SVAR, Australian economy, Australian Industries
    JEL: E00 E02 E1
    Date: 2020–06–01
  39. By: Yann Thommen
    Abstract: This paper investigates whether flexibility-enhancing reforms of national collective bargaining systems have positive outcomes in terms of employment and unemployment in the short-term, especially when implemented during an economic downturn. The analysis consists in applying local projections to a novel panel database of reforms of collective bargaining institutions in EU countries in the period 2000-2018. There is no evidence that making collective bargaining institutions more flexible during a recession has a positive effect on employment or unemployment in the short term. More specifically, reforms that reduce bargaining coverage have negative short-term effects, particularly on the employment of young people and low-educated workers, and are associated with a decline in the share of temporary jobs. The results do not support the idea that collective bargaining institutions should be reformed during a recession to boost employment.
    Keywords: Employment, Unemployment, Short-term effects, Labor market, Collective bargaining, Reforms.
    JEL: E24 E32 J08 J21 J5
    Date: 2020
  40. By: Adam Brzezinski; Roberto Bonfatti; K. KıvançKaraman; Nuno Palma
    Abstract: Monetary capacity refers to a state’s capacity to circulate money that is accepted by the public, while fiscal capacity refers to its capacity to tax. We argue that monetary and fiscal capacity, and by extension, markets and states are complements. The long-run European evidence since antiquity shows money stocks and tax revenues moving in close synch. History also offers a natural experiment to estimate the causal effect of monetary capacity on fiscal capacity. The discovery of silver in the New World increased money stocks followed by tax revenues, a finding that is robust to controlling for economic growth.
    Keywords: monetary capacity, fiscal capacity, monetization, inflation, taxation, quantity theory of money, monetary non-neutrality
    JEL: E50 E60 H21 N10 O11
    Date: 2020–11–16
  41. By: Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean
    Abstract: This paper uses a dataset covering the universe of French firm-level sales, imports, and exports over the period 1993-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. The largest firms are both important enough to generate aggregate fluctuations (Gabaix, 2011), and most likely to be internationally connected. This implies that foreign shocks are transmitted to the domestic economy primarily through the largest firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level heterogeneity across firms predominates: 40 to 85% of the impact of foreign fluctuations on French GDP is accounted for by the "foreign granular residual" - the term capturing the fact that larger firms are more affected by the foreign shocks. At the macro level, firm heterogeneity dampens the impact of foreign shocks, with the GDP responses 10 to 20% larger in a representative firm model compared to the baseline model.
    Keywords: Granularity, shock transmission, aggregate fluctuations, input linkages, international trade
    JEL: E32 F15 F23 F44 F62 L14
    Date: 2020–11
  42. By: Carlos A. Arango-Arango (Banco de la República de Colombia); Yanneth Rocío Betancourt-García (Banco de la República de Colombia)
    Abstract: En Colombia se han logrado importantes avances en el acceso a productos transaccionales ofrecidos por el sistema financiero, sin embargo, su uso aÚn es bajo, y las empresas y los consumidores continúan utilizando de manera intensiva el efectivo. Una de las razones por las cuales los colombianos prefieren el efectivo para realizar sus pagos cotidianos es la limitada aceptación de pagos electrónicos por parte de los comercios, lo que se explica en parte por la percepción que tienen éstos sobre los altos costos relativos de operar con pagos electrónicos versus operar con efectivo. Con el fin de tener una medición integral de los costos privados de los comercios en la aceptación y uso de diferentes instrumentos de pago, el Banco de la República realizó en 2018 una encuesta a comercios que aceptan tanto efectivo como tarjetas de pago. Este documento presenta los resultados de dicha encuesta. Las estimaciones muestran que el efectivo es significativamente menos costoso que las tarjetas débito y crédito a la hora de recibir pagos en los comercios. Dicha estructura de costos se replica para los pagos que realizan los comercios asociados con sus gastos de funcionamiento, para los cuales se encuentra que los costos de los pagos electrónicos llegan a ser más del doble que los de los pagos en efectivo. Así las cosas, para los comercios, operar con efectivo resulta más económico que operar con instrumentos de pago electrónicos. **** ABSTRACT: Although Colombia has made significant progress in the access to transactional products offered by the financial system, their use by the public is still low, and merchants and consumers continue to use cash intensively. One of the reasons why Colombians prefer cash to make their daily payments is the limited acceptance of electronic payments by merchants. This can be partly explained by the merchants’ perception of the high relative costs of operating with electronic payments versus operating with cash. To have a complete measure of merchants’ private costs of acceptance and use of different payment instruments, the Banco de la República conducted a survey in 2018 of merchants who accept both cash and payment cards. This paper presents the main results of the survey. Estimates show that cash is significantly less expensive than debit and credit cards when merchants receive payments. This cost structure is replicated for payments that merchants make for their operating expenses, for which the costs of making electronic payments more than double those of cash payments. Altogether, for merchants, operating with cash results much cheaper than with electronic payment systems.
    Keywords: Efectivo, instrumentos de pago, procesamiento de pagos, costos del comercio, tarjetas de pago, Cash, payment instruments, processing payments, merchants´ costs, payment cards.
    JEL: C81 C83 D23 E41 E42 E58
    Date: 2020–11
  43. By: Barnett, William A. (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Bella, Giovanni (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Ghosh, Taniya (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Mattana, Paolo (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Venturi, Beatrice (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The paper shows that in a New Keynesian (NK) model, an active interest rate feedback monetary policy, when combined with a Ricardian passive fiscal policy, à la Leeper-Woodford, may induce the onset of a Shilnikov chaotic attractor in the region of the parameter space where uniqueness of the equilibrium prevails locally. Implications, ranging from long-term unpredictability to global indeterminacy, are discussed in the paper. We find that throughout the attractor, the economy lingers in particular regions, within which the emerging aperiodic dynamics tend to evolve for a long time around lower-than-targeted inflation and nominal interest rates. This can be interpreted as a liquidity trap phenomenon, produced by the existence of a chaotic attractor, and not by the influence of an unintended steady state or the Central Bank's intentional choice of a steady state nominal interest rate at its lower bound. In addition, our finding of Shilnikov chaos can provide an alternative explanation for the controversial “loanable funds” oversaving theory, which seeks to explain why interest rates and, to a lesser extent inflation rates, have declined to current low levels, such that the real rate of interest is below the marginal product of capital. Paradoxically, an active interest rate feedback policy can cause nominal interest rates, inflation rates, and real interest rates unintentionally to drift downwards within a Shilnikov attractor set. Policy options to eliminate or control the chaotic dynamics are developed.
    Keywords: Shilnikov chaos criterion; l global indeterminacy; long-term un-predictability; liquidity trap
    JEL: C61 C62 E12 E52 E63
    Date: 2019–12
  44. By: Barnett, William A. (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Hu, Jingxian (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Will capital controls enhance macroeconomic stability? How will the results be influenced by the exchange rate regime and monetary policy reaction? Are the consequences of policy decisions involving capital controls easily predictable, or more complicated than may have been anticipated? We will answer the above questions by investigating the macroeconomic dynamics of a small open economy. In recent years, these matters have become particularly important to emerging market economies, which have often adopted capital controls. We especially investigate two dynamical characteristics: indeterminacy and bifurcation. Four cases are explored, based on different exchange rate regimes and monetary policy rules. With capital controls in place, we find that indeterminacy depends upon how the central bank’s response to inflation and its response to output gap coordinate with each other in the Taylor rule. When forward-looking, both passive and active monetary policy can lead to indeterminacy. Compared with flexible exchange rates, fixed exchange rate regimes produce more complex indeterminacy conditions, depending upon the stickiness of prices and the elasticity of substitution between labor and consumption. We show the existence of Hopf bifurcation under capital control with fixed exchange rates and current-looking monetary policy. To determine empirical relevance, we test indeterminacy empirically using Bayesian estimation. Fixed exchange rate regimes with capital controls produce larger posterior probability of the indeterminate region than a flexible exchange rate regime. Fixed exchange rate regimes with current-looking monetary policy lead to several kinds of bifurcation under capital controls. We provide monetary policy suggestions on achieving macroeconomic stability through financial regulation.
    Keywords: Capital controls; open economy monetary policy; exchange rate regimes; Bayesian methods; bifurcation; indeterminacy
    JEL: C11 C62 E52 F31 F38 F41
    Date: 2019–10
  45. By: Takushi Kurozumi; Willem Van Zandweghe
    Abstract: Recent studies indicate that, since 1980, the average markup and the profit share of income have increased, while the labor share and the investment share of spending have decreased. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of differentiated goods, a decline in trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, introducing a rise in the productivity of “superstar firms” in the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms’ markups, including the flat median markup.
    Keywords: average markup; profit share; labor share; trend inflation; Non-CES aggregator; superstar firm hypothesis
    JEL: E52 L16
    Date: 2020–11–12
  46. By: Nghiem, Giang
    Abstract: Using a survey of Dutch households, we find that individuals who have experienced higher national unemployment rates over their lifetime save more and borrow less, after controlling for aggregate shocks, income, wealth, and demographics. These results are consistent with experience-based learning and inconsistent with rational learning. Furthermore, these individuals find it more important to save for retirement and are more worried about losing their job. These observations suggest that periods of high unemployment depress aggregate demand because of persistently more pessimistic beliefs.
    JEL: E21 E32
    Date: 2020
  47. By: Mitra, Nirvana
    Abstract: I study the relationship between political constraints and the probability of sovereign default on external debt using a dynamic stochastic model of fiscal policy augmented with legislative bargaining and default. I find that political constraints and default probability are inversely related if the output cost of default is not too high. The model government comprises legislators who bargain over policy instruments, including over a local public good that benefits only the regions they represent. Higher political constraints are equivalent to more legislators with veto power over fiscal policies. This implies that during a default, the released resources need to be distributed among more regions as local public goods, with a smaller benefit accruing to each region, discouraging default. However, if default is too costly, even governments with lower political constraints default less frequently. Empirical evidence from South American countries is consistent with this result. I calibrate the infinite horizon model to Argentina. It confirms the negative relationship. A counterfactual exercise with even higher political constraints shows that the default by Argentina in 2001 could not be avoided.
    Keywords: Sovereign debt, Default risk, Interest rates, Political economy, Minimum winning coalition, Endogenous borrowing constraints.
    JEL: D72 E43 E62 F34 F41
    Date: 2020–11–15
  48. By: Samuel Alarcón Gambarte (Investigador de ILADES - Universidad de Georgetown)
    Abstract: Desde el año 2006, Bolivia inició un programa intensivo de inversión pública en el marco de su plan de desarrollo. Catorce años después, se analiza el rol que efectivamente ha desempeñado esta política fiscal expansiva. Se construye un Modelo de Equilibrio General Dinámico Estocástico para una economía pequeña, abierta y en desarrollo. Entre los principales resultados, se destaca que la inversión pública tiene dos roles en la economía boliviana: Externalidad positiva y costo de oportunidad. Primero, un incremento de la inversión pública genera una externalidad positiva permitiendo mayores niveles de crecimiento económico y se constituye en un mecanismo para amortiguar el efecto de shocks negativos de precios de exportación. Segundo, el uso intensivo de recursos para inversión pública tiene un efecto crowding out sobre la inversión privada y genera un deterioro de las finanzas públicas en el mediano plazo expresado en un aumento de la deuda pública y del déficit fiscal.
    Keywords: Inversión pública, política fiscal, ciclo económico, DSGE.
    JEL: E62 H5 E32
    Date: 2020–09
  49. By: Okunoye, Ismaila; Hammed, Sabuur
    Abstract: The study employed structural vector auto regressive model in a disaggregated analysis to measure the relative response of monetary and fiscal policy variables to the structural Oil price shocks in a small open and oil-dependent economy and identify sequence of appropriate policy response. Data utilized cover annual time series from 1981 to 2019. The study considers SVAR model with better and efficient tool to combine both short run and long run restrictions. Some empirical striking findings are discernible from our analyses. First, we establish that significant variation in monetary policy rate, exchange rate and money supply are explained by oil price shock. Second, we found that oil price shock have a significant impact on inflation rate, oil revenue and government expenditure. Lastly, we found that government expenditure has less innovations (less error term), compared to oil revenue and interest rate, and this indicates the direct policy of the government and not under the influence of monetary policy in Nigeria. Moreso, the result found more importantly, large reaction of inflation rate comes from oil price shock than the independent monetary policy rate and oil price shock caused large variation and reaction in monetary policy variable than fiscal policy variables. It is recommended there should be complementarity of fiscal policy and monetary policy carefully and appropriately, in order to avoid distortion in monetary policies implementation of the CBN in stabilizing the economy; government expenditure should be tailored to internal generated revenue, not oil-generating revenue; and government deposit in the financial sector is reduced as well as strengthen of treasury single account (TSA)policy to track government generated revenue may be a right policy for Nigeria financial sector.
    Keywords: fiscal policy, monetary policy, structural VAR
    JEL: E6 E63
    Date: 2020–07–27
  50. By: Polbin, Andrey; Kuroedova, Anastasiia
    Abstract: This paper considers an application of the ARDL model and bounds testing approach to the analysis of the long-run relationship between household consumption and aggregate income. We have explored the presence of a long-run relationship between real household consumption and indicators characterizing real income, such as: real gross domestic product (GDP), real gross domestic income (GDI), and GDP at constant household consumption prices. We provide statistical evidence of the lack of a long-run relationship in the first and second cases and its presence in the third case. We have concluded that the nominal GDP deflated by the price index of aggregated consumption is the most applicable indicator for describing the dynamics of real consumption in the Russian Federation.
    Keywords: consumption: GDP; real income; ARDL; co-integration; bounds test
    JEL: C22 E21
    Date: 2020
  51. By: Jagjit S. Chadha; Luisa Corrado; Jack Meaning; Tobias Schuler
    Abstract: The Federal Reserve responded to the global financial crisis by initiating an unprecedented expansion of central bank money (bank reserves) once the policy rate had reached the lower bound. To capture the salient features of the crisis, we develop a model where the central bank can provide reserves on demand and also use reserves to buy government bonds. We show that the provision of reserves through either channel reduces the cost of providing loans as they act as a substitute for private sector collateral and costly monitoring activity. We illustrate this mechanism by examining the role of reserves in projecting stable growth in broad money after the financial crisis. We also run a counterfactual which suggests that, if the Federal Reserve had not provided bank reserves on such a large scale, broad money would have fallen, the economy might have experienced a deeper contraction, and the recovery would have been more protracted, taking perhaps twice as long to return to equilibrium.
    Keywords: non-conventional monetary policy, quantitative easing, liquidity provision
    JEL: E31 E40 E51
    Date: 2020–11
  52. By: Goemans, Pascal
    Abstract: We investigate whether US government spending multipliers are higher during periods of heightened uncertainty or economic slack as opposed to normal times. Using quarterly historical data and local projections, we estimate a cumulative one-year multiplier of 2 during uncertain periods. In contrast, the multiplier is about 1 in times of high unemployment and about 0:5 - 0:7 during normal times. While we find positive employment effects in economic slack as in uncertain times, two transmission channels can explain the higher multipliers in the latter: greater price exibility leading to short run in ation (lowering the real interest rate) and diminishing risk premiums.
    Keywords: Fiscal policy,government spending,fiscal multiplier,uncertainty,economic slack,local projections,historical data
    JEL: E62
    Date: 2020
  53. By: Xin Scott Chen; Ali Jaffery; Guillaume Nolin; Karim Salhab; Peter Shannon; Subrata Sarker
    Abstract: This paper presents updated estimates of potential output growth for the global economy through 2022. Global potential output growth is expected to decline sharply in the aftermath of the COVID-19 pandemic and recover partially by the end of the projection horizon of the October 2020 Monetary Policy Report. More specifically, global potential output growth is expected to decline from 3.3 percent in 2019 to 2.1 percent in 2020 and then recover gradually to 2.7 percent by 2022. While growth is expected to decline in all regions, the negative effects of COVID-19 on trend labour productivity growth in emerging market economies are the largest contributor to the overall expected slowdown in global growth. This also reflects Bank of Canada staff’s assessments of ongoing headwinds from aging, trade tensions and structurally low trend total factor productivity growth across all regions. A partial recovery in all regions is expected to be driven mainly by the gradual recovery in trend total factor productivity growth and trend labour input growth. In the US, potential output growth is expected to decline sharply in 2020, mostly due to a decline in the trend participation rate and a reduction in the growth rate of immigration. By 2022, US potential output growth is expected to partially recover due to an improvement in trend total factor productivity growth and a modest recovery in trend labour input growth.
    Keywords: Potential output; Productivity
    JEL: E20 O4
    Date: 2020–11
  54. By: Claes Bäckman (Department of Economics and Business Economics, Aarhus University, and Knut Wiksell Center for Financial Studies, Lund University); Peter van Santen (Faculty of Economics and Business, University of Groningen)
    Abstract: We study how amortization payments affect household borrowing exploiting notches in the Swedish amortization requirement. We argue that amortization payments are costly for borrowers under a number of scenarios, and that they therefore affect credit demand. We provide causal evidence that a percentage point increase in amortization payments reduce LTV ratios by 2-3 percentage points, implying a sizable amortization elasticity of mortgage demand. Borrowers who seek to avoid making payments generally have higher debt, higher income and higher debt-to-income ratios. On the aggregate level, credit growth falls sharply after the introduction of the amortization requirement.
    Keywords: Amortization requirements, Macroprudential policy, Household debt
    JEL: G21 E21 E6
    Date: 2020–11–16
  55. By: Minford, Patrick (Cardiff Business School); Gai, Yue (Cardiff Business School); Meenagh, David (Cardiff Business School)
    Abstract: We set up a two-region model to study the policy challenge of bringing the NorthÕs income up to the level of the South in the UK. The model focuses on labour costs as the driver of output gains through the international competitiveness channel. The empirical results show that the regional model behaviour fits the regional UK data behaviour over the period of 1986Q1 and 2019Q4, using the demanding Indirect Inference method. We also carry out a Monte Carlo power test, which shows the empirical results we obtain are trustworthy and can provide us a reliable guide for policy reform.The results suggest that in response to tax cuts and labour market reforms GDP in the North increases almost twice as much as GDP in the South. Given that a broad programme of tax cuts and regulatory reform would more than pay for itself in the long run, it must be considered as a highly attractive political agenda.
    Keywords: Regional study; DSGE model; Policy implication; Indirect Inference
    JEL: E32 E60 P48
    Date: 2020–11
  56. By: Carlos Esteban Posada
    Abstract: La política favorable al crecimiento económico se basa en la teoría económica de una sociedad descentralizada (de mercado) cuya actividad productiva se expande en el largo plazo en medio de altibajos gracias al cambio técnico y al surgimiento, una y otra vez, de diversos obstáculos al proceso de crecimiento. En el caso colombiano de los últimos 70 años las tasas de crecimiento económico y de cambio técnico se han asociado a la movilización intersectorial de los recursos productivos, es decir, a lo que se denomina “cambio estructural”, y esto, a su turno, a políticas económicas (no siempre favorables).
    JEL: E13 E32 N16 O11 O30 O33
    Date: 2020–11–12
  57. By: Santiago Garcia-Couto
    Abstract: It is well documented that routine-biased technical change ("RBTC") led to labor market polarization during 1980-2000. In particular, the employment and wages of non-routine occupations, which include low-wage manual and high-wage cognitive ones, increased relative to routine occupations. I document that during 2000-2016, wage polarization stopped in that the wages of non-routine manual occupations fell in relative and absolute terms. I study the end of wage polarization through the lens of a dynamic general equilibrium model with RBTC, human capital accumulation, and occupational mobility. I find that during 2000-2016, RBTC continued to take place, but human capital accumulation and occupational mobility changed. In particular, compared to workers in routine occupations, workers in non-routine manual occupations had lower initial human capital and accumulated less human capital whereas workers in cognitive occupations had more initial human capital and accumulated more human capital than before. During 1980-2000 the changes in the human capital accumulation of the occupations were similar to those during 2000-2016, but during the second period mobility across occupations fell, which magnified the differences in human capital accumulation and led to the end of wage polarization.
    JEL: E24 J24 J31 J62
    Date: 2020–11–15
  58. By: Jonathan Chiu; Miguel Molico
    Abstract: We study the short-run effects of monetary policy in a search-theoretic monetary model in which agents are subject to idiosyncratic liquidity shocks as well as aggregate monetary shocks. Namely, we analyze the role of the endogenous non-degenerate distribution of liquidity, liquidity constraints, and decentralized trade in the transmission and propagation of monetary policy shocks. Money is injected through lump-sum transfers, which have redistributive and persistent effects on output and prices. We propose a new numerical algorithm in the spirit of Algan, Allais and Den Hann. (2008) to solve the model. We find that a one-time expansionary monetary policy shock has persistent positive effects on output, prices, and welfare, even in the absence of nominal rigidities. Furthermore, the effects of positive and negative monetary shocks are typically asymmetric. Negative (contractionary) shocks have bigger effects than positive (expansionary) shocks. In addition, in an economy with larger shocks, the responses tend to be disproportionately larger than those in an economy with smaller shocks. Finally, the effectiveness of monetary shocks depends on the steady-state level of inflation. The higher the average level of inflation (money growth), the bigger the impact effect of a shock of a given size but the smaller its cumulative effect. These results are consistent with existing empirical evidence.
    Keywords: Inflation and prices; Monetary policy; Monetary policy transmission
    JEL: E50
    Date: 2020–11
  59. By: Edward Lane; L. Randall Wray
    Abstract: As the nation is experiencing the need for ever-increasing government expenditures to address COVID-19 disruptions, rebuild the nation's infrastructure, and many other worthy causes, conventional thinking calls for restoring at least a portion corporate taxes eliminated by the 2017 Tax Cuts and Jobs Act, especially from progressive circles. In this working paper, Edward Lane and L. Randall Wray examine who really pays the corporate income tax and argue that it does not serve the purposes most people believe. The authors provide an overview of the true purposes and incidence of corporate taxation and argue that it is inefficient and largely borne by consumers and employees, not shareholders. While the authors would prefer the elimination of the corporate profits tax, they understand the conventional thinking that taxes are necessary to help finance government expenditures--even if they disagree. Accordingly, the authors present alternatives to the corporate tax that shift the burden from consumers and employees to those who benefit the most from corporate success.
    Keywords: Corporate Taxes; Tax Incidence; Modern Money Theory (MMT); Richard and Peggy Musgrave; Beardsley Ruml; Tax Reform
    JEL: B52 E12 E6 E62 G30 H20 H25
    Date: 2020–11
  60. By: Alberto Cardaci (Lombardy Advanced School of Economics Milan); Francesco Saraceno (Observatoire français des conjonctures économiques)
    Abstract: Our paper investigates the impact of rising inequality in a two-country macroeconomic model with an agent-based household sector characterized by peer effects in consumption. In particular, the model highlights the role of inequality in determining diverging balance of payments dynamics within a currency union. Inequality may drive the two countries into different growth patterns: where peer effects in consumption interact with higher credit availability, rising income inequality leads to the emergence of a debt-led growth. Where social norms determine weaker emulation and credit availability is lower, an export-led regime arises. Eventually, a crisis emerges endogenously due to the sudden-stop of capital flows from the net lending country, triggered by the excessive risk associated with the dramatic amount of private debt accumulated by households in the borrowing country. Monte Carlo simulations for a wide range of calibrations confirm the robustness of our results.
    Keywords: Inequality; Current account; Currency union; Agent-based model
    JEL: C63 D31 E21 F32 F43
    Date: 2019–07
  61. By: Ooft, Gavin (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: An accurate forecast for inflation is mandatory in the conduction of monetary policy. This paper presents models that forecast monthly inflation utilizing various economic techniques for the economy of Suriname. The paper employs Autoregressive Integrated Moving Average models (ARIMA), Vector Autoregressive models (VAR), Factor Augmented Vector Autoregressive models (FAVAR), Bayesian Vector Autoregressive models (BVAR) and Vector Error Correction (VECM) models to model monthly inflation for Suriname over the period from 2004 to 2018. Consequently, the forecast performance of the models is evaluated by comparison of the Root Mean Square Error and the Mean Average Errors. We also conduct a pseudo out-of-sample forecasting exercise. The VECM yields the best results forecasting up to three months ahead, while thereafter, the FAVAR, which includes more economic information, outperforms the VECM, based on the assessment of the pseudo out-of-sample forecast performance of the models.
    Keywords: Inflation; Forecasting; Time-Series Models; Suriname
    JEL: C32 E31
    Date: 2020–01
  62. By: Ávila, Jorge C. (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: For many reasons, dollarization is an efficient and realistic option for this country. Yet, in order to last, it must be able to withstand banking panics without the assistance of a conventional lender of last resort and the lobby of protected industries to revoke dollarization. To this end, we advance a model of commercial banking close to that of Panama, under foreign law, and argue for free trade agreements with superpowers to smooth out real-exchange rate fluctuations.
    Keywords: country risk; zero-trust country; currency substitution; irreversible reforms; Panama; branch banking
    JEL: E02 E42
    Date: 2019–03
  63. By: Jérôme Creel (Observatoire français des conjonctures économiques); Mehdi El Herradi (Université Bordeaux Montaigne)
    Abstract: This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB’s monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distribution or for non-standard monetary policies.
    Keywords: Euro Area; Monetary policy; Income distribution; Panel VAR
    JEL: E62 E64 D63
    Date: 2020–06
  64. By: Takuma Kunieda (School of Economics, Kwansei Gakuin University); Kazuo Nishimura (RIEB, Kobe University and RIETI)
    Abstract: To investigate the growth effect of pollution, we apply an optimal growth framework in which human and physical capital accumulation are two growth engines. Pollution is emitted from the stock of physical capital and has a negative impact on the formation of human capital. In this simple growth model, sustainable endogenous growth never occurs and a unique steady state emerges because of the negative impact of pollution. The model shows that (i) if the extent of the external effect of pollution is relatively small, the steady state is stable and the economy starting in the neighborhood of the steady state converges to it, (ii) if the extent of the external effect is relatively large, the steady state is unstable and the economy diverges away from it, and (iii) a Hopf bifurcation occurs at a certain intermediate extent of the external effect. The numerical analysis illustrates the global dynamic behavior in which the economy exhibits a closed orbit as sufficient time passes if the steady state is unstable.
    Keywords: pollution, human capital, Hopf bifurcation, limit cycle, endogenous business cycles
    JEL: O41 O44 E32
    Date: 2020–11
  65. By: 洪智武; 牛霖琳
    Abstract: 为综合运用国债收益率曲线蕴含的丰富信息提升对中国通胀预期的建模、预测和影响因素分 析,本文推导了含有通胀等宏观变量的混频无套利Nelson-Siegel利率期限结 构扩展模型,模型兼具理论一致性和信息有效性,在对不同期限债券进行一致性定价的理论 约束下,从债券市场和不同频率的宏观金融变量中提取了能够较好反映中国通胀水平和变动 的通胀预期期限结构。本文的实证结果表明:1)中国通胀预期的水平主要由货币增长率、 通胀率以及全球食品价格变动决定;2)中短期通胀预期对各宏观金融变量冲击具有不同程 度的显著响应;3)对于中长期通胀预期的波动,收益率因子的解释力大于其他宏观变量, 说明国债定价反映了未来通胀不确定性。本文的研究方法有助于市场投资者和政策决策者对 通胀预期的发现和锚定。
    Keywords: 通胀预期;混频建模;无套利Nelson-Siegel利率期限结构模型
    JEL: G12 E31 E43
    Date: 2020–09–28
  66. By: Henry Nasses; Rodrigo De Losso
    Abstract: This paper documents the optimism in the projection of GDP and IPCA. That is, it shows that GDP projections are systematically higher than what actually happens, and IPCA projections are systematically lower. Then it tests whether there are institutional incentives for the behavior of professionals who make such projections. Finally, it verifies whether the revision of the projections still carries the previously identified bias. The results confirm the existence of an optimistic bias in the GDP and IPCA projections and this bias remains in the following revisions. However, there seems to be no institutional incentive for this behavior
    Keywords: Biases; Behavioral Economics; Behavioral Finance; forecast; GDP; inflation; Boletim Focus
    JEL: C12 C53 E37
    Date: 2020–11–13
  67. By: Walter Paternesi Meloni (Roma Tre University); Antonella Stirati (Roma Tre University)
    Abstract: After the 1980s, advanced capitalist economies witnessed a significant decline of the labor share in income. Along with the conventional view, which ascribed this decline to technological factors and international trade, another line of enquiry has endorsed a `Political Economy` approach to identifying several drivers of the labor share erosion. Among the latter, the role of persistent labor market slack has remained relatively unexplored. We try to fill this gap moving from a recent contribution by Anwar Shaikh, who elaborated on the relation between unemployment and changes in income distribution and in the US economy. We study this relationship by adopting a long-term approach, using two alternative measures of labor market slack (namely, the unemployment rate and the unemployment intensity, an index that incorporates the duration of unemployment). We first extend Shaikh`s method of analysis to eight mature countries, and subsequently we approach the relationship between changes in labor market slack and the (adjusted) wage share in the private sector of the economy from 1960 to 2017 with other econometric techniques. Our findings confirm the existence of a negative relationship between labor market slack and the wage share, and we find no tendency to return to a `normal` unemployment rate associated with a stable wage share.
    Keywords: wage share, income distribution, unemployment, labor market slack, unemployment duration, bargaining power.
    JEL: E11 E25 J64
    Date: 2020–09–21
  68. By: Ziqiao Chen; Giovanni Marin; David Popp (Maxwell School of Citizenship and Public Affairs); Francesco Vona (Observatoire français des conjonctures économiques)
    Abstract: As nations struggle to restart their economy after COVID-19 lockdowns, calls to include green investments in a pandemic-related stimulus are growing. Yet little research provides evidence of the effectiveness of a green stimulus. We begin by summarizing recent research on the effectiveness of the green portion of the 2009 American Recovery and Reinvestment Act on employment growth. Green investments are most effective in communities whose workers have the appropriate “green” skills. We then provide new evidence on the skills requirements of both green and brown occupations, as well as from occupations at risk of job losses due to COVID-19, to illustrate which workers are most likely to benefit from a pandemic-related green stimulus. We find similarities between some energy sector workers and green jobs, but a poor match between green jobs and occupations at risk due to COVID-19. Finally, we provide suggestive evidence on the potential for job training programs to help ease the transition to a green economy.
    Keywords: Green subsides; Green stimulus; American Recovery and Reinvestment Act; Heterogeneous effect; Distributional impacts
    JEL: E24 E62 H54 H72 Q58
    Date: 2020
  69. By: Gerdtham, Ulf-G. (Department of Economics, Lund University); Heckley, Gawain (Health Economics Unit, Department of Clinical Sciences (Malmö), Lund University, Sweden); Lissdaniels, Johannes (Health Economics Unit, Department of Clinical Sciences (Malmö), Lund University, Sweden)
    Abstract: To-date the macroeconomic conditions-mortality literature on income-related inequality in mortality has relied on subgroup analysis, mainly using income as a stratification variable, but this nearly always causes selection bias yielding results that are hard to interpret. To solve this bad control problem, we apply a novel technique based on recentered influence function regression of overall income-related mortality measures, like the commonly used concentration index. We also highlight the importance of: i) measurement of relative versus absolute inequality; ii) measurement of inequality by population-level statistics of inequality (concentration indices) versus subgroup analysis; iii) measurement of short versus long-term income. We illustrate these issues and our suggested solution using detailed individual-level administrative data from Sweden. Our findings show that there overall is a (insignificant) counter-cyclical impact on mortality and its income-related inequality. During a sub-period of pronounced and significant counter-cyclical mortality we find support for accompanying counter-cyclical income-related inequality, but only when using short-term income.
    Keywords: Mortality; Macroeconomic conditions; Unemployment; Recentered influence function; Inequality; Concentration index.
    JEL: E32 I14
    Date: 2020–11–09
  70. By: Diego A. Comin; Javier Quintana Gonzalez; Tom G. Schmitz; Antonella Trigari
    Abstract: Standard methods for estimating total factor productivity (TFP) growth assume that economic profits are zero and adjustment costs are negligible. Moreover, following the seminal contribution of Basu, Fernald and Kimball (2006), they use changes in hours per worker as a proxy for unobserved changes in capacity utilization. In this paper, we propose a new estimation method that accounts for non-zero profits, structurally estimates adjustment costs, and relies on a utilization proxy from firm surveys. We then compute industry-level and aggregate TFP growth rates for the United States and five European countries, for the period 1995-2016. In the United States, our results suggest that the recent slowdown of TFP growth was more gradual than previously thought. In Europe, we find that TFP was essentially flat during the Great Recession, while standard methods suggest a substantial decrease. These differences are driven by profits in the United States, and by profits and our new utilization proxy in Europe.
    JEL: E01 E30 O30 O40
    Date: 2020–10
  71. By: Youngsoo Jang; Minchul Yum
    Abstract: A majority of governments around the world unprecedentedly closed schools in response to the COVID-19 pandemic. This paper quantitatively investigates the macroeconomic and distributional consequences of school closures through intergenerational channels in the medium- and long-term. The model economy is a dynastic overlapping generations general equilibrium model in which schools, in the form of public education investments, complement parental investments in producing children's human capital. We calibrate the stationary equilibrium of the model to the U.S. economy and compute the equilibrium responses following unexpected school closure shocks. We find that school closures have moderate long-lasting adverse effects on macroeconomic aggregates such as output. In addition, we find that school closures reduce intergenerational mobility, especially among older children. Finally, we find that lower substitutability between public and parental investments induces larger damages in the aggregate economy and overall lifetime incomes of the affected children, while mitigating negative impacts on intergenerational mobility. In all findings, heterogeneous parental responses to school closures play a key role. Our results provide a quantitatively relevant dimension to consider for policymakers assessing potential costs of school closures.
    Keywords: Intergenerational mobility, lifetime income, parental investments, aggregate loss, substitutability
    JEL: E24 I24 J22
    Date: 2020–11
  72. By: Sameh Hallaq
    Abstract: This paper consists of three economic literature review essays that survey the Palestinian labor market during the last three decades. The first essay examines the economic return to schooling since 1981 until the recent period, taking into consideration the major shocks that the Palestinian economy experienced, such as the First and Second Palestinian Intifadas (1987-93 and 2000-5), respectively, and the establishment of the Palestinian National Authority in 1993. A special focus is laid on overcoming the potential endogeneity arising from the schooling coefficient. The second essay discusses the economic costs of several conflict measures (e.g., time and geographical variation in fatalities and other conflict incidents, days under curfews, checkpoints, movement restrictions, and substitution of foreigner workers for Palestinian labor) on the labor market and human capital. Earnings and unemployment are the main labor market indicators, while the human capital impact was assessed by educational attainment. The third essay sheds light on the wage differential in the Palestinian labor market due to geographical and employment sector factors.
    Keywords: Returns to Schooling; Israeli-Palestinian Conflict; Wage Differential
    JEL: E24 J31 J24 J40 J61
    Date: 2020–11
  73. By: Katsushi S. Imai (Department of Economics, The University of Manchester, UK and Research Institute for Economics and Business Administration, Kobe University, Japan); Nidhi Kaicker (School of Business, Public Policy and Social Entrepreneurship, Ambedkar University, India); Raghav Gaiha (Glovbal Development Institute, University of Manchester, UK and Population Studies Centre, University of Pennsylvania, U.S.A.)
    Abstract: Using the panel data on market arrivals and prices for the 17 Indian states from July 2019 to June 2020, the present study examines whether the growth of Covid-19 pandemic influenced fractional changes in market arrivals and prices. A point of departure of our analysis from the literature is that we take into account the dynamic and lagged interactions between the fractional changes in market arrivals and prices of food commodities, namely, rice, onion, potato, and tomato, and the growth rate in the severity ratio of the Covid-19 pandemic, using a panel VAR model based on GMM. Our results suggest that there was virtually no effect of the Covid-19 pandemic growth on fractional changes in market arrivals while the former negatively influences fractional food price changes in the short run. However, once we consider feedback effects in the VAR model based on Impulse Response Functions, the overall elasticity of the fractional change in the market arrival with respect to the Covid-19 pandemic growth turns from weakly positive to zero in a relatively short term. The overall elasticity of the fractional change in the market price with respect to the Covid-19 pandemic growth turns from positive to zero or negative in onion and tomato, from negative to zero in rice and potato. We also find a great deal of regional heterogeneity where, for instance, the negative effect of the pandemic growth on the fractional change in price is larger in Maharashtra, the state with the worst pandemic. While the effect of the pandemic growth is relatively short-lived, policymakers need to take into account dynamic effects over time given the complexity of the transmission mechanism.
    Keywords: Covid-19 pandemic; Food prices; A panel VAR model; Lockdown; India
    JEL: E31 E61 E65
    Date: 2020–11
  74. By: Swati Singh (Madras School of Economics, Chennai, India); Naveen Srinivasan (Professor, Madras School of Economics, Chennai, India)
    Abstract: It is not to be doubted that the oil price shocks adversely impact the economy. Enough literature is present in support of this fact but, at the same time, it is equivalently important to determine the changing nature of this relationship. This paper studies the changing behavior of this relation from 1948-2018 and shows that the oil prices are no more as effective in explaining the changes in the output of the economy as it had been before the 1970s. Our results also show the extent to which oil intensity has reduced in effecting the output of the US economy along with explaining the short term and long term impacts of oil shocks. Through variance decomposition analysis, the paper explains the reason for this decline in oil importance in recent time. Various factors like changing technology and political and strategic implications are found to be a few of the many reasons behind this change.
    Keywords: Macroeconomic Fluctuations; Oil shocks; Energy and the Macroeconomy; ARDL Model; VAR; Granger causality test;Error Variance Decomposition
    JEL: E32 C22 C32 Q43
  75. By: Flood, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: This paper presents a rendition of Madagascar’s history as seen through the eyes of the balance sheets of the Banque de Madagascar (later the Banque de Madagascar et des Comores). The banque was formed with a dual charter that gave it the ability to function as both a bank of issue (central bank) and a commercial bank. Like other French Colonial banks, the Banque initially functioned primarily as a bank of issue, helping to monetize Madagascar’s fledgling economy. As the Malagasy economy grew, the Banque issued increasing amounts of credit to the Malagasy private sector. At the end of the Banque’s lifespan, a separate central bank was formed, removing the Banque’s note-issuing privilege. From that point until its closure in 1977, the Banque solely functioned as a commercial enterprise. The evolution of the Banque is traced via an analysis of its balance sheets.
    Keywords: Comoros; Madagascar; central bank; balance sheet
    JEL: E58 N27
    Date: 2020–03
  76. By: Charles de Beauffort (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: What does central bank independence imply for the optimal conduct of time-consistent fiscal and monetary policy in a liquidity trap? To provide an answer, I consider a stochastic noncooperative game in which the lower bound on nominal rates is an occasionally binding constraint and in which government debt serves as a tool to influence future policy trade-offs. I show that a transitory consolidation of debt in the liquidity trap optimally reduces expected real rates and stimulates current consumption and inflation via an expectation channel. The reaction function of the independent central bank outside the lower bound is pivotal in obtaining this result - considering instead coordinated policy produces the opposite effect of an optimal increase in debt. Lengthening the debt maturity allows to mitigate issues related to lack of coordination.
    Keywords: Optimal Time-Consistent Policy, Distortionary Taxation, Liquidity Trap, Fiscal and Monetary Policy Interactions
    Date: 2020–11–10
  77. By: Jan Capek (Masaryk University); Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Niko Hauzenberger (University of Salzburg); Vlastimil Reichel (Masaryk University)
    Abstract: We provide a comprehensive assessment of the predictive ability of combinations of Dynamic Stochastic General Equilibrium (DSGE) models for GDP growth, inflation and the interest rate in the euro area. We employ a battery of static and dynamic pooling weights based on Bayesian model averaging principles, prediction pools and dynamic factor representations, and entertain eight different DSGE specifications and four prediction weighting schemes. Our results indicate that exploiting mixtures of DSGE models tends to achieve superior forecasting performance over individual specifications for both point and density forecasts. The largest improvements in the accuracy of GDP growth forecasts are achieved by the prediction pooling technique, while the results for the weighting method based on dynamic factors partly leads to improvements in the quality of inflation and interest rate predictions.
    Keywords: Forecasting, model averaging, prediction pooling, DSGE models
    JEL: E37 E47 C53
    Date: 2020–11
  78. By: Kenny, Seán (Department of Economic History, Lund University); Lennard, Jason (Department of Economic History, Lund University); Hjortshøj O’Rourke, Kevin (NYU Abu Dhabi)
    Abstract: We construct an annual index of Irish industrial output for 1800-1921, the period during which the entire island was in a political Union with Great Britain. We also construct a new industrial price index. Irish industrial output grew by an average of 1.4 per cent per annum over the period as a whole, and by 1.8 per cent per annum between 1800 and the outbreak of World War I. Industrial growth was more rapid than previously thought before the Famine, and slower afterwards. While Ireland did not experience deindustrialization either before the Famine or afterwards, its industrial growth was disappointing when considered in a comparative perspective.
    Keywords: Ireland; Industrial production; Famine; Historical national accounts
    JEL: E01 N13 N14
    Date: 2020–10–20
  79. By: Michael Sposi; Kei-Mu Yi; Jing Zhang
    Abstract: Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multistage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production.
    Keywords: Multistage production; International trade; Capital accumulation
    JEL: E22 F10 F43
    Date: 2020–11–10
  80. By: Adam Copeland
    Abstract: The U.S. federal funds market played a central role in the financial system during the 2007-09 crisis, because it was the market which provided banks with immediate liquidity, even late in the day. Interpreting changes in fed funds rates is notoriously difficult, however, as many of the economic drivers behind the rates are simultaneously changing. In this post, I highlight results from a working paper which untangles the impact of these economic drivers and measures their respective effects on the marketplace using data over a sample period leading up to and during the financial crisis. The analysis shows that the spread between fed funds sold and bought widened because of increases in counterparty risk. Further, there was a large increase in the supply of cash into this market, suggesting that banks viewed fed funds as a relatively safe place to invest cash in a crisis environment.
    Keywords: asymmetric information; fed funds; financial crisis; intermediation
    JEL: E5 G21 G01
    Date: 2020–11–10
  81. By: Clemens Fuest; Florian Neumeier; Daniel Stöhlker
    Abstract: On 1 July 2020, value added tax (VAT) rates were reduced in Germany to fight the economic consequences of the Corona pandemic. The VAT rate reduction is temporary as rates will return to their previous level on 1 January 2021. We study the effects of the temporary VAT rate cut on German supermarket retail prices using an extensive webscrapped data set covering the daily prices of roughly 190,000 products. To identify the causal price effects, we compare the development of prices in Germany to those in Austria. Our findings indicate a nearly full pass-through of the VAT rate reduction on prices. On average, prices in German supermarket retail decreased by 2% after the implementation of the VAT rate reduction. We also provide evidence that prices in more competitive product markets decreased to a larger extent.
    Keywords: Value added tax, tax incidence, price effects, decoy, political alignment, competition
    JEL: E31 H22 H25
    Date: 2020
  82. 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.
    JEL: C22 C52 E37
    Date: 2020–10
  83. By: Edward J. Kane (Boston College)
    Abstract: This essay is part of a larger work on the history of Federal Reserve policymaking entitled Banking on Bull. The study seeks to explain why the instruments of central banking inevitably break down over time. A big part of the explanation is that policymakers want accounting measures of bank net worth to be flexible enough to allow bankers and regulators to slow the release of adverse information about distressed banks, particularly very large ones. Modern regulatory frameworks focus on maintaining what can be described as the adequacy of accounting capital. But this framework is bull, because in tough times, bank accountants know how to make losses disappear.
    Keywords: capital requirements, too big to fail, loss recognition, income-distribution effects
    JEL: E58 G21 G32
    Date: 2020–08–27
  84. By: Andrew Atkeson; Michael C. Droste; Michael 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 4-15 (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.
    JEL: E60 I10
    Date: 2020–10
  85. By: Glawion, Rene; Puche, Marc; Haller, Frédéric
    Abstract: We develop a general equilibrium model of earnings, income and wealth heterogeneity in continuous time. We extend existing analytical and numerical methods to solve the model. We calibrate the model to U.S. data and find that stochastic interest rates provide a mechanism to link earnings, income and wealth distributions. We use this connection to demonstrate that an increase in unemployment benefits leads to a rise in steady state wealth inequality measured by the Gini coefficient.
    Keywords: Incomplete Markets,Fokker-Planck Equations,Wealth Distributions,Computable General Equilibrium Models
    JEL: C68 D31 E21
    Date: 2020
  86. By: Jonathan Benchimol (Bank of Israel, Jerusalem, Israel); Sergey Ivashchenko (Russian Academy of Sciences (IREP), Financial Research Institute, and Saint-Petersburg State University, Saint Petersburg, Russia)
    Abstract: Uncertainty about an economy's regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.
    Keywords: DSGE, Volatility Shocks, Markov Switching, Open Economy, Financial Crisis, Nonlinearities
    JEL: C61 E32 F41
    Date: 2020–11
  87. By: R. Glenn Hubbard; Michael R. Strain
    Abstract: Enacted March 27, 2020, the Paycheck Protection Program (PPP) was the most ambitious and creative fiscal policy response to the Pandemic Recession in the United States. PPP offers forgivable loans — essentially grants — to businesses with 500 or fewer employees that meet certain requirements. In this paper, we present evidence that PPP has substantially increased the employment, financial health, and survival of small businesses, using data from the Dun & Bradstreet Corporation. We use event studies and standard difference-in-difference models to estimate the effect of a small business applying for larger PPP loans and of a small business being eligible for PPP based on size. While our findings are informative, we believe it is too early to issue conclusive judgment on PPP’s success. We offer lessons for the future from the PPP experience thus far.
    JEL: E24 E62 H25 H3 H32
    Date: 2020–10
  88. By: Valeria Bejarano-Salcedo (Banco de la República de Colombia); William Iván Moreno-Jimenez (Banco de la República de Colombia); Juan Manuel Julio-Román (Banco de la República de Colombia)
    Abstract: En esta nota hacemos explícitos los problemas más importantes que confrontan los estudios de efectividad y de estimación del efecto de intervenciones esterilizadas, especialmente aquellas que tiene un objetivo implícito sobre el nivel de la tasa de cambio. Estos problemas se solucionan, por lo menos en gran parte, con la utilización de modelos basados en la microestructura del mercado cambiario sobre información de alta frecuencia. Empleando uno de estos estudiamos el efecto de la intervenciones esterilizadas a través de subastas de opciones, en especial las de compra directa, realizadas por el Banco de la República en las últimas décadas. Para esto contamos con información detallada intradía sobre el mercado, las sorpresas contenidas en los anuncios macroeconómicos y las intervenciones. Encontramos que estas intervenciones tienen un efecto pequeño y de corta duración sobre la tasa de cambio. Los resultados sugieren, sin embargo, que la señal fué creíble pero no ambigua en un mercado eficiente. Estos resultados son más marcados para el periodo 2007-2011 que para 2011-2019. **** ABSTRACT: In this paper we explain the most important challenges empirical research on sterilized intervention effect and effectiveness faces, specially when analyzing interventions with implicit rather than explicit exchange rate level targets. These challenges are surpassed, at least for the most part, through the use of foreign exchange market microstructure based models on high frequency sample information. Employing one of such models, we study the effect of sterilised interventions through auctions of call/put options, mainly direct purchase auctions, performed by Banco de la Rep´ublica during the last decades. To reach this objective, we built a detailed intra-day database on the market, macroeconomic surprises and intervention. We found that these interventions have a small and short lasting effect on the COP/USD exchange rate. Our results suggest, however, that the signal was credible and non ambiguous in an efficient market. These results are stronger for the 2007-2011 sub-sample than the 2011-2019 one.
    Keywords: Intervención del banco central, Tasa de cambio, Microestructura del mercado cambiario, Central bank intervention, Exchange rate, FX Market micro-structure
    JEL: F31 G14 G15 E58
    Date: 2020–11
  89. By: Schilirò, Daniele
    Abstract: The COVID-19 pandemic has left the global economy with severe health damage, losses of life and a sharp recession. In addition, it has resulted in a rise of public debts, heightening the tension between meeting major policy goals, growth, employment, health system, environment and containing debt vulnerabilities. This paper examines the literature regarding the debt–growth nexus and the issue of debt sustainability. In particular, it highlights the evidence of some empirical literature showing that high public debt hampers growth, and that countries with high public debt are vulnerable to adverse shocks. In addition, the paper focuses on the case of Italy, a country characterized by a high public debt, low growth and other economic weaknesses, with the purpose to claim a strategy and indicate policy measures.
    Keywords: COVID-19; crisis; public debt; growth; debt sustainability; Italian economy
    JEL: E6 F01 H6 O40 O50
    Date: 2020–10
  90. By: J. Scott Davis; Michael B. Devereux; Changhua Yu
    Abstract: This paper shows how foreign exchange intervention can be used to avoid a sudden stop in capital flows in a small open emerging market economy. The model is based around the concept of an under-borrowing equilibrium defined by Schmitt-Grohe and Uribe (2020). With a low elasticity of substitution between traded and non-traded goods, real exchange rate depreciation may generate a precipitous drop in aggregate demand and a tightening of borrowing constraints, leading to an equilibrium with an inefficiently low level of borrowing. The central bank can preempt this deleveraging cycle through foreign exchange intervention. Intervention is effective due to frictions in private international financial intermediation. Reserve accumulation has ex ante benefits by reducing the risk of a sudden stop, while intervention has ex-post benefits by limiting inefficient deleveraging. But intervention itself faces constraints. When the central bank's stock of reserves is low, even foreign exchange intervention cannot prevent a sudden stop.
    Keywords: Central bank; sudden stops; foreign exchange reserves; capital controls
    JEL: E50 E30 F40
    Date: 2020–11–10
  91. By: Jérôme Creel (Observatoire français des conjonctures économiques)
    Abstract: Numerical simulations of fiscal space in the euro area, based on 12 different situations, point to the large uncertainty surrounding the capacity of Member States to pay back their public debts. Debt sustainability appears to depend crucially on long-term nominal interest rate being lower than nominal growth for a long period. Only in this case do major European countries experience some additional fiscal space. Although the analytics behind this exercise is common knowledge among macroeconomists, it gives an order of the magnitude of fiscal space in the euro area and it confirms that interactions between the ECB and governments are key to escape the public finances consequences of an exogenous global shock like Covid-19.
    Keywords: Fiscal policy; Public debt; Fiscal deficit; Covid-19
    JEL: E62 H62 H63
    Date: 2020–05
  92. By: Benjamin Lochner; Christian Merkl; Heiko Stüber; Nicole Guertzgen
    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
  93. By: Alessandro Riboni (École Polytechnique); Francisco Ruge-Murcia (McGill University)
    Abstract: Transcripts from the meetings of the Federal Open Market Committee (FOMC) show that the policy proposed by its chair is always adopted with a majority of votes and limited dissent. An interpretation of this observation is that the power of the chair vis-a-vis the other members is so large that the policy selected by the committee is basically that preferred by the chair. Instead, this paper argues that the observation that the chairís proposal is always approved is an equilibrium outcome: the proposal passes because it is designed to pass and it does not necessarily correspond to the policy preferred by the chair. We construct a model of inclusive voting where the chair has agenda-setting powers to make the proposal that is initially put to a vote but is subject to an acceptance constraint that incorporates the preferences of the median and the probability of counter-proposals. The model is estimated by the method of maximum likelihood using real-time data from FOMC meetings. Results for the full sample and sub-samples for each chair between 1974 and 2008 show that the data prefer a version of our model where the chair is moderately inclusive over a dictator model. Thus, the workings of the FOMC appear to be stable over time and no chair, regardless of personality and recognized ability, can deviate far from the median view.
    Keywords: Inclusive-voting, agenda-setting, consensus, FOMC, collective decision-making
    JEL: D7 E5
    Date: 2020–06
  94. By: Bhaghoe, Sailesh (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Ooft, Gavin (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: This paper estimates a model of exchange-rate volatility that includes commodity prices as an exogenous determinant. We apply this model to the mining-based economy of Suriname. Fluctuations of the exchange rate are detrimental for the economy. This was evident in 2015 and 2016 when the economy of Suriname considerably contracted due to persistent negative commodity price shocks. First, we calibrate higher order General Autoregressive Conditional Heteroscedastic (GARCH) models to model the conditional variances of the exchange rate with available monthly data for the period 1994 to 2019. We obtained useful results from Exponential, Asymmetric, Threshold, Component and combined Mean-GARCH models calibrated with standardized error distributions. Then, we perform in-sample forecasts with the calibrated models for the period 2012 to 2019. Lastly, we select the best-performing models to forecast conditional variances of the exchange rate.
    Keywords: Exchange Rate Volatility; GARCH models; Heteroscedasticity
    JEL: C52 E44 E47
    Date: 2020–10
  95. By: Baker, Zackary (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Gulino, George (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Javat, Adil (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Schuler, Kurt (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The Bank of the United States was the closest the United States came to having a central bank before establishing the Federal Reserve System. What was later called the First Bank of the United States operated from 1791 until its charter lapsed in 1811. After bad experience without a national bank during the War of 1812, the federal government chartered what was termed the Second Bank of the United States in 1816. When its charter lapsed in 1836, the bank continued as the United States Bank of Pennsylvania, which failed in 1841 following recessions and financial panics. We present digitized balance sheet data for all three institutions.
    Keywords: First Bank of the United States; Second Bank of the United States; United States Bank of Pennsylvania; Pennsylvania Bank of the United States; balance sheet; assets; liabilities; central banking
    JEL: E50 N11
    Date: 2019–01
  96. By: 牛霖琳; 夏红玉; 许秀
    Abstract: 本文通过提取2009-2019 年债券交易大数据中隐含的风险溢价,构建省级债务风险指标,发现各省债务风险在2015 年后显著上升,风险溢价期限结构倒挂,流动性恶化。运用网络向量自回归模型分别对城投债和地方债网络的风险指标建模,并扩展至双网络模型,发现二者的网络溢出效应在2015 年后显著为正,在2018 年后有扩大趋势 ,且存在自城投债 网络向地方债网络的风险传导效应。 本文研究为监测地方债务系统性风险及风险传导提供了可行性和科学参考。
    Keywords: 地方债务风险; 网络溢出效应;风险传导
    JEL: C55 E44 H63
    Date: 2020–11–12
  97. By: Maurizio Iacopetta (Observatoire français des conjonctures économiques); Raoul Minetti (Michigan State University); Pierluigi Murro
    Abstract: New firms are often based on ideas that the founders developed while working for incumbent firms. We study the macroeconomic effects of spinoffs through a growth model of product variety expansion, driven by firm entry, and product innovation. Spinoffs stem from conflicts of interest between incumbent firms' shareholders and employees. The analysis suggests that incumbents invest more in product innovation when knowledge protection is stronger. An inverted-U shape relationship emerges, however, between the intensity of spinoff activities and the strength of the rule of law. A calibration experiment indicates that, with a good rule of law, loosening knowledge protection by 53 reduces product innovation by one fifth in the short run and one seventh in the long run, but boosts the spinoff rate by one tenth and one sixth in the short and long run, respectively. Nevertheless, per capita income growth drops and welfare deteriorates. The trade-offs are broadly consistent with evidence from Italian firms.
    Keywords: Corporate governance; Endogenous growth; Spinoffs
    JEL: E44 O40 G30
    Date: 2020–04–29
  98. By: Stéphane Auray (LIEPP); Samuel Danthine; Markus Poschke
    Abstract: Asubstantial share of severance payments derives from private contracts or collective agreements. In this paper, we study the determination of these payments. We analyze joint bargaining over wages and severance payments in a search-and-matching model with risk-averse workers. Individual bargaining results in levels of severance pay that provide full insurance, but also depend on unemployment benefits and job-finding rates. Unions also choose full insurance. Because their higher wage demands reduce job creation, this requires higher severance pay. Severance pay observed in eight European countries, to which we calibrate the model, lies between predictions from the bargaining and union scenarios.
    Keywords: Bargaining; Severance pay; Unemployment insurance; Unions
    JEL: E24 J32 J33 J64 J65
    Date: 2020
  99. By: Sy-Hoa Hoa; Jamel Saadaoui
    Abstract: We investigate short-run nonlinear impacts of bank credit on economic growth in ASEAN countries. We find an inverted L-shaped relationship and a statistically significant threshold of 96.5%. Positive effects of bank credit expansion on short-run economic growth fade away after this threshold.
    Keywords: Bank credit, Economic growth, Dynamic threshold estimation, ASEAN.
    JEL: C23 E51 G21 O41
    Date: 2020
  100. By: Malik, Afia
    Abstract: The study has identified poor institutional quality and industrialization behind high energy intensity in Pakistan while income per capita and associated urbanization playing a significant role in reducing energy intensity. For Pakistan being a country in transition, industrialization is expected to rise in future along with its adverse impact on energy intensity. However, economic policies that boost income would help in reducing energy intensity; provided income effect is large enough and sustainable to offset the negative impact of industrialization. Similarly, good governance practices and better quality of institutions can play an effective role in increasing the efficiency in the use of energy thus reducing overall energy intensity
    Keywords: Energy Intensity, Income per capita, Industry, Urbanization, Institutional Quality
    JEL: E02 O11 Q43
    Date: 2019
  101. By: P.S. Renjith (Research Scholar, Madras School of Economics); K. R. Shanmugam (Professor and Director, Madras School of Economics)
    Abstract: This article empirically tests whether the public debt is sustainable in 20 major Indian States during 2005-06 to 2014-15, using the Bohn framework for panel data and penalized spline techniques. Results of the study indicate that the debt of Indian State governments as a whole is sustainable. However, at the disaggregated level, the public debt is sustainable in only 12 States and in the remaining 8 States, it is unsustainable and they need corrective actions. Incidentally, in these 8 States, the debt growth is lower than the economic growth and the poverty ratio has come down significantly, indicating that they have seemed to use their debt policy to enhance the welfare of their citizens. We hope these results are useful to policy makers, international agencies and other stakeholders to take appropriate steps to sustain the debt of Indian States
    Keywords: Primary Balance, Sustainable Debt, Indian States, Bohn Framework
    JEL: E62 H63 H72 H74
  102. By: Dirk Niepelt (Study Center Gerzensee, University of Bern, CEPR, CESifo)
    Abstract: We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with "pseudo wedges" and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.
    Date: 2020–11
  103. By: Bo Zhang; Jamie Cross; Na Guo
    Abstract: We investigate whether a class of trend models with various error term structures can improve upon the forecast performance of commonly used time series models when forecasting CPI inflation in Australia. The main result is that trend models tend to provide more accurate point and density forecasts compared to conventional autoregressive and Phillips curve models. The best short term forecasts come from a trend model with stochastic volatility in the transitory component, while medium to long-run forecasts are better made by specifying a moving average component. We also find that trend models can capture various dynamics in periods of significance which conventional models can not. This includes the dramatic reduction in inflation when the RBA adopted inflation targeting, the a one-off 10 per cent Goods and Services Tax inflationary episode in 2000, and the gradually decline in inflation since 2014.
    Keywords: trend model, inflation forecast, Bayesian analysis, stochastic volatility
    Date: 2020–11
  104. By: Max Gillman
    Abstract: This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such Öscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government Öscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output.
    Keywords: optimal evasion; tax law; welfare; tax elasticity; revenue; productivity; development;
    JEL: E13 H21 H26 H30 H68 K34 K42 O11
    Date: 2020–10
  105. By: Nathan Foley-Fisher; Gary B. Gorton; Stéphane Verani
    Abstract: Privately-produced safe debt is designed so that there is no adverse selection in trade. This is because no agent finds it profitable to produce private information about the debt’s backing and all agents know this (i.e., it is information-insensitive). But in some macro states, it becomes profitable for some agents to produce private information, and then the debt faces adverse selection when traded (i.e., it becomes information-sensitive). We empirically study these adverse selection dynamics in a very important asset class, collateralized loan obligations, a large symbiotic appendage of the regulated banking system, which finances loans to below investment-grade firms.
    JEL: E44 G14 G23
    Date: 2020–10
  106. By: Fisayo Fagbemi (Obafemi Awolowo University, Ile-Ife, Nigeria); Opeoluwa A. Adeosun (Obafemi Awolowo University, Ile-Ife, Nigeria)
    Abstract: The study examines the long run relationship and interconnections between public debt and domestic investment in 13 West African countries from 1986-2018. Using panel Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), debt (% of GDP) and external debt have an insignificant effect on investment in the long run, suggesting the negligible effect of public debt on the level of investments. But domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment. Thus, the study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.
    Keywords: Public debt, investment, fiscal policy, cointegration analysis, West Africa
    JEL: H63 E22 H30
    Date: 2020–01
  107. By: Fittje, Jens; Wagner, Helmut
    Abstract: The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain vulnerable to the occurrence of large-scale default cascades at higher levels of connectivity than a decentralized network. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stopgaps for contagion, which makes the Chinese network relatively robust. This robustness persists even when a medium sized bank defaults.
    Keywords: Interbank Network,Financial Contagion,China's interbank market,Financial market stability,Complex networks,Network topography
    JEL: E44
    Date: 2020
  108. By: Stéphane Auray (Observatoire français des conjonctures économiques); David Fuller
    Abstract: In this paper, we investigate the causes and consequences of “unclaimed” unemployment insurance (UI) benefits. A search model is developed where the costs to collecting UI benefits include both a traditional “fixed” administrative cost and an endogenous cost arising from worker and firm interactions. Experience rated taxes give firms an incentive to challenge a worker’s UI claim, and these challenges are costly for the worker. Exploiting data on improper denials of UI benefits across states in the U.S. system, a two-way fixed effects analysis shows a statistically significant negative relationship between the improper denials and the UI take-up rate, providing empirical support for our model. We calibrate the model to elasticities implied by the two-way fixed effects regression to quantify the relative size of these UI collection costs. The results imply that on average the costs associated with firm challenges of UI claims account for 41% of the total costs of collecting, with improper denials accounting for 8% of the total cost. The endogenous collection costs imply the unemployment rate responds much slower to changes in UI benefits relative to a model with fixed collection costs. Finally, removing all eligibility requirements and allowing workers to collect UI benefits without cost shows these costs to be 4,5% of expected output net of vacancy costs. Moreover, this change has minimal impact on the unemployment rate.
    Keywords: Unemployment insurance; Take-up rate; Experience rating; Matching frictions; Search
    JEL: E61 J32 J64 J65
    Date: 2020–07
  109. By: Michael Huether (German Economic Institute (IW)); Jens Suedekum (Duesseldorf Institute for Competition Economics)
    Abstract: The study will first outline the way in which Germany's fiscal policy was driven for several decades by a paradigm that centered on deficit control and reduced state involvement in the economy. It will assess the damage wrought by this strategy; for example, underinvestment in infrastructure and the worsening of the financial situation in many local municipalities. Afterwards, we sketch out a new framework for fiscal policy that might take the evaluation of public needs and the need for more public investment as starting points. The study will also address the response to the Corona pandemic and in what sense it reinforces the need for a new fiscal paradigm. What are the implications of such a shock for fiscal policy rules? And how should Germany and the European Union handle the enormous public debt incurred during this crisis?
    Keywords: Fiscal Policy, Public Debt Management, Debt Brake
    JEL: E02 E6 H5 H6
    Date: 2020–11
  110. By: Fisayo Fagbemi (Obafemi Awolowo University, Ile-Ife, Nigeria); Opeoluwa A. Adeosun (Obafemi Awolowo University, Ile-Ife, Nigeria)
    Abstract: The study examines the long run relationship and interconnections between public debt and domestic investment in 13 West African countries from 1986-2018. Using panel Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), debt (% of GDP) and external debt have an insignificant effect on investment in the long run, suggesting the negligible effect of public debt on the level of investments. But domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment. Thus, the study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.
    Keywords: H63, E22, H30
    Date: 2020–01
  111. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: The world economy contracted by close to 10 percent in the first half of 2020 as the COVID-10 pandemic unfolded. After a 3 percent drop in activity in the first quarter, global output contacted by some 7 percent as governments around the world implemented measures to contain the virus and households voluntarily adopted social distancing and reduced spending in certain activities to avoid getting infected. Since then, output is recovering. While we generally expect a strong rebound in in the short term, pre-crisis levels of GDP will be approached only towards the end of the forecast horizon in many countries. Further normalization of economic activity is likely to be gradual as long as the pandemic is lingering and inhibiting activity in important sectors of the economy. Global output measured at PPP exchange rates will shrink by 3.6 percent this year. For 2021 we expect a rebound with growth of 6.7 percent. This represents an upward revision of our June forecast by 0.2 and 0.5 Percentage points, respectively. In 2022, we expect GDP to increase by 4.1 percent. However, a deterioration of longer-term business prospects in the wake of lower incomes and weaker balance sheets of firms around the globe are likely to weigh on investment. As a result, we do not expect world output to return to the pre-crisis trend in the coming years.
    Keywords: advanced economies,emerging economies,monetary policy,COVID19
    Date: 2020
  112. By: Sui, Jin
    Abstract: Fiscal devaluation works as an alternative instrument to monetary de- valuation, helping countries to regain competitiveness in a monetary union. Focusing on a closed economy, this paper analyzes its effects in a dynamic framework. In the case of an increasing relative love for variety, fiscal de- valuation leads to a decrease in individual consumption, an increase in the number of firms and decreases in firm markups, which are pro-competitive effects in the short run. In the long run, steady states can exist in models using non-CES utility functions, for example, quadratic linear, Stone-Geary and CARA function. The increase in the consumption tax can attract more firms entering the market, which is supported by the innovation activities, and finally help the economy reach the social optimal status.
    Keywords: fiscal devaluation,relative love of variety,non-CES utility function
    JEL: H20
    Date: 2020
  113. By: Brooke Helppie-McFall; Joanne W. Hsu
    Abstract: In spring 2020, the COVID-19 pandemic and related shutdowns had huge effects on unemployment. Using data from the Survey of Consumer Finances, we describe the financial profiles of US families whose workers were most vulnerable to coronavirus-related earnings losses in the spring of 2020, based on whether a particular worker was deemed "essential" and whether a worker's job could be conducted remotely. We use descriptive analytic techniques to examine how families' baseline financial situations would allow them to weather COVID-shutdown-related earnings losses. We find that families with non-teleworkable workers who were most vulnerable to layoff also had both demographic and financial profiles that are associated with greater vulnerability to income shocks: non-teleworkable families were more likely to be people of color and single wage-earners, and also to have less savings. The median non-teleworkable family, whether in non-essential or essential occupations, held only three weeks of income in savings, underscoring the importance of policy measures to blunt the financial effect of the COVID crisis.
    Keywords: Savings; COVID-19; Coronavirus; Essential workers
    JEL: D14 E24
    Date: 2020–11–09
  114. By: Strezewski, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Provided is a bibliography of major and minor scholarly writings on currency boards up to mid2020, updating a previous version of this paper from 2013. In this paper, the author incorporates and expands on three previous bibliographies; by Kurt Schuler (compiled in 1992), Matthew Sekerke (compiled in 2001), and Thomas Gross, Joshua Heft, and Douglas A. Rodgers (compiled in 2012, updated in 2013, and working paper no. 1 in the Studies in Applied Economics series).
    Keywords: Bibliography; Currency Boards
    JEL: E59
    Date: 2020–08
  115. By: Boyan Jovanovic; Sai Ma
    Abstract: This paper documents several facts on the real effects of economic uncertainty. First, higher uncertainty is associated with a more dispersed distribution of output growth. Second, the relation is highly asymmetric: A rise in uncertainty is associated with a sharp decline in the lower tail of the growth distribution whereas it has a much smaller and insignificant impact on its upper tail. Third, the negative response of growth to uncertainty shocks is larger when the equity market is more volatile. We build a model in which growth and uncertainty are both endogenous: rapid adoption of new technology raises economic uncertainty and may cause measured productivity to decline. The equilibrium growth distribution is negatively skewed and higher uncertainty leads to a thicker left tail and to more labor reallocation among jobs and among
    JEL: E3
    Date: 2020–10
  116. By: Boyan Jovanovic; Sai Ma; Peter L. Rousseau
    Abstract: We study private equity in a dynamic general equilibrium model and ask two questions: (i) Why does the investment of venture funds respond more strongly to the business cycle than that of buyout funds? (ii) Why are venture funds returns higher than those of buyout? On (i), venture brings in new capital whereas buyout largely reorganizes existing capital; this can explain the stronger co-movement of venture with aggregate Tobin's Q. Regarding (ii), venture returns co-move more strongly with aggregate consumption and therefore pay a higher premium. Our model embodies this logic and fits the data on investment and returns well. At the estimated parameters, the two PE sectors together contribute between 14 and 21 percent of observed growth, relative to the extreme case where private equity is absent.
    JEL: E44
    Date: 2020–10
  117. By: Gene Amromin; Neil Bhutta; Benjamin J. Keys
    Abstract: We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the U.S. and documenting refinance activity over time, we summarize the links between refinancing and consumption, and describe the frictions impeding the refinancing channel. The paper draws heavily on research emerging from the experience of the financial crisis of 2008-09, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations, and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic.
    JEL: D12 D14 E50 G21 R31
    Date: 2020–10
  118. By: Bennett, Jonah (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Since 1967, Brunei Darussalam has employed a currency board, capable of regulating inflation and government spending, as its monetary system. This paper examines the history and formation of the currency board in Brunei Darussalam and analyzes its orthodoxy throughout its existence. A workbook with balance sheets compiled from 1967-1987 and 1998-2020 accompanies this paper. An appendix of the legislative history of Brunei Darussalam’s currency board can also be found at the end of this paper.
    Keywords: Brunei; currency board; orthodox
    JEL: E59 N15
    Date: 2020–08
  119. By: Bernd Hayo (Philipps University Marburg); Sascha Mierzwa (Philipps University Marburg)
    Abstract: We study the effect of tax policy on stock market returns in the United States, Germany, and the United Kingdom using GARCH models and a unique daily dataset of legislative tax changes during the period 1 December 1978 to 31 January 2018. We find that days of discretionary tax legislation during all stages of the process often matter for returns, both in terms of statistical significance as well as economic relevance. Further disaggregating the tax shocks shows that news about personal income tax cuts affects stock market returns positively, whereas business tax legislation is rarely influential. We find evidence of stock market spillovers, mainly from US tax changes to European stock markets, but, albeit less pronounced, also the other way round. In several cases, we measure significant effects of changes in tax legislation on the days the changes are implemented. The US House Committee Report appears to be the most influential legislative stage in our sample. During the financial crisis, stock markets were more responsive to tax legislation. Finally, S&P500 returns tend to react at earlier legislative stages than do DAX returns, whereas FT30 returns barely react on days of domestic legislative action.
    Keywords: Fiscal policy, legislative tax changes, stock markets, income tax, business tax, indirect tax, Germany, United Kingdom, United States
    JEL: E62 F65 G18 H24 H25
    Date: 2020
  120. By: Capek, Jan; Crespo Cuaresma, Jesus; Hauzenberger, Niko; Reichel, Vlastimil
    Abstract: We provide a comprehensive assessment of the predictive ability of combinations of Dynamic Stochastic General Equilibrium (DSGE) models for GDP growth, inflation and the interest rate in the euro area. We employ a battery of static and dynamic pooling weights based on Bayesian model averaging principles, prediction pools and dynamic factor representations, and entertain eight different DSGE specifications and four prediction weighting schemes. Our results indicate that exploiting mixtures of DSGE models tends to achieve superior forecasting performance over individual specifications for both point and density forecasts. The largest improvements in the accuracy of GDP growth forecasts are achieved by the prediction pooling technique, while the results for the weighting method based on dynamic factors partly leads to improvements in the quality of inflation and interest rate predictions.
    Keywords: Forecasting, model averaging, prediction pooling, DSGE models
    Date: 2020–11
  121. By: Ray Barrell (Research Centre of the National Institute of Economic and Social Research); Karim Dilruba
    Abstract: There are large and long-lasting negative effects on output from recurrent financial crises in market economies. Policy makers need to know if these financial crises are endogenous and subject to policy interventions or are exogenous events like earthquakes. We survey the literature about the links between credit growth and crises over the last 130 years. We then go on to look at the determinants of financial crises both narrowly and broadly defined in market economies, stressing the roles of bank capital, available on book liquidity, property price bubbles and current account deficits. We look at the role of credit growth, which is often seen as the main link between the macroeconomy and crises, and stress that it is largely absent. We look at the role of the core factors discussed above in market economies from 1980 to 2017. We suggest that crises are largely unrelated to credit developments but are influenced by banking sector behaviour. We conclude that policy makers need to contain banking excesses, not constrain the macroeconomy by directly reducing bank lending.
    Keywords: Financial stability; Banking crises; Macroprudential policy
    Date: 2020–09
  122. By: Francesca Parodi
    Abstract: I quantitatively characterize optimal consumption and labor income taxes in a general framework that allows for partially irreversible durable goods, preference heterogeneity, and horizontal equity goals of the social planner. To do so, I develop and estimate a structural life-cycle model of household consumption, saving, and employment choices. I nd that durables should be subsidized in presence of adjustment costs and that heterogeneity in risk aversion leads to non-uniform consumption taxes. Allowing for government's equity concerns, I show that the model rationalizes the tax practice and that di erentiated consumption taxes serve a redistributive purpose jointly with progressive labor income taxes.
    Keywords: Intertemporal Household Choice, Consumption, Durable goods, Saving, Labor Supply, Efficiency, Optimal Taxation, Inequality, Welfare
    JEL: D10 D30 D63 E20 H20 H31 J22
    Date: 2020
  123. By: Wang, Ivy (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The Banque de Syrie et du Liban was established through the French mandate of Syria and Lebanon. The institution was a combination of a commercial and central bank for the region and provided economic stability. By studying the bank’s balance sheets, this paper provides an analysis of its assets and liabilities. An accompanying spreadsheet workbook provides all the balance sheet data from the bank’s annual reports as most of this data has never been digitized or analyzed in English. Using historical analysis of the financial situations of Syria and Lebanon at the time, several observations are made about the bank’s influence from 1919 to 1963, as well as about how it evolved into Lebanon’s central bank.
    Keywords: Syria; Lebanon; banking; colonialism; French mandate; Bank of Syria and Lebanon
    JEL: E58 N15
    Date: 2020–02
  124. By: Gupta, Eashan (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Auran, Matthew (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Frankenfield, Dylan (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: We describe the history of Jamaica’s currency board system, which existed from 1920 to 1961; test how orthodox the currency board was; and compare some features of the currency board and the Jamaican economy during the currency board period to the Bank of Jamaica and to the Jamaican economy under central banking.
    Keywords: Jamaica; currency board; central bank
    JEL: E52 N16
    Date: 2019–05
  125. By: Rainer Kattel (Institute for Innovation and Public Purpose (IIPP), University College London (UCL)); Mariana Mazzucato (Institute for Innovation and Public Purpose (IIPP), University College London (UCL)); Keno Haverkamp (Institute for Innovation and Public Purpose (IIPP), University College London (UCL)); Josh Ryan-Collins (Institute for Innovation and Public Purpose (IIPP), University College London (UCL))
    Abstract: German government is stepping into a new era with its COVID-19 recovery support measures. It is leaving behind its ordoliberal foundations which see the role of the state as making sure policy conditions enable markets to function properly. In this view, the state should fix market failures and leave the rest to industry. Already before the pandemic, German policy makers were showing increasing appetite to go beyond market-fixing and experiment with a more overt activist state. With the handling of COVID-19, Germany has taken another step in this direc-tion– it is now at the forefront of taking bold policy action to reshape its economy in the face of the pandemic. Yet, this paper argues Germany’s public funding of R&D supports mostly in-cremental advances and its financial system is largely still funding carbon lock-in and value ex-traction rather than transforming the economy to deal with 21st century challenges. Germany needs to build on its recent economic policy initiatives, and successful institutions such as the KfW, and develop a bold new industrial strategy that encompasses science, technology and in-novation, financial and procurement policies. The new industrial strategy is not about ‘more state’ or ‘less state’, but a different type of state. One that is able to act as an investor of first resort, catalysing new types of growth, and in so doing crowd in private sector investment and innovation which represent expectations about future growth areas. This requires a new form of collaboration between state and business – more about picking the willing than picking win-ners.
    Keywords: Germany, industrial policy, mission-oriented innovation
    JEL: E50 G20 H57 L50 O30
    Date: 2020–11
  126. By: Raphaël Didier
    Abstract: En France, les monnaies locales complémentaires et citoyennes (MLCC) connaissent un fort développement depuis une décennie. Cette dynamique amène à s’interroger sur les profils socioéconomiques des utilisateurs, afin de faire ressortir d’éventuels profils types. Nous nous proposons de mener une étude dans le cas particulier du Florain, monnaie locale du Bassin de vie nancéien, pour laquelle nous avons réalisé une enquête informatisée en 2019. Une ACM nous permet de mettre en évidence quatre principaux profils types d’utilisateurs : les engagés politiques, les gentrifieurs, les simples utilisateurs et les culturels.
    Keywords: monnaie locale, monnaie sociale, communauté, utilisateurs, valeurs.
    JEL: B50 E42 R11
    Date: 2020
  127. By: J. Scott Davis (Federal Reserve Bank of Dallas); Kevin X. D. Huang (Vanderbilt University); Ayse Sapci (Utah State University)
    Abstract: Changes in housing demand can affect firm investment through the collateral channel, where the change in residential real estate prices is associated with a change in commercial real estate prices, affecting firm collateral and thus firm investment. We argue that this channel is weaker when residential and commercial real estate are poor substitutes. Using cross-state heterogeneity in the strength of zoning regulations as a proxy for heterogeneity in the substitutability of residential and commercial real estate, we first show with firm level data that the strength of local zoning regulations has a negative effect on the estimated increase in firm investment following an increase in local residential real estate prices. We then construct a DSGE model where land has both residential and commercial uses and with it to match the observed correlation between residential and commercial real estate prices. We find the average elasticity of substitution between commercial and residential real estate in the U.S. to be around 0.35, but in states with strong zoning restrictions it can be as low as 0.16 and in states with weak zoning restrictions it can be as high as 0.66. Simulations of the model show how differences in substitutability affect the transmission of a housing demand shock.
    Keywords: Commercial real estate; residential real estate; housing demand shock; zoning
    JEL: R1 E3
    Date: 2020–11–17
  128. By: Nguyen, Huong (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Susilo, Jonathan (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Varier, Dominique (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Information collected from all reachable founding laws (constitutions) of past currency boards— more than 50 in all—is used to better observe changes in features and characteristics implemented in currency boards over time. The founding laws of many currency boards have been highly general, allowing, in principle, for discretionary monetary policy even though, in practice, many currency boards did not implement it. Only a minority of currency boards had founding laws that clearly specified the most important features of currency board orthodoxy: (1) a fixed exchange rate with an anchor currency, (2) full, two-way convertibility into and out of the anchor currency, (3) a ratio of 100% net foreign reserves to monetary liabilities, (4) the board cannot be a lender of last resort to the domestic financial system, and (5) the board must generate its own profits via seigniorage. Additionally, the authors identified five other properties that, although not necessary for a functioning currency board, proved to be beneficial and thus became widely adopted. They are: (1) transparency measures, (2) an upper limit on net foreign reserves, (3) policies for liabilities exceeding assets, (4) escape clauses, and (5) minimum limits on currency exchanges. Comparing constitutions shows that these systems have been adaptable in many different political and economic environments, thus explaining their longstanding success in multiple countries over the last 170 years.
    Keywords: Currency board; constitution; orthodox; exchange rates; anchor currency; foreign reserves; seigniorage
    JEL: E59 N10
    Date: 2020–11
  129. By: Kanika Rana (ICSSR Research Fellow, Madras School of Economics, Chennai); Brinda Viswanathan (Professor, Madras School of Economics)
    Abstract: In developing countries, the economically disempowered, borrow from multiple sources and also have multiple borrowings notwithstanding that some may be unable to access any form of credit. To ensure a greater amount of financial inclusion, it becomes necessary to understand what determines the choice between alternative loan source combinations while taking into account that borrowers may have distinct characteristics from non-borrowers. Access to formal credit sources, are elusive for the disadvantaged due to different demand and supply side perceptions. Microfinance institutions (MFI) play an intermediate role having some attributes of the informal network and some similar to formal institutions. This study uses an observational data set for 2011-12 to analyse the role of socio-economic-demographic characteristics in the household‟s choice for different types of loan sources. In particular, the extensive nature of data allows us to study the mediating role played by MFI through its linkages with formal and informal sources. The results of Multinomial Probit with Heckman selection, to account for onborrowing households, reveal that where institutional sources are still a preferred option for the relatively advantaged section of the population, presence of microfinance loans in combination with other loan sources has contributed in ensuring greater equity in credit access to all. However, women headed households or dalit households with lesser opportunities of networking are less likely to take credit from formal sources
    Keywords: Household credit and sources, formal and informal institution, microfinance institutions, multinomial probit, Heckman selection
    JEL: C35 E51 G21
  130. By: Abrohms, Spencer (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Schuler, Kurt (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The CFA franc zone was established in 1945 and linked France’s African colonies to the French franc while at the same time allowing for some degree of separation. Reflecting a cleavage that had developed during World War II, the zone consisted of a West African and a Central African component, represented today by two regional central banks, BCEAO and BEAC, respectively. Despite the technical distinction between the currencies, their parities with the French franc and later the euro have remained identical for over 70 years; thus, the currencies can be treated together. This paper reviews the history of the CFA franc zone and highlights the major shifts it has undergone. Next, it analyzes the various components of the two central banks’ balance sheets, with a focus on each bank’s composition of assets and liabilities and how these have evolved over time. Subsequently, it applies statistical approaches to the balance sheets to assess to what extent the CFA franc zone resembles a currency board. An accompanying spreadsheet workbook digitizes certain balance sheet data for the first time.
    Keywords: central bank; balance sheet; French Equatorial Africa; French West Africa
    JEL: E58 N17
    Date: 2019–12
  131. By: Olivier E. Malay (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Hoover Chair of Economic and Social Ethics)
    Abstract: Sustainable Development Goals (SDGs) are a widely recognized framework to guide sustainable development policies and actions. This papers aims to analyze the potential of SDGs to improve government and business coordination by aligning their sustainability reporting practices. To do so, we assess the consistency between the sustainability indicators at the national level (Belgian) and of businesses (pharmaceutical and retail sectors). We aim to answer the following questions: Do they measure the same SDGs issues? Do they develop similar quantitative targets on similar issues? And how can data from one level be used by the other in order to better coordinate their respective actions? Firstly, we show that indicators are developed for each SDG at the national level but fall behind at the business level on several issues, especially regarding goals 9, 10 and 11. Secondly, it appears that there is a general disconnect between both levels' quantitative targets. Thirdly, we show that business measures are poorly focused on issues which are critical at the national level, i.e. facing unfavourable evolutions. Finally, a focus on GHG emissions shows that Belgian GHG targets at the national level are not compatible with reaching the climate objective of 1.5°, while some business targets (scope 1 & 2) seem consistent with this goal, despite measurement uncertainties. These results show room for improvement of indicators in order to ease the coordination of actors and also for public intervention to align businesses on the achievement of SDGs.
    Keywords: Sustainability indicators; Micro macro articulation; Sustainable Development Goals (SDGs); Beyond GDP indicators; Corporate Social Responsibility (CSR); Pharmaceuticals; Retail
    JEL: E0 M41 N10 N40 Q56
    Date: 2020–10–27
  132. By: Schubert, Torben (Fraunhofer ISI, and Circle, Lund University); Jäger, Angela (Fraunhofer ISI); Türkeli, Serdar (UNU-MERIT, Maastricht University); Visentin, Fabiana (UNU-MERIT, Maastricht University)
    Abstract: This paper develops the plan for the econometric estimations concerning the relationship between firm productivity and the specifics of the innovation process. The paper consists of three main parts. In the first, we review the relevant literature related to the productivity paradox and its causes. Specific attention will be paid to broad economic trends, in particular the higher importance of intangibles, the increasing importance of knowledge spillovers and servitisation as drivers of the slowdown in productivity growth. In the second part, we introduce a plan for the econometric estimation strategy. Here we propose an extended Crépon-Duguet-Mairesse type of model (CDM), which enriches the original specification by the three influence factors of intangibles, spillovers, and servitisation. This will allow testing the influence of these three factors on productivity at the level of the firm within a unified framework. In the third part, we build on the literature review in order to provide a detailed plan for the data collection procedure including a description of the variables to be collected and the source from which the variables are coming. It should be noted that we will rely partly on structured data (e.g. ORBIS), while many others variables will need to be generated from unstructured sources, in particular the webpages of firms. The use of unstructured data is a particular strength of our proposed data collection procedure because the use of such data is expected to offer novel insights. However, it implies additional risks in terms of data quality or missing data. Our data collection plan explores the maximum potential of variables that will ideally be made available for later econometric treatment. Whether indeed all variables will have sufficient quality to be used in the econometric estimations will be subject to the outcomes of the actual collection efforts.
    Keywords: Productivity, Intangibles, Servitisation, Innovation, R&D, Open Innovation, IPR, Knowledge diffusion, Economic growth, Productivity Paradox, Big data, Large data sets, data collection
    JEL: C55 C80 D24 E22 L80 O31 O32 O34 O40 O47
    Date: 2020–11–11
  133. By: Timothy Cogley; Boyan Jovanovic
    Abstract: We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth.
    JEL: E1
    Date: 2020–10

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