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on Macroeconomics |
|
Issue of 2020‒12‒07
106 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Lien Laureys; Roland Meeks; Boromeus Wanengkirtyo |
| Abstract: | We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilising inflation, a measure of resource utilisation, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions. |
| Keywords: | Monetary policy, Simple loss function, Banks, medium-scale DSGE models, euro area economy. |
| JEL: | E17 E52 E58 G21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-98&r=all |
| By: | Laureys, Lien (Bank of England); Meeks, Roland (International Monetary Fund); Wanengkirtyo, Boromeus (Bank of England) |
| Abstract: | We reconsider the design of welfare-optimal monetary policy when financing frictions impair the supply of bank credit, and when the objectives set for monetary policy must be simple enough to be implementable and allow for effective accountability. We show that a flexible inflation targeting approach that places weight on stabilising inflation, a measure of resource utilisation, and a financial variable produces welfare benefits that are almost indistinguishable from fully-optimal Ramsey policy. The macro-financial trade-off in our estimated model of the euro area turns out to be modest, implying that the effects of financial frictions can be ameliorated at little cost in terms of inflation. A range of different financial objectives and policy preferences lead to similar conclusions. |
| Keywords: | Monetary policy; simple loss function; banks; medium-scale DSGE models; euro area economy |
| JEL: | E17 E52 E58 G21 |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0890&r=all |
| By: | Michalis Nikiforos (University of Geneva (CH)) |
| Abstract: | The paper builds on the concept of (shifting) involvements, originally proposed by Albert Hirschman (2002 [1982]). However, unlike Hirschman, the concept is framed in class terms. A model is presented where income distribution is determined by the involvement of the two classes, capitalists and workers. Higher involvement by capitalists and lower involvement by workers tends to increase the profit share and vice versa. In turn, shifts in involvements are induced by the potential effect of a change in distribution on economic activity and past levels of distribution. On the other hand, as the profit share increases, the economy tends to become more wage led. The dynamics of the resulting model are interesting. The more the two classes prioritize the increase of their income share over economic activity, the more possible it is that the economy is unstable. Under the stable configuration, the most likely outcome is Polanyian predator-prey cycles, which can explain some interesting historical episodes during the 20th century. Finally, the paper discusses the possibility of conflict and cooperation within each of the distribution-led regimes. |
| Keywords: | distribution; economic growth; institutions; social movements; political economy |
| JEL: | E11 E12 E21 E22 E32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2021&r=all |
| By: | Riccardo De Bonis (Bank of Italy); Danilo Liberati (Bank of Italy); John Muellbauer (University of Oxford); Concetta Rondinelli (Bank of Italy) |
| Abstract: | This paper estimates a consumption function for Italy. In addition to permanent income, housing wealth, the interest rate on household loans and an index of credit conditions, our model introduces household net worth split into liquid and illiquid assets. The consumption dynamics are examined by using financial accounts and real national accounts in a Vector Error Correction Model (VECM), estimated from 1975 to 2017. The results show that the marginal propensity to consume out of liquid financial assets – mainly deposits and bonds – is positive and statistically significant, and greater than that for illiquid assets (mainly unquoted shares and insurance and pension assets); we also find that housing wealth has a smaller and significant impact on consumption. As expected, permanent income accounts for a large fraction of consumption, while the effect of the interest rate is negative. |
| Keywords: | liquid and illiquid assets, permanent income, credit conditions |
| JEL: | E21 E32 E44 E51 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1304_20&r=all |
| By: | Dirk Niepelt |
| 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 di er 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. |
| Keywords: | Reserves, deposits, central bank digital currency, monetary policy, Friedman rule, equivalence, Ramsey policy, bank pro ts, money creation |
| JEL: | E42 E43 E51 E52 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp2018&r=all |
| By: | James (Jim) C. MacGee; Thomas Pugh; Kurt See |
| Abstract: | This paper develops an agent-based modelling approach to quantify the impact of COVID-19-induced economic disruptions on household debt and unplanned savings over 2020. We merge data from the Survey of Financial Security and the Survey of Household Spending to construct a representative cross-section of households who vary in their income, debt portfolios and mix of consumption expenditures. We simulate a series of individual and aggregate shocks to household income and consumption expenditures that incorporate government policies such as Canadian Emergency Response Benefit (CERB) as well as shifts in consumption expenditures across hard-to-distance goods (e.g., travel, restaurants) and easy-to-distance goods (e.g., groceries). Differential impact on household incomes resulting from unemployment and reduced hours play an important role in driving household debt and savings. We highlight two other important channels. First, income replacement programs (notably CERB) only partially replace lost income for unemployed, previously middle-income households—which drives a rise in borrowing, particularly for those with mortgages. Second, upper-income households have relatively larger expenditures on hard-to-distance goods and so experience larger declines in consumption expenditures. This contributes to the high savings observed during March and April. |
| Keywords: | Business fluctuations and cycles; Coronavirus disease (COVID-19); Financial stability |
| JEL: | E2 E21 E24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-51&r=all |
| By: | Buncic, Daniel (Stockholm Business School, Stockholm University) |
| Abstract: | Holston, Laubach and Williams’ (2017) estimates of the natural rate of interest are driven by the downward trending behaviour of ‘other factor’ z(t). I show that their implementation of Stock and Watson’s (1998) Median Unbiased Estimation (MUE) to determine the size of parameter λ(z) which drives this downward trend in z(t) is unsound. It cannot recover the ratio of interest λ(z) = a_r*σ(z)/σ(˜y) from MUE because of an ‘unnecessary’ misspecification in Holston et al.’s (2017) Stage 2 model. Moreover, their implementation of MUE on this ‘unnecessarily’ misspecified Stage 2 model spuriously amplifies the point estimate of λ(z). Using a simulation experiment, I show that their procedure generates excessively large estimates of λ(z) when applied to data generated from a model where the true λ(z) is zero. Correcting the misspecification in their Stage 2 model and the implementation of MUE leads to a substantially smaller (and highly insignificant) λ(z) point estimate, and thereby a more subdued downward trend in ‘other factor’ z(t) and the natural rate. The paper also discusses various other issues with Holston et al.’s (2017) model of the natural rate that make it unsuitable for policy analysis. |
| Keywords: | Natural rate of interest; Median Unbiased Estimation; Kalman Filter; spurious relations; misspecified econometric models |
| JEL: | C32 E43 E52 O40 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0397&r=all |
| By: | Klaus Adam; Oliver Pfäuti; Timo Reinelt |
| Abstract: | The decline in natural interest rates in advanced economies over the past decades has been accompanied by a signi cant increase in the volatility of housing prices. We show that the monetary policy implications of these macroeconomic trends depend|in the presence of a lower-bound constraint on nominal rates|on the source of increased housing price volatility. If housing price expectations are rational, increased housing price volatility re ects more volatile housing demand shocks. Under optimal monetary policy, average in ation then increases only minimally, as average natural rates fall and housing shocks become more volatile. Instead, if housing price volatility is partly due to speculative housing price beliefs, as suggested by survey data, then lower natural rates endogenously trigger larger uctuations in subjective housing price beliefs and housing prices. A belief-driven increase in housing price volatility causes also the natural rate of interest to become more volatile. This exacerbates the lower-bound problem, especially when average natural rates are low. Under optimal monetary policy, average in ation then rises much more strongly following a fall in natural rates, rationalizing larger increases in the in ation target. |
| Keywords: | inflation target, real estate booms, natural rate |
| JEL: | E31 E44 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_235&r=all |
| By: | Kirchner, Markus; Rieth, Malte |
| Abstract: | This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilisation policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplication between default beliefs, exchange rate and inflation movements. We then use the estimated model to study the implications of sovereign risk for stability, fiscal and monetary policy, and their interaction. We find that a relatively strong fiscal feedback from deficits to taxes, some exchange rate targeting, or a monetary response to default premia are more effective and efficient stabilisation tools than hawkish inflation targeting. |
| Keywords: | small open economies,sovereign risk,monetary policy,exchange rates,business cycles,DSGE models |
| JEL: | E58 E63 F41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:222020&r=all |
| By: | Johar Arrieta (Central Bank of Peru); David Florián (Central Bank of Peru); Kristian López (UCSC); Valeria Morales (Central Bank of Peru) |
| Abstract: | Partial currency substitution typically occurs in small economies amid economic crises, when the local currency loses some of its essential functions and a foreign currency, usually the US Dollar, is widely adopted. Interestingly, the coexistence of two currencies often persists after macroeconomic stability has been restored, which imposes challenges to the conduct of monetary policy. Central banks have responded by applying de-dollarization policies. This paper studies the effectiveness of three of them: (1) taxes on transactions in foreign currency among domestic agents, (2) storage costs on foreign currency holdings, and (3) information on the acceptance rate of the foreign currency among local agents. We extend the model in Matsuyama et al. (1993) to study the effects of these policies, both theoretically and experimentally. We contribute to the theoretical literature by characterizing a new circulation regime where agents use the foreign currency solely for international trade and settle domestic transactions exclusively in local currency. Our experimental evidence suggests that both taxes and storage costs reduce the overall acceptability of foreign currency in international and domestic transactions (around 40 percent in both cases). Information treatment does not have a significant impact relative to baseline. |
| Keywords: | Bimonetary Economy, Dollarization, Central Bank, Monetary Policy, Experiment, Money. |
| JEL: | E51 E52 E58 E59 C91 C92 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:172&r=all |
| By: | Marco Jacopo Lombardi (Bank for International Settlements); Marianna Riggi (Bank of Italy); Eliana Viviano (Bank of Italy) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1302_20&r=all |
| By: | Na Guo; Bo Zhang; Jamie Cross |
| 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 cannot. This includes the dramatic reduction in inflation when the RBA adopted inflation targeting, the one-off 10 per cent Goods and Services Tax inflationary episode in 2000, and the gradual decline in inflation since 2014. |
| Keywords: | trend model, inflation forecast, Bayesian analysis, stochastic volatility |
| JEL: | C11 C52 E31 E37 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-99&r=all |
| By: | Fuest, Angela; Schmidt, Torsten |
| Abstract: | For monetary policy guiding inflation expectations provides an instrument to achieve price stability. However, expectation uncertainty may undermine monetary policy's ability to stabilise the economy. This study examines the effects of inflation expectation uncertainty on inflation, inflation expectations and the output gap by means of a structural VAR with stochastic volatility in mean. Inflation expectation uncertainty negatively affects the inflation rate and the output gap, without having a distinct effect on the level of expectations. This result is replicable with a model in which uncertainty is approximated by a cross-sectional survey measure. Furthermore, simulating an uncertainty shock in a DSGE model shows that the demand channel dominates the supply channel of an inflation expectation uncertainty shock. |
| Keywords: | uncertainty,inflation expectations,Phillips curve,New Keynesian model |
| JEL: | E31 E52 C32 C63 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:867&r=all |
| By: | Piyali Das (Indian Institute of Management Indore); Chetan Ghate (Indian Statistical Institute, Delhi) |
| Abstract: | We assemble a novel data-set on Indian public debt that contains consistently defined aggregate annual components from 1951–2018, and Centre-State security level data from 2000– 2018. Using a standard debt-decomposition framework, we quantify the extent to which inflation, real GDP growth, nominal interest rates and the primary deficit/surplus explain Indian debt-dynamics. We show that inflation’s contribution to lowering public debt has been substantial over time. We also undertake a Hall and Sargent (1997, 2011) style debt-decomposition using all outstanding Centre and State securities from 2000–2018. We show that nominal returns on the marketable and non-marketable portions of the Centre’s debt account for the highest contribution in explaining the change in public debt. We show that while the adoption of flexible inflation targeting has diminished the role of inflation in debt liquidation, the large contribution of nominal returns pose a challenge to debt management. |
| Keywords: | Public Debt, Debt Decomposition, Macro-finance, Debt Sustainability, Debt Liquidation, Fiscal Dominance, Indian Economy |
| JEL: | E62 E65 E52 G12 G28 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:alo:isipdp:20-08&r=all |
| By: | James Bishop (Reserve Bank of Australia); Iris Day (Reserve Bank of Australia) |
| Abstract: | The JobKeeper Payment is a wage subsidy to help firms affected by COVID-19 retain their staff. We examine the extent to which JobKeeper cushioned employment losses in the first four months of the program. To do this, we use worker-level data from the Labour Force Survey and an identification strategy that exploits a threshold in eligibility to infer causality. We find that one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it not been for the JobKeeper Payment. Given that 3½ million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period. We discuss the potential sources of bias that might affect our results, some of which stem from the fact that our conclusions are based on a sample of casual employees who may have responded differently to JobKeeper than other workers. Our paper does not consider the longer-run effects of JobKeeper on employment or the indirect channels through which JobKeeper may have affected employment. |
| Keywords: | wage subsidy; employment; COVID-19 |
| JEL: | E24 E62 H25 H32 J23 J38 J63 J68 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2020-07&r=all |
| By: | Julian di Giovanni; Andrei A. Levchenko; Isabelle Mejean |
| Abstract: | This paper uses a data set 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: 40-85 percent 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 10-20 percent 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: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89060&r=all |
| By: | Alemán, Christian; Busch, Christopher; Ludwig, Alexander; Santaeulàlia-Llopis, Raül |
| Abstract: | We develop a novel empirical approach to identify the effectiveness of policies against a pandemic. The essence of our approach is the insight that epidemic dynamics are best tracked over stages, rather than over time. We use a normalization procedure that makes the pre-policy paths of the epidemic identical across regions. The procedure uncovers regional variation in the stage of the epidemic at the time of policy implementation. This variation delivers clean identification of the policy effect based on the epidemic path of a leading region that serves as a counterfactual for other regions. We apply our method to evaluate the effectiveness of the nationwide stay-home policy enacted in Spain against the Covid-19 pandemic. We find that the policy saved 15.9% of lives relative to the number of deaths that would have occurred had it not been for the policy intervention. Its effectiveness evolves with the epidemic and is larger when implemented at earlier stages. |
| Keywords: | Macroeconomics,Pandemic,Stages,Covid-19,Stay-Home,Policy Effects,Identification |
| JEL: | E01 E22 E25 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:294&r=all |
| By: | Jens H. E. Christensen; Glenn D. Rudebusch; Patrick Shultz |
| Abstract: | In recent decades, long-term interest rates around the world have fallen to historic lows. We examine this decline using a dynamic term structure model of Canadian nominal and real yields with adjustments for term, liquidity, and inflation risk premiums. Canada provides a useful case study that has been little examined despite its established indexed debt market, negligible distortions from monetary quantitative easing or the zero lower bound, and no sovereign credit risk. We find that since 2000, the steady-state real interest rate has fallen by more than 2 percentage points, long-term inflation expectations have edged down, and real bond and inflation risk premiums have fluctuated but shown little longer-run trend. Therefore, the drop in the equilibrium real rate appears largely to account for the lower new normal in interest rates. |
| Keywords: | affine arbitrage-free term structure model; liquidity risk; financial market frictions; r-star |
| JEL: | C32 E43 E52 G12 G17 |
| Date: | 2020–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:89093&r=all |
| By: | Laurent Ferrara; Matteo Mogliani; Jean-Guillaume Sahuc |
| Abstract: | Monitoring changes in financial conditions provides valuable information on the contribution of financial risks to future economic growth. For that purpose, central banks need real-time indicators to adjust promptly the stance of their policy. We extend the quarterly Growth-at-Risk (GaR) approach of Adrian et al. (2019) by accounting for the high-frequency nature of financial conditions indicators. Specifically, we use Bayesian mixed data sampling (MIDAS) quantile regressions to exploit the information content of both a financial stress index and a financial conditions index leading to real-time high-frequency GaR measures for the euro area. We show that our daily GaR indicator (i) provides an early signal of GDP downturns and (ii) allows day-to-day assessment of the effects of monetary policies. During the first six months of the Covid-19 pandemic period, it has provided a timely measure of tail risks on euro area GDP. |
| Keywords: | Growth-at-Risk, mixed-data sampling, Bayesian quantile regressions, financial conditions, euro area. |
| JEL: | C22 E37 E44 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-97&r=all |
| By: | Alice Albonico (University of Milano - Bicocca CefES); Guido Ascari (University of Oxford and University of Pavia); Qazi Haque (Centre for Applied Macroeconomic Analysis, University of Western Australia) |
| Abstract: | We estimate a medium-scale model with and without rule-of-thumb consumers over the pre-Volcker and the Great Moderation periods, allowing for indeterminacy. Passive monetary policy and sunspot fluctuations characterize the pre-Volcker period for both models. The estimated fraction of rule-of-thumb consumers is low, such that the models are empirically almost equivalent. In both subsamples, the two models yield very similar impulse response functions, variance and historical decompositions. We conclude that rule-of-thumb consumers are irrelevant to explain aggregate U.S. business cycle fluctuations. |
| Keywords: | rule-of-thumb consumers, indeterminacy, business cycle áuctuations |
| JEL: | E32 E52 C11 C13 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:20-26&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1218&r=all |
| By: | Julian di Giovanni (Federal Reserve Bank of New York, ICREA-Universitat Pompeu Fabra, Barcelona GSE, CREI and CEPR); Andrei A. Levchenko (University of Michigan, NBER, & CEPR); Isabelle Mejean (CREST-Ecole Polytechnique and CEPR) |
| 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 Òforeign granular residualÓ Ð 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: | 2020–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:678&r=all |
| By: | Alice, Albonico; Guido, Ascari; Qazi Haque |
| Abstract: | We estimate a medium-scale model with and without rule-of-thumb consumers over the pre-Volcker and the Great Moderation periods, allowing for indeterminacy. Passive monetary policy and sunspot fluctuations characterize the pre-Volcker period for both models. The estimated fraction of rule-of-thumb consumers is low, such that the models are empirically almost equivalent. In both subsamples, the two models yield very similar impulse response functions, variance and historical decompositions. We conclude that rule-of-thumb consumers are irrelevant to explain aggregate U.S. business cycle fluctuations. |
| Keywords: | rule-of-thumb consumers, indeterminacy, business cycle fluctuations |
| JEL: | E32 E52 C11 C13 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:453&r=all |
| By: | Máximo Camacho (University of Murcia and BBVA Research); Matías Pacce (Banco de España); Gabriel Pérez-Quirós (European Central Bank and CEPR) |
| Abstract: | To analyze the international transmission of business cycle fluctuations, we propose a new multilevel dynamic factor model with a block structure that (i) does not restrict the factors to being orthogonal and (ii) mixes data sampled at quarterly and monthly frequencies. By means of Monte Carlo simulations, we show the high performance of the model in computing inferences of the unobserved factors, accounting for the spillover effects, and estimating the model’s parameters. We apply our proposal to data from the G7 economies by analyzing the responses of national factors to shocks in foreign factors and by quantifying the changes in national GDP expectations in response to unexpected positive changes in foreign GDPs. Although the share of the world factor as a source of the international transmission of fluctuations is still signicant, this is partially absorbed by the spillover transmissions. In addition, we document a pro-cyclical channel of international transmission of output growth expectations, with the US and UK being the countries that generate the greatest spillovers and Germany and Japan being the countries that generate the smallest spillovers. Therefore, policymakers should closely monitor the evolution of foreign business cycle expectations. |
| Keywords: | international business cycles, mixed frequency data, bayesian estimation, spillover effects |
| JEL: | E32 C22 F42 F41 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2034&r=all |
| By: | Michael T. Kiley |
| Abstract: | Machine learning (ML) techniques are used to construct a financial conditions index (FCI). The components of the ML-FCI are selected based on their ability to predict the unemployment rate one-year ahead. Three lessons for macroeconomics and variable selection/dimension reduction with large datasets emerge. First, variable transformations can drive results, emphasizing the need for transparency in selection of transformations and robustness to a range of reasonable choices. Second, there is strong evidence of nonlinearity in the relationship between financial variables and economic activity—tight financial conditions are associated with sharp deteriorations in economic activity and accommodative conditions are associated with only modest improvements in activity. Finally, the ML-FCI places sizable weight on equity prices and term spreads, in contrast to other measures. These lessons yield an ML-FCI showing tightening in financial conditions before the early 1990s and early 2000s recessions, in contrast to the National Financial Conditions Index (NFCI). |
| Keywords: | Big Data; Recession Prediction; Variable Selection |
| JEL: | E50 E17 C55 E44 |
| Date: | 2020–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-95&r=all |
| By: | Moritz Drechsel-Grau; Fabian Greimel |
| Abstract: | We evaluate the hypothesis that rising inequality was a causal source of the US household debt boom since 1980. The mechanism builds on the observation that households care about their social status. To keep up with the ever richer Joneses, the middle class substitutes status-enhancing houses for status-neutral consumption. These houses are mortgage-financed, creating a debt boom across the income distri- bution. Using a stylized model we show analytically that aggregate debt increases as top incomes rise. In a quantitative general equilibrium model we show that Keeping up with the Joneses and rising income inequality generate 60% of the observed boom in mortgage debt and 50% of the house price boom. We compare this channel to two competing mechanisms. The Global Saving Glut hypothesis gives rise to a similar debt boom, but does not generate a house prices boom. Loosening collateral constraints does not generate booms in either debt or house prices. |
| Keywords: | mortgages, housing boom, social comparisons, consumption networks, keeping up with the Joneses |
| JEL: | D14 D31 E21 E44 E70 R21 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_159v1&r=all |
| By: | Ayobami E. Ilori; Juan Paez-Farrell; Christoph Thoenissen |
| Abstract: | The domestic and international transmission mechanism of fiscal policy shocks are analysed in large developed economies. Using a Bayesian VAR approach, we find that fiscal expansions are associated with increases in output, private consumption and, in many cases, with an increase in private investment. The terms of trade, which affect the international transmission of fiscal policy shocks, are found to depreciate in response to a fiscal expansion, thus transferring some of the increased domestic purchasing power abroad. A US government spending shock is expansionary for all non-US G7 members. A German government spending shock is expansionary for most, but not all European economies, both within and outside the Euro Area. The dynamics of the BVAR are rationalise using a dynamics stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints. |
| Keywords: | Fiscal policy, Bayesian VAR, DSGE modelling, International business cycles, spillovers |
| JEL: | E62 F41 F42 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2020-95&r=all |
| By: | Fidrmuc, Jarko; Moroz, Serhiy; Reck, Fabian |
| Abstract: | This paper analyzes the impact of ethnic heterogeneity and military conflict on the degree of regional consumption risk-sharing in Ukraine. Ethnicity and violent conflicts can influence risk-sharing e.g. through social capital, ethnic fractionalization, migration, and remittances. The sample consists of 25 Ukrainian oblasts and covers the highly volatile period from 2003 to 2016. Our results suggest that the degree of consumption risk-sharing is comparably high; between 70 and 80 percent on average. Moreover, consumption risk-sharing is significantly higher in the regions with a large Russian minority, which are enjoying special treatment by Russia. By contrast, the degree of financial development, as proxied by deposit and loan share in GRP, does not significantly affect the regional degree of consumption risk-sharing. Furthermore, we apply spatial models to control for spatial dependence across regions. Results are confirmed and it is shown that spatial correlation is important. Finally, we show that the recent geopolitical conflict in east Ukraine changed the regional degree of consumption risk-sharing. |
| JEL: | E32 E21 R12 P25 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2020_025&r=all |
| By: | Prados de la Escosura, Leandro |
| Abstract: | The rising trend in the capital-output ratio and the productivity slowdown have put capital back in the economist's agenda. This paper contributes to the debate by providing new estimates of net capital stock and services for Spain over the last 170 years. The net capital (wealth) stock-GDP ratio rose over time and doubled in the last half-a-century. Capital services grew fast over the long-run accelerating in the 1920s and from the mid-1950s to 2007. Until 1975 its acceleration was helped by an increase in the 'quality' of capital. Capital deepening proceeded steadily, accelerating during 1955-1985, and slowing down thereafter for expanding sectors attracted less investment-specific technological progress. Although capital consumption rose over time, the rate of depreciation fell from 1970 to 2007 as new capital goods' relative prices declined due to embodied technological change. |
| Keywords: | Spain; Capital-Output Ratio; Capital Deepening; Capital Stock And Services |
| JEL: | N34 N33 E22 E01 D24 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:31464&r=all |
| By: | Niftiyev, Ibrahim |
| Abstract: | Inflation is one of the most important economic indicators for a country. Understanding inflation based on the consumer spending patterns allows for better conceptualization of the phenomenon and improved policy responses for the unwanted developments, more precisely, increased price levels in consumer markets. The current working paper develops Consumer Price Index-based inflation indicator via the help of the Laspeyres price index in the case of Azerbaijan to evaluate the post-booming period (which is since 2011). Moreover, the significant results of correlation analysis between the Paasche Price Index and oil prices, oil revenue, and real effective exchange rate (REER) demonstrate initial signals about the urban and rural inflation dynamics and trends in the case of oil-rich Azerbaijan. |
| Keywords: | Inflation,Macroeconomic Data,Consumer Price Index (CPI),Oil revenue,Laspeyres Index,Paasche Index,Azerbaijan Economy |
| JEL: | E01 E31 F41 O50 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:226217&r=all |
| By: | Serdar Kabaca; Renske Maas; Kostas Mavromatis; Romanos Priftis |
| Abstract: | This paper explores the optimal allocation of government bond purchases within a monetary union, using a two-region DSGE model, where regions are asymmetric with respect to economic size and portfolio characteristics: the extent of substitutability between assets of different maturity and origin, asset home bias, and steady-state levels of government debt. An optimal quantitative easing (QE) policy under commitment does not only reflect different region sizes but is also a function of these dimensions of portfolio heterogeneity. By calibrating the model to the euro area, we show that optimal QE favors purchases from the smaller region (Periphery instead of Core), given that the former faces stronger portfolio frictions. A fully optimal policy consisting of both the short-term interest rate and QE lifts the monetary union away from the zero lower bound faster than an optimal interest rate policy alone, which entails forward guidance. |
| Keywords: | Business fluctuations and cycles; Economic models; Monetary policy |
| JEL: | E58 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-49&r=all |
| By: | Martín-Román, Ángel L. |
| Abstract: | This paper identifies and analyses a new effect related to the cyclical behavior of labor supply: the Entitled-Worker Effect (EWE). This effect is different from the well-known Added-Worker Effect (AWE) and Discouraged-Worker Effect (DWE). The EWE is a consequence of one of the most important labor institutions: the unemployment benefit (UB). We develop a model with uncertainty about the results of the job seeking and transactions costs linked to such a search process in which a kind of moral hazard appears. This creates new incentives for workers and produces an additional counter-cyclical pressure on aggregate labor supply, but with a different foundation from that of the AWE. Finally, we show some empirical evidence supporting the EWE for the Spanish case. |
| Keywords: | Labor force participation,Business Cycle,Unemployment,Added-worker effect,Discouraged-worker effect,Unemployment Benefit |
| JEL: | E24 E32 H55 J22 J64 J65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:707&r=all |
| By: | Martín-Román, Ángel L. |
| Abstract: | This paper identifies and analyses a new effect related to the cyclical behavior of labor supply: the Entitled-Worker Effect (EWE). This effect is different from the well-known Added-Worker Effect (AWE) and Discouraged-Worker Effect (DWE). The EWE is a consequence of one of the most important labor institutions: the unemployment benefit (UB). We develop a model with uncertainty about the results of the job seeking and transactions costs linked to such a search process in which a kind of moral hazard appears. This creates new incentives for workers and produces an additional counter-cyclical pressure on aggregate labor supply, but with a different foundation from that of the AWE. Finally, we show some empirical evidence supporting the EWE for the Spanish case. |
| Keywords: | Labor force participation, Business Cycle, Unemployment, Added-worker effect, Discouraged-worker effect, Unemployment Benefit |
| JEL: | E24 E32 H55 J22 J64 J65 |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:103973&r=all |
| By: | Moritz Drechsel-Grau; Fabian Greimel |
| Abstract: | We evaluate the hypothesis that rising inequality was a causal source of the US household debt boom since 1980. The mechanism builds on the observation that households care about their social status. To keep up with the ever richer Joneses, the middle class substitutes status-enhancing houses for status-neutral consumption. These houses are mortgage-financed, creating a debt boom across the income distribution. Using a stylized model we show analytically that aggregate debt increases as top incomes rise. In a quantitative general equilibrium model we show that Keeping up with the Joneses and rising income inequality generate 60% of the observed boom in mortgage debt and 50% of the house price boom. We compare this channel to two competing mechanisms. The Global Saving Glut hypothesis gives rise to a similar debt boom, but does not generate a house prices boom. Loosening collateral constraints does not generate booms in either debt or house prices. Finally, we provide novel empirical evidence on the relationship between top incomes and household debt. Mortgage debt rose substantially more in US states that experienced stronger growth in top incomes. There is no such relationship between top incomes and non-mortgage debt. These findings support to the importance of the comparisons channel. |
| Keywords: | mortgages, housing boom, social comparisons, consumption networks, keeping up with the Joneses |
| JEL: | D14 D31 E21 E44 E70 R21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_159v2&r=all |
| By: | Gurgone, Andrea; Iori, Giulia |
| Abstract: | To date, macroprudential policy inspired by the Basel III package is applied irrespective of the network characteristics of the banking system. We study how the implementation of macroprudential policy in the form of additional capital requirements conditional to systemic-risk measures of banks should regard the degree of heterogeneity of financial networks. We adopt a multi-agent approach describing an artificial economy with households, firms, and banks in which occasional liquidity crises emerge. We shape the configuration of the financial network to generate two polar worlds: one is characterized by few banks who lend most of the credit to the real sector while borrowing interbank liquidity. The other shows a higher degree of homogeneity. We focus on a capital buffer for SII and two buffers built on measures of systemic impact and vulnerability. The research suggests that the criteria for the identification of systemic-important banks may change with the network heterogeneity. Thus, capital buffers should be calibrated on the heterogeneity of the financial networks to stabilize the system, otherwise they may be ineffective. Therefore, we argue that prudential regulation should account for the characteristics of the banking networks and tune macroprudential tools accordingly. |
| Keywords: | agent-based model,capital requirements,capital buffers,,financial networks,macroprudential policy,systemic-risk |
| JEL: | C63 D85 E44 G01 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:164&r=all |
| By: | Feld, Lars P.; Wieland, Volker |
| Abstract: | The ruling of the German Federal Constitutional Court and its call for conducting and communicating proportionality assessments regarding monetary policy have been the subject of some controversy. However, it can also be understood as a way to strengthen the de-facto independence of the European Central Bank. This paper shows how a regular proportionality check could be integrated in the ECB's strategy that is currently undergoing a systematic review. In particular, it proposes to include quantitative benchmarks for policy rates and the central bank balance sheet. Deviations from such benchmarks can have benefits in terms of the intended path for inflation while involving costs in terms of risks and side effects that need to be balanced. Practical applications to the euro area are provided. |
| Keywords: | central bank independence,monetary law,monetary institutions,monetary policy strategy,proportionality,policy rules,quantitative easing |
| JEL: | E52 E58 K10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluord:2005&r=all |
| By: | Miller, Sam (Alan Turing Institute); Wanengkirtyo, Boromeus (Bank of England) |
| Abstract: | In the face of lower real interest rates, central bank balance sheets are likely to remain larger relative to pre-crisis levels, resulting in greater banking system liquidity. However, there is little evidence on the impact of higher liquidity on credit supply and the monetary transmission mechanism in the ‘new normal’. We exploit a novel dataset on bank liquidity positions arising from a unique regulatory regime and combine it with a highly-detailed, loan-level administrative dataset on UK mortgages. Using the design of quantitative easing auctions as an instrument for liquidity to address endogeneity, we find that more liquid banks charge slightly higher mortgage interest rates, and pass on significantly less changes in risk-free rates. We explain this through bank behaviour that attempts to preserve net interest margins in the face of holding low-yielding liquidity. Consistent with this, we find excess liquidity leads to reaching-for-yield responses in banks’ mortgage risk-taking. Additionally, the results shed light on the optimal mix between (un)conventional monetary policy tools. Policies that boost bank net interest margins are more likely to help the transmission of risk-free rates to lending rates. |
| Keywords: | Bank liquidity; interest rate pass-through; monetary policy |
| JEL: | E52 E58 G21 |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0891&r=all |
| By: | Christoffel, Kai; de Groot, Oliver; Mazelis, Falk; Montes-Galdón, Carlos |
| Abstract: | We estimate the effects of interest rate forward guidance (FG) using a parsimonious VAR, augmented with survey forecast data. The identification strategy of FG shocks via sign and zero restrictions is successfully tested by the recovery of true IRFs from simulated data. The identified shocks from the VAR suggest that FG has a stronger effect on macro variables and deviations are more instantaneous compared to the hump-shaped response following unanticipated changes in monetary policy. We apply this evidence to calibrate free parameters of an otherwise estimated DSGE model in order to dampen the FG Puzzle. JEL Classification: C54, E43, E58 |
| Keywords: | Bayesian VAR, DSGE models, monetary policy, non-standard measures, survey forecasts |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202495&r=all |
| By: | Ferraro, Aniello; Agovino, Massimilano; Garofalo, Antonio; Cerciello, Massimilano |
| Abstract: | Social exclusion represents a popular topic in the policy agendas of European governments, especially after the Great Recession. The existing literature highlights the presence of spatial patterns, although previous contributions consist of local or national level studies, lacking a broader continental perspective. This work resorts to regional data covering 22 EU countries and aims to characterise the nature of spatial patterns, controlling for socio-economic covariates. Using the Spatial Markov Chain Matrix, we find that the strong clusterisation process unfolded by previous studies tends to become less intense if socio-economic covariates are taken into account. Socio-economic factors represent in other words a containment cage that reduces the extent of neighbour influence. |
| Keywords: | social exclusion; spatial spillovers; spatial markov chain matrix; European regions. |
| JEL: | A14 E0 E24 E25 I3 J6 R5 |
| Date: | 2020–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104217&r=all |
| By: | Luis Angeles |
| Abstract: | The history of money can be characterized into four major phases, from the earliest written records during the 3rd millennium BC to the present day. This characterization sheds light on both the nature and the evolution of money, and helps us to understand today’s monetary arrangements. Money evolves over time as the preferred means of payment shift from metal to coinage and from coinage to different forms of debt, and as the unit of account becomes more or less linked to the value of a commodity, in particular gold or silver. |
| JEL: | E51 E58 G21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_24&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Macroeconomic Management Poverty Reduction - Employment and Shared Growth Poverty Reduction - Inequality |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34264&r=all |
| By: | Jayawickrema, Vishuddhi |
| Abstract: | I estimate the effects of the Federal Reserve's forward guidance and large-scale asset purchases, along with the effects of interest rate changes under conventional policy, on the U.S. equity market, and assess the reasons for stock price responses. Although the overall stock market respond meaningfully to a surprise change in the federal funds rate with a high level of statistical significance, a heterogeneity in responses is observed among different sectors in the stock market. In contrast, forward guidance is found to have relatively homogeneous effects on sector-wise stock market performance. Such effects are large in magnitude and highly statistically significant. However, large-scale asset purchases exhibit minimal effects on equity price movements. The present value of future excess returns emerged as the most important channel through which the surprise changes in the federal funds rate as well as forward guidance and large-scale asset purchases affect current equity prices. The present value of future dividends and the real interest rates are found to make minor contributions the propagation of policy shocks. However, the relative contribution of future dividends, real interest rates and excess returns vary across sectors. |
| Keywords: | forward guidance, quantitative easing, asset purchases, zero lower bound |
| JEL: | E52 E58 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104224&r=all |
| By: | Monisankar Bishnu; Cagri Kumru |
| Abstract: | In this paper, we extend the †A Note on the Annuity Role of Estate Tax†(Bishnu and Kumru (2020)) by incorporating social security system, consumption tax, and endogenous labor supply. In all these extensions, we show that estate tax cannot play the role of annuities. We also conducted robustness analysis by employing frequently used specifications for bequest motives. We show that the conclusion we reached in the †A Note on the Annuity Role of Estate Tax†is robust to changes in bequest specifications. |
| Keywords: | Bequests; Estate Tax; Annuity |
| JEL: | D15 E62 H21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2020-676&r=all |
| By: | Ángel Luis Gómez (Banco de España) |
| Abstract: | En la zona del euro, la composición del empleo experimentó variaciones significativas desde el comienzo de la crisis financiera, particularmente en lo referente a la edad y al nivel educativo de los asalariados, así como en la incidencia de la contratación temporal. En este trabajo se explotan dos nuevos conjuntos de datos de panel para estimar en qué medida los cambios en la composición del empleo desempeñaron un papel importante a la hora de explicar el débil crecimiento de los salarios en el conjunto de la zona del euro y en sus principales países miembros durante la etapa de recuperación económica que siguió a la crisis financiera. Este tipo de análisis, en el que se sigue al mismo individuo durante varios períodos de tiempo, permite tratar econométricamente el efecto de la productividad individual, así como evitar determinados sesgos que podrían afectar al uso de datos de sección cruzada. Se concluye que los cambios en la composición del empleo ejercieron cierto efecto positivo sobre los salarios en la zona del euro entre 2010 y 2012. Sin embargo, a partir de 2013 y hasta 2017, último período para el que se dispone de datos individuales, este efecto cambió de signo y aumentó de magnitud, amortiguando el crecimiento de los salarios agregados. En los dos últimos años analizados, el efecto fue particularmente relevante, situándose su impacto en el entorno de 1 punto porcentual. La corrección del efecto de los cambios de composición en el empleo sobre los salarios permite obtener una relación más estrecha entre estos y las condiciones cíclicas. |
| Keywords: | efectos de composición, datos de panel, efectos fijos individuales |
| JEL: | E24 J31 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2028&r=all |
| By: | Leonard I. Nakamura |
| Abstract: | Corporate equity market values, profitability, and intangible investment have reached high proportions of income. Are these investments and their outcomes evidence of a well functioning society? We do not see the rapid growth in aggregate measures of output that would justify these investments and rewards. And why did the yield curve invert as the U.S. federal funds rate reached 2? percent in early 2019, if the inflation rate was near 2 percent? We present the broad case that mismeasurement of growth and prices accelerated in the U.S. during the 21st century and may be responsible for the appearance of secular stagnation in the U.S. We argue that it is possible that productivity growth has accelerated and that prices have been deflating during much of the 21st century. The evidence is very incomplete; large uncertainties surround these estimates. Indeed, the main message of this paper is that uncertainty in economic measurement has risen substantially. |
| Keywords: | National Accounts, Internet, Information, Inflation, Welfare, Mismeasurement |
| JEL: | O4 O3 E0 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2020-15&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Social Protections and Labor - Employment and Unemployment |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34113&r=all |
| By: | Lake, A. |
| Abstract: | I introduce a new test of whether house prices are always equal to their fundamental values, which are defined to account for the unique frictions in housing asset markets, based on the speed of their reaction to monetary shocks. This test is justified with two conceptual frameworks and existing empirical work on monetary transmission. The results of applying this test to US data using local projections reject the hypothesis, but are instead consistent with behavioural expectations in housing markets. I also use a sign decomposition based on the conceptual frameworks to identify that consumption demand is the most important driver of US house price cycles, although asset demand is also relatively important. Therefore housing cycles usually arise from partially behavioural reactions to changes in housing demand. |
| Keywords: | House Prices, Forecasting, Expectations, Housing Cycles, Monetary Shocks, Behavioural Housing |
| JEL: | G14 R31 E32 D84 |
| Date: | 2020–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:20104&r=all |
| By: | Erkal Ersoy (Centre for Energy Economics Research and Policy, Heriot-Watt University) |
| Abstract: | This paper empirically analyses the relationship between oil prices and real economic activity in the US. We seek to contribute to the literature by reconsidering the measurement of oil prices. We do so by accounting for whether oil price shocks follow periods of quiescence or volatility, since the former oil price changes could be more shocking. This study also accounts for asymmetry of shocks, since both theory and our empirical findings indicate that positive shocks to oil prices have a greater impact on economic activity than negative ones. We implement a rolling window approach in VARs and IRFs to investigate the time-varying nature of the relationship. Based on these, we find no clear evidence of the oil price-macroeconomy relationship weakening over time. There is strong evidence for asymmetry across specifications, proxies, and sample periods. Impulse response analysis suggests that a rise in oil prices is expected to lead to a decline in output growth rate and that this effect is larger in the second half of the dataset. |
| Keywords: | Oil prices, economic activity, time-series econometrics, VAR, IRF |
| JEL: | C32 E32 Q41 Q43 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:hwc:wpaper:009&r=all |
| By: | Antonio Diez de los Rios |
| Abstract: | We study the interaction between epidemics and economic decisions in a model where (1) agents allocate their time to market and home production and social and home leisure, (2) these activities differ in their degree of contagiousness, (3) some infected individuals are indistinguishable from susceptible individuals and (4) agents are not necessarily rational. For baseline parameter values for the COVID-19 pandemic, we find that agents partially self-isolate by allocating more time to home activities and that the effective reproduction number of the disease stabilises at one. Detection and isolation of infected individuals severely mitigate the recession caused by the pandemic. |
| Keywords: | Coronavirus disease (COVID-19); Economic models |
| JEL: | E1 H0 I1 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-50&r=all |
| By: | Kuikeu, Oscar |
| Abstract: | Some facts embedding particularly in the UIP relation lies at the heart of this kind of cooperation on the aspect of Money because this can help to assess the competition necessary between the anchor economy and the one’s who is pegged to his currency in the convolution of this Old parity comparatively to interest of the national economy as represented by the nominal parity compare to the local currency unit. Is this means that UIP holds in CEMAC’s Community? In other words, if CEMAC’s Community is an representative case to assess the verifiability of this relation of UIP how to make this liability considering the coexistence of multiple monetary regime considering in the one hand the Advent of an unique discount rate as the main instrument for the Central Bank and the manipulation of the anchor in 94 with the devaluation and the coming of the unique currency European currency in the late of the decade? These are the questions we are trying to answer, here. Globally speaking time series techniques of integrated process are an valuable engine to tackle this kind of consideration with the ability to make some assumption on the robustness of the relation a la Engle-Granger notably. |
| Keywords: | monetary cooperation, UIP, nominal exchange rate, nominal anchor, Engle-Granger |
| JEL: | C32 E52 O47 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104320&r=all |
| By: | Kenny, Seán; Lennard, Jason; O'Rourke, Kevin Hjortshøj |
| 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: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107427&r=all |
| By: | World Bank |
| Keywords: | Public Sector Development - Public Sector Management and Reform Finance and Financial Sector Development - Debt Markets Health, Nutrition and Population - Disease Control & Prevention Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Social Protections and Labor - Labor Markets |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34123&r=all |
| By: | Lake, A. |
| Abstract: | Trying to estimate rational expectations does not usually minimise forecast error when forecasting macroeconomic or financial variables in reality. This is because, with samples of realistic length, optimal feasible forecasts contain conditional biases that reduce forecast variance. I demonstrate this by using penalised factor models to show that statistically simple inflation forecasts, primarily based on past inflation, are optimal even when other relevant financial and economic variables are available. I also show that US household inflation forecasts display many similarities to these simple optimal forecasts, but also contain mistakes that increase forecast error. Therefore a combination of `optimal feasible expectations' and behavioural errors explain US household inflation forecasts. This suggests that optimal feasible expectations, with additional behavioural errors in some cases, could explain forecast formation across economics and finance. |
| Keywords: | Forecasting, Expectations, Uncertainty, Shrinkage, Ination, Nominal Rigidities, Factor Models |
| JEL: | E37 D84 C53 |
| Date: | 2020–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:20105&r=all |
| By: | Maurin, Laurent; Pál, Rozália |
| Abstract: | We use firm-level financial data to illustrate the impact of the COVID-19 crisis under several scenarios. We estimate COVID-19 induced cumulative net revenue losses for EU companies in the range of 5.4 to 10.0% of total assets, depending on the strength of the policy support and length of the normalisation period. The results appear robust to the consideration of sector specific decline in sales and cost-elasticities. The decline in internal financing capacity is likely to reduce investment by 24.3 to 48.5% during the COVID-19 crisis, compared to 19% during the Great Financial Crisis (GFC). Using historical regularities, we then assess the likelihood of such decline by estimating a macro based Bayesian VAR model for which we identify a standard demand shock. We then calibrate the demand shock to generate the computed decline in net revenues associated to the most benign scenario. The comparison between conditional and unconditional projections supports the existence of a tradeoff faced by corporates between investment and leverage. It also suggests that, should the estimated gap in net revenues materialise as the result of the crisis, the decline in corporate investment would likely be within the computed ranges. |
| Keywords: | Corporate investment,leverage,financing structure,firm-level data,Scenarios,calibration,BVAR models,shocks identification,conditional projections |
| JEL: | E22 D92 F34 G31 G32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:202009&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Taxation & Subsidies Poverty Reduction - Employment and Shared Growth |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34178&r=all |
| By: | Roses Vendoiro, Juan Ramon; Prados de la Escosura, Leandro |
| Abstract: | The current productivity slowdown has stimulated research on the causes of growth. We investigate here the proximate determinants of long-term growth in Spain. Over the last 170 years output per hour worked raised nearly 24-fold dominating GDP growth, while hours worked per person shrank by one-fourth and population trebled. Half of labour productivity growth resulted from capital deepening, one-third from total factor productivity, and labour quality contributed the rest. In phases of acceleration (the 1920s and 1954-85), TFP was labour productivity's main driver complemented by capital deepening. Since Spain's accession to the European Union(1985), labour productivity has sharply decelerated as capital deepening slowed down and TFP stagnated. Up to the Global Financial Crisis (2008) GDP growth mainly resulted from an increase in hours worked per person and, to a less extent, from sluggish labour productivity coming mostly from weak capital deepening. Institutional constraints help explain the labour productivity slowdown. |
| Keywords: | Spain; Total Factor Productivity; Labour Quality; Capital Deepening; Labour Productivity; Growth |
| JEL: | N14 N13 O47 E01 D24 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:31465&r=all |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President James Bullard talked about substantial progress on health outcomes, but cautioned that risks remain as the pandemic continues. He also discussed the upside surprise for the U.S. economy in recent months, as well as the monetary policy and fiscal policy responses at the beginning of the COVID-19 crisis. He spoke during an event hosted by the Arkansas-based Rotary Club of Hot Springs National Park. |
| Keywords: | COVID-19; monetary policy; fiscal response; K-shaped recovery; risk-based policy |
| Date: | 2020–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:89083&r=all |
| By: | Emanuela Ciapanna (Bank of Italy); Sauro Mocetti (Bank of Italy); Alessandro Notarpietro (Bank of Italy) |
| Abstract: | This paper quantifies the macroeconomic effects of three major structural reforms (i.e., service sector liberalizations, incentives to innovation and civil justice reforms) undertaken in Italy in the last decade. We employ a novel approach that estimates the impact of each reform on total factor productivity and markups in an empirical micro setting and that uses these estimates in a structural general equilibrium model to simulate the macroeconomic impact of the reforms. Our results indicate that, accounting for estimation uncertainty, the increase in the level of GDP as of 2019 due to the sole effect of these reforms (ignoring all the other shocks that the Italian economy suffered in the same period) would be between 3% and 6%. The long-run increase in Italy's potential output would lie between 4% and 8%, with non-negligible effects on the labor market. |
| Keywords: | structural reforms, DSGE models, liberalization, innovation, civil justice |
| JEL: | E10 E20 J60 K40 L50 O30 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1303_20&r=all |
| By: | Oleksiy Kryvtsov; James MacGee |
| Abstract: | For most of 2011–19, inflation in Canada and advanced economies registered below inflation targets. This has spurred a debate on whether “lowflation” is a temporary phenomenon or rather a sign of a fundamental change in inflation behaviour—in Canada and globally. So far, we know little. Global factors—changes in the price of oil and shifts in trade due to globalization—can only explain a portion of the fluctuations in domestic inflation. Emerging survey data are showing that inflation expectations of managers and households behave very differently from model expectations based on full information and rational behaviour. Recent surveys using randomized control trials reveal that changes in monetary or fiscal policies may lead to unexpected responses of inflation expectations and firm behaviour. Changes in the markets for consumer goods raise the need for us to rethink the methods for measuring inflation. We discuss the questions that these observations bring up for central bankers. |
| Keywords: | Central bank research; Inflation and prices; Monetary policy |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-11&r=all |
| By: | Schön, Matthias |
| Abstract: | The currently observed demographic change consists of two independent develop-ments that differ in structure and persistence: (1) A slow, monotonic and (presum-ably) permanent ageing effect caused by an increasing life expectancy; (2) a morerapidly changing, non-monotonic and less permanent cohort effect caused by fluc-tuations in the size of cohorts. This paper shows the ageing effect has a positiveimpact on the rates of return households generate within pay-as-you-go (PAYG) pension system. The cohort effect, by contrast, results in winners and losers in PAYG systems. Taking Germany as an example and using a quantitative OLG model the paper shows that the two effects cause rate of return differentials withinthe pension system of almost 1.3 percentage points between generations. |
| Keywords: | Demographic Change,Pension System,OLG Models |
| JEL: | E27 E62 H55 J11 J26 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:572020&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Living Standards Poverty Reduction - Services & Transfers to Poor |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34220&r=all |
| By: | Miguel St.Aubyn |
| Abstract: | The relationship between electricity consumption and economic activity has been widely studied. It comes then as no surprise that the need to obtain a fast estimate for the GDP drop following the perceived devastating economic effects resulting from the Covid-19 pandemic would lead forecasting practitioners into exploiting this relationship. This drive is further explained, at least in the case of Portugal, by the fact that electricity consumption daily data are published almost in real-time as compared to delays in other potentially informative variables. As usual, there is a trade-off between speed and estimate accuracy. Any result of this kind is not a suitable replacement for better and more complete information, and, in due time, complete and accurate measurements will be available. In the meantime, less precise but already available instruments provide us with some guidance and insight. |
| Keywords: | forecast, economic activity, electricity consumption, Portugal |
| JEL: | E17 E23 C32 Q43 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:alf:wpaper:2020-01&r=all |
| By: | David Kohns; Arnab Bhattacharjee (Centre for Energy Economics Research and Policy, Heriot-Watt University) |
| Abstract: | More and more are Big Data sources, such as Google Trends, being used to augment nowcast models. An often neglected issue within the previous literature, which is especially pertinent to policy environments, is the interpretability of the Big Data source included in the model. We provide a Bayesian modeling framework which is able to handle all usual econometric issues involved in combining Big Data with traditional macroeconomic time series such as mixed frequency and ragged edges, while remaining computationally simple and allowing for a high degree of interpretability. In our model, we explicitly account for the possibility that the Big Data and macroeconomic data set included have different degreesof sparsity. We test our methodology by investigating whether Google trends in real time increase nowcast fit of US real GDP growth compared to traditional macroeconomic time series. We find that search terms improve performance of both point forecast accuracy as well as forecast density calibration not only before official information is released but alsolater into GDP reference quarters. Our transparent methodology shows that the increased fit stems from search terms acting as early warning signals to large turning points in GDP. |
| Keywords: | Big Data; Machine Learning; Interpretability; Illusion of Sparsity; Density Nowcast; Google Search Terms |
| JEL: | C31 C53 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:hwc:wpaper:010&r=all |
| By: | Reghezza, Alessio; Rodriguez d’Acri, Costanza; Pancotto, Livia; Molyneux, Philip |
| Abstract: | In the current low interest rate environment in the euro area there is potential for a sudden increase in interest rates and heightened interest rate risk (IRR). By using a sample of 81 euro area banks during the period 2014Q4-2018Q1 and a confidential supervisory measure of IRR, this paper identifies which bank-specific characteristics can amplify or weaken the impact of a 200 basis points positive shock in interest rates. We find that banks reliant on core deposits, that hold more floating-interest rate loans and that diversify their lending, either by sector or geography, are less exposed to a positive change in interest rates. Interestingly, we discover that banks that did not exploit the exceptional financing provided by the European Central Bank (ECB) reveal greater IRR exposure. These findings advance the debate on the impact on euro area banking of a possible return to a normalised monetary policy. JEL Classification: E43, E44, E52, G21, F44 |
| Keywords: | balance-sheet determinants, interest rate risk, low interest rate environment, unconventional monetary policies |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202496&r=all |
| By: | Ljunge, Martin (Research Institute of Industrial Economics (IFN)); Stenkula, Mikael (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Intrapreneurs, entrepreneurial employees, constitute an important force behind innovations in the economy. Yet, what factors that promote intrapreneurship at the country level are an underdeveloped research area. This paper provides a seminal contribution regarding the methodological approach and the broad set of potential explanatory factors studied. Based on machine-learning techniques (LASSO and EBA methods), we investigate the influence of over 60 factors capturing institutional, demographic, cultural, and developmental factors. We find that the quality of government measured as impartiality, i.e., that the political institutions treat the citizens in a non-discriminatory fashion and do not favor some groups or individuals, and the level of human capital, measured as the average years of schooling, are the most important factors predicting the level of intrapreneurship across countries. Instrumental variable results support a causal interpretation. The findings emphasize the importance of policy to establish well-functioning and impartial institutions as well as to promote higher education. |
| Keywords: | Intrapreneurship; Impartial institutions; Human capital; Machine-learning |
| JEL: | E02 I20 L26 O17 O30 |
| Date: | 2020–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1368&r=all |
| By: | World Bank |
| Keywords: | Education - Access & Equity in Basic Education Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Poverty Reduction - Poverty and Health |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34221&r=all |
| By: | Wang, Olivier |
| Abstract: | This paper studies how low interest rates weaken the short-run transmission of monetary policy and contract the long-run supply of bank credit. As U.S. bond rates have fallen, the pass-through of monetary shocks to loan and deposit rates has weakened while the spread on U.S. bank loans has risen. I build a model in which banks earn deposit and loan spreads, deposits compete with money, and banks’ lending capacity depends on their equity. The short-run transmission of monetary policy is dampened at low rates, because deposit spreads act as a better hedge for bank equity against unexpected monetary shocks. In the long run, persistent low rates decrease banks’ “seigniorage” revenue from deposit spreads, hence bank equity and loan supply contract, and loan spreads increase. JEL Classification: E4, E5, G21 |
| Keywords: | deposit spread, financial intermediation, interest rate pass-through, loan spread, low interest rates |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202492&r=all |
| By: | Thomas M. Eisenbach (Federal Reserve Bank of New York); Gregory Phelan (Williams College) |
| Abstract: | In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the external- ity and find that this is far from guaranteed. Cournot competition can overcorrect the inefficiently high borrowing in a standard model of levered real investment. In contrast, Cournot competition can exacerbate the inefficiently low liquidity in a standard model of financial portfolio choice. Implications for welfare and regulation are there- fore sector-specific, depending both on the nature of the shocks and the competitive- ness of the industry. |
| Keywords: | liquidity, fire sales, overinvesment, financial regulation, macroprudential regulation |
| JEL: | D43 D62 E44 G18 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2020-10&r=all |
| By: | World Bank |
| Keywords: | Public Sector Development - Public Financial Management Public Sector Development - Public Sector Expenditure Policy Finance and Financial Sector Development - Strategic Debt Management Governance - Governance and the Financial Sector Governance - National Governance Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34325&r=all |
| By: | Scobie, Grant M |
| Abstract: | The purpose of this essay is to address the question: “Are there elements of Phillip's work that are still relevant today for macroeconomic policymaking today?†In undertaking this task, I will draw on the summary of his work from the second part of Allan Bollard's book "A Few Hares to Chase: The Economic Life and Times of Bill Phillips". But I will also cast the net a little wider to draw on the writings of others who have reviewed and built on the work of Phillips; and naturally, I will call on a number of the original papers by Phillips. However, any suggestion that I will fully capture all that has been written about Phillips, his life and work, must be summarily dismissed. Put “AWH Phillips economist†into Google search and one gets 201,100 links; for “Phillips curve†a mere 717,000. The essay proceeds as follows. Phillips’ work is grouped into four broad areas: - Inflation and Unemployment - Dynamic Stabilisation and Optimal Control - Economic growth - Econometrics This is followed by a brief discussion of forecasting and policy models with a sketch of their use in selected countries. A concluding section follows. |
| Keywords: | Phillips, Bill, Macroeconomic policy, New Zealand, |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwcpf:9368&r=all |
| By: | Jane E. Ihrig; Scott A. Wolla |
| Abstract: | The Federal Reserve (the Fed), the central bank of the United States, has a Congressional mandate to promote maximum employment and price stability. While those goals were articulated in 1977, the approach and tools used to implement those objectives have changed over time. |
| Date: | 2020–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-10-23-2&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Health, Nutrition and Population - Public Health Promotion Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Poverty Monitoring & Analysis Social Protections and Labor - Employment and Unemployment |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34318&r=all |
| By: | Goutham Gopalakrishna (Swiss Finance Institute (EPFL); Ecole Polytechnique Fédérale de Lausanne) |
| Abstract: | What causes deep recessions and slow recovery? I revisit this question and develop a macro-finance asset pricing model that quantitatively matches the salient empirical features of financial crises such as a large drop in the output, a high risk premium, reduced financial intermediation, and a long duration of economic distress. The model features leveraged intermediaries who are subjected to both capital and productivity shocks, and face a regime-dependent exit rate. I show that the model without time varying intermediary productivity and exit, which reduces to Brunnermeier and Sannikov (2016), suffers from a tension between the amplification and the persistence of financial crises. In particular, there is a trade-off between the unconditional risk premium, the conditional risk premium, and the probability and duration of crisis. Features that generate high financial amplification also induce faster recovery, at odds with the data. I show that my model resolves this tension and generates realistic crises dynamics. The model is solved using a novel numerical method with active machine learning that is scalable and alleviates the curse of dimensionality. |
| Keywords: | Financial Intermediation, Intermediary Asset Pricing, Machine Learning |
| JEL: | E44 G12 C63 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2096&r=all |
| By: | Ryadh M. Alkhareif (International Monetary Fund, and Saudi ArabiaÕs Ministry of Finance; William Barnett); William William (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin) |
| Abstract: | The paper constructs monthly GDP nowcasts for Saudi Arabia by estimating a Generalized Dynamic Factor Model (GDFM) on a panel of 272 variables over the period from January 2010 to June 2018. The GDP nowcasts produced in this paper can accurately mimic GDP growth rates for Saudi Arabia, including for the non-oil sector. Our GDFM has outperformed other traditional models in tracking the business cycle in Saudi Arabia. In our view, the non-oil private sector GDP nowcasts provided in this paper can substitute the traditional set of indicators used to monitor monthly private sector activity. |
| Keywords: | Nowcast, non-oil GDP, generalized dynamic factor model, principal components analysis. |
| JEL: | C22 E53 E37 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:202018&r=all |
| By: | Qinchun He; Yulei Luo; Jun Nie; Heng-fu Zou |
| Abstract: | According to Schumpeter (1934), entrepreneurs are driven to innovate not only for the fruits of success but for success itself. This description of entrepreneurship echoes Weber’s (1958) description of the “spirit of capitalism,” which states that people enjoy the accumulation of wealth irrespective of its effect on smoothing consumption. This paper explores the implications of the spirit of capitalism on monetary policy, growth, and welfare in a Schumpeterian growth model. Different from the existing literature, we show that money is not superneutral in the long run and could promote economic growth when the spirit of capitalism is strong. Furthermore, we show that the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate. Finally, our calibrated model suggests that the spirit of capitalism explains an important share (about one-third) of long-run growth in the United States. |
| Keywords: | Spirit of capitalism; Cash-in-advance; Schumpeterian model; Monetary policy; Growth and welfare |
| JEL: | E52 O42 O47 |
| Date: | 2020–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:89065&r=all |
| By: | World Bank Group |
| Keywords: | Energy - Energy Finance Information and Communication Technologies - Digital Divide Infrastructure Economics and Finance - Infrastructure Economics Infrastructure Economics and Finance - Infrastructure Finance Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Water Supply and Sanitation - Water Supply and Sanitation Finance Transport - Transport Economics Policy & Planning |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34079&r=all |
| By: | James B. Bullard |
| Abstract: | During a virtual presentation for the Economic Club of Memphis, St. Louis Fed President James Bullard said that while there has been progress in managing the global health crisis, substantial risks remain. He also noted that U.S. macroeconomic news from May through October surprised dramatically to the upside, which suggests that the business sector has rapidly adjusted to the pandemic. |
| Keywords: | COVID-19 |
| Date: | 2020–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:89082&r=all |
| By: | Jiménez, Bruno (Universidad de Piura); Rendon, Silvio (Independent Researcher) |
| Abstract: | We investigate the labor market effects of the reestablishment of private-sector workers' right to reinstatement for unfair dismissals, which occurred in 2002 in Peru. Using data from Peruvian Household Surveys from 2004 to 2015, and the Specialized Employment Survey 1998-2001, we estimate a quasi-experimental difference-in-difference model. We find that this reestablishment is associated with increases in new contracting in the private sector, by 5.9 % for permanent hiring and 3.0 % for temporary hiring. By means of placebo tests, we only fund a causal effect of the reinstatement on temporary hiring, not on permanent hiring. We also find a negative association between reinstatements and real wages of 3.9 %, but placebo tests indicate that this is not a causal effect. Our findings call into question the effectiveness of removing reinstatement laws as a policy to increase permanent hiring and wages. |
| Keywords: | labor costs, employment, fixed-term contracts |
| JEL: | J23 J65 E24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp13858&r=all |
| By: | Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Andrew T. Young (College of Business Administration, Texas Tech University, USA) |
| Abstract: | We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company’s 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman's (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke’s introduction was a response to the implicit contract breach. |
| Keywords: | Invisible Handshake, Implicit Contract, Customer Market, Long-Term Relationship, Cost of Breaching a Contract, Cost of Breaking a Contract, Coca-Cola, New Coke, Exit, Voice, Loyalty, Nickel Coke, Sticky/Rigid Prices, Cost of Price Adjustment, Cost of Quality Adjustment |
| JEL: | E31 K10 L11 L16 L66 M20 M30 N80 N82 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:20-26&r=all |
| By: | Daniel Levy (Bar-Ilan University); Andrew T. Young |
| Abstract: | We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company’s 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman’s (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke’s introduction was a response to the implicit contract breach. |
| Keywords: | Invisible Handshake, Implicit Contract, Customer Market, Long-Term Relationship, Cost of Breaching a Contract, Cost of Breaking a Contract, Coca-Cola, New Coke, Exit, Voice, Loyalty, Nickel Coke, Sticky/Rigid Prices, Cost of Price Adjustment, Cost of Quality Adjustmen |
| JEL: | E31 K10 L11 L16 L66 M20 M30 N80 N82 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2020-07&r=all |
| By: | Fabio Cereda; Rafael M. Rubiao; Liliana D. Sousa |
| Keywords: | Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Social Protections and Labor - Employment and Unemployment Social Protections and Labor - Labor Markets Social Protections and Labor - Social Protections & Assistance |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34372&r=all |
| By: | Luis Fernando Mejía; David Forero; Martha Elena Delgado; Bárbara Silva |
| Abstract: | La economía colombiana está experimentando una recesión sin precedentes, producto de la pandemia del COVID-19 y de las medidas adoptadas para contener su propagación. La actividad económica, el empleo y el nivel de precios han tenido reducciones significativas que, aunque se han venido recuperando a partir de una paulatina relajación de las medidas de aislamiento por parte del Gobierno nacional, aún se mantienen en niveles considerablemente inferiores a los observados a inicios de año. |
| Keywords: | Economía Colombiana, Reactivación Económica, COVID-19, Coronavirus, Política Pública, Infraestructura, Infraestructura Pública, Inversiones, Crecimiento Económico, Colombia |
| JEL: | H54 O16 O18 R53 E22 O11 H12 |
| Date: | 2020–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:col:000124:018520&r=all |
| By: | Francesca Carapella; Jean Flemming |
| Abstract: | Technological advances in recent years have led to a growing number of fast, electronic means of payment available to consumers for everyday transactions, raising questions for policymakers about the role of the public sector in providing a digital payment instrument for the modern economy. From a theoretical standpoint, the introduction of a central bank digital currency (CBDC) raises long-standing questions relating to the provision of public and private money (Gurley and Shaw 1960), and the ability of the central bank to use CBDC as a means for transmitting monetary policy directly to households (Tobin 1985). |
| Date: | 2020–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-11-09-1&r=all |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Health, Nutrition and Population - Public Health Promotion Information and Communication Technologies - Digital Divide Information and Communication Technologies - ICT Policy and Strategies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34078&r=all |
| By: | Arden Finn; Andrew Zadel |
| Keywords: | Agriculture - Food Security Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Consumption Poverty Reduction - Living Standards Social Protections and Labor - Employment and Unemployment Social Protections and Labor - Labor Markets |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34459&r=all |
| By: | World Bank |
| Keywords: | Public Sector Development - Revenue Administration Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Fiscal Adjustment Macroeconomics and Economic Growth - Taxation & Subsidies Public Sector Development - Public Sector Economics |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34152&r=all |
| By: | Cristea, R. G. |
| Abstract: | We take the standard dynamic factor model for euro area real GDP growth nowcasting and test how adding several extensions improves forecasting precision. We expand the model's information set with high frequency alternative data and amend how some of the traditional variables are considered. Subsequently, we enrich the factors structure with blocks for soft data, labour and financial markets, real-time data and the supply side of the economy. As a result, our enriched nowcast has accurately detected the downturn in Q1-2020 and has correctly indicated further and steeper contraction in Q2 due to the COVID-19 shock. Results from several genuine and pseudo real-time out-of-sample forecast evaluation exercises show nowcasting precision gains, as measured by the root mean squared error or Kuiper's score. We also show these gains stem from the novel data sources and factors structure. While our model's outperformance is modest in normal times, it is meaningful in times of severe stress. |
| Keywords: | nowcasting, dynamic factor model, Kalman filter, real-time high frequency alternative data, Google econometrics, COVID-19, euro area macroeconomics |
| JEL: | C38 C53 C55 E27 E66 Y40 |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:20108&r=all |
| By: | Pierre Jean Bachas; Anne Brockmeyer; Milan Lakicevic; Marc Schiffbauer; Camille Semelet |
| Keywords: | Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Taxation & Subsidies Private Sector Development - Private Sector Economics |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34390&r=all |
| By: | Stewart, Kitty; Cooper, Kerris; Shutes, Isabel |
| Abstract: | While social policy falls predominantly under national rather than European Union (EU) jurisdiction, there are nonetheless multiple ways in which social policy and social outcomes in EU member states have been affected by EU membership. This paper draws on existing evidence and analysis to review the consequences for UK social policy of the decision to leave the EU. We focus predominantly on the implications of the British government’s pledge to ‘take back control’ of money, borders and laws. Our conclusion is that Brexit is likely to have negative effects on the quality of public services and, for some groups in particular, social rights, and that these effects are likely to be greater the more distant are the future trading and wider relationships between the UK and the EU27. |
| Keywords: | Brexit; EU; Social policy; Welfare state; Public services; Social rights |
| JEL: | E6 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105183&r=all |
| By: | Röhl, Klaus-Heiner |
| Abstract: | In Deutschland gibt es beträchtliche regionale Unterschiede in der Ausprägung sozioökonomischer Indikatoren, die die Lebensverhältnisse beeinflussen. Es wird deshalb in Politik und Gesellschaft diskutiert, ob die im Grundgesetz postulierte Gleichwertigkeit der Lebensverhältnisse noch ausreichend gewährleistet ist oder ob wirtschaftsschwache Regionen davon bedroht sind, abgehängt zu werden. Empirisch lässt sich allerdings in den letzten Jahren für wichtige Indikatoren wie Wirtschaftsleistung und Arbeitslosigkeit eher eine regionale Konvergenz messen, so dass schwache und starke Regionen zumindest nicht weiter auseinanderdriften. In den Bereichen Demographie, Infrastrukturausstattung und Wirtschaftsentwicklung sind jedoch erhebliche Probleme für eine Reihe von Regionen festzustellen, so dass es gute Gründe für wirtschaftspolitische Eingriffe gibt. Hierbei sollten die Kommunalfinanzen in den Blick genommen und regionale Infrastrukturinvestitionen gestärkt werden. Zudem sollte die wichtige Rolle, die regionale Familienunternehmen spielen, stärker Berücksichtigung finden. |
| JEL: | E61 R12 R58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:582020&r=all |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President James Bullard discussed a variety of topics related to the U.S. economy during a virtual fireside chat at the Federal Home Loan Bank of Des Moines Leadership Summit. |
| Keywords: | monetary policy; inflation |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:89081&r=all |
| By: | Chanelle Duley; Prasanna Gai |
| Abstract: | We extend the canonical global game model of currency crises to allow for macroeconomic tail risk. The exchange rate peg is attacked if fundamentals reach a critical threshold, or if there is a sufficiently large public shock. Large shocks generate doubt amongst investors about both the state of the world and about what others know, giving rise to multiple equilibria. We ï¬ nd a non-monotonic relationship between tail risk and the probability of (a fundamentals-based) crisis and show how this effect depends on the magnitude and direction of public shocks. Our analysis sheds new light on the way in which international ï¬ nancial contagion played a part in the sterling crisis of 1931. |
| Keywords: | Global games, currency crises, rank beliefs, inter-war gold standard, sterling crisis of 1931 |
| JEL: | F31 G01 E44 N24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:520&r=all |
| By: | Stewart Nixon |
| Keywords: | International Economics and Trade - Capital Flows International Economics and Trade - Foreign Direct Investment International Economics and Trade - Globalization and Financial Integration International Economics and Trade - Trade Policy Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34394&r=all |
| By: | Andrew F. Haughwout; Donghoon Lee; Joelle Scally; Wilbert Van der Klaauw |
| Abstract: | Today, the New York Fed’s Center for Microeconomic Data reported that total household debt balances increased slightly in the third quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit. This increase marked a reversal from the modest decline in the second quarter of 2020, a downturn driven by a sharp contraction in credit card balances. In the third quarter, credit card balances declined again, even as consumer spending recovered somewhat; meanwhile, mortgage originations came in at a robust $1.049 trillion, the highest level since 2003. Many of the efforts to stabilize the economy in response to the COVID-19 crisis have focused on consumer balance sheets, both through direct cash transfers and through forbearances on federally backed debts. Here, we examine the uptake of forbearances on mortgage and auto loans and its impact on their delinquency status and the borrower’s credit score. This analysis, as well as the Quarterly Report on Household Debt and Credit, is based on anonymized Equifax credit report data. |
| Keywords: | household finance; Consumer Credit Panel (CCP); CARES Act; forbearance |
| JEL: | D14 |
| Date: | 2020–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:89057&r=all |
| By: | Pierre Bachas; Anne Brockmeyer; Tom Harris; Camille Semelet |
| Keywords: | Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Taxation & Subsidies Private Sector Development - Private Sector Economics |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34393&r=all |
| By: | Klaus Adam |
| Abstract: | The real interest rates consistent with stable inflation (the natural rates of interest) has displayed a sustained downward trend in advanced economies over past decades. This has considerably complicated the conduct of monetary policy, which is increasingly constrained by the inability to lower nominal rates further. Over the same time period, the volatility of housing prices and stock prices has increased considerably, generating additional challenges for monetary policy. This paper summarizes recent academic research that analyses the monetary policy implications of lower natural rates and rising asset price volatility in a setting where policy is constrained by a lower bound on nominal rates. It focuses on the implications for (1) the optimal inflation target and (2) the question how monetary policy should respond to asset price movements. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_240&r=all |
| By: | Fratzscher, Marcel; Heidland, Tobias; Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik |
| Abstract: | We construct a novel database of monthly foreign exchange interventions for 49 countries over up to 22 years. We build on a text classification approach that extracts information about interventions from news articles and calibrate our procedure to data about actual interventions. Our new dataset allows us to document stylized facts about the use of foreign exchange interventions for countries that neither publish their data nor make them available to researchers. Moreover, we show that foreign exchange interventions are used in a complementary way with capital controls and macroprudential regulation. |
| Keywords: | foreign exchange intervention,capital controls,macroprudential regulation,international capital flows |
| JEL: | F31 F33 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2171&r=all |
| By: | Marcel Fratzscher; Tobias Heidland; Lukas Menkhoff; Lucio Sarno; Maik Schmeling |
| Abstract: | We construct a novel database of monthly foreign exchange interventions for 49 countries over up to 22 years. We build on a text classification approach that extracts information about interventions from news articles and calibrate our procedure to data about actual interventions. Our new dataset allows us to document stylized facts about the use of foreign exchange interventions for countries that neither publish their data nor make them available to researchers. Moreover, we show that foreign exchange interventions are used in a complementary way with capital controls and macroprudential regulation. |
| Keywords: | Foreign exchange intervention; capital controls; macroprudential regulation; international capitalflows |
| JEL: | F31 F33 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1915&r=all |
| By: | Rod Garratt; Michael Junho Lee |
| Abstract: | In prior research, we documented evidence suggesting that digital payment adoptions have accelerated as a result of the COVID-19 pandemic. While digitalization of payment activity improves data utilization by firms, it can also infringe upon consumers’ right to privacy. Drawing from a recent paper, this blog post explains how payment data acquired by firms impacts market structure and consumer welfare. Then, we discuss the implications of introducing a central bank digital currency (CBDC) that offers consumers a low-cost, privacy-preserving electronic means of payment—essentially, digital cash. |
| Keywords: | central bank digital currencies; privacy; market structure; data |
| JEL: | D14 G2 E5 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:89084&r=all |
| By: | Nuno Goncalves; Domingos Seward |
| Abstract: | This paper applies a labour market flows approach to forecasting the unemployment rate, initially developed by Barnichon and Nekarda (2012) and subsequently extended by Barnichon and Garda (2016), to the Portuguese labour market. We start by implementing a simple two-state labour market forecasting model and then extend it to a three-state labour market forecasting model which incorporates movements in and out of the labour force. We test the forecasting accuracy of each of these models and find that the two-state flow-based forecasting model performs slightly better than the other tested models. We conclude that worker flow data is a valuable input for forecasting the unemployment in Portugal. |
| Keywords: | forecast, labour market dynamics, unemployment rate, worker flows |
| JEL: | C53 E27 J60 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:alf:wpaper:2019-01&r=all |
| By: | Guilherme Lichand; Juliette Thibaud |
| Abstract: | This paper uses a lab-in-the-field experiment in Malawi to document two new facts about how parents share resources with their children over time. First, for almost a third of study participants, the further in the future consumption is, the more generous are parents’ plans to share it with their children. Second, many participants revise those plans as consumption gets closer, reallocating from children towards themselves – even when consumption is still in the future. None of these patterns can be accounted for by present-bias. Instead, both are consistent with a relevant share of parents discounting their future utility of consumption to a greater extent than that of their children. We document that parents characterized by such asymmetric geometric discounting display sizable preference reversals every period, a phenomenon we denote parent-bias. We find that, despite ambitious plans, those parents actually allocate less to their children in the present than other parents, and that such preferences predict under-investment in children outside the lab just as much as quasi-hyperbolic discounting. Commitment devices designed for present-bias do not mitigate parentbias. Our findings provide a new explanation for under-investment in children and inform the design of new interventions to address it. |
| Keywords: | Time preferences, preference reversals, children’s human capital |
| JEL: | C91 D13 E24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:369&r=all |
| By: | Juliane Begenau (Stanford GSB and NBER and CEPR); Saki Bigio (UCLA, Visiting Scholar SF Fed & NBER); Jeremy Majerovitz (MIT); Matias Vieyra (Bank of Canada) |
| Abstract: | We document five facts about banks: (1) market and book leverage diverged during the 2008 crisis, (2) Tobin's Q predicts future profitability, (3) neither book nor market leverage appears constrained, (4) banks maintain a market leverage target that is reached slowly, (5) pre-crisis, leverage was predominantly adjusted by liquidating assets. After the crisis, the adjustment shifted towards retaining earnings. We present a Q-theory where leverage notions differ because book accounting is slow to acknowledge loan losses. We estimate the model and show that it reproduces the facts. We examine counterfactuals: different accounting rules produce a novel policy tradeoff. |
| Keywords: | Banks, Tobin's Q, Delayed Accounting, Adjustment Costs |
| JEL: | G21 G32 G33 E44 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:171&r=all |
| By: | Ari Van Assche (HEC Montreal) |
| Abstract: | Located at the heart of global value chains (GVCs), intangibles are documented to have a high and rising value capture, and to depend on both agglomeration economies and global connectedness for their performance. In this paper, we study how the distinct nature of intangibles require countries to develop novel policy prescriptions to attract intangible-intensive activities and to increase the value capture of these activities. We suggest that such GVC-oriented policies fall into three categories: Attractiveness policies that aim to strengthen the appeal of a location for intangible activities; Buzz policies that intend to strengthen the local production and innovation ecosystem; and Connectedness policies that aspire to strengthen the local ecosystem’s connections to other locations. Together, they constitute the ABCs of GVC-oriented policies. |
| Keywords: | Innovation, Intangible capital, Investment policy, Trade policy |
| JEL: | E22 F23 F68 |
| Date: | 2020–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:oec:traaab:242-en&r=all |
| By: | Josh De Lyon; Swati Dhingra |
| Abstract: | Investments in both human and physical capital are key drivers of economic growth and productivity gains. The United Kingdom has had a turbulent recent history, being strongly affected by the Global Financial Crisis of 2008 and more recently voting to leave the European Union, its largest trading partner. We use firm-level survey data for the UK services sector to show that firms were less likely to increase expenditure on worker training in the periods following each event. In the period following the EU Referendum, firms were 9% less likely to increase expenditure on worker training relative to the period before the referendum. The effects were most severe for larger firms and for those located in London and the South East. The impacts also varied across industries, with firms in real estate, professional, scientific and technical activities among those most negatively affected, while administrative activities and accommodation services were least negatively affected. We see similar changes in expenditure on all forms of physical capital available in the data: IT; vehicles, plants and machinery; and land and buildings. Following the EU Referendum, firms were also more likely to reduce training expenditure, although the magnitudes of the changes were smaller than those following the Financial Crisis of 2008. |
| Keywords: | EU exit, Financial Crisis, Human capital, physical capital, training |
| JEL: | E22 F66 M53 |
| Date: | 2020–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1632-en&r=all |
| By: | Roland Pongou; Guy Tchuente; Jean-Baptiste Tondji |
| Abstract: | We address the problem of ï¬ nding the optimal lockdown and reopening policy during a pandemic like COVID-19, for a social planner who prioritizes health over short-term wealth accumulation. Agents are connected through a fuzzy network of contacts, and the planner’s objective is to determine the policy that contains the spread of infection below a tolerable incidence level, and that maximizes the present discounted value of real income, in that order of priority. We show theoretically that the planner’s problem has a unique solution. The optimal policy depends both on the conï¬ guration of the contact network and the tolerated infection incidence. Using simulations, we apply these theoretical ï¬ ndings to: (i) quantify the tradeoff between the economic cost of the pandemic and the infection incidence allowed by the social planner, and show how this tradeoff depends on network conï¬ guration; (ii) understand the correlation between different measures of network centrality and individual lockdown probability, and derive implications for the optimal design of surveys on social distancing behavior and network structure; and (iii) analyze how segregation induces differential health and economic dynamics in minority and majority populations, also illustrating the crucial role of patient zero in these dynamics. |
| Keywords: | COVID-19, health-vs-wealth prioritization, economic cost, fuzzy networks, net-work centrality, segregation, patient zero, optimally targeted lockdown policy |
| JEL: | E61 H12 I18 J15 D85 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:521&r=all |
| By: | Doerr, Sebastian; Gissler, Stefan; Peydró, José-Luis; Voth, Hans-Joachim |
| Abstract: | Do financial crises radicalize voters? We study Germany's banking crisis of 1931, when two major banks collapsed and voting for radical parties soared. We collect new data on bank branches and rm-bank connections of over 5,500 firms and show that incomes plummeted in cities affected by the bank failures; connected firms curtailed their payrolls. We further establish that Nazi votes surged in locations exposed to failing Danatbank, led by a prominent Jewish manager and targeted by anti-Semitic Nazi propaganda. Our results suggest a synergy between cultural and economic factors: Danatbank's collapse boosted Nazi support especially in cities with deep-seated anti-Semitism; and the Nazis gained few additional votes in cities exposed to collapsing Dresdner Bank, which was not the target of Nazi hate speech. Danat-exposed and non-exposed cities were similar in their pre-crisis characteristics and exhibited no differential pre-trends; firms borrowing from Danat had lower leverage before the crisis than other rms. Unobservables are unlikely to account for the results. |
| Keywords: | financial crises,political extremism,anti-Semitism,Great Depression,populism |
| JEL: | E44 G01 G21 N20 P16 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:226220&r=all |