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on Macroeconomics |
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Issue of 2020‒12‒21
127 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Yannic Stucki; Jacqueline Thomet |
| Abstract: | We study Switzerland's weak growth during the 1990s through the lens of the business cycle accounting framework of Chari, Kehoe, and McGrattan (2007). Our main result is that weak productivity growth cannot account for the stagnation experienced during that time. Rather, the stagnation is explained by factors that made labour and investment expensive. We show that increased labour income taxes and financial frictions are plausible causes. Holding these factors constant, the counterfactual annualized real output growth over the 1992Q2-1996Q4 period is 1.93% compared to realized growth of 0.35%. |
| Keywords: | Business cycle accounting, housing crises, stagnation, Switzerland |
| JEL: | E13 E20 E32 E65 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-22&r=all |
| By: | Anthony M. Diercks; Jonathan Rawls; Eric Sims |
| Abstract: | This paper is one of the first to study the present-day properties of the gold standard in a quantitative model commonly used in central banks. We incorporate gold into an otherwise standard estimated New Keynesian model and compare the positive and normative implications of adopting a gold standard to other more commonly advocated policies. We show that under certain conditions, the gold standard is akin to a nominal GDP targeting framework and can at times be considered an improvement. However, unlike more conventional policies, the gold standard must react to shocks to the supply and demand for gold. We estimate the model for the post-2000 period using a novel dataset on the supply of gold and find that following a gold standard would result in dramatic increases in the volatilities of macroeconomic aggregates and a significant deterioration in household welfare. This is because the estimated shocks to gold supply and demand are significantly larger than for other more conventional aggregate shocks. In the end, what buries the gold standard turns out to be instability in the dynamics of gold itself. |
| JEL: | E31 E32 E42 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28015&r=all |
| By: | Claudio, João C.; von Schweinitz, Gregor |
| Abstract: | This paper investigates the propagation of technology news shocks within and across industrialised economies. We construct quarterly utilisation-adjusted total factor productivity (TFP) for thirteen OECD countries. Based on country-specific structural vector autoregressions (VARs), we document that (i) the identified technology news shocks induce a quite homogeneous response pattern of key macroeconomic variables in each country; and (ii) the identified technology news shock processes display a significant degree of correlation across several countries. Contrary to conventional wisdom, we find that the US are only one of many different sources of technological innovations diffusing across advanced economies. Technology news propagate through the endogenous reaction of monetary policy and via trade-related variables. That is, our results imply that financial markets and trade are key channels for the dissemination of technology. |
| Keywords: | technology news shocks,technology spillover,structural VAR,international trade |
| JEL: | E24 E32 F41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:252020&r=all |
| By: | Hartwig, Benny; Lieberknecht, Philipp |
| Abstract: | We analyze the influence of monetary policy on firms' extensive margin and productivity. Our empirical evidence for the U.S. based on a macro-financial SVAR suggests that expansionary monetary policy shocks stimulate corporate profits, reduce firm exit and increase firm entry. In the medium run, exit overshoots the baseline. We rationalize these findings in a general equilibrium model featuring endogenous entry and exit. In the model, expansionary monetary policy shocks increase firm profits by stimulating aggregate demand and thereby allow less productive firms to remain in the market. As the monetary stimulus fades, these lessproductive firms become unprofitable such that exit overshoots. This exit channel of monetary policy implies a flatter aggregate supply curve and therefore amplifies output responses, but dampens inflationary effects. |
| Keywords: | firm exit,firm entry,extensive margin,corporate profits,monetarypolicy |
| JEL: | E24 E32 E52 E58 L11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:612020&r=all |
| By: | Hamza Bennani; Matthias Neuenkirch |
| Abstract: | We estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 2003Q1–2019Q4 with a specialemphasis on credit conditions. With the help of this model, monetary policy trans-mission can be described as mixture of two states (e.g., a normal state and a crisisstate), using an underlying logit model determining the relative weight of thesestates over time. We show that shocks to the credit spread and shocks to creditstandards directly lead to a reduction of real GDP growth, whereas shocks to thequantity of credit are less important in explaining growth fluctuations. Creditstandards and the credit spread are also the key determinants of the underlyingstate of the economy in the logit submodel. Together with a more pronouncedtransmission of monetary policy shocks in the crisis state, this provides further ev-idence for a financial accelerator in the euro area. Finally, the detrimental effect ofcredit conditions is also reflected in the labor market. |
| Keywords: | Credit growth, credit spread, credit standards, euro area, financial accelerator, mixture VAR, monetary policy transmission. |
| JEL: | E44 E52 E58 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:trr:qfrawp:202008&r=all |
| By: | Peter Tillmann (Justus-Liebig-University Giessen) |
| Abstract: | The decision-making process in the ECB’s Governing Council remains opaque as the ECB, in contrast to many other central banks, does not publish the votes for or against a policy proposal. In this paper, we construct an index of dissent based on the ECB presidents’ answers to journalists’ questions during the press conference following each meeting. This narrative account of dissent suggests that dissenting votes are cast frequently. We show that dissent weakens the response of long-term interest rates to policy surprises and thus affects the monetary transmission mechanism. The yield response is significantly stronger under unanimity. This result becomes stronger if we exclude meetings with serial dissent or exclude the period of open-end Forward Guidance. Controlling for newspaper reporting about tensions in the Governing Council leaves the results unchanged. |
| Keywords: | event studies, monetary policy shock, monetary policy committee, disagreement |
| JEL: | E42 E43 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202048&r=all |
| By: | Urban, Jörg |
| Abstract: | Credit and business cycles play an important role in economic research, especially for central banks and supervisors. We reexamine a very useful dynamic model proposed by Kiyotaki and Moore (1997) of an economy with an endogenous credit limit. They claim that a small temporary shock generates large and persistent deviations from the steady state due to a positive feedback loop and the endogenous credit constraint. We mathematically show that contrary to common belief the model does not show amplification and persistence is visible only for a few parameter settings. Kiyotaki and Moore have linearized the model despite higher order terms being more important, rendering the Taylor expansion invalid. Further, we show that spillover effects in an economy with two distinct sectors are small. The strong amplification present in the original results, which supposedly is due to the large inter-temporal or dynamic multiplier effect, is spurious. The dynamic multiplier effect is of similar size than the static effect and in all cases numerically small. |
| Keywords: | amplification,credit constraints,credit cycles,dynamic economies,Taylor expansion |
| JEL: | E32 E37 E51 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:146&r=all |
| By: | Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff |
| Abstract: | Over the 21st century, and especially since 2014, global exchange rate volatility has been trending downwards, notably among the core G3 currencies (dollar, euro and the yen), and to some extent the G4 (including China). This stability continued through the Covid-19 recession to date: unusual, as exchange volatility generally rises in US recessions. Compared to measures of stock price volatility, exchange rate volatility rivals the lows reached in the heyday of Bretton Woods I. This paper argues that the core driver is convergence in monetary policy, reflected in a sharp-reduction of inflation and short- and especially long-term interest rate differentials. This unprecedented stability, which partially extends to emerging markets, is strongly reinforced by expectations that the zero bound will be significantly binding for advanced economies for years to come. We consider various hypotheses and suggest that the shutdown of monetary volatility is the leading explanation. The concluding part of the paper cautions that systemic economic crises often produce major turning points, so a collapse of the Extended Bretton Woods II regime cannot be ruled out. |
| JEL: | E5 F3 F4 N2 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28108&r=all |
| By: | Atsushi Motohashi (Kyoto University) |
| Abstract: | This study analyzes the effects of bailout policies on the growth rate and asset prices in a small open economy with asset bubbles. In our model, bubbles stimulate investment and economic activities (so-called “crowd-in effect” of bubbles). Thus, after bubble crushing occurs, recessions follow. Under this condition, we show that as long as bubbles persist, generous bailout policies raise the economic growth rate by enhancing the crowd-in effect. When bubbles burst, the bailout policy mitigates capital losses caused by the burst and accelerates economic growth and workers’ wages compared to the no-bailout case. Since the bailout policy has growth and recovery enhancing effects, a generous bailout policy is a desirable one for governments from the perspective of taxpayers’ welfare. It should be noted, however, that a U.S. monetary policy to reduce the interest rate enlarges the size of asset bubbles in a small open economy, and further reduction of the U.S. interest rate makes the size of asset bubbles too large to be sustainable without adequate policy intervention of the small open economy; the government needs to reduce the scale of bailouts to an appropriate level in response to the U.S. interest rate reduction. |
| Keywords: | Asset Bubbles; U.S. Interest Rate Policy; Economic Growth; Collapse of Asset Bubbles; Asset Prices; Bailout Policy |
| JEL: | E32 E44 E61 F43 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1048&r=all |
| By: | Olivier Armantier; Gizem Koşar; Rachel Pomerantz; Daphne Skandalis; Kyle Smith; Giorgio Topa; Wilbert Van der Klaauw |
| Abstract: | This paper studies how inflation beliefs reported in the New York Fed’s Survey of Consumer Expectations have evolved since the start of the COVID-19 pandemic. We find that household inflation expectations responded slowly and mostly at the short-term horizon. In contrast, the data reveal immediate and unprecedented increases in individual inflation uncertainty and in inflation disagreement across respondents. We find evidence of a strong polarization in inflation beliefs and we show differences across demographic groups. Finally, we document a strong link, consistent with precautionary saving, between inflation uncertainty and how respondents used the stimulus checks they received as part of the 2020 CARES Act. |
| Keywords: | inflation expectations; inflation uncertainty and disagreement; COVID-19 pandemic; COVID-19 |
| JEL: | E31 E21 E16 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89120&r=all |
| By: | Alessandro Maravalle; Łukasz Rawdanowicz |
| Abstract: | Building on the automatic fiscal stabilisers literature, this paper assesses how automatic stabilisers have evolved over the past two decades by analysing changes in the personal income tax and social benefit systems. In three-quarters of the 35 OECD countries analysed, indicators of the strength of automatic stabilisers (aggregate elasticities of household income after tax with respect to the cycle and aggregate net replacement rates) changed little or moderately over the past two decades, suggesting broadly stable automatic stabilisers of household disposable income. The paper discusses pros and cons of several policy options to strengthen automatic stabilisers in the current environment. The effectiveness and possible side effects, particularly related to disincentives to work, vary across policy options. Consequently, policy reform proposals should be carefully assessed in a country-specific context and take into account other important policy objectives of tax and benefit systems. |
| Keywords: | automatic fiscal stabilisers, business cycles, fiscal policy |
| JEL: | H31 H6 E6 E32 |
| Date: | 2020–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1636-en&r=all |
| By: | Yulia Moiseeva (University of St Andrews) |
| Abstract: | I study a novel two-way feedback between credit and labor market frictions. Running from credit to labor markets, amplitude in capital demand induced by collateral constraints spills over onto labor demand due to the complementarity of capital and labor; and, furthermore, credit frictions raise effective financial hiring costs, inducing firms to delay hiring in recessions. Running back from labor to credit markets, search frictions admit a degree of inflexibility in wages which induces greater volatility of net worth, via the wage bill, which then spills over onto capital demand. Together, these considerably amplify and propagate labor and capital market dynamics. |
| Keywords: | credit frictions, collateral constraints, search frictions, unemployment, wages |
| JEL: | E22 E24 E32 J64 |
| Date: | 2020–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:2007&r=all |
| By: | Pfister Christian |
| Abstract: | This paper considers the various 100% Reserve plans that have appeared since the interwar period and have since then been adapted. In all formulations of those schemes, Government liabilities (cash, central bank reserves and short-term Treasuries) back banks’ sight deposits. This organization contrasts with current so-called “fractional reserve banking”, in which, as a result of reserve requirements imposed by the central bank (Drumetz et al., 2015), reserves back only a small fraction of sight deposits. The paper briefly presents the six categories of plans. It then highlights their common features as well as their differences, showing that the differences are more numerous than the common features. The criticisms voiced against the different formulations of 100% Reserves are exposed, adding those of the author and distinguishing between the doubts expressed on the validity of the analysis on one hand, and some undesirable consequences of the reform on the other. In spite of these criticisms, it then shown that the 100% Reserve reform is becoming topical, with recent private sector, central banks and political initiatives that relate to it. Overall, the 100% Reserve reform does not appear as a meaningful opportunity to improve the functioning of banking systems. Furthermore, at least one of its variants could easily turn into a calamity. Fortunately, it is not that variant that is getting more topical. |
| Keywords: | 100% Reserve, Chicago Plan, deposited currency, full-reserve, limited purpose banking, narrow banking, sovereign money |
| JEL: | E42 E51 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:786&r=all |
| By: | Kaiji Chen; Qing Wang; Tong Xu; Tao Zha |
| Abstract: | Using three unique micro datasets, we find that an unexpected and unprecedented loosening of China's LTV policy for non-primary houses fueled the entire mortgage boom during 2014Q4-2016Q3. The mortgage expansion disproportionately increased the share of mortgages to middle-aged homeowners with high education, while their consumption growth declined persistently. To interpret these empirical findings, we develop a quantitative model and identify that homeowners' trade-up of their primary homes as speculative housing investment is a key channel for a change in LTV policy to exert aggregate and distributional impacts on mortgage markets. Our cross-city evidence provides empirical support for this channel. |
| JEL: | E02 E21 E50 G11 G12 G18 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28092&r=all |
| By: | Van der Ghote, Alejandro |
| Abstract: | I study macro-prudential policy intervention in economies with secularly low interest rates. Intervention boosts risk-free real interest rates unintentionally, simply as a by-product of containing systemic risk in financial markets. Thus, intervention also boosts the natural rate of return in particular (i.e., the equilibrium risk-free rate that is consistent with inflation on target and production at full capacity). These results point to a novel complementarity between financial stability and macroeconomic stabilization. Complementary is sufficiently strong to generate a divine coincidence if the natural rate is secularly low, but not too low. JEL Classification: E31, E32, E44 |
| Keywords: | macro-prudential policy, natural rate of return, systemic risk |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202498&r=all |
| By: | Olkhov, Victor |
| Abstract: | We suggest use continuous numerical risk grades [0,1] of R for a single risk or the unit cube in Rn for n risks as the economic domain. We consider risk ratings of economic agents as their coordinates in the economic domain. Economic activity of agents, economic or other factors change agents risk ratings and that cause motion of agents in the economic domain. Aggregations of variables and transactions of individual agents in small volume of economic domain establish the continuous economic media approximation that describes collective variables, transactions and their flows in the economic domain as functions of risk coordinates. Any economic variable A(t,x) defines mean risk XA(t) as risk weighted by economic variable A(t,x). Collective flows of economic variables in bounded economic domain fluctuate from secure to risky area and back. These fluctuations of flows cause time oscillations of macroeconomic variables A(t) and their mean risks XA(t) in economic domain and are the origin of any business and credit cycles. We derive equations that describe evolution of collective variables, transactions and their flows in the economic domain. As illustration we present simple self-consistent equations of supply-demand cycles that describe fluctuations of supply, demand and their mean risks. |
| Keywords: | business cycle; risk ratings; collective variables; economic flows; economic domain |
| JEL: | C53 E32 E37 F44 |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104598&r=all |
| By: | Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch |
| Abstract: | This paper retraces how financial stability considerations interacted with U.S.monetary policy before and during the Great Recession. Using text-miningtechniques, we construct indicators for financial stability sentiment expressedduring testimonies of four Federal Reserve Chairs at Congressional hearings.Including these text-based measures adds explanatory power to Taylor-rulemodels. In particular, negative financial stability sentiment coincided with amore accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings areconsistent with a preference for monetary policy reacting to financial instabil-ity rather than acting pre-emptively to a perceived build-up of risks. |
| Keywords: | monetary policy, financial stability, Taylor rule, text mining |
| JEL: | E52 E58 N12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:trr:qfrawp:201905&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. |
| JEL: | E32 F15 F23 F44 F62 L14 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28123&r=all |
| By: | Ержан Ислам // Islam Erzhan (National Bank of Kazakhstan); Байкулаков Шалкар // Baikulakov Shalkar (National Bank of Kazakhstan) |
| Abstract: | Целью данного исследования является оценка долгосрочного и краткосрочного воздействия кредитования экономики на инфляционные процессы в Казахстане с помощью эконометрических подходов–векторной модели коррекции остатков(VECM)и векторной модели авторегрессии(VAR). В рамках исследования проводится выявление значимого влияния со стороны кредитного рынка на формирование потребительских цен на отдельные товарные группы в Казахстане. // This study is an attempt to assess the long-term and short-term influence of bank lending on inflationary processes in Kazakhstan using econometric approaches - the vector error correction model (VECM) and the vector autoregression model(VAR). The aim of the study is to identify the significant influence of the credit market on the formation of consumer prices and prices for individual product groups in Kazakhstan. |
| Keywords: | credits, consumer credits, vector error correction model(VECM), vector autoregression model(VAR), impulse responses, consumer price index, inflation of selected goods, кредиты, потребительские кредиты, векторная модель коррекции остатков (VECM), векторная модель авторегрессии (VAR), импульсные отклики, индекс потребительских цен, инфляция отдельных товаров |
| JEL: | C31 E37 E51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:aob:wpaper:2&r=all |
| By: | Ryan Decker; Robert J. Kurtzman; Byron F. Lutz; Christopher J. Nekarda |
| Abstract: | Using data from 14 government sources, we develop comprehensive estimates of U.S. economic activity by sector, legal form of organization, and firm size to characterize how four government direct lending programs—the Paycheck Protection Program, the Main Street Lending Program, the Corporate Credit Facilities, and the Municipal Lending Facilities—relate to these classes of economic activity in the United States. The classes targeted by these programs are vast—accounting for 97 percent of total U.S. employment—though entityspecific financial criteria limit coverage within specific programs. These programs notionally cover a far larger universe than what was targeted by analogous Great Recession-era lending policies. We relate our estimates to those from timely alternative data sources, which do not typically cover the majority of the economic universe. |
| Keywords: | Employment; Activity estimates; Direct lending programs; Paycheck Protection Program; PPP; Main Street; Corporate Credit Facilities; Alternative data |
| JEL: | C83 E20 E58 |
| Date: | 2020–12–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-99&r=all |
| By: | Alessandro Maravalle; Łukasz Rawdanowicz |
| Abstract: | This paper proposes an approach to assess the extent of automatic fiscal stabilisation of aggregate household disposable income after a specific shock. The approach is based on the national account identity of household disposable income and elements of the OECD methodology to cyclically adjust budget balances. In a stylised scenario assuming a decline in household market income, automatic stabilisers in 23 OECD countries are found to offset on average around 60% of the shock on impact. Direct taxes provide larger stabilisation than social benefits and social security contributions. There are important differences in the effectiveness of automatic stabilisers across the OECD countries. They mainly reflect non-linear interactions among the size of a specific automatic stabiliser, the elasticity of the automatic stabiliser with respect to a relevant economic variable and the specific shock scenario analysed. |
| Keywords: | automatic fiscal stabilisers, cyclical adjustment of government budget balances, fiscal policy, household disposable income |
| JEL: | H31 H6 E63 E32 |
| Date: | 2020–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1635-en&r=all |
| By: | Oliver Denk; Priscilla Fialho |
| Abstract: | Private debt owed to banks and other financial institutions has been at unprecedented high levels. This paper studies the role of these high levels of debt for workers, based on an assembled micro-dataset that harmonises household surveys from 29 OECD countries. High debt is found to be associated with two bad outcomes for workers: weaker wage growth and an increased risk that they encounter a sharp fall in their wages. People who tend to be particularly affected are the low-skilled, individuals with unstable employment paths and financially vulnerable households. Strong bank supervision and macroprudential measures that aim to avoid credit overexpansion are two policies that can improve the links of private debt with labour income growth and risk. Overall, the evidence in this paper points to finance as one factor behind wage stagnation and the social divisions in today’s labour markets. |
| Keywords: | credit, finance, income growth, income risk, labour earnings |
| JEL: | E24 G21 G28 J31 |
| Date: | 2020–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1640-en&r=all |
| By: | Toshihiko Mukoyama (Department of Economics, Georgetown University) |
| Abstract: | The allocation after an unanticipated event (often called an "MIT shock") is different from the allocation of a corresponding complete-market model that explicitly considers the possibility of the shock, even when the probability of the event approaches zero. |
| Keywords: | MIT shock; incomplete markets |
| JEL: | D52 E32 E60 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~20-11-12&r=all |
| By: | Guzman Gonzales-Torres (Bank of Italy); Francesco Manaresi (Bank of Italy); Filippo Scoccianti (Bank of Italy) |
| Abstract: | We show that the credit crunch of 2007-2013 favoured the adoption by startups of more efficient, intangible-intensive technologies. Using data for the universe of Italian corporations, we document that the cohorts of firms born during the crisis significantly increased their share of intangible capital relative to both incumbents and comparable young firms born before the crisis. Moreover, the entry rates of intangible-intensive startups decreased by less than those of other firms. We estimate that this selection is directly linked to the tightening of credit conditions. We use a firm dynamics model to unveil the mechanism behind these patterns. Intangible goods make firms more efficient and profitable, reducing their demand of total capital and, crucially, their leverage at entry: this increases their resiliency to a financial shock. In the aggregate, a credit tightening changes the composition of new cohorts in favor of intangible-intensive producers, resulting in a persistent increase in intangible capital accumulation. |
| Keywords: | firm dynamics, intangibles, startup, financial crisis |
| JEL: | E22 E23 G32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_582_20&r=all |
| By: | Nina Boyarchenko; Domenico Giannone; Anna Kovner |
| Abstract: | We study the relationship between bank capital ratios and the distribution of future real GDP growth. Growth in the aggregate bank capital ratio corresponds to a smaller left tail of GDP—smaller crisis probability—but at the cost of a smaller right tail of growth outcomes—smaller probability of exuberant growth. This trade-off persists at horizons of up to eight quarters, highlighting the long-range consequences of changes in bank capital. We show that the predictive information in bank capital ratio growth is over and above that contained in real credit growth, suggesting importance for bank capital beyond supplying credit to the nonfinancial sector. Our results suggest that coordination between macroprudential and monetary policy is crucial for supporting stable growth. |
| Keywords: | capital ratios; growth-at-risk; quantile regressions; threshold regressions |
| JEL: | E32 G21 C22 |
| Date: | 2020–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89123&r=all |
| By: | Nizam, Ahmed Mehedi |
| Abstract: | Conventional algebraic estimate of the fiscal multipliers ignores the concept of velocity of money and mistakenly assumes that money changes hands an infinite number of times during a given year while we know money only has a finite velocity. Apart from the velocity of money, fiscal multipliers tend to depend on average propensity to consume and average propensity to import of the economy as a whole and also on average tax rate among other things which are not reflected in the modern SVAR based estimation. Here, in the first place, we amend the algebraic definition of the fiscal multipliers considering the impact of velocity of money, provide a micro-foundation relating fiscal multipliers with money velocity and other macro variables and later propose a modification in the conventional SVAR set up by incorporating aforesaid macro variables arranged in a logical manner. Proposed amendments to the SVAR set up entail relatively stable estimates of the fiscal multipliers as can be seen from empirical estimation of the multiplier values for US and UK data during the period 1972-2018. |
| Keywords: | fiscal multipliers; money velocity; government spending multipliers; average propensity to consume; average propensity to import; average tax rate |
| JEL: | E62 H3 H50 |
| Date: | 2020–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104346&r=all |
| By: | Bayari, Celal |
| Abstract: | The Chinese state has integrated its economy into the neoliberal globalization of trade and investment without neoliberalizing its own financial markets, and to ensure stability, the state applies strict controls on interest rates, capital movement and the value of RMB. The Chinese state policies have divided the domestic economy into upstream and downstream domains whereby the state extracts rents from the private businesses profits downstream and then pump them upstream to underwrite the SOEs operating as monopolies (domestically), and as strategic traders, and investors (internationally). The state is the largest owner in the economy through holdings of shares in listed companies, direct ownership of enterprises, influence over privatized SOEs, and ownership of the public utility companies. The state has thus structured the domestic market in a way that has made the appearance of the BRI a cogent outcome. The BRI is a demand creation project for two distinct zones of the state-owned internationalized businesses, firstly, the Chinese state finance sector and secondly other sectors that primarily include the construction, logistics, and utilities. The Chinese state’s regulatory characteristics makes the financing and construction of the BRI possible, and reverential to the aims of the state. Further, the Chinese state has increased its weight in the Bretton Woods financial institutions, the IMF, and World Bank, while institutionalizing its reach in the formation of the Asian Infrastructure Investment Bank and the co-creation of the New Development Bank. These processes have simultaneously ensured commitments to multilateralism and bilateralism. |
| Keywords: | Belt and Road Initiative, Chinese economy, Neoliberalism, New Keynesianism, State-Owned-Enterprises |
| JEL: | E2 E22 E27 F12 F13 F15 F17 F18 F2 F21 F29 F3 F30 F33 F34 F36 F4 F42 F43 F47 F62 F63 F64 F66 G0 G00 K2 K21 K23 O1 O11 O14 O16 O19 O32 P2 P21 P28 P33 P48 P51 |
| Date: | 2020–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104471&r=all |
| By: | International Monetary Fund |
| Abstract: | After five years of civil conflict, the warring parties came to a peace agreement in September 2018. Until the COVID-19 crisis broke out, improved political stability and an uptick in international oil prices led to significant progress, with a rebound in economic growth, a decline in inflation, and a stabilization of the exchange rate. The COVID-19 pandemic is severely disrupting South Sudan’s economy, leading to a sharp decline in projected growth (-3.6 percent in FY20/21, about 10 percentage points below the pre-pandemic baseline) and a contraction of oil export proceeds—the main source of exports and fiscal revenue—which has given rise to urgent balance of payments needs and opened a large fiscal financing gap. |
| Keywords: | Rapid Credit Facility; |
| Date: | 2020–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/301&r=all |
| By: | Heckmann, Lotta; Moertel, Julia |
| Abstract: | This paper shows that the supply side of credit is a major factor for the phenomenonof hampered interest rate pass-through in monopolistic banking markets. Our data,covering all 1,555 small and medium sized banks in Germany, provides a clear wayto partial out demand shocks; we are thus able to show that while market-powerbanks charge higher loan rates, they spare their borrowers a part of exogenousupward shifts in the yield curve and furthermore withhold a substantial part ofrising market rates from their depositors. Because high market-power banks inour sample are relatively more profitable, they seem to be able to insure theirrelationship-customers against adverse shocks. |
| Keywords: | interest rate pass-through,bank competition,credit supply |
| JEL: | E43 E51 E52 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:592020&r=all |
| By: | Violaine Faubert |
| Abstract: | Contrary to the predictions of a traditional Phillips curve relationship, inflation in Ireland has remained subdued in recent years, regardless of improving labour market conditions before the covid-19 outbreak. To examine this apparent puzzle, we test econometrically the relevance of the Phillips curve in Ireland between 1999 and 2018. Linear regressions provide robust evidence that inflation does react to cyclical conditions both in Ireland and in its main trading partners. We also find that inflation dynamics are largely imported, in particular through imports from the UK. Low import prices have partly offset the upward pressures exerted by cyclical variables and contributed to the subdued inflation observed in recent years. We also investigate whether the Irish Phillips curve may be non-linear. We find some evidence that the Phillips curve is flatter when there are high excess capacities and turns steeper as economic slack is eliminated. However, when comparing different specifications on the basis of their pseudo out-of-sample forecasting performance, we find that non-linear specifications do not systematically outperform linear specifications. |
| JEL: | E31 E37 C22 C24 C50 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:133&r=all |
| By: | Berentsen, Aleksander (University of Basel) |
| Abstract: | Unser Geldsystem ist im Umbruch. Gerade erst hat ein von Facebook gegründetes privates Konsortium den Entwurf einer privaten Weltwährung vorgestellt. Auch China testet zur Zeit eine digitale staatliche Währung, vermutlich mit dem Ziel die Vormachtstellung des amerikanischen Dollars zu brechen. Europa darf diesen Wettbewerb ums digitale Geld der Zukunft nicht verschlafen. Die Europäischen Zentralbank soll den Privatpersonen und den Unternehmen den E-Euro in Form von «EZB-Konten für alle» zur Verfügung stellen. Es sprechen zahlreiche Gründe dafür dem Euro einen digitalen Zwilling zur Seite zu stellen. Der E-Euro kommt dem Bedürfnis der Bevölkerung einer sicheren Geldanlage nach. Zudem erhöht er die Stabilität des Finanzsektors und ermöglicht eine einfache und transparente Geldpolitik. Der E-Euro in Form von «EZB-Konten für alle» ist zudem denkbar einfach zu implementieren, weil er sich problemlos in die bestehenden Zahlungssysteme integrieren lässt. Mit einer raschen Umsetzung des E-Euros würde die EZB die Stellung Europas im Konkurrenzkampf um eine Weltwährung festigen und die europäische Wirtschaft für den globalen Wirtschaftswettbewerb stärken. |
| Keywords: | CBDC, money, monetary policy, digital currency, cryptocurrencies, blockchain |
| JEL: | E4 E5 G2 G5 D6 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2020/17&r=all |
| By: | Florin O. Bilbiie; Tommaso Monacelli; Roberto Perotti |
| Abstract: | We discuss the main fiscal policy issues in the Eurozone. Our goal is pedagogical: we do not make any new proposal, but try to represent fairly the various sides of the debate. We focus on two issues that are at the core of the current debate. The first is that, right from the start, the government deficit and debt were the key objects of contention in the debate that led to the creation of the Eurozone - and they still are, although the reasons have changed. The second, obvious issue is that a currency union implies the loss of a country-specific instrument, a national monetary policy. This puts a higher burden on fiscal policy as a tool to counteract shocks., a burden that might be even heavier now that the European Central Bank has arguably reached the Zero Lower Bound. Two obvious solutions are mutual insurance between countries; and a centralized stabilization policy. Yet both have been remarkably difficult to come by. We argue that the main reason is fear of persistent, unidirectional transfers between countries, an issue that largely reflects a Northern vs. Southern Europe divide. |
| JEL: | E62 E63 F45 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28117&r=all |
| By: | Silvia Fabiani (Bank of Italy); Alberto Felettigh (Bank of Italy); Alfonso Rosolia (Bank of Italy) |
| Abstract: | We measure the share of foreign value added embedded in the domestic consumption expenditure of the Italian household sector as a whole and of households along the distribution of consumption expenditure. We find that for each euro spent for consumption by households, almost irrespective of their affluence, about 20 to 40 cents remunerate foreign production factors; around two fifths of this foreign value added originate in other euro-area countries. Because of their heterogeneous bundles, households consume foreign value added through different expenditure items; less affluent ones do so through price-inelastic varieties and necessities. |
| Keywords: | global value chains, foreign and domestic value added, distribution of households’ consumption expenditure, exchange-rate shocks, international policy transmission |
| JEL: | D39 E21 F42 F45 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_580_20&r=all |
| By: | Michael D. Bordo; John V. Duca |
| Abstract: | In the financial crisis and recession induced by the Covid-19 pandemic, many investment-grade firms became unable to borrow from securities markets. In response, the Fed not only reopened its commercial paper funding facility but also announced it would purchase newly issued and seasoned bonds of corporations rated as investment grade before the Covid pandemic at spreads roughly 1 percentage point above non-recession averages. A careful splicing of different unemployment rate series enables us to assess the effectiveness of recent Fed interventions in these long-term debt markets over long sample periods, spanning the Great Depression, Great Recession and the Covid Recession. Findings indicate that the announcement of forthcoming corporate bond backstop facilities have capped risk premia at levels 100 basis points above non-recession averages, akin to a “penalty rate” for lender of last resort interventions during financial crises. In doing so, these Fed facilities have limited the role of external finance premia in amplifying the macroeconomic impact of the Covid pandemic. Nevertheless, the corporate bond programs blend the roles of the Federal Reserve in conducting monetary policy via its balance sheet, acting as a lender of last resort, and pursuing credit policies. |
| JEL: | E51 G12 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28097&r=all |
| By: | International Monetary Fund |
| Abstract: | The security crisis is worsening and is leading to disruption of basic public services and an unprecedented humanitarian crisis. The Covid19 outbreak and the authority’s response to contain its spread further compounded the situation. Presidential and legislative elections are scheduled for November 2020. Outlook and risks. The economic impacts of the global and domestic measures to contain the spread of the COVID19 pandemic have been stronger than expected. Real GDP contracted by 1.4 percent and 8.6 percent (y-o-y) in the first and second quarters of 2020, respectively. The economic outlook remains uncertain, with growth expected to stand around -2.8 percent in 2020 (down from 6 percent forecast prior to the pandemic). Inflation is expected to pick up and reach 4.1 percent by end-2020. The fiscal deficit in 2020 is expected to widen to about 5.3 percent of GDP, to accommodate an effective response to the Covid19 and security shocks. The main risks to the outlook are the uncertainty surrounding the duration of the pandemic and the security crisis. |
| Date: | 2020–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/304&r=all |
| By: | Kerstin Bruckmeier; Andreas Peichl; Martin Popp; Jürgen Wiemers; Timo Wollmershäuser |
| Abstract: | The highly dynamic nature of the COVID-19 crisis poses an unprecedented challenge to policy makers around the world to take appropriate income-stabilizing countermeasures. To properly design such policy measures, it is important to quantify their effects in real-time. However, data on the relevant outcomes at the micro level is usually only available with considerable time lags. In this paper, we propose a novel method to assess the distributional consequences of macroeconomic shocks and policy responses in real-time and provide the first application to Germany in the context of the COVID-19 pandemic. Specifically, our approach combines different economic models estimated on firm- and household-level data: a VAR-model for output expectations, a structural labor demand model, and a tax-benefit microsimulation model. Our findings show that as of September 2020 the COVID-19 shock translates into a noticeable reduction in gross labor income across the entire income distribution. However, the tax benefit system and discretionary policy responses to the crisis act as important income stabilizers, since the effect on the distribution of disposable household incomes turns progressive: the bottom two deciles actually gain income, the middle deciles are hardly affected, and only the upper deciles lose income. |
| Keywords: | income distribution, inequality, recession, Covid-19, tax-benefit policies, short-time work, business survey, labor demand, microsimulation |
| JEL: | D31 E24 E37 H24 J23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8748&r=all |
| By: | Calista Cheung; Luke Frymire; Lise Pichette |
| Abstract: | The output gap is a key variable used to assess inflationary pressures in the economy, but estimates in real time are subject to uncertainty and often revised significantly. This paper assesses whether questions in the Bank of Canada’s Business Outlook Survey (BOS) can provide useful signals for broader capacity pressures in the economy. The concept of capacity pressures is captured in the BOS through various questions on firms’ ability to meet demand and labour shortages. In particular, we examine whether these BOS questions, as well as a summary measure of the BOS results, produce information that can be used to improve real-time output gap estimates for Canada. We find that survey data help predict the various measures of the output gap used by the Bank of Canada. This supports the Bank’s practice of using information contained in the BOS to refine its assessment of the current state of the economic cycle. It further provides a framework for incorporating the survey information into quantitative estimates of the output gap. |
| Keywords: | Business fluctuations and cycles; Central bank research, Economic models; Monetary policy and uncertainty; Potential output |
| JEL: | E3 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-14&r=all |
| By: | Majumder, Monoj Kumar (Tasmanian School of Business & Economics, University of Tasmania); Raghavan, Mala (Tasmanian School of Business & Economics, University of Tasmania); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania) |
| Abstract: | This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation. |
| Keywords: | Commodity price volatility, external debt, commodity-exporting countries, exchange rate regime |
| JEL: | E62 F31 F34 G01 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:35464&r=all |
| By: | International Monetary Fund |
| Abstract: | COVID-19 has had a severe economic impact on Seychelles through the implementation of strict domestic measures to contain the spread of the virus and the related global spillovers. The authorities have responded with measures to mitigate the economic fallout on businesses and households. To help address the urgent balance of payments need arising from the pandemic, the Executive Board approved on May 8, 2020 the authorities’ request for emergency financing under the Rapid Financing Instrument (RFI) of SDR 22.9 million, equivalent to 100 percent of quota (IMF Country Report No. 20/170). |
| Keywords: | Public debt;Inflation;Fiscal stance;Exchange rates;Monetary base;ISCR,CR,pandemic,financing,saving measure |
| Date: | 2020–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/272&r=all |
| By: | Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Ibolya Schindele (BI Norwegian Business School; Central Bank of Hungary); Dzsamila Vonnák (Hungarian Academy of Sciences (HAS) - Institute of Economics CERS-HAS (IEHAS)) |
| Keywords: | bank balance-sheet channel, monetary policy, foreign currency lending |
| JEL: | E51 F3 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp20104&r=all |
| By: | Bruckmeier, Kerstin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Peichl, Andreas; Popp, Martin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wiemers, Jürgen (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wollmershäuser, Timo |
| Abstract: | "The highly dynamic nature of the COVID-19 crisis poses an unprecedented challenge to policy makers around the world to take appropriate income-stabilizing countermeasures. To properly design such policy measures, it is important to quantify their effects in real-time. However, data on the relevant outcomes at the micro level is usually only available with considerable time lags. In this paper, we propose a novel method to assess the distributional consequences of macroeconomic shocks and policy responses in real-time and provide the first application to Germany in the context of the COVID-19 pandemic. Specifically, our approach combines different economic models estimated on firm- and household-level data: a VAR-model for output expectations, a structural labor demand model, and a tax-benefit microsimulation model. Our findings show that as of September 2020 the COVID-19 shock translates into a noticeable reduction in gross labor income across the entire income distribution. However, the tax benefit system and discretionary policy responses to the crisis act as important income stabilizers, since the effect on the distribution of disposable household incomes turns progressive: the bottom two deciles actually gain income, the middle deciles are hardly affected, and only the upper deciles lose income." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | D31 E24 E37 H24 J23 |
| Date: | 2020–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:202036&r=all |
| By: | Khalil, Makram |
| Abstract: | This paper studies the ability of manufacturing-specific shocks to explain global oil prices. In an estimated three-region DSGE model (UnitedStates, OPEC, rest-of-world) in corporating two sectors (manufacturing and services) in the oil-importing economies and featuring cross-border manufacturing supply chains, oil inventories as well as endogenous oil supply, such shocks rationalize the observed empirical pattern of a positive comovement between global oil prices and the global cyclical gap between manufacturing output and services provision. Given positive manufacturing technology shocks, oil demand and demand for intermediate manufactured goods as well as global trade decline in tandem. Of similar importance are shocks to final manufactured goods demand that are amplified by input-output linkages and international trade. From the perspective of the US, all foreign shocks that cause higher oil prices - including adverse oil supply shocks - have a positive impact on manufacturing relative to service s as well as a positive impact on aggregate core inflation and policy rates. These dynamics rationalize, to a large extent, the observed pattern during major oil price hikes, and, correspondingly (with opposite signs), during important episodes of low oil prices. |
| Keywords: | endogenous global oil price,trade channel,manufacturing and services,oil and the business cycle,oil intensity,intermediate inputs |
| JEL: | E32 F41 Q43 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:602020&r=all |
| By: | Hasan, Iftekhar; Kwak, Boreum; Li, Xiang |
| Abstract: | This study investigates whether and how financial technologies (FinTech) influencethe effectiveness of monetary policy transmission. We examine regional-level FinTech adoption and use an interacted panel vector autoregression model to explore how the effects of monetary policy shocks change with FinTech adoption. The re-sults indicate that FinTech adoption generally enhances monetary policy transmis-sion to real GDP, bank loans, and housing prices, while the evidence of transmission to consumer prices is mixed. A subcategorical analysis shows that the enhanced effectiveness is the most pronounced in the adoption of FinTech payment, compared to that of insurance and credit. |
| Keywords: | monetary policy,financial technology,interacted panel VAR |
| JEL: | C32 E52 G21 G23 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:262020&r=all |
| By: | International Monetary Fund |
| Abstract: | The economic outlook has substantially deteriorated since the Second Review, driven by the negative effects of the COVID-19 pandemic on global economic activity and oil prices. The adverse impact of the shock on the Angolan economy, which is highly dependent on oil (95 percent of exports, two-thirds of government revenue), adds to the hardship from five consecutive years of recession. Rapid exchange rate depreciation and the decline in oil prices have pushed the public debt-to-GDP ratio to a very high level. However, continued fiscal retrenchment, prudent debt management, and debt reprofiling are expected to improve debt dynamics progressively. |
| Keywords: | External debt;Public debt;Oil prices;Credit;Exchange rates;ISCR,CR,national bank of Angola,economic crisis,gross domestic product,debt,IMF lending tracker |
| Date: | 2020–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/281&r=all |
| By: | Michael Sposi; Kei-Mu Yi; Jing Zhang |
| Abstract: | Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production. |
| JEL: | E22 F10 F43 O4 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28087&r=all |
| By: | Jean-Bernard Chatelain; Kirsten Ralf |
| Abstract: | A minimal central bank credibility, with a non-zero probability of not renegning his commitment ("quasi-commitment"), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy maker will renege his commitment ("optimal discretion"), leads to the local instability of inflation dynamics. In the textbook example of the new-Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.02662&r=all |
| By: | Bruno Coric; Blanka Peric Skrabic |
| Abstract: | This study uses two large datasets to explore the output dynamics following economic disasters, one including 180 economic disasters across 38 countries over the last two centuries, and the other including 204 economic disasters in 182 countries since World War II. Our results suggest that extreme economic crises are associated with huge and remarkably persistent output loss. On average, output loss surges to above 26 percent in the first few years after the outbreak of an economic disaster and remains above 20 percent for as long as 20 years. It is only after more than 50 years that the loss is fully recovered. |
| Keywords: | economic disaster; output loss; economic recovery; |
| JEL: | E32 N10 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp676&r=all |
| By: | Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school) |
| Abstract: | We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended setup in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy. We thank John P. Conley, Luis de Araujo and one referree for their very helpful comments. |
| Keywords: | Ramsey optimal policy,Fiscal theory of the Price Level,Frictionless endowment economy,Interest Rate Rule,Fiscal Rule |
| Date: | 2020–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-02471593&r=all |
| By: | Iskander Karibzhanov |
| Abstract: | I study individual earnings dynamics using panel data on Canadian workers. I first show that, similar to US findings, the distribution of Canadian income growth is leptokurtic. To generate such high kurtosis, I use a common continuous-time specification of the individual earnings as a stochastic process with a random (Poisson) arrival of normally distributed jumps. The fitted earnings process matches the eight targeted moments well. The estimated parameter values are consistent with the existence of both transitory and persistent components in earnings. On the methodological side, I show how the estimation process can be accelerated significantly by parallelizing Monte Carlo simulations on graphical processing units with massive savings in computational time. My estimates represent a key first step in developing quantitatively realistic Heterogeneous Agent New Keynesian (HANK) models for the Canadian economy. HANK models are important tools for understanding consumption behaviour and analyzing the transmission mechanism for monetary policy. The estimated process in this paper may prove useful in other contexts where an empirically realistic representation of household earnings dynamics is vital. |
| Keywords: | Economic models; Labour markets |
| JEL: | D31 E24 J31 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:20-13&r=all |
| By: | Eliza Forsythe; Lisa B. Kahn; Fabian Lange; David G. Wiczer |
| Abstract: | We report on the state of the labor market six months into the COVID recession, focusing particularly on measuring market tightness. As we show using a simple model, tightness is crucial for understanding the relative importance of labor supply or demand side factors in job creation. In tight markets, worker search effort has a relatively larger impact on job creation, while employer profitability looms larger in slack markets. We measure tightness combining job seeker information from the CPS and vacancy postings from Burning Glass Technologies. To parse the former, we develop a taxonomy of the non-employed that identifies job seekers and excludes the large number of those on temporary layoff who are waiting to be recalled. With this taxonomy, we find that effective tightness has declined about 50\% since the onset of the epidemic to levels last seen in 2016, when labor markets generally appeared to be tight. Disaggregating market tightness, we find mismatch has starkly and surprisingly declined in the COVID recession. Despite low aggregate search, the sharp decline in tightness indicates a role for policies that impact profitability, i.e., labor demand. Further, while the level of tightness is high, relative to other recessionary periods, a large reserve of slackness sits among those who lost their jobs but are not currently searching for a range of COVID-related reasons. |
| JEL: | E3 J2 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28083&r=all |
| By: | J-C Gerlach (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)); Dongshuai Zhao, CFA (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); S wiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology) |
| Abstract: | Since 2009, stock markets have resided in a long bull market regime. Passive investment strategies have succeeded during this low-volatility growth period. From 2018 on, however, there was a transition into a more volatile market environment interspersed by corrections increasing in amplitude and frequency. This calls for more adaptive dynamic risk management strategies, as opposed to static buy-and-hold strategies. To hedge against market drawdowns, the greatest source of risk that should accurately be estimated is crash risk. This article applies the Log-Periodic Power Law Singularity (LPPLS) model of endogenous asset price bubbles to monitor crash risk. The model is calibrated to 15 years market history for five relevant equity country indices. Particular emphasis is put on the US S&P 500 Composite Index and the recent market history of the "Corona" year 2020. The results show that relevant historical bubble events, including the Corona crash, could be detected with the model and derived indicators. Many of these events were predicted in advance in monthly reports by the Financial Crisis Observatory (FCO) at ETH Zurich. The Corona crash, as the most recent event of interest, is discussed in further detail. Our conclusion is that unsustainable price dynamics leading to an unstable bubble, fuelled by quantitative easing and other policies, already existed well before the pandemic started. Thus, the bubble bursting in February 2020 as a reaction to the Corona pandemic was of endogenous nature and burst in response to the exogenous Corona crisis, which was predictable to some degree based on the endogenous price dynamics. Following the crash, a fast recovery of the price to pre-crisis levels ensued in the following months. This lets us conclude that, as long as the underlying origins and the macroeconomic environment that created this bubble do not change, the bubble will continue to grow and potentially spread to other sectors. This may cause even more hectic market behaviour, overreaction and volatile corrections in the future. |
| Keywords: | Financial Bubbles, Crashes, Forecasting, LPPLS Model, Dynamic Risk Management, Confidence Indicator |
| JEL: | C01 C53 C58 G01 G32 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp20103&r=all |
| By: | Jean-Bernard Chatelain; Kirsten Ralf |
| Abstract: | The aim of the present paper is to provide criteria for a central bank of how to choose among different monetary-policy rules when caring about a number of policy targets such as the output gap and expected inflation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.02806&r=all |
| By: | M. Casares (UPNA - Universidad Pública de Navarra [Espagne]); H. Khan (Carleton University); Jean-Christophe Poutineau (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We report empirical evidence indicating that US net business formation has recently turned more volatile, procyclical and persistent. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The model provides a better fit than a constant exit rate model with the fluctuations of US business formation. The introduction of the extensive margin amplifies the effects of technology and risk-premium shocks, and reduces the procyclicality of firm-level production. The main sources of variability of the US aggregate fluctuations during the Great Recession are countercyclical technology shocks, persistent adverse risk-premium shocks, and expansionary monetary policy shocks. |
| Keywords: | DSGE Models,Entry and exit,Extensive margin,US Business cycles,entry and exit,DSGE models,US business cycles |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03004552&r=all |
| By: | International Monetary Fund |
| Abstract: | Covid-19 has exacted a tragic human, social, and economic toll on Mexico. Over 85,000 lives were lost; unofficial estimates are notably higher. Of 12 million workers that lost their jobs, most of whom came from the informal sector with a limited safety net, over 4 million remain out of the workforce. The working poverty rate jumped to 48 percent. After a historic drop in output, there has been a trade-led bounce in manufacturing. But domestic demand is weak, as is services activity that employs most of the workforce. Staff projects the economy to shrink by 9 percent this year, followed by a gradual recovery. It could take years for employment and incomes to return to pre-crisis levels, compounding the long-standing challenge of achieving strong and inclusive growth. |
| Keywords: | Public debt;Banking;Credit;Public investment spending;Inflation;ISCR,CR,labor market informality,swap line,largely not observed |
| Date: | 2020–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/293&r=all |
| By: | International Monetary Fund |
| Abstract: | On May 1, 2020, the Executive Board approved an RFI (US$643 million, 67.3 percent of quota), to support the urgent needs of the Ecuadorean economy in the wake of COVID-19 crisis, and the authorities cancelled the three-year Extended Fund Facility arrangement (US$ 4.2 billion, 435 percent of quota). The macroeconomic situation has since deteriorated, prompting the authorities to request a 27-month EFF of SDR 4.615 billion (about US$6.5 billion, 661 percent of quota), to help restore macroeconomic stability, support the most vulnerable groups, and advance the structural reform agenda initiated under the previous EFF. |
| Keywords: | Public debt;Debt service;Credit;External debt;Banking;ISCR,CR,Ecuador,EFF arrangement,plan,COPLAFIP regulation,program profile |
| Date: | 2020–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/286&r=all |
| By: | Tatiana Didier; Federico Huneeus; Mauricio Larrain; Sergio L. Schmukler |
| Keywords: | Finance and Financial Sector Development - Capital Markets and Capital Flows Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Financial Crisis Management & Restructuring Finance and Financial Sector Development - Securities Markets Policy & Regulation Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Fiscal & Monetary Policy Private Sector Development - Small and Medium Size Enterprises |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33611&r=all |
| By: | Paul Labonne |
| Abstract: | Nowcasting methods rely on timely series related to economic growth for producing and updating estimates of GDP growth before publication of official figures. But the statistical uncertainty attached to these forecasts, which is critical to their interpretation, is only improved marginally when new data on related series become available. That is particularly problematic in times of high economic uncertainty. As a solution this paper proposes to model common factors in scale and shape parameters alongside the mixed-frequency dynamic factor model typically used for location parameters in nowcasting frameworks. Scale and shape parameters control the time-varying dispersion and asymmetry round point forecasts which are necessary to capture the increase in variance and negative skewness found in times of recessions. It is shown how cross-sectional dependencies in scale and shape parameters may be modelled in mixed-frequency settings, with a particularly convenient approximation for scale parameters in Gaussian models. The benefit of this methodology is explored using vintages of U.S. economic growth data with a focus on the economic depression resulting from the coronavirus pandemic. The results show that modelling common factors in scale and shape parameters improves nowcasting performance towards the end of the nowcasting window in recessionary episodes. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.02601&r=all |
| By: | Jacques Morisset |
| Keywords: | Finance and Financial Sector Development - Financial Crisis Management & Restructuring Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Taxation & Subsidies Social Protections and Labor - Employment and Unemployment Social Protections and Labor - Labor Policies Social Protections and Labor - Social Protections & Assistance |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33780&r=all |
| By: | Òscar Jordà; Martin Kornejew; Moritz Schularick; Alan M. Taylor |
| Abstract: | With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near-universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along. |
| Keywords: | corporate debt; business cycles; local projections |
| JEL: | E44 G32 G33 N20 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:89124&r=all |
| By: | Ghamsi Deffo, Salomon Leroy; Ajoumessi Houmpe, Donal; Dasi Yemkwa, Gyslin Hermann |
| Abstract: | Recent studies have shown that economies rich in natural resources (NR) are generally less developed than those which do not have them. However, the CEMAC countries are not excluded from this observation; hence the aim of our study is to determine on the first hand the effects of natural resources on economic development in CEMAC countries and on the other hand, analyze the contribution of human capital in the transmission of these effects. Results of the estimation by the fixed-effect method show that the abundance of natural resources measured by: total rent, oil rent and forest rent has a negative and significant effect on economic development. Likewise, human capital contributes to the transmission of these effects. The minimum education rate beyond which natural resources no longer have a negative effect on economic development, measured by the logarithm of GDP, is approximately 0.52, 0.51 and 0.48 respectively when considering total rent, oil rent and forest rent. This result is confirmed when using two stages least squared and maximum likelihood method. |
| Keywords: | Natural rent, economic development, human capital |
| JEL: | A1 E0 Q0 Q3 |
| Date: | 2020–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104663&r=all |
| By: | Levy, Daniel; Young, Andrew |
| 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 and Loyalty; Nickel Coke; Sticky Prices; Rigid Prices; Price Stickiness; Price Rigidity; Cost of Price Adjustment; Menu Cost; Cost of Quality Adjustment |
| JEL: | E31 K10 L11 L16 L66 M20 M30 N80 N82 |
| Date: | 2020–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104294&r=all |
| By: | Catherine Girodet; Haukur Gudjonsson; Matthias Wicho; Bettina Wistrom; Jorrit Zwijnenburg |
| Abstract: | This paper analyses results on social insurance pension liabilities and entitlements across OECD countries, on the basis of a new data collection. In addition to information on employment-related schemes (covered in the central framework of the national accounts), this new data collection also includes information related to social security pension schemes. As the latter make up a large part of pension liabilities and entitlements, this new data collection provides important new insights into the role of social insurance pensions across OECD countries and on how countries may be affected by ageing populations. The results show that pension liabilities and entitlements are, on average, more significant in European countries than in non-European OECD countries. Furthermore, the results show an increasing preference for defined contribution schemes over defined benefit schemes for private pension schemes, possibly in order to address some of the challenges brought about by an ageing society. |
| Keywords: | Ageing, Central framework, National accounts, Pensions, Social insurance |
| JEL: | E01 H55 H75 J32 |
| Date: | 2020–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stdaaa:2020/05-en&r=all |
| By: | World Bank Group |
| Keywords: | Education - Education Reform and Management Education - Effective Schools and Teachers Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Social Protections and Labor - Employment and Unemployment Health, Nutrition and Population - Disease Control & Prevention Health, Nutrition and Population - Public Health Promotion |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33826&r=all |
| By: | Dolls, Mathias; Fuest, Clemens; Peichl, Andreas; Wittneben, Christian |
| Abstract: | We analyze how the combined effect of automatic stabilizers and discretionary changes in tax-benefit systems have affected the cushioning of income shocks in the Euro zone and the EU-27 in the period 2007–2014. We propose a new summary measure of the combined effect of automatic stabilizers and discretionary policy changes based on micro data and counter-factual simulation. Discretionary fiscal policy supported the effects of automatic stabilizers in the years 2008 and 2009 but then became much more restrictive. For the Euro zone as a whole, the share of income shocks absorbed by the tax and transfer system declined from 48 percent in 2008 to 24 percent in 2011. For some of the countries most affected by the crisis, the stabilization effect was even negative in some years of the crisis, implying that the tax and transfer system amplified income shocks. We also compare our measure of stabilization to estimates based on macro data. |
| Date: | 2020–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:ese:emodwp:em19-20&r=all |
| By: | Hao Jin (Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University); Chen Xiong (Wang Yanan Institute for Studies in Economics (WISE) and School of Economics, Xiamen University) |
| Abstract: | We documented that for some oil-exporting countries, the correlation between exchange rates and oil prices is strongly negative during periods of significant oil price drop but is much weaker during other periods. To interpret this time-varying asymmetric correlation, we develop and estimate a Markov-switching small open economy New Keynesian model with oil income as a source of government revenue. In particular, we allow monetary and fiscal policy coefficients to switch across "active" and "passive" regimes. Using data on Russia, our result shows that the policy combinations fluctuate. We find that active monetary policy isolates the exchange rate from oil price variations but changes to passively tolerate depreciation and inflation to support government debt when oil price drops place fiscal policy in a state of stress. Counterfactual policy experiments suggest policy regime switching is crucial to account for the observed asymmetric impact of oil prices on the exchange rate and that the trans-mission channels of oil price shocks differ significantly across policy regimes. |
| Keywords: | Fiscal Policy; Monetary Policy; Exchange Rate; Oil Price |
| JEL: | E63 F41 Q43 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2020006&r=all |
| By: | Norman V. Loayza |
| Keywords: | Health, Nutrition and Population - Disease Control & Prevention Health, Nutrition and Population - Public Health Promotion Macroeconomics and Economic Growth - Economic Growth Poverty Reduction - Inequality Poverty Reduction - Living Standards Social Protections and Labor - Employment and Unemployment Macroeconomics and Economic Growth - Macroeconomic Management Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33764&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic continues to impose severe social and economic hardships in Mauritania, with a sharp contraction of output expected in 2020. The authorities have responded swiftly to the shock with measures to contain the pandemic and alleviate its fallout. They are prioritizing health spending and targeted support to the most vulnerable households and sectors in the economy. Nevertheless, conditions have weakened since the emergency disbursement under the Rapid Credit Facility in April 2020 (SDR 95.68 million, about US$130 million or 74.3 percent of quota) and wider external and fiscal financing gaps are projected. |
| Keywords: | Public debt;External debt;Banking;Fiscal stance;Credit;ISCR,CR,SDR,IMF's executive board,response plan,debt,authority |
| Date: | 2020–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/274&r=all |
| By: | International Monetary Fund |
| Abstract: | With one of the world’s lowest levels of human development, Niger has enormous needs but only limited own resources to meet them. Insecurity in the Sahel, climate change, and low prices for its uranium exports are further challenges. Niger’s economy performed reasonably well before the outbreak of the COVID-19 pandemic. GDP growth exceeded 6 percent and large foreign projects were attracted, notably a pipeline for the export of crude oil. A new government will take office in April 2021. |
| Keywords: | External debt;Public debt;Budget planning and preparation;Government debt management;Expenditure;ISCR,CR,authority,spending quality,ECF arrangement,disbursement of SDR,SDR |
| Date: | 2020–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/292&r=all |
| By: | Sebastian Infante; Guillermo Ordoñez |
| Abstract: | We show that aggregate volatility affects the extent to which agents can share idiosyncratic risks through the valuation of collateral. Both private and public assets are used in insurance markets as collateral, but their exposure to volatility differs. While aggregate volatility decreases the value of private assets—they are exposed to more variation—it increases the value of public assets—they become more valuable to smooth consumption intertemporally. Hence, a more volatile economy tends to damage risk sharing when the composition of collateral is biased toward private assets. As we show that a stable economy is more propitious to the creation of private collateral, stability makes risk sharing increasingly fragile to volatility shocks. We find empirical evidence that the higher use of private assets in the U.S. has affected the sensitivity of risk sharing to aggregate volatility as predicted by our model. |
| JEL: | E44 G12 G18 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28119&r=all |
| By: | ; Martin R. Goetz |
| Abstract: | We analyze the effect of the geographic expansion of banks across U.S. states on the comovement of economic activity between states. Exploiting the removal of interstate banking restrictions to construct time-varying instrumental variables at the state-pair level, we find that bilateral banking integration increases output co-movement between states. The effect of financial integration depends on the nature of the idiosyncratic shocks faced by states and is stronger for more financially dependent industries. Finally, we show that integration (1) increases the similarity of bank lending fluctuations between states and (2) contributes to the transmission of deposit shocks across states. |
| Keywords: | Banking integration; Synchronization; Financial deregulation; Business cycles |
| JEL: | E32 F36 F44 G21 |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1305&r=all |
| By: | J. Scott Davis; Michael B. Devereux; Changhua Yu |
| Abstract: | This paper shows that foreign exchange intervention can be used to avoid a sudden stop in capital flows in a small open emerging market economy. The model is based around the concept of an under-borrowing equilibrium defined by Schmitt-Grohe and Uribe (2020). With a low elasticity of substitution between traded and non-traded goods, real exchange rate depreciation may generate a precipitous drop in aggregate demand and a tightening of borrowing constraints, leading to an equilibrium with an inefficiently low level of borrowing. The central bank can preempt this deleveraging cycle through foreign exchange intervention. Intervention is effective due to frictions in private international financial intermediation. Reserve accumulation has ex ante benefits by reducing the risk of a sudden stop, while intervention has ex-post benefits by limiting inefficient deleveraging. But intervention itself faces constraints. When the central bank’s stock of reserves is low, even foreign exchange intervention cannot prevent a sudden stop. |
| JEL: | E30 E50 F40 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28079&r=all |
| By: | Jack McCoy; Michele Modugno; Berardino Palazzo; Steven A. Sharpe |
| Abstract: | We develop novel macroeconomic surprise indices to identify the impact of macroeconomic releases on aggregate stock market returns over the FOMC cycle. We find that the aggregate stock prices are positively correlated with our real economic activity news index and negatively correlated with our price news index. |
| Date: | 2020–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-10-14-1&r=all |
| By: | Dominika Ehrenbergerova; Martin Hodula; Zuzana Rakovska |
| Abstract: | This paper tests whether a series of changes to capital requirements transmitted to a change to banks' pricing policy. We compile a rich bank-level supervisory dataset covering the banking sector in the Czech Republic over the period 2004-2019. We estimate that the changes to the overall capital requirements did not force banks to alter their pricing policy. The impact on bank interest margins and loan rates is found to lie in a narrow range around zero irrespective of loan category. Our estimates allow us to rule out effects even for less-capitalised banks and small banks. The results obtained contradict estimates from other studies reporting significant transmission of capital regulation to lending rates and interest margins. We therefore engage in a deeper discussion of why this might be the case. Our estimates may be used in the ongoing discussion of the benefits and costs of capital-based regulation in banking. |
| Keywords: | Bank pricing policy, capital requirements, interest margins, loan rates |
| JEL: | E58 G21 G28 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2020/5&r=all |
| By: | Robert E. Hall; Marianna Kudlyak |
| Abstract: | Unemployment recoveries in the US have been inexorable. It is a remarkable fact that, prior to 2020, after unemployment reached its peak in a recession, and a recovery began, the annual reduction in the unemployment rate was stable at around 0.1 log points per year. The economy seems to have an irresistible force toward restoring full employment. Unless another crisis intervenes, unemployment continues to glide down to its minimum level of approximately 3.5 percentage points. The observed behavior of unemployment casts doubt on the common assumption that there is a constant natural rate of unemployment around which unemployment oscillates. Instead, the natural rate of unemployment during recoveries tracks actual unemployment on its downward path. |
| JEL: | E32 J64 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28111&r=all |
| By: | Avela, Aleksi; Lehmus, Markku |
| Abstract: | Abstract Uncertainty may affect economic behavior of individuals and firms in a wide variety of ways, with typically negative consequences for economic growth. It is due to this fact, combined with rising political uncertainty observed lately in many countries, that uncertainty has gained increasing attention in economic literature, too. In this paper, we construct a measure of economic uncertainty for Finland based on Finnish news titles, collected from the YLE’s (the Finnish broadcasting company) website. To construct the index, we utilize machine learning and natural language processing (NLP) techniques, and in this paper, specifically, a transformed naive Bayes text classifier. On basis of the model evaluation, the constructed uncertainty index seems helpful in giving a timely assessment of the current state of the Finnish economy. We find a strong negative correlation between our index and the consumer confidence index by Statistics Finland, and most remarkably, our index seems to lead the consumer confidence index by one month. |
| Keywords: | Economic uncertainty, Nowcasting, Machine learning, Natural language processing, Naive Bayes |
| JEL: | C45 C53 C61 E71 |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:84&r=all |
| By: | International Monetary Fund |
| Abstract: | Nicaragua faces an acute crisis as the COVID-19 shock comes on top of a two- year recession. So far, the speed of transmission of the pandemic in Nicaragua, in terms of officially confirmed cases, has been slower than in neighboring countries, but this may understate the true spread of the disease. The pandemic is expected to produce the third year of consecutive recession and lead to large fiscal and external financing needs given the impact of voluntary distancing and regional and global spillovers. The very limited fiscal space, eroded by the ongoing recession and the limited external financing, constrains the authorities’ ability to self-finance the emergency response. |
| Keywords: | Rapid Credit Facility;Currencies;COVID-19 ;Public sector;Public debt;Credit;ISCR,CR,RFI financing,pandemic shock,public health expenditure,RCF-RFI disbursement,health response |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/307&r=all |
| By: | Pablo Garofalo; Jorge M. Streb |
| Abstract: | We study the relationship between exchange-rate regime announcements and exchange-rate dynamics around government changes by combining the IMF de jure and the Reinhart and Rogoff de facto exchange-rate regime classifications. Using monthly data from Latin American democracies, we do not identify significant exchange-rate depreciations before the change of government in any of the regimes, but we do identify a gradual exchange-rate overvaluation when regimes are fixed inconsistent (i.e., the de jure regime announcement is fixed and differs from the de facto behavior). After the change of government, the overvaluation under fixed-inconsistent regimes is abruptly corrected through significant devaluations. We thus identify a pattern of broken promises by which incumbents delay devaluations until after the change of government under fixed-inconsistent announcements, but not under fixed-consistent ones. Controlling for conditional volatility, we also detect significant “fear of floating” in flexible-inconsistent regimes before the change of government, when electoral stakes are highest. |
| Keywords: | exchange-rate regimes, exchange-rate overvaluations, electoral cycles |
| JEL: | D72 D78 E00 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:767&r=all |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic has worsened Brazil’s longstanding vulnerabilities of low potential growth, high income inequality, and weak fiscal position. While the authorities mounted a rapid and effective response to support the economy and protect the poor and vulnerable, the virus outbreak is yet to be brought under control. Outlook and Risks. Real GDP is projected to contract by 5.8 percent in 2020 followed by a partial recovery to 2.8 percent in 2021. With weak domestic demand, inflation is likely to end 2020 substantially below target. Debt is projected to jump to 100 percent of GDP, due to a 10.6 percentage point deterioration in the primary deficit in 2020, and continue to rise over the next five years. The high level of debt exposes Brazil to confidence shocks. Securing congressional passage of structural reforms to raise potential growth remains challenging. |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/311&r=all |
| By: | Daniel Felix Ahelegbey (University of Pavia); Oyakhilome Wallace Ibhagui (Baum Tenpers Research Institute) |
| Abstract: | We investigate the dynamic interconnectedness among the major world cross-currency basis swap spreads during tranquil and turbulent times. We examine whether movements in the bases are merely anecdotal or provide evidence of contagion, the most central basis for spillover propagation, and implications for market participants. The result shows a high degree of interconnectedness among the bases in crisis periods with mark-to-market losses for existing exposures and large arbitrage opportunities for investors seeking new positions. We find evidence that spillovers in the bases propagate from the Euro, the Swiss franc, and the Danish krone to other bases. |
| Keywords: | Covered Interest Parity, Cross-currency Basis, Currency Swaps, Dollar Funding, Financial Crisis, Interconnectedness, VAR Model. |
| JEL: | C11 C32 F31 G01 G15 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0191&r=all |
| By: | International Monetary Fund |
| Abstract: | The pandemic interrupted a modest recovery. Following Greece’s early and strict containment measures, GDP contracted by 7.9 percent in 2020H1, slightly worse than the Euro Area (EA) unweighted average excluding Luxembourg. A further hit is expected in Q3, the peak of Greece’s tourism season. The fiscal response to the pandemic has been wellorganized and has mitigated its impact, while Single Supervisory Mechanism (SSM) accommodation will delay the expected hit on banks, which were already vulnerable pre- COVID-19. In the context of the 2019 Article IV Consultation (November 2019), staff assessed that Greece’s public debt is sustainable over the medium-term but its long-term public debt sustainability is not assured under a realistic set of macro-fiscal assumptions. |
| Date: | 2020–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/308&r=all |
| By: | Roth, Paula (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Several studies have linked rising insolvency rates to increasing inequality and argued that this might be explained by individuals’ desire to “Keep up with the Joneses”. Using unique administrative register data on individual insolvencies in Sweden, I test whether the probability to become insolvent is related to inequality in one’s reference group or to one’s income distance relative to peers. Identification relies on area fixed effects, an extensive set of background characteristics and varying the definition of relevant reference groups. I find that there is a positive relationship between inequality and insolvency, where a 10 percent increase in top incomes increases the individual probability to become insolvent by 12 percent. |
| Keywords: | Inequality; Insolvency; Bankruptcy; Financial distress; Social interaction |
| JEL: | D14 D31 D63 D91 E21 |
| Date: | 2020–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1374&r=all |
| By: | ; Joseph E. Stiglitz |
| Abstract: | The concentration of risk within financial system is considered to be a source of systemic instability. We propose a theory to explain the structure of the financial system and show how it alters the risk taking incentives of financial institutions. We build a model of portfolio choice and endogenous contracts in which the government optimally intervenes during crises. By issuing financial claims to other institutions, relatively risky institutions endogenously become large and interconnected. This structure enables institutions to share the risk of systemic crisis in a privately optimal way, but channels funds to relatively risky investments and creates incentives even for smaller institutions to take excessive risks. Constrained efficiency can be implemented with macroprudential regulation designed to limit the interconnectedness of risky institutions. |
| Keywords: | Systemic risk; Systemically important financial institutions; Interbank markets; Financial crises; Bailouts; Macroprudential supervision |
| JEL: | E61 G01 G18 G21 G28 |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-98&r=all |
| By: | International Monetary Fund |
| Abstract: | The Covid-19 shock this year has imposed an enormous strain on Mexico. Beside the staggering human cost, the economy faces a historic drop in output and employment and a sharp spike in poverty. It is expected to take many years for employment, income, and poverty to return to pre-pandemic levels. |
| Keywords: | External debt;Public debt;Public sector;Inflation;Credit;ISCR,CR,FCL resource,Mexico's qualification,IMF's executive board,policy implementation,swap line |
| Date: | 2020–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/306&r=all |
| By: | Jonathan Chiu; Mohammad Davoodalhosseini; Janet Hua Jiang; Yu Zhu |
| Abstract: | We use a simple model to study whether private payment systems based on bank deposits can provide the optimal level of safety. In the model, bank deposits backed by projects are subject to default risk that can be mitigated by a depositor's ex ante and ex post monitoring. Safe payment instruments issued by a narrow bank can also be used as a back-up payment system when the risky bank fails. Private adoption of safe payment instruments is generally not socially optimal when buyers do not fully internalize the externalities of their adoption decision on sellers, or when the provision of deposit insurance distorts their adoption incentives. Using this framework, we discuss the optimal subsidy policy conditional on the level of deposit insurance. |
| Keywords: | Central bank research; Digital currencies and fintech; Financial institutions; Payment clearing and settlement systems |
| JEL: | E42 E50 G21 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:20-53&r=all |
| By: | International Monetary Fund |
| Abstract: | The current FCL arrangement for Colombia was approved in May 2020. Colombia was cited for its very strong policy frameworks—anchored by a flexible exchange rate, a credible inflation-targeting regime, effective financial sector supervision and regulation, and a structural fiscal rule—and a track record of very strong policy implementation that served as a basis for the economy’s resilience prior to the Covid-19 pandemic. |
| Keywords: | External debt;Public debt;Credit;Balance of payments need;Public sector;ISCR,CR,fcl arrangement,SDR,FCL instrument,fcl augmentation,arrangement |
| Date: | 2020–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/284&r=all |
| By: | Xavier Cirera; Diego A. Comin; Marcio Cruz; Kyung Min Lee |
| Abstract: | We collected data on the sophistication of technologies used at the business function level for a representative sample of firms in Vietnam, Senegal, and the Brazilian state of Ceará. Our analysis finds a large variance in technology sophistication across the business functions of a firm. Specifically, the within-firm variance in technology sophistication is greater than the variance in sophistication across firms, which in turn is greater than the variance in sophistication across regions or countries. We document a stable cross-firm relationship between technology at the business function and firm levels that we name the technology curve. We uncover significant heterogeneity in the slopes of the technology curves across business functions, a finding that is consistent with non-homotheticities in firm-level technology aggregators. Firm productivity is positively associated with the within-firm variance and the average level of technology sophistication. Development accounting exercises show that cross-firm variation in technology accounts for one-third of cross-firm differences in productivity and one-fifth of the agricultural versus non-agricultural gap in cross-country differences in firm productivity. |
| JEL: | D2 E23 L23 O10 O40 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28080&r=all |
| By: | Laurie Laybourn-Langton (Institute for Public Policy Research (IPPR)) |
| Abstract: | The emergency measures undertaken in response to the COIVD-19 pandemic constitute an unprecedented break from the norms and practice of the prevailing political-economic paradigm—the predominant set of economic theory, policies and narratives. Public health has always been a major driver of changes in political economy because it is a systems-focused approach, providing an effective mechanism for conceiving of and acting against the failings of socioeconomic systems. Into the future, the nature of crisis is changing, foremost as a result of critical anthropogenic destabilisation of climate system and the wider biosphere. The resultant increasing frequency and severity of environmental shocks can be transmitted across socio-economic systems, which are already experiencing acute stress, destabilising them over a period in which they must undergo rapid structural change—all of which presents unprecedented threats and opportunities to those seeking paradigmatic change. |
| Keywords: | political-economic paradigm; pandemics; environmental breakdown |
| JEL: | B20 E65 N14 N92 N94 Q00 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:agz:wpaper:2006&r=all |
| By: | Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Toluwani G. Kalejaiye (Ijagun, Ogun State, Nigeria); Ayomide, O. Ogunade (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Sina J. Ogede (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Caleb O. Soyemi (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | The social movement is inspiring meaningful conversation about the discriminatory practices’ that Africa women have long faced in every aspect of their lives. However, despite considerable improvement in the gender balance discourse, the worst cases of gender imbalances are still recorded in sub-Sahara Africa (SSA). Macroeconomic volatility, both as a source and a reflection of underdevelopment, is a fundamental concern for women in SSA. This paper leans empirical credence to the role of macroeconomic policies (fiscal and monetary policies indices) for gender equality in SSA from 1993 through 2017. We gathered panel data on the indices of macroeconomic policies and gender inequality in all 48 SSA countries. We employed the dynamic panel system generalised method of moments estimation procedure (dynamic system GMM) to establish a baseline level relationship between the variables of interest. We adjusted for heterogeneity assumptions inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Our results suggest fluctuations in macroeconomic policies as a lead factor for gender equality in SSA countries. Efforts should be tailored towards balanced macroeconomic policies that can guarantee sustainable gender equality approaches to collective prosperity. |
| Keywords: | Macroeconomic Policy, Gender Equality, Dynamic GMM, Sub-Sahara Africa |
| JEL: | C33 E61 I18 J16 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/095&r=all |
| By: | Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Toluwani G. Kalejaiye (Ijagun, Ogun State, Nigeria); Ayomide, O. Ogunade (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Sina J. Ogede (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Caleb O. Soyemi (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | The social movement is inspiring meaningful conversation about the discriminatory practices’ that Africa women have long faced in every aspect of their lives. However, despite considerable improvement in the gender balance discourse, the worst cases of gender imbalances are still recorded in sub-Sahara Africa (SSA). Macroeconomic volatility, both as a source and a reflection of underdevelopment, is a fundamental concern for women in SSA. This paper leans empirical credence to the role of macroeconomic policies (fiscal and monetary policies indices) for gender equality in SSA from 1993 through 2017. We gathered panel data on the indices of macroeconomic policies and gender inequality in all 48 SSA countries. We employed the dynamic panel system generalised method of moments estimation procedure (dynamic system GMM) to establish a baseline level relationship between the variables of interest. We adjusted for heterogeneity assumptions inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Our results suggest fluctuations in macroeconomic policies as a lead factor for gender equality in SSA countries. Efforts should be tailored towards balanced macroeconomic policies that can guarantee sustainable gender equality approaches to collective prosperity. |
| Keywords: | Macroeconomic Policy, Gender Equality, Dynamic GMM, Sub-Sahara Africa |
| JEL: | C33 E61 I18 J16 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/095&r=all |
| By: | Angeletos, Georges Marios; Collard, Fabrice; Dellas, Harris |
| Abstract: | We study optimal policy in an economy in which public debt is used as collateral or liquidity buffer. Issuing more public debt raises welfare by easing the underlying financial friction; but this easing lowers the liquidity premium and increases the government’s cost of borrowing. These considerations, which are absent in the basic Ramsey paradigm, help pin down a unique, long-run level of public debt. They require a front-loaded tax response to government-spending shocks, instead of tax smoothing. And they explain why a financial recession, more than a traditional one, makes government borrowing cheaper, optimally supporting larger fiscal stimuli. |
| Date: | 2020–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:124957&r=all |
| By: | International Monetary Fund |
| Abstract: | Presidential elections in June 2020, a re-run of the canceled 2019 elections, resulted in a change of government, with President Chakwera securing 59 percent of the vote. The new administration is facing a rapid acceleration of COVID-19 cases in Malawi and adverse spillovers from continued deterioration of the global and regional economic situation, significantly worsening the macroeconomic outlook. Consequently, an additional urgent balance of payments need of 2.9 percent of GDP has arisen—bringing the total external financing gap in 2020 to 5.0 percent of GDP. The authorities have requested an additional disbursement of 52.1 percent of quota (SDR 72.31 million) under the “exogenous shock” window of the Rapid Credit Facility (RCF), where 30 percent of the disbursement would finance the government budget. This follows the May 1, 2020 Board approval of a 47.9 percent of quota RCF disbursement (without budget support). The authorities have cancelled the Extended Credit Facility (ECF) and expressed a strong interest in discussing a new ECF—better aligned with their new long-term growth and reform strategy—once conditions permit. |
| Keywords: | Rapid Credit Facility;COVID-19 ;Public debt;Budget planning and preparation;Revenue administration;Debt relief;ISCR,CR,emergency financing request,IMF lending tracker,RCF resource,RCF disbursement,IMF's emergency financing |
| Date: | 2020–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/288&r=all |
| By: | Xin Wei (Indiana University) |
| Abstract: | This essay studies the fundamental causes of the monetary policy regime switches within rational expectations models. I introduce a threshold-switching monetary policy process into the model that links the policy stance to the fundamental shocks by an autoregressive regime strength index. It creates an expectations feedback mechanism between private agents’ policy forecasts and future policy regime outcomes. As demonstrated in a novel threshold-switching Fisherian model, well management of the private sector’s expectations of policy regime change can have the same effect as actually switching the regime. Contrastingly, failure to do so leads to unfavorable outcomes of policy intention. Then, I embed the new mechanism into a New Keynesian model. Along the way, I also develop an efficient non-simulation based threshold-switching Kalman filter, in conjunction with a solution method that accounts for the endogeneity of switching regimes, to estimate the nonlinear New Keynesian model. My key empirical findings are threefold. First, non-policy shocks have been instrumental in driving U.S. monetary policy regime changes during the post-World War II period. Most notably, markup shock explains 65.6% of variations in the policy regimes. Second, absent from markup shocks, eight of the eleven less aggressive regimes would not have happened during this history. Finally, I conclude that linking the private sector’s dynamic expectations formation and the Fed’s dilemma of the dual mandate in the presence of adverse supply shocks is a promising path towards providing micro-foundations for monetary policy regime shifts. |
| Keywords: | expectations formation effects, monetary policy, regime switching, Bayesian analysis |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2020007&r=all |
| By: | Francesco Furno |
| Abstract: | I study the economic effects of testing during the outbreak of a novel disease. I propose a model where testing permits isolation of the infected and provides agents with information about the prevalence and lethality of the disease. Additional testing reduces the perceived lethality of the disease, but might increase the perceived risk of infection. As a result, more testing could increase the perceived risk of dying from the disease - i.e. "stoke fear" - and cause a fall in economic activity, despite improving health outcomes. Two main insights emerge. First, increased testing is beneficial to the economy and pays for itself if performed at a sufficiently large scale, but not necessarily otherwise. Second, heterogeneous risk perceptions across age-groups can have important aggregate consequences. For a SARS-CoV-2 calibration of the model, heterogeneous risk perceptions across young and old individuals mitigate GDP losses by 50% and reduce the death toll by 30% relative to a scenario in which all individuals have the same perceptions of risk. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.03834&r=all |
| By: | Holger Gorg; Cecilia Hornok; Catia Montagna; George E. Onwordi |
| Abstract: | Labour market reforms in the direction of 'flexicurity' have been widely endorsed as a means to increasing an economy's ability to adjust to negative shocks while offering adequate social safety nets. This paper empirically examines how such reforms infl uence employment's responsiveness to output fluctuations (employment-output elasticity). To address this question, we employ a panel of OECD countries, which also incorporates the period of the Great Recession, and distinguish between passive and active labour market policy types. We find that the effects of any single policy change are shaped by the broader existing policy-mix within which it takes place. |
| Keywords: | employment-output elasticity, labour market policy, welfare state, flexicurity |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:not:notgep:2020-24&r=all |
| By: | International Monetary Fund; World Bank |
| Keywords: | Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Finance and Financial Sector Development - Financial Crisis Management & Restructuring Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33793&r=all |
| By: | International Monetary Fund |
| Abstract: | COVID-19 has had a severe economic impact on Rwanda through the implementation of strict domestic measures to contain the spread of the virus and the related global spillovers. The authorities have responded by rolling out health and economic measures totaling USD 311 million (3.3 percent of GDP) to mitigate the impact on businesses and households. To help address the urgent balance of payments need arising from the pandemic, the Executive Board approved on April 2 and June 11, 2020 the authorities’ consecutive requests for emergency financing under the “exogenous window” of the Rapid Credit Facility (RCF) totaling SDR 160.2 million (IMF Country Reports No. 20/115 and No 20/207). This brings the total IMF COVID-19 support to Rwanda to 100 percent of quota, or USD 220.46 million. |
| Keywords: | Public debt;COVID-19 ;Inflation;External debt;Fiscal risks;ISCR,CR,pandemic,impact of the pandemic |
| Date: | 2020–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/285&r=all |
| By: | World Bank |
| Keywords: | Information and Communication Technologies - Digital Divide Information and Communication Technologies - ICT Economics Information and Communication Technologies - Information Technology Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33676&r=all |
| By: | Francesco Flaviano Russo (Università di Napoli Federico II and CSEF) |
| Abstract: | I simulate a stochastic SIR-Macro model to study the effects of different testing policies to isolate and quarantine the infectious during an epidemic. I show that contact tracing performs better than random screenings, and than tests on a voluntary basis, only conditionally on having enough capacity to frequently process a large number of tests. Since the testing capacity is difficult to build in the short run through investments, I study the effects of two alternatives: group testing and the use of less sensitive tests. Both strategies, when combined with contact tracing, can significantly smooth the peak of the epidemic, ease the pressure on hospitals, decrease mortality and reduce the overall output loss. I also show that the gains are higher in case of an endogenous reduction of social activities in response to the epidemic. |
| Keywords: | Group-Testing, Tracing, Infection. |
| JEL: | E1 I1 H12 |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:591&r=all |
| By: | International Monetary Fund |
| Abstract: | Past experience with financial crises places systemic risk oversight at the core of Korea’s approach to the financial system. The Korean authorities have amassed over a decade of experience with macroprudential policies. They have put in place rigorous and sophisticated processes for risk monitoring. They publish first-rate analysis. And they have actively developed measures to mitigate risks to the financial system—notably from FX exposures, and from household indebtedness—as circumstances have changed. But their system has evolved to be highly complex, which poses challenges for coordination, communication, and transparency; moreover, their toolkit needs to be extended. These areas should be the focus of efforts to strengthen the policy framework. |
| Keywords: | Financial sector stability;Banking;Macroprudential policy;Macroprudential policy instruments;Systemic risk;ISCR,CR,carry trade,foreign currency,stabilization fund,stress test model,disincentivize bank,fixed interest rate,FX liability |
| Date: | 2020–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/277&r=all |
| By: | Oasis Kodila-Tedika (Kinshasa, DRC); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | We assess the correlations between tribalism and financial development in 60 countries using data averages from 2000-2010. The tribalism index is used to measure tribalism whereas financial development is measured from perspectives of financial intermediary and stock market developments. The long term finance variable is stock market capitalisation while the short run variable is private and domestic credit. We find that tribalism is negatively correlated with financial development and the magnitude of negativity is higher for financial intermediary development relative to stock market development. The findings are particularly relevant to African and Middle Eastern countries where the scourge of tribalism is most pronounced. |
| Keywords: | Tribalism; Financial Development |
| JEL: | E62 H11 H20 G20 O43 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/092&r=all |
| By: | Claude Diebolt |
| Abstract: | Préface à l’ouvrage de François Facchini sur les dépenses publiques en France dans une perspective historique et comparative. |
| Keywords: | Dépenses publiques, finances publiques, économie publique, histoire économique, cliométrie, France. |
| JEL: | A2 B41 C82 E6 H5 N3 N4 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2020-50&r=all |
| By: | Florian Exler; Igor Livshits; James MacGee; Michèle Tertilt |
| Abstract: | There is active debate over whether borrowers’ cognitive biases create a need for regulation to limit the misuse of credit. To tackle this question, we incorporate overoptimistic borrowers into an incomplete markets model with consumer bankruptcy. Lenders price loans, forming beliefs—type scores—about borrowers’ types. Since over-optimistic borrowers face worse income risk but incorrectly believe they are rational, both types behave identically. This gives rise to a tractable theory of type scoring as lenders cannot screen borrower types. Since rationals default less often, the partial pooling of borrowers generates cross-subsidization whereby overoptimists face lower than actuarially fair interest rates. Over-optimists make financial mistakes: they borrow too much and default too late. We calibrate the model to the US and quantitatively evaluate several policies to address these frictions: reducing the cost of default, increasing borrowing costs, imposing debt limits, and providing financial literacy education. While some policies lower debt and filings, they do not reduce overborrowing. Financial literacy education can eliminate financial mistakes, but it also reduces behavioral borrowers’ welfare by ending crosssubsidization. Score-dependent borrowing limits can reduce financial mistakes but lower welfare. |
| Keywords: | Consumer Credit, Over-Optimism, Financial Mistakes, Bankruptcy, Financial Literacy, Financial Regulation, Type Score, Cross-Subsidization |
| JEL: | E21 E49 G18 K35 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_245&r=all |
| By: | Maria Jose Doval Tedin; Violaine Faubert |
| Abstract: | This Economic Brief analyses the main drivers of housing prices in recent years and examines policy options to improve housing affordability. A decade of under-investment following a property crash in 2008 led to a decrease in the housing stock per capita in Ireland. Its composition also became inadequate to meet the increased demand for urban apartments. As a result of persistent housing shortages, house prices grew faster than household income and home affordability worsened, especially for low-income tenants and homebuyers living in and around Dublin. Macroprudential measures have helped curb house price inflation in the owner-occupied sector since 2018. By contrast, prices in the rental sector continued growing to levels well above those prior the 2008 crisis. The evolution of house prices after the COVID-19 pandemic will depend on the speed of the economic recovery. Lower house prices and uncertainty may reduce housing construction and worsen affordability. Increasing housing supply by scaling-up the construction of social housing, reducing the restrictiveness of rent legislation and the relatively high delivery cost of housing could improve affordability. The latter might entail curbing land price inflation, increasing the relatively low productivity of the construction sector and addressing skills shortages. In case of a sluggish recovery following the COVID-19 pandemic, this may be combined with a temporary use of housing subsidies so as to help stabilise house prices and avoid risks in the financial markets. |
| Keywords: | Doval, Faubert, housing affordability, Ireland, housing prices, macro-prudential policy, rental market. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:061&r=all |
| By: | Paulo Guilherme Correa; Stefka Slavova; Kate Tulenko |
| Keywords: | Health, Nutrition and Population - Communicable Diseases 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 Public Sector Development - Public Sector Expenditure Policy |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33697&r=all |
| By: | Almarina Gramozi; Theodore Palivos; Marios Zachariadis |
| Abstract: | We develop a search and matching model linking unequal access to employment with wage gaps, labor misallocation, and income losses. We then use microeconomic data for millions of individuals across the United States over the period from 1960 to 2017, to explore the misallocation effects arising due to frictions related to race and gender and to quantify their impact on aggregate economic outcomes. We systematically find that women and non-whites receive lower wages compared to their counterparts with similar individual characteristics. Within our theoretical model, such wage gaps coexist with talent misallocation due to the presence of workers that are underprivileged as a result of their gender or race. State-level misallocation implied by our estimated wage gaps is negatively related to productivity and output at the state level over the period under study. Furthermore, calibrating the theoretical model to match the US economy, we find that a fall in white privilege has a sizeable positive effect on aggregate income. |
| Keywords: | Economic growth; inefficiencies; wage gaps; race; gender. |
| JEL: | O4 O51 E0 J31 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:09-2020&r=all |
| By: | Atsushi Inoue; Lutz Kilian |
| Abstract: | Several recent studies have expressed concern that the Haar prior typically imposed in estimating sign-identified VAR models may be unintentionally informative about the implied prior for the structural impulse responses. This question is indeed important, but we show that the tools that have been used in the literature to illustrate this potential problem are invalid. Specifically, we show that it does not make sense from a Bayesian point of view to characterize the impulse response prior based on the distribution of the impulse responses conditional on the maximum likelihood estimator of the reduced-form parameters, since the prior does not, in general, depend on the data. We illustrate that this approach tends to produce highly misleading estimates of the impulse response priors. We formally derive the correct impulse response prior distribution and show that there is no evidence that typical sign-identified VAR models estimated using conventional priors tend to imply unintentionally informative priors for the impulse response vector or that the corresponding posterior is dominated by the prior. Our evidence suggests that concerns about the Haar prior for the rotation matrix have been greatly overstated and that alternative estimation methods are not required in typical applications. Finally, we demonstrate that the alternative Bayesian approach to estimating sign-identified VAR models proposed by Baumeister and Hamilton (2015) suffers from exactly the same conceptual shortcoming as the conventional approach. We illustrate that this alternative approach may imply highly economically implausible impulse response priors. |
| Keywords: | Prior; posterior; impulse response; loss function; joint inference; absolute loss; median |
| JEL: | C22 C32 C52 E31 Q43 |
| Date: | 2020–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:89121&r=all |
| By: | Anastasia Litina (University of Macedonia); Èric Roca Fernández (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.) |
| Abstract: | This paper revisits the role of human capital for economic growth among pre-modern ethnic groups. We hypothesise that exposure to rare natural events drives curiosity and prompts thinking in an attempt to comprehend and explain the phenomenon, thus raising human capital and, ultimately, pre-modern growth. We focus on solar eclipses as one particular trigger of curiosity and empirically establish a robust relationship between their number and several proxies for economic prosperity: social complexity, technological level and population density. Variation in solar eclipse exposure is exogenous as their local incidence is randomly and sparsely distributed all over the globe. Additionally, eclipses' non-destructive character makes them outperform other uncanny natural events, such as volcano eruptions or earthquakes, which have direct negative economic effects. We also offer evidence compatible with the human capital increase we postulate, finding a more intricate thinking process in ethnic groups more exposed to solar eclipses. In particular, we study the development of written language, the playing of strategy games and the accuracy of the folkloric reasoning for eclipses. |
| Keywords: | eclipses, human capital, development, curiosity |
| JEL: | N10 N30 E02 O10 O50 Z10 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2040&r=all |
| By: | Eric Budish |
| Abstract: | This paper presents a simple price-theory approach to Covid-19 lockdown and reopening policy. The key idea is to conceptualize R ≤ 1 as a constraint, allowing traditional economic and societal goals to be the policy objective, all within a simple static optimization framework. This approach yields two main insights. First, the R ≤ 1 constraint imposes a disease-transmission budget on society. Society should optimally spend this budget on the activities with the highest ratio of utility to disease-transmission risk, dropping activities with too low a ratio of utility to risk. Second, masks, tests, and other simple interventions increase activities' utility-to-risk ratios, and hence expand how much activity society can engage in and utility society can achieve while staying within the R ≤ 1 budget. A simple numerical example, based on estimates from the medical literature for R0 and the efficacy of facemasks and complementary measures, suggests the potential gains are enormous. Overall, the formulation provides economics language for a policy middle ground between society-wide lockdown and ignore-the-virus, and a new infectious threat response paradigm alongside “eradicate” and “minimize”. |
| JEL: | C61 D47 D6 D7 E6 H12 I1 I18 L51 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28093&r=all |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth - Inflation Poverty Reduction - Employment and Shared Growth Poverty Reduction - Living Standards Poverty Reduction - Poverty Lines Urban Development - Urban Housing |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:34331&r=all |
| By: | Joanne W. Hsu; Lauren Hersch Nicholas |
| Abstract: | Alzheimer's Disease and Related Dementias (ADRD) are medical conditions characterized by deteriorating cognitive functions that are estimated to impact nearly 12 million older Americans by 2050. ADRD impedes independence in daily activities through symptoms including difficulties with memory and attention span, impaired judgement, and changing risk preferences. There are currently no effective medical treatments to delay or reverse symptoms of ADRD. |
| Date: | 2020–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2020-12-03-2&r=all |
| By: | Georgios A. Panos; Tatja Karkkainen; Adele Atkinson |
| Abstract: | We examine the relationship between financial literacy and attitudes to cryptocurrencies, using microdata from 15 countries. Our financial literacy proxy exerts a large negative effect on the probability of currently owning cryptocurrencies. The financially literate are also more likely to be aware of cryptocurrencies, and more likely to report that they do not intend to own them. We confirm the external validity of our financial literacy proxy and findings using data from a second novel survey of retail investors in 3 Asian countries. More financially literate retail investors are more likely not to have held any cryptocurrencies. We show that the relationship between financial literacy and attitudes to cryptocurrencies is moderated by a different perception of the financial risk involved in cryptocurrencies versus alternative instruments by the more financially literate. Our findings shed light on the demand for cryptocurrencies among the general population and suggest that it is largely driven by unsophisticated users. |
| Keywords: | Financial Literacy, Cryptocurrencies, Attitudes, Bitcoin, Financial Risk |
| JEL: | B26 D18 E41 G11 G53 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2020_26&r=all |
| By: | Miriam Koomen; Laurence Wicht |
| Abstract: | This paper empirically assesses the link between demographics, pension systems, and current account (CA) balances using the IMF External Balance Assessment (EBA) model. We propose two refinements to the EBA model. We first refine the existing demographic variables to better account for the entire population age structure of countries. Compared to the EBA specification, we find a more robust, smoother, and economically intuitive effect of demographics on CA balances across countries. We then introduce new indicators to account for pension systems. We find a positive and statistically significant relationship between the generosity and coverage of fully funded pension systems and CA balances. Our refinements broadly improve the EBA model fit, especially for advanced economies with a fully funded pension system. |
| Keywords: | Current account, demographics, public pensions, EBA model |
| JEL: | F32 F41 H55 J11 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2020-23&r=all |
| By: | Gary D. Hansen; Lee E. Ohanian; Fatih Ozturk |
| Abstract: | We provide quantitative analyses of two striking historical episodes, the timing of the Industrial Revolution in England, and the sources of U.S. economic fluctuations between 1889-1929. Applying data from 1245-1845 within the “Malthus to Solow” framework shows that the timing of the Industrial Revolution reflects a subtle interplay between large changes in TFP and deaths from plagues. We find that U.S. economic fluctuations, including the Panics of 1893 and 1907, were driven primarily by volatile TFP, and that growth during the “Roaring Twenties” should have been even stronger, reflecting a large labor wedge that emerged around World War I. |
| JEL: | E0 N1 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28090&r=all |
| By: | Santiago José Gahn |
| Abstract: | Recently, some authors have severely criticised the incorporation of the notion of autonomous components of aggregate demand in demand-led growth theory. We show that these components are present in Richard Cantillon’s Essai written in the XVIIth century, and that an implicit demand-led theory of capital accumulation can be also developed based on his writings. |
| Keywords: | Cantillon, Growth theory, History of Economic Thought |
| JEL: | E11 C22 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:846&r=all |
| By: | Omar Osvaldo Chisari (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Juan Ignacio Mercatante (Universidad Torcuato di Tella); María Priscila Ramos (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Carlos Adrián Romero (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET) |
| Abstract: | Un problema recurrente que enfrentan los economistas es la ausencia de información completa y actualizada como así también la inconsistencia entre diferentes fuentes de información. Por tal motivo, hemos estimado la Matriz de Contabilidad Social para Argentina 2017. Para esto se recurrió a fuentes de información oficiales y públicas, y se emplearon métodos de estimación que garantizan la consistencia de todos sus flujos. Múltiples usos pueden darse a este tipo de matrices, desde la identificación de cambios estructurales en las relaciones insumo-producto, el estudio de cadenas sectoriales de valor, entre otros. Al mismo tiempo, estas matrices sirven como fuente de calibración de Modelos de Equilibrio General Computados (MEGC) y Modelos de Insumo-Producto (I-O)utilizados para evaluar cuantitativamente los efectos de políticas públicas. Un análisis económico y comparativo de los encadenamientos productivos ilustran el uso de esta matriz. |
| Keywords: | Matriz de Contabilidad Social, Argentina 2017, Encadenamientos productivos |
| JEL: | D58 E16 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ake:iiepdt:202054&r=all |
| By: | Gabriel Temesgen Woldu |
| Abstract: | This paper empirically examines South Africa's fiscal sustainability through a Markov-switching model which utilizes quarterly datasets for the period from 1960 to 2019. The results show that public debt responds positively, demonstrating a sustainable fiscal policy. Furthermore, considering the regime-specific feedback coefficients of the fiscal policy rule and the durations of fiscal regimes, the study finds that South Africa's fiscal policy satisfies the No-Ponzi game condition. |
| Keywords: | Fiscal, Fiscal policy, Sustainability, Markov switching, South Africa |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2020-163&r=all |
| By: | Dennis Umlandt |
| Abstract: | This paper proposes a new parametric approach to estimate linear factor pricing mod-els with time-varying risk premia. In contrast to recent contributions to the literature,the framework presented abstains from introducing instrument variables to describethe time variation of risk prices. Instead, time-varying risk prices and exposures followa recursive updating scheme constructed to reduce the one-step ahead prediction errorfrom a cross-sectional factor model at the current observation. This agnostic approachis particularly useful in situations where instrument variables are unavailable or of poorquality. Estimation and inference are done by likelihood maximization. A Monte Carlostudy compares the ability of the method to predict risk prices and returns to that ofa regression-based method that uses noisy signals from true risk price predictors. Ina realistic setting, the two approaches keep pace when the signal contains 80 percentcorrect information. An application to a macro-finance model of currency carry tradesillustrates the novel approach. |
| Keywords: | Dynamic Asset Pricing, Generalized Autoregressive Score Models, Time-varying Risk Premia, Return Predictability |
| JEL: | G12 G17 C58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:trr:qfrawp:202006&r=all |
| By: | Fraccaroli, Nicolò (W.R. Rhodes Center for International Economics and Finance at the Watson Institute for International and Public Affairs, Brown University); Sowerbutts, Rhiannon (Bank of England); Whitworth, Andrew (Bank of England) |
| Abstract: | Since the crisis financial regulators and supervisors have been given increased independence from political bodies. But there is no clear evidence of the benefits of these reforms on the stability of the banking sector. This paper fills that void, introducing a new dataset of reforms to regulatory and supervisory independence for 43 countries from 1999-2019. We combine this index with bank-level data to investigate the impact of reforms in independence on financial stability. We find that reforms that bring greater regulatory and supervisory independence are associated with lower non-performing loans in banks’ balance sheets. In addition, we provide evidence that these improvements do not come at the cost of bank efficiency and profitability. Overall, our results show that increasing the independence of regulators and supervisors is beneficial for financial stability. |
| Keywords: | Agency independence; financial stability; banking supervision; banking regulation; regulatory agencies |
| JEL: | E58 G28 |
| Date: | 2020–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0893&r=all |
| By: | International Monetary Fund |
| Abstract: | The fiscal challenges of Brazil’s states and municipalities can have a significant impact on the economy and the provision of core public services. The subnational governments (SNGs) account for a large share of public expenditures, including public investment. As such, their fiscal problems can hamper the economic recovery and the public finances of the federal government. In recent years, many states and municipalities have been struggling with high debt or severe liquidity pressures. Some have already defaulted on part of their debt and are running payment arrears (wages and suppliers). The federal government has already provided a substantial package of financial support through debt service relief. |
| Keywords: | Fiscal rules;Expenditure;PFM legal and regulatory frameworks;Revenue administration;Arrears;ISCR,CR,government,government Finance Statistics Manual,government mandate,country,government debt,unpaid bill |
| Date: | 2020–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2020/227&r=all |
| By: | Girum Abebe; Tom Bundervoet; Christina Wieser |
| Keywords: | Macroeconomics and Economic Growth - Economic Conditions and Volatility Private Sector Development - Private Sector Economics Social Protections and Labor - Employment and Unemployment |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33766&r=all |
| By: | Robert A. Becker (Indiana University); Juan Pablo Rincon-Zapatero (Universidad Carlos III de Madrid) |
| Abstract: | The existence of a unique optimum, a unique optimal stationary program, and a turnpike theorem are demonstrated for a neoclassical one sector optimal growth model. The plannerís allocation problem is formulated as a discrete time deterministic, infinite horizon programming model. The production sector is subject to diminishing marginal returns to capital. The plannerís objective function is derived from a Generalized Marinacci and Montrucchio (GMM) Thompson aggregator preference. A given Thompson aggregator may be associated with many intertemporal utility functions (which may not be ordinally equivalent). The choice of one of these representations over another is shown to be a matter of mathematical tractability. There is an observational equivalence between those alternative objective functions: the qualitative features of the optimal solution do not depend on the particular utility function representation of the underlying Thompson aggregator preference structure. |
| Keywords: | Recursive Utility, Thompson Aggregators, Generalized Marinacci Montrucchio Aggregators, Koopmans Equation, Extremal Fixed Points, Turnpike Theorem, Discounted Golden-Rule, Observational Equivalence Theorem |
| JEL: | D15 D50 E10 E13 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2020001&r=all |
| By: | Amelie Barbier-Gauchard (BETA - Bureau d'Économie Théorique et Appliquée - UL - Université de Lorraine - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Kea Baret (BETA - Bureau d'Économie Théorique et Appliquée - UL - Université de Lorraine - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Motivated by the fiscal imbalances in the EU countries in the recent period, this paper analyzes the effect of national fiscal rules on fiscal discipline. Using a careful definition of national fiscal rules combined with a novel measure of fiscal discipline (the Global Financial Performance Index-GFPI), propensity score matching estimations that account for potential endogeneity reveal that fiscal rules significantly improve the GFPI. However, this favorable effect dramatically depends upon the type of fiscal rule and different structural factors. These two features, together with alternative measures of fiscal discipline, are found to be key ingredients that should be taken into account when assessing the effects of fiscal rules on fiscal discipline. |
| Keywords: | Fiscal Discipline,National Fiscal Rules,Propensity Score Matching |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02992219&r=all |
| By: | Chukwudi Henry Dike |
| Abstract: | This paper models interactions of firms in a pre-trading(fixed network of lending/borrowing) period whereby firms set fixed lending rates given loan management cost. We show strategic substitution in the rate each firm sets and more fundamentally, propose that the rates charged to debtors by a creditor firm is likened to results from a private provision of public good in networks game. We then highlight specific core-periphery network properties in relation to interdependence and Nash rate charged by firms. For welfare policies, we find neutrality of intervention policies that create or reduce transaction cost and improvement based on policies that provide administrative subsidies thus creating an avenue for cost effective resource transfer policy. Lastly, we find significant relationship between a firms centrality measured by weaker negative externality and welfare improvement due to such subsidy. |
| JEL: | C72 D44 D85 E43 H23 |
| Date: | 2020–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2020:pdi579&r=all |
| By: | KHAN, MUHAMMAD AKRAM |
| Abstract: | The paper supplements the theory of consumer behavior with insights from the primary sources of Islam. A consumer who maximizes utility operates within four dimensions: moderation, extravagance, waste, and niggardliness. These dimensions take different meanings in each social stratum. A complicating factor is the context of consumption which could be individual, social, or public. For each social stratum and for each context, these dimensions have different meanings. The paper suggests using the methodology of behavioral economics for defining the dimensions of consumption. It elaborates the concept of marginal propensity to consume into four propensities: marginal propensity to moderation, extravagance, waste, and niggardliness. That necessitates re-defining the law of demand, leading to four curves instead of the one usually found in the economics textbooks. The last part of the paper relates consumer behavior with material well-being and happiness and concludes that moderation leads to the highest levels of happiness as compared to other dimensions of the consumer behavior. |
| Keywords: | Consumer behavior; extravagance; waste; moderation; law of demand; material well-being and happiness |
| JEL: | E21 |
| Date: | 2020–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:104208&r=all |
| By: | Abhishek Saurav; Peter Kusek; Ryan Kuo |
| Keywords: | International Economics and Trade - Foreign Direct Investment Macroeconomics and Economic Growth - Investment and Investment Climate Macroeconomics and Economic Growth - Taxation & Subsidies Private Sector Development - Legal Regulation and Business Environment Social Protections and Labor - Labor Policies |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:33774&r=all |
| By: | Namsuk Kim |
| Abstract: | The COVID-19 pandemic is entailing huge costs worldwide. To help developing countries formulate policy responses to minimize negative impacts of the COVID-19, possible size and duration of the shocks on most vulnerable countries, i.e., least developed countries (LDCs) and Small Island Developing States (SIDS), and their resilience to overcome the shocks need to be assessed. This paper quantitatively examines possible paths of LDCs and SIDS recovering from the impacts of the COVID-19 crisis, using an autoregressive model of income growth and a panel regression model of external demand for LDCs and SIDS. Evidence from the experience of the 2007-08 global financial crisis suggests that the income growth of LDCs and SIDS had not recovered to the level of pre-crisis rates even 5 years after the crisis. This suggests a slower recovery for many LDCs and SIDS, while developed economies were able to achieve a quick recovery. The magnitude of current COVID-19 crisis relative to previous shocks is unknown, and so the regression analysis suggested that, if income in advanced economies fell by 6 per cent in 2020 and bounced back in 2021, growth of per capita income in LDCs and SIDS may need about 4 to 5 years to be able to return to the projected path under the baseline scenario without the COVID-19 crisis. The actual speed and duration of recovery in LDCs and SIDS are likely to be slower and longer, considering other factors, such as additional impacts from shocks related to commodity prices and climate change. |
| Keywords: | COVID-19; forecast; business cycle; least developed country; Small Island Developing States |
| JEL: | E17 F47 O10 O47 O57 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:une:wpaper:171&r=all |
| By: | Namsuk Kim |
| Abstract: | The COVID-19 pandemic is entailing huge costs worldwide. To help developing countries formulate policy responses to minimize negative impacts of the COVID-19, possible size and duration of the shocks on most vulnerable countries, i.e., least developed countries (LDCs) and Small Island Developing States (SIDS), and their resilience to overcome the shocks need to be assessed. This paper quantitatively examines possible paths of LDCs and SIDS recovering from the impacts of the COVID-19 crisis, using an autoregressive model of income growth and a panel regression model of external demand for LDCs and SIDS. Evidence from the experience of the 2007-08 global financial crisis suggests that the income growth of LDCs and SIDS had not recovered to the level of pre-crisis rates even 5 years after the crisis. This suggests a slower recovery for many LDCs and SIDS, while developed economies were able to achieve a quick recovery. The magnitude of current COVID-19 crisis relative to previous shocks is unknown, and so the regression analysis suggested that, if income in advanced economies fell by 6 per cent in 2020 and bounced back in 2021, growth of per capita income in LDCs and SIDS may need about 4 to 5 years to be able to return to the projected path under the baseline scenario without the COVID-19 crisis. The actual speed and duration of recovery in LDCs and SIDS are likely to be slower and longer, considering other factors, such as additional impacts from shocks related to commodity prices and climate change. |
| Keywords: | COVID-19; forecast; business cycle; least developed country; Small Island Developing States |
| JEL: | E17 F47 O10 O47 O57 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:une:wpaper:170&r=all |