nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒01‒04
168 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The market stabilization role of central bank asset purchases: high-frequency evidence from the COVID-19 crisis By Marco Bernardini; Annalisa De Nicola
  2. The Financial Accelerator in the Euro Area: New Evidence Using a Mixture VAR Model By Hamza Bennani; Matthias Neuenkirch
  3. Mandates and Monetary Rules a New Keynesian Framework By Szabolcs Deak; Paul Levine; Son T. Pham
  4. A Ramsey Theory of Financial Distortions By Marco Bassetto; Wei Cui
  5. Monetary policy strategies in the New Normal: a model-based analysis for the euro area By Fabio Busetti; Stefano Neri; Alessandro Notarpietro; Massimiliano Pisani
  6. Euro Area Monetary Communications: Excess Sensitivity and Perception Shocks By Valentin Jouvanceau; Ieva Mikaliunaite
  7. Supply and demand shifts of shorts before Fed announcements during QE1–QE3 By Thomas H. McInish; Christopher J. Neely; Jade Planchon
  8. The Gender Unemployment Gap Across the Euro Area: The Role of Macroeconomic Shocks and Labour Market Institutions By Alexander Mihailov; Giovanni Razzu; Zhe Wang
  9. On the negatives of negative interest rates and the positives of exemption thresholds By Aleksander Berentsen; Hugo van Buggenum; Romina Ruprecht
  10. The COVID-19 shock and a fiscal-monetary policy mix in a monetary union By Anna Bartocci; Alessandro Notarpietro; Massimiliano Pisani
  11. Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics By Dirk Niepelt
  12. Demand and growth regimes in finance-dominated capitalism and the role of the macroeconomic policy regime: a post-Keynesian comparative study on France, Germany, Italy and Spain before and after the Great Financial Crisis and the Great Recession By Eckhard Hein; Judith Martschin
  13. Adding a fiscal rule into a DSGE model: How much does it change the forecasts? By Mikhail Andreyev
  14. Two Illustrations of the Quantity Theory of Money Reloaded By ; Mariano Kulish; Juan Pablo Nicolini
  15. A convenient truth: The convenience yield, low interest rates and implications for fiscal policy By Dennis Bonam
  16. Designing a Permanent EU-Wide Stabilization Facility By Roel Beetsma; George Kopits
  17. Fiscal Adjustments and Debt-Dependent Multipliers: Evidence from the U.S. Time Series By Iwata, Yasuharu; Iiboshi, Hirokuni
  18. Credit Frictions in the Great Recession By Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
  19. Price, sales, and the business cycle: a time series principal component analysis By Borraz, Fernando; Livan, Giacomo; Rodríguez-Martínez, Anahí; Picardo, Pablo
  20. The Expenditure Benchmark: complex and unsuitable for Independent Fiscal Institutions By Carlos Fonseca Marinheiro
  21. Democratic Republic of the Congo; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of the Congo By International Monetary Fund
  22. News Shocks under Financial Frictions By Christoph Görtz; John D. Tsoukalas; Francesco Zanetti
  23. Labor Market Policies During an Epidemic By Serdar Birinci; Fatih Karahan; Yusuf Mercan; Kurt See
  24. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George; Theodoridis, Konstantinos
  25. Stablecoins: potential, risks and regulation By Douglas Arner; Raphael Auer; Jon Frost
  26. A Congestion Theory of Unemployment Fluctuations By Yusuf Mercan; Benjamin Schoefer; Petr Sedláček
  27. How Did Market Perceptions of the FOMC’s Reaction Function Change after the Fed’s Framework Review? By Ryan Bush; Haitham Jendoubi; Matthew Raskin; Giorgio Topa
  28. Start Spreading the News: News Sentiment and Economic Activity in Australia By Kim Nguyen; Gianni La Cava
  29. Monetary policy and inequality By Asger Lau Andersen; Niels Johannesen; Mia Jørgensen; José-Luis Peydró
  30. The Allocation OF Talent: Finance versus Entrepreneurship By Kirill Shakhnov
  31. The short- and long-run employment impact of COVID-19 through the effects of real and financial shocks on new firms. By Christoph Albert; Andrea Caggese; Beatriz González
  32. The Covid-19 Crisis and Consumption: Survey Evidence from Six EU Countries By Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Geoff Kenny
  33. Production Networks and International Fiscal Spillovers By Michael B. Devereux; Karine Gente; Changhua Yu
  34. Unequal effects of the economic cycle on human capital investment. Evidence from Italian panel data By Bonacini, Luca
  35. Digital Money as a Unit of Account and Monetary Policy in Open Economies By Daisuke Ikeda
  36. A game changer in payment habits: evidence from daily data during a pandemic By Guerino Ardizzi; Andrea Nobili; Giorgia Rocco
  37. On the Political Economy Determinants of Tax Reforms: Evidence from Developing Countries By Sanjeev Gupta; João Tovar Jalles
  38. Oil prices, gasoline prices and inflation expectations: A new model and new facts By Kilian, Lutz; Zhou, Xiaoqing
  39. Fiscal Policy Uncertainty and its Effects on the Real Economy: German Evidence By Robert L. Czudaj; Joscha Beckmann
  40. Ukraine; Request for Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Ukraine By International Monetary Fund
  41. The Diffusion of Technological Progress in ICT By Steffen Elstner; Christian Grimme; Valentin Kecht; Robert Lehmann
  42. Macroeconomic Policy in the Time of COVID-19 By Norman V. Loayza; Steven Pennings
  44. Precautionary Money Demand in a Cash-in-Advance Model By Sergio Salas
  45. Household Inflation Expectations and Consumer Spending: Evidence from Panel Data By Mary A. Burke; Ali K. Ozdagli
  46. Increasing Business Uncertainty and Credit Conditions in Times of Low and High Uncertainty: Evidence from Firm-Level Survey Data By Christian Grimme; Steffen Henzel
  47. Western Balkans Regular Economic Report, No. 17, Spring 2020 By Marc Tobias Schiffbauer; World Bank
  48. Revenue Collapses and the Consumption of Small Business Owners in the Early Stages of the COVID-19 Pandemic By Olivia S. Kim; Jonathan A. Parker; Antoinette Schoar
  49. Optimal Sustainable Intergenerational Insurance By Francesco Lancia; Alessia Russo; Tim Worrall
  50. The (in)stability of stock returns and monetary policy interdependence in the US By Emiliano A. Carlevaro; Leandro M. Magnusson
  51. Dealing with bank distress: Insights from a comprehensive database By Konrad Adler; Frederic Boissay
  52. Chad; Request for Disbursement under the Rapid Credit Facility and Cancellation of the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  53. Climate Risk and Commodity Currencies By Felix Kapfhammer; Vegard H. Larsen; Leif Anders Thorsrud
  54. Sufficient Statistics for Frictional Wage Dispersion and Growth By Rune Vejlin; Gregory F. Veramendi
  55. How to reduce Germany's current account surplus? By Jan Behringer; Till van Treeck; Achim Truger
  56. Cabo Verde; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Cabo Verde By International Monetary Fund
  57. Italy; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight Framework and Macroprudential Policy By International Monetary Fund
  58. Islamic Republic of Mauritania; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania By International Monetary Fund
  59. Do oil-market shocks drive global liquidity? By Yao Axel Ehouman
  60. Predicting Recessions with a Frontier Measure of Output Gap: An Application to Italian Economy By Camilla Mastromarco; Léopold Simar; Valentin Zelenyuk
  61. Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada By ; ; Fumiko Hayashi; Joanna Stavins
  62. Central African Republic; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic By International Monetary Fund
  63. Paraguay; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Paraguay By International Monetary Fund
  64. Are German national accounts informational efficient? By Döhrn, Roland
  65. How to Jump Start Vietnam's Economy? By Keiko Inoue; Jacques Morisset
  66. Estimating a Nonlinear New Keynesian Model with the Zero Lower Bound for Japan By Hirokuni Iiboshi; Mototsugu Shintani; Kozo Ueda
  67. Pro-Rich Inflation and Optimal Income Taxation By Eren Gürer; Alfons Weichenrieder
  68. Non-Linearities and Persistence in US Long-Run Interest Rates By Guglielmo Maria Caporale; Luis A. Gil-Alana; Miguel Martin-Valmayor
  69. Block-Recursive Equilibria in Heterogenous-Agent Models By Leo Kaas
  70. United States; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight and Systemic Liquidity By International Monetary Fund
  71. The COVID epidemic and the economic activity with acquired immunity By Juan Esteban Carranza; Juan David Martin; Álvaro José Riascos
  72. The Macroeconomy, Oil and the Stock Market: A Multiple Equation Time Series Analysis of Saudi Arabia By Ruqayya Aljifri
  73. Do fiscal policy news shocks affect JGB yield? Evidence from COVID-19 By Takahiro Hattori; Motoki Katano
  74. Panama; Request for Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund
  75. Dominican Republic; Request for Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Dominican Republic By International Monetary Fund
  76. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By ; Òscar Jordà; Moritz Schularick; Alan M. Taylor
  77. Factors Influencing Access to Formal Credit of Unincorporated Enterprises in India: Analysis of NSSO's Unit-level Data. By Badola, Shivani; Mukherjee, Sacchidananda
  78. Islamic Republic of Afghanistan; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Afghanistan By International Monetary Fund
  79. Costa Rica; Request for Purchase Under the Rapid Financing Investment-Press Release; Staff Report; and Statement by the Executive Director for Costa Rica By International Monetary Fund
  80. Kenya Economic Update, April 2020 By World Bank
  81. PUERTO RICO: THE ECONOMY AND POLITICAL STATUS Why are Things So Bad and How Can the Situation Be Improved? By J. Tomas Hexner; Arthur MacEwan
  82. Timor-Leste Economic Report, April 2020 By World Bank Group
  83. Djibouti; Requests for Disbursement Under the Rapid Credit Facility and Debt Relief Under the Catastrophe Containment and Relief Trust-Press Release; and Staff Report; and Statement by the Executive Director for Djibouti By International Monetary Fund
  84. Arab Republic of Egypt; Request for a 12-Month Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund
  85. Mali; Requests for Disbursement Under the Rapid Credit Facility and Rephasing of Access Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  86. Study and Reports on the VAT Gap in the EU-28 Member States: 2020 Final Report By Grzegorz Poniatowski; Adam Åšmietanka; Mikhail Bonch-Osmolovskiy
  87. Working Paper No 12 of 2020 WP2012 Time consistency and economic growth a case study of south african macroeconomic policy By Christopher Loewald; David Faulkner; Konstantin Makrelov
  88. Expectations formation of household inflation expectations in India By Singh, Gaurav Kumar
  89. Estimating a New Keynesian Wage Phillips Curve By Nicola Viegi; Vincent Dadam
  90. Kingdom of Eswatini; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of Eswatini By International Monetary Fund
  91. Kyrgyz Republic Country Economic Memorandum By Ivailo Izvorski; Appolenia Mbowe; Bakyt Dubashov; Katharina Gassner; Michael J. Ferrantino; Roumeen Islam; Tarik Sahovic
  92. Whatever it takes to save the planet? Central banks and unconventional green policy By Ferrari, Alessandro; Landi, Valerio Nispi
  93. Vietnam By Jacques Morisset
  94. Political Budget Forecast cycles By Frank Bohn; Francisco José Veiga
  95. The impact of EITC on education, labor market trajectories, and inequalities By Julien Albertini; Arthur Poirier; Anthony Terriau
  96. The Gambia; Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Gambia By International Monetary Fund
  97. Product Innovations, Process Innovations and Foreign Direct Investment: New Theoretical Aspects and Empirical Findings By Paul J.J. Welfens
  98. Consumer Surplus of Alternative Payment Methods: Paying Uber with Cash By Fernando E. Alvarez; David O. Argente
  99. Prospects of Private Equity Funds in Japan-Expectations toward Finance with Ideas and Commitment- By WASHIMI Kazuaki
  100. Necessities, Home Production, and Economic Impacts of Stay-at-Home Policies By Makoto Nirei; Nao Sudo
  101. Information Asymmetry and Beliefs Reveal Self Interest Not Fairness By Andrea Guido; Alejandro Martinez-Marquina; Ryan Rholes
  102. High Frequency Data and a Weekly Economic Index during the Pandemic By Daniel J. Lewis; Karel Mertens; James H. Stock; Mihir Trivedi
  103. Georgia; Technical Assistance Report-Public Sector Balance Sheet and State Owned Enterprises By International Monetary Fund
  104. Common Trade Exposure and Business Cycle Comovement By Oscar Avila-Montealegre; Carter Mix
  105. Norway; Financial Sector Assessment Program-Technical Note-Systemic Liquidity By International Monetary Fund
  106. Climate-related Risks and Central Banks’ Collateral Policy: a Methodological Experiment By Oustry Antoine; Erkan Bunyamin; Svartzman Romain; Weber Pierre-François
  107. What share for gold? On the interaction of gold and foreign exchange reserve returns By Omar Zulaica
  108. Oil prices, exchange rates and interest rates By Kilian, Lutz; Zhou, Xiaoqing
  109. Nepal; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Nepal By International Monetary Fund
  110. Sierra Leone; 2019 Article IV Consultation, Second Review Under the Extended Credit Facility Credit Facility Arrangement, Request for a Waiver of Nonobservance of Performance Criterion, and Financing Assurances Review By International Monetary Fund
  111. Nigeria; Request for Purchase under the Rapid Financing Instrument -Press Release; Staff Report; and Statement by the Executive Director for Nigeria By International Monetary Fund
  112. Colombia; Request for an Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Colombia By International Monetary Fund
  113. Union of the Comoros; Request for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Union of the Comoros By International Monetary Fund
  114. Haiti; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Haiti By International Monetary Fund
  115. A Bayesian Dynamic Compositional Model for Large Density Combinations in Finance By Roberto Casarin; Stefano Grassi; Francesco Ravazzolo; Herman K. van Dijk
  116. Bhutan Development Update, March 2020 By World Bank
  117. Cote d'Ivoire; Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Côte d’Ivoire By International Monetary Fund
  118. Republic of Kenya; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Kenya By International Monetary Fund
  119. The Labor Market Impact of a Pandemic: Validation and Application of a Do-It-Yourself CPS By Alexander Bick; Adam Blandin
  120. A General and Efficient Method for Solving Regime-Switching DSGE Models By Julien Albertini; Stéphane Moyen
  121. Republic of North Macedonia; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Republic of North Macedonia By International Monetary Fund
  122. Maldives; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Maldives By International Monetary Fund
  123. Chad; Requests for Disbursement under the Rapid Credit Facility, Extension of the Extended Credit Facility Arrangement, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  124. Republic of Mozambique; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Mozambique By International Monetary Fund
  125. How relevant is governance to financing for development and partnerships? By Peride K. Blind
  126. Monetary Growth Rules in an Emerging Open Economy By Maryam Mirfatah; Vasco J. Gabriel; Paul Levine
  127. Republic of Tajikistan; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Tajikistan By International Monetary Fund
  128. Democratic Republic of São Tomé And Príncipe; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of São Tomé And Príncipe By International Monetary Fund
  129. Samoa; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Samoa By International Monetary Fund
  130. Democratic Republic of São Tomé and Príncipe; First Review Under the Extended Credit Facility and Request for Augmentation of Access, Rephasing of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of São Tomé and Príncipe By International Monetary Fund
  131. South Africa; Request for Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for South Africa By International Monetary Fund
  132. Four years of the inflation targeting framework. By Patnaik, Ila; Pandey, Radhika
  133. U.S. Economic Outlook: Third Quarter 2020 By -
  134. Weigh(t)ing the basket: aggregate and component-based inflation forecasts for the euro area By Chalmovianský, Jakub; Porqueddu, Mario; Sokol, Andrej
  135. Real effects of lending-based crowdfunding platforms on the SMEs By Olena Havrylchyk; Aref Mahdavi-Ardekani
  136. Losers amongst the losers: the welfare effects of the Great Recession across cohorts By Ferrari, Alessandro
  137. United States; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for United States By International Monetary Fund
  138. Monetary policy and the term structure of Inflation expectations with information frictions By Jmaes McNeil
  139. Kingdom of Lesotho; Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of Lesotho By International Monetary Fund
  140. High-frequency Identification of Unconventional Monetary Policy Shocks in Japan By Hiroyuki Kubota; Mototsugu Shintani
  141. Recessions and mortality: a global perspective By Sebastian Doerr; Boris Hofmann
  142. Republic of Madagascar; Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Madagascar By International Monetary Fund
  143. The Federal Democratic Republic of Ethiopia; Requests for Purchasing under the Rapid Financing Instrument, Debt Relief under the Catastrophe Containment and Relief Trust, Rephasing of Access Under the Three-Year Arrangements under the Extended Credit Facility and the Extended Fund Facility, and Reduction of Access under the Extended Fund Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia By International Monetary Fund
  144. Does drawing down the U.S. strategic petroleum reserve help stabilize oil prices? By Kilian, Lutz; Zhou, Xiaoqing
  145. Risk preferences, global market conditions and foreign debt: Is there any role for the currency composition of FX reserves? By Mateane, Lebogang
  146. Burundi; Request for Debt Relief Under the Catastrophe Containment and Relief Trust-Press Release; Staff Report; and Statement by the Executive Director for Burundi By International Monetary Fund
  147. Italy; Financial Sector Assessment Program-Technical Note-Insurance Sector Regulation and Supervision By International Monetary Fund
  148. The impact of the Coronavirus and lockdown on children's welfare in South Africa: Evidence from NIDS-CRAM Wave 1 By Servaas van der Berg; Linda Zuze; Grace Bridgman
  149. A stock-flow approach to investment requirements within balance-of-payments constrained growth By Pérez Caldentey, Esteban; Rojas Rodríguez, Leonardo
  150. Cook Islands; Technical Assistance Report–Macroeconomic, Financial, and Structural Policies By International Monetary Fund
  151. Denmark; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight and Macroprudential Policy Framework By International Monetary Fund
  152. Regional and subregional analyses of macroeconomic policy strategies for growth and equality in Southern Africa By Dukhabandhu Sahoo; Diptimayee Mishra; Auro Kumar Sahoo; Phendulwa Zikhona Makunga; Jayanti Behera
  153. How will the COVID-19-crisis affect the trend in corporate saving? By Demary, Markus; Hasenclever, Stefan; Hüther, Michael
  154. On the Effects of the Availability of Means of Payments: The Case of Uber By Fernando E. Alvarez; David O. Argente
  155. United States; Financial Sector Assessment Program-Technical Note-Banking Supervision and Regulation By International Monetary Fund
  156. SOS incomes: Simulated effects of COVID-19 and emergency benefits on individual and household income distribution in Italy By Giovanni Gallo; Michele Raitano
  157. Ethereum gas price statistics By David Carl; Christian Ewerhart
  158. A Model of the Euro Area, China and the United States: Trade Links and Trade Wars By Volha Audzei; Jan Bruha
  159. 2019 Investment Policy and Regulatory Review - Indonesia By World Bank
  160. 2019 Investment Policy and Regulatory Review - Malaysia By World Bank
  161. Las consecuencias de los cambios tecnológicos sobre la reforma de las pensiones By Juan F Jimeno
  162. United States; Financial Sector Assessment Program-Technical Note-Risk Analysis and Stress Testing the Financial Sector By International Monetary Fund
  163. The UK's great demand and supply recession By Nick Jacob; Giordano Mion
  164. 2019 Investment Policy and Regulatory Review - Nigeria By World Bank
  165. Increasing the Cost of Informal Workers: Evidence from Mexico By Brenda Samaniego de la Parra; León Fernández Bujanda
  166. Addressing the COVID-19 and climate crises: Potential economic recovery pathways and their implications for climate change mitigation, NDCs and broader socio-economic goals By Simon Buckle; Jane Ellis; Aimée Aguilar Jaber; Marcia Rocha; Brilé Anderson; Petter Bjersér
  167. Losing Contact: The Impact of Contactless Payments on Cash Usage By Marie-Hélène Felt
  168. Norway; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight and Macroprudential Policy Framework By International Monetary Fund

  1. By: Marco Bernardini (Bank of Italy); Annalisa De Nicola (Bank of Italy)
    Abstract: This paper uses confidential high-frequency data to investigate the dynamic effects on the government bond market of the central bank asset purchases carried out in Italy during the COVID-19 pandemic crisis. We find that in response to an outright purchase of long-term bonds: (i) long-term yields drop by 4 to 5 basis points per billion euros on impact and tend to remain subdued over the trading day; (ii) short- and medium-term bond yields are also strongly affected; (iii) the yield curve shifts downwards and flattens owing to a reduction in the credit and liquidity risk premia embedded in sovereign spreads; (iv) market liquidity improves steadily. We also show that: (v) the yield impact of a purchase is substantially larger in times of heightened market stress; (vi) asset purchases operate similarly and effectively in quieter times as well. These results suggest that actual purchases affect market prices over and above purchase announcements, and that adjusting their pace and composition according to market conditions can boost the overall effectiveness of a programme.
    Keywords: monetary policy, asset purchases, high-frequency data, local projections
    JEL: C22 E43 E44 E52 E58
    Date: 2020–12
  2. 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 special emphasis on credit conditions. With the help of this model, monetary policy transmission can be described as mixture of two states (e.g., a normal state and a crisis state), using an underlying logit model determining the relative weight of these states over time. We show that shocks to the credit spread and shocks to credit standards directly lead to a reduction of real GDP growth, whereas shocks to the quantity of credit are less important in explaining growth fluctuations. Credit standards and the credit spread are also the key determinants of the underlying state of the economy in the logit submodel. Together with a more pronounced transmission of monetary policy shocks in the crisis state, this provides further evidence for a financial accelerator in the euro area. Finally, the detrimental effect of credit 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
  3. By: Szabolcs Deak (University of Exeter and CIMS); Paul Levine (University of Surrey and CIMS); Son T. Pham (University of Surrey)
    Abstract: We develop a general mandate framework for delegating monetary policy to an instrument-independent, but goal-dependent central bank. The goal of the mandate consists of: (i) a simple quadratic loss function that penalizes deviations from target macroeconomic variables; (ii) a form of a Taylor-type nominal interest-rate rule that responds to the same target variables; (iii) a zero-lower-bound (ZLB) constraint on the nominal interest rate in the form of an unconditional probability of ZLB episodes and (iv) a long-run (steady-state) inflation target. The central bank remains free to choose the strength of its response to the targets specified by the mandate. An estimated standard New Keynesian model is used to compute household-welfare-optimal mandates with these features. We find two main results that are robust across a number of different mandates: first, the optimized rule takes the form of a Taylor simple rule close to a price-level rule. Second, the optimal level of inflation target, conditional on a quarterly frequency of the nominal interest hitting the ZLB of 0.025, is close to the typical target annual inflation of 2% and to achieve a lower probability of 0.01 requires an inflation target of 3.5%.
    JEL: E52 E58 E61
    Date: 2020–08
  4. By: Marco Bassetto; Wei Cui
    Abstract: The interest rate on government debt is significantly lower than the rates of return on other assets. From the perspective of standard models of optimal taxation, this empirical fact is puzzling: typically, the government should finance expenditures either through contingent taxes, or by previously-issued state-contingent debt, or by labor taxes, with only minor effects arising from intertemporal distortions on interest rates. We study how this answer changes in an economy with financial frictions, where the government cannot directly redistribute towards the agents in need of liquidity, but has otherwise access to a complete set of linear tax instruments. We establish a stark result. Provided this is feasible, optimal policy calls for the government to increase its debt, up to the point at which it provides sufficient liquidity to avoid financial constraints. In this case, capital-income taxes are zero in the long run, and the returns on government debt and capital are equalized. However, if the fiscal space is insufficient, a wedge opens between the rate of return on government debt and capital. In this case, optimal long-run tax policy is driven by a trade-off between the desire to mitigate financial frictions by subsidizing capital and the incentive to exploit the quasi-rents accruing to producers of capital by taxing capital instead. This latter incentive magnifies the wedge between rates of return on publicly and privately-issued assets.
    Keywords: Low interest rates; Asset directed search; Capital tax; Financial constraints; Optimal level of government debt
    JEL: E44 E62 E22
    Date: 2020–12–23
  5. By: Fabio Busetti; Stefano Neri (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: A New Keynesian model calibrated to the euro area is used to evaluate the stabilization properties of alternative monetary policy strategies when the natural interest rate is low (‘new normal’) and the probability of reaching the effective lower bound (ELB) is non-negligible. Price level targeting is the most effective strategy in terms of stabilizing inflation and output and of reducing the duration and frequency of ELB episodes. Temporary price level targeting is also effective in mitigating the ELB constraint, although its stabilization properties are inferior to those of price level targeting. Backward-looking average inflation targeting performs well and is preferable to inflation targeting. The effectiveness of these alternative strategies hinges upon the commitment of a central bank to keeping the policy rate ‘lower for longer’ and is influenced by the agents’ expectation formation mechanism.
    Keywords: monetary policy, natural interest rate, effective lower bound.
    JEL: E31 E32 E58
    Date: 2020–12
  6. By: Valentin Jouvanceau (Bank of Lithuania); Ieva Mikaliunaite (Bank of Lithuania)
    Abstract: We explore new dimensions of the ECB’s monetary communications using the Euro Area Monetary Policy Event-Study Database (EA-MPD) built by Altavilla et al. (2019). We find that three new factors are needed to capture an excess sensitivity of long-term sovereign yields around monetary announcements. "Duration" surprises cause variations in real long-term rates and are mainly transmitted by term premiums. The "Sovereign spread" and "Save the Euro" surprises greatly influence the long-term yields of the periphery countries. These effects are difficult to reconcile with classic monetary policy shocks. We therefore study their underlying nature and discover that they have the characteristics of "Information", or what we label "Perception" shocks.
    Keywords: Monetary surprises, Event-study, Excess sensitivity, Perception shocks, High-frequency Identification
    JEL: E43 E44 E52 E58 G12
    Date: 2020–10–08
  7. By: Thomas H. McInish; Christopher J. Neely; Jade Planchon
    Abstract: Cohen, Diether, and Malloy (Journal of Finance, 2007), find that shifts in the demand curve predict negative stock returns. We use their approach to examine changes in supply and demand at the time of FOMC announcements. We show that shifts in the demand for borrowing Treasuries and agencies predict quantitative easing. A reduction in the quantity demanded at all points along the demand curve predicts expansionary quantitative easing announcements.
    Keywords: Quantitative Easing; Treasury bond short interest; Monetary Policy; Large-Scale Asset Purchases (LSAP); Agency securities; Treasury securities
    JEL: E4 E44 E52 G1 G18 G14
    Date: 2020–12–17
  8. By: Alexander Mihailov (Department of Economics, University of Reading); Giovanni Razzu (Department of Economics, University of Reading); Zhe Wang (Department of Economics, University of Reading)
    Abstract: We examine the gender unemployment impact from four types of macroeconomic shocks under single monetary policy in the Euro Area. We also explore the role in shock absorption and transmission played by different labour market institutions. We apply panel data estimation to 11 Euro Area countries over the 2000-2013 period, disaggregated by age, marital status and education. We find that adverse macro-shocks, such as reductions in labour demand, similar to those experienced during the current COVID-19 pandemic, or a contractionary monetary policy, as in the build-up to the global financial crisis of 2007-2009, are associated with a larger increase in unemployment rates for women than for men, specifically for the young and less-educated. However, labour market institutions, in particular unionisation or labour tax wedge abatement, mitigate the widening of the gender unemployment gap.
    Keywords: gender unemployment gap, demographic composition of unemployment, macroeconomic shocks, labour market institutions, monetary policy, Euro Area
    JEL: E24 E32 E52 F45 J16 J24
    Date: 2020–12–18
  9. By: Aleksander Berentsen; Hugo van Buggenum; Romina Ruprecht
    Abstract: Major central banks remunerate reserves at negative interest rates and it is increasingly likely that they will keep rates negative for many more years. To study the long run implications of negative rates, we construct a dynamic general equilibrium model with commercial banks funding investment projects and a central bank issuing reserves. Negative rates distort investment decisions resulting in lower output and welfare. These findings sharply contrast the short-run expansionary effects ascribed to negative rate policies by most of the existing literature. Negative rates also reduce commercial bank profitability. Exempting a fraction of reserves from negative rates can resolve profitability concerns without affecting the central bank's ability to control the money market rate. However, exemption thresholds do no mitigate the investment distortions created by negative rates.
    Keywords: Negative interest rate, money market, monetary policy, interest rates
    JEL: E40 E42 E43 E50 E58
    Date: 2020–12
  10. By: Anna Bartocci (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic effects of a monetary and fiscal policy mix implemented in a two-region monetary union in response to the COVID-19 shock. The pandemic is modelled as a mix of recessionary demand and supply shocks affecting both regions simultaneously and symmetrically, under two assumptions: the effective lower bound (ELB) constrains the monetary policy rate; and a fraction of households, labelled ‘hand-to-mouth’ (HTM), consume all their available income in every period. The main results are the following: first, higher lump-sum targeted fiscal transfers to HTM households and public consumption spending in one region, financed by issuing public debt, reduce the recessionary effects both domestically and abroad (via the trade channel). Second, the monetary union-wide recession is mitigated more effectively if both regions implement a fiscal expansion and the central bank limits the increase in long-term rates by purchasing sovereign bonds. Third, fiscal measures are less effective if sovereign bond yields increase relatively more in one region because investors perceive its bonds as risky. Effectiveness can be regained if a supranational fiscal authority issues a safe bond.
    Keywords: monetary policy, fiscal policy, effective lower bound
    JEL: E31 E32 E58
    Date: 2020–12
  11. By: Dirk Niepelt
    Abstract: We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0:8 percent of GDP during the period 1999-2017.
    Keywords: reserves, deposits, central bank digital currency, monetary policy, Friedman rule, equivalence, Ramsey policy, bank profits, money creation
    JEL: E42 E43 E51 E52
    Date: 2020
  12. By: Eckhard Hein (Berlin School of Economics and Law (DE)); Judith Martschin
    Abstract: We contribute to the recent debates on demand and growth regimes in modern finance-dominated capitalism linking them to the post-Keynesian research on macroeconomic policy regimes. We examine the demand and growth regimes, as well as the macroeconomic policy regimes for the big four Eurozone countries, France, Germany, Italy and Spain, for the periods 2001-09 and 2010-19. First, our approach supports the usefulness of the identification of demand and growth regimes according to growth contributions of the main demand components and financial balances of the macroeconomic sectors. This allows for an understanding of the demand sources of growth, or stagnation, if there is a lack of demand, of how these sources are financed and of potential financial instabilities and fragilities. Second, when it comes to the macroeconomic policy drivers of demand and growth regimes, as well as their respective changes, we show that the exclusive focus on fiscal policies, as in the previous literature, is too limited, and that it is the macroeconomic policy regime which matters here, i.e. the combination of monetary, fiscal and wage policies, as well as the open economy conditions.
    Keywords: Demand and growth regimes, macroeconomic policy regimes, post-Keynesian macroeconomics
    JEL: E11 E12 E61 E63 E65 O57
    Date: 2020–12
  13. By: Mikhail Andreyev (Bank of Russia, Russian Federation)
    Abstract: This article analyses an expansion of the dynamic stochastic general equilibrium model presented in Kreptsev, Seleznev (2017) and used by the Bank of Russia to forecast macroeconomic variables. The model was supplemented with an extended description of the fiscal sector, which formalises the fiscal rule in effect in Russia and which is similar to the one used in Medina, Soto (2007). The model was estimated on the basis of Russian data. Based on impulse response functions, we analyse the stabilising effect of the fiscal rule on macroeconomic variables. It was found that the fiscal rule leads to a decrease in output volatility, a slight decrease in exchange rate volatility and a stronger disinflationary effect in response to a positive oil price shock. The forecast errors were used to analyse whether it is possible to apply the formalisation of the fiscal rule in order to improve the forecast of macroeconomic variables within the DSGE model. We found that the fiscal rule does not improve the quality of the forecasts.
    Keywords: DSGE model, fiscal rule, reserve fund, credit cycle, commodity prices, financial frictions, monetary policy
    JEL: D58 E47 E62 E63
    Date: 2020–11
  14. By: ; Mariano Kulish; Juan Pablo Nicolini
    Abstract: In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. We conclude that the low-frequency behavior of these series maintains a close relationship, as predicted by standard quantity theory models. In an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver very different high-frequency dynamics. We argue that these relationships are useful for policy design aimed at controlling inflation.
    Keywords: Money demand; Monetary aggregates; Monetary policy
    JEL: E41 E51 E52
    Date: 2020–12–15
  15. By: Dennis Bonam
    Abstract: Some countries currently face historically low interest rates on government debt due to a positive 'convenience yield' arising from an excess demand for safe and liquid assets. This low interest rate environment has raised interest in the role of fiscal stabilization policy. We study the convenience yield and its implications for fiscal policy in a New Keynesian model where households derive utility from government bonds. We find that the convenience yield expands the set of sustainable fiscal policies and renders countercyclical fiscal policy successful in stabilizing business cycle fluctuations. Conveniently, fiscal policies that stabilize output rather than debt are feasible, welfare enhancing and can even reduce the risk of exploding debt dynamics if the convenience yield is positive.
    Keywords: convenience yield; low interest rate; fiscal policy; debt sustainability
    JEL: E32 E62 E63
    Date: 2020–12
  16. By: Roel Beetsma; George Kopits
    Abstract: While the EU recovery plan provides a useful step in alleviating the economic effects of the coronavirus crisis and achieving further European integration, a permanent fiscal stabilization capacity dealing with major crises is still missing. Such a EU-wide stabilization function would be in accordance with the subsidiarity principle, enshrined in the Treaty of Maastricht, as the risk-sharing that it provides can only be conducted at the supranational level. We envisage a mechanism to semi-automatically respond to region- and country-specific shocks via a central fiscal stabilization fund (CFSF). A simple model incorporating hysteresis, cross-border externalities and moral hazard, is deployed to illustrate the optimal responses of the CFSF to these shocks. A well-designed CFSF has the potential to improving welfare not only in crisis-hit member countries, but also in the union as a whole.
    Keywords: subsidiarity principle, shocks, fiscal stabilization, transfers, European Union, corona
    JEL: E32 E62 E63
    Date: 2020
  17. By: Iwata, Yasuharu; Iiboshi, Hirokuni
    Abstract: Using sign restrictions within a time-varying parameter vector autoregressive (TVP-VAR) framework, we provide new time-series evidence of debt-dependent multipliers for the U.S. while simultaneously obtaining larger multipliers during recessions in line with previous studies. The Ricardian channel where households reduce consumption expecting larger scal adjustments is shown to be relevant for the debt-dependent multipliers. The TVP-VAR framework also allows us to observe changes in the magnitude of scal adjustments. We nd that the larger scal adjustments in the presence of rising indebtedness is the major driving force behind the smaller multipliers in the post-Volcker period rather than debt accumulation itself.
    Keywords: Bayesian VARs, Time-varying parameters, Fiscal multipliers, Fiscal policy
    JEL: E32 E62 H60
    Date: 2020–12
  18. By: Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
    Abstract: Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the firm-side credit channel. We then evaluate the relative benefits of a fixed-sized transfer to households and to firms that improves each group's access to credit. We find that the effects of such a transfer on employment are substantially larger when the transfer targets households rather than firms. Hence, we provide theoretical and quantitative support to the view that the employment decline during the Great Recession would have been less severe if instead of focusing on easing firms' access to credit, the government had expended an equal amount of resources to alleviate households' credit constraints.
    Keywords: Credit constraints; Collateral constraints; Great Recession; Financial recession; Government transfers
    JEL: E30 E32 E62 H51 J20 J60
    Date: 2020–12–15
  19. By: Borraz, Fernando; Livan, Giacomo; Rodríguez-Martínez, Anahí; Picardo, Pablo
    Abstract: The main contribution of this work consist on studying sales behaviour and their relationship with local market conditions like labor market indicators through a time series principal component analysis. We study the correlation structure of a large database on prices and found that all product sectors share a common correlation structure and the highest correlation and significance is achieved between employment variation and the first principal component, mostly in the second week of the following month. Sales or promotions, are a channel for price exibility because firms can use them to change effective prices keeping sticky reference prices. We use a rich database of retail prices from Uruguay to characterize prices' exibility, the behavior of sales, and their relationship with local market conditions like labor market indicators. Finally, we find a positive and significant relationship between sales and unemployment and perform a time series principal component analysis to study these relationships.
    Keywords: price rigidity,sales,unemployment,principal component analysis
    JEL: E31 E32 E24 C38
    Date: 2020
  20. By: Carlos Fonseca Marinheiro
    Abstract: The Expenditure Benchmark (EB) is an indicator for the evolution of public expenditure, introduced in 2011 in the already complex European fiscal rules framework. Its application has been increasingly promoted by the European Commission, and most existing proposals to reform the EU fiscal rules aim to keep it. However, the EB is not a substitute for the structural balance, not only because it requires the later as an input, but also because the EB calculation demands some of the unobservable variables heavily criticised in the structural balance. The EB indicator is quite complex and not suitable for the use at national level by the Independent Fiscal Institutions – that monitor compliance with national fiscal rules – as it relies on the European Commission’s data inputs and judgement not available in real-time. This paper argues for more transparency and for a simplification of this indicator to reduce the reliance on non-observable variables.
    Keywords: Expenditure benchmark; Independent Fiscal Institutions; EU fiscal rules; Stability and Growth Pact
    JEL: E61 E02 E62 H50 H61
    Date: 2020–12
  21. By: International Monetary Fund
    Abstract: This paper presents Democratic Republic of the Congo’s (DRC) Request for Disbursement Under the Rapid Credit Facility (RCF). DRC is experiencing a severe shock as a result of the Covid-19 pandemic. The short-term economic outlook has deteriorated quickly due to the fall of minerals’ prices and the impact of needed containment and mitigation measures. The IMF’s emergency financial support under the RCF is expected to address DRC’s urgent balance of payments needs while supporting this temporary fiscal loosening. Additional assistance from other development partners is expected to close the remaining external financing gap and ease budget financing needs. The authorities’ commitment to publish monthly audits of coronavirus disease 2019 related expenditures is welcome, to ensure transparency in the use of public funding. The implementation of the policies and structural reforms to which the authorities committed under the staff-monitored program agreed in December remains key to ensuring macroeconomic stability and restoring sustained inclusive growth. These include strengthening transparency and governance in the fiscal and mining sectors, boosting revenue mobilization, maintaining financial stability, and halting central bank financing of the deficit.
    Keywords: COVID-19 ;Fiscal stance;Credit;Mining sector;Public debt;ISCR,CR,Congo,Banque Centrale du Congo,financing,disbursement under the Rapid Credit Facility,government
    Date: 2020–05–01
  22. By: Christoph Görtz; John D. Tsoukalas; Francesco Zanetti
    Abstract: We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a significant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplification of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional ‘news view’ of aggregate fluctuations.
    Keywords: news shocks, business cycles, DSGE, VAR, Bayesian estimation
    JEL: E20 E30
    Date: 2020
  23. By: Serdar Birinci; Fatih Karahan; Yusuf Mercan; Kurt See
    Abstract: We study the positive and normative implications of labor market policies that counteract the economic fallout from containment measures during an epidemic. We incorporate a standard epidemiological model into an equilibrium search model of the labor market to compare unemployment insurance (UI) expansions and payroll subsidies. In isolation, payroll subsidies that preserve match capital and enable a swift economic recovery are preferred over a cost-equivalent UI expansion. When considered jointly, however, a cost-equivalent optimal mix allocates 20 percent of the budget to payroll subsidies and 80 percent to UI. The two policies are complementary, catering to different rungs of the productivity ladder. The relatively small proportion allocated to payroll subsidies is sufficient to preserve high-productivity jobs but this also leaves room for social assistance to workers who face inevitable job losses.
    Keywords: Coronavirus disease (COVID-19); Business fluctuations and cycles; Fiscal policy; Labour markets
    JEL: E24 E62 J64
    Date: 2020–12
  24. By: Bratsiotis, George (Department of Economics, University of Manchester); Theodoridis, Konstantinos (Cardiff Business School)
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the reluctance of the banking sector to "lend" to the real economy induced by an exogenous change in financial intermediaries' preference for "high" liquid assets. The identified shock has sizeable and state (volatility) dependent effects on the real economy. To understand the transmission of the shock, we develop a DSGE model of financial intermediation with credit and liquidity frictions. The precautionary liquidity shock is shown to work through two channels: it increases the level of reserves and the deposit rate. The former is a balance sheet effect, which reduces the loan-to-deposit ratio. The higher deposit rate affects the intertemporal decisions of households and the cost of borrowing to firms. The overall effect is a downward co-movement in output, consumption, investment and prices, which is amplified the higher are the long-run risks in the economy and the responsiveness of banks to potential risk.
    Keywords: House Prices, SVAR; Sign and Zero Restrictions; DSGE; Precautionary Liquidity Shock; Excess Reserves; Deposit Rate; Risk, Financial Intermediation.
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2020–12
  25. By: Douglas Arner; Raphael Auer; Jon Frost
    Abstract: The technologies underlying money and payment systems are evolving rapidly. Both the emergence of distributed ledger technology (DLT) and rapid advances in traditional centralised systems are moving the technological horizon of money and payments. These trends are embodied in private "stablecoins": cryptocurrencies with values tied to fiat currencies or other assets. Stablecoins - in particular potential "global stablecoins" such as Facebook's Libra proposal - pose a range of challenges from the standpoint of financial authorities around the world. At the same time, regulatory responses to global stablecoins should take into account the potential of other stablecoin uses, such as embedding a robust monetary instrument into digital environments, especially in the context of decentralised systems. Looking forward, in such cases, one possible option from a regulatory standpoint is to embed supervisory requirements into stablecoin systems themselves, allowing for "embedded supervision". Yet it is an open question whether central bank digital currencies (CBDCs) and other initiatives could in fact provide more effective solutions to fulfil the functions that stablecoins are meant to address.
    Keywords: stablecoins, cryptocurrencies, crypto-assets, blockchain, distributed ledger technology, central bank digital currencies, fintech, central banks, regulation, supervision, money
    JEL: E42 E51 E58 F31 G28 L50 O32
    Date: 2020–11
  26. By: Yusuf Mercan; Benjamin Schoefer; Petr Sedláček
    Abstract: In recessions, unemployment increases despite the—perhaps counterintuitive—fact that the number of unemployed workers finding jobs expands. On net, unemployment rises only because even more workers lose their jobs. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires “congests” the jobs the unemployed fill, diminishes their marginal product and discourages further job creation. Countercyclical congestion alone explains about 30–40 percent of U.S. unemployment fluctuations. Besides generating realistic labor market volatility, it also provides a unified explanation for the cyclical labor wedge, the excess earnings losses from job displacement and from graduating during recessions, and the insensitivity of unemployment to labor market policies, such as unemployment insurance.
    Keywords: unemployment, business cycles, recessions
    JEL: E24 J63 J64
    Date: 2020
  27. By: Ryan Bush; Haitham Jendoubi; Matthew Raskin; Giorgio Topa
    Abstract: In late August, as part of the Federal Reserve’s review of Monetary Policy Strategy, Tools, and Communications, the Federal Open Market Committee (FOMC) published a revised Statement on Longer-Run Goals and Monetary Policy Strategy. As observers have noted, the revised statement incorporated important changes to the Federal Reserve’s approach to monetary policy. This includes emphasizing maximum employment as a broad-based and inclusive goal and focusing on “shortfalls” rather than “deviations” of employment from its maximum level. The statement also noted that, in order to anchor longer-term inflation expectations at the FOMC’s longer-run goal, the Committee would seek to achieve inflation that averages 2 percent over time. In this post, we investigate the possible impact of these changes on financial market participants’ expectations for policy rate outcomes, based on responses to the Survey of Primary Dealers (SPD) and Survey of Market Participants (SMP) conducted by the New York Fed’s Open Market Trading Desk both shortly before and after the conclusion of the framework review. We find that the conclusion of the framework review coincided with a notable shift in market participants’ perceptions of the FOMC’s policy rate “reaction function,” in the direction of higher expected inflation and lower expected unemployment at the time of the next increase in the federal funds target range (or “liftoff”).
    Keywords: survey of primary dealers; survey of market participants
    JEL: E58 D53
    Date: 2020–12–18
  28. By: Kim Nguyen (Reserve Bank of Australia); Gianni La Cava (Reserve Bank of Australia)
    Abstract: In times of crisis, real-time indicators of economic activity are a critical input to timely and well-targeted policy responses. The COVID-19 pandemic is the most recent example of a crisis where events with little historical precedent played out rapidly and unpredictably. To address this need for real-time indicators we develop a new indicator of 'news sentiment' based on a combination of text analysis, machine learning and newspaper articles. The news sentiment index complements other timely economic indicators and has the advantage of potentially being updated on a daily basis. It captures key macroeconomic events, such as economic downturns, and typically moves ahead of survey-based measures of sentiment. Changes in sentiment expressed in monetary policy-related news can also partly explain unexpected changes in monetary policy. This suggests that news captures important, but unobserved, information about the risks to the RBA's forecasts that the RBA responds to when setting interest rates. An event study in the days around monetary policy decisions suggests that an unexpected tightening in monetary policy is associated with weaker news sentiment, though the effects on sentiment are temporary and not particularly strong.
    Keywords: news media; sentiment; economic activity; text analysis; machine learning
    JEL: E32 E52
    Date: 2020–12
  29. By: Asger Lau Andersen; Niels Johannesen; Mia Jørgensen; José-Luis Peydró
    Abstract: We analyze the distributional effects of monetary policy on income, wealth and consumption. For identification, we exploit administrative household-level data covering the entire population in Denmark over the period 1987-2014, including detailed information about income and wealth from tax returns, in conjunction with exogenous variation in the Danish monetary policy rate created by a long-standing currency peg. Our results consistently show that all income groups gain from a softer monetary policy, but that the gains are monotonically increasing in the ex-ante income level. Over a two-year horizon, a decrease in the policy rate of one percentage point raises disposable income by less than 0.5% at the bottom of the income distribution, by around 1.5% at the median income and by around 5% at the top. The effects on asset values through increases in house prices and stock prices are larger than the effects on disposable income by more than an order of magnitude and exhibit a similar monotonic income gradient. We show how all these distributional effects reflect systematic differences in the exposure to the direct and indirect channels of monetary policy. Consistent with the main results for disposable income and asset values, we also find that the effects on net wealth and consumption (car purchases) increase monotonically over the ex-ante income distribution. Our estimates imply that softer monetary policy increases income inequality by raising income shares at the top of the income distribution and reducing them at the bottom.
    Keywords: Monetary policy, inequality, household heterogeneity
    JEL: E2 E4 E5 G2 G1 G5
    Date: 2020–12
  30. By: Kirill Shakhnov (University of Surrey)
    Abstract: The rapid growth of US financial services coupled with rapid increases in wealth inequality have been focusing policy debate as to the function of the financial sector and on its social desirability as a whole. I propose a heterogeneous agent model with asymmetric information and matching frictions that produces a tradeoff between finance and entrepreneurship. By becoming bankers, talented agents efficiently match investors with entrepreneurs, but extract excessive informational rents due to contract incompleteness. Thus the financial sector is inefficiently large in equilibrium, and this inefficiency increases with wealth inequality. The estimated model accounts for the simultaneous growth of wealth inequality and the financial sector in the US. The endogenous feedback between inequality and the size of the financial sector is quantitatively important.
    JEL: E44 E24 G14 L26
    Date: 2020–12
  31. By: Christoph Albert (CEMFI); Andrea Caggese (UPF, CREI and Barcelona GSE); Beatriz González (Banco de España)
    Abstract: We use the latest available empirical evidence on the impact of the COVID-19 shock on the EU economy to predict its effect on firm entry, and in particular on high-growth startups, and on the related short- and long-run impact on employment growth. We find that the COVID-19 shock is expected to reduce firm entry and that its overall impact is very sensitive to financial conditions. A relatively small increase in financial frictions is likely to strongly reduce the entry of high-growth startups, with fewer jobs created in the short run but, more importantly, also slower employment growth in the long run. We then develop a model with heterogeneous startup types and simulate the effects of the COVID-19 shock on the entry and growth of a cohort of new firms to evaluate alternative policies. We find that a loan subsidy that reduces the excess cost of credit for new startups is the most efficient policy in promoting the entry of high-growth startups. The comparison of this subsidy with a wage subsidy that supports current employment shows that, for the same overall costs, the number of jobs created by the loan subsidy in the long term is significantly larger than that created by the wage subsidy in the short term. Our findings imply that, while policies aiming to stimulate current employment are important, in order to ensure also a faster recovery in the future they should be accompanied by measures directed at reducing the cost of credit for new businesses.
    Keywords: recessions, financial crisis, entrepreneurship, firm dynamics, coronavirus, COVID-19
    JEL: E20 E32 D22 J23 M13
    Date: 2020–12
  32. By: Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Geoff Kenny
    Abstract: Using new panel data from a representative survey of households in the six largest euro area economies, the paper estimates the impact of the Covid-19 crisis on consumption. The panel provides, each month, household-specific indicators of the concern about finances due to Covid19 from the first peak of the pandemic until October 2020. The results show that this concern causes a significant reduction in non-durable consumption. The paper also explores the potential impact on consumption of government interventions and of another wave of Covid-19, using household-level consumption adjustments to scenarios that involve positive and negative income shocks. Pandemic-related financial concerns induce a significant reduction (increase) in the marginal propensity to consume in response to a positive (negative) income shock, an effect consistent with models of precautionary saving and liquidity constraints. These results are robust to endogeneity problems through the use of panel fixed effects models as well as partial identification methods that account also for time-varying unobservable variables, and provide informative identification regions of the average treatment effect of the financial concern due to Covid-19 under weak assumptions.
    Keywords: Covid-19, Consumption, Income Shocks, Marginal Propensity to Consume, Financial concerns, Fiscal policies
    JEL: D12 D81 E21 G51 H31
    Date: 2020–12
  33. By: Michael B. Devereux; Karine Gente; Changhua Yu
    Abstract: This paper analyzes the impact of fiscal spending shocks in a multi-country model with international production networks. In contrast to standard results suggesting that production network linkages are unimportant for the aggregate response to macro shocks in a closed economy, we show that network structures may place a central role in the international propagation of fiscal shocks, particularly when wages are slow to adjust. The paper first develops a simple general equilibrium multi-country model and derives some analytical results on the response to fiscal spending shocks. We then apply the model to an analysis of fiscal spillovers in the Eurozone, using the calibrated sectoral network structure from the World Input Output Database (WIOD). In a version of the model with sticky wages, we find that fiscal spillovers from Germany and some other large Eurozone countries may be large, and within the range of empirical estimates. More importantly, we find that the Eurozone production network is very important for the international spillovers. In the absence of international production network linkages, spillovers would be only a third as large as predicted by the baseline model. Finally, we explore the diffusion of identified German government spending at the sectoral level, both within and across countries. We find that government expenditures have both significant upstream and downstream effects when these links are measured by the direction of sectoral production linkages.
    JEL: E23 E62 F20 F42 H50
    Date: 2020–11
  34. By: Bonacini, Luca
    Abstract: Human Capital Theory considers individuals' education as an investment in terms of money, time, effort, and the renouncement of income opportunities that they expect will be compensated during their working life. While these benefits are mainly in the long run, direct and indirect costs are conditioned by the present circumstances, and in particular, by the macroeconomic conditions. The literature investigating the influence of the business cycle on enrolment decisions often suggests a counter-cyclical relationship without considering that economic fluctuations can produce heterogeneous effects among households facing different economic situations. Through a fixed effects regression based on panel data from the Italian component of the EU-SILC survey, I find the existence of a counter-cyclical propensity to enrol that is symmetric to the stages of the economic cycle. However, after disaggregating the analysis by household income quartiles, results show that a 1% increase in GDP reduces the probability of the poorest individuals being enrolled in non-compulsory education by 1.2%, while the wealthier portion of the population shows an a-cyclical relationship. The policy implications of these results are particularly important as they suggest that measures directed towards youths from poorer households to promote their enrolment in non-compulsory education should be strengthened when economic conditions improve.
    Keywords: Economic cycle,Educational economics,Human capital,Rate of return
    JEL: A22 E32 I23 I24
    Date: 2020
  35. By: Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Further progress in digital money, electronically stored monetary value, may enable pricing in units of any currency in any country. This paper studies monetary policy in such a world, using a two- country open economy model with nominal rigidities. The findings are three-fold. First, domestic monetary policy becomes less effective as digital dollarization - pricing using digital money, denominated in and pegged to a foreign currency - deepens. Second, digital dollarization is more likely to occur in a smaller country that is more open to trade and has a greater tradable sector and stronger input-output linkages. Third, monetary policy can facilitate or discourage digital dollarization depending on its stance on the stabilization of macroeconomic variables.
    Keywords: Digital money, monetary policy, dollarization
    JEL: E52 F41
    Date: 2020–12
  36. By: Guerino Ardizzi (Bank of Italy); Andrea Nobili (Bank of Italy); Giorgia Rocco (Bank of Italy)
    Abstract: We explore the relationship between cash and other payment instruments using the outbreak of the COVID-19 pandemic as a natural experiment exogenously affecting both the payment industry and consumers’ habits. We rely on Google search data, as well as on the official series of new cases of infection to measure the intensity of the pandemic, and apply local projection methods to assess the effects on payment habits. We find a large and persistent substitution effect from cash to card-based transactions, especially using contactless and e-commerce options. The fear of infection has led to a new implicit cost associated to each payment instrument, thus affecting payment choices from the demand-side and boosting consumption with non-cash transactions. Moreover, technical constraints on the cash cycle and the lockdown measures have increased the demand for cash for precautionary purposes. Policies aiming at accelerating the digital economy and the most innovative means of payment can potentially make economic activity more resilient to adverse shocks. At the same time, ensuring the adequate and efficient availability of cash remains essential from a social and economic perspective.
    Keywords: COVID-19 pandemic, cash, payment habits, unconventional data
    JEL: E41 E42 G2 O3
    Date: 2020–12
  37. By: Sanjeev Gupta; João Tovar Jalles
    Abstract: This paper analyzes the role of political variables in the implementation of structural tax reforms in 45 emerging market and low-income economies during 2000-2015. The existing literature identifies several hypotheses that drive reforms, but empirical studies that support these hypotheses are lacking. Relying on a new database of structural tax reforms and on binary-type models, our results suggest that a left-wing government is less inclined to implement tax reforms while both proximity to elections and political strength orcohesion are positively associated with tax reforms. The influence of the left government is stronger in low-income than in emerging market economies and revenue administration reforms are resisted the most by such governments. Proximity to elections seems to trigger reforms of personal income tax (PIT) but opposite holds for trade tax reforms. Political cohesion is a necessary ingredient to reform most tax categories and revenue administration.
    Keywords: fiscal policy; binary choice models; tax reforms; elections; political fragmentation; ideology
    JEL: C33 C36 D63 E32 E62 H20
    Date: 2020–12
  38. By: Kilian, Lutz; Zhou, Xiaoqing
    Abstract: The conventional wisdom that inflation expectations respond to the level of the price of oil (or the price of gasoline) is based on testing the null hypothesis of a zero slope coefficient in a static single-equation regression model fit to aggregate data. Given that the regressor in this model is not stationary, the null distribution of the t-test statistic is nonstandard, invalidating the use of the normal approximation. Once the critical values are adjusted, these regressions provide no support for the conventional wisdom. Using a new structural vector regression model, however, we demonstrate that gasoline price shocks may indeed drive one-year household inflation expectations. The model shows that there have been several such episodes since 1990. In particular, the rise in household inflation expectations between 2009 and 2013 is almost entirely explained by a large increase in gasoline prices. However, on average, gasoline price shocks account for only 39% of the variation in household inflation expectations since 1981.
    Keywords: inflation,expectations,anchor,missing disinflation,oil price,gasoline price,household survey
    JEL: E31 E52 Q43
    Date: 2020
  39. By: Robert L. Czudaj (Department of Economics, Chemnitz University of Technology); Joscha Beckmann (University of Greifswald, Department o Economics)
    Abstract: This paper introduces a new measure of fiscal policy uncertainty based on the disagreement among professional forecasters. We analyze different patterns of this measure for the German economy for a sample period from November 1995 to April 2018 and also use Italian data for comparison. Especially, we examine the impact of the introduction of the German ‘debt brake’ on fiscal policy uncertainty. Finally, we conduct an impulse response analysis to investigate the effectof fiscal policy uncertainty on the real economy and we provide robust evidence that fiscal policy uncertainty significantly decreases the growth rate of industrial production. The corresponding effect is robust to various sensitivity checks and exceeds the impact of a general measure of economic policy uncertainty. In general, the negative effect on the real economy might be explained by lower hiring and investment by firms, higher costs of financing due to risk premia and lower consumption spending as a result of precautionary savings.
    Keywords: Disagreement, Expectations, Fiscal policy, Survey data, Uncertainty, VAR
    JEL: E62
    Date: 2020–10
  40. By: International Monetary Fund
    Abstract: This paper presents Ukraine’s Request for Stand-By Arrangement. The 2020 budget is expected to be hit hard, with a sharp decline in revenues and large emergency spending needs to address the crisis. This has created large balance of payments and fiscal financing needs. Sound fiscal and monetary policies since the 2014–2015 crisis have resulted in a sharp reduction in Ukraine’s external and internal imbalances. Public debt was put on a downward path, inflation has declined, and international reserves have recovered. The new Stand-By Arrangement will provide an anchor for the authorities’ efforts to address the impact of the crisis, while ensuring macroeconomic stability and safeguarding achievements to date. Together with support from the World Bank and the European Union, it will help address large financing needs. The program will focus on safeguarding medium-term fiscal sustainability, preserving central bank independence and the flexible exchange rate, and enhancing financial stability while recovering the costs from bank resolutions. Concerted reform efforts aimed at tackling corruption and strengthening governance will be critical to ensure macroeconomic stability and achieve sustainable and inclusive growth.
    Keywords: Banking;Public debt;COVID-19 ;Exchange rates;External debt;ISCR,CR,government,financing,fiscal policy,policy,government policies response
    Date: 2020–06–11
  41. By: Steffen Elstner; Christian Grimme; Valentin Kecht; Robert Lehmann
    Abstract: We study whether technology gains in sectors related to Information and Communications Technology (ICT) increase productivity in the rest of the economy. To separate exogenous gains in ICT from other technological progress, we use the relative price of ICT goods and services in a structural VAR with medium-run restrictions. Using local projections to estimate the effect of ICT-related technology gains on sectoral technology (TFP), we find two sets of results. First, since the mid-2000s there have been positive and persistent technology spillovers to sectors intensively using ICT. Second, neglecting leasing activity leads to an overestimation of the TFP response for all sectors except the leasing sector, where it is strongly underestimated.
    Keywords: digitization, information and communications technology, technology shocks, local projections, structural VARs, medium-run restrictions, growth accounting
    JEL: C32 D24 E22 E24 O33 O47 O52
    Date: 2020
  42. By: Norman V. Loayza; Steven Pennings
    Keywords: Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Macroeconomic Management
    Date: 2020–03
  43. By: Eduardo de Sá Fortes Leitão Rodrigues
    Abstract: This paper analyses the harmful interference of uncertainty on the effectiveness of fiscal policy. We investigate this issue through the lens of a Structural Vector AutoRegressive (SVAR) model for the United States and Brazil.Imposing government spending shocks, we find a positive effect on economic activity. The results suggest Keynesian effects on consumption and GDP. To assess the effects of uncertainty, we used the Economic Policy Uncertainty Index (EPU) and the World Uncertainty Index (WUI). Our findings indicate that the fiscal effects are considerably less intense when uncertainty reaches high levels, consistently with the Real Options approach. The results suggest that agents are more cautious when the high uncertainty overshadows the outline of the economic scenario. In this sense,uncertainty disturbs agents’ decisions and decreases consumption, investment and economic activity.
    Keywords: Fiscal Policy, Uncertainty, SVAR, United States, Brazil
    JEL: E27 E62 H30
    Date: 2020–12
  44. By: Sergio Salas
    Abstract: Despite a plethora of studies in monetary economics regarding the study of inflation, interest rates, stock returns, and velocity of money, a model that helps to jointly characterize these interactions is still scarce in the literature. A key missing piece in most of the literature attempting such a characterization is idiosyncratic precautionary money demand, which is prevalent in the data. This paper presents a simple model where precautionary money demand arises due to heterogeneity in households' liquidity needs. In spite of its heterogeneous complexity, aggregation in the model is straightforward, this is one of the main contributions of the paper, and therefore an analysis of the models' implications can be undertaken when households' portfolio is composed of cash, government bonds, and equity. The empirical analysis is conducted separately for the time spans 1984.I-2007.IV and 2008.I-2019.IV. The model can capture important time-series properties that a model without the idiosyncratic feature is unable to achieve. However, the model falls short of providing an adequate match of some moments, especially in the second sub-sample of the analysis.
    Keywords: Precautionary money demand, Portfolio allocation, Heterogeneity, Government bonds, Stock Market, Open market operations
    JEL: E41 E51
    Date: 2020–12
  45. By: Mary A. Burke; Ali K. Ozdagli
    Abstract: Recent research offers mixed results concerning the relationship between inflation expectations and consumption, using qualitative measures of readiness to spend. We revisit this question using survey panel data from the United States of actual spending from 2009 through 2012 that also allow us to control for household heterogeneity. We find that durables spending increases with inflation expectations only for certain types of households, while nondurables spending does not respond to inflation expectations. Moreover, spending decreases with an expected increase in unemployment. These results imply a limited stimulating effect of inflation expectations on aggregate consumption, which could be offset in part or in full if expectations for inflation and unemployment move in the same direction.
    Keywords: inflation expectations; survey data; durable and nondurable goods consumption
    JEL: D12 E52 E58
    Date: 2020–01–01
  46. By: Christian Grimme; Steffen Henzel
    Abstract: We demonstrate that the impact of increases in uncertainty on bank credit conditions depends on the level of uncertainty. Using firm-level survey data, we document that a surge in business-specific uncertainty is particularly damaging when this uncertainty is low: low levels nearly triple the effect compared to high levels. The result is robust to controlling for recessionary periods. To provide an interpretation, we build and calibrate a stylized model in which bank lending is governed by expectations about the future level of business uncertainty. Increases in uncertainty serve as a signal to update these expectations. The model predicts that expectations are revised more strongly and, thus, lending drops more under low uncertainty.
    Keywords: uncertainty, financial frictions, bank lending, survey data
    JEL: C23 E32 G21
    Date: 2020
  47. By: Marc Tobias Schiffbauer; World Bank
    Keywords: Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Macroeconomic Management
    Date: 2020–04
  48. By: Olivia S. Kim; Jonathan A. Parker; Antoinette Schoar
    Abstract: Using detailed transaction-level data from financial accounts, this paper shows that the revenues of small businesses and the consumption spending of their owners both decline by roughly 40% following the declaration of the national emergency in March 2020. However, through May 2020, the vast majority of this average decline in revenues is due to national factors rather than to variation in local infection rates or policies. Further, there is only a modest propensity for business owners to cut consumption in response to their individual business losses: Comparing owners in the same county but whose businesses operate in industries differentially impacted by local infections and state-level policies, we show that each dollar of revenue loss leads to a 1.6 cent decline in the consumption of the owner at this early stage of the pandemic. This limited passthrough appears to be explained by three factors: (1) the liquidity of households and businesses entering the crisis – consumption is twice as responsive for small business owners who operate with low liquidity; (2) emergency Federal programs – median account balances in both business and checking accounts decline in March but rebound in April and May when the transfer programs begin; (3) pandemic induced declines in the ability to spend on consumption – spending on travel, restaurants or personal services dropped dramatically.
    JEL: D12 D15 D25 E2 E63 E65 G32 G5
    Date: 2020–11
  49. By: Francesco Lancia; Alessia Russo; Tim Worrall
    Abstract: Optimal intergenerational insurance is examined in a stochastic overlapping generations endowment economy with limited enforcement of risk-sharing transfers. Transfers are chosen by a benevolent planner who maximizes the expected discounted utility of all generations while respecting the participation constraint of each generation. We show that the optimal sustainable intergenerational insurance is history dependent. The risk from a shock is unevenly spread into the future, generating heteroscedasticity and autocorrelation of consumption even in the long run. The optimum can be interpreted as a social security scheme characterized by a minimum welfare entitlement for the old and state-contingent entitlement thresholds.
    Keywords: Intergenerational insurance, Limited commitment, Risk sharing, Stochastic overlapping generations
    JEL: D64 E21 H55
    Date: 2020–12
  50. By: Emiliano A. Carlevaro (Economics Discipline, Business School, University of Western Australia); Leandro M. Magnusson (Economics Discipline, Business School, University of Western Australia)
    Abstract: We investigate the relationship between conventional monetary policy and stock market returns before, during, and after the zero lower bound (ZLB) period. Our inferential method, which exploits the exogenous changes in the variance of the structural shocks, allows us to recover both effects simultaneously without the need for restrictive identification assumptions. We find dramatic changes in the relationship between monetary policy and stock market returns over the period. Before the ZLB, policymakers reacted to stock returns. Their reaction has been muted since then. Regarding the stock market response, we find that, before the ZLB, a contractionary (expansionary) monetary policy reduces (increases) returns. Since the ZLB period, however, we cannot rule out a positive response of equity prices to monetary tightening.
    Keywords: Structural VAR, Identification, Instability, Monetary Policy
    JEL: C12 E44 G10
    Date: 2020
  51. By: Konrad Adler; Frederic Boissay
    Abstract: We study the effectiveness of policy tools that deal with bank distress (i.e. central bank lending, asset purchases, bank liability guarantees, impaired asset segregation schemes). We present and draw on a novel database that tracks the use of such tools in 29 countries between 1980 and 2016. To keep "all else" equal, we test whether different policies explain differences in how countries fared through bank distress episodes that feature observationally similar initial macro–financial vulnerabilities. We find that, altogether, policy interventions help restore GDP growth and normalize the economy when bank distress follows a period of high cross–border exposures. Central bank lending and asset purchase schemes are especially effective in the first and second years of distress, respectively, and when bank distress follows low asset valuations, high bank leverage and weak bank performance. Overall, our results suggest that swift and broad–ranging policies can mitigate the adverse economic effects of bank distress.
    Keywords: bank distress, distress mitigation policy
    JEL: G01 G38 E60
    Date: 2020–12
  52. By: International Monetary Fund
    Abstract: Chad’s economy has been severely impacted by the twin Covid-19 pandemic and terms of trade shocks. A national lockdown to contain the spread of the virus, disruptions in supply chains, and a drop in international oil prices are curtailing economic activity and weakening the outlook. While the authorities’ policy response has been timely and proactive, the economic shock and containment policies are triggering a severe recession, resulting in significant social costs and urgent balance of payment and budget financing needs. These are estimated at 7.0 percent of non-oil GDP compared to 4.6 percent in IMF Country Report No. 20/134. The pandemic is unfolding in a context of rising regional and domestic insecurity and an already weak health care system, which are exacerbating Chad’s vulnerabilities.
    Keywords: Arrears;Public debt;Debt sustainability analysis;Banking;Credit;ISCR,CR,RCF disbursement,terms of trade shock,IMF emergency assistance,emergency financing request,IMF lending tracker
    Date: 2020–08–05
  53. By: Felix Kapfhammer; Vegard H. Larsen; Leif Anders Thorsrud
    Abstract: The positive relationship between real exchange rates and natural resource income is well understood and studied. However, climate change and the transition to a lower-carbon economy now challenges this relationship. We document this by proposing a novel news media-based measure of climate change transition risk and show that when such risk is high, major commodity currencies experience a persistent depreciation and the relationship between commodity price fluctuations and currencies tends to become weaker.
    Keywords: exchange rates, climate, risk, commodities
    JEL: C11 C53 D83 D84 E13 E31 E37
    Date: 2020
  54. By: Rune Vejlin; Gregory F. Veramendi
    Abstract: This paper develops a sufficient statistics approach for estimating the role of search frictions in wage dispersion and lifecycle wage growth. We show how the wage dynamics of displaced workers are directly informative of both for a large class of search models. Specifically, the correlation between pre- and post-displacement wages is informative of frictional wage dispersion. Furthermore, the fraction of displaced workers who suffer a wage loss is informative of frictional wage growth and job-to-job mobility, independent of the job-offer distribution and other labor-market parameters. Applying our methodology to US data, we find that search frictions account for less than 20 percent of wage dispersion. In addition, we estimate that between 40 to 80 percent of workers experience no frictional wage growth during an employment spell. Our approach allows us to estimate how frictions change over time. We find that frictional wage dispersion has declined substantially since 1980 and that frictional wage growth, while low, is more important towards the end of expansionary periods. We finish by estimating two versions of a random search model to show how at least two different mechanisms—involuntary job transitions or compensating differentials—can reconcile our results with the job-to-job mobility seen in the data. Regardless of the mechanism, the estimated models show that frictional wage growth accounts for about 15 percent of lifecycle wage growth.
    Keywords: search models, wage dispersion, wage growth, sufficient statistics, displacement
    JEL: E24 J31 J64
    Date: 2020
  55. By: Jan Behringer (Macroeconomic Policy Institute (IMK)); Till van Treeck (Institute for Socio-Economics (ifso)); Achim Truger (Institute for Socio-Economics (ifso))
    Abstract: Germany has had a large and persistent current account surplus for the past almost two decades. We review different theoretical explanations of this phenomenon and conclude from the empirical litera-ture that Germany’s external surplus reflects an imbalance that is a threat to macroeconomic stability at both the national and the international level. Interestingly, although intertemporal general equilibrium models highlight the role of private households in determining national current account positions, the increase in Germany’s external balance for the most part is the reflection of larger financial balances of the corporate sector and the government. While the share of the national income going to the private household sector has declined dramatically since the early 2000s, the corresponding increase in the income share of the private corporate sector and the government was not accompanied by higher spending by these sectors on goods and services as a percentage of GDP. We discuss how the exter-nal surplus might be reduced through (a combination of) higher public and private demand for goods and services and shorter working hours.
    Keywords: current account, external adjustment, sectoral balances, income distribution
    JEL: D31 D33 E21 F32 F41
    Date: 2020–12
  56. By: International Monetary Fund
    Abstract: This paper presents Cabo Verde’s Request for Disbursement Under the Rapid Credit Facility (RCF). Mitigating measures taken by the authorities are aimed at preventing an extensive spread of the pandemic, and helping the private sector, households and vulnerable groups mitigate the fallouts of the pandemic. However, important challenges remain in view of the existing uncovered financing gaps and uncertainties on the duration of the pandemic, calling for financial support from Cabo Verde’s development partners. IMF financing under the RCF will provide additional foreign exchange and much-needed budget support. While addressing the impact of the coronavirus disease 2019 pandemic, the authorities should stand ready to resume reforms and policies needed to return the economy to its pre-pandemic medium-term trajectory, anchored in sustained growth, stronger external and fiscal positions, and declining ratio of public debt to gross domestic product. Beyond the crisis, the medium-term outlook remains broadly favorable, under the assumption of a recovery of the global economy, resumption of tourism and capital inflows, and the growth-enhancing reforms envisaged under the authorities’ Plan for Sustainable Development.
    Keywords: COVID-19 ;Public debt;External debt;International reserves;Loans;ISCR,CR,financing,authority,development partner,pandemic
    Date: 2020–04–23
  57. By: International Monetary Fund
    Abstract: Macroprudential oversight in Italy combines local elements with the European framework. At a local level, financial stability is a shared responsibility between Banca d’Italia (BdI), which is the national central bank and the prudential authority for banks and other financial institutions, the markets authority, Commissione Nazionale per le Società e la Borsa (CONSOB), the insurance supervisor, Istituto per la Vigilanza Sulle Assicurazioni (IVASS), and the pension funds supervisor, Commissione di Vigilanza sui Fondi Pensione (COVIP).2 Each authority exercises its responsibility within a combination of sectoral and activity boundaries and the BdI plays a leading role in surveillance and coordination. Within the European framework, the BdI is both the national competent authority and the designated authority for the macroprudential tools considered under the Capital Requirements Regulation (CRR) and the Capital Requirements Directive IV (CRD IV), which are implemented and activated following the processes described in these regulatory texts and the guidelines provided by the European Central Bank (ECB) – within the competences assigned to it by the SSM Regulation - and the European Systemic Risk Board (ESRB). The ubiquitous role of the BdI on both fronts eases the challenges posed by the coexistence of these two frameworks.
    Keywords: Systemic risk;Financial sector stability;Banking;Macroprudential policy;Macroprudential policy instruments;ISCR,CR,BdI power,BdI report,BdI staff,BdI decision,BdI's mandate
    Date: 2020–08–04
  58. By: International Monetary Fund
    Abstract: This paper focuses on the Islamic Republic of Mauritania’s Request for Disbursement Under the Rapid Credit Facility. The economic and social impact of the pandemic is rapidly unfolding, with a contraction of output expected in 2020. The authorities have responded swiftly with measures to contain the pandemic and alleviate its fallout. Going forward, prioritizing health spending and targeted support to the most vulnerable households and sectors in the economy remains critical. The authorities are committed to full transparency and reporting of resources deployed for the emergency response, to audit crisis-mitigation spending once the crisis abates, and to publish the results. At the same time, they remain committed to the economic reform program supported by the ongoing ECF arrangement with the IMF. The program aims at using the fiscal space to increase priority spending on education, health and social protection and infrastructure, while mobilizing domestic revenues and maintaining prudent borrowing policies to preserve debt sustainability.
    Keywords: Public debt;External debt;Credit;Fiscal stance;COVID-19 ;ISCR,CR,financing,center
    Date: 2020–04–29
  59. By: Yao Axel Ehouman
    Abstract: This paper aims to assess the impact of oil shocks on global liquidity evolution over the 1999–2018 period, an issue not already addressed by literature. To this end, we rely on a two-stage approach that allows us to trace fluctuations in the crude oil price to the underlying supply and demand shocks, on the one hand, and to estimate the responses of global liquidity indicators to these shocks on the other hand. Our results support the existence of a link between oil shocks and global liquidity. In particular, we show that global liquidity responses to oil shocks depend on the shocks’ nature. While aggregate and oil-specific demand shocks have, respectively, negative and positive effects on the evolution of global liquidity, oil supply shocks do not significantly affect global liquidity due to their relatively low contribution to oil price changes. Thus, this paper highlights that oil price movements by driving global liquidity dynamics can be identified as a potential source of financial instability.
    Keywords: Global liquidity; oil price; oil demand shocks; oil supply shocks; Structural VAR.
    JEL: E51 F00 Q41 Q43
    Date: 2020
  60. By: Camilla Mastromarco (Dipartimento di Scienze dell'Economia, Università degli Studi del Salento.); Léopold Simar (Institut de Statistique, Biostatistique et Sciences Actuarielles, Université Catholique de Louvain.); Valentin Zelenyuk (School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia)
    Abstract: Despite the long and great history, developed institutions, and high level of physical and human capital, the Italian economy has been fairly stagnant during the last three decades. In this paper, we merge two streams of literature: nonparametric methods to estimate frontier eciency of an economy, which allows us to develop a new measure of output gap, and nonparametric methods to estimate probability of an economic recession. To illustrate the new framework we use quarterly data for Italy from 1995 to 2019, and nd that our model, using either nonparametric or the linear probit model, is able to provide useful insights.
    Keywords: Forecasting, Output Gap, Robust Nonparametric Frontier, Generilized Nonparametric Quasi- Likelihood Method, Italian recession.
    JEL: C5 C14 C13 C32 D24 E37 O4
    Date: 2020–10
  61. By: ; ; Fumiko Hayashi; Joanna Stavins
    Abstract: Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all consumers. As a result, credit card transactions are cross-subsidized by cheaper debit and cash payments. Card rewards and consumer fees paid to financial institutions are additional sources of cross-subsidies. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest. This result is robust under various scenarios and assumptions, suggesting payment card pricing and merchant cost pass-through have regressive distributional effects in the United States and Canada.
    Keywords: regressive effects; rewards; credit cards; interchange fees; pass-through
    JEL: D12 D31 G21 L81
    Date: 2020–12–01
  62. By: International Monetary Fund
    Abstract: This paper presents Central African Republic’s Request for Disbursement Under the Rapid Credit Facility. The implementation of the policies and structural reforms to which the authorities committed under the Extended Credit Facility (ECF) arrangement adopted in December remains key to ensuring macroeconomic stability and debt sustainability and restoring sustained inclusive growth. Additional external support, preferably in the form of grants, is also urgently required to meet C.A.R.’s elevated financing needs and ease the financial burden of the pandemic. These are also essential to the authorities’ efforts to restore peace and prosperity in the country. The authorities intend to allow the fiscal deficit to increase to accommodate most of the fiscal impact of the pandemic, which will comprise a significant shortfall in revenue and additional outlays as part of the response plan. While they intend to streamline nonpriority expenditures, this accommodative stance will allow them to continue meeting pressing social, infrastructure, and security spending needs. The authorities have also reiterated their intention to pursue the policies and structural reforms to which they committed under the ECF arrangement approved last December.
    Keywords: Public debt;Credit;Debt sustainability analysis;Fiscal stance;Arrears;ISCR,CR,financing,assistance,financing gap,balance,Bank-Fund Debt Sustainability Analysis
    Date: 2020–04–28
  63. By: International Monetary Fund
    Abstract: This paper presents Paraguay’s Request for Purchase Under the Rapid Financing Instrument (RFI). In March 2020, Paraguay was hit by the Covid-19 epidemic, which has created fiscal and balance of payments needs. The authorities’ policy response to the epidemic has been timely, but limited access to financing and a weakened fiscal position constrain the ability to pursue a deeper emergency response. The Paraguayan authorities are requesting financial assistance under the IMF’s RFI to address the urgent balance of payments needs associated with the Covid-19 epidemic. Given the urgency of their request, there is no time to put in place a full-fledged upper credit tranche program, and the authorities are of the view that they can make suitable adjustments to manage their medium-term balance of payments challenges. In order to prevent the emergence of permanently high deficits after the crisis, Paraguay should return to the deficit ceiling under the Fiscal Responsibility Law. The exchange rate should continue to function as shock absorber, and monetary policy should focus on inflation targeting.
    Keywords: Public debt;External debt;Banking;Credit;Exchange rates;ISCR,CR,emergency package,monetary policy committee,support,balance of payments pressure,donor support
    Date: 2020–04–22
  64. By: Döhrn, Roland
    Abstract: National accounts are subject to major revisions. To improve the reliability of the first release data, it is important to know whether these revisions show systematic patterns, or in other words, whether national accounts are informational efficient in the sense that they incorporate all information available in the data. This paper tests three dimensions of informational efficiency: weak efficiency, strong efficiency, and Nordhaus efficiency. The tests on weak efficiency find systematic patterns in the revisions. Tests on strong efficiency, however, do not provide a clear-cut picture, which kind of information can be used to reduce the extent of revisions. Finally, the tests on Nordhaus efficiency indicate that the revisions do not follow a time path.
    Keywords: national account,data revision,informational efficiency
    JEL: C82 E01 E66
    Date: 2020
  65. By: Keiko Inoue; Jacques Morisset
    Keywords: Information and Communication Technologies - Digital Divide Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Macroeconomic Management Social Protections and Labor - Labor Markets
    Date: 2020–04
  66. By: Hirokuni Iiboshi; Mototsugu Shintani; Kozo Ueda
    Abstract: Which type of monetary policy rule best describes the policy conducted by the Bank of Japan during the period when the nominal interest rate is constrained at the zero lower bound (ZLB)? What are the economic fundamentals that explain Japan's prolonged stagnation? How important is incorporating nonlinearities in the analysis? We answer these questions by estimating a small-scale nonlinear DSGE model. We find that: the Bank of Japan conducted a threshold-based forward guidance policy; adverse demand shocks explain Japan's experience; and nonlinear models are very useful in the analysis of the Japanese economy during the ZLB period.
    Date: 2020–12
  67. By: Eren Gürer; Alfons Weichenrieder
    Abstract: This paper studies the implications of an increase in the price of necessities, which disproportionally hurts the poor, for optimal income taxation. Our analyses show that, when the government is utilitarian and disutility from labor supply is linear, the optimal net nominal tax schedule is unchanged and the government expects households to supply more labor in order to secure their consumption expenditures. Quantitative analyses with convex disutility of labor supply reveal that, because of positive labor supply effects, keeping average tax rates constant suffices to optimally react to the asymmetric price shock. However, the poorest agents are expected to increase their labor supply the most. Thus, optimal income tax policy in response to asymmetric price changes does not prevent the disproportional decline in the indirect utility of poorer households.
    Keywords: pro-rich inflation, optimal income taxation
    JEL: H21 E31
    Date: 2020
  68. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Miguel Martin-Valmayor
    Abstract: This note examines the stochastic behaviour of US monthly 10-year government bond yields. Specifically, it estimates a fractional integration model suitable to capture both persistence and non-linearities, these being two important properties of interest rates. Two series are analysed, one from Bloomberg including end-of-the-month values over the period January 1962-August 2020, the other from the ECB reporting average monthly values over the period January 1900-August 2020. The estimation results indicate that both are highly persistent and exhibit non-linearities, the latter being more pronounced in the case of the ECB series.
    Keywords: long-term interest rates, government bond yields, fractional integration, persistence, non-linearities
    JEL: C22 E43
    Date: 2020
  69. By: Leo Kaas
    Abstract: Equilibrium models with heterogeneous agents and aggregate uncertainty are difficult to analyze since policy functions and market prices depend on the cross-sectional distribution over agents’ state variables which is generally a high-dimensional object. This paper develops and applies a general model framework in which this problem does not arise. If sufficiently many agents enter the economy in every aggregate state of the world, policy functions and prices depend only on the exogenous aggregate state but are independent of the distribution over idiosyncratic states. The first part of this paper proves existence results for such block-recursive equilibria and derives an ergodic property which is useful for their computation. The second part applies this equilibrium concept to models of firm dynamics with competitive or frictional input markets and to incomplete-market economies with endogenous asset market participation.
    Keywords: block-recursive equilibrium, dynamic general equilibrium, heterogeneous agents
    JEL: C62 D50 E32
    Date: 2020
  70. By: International Monetary Fund
    Abstract: The heterogeneity of the United States (U.S.) financial markets and complex regulatory and supervisory institutional setup in the United States underscore the importance of enhancing systemic risk oversight and building effective macroprudential tools. An effective framework would encompass identification and prioritization of system-wide risks and vulnerabilities to spur timely policy action. Structures that ensure interagency sharing of information, identify possible emerging regulatory gaps, obtain a good overview of systemic risks, and develop a cooperative framework to address identified threats to financial stability would be necessary components of such a framework. This Technical Note reviews those processes in the United States, as well as examining the issues of systemic liquidity.
    Keywords: Liquidity;Money markets;Financial sector stability;Financial sector risk;Systemic risk;ISCR,CR,discount window,repo market,fed funds rate,Fed need manage volatility,Fed's FX liquidity swap lines,FX liquidity provision protocol,liquidity support,support option
    Date: 2020–08–10
  71. By: Juan Esteban Carranza; Juan David Martin; Álvaro José Riascos
    Abstract: We calibrate a macroeconomic model with epidemiological restrictions using Colombian data. The key feature of our model is that a portion of the population is immune and cannot transmit the virus, which improves substantially the fit of the model to the observed contagion and economic activity data. The model implies that government restrictions and the endogenous changes in individual behavior saved around 15,000 lives and decreased consumption in 2020 by about 4.7%. The results suggest that most of this effect was the result of the government policies. **** Calibramos un modelo macroeconómico con restricciones epidemiológicas utilizando datos colombianos. La característica clave de nuestro modelo es que una parte de la población es inmune y no puede transmitir el virus, lo cual mejora sustancialmente el ajuste del modelo a los datos de contagio y actividad económica observados. El modelo implica que las restricciones gubernamentales y los cambios endógenos en el comportamiento individual salvaron alrededor de 15,000 vidas y redujeron el consumo en 2020 en aproximadamente un 4.7 %. Los resultados sugieren que la mayor parte de este efecto fue el resultado de las políticas gubernamentales.
    Keywords: Colombia, Epidemic, COVID-19, recessions, containment policies, SIR macro model, Colombia, epidemia, COVID-19, recesiones, políticas de confinamiento, Modelo macro SIR.
    JEL: E1 I1 H0
    Date: 2020–12
  72. By: Ruqayya Aljifri (Department of Economics, University of Reading)
    Abstract: This study investigates the existence of long-run relationship/s among the Saudi stock price index (TASI) and domestic macroeconomic variable of money supply (M2), the international variable of S&P 500 and global variable of oil prices, using quarterly data from 1988 quarter 1 to 2018 quarter 1. We also used local and global events dummy variables to control for the impact of local (the 2004 and 2005 TASI bubble that followed by the 2006 crash) and global (the 2008 financial crisis) events, making this paper the first study that takes into account the impact of the local and global financial crisis events when examining the relationship between TASI and macroeconomic variables. We applied the vector error correction model with dummy variables and variance decomposition for long-run analysis. We also applied the Indicator Saturation method to detect outliers and structural breaks. Findings show that there exists a long-run relationship between all of the variables in the system. The equilibrium relation between TASI and S&P 500 and oil prices is positive. However, the relationship between TASI and money supply is negative. Moreover, TASI is substantially driven by innovations in oil prices, and to a lesser extent, by money supply and S&P 500, respectively.
    Keywords: TASI, macroeconomic variables, the TASI bubble and the crash, the global financial crisis, VECM, cointegration test,Indicator Saturation,variance decompositions
    JEL: C22 E44
    Date: 2020–12–28
  73. By: Takahiro Hattori (Corresponding author. Project Assistant Professor, University of Tokyo and Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan); Motoki Katano (Visiting Scholar, Policy Research Institute, Ministry of Finance, Japan)
    Abstract: This is a pioneering study that investigates how fiscal news affects the yield of the Japanese Government Bond (JGB), by using intraday data. Since the Japanese government is the largest spender in the world, during the COVID-19 pandemic, this period provides the ideal situation or setting to test how fiscal news affects JGB yield. Taking advantage of the minute by minute data about fiscal news during this pandemic, we find that negative fiscal news significantly but temporarily increased JGB yield, although it is not a persistent effect. We also find that investors do care about negative news but not about the positive news. These results suggest that the JGB is considered a risk-free asset among investors, but the result also signals to the Japanese government to work on sound management of debt sustainability from a long-term perspective.
    Keywords: Budget Deficit, Japanese Government Bond, Interest Rate, Fiscal News, COVID-19
    JEL: E62 H62 H63
    Date: 2020–12
  74. By: International Monetary Fund
    Abstract: This paper focuses on Panama’s Request for Purchase Under the Rapid Financing Instrument. The coronavirus disease 2019 pandemic has disrupted Panama’s economy and created urgent balance of payments (BOP) and fiscal financing needs. The government has resolutely implemented measures to contain and mitigate the spread of the pandemic. However, significant uncertainties remain, and the economic fallout could intensify further if containment measures must be extended. The authorities stand ready to continue cooperating with the IMF in finding solutions to the balance of payments and fiscal imbalances. Measures have also been taken to maintain financial sector stability, including by allowing banks to use the accumulated dynamic provisioning to improve their liquidity position and absorb the impact of potential credit losses. The IMF emergency support under the Rapid Financing Instrument will help provide much needed resources to address BOP needs and support essential pandemic-related health expenditure. The support of other international financial institutions and development partners is crucial to close the remaining BOP and budgetary gaps, ease the adjustment burden, and preserve economic growth.
    Keywords: Public debt;Revenue administration;Expenditure;COVID-19 ;Current account;ISCR,CR,financing,Executive Board discussion,deficit,authorities project real GDP,authority,urgent balance of payments
    Date: 2020–05–01
  75. By: International Monetary Fund
    Abstract: This paper analyzes Dominican Republic’s Request for Purchase Under the Rapid Financing Instrument (RFI). The RFI provides timely resources to the authorities which they intend to mobilize for essential coronavirus disease 2019 (COVID-19)-related health expenditure and support to the vulnerable population. The pandemic has significantly weakened the Dominican Republic’s macroeconomic outlook for 2020 and created financing needs that require additional support. The authorities are also seeking support from other multilateral institutions. Macroeconomic and financial policies have been accommodative in response to the pandemic. The temporary fiscal measures to accommodate higher public healthcare spending and targeted transfers to the most vulnerable are appropriate. The IMF emergency assistance under the RFI is expected to help provide the much-needed resources to address the urgent balance of payments needs and support essential COVID-19-related health expenditure. The support of other international financial institutions and development partners would be crucial to close the remaining financing gaps, ease the adjustment burden, and preserve the Dominican Republic’s dynamic economic growth.
    Keywords: COVID-19 ;Public sector;Emergency assistance;Fiscal stance;Expenditure;ISCR,CR,financing,request,resource,financing gap
    Date: 2020–05–07
  76. By: ; Òscar Jordà; 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 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: 2020–12–08
  77. By: Badola, Shivani (National Institute of Public Finance and Policy); Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Unincorporated enterprises significantly contribute to India's GDP and generate large scale employment. Lack of access to formal credit often constrains enterprises to scale up. Understanding factors influencing access to formal credit of unincorporated enterprises is important which may help enterprises to improve performance and become credit worthy. For creditors, present analysis may help to broad base the criteria in selection and disbursement of credit to enterprises. The present paper explores the factors which influence access to formal credit of unincorporated enterprises across states in India. Results show that various operational and economic characteristics influence the access to formal credit. The analysis indicates that size of an enterprise (measured in terms of number of workers, total assets, etc.), gross value added, turnover, maintenance of written and bank account, years of operation, internet usage, female entrepreneur, registration under various acts/authorities, ownership type, enterprise type, type of activities (manufacturing, services or trading), enterprises facing problems, government assistance, state specific variables etc. are statistically significant factors.
    Keywords: Unincorporated enterprises ; outstanding loan liabilities ; access to formal credit ; informal credit ; Probit Model ; India
    JEL: E44 E51 G20 G21 L53
    Date: 2020–12
  78. By: International Monetary Fund
    Abstract: This paper discusses Islamic Republic of Afghanistan’s Request for Disbursement Under the Rapid Credit Facility. The disbursement will help meet the urgent fiscal and balance of payments needs stemming from the coronavirus disease 2019 pandemic, catalyze donor support, and shore up confidence. The pandemic is inflicting heavy damage on Afghanistan’s economy, which is expected to contract sharply in 2020, imperiling the livelihood of a significant segment of the population. The authorities are taking emergency measures to contain the pandemic and its immediate social and economic impact. Substantial donor financing is urgently needed to help Afghanistan cover these fiscal and external financing needs which could increase further if the pandemic and its economic impact intensify. Beyond the immediate response, the authorities are committed to safeguarding macroeconomic stability and promoting inclusive growth. The central bank continues to focus on price stability. The IMF stands ready to assist Afghanistan as it battles the pandemic and to support its economic reforms going forward.
    Keywords: Public debt;Currencies;Credit;Debt sustainability analysis;Budget planning and preparation;ISCR,CR,emergency financing request,financing,spending,pandemic
    Date: 2020–05–01
  79. By: International Monetary Fund
    Abstract: This paper states Costa Rica’s Request for Purchase Under the Rapid Financing Instrument (RFI). The coronavirus disease 2019 pandemic has severely impacted Costa Rica with its large exposure to trade, tourism, and foreign direct investment. The global economic slowdown and the necessary containment measures have impacted growth and fiscal accounts and created an urgent balance of payments need. The IMF’s emergency financing under the RFI is expected to help support urgently needed public health and social spending measures, while addressing the balance of payments need. It will also catalyze support from other multilateral agencies, which will be critical to addressing the remaining financing needs. The authorities have taken timely, well-targeted measures to mitigate the adverse effects of the pandemic. They introduced extensive containment measures, which have helped flatten the infection curve. In order to mitigate the economic and social impact of the crisis, they adopted a temporary moratorium on tax payments, social transfers to protect the most vulnerable, and monetary and regulatory measures to ease credit and liquidity conditions.
    Keywords: Public debt;Public sector;Fiscal consolidation;Fiscal policy;Fiscal stance;ISCR,CR,balance of payments gap,financing,expenditure measure,priority spending,disbursement
    Date: 2020–05–01
  80. By: World Bank
    Keywords: Finance and Financial Sector Development - Public & Municipal Finance Health, Nutrition and Population - Disease Control & Prevention Health, Nutrition and Population - Public Health Promotion Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Social Protections and Labor - Employment and Unemployment
    Date: 2020–04
  81. By: J. Tomas Hexner (President of Hex, Inc. Founder and Director, Science Initiative Group at the Institute for Advanced Study at Princeton, New Jersey); Arthur MacEwan (Professor Emeritus at the University of Massachusetts Boston)
    Abstract: This manuscript examines the condition of the Puerto Rican economy, arguing that poor economic performance is intimately connected to the island’s political status. The combination of uncertainty and dependence inherent in Puerto Rico’s status as a territory of the United States has undermined private sector actions and government policies that could generate long-term sustained economic growth. In terms of economic progress, statehood could provide the most favorable option. The argument is developed by an examination of the economy over the past several decades and then by a focus on the long recession that emerged early in the 21st century. Attention is given to the set of myths that have been used to justify poor government policies in Puerto Rico, particularly the myth that tax incentives and an emphasis on manufacturing have provided and can provide in the future a basis for progress. The buildup of Puerto Rico’s public debt is examined, and a critique is undertaken of the resulting takeover of Puerto Rico’s financial affairs by the Financial Oversight and Management Board appointed by the federal government. Consideration is also given to the implications of Puerto Rico’s dependence in terms of poverty, economic inequality, and out-migration. Finally, the manuscript presents actions that could revive the island’s economy, giving emphasis to a major program of public infrastructure investment, obtaining reasonable support from the federal government, and reforms affecting the regulatory system, education, and tax collection.
    Keywords: Puerto Rico status, dependence, Puerto Rico debt, level playing field, emigration, Hurricane Maria, Puerto Rican statehood, poverty, inequality, austerity. Financial Oversight and Management Board
    JEL: E62 E63 F34 O1 O2 O23 O24 O54
    Date: 2021–01–01
  82. By: World Bank Group
    Keywords: Public Sector Development - Public Sector Economics Public Sector Development - Public Financial Management Macroeconomics and Economic Growth - Economic Conditions and Volatility Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy
    Date: 2020–04
  83. By: International Monetary Fund
    Abstract: This paper highlights Djibouti’s Requests for Disbursement Under the Rapid Credit Facility and Debt Relief Under the Catastrophe Containment and Relief Trust. The coronavirus disease 2019 pandemic is having a severe impact on Djibouti, creating urgent balance of payments and fiscal financing needs. The authorities acted swiftly to contain and mitigate the spread and impact of the virus. Their prevention and containment measures and decisions to scale-up health and other emergency spending to protect households and firms hit by the crisis will help limit economic and social consequences. IMF support is expected to provide additional resources for the essential health and other emergency spending, including social safety nets. It will also help catalyze additional donor support. Once the crisis abates, temporary measures should be unwound, with policies refocusing on promoting a strong and inclusive recovery and preserving medium-term debt sustainability. It will be critical to address and prevent the recurrence of external arrears, ramp up operations of key projects, and reduce public sector borrowing.
    Keywords: Debt service;Public debt;Balance of payments need;Debt sustainability;External debt;ISCR,CR,financing,balance of payments financing need,central bank,emergency financing request,IMF support
    Date: 2020–05–12
  84. By: International Monetary Fund
    Abstract: Egypt’s hard-won macroeconomic stability achieved during the three-year arrangement under the Extended Fund Facility (EFF) now faces a significant disruption due to the COVID-19 pandemic. Growth is expected to slow in both FY2019/20 and FY2020/21 as tourism has been halted and domestic activity curtailed. The external accounts have come under pressure due to capital outflows and the shock to tourism and remittances. The authorities responded with a broad package to scale up the health system’s capacity and policies to support the people and the economy.
    Keywords: External debt;Public debt;Debt service;Credit;Budget planning and preparation;ISCR,CR,staff's appraisal,safeguards assessment of the Central Bank of Egypt,draft bill,update to the safeguards assessment,government priority
    Date: 2020–08–10
  85. By: International Monetary Fund
    Abstract: This paper discusses Requests for Disbursement Under the Rapid Credit Facility (RCF) and Rephasing of Access Under the Extended Credit Facility (ECF) Arrangement. The coronavirus disease 2019 (COVID-19) shock hit the economy hard amid an already challenging social and security situation. The decline in economic activity, spillovers from global trade and financing shocks, along with fiscal measures to combat the crisis have created an urgent balance-of-payments and fiscal financing needs. The authorities have responded quickly to the pandemic with containment measures, stepped up healthcare response, and emergency measures to support households and business affected by the outbreak. The regional central bank responded with measures to support liquidity in the banking system. Given the urgent balance of payment need caused by the COVID-19 pandemic and the infeasibility of completing a review under the ECF arrangement, staff supports these requests and welcomes commitments to safeguard transparency and accountability in the use of emergency funds. The RCF is expected to cover about 40 percent of the financing gap in 2020 and is expected to play a catalytic role. The authorities are actively engaged with other donors, including the World Bank, to cover the remaining financing needs.
    Keywords: Public debt;Stress testing;Credit;Debt service;Revenue administration;ISCR,CR,financing,emergency financing request,financing needs
    Date: 2020–05–08
  86. By: Grzegorz Poniatowski; Adam Åšmietanka; Mikhail Bonch-Osmolovskiy
    Abstract: This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported. In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
    Keywords: consumption taxation, VAT, tax fraud, tax evasion, tax avoidance, tax gap, tax non-compliance, policy gap
    JEL: H24 H26
    Date: 2020
  87. By: Christopher Loewald; David Faulkner; Konstantin Makrelov
    Abstract: he numerous diagnostic studies and policy recommendations that exist for South Africa typically focus on microeconomic constraints to growth. Higher potential growth certainly requires structural reforms to boost productivity growth, in particular to allow private competition and investment in network sectors. But these reforms and others will also be more effective if macroeconomic policy facilitates the relative price adjustments and consequential factor allocations needed to achieve higher productivity. Sustained and large fiscal deficits, higher debt, and relatively high inflation all impede those price and factor adjustments. Looking back to the global financial crisis, different policy settings in fiscal, monetary and macroprudential policies, backed by structural reforms, could have supported higher growth outcomes and provided the fiscal space to respond to the current COVID-19 crisis more effectively.
    Date: 2020–11–27
  88. By: Singh, Gaurav Kumar
    Abstract: Inflation expectations data are commonly used to address a number of important questions primarily related to the inflation expectations formation. This work presents such an empirical analysis of Reserve Bank of India’s (RBI) inflation expectations data for Indian urban population. First, we apply a battery of tests for verifying the assumptions of rationality of household expectations. The tests lead to the outright rejection of the assumptions. On the other hand, the inflation forecasts by professional forecasters seem to support the rational expectations assumptions. Second, considering a regression model we find that the inflation forecasts by the professionals forecast the actual inflation better than what could be predicted by the recently available actual inflation data. Finally, using a sticky information model (Mankiw Reis (2001, 2002), Carroll (2003)) we also find the support for Carroll’s contention that relevant macroeconomic information about future inflation flows from experts to the households, not vice versa. Additionally, if the sticky inflation model describes the household inflation expectations formation, it is natural to expect that more news about inflation in the news channels would lead to the reduction of disagreement. Our empirical analysis using Google trend data supports this hypothesis.
    Date: 2020–12–14
  89. By: Nicola Viegi; Vincent Dadam
    Abstract: This paper estimates a New Keynesian Wage Phillips Curve for South Africa to investigate the responsiveness of nominal wages to labour market conditions. The estimation is based on a model with staggered nominal wages setting, where all variations in hired labour input is taking place at the extensive margin. First, we estimate the model using aggregate data from 1971 to 2013. Aggregate estimation results show that private sector nominal wages are not very responsive to employment conditions, while they also reveal a certain sensitivity to inflation and quite a good correlation with inflation expectations. On the other hand, the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample. However, it becomes quantitatively weak for the inflation targeting period. In that period, trade unions inflation expectations are instead strongly correlated with nominal wage inflation. In the second part of the paper, we assess the response of nominal wages to employment, labour productivity and output prices, given the reservation wage, using a panel of nine industrial sectors over the period 1970-2013. The findings confirm that nominal wage inflation has consistently outpaced the growth in productivity, even after correcting for price inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction term in the wage equation for South Africa. The overall picture that comes out from the analysis is that of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.
    Date: 2020–12–03
  90. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is having a severe impact on Eswatini’s economy at a time when the country is already facing deep economic challenges, and the government has begun fiscal consolidation efforts. A national lockdown to contain the spread of the virus, disruptions in supply chains, and lower external demand for key exports are curtailing economic activity. While the authorities’ policy response has been timely and proactive, the economic shock and containment policies are triggering a severe recession with significant social costs, and have created urgent balance of payments needs. The pandemic is unfolding in a context of high prevalence of HIV/AIDS and a stretched health care system, which increase Eswatini’s vulnerability.
    Keywords: Public debt;Fiscal consolidation;Public financial management (PFM);Financial account;Banking;ISCR,CR,financing,IMF emergency financial support,emergency financing request,authority,COVID-19 Pandemic
    Date: 2020–07–30
  91. By: Ivailo Izvorski; Appolenia Mbowe; Bakyt Dubashov; Katharina Gassner; Michael J. Ferrantino; Roumeen Islam; Tarik Sahovic
    Keywords: Energy - Energy Policies & Economics International Economics and Trade - Export Competitiveness Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Private Sector Development - Enterprise Development & Reform
    Date: 2020–03
  92. By: Ferrari, Alessandro; Landi, Valerio Nispi
    Abstract: We study the effects of a temporary Green QE, defined as a policy that temporarily tilts the central bank’s balance sheet toward green bonds, i.e. bonds issued by firms in non-polluting sectors. To this purpose, we merge a standard DSGE framework with an environmental model. In our model, detrimental emissions produced by the brown sector increase the stock of pollution. We find that the imperfect substitutability between green and brown bonds is a necessary condition for the effectiveness of Green QE. Under the assumption of imperfect substitutability, we point out the following results. A temporary Green QE is an effective tool in mitigating detrimental emissions. However, Green QE has limited effects in reducing the stock of pollution, if pollutants are slow-moving variables such as atmospheric carbon. The welfare gains of Green QE are positive but small. Welfare gains increase if the flow of emissions negatively affects also the utility of households. JEL Classification: E52, E58, Q54
    Keywords: central bank, climate change, monetary policy, quantitative easing
    Date: 2020–12
  93. 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 - Economic Conditions and Volatility Macroeconomics and Economic Growth - Taxation & Subsidies Social Protections and Labor - Employment and Unemployment Social Protections and Labor - Labor Policies
    Date: 2020–03
  94. By: Frank Bohn (Radboud University); Francisco José Veiga (Universidade do Minho and NIPE)
    Abstract: By forecasting overly optimistic revenues opportunistic governments can increase spending in order to appear more competent prior to elections. Ex post deficits emerge in election years, thereby producing political forecast cycles - as also found for US states in the empirical literature. In our theoretical moral hazard model we obtain three additional results which are tested with panel data for Portuguese municipalities. The extent of manipulations is reduced when (i) the winning margin is expected to widen; (ii) the incumbent is not re-running; and/or (iii) the share of informed voters (proxied by education) goes up.
    Keywords: opportunistic political cycles; political budget cycles; revenue forecasts; deficit; transfers; asymmetric information; political economy.
    JEL: D72 H68 E32
    Date: 2019–06
  95. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Arthur Poirier (GAINS, University of Le Mans); Anthony Terriau (GAINS, University of Le Mans)
    Abstract: As a complement to the federal EITC, some states offer their own EITC, typically calculated as a percentage of the federal EITC. In this paper, we analyze the effect of state EITC on education using policy discontinuities at U.S. state borders. Our estimates reveal that an increase in state EITC leads to a statistically significant drop in high school completion. We then use a life-cycle matching model with directed search and endogenous educational choices, search intensities, hirings, hours worked, and separations to investigate the effects of EITC on the labor market in the long run and along the transitional dynamics. We show that a tax credit targeted at low-wage (and low-skilled) workers reduces the relative return to schooling, thereby generating a powerful disincentive to pursue long-term studies. In the long run, this results in an increase in the proportion of low-skilled workers in the economy, which may have important implications in terms of employment, productivity, and income inequalities.
    Keywords: EITC, Education, Human capital, Search and matching, Life cycle
    JEL: D15 E24 H24 I24 J24 J6
    Date: 2020
  96. By: International Monetary Fund
    Abstract: This paper highlights The Gambia’s Requests for Disbursement Under the Rapid Credit Facility and Modification of Performance Criteria Under the Extended Credit Facility Arrangement. The Gambia has also benefited from the IMF Executive Board decision of April 13, 2020 to provide debt service relief to all countries eligible for support from the International Development Association in the form of grant assistance under the Catastrophe Containment window of the Catastrophe Containment and Relief Trust. The authorities’ support for social programs is being severely tested. In this context, a better targeting and timely delivery of social assistance to the most affected households and sectors is needed during the pandemic. The Central Bank of The Gambia should continue to monitor developments in the financial sector, to ensure adequate liquidity and oversight, while avoiding a blanket weakening of supervisory standards. A strengthening of market surveillance under the existing regulations will help detect and address appropriately any weakening of banks’ foreign exchange positions. Maintaining a flexible exchange rate will help absorb balance-of-payments shocks.
    Keywords: COVID-19 ;Public debt;Debt service;External debt;International reserves;ISCR,CR,financing,RCF disbursement,ECF arrangement,Executive Board discussion
    Date: 2020–04–23
  97. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The distinction between product innovations and process innovations is crucial for industrialized countries as well as for newly industrialized countries - and only a distinct consideration of product innovations in macroeconomic modeling allows to fully understand Schumpeterian innovation dynamics and their national and international impact. With this focus, initially a simple microeconomic modelling of product versus process innovation is considered in a setting with both inward and outward foreign direct investment, largely following the Bertschek approach. Results from the European Union's Community Innovation Survey are considered as well as relative export unit values - relative to the US EUV - which are a proxy for product innovations in the tradables sector. Regression results show that inward FDI raise both product innovations and process innovations in the EU. The key aspects of both process innovations and product innovations are then considered in an open economy macro model which brings many new insights, including a much better understanding of the links between innovation dynamics, the current account, FDI, the real exchange rate, output and inflation. Product innovations have a different impact on the real exchange rate than process innovations and a dynamic view of the Vernon product cycle is required for an adequate analysis. As regards the demand for money, product innovations affect this demand in a different way to process innovations. Optimal product innovations are also considered. Innovations in Schumpeterian macroeconomics thus gets crucial new perspectives.
    Keywords: Innovation, product innovation, foreign direct investment, macro modeling, US, EU
    JEL: C6 F21 O30 O31
    Date: 2020–12
  98. By: Fernando E. Alvarez; David O. Argente
    Abstract: We estimate the private benefits for Uber riders from using alternative payment methods. We focus on Mexico where riders have the option to use cash or credit cards to pay for rides. We use three field experiments involving approximately 400,000 riders to estimate the loss of private benefits for riders if a ban on cash payments is implemented. We find that Uber riders, using cash as means of payment either sometimes or exclusively, suffer an average loss of approximately 50% of their expenditures on trips paid in cash before the ban.
    JEL: E4 E5
    Date: 2020–11
  99. By: WASHIMI Kazuaki (Bank of Japan)
    Abstract: Japanese firms have faced the need to adapt to globalization, digitalization, and post-COVID-19 economic structural changes against the headwind of a declining population. Japanese firms have reduced liabilities and raised their capital adequacy ratios since the late 1990s. While this has strengthened their resiliency against crises, it remains open to question whether they have made effective use of capital for business reforms. Meanwhile, business succession has been a crucial challenge for many firms as the aging of CEOs progresses remarkably, leading to the possibility that corporate restructuring could take place at a wider level. Against this backdrop, the role of finance with ideas and commitment for business reforms is becoming increasingly important. This paper focuses on the prospects of private equity funds (PE funds) as a vehicle to provide such a function. The history of Japan's PE market is short relative to Europe and the U.S., and track records of deals are rarely available. Therefore, empirical analyses on the impact of corporate restructuring via PE funds have been extremely limited. That said, the empirical analysis in this paper together with a very recent study indicate that corporate restructuring by PE funds is expected to increase the value added per worker by increasing sales without reducing the number of workers on average-albeit those studies have had limited sample sizes. While care should be taken in interpreting those studies as the results could vary across firms, this might reflect the fact that investments by PE funds have increased added value by not only reducing costs but also improving the businesses of the investment targets. Expanding these investments could lead to improved productivity in the Japanese economy. In doing so, the following is required: (1) raising awareness of the economic benefits by PE funds and accumulating data and analyses; (2) expanding investments in PE funds by institutional investors; and (3) maintaining and developing professional human resources in business restructuring.
    Keywords: Private Equity; Corporate Finance and Governance; Synthetic Control
    JEL: D22 E22 G3
    Date: 2020–12–11
  100. By: Makoto Nirei (Professor, Graduate School of Economics, University of Tokyo (E-mail:; Nao Sudo (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail:
    Abstract: Stay-at-home (SAH) policy is the most commonly used measure employed around the globe to contain the spreading of Covid-19. While its effectiveness is widely agreed, it comes with a cost of dampening market activities. In this paper, we study theoretically how a SAH policy in one market sector can affect other market sectors, shedding light on the roles of home production and the division of labor across members within a household. We develop a multi-sector general equilibrium model that incorporates multiple types of households consisting of two members, each of whom works differently in the market and at home. We show that the spillover effect arises from the interaction of which market goods are subject to the SAH policy, the degree of luxuriousness of the goods, and the working status of household members. First, spillover effects take place only when the SAH policy is imposed on necessities. Households that consider the good as a necessity allocate a large portion of time to home goods production, causing a reduction of their market labor inputs. Second, the spillover effects on workers are attenuated when their spouse is a homemaker or works for a sector producing goods that have a higher degree of luxuriousness. We also calibrate the model to Japan's data, identifying the size of subsistence points and spousal working status, to study the consequences of a hypothetical scenario in which a SAH policy is imposed on the education sector and discuss the roles of the degree of luxuriousness of goods and the spousal working status.
    Keywords: Stay-at-home policies, Home production, Stone-Geary Preference, Sectoral spillover
    JEL: E20 J11
    Date: 2020–12
  101. By: Andrea Guido (Institute for Futures Studies; LABSS - CNR); Alejandro Martinez-Marquina (Stanford University); Ryan Rholes (Texas A&M University)
    Abstract: Decades of research suggests that other-regarding preferences explain deviations from the self-interested behavior predicted by standard theory. However, the vast majority of this evidence considers strategic interactions when agents are fully informed and economic conditions are stable. We relax both of these conditions by expanding the widely used gift-exchange game to include permanent endowment shocks and information frictions. Varying information conditions reveals that a large fraction of the behavior previously attributed to fairness and reciprocity is actually driven by self-interest motives and intentions-based concerns. Counter-intuitively, we find that information frictions do not always benefit the more informed party.
    Keywords: fairness, expectations, beliefs, information, wage rigidity, labor market, business cycle, wages
    JEL: J2 J3 E32
    Date: 2020–12
  102. By: Daniel J. Lewis; Karel Mertens; James H. Stock; Mihir Trivedi
    Abstract: This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the onset of and policy response to the novel coronavirus in the United States. The WEI, with its ten component series, tracks the overall economy. Comparing the contributions of the WEI’s components in the 2008 and 2020 recessions reveals differences in how the two events played out at a high frequency. During the 2020 collapse and recovery, it provides a benchmark to interpret similarities and differences of novel indicators with shorter samples and/or nonstationary coverage, such as mobility indexes or credit card spending.
    Keywords: weekly economic index; high frequency; measurement of economic activity; forecasting
    JEL: E01 E66 C51
    Date: 2020–12–01
  103. By: International Monetary Fund
    Abstract: Georgia’s public sector balance sheet (PSBS) is in relatively healthy shape, with assets exceeding liabilities, and is comparatively lean. Looking across all entities that the government controls, including the central government, local governments, the State-Owned Enterprise (SOE) sector and the National Bank of Georgia (NBG), total assets are worth 149 percent of GDP, made up of cash, loans, infrastructure, land and productive SOE assets. Liabilities are worth 81 percent of GDP, primarily comprising loans and debt of the government and SOEs. This leaves positive net worth of 68 percent of GDP, putting it in the top third of countries in the IMF’s database.
    Keywords: Financial statements;Accounting standards;Public sector;Fiscal accounting and reporting;Fiscal risks;ISCR,CR,foreign exchange,accounts receivable,asset write-down,chief financial officer,cross holdings,return on equity
    Date: 2020–07–23
  104. By: Oscar Avila-Montealegre; Carter Mix
    Abstract: A large empirical literature has shown that countries that trade more with each other have more correlated business cycles. We show that previous estimates of this relationship are biased upward because they ignore common trade exposure to other countries. When we account for common trade exposure to foreign business cycles, we find that (1) the effect of bilateral trade on business cycle comovement falls by roughly 25 percent and (2) common exposure is a significant driver of business cycle comovement. A standard international real business cycle model is qualitatively consistent with these facts but fails to reproduce their magnitudes. Past studies have used models that allow for productivity shock transmission through trade to strengthen the relationship between trade and comovement. We find that productivity shock transmission increases business cycle comovement largely because of a country-pair's common trade exposure to other countries rather than because of bilateral trade. When we allow for stronger transmission between small open economies than other country-pairs, comovement increases both from bilateral trade and common exposure, similar to the data. **** La literatura empírica ha mostrado que países que comercian más entre ellos tienen ciclos económicos más correlacionados. En este artículo mostramos que las estimaciones previas de la relación comercio-sincronización están sesgados al alza pues ignoran el hecho de que los países están expuestos a socios comerciales comunes. Cuando incluímos el efecto de la exposición comercial común a ciclos comerciales externos, encontramos que 1) el efecto del comercio bilateral se reduce cerca del 25 % y 2) la exposición común es un factor importante para la sincronización de ciclos económicos. Un modelo estándar de ciclos económicos reales es cuantitativamente consistente con estas relaciones pero falla al momento de reproducir sus magnitudes. Encontramos que la transmisión de choques de productividad aumenta la sincronización del ciclo económico principalmente a través de la exposición comercial común de los países, más allá del comercio bilateral. Cuando permitimos una mayor transmisión de productividad entre economías pequeñas, la sincronización aumenta tanto por comercio bilareral como por exposición común, consistente con la evidencia empírica.
    Keywords: trade, business cycles, open economy macroeconomics, Comercio internacional, ciclos económicos, macroeconomía abierta
    JEL: F1 E32 F41 F44
    Date: 2020–12
  105. By: International Monetary Fund
    Abstract: Norwegian banks and other financial institutions rely heavily on capital markets for liquidity and risk management. Liquidity conditions in the Norwegian financial sector are affected by central bank operations and the lending and funding activities of financial institutions, both domestically and abroad. Nearly 40 percent of the funding of Norwegian banks is obtained from market sources, using commercial paper, covered bonds, and senior unsecured bonds issued both domestically and abroad. Correspondingly, money markets, foreign exchange (FX) swap markets and bond markets are crucial to the credit intermediation process and a dislocation in these markets—the inability of financial institutions to roll over, or obtain new, funding—could have significant consequences for financial stability. Against this background, this note analyzes core funding markets for Norwegian banks and assesses Norges Bank’s capacity to manage systemic liquidity conditions and counteract liquidity shocks in normal times and in times of stress.
    Keywords: Banking;Liquidity;Covered bonds;Currency swaps;Sovereign bonds;ISCR,CR,spot market,commercial paper,cross holdings,FX swap market,liquidity support
    Date: 2020–08–12
  106. By: Oustry Antoine; Erkan Bunyamin; Svartzman Romain; Weber Pierre-François
    Abstract: Central banks increasingly acknowledge that climate change is a source of financial risks, which is likely to also impact their conduct of monetary policy. Against this backdrop, the aim of this paper is to explore one potential approach to factoring climate-related transition risks into a central bank’s collateral framework. Given the radical uncertainty associated with measuring such risks, this approach relies on so-called climate “alignment” methodologies, which enable to assess the consistency of eligible and pledged marketable assets with specific climate targets. Moreover, this paper proposes a “climate-hedging portfolio approach”: instead of seeking to “align” the collateral on an asset-by-asset basis, central banks could aim for “alignment”, in aggregate, of the collateral pools pledged by their counterparties with a given climate target. The rationale for this choice is that assessing climate-related risk at the pool level avoids the Eurosystem having to decide on which assets/issuers in the pools should be excluded or capped, and is therefore more compatible with a market neutrality approach. The numerical experiment using Eurosystem marketable criteria data suggests that, in aggregate, neither the Eurosystem eligible collateral universe nor the collateral pledged is “aligned” with the climate targets of the European Union. From this perspective, the Eurosystem marketable collateral can be considered to be exposed to climate-related transition risks. We discuss the potential practical implications of aiming to “align” collateral pools, and suggest avenues for further work.
    Keywords: Monetary policy, Collateral framework, Climate change, Risk and uncertainty, Eurosystem.
    JEL: D81 E52 E58 G32 Q51 Q54
    Date: 2020
  107. By: Omar Zulaica
    Abstract: Almost five decades after the collapse of the Bretton Woods system, gold continues to form an important share of global foreign exchange reserves. This may be because gold has traditionally offered reserve managers many benefits, such as the absence of default risk. This paper explores whether these large investment shares in gold are also justified from a risk-return standpoint, or whether any other explanations have to be brought to bear. To do this, we go beyond the simple application of portfolio optimisation techniques, comprehensively analysing all possible long-only combinations of gold and representative fixed income reserve portfolios. We conclude that the market risk associated with gold is substantial when evaluated against a broad range of criteria, such as mitigating portfolio volatility, tail-risk, the probability of loss, and measures of diversification. This will tend to limit overall allocations. Nonetheless, for portfolios with higher sensitivity to interest rates (duration) and for reserve managers who measure their returns in a non-reserve currency, we find evidence that gold may function as a hedge, making it easier to justify sizeable gold holdings from a purely quantitative perspective.
    JEL: E58 F31 G11 G17
    Date: 2020–11
  108. By: Kilian, Lutz; Zhou, Xiaoqing
    Abstract: There has been much interest in the relationship between the price of crude oil, the value of the U.S. dollar, and the U.S. interest rate since the 1980s. For example, the sustained surge in the real price of oil in the 2000s is often attributed to the declining real value of the U.S. dollar as well as low U.S. real interest rates, along with a surge in global real economic activity. Quantifying these effects one at a time is difficult not only because of the close relationship between the interest rate and the exchange rate, but also because demand and supply shocks in the oil market in turn may affect the real value of the dollar and real interest rates. We propose a novel identification strategy for disentangling the causal effects of traditional oil demand and oil supply shocks from the effects of exogenous variation in the U.S. real interest rate and in the real value of the U.S. dollar. Our approach exploits a combination of sign and zero restrictions and narrative restrictions motivated by economic theory and extraneous evidence. We empirically evaluate popular views about the role of exogenous real exchange rate shocks in driving the real price of oil, and we examine the extent to which shocks in the global oil market drive the U.S. real exchange rate and U.S. real interest rates. Our evidence for the first time provides direct empirical support for theoretical models of the link between these variables.
    Keywords: exchange rate,market rate of interest,oil price,global real activity,commodity
    JEL: E43 F31 F41 Q43
    Date: 2020
  109. By: International Monetary Fund
    Abstract: This paper presents Nepal’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 pandemic is having a severe impact on Nepal’s economy. During recent months, remittances have fallen considerably, tourist arrivals collapsed, and domestic activity has taken a hit amid social distancing measures. The authorities are taking proactive, well-targeted measures to address the human and economic impact of the pandemic, while preserving macroeconomic stability. Such measures include increasing health spending, strengthening social assistance to protect the most vulnerable, and providing bank liquidity and credit support. Additional assistance from development partners, beyond what had already been committed before the outbreak of the pandemic, is needed to close the remaining balance of payments gap and ease the fiscal situation. The authorities’ commitment to high standards of transparency and governance in the management of financial assistance is welcome. The IMF staff assesses that Nepal meets the RCF eligibility requirements and supports the request. Public debt is at low risk of distress and there is adequate capacity to repay the Fund. The IMF disbursement is expected to play a catalytic role in securing additional financing from Nepal’s development partners.
    Keywords: COVID-19 ;Credit;Public debt;External debt;Debt sustainability analysis;ISCR,CR,financing,financial support,IMF financial support
    Date: 2020–05–11
  110. By: International Monetary Fund
    Abstract: This paper discusses Sierra Leone’s 2019 Article IV Consultation, Second Review Under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance of Performance Criterion. Sierra Leone continued to make good progress under the IMF-supported program. While the program’s medium-term goals remain appropriate to enable future growth and development, the dramatic onset of the global coronavirus disease 2019 pandemic poses significant near-term risks. Combating the economic fallout of the crisis and protecting the health of Sierra Leoneans should be the immediate priority. The authorities’ cautious fiscal policy has been important. They have made commendable progress in mobilizing domestic revenue and prudent execution of budgeted expenditures. This has stabilized domestic borrowing needs and allowed inflation pressures to ease. Managing fiscal risks and securing debt sustainability remain the medium-term priority. Continued revenue mobilization will require both tax administration and policy reforms. Deeper public financial management reforms will further improve budget planning and execution, including preventing new arrears. A strategic plan for the two state-owned banks will be instrumental in addressing underlying fiscal risks.
    Keywords: Arrears;Public debt;External debt;Expenditure;Revenue administration;ISCR,CR,staff appraisal,ECF arrangement,authority,Sierra Leonean authorities,ECF review schedule
    Date: 2020–04–17
  111. By: International Monetary Fund
    Abstract: This paper presents Nigeria’s Request for Purchase Under the Rapid Financing Instrument (RFI). The authorities’ immediate actions to respond to the crisis are welcome. The short-term focus on fiscal accommodation would allow for higher health spending and help alleviate the impact of the crisis on households and businesses. Steps taken toward a more unified and flexible exchange rate are also important and unification of the exchange rate should be expedited. Once the coronavirus disease 2019 crisis passes, the focus should remain on medium-term macroeconomic stability, with revenue-based fiscal consolidation essential to keep Nigeria’s debt sustainable and create fiscal space for priority spending. Implementation of the reform priorities under the Economic Recovery and Growth Plan, particularly on power and governance, remains crucial to boost growth over the medium term. The emergency financing under the RFI will provide much needed liquidity support to respond to the urgent balance of payments needs. Additional assistance from development partners will be required to support the government’s efforts and close the large financing gap.
    Keywords: COVID-19 ;Oil prices;Banking;Public debt;Exchange rates;ISCR,CR,financing,emergency financing request,IMF financial support,central bank financing,shock pass
    Date: 2020–04–29
  112. By: International Monetary Fund
    Abstract: This paper discusses Colombia’s Request for an Arrangement Under the Flexible Credit Line (FCL) and Cancellation of the Current Arrangement. Colombia has 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—that have served as a basis for the economy’s resilience prior to the coronavirus disease 2019 pandemic. During this time, Colombia has made remarkable efforts to integrate a substantial number of migrants from Venezuela that boosted domestic demand but widened external vulnerabilities. The new arrangement under the FCL is expected to help Colombia manage heightened external risks, protect ongoing efforts to effectively respond to the pandemic, integrate migrants, foster inclusive growth, and reduce external vulnerabilities. Despite higher external vulnerabilities, risks, and stress, the new arrangement can be maintained at the same access level because the authorities have built higher external buffers by accumulating significant additional reserves since the 2018 FCL request. The arrangement should boost market confidence, and combined with the comfortable level of international reserves, provide insurance against downside risks.
    Keywords: External debt;Public debt;Oil prices;Credit;Current account deficits;ISCR,CR,Colombia,Colombia's vulnerability,Colombia manage,SDR
    Date: 2020–05–04
  113. By: International Monetary Fund
    Abstract: This paper presents Union of the Comoros’ Request for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument. The Comoros’ authorities should use fiscal policy to cushion the adverse effects of the coronavirus disease 2019 shock and bring the fiscal position back in line with medium-term paths once the crisis has passed. In addition to expanding very substantially healthcare spending to meet the population’s pandemic-related needs, the authorities should consider giving targeted and temporary support to the most vulnerable. Monetary policy should focus on maintaining the exchange rate peg. At the same time, the authorities should use all tools at their disposal to safeguard the stability of the banking system, including by providing liquidity to banks facing liquidity pressures and addressing loan servicing difficulties. Beyond implementing their pandemic preparedness plan and strengthening the health care system’s ability to respond to pandemic needs, the authorities are considering delaying deadlines for tax filings and temporarily lowering customs duties for certain imports. They will monitor inflation developments and maintain the exchange rate peg to the euro. The authorities will also do all they can to ease liquidity strains in the banking system. They are also are working with banks to enable targeted loan maturity extensions.
    Keywords: Banking;Debt service;External debt;Current spending;Arrears;ISCR,CR,Comoros' financing,remittances inflow,financing,pandemic,financial support,RFI financing
    Date: 2020–05–07
  114. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that driven by popular frustration with high levels of corruption and inequality, Haiti has been experiencing a protracted political crisis and prolonged civil unrest. The baseline scenario assumes some stabilization in the political situation by early 2020 but no major political or economic reforms. This would allow growth to recover only gradually and in the absence of sustained implementation of good policies and structural reforms, potential growth would remain low at about 1.4 percent over the medium term. Downside risks, both domestic and external, remain elevated. A prolongation of political instability, extreme natural disaster, drop in remittances, and/or a contraction in exports because of trade tensions would worsen the outlook, particularly given the absence of buffers and fragile social conditions. The challenge is to stabilize the macroeconomic situation in an unstable political context. The IMF Staff encourages the authorities to continue their efforts to contain the fiscal deficit and its monetary financing by the central bank. Improving domestic revenue collection and redirecting current spending would help create space for much needed social and capital expenditures. Together with steps to strengthen the central bank’s autonomy and legal framework, this would help reduce fiscal dominance.
    Keywords: Public debt;External debt;Energy sector;Banking;Arrears;ISCR,CR,staff appraisal,Moïse,deterioration in food security,U.S. dollar,article IV discussion
    Date: 2020–04–20
  115. By: Roberto Casarin (University Ca' Foscari of Venice, Italy); Stefano Grassi (University of Rome Tor Vergata, Italy); Francesco Ravazzolo (Free University of Bozen-Bolzano, Italy; BI Norwegian Business School, Norway; Rimini Centre for Economic Analysis); Herman K. van Dijk (Econometric Institute, Erasmus University Rotterdam, The Netherlands; Norges Bank, Norway; Tinbergen Institute, The Netherlands; Rimini Centre for Economic Analysis)
    Abstract: A Bayesian dynamic compositional model is introduced that can deal with combining a large set of predictive densities. It extends the mixture of experts and the smoothly mixing regression models by allowing for combination weight dependence across models and time. A compositional model with Logistic-normal noise is specified for the latent weight dynamics and the class-preserving property of the logistic-normal is used to reduce the dimension of the latent space and to build a compositional factor model. The projection used in the dimensionality reduction is based on a dynamic clustering process which partitions the large set of predictive densities into a smaller number of subsets. We exploit the state space form of the model to provide an efficient inference procedure based on Particle MCMC. The approach is applied to track the Standard & Poor 500 index combining 3712 predictive densities, based on 1856 US individual stocks, clustered in relatively small number of model sets. For the period 2007-2009, which included the financial crisis, substantial predictive gains are obtained, in particular, in the tails using Value-at-Risk. Similar predictive gains are obtained for the US Treasury Bill yield using a large set of macroeconomic variables. Evidence obtained on model set incompleteness and dynamic patterns in the financial clusters provide valuable signals for improved modelling and more effective economic and financial decisions.
    Keywords: Density Combination, Large Set of Predictive Densities, Compositional Factor Models, Nonlinear State Space, Bayesian Inference
    JEL: C11 C15 C53 E37
    Date: 2020–12
  116. By: World Bank
    Keywords: Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Achieving Shared Growth Poverty Reduction - Inequality Poverty Reduction - Poverty Reduction Strategies
    Date: 2020–03
  117. By: International Monetary Fund
    Abstract: This paper discusses Côte d’Ivoire’s Requests for Disbursement Under the Rapid Credit Facility (RCF) and Purchase Under the Rapid Financing Instrument (RFI). The government’s response to the pandemic has been swift, with strong social distancing and containment measures and an emergency health plan supported by the World Health Organization. The coronavirus disease 2019 pandemic is expected to have a considerable negative impact on Côte d’Ivoire’s economy, creating fiscal pressures and an urgent balance of payments need. The authorities swiftly adopted strong containment measures which, while necessary, will also weigh on economic activity. In view of the severity of the pandemic, the envisaged temporary widening of the fiscal deficit is appropriate, even if this means temporarily breaching the 3 percent regional convergence criterion. Given the substantial downside risks, additional spending reallocations would be needed if tax revenue were to underperform compared to the current projection. The IMF emergency support under the RCF and RFI is expected to help the authorities address the urgent fiscal and balance of payments financing needs. It will also help catalyze additional financing from other development partners. Additional donor support is critical to close the remaining financing gap and preserve Côte d’Ivoire’s substantial development gains over the past decade.
    Keywords: Public debt;COVID-19 ;Banking;Revenue administration;Credit;ISCR,CR,financing gap,financing,IMF lending tracker,support
    Date: 2020–04–23
  118. By: International Monetary Fund
    Abstract: This paper discusses the Republic of Kenya’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 pandemic is taking a serious toll on the Kenyan economy, significantly reducing growth, creating fiscal and external financing needs. It is important that the authorities resume their fiscal consolidation plans to reduce macroeconomic vulnerabilities once the crisis abates. The pandemic has impacted nearly all facets of the economy—particularly tourism, transport, and trade—and led to urgent balance of payments and fiscal financing needs. Emergency financing under the RCF will deliver liquidity support to help Kenya cover its balance of payments gap this year. It will provide much-needed resources for fiscal interventions to safeguard public health and support households and firms affected by the crisis. It will also catalyze necessary financing from other donors. The Central Bank of Kenya (CBK) has taken various measures to maintain enough liquidity in the financial sector. It should continue to stand ready to further support the economy and the financial sector’s health, as necessary, while ensuring that policy decisions are data driven. The CBK should also continue to allow the exchange rate to act as a shock absorber.
    Keywords: Public debt;External debt;COVID-19 ;Government finance statistics;Revenue administration;ISCR,CR,financing,Kenya,emergency financing request,AFRITAC East,debt
    Date: 2020–05–11
  119. By: Alexander Bick; Adam Blandin
    Abstract: The Current Population Survey (CPS) is a central source of U.S. labor market data. We show that, for a few thousand dollars, researchers can quickly design and implement their own online survey to supplement the CPS. The survey closely follows core features of the CPS, ensuring that outcomes are conceptually compatible and allowing researchers to weight and validate results using the official CPS. Yet the survey also allows for faster data collection, added flexibility and novel questions. We show that the survey provided useful estimates of U.S. labor market aggregates several weeks ahead of the CPS during the turbulent start of the COVID-19 recession. We then assess the extent of downward nominal wage rigidity at the onset of the pandemic, finding that wage reductions were widespread, but were more common for job-switchers and recalled workers. We discuss a wide range of additional applications.
    Keywords: labor market survey; real-time data; nominal wage rigidity
    JEL: E24 J21 C81
    Date: 2020–12–22
  120. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Stéphane Moyen (Deutsche Bundesbank)
    Abstract: This paper provides a general representation of endogenous and threshold-based regime switching models and develops an efficient numerical solution method. The regime-switching is triggered endogenously when some variables cross threshold conditions that can themselves be regime-dependent. We illustrate our approach using a RBC model with state-dependent government spending policies. It is shown that regime-switching models involve strong non linearities and discontinuities in the dynamics of the model. However, our numerical solution based on simulation and projection methods with regime-dependent policy rules is accurate, and fast enough, to efficiently take into all these challenging aspects. Several alternative specifications to the model and the method are studied.
    Keywords: Regime-switching, RBC model, simulation, accuracy
    JEL: E3 J6
    Date: 2020
  121. By: International Monetary Fund
    Abstract: This paper highlights the Republic of North Macedonia’s Request for Purchase Under the Rapid Financing Instrument (RFI). North Macedonia’s economic outlook has deteriorated substantially due to the coronavirus disease 2019 (COVID-19) pandemic. Real GDP is expected to decline by 4 percent in 2020 due to a fall in both domestic and external demand. This, together with negative shocks to confidence and spill-overs from global financial channels, has created an urgent balance of payments need. The authorities quickly responded with targeted and temporary fiscal policy support to limit the social and economic impact of the health emergency by protecting the liquidity of companies, preserving jobs and providing social care for the jobless and vulnerable households. The authorities have also expressed their strong commitment, once the COVID-19 crisis is over, to rebuilding fiscal buffers and implementing the structural reform agenda to help preserve debt sustainability and speed up income convergence to European Union countries.
    Keywords: Public debt;COVID-19 ;Currencies;Banking;Loans;ISCR,CR,balance of payments need.,disbursement of SDR,urgent balance of payments,financing
    Date: 2020–04–21
  122. By: International Monetary Fund
    Abstract: This paper focuses on Maldives’ Request for Disbursement Under the Rapid Credit Facility. The pandemic is inflicting significant damage, especially on tourism activity, and is expected to result in substantial weakening of the Maldives’ gross domestic product growth, balance of payments and the fiscal position. The government of the Maldives acted quickly to put in place containment measures and is seeking support from the international community for its crisis response plan. The authorities have responded quickly to the coronavirus disease 2019 outbreak, including specific travel restrictions and subsequently more comprehensive travel measures. They also put together a set of measures to alleviate its social and economic fallout. The temporary fiscal accommodation is appropriate. The authorities will reprioritize and cut capital expenditures, redirecting funds as needed to combat the pandemic and provide temporary and well-targeted support to the most vulnerable households and businesses, while maintaining high standards of transparency and governance. The authorities remain committed to fiscal and debt sustainability over the medium term. They intend to achieve a balanced fiscal adjustment based on the reduction of capital spending to historical averages, recurrent expenditure discipline, and revenue mobilization.
    Keywords: Public debt;External debt;Tourism;Debt sustainability;Capital spending;ISCR,CR,financing,financing gap,debt,fund assistance,financial support
    Date: 2020–04–23
  123. By: International Monetary Fund
    Abstract: This paper presents Chad’s Requests for Disbursement Under the Rapid Credit Facility, Extension of the Extended Credit Facility Arrangement, and Rephasing of Access. In response to the coronavirus disease 2019 outbreak, the authorities have taken strong measures to halt the community spread of the virus. They are also scaling up health-related spending and are considering a set of economic measures to support households and businesses. Given the sudden nature of the shocks and their widespread impact, the authorities will be temporarily relaxing the fiscal deficit to allow for the scaling up of health care spending and to accommodate the impact of the sharp drop in oil prices. In order to safeguard debt sustainability, they remain committed to the medium-term fiscal path and will implement the needed adjustment measures as soon as the current crisis abates.
    Keywords: External debt;Public debt;Oil prices;Stress testing;Arrears;ISCR,CR,debt,Executive Board discussion,disbursement under the Rapid Credit Facility,IMF lending tracker,emergency financing request
    Date: 2020–04–23
  124. By: International Monetary Fund
    Abstract: This paper discusses Republic of Mozambique’s Request for Disbursement Under the Rapid Credit Facility (RCF). Mozambique is expected to be significantly affected by the coronavirus disease 2019 pandemic, dashing prospects of a nascent economic recovery following two powerful tropical cyclones that struck in 2019. The IMF’s emergency financial support under the RCF, along with the additional donor grant financing it will help to catalyze, will contribute to addressing Mozambique’s urgent balance of payments needs generated by the pandemic. The authorities are committed to prevent corruption and misuse of emergency financing, by strengthening transparency and accountability. In this connection, they will publish large public procurement contracts and conduct and publish ex-post audits of funds’ use. Once the pandemic eases, it will be critical to resume fiscal consolidation and strengthened debt management and transparency to ensure that public debt remains sustainable. It will also be important to implement structural reforms to support inclusive and sustainable growth.
    Keywords: Public debt;External debt;Debt sustainability analysis;Debt service;Credit;ISCR,CR,financing,financial support,financing gap,IMF financial support
    Date: 2020–04–29
  125. By: Peride K. Blind
    Abstract: It would be hard to fathom any Sustainable Development Goal (SDG) being achieved without either adequate human and financial resources and partnerships or institutions that are effective, inclusive and accountable. One would expect, therefore, that two of the most cross-cutting SDGs of the 2030 Agenda, SDG16 on Peace, justice and strong institutions and SDG17 on the Means of implementation and partnerships for development would receive ample attention in scholarly work and policy analysis. A quick overview of the literature reveals, however, that although SDG16 and SDG17 are examined quite extensively in and of themselves, linkages between the two seldom receive attention. This article attempts to fill in the gap by undertaking a preliminary comparative analysis of the targets of these two Goals. It asks if certain means of implementation included in the Addis Ababa Action Agenda on Financing for Development (AAAA) and in SDG17 can address some of the governance challenges covered by SDG16 targets, and vice-versa. The overall aim of the paper is twofold: (i) to provide ideas on how a targeted focus on SDG16-SDG17 interactions can assist in mainstreaming the AAAA into the 2030 Agenda for Sustainable Development, and (ii) to elucidate how a public administration focus can be instrumental in doing the latter and in interlinking SDG16 and SDG17.
    Keywords: financing for development, means of implementation, partnerships, engagement, governance, public institutions, public administration, public policy, public management, sustainable development, sustainable development goals, policy coherence, policy integration, 2030 Agenda for Sustainable Development
    JEL: D02 E61 G32 H83 L38 O20 O21 O43 Q01
    Date: 2019–10
  126. By: Maryam Mirfatah (University of Surrey and CIMS); Vasco J. Gabriel (University of Surrey and CIMS); Paul Levine (University of Surrey and CIMS)
    Abstract: We develop a small open economy model interacting with a rest-of-the-world bloc, containing several emerging economies' features: Calvo-type nominal frictions in prices and wages, financial frictions in the form of limited asset markets participation (LAMP), as well as both formal and informal sectors. In addition, we introduce incomplete exchange rate pass-through via a combination of producer and local currency pricing for exports, as well commodity-dependence in the form of an oil export sector. We contrast the stability and determinacy properties of money growth and standard Taylor-type interest rate rules, showing that monetary rules are stable regardless of the level of asset market participation, i.e. they avoid the inversion of the Taylor principle. We estimate our 2-bloc model using data for Iran and the USA employing Bayesian methods and we study the empirical relevance of the frictions in our model. Our results reveal important propagation channels active in emerging economies and that taking these into account is essential for policymaking decisions. Indeed, shocks to the economy are amplified by the presence of LAMP, while trade autarky further intensifies the effects of financial frictions. On the other hand, the informal sector acts as buffer to several shocks, lowering the variability of aggregate and formal fluctuations.
    Date: 2020–09
  127. By: International Monetary Fund
    Abstract: This paper discusses Republic of Tajikistan’s Request for Disbursement Under the Rapid Credit Facility (RCF). The coronavirus disease 2019 (COVID-19) pandemic has had a severe human and economic impact in Tajikistan. Trade and transportation disruptions have led to a sharp drop in remittances and government revenues and created urgent balance of payments and fiscal financing needs. The authorities have responded with an action plan and measures to contain the pandemic. Health spending and targeted support to the most vulnerable households and sectors in the economy are the immediate priorities, and a temporary widening of the budget deficit is appropriate. The IMF’s financial assistance under the RCF is expected to provide a sizable share of the financing needed to implement the anti-crisis measures. Additional concessional and grant financing from the international community will be critical to close the remaining financing gap. Based on authorities’ fiscal consolidation plans, debt is assessed to be sustainable. The authorities have committed to enhance the transparency and governance of their COVID-19 policy response through the publication of an ex-post audit of associated spending and procurement processes. The risk of debt distress remains high, but the capacity to repay the IMF is adequate.
    Keywords: Public debt;External debt;Debt sustainability analysis;International reserves;Contingent liabilities;ISCR,CR,staff appraisal,financing,exemption,authority
    Date: 2020–05–07
  128. By: International Monetary Fund
    Abstract: This paper presents São Tomé and Príncipe’s Request for Disbursement Under the Rapid Credit Facility (RCF). The authorities of São Tomé and Príncipe have moved swiftly to develop a plan to address the major challenges posed by the coronavirus disease 2019 pandemic. The authorities plan to increase well-targeted health and social spending to assist the most vulnerable, support the unemployed, incentivize private businesses to retain workers, and enhance fiscal transparency and good governance. These steps would help cushion the economic impact while ensuring that public funds are spent appropriately. Prudent loan restructuring while maintaining prudential standards will help alleviate liquidity pressures and safeguard financial stability. The authorities’ policies focus on immediate measures to protect against the virus, assistance to the most vulnerable, and countercyclical measures during this crisis. Public financial management will be reinforced to ensure the disbursement is used appropriately and steps will be taken to speed up the recovery next year. The IMF staff assesses that the eligibility requirements for the RCF are met and supports the authorities’ request. While the country is in debt distress due to long-standing external arrears, the debt level is deemed sustainable, and there is adequate capacity to repay the IMF. The financing would help prevent a much more severe and prolonged contraction, with a substantial social impact.
    Keywords: External debt;COVID-19 ;Public debt;International reserves;Imports;ISCR,CR,financing,financing gap,IMF disbursement,IMF lending tracker
    Date: 2020–04–29
  129. By: International Monetary Fund
    Abstract: This paper discusses Samoa’s Request for Disbursement Under the Rapid Credit Facility. Samoa has shown resilience to multiple past economic shocks, underpinned by the authorities’ strong commitment to support the economy, and financial assistance provided by the international community. The global coronavirus disease 2019 pandemic has exacerbated the impact of the measles outbreak of late-2019 on Samoa’s economy. The border closure, combined with a sudden stop of tourist arrivals and decline in remittances, has led to a precipitous fall in two vital sources of foreign earnings and resulted in an urgent balance of payments need. Beyond the immediate response, the authorities will continue to implement structural reforms, with policies appropriately balanced between safeguarding debt sustainability and promoting economic growth. They also need to continue their efforts to enhance spending efficiency, strengthen social protection programs and safety nets, further improve tax administration, strengthen public financial management, and safeguard financial stability. Addressing vulnerability to climate change remains a key medium-term challenge to create a fiscal buffer.
    Keywords: Credit;COVID-19 ;Balance of payments need;Public debt;Loans;ISCR,CR,remittance inflow,IMF financing support,fund Support,response package
    Date: 2020–04–28
  130. By: International Monetary Fund
    Abstract: The pandemic is taking a heavy toll on the fragile island nation of São Tomé and Príncipe. Tourist arrivals came to an abrupt halt in mid-March, externally financed projects are being delayed, and supply shipments are disrupted. In response to the local outbreak, emergency confinement measures have been in place since March to contain infection. The authorities began phasing out these measures in late June, aiming for a full reopening of the economy by end-July. A disbursement supported by the Rapid Credit Facility (SDR 9.028 million) was approved in April 2020. The authorities request an augmentation of the ECF program by 10 percent of quota (SDR 1.48 million).
    Keywords: Arrears;Banking;National accounts;Revenue administration;External debt;ISCR,CR,IMF lending tracker,ECF arrangement,emergency financing request,São Tomean authorities,authorities of São Tomé and Príncipe
    Date: 2020–08–04
  131. By: International Monetary Fund
    Abstract: The COVID-19 outbreak is leading to a sharp economic contraction and creating significant financing needs in South Africa. The IMF approved US$4.3 billion in emergency financial assistance under the Rapid Financing Instrument (RFI) to support the authorities’ efforts in addressing the challenging health situation and severe economic impact of the COVID-19 shock. Once the pandemic is behind, there is a pressing need to ensure public debt sustainability and implement structural reforms to support the recovery and achieve sustainable and inclusive growth.
    Date: 2020–07–28
  132. By: Patnaik, Ila (National Institute of Public Finance and Policy); Pandey, Radhika (National Institute of Public Finance and Policy)
    Abstract: In 2016, India adopted a flexible inflation targeting framework. A six member MPC,with three internal and three external members was set up to determine the policy rate to achieve the inflation target. The CPI based inflation target was set by the Government at 4 percent with a tolerance band of plus/minus 2 percent for the period from August, 2016 to March, 2021. The review of the target is due in a few months. The tenure of the first MPC came to an end with the August, 2020 meeting. In this backdrop, this paper presents a review of the inflation targeting framework in India.
    Date: 2020–11
  133. By: -
    Abstract: The U.S. economy expanded at a 33.1% annual rate in the third quarter of 2020, following a decline of 31.4% in the second quarter and 5% in the first. The third-quarter gain reversed about 75% of the prior decline. The pandemic has created unprecedented volatility in economic growth this year, with the record-shattering decline in real GDP in the second quarter followed by a similarly record-breaking gain in the third. Economic forecasts project a slowdown in the final quarter of the year, however, because of the recent surge in COVID-19 cases and some tighter restrictions that have been implemented to contain the spread of the virus. There is already some evidence that the labor market has begun to weaken. The slowdown in the pace of non-farm payroll gains to 245,000 in November underlines how the renewed surge in virus cases and restrictions is weighing on services demand, as the sharp rise in coronavirus cases since October poses downside risks to the consumer recovery. The economic policy response was prompt and strong in the early phase of the pandemic (equivalent to 13% of GDP). According to the Brookings Institution’s Hutchins Center Fiscal Impact Measure, fiscal policy added 14.1 and 5.4 percentage points to real GDP growth in the second and third quarters, respectively. The size and content of another fiscal package of still much needed relief measures is currently under discussion. The economic outlook remains challenging for the winter months, as it depends on containing the spread of the virus to avoid stricter restrictions, and on new policy measures to support the economy. However, encouraging news regarding the development of effective vaccines, which are expected to be more widely available in the course of next year, have led to upgrades in economic growth projections for the second half of 2021.
    Date: 2020–12–15
  134. By: Chalmovianský, Jakub; Porqueddu, Mario; Sokol, Andrej
    Abstract: We compare direct forecasts of HICP and HICP excluding energy and food in the euro area and five member countries to aggregated forecasts of their main components from large Bayesian VARs with a shared set of predictors. We focus on conditional point and density forecasts, in line with forecasting practices at many policy institutions. Our main findings are that point forecasts perform similarly using both approaches, whereas directly forecasting aggregate indices tends to yield better density forecasts. In the aftermath of the Great Financial Crisis, relative forecasting performance was typically only affected temporarily. Inflation forecasts made by Eurosystem/ECB staff perform similarly or slightly better than those from our models for the euro area. JEL Classification: C11, C32, C53, E37
    Keywords: aggregation, Bayesian VAR model, inflation forecasting
    Date: 2020–12
  135. By: Olena Havrylchyk (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - UP1 - Université Panthéon-Sorbonne); Aref Mahdavi-Ardekani (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper explores the short_term impact of borrowing via lending_based crowdfunding on performance and health of small and medium enterprises (SMEs) in France. We find that firms borrowing from lending-based crowdfunding platforms are more dynamic (higher asset growth and higher profitability) and innovative, but they have lower leverage, less cash, higher funding costs and less tangible assets that could be pledged as as collateral. To account for this selection bias, we construct three control groups by using Propensity Score Matching, Mahalanobis Distance Matching and Coarsened Exact Matching methods and then run difference-in-difference regressions. We find that borrowing via lending-based crowdfunding platforms increases SMEs' leverage and interest rate burden in the short-term, but these impacts disappear after two years. We observe asset growth during the year of borrowing, but no impact on sales growth, investment, employment or profitability.
    Keywords: lending-based crowdfunding,firm financing,firm performance,informational asymmetry
    Date: 2020–08
  136. By: Ferrari, Alessandro
    Abstract: This paper studies the effect of deep recessions on intergenerational inequality by quantifying the welfare effects on households at different phases of the life cycle. Deep recessionary episodes are characterized by large declines in the prices of real and financial assets and in employment. The former levies high welfare costs on older households who own financial wealth, the latter determines labour income losses and destroys the human capital of younger cohorts, lowering their productivity. The paper extends previous analyses in the literature by including permanent labour income losses in an OLG model calibrated to match the Great Recession. The analysis shows that younger households lose more than double of all other living cohorts, as younger household become unemployed and experience a decline in their future income. The dynamics of households’ consumption and portfolio composition between 2007 and 2013 in the US are consistent with the predictions of the model. JEL Classification: E21, D31, D58, D63, D91
    Keywords: aggregate risk, inequality, overlapping generations, portfolio choice, youth unemployment
    Date: 2020–12
  137. By: International Monetary Fund
    Abstract: The U.S. is in the midst of an unprecedented social and economic shock. The longest expansion in U.S. history has been derailed by the unanticipated advent of COVID-19. To preserve lives and support public health, it was necessary to put in place a broad-based shutdown of the U.S. economy in March. Despite the gradual easing of state lockdown restrictions and lifting of stay-at-home orders starting in late April, the collateral economic damage has been enormous. First, and foremost, as of July 16, more than 136,000 Americans have tragically lost their lives and many more have become seriously ill. Almost fifteen million Americans have lost their jobs, many small and large businesses are under financial stress, and future prospects are highly uncertain. Reopening decisions will have to be handled carefully to mitigate the economic costs while containing the ongoing rise in COVID-19 infection rates. It will likely take a prolonged period to repair the economy and to return activity to pre-pandemic levels. All in all, globally there will be difficult months and years ahead and it is of particular concern that the number of COVID-19 cases in the U.S. is still rising.
    Keywords: Health;Income;Unemployment;COVID-19 ;Loans;ISCR,CR,staff appraisal,President's executive order,liability positions vis-à-vis nonresident,money market rate,article IV discussion
    Date: 2020–08–10
  138. By: Jmaes McNeil (Department of Economics, Dalhousie University)
    Date: 2020–12–16
  139. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is having a severe impact on Lesotho’s economy. Supply chains for major industries have been disrupted and a national shutdown to contain the virus curtailed economic activity with adverse social impacts. The economy is expected to be further hit by declining external demand for textiles and diamonds, shrinking remittances, and delays to major construction projects. The authorities are taking measures to contain the virus and are implementing plans to mitigate its health and economic consequences. The economic shock, as well as the additional required spending, have generated urgent balance-of-payments (BOP) needs. Lesotho does not have an arrangement with the Fund.
    Keywords: Public debt;External debt;COVID-19 ;Stress testing;Debt sustainability analysis;ISCR,CR,financing,pandemic,support,emergency financing request
    Date: 2020–07–30
  140. By: Hiroyuki Kubota (The University of Tokyo); Mototsugu Shintani (The University of Tokyo)
    Abstract: In this paper, we consider the issue of identifying unconventional monetary policy shocks in Japan by using the market-based measure of policy surprises obtained from high-frequency data. First, we investigate the effects of the monetary policy surprises on asset prices changes as an event study, which is based on the date and time of the monetary policy announcement made by the Bank of Japan. Using the methodology developed by Gürkaynak, Sack, and Swanson (2005), we find that the contractionary monetary policy has negative effects on stock returns. Second, we estimate the effects of unconventional monetary policy on real economic activity and inflation. By combining the vector autoregressive approach of Gertler and Karadi (2015) who employ high-frequency policy surprises as external instruments to identify the structural shocks, and that of Debortoli, Galí, and Gambetti (2020), who employ the long rate as the policy indicator during the period when the short rate is constrained by the zero lower bound, we find that unconventional monetary policy has been effective in Japan over the last two decades.
    Date: 2020–12
  141. By: Sebastian Doerr; Boris Hofmann
    Abstract: Using panel data covering 180 countries over six decades, this paper shows that recessions are systematically associated with higher mortality rates. During years when GDP falls, death rates rise, primarily in emerging market and developing economies and there among children in particular. In advanced economies, death rates increase only slightly. We further nd that the scarring effects of recessions persist for several years and that deeper recessions lead to larger increases in mortality. In contrast, booms or periods of subdued growth are not associated with a marked decline in death rates. Our ndings have implications for the policy response to Covid-19 and suggest that the eventual death toll of the pandemic may be understated if the impact of the coronavirus recession is neglected.
    Keywords: recession, mortality, pandemic, virus containment, lockdown, Covid-19
    JEL: H12 I10 I18 E32
    Date: 2020–12
  142. By: International Monetary Fund
    Abstract: A further deterioration of the global environment and a deepening of the impact of the COVID-19 pandemic have worsened the macroeconomic outlook significantly, with growth now projected to be negative in 2020. As a result, urgent balance of payments needs arising from the pandemic are now estimated at 4.2 percent of GDP (compared to 1.8 percent), and the authorities have requested an additional disbursement under the Rapid Credit Facility (RCF) of 50 percent of quota (SDR 122.2 million) under the “exogenous shock” window of the RCF. This follows Board approval on April 3, 2020 of the authorities’ request for 50 percent of quota, which took place before the annual access of the RCF was doubled to 100 percent of quota on April 6, 2020. This additional request, if approved, will bring total disbursements under the RCF to 100 percent of quota in 2020. The authorities have also requested temporary debt servicing relief under the G-20 Debt Service Suspension Initiative, supported by the G-20 and Paris Club.
    Keywords: Public debt;Credit;Revenue administration;External debt;Banking;ISCR,CR,financing,RCF resource,fund support
    Date: 2020–08–27
  143. By: International Monetary Fund
    Abstract: This paper focuses on The Federal Democratic Republic of Ethiopia’s Requests for Purchasing Under the Rapid Financing Instrument (RFI), Debt Relief Under the Catastrophe Containment and Relief Trust, Rephasing of Access Under the Three-Year Arrangements Under the Extended Credit Facility and the Extended Fund Facility, and Reduction of Access Under the Extended Fund Facility Arrangement. Ethiopia is facing a pronounced economic slowdown and an urgent balance of payments need owing to the coronavirus disease 2019 (COVID-19) pandemic. The authorities have taken strong actions to contain the health impact by implementing a mandatory 14-day quarantine for travelers entering the country, improving testing and containment capacity, strengthening epidemic response coordination and adopting a state of emergency to limit movement and gatherings and facilitate social distancing. Ethiopia showed good progress under the extended arrangements with the IMF, which aim to address external vulnerabilities and transition to a private sector-led growth model. The authorities remain committed to the reform program. The IMF staff supports the authorities’ plan to accommodate COVID-related fiscal measures, and to resume the fiscal adjustment when the crisis subsides. In order to contain the upward pressure on public debt, the authorities should consider further tightening the spending envelope for state-owned enterprises not directly engaged in the COVID-19 emergency response.
    Keywords: External debt;Debt relief;Debt service;COVID-19 ;Public debt;ISCR,CR,financing,emergency financing request,pandemic,balance of payments pressure,IMF lending tracker
    Date: 2020–05–06
  144. By: Kilian, Lutz; Zhou, Xiaoqing
    Abstract: We study the effects of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. We show that historically SPR policy interventions, defined as sequences of exogenous SPR shocks during selected periods, have helped stabilize the price of oil. Their effect on the price of oil, however, has been modest. For example, the cumulative effect of the SPR releases after the invasion of Kuwait in 1990 was a reduction of $2/barrel in the real price of oil after 7 months. Whereas emergency drawdowns tend to lower the real price of oil, we find that exchanges tend to raise the real price of oil in the long run. We also provide a detailed analysis of the benefits of the 2018 White House proposal to sell off half of the SPR within the next decade. We show that the expected fiscal benefits of this plan are somewhat higher than the revenue of $16.6 billion dollars projected by the White House.
    Keywords: SPR,crude oil,oil inventories,storage,expectations,policy intervention,fiscal policy
    JEL: Q38 Q43 E62
    Date: 2020
  145. By: Mateane, Lebogang
    Abstract: I use a transition probability matrix associated with different global market conditions and I assume that it captures switches in central bank preferences between approximated constant relative risk aversion (CRRA) expected utility and approximated increasing relative risk aversion (IRRA) expected utility. I approximate CRRA and IRRA expected utility, to construct and propose constrained portfolio selection frameworks with skewness, for the currency composition of FX reserves over different global market conditions that influence central bank preferences. These portfolio selection frameworks account for portfolio rebalancing, they satisfy Pratt-Arrow measures of risk aversion and are constrained by the country's currency composition of foreign debt. Thus, for these portfolios, the currency composition of FX reserves is motivated by its country's currency composition of foreign debt. I propose these frameworks for 6 emerging market economies (EMEs) and this is only for a small portion of the total portfolio of FX reserves. These EMEs are Brazil, India, Indonesia, Mexico, South Africa and Turkey and five of these EMEs have been denoted as the "Fragile Five". Using different methods of computing expected FX reserves returns and different maturity structures on FX reserves, I validate my proposal using data over the 2010-2018 period on these EMEs by simulating optimal FX reserve weights for each EME; where each country's actual currency composition of foreign debt is a constraint.
    Keywords: IRRA and CRRA Expected Utility,Global Market Conditions,Currency Composition of FX Reserves,Foreign Debt,Portfolio Selection,Skewness,Emerging Market Economies
    JEL: E58 F31 G11 G15
    Date: 2020
  146. By: International Monetary Fund
    Abstract: Economic impact. COVID-19 is having an adverse economic impact on Burundi. The pandemic is affecting Burundi through an evolving domestic outbreak and economic spillovers from the global and regional environment, including from the containment measures introduced in trading partners and neighboring countries. Economic growth projections for 2020 have been revised down by 5.3 percentage points to -3.2 percent in 2020. The pandemic has exacerbated pre-existing economic challenges and creates an external financing need of 4.7 percent of GDP in 2020 and 2021, mainly as a result of lower exports in line with lower foreign demand due to lower global growth and transportation bottlenecks from containment measures in other countries; elevated imports needs related in part to the planned fiscal spending aimed at responding to the pandemic; and reduced remittances inflows. The pandemic has also created a fiscal financing need of 6.9 percent of GDP, which will need to be met mainly from external sources.
    Keywords: Debt relief;Debt service;Public debt;Health;ISCR,CR,IMF debt relief,pandemic response plan,emergency financing request,PRGT repayment,IMF lending tracker
    Date: 2020–07–27
  147. By: International Monetary Fund
    Abstract: This technical note (TN) provides an update and an assessment of the supervisory framework and practices for the Italian insurance sector since the last assessment concluded in 2013. The mission conducted a target review focusing on the implementation of Solvency II, the financial resilience of insurers, the effectiveness of supervision, and previously identified weaknesses without a full assessment of Italy’s observance with the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs). Implementation of the European Union (EU) Solvency II Directive in 2016 has significantly strengthened regulation and supervision since the last FSAP, introducing risk-based capital standards, comprehensive insurance group supervision and new requirements on governance, risk management and controls. The supervision of intermediaries has also been strengthened in line with the EU Insurance Distribution Directive in 2018.
    Keywords: Insurance companies;Insurance;Solvency;Stress testing;Macroprudential analysis;ISCR,CR,Solvency II,insurance sector,IVASS statute,sanction power,IVASS authority,IVASS data,IVASS exercise,IVASS sensitivity analysis,market share,risk management
    Date: 2020–08–04
  148. By: Servaas van der Berg (Department of Economics, Stellenbosch University); Linda Zuze (Resep, Stellenbosch University); Grace Bridgman (Department of Economics, Stellenbosch University)
    Abstract: Child hunger in South Africa declined after introduction of the child support grant. Despite the 2007/8 recession and slow economic growth since, child hunger more than halved from being reported in 35% of households in 2002 to 16% in 2018 in the General Household Survey. However, the pandemic reversed many of the gains. In newly collected data from Wave 1 of the NIDS-CRAM study, 15% of respondents reported that a child in their household had gone hungry in the week before they were interviewed in May or June. For the month of April, 47% of respondents reported that their household had run of money (the first month of the lockdown, before social relief measures were instituted). A much lower percentage, only 25%, reported that they had run out of money for food in the past year in 2018, a far less strict criterion. Loss of main income source between February and April, largely as a result of the lockdown, is strongly associated with a higher likelihood of child hunger in households. There is some shielding of children by adults: Child hunger is much lower than for other household members, and many households running out of money for food do not report child hunger. Drawing down savings, borrowing and depending on the generosity of others may have acted as a shield for child hunger in this initial lockdown period. This cannot continue indefinitely. A short analysis of social grants and school meals points to their importance for reducing child hunger, but also highlights their limitations at a time of great economic trauma.
    Keywords: Covid19, child welfare, hunger, social grants
    JEL: I31 I32 I15
    Date: 2020
  149. By: Pérez Caldentey, Esteban; Rojas Rodríguez, Leonardo
    Abstract: According to the balance-of-payments constrained growth model, an expansion of aggregate domestic demand is effective in increasing the long-run rate of growth of an economy to the extent that the performance of the external sector validates it. While the performance of the domestic economy is intertwined with that of the external sector, the balance-of-payments constraint on growth does not make these relationships explicit. This document addresses this issue and proposes a framework to make explicit the investment requirements with balance-of-payments constrained growth. This is done in two steps. The document first develops a theoretical framework to explicitly bring to light the investment requirements consistent with the balance-of-payments constraint. Second, it proposes a stock-flow model comprising five sectors (households, firms, government, commercial banks, and the external sector) to analyse the relationships between the external sector and commercial banks and the performance of the domestic economy, including investment.
    Date: 2020–12–18
  150. By: International Monetary Fund
    Abstract: A mission was requested by the New Zealand authorities to the Cook Islands to focus on policy options for transitioning to high-income status, financial sector stability and regulatory framework, and debt sustainability.1 It evaluated these issues in the context of the medium-term outlook and against the context of a recently developed fiscal framework. The Cook Islands is a self-governing territory in free association with New Zealand, but it is not an IMF member (Box 1).
    Keywords: Financial services;Natural disasters;Tourism;Fiscal policy;Public financial management (PFM);ISCR,CR,Cook Islands economy,debt ratio,economy,net,cash reserves,Cook Islands superannuation,economic statistics
    Date: 2020–08–28
  151. By: International Monetary Fund
    Abstract: COVID-19 pandemic: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic, so this Technical Note (TN) does not assess the impact of the crisis or the recent crisis-related policy measures. Nonetheless, given the FSAP’s focus on vulnerabilities and policy frameworks, the findings and recommendations of the TN remain pertinent. While Denmark’s institutional arrangements are uncommon, the authorities have undertaken several macroprudential measures since the last FSAP. The Minister for Industry, Business and Financial Affairs (MIBFA) has decision-making power over most macroprudential tools in Denmark, which is rare in international practice. However, the Systemic Risk Council (SRC), which includes members from the Danmarks Nationalbank (DN) and Danish Financial Supervisory Authority (DFSA) plays an advisory role and has powers to give recommendations with a comply or explain mechanism. In recent years, the authorities have taken wide-ranging macroprudential policy actions in response to growing systemic vulnerabilities, which have seemed to slow down some of the riskier trends. More recently, in response to the Covid-19 crisis, countercyclical capital buffer (CCyB) has been fully released.
    Keywords: Systemic risk;Housing prices;Macroprudential policy;Mortgages;Systemic risk assessment;ISCR,CR,SRC secretariat,housing market,SRC chair,SRC meeting,SRC member
    Date: 2020–08–12
  152. By: Dukhabandhu Sahoo; Diptimayee Mishra; Auro Kumar Sahoo; Phendulwa Zikhona Makunga; Jayanti Behera
    Abstract: We investigate the relevance of beta (?, absolute and conditional) and sigma (?) convergence in the economies of the Common Monetary Area of Southern Africa and in the provinces of the Republic of South Africa using panel data, allowing an understanding of growth and inequality in the region. The region has experienced ?- and ?-convergence; however, growth rates of per capita gross domestic product are low at aggregate and sectoral levels. At sectoral level, the performance of the tertiary sector is better than that of the primary and secondary sectors.
    Keywords: Convergence (Economics), Growth, Inequality, panel data, southern Africa
    Date: 2020
  153. By: Demary, Markus; Hasenclever, Stefan; Hüther, Michael
    Abstract: In this paper we aim to shed light on the global trend in rising corporate saving over the last three decades and to discuss the effects that the Covid-19 crisis might have on companies' saving behaviour. To do so, we analyse the transition of the corporate sector from traditionally being a net borrower to becoming a net lender to the rest of the economy from a flow-of-funds perspective. In accordance with the literature, this analysis reveals that the trend in rising corporate saving is mostly pronounced in advanced economies that have been accumulating high and persistent current account surpluses, such as Germany, South Korea and Japan. In addition, we aim to analyse the various factors behind this trend by reviewing the literature. These range from the rise of uncertainty after the global financial crisis to the increased reliance on internal funding for research and development expenditures. To identify the potentially relevant factors for the German corporate sector we, subsequently, study the composition and development of Germany's aggregated corporate sector's balance sheet. We show that the rise in corporate saving is accompanied by an increase in equity capital and a reduction in the corporate sector's reliance on banking loans. Finally, we discuss the possible impact of the current Covid-19 crisis on the trend of rising global saving. We argue that the Covid-19 crisis is most likely to interrupt the trend in corporate saving in the short run due to the decline in revenues. Nonetheless, similar to the pattern observed in the aftermath of the financial crisis we conjecture that the Covid-19 shock will probably strengthen corporate saving in the long run, as corporates may well aim to restore their liquidity and equity capital buffers to be better prepared for future shocks. This will further unfold downward pressures on real interest rates and complicate the conduct of monetary policy.
    JEL: E32 F32 G32
    Date: 2020
  154. By: Fernando E. Alvarez; David O. Argente
    Abstract: We use three quasi-natural experiments in Mexico and one in Panama to estimate the effects of having the option to pay with cash on Uber rides. The ability to pay in cash affects the demand for rides, which is reflected in large changes in the total number of trips, fares, miles, and number of users after Uber introduced cash payments, particularly in lower-income city blocks. On the other hand, the effects on prices, estimated times of arrival, and competitor pricing are negligible, consistent with the supply of trips being very elastic. Although cash payments naturally increase the fraction of users that pay exclusively with cash, more than half of the users have access to both cards and cash, and alternate between payment methods. We find evidence consistent with cash and card payments being imperfectly substitutable at both the intensive and extensive margins, which magnifies the impact of policies that restrict the availability of payment methods.
    JEL: E41
    Date: 2020–11
  155. By: International Monetary Fund
    Abstract: This technical note leverages on the 2015 FSAP which concluded that the United States (U.S.) had a high degree of compliance with the Basel Core Principles (BCPs). The FSAP reviewed the progress achieved in addressing the main weaknesses previously identified and the main supervisory and regulatory developments since then. The key focus are the steps taken by the U.S. authorities in recent years to recalibrate and further tailor the banking regulatory and supervisory framework and the role of stress tests in the supervision process. The FSAP team has not covered the impact of COVID-19 outbreak on banks supervision and has not discussed with authorities the related policy response. The FSAP recommendations are meant to be considered once the impact of the pandemic on the economy and the banking sector becomes clearer.
    Keywords: Banking;Stress testing;Liquidity requirements;Market risk;Countercyclical capital buffers;ISCR,CR,state bank,Category IV,bank holding company,capital requirement,capital framework,savings and loan
    Date: 2020–08–10
  156. By: Giovanni Gallo (Sapienza University of Rome); Michele Raitano (Sapienza University of Rome)
    Abstract: Using a static microsimulation model based on a link between survey and administrative data, the article investigates the effects of the pandemic on income distribution in Italy. The analysis focuses both on individuals and on households, by simulating changes in labour incomes and in equivalised incomes, respectively. For both units of observations, changes before and after the emergency income benefits introduced by the Government to deal with the effects of the COVID-19 emergency are compared. The effects of the pandemic are simulated for the whole 2020 under three different scenarios capturing an increasing length of the pandemic. We find that the pandemic has led to a relatively greater drop in labour incomes for those lying in the poorest quantiles, but they were the same having benefited more from the emergency benefits. As a result, compared with the ‘No-COVID scenario’, income poverty and inequality indexes significantly grow in all scenarios when emergency benefits are not considered, whereas the poverty increase greatly narrows and inequality levels slightly decrease once benefits are considered. This evidence signals the crucial role played by cash social transfers to contrast the most serious economic consequences of the pandemic.
    Keywords: income distribution, inequality, poverty, emergency benefits, microsimulations, Italy, Covid-19
    JEL: D31 D63 E27 I32 J31
    Date: 2020–12
  157. By: David Carl; Christian Ewerhart
    Abstract: For users of the Ethereum network, the gas price is a crucial parameter that determines how swiftly the decentralized consensus protocol confirms a transaction. This paper studies the statistics of the Ethereum gas price. We start with some conceptual discussion of the gas price notion in view of the actual transaction-selection strategies used by Ethereum miners. Subsequently, we provide the descriptive statistics of what we call the threshold gas price. Finally, we identify and estimate a seasonal ARIMA (SARIMA) model for predicting the hourly median of the threshold gas price.
    Keywords: Ethereum, gas price, confirmation time, forecasting
    JEL: C57 C22 D85 E37
    Date: 2020–12
  158. By: Volha Audzei; Jan Bruha
    Abstract: In this paper we develop a dynamic stochastic general equilibrium model featuring the euro area, the United States and China, with an exogenous rest of the world. The countries in the model are linked through trade and international bond purchases. Having estimated the model, we study several scenarios of trade wars between the countries. Our findings suggest that no country benefits from imposing tariffs in the long run. The degree to which a particular country is hurt depends on the strength of its import and export links.
    Keywords: Bayesian estimation, China, multi-country DSGE, trade wars
    JEL: C11 E37 F13 F41
    Date: 2020–12
  159. By: World Bank
    Keywords: International Economics and Trade - Foreign Direct Investment Private Sector Development - Legal Regulation and Business Environment Macroeconomics and Economic Growth - Investment and Investment Climate
    Date: 2020–04
  160. By: World Bank
    Keywords: International Economics and Trade - Foreign Direct Investment Private Sector Development - Legal Regulation and Business Environment Macroeconomics and Economic Growth - Investment and Investment Climate
    Date: 2020–04
  161. By: Juan F Jimeno
    Abstract: Este artículo analiza estas últimas consecuencias de los nuevos cambios tecnológicos sobre la reforma de los sistemas de pensiones. En primer lugar, se presentan sus principales implicaciones laborales, esto es, sus efectos sobre el empleo y los salarios a lo largo de la vida laboral. En segundo lugar, se discuten las dificultades de financiación de las pensiones que se plantean en el nuevo escenario, incluyendo algunos comentarios sobre la viabilidad de sustituir la imposición del trabajo por imposición sobre el capital y, más en concreto, sobre los robots. Finalmente, se apuntan algunos elementos a tener en cuenta en el diseño de un nuevo sistema de pensiones adecuado al cambio de escenario macroeconómico y socio-laboral.
    Date: 2020–12
  162. By: International Monetary Fund
    Abstract: The U.S. financial system is very large, well-diversified, and home to numerous financial institutions which are significant at a global scale. Eight Global Systemically Important Banks (G-SIBs) are incorporated in the U.S., as well as several other large financial institutions, such as asset managers, insurers, and money market funds. Assets of the financial system amounted to about US$100 trillion at end-2019 and accounted for 500 percent of GDP. While the eight G-SIBs dominate the U.S. banking landscape, banking system assets represent only about 22 percent of total financial system assets. The systemic risk assessment (including stress testing) of this FSAP reflect the highly diversified nature of the U.S. financial system and focuses on banks, mutual and money market funds, insurance companies as well as cross-institutional and cross-sectoral linkages and exposures.
    Keywords: Commercial banks;Stress testing;Banking;Insurance companies;Loans;ISCR,CR,financial system,fixed income,sensitivity analysis,credit card,mutual fund,student loan
    Date: 2020–08–10
  163. By: Nick Jacob; Giordano Mion
    Abstract: We revisit UK's poor productivity performance since the Great Recession by means of both a suitable theoretical framework and firm-level prices and quantities data for detailed products allowing us to both measure demand, and its changes over time, and distinguish between quantity total factor productivity (TFP-Q), i.e., the capacity to turn inputs into more physical output (number of shirts, liters of beer), and what we call revenue total factor productivity (TFP-R), i.e., productivity calculated using revenue (or value-added) as a measure of output and so the capacity to turn inputs into more revenue. This in turn allows us to measure how changes in TFP-Q, demand and markups ultimately affected revenue TFP, as well as labour productivity, over the Great Recession. Our findings suggest that the poor UK firms' productivity performance post-recession is due to both a weakening of demand and a decreasing TFP-Q pushing down sales, markups, revenue TFP and labour productivity.
    Keywords: Total factor productivity (TFP), revenue TFP, prices, demand, great recession, United Kingdom
    JEL: D24 L11 E01 O47 O52
    Date: 2020–12
  164. By: World Bank
    Keywords: International Economics and Trade - Foreign Direct Investment Private Sector Development - Legal Regulation and Business Environment Macroeconomics and Economic Growth - Investment and Investment Climate
    Date: 2020–04
  165. By: Brenda Samaniego de la Parra; León Fernández Bujanda
    Abstract: This paper estimates the effects of increasing the cost of informal jobs on formal firms' and workers' outcomes. We create novel datasets combining administrative records and household surveys data, and exploit exogenous variation in this cost generated by over 480,000 random work-site inspections in Mexico. Increasing the cost of informal jobs at formal firms leads to lower employment growth, lower formal job creation, and higher formal and informal job destruction. For informal workers, inspections increase the probability of being formalized at the inspected firm, but also increase the probability of dissolving the informal match. Transitioning to a formal job due to an inspection increases the probability of being poached to a new, formal job.
    JEL: D22 E26 J46
    Date: 2020–12
  166. By: Simon Buckle (OECD); Jane Ellis (OECD); Aimée Aguilar Jaber (OECD); Marcia Rocha (OECD); Brilé Anderson (OECD); Petter Bjersér
    Abstract: This paper provides decision-makers with a framework for prioritising different economic, social and environmental goals and analysing the options available to achieve them. To this end, it develops three stylised COVID-19 recovery pathways (“Rebound”, “Decoupling” and “Wider well-being”) that differ in the extent to which they encompass greenhouse gas (GHG) emission reductions and the integration of mitigation and wider well-being outcomes or, broadly equivalently, SDGs. A number of real-world examples of COVID-19 recovery measures in the surface transport and residential sectors were identified, and the paper maps these measures onto these three stylised pathways. The paper finds a wide divergence in the environmental and social impacts of COVID-19 recovery measures developed to date, with several countries putting in place measures that correspond to all three pathways. The nature and pace of economic recovery in different countries and in aggregate will have important implications for existing, updated and new Nationally Determined Contributions (NDCs) under the Paris Agreement, and the paper also highlights the possible impact of the COVID-19 recovery measures being put in place on NDCs– including on the ambition of both current and future NDCs. The paper concludes that it will be important for governments to improve their understanding of the impact of their recovery measures across multiple policy dimensions (economic, social, environmental) as well as across different time periods (short and long-term) and spatial scales.
    Keywords: beyond growth, Climate change, inequality, NDCs, net-zero economy, residential, SDGs, sustainable recovery, transport, wider well-being
    JEL: A13 D62 D63 E61 H54 Q01 Q52 Q54
    Date: 2020–12–18
  167. By: Marie-Hélène Felt
    Abstract: I investigate the impact of contactless credit cards (CTCs) on cash use in Canada, using panel data between 2010 and 2017. I show that ignoring unobserved heterogeneity would lead to overstating the impact of CTCs on cash usage in a linear model. Using finite mixture modelling, I provide evidence of the differential impacts of CTCs on the extensive versus intensive margins of cash usage. I use a two-part model, with an exclusion restriction for better identification, to model both margins separately. I obtain that CTC use negatively influences the intensive margin of cash usage but not its extensive margin. There is no clear evidence of an S-curve pattern in the impact of CTCs on cash usage over the sample period.
    Keywords: Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services
    JEL: C33 D12 E41
    Date: 2020–12
  168. By: International Monetary Fund
    Abstract: While Norway’s institutional arrangement for macroprudential policy is uncommon, the authorities have shown strong willingness to act. The Ministry of Finance (MoF) is the sole macroprudential decision-maker in Norway, which is rare in international comparison. However, Norges Bank and the Finanstilsynet (FSA) play important advisory roles. In recent years, the authorities have taken substantive and wide-ranging macroprudential policy actions in response to growing systemic vulnerabilities—and these seem to have been effective in slowing down some of the riskier trends. The macroprudential policy toolkit is well stocked and actively used.
    Keywords: Banking;Macroprudential policy;Financial stability assessment;Macroprudential policy instruments;Mortgages;ISCR,CR,CRE sector,CRE market,CRE company,CRE risk,FSA survey,liquid asset
    Date: 2020–08–12

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