nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒01‒25
158 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Technology, demand, and productivity: what an industry model tells us about business cycles By Molnarova, Zuzana; Reiter, Michael
  2. Imperfect Credibility versus No Credibility of Optimal Monetary Policy By Chatelain, Jean-Bernard; Ralf, Kirsten
  3. Shocks and Frictions in US Business Cycle: A Bayesian DSGE Approach By Mansur, Alfan
  4. The ECB and the Cost of Independence. Unearthing a New Doom-Loop in the European Monetary Union By Armando Marozzi
  5. Update to Figure 1 in "Macroeconomic Shocks and their Propagation" By Edoardo Chiarotti; ;
  6. Wage shares and demand regimes in Central America: An empirical analysis for Costa Rica, El Salvador, Honduras, Nicaragua, and Panama, 1970-2016 By Jiménez, Valeria
  7. Aggregate-Demand Amplification of Supply Disruptions: The Entry-Exit Multiplier By Florin O. Bilbiie; Marc J. Melitz
  8. The macroprudential toolkit: effectiveness and interactions By Millard, Stephen; Rubio, Margarita; Varadi, Alexandra
  9. Search for Profits and Business Fluctuations: How Banks' Behaviour Explain Cycles? By Emanuele Ciola; Edoardo Gaffeo; Mauro Gallegati
  10. Who manages savings in the U.S. and why should they be managed? By De Koning, Kees
  11. Stock-Bond Return Correlation, Bond Risk Premium Fundamentals, and Fiscal-Monetary Policy Regime By ; Erica X.N. Li; Tao Zha; Ji Zhang
  12. Oil Price Shocks and Macroeconomic Dynamics in an Oil-Exporting Emerging Economy: A New Keynesian DSGE Approach By Oladunni, Sunday
  13. Why Does Structural Change Accelerate in Recessions? The Credit Reallocation Channel. By Cooper Howes
  14. A Grant to Every Citizen: Survey Evidence of the Impact of a Direct Government Payment in Israel By Naomi Feldman; Ori Heffetz
  15. Fifty shades of QE: Conflicts of interest in economic research By Fabo, Brian; Jančoková, Martina; Kempf, Elisabeth; Pástor, Luboš
  16. Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets By Chatelain, Jean-Bernard; Ralf, Kirsten
  17. Rwanda; Staff Report for 2019 Article IV Consultation and a Request for a Three-Year Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda By International Monetary Fund
  18. Some Short-run Macroeconomic Considerations as Society Deals with a Once-in-Generations Pandemic By Arslan Razmi
  19. Redistribution and the monetary–fiscal policy mix By Saroj Bhattarai; Jae Won Lee; Choongryul Yang
  20. Is There News in Inventories? By Christoph Gortz; Christopher Gunn; Thomas A. Lubik
  21. The Effectiveness of Futures-based Foreign Exchange Intervention: Comparative Studies of Brazil and India By Syarifuddin, Ferry; Izzulhaq, Syahid
  22. SARS-Cov-2 und Bargeld: Wie ein Virus die weltweite Bargeldnachfrage fördert By Rösl, Gerhard; Seitz, Franz
  23. Macroeconomic Expectations and Credit Card Spending By Misha Galashin; Martin Kanz; Ricardo Perez-Truglia
  24. Central Bank Digital Currency: When Price and Bank Stability Collide By Linda Schilling; Jesús Fernández-Villaverde; Harald Uhlig
  25. Switzerland; 2019 Article IV Consultation - Press Release; Staff Report; and Statement by the Executive Director for Switzerland By International Monetary Fund
  26. Dynamics and synchronization of global equilibrium interest rates By Beyer, Robert; Milivojevic, Lazar
  27. Now- and Backcasting Initial Claims with High-Dimensional Daily Internet Search-Volume Data By Daniel Borup; David E. Rapach; Erik Christian Montes Schütte
  28. Event-day Options By Jonathan H. Wright
  29. Political Constraints and Sovereign Default Premia By Nirvana Mitra
  30. An unobserved components model of total factor productivity and the relative price of investment By Joshua C.C. Chan; Edouard Wemy
  31. Part and Full-Time Employment over the Business Cycle By Griffy, Benjamin; Gomis-Porqueras, Pedro
  32. Government Spending Effects in a Policy Constrained Environment By Ruoyun Mao; Shu-Chun Susan Yang
  33. Política fiscal subnacional y ciclos económicos en Colombia By Diana Ricciulli-Marín; Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena
  34. Parallel Digital Currencies and Sticky Prices By Harald Uhlig; Taojun Xie
  35. The g3+ Model: An Upgrade of the Czech National Bank’s Core Forecasting Framework By Frantisek Brazdik; Tibor Hledik; Zuzana Humplova; Iva Martonosi; Karel Musil; Jakub Rysanek; Tomas Sestorad; Jaromir Tonner; Stanislav Tvrz; Jan Zacek
  36. Liquidity Traps in a World Economy By Kollmann, Robert
  37. Efficient VAR Discretization By Grey Gordon
  38. Time-varying effects of commodities prices in the Bolivian economy By Mora Barrenechea, Mauricio
  39. Seychelles; Staff Report for the 2019 Article IV Consultation and Third Review Under the Policy Coordination Instrument and Request for Modification of Targets and Monetary Consultation Clause-Press Release; Staff Report; and Statement by the Executive Director for Seychelles By International Monetary Fund
  40. Estimación de multiplicadores fiscales para Nicaragua con datos trimestrales de 2006 a 2018 By Membreño, Luis; López, Jennifer; Jiménez, Kenneth
  41. Spillover effects of sovereign bond purchases in the euro area By Yvo Mudde; Anna Samarina; Robert Vermeulen
  42. Commodity price volatility, external debt and exchange rate regimes By Monoj Kumar Majumder; Mala Raghavan; Joaquin Vespignani
  43. Public R&D investment in economic crises By Pellens, Maikel; Peters, Bettina; Hud, Martin; Rammer, Christian; Licht, Georg
  44. Sierra Leone; First Review Under the Extended Credit Facility Arrangement, Request for Waiver for Nonobservance of Performance Criterion, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone By International Monetary Fund
  45. Benin; 2019 Article IV Consultation, Fourth Review under the Extended Credit Facility Arrangement, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  46. Solving the Price Puzzle Via A Functional Coefficient Factor-Augmented VAR Model By Zongwu Cai; Xiyuan Liu
  47. The macroeconomic impact of Trump By Benjamin Born; Gernot J. Müller; Moritz Schularick; Petr SedláÄ ek
  48. Do Monetary Policy Frameworks Matter in Low Income Countries? By Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
  49. Zimbabwe; Staff-Monitored Program-Press Release and Staff Report By International Monetary Fund
  50. Financial reporting under economic policy uncertainty By Ozili, Peterson K
  51. Sources of inflation and the effects of balanced budgets and inflation targeting in developing economies By Guilherme Klein Martins; Peter Skott
  52. Why Does Consumption Fluctuate in Old Age and How Should the Government Insure it? By Margherita Borella; Mariacristina De Nardi
  53. Czech Republic; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  54. Will Germany's Temporary VAT Tax Rates Cut as Part of the Covid-19 Fiscal Stimulus Package Boost Consumption and Growth? By Michael Funke; Raphael Terasa
  55. United States; 2019 Article IV Consultation - Press Release; Staff Report; and Statement by the Executive Director for the United States By International Monetary Fund
  56. Togo; 2019 Article IV Consultation, Fourth Review under the Extended Credit Facility Arrangement, and Request for Waiver of Nonobservance of Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Togo By International Monetary Fund
  57. Islamic Republic of Mauritania; Third Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Islamic Republic of Mauritania By International Monetary Fund
  58. España | Series largas de VAB y empleo regional por sectores, 1955-2019 By Angel De la Fuente; Pep Ruiz
  59. Kyrgyz Republic; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  60. Intangible Investment and Low Inflation: A Framework and Some Evidence By Subir Lall; Li Zeng
  61. Endogenous product scope: Market interlacing and aggregate business cycle dynamics By Oscar Pavlov; Mark Weder
  62. Maldives; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives By International Monetary Fund
  63. Leaning Against the Wind: A Cost-Benefit Analysis for an Integrated Policy Framework By Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
  64. Endogenous growth, skill obsolescence and output hysteresis in a New Keynesian model with unemployment By Lechthaler, Wolfgang; Tesfaselassie, Mewael F.
  65. Liberia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Liberia By International Monetary Fund
  66. Norway; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Norway By International Monetary Fund
  67. Understanding the Size of the Government Spending Multiplier: It's in the Sign By Regis Barnichon; Davide Debortoli; Christian Matthes
  68. Republic of Mozambique; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Mozambique By International Monetary Fund
  69. Unit Labor Costs and Manufacturing Sector Performance in Africa By Karmen Naidoo; Léonce Ndikumana
  70. Imported or Home Grown? The 1992-3 EMS Crisis By Eichengreen Barry; Naef Alain
  71. Family and Government Insurance: Wage, Earnings, and Income Risks in the Netherlands and the U.S. By Mariacristina De Nardi; Giulio Fella
  72. Alternative monetary approaches and causal nexus breakdown in rate of interest and currency reserves in Italy, 1961-1990 By Giuseppe Conti; Luciano Fanti
  73. Whatever happened to the 'Goodwin pattern'? By Mark Setterfield
  74. Lebanon Economic Monitor, Fall 2019 By World Bank
  75. The earned income tax credit: targeting the poor but crowding out wealth By Froemel, Maren; Gottlieb, Charles
  76. Earnings and Labor Market Dynamics: Indirect Inference Based on Swedish Register Data By Holmberg, Johan
  77. Pakistan; Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Pakistan By International Monetary Fund
  78. Regional and State Heterogeneity of Monetary Shocks in Argentina By Emilio Blanco; Pedro Elosegui; Alejandro Izaguirre; Gabriel Montes Rojas
  79. Georgia; Fourth Review Under the Extended Fund Facility Arrangement and Request for Modifications of Quantitative Performance Criteria-Press Release; Staff Report; and a Statement by the Executive Director for Georgia By International Monetary Fund
  80. Grenada; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Grenada By International Monetary Fund
  81. Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? By Katharina Bergant; Francesco Grigoli; Niels-Jakob H Hansen; Damiano Sandri
  82. The Causal Relationship between Private Sector Credit Growth and Economic Growth in Bangladesh: Use of Toda-Yamamoto Granger Causality test in VAR Model By Paul, Uttam Chandra
  83. Fiscal policy and structural transformation in developing economies By Peter Skott
  84. COVID-19 and Emerging Markets: An Epidemiological Model with International Production Networks and Capital Flows By Cem Cakmakli; Selva Demiralp; Sebnem Kalemli-Ozcan; Sevcan Yesiltas; Muhammed A. Yildirim
  85. Republic of Armenia; 2019 Article IV Consultation and Request for a Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Armenia By International Monetary Fund
  86. Canada; 2019 Article IV Consultation - Press Release; and Staff Report By International Monetary Fund
  87. Qatar; 2019 Article IV Consultation-Press Release; Staff Report By International Monetary Fund
  88. An empirical behavioral model of households’ deposit dollarization By Ramis Khabibullin; Alexey Ponomarenko
  89. Albania; Second Post-Program Monitoring Discussions-Press Release; and Staff Report By International Monetary Fund
  90. Investment housing tax concessions and welfare: Evidence from Australia By Yunho Cho; Shuyun May Li; Lawrence Uren
  91. Qualitative survey data and the perceived ‘normal’ growth: evidence for Portugal and the Euro-area By Nuno Goncalves; Tiago Martins
  92. "What Jobs Should a Public Job Guarantee Provide?: Lessons from Hyman P. Minsky" By Daniel Haim
  93. COVID-19 and SME Failures By ; Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova
  94. Guatemala; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  95. Switzerland; Financial System Stability Assessment By International Monetary Fund
  96. Is the German Mittelstand More Resistant to Crises? Empirical Evidence from the Great Recession By Michael Berlemann; Vera Jahn; Robert Lehmann
  97. Stamping out stamp duty: Property or consumption taxes? By Yunho Cho; Shuyun May Li; Lawrence Uren
  98. Large devaluations and inflation inequality: evidence from Brazil By Raphael Gouvea
  99. Lockdowns and the US Unemployment Crisis By Dreger, Christian; Gros, Daniel
  100. Denmark; 2019 Article IV Consultation - Press Release; Staff Report; and Statement by the Executive Director for Denmark By International Monetary Fund
  101. Structural Panel Bayesian VAR with Multivariate Time-varying Volatility to jointly deal with Structural Changes, Policy Regime Shifts, and Endogeneity Issues By Pacifico, Antonio
  102. Determinants of Disagreement: Learning from Indian Inflation Expectations Survey of Households By Singh, Gaurav Kumar; Bandyopadhyay, Tathagata
  103. Exchange Rates and Domestic Credit—Can Macroprudential Policy Reduce the Link? By Erlend Nier; Thorvardur Tjoervi Olafsson; Yuan Gao Rollinson
  104. Income Volatility and Portfolio Choices By Yongsung Chang; Jay H. Hong; Marios Karabarbounis; Yicheng Wang
  105. Early modern financial development in the Iberian peninsula By Freire Costa, Leonor; Münch Miranda, Susana; Nogues-Marco, Pilar
  106. R&D-based Economic Growth in a Supermultiplier Model By Nomaler, Önder; Spinola, Danilo; Verspagen, Bart
  107. Trade-induced local labor market shocks and asymmetrical labor income risk By Ursula Mello; Tomas Rodriguez Martinez
  108. Managing Macrofinancial Risk By Tobias Adrian; Francis Vitek
  109. Botswana; Technical Assistance Report-Report on Price Statistics Mission By International Monetary Fund
  110. Demographic Transition and Pension Reforms: Adding Demographics to GIMF By Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt; Simon Voigts
  111. Ecuador; First Review under the Extended Fund Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, and Financing Assurances Review-Press Release and Staff Report By International Monetary Fund
  112. Effects of LTV announcements in EU economies By Dimitris Mokas; Massimo Giuliodori
  113. It is Only Natural: Europe’s Low Interest Rates By Marco Arena; Gabriel Di Bella; Alfredo Cuevas; Borja Gracia; Vina Nguyen; Alex Pienkowski
  114. Distributional Effects of Competition: A Simulation Approach By Rodriguez Castelan, Carlos; Araar, Abdelkrim; Malásquez, Eduardo A.; Olivieri, Sergio; Vishwanath, Tara
  115. Equalizing growth: The case of Peru By Ramirez-Rondan, N.R.; Terrones, Marco E.; Winkelried, Diego
  116. Patience Will Be a Virtue in Fostering a Broad-Based Sustainable Recovery By Loretta J. Mester
  117. Quality of government and regional trade: Evidence from European Union regions By Javier Barbero; Giovanni Mandras; Giovanni Mandras; Ernesto Rodriguez-Crespo; Andres Rodriguez-Pose
  118. The role of finance in inclusive human development in Africa revisited By Simplice A. Asongu; Rexon T. Nting
  119. Discretionary and Nondiscretionary Services Expenditures during the COVID-19 Recession By Jonathan McCarthy
  120. Ireland; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Ireland By International Monetary Fund
  121. Expectations, Coordination Failures and Macro Crises By Juan Brichetti; Daniel Heymann; Pedro Juarros; Gustavo Montero
  122. Deep Learning, Predictability, and Optimal Portfolio Returns By Mykola Babiak; Jozef Barunik
  123. How Large and Persistent is the Response of Inflation to Changes in Retail Energy Prices? By Chadi Abdallah; Kangni R Kpodar
  124. A Conceptual Model for the Integrated Policy Framework By Suman S Basu; Emine Boz; Gita Gopinath; Francisco Roch; Filiz D Unsal
  125. A Congestion Theory of Unemployment Fluctuations By Yusuf Mercan; Benjamin Schoefer; Petr SedláÄ ek
  126. Exchange Rate Pass-Through in the Caucasus and Central Asia By Tigran Poghosyan
  127. A Quantitative Model for the Integrated Policy Framework By Tobias Adrian; Christopher J. Erceg; Jesper Lindé; Pawel Zabczyk; Jianping Zhou
  128. Mortgage Prepayment, Race, and Monetary Policy By Kristopher S. Gerardi; Paul S. Willen; David Hao Zhang
  129. Remittances and Value Added across Economic sub-sectors in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  130. The Impact of Climate on Economic and Financial Cycles: A Markov-switching Panel Approach By Monica Billio; Roberto Casarin; Enrica De Cian; Malcolm Mistry; Anthony Osuntuyi
  131. Assessing the effectiveness of currency-differentiated tools: The case of reserve requirements By Annamaria de Crescenzio; Etienne Lepers; Zoe Fannon
  132. Weaknesses of MMT as a Guide to Development Policy By Adam Aboobaker; Esra Nur Ugurlu
  133. What to Make of the Kaldor-Verdoorn Law? By Deepankar Basu; Manya Budhiraja
  134. An Anchor in Stormy Seas: Does Reforming Economic Institutions Reduce Uncertainty? Evidence from New Zealand By Michael Ryan
  135. Foreign demand for euro banknotes JEL Classification: E41, E47, E49, E59, F24 By Lalouette, Laure; Zamora-Pérez, Alejandro; Rusu, Codruta; Bartzsch, Nikolaus; Politronacci, Emmanuelle; Delmas, Martial; Rua, António; Brandi, Marco; Naksi, Martti
  136. Cote d'Ivoire; Fifth Reviews Under the Arrangement the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility- Press Release; Staff Report; Supplementary Information and Statement by the Executive Director for Côte d’Ivoire By International Monetary Fund
  137. Measuring Corporate Bond Market Dislocations By Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar
  138. Investor Sentiment, Sovereign Debt Mispricing, and Economic Outcomes By Ramzy Al Amine; Tim Willems
  139. Union Budget 2021 of the People by the People, for the People By Pazhanisamy, R.
  140. Are Marriage-Related Taxes and Social Security Benefits Holding Back Female Labor Supply? By Margherita Borella; Mariacristina De Nardi; Fang Yang
  141. What drives fluctuations of labor wedge and business cycles? Evidence from Japan By Masaru Inaba; Kengo Nutahara; Daichi Shirai
  142. On Government Spending and Income Inequality under Monopolistic Competition By Juin-Jen Chang; Jang-Ting Guo; Wei-Neng Wang
  143. Enhancing administrative and fiscal decentralisation in the Czech Republic By Urban Sila; Christine de la Maisonneuve
  144. Taylor Rule Yield Curve By Masazumi Hattori; Tomohide Mineyama; Jouchi Nakajima
  145. What happened to jobs at high risk of automation? By Alexandre Georgieff; Anna Milanez
  146. Strategic Asset Allocation of a Reserves' Portfolio: Hedging against Shocks By Pablo Orazi; Mario Torriani; Matias Vicens
  147. Fiscal Policy, the Sraffian Supermultiplier and Functional Finance By Peter Skott; Júlio Fernando Costa Santos; José Luís da Costa Oreiro
  148. Welfare Impact of Hosting Refugees in Ethiopia By Ayenew, Ashenafi Belayneh
  149. Monetizing Privacy By Rod Garratt; Michael Junho Lee
  150. Quantum Technology for Economists By Hull, Isaiah; Sattath, Or; Diamanti, Eleni; Wendin, Göran
  151. El Salvador; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for El Salvador By International Monetary Fund
  152. Financial Constraints: a Propagation Mechanism of Foreign Shocks By Rosario Aldunate
  153. Self-Fulfilling Prophecies, Quasi Non-Ergodicity & Wealth Inequality By Roger Farmer; Jean-Philippe Bouchaud
  154. Jackson, the Bank War, and the Legacy of the Second Bank of the United States By Peter L. Rousseau
  155. Integrated Epi-Econ Assessment By Timo Boppart; Karl Harmenberg; John Hassler; Per Krusell; Jonna Olsson
  156. Nowcasting Indonesia’s GDP Growth Using Machine Learning Algorithms By Tamara, Novian; Dwi Muchisha, Nadya; Andriansyah, Andriansyah; Soleh, Agus M
  157. Dry Bulk Shipping and the Evolution of Maritime Transport Costs, 1850-2020 By Jacks, David; Stuermer, Martin
  158. Allocating Losses: Bail-ins, Bailouts and Bank Regulation By Todd Keister; Yuliyan Mitkov

  1. By: Molnarova, Zuzana (Institute for Advanced Studies, Vienna, Austria); Reiter, Michael (Institute for Advanced Studies, Vienna, Austria)
    Abstract: In this paper, we study the relative importance of demand and technology shocks in generating business cycle fluctuations, both at the aggregate level and at the level of individual industries. We construct a New Keynesian DSGE model that is highly disaggregated at the industry level with an input-output network structure. Measured productivity in the model fluctuates in response to both technology and demand shocks due to endogenous factor utilization. We estimate the model by the simulated method of moments using U.S. industry data from 1960 to 2005. We find that the aggregate technology shock has zero variance. Exogenous shocks to technology are necessary for our model to fit the data, but these shocks are exclusively industry-specific, uncorrelated across industries. The bulk of the aggregate fluctuations, including those in aggregate measured productivity, are explained through shocks to aggregate demand. This shock structure is supported by a host of information from the disaggregate data. Our second finding is that about half of the decrease in the cyclicality of measured productivity in the U.S. after the mid-1980s can be explained by the reduction in the size of demand shocks, in line with the narrative of the great moderation.
    Keywords: Business cycles, productivity, industries, factor utilization, input-output linkages, networks
    JEL: E32 E24 E37
    Date: 2021–01
  2. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: A minimal central bank credibility, with a non-zero probability of not renegning his commitment ("quasi-commitment"), is a necessary condition for anchoring inflation expectations and stabilizing inflation dynamics. By contrast, a complete lack of credibility, with the certainty that the policy maker will renege his commitment ("optimal discretion"), leads to the local instability of inflation dynamics. In the textbook example of the new-Keynesian Phillips curve, the response of the policy instrument to inflation gaps for optimal policy under quasi-commitment has an opposite sign than in optimal discretion, which explains this bifurcation.
    Keywords: Ramsey optimal policy, Imperfect commitment, Discretion, New-Keynesian Phillips curve, Imperfect credibility.
    JEL: C61 C62 E31 E52 E58
    Date: 2021
  3. By: Mansur, Alfan
    Abstract: This paper aims to replicate and extend Smets and Wouters (2007) who study the shocks and frictions in the US business cycle using a Bayesian DSGE methodology. The novelty of this research is by applying the extended Taylor rule for monetary policy in which the monetary policy also targets full employment. The SW model seems able to fit the US macroeconomic data very well. When the output gap in the Monetary policy Taylor rule is replaced with the unemployment rate, wage mark up shock becomes more persistent in determining inflation and interest rate. Productivity shock also becomes stronger in driving output. However, some unexpected results also come up, e.g. the negative responses of hours worked to a risk premium shock and inflation to the demand shocks
    Keywords: shocks, frictions, monetary policy
    JEL: C11 E32 E52
    Date: 2020–10–24
  4. By: Armando Marozzi
    Abstract: Central Bank Independence has often been praised as a "free lunch" as it lowers inflation with no costs to output. This paper, instead, claims that in a peculiar monetary union such as the European Monetary Union (EMU) defending the independence during a financial crisis can be macroeconomically costly: unconventional monetary policies may expose the European Central Bank (ECB) to the threat of fiscal dominance which, in turn, might endogenously shift the ECB’s fiscal stance toward fiscal conservatism. Fiscally hawkish signals can then depress GDP and inflation, thereby forcing the ECB to prolong the unconventional stimuli to achieve its target. This paper finds evidence of this new "doom-loop" at the core of the EMU.
    Keywords: ECB, monetary-fiscal interaction, CBI, unconventional monetary policy, EMU, fiscal communication
    JEL: E52 E58 E61 E63
    Date: 2021
  5. By: Edoardo Chiarotti (IHEID, Graduate Institute of International and Development Studies, Geneva); ;
    Abstract: This note proposes an update to Figure 1 in "Macroeconomic Shocks and their Propagation" in the Handbook of Macroeconomics of 2016 (Ramey, 2016). Figure 1 of Ramey (2016) reports Impulse-Response Functions (IRFs) of variables of interest to a shock in the Federal Funds Rate, following the baseline and variations of the Vector Autoregression (VAR) models in Christiano et al. (1999). This note shows that, when using a time series for FED non-borrowed reserves that is not corrected for regulatory changes in reserves requirements, the results for the period 1983-07 are robust to the inclusion of monetary variables.
    Keywords: Central Bank, FED Reserves, VAR
    JEL: E52 E58 E65
    Date: 2021–01–07
  6. By: Jiménez, Valeria
    Abstract: This paper analyzes the relationship between functional income distribution aggregate demand and economic growth in five Central American countries; Costa Rica, El Salvador, Honduras, Nicaragua, and Panama for the period 1970-2016. It estimates the effects of a change in the wage share on aggregate demand based on a post-Kaleckian model, which allows for either profit- or wage-led demand. The results show that the domestic demand is wage-led in the five countries. The same applies for total demand with the exception of Panama, whose domestically wage-led demand turns profit-led when including the effect of distribution on net exports. Finally, it is argued that there is room for a wage-led recovery in Central America.
    Keywords: distribution,aggregate demand,wage share,demand regimes,consumption,investment,net exports,developing countries,Central America
    JEL: E12 E22 E23 E25 E61 F41
    Date: 2020
  7. By: Florin O. Bilbiie; Marc J. Melitz
    Abstract: The response of entry and exit to adverse supply shocks, such as COVID-19, is amplified by nominal rigidities. This leads to further amplification in the response of aggregate demand. Firms’ inability to adjust their prices induces further changes in profitability that engender additional entry-exit dynamics. These changes in net entry, in turn, amplify the initial response to the shock by generating additional curvature in the relationship between the shock and aggregate demand. Even in our baseline model with efficient equilibrium entry, this entry-exit multiplier triggers a substantial magnification of the welfare losses due to a negative shock through these second-order effects. Nominal rigidities may also induce a first-order effect when entry is no longer efficient. Our model highlights how the addition of endogenous entry to a benchmark New Keynesian model radically changes the consequences of nominal rigidities. We focus on the amplification of aggregate demand to supply shocks, but also highlight other key divergences that can potentially resolve some empirical discrepancies associated with the workhorse New-Keynesian model.
    JEL: E31 E32 E40 E60
    Date: 2020–12
  8. By: Millard, Stephen (Bank of England); Rubio, Margarita (Nottingham University); Varadi, Alexandra (Bank of England)
    Abstract: We use a DSGE model with financial frictions, leverage limits on banks, loan to value (LTV) limits and debt‑service ratio (DSR) limits on mortgage borrowing to examine: i) the effects of different macroprudential policies on key macro aggregates; ii) their interaction with each other and with monetary policy; and iii) their effects on the volatility of key macroeconomic variables and on welfare. We find that capital requirements can nullify the effects of financial frictions and reduce the effects of shocks emanating from the financial sector on the real economy. LTV limits, on their own, are not sufficient to constrain household indebtedness in booms, though can be used with capital requirements to keep DSRs under control. Finally, DSR limits lead to a significant decrease in the volatility of lending, consumption and inflation, since they disconnect the housing market from the real economy. Overall, DSR limits are welfare improving relative to any other macroprudential tool.
    Keywords: Macroprudential policy; monetary policy; leverage ratio; affordability constraint; collateral constraint
    JEL: E44 E58 G21 G28
    Date: 2021–01–15
  9. By: Emanuele Ciola (Department of Management, Universita' Politecnica delle Marche (Italy)); Edoardo Gaffeo (Department of Economics and Management, Universita' degli Studi di Trento (Italy).); Mauro Gallegati (Department of Management, Universita' Politecnica delle Marche (Italy))
    Abstract: This paper develops and estimates a macroeconomic model of real-financial markets interactions in which the behaviour of banks generates endogenous business cycles. We do so in the context of a computational agent-based framework, where the channelling of funds from depositors to investors occurring through intermediaries nformation and matching frictions. Since banks compete in both deposit and credit markets, the whole dynamic is driven by endogenous fluctuations in their profits. In particular, we assume that intermediaries adopt a simple learning process, which consists of copying the strategy of the most profitable competitors while setting their interest rates. Accordingly, the emergence of strategic complementarity - mainly due to the accumulation of information capital - leads to periods of sustained growth followed by sharp recessions in the simulated economy.
    Keywords: Keywords: Agent-based macroeconomics, Simulation-based estimation, Intermediaries behaviour, Business cycles
    JEL: C15 C51 C63 E32 E44
    Date: 2021–01
  10. By: De Koning, Kees
    Abstract: In a recent paper: “U.S. households’ balance sheet and the link to economic policies” (MPRA Paper 104369), it was illustrated that the Great Recession of 2008 and beyond caused a loss in home equity of $6.1 trillion between Q4 2005 and Q4 2011. It took households until Q2 2016 before the loss had been recovered when the level reached $14.488 trillion again. The $6.1 trillion loss was equal to 90% of the combined 2008, 2009 and 2010 Federal Government tax receipts. Evidence from the Federal Reserve will be used to show that the bottom 50% of income earners was the group, which suffered most from the Great Recession. Its wealth recovery took from Q1 2007, where the wealth level stood at $1.41 trillion until Q3 2017, to return to wealth level of 2007. Over the same period, the 50-90% of income earners group started of with a savings level of $20.81 trillion and saw their wealth grow over this period to $28.03 trillion. For the top 10% of U.S. households, their wealth grew by 52.8% over this period to reach $67.10 trillion by Q3 2017. The real cause of this widening gap between the bottom 50% and the top 50% of income earners is linked to savings levels. For the bottom 50% having a job is the single most important element for their economic survival. For them their savings levels are either non-existent or are very low. This group depends on their job’s income to survive. For the other two groups, their savings levels helps them to recover from a recession. The current corona crisis has caused and will cause the same threats to jobs as the Great Recession did. What has changed is that U.S. government debt to GDP has doubled from 62.3% at Q1 2007 to 127.3% at Q3 2020. Furthermore, since 2008, the Fed has injected $6.5 trillion (Q.E.) into the U.S. economy. Both government debt and Q.E. are based on debt levels. There is a savings based solution: QEHE, which stands for Quantitative Easing Home Equity. Converting such savings temporarily into cash will encourage a higher consumer spending level at a time when it is most needed. Households themselves have the choice of what to buy with their converted money. They do not depend on the government. Macro economically all households will benefit from the increased spending levels. An equal opportunity strategy!
    Keywords: U.S. savings levels; home equity; recessions and recoveries; adjustment periods for bottom 50% of households; equal opportunities economics
    JEL: D1 D12 D14 D5 D53 E2 E21 E24 E3 P00
    Date: 2021–01–03
  11. By: ; Erica X.N. Li; Tao Zha; Ji Zhang
    Abstract: We incorporate regime switching between monetary and fiscal policies in a general equilibrium model to explain three stylized facts: (1) the positive stock-bond return correlation from 1971 to 2000 and the negative one after 2000, (2) the negative correlation between consumption and inflation from 1971 to 2000 and the positive one after 2000, and (3) the coexistence of positive bond risk premiums and the negative stock-bond return correlation. We show that two distinctive shocks—the technology and investment shocks—drive positive and negative stock-bond return correlations under two policy regimes, but positive bond risk premiums are driven by the same technology shock.
    Keywords: stock-bond return correlation; consumption-inflation correlation; fiscal-monetary policy regime; bond risk premium; technology shock; investment shock
    JEL: E52 E62 G12 G18
    Date: 2020–10–02
  12. By: Oladunni, Sunday
    Abstract: The global oil dynamics has significant implications for both oil exporting and importing small open economies. However, much of the literature on oil shocks is oriented towards advanced oil-importing economies. Micro-founded studies that explore the effects of oil shocks from the standpoint of oil-endowed emerging economies are rather sparse, compared to the preponderance of studies on developed oil importers and exporters. Thus, resulting to a consequential knowledge gap on oil price transmission mechanism and a limited appreciation of the growing policy dilemmas in these economies. In addition, we consider a positive oil price shock to uncover the extent to which oil price increase is positive for the economy. The paper, therefore, sets up a new Keynesian dynamic stochastic general equilibrium (DSGE) model to study how an oil price shock impact macroeconomic aggregates in an oil-rich emerging economy. The typical small open economy model is enriched with an export-oriented oil firm, a multi-sector foreign production and a non-oil domestic firm. The model is closed with exchange rate-augmented interest rate rule, and it is calibrated for Nigeria, an important oil producer. Macroeconomic responses, sequel to a simulated positive oil price shock, reveal evidence of Dutch disease and the operation of the Harrod-Balassa-Samuelson effect. We find a compelling need for oil-endowed emerging economies to address these phenomena by ensuring a robust non-oil sector with limited exposure to the vagaries of oil price oscillation.
    Keywords: Oil Price, DSGE Model, Macroeconomic Dynamics, Emerging Oil Exporter
    JEL: E32 E37 E39
    Date: 2020–03–13
  13. By: Cooper Howes
    Abstract: The decline of the U.S. manufacturing share since 1960 has occurred disproportionately during recessions. Using evidence from two natural experiments—the collapse of Lehman Brothers in 2008 and U.S. interstate banking deregulation in the 1980s—I document a role for credit reallocation in explaining this phenomenon. Specifically, I show that losing access to credit disproportionately hurt manufacturing firms, and that the creation of new credit disproportionately benefited nonmanufacturing firms. These results arise endogenously from a model with technology-driven structural change and fixed costs of establishing new financial relationships. The model suggests an important role for long-run industry trajectories in properly accounting for the costs and benefits of policy interventions in credit markets.
    Keywords: Structural Change; Reallocation; Frinancial Frictions
    JEL: E32 E44 E51
    Date: 2020–11–02
  14. By: Naomi Feldman; Ori Heffetz
    Abstract: In early August, 2020, during the COVID-19 pandemic, Israel disbursed one-time, universal grants to its citizens, of $220 per adult and $150 per child. Using survey data, we estimate that 25–45 percent either had already mostly spent or were planning to spend the money by year’s end and 36–52 percent mostly paid down debts. Interestingly, about as many people reported mostly donating the grant or using it to help family or friends as reported saving it (10–18 percent), with donations mostly originating from higher-income respondents. This voluntary rerouting of governmental assistance may help alleviate the trade-off between targeting and simplicity/speed of disbursement.
    JEL: D14 D91 E21 E62 E65 H24 H31
    Date: 2020–12
  15. By: Fabo, Brian; Jančoková, Martina; Kempf, Elisabeth; Pástor, Luboš
    Abstract: Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.
    JEL: A11 E52 E58 G28
    Date: 2021
  16. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: The aim of the present paper is to provide criteria for a central bank of how to choose among different monetary-policy rules when caring about a number of policy targets such as the output gap and expected inflation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible.
    Keywords: Determinacy, Proportional Feedback Rules, Dynamic Stochastic General Equilibrium, Ramsey Optimal Policy under Quasi-Commitment.
    JEL: B22 B23 B41 C61 C62 E52
    Date: 2020–10–31
  17. By: International Monetary Fund
    Abstract: Rwanda has made considerable progress in sustaining high and inclusive growth and reducing poverty. Despite numerous shocks, macroeconomic management has been strong and debt risks have remained low. Going forward, the authorities’ National Strategy for Transformation (NST) aims to make progress toward the SDGs, but its financing will be challenging. A more neutral medium-term fiscal policy stance can help, reinforced with commitments for more domestic revenue mobilization and mitigation of fiscal risks. The central bank moved to a new interest-rate based monetary policy framework and, with inflation below its target range, eased the policy stance. To support their policies and NST implementation, the authorities are requesting approval of a 3-year program supported by the Policy Coordination Instrument (PCI).
    Keywords: Public debt;External debt;Public financial management (PFM);Debt sustainability analysis;Revenue administration;ISCR,CR,Rwanda,debt,financing,Rwandan authorities
    Date: 2019–07–03
  18. By: Arslan Razmi (Department of Economics, University of Massachusetts Amherst)
    Abstract: COVID-19 constitutes a health crisis which has rapidly turned into a social and economic crisis. This paper briefly explores some of the issues raised by the combination of a massive supply-side shock with a massive demand-side shock, and the interaction of these with the exponential dynamics of a viral infection. The analysis suggests that, during the recovery, the state of infection among the existing workforce relative to that of the incoming one will play an important role in determining the dynamic interactions between economics and epidemiology. Perhaps counterintuitively, the logic of the basic epidemiological SI model suggests that, under plausible assumptions about consumer behavior, steady recovery is helped if the re-hired workers are more heavily infected than the existing workforce. This has implications for the fiscal strategies that are likely to be pursued in the coming months. In particular, fiscal instruments should simultaneously target aggregate demand and disease transmissibility in relatively small steps. There is no restoring economic health without stabilizing economic sentiments, the path to which goes through communicating a reasonable degree of control over pathogen spread.
    Keywords: Epidemiological models, COVID-19, aggregate demand, aggregate supply, fiscal policy.
    JEL: E62 H51 E60
    Date: 2020
  19. By: Saroj Bhattarai; Jae Won Lee; Choongryul Yang
    Abstract: We show that the effectiveness of redistribution policy in stimulating the economy and improving welfare is directly tied to how much inflation it generates, which in turn hinges on monetary-fiscal adjustments that ultimately finance the transfers. We compare two distinct types of monetary-fiscal adjustments: In the monetary regime, the government eventually raises taxes to finance transfers while in the fiscal regime, inflation rises, effectively imposing inflation taxes on public debt holders. We show analytically in a simple model how the fiscal regime generates larger and more persistent inflation than the monetary regime. In a quantitative application, we use a two-sector, two-agent New Keynesian model, situate the model economy in a Covid-19 recession, and quantify the effects of the transfer components of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. We find that the transfer multipliers are significantly larger under the fiscal regime—which results in a milder contraction than under the monetary regime, primarily because inflationary pressures of this regime counteract the deflationary forces during the recession. Moreover, redistribution produces a Pareto improvement under the fiscal regime.
    Keywords: Household heterogeneity, Redistribution, Monetary-fiscal policy mix, Transfer multiplier, Welfare evaluation, Covid-19, CARES Act
    JEL: E53 E62 E63
    Date: 2020–12
  20. By: Christoph Gortz; Christopher Gunn; Thomas A. Lubik
    Abstract: This paper identifies total factor productivity (TFP) news shocks using standard VAR methodology and documents a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. The authors show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. To explain the empirical inventory behavior, they develop a framework that relies on the presence of knowledge capital accumulated through a learning-by-doing process. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside other macroeconomic variables. The broad-based comovement the authors document supports the view that news shocks are an important driver of aggregate fluctuations.
    Keywords: News shocks; business cycles; inventories; knowledge capital; VAR
    JEL: E2 E3
    Date: 2020–05–08
  21. By: Syarifuddin, Ferry; Izzulhaq, Syahid
    Abstract: This paper examines the effectiveness of futures-based foreign exchange (FX) intervention in determining the exchange rate dynamics and exchange rate pass-through effect. We specifically compare the case of Brazil and India to evaluate and take a lesson learned from those countries’ policy designs and outcomes in utilizing the futures-based FX intervention. By utilizing autoregressive and distributed lag estimations, our empirical results show that the futures-based FX interventions in Brazil are effective in determining the exchange rate movement and reducing exchange rate pass-through, while the futures-based intervention in India is neutral. The results are also confirmed in the robustness checks estimations. The finding implies that the effectiveness of futures-based FX intervention is related to the economic-institutional aspects within these countries, which also suggests that an effective futures-based FX intervention occurs only under specific circumstances.
    Keywords: Foreign Exchange Intervention; Futures-based FX Intervention; Brazil; India
    JEL: E44 E58 G28
    Date: 2020–12–01
  22. By: Rösl, Gerhard; Seitz, Franz
    Abstract: Wir zeigen, dass die gängige These, Bargeld würde wegen des zunehmenden Einsatzes elektronischer Zahlungsmittel generell immer stärker an Bedeutung verlieren, sowohl im weltweiten Maßstab als auch in den Emissionsländern der international nachfragten Sorten (USD, EUR, CHF, GBP und JPY) als klar widerlegt angesehen werden kann. Besonderes Augenmerk legen wir dabei auf die Entwicklung der Bargeldnachfrage in Krisenphasen. Hier unterscheiden wir zwischen drei verschiedenen Typen von Krisen (technologische Krisen, Finanzmarktkrisen, Naturkatastrophen) und untersuchen jeweils die krisenbedingte Nachfrage nach großen und kleinen Denominationen von Banknoten seit 1990. Dabei zeigt sich als generelles Krisen-Charakteristikum, dass in derartigen unsicheren Zeiten die Bargeldnachfrage unabhängig von der speziellen Art der Krise immer ansteigt. Dahinter stehen sowohl Transaktions- als auch Hortungsmotive. Die völlig elastische Befriedigung dieser Nachfrage durch die Zentralbanken hilft die jeweilige Situation zu beruhigen und die Unsicherheit zu reduzieren. Vor diesem Hintergrund sind Forderungen nach der Abschaffung von Bargeld äußerst kritisch zu sehen.
    Keywords: Bargeld,Banknoten,Krisen,Corona
    JEL: E41 E51 E58
    Date: 2020
  23. By: Misha Galashin; Martin Kanz; Ricardo Perez-Truglia
    Abstract: How do macroeconomic expectations affect consumer decisions? We examine this question using a natural field experiment with 2,872 credit card customers from a large commercial bank. We conduct a survey to measure consumer expectations about future inflation and the nominal exchange rate and combine this with an information-provision experiment that generates exogenous variation in these expectations. We merge the survey and experimental data with detailed administrative data on the subjects' credit card transactions and balances. The experiment is designed to test three standard predictions from models of intertemporal consumption choice: inflation expectations should affect spending on durables; exchange rate expectations should affect spending on tradables; and, holding constant the nominal interest rate, inflation expectations should affect borrowing. We find that the information provided to participants strongly affects subjective expectations. However, we do not find any significant effects on actual consumer behavior (as measured in administrative data) or self-reported consumption plans (as measured in survey data). Our preferred interpretation is that consumers are not sophisticated enough to factor inflation and exchange rate expectations into their consumption decisions. The absence of a link between consumer expectations and behavior has potentially important implications for macroeconomic policies such as forward guidance.
    JEL: C81 C93 D83 D84 E03 E31
    Date: 2020–12
  24. By: Linda Schilling; Jesús Fernández-Villaverde; Harald Uhlig
    Abstract: A central bank digital currency, or CBDC, may provide an attractive alternative to traditional demand deposits held in private banks. When offering CBDC accounts, the central bank needs to confront classic issues of banking: conducting maturity transformation while providing liquidity to private customers who suffer “spending” shocks. We analyze these issues in a nominal version of a Diamond and Dybvig (1983) model, with an additional and exogenous price stability objective for the central bank. While the central bank can always deliver on its nominal obligations, runs can nonetheless occur, manifesting themselves either as excessive real asset liquidation or as a failure to maintain price stability. We demonstrate an impossibility result that we call the CBDC trilemma: of the three goals of efficiency, financial stability (i.e., absence of runs), and price stability, the central bank can achieve at most two.
    Keywords: central bank digital currency, monetary policy, bank runs, financial intermediation, inflation targeting, CBDC trilemma
    JEL: E58 G21
    Date: 2020
  25. By: International Monetary Fund
    Abstract: The Swiss economy has performed relatively well since the global financial crisis. Growth compares favorably with most other advanced countries and aggregate employment has grown robustly. The fiscal position is strong and the external trade surplus remains large and stable despite several episodes of intense appreciation pressure owing to the Swiss franc’s reputation as a safe haven. Growth is expected to temporarily dip to 1.1 percent in 2019 on weakness in external demand. Risks to the outlook are tilted down. Switzerland is also facing several policy challenges: low interest rates are fueling risks in the real estate and mortgage markets; persistent subdued inflation has decreased the operational space for monetary policy; and population aging and technological change will require further upskilling and generate new demands for public resources.
    Keywords: Corporate income tax;Public debt;Expenditure;Banking;Income;ISCR,CR,government,government report,Switzerland,FINMA
    Date: 2019–06–26
  26. By: Beyer, Robert; Milivojevic, Lazar
    Abstract: With the COVID-19 pandemic, the intense debate about secular stagnation will become even more important. Empirical estimates of equilibrium real interest rates are so far mostly limited to advanced economies, since no statistical procedure suitable for a large set of countries is available. This is surprising, as equilibrium rates have strong policy implications in emerging markets and developing economies as well; current estimates of the global equilibrium rate rely on only a few countries; and estimates for a more diverse set of countries can improve understanding of the drivers. This paper proposes a model and estimation strategy that decompose ex ante real interest rates into a permanent and transitory component even with short samples and high volatility. This is done with an unobserved component local level stochastic volatility model, which is used to estimate equilibrium rates for 50 countries with Bayesian methods. Equilibrium rates were lower in emerging markets and developing economies than in advanced economies in the 1980s, similar in the 1990s, and have been higher since 2000. In line with economic integration and rising global capital markets, synchronization has been rising over time and is higher among advanced economies. Equilibrium rates of countries with stronger trade linkages and similar demographic and economic trends are more synchronized.
    Keywords: equilibrium interest rate,stochastic volatility,Bayesian inference,synchronization
    JEL: E52 E43 C32
    Date: 2021
  27. By: Daniel Borup (Aarhus University, CREATES and the Danish Finance Institute (DFI)); David E. Rapach (Washington University in St. Louis and Saint Louis University); Erik Christian Montes Schütte (Aarhus University, CREATES and the Danish Finance Institute (DFI))
    Abstract: We generate a sequence of now- and backcasts of weekly unemployment insurance initial claims (UI) based on a rich trove of daily Google Trends (GT) search-volume data for terms related to unemployment. To harness the information in a high-dimensional set of daily GT terms, we estimate predictive models using machine-learning techniques in a mixed-frequency framework. In a simulated out-of-sample exercise, now- and backcasts of weekly UI that incorporate the information in the daily GT terms substantially outperform models that ignore the information. The relevance of GT terms for predicting UI is strongly linked to the COVID-19 crisis.
    Keywords: Unemployment insurance, Internet search, Mixed-frequency data, Penalized regression, Neural network, Variable importance
    JEL: C45 C53 C55 E24 E27 J65
    Date: 2021–01–11
  28. By: Jonathan H. Wright
    Abstract: This paper considers new options on Treasury and stock futures than expire each Wednesday and Friday. I examine the volatilities implied by these options as of the night before expiration, and compare the volatilies just before FOMC days and employment report days with the volatilities on other Tuesdays or Thursdays, respectively. This can be used to measure the risk neutral uncertainty associated with FOMC announcements and employment reports. I can also compare the average physical and risk neutral uncertainty: the difference between them is the average variance risk premium. Average variance risk premia are large and significantly positive, especially for FOMC days. Lastly, I construct options-implied densities on the eve of FOMC and employment report days.
    JEL: C22 E43 E52 G14
    Date: 2020–12
  29. By: Nirvana Mitra (Department Of Economics, Shiv Nadar University)
    Abstract: I study the relationship between political constraints and the probability of sovereign default using a dynamic model of fiscal policy augmented with legislative bargaining and default. I find that the tightness of political constraints and default probability are inversely related if the output cost of default is not too high. The model government consists of legislators who bargain over multidimensional fiscal policy, including over a local public good that benefits only the regions they represent. Tighter political constraints are equivalent to more legislators with veto power over fiscal policies. In this case, a default implies that the released resources need to be distributed among more regions as local public goods. Thus, a smaller benefit accrues to each region, decreasing the incentive to default. However, if default is too costly, even relatively unconstrained governments default less frequently because the individual share of cost is too high. Empirical evidence from South American countries is consistent with this result. I calibrate the infinite horizon model to Argentina. It confirms the inverse relationship. A counterfactual exercise with even higher political constraints shows that the default by Argentina in 2001 could not be avoided.
    Keywords: Sovereign debt, Default risk, Interest rates, Political economy, Minimum winning coalition, Endogenous borrowing constraints.
    JEL: D72 E43 F34 E62 F41
    Date: 2021–01–15
  30. By: Joshua C.C. Chan; Edouard Wemy
    Abstract: This paper applies the common stochastic trends representation approach to the time series of total factor productivity and the relative price of investment to investigate the relationship between neutral technology and investment-specific technology. The permanent and transitory movements in both series are estimated efficiently via MCMC methods using band matrix algorithms. The results indicate that total factor productivity and the relative price of investment are, each, well-represented by an integrated process of order one. In addition, their time series share a common trend component that we interpret as reflecting changes in General Purpose Technology. These results suggest that (1) the traditional view of assuming that neutral technology and investment-specific technology follow independent processes is not supported by the features of the time series and (2) advances in information and communication technologies are general purpose technological progress that drive the trend in aggregate TFP in the United States.
    Keywords: Business cycles, Investment-specific technological change, Total Factor Productivity, Unobserved Components Model
    JEL: E22 E32 C32
    Date: 2020–12
  31. By: Griffy, Benjamin; Gomis-Porqueras, Pedro
    Abstract: We develop a model that allows us to understand the cyclicality of part and full-time employment. In the model, labor market frictions generate a surplus between workers and firms, who jointly decide whether their employment relationship is best suited for part or full-time work based on match quality shocks and the broader economic environment. Lower acyclical costs cause the surplus of part-time matches to vary less with the business cycle than the surplus of full-time matches. As a consequence, the model is able to generate procyclical full-time employment and countercyclical part-time employment as observed in the data. We also show that ignoring part-time employment understates the impact on employment and inequality of a recession and that subsidizing part-time work is far more effective than increasing unemployment insurance at preventing a labor market downturn.
    Keywords: part-time employment, search, matching, bargaining
    JEL: E24 E30 J31 J6
    Date: 2020–12–21
  32. By: Ruoyun Mao; Shu-Chun Susan Yang
    Abstract: The theoretical literature generally finds that government spending multipliers are bigger than unity in a low interest rate environment. Using a fully nonlinear New Keynesian model, we show that such big multipliers can decrease when 1) an initial debt-to-GDP ratio is higher, 2) tax burden is higher, 3) debt maturity is longer, and 4) monetary policy is more responsive to inflation. When monetary and fiscal policy regimes can switch, policy uncertainty also reduces spending multipliers. In particular, when higher inflation induces a rising probability to switch to a regime in which monetary policy actively controls inflation and fiscal policy raises future taxes to stabilize government debt, the multipliers can fall much below unity, especially with an initial high debt ratio. Our findings help reconcile the mixed empirical evidence on government spending effects with low interest rates.
    Keywords: Expenditure;Inflation;Real interest rates;Public debt;Zero lower bound;WP,nominal interest rate,regime F
    Date: 2020–06–12
  33. By: Diana Ricciulli-Marín; Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena
    Abstract: Este documento estudia la relación de la política fiscal subnacional con los ciclos económicos en Colombia. Para ello, se estima un modelo dinámico de datos panel para municipios y departamentos durante el periodo 1990-2018. Los resultados señalan que, en promedio, la política fiscal subnacional en Colombia fue pro-cíclica en este periodo. No obstante, se encuentra una tendencia hacia menor pro-ciclicidad luego de las principales reformas al sistema de transferencias y la introducción de normas sobre responsabilidad fiscal subnacional. Las primeras buscaron un diseño menos pro-cíclico de las transferencias, mientras que las segundas fomentaron la disciplina y sosteniblidad de las finanzas locales. Por otra parte, se identifica un aumento reciente en la pro-ciclicidad de los gastos de inversión en los municipios de menor desarrollo y departamentos, lo cual coincide con el aumento en la participación de regalías en este grupo de entidades territoriales. **** ABSTRACT: This paper studies the relationship between subnational fiscal policy and economic cycles in Colombia. To do so, we estimate a dynamic panel data model for Colombian municipalities and departments during the period 1990-2018. The main findings show that, on average, subnational fiscal policy in Colombia was pro-cyclical in this period. However, results highlight lower pro-cyclicality following the main reforms to intergovernmental transfers and the introduction of subnational responsibility laws. The former led to a less pro-cyclical design of this source of revenues, while the latter fostered fiscal discipline and local finances' sustainability. Furthermore, we find evidence of higher pro-cyclicality of capital expenditures in less-developed municipalities and departments, which coincides with the increase in royalties' participation in this group of territorial entities.
    Keywords: Política fiscal subnacional, ciclo económico, gasto subnacional, Subnational fiscal policy, economic cycles, subnational expenditure
    JEL: E62 C23 H72
    Date: 2021–01
  34. By: Harald Uhlig; Taojun Xie
    Abstract: The recent rise of digital currencies opens the door to their use in parallel alongside official currencies ("dollar'') for pricing and transactions. We construct a simple New Keynesian framework with parallel currencies as pricing units and sticky prices. Relative prices become a state variable. Exchange rate shocks can arise even without other sources of uncertainty. A one-time exchange rate appreciation for a parallel currency leads to persistent redistribution towards the dollar sector and dollar inflation. The share of the non-dollar sector increases when prices in the dollar sector become less sticky and when firms can choose the pricing currency.
    JEL: E30 E52
    Date: 2020–12
  35. By: Frantisek Brazdik; Tibor Hledik; Zuzana Humplova; Iva Martonosi; Karel Musil; Jakub Rysanek; Tomas Sestorad; Jaromir Tonner; Stanislav Tvrz; Jan Zacek
    Abstract: This paper introduces g3+, the new core forecasting model of the Czech National Bank (CNB), which replaced the previous g3 model in July 2019. We present the features of the new core forecasting model together with our motivation for adopting them. The new structural features and extensions were motivated by our experience with using the g3 model for more than a decade as the core forecasting tool at the CNB. The new g3+ model features a novel structural foreign economy block, oil as a production factor, heterogeneous households, and other adjustments. Also, we present a new simulation approach that allows us to emulate limited information for the simulation of conditional forecasts. Furthermore, the introduction of the g3+ model on average preserves the forecasting performance of the CNBs DSGE modeling framework.
    Keywords: Conditional forecast, DSGE, g3 model, oil, small open economy, two country model
    JEL: C51 C53 E27 E37 F41
    Date: 2020–12
  36. By: Kollmann, Robert
    Abstract: This paper studies a New Keynesian model of a two-country world with a zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence of the ZLB generates multiple equilibria. The two countries can experience recurrent liquidity traps induced by the self-fulfilling expectation that future inflation will be low. These “expectations-driven” liquidity traps can be synchronized or unsynchronized across countries. In an expectations-driven liquidity trap, the domestic and international transmission of persistent shocks to productivity and government purchases differs markedly from shock transmission in a “fundamentals-driven” liquidity trap.
    Keywords: Zero lower bound, expectations-driven and fundamentals-driven liquidity traps, domestic and international shock transmission, terms of trade, exchange rate, net exports
    JEL: E3 E4 F2 F3 F4
    Date: 2021–01–03
  37. By: Grey Gordon
    Abstract: The standard approach to discretizing VARs uses tensor grids. However, when the VAR components exhibit significant unconditional correlations or when there are more than a few variables, this approach creates large inefficiencies because some discretized states will be visited with only vanishingly small probability. I propose pruning these low-probability states, thereby constructing an efficient grid. I investigate how much an efficient grid improves accuracy in the context of an AR(2) model and a small-scale New Keynesian model featuring four shocks. In both contexts, the efficient grid vastly increases accuracy.
    Keywords: VAR; Autoregressive; Discretization; New Keynesian
    JEL: C32 C63 E32 E52
    Date: 2020–06–05
  38. By: Mora Barrenechea, Mauricio
    Abstract: Bolivia is a small, open and commodity exporter economy, so it has been exposed to different external shocks, mainly to fluctuations in commodity prices. According to the literature, the effects of international commodity prices are not complete and change over time. The objective of this document is to analyze if there is a change in the relationship between commodity prices and the main local macroeconomic variables, given that the Bolivian economy went through structural changes in the last two decades. In that sense, this paper uses a Bayesian time-varying parameter structural vector auto-regressive model (TVP-SVAR) with stochastic volatility. The results show that the effect of the international oil price on economic growth decreased between 2000 and 2018 due to a volume effect (lower external demand) as a value effect (low oil prices). The pass-through of international food prices to domestic inflation is significant and shows a slight decrease since 2015 due to a moderation in the growth rate of food imports. Finally, the nominal exchange rate appreciated initially to mitigate the imported inflationary pressures and, subsequently, thanks to the greater income of foreign currency to the economy, also its degree of response decreased over time due to the lower effect on economic growth and reduced external inflationary pressures.
    Keywords: Price commodities; economic growth; inflation; time-varying parameters; TVP-SVAR
    JEL: C32 E31 F31 F41
    Date: 2020–12–13
  39. By: International Monetary Fund
    Abstract: Seychelles has made noticeable progress toward economic stability and sustainability under successive Fund programs through prudent macroeconomic policies and bold reforms since the crisis in 2008. Despite significant headway, the country remains vulnerable to external shocks as a small, open, and tourism-dependent economy. Seychelles could face challenges to reconcile its goals to reduce its infrastructure gap, enhance its resilience to climate change, and bolster its medium-term fiscal and external sustainability.
    Keywords: Debt reduction;Public debt;Tourism;Banking;National accounts;ISCR,CR,government,tax transparency,Seychelles government,Seychellois authorities
    Date: 2019–07–01
  40. By: Membreño, Luis; López, Jennifer; Jiménez, Kenneth
    Abstract: In the present study, we estimate the symmetric and asymmetric multipliers of expenditure and income for Nicaragua. For the symmetric model we used the Structural Vector Autoregressive (SVAR) to identify the fiscal multipliers on the product, consumption and investment. For the asymmetric model we used the local projections approach. The results of the linear model found that spending and income multipliers of the Central Government are less than one Córdoba for GDP, consumption and private investment. Likewise, the results suggest that capital spending has a greater effect on the product. Regarding to the non-linear model, a slight asymmetry was evidenced in the spending multipliers while the income multiplier was always negative no matter the state of the economy.
    Keywords: Fiscal policy, fiscal multipliers, asymmetry, autoregressive structural vector, local projections.
    JEL: E62
    Date: 2020–09–30
  41. By: Yvo Mudde; Anna Samarina; Robert Vermeulen
    Abstract: This paper investigates cross-border spillover effects from the Eurosystem's Public Sector Purchase Programme (PSPP) on euro area government bond yields. We distinguish between the direct effects of domestic bond purchases by national central banks and the indirect effects from bond purchases by national central banks in other euro area countries over the period March 2015 - December 2018. The results reveal substantial spillover effects across the euro area, providing evidence for strong arbitrage within the euro area. These spillover effects are particularly large for long-term bonds and for bonds issued by non-core countries. The larger impact of spillovers in these cases can be explained by investors rebalancing towards higher yielding government bonds. In addition, purchases under PSPP had their largest impact on bond yields in 2015.
    Keywords: Public Sector Purchase Programme; euro area; spillovers; government bonds
    JEL: E52 E58 G12
    Date: 2021–01
  42. By: Monoj Kumar Majumder; Mala Raghavan; Joaquin Vespignani
    Abstract: This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigate the effects of commodity price volatility on external debt accumulation.
    Keywords: Commodity price volatility, external debt, commodity-exporting countries, exchange rate regime
    JEL: E62 F31 F34 G01
    Date: 2020–12
  43. By: Pellens, Maikel; Peters, Bettina; Hud, Martin; Rammer, Christian; Licht, Georg
    Abstract: We study the cyclicality of public R&D in 28 OECD countries (1995-2017). While procyclical on average, public R&D reacts asymmetrically over different phases of the business cycle and becomes acyclical during recessions. It is also heterogeneous across countries: Innovation leaders and followers behave countercyclically during recessions while moderate innovators behave procyclically. Furthermore, the share of public R&D allocated to the business sector is countercyclical, but the thematic composition remains stable. These results, not driven by countries' financial constraints, imply that countries behind the innovation frontier might strengthen their resilience to economic crises by adopting countercyclical R&D strategies.
    Keywords: R&D,Public Policy,Business Cycle
    JEL: O38 H50 H12 E32
    Date: 2020
  44. By: International Monetary Fund
    Abstract: Actions by the new government since taking office in April 2018 helped to stabilize macroeconomic conditions, but the situation remains challenging. Overall growth remained subdued. While elevated, inflation is tracking down. Program performance is broadly on track, though progress on structural measures has been slower than anticipated. Healthy revenues and significant underspending resulted in a lower-than-programed fiscal deficit. All quantitative targets were met, except the end-December performance criterion on net domestic assets (NDA) of the central bank and the end-March indicative target on poverty-related spending.
    Keywords: Arrears;Fiscal risks;Public debt;Expenditure;External debt;ISCR,CR,authority,government's reform agenda,agenda,Medium-Term debt management strategy,headline arrears amount
    Date: 2019–07–09
  45. By: International Monetary Fund
    Abstract: The economy continues to grow at a fast pace, driven by port activity and cotton production. The execution of the 2019 budget is on track to bring the fiscal deficit within the WAEMU convergence criterion of 3 percent of GDP this year. Program implementation remains very satisfactory with all end-December 2018 quantitative performance criteria (QPCs) and structural benchmarks (SBs) met.
    Keywords: Public debt;External debt;Government debt management;Revenue administration;Debt sustainability;ISCR,CR,Eurobond issuance,deficit,debt ratio,financing mix
    Date: 2019–07–02
  46. By: Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Xiyuan Liu (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA)
    Abstract: Effects of monetary policy shocks on large amounts of macroeconomic variables are identified by a new class of functional-coefficient factor-augmented vector autoregressive (FAVAR) models, which allows coefficients of classical FAVAR models to vary with some variable. In the empirical study, we analyze the impulse response functions estimated by the newly proposed model and compare our results with those from classical FAVAR models. Our empirical finding is that our new model has an ability to eliminate the well-known price puzzle without adding new variables into the dataset.
    Keywords: Factor-augmented vector autoregressive; Functional coefficient models; Impulse response functions; Nonparametric estimation; Price puzzle
    JEL: C14 C32 E30 E31
    Date: 2021–01
  47. By: Benjamin Born; Gernot J. Müller; Moritz Schularick; Petr SedláÄ ek
    Abstract: How much credit does Donald Trump deserve for the macroeconomic performance of the US economy? Growth and job creation have been robust during the first 2.5 years of his presidential term, but this does not prove that Trump made a difference. In this note we develop a counterfactual scenario for how the US economy would have evolved without Trump—we let a matching algorithm determine which combination of other economies best resembles the pre-election path of the US economy. We then compare the post-election performance of the US economy to this synthetic “doppelganger†. There is little evidence for a Trump effect.
    Keywords: President Trump, macroeconomic performance, economic growth, counterfactual, synthetic control method, doppelganger
    JEL: E30 E60
    Date: 2020–12–16
  48. By: Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
    Abstract: In recent years, many Low-Income Countries (LICs) have implemented substantial reforms to their monetary policy frameworks, but existing economic research has not provided a clear rationale to guide those efforts. In this paper we analyze the role of monetary policy frameworks in the propagation of aggregate shocks, using a large panel dataset of 79 LICs over the period 1990-2015 as well as event study analysis for a group of 28 sub-Saharan African LICs. We find highly significant differences in the propagation of external shocks between the LICs that target monetary aggregates or inflation compared to those that maintain rigid nominal exchange rates as a nominal anchor. We also find that the large surprise devaluation of the Central African Franc (CFA) in January 1994 had highly significant effects on the GDP growth of 10 CFA countries compared to 18 similar countries that were outside the CFA zone. Our empirical analysis provides strong support for the role of monetary policy frameworks in facilitating macroeconomic stability in LICs—a conclusion that is particularly relevant as LICs now face a multitude of similar shocks associated with the global COVID-19 pandemic.
    Keywords: Monetary policy frameworks;Exchange rates;Production growth;Inflation targeting;Oil prices;WP,oil price shock,terms of trade,change frequency,monetary policy framework in LICs,sensitivity analysis,transparent monetary policy framework,unanticipated monetary policy shock
    Date: 2020–07–24
  49. By: International Monetary Fund
    Abstract: This paper discusses the Staff-Monitored Program (SMP) for Zimbabwe and highlights that the new government that assumed office following the July 2018 elections is committed to addressing the macroeconomic imbalances, removing structural distortions to facilitate a resumption in growth, and to re-engaging with the international community including by clearing its external arrears. The SMP will be monitored on a quarterly basis and is intended to assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to macroeconomic stability and assist in reengagement with the international community. With limited access to external financing and the very low level of international reserves, the authorities’ room for manoeuvre is very narrow. There are also significant implementation risks of the monetary and exchange rate reforms, as well as addressing governance and corruption weaknesses, which could adversely impact the attainment of SMP objectives.
    Keywords: Public debt;Banking;Currencies;Inflation;Government debt management;ISCR,CR,Zimbabwean authorities,nominal GDP,government securities,foreign exchange,private sector
    Date: 2019–05–30
  50. By: Ozili, Peterson K
    Abstract: In this paper, I discuss financial reporting under economic policy uncertainty. This paper is one of the first papers to relate economic policy uncertainty to financial reporting behaviour. It identifies the link between economic policy uncertainty and financial reporting in terms of earnings management and fair value accounting. It argues that high economic policy uncertainty will transmit fewer new information to firms which can motivate managers to influence accounting numbers in the direction of the desired financial reporting outcome. The discussion in the paper adds to our understanding of how economic conditions affect financial reporting outcomes.
    Keywords: economic policy uncertainty, financial reporting, accrual, accounting quality, policy uncertainty; loan loss provisions, earnings management, fair value accounting.
    JEL: E51 E58 E59 M40 M41 M42 M48
    Date: 2021
  51. By: Guilherme Klein Martins (University of Massachusetts Amherst, USA); Peter Skott (University of Massachusetts Amherst, USA)
    Abstract: This paper presents a model of inflation in developing economies and uses it to evaluate macroeconomic policy in those countries. We see cross-sectoral interactions between demand and supply side forces as central and show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The analysis applies to economies with marked underemployment, a central feature of developing and emerging countries. The recent Brazilian experience is used to illustrate the argument.
    Keywords: inflation targeting, Dutch disease, overvaluation, commodities boom, Washington consensus
    JEL: E63 O23 O14
    Date: 2020
  52. By: Margherita Borella; Mariacristina De Nardi
    Abstract: In old age, consumption can fluctuate because of shocks to available resources and because health shocks affect utility from consumption. We find that even temporary drops in income and health are associated with drops in consumption and most of the effect of temporary drops in health on consumption stems from the reduction in the marginal utility from consumption that they generate. More precisely, after a health shock, richer households adjust their consumption of luxury goods because their utility of consuming them changes. Poorer households, instead, adjust both their necessary and luxury consumption because of changing resources and utility from consumption.
    JEL: D10 D11 D12 D14 E20 E21 H20 H31 H51
    Date: 2020–10–23
  53. By: International Monetary Fund
    Abstract: The economy is doing well, but supply constraints are biting. Growth has slowed as the economy has reached capacity limits, with very low unemployment even as participation has increased. Recent wage increases have been very strong, ahead of productivity. So far, inflation remains contained. The economy continues to run a current account surplus, even though domestic absorption has picked up. But the housing market is pressured, especially in metropolitan areas. Policies should balance risks of overheating against a faster-than-expected slowdown and aim to boost potential growth.
    Keywords: Fiscal stance;Anti-money laundering and combating the financing of terrorism (AML/CFT);Banking;Public financial management (PFM);External sector statistics;ISCR,CR,exchange rate,expenditure,economy,central bank
    Date: 2019–06–13
  54. By: Michael Funke; Raphael Terasa
    Abstract: On 3 June 2020, the German government announced a EUR 130 billion fiscal stimulus package to stimulate market demand and jumpstart the economy in the wake of the COVID-19 pandemic lockdown in the spring of 2020. The most prominent measure of this package is an unconventional fiscal policy in the form of a temporary VAT rates cut for six months, from 1 July to 31 December 2020. Employing a dynamic stochastic general equilibrium (DSGE) framework, we study the efficiency of the VAT tax rates cut for ameliorating the consequences of the pandemic recession. The simulation of the calibrated DSGE model yields a tax policy-induced real GDP increase of about 0.3 percentage points for 2020.
    Keywords: fiscal policy, value-added tax, DSGE model, Covid-19, Germany
    JEL: E30 E60 H25 I15
    Date: 2020
  55. By: International Monetary Fund
    Abstract: The U.S. economy is in the longest expansion in recorded history. Unemployment is at levels not seen since the late 1960s, real wages are rising, and inflationary pressures remain subdued. Economic activity, while still growing above potential, is expected to slow to around 2.6 percent this year and 1.9 percent in 2020.
    Keywords: Inflation;Income;Personal income;Education;Labor;ISCR,CR,staff appraisal,statement,rate,staff representative,restriction
    Date: 2019–06–24
  56. By: International Monetary Fund
    Abstract: Economic activity has been recovering, driven by robust performance in the export and agricultural sectors. Fiscal consolidation efforts have continued; Togo complied with the WAEMU deficit convergence criteria in 2017 and 2018, two years ahead of the timeline agreed by member states; public debt declined from 81 percent of GDP at end-2016 to 76 percent of GDP at end-2018. Inflation stood at 2 percent in March 2019 (y-o-y). The external position has improved. The privatization process for the first public bank encountered delays.
    Keywords: Public debt;External debt;Revenue administration;Public investment spending;Debt sustainability analysis;ISCR,CR,deficit,Togo,Executive Board discussion,disbursement of SDR
    Date: 2019–07–02
  57. By: International Monetary Fund
    Abstract: This paper discusses Islamic Republic of Mauritania’s Third Review of Arrangement under the Extended Credit Facility. The program aims at entrenching macroeconomic stability, supporting inclusive and job creating growth, and building international reserve buffers. The authorities plan to use the prospective fiscal space prudently for priority social spending—education, health, and social protection—and public infrastructure. The economic outlook has improved, buoyed by more favorable terms of trade and the upcoming development of a large offshore gas field. Growth is projected to accelerate to 6 3/4 percent this year, supported by a recovery in extractive sectors and continued broad-based non-extractive growth reflecting strong domestic demand and budding diversification. Downside risks related to global economic developments, commodity price volatility, and regional security concerns remain elevated. Considerable challenges remain to entrench macroeconomic stability, support inclusive growth, and build resilience to shocks. The prospective fiscal space should be used prudently for priority social policies and public infrastructure.
    Keywords: Public debt;External debt;Fiscal stance;Credit;Debt sustainability analysis;ISCR,CR,government,GDP,real GDP,price
    Date: 2019–05–31
  58. By: Angel De la Fuente; Pep Ruiz
    Abstract: This Working Paper describes the latest update of the sectoral module of the RegData FEDEA-BBVA database, in which the regional series of employment (employed and salaried), Gross Value Added (GVA) at current and constant prices and employee compensation in the main RegData module are disaggregated by sector. This Working Paper describes the latest update of the sectoral module of the RegData FEDEA-BBVA database, in which the regional series of employment (employed and salaried), Gross Value Added (GVA) at current and constant prices and employee compensation in the main RegData module are disaggregated by sector.
    Keywords: homogeneous series, series homogéneas, Production, Producción, prices, precios, Employment, Empleo, Spanish Regional Accounts, Contabilidad Regional de España, Spain, España, Regional Analysis Spain, Análisis Regional España, Working Papers, Documento de Trabajo
    JEL: E01 R1
    Date: 2021–01
  59. By: International Monetary Fund
    Abstract: The economy is growing steadily, benefiting from a benign regional environment, particularly in Russia, the source of most remittances and non-gold export receipts. Low inflation, lower fiscal deficits, and a stable banking sector point to the success of stabilization policies implemented by the government and National Bank of the Kyrgyz Republic (NBKR, the central bank) under eight successive Fund-supported programs. However, the economy remains vulnerable to external shocks because of the high level of remittances (29 percent of GDP), the concentration of exports on gold (37 percent of exports of goods), the level and composition of the public debt (56 percent of GDP, 4/5 of which is denominated in foreign currency), and the level of the current account deficit (8.7 percent of GDP). In addition, economic growth has been insufficient to significantly raise living standards and continue to reduce poverty.
    Keywords: Public debt;External debt;Banking;Public and publicly-guaranteed external debt;Loans;ISCR,CR,deficit,IMF government Finance Statistics Manual,Kyrgyzstan
    Date: 2019–07–03
  60. By: Subir Lall; Li Zeng
    Abstract: Intangible investment is growing as a share of economic activity. We present a simple framework incorporating its distinguishing characteristic of generally greater scalability and lower marginal costs than tangible investment. We show evidence that this may have contributed to more elastic aggregate supply in recent years, which is consistent with lower inflation and a flattening of the Phillips curve. This framework also highlights the channels through which technological change, a large constituent of intangible investment, may be leading to wage stagnation and greater market concentration.
    Keywords: Intangible capital;Inflation;Inflation targeting;Output gap;Labor;WP,intangible investment,investment,economy
    Date: 2020–09–18
  61. By: Oscar Pavlov; Mark Weder
    Abstract: This paper examines a market interlacing industry configuration in general equilibrium with multi-product firms. In contrast to previous studies which utilize market segmentation, firms produce multiple products even in the complete absence of the love of variety. Product scopes are procyclical and entry and exit of firms generates an endogenous amplification mechanism. When simulated by shocks derived from the efficiency and labor wedges, the model replicates the changes in dynamics between the pre- and post 1983 periods, and explains the hours-productivity puzzle.
    Keywords: Multi-product firms, business cycles
    JEL: E32
    Date: 2021–01
  62. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that growth in Maldives has been strong and is projected to remain so in 2019 driven by tourism, commerce, and construction. Nonetheless, the Maldives remains highly vulnerable with reduced policy space due to large and growing public debt and rising pressures on external stability. The consultation focused on addressing external imbalances including offering advice on restoring fiscal buffers, strengthening public finance management, reforming the exchange rate regime, building international reserves, improving governance, implementing structural reforms, and encouraging diversification. The outlook is for continued strong growth and moderate inflation, and only a gradual improvement in fiscal and current account deficits. As major infrastructure projects will gradually start to unwind, the current account deficit will begin to narrow. Under the current policies, the fiscal deficit is projected to remain elevated. However, successful implementation of tax reforms and improved tax administration, together with measures to contain budgetary spending, would result in a narrowing of both fiscal and current account deficits and mitigate the risks posed by high and rising public and external debt.
    Keywords: Public debt;External debt;Foreign exchange;Revenue administration;Fiscal consolidation;ISCR,CR,GDP,deficit,debt
    Date: 2019–06–10
  63. By: Luis Brandao-Marques; R. G Gelos; Machiko Narita; Erlend Nier
    Abstract: This paper takes a new approach to assess the costs and benefits of using different policy tools—macroprudential, monetary, foreign exchange interventions, and capital flow management—in response to changes in financial conditions. The approach evaluates net benefits of policies using quadratic loss functions, estimating policy effects on the full distribution of future output growth and inflation with quantile regressions. Tightening macroprudential policy dampens downside risks to growth stemming from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses, calling for caution in the use of monetary policy to “lean against the wind.” These findings hold when policies are used in response to easing global financial conditions. Buying foreign-exchange or tightening capital controls has small net benefits.
    Keywords: Macroprudential policy;Macroprudential policy instruments;Credit;Financial conditions index;Capital flow management;WP,financial conditions,loss function
    Date: 2020–07–07
  64. By: Lechthaler, Wolfgang; Tesfaselassie, Mewael F.
    Abstract: We embed human capital-based endogenous growth into a New-Keynesian model with search and matching frictions in the labor market and skill obsolescence from long-term unemployment. The model can account for key features of the Great Recession: a decline in productivity growth, the relative stability of inflation despite a pronounced fall in output (the "missing disinflation puzzle"), and a permanent gap between output and the pre-crisis trend output. In the model, lower aggregate demand raises unemployment and the training costs associated with skill obsolescence. Lower employment hinders learning-by-doing, which slows down human capital accumulation, feeding back into even fewer vacancies than justified by the demand shock alone. These feedback channels mitigate the disinflationary effect of the demand shock while amplifying its contractionary effect on output. The temporary growth slowdown translates into output hysteresis (permanently lower output and labor productivity).
    Keywords: endogenous growth,search and matching,unemployment,nominal rigidity,output hysteresis,monetary policy
    Date: 2021
  65. By: International Monetary Fund
    Abstract: Liberia remains a fragile, post-conflict country with weak capacity and limited physical and human capital accumulation. External assistance to Liberia is winding down from its peak in 2016. To address pressing needs, the government launched its Pro-Poor Agenda for Prosperity and Development (PAPD), focusing on physical and human capital accumulation. Policy uncertainty and slippages, however, imposed a significant toll on the economy over the past two years. Particularly, higher fiscal deficits and accommodative monetary policy have led to rapid depreciation of the Liberia dollar and increased inflation, eroding the purchasing power of the poor.
    Keywords: Public debt;External debt;Debt sustainability analysis;Public and publicly-guaranteed external debt;Banking;ISCR,CR,government,monetary policy,CBL financing,financing gap
    Date: 2019–06–19
  66. By: International Monetary Fund
    Abstract: While many advanced economies are experiencing slower growth, Norway’s output has continued to expand strongly, helped by a robust labor market, positive terms of trade, and some competitiveness gains. Core inflation has picked up to close to 2¼ percent. Residential house price growth has softened significantly but prices remain overvalued, and household debt continues to rise. Commercial real estate risks are also intensifying and combine with mounting external risks to cloud the outlook. The Christian Democrats have recently joined Prime Minister Solberg’s governing coalition, which now enjoys a majority in parliament.
    Keywords: Housing prices;Banking;Inflation;Anti-money laundering and combating the financing of terrorism (AML/CFT);Labor markets;ISCR,CR,rate,authority,debt,fiscal policy
    Date: 2019–06–12
  67. By: Regis Barnichon; Davide Debortoli; Christian Matthes
    Abstract: This paper argues that an important, yet overlooked, determinant of the government spending multiplier is the direction of the fiscal intervention. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier- the multiplier associated with a negative shock to government spending- is above 1 and largest in times of economic slack. In contrast, the expansionary multiplier- the multiplier associated with a positive shock- is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature. A simple theoretical model with incomplete financial markets and downward nominal wage rigidities can rationalize our findings.
    JEL: E62 C32
    Date: 2020–09–03
  68. By: International Monetary Fund
    Abstract: Mozambique’s economic situation had been improving until Tropical Cyclone Idai and Kenneth hit the country in March and April, respectively. Economic growth was recovering gradually and becoming broader based, and inflation reached low single digits. Economic activity is expected to decelerate sharply in 2019 due to the supply shock to productive capacity, but it should rebound to pre-cyclone levels by 2020. In April, the IMF Executive Board approved US$118 million in emergency assistance under the Rapid Credit Facility (RCF). The authorities are committed to macroeconomic stability while fostering inclusive growth and addressing governance challenges.
    Keywords: Public debt;Government debt management;Credit;Public financial management (PFM);Revenue administration;ISCR,CR,monetary policy,Executive Board assessment,supply shock,director
    Date: 2019–06–18
  69. By: Karmen Naidoo (University of Massachusetts Amherst, USA); Léonce Ndikumana (University of Massachusetts Amherst, USA)
    Abstract: Several studies have highlighted that African manufacturing wages are higher than countries at similar levels of development, which contributes to the continent’s lower levels of manufacturing competitiveness. This paper derives unit labor costs – average wages relative to productivity – for two-digit manufacturing sectors across a wide range of developed and developing countries over the 1990-2015 period. We benchmark the unit labor costs to China and estimate the relationship between relative unit labor costs and manufacturing sector value added, employment, investment and exports. We find that relative unit labor costs have a smaller effect on manufacturing performance in Africa relative to other developing regions. Further, we find that for Africa, the level and growth of labor productivity have a quantitatively stronger and more robust effect on manufacturing performance than the level and growth of real wages. The results have important implications for industrial policy in African countries.
    Keywords: labor costs; productivity; manufacturing; exports; investment; Africa; China
    JEL: O14 L60 E24 J30
    Date: 2020
  70. By: Eichengreen Barry; Naef Alain
    Abstract: Using newly assembled data on foreign exchange market intervention, we construct a daily index of exchange market pressure during the 1992-3 crisis in the European Monetary System. Using this index, we pinpoint when and where the crisis was most severe. Our analysis focuses on a neglected factor in the crisis: the role of the weak dollar in intra-EMS tensions. We provide new evidence of the contribution of a falling dollar-Deutschmark exchange rate to pressure on EMS currencies.
    Keywords: European Monetary System, exchange rates, foreign exchange intervention, currency crisis.
    JEL: F31 E5 N14 N24
    Date: 2020
  71. By: Mariacristina De Nardi; Giulio Fella
    Abstract: We document new facts about risk in male wages and earnings, household earnings, and pre- and post-tax income in the Netherlands and the United States. We find that, in both countries, earnings display important deviations from the typical assumptions of linearity and normality. Individual-level male wage and earnings risk is relatively high at the beginning and end of the working life, and for those in the lower and upper parts of the income distribution. Hours are the main driver of the negative skewness and, to a lesser extent, the high kurtosis of earnings changes. Even though we find no evidence of added-worker effects, the presence of spousal earnings reduces the variability of household income compared to that of male earnings. In the Netherlands, government transfers are a major source of insurance, substantially reducing the standard deviation, negative skewness, and kurtosis of income changes. In the U.S. the role of family insurance is much larger than in the Netherlands. Family and government insurance reduce, but do not eliminate nonlinearities in household disposable income by age and previous earnings in either country.
    Keywords: Self-insurance; Wage risk; Social insurance; Life cycle; Progressive taxation; Redistribution
    JEL: D31 E24 H31 J31
    Date: 2020–10–26
  72. By: Giuseppe Conti; Luciano Fanti
    Abstract: Following a renewed interest for the investigation of the monetary policy in the Italian experience, this paper focus on the role of the official reserves as a target of Bank of Italy for the period 1961-1990, motivated by a long lasting tradition (e.g. Hawtrey, Keynes, Kaldor) for which reserves were crucial for the central bank behaviour. This paper analyses, mostly by using the Granger causality test, if this "traditional" rule could have been working for Italy in recent periods as well, regardless of exchange rate regimes and the mainstream monetary theories. Main conclusions neatly support the existence of two sub-periods: a first one (before 1979) during which the "traditional" praxis occurs; and a second one (after 1979) when the "alternative" praxis seems to prevail. This would confirm the break in monetary targeting adopted by the Italian central bank at the end of the Seventies.
    Keywords: Monetary policy, interest rate, reserve ratio, Bank of Italy, Granger test
    JEL: E52 E58
    Date: 2020–12–01
  73. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The 'Goodwin pattern' -- an anti-clockwise rotation in real activity x wage share space recurring at intervals that correspond roughly to the duration of business cycles -- is an enduring feature of high-frequency dynamics in capitalist economies. It is well known that the centre or focus of this rotation shifts over time. More recently, however, the Goodwin pattern seems to have broken down, the wage share no longer increasing as the real economy improves over the course of short-term booms. In this paper, the breakdown of the Goodwin pattern is associated with the consolidation of an 'incomes policy based on fear' that is part-and-parcel of neoliberalism. As a result of this incomes policy based on fear, the institutional structure of the labour market disciplines labour at any rate of unemployment. This decouples wage-share dynamics from the state of the real economy, with the result that as recently witnessed, the wage share is rendered invariant to tightening of the labour market in the course of short-term cyclical booms.
    Keywords: Goodwin pattern, distributional con ict, worker insecurity, incomes policy based on fear
    JEL: E11 E12 E25 E64
    Date: 2021–01
  74. By: World Bank
    Keywords: Finance and Financial Sector Development - Concessional Finance and Global Partnerships Finance and Financial Sector Development - Debt Relief and HIPC Finance and Financial Sector Development - Strategic Debt Management 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
    Date: 2019–10
  75. By: Froemel, Maren (Bank of England); Gottlieb, Charles (University of St Gallen)
    Abstract: This paper quantifies the individual, aggregate and welfare effects of the Earned Income Tax Credit (EITC) in the United States. In particular, we analyse the labour supply and saving responses to changes in tax credit generosity and their implications for prices and welfare. Our results show that the EITC is a subsidy on labour income and a tax on savings. An increase in EITC generosity raises labour force participation, reduces savings for many and provides insurance to working poor households. The EITC reduces earnings inequality but increases the skill premium and wealth inequality. A 10% increase in tax credit generosity increases welfare by 0.31% and benefits the majority of the population.
    Keywords: Heterogeneous agents; redistribution; welfare programs
    JEL: E60 E62 H23 H24 I38
    Date: 2021–01–15
  76. By: Holmberg, Johan (Department of Economics, Umeå University)
    Abstract: In this paper, we present a life-cycle earnings dynamics model including endogenous employment and job change. The model is estimated with the method of indirect inference using Swedish register data. By simulating data from this microeconomic model, we study the macroeconomic consequences of transitory shocks to unemployment risk. The results show that transitory aggregate shocks to unemployment risk have long-lasting negative effects on employment, income, and increases earnings volatility. By studying how unemployment at different ages affects the accumulation and distribution of pension entitlements, we find that becoming unemployed at 40 has the largest effect on pension accumulations. Furthermore, unobserved individual heterogeneity contributes substantially to the observed life-cycle earnings inequality for both men and women in Sweden.
    Keywords: Earnings dynamics; unemployment; inequality; social insurance; pensions
    JEL: D63 E27 H55 J24 J64
    Date: 2021–01–19
  77. By: International Monetary Fund
    Abstract: Pakistan’s economy is at a critical juncture. Misaligned economic policies, including large fiscal deficits, loose monetary policy, and defense of an overvalued exchange rate, fueled consumption and short-term growth in recent years, but steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves. Structural weaknesses remained largely unaddressed, including a chronically weak tax administration, a difficult business environment, inefficient and loss making SOEs, and low labor productivity amid a large informal economy. Without urgent policy action, economic and financial stability could be at risk, and growth prospects will be insufficient to meet the needs of a rapidly growing population.
    Keywords: Public debt;External debt;Revenue administration;Expenditure;Budget planning and preparation;ISCR,CR,government,letter of credit,fund letters of credit,approval
    Date: 2019–07–08
  78. By: Emilio Blanco (Banco Central de la República Argentina); Pedro Elosegui (Banco Central de la República Argentina); Alejandro Izaguirre (Universidad de San Andrés); Gabriel Montes Rojas (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET)
    Abstract: This paper empirically investigates how economic activity in Argentina at regional and provincial (i.e., state) levels respond to central national monetary policy shocks, as given by a change in the interest rate. The rst result is that regional heterogeneity of monetary shocks exists in Argentina. At the regional level the long-term eects of increasing the interest rate are negative and statistically signicant. At the provincial level, 11 provinces show a negative and signicant impact of a shock on the interest rate over employment. However, there are 13 provinces in which the eect is not statistically signicant, including the City of Buenos Aires and Buenos Aires Province. Bayesian methods are implemented to study the discrepancies in the impact on dierent provinces.
    Keywords: Monetary Policy, Monetary Transmission, Regional Effects
    JEL: E52 G21 R11 R12
  79. By: International Monetary Fund
    Abstract: Recent economic developments. Economic performance remained robust in 2018: growth reached 4.7 percent, supported by external demand; inflation stayed below the three percent target, the fiscal deficit remained in line with program commitments, and the current account improved. Tighter lending standards helped decelerate credit growth towards more sustainable levels. The banking sector remains well capitalized, liquid, and profitable. Dollarization remains elevated. In early 2019, growth conditions were favorable, with average inflation slightly above the target reflecting increased excises.
    Keywords: External debt;Loans;Public debt;Credit;Foreign exchange;ISCR,CR,government reform agenda,current account
    Date: 2019–06–19
  80. By: International Monetary Fund
    Abstract: Owing to improved policy frameworks and favorable external conditions, Grenada’s economy has been growing rapidly. Policies have remained prudent, helping reduce public debt and financial system vulnerabilities. The domestic policy debate is increasingly focused on using potential fiscal space for spending on public pensions and investment on building resilience to natural disasters.
    Keywords: Public debt;External debt;PFM legal and regulatory frameworks;Natural disasters;Expenditure;ISCR,CR,debt,Grenada,deficit
    Date: 2019–07–03
  81. By: Katharina Bergant; Francesco Grigoli; Niels-Jakob H Hansen; Damiano Sandri
    Abstract: We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains.
    Keywords: Capital controls;Central bank policy rate;Emerging and frontier financial markets;Capital outflows;Capital flows;WP,capital control,real GDP,net capital,output gap
    Date: 2020–06–26
  82. By: Paul, Uttam Chandra
    Abstract: This paper examines the causal relationship between private sector credit growth and economic growth in Bangladesh by using annual time series data over the period of 1976-2017. To investigate this relationship, the Autoregressive Distributed Lag (ARDL) Approach has been used. In addition, this paper examines the direction of causality by adopting the Toda-Yamamoto procedure of Granger Causality test in the VAR model. The empirical results show that the annual growth rate of private sector credit (PC) and industrial production index (IPI) have a positive and significant effect on annual growth rate of GDP in both long-run and short-run. But there is only a short-run positive effect of export (X) and a negative effect of broad money (BM) on GDP growth rate. Finally, the results of the Toda-Yamamoto Granger Causality test show that there is unidirectional causality from GDP growth rate to private sector credit growth rate.
    Keywords: Bangladesh, GDP growth, Private sector credit growth, Autoregressive Distributed Lag (ARDL) Approach, Toda-Yamamoto Granger Causality test.
    JEL: C22 E51 O47
    Date: 2020–12–02
  83. By: Peter Skott (University of Massachusetts Amherst, USA, and Aalborg University, Denmark)
    Abstract: Developing economies with high levels of open or hidden unemployment face structural transformation problems. Unlike in mature economies there are no structural aggregate demand problems, and sustained aggregate demand stimulus can lead to a profit squeeze in the modern sector and deindustrialization. Adaptations of functional finance to developing economies should aim to stabilize the level and composition of demand at values that are consistent with a target rate of growth of the modern sector. Populist temptations, however, may lead to deindustrialization.
    Keywords: Sectoral transformation, Dutch disease, functional finance
    JEL: E62 O11 O23
    Date: 2020
  84. By: Cem Cakmakli; Selva Demiralp; Sebnem Kalemli-Ozcan; Sevcan Yesiltas; Muhammed A. Yildirim
    Abstract: We quantify the macroeconomic effects of COVID-19 for a small open economy by calibrating a SIR-multi-sector-macro model. We measure sectoral supply shocks utilizing teleworking and physical job proximity, and demand shocks with credit card purchases. Both shocks are also affected from changing infection rates under different lockdown scenarios. Being an open economy amplifies the economic costs through two main channels. First, the demand shock has domestic and external components. Second, the initial shock is magnified due to domestic and international input-output linkages.
    Keywords: COVID-19 ;External debt;Demand elasticity;Labor;Unconventional monetary policies;WP,stimulus package,open economy,inflation rate
    Date: 2020–07–17
  85. By: International Monetary Fund
    Abstract: This paper presents Armenia’s 2019 Article IV Consultation report and request for a Stand-By Arrangement (SBA). The arrangement is intended to be precautionary. It will provide insurance against external shocks and support the authorities’ efforts to strengthen economic fundamentals and policy frameworks. It will also help effective implementation of structural reforms, particularly relating to governance and improving business climate. Discussions focused on macroeconomic and structural policies to ensure macro and fiscal sustainability, foster higher and more broad-based growth, and strengthen resilience to shocks. Supported by the upgraded fiscal rule, fiscal consolidation remains on track, and public debt has started to decline. Inflation is under control, the financial system remains stable, and pressures on the exchange rate have been limited. The authorities’ efforts are centered on advancing structural reforms to generate higher, more inclusive, and resilient growth; and strong policies to maintain macroeconomic stability.
    Keywords: Banking;Public debt;Foreign exchange;External debt;Credit;ISCR,CR,government,Armenia,debt,reform agenda,government program
    Date: 2019–06–05
  86. By: International Monetary Fund
    Abstract: Growth has slowed to a more sustainable level and financial vulnerabilities have eased. But risks remain. Household debt is high, the United States–Mexico–Canada Agreement (USMCA) awaits legislative approval, and ongoing trade tensions between the United States (U.S.) and its major trading partners are weighing on the global outlook.
    Keywords: Housing prices;Mortgages;Housing;Systemic risk;Macroprudential policy;ISCR,CR,government,trading partner,trade,slowing global economy,market
    Date: 2019–06–24
  87. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that stronger real gross domestic product (GDP) growth is envisaged in the near term, with a recovery in hydrocarbon output. Medium-term growth will be buoyed by increased gas production and non-hydrocarbon growth. Expenditure consolidation would help to sustain fiscal and external surpluses. Ample liquidity will enable credit growth to support non-hydrocarbon GDP. Trade and geopolitical tensions could undermine investor confidence and weaken fiscal and external positions. The policy priorities are fiscal consolidation, strengthened fiscal policy frameworks, enhanced resiliency of the financial sector, financial inclusion, and a diversified economy. The financial sector remains sound, underpinned by strong profitability and capital. Strengthening the regulatory and supervisory frameworks would help to bolster financial stability. Attention to women’s empowerment by introducing legislation emphasizing equality in remuneration and avoiding gender-based discrimination would support inclusive growth.
    Keywords: Fiscal policy;Oil prices;Fiscal stance;Expenditure;Public debt;ISCR,CR,Qatar,GDP,IMF staff estimate,central bank,economy
    Date: 2019–06–03
  88. By: Ramis Khabibullin (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: We use the behavioral concept to endogenously model the evolution of the link between households’ deposit dollarization and exchange rate developments in Russia. We estimate the model empirically and show that the reaction of households to exchange rate appreciation weakens when exchange rate developments become more volatile. The proposed model outperforms the contemporary nonlinear time series models in forecasting the changes in dollarization during the Bank of Russia’s transition to a flexible exchange rate regime.
    Keywords: Dollarization, behavioral finance, variational Bayes, Russia
    JEL: C11 D84 E44 G17
    Date: 2020–12
  89. By: International Monetary Fund
    Abstract: Growth was strong in 2018, backed by high electricity production. Inflation remains subdued, notwithstanding very accommodative monetary conditions. The fiscal stance in 2018 was somewhat tighter than expected, supporting a further decline in public debt. The medium-term economic outlook is broadly favorable, with growth projected to converge to 4 percent and a further narrowing of the current account deficit. However, significant risks remain. Growth is vulnerable to a continued or sharper economic slowdown in the main trading partners. The main vulnerabilities remain in the fiscal sector, as public debt is still high, and contingent liabilities are increasing. Albania’s relatively large financing needs also pose risks that could materialize, in particular, in case of tightening external financing conditions.
    Keywords: Public debt;Banking;External debt;Arrears;Value-added tax;ISCR,CR,deficit,Albania,debt
    Date: 2019–07–03
  90. By: Yunho Cho; Shuyun May Li; Lawrence Uren
    Abstract: We build a general equilibrium overlapping generations model with heterogeneous agents to study the welfare implications of housing investment tax concessions in the Australian housing market . Comparing stationary equilibria, we find that removing these concessions significantly reduces housing investment. This lowers house prices and raises rents and the home ownership rate. The steady state welfare analysis suggests that eliminating concessions leads to a welfare gain of 1.7 per cent, for which increased redistribution is a key mechanism. Along the transition, a majority of households are better off, but younger landlords and landlords with higher incomes benefit the least.
    Keywords: Housing investment, Home ownership, Taxation, OLG model, Heterogeneous Agents, Welfare
    JEL: D15 E21 R21 R38
    Date: 2021–01
  91. By: Nuno Goncalves; Tiago Martins
    Abstract: There is an increasing concern among analysts and policymakers that the economic growth that can be inferred from survey data has been changing over time, particularly after recessions, which may harm the effectiveness of soft indicators for short-term forecasting and standard business cycle analysis. This paper tries to contribute to the existing literature, investigating the relationship among economic sentiment, GDP growth, consumer confidence and private consumption growth for Portugal and the Euro-area. It also assesses the perceived ‘normal’ GDP growth as a complementary measure of potential growth. Overall, results show the existence of a linear relationship between soft-data and real variables growth that differs from one country to another and over time. In particular, recessions are found to play a key role, as the post-crisis ‘normal’ growth is, on average, lower than the pre-crisis. Moreover, there is some evidence that the estimated ‘normal’ GDP growth seems to fit fairly well in potential growth estimates, as both measures present identical trends and patterns in most periods of the sample and share identical behaviour in recessions.
    Keywords: survey data, business cycle, potential output, Portugal, Euro-area
    JEL: C32 E32 O42
    Date: 2020–12
  92. By: Daniel Haim
    Abstract: The job guarantee is a viable policy option for tackling both unemployment and underemployment. Hyman P. Minsky was one of the seminal writers on this subject. The first part of this working paper provides a survey of Minsky's writings to identify what kind of jobs he had in mind when recommending employer-of-last-resort policies. Minsky favored: (1) jobs increasing socially useful output, providing all of society better public services and goods; (2) jobs guaranteed by the public sector on a project-by-project basis at a minimum wage; (3) jobs in the places where people need them; and (4) jobs taking the people that need them as they are. The second part of the paper suggests policy recommendations for today's economy. As long as the COVID-19 pandemic still rages on, a targeted public job guarantee program can assist in the social provisioning and distribution of food, shelter, and medical services. After the pandemic, a public job guarantee can reduce poverty and inequality, and bring about a more democratic, sustainable, and socially cohesive economic system.
    Keywords: Job Guarantee; Public Service Employment; Employer of Last Resort (ELR); Unemployment; Full Employment; Minsky; Policy Design; COVID-19
    JEL: B31 E24 E61 H41 H53 I38 J21 J45 J68
    Date: 2021–01
  93. By: ; Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova
    Abstract: We estimate the impact of the COVID-19 crisis on business failures among small and medium-size enterprises (SMEs) in seventeen countries using a large representative firm-level database. We use a simple model of firm cost minimization and measure each firm’s liquidity shortfall during and after COVID-19. Our framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks. Accommodation and food services; arts, entertainment, and recreation; education; and other services are among the sectors most affected. The SME jobs at risk due to business failures related to COVID-19 represent 3.1 percent of private sector employment. Despite the large impact on business failures and employment, we estimate only moderate effects on the financial sector: the share of nonperforming loans on bank balance sheets would increase by up to 11 percentage points, representing 0.3 percent of banks’ assets, and would result in a 0.75 percentage point decline in the common equity tier 1 capital ratio. We also evaluate the cost and effectiveness of various policy interventions. The fiscal cost of an intervention that narrowly targets at-risk firms can be modest (0.54 percent of gross domestic product). However, at a similar level of effectiveness, nontargeted subsidies can be substantially more expensive (1.82 percent of gross domestic product). Our results have important implications for the severity of the COVID-19 recession, the design of policies, and the speed of the recovery.
    Keywords: COVID-19; business failures; liquidity; small business
    JEL: D2 E65 G33
    Date: 2020–12–03
  94. By: International Monetary Fund
    Abstract: Fundamentals remain strong and growth has revived after three years of subpar performance. Improved budgetary execution and monetary accommodation, broadly in line with past staff advice, are providing demand support as the economy navigates weaker terms of trade. Near-term growth is poised for a rebound on the back of fiscal impulse from the 2019 expansionary budget, exports recovery after last year’s slump, and construction-driven investment. Lack of progress on long-delayed business climate and public sector reforms, the Sustainable Development Goals (SDG) agenda, and financial inclusion, dampen medium-term prospects.
    Keywords: Fiscal policy;Banking;Inflation;Tax evasion;Foreign exchange;ISCR,CR,exchange rate,private sector,balance,support of demand
    Date: 2019–06–18
  95. By: International Monetary Fund
    Abstract: Swiss financial institutions are well capitalized and could withstand the severe shocks under the adverse stress test scenarios, but macrofinancial vulnerabilities are deepening. Important reforms have been made since the 2014 FSAP, but several critical recommendations and emerging challenges have yet to be fully addressed. Capital buffers have increased across all categories of banks, and while the two global systemically important banks have downsized and deleveraged significantly since the global financial crisis, since 2013 they have been growing again. Macroprudential measures have not been taken since 2014 and is constrained by having only one mandated tool and a self-regulation agreement with banks. The financial supervisor (FINMA) has developed into a trusted supervisor, but as a small entity, it relies heavily on external auditors to conduct on-site supervision; the associated conflict of interest and supervisory objectivity risks need to be carefully managed. The combination of an ex-post funding mechanism, a low cap on banks’ contributions, and a private deposit insurance agency run by active bankers, weakens the crisis management arrangements.
    Keywords: Banking;Insurance companies;Mortgages;Stress testing;Bank resolution framework;ISCR,CR,interest rate,banking sector,financial system,return on equity,market share
    Date: 2019–06–26
  96. By: Michael Berlemann; Vera Jahn; Robert Lehmann
    Abstract: Germany’s comparatively good economic performance throughout the Great Recession of the years 2008/2009 is often attributed to the business model of the German Mittelstand firm. Somewhat surprisingly, this claim has never been backed by empirical evidence. In this paper we use micro panel data from the ifo Business Survey to study the comparative performance of Mittelstand enterprises, defined as owner-managed SMEs. We present supporting evidence for the hypothesis that Mittelstand firms performed more stable throughout the Great Recession than non-Mittelstand firms. We also show that owner-managed SMEs performed significantly better than SMEs and owner-managed large enterprises. Thus, it is rather the combination of firm-size and owner-management that leads to more crisis resistance.
    Keywords: Mittelstand firms, Great Recession, crisis resistance
    JEL: E31 G12
    Date: 2020
  97. By: Yunho Cho; Shuyun May Li; Lawrence Uren
    Abstract: Property transaction taxes - also known as stamp duty - are widely viewed as an inefficient form of taxation. In this paper, we examine the welfare implications of removing stamp duty in a general equilibrium overlapping generation model with heterogeneous agents. Our model features an idiosyncratic shock to housing preferences which may create mismatch or induce household to move. When examining steady states we find that newborn households prefer entering an economy with a recurring property tax rather than one with stamp duty. In contrast, when examining transition dynamics we find that existing households prefer replacing stamp duty with a consumption tax.
    Keywords: Property transaction taxes, OLG model, Heterogeneous agents, Welfare
    JEL: E21 H24 R13 R2
    Date: 2021–01
  98. By: Raphael Gouvea (Institute for Applied Economic Research (IPEA); Department of Economics, University of Massachusetts Amherst)
    Abstract: In the aftermath of large devaluations, prices of tradable goods/lower-priced varieties increase significantly more than the prices of nontradables/higher-priced varieties. These relative price changes may lead to inflation inequality when household consumption baskets are different across the distribution of income. Using Cravino and Levchenko [2017]’s methodology, we show that inflation of poor households in Brazil was at least 11 percentage points higher than of the rich in the aftermath of the 2002 large devaluation. A detailed case study of the City of São Paulo estimates an inflation inequality ranging from 8 to 11 percentage points in the city.
    Keywords: Exchange Rate Devaluation, Pass-Through, Inflation, Inequality
    JEL: F31 F41 E31
    Date: 2020
  99. By: Dreger, Christian (DIW Berlin); Gros, Daniel (LISER (CEPS/INSTEAD))
    Abstract: We analyse the short-term impact of social distancing measures on the US labour market, using a panel threshold model with high frequency (weekly) data on unemployment across US states. We find that changes in the restrictiveness of mandated social distancing, as measured by the Oxford Stringency Index, exert a strong immediate impact on initial unemployment. The unemployment rate is not immediate affected but follows within a very short time (two to four weeks). We also document a substantial asymmetry between tightening and easing: the impact of tightening restrictions is twice as large as that of easing them. The state of the endemic, proxied either by cases or fatalities, constitutes a marginal factor.
    Keywords: Corona pandemic, lockdown and unemployment, policy response, COVID-19
    JEL: E00 I18 O11
    Date: 2021–01
  100. By: International Monetary Fund
    Abstract: The solid performance of the economy continues to be supported by domestic demand and labor market pressures are gradually building. The current account surplus is declining amid higher investment. The outlook is for continued growth with risks tilted to the downside. While overall house price growth has started to soften, elevated household debt remains a key source of risk. Banks are sound and profitable.
    Keywords: Labor markets;Fiscal stance;Banking;Productivity;Securities;ISCR,CR,staff appraisal,opposition party,appraisal,statement,government formation negotiations
    Date: 2019–06–25
  101. By: Pacifico, Antonio
    Abstract: This paper improves a standard Structural Panel Bayesian Vector Autoregression model in order to jointly deal with issues of endogeneity, because of omitted factors and unobserved heterogeneity, and volatility, because of policy regime shifts and structural changes. Bayesian methods are used to select the best model solution for examining if international spillovers come from multivariate volatility, time variation, or contemporaneous relationship. An empirical application among Central-Eastern and Western Europe economies is conducted to describe the performance of the methodology, with particular emphasis on the Great recession and post-crisis periods. Findings from evidence-based forecasting are also addressed to evaluate the impact of an ongoing pandemic crisis on the global economy.
    Keywords: Structural Panel VAR; Bayesian Methods; Multivariate Volatility; Policy Regime Shifts Endogeneity Issues; Central-Eastern and Western Europe.
    JEL: C1 C5 E6
    Date: 2020
  102. By: Singh, Gaurav Kumar; Bandyopadhyay, Tathagata
    Abstract: This study explores the determinants of disagreement in households' belief on future inflation. Households commonly show strong information rigidity as a consequence of stickiness in their information update (Mankiw and Reis, 2002, 2006). This paper contributes to the understanding of the formation of disagreement of the Indian households by investigating the effects of - day to day purchasing experiences of the agents, the intensity of news about inflation in the media, and central bank transparency. We find the positive effects of their recent price experiences, media influence, and inflation targeting on lowering the disagreement. Female and Young people tend to exhibit stronger effects in comparison to their counterparts.
    Date: 2021–01–20
  103. By: Erlend Nier; Thorvardur Tjoervi Olafsson; Yuan Gao Rollinson
    Abstract: This paper examines empirically the role of macroprudential policy in addressing the effects of external shocks on financial stability. In a sample of 62 economies over the period of 2000: Q1–2016: Q4, our dynamic panel regressions show that an appreciation of the local exchange rate is associated with a subsequent increase in the domestic credit gap, while a prior tightening of macroprudential policies dampens this effect. These results are strong for small open economies, and robust when we explicitly account for potential simultaneity and reverse causality biases. We also examine a feedback effect where strong domestic credit pulls in additional cross-border funding, potentially further increasing systemic risk, and find that targeted capital controls can play a complementary role in alleviating this effect.
    Keywords: Macroprudential policy;Credit gaps;Domestic credit;Capital controls;Real exchange rates;WP,exchange rate,monetary policy,currency appreciation,real GDP
    Date: 2020–09–11
  104. By: Yongsung Chang; Jay H. Hong; Marios Karabarbounis; Yicheng Wang
    Abstract: Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial portfolios around structural breaks in income volatility. When the standard deviation of labor-income growth doubles, the share of risky assets decreases by 4 percentage points. We ask whether this estimated marginal effect is consistent with a standard model of portfolio choice with idiosyncratic volatility shocks. The standard model generates a much more aggressive portfolio response than we see in the data. We show that Bayesian learning about the underlying volatility regime can reconcile the gap between the model and the data.
    Keywords: Income Volatility; Portfolio Choice; Risky Share; Bayesian Learning
    JEL: E2 G1 J3
    Date: 2020–03–14
  105. By: Freire Costa, Leonor; Münch Miranda, Susana; Nogues-Marco, Pilar
    Abstract: Iberian colonies produced the vast majority of world precious metals in the Early Modern period, which increased liquidity in the Iberian Peninsula. In this paper we focus on the relationship between liquidity and financial development – including other relevant variables such as instruments and institutions – to examine the efficiency of the financial systems in Castile and Portugal.
    Keywords: financial system, public debt, private credit market, precious metals, interest rates.
    JEL: N13 N23 G15 E44
    Date: 2021
  106. By: Nomaler, Önder; Spinola, Danilo; Verspagen, Bart
    Abstract: We investigate how economic growth in a demand-led economy with semi-endogenous productivity growth can be compatible with a stable employment path. Our model uses a Sraffian supermultiplier (SSM), and we endogenize the growth rate of autonomous demand, and semi-endogenize productivity growth. The basic model has a steady state that is consistent with a stable employment rate. Consumption smoothing (between periods of high and low employment) by workers is the mechanism that keeps the growing economy stable. We also introduce a version of the model where the burden for stabilization falls upon government fiscal policy. This also yields a stable growth path, although the parameter restrictions for stability are more demanding in this case.
    Keywords: Economic growth model; Sraffian supermultiplier; Research and Development (R&D)
    Date: 2021–01–12
  107. By: Ursula Mello; Tomas Rodriguez Martinez
    Abstract: This paper investigates the relationship between international trade and asymmetrical labor income risk. Using the case study of Brazil, we inspect how an increase in import penetration following the China shock impacted the distribution of idiosyncratic earnings changes across the country's local labor markets, depending on the initial sectoral composition of each region. We find that an increase in import penetration leads to a more disperse and negatively skewed distribution and that these effects can partially be explained by an increase in the volatility of hours worked following job and industry transitions. Moreover, the effect on dispersion grows larger as the lags between periods increase, suggesting a rise in the permanent risk. Through the lens of an incomplete market model, an unborn individual would be willing to forgo up to 4.4% of consumption to avoid the riskier labor market. The welfare cost is half if the higher-order risk is ignored.
    Keywords: labor income risk, international trade, China shock, income process
    JEL: D31 E24 F14 F16 J31
    Date: 2020–12
  108. By: Tobias Adrian; Francis Vitek
    Abstract: We augment a linearized dynamic stochastic general equilibrium (DSGE) model with a tractable endogenous risk mechanism, to support the joint analysis of monetary and macroprudential policy. This state dependent conditional heteroskedasticity mechanism specifies the conditional variances of structural shocks as functions of the business or financial cycle. The resultant heteroskedastic linearized DSGE model preserves the satisfactory simulation and forecasting performance of its nested homoskedastic counterpart for the conditional means of endogenous variables, while substantially improving its goodness of fit to their conditional distributions. In particular, the model matches the key stylized facts of growth at risk. Accounting for state dependent conditional heteroskedasticity makes it optimal for monetary policy to respond more aggressively to the business cycle, and for macroprudential policy to manage the resilience of the banking sector more actively over the financial cycle.
    Keywords: Mortgages;Production growth;Macroprudential policy;Short term interest rates;Banking;WP,math display
    Date: 2020–08–07
  109. By: International Monetary Fund
    Abstract: This paper discusses the report on Botswana by technical assistance mission conducted in response to a request from Statistics Botswana (SB) to assist with updating the consumer price index (CPI) and to review progress with the development of the producer price index (PPI). SB has compiled a draft PPI for mining and quarrying and plan to disseminate these data in September 2019. Further work to expand PPI coverage has been slower than anticipated for a number of reasons, including: data from the 2017 census of economic activity are still not available; resources diverted to support updating the CPI; and issues with the collection of price data. Improvements were identified in the compilation of the mining PPI. The report highlights that whilst the staff clearly show the capability for developing price indexes, they are limited by the amount of resource available with which to develop and disseminate indexes. SB management should carefully review the staff and budgetary resources needed to continue a program of development for PPI and ongoing improvement of the CPI.
    Keywords: Consumer price indexes;Producer price indexes;National accounts;Mining sector;Housing;ISCR,CR,CPI weight,SB management,SB library,update CPI basket,CPI compilation method,utilities PPI
    Date: 2019–06–11
  110. By: Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt; Simon Voigts
    Abstract: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed at the International Monetary Fund for policy analysis and international economic research. This paper documents the incorporation of demographic features into the model. The analysis presented illustrates how these new features enable the model to estimate some of the macroeconomic consequences of changing demographics.
    Keywords: Aging;Population growth;Population and demographics;Labor;Demographic change;WP
    Date: 2020–08–07
  111. By: International Monetary Fund
    Abstract: A 36-month EFF with access of SDR 3.035 billion (435 percent of quota or about US$4.204 billion) was approved on March 11, 2019. Economic activity is projected to decelerate further in 2019 as fiscal consolidation and a slowdown in credit growth weigh on economic growth. However, external financing conditions have improved on the back of rising oil prices and the approval of the IMF program, with sovereign bond spreads falling by 250 basis points since January 1, 2019.
    Date: 2019–07–03
  112. By: Dimitris Mokas; Massimo Giuliodori
    Abstract: Earlier studies on macroprudential policies focus on implementation dates and ignore potential anticipation effects. We collect monthly data on announcements of loan-to-value (LTV) ratio restrictions covering EU economies during 2000-2019. We show that announcements of LTV policies can have a sizeable impact on household credit, house prices and household durable goods consumption. New mortgage lending rates appear to increase following the announcement of an LTV ratio restriction. The estimated contractionary effects are driven mostly by binding actions and actions with non-discretionary components, suggesting that the design of macroprudential policies matters for their effectiveness.
    Keywords: Macroprudential Policy; Loan-to-value Ratios; Cost of Credit; Local Projections
    JEL: E58 G21 G28
    Date: 2021–01
  113. By: Marco Arena; Gabriel Di Bella; Alfredo Cuevas; Borja Gracia; Vina Nguyen; Alex Pienkowski
    Abstract: Estimates of the natural interest rate are often useful in the analysis of monetary and other macroeconomic policies. The topic gathered much attention following the great financial crisis and the Euro Area debt crisis due to the uncertainty regarding the timing of monetary policy normalization and the future path of interest rates. Using a sample of European countries (including several members of the Euro Area), this paper provides estimates of country-specific natural interest rates and some of their drivers between 2000 and 2019. In line with the literature, our findings suggest that natural interest rates declined during this period, and despite a rebound in the last few years of it, they have not recovered to their pre-crisis levels. The paper also discusses the implications of the decline in natural interest rates for monetary conditions and debt sustainability.
    Keywords: Real interest rates;Output gap;Global financial crisis of 2008-2009;Financial crises;Central bank policy rate;WP,monetary policy,math display,fiscal policy
    Date: 2020–07–03
  114. By: Rodriguez Castelan, Carlos (World Bank); Araar, Abdelkrim (Université Laval); Malásquez, Eduardo A. (World Bank); Olivieri, Sergio (World Bank); Vishwanath, Tara (World Bank)
    Abstract: Understanding the economic and social effects of the recent global trends of rising market concentration and market power has become a policy priority. To fill this knowledge gap, this paper introduces a simple simulation method, the Welfare and Competition tool (WELCOM), to estimate with minimum data requirements the direct distributional effects of market concentration through the price channel. Using this simple yet novel tool, this paper illustrates the likely distributional effects of reducing concentration in two markets in Mexico that are known for their high level of concentration: mobile telecommunications and corn products. The results show that increasing competition from four to 12 firms in the mobile telecommunications industry and reducing the market share of the oligopoly in corn products would achieve a combined reduction of 0.8 percentage points in the poverty headcount as well as a decline of 0.32 points in the Gini coefficient.
    Keywords: poverty, inequality, market concentration, distributional effects, simulation, Mexico
    JEL: C15 D31 D42 D43 E37
    Date: 2021–01
  115. By: Ramirez-Rondan, N.R.; Terrones, Marco E.; Winkelried, Diego
    Abstract: Following the economic and political reforms of the 1990s, the Peruvian economy experienced two decades of exceptional growth in the 2000s. How was inequality affected by the strong growth performance of 2004-19? Which were the main factors associated with these inequality changes? The distribution of both income and consumption in Peru was highly unequal in 2004, with important geographic and regional differences. Since then, the degree of economic disparity decreased significantly associated with the exceptional growth of 2004–19. This decline in inequality was broad-based, yet it was not homogeneous across geographic areas, regions, or time. A correlate of this reduction in inequality has been a falling polarization. While wages and, to a lesser extent, government transfers accounted for most of the decline in income inequality, food prepared at home played a pivotal role in reducing consumption inequality, particularly in rural areas.
    Keywords: Inequality, distribution, consumption, income, Peru.
    JEL: D31 E24 O15
    Date: 2020–12
  116. By: Loretta J. Mester
    Abstract: I thank Professor Yoosoon Chang, president of the Korea-America Economic Association, for the opportunity to speak at this year’s annual forum. Over the years, the forum has had a number of distinguished speakers and it is truly an honor to speak with you this evening about the outlook for the economy and monetary policy. I believe patience will prove to be a virtue as the year unfolds. Until the vaccines have been widely distributed and many people have been vaccinated, we will all need to be patient and continue to follow public health experts’ advice to socially distance, wear a mask, and wash our hands to help control the virus’s spread. In addition, monetary policy will also need to remain patiently accommodative to support a broad-based and sustainable recovery and achievement of our longer-run goals of maximum employment and price stability.
    Date: 2021–01–04
  117. By: Javier Barbero; Giovanni Mandras; Giovanni Mandras; Ernesto Rodriguez-Crespo; Andres Rodriguez-Pose
    Abstract: This paper examines – using a novel database of regional trade flows between 267 European regions for 2013 – how government quality affects trade between European Union (EU) regions. The results of a structural gravity cross-sectional analysis of trade show that trade across EU regions is highly influenced by differences in regional government quality. This influence varies by sector of economic activity and by the level of economic development of the region. The results indicate that, if the less developed regions of the EU want to engage in greater interregional trade, improving their institutional quality is a must.
    Keywords: Quality of government; institutions; regional policy; gravity model of trade; structural estimation
    JEL: F15 R10 E02
    Date: 2021–01
  118. By: Simplice A. Asongu (Yaounde, Cameroon); Rexon T. Nting (University of Wales, London, UK)
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries. It employs a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers. This study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.
    Keywords: Banking; human development; Africa
    JEL: E00 G20 I00 O10
    Date: 2021–01
  119. By: Jonathan McCarthy
    Abstract: The coronavirus pandemic and the various measures to address it have led to unprecedented convulsions to the U.S. and global economies. In this post, I examine those extraordinary impacts through the lens of personal consumption expenditures on discretionary and nondiscretionary services, a framework I developed in a 2011 post (and subsequently employed in 2012, 2014, and 2017). In particular, I show that there were exceptional declines in both services categories during the spring; their recoveries, however, have displayed notably different patterns in recent months, with nondiscretionary services expenditures nearly back to their prior level and discretionary services expenditures seemingly stalled well below their pre-pandemic peak.
    Keywords: consumer expenditures; discretionary services; nondiscretionary services; COVID-19
    JEL: E2
    Date: 2021–01–15
  120. By: International Monetary Fund
    Abstract: The Irish economy continues to expand strongly, benefitting from higher net exports by multinational enterprises and robust domestic demand. Accelerating wage growth reflects tight labor market conditions and inflation has started to pick up. Crisis legacies have diminished but some vulnerabilities persist. The outlook remains broadly positive, provided Brexit proceeds in an orderly manner. However, the economy operates near full capacity and an accelerating cyclical momentum could re-ignite a boom-bust dynamic. A no-deal Brexit represents the key downside risk, while escalation in global protectionism and sudden changes in corporate tax planning of multinational enterprises in Ireland could adversely affect the economy and public finances.
    Keywords: Public debt;Corporate income tax;Banking;Housing;Financial sector;ISCR,CR,government,Ireland,headline inflation,housing supply strategy
    Date: 2019–06–17
  121. By: Juan Brichetti (Universidad Nacional de La Plata); Daniel Heymann (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Pedro Juarros (Georgetown University); Gustavo Montero (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET)
    Abstract: Deep recessions and disruptions in credit markets have caused worries and motivated research for a long time. They still challenge macroeconomic analysis. We rst map some observable features of a set of such episodes, trying to nd common elements of the whole family of events. The dierent macroeconomic experiences show a high degree of heterogeneity. Given that, what emerges as a central element of crises is their character as a life-changing episode for the people concerned, which remains in their memory and triggers a search for lessons, as they frustrate past expectations and force widespread reevaluations of wealth and income prospects. Critical periods involve dynamics at dierent time scales, as economic changes with lasting implications take place in an environment of dramatic day-to-day variability. Crises tend to be associated with breaks in the growth trends of the economies in question, in a way that may surprise not only agents inclined to eccentric behavior, but also those who held beliefs based on prevalent economic analysis. Macroeconomic disturbances of this sort raise strong questions about the pertinence, and the logic, of usual rational expectations assumptions and modeling practices.
    Keywords: Big Recessions, Macroeconomic Crises, Wealth Misperceptions, Coordination Failures
    JEL: G01 D84 E32
  122. By: Mykola Babiak; Jozef Barunik
    Abstract: We study dynamic portfolio choice of a long-horizon investor who uses deep learning methods to predict equity returns when forming optimal portfolios. Our results show statistically and economically significant benefits from using deep learning to form optimal portfolios through certainty equivalent returns and Sharpe ratios. Return predictability via deep learning also generates substantially improved portfolio performance across different subsamples, particularly during recessionary periods. These gains are robust to including transaction costs, short-selling and borrowing constraints.
    Keywords: return predictability; portfolio allocation; machine learning; neural networks; empirical asset pricing;
    JEL: C45 C53 E37 G11 G17
    Date: 2020–12
  123. By: Chadi Abdallah; Kangni R Kpodar
    Abstract: We estimate the dynamic effects of changes in retail energy prices on inflation using a novel monthly database, covering 110 countries over 2000:M1 to 2016:M6. We find that (i) inflation responds positively to retail energy price shocks, with effects being, on average, modest and transitory. However, our results suggest significant heterogeneity in the response of inflation to these shocks owing to differences in factors related to labor market flexibility, energy intensity, and monetary policy credibility. We also find compelling evidence of asymmetric effects—under sufficiently large shocks—in the case of high-income and low-income countries, with increases in retail fuel prices inducing larger effects on inflation than decreases in fuel prices.
    Keywords: Fuel prices;Inflation;Energy prices;Oil prices;Personal income;WP,price,standard deviation,fuel price shock,spiral effects
    Date: 2020–06–12
  124. By: Suman S Basu; Emine Boz; Gita Gopinath; Francisco Roch; Filiz D Unsal
    Abstract: In the Mundell-Fleming framework, standard monetary policy and exchange rate flexibility fully insulate economies from shocks. However, that framework abstracts from many real world imperfections, and countries often resort to unconventional policies to cope with shocks, such as COVID-19. This paper develops a model of optimal monetary policy, capital controls, foreign exchange intervention, and macroprudential policy. It incorporates many shocks and allows countries to differ across the currency of trade invoicing, degree of currency mismatches, tightness of external and domestic borrowing constraints, and depth of foreign exchange markets. The analysis maps these shocks and country characteristics to optimal policies, and yields several principles. If an additional instrument becomes available, it should not necessarily be deployed because it may not be the right tool to address the imperfection at hand. The use of a new instrument can lead to more or less use of others as instruments interact in non-trivial ways.
    Keywords: Capital controls;Housing;Exchange rates;Currency markets;Central bank policy rate;WP,exchange rate,FX intervention,interest rate
    Date: 2020–07–07
  125. By: Yusuf Mercan; Benjamin Schoefer; Petr SedláÄ ek
    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 insen¬sitivity of unemployment to labor market policies, such as unemployment insurance.
    Date: 2020–12–16
  126. By: Tigran Poghosyan
    Abstract: This paper estimates the extent and speed of exchange rate pass-through (ERPT) in seven Caucasus and Central Asia (CCA) countries using monthly data over the January 1995–May 2020 period. The estimations are performed using the local projections method. We find that the average pass-through in the CCA is about 10 percent on impact and about 25 percent after 12 months. There is no evidence of asymmetric ERPT with respect to the size and the sign of exchange rate changes. The pass-through is broadly unchanged in fixed versus floating exchange rate regimes. There has been a downward shift in the speed of ERPT in the aftermath of the global financial crisis as CCA countries have entered a relatively low inflation environment. The pass-through estimates could be used by the CCA monetary authorities for inflation projections. The absence of non-linearities in the pass-through with respect to the exchange rate regime suggests that transition from fixed to floating exchange rate regimes in the region is not likely to impose additional inflationary costs.
    Keywords: Exchange rates;Exchange rate adjustments;Exchange rate pass-through;Exchange rate arrangements;Inflation;WP,confidence interval
    Date: 2020–08–07
  127. By: Tobias Adrian; Christopher J. Erceg; Jesper Lindé; Pawel Zabczyk; Jianping Zhou
    Abstract: Many central banks have relied on a range of policy tools, including foreign exchange intervention (FXI) and capital flow management tools (CFMs), to mitigate the effects of volatile capital flows on their economies. We develop an empirically-oriented New Keynesian model to evaluate and quantify how using multiple policy tools can potentially improve monetary policy tradeoffs. Our model embeds nonlinear balance sheet channels and includes a range of empirically-relevant frictions. We show that FXI and CFMs may improve policy tradeoffs under certain conditions, especially for economies with less well-anchored inflation expectations, substantial foreign currency mismatch, and that are more vulnerable to shocks likely to induce capital outflows and exchange rate pressures.
    Keywords: Return on investment;Inflation;Interest rate parity;Exchange rates;Real exchange rates;WP
    Date: 2020–07–07
  128. By: Kristopher S. Gerardi; Paul S. Willen; David Hao Zhang
    Abstract: During the period 2005 to 2020, Black borrowers with mortgages insured by Fannie Mae or Freddie Mac paid interest rates that were almost 50 basis points higher than those paid by non-Hispanic white borrowers. We show that the main reason is that non-Hispanic white borrowers are much more likely to exploit periods of falling interest rates by refinancing their mortgages or moving. Black and Hispanic white borrowers face challenges refinancing because, on average, they have lower credit scores, equity, and income. But even holding those factors constant, Black and Hispanic white borrowers refinance less, suggesting that other social factors are at play. Because they are more likely to exploit lower interest rates, white borrowers benefit more from monetary expansions. Policies that reduce barriers to refinancing for minority borrowers and alternative mortgage contract designs that more directly pass through interest rate declines to borrowers can reduce racial mortgage pricing inequality.
    Keywords: mortgage; refinance; race; monetary policy; interest rate
    JEL: D14 E52 G51
    Date: 2020–12–18
  129. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This research assesses the relevance of enhancing remittances on value added across economic sectors in sub-Saharan Africa for the period 1980 to 2014 using the Generalised Method of Moments. First, no significant net effects on added value to the agricultural sector are apparent. Second, enhancing remittances engenders a positive net effect on added value to the manufacturing sector. Third, there are negative net effects on added value to the service sector. Given that the unfavourable net incidence of remittances to the service sector is associated with a positive marginal or conditional effect, the analysis is extended by computing thresholds at which remittances induce net positive effects on added value to the service sector. The extended analysis shows that a remittance threshold of 48.5% of GDP is the critical mass needed for further enhancement of remittances to engender positive net effects on value added to the service sector.
    Keywords: Economic Output; Remitances; Sub-Saharan Africa
    JEL: E23 F24 F30 O16 O55
    Date: 2021–01
  130. By: Monica Billio (Department of Economics, University Of Venice Cà Foscari); Roberto Casarin (Department of Economics, University Of Venice Cà Foscari); Enrica De Cian (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Malcolm Mistry (Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), Venice, Italy); Anthony Osuntuyi (Department of Mathematics, Obafemi Awolowo University Nigeria)
    Abstract: This paper examines the impact of climate shocks on 13 European economies analysing jointly business and financial cycles, in different phases and disentangling the effects for different sector channels. A Bayesian Panel Markov-switching framework is proposed to jointly estimate the impact of extreme weather events on the economies as well as the interaction between business and financial cycles. Results from the empirical analysis suggest that extreme weather events impact asymmetrically across the different phases of the economy and heterogeneously across the EU countries. Moreover, we highlight how the manufacturing output, a component of the industrial production index, constitutes the main channel through which climate shocks impact the EU economies.
    Keywords: Bayesian inference, climate shocks, financial cycle, business cycle, Markov-switching, Multi-country Panel
    JEL: C11 C15 C33 C53 E37
    Date: 2021
  131. By: Annamaria de Crescenzio (OECD); Etienne Lepers (OECD); Zoe Fannon (University of Oxford)
    Abstract: This paper provides the first comprehensive analysis of benefits and side-effects of foreign-currency differentiated reserve requirements for a sample of 58 countries from 1999 to 2015. Departing from the existing literature on effectiveness which used binary variables to measure policy changes, the intensity of reserve requirement adjustments is captured by using the gap between foreign and local currency rates to isolate the impact of differentiation net of volume effects.The findings show that increasing the gap between FX and local currency-denominated reserve requirements is generally effective in reducing currency mismatch and dollarisation in banks’ balance sheets, notably through a reduction in the share of banks’ FX liabilities to total liabilities and in banks’ net FX positions. The findings also show that a higher gap is associated with a broader reduction in capital inflows, in particular portfolio debt inflows and flows to non-banks. Little evidence of domestic or international circumvention, with risks shifting to other sectors or countries is visible.
    Keywords: banking regulation, differentiated reserve requirement, dollarisation, macro-prudential policies,
    JEL: E58 F3 F38 G28
    Date: 2021–01–20
  132. By: Adam Aboobaker (University of Massachusetts Amherst, USA); Esra Nur Ugurlu (University of Massachusetts Amherst, USA)
    Abstract: This paper addresses the limitations of Modern Money Theory (MMT) as a guide to development policy. We explore two central questions on this topic: whether MMT policies 1) ought to be implemented in low- and middle-income economies and 2) can be implemented. In relation to the first question, we argue that the MMT literature mischaracterizes the essence of the development challenge for low- and middle-income economies. Our argument is that the chief long-run growth challenge faced by developing countries concerns structural transformation rather than general aggregate demand insufficiency. We use several formal representations of the consumption-investment trade-off in growth theory, found in the Harrod-Domar growth model, Kalecki’s 1963 growth model, and Feldman-Mahalanobis model, to illustrate this point. Concerning the second question, we argue that even if MMT had the correct diagnosis of the principal growth challenge faced by developing countries, its chief policy recommendations would likely be counter-productive if implemented outside of select advanced economies. We draw from the international economics literature on currency hierarchy and exchange rate volatility to illustrate this point.
    Keywords: MMT, structural change, macro policy, growth models, history of economic thought.
    JEL: O10 O41 E0 B0
    Date: 2020
  133. By: Deepankar Basu (Department of Economics, University of Massachusetts Amherst); Manya Budhiraja (Department of Economics, University of Massachusetts Amherst)
    Abstract: The Kaldor-Verdoorn law refers to a positive but less than one-for-one relationship between the growth rates of output and labor productivity, with causality running from the former to the latter. Empirical research has affirmed such a relationship and have found that the Kaldor-Verdoorn coefficient lies between 0 and 1. But the interpretation of this finding remains unclear. In this paper, we present a model to derive the Kaldor-Verdoorn law. Our results show that the Kaldor-Verdoorn coefficient is jointly determined by the elasticity of factor substitution, labor supply elasticity, the profit share and the increasing returns to scale (or demand-induced technical change) parameter. Hence, estimated Kaldor-Verdoorn coefficients cannot be used, on their own, to infer the presence of aggregate increasing returns to scale - other than in very special cases. We also show that, perhaps surprisingly, an economy without aggregate increasing returns to scale (or without any demand-induced technical progress) can generate a Kaldor-Verdoorn coefficient that lies between 0 and 1.
    Keywords: Aggregate productivity, Kaldor-Verdoorn coefficient, labor supply elasticity, CES production function.
    JEL: E12 O4
    Date: 2020
  134. By: Michael Ryan (University of Waikato)
    Abstract: This paper begins with a brief narrative on the close conceptual relationship between institutions and uncertainty, which motivates using uncertainty as a metric of institutional reform success in the subsequent econometric analysis. Our analysis, based on using uncertainty measures constructed on firm-level data in a Bayesian Structural AutoRegression model, suggests that while during the reform period uncertainty increased, New Zealand's wide-ranging institutional reform in the late 20th century (approximately 1984 to 1995) was eventually successful in lowering uncertainty from domestic institutional sources. We also contend that rising uncertainty immediately prior to reform could have been the spur to reform. Given New Zealand was one of many OECD countries that pursued market-oriented economic institutional reform over the period, our results have insights beyond just understanding the New Zealand experience.
    Keywords: Institutions; economic reform; uncertainty; New Zealand
    JEL: C32 E02 O43 O56
    Date: 2021–01–12
  135. By: Lalouette, Laure; Zamora-Pérez, Alejandro; Rusu, Codruta; Bartzsch, Nikolaus; Politronacci, Emmanuelle; Delmas, Martial; Rua, António; Brandi, Marco; Naksi, Martti
    Keywords: banknotes, currency substitution, euro, euroisation, foreign demand for money, hoarding, remittances
    Date: 2021–01
  136. By: International Monetary Fund
    Abstract: The political context has become more complex and uncertain ahead of the 2020 presidential elections, with the three traditional parties openly competing since the end of the ruling coalition between President Ouattara’s Republican Democratic Rally and former President Bédié’s Democratic Party of Côte d’Ivoire. Positive investor perceptions of Côte d’Ivoire have so far not been affected. The growth outlook remains strong at 7½ percent, predicated on a continuously improving business environment, buoyant investment and sustained private consumption. Inflation is expected to remain low. Downside risks include the effects of the uncertain political landscape and weaker-than-expected global growth.
    Keywords: Revenue administration;Public debt;Credit;Banking;Government debt management;ISCR,CR,summary debt service table,debt
    Date: 2019–07–01
  137. By: Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar
    Abstract: We measure dislocations in the market for corporate bonds in real time with the Corporate Bond Market Distress Index (CMDI), allowing for the aggregation of a broad set of measures of market functioning from primary and secondary bond markets into a single measure. The index quantifies dislocations from a preponderance-of-metrics perspective, ensuring that the measure of market distress is not driven by any one statistic. We document that the index correctly identifies periods of dislocations, is robust to alternative choices of the aggregation procedure, and provides differential predictive information for future real outcomes relative to common spread measures.
    Keywords: corporate bond market conditions; corporate bond spreads; corporate bond issuance; corporate bond liquidity
    JEL: C43 E37 G12 G19
    Date: 2021–01–01
  138. By: Ramzy Al Amine; Tim Willems
    Abstract: We find that countries which are able to borrow at spreads that seem low given fundamentals (for example because investors take a bullish view on a country's future), are more likely to develop economic difficulties later on. We obtain this result through a two-stage procedure, where a first regression links sovereign spreads to fundamentals, after which residuals from this regression are deployed in a second stage to assess their impact on future outcomes (real GDP growth and the occurrence of fiscal crises). We confirm the relevance of past sovereign debt mispricing in several out-of-sample exercises, where they reduce the RMSE of real GDP growth forecasts by as much as 15 percent. This provides strong support for theories of sentiment affecting the business cycle. Our findings also suggest that countries shouldn't solely rely on spread levels when determining their fiscal strategy; underlying fundamentals should inform policy as well, since historical relationships between spreads and fundamentals often continue to apply in the medium-to-long run.
    Keywords: Public debt;Current account deficits;External debt;Government consumption;Economic forecasting;WP,sub,cross-validation procedure
    Date: 2020–08–14
  139. By: Pazhanisamy, R.
    Abstract: In spite of the pandemic pressure to limit the use of the resources both internally and outside the economies policymakers all over the globe, compete each other's to recover the economic growth with a v shape through various planned activities on mission mode. Social budgeting is found as one of the most effective way to achieve these objective (United Nation 2020) which has not been effectively practiced and fully implemented widely across the economies due multifaceted and dynamic problems encountered by the public which limits the outlining of the elements of social budget within the usual budgetary framework. This involves various issues of inter and intra allocation of the public expenditures and the source of revenue. With a view to reflect the public priorities in the budget information on how the policymakers collect the public opinion and how they use it rationally which is not available across the literature and leaves a considerable gap in research. In this context an attempt is made in this policy brief to fill this gap in research. During the pandemic period the demand for such above approach particularly in a democratic economy like India to implement social budget becomes inevitable as it is the government of the people, by the people for the public. Using the secondary data from the ministry of finance the trend of the public expenditure and revenue the elements of social budgeting in India is outlined and the possibility of the effective implementations of the social budget 2021 is given in simplest way that everyone can be understand.
    Keywords: Union budget 2021,India’s budget 2021,Democratic budget,Social budget,Pandemic budget
    JEL: H2 H5 H6 O2 I3 E6
    Date: 2021
  140. By: Margherita Borella; Mariacristina De Nardi; Fang Yang
    Abstract: In the United States, both taxes and old age Social Security benefits depend on one's marital status and tend to discourage the labor supply of the secondary earner. To what extent are these provisions holding back female labor supply? We estimate a rich life cycle model of labor supply and savings for couples and singles using the method of simulated moments (MSM) on the 1945 and 1955 birth-year cohorts and use it to evaluate what would happen without these provisions. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. Eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle, reduces the participation of married men after age 60, and increases the savings of couples in both cohorts, including the later one, which has similar participation to that of more recent generations. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population.
    JEL: E21 H20 J22 J31
    Date: 2020–10–23
  141. By: Masaru Inaba; Kengo Nutahara; Daichi Shirai
    Abstract: It is well known that the labor wedge worsens in the recessions. The main research of this study are as follows. (i) What is the main driving force of the labor wedge? (ii) Is the main driver of the labor wedge the same as that of business cycles? In this study, we analyze which structural shocks drive the fluctuation of the labor wedge and business cycles using a canonical medium-scale dynamic stochastic general equilibrium model with nominal and real frictions. The model is estimated using Japanese data. One of the novel features of this study is our estimation strategy. In standard Bayesian estimation, the prior distribution of the parameters for the standard deviations of the structural shocks is inverse gamma, which does not support zero value and assumes the existence of structural shocks. On the contrary, we employ a more flexible prior distribution of the parameters for the standard deviations of structural shocks to allow the non-existence of structural shocks. Under the standard prior distribution, the estimation results imply that the labor wedge is mainly driven by preference and transitory technology shocks, whereas the investment adjustment cost shock is the most important for the business cycle fluctuations. However, under our relaxed prior distribution, which allows the non-existence of structural shocks, the estimation results imply that both the labor wedge and the business cycles are mainly driven by permanent technology and investment adjustment cost shocks.
    Date: 2020–08
  142. By: Juin-Jen Chang (Academia Sinica); Jang-Ting Guo (Department of Economics, University of California Riverside); Wei-Neng Wang (National Taichung University of Science and Technology)
    Abstract: This paper systematically examines the theoretical as well as quantitative interrelations between government spending and disposable-income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon a higher government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth inequality effect versus those of the adjusted-labor effect. Under (i) a mild level of productive public expenditures and (ii) a sufficiently high intertemporal elasticity of consumption substitution, our calibrated model is able to generate qualitatively as well as quantitatively consistent income-inequality effects of government spending vis-Ã -vis recent estimation results.
    Keywords: Government Spending; Income Inequality; Monopolistic Competition.
    JEL: D31 E30 H50
    Date: 2021–01
  143. By: Urban Sila; Christine de la Maisonneuve
    Abstract: There is considerable regional variation in incomes and poverty in the Czech Republic and gaps have grown over time. With the highest number of municipalities per head in the OECD, subnational government is very fragmented and the resulting lack of capacity at the local level reduces the quality of public services and impedes the uptake of effective development projects. This paper discusses various policy options to address the challenges faced by Czech subnational governments and proposes reforms to enhance their effectiveness. Mergers of municipalities would be an obvious way towards greater integration, but this may be politically difficult. Mandating inter-municipal co-operation over a legally defined set of public services can be an alternative way of improving efficiency and the quality of service delivery. Tweaking the tax sharing system to disincentivise small size of municipalities and to make subnational governments more autonomous could be steps towards higher efficiency. Improving and consolidating the delivery of education and health services at the local level is also needed in the context of demographic change.
    Keywords: administrative fragmentation, decentralisation, local government, municipal cooperation, municipal mergers, public services
    JEL: E62 H70 H71 H72 H77 I18 I28 R1
    Date: 2021–01–21
  144. By: Masazumi Hattori; Tomohide Mineyama; Jouchi Nakajima
    Abstract: We propose the Taylor rule yield curve for the United States, which is an extension of the Taylor rule for the short-term policy rate to points in time in the future horizon. The estimated Taylor rule expected rates are useful for considering the monetary policy stance reflected in the entire yield curve, which is valid even during the periods when the federal funds rate (FFR) hits its effective lower bound (ELB). The analysis shows that the Taylor rule deviations (TRDs), the gap between the Taylor rule expected rates and market Overnight Index Swap (OIS) rates, for maturities much longer than overnight could influence the outputgap and inflation rates in the United States, even during the period when the FFR hit the ELB for a considerable duration and the Federal Reserve resorted to an unconventional monetary policy. Moreover, the TRDs for long maturities can be regarded as a measure of risk appetite in financial markets. Our methodology in this study can be directly applied for analysis in other countries that experienced similar periods of policy rates hitting their ELBs, as long as data on economists' forecasts of output and inflation are available.
    Date: 2021–01
  145. By: Alexandre Georgieff; Anna Milanez
    Abstract: This study looks at what happened to jobs at risk of automation over the past decade and across 21 countries. There is no support for net job destruction at the broad country level. All countries experienced employment growth over the past decade and countries that faced higher automation risk back in 2012 experienced higher employment growth over the subsequent period. At the occupational level, however, employment growth has been much lower in jobs at high risk of automation (6%) than in jobs at low risk (18%).Low-educated workers were more concentrated in high-risk occupations in 2012 and have become even more concentrated in these occupations since then. In spite of this, the low growth in jobs in high-risk occupations has not led to a drop in the employment rate of low-educated workers relative to that of other education groups. This is largely because the number of low-educated workers has fallen in line with the demand for these workers.Going forward, however, the risk of automation is increasingly falling on low-educated workers and the COVID-19 crisis may have accelerated automation, as companies reduce reliance on human labour and contact between workers, or re-shore some production.
    Keywords: automation, job stability
    JEL: E32 J22 J23
    Date: 2021–01–25
  146. By: Pablo Orazi (Central Bank of Argentina); Mario Torriani (Central Bank of Argentina); Matias Vicens (Central Bank of Argentina)
    Abstract: Central bank reserves function as a liquidity buffer to mitigate country exposure and vulnerability to external shocks. Emerging Market Economies are the countries most exposed to the volatility of capital flows and have usually preferred to build up large war-chests of international reserves as a self-insurance mechanism, as it is under their full discretion. Nevertheless, the standard practice of immobilizing large amounts of “cash” to insure against jumps in volatility and riskaversion could be enhanced. The inclusion in the strategic asset allocation decision of external shocks´ hedging strategies, which may increase the market value of the reserves´ portfolio when reserves are more needed, can help to enhance the risk management of the national balance sheet. This paper presents a framework that seeks to enhance the strategic asset allocation of a central bank, by including in the portfolio construction the analysis of correlations between the reserves’ portfolio and the country’s main vulnerabilities to external shocks.
    Keywords: asset allocation, Central Bank, external shocks, hedging strategies, international reserves
    JEL: E58 F32 G11
    Date: 2020–07
  147. By: Peter Skott (University of Massachusetts Amherst, USA, and Aalborg University, Denmark); Júlio Fernando Costa Santos (Instituto de Economia e Relações Internacionais (IERI), Universidade Federal de Uberlândia (UFU), Brazil); José Luís da Costa Oreiro (Universidade de Brasília (UnB) Brazil)
    Abstract: Sraffian supermultiplier models (SSM) try to identify autonomous components of demand. The most plausible candidate is government consumption. Descriptively, however, government consumption does not grow at a constant rate, and prescriptively there is no justification for keeping constant the growth rate of government consumption, irrespective of economic performance. An active fiscal policy guided by principles of functional finance can produce more powerful stabilization, avoid overheating and excessive utilization rates, and secure faster adjustments of the growth rate towards its target level.
    Keywords: Fiscal Policy, Sraffian Supermultiplier, Functional Finance
    Date: 2020
  148. By: Ayenew, Ashenafi Belayneh
    Abstract: This paper examines the welfare impact of hosting refugees in Ethiopia, one of the largest refugee-hosting countries worldwide. The findings reveal different implications depending on the type of household welfare metric. While reducing consumption expenditure per capita and increasing the probability of falling into consumption poverty, it has no effect on wealth and the status of wealth poverty. Decomposing consumption expenditure per capita into food, education, and other non-food components, the results further reveal that it alters the composition of consumption, as it solely affects food consumption expenditure. The consumption effects prevail in rural areas with no effects in urban centers while no heterogeneity is found concerning wealth and wealth poverty results. Key mechanisms explaining the adverse consumption effects include displacement of hosts from salaried employment and a spike in prices of agricultural inputs but not changes in the extent of societal cooperation.
    Keywords: Refugees,Consumption,Wealth,Poverty,Employment,Price,Cooperation
    JEL: O12 O15 E24 Z13
    Date: 2021
  149. By: Rod Garratt; Michael Junho Lee
    Abstract: In a market where consumers choose between payment options and firms compete with products and prices, we show that payment data drives the formation of a market monopoly. A data-sharing policy can successfully restore and maintain a competitive market, but often at the expense of both efficiency and consumer welfare. The introduction of a low-cost anonymous means of electronic payment, or digital cash, preserves the market structure and improves consumers’ welfare by enabling them to monetize their private information. We discuss the potential role of central banks in providing digital cash.
    Keywords: customer data; privacy; market structure; digital cash; payments
    JEL: E42 L11 L15
    Date: 2021–01–01
  150. By: Hull, Isaiah (Research Department, Central Bank of Sweden); Sattath, Or (Department of Computer Science); Diamanti, Eleni (LIP6, CNRS); Wendin, Göran (Department of Microtechnology and Nanoscience)
    Abstract: Research on quantum technology spans multiple disciplines: physics, computer science, engineering, and mathematics. The objective of this manuscript is to provide an accessible introduction to this emerging field for economists that is centered around quantum computing and quantum money. We proceed in three steps. First, we discuss basic concepts in quantum computing and quantum communication, assuming knowledge of linear algebra and statistics, but not of computer science or physics. This covers fundamental topics, such as qubits, superposition, entanglement, quantum circuits, oracles, and the no-cloning theorem. Second, we provide an overview of quantum money, an early invention of the quantum communication literature that has recently been partially implemented in an experimental setting. One form of quantum money offers the privacy and anonymity of physical cash, the option to transact without the involvement of a third party, and the efficiency and convenience of a debit card payment. Such features cannot be achieved in combination with any other form of money. Finally, we review all existing quantum speedups that have been identified for algorithms used to solve and estimate economic models. This includes function approximation, linear systems analysis, Monte Carlo simulation, matrix inversion, principal component analysis, linear regression, interpolation, numerical differentiation, and true random number generation. We also discuss the difficulty of achieving quantum speedups and comment on common misconceptions about what is achievable with quantum computing.
    Keywords: Quantum Computing; Econometrics; Computational Economics; Money; Central Banks
    JEL: C50 C60 E40 E50
    Date: 2020–12–01
  151. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that structural reforms, strengthened policy frameworks and the ongoing smooth political transition have laid the foundations for sustained growth in El Salvador. The discussions focused on policies that build on these achievements and address fiscal vulnerabilities, boost long-term growth, and strengthen the governance, anticorruption and Anti-Money Laundering and Combating the Financing of Terrorism frameworks. Continued US dollar appreciation led to a significant decline in inflation and widening of the current account deficit. The authorities agreed that debt would continue to drift upward in the absence of measures, and that weaker-than-expected global growth could have a negative impact on the domestic economy. The authorities emphasized their commitment to guarantee a smooth political transition by sharing information with the new administration and by inviting the Audit Office to oversee the handover process. It is recommended to improve the governance and anticorruption frameworks by increasing the fiscal transparency of the 2020 budget laws, strengthening audit and spending controls, and promptly implementing electronic invoicing.
    Keywords: Public debt;Revenue administration;Public sector;Fiscal stance;Fiscal consolidation;ISCR,CR,debt,IMF staff estimate,authority,dollar,financial system
    Date: 2019–05–23
  152. By: Rosario Aldunate
    Abstract: This essay seeks to contribute to the credit-channel literature by studying how the effects of foreign shocks can be amplified in the economy due to the existence of financial constraints at the firm-level in a small open economy as Chile. For this purpose, this study analyzes the evolution of Chilean manufacturing firms between 1995 and 2005 thanks to a panel based on the Annual National Survey of Industries, measures of financial constraints built on the work by Rajan and Zingales (1998) and pays special attention to the Asian crisis, an episode that hit particularly hard the Chilean economy in terms of contraction of the credit flow. Regarding the exit probability, during the Asian crisis firms with liquidity needs were more likely to leave the market. On the intensive margin side, the number of workers, wage-bill, total income, and value-added were more negatively affected by this crisis in financially constrained firms.
    Date: 2021–01
  153. By: Roger Farmer; Jean-Philippe Bouchaud
    Abstract: We construct a model where people trade assets contingent on an observable signal that reflects public opinion. The agents in our model are replaced occasionally and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi non-ergodic process and that people continue to disagree with each other forever. Our model generates large wealth inequalities that arise from the multiplicative nature of wealth dynamics which makes successful bold bets highly profitable. The flip side of this statement is that unsuccessful bold bets are ruinous and lead the person who makes such bets into poverty. People who agree with the market belief have a low expected subjective gain from trading. People who disagree may either become spectacularly rich, or spectacularly poor.
    JEL: E0 G0 G12 G14
    Date: 2020–12
  154. By: Peter L. Rousseau (Vanderbilt University)
    Abstract: President Jackson vetoed the bill to re-charter the Second Bank of the United States on 10 July 1832. I describe events leading to the veto and through the Bank's dissolution in 1836 using private correspondence and official government documents. These sources reveal a political process through which charges against the Bank took hold, accomplices and back-up plans were lined up, and the Bank was ultimately destroyed with the assistance of chartered banks in New York City. Although the aggressive means by which the Bank was dismantled led to a system-wide financial failure and recession in the short term, the long-run outcome was likely a wider diffusion of banking services and a more efficient allocation of capital. The Federal Reserve benefited from applying a more rigorous regulatory structure onto the grid that the populists, free bankers, and National Banking System established.
    Keywords: Bank of the United States, Jacksonian monetary policy, central banking, Federal Reserve.
    JEL: N2 E4
    Date: 2021–01–10
  155. By: Timo Boppart; Karl Harmenberg; John Hassler; Per Krusell; Jonna Olsson
    Abstract: We formulate an economic time use model and add to it an epidemiological SIR block. In the event of an epidemic, households shift their leisure time from activities with a high degree of social interaction to activities with less, and also choose to work more from home. Our model highlights the different actions taken by young individuals, who are less severely affected by the disease, and by old individuals, who are more vulnerable. We calibrate our model to time use data from ATUS, employment data, epidemiological data, and estimates of the value of a statistical life. There are qualitative as well as quantitative differences between the competitive equilibrium and social planner allocation and, moreover, these depend critically on when a cure arrives. Due to the role played by social activities in people's welfare, simple indicators such as deaths and GDP are insuffcient for judging outcomes in our economy.
    JEL: E10 I10
    Date: 2020–12
  156. By: Tamara, Novian; Dwi Muchisha, Nadya; Andriansyah, Andriansyah; Soleh, Agus M
    Abstract: GDP is very important to be monitored in real time because of its usefulness for policy making. We built and compared the ML models to forecast real-time Indonesia's GDP growth. We used 18 variables that consist a number of quarterly macroeconomic and financial market statistics. We have evaluated the performance of six popular ML algorithms, such as Random Forest, LASSO, Ridge, Elastic Net, Neural Networks, and Support Vector Machines, in doing real-time forecast on GDP growth from 2013:Q3 to 2019:Q4 period. We used the RMSE, MAD, and Pearson correlation coefficient as measurements of forecast accuracy. The results showed that the performance of all these models outperformed AR (1) benchmark. The individual model that showed the best performance is random forest. To gain more accurate forecast result, we run forecast combination using equal weighting and lasso regression. The best model was obtained from forecast combination using lasso regression with selected ML models, which are Random Forest, Ridge, Support Vector Machine, and Neural Network.
    Keywords: Nowcasting, Indonesian GDP, Machine Learning
    JEL: C55 E30 O40
    Date: 2020–06–26
  157. By: Jacks, David; Stuermer, Martin
    Abstract: We provide evidence on the dynamic effects of fuel price shocks, shipping demand shocks, and shipping supply shocks on real dry bulk freight rates in the long run. We first analyze a new and large dataset on dry bulk freight rates for the period from 1850 to 2020, finding that they followed a downward but undulating path with a cumulative decline of 79%. Next, we turn to understanding the drivers of booms and busts in the dry bulk shipping industry, finding that shipping demand shocks strongly dominate all others as drivers of real dry bulk freight rates in the long run. Furthermore, while shipping demand shocks have increased in importance over time, shipping supply shocks in particular have become less relevant.
    Keywords: Dry bulk, maritime freight rates, structural VAR
    JEL: E30 N7 R4
    Date: 2020–12
  158. By: Todd Keister (Rutgers University); Yuliyan Mitkov (University of Bonn)
    Abstract: We study the interaction between a government's bailout policy and banks' willingness to impose losses on (or \bail in") their investors. The government has limited commitment and may choose to bail out banks facing large losses. The anticipation of this bailout undermines a bank's private incentive to impose a bail-in. In the resulting equilibrium, bail-ins are too small and bailouts are too large. Some banks may also face a run by informed investors, creating further distortions and leading to larger bailouts. We show how a regulator with limited information can raise welfare and improve financial stability by imposing a system-wide, mandatory bail-in at the onset of a crisis. In some situations, allowing banks to choose between meeting a minimum bail-in and opting out can raise welfare further.
    Keywords: Bank bailouts, moral hazard, financial stability, banking regulation
    JEL: E61 G18 G28
    Date: 2020–12

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