nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒02‒01
144 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Credit Frictions in the Great Recession By Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
  2. (Optimal) Monetary Policy with and without Debt By Boris Chafwehé; Rigas Oikonomou; Romanos Priftis; Lukas Vogel
  3. Does the debt service channel work? By Ling Jin
  4. Buried in the vaults of central banks: Monetary gold hoarding and the slide into the Great Depression By Karau, Sören
  5. Stock Prices, Lockdowns, and Economic Activity in the Time of Coronavirus By Steven J. Davis; Dingqian Liu; Xuguang Simon Sheng
  6. US business cycle dynamics at the zero lower bound By Böhl, Gregor; Strobel, Felix
  7. A Prolonged Period of Low Interest Rates: Unintended Consequences By Simona Malovana; Josef Bajzik; Dominika Ehrenbergerova; Jan Janku
  8. The Welfare and Distributional Effects of Fiscal Volatility: A Quantitative Evaluation By Bachman, RÜdiger; Bai, Jinhui; Lee, Minjoon; Zhang, Fudong
  9. The Impact of the COVID-19 Pandemic on Business Expectations By ; ; Brent Meyer
  10. National Accounts as a Stock-Flow Consistent System, Part 1: The Real Accounts By Matti Estola; Kristian Veps\"al\"ainen
  11. Search for Profits and Business Fluctuations: How Banks' Behaviour Explain Cycles? By Emanuele Ciola; Edoardo Gaffeo; Mauro Gallegati
  12. Long-run stability of money demand and monetary policy: the case of Algeria By Raouf Boucekkine; M. Laksaci; M. Touati-Tliba
  13. Long-run stability of money demand and monetary policy: the case of Algeria By Raouf Boucekkine; Mohammed Laksaci; Mohamed Touati-Tliba
  14. Forward Guidance in Small Open Economy By André, Marine-Charlotte; Traficante, Guido
  15. Is the credit channel alive? Evidence from firm-level data in Korea By Ling Jin
  16. Central Bank Governance in Monetary Policy Economics (1981-2020) By Donato Masciandaro
  17. Aggregate Implications of Credit Relationship Flows: a Tale of Two Margin By Yasser Boualam; Clément Mazet-Sonilhac
  18. State Dependence of Fiscal Multipliers: The Source of Fluctuations Matters By Mishel Ghassibe; Francesco Zanetti
  19. Monetary Policy and Redistribution in Open Economies By Xing Guo; Pablo Ottonello; Diego J. Perez
  20. Flight to Liquidity or Safety? Recent Evidence from the Municipal Bond Market By Huixin Bi; W. Blake Marsh
  21. Do Enlarged Fiscal Deficits Cause Inflation: The Historical Record By Michael D. Bordo; Mickey D. Levy
  22. Global Value Chains and the transmission of exchange rate shocks to consumer prices By Camatte Hadrien; Faubert Violaine; Lalliard Antoine; Daudin Guillaume; Rifflart Christine
  23. Analysis of Nine U.S. Recessions and Three Expansions By Ray C. Fair
  24. State-Dependent or Time-Dependent Pricing? New Evidence from a Monthly Firm-Level Survey: 1980–2017 By Dixon, Huw; Grimme, Christian
  25. Removing the basic flaw in deposit insurance leads automatically to full reserve banking. By Musgrave, Ralph S.
  26. The (ir)relevance of rule-of-thumb consumers for US business cycle fluctuations By Alice Albonico; Guido Ascari; Qazi Haque
  27. Fiscal Stimulus in Liquidity Traps: Conventional or Unconventional Policies? By Lemoine Matthieu; Lindé Jesper
  28. Qualitative Field Research in Monetary Policy Making By Chris D'Souza; Jane Voll
  29. People’s Republic of China—Macao Special Administrative Region; 2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR By International Monetary Fund
  31. Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data By ; Kaiji Chen; Patrick C. Higgins; Daniel F. Waggoner; Tao Zha
  32. MIT Shocks Imply Market Incompleteness By Toshihiko Mukoyama
  33. Minimum Wage Increases and Vacancies By Marianna Kudlyak; Murat Tasci; Didem Tuzemen
  34. Estimating the Neutral Interest Rate in the Kyrgyz Republic By Iulia Ruxandra Teodoru; Asel Toktonalieva
  35. Samoa; 2019 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Samoa By International Monetary Fund
  36. Informality, Frictions, and Macroprudential Policy By Moez Ben Hassine; Nooman Rebei
  37. Taxes and Firm Investment By K. Peren Arin; Kevin Devereux; Mieszko Mazur
  38. Model Uncertainty and Policy Design By Anastasios G. Karantounias
  39. Using Payments Data to Nowcast Macroeconomic Variables During the Onset of COVID-19 By James Chapman; Ajit Desai
  40. Market Depth, Leverage, and Speculative Bubbles By Zeno Enders; Hendrik Hakenes
  41. The Financial Market Effects of Unwinding the Federal Reserve’s Balance Sheet By Andrew Lee Smith; Victor J. Valcarcel
  42. The Exchange Rate Insulation Puzzle By Corsetti, G.; Kuester, K.; Müller, G. J.; Schmidt, S.
  43. Macro news and long-run volatility expectations By Vilhelmsson, Anders
  44. Bolivia; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  45. Networking the Yield Curve: Implications for Monetary Policy By Tatjana Dahlhaus; Julia Schaumburg; Tatevik Sekhposyan
  46. Monetary Policy Response to a Migration Shock: An Analysis for a Small Open Economy By Franz Hamann; Cesar Anzola; Oscar Avila-Montealegre; Juan Carlos Castro-Fernandez; Anderson Grajales-Olarte; Alexander Guarín; Juan C Mendez-Vizcaino; Juan J. Ospina-Tejeiro; Mario A. Ramos-Veloza
  47. Republic of Uzbekistan; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  48. Republic of Kosovo; 2018 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  49. Demographic change and the German current account surplus By Schön, Matthias
  50. The Exchange Rate Insulation Puzzle By Giancarlo Corsetti; Keith Kuester; Gernot J. Müller; Sebastian Schmidt
  51. Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries By Mehdi El Herradi; Jakob de Haan; Aurelien Leroy
  52. Hysteresis and Business Cycles By Valerie Cerra; A. Fatas; Sweta Chaman Saxena
  53. Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada By Marie-Hélène Felt; Fumiko Hayashi; Joanna Stavins; Angelika Welte
  54. Skill Loss during Unemployment and the Scarring Effects of the COVID-19 Pandemic By Paul Jackson; Victor Ortego-Marti
  55. Democratic Republic of Timor-Leste; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of Timor-Leste By International Monetary Fund
  56. World Interest Rates and Macroeconomic Adjustments in Developing Commodity Producing Countries By Vincent Bodart; François Courtoy; Erica Perego
  57. The safety premium of safe assets By Jens H. E. Christensen; Nikola Mirkov
  58. The impact of monetary policy on expectations along the yield curve By Maximilian Böck; Martin Feldkircher
  59. Costa Rica; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Costa Rica By International Monetary Fund
  60. Republic of Korea; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Korea By International Monetary Fund
  61. Central African Republic; 2018 Article IV Consultation, Fifth Review under the Extended Credit Facility Arrangement, and Financing Assurances Review By International Monetary Fund
  62. Assessing Macro-Financial Risks of Household Debt in China By Fei Han; Emilia M Jurzyk; Wei Guo; Yun He; Nadia Rendak
  63. Cameroon; Third Review Under the Extended Credit Facility Arrangement and Requests for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon By International Monetary Fund
  64. Granular Instrumental Variables By Xavier Gabaix; Ralph S. J. Koijen
  65. Sri Lanka; Fifth Review Under the Extended Arrangement Under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, Extension of the Arrangement and Rephasing of Purchases-Press Release; Staff Report and Statement by the Executive Director for Sri Lanka By International Monetary Fund
  66. Transforming ‘sympathetic interlocutors’ into veto players By Reinsberg, Bernhard; Kern, Andreas; Rau-Goehring, Matthias
  67. Global impacts of US monetary policy uncertainty shocks By Lastauskas, Povilas; Nguyen, Anh Dinh Minh
  68. GARCH Analyses of Risk and Uncertainty in the Theories of the Interest Rate of Keynes and Kalecki By Hubert Gabrisch
  69. Colombia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia By International Monetary Fund
  70. Niger; Third Review Under the Extended Credit Facility Arrangement, Request for Waiver of Nonobservance of Performance Criterion, and Request for Augmentation of Access-Press Release; Staff Statement; and Statement by the Executive Director for Niger By International Monetary Fund
  71. The CARES Act Unemployment Insurance Program during the COVID-19 Pandemic By Lei Fang; Jun Nie; Zoe Xie
  72. Coordination des Politiques Monétaires et Croissance Economique en RDC: Rôle de la Gouvernance By Kaninda, Aristote
  73. The Gambia; Request for a Staff-Monitored Program; Press Release and Staff Report By International Monetary Fund
  74. A General Equilibrium Model of Value Added Tax Evasion: An Application to Pakistan By Andrew Feltenstein; Jorge Martinez-Vazquez; Biplab Datta; Sohani Fatehin
  75. Unemployment Insurance during a Pandemic By Lei Fang; Jun Nie; Zoe Xie
  76. Myanmar; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Myanmar By International Monetary Fund
  77. Argentina; Second Review under the Stand-By Arrangement; Financing Assurances Review; and Request for Modification of Performance Criterion-Press Release; and Staff Report By International Monetary Fund
  78. Mauritius; Selected Issues By International Monetary Fund
  79. Inflation and Public Debt Reversals in Advanced Economies By Ichiro Fukunaga; Takuji Komatsuzaki; Hideaki Matsuoka
  80. The Heterogeneous Labor Market Impacts of the Covid-19 Pandemic By Guido Matias Cortes; Eliza C. Forsythe
  81. Georgia; Third Review Under the Extended Fund Facility Arrangement-Press Release; Staff Report; Staff Supplement By International Monetary Fund
  82. Colombia; Selected Issues By International Monetary Fund
  83. Suriname; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Suriname By International Monetary Fund
  84. Expectation Dispersion, Uncertainty, and the Reaction to News By Benjamin Born; Jonas Dovern; Zeno Enders
  85. Angola; Request for An Extended Arrangement Under the Extended Fund Facility-Press Release; and Statement by the Executive Director for Angola By International Monetary Fund
  86. The Fed Takes On Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF By Simon Gilchrist; Bin Wei; Vivian Z. Yue; Egon Zakrajšek
  87. Income in the Off-Season: Household Adaptation to Yearly Work Interruptions By John Coglianese; Brendan M. Price
  88. Central Banks, Global Shocks, and Local Crises: Lessons from the Atlanta Fed's Response to the 1920–21 Recession By William Roberds; Eugene White
  89. Sierra Leone; Request for An Extended Arrangement Under the Extended Credit Facility-Press Release; Debt Sustainability Analysis; Staff Statement; and Statement by the Executive Director for Sierra Leone By International Monetary Fund
  90. Republic of Mozambique; Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Mozambique By International Monetary Fund
  91. Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain By Darío Serrano-Puente
  92. On the Determinants of Life and Non-Life Insurance Premiums By Martin Hodula; Jan Janku; Martin Casta; Adam Kucera
  93. Chinese Monetary Policy and Text Analytics: Connecting Words and Deeds By Jeannine Bailliu; Xinfen Han; Barbara Sadaba; Mark Kruger
  94. Self-Fulfilling Risk Panics: An Expected Utility Framework By Jess Benhabib; Xuewen Liu; Pengfei Wang
  95. Cambodia; 2018 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Cambodia By International Monetary Fund
  96. Who Carries the Burden of the Value-Added Tax? Evidence from Germany By Samina Sultan
  97. Republic of Serbia; First Review under the Policy Coordination Instrument-Press Release; and Staff Report By International Monetary Fund
  98. Asymmetric transmission and effects of resource shocks: Case of Mongolia By Chuluunbayar, Delgerjargal
  99. Informal Central Bank Communication By Annette Vissing-Jorgensen
  100. Global Pandemic 2020: Indonesia’s Output Gap and Middle-Income Trap Scenario By Kiki Verico
  101. Including Institutions By World Bank
  102. Exporting from China: The Determinants of Trade Status By Russell Cooper; Guan Gong; Guanliang Hu; Ping Yan
  103. Islamic Republic of Mauritania; Technical Assistance Report-Report on the External Sector Statistics Technical Assistance Mission (March 19-30, 2018) By International Monetary Fund
  104. Do contented customers make shareholders wealthy? Implications of intangibles for security pricing By Theissen, Erik; Zimmermann, Lukas
  105. Bullard Discusses Monetary Policy, Inflation Pressures during Reuters Forum By James B. Bullard
  106. Paraguay; Selected Issues By International Monetary Fund
  107. Testing the effectiveness of unconventional monetary policy in Japan and the United States By Daisuke Ikeda; Shangshang Li; Sophocles Mavroeidis; Francesco Zanetti
  108. A Three-Country Macroeconomic Model for Portugal By Alex Pienkowski
  109. Bhutan; Technical Assistance Report-Royal Monetary Authority-Steps Towards a Liquidity Forecasting and Management Framework By International Monetary Fund
  110. Measuring the cost of equity of euro area banks By Altavilla, Carlo; Bochmann, Paul; De Ryck, Jeroen; Dumitru, Ana-Maria; Grodzicki, Maciej; Kick, Heinrich; Fernandes, Cecilia Melo; Mosthaf, Jonas; O’Donnell, Charles; Palligkinis, Spyros
  111. International Trade and the Currency Composition of Corporate Debt By Yang, Jiao; Kwon, Ohyun; Roh, Jae-Whak
  112. Republic of Korea; Selected Issues By International Monetary Fund
  113. How Loose, How Tight? A Measure of Monetary and Fiscal Stance for the Euro Area By Nicoletta Batini; Alessandro Cantelmo; Giovanni Melina; Stefania Villa
  114. Three questions regarding impulse responses and their interpretation found from sign restrictions By Sam Ouliaris; Adrian Pagan
  115. "The devil is in the details, but so is salvation": Different approachesin money market measurement By Müller, Alexander; Paulick, Jan
  116. Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates By Juliana Dutra Araujo; Manasa Patnam; Adina Popescu; Fabian Valencia; Weijia Yao
  117. The role of finance in inclusive human development in Africa revisited By Simplice A. Asongu; Rexon T. Nting
  118. Firms, Jobs, and Gender Disparities in Top Incomes: Evidence from Brazil By Felipe Benguria
  119. The Unusual Composition of Demand during the Pandemic By Aditya Aladangady; Daniel I. Garcia
  120. The dynamic effects of infectious disease outbreaks: the case of pandemic influenza and human coronavirus By Verikios, George
  121. Republic of Armenia; Fiscal Transparency Evaluation By International Monetary Fund
  122. Drivers of Financial Access: the Role of Macroprudential Policies By Corinne Deléchat; Lama Kiyasseh; Margaux MacDonald; Rui Xu
  123. Exchange Rate Volatility and Pass-Through to Inflation in South Africa By Ken Miyajima
  124. How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries? By Olumuyiwa S Adedeji; Yacoub Alatrash; Divya Kirti
  125. Alternative Methods for Studying Consumer Payment Choice By Oz Shy
  126. On Model-Consistent Expectations in Macroeconomics By Daniel Heymann; Gabriel Montes Rojas
  127. EMU deepening and sovereign debt spreads: using political space to achieve policy space By Iván Kataryniuk; Víctor Mora-Bajén; Javier J. Pérez
  128. Republic of Uzbekistan; Fiscal Transparency Evaluation By International Monetary Fund
  129. Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity By Kajal Lahiri; Huaming Peng; Xuguang Sheng
  130. Jamaica; Fifth Review Under the Stand-By Arrangement-Press Release and Staff Report By International Monetary Fund
  131. France; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France By International Monetary Fund
  132. Pharmaindustrie unter Pandemie-Bedingungen stabil: Konjunkturelle Entwicklung der pharmazeutischen Industrie im Jahr 2020 By Kirchhoff, Jasmina; Schumacher, Simon
  133. Credibility Dynamics and Disinflation Plans By Rumen Kostadinov; Francisco Roldán
  134. The macroeconomic impact of the Next Generation EU instrument on the euro area By Bańkowski, Krzysztof; Ferdinandusse, Marien; Hauptmeier, Sebastian; Jacquinot, Pascal; Valenta, Vilém
  135. Is Digitalization Driving Domestic Inflation? By Balazs Csonto; Yuxuan Huang; Camilo E Tovar Mora
  136. Macroprudential Policies, Economic Growth, and Banking Crises By Mohamed Belkhir; Sami Ben Naceur; Bertrand Candelon; Jean-Charles Wijnandts
  137. Luxembourg; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Luxembourg By International Monetary Fund
  138. Serbia's New Growth Agenda By World Bank
  139. Bosnia and Herzegovina; Technical Assistance Report-Report on Government Finance Statistics Technical Assistance Mission, (October 1-5, 2018) By International Monetary Fund
  140. Forecasting expected and unexpected losses By Mikael Juselius; Nikola Tarashev
  141. Charakteristika der Entgeltumwandlung: Wer sorgt in welchem Umfang für das Alter vor? By Johannes Geyer; Ralf Himmelreicher
  142. Republic of Poland; Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework By International Monetary Fund
  143. Unemployment shocks, cyclical prices and shopping behavior By Aursland, Thor Andreas; Steen, Frode
  144. The implications of liquidity regulation for monetary policy implementation and the central bank balance sheet size: an empirical analysis of the euro area By Kedan, Danielle; Veghazy, Alexia Ventula

  1. By: Patrick J. Kehoe; Pierlauro Lopez; Virgiliu Midrigan; Elena Pastorino
    Abstract: Although a credit tightening is commonly recognized as a key determinant of the Great Recession, to date, it is unclear whether a worsening of credit conditions faced by households or by firms was most responsible for the downturn. Some studies have suggested that the household-side credit channel is quantitatively the most important one. Many others contend that the firm-side channel played a crucial role. We propose a model in which both channels are present and explicitly formalized. Our analysis indicates that the household-side credit channel is quantitatively more relevant than the firm-side credit channel. We then evaluate the relative benefits of a fixed-sized transfer to households and to firms that improves each group's access to credit. We find that the effects of such a transfer on employment are substantially larger when the transfer targets households rather than firms. Hence, we provide theoretical and quantitative support to the view that the employment decline during the Great Recession would have been less severe if instead of focusing on easing firms' access to credit, the government had expended an equal amount of resources to alleviate households' credit constraints.
    JEL: E24 E3 E32 E6 E62 G51 J2 J38 J6 J64
    Date: 2020–12
  2. By: Boris Chafwehé; Rigas Oikonomou; Romanos Priftis; Lukas Vogel
    Abstract: We propose a framework of optimal monetary policy where debt sustainability may, or may not, be a relevant constraint for the central bank. We show analytically that in each environment the optimal interest rate path consists of a Taylor rule augmented with forward guidance terms. These terms arise either i) from “twisting interest rates†when the central bank ensures debt sustainability, or ii) under no debt concerns, from committing to keep interest rates low at the exit of the liquidity trap. The optimal policy is isomorphic to Leeper’s (1991) “passive monetary/active fiscal policy†regime in the first instance, or “active monetary/passive fiscal policy†regime in the second. We insert our framework into a standard medium scale DSGE model calibrated to the US. Optimal passive monetary policy with debt concerns is ineffective in stabilizing inflation, whereas under no debt concerns, monetary policy is very effective in stabilizing the macroeconomy.
    Keywords: Economic models; Fiscal policy; Monetary policy; Monetary policy framework
    JEL: C11 E31 E52 E58 E62
    Date: 2021–01
  3. By: Ling Jin (Inha University)
    Abstract: This paper studies whether the degree of interest rate adjustability can affect the heterogeneous effects of monetary policy. I use a dynamic panel model based on the GMM method with a panel of 16 countries, which leads to interesting findings. Overall, monetary policy easing decreased the household sector debt service ratio (DSR). Especially, monetary policy easing decreased the DSR in countries that mainly use ARMs (adjustable-rate mortgages). Conversely, the DSR increased in countries that mostly rely on FRMs (fixed-rate mortgages). Therefore, I find that monetary easing has the policy effect of decreasing household debt servicing burdens only in countries that mainly use ARMs. I also found that the DSR is increased during monetary policy easing in Korea, even though Korea is classified as ARM-dominated country. These results imply the inexistence of a household debt service channel of monetary easing in Korea.
    Keywords: Monetary policy Transmission, Household debt, Adjustable-rate
    JEL: E44 E51 E52
    Date: 2021–01
  4. By: Karau, Sören
    Abstract: I study whether monetary gold hoarding was the main cause of the Great Depression in a structural VAR analysis. The notion that monetary forces played an important role in bringing about the depression is well established in the narrative literature, but has more recently met some skepticism by formal macroeconometric work. In deliberate contrast to the existing macroeconometric literature, the paper i) uses a newly-assembled monthly data set of the interwar world economy, and ii) models monetary disturbances as shocks to central bank gold demand. Based on a monetary DSGE model, the world gold reserve ratio (the ratio of central bank gold holdings to monetary liabilities) is used to describe monetary conditions. This permits the use of narrative information to sharpen shock identification in a structural VAR analysis based on sign restrictions. Monetary shocks are found to have real effects and to account for a substantial part of the collapse in prices and output during the initial slide into the Great Depression.
    Keywords: Great Depression,Gold Standard,Monetary Policy,Narrative Sign Restrictions
    JEL: E32 E42 E58 N12 N14
    Date: 2020
  5. By: Steven J. Davis; Dingqian Liu; Xuguang Simon Sheng
    Abstract: Stock prices and workplace mobility trace out striking clockwise paths in daily data from mid-February to late May 2020. Global stock prices fell 30 percent from 17 February to 12 March, before mobility declined. Over the next 11 days, stocks fell another 10 percentage points as mobility dropped 40 percent. From 23 March to 9 April, stocks recovered half their losses and mobility fell further. From 9 April to late May, both stocks and mobility rose modestly. This dynamic plays out across the 35 countries in our sample, with a few notable exceptions. We also find that stricter lockdown policies, both in-country and globally, drove larger declines in national stock prices conditional on pandemic severity, workplace mobility, and income support and debt relief policies. Looking more closely at the two largest economies, the pandemic had greater effects on stock market levels and volatilities in the U.S. than in China. Narrative evidence confirms the dominant – and historically unprecedented – role of pandemic-related developments for stock prices in both countries. The size of the global stock market crash in reaction to the pandemic is many times larger than a standard asset-pricing model implies.
    JEL: E32 E44 E65 G12 G18 I18
    Date: 2021–01
  6. By: Böhl, Gregor; Strobel, Felix
    Abstract: Using a nonlinear Bayesian likelihood approach that fully accounts for the lower bound on nominal interest rates, we analyze US post-crisis macroeconomic dynamics and provide reference parameter estimates. We find that despite the attention received in the literature, neither the inclusion of financial frictions nor that of household heterogeneity improves the empirical fit of the standard model or its ability to provide a joint explanation for the post-2007 dynamics. Associated financial shocks mis-predict an increase in consumption. We illustrate that the common practice of omitting the ZLB period in the estimation severely distorts the analysis of the latest economic dynamics.
    Keywords: Zero Lower Bound,Bayesian Estimation,Great Recession,Business Cycles
    JEL: C11 C63 E31 E32 E44
    Date: 2020
  7. By: Simona Malovana; Josef Bajzik; Dominika Ehrenbergerova; Jan Janku
    Abstract: We examine the potential adverse effects of a prolonged period of low interest rates on financial stability from multiple perspectives. First, we provide a unique comparison of natural rates of interest estimated using two approaches - with and without financial factors - for six large European countries inside and outside the euro area. The results indicate that the need for monetary policy easing or tightening may differ across economies and over time. Financial factors and macro-financial linkages further amplify these differences, implying that business and financial cycles may not be well synchronized across countries, with the financial cycle being more desynchronized. We then provide a comprehensive review of the empirical literature, allowing us to identify and categorize financial vulnerabilities which may be created and fueled by low interest rates. We discuss a situation in which a prolonged period of low interest rates may lead to a point of no return by contributing to higher indebtedness, overvalued asset prices and underpriced risks, resource and credit misallocation, and lower productivity. With respect to all of that, we offer a few monetary policy considerations, including a short discussion of the role of macroprudential policy. Specifically, we suggest that (i) monetary policy should act symmetrically over the medium to long term, (ii) both the short-term and long-term costs and benefits of pursuing accommodative or restrictive monetary policy should be accounted for, and (iii) monetary and macroprudential policies need to be coordinated, and their interactions should be accounted for in order to find the best policy mix for the economy.
    Keywords: Financial stability, financial vulnerabilities, low interest rates, monetary policy, natural rate of interest
    JEL: E52 E58 G2
    Date: 2020–12
  8. By: Bachman, RÜdiger (University of Notre Dame); Bai, Jinhui (Washington State University); Lee, Minjoon (Carleton University); Zhang, Fudong (University of Michigan)
    Abstract: This study explores the welfare and distributional effects of fiscal volatility using a neoclassical stochastic growth model with incomplete markets. In our model, households face uninsurable idiosyncratic risks in their labor income and discount factor processes, and we allow aggregate uncertainty to arise from both productivity and government purchases shocks. We calibrateour model to key features of the U.S. economy, before eliminating government purchases shocks. We then evaluate the distributional consequences of the elimination of fiscal volatility and find that, in our baseline case, welfare gains increase with private wealth holdings.
    Keywords: fiscal volatility; welfare costs; distributional effects; labor income risk; wealthinequality; transition path
    JEL: E30 E32 E60 E62 H30
    Date: 2020–03–14
  9. By: ; ; Brent Meyer
    Abstract: We document and evaluate how businesses are reacting to the COVID-19 crisis through August 2020. First, on net, firms see the shock (thus far) largely as a demand rather than supply shock. A greater share of firms reports significant or severe disruption to sales activity than to supply chains. We compare these measures of disruption to their expected changes in selling prices and find that, even for firms that report supply chain disruption, they expect to lower near-term selling prices on average. We also show that firms are engaging in wage cuts and expect to trim wages further before the end of 2020. These cuts stem from firms that have been disproportionally negatively affected by the pandemic. Second, firms (like professional forecasters) have responded to the COVID-19 pandemic by lowering their one-year-ahead inflation expectations. These responses stand in stark contrast to that of household inflation expectations (as measured by the University of Michigan or the New York Fed). Indeed, firms' one-year-ahead inflation expectations fell precipitously (to a series low) following the onset of the pandemic, while household measures of inflation expectations jumped markedly. Third, despite the dramatic decline in firms’ near-term inflation expectations, their longer-run inflation expectations remain reasonably well anchored.
    Keywords: business expectations; COVID-19; demand shock; inflation; pandemic; supply shock
    JEL: E31 E32
    Date: 2020–09–04
  10. By: Matti Estola; Kristian Veps\"al\"ainen
    Abstract: The 2008 economic crisis was not forecastable by at that time existing models of macroeconomics. Thus macroeconomics needs new tools. We introduce a model based on National Accounts that shows how macroeconomic sectors are interconnected. These connections explain the spread of business cycles from one industry to another and from financial sector to the real economy. These lingages cannot be explained by General Equilibrium type of models. Our model describes the real part of National Accounts (NA) of an economy. The accounts are presented in the form of a money flow diagram between the following macro-sectors: Non-financial firms, financial firms, households, government, and rest of the world. The model contains all main items in NA and the corresponding simulation model creates time paths for 59 key macroeconomic quantities for an unlimited future. Finnish data of NA from time period 1975-2012 is used in calibrating the parameters of the model, and the model follows the historical data with sufficient accuracy. Our study serves as a basis for systems analytic macro-models that can explain the positive and negative feed-backs in the production system of an economy. These feed-backs are born from interactions between economic units and between real and financial markets. JEL E01, E10. Key words: Stock-Flow Models, National Accounts, Simulation model.
    Date: 2020–12
  11. 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
  12. By: Raouf Boucekkine (Aix-Marseille University, CNRS, France); M. Laksaci (Ecole Supérieure de Banque, Alger, Algeria); M. Touati-Tliba (Ecole Supérieure de Commerce d’Alger, Algeria)
    Abstract: We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979-2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy “practices”. The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (-6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated.
    Keywords: Monetary policy, money demand, long-run stability, resource-rich countries, Algeria, co-integration
    JEL: E41 E42 E52 C13
    Date: 2021–01–13
  13. By: Raouf Boucekkine (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Mohammed Laksaci (Ecole Supérieure de Banque, Alger, Algeria); Mohamed Touati-Tliba (Ecole Supérieure de Commerce d’Alger, Algeria)
    Abstract: We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979-2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy “practices”. The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (-6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated.
    Keywords: monetary policy, money demand, long-run stability, resource-rich countries, Algeria, co-integration
    JEL: E41 E42 E52 C13
    Date: 2021–01
  14. By: André, Marine-Charlotte; Traficante, Guido
    Abstract: We examine forward guidance in a small open economy New Keynesian model. In a setup where forward guidance duration is known with certainty, we show that the elasticity of in ation with respect to the real exchange rate is a key variable in attenuating the forward guidance puzzle. Then we consider a credible forward guidance regime which is adopted stochastically, in normal times or under a liquidity trap. Compared to closed economy, forward guidance turns out to be more expansionary in open economy and the real exchange rate is a key variable driving this result. In particular, the response of output and inflation is amplifi�ed when aggregate supply is negatively related to the real exchange rate.
    Keywords: Monetary policy, small open economy, forward guidance.
    JEL: E31 E52
    Date: 2020–12–08
  15. By: Ling Jin (Inha University)
    Abstract: This paper examines how monetary policy affected the borrowing cost of listed firms in Korea before and after the Global Financial Crisis (GFC). I find that the effects of credit channel of monetary transmission are different by the assets size and debt-equity ratio levels of firms. Also, I find that the relationship between monetary policy and the borrowing spread of firms has changed before and after the GFC. The relationship is only significantly positive after the GFC. A statistically significant positive value implies that credit channel works in Korea. As for firm asset size partition, the relationship is significantly positive only after the GFC. As for firm debt-to-equity ratio partition, the coefficient of monetary policy for the low debt-to-equity ratio firms is significant of before and after the GFC. In contrast, the coefficient for the high debt-to-equity ratio firms is significant only before the GFC. Also, the U.S monetary policy has a significant impact on domestic firm’s borrowing spreads after the GFC. These relationships work through international banking channels.
    Keywords: Monetary policy Transmission, Credit channel, Borrowing spread, Firm-level data, International banking
    JEL: E44 E51 E52
    Date: 2021–01
  16. By: Donato Masciandaro
    Abstract: The aim of the paper is to shed light on how two factors – central bank's design and central bankers' preferences – progressively assumed a crucial role in the evolution of monetary policy economics in the last four decades. The two factors jointly identify the importance of central bank governance in influencing monetary policy decisions through their interactions with the monetary policy rules, given the assumptions about how macroeconomic systems work.
    Keywords: monetary policy, central bank independence, central banker conservatism, monetary policy committees, political economics, behavioural economics
    JEL: E50 E52 E58
    Date: 2021
  17. By: Yasser Boualam; Clément Mazet-Sonilhac
    Abstract: This paper documents the aggregate properties of credit relationship flows within the commercial loan market in France from 1998 through 2018. Using detailed bank-firm level data from the French Credit Register, we show that banks actively and continuously adjust their credit supply along both intensive and extensive margins. We particularly highlight the importance of gross flows associated with credit relationships and show that they are (i) volatile and pervasive throughout the cycle, and (ii) can account for up to 48 percent of the cyclical and 90 percent of the long-run variations in aggregate bank credit.
    Keywords: Credit Flows, Financial Institutions, Relationship Lending, Search and Matching.
    JEL: E51 G21 E52 E32
    Date: 2021
  18. By: Mishel Ghassibe; Francesco Zanetti
    Abstract: We develop a general theory of state-dependent fiscal multipliers in a framework featuring interaction between two empirically relevant goods market frictions: idle productive capacity and unsatisfied demand. Our key novel finding is that the source of economic fluctuations determines the cyclicality of fiscal multipliers. Policies that stimulate aggregate demand, such as government spending and consumption tax cuts, have multipliers that are large in demand-driven recessions, but small and possibly negative in supply-driven downturns. On the other hand, policies that boost aggregate supply, such as cuts in taxes on labor income and firms’ payroll and sales, are ineffective in demand-driven recessions, but powerful if the downturn is driven by supply factors. Spending austerity, implemented by a reduction in government consumption, can be the policy with the largest multiplier in severe supply-side recessions and demand-driven booms, provided elasticities of labor demand and supply are sufliciently low. We obtain model-free empirical support for our theoretical predictions by using a novel econometric specification that allows us to estimate spending and tax cut multipliers in recessionary and expansionary episodes, conditional on those being either demand- or supply-driven.
    Keywords: business cycle, fiscal multipliers, state dependence, search-and-matching in the goods market
    JEL: E32 E62 J64
    Date: 2020–01–11
  19. By: Xing Guo; Pablo Ottonello; Diego J. Perez
    Abstract: We study how monetary policy affects the asymmetric effects of globalization. To this end, we build an open-economy heterogeneous-agent New Keynesian model (HANK), in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to reassess classic questions in international macroeconomics, but from a distributional perspective: What are the international spillovers of policies and shocks, how do alternative exchange-rate regimes compare, and what are the implications for monetary policy of the international price system. Our results indicate the presence of a trade-off between aggregate stabilization and inequality in consumption responses to external shocks. The asymmetric effects of globalization can be smaller for economies with higher international integration.
    JEL: E21 E52 F3 F32 F41 F6
    Date: 2020–12
  20. By: Huixin Bi; W. Blake Marsh
    Abstract: We examine the effects of the COVID-19 pandemic and subsequent monetary and fiscal policy actions on municipal bond market pricing. Using high-frequency trading data, we estimate key policy events at the peak of the crisis by focusing on a sample of bonds within a narrow window before and after each policy event. We find that policy interventions, in particular those with explicit credit backstops, were effective in alleviating municipal bond market stress. Next, we exploit daily variation in traded municipal bonds and virus exposure across U.S. counties. We find a shift in how bond investors priced in localized COVID risks before and after the suite of policy interventions was introduced. Prior to the policy interventions, COVID-related credit risks were a significant component of elevated short-term bond yields. Following the interventions, however, the pricing of localized credit risks declined for short-maturity bonds, but became more notable for longer-maturity bonds. The shift in credit risk pricing reflects policy interventions being targeted on short-term bonds, as well as investors’ expectations of long-lasting recession effects on state and local government budgets.
    Keywords: Municipal Bonds; Credit Risk; Fiscal Policy; Monetary Policy
    JEL: E52 E62 G12 H74
    Date: 2020–12–20
  21. By: Michael D. Bordo; Mickey D. Levy
    Abstract: In this paper we survey the historical record for over two centuries on the connection between expansionary fiscal policy and inflation. As a backdrop, we briefly lay out several theoretical approaches to the effects of fiscal deficits on inflation: the earlier Keynesian and monetarist approaches; and modern approaches incorporating expectations and forward looking behavior: unpleasant monetarist arithmetic and the fiscal theory of the price level. We find that the relationship between fiscal deficits and inflation generally holds in wartime when fiscally stressed governments resorted to the inflation tax. There were two peacetime episodes in the early twentieth century when bond financed fiscal deficits that were unbacked by future taxes seem to have greatly contributed to inflation: France in the 1920s and the recovery from the Great Recession in the 1930s in the U.S. In the post-World War II era a detailed examination of the Great Inflation in the 1960s and 1970s in the U.S. and the U.K. suggests that fiscal influences on monetary policy was a key factor. Finally we contrast the experience of the Great Financial Crisis of 2007-2008, when both expansionary fiscal and monetary policy did not lead to rising inflation, with the recent pandemic, which may involve the risks of fiscal dominance and future inflation.
    JEL: E3 E62 N4
    Date: 2020–12
  22. By: Camatte Hadrien; Faubert Violaine; Lalliard Antoine; Daudin Guillaume; Rifflart Christine
    Abstract: Following the 2008 financial crisis, inflation rates in advanced economies have been at odds with the prediction of a standard Phillips curve. This puzzle has triggered a debate on the global determinants of domestic prices. We contribute to this debate by investigating the impact of exchange rate shocks on consumer prices from 1995 to 2018. We focus on cost-push inflation through global value chains, using three sectoral world input-output datasets. Depending on countries, the absolute value of the elasticity of the household consumption expenditure (HCE hereafter) deflator to the exchange rate ranges from 0.05 to 0.35, confirming the importance of global value chains in channelling external shocks to domestic inflation. Using data from WIOD on a sample of 43 countries, we find that the mean output-weighted elasticity of the HCE deflator to the exchange rate increased in absolute value from 0.075 in 2000 to 0.094 in 2008. After peaking in 2008, it declined to 0.088 in 2014. World Input-Output tables (WIOT hereafter) are released with a lag of several years and the latest WIOT dates back to 2015. To fill this gap, we approximate the impact of an exchange rate shock on the HCE deflator from 2016 onwards using up-to-date GDP and trade data. Our extrapolations suggest that the decline in the elasticity of the HCE deflator continued until 2016, before reversing in 2017 and 2018. Our findings are robust to using three different datasets.
    Keywords: Inflation, global value chains, Phillips curve, input output tables, international trade, pass through
    JEL: D57 E31 F14
    Date: 2021
  23. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: Nine U.S. recessions and three expansions are analyzed in this paper using a structural macroeconometric model. With two exceptions and one partial exception, the episodes are predicted well by the model, including the 2008-2009 recession, conditional on the actual values of the exogenous variables. The main exogenous variables are stock prices, housing prices, import prices, exports, and exogenous government policy variables. Monetary policy is endogenous. Fluctuations in stock and housing prices (housing prices after 1995) are important drivers of output fluctuations—large wealth effects on household expenditures. In explaining the 2008-2009 recession detailed ï¬ nancial variables such as credit-constraint variables are not needed for the aggregate predictions. The sluggish recovery after the 2008-2009 recession is explained in large part by sluggish government spending. There is no evidence of secular stagnation.
    Keywords: Business cycles, Recessions, Expansions
    JEL: E1 E2
    Date: 2020–10
  24. By: Dixon, Huw (Cardiff Business School); Grimme, Christian (Leibniz Institute for Economic Research at the University of Munich and CESifo)
    Abstract: We examine the relative importance of time and state dependence in the price-setting decisions of firms using a monthly panel of German firms over the period 1980–2017. We propose a re?ned version of time dependence by introducing di?erent hazard functions for price increases and decreases. We ?nd three sets of results. First, time dependence is much more important for price setting than what the previous literature has found. Second, price decreases can be well explained by time dependence alone. Price increases are best predicted by the interaction of time-dependent and ?rm-speci?c state factors. Third, time dependence for price increases and decreases look completely di?erent from each other. Our empirical results suggest that theoretical models should integrate both time and state dependence rather than developing the approaches separately.
    Keywords: Survey Data, Price Setting, Extensive Margin, State-Dependent Pricing, Time-Dependent Pricing
    JEL: E30 E31 E32
    Date: 2021–01
  25. By: Musgrave, Ralph S.
    Abstract: Deposit insurance is beneficial in that it ensures everyone has a safe method of storing and transferring money. That is a basic human right. Unfortunately deposit insurance also supports a commercial activity, namely depositing money at a bank with a view to the bank earning interest for the depositor, which a bank can only do by in effect lending out depositors’ money. That is just as commercial as depositing money with a stockbroker, mutual fund or unit trust with a view to interest or some other form of return being earned. And it is not the job of government to support commercial activities. As for the idea that banks create the money they lend out, rather than intermediate, that is dealt with in the opening paragraphs below. Preventing deposit insurance assisting the above commercial activity while retaining a form of totally safe deposits is easily done by splitting deposits into two types: first, those where the depositor simply wants money stored safely, with that money being lodged at the central bank where it earns no interest, and second, those where the depositor wants to be into commerce. Interest is earned on the latter deposits, but depositors carry the risk involved which essentially turns those deposits into equity. And that is precisely what full reserve banking consists of.
    Keywords: deposit insurance; full reserve; narrow banking; 100% reserves
    JEL: E5 E58 G2
    Date: 2021–01–06
  26. By: Alice Albonico; Guido Ascari; Qazi Haque
    Abstract: We estimate a medium-scale model with and without rule-of-thumb consumers over the pre- Volcker and the Great Moderation periods, allowing for indeterminacy. Passive monetary policy and sunspot fluctuations characterize the pre-Volcker period for both models. The estimated fraction of rule-of-thumb consumers is low, such that the models are empirically almost equivalent. In both subsamples, the two models yield very similar impulse response functions, variance and historical decompositions. We conclude that rule-of-thumb consumers are irrelevant to explain aggregate U.S. business cycle fluctuations
    Keywords: rule-of-thumb consumers, indeterminacy, business cycle fluctuations
    JEL: E32 E52 C11 C13
    Date: 2020–11
  27. By: Lemoine Matthieu; Lindé Jesper
    Abstract: Recent influential work argue that a gradual increase in sales tax stimulates economic activity in a liquidity trap by boosting inflation expectations. Higher public infrastructure investment should also be more expansive in a liquidity trap than in normal times by raising the potential interest rate and increasing aggregate demand. We analyze the relative merits of these policies in New Keynesian models with and without endogenous private capital formation and heterogeneity when monetary policy does not respond by raising policy rates. Our key finding is that the effectiveness of sales tax hikes differs notably across various model specifications, whereas the benefits of higher public infrastructure investment are more robust in alternative model environments. We therefore conclude that fiscal policy should consider public investment opportunities and not merely rely on tax policies to stimulate growth during the COVID-19 crisis.
    Keywords: Monetary Policy, Sales Tax, Public Investment, Liquidity Trap, Zero Lower Bound Constraint, DSGE Morel
    JEL: E52 E58
    Date: 2021
  28. By: Chris D'Souza; Jane Voll
    Abstract: Many central banks conduct economic field research involving in-depth interviews with external parties. But very little is known about how this information is used and its importance in the formation of monetary policy. We address this gap in the literature through a thematic analysis of open-ended interviews with senior central bank economic and policy staff who work closely with policy decision-makers. We find that these central bankers consider information from field research programs not just useful but also an essential input for monetary policy making. They use this information in conjunction with quantitative tools primarily to inform their near-term forecasts. The information is considered most valuable at potential turning points in the economy when uncertainty about the pace of economic growth is heightened (in the advent of large shocks to the economy) and when timely official data are not available or are viewed as unreliable. Senior staff also place a high value on maintaining a reliable and credible sample of representative economic agents that can be accessed on an ongoing basis and very quickly when required.
    Keywords: Business fluctuations and cycles; Monetary policy; Monetary policy and uncertainty
    JEL: C83 E52
  29. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation highlights that while more moderate than in the past, gaming and tourism revenue in Macao Special Administrative Region picked up as the economy returned to expansion since mid-2016. Progress with diversification towards mass-gaming and nongaming tourism, together with the continued China gaming monopoly, are expected to deliver growth of around 4 percent in the medium term. Risks are tilted to the downside, mainly emanating from Mainland China. Prudent macroeconomic policies and high reserves provide strong buffers against shocks. In addition to supporting diversification, fulfilling social needs, and maintaining macroeconomic stability, the policies priorities explained in the report will reduce external imbalances. The report also discusses that the current housing macroprudential stance and related fiscal measures appear broadly appropriate. A broader set of policies are advised to support housing affordability, where continued efforts to boost housing supply will be key.
    Keywords: Housing;Income;External sector statistics;Housing prices;Personal income;ISCR,CR,Macau,Macao SAR authority,asset,authority,Macao investment fund
    Date: 2019–05–06
  30. By: Olivero, Maria (Drexel University and Swarthmore College); Dvalishvili, Mikheil (The Graduate Center)
    Abstract: We study the links between fiscal stimulus packages during times of crisis and households' access to consumer credit. We do so by using household-level data on income and liabilities from the Consumer Expenditure Survey and estimating an empirical model along those in the literature on the consumption effects of these packages. We find that receiving a check from the government consistently translates into a reduction in both outstanding liabilities and the household's share of aggregate credit. This effect is present for each credit type as well as for the total, and it is robust to controlling for income levels and demographic characteristics correlated with consumers' access to credit.
    Keywords: stimulus packages; consumer credit; borrowing and liquidity constraints
    JEL: D12 E21 E62 H24 H31
    Date: 2021–01–10
  31. By: ; Kaiji Chen; Patrick C. Higgins; Daniel F. Waggoner; Tao Zha
    Abstract: We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor state-owned enterprises (SOEs) over non-SOEs in credit access. Infrastructure investment driven by nonmonetary factors, however, enhanced the monetary transmission to bank credit allocated to local government financing vehicles in infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in sectors other than infrastructure.
    Keywords: infrastructure investment; monetary policy transmission; fiscal shocks; policy interaction; credit reallocation; LGFVs
    JEL: E5 E02 C3 C13
    Date: 2020–08–27
  32. By: Toshihiko Mukoyama (Department of Economics, Georgetown University)
    Abstract: The allocation after an unanticipated event (often called an "MIT shock") is different from the allocation of a corresponding complete-market model that explicitly considers the possibility of the shock, even when the probability of the event approaches zero.
    Keywords: MIT shock; incomplete markets
    JEL: D52 E32 E60
    Date: 2020–11–16
  33. By: Marianna Kudlyak; Murat Tasci; Didem Tuzemen
    Abstract: We estimate the impact of minimum wage increases on the quantity of labor demanded as measured by firms’ vacancy postings. We use proprietary, county-level vacancy data from the Conference Board’s Help Wanted Online to analyze the effects of minimum wage increases on the quantity of labor demanded. Our identification relies on the disproportionate effects of minimum wage hikes on different occupations, as the wage distribution around the binding minimum wage differs by occupation. We find that minimum wage increases during the 2005–18 period led to substantial declines in vacancy postings in occupations with a larger share of employment around the prevailing minimum wage. Our estimate implies that a 10 percent increase in the binding minimum wage level reduces vacancies by 2.4 percent in this group.
    Keywords: Minimum Wage; Vacancies; Hiring; Search and Matching
    JEL: E24 E32 J21 J24 J62
    Date: 2020–12–30
  34. By: Iulia Ruxandra Teodoru; Asel Toktonalieva
    Abstract: This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets and is likely explained by higher public debt and an elevated risk premium, low creditor rights and contractual enforcement, and low domestic savings. The use of an estimate of the neutral interest rate provides useful guidance to monetary policy and enhances transparency and independence of the central bank. Our estimate provides a quantitative benchmark for the monetary policy stance in the context of a central bank that is building analytical capacity, integrating additional insights in its decision-making process, and working to improve its communication. Strengthening the monetary transmission mechanism will be critical to enhance the effectiveness of monetary policy, including by allowing more exchange rate flexibility to support the transition to a full-fledged inflation targeting regime, and reducing excess liquidity to enhance the credit channel, reducing dollarization and high interest rate spreads that adversely affect the transmission of the policy rate to the economy.
    Keywords: Inflation;Real interest rates;Central bank policy rate;Output gap;Exchange rates;WP,interest rate
    Date: 2020–06–05
  35. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that Samoa faces several economic challenges but continues to show resilience and a high level of engagement with IMF. Growth is expected to rebound after reaching a five-year low. Price pressures driven by temporary factors are receding and inflation is projected to return to below the authorities’ target of 3 percent. Samoa remains vulnerable to natural disasters and correspondent banking relationship (CBR) pressures. The authorities have made progress in implementing measures to mitigate these risks. Policies should focus on tightening fiscal policy to ensure sustainability while achieving progress towards development goals; mitigating risks from CBR pressures; improving the monetary policy transmission mechanism; and implementing structural reforms to boost potential growth and make it more inclusive. It is important to tighten fiscal policy compared to the baseline. The report also advises to introduce focused structural reforms on building resilience to natural disasters, enhancing the business environment, encouraging female labor participation, and improving the trade facilitation framework.
    Keywords: Natural disasters;Public debt;External debt;Correspondent banking;Credit;ISCR,CR,debt,Samoa,GDP statistics,authority
    Date: 2019–05–17
  36. By: Moez Ben Hassine; Nooman Rebei
    Abstract: We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.
    Keywords: Macroprudential policy;Self-employment;Banking;Consumption;Housing;WP,interest rate,monetary policy
    Date: 2019–11–27
  37. By: K. Peren Arin; Kevin Devereux; Mieszko Mazur
    Abstract: We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post- 1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high-unemployment state by large (dividend-paying) firms, which is consistent with the recent literature.
    Keywords: Investment; Taxation; Fiscal policy; Fiscal multiplier
    JEL: C33 C53 E62 G32
    Date: 2021–01
  38. By: Anastasios G. Karantounias
    Abstract: This article illustrates the main challenges and forces that emerge in optimal policy design when there are doubts about the probability model of uncertainty. Model doubts can stem from either the side of the public or the side of the policymaker, and they can give rise to cautious probabilistic assessments. A basic idea that surfaces in setups with model uncertainty is the management of the public's pessimistic expectations by the policymaker. The article also presents several implications of this idea.
    Keywords: Model uncertainty; ambiguity aversion; multiplier preferences; misspecification; pessimistic expectations; paternalism; taxation; austerity; competitive fringe
    JEL: D80 E62 H21 H63
    Date: 2020–12–22
  39. By: James Chapman; Ajit Desai
    Abstract: The COVID-19 pandemic and the resulting public health mitigation have caused large-scale economic disruptions globally. During this time, there is an increased need to predict the macroeconomy’s short-term dynamics to ensure the effective implementation of fiscal and monetary policy. However, economic prediction during a crisis is challenging because of the unprecedented economic impact, which increases the unreliability of traditionally used linear models that use lagged data. We help address these challenges by using timely retail payments system data in linear and nonlinear machine learning models. We find that compared to a benchmark, our model has a roughly 15 to 45% reduction in Root Mean Square Error when used for macroeconomic nowcasting during the global financial crisis. For nowcasting during the COVID-19 shock, our model predictions are much closer to the official estimates.
    Keywords: Econometric and statistical methods; Payment clearing and settlement systems
    JEL: C55 E52
    Date: 2021–01
  40. By: Zeno Enders (Heidelberg University, CESifo); Hendrik Hakenes (University of Bonn, CEPR)
    Abstract: We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households optimally decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders' degree of leverage and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.
    Keywords: Bubbles, Rational Expectations, Market Size, Liquidity, Financial Crises, Leveraged Investment, Capital Structure
    JEL: E44 G01 G12
    Date: 2021–01
  41. By: Andrew Lee Smith; Victor J. Valcarcel
    Abstract: For the second time in the brief 12-year period between 2008 and 2020, central banks have once again turned to asset purchase programs to combat a global economic downturn. While balance sheet expansions have become familiar, balance sheet normalization has proven more elusive. Nevertheless, an understanding of the consequences of unwinding asset purchases is necessary for well-informed decisions over the deployment of these unconventional policy tools. This paper provides a first analysis of the financial market effects of balance sheet normalization based on the U.S. experience between 2017 and 2019. We find evidence that balance sheet normalization tightens financial conditions. Importantly, we show these effects cannot be merely characterized as quantitative easing in reverse. In particular, we find that balance sheet normalization was associated with larger liquidity effects than were evident during various phases of balance sheet expansion.
    Keywords: Monetary Policy; Balance Sheet; Liquidity Effect; Structural VAR; Financial Conditions
    JEL: E3 E4 E5
    Date: 2021–01–04
  42. By: Corsetti, G.; Kuester, K.; Müller, G. J.; Schmidt, S.
    Abstract: The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the classics (Meade, 1951; Friedman 1953), to the more recent open economy literature (Obstfeld and Rogoff, 2000). We confront it with new evidence from Europe. Specifically, we study how shocks that originate in the euro area spill over to its neighboring countries. We exploit the variation of the exchange rate regime across time and countries to assess whether the regime alters the spillovers: it does not - flexible exchange rates fail to provide insulation against euro area shocks. This result is robust across a number of specifications and holds up once we control for global financial conditions. We show that the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond to headline consumer price inflation. However, it remains puzzling that policy makers are ready to forego stabilization of economic activity to the extent we found in the data.
    Keywords: External shock, International spillovers, Exchange rate, Insulation, Monetary Policy, Dominant currency pricing, Effective lower bound
    JEL: F41 F42 E31
    Date: 2021–01–21
  43. By: Vilhelmsson, Anders (Knut Wicksell Centre for Financial Studies, Lund University)
    Abstract: I propose a new model-free method for estimating long-run changes in expected volatility using VIX futures contracts. The method is applied to measure the effect on stock market volatility of scheduled macroeconomic news announcements. I find that looking at long-run changes gives qualitatively different results compared to previous studies that only look at realized variance and the VIX. I further find that FOMC announcements on average resolve uncertainty, but only during times when policy uncertainty is higher than average. Real side macro announcements increase long-run volatility during times of low policy uncertainty, but the effect is reversed during times of high policy uncertainty.
    Keywords: marco;
    JEL: E60
    Date: 2020–01–20
  44. By: International Monetary Fund
    Abstract: After years of impressive growth and poverty reduction, Bolivia is facing a more challenging period. Accommodative fiscal and monetary policies combined with lower gas and minerals prices have contributed to continued large twin deficits, foreign reserve losses, and a sharp increase in public debt. External competitiveness has been negatively affected by the appreciating US dollar, high wage growth, and domestic policies that have hindered private sector investment. A definitive change in the policy stance is warranted to restore external balance, minimize a further buildup in vulnerabilities, and promote broad based growth.
    Keywords: Public debt;Public investment and public-private partnerships (PPP);Credit;Banking;Commodity prices;ISCR,CR,fiscal policy,commodity,exchange rate,U.S. dollar
    Date: 2018–12–21
  45. By: Tatjana Dahlhaus; Julia Schaumburg; Tatevik Sekhposyan
    Abstract: We introduce a flexible, time-varying network model to trace the propagation of interest rate surprises across different maturities. First, we develop a novel econometric framework that allows for unknown, potentially asymmetric contemporaneous spillovers across panel units and establish the finite sample properties of the model via simulations. Second, we employ this innovative framework to jointly model the dynamics of interest rate surprises and to assess how various monetary policy actions—for example, short-term, long-term interest rate targeting and forward guidance—propagate across the yield curve. We find that the network of interest rate surprises is indeed asymmetric and defined by spillovers between adjacent maturities. Spillover intensity is high on average but shows strong time variation. Forward guidance is an important driver of the spillover intensity. Pass-through from short-term interest rate surprises to longer maturities is muted, yet there are stronger spillovers associated with surprises at medium- and long-term maturities. We illustrate how our proposed framework helps our understanding of the ways various dimensions of monetary policy propagate through the yield curve and interact with each other.
    Keywords: Econometric and statistical methods; Interest rates; Monetary policy implementation
    JEL: C53 E52
    Date: 2021–01
  46. By: Franz Hamann; Cesar Anzola; Oscar Avila-Montealegre; Juan Carlos Castro-Fernandez; Anderson Grajales-Olarte; Alexander Guarín; Juan C Mendez-Vizcaino; Juan J. Ospina-Tejeiro; Mario A. Ramos-Veloza
    Abstract: We develop a small open economy model with nominal rigidities and fragmented labor markets to study the response of the monetary policy to a migration shock. Migrants are characterized by their productivity levels, their restrictions to accumulate capital, as well as by the fl exibility of their labor income. Our results show that the monetary policy response depends on the characteristics of migrants and the local labor market. An infl ow of low(high)-productivity workers reduces(increases) marginal costs, lowers(raises) infl ation expectations and pushes the Central Bank to reduce(increase) the interest rate. The model is calibrated to the Colombian economy and used to analyze a migratory in flow of financially constraint workers from Venezuela into a sector with flexible and low wages. **** RESUMEN: En este artículo analizamos la respuesta de política monetaria ante un choque migratorio, mediante el desarrollo de modelo de economía pequeña y abierta con mercados de trabajo fragmentados. Los migrantes se caracterizan por sus bajos niveles de productividad, restricciones de acumulación de capital y la mayor flexibilidad de su ingreso laboral. Los resultados evidencian que la respuesta de política monetaria depende de las características de los migrantes y del mercado laboral. Una entrada de trabajadores de baja(alta) productividad reduce(aumenta) los costos marginales, disminuye(incrementa) las expectativas de in flación y lleva al Banco Central a reducir(aumentar) la tasa de interés. El modelo se calibra para la economía colombiana y se usa para analizar un in flujo migratorio de trabajadores venezolanos en un sector de salarios bajos y flexibles.
    Keywords: Neoclassical Model, Wage Differentials, Informal Labor Markets, Migration, Monetary Policymodelo, neoclásico, diferenciales salariales, mercados informales de trabajo, migración, política monetaria
    JEL: E13 J31 J46 J61 E50
    Date: 2021–01
  47. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation highlights that given its bulging working-age population, creating more and better jobs is the country’s overarching priority. Uzbekistan has already implemented a first wave of important economic reforms, including foreign exchange liberalization, tax reform, and a major upgrade in statistics. Faced with a vast structural reform agenda, the authorities want to prioritize reforms that address the economy’s most damaging distortions first. The main short-term macroeconomic stability challenge is to prevent a credit boom that could generate excessive external deficits and aggravate inflation pressures. A tight monetary stance and moderate fiscal deficits need to be maintained to support macroeconomic stability. Credit growth will need to slow significantly to assure the economy’s external and internal balance. The sustainable development goals are anchoring the country’s inclusive growth agenda, especially on education, health, public infrastructure, and financial inclusion. Moreover, the authorities are redesigning labor policies from scratch to help unskilled and other disadvantaged workers find more and better jobs.
    Keywords: External debt;Public debt;Credit;Foreign exchange;Expenditure;ISCR,CR,debt,GDP,Uzbekistan,exchange rate,authority
    Date: 2019–05–09
  48. By: International Monetary Fund
    Abstract: The near-term outlook is broadly positive, with robust growth and low inflation. However, growth potential remains constrained by weak external competitiveness, high informality, low labor force participation, and a large infrastructure gap. In a complex political environment, the structural reform progress has been slow and fiscal risks have increased.
    Date: 2018–12–18
  49. By: Schön, Matthias
    Abstract: This paper shows that demographic change plays an important role in the formation of a country's net foreign asset position. An ageing population both lowers the demand and increases the supply of capital in an economy. Fewer workers reduce the required capital stock. As a longer life span leads to a longer retirement phase individuals save more. Simultaneously, necessary adjustments of pay-as-you-go pension systems to an ageing society affect aggregate savings. Taking Germany as an example, this paper applies a two-region model with endogenous savings and labour supply that is augmented with demographic data projections for OECD countries. It shows that demographic change in Germany is an important determinant of the current account. Counterfactual pension reform simulations show that a fixed pension level increases the current account while a fixed pension contribution rate lowers it. An increase in the retirement age results in a strong negative effect on the current account as it reduces the capital supply and increases the capital demand in an economy.
    Keywords: Demographic Change,Current Account,Pension System
    JEL: E27 E62 F21 H55 J11
    Date: 2020
  50. By: Giancarlo Corsetti (Cambridge University and CEPR); Keith Kuester (University of Bonn and CEPR); Gernot J. Müller (University of Tübingen and CEPR); Sebastian Schmidt (European Central Bank and CEPR)
    Abstract: The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the classics (Meade, 1951; Friedman 1953), to the more recent open economy literature (Obstfeld and Rogo, 2000). We confront it with new evidence from Europe. Specifically, we study how shocks that originate in the euro area spill over to its neighboring countries. We exploit the variation of the exchange rate regime across time and countries to assess whether the regime alters the spillovers: it does not-flexible exchange rates fail to provide insulation against euro area shocks. This result is robust across a number of specifications and holds up once we control for global financial conditions. We show that the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond to headline consumer price inflation. However, it remains puzzling that policy makers are ready to forego stabilization of economic activity to the extent we found in the data.
    Keywords: External shock, International spillovers, Exchange rate, Insulation, Monetary Policy, Dominant currency pricing, Effective lower bound
    JEL: F41 F42 E31
    Date: 2021–01
  51. By: Mehdi El Herradi (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Jakob de Haan (De Nederlandsche Bank); Aurelien Leroy (University of Bordeaux)
    Abstract: This paper examines the distributional implications of inflation on top income shares in 14 advanced economies using data over the period 1920-2016. We use Local Projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as five-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top one percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares.
    Keywords: Inflation; Inequality; Top income shares
    JEL: D63 E50 E52
    Date: 2021–01
  52. By: Valerie Cerra; A. Fatas; Sweta Chaman Saxena
    Abstract: Traditionally, economic growth and business cycles have been treated independently. However, the dependence of GDP levels on its history of shocks, what economists refer to as “hysteresis,” argues for unifying the analysis of growth and cycles. In this paper, we review the recent empirical and theoretical literature that motivate this paradigm shift. The renewed interest in hysteresis has been sparked by the persistence of the Global Financial Crisis and fears of a slow recovery from the Covid-19 crisis. The findings of the recent literature have far-reaching conceptual and policy implications. In recessions, monetary and fiscal policies need to be more active to avoid the permanent scars of a downturn. And in good times, running a high-pressure economy could have permanent positive effects.
    Keywords: Business cycles;Financial crises;Unemployment;Labor markets;Technology;WP,fiscal policy,learning by doing,physical capital,liquidity trap
    Date: 2020–05–29
  53. By: Marie-Hélène Felt; Fumiko Hayashi; Joanna Stavins; Angelika Welte
    Abstract: Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the higher retail prices passed on to consumers to cover merchants’ payment processing costs. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout but instead pass through their costs to all consumers. As a result, credit card transactions are cross-subsidized by cheaper debit and cash payments. Card rewards and consumer fees paid to financial institutions are additional sources of cross-subsidies. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest net cost. This result is robust under various scenarios and assumptions, suggesting payment card pricing and merchant cost pass-through have regressive distributional effects in the United States and Canada.
    Keywords: Regressive Effects; Credit Cards; Rewards; Interchage Fees; Pass-through
    JEL: D12 D31 G21 L81
    Date: 2020–12–18
  54. By: Paul Jackson (National University of Singapore); Victor Ortego-Marti (Department of Economics, University of California Riverside)
    Abstract: We integrate the SIR epidemiology model into a search and matching framework with skill loss during unemployment. As infections spread, fewer jobs are created, skills deteriorate and TFP declines. The equilibrium is not efficient due to infection and skill composition externalities. Job creation increases infections due to increased interactions among workers. However, lower job creation decreases TFP due to skill loss. A three-month lockdown causes a 0.56% decline in TFP, i.e. nearly 50% of productivity losses in past recessions. We study the efficient allocation given the trade-off between both externalities and show that quantitatively the skill composition externality is sizable.
    Keywords: COVID-19; Skill loss; TFP; Search and matching; Unemployment; Pandemics
    JEL: E24
    Date: 2021–01
  55. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation highlights that Timor-Leste remains a fragile post-conflict nation with weak human and institutional capacity and large infrastructure gaps. The main challenge facing Timor-Leste is to effectively manage its petroleum wealth to reduce public-sector dependence, diversify the non-oil economy, generate jobs for a young and rapidly-growing population, and raise living standards. Political uncertainty constrained public spending in 2017–18, resulting in a sharp contraction of non-oil GDP in 2017 and flat growth in 2018. The report discusses that risks to the outlook are closely tied to the success of fiscal and structural reforms to maintain macroeconomic stability, ensure long-run fiscal sustainability, and facilitate economic diversification. The consultation recommends that a fiscal strategy should be pursued to improve expenditure control and efficiency, mobilize domestic revenue, and commit to protecting the wealth of the Petroleum Fund. Ongoing efforts to strengthen public financial management and promote good governance are crucial to ensure public investment efficiency and enhance the quality of public services.
    Keywords: Public debt;External debt;Oil;Public financial management (PFM);Expenditure;ISCR,CR,Timorese authorities,authority,majority government,U.S. dollar
    Date: 2019–05–07
  56. By: Vincent Bodart; François Courtoy; Erica Perego
    Abstract: With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.
    Keywords: Storable Commodity;International Financial Shock;Developing Economies
    JEL: E32 F41 G15 O11 Q02
    Date: 2021–01
  57. By: Jens H. E. Christensen; Nikola Mirkov
    Abstract: Safe assets usually trade at a premium due to their high credit quality and deep liquidity. To understand the role of credit quality for such premia, we focus on Swiss Confederation bonds, which are extremely safe but not particularly liquid. We therefore refer to their premia as safety premia and quantify them using an arbitrage-free term structure model that accounts for time-varying premia in individual bond prices. The estimation results show that Swiss safety premia are large and exhibit long-lasting trends. Furthermore, our regression analysis suggests that they shifted upwards persistently following the launch of the euro but have been depressed in recent years by the asset purchases of the European Central Bank.
    Keywords: Affine arbitrage-free term structure model, bond-specific risk premia, euro launch, negative interest rates
    JEL: C32 E43 E52 F34 G12
    Date: 2021
  58. By: Maximilian Böck (Department of Economics, Vienna University of Economics and Business); Martin Feldkircher (Vienna School of International Studies)
    Abstract: This article investigates how market participants adjust their expectations of interest rates at different maturities in response to a monetary policy and a central bank information shock for the US economy. The results show that market participants adjust their expectations faster to changes in interest rates compared to new releases of information by the central bank. This finding could imply that central bank information shocks are more opaque whereas a change in interest rates provides a stronger signal to the markets. Moreover, financial market agents respond with an initial underreaction to both shocks, potentially resembling inattention or overconfidence. Last, we find that the adjustment of expectations for yields with higher maturities takes considerably longer than for short-term yields. This finding is especially important for central banks since in the current low-interest rate environment monetary policy actions mainly consist of policies aimed at the long-end of the yield curve.
    Keywords: monetary policy, expectation formation, belief bias
    JEL: C32 D83 D84 E52 E70 G40
    Date: 2020–12
  59. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation highlights that Costa Rican government recognizes the challenges and is planning a broad array of measures, although the political and social environment remains difficult. The Consultation focused on policies that would help restore fiscal sustainability, strengthen the inflation targeting framework, enhance resilience of the financial system, and boost potential and inclusive growth. The fiscal reform constitutes a critical step towards restoring fiscal sustainability, but full and timely implementation is key. Further frontloaded fiscal consolidation, based largely on revenue measures, should be implemented to further reduce debt and financing pressures, while taking measures to protect the poor. It is also recommended that monetary policy should continue to remain data dependent and balance downside risks to inflation stemming from slower activity and upside risks to inflation arising from tighter global financial conditions. Structural reforms, including those planned under the Organisation for Economic Co-operation and Development accession process should be implemented to improve competitiveness and foster inclusive growth.
    Keywords: Public debt;Fiscal policy;Public sector;Banking;Revenue administration;ISCR,CR,government,authorities project growth,central bank,GDP
    Date: 2019–04–13
  60. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses Korea’s economy that has strong fundamentals; however, it is facing cyclical and structural headwinds. Potential growth will continue its decline, and polarization and inequality are concerns. Labor and product market duality persist. The government is focusing on supporting income, creating jobs, and promoting innovation. The government has focused on supporting income, creating jobs, and promoting innovation. It has strengthened social safety nets, substantially raised the minimum wage, supported small-and-medium enterprises to boost employment, and expanded public sector jobs. Fiscal policy should remain expansionary in the medium term, focusing on increasing social protection, boosting female labor force participation, and supporting growth enhancing structural reforms. Public sector job creation should be linked to developing services that cannot be provided by the private sector. The minimum wage increase for next year should be set below labor productivity growth. The IMF staff recommend an integrated package of macroeconomic, financial and structural policies to support growth, raise potential output, and reduce excess internal and external imbalances, while preserving financial stability.
    Keywords: Labor markets;Employment;Output gap;Inflation;Labor;ISCR,CR,GDP,stimulus measure,holding,labor market
    Date: 2019–05–13
  61. By: International Monetary Fund
    Abstract: The Central African Republic (C.A.R.) is a fragile state with an unstable security environment and widespread poverty. Macroeconomic conditions have stabilized following the 2013 crisis: growth has resumed, inflation has declined, domestic revenues have recovered, and debt ratios have decreased. The government’s economic strategy is supported by an arrangement under the Extended Credit Facility (ECF)—launched in July 2016—with total access of SDR 133.68 million (120 percent of quota). Program performance has been satisfactory. All end-June 2018 quantitative and continuous performance criteria were met. Discussions focused on the 2019 budget, policy responses to a higher global oil price, and reforms to improve public financial management and governance. The program is supported by union-level efforts to maintain an appropriate monetary policy stance, build up regional reserves, and promote financial sector stability.
    Keywords: Revenue administration;Arrears;Budget planning and preparation;Credit;Oil prices;ISCR,CR,LIOA policy,supplementary information,financing,government,policy
    Date: 2018–12–28
  62. By: Fei Han; Emilia M Jurzyk; Wei Guo; Yun He; Nadia Rendak
    Abstract: High household indebtedness could constrain future consumption growth and increase financial stability risks. This paper uses household survey data to analyze both macroeconomic and finanical stability risks from the rapidly rising household debt in China. We find that rising household indebtedness could boost consumption in the short term, while reducing it in the medium-to-long term. By stress testing households’ debt repayment capacity, we find that low-income households are most vulnerable to adverse income shocks which could lead to signficant defaults. Containing these risks would call for a strengthening of systemic risk assessment and macroprudential policies of the household sector. Other policies include improving the credit registry system and establishing a well-functioning personal insolvency framework.
    Keywords: Income;Consumption;Housing prices;Household consumption;Income shocks;WP,household debt,consumption growth,debt
    Date: 2019–11–27
  63. By: International Monetary Fund
    Abstract: President Biya was re-elected as President of Cameroon on October 7 by a large margin, amidst some violence in anglophone regions. Growth is projected to gradually increase from 3.5 percent in 2017 to 3.8 percent in 2018, driven by construction activity ahead of the Africa Cup of Nations (CAN) and large infrastructure projects. Fiscal consolidation as of end-June was in line with program objectives, but faces significant headwinds in the second half of the year owing to accelerating capital spending and revenue shortfalls. The goods trade balance worsened significantly in H1 and private capital outflows increased, contributing to a slower-than-anticipated buildup of external buffers. The medium-term outlook remains positive with growth expected to increase to 4.4 percent in 2019 and reach 5 percent in the medium-term. Risks from heightened global uncertainty, insufficient adjustment at the regional level, and continued insecurity in the anglophone regions are increasing.
    Keywords: Public debt;External debt;Debt sustainability analysis;Credit;Arrears;ISCR,CR,authority,executive board discussion,administration
    Date: 2018–12–27
  64. By: Xavier Gabaix; Ralph S. J. Koijen
    Abstract: We propose a new way to construct instruments in a broad class of economic environments: “granular instrumental variables” (GIVs). In the economies we study, a few large firms, in- dustries or countries account for an important share of economic activity. As the idiosyncratic shocks from these large players affect aggregate outcomes, they are valid and often powerful instruments. We provide a methodology to extract idiosyncratic shocks from the data in order to create GIVs, which are size-weighted sums of idiosyncratic shocks. These GIVs allow us to then estimate parameters of interest, including causal elasticities and multipliers. We first illustrate the idea in a basic supply and demand framework: we achieve a novel identification of both supply and demand elasticities based on idiosyncratic shocks to either supply or demand. We then show how the procedure can be enriched to work in many sit- uations. We provide illustrations of the procedure with two applications. First, we measure how “sovereign yield shocks” transmit across countries in the Eurozone. Second, we estimate short-term supply and demand multipliers and elasticities in the oil market. Our estimates match existing ones that use more complex and labor-intensive (e.g., narrative) methods. We sketch how GIVs could be useful to estimate a host of other causal parameters in economics.
    JEL: C01 E0 F0 G0
    Date: 2020–12
  65. By: International Monetary Fund
    Abstract: This paper discusses Sri Lanka’s Fifth Review under the Extended Arrangement under the Extended Fund Facility, Request for Waivers of Nonobservance of Performance Criteria, extension of the arrangement, and rephasing of purchases. The Central Bank of Sri Lanka maintained a tight monetary policy stance, intervening in the foreign exchange market and allowing for greater exchange rate flexibility in response to rising pressures. The Sri Lankan economy remains vulnerable to shocks, given high public debt, large refinancing needs, and low external buffers. Although domestic uncertainty remains elevated, the authorities are committed to strengthen the resilience of the economy through a strong policy mix, with prudent monetary policy, greater exchange rate flexibility, and revenue-based fiscal consolidation. Continued implementation of structural reforms is essential to support strong and inclusive growth. Efforts should focus on liberalizing trade, improving the business environment and promoting investment, strengthening governance, encouraging female and youth labor force participation, enhancing social protection, and improving crisis preparedness to natural disasters.
    Keywords: Public debt;Credit;Revenue administration;Loans;Banking;ISCR,CR,debt reduction effort,debt management strategy,SDR,Sri Lankan authorities,SOE governance
    Date: 2019–05–16
  66. By: Reinsberg, Bernhard; Kern, Andreas; Rau-Goehring, Matthias
    Abstract: International organizations (IOs) often drive policy change in member countries. Given IOs’ limited political leverage over a member country, previous research argues that IOs rely on a combination of hard pressures (i.e., conditionality) and soft pressures (i.e., socialization) to attain their political goals. Expanding this literature, we hypothesize that IOs can enhance their political leverage through loan conditions aimed at politically empowering ‘sympathetic interlocutors’. Studying this mechanism in the context of the International Monetary Fund (IMF), we argue that through prescribing structural loan conditions on central banks (CBI conditionality), the IMF empowers monetary authorities that can serve as a veto player to the government. Relying on a dataset including up to 124 countries between 1980 and 2012, we find that the IMF’s CBI conditionality correlates to countries with fewer checks and balances, a less independent central bank, and where the government relies more heavily on the monetization of public debt. JEL Classification: E52, E58, F5
    Keywords: central bank independence, conditionality, International Monetary Fund, international political economy
    Date: 2021–01
  67. By: Lastauskas, Povilas; Nguyen, Anh Dinh Minh
    Abstract: We build a new empirical model to estimate the global impact of an increase in the volatility of US monetary policy shocks. Specifically, we admit time-varying variances of local structural shocks from a stochastic volatility specification. By allowing for rich dynamic interaction between the endogenous variables and time-varying volatility in the global setting, we find that US interest rate uncertainty not only drives local output and inflation volatility, but also causes declines in output, inflation, and the interest rate. Moreover, we document strong global impacts, making the world move in a very synchronous way. Crucially, spillback effects are found to be significant even for the US economy. JEL Classification: C32, C54, E52, E58, F44
    Keywords: global economy, uncertainty, US monetary policy, volatility shocks
    Date: 2021–01
  68. By: Hubert Gabrisch (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This study attempts to identify uncertainty in the long-term rate of interest based on the controversial interest rate theories of Keynes and Kalecki. While Keynes stated that the future of the rate of interest is uncertain because it is numerically incalculable, Kalecki was convinced that it could be predicted. The theories are empirically tested using a reduced-form GARCH-in-mean model assigned to six globally leading financial markets. The obtained results support Keynes’s theory – the long-term rate of interest is a nonergodic financial phenomenon. Analyses of the relation between the interest rate and macroeconomic variables without interest uncertainty are thus seriously incomplete.
    Keywords: uncertainty, interest rate, Keynes, Kalecki, GARCH
    JEL: B26 C58 E43 E47
    Date: 2021–01
  69. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses Colombia’s economy that is improving drastically and is supported by very strong policy frameworks and well-executed policies. The recovery is gaining momentum and external imbalances have widened. Despite weaker-than-expected external demand, activity is expected to accelerate in 2019. Rebounding investment, continued policy support, and substantial migration from Venezuela are expected to lift growth to 3.6 percent while the current account deficit is expected to remain wide. The authorities expect the recovery to gather momentum in 2019 and inflation to remain close to target. Structural reforms are needed to boost inclusive growth and enhance external competitiveness. Addressing infrastructure gaps, strengthening governance and the rule of law, reducing informality, and enhancing customs and other trade practices are crucial. The draft National Development Plan rightly identifies key priorities and lays out a roadmap for reforms.
    Keywords: Revenue administration;Public debt;Fiscal rules;External debt;Credit;ISCR,CR,deficit,Banco de la República,government,GDP
    Date: 2019–04–29
  70. By: International Monetary Fund
    Abstract: Niger faces daunting development challenges, aggravated by terrorist incursions, low uranium export prices, and climate change. Nonetheless, GDP grew by a respectable 5 percent in the past two years. It should average 7 percent over the next five years thanks to reforms, substantial donor support, several large-scale projects, and a one-time boost from the projected commencement of crude oil exports in 2022.
    Keywords: External debt;Public debt;Stress testing;Debt sustainability analysis;Expenditure;ISCR,CR,government,Nigerien authorities,authority,criterion,debt
    Date: 2018–12–19
  71. By: Lei Fang; Jun Nie; Zoe Xie
    Abstract: The outbreak of COVID-19 led to widespread shutdowns in March and April 2020 and an historically unprecedented increase in the generosity of unemployment insurance (UI) through the CARES Act. This article summarizes the key policy-relevant results from Fang, Nie, and Xie (2020), whose research examines the interactions of virus infection risk, shutdown policy, and increased UI generosity.
    Keywords: COVID-19; CARES Act; unemployment insurance
    JEL: J64 J65 E24
    Date: 2020–12–21
  72. By: Kaninda, Aristote
    Abstract: In DRC, economic growth remains ineffectively influenced by the dynamics of multiple monetary policy factors. In view of this, an attempt is made in this article, examining the role that the quality of governance could play in the relationship between monetary policy and economic growth in this country during the period 1988- 2018. By developing an econometric analysis using the error correction model, it is revealed that the quality of governance plays a major role in the coordination of monetary policies and this positively impacts the economic growth of the DRC. As a result, government authorities must reform their intervention strategies; they must work with the aim of promoting a harmonious development of economic activities through the gradual approximation of economic policies.
    Keywords: Monetary Policy; quality of governance; money supply; time series; cointegration; error correction model; economic growth
    JEL: C32 E42 O11 O55
    Date: 2021–01–12
  73. By: International Monetary Fund
    Abstract: This paper discusses The Gambia’s request for a Staff-Monitored Program (SMP). The Gambia is enjoying a strong economic recovery, with good prospects of sustained growth over the medium term. In order to consolidate gains and establish a track record for a possible arrangement under the Extended Credit Facility, the authorities are requesting a new SMP covering 2019. The SMP will help build an adequate track record of performance for a potential Fund-supported program. Enhanced domestic revenue mobilization and expenditure control will help create room for much needed public investment and poverty-reducing social spending. The program’s strategy includes fiscal policy to focus on domestic revenue mobilization, improved treasury management and spending prioritization. A prudent borrowing strategy and strengthened oversight of state-owned enterprises, with the focus on containing contingent liabilities, is expected to contribute to anchoring debt sustainability. Monetary policy will remain active to curb inflation pressures and banking supervision vigilant to foster financial stability.
    Keywords: Public debt;External debt;Debt sustainability analysis;Budget planning and preparation;Debt service;ISCR,CR,Staff-Monitored Program,debt,management of the International Monetary Fund
    Date: 2019–05–08
  74. By: Andrew Feltenstein (Department of Economics, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Biplab Datta (Institute of Public and Preventive Health, Augusta University, USA); Sohani Fatehin (Department of Economics, Dickinson College, USA)
    Abstract: Value added taxes (VAT) constitute a major share of tax revenues in developing countries in which tax evasion is widespread. The literature on VAT evasion, however, is limited. This paper develops a computable general equilibrium framework for analyzing endogenous VAT tax evasion. The analytical framework entails increasing enforcement through greater spending on the enforcement of tax revenue collection. We assume that there is an elasticity that connects the changes in enforcement to actual increases in VAT collection. We apply the model to Pakistan data and show the level of enforcement spending required to achieve certain VAT collection targets. We also examine the short-, medium-, and long-term macroeconomic outlooks, and real consumption distribution across household economic groups associated with higher enforcement spending. We calibrate the model using 2016 as the base year and then run the dynamic model forward for 20 years. We define the implicit VAT rate as that hypothetical statutory rate that, in the absence of evasion, would approximately generate the observed VAT collection. We assume zero additional spending on enforcement in the baseline and estimate two alternative scenarios of VAT revenue target of 8% and 15% of the GDP. The alternative scenarios require increase in enforcement spending by a compounded 46.4% and 322.4%, respectively. We find that the increased enforcement spending enhances the sustainability of the government’s budget deficit without causing a decline in real GDP over the long-term. The interest and inflation rates are also lowered. However, there is a small regressive impact on households’ real consumption.
    Date: 2021–01
  75. By: Lei Fang; Jun Nie; Zoe Xie
    Abstract: The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of unemployment insurance (UI) benefits, triggering concerns about its substantial impact on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of CARES UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment, but they also reduce infection and save lives. Shutdown policies and infection risk further amplify these effects of UI policies. Quantitatively, the CARES UI policies raise average unemployment by 3.8 percentage points out of a total expected increase of 11 percentage points over April to December 2020 but also reduce cumulative deaths by 4.9 percent. Eligibility expansion and the extra $600 increase in benefit levels are both important for the effects.
    Keywords: COVID-19; CARES Act; unemployment insurance; search and matching
    JEL: J64 J65 E24
    Date: 2020–07–31
  76. By: International Monetary Fund
    Abstract: This 2018 Article IV Consultation highlights that Myanmar’s economy is expected to gain steam albeit at a somewhat slower pace than previously envisaged but faces greater downside risks including from the crisis in Rakhine state. The country’s long-term prospects remain strong, supported by a growing demographic dividend, a competitive labor force and its strategic location. The discussions recommend that successful implementation of the second wave of reforms in the Myanmar Sustainable Development Plan with a focus on peace, stability and good governance will help sustain the growth take-off and achieve the Sustainable Development Goals (SDGs). Financial regulations and supervision should be strengthened with a view to ensuring financial stability and deepening, while forming contingency plans to address systemic banking risks, and strengthening the resolution framework. Fiscal policy should be directed towards SDG-related spending, while lowering Central Bank of Myanmar financing and ensuring debt sustainability. The business environment is expected to benefit from upgraded infrastructure, access to finance, and strengthening of the overall governance framework.
    Keywords: External debt;Public debt;Banking;External sector statistics;Monetary operations;ISCR,CR,FDI project approval,deposit auction rate,capital goods import,inflation rate.,rate
    Date: 2019–04–10
  77. By: International Monetary Fund
    Abstract: The redesigned IMF-supported economic reform program is bearing early results. Financial markets have stabilized since end-September, following the adoption of the new monetary policy framework. After the appreciation of the currency in October, the peso has floated within the non-intervention zone. Short-term interest rates have fallen back to their end-September level. The passage of the 2019 Budget with broad political support has helped solidify confidence in the authorities’ stabilization plan. As a result, demand for Argentine bonds has strengthened and sovereign risk premia have narrowed.
    Keywords: Inflation;Public sector;Monetary base;Fiscal stance;Public debt;ISCR,CR,wage inflation index,LELIQ rate,Base money,executive board discussion,CPI basket
    Date: 2018–12–19
  78. By: International Monetary Fund
    Abstract: This Selected Issues paper develops a Financial Conditions Index (FCI) for Mauritius—an instrument to gauge the operational state of the financial sector and predict real economy activity. The evolution of Mauritius’ financial services sector has been supported by a vibrant offshore corporate sector. Given the strong macro-financial linkages, it is imperative to closely monitor domestic financial developments. Financial developments are broader than monetary developments depicting money supply and interest rates. The FCI is a robust predictor of real GDP growth in Mauritius. The FCI can also help inform macroprudential policy decisions. Decisions on setting the countercyclical capital buffer of Basel III could be informed by analyzing developments in the FCI. As historically Mauritius has not experienced drastic swings in financial credit, testing the constructed FCIs for predicting boom-bust episodes is difficult. Nevertheless, the FCI signaled lax financial conditions in 2009 and again in 2012 that likely contributed to accelerated credit growth in 2012–2013 and a subsequent acceleration in nonperforming loans during 2014–2016.
    Keywords: Private savings;Income;Aging;Exports;Population and demographics;ISCR,CR,Mauritius,GDP,saving,saving rate
    Date: 2019–04–29
  79. By: Ichiro Fukunaga; Takuji Komatsuzaki; Hideaki Matsuoka
    Abstract: This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.
    Keywords: Inflation;Public debt;Debt reduction;Long term interest rates;Deflation;WP,inflation shock
    Date: 2019–12–27
  80. By: Guido Matias Cortes (York University); Eliza C. Forsythe (University of Illinois, Urbana-Champaign)
    Abstract: We study the distributional consequences of the Covid-19 pandemic’s impacts on employment. Using CPS data on stocks and flows, we show that the pandemic has exacerbated pre-existing inequalities. Although employment losses have been widespread, they have been substantially larger in lower-paying occupations and industries. Individuals from disadvantaged groups, such as Hispanics, younger workers, those with lower levels of education, and women, have suffered both larger increases in job losses and larger decreases in hiring rates. Occupational and industry affiliation can explain only part of the increased job losses among these groups.
    Keywords: Covid-19, CPS, job losses, occupations, industries, distributional impacts
    JEL: E24 J21 J31 J62 J63
    Date: 2020–05
  81. By: International Monetary Fund
    Abstract: Recent economic developments. Economic activity remained strong in 2018H1 but decelerated since due to subdued private construction activity and delays in public infrastructure. Inflation has remained below the 3-percent inflation target in 2018. Higher revenues and lower investment resulted in a fiscal surplus through September 2018. Against the background of high credit growth, the authorities introduced regulations to limit household over-indebtedness. The banking sector remains well capitalized, liquid, and profitable, but dollarization remains high.
    Keywords: External debt;Credit;Foreign exchange;Public debt;Loans;ISCR,CR,spending allocation,government,discussion
    Date: 2018–12–19
  82. By: International Monetary Fund
    Abstract: This Selected Issues paper examines the impact of the Financing Law on both tax revenues and the economy. This paper assesses the main tax measures introduced by the law and their dynamic impact on tax revenue through macroeconomic transmission channels. Despite various reforms in recent years, non-oil tax revenues in Colombia remain comparatively low. The Financing Law should raise tax revenues in 2019 but will likely create shortfalls thereafter. The model-based simulations point to sizeable increases in private investment. The simulations suggest that the Law could boost medium-term growth by around 0.2 percent of GDP but will reduce tax revenues by over 1/2 percent of GDP in the medium term. The key channel is through a lower corporate burden through lower corporate income tax and allowing input credit for value added tax on capital goods. The analysis finds that the Law may boost medium-term growth by around 0.2 percent of GDP, but it may lead to future tax revenue shortfalls starting in 2020.
    Keywords: Revenue administration;Corporate income tax;Personal income tax;Value-added tax;Expenditure;ISCR,CR,VAT,revenue,tax burden,CIT,wealth tax
    Date: 2019–04–29
  83. By: International Monetary Fund
    Abstract: Suriname is recovering from the deep recession of 2015-16. Growth has turned positive, inflation has reduced to single digits, real interest rates have turned positive, and the external position has on balance strengthened. Nonetheless, the economy remains heavily dependent on the mineral sector, and faces fiscal, monetary, and banking sector vulnerabilities.
    Keywords: Public debt;Exchange rates;Fiscal stance;Monetary base;Banking;ISCR,CR,Suriname,IMF staff calculation,GDP,holding
    Date: 2018–12–20
  84. By: Benjamin Born; Jonas Dovern; Zeno Enders
    Abstract: Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.
    Keywords: expectation dispersion, uncertainty, macroeconomic news, stock market, event study, forecaster disagreement
    JEL: E44 G12 G14
    Date: 2020
  85. By: International Monetary Fund
    Abstract: The Government is implementing a (i) Macroeconomic Stabilization Program, which is focused on strengthening fiscal and debt sustainability; reducing inflation; promoting a more flexible exchange rate regime; improving financial sector stability; and addressing pressures on correspondent banking relationships; and (ii) National Development Plan for 2018–22 to address structural bottlenecks; and promote human development, public sector reform, economic diversification, and inclusive growth. The authorities also focus on improving governance and fighting corruption.
    Date: 2018–12–18
  86. By: Simon Gilchrist; Bin Wei; Vivian Z. Yue; Egon Zakrajšek
    Abstract: We evaluate the efficacy of the Secondary Market Corporate Credit Facility (SMCCF), a program designed to stabilize the corporate bond market in the wake of the COVID-19 shock. The Fed announced the SMCCF on March 23 and expanded the program on April 9. Regression discontinuity estimates imply that these announcements reduced credit spreads on bonds eligible for purchase 70 basis points (bp). We refine this analysis by constructing a sample of bonds—issued by the same set of companies—that differ in their SMCCF eligibility. A diff-in-diff analysis shows that both announcements had large effects on credit spreads, narrowing spreads by 20 bp on eligible bonds relative to their ineligible counterparts within the same set of issuers across the two announcement periods. The March 23 announcement also reduced bid-ask spreads 10 bp within 10 days of the announcement. By lowering credit spreads and improving liquidity, the April 9 announcement had an especially pronounced effect on "fallen angels." The actual purchases lowered credit spreads by an additional 5 bp and bid-ask spreads by 2 bp. These results confirm that the SMCCF made it easier for companies to borrow in the corporate bond market.
    Keywords: COVID-19; credit market support facilities; regression discontinuity; diff-in-diff; event study; purchase effects
    JEL: E44 E58 G12 G14
    Date: 2020–09–15
  87. By: John Coglianese (Federal Reserve Board of Governors); Brendan M. Price (Federal Reserve Board of Governors)
    Abstract: Joblessness is highly seasonal. To analyze how households adapt to seasonal joblessness, we introduce a measure of seasonal work interruptions premised on the idea that a seasonal worker will tend to exit employment around the same time each year. We show that an excess share of prime-age U.S. workers experience recurrent separations spaced exactly 12 months apart. These separations coincide with aggregate seasonal downturns and are concentrated in seasonally volatile industries. Examining workers most prone to seasonal work interruptions, we find that these workers incur large earnings losses during the off-season. Lost earnings are 1) driven mainly by repeated separations from the same employer, 2) not recouped at other firms, 3) partly offset by unemployment benefits, and 4) amplified by concurrent drops in partners’ earnings. On net, household income falls by about $0.80 for each $1 lost in own earnings.
    Keywords: seasonality, seasonal employment, job loss, household income, household labor dynamics, unemployment, unemployment insurance
    JEL: D10 E32 J63
    Date: 2020–11
  88. By: William Roberds; Eugene White
    Abstract: During late 1920, the president (then called "governor") and board of directors of the Federal Reserve Bank of Atlanta were confronted with an unexpected, devastating collapse in the price of a commodity whose global production was concentrated in their district—cotton. Their judgment was that the fall in cotton prices was temporary and that its effects could be lessened with generous credit policies that did not conflict with the Federal Reserve Act. Other officials within the Federal Reserve System did not agree with this judgment, however, leading to a contentious policy debate and an eventual rollback of the Bank's policy accommodation.
    Keywords: Federal Reserve; emergency lending; 13(3)
    JEL: E58 N12
    Date: 2020–12–18
  89. By: International Monetary Fund
    Abstract: Sierra Leone is a fragile state. Since emerging from a decade-long civil war in 2001, the country has made notable economic progress but has also suffered occasional setbacks, such as the Ebola Virus Disease epidemic of 2014. A three-year ECF arrangement was approved June 2017 to help address Sierra Leone’s macroeconomic weaknesses—in particular, low revenue, elevated inflation, high public debt, and inadequate foreign exchange reserve buffers—which had been exacerbated by the Ebola crisis and a collapse in iron ore prices (Country Report No. 17/154). However, the program went off track shortly after approval as lackluster revenue performance and expenditure overruns led to a budget cash shortfall and a growing stock of budget arrears. With the authorities unable to take corrective actions ahead of the March 2018 presidential elections the first review of the program was put on hold. Since then elections have produced a new government, marking the first change of power in ten years. This government has taken a number of corrective actions over the last six months with the aim of reviving the program engagement with the IMF.
    Keywords: Public debt;External debt;Budget planning and preparation;Revenue mobilization;Expenditure;ISCR,CR,staff appraisal,BSL Act
    Date: 2018–12–18
  90. By: International Monetary Fund
    Abstract: This paper discusses Republic of Mozambique’s Request for Disbursement under the Rapid Credit Facility (RCF). Reflecting the large budgetary and external financing gaps arising from emergency assistance and reconstruction needs, the authorities are seeking financial assistance under the RCF exogenous shock window. The financial assistance is intended to address large budgetary and external financing gaps arising from reconstruction needs after Cyclone Idai, which caused significant loss of life and infrastructure damage. The authorities remain committed to macroeconomic stability, which will also be underpinned by the IMF’s financing. The authorities are reallocating lower priority spending to emergency assistance, however, their room for manoeuvre is limited and the bulk of emergency assistance and reconstruction needs will have to be covered by the international community mostly in the form of grants to ensure debt sustainability. The authorities shared staff’s main policy recommendations, namely increasing the economy’s resilience and preparedness to adverse weather events that are becoming more frequent and intense due to climate change.
    Keywords: Public debt;External debt;Natural disasters;Debt service;Loans;ISCR,CR,financing,assistance,government
    Date: 2019–05–16
  91. By: Darío Serrano-Puente (Banco de España)
    Abstract: Is the Spanish economy positioned at its optimal progressivity level in personal income tax? This article quantifies the aggregate, distributional, and welfare consequences of moving towards such an optimal level. A heterogeneous households general equilibrium model featuring both life cycle and dynastic elements is calibrated to replicate some characteristics of the Spanish economy and used to evaluate potential reforms of the tax system. The findings suggest that increasing progressivity would be optimal, even though it would involve an efficiency loss. The optimal reform of the tax schedule would reduce wealth and income inequality at the cost of negative effects on capital, labor, and output. Finally, these theoretical results are evaluated using tax micro data and describe a current scenario where the income-top households typically face suboptimal effective average tax rates.
    Keywords: income tax, progressivity, inequality, income and wealth distribution, general equilibrium, heterogeneous agents
    JEL: D31 C68 E62 H21
    Date: 2021–01
  92. By: Martin Hodula; Jan Janku; Martin Casta; Adam Kucera
    Abstract: This paper tests potential determinants of the development of the insurance sector. Using a rich dataset for 24 European countries spanning two decades, we identify a set of macro-financial factors that are the most robust predictors of growth of gross premiums in the life and non-life insurance sectors. We show that both life and non-life premiums co-move with the business cycle and are positively related to higher savings and a more developed financial system. In addition, we provide new evidence on the role of market concentration and price effects. We find that market concentration matters only for life insurance, whereas the price channel is significant only for non-life insurance. From a policy perspective, our empirical estimates can be used to refine the existing macroprudential stress tests of the insurance sector.
    Keywords: Business cycle, insurance, life insurance, macro-financial determinants, non-life insurance
    JEL: D4 E32 G22
    Date: 2020–12
  93. By: Jeannine Bailliu; Xinfen Han; Barbara Sadaba; Mark Kruger
    Abstract: Given China's complex monetary policy framework, the People's Bank of China's (PBOC) monetary policy rule is difficult to infer from its observed behaviour. In this paper, we adopt a novel approach, using text analytics to estimate and interpret the unknown component in the PBOC's reaction function. We extract the unknown component in a McCallum-type monetary policy rule for China through a state-space model framework using a set of summary topics extracted from official PBOC documents. Then, using a set of sectional topics extracted from the same set of PBOC documents, we provide this component with its rightful interpretation. Our results show that this unknown component is related to the Chinese government's agenda of supply-side structural reforms, suggesting that monetary policy is used as a tool to achieve structural reform objectives. Structural vector autoregression (SVAR) results confirm these findings by providing evidence of the importance of the government's supply-side reform objectives for the conduct of monetary policy.
    Keywords: Econometric and statistical methods; International topics; Monetary policy communications; Monetary policy framework
    JEL: C63 E58
    Date: 2021–01
  94. By: Jess Benhabib; Xuewen Liu; Pengfei Wang
    Abstract: Even if an asset has no fundamental uncertainty with a constant dividend process, a stochastic sentiment-driven equilibrium for the asset price exists besides the well-known fundamental equilibrium. Our paper constructs such sentiment-driven equilibria under general utility functions within an OLG structure. Our paper further shows that the existence of sentiment-driven equilibria is robust in a standard infinite-period model as long as the pricing kernel is affected by the asset price.
    JEL: E44 G01 G11
    Date: 2020–12
  95. By: International Monetary Fund
    Abstract: Cambodia has made significant progress towards the Sustainable Development Goals (SDGs) due to years of impressive economic growth and reforms. Income growth has outpaced peers, poverty has declined, and the economy has begun to gradually diversify. At the same time, elevated financial sector vulnerabilities, development spending needs, and governance weaknesses pose challenges for further advancing sustainable growth and development.
    Keywords: Public debt;Revenue administration;External debt;Credit;Fiscal policy;ISCR,CR,authority,preliminary budget,spending
    Date: 2018–12–17
  96. By: Samina Sultan
    Abstract: The value-added tax is one of the most important tax revenue sources in many countries. However, it is sometimes considered unfair as it ultimately hits consumption, and poorer households spend a greater share of their income on consumption. But this depends on whether, and to what degree, the value-added tax is actually passed on to consumers. Exploiting an exogenous value-added tax reform in Germany, I use an event study and a differences-in-differences approach to investigate the pass-through to consumers for a wide range of commodities. On average, I find a modestly positive but statistically insignificant effect on prices. However, there are differences in tax incidence between commodity groups and anticipatory price effects well in advance of the actual implementation of the value-added tax reform.
    Keywords: consumer price index, value-added tax, tax incidence, fiscal policy
    JEL: E31 H25 H22 H31
    Date: 2020
  97. By: International Monetary Fund
    Abstract: Recent economic developments. The program is broadly on track and the economy is growing strongly, supported by private consumption, investment, and exports. Fiscal performance remains sound, modernization of the tax administration has accelerated, and public debt has fallen sharply. Inflation remains below the mid-point of the NBS inflation band, while the NBS has kept rates on hold since April. Both credit and private sector wage growth are strengthening. Program performance. Quantitative targets (QTs) for end-September 2018 were met, apart from a minor deviation on the QT for domestic arrears. Most reform targets (RTs) have been implemented, albeit some with delays. Staff recommends completion of the first review under the Policy Coordination Instrument and modification of QTs for end-March and an establishment of end-September 2019 QTs.
    Keywords: Public debt;Pension spending;Banking;Exchange rates;Pensions;ISCR,CR,inflation band,program implementation,sector,growth
    Date: 2018–12–19
  98. By: Chuluunbayar, Delgerjargal
    Abstract: This paper contributes to the empirical evidence on Dutch disease by studying the transmission of resource shocks in Mongolia. Asymmetric resource shock transmissions adjusted for the business cycle stage were estimated using a Markov Switching Vector Autoregression model (VAR) and data from 2000Q1 to 2019Q4. The results of these and additional estimates employing recursive and non-recursive VAR models found evidence of a positive technological spillover effect from the resource sector on the Mongolian economy. However, it is evident that the main source of economic volatility is from the mining sector.
    Keywords: Resource shocks, Mongolia, Markov Switching VAR, SVAR
    JEL: C32 E32 F43 F62
    Date: 2020–10
  99. By: Annette Vissing-Jorgensen
    Abstract: Starting from a set of facts on the timing of stock returns relative to Federal Reserve decision-making, I argue that informal communication – including unattributed communication -- plays a central role in monetary policy communication. This contrasts with the standard communications framework in which communication should be public and on-the-record because it serves to ensure accountability and policy effectiveness. I lay out possible benefits of using unattributed communication as an institution, but these should be weighed against substantial costs: It runs counter to accountability to use unattributed communication, causes frustration among those trying to understand central bank intensions, and enables use of such communication by individual policymakers. Unattributed communication driven by policymaker disagreements is unambiguously welfare reducing, because it reduces policy flexibility and harms the central bank’s credibility and decision-making process. Central banks may benefit from resisting unattributed communication via expensive newsletters and increasing consensus-building efforts to reduce disagreement-driven unattributed communication.
    JEL: E5 G12
    Date: 2020–12
  100. By: Kiki Verico (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: This paper showed that Indonesia’s output-gap has been improving since 2007 until the global pandemic hit Indonesia in 2020. The ultimate indicator for this improvement was the constant decrease in open unemployment. Okun’s Law calculation proved that Indonesia’s actual economic growth was higher than minimum economic growth to generate jobs. This paper also confirmed the Phillips Curve phenomenon that actual inflation was higher than expected inflation. Indonesia’s average economic growth from 2007–2019 has increased above its natural long-run economic growth level. The global pandemic decreased Indonesia’s economic growth and increased its open unemployment rate in 2020. Indonesia’s economy needs an adjustment which depends on the pandemic containment. This adjustment will be affecting Indonesia’s scenario in avoiding the Middle-Income Trap before 2040 regarding the end of the demographic bonus era. This paper attempts to estimate the impact of the global pandemic on the economy, referring to the Spanish Flu’s impact on the global trade openness and how Indonesia adjusts its economy in the short-run and navigates its economic transformation in the long-run.
    Keywords: Output-Gap — Global Pandemic Impact — Middle-Income Trap — Open-Unemployment — Indonesia
    JEL: O47 G01 E64 J60
    Date: 2021
  101. By: World Bank
    Keywords: Public Sector Development - Public Sector Economics Finance and Financial Sector Development - Currencies and Exchange Rates Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Achieving Shared Growth Poverty Reduction - Living Standards
    Date: 2019
  102. By: Russell Cooper; Guan Gong; Guanliang Hu; Ping Yan
    Abstract: This paper studies the exporting decision of Chinese manufacturing firms. The economic framework stresses the dynamic decision by both state controlled and private entities to export in a model with labor adjustment costs. In this complex environment, a simple decision rule whereby export status depends only on current productivity does not hold. Nor does this rule match data patterns. The estimated model is used to understand the factors that influence export status. The analysis highlights the economic significance of labor adjustment costs in shaping both employment and trade dynamics.
    JEL: E24 F14 F16
    Date: 2020–12
  103. By: International Monetary Fund
    Abstract: With the support of the IMF’s Middle East and Central Asia Department (MCD), and at the request of the Central Bank of Mauritania (BCM), the IMF’s Statistics Department (STA) mission visited Nouakchott from March 19–30, 2018, to provide technical assistance (TA) in the area of external sector statistics (ESS). This mission is part of an initiative financed by the Financial Sector Stability Fund (FSSF): Balance Sheet Approach (BSA) Sub-Module. This intersectoral effort will enable the production of more reliable BSA matrices to support macroprudential policies, the country’s financial stability analysis, and the IMF’s surveillance missions. The mission’s key objectives were to work closely with the BCM in order to (i) improve the compilation of the balance of payments (BOP), and (ii) propose a framework for compiling the international investment position (IIP). Based on the findings and recommendations of the last TA mission on external sector statistics (ESS) carried out at the BCM in October 2016, this mission notes the need to improve the quality of most items in the BOP, particularly the financial account, which could also aid IIP compilation efforts in the near future.
    Keywords: Foreign direct investment;Operational risk;External sector statistics;Commercial banks;International investment position;ISCR,CR,balance of payments,BOP team,compilation framework,IIP component,BOP framework,BOP transaction
    Date: 2019–01–16
  104. By: Theissen, Erik; Zimmermann, Lukas
    Abstract: We explore the relation between customer satisfaction and security returns. Firms with high customer satisfaction levels earn significant abnormal returns. This result is robust to variations of model specification and test methodology. Additional tests do not reveal evidence of systematic mispricing. Our results rather suggest that there are, consistent with the model of Eisfeldt and Papanikolaou (2013), sources of risk not covered by standard risk factors. We identify firm characteristics, such as the Hoberget al. (2014) product market fluidity measure, and macro variables, such as patenting activity and aggregate R&D spending, that are related to these sources of risk.
    Keywords: Intangible Capital,Customer Satisfaction,Innovativity,ESG-Investing
    JEL: E22 G12 G14 M31
    Date: 2020
  105. By: James B. Bullard
    Abstract: St. Louis Fed President James Bullard shared his views on a variety of topics in a moderated discussion during the Reuters Next virtual forum. He spoke about several aspects of Fed policy, the arrival of vaccines, the possibility of higher inflation, and more.
    Keywords: monetary policy; COVID-19
    Date: 2021–01–13
  106. By: International Monetary Fund
    Abstract: This Selected Issues paper investigates the reasons for the growth pickup in Paraguay and explores the potential for sustainable future growth. It shows that the growth acceleration over the past 15 years is the combined result of a few factors: a bounce back from the crisis in the late 1990s and the subpar growth of the two decades prior; a benevolent external environment, the commodity price boom in particular; and the improved macroeconomic stability. Also in terms of its composition, growth in the past has largely been extensive, mostly coming from capital deepening and increasing labor inputs, rather than productivity increase, though total factor productivity growth has played a bigger role in the most recent years. Despite strong growth in recent years, like most of the Latin America, seen over a longer period, Paraguay has not attained significant economic convergence with advanced economies. Empirical data shows a strong linkage between the GDP per capita of a country and its score in a composite structural indicator such as the World Competitiveness Index, which Paraguay ranked poorly on. Identifying and correcting Paraguay’s structural deficiencies that may be hampering productivity growth and capital accumulation will be crucial for sustainable growth.
    Keywords: Credit;Credit booms;Exports;Agricultural prices;Basel Core Principles;ISCR,CR,Paraguay,IMF staff calculation,GDP
    Date: 2019–04–30
  107. By: Daisuke Ikeda; Shangshang Li; Sophocles Mavroeidis; Francesco Zanetti
    Abstract: The effective lower bound on a short term interest rate may not constrain a central bank's capacity to achieve its objectives if unconventional monetary policy (UMP) is powerful enough. We formalize this `irrelevance hypothesis' using a dynamic stochastic general equilibrium model with UMP and test it empirically for the United States and Japan using a structural vector autoregressive model that includes variables subject to occasionally binding constraints. The hypothesis is strongly rejected for both countries. However, a comparison of the impulse responses to a monetary policy shock across regimes shows that UMP has had strong delayed effects in each country.
    Date: 2020–12
  108. By: Alex Pienkowski
    Abstract: This paper outlines a simple three-country macroeconomic model designed to focus on the transmission of external shocks to Portugal. Building on the framework developed by Berg et al (2006), this model differentiates between shocks originating from both inside and outside the euro area, as well as domestic shocks, each of which have different implications for Portugal. This framework is also used to consider the dynamics of the Portuguese economy over recent decades. The model, which is designed to guide forecasts and undertake simulations, can easily be modified for use in other small euro area countries.
    Keywords: Output gap;Exchange rates;Inflation;Real exchange rates;Real interest rates;WP,demand shock
    Date: 2019–12–20
  109. By: International Monetary Fund
    Abstract: This Technical Assistance report highlights that setting up a liquidity forecasting framework would go a long way in establishing a key building block allowing the Royal Monetary Authority of Bhutan (RMA) to fulfil its legal mandate to formulate and implement monetary policy in ways better aligned with current central bank practices. The structural liquidity surplus, mainly due to foreign reserves accumulation, has been broadly stable in the absence of RMA intervention. The paper discusses that the volatility of autonomous factors and the fragmentation of the money market justify ambitious steps by the RMA towards setting up a liquidity management framework. The mission identified several constraints and gaps that need to be addressed to support the effectiveness of a liquidity forecasting framework. The mission’s recommendations presented in the report aim at streamlining the processing of the Government’s financial transactions and cash balances. Looking ahead, monetary policy transmission would benefit from developing RMA’s liquidity forecasting and management capacity.
    Keywords: Liquidity;Banking;Liquidity management;Liquidity forecasting;Money markets;ISCR,CR,RMA staff,RMA authorities,RMA liquidity-providing facility,autonomous factor,commercial bank,RMA function
    Date: 2019–04–30
  110. By: Altavilla, Carlo; Bochmann, Paul; De Ryck, Jeroen; Dumitru, Ana-Maria; Grodzicki, Maciej; Kick, Heinrich; Fernandes, Cecilia Melo; Mosthaf, Jonas; O’Donnell, Charles; Palligkinis, Spyros
    Abstract: The cost of equity for banks equates to the compensation that market participants demand for investing in and holding banks’ equity, and has important implications for the transmission of monetary policy and for financial stability. Notwithstanding its importance, the cost of equity is unobservable and therefore needs to be estimated. This occasional paper provides estimates of the cost of equity for listed and unlisted euro area banks using a three-step methodology. In the first step, ten different models are estimated. In the second step, the models’ results are combined applying an equal-weighting procedure. In the third step, the combined costs of equity for individual banks are aggregated at the euro area level and according to banks’ business models. The results suggest that, since the Great Financial Crisis of 2007-08, the premia that investors demand to compensate them for the risk they bear when financing banks’ equity has been persistently higher than the return on equity (ROE) generated by banks. We show that our estimates of cost of equity have plausible relationships to banks’ fundamentals. The cost of equity tends to be higher for banks that are riskier (higher non-performing loan ratios), less efficient (higher cost-to-income ratio), and with more unstable funding sources (higher relative reliance on interbank deposits). Finally, we use bank fundamentals to estimate the cost of equity for unlisted banks. In general, unlisted banks are found to have a somewhat lower cost of equity compared to listed banks, with business model characteristics accounting for part of the estimated difference. JEL Classification: G20, G21, E44, G1
    Keywords: banking supervision, cost of equity, financial stability, monetary policy
    Date: 2021–01
  111. By: Yang, Jiao (Fudan University); Kwon, Ohyun (Drexel University); Roh, Jae-Whak (Hansung University)
    Abstract: This paper provides novel empirical evidence on the role of international trade in shaping the currency composition of corporate debt. We address endogeneity concerns by proposing a novel method to construct an instrumental variable for firms’ export shares using both domestic and South Korea’s trading partners’ industry-level demand shocks. Cross-sectional patterns, long difference regression, and IV regression results are all consistent with our theoretical prediction that firms with higher export shares borrow larger shares of debt in foreign currency. We validate our theory further by showing that: (1) our results are robust to dropping firms that potentially use financial hedge against exchange rate risk; (2) the effects of export shares were less pronounced during a less flexible exchange rate regime; and (3) higher shares of imported intermediate inputs in firms’ total cost tend to lower their foreign currency debt shares. Together, these findings shed light on the discussion of exchange rate policy in emerging and developing countries where foreign currency debts are pervasive.
    Keywords: International Trade; Currency Composition; Debt Finance; External Demand Shocks; Exchange Rate; Global Supply Chain
    JEL: E44 F31 F34 F36
    Date: 2021–01–01
  112. By: International Monetary Fund
    Abstract: This Selected Issues paper analyzes monetary policy and financial cycles; the evolution of macroprudential policies in Korea; the efficacy in prudential policies in taming financial excess and building financial resilience and; the interaction between monetary policy and macroprudential policies. Evidence for Korea suggests that financial stability will not necessarily materialize as a natural by-product of a so-called appropriate monetary policy stance. Although the effects of monetary and macroprudential instruments may overlap, they are not perfect substitutes. Macroprudential policies can also impact the banking system by affecting bank funding costs through the net interest margin. In certain circumstances borrower-based prudential measures and monetary policy can complement one another. Macroprudential policies can impact banks profitability. Policymakers should be mindful that macroprudential policy is not free of costs and that there may be trade-offs between the stability and the efficiency of financial systems.
    Keywords: Labor markets;Macroprudential policy;Output gap;Employment;Manufacturing;ISCR,CR,opt-out agreement,financial condition
    Date: 2019–05–13
  113. By: Nicoletta Batini; Alessandro Cantelmo; Giovanni Melina; Stefania Villa
    Abstract: This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint stance of monetary and fiscal policies in the euro area (EA) and in its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models featuring also financial intermediaries and long-term government debt. The analysis highlights a short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left to be the “only game in town” after 2013. Individual countries’ DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at the EA level, due to heterogeneity in the fiscal stance.
    Keywords: Fiscal policy;Fiscal stance;Expenditure;Dynamic stochastic general equilibrium models;Financial crises;WP
    Date: 2020–06–05
  114. By: Sam Ouliaris; Adrian Pagan
    Abstract: When sign restrictions are used in SVARs impulse responses are only set identified. If sign restrictions are just given for a single shock the shocks may not be separated, and so the resulting structural equations can be unacceptable. Thus, in a supply demand model, if only signs are given for the impulse responses to a demand shock this may result in two supply curves being in the SVAR. One needs to find the identified set so that this effect is excluded. Granziera el al’s (2018) frequentist approach to inference potentially suffers from this issue. One also has to recognize that the identified set should be adjusted so that it produces responses to the same size shock. Finally, because researchers are often unwilling to set out sign restrictions to separate all shocks, we describe how this can be done with a SVAR/VAR system rather than a straight SVAR.
    Keywords: SVAR, Sign Restrictions, Identified Set
    JEL: E37 C51 C52
    Date: 2020–11
  115. By: Müller, Alexander; Paulick, Jan
    Abstract: Considerable resources have been devoted to gathering data for the measurement of money market activity. However, little is known about the differences between available data and the structural effects of methodological choices. We use the novel dataset MMSR and compare it to data derived from a Furfine-type algorithm and survey data. The deviations in volumes and interest rates are driven by the asymmetric measurement of transactions, in particular affecting individual classes of banks, cross-border loans and specific types of loans. These differences are significant in terms of magnitude and affect overall rates and volumes. Even fundamental questions like the share of cross-border transactions depend on which data is used.
    Keywords: Money Market,Overnight interest rates,Measurement methodology
    JEL: C80 E42 E50 G10 G21
    Date: 2020
  116. By: Juliana Dutra Araujo; Manasa Patnam; Adina Popescu; Fabian Valencia; Weijia Yao
    Abstract: This paper builds a novel database on the effects of macroprudential policy drawing from 58 empirical studies, comprising over 6,000 results on a wide range of instruments and outcome variables. It encompasses information on statistical significance, standardized magnitudes, and other characteristics of the estimates. Using meta-analysis techniques, the paper estimates average effects to find i) statistically significant effects on credit, but with considerable heterogeneity across instruments; ii) weaker and more imprecise effects on house prices; iii) quantitatively stronger effects in emerging markets and among studies using micro-level data; and iii) statistically significant evidence of leakages and spillovers. Other findings include relatively stronger impacts for tightening than loosening actions and negative effects on economic activity in the near term.
    Keywords: Macroprudential policy;Macroprudential policy instruments;Credit;Consumer credit;Housing prices;WP,standard error
    Date: 2020–05–22
  117. 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
  118. By: Felipe Benguria (University of Kentucky)
    Abstract: This paper studies the gender disparities among top incomes in Brazil during the period 1994-2013 using administrative data on the universe of formal-sector job spells and detailed information on educational attainment, employers, and occupations performed. Over these two decades, differences in pay and participation between genders have narrowed, yet the process has been slow and women are still severely underrepresented, especially within the very top percentiles of the earnings distribution. The following findings highlight the role of firms and occupations in explaining these patterns. At the start of the period, women in the top percentile of the distribution owe a larger fraction of their earnings to working at high-paying firms than do men, while men’s top incomes are in excess of their firms’ average pay. In addition, belonging to the top percentile is initially much more persistent for men than for women. Both of these differences have vanished over time. I also document that the increase in the share in participation of women in top percentiles is primarily a within-firm and within-occupation phenomenon, which suggests that the evolution of cultural and institutional elements deserves further examination. Finally, I study the careers of female and male top earners, finding that the path to the top percentiles of the distribution is quite different across genders: Top-earning women work in larger firms from the start of their careers. Top-earning men earn large earnings premia above what their firm average pays throughout their career, and after their mid-30s switch employers at a higher frequency than women.
    Keywords: Top earners, Glass ceiling, Gender wage gap
    JEL: E24 G10 J31
    Date: 2020–12
  119. By: Aditya Aladangady; Daniel I. Garcia
    Abstract: In most recessions, household spending on goods—particularly durables—and housing tends to fall sharply and remain weak for many quarters. In contrast, services spending has generally responded little to business cycles. This time, however, the opposite has occurred, as shown in Figure 1.
    Date: 2021–01–14
  120. By: Verikios, George
    Abstract: Pandemic influenza is a regularly recurring form of infectious disease; this work analyses its economic effects. Like many other infectious diseases influenza pandemics are usually of short, sharp duration. Human coronavirus is a less regularly recurring infectious disease. The human coronavirus pandemic of 2019 (COVID-19) has pre-sented with seemingly high transmissibility and led to extraordinary socioeconomic disruption due to severe preventative measures by governments. To understand and compare these events, epidemiological and economic models are linked to capture the transmission of a pandemic from regional populations to regional economies and then across regional economies. In contrast to past pandemics, COVID-19 is likely to be of longer duration and more severe in its economic effects given the greater uncertainty surrounding its nature. The analysis in-dicates how economies are likely to be affected due to the risk-modifying behaviour in the form of preventative measures taken in response to the latest novel pandemic virus.
    Keywords: Computable general equilibrium; Human coronavirus; COVID-19; Infectious diseases; Pandemic influenza; Periodicity; Trade linkages
    JEL: C68 E32 F15 I18
    Date: 2020–06
  121. By: International Monetary Fund
    Abstract: This paper presents Fiscal Transparency Evaluation (FTE) for Armenia. This report provides 10 recommendations aimed at further enhancing fiscal transparency in the areas prioritized. Fiscal forecasts and budgets have become more forward looking and policy oriented, with the introduction of a medium-term expenditure framework (MTEF), improved fiscal objectives, and a performance budgeting system. The report presents the assessment of fiscal transparency practices against the IMF’s Fiscal Transparency Code (FTC). Armenia’s fiscal transparency practices have strengths and weaknesses in all areas of FTC: fiscal reporting, fiscal forecasting and budgeting, and fiscal risk disclosure and management. The fiscal transparency evaluation also estimates Armenia’s public sector financial position, in order to provide a more comprehensive view of public finances. Expanding the institutional coverage of Armenia’s fiscal reports to the entire public sector would increase the deficit by 1.3 percent of gross domestic product and would have a material impact on revenue and expenditure.
    Keywords: Budget planning and preparation;Fiscal risks;Budget execution and treasury management;Expenditure;Medium-term budget frameworks;ISCR,CR,annual budget,budget documentation,central government,balance sheet,fiscal policy,real GDP
    Date: 2019–05–15
  122. By: Corinne Deléchat; Lama Kiyasseh; Margaux MacDonald; Rui Xu
    Abstract: This study analyzes the drivers of the use of formal vs. informal financial services in emerging and developing countries using the 2017 Global FINDEX data. In particular, we investigate whether individuals’ choice of financial services correlates with macro-financial and macro-structural policies and conditions, in addition to individual and country characteristics. We start our analysis on middle and low-income countries, and then zoom in on sub-Saharan Africa, currently the region that most relies on informal financial services, and which has the largest uptake of mobile banking. We find robust evidence of an association between macroprudential policies and individuals’ choice of financial access after controlling for personal and country-level characteristics. In particular, macroprudential policies aimed at controlling credit supply seem to be associated with greater resort to informal financial services compared with formal, bank-based access. This highlights the importance for central bankers and financial sector regulators to consider the potential spillovers of monetary policy and financial stability measures on financial inclusion.
    Keywords: Financial services;Financial inclusion;Mobile banking;Macroprudential policy;Macroprudential policy instruments;WP,informal financial service
    Date: 2020–05–29
  123. By: Ken Miyajima
    Abstract: Does the South African rand’s relatively large volatility affect inflation? To shed some light on this question, a standard estimation technique of exchange rate pass-through to inflation is extended to incorporate exchange rate volatility. Estimated results suggest that higher exchange rate volatility tends to increase core inflation but to a relatively limited extent in South Africa. The finding lends support to the policy of allowing the rand to float freely and work as a shock absorber, consistent with the nation’s successful inflation targeting regime.
    Keywords: Inflation;Exchange rates;Exchange rate pass-through;Depreciation;Output gap;WP,core inflation,exchange rate volatility,price
    Date: 2019–12–13
  124. By: Olumuyiwa S Adedeji; Yacoub Alatrash; Divya Kirti
    Abstract: Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.
    Keywords: Banking;Central bank policy rate;Deposit rates;Commercial banks;WP,bank,rate,liability,liability rate
    Date: 2019–12–06
  125. By: Oz Shy
    Abstract: Using machine learning techniques applied to consumer diary survey data, the author of this working paper examines methods for studying consumer payment choice. These techniques, especially when paired with regression analyses, provide useful information for understanding and predicting the payment choices consumers make.
    Keywords: studying consumer payment choice; point of sale; statistical learning; machine learning
    JEL: C19 E42
    Date: 2020–06–23
  126. By: Daniel Heymann (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET); Gabriel Montes Rojas (Instituto Interdisciplinario de Economía Política de Buenos Aires - UBA - CONICET)
    Abstract: The practice of ascribing to agents expectations compat- ible with the model currently proposed by the analyst has been a widespread feature in Macroeconomics. However, that is a problematic assumption when used to depict anticipations constructed in the past since it would imply attributing to agents the use of a model that the economist had not yet built, and possibly not yet thought about. Thus, model-consistency is an ambiguous notion. In this paper we present a preliminary exploration of the application of the alternative forms of model-consistency in a very standard setup, using two re-lated analytical constructs of different generations for U.S. data for the period 1959-2015.
    Keywords: Model-consistency, Rational expectations, Forecasts, Non-linear testing, Wald tests
    JEL: C12 C52 E47
  127. By: Iván Kataryniuk (Banco de España); Víctor Mora-Bajén (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: Sovereign spreads within the European Monetary Union (EMU) arise because markets price-in heterogeneous country fundamentals, but also re-denomination risks, given the incomplete nature of EMU. This creates a permanent risk of financial fragmentation within the area. In this paper we claim that political decisions that signal commitment to safeguarding the adequate functioning of the euro area influence investors’ valuations. We focus on decisions conducive to enhancing the institutional framework of the euro area (“EMU deepening”). To test our hypothesis we build a comprehensive narrative of events (decisions) from all documents and press releases issued by the Council of the EU and the European Council during the period January 2010 to March 2020. We categorize the events as dealing with: (i) economic and financial integration; (ii) fiscal policy; (iii) bailouts. With our extremely rich narrative at hand, we conduct event-study regressions with daily data to assess the impact of events on sovereign bond yields and find that indeed decisions on financial integration drive down periphery spreads. Moreover, while decisions on key subjects present a robust effect, this is not the case with prior discussions on those subjects at the Council level. Finally, we show that the impacts arise from reductions in peripheral sovereign spreads, and not by the opposite movement in core countries. We conclude that EU policy-makers have at their disposal signicant “political space” to reduce fragmentation and gain “policy space”.
    Keywords: Euro area, EU integration, sovereign spreads, financial fragmentation
    JEL: E44 F36 G14
    Date: 2021–01
  128. By: International Monetary Fund
    Abstract: This Fiscal Transparency Evaluation report highlights that Uzbekistan is embarking on a comprehensive reform program to strengthen public financial management and fiscal transparency. Wide-ranging reforms to improve the coverage, reliability, quality, and accessibility of fiscal reports are being developed and implemented, and some good progress already made. This assessment of fiscal transparency practices has been undertaken to support the government’s efforts to increase transparency by identifying priority areas for reform. An evaluation of practices against the IMF’s Fiscal Transparency Code (the Code) finds that tangible gains have been made over 2017 and 2018. In several areas where Uzbekistan’s practices do not currently meet the basic standard required under the Code, quick progress can be made. The report also provides a more detailed evaluation of Uzbekistan’s fiscal transparency practices and recommended reform priorities. Strengthening legislative oversight of the state budget with a view to reducing the extent to which in-year changes can be made to aggregate expenditures without prior parliamentary approval.
    Keywords: Budget planning and preparation;Expenditure;Fiscal risks;Budget execution and treasury management;Fiscal reporting;ISCR,CR,execution report,State budget,balance sheet,annual budget,budget balance,central government
    Date: 2019–05–01
  129. By: Kajal Lahiri; Huaming Peng; Xuguang Sheng
    Abstract: We have argued that from the standpoint of a policy maker who has access to a number of expert forecasts, the uncertainty of a combined forecast should be interpreted as that of a typical forecaster randomly drawn from the pool. With a standard factor decomposition of a panel of forecasts, we show that the uncertainty of a typical forecaster can be expressed as the disagreement among the forecasters plus the volatility of the common shock. Using new statistics to test for the homogeneity of idiosyncratic errors under the joint limits with both T and n approaching infinity simultaneously, we find that some previously used measures significantly underestimate the conceptually correct benchmark forecast uncertainty.
    Keywords: disagreement, forecast combination, panel data, uncertainty
    JEL: C12 C33 E37
    Date: 2020
  130. By: International Monetary Fund
    Abstract: This first review under the Stand-By Arrangement (SBA) highlights that the economy has expanded for the past 15 quarters, unemployment is at historic lows, international reserve coverage is consistently high, inflation is subdued—albeit below the Bank of Jamaica (BOJ) target 4–6 percent range, the stock market was the globe’s best performer in 2018, and Fitch recently upgraded Jamaica’s credit rating. A slow pick-up in private investment, however, is still pointing to the need to reinvigorate the effort to remove supply-side impediments to growth and job creation. It has been observed that sustained reduction in the public wage bill will require a fundamental transformation of the compensation framework and the public sector. Moreover, the BOJ’s recent advances in communication should continue to stress the central bank’s commitment to its inflation mandate. The discussions described that an escalation in crime could further curtail private investment and growth. Weaker world growth and tighter global financial conditions represent important downside risks.
    Keywords: Public debt;Public sector;PFM legal and regulatory frameworks;Expenditure;Public investment and public-private partnerships (PPP);ISCR,CR,Jamaica,exchange rate,FX market,increase economic activity
    Date: 2019–04–23
  131. By: International Monetary Fund
    Abstract: France is among the countries most affected by the global pandemic, both in terms of health and economic impact. Output is expected to have declined by around 9 percent in 2020. The authorities put in place a large emergency fiscal package to address the crisis, focused on preserving jobs and providing liquidity for households and firms, supplemented by additional stimulus measures to support the economic recovery in 2021 and beyond. The banking sector entered the crisis with comfortable buffers and, together with the support of the ECB’s accommodative monetary policy, facilitated the provision of credit to the economy. The increased leverage, however, poses solvency risks to the corporate sector. A partial recovery with GDP growth at about 5½ percent is expected in 2021. Risks to the outlook are large, dominated by the virus dynamics and, together with other risks, tilted somewhat to the downside.
    Date: 2021–01–19
  132. By: Kirchhoff, Jasmina; Schumacher, Simon
    Abstract: Das Jahr 2020 war maßgeblich von der globalen Ausbreitung des neuartigen Virus Sars-CoV-2 geprägt, und hat die Welt vor große politische und wirtschaftliche Herausforderungen gestellt. Viele Industriebranchen wurden durch die ergriffenen Maßnahmen zur Eindämmung des Infektionsgeschehens im Produktionsprozess und im internationalen Handel schwer getroffen. Wie schon in vorherigen konjunkturellen Krisen zeigt sich die deutsche Pharmaindustrie anders als andere industrielle Branche in allen Konjunkturindikatoren stabil. Die punktuelle Belebung der Nachfrage nach pharmazeutischen Erzeugnissen aus dem Euroraum und auf dem Binnenmarkt war treibender Impuls dieser positiven Entwicklung. Zudem orientiert sich die Nachfrage nach Arzneimitteln weniger am konjunkturellen Auf und Ab, sondern vor allem am medizinischen Bedarf. Darüber hinaus sind gesundheitswirtschaftliche Fragestellungen in diesem Jahr zunehmend in den Fokus politischer und gesellschaftlicher Diskussionen gerückt. Die deutschen Biotechnologie- und Pharmaunternehmen haben sich im Verlauf der Pandemie als wichtige Säule der globalen pharmazeutischen Forschung und Produktion erwiesen. Insgesamt blickt die Branche am Standort trotz typischer saisonaler und der zusätzlichen pandemiebedingten Schwankungen auf ein stabiles Jahr 2020 zurück. Die seitwärtige Bewegung der betrachteten relevanten Konjunkturindikatoren ist unter Berücksichtigung der Entwicklung des Verarbeitenden Gewerbes in der Summe positiv zu bewerten. Im kommenden Jahr ist eine insgesamt stabile bis moderat positive Entwicklung der Pharmaindustrie am Standort Deutschland zu erwarten.
    JEL: E32 L65
    Date: 2021
  133. By: Rumen Kostadinov; Francisco Roldán
    Abstract: We study the optimal design of a disinflation plan by a planner who lacks commitment. Having announced a plan, the Central banker faces a tradeoff between surprise inflation and building reputation, defined as the private sector's belief that the Central bank is committed to the plan. Some plans are harder to sustain: the planner recognizes that paving out future grounds with temptation leads the way for a negative drift of reputation in equilibrium. Plans that successfully create low inflationary expectations balance promises of lower inflation with dynamic incentives that make them more credible. When announcing the disinflation plan, the planner takes into account these anticipated interactions. We find that, even in the zero reputation limit, a gradual disinflation is preferred despite the absence of inflation inertia in the private economy.
    Keywords: Inflation;Inflation targeting;Tax incentives;Disinflation;WP,Phillips curve
    Date: 2020–06–05
  134. By: Bańkowski, Krzysztof; Ferdinandusse, Marien; Hauptmeier, Sebastian; Jacquinot, Pascal; Valenta, Vilém
    Abstract: In response to the economic fallout from the coronavirus (COVID-19) pandemic, the European Council agreed on the Next Generation EU (NGEU) instrument. NGEU allows the European Commission to issue debt to finance grants and loans to EU Member States, with the disbursement of funds intended to be weighted towards the countries most affected by the crisis. This paper assesses the macroeconomic impact on the euro area of different uses of NGEU, using a large dynamic stochastic general equilibrium (DSGE) model of the euro area and global economy (EAGLE) that has been adapted to reflect the modalities of the NGEU instrument. Three uses of NGEU loans and grants are explored: (i) productive public investment, (ii) unproductive government spending, and (iii) replacing or repaying existing sovereign debt. The EAGLE results are cross-checked with a semi-structural model (ECB-BASE) and with the basic model elasticities (BMEs) of the forecasting models in use in the national central banks of the Eurosystem. JEL Classification: C54, E62, E65, F54, F47
    Keywords: COVID-19, EMU, euro area, NextGenerationEU, public investment
    Date: 2021–01
  135. By: Balazs Csonto; Yuxuan Huang; Camilo E Tovar Mora
    Abstract: This paper examines the extent to which digitalization—measured by a new proxy based on IP addresses allocations per country—has influenced inflation dynamics in a sample of 36 advanced and emerging economies over 2000-2017. Phillips curve estimates show that digitalization has a statistically significant negative effect on inflation in the short run. Its economic impact is not large but has increased since 2012 and mainly operates through a cost/competition channel. Principal components and cointegration analysis further suggest digitalization is a key driver of lower trend inflation.
    Keywords: Inflation;Digitalization;Global value chains;Digital economy;Output gap;WP,Phillips curve
    Date: 2019–12–06
  136. By: Mohamed Belkhir; Sami Ben Naceur; Bertrand Candelon; Jean-Charles Wijnandts
    Abstract: Using a sample that covers more than 100 countries over the 2000-2017 period, we assess the impact of macroprudential policies on financial stability. In particular, we examine whether the activation of macroprudential policies is conducive to a lower incidence of systemic banking crises. Our empirical setup is designed to account for the potential direct and indirect effects that macroprudential policies can have on banking crises. We find that while macro-prudential policies exert a direct stabilizing effect, they also have an indirect destabilizing effect, which works through the depressing of economic growth. A Generalized Impulse Response Function analysis of a dynamic system composed of the probability of a banking crisis and economic growth reveals, however, that macroprudential policies have a positive net effect on financial stability (lower likelihood of systemic banking crises).
    Keywords: Macroprudential policy;Systemic crises;Banking crises;Emerging and frontier financial markets;Financial crises;WP,policy,policy tightening
    Date: 2020–05–22
  137. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation discusses that Luxembourg’s growth prospects remain favorable, but downside risks arise from a weaker-than-expected global growth, a disorderly Brexit, changes in international tax rules, and a sharp tightening of global financial conditions. Domestically, rising real estate prices could exacerbate already elevated household indebtedness and increase affordability challenges. Fiscal policy should aim to maintain a strong fiscal position and preserve buffers. The government’s plans, while appropriate, will result in a slightly expansionary budget in 2019. The cost and timeline of the planned measures over the medium term remain to be determined. Given risks ahead, including from potential changes in international taxation, Luxembourg should build on its strong fiscal record and preserve sizeable buffers. Structural policies should focus on addressing key gaps in the economy. Further reforms of the pension system are needed to ensure its sustainability, while considering intergenerational equity and trade-offs of various reform options.
    Keywords: Mutual funds;Revenue administration;Pension spending;Banking;Corporate income tax;ISCR,CR,government,Luxemburg,IMF staff estimate,Q4
    Date: 2019–05–10
  138. By: World Bank
    Keywords: Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Private Sector Development - Enterprise Development & Reform Social Protections and Labor - Labor Markets Social Protections and Labor - Skills Development and Labor Force Training
    Date: 2019–03
  139. By: International Monetary Fund
    Abstract: This Technical Assistance Report discusses details of the mission conducted to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving government finance statistics (GFS) for decision making. The mission rounded off research to establish appropriate reconciliation procedures, although some statistical discrepancies remain. The goal is to use the compilation and reconciliation procedures for quarterly and annual GFS reporting to Eurostat and the IMF’s Statistics Department. The May 2018 mission initiated the development of a standardized compilation procedure for nonbudgetary public sector units, and more specifically extrabudgetary units. The report recommends focussing on investigating possibilities into incorporating these compilation files into the wider GFS and macroeconomic statistics compilation. On analysis of the financial statements, the mission assessed that Accrued revenues and received donations also require and adjustment to following the European System of National and Regional Accounts 2010 and Government Finance Statistics Manua 2014 recording.
    Keywords: Financial statements;Government finance statistics;Public expenditure review;Chart of accounts;Public sector;ISCR,CR,GFSM,financial statement,process,balance sheet
    Date: 2019–04–17
  140. By: Mikael Juselius; Nikola Tarashev
    Abstract: Extending a standard credit-risk model illustrates that a single factor can drive both expected losses and the extent to which they may be exceeded in extreme scenarios, ie "unexpected losses". This leads us to develop a framework for forecasting these losses jointly. In an application to quarterly US data on loan charge-offs from 1985 to 2019, we find that financial-cycle indicators – notably, the debt service ratio and credit-to-GDP gap – deliver reliable real-time forecasts, signalling turning points up to three years in advance. Provisions and capital that reflect such forecasts would help reduce the procyclicality of banks' loss-absorbing resources.
    Keywords: loss rate forecasts, cyclical turning points, expected loss provisioning, bank capital
    JEL: G17 G21 G28
    Date: 2020–12
  141. By: Johannes Geyer; Ralf Himmelreicher
    Abstract: Wir untersuchen erstmals anhand von repräsentativen Daten für die Privatwirtschaft (Verdienststrukturerhebung 2014) Anteile und Höhe von umgewandelten Entgelten nach verschiedenen individuellen und betrieblichen Merkmalen der Beschäftigten in Deutschland. Deskriptive wie multivariate Regressionsanalysen weisen sowohl auf eine selektive Teilnahmebereitschaft zur Umwandlung als auch auf eine mit steigendem Einkommen erhöhte Bereitschaft höhere Entgelte umzuwandeln hin. Große Unterschiede bestehen zwischen Frauen und Männern, zwischen Ost-und Westdeutschland sowie zwischen verschiedenen Branchen. Im Mindestlohn-und Niedriglohnbereich ist Entgeltumwandlung kaum verbreitet, und falls doch, dominieren monatliche Beiträge in Höhe von rund 50 Euro. Vor allem bei Minijobbern kommt Entgeltumwandlung beinahe nicht vor. Und umgekehrt ist der Anteil der Arbeitnehmerinnen und Arbeitnehmer am oberen Ende der Einkommensverteilung, die Anteile ihres Arbeitsentgeltes umwandeln, besonders hoch; ihre umgewandelten Beiträge steigen sogar exponentiell. Gerade für gering qualifizierte Beschäftigte im Mindest-und Niedriglohnbereich in typischen Niedriglohnbranchen wird das sinkende Rentenniveau eher selten durch ergänzende Entgeltumwandlung kompensiert. Insbesondere in Ostdeutschland, wo im Vergleich zu Westdeutschland kleinere Betriebe ohne Tarifbindung und mit niedrigeren Arbeitsentgelten häufiger vorkommen, wird Entgeltumwandlung kaum praktiziert, weshalb Defizite in der betrieblichen Altersvorsorge und somit insgesamt niedrigere Alterseinkünfte in Zukunft zu erwarten sind.
    Keywords: Betriebliche Altersvorsorge, Entgeltumwandlung, Einkommensverteilung
    JEL: D14 D31 E27
    Date: 2021
  142. By: International Monetary Fund
    Abstract: This Technical Note on Macroprudential Policy Framework for the Republic of Poland highlights that the present macroprudential policy framework provides a sound basis for macroprudential oversight of the financial system and was established by law in November 2015. Its relatively recent establishment implies that practical experience with the conduct of macroprudential policy under the framework is still limited. Initial experience is favorable, however, it remains to be seen how the framework will function under more challenging circumstances. The Financial Stability Committee—Macroprudential (FSC-M) has recommended a variety of measures to provide incentives for voluntary restructuring of foreign exchange housing loans extended by Polish banks. It is recommended that the FSC-M further strengthens its communication in order to increase transparency and accountability, considers a more active use of targeted statements as a policy instrument, and increases the involvement of external experts in the preparation of its meetings.
    Keywords: Systemic risk;Systemic risk assessment;Macroprudential policy;Financial sector stability;Financial stability assessment;ISCR,CR,Fsc-m chairman,preeminent role,Fsc-m meeting,Fsc-m's recommendation,Fsc-m member,Fsc-m's discussion,Fsc-m's reputation,members of the Fsc-m
    Date: 2019–05–09
  143. By: Aursland, Thor Andreas (SSB); Steen, Frode (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We use rich data from Norway’s biggest grocery chain to show how households and grocery stores react to changing economic conditions. We exploit the regional nature of a recession following the drop in the oil price in 2014 and find that when the local unemployment rate increases, households shift toward cheaper stores, and toward bulk and private label products. Households also buy more on sale and the average store level prices decreases. We then derive a novel decomposition of the changes in the prices households pay for products a in large number of product categories. The decomposition allows us to measure the relative importance of the different sources of price cyclicality. We find that a significant part of the cyclicality is explained by grocery stores responding to economic downturns by lowering their prices. Still, changes in household behavior are the main driver of price cyclicality, primarily through increased willingness to take advantage of sales.
    Keywords: cyclical; prices
    JEL: D00
    Date: 2021–01–26
  144. By: Kedan, Danielle; Veghazy, Alexia Ventula
    Abstract: We analyse the impact of the Liquidity Coverage Ratio (LCR) on the demand for central bank reserves in the euro area with difference-in-differences estimation techniques. Using a novel dataset and an identification strategy that exploits the cross-country heterogeneity in the regulatory treatment of reserves for LCR purposes prior to the announcement of a harmonised euro area standard as a quasi-natural experiment, we find evidence that points to LCR-induced demand for reserves. Specifically, our results suggest that banks with low LCRs relative to peers increased their central bank reserve holdings as a result of the LCR regulation. Our findings have economically meaningful implications for the operational framework of monetary policy and imply that the Eurosystem’s balance sheet may need to remain larger than it was prior to the financial crisis and the associated introduction of new liquidity regulation. JEL Classification: C23, E52, G28
    Keywords: Basel III, central bank operational framework, ECB, liquidity coverage ratio, monetary policy
    Date: 2021–01

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