nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒02‒08
145 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Mean Squared Prediction Error Paradox: A summary By Pincheira, Pablo; Hardy, Nicolas
  2. Inflation heterogeneity and its impact on inequality: evidence from the United States By Tavares, Francisco
  3. The Supply-Side Effects of Monetary Policy By David Baqaee; Emmanuel Farhi; Kunal Sangani
  4. Estimating a New Keynesian Wage Phillips Curve By Vincent Dadam; Nicola Viegi
  5. Dollarization and Foreign Exchange Reserve : Debate on the Effectiveness of Monetary Policy in DR. Congo By PINSHI, Christian P.
  6. Central bank credibility, long-term yields and the effects of monetary integration By Marcin Kolasa; Dominik Supera
  7. Leaning against the bubble. Can theoretical models match the empirical evidence? By Ciccarone, Giuseppe; Giuli, Francesco; Marchetti, Enrico; Tancioni, Massimiliano
  8. Are large national debt and ultra-low inflation harmful? —— S-shape Phillips curve: the inflation-unemployment relationship of a low profit rate model By Yang, Jinrui
  9. Nominal Contracts and the Payment System By Hajime Tomura
  10. Liquidity Premium, Credit Costs, and Optimal Monetary Policy By Lee, Sukjoon
  11. The banking sector and national economy By Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
  12. A New Keynesian Phillips Curve With Staggered Contracts and Indexation By Musy, Olivier
  13. Tracking Economic Activity With Alternative High-Frequency Data By Florian Eckert; Philipp Kronenberg; Heiner Mikosch; Stefan Neuwirth
  14. Complex Systems Modeling of Community Inclusion Currencies By Andrew Clark; Alexander Mihailov; Michael Zargham
  15. Common Shocks in Stocks and Bonds By Anna Cieslak; Hao Pang
  16. Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies By Syarifuddin, Ferry
  17. Pandemics and Aggregate Demand: a Framework for Policy Analysis By Peter Flaschel; Giorgos Galanis; Daniele Tavani; Roberto Veneziani
  18. Central Bank of Congo : Four Factors Affecting Monetary Policy Effectiveness By PINSHI, Christian P.
  19. Pandemic recession, helicopter money and central banking: Venice, 1630 By Goodhart, C. A. E.; Masciandaro, Donato; Ugolini, Stefano
  20. The "Matthew Effect" and Market Concentration: Search Complementarities and Monopsony Power By Jesús Fernández-Villaverde; Federico S. Mandelman; Yang Yu; Francesco Zanetti
  21. Risk Aversion and Fiscal Consolidation Programs By Grancini, Stefano
  22. Multilateral Divisia monetary aggregates for the Euro Area By Barnett, William; Gaekwad, Neepa
  23. Monetary Policy and Racial Inequality By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
  24. The Stock Market, Labor-Income Risk and Unemployment in the US: Empirical Findings and Policy Implications By Kaan Celebi; Paul J.J. Welfens
  25. Liberia; First and Second Reviews Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Liberia By International Monetary Fund
  26. BUSINESS CYCLE SYNCHRONISATION IN THE ECOWAS REGION By Ngozi E. Egbuna; Maimuna John-Sowe; Santigie M. Kargbo (PhD); Sani Bawa (PhD); Ibrahima Diallo; Isatou Mendy
  27. Paving the Way for an Economic Crisis with High Leverage and Currency Mismatches: 2018-19 Crisis in Turkey By Ozatay, Fatih
  28. Uncertainty and monetary policy in good and bad times: A replication of the VAR investigation by Bloom (2009) By Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari
  29. Bankruptcy Codes and Risk Sharing of Currency Unions By Xuan Wang
  30. Intra-Industry Trade, Involuntary Unemployment and Macroeconomic Stability By Le Riche, Antoine; Lloyd-Braga, Teresa; Modesto, Leonor
  31. House Prices, Collateral Effects and Sectoral Output Dynamics in Emerging Market Economies By Berrak Bahadir; Inci Gumus
  32. Managing Stablecoins: Optimal Strategies, Regulation, and Transaction Data as Productive Capital By Li, Ye; Mayer, Simon
  33. Labor Dynamics and Actual Telework Use during Covid-19: Skills, Occupations and Industries By Jean-Benoit Eyméoud; Nicolas Petrosky-Nadeau; Raül Santaeulàlia-Llopis; Etienne Wasmer
  34. Summary of the Paper Entitled: Forecasting Fuel Prices with the Chilean Exchange Rate By Pincheira, Pablo; Jarsun, Nabil
  35. The Long-Term Effects of Labor Market Entry in a Recession: Evidence from the Asian Financial Crisis By Eleanor Jawon Choi; Jaewoo Choi; Hyelim Son
  36. Prudential guidelines and financial system stability in Nigeria. By Uddin, Godwin
  37. Eggs in One Basket: Security and Convenience of Digital Currencies By Charles M. Kahn; Francisco Rivadeneyra; Tsz-Nga Wong
  38. EQCHANGE annual assessment 2020 By Carl Grekou
  39. Class-crossing wealth circulation, profit rate and monetary remedy — an ideological experiment about capitalism system By Yang, Jinrui
  40. The Intertemporal Cost of Living and Dynamic Inflation: The Case of the Czech Republic By Ivan Sutoris
  41. The Crowding Out and Crowding In Effects of the Government Fiscal Policy on the Real Estate Investment and Public Prosperity in Iran By Jariani, Farzaneh
  42. Impact of Commodity Price Volatility on External Debt: The Role of Exchange Rate Regimes By Majumderad, Monoj Kumar; Raghavan, Mala; Vespignani, Joaquin L.
  43. Papua New Guinea; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea By International Monetary Fund
  44. Forecasting unemployment rate in the time of COVID-19 pandemic using Google trends data (case of Indonesia) By Fajar, Muhammad; Prasetyo, Octavia Rizky; Nonalisa, Septiarida; Wahyudi, Wahyudi
  45. Monetary Policy, Firm Heterogeneity, and Product Variety By Masashige Hamano; Francesco Zanetti
  46. Achieving the Bank of Japan’s Inflation Target By Gee Hee Hong; Rahul Anand; Yaroslav Hul
  47. Uncertainty and Monetary Policy During Extreme Events By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  48. Honduras; Staff Report for the 2019 Article IV Consultation and Request for a Stand-By Arrangement and an Arrangement Under the Standby Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Honduras By International Monetary Fund
  49. Labor leverage, coordination failures, and aggregate risk By Bouvard, Matthieu; de Motta, Adolfo
  50. Multilateral Divisia Monetary Aggregates for the Euro Area By William Barnett; Neepa Gaekwad
  51. On the typicality of the representative agent By Teglio, Andrea
  52. Child Care over the Business Cycle By Brown, Jessica H.; Herbst, Chris M.
  53. Islamic Republic of Mauritania; Second Review Under the Extended Credit Facility Arrangement, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Islamic Republic of Mauritania By International Monetary Fund
  54. Inflation, interest rate and economic growth nexuses in SACU countries By Taderera, Christie; Runganga, Raynold; Mhaka, Simbarashe; Mishi, Syden
  55. Central African Economic and Monetary Community (CEMAC); Staff Report on the Common Policies of Member Countries, and Common Policies in Support of Member Countries Reform Programs-Press Release; Staff Report; and Statement by the Executive Director for the Central African Economic and Monetary Community By International Monetary Fund
  56. Fiscal Sustainability and Low Interest Rates: A Note By Martin Werding
  57. Angola; Fourth Review Under the Extended Arrangement Under the Extended Fund Facility and Requests for Modifications of Performance Criteria and Waivers for Performance Criteria Applicability and Nonobservance-Press Release; Staff Report; and Statement by the Executive Director for Angola By International Monetary Fund
  58. Marching to Good Laws: The Impact of War, Politics, and International Credit on Reforms in Ukraine By Artem Kochnev
  59. Liquidity Ratios as Monetary Policy Tools: Some Historical Lessons for Macroprudential Policy By Eric Monnet; Miklos Vari
  60. On the Use of Current or Forward-Looking Data in Monetary Policy: A Behavioural Macroeconomic Approach By Paul De Grauwe; Yuemei Ji
  61. COVID-19 Is a Persistent Reallocation Shock By Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent Meyer
  62. Are bigger banks better? Firm-level evidence from Germany By Kilian Huber
  63. Politically motivated intergovernmental transfers in Russia : The case of the 2018 FIFA World Cup By Paustyan, Ekaterina
  64. The Distortionary Effects of Central Bank Direct Lending on Firm Quality Dynamics By Li, Wenhao; Li, Ye
  65. Togo; Third Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Togo By International Monetary Fund
  66. Cote d'Ivoire; Fourth Reviews Under the Arrangement Under the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; Debt Sustainability Analysis; Supplementary Information; and Statement by the Executive Director for Côte d’Ivoire By International Monetary Fund
  67. A Model of Bank-Note Runs By Hajime Tomura
  68. Indice agrégé de stabilité financière au Maroc By DEHMEJ , Salim; MIKOU, Mohammed
  69. Selection into entrepreneurship and self-employment By Ross Levine; Yona Rubinstein
  70. Central Bank Digital Currency: When Price and Bank Stability Collide By Linda Schilling; Jesús Fernández-Villaverde; Harald Uhlig
  71. Moving Away from Foreign Aid: A Case Study of Afghanistan By Karimi, Abdul Matin
  72. Senegal; Second Review Under the Policy Coordination Instrument and Request for Modification of Quantitative Targets-Press Release; and Staff Report By International Monetary Fund
  73. Globalization and Global Crises: Rest of the World vs. Israel By Assaf Razin
  74. Size of Expenditure Multipliers for Indian States: Does the Level of Income and Public Debt Matter? By Raut, Dirghau; Raju, Swati
  75. COVID and the Economic Importance of In-Person K-12 Schooling By David A. Green; Ali Karimirad; Gaëlle Simard-Duplain; Henry E. Siu
  76. Mali; Tenth Review under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  77. Wage Growth over Unemployment Spells By Lei Fang; Pedro Silos
  78. Benin; Third Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  79. People’s Republic of China; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the People's Republic of China By International Monetary Fund
  80. Rwanda; Third Review Under the Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director and Staff Representative for Rwanda By International Monetary Fund
  81. Marital Sorting and Cross-Country Differences in Intergenerational Earnings Persistence By Vera Tolstova
  82. A Safe Harbor: Wealth-Income Ratios in Switzerland over the 20th Century and the Role of Housing Prices By Enea Baselgia; Isabel Z. Martínez
  83. Jordan; First Review Under the Extended Fund Facility Arrangement and Request for a Waiver of Nonobservance and Modifications of Performance Criteria, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Jordan By International Monetary Fund
  84. The Federal Democratic Republic of Ethiopia; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia By International Monetary Fund
  85. Comparison of ARIMA, SSA, and ARIMA – SSA hybrid model performance in Indonesian economic growth forecasting By Fajar, Muhammad; Hartini, Sri
  86. Voting on Education and Redistribution Policies in the U.S: Does Endogenous Fertility Matter? By Vera Tolstova
  87. The Gambia; First Review Under the Extended Credit Facility Arrangement, Financing Assurances Review, and Request for Augmentation of Access and a Waiver of Nonobservance of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for The Gambia By International Monetary Fund
  88. "The Economic Problem: From Barter to Commodity Money to Electronic Money" By Jan Kregel
  89. A Possible Approach to Fiscal Rules in Small Islands — Incorporating Natural Disasters and Climate Change By Ryota Nakatani
  90. How to Attract Physicians to Underserved Areas? Policy Recommendations from a Structural Model By Francisco Costa; Letícia Nunes; Fábio Sanches
  91. Has the Stock Market Become Less Representative of the Economy? By Schlingemann, Frederik P.; Stulz, Rene M.
  92. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  93. COVID-19 Misperception and Macroeconomy By Masashige Hamano; Munechika Katayama; So Kubota
  94. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By Òscar Jordà; Martin Kornejew; Moritz Schularick; Alan M. Taylor
  95. Macrofinancial Linkages and Growth at Risk in the Dominican Republic By Olga Bespalova; Marina V Rousset
  96. COVID-19 and the Cross-Section of Equity Returns: Impact and Transmission By Lorenzo Bretscher; Alex Hsu; Peter Simasek; Andrea Tamoni
  97. Are Domestic Investments in Spain a Source of Economic Growth? By Bakari, Sayef
  98. Germany; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany By International Monetary Fund
  99. The Fed's Discount Window in "Normal" Times By Huberto M. Ennis; Elizabeth C. Klee
  100. Benin; Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  101. Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle By Eric Monnet; Damien Puy
  102. Automation Technology, Economic Growth, and Income Distribution in an Economy with Dynasties and Overlapping Generations By Sasaki, Hiroaki
  103. How Informative Are Real Time Output Gap Estimates in Europe? By Alvar Kangur; Koralai Kirabaeva; Jean-Marc Natal; Simon Voigts
  104. Economic uncertainty, macroprudential policies and bank risk: Evidence from emerging Asian economies By Jeon, Bang; Yao, Yao; Chen, Minghua; Wu, Ji
  105. Quality and Price Setting of High-Tech Goods By Gorodnichenko, Yuriy; Talavera, Oleksandr; Vu, Nam
  106. A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff By Enrique G. Mendoza; Eugenio I. Rojas; Linda L. Tesar; Jing Zhang
  107. How to Improve Inflation Forecasting in Canada By Troy D Matheson
  108. The Effect of Legislated Tax Changes on the Trade Balance: Empirical Evidence for the United States, Germany, and the United Kingdom By Bernd Hayo; Sascha Mierzwa
  109. Review of Work-Life Balance Theories By Zainab Bello
  110. Hit Harder, Recover Slower? Unequal Employment Effects of the Covid-19 Shock By Sang Yoon (Tim) Lee; Minsung Park; Yongseok Shin
  111. Entry Costs and the Macroeconomy By Germán Gutiérrez; Callum Jones; Thomas Philippon
  112. Search and Multiple Jobholding By Etienne Lalé
  113. The Education Sector and Economic Growth: A First Study of the Uzawa Model By Kazuyuki Sasakura
  114. Macroeconomic Effects of Reforms on Three Diverse Oil Exporters: Russia, Saudi Arabia, and the UK By Samya Beidas-Strom; Marco Lorusso
  115. Stock Market Beliefs and Portfolio Choice in the General Population By Christian Zimpelmann
  116. 60 años de productividad: Enfoques para su estimación en Nicaragua By Angulo, Laura; Godínez, Raúl; López, Axsell
  117. Secular Stagnation and Low Interest Rates under the Fear of a Government Debt Crisis By Keiichiro KOBAYASHI; Kozo Ueda
  118. Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program By Erel, Isil; Liebersohn, Jack
  119. Macroeconomic and Financial Policies for Climate Change Mitigation: A Review of the Literature By Signe Krogstrup; William Oman
  120. Financial Openness and Capital Inflows to Emerging Markets: In Search of Robust Evidence By Diego A. Cerdeiro; Andras Komaromi
  121. The Advancement in Information and Communication Technologies (ICT) and Economic Development: A Panel Analysis By Audi, Marc; Ali, Amjad; Roussel, Yannick
  122. A Non-Knotty Inflation Risk Premium Model By José Valentim Machado Vicente
  123. Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis By Matthew E. Kahn; Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
  124. Heterodox Economic Cycles Theories By Julia M. Puaschunder
  125. Is funding a large universal basic income feasible? A quantitative analysis of UBI with endogenous labour supply By Ghatak, Maitreesh; Jaravel, Xavier
  126. Brazil; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brazil By International Monetary Fund
  127. Output-Inflation Trade-Off in the Presence of Foreign Capital: Evidence for Vietnam By Hung Ly-Dai
  128. Tonga; 2020 Article IV Consultation and Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Tonga By International Monetary Fund
  129. Dynamic Banking and the Value of Deposits By Bolton, Patrick; Li, Ye; Wang, Neng; Yang, Jinqiang
  130. The Effect of Gender Unemployment on Economic Growth: A Panel Data Analysis By Shairilizwan Taasim
  131. Public debt and inflation: Empirical evidence from Ghana By Aimola, Akingbade U; Odhiambo, Nicholas M
  132. Financial Technology and the Inequality Gap By Roxana Mihet
  133. Back to the Future: Fiscal Rules for Regaining Sustainability By Serhan Cevik
  134. The aggregate consequences of default risk: evidence from firm-level data By Besley, Timothy; Roland, Isabelle; Van Reenen, John
  135. Four Decades of Declining Federal Leadership in the Federal-State Unemployment Insurance Program By Stephen A. Wandner
  136. What 31 provinces reveal about growth in China By Kerola, Eeva; Mojon, Benoît
  137. The Fiscal Response to Revenue Shocks By Simon Berset; Martin Huber; Mark Schelker
  138. Issuance and valuation of corporate bonds with quantitative easing By Pegoraro, Stefano; Montagna, Mattia
  139. Long-Term Effects of Equal Sharing: Evidence from Inheritance Rules for Land By Charlotte Bartels; Simon Jäger; Natalie Obergruber
  140. Currency Union as a Panacea for ills in Africa: A New Institutional Framework and Theoretical Consideration By Abban, Stanley
  141. Global Liquidity and Household Credit By Berrak Bahadir; Neven Valev
  142. Women's Employment and Natural Shocks By Canessa, Eugenia; Giannelli, Gianna Claudia
  143. The Size and Development of the Shadow Economy in Morocco By LAHLOU, Kamal; DOGHMI, Hicham; SCHNEIDER, Friedrich
  144. The UK's great demand and supply recession By Jacob, Nick; Mion, Giordano
  145. The Complementary Nature of Trust and Contract Enforcement By Björn Bartling; Ernst Fehr; David B. Huffmann; Nick Netzer; David B. Huffman

  1. By: Pincheira, Pablo; Hardy, Nicolas
    Abstract: This is a summary of the paper entitled : “The Mean Squared Prediction Error Paradox”. In that paper, we show that traditional comparisons of Mean Squared Prediction Error (MSPE) between two competing forecasts may be highly controversial. This is so because when some specific conditions of efficiency are not met, the forecast displaying the lowest MSPE will also display the lowest correlation with the target variable. Given that violations of efficiency are usual in the forecasting literature, this opposite behavior in terms of accuracy and correlation with the target variable may be a fairly common empirical finding that we label here as "the MSPE Paradox." We characterize "Paradox zones" in terms of differences in correlation with the target variable and conduct some simple simulations to show that these zones may be non-empty sets. Finally, we illustrate the relevance of the Paradox with two empirical applications.
    Keywords: Mean Squared Prediction Error, Correlation, Forecasting, Time Series, Random Walk.
    JEL: C0 C00 C01 C02 C2 C21 C22 C4 C41 C44 C5 C51 C52 C53 C54 C58 E0 E3 E37 E5 E58 E6 F3 F31 F37 F4 F41 F44 F47 G00 G1 G12 G15 G17
    Date: 2020–12–29
  2. By: Tavares, Francisco
    Abstract: Aggregate inflation measures such as the Consumer Price Index seek to capture the impact on households consumption possibilities of changes in prices over time and are generally assumed as representative of all consumers. This is only true if households have all the same consumption patterns. Based on household level microdata, we construct specific household baskets of consumption and calculate the inflation for each one. By comparing Plutocratic and Democratic indexes, and inflation between groups of income, we conclude that households experienced different inflation rates, with the poorer suffering more with the loss in the purchasing power. The potential impacts of these findings on Fiscal and Monetary Policy show that around 1.77 million households could be paying federal income taxes when they should not; Social Security benefits could be up to 9.70% higher for some households; Federal Funds Rates would be 0.8 percentage points higher, based on a Taylor type rule, if FED used a Democratic core inflation index.
    Keywords: Inflation Consumer Price Index Price Indexes Personal Consumption Expenditure Price Index Consumption Patterns Consumer Expenditure Survey
    JEL: E20 E31 E43 E52 E62
    Date: 2021–01–04
  3. By: David Baqaee; Emmanuel Farhi; Kunal Sangani
    Abstract: We propose a supply-side channel for the transmission of monetary policy. We study an economy with heterogeneous firms, sticky prices, and endogenous markups. We show that if, as is consistent with the empirical evidence, bigger firms have higher markups and lower pass-throughs than smaller firms, then a monetary easing endogenously increases aggregate TFP and improves allocative efficiency. This endogenous positive “supply shock” amplifies the effects of the positive “demand shock” on output and employment. The result is a flattening of the Phillips curve. This effect is distinct from another mechanism discussed at length in the real rigidities literature: a monetary easing leads to a reduction in desired markups because of strategic complementarities in pricing. We calibrate the model to match firm-level pass-throughs and find that the misallocation channel of monetary policy is quantitatively important, flattening the Phillips curve by about 70% compared to a model with no supply-side effects. We derive a tractable four-equation dynamic model and show that monetary easing generates a procyclical hump-shaped response in aggregate TFP and countercyclical dispersion in firm-level TFPR. The improvements in allocative efficiency amplify both the impact and persistence of interest rate shocks on output.
    JEL: E0 E12 E24 E3 E4 E5 L11 O4
    Date: 2021–01
  4. By: Vincent Dadam (University of Pretoria); Nicola Viegi (University of Pretoria; Economic Research Southern Africa (ERSA))
    Abstract: This paper estimates a New Keynesian Wage Phillips Curve for South Africa to investigate the responsiveness of nominal wages to labour market conditions. The estimation is based on a model with staggered nominal wages setting, where all variations in hired labour input is taking place at the extensive margin. First we estimate the model using aggregate data from 1971 to 2013. Aggregate estimation results show that private sector nominal wages are not very responsive to employment conditions, while they also reveal a certain sensitivity to inflation and quite a good correlation with inflation expectations. On the other hand, the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample. However, it becomes quantitatively weak for the inflation targeting period. In that period, trade unions inflation expectations are instead strongly correlated with nominal wage inflation. In the second part of the paper we assess the response of nominal wages to employment, labour productivity and output prices, given the reservation wage, using a panel of nine industrial sectors over the period 1970-2013. The findings confirm that nominal wage inflation has consistently outpaced the growth in productivity, even after correcting for price inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction term in the wage equation for South Africa. The overall picture that comes out from the analysis is that of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.
    Keywords: Wage rigidities, unemployment, labour market, Phillips Curve, New Keynesian
    JEL: E2 E24 E26 E31 E12
    Date: 2021–01
  5. By: PINSHI, Christian P.
    Abstract: The high degree of dollarization combined with low foreign exchange reserves obstruct the management of monetary policy. The debate is launched on the effectiveness of monetary policy in this context of dollarization and meager reserves. To restore the effectiveness of monetary policy in the DR Congo, we advocate for fiscal discipline (that is to say, eradicate fiscal dominance) that is constant and sustainable, a guarantee of sustainable macroeconomic stability. Monetary targeting should remain the adopted strategy until proven otherwise and the choice of a floating exchange rate regime is better for good macroeconomic management in the case of the DR Congo. However, changes in the nominal exchange rate should be implicitly included in the implementation of monetary policy.
    Keywords: Monetary policy, Dollarization, Foreign exchange reserve
    JEL: E42 E51 E52 F31
    Date: 2019–11
  6. By: Marcin Kolasa; Dominik Supera
    Abstract: Forming a monetary union implies equalization of short-term interest rates across the member states as monetary policy is delegated to a common central bank, but also leads to integration of risk-free bond markets. In this paper we develop a quantitative open economy model where long-term bond yields matter for real allocations. We next use the model to shed light on the macroeconomic effects of convergence in bond prices within a currency union. Our focus is on a small open economy, where the pre-accession level of interest rates is high due to floating exchange rate and relatively low central bank focus on stabilizing inflation. We find that, from the perspective of social welfare in the country adopting a common currency, the benefits associated with lower long-term yields can outweigh the costs related to a loss of monetary independence.
    Keywords: monetary integration, bond yields, central bank credibility
    JEL: E30 E43 E44 E52 F45
    Date: 2021–01
  7. By: Ciccarone, Giuseppe; Giuli, Francesco; Marchetti, Enrico; Tancioni, Massimiliano
    Abstract: By estimating a Markov-switching model, we provide new evidence on the nonlinear effects of monetary policy shocks on asset prices and on their bubble component. We show that regime-dependence is mainly driven by the states affecting the interest rate equation. We also show that, following a positive interest rate shock, an OLG model of asset price bubbles with credit frictions and sticky prices may predict an increase in the real rate, a recession/deflation and an increase in the bubble value. This result, which is new to the theoretical literature, matches both the previously existing and our empirical evidence.
    Keywords: Asset price bubbles; monetary policy; overlapping generations models.
    JEL: E13 E32 E44 E52 G12
    Date: 2020–12–08
  8. By: Yang, Jinrui
    Abstract: This paper, through a neo-Kaleckian model of a closed industrialized economy, shows a large scale of national debt and an ultra-low inflation rate are not dangerous but necessary if the profit rate of capitalists is low. The S-shape Phillips curve in the static analyses (in the long-run perspective then) shows, when inflation rate is low (which is called semi-classical situation), unemployment rate increases with inflation rate. In the semi-classical situation, the ratio of national debt to GDP decreases with inflation rate while deficit ratio increases with inflation rate. The dynamic analyses show, if the government can fix inflation rate on a target level, an industrialized economy can be dynamically stable.
    Keywords: employment, inflation, deficit, national debt, profit rate
    JEL: E11 E12 E24 E31 H6
    Date: 2020–12–31
  9. By: Hajime Tomura (Faculty of Political Science and Economics, Waseda University)
    Abstract: This paper introduces into an overlapping generations model the courts inability to distinguish different qualities of goods of the same kind. Given the recognizability of fiat money for the court, this friction leads to the use of nominal debt contracts as well as the use of fiat money as a means of payment in the goods market. This result holds without dynamic inefficiency or lack of double coincidence of wants. Instead, money is necessary because it is essential for credit. However, there can occur a shortage of real money balances for liability settlements, even if the money supply follows a Friedman rule. This problem can be resolved if the central bank can lend fiat money to agents elastically at a zero intraday interest rate within each period. Given the economy being dynamically efficient, this policy makes the money supply cease to be the nominal anchor for the price level. In this case, the monetary steady state becomes compatible with other nominal anchors than the money supply.
    Keywords: Nominal contract; Discount window; Trade credit; Cashless economy; Payment system; Legal tender
    JEL: E42 E51 E58
    Date: 2020–03
  10. By: Lee, Sukjoon
    Abstract: I study how monetary policy affects firms' external financing decisions. More precisely, I study the transmission mechanism of monetary policy to credit costs in a general equilibrium macroeconomic model where firms issue corporate bonds or obtain bank loans, and corporate bonds are not just stores of value but also serve a liquidity role. The model shows that an increase in the nominal policy rate can lower the borrowing cost in the corporate bond market, while increasing that in the bank loan market, and I provide empirical evidence that supports this result. The model also predicts that a higher nominal policy rate induces firms to substitute corporate bonds for bank loans, which is supported by the existing empirical evidence. In the model, the Friedman rule is suboptimal so that keeping the cost of holding liquidity at a positive level is socially optimal. The optimal policy rate is an increasing function of the degree of corporate bond liquidity.
    Keywords: Corporate Finance; Credit Cost; Bank Loan; Corporate Bond; Liquidity Premium; Monetary Policy
    JEL: E43 E44 E51 E52 G12 G21
    Date: 2020–11–15
  11. By: Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
    Abstract: The banks are central elements of a market economy. In more than one way, they facilitate business transactions by acting as depositor and lender for many actors in the domestic and international economy. The banking industry in Nigeria has expanded in size in terms of assets in the last 60 years since the country’s independence from British colonial rule and undergone large-scale reforms vis a vis transformation in the global economy. What are the dimensions of this growth? How has it affected market efficiency and economic wellbeing of the people? This article provides answers to these questions and argue that growth has indeed happened in the banking sector by a quantification of liquid assets, investment securities and loans. It also captured its transnational dimension and how that has boosted international transactions as well as repatriation of Diaspora transfers to the national economy. This article also focused on the contradictions of the economy arising from inconsistent policies of government and meddlesomeness of global financial institutions, and their impact on the banking sector. This article ends on a prescriptive note by suggesting ways to make the banking sector more relevant in promoting productive activities in the national economy.
    Keywords: Banks , Banking , Asset , Currency , Economy , Nigeria
    JEL: E0 E02 E4 E5 E50 E58 E6 G0 O1 O10
    Date: 2021–01–21
  12. By: Musy, Olivier
    Abstract: We develop a New Keynesian Phillips curve based on a combination of staggered price contracts and indexation to past inflation. This Phillips curve links current inflation dynamics to past inflation with a positive weight, as well as current and lagged expectations of inflation and output, giving a possible alternative explanation for recent empirical findings on the role of expectations in the determination of inflation.
    Keywords: Inflation Dynamics, Staggered contracts, Price Indexation, Sticky Prices, New Keynesian Phillips Curve, Sticky Expectations
    JEL: E3 E31 E5
    Date: 2020–12–28
  13. By: Florian Eckert (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Philipp Kronenberg (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Stefan Neuwirth (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: Most macroeconomic indicators failed to capture the sharp economic fluctuations dur- ing the Corona crisis in a timely manner. Instead, alternative high-frequency data have been used, aiming to monitor the economic situation. However, these data are often only loosely related to the business cycle and come with irregular patterns of missing observations, ragged edges and short histories. This paper presents a novel mixed- frequency dynamic factor model for measuring economic activity at high-frequency intervals in rich data environments. Previous research has estimated the dynamic factor conditional on actually observed data only. In contrast, we propose to estimate the dynamic factor conditional on a balanced panel with observed and latent data information, where the latent data are themselves estimated in a separate state-space block. One benefit of this data augmentation strategy is that it allows to easily ac- count for serial correlation in the factor measurement errors. We apply the model to a set of daily, weekly, monthly and quarterly series and extract a dynamic factor, which is identified as the weekly growth rate of GDP. It turns out that the model is well suited to exploit the business cycle information contained in alternative high- frequency data. GDP is tracked timely and accurately during the Corona crisis and past economic crises.
    Keywords: Economic Activity Indicator, Real Time, Nowcasting, Alternative HighFrequency Data, Mixed-Frequency Dynamic Factor Model, Data Augmentation
    JEL: C11 C32 C38 C53 E32 E37
    Date: 2020–12
  14. By: Andrew Clark (Department of Economics, University of Reading); Alexander Mihailov (Department of Economics, University of Reading); Michael Zargham (Vienna University of Economics and Business)
    Abstract: This paper proposes a complex dynamic systems subpopulation model for the construction and validation of a novel form of local complementary currency, namely the Grassroots Economics Foundation's Community Inclusion Currency (CIC) implemented recently in Kenya. Differently from other related work in computer science or of a legal nature, we frame our analysis in a deeper economic context, thus bridging the gap across these parallel literatures. First, we highlight the potential usefulness of the emerging blockchain-technology backed CICs, now popular in the new - and interdisciplinary - field of cryptoeconomics. Essentially, CICs can act as a local liquidity-provision institutional device in poor or isolated economic regions to increase their internal exchange and economic value added, thereby serving as a market-based mechanism to alleviate poverty, in addition to government aid and akin in its automatism and credibility to a currency board monetary regime in national economies. The ultimate goal of these CIC systems is to promote a transition toward complete inclusion and integration into the national and global economies, pulling over the communities and regions out of self-sufficiency and poverty into more advanced stages of economic development and well-being. Second, we elicit 50 heterogeneous utility types according to observed transactions behavior and build a corresponding model and simulation at a meso-economic level, which for many purposes could prove more insightful for policymakers than the usual extreme perspectives of micro and macro.
    Keywords: gender unemployment gap, demographic composition of unemployment, macroeconomic shocks, labour market institutions, monetary policy, Euro Area
    JEL: E24 E32 E52 F45 J16 J24
    Date: 2021–01–31
  15. By: Anna Cieslak; Hao Pang
    Abstract: We propose an approach to identifying economic shocks (monetary, growth, and risk-premium news) from stock returns and Treasury yield changes, which allows us to study the drivers of asset prices at a daily frequency since the early 1980s. We apply the identification to examine investors’ responses to news from the Fed and key macro announcements. We uncover two risk-premium shocks—time-varying compensation for discount-rate and cash-flow news—which have distinct effects on stocks and bonds. Since the mid-1990s, the Fed-induced reductions in both risk premium sources have generated high average stock returns but an ambiguous response in bonds on FOMC days.
    JEL: E43 E44 G12 G14
    Date: 2020–12
  16. By: Syarifuddin, Ferry
    Abstract: Although the discussion on foreign exchange (FX) futures market has drawn significant concern in the economic literature, this paper is the first attempt to address how the FX futures market impacts macroeconomic conditions with the inflation targeting regime. We use a dataset comprising of four emerging market countries with inflation targeting regime and active FX futures market, namely Brazil, Mexico, Turkey, and India, from January 2015 to December 2018. By utilizing Bayesian Panel Vector Autoregressions, we find that the FX futures rate shocks significantly affect the macroeconomic environment and monetary policy due to the strong relationship between the spot and futures market. We also find the initial indication of the market squeezing mechanism in the FX futures market. However, it occurs only in a small magnitude and a short period and thus, the spot exchange rate, inflation rate, and economic growth would not fluctuate abnormally. Our findings are robust for the various robustness checks.
    Keywords: Foreign Exchange Futures Market, Inflation Targeting Framework, Macroeconomy, Emerging Economies
    JEL: E52 E58 G23
    Date: 2020–12
  17. By: Peter Flaschel; Giorgos Galanis; Daniele Tavani; Roberto Veneziani
    Abstract: This paper studies the interaction between epidemiological dynamics and the dynamics of economic activity in a demand-driven model in the structuralist/post-Keynesian tradition. On the one hand, rising aggregate demand increases the contact rate and therefore the probability of exposure to a virus. On the other hand, rising infection lowers aggregate demand because of reduced household spending. The resulting framework is well-suited for policy analysis through numerical exercises. We show that, first, laissez-faire gives rise to sharp fluctuations in demand and infections before herd immunity is achieved. Second, absent any restrictions on economic activity, physical distancing measures have rather limited mitigating effects. Third, lockdowns are effective, especially at reducing death rates while buying time before a vaccine is available, at the cost of a slightly more pronounced downturn in economic activity compared with alternative policies. This casts some doubt on the so-called “lives versus livelihood” policy trade-off. However, we also highlight the importance of policies aimed at mitigating the effects of the epidemic on workers’ income.
    Keywords: pandemic, aggregate demand, distribution, public policy
    JEL: E12 E25 E60 H00 I10
    Date: 2021–01
  18. By: PINSHI, Christian P.
    Abstract: Four factors affect the effectiveness of monetary policy, three of which are exogenous, fiscal dominance, dollarization and global risks; one is endogenous, monetary policy framework that integrates strategy, tactics and governance of monetary policy. We show that the factors that undermine the effectiveness of the Central bank of Congo (BCC) are much more exogenous. However, the monetary policy framework needs to be rethought. For a lasting effectiveness of the BCC’s monetary policy, it would be necessary to put in place sustainable fiscal discipline, serious de-dollarization measures, and economic growth policies that strengthen resilience.
    Keywords: Central Bank, monetary policy framework, fiscal dominance, dollarization, global risks.
    JEL: E52 E58 E60 F4
    Date: 2020–05
  19. By: Goodhart, C. A. E.; Masciandaro, Donato; Ugolini, Stefano
    Abstract: This paper analyses the monetary policy that the Most Serene Republic of Venice implemented in the years of calamities using a modern equivalent of helicopter money, precisely an extraordinary money issuing, coupled with capital losses for the issuer. We consider the 1629 famine and the 1630-1631 plague as a negative macroeconomic shock that the incumbent government addressed using fiscal monetization. Consolidating the balance sheets of the Mint and of the Giro Bank, and having heterogenous citizens - inequality matters - we show that the Republic implemented what was, in effect, helicopter money driven by political economy reasons, in order to avoid popular riots.
    Keywords: central banking; helicopter money; monetary policy; pandemic; Venice 1630
    JEL: D70 E50 E60 N10 N20
    Date: 2021–01
  20. By: Jesús Fernández-Villaverde; Federico S. Mandelman; Yang Yu; Francesco Zanetti
    Abstract: This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing the output share of high-productivity firms. The combination of search complementarities and monopsony power induce a strong "Matthew effect" that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. The model also transforms short-lived negative aggregate shocks into persistent recessions that heighten market concentration.
    Keywords: market concentration; superstar firms; search complementarities; monopsony power in the labor market
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2021–01–15
  21. By: Grancini, Stefano
    Abstract: In this paper we provide evidence that there are statistical and economically meaningful differences in terms of attitudes towards risk at the aggregate level across countries, as captured by country-specific estimations of the coefficient of relative risk aversion. This has important implications for fiscal policy as it leads to large differences in the output response to the same fiscal policy shock. When calibrating the risk aversion at the country level, using country-specific estimates of the coefficient of relative risk aversion, we find multipliers to the same fiscal consolidation shock to differ as much as between 0.35 and 0.55.
    Keywords: CRRA, Fiscal Multipliers, Risk Aversion, Fiscal Consolidation Programs.
    JEL: D81 E21 E62 H63 O57
    Date: 2021–01–18
  22. By: Barnett, William; Gaekwad, Neepa
    Abstract: In light of the “two-pillar strategy” of the European Central Bank, good measures of aggregated money across countries in the Euro area are policy relevant. The objective of this paper is to focus on the multilateral Divisia monetary aggregates for the Euro area to produce a theoretically consistent measure of monetary services for the Euro area monetary union. Based on theory developed in Barnett (2007), the multilateral Divisia monetary aggregates for 17 Euro area countries are found to provide a better signal of recession, when compared to the corresponding simple sum monetary aggregates.
    Keywords: Divisia index, European Union, European Monetary Union, Monetary aggregation.
    JEL: C43 C82 E51 E52 F33
    Date: 2021–01
  23. By: Alina K. Bartscher (Department of Economics, University of Bonn); Moritz Kuhn (Department of Economics, University of Bonn; CEPR and IZA); Moritz Schularick (Federal Reserve Bank of New York; and Department of Economics, University of Bonn; and CEPR); Paul Wachtel (Department of Economics, New York University Stern School of Business)
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
    Keywords: monetary policy, racial inequality, income distribution, wealth distribution, wealth effects
    JEL: E40 E52 J15
    Date: 2021–01
  24. By: Kaan Celebi (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: This study looks into the linkages between rates of return in stock markets - and stock market volatility - and labor income risk and the unemployment rate, respectively, in the United States. After considering basic theoretical links between labor income risk plus unemployment and stock market dynamics, an empirical analysis is conducted which follows two earlier papers by FAMA/FRENCH and FAMA/MACBETH in terms of their empirical approaches. The new approach presented here includes additional variables while interesting results regarding Granger causality analysis are also derived. We find that rate of return development is Granger causal for labor income risk and unemployment in the US. Labor income and unemployment significantly affect the stock market rates of return and the volatility of such returns. There are several key policy conclusions based on the empirical findings presented herein; the results indicate that stocks provide a rather good hedge against labor income declines. Crucial conclusions could be drawn in particular by the US Administration, in particular the new Biden Administration.
    Keywords: Labor income risk, stock markets, labor market, rates of return, volatility, unemployment rate, USA, economic policy reform
    JEL: D53 E24 E44 G10 J08 J20 J30
    Date: 2021–01
  25. By: International Monetary Fund
    Abstract: Restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in governance remain the main objectives of this program. While allowing for a slight fiscal loosening to meet humanitarian needs during the COVID-19 pandemic, tight monetary policy, much improved public financial management, domestic revenue mobilization, and zero central bank financing have supported the administration’s efforts to achieve price and exchange rate stability. This has helped to preserve the purchasing power of the poor who were the most affected by the high inflation environment at the program’s inception. The authorities consider bringing the ECF-supported program back on track of utmost importance and are committed to their development plan, the Pro-Poor Agenda for Prosperity and Development (PAPD).
    Date: 2021–01–08
  26. By: Ngozi E. Egbuna; Maimuna John-Sowe; Santigie M. Kargbo (PhD); Sani Bawa (PhD); Ibrahima Diallo; Isatou Mendy
    Abstract: Countries of the Economic Community of West African States (ECOWAS) are heterogeneous, characterized by marked differences in production and export structures, divergent levels of inflation rates and fiscal positions. These features suggest that there is a greater tendency for the transmission of asymmetric shocks across member countries in the ECOWAS region. Understanding how well business cycles are synchronised between member countries is extremely important in designing appropriate policy responses to facilitate the launch of the single currency and reduce the cost of joining the proposed ECOWAS monetary union. This study undertakes a time-varying assessment of the degree of synchronisation of business cycles among ECOWAS member countries and analyses the role of bilateral trade, financial integration, and convergence in fiscal and monetary policy in achieving more synchronised business cycles in the region. Using the Hausman-Taylor and Error Components panel two-stage least squares (EC-2SLS) estimation techniques over the period 2001 – 2018, this study finds that well-coordinated policy responses such as the strengthening of trade linkages, convergence in fiscal policy and strong financial linkages would foster more closely synchronised business cycles across the region. Thus, measures to promote the synchronisation of business cycles and ensure the sustainable adoption of a single currency should focus not only on satisfying the macroeconomic convergence criteria, but also enhance trade and financial integration to foster broader policy coordination among countries in the region.
    Keywords: Business Cycle Synchronisation, Trade Linkages, Financial Integration, ECOWAS.
    JEL: C33 E32 O55
    Date: 2020–06
  27. By: Ozatay, Fatih
    Abstract: In the aftermath of the global financial crisis monetary policies in advanced economies caused a surge in cross-border lending to emerging market economies (EMEs). Policymakers of EMEs criticized those policies on the grounds that they pave the way for financial imbalances in EMEs and called for international policy coordination. Up to mid-2018 leverage of banks and foreign currency exposure of nonfinancial corporates increased sharply in Turkey. Under these conditions, a shock that causes a stop in capital flows can trigger crisis in EMEs. The Turkish economy was hit by several external shocks and entered a recession in the third quarter of 2018. This study aims at analyzing the role of financial vulnerabilities and domestic policies in Turkey’s 2018-19 crisis and draw policy lessons. We argue that, notwithstanding complaints regarding lack of international policy coordination, domestic policy mistakes played an important role in paving the way for the crisis.
    Keywords: Crisis, cross-border lending, currency mismatches, leverage
    JEL: E32 E52 F34 F42 G01 G38
    Date: 2020–12–25
  28. By: Giovanni Caggiano (Monash University, University of Padova and Bank of Finland); Efrem Castelnuovo (University of Melbourne and University of Padova); Gabriela Nodari (Reserve Bank of Australia)
    Abstract: This paper revisits the well-known VAR evidence on the real effects of uncertainty shocks by Bloom (Econometrica 2009(3): 623-685. doi: 10.3982/ECTA6248). We replicate the results in a narrow sense using Eviews. In a wide sense, we extend his study by working with a smooth transition-VAR framework that allows for business cycle-dependent macroeconomic responses to an uncertainty shock. We find a significantly stronger response of real activity in recessions. Counter-factual simulations point to a greater effectiveness of systematic monetary policy in stabilizing real activity in expansions.
    Keywords: Uncertainty shocks, nonlinear Smooth Transition Vector AutoRegressions, Generalized Impulse Response Functions, systematic monetary policy
    JEL: C32 E32
    Date: 2020–08
  29. By: Xuan Wang (Vrije Universiteit Amsterdam)
    Abstract: Since the Eurozone Crisis of 2010-12, a critical debate on the viability of a currency union has focused on the role of a fiscal union in adjusting for country heterogeneity. However, a fully-fledged fiscal union may not be politically feasible. This paper develops a two-country general equilibrium model to examine the benefits of the bankruptcy code of a capital markets union - in the absence of a fiscal union - as an alternative mechanism to improve the financial stability and welfare of a currency union. When domestic credit risks are present, I show that a lenient bankruptcy code in the cross-border capital markets union removes the pecuniary externality of banking insolvency, so it leads to a Pareto improvement within the currency union. Moreover, the absence of floating nominal exchange rates removes a mechanism to neutralise domestic credit risks; I show that softening the bankruptcy code can recoup the lost benefits of floating nominal exchange rates. The model provides the financial stability and welfare implications of bankruptcy within a capital markets union in the Eurozone.
    Keywords: Equilibrium default, bankruptcy code, fiscal union, capital markets union, financial stability, bank credit and inside money, price-level and exchange rate determinacy, liquidity-intermediary asset pricing
    JEL: E42 F33 G15 G21
    Date: 2021–01–21
  30. By: Le Riche, Antoine (Sichuan University); Lloyd-Braga, Teresa (Católica Lisbon); Modesto, Leonor (Universidade Catolica Portuguesa, Lisbon)
    Abstract: We study the impact of intra-industry trade and capital mobility on steady state welfare and on the stability properties of two countries with identical technologies and preferences. We consider a two-factor overlapping generations model, featuring one-sector of differentiated goods with taste for variety. There is imperfect competition in the output market and increasing returns to scale in production (fixed costs and externalities). In one country there is full employment and saddle path stability in autarky, whereas in the other there are efficiency wages, and the autarkic equilibrium may be locally indeterminate. After opening the borders, the rigid wage country may export indeterminacy to the full employment country, particularly if it is big enough. In contrast, when the full employment country is sufficiently big, local indeterminacy, and therefore expectations driven fluctuations may be eliminated in the world. In any case, stochastic and deterministic fluctuations (associated with local indeterminacy and bifurcations) are possible with smaller externalities, whatever the relative size of the two countries. Steady state welfare improves in the full employment country with free trade and capital mobility, while unemployment increases in the country with labor market rigidities, reducing welfare. We also find that taste for variety (and therefore intra-industry trade), reduces the likelihood of local indeterminacy, but leads to flip bifurcations under more plausible values of the model parameters.
    Keywords: bifurcations, indeterminacy, intra-industry trade, taste for variety, involuntary unemployment
    JEL: C62 E32 F12 F43 F44 O41
    Date: 2021–01
  31. By: Berrak Bahadir (Department of Economics, Florida International University); Inci Gumus (Faculty of Arts and Social Sciences, Sabanci University)
    Abstract: This paper studies the channels through which house prices affect sectoral output in emerging market economies, focusing on the role of collateral and borrowing dynamics. We first show that relative to the tradable sector, nontradable sector output is more strongly correlated with house prices and its response to a house price shock in a Panel VAR is larger for a sample of emerging market economies. Then, we study the model dynamics generated by shocks to housing demand in a two-sector small open economy real business cycle model. The results show that housing demand shocks lead to a sectoral reallocation by inducing an expansion in the nontradable sector and a contraction in the tradable sector. The model successfully generates the comovement between the cycle and house prices, matching the strong positive correlation of house prices and nontradable output. We also study the importance of collateral effects for the model dynamics and show that the collateral channel is key to generating the correlations between house prices and sectoral output observed in the data.
    Keywords: House Prices, Collateral Effects, Housing Demand Shocks, Sectoral Output
    JEL: E32 E44 F34 F41
    Date: 2021–01
  32. By: Li, Ye (Ohio State U); Mayer, Simon (Erasmus U Rotterdam)
    Abstract: In a dynamic model of stablecoins, we show that even with over-collateralization, a pledge of one-to-one convertibility to a reference currency is not sustainable in a stochastic environment. The distribution of states is bimodal--a fixed exchange rate can persist, but debasement happens with a positive probability and recovery is slow. When negative shocks drain the reserves that back stablecoins, debasement allows the issuer to share risk with users. Collateral requirements cannot eliminate debasement, because risk sharing is ex-post efficient under any threat of costly liquidation, whether it is due to reserve depletion or violation of regulation. Optimal stablecoin management requires a combination of strategies commonly observed in practice, such as open market operations, transaction fees or subsidies, re-pegging, and issuance and repurchase of "secondary units" that function as stablecoin issuers' equity. The implementation varies with user-network effects and is guided by Tobin's q of transaction data as productive capital.
    JEL: E41 E42 E51 E52 F31 G12 G18 G21 G31 G32 G35 L14 L86
    Date: 2020–12
  33. By: Jean-Benoit Eyméoud; Nicolas Petrosky-Nadeau; Raül Santaeulàlia-Llopis; Etienne Wasmer
    Abstract: We document the dynamics of labor-changes in employment and hours worked -and of actual telework use during the pandemic. We find that employment losses are unrelated to telework use starting in 2020-Q4. This is in stark contrast with the onset of the pandemic that disproportionately affected skills, occupations and industries with low telework use. Our findings are the results of two phenomena. First, labor is dynamically heterogeneous: employment of skill and occupation groups that are most affected by the initial Covid-19 shock recover quickly, catching up with the rest of the economy by October 2020. Second, the use of telework has homogeneously declined within skills, occupations and industries -by 40 percent on average- leaving the relative ranking of telework use across groups unaltered. Finally, there is substantial and persistent cross-industry heterogeneity in labor market outcomes one year into the pandemic that is unrelated to the use of telework.
    Keywords: labor, dynamics, telework, skills, Occupations, industries, COVID-19
    JEL: E01 E22 E25
    Date: 2021–01
  34. By: Pincheira, Pablo; Jarsun, Nabil
    Abstract: This draft is a summary of the paper entitled: Forecasting Fuel Prices with the Chilean Exchange Rate. In that paper we show that the Chilean exchange rate has the ability to predict the returns of oil prices and of three additional oil-related products: gasoline, propane and heating oil. The theoretical underpinnings of our empirical findings rely on the present-value theory for exchange rate determination and on the strong co-movement displayed by some commodity prices. The Chilean economy is heavily influenced by one particular commodity: copper, which represents nearly 50% of total national exports and attracts a similar share in terms of Foreign Direct Investment. As a consequence, the floating Chilean exchange rate is importantly affected by fluctuations in the copper price. As oil-related products display an important co-movement with base metal prices, it is reasonable to expect evidence of Granger causality from the Chilean peso to these oil-related products. We find substantial evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has explored the linkages between commodity prices and commodity currencies.
    Keywords: Exchange rates, energy, oil, gasoline, commodity prices, predictability, time-series
    JEL: C01 C02 C1 C12 C13 C2 C22 C3 C32 C4 C5 C51 C52 C53 C58 E31 E37 E58 F3 F31 F37 F4 F47 G12 G15 G17
    Date: 2020–12–30
  35. By: Eleanor Jawon Choi (Hanyang University); Jaewoo Choi (Korea Development Institute); Hyelim Son (University of Seoul)
    Abstract: This paper investigates the long-term effects of initial labor market conditions by comparing cohorts who graduated from college before, during, and after the 1997–1998 Asian financial crisis. We measure the overall welfare impact by examining not only labor market activities but also family formation and wealth accumulation. Using data from 20 waves of the Korean Labor and Income Panel Study, we find a substantial and persistent reduction in employment, earnings, marriage, fertility, and financial assets among men who graduated in a bad economy. For women, limited job opportunities at graduation result in an increase in childbearing.
    Keywords: recession, financial crisis, long-term effects, college graduates
    JEL: E32 J13 E21 J21
    Date: 2019–08
  36. By: Uddin, Godwin
    Abstract: Much studies had considered the efficacy of the Central Bank of Nigeria (CBN)’s monetary policy to ensure Deposit Money Banks (DMBs) performance in Nigeria, and the conclusions thereof had been mixed. Also, the need for initiatives that could inform efforts to strengthen the efficacy of CBN’s monetary policy (and or macro- and microprudential guidelines) remains, in same vein as there are scanty assertions in literature on other roles that the Asset Management Corporation of Nigeria (AMCON) – an agency aligned to the CBN – could perform to further strengthen the efficacy of the CBN’s macro- and microprudential guidelines, besides its statutory role of debt recovery for financial system stability. Thus, this exploratory review (or study) of 50 relevant literature is to examine the activities of AMCON, and its activities’ implication(s) on the CBN’s macro- and microprudential guidelines’ formulation and implementation in Nigeria. The findings thereof include AMCON contributes to DMBs’ surveillance which inform macro- and microprudential guidelines’ formulation, and that the basis of association between the CBN and AMCON is prominent in respect to macro- and microprudential guidelines’ implementation and compliance. Therefore, this study recommends CBN to leverage on AMCON’s interface with DMBs in efforts to ensure operational effectiveness of so established macro- and microprudential guidelines.
    Keywords: Monetary policy, Deposit Money Banks (DMBs), Central Bank of Nigeria (CBN), Asset Management Corporation of Nigeria (AMCON), Coronavirus (COVID-19)
    JEL: E5 E52 E58
    Date: 2020–11–26
  37. By: Charles M. Kahn; Francisco Rivadeneyra; Tsz-Nga Wong
    Abstract: Digital currencies store balances in anonymous electronic addresses. We analyze the trade-offs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model, agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords for many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and trade-offs along these dimensions; we analyze the welfare effects of differing industry structures and interdependencies. In particular, we examine, the consequences of “password aggregation" programs, which, in effect, consolidate risks across accounts.
    Keywords: Central bank research; Digital currencies and fintech; Financial services; Payment clearing and settlement systems
    JEL: E42 E51 E58
    Date: 2021–01
  38. By: Carl Grekou
    Abstract: This publication, accompanying the 2020’s update of EQCHANGE, aims at providing an overview of exchange rate misalignments for 2019. In a nutshell, changes in the exchange rate misalignments on the eve of the Covid-19 pandemic have been relatively modest except few EMEs and DCs that registered large swings. This is especially the case of Egypt, India and Nigeria, and to a lesser extent of Brazil, Indonesia and Thailand. The Turkish lira, despite a continued plunge, maintained its large undervaluation due to the inflation spur. The US dollar, owing to its appreciation, registered a small increase in its overvaluation. The currency movements vis-à-vis the US dollar shaped most of the dynamics in the advanced economies that generally registered downward movements in the currency misalignments. This holds also for the Chinese renminbi that still appear broadly in line —with its fundamentals— despite a depreciation. In Europe, Germany, Ireland, Norway, Sweden, and the United Kingdom displayed undervaluations; Finland, France, Italy and Luxembourg were close to their equilibrium; and Belgium, Austria, Greece, Portugal and Spain displayed overvaluations.
    Keywords: EQCHANGE;Exchange Rates;Currency Misalignments;Global Imbalances
    JEL: E3 E4 E5 E6 F3 F4
    Date: 2020–12
  39. By: Yang, Jinrui
    Abstract: Abstract This paper, assuming the class-crossing wealth circulation in a capitalism economy can process in order, focuses on the influence of the wealth circulation speed on the profit rate in the capitalism system. Taking no account of the influence of the profit rate on the investment incentive or the money needed due to the economic growth, this paper finds, for preserving a desired profit rate the money quantity in the system should be larger when the circulation slows down. If the economic growth rate is positive, a slow wealth circulation will lead to a low equilibrium profit rate. Then for preserving the desired profit rate a large quantity of the increased money per unit time from outside is needed. In the transition period from a fast circulation to a slow circulation, the total money quantity also should jump upward to offset the money short before. If there is no economic growth, in the equilibrium state no increased money is needed, but in the transition period the total money quantity should be increased for preserving the profit rate unchanged. This paper also finds, the increased money per unit time needed for preserving the profit rate increases with the economic growth rate when it is very low but decreases with it when it is large, however the total money needed always decreases with the economic growth rate.
    Keywords: wealth circulation, profit rate, capitalist household, wealth, total money, increased money
    JEL: E11 E12 E2
    Date: 2020–01–01
  40. By: Ivan Sutoris
    Abstract: When consumers optimize intertemporally, a true cost of living index will depend on changes in both current and future prices as well as rates of return on financial assets. This paper aims to construct a measure of such "dynamic inflation" for the Czech Republic from a solution to the household's intertemporal consumption-saving problem. Dynamic inflation is derived to be a function of current movements in consumption and house prices as well as revisions to forecasts of the future paths of inflation and interest rates. The resulting series constructed from Czech data roughly follows CPI inflation, but is more volatile and less persistent. Housing booms can cause persistent upward deviations, while changes in expected interest rates have a stabilizing effect. In addition, the intertemporal cost of living can also potentially be affected by low-frequency structural shifts in the economy.
    Keywords: Cost of living, CPI, dynamic inflation, intertemporal optimization
    JEL: C43 D15 E31
    Date: 2020–12
  41. By: Jariani, Farzaneh
    Abstract: According to the Keynesian Model, the effectiveness of fiscal stabilization policy will rest on the size of fiscal multipliers and one of the most important and effective factors on the fiscal increasing coefficient can be the same crowding out & crowding in effects of the government fiscal policy on the private sector's investment on the real estate which it has been taken into consideration over the last few decades. Since, there is an interaction among the governance variables, government and investment and therefore an active private sector's investment is known as a very significant strategy in the direction of retaining the economic sustainable growth and with regards to this important matter in this study, we have taken into account the simultaneous effects of economic indexes, prosperity index, economic freedom index, governance index and comprehensive sanctions on the real estate investment and Iranian people's welfare applying the Multilevel GLM method from 1985 to 2019. Results of such study show that the government's macro policy makings have had a crowding out effect on the private investments on the real estate meanwhile the private investments on the real estate, bad governance and low and non-inclusive economic growth have lead to the small participation of manpower and losing the social capital and generally speaking, the failure of ensuring the social welfare and prosperity.
    Keywords: Keynesian Model, Fiscal Policy, Real Estate, Crowding Out, Crowding In, Good Governance, Comprehensive Sanctions, Legatum Prosperity Index, Index of Economic Freedom
    JEL: E62 G3 H2 H31 H32 H54 O3 O42 O53
    Date: 2021–01–10
  42. By: Majumderad, Monoj Kumar; Raghavan, Mala; Vespignani, Joaquin L.
    Abstract: This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed, and floating regimes. We estimate dynamic panel data models for 97 countries from 1993 to 2016. Our empirical findings show that commodity price volatility increases external debt accumulation for commodity-exporting countries. This impact is three-times higher for countries with fixed exchange rate regimes compared to managed floating exchange rate regimes. Under floating exchange regimes, the effect of commodity price volatility on external debt is statistically insignificant. Our results suggest that the adoption of a floating exchange rate regime by commodity-exporting countries is critical to mitigating the effects of commodity price volatility on external debt accumulation
    Keywords: Commodity price volatility, external debt, commodity-exporting countries, exchange rate regime
    JEL: E0 E1 E3
    Date: 2021–01–04
  43. By: International Monetary Fund
    Abstract: The Papua New Guinea (PNG) economy has grown sluggishly in recent years, reflecting a combination of domestic and external factors. External factors have included adverse terms of trade movements, a drought, and, in 2018, a large earthquake. Domestic factors have included a difficult fiscal consolidation and a shortage of foreign exchange, sustained by an overvalued exchange rate, leading to import compression and weak investment in the non-resource sector. The main macroeconomic challenges for the government are to finish putting in place policies that will help promote economic stability, and to strengthen its long-term development framework. In 2017-18, the new government made important progress in narrowing the fiscal deficit, and adopted a medium-term revenue strategy. But progress on fiscal consolidation has stalled, and the debt-to-GDP ratio is well above the medium-term target. Monetary authorities have begun to facilitate exchange rate adjustment and strengthening of the monetary framework. Stronger economic policies, involving more ambitious fiscal consolidation coupled with faster exchange rate adjustment would yield favorable results.
    Keywords: Public debt;External debt;Foreign exchange;Government finance statistics;External sector statistics;ISCR,CR,debt,resource,PNG NSO staff,project debt repayment
    Date: 2018–12–03
  44. By: Fajar, Muhammad; Prasetyo, Octavia Rizky; Nonalisa, Septiarida; Wahyudi, Wahyudi
    Abstract: The outbreak of COVID-19 is having a significant impact on the contraction of Indonesia`s economy, which is accompanied by an increase in unemployment. This study aims to predict the unemployment rate during the COVID-19 pandemic by making use of Google Trends data query share for the keyword “phk” (work termination) and former series from official labor force survey conducted by Badan Pusat Statistik (Statistics Indonesia). The method used is ARIMAX. The results of this study show that the ARIMAX model has good forecasting capabilities. This is indicated by the MAPE value of 13.46%. The forecast results show that during the COVID-19 pandemic period (March to June 2020) the open unemployment rate is expected to increase, with a range of 5.46% to 5.70%. The results of forecasting the open unemployment rate using ARIMAX during the COVID-19 period produce forecast values are consistent and close to reality, as an implication of using the Google Trends index query as an exogenous variable can capture the current conditions of a phenomenon that is happening. This implies that the time series model which is built based on the causal relationship between variables reflects current phenomenon if the required data is available and real-time, not only past historical data.
    Keywords: Unemployment, Google Trends, PHK, ARIMAX
    JEL: C22 C53 E24 E37 E39 J6 J64
    Date: 2020–11–30
  45. By: Masashige Hamano (Waseda University); Francesco Zanetti (University of Oxford)
    Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy.
    Keywords: Monetary policy; firm heterogeneity; product variety; reallocation
    JEL: E32 E52 L51 O47
    Date: 2020–05
  46. By: Gee Hee Hong; Rahul Anand; Yaroslav Hul
    Abstract: The Bank of Japan has introduced various unconventional monetary policy tools since the launch of Abenomics in 2013, to achieve the price stability target of 2 percent inflation. In this paper, a forward-looking open-economy general equilibrium model with endogenously determined policy credibility and an effective lower bound is developed for forecasting and policy analysis (FPAS) for Japan. In the model’s baseline scenario, the likelihood of the Bank of Japan reaching its 2 percent inflation target over the medium term is below 40 percent, assuming the absence of other policy reactions aside from monetary policy. The likelihood of achieving the inflation target is even lower under alternative risk scenarios. A positive shock to central bank credibility increases this likelihood, and would require less accommodative macroeconomic policies.
    Keywords: Inflation;Inflation targeting;Banking;Central bank policy rate;Output gap;WP
    Date: 2019–11–01
  47. By: Giovanni Pellegrino (Aarhus University); Efrem Castelnuovo (University of Melbourne and University of Padova); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: How damaging are uncertainty shocks during extreme events such as the great recession and the Covid-19 outbreak? Can monetary policy limit output losses in such situations? We use a nonlinear VAR framework to document the large response of real activity to a financial uncertainty shock during the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We employ the DSGE model to quantify the impact on real activity of an uncertainty shock under different Taylor rules estimated with normal times vs. great recession data (the latter associated with a stronger response to output). We find that the uncertainty shock-induced output loss experienced during the 2007-09 recession could have been twice as large if policymakers had not responded aggressively to the abrupt drop in output in 2008Q3. Finally, we use our estimated DSGE framework to simulate different paths of uncertainty associated to different hypothesis on the evolution of the coronavirus pandemic. We find that: i) Covid-19-induced uncertainty could lead to an output loss twice as large as that of the great recession; ii) aggressive monetary policy moves could reduce such loss by about 50%.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession, Covid-19
    JEL: C22 E32 E52
    Date: 2020–08
  48. By: International Monetary Fund
    Abstract: This paper discusses Honduras’s 2019 Article IV Consultation and Request for a Stand-By Arrangement and an Arrangement Under the Standby Credit Facility. Supported by a Fund program that expired in December 2017, Honduras has reduced macroeconomic imbalances, institutionalized fiscal prudence, and laid the groundwork for a modern monetary policy framework. The authorities are committed to maintain prudent policies and to build on previous achievements to make progress in solving long-standing issues. The authorities’ economic program aims at maintaining macroeconomic stability, while enacting economic and institutional reforms to foster inclusive growth. Honduras needs to foster inclusive growth through reforms and better governance. Policy priorities include: reforms to increase the quality of fiscal policy, sustaining revenue mobilization efforts, protecting investment and social spending, and securing financial sustainability of the public electricity company; and reforms to enhance transparency and governance in the budget.
    Keywords: Electricity;Credit;Banking;Currencies;National accounts;ISCR,CR,governance,exchange rate,authority,CAPTAC-DR,BCH authorities
    Date: 2019–07–19
  49. By: Bouvard, Matthieu; de Motta, Adolfo
    Abstract: This paper studies an economy where demand spillovers make firms’ production decisions strategic complements. Firms choose their operating leverage trading off higher fixed costs for lower variable costs. Operating leverage governs firms’ exposures to an aggregate labor productivity shock. In equilibrium, firms exhibit excessive operating leverage as they do not internalize that an economy with higher aggregate operating leverage is more likely to fall into a recession following a negative productivity shock. Welfare losses coming from firms’ failure to coordinate production are amplified by suboptimal risk-taking, which magnifies the impact of productivity shocks onto aggregate output.
    Keywords: Operating leverage; Labor leverage; Coordination failure; Global games;; Aggregate risk.
    JEL: D24 D62 G01 E32
    Date: 2021–01–19
  50. By: William Barnett (Department of Economics, The University of Kansas and Center for Financial Stability, New York City); Neepa Gaekwad (State University of New York at Fredonia)
    Abstract: In light of the "two-pillar strategy" of the European Central Bank, good measures of aggregated money across countries in the Euro area are policy relevant. The objective of this paper is to focus on the multilateral Divisia monetary aggregates for the Euro area to produce a theoretically consistent measure of monetary services for the Euro area monetary union. Based on theory developed in Barnett (2007), the multilateral Divisia monetary aggregates for 17 Euro area countries are found to provide a better signal of recession, when compared to the corresponding simple sum monetary aggregates.
    Keywords: Divisia Index, European Union, European Monetary Union, Monetary aggregation.
    JEL: C43 C82 E51 F33
    Date: 2021–01
  51. By: Teglio, Andrea
    Abstract: The aim of this paper is to explore under which conditions a representative agent (RA) model is able to correctly approximate the output of a more realistic model based on the "true" assumption of many interacting agents. The starting point is the widespread Keynesian cross diagram, which is compared to an extended versions that explicitly considers a multiplicity of interacting households and firms, and collapses into the original model when the number of agents is one per type. Results show that the RA Keynesian cross diagram model is not a good approximation of the extended model when (i) the network structure of the economy is not symmetric enough, e.g. firms have different sizes, or (ii) the rationality of agents is not high enough. When income inequality is considered, through the introduction of capitalists, the representative agent model is no more a good approximation, even if the agents are rational. A fiscal policy that targets income redistribution improves the prediction of the RA model. In general, all features that increase overall rationality in the economy and decrease its heterogeneity, tend to improve the performance of the RA approximation.
    Keywords: macroeconomics; rationality; inequality; Keynesian cross-diagram; representative agent; agent-based models; networks; simulation; complex adaptive systems
    JEL: C63 E00 E12
    Date: 2020–10–10
  52. By: Brown, Jessica H. (University of South Carolina); Herbst, Chris M. (Arizona State University)
    Abstract: We estimate the impact of macroeconomic conditions on the child care market. We find that the industry is substantially more exposed to the business cycle than other low-wage industries and responds more strongly to negative shocks than positive ones. Indeed, child care employment requires more time to recover than the rest of the economy. Although the reduction in supply may pose difficulties for parents, we find evidence that center quality is countercyclical. When unemployment rates are higher, child care workers have on average higher levels of education and experience, turnover rates are lower, and consumer reviews on are higher.
    Keywords: child care, early childhood education, business cycles
    JEL: J13 J21 E32 J24
    Date: 2021–01
  53. By: International Monetary Fund
    Abstract: Program implementation has been satisfactory. Macroeconomic stability has been maintained, external debt has been stabilized, and several reforms have been launched to modernize economic institutions and the policy framework. Growth is expected to accelerate this year to 3½ percent, supported by FDI and public investment. While the outlook is positive owing to sustained growth in non-extractive sectors, the international environment is less favorable than during the first review. Higher oil import prices and lower commodity export prices weigh on the external and fiscal positions; the economy remains dependent on commodity exports; and debt vulnerabilities and poverty remain high. Downside risks related to global economic developments and regional security are elevated. On the upside, development of the offshore gas field could generate large revenues from 2022 despite short-term costs.
    Date: 2018–12–13
  54. By: Taderera, Christie; Runganga, Raynold; Mhaka, Simbarashe; Mishi, Syden
    Abstract: Various theories ascertain that there is a positive relationship between inflation and interest rate. Developed and developing economies are still in search of an optimum inflation rate that increases economic growth. The SACU members has recorded low growths levels over the past years coupled with low inflation rates. This study examines the relationship between inflation rate, interest rate and economic growth in Southern African Customs Union (SACU) countries. Panel data for SACU countries covering the period 1991 to 2018 was analysed using Pooled Mean Group (PMG) estimators which are Panel Autoregressive Distributed Lag (ARDL) model, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) to enable isolating short and long run effects and for robustness.The results of the study show that inflation has a positive impact on economic growth while lending rate has a negative impact on growth in the long run. These results imply that policymakers should allow a high sustainable inflation rate in order to promote economic growth while interest rate can be used as a monetary policy instrument to achieve the desired inflation rate that will affect economic growth positively.
    Keywords: Inflation, Interest rate, Economic growth, Southern African Customs Union
    JEL: E31 E4 O42 O47
    Date: 2021–01–19
  55. By: International Monetary Fund
    Abstract: The economic shock associated with the COVID-19 pandemic is set to have long-lasting effects on the economic outlook for CEMAC. The pandemic itself seems to be now broadly under control in the region, and the policy response from national and regional authorities, supported by significant emergency financing by the Fund, helped mitigate the initial economic fallout. With lower medium-term oil prices, the outlook projects that CEMAC’s fiscal and external adjustments will be slower than previously envisaged, entailing large external financing needs (around €6.6 billion for 2021–23). Gross international reserves will now reach the equivalent of 5 months of imports by 2025 vs. 2022 pre-pandemic, while net foreign assets (NFA) will be below previous expectations. Public debt would remain at elevated levels, albeit on a declining trend after the increase in 2020. This outlook is highly uncertain and contingent on the evolution of the pandemic and its impact on oil prices. Other significant risks include: delayed implementation of the ongoing or a second phase of new Fund-supported programs, difficulties in filling large external financing needs, and a deterioration in the security situation.
    Date: 2021–01–22
  56. By: Martin Werding
    Abstract: In this paper, I demonstrate that an indicator which is commonly used to assess the long-term fiscal sustainability of public finances in EU member states (“S2”) is also defined if government borrowing rates are assumed to be permanently lower than the growth rate of GDP. I illustrate this finding based on simulations prepared for the Fifth Sustainability Report published by the German Federal Ministry of Finance. In addition, I discuss the interpretation of the indicator in a low-interest environment and the assumption that relevant interest rates continue to be low if there are substantial challenges for fiscal sustainability, e.g., through demographic ageing.
    Keywords: public budget, public debt, fiscal sustainability, interest rates
    JEL: H60 J11 E43
    Date: 2021
  57. By: International Monetary Fund
    Abstract: While improving, the economic outlook remains highly challenging, given the slow and uncertain recovery from the COVID-related shocks. Heavily dependent on oil, the Angolan economy has suffered from weakness in that sector, with falling production (related to the pandemic) and only a partial rebound in international prices recently. These shocks have led to a fifth straight year of recession and hardship. The public debt-to-GDP ratio has risen to very elevated levels, driven by recent real exchange rate depreciation. Nevertheless, strong fiscal performance and active debt management are setting the stage for a gradual economic recovery and reduction in debt vulnerabilities.
    Date: 2021–01–19
  58. By: Artem Kochnev
    Abstract: The paper investigates determinants of investments in state capacity and institutional change in contemporary Ukraine. After formulating a simple sequential two-stage model of investments in state capacity, the paper estimates autoregressive distributed lag and vector autoregressive models to verify its predictions. The paper finds little evidence for the impact of conflict intensity and access to international credit on the pace of reform progress. It finds a statistically significant effect for the intensity of political competition and changes of real wages, albeit these results are sensitive to robustness checks.
    Keywords: cost of war, political cycles, transition economics, Ukraine crisis, political economy, state capacity
    JEL: D74 E01 E20 F51
    Date: 2021–01
  59. By: Eric Monnet; Miklos Vari
    Abstract: This paper explores what history can tell us about the interactions between macroprudential and monetary policy. Based on numerous historical documents, we show that liquidity ratios similar to the Liquidity Coverage Ratio (LCR) were commonly used as monetary policy tools by central banks between the 1930s and 1980s. We build a model that rationalizes the mechanisms described by contemporary central bankers, in which an increase in the liquidity ratio has contractionary effects, because it reduces the quantity of assets banks can pledge as collateral. This effect, akin to quantity rationing, is more pronounced when excess reserves are scarce.
    Keywords: Banking;Reserve requirements;Liquidity requirements;Liquidity indicators;Government securities;WP,discount window,money market,bank liquidity,discount rate
    Date: 2019–08–16
  60. By: Paul De Grauwe; Yuemei Ji
    Abstract: We analyse the use of current and forward-looking data in the setting of monetary policy (Taylor rule). We answer the question of whether the use of forward-looking data is to be preferred over the use of current data. We use a behavioural macroeconomic model that generates periods of tranquillity alternating with crisis periods characterized by fat tails in the distribution of output gap. We find that the answer to our question depends on the nature of the monetary policy regime. In general, in a strict inflation targeting regime the use of forward-looking data leads to a lower quality of monetary policymaking than in a dual mandate monetary policy regime. Finally, nowcasting tends to improve the quality of monetary policy especially in a strict inflation targeting regime.
    Keywords: Taylor rule, behavioural macroeconomics, animal spirits, strict inflation targeting, dual mandate, nowcasting
    Date: 2021
  61. By: Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent Meyer
    Abstract: Drawing on data from the firm-level Survey of Business Uncertainty, we present three pieces of evidence that COVID-19 is a persistent reallocation shock. First, rates of excess job and sales reallocation over 24-month periods have risen sharply since the pandemic struck, especially for sales. We compute these rates by aggregating over monthly firm-level observations that look back 12 months and ahead 12 months. Second, as of December 2020, firm-level forecasts of sales revenue growth over the next year imply a continuation of recent changes, not a reversal. Third, COVID-19 shifted relative employment growth trends in favor of industries with a high capacity of employees to work from home and against those with a low capacity.
    Keywords: COVID-19; reallocation shock; business expectations; working from home; Survey of Business Uncertainty
    JEL: D22 D84 E23 E24 J21 J62 J63
    Date: 2021–01–15
  62. By: Kilian Huber
    Abstract: The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers.
    Keywords: bank regulation, big banks, bank size, economic growth, Brexit, economic geography, employment, globalisation, productivity,technological change
    JEL: E24 E44 G21 G28
    Date: 2020–12
  63. By: Paustyan, Ekaterina
    Abstract: This paper studies the distribution of politically motivated intergovernmental transfers in Russia focusing on the case of the 2018 FIFA World Cup. It investigates what factors have accounted for the selection of the 2018 FIFA World Cup venues. Qualitative Comparative Analysis of 14 cases reveals that well-connected political elites were able to secure the right for their regions to host the championship and, as a result, to extract additional funds from the center. These findings are in line with the argument that the regional governments in Russia play an important role in the distribution of politically sensitive transfers. Taking into account that these transfers have been increasing over the past years, there is no surprise that the regional elites have developed various lobbying strategies and mechanisms for attracting them.
    JEL: E62 L83 O23 P26 R11
    Date: 2021–01–28
  64. By: Li, Wenhao (U of Southern California); Li, Ye (Ohio State U)
    Abstract: Bypassing the banking systems, central banks around the world lent to nonfinancial firms on an unprecedented scale during the Covid-19 crisis. Effective and necessary as it is, direct lending is subject to credit mispricing given central banks' lack of information on individual borrowers. Our dynamic model characterizes a downward bias in firm quality distribution that is self-perpetuating: Direct lending in the current crisis necessitates a greater scale of interventions in future crises, which in turn cause more severe distortion of firm quality distribution. Such effects are amplified by firms' forward-looking investment decisions in normal times. Low-quality firms overinvest to take advantage of underpriced central bank credit in future crises while, on a relative basis, high-quality firms underinvest. The distortionary effects can be mitigated by central banks' use of market information, collaboration and regulation of informed banks, and coordination of direct lending and conventional monetary policy.
    JEL: E5 G0
    Date: 2020–11
  65. By: International Monetary Fund
    Abstract: Economic activity shows incipient signs of stabilization in some sectors while it remains weak in others. The fiscal consolidation efforts continued and the domestic primary balance at end-June 2018 improved by 0.3 percent of GDP relative to the same period in 2017. Inflation has turned positive at 0.9 percent in September 2018 and is expected to remain below the WAEMU convergence criterion of up to 3 percent during the program period. The government is revisiting its strategy on the two public banks and is relaunching their privatization. The socio-political tensions have abated but the situation remains uncertain, particularly in light of the upcoming elections at end-2018.
    Keywords: Public debt;External debt;Fiscal stance;Revenue administration;Expenditure;ISCR,CR,reform agenda,disbursement to Togo,debt
    Date: 2018–12–12
  66. By: International Monetary Fund
    Abstract: The ruling party won about half of the seats in the October 2018 municipal elections, but the political landscape is becoming more complex and uncertain, with the competition among the three traditional parties intensifying ahead of the 2020 presidential elections. The economic outlook remains strong, underpinned by robust consumption and investment, but risks are tilted downside. Growth is projected to stay around 7½ percent in 2018–19. Inflation is expected to remain subdued.
    Date: 2018–12–14
  67. By: Hajime Tomura (Faculty of Political Science and Economics, Waseda University)
    Abstract: This paper presents a three-period model to endogenize the need for bank notes given the availability of trade credit. The model shows that banks can improve risk sharing in the economy by discounting commercial bills to issue bank notes, because bank notes can serve as payment instruments backed by a diversified pool of commercial bills issued by payers. This characteristic of bank notes, however, can cause a self-fulfilling mass refusal of bank notes by payees due to endogenous default on commercial bills. This result holds even if bank notes are not redeemable on demand before maturity. The model shows that a capital requirement is not sufficient for preventing a self-fulfilling mass refusal of bank notes, while a reserve requirement is.
    Keywords: Bank notes; Trade credit; Commercial bills; Bank run; Reserves; Payment system
    JEL: E42 G21
    Date: 2020–03
  68. By: DEHMEJ , Salim (International Monetary Fund); MIKOU, Mohammed (Bank Al-Maghrib, Département de la Recherche)
    Abstract: La crise des « subprimes » et plus récemment celle du Covid-19 ont mis en exergue les risques potentiels menaçant la stabilité financière et l’importance d'une surveillance accrue du système financier. L’objectif de ce document de travail est double puisqu’il mesure d’abord le risque systémique du secteur bancaire marocain - à l’aide de techniques récentes développées dans la littérature économique et utilisées par des Banques Centrales - avant de l’intégrer dans un indice agrégé de stabilité financière (IASF), susceptible de faciliter le suivi des risques financiers et la détection précoce des vulnérabilités. L’indice agrégé est calculé comme une moyenne pondérée de 25 indicateurs macroéconomiques et financiers, classés en cinq sous-indices : le développement macroéconomique, le développement financier, la vulnérabilité bancaire, la vulnérabilité du secteur non financier et le risque systémique. Son évolution est contenue et confirme que le système financier marocain a fait preuve d’une résilience avérée durant ces dernières années.
    Keywords: Stabilité financière; Risque Systémique; Indice de stress financier; SRISK
    JEL: E44 G01 G10 G20
    Date: 2020–12–30
  69. By: Ross Levine; Yona Rubinstein
    Abstract: We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated cognitive and non-cognitive human capital skills, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.
    Keywords: entrepreneurship, human capital, occupational choice, corporate finance, business cycles
    JEL: L26 J24 G32 E32
    Date: 2020–10
  70. By: Linda Schilling; Jesús Fernández-Villaverde; Harald Uhlig
    Abstract: A central bank digital currency, or CBDC, may provide an attractive alternative to traditional demand deposits held in private banks. When offering CBDC accounts, the central bank needs to confront classic issues of banking: conducting maturity transformation while providing liquidity to private customers who suffer “spending” shocks. We analyze these issues in a nominal version of a Diamond and Dybvig (1983) model, with an additional and exogenous price stability objective for the central bank. While the central bank can always deliver on its nominal obligations, runs can nonetheless occur, manifesting themselves either as excessive real asset liquidation or as a failure to maintain price stability. We demonstrate an impossibility result that we call the CBDC trilemma: of the three goals of efficiency, financial stability (i.e., absence of runs), and price stability, the central bank can achieve at most two.
    JEL: E58 G21
    Date: 2020–12
  71. By: Karimi, Abdul Matin
    Abstract: After the United States invasion of 2001 that toppled the Taliban’s Islamic Emirate, a Republic Government was established in Afghanistan. The newly formed Government could not succeed in raising adequate public revenue to meet the growing public expenditure. To fill the fiscal deficit, the newly formed Government relied on foreign aid grants because it could not afford debt-financing. Foreign aid grants influx since 2002 helped Afghanistan in many ways. However, a continued and massive reliance on foreign aid grants transformed Afghanistan into an aid-dependent rentier state. Besides, a large inflow of foreign aid grants also had several counterproductive consequences for the country. To understand the sources and implications of aid-dependency, as well as explore the potential solutions for overcoming aid-dependency, the author conducted this study. This research study uses a mixed research method, and the analysis is based on both primary and secondary data. This research’s findings indicate that the small size of the economy, informality, high unemployment, lack of technical and institutional capacity, high level of corruption, and enormous military spending are some of the main reasons impeding the enhancement of domestic public resource mobilization (DPRM) in Afghanistan. To overcome these challenges, the author recommended short-term, medium-term, and long-term policy recommendations that could have a reasonable chance of success to enhance DPRM in Afghanistan. These recommendations are based on the analysis of the situation in Afghanistan and the lessons learned from other countries.
    Keywords: Foreign Aid; ODA; Aid-Dependency; Afghanistan; Foreign Aid in Afghanistan; Afghanistan Aid Dependency; Fiscal Policy; Domestic Public Expenditure; Domestic Public Revenue; Domestic Revenue Mobilization; DPRM; DRM; Self-Reliance Policies; Financial Self-Reliance.
    JEL: E62 F35 H24 H25 H63 H68
    Date: 2020–12–22
  72. By: International Monetary Fund
    Abstract: Although the pandemic has remained fairly contained in Senegal, its economic impact has been severe. Strong fiscal and monetary policy support has helped bolster the health system and cushion the economic shock, with additional fiscal spending exceeding 3 percent of GDP. The IMF disbursed US$442 million (100 percent of quota) under the RFI/RCF in April to support the crisis response. An ambitious 2021–23 economic recovery plan aims to build a more resilient economy and support inclusive and private sector-led growth. WAEMU Finance Ministers agreed to return to the 3 percent of GDP fiscal deficit anchor more gradually (by 2023) owing to the pandemic’s impact and the security challenges in the Sahel.
    Date: 2021–01–19
  73. By: Assaf Razin
    Abstract: Post WWII globalization forces are facing headwinds in the form of global crises-the “The Great Recession” and the “The Pandemic Recession”. Israel’s trade and financial globalization, however, is steadily rising. The pandemic-induced slump in economic activity is deep, as consumer spending, investment spending, and export demand tumble. Central banks, tied down by the zero interest rate, resort to semi-fiscal expansionary policies. Indeed, the stabilization burden falls on fiscal policy. The paper provides an overview of the new globalization trends in the world and in Israel, with emphasis on the role of global crises, the Global Financial Crisis, and the Pandemic Crisis in changing globalization long-term trends. When the coronavirus hit, supply chains and production have been disrupted. However, the impact of the pandemic shock is not on the supply side only. On the demand side, the desire to invest has plunged, while people across the rich world are now saving much of their income. Would this short-term changes can reinforce the re-trending of the globalization, which is observed since the Global Financial Crisis? The paper focuses on globalization and provides comparative overview of experiences of the advanced economies and Israel.
    JEL: F1 F3
    Date: 2021–01
  74. By: Raut, Dirghau; Raju, Swati
    Abstract: In this paper we apply panel vector error correction model to analyze the role of debt burden and income level in determining expenditure multipliers of Indian states. Our main results based on annual data from 1990-91 to 2015-16 suggest that the size of multiplier is sensitive to expenditure composition, debt level and the per capita income. The development expenditure multiplier is found to be 1.74 times of total expenditure multiplier. Further, the multipliers are found to be larger for low debt states than the high debt states, for both total expenditure and development expenditure. The impact of income on multiplier is, however, asymmetric across expenditures. While total expenditure multiplier is higher for low income states, development expenditure multiplier is found to be highest in high income states.
    Keywords: Fiscal policy, panel data, expenditure multipliers, dynamic fixed effect estimator
    JEL: C23 E62 H72
    Date: 2019–10–04
  75. By: David A. Green; Ali Karimirad; Gaëlle Simard-Duplain; Henry E. Siu
    Abstract: The extent to which K-12 schools should remain open is at the forefront of discussions on long-term pandemic management. In this context, there has been little mention of the immediate importance of K-12 schooling for the rest of the economy. Eliminating in-person schooling reduces the amount of labour time parents of school-aged children have available to work, and therefore reduces income to those workers and the economy as a whole. We discuss two measures of economic importance, and how they can be modified to better reflect the vital role played by K-12 education. The first is its size, as captured by the fraction of GDP that is produced by that sector. The second is its centrality, reflecting how essential a sector is to the network of economic activity. Using data from Canada’s Census of Population and Symmetric Input-Output Tables, we show how accounting for this role dramatically increases the importance of K-12 schooling.
    JEL: E01 I20 J22
    Date: 2020–12
  76. By: International Monetary Fund
    Abstract: Mali is a fragile state, struggling with insurgency and making efforts to build peace. The 2013–18 ECF-supported program has broadly succeeded in achieving its objectives under difficult circumstances. The program helped stabilize the economy in the context of persistent insecurity, changing terms of trade, and adverse weather conditions. The economy has continued to perform well in 2018, with robust economic growth and low inflation, but poverty and inequality have remained high. The near-term outlook for sustainable growth is subject to downside risks from unfavorable security conditions.
    Keywords: Revenue administration;Fiscal stance;Public debt;Expenditure;Inflation;ISCR,CR,authority,ECF arrangement,reform,SDR,deficit,ECF-supported program
    Date: 2018–12–12
  77. By: Lei Fang; Pedro Silos
    Abstract: This article looks at the wage growth associated with a spell of unemployment during the past three recessions. Our main findings are threefold. First, half of all unemployed workers experience a lower hourly wage once they regain employment. Second, afteran unemployment spell, older workers and those without a college degree experience lower wage growth. Third, workers who regain employment in a different industry than they were in previously tend to experience a substantial wage decline. The analysis suggests that the COVID-19 pandemic not only led to unprecedented job losses, but it could also result in sizable wage losses for a large fraction of unemployed workers as they return to employment.
    Keywords: wage growth; unemployment spell; recession; industry switching; COVID-19
    JEL: E24 J31
    Date: 2020–07–13
  78. By: International Monetary Fund
    Abstract: The growth momentum continues, driven by strong port activity, high cotton production, and the recovery of the Nigerian economy. The 2019 budget will bring the commitment-based fiscal deficit below the WAEMU convergence criterion of 3 percent of GDP next year. Program implementation remains satisfactory with all end-June 2018 quantitative performance criteria (QPCs) met; but the continuous QPC on non-accumulation of new domestic arrears was breached over March-June due to an institutional oversight.
    Date: 2018–12–13
  79. By: International Monetary Fund
    Abstract: The Chinese economy continues its fast recovery from the health and economic crisis as a strong containment effort and macroeconomic and financial policy support have mitigated the crisis impact and helped the economy rebound. However, growth is still unbalanced as the recovery has relied heavily on public support while private consumption is lagging. Rising financial vulnerabilities and the increasingly challenging external environment pose risks to the outlook. Important reforms have progressed despite the crisis, but unevenly across key areas.
    Date: 2021–01–08
  80. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is having an adverse impact on Rwanda’s economy, despite a sizeable policy response. Output in 2020 is projected to contract by 0.2 percent, compared to an 8 percent increase expected pre-pandemic. The government’s early actions helped contain the spread of the virus and mitigate its economic impact, supported by financing from Rwanda’s development partners, including from the IMF under the RCF. With the number of infections contained, the authorities are gradually easing up containment measures.
    Keywords: Public debt;COVID-19 ;Debt sustainability analysis;Fiscal risks;External debt;ISCR,CR,IT system,assessment of a reform target,staff appraisal,real-time assessment,interest rate
    Date: 2021–01–04
  81. By: Vera Tolstova
    Abstract: In a real economy, decisions on investments in child human capital of children are made by families rather than by atomistic parents as is typically assumed in the literature. This paper incorporates family formation into an otherwise standard dynastic framework with human capital accumulation. The study finds that accounting for differences in taxation and education policies between the U.S. and 10 OECD countries is sufficient to replicate cross-country variations in the degree of assortative matching and its positive correlation with the persistence of intergenerational earnings. Positive assortative matching is crucial to a model’s ability to generate realistic levels of intergenerational earnings correlation observed in the data.
    Keywords: marital sorting; intergenerational earnings persistence; taxation; education subsidies;
    JEL: E62 H31 H52 I24 J12 J62
    Date: 2021–01
  82. By: Enea Baselgia (University of St.Gallen, Switzerland); Isabel Z. Martínez (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: We estimate the ratio of private wealth to national income, βpt, for Switzerland over the period 1900–2018. Our results indicate that the development of βpt in Switzerland did not follow a U-shaped pattern as in most European countries, but that the evolution was extraordinarily stable, with βpt oscillating around 500% over most of the 20th century. However, the wealth-income ratio has been on the rise since the turn of the century to reach 721% in 2017 – an unprecedented level in the past. This considerable increase is mainly driven by large capital gains in housing wealth since 2010. We present new cross-country evidence that capital gains in housing wealth have become an important driver of rising wealth-income ratios in a series of developed economies.
    Keywords: wealth-income ratio; income distribution; economic growth; housing prices
    JEL: N34 D31 D33 E01
    Date: 2020–12
  83. By: International Monetary Fund
    Abstract: Timely containment, a large monetary stimulus, and targeted fiscal measures helped save lives and livelihoods during the first COVID-19 wave, but a significant second wave is still unfolding. The economic and human impact has been sizeable: real GDP is expected to decline by 3 percent in 2020; unemployment has surged to record levels; tourism and remittances have declined; and revenues of the central government and of other public sector entities have dropped, raising public debt to 90 percent of GDP. A new government and parliament have been ushered in, with welcome continuity in reform commitment.
    Date: 2021–01–12
  84. By: International Monetary Fund
    Abstract: Context: In 2017/18 growth slowed due to political uncertainty and appropriately restrictive macroeconomic policies. The external current account deficit narrowed to 6.4 percent of GDP reflecting public-sector fiscal consolidation and a tight monetary policy stance. Reserves were thin and foreign exchange shortages persisted. Prime Minister (PM) Abiy Ahmed took office in April 2018, catalyzing a drive for reforms, including towards economic opening. Outlook Output growth is expected to accelerate to 8.5 percent in 2018/19 as political uncertainty abates and financial inflows temporarily ease external constraints. The Debt Sustainability Analysis (DSA) continues to assess Ethiopia at high risk of debt distress. Reforms announced by the authorities—including privatizations and opening key sectors to competition and private investment—pose a substantial upside growth potential.
    Keywords: Public debt;External debt;Foreign exchange;Monetary base;Revenue administration;ISCR,CRauthority,private sector,NBE bill,economic reform
    Date: 2018–12–04
  85. By: Fajar, Muhammad; Hartini, Sri
    Abstract: The aim of this research is to compare among the performance of ARIMA, Singular Spectrum Analysis (SSA), and ARIMA-SSA hybrid model which is applied to Indonesian economic growth forecasting. Data used in this research is economic growth (quarter to quarter, q to q) 1983 Q2 – 2018Q2 taken from Badan Pusat Statistik (BPS). The result of this research concludes that ARIMA-SSA hybrid method shows a better performance in economic growth forecasting compared to ARIMA and SSA based on the RMSE results.
    Keywords: hybrid model, ARIMA-SSA, forecasting, growth
    JEL: C22 C45 E17
    Date: 2020–06–16
  86. By: Vera Tolstova
    Abstract: This paper studies a politico-economic dynamic general equilibrium model to quantify the importance of endogenous fertility in explaining the generosity of redistribution and education policies in the U.S. Policies are endogenised as outcomes of majority voting. I find that accounting for endogenous fertility is essential for strong performance of the model in matching the levels of both transfers and education subsidies in the U.S. economy. The predictions of the model regarding a cross-section of U.S. states are used to verify the plausibility of fertility decision responses to policies and, consequently, to support the credibility of this result.
    Keywords: voting; endogenous fertility; redistribution; education;
    JEL: D72 E62 H52 I24 I38 J13
    Date: 2021–01
  87. By: International Monetary Fund
    Abstract: The IMF Executive Board approved, on March 23, 2020, a 39-month Extended Credit Facility (ECF) arrangement in the amount of SDR 35 million (56.3 percent of quota) for The Gambia. The Gambia benefited from a Rapid Credit Facility (RCF) disbursement of SDR 15.55 million (25 percent of quota) approved on April 15, 2020 and is receiving debt service relief under the Catastrophe Containment and Relief Trust (CCRT) expected to total SDR 7.9 million (SDR 4.2 million of which has already been approved), to help meet heightened balance-of-payments and fiscal financing needs due to the impact of the COVID-19 pandemic. While indicators point to a domestic weakening of the pandemic, the authorities are seeking an ECF augmentation of SDR 20 million (32.15 percent of quota) to meet balance-of-payments needs arising from fiscal measures to stimulate the economic recovery in 2021, strengthen public health preparedness, increase social spending to mitigate the effects of the pandemic. They are also requesting a waiver of nonobservance of a continuous performance criterion (a zero ceiling) on new external payment arrears of the central government.
    Date: 2021–01–28
  88. By: Jan Kregel
    Abstract: The success of alternative payment systems has led to discussion of various proposals to replace money with a new technology-based system, though many lack a clear idea of what exactly is the "money" they seek to replace. We begin by presenting the explanation of money's role in the economy embraced by most mainstream economists and policy analysts, based on the idea that money evolved out of the process of market exchange. An alternative explanation that looks on money as a part of the organization of production and distribution based on network clearing systems across balance sheets expressed in a common unit of account is then presented, distinguishing between a purely notional unit of account and means of settlement or discharge of debt. The final section addresses the possibility of a fundamentally different modern extension of this alternative approach that is not inspired by digital technology, distributed ledger accounting, or application operating on a mobile/cell phone system, but rather the actually existing system available from an internet telephone service provider that currently offers subsidiary domestic and international payment services whose operating procedures come close to replicating the alternative explanation of money mentioned above, with the potential to provide all the services of the existing payments system at lower costs and greater stability.
    Keywords: Banking Principle; Clearing Union; Imaginary Money; Money; Payment Systems; Unit of Account;
    JEL: B5 E42 E50 G2
    Date: 2021–01
  89. By: Ryota Nakatani
    Abstract: A big challenge for the economic development of small island countries is dealing with external shocks. The Pacific Islands are vulnerable to natural disasters, climate change, commodity price changes, and uncertain donor grants. The question that arises is how should small developing countries formulate a fiscal policy to achieve economic stability and fiscal sustainability when prone to various shocks? We study how natural disasters affect long-term debt dynamics and propose fiscal policy rules that could help insulate the economy from such unexpected shocks. We propose fiscal rules to address these shocks and uncertainties using the example of Papua New Guinea. Our study finds the advantages of expenditure rules, especially a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This paper contributes to the literature and policy dialogue by theoretically analyzing the impact of natural disasters on debt sustainability and proposing fiscal rules against natural disasters and climate changes. Our fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of natural disasters and climate change. Our rules-based fiscal framework is crucial for sustainable and countercyclical macroeconomic policies to build resilience against devastating natural hazards.
    Keywords: Natural disasters;Fiscal rules;Expenditure;Fiscal policy;Public debt;WP,expenditure rule,stabilization fund
    Date: 2019–09–06
  90. By: Francisco Costa; Letícia Nunes; Fábio Sanches
    Keywords: physician labor supply, recruiting, discrete choice model, revealed preferences
    JEL: E32 R10
    Date: 2019–07–04
  91. By: Schlingemann, Frederik P. (U of Pittsburgh and European Corporate Governance Institute); Stulz, Rene M. (Ohio State U and European Corporate Governance Institute)
    Abstract: The firms listed on the stock market in aggregate as well as the top market capitalization firm contribute less to total non-farm employment and GDP now than in the 1970s. A major reason for this development is the decline of manufacturing and the growth of the service economy as firms providing services are less likely to be listed on exchanges. We develop quantitative measures of representativeness showing how firms' market capitalizations differ from their contribution to employment and GDP. Representativeness is worst when the market is most highly valued and worsens over time for employment, but not for value added.
    JEL: E44 G23 G32 K22 L16
    Date: 2020–10
  92. By: Alexander Schramm; Alexander Schwemmer; Jan Schymik
    Abstract: We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages.
    Keywords: Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives
    JEL: E22 G31 D24 D25 L23
    Date: 2021–01
  93. By: Masashige Hamano (Waseda University); Munechika Katayama (Waseda University); So Kubota (Waseda University)
    Abstract: Uncertainty about the true state of the COVID-19 pandemic has caused substantial difficulty in economic activities and policymaking. How does the uncertainty affect the macroeconomy and infections? What are the policy implications? To answer these questions, this paper presents a model that incorporates people's misperception about the current COVID-19 spread in the market. Our baseline model shows that underestimation about the number of infections reduces the social welfare due to worsening the externality of economic activities on virus transmissions while overestimation improves it to some extent. In an extended model with limited medical resources, we show that a slight breakdown of the medical system can mitigate the underestimation of the risk of being infected. We also consider the quarantine policy that limits both infections and the fall in economic activities for various degrees of misperception. Finally, affecting the extent of misperception about the spread is shown to be an effective policy tool that substitutes proposed containment policies in the literature.
    Keywords: COVID-19, imperfect information, SIR-macro
    JEL: E1 I1 H0
    Date: 2020–11
  94. By: Òscar Jordà; Martin Kornejew; Moritz Schularick; Alan M. Taylor
    Abstract: With business leverage at record levels, the effects of corporate debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of corporate debt overhang based on long-run cross-country data covering the near- universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of corporate debt booms rise when inefficient debt restructuring and liquidation impede the resolution of corporate financial distress and make it more likely that corporate zombies creep along.
    JEL: E44 G32 G33 N20
    Date: 2020–12
  95. By: Olga Bespalova; Marina V Rousset
    Abstract: This paper uses the Growth-at-Risk (GaR) methodology to examine how macrofinancial conditions affect the growth outlook and its probability distribution. Using this approach, we evaluate risks to GDP growth in the Dominican Republic using quarterly data for 1996-2018. We group macrofinancial conditions in five principal determinants, based on 32 indicators. The Dominican Republic’s growth distribution appears most vulnerable to negative shocks to domestic financial conditions, domestic leverage, domestic demand, and external demand, with additional repercussions from the external cost of borrowing in the longer run. Our findings show that domestic monetary policy plays a particularly important role in reducing growth vulnerabilities when the economy is weak.
    Keywords: Credit;Liquidity;Macrofinancial linkages;Growth-at-risk assessment;WP,financial condition,interest rate,borrowing cost,transmission mechanism
    Date: 2019–11–13
  96. By: Lorenzo Bretscher (University of Lausanne and Swiss Finance Institute); Alex Hsu (Georgia Institute of Technology - Scheller College of Business); Peter Simasek (Georgia Institute of Technology - Scheller College of Business); Andrea Tamoni (Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick)
    Abstract: Using the first reported case of COVID-19 in a given US county as the event day, firms headquartered in an affected county experience an average 27 bps lower return in the 10-day post-event. This negative effect nearly doubles in magnitude for firms in counties with a higher infection rate (-50 bps). We test a number of transmission channels. Firms belonging to labor intensive industries and residing in counties with large mobility decline have worse stock performance. Firms sensitive to COVID-19 induced uncertainty also exhibit more negative returns. Finally, firms associated with downward earnings forecast revisions are more impacted.
    Keywords: COVID-19, Equity Returns, Labor Supply, Uncertainty, Earnings Forecast
    JEL: E4 E6 G12
    Date: 2021–01
  97. By: Bakari, Sayef
    Abstract: This article investigates the impact of domestic investments on economic growth in Spain over the period 1970 – 2017. The stylized facts and empirical results indicate that domestic investments, thus, are seen as the source of economic growth in Spain. The study concludes that policy makers should pay attention to the relationship between domestic investments, exports, imports and growth. This also highlights the urgent need in formulating policies that enhance the role of exports in stimulating domestic investment and improving trade balance. We strongly suggest that the popularization of this study should be observed with caution. All the results are robust.
    Keywords: Domestic Investments, Economic Growth, Policy, Spain.
    JEL: C13 E22 F14 O2 O47 O52
    Date: 2021–01
  98. By: International Monetary Fund
    Abstract: Germany managed the first wave of the COVID-19 epidemic relatively well thanks to an early and vigorous public health response. Nonetheless, unprecedented disruptions to economic and social activity caused a deep recession in the first half of 2020. The gradual easing of containment measures since late-April has led to a partial revival of growth, but in late-October a “lockdown light” was announced to counter a new wave of infections, and restrictions were further tightened in mid-December. Significant risks remain about the pace and extent of the recovery as the uncertain course of the epidemic continues to impact economic activity.
    Date: 2021–01–19
  99. By: Huberto M. Ennis; Elizabeth C. Klee
    Abstract: We study new transaction-level data of discount window borrowing in the U.S. from 2010–17, merged with quarterly data on bank financial conditions (balance sheet and revenue). The objective is to improve our understanding of the reasons why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaningfully correlated with some relevant characteristics of banks and the composition of their balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times.
    Keywords: Discount window; Financial crises; Borrowing
    Date: 2021–01–13
  100. By: International Monetary Fund
    Abstract: The COVID-19 pandemic has severely affected Benin. The authorities’ early and decisive action has helped stave off the spread of the virus, and a sizeable fiscal response has kept a recession at bay. Nevertheless, the economy has suffered a substantial downgrade in its economic outlook, with growth slowing down from 6.9 percent in 2019 to 2 percent in 2020, against an initial projection of 7 percent before the pandemic. Large financing needs, opened by the authorities’ fiscal response to the crisis, have given rise to an urgent balance of payments need.
    Date: 2021–01–19
  101. By: Eric Monnet; Damien Puy
    Abstract: Why did monetary authorities hold large gold reserves under Bretton Woods (1944–1971) when only the US had to? We argue that gold holdings were driven by institutional memory and persistent habits of central bankers. Countries continued to back currency in circulation with gold reserves, following rules of the pre-WWII gold standard. The longer an institution spent in the gold standard (and the older the policymakers), the stronger the correlation between gold reserves and currency. Since dollars and gold were not perfect substitutes, the Bretton Woods system never worked as expected. Even after radical institutional change, history still shapes the decisions of policymakers.
    Keywords: Gold;Gold reserves;International reserves;Currencies;Banking;WP,Bretton Woods system,gold standard exposure,unit of currency,exchange rate,gold standard practice
    Date: 2019–07–24
  102. By: Sasaki, Hiroaki
    Abstract: This study presents a growth model with automation technology that considers two classes (workers and capitalists) who conduct dynamic optimization in different manners. In addition to two production factors, labor and traditional capital, automation capital is included as the third production factor. Long-run dynamics of input ratios of production factors, income distribution, and per capita output growth are investigated. Regardless of the size of workers' discount factor, workers' own traditional capital has no transitional dynamics and stays constant. When capitalists' discount factor is large, in the long run, the growth rate of per capita output is positive and constant: endogenous growth is obtained. In this case, income gap between workers and capitalists continues to increase through time. When capitalists discount factor is small, two different cases appear. First, when the initial value of traditional capital is large, both capitalists' own traditional capital and automation capital converges to constant values. In this case, income gap between workers and capitalists converges to a constant value. Second, when the initial value of traditional capital is small, capitalists' own traditional capital converges to a constant value while capitalists' own automation capital approaches zero. In this case, income gap between workers and capitalists converges to a constant value. When automation capital becomes zero, after then, the dynamical system switches to a dynamical system without automation capital.
    Keywords: automation technology; endogenous growth; income distribution
    JEL: E25 O11 O33 O41
    Date: 2021–01–21
  103. By: Alvar Kangur; Koralai Kirabaeva; Jean-Marc Natal; Simon Voigts
    Abstract: We study the properties of the IMF-WEO estimates of real-time output gaps for countries in the euro area as well as the determinants of their revisions over 1994-2017. The analysis shows that staff typically saw economies as operating below their potential. In real time, output gaps tend to have large and negative averages that are largely revised away in later vintages. Most of the mis-measurement in real time can be explained by the difficulty in predicting recessions and by overestimation of the economy’s potential capacity. We also find, in line with earlier literature, that real-time output gaps are not useful for predicting inflation. In addition, countries where slack (and potential growth) is overestimated to a larger extent primary fiscal balances tend to be lower and public debt ratios are higher and increase faster than projected. Previous research suggests that national authorities’ real-time output gaps suffer from a similar bias. To the extent these estimates play a role in calibrating fiscal policy, over-optimism about long-term growth could contribute to excessive deficits and debt buildup.
    Keywords: Output gap;Fiscal stance;Potential output;Inflation;Fiscal policy;WP,output gap estimate,real-time output gaps,debt buildup,output gap bias,output gap revision
    Date: 2019–09–20
  104. By: Jeon, Bang (School of Economics); Yao, Yao (Research Institute of Economics and Management); Chen, Minghua (Research Institute of Economics and Management); Wu, Ji (Research Institute of Economics and Management)
    Abstract: This paper examines the impact of macroprudential policies on bank risk under economic uncertainty in emerging Asian economies. By using bank-level panel data for selected emerging Asian economies during the period 2000-2016, we present consistent evidence that bank risk increases with economic uncertainty, while macroprudential measures play an ameliorative role to the uncertainty-induced bank risk. We confirm that these findings are robust against a series of alternative measures of economic uncertainty and bank risk, and alternative econometric tools to address possible endogeneity concerns.
    Keywords: Economic uncertainty; bank risk; macroprudential policy; emerging Asia
    JEL: G15 G21
    Date: 2021–01–16
  105. By: Gorodnichenko, Yuriy (University of California, Berkeley); Talavera, Oleksandr (University of Birmingham); Vu, Nam (University of Birmingham)
    Abstract: This paper investigates the link between product quality and price setting for central processing units (CPUs). Using thousands of price quotes from a popular price-comparison website, we find that market fundamentals, such as the number of sellers, median price, share of convenient prices and level of seller stability, are important factors for explaining price stickiness and price dispersion. We demonstrate that calculations of price inflation require conditioning not only on CPU quality, but also on market fundamentals to ensure that CPU attributes are priced correctly. Failing to do so can result in an understatement of CPU price deflation in the sample period.
    Keywords: price setting, e-commerce, product quality, hedonic pricing, inflation
    JEL: E31 L11 L81 L86
    Date: 2021–01
  106. By: Enrique G. Mendoza; Eugenio I. Rojas; Linda L. Tesar; Jing Zhang
    Abstract: COVID-19 became a global health emergency when it threatened the catastrophic collapse of health systems worldwide. Its particular mix of rapid spread and severity caused demand for health goods and services and their relative prices to surge, unlike other diseases that are deadlier (e.g. Ebola, MERS) or just as contagious but less severe (e.g. Influenza, H1N1). Governments responded with prolonged lockdowns that caused large drops in economic activity. Empirical evidence shows that lockdowns and healthcare saturation explain a sizable fraction of cross-country variation in observed GDP drops even after controlling for COVID cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to the Stone-Geary subsistence level of health that is larger at higher levels of capital utilization in a model with capitalists and workers. A health system’s degree of saturation is the gap between supply and subsistence levels. The tradeoff is non-linear, with sharply larger welfare costs as lockdowns or healthcare saturation tighten. An externality distorts utilization, because firms do not internalize that lower utilization relaxes healthcare saturation. Optimal lockdowns remove it, but small deviations leave health systems closer to saturation or impose large output costs. Inequality worsens markedly with pandemias, increases sharply their welfare costs, and makes large transfers to workers optimal.
    JEL: E3 E6 F44 I28
    Date: 2020–12
  107. By: Troy D Matheson
    Abstract: Against the backdrop of an ongoing review of the inflation-targeting framework, this paper examines the real-time inflation forecasts of the Bank of Canada with the aim of identifying potential areas for improvement. Not surprisingly, the results show that errors in forecasting non-core inflation (commodity prices etc.) are found to be the largest contributors to overall inflation forecast errors. Perhaps more importantly, relatively small core inflation forecast errors appear to mask large and offsetting errors related to the output gap and the policy interest rate, partly reflecting a tendency to overestimate the neutral nominal policy rate in real time. Faced with these uncertainties, the Governing Council’s gradual approach to changing its policy settings appears to have served it well.
    Keywords: Inflation;Central bank policy rate;Economic forecasting;Output gap;Inflation targeting;WP,core inflation,inflation expectation
    Date: 2019–09–13
  108. By: Bernd Hayo (Philipps University Marburg); Sascha Mierzwa (Philipps University Marburg)
    Abstract: Using a narrative account of quarterly discretionary changes in tax liabilities from 1974Q4 to 2018Q2 in a VAR setting, we study whether legislative tax changes affect the trade balance in the United States, Germany, and the United Kingdom. As legislative tax changes we consider (i) all changes, (ii) personal income tax changes, (iii) business tax changes, (iv) indirect tax changes in Germany and the UK, (v) spillovers of US tax changes into Germany and the UK, and (vi) asymmetric reactions after tax hikes and cuts. Generally, we find that after a reduction in aggregated tax liabilities, imports and exports in the US and Germany react quite similarly: imports tend to rise; exports do not change much. Consequently and fostered by growing output—the net-exports-to-GDP ratio decreases. We find no clear net effect in the UK. Instead, UK imports only increase after cuts to indirect taxes. However, employing normal variations of the tax changes as a yardstick, the economic magnitude of the estimated effects on the trade variables is not particularly large. Thus, there remain doubts as to whether tax policy is an effective instrument for addressing trade imbalances.
    Keywords: Fiscal policy, tax policy, legislated tax changes, trade balance, exports, imports, Germany, United Kingdom, United States, VAR, narrative approach
    JEL: E62 F41 H30 K34
    Date: 2021
  109. By: Zainab Bello (Faculty of Business Management, Alasala University, Dammam, Saudi Arabia Author-2-Name: Garba Ibrahim Tanko Author-2-Workplace-Name: Department of Public Administration, Usmanu Danfodiyo University Sokoto, 840104, Sokoto, Nigeria Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - This paper's objective is to make a comprehensive compilation of the various theories used in studies of work-life balance (WLB) in order to understand their usage. Methodology/Technique - Based on past literature, this paper focused on review of relevant literature from various online data bases as well as manual texts of studies on WLB with particular attention on the theories used. Using descriptive layout, the paper gives adequate review of WLB theories. Finding - This paper found that there are numerous prevailing theories on WLB explaining the relationships in various WLB studies. Such as Overall Appraisal, Structural Functionalism, Enhancement, Facilitation, Segmentation Spill-over, Compensation, Conservation, Conflict, Human Capital, Congruence, Ladder, Instrumental, Resource drain, Ecology, Border, Boundary and Integration Theories. Based on literature, this paper found that Boundary theory and Border theory are the two major foundation theories used in many studies to explain the different aspects of WLB. Novelty - This paper found that there are no universally accepted theories for WLB. Theories used on WLB studies depend on the range of the study's framework, variables or perspectives of the study. This leads to omissions or overlapping in frameworks.
    Keywords: Work-life Balance; WLB Concepts; Work-Life Balance Theories; Family-Work
    JEL: B54 D63 E24 J24
    Date: 2020–12–31
  110. By: Sang Yoon (Tim) Lee; Minsung Park; Yongseok Shin
    Abstract: The destructive economic impact of the Covid-19 pandemic was distributed unequally across the population. Gender, race and ethnicity, age, education level, and a worker's industry and occupation all mattered. We analyze the initial negative effect and the lingering effect through the recovery phase across demographic and socio-economic groups. The initial negative impact on employment was larger for women, minorities, the less educated, and the young, even after accounting for the industries and occupations they worked in. By November 2020, however, the differential impact between men and women, and between education and age groups has vanished. Across race and ethnic groups, Hispanics and Asians were the worse hit but made up for most of the lost ground, while the initial impact on Blacks was smaller but recovery slower.
    JEL: E24 J15 J16 J21
    Date: 2021–01
  111. By: Germán Gutiérrez; Callum Jones; Thomas Philippon
    Abstract: We combine a structural model with cross-sectional micro data to identify the causes and consequences of rising concentration in the US economy. Using asset prices and industry data, we estimate realized and anticipated shocks that drive entry and concentration. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulations and M&As. We conclude that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about seven percent.
    Keywords: Zero lower bound;Consumption;Corporate sector;Competition;Stocks;WP,concentration ratio,fed funds rate,time series
    Date: 2019–11–01
  112. By: Etienne Lalé (Universite du Quebec a Montreal)
    Abstract: A search-theoretic model of the labor market with idiosyncratic fluctuations in hours worked, search both off- and on-the-job, and multiple jobholding is developed. Taking on a second job entails a commitment to hold onto the primary employer, enabling the worker to use the primary job as her outside option to bargain with the secondary employer. The model performs well at explaining multiple jobholding inflows and outflows, and it is informative for understanding the secular decline in multiple jobholding. While some worry that this decline heralds a less-flexible labor market, the model reveals that it has contributed to reducing search frictions.
    Keywords: Multiple jobholding, Employment, Hours worked, Job search
    JEL: E24 J21 J62
    Date: 2019–04
  113. By: Kazuyuki Sasakura (Faculty of Political Science and Economics, Waseda University)
    Abstract: The Uzawa-Lucas model is a benchmark model in endogenous growth theory. But Lucas (1988) is so influential that the Uzawa-Lucas model is virtually the Lucas model. This paper distinguishes between the Uzawa (1965) model and the Lucas model, and examines the Uzawa model in detail. It is certain that the two models have much in common. However, there are also important differences. Economically the Uzawa model assumes full employment, whereas the Lucas model admits unemployment. Mathematically the maximum growth rate must be smaller than the rate of time preference in the former, whereas the opposite must hold in the latter.
    Keywords: Education Sector; Economic Growth; Uzawa-Lucas Model
    JEL: E13 O41 O43
    Date: 2020–09
  114. By: Samya Beidas-Strom; Marco Lorusso
    Abstract: We build and estimate open economy two-bloc DSGE models to study the transmission and impact of shocks in Russia, Saudi Arabia and the United Kingdom. After accounting for country-specific fiscal and monetary sectors, we estimate their key policy and structural parameters. Our findings suggest that not only has output responded differently to shocks due to differing levels of diversification and structural and policy settings, but also the responses to fiscal consolidation differ: Russia would benefit from a smaller state foot-print, while in Saudi Arabia, unless this is accompanied by structural reforms that remove rigidities, output would fall. We also find that lower oil prices need not be bad news given more oil-intensive production structures. However, lower oil prices have hurt these oil producers as their public finances depend heavily on oil, among other factors. Productivity gains accompanied by ambitious structural reforms, along with fiscal and monetary reforms could support these economies to achieve better outcomes when oil prices fall, including via diversifying exports.
    Keywords: Oil prices;Labor;Oil;Consumption;Oil, gas and mining taxes;WP,exchange rate,monetary policy,trade balance,labour market
    Date: 2019–10–11
  115. By: Christian Zimpelmann
    Abstract: The amount of risk that households take when investing their savings has long-term consequences for their financial well-being. However, a substantial share of observed heterogeneity in financial risk-taking remains unexplained by factors like risk aversion and wealth levels. This study explores whether subjective beliefs about stock market returns can close this knowledge gap. I make use of a unique data set that comprises incentivized, repeated elicitations of stock market beliefs and high-quality administrative asset data for a probability-based population sample. Households with more optimistic stock market expectations hold more risk in their portfolio, where the effect size is about half of the effect size of risk aversion. Furthermore, changes in expectations over time are related to changes in portfolio risk, which demonstrates that cross-sectional correlations are not driven by a time-invariant third variable. The results suggest that stock market expectations are an important component of portfolio choice. More generally, the study shows that subjective beliefs can be reliably measured in surveys and are related to actual high-stakes decisions.
    Keywords: Surveys, Subjective Expectations, Behavioral Finance, Household Finance
    JEL: D14 D84 E21 G11 G4 G5
    Date: 2021–01
  116. By: Angulo, Laura; Godínez, Raúl; López, Axsell
    Abstract: This research addresses the estimation of total factor productivity for Nicaragua throughout the period 1960-2019 by means of three methods: Solow residual, direct substitution method, and Malmquist index. Based on the results obtained, it is concluded that the direct substitution method is more favorable in long series for the Nicaraguan economy given its particular historical evolution and that the contribution of productivity to economic growth averaged 18 %.
    Keywords: Nicaragua, productivity, Solow residual, Malmquist Index, Direct substitution
    JEL: C22 E12 E13 E23 O40
    Date: 2020–12–24
  117. By: Keiichiro KOBAYASHI; Kozo Ueda
    Abstract: In this study, we explain the driving forces behind the secular stagnation associated with a persistent decrease in interest rates by employing a model that incorporates a crisis risk triggered by government debt accumulation. The model shows that fear of large-scale capital taxation and capital misallocation in future debt crises accounts for almost half the economic slowdown in Japan over the past two decades. Over the same period, the government bond yield declines, because a decrease in the expected returns on capital makes investing in government bonds more attractive than investing in capital.
    Date: 2020–11
  118. By: Erel, Isil (Ohio State U and European Corporate Governance Institute); Liebersohn, Jack (U of California, Irvine)
    Abstract: New technology promises to expand the supply of financial services to small businesses poorly served by the banking system. Does it succeed? We study the response of FinTech to financial services demand created by the introduction of the Paycheck Protection Program (PPP). We find that FinTech is disproportionately used in ZIP codes with fewer bank branches, lower incomes, and a larger minority share of the population, as well as in industries with little ex ante small-business lending. FinTech's role in PPP provision is also greater in counties where the economic effects of the COVID-19 pandemic were more severe. We estimate that more PPP provision by traditional banks causes sta- tistically significant but economically small substitution away from FinTechs, implying that FinTech mostly expands the overall supply of financial services, rather than redistributing it.
    JEL: E6 G21 G23 G28 G38 H25 H32 I38
    Date: 2020–10
  119. By: Signe Krogstrup; William Oman
    Abstract: Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central, but can and may need to be complemented by financial and monetary policy instruments. Some tools and policies raise unanswered questions about policy tool assignment and mandates, which we describe. The literature is scarce, however, on the most effective policy mix and the role of mitigation tools and goals in the overall policy framework.
    Keywords: Climate change;Carbon tax;Climate policy;Greenhouse gas emissions;Public investment and public-private partnerships (PPP);WP,government failure,policy authorities,Policy tool,mitigation policy,monetary policy tool,Policy instrument
    Date: 2019–09–04
  120. By: Diego A. Cerdeiro; Andras Komaromi
    Abstract: We reassess the connection between capital account openness and capital flows in an empirical framework that is grounded in theory and makes use of previously unexplored variation in the data. We demonstrate how our theory-consistent regressions may overcome some ubiquitous measurement problems in the literature by relying on interaction terms between financial openness and traditional push-pull factors. Within our proposed framework, we ask: what can be said robustly about the effect of capital account restrictions on capital flows? Our results warrant against over-interpreting the existing cross-country evidence as we find very few robust relationships between capital account restrictiveness and various types of capital inflows. Countries with a higher degree of financial openness are more susceptible to some, but by no means all, push and pull factors. Overall, the results are still consistent with a complex set of tradeoffs faced by policymakers, where the ability to shield the domestic economy from volatile capital flow cycles must be weighed against the sources of exogenous risks and potential long run growth effects.
    Keywords: Capital flows;Capital inflows;Capital account;Financial account;Fiscal accounting and reporting;WP,open economy,fed funds rate,GDP
    Date: 2019–09–13
  121. By: Audi, Marc; Ali, Amjad; Roussel, Yannick
    Abstract: This study analyses the impact of advancement in information and communication technologies (ICT) on economic development over the period of 2000 to 2017 in the case of 87 developed and developing countries. The developed and developing countries are selected following the ranking of International Monetary Fund's World Economic Outlook Database, October 2018. This article uses three types of analysis: the first is based on the whole sample, and for comparative analysis developed and developing countries’ analysis are done separately. The results of panel least squares reveal that advancement in information and communication technologies has an insignificant relationship with economic development, whereas the advancement in information and communication technologies is playing a positive and significant role in the economic development of developing countries. This shows that developed countries are getting more benefits from advancement in information and communication technologies in comparison with developing countries in the process of economic development. The developed countries have a more stable macroeconomic environment in comparison with developing countries, so macroeconomic stability is playing more significant role in the case of developed countries. If developing countries want to achieve higher economic development, they must increase trade and physical capital with stable macroeconomic environment. Moreover, developing countries should adopt advancement in information and communication technologies (ICT) to compete with developed countries in the process of economic development.
    Keywords: ICT, economic development, macroeconomic stability
    JEL: E3 L86 O1
    Date: 2021–01
  122. By: José Valentim Machado Vicente
    Abstract: In this paper I estimate the inflation risk premium (IRP) using a low- dimensional arbitrage free dynamic model through a novel strategy. Instead of modeling the nominal and real yields jointly, I make assumptions about the short-term inflation rate. More specifically, I assume it follows a Gaussian process. This framework has a closed-form expression for IRP. Since inflation yields are not observed, to estimate the model parameters I approximate them by the break-even inflation rate. This approximation works well because the convexity correction is very small. I find the estimated IRP is strongly correlated with those obtained using surveys or more complex models. Therefore, I provide an easier procedure to obtain IRP, avoiding the cumbersome estimation process of high-order models.
    Date: 2021–01
  123. By: Matthew E. Kahn; Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
    Abstract: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.
    Keywords: Climate change;Production growth;Labor;Public expenditure review;Climate policy;WP,math display
    Date: 2019–10–11
  124. By: Julia M. Puaschunder (The New School, Department of Economics, School of Public Engagement, New York, USA)
    Abstract: Overall the following article innovatively paints a novel picture of the mass psychological underpinnings of business cycles based on information flows in order to recommend how certain communication strategies could counterweight and alleviate the building of disastrous financial market mass movements. Acknowledging that human beings are connected to and interact with each other in families, ties and larger networks of states, nations and intergovernmental institutions, studying the role of information in building socially-constructed economic correlates promises to explain how market outcomes are developed in the social compound and can be guided by media communication. Addressing problems of the neoclassical assumption of perfect information markets through the lens of ‘real competition,’ the following paper will specifically unravel how contemporary media communication produces certain types of price expectations that form consumption patterns leading to collectively-shared economic outcomes. An introduction to the history of economic cycles will lead to the analysis of the role of information in creating economic booms and busts in the age of globalization. Applying emergent risk theory onto economic fluctuations will serve as an innovative way to explain how and what information represented in the media creates economic ups and downs. Linguistic roots of news about the economy are aimed at shedding light on how media representations and temporal foci echo in economic correlates and shape market outcomes. As business cycles are a collective phenomenon, group interactions’ potential contribution to create business cycles will innovatively be outlined and the role of information flows among groups in creating price expectations unraveled. Business cycles will also be shown to obey some kind of natural complexity, as for being whimsically influenced by socio-historic and political trends. Recommendations how to create more stable economic systems by avoiding emergent risks and communicating market prospects more cautiously will be given in the discussion followed by a prospective future research outlook and conclusion.
    Keywords: Affect, Collective moods, Communication, Consumption, Coronavirus, COVID-19, Digitalization, Economic fundamentals, External shock, Information
    Date: 2020–12
  125. By: Ghatak, Maitreesh; Jaravel, Xavier
    Abstract: This article addresses a key point of contention in the ongoing UBI debate: given the way labour supply responds to tax changes, is it possible to fund a large UBI using income taxes? Using recent empirical estimates and quantitative tools from the public economics literature, we assess what level of UBI may be funded given the fall in labour supply that could be induced by the required larger taxes. Despite a prevalent belief that a large UBI would be fiscally irresponsible, we find that it is possible to fund a large annual UBI over £11,000 per person, that it could be funded through a 45% flat tax, but that increasing taxes on the most affluent alone would be insufficient. Our findings highlight an important tension: a large UBI is possible, but it requires large tax rates, including for those at the bottom of the income distribution.
    Keywords: poverty; inequality; redistribution; taxation; welfare
    JEL: R14 J01 E6 N0
    Date: 2020–01–01
  126. By: International Monetary Fund
    Abstract: This 2019 Article IV Consultation with Brazil discusses that growth is projected at 0.8 percent in 2019 and to accelerate in 2020 conditional on the approval of a robust pension reform and favorable financial conditions. The current budget is guided by the federal expenditure ceiling, entailing a minor reduction of the structural primary balance in 2019. The review encouraged the authorities to step up implementation of structural reforms essential to raise potential growth, including improving the business environment, lowering trade barriers, and boosting productivity. Fiscal policy is expected to be mildly supportive in 2019 and subsequently turn moderately contractionary to respect the constitutional ceiling. Gross public debt is projected to peak in 2024 at 96 percent of gross domestic product. Brazil needs decisive structural reforms to raise potential growth, including tax reforms, privatization, trade liberalization, and measures to enhance the efficiency of financial intermediation. Given the high and increasing level of public debt, fiscal consolidation is essential. The government should preserve a broadly neutral fiscal stance in 2019.
    Keywords: Public debt;Pension reform;External debt;Real interest rates;Fiscal stance;ISCR,CR,debt,interest,reform agenda
    Date: 2019–07–23
  127. By: Hung Ly-Dai (Vietnam Central Economic Commission, Hanoi, Vietnam)
    Abstract: On one monthly time-series dataset of Vietnam economy over 02/2008-09/2018, the Time-Varying-Coefficient VAR model records that the trade-off between inflation and output growth is mitigated by the foreign capital inflows. The inflation is mostly determined by credit supply growth, while output growth is largely driven by foreign direct investment (FDI) capital inflows. A monthly increase of FDI by 1 billion USD can raise 1.77 percent of monthly output growth rate. The result also holds on accounting for exchange rate fluctuation.
    Keywords: Economic Growth,Inflation,Foreign Capital Inflows,Exchange Rate,Time Varying Coefficients Vector Autoregression (TVC-VAR) model
    Date: 2019–12
  128. By: International Monetary Fund
    Abstract: Tonga’s recovery following the devastation of the 2018 Cyclone Gita has been derailed by a double blow from the pandemic and Cyclone Harold. FY2020 GDP growth is estimated to fall to -2½ percent due to domestic containment measures, a sudden stop in tourism, and investment delays. The full brunt of the pandemic will be felt in FY2021 (beginning July) during peak tourism season, when a deeper contraction is expected. A worse outcome was avoided by early actions to close external borders—which has kept Tonga COVID-19-free—and prompt economic support. Beyond FY2021, the recovery is expected to resume in line with the global recovery, but the magnitude and trajectory is uncertain.
    Date: 2021–02–01
  129. By: Bolton, Patrick (Columbia U and Imperial College London); Li, Ye (Ohio State U); Wang, Neng (Columbia U); Yang, Jinqiang (Shanghai U of Finance and Economics)
    Abstract: We propose a dynamic theory of banking where the role of deposits is akin to that of productive capital in the classical Q-theory of investment for non-financial firms. As a key source of leverage, deposits create value for well-capitalized banks. However, unlike productive capital of nonfinancial firms that typically has a positive marginal q, the deposit q can turn negative for undercapitalized banks. Demand deposit accounts commit banks to allow holders to withdraw or deposit funds at will, so banks cannot perfectly control leverage. Therefore, for banks with insufficient capital to buffer risk, deposit inflow destroys value through the uncertainty it brings in future leverage. This intertemporal channel complements the focus of static models on value destruction of deposit outflow and bank run. Our model predictions on bank valuation and dynamic asset-liability management are broadly consistent with the evidence. Moreover, our model lends itself to a re-evaluation of the costs and benefits of leverage regulation, offers alternative perspectives on banking in a low interest rate environment, and reveals new aspects of deposit market power that has unique implications on bank franchise value.
    JEL: E4 E5 G21 G3
    Date: 2020–12
  130. By: Shairilizwan Taasim (Department of Social Science and Management Faculty of Humanities, Management and Science Author-2-Name: Adrian Daud Author-2-Workplace-Name: Universiti Putra Malaysia, Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Prior to the East ASEAN Growth Area (EAGA) in ASEAN, Brunei, Indonesia, Malaysia, and the Philippines (BIMP) took in an inflow of immigrants to support growth. The more they depended on foreign labour, the issue of gender inequality in the job sector became an issue that is hindering prosperity. Methodology/Technique - The research was aimed to identify the relation between unemployment rate from the gender perspective and economic growth of BIMP-EAGA by using two methods, namely Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS). Annual time series data for the period of 1990 to 2018 was employed. Findings & Novelty - The result was contrary to Okun's law which says that there is a negative relation between the male unemployment rate and GDP. This study found that the female unemployment rate did not affect GDP and was insignificant. Policies that benefit and increase the participation of female workers in the job sector should be enhanced to prepare a conducive environment for the economy. Type of Paper - Empirical.
    Keywords: Labour Force, Gender, Economic Growth, BIMP
    JEL: E24 J16
    Date: 2020–12–31
  131. By: Aimola, Akingbade U; Odhiambo, Nicholas M
    Abstract: This paper investigates the impact of public debt on inflation in Ghana using annual data duringthe period 1983-2018. The study uses the Autoregressive Distributed Lag (ARDL) bounds testingapproach to cointegration and an error correction model to examine this linkage. The cointegratingregression results reveal evidence of a stable long run relationship between inflation and theexplanatory variables in the presence of a structural break. The findings also show a positive andsignificant impact of public debt on inflation. These results were found to hold, irrespective ofwhether the regression was conducted in the short run or the long run. The study confirms thepresence of the inflationary effects of public debt in Ghana. The government should, therefore, beprudent when considering increases in public debt to minimise volatility in inflation and itsassociated risks to the economy.
    Keywords: public debt; inflation; ARDL; Ghana.
    Date: 2021–01
  132. By: Roxana Mihet (University of Lausanne and Swiss Finance Institute)
    Abstract: Information-based models of capital income inequality that link return heterogeneity to investor sophistication levels need to assume an increase in data costs to generate an increase in inequality. Empirically, this assumption contradicts the fact that investment markets have become more informative over time, and theoretically, it also overlooks the possibility that poorer investors can avoid paying a large fixed cost for data, simply by buying shares in a fund. In this paper, I study the impact of financial innovation on capital income inequality in a theoretical framework where investors, heterogeneous in their sophistication, have a costly choice between not investing, investing through a fund of average quality, and searching for an informed fund. The model predicts that while financial innovation can make the investment sector more efficient and boost financial inclusion, some financial innovation also brings risks. For example, when the cost of financial data processing falls, more wealthier investors trade on information. This makes participation less valuable for the marginal stock market participant, who is a relatively poorer investor in some average (uninformed) fund and who exits the market altogether, foregoing the equity premium. This amplifies the inequality gap and also jointly explains why in the last decades, in spite of a dramatic reduction in data processing costs and fund fees, the US stock market has become more informative, yet the stock market participation rate has been on the decline.
    Keywords: Quant Analysis, Inequality, Information Acquisition, Funds, Innovation.
    JEL: E21 G11 G14 L1 L15
    Date: 2021–01
  133. By: Serhan Cevik
    Abstract: This paper assesses the cyclicality and sustainability of fiscal policy in Belize and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis shows that fiscal policy in Belize has been significantly procyclical and unsustainable much of the period since 1976. While the government’s recent commitment to maintain a primary surplus of at least 2 percent of GDP until 2021 is supporting debt reduction, stochastic simulations indicate that further improvement in the primary balance is necessary to reliably bring the debt-to-GDP ratio to a sustainable path. Given Belize’s history of large economic shocks, this paper proposes explicit fiscal rules designed for countercyclical policy and debt sustainability. It recommends integrating such rules into a well-designed fiscal responsibility law and establishing an independent fiscal council to improve accountability and transparency.
    Keywords: Fiscal rules;Fiscal policy;Public debt;Fiscal stance;Expenditure;WP,government,debt ratio,budget constraint,cyclically-adjusted government expenditure
    Date: 2019–11–07
  134. By: Besley, Timothy; Roland, Isabelle; Van Reenen, John
    Abstract: This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm’s probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firmlevel employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor’s PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm’s future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms.
    Keywords: productivity; default risk; credit frictions; misallocation
    JEL: D24 E32 L11 O47
    Date: 2020–01
  135. By: Stephen A. Wandner (W.E. Upjohn Institute and Urban Institute)
    Abstract: The unemployment insurance (UI) program was established in 1935. Unlike other social insurance programs created by the Social Security Act, it was established as a federal-state program. The federal government initially acted as a strong partner working with state agencies that operate the UI program. Over the past four decades, however, the federal role in the UI program has declined because of reductions in federal resources dedicated to the program and weakening policy leadership and programmatic support. As a result, states operate increasingly divergent UI programs, with many programs providing limited access to the program for experienced unemployed workers who are unemployed through no fault of their own. This paper analyzes the declining role of federal leadership and concludes that it has not been an effective force in maintaining and enhancing a program that should be doing more to ameliorate the effects of economy-wide unemployment and helping individual UI recipients to return to work. If the UI system is going to be effective in the future, especially in future recessions, major strengthening of the UI program is necessary.
    Keywords: unemployment insurance, public policy, intergovernmental relations
    JEL: J65 J68 H7
    Date: 2019–10
  136. By: Kerola, Eeva; Mojon, Benoît
    Abstract: It is important to understand the growth process under way in China. However, analyses of Chinese growth became increasingly more difficult after the real GDP doubling target was announced in 2012 and the official real GDP statistics lost their fluctuations. With a dataset covering 31 Chinese provinces from two decades, we have substantially more variation to work with. We find robust evidence that the richness of the provincial data provides information relevant to understand and project Chinese aggregates. Using this provincial data, we build an alternative indicator for Chinese growth that is able to reveal fluctuations not present in the official statistical series. Additionally, we concentrate on the determinants of Chinese growth and show how the drivers have gone through a substantial change over time both across economic variables and provinces. We introduce a method to understand the changing nature of Chinese growth that can be updated regularly using principal components derived from the provincial data.
    JEL: C38 E01 E3 P2
    Date: 2021–01–28
  137. By: Simon Berset; Martin Huber; Mark Schelker
    Abstract: We study the impact of fiscal revenue shocks on local fiscal policy. We focus on the very volatile revenues from the immovable property gains tax in the canton of Zurich, Switzerland, and analyze fiscal behavior following large and rare positive and negative revenue shocks. We apply causal machine learning strategies and implement the post-double-selection LASSO estimator to identify the causal effect of revenue shocks on public finances. We show that local policymakers overall predominantly smooth fiscal shocks. However, we also find some patterns consistent with fiscal conservatism, where positive shocks are smoothed, while negative ones are mitigated by spending cuts.
    Keywords: local public finance, fiscal policy, fiscal shocks
    JEL: D70 H11 H71 H72
    Date: 2021
  138. By: Pegoraro, Stefano; Montagna, Mattia
    Abstract: After the announcement of the European Central Bank’s corporate quantitative easing program, non-financial corporations timed the bond market by shifting their issuance toward bonds eligible for the program. However, issuers of eligible bonds did not increase total issuance compared to other issuers; nor did they experience different economic outcomes. Instead, the announcement produced substantial spillover effects on risk premia. Credit risk premia declined, both in the corporate bond market and in the default swap market, whereas the valuation of eligible bonds did not change relative to comparable ineligible bonds. Firms took advantage of reduced risk premia by issuing riskier bond types. Using a novel and comprehensive dataset of corporate bonds in the euro area, we document how firms substituted across bond characteristics, and we find evidence of their intention to time the market. Our model indicates corporate market timing is instrumental in allowing quantitative easing to produce spillover effects. JEL Classification: G32, G12, E52, E58, E44
    Keywords: corporate bonds, CSPP, market timing, quantitative easing, risk premia
    Date: 2021–01
  139. By: Charlotte Bartels; Simon Jäger; Natalie Obergruber
    Abstract: What are the long-term economic effects of a more equal distribution of wealth? We exploit variation in historical inheritance rules for land traversing political, linguistic, geological, and religious borders in Germany. In some German areas, inherited land was to be shared or divided equally among children, while in others land was ruled to be indivisible. Using a geographic regression discontinuity design, we show that equal division of land led to a more equal distribution of land; other potential drivers of growth are smooth at the boundary and equal division areas were not historically more developed. Today, equal division areas feature higher average incomes and a right-shifted skill, income, and wealth distribution. Higher top incomes and top wealth in equal division areas coincide with higher education, and higher labor productivity. We show evidence consistent with the more even distribution of land leading to more innovative industrial by-employment during Germany’s transition from an agrarian to an industrial economy and, in the long-run, more entrepreneurship.
    JEL: E02 H24 J24 J43 N13 N14 N23 N24 N33 N34 N53 N54 N93 N94 O3 P42 R52
    Date: 2020–12
  140. By: Abban, Stanley
    Abstract: Currency union feasibility is the major topic of discourse in most developing economies especially based on the Optimal Currency Area theory. Given this, developing countries have peculiar characteristics that favour the feasibility of forming a currency union that is not accounted for based on the OCA criteria. Also, Currency union is viewed as a panacea for curing ills in struggling economies when the appropriate institutional setting is laid out. Given this, the study showed the channels to which currency union curb ills and suggests an institutional framework to consolidate the gains from trade. The study further argues the need for a new theory to evaluate currency union feasibility hence suggest an intuition ‘Optimal Cost Phase’ as a measure for currency union feasibility which can apply to both developing and developed countries. The study concludes that there is a need for a new institutional framework to ensure transparency and the realization of the policy on a common currency.
    Keywords: Currency Union, Optimal Currency Area (OCA), Optimal Cost Phase (OCP), institutions, common currency
    JEL: E6 F1 F4 F45
    Date: 2020–12–11
  141. By: Berrak Bahadir (Department of Economics, Florida International University); Neven Valev (Georgia State University)
    Abstract: We show that global liquidity contributes to household credit growth across countries. The effect is particularly strong in countries that are more closely integrated with the world economy as well as in those with a greater level of financial development and more open capital markets. We also find tentative evidence that countries with a greater presence of foreign banks and those with more concentrated banking systems experience a closer link between global liquidity and household credit.
    Keywords: consumer credit, household credit, global liquidity
    JEL: G21 E3
    Date: 2021–01
  142. By: Canessa, Eugenia (University of Florence); Giannelli, Gianna Claudia (University of Florence)
    Abstract: We employ georeferenced data and longitudinal household panel survey data to investigate the impact of the dramatic flooding that hit Bangladesh from August-September 2014 on women's employment and empowerment. Development economics models suggest an increase in household members' labour supply as a shock-coping strategy. Our difference-in-differences estimates confirm this assumption: women's employment probability increases by approximately 13 percentage points. Correcting for selection bias due to the initial employment status of women, we also find significant increases in the probability of non-employed women entering employment, in the average monthly income of employed women and in the probability of women engaging in autonomous wage-earning activities. Finally, we show that the greater earning capacity of employed women—instrumented by the intensity of flooding in the villages where women live—contributes to raising their bargaining power within the household as measured by the Women's Empowerment in Agriculture Index and by economic decision-making indicators.
    Keywords: Bangladesh, flood, shock-coping strategy, women's employment, intrahousehold bargaining
    JEL: F66 J16 Q12 Q54
    Date: 2021–01
  143. By: LAHLOU, Kamal (Bank Al-Maghrib, Département de la Recherche); DOGHMI, Hicham (Bank Al-Maghrib, Département de la Recherche); SCHNEIDER, Friedrich (Johannes Kepler University of Linz)
    Abstract: The objective of this paper is to estimate the size of the shadow economy in Morocco over the period 1988-2018. The CDA and MIMIC approaches are used while taking into consideration variables that reflect the features of the Moroccan economy such as the importance of currency in circulation, the size of the agricultural sector and the financial development process. Our results show that the evolution of the shadow economy exhibits three distinct periods: (i) over the first period 1988-1998, it is almost stagnant at around 40% of GDP; (ii) during the second period 1999-2008, it decreases to 32% -34% of GDP; (iii) during the last period 2009-2018, the declining trend is continuing but at a more moderate pace, to reach a level just below 30% of GDP. These results suggest that the strategies implemented by national authorities since the early 2000s to improve the institutional, economic and financial environment contributed to reducing the size of the shadow economy. However, the persistence of important shadow activities requires additional structural reforms particularly those related to education, judiciary system, tax policy and labor market.
    Keywords: Shadow economy; MIMIC model; currency demand approach; financial development; structural reforms; Morocco
    JEL: C22 E26 H26 K42 O17 P11
    Date: 2020–12–30
  144. By: Jacob, Nick; Mion, Giordano
    Abstract: We revisit UK’s poor productivity performance since the Great Recession by means of both a suitable theoretical framework and firm-level prices and quantities data for detailed products allowing us to both measure demand, and its changes over time, and distinguish between quantity total factor productivity (TFP-Q), i.e., the capacity to turn inputs into more physical output (number of shirts, liters of beer), and what we call revenue total factor productivity (TFP-R), i.e., productivity calculated using revenue (or value-added) as a measure of output and so the capacity to turn inputs into more revenue. This in turn allows us to measure how changes in TFP-Q, demand and markups ultimately affected revenue TFP, as well as labour productivity, over the Great Recession. Our findings suggest that the poor UK firms’ productivity performance post-recession is due to both a weakening of demand and a decreasing TFPQ pushing down sales, markups, revenue TFP and labour productivity.
    Keywords: total factor productivity (TFP); revenue TFP; prices; demand; great recession; United Kingdom
    JEL: D24 L11 E01 O47 O52
    Date: 2020–12
  145. By: Björn Bartling; Ernst Fehr; David B. Huffmann; Nick Netzer; David B. Huffman
    Abstract: Under weak contract enforcement the trading parties’ trust, defined as their belief in the other party’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about the other party’s trustworthiness appear less important, suggesting that trust and contract enforcement are substitutes. Here, we show, however, that trust and contract enforcement are complements. We demonstrate that in a weak contract enforcement environment trust has no effect on the gains from trade, but when we successively improve contract enforcement, larger effects of trust emerge. We also document that improvements in contract enforcement lead to no, or only small, increases in gains from trade under low initial trust, but generate high increases in gains from trade when initial trust is high. Thus, the effect of improvements in contract enforcement is trust-dependent, and the effect of increases in trust is dependent on the strength of contract enforcement. We identify three key ingredients underlying this complementarity: (1) heterogeneity in trading partners’ trustworthiness; (2) strength of contract enforcement affecting the ability to elicit reciprocal behavior from trustworthy types, and screen out untrustworthy types; (3) trust beliefs determining willingness to try such strategies.
    Keywords: trust, contract enforcement, complementarity, equilibrium selection, causal effect, screening, belief distortions, institutions
    JEL: C91 D02 D91 E02
    Date: 2021

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