nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒02‒15
79 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Oil price shocks, fuel subsidies and macroeconomic (in)stability in Nigeria By Omotosho, Babatunde S.
  2. Keynesian Production Networks and the Covid-19 Crisis: A Simple Benchmark By David Baqaee; Emmanuel Farhi
  3. Growth Forecasts and News about Monetary Policy By Karnaukh, Nina
  4. Searching for the Equity Premium By Bai, Hang; Zhang, Lu
  5. Dynamic Rational Inattention and the Phillips Curve By Hassan Afrouzi; Choongryul Yang
  6. Modelling and forecasting inflation rate in Nigeria using ARIMA models By Olalude, Gbenga Adelekan; Olayinka, Hammed Abiola; Ankeli, Uchechi Constance
  7. Monetary Policy Surprises and Inflation Expectation Dispersion By Bertrand Gruss; Sandra Lizarazo; Francesco Grigoli
  8. Disaggregated Indian industrial cycles: A Spectral analysis By Ritabrata Bose; Ashima Goyal
  9. Bank Balance Sheets and External Shocks in Asia: The Role of FXI, MPMs and CFMs By Zefeng Chen; Sanaa Nadeem; Shanaka J Peiris
  10. Constrained-Efficient Capital Reallocation By Andrea Lanteri; Adriano A. Rampini
  11. Constructing Daily Economic Sentiment Indices Based on Google Trends By Vera Eichenauer; Ronald Indergand; Isabel Z. Martínez; Christoph Sax
  12. Short Rate Dynamics: A Fed Funds and SOFR Perspective By Karol Gellert; Erik Schlogl
  13. Exchange Rates and Consumer Prices: Evidence from Brexit By Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson
  14. Nowcasting Monthly GDP with Big Data: a Model Averaging Approach By Tommaso Proietti; Alessandro Giovannelli
  15. Fiscal Dominance in Sub-Saharan Africa Revisited By John Hooley; Lam Nguyen; Mika Saito; Shirin Nikaein Towfighian
  16. Microdata for Macro Models: the Distributional Effects of Monetary Policy By Luisa Corrado; Daniela Fantozzi
  17. Health Vulnerability versus Economic Resilience to the Covid-19 pandemic: Global Evidence By Simplice A. Asongu; Samba Diop; Joseph Nnanna
  18. Imperfect Contract Enforcement and Nominal Liabilities By Hajime Tomura
  19. The Macroeconomic Effects of Aerospace Shocks By Luisa Corrado; Stefano Grassi; Edgar Silgado-Gómez
  20. Are bigger banks better?: firm level evidence from Germany By Huber, Kilian
  21. Fiscal Multipliers: A Heterogenous-Agent Perspective By Tobias Broer; Per Krusell; Erik Öberg
  22. Cyclical Fluctuation, Growth, and Stabilization: An Empirical Investigation of Dual Policy Objectives in Bangladesh By Quarm, Richmond Sam; Busharads, Mohamed Osman Elamin; Institute of Research, Asian
  23. Monetary and Macroprudential Policy with Endogenous Risk By Tobias Adrian; Fernando Duarte; Nellie Liang; Pawel Zabczyk
  24. Climate Actions and Stranded Assets: The Role of Financial Regulation and Monetary Policy By Francesca Diluiso; Barbara Annicchiarico; Matthias Kalkuhl; Jan C. Minx
  25. Global health care infrastructure and Africa in times of Covid-19: insights for sustainable development and future pandemics By Samba Diop; Simplice A. Asongu
  26. Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts By John C Bluedorn; Daniel Leigh
  27. Selection into entrepreneurship and self-employment By Rubinstein, Yona; Levine, Ross
  28. Mediating roles of institutions in the remittance-growth relationship: evidence from Nigeria By Ibrahim A. Adekunle; Tolulope O. Williams; Olatunde J. Omokanmi; Serifat O. Onayemi
  29. Optimal Factor Taxation in A Scale Free Model of Vertical Innovation By Barbara Annicchiarico; Valentina Antonaroli; Alessandra Pelloni
  30. Who did it? A European Detective Story Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool By Mariarosaria Comunale; Francesco Paolo Mongelli
  31. Predicting Recession Probabilities Using Term Spreads: New Evidence from a Machine Learning Approach By Jaehyuk Choi; Desheng Ge; Kyu Ho Kang; Sungbin Sohn
  32. Quality and Price Setting of High-Tech Goods By Yuriy Gorodnichenko; Oleksandr Talavera; Nam Hoai Vu
  33. Nowcasting GDP and its Components in a Data-rich Environment: the Merits of the Indirect Approach By Alessandro Giovannelli; Tommaso Proietti; Ambra Citton; Ottavio Ricchi; Cristian Tegami; Cristina Tinti
  34. Job seekers’ perceptions and employment prospects: heterogeneity, duration dependence, and bias By Mueller, Andreas I.; Spinnewijn, Johannes; Topa, Giorgio
  35. Market Regulation, Cycles and Growth in a Monetary Union By Mirko Abbritti; Sebastian Weber
  36. Monetary Policy and Intangible Investment By Robin Döttling; Lev Ratnovski
  37. Mobility and Sales Activity During the Corona Crisis: Daily Indicators for Switzerland By Florian Eckert; Heiner Mikosch
  38. A Buffer-Stock Model for the Government: Balancing Stability and Sustainability By Jean-Marc Fournier
  39. More Gray, More Volatile? Aging and (Optimal) Monetary Policy By Daniel Baksa; Zsuzsa Munkacsi
  40. Public Debt-Investment Nexus: the Significance of Investment-Generation Policy in West Africa By Fisayo Fagbemi; Opeoluwa A. Adeosun
  41. Inflation Co-Movement in Emerging and Developing Asia: The Monsoon Effect By Patrick Blagrave
  42. Home Production with Time to Consume By Bednar, William; Pretnar, Nick
  43. European Wage Dynamics and Spillovers By Yuanyan Sophia Zhang
  44. Money Creation in Fiat and Digital Currency Systems By Marco Gross; Christoph Siebenbrunner
  45. Covid-19 Economic Vulnerability and Resilience Indexes: Global Evidence By Samba Diop; Simplice A. Asongu; Joseph Nnanna
  46. Structural estimates of the South African sacrifice ratio By Hayelom Yrgaw Gereziher; Naser Yenus Nuru
  47. Central Bank of Congo : Four Factors Affecting Monetary Policy Effectiveness By Christian Pinshi
  48. Engendering Macroeconomic Policy for Gender Equality in sub-Saharan Africa By Ibrahim A. Adekunle; Toluwani G. Kalejaiye; Ayomide, O. Ogunade; Sina J. Ogede; Caleb O. Soyemi
  49. Commodity Price Volatility, Fiscal Balance and Real Interest Rate By Monoj Kumar Majumder; Mala Raghavan; Joaquin Vespignani
  50. International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending By Sangyup Choi; Davide Furceri; Chansik Yoon
  51. Fiscal Consolidation and Public Wages By Juin-Jen Chang; Hsieh-Yu Lin; Nora Traum; Shu-Chun Susan Yang
  52. Israel; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Israel By International Monetary Fund
  53. Peaks, Gaps, and Time Reversibility of Economic Time Series By Tommaso Proietti
  54. Monetary Policy Under an Exchange Rate Anchor By Mariam El Hamiani Khatat; Mark Buessings-Loercks; Vincent Fleuriet
  55. Enhancing Information Technology for Value Added Across Economic Sectors in Sub-Saharan Africa By Simplice A. Asongu; Mushfiqur Rahman; Joseph Nnanna; Mohamed Haffar
  56. The Coronavirus and India’s Economic Crisis: Continuity and Change By Mazumdar, Surajit
  57. Nowcasting Indonesia's GDP Growth: Are Fiscal Data Useful? By Alifatussaadah, Ardiana; Primariesty, Anindya Diva; Soleh, Agus Mohamad; Andriansyah, Andriansyah
  58. Tribalism and Finance By Oasis Kodila-Tedika; Simplice A. Asongu
  59. Fiscal Buffers for Natural Disasters in Pacific Island Countries By Hidetaka Nishizawa; Scott Roger; Huan Zhang
  60. Initial Output Losses from the Covid-19 Pandemic: Robust Determinants By Davide Furceri; Michael Ganslmeier; Jonathan David Ostry; Naihan Yang
  61. Modeling and Forecasting Gold Prices By Quarm, Richmond Sam; Busharads, Mohamed Osman Elamin; Institute of Research, Asian
  62. Finance, Institutions and Private Investment in Africa By Simplice A. Asongu; Joseph Nnanna; Vanessa S. Tchamyou
  63. Commodity Price Volatility, External Debt and Exchange Rate Regimes By Monoj Kumar Majumder; Mala Raghavan; Joaquin Vespignani
  64. The Impact of COVID-19 on US Firms By Nicholas Bloom; Robert S. Fletcher; Ethan Yeh
  65. The aggregate consequences of default risk: evidence from firm-level data By Timothy Besley; Isabelle Roland; John Van Reenen
  66. Food Price Shocks and Household Consumption in Developing Countries: The Role of Fiscal Policy By Carine Meyimdjui; Jean-Louis Combes
  67. Macro-Fiscal Gains from Anti-Corruption Reforms in the Republic of Congo By Giovanni Melina; Hoda Selim; Concepcion Verdugo-Yepes
  68. Where does the Stimulus go? Deep Generative Model for Commercial Banking Deposits By Ni Zhan
  69. Decomposing the Inflation Dynamics in the Philippines By Si Guo; Philippe D Karam; Jan Vlcek
  70. Trends in U.S. Spatial Inequality: Concentrating Affluence and a Democratization of Poverty By Cecile Gaubert; Patrick M. Kline; Damián Vergara; Danny Yagan
  71. Dissecting Economic Growth in Uruguay By Natasha X Che
  72. Inference on the New Keynesian Phillips Curve with Very Many Instrumental Variables By Max-Sebastian Dov\`i
  73. ECB strategy review - The new pillars: Communication and climate change By Demary, Markus; Hüther, Michael
  74. Model-Based Globally-Consistent Risk Assessment By Michal Andrle; Benjamin L Hunt
  75. Youth unemployment hysteresis in South Africa: Macro-micro analysis By Asiya Maskaeva; Mgeni Msafiri
  76. Robust Financial Contracting and Investment By Aifan Ling; Jianjun Miao; Neng Wang
  77. Regional Economic Resilience in the Economy of the European Union By Alexandru Meleca; Radu Radulescu
  78. Disaggregated labor supply implications of guaranteed employment in India By Megan Sheahan; Yanyan Liu; Sudha Narayanan; Christopher B. Barrett
  79. Granger Causality Analysis of the Economic Cycles of the Tourism Industry and the EU Regional Economy By Radu Radulescu

  1. By: Omotosho, Babatunde S.
    Abstract: This paper studies the macroeconomic implications of oil price shocks and the extant fuel subsidy regime for Nigeria. To do this, we develop and estimate a New-Keynesian DSGE model that accounts for pass-through effect of international oil price into the retail price of fuel. Our results show that oil price shocks generate significant and persistent impacts on output, accounting for about 22 percent of its variations up to the fourth year. Under our benchmark model (i.e. with fuel subsidies), we show that a negative oil price shock contracts aggregate GDP, boosts non-oil GDP, increases headline inflation, and depreciates the exchange rate. However, results generated under the model without fuel subsidies indicate that the contractionary effect of a negative oil price shock on aggregate GDP is moderated, headline inflation decreases, while the exchange rate depreciates more in the short-run. Counterfactual simulations also reveal that fuel subsidy removal leads to higher macroeconomic instabilities and generates non-trivial implications for the response of monetary policy to an oil price shock. Thus, this study cautions that a successful fuel subsidy reform must necessarily encompass the deployment of well-targeted safety nets as well as the evolution of sustainable adjustment mechanisms.
    Keywords: Fuel subsidies, oil price shocks, business cycle
    JEL: E31 E32 E52 E62
    Date: 2020
  2. By: David Baqaee; Emmanuel Farhi
    Abstract: The Covid-19 crisis is an unusual and seemingly all-encompassing economic shock. On the one hand, it was unquestionably a negative demand shock that, for fixed prices and incomes, reduced household spending. On the other hand, it was also unquestionably a negative supply shock that reduced firms' ability to maintain production at pre-pandemic prices and quantities. These negative shocks affected different industries differently: whereas some producers easily switched to remote-work and maintained both employment and production, industries that required face-to-face contact were forced to reduce production capacity and employment. We consider a stripped-down version of the model presented in Baqaee and Farhi (2020). Despite its simplicity, the model nevertheless allows for an arbitrary input-output network, complementarities in both consumption and production, incomplete markets, downward nominal wage rigidity, and a zero-lower bound. In this sense, it contains many of the ingredients typically considered to be important for understanding the economic fallout from Covid-19. Nevertheless, despite allowing for these realistic ingredients, this model has a stark property: factor income shares at the initial equilibrium are global sufficient statistics for the input-output network. This article clarifies clarifies what ingredients must be added to a model if the production network is to play an important role in the propagation of shocks.
    JEL: E0 E24 E3 E4 E5
    Date: 2021–01
  3. By: Karnaukh, Nina (Ohio State U)
    Abstract: I find that 30-minute changes in bond yields around scheduled Federal Open Market Committee (FOMC) announcements are predictable with the pre-FOMC Blue Chip professionals' revisions in GDP growth forecasts. A positive pre-FOMC GDP growth revision predicts a contractionary policy news shock (positive change in bond yields), a negative GDP growth revision predicts an expansionary policy news shock (negative change in bond yields). Failing to account for this predictability biases the estimates of monetary policy effects on the economy. First, the Fed's information effect dissipates as the truly unpredictable policy news shock does not affect professionals' beliefs about the economy. Second, net policy shock has a more negative impact on future actual GDP, than the raw policy shock.
    JEL: E43 E52 G12 G17
    Date: 2020–10
  4. By: Bai, Hang (U of Connecticut); Zhang, Lu (Ohio State U)
    Abstract: Labor market frictions are crucial for the equity premium in production economies. A dynamic stochastic general equilibrium model with recursive utility, search frictions, and capital accumulation yields a high equity premium of 4.26% per annum, a stock market volatility of 11.8%, and a low average interest rate of 1.59%, while simultaneously retaining plausible business cycle dynamics. The equity premium and stock market volatility are strongly countercyclical, while the interest rate and consumption growth are largely unpredictable. Because of wage inertia, dividends are procyclical despite consumption smoothing via capital investment. The welfare cost of business cycles is huge, 29%.
    JEL: E32 E44 G12 J23
    Date: 2020–10
  5. By: Hassan Afrouzi; Choongryul Yang
    Abstract: We develop a fast, tractable, and robust method for solving the transition path of dynamic rational inattention problems in linear-quadratic-Gaussian settings. As an application of our general framework, we develop an attention-driven theory of dynamic pricing in which the Phillips curve slope is endogenous to systematic aspects of monetary policy. In our model, when the monetary authority is more committed to stabilizing nominal variables, rationally inattentive firms pay less attention to changes in their input costs, which leads to a flatter Phillips curve and more anchored inflation expectations. This effect, however, is not symmetric. A more dovish monetary policy flattens the Phillips curve in the short-run but generates a steeper Phillips curve in the long-run. In a calibrated version of our general equilibrium model, we find that our mechanism quantifies a 75% decline in the slope of the Phillips curve in the post-Volcker period, relative to the period before it.
    Keywords: rational inattention, dynamic information acquisition, Phillips curve
    JEL: D83 D84 E03 E58
    Date: 2021
  6. By: Olalude, Gbenga Adelekan; Olayinka, Hammed Abiola; Ankeli, Uchechi Constance
    Abstract: This study modelled and forecast inflation in Nigeria using the monthly Inflation rate series that spanned January 2003 to October 2020 and provided three years monthly forecast for the inflation rate in Nigeria. We examined 169 ARMA, 169 ARIMA, 1521 SARMA, and 1521 SARIMA models to identify the most appropriate model for modelling the inflation rate in Nigeria. Our findings indicate that out of the 3380 models examined, SARMA (3, 3) x (1, 2)12 is the best model for forecasting the monthly inflation rate in Nigeria. We selected the model based on the lowest Akaike Information Criteria (AIC) and Schwarz Information Criterion (SIC) values, volatility, goodness of fit, and forecast accuracy measures, such as Root Mean Square Error (RMSE), Mean Absolute Error (MAE), and Mean Absolute Percentage Error (MAPE). The AIC and SIC of the model are 3.3992 and 3.5722, respectively with an adjusted R2 value of 0.916. Our diagnostic tests (Autocorrelation and Normality of Residuals) and forecast accuracy measures indicate that the presented model, SARMA (3, 3)(1, 2)12, is good and reliable for forecasting. Finally, the three years monthly forecast was made, which shows that the Inflation rate in Nigeria would continue to decrease but maintain a 2 digits value for the next two years, but is likely to rise again in 2023. This study is of great relevance to policymakers as it provides a foresight of the likely future inflation rates in Nigeria. Keywords: Inflation; Modelling, Forecasting; ARMA; ARIMA; SARMA; SARIMA;
    Keywords: Inflation; Modelling; Forecasting; ARMA; ARIMA; SARMA; SARIMA
    JEL: C22 C52 C53 E31 E37 E47
    Date: 2020
  7. By: Bertrand Gruss; Sandra Lizarazo; Francesco Grigoli
    Abstract: Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.
    Keywords: Inflation;Economic forecasting;Inflation targeting;Central bank policy rate;Futures;Anchoring,disagreement,dispersion,information rigidity,in?ation expectations,sticky information.,WP,inflation expectation,expectation dispersion,monetary policy surprise,price level,inflation dispersion,inflation expectation formation mechanism
    Date: 2020–11–13
  8. By: Ritabrata Bose (Indira Gandhi Institute of Development Research); Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: We study the structure and dating of disaggregated Indian industrial cycles and spectral causality from different policy parameters to these cycles. The scattered pattern of peaks and troughs after 2013, suggests some industries continued to do well during an extended slowdown. Post 2011 industrial cycles have been shallow and short. The exchange rate, currency, credit, nominal and real interest rates all affect industry cycles, but differences in impact by industry type may be due to the structure of the economy. Cash and credit are more important for consumer non-durables, while interest rates affect consumer durables and capital goods. Interest rates do matter but in combination with currency and credit. Co-movement across disaggregated industry points to some common drivers. Stabilization policies need to be used more and fine-tuned based on research. Results on the dating and duration of industry cycles, their cyclicality, phase shifts, amplitude, lead-lag sectors, duration asymmetry and co-movement can help design appropriate policies.
    Keywords: Industrial cycles, co-movement, coherence, lead/lag, business cycle dating, spectral causality, macroeconomic stabilization
    JEL: E23 E32 C32
    Date: 2020–10
  9. By: Zefeng Chen; Sanaa Nadeem; Shanaka J Peiris
    Abstract: In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector autoregression on ten Asian economies to understand the role of the banking sector in transmitting spillovers from the global financial cycle to small open economies. It also evaluates the effectiveness of foreign exchange intervention (FXI) and other macroeconomic policies in responding to external financing shocks. External financial shocks affect net external liabilities of banks and the exchange rate, leading to changes in credit supply by banks and investment. For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, the exchange rate acts as shock amplifier and sterilized FXI, often deployed by Asian economies, can help cushion the economy. By contrast, with real shocks, the exchange rate serves as a shock absorber, and any FXI that weakens that function can be costly. We also explore the effectiveness of the monetary policy interest rate, macroprudential policies (MPMs) and capital flow management measures (CFMs).
    Date: 2021–01–15
  10. By: Andrea Lanteri; Adriano A. Rampini
    Abstract: We analyze the constrained-efficient allocation in an equilibrium model of investment and capital reallocation with heterogeneous firms facing collateral constraints. The model features two types of pecuniary externalities: collateral externalities, because the resale price of capital affects firms’ ability to borrow, and distributive externalities, because buyers of old capital are more financially constrained than sellers, consistent with empirical evidence. We show analytically and quantitatively that the equilibrium price of old capital is inefficiently high in general, because the distributive pecuniary externality exceeds the collateral externality, by a factor of two in the calibrated model. New investment generates a positive aggregate externality by reducing the future price of old capital, fostering reallocation toward more constrained firms. The constrained-efficient allocation induces a consumption-equivalent welfare gain of 5% compared to the competitive equilibrium, and can be implemented with subsidies on new capital and taxes on old capital.
    JEL: D51 E22 E44 G31 H21
    Date: 2021–01
  11. By: Vera Eichenauer (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Ronald Indergand (State Secretariat for Economic Affairs SECO, Switzerland); Isabel Z. Martínez (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Christoph Sax (University of Basel; cynkra LLC, Switzerland)
    Abstract: Google Trends have become a popular data source for social science research. We show that for small countries or sub-national regions like U.S. states, underlying sampling noise in Google Trends can be substantial. The data may therefore be unreliable for time series analysis and is furthermore frequency-inconsistent: daily data differs from weekly or monthly data. We provide a novel sampling technique along with the R-package trendecon in order to generate stable daily Google search results that are consistent with weekly and monthly queries of Google Trends. We use this new approach to construct long and consistent daily economic indices for the (mainly) German-speaking countries Germany, Austria, and Switzerland. The resulting indices are significantly correlated with traditional leading indicators, with the advantage that they are available much earlier.
    Keywords: Google Trends, measurement, high frequency, forecasting, Covid-19 Market, Euro, sectoral heterogeneity
    JEL: E01 E32 E37
    Date: 2020–06
  12. By: Karol Gellert; Erik Schlogl (Finance Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: The Secured Overnight Funding Rate (SOFR) is becoming the main Risk–Free Rate benchmark in US dollars, thus interest rate term structure models need to be updated to reflect the key features exhibited by the dynamics of SOFR and the forward rates implied by SOFR futures. Historically, interest rate term structure modelling has been based on rates of substantially longer time to maturity than overnight, but with SOFR the overnight rate now is the primary market observable. This means that the empirical idiosyncrasies of the overnight rate cannot be ignored when constructing interest rate models in a SOFR–based world. <p>As a rate reflecting transactions in the Treasury overnight repurchase market, the dynamics of SOFR are closely linked to the dynamics Effective Federal Funds Rate (EFFR), which is the interest rate most directly impacted by US monetary policy target rate decisions. Therefore, these rates feature jumps at known times (Federal Open Market Committee meeting dates), and market expectations of these jumps are reflected in prices for futures written on these rates. On the other hand, forward rates implied by Fed Funds and SOFR futures continue to evolve diffusively. The model presented in this paper reflects the key empirical features of SOFR dynamics and is calibrated to futures prices. In particular, the model reconciles diffusive forward rate dynamics with piecewise constant paths of the target short rate.
    Keywords: SOFR; EFFR; Fed Funds; interest rate term structure modelling; interest rate futures
    JEL: G13 G18 E43
    Date: 2021–01–01
  13. By: Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson
    Abstract: This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0:29. We estimate the Brexit vote increased consumer prices by 2:9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.
    Keywords: Brexit, exchange rate pass-through, import costs, inflation
    JEL: E31 F15 F31
    Date: 2019–12
  14. By: Tommaso Proietti (CEIS & DEF, University of Rome "Tor Vergata"); Alessandro Giovannelli (DEF, University of Rome "Tor Vergata")
    Abstract: Gross domestic product (GDP) is the most comprehensive and authoritative measure of economic activity. The macroeconomic literature has focused on nowcasting and forecasting this measure at the monthly frequency, using related high frequency indicators. We address the issue of estimating monthly gross domestic product using a large dimensional set of monthly indicators, by pooling the disaggregate estimates arising from simple and feasible bivariate models that consider one indicator at a time in conjunction to GDP. Our base model handles mixed frequency data and ragged-edge data structure with any pattern of missingness. Our methodology enables to distill the common component of the available economic indicators, so that the monthly GDP estimates arise from the projection of the quarterly figures on the space spanned by the common component. The weights used for the combination reflect the ability to nowcast quarterly GDP and are obtained as a function of the regularized estimator of the high-dimensional covariance matrix of the nowcasting errors. A recursive nowcasting and forecasting experiment illustrates that the optimal weights adapt to the information set available in real time and vary according to the phase of the business cycle.
    Keywords: Mixed-Frequency Data, Dynamic Factor Models, State Space Models,Shrinkage
    JEL: C32 C52 C53 E37
    Date: 2020–05–12
  15. By: John Hooley; Lam Nguyen; Mika Saito; Shirin Nikaein Towfighian
    Abstract: This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance has always been a pressing problem as it can contribute to inflation and macroeconomic instability, and increasingly so as fiscal deficits and public debt are rising in many SSA countries. We find that legal limits and availability of alternative financing options play an important role in determining the extent to which government deficits tend to be financed by the central bank. We also find economically significant effects of central bank lending to government on the exchange rate and inflation.
    Date: 2021–01–29
  16. By: Luisa Corrado (DEF and CEIS, Università di Roma "Tor Vergata"); Daniela Fantozzi (National Statistical Institute (Istat))
    Abstract: In this paper we investigate the effect of standard and non-standard monetary policy implemented by the ECB on income inequality in Italy. We use for the first time the survey microdata on Income and Living Conditions (EU-SILC, Istat) in a repeated cross-section experiment to build measures of inequality and the distribution over time for incomes and subgroups of individuals. The identification strategy is based on surprises estimated in the EA-MPD database for the Euro Area. Using a battery of Local Projections, we evaluate the impact of monetary policy by comparing the performance of the impulse response functions of our inequality measures in different policy scenarios (pre and post-QE). The main findings show that an expansionary unconventional monetary policy shock compressed inequality of disposable and labor income more persistently than a conventional monetary shock. The financial channel has an equalizing effect favoring the less wealthy households mainly in the long-run. Overall, our evidence suggests that QE is associated with a decrease in Italian households inequality.
    Keywords: Income Inequality, Monetary Policy, Local Projections, Survey Data, High Frequency Data.
    JEL: C81 D31 E52 E58
    Date: 2020–06–03
  17. By: Simplice A. Asongu (Yaounde, Cameroon); Samba Diop (Alioune Diop University, Bambey, Senegal); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: The purpose of this study is to understand how countries have leveraged on their economic resilience to fight the Covid-19 pandemic. The focus is on a global sample of 150 countries divided into four main regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. The study develops a health vulnerability index (HVI) and leverages on an existing economic resilience index (ERI) to provide four main scenarios from which to understand the problem statement, namely: ‘low HVI-low ERI’, ‘high HVI-low ERI’, ‘high HVI-high ERI’ and ‘low HVI-high ERI’ quadrants. It is assumed that countries that have robustly fought the pandemic are those in the ‘low HVI-high ERI’ quadrant and to a less extent, countries in the ‘low HVI-low ERI’ quadrant. Most European countries, one African country (i.e. Rwanda), four Asian countries (Japan, China, South Korea and Thailand) and six American countries (USA, Canada, Uruguay, Panama, Argentina and Costa Rica) are apparent in the ideal quadrant.
    Keywords: Novel coronavirus, health vulnerability, economic resilience
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–09
  18. By: Hajime Tomura (Faculty of Political Science and Economics, Waseda University)
    Abstract: This paper introduces the court's inability to discern different qualities of goods of the same kind into an overlapping generations model. This friction makes fiat money circulate not only as a means of payments for goods, but also as a means of liability repayments in an equilibrium. This result holds with or without dynamic inefficiency. In this equilibrium, a shortage of real money balances for liability repayments can cause underinvestment by borrowers, even if the money supply follows a Friedman rule. This problem can be resolved by an elastic money supply through an intraday discount window at a zero discount fee. In this case, supplying no fiat money overnight maximizes aggregate consumption in a monetary steady state in a dynamically efficient economy. This policy, however, can also lead to a self-fulfilling crunch of discount window lending if commercial banks intermediate the lending from the central bank with a collateral constraint, and if the discount window market is segregated. This equilibrium can be eliminated if the central bank is the monopolistic public issuer of fiat money that also acts as the lender of last resort.
    Keywords: Nominal contract; Discount window; Credit crunch; Lender of last resort; Payment system
    Date: 2019–05
  19. By: Luisa Corrado (DEF and CEIS, Università di Roma "Tor Vergata"); Stefano Grassi (DEF, Università di Roma "Tor Vergata"); Edgar Silgado-Gómez (Central Bank of Ireland)
    Abstract: As major future space explorations are firmly rooted in the US government agenda, research into the macroeconomic impact of a space mission is still scarce. This paper tries to fill the existing gap by building a narrative of the aerospace structural shocks to assess their macroeconomic effects. The main finding is that almost all the publicly funded space missions significantly and persistently raise real GDP, while this is not the case in the private narrative. We conclude that the latest events, while important from the perspective of private investors, do not reflect yet the milestone achievements carried out under government-driven space activity.
    Keywords: Space Explorations,Narrative Events,Space Economy,VAR.
    JEL: E0 C1 A1
    Date: 2020–11–17
  20. By: Huber, Kilian
    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: 2020–11
  21. By: Tobias Broer; Per Krusell; Erik Öberg
    Abstract: We use an analytically tractable heterogeneous-agent (HANK) version of the standard New Keynesian model to show how the size of fiscal multipliers depends on i) the distribution of factor incomes, and ii) the source of nominal rigidities. With sticky prices but flexible wages, the standard representative-agent (RANK) model predicts large multipliers because profits fall after a fiscal stimulus and the resulting negative income effect makes the representative worker work harder. Our HANK model, where workers do not own stock and thus do not receive profit income, predicts smaller fiscal multipliers. In fact, they are smaller with sticky prices than with flexible prices. When wages are the source of nominal rigidity, in contrast, fiscal multipliers are close to one, independently of income heterogeneity and price stickiness.
    JEL: E0
    Date: 2021–01
  22. By: Quarm, Richmond Sam; Busharads, Mohamed Osman Elamin; Institute of Research, Asian
    Abstract: In conventional economics, two types of macroeconomic policy i.e. fiscal policy and monetary policy are used to streamline the business cycle. This paper has examined the cyclical behavior of these variables over the business cycle of Bangladesh. The objective of this examination is to show whether policies (fiscal policy and monetary policy) in Bangladesh are taken with a motive to stabilize the economy or only to promote economic growth. In other words, it has examined whether the policies in Bangladesh are procyclical or countercyclical or acyclical. Hodrick Prescott (HP) filter has been used to separate the cyclical component of considered variables. Both correlation and regression-based analysis have provided that in Bangladesh government expenditure and interest rates behave procyclically, but money supply behaves acyclically over the business cycle. Besides, this paper has tried to identify the long-term as well as the short-term relationship between real GDP and the macroeconomic policy variables with the help of the Johansen cointegration test, vector error correction model (VECM), and block exogeneity Wald test. Through these analyses, this study has found that fiscal policy has a significant impact on GDP growth both in the short-run and long-run. In the case of monetary policy, although the interest rate has an impact on real output both in the short-run and long-run, the money supply has neither a short-run nor long-run effect on output growth.
    Date: 2020–12–21
  23. By: Tobias Adrian; Fernando Duarte; Nellie Liang; Pawel Zabczyk
    Abstract: We extend the New Keynesian (NK) model to include endogenous risk. Lower interest rates not only shift consumption intertemporally but also conditional output risk via their impact on risk-taking, giving rise to a vulnerability channel of monetary policy. The model fits the conditional output gap distribution and can account for medium-term increases in downside risks when financial conditions are loose. The policy prescriptions are very different from those in the standard NK model: monetary policy that focuses purely on inflation and output-gap stabilization can lead to instability. Macroprudential measures can mitigate the intertemporal risk-return tradeoff created by the vulnerability channel.
    Date: 2020–11–13
  24. By: Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change (MCC)); Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Matthias Kalkuhl (Mercator Research Institute on Global Commons and Climate Change (MCC) & University of Potsdam); Jan C. Minx (Mercator Research Institute on Global Commons and Climate Change (MCC) & Priestley International Centre for Climate, university of Leeds)
    Abstract: Limiting global warming to well below 2°C may result in the stranding of carbon-sensitive assets. This could pose substantial threats to financial and macroeconomic stability. We use a dynamic stochastic general equilibrium model with financial frictions and climate policy to study the risks a low-carbon transition poses to financial stability and the different instruments central banks could use to manage these risks. We show that, even for very ambitious climate targets, transition risks are limited for a credible, exponentially growing carbon price, although temporary \green paradoxes" phenomena may materialize. Financial regulation encouraging the decarbonization of the banks' balance sheets via tax-subsidy schemes significantly reduces output losses and inflationary pressures but it may enhance financial fragility, making this approach a risky tool. A green credit policy as a response to a financial crisis originated in the fossil sector can potentially provide an effective stimulus without compromising the objective of price stability. Our results suggest that the involvement of central banks in climate actions must be carefully designed in compliance with their mandate to avoid unintended consequences.
    Keywords: Climate policy, financial instability, financial regulation, green credit policy monetary policy; transition risk
    JEL: E50 H23 Q43 Q50 Q58
    Date: 2020–07–22
  25. By: Samba Diop (Alioune Diop University, Bambey, Senegal); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This exploratory study aims to assess Africa’s lagging position in global heath in relation to some health care infrastructure before critically examining the situation of Africa in the light of pressing Covid-19 healthcare infrastructural needs in terms of number of hospital beds, intensive care units (ICU) beds and ventilators per 100 000 people. A comparative analysis is provided to showcase which regions are leading in the health facilities in the world in general and Africa in particular as well as countries that are lagging in the attendant healthcare facilities. Analytical insights are provided to illustrate that the Covid-19 pandemic has revealed how Africa cannot reach most Sustainable Development Goals (SDGs), especially SDG-3 on health and wellbeing. Moreover, corresponding inferences suggest that the continent is unprepared for future pandemics in terms of health facilities.
    Keywords: Novel coronavirus, Socio-economic effects; Africa
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–01
  26. By: John C Bluedorn; Daniel Leigh
    Abstract: We explore the long-term impact of economic booms on labor market outcomes using a novel approach based on revisions to professional forecasts over the past 30 years for 34 advanced economies. We find that when employment rises unexpectedly, forecasters typically raise their long-term forecasts of employment by more than one-for-one and also expect a strong rise in labor force participation, suggesting more persistent effects than is traditionally assumed. Economic booms associated with changes in aggregate demand, when inflation is rising and unemployment falling unexpectedly, also come with persistent long-term effects on expected employment and labor force participation, suggesting positive hysteresis. Our forecast evaluation tests indicate that forecasters are, on average, unbiased in their assessment of these positive, persistent effects.
    Keywords: Labor markets;Employment;Unemployment rate;Labor force;Labor force participation;WP,labor market,labor market variable
    Date: 2019–05–23
  27. By: Rubinstein, Yona; Levine, Ross
    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 highlyremunerated 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 selfemployed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.
    Keywords: entrepreneurship; human capital; occupational choice; corporate finance; business cycles
    JEL: J24 G32 E32
    Date: 2020–10
  28. By: Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Tolulope O. Williams (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Olatunde J. Omokanmi (Crown-Hill University, Eiyenkorin, Nigeria); Serifat O. Onayemi (Olabisi Onabanjo University, Ogun State, Nigeria)
    Abstract: In this study, we examine the mediating roles of institutions in the remittances growth relationship for some reasons. We found that no country-specific study has towed this line leaving a vacuum in the literature of development and international finance. Most studies along this dimension have been done as a continental panel study with significant attendant deficiencies. Heterogeneous nature of institutional arrangements in African nations makes findings on the moderation roles of institutions in the remittance-growth relationship regional specific. We rely on the autoregressive distributed lag (ARDL) estimation procedure to establish a clear line of thought on the interactions of the variables of interest. Short-run results revealed that remittances inflow positively influence growth, but when institutional factors interact with the remittances variables, only the regulatory quality measures from the product of interactions matters for growth. Nonetheless, long run results revealed that remittances inflow was negatively related with growth, but when interacted with institutional measures and regressed on growth outcomes, we found remittances to positively and statistically influence growth outcomes for all the institutional measures adopted. Therefore, recipient nations should improve on the design and enforcement of laws particularly about their regulatory quality and as well as quality assurance such that they could be positioned to attract increased remittances inflow as well as other sources of external financing needed to augment domestic productivity and growth.
    Keywords: Economic Growth, Remittances, Institutions, ARDL, Nigeria
    JEL: E01 E44 F24
    Date: 2020–01
  29. By: Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Valentina Antonaroli (DEF, Università di Roma "Tor Vergata"); Alessandra Pelloni (DEF and CEIS, Università di Roma "Tor Vergata")
    Abstract: The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale-less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where R&D productivity is decreasing in the size of the economy. This decreasing productivity removes scale effects, which are a controversial prediction of first-generation endogenous growth models. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital, for reasonable parametrizations of the model. This is true even if the long-run growth rate decreases, with respect to the initial situation in which capital income is not taxed.
    Keywords: Endogenous growth, Scale effects, Capital Income Taxation, Welfare effect.
    JEL: O41 E62 H21
    Date: 2020–05–13
  30. By: Mariarosaria Comunale (Bank of Lithuania & the Australian National University); Francesco Paolo Mongelli (European Central Bank)
    Abstract: During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.
    Keywords: euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, and synchronization
    JEL: C23 E40 F33 F43
    Date: 2020–05–11
  31. By: Jaehyuk Choi; Desheng Ge; Kyu Ho Kang; Sungbin Sohn
    Abstract: The literature on using yield curves to forecast recessions typically measures the term spread as the difference between the 10-year and the three-month Treasury rates. Furthermore, using the term spread constrains the long- and short-term interest rates to have the same absolute effect on the recession probability. In this study, we adopt a machine learning method to investigate whether the predictive ability of interest rates can be improved. The machine learning algorithm identifies the best maturity pair, separating the effects of interest rates from those of the term spread. Our comprehensive empirical exercise shows that, despite the likelihood gain, the machine learning approach does not significantly improve the predictive accuracy, owing to the estimation error. Our finding supports the conventional use of the 10-year--three-month Treasury yield spread. This is robust to the forecasting horizon, control variable, sample period, and oversampling of the recession observations.
    Date: 2021–01
  32. By: Yuriy Gorodnichenko; Oleksandr Talavera; Nam Hoai Vu
    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.
    JEL: E31 O47
    Date: 2021–01
  33. By: Alessandro Giovannelli (University of L'Aquila); Tommaso Proietti (DEF & CEIS, Università di Roma "Tor Vergata"); Ambra Citton (Ministero dell'Economia e delle Finanze); Ottavio Ricchi (Ministero dell'Economia e delle Finanze); Cristian Tegami (Sogei SpA); Cristina Tinti (Ministero dell'Economia e delle Finanze)
    Abstract: The national accounts provide a coherent and exaustive description of the current state of the economy, but are available at the quarterly frequency and are released with a nonignorable publication lag. The paper proposes and illustrates a method for nowcasting and forecasting the sixteen main components of Gross Domestic Product (GDP) by output and expenditure type at the monthly frequency, using a high-dimensional set of monthly economic indicators spanning the space of the common macroeconomic and financial factors. The projection on the common space is carried out by combining the individual nowcasts and forecasts arising from all possible bivariate models of the unobserved monthly GDP component and the observed monthly indicator. We discuss several pooling strategies and we select the one showing the best predictive performance according to a pseudo real time forecasting experiment. Monthly GDP can be indirectly estimated by the contemporaneous aggregation of the value added of the different industries and of the expenditure components. This enables the comparative assessment of the indirect nowcasts and forecasts vis-à-vis the direct approach and a growth accounting exercise. Our approach meets the challenges posed by the dimensionality, since it can handle a large number of time series with a complexity that increases linearly with the cross-sectional dimension, while retaining the essential heterogeneity of the information about the macroeconomy. The application to the Italian case leads to several interesting discoveries concerning the time-varying predictive content of the information carried by the monthly indicators.
    Keywords: Mixed-Frequency Data, Dynamic Factor Models, Growth Accounting, Model Averaging, Ledoit-Wolf Shrinkage.
    JEL: C32 C52 C53 E37
    Date: 2020–05–30
  34. By: Mueller, Andreas I.; Spinnewijn, Johannes; Topa, Giorgio
    Abstract: This paper uses job seekers’elicited beliefs about job finding to disentangle the sources of the decline in job-finding rates by duration of unemployment. We document that beliefs have strong predictive power for job finding, but are not revised downward when remaining unemployed and are subject to optimistic bias, especially for the long-term unemployed. Leveraging the predictive power of beliefs, we find substantial heterogeneity in job finding with the resulting dynamic selection explaining most of the observed negative duration dependence in job finding. Moreover, job seekers’beliefs underreact to heterogeneity in job finding, distorting search behavior and increasing long-term unemployment.
    Keywords: 716485
    JEL: D83 E24 J22 J64 J65
    Date: 2021–01–01
  35. By: Mirko Abbritti; Sebastian Weber
    Abstract: We build a two-country currency union DSGE model with endogenous growth to assess the role of cross-country differences in product and labor market regulations for long-term growth and for the adjustment to shocks. We show that with endogenous growth, there is no reason to expect real income convergence. Large shocks, through endogenous TFP movements, can lead to permanent changes of output and real exchange rates. Differences are exacerbated when member countries have different product and labor market regulations. Less regulated economies are likely to have higher trend growth and recover faster from negative shocks. Results are consistent with higher inflation, lower employment and disappointing TFP growth rates experienced in the less reform-friendly euro area members.
    Keywords: Total factor productivity;Return on investment;Labor markets;Commodity markets;Inflation;WP,labor market
    Date: 2019–06–03
  36. By: Robin Döttling; Lev Ratnovski
    Abstract: We contrast how monetary policy affects intangible relative to tangible investment. We document that the stock prices of firms with more intangible assets react less to monetary policy shocks, as identified from Fed Funds futures movements around FOMC announcements. Consistent with the stock price results, instrumental variable local projections confirm that the total investment in firms with more intangible assets responds less to monetary policy, and that intangible investment responds less to monetary policy compared to tangible investment. We identify two mechanisms behind these results. First, firms with intangible assets use less collateral, and therefore respond less to the credit channel of monetary policy. Second, intangible assets have higher depreciation rates, so interest rate changes affect their user cost of capital relatively less.
    Keywords: Depreciation;Intangible capital;Asset prices;Currencies;Investment policy;WP,intangible investment,abnormal returns,investment response,adjustment cost,cost of capital
    Date: 2020–08–07
  37. By: Florian Eckert (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper documents daily compound indicators on physical mobility and sales activity in Switzerland during the Corona crisis. We report several insights from these indicators: The Swiss population substantially reduced its activities already before the shops closed and before the authorities introduced containment policies in mid-March 2020. Activity started to gradually recover from the beginning of April onwards, again substantially before the rst phase of the shutdown easing started at the end of April. Low physical mobility during the second half of March and during April likely contributed to the quick fall in new COVID-19 infections since mid-March. The sharp drop in economic activity in consumer-related services during March and April and the gradual recovery in these sectors since May correlates strongly with the reduction and subsequent gradual resurgence of mobility. In addition, while activity within Switzerland was back to normal levels by late June, activity of Swiss residents outside of Switzerland was still below normal.
    Keywords: Corona crisis, mobility, sales activity, daily indicators
    JEL: C38 D12 E32 H12 I12
    Date: 2020–08
  38. By: Jean-Marc Fournier
    Abstract: A fiscal reaction function to debt and the cycle is built on a buffer-stock model for the government. This model inspired by the buffer-stock model of the consumer (Deaton 1991; Carroll 1997) includes a debt limit instead of the Intertemporal Budget Constraint (IBC). The IBC is weak (Bohn, 2007), a debt limit is more realistic as it reflects the risk of losing market access. This risk increases the welfare cost of fiscal stimulus at high debt. As a result, the higher the debt, the less governments should smooth the cycle. A larger reaction of interest rates to debt and higher hysteresis magnify this interaction between the debt level and the appropriate reaction to shocks. With very persistent shocks, the appropriate reaction to negative shocks in highly indebted countries can even be procyclical.
    Keywords: Fiscal stance;Debt limits;Fiscal policy;Output gap;Fiscal multipliers;WP,buffer stock,interest rate
    Date: 2019–07–22
  39. By: Daniel Baksa; Zsuzsa Munkacsi
    Abstract: The evidence on the inflation impact of aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model, we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first, using this framework, to discuss how aging affects the transmission channels of monetary policy. We are also the first to examine aging and optimal central bank policies. As aging redistributes wealth among generations and the labor force becomes more scarce, our model suggests that aging makes monetary policy less effective and in more gray societies central banks should react more strongly to nominal variables.
    Keywords: Aging;Inflation;Consumption;Real interest rates;Labor supply;WP,monetary policy,transmission mechanism
    Date: 2019–09–20
  40. By: Fisayo Fagbemi (Obafemi Awolowo University, Ile-Ife, Nigeria); Opeoluwa A. Adeosun (Obafemi Awolowo University, Ile-Ife, Nigeria)
    Abstract: The study examines the long run relationship and interconnections between public debt and domestic investment in 13 West African countries from 1986-2018. Using panel Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), debt (% of GDP) and external debt have an insignificant effect on investment in the long run, suggesting the negligible effect of public debt on the level of investments. But domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment. Thus, the study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.
    Keywords: Public debt, investment, fiscal policy, cointegration analysis, West Africa
    JEL: H63 E22 H30
    Date: 2020–01
  41. By: Patrick Blagrave
    Abstract: Co-movement (synchronicity) in inflation rates among a set of 13 emerging and developing countries in Asia is shown to be strongest for the food component, partly due to common rainfall shocks—a result which the paper terms the ‘monsoon effect.’ Economies with higher trade integration and co-movement in nominal effective exchange rates also experience greater food-inflation co-movement. By contrast, cross-country co-movement in core inflation is weak and the aforementioned determinants have little explanatory power, suggesting a prominent role for idiosyncratic domestic factors in driving core inflation. In the context of the growing literature on the globalization of inflation, these results suggest that common weather patterns are partly responsible for any role played by a so-called ‘global factor’ among inflation rates in emerging and developing economies, in Asia at least.
    Keywords: Inflation;Trade integration;Nominal effective exchange rate;Food prices;WP,moving average,Core CPI Inflation,dependent variable
    Date: 2019–07–11
  42. By: Bednar, William; Pretnar, Nick
    Abstract: We construct a general equilibrium model with home production where consumers choose how to spend their off-market time using market consumption purchases. The time-intensities and productivities of different home production activities determine the degree to which variation in income and relative market prices affects both the composition of expenditure and market labor hours per worker. When accounting for time to consume, homothetic utility functions can still generate non-linear expansion paths as wages increase. For the United States substitution effects due to relative price changes dominate income effects from wage growth in contributing to the rise in the services share and the fall in hours per worker. Quality improvements to goods and services have roughly kept pace with each other, so that changes to sectoral produc- tion efficiencies are the primary driver of relative price variation.
    Keywords: household production, labor-leisure, time use, aggregate consumption, structural change, technical change, services, goods
    JEL: D13 E2 O3
    Date: 2020–10–19
  43. By: Yuanyan Sophia Zhang
    Abstract: Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.
    Keywords: Wages;Real wages;Labor markets;Unemployment;Unemployment rate;WP,pay,wage growth
    Date: 2019–07–19
  44. By: Marco Gross; Christoph Siebenbrunner
    Abstract: To support the understanding that banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks’ loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure. It would lose its impact in the hypothetical case that only one (“singular”) commercial bank would exist. We link our discussion to the emergence and design of central bank digital currencies (CBDC), with a special focus on how loans would be granted in a CBDC world.
    Keywords: Banking;Currency issuance;Bank credit;Commercial banks;Monetary base;WP,bank,lending,nonbank,nonbank lending,process
    Date: 2019–12–20
  45. By: Samba Diop (Alioune Diop University, Bambey, Senegal); Simplice A. Asongu (Yaoundé, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: The study complements the extant literature by constructing Covid-19 economic vulnerability and resilience indexes using a global sample of 150 countries which are categorized into four principal regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. Seven variables are used for the vulnerability index and nine for the resilience index. Both regions and sampled countries are classified in terms of the two proposed and computed indexes. The classification of countries is also provided in terms of four scenarios pertaining to vulnerability and resilience characteristics, notably: low vulnerability-low resilience, high vulnerability-low resilience, high vulnerability-high resilience and low vulnerability-high resilience to respectively illustrate, sensitive, severe, asymptomatic and best cases. The findings are relevant to policy makers especially as it pertains to decision making in resources allocation in the fight against the global pandemic.
    Keywords: Novel coronavirus, Economic vulnerability, Economic resilience
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–10
  46. By: Hayelom Yrgaw Gereziher; Naser Yenus Nuru
    Abstract: This paper estimates the output cost of fighting inflation?the sacrifice ratio?for the South African economy using quarterly data spanning the period 1998Q1-2019Q3. To compute the sacrifice ratio, the structural vector autoregressive model developed by Cecchetti and Rich (2001) based on Cecchetti (1994) is employed. Our findings show us a small sacrifice ratio, which lies within the range 0.00002-0.231 per cent with an average of 0.031 per cent, indicating a low level of output to be sacrificed while fighting inflation.
    Keywords: Monetary policy, inflation targeting, output, sacrifice ratio, South Africa, structural VAR
    Date: 2021
  47. By: Christian Pinshi (UNIKIN - Université de Kinshasa)
    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.
    Abstract: Quatre facteurs affectent l'efficacité de la politique monétaire, dont trois sont exogènes, la dominance fiscale, la dollarisation et les risques mondiaux ; l'un est endogène, le cadre de politique monétaire qui intègre la stratégie, les tactiques et la gouvernance de la politique monétaire. Nous montrons que les facteurs qui nuisent à l'efficacité de la Banque centrale du Congo (BCC) sont beaucoup plus exogènes. Cependant, le cadre de la politique monétaire doit être repensé. Pour une efficacité durable de la politique monétaire de la BCC, il serait nécessaire de mettre en place une discipline budgétaire durable, des mesures sérieuses de dédollarisation et des politiques de croissance économique qui renforcent la résilience.
    Keywords: Central Bank,monetary policy framework,fiscal dominance,dollarization,global risks E52,E58,E60,F4
    Date: 2020–12–19
  48. By: Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Toluwani G. Kalejaiye (Ijagun, Ogun State, Nigeria); Ayomide, O. Ogunade (Ijagun, Ogun State, Nigeria); Sina J. Ogede (Ijagun, Ogun State, Nigeria); Caleb O. Soyemi (Ijagun, Ogun State, Nigeria)
    Abstract: The social movement is inspiring meaningful conversation about the discriminatory practices’ that Africa women have long faced in every aspect of their lives. However, despite considerable improvement in the gender balance discourse, the worst cases of gender imbalances are still recorded in sub-Sahara Africa (SSA). Macroeconomic volatility, both as a source and a reflection of underdevelopment, is a fundamental concern for women in SSA. This paper leans empirical credence to the role of macroeconomic policies (fiscal and monetary policies indices) for gender equality in SSA from 1993 through 2017. We gathered panel data on the indices of macroeconomic policies and gender inequality in all 48 SSA countries. We employed the dynamic panel system generalised method of moments estimation procedure (dynamic system GMM) to establish a baseline level relationship between the variables of interest. We adjusted for heterogeneity assumptions inherent in ordinary panel estimation and found a basis for the strict orthogonal relationship among the variables. Our results suggest fluctuations in macroeconomic policies as a lead factor for gender equality in SSA countries. Efforts should be tailored towards balanced macroeconomic policies that can guarantee sustainable gender equality approaches to collective prosperity.
    Keywords: Macroeconomic Policy, Gender Equality, Dynamic GMM, Sub-Sahara Africa
    JEL: C33 E61 I18 J16
    Date: 2020–01
  49. By: Monoj Kumar Majumder; Mala Raghavan (UTAS - University of Tasmania [Hobart, Australia]); Joaquin Vespignani (UTAS - University of Tasmania [Hobart, Australia])
    Abstract: The objective of this study is to explore the impact of commodity price volatility on the governments' fiscal balance. Using a dynamic panel data model for 108 countries from 1993 to 2018, this study finds that governments' fiscal balance deteriorates with commodity price volatility. A one standard deviation increase in commodity price volatility leads to a reduction of approximately 0.04 units in the fiscal balance as a percentage of gross domestic product. In addition, we examine the role of real interest rates in influencing the relationship between commodity price volatility and fiscal balance. The empirical results suggest that the negative impact of commodity price volatility on fiscal balance can be mitigated with a lower real interest rate.
    Keywords: Commodity prices,commodity price volatility,fiscal balance,real interest rate JEL classification: E58,E62,G01
    Date: 2020–12–17
  50. By: Sangyup Choi; Davide Furceri; Chansik Yoon
    Abstract: This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards the 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending. The magnitude of the effect is also economically significant: the effect of 1 percent of GDP increase (decrease) in spending (revenue) is comparable to an exogenous decline in the federal funds rate. We also find that fiscal shocks tend to have larger effects during periods of recessions than expansions in the source country, and that the adverse effect of a fiscal consolidation is larger than the positive effect of the same size of a fiscal expansion. In contrast, we do not find systematic and statistically significant differences in the spillover effects across recipient countries depending on their exchange rate regime, although capital controls seem to play some moderating role. The extension of the analysis to a panel of 16 small open economies confirms the finding from the U.S. economy.
    Keywords: Cross-border banking;Bank credit;Fiscal stimulus;Expenditure;Spillovers;WP,bank lending,government spending,exchange rate,monetary policy
    Date: 2019–07–12
  51. By: Juin-Jen Chang; Hsieh-Yu Lin; Nora Traum; Shu-Chun Susan Yang
    Abstract: A New Keynesian model with government production, public compensation, and unemployment is fit to U.S. data to study the macroeconomic and fiscal effects of public wage reductions. We find that accounting for the type of government spending is crucial for its macroeconomic implications. Although reductions in public wages and government purchases of goods have similar effects on total output and the fiscal balance, the former can raise private output slightly, in contrast to the substantial contractionary effects of the latter. In addition, the baseline estimation finds that exogenous public wage reductions decrease private wages. Model counterfactuals show that sufficiently rigid nominal private wages can reverse the response of private wages, as the rigidity dampens the labor reallocation effect from the public to private sector that exerts downward pressure on private wages.
    Keywords: Wages;Labor;Public employment;Real wages;Wage adjustments;WP,nominal wage,real wage
    Date: 2019–06–10
  52. By: International Monetary Fund
    Abstract: The economic impact of the COVID-19 pandemic is unprecedented. Israel’s economic activity recorded a historic contraction, and the outlook remains challenging, with possible long-term scarring. Uncertainty is high, mainly driven by the evolution of the pandemic, the prospects for widespread vaccine distribution, and political uncertainty.
    Keywords: COVID-19 ;Public investment and public-private partnerships (PPP);Fiscal policy;Loans;Fiscal space;ISCR,CR,vaccination pace,Medium-term risk,vaccination campaign,vaccine distribution,health crisis
    Date: 2021–01–21
  53. By: Tommaso Proietti (DEF and CEIS, Università di Roma "Tor Vergata")
    Abstract: Locating the running maxima and minima of a time series, and measuring the current deviation from them, generates processes that are analytically relevant for the analysis of the business cycle and for characterizing bull and bear phases in financial markets. The measurement of the time distance from the running peak originates a first order Markov chain, whose characteristics can be used for testing time reversibility of economic dynamics and specific types of asymmetries in financial markets. The paper derives the time series properties of the gap process and other related processes that arise from the same measurement context, and proposes new nonparametric tests of time reversibility. Empirical examples illustrate their uses for characterizing the depth of a recession and the duration of bull and a bear market.
    Keywords: Markov chains, Business cycles, Recession duration.
    JEL: C22 C58 E32
    Date: 2020–06–17
  54. By: Mariam El Hamiani Khatat; Mark Buessings-Loercks; Vincent Fleuriet
    Abstract: This paper argues that there is scope for monetary policy under an exchange rate anchor, and discusses the related monetary policy design and implementation. It shows that the exchange rate can be used as the main monetary policy instrument while the policy rate can target the exchange rate. An exchange rate anchor is compatible with an inflation objective, provided fiscal dominance is not an issue, monetary conditions are supportive of the peg, and the level of international reserves is adequate. The paper argues that, while an exchange rate anchor is more prone to policy inconsistencies, there is ample scope for strengthening monetary policy design and implementation under soft pegs. In that context, the principles of dichotomy and interest rate parity are critical.
    Keywords: Exchange rates;Exchange rate arrangements;Exchange rate anchor;Central bank policy rate;Banking;WP,exchange rate,interest rate,monetary policy
    Date: 2020–09–04
  55. By: Simplice A. Asongu (Yaounde, Cameroon); Mushfiqur Rahman (London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Mohamed Haffar (University of Bradford, Bradford, UK)
    Abstract: This study investigates how enhancing information and communication technology (ICT) affects value added across sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. The following findings are established. First, the enhancement of mobile phone and internet penetrations respectively have net negative effects on value added to the agricultural and manufacturing sectors.Second, enhancing ICT (i.e. mobile phone penetration and internet penetration) overwhelmingly has positive net effects on value added to the service sector. From an extended analysis, enhancing ICT in the agricultural and manufacturing sectors should exceed certain thresholds for value added, notably: 114.375 of mobile phone penetration per 100 people for added value in the agricultural sector and 22.625 of internet penetration per 100 people for added value in the manufacturing sector.
    Keywords: Economic Output; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  56. By: Mazumdar, Surajit
    Abstract: The Covid-19 pandemic and the response to it is the third successive shock (after demonetization and Introduction of the Goods and Service Tax) being experienced by an Indian economy within a period of 4 years. Even before this shock, there were clear signs of Indian growth slowing down considerably and indeed there have been signs for nearly the whole decade now ending that India’s economy was losing steam. Stagnation in investment (capital formation), foreign trade and investment flows, industrial production and in the construction activities have been steady indicators of this in the real economy which is the reason why so many were sceptical of GDP growth figures emerging from the new GDP series introduced in 2015. Even as credit growth has slowed down considerably, a mounting bad debt problem has been seen in the financial system. These trends were all in marked contrast to those seen in the previous decade, and the sharp deceleration in Indian GDP growth seen even before anyone had heard about the Coronavirus was a sign of this deepening crisis. This paper discusses the Covid-19 impact on India’s economy in this background and the nature of the state’s response to argue that the future of India’s economy is grim unless there is a drastic shift in the thrust of government economic policy.
    Keywords: India, Covid-19, Economic Crisis
    JEL: O11 O14 O2 O20 O53
    Date: 2020–08
  57. By: Alifatussaadah, Ardiana; Primariesty, Anindya Diva; Soleh, Agus Mohamad; Andriansyah, Andriansyah
    Abstract: Since introduced by Giannone et al. (2008), GDP nowcasting models have been used in many countries, including Indonesia. Variables to select usually include housing and construction, income, manufacturing, labor, surveys, international trade, retails and consumptions. Interestingly, fiscal variables are excluded even though government expenditure is an integral part of the basic GDP identity. By employing the Bok et al. (2018)’s quarter-to-quarter real GDP growth nowcasting technique, this paper is aimed at testing the usefulness of inclusion of fiscal variables, in addition to 61 non-fiscal variables, in nowcasting Indonesia GDP. The results show, even though based on the fact that fiscal data have low correlation coefficients to GDP, the inclusion of fiscal data may help to produce a better early estimate of GDP growth.
    Keywords: Dynamic Factor Model, Indonesian GDP, Nowcasting
    JEL: C55 H60 O40
    Date: 2019–08–05
  58. By: Oasis Kodila-Tedika (University of Kinshasa, RDC); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: We assess the correlations between tribalism and financial development in 60 countries using data averages from 2000-2010. The tribalism index is used to measure tribalism whereas financial development is measured from perspectives of financial intermediary and stock market developments. The long term finance variable is stock market capitalisation while the short run variable is private and domestic credit. We find that tribalism is negatively correlated with financial development and the magnitude of negativity is higher for financial intermediary development relative to stock market development. The findings are particularly relevant to African and Middle Eastern countries where the scourge of tribalism is most pronounced.
    Keywords: Tribalism; Financial Development
    JEL: E62 H11 H20 G20 O43
    Date: 2020–01
  59. By: Hidetaka Nishizawa; Scott Roger; Huan Zhang
    Abstract: Pacific island countries (PICs) are vulnerable severe natural disasters, especially cyclones, inflicting large losses on their economies. In the aftermath of disasters, PIC governments face revenue losses and spending pressures to address post-disaster relief and recovery efforts. This paper estimates the effects of severe natural disasters on fiscal revenues and expenditure in PICs. These are combined with information on the frequency of large disasters to calculate the rate of budgetary savings needed to build appropriate fiscal buffers. Fiscal buffers provide self-insurance against natural disaster shocks and facilitate quick disbursement for recovery and relief efforts, and protection of spending on essential services and infrastructure. The estimates can provide a benchmark for policymakers, and should be adjusted to take into account other sources of financing, as well as budget risks from less severe as well as more frequent disasters.
    Keywords: Natural disasters;Fiscal space;Disaster aid;Expenditure;Budget planning and preparation;WP,private sector,real GDP,government expenditure
    Date: 2019–07–12
  60. By: Davide Furceri; Michael Ganslmeier; Jonathan David Ostry; Naihan Yang
    Abstract: While the COVID-19 pandemic is affecting all countries, output losses vary considerably across countries. We provide a first analysis of robust determinants of observed initial output losses using model-averaging techniques—Weighted Average Least Squares and Bayesian Model Averaging. The results suggest that countries that experienced larger output losses are those with lower GDP per capita, more stringent containment measures, higher deaths per capita, higher tourism dependence, more liberalized financial markets, higher pre-crisis growth, lower fiscal stimulus, higher ethnic and religious fractionalization and more democratic regimes. With respect to the first factor, lower resilience of poorer countries reflects the higher economic costs of containment measures and deaths in such countries and less effective fiscal and monetary policy stimulus.
    Date: 2021–01–29
  61. By: Quarm, Richmond Sam; Busharads, Mohamed Osman Elamin; Institute of Research, Asian
    Abstract: The aim of this paper is to explore the reasons of gold price volatility. It analyses the information function of the gold future market by open interest contracts as speculation effect, and further fundamental factors including inflation, Chinese yuan per dollar, Japanese yen per dollar, dollar per euro, interest rate, oil price, and stock price, in the short-run. The study proceeds to build a Dynamic OLS model for long-run equilibrium to produce reliable gold price forecasts using the following variables: gold demand, gold supply, inflation, USD/SDR exchange rate, speculation, interest rate, oil price, and stock prices. Findings prove that in the short-run, changes in gold price does granger cause changes in open interest, and changes in Japanese yen per dollar does granger cause changes in gold price. However, in the long-run, the results prove that gold demand, gold supply, USD/SDR exchange rate, inflation, speculation, interest rate, and oil price are associated in a long-run relationship.
    Date: 2020–12–26
  62. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency.
    Keywords: Finance; Institutions; Investment: Property Rights; Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2020–01
  63. By: Monoj Kumar Majumder; Mala Raghavan (UTAS - University of Tasmania [Hobart, Australia]); Joaquin Vespignani (UTAS - University of Tasmania [Hobart, Australia])
    Abstract: This study explores the impact of commodity price volatility on external debt accumulation under fixed, managed and floating exchange rate 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 larger for countries with fixed exchange rate systems, compared to a managed floating exchange regime. Under floating exchange regimes, the impact 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 impair the effect of commodity price volatility on external debt accumulation.
    Keywords: Commodity price volatility,external debt,commodity-exporting countries,exchange rate regime JEL classification: E62,F31,F34,G01
    Date: 2020–12–17
  64. By: Nicholas Bloom; Robert S. Fletcher; Ethan Yeh
    Abstract: We use survey data on an opt-in panel of around 2,500 US small businesses to assess the impact of COVID-19. We find a significant negative sales impact that peaked in Quarter 2 of 2020, with an average loss of 29% in sales. The large negative impact masks significant heterogeneity, with over 40% of firms reporting zero or a positive impact, while almost a quarter report losses of more than 50%. These impacts also appear to be persistent, with firms reporting the largest sales drops in mid-2020 still forecasting large sales losses a year later in mid-2021. In terms of business types, we find that the smallest offline firms experienced sales drops of over 40% compared to less than 10% for the largest online firms. Finally, in terms of owners, we find female and black owners reported significantly larger drops in sales. Owners with a humanities degree also experienced far larger losses, while those with a STEM degree saw the least impact.
    JEL: E0 J0 L0
    Date: 2021–01
  65. By: Timothy Besley; Isabelle Roland; John Van Reenen
    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 firm-level 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, growth
    JEL: D24 E32 L11 O47
    Date: 2020–01
  66. By: Carine Meyimdjui; Jean-Louis Combes
    Abstract: This paper studies whether fiscal policy plays a stabilizing role in the context of import food price shocks. More precisely, the paper assesses whether fiscal policy dampens the adverse effect of import food price shocks on household consumption. Based on a panel of 70 low and middle-income countries over the period 1980-2012, the paper finds that import price shocks negatively and significantly affect household consumption, but this effect appears to be mitigated by discretionary government consumption, notably through government subsidies and transfers. The results are particularly robust for African countries and countries with less flexible exchange rate regimes.
    Date: 2021–01–15
  67. By: Giovanni Melina; Hoda Selim; Concepcion Verdugo-Yepes
    Abstract: This paper argues that oil revenue management and public investment in Congo are vulnerable to corruption as a result of limited transparency and accountability. Corruption has potentially contributed to poor macro-fiscal outcomes. The paper acknowledges the authorities’ anti-corruption efforts made so far and proposes further critical reforms to reduce remaining vulnerabilities. Using a dynamic stochastic general equilibrium model results show that, depending on the reforms adopted, the potential additional growth can range between 0.8 to 1.8 percent per year over the next 10 years, and debt can decline by 2.25 to 3 percent of GDP per year over the same period. These results suggest that macrofiscal gains from anti-corruption reforms could be substantial even under conservative reform scenarios.
    Keywords: Oil;Corruption;Public investment spending;Public investment and public-private partnerships (PPP);Oil, gas and mining taxes;WP,government,investment,firm,investment efficiency,government contract
    Date: 2019–06–03
  68. By: Ni Zhan
    Abstract: This paper examines deposits of individuals ("retail") and large companies ("wholesale") in the U.S. banking industry, and how these deposit types are impacted by macroeconomic factors, such as quantitative easing (QE). Actual data for deposits by holder are unavailable. We use a dataset on banks' financial information and probabilistic generative model to predict industry retail-wholesale deposit split from 2000 to 2020. Our model assumes account balances arise from separate retail and wholesale lognormal distributions and fit parameters of distributions by minimizing error between actual bank metrics and simulated metrics using the model's generative process. We use time-series regression to forward predict retail-wholesale deposits as function of loans, retail loans, and reserve balances at Fed banks. We find increase in reserves (representing QE) increases wholesale but not retail deposits, and increase in loans increase both wholesale and retail deposits evenly. The result shows that QE following the 2008 financial crisis benefited large companies more than average individuals, a relevant finding for economic decision making. In addition, this work benefits bank management strategy by providing forecasting capability for retail-wholesale deposits.
    Date: 2021–01
  69. By: Si Guo; Philippe D Karam; Jan Vlcek
    Abstract: Inflation rates rose sharply in the Philippines during 2018. Understanding the demand and supply sources of inflation pressures is key to monetary policy response. Qualitatively, indicators have pointed to evidence of inflation pressures from both sides in 2018, with the supply factors, by and large, associated with commodity-price shocks and demand factors deduced from gleaning at the wider non-oil trade deficits seen in the Philippines. Quantitatively, we deploy a semi-structural model to decompose the contributions of various shocks to inflation. Our main findings are (1) supply factors (mainly global commodity prices) played a prominent role in explaining the rise in inflation in 2018; (2) demand factors also contributed to inflation in a non-negligible way, justifying the need for tighter monetary policy in 2018; (3) the size of the estimated output gap (an important indicator of demand pressures) could be larger, when considering the widening trade deficits in 2018; and (4) a delayed monetary policy tightening can be costly in terms of higher inflation rates, requiring larger and more aggressive interest rate hikes to bring inflation under control, based on a counterfactual exercise.
    Keywords: Inflation;Oil prices;Output gap;Inflation targeting;Monetary tightening;WP,inflation rate,headline inflation,price,monetary policy
    Date: 2019–07–12
  70. By: Cecile Gaubert; Patrick M. Kline; Damián Vergara; Danny Yagan
    Abstract: We study trends in income inequality across U.S. states and counties 1960-2019 using a mix of administrative and survey data sources. Both states and counties have diverged in terms of per-capita pre-tax incomes since the late 1990s, with transfers serving to dampen this divergence. County incomes have been diverging since the late 1970s. These trends in mean income mask opposing patterns among top and bottom income quantiles. Top incomes have diverged markedly across states since the late 1970s. In contrast, bottom income quantiles and poverty rates have converged across areas in recent decades.
    JEL: E01 H2 R1
    Date: 2021–01
  71. By: Natasha X Che
    Abstract: Uruguay experienced one of its biggest economic booms in history during 2004-2014. Since then, growth has come down significantly. The paper investigates the various causes of the boom and discusses the sustainability of these causes. It then compares Uruguay against high-growth countries that were once at a similar income level, across a broad set of structural indicators, to identify priority reform areas that could improve long-term growth prospect.
    Date: 2021–01–08
  72. By: Max-Sebastian Dov\`i
    Abstract: Limited-information inference on New Keynesian Phillips Curves (NKPCs) and other single-equation macroeconomic relations is characterised by weak and high-dimensional instrumental variables (IVs). Beyond the efficiency concerns previously raised in the literature, I show by simulation that ad-hoc selection procedures can lead to substantial biases in post-selection inference. I propose a Sup Score test that remains valid under dependent data, arbitrarily weak identification, and a number of IVs that increases exponentially with the sample size. Conducting inference on a standard NKPC with 359 IVs and 179 observations, I find substantially wider confidence sets than those commonly found.
    Date: 2021–01
  73. By: Demary, Markus; Hüther, Michael
    Abstract: The European Central Bank (ECB) is reviewing its strategy. Key pillars are its communication and how monetary policy should address climate change. We advise the ECB to strengthen its communication especially with social groups unfamiliar with monetary policy. When it comes to climate change, the ECB should be responsive, but not activist.
    Date: 2020
  74. By: Michal Andrle; Benjamin L Hunt
    Abstract: This paper outlines an approach to assess uncertainty around a forecast baseline as well as the impact of alternative policy rules on macro variability. The approach allows for non-Gaussian shock distributions and non-linear underlying macroeconomic models. Consequently, the resulting distributions for macroeconomic variables can exhibit skewness and fat tails. Several applications are presented that illustrate the practical implementation of the technique including confidence bands around a baseline forecast, the probabilities of global growth falling below a specified threshold, and the impact of alternative fiscal policy reactions functions on macro variability.
    Keywords: Interest rate floor;Production growth;Zero lower bound;Fiscal policy;WP,distribution,shock distribution,monetary policy,normal distribution
    Date: 2020–05–22
  75. By: Asiya Maskaeva; Mgeni Msafiri
    Abstract: This study simulates the macro-micro economic impacts of the employment policy, focusing on hysteresis in youth unemployment in South Africa. Specifically, we apply a dynamic computable general equilibrium model to calibrate the 2015 South African Social Accounting Matrix to estimate, compare, and determine the impact of employment policy on youth unemployment as well as on aggregate economic outcomes. We simulate two scenarios where we reduce the import price of fuel by 20 per cent.
    Keywords: Computable general equilibrium, Youth unemployment, Employment, Policy, South Africa
    Date: 2021
  76. By: Aifan Ling; Jianjun Miao; Neng Wang
    Abstract: We study how investors' preferences for robustness influence corporate investment, financing, and compensation decisions and valuation in a financial contracting model with agency. We characterize the robust contract and show that early liquidation can be optimal when investors are sufficiently ambiguity averse. We implement the robust contract by debt, equity, cash, and a financial derivative asset. The derivative is used to hedge against the investors' concern that the entrepreneur may be overly optimistic. Our calibrated model generates sizable equity premium and credit spread, and implies that ambiguity aversion lowers Tobin's q; the average investment, and investment volatility. The entrepreneur values the project at an internal rate of return of 3.5% per annum higher than investors do.
    JEL: D81 E22 G12 G32 J33
    Date: 2021–01
  77. By: Alexandru Meleca (Alexandru Ioan Cuza University of Iași, Romania); Radu Radulescu (Alexandru Ioan Cuza University of Iași, Romania)
    Abstract: Regions adapt regional economic models differently in the face of economic shock and recession, some quickly recovering the values of pre-shock economic indicators, others slowly and underperformingly. During the 2008 crisis at regional level, against the background of social, political and cultural factors, reorientation decisions demonstrated distinct results. These orientations have determined the evolution of different scenarios of economic growth. The crisis has forced regional systems to implement different models of economic and structural decisions, such as the current pandemic situation only in a different form and with different effects. The crisis scenarios include the severe impact on the regional economy and the decline in the value of economic indicators, stagnation and last but not least regional success in terms of managing the financial crisis and stabilizing the indicators. This paper aims to categorize according to the behavior of the GDP per capita indicator during the crisis of 2008. The aim is to identify and test the resilient regions that have applied measures to avoid the negative effects of the crisis in a relatively short period.
    Keywords: regional resilience, growth, crisis
    Date: 2020–09
  78. By: Megan Sheahan (Industrial Economics); Yanyan Liu (International Food Policy Research Institute); Sudha Narayanan (Indira Gandhi Institute of Development Research); Christopher B. Barrett (Cornell University)
    Abstract: How do household labor supply decisions change with the entry of a massive employment guarantee program? This paper explores the household labor allocation effects - disaggregated by gender, age group, task, and season - associated with India's Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Using three rounds of panel household survey data combined with project administrative recordsin Andhra Pradesh, our results suggest that participation in MGNREGS prompted an increase in overall household labor supply by about 12 days only in the summer slack labor season, mostly attributed to adult women. This expansion is not large enough to evade "crowding out" of some labor previously offered to non- MGNREGS labor tasks, and more so in the main agricultural seasons than the summer slack season. Time spent on paid and unpaid activities do not increase for youth and children in MGNREGS-participating households, suggesting no within-household substitution of labor towards younger members.
    Keywords: labor, employment guarantee, public works, gender, MGNREGS, India
    JEL: D13 E24 J22 J38 J45
    Date: 2020–11
  79. By: Radu Radulescu (Alexandru Ioan Cuza University of IaÅŸi, Romania)
    Abstract: The relationship between tourism and economic growth has become an important topic of many empirical studies, and various models of analysis can help us understand the contribution of tourism to economic growth, due to the methodological approaches used by researchers. This article analyzed the causal relationship between the economic cycles of the tourism industry and those of regional economic growth between 2004-2016 using the Granger causality test and validated all the causal hypotheses between tourism and economic growth for 21 countries and 158 of regions in the European Union.
    Keywords: tourism industry, EU regional economy, economic cycles
    Date: 2020–09

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