nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒03‒01
120 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Stock Prices, Lockdowns, and Economic Activity in the Time of Coronavirus By Stephen J. Davis; Dingqian Liu; Xuguang Simon Sheng
  2. El balance entre la reapertura y la recuperación. Crecimiento económico del tercer trimestre 2020 By División de Análisis Macroeconómico DAMAC
  3. Should the ECB adjust its strategy in the face of a lower r*? By Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
  4. Central Bank Independence and challenges during the global pandemic: balancing monetary and fiscal policy objectives By Ojo, Marianne; Roedl, Marianne
  5. The Hockey Stick Phillips Curve and the Zero Lower Bound By Gregor Boehl; Philipp Lieberknecht
  6. The macroeconomic effects of oil supply news: Evidence from OPEC announcements By Känzig, Diego Raoul
  7. An indicator of monetary bias for emerging and dollarized economies The case of Uruguay By Conrado Brum Civelli; Alfredo García-Hiernaux
  8. Understanding the gains from wage flexibility in a currency union: the fiscal policy connection By Eiji Okano
  9. Optimal Bailouts in Banking and Sovereign Crises By Sewon Hur; César Sosa-Padilla; Zeynep Yom
  10. Additional Information About the Economic Outlook: 2021 to 2031 By Congressional Budget Office
  11. Kaleckian Investment and Employment Cycles in Postwar Industrialized Economies By Peter Flaschel; Reiner Franke; Willi Semmler
  12. Revisiting the New Keynesian policy paradoxes under QE By Bonciani, Dario; Oh, Joonseok
  13. Probability of Default (PD) Model to Estimate Ex Ante Credit Risk By Anna Burova; Henry Penikas; Svetlana Popova
  14. The Dynamic Effects of the ECB’s Asset Purchases: a Survey-Based Identification By Lhuissier Stéphane; Nguyen Benoît
  15. A Short Period Sraffa-Keynes Model for the Evaluation of Monetary Policy By Peter Docherty
  16. Can shocks to risk aversion explain business cycle fluctuations in Bulgaria (1999-2018)? By Aleksandar Vasilev
  17. Inflation Gap Persistence, Indeterminacy, and Monetary Policy By Yasuo Hirose; Takushi Kurozumi; Willem Van Zandweghe
  18. Financial Destabilization By Ken-ichi Hashimoto; Ryonghun Im; Takuma Kunieda; Akihisa Shibata
  19. The Interaction Between Domestic Monetary Policy and Macroprudential Policy in Israel By Jonathan Benchimol; Gamrasni Inon; Kahn Michael; Ribon Sigal; Saadon Yossi; Ben-ZeâEv Noam; Segal Asaf; Shizgal Yitzchak
  20. Cash and crises: No surprises by the virus By Rösl, Gerhard; Seitz, Franz
  21. Fifty Shades of QE: Conflicts of Interest in Economic Research By Brian Fabo; Martina Jancokova; Elisabeth Kempf; Lubos Pastor
  22. The Interdependence of Fiscal and Monetary Policy in Uruguay By Elizabeth Bucacos
  23. Can debt monetisation be helpful for Chinaís post-Covid recovery? Some empirical evidence By Cao, Ziyi; Ou, Zhirong
  24. Monetary Policy and Racial Inequality By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
  25. Monetary Policy and Racial Inequality By Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
  26. Niedrigzinsen - eine echte Gefahr für Banken oder Gejammer auf hohem Niveau!? By Hastenteufel, Jessica; Fuchs, Lena
  27. Doubling Down on Debt: Limited Liability as a Financial Friction By Jesse Perla; Carolin Pflueger; Michal Szkup
  28. How Did U.S. Consumers Use Their Stimulus Payments? By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
  29. Official statistics release and inflation expectations By Serafín Frache; Rodrigo Lluberas
  30. Inflation expectations and the pass-through of oil prices By Knut Are Aastveit; Hilde C. Bjørnland; Jamie L. Cross
  31. Working Longer Cannot Solve the Retirement Crisis By Teresa Ghilarducci; Michael Papadopoulos; Bridget Fisher; Anthony Webb
  32. Honing in on Housing By Zoë Venter
  33. Parallel Digital Currencies and Sticky Prices By Harald Uhlig; Taojun Xie
  34. Central Bank Digital Currency: When Price and Bank Stability Collide By Linda Schilling; Jesús Fernández-Villaverde; Harald Uhlig
  35. Foreign Direct Investment and poverty in Sub-Saharan African countries: the role of host absorptive capacity By Sodiq Arogundade; Mduduzi Biyase; Hinaunye Eita
  36. Monetary Policy, Firm Heterogeneity, and Product Variety By Masashige Hamano; Francesco Zanetti
  37. The EU Budgetary Package 2021 to 2027 Almost Finalised: An Assessment By Thomas Reininger
  38. Default Costs and Self-fulfilling Fiscal Limits in a Small Open Economy By Sergey Pekarski; Anna Sokolova
  39. Identifying deposits' outflows in real-time By Edoardo Rainone
  40. Growth Uncertainty, Rational Learning, and Option Prices By Mykola Babiak; Roman Kozhan
  41. Entrepreneurship, growth and productivity with bubbles By Lise Clain-Chamosset-Yvrard; Xavier Raurich; Thomas Seegmuller
  42. Involuntary unemployment in overlapping generations model due to instability of the economy and fiscal policy for full-employment By Tanaka, Yasuhito
  43. Entrepreneurship, growth and productivity with bubbles By Lise Clain-Chamosset-Yvrard; Xavier Raurich; Thomas Seegmuller
  44. Optimal Transport of Information By Semyon Malamud; Anna Cieslak; Andreas Schrimpf
  45. Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in Canada and the United States By Marie-Hélène Felt; Fumiko Hayashi; Joanna Stavins; Angelika Welte
  46. Are neutral and investment-specific technology shocks correlated? By Alban Moura
  47. On the leading properties of Business and Consumer Surveys: new evidence from EU countries By Petar Sorić; Blanka Škrabić Perić; Marina Matošec
  48. Tributación en Colombia: Una aproximación teórica y empírica de la Curva de Laffer By Juan Pablo Herrera Saavedra; Juan Camilo Villar Otálora; Jacobo Campo Robledo
  49. Política fiscal subnacional y ciclos económicos en Colombia By Diana Ricciulli-Marín; Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena
  50. Emergencia empleo: políticas públicas para el empleo en la crisis actual By Centro de Investigaciones para el Desarrollo
  51. Whatever it takes to save the planet? Central banks and unconventional green policy By Alessandro Ferrari; Valerio Nispi Landi
  52. Why Does the Fed Move Markets so Much? A Model of Monetary Policy and Time-Varying Risk Aversion By Carolin E. Pflueger; Gianluca Rinaldi
  53. Robots at Work? Pitfalls of Industry Level Data By Bekhtiar, Karim; Bittschi, Benjamin; Sellner, Richard
  54. Reconciling Empirics and Theory: The Behavioral Hybrid New Keynesian Model By Atahan Afsar; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez
  55. The Twin Endogeneities Hypothesis: A Theory of Central Bank Evolution By Daniyal Khan
  56. Seasonal adjustment of the Bank of Russia Payment System financial flows data By Sergey Seleznev; Natalia Turdyeva; Ramis Khabibullin; Anna Tsvetkova
  57. Monetary policy and the corporate bond market: How important is the Fed information effect? By Michael Smolyansky; Gustavo A. Suarez
  58. Labor market institutions convergence in the European Union By Alka Obadić; Vladimir Arčabić; Lucija Rogić Dumančić
  59. Mortgage regulation and financial vulnerability at the household level By Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
  60. Economic and Fiscal Additionality in Italian Tax Credit on Dwellings Renovation By Marco Manzo; Daniela Tellone
  61. Productivity Shocks, Long-Term Contracts and Earnings Dynamics By Neele Balke; Thibaut Lamadon
  62. A Prudential trade-off? Leakages and Interactions with Monetary Policy By Meunier Baptiste; Pedrono Justine
  63. Granular Instrumental Variables By Xavier Gabaix; Ralph S. J. Koijen
  64. Forecasting Brazilian Inflation with the Hybrid New Keynesian Phillips Curve: Assessing the Predictive Role of Trading Partners By Carlos Medel
  65. COVID-19 Is a Persistent Reallocation Shock By Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent Meyer
  66. Measuring the Cost of Living in Mexico and the US By David Argente; Chang-Tai Hsieh; Munseob Lee
  67. The Analytic Theory of a Monetary Shock By Fernando Alvarez; Francesco Lippi
  68. Endogenous product scope: Market interlacing and aggregate business cycle dynamics By Pavlov, Oscar; Weder, Mark
  69. Are Bigger Banks Better? Firm-Level Evidence from Germany By Kilian Huber
  70. Estimating Policy Functions in Payments Systems Using Reinforcement Learning By Pablo S. Castro; Ajit Desai; Han Du; Rodney Garratt; Francisco Rivadeneyra
  71. The Macroeconomics of Sticky Prices with Generalized Hazard Functions By Fernando E. Alvarez; Aleksei Oskolkov; Francesco Lippi
  72. A Fiscal Rule to achieve debt sustainability in Colombia By María Angélica Arbeláez; Miguel Benítez; Roberto Steiner; Oscar Valencia
  73. Can we measure inflation expectations using Twitter? By Cristina Angelico; Juri Marcucci; Marcello Miccoli; Filippo Quarta
  74. Addressing COVID-19 Outliers in BVARs with Stochastic Volatility By Andrea Carriero; Todd E. Clark; Massimiliano Marcellino; Elmar Mertens
  75. World interest rates and macroeconomic adjustments in developing commodity producing countries By Vincent Bodart; François Courtoy; Erica Perego
  76. Incomplete Markets and Parental Investments in Children By Brant Abbott
  77. Do Expert Experience and Characteristics Affect Inflation Forecasts? By Jonathan Benchimol; Makram El-Shagi; Yossi Saadon
  78. A First in Nearly 50 Years, Older Workers Face Higher Unemployment Than Mid-Career Workers By Retirement Equity Lab
  79. February Regional Business Surveys Find Widespread Supply Disruptions By Jason Bram; Richard Deitz
  80. The impact of macroeconomic variables on Stock ‎market in United Kingdom By NEIFAR, MALIKA; Dhouib, Salma ‎; Bouhamed, Jihen ‎; Ben Abdallah, Fatma ‎; Arous, Islem ‎; Ben Braiek, Fatma ‎; Mrabet, Donia ‎
  81. How the New Fed Municipal Bond Facility Capped Muni-Treasury Yield Spreads in the COVID-19 Recession By Michael D. Bordo; John V. Duca
  82. The Stalled Jobs Recovery Pushed 1.1 Million Older Workers Out Of The Labor Force By Retirement Equity Lab
  83. Expectation dispersion, uncertainty, and the reaction to news By Born, Benjamin; Dovern, Jonas; Enders, Zeno
  84. Why Do Borrowers Default on Mortgages? A New Method For Causal Attribution By Peter Ganong; Pascal J. Noel
  85. Does Policy Communication During COVID Work? By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
  86. Initial Beliefs Uncertainty and Information Weighting in the Estimation of Models with Adaptive Learning By Jaqueson Galimberti
  87. Nursing Homes in Equilibrium: Implications for Long-term Care Policies By Tatyana Koreshkova; Minjoon Lee
  88. The COVID-19 Pandemic's Evolving Impacts on the Labor Market: Who's Been Hurt and What We Should Do By Brad J. Hershbein; Harry J. Holzer
  89. On the interaction between monetary and macroprudential policies By Martin, Alberto; Mendicino, Caterina; Van der Ghote, Alejandro
  90. Midiendo la calidad del empleo: una aplicación para Ecuador en el periodo de 2007 a 2017 By Mercy Raquel Orellana Bravo; Carlos Julio Rivera Bautista; Pablo Aníbal Beltrán Romero; Diego Danny Ontaneda Jiménez
  91. Growth Accounting in the Dominican Republic 1990-2018: new evidence By Franco Frizzera; Martín Grandes
  92. FInance, Endogenous TFP, and Misallocation By Chaoran Chen; Ashique Habib; Xiaodong Zhu
  93. Epidemic Responses Under Uncertainty By Michael Barnett; Greg Buchak; Constantine Yannelis
  94. Government debt post COVID-19: Back to Golden Rules By Breuer, Christian
  95. Complex World Money. By Hanappi, Hardy
  96. TLAC-eligible debt: who holds it? A view from the euro area By Carmela Aurora Attinà; Pierluigi Bologna
  97. The Macroeconomic Environment for Jobs in South Sudan: Jobs, Recovery, and Peacebuilding in Urban South Sudan – Technical Report II By Mawejje,Joseph
  98. Over Half of Unemployed Older Workers at Risk of Involuntary Retirement By Retirement Equity Lab
  99. Elections, Political Polarization, and Economic Uncertainty By Scott R. Baker; Aniket Baksy; Nicholas Bloom; Steven J. Davis; Jonathan Rodden
  100. Covid-19 and taxes: policies for the post-pandemic recovery By Harman, Oliver; Jensen, Anders Ditlev; Naeem, Farria; Saab, Moussa; Wani, Shahrukh; Wilkinson, Nick
  101. Republic of Kosovo; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Kosovo By International Monetary Fund
  102. Chartbook: Retirement Insecurity and Falling Bargaining Power By Retirement Equity Lab
  103. Competition in the Israeli Economy and its Effect on Prices: A Sector-Based Phillips Curve Analysis By Shulamit Nir
  104. Central Bank Digital Currencies and payments: A review of domestic and international implications By Lilas Demmou; Quentin Sagot
  105. Verification Results For Age-Structured Models Of Economic-Epidemics Dynamics By Giorgio Fabbri; Fausto Gozzi; Giovanni Zanco
  106. Vietnam; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Vietnam By International Monetary Fund
  107. Business Incomes at the Top By Wojciech Kopczuk; Eric Zwick
  108. Information versus Investment By Stephen J. Terry; Toni M. Whited; Anastasia A. Zakolyukina
  109. Gender Inclusive Intermediary Education, Financial Stability and Female Employment in the Industry in Sub-Saharan Africa By Simplice A. Asongu; Yann Nounamo; Henri Njangang; Sosson Tadadjeu
  110. Why Working From Home Will Stick By Jose Maria Barrero; Nicholas Bloom; Steven J. Davis
  111. La macroeconomía: un punto de vista metodológico By Mario Garcia Molina
  112. Does the quality of land records affect credit access of households in India? By Susan Thomas; Diya Uday
  113. A strategic analysis of “Expectations and the neutrality of money” By Gent Bajraj; Neil Wallace
  114. Raising College Access and Completion: How Much Can Free College Help? By Maria Marta Ferreyra; Carlos Garriga; Juan D. Martin-Ocampo; Angélica María Sánchez Díaz
  115. On the Effects of the Availability of Means of Payments: The Case of Uber By Fernando E. Alvarez; David O. Argente
  116. Slums and Pandemics By Brotherhood, L.; Cavalcanti, T.; Da Mata, D.; Santos, C.
  117. U.S. Banks and Global Liquidity By Ricardo Correa; Wenxin Du; Gordon Liao
  118. The Impacts of Interest Rate Changes on US Midwest Farmland Values By Albulena Basha; Wendong Zhang; Chad E. Hart
  119. How do laws and regulations affect competitiveness: The role for regulatory impact assessment By Paul Davidson; Céline Kauffmann; Marie-Gabrielle de Liedekerke
  120. Hierarchical Regularizers for Mixed-Frequency Vector Autoregressions By Alain Hecq; Marie Ternes; Ines Wilms

  1. By: Stephen J. Davis (University of Chicago - Booth School of Business); Dingqian Liu (American University - Department of Economics); Xuguang Simon Sheng (American University - Department of Economics)
    Abstract: Stock prices and workplace mobility trace out striking clockwise paths in daily data from mid-February to late May 2020. Global stock prices fell 30 percent from 17 February to 12 March, before mobility declined. Over the next 11 days, stocks fell another 10 percentage points as mobility dropped 40 percent. From 23 March to 9 April, stocks recovered half their losses and mobility fell further. From 9 April to late May, both stocks and mobility rose modestly. This dynamic plays out across the 35 countries in our sample, with a few notable exceptions. We also find that stricter lockdown policies, both in-country and globally, drove larger declines in national stock prices conditional on pandemic severity, workplace mobility, and income support and debt relief policies. Looking more closely at the two largest economies, the pandemic had greater effects on stock market levels and volatilities in the U.S. than in China. Narrative evidence confirms the dominant – and historically unprecedented – role of pandemic-related developments for stock prices in both countries. The size of the global stock market crash in reaction to the pandemic is many times larger than a standard asset-pricing model implies.
    Keywords: Stock prices, lockdown policies, market shutdowns, coronavirus, COVID-19, workplace mobility, China
    JEL: E32 E44 E65 G12 G18 I18
    Date: 2020
  2. By: División de Análisis Macroeconómico DAMAC
    Abstract: Este documento de la División de Análisis Macroeconómico realiza un análisis del proceso de recuperación económica en Colombia después de las medidas de confinamiento implementadas desde marzo hasta agosto del 2020 para evitar una propagación masiva de la pandemia COVID-19. El documento aborda la producción con corte al tercer trimestre de 2020, en particular realizando desagregaciones sectoriales y por demanda. Después del agotamiento de las cuarentenas como instrumento de política pública viable en términos económicos, sociales y políticos, se trazan elementos para el proceso de recuperación económica y para evitar mayores pérdidas irreparables en el mediano plazo. *** This document from the Macroeconomic Analysis Division analyzes the Colombian economic recovery process after the confinement measures implemented from March 2020 to August to prevent a massive spread of the COVID-19 pandemic. The document addresses production until the third quarter of 2020, making breakdowns by sector and by demand. After the exhaustion of quarantines as a viable public policy instrument in economic, social, and political terms, some elements are outlined for the process of economic recovery and to avoid irreparable losses in the medium term.
    Keywords: análisis macroeconómico, COVID-19, impacto, cuarentena, aislamiento, crisis, Colombia.
    JEL: E00 E01 E20 E23 E60
    Date: 2020–12–17
  3. By: Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
    Abstract: We address this question using an estimated New Keynesian DSGE model of the Euro Area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails signiï¬ cant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight tenth the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inflation target, and assuming the effective lower bound prevents the ECB from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as committing to make-up for recent, below-target inflation realizations.
    Keywords: inflation target, effective lower bound, monetary policy strategy, euro-area.
    JEL: E31 E52 E58
    Date: 2021–01
  4. By: Ojo, Marianne; Roedl, Marianne
    Abstract: As well as highlighting why unconventional and conventional accommodative monetary policies have been propagated as being crucial to achieving dual mandates and goals of leading central bank economies, drawing from lessons and experiences whereby accommodative monetary policies have been instigated as a means of addressing prolonged periods of low inflation, this paper highlights how such experiences can also be used to bolster the proposition that "since monetary policy space is limited, and since many of the challenges faced are beyond mandates of central banks, these should be addressed through structural and fiscal policies. " The concept and notion of central bank independence has been interpreted and applied differently across several jurisdictions over the decades. As the financial environment over the years, with the emergence of more complex trading and financial instruments, the traditional tools of central banking - as well as monetary policy tools and channels of transmission have adapted to cope with corresponding changes, challenges and demands of the financial environment. Why are interest rates at such historically low levels? These constitute some of the questions, amongst several research objectives which will be highlighted under the introductory section, that this paper aims to address.
    Keywords: counter-cyclical instruments; Effective Lower Bound; interest rate; accommodative monetary policies; asset purchase program; quantitative easing; uncertainty; government bonds; negative interest rates; inflation
    JEL: E3 E5 E52 E58 E6 E62 K2
    Date: 2021–02
  5. By: Gregor Boehl; Philipp Lieberknecht
    Abstract: The recently observed disconnect between in ation and economic activity can be ex- plained by the interplay between the zero lower bound (ZLB) and the costs of external nancing. In normal times, credit spreads and the nominal interest rate balance out; factor costs dominate rms' marginal costs. When nominal rates are constrained, larger spreads can more than o set the e ect of lower factor costs and induce only moderate in ation responses. The Phillips curve is hence at at the ZLB, but features a posi- tive slope in normal times and thus a hockey stick shape. Via this mechanism, forward guidance may induce de ationary e ects.
    Keywords: Phillips Curve, Financial Frictions, Zero Lower Bound, Disin ation, Forward Guidance
    JEL: C62 C63 E31 E32 E44 E52 E58 E63
    Date: 2021–02
  6. By: Känzig, Diego Raoul
    Abstract: This paper studies how changes in oil supply expectations affect the oil price and the macroeconomy. Using a novel identification design, exploiting institutional features of OPEC and high-frequency data, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production and an increase in inventories. This has consequences for the U.S. economy: activity falls, prices and inflation expectations rise, and the dollar depreciates—providing evidence for a strong channel operating through supply expectations.
    Keywords: Business cycles, oil supply, news shocks, external instruments, high-frequency identification, OPEC announcements
    JEL: C32 E31 E32 Q43
    Date: 2020–11
  7. By: Conrado Brum Civelli (Banco Central del Uruguay; Universidad Complutense de Madrid; Universidad de la República); Alfredo García-Hiernaux (Universidad Complutense de Madrid)
    Abstract: The instability of the relationships between interest rates, amount of money, and exchange rate, and the transmission problems between different interest rates hinder the measurement of monetary policy through a single variable. This difficulty is particularly relevant in emerging and dollarized economies. This paper proposes a multivariate indicator of monetary bias for these economies in which the monetary and financial variables are considered according to the impact they have on inflation in each period. We analyze the case of Uruguay and use a Factor Augmented Vector Autoregressive Moving Average model with exogenous variables (FAVARMAX) to estimate these effects. Using the evolution of the indicator proposed, called the Monetary Conditions Index (MCI), we characterize the policy adopted by the Central Bank of Uruguay between 2010-2019, a period of inflation targeting.
    Keywords: monetary policy bias; multivariate Indicator; Inflation; FAVARMAX
    JEL: E58 E52 E31 C32
    Date: 2020
  8. By: Eiji Okano (Birkbeck, University of London)
    Abstract: I investigate two findings in Gali and Monacelli (2016, American Economic Review) which are (i) the effectiveness of labor cost adjustments on employment is much smaller in a currency union and (ii) an increase in wage flexibility often reduces welfare, more likely so in an economy that is part of a currency union. First, I introduce a distorted steady state in the small open economy model of GM, in which employment subsidies to make the steady state efficient are not available, and replicate their two findings. Second, I introduce an endogenous fiscal policy rule similar to the Bohn rule with a government budget constraint into the model. The results suggest that while the first finding of Gali and Monacelli is still applicable, their second finding is not necessarily applicable. It is, therefore, possible that an increase in wage flexibility reduces welfare loss in an economy that is part of a currency union as long as wage rigidity is high enough. Thus, there is still scope to discuss how wage flexibility is beneficial in a currency union.
    Keywords: Sticky Wages, Nominal Rigidities, New Keynesian Models, Monetary and Fiscal Policy, Exchange Rate Policy, Currency Union, Fiscal Theory of the Price Level, Bohn Rule
    JEL: E32 E52 E60 F41 F47
    Date: 2020–11
  9. By: Sewon Hur; César Sosa-Padilla; Zeynep Yom
    Abstract: We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with government sometimes finding it optimal to extend guarantees over bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs and possible heightened default risk (i.e., they create a ‘diabolic loop’). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of banking losses that the bailouts would cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the banking crisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: the ‘diabolic loop’ they create is too costly.
    Keywords: Bailouts; Sovereign Defaults; Banking Crises; Conditional Transfers; Sovereign-bank diabolic loop
    JEL: E32 E62 F34 F41 G01 G15 H63
    Date: 2021–01–29
  10. By: Congressional Budget Office
    Abstract: This report provides additional information on the economic forecast that CBO initially released on February 1, 2021. In that forecast, which covers the period from 2021 to 2031, CBO projects that the economy will continue the recovery that it began in 2020 and then enter a sustained expansion. Specifically, real (inflation-adjusted) gross domestic product is projected to return to its prepandemic level in mid-2021 and to surpass its potential (that is, its maximum sustainable) level in early 2025.
    JEL: E20 E23 E60 E62 E66
    Date: 2021–02–23
  11. By: Peter Flaschel (Department of Economics and Business Administration, Bielefeld University); Reiner Franke (Faculty of Economics, Kiel University. Kiel); Willi Semmler (Department of Economics, New School for Social Research)
    Abstract: The role of the welfare state in the post-war industrialized economies has recently become a major topic. Using a Kaleckian framework we consider an economy where investment depends positively on the rate of return on capital and negatively on the rate of employment. This allows for a possible integration of Kalecki's (1943) analysis of the political aspects of full employment. We use Okun's law to link the goods market with the labor market. We separate laws of motion for wage and price inflation in order to integrate the role of changing income distribution into this framework of effective demand and employment dynamics. There is a balanced growth path solution for this model which however is likely to be locally unstable. From the global perspective, the turning points in long lasting phases of strong economic growth are given by an increasing reaction of investment, and of fiscal and monetary policy, to the consequences resulting from full employment and the evolving welfare state (represented by generous welfare payments, labor market institutions in favor of labor, and co-determination). In subsequent long-phased depressions profit-led goods demand in combination with declining real wages (enforced by mass unemployment and labor market reforms) may account for lower turning points and for a return to normal and subsequently possibly again excessive economic activity. Such nonlinearities in economic behavior far off the balanced growth path imply the global viability of the economic dynamics. On the other hand, in contrast to such a conflict-driven macro economy, as Kalecki (1943) has perceived it, the business leaders and policy makers could pursue a consensus-driven macro economic dynamics stressing a more collaborative and long term approach which will, as we show, take on a more stable path. Pursuing those two social aspects of macro dynamics the paper lays some foundations for an economic analysis of the role of the welfare state in post-war industrialized economies.
    Keywords: Long-phase cycles, income distribution, welfare state, fiscal and monetary policy
    JEL: E24 E31 E32
    Date: 2021–02
  12. By: Bonciani, Dario (Bank of England); Oh, Joonseok (Freie Universität Berlin)
    Abstract: Standard New Keynesian models deliver puzzling results at the effective lower bound of short-term interest rates: greater price flexibility amplifies the fall in output in response to adverse demand shocks; labour tax cuts are contractionary; the multipliers of wasteful government spending are large. These outcomes stem from a failure to characterise monetary policy correctly. Both analytically and numerically, we show that allowing the central bank to respond to inflation with quantitative easing (QE) can resolve all these paradoxes. In quantitative terms, mild adjustments to the central bank’s balance sheet are sufficient to obtain results more in line with conventional wisdom.
    Keywords: Policy paradoxes; unconventional monetary policy; quantitative easing; liquidity trap; effective lower bound
    JEL: E52 E58 E62 E63
    Date: 2021–02–22
  13. By: Anna Burova (Bank of Russia, Russian Federation); Henry Penikas (Bank of Russia, Russian Federation); Svetlana Popova (Bank of Russia, Russian Federation)
    Abstract: A genuine measure of an ex ante credit risk links borrowers’ financial position with the odds of default. Comprehension of borrower’s financial position is proxied by the derivatives of its filled financial statements, i.e. financial ratios. To measure an ex ante credit risk, one needs a forward-looking estimate. We identify statistically significant relationships between the shortlisted financial ratios and the subsequent default events. To estimate the odds of the borrower to default on its obligations, we simulate its probability of default at a horizon of one year. We horse run the constructed PD model against the alternative measures of ex ante credit risk that the related literature on bank risk-taking widely uses: credit quality groups and credit spreads in interest rates. We compare the results obtained with the PD model, and with the alternative approaches. We find that the PD model predicts the default event more accurately at a horizon of one year. We conclude that the developed measure of ex ante credit risk is feasible for estimating the risk-taking behaviour by banks and analysing the shifts in portfolio composition with the sufficient degree of granularity. The model could be used in applied research as the tool for measuring ex ante credit risk based on micro level data (credit registry).
    Keywords: ex ante probability of default, corporate credit, credit registry, probability of default mode, credit quality groups, credit spreads
    JEL: E44 E51 E52 E58 G21 G28
    Date: 2020–12
  14. By: Lhuissier Stéphane; Nguyen Benoît
    Abstract: While monetary and prudential policies are generally analysed separately, this paper focuses on how the two interact. Taking an international perspective, we show that monetary policy in a centre economy (Euro Area) spill over its borders through bank lending – therefore inducing volatility in cross-border lending flows. Investigating a sample of 30 advanced and emerging economies, we find evidence that prudential policy in the receiving-country interact with monetary policy so that a tighter prudential stance in the recipient-country mitigates the volatility of banking flows induced by monetary policy abroad. But we also show that a tighter prudential stance – interactions apart – implies a higher growth of cross-border lending. Taken together, these results might suggest a trade-off: while a tighter prudential stance reduces the volatility of cross-border lending flows, it also implies that local borrowers resort more to lending from abroad. Taking advantage of the granularity of our confidential dataset, we finally explore heterogeneities and show that such leakages arise only for financially more open economies and only through the financial sector, with evidence that such leakages are driven by intra-group lending.ion-JEL: O31, L11, L51, J8, L25
    Keywords: Monetary Policy, Asset Purchase Programme, Proxy-SVAR, Eurosystem, ECB, QE
    JEL: E31 E32 E44 E52
    Date: 2021
  15. By: Peter Docherty (University of Technology Sydney)
    Abstract: This paper develops a short period, one sector, Sraffa-Keynes model that can be used for the evaluation of various recommendations outlined in the Post Keynesian monetary policy literature. The model is characterised by the principle of effective demand, Sraffa or target-return pricing (which integrates the determination of key distributive variables and allows for short run cyclical variation in prices), conflict inflation, endogenous money, and a basic approach to monetary policy in the Smithin–Wray tradition of fixing the policy rate to achieve low or specified rates of unemployment. The paper argues that nominal interest rates are the appropriate target for monetary policy rather than real rates given the need to determine appropriate rates of return on capital and the good approximation that nominal rates are for the particular specification that real rates take in the model. A number of key results arise from model simulations: after experiencing two standard macroeconomic shocks, the model returns to a long period equilibrium characterised by the achievement of the target rate of return, desired capacity utilisation, and Sraffian prices of production. Monetary policy is also shown to operate through the typical Post Keynesian transmission mechanism of changes to income distribution. Flexible prices (where firms modify prices to cover the additional costs of running the capital stock at other than full capacity) are lastly shown to have similar effects on activity to monetary policy. Suggestions are made for further work which applies the model to the evaluation of counter-cyclical monetary policy, a comparison of fiscal and monetary policy responses to economic shocks, and which extends the model to a multi-sector context.
    Keywords: monetary policy; demand shock; cost shock; income distribution
    JEL: E11 E12 E52
    Date: 2021–02–17
  16. By: Aleksandar Vasilev (Lincoln International Business School, UK.)
    Abstract: Stochastic risk aversion is introduced into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). The quantitative importance of the presence of shocks to risk aversion is investigated for the propagation of cyclical fluctuations in Bulgaria. In particular, allowing for a stochastic risk aversion in the setup improves the model fit vis-a-vis data by increases variability of employment and decreasing the variability of investment. However, those improvements are at the cost of decreasing the volatility of investment and wages.
    Keywords: business cycles, stochastic risk aversion, Bulgaria.
    JEL: E24 E32
    Date: 2021–01
  17. By: Yasuo Hirose; Takushi Kurozumi; Willem Van Zandweghe
    Abstract: Empirical studies have documented that the persistence of the gap between inflation and its trend declined after the Volcker disinflation. Previous research into the source of the decline has offered competing views while sidestepping the possibility of equilibrium indeterminacy. This paper examines the source by estimating a medium-scale DSGE model using a Bayesian method that allows for indeterminacy. The estimated model shows that the Fed's change from a passive to an active policy response to the inflation gap or a decrease in firms' probability of price change can fully account for the decline in inflation gap persistence by ruling out indeterminacy that induces persistent dynamics of the economy.
    Keywords: Inflation gap persistence; Predictability; Equilibrium indeterminacy; Monetary policy; Non-CES aggregator
    JEL: C62 E31 E52
    Date: 2021–02–22
  18. By: Ken-ichi Hashimoto (Kobe University); Ryonghun Im (Kyoto University); Takuma Kunieda (Kwansei Gakuin University); Akihisa Shibata (Kyoto University)
    Abstract: This paper uses a dynamic general equilibrium model to examine whether financial innovations destabilize an economy. Applying a neoclassical production function, we demonstrate that as financial frictions are mitigated, the economy loses stability and a flip bifurcation occurs at a certain level of financial frictions under an empirically plausible elasticity of substitution between capital and labor. Furthermore, the amplitude of fluctuations increases as financial frictions are mitigated and is maximized when the financial market approaches perfection. These outcomes imply that financial innovations are likely to destabilize an economy.
    Keywords: Financial innovations, endogenous business cycles, financial destabilization, heterogeneous agents.
    JEL: E13 E32 E44
    Date: 2021–02
  19. By: Jonathan Benchimol (Bank of Israel); Gamrasni Inon (Bank of Israel); Kahn Michael (Bank of Israel); Ribon Sigal (Bank of Israel); Saadon Yossi (Bank of Israel); Ben-ZeâEv Noam (Bank of Israel); Segal Asaf (Bank of Israel); Shizgal Yitzchak (Bank of Israel)
    Abstract: We examine the impact of domestic macroprudential (MaP) policy measures targeted at the banking sector, alongside the impact of domestic monetary policy on housing, consumer, and business bank credit dynamics, using individual bank panel data for the period 2004â19. We find that domestic MaP measures targeting housing sector credit reduced the growth rate of housing credit and contributed to business credit growth. Other general MaP measures reduced growth of credit to the business sector. Monetary policy was generally found to be effective, with a significant negative impact on bank credit before the Global Financial Crisis (GFC). The interaction between monetary policy and MaP highlights the role of monetary policy after 2008, and the effect of accommodative monetary policy on consumer and business credit fostered by housing MaP measures. We found that the impact of foreign monetary policy on credit growth is negative, as is the impact of domestic monetary policy, suggesting its capacity to function as a leading indicator for domestic monetary policy.
    Keywords: financial stability, policy evaluation, banking sector, credit markets, regulation, global financial crisis
    JEL: E51 E52 E58 G01 G21 G28
    Date: 2021–02
  20. By: Rösl, Gerhard; Seitz, Franz
    Abstract: Despite the increasing use of cashless payment instruments, the notion that cash loses importance over time can be unambiguously refuted. In contrast, the authors show that cash demand increased steeply over the past 30 years. This is not only true on a global scale, but also for the most important currencies in advanced countries (USD, EUR, CHF, GBP and JPY). In this paper, they focus especially on the role of different crises (technological crises, financial market crises, natural disasters) and analyse the demand for small and large banknote denominations since the 1990s in an international perspective. It is evident that cash demand always increases in times of crises, independent of the nature of the crisis itself. However, largely unaffected from crises we observe a trend increase in global cash aligned with a shift from transaction balances towards more hoarding, especially in the form of large denomination banknotes.
    Keywords: Cash,banknotes,crises,Corona
    JEL: E41 E51 E58
    Date: 2021
  21. By: Brian Fabo (National Bank of Slovakia); Martina Jancokova (European Central Bank); Elisabeth Kempf (University of Chicago - Booth School of Business; CEPR); Lubos Pastor (National Bank of Slovakia; University of Chicago - Booth School of Business; NBER; CEPR)
    Abstract: Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production.
    Keywords: Conflict of interest, central bank, quantitative easing, qe, career concerns
    JEL: A11 E52 E58 G28
    Date: 2020
  22. By: Elizabeth Bucacos (Banco Central del Uruguay)
    Abstract: The global COVID-19 pandemic has called for heightened levels of policy intervention stressing governmnt accounts and amplifying their impact on the macroeconomy through an already nonexistent fiscal space. Policymakers' choices during this disruption may shape the economy for decades to come. The main objective of this investigation is to evaluate the degree of fiscal dominance in Uruguay in 1999-2019 in order to improve the understanding of economic policy not only for theoretical reasons but for applied needs related to good practices and accountability. Two strategies are followed: one, to quantify the fraction of fiscal expenditures that is financed by monetary liabilities and, the other one, to analyze the effects of fiscal deficit on the price level and inflation because inflationary financing may prevent the central bank from reaching its inflation target. Both situations may subordinate the monetary policy to the fiscal policy signaling fiscal dominance. In addition, through the analysis performed to assess the degree of fiscal dominance, it was possible to detect the main determining factors of the Uruguayan price level (inflation) formation during the last two decades. So far, preliminary results suggest that inflation is not exclusively a monetary phenomenon and point to some inflationary financing with a mild degree of fiscal dominance.
    Keywords: monetary policy, joint analysis of fiscal and monetary policy, Uruguay
    JEL: E52 E63
    Date: 2021
  23. By: Cao, Ziyi; Ou, Zhirong (Cardiff Business School)
    Abstract: A measure of the degree of debt monetisation is constructed for its impact on the business cycle to be studied in a standard VAR model. Debt monetisation is hardly expansionary, as it raises public demand that crowds out almost as much demand from the private sector. However, it generates ináation, presumably because of ináationary expectations. Nevertheless the impact of debt monetisation on the business cycle dynamics is trivial, due to the low e¢ ciency of the monetary transmission mechanism. Unless policy proposals are for extraordinarily aggressive moves, or they are accompanied by monetary reforms which facilitate monetary transmission, the recent debate on debt monetisation, we argue, possesses more theoretical meaning than practical meaning for Chinaís post-Covid recovery.
    Keywords: Debt monetisation; business cycle; VAR; China
    JEL: E31 E32 E63 H63
    Date: 2021–02
  24. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
    Keywords: monetary policy; racial inequality; income distribution; wealth distribution; wealth effects
    JEL: E40 E52 J15
    Date: 2021–01–01
  25. By: Alina K. Bartscher; Moritz Kuhn; Moritz Schularick; Paul Wachtel
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
    Keywords: Monetary policy; Racial inequality; Income distribution; Wealth distribution; Wealth effects
    JEL: E40 E52 J15
    Date: 2021–02–04
  26. By: Hastenteufel, Jessica; Fuchs, Lena
    Keywords: Zinsen,Niedrigzinsphase,Banken,Geldpolitik,interest,low interest rate phase,banking,monetary policy
    JEL: E40 E43 E52 G21
    Date: 2020
  27. By: Jesse Perla (University of British Columbia - Vancouver School of Economics); Carolin Pflueger (University of Chicago - Harris School of Public Policy; NBER); Michal Szkup (University of British Columbia - Vancouver School of Economics)
    Abstract: We investigate how a combination of limited liability and preexisting debt distort firms’ investment and equity payout decisions. We show that equity holders have incentives to “double-sell†cash flows in default, leading to overinvestment, provided that the firm has preexisting debt and the ability to issue new claims to the bankruptcy value of the firm. In a repeated version of the model, we show that the inability to commit to not double-sell cash flows leads to heterogeneous investment distortions, where high leverage firms tend to overinvest but low leverage firms tend to underinvest. Permitting equity payouts financed by new debt mitigates overinvestment for high leverage firms, but raises bankruptcy rates and exacerbates low leverage firms’ tendency to underinvest—as the anticipation of equity payouts from future debt raises their cost of debt issuance. Finally, we provide empirical evidence consistent with the model.
    JEL: E20 E22 E44
    Date: 2020
  28. By: Olivier Coibion (University of Texas at Austin - Department of Economics; NBER); Yuriy Gorodnichenko (University of California, Berkeley - Department of Economics; NBER); Michael Weber (University of Chicago - Booth School of Business; NBER)
    Abstract: Using a large-scale survey of U.S. consumers, we study how the large one-time transfers to individuals from the CARES Act affected their consumption, saving and labor-supply decisions. Most respondents report that they primarily saved or paid down debts with their transfers, with only about 15 percent reporting that they mostly spent it. When providing a detailed breakdown of how they used their checks, individuals report having spent or planning to spend only around 40 percent of the total transfer on average. This relatively low rate of spending out of a one-time transfer is higher for those facing liquidity constraints, who are out of the labor force, who live in larger households, who are less educated and those who received smaller amounts. We find no meaningful effect on labor-supply decisions from these transfer payments, except for twenty percent of the unemployed who report that the stimulus payment made them search harder for a job.
    Keywords: Expectations, surveys, marginal propensity to consume, labor supply, fiscal policy, COVID-19
    JEL: E3 E4 E5
    Date: 2020
  29. By: Serafín Frache (Universidad de Montevideo); Rodrigo Lluberas (Banco Central del Uruguay)
    Abstract: The empirical evidence on the social value of public information is scarce. In this paper, we provide evidence on how firms' inflation expectations react to the publication of public information, i.e. the monthly Consumer Price Index (CPI) in a country with a history of high and volatile inflation. We show that firms that answer the survey after the release of public information are more likely to revise their current year inflation expectations, have lower forecast errors, and lower disagreement about future inflation than firms that answer the survey before the publication of the official CPI monthly statistics. In that sense albeit the existing evidence for low-inflation countries suggests that agents do not react to monetary policy announcements or the publication of public information, we show that might not be the case in medium or high-inflation countries.
    Keywords: national accounts, agricultural sector, methodology, regions, employment, structure
    JEL: D22 D84 E31
    Date: 2020
  30. By: Knut Are Aastveit; Hilde C. Bjørnland; Jamie L. Cross
    Abstract: Do inflation expectations and the associated pass-through of oil price shocks depend on demand and supply conditions underlying the global market for crude oil? We answer this question with a novel structural vector autoregressive model of the global oil market that jointly identifies transmissions of oil demand and supply shocks through the real price of oil to both expected and realized inflation. Our main insight is that US households form their expectations of inflation differently when faced with long sustained increases in the price of oil, such as the early millennium oil price surge of 2003 to 2008, as compared to short and sharp price fluctuations that characterized much of the twentieth century. We also find that oil demand and supply shocks can explain a large proportion of expected and realized inflation dynamics during multiple periods of economic significance, and resolve disagreements around the role of oil prices in explaining the missing deflation puzzle of the Great Recession.
    Keywords: inflation expectations, inflation pass-through, oil prices
    JEL: E31 D84 Q41 Q43
    Date: 2020–06–30
  31. By: Teresa Ghilarducci; Michael Papadopoulos; Bridget Fisher; Anthony Webb (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Working longer is often proposed as the solution to the retirement crisis caused by older workers’ lack of retirement assets. Spreadsheet models used by advocates of delaying retirement assume older workers delay claiming Social Security to accrue additional benefits. But in reality, by age 65, most older workers have already claimed Social Security, often to supplement low wages, and working longer does not increase their Social Security benefits. Working longer increases retirement savings significantly less than predicted by spreadsheet models, which don’t reflect older workers’ real experiences in the labor market. Finally, the drastic job loss experienced by older workers in the wake of the Covid-19 crisis reveals the risk older workers face when working longer is the policy substitute for an effective retirement security system.
    Keywords: Covid-19, Public health, Social security, Working longer, Workers, Jobs, Unemployment, Risk, Older workers, retirement income, retirement, retirement savings
    JEL: E24 I14 J62 J38 E21 J83 J32
    Date: 2021–02
  32. By: Zoë Venter
    Abstract: Using a six variable SVAR model, we study the transmission mechanism of monetary policy to the housing market over the period between 1996:Q1 and 2019:Q4. The SVAR is repeated for two measures of fiscal policy namely, tax revenue and government spending as well as for three measures of the housing market namely, residential prices, the price-to-rent ratio and the price-to-income ratio. Our main results show that monetary policy shocks do not have an impact on residential prices however, when running our model using fiscal policy shocks instead of monetary policy shocks, the results become statistically significant. Further, our results show that the response of housing prices to fiscal policy shocks differs between Portugal and Spain. We conclude that the difference in the housing markets in these two countries can be attributed to the variation in the fiscal policy mandates adopted while the common monetary policy framework implemented by the ECB does not play a role.
    Keywords: E44; E52; R21
    Date: 2021–02
  33. By: Harald Uhlig (University of Chicago - Department of Economics; CEPR; NBER); Taojun Xie (National University of Singapore - Lee Kuan Yew School of Public Policy, Asia Competitiveness Institute)
    Abstract: The recent rise of digital currencies opens the door to their use in parallel alongside official currencies (“dollar†) for pricing and transactions. We construct a simple New Keynesian framework with parallel currencies as pricing units and sticky prices. Relative prices become a state variable. Exchange rate shocks can arise even without other sources of uncertainty. A one-time exchange rate appreciation for a parallel currency leads to persistent redistribution towards the dollar sector and dollar inflation. The share of the non-dollar sector increases when prices in the dollar sector become less sticky and when firms can choose the pricing currency.
    Keywords: Private money, cryptocurrency, digital currency, currency choice, monetary policy
    JEL: E52 E30
    Date: 2020
  34. By: Linda Schilling (École Polytechnique - CREST; CEPR); Jesús Fernández-Villaverde (University of Pennsylvania - Department of Economics; CEPR; NBER); Harald Uhlig (University of Chicago - Department of Economics; CEPR; NBER)
    Abstract: A central bank digital currency, or CBDC, may provide an attractive alternative to traditional demand deposits held in private banks. When offering CBDC accounts, the central bank needs to confront classic issues of banking: conducting maturity trans- formation while providing liquidity to private customers who suffer “spending†shocks. We analyze these issues in a nominal version of a Diamond and Dybvig (1983) model, with an additional and exogenous price stability objective for the central bank. While the central bank can always deliver on its nominal obligations, runs can nonetheless occur, manifesting themselves either as excessive real asset liquidation or as a failure to maintain price stability. We demonstrate an impossibility result that we call the CBDC trilemma: of the three goals of efficiency, financial stability (i.e., absence of runs), and price stability, the central bank can achieve at most two.
    Keywords: Central bank digital currency, monetary policy, bank runs, financial intermediation, inflation targeting, CBDC trilemma
    JEL: E58 G21
    Date: 2020
  35. By: Sodiq Arogundade (College of Business and Economics, University of Johannesburg); Mduduzi Biyase (College of Business and Economics, University of Johannesburg); Hinaunye Eita (College of Business and Economics, University of Johannesburg)
    Abstract: Emerging literatures on foreign direct investment (FDI) now suggest FDI’s positive spillovers in alleviating poverty depend on the absorptive capacities of host economies. Prime to these capacities includes the level of human capital development and institutional quality. This study examines how host absorptive capacity can facilitate the benefit FDI can offer. In achieving this, a panel of 28 Sub-Saharan African (SSA) countries from 1996-2018 was explored using instrumental regression. Findings from this study suggest that FDI has a positive and significant relationship with all the poverty indicators in SSA. This suggests that the impact of FDI is contingent on the conditions of the local economy. The study further reveals that FDI will alleviate poverty conditions if interacted with human capital and institutional quality at a given threshold. This implies that the more host nations improve their institutional quality and human capital, the more they reap the benefit of FDI in terms of job creation, technological spillovers, and poverty alleviation. Conclusion emanating from this paper is that policies aimed at attracting FDI without improving conditions of the local economy is effort in futility. Furthermore, SSA countries need to further liberalize, privatize, and securitize critical sectors in their economies in order to provide needed liquidity for investment in human capital as well as institutional reform
    Keywords: Poverty, Foreign Direct Investment, Absorptive capacity, Instrumental regression and Sub-Saharan African countries
    JEL: F23 I30 E24 E02
  36. By: Masashige Hamano (Waseda University); Francesco Zanetti (University of Oxford)
    Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts a non-trivial reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates existing firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data, which corroborates the relevance of monetary policy for product variety that results from firm entry and exit, and provides limited support to the cleansing effect of monetary policy.
    Keywords: Monetary policy; firm heterogeneity; product variety; reallocation
    JEL: E32 E52 L51 O47
    Date: 2020–06
  37. By: Thomas Reininger
    Abstract: This policy note presents an assessment of the EU budgetary package for 2021-2027, including the European Union Recovery Instrument ‘Next Generation EU’ (EURI-NGEU), with an introduction to the EU decision-making process and the state of play of the relevant legislation as well as an annexed overview of (a) revenue-side decisions, (b) the size, composition and allocation of expenditures and (c) the new rule-of-law regulation. Major achievements are complementary common EU borrowing for EURI-NGEU programmes and the increased focus on climate. However, the EU budget remains tiny, and a national fiscal and (common) monetary policy is needed for stabilisation. EURI-NGEU grants, which are particularly relevant for member states with below-average per-capita income, primarily target public investment in structural change aimed at climate-related and digitisation projects, but they may also help to finance COVID-induced national fiscal deficits, albeit only to a small extent. Governance will be the main challenge facing the implementation of these projects. Compared with the Commission’s proposal, the European Council cut funding for EU-wide strategic investments and for external action (neighbourhood, development, humanitarian aid), and, thus, the funds for external action even decline relative to 2014-2020 (EU27) in the midst of a global pandemic. Cuts to the proposed climate-specific Just Transition Fund undermine the 30% climate spending target, which also hinges on how direct agricultural payments are classified. Progress on the revenue side with the new plastic packaging waste-based national contribution and the roadmap to further new own resources contrasts with the expanded privilege of rebate on the GNI-based contribution for a few member states.
    Keywords: European Union, Budget, Government expenditure, Policy design and consistency, Policy coordination, International Institutional Arrangements
    JEL: E61 E62 F55 H50 H60 H61
    Date: 2021–02
  38. By: Sergey Pekarski (National Research University Higher School of Economics); Anna Sokolova (National Research University Higher School of Economics)
    Abstract: We revisit the link between the risk of sovereign default and default costs. Contrary to prior literature, we show that higher costs of default may result in higher default probabilities, lower bond prices, and fiscal limits that are not pinned down by economic fundamentals. Government debt sustainability depends on private investment behavior, which is affected by expectations about defaults and capital returns. We argue that this feedback loop gives rise to multiple equilibria. In `bad' equilibria, investors expect default and low capital returns; their low capital investment tightens the governments' fiscal constraints and reduces the probability of debt repayment, validating investor pessimism. In `good' equilibria, optimistic investors choose higher capital investment; this results in higher future fiscal surpluses, raises the probability of debt repayment and validates investor optimism.
    Keywords: sovereign default, default costs, fiscal limit, multiple equilibria
    JEL: E62 H30 H60
    Date: 2021
  39. By: Edoardo Rainone (Bank of Italy)
    Abstract: We propose a method based on control charts to identify in real-time sudden deposits' outflows through payment systems. The performance of the methodology is assessed with both Monte Carlo simulations and real transaction-level TARGET2 data for a large sample of Italian banks. We identify a set of idiosyncratic bank stress episodes and show that deposits are generally shifted to other banks, mainly large and domestic, generating a size premium; only a limited amount migrates to foreign banks. Under the fixed-rate, full allotment regime, the liquidity drain is mostly offset through open market operations.
    Keywords: depositors' trust, interbank networks, payment systems, money, control charts, digital economy, financial stability
    JEL: E50 E40 G01 G10 G21
    Date: 2021–02
  40. By: Mykola Babiak; Roman Kozhan
    Abstract: We demonstrate that incorporating parameter learning into a production economy can capture salient properties of the variance premium and index option prices with empirically consistent equity returns, the risk-free rate, and macroeconomic quantities. In a model estimated on post-WWII U.S. data, the investor learns about the true parameters governing the persistence, mean, and volatility of productivity growth. Rational belief updating amplifies the impact of shocks on prices and conditional moments. The agent, in turn, pays a large premium for variance swaps and options because they hedge his concerns about future revisions, particularly concerning the mean and volatility of productivity growth.
    Keywords: uncertainty; rational learning; business cycles; variance premium; implied volatilities;
    JEL: D83 E13 E32 G12
    Date: 2021–01
  41. By: Lise Clain-Chamosset-Yvrard (University of Lyon, Université Lumière Lyon 2, GATE); Xavier Raurich (University of Barcelona); Thomas Seegmuller (Aix-Marseille University,CNRS, EHESS, Centrale Marseille, AMSE)
    Abstract: Entrepreneurship, growth and total factor productivity are larger when there is a financial bubble. We explain these facts using a growth model with financial bubbles in which individuals face heterogeneous wages and returns on productive investment. The heterogeneity in the return of investment separates individuals between savers and entrepreneurs. Savers buy financial assets, which are deposits or a financial bubble. Entrepreneurs incur in a start-up cost and borrow to invest in productive capital. The bubble provides liquidities to credit-constrained entrepreneurs. These liquidities increase investment and entrepreneurship when the start-up cost is large enough, which explains that growth and entrepreneurship can be larger with bubbles. Finally, productivity can be larger when the bubble further increases the investment of more productive entrepreneurs. This can occur when the return of investment is correlated with wages.
    Keywords: Bubble, entrepreneurship, growth, productivity.
    JEL: E22 E44 G12
    Date: 2021
  42. By: Tanaka, Yasuhito
    Abstract: The existence of involuntary unemployment advocated by J. M. Keynes is a very important problem of the modern economic theory. Using a three-generations overlapping generations model, we show that the existence of involuntary unemployment is due to the instability of the economy. Instability of the economy is the instability of the difference equation about the equilibrium price around the full-employment equilibrium, which means that a fall in the nominal wage rate caused by the presence of involuntary unemployment further reduces employment. This instability is due to the negative real balance effect that occurs when consumers’ net savings (the difference between savings and pensions) are smaller than their debt multiplied by the marginal propensity to consume from childhood consumption. Also we present a discussion about fiscal policy by seigniorage to realize full-employment.
    Keywords: overlappling generations model, involuntary unemployment, instability of the economy, negative real balance effect, fiscal policy by seigniorage
    JEL: E12 E24
    Date: 2021–02–19
  43. By: Lise Clain-Chamosset-Yvrard (Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Xavier Raurich (University of Barcelona, Department of Economics, Av. Diagonal 696, 08034 Barcelona (Spain)); Thomas Seegmuller (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.)
    Abstract: Entrepreneurship, growth and total factor productivity are larger when there is a financial bubble. We explain these facts using a growth model with financial bubbles in which individuals face heterogeneous wages and returns on productive investment. The heterogeneity in the return of in- vestment separates individuals between savers and entrepreneurs. Savers buy financial assets, which are deposits or a financial bubble. Entrepreneurs incur in a start-up cost and borrow to invest in productive capital. The bubble provides liquidities to credit-constrained entrepreneurs. These liquidities increase investment and entrepreneurship when the start- up cost is large enough, which explains that growth and entrepreneurship can be larger with bubbles. Finally, productivity can be larger when the bubble further increases the investment of more productive entrepreneurs. This can occur when the return of investment is correlated with wages.
    Keywords: bubble, entrepreneurship, growth, productivity
    JEL: E22 E44 G12
    Date: 2021–02
  44. By: Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Anna Cieslak (Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)); Andreas Schrimpf (Bank for International Settlements (BIS) - Monetary and Economic Department)
    Abstract: We study the general problem of optimal information design with continuous actions and continuous state space in arbitrary dimensions. First, we show that with a finite signal space, the optimal information design is always given by a partition. Second, we take the limit of an infinite signal space and characterize the solution in terms of a Monge-Kantorovich optimal transport problem with an endogenous information transport cost. We use our novel approach to: 1. Derive necessary and sufficient conditions for optimality based on Bregman divergences for non-convex functions. 2. Compute exact bounds for the Hausdorff dimension of the support of an optimal policy. 3. Derive a non-linear, second-order partial differential equation whose solutions correspond to regular optimal policies.
    Keywords: Bayesian Persuasion, Information Design, Signalling, Optimal Transport
    JEL: D82 D83 E52 E58 E61
    Date: 2021–02
  45. By: Marie-Hélène Felt; Fumiko Hayashi; Joanna Stavins; Angelika Welte
    Abstract: Using data from Canada and the United States, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all consumers. As a result, credit card transactions are cross-subsidized by cheaper debit and cash payments. Card rewards and consumer fees paid to financial institutions are additional sources of cross-subsidies. We find that consumers in the lowest-income cohort pay the highest net pecuniary cost as a percentage of transaction value, while consumers in the highest-income cohort pay the lowest. This result is robust under various scenarios and assumptions, suggesting payment card pricing and merchant cost pass-through have regressive distributional effects in Canada and the United States.
    Keywords: Bank notes; Financial institutions; Financial services; Market structure and pricing; Payment clearing and settlement systems
    JEL: D12 D23 D31 E42 G21 L81
    Date: 2021–02
  46. By: Alban Moura
    Abstract: The joint behavior of Total Factor Productivity (TFP) and the Relative Price of Investment (RPI) in the data lead several authors to conclude that neutral technology shocks are positively correlated with investment-specific technology shocks, challenging the specification of standard macroeconomic models. This paper rejects the correlated-shocks hypothesis using both parametric and non-parametric methods and controlling for structural breaks. The data suggests moderately negative long-run covariation between the RPI and TFP constructed from chain-linked output, but the RPI is orthogonal to TFP in consumption units. These results are consistent with a simple two-sector model in which neutral technology shocks and investment-specific technology shocks are uncorrelated, while models with correlated shocks cannot account for the second result. I conclude that it is not necessary to adapt macro models to allow for correlated technology processes
    Keywords: total factor productivity, relative price of investment, neutral technology, investment-specific technology, long-run covariability, structural VARs.
    JEL: E30 E32 O41
    Date: 2021–01
  47. By: Petar Sorić (Faculty of Economics and Business, University of Zagreb); Blanka Škrabić Perić (University of Split, Faculty of Economics); Marina Matošec (Faculty of Economics and Business, University of Zagreb)
    Abstract: Ever since their initiation 60 years ago, the harmonized European Business and Consumer Surveys (BCS) have risen to the challenge of performing as a solid data pillar for quantifying leading indicators of economic activity. However, mainstream research mainly focuses on publicly available composite BCS confidence indicators and inspects their predictive accuracy. We depart from this stance by considering a battery of novel techniques for quantifying BCS-based leading indicators. We build upon the recently established weighted balance method, forecast disagreement, and surprise index. Additionally, we differ from the standpoint of rational expectations by introducing indicators of irrational sentiment and adaptive expectations, which have not previously been used in BCS studies of this sort. Our analysis in industry, consumer, and retail trade sectors of 28 European economies reveals that most of these novel techniques (especially irrational sentiment and adaptive expectations) produce more accurate predictions of economic activity than standard BCS benchmarks. These results are robust to several panel estimation procedures (heterogeneous panel Granger causality test and panel vector autoregressions, in particular).
    Keywords: Business and Consumer Surveys, Heterogeneous panel Granger causality, disagreement, irrational sentiment, adaptive expectations
    JEL: C33 E32 E71
    Date: 2021–01–28
  48. By: Juan Pablo Herrera Saavedra; Juan Camilo Villar Otálora; Jacobo Campo Robledo
    Abstract: El documento presenta una estimación de la Curva de Laffer para la economía colombiana mediante la realización de un análisis de estática comparativa y un análisis de tipo econométrico. Respecto al primer análisis, partiendo de un modelo microeconómico se analiza el nivel de distorsión que se generaría al establecer un impuesto indirecto y las implicaciones que en materia de bienestar se originarían al maximizar el recaudo tributario en el mercado. Para el segundo análisis, utilizando datos del ingreso tributario real per cápita y la tasa impositiva, se estima un modelo econométrico con el fin de calcular la tasa impositiva de tributación óptima en Colombia. Los resultados muestran el cumplimiento de los postulados de Laffer, con una tasa impositiva óptima del 37% aproximadamente, y sugieren un espacio fiscal del Gobierno de aproximadamente 12 puntos porcentuales.
    JEL: C23 D72 E13 E62 H20 H30
    Date: 2020–12–31
  49. By: Diana Ricciulli-Marín; Jaime Bonet-Morón; Gerson Javier Pérez-Valbuena
    Abstract: Este documento estudia la relación de la política fiscal subnacional con los ciclos económicos en Colombia. Para ello, se estima un modelo dinámico de datos panel para municipios y departamentos durante el periodo 1990-2018. Los resultados señalan que, en promedio, la política fiscal subnacional en Colombia fue pro-cíclica en este periodo. No obstante, se encuentra una tendencia hacia menor pro-ciclicidad luego de las principales reformas al sistema de transferencias y la introducción de normas sobre responsabilidad fiscal subnacional. Las primeras buscaron un diseño menos pro-cíclico de las transferencias, mientras que las segundas fomentaron la disciplina y sosteniblidad de las finanzas locales. Por otra parte, se identifica un aumento reciente en la pro-ciclicidad de los gastos de inversión en los municipios de menor desarrollo y departamentos, lo cual coincide con el aumento en la participación de regalías en este grupo de entidades territoriales. **** ABSTRACT: This paper studies the relationship between subnational fiscal policy and economic cycles in Colombia. To do so, we estimate a dynamic panel data model for Colombian municipalities and departments during the period 1990-2018. The main findings show that, on average, subnational fiscal policy in Colombia was pro-cyclical in this period. However, results highlight lower pro-cyclicality following the main reforms to intergovernmental transfers and the introduction of subnational responsibility laws. The former led to a less pro-cyclical design of this source of revenues, while the latter fostered fiscal discipline and local finances' sustainability. Furthermore, we find evidence of higher pro-cyclicality of capital expenditures in less-developed municipalities and departments, which coincides with the increase in royalties' participation in this group of territorial entities.
    Keywords: Política fiscal subnacional, ciclo económico, gasto subnacional, Subnational fiscal policy, economic cycles, subnational expenditure
    JEL: E62 C23 H72
    Date: 2021–01–12
  50. By: Centro de Investigaciones para el Desarrollo
    Abstract: Frente a la grave crisis económica generada por la pandemia, profesores e investigadores del CID, junto a otros autores invitados, y en colaboración con el periódico El Espectador, han presentado análisis y propuestas para sugerir opciones de política económica frente a la complicada dinámica del empleo. Como siempre, las contribuciones responden a diferentes enfoques teóricos. *** In the face of the severe economic crisis induced by the pandemic, faculties and researchers of the CID, together with other invited authors, and in collaboration with El Espectador, are presenting brief documents of analysis and proposals to suggest economic policy options in the face of the complicated dynamics of employment. As always, the contributions respond to different theoretical approaches.
    Keywords: empleo; reformas laborales; salarios; micronegocios; transformación digital; pandemia.
    JEL: D02 E02 E24 O3 K2
    Date: 2020–12–22
  51. By: Alessandro Ferrari (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: We study the effects of a temporary Green QE, defined as a policy that temporarily tilts the central bank's balance sheet toward green bonds, i.e. bonds issued by firms in non-polluting sectors. To this purpose, we merge a standard DSGE framework with an environmental model, in which detrimental emissions increase the stock of pollution. Imperfect substitutability between green and brown bonds is a necessary condition for the effectiveness of Green QE. While a temporary Green QE is an effective tool in mitigating detrimental emissions, it has limited effects in reducing the stock of pollution, if pollutants, such as CO2, stay in the atmosphere for a long time. The welfare gains of Green QE are positive but small. Welfare gains are larger if the flow of emissions negatively affects the utility of households.
    Keywords: central bank, monetary policy, quantitative easing, climate change
    JEL: E52 E58 Q54
    Date: 2021–02
  52. By: Carolin E. Pflueger (University of Chicago - Harris School of Public Policy; National Bureau of Economic Research (NBER)); Gianluca Rinaldi (Harvard University, Department of Economics)
    Abstract: We build a new model integrating a work-horse New Keynesian model with investor risk aversion that moves with the business cycle. We show that the same habit preferences that explain the equity volatility puzzle in quarterly data also naturally explain the large high-frequency stock response to Federal Funds rate surprises. In the model, a surprise increase in the short-term interest rate lowers output and consumption relative to habit, thereby raising risk aversion and amplifying the fall in stocks. The model explains the positive correlation between changes in breakeven inflation and stock returns around monetary policy announcements with long-term inflation news.
    Date: 2020
  53. By: Bekhtiar, Karim (Institute for Advanced Studies (IHS), Vienna, Austria); Bittschi, Benjamin (Institute for Advanced Studies (IHS), Vienna, Austria); Sellner, Richard (Institute for Advanced Studies (IHS), Vienna, Austria)
    Abstract: In a seminal paper Graetz and Michaels (2018) find that robots increase labor productivity and TFP, lower output prices and adversely affect the employment share of low-skilled labor. We show that these effects hold only, when comparing hardly-robotizing with highly-robotizing sectors and collapse, when only the latter are analyzed. Controlling for demographic workforce variables reestablishes the productivity effects, but still rejects positive wage effects and skill-biased technological change. Additionally, we find no effects, when the investigation period is extended to the most recent data (2008-2015) and document non-monotonicity in one of the instruments, which calls the respective results into question.
    Keywords: Robots, Productivity, Technological Change
    JEL: E24 J24 J31 L60 O30
    Date: 2021–02
  54. By: Atahan Afsar; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez; José Elías Gallegos; Richard Jaimes; Edgar Silgado Gómez
    Abstract: Abstract Structural estimates of the standard New Keynesian model are at odds with microeconomic estimates. To reconcile these findings, we develop and estimate a behav- ioral New Keynesian model augmented with backward-looking households and firms. We find (i) strong evidence for bounded rationality, with a cognitive discount fac- tor estimate of 0.4 at quarterly frequency; and (ii) that the behavioral setting with backward-looking agents helps us in harmonizing the New Keynesian theory with em- pirical studies. We suggest that both cognitive discounting and anchoring are essential, first, to match empirical estimates for certain parameters of interest, and second, to obtain the hump-shaped and initially muted impulse-response functions that we observe in the data.
    Keywords: New Keynesian, Bounded Rationality, Bayesian Estimation.
    JEL: E27 E52 E71
    Date: 2020–12–17
  55. By: Daniyal Khan (Department of Economics, New School for Social Research)
    Abstract: The paper outlines a theory according to which central banking evolves as the result of an interaction between endogenous money and endogenous institutions. This theory is called the twin endogeneities hypothesis and forms the basis for two models which are developed and used to explain two stylized facts of central bank evolution. These models are examples of operationalization of the hypothesis. The first model, combining endogenous money and hysteresis, explains the first stylized fact, namely that there are two different origin tendencies in the history of central banking. The second model is a heuristic model which combines the swings of the Polanyi pendulum (or the Polanyian double movement) with swings in long run central bank independence to explain the latter. These examples serve to demonstrate how the twin endogeneities hypothesis, a theory in the tradition of institutionalist Post Keynesianism, can be used to develop models which help us unpack and address the evolution of central banking from a theoretical point of view.
    Keywords: Endogeneity, evolution, money, institutions, central banking
    JEL: B52 E02 E5
    Date: 2021–02
  56. By: Sergey Seleznev (Bank of Russia, Russian Federation); Natalia Turdyeva (Bank of Russia, Russian Federation); Ramis Khabibullin (Bank of Russia, Russian Federation); Anna Tsvetkova (Bank of Russia, Russian Federation)
    Abstract: This paper describes the seasonal adjustment algorithm used by the Bank of Russia to clean up data for ‘Monitoring of Sectoral Financial Flows’ weekly publication. We have developed a simple and fast procedure based on a set of trigonometric functions and dummy variables that demonstrates good results in terms of various quality metrics and can be easily modified for working with more flexible model specifications.
    Keywords: daily seasonal adjustment, time series, sectoral financial flows, Bayesian estimator.
    JEL: C11 C22 E32 E37
    Date: 2020–12
  57. By: Michael Smolyansky; Gustavo A. Suarez
    Abstract: Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises are predominantly interpreted by market participants as signaling information about the state of the economy.
    Keywords: Monetary policy; Corporate bonds; Reaching for yield; Federal Reserve information
    JEL: E40 E52 G12 G14
    Date: 2021–02–16
  58. By: Alka Obadić (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Lucija Rogić Dumančić (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper analyzes labor market institutions convergence in the European Union (EU) to test for economic integration of the EU countries. The convergence is analyzed for five indicators of labor market institutions: employment protection legislation index (EPL), tax wedge, unemployment benefits, active labor market policies, and minimum wages. Convergence is measured using standard beta and sigma convergence complemented with a more sophisticated and more flexible approach of the log-t regression. Annual data for the EU countries from 1993 to 2018 is considered, depending on availability. The results suggest there is no convergence in labor market institutions between EU member states. The differences between institutions are still substantial, and the labor market institutions are changing too slowly to converge. The empirical analysis also considers a possibility of club convergence, differentiating between endogenous clubs based on clustering algorithm and exogenous clubs based on geographical proximity and labor market similarities. Convergence is present only in endogenous clubs. Such results imply different long-run steady states where the differences between countries may be substantial. Since labor market institutions are fundamental determinants of employment and unemployment, differences found in labor market institutions suggest that levels of employment and unemployment in the EU will hardly converge, implying weak labor market integration
    Keywords: labor market, institutions, convergence, club convergence, clustering algorithm
    JEL: C33 E02 E24 F45 O52
    Date: 2021–02–10
  59. By: Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
    Abstract: We evaluate the impact of mortgage regulation on credit volumes, household balance sheets and the reaction to adverse economic shocks. Using a comprehensive dataset of all housing transactions in Norway matched with buyers' balance sheet information from official tax records, we identify causal effects of mortgage loan-to-value (LTV) limits. Our results show that LTV-requirements have substantial effects on credit volumes, especially on the extensive margin. As a result, such requirements contribute to dampening aggregate credit growth. We find that affected households lower their debt uptake and face lower interest expenses, thereby reducing their vulnerability to adverse shocks. However, affected households also deplete liquid assets when purchasing a home, in order to meet the new requirement. This negative effect on liquid savings persists in the years following the house purchase, suggesting that the impact on financial vulnerability at the household level is in fact ambiguous. We illustrate this further by documenting that households affected by the regulation are more likely to sell their home when becoming unemployed compared to non-affected households.
    Keywords: household leverage, financial regulation, macroprudential policy, mortgage markets
    JEL: E21 E58 G21 G28 G51
    Date: 2020–06
  60. By: Marco Manzo (Ministry of Economy and Finance of Italy); Daniela Tellone (Ministry of Economy and Finance of Italy)
    Abstract: In June 2012, the fiscal policy for the renovation of dwellings has changed considerably with respect to two main aspects: i) the tax credit share has increased from 36% to 50% and ii) the total amount of renovation costs that can benefit of the tax credit increased from 48000 euros to 96000 euros. The aim of this work is to provide an expost analysis of this policy change. The policy effect is evaluated on: the increase in dwellings renovation probability (economic additionality), the increase in the level of renovation expenses and the decrease in underground economy (fiscal additionality). We found that the policy stimulated the likelihood of renovation in terms of fiscal additionality but in terms of economic additionality had a limited effect.
    Keywords: Residential Sector, Tax Credit, Dwelling Renovation Policy, Italy
    JEL: D12 H31 E62
    Date: 2020–07
  61. By: Neele Balke (University of Chicago - Department of Economics); Thibaut Lamadon (University of Chicago - Department of Economics; NBER)
    Abstract: This paper examines how employer- and worker-specific productivity shocks transmit to earnings and employment in an economy with search frictions and firm commitment. We develop an equilibrium search model with worker and firm shocks and characterize the optimal contract offered by competing firms to attract and retain workers. In equilibrium, risk-neutral firms provide only partial insurance against shocks to risk-averse workers and offer contingent contracts, where payments are backloaded in good times and frontloaded in bad times. We prove that there exists a unique spot target wage, which serves as an attraction point for smooth wage adjustments. The structural model is estimated on matched employer-employee data from Sweden. The estimates indicate that firms absorb persistent worker and firm shocks, with respective passthrough values of 27 and 11%, but price permanent worker differences, a large contributor (32%) to variations in wages. A large share of the earnings growth variance can be attributed to job mobility, which interacts with productivity shocks. We evaluate the effects of redistributive policies and find that almost 40% of government-provided insurance is undone by crowding out firm-provided insurance.
    JEL: E24 J31 J41 J64
    Date: 2020
  62. By: Meunier Baptiste; Pedrono Justine
    Abstract: While monetary and prudential policies are generally analysed separately, this paper focuses on how the two interact. Taking an international perspective, we show that monetary policy in a centre economy (Euro Area) spill over its borders through bank lending – therefore inducing volatility in cross-border lending flows. Investigating a sample of 30 advanced and emerging economies, we find evidence that prudential policy in the receiving-country interact with monetary policy so that a tighter prudential stance in the recipient-country mitigates the volatility of banking flows induced by monetary policy abroad. But we also show that a tighter prudential stance – interactions apart – implies a higher growth of cross-border lending. Taken together, these results might suggest a trade-off: while a tighter prudential stance reduces the volatility of cross-border lending flows, it also implies that local borrowers resort more to lending from abroad. Taking advantage of the granularity of our confidential dataset, we finally explore heterogeneities and show that such leakages arise only for financially more open economies and only through the financial sector, with evidence that such leakages are driven by intra-group lending.ion-JEL: O31, L11, L51, J8, L25
    Keywords: Monetary Policy, Prudential Policy, Policy Interactions, Spillovers, Prudential Leakages, Internation Banking.
    JEL: E52 F34 F36 F42 G18 G21
    Date: 2021
  63. By: Xavier Gabaix (Harvard University - Department of Economics; NBER); Ralph S. J. Koijen (University of Chicago - Booth School of Business; NBER)
    Abstract: We propose a new way to construct instruments in a broad class of economic environments: “granular instrumental variables†(GIVs). In the economies we study, a few large firms, industries or countries account for an important share of economic activity. As the idiosyncratic shocks from these large players affect aggregate outcomes, they are valid and often powerful instruments. We provide a methodology to extract idiosyncratic shocks from the data in order to create GIVs, which are size-weighted sums of idiosyncratic shocks. These GIVs allow us to then estimate parameters of interest, including causal elasticities and multipliers. We first illustrate the idea in a basic supply and demand framework: we achieve a novel identification of both supply and demand elasticities based on idiosyncratic shocks to either supply or demand. We then show how the procedure can be enriched to work in many sit- uations. We provide illustrations of the procedure with two applications. First, we measure how “sovereign yield shocks†transmit across countries in the Eurozone. Second, we estimate short-term supply and demand multipliers and elasticities in the oil market. Our estimates match existing ones that use more complex and labor-intensive (e.g., narrative) methods. We sketch how GIVs could be useful to estimate a host of other causal parameters in economics.
    JEL: C01 E0 F0 G0
    Date: 2020
  64. By: Carlos Medel
    Abstract: Despite that the Brazilian economy is a small-open economy to the world's eye, it is still the largest of South America and, thus, it acts as a big source of financial and macroeconomic spillovers to its trading partners abroad in a number of macro-financial variables including inflationary shocks. Consequently, a comprehensive but parsimonious inflation rate modelling yields important advantages. In this line, the aim of this article is threefold. First, to document if the Brazilian inflation follows the Hybrid New Keynesian Phillips Curve (HNKPC) model, tested by econometric means. Second, to extend the scope of the HNKPC from a close- to an open-economy version through a Global Vector Autoregression (GVAR) specification; aiming to quantify the influence of trading partners in forecast accuracy. Third, to compare the multi-horizon predictive ability of the HNKPC in such a way as to identify the predictive gain (or loss) provided by the trading partners and discriminate between them. The HNKPC forecasts are evaluated in a traditional way and compared with several robustness specifications and country-weighting schemes with the GVAR version. The in-sample results do not reject the baseline hypothesis posed by the HNKPC for the Brazilian economy and its main trading partners. However, to a large extent, the evidence favouring the HNKPC at the end of sample plainly weakens. In predictive terms, the results show that the proposed open-economy version of the HNKPC is the best predictive device for Brazilian inflation in a compacted form in the long run. Notably, the euro area and Japan contribute most to forecast accuracy despite the use of a distance-based weighting scheme favouring closer South American trading partners such as Argentina and Chile.
    Date: 2021–02
  65. By: Jose Maria Barrero (Instituto Tecnológico Autónomo de México - Business School); Nicholas Bloom (Stanford University - Department of Economics; NBER); Steven J. Davis (University of Chicago - Booth School of Business; Hoover Institution); Brent Meyer (Federal Reserve Bank of Atlanta)
    Abstract: Drawing on data from the firm-level Survey of Business Uncertainty, we present three pieces of evidence that COVID-19 is a persistent reallocation shock. First, rates of excess job and sales reallocation over 24-month periods have risen sharply since the pandemic struck, especially for sales. We compute these rates by aggregating over monthly firm-level observations that look back 12 months and ahead 12 months. Second, as of December 2020, firm-level forecasts of sales revenue growth over the next year imply a continuation of recent changes, not a reversal. Third, COVID-19 shifted relative employment growth trends in favor of industries with a high capacity of employees to work from home, and against those with a low capacity.
    Keywords: COVID-19, reallocation shock, business expectations, working from home, Survey of Business Uncertainty
    JEL: D22 D84 E23 E24 J21 J62 J63
    Date: 2020
  66. By: David Argente (Pennsylvania State University - Department of Economics); Chang-Tai Hsieh (University of Chicago - Booth School of Business; University of California, Berkeley - Department of Economics; NBER); Munseob Lee (University of California, San Diego - School of Global Policy and Strategy)
    Abstract: Cross-country price indexes are crucial to compare living standards between countries and to measure global inequality. An accurate measurement of these price indexes has proven to be a difficult task because of the lack of accurate data on the consumption patterns of different countries. In this paper, we construct a unique data on prices and quantities for consumer packaged goods matched at the barcode-level across two countries, United States and Mexico. We estimate that the Mexican real consumption relative to the United States is larger than previously estimated. We identify heterogeneity in shopping behavior, quality of products, and variety availability as important sources of bias in international price comparisons.
    Keywords: Price index, purchasing power parity, international price comparison
    JEL: E01 E31 O47
    Date: 2020
  67. By: Fernando Alvarez (University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)); Francesco Lippi (University of Sassari)
    Abstract: We propose an analytical method to analyze the propagation of a once-and-for-all shock in a broad class of sticky price models. The method is based on the eigenvalue- eigenfunction representation of the dynamics of the cross-sectional distribution of firms’ desired adjustments. A key novelty is that, under assumptions that are appropriate for low-inflation economies, we can approximate the whole profile of the impulse response for any moment of interest in response to an aggregate shock (any displacement of the invariant distribution). We present several applications and discuss extensions.
    JEL: E5 E50
    Date: 2021
  68. By: Pavlov, Oscar (Tasmanian School of Business & Economics, University of Tasmania); Weder, Mark (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This paper examines a market interlacing industry configuration in general equilibrium with multi-product firms. In contrast to previous studies which utilize market segmentation, firms produce multiple products even in the complete absence of the love of variety. Product scopes are procyclical and entry and exit of firms generates an endogenous amplification mechanism. When simulated by shocks derived from the efficiency and labor wedges, the model replicates the changes in dynamics between the pre- and post 1983 periods, and explains the hours-productivity puzzle.
    Keywords: multi-product firms, business cycles
    JEL: E32
    Date: 2021
  69. By: Kilian Huber (University of Chicago - Booth School of Business)
    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 postwar 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.
    JEL: E24 E44 G21 G28
    Date: 2020
  70. By: Pablo S. Castro; Ajit Desai; Han Du; Rodney Garratt; Francisco Rivadeneyra
    Abstract: This paper uses reinforcement learning (RL) to approximate the policy rules of banks participating in a high-value payments system. The objective of the agents is to learn a policy function for the choice of amount of liquidity provided to the system at the beginning of the day. Individual choices have complex strategic effects precluding a closed form solution of the optimal policy, except in simple cases. We show that in a simplified two-agent setting, agents using reinforcement learning do learn the optimal policy that minimizes the cost of processing their individual payments. We also show that in more complex settings, both agents learn to reduce their liquidity costs. Our results show the applicability of RL to estimate best-response functions in real-world strategic games.
    Keywords: Digital currencies and fintech; Financial institutions; Financial system regulation and policies; Payment clearing and settlement systems
    JEL: A12 C7 D83 E42 E58
    Date: 2021–02
  71. By: Fernando E. Alvarez (University of Chicago - Department of Economics; NBER); Aleksei Oskolkov (University of Chicago - Department of Economics); Francesco Lippi (Luiss University; EIEF)
    Abstract: We give a thorough analytic characterization of a large class of sticky-price models where the firm’s price setting behavior is described by a generalized hazard function. Such a function provides a tractable description of the firm’s price setting behavior and allows for a vast variety of empirical hazards to be fitted. This setup is microfounded by random menu costs as in Caballero and Engel (1993) or, alternatively, by information frictions as in Woodford (2009). We establish two main results. First, we show how to identify all the primitives of the model, including the distribution of the fundamental adjustment costs and the implied generalized hazard function, using the distribution of price changes or the distribution of spell durations. Second, we derive a sufficient statistic for the aggregate effect of a monetary shock: given an arbitrary generalized hazard function, the cumulative impulse response to a once-and-for-all monetary shock is given by the ratio of the kurtosis of the steady-state distribution of price changes over the frequency of price adjustment times six. We prove that Calvo’s model yields the upper bound and Golosov and Lucas’ model the lower bound on this measure within the class of random menu cost models.
    JEL: C41 C61 E31
    Date: 2020
  72. By: María Angélica Arbeláez; Miguel Benítez; Roberto Steiner; Oscar Valencia
    Abstract: In order to enhance fiscal sustainability and regain the “investment grade†credit rating lost in 1999, Colombia implemented a fiscal rule (FR) in 2011 on the Central Government´s structural balance. Although investment grade was attained, public debt has increased continuously and is now expected to exceed 60% of GDP in 2020 as a result of the COVID-19 pandemic. We argue that although the FR has proved to be an important tool to promote fiscal discipline, it can and should be improved. We undertake several quantitative exercises in support of reforming the current FR so that it incorporates a debt anchor. First, using the synthetic control approach we show that, notwithstanding the observed increase in debt, the situation would have been worse in the absence of the FR. In the same vein, we show that despite the decline in public investment observed since the oil shock in 2014, the contraction would also have occurred in the absence of the fiscal rule. We then estimate a prudent debt level using a regime-change approach and the IMF´s buffer-risk methodology and simulate the trajectory of the FR in the medium term, incorporating a debt anchor and conditioned on different growth scenarios and additional expenditure related with the pandemic. We show that the prudent debt level should not exceed 48% of GDP and that in order to achieve this level in the medium term, a policy mix increasing fiscal revenues to 17,8% of GDP (from 15,5% during 2016-2019) and reducing primary expenditure to 15% (from 16% during 2016-2019) is required. Along with including a debt anchor, FR’s performance would also benefit from changes in its institutional design.
    Keywords: Regla Fiscal, Deuda Pública, Política Fiscal, Colombia
    JEL: E37 E62 H42 H30 H60
    Date: 2020–11–30
  73. By: Cristina Angelico (Bank of Italy); Juri Marcucci (Bank of Italy); Marcello Miccoli (International Monetary Fund); Filippo Quarta (Bank of Italy)
    Abstract: Using Italian data from Twitter, we employ textual data and machine learning techniques to build new real-time measures of consumers' inflation expectations. First, we select some relevant keywords to identify tweets related to prices and expectations thereof. Second, we build a set of daily measures of inflation expectations on the selected tweets combining the Latent Dirichlet Allocation (LDA) with a dictionary-based approach, using manually labelled bi-grams and tri-grams. Finally, we show that the Twitter-based indicators are highly correlated with both monthly survey-based and daily market-based inflation expectations. Our new indicators provide additional information beyond the market-based expectations, the professional forecasts, and the realized inflation, and anticipate consumers' expectations proving to be a good real-time proxy. Results suggest that Twitter can be a new timely source to elicit beliefs.
    Keywords: inflation expectations, Twitter data, text mining, big data, survey-based measures, market-based measures, forecasting
    JEL: E31 C53 C55 D84 E58
    Date: 2021–02
  74. By: Andrea Carriero; Todd E. Clark; Massimiliano Marcellino; Elmar Mertens
    Abstract: Incoming data in 2020 posed sizable challenges for the use of VARs in economic analysis: Enormous movements in a number of series have had strong effects on parameters and forecasts constructed with standard VAR methods. We propose the use of VAR models with time-varying volatility that include a treatment of the COVID extremes as outlier observations. Typical VARs with time-varying volatility assume changes in uncertainty to be highly persistent. Instead, we adopt an outlier-adjusted stochastic volatility (SV) model for VAR residuals that combines transitory and persistent changes in volatility. In addition, we consider the treatment of outliers as missing data. Evaluating forecast performance over the last few decades in quasi-real time, we find that the outlier-augmented SV scheme does at least as well as a conventional SV model, while both outperform standard homoskedastic VARs. Point forecasts made in 2020 from heteroskedastic VARs are much less sensitive to outliers in the data, and the outlier-adjusted SV model generates more reasonable gauges of forecast uncertainty than a standard SV model. At least pre-COVID, a close alternative to the outlier-adjusted model is an SV model with t-distributed shocks. Treating outliers as missing data also generates better-behaved forecasts than the conventional SV model. However, since uncertainty about the incidence of outliers is ignored in that approach, it leads to strikingly tight predictive densities.
    Keywords: Bayesian VARs; stochastic volatility; outliers; pandemics; forecasts
    JEL: C53 E17 E37 F47
    Date: 2021–02–02
  75. By: Vincent Bodart (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); François Courtoy (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Erica Perego (CEPII, Paris, France)
    Abstract: With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, through the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.
    Keywords: Storable commodity, International financial shock, Developing economies
    JEL: E32 F41 G15 Q02
    Date: 2021–01–23
  76. By: Brant Abbott
    Abstract: The effect of incomplete markets on parental investments is investigated. Uninsured risk and credit constraints can distort the timing of parental investments, causing them to be delayed relative to what would occur under full-insurance. Age-dependent subsidies, taxes or transfers can all possibly correct this. Analytical results are provided, and a numerical life-cycle model provides quantitative results. Data on ability and parental investment dynamics are used to calibrate the model. A sequence of optimal policy experiments is conducted beginning with a simple reform of the tax and transfer schedule and ending with more complex parent-specific tax parameters and investment subsidies, all of which vary with child age. The final experiment generates substantial improvements in the ability distribution and a consumption equivalent welfare gain that is 2.5 times as large as simply reforming the tax schedule. About 1/4 of this incremental gain results from including child-age dependent policies that alleviate distortions of parental investment timing.
    Keywords: Incomplete Markets, Human Capital, Skill Formation
    JEL: E2 E24 J24
    Date: 2021–02
  77. By: Jonathan Benchimol (Bank of Israel); Makram El-Shagi (Henan University); Yossi Saadon (Bank of Israel)
    Abstract: Each person's characteristics may influence that person's behaviors and their outcomes. We build and use a new database to estimate experts' performance and boldness based on their experience and characteristics. We classify experts providing inflation forecasts based on their education, experience, gender, and environment. We provide alternative interpretations of factors affecting experts' inflation forecasting performance, boldness, and pessimism by linking behavioral economics, the economics of education, and forecasting literature. An expert with previous experience at a central bank appears to have a lower propensity for predicting deflation.
    Keywords: expert forecast, behavioral economics, survival analysis, panel estimation, global financial crisis
    JEL: C53 E37 E70
    Date: 2020–10
  78. By: Retirement Equity Lab (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: An examination of the status of older workers in the fourth quarter of 2020 reveals three highlights: unemployment rates for workers 55 and older exceeded those of mid-career workers for the length of the pandemic — the first time since 1973 such an unemployment gap has persisted for six months or longer; Older workers lost jobs faster and returned to work slower than mid-career workers, creating an unemployment gap of 1.1 percentage points between older workers’ six-month average unemployment rate of 9.7% and mid-career workers’ rate of 8.6%; and Older workers who are Black, female, or lack a college degree experienced higher rates of job loss and are more exposed to retirement risks. Policy recommendations include Congress increasing and extending unemployment benefits for older workers, discourage withdrawals from 401(k)s and IRAs, lower Medicare eligibility to 50, and create a federal Older Workers Bureau.
    Keywords: older workers, recession, COVID-19, coronavirus, downward mobility, poverty, unemployment, wages, involuntary retirement, retirement, 401k, Medicare, Older Workers Bureau, racial disparities, disparities, inequality
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2020–10
  79. By: Jason Bram; Richard Deitz
    Abstract: Business activity increased in the region’s manufacturing sector in recent weeks but continued to decline in the region’s service sector, continuing a divergent trend seen over the past several months, according to the Federal Reserve Bank of New York’s February regional business surveys. Looking ahead, however, businesses expressed widespread optimism about the near-term outlook, with service firms increasingly confident that the business climate will be better in six months. The surveys also found that supply disruptions were widespread, with manufacturing firms reporting longer delivery times and rising input costs, a likely consequence of such disruptions. Many firms also noted that minimum wage hikes implemented in January in both New York and New Jersey had affected their employment or compensation decisions.
    Keywords: supply disruption; prices; business surveys
    JEL: R10 E24
    Date: 2021–02–17
  80. By: NEIFAR, MALIKA; Dhouib, Salma ‎; Bouhamed, Jihen ‎; Ben Abdallah, Fatma ‎; Arous, Islem ‎; Ben Braiek, Fatma ‎; Mrabet, Donia ‎
    Abstract: The key objective of this study is to shed light on the relationship between the stock market ‎and macroeconomic factors (Interest rate, Consumer Price Index, Exchange rate) in United ‎Kingdom for the period Pre Global Financial Crisis 2008 (GFC); from January 1999 to ‎December 2007. The finding of Johansen Cointegration, and Granger and Toda Yamamoto ‎‎(TY) Causality tests show respectively that there is no co-integration between variables, no ‎causal relation is detected from macro factors to stock return, and a unidirectional causal ‎relation is depicted from exchange rate to stock price. While from VAR Granger non ‎Causality/Block Exogeneity Wald Tests results, both inflation (INF) and exchange rate ‎growth (EXCG) Granger cause the UK stock market Return. Moreover, the ARDL ‎specification show a stable long run effect of all considered macroeconomic factors on the ‎UK stock price. Precisely, the results of the ECM show that all considered macroeconomic ‎factors drives UK stock price toward long-run equilibrium at a fast speed.‎
    Keywords: UK Stock market, Macroeconomic variables, Causality, ECM, Cointegration, ARDL model, ‎F_PSSTest
    JEL: C32 E44 G14
    Date: 2021–02–23
  81. By: Michael D. Bordo; John V. Duca
    Abstract: For over two centuries, the municipal bond market has been a source of systemic risk, which returned early in the COVID-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the municipal (muni) bond market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent a repeat, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment grade state and local government bonds at normal ratings-based interest rate spreads over Treasury bonds plus a fee of 100 basis points, later reduced to 50 basis points. Despite a modest take-up, the MLF has effectively capped muni spreads at near normal levels plus the Fed fee and limited the extent to which interest rate spreads could have amplified the impact of the COVID pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There are concerns about whether the creation of the MLF could undermine the efficiency of the bond market if the facility lasts too long and could induce moral hazard among borrowers. How the MLF will be unwound will affect these downside aspects and help answer the question whether the program’s benefits exceed its costs.
    Keywords: state and local governments; municipal finance; central bank policy; credit policy
    JEL: E40 E50 G21
    Date: 2021–01–15
  82. By: Retirement Equity Lab (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: An examination of the status of older workers in the fourth quarter of 2020 reveals three highlights: After a partial recovery between May and August of 2020, older workers’ labor force participation rate fell continuously, reaching its lowest point of the recession in January. Roughly 1.1 million older workers exited the workforce between August and January due to the pandemic recession; older workers’ unemployment rate fell in January 2020 by 0.7 percentage points but the decline was driven by unemployed workers leaving the labor force rather than finding jobs; and since October of 2020, the decline in employment for Black, Hispanic, and Asian older workers was more than twice that of white older workers. Policy recommendations include Congress facilitating older workers’ return to work with aggressive anti-age discrimination enforcement and expanded unemployment benefits. Congress must also lower the Medicare eligibility age to age 50 and make the program “first payer†to lower the cost of hiring older workers.
    Keywords: older workers, recession, COVID-19, coronavirus, downward mobility, poverty, unemployment, wages, involuntary retirement, retirement, 401k, Medicare, Older Workers Bureau, racial disparities, disparities, inequality
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2021–02
  83. By: Born, Benjamin; Dovern, Jonas; Enders, Zeno
    Abstract: Releases of key macroeconomic indicators are closely watched by financial markets. We investigate the role of expectation dispersion and economic uncertainty for the stock-market reaction to indicator releases. We find that the strength of the financial market response to news decreases with the preceding dispersion in expectations about the indicator value. Uncertainty, in contrast, increases the response. We rationalize our findings in a model of imperfect information. In the model, dispersion results from a perceived weak link between macroeconomic indicators and fundamentals that reduces the informational content of indicators, while higher fundamental uncertainty makes this informational content more valuable.
    Keywords: expectation dispersion,uncertainty,macroeconomic news,stock market,event study,forecaster disagreement
    JEL: E44 G12 G14
    Date: 2020
  84. By: Peter Ganong (University of Chicago - Harris School of Public Policy); Pascal J. Noel (University of Chicago - Booth School of Business)
    Abstract: There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive: borrowers with positive home equity. We implement the method using high-frequency administrative data linking income and mortgage default. Our central finding is that only 3 percent of defaults are caused exclusively by negative equity, much less than previously thought; in other words, adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models, we show that it can be rationalized in models with a high private cost of mortgage default.
    JEL: E20 G21 R21
    Date: 2020
  85. By: Olivier Coibion (University of Texas at Austin - Department of Economics; NBER); Yuriy Gorodnichenko (University of California, Berkeley - Department of Economics; NBER); Michael Weber (University of Chicago - Booth School of Business; NBER)
    Abstract: Using a large-scale survey of U.S. households during the Covid-19 pandemic, we study how new information about fiscal and monetary policy responses to the crisis affects households’ expectations. We provide random subsets of participants in the Nielsen Homescan panel with different combinations of information about the severity of the pandemic, recent actions by the Federal Reserve, stimulus measures, as well as recommendations from health officials. This experiment allows us to assess to what extent these policy announcements alter the beliefs and spending plans of households. In short, they do not, contrary to the powerful effects they have in standard macroeconomic models.
    Keywords: Subjective expectations, fiscal policy, monetary policy, COVID-19, surveys
    JEL: E31 C83 D84 J26
    Date: 2020
  86. By: Jaqueson Galimberti (School of Economics, Faculty of Business, Economics and Law at AUT University)
    Abstract: This paper evaluates how the way agents weight information when forming expectations can affect the econometric estimation of models with adaptive learning. One key new finding is that misspecification of the uncertainty about initial beliefs under constantgain least squares learning can generate a time-varying profile of weights given to past observations, distorting the estimation and behavioural interpretation of this mechanism in small samples of data. This result is derived under a new representation of the learning algorithm that penalizes the effects of misspecification of the learning initials. Simulations of a forward-looking Phillips curve model with learning indicate that (i) misspecification of initials uncertainty can lead to substantial biases to estimates of expectations relevance for inflation, and (ii) that these biases can spill over to estimates of inflation rates responsiveness to output gaps. An empirical application with U.S. data shows the relevance of these effects.
    Keywords: expectations, adaptive learning, bounded rationality, macroeconomics
    JEL: E70 D83 D84 D90 E37 C32 C63
    Date: 2021–02
  87. By: Tatyana Koreshkova (Concordia University and CIREQ); Minjoon Lee (Carleton University)
    Abstract: We build an equilibrium model of a nursing home market with decision-makers on both sides of the market. On the demand side, heterogeneous households with stochastic needs for long-term care solve dynamic optimization problems, choosing between in-home and nursing-home care. On the supply side, locally competitive nursing homes decide prices and intensities of care given the household demand. The government subsidizes long-term care of the poorest. The quantitative model successfully generates key empirical patterns. Evaluation of long-term care policies shows that the equilibrium approach is important for the welfare and distributional effects of policies targeting either side of the market.
    Keywords: Long-term Care, Nursing Home, Medicaid.
    JEL: D15 E21 I11 I13
    Date: 2021–01
  88. By: Brad J. Hershbein (W.E. Upjohn Institute for Employment Research); Harry J. Holzer (Georgetown University)
    Abstract: In this paper, we shed light on the impacts of the COVID-19 pandemic on the labor market, and how they have evolved over most of the year 2020. Relying primarily on microdata from the CPS and state-level data on virus caseloads, mortality, and policy restrictions, we consider a range of employment outcomes—including permanent layoffs, which generate large and lasting costs—and how these outcomes vary across demographic groups, occupations, and industries over time. We also examine how these employment patterns vary across different states, according to the timing and severity of virus caseloads, deaths, and closure measures. We find that the labor market recovery of the summer and early fall stagnated in late fall and early winter. As noted by others, we find low-wage and minority workers are hardest hit initially, but that recoveries have varied, and not always consistently, between Blacks and Hispanics. Statewide business closures and other restrictions on economic activity reduce employment rates concurrently but do not seem to have lingering effects once relaxed. In contrast, virus deaths—but not caseloads—not only depress current employment but produce accumulating harm. We conclude with policy options for states to repair their labor markets.
    Keywords: Local COVID-19, employment rates, inequality, pandemic recession, recovery
    JEL: E62 H12 J15 J21 J68
    Date: 2021–02
  89. By: Martin, Alberto; Mendicino, Caterina; Van der Ghote, Alejandro
    Abstract: The Global Financial Crisis fostered the design and adoption of macroprudential policies throughout the world. This raises important questions for monetary policy. What, if any, is the relationship between monetary and macroprudential policies? In particular, how does the effectiveness of macroprudential policies (or lack thereof) influence the conduct of monetary policy? This discussion paper builds on the insights of recent theoretical and empirical research to address these questions. JEL Classification: E3, E44, G01, G21
    Keywords: capital requirements, financial frictions, systemic risk
    Date: 2021–02
  90. By: Mercy Raquel Orellana Bravo; Carlos Julio Rivera Bautista; Pablo Aníbal Beltrán Romero; Diego Danny Ontaneda Jiménez
    Keywords: calidad del empleo, Ecuador, ponderaciones, análisis de componentes principales policórico, sectores de actividad económica.
    JEL: E24 J08 J65
    Date: 2020–08–14
  91. By: Franco Frizzera; Martín Grandes
    Keywords: Economic Growth, Dominican Republic, Growth Accounting, ICT Capital, Total Factor Productivity.
    JEL: O47 O54 E22
    Date: 2020–12–18
  92. By: Chaoran Chen; Ashique Habib; Xiaodong Zhu
    Abstract: In the standard macro-finance model, financial constraints affect small or young firms but not large or old ones, and the implied dispersion in the marginal revenue product of capital (MRPK) of a firm cohort is less persistent compared to the data. We extend the model by allowing firm productivity to be endogenous to firms' financial constraints. With endogenous productivity, a firm's optimal demand for capital increases with collateral, financial constraints and dispersion of MRPK persist, and even large firms are likely to be constrained. Our model with endogenous productivity also amplifies productivity loss arising from financial frictions by two-fold.
    Keywords: Collateral Constraint, Endogenous Firm Productivity, Firm Dynamics, Misallo- cation, Aggregate Productivity, China
    JEL: E13 G31 L16 L26 O41
    Date: 2021–02–19
  93. By: Michael Barnett (Arizona State University - W.P. Carey School of Business); Greg Buchak (Stanford University - Graduate School of Business); Constantine Yannelis (University of Chicago - Booth School of Business)
    Abstract: We examine how policymakers should react to a pandemic when there is significant uncertainty regarding key parameters relating to the disease. In particular, this paper explores how optimal mitigation policies change when incorporating uncertainty regarding the Case Fatality Rate (CFR) and the Basic Reproduction Rate (R0) into a macroeconomic SIR model in a robust control framework. This paper finds that optimal policy under parameter uncertainty generates an asymmetric optimal mitigation response across different scenarios: when the disease’s severity is initially underestimated the planner increases mitigation to nearly approximate the optimal response based on the true model, and when the disease’s severity is initially overestimated the planner maintains lower mitigation as if there is no uncertainty in order to limit excess economic costs.
    Keywords: COVID-19, coronavirus, model uncertainty, dynamic general equilibrium
    JEL: E1 H0 I1
    Date: 2020
  94. By: Breuer, Christian
    Abstract: The COVID-19 crisis has caused public debt to increase dramatically, which is why the German and European fiscal rules are currently suspended. In addition to the new assessment of the fiscal costs at low interest rates (r
    Keywords: Government Debt,Fiscal Rules,Low Interest Rates
    JEL: E62 H56 H63
    Date: 2021
  95. By: Hanappi, Hardy
    Abstract: In its 500 years of evolution, the capitalist mode of production has produced different forms of the most abstract incarnation of what the human species uses as the material carrier of general social value - of money. Social value in disguise permeates all internal models of social agents, from individuals via households and firms to state agencies. In a sense, we have arrived at a situation where the largest and most powerful social agents are still a handful of nation-states, of self-determined ‘global players’. Their respective national value system is partly made comparable by the existence of a military hegemon, the USA and its US Dollar. Less powerful nation-states are aligned along with the dominance of the US Dollar. To fulfil its manifold tasks, the global Dollar system has developed highly complex features, most of them incorporated in what today is called ‘international finance’. If the victory of a single nation-state (‘America first’) over a democratic global governance system fails, this will also imply a different sign-system for global social value. Not just different geographical location, but also other dimensions of diversity will have to be taken into account. In short, the complexity of a new form of world money will rise dramatically. By following the historical and logical evolution of money this contribution sketches some basic features of an upcoming complex global money.
    Keywords: Money, Political Economy, Complexity
    JEL: B52 E40 E50 P0
    Date: 2021–02–25
  96. By: Carmela Aurora Attinà (Bank of Italy); Pierluigi Bologna (Bank of Italy)
    Abstract: We identify two categories of potentially ‘bad investors’ in TLAC-eligible bonds for the purpose of bail-in, i.e. households and hedge funds. The exposure of households may create political economy problems for policy makers when they have to decide about bail-in, while holdings by hedge funds may increase the price volatility of these instruments in stress periods. We analyze the composition of the investor base of the TLAC bonds issued by euro area G-SIBs between 2013 and 2020 and make a first assessment of whether the observed developments could have lessened the above mentioned problems. We show that the composition of the holdings of the different sectors has changed significantly over time. The share directly held by households has declined, is low on aggregate, and should not necessarily be an obstacle to the resolution of a G-SIB. However, there is a negative correlation between households’ TLAC holdings and their financial education. The information gap around the holdings of hedge funds means a full assessment of their role is not feasible. The market tensions that followed the Covid-19 shock did not negatively affect investments in TLAC debt, except for those of households which fell markedly in the first half of 2020.
    Keywords: bail-in, TLAC, resolution, G-SIB, Covid-19
    JEL: E44 G11 G21 G23 G28 G5
    Date: 2021–02
  97. By: Mawejje,Joseph
    Abstract: This study assesses the macro-fiscal framework for jobs in South Sudan, working with the limited macro-fiscal data available on the fiscal years 2019 and 2020. The macroeconomic environment can hardly be more difficult for South Sudanese looking to make a living. For workers, the dramatic contraction of non-oil output since the beginning of the conflict reflected a loss of job activities and a breakdown in market demand. A 60-fold increase in prices since before the conflict poses a serious obstacle to job activities, while an overvalued exchange rate weakens incentives. The oil sector is a big part of the economy, and the budget is dependent on oil revenue - but with weak governance, too little spending goes toward investment in development. The public sector in employment is large and a source of patronage, but it has an important function as a source of demand for goods and services. The study is one of a set of four reports assessing different aspects of jobs in urban South Sudan in order to formulate policy for recovery.
    Keywords: oil revenue; oil sector; oil production; market trader; macroeconomic environment; oil price; investment need; inflation; short period of time; infrastructure and service delivery; public investment in infrastructure; barrels per day; Public Employment; oil revenue management; official exchange rate; dual exchange rate; demand for good; exchange rate policy; Exchange rate policies; loss of job; Governance and Accountability; production and export; budget execution report; Fiscal policies; fiscal policy; household disposable income; net oil revenue; burden of disease; lack of demand; accumulation of arrears; cessation of hostility; price of rice; market demand; decline in revenue; barrel of oil; labor market outcome; access to fund; loss of confidence; overvalued exchange rate; tax on imports; natural resource extraction; rate of hire; oil revenue stabilization; foreign exchange market; loss of consumer; increase in prices; multiple exchange rate; high oil price; fuel price; private sector engagement; loss of revenue; oil production decline; exchange rate reform; privileges and immunity; employment in agriculture; extra budgetary spending; access to financing; private sector association; public wage bill; human capital development; agriculture and service; decline in productivity; urban labor force; private sector activity; signs of recovery; Rule of Law; cycle of violence; approved budget; supply of good; number of workers; put pressure; formal sector employment; civil service salary; infrastructure and capital; places of business; financial sector development; macroeconomic and fiscal; parallel market rate; Budget Management; real gdp
    Date: 2020–10–22
  98. By: Retirement Equity Lab (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: An examination of the status of older workers in the third quarter of 2020 reveals two highlights: millions of older workers have been pushed out of the workforce due to the Covid-19 recession and there is an increased risk of more involuntary retirements to come. Policy recommendations include Congress increasing and extending unemployment benefits for older workers, discourage withdrawals from 401(k)s and IRAs, lower Medicare eligibility to 50, and create a federal Older Workers Bureau.
    Keywords: older workers, recession, COVID-19, coronavirus, downward mobility, poverty, unemployment, wages, involuntary retirement, retirement, 401k, Medicare, Older Workers Bureau
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2020–08
  99. By: Scott R. Baker (Northwestern University - Kellogg School of Management; NBER); Aniket Baksy (Stanford University); Nicholas Bloom (Stanford University - Department of Economics; NBER); Steven J. Davis (University of Chicago - Booth School of Business; NBER); Jonathan Rodden (Stanford University - Department of Political Science)
    Abstract: We examine patterns of economic policy uncertainty (EPU) around national elections in 23 countries. Uncertainty shows a clear tendency to rise in the months leading up to elections. Average EPU values are 13% higher in the month of and the month prior to an election than in other months of the same national election cycle, conditional on country effects, time effects, and country-specific time trends. In a closer examination of U.S. data, EPU rises by 28% in the month of presidential elections that are close and polarized, as compared to elections that are neither. This pattern suggests that the 2020 US Presidential Election could see a large rise in economic policy uncertainty. It also suggests larger spikes in uncertainty around future elections in other countries that have experienced rising polarization in recent years.
    Keywords: Uncertainty, policy uncertainty, elections, polarization
    JEL: D72 D8 E6
    Date: 2020
  100. By: Harman, Oliver; Jensen, Anders Ditlev; Naeem, Farria; Saab, Moussa; Wani, Shahrukh; Wilkinson, Nick
    Keywords: covid-19; coronavirus
    JEL: E6 N0
    Date: 2021–01
  101. By: International Monetary Fund
    Abstract: Kosovo has been hit hard by the COVID-19 pandemic. Despite policy support, economic activity is estimated to have fallen 6 percent in 2020 on account of the combined effect of strict domestic containment measures and international travel restrictions. The fiscal deficit increased to 7.7 percent of GDP, given the large fall in tax revenues and the implementation of mitigation and recovery measures of 4.2 percent of GDP. The current account deficit is estimated to have increased to 7.5 percent of GDP mainly due to a large decline in diaspora-related inflows, most notably in tourism. Gross international reserves declined but remain adequate in part due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing. Banks have weathered the recession well to date, and the high pre-COVID19 liquidity levels and ample capital buffers bode well for the system’s stability.
    Date: 2021–02–17
  102. By: Retirement Equity Lab (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: An examination of the state of the retirement system and savings in 2020 reveals, if we do nothing to fix our retirement system, 43 million people now in their fifties and early sixties will be poor or near-poor elders, owing to both the recession and to inadequate retirement plans.1 Widespread retirement insecurity weakens older workers’ bargaining power. Without a solid fallback plan, older workers must accept whatever wages are offered. This chartbook is a resource for workers, employers, media, policymakers, scholars, and the broader public, to answer questions about the state of older working America and retirement income security.
    Keywords: older workers, recession, COVID-19, downward mobility, poverty, unemployment, wages, savings, involuntary retirement, social security, retirement system, 401k
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2020–07
  103. By: Shulamit Nir (Bank of Israel)
    Abstract: In recent years, the rate of inflation in Israel has declined, despite the fact that the economy is around a state of full employment. The prevailing belief is that one of the factors responsible for this trend is stronger competition, particularly in the tradable sectors. This paper presents an analysis of the factors that influence price levels in the Israeli economy, on a sectoral basis in five different sectors: apparel, food, communications, toiletries and cosmetics, and tours and recreation. In addition to the traditional factors affecting the rate of inflation (exchange rate, import prices, output), we will measure the effect of competition. In this study, we use two alternatives measures for the level of competition, computed at the sector level: (i) markup (sales divided by the sum of the cost of goods sold and selling, general & administrative expenses), and (ii) the expenses ratio (the ratio of selling and marketing expenses to sales). The first indicator has been used in the literature and is related to the Lerner Index. The second indicator is not a classic variable for measuring competition but it fits the specific circumstances that have been observed in Israel. The results are consistent with the existence of a negative relationship between a sectorâs increase in competition and its rate of inflation. The evidence for the negative relationship is mostly present in the apparel sector.
    Date: 2021–01
  104. By: Lilas Demmou; Quentin Sagot
    Abstract: Recent technological developments linked to secure messaging and traceability present an opportunity to address certain challenges in international and domestic payment systems. From an international perspective, foreign exchange markets remain costly and relatively less efficient than domestic payment systems. From a domestic perspective, the decline in the relative importance of cash in most economies reflects changes in consumers’ preferences, which questions the future of money and payment infrastructure. Against that background, private initiatives falling outside of current regulation, such as stable coins and other virtual assets, are associated with several risks and opportunities and have fueled the debate on the opportunities for central banks to issue new form of digital public currency. This note reviews those different propositions and examine their implication for the international and domestic payment systems.
    Keywords: CBDC, central banking, digital currency, international markets, payment systems
    JEL: E42 F33 G28
    Date: 2021–02–05
  105. By: Giorgio Fabbri (Univ. Grenoble Alpes, CNRS, INRA, Grenoble INP, GAEL, Grenoble, France); Fausto Gozzi (Dipartment of Economics and Finance, LUISS University, Rome, Italy); Giovanni Zanco (Dipartment of Economics and Finance, LUISS University, Rome, Italy)
    Abstract: In this paper we propose a macro-dynamic age-structured set-up for the analysis of epidemics/economic dynamics in continuous time. The resulting optimal control problem is reformulated in an infinite dimensional Hilbert space framework where we perform the basic steps of dynamic programming approach. Our main result is a verification theorem which allows to guess the feedback form of optimal strategies. This will be a departure point to discuss the behavior of the models of the family we introduce and their policy implications.
    Keywords: COVID-19, macro-dynamic models, epidemiological dynamics, Hilbert spaces, verification theorem
    JEL: E60 I10 C61
    Date: 2021–02–08
  106. By: International Monetary Fund
    Abstract: Successful containment of COVID-19 and strong policy support have helped contain the health and economic fallout, and a strong recovery is underway. Growth in 2020 reached 2.9 percent, among the highest in the world. However, labor market conditions remain weak. Corporate balance sheets have worsened, potentially hampering private investment and job prospects. Banks entered the crisis in a stronger position than in previous years, but weaknesses remain. Vietnam’s economy remains heavily reliant on external trade and is vulnerable to trade tensions.
    Date: 2021–02–24
  107. By: Wojciech Kopczuk (Columbia University - Department of Economics; NBER); Eric Zwick (University of Chicago - Booth School of Business)
    Abstract: Business income constitutes a large and increasing share of income and wealth at the top of the distribution. We discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners, with the focus on closely-held and pass-through firms. These considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code. We discuss the importance of these issues in the US, and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere.
    JEL: D31 D33 E25 H24 H25 H32
    Date: 2020
  108. By: Stephen J. Terry (Boston University - Department of Economics); Toni M. Whited (University of Michigan - Stephen M. Ross School of Business; NBER); Anastasia A. Zakolyukina (University of Chicago - Booth School of Business)
    Abstract: The accuracy of firm information disclosures and the efficiency of long-term investment both play crucial roles in the economy and capital markets. We estimate a dynamic model that captures a trade-off between these two goals that arises when managers confront realistic incentives to misreport financial statements and distort their real investment choices. Managers in our model distort reported profits by 6.7% of sales on average. Counterfactual analysis reveals that while eliminating this misreporting through disclosure regulation is possible, it incentivizes managers to distort real investment, which results in a 1% drop in average firm value, reflecting a quantitatively meaningfully tradeoff.
    Keywords: Information, disclosure, r&d, growth
    JEL: E22 G31 G34 M41 K22 K42
    Date: 2020
  109. By: Simplice A. Asongu (Yaounde, Cameroon); Yann Nounamo (University of Douala, Cameroon); Henri Njangang (University of Dschang , Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon)
    Abstract: The study examines how financial stability modulates the effect of inclusive intermediary education on female employment in the industry for the period 2008-2018 in Sub-Saharan Africa. The empirical evidence is based on Tobit, Ordinary Least Squares (OLS) and Quantile regressions. There are positive interactive or conditional effects between inclusive intermediary education and financial stability in the Tobit, OLS and bottom quantiles estimations. A net positive (negative) effect is apparent in the 10th quantitle (median) of female employment in the industry distribution. Implications are discussed.
    Keywords: inclusive education; financial sustainability, gender economic inclusion
    JEL: E23 F21 F30 L96 O55
    Date: 2021–02
  110. By: Jose Maria Barrero (Instituto Tecnológico Autónomo de México Business School); Nicholas Bloom (Stanford University - Department of Economics; NBER); Steven J. Davis (University of Chicago - Booth School of Business; Hoover Institution; NBER)
    Abstract: We survey 15,000 Americans over several waves to investigate whether, how, and why working from home will stick after COVID-19. The pandemic drove a mass social experiment in which half of all paid hours were provided from home between May and October 2020. Our survey evidence says that 22 percent of all full work days will be supplied from home after the pandemic ends, compared with just 5 percent before. We provide evidence on five mechanisms behind this persistent shift to working from home: diminished stigma, better-than-expected experiences working from home, investments in physical and human capital enabling working from home, reluctance to return to pre-pandemic activities, and innovation supporting working from home. We also examine some implications of a persistent shift in working arrangements: First, high-income workers, especially, will enjoy the perks of working from home. Second, we forecast that the postpandemic shift to working from home will lower worker spending in major city centers by 5 to 10 percent. Third, many workers report being more productive at home than on business premises, so post-pandemic work from home plans offer the potential to raise productivity as much as 2.4 percent.
    Keywords: COVID, working-from-home
    JEL: D13 D23 E24 J22 G18 M54 R3
    Date: 2020
  111. By: Mario Garcia Molina
    Abstract: Este documento realiza una comparación entre la microeconomía y la macroeconomía, con el fin de identificar las diferencias entre estas dos áreas. Se plantea que, aunque existen diferencias de objeto y método entre las dos, estas no son fundamentales. Se sugiere que la diferencia fundamental es de propósito: en la medida en que parte de la escuela neoclásica, la microeconomía busca dar una respuesta formal al problema filosófico de Adam Smith; la macroeconomía, en cambio, tiene un propósito más empírico: explicar la realidad y sus problemas y proponer alternativas de solución. *** This paper compares micro and microeconomics in order to identify the differences between these two fields. Although there are differences in scope and method, they are not the key ones. The main difference is of purpose: as it is part of the neoclassical school, microeconomics intends to give a formal answer to Adam Smith’s philosophical question; in contrast, macroeconomics has a more empirical purpose: to explain reality and its problems, and to propose solutions to them.
    Keywords: macroeconomía; microeconomía; metodología; enseñanza de la economía
    Date: 2020–12–28
  112. By: Susan Thomas (xKDR); Diya Uday (xKDR)
    Abstract: Under-utilisation of land as collateral for loans is often attributed to the poor quality of the land records infrastructure, which is seen to both increase the cost of closing credit transactions and the risk in collection if a loan fails. In this paper, we examine the link between the heterogeneity of the quality of the land records infrastructure across states and the access to credit by households in these states using two new data-sets for the analysis. The state-level variation in land record quality is measured using the NCAER Land Records Services Index score while the Consumer Pyramids household data is used to capture household borrowing. Our findings are that there is a weak link between the borrowing patterns of households and quality of land records infrastructure, particularly the availability of spatial records. However, it does not appear that this is sufficient to capture the extent to which households are able to access credit from formal financial sources.
    JEL: E2 G2 R1 R5 O4
    Date: 2021–02
  113. By: Gent Bajraj; Neil Wallace
    Abstract: "Expectations..." is the first counter-example to the view that a positive correlation between real output and the growth rate of the stock of money is exploitable. The equilibrium concept is rational expectations equilibrium. Here, two alternative strategic formulations -two versions of the marketgame model- are applied. In one, the young make non-contingent offers of real saving; in the other, they make contingent offers, where the contingency is the realization of the two shocks in the model. Under the informational assumption that the young know nothing about current realizations, neither strategic formulation converges under replication to an equilibrium that exhibits the above positive correlation.
    Date: 2021–02
  114. By: Maria Marta Ferreyra; Carlos Garriga; Juan D. Martin-Ocampo; Angélica María Sánchez Díaz
    Abstract: Free college proposals have become increasingly popular in many countries of the world. To evaluate their potential effects, we develop and estimate a dynamic model of college enrollment, performance, and graduation. A central piece of the model, student effort, has a direct effect on class completion, and an indirect effect in mitigating the risk of not completing a class or not remaining in college. We estimate the model using rich, student-level administrative data from Colombia, and use the estimates to simulate free college programs that differ in eligibility requirements. Among these, universal free college expands enrollment the most, but it does not affect graduation rates and has the highest per-graduate cost. Performance-based free college, in contrast, delivers a slightly lower enrollment expansion yet a greater graduation rate at a lower per-graduate cost. Relative to universal free college, performance-based free college places a greater risk on students but is precisely this feature that delivers better outcomes. Nonetheless, the modest increase in graduation rates suggests that additional, complementary policies might be required to elicit the large effort increase needed to raise graduation rates. **** RESUMEN: Las propuestas sobre educación universitarias gratuita se han vuelto cada vez más populares en muchos países del mundo. Para evaluar sus efectos potenciales, desarrollamos y estimamos un modelo dinámico de matrÍcula, desempeño y graduación universitaria. Una pieza central del modelo, el esfuerzo de los estudiantes, tiene un efecto directo sobre el desempeño y un efecto indirecto en la mitigación del riesgo asociado. Estimamos el modelo utilizando datos a nivel de estudiantes en Colombia, y usamos las estimaciones para simular programas de universidad gratuita que difieren en requisitos de elegibilidad. Entre estos, el programa sin requisitos es el que más expande la inscripción, pero no afecta las tasas de graduación y tiene el costo más alto. El programa basado en rendinto, por el contrario, ofrece una expansión de matrícula ligeramente menor pero una mayor tasa de graduación a un costo más bajo. En relación con el programa sin requisitos, aquel basado en rendimiento supone un mayor riesgo para los estudiantes, pero es precisamente esta la razón de los mejores resultados. No obstante, el modesto aumento en las tasas de graduación sugiere que podrán ser necesarias políticas complementarias adicionales para incentivar el esfuerzo necesario para aumentar las tasas de graduación.
    Keywords: Higher Education, free college, financial aid, Educación superior, universidad gratuita, ayuda financiera.
    JEL: E24 I21
    Date: 2021–02
  115. By: Fernando E. Alvarez (University of Chicago - Department of Economics; NBER); David O. Argente (Pennsylvania State University - Department of Economics)
    Abstract: We use three quasi-natural experiments in Mexico and one in Panama to estimate the effects of having the option to pay with cash on Uber rides. The ability to pay in cash affects the demand for rides, which is reflected in large changes in the total number of trips, fares, miles, and number of users after Uber introduced cash payments, particularly in lower-income city blocks. On the other hand, the effects on prices, estimated times of arrival, and competitor pricing are negligible, consistent with the supply of trips being very elastic. Although cash payments naturally increase the fraction of users that pay exclusively with cash, more than half of the users have access to both cards and cash, and alternate between payment methods. We find evidence consistent with cash and card payments being imperfectly substitutable at both the intensive and extensive margins, which magnifies the impact of policies that restrict the availability of payment methods.
    JEL: E41
    Date: 2020
  116. By: Brotherhood, L.; Cavalcanti, T.; Da Mata, D.; Santos, C.
    Abstract: This paper studies the role of slums in shaping the economic and health dynamics of pandemics. Using data from millions of mobile phones in Brazil, an event-study analysis shows that residents of overcrowded slums engaged in less social distancing after the outbreak of Covid-19. We develop a choice-theoretic equilibrium model in which poorer agents live in high-density slums and others do not. The model is calibrated to Rio de Janeiro. Slum dwellers account for a disproportionately high number of infections and deaths. In a counterfactual scenario without slums, deaths increase in non-slum neighborhoods. Policy simulations indicate that: reallocating medical resources cuts deaths and raises output and the welfare of both groups; mild lockdowns favor slum individuals by mitigating the demand for hospital beds whereas strict confinements mostly delay the evolution of the pandemic; and cash transfers benefit slum residents in detriment of others, highlighting important distributional effects.
    Keywords: Covid-19, slums, health, social distancing, public policies
    JEL: E17 I10 I18 D62 O18 C63
    Date: 2020–08–06
  117. By: Ricardo Correa (Board of Governors of the Federal Reserve System); Wenxin Du (University of Chicago - Booth School of Business; NBER); Gordon Liao (Board of Governors of the Federal Reserve System)
    Abstract: We characterize how U.S. global systemically important banks (GSIBs) supply short-term dollar liquidity in repo and foreign exchange swap markets in the post-Global Financial Crisis regulatory environment and serve as the "lenders-of-second-to-last-resort". Using daily supervisory bank balance sheet information, we find that U.S. GSIBs modestly increase their dollar liquidity provision in response to dollar funding shortages, particularly at period-ends, when the U.S. Treasury General Account balance increases, and during the balance sheet taper of the Federal Reserve. The increase in the dollar liquidity provision is mainly financed by reducing excess reserve balances at the Federal Reserve. Intra-firm transfers between depository institutions and broker-dealer subsidiaries within the same bank holding company are crucial to this type of "reserve-draining" intermediation. Finally, we discuss factors that contributed to the repo spike in September 2019 and the subsequent response of U.S. GSIBs to recent policy interventions by the Federal Reserve.
    Keywords: Liquidity, global banks, repos, reserves, covered interest rate parity
    JEL: G2 F3 E4
    Date: 2020
  118. By: Albulena Basha; Wendong Zhang (Center for Agricultural and Rural Development (CARD)); Chad E. Hart (Center for Agricultural and Rural Development (CARD))
    Abstract: Purpose: Our paper quantifies the effects of recent Federal Reserve interest rate changes, specifically recent hikes and cuts in the federal funds rate since 2015, on Midwest farmland values. Methodology: We apply three autoregressive distributed lag models to a panel data of state-level farmland values from 1963 to 2018 to estimate the dynamic effects of interest rate changes on the US farmland market. We focus on the I-states, Lakes states and Great Plains states. Our models capture both short-term and long-term impacts of policy changes on land values. Findings: We find that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. Our results show that the three recent federal funds rate cuts in 2019 were not sufficient to offset the downward pressures from the 2015-2018 interest rate hikes, but the 2020 cut is. The combined effect of the Federal Reserve's recent interest rate moves on farmland values will be positive for some time starting in 2022. Originality and Policy Implications: Our paper provides the first empirical quantification of the immediate and long-run impacts of recent Federal Reserve interest rate moves on farmland values. We demonstrate the long-lasting repercussions of Federal Reserve's policy choices in the farmland market.
    Date: 2021–01
  119. By: Paul Davidson (OECD); Céline Kauffmann (OECD); Marie-Gabrielle de Liedekerke (OECD)
    Abstract: The impacts of laws and regulations on competitiveness have strong implications for OECD economies, as they can lead to unforeseen negative externalities and considerable regulatory costs for businesses and citizens. Nevertheless, the use of regulatory policy to assess the impacts of regulations on competitiveness has seldom been examined. This paper fills this gap by reviewing OECD members’ regulatory impact assessment (RIA) frameworks and the extent to which the competitiveness effects are currently appraised. It categorises regulatory impacts on competitiveness into three strongly interrelated components – cost competitiveness, innovation, and international competitiveness – and builds upon the OECD’s expertise to examine how regulations affect each component of competitiveness in turn. In doing so, the paper proposes a more complete structure that regulators can use to define and assess the competitiveness impacts of regulation as part of their RIA processes framework.
    Keywords: competitiveness, regulatory impact assessment, Regulatory policy
    JEL: E61 F68 L51
    Date: 2021–02–03
  120. By: Alain Hecq; Marie Ternes; Ines Wilms
    Abstract: Mixed-frequency Vector AutoRegressions (MF-VAR) model the dynamics between variables recorded at different frequencies. However, as the number of series and high-frequency observations per low-frequency period grow, MF-VARs suffer from the "curse of dimensionality". We curb this curse through a regularizer that permits various hierarchical sparsity patterns by prioritizing the inclusion of coefficients according to the recency of the information they contain. Additionally, we investigate the presence of nowcasting relations by sparsely estimating the MF-VAR error covariance matrix. We study predictive Granger causality relations in a MF-VAR for the U.S. economy and construct a coincident indicator of GDP growth.
    Date: 2021–02

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