nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒03‒08
109 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The role of banking and credit in business cycle fluctuations in Kazakhstan By Nurdaulet Abilov
  2. Should the ECB Adjust its Strategy in the Face of a Lower r*? By Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
  3. "The Empirics of Long-Term Mexican Government Bond Yields" By Tanweer Akram; Syed Al-Helal Uddin
  4. The hockey stick Phillips curve and the zero lower bound By Böhl, Gregor; Lieberknecht, Philipp
  5. The New Monetary Policy Revolution: Advice and Dissent By Philip Turner
  6. The Spanish economy and the COVID-19 crisis. Appearance before the Parliamentary Economic Affairs and Digital Transformation Committee – 18 May 2020 By Pablo Hernández de Cos
  7. Limited Household Risk Sharing: General Equilibrium Implications for the Term Structure of Interest Rates By Indrajit Mitra; Yu Xu
  8. An Overview of the Economic Outlook: 2021 to 2031 By Congressional Budget Office
  9. A structural investigation of quantitative easing By Böhl, Gregor; Goy, Gavin; Strobel, Felix
  10. Is inflation targeting a strategy past its sell-by date? By Alberto Locarno; Alessandra Locarno
  11. The main post-pandemic challenges for the Spanish economy. Appearance before the Parliamentary Committee for the Economic and Social Reconstruction of Spain after COVID-19. Congress of Deputies – 23 June 2020 By Pablo Hernández de Cos
  12. "Has Japan Been Following Modern Money Theory Without Recognizing It? No! And Yes." By Yeva Nersisyan; L. Randall Wray
  13. Fixed exchange rate - a friend or foe of labor cost adjustments? By Milivojevic, Lazar; Tatar, Balint
  14. Fiscal Policy and Households’ Inflation Expectations: Evidence from a Randomized Control Trial By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
  15. The 2021 Long-Term Budget Outlook By Congressional Budget Office
  16. The role of labor market structure and shocks for monetary policy in Kazakhstan By Alisher Tolepbergen
  17. Macroprudential policy interactions in a sectoral DSGE model with staggered interest rates By Hinterschweiger, Marc; Khairnar, Kunal; Ozden, Tolga; Stratton, Tom
  18. The ECB monetary policy response to the Covid-19 crisis By Pablo Aguilar; Óscar Arce; Samuel Hurtado; Jaime Martínez-Martín; Galo Nuño; Carlos Thomas
  19. The Budget and Economic Outlook: 2021 to 2031 By Congressional Budget Office
  20. Monetary policy shocks and inflation inequality By Christoph Lauper; Giacomo Mangiante
  21. How to issue a central bank digital currency By David Chaum; Christian Grothoff; Thomas Moser
  22. Endogenous time variation in vector autoregressions By Danilo Leiva-Leon; Luis Uzeda
  23. Euro area house price fluctuations and unconventional monetary policy surprises By Hülsewig, Oliver; Rottmann, Horst
  24. Replicating Business Cycles and Asset Returns with Sentiment and Low Risk Aversion By Kevin J. Lansing
  25. Covid-19 Fiscal Support and its Effectiveness By Chudik, A.; Mohaddes, K.; Raissi, M.
  26. Central bank currency swap lines By Enrique Esteban García-Escudero; Elisa J. Sánchez Pérez
  27. The "Matthew Effect" and Market Concentration: Search Complementarities and Monopsony Power By Jesús Fernández-Villaverde; Federico Mandelman; Yu Yang; Francesco Zanetti
  28. Re-allocating taxing rights and minimum tax rates in international profit taxation By Kempkes, Gerhard; Stähler, Nikolai
  29. An introduction to the current debate on central bank digital currency (CBDC) By Juan Ayuso Huertas; Carlos Antonio Conesa Lareo
  30. Consumer Payment Choice and the Heterogeneous Impact of India’s Demonetization By Ayushi Bajaj; Nikhil Damodaran
  31. Bitcoin: An Inflation Hedge but Not a Safe Haven By Sangyup Choi; Junhyeok Shin
  32. Is money demand really unstable? Evidence from divisia monetary aggregates By William A. Barnett; Taniya Ghosh; Masudul Hasan Adil
  33. COVID-19 Crisis: Lessons Learned for Future Policy Research By Jean-Sébastien Fontaine; Corey Garriott; Jesse Johal; Jessica Lee; Andreas Uthemann
  34. Evolving United States Stock Market Volatility: The Role of Conventional and Unconventional Monetary Policies By Vasilios Plakandaras; Rangan Gupta; Mehmet Balcilar; Qiang Ji
  35. Eye in the sky: private satellites and government macro data By Abhiroop Mukherjee; George Panayotov; Janghoon Shon
  36. Thoughts on the design of a European Recovery Fund By Óscar Arce; Iván Kataryniuk; Paloma Marín; Javier J. Pérez
  37. Talking in a language that everyone can understand? Transparency of speeches by the ECB Executive Board By Glas, Alexander; Müller, Lena
  38. A Fundamental Connection: Exchange Rates and Macroeconomic Expectations By Vania Stavrakeva; Jenny Tang
  39. One Size Does Not Fit All: TFP in the Aftermath of Financial Crises in Three European Countries By Christian Abele; Agnes Benassy-Quere; Lionel Fontagné; Lionel Gérard Fontagné
  40. The common and speci fic components of inflation expectation across European countries By Chen, Shi; Härdle, Wolfgang Karl; Wang, Weining
  41. Disentangling Covid-19, Economic Mobility, and Containment Policy Shocks By Annika Camehl; Malte Rieth
  42. Frictions financières et Dynamique macroéconomique : Examen des régularités cycliques By Katuala, Hénock M.
  43. The Japanese banks in the lasting low-, zero- and negative-interest rate environment By Schnabl, Gunther; Murai, Taiki
  44. The optimal spending rate versus the expected real return of a sovereign wealth fund By Aase, Knut K.; Bjerksund, Petter
  45. How persistent is inflation in Kazakhstan? A fractionally integrated approach By Alisher Tolepbergen
  46. Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future By Atkinson, Giles; Hamilton, Kirk
  47. UK Inflation Forecasts since the Thirteenth Century By James M. Nason; Gregor W. Smith
  48. Aggregate Output Measurements: A Common Trend Approach By Martín Almuzara; Gabriele Fiorentini; Enrique Sentana
  49. Searching for Job Security and the Consequences of Job Loss By Gregor Jarosch
  50. The Role of Gender in Employment Polarization By Fabio Cerina; Alessio Moro; Michelle Rendall
  51. Assessing India's productivity trends and endogenous growth: New evidence from technology, human capital and foreign direct investment By Taniya Ghosh; Prashant Mehul Parab
  52. Global Uncertainty By Giovanni Caggiano; Efrem Castelnuovo
  53. Economic and Epidemiological Effects of Mandated and Spontaneous Social Distancing By Bodenstein, M.; Corsetti, G.; Guerrieri, L.
  54. Estimation of Heuristic Switching in Behavioral Macroeconomic Models By Kukacka, Jiri; Sacht, Stephen
  55. Risk & Returns around Fomc Press Conferences: A Novel Perspective from Computer Vision By Alexis Marchal
  56. The Bank of Canada COVID‑19 stringency index: measuring policy response across provinces By Calista Cheung; Jerome Lyons; Bethany Madsen; Sarah Miller; Saarah Sheikh
  57. Relationships that Last: Job Creation vs Job Duration By Britta Gehrke; Jacob Wong
  58. The role of information and experience for households' inflation expectations By Christian Conrad; Zeno Enders; Alexander Glas
  59. A note of caution on quantifying banks' recapitalization effects By Schmidt, Kirsten; Noth, Felix; Tonzer, Lena
  60. Spanish non-financial corporations’ liquidity needs and solvency after the covid-19 shock By Roberto Blanco; Sergio Mayordomo; Álvaro Menéndez; Maristela Mulino
  61. Financial Development and Top Income Shares in OECD Countries By Anjan K. Saha; Vinod Mishra; Russell Smyth
  62. Four years after the base-year revision: Taking stock of the debate surrounding India's national accounts estimates By R. Nagaraj; Amey Sapre; Rajeswari Sengupta
  63. A Note on Employment and Wage Polarization in the U.S. By Fabio Cerina; Alessio Moro; Michelle Rendall
  64. Declining natural interest rate in the US: the pension system matters By Jacopo Bonchi; Giacomo Caracciolo
  65. The long-run investment effect of taxation in OECD countries By Jakob B. Madsen; Antonio Minniti; Francesco Venturini
  66. Fiscal Rules in Good Times and Bad By Christoph Peatz
  67. Learning, expectations and monetary policy By Pablo Garcia
  68. Asesoría sobre el monopolio rentístico de licores en el departamento del Chocó. Informe final By Juan Gonzalo Zapata; Bárbara Silva; Manuel Molina
  69. Household wealth: what is it, who has it, and why it matters By Horan, David; Lydon, Reamonn; McIndoe-Calder, Tara
  70. Income Inequality in an Era of Globalisation: The Perils of Taking a Global View By Ranjan Ray; Parvin Singh
  71. International Transmission of Interest Rates: The Role of International Reserves and Sovereign Debt By António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
  72. Using machine learning for measuring democracy: An update By Gründler, Klaus; Krieger, Tommy
  73. Heterogeneous Policy Distortions and the Labor Share By Gabriel Smagghue
  74. Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines By Aydın, Deniz
  75. The Two Faces of Information By Gaetano Gaballo; Guillermo Ordoñez
  76. Optimal policy with occasionally binding constraints: piecewise linear solution methods By Harrison, Richard; Waldron, Matt
  77. Datado y sincronía del ciclo regional en España By Eduardo Bandrés; María-Dolores Gadea; Ana Gómez-Loscos
  78. Dating and synchronisation of regional business cycles in Spain By Eduardo Bandrés; María-Dolores Gadea; Ana Gómez-Loscos
  79. Structural unemployment, underemployment, and secular stagnation By Hashimoto, Ken-ichi; Ono, Yoshiyasu; Schlegl, Matthias
  80. Child Labor, Corruption, and Development By Toshiki Miyashita; Kohei Okada; Kei Takakura
  81. The impact of temporal framing on the marginal propensity to consume By Pauls, Thomas
  82. Does urban concentration matter for changes in country economic performance? By Roberto Ganau; Andres Rodriguez-Pose;
  83. ECB-Global 2.0: a global macroeconomic model with dominant-currency pricing, tariffs and trade diversion By Georgiadis, Georgios; Hildebrand, Sebastian; Ricci, Martino; Schumann, Ben; van Roye, Björn
  84. Recruiting Intensity, Hires, and Vacancies: Evidence from Firm-Level Data By Forsythe, Eliza; Weinstein, Russell
  85. On global determinacy of New Keynesian models By Kim, Minseong
  86. Can Machine Learning Catch the COVID-19 Recession? By Philippe Goulet Coulombe; Massimiliano Marcellino; Dalibor Stevanovic
  87. Understanding International Price and Consumption Disparities By Long Hai Vo
  88. Les effets de l’interaction entre les marchés financiers et la réglementation bancaire sur la structure des flux bancaires internationaux vers les pays émergents By Samira Hellou
  89. Persistence in the Private Debt-to-GDP Ratio: Evidence from 43 OECD Countries By Guglielmo Maria Caporale; Luis A. Gil-Alana; Maria Malmierca
  90. Currency Crises In Emerging Countries: The Commodity Factor By Vincent Bodart; Jean-François Carpantier
  91. The Covid pandemic in the market: Infected, immune and cured bonds By Zaghini, Andrea
  92. Financial revolution in republican China during 1900–37: a survey and a new interpretation By Ma, Debin
  93. Binding constraints to productive investment in Malawi: A modified HRV framework By Chirwa, Themba G; Odhiambo, Nicholas M
  94. World Economy Winter 2020 - Global economic recovery progresses overall By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  95. Respuesta del sector bancario a la crisis del Covid-1 By María Angélica Arbeláez; Martha Elena Delgado; Sandra Díaz; Santiago Gómez; Candelaria Peñate
  96. A Social Norm Nudge to Save More: A Field Experiment at a Retail Bank By Robert Dur; Dimitry Fleming; Marten van Garderen; Max van Lent
  97. Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier By Joonkyu Choi; Veronika Penciakova; Felipe Saffie
  98. Bonds, currencies and expectational errors By Granziera, Eleonora; Sihvonen, Markus
  99. The high frequency impact of economic policy narratives on stock market uncertainty By Perico Ortiz, Daniel
  100. (Non-)Keynesian Effects of Fiscal Austerity: New Evidence from a Large Sample By António Afonso; José Alves; João Tovar Jalles
  101. Trust we lost: The Treuhand experience and political behavior in the former German Democratic Republic By Kellermann, Kim Leonie
  102. Sovereign default and imperfect tax enforcement By Francesco Pappadà; Yanos Zylberberg
  103. Institutions and the Productivity Challenge for European Regions By Andres Rodriguez-Pose; Roberto Ganau;
  104. German Economy Winter 2020 - Second Covid wave interrupts recovery By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
  105. Behavior and the Transmission of COVID-19 By Andrew Atkeson; Karen A. Kopecky; Tao Zha
  106. A Parsimonious Behavioral SEIR Model of the 2020 COVID Epidemic in the United States and the United Kingdom By Andrew Atkeson
  107. Social Capital: A Double-Edged Sword By Harold L. Cole; Dirk Krueger; George J. Mailath; Yena Park
  108. Cash and COVID-19: The Effects of Lifting Containment Measures on Cash Demand and Use By Heng Chen; Walter Engert; Kim Huynh; Gradon Nicholls; Julia Zhu
  109. Entre becas y aulas: ¿Cómo cerramos la brecha? By Matilde Isabela Angarita Serrano

  1. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University)
    Abstract: We analyze the role of banking sector and credit in business cycle fluctuations in Kazakhstan by adopting the dynamic stochastic general equilibium (DSGE) model with financial frictions and banks. We introduce financial frictions that lead to the amplification of the effects of shocks in the economy. We find that bank capital adjustment costs are essential in the model due to the large capital adjustment cost parameter. This implies that banks' capital adjusts very slowly to exogenous shocks in the economy. We also analyze impulse responses of endogenous variables to exogenous shocks, including a negative bank capital shock, in order to understand the propagation mechanisms of the shocks. The results from the historical decomposition exercise show us that the financial shocks have played an important role in business cycle fluctuations in Kazakhstan since 2015.
    Keywords: DSGE; financial frictions; banking sector; Kazakhstan
    JEL: C11 E32 E37 E44 E51
    Date: 2020–12
  2. 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 significant 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: 2021–02
  3. By: Tanweer Akram; Syed Al-Helal Uddin
    Abstract: This paper presents empirical models of Mexican government bond (MGB) yields based on monthly macroeconomic data. The current short-term interest rate has a decisive influence on MGB yields, after controlling for inflation and growth in industrial production. John Maynard Keynes claimed that government bond yields move in lockstep with the short-term interest rate. The models presented in the paper show that Keynes's claim holds for MGB yields. This has important policy implications for Mexico. The empirical findings of the paper are also relevant for ongoing debates in macroeconomics.
    Keywords: Mexican Government Bonds; Long-Term Interest Rate; Short-Term Interest Rate; Monetary Policy; Banco de México (BdM); Banxico
    JEL: E43 E50 E58 E60 G10 G12
    Date: 2021–02
  4. By: Böhl, Gregor; Lieberknecht, Philipp
    Abstract: The recently observed disconnect between inflation and economic activity can be explained by the interplay between the zero lower bound (ZLB) and the costs of external financing. In normal times, credit spreads and the nominal interest rate balance out; factor costs dominate firms' marginal costs. When nominal rates are constrained, larger spreads can more than offset the effect of lower factor costs and induce only moderate inflation responses. The Phillips curve is hence flat at the ZLB, but features a positive slope in normal times and thus a hockey stick shape. Via this mechanism, forward guidance may induce deflationary effects.
    Keywords: Phillips Curve,Financial Frictions,Zero Lower Bound,Disinflation,Forward Guidance
    JEL: C62 C63 E31 E32 E44 E52 E58 E63
    Date: 2021
  5. By: Philip Turner
    Abstract: Central banks have undertaken a revolution in monetary policy. They reluctantly abandoned conventional wisdom designed to keep them out of political trouble. This paper looks at this revolution through the lens of the divergent perspectives of the IMF and the BIS. The Jeremiahs predicted this revolution would fail to reduce unemployment and lead only to financial ruin. The Jeremiahs were proved wrong on both counts. Radical whatever-it-takes monetary expansion rescued a depressed world economy. Regulatory reform kept financial risks in check. Because central banks now have two distinct monetary policy instruments - their balance sheet as well as the policy interest rate - monetary policy may have financial stability as an objective in addition to its traditional macroeconomic one. The questions for 2021 and beyond are two. The first is: if the mix of large balance sheets, a sudden jump in government debt and yet-to-be-determined regulatory failures creates new financial stability or macroeconomic risks, what should central banks do? The second is: will governments let them?
    Keywords: Monetary policy, financial stability, financial crisis, fiscal dominance, QE, lender of last resort, macroprudential policy, central banks, Fed, ECB, Bank of England, Bank of Japan, Basel Committee, BIS, CGFS, FSB, IEO, IMF
    JEL: E52 E58 G18
    Date: 2021–02
  6. By: Pablo Hernández de Cos (Banco de España)
    Abstract: The coronavirus pandemic has placed our economy in an unprecedented situation. The adverse shock has been on an enormous scale and truly global in nature, and while it is foreseeably temporary it has the potential to cause structural harm. Certain characteristics of our economy – the sectoral specialisation of our productive system, the small average size of firms and the high temporary employment ratio – make it more vulnerable than other countries to this shock. This situation initially calls for immediate and forceful economic policies. These should be time-limited – until employment and economic activity regain momentum following the shutdown imposed – and internationally coordinated. The aim is to alleviate the loss of income of the households and firms affected by the crisis and to prevent a temporary shock from causing persistent effects over time. And in this connection, fiscal policy is the most suitable tool. Monetary policy should also operate actively to ensure appropriate financing and liquidity conditions for economic agents. Micro- and macroprudential policies should spur financial institutions to continue to see that lending reaches households and firms and, in turn, they should preserve the system’s financial stability. Moreover, the crisis, as it is global, requires an internationally coordinated response. At the European level, a joint response is imperative, underpinned by a financial resources- and risk-sharing mechanism, and a complete Banking Union. Once the height of this crisis is behind us, economic policies should essentially tackle the following challenges: to reduce the structural deficit and public debt, and to promote long-term growth. The strategy should rest on twin programmes: a medium-term budgetary consolidation programme which, through a review of spending and of the tax structure and capacity, enables health to be restored to our public finances; and a structural reforms programme that raises economic growth capacity, with particular attention to enhancing human capital and efficient R&D expenditure.
    Keywords: COVID-19, shock, crisis response, macroeconomic policies, structural reforms, European project, potential growth
    JEL: E6 E60 E61 E65 E66 F01 F55
    Date: 2020–08
  7. By: Indrajit Mitra; Yu Xu
    Abstract: We present a theory in which limited risk sharing of idiosyncratic labor income risk plays a key role in determining the dynamics of interest rates. Our production-based model relates the cross-sectional distribution of labor income risk to observable aggregate labor market variables. Our model makes two key predictions. First, it predicts positive risk premia for long-term bonds while simultaneously matching key macroeconomic moments. Second, it predicts a negative correlation between current labor market conditions (as measured by labor market tightness or the job-finding rate) and future bond excess returns. We provide evidence for these predictions.
    Keywords: interest rates; nondiversifiable labor income risk; labor market frictions; bond risk premia
    JEL: A12 E24 E43 E44 G12 J64
    Date: 2020–11–09
  8. By: Congressional Budget Office
    Abstract: In its new economic forecast, which covers the period from 2021 to 2031, CBO projects that the economic expansion that began in mid-2020 will continue. 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. In CBO’s projections, the unemployment rate gradually declines through 2026, and the number of people employed returns to its prepandemic level in 2024.
    JEL: E20 E23 E60 E62 E66
    Date: 2021–02–01
  9. By: Böhl, Gregor; Goy, Gavin; Strobel, Felix
    Abstract: Did the Federal Reserve's Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, we estimate a large-scale DSGE model over the sample from 1998 until 2020, including data of the Fed's balance sheet. We allow for QE to affect the economy via multiple channels that arise from several financial frictions. Our nonlinear Bayesian likelihood approach fully accounts for the zero lower bound on nominal interest rates. We find that QE increased output by about 1.2 percent, reflecting a net increase in investment of nearly 9 percent accompanied by a 0.7 percent drop in aggregate consumption. Both government bond and capital asset purchases effectively improved financing conditions. Especially capital asset purchases significantly facilitated new investment and increased the production capacity. Against the backdrop of a fall in consumption, supply side effects dominated, leading to a disinflationary effect of about 0.25 percent annually.
    Keywords: Quantitative Easing,Liquidity Facilities,Zero Lower Bound,Nonlinear Bayesian Estimation
    JEL: C62 C63 E32 E58 E63
    Date: 2021
  10. By: Alberto Locarno (Bank of Italy); Alessandra Locarno (Libera Universita Internazionale degli Studi Sociali "Guido Carli")
    Abstract: In this paper we compare alternative monetary policy strategies to assess which one is best suited (1) to reduce output and inflation volatility and at the same time (2) minimise the frequency and costs of ZLB episodes. We consider only targeting rules, i.e. rules that minimise the loss function assigned by the Government to the monetary policymaker, who is assumed to set the policy rate under discretion. We run a horse race among eight different strategies. Our analysis confirms the theoretical findings by Svensson (1999) and Vestin (2006) that price-level targeting can guarantee a better performance than inflation targeting in terms of both of the criteria described above. These findings are valid regardless of whether interest-rate variability is included in the loss function or not and are robust to changes in model parameters. Nominal GDP-level targeting also performs well: though it is not uniformly superior to inflation targeting or average inflation targeting, it succeeds in ensuring better outcomes over a large range of model parameters and social preferences.
    Keywords: E ective lower bound, infl ation targeting, price-level targeting
    JEL: E31 E37 E52 E58
    Date: 2021–02
  11. By: Pablo Hernández de Cos (Banco de España)
    Abstract: The COVID-19 crisis has elicited an immediate and forceful economic policy response. With the height of the crisis behind us, the Governor has set out priority economic measures for the post-lockdown phase. He calls for the urgent launch of an ambitious, comprehensive, permanent and assessable strategy of structural reforms and fiscal consolidation. In this second, gradual-recovery phase, laying the foundations for sustainable and balanced growth will involve the economic policy response combining two objectives: to support the recovery and to provide for structural adjustment. And, in this scenario, public finances sustainability must be ensured. Three elements are needed to boost the credibility and effectiveness of this initial response and of the entire reform strategy. First, the fiscal expansion in the short term should go hand-in-hand with a plan to restore health to public finances in the medium term, once the economy resumes a sound growth path. Second, structural reforms should be expedited so they positively affect spending, investment and hiring decisions in the very short term. And third, political consensus must ensure the durability of the strategy over several legislatures. In the short run, the policies supporting the recovery should be attuned to the health situation and economic circumstances. That will involve maintaining monetary and financial measures geared to preserving appropriate access to financing. It will further entail extending and recalibrating income support and furlough schemes. New measures will also be needed, namely: active labour market and training policies for the unemployed; enhanced business restructuring and insolvency procedures; and a fiscal impulse for the restructuring of the productive system through investment in technological capital, education and training. In the medium term, the Spanish economy’s main challenges will determine the structural reform agenda needed to increase our potential growth over the coming years. The paper details the measures on this agenda in response to each of the challenges identified: i) to improve productivity dynamics (promotion of business dynamics and growth, increased sectoral competition, enhanced human capital and an increase in technological capital); ii) to reduce unemployment and job insecurity (with a lower temporary employment ratio and active labour market policies); iii) to address population ageing (pensions system reform); iv) to bolster inclusion policies (minimum living income and housing affordability); v) to smooth the transition to a more sustainable economy (via fiscal policy and the financial system); vi) to maintain a healthy financial sector; vii) to tackle new challenges (globalisation and digitalisation); viii) to drive forward European governance reform (an appropriate European recovery fund, headway in the fiscal union, Stability and Growth Pact reform, completion of the Banking Union and a genuine Capital Markets Union); and ix) to ensure the sustainability of public finances (an ambitious multi-year fiscal consolidation programme).
    Keywords: post-pandemic scenario, economic policies, strategic priorities, economic recovery, structural adjustment, fiscal consolidation, reform agenda, potential growth, labour market policies, human and technological capital, inclusion policies, sustainable economy, European governance, globalisation, digitalisation
    JEL: E60 E61 E65 E66 E44 E62 E64 E58 J1 J3 J38 I0 I2 F55 I14 I15 Q5
    Date: 2020–09
  12. By: Yeva Nersisyan; L. Randall Wray
    Abstract: Modern Money Theory (MMT) economists have used Japan as an example of a country that demonstrates that high deficits and debt do not lead to insolvency, high interest rates, or inflation. MMT insists that governments that issue their own sovereign currency cannot be forced into insolvency, that they can make all payments as they come due, and that they do not really spend tax revenue or borrow in their own currency--with Japan serving as an example of a country that does not face financial budget constraints as normally defined. In this paper we evaluate whether Japan is the poster child of MMT and argue that policy-wise Japan is not following MMT recommendations; in fact, it is generally adopting policies that are precisely the opposite of those proposed by MMT, consistently adopting the path of stop-go fiscal measures and engaging in inadequate and temporary fiscal stimuli in the face of recessions, followed by austerity whenever the economy has seemed to recover.
    Keywords: Modern Money Theory; Budget Deficits; Sovereign Debt; Japanese Government Debt; MMT Policy
    JEL: E12 E32 E42 E58 H62 H63
    Date: 2021–02
  13. By: Milivojevic, Lazar; Tatar, Balint
    Abstract: This paper examines the effectiveness of labor cost reductions as a means to stimulate economic activity and assesses the differences which may occur with the prevailing exchange rate regime. We develop a medium-scale three-region DSGE model and show that the impact of a cut in employers' social security contributions rate does not vary significantly under different exchange rate regimes. We find that both the interest rate and the exchange rate channel matters. Furthermore, the measure appears to be effective even if it comes along with a consumption tax increase to preserve long-term fiscal sustainability. Finally, we assess whether obtained theoretical results hold up empirically by applying the local projection method. Regression results suggest that changes in employers' social security contributions rates have statistically significant real effects - a one percentage point reduction leads to an average cumulative rise in output of around 1.3 percent in the medium term. Moreover, the outcome does not differ significantly across the different exchange rate regimes.
    Keywords: Structural policies,Labor cost adjustments,Exchange rate regime,Local projection,DSGE
    JEL: C53 C54 E32 E37 E61 E62 F41 F45 F47
    Date: 2021
  14. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
    Abstract: Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy “dominates” monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt.
    JEL: E31 E62
    Date: 2021–02
  15. By: Congressional Budget Office
    Abstract: By the end of fiscal year 2021, federal debt held by the public is projected to equal 102 percent of gross domestic product (GDP). If current laws governing taxes and spending generally remained unchanged, debt would equal 107 percent of GDP in 2031, its highest level in the nation’s history, CBO projects. Growth in outlays would outpace growth in revenues in subsequent decades, leading to growing budget deficits over the long term. As a result, federal debt would continue to increase, exceeding 200 percent of GDP by 2051.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2021–03–04
  16. By: Alisher Tolepbergen (NAC Analytica, Nazarbayev University)
    Abstract: In this paper we study the role of labor market structure and shocks for monetary policy in Kazakhstan employing a New Keynesian model with labor market rigidities. First, we examine to what extent more flexible labor market affects the transmission of monetary policy in the calibrated version of the model. The results show that more flexible wage-setting process improves the transmission mechanism. A monetary policy shock translates faster to inflation. Further, we find that the relevance of other features of labor market for the transmission of monetary policy shocks is limited. Second, we estimate the model using Bayesian techniques to identify labor market shocks that are important for monetary policy making. The estimation results suggest that shocks to the bargaining power of workers explain most of output and inflation fluctuations and thus should be closely monitored by the central bank.
    Keywords: DSGE; labor market; wage rigidity; Bayesian estimation
    JEL: E32 E52 J64 C11
    Date: 2020–12
  17. By: Hinterschweiger, Marc (Bank of England); Khairnar, Kunal (Toulouse School of Economics); Ozden, Tolga (University of Amsterdam); Stratton, Tom (Bank of England)
    Abstract: We develop a two-sector DSGE model with a detailed banking sector along the lines of Clerc et al (2015) to assess the impact of macroprudential tools (minimum, countercyclical and sectoral capital requirements, as well as a loan-to-value limit) on key macroeconomic and financial variables. The banking sector features residential mortgages and corporate lending subject to staggered interest rates à la Calvo (1983), which is motivated by the sluggish movement of lending rates due to fixed interest rate loan contracts. Other distortions in the model include limited liability, bankruptcy costs and penalty costs for deviations from regulatory capital. We estimate the model using Bayesian methods based on quarterly UK data over 1998 Q1–2016 Q2. Our contributions are threefold. We show that: (i) co-ordination of macroprudential tools may have a welfare-improving effect, (ii) macroprudential tools would have improved some macroeconomic indicators but, within our model, not have prevented the Global Financial Crisis, (iii) staggered interest rates may alter the transmission of macroprudential tools that work through interest rates.
    Keywords: Sectoral DSGE model; macroprudential policy; interest rate stickiness
    JEL: E32 E58 G18 G21
    Date: 2021–01–22
  18. By: Pablo Aguilar (Banco de España); Óscar Arce (Banco de España); Samuel Hurtado (Banco de España); Jaime Martínez-Martín (Banco de España); Galo Nuño (Banco de España); Carlos Thomas (Banco de España)
    Abstract: The ECB has responded forcefully to the challenges posed by the COVID-19 crisis for the euro area economy. This paper reviews the different monetary policy measures adopted by the ECB since the COVID-19 outbreak and explains their rationale. It also looks at several analyses of the impact of some of the main measures on both the Spanish economy and that of the euro area as a whole.
    Keywords: European Central Bank, asset purchases, refinancing operations
    JEL: E44 E52 E58
    Date: 2020–10
  19. By: Congressional Budget Office
    Abstract: In CBO’s projections, the federal budget deficit equals $2.3 trillion in 2021 and averages $1.2 trillion per year over the 2022–2031 period, under the assumption that existing laws governing taxes and spending generally remain unchanged. Because of those large deficits, federal debt held by the public is projected to reach 102 percent of GDP at the end of 2021 and 107 percent of GDP, the highest level in the nation’s history, in 2031.
    JEL: E20 E23 E60 E62 E66 H20 H60 H61 H62 H63 H68
    Date: 2021–02–11
  20. By: Christoph Lauper; Giacomo Mangiante
    Abstract: We evaluate household-level inflation rates since 1980, for which we compute various dispersion measures, and we assess their reaction to monetary policy shocks. We find that (i) contractionary monetary policy significantly and persistently decreases inflation dispersion in the economy, and that (ii) different demographic groups are heterogeneously affected by monetary policy. Due to different consumption bundles, lower-income households experience higher average inflation, which at the same time is decreasing more after a contractionary monetary policy shock, leading to an overall convergence of inflation rates between income groups. Finally, these results imply that (iii) consumption and income inequality are significantly different when controlling for different inflation rates.
    Keywords: monetary policy, inflation inequality, redistributional effects
    JEL: E31 E52
    Date: 2021–01
  21. By: David Chaum; Christian Grothoff; Thomas Moser
    Abstract: With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. We do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. We propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preserve transaction privacy, meet regulatory requirements in a compelling way, and offer a level of quantum-resistant protection against systemic privacy risk. Neither monetary policy nor financial stability would be materially affected because a CBDC with this design would replicate physical cash rather than bank deposits.
    Keywords: Digital currencies, central bank, CBDC, blind signatures, stablecoins
    JEL: E42 E51 E52 E58 G2
    Date: 2021
  22. By: Danilo Leiva-Leon (Banco de España); Luis Uzeda (Bank of Canada)
    Abstract: We introduce a new class of time-varying parameter vector autoregressions (TVP-VARs) where the identified structural innovations are allowed to influence the dynamics of the coefficients in these models. An estimation algorithm and a parametrization conducive to model comparison are also provided. We apply our framework to the US economy. Scenario analysis suggests that, once accounting for the influence of structural shocks on the autoregressive coefficients, the effects of monetary policy on economic activity are larger and more persistent than in an otherwise standard TVP-VAR. Our results also indicate that cost-push shocks play a prominent role in understanding historical changes in inflation-gap persistence.
    Keywords: TVP-VAR, state-space, endogeneity, bayesian, monetary policy
    JEL: C11 C32 E31 E52
    Date: 2021–02
  23. By: Hülsewig, Oliver; Rottmann, Horst
    Abstract: This paper examines the reaction of house prices in a panel of euro area countries to monetary policy surprises over the period 2010-2019. UsingJordà's (2005) local projection method, we find that house prices rise in response to expansionary monetary policy shocks that can be related to unconventional monetary policy measures. Thus, monetary policy should take into account the risk of house price fluctuations when implementing new large scale policy interventions.
    Keywords: House price fluctuations,unconventional monetary policy,local projection method
    JEL: E52 E58 E32 G21
    Date: 2021
  24. By: Kevin J. Lansing
    Abstract: This paper develops a real business cycle model with eight fundamental shocks and one ìequity sentiment shockî that captures belief-driven áuctuations. I solve for the time series of shock realizations that allow the model to exactly replicate the observed time paths of U.S. macroeconomic variables and asset returns over the past six decades. The representative agentís perception that movements in equity value are partly driven by sentiment is close to self-fulÖlling. The model-identiÖed sentiment shock is strongly correlated with other fundamental shocks and implies ìpessimismîrelative to fundamental equity value in steady state. Counterfactual scenarios show that the sentiment shock and shocks that appear in the law of motion for capital (representing Önancial frictions) have large impacts on the levels of macroeconomic variables and the size of the equity risk premium. Other shocks have large impacts on the growth rates of macroeconomic variables. Four of the model-identiÖed shocks help to predict the equity risk premium or the bond term premium in the next quarter. Overall, the results support a narrative in which a large number of correlated shocks have combined to deliver the historical outcomes observed in U.S. data.
    Keywords: Belief-driven business cycles; Sentiment; Animal spirits; Risk aversion; Equity risk premium; Bond term premium
    JEL: E32 E44 O41
    Date: 2021–01–11
  25. By: Chudik, A.; Mohaddes, K.; Raissi, M.
    Abstract: This paper uses a threshold-augmented Global VAR model to quantify the macroeconomic effects of countries' discretionary fiscal actions in response to the Covid-19 pandemic and its fallout. Our results are threefold: (1) fiscal policy is playing a key role in mitigating the effects of the pandemic; (2) all else equal, countries that implemented larger fiscal support are expected to experience less output contractions; (3) emerging markets are also benefiting from the synchronized fiscal actions globally through the spillover channel and reduced financial market volatility.
    Keywords: TGVAR, Covid-19, threshold effects, fiscal policy
    JEL: C32 E44 E62 F44
    Date: 2021–02–24
  26. By: Enrique Esteban García-Escudero (Banco de España); Elisa J. Sánchez Pérez (Banco de España)
    Abstract: As the US dollar plays a pivotal role in international trade and financial markets, non-US banks’ reliance on short-term wholesale funding markets (such as repo, commercial paper, certificate of deposit and swap markets) to finance their dollar assets makes them especially vulnerable to shocks in these markets, such as those arising from the global financial and COVID-19 crises. The crisis management mechanisms in place before the global financial crisis (the International Monetary Fund and international reserves) were overwhelmed by it. Only the rapid deployment of an international currency swap network, as a result of policy cooperation between the main global central banks, allowed equilibrium between dollar supply and demand to be restored and the severest consequences of the market strains for non-US banks to be avoided.
    Keywords: central bank swap lines, IMF, International Monetary System, dollar funding, non-US banks, global financial crisis, COVID-19 crisis, cross-currency basis, international lender of last resort
    JEL: E41 E51 E58 F34
    Date: 2020–09
  27. By: Jesús Fernández-Villaverde; Federico Mandelman; Yu Yang; Francesco Zanetti
    Abstract: This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms’ output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong “Matthew effect” that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality.
    Keywords: market concentration, superstar firms, search complementarities, monopsony power in the labor market
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2021
  28. By: Kempkes, Gerhard; Stähler, Nikolai
    Abstract: What are the macroeconomic implications of re-allocating taxing rights away from source countries (where goods are produced) to market countries (where goods are consumed) and introducing minimum rates in international profit taxation? We assess this question in a dynamic macroeconomic model that gives a meaningful role to profit taxation. We find that, in low tax economies, the average profit tax rate will rise. On the one hand, this reduces price competitiveness of firms located in these regions and, thereby, output. On the other hand, higher profit tax revenues help to reduce other taxes. Moreover, lower expected future output requires less capital in production in the long run. Firms hence invest less and (temporarily) augment dividend payments. This raises disposable income of households, who (at least temporarily) increase consumption. The opposite holds for high tax economies. When taxing rights are re-allocated, wealth transfers between regions mitigate these effects. In terms of welfare, low tax economies can benefit from an increase in profit taxation.
    Keywords: Re-Allocating Profit Taxing Rights,Minimum Taxation,InternationalMacro
    JEL: H25 L52 E20 E62 L10
    Date: 2021
  29. By: Juan Ayuso Huertas (Banco de España); Carlos Antonio Conesa Lareo (Banco de España)
    Abstract: This paper provides an overview of the concept of central bank digital currency (CBDC) that may serve as a basis for an ordered discussion and an in-depth analysis of the different relevant aspects in the ongoing debate about this digital financial asset. The primary objective is to review the grounds that could warrant issuing CBDC and undertake a preliminary analysis of its main implications, especially those linked to the CBDC models that seem most likely to be adopted, judging by the motivations of the central banks whose issuance plans are currently most advanced.
    Keywords: central bank digital currency, stablecoins, cryptocurrencies, cryptoassets
    JEL: E42 E52 E58
    Date: 2020–03
  30. By: Ayushi Bajaj; Nikhil Damodaran
    Abstract: Consumer payment choice is based on heterogeneous preferences, availability, usage costs, and effective taxes. We examine the consequences of this choice on consump-tion distribution, aggregate output, welfare and the shadow economy. We employ this framework to analyze India’s unexpected demonetization of 86% of its currency in circulation. We find that this shock to liquidity led to an immediate and temporary fall in aggregate output and welfare. Further, it led to disparate distributional effects as not all consumers could switch to non-cash payments. Using consumption distribu-tion data, we find the lower and middle deciles in rural areas were disproportionately affected.
    JEL: D83 E41 E52 E58 O17
    Date: 2020–12
  31. By: Sangyup Choi (Yonsei Univ); Junhyeok Shin (Yonsei Univ)
    Abstract: During the recent COVID-19 pandemic, many commonalities shared by Bitcoin and gold raise the question of whether Bitcoin can hedge inflation or provide a safe haven as gold often does. By estimating a Vector Autoregression (VAR) model, we provide systematic evidence on the relationship among inflation, uncertainty, and Bitcoin and gold prices. Bitcoin appreciates against inflation (or inflation expectation) shocks, confirming its inflation-hedging property claimed by investors. However, unlike gold, Bitcoin prices decline in response to financial uncertainty shocks, rejecting the safe-haven quality. Interestingly, Bitcoin prices do not decrease after policy uncertainty shocks, partly consistent with the notion of Bitcoin’s independence from government authorities. We also find an interesting asymmetry in the drivers of Bitcoin price dynamics between the bullish and bearish market. The main findings hold with or without the COVID-19 pandemic episode.
    Keywords: Cryptocurrencies; Bitcoin; inflation-hedging; safe-haven; gold; COVID-19
    JEL: E41 E44 F31 G10
    Date: 2021–03
  32. By: William A. Barnett (University of Kansas); Taniya Ghosh (Indira Gandhi Institute of Development Research); Masudul Hasan Adil (Flame University)
    Abstract: We revisit the issue of stable demand for money, using quarterly data for the European Monetary Union, India, Israel, Poland, the UK, and the US. We use the same linear modeling and specification approach that had previously cast doubt on money demand stability. Autoregressive distributed lag (ARDL) cointegration models are used in the study to establish a long-term relationship between real money balances and real output, interest rate, and real effective exchange rate. For all the countries analyzed, evidence of the existence of stable demand for money is found. Broad money in general is better at capturing a stable demand for money than narrow money. The stability results are especially strong, when broad Divisia money is used instead of its simple sum counterpart.
    Keywords: Narrow money demand, broad money demand, simple-sum monetary aggregates, Divisia monetary aggregates, ARDL cointegration approach
    JEL: C23 E41 E52
    Date: 2021–02
  33. By: Jean-Sébastien Fontaine; Corey Garriott; Jesse Johal; Jessica Lee; Andreas Uthemann
    Abstract: Fixed-income markets were disrupted at the beginning of the COVID-19 crisis. We document the sources of this disruption in Canada. As whole industries temporarily shut down, businesses and households ran down their savings or needed credit to survive income losses. As volatility increased, portfolio managers sold securities to manage their leveraged exposures or meet actual and anticipated margin calls and redemption requests. In financial markets, a substantial part of the demand for money came from asset managers. When the dealer arms of commercial banks approached their internal risk limits, the demand for money outpaced their willingness to deal or lend against securities, and trading costs rose in core and peripheral funding markets. The unprecedented scale of interventions by the Bank of Canada and other central banks raises questions that we pose for future policy research. Can central banks’ policies and crisis interventions in financial markets better reflect the growing role that asset managers play in the financial system? And can the structure of financial markets be made less reliant on the capacity of banks to supply money?
    Keywords: Coronavirus disease (COVID-19); Financial markets; Monetary policy
    JEL: D47 E41 E5 G01 G14 G20 G21 G23
  34. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, 69100, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa); Mehmet Balcilar (Eastern Mediterranean University, Famagusta, via Mersin 10, Northern Cyprus, Turkey); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China)
    Abstract: Despite the econometric advances of the last 30 years, the effects of monetary policy stance during the boom and busts of the stock market are not clearly defined. In this paper, we use a structural heterogenous vector autoregressive (SHVAR) model with identified structural breaks to analyze the impact of both conventional and unconventional monetary policies on the U.S. stock market volatility. We find that contractionary monetary policy enhances stock market volatility, but the importance of monetary policy shocks in explaining volatility evolves across different regimes and is relative to supply shocks (and shocks to volatility itself). In comparison to business cycle fluctuations, monetary policy shocks explain a greater fraction of the variance of stock market volatility at shorter horizons, as in medium to longer horizons. Our basic findings of a positive impact of monetary policy on equity market volatility (being relatively stronger during calmer stock markets periods) is also corroborated by analyses conducted at the daily frequency based on an augmented heterogenous autoregressive model of realized volatility (HAR-RV) and a multivariate k-th order nonparametric causality-in-quantiles framework, respectively. Our results have important implications both for investors and policymakers.
    Keywords: Stock Market Volatility, Conventional and Unconventional Monetary Policies, Structural Breaks, Structural Heterogenous Vector Autoregressive Model, Multivariate Nonparametric higher-Order Causality-in-Quantiles Test, Intraday Data
    JEL: C22 C32 E32 E52 G10
    Date: 2021–02
  35. By: Abhiroop Mukherjee (Department of Finance, The Hong Kong University of Science and Technology.); George Panayotov (Department of Finance, The Hong Kong University of Science and Technology.); Janghoon Shon (Department of Finance, The Hong Kong University of Science and Technology.)
    Abstract: We develop an approach to identify whether recent technological advancements – such as the rise of commercial satellite-based macroeconomic estimates – can provide an effective alternative to government data. We measure the extent to which satellite estimates are affecting the value of government macro news using the asset price impact of scheduled announcements. Our identification relies on cloud cover, which prevents satellites from observing economic activity at a few key hubs. Applying our approach, we find that some satellite estimates are now so effective that markets are no longer surprised by government announcements. Our results point to a future in which the resolution of macro uncertainty is smoother, and governments have less control over macro information.
    Keywords: Alternative data, Satellite Imagery, Asset price impact, Macroeconomic Estimates
    JEL: G14 E44
    Date: 2019–10
  36. By: Óscar Arce (Banco de España); Iván Kataryniuk (Banco de España); Paloma Marín (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: The European Union (EU) requires swift, lasting and sufficient action to combat the health and economic crisis triggered by COVID-19. The ECB and EU Council’s responses have been effective in mitigating the short-term impact of the crisis and reducing the risks of it becoming protracted by enabling the Member States (MSs) to mobilise a significant volume of funds. Nevertheless, the scale of the crisis has underlined the absence of key shared economic policy instruments. This article analyses the conditions required for an effective European response to the crisis and its possible consequences in the future. First, the article outlines the basic features which should underpin a recovery strategy based on providing a joint response to common structural challenges (the fight against climate change, digitalisation, higher investment in public health and disease prevention, and a restructuring of broad areas of the productive system) with fresh funds and a renewed reform drive. Second, a design proposal for a “Recovery Fund” is set out. Funds will be mobilised with the twofold objective of maintaining suitable financing conditions for MSs’ sovereign debt (which requires giving the Fund the capacity to purchase government debt securities for an extended period of time) and boosting the financing of specific structural projects aligned with the strategic needs of the EU as a whole. This instrument must be efficient (governed by the principle of a suitable and proportionate use of public funds), show solidarity (by making its funds particularly available to those who most need them), be balanced (by eliminating permanent transfer risks resulting from the opportunistic behaviour of Member States) and have conditions attached to ensure that the funds are used to advance the objectives of the recovery strategy. Insofar as its creation is tied to a medium and long-term European strategy, the Fund’s effectiveness should be geared to covering a very extensive time frame, potentially laying the foundations for a permanent structure. And it should be backed by the EU budget, duly strengthened by additional funds from the MSs and receipts from the future introduction of new EU-wide taxes.
    Keywords: Recovery Fund, sovereign debt, European economic governance, European Union, fiscal policy
    JEL: E02 E62 F55
    Date: 2020–05
  37. By: Glas, Alexander; Müller, Lena
    Abstract: Using novel data on speeches held by members of the European Central Bank's Executive Board, we investigate whether monetary policy transparency has increased over time. With respect to the general public as the target audience, our findings suggest that the European Central Bank successfully improved the frequency and clarity of information provision since its inception. The increase in transparency is gradual, rather than being induced by changes in the Executive Board's composition or major economic events such as the Great Recession. However, the clarity of speeches in recent years is still fairly low. Moreover, our findings indicate that clarity decreased under Christine Lagarde's presidency following the outbreak of the Coronavirus pandemic. We conclude that while the European Central Bank was able to increase transparency over time, further improvements in clarity are required to make monetary policy truly accessible to the broad public.
    Keywords: Central Bank Communication,Monetary Policy Transparency,Clarity,Readability
    JEL: E52 E58
    Date: 2021
  38. By: Vania Stavrakeva; Jenny Tang
    Abstract: This paper presents new stylized facts about exchange rates and their relationship with macroeconomic fundamentals. We show that macroeconomic surprises explain a large majority of the variation in nominal exchange rate changes at a quarterly frequency. Using a novel present value decomposition of exchange rate changes that is disciplined with survey forecast data, we show that macroeconomic surprises are also a very important driver of the currency risk premium component and explain about half of its variation. These surprises have even greater explanatory power during economic downturns and periods of financial uncertainty.
    Keywords: exchange rates; exchange rate disconnect; macroeconomic announcements; international finance; professional forecast
    JEL: E44 F31 G14 G15
    Date: 2020–12–01
  39. By: Christian Abele; Agnes Benassy-Quere; Lionel Fontagné; Lionel Gérard Fontagné
    Abstract: We analyse the impact of both the Global Financial Crisis of 2008 and the European sovereign and banking crisis of 2011-13 on firm-level productivity in France, Italy and Spain. We show that relying on a single break date in 2008 misses both the Eurozone crisis and countries' institutional specificities. Although leverage and financial constraints affect firm-level productivity negatively, high-leverage firms suffer more from financial constraints only in Italy, when they are relatively small or when their debt is of short maturity. These results call for approaches taking into consideration country-level characteristics of financial institutions and time varying financing constraints of the firms, instead of pooling data and adopting a common break date. One size does not fit all when it comes to identifying the impact of financial crises on firm level productivity.
    Keywords: total factor productivity, firm-level data, financial constraints, crises
    JEL: E22 E23 E44 D24
    Date: 2021
  40. By: Chen, Shi; Härdle, Wolfgang Karl; Wang, Weining
    Abstract: Inflation expectation (IE) is often considered to be an important determinant of actual inflation in modern economic theory, we are interested in investigating the main risk factors that determine its dynamics. We fiirst apply a joint arbitrage-free term structure model across different European countries to obtain estimate for country-specific IE. Then we use the two-component and three-component models to capture the main risk factors. We discover that the extracted common trend for IE is an important driver for each country of interest. Moreover a spatial-temporal copula model is tted to account for the non-Gaussian dependency across countries. This paper aims to extract informative estimates for IE and provide good implications for monetary policies.
    Keywords: in ation expectation,joint yield-curve modeling,factor model,common trend,spatial-temporal copulas
    JEL: C02 C13 C38 E31 E43
    Date: 2020
  41. By: Annika Camehl (Erasmus University Rotterdam); Malte Rieth (DIW Berlin (German Institute for Economic Research))
    Abstract: We study the dynamic impact of Covid-19, economic mobility, and containment policy shocks. We use Bayesian panel structural vector autoregressions with daily data for 44 countries, identified through sign and zero restrictions. Incidence and mobility shocks raise cases and deaths significantly for two months. Restrictive policy shocks lower mobility immediately, cases after one week, and deaths after three weeks. Non-pharmaceutical interventions explain half of the variation in mobility, cases, and deaths worldwide. These flattened the pandemic curve, while deepening the global mobility recession. The policy tradeoff is 1 p.p. less mobility per day for 9% fewer deaths after two months.
    Keywords: Epidemics, general equilibrium, non-pharmaceutical interventions, structural vector autoregressions, coronavirus, Bayesian analysis, panel data
    JEL: I18 C32 E32
    Date: 2021–02–24
  42. By: Katuala, Hénock M.
    Abstract: La récente crise financière s’est accompagnée des chocs affectant les marchés interbancaires et immobiliers des économies, suite à quoi, des modèles avec des marchés financiers imparfaits ont été utilisés pour étudier des questions d’actualité importantes (Gerali et al., 2010; Christiano et al., 2010). De ce fait, il a été admis que le développement et les frictions du système financier peuvent avoir un impact décisif sur la croissance économique et sur la stabilité de l’économie (Bernanke et al., 1999; Gertler and Karadi, 2011). En recourant au modèle DSGE de type Néokeynésien pour une petite économie fermée, nous analysons les implications macroéconomiques des chocs affectants le système financier et vérifions la convergence entre les régularités cycliques théoriques et celles empiriques afin de valider le modèle pour le cas de la RDC. Nos résultats attestent que les chocs affectant l’économie réelle exercent une influence sur la dynamique du secteur financier alors que les frictions financières n’ont aucune incidence sur le cadre macroéconomique. Aussi, le recourt au Matching moment nous a permis d’affirmer que les régularités cycliques issues des moments théoriques et empiriques convergent.
    Keywords: Frictions financières; Dynamique macroéconomique; Modèle DSGE Néokeynésien; Régularités cycliques; Comouvements; Volatilité; Persistance
    JEL: C61 E32 E44
    Date: 2021–02
  43. By: Schnabl, Gunther; Murai, Taiki
    Abstract: The bursting of the Japanese bubble economy in the early 1990s put the stage for a lasting lowzero-, and negative-interest rate environment, which fundamentally changed the business environment for the Japanese commercial banks. On the income side, with interest margins becoming increasingly depressed, net interest revenues declined, which forced the banks to expand revenues from fees and commissions. The banks had to cut costs by reducing the number of employees, closing branches and merging into larger banks. The gradual concentration process has most recently cumulated in the relaxation of the monopoly law. With the capital allocation function of banks being undermined, the Japanese economy has become zombified, suffering from anemic growth.
    Keywords: Japan,Bank of Japan,monetary policy,banks,interest margin,financial repression,concentration,regional banks
    JEL: E50 E52 G21
    Date: 2020
  44. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics); Bjerksund, Petter (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We consider a sovereign wealth fund that invests broadly in the international financial markets. The influx to the fund has stopped. We adopt the life cycle model and demonstrate that the optimal spending rate from the fund is significantly less than the fund’s expected real rate of return. The optimal spending rate secures that the fund will last ”forever”. Spending the expected return will deplete the fund with probability one. Moreover, this strategy is inconsistent with optimal portfolio choice. Our results are contrary to the idea that it is sustainable to spend the expected return of a sovereign wealth fund.
    Keywords: Optimal spending rate; endowment funds; expected utility; risk aversion; EIS; recursive utility
    JEL: D51 D53 D90 E21 G10 G12
    Date: 2021–02–04
  45. By: Alisher Tolepbergen (NAC Analytica, Nazarbayev University)
    Abstract: The paper analyzes persistence properties of monthly inflation and its components in Kazakhstan using fractionally integrated approach for the period between February 2001 and June 2020. The results suggest the presence of long memory behavior in inflation series. General inflation, food inflation, and non-food inflation experience a break in late 2015 when the National Bank of Kazakhstan announced a shift in the monetary policy regime. The evidence for the effect of the policy change on inflation persistence is mixed. Non-food inflation is fractionally cointegrated with the nominal depreciation rate. Finally, the estimation of persistence parameter is sensitive to the choice of data frequency.
    Keywords: Inflation; persistence; fractional integration
    JEL: C22 E31
    Date: 2020–09
  46. By: Atkinson, Giles; Hamilton, Kirk
    Abstract: Exhaustible resources and the revenues they generate present a number of broad problems for macroeconomic management. For example, tax revenues can be large and highly volatile, and the stream of revenues is finite. An increasing number of countries now view resource funds and/or fiscal rules for resource revenues as the answer to these challenges. In this paper, we explore the consequences for the UK if past revenues arising from the depletion of subsoil assets had been channelled into a sovereign wealth fund. We show that had a decision been made to establish such a fund in 1975, this could have been substantial in size by 2018 (about GBP 354 billion) and, moreover, would have had a number of benefits such as a reduction in volatility of resource revenues flowing to the Treasury. Crucially, the fund’s value would have substantially boosted the size of the government balance sheet, yielding corresponding fiscal benefits. We argue this missed opportunity is underlined further by considering the current debate about shale gas development in the UK. Notwithstanding considerable un- certainties, favourable and optimistic projections for key parameters are required for any shale-based fund to match what we simulate based on past experience for conventional subsoil assets.
    Keywords: sustainability; resource depletion; sovereign wealth funds
    JEL: E6 R14 J01
    Date: 2020–04–01
  47. By: James M. Nason (North Carolina State University); Gregor W. Smith (Queen's University)
    Abstract: Historians have suggested there were waves of inflation or price revolutions in the UK (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1914. We study retail price inflation since 1251 and model its forecasts. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price-level instability from the beginning of the sample and to provide measures of real interest rates since 1695.
    Keywords: inflation, price revolutions, stochastic volatility, time-varying parameters
    JEL: E31 E37
    Date: 2021–02
  48. By: Martín Almuzara (Federal Reserve Bank of New York); Gabriele Fiorentini (Università di Firenze and RCEA); Enrique Sentana (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our framework to US quarterly data on GDP and GDI, obtaining an improved aggregate output measure.
    Keywords: Cointegration, GDP, GDI, overdifferencing, signal extraction.
    JEL: C32 E01
    Date: 2021–01
  49. By: Gregor Jarosch
    Abstract: Job loss comes with large present value earnings losses which elude workhorse models of unemployment and labor market policy. I propose a parsimonious model of a frictional labor market in which jobs differ in terms of unemployment risk and workers search off- and on-the-job. This gives rise to a job ladder with slippery bottom rungs where unemployment spells beget unemployment spells. I allow for human capital to respond to time spent out of work and estimate the framework on German Social Security data. The model captures the joint response of wages, employment, and unemployment risk to job loss which I measure empirically. The key driver of the “unemployment scar” is the loss in job security and its interaction with the evolution of human capital.
    JEL: E24 J3
    Date: 2021–02
  50. By: Fabio Cerina; Alessio Moro; Michelle Rendall
    Abstract: We document that U.S. employment polarization in the 1980-2017 period is largely generated by women. In addition, we provide evidence that the increase of employ- ment shares at the bottom of the skill distribution are generated in market sectors producing services representing home production substitutes. We then show that a canonical model of skill-biased technological change augmented with a gender dimen- sion, an endogenous market/home labor choice and a two-sector market environment accounts well for gender, sectoral and overall employment polarization. Counterfactual experiments suggest that without the large increase in the skill premium of high-skilled women, employment polarization would have been substantially reduced, and changes of employment shares at the bottom of the distribution would have been negative.
    Keywords: Employment Polarization, Gender, Skill Premium, Home Production.
    JEL: E20 E21 J16
    Date: 2020–12
  51. By: Taniya Ghosh (Indira Gandhi Institute of Development Research); Prashant Mehul Parab (Indira Gandhi Institute of Development Research)
    Abstract: The study evaluates the role of R&D, human capital, and technology spillovers in influencing India's long-run productivity growth. The primary contributions of the article are: (1) analyzing the applicability of various endogenous growth models in the Indian context, while only R&D driven endogenous growth models have been studied so far, (2) highlighting the role of technology spillovers through FDI and import channels in affecting India's productivity at the aggregate level, as opposed to the existing industry level analysis and, (3) the first study to identify the potential non-linear effects of the variables of interest. The main findings are: (a) FDI and human capital influence India's long-term productivity growth, while R&D based models or technology spillovers via the import channel show mixed evidence of support, (b) the decline in FDI has had a more adverse effect on the economy than the positive effect of increased FDI. Therefore, sustained increase in human capital and FDI is recommended.
    Keywords: Asymmetries, Endogenous growth, R&D, Human capital, FDI, Technology spillovers
    JEL: C5 C6 E3 E61
    Date: 2021–02
  52. By: Giovanni Caggiano; Efrem Castelnuovo
    Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.
    Keywords: Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier
    JEL: C32 E32
    Date: 2021
  53. By: Bodenstein, M.; Corsetti, G.; Guerrieri, L.
    Abstract: Based on a standard epidemiological model, we derive and apply empirical tests of the hypothesis that contacts, as proxied by mobility data, have an effect on the spread of the coronavirus epidemic, as summarized by the reproduction rates, and on economic activity, as captured by subsequent initial claims to unemployment benefits. We show that changes in mobility through the first quarters of 2020, be it spontaneous or mandated, had significant effects on both the spread of the coronavirus and the economy. Strikingly, we find that spontaneous social distancing was no less costly than mandated social distancing. Our results suggest that the rebound in economic activity when stay-at-home orders were lifted was primarily driven by the improvement in epidemiological parameters. In other words, without the reduction in the reproduction rate of the coronavirus, we could have expected a doubling down on spontaneous social distancing.
    Keywords: infectious disease, epidemic, recession, COVID-19
    JEL: E10 E30 I10
    Date: 2021–02–25
  54. By: Kukacka, Jiri; Sacht, Stephen
    Abstract: This paper offers a simulation-based method for the estimation of heuristic switching in nonlinear macroeconomic models. Heuristic switching is an important feature of modeling strategy since it uses simple decision rules of boundedly rational heterogeneous agents. The simulation study shows that the proposed simulated maximum likelihood method identifies the behavioral effects that stay hidden for standard econometric approaches. In the empirical application, we estimate the structural and behavioral parameters of the US economy. We are especially able to reliably identify the intensity of choice that governs the models' nonlinear dynamics.
    Keywords: Behavioral Heuristics,Heuristic Switching Model,Intensity of Choice,Simulated Maximum Likelihood
    JEL: C53 D83 E12 E32
    Date: 2021
  55. By: Alexis Marchal (EPFL; SFI)
    Abstract: I propose a new tool to characterize the resolution of uncertainty around FOMC press conferences. It relies on the construction of a measure capturing the level of discussion complexity between the Fed Chair and reporters during the Q&A sessions. I show that complex discussions are associated with higher equity returns and a drop in realized volatility. The method creates an attention score by quantifying how much the Chair needs to rely on reading internal documents to be able to answer a question. This is accomplished by building a novel dataset of video images of the press conferences and leveraging recent deep learning algorithms from computer vision. This alternative data provides new information on nonverbal communication that cannot be extracted from the widely analyzed FOMC transcripts. This paper can be seen as a proof of concept that certain videos contain valuable information for the study of financial markets.
    Keywords: FOMC, Machine learning, Computer vision, Alternative data, Asset pricing, Equity premium.
    JEL: C45 C55 C80 E58 G12 G14
    Date: 2021–03
  56. By: Calista Cheung; Jerome Lyons; Bethany Madsen; Sarah Miller; Saarah Sheikh
    Abstract: We construct an index that systematically measures and tracks the stringency of government policy responses to the COVID-19 pandemic across Canadian provinces. Researchers can use this stringency index to analyze how the pandemic is affecting the economy.
    Keywords: Business fluctuations and cycles; Coronavirus disease (COVID-19); Domestic demand and components; Recent economic and financial developments; Regional economic developments
    JEL: E20 H7 I18 R1
    Date: 2020–02
  57. By: Britta Gehrke (Universitat Rostock & IAB); Jacob Wong (School of Economics, University of Adelaide)
    Abstract: This paper documents observations about the duration of jobs created by establishments at various points along an establishment age curve. Using an employer-employee matched dataset from Germany, we observe a checkmark-shaped relationship between expected job duration and establishment age at the time of job creation. A simple frictional labour market model with two-sided heterogeneity featuring on-the-job search, a simple learning mechanism about worker ability and a life cycle productivity profile for firms is built to frame a discussion around the empirical finding. The model's mechanical job-ladder is shown to be able to produce such stylized correlations.
    Keywords: job duration,firm age, frictional labour markets
    JEL: E24 J63 J64
    Date: 2021–03
  58. By: Christian Conrad (Heidelberg University, Germany; KOF Swiss Economic Institute, Switzerland; Rimini Centre for Economic Analysis); Zeno Enders (Heidelberg University, Germany; CESifo); Alexander Glas (FAU Erlangen-Nürnberg, Germany)
    Abstract: Based on a new survey of German households, we investigate the role that information channels and lifetime experience play in households' inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socioeconomic characteristics. These information channels, in turn, have a major influence on the level of perceived past and expected future inflation, as well as on the uncertainty thereof. The expected future change in inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their ‘economic model’ is shaped by experience.
    Keywords: household expectations, inflation expectations, experience, information channels, Bundesbank household survey
    JEL: E31 D84 E71
    Date: 2021–02
  59. By: Schmidt, Kirsten; Noth, Felix; Tonzer, Lena
    Abstract: Unconventional monetary policy measures like asset purchase programs aim to reduce certain securities' yield and alter financial institutions' investment behavior. These measures increase the institutions' market value of securities and add to their equity positions. We show that the extent of this recapitalization effect crucially depends on the securities' accounting and valuation methods, country-level regulation, and maturity structure. We argue that future research needs to consider these factors when quantifying banks' recapitalization effects and consequent changes in banks' lending decisions to the real sector.
    Keywords: Unconventional monetary policy,security valuation,capital regulation
    JEL: G21 G28 E52 E58
    Date: 2021
  60. By: Roberto Blanco (Banco de España); Sergio Mayordomo (Banco de España); Álvaro Menéndez (Banco de España); Maristela Mulino (Banco de España)
    Abstract: The COVID-19 pandemic is exerting an unprecedented adverse impact on economic activity and, in particular, on firms’ income. In some cases this means firms’ income is insufficient to meet payments to which they have committed. This article presents the results of an exercise simulating Spanish non-financial corporations’ liquidity needs for the four quarters of this year. The needs derive both from the possible shortfalls caused by developments in operating activity, and from investments in fixed assets and debt repayments. According to the results, these liquidity needs, between April and December, might exceed €230 billion. It is estimated that, through the public guarantee programmes for lending to firms, almost three-quarters of this shortfall might be covered. To finance the remainder, companies could use their liquidity buffers and/or resort to new debt without public guarantee. In this respect, it should be borne in mind that, in recent months, firms with better access to credit have managed to raise a high volume of funds without resorting to public guarantees. Further, despite the unprecedented fall in business turnover, it is estimated that a significant percentage of companies (more than 40%) would be able to withstand this situation without undergoing a deterioration in their financial position. However, at the remaining companies, the fall-off in activity would have led to significant increases in their level of financial vulnerability, more sharply within the SME segment and especially among the firms in the sectors most affected by the pandemic, such as tourism and leisure, motor vehicles, and transport and storage.
    Keywords: COVID-19, firms’ liquidity needs, credit, guarantees, insolvency risk
    JEL: E51 E52 G21
    Date: 2020–08
  61. By: Anjan K. Saha; Vinod Mishra; Russell Smyth
    Abstract: We use instrumental variable regression to isolate the causal impact of financial development on top income shares a panel of 14 OECD countries - five Anglo-Saxon countries, eight continental European countries and Japan - over a 110-year period. Our main finding is that financial development has a significant positive effect on top income shares, and that the most affluent are the biggest beneficiaries of financial development. In distribution terms, a onestandard-deviation increase in the private credit-GDP ratio corresponds to around a onestandard-deviation increase in the top 1% income share, with the top 1% income group deriving more benefits from financial development than the top 5%, and the top 5% deriving more benefit than the top 10%. The effects are robust to various measures of top income shares and financial development and alternative estimation techniques, including nonparametric modelling. Financial development is typically viewed in positive terms in that it makes it easier to access credit and facilitates economic growth. Our results are important because they contribute to understanding of the potential negative effects of financial development.
    Keywords: Financial development; top income shares.
    JEL: O15 O50 G00 E62
    Date: 2019–06
  62. By: R. Nagaraj (Indira Gandhi Institute of Development Research); Amey Sapre (National Institute of Public Finance and Policy); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: In 2015, with the release of the 2011-12 base-year GDP series the Central Statistical Office (CSO) substantially revised the way GDP is calculated in India. According to the new series, India is the fastest growing large economy in the world. Other trusted measures of the state of the economy convey a discordant picture. This discrepancy has led to an active debate over the last few years. Numerous studies by academic scholars have identified, analysed and documented the problems with the kind of data used in the new series as well as with the specific methodologies applied. The criticisms have cast persistent doubts on the new GDP series and have dented the credibility of India's National Accounts Statistics. The debate seems at an impasse. In this study we provide a comprehensive summary of the issues surrounding the new GDP series as highlighted by the academic experts and outline recommendations about a possible way forward to resolve India's GDP data crisis.
    Keywords: GDP measurement, National Accounts Statistics, National Income, Manufacturing, Gross Value Added, Base year revision
    JEL: E01 E11
    Date: 2021–02
  63. By: Fabio Cerina; Alessio Moro; Michelle Rendall
    Abstract: We compare employment and wage polarization in the U.S. using different sample periods, occupations classification and the inclusion or not of agricultural occupations. We report two main findings. First, we show that employment polarization can emerge together or without wage polarization, depending on the sample period considered. Second, we show that removing agricultural occupations changes the timing of employment polarization, making it emerge earlier, and substantially increases the degree of both employment and wage polarization with respect to the case in which they are included in the sample.
    Keywords: Employment Polarization; Wage Polarization; Agricultural Occupations.
    JEL: E20 E21 J16
    Date: 2020–12
  64. By: Jacopo Bonchi (LUISS); Giacomo Caracciolo (Bank of Italy)
    Abstract: The natural interest rate is the level of the real interest rate compatible with potential output and stable prices. We develop a life-cycle model and calibrate it to the US economy to quantify the role of the public pension scheme for the past and future evolution of the natural interest rate. Between 1970 and 2015, the pension reforms have overall mitigated the secular decline in the natural interest rate, raising it by around one percentage point and thus counteracting the downward pressure from adverse demographic and productivity patterns. As regards the future, we simulate the effects of the demographic trends, expected between 2015 and 2060, combined with alternative pension reforms and productivity growth scenarios. We rank the different policy options according to a welfare criterion and study the implications for the natural interest rate. A reduction in the replacement rate outperforms, in terms of welfare, an increase in the contribution rate in the “normal growth” scenario and vice versa in the “stagnant growth” case.
    Keywords: natural interest rate, pensions, population ageing, secular stagnation, demography, social security
    JEL: E60 H55
    Date: 2021–02
  65. By: Jakob B. Madsen; Antonio Minniti; Francesco Venturini
    Abstract: The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggests that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long-run implications of the model using annual data for 21 OECD countries over the period 1890-2015. We find that corporate taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance the investment in R&D. Thus, a revenue-neutral switch from corporate to personal income taxes is growth enhancing.
    Keywords: taxation, innovation, Tangible and Intangible Capital, economic growth
    JEL: E10 E62 O38 O40
    Date: 2021–02
  66. By: Christoph Peatz (Macroeconomic Policy Institute (IMK))
    Abstract: I estimate fiscal reaction functions to analyze the cyclical behavior of discretionary measures in the euro area and the potential impact of changes in the fiscal framework. The core is to analyze whether fiscal rules have an asymmetric impact on discretionary measures over the cycle. First, results confirm the general perception that overall discretionary fiscal policy in the EMU is marginally procyclical. Procyclicality is, however, characterized by strong fiscal tightening in contractions while reactions in upturns are neutral. Second, fiscal rules marginally increase countercyclical policy responses in upturns, but strongly reinforce destabilizing procyclical polices in downturns. Interestingly, expenditure rules perform comparably better with regard to the stabilization objective than budget or debt rules.
    Keywords: Fiscal rules, fiscal reaction, fiscal cyclicality, debt sustainability, EMU
    JEL: E6 H11 H6
    Date: 2020
  67. By: Pablo Garcia
    Abstract: I present a New Keynesian model in which the central bank’s anti-inflationary preferences change over time. Agents do not observe the current monetary regime, but rationally learn about it using Bayes theorem. The model provides a structural interpretation for the contractionary effects of monetary policy uncertainty shocks as recently documented in the empirical literature. In addition, the model shows that learning reduces the effects of monetary policy on the economy by softening the link between fundamentals and equilibrium prices and allocations.
    Keywords: C11, D83, E52
    JEL: C11 D83 E52
    Date: 2021–02
  68. By: Juan Gonzalo Zapata; Bárbara Silva; Manuel Molina
    Abstract: La asesoría de Fedesarrollo a la Secretaría de Hacienda del Chocó tuvo como fin entregar un análisis de las finanzas departamentales, de las condiciones del mercado de licores y en especial del aguardiente y, la estructura normativa de dicho mercado. Esto con el fin de encontrar las mejores condiciones para maximizar en el largo plazo los ingresos por el monopolio rentístico de licores. En primer lugar, se hizo una revisión de la legislación sobre el monopolio rentístico y de los antecedentes del Chocó en la explotación del monopolio en la última década. Segundo, se describió el mercado de licores en Colombia en la última década, con énfasis en los patrones consumo del departamento. En la tercera parte se analiza la situación fiscal del Chocó y la importancia de los licores en sus finanzas públicas. En la cuarta parte se realiza una estimación potencial de la utilidad que podría recibir el Chocó de acuerdo a varios escenarios. Para tal fin se hizo un análisis de sensibilidad que nos dice cuanto dinero recibe el departamento por cada mil pesos vendidos en aguardiente en cada uno de los escenarios diseñados. En conclusión, el Chocó puede incrementar sus ingresos por el monopolio de licores si hace una buena propuesta a los comercializadores y logra acordar un buen precio por la maquila del producto.
    Keywords: Legislación sobre el Monopolio de Licores, Monopolio de Licores, Mercado de Licores, Mercado de la Cerveza, Contrabando, Licores, Cerveza, Finanzas Públicas, Situación Fiscal, Finanzas Departamentales, Bebidas Alcohólicas, Chocó, Colombia
    JEL: E60 E26 D42 L66
    Date: 2020–12–31
  69. By: Horan, David (Central Bank of Ireland); Lydon, Reamonn (Central Bank of Ireland); McIndoe-Calder, Tara (Central Bank of Ireland)
    Abstract: The distribution of wealth, incomes and spending is crucial to understanding the differential impacts of econmic shocks and recoveries across households. Household wealth in Ireland increased by over 76,000 euro, or 74 per cent, for the median household between 2013 and 2018. House price growth and declining mortgage debt were the primary drivers of this development. Median incomes grew by more than 18 per cent, while wealth inequality – as measured by the gini coefficient – fell over the five year period. The decline in the number of negative equity households – down from 33 to 4 per cent of mortgaged households – is one driver of the fall in inequality. Home ownership has fallen slightly from 2013, and the age at which households take out their first mortgage has risen. Despite wealth in 2018 exceeding the previous peak in 2007, most households are not using this wealth to fund spending or further housing investment, as was previously the case. We find that the household sector continues to inject housing equity at a rate of 10 per cent of disposable income, reflecting, amongst other factors, the continued repayment of mortgage debt taken out at the height of the credit boom in the mid-2000s.
    Keywords: Wealth distribution; Consumption, savings and wealth; Household finance.
    JEL: D31 E21 G5
    Date: 2020–09
  70. By: Ranjan Ray; Parvin Singh
    Abstract: The period spanned by the last decade of the 20th century and the first decade of the 21st century has been characterised by political and economic developments on a scale rarely witnessed before over such a short period. This study on inequality within and between countries is based on a data set constructed from household unit records in over 80 countries collected from a variety of data sources and covering over 80 % of the world’s population. The departures of this study from the recent inequality literature include its regional focus within a ‘world view’ of inequality leading to evidence on difference in inequality magnitudes and their movement between continents and countries. Comparison between the inequality magnitudes and trends in three of the largest economies, China, India, and the USA is a key feature of this study. The use of household unit records allowed us to go beyond the aggregated view of inequality and provide evidence on how household based country and continental representations of the income quintiles have altered in this short period. A key message of this exercise in that, in glossing over regional differences, a ‘global view’ of inequality gives a misleading picture of the reality affecting individual countries located in different continents and with sharp differences in their institutional and colonial history. In another significant departure, this study compares the intercountry and global inequality rates between fixed and time varying PPPs and reports that not only do the inequality magnitudes vary sharply between the two but, more significantly, the trend as well. For example, the consensus on decline in global inequality based on time invariant PPPs is not sustained once we move to time varying PPPs as suggested by the ‘Penn effect’.
    Keywords: PPP, Gini Coefficient, Income Inequality, Global Income Shares, Penn effect.
    JEL: E01 E13 E31 F15 F61 F63 I31 O15
    Date: 2019–06
  71. By: António Afonso; Florence Huart; João Tovar Jalles; Piotr Stanek
    Abstract: We analyse the international transmission of interest rates by focusing on the role of the accumulation of international reserves and on the financing of sovereign debt. An increase in foreign exchange reserves is expected to moderate the influence of U.S. interest rates. However, a high level of government debt raises the sovereign risk premium. Moreover, an increase in the stock of government debt denominated in foreign currency may increase the expected rate of depreciation of the domestic currency. We explain the theoretical mechanisms in a model, which describes the money market equilibrium in an economy with capital account openness. Then, we test the predictions of the model for a panel of advanced and developing economies over the period 1970-2018. Our main findings are: i) significant spillovers from the U.S. interest rates to other countries, mostly for Advanced Economies; ii) a dampening effect of the share of external liabilities in the domestic currency, clearly a determinant of risk premium; iii) a negative effect of international reserves on interest rates, as expected; iv) higher reserves decrease risk premia, for long-term interest rates; v) the significance of spillovers fades once the sovereign debt reaches 100% of GDP in developed countries.
    Date: 2021
  72. By: Gründler, Klaus; Krieger, Tommy
    Abstract: We provide a comprehensive overview of the literature on the measurement of democracy and present an extensive update of the Machine Learning indicator of Gründler and Krieger (2016, European Journal of Political Economy). Four improvements are particularly notable: First, we produce a continuous and a dichotomous version of the Machine Learning democracy indicator. Second, we calculate intervals that reflect the degree of measurement uncertainty. Third, we refine the conceptualization of the Machine Learning Index. Finally, we largely expand the data coverage by providing democracy indicators for 186 countries in the period from 1919 to 2019.
    Keywords: Data aggregation,Democracy indicators,Machine Learning,Measurement Issues,Regime Classifications,Support Vector Machines
    JEL: C38 C43 C82 E02 P16
    Date: 2021
  73. By: Gabriel Smagghue
    Abstract: I develop an extension of the neoclassical growth model in which firms are heterogeneous both in terms of labor share and productivity. In this model, distortions in the allocation of resources across firms can impact the labor share of national income. Using administrative firm-level data to calibrate the model, I show in particular that a removal of policies reducing the output price of more productive firms can generate a sizable decrease in the aggregate labor share (between 1 and 4 percentage points). My results suggest that the recent decline in the global labor share of income is both qualitatively and quantitatively consistent with an improvement in resource allocation across firms.
    Keywords: Labor Share; Size-based Policy; Productivity-based Policy; Resource Misallocation; Heterogeneous Labor Intensity.
    JEL: E23 E25 H23 J23
    Date: 2021
  74. By: Aydın, Deniz
    Abstract: I design a large-scale field experiment that constructs a randomized credit limit extension isolating selection, anticipation, wealth, and interest rate effects and study the impulse responses on spending, contract choice, and balance sheets. Participants borrow to spend 11 cents on the dollar in the quarter of the limit increase, with a cumulative difference of 28 cents by the third year. The effects extend to those far from the limit, those who had the new limits as available credit, and those with a meaningful buffer of liquid assets. Participants near their limits borrow and spend when limits are relaxed but put off spending and save out of constraints under the counterfactual when limits are tight. The findings provide strong support for a buffer-stock interpretation that emphasizes the importance of precautionary saving.
    Keywords: consumption,credit,MPC,randomized field experiment,precautionary saving
    JEL: D15 E21 E51 H31
    Date: 2021
  75. By: Gaetano Gaballo; Guillermo Ordoñez
    Abstract: In absence of insurance contracts to share risk, public information is a double-edged sword. On the one hand, it empowers self-insurance as agents better react to shocks, reducing risk. On the other hand, it weakens market-insurance as common knowledge of shocks restricts trading risk. We embody these two faces of information in a single general-equilibrium model. We characterize the conditions under which market-insurance is superior, and then public information – even though costless and precise – is socially undesirable. In the absence of information, however, market-insurance is still underprovided as individuals fail to internalize its general equilibrium benefits.
    JEL: D52 D53 D62 D8 E21 G11 G12 G14
    Date: 2021–02
  76. By: Harrison, Richard (Bank of England); Waldron, Matt (Bank of England)
    Abstract: This paper develops a piecewise linear toolkit for optimal policy analysis of linear rational expectations models, subject to occasionally binding constraints on (multiple) policy instruments and other variables. Optimal policy minimises a quadratic loss function under either commitment or discretion. The toolkit accounts for the presence of ‘anticipated disturbances’ to the model equations, allowing optimal policy analysis around scenarios or forecasts that are not produced using the model itself (for example, judgement-based forecasts such as those often produced by central banks). The flexibility and applicability of the toolkit to very large models is demonstrated in a variety of applications, including optimal policy experiments using a version of the Federal Reserve Board’s FRB/US model.
    Keywords: Optimal policy; commitment; discretion; occasionally binding constraints
    JEL: C61 C63 E61
    Date: 2021–02–26
  77. By: Eduardo Bandrés (Universidad De Zaragoza Y Funcas); María-Dolores Gadea (Universidad De Zaragoza); Ana Gómez-Loscos (Banco De España)
    Abstract: El análisis del ciclo regional en España pone de relieve la existencia de una elevada coherencia en la trayectoria de la mayor parte de las regiones, pero también permite detectar comportamientos singulares, que, en su mayor parte, condicionan la duración e intensidad de las recesiones. Son estas singularidades las que aconsejarían completar las políticas de ámbito nacional con actuaciones específicas dirigidas a determinados territorios. Este trabajo adopta dos enfoques complementarios para datar y analizar el ciclo regional: el primero usa un indicador agregado de carácter anual, como el PIB, para el que se dispone de una serie larga y permite contextualizar los aspectos de más largo plazo, mientras que el segundo utiliza un conjunto de indicadores específicos mensuales para un período más reciente y proporciona una caracterización más precisa del ciclo de referencia.
    Keywords: ciclos regionales, sincronización, clusters
    JEL: C32 E32 R11
    Date: 2021–02
  78. By: Eduardo Bandrés (Universidad De Zaragoza Y Funcas); María-Dolores Gadea (Universidad De Zaragoza); Ana Gómez-Loscos (Banco De España)
    Abstract: The analysis of the regional business cycles in Spain highlights a high degree of similarity in the developments of most regions, but also shows idiosyncratic behaviour that mainly affects the duration and intensity of recessions. Such idiosyncratic behaviour would advise complementing national policies with specific policies aimed at certain territories. This paper adopts two complementary approaches in order to comprehensively date and analyse regional business cycles: the first uses an annual aggregate indicator such as GDP, for which a long series is available; the second focuses on a set of specific monthly indicators for a more recent period and provides a more accurate characterisation of the reference cycle.
    Keywords: regional cycles, synchronisation, clusters
    JEL: C32 E32 R11
    Date: 2021–02
  79. By: Hashimoto, Ken-ichi; Ono, Yoshiyasu; Schlegl, Matthias
    Abstract: In this paper, we show that underemployment and not necessarily high unemployment becomes the main measure of economic slack under secular stagnation. Specifically, persistent underemployment occurs in the search and matching model, provided that households derive utility from holding wealth, and quickly dominates the total employment gap under stagnation. Wage and cost shocks can explain movements of unemployment and underemployment in opposite directions, while demand and supply shocks cause co-movements. Our analysis provides new insights into empirical puzzles such as Japan's seemingly decent employment record and the absence of wage pressures despite low unemployment rates after the Great Recession.
    Date: 2020–05
  80. By: Toshiki Miyashita (Graduate School of Economics, Osaka University); Kohei Okada (Graduate School of Economics, Osaka University); Kei Takakura (Graduate School of Economics, Osaka University)
    Abstract: Employing an overlapping-generations model with endogenous education choice and corruption, we investigate how child labor and corruption influence human capital accumulation and development. We show that multiple steady-states exist in the economy. One steady-state has a high level of human capital, and the other has a low level of human capital. In the steady-state with a low level of human capital, child labor and corruption exist and welfare is low. In the steady-state with a high level of human capital, child labor and corruption are diminished and welfare is high. In addition, we show that it is dicult to steer an economy away from a poverty trap with child labor and corruption because bureaucrats of the current generation are opposed to policy changes such as reinforcement of monitoring and penal regulations. However, we can apply the Pareto-improving policy to this poverty trap, for e.g., the government receives funds from an international organization and distributes them among bureaucrats, which keeps them from being corrupt.
    Keywords: Child labor, corruption, human capital accumulation, development
    JEL: D73 E24 I25 J13
    Date: 2021–01
  81. By: Pauls, Thomas
    Abstract: We conducted a large-scale household survey in November 2020 to study how altering the time frame of a message (temporal framing) regarding an imminent positive income shock affects consumption plans. The income shock derives from the abolishment of the German solidarity surcharge on personal income taxes, effective in January 2021. We randomize across survey participants whether their extra disposable income is presented in Euros per month, Euros per year, or Euros per ten year-period. Our main findings are as follows: In General, we find our respondents' intended Marginal Propensity to Consume (MPC) is 28.2%. Across all three treatments, the MPC is a positive function of age and being female while it is a negative function of the income increase's size, self- control, and being unemployed. Temporal framing effects are statistically and economically highly significant as we find the monthly treatment groups' average MPC 5.6 and 8.7 percentage points higher compared to the yearly and 10-yearly treatment groups. We will be able to analyze the real consumption behavior of households throughout 2021 based on re-surveying the participants as well as by using transaction-based bank data.
    Keywords: behavioral economics,saving,marginal propensity to consume,tax intervention,tax cut
    JEL: E2 E6
    Date: 2021
  82. By: Roberto Ganau; Andres Rodriguez-Pose;
    Abstract: This paper uses a novel, globally-harmonised city-level dataset —with cities defined at the Functional Urban Area (FUA) level— to revisit the link between urban concentration and country-level economic dynamics. The empirical analysis, involving 108 low- and high-income countries, examines how differences in urban concentration impinge on changes in employment, Gross Domestic Product (GDP) per capita, and labour productivity at country level over the period 2000-2016. The results indicate that urban concentration reduces employment growth but increases GDP per capita and labour productivity growth. The returns of urban concentration are higher for high- than for low-income countries and are mainly driven by the ‘core’ of FUAs, rather than by sub-urban areas.
    Keywords: Urban concentration; Long-run economic dynamics; Employment growth; GDP per capita growth; Labour productivity growth; Cross-country analysis
    JEL: E24 O47 O57 R12
    Date: 2021–02
  83. By: Georgiadis, Georgios; Hildebrand, Sebastian; Ricci, Martino; Schumann, Ben; van Roye, Björn
    Abstract: In a highly interlinked global economy a key question is how foreign shocks transmit to the domestic economy, how domestic shocks affect the rest of the world, and how policy actions mitigate or amplify spillovers. For policy analysis in such a context global multi-country macroeconomic models that allow a structural interpretation are needed. In this paper we present a revised version of ECB-Global, the European Central Bank's global macroeconomic model. ECB-Global 2.0 is a semi-structural, global multi-country model with rich channels of international shock propagation through trade, oil prices and global financial markets for the euro area, the US, Japan, the UK, China, oil-exporting economies, Emerging Asia, and a rest-of-the-world block. Relative to the original version of model, ECB-Global 2.0 features dominant-currency pricing, tariffs and trade diversion. We illustrate the usefulness of ECB-Global exploring scenarios motivated by recent trade tensions between China and the US. JEL Classification: C51, E30, E50
    Keywords: macro-modelling, multi-country models, spillovers
    Date: 2021–03
  84. By: Forsythe, Eliza (University of Illinois at Urbana-Champaign); Weinstein, Russell (University of Illinois at Urbana-Champaign)
    Abstract: We investigate employer recruiting behavior, using detailed firm-level data from a national survey of employers hiring recent college graduates. We show employers adjust recruiting effort, hiring standards, and compensation with the business cycle, beliefs about tightness, and their own hiring plans. We then show that firms expending greater recruiting effort hire more individuals per vacancy. The results suggest that when firms want to increase hires they adjust vacancies and recruiting intensity per vacancy, which may help explain the breakdown in the standard matching function during the Great Recession. Our measure of recruiting effort explains roughly 16% of the residual elasticity of the vacancy yield with respect to hires.
    Keywords: recruiting intensity, vacancy yield, labor market search and matching, recent college graduates
    JEL: J63 D20 E24
    Date: 2021–02
  85. By: Kim, Minseong
    Abstract: New Keynesian models assume that inflation rate and output level are endogenous variables. However, given that firms are price setters and suppliers in the models, it is more reasonable to assume that, absent equilibrium coordination (or tatonnement) issues usually abstracted away, both variables actually are state variables determined by expectations in the past. This secures global equilibrium determinacy and a previously unavailable account of inflation rate for New Keynesian models. Furthermore, the principle of effective demand is implemented via the expectation channel.
    Date: 2021–02–14
  86. By: Philippe Goulet Coulombe; Massimiliano Marcellino; Dalibor Stevanovic
    Abstract: Based on evidence gathered from a newly built large macroeconomic data set for the UK, labeled UK-MD and comparable to similar datasets for the US and Canada, it seems the most promising avenue for forecasting during the pandemic is to allow for general forms of nonlinearity by using machine learning (ML) methods. But not all nonlinear ML methods are alike. For instance, some do not allow to extrapolate (like regular trees and forests) and some do (when complemented with linear dynamic components). This and other crucial aspects of ML-based forecasting in unprecedented times are studied in an extensive pseudo-out-of-sample exercise.
    Keywords: Machine Learning,Big Data,Forecasting,COVID-19,
    JEL: C53 C55 E37
    Date: 2021–03–02
  87. By: Long Hai Vo (Economics Department, Business School, The University of Western Australia; Research Center in Business, Economics and Resources, HCMC Open University; Faculty of Banking, Finance and Business Administration, Quy Nhon University)
    Abstract: This study proposes a new measure of the tradability of 120+ commodities based on price dispersion. This approach is used to construct price indices of tradables and non-tradables for 150+ countries. The expenditure share of tradables is lower for richer countries, while the relative price of non-tradables, which plays an important role in the determination of real exchange rates, is higher. Secondly, a common-factor approach (based on principal components) is introduced to compress the large volume of information on prices and quantities consumed globally. We find that cross-commodity correlations are higher for prices than for consumption. In addition, income is responsible for 98% of the variation in the first principal component of consumption but explains only 24% of the first price component. This suggests consumption are driven primarily by domestic factors, while prices are determined by factors outside the country, along the lines of the Purchasing Power Parity theory.
    Keywords: Economic measurement; Price and consumption; Principal component analysis; Tradability
    JEL: F40 E01 C43
    Date: 2021
  88. By: Samira Hellou
    Abstract: The development of financial markets and banking activity coupled with the strengthening of banking regulations has largely affected the new structure of external financing of emerging countries. Indeed, the financial markets influence the behavior of international banks in a context of regulatory strengthening which implies a contraction of the bank flows volume and a decrease in the maturity of these flows. The empirical results, for 37 emerging countries, confirm that financial markets have influenced differently the volume and the term structure of bank flows from developed to emerging countries according to the regulatory context.
    Keywords: Financial markets, Banking flows, Emerging countries
    JEL: E22 O16 G11
    Date: 2021
  89. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Maria Malmierca
    Abstract: This paper investigates the degree of persistence of the private debt-to-GDP ratio in 43 OECE countries by estimating the fractional integration parameter of each series. Almost all of them are found to be highly persistent, with orders of integration around or above 1. The only exception is Argentina, where the series appears to be mean-reverting. These results highlight the key importance of macroprudential policy as one of the pillars of macro policy.
    Keywords: persistence, fractional integration, private debt
    JEL: C22 G30 G51
    Date: 2021
  90. By: Vincent Bodart (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Jean-François Carpantier (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: In this paper, we explore whether falls in commodity prices can explain the simultaneous occurence of currency crises in emerging and developing countries. For our empirical analysis, we use a panel of 104 emerging and developing countries, covering the period 1970-2018. Using event studies, we find that currency crises in commodity dependent countries are preceded by commodity price growth 2 to 4 percentage points below normal. In addition, using Poisson regression analysis, we find that a 10% decrease in global commodity price indices leads to a rise of about 7% in the number of currency crises hitting commodity exporting countries.
    Keywords: Currency crises, Commodity prices, Commodity dependence, Commodity currencies
    JEL: C32 C33 E31 F32
    Date: 2020–10–08
  91. By: Zaghini, Andrea
    Abstract: By focusing on the cost conditions at issuance, I find that not only the Covid-19 pandemic effects were different across bonds and firms at different stages, but also that the market composition was significantly affected, collapsing on investment- grade bonds, a segment in which the share of bonds eligible to the ECB corporate programmes strikingly increased from 15% to 40%. At the same time the high-yield segment shrunk to almost disappear at 4%. In addition to a market segmentation along the bond grade and the eligibility to the ECB programmes, another source of risk detected in the pricing mechanism is the weak resilience to pandemic: the premium requested is around 30 basis points and started to be priced only after the early containment actions taken by the national authorities. On the contrary, I do not find evidence supporting an increased risk for corporations headquartered in countries with a reduced fiscal space, nor the existence of a premium in favour of green bonds, which should be the backbone of a possible "green recovery".
    Keywords: ECB,Corporate quantitative easing,Covid pandemic,Green bonds
    JEL: G15 G32 E52
    Date: 2021
  92. By: Ma, Debin
    Abstract: This paper surveys the phenomenal transformation of banking and finance, public debt, and monetary regimes during 1900–37, a period of great political instability in Chinese history. To understand why growth in these strategic sectors occurred, I highlight the role of the institutional nexus of Western treaty ports (with Shanghai being the most important) and China Maritime Customs service, a relatively autonomous tax bureaucracy. My new interpretation on the importance of this mechanism sheds new light on the role of Chinese political institutions, the impact of the West and the ongoing Great Divergence debate.
    Keywords: China; credible commitment; public debt; financial revolution
    JEL: N15 N25 N45 E42
    Date: 2019–11
  93. By: Chirwa, Themba G; Odhiambo, Nicholas M
    Abstract: The paper applies a modified Hausmann, Rodrik, and Velasco (HRV) growth diagnostics framework to analyse Malawi?s growth challenges. The study finds five critical binding constraints affecting productive investment and output growth in Malawi. These include land administration, taxation, customs and trade regulations, political governance, and cost-of-finance. Land constraints are evidenced by highly urban and rural population growth, an inverse co-movement between the rural population and investment per capita, and low land administration indices. Tax constraints are evidenced by the negative growth of investment per capita. Customs and trade regulations constraints are evidenced by non-tariff measures, such as high costs and the time it takes to export and import. Political governance constraints are evidenced by rising government debt and the low score on transparency, accountability, and corruption based on the World Bank?s Public Transparency Scale. Lastly, high cost-of-finance constraints are evidenced by monetary policy challenges, such as high real interest rates, inflation rate, uncompetitive exchange rate, and foreign aid ineffectiveness. Therefore, we recommend that the formulation of crucial policy strategies to alleviate these five significant binding constraints be encouraged. The government should base such an approach to sound growth therapeutics that fully account for each challenge?s root causes.
    Keywords: Growth Diagnostics; Investment; Land; Fiscal Policy; Trade; Political Governance; Monetary Policy
    Date: 2021–01
  94. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: In the third quarter of 2020, the global economy rebounded strongly from the steep fall in output suffered in the first half of the year amid the covid-19 pandemic. Currently, the recovery is being slowed down by another wave of infections and policy measures to contain it, but on aggregate global economy is likely remain on an upward trajectory. While GDP in Europe is likely to decline again in the fourth quarter, output should continue to rise in most of the rest of the world, with economic momentum in China being actually quite high. Unlike in spring, manufacturing output, international trade in goods, and raw material prices have apparently been hardly affected so far. Economic activity is likely to recover in the course of the first quarter even where it is currently depressed, as the wave of infection is expected to subside. In the remainder of the year, with the population increasingly being vaccinated, a progressive normalization of the economic environment can be expected, including for the particularly contact-intensive sectors of the economy. We have reduced our forecast for global growth from September by 0.2 percentage points for 2020 and by 0.6 percentage points for 2021. We now expect world output (measured on a purchasing power parity basis) to increase by 6.1 percent in 2021, following a 3.8 percent dropp in the current year. In 2022, global economic activity is projected to increase by 4.5 percent. While this is again stronger than the medium-term trend, production will nevertheless remain well below the level that had been expected before the crisis. For world trade in goods, we expect an increase of 8.8 percent, following a decline of 5.4 percent this year.
    Keywords: World Economy,advanced economies,emerging economies,monetary policy,Japan,Russia,ASEAN,Covid-19,COVOD-19,COVID19
    Date: 2020
  95. By: María Angélica Arbeláez; Martha Elena Delgado; Sandra Díaz; Santiago Gómez; Candelaria Peñate
    Abstract: El objetivo de este trabajo es hacer una revisión detallada de las respuestas del sector bancario colombiano a la crisis, teniendo en cuenta las respectivas medidas tomadas por las autoridades en el país. Los resultados encontrados muestran que la respuesta del sector ha sido oportuna, integral y prudente. Este resultado se ha podido alcanzar gracias a la solidez que venían presentando los indicadores del sector en los años previos a la crisis, sumado a medidas apropiadas adoptadas por el Gobierno, el Banco de la República y el regulador financiero. En términos generales se ha buscado aliviar el flujo de caja de los hogares y empresas por medio de los alivios financieros y se han seguido canalizando recursos a través de la entrega de créditos y subsidios. Es importante hacer énfasis en la prudencia con la que el sector ha enfrentado la crisis, pues es fundamental para la recuperación de la actividad económica que el sistema financiero siga estable y no incurra en riesgos excesivos.
    Keywords: Sistemas Bancarios, COVID-19, Economía Colombiana, Programa de Acompañamiento a Deudores - PAD, Alivios Financieros, Sistema Financiero
    JEL: G24 E50 G20
    Date: 2020–11–30
  96. By: Robert Dur; Dimitry Fleming; Marten van Garderen; Max van Lent
    Abstract: A large fraction of households have very little savings buffer and are therefore vulnerable to financial shocks. This paper examines whether a social norm nudge can induce such households to save more. We ran a large-scale field experiment at a retail bank in the Netherlands. We find that households who are exposed to the social norm nudge click more often on a link to a personal web page where they can start or adjust an automatic savings plan. However, analyzing detailed bank data, we find no treatment effect on actual savings, neither in the short run nor in the long run. Our null findings are quite precisely estimated. A complementary small-scale survey experiment suggests that people did notice the social norm nudge and also that it had an impact on savings intentions.
    Keywords: household savings, field experiment, nudges, social norms
    JEL: C93 D14 D90 E21 G40
    Date: 2021
  97. By: Joonkyu Choi; Veronika Penciakova; Felipe Saffie
    Abstract: Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants and public expenditure channeled through politically connected firms hinders job creation. We build a unique database that links campaign contributions and state legislative election outcomes to ARRA grant allocation. Using exogenous variation in political connections based on ex-post close elections held before ARRA, we causally show that politically connected firms are 64 percent more likely to secure a grant. Based on an instrumental variable approach, we also establish that state-level employment creation associated with grants channeled through politically connected firms is nil. Therefore, the impact of fiscal stimulus is not only determined by how much is spent, but also by how the expenditure is allocated across recipients.
    Keywords: Campaign Finance; State Grants; Public Expenditure Allocation; American Recovery and Reinvestment Act
    JEL: D22 D72 E62 H57 P16
    Date: 2021–01–29
  98. By: Granziera, Eleonora; Sihvonen, Markus
    Abstract: We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict bond and currency returns. The model also creates the downward sloping term structure of carry trade returns documented by Lustig et al. (2019), difficult to replicate in a rational expectations framework. Consistent with the model, we find that variables that predict bond and currency returns also predict survey-based expectational errors concerning interest and FX rates. The model explains why monetary policy induces drift patterns in bond and currency markets and predicts that long-term rates are a better gauge of market’s short rate expectations than previously thought.
    Keywords: Bond and currency premia, sticky expectations, interest rate forecast errors
    JEL: E43 F31 D84
    Date: 2020–04–28
  99. By: Perico Ortiz, Daniel
    Abstract: This paper investigates the causal relationship between economic policy narratives, derived from President Trump's tweets and tweeting behavior, and stock market uncertainty. To this end, I define different event types based on the occurrence probability of identifted narratives or unusual tweet behaviors. High-frequency market uncertainty responses to different events are recovered using time-series regressions. Events regarding foreign policy, trade, monetary policy, and immigration policy exhibit a signiftcant effect on market uncertainty. Impulse responses become signiftcant between one and three hours after the event occurs, for most of the events. Furthermore, behavior events, such as increases in the tweet or retweeted counts above their average, matter for stock market uncertainty.
    Keywords: Twitter,Donald Trump,Economic Narratives,Economic Policy Uncertainty,VIX
    JEL: D83 E71 C54
    Date: 2021
  100. By: António Afonso; José Alves; João Tovar Jalles
    Abstract: We empirically assess whether a usually expected negative response of private consumption and private investment to a fiscal consolidation is reversed. We focus on a large sample of 174 countries between 1970 and 2018. We also employ three alternative measures of the Cyclically Adjusted Primary Balance used to determine fiscal episodes: i) the IMF-WEO based; ii) the HP-based; and iii) the Hamilton (2018)-based. We find that: i) increases in government consumption have a Keynesian effect on real per capita private consumption; ii) there is a positive effect of tax increases on private consumption when there is a fiscal consolidation; iii) there is a crowding-in effect for private investment, from fiscal contractions. Moreover, expansionary fiscal consolidations occur particularly in highly indebted advanced economies following an increase in taxes. Finally, the negative effect of taxation on private consumption is larger when an economy is experiencing a financial crisis but it is not consolidating.
    Date: 2021
  101. By: Kellermann, Kim Leonie
    Abstract: We study whether the experience of losing one's job due to the Treuhand activities in the early 1990s affected long-term political behavior among citizens of the former German Democratic Republic. During the German Reunification process, the Treuhand coordinated the privatization of former GDR firms at the cost of massive job losses. We exploit individual and spatial variation in Treuhand layoffs between 1990 and 1994, based on micro-level survey data from the German Socio-economic Panel and firm data from the IWH Treuhand Database to examine the effects on various behavioral outcomes in later years. Our results suggest that former GDR citizens who have experienced a Treuhand layoff are significantly more likely to prefer a radical party, are less interested in politics and tend to have less trust in others. At the aggregate level, districts with relatively more layoffs exhibit higher radical left vote shares in federal elections. Investigating the underlying mechanisms, we find that the effects of Treuhand job losses are relatively stronger for respondents who stayed in East Germany after Reunification. Furthermore, it seems to be nostalgia and disappointment with the transition process which drive the effects, rather than financial grievances.
    Keywords: GDR,trust agency,political behavior,unemployment,radical voting
    JEL: D72 E24 L33
    Date: 2021
  102. By: Francesco Pappadà (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de France - Banque de France - Banque de France); Yanos Zylberberg (University of Bristol [Bristol], CEPR - Center for Economic Policy Research - CEPR)
    Abstract: The effect of fiscal policy on default risk is mitigated by the response of tax compliance. To explore the consequences of this stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the informal economy, which impacts future fiscal revenues and default risk. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal fiscal policy and leads to costly uctuations in consumption.
    Keywords: Sovereign default,Imperfect tax enforcement,Fiscal policy
    Date: 2021–02
  103. By: Andres Rodriguez-Pose; Roberto Ganau;
    Abstract: Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity ‘puzzle’. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This paper addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003-2015. The results indicate that institutional quality influences regions’ labour productivity growth both directly —as improvements in institutional quality drive productivity growth— and indirectly —as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.
    Keywords: Labour productivity; institutional quality; physical capital; human capital; innovation; regions; Europe
    JEL: E24 J24 O47 R11
    Date: 2021–02
  104. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
    Abstract: The recovery of the German economy is interrupted. The main reasons are the second Covid wave and the shutdown measures that have been implemented since November. Since these measures will, at least to some extent, probably remain in place for some time to come, GDP will decline in the final quarter of this year and in the first quarter of next year. However, these declines will not reach the extent seen in spring and will be much more concentrated on specific, consumption-focused industries. Several of these industries have not yet fully recovered from the slump in spring, so that less economic activity will be lost there in the winter half-year. In addition, exports are likely to remain on an upward trend in view of the relatively robust global economy. Against this backdrop industry will probably come through the winter half-year without a slump in production. All in all, we now expect a lower GDP growth rate of 3.1 percent next year compared to our autumn forecast (4.8 per cent), after a decline of 5.2 per cent in the current year. If the pandemic can be suppressed sustainably from spring onwards, a strong recovery will take place in the course of the coming year and will lead to a strong increase in GDP of 4.5 percent in 2022 (autumn forecast: 2.4 percent). The labor market will show a similar pattern as GDP so that the recovery here will take place with some delay as well. As the temporary slowdown in the winter half-year will dampen governmental revenues and the shutdown will be accompanied by further aid payments, fiscal budget will be additionally burdened. We expect fiscal budget deficits of 4.9 per cent relative to GDP for the current year and 4.1 per cent for next year. In 2022, the deficit is expected to fall to 1.8 percent.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2020
  105. By: Andrew Atkeson; Karen A. Kopecky; Tao Zha
    Abstract: We show that a simple model of COVID-19 that incorporates feedback from disease prevalence to disease transmission through an endogenous response of human behavior does a remarkable job fitting the main features of the data on the growth rates of daily deaths observed across a large number countries and states of the United States from March to November of 2020. This finding, however, suggests a new empirical puzzle. Using an accounting procedure akin to that used for Business Cycle Accounting as in Chari et al. (2007), we show that when the parameters of the behavioral response of transmission to disease prevalence are estimated from the early phase of the epidemic, very large wedges that shift disease transmission rates holding disease prevalence fixed are required both across regions and within a region over time for the model to match the data on deaths from COVID-19 as an equilibrium outcome exactly. We show that these wedges correspond to large shifts in model forecasts for the long-run attack rate of COVID-19 both across locations and over time. Future research should focus on understanding the sources in these wedges in the relationship between disease prevalence and disease transmission.
    Keywords: COVID-19; Behavior; Epidemics
    JEL: E10 E17 I10 I18
    Date: 2021–02–04
  106. By: Andrew Atkeson
    Abstract: I present a behavioral epidemiological model of the evolution of the COVID epidemic in the United States and the United Kingdom over the past 12 months. The model includes the introduction of a new, more contagious variant in the UK in early fall and the US in mid December. The model is behavioral in that activity, and thus transmission, responds endogenously to the daily death rate. I show that with only seasonal variation in the transmission rate and pandemic fatigue modeled as a one-time reduction in the semi-elasticity of the transmission rate to the daily death rate late in the year, the model can reproduce the evolution of daily and cumulative COVID deaths in the both countries from Feb 15, 2020 to the present remarkably well. I find that most of the end-of-year surge in deaths in both the US and the UK was generated by pandemic fatigue and not the new variant of the virus. I then generate forecasts for the evolution of the epidemic over the next two years with continuing seasonality, pandemic fatigue, and spread of the new variant.
    Keywords: COVID-19; Behavior; Epidemics
    JEL: E10 E17 I10 I18
    Date: 2021–02–04
  107. By: Harold L. Cole (Department of Economics, University of Pennsylvania, and NBER); Dirk Krueger (Department of Economics, University of Pennsylvania, CEPR and NBER); George J. Mailath (Department of Economics, University of Pennsylvania, and RSE, Australian National University); Yena Park (Seoul National University)
    Abstract: We analyze efficient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation which we term \social capital". We treat the contracting conditions of original and deviating coalitions symmetrically and show that higher social capital tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, although social capital facilitates the initial formation of coalitions, the extent of risk sharing in successfully formed coalitions is declining in the extent of social capital and equilibrium allocations might feature resource burning or utility burning: social capital is indeed a double-edged sword.
    Keywords: Financial Coalition, Limited Enforcement, Risk Sharing, Coalition-Proof Equilibrium
    JEL: E21 G22 D11 D91
    Date: 2021–02
  108. By: Heng Chen; Walter Engert; Kim Huynh; Gradon Nicholls; Julia Zhu
    Abstract: We conduct a follow-up to Chen et al. (2020) and study demand for and use of cash after the containment measures imposed at the beginning of the COVID-19 pandemic were relaxed during the summer of 2020. We find that bank notes in circulation continued to rise in July due to ongoing cash withdrawals and decreased cash deposits in the Bank Note Distribution System. The probability of consumers using cash for payments increased in July compared with April 2020. As well, consumer cash holdings, measured as the median value of cash on hand, returned to August 2019 levels.
    Keywords: Bank notes; Central bank research; Coronavirus disease (COVID-19); Digital currencies and fintech; Econometric and statistical methods
    JEL: C12 C9 E4 O5 O54
  109. By: Matilde Isabela Angarita Serrano
    Abstract: Este documento muestra que la existencia de brechas en la calidad de la educación lleva a desigualdad de ingresos intergeneracionales, a partir de un modelo de generaciones traslapadas con agentes y sistemas educativos heterogéneos. Además, se encuentra que, i) las proporciones de ricos y pobres dentro de la población determinan en qué medida es posible eliminar la desigualdad y en cuántas generaciones, ii) la política educativa de impulso a la demanda en educación asegura la salida del mercado de los sectores menos productivos. En adición, para el caso de Colombia, esta política cierra la brecha de ingresos en menor número de generaciones que el subsidio a las instituciones educativas. Esto se explica por el aumento progresivo de la base gravable que generan las transferencias a los hogares.
    Keywords: Educación, Desigualdad, Subsidios, Generaciones traslapadas.
    JEL: I24 I28 E13 E65
    Date: 2021–02–25

This nep-mac issue is ©2021 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.