nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒03‒15
95 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Model of Credit, Money, Interest, and Prices By Saki Bigio; Yuliy Sannikov
  2. Quantitative Easing in the US and Financial Cycles in Emerging Markets By Marcin Kolasa; Grzegorz Wesołowski
  3. Understanding bank and non-bank credit cycles: a structural exploration By C Bora Durdu; Molin Zhong
  4. Macroeconomic stimulus packages and income inequality in developing countries: Lessons from the 2007-9 Great Recession for the Covid-19 crisis in South Africa By Habiyaremye, Alexis; Jacobs, Peter; Molewa, Olebogeng; Lekomanyane, Pelontle
  5. Do Monetary Policy Frameworks Matter in Low Income Countries? By Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
  6. Monetary policy surprises and their transmission through term premia and expected interest rates By Kaminska, Iryna; Mumtaz, Haroon; Sustek, Roman
  7. Can Automatic Government Spending Be Procyclical? By Luciana Galeano; Alejandro Izquierdo; Jorge P. Puig; Carlos A. Vegh; Guillermo Vuletin
  8. The twilight of neoliberalism in the USA? By Evans, Trevor
  9. Exchange Rate Pass-Through, Monetary Policy, and Real Exchange Rates: Iceland and the 2008 Crisis By Sebastian Edwards; Luis Cabezas
  10. Stability issues in Kaleckian models driven by autonomous demand growth - Harrodian instability and debt dynamics. By Eckhard Hein; Ryan Woodgate
  11. Financial inclusion, technology and their impacts on monetary and fiscal policy: theory and evidence By Robert Oleschak
  12. Macroepidemics and unconventional monetary policy: Coupling macroeconomics and epidemiology in a financial DSGE-SIR framework. By Verónica Acurio Vásconez; Olivier Damette; David W. Shanafelt
  13. Prudential Policies in the Eurozone: A Propensity Score Matching Approach By Lucas Hafemann
  14. The narrative about the economy as a shadow forecast: an analysis using Banco de España quarterly reports By Nélida Díaz Sobrino; Corinna Ghirelli; Samuel Hurtado; Javier J. Pérez; Alberto Urtasun
  15. The money-inflation nexus revisited By Leopold Ringwald; Thomas O. Zörner
  16. Answering the Queen: Machine learning and financial crises By Jérémy Fouliard; Michael Howell; Hélène Rey
  17. Factor shares and the rise in corporate net lending By Jan Behringer
  18. The dynamics of bank rates in a negative-rate environment - the Swiss case By Romain Baeriswyl; Lucas Marc Fuhrer; Petra Gerlach-Kristen; Jörn Tenhofen
  19. Market Power in Neoclassical Growth Models By Laurence M. Ball; N. Gregory Mankiw
  20. Growing like Germany: local public debt, local banks, low private investment By Mathias Hoffmann; Iryna Stewen; Michael Stiefel
  21. Climate Policy, Financial Frictions, and Transition Risk By Stefano Carattini; Garth Heutel; Givi Melkadze
  22. The FOMC risk shift By Kroencke, Tim-Alexander; Schmeling, Maik; Schrimpf, Andreas
  23. The Transmission Channels of Government Spending Uncertainty By Anna Belianska; Aurélien Eyquem; Céline Poilly
  24. Fiscal Policy and Households' Inflation Expectations: Evidence from a Randomized Control Trial By Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; Michael Weber
  25. A BVAR Model for Forecasting Ukrainian Inflation By Nadiia Shapovalenko; ;
  26. Market polarization and the phillips curve By Javier Andrés; Óscar Arce; Pablo Burriel
  27. Imperfect Banking Competition and Macroeconomic Volatility: A DSGE Framework By Jiaqi Li
  28. Dual Labor Market and the "Phillips Curve Puzzle" By Hideaki Aoyama; Corrado Di Guilmi; Yoshi Fujiwara; Hiroshi Yoshikawa
  29. Dual Labor Market and the "Phillips Curve Puzzle" By AOYAMA Hideaki; Corrado DI GUILMI; FUJIWARA Yoshi; YOSHIKAWA Hiroshi
  30. Income Dynamics in Sweden 1985-2016 By Benjamin Friedrich; Lisa Laun; Costas Meghir
  31. 完全雇用実現のための財政政策について: 世代重複モデルによる理論的分析 By Tanaka, Yasuhito
  32. Entrepreneurship and Labor Market Mobility: the Role of Unemployment Insurance By Gaillard, Alexandre; Kankanamge, Sumudu
  33. Reforming the individual income tax in Spain By Nezih Guner; Javier López-Segovia; Roberto Ramos
  34. Manufacturing Risk-Free Government Debt By Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
  35. The Reallocation Effects of COVID-19: Evidence from Venture Capital Investments around the World By Andrea Bellucci; Alexander Borisov; Gianluca Gucciardi; Alberto Zazzaro
  36. Will COVID-19 Erase Black Workers' Labor Market Gains? By Julie L. Hotchkiss
  37. Disentangling Covid-19, economic mobility, and containment policy shocks By Camehl, Annika; Rieth, Malte
  38. Is capacity utilization variable in the long run? An agent-based sectoral approach to modeling hysteresis in the normal rate of capacity utilization By Federico Bassi; Tom Bauermann; Dany Lang; Mark Setterfield
  39. A Simple but Powerful Simulated Certainty Equivalent Approximation Method for Dynamic Stochastic Problems By Yongyang Cai; Kenneth L. Judd
  40. A Quantity Theory Framework for Thinking about Monetary Policy By Hetzel, Robert
  41. Consumption and Hours between the United States and France By Lei Fang; Fang Yang
  42. Indonesia’s Financial Markets and Monetary Policy Dynamics Amid the Covid-19 Pandemic By Sugandi, Eric Alexander
  43. On the possibility of a cash-like CBDC By Armelius, Hanna; Claussen, Carl Andreas; Hull, Isaiah
  44. Imperfect Information, Heterogeneous Demand Shocks,and Inflation Dynamics By Tatsushi Okuda; Tomohiro Tsuruga; Francesco Zanetti
  45. Paraguay; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Paraguay By International Monetary Fund
  46. The Gendered Impact of the COVID-19 Recession on the US Labor Market By Stefania Albanesi; Jiyeon Kim
  47. Interest Rate Swaps and the Transmission Mechanism of Monetary Policy: A Quantile Connectedness Approach By Ioannis Chatziantoniou; David Gabauer; Alexis Stenfor
  48. Risk and Strategic Complementarities: Banks Behavior, Supervision and Macroprudential Policies By T. Carraro; Edoardo Gaffeo; Marco Gallegati
  49. Understanding Principal Component Analysis (PCA) in the Azerbaijan Economy: Case Studies of Vegetable and Fruit Sectors By Niftiyev, Ibrahim
  50. Foreign direct investment and economic growth in Kenya: An empirical investigation By Odhiambo, Nicholas M
  51. Indonesia; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Indonesia By International Monetary Fund
  52. Monetary Policy Pass-Through with Central Bank Digital Currency By Janet Hua; Yu Zhu
  53. Using Machine Learning for Measuring Democracy: An Update By Klaus Gründler; Tommy Krieger
  54. A Generalized Endogenous Grid Method for Default Risk Models By Youngsoo Jang; Soyoung Lee
  55. Costa Rica; 2021 Article IV Consultation and Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Costa Rica By International Monetary Fund
  56. Hours, Employment, and Earnings of American Manufacturing Workers from the Nineteenth to the Twenty-First Centuries By Pencavel, John
  57. Permissioned distributed ledgers and the governance of money By Raphael Auer; Cyril Monnet; Hyun Song Shin
  58. Time variation in lifecycle consumption and income. By Yunus Aksoy; Henrique S. Basso; Carolyn St Aubyn
  59. The Effects of Oil Price Shock on the World Economy: A Macroeconomic Analysis By Toptancı, Ali İskan
  60. Bosnia and Herzegovina; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bosnia and Herzegovina By International Monetary Fund
  61. Forecasting the Stability and Growth Pact compliance using Machine Learning. By Kéa Baret; Amélie Barbier-Gauchard; Théophilos Papadimitriou
  62. Knowledge-Based Structural Change By Kevin Genna; Christian Ghiglino; Kazuo Nishimura; Alain Venditti
  63. Aggregation bias in wage rigidity estimation By Persyn, Damiaan
  64. Female Entrepreneurship in the U.S. 1982 - 2012: Implications for Welfare and Aggregate Output By Pedro Bento
  65. Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19 By Mitman, Kurt; Rabinovich, Stanislav
  66. Measuring Commuting and Economic Activity inside Cities with Cell Phone Records By Gabriel E. Kreindler; Yuhei Miyauchi
  67. What 31 provinces reveal about growth in China By Eeva Kerola; Benoit Mojon
  68. Democratic Republic of São Tomé; Second Review under the Extended Credit Facility, Request for Waiver for Nonobservance of Performance Criterion, Request for Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of São Tomé By International Monetary Fund
  69. The money-inflation nexus revisited By Ringwald, Leopold; Zörner, Thomas O.
  70. The transmission of productivity through global value chains: formal concept and application to recent developments in the EU27 By David Martinez Turegano
  71. Who Truly Bears (Bank) Taxes? Evidence from Only Shifting Statutory Incidence By Gabriel Jiménez; David Martínez-Miera; José-Luis Peydró
  72. Repensando el impuesto al valor agregado By Marcelo Garriga
  73. How People Pay Each Other: Data, Theory, and Calibrations By ; Claire Greene; Oz Shy
  74. Currency Depreciations in Emerging Economies: A Blessing or a Curse for External Debt Management? By Boris Fisera; Menbere Workie Tiruneh; David Hojdan
  75. COVID-19 and SMEs: A 2021 "Time Bomb"? By Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova; Nick Sander
  76. Financial Regulation in a Quantitative Model of the Modern Banking System By Juliane Begenau; Tim Landvoigt
  77. Negative Interest Rates; Taking Stock of the Experience So Far By Luis Brandao-Marques; Marco Casiraghi; R. G Gelos; Gunes Kamber; Roland Meeks
  78. Convergence of Computed Dynamic Models with Unbounded Shock By Kenichiro McAlinn; Kosaku Takanashi
  79. Testing for Granger Causality in Quantiles Between the Wage Share and Capacity Utilization By André M. Marques; Gilberto Tadeu Lima
  80. The “Matthew Effect” and Market Concentration: Search Complementarities and Monopsony Power By Jesús Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
  81. Macroeconomic Framework of Union Budget 2021-22: Reconsidering the Fiscal Rules. By Chakraborty, Lekha
  82. What Do Survey Data Tell Us about US Businesses? By Anmol Bhandari; Serdar Birinci; Ellen R. McGrattan; Kurt See
  83. Economic Consequences of Global Agricultural Price Shifts By Jasmien De Winne; Gert Peersman
  84. Will Capital Flows through Global Banks Support Economic Recovery? By Claudia M. Buch; Matthieu Bussiere; Linda S. Goldberg
  85. Optimal irreversible monetary policy By Kohei Hasui; Teruyoshi Kobayashi; Tomohiro Sugo
  86. Pricing the exotic: Path-dependent American options with stochastic barriers By Alejandro Rojas-Bernal; Mauricio Villamizar-Villegas
  87. "Whatever it takes!": How tonality of TV-news affects government bond yield spreads during crises By Hirsch, Patrick; Köhler, Ekkehard A.; Feld, Lars P.; Thomas, Tobias
  88. Missing growth measurement in Germany By Schreiber, Sven; Schmidt, Vanessa
  89. Investing like conglomerates: is diversification a blessing or curse for China's local governments? By Jianchao Fan; Jing Liu; Yinggang Zhou
  90. Business Formation: A Tale of Two Recessions By Emin M. Dinlersoz; Timothy Dunne; John Haltiwanger; Veronika Penciakova
  91. The relationship between non-performing loans, banking system stability and economic activity: The case of Tunisia By Dorsaf Elbir Merhbene; ;
  92. A Bayesian Dynamic Compositional Model for Large Density Combinations in Finance By Roberto Casarin; Stefano Grassi; Francesco Ravazzolo; Herman K. van Dijk
  93. La résilience des monnaies locales françaises à la crise de la covid-19. Une analyse basée sur le Florain. By Raphaël DIDIER
  94. The COVID-19 shock on the labour market: Poverty and inequality effects across Spanish regions By Juan C. Palomino; Juan G. Rodríguez; Raquel Sebastian
  95. ‘You Will:’ A Macroeconomic Analysis of Digital Advertising By Jeremy Greenwood; Yueyuan Ma; Mehmet Yorukoglu

  1. By: Saki Bigio; Yuliy Sannikov
    Abstract: This paper integrates a realistic implementation of monetary policy through the banking system into an incomplete-markets economy with wage rigidity. Monetary policy sets policy rates and alters the supply of reserves. These tools grant independent control over credit spreads and an interest target. Through these tools, monetary policy affects the evolution of real interests rates, credit, output, and the wealth distribution—both in the long and in the short run. We decompose the effects through a combination of the interest and credit channels that depend on the size of the central bank’s balance sheet. Monetary policy reaches an expansionary limit when it enters a liquidity trap. The model highlights a trade-off between worse microeconomic insurance (insurance across agents) and greater macroeconomic insurance (insurance across states). The model prescribes that monetary policy should operate with a small balance sheet which tightens credit during booms, and should expand its balance sheet and lower policy rates during busts.
    JEL: E31 E32 E41 E42
    Date: 2021–03
  2. By: Marcin Kolasa; Grzegorz Wesołowski
    Abstract: Large international capital movements tend to be associated with strong fluctuations in asset prices and credit, contributing to domestic financial cycles and posing challenges for stabilization policies, especially in emerging market economies. In this paper we argue that these challenges are particularly severe if the global financial cycle is driven by quantitative easing (QE) in the US, and when the local banking sector has large holdings of government bonds, like in many Latin American countries. We first show empirically that a typical round of QE by the US Fed leads to a persistent expansion in credit to households and a significant loss of price competitiveness in this group of economies. We next develop a quantitative macroeconomic model of a small open economy with segmented asset markets and banks, which accounts for these observations. In this framework, foreign QE creates tensions between macroeconomic and financial stability as a contractionary impact of exchange rate appreciation is accompanied by booming credit and house prices. As a consequence, conventional monetary policy accommodation aimed at stabilizing output and inflation would further exacerbate domestic financial cycle. We show that an effective way of resolving this trade-off is to impose a time-varying tax on capital inflows. Combining foreign exchange interventions with tightening of local credit policies can also restore macroeconomic and financial stability, but at the expense of a large redistribution of wealth between borrowers and savers.
    Keywords: quantitative easing, global financial cycle, domestic credit, exchange rate interventions, capital controls, macroprudential policy
    JEL: E44 E58 F41 F42 F44
    Date: 2021–03
  3. By: C Bora Durdu; Molin Zhong
    Abstract: We explore the structural drivers of bank and nonbank credit cycles using a medium-scale DSGE model with two types of financial intermediation. We posit economy-wide and sectoral disturbances in both macro and financial sectors. We estimate that sectoral shocks to the balance sheets of entrepreneurs are important for fluctuations in bank and nonbank credit growth at the business cycle frequency. Economy-wide entrepreneurial risk shocks gain predominance for explaining the lower frequency co-movement between the two series. Macro shocks play very little role in explaining financial cycles.
    Keywords: emerging bond markets, credit risk, currency risk, Twin Ds, affine model
    JEL: E3 E44 G01 G21
    Date: 2021–01
  4. By: Habiyaremye, Alexis (Human Sciences Research Council, and UNU-MERIT); Jacobs, Peter; Molewa, Olebogeng; Lekomanyane, Pelontle
    Abstract: In 2020, the South African government announced that it was planning to implement an ambitious macroeconomic rescue package worth about 10% of the country's gross domestic product (GDP) to cushion the economy from the socioeconomic impact of Covid-19 lockdown. However, it was unclear what the likely e ects of the package's measures would be on income growth and employment in the post-crisis recovery period. This paper uses a fiscal multiplier framework to examine the links between such packages and patterns of growth, employment and inequality in nine developing counties during the recovery period following the Great Recession of 2007- 2009. The findings indicate that countries which privileged larger fiscal packages enacted through public infrastructure investments had more favourable outcomes in terms of employment recovery and preventing the worsening of poverty. Moreover, the implementation of deficit-financed stimulus packages did not lead to unsustainable debt levels or persistent in inflation. As South Africa contemplates rolling out a sizable new infrastructure stimulus package to tow the economy out of the current crisis, insights from those experiences may provide useful lessons for building a more equitable and more shock-resilient post-Covid-19 economy.
    Keywords: Monetary policy, fiscal multipliers, wage-led growth, income distribution, structural reforms
    JEL: E12 E24 E25 E52 E62 O15 O47 O55
    Date: 2021–02–24
  5. By: Alina Carare; Carlos de Resende; Andrew T. Levin; Chelsea Zhang
    Abstract: Microeconomic evidence indicates a very high frequency of price adjustment in low income countries (LICs), raising the question of whether LICs may be reasonably characterized as exhibiting monetary neutrality. To address this question, we analyze a cross-country panel dataset of 79 LICs over the period 1990 to 2015 to assess the impact of external shocks on real GDP growth, and we find highly significant differences between LICs where the central bank targets monetary aggregates or inflation compared to LICs that maintain rigid nominal exchange rates. We also conduct an event study of the surprise devaluation of the Central African Franc (CFA) in January 1994 and find that it had highly significant effects on the output growth of 10 CFA countries relative to 18 similar countries outside the CFA zone. Consequently, the hypothesis of monetary neutrality is decisively rejected, and these findings provide strong support for the role of monetary policy frameworks in fostering price stability and macroeconomic stability in LICs.
    JEL: E02 E52 E58 O11 O23
    Date: 2021–03
  6. By: Kaminska, Iryna (Bank of England); Mumtaz, Haroon (Queen Mary University of London); Sustek, Roman (Queen Mary University of London)
    Abstract: Monetary policy moves the yield curve. How much is due to expected interest rates versus term premia? And does it matter for macroeconomic outcomes? Using an affine term structure model, we shed new light on these questions. Estimation is subject to restrictions addressing estimation bias in expected interest rates obtained by previous studies. High-frequency yield curve decompositions around FOMC announcements into term premia and expected interest rates then provides instruments for a local projection model. The effects of interest rate expectations and term premia are found equally important for the transmission mechanism and broadly consistent with macroeconomic theory.
    Keywords: High-frequency data; monetary policy transmission mechanism; restricted affine term structure models; yield curve decomposition; local projection method; Bayesian estimation
    JEL: C58 E43 E52 E58 G12
    Date: 2021–03–05
  7. By: Luciana Galeano; Alejandro Izquierdo; Jorge P. Puig; Carlos A. Vegh; Guillermo Vuletin
    Abstract: It is well-known by now that government spending has typically been countercyclical in industrial countries and procyclical in developing economies. Most of this literature has focused on analyzing aggregate government spending or discretionary spending categories such as government consumption and government investment. Little is known, however, about the cyclical behavior of automatic government spending, which comprises unemployment insurance, family programs, and social security transfers. Automatic government spending follows from laws, or even constitutional clauses, that benefit individuals who meet certain eligibility criteria. In principle, the main categories of automatic government spending are expected to be either countercyclical (especially unemployment insurance and other shock absorber programs) or acyclical (particularly social security and other structural programs). We find that while automatic government spending is, as expected, countercyclical in industrial countries, it is, surprisingly, procyclical in the developing world. We track the source of this puzzling procyclical behavior to (i) the effective lack of automatic stabilizers like unemployment insurance and (ii) more intriguingly, the existence of perverse automatic de-stabilizing mechanisms in social security spending (in particular in the absence of indexation mechanisms). We also show that the presence and nature of these two social programs are crucial new determinants of aggregate government spending cyclicality as well as macroeconomic volatility, even after controlling for other well-known determinants and addressing potential endogeneity concerns.
    JEL: E02 E32 E62 H53 H55
    Date: 2021–03
  8. By: Evans, Trevor
    Abstract: The US economic expansion which began in 2009 was unusually prolonged but relatively weak. Profitability and investment strengthened between 2010 and 2015 but then began to falter. After Trump took office in 2017 there was a minor recovery in investment but the proceeds of major tax cuts were overwhelmingly used to finance pay outs to share owners. Unemployment fell steadily from 2010 but with a shift towards lower paid jobs. Median wages increased from around 2014, but while those for women had risen steadily since the 1980s, those for men only recuperated their 1980 level in 2018. By contrast, top incomes soared. The impact of the Covid19 epidemic was partly cushioned by huge government spending programmes, but unemployment among less skilled workers increased strongly, while the massive monetary response led to an unprecedented bonanza for the rich. The Biden government's first major initiative extended unemployment benefits and promoted a national response to the health emergency, but failed to secure an increase in the national minimum wage to $15 an hour.
    Keywords: US economy,profitability,investment,finance,employment,wages
    JEL: E25 E32 E44 E58 E65 F44 G01
    Date: 2021
  9. By: Sebastian Edwards; Luis Cabezas
    Abstract: We use detailed data for Iceland to examine two often-neglected aspects of the “exchange rate pass-through” problem. First, we investigate whether the pass-through coefficient varies with the degree of “international tradability” of goods. Second, we analyze if the pass-through coefficient depends on the monetary policy framework. We consider 12 disaggregated price indexes in Iceland for 2003-2019, a period that includes Iceland’s banking and currency crisis of 2008. We find that the pass-through declined around the time Iceland reformed its “flexible inflation targeting,” and that the coefficients are significantly higher for tradable than for nontradable goods.
    JEL: E31 E52 E58 F31 F41
    Date: 2021–03
  10. By: Eckhard Hein (Berlin School of Economics and Law); Ryan Woodgate (Berlin School of Economics and Law)
    Abstract: Sraffian supermultiplier models, as well as Kaleckian distribution and growth models making use of non-capacity creating autonomous demand growth in order to cope with Harrodian instability, have paid little attention to the financial side of autonomous demand growth as the driver of the system. Therefore, we link the issue of Harrodian instability in Kaleckian models driven by non-capacity creating autonomous demand growth with the associated financial dynamics. For a simple model with autonomous government expenditure growth, zero interest rates and no consumption out of wealth, we find that adding debt dynamics does not change the results obtained by Lavoie (2016) for a model without debt, i.e. the long-run equilibrium is stable if Harrodian instability is not too strong and the autonomous growth rate does not exceed a maximum given by the long-run equilibrium saving rate. Introducing interest payments on government debt as well as consumption out of wealth into the model, however, changes the stability requirements: First, the autonomous growth rate of government expenditures should not fall short of the exogenous monetary interest rate. Second, this growth rate should not exceed a maximum given by the saving rate in long-run equilibrium minus the propensity to consume out of wealth. Third, Harrodian instability may be stronger than in the simple model without violating long-run overall stability, in particular, if the rate of interest is very low and the growth rate of government expenditures is close to the mentioned upper limit. We claim that, irrespective of the relevance or irrelevance of Harrodian instability, it is necessary to introduce financial variables into models driven by non-capacity creating autonomous demand in order to assess the long-run (in-)stability and sustainability of growth.
    Keywords: Supermultiplier, autonomous demand growth, Kaleckian models, Harrodian instability, financial (in)stability
    JEL: E11 E12 E25 E62
    Date: 2020
  11. By: Robert Oleschak
    Abstract: In economies with a low level of financial inclusion (FI), most activities are settled in cash and are thus more difficult to trace, record, and tax. I show theoretically that economies with inefficient financial technologies exhibit low levels of FI and of tax revenue and that using an inflation tax as an additional source of income improves welfare. Improvements in technology lead to a higher level of FI, increased tax revenue and lower (optimal) inflation. I test this prediction using panel data from a broad set of countries. The data show a strong and robust negative link between FI and inflation and a positive link between FI and tax revenue for developing countries.
    Keywords: Financial inclusion, financial technology, monetary policy, fiscal policy
    JEL: C12 C22 E31 E41 G21 H21
    Date: 2021
  12. By: Verónica Acurio Vásconez; Olivier Damette; David W. Shanafelt
    Abstract: Despite the fact that the current covid-19 pandemic was neither the first nor the last disease to threaten a pandemic, only recently have studies incorporated epidemiology into macroeconomic theory. In our paper, we use a dynamic stochastic general equilibrium (dsge) model with a financial sector to study the economic impacts of epidemics and the potential for unconventional monetary policy to remedy those effects. By coupling a macroeconomic model to a traditional epidemiological model, we are able to evaluate the pathways by which an epidemic affects a national economy. We find that no unconventional monetary policy can completely remove the negative effects of an epidemic crisis, save perhaps an exogenous increase in the shares of claims coming from the Central Bank (“epi loans”). To the best of our knowledge, our paper is the first to incorporate disease dynamics into a dsge-sir model with a financial sector and examine the effects of unconventional monetary policy.
    Keywords: New-Keynesian model, dsge, covid-19, epidemiology.
    JEL: D58 E32 E52
    Date: 2021
  13. By: Lucas Hafemann (University of Giessen)
    Abstract: This paper studies the effectiveness of micro- and macroprudential policy tools in the euro area. The established empirical literature on macroprudential policy generally considers panel estimations that suffer from two estimation biases, i.e., a selection bias and a time bias. We control for the former by a propensity score matching approach. Based on a logit model, we estimate the probability of a policy tightening for every country at each point in time. Matching procedures then find one or more matching partners for every tightening event with a similar likelihood of a tightening but no shift in the prudential policy stance. An iterative approach ensures that we offset the time bias, which exists if the estimation does not control for effects of preceding and subsequent prudential policy changes. We find that the announcement of a prudential policy tightening reduces credit growth significantly by about 1% on average. We further differentiate between effects along three dimensions. First, we observe that lending is more affected when policymakers have not communicated the implementation of measures before. Second, the effects are more substantial when EU/EA institutions are behind changes in the prudential policy stance. Third, microprudential policy measures have a bigger impact than macroprudential policies.
    Keywords: Macroprudential policies, Financial cycles, Credit Growth, Propensity score matching
    JEL: E44 E58 G18 G28
    Date: 2021
  14. By: Nélida Díaz Sobrino (Universidad Nebrija); Corinna Ghirelli (Banco de España); Samuel Hurtado (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: The aim of this paper is to construct a text-based indicator that reflects the sentiment of the Banco de España economic outlook reports. Our sentiment indicator mimics very closely the first release of the GDP growth rate, which is published after the publication of the reports, and the Banco de España quarterly forecasts of the GDP growth rate. This means that the qualitative narrative contained in the reports contains similar information to the one conveyed by the quantitative forecasts. In addition, the narrative complements the quantitative projections by discussing information which is not directly reflected in the point forecasts.
    Keywords: textual analysis, sentiment analysis, GDP growth rate, forecasting, central bank reports
    JEL: C53 C55 E37 E66 E58
    Date: 2020–12
  15. By: Leopold Ringwald (Department of Economics, Vienna University of Economics and Business); Thomas O. Zörner (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper proposes a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach on quarterly data from the US, the UK and Canada and are able to identify well-known, high inflation periods in the samples. Moreover, our results suggest that the role of money growth is specific to the economy under scrutiny. Finally, we analyse a variety of different model specifications and are able to confirm that adjusted money growth still has leading indicator properties on inflation regimes.
    Keywords: Money-inflation link, Nonlinear modeling, Bayesian inference, LSTAR-SV model
    JEL: C11 C32 E31 E51
    Date: 2021–03
  16. By: Jérémy Fouliard; Michael Howell; Hélène Rey
    Abstract: Financial crises cause economic, social and political havoc. Macroprudential policies are gaining traction but are still severely under-researched compared to monetary policy and fiscal policy. We use the general framework of sequential predictions also called online machine learning to forecast crises out-of-sample. Our methodology is based on model averaging and is "meta-statistic" since we can incorporate any predictive model of crises in our set of experts and test its ability to add information. We are able to predict systemic financial crises twelve quarters ahead out-of-sample with high signal-to-noise ratio in most cases. We analyse which experts provide the most information for our predictions at each point in time and for each country, allowing us to gain some insights into economic mechanisms underlying the building of risk in economies.
    JEL: E37 E44 G01
    Date: 2021–02
  17. By: Jan Behringer (Macroeconomic Policy Institute (IMK))
    Abstract: The corporate sector has turned from a net borrowing position to a net lending position in many advanced countries over the past decades. This phenomenon is rather unusual as the corporate sector had historically borrowed funds from other sectors in the economy. In this paper, we analyze how changes in the distribution of income between wages and profits have affected corporate net lending in a sample of 40 countries for the period 1990-2016. A consistent finding is that an increase (decrease) in the corporate profit share leads to an increase (decrease) in corporate net lending, controlling for other corporate net lending determinants. We disentangle the effects of the profit share on corporate saving and investment and explore a number of alternative explanations of our results, including changes in the cost of capital, shifts in the composition of industrial sectors, the growing importance of intangible capital, and a temporary crisis phenomenon. We conclude that factor shares are an important driver of macroeconomic trends and that the rise in corporate profits has contributed considerably to the improvement in the corporate net lending positions across countries.
    Keywords: Corporate saving, investment, income distribution, cost of capital
    JEL: E21 E22 E25 G30
    Date: 2020
  18. By: Romain Baeriswyl; Lucas Marc Fuhrer; Petra Gerlach-Kristen; Jörn Tenhofen
    Abstract: This paper documents the change in banks' interest rate setting behaviour in a negative-rate environment. In a positive-rate environment, the pricing of mortgages and deposits follows the dynamics of capital market rates for comparable maturities. When capital market rates fall below zero, the dynamic of mortgage and deposit rates changes. Because deposit rates tend to be sticky at zero and do not fall with short-term capital market rates into negative territory, banks' liability margin shrinks. In an attempt to preserve their overall interest margin, banks raise long-term mortgage rates in response to a decline in short-term capital market rates, while they continue to decrease long-term mortgage rates when long-term market rates fall. Overall, our results imply that a policy rate cut reduces bank rates less in a negative-rate environment than in a positive-rate environment.
    Keywords: Interest rate pass-through, mortgages, monetary policy
    JEL: E43 E52 G21
    Date: 2021
  19. By: Laurence M. Ball; N. Gregory Mankiw
    Abstract: This paper examines the optimal accumulation of capital and the effects of government debt in neoclassical growth models in which firms have market power and therefore charge prices above marginal cost. In this environment, the real interest rate earned by savers is less than the net marginal product of capital. We establish a new method for evaluating dynamic efficiency that can be applied in such economies. A plausible calibration suggests that the wedge between the real interest rate and the marginal product of capital is more than 4 percentage points and that the U.S. economy is dynamically efficient. In addition, government Ponzi schemes can have different implications for welfare than they do under competition. Even if the government can sustain a perpetual rollover of debt and accumulating interest, the policy may nonetheless reduce welfare by depressing steady-state capital and aggregate consumption. These findings suggest that even with low interest rates, as have been observed recently, fiscal policymakers should still be concerned about the crowding-out effects of government debt.
    JEL: E13 E22 E62 H63 O41
    Date: 2021–03
  20. By: Mathias Hoffmann; Iryna Stewen; Michael Stiefel
    Abstract: Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.
    Keywords: Local public finance, firm-level investment, crowding-out, fiscal austerity, global and intra-European imbalances
    JEL: E62 F21 F32 H32
    Date: 2021–03
  21. By: Stefano Carattini; Garth Heutel; Givi Melkadze
    Abstract: We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk – whether ambitious climate policy can lead to macroeconomic instability. It can, but the risk can be alleviated through macroprudential policies – taxes or subsidies on banks’ assets. Then, we explore efficient climate and macroprudential policy in the long run and over business cycles. The presence of financial frictions affects the steady-state value and dynamic properties of the efficient carbon tax. Macroprudential policy alone, without a carbon tax, is not very effective at addressing the pollution externality.
    JEL: E32 G18 Q58
    Date: 2021–03
  22. By: Kroencke, Tim-Alexander; Schmeling, Maik; Schrimpf, Andreas
    Abstract: We identify a component of monetary policy news that is extracted from high-frequency changes in risky asset prices. These surprises, which we call "risk shifts", are uncorrelated, and therefore complementary, to risk-free rate surprises. We show that (i) risk shifts capture the lion's share of stock price movements around FOMC announcements; (ii) that they are accompanied by significant investor fund flows, suggesting that investors react heterogeneously to monetary policy news; and (iii) that price pressure amplifies the stock market response to monetary policy news. Our results imply that central bank information effects are overshadowed by short-term dynamics stemming from investor rebalancing activities and are likely to be more difficult to identify than previously thought.
    Keywords: Monetary Policy Surprises,Equity Premium,Fund Flows,Portfolio Rebalancing,Price Pressures
    JEL: G10 G12 E44
    Date: 2021
  23. By: Anna Belianska (Aix Marseille Univ, CNRS, AMSE, Marseille, France.); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE L-SE UMR 5824 and IUF.); Céline Poilly (Aix Marseille Univ, CNRS, AMSE, Marseille, France. CEPR and DIW Berlin.)
    Abstract: Higher uncertainty about government spending generates a persistent decline in the economic activity in the Euro Area. This paper emphasizes the transmission channels explaining this empirical fact. First, a Stochastic Volatility model is estimated on European government consumption to build a measure of government spending uncertainty. Plugging this measure into a SVAR model, we stress that government spending uncertainty shocks have recessionary, persistent and humped-shaped effects. Second, we develop a New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds. We argue that a portfolio effect-resulting from the imperfect substitutability among both assets-acts as a critical amplifier of the usual transmission channels.
    Keywords: government spending uncertainty, stochastic volatility, portfolio adjustment cost
    JEL: E62 E52
    Date: 2021–03
  24. By: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber; 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.
    Keywords: expectations management, inflation expectations, surveys
    JEL: E31 C83 D84
    Date: 2021
  25. By: Nadiia Shapovalenko (National Bank of Ukraine); ;
    Abstract: In this paper, I examine the forecasting performance of a Bayesian Vector Autoregression (BVAR) model with steady-state prior and compare the accuracy of the forecasts against the forecasts of QPM model and official NBU forecasts over the period 2016q1–2020q1. My findings suggest that inflation forecasts produced by the BVAR model are more accurate than those of the QPM model two quarters ahead and are competitive for the longer horizon. For GDP growth, the forecasts of the BVAR outperform those of the QPM for the whole forecast horizon. For inflation they also outperform the official NBU forecasts over the monetary policy horizon, whereas the opposite is true for the forecasts of the GDP growth.
    Keywords: BVAR, forecast evaluation, inflation forecasting
    JEL: C30 C53 E37
    Date: 2021–03–05
  26. By: Javier Andrés (Universidad de Valencia); Óscar Arce (Banco de España); Pablo Burriel (Banco de España)
    Abstract: The Phillips curve has flattened out over the last decades. We develop a model that rationalizes this phenomenon as a result of the observed increase in polarization in many industries, a process along which a few top firms gain an increasing share of their industry market. In the model, firms compete à la Bertrand and there is exit and endogenous market entry, as well as optimal up and downgrading of technology. Firms with larger market shares find optimal to dampen the response of their price changes, thus cushioning the shocks to their marginal costs through endogenous countercyclical markups. Thus, regardless of its causes (technology, competition, barriers to entry, etc.), the recent increase in polarization in many industries emerges in the model as the key factor in explaining the muted responses of inflation to movements in the output gap witnessed recently.
    Keywords: firm heterogeneity, Bertrand competition, Phillips curve, market share
    JEL: E31 E52 L1
    Date: 2021–02
  27. By: Jiaqi Li
    Abstract: This paper studies the impact of imperfect banking competition on aggregate fluctuations using a DSGE framework that features a Cournot banking sector. The paper highlights a new propagation mechanism of imperfect banking competition that operates via the dynamics of the expected marginal product of capital. Since capital is partly financed by bank loans, a higher expected return on capital implies that firms are more willing to borrow to invest in capital, making their capital and thus loan demand more inelastic. Market power enables banks to take advantage of the lower loan demand elasticity by charging a higher loan rate markup. Given that different shocks affect the dynamics of the expected return on capital differently, this paper finds that while the loan rate markup after a contractionary monetary policy shock increases and thus amplifies aggregate fluctuations, the impact of imperfect banking competition after a productivity shock is less clear and depends on the persistence of the shock.
    Keywords: Business fluctuations and cycles; Financial institutions; Interest rates
    JEL: E44 G21 L13
    Date: 2021–03
  28. By: Hideaki Aoyama; Corrado Di Guilmi; Yoshi Fujiwara; Hiroshi Yoshikawa
    Abstract: Low inflation was once a welcome to both policy makers and the public. However, Japan's experience during the 1990's changed the consensus view on price of economists and central banks around the world. Facing deflation and zero interest bound at the same time, Bank of Japan had difficulty in conducting effective monetary policy. It made Japan's stagnation unusually prolonged. Too low inflation which annoys central banks today is translated into the "Phillips curve puzzle". In the US and Japan, in the course of recovery from the Great Recession after the 2008 global financial crisis, the unemployment rate had steadily declined to the level which was commonly regarded as lower than the natural rate or NAIRU. And yet, inflation stayed low. In this paper, we consider a minimal model of dual labor market to explore what kind of change in the economy makes the Phillips curve flat. The level of bargaining power of workers, the elasticity of the supply of labor to wage in the secondary market, and the composition of the workforce are the main factors in explaining the flattening of the Phillips curve. We argue that the changes we consider in the model, in fact, has plausibly made the Phillips curve flat in recent years.
    Date: 2021–03
  29. By: AOYAMA Hideaki; Corrado DI GUILMI; FUJIWARA Yoshi; YOSHIKAWA Hiroshi
    Abstract: Low inflation was once a welcome to both policy makers and the public. However, Japan's experience during the 1990's changed the consensus view on price held by economists and central banks around the world. Facing deflation and the zero-interest-rate bound at the same time, BOJ had difficulty in conducting effective monetary policy. It unusually prolonged Japan's stagnation. The excessively low inflation which annoys central banks today is translated into the "Phillips curve puzzle." In the US and Japan, in the course of recovery from the Great Recession after the 2008 global financial crisis, the unemployment rate had steadily declined to the level which was commonly regarded as lower than the natural rate or NAIRU; and yet, inflation stayed low. In this paper, we consider a minimal model of labor market. The essential assumption is that the labor market is dual. In this model, we explore what kinds of changes in the economy flatten the Phillips curve. The level of bargaining power of workers, the elasticity of the supply of labor to wages in the secondary market and the composition of the workforce are the main factors in explaining the flattening of the Phillips curve. We argue that the changes we consider in the model, in fact, have plausibly flattened the Phillips curve in recent years.
    Date: 2021–01
  30. By: Benjamin Friedrich; Lisa Laun; Costas Meghir
    Abstract: This paper analyzes earnings inequality and earnings dynamics in Sweden over 1985–2016. The deep recession in the early 1990s marks a historic turning point with a massive increase in earnings inequality and earnings volatility, and the impact of the recession and the recovery from it lasted for decades. In the aftermath of the recession, we find steady growth in real earnings across the entire distribution for men and women and decreasing inequality over more than 20 years. Earnings dynamics differ substantially by gender, education, and origin. Men face lower volatility than women, but their earnings growth is more closely tied to the business cycle. Earnings volatility is also higher among high-educated and foreign-born workers. We document an important role of social benefits usage for the overall trends and for differences across sub-populations. Higher benefits enrollment, especially for women and immigrants, is associated with higher earnings volatility. As the generosity and usage of benefit programs declined over time, we find stronger earnings growth among low-income workers, consistent with higher self-sufficiency.
    JEL: E24 E25 J24 J3
    Date: 2021–03
  31. By: Tanaka, Yasuhito
    Abstract: 独占的競争のもとでの世代重複モデルを用いて需要不足による非自発的失業の存在につい て考えるとともに,財政政策によって完全雇用を実現する可能性を検討する。主な結論は 以下の通りである。非自発的失業が存在する状況において財政支出の拡大によって完全雇 用を実現するためには財政赤字にして政府債務を作る必要があるが,その後完全雇用を維 持するためには均衡財政が求められる。したがって最初の政府債務を返済する必要はない 。同様に減税によって完全雇用を実現する場合も,その減税による直接的な消費増加分の 財源は政府債務で賄い,それを返済する必要はない。政府債務を返済しないというのは満 期のない国債にするか,中央銀行が買い取ることを意味する。
    Keywords: 世代重複モデル,独占的競争,非自発的失業,完全雇用,財政政策,減税
    JEL: E12 E24
    Date: 2021–03–10
  32. By: Gaillard, Alexandre; Kankanamge, Sumudu
    Abstract: We evaluate the effects of unemployment insurance variations in a general equilibrium occupational choice model of entrepreneurship. We establish that the occupational flow from unemployment to entrepreneurship is remarkably sensitive to unemployment insurance generosity, corroborating our empirical findings. Beyond direct effects on unemployment, we find large reallocations between employment and entrepreneurship relative to changes in generosity. They contribute to an empirically consistent stable aggregate employment rate, despite increasing unemployment. We show that an insurance coverage effect, i.e. a change in the relative riskiness between occupations with respect to generosity, is a key driver of our results.
    Keywords: Entrepreneurship; Unemployment Insurance; Labor Market Mobility
    JEL: E24 J65 E61
    Date: 2021–02–08
  33. By: Nezih Guner (CEMFI); Javier López-Segovia (CEMFI); Roberto Ramos (Banco de España)
    Abstract: Can the Spanish government generate more tax revenue by making personal income taxes more progressive? To answer this question, we build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. Our answer is yes, but not much. A reform that increases labor income taxes for individuals who earn more than the mean labor income and reduces taxes for those who earn less than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an effective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The increase in revenue from labor income taxes is only 0.82%, while the total tax revenue declines by 1.55%. The higher progressivity is associated with lower aggregate labor supply and capital. As a result, the government collects higher taxes from a smaller economy. The total tax revenue is higher if marginal taxes are raised only for the top earners.The increase, however, must be substantial and cover a large segment of top earners. The rise in tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than €41,699) raises total tax revenue by 2.81%.
    Keywords: taxation, progressivity, top earners, labor supply, Laffer curve
    JEL: E21 E6 H2 J2
    Date: 2020–12
  34. By: Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
    Abstract: Governments face a trade-off between insuring bondholders and taxpayers. If the government fully insures bondholders by manufacturing risk-free zero-beta debt, then it cannot also insure taxpayers against permanent macroeconomic shocks over long horizons. Instead, taxpayers will pay more in taxes in bad times. Conversely, if the government fully insures taxpayers against adverse macro shocks, then the debt becomes risky, at least as risky as unlevered equity claim. As the world’s safe asset supplier, the U.S. appears to have escaped this trade-off thus far, whereas the U.K. has not.
    Keywords: fiscal policy, term structure, debt maturity, convenience yield
    JEL: E62 F34 G12
    Date: 2021
  35. By: Andrea Bellucci (European Commission - Joint Research Centre and MoFiR); Alexander Borisov (University of Cincinnati, USA and MoFiR, Italy); Gianluca Gucciardi (European Commission - Joint Research Centre and MoFiR); Alberto Zazzaro (University of Naples Federico II, CSEF and MoFiR.)
    Abstract: We examine possible reallocation effects on venture capital (VC) investment due to the spread of COVID-19 around the globe. Exploiting the staggered nature of the pandemic and transaction-level data, we empirically document a shift of venture capital towards deals in pandemic-related categories. A difference-in-differences analysis estimates significant increases in invested amount and number of deals in such categories. We further highlight several heterogenous effects related to the experience of VC investors, their organizational form, and country of origin. Our results underscore the link between the spread of the pandemic and the functioning of the VC market around the world. The probabilities of consumption drops and increased saving are positively associated to fear of contagion, particularly while shopping, traveling and eating out. Income uncertainty, measured by the probability of job loss, also contributes to explain the increase in saving and the drop in consumption. Our findings suggest that fear of contagion and income uncertainty limits the effectiveness of policies aimed at stimulating consumption during the pandemic.
    Keywords: Venture Capital, Investment, COVID-19, Healthcare, Pandemic.
    JEL: G24 F21 D81 E22 E44
    Date: 2021–01–31
  36. By: Julie L. Hotchkiss
    Abstract: Black workers experience what is known as a "high-beta" effect across the business cycle. They are hit harder during recessions but benefit more from the momentum of a recovery, especially during particularly strong economic periods. For three years preceding the COVID-19 recession, the United States was enjoying what has been referred to as a "hot" economy. During this time, Black workers regained some of the ground lost in labor market outcomes during the Great Recession, relative to white workers. The sudden onset of the COVID-19 recession reversed that progress. Even though the Congressional Budget Office projects the U.S. economy to regain its hot status as early as 2024, the negative impact of the COVID-19 recession could linger.
    Keywords: labor market disparities; labor market gaps; unemployment; racism; hysteresis
    JEL: E24 E60 J64
    Date: 2021–02–17
  37. By: Camehl, Annika; Rieth, Malte
    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: Bayesian analysis,coronavirus,epidemics,general equilibrium,non-pharmaceutical interventions,panel data,structural vector autoregressions
    JEL: C32 E32 I18
    Date: 2021
  38. By: Federico Bassi (Centre de recherche en économie de l’Université Paris Nord (CEPN)); Tom Bauermann (Ruhr-University Bochum); Dany Lang (Université Sorbonne Paris Nord); Mark Setterfield (New School for Social Research)
    Abstract: Post Keynesian macrodynamic models make various assumptions about the normal rate of capacity utilization. Those rooted in the Classical and neo-Keynesian traditions assume the normal rate is fixed, whereas Kaleckian models treat it as a variable that is endogenous to the actual rate of capacity utilization. This paper contributes to the debate about the normal rate of capacity utilization by developing a model of strong or genuine hysteresis, in which firms make discrete decisions about the normal rate depending on the degree of uncertainty about demand conditions. An agent-based model based on empirical analysis of 25 sectors of the US economy is used to show that hysteresis can cause variation in the normal rate of capacity utilization within a subset of the range of observed variation in the actual capacity utilization rate. This suggests that the economy exhibits both constancy and (endogenous) variability in the normal rate of utilization over different ranges of variation in the actual rate. More broadly speaking, the genuine hysteresis model is shown to provide the basis for a synthesis of Post Keynesian macrodynamics that draws on both the Classical/neo-Keynesian and Kaleckian modeling traditions.
    Keywords: Normal rate of capacity utilization, Harrodian instability, genuine hysteresis, Kaleckian growth theory
    JEL: C36 E11 E12 L6 L7 L9
    Date: 2020
  39. By: Yongyang Cai; Kenneth L. Judd
    Abstract: We introduce a novel simulated certainty equivalent approximation (SCEQ) method for solving dynamic stochastic problems. Our examples show that this method only requires a desktop computer to solve high-dimensional finite- or infinite-horizon, stationary or nonstationary dynamic stochastic problems with hundreds of state variables, a wide state space, and occasionally binding constraints. The SCEQ method is simple, stable, and efficient, which makes it suitable for solving complex economic problems that cannot be solved by other algorithms.
    JEL: C61 C63 C68 E31 E52 Q54 Q58
    Date: 2021–02
  40. By: Hetzel, Robert (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: In August 2020, FOMC chair Jerome Powell announced a strategy for achieving an inclusive value of the FOMC’s goal of maximum employment. The strategy rests on discovering the minimal value of sustainable unemployment by running the economy above potential until the unemployment rate declines to a level that initiates an inflation overshoot from the FOMC’s longer-run 2 percent target. There is presumably no contradiction with an FOMC target for inflation of 2 percent. As indicated by the appellation “flexible-average-inflation targeting” (FAIT), the inflation overshoot would compensate for prior undershoots of the 2 percent target. The FOMC’s current framework is reminiscent of the 1970s. With a country fractured over the Vietnam War and a militant civil rights movement, a socially desirable low unemployment rate became a political imperative. FOMC chairman Arthur Burns accepted the challenge (Hetzel 1998, 2008, Ch. 8). The Keynesian consensus of the time promised to deliver a socially desirable rate of unemployment at least as low as 4 percent at the cost of only moderate inflation. This desirable Phillips curve trade-off between unemployment and inflation became the centerpiece of monetary policy. Modigliani and Papademos (1975 and 1976) provided the organizing principle for monetary policy. Namely, there is a predictable and “exploitable” trade-off in which changes in inflation depend upon the difference between the unemployment rate and a full-employment rate termed the nonaccelerating inflation rate of unemployment (NAIRU). At least in 2021, however, the FOMC assumption is that there is no trade-off because the Phillips curve is assumed flat at least down to its prepandemic low of 3.5%. When persistent inflation above 2% emerges, the adjective “flexible” in FAIT becomes relevant. The FOMC will then trade off between two competing goals – 2% inflation and inclusive maximum employment.
    Date: 2021–03
  41. By: Lei Fang; Fang Yang
    Abstract: We document large differences between the United States and France in allocations of consumption expenditures and time by age. Using a life-cycle model, we quantify to what extent tax and transfer programs and market and home productivity can account for the differences. We find that while labor efficiency by age and home-production productivity are crucial in accounting for the differences in the allocation of time, the consumption tax and social security are more important regarding allocation of expenditures. Adopting the U.S. consumption tax decreases welfare in France, and adopting the U.S. social security system increases welfare in France.
    Keywords: consumption expenditure; home production; labor supply; fiscal policy
    JEL: E21 E62 J22 O57 H31
    Date: 2021–01–29
  42. By: Sugandi, Eric Alexander (Asian Development Bank Institute)
    Abstract: We examine the impact of the COVID-19 pandemic on Indonesia’s financial markets and monetary policy dynamics. We explore five types of financial markets in Indonesia: (1) the Indonesian rupiah (IDR) interbank money market; (2) the US Dollar (USD) interbank money market; (3) government conventional bond (SUN) markets; (4) the stock market; and (5) the USD/IDR spot market. We examine Bank Indonesia's (BI) three types of monetary policy instrument: (1) BI seven-day reverse repo rate; (2) minimum reserve requirement ratios; and (3) BI’s monetary operations. We find that the COVID-19 pandemic causes different impacts of particular monetary policy instruments on Indonesia’s financial markets during the pandemic compared with those in the non-pandemic period.
    Keywords: COVID-19; monetary policy; Indonesia’s financial markets; Bank Indonesia
    JEL: E58 G10
    Date: 2020–11–16
  43. By: Armelius, Hanna; Claussen, Carl Andreas; Hull, Isaiah
    Abstract: We explain why all CBDCs will need a ledger that keeps track of CBDC ownership regardless of whether they are “token-based”, “DLT-based” or “on a blockchain”; and regardless of how we define these terms. Consequently, token-based CBDCs appear not to have a greater capacity for providing payments that are peer-to-peer, offline or anonymous like cash than “account-based” CBDCs.
    Keywords: CBDC,Tokens,Offline
    JEL: E42 E51
    Date: 2021
  44. By: Tatsushi Okuda (Bank of Japan); Tomohiro Tsuruga (International Monetary Fund); Francesco Zanetti (University of Oxford)
    Abstract: Using sector-level survey data for the universe of Japanese firms, we establish the positive co-movement in the firm’s expectations about aggregate and sector-specific demand shocks. We show that a simple model with imperfect information on the current aggregate and sector-specific components of demand explains the positive co-movement of expectations in the data. The model predicts that an increase in the relative volatility of sector-specific demand shocks compared to aggregate demand shocks reduces the sensitivity of inflation to changes in aggregate demand. We test and corroborate the theoretical prediction on Japanese data and find that the observed decrease in the relative volatility of sector-specific demand has played a significant role for the decline in the sensitivity of inflation to movements in aggregate demand from mid-1980s to mid-2000s.
    Keywords: Imperfect information, Shock heterogeneity, Inflation dynamics.
    JEL: E31 D82 C72
    Date: 2021–03
  45. By: International Monetary Fund
    Abstract: In the past two decades, Paraguay has seen strong growth and a sharp reduction in poverty. Strong GDP growth was the result of sound macro policies (with low inflation and low fiscal deficits and debt) and an agricultural commodity price boom which spilled over to the non-tradable sector. Growth was not just high but also volatile, as bad weather shocks led to poor harvests, which spill over to the broader economy. In early 2020, Paraguay was rebounding strongly from another weather shock, and full-year growth was forecast at over 4 percent. In 2019, bad weather had reduced the harvest, and GDP growth had come to a near standstill. A recovery started in the second half of 2019 and gathered strength in early 2020—in February economic activity was 7 percent higher than a year earlier. The Covid-19 epidemic halted the recovery. An early lockdown—which kept the death toll among the lowest in the region—led to a sharp contraction in economic activity, with April activity levels at 20 percent below those in February. Women, informal sector workers, and workers in the service sector were particularly hard hit; while children were severely affected by the closing of the schools until the end of 2020.
    Date: 2021–03–04
  46. By: Stefania Albanesi; Jiyeon Kim
    Abstract: The economic crisis associated with the emergence of the novel corona virus is unlike standard recessions. Demand for workers in high contact and inflexible service occupations has declined, while parental supply of labor has been reduced by lack of access to reliable child care and in-person schooling options. This has led to a substantial and persistent drop in employment and labor force participation for women, who are typically less affected by recessions than men. We examine real time data on employment, unemployment, labor force participation and gross job flows to document the gendered impact of the pandemic. We also discuss the potential long-term implications of this crisis, including the role of automation in depressing the recovery of employment for the worst hit service occupations.
    JEL: E24 J16 J2 J21 J23
    Date: 2021–02
  47. By: Ioannis Chatziantoniou (University of Portsmouth); David Gabauer (Software Competence Center Hagenberg); Alexis Stenfor (University of Portsmouth)
    Abstract: We investigate 1-year interest rate swaps on USD, EUR, JPY and GBP between 2005 and 2020 utilising a quantile connectedness model. This approach allows for a nuanced investigation of connectedness and adds to understanding the monetary policy transmission mechanism within a highly integrated international financial system. Substantial interest rate changes (in either direction) matter for connectedness in financial markets. The results also indicate which currency drives developments depending on the direction of the change in interest rates.
    Keywords: Interest Rate Swaps; Monetary Policy Transmission Mechanism; Quantile Vector Autorergression
    JEL: C51 E43 F65 G15
    Date: 2021–03–08
  48. By: T. Carraro; Edoardo Gaffeo (Department of Economics and Management, Universita' degli Studi di Trento (Italy).); Marco Gallegati (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche)
    Abstract: In this paper we present a model where frictions in the supervision process may set the stage for strategic complementarities among banks. We derive the conditions for strategic complementarities in the behavior of banks in a banking system in which the supervisory authority has a budget constraint on the resources to allocate for monitoring, and supervision is costly for banks. In such a framework, the goal of macroprudential policies consists in simultaneously restraining the incentive of banks in extending risky loans, without forcing the system towards a corner solution where all or none of the banks provide credit. We point out that the countercyclical bu er is a proper tool to reduce the number of banks issuing a higher amount of credit during booms, while a loan-support-program can increase the number of banks issuing higher credit during downturns.
    Keywords: Banking Crisis; Strategic complementarity; Macroprudential Supervision
    JEL: C49 E44 G32
    Date: 2021–03
  49. By: Niftiyev, Ibrahim
    Abstract: Is it possible to apply Principal Component Analysis (PCA) in the Azerbaijan economy? Before blindly answering the question, careful examination of the collected data and the relevance of the data set to the mentioned analysis should be checked. PCA is a widely used multivariate dimension reduction tool that statistical analysis employs. Nevertheless, its application area is limited. Also, PCA analysis in macroeconomic studies is not much preferred and in Azerbaijan's case, there is not one. To understand this methods' relevance two case studies, namely vegetable and fruit sectors have been chosen. The aim was to quantify the sub-sectoral performance via vegetable and fruit sectors. The collected data set and PCA analysis on it were evaluated from multiple angles to outline the roadmap for future investigations. The author argues that in line with the method's theoretical expectations, Azerbaijan's vegetable and fruit sectors partially fulfill the planned goals of the analysis. This means PCA is a highly useful analytical tool and might produce valuable sub-sectoral performance evaluations in the case of Azerbaijan. According to the produced indices, the vegetable sector performed better than the fruit sector from 1999 until 2015. However, between 2015-2020 fruit sector outperformed the vegetable sector. A similar analysis can be organized among the other sub-sectors or between sectors in the case of the Azerbaijan economy. Furthermore, this working paper embodies experimentation results, not conclusions about the methods' validity and justification. Hence, this work compares three rotations of PCA analysis (Varimax, Quartimax, and Equamax) and constructed indices separately for vegetable and fruit sectors.
    Keywords: Azerbaijan economy,Principal Component Analysis (PCA),agriculture,agrarian sectors,vegetable sector,fruit sector,economic diversifcation,sub-sectoral performance,ecoomic performance evaluation
    JEL: E01 C38 O13 Q11 Q18
    Date: 2021
  50. By: Odhiambo, Nicholas M
    Abstract: In this paper, the casual relationship between foreign direct investment (FDI) and economic growth in Kenya during the period 1980-2018 is examined. In an attempt to address the omission-of-variable bias, which has been detected in some previous studies, two variables, namely money supply and trade, are used as intermittent variables, thereby leading to a system of multivariate Granger-causality equations. Using the ARDL bounds testing approach, the results show that there is a unidirectional causal flow from economic growth to FDI in Kenya. These results apply, irrespective of whether the causality is conducted in the short run or in the long run. Based on these results, it can be concluded that the current burgeoning FDI inflows that Kenya has attracted in recent years are largely driven by the strong economic growth and prudent macroeconomic policies that the country has been pursuing in recent decades. To our knowledge, this may be the first study of its kind to examine in detail the causal relationship between FDI and economic growth in Kenya in recent years. Policy implications are discussed.
    Date: 2021–01
  51. By: International Monetary Fund
    Abstract: Indonesia has responded with a bold and comprehensive policy package to cushion the impact of the COVID-19 pandemic. The economy rebounded in the third quarter of 2020, and the economic recovery is projected to strengthen in 2021 and 2022. Strong policy support and an improving global economy will be the main drivers initially, and greater mobility and confidence will follow with the planned vaccination program in 2021. The uncertainty surrounding the growth outlook is larger than usual. Early completion of a widespread vaccination program is an upside risk, while a protracted pandemic remains a downside risk. The macro-financial fallout of the pandemic and economic downturn could be larger than expected, and credit conditions could be slow to improve. Ongoing reforms aimed at promoting investment are expected to help mitigate the scarring effects from the pandemic and put the economy on a sustained growth path that builds on Indonesia’s favorable demographics.
    Date: 2021–03–02
  52. By: Janet Hua; Yu Zhu
    Abstract: This paper investigates how the introduction of an interest-bearing central bank digital currency (CBDC) that serves as a perfect substitute for bank deposits as an electronic means of payment affects monetary policy pass-through. When the deposit market is not fully competitive, the CBDC tends to weaken the pass-through of the interest on reserves. The interest on CBDC impacts the deposit market more directly compared with the interest on reserves. The CBDC rate can also have stronger pass-through to the loan market; however, the effect can be dampened by the policy on the interest on reserves. Therefore, coordination between the two policy rates is needed to effectively achieve policy goals.
    Keywords: Digital currencies and fintech; Monetary policy transmission
    JEL: E52
    Date: 2021–03
  53. By: Klaus Gründler; Tommy Krieger
    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
  54. By: Youngsoo Jang; Soyoung Lee
    Abstract: Default risk models have been widely employed to assess the ability of households and sovereigns to insure themselves against shocks. Grid search has often been used to solve these models because the complexity of the problem prevents the use of faster but less general methods. In this paper, we propose an extension of the endogenous grid method for default risk models, which is faster and more accurate than grid search. In particular, we find that our solution method leads to a more accurate bond price function, thus making substantial differences in the model’s main predictions. When applied to Arellano’s (2008) model, our approach predicts a standard deviation of the interest rate spread one-third lower and defaults 3 to 5 times less frequently than does the conventional approach. On top of that, our method is efficient. It is approximately 4 to 7 times faster than grid search when applied to a canonical model of Arellano (2008) and 19 to 27 times faster than grid search when applied to the richer model of Nakajima and Ríos-Rull (2014). Finally, we show that our method is applicable to a broad class of default risk models by characterizing sufficient conditions.
    Keywords: Credit and credit aggregates; Credit risk management
    JEL: C63 E37
    Date: 2021–03
  55. By: International Monetary Fund
    Abstract: Costa Rica has been hit hard by the COVID-19 pandemic, notwithstanding the authorities’ proactive policy response and the country’s well-established universal healthcare system. The socio-economic impact has been significant, exacerbating an already fragile outlook and pre-existing imbalances, with a significant toll on economic activity and unemployment—especially among women and the young. The shock has further weakened the country’s fiscal position, undermining the expected yields from the ambitious fiscal reform launched in late 2018, and generated a large financing gap. Financial support through the Fund’s Rapid Financing Instrument (RFI) in 2020 provided temporary relief to respond to the pandemic, including by catalyzing financial assistance from other official partners, but financing needs remain sizable over the medium term.
    Date: 2021–03–01
  56. By: Pencavel, John (Stanford University)
    Abstract: For a century, two labor market empirical regularities characterized the movements of the hours of work, employment, and hourly compensation of American manufacturing production workers. They resembled conditional labor supply functions. Increases in employment substituted for reductions in hours per worker. The implied elasticities of hours and employment with respect to hourly earnings declined in absolute value over time. The activities of trade unions and the effects of statutory legislation contribute to the explanations for what is observed. Recently,changes in real hourly earnings contribute little to understanding movements in hours of work and in employment of these workers.
    Keywords: hours, employment, hourly compensation, labor supply
    JEL: J22 E24 N32
    Date: 2021–03
  57. By: Raphael Auer; Cyril Monnet; Hyun Song Shin
    Abstract: We explore the economics and optimal design of "permissioned" distributed ledger technology (DLT) in a credit economy. Designated validators verify transactions and update the ledger at a cost that is derived from a supermajority voting rule, thus giving rise to a public good provision game. Without giving proper incentives to validators, however, their records cannot be trusted because they cannot commit to verifying trades and they can accept bribes to incorrectly validate histories. Both frictions challenge the integrity of the ledger on which credit transactions rely. In this context, we examine the conditions under which the process of permissioned validation supports decentralized exchange as an equilibrium, and analyze the optimal design of the trade and validation mechanisms. We solve for the optimal fees, number of validators, supermajority threshold and transaction size. A stronger consensus mechanism requires higher rents be paid to validators. Our results suggest that a centralized ledger is likely to be superior, unless weaknesses in the rule of law and contract enforcement necessitate a decentralized ledger.
    Keywords: digital currencies, money, distributed ledger, blockchain, coordination game, global game, consensus, market design
    JEL: C72 C73 D4 E42 G2 L86
    Date: 2021–01
  58. By: Yunus Aksoy (Birkbeck, University of London); Henrique S. Basso (Banco de España); Carolyn St Aubyn (Birkbeck, University of London)
    Abstract: We document systematic and signicant time variation in US lifecycle nondurable consumption profiles. Consumption profiles have consistently become flatter: intergenerational differences in consumption across age groups have decreased over time. Pooling data across different periods to identify lifecycle proles and failing to account for unobserved heterogeneity masks relevant time variations and may articially generate hump-shaped consumption age profiles. The main driver behind lifecycle consumption variations are lifecycle income changes, which display similar flattening. Employing a lifecycle model we show changes in income are sufficient to match the movements in consumption.
    Keywords: age profile of consumption, age profile of income, cohort effects, consumption heterogeneity, time variation, pooling
    JEL: E21 J11
    Date: 2021–01
  59. By: Toptancı, Ali İskan
    Abstract: Increases in oil prices; It is due to the recession, periods of extreme inflation, reduced productivity, and low economic growth. In this study, the arguments supporting such views will be examined. It will first examine how it evolves in response to conceptual challenges in assigning a central role to oil price shocks in explaining macroeconomic fluctuations. Second, the idea that at least large oil price movements can be viewed as external to the US macroeconomy will be challenged. The evidence that has led many economists to give the oil market a central role in external political events will be examined critically. Third, even if none of the oil shocks are associated with stagflation of the US economy, the continuation of the oil shock, the US stagflation of the 1970s, is the idea that only oil price shocks can explain. This is not the case
    Keywords: Oil,Oil Price Shock,U.S.,Stagflation,Macroeconomics
    Date: 2021
  60. By: International Monetary Fund
    Abstract: Pre-pandemic, Bosnia and Herzegovina’s (BiH) economy was growing, but at a pace below the more successful countries in Eastern Europe. The pandemic generated a substantial output contraction in 2020. Early in the pandemic, the authorities successfully implemented restrictions to prevent the spread of the virus and took measures to support firms and households. However, the ongoing second wave poses additional challenges. A gradual recovery is expected for the second half of 2021. Political disagreements about policy coordination at the BiH State level have hampered program implementation under the 2016 EFF arrangement and the deepening of the single economic space. The challenge is to deal with the pandemic and put the economy on a higher medium-term growth trajectory.
    Date: 2021–02–26
  61. By: Kéa Baret; Amélie Barbier-Gauchard; Théophilos Papadimitriou
    Abstract: Since the reinforcement of the Stability and Growth Pact (1996), the European Commission closely monitors public finance in the EU members. A failure to comply with the 3% limit rule on the public deficit by a country triggers an audit. In this paper, we present a Machine Learning based forecasting model for the compliance with the 3% limit rule. To do so, we use data spanning the period from 2006 to 2018 (a turbulent period including the Global Financial Crisis and the Sovereign Debt Crisis) for the 28 EU Member States. A set of eight features are identified as predictors from 141 variables through a feature selection procedure. The forecasting is performed using the Support Vector Machines (SVM). The proposed model reached 91.7% forecasting accuracy and outperformed the Logit model that we used as benchmark.
    Keywords: Fiscal Rules; Fiscal Compliance; Stability and Growth Pact; Machine learning.
    JEL: E62 H11 H60 H68
    Date: 2021
  62. By: Kevin Genna (Aix-Marseille Univ., CNRS, AMSE, Marseille, France); Christian Ghiglino (Department of Economics, University of Essex, UK); Kazuo Nishimura (RIEB, Kobe University, Japan); Alain Venditti (Aix-Marseille Univ, CNRS, AMSE, Marseille & EDHEC Business School, France)
    Abstract: How will structural change unfold beyond the rise of services? Motivated by the observed dynamics within the service sector we propose a model of structural change in which productivity is endogenous and output is produced with two intermediate substitutable capital goods. In the progressive sector the accumulation of knowledge leads to an unbounded increase in TFP, as sector becoming asymptotically dominant. We are then able to recover the increasing shares of workers, the increasing real and nominal shares of the output observed in progressive service and IT sectors in the US. Interestingly, the economy follows a growth path converging to a particular level of wealth that depends on the initial price of capital and knowledge. As a consequence, countries with the same fundamentals but lower initial wealth will be characterized by lower asymptotic wealth.
    Keywords: two-sector model, technological knowledge, constant elasticity of substitution, non-balanced endogenous growth, structural change, Kaldor and Kuznets facts
    JEL: C62 E32 O41
    Date: 2021–03
  63. By: Persyn, Damiaan
    Abstract: I argue in this paper that the estimation of wage rigidity using country level data suffers from aggregation bias. Using European data for the years 2000-2017, I find that wages respond less flexibly to changes in unemployment at the regional level, compared to estimation using the same data aggregated at the country level. A possible explanation is that in the European data changes in aggregate unemployment tend to be driven by regions with low unemployment rates, while unemployment in regions with high unemployment rates is less variable and less responsive to aggregate shocks. The relationship between unemployment and wages -the wage curve- is downward sloping and convex. Due to this nonlinearity, the higher variability in lower regional unemployment rates implies higher observed wage flexibility at the aggregate country level, and biased inference. The implication is that wages are even less responsive to changes in unemployment than is observed in aggregate data and commonly assumed in macro-economic models, such that for example fiscal stimulus would lead to less wage inflation than anticipated.
    Keywords: labour market frictions; unemployment; aggregation bias
    JEL: C18 E3 J31
    Date: 2021–03–03
  64. By: Pedro Bento (Texas A&M University, Department of Economics)
    Abstract: The number of women-owned businesses in the U.S. has soared over the last several decades, even compared to the rise in female labor market participation. In 1982 less than 9 percent of working women owned businesses, compared to over 17 percent of men. By 2012 more than 18 percent of women owned businesses while the analogous rate for men only slightly increased to almost 20 percent. This and other evidence suggests that women have faced significant barriers to starting and running businesses and these barriers have been declining over time. I examine the impact of these trends on aggregate output and the welfare of women and men in the labor force. Interpreted through the lens of a model of entrepreneurship, observed trends imply substantial declines in several barriers facing female entrepreneurs. Together, these changes account for over 12 percent of observed growth in aggregate output, a 3 percent decrease in men's welfare, and an 18 percent increase in the welfare of women since 1982. These impacts are in addition to any gains to workers from declining labor market barriers.
    Keywords: women, entrepreneurship, business dynamism, misallocation, aggregate productivity, economic growth.
    JEL: E02 E1 J7 O1 O4
    Date: 2020–12–01
  65. By: Mitman, Kurt (Stockholm University); Rabinovich, Stanislav (University of North Carolina, Chapel Hill)
    Abstract: We investigate the optimal response of unemployment insurance to economic shocks, both with and without commitment. The optimal policy with commitment follows a modified Baily-Chetty formula that accounts for job search responses to future UI benefit changes. As a result, the optimal policy with commitment tends to front-load UI, unlike the optimal discretionary policy. In response to shocks intended to mimic those that induced the COVID-19 recession, we find that a large and transitory increase in UI is optimal; and that a policy rule contingent on the change in unemployment, rather than its level, is a good approximation to the optimal policy.
    Keywords: unemployment insurance, unemployment, optimal policy, COVID-19
    JEL: J65 E6 H1
    Date: 2021–01
  66. By: Gabriel E. Kreindler; Yuhei Miyauchi
    Abstract: We show how to use commuting flows to infer the spatial distribution of income within a city. A simple workplace choice model predicts a gravity equation for commuting flows whose destination fixed effects correspond to wages. We implement this method with cell phone transaction data from Dhaka and Colombo. Model-predicted income predicts separate income data, at the workplace and residential level, and by skill group. Unlike machine learning approaches, our method does not require training data, yet achieves comparable predictive power. We show that hartals (transportation strikes) in Dhaka reduce commuting more for high model-predicted wage and high-skill commuters.
    JEL: C55 E24 R14
    Date: 2021–02
  67. By: Eeva Kerola; Benoit Mojon
    Abstract: It is important to understand the growth process under way in China. However, analyses of Chinese growth became increasingly more difficult after the real GDP doubling target was announced in 2012 and the official real GDP statistics lost their fluctuations. With a dataset covering 31 Chinese provinces from two decades, we have substantially more variation to work with. We find robust evidence that the richness of the provincial data provides information relevant to understand and project Chinese aggregates. Using this provincial data, we build an alternative indicator for Chinese growth that is able to reveal fluctuations not present in the official statistical series. Additionally, we concentrate on the determinants of Chinese growth and show how the drivers have gone through a substantial change over time both across economic variables and provinces. We introduce a method to understand the changing nature of Chinese growth that can be updated regularly using principal components derived from the provincial data.
    Keywords: China, GDP, provincial data, business cycles, principal component
    JEL: C38 E01 E3 P2
    Date: 2021–01
  68. By: International Monetary Fund
    Abstract: The COVID-19 pandemic is having a severe impact on São Tomé and Príncipe’s economy, exacerbating fiscal and external imbalances. Tourism activities and external remittances dropped sharply, while lockdown measures further deepened the recession. The authorities’ swift actions and unprecedented international financial support are helping the country weather the emergency. The economy began to reopen in the fall, but the outlook for 2021 remains challenging and subject to significant uncertainty.
    Date: 2021–03–03
  69. By: Ringwald, Leopold; Zörner, Thomas O.
    Abstract: This paper proposes a Bayesian Logistic Smooth Transition Autoregressive (LSTAR) model with stochastic volatility (SV) to model inflation dynamics in a nonlinear fashion. Inflationary regimes are determined by smoothed money growth which serves as a transition variable that governs the transition between regimes. We apply this approach on quarterly data from the US, the UK and Canada and are able to identify well-known, high inflation periods in the samples. Moreover, our results suggest that the role of money growth is specific to the economy under scrutiny. Finally, we analyse a variety of different model specifications and are able to confirm that adjusted money growth still has leading indicator properties on inflation regimes.
    Keywords: Money-inflation link, Nonlinear modeling, Bayesian inference, LSTAR-SV model
    Date: 2021–03
  70. By: David Martinez Turegano (European Commission - JRC)
    Abstract: Inspired by the ideas developed in Timmer (2017), this paper proposes a measure of Global Value Chain – Total Factor Productivity (GVC-TFP) and a decomposition of its changes into three informative factors: changes in factor requirements associated with efficiency gains/losses in the use of capital and labour, shifts in the distribution of value added due to changes in factor shares, and shifts in the composition of the value chain, which are mainly due to geographical relocation of production stages. Based on the World Input-Output Database (WIOD), we use this methodology to analyse the evolution of GVC-TFP in different sectors across EU27 Member States between 2000 and 2014. Comparing the periods before and after the Great Recession, we find a sharp contrast between the intensity, the sectoral composition, geographical contributions and the nature of the driving forces of GVC-TFP developments. In the context of the economic crisis following the COVID-19 pandemic, in which import dependency and supply security mark the debate on the future of the EU Single Market, we find that our methodology could contribute to a comprehensive assessment of strategic restructuring of value chains.
    Keywords: Productivity, value chain, sectoral heterogeneity, convergence, European Union
    JEL: E24 F14 F23 L16
    Date: 2021–03
  71. By: Gabriel Jiménez (Banco de España); David Martínez-Miera (Universidad Carlos III de Madrid and CEPR); José-Luis Peydró (Imperial College London, ICREA, Universitat Pompeu Fabra, CREI, Barcelona GSE, and CEPR)
    Abstract: We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong – but not complete – tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks’ risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans.
    Keywords: taxes, incidence, banks, inequality, risk-taking, mortgages
    JEL: E51 G21 G28 G51 H22
    Date: 2020–12
  72. By: Marcelo Garriga
    Abstract: El objetivo de este trabajo es estudiar los efectos de la existencia de tasas reducidas, bienes a tasa cero y exenciones del IVA en Argentina sobre los precios de los bienes (efectos sobre la eficiencia económica), el impacto distributivo y la eficiencia recaudatoria. Este aspecto de la política impositiva, parecería ser un tema olvidado, o poco analizado, cuando se debate y se realizan estudios sobre la política tributaria del país. El impuesto al valor agregado se ha constituido a lo largo del tiempo en un tributo clave de la estructura impositiva argentina, con una recaudación de 7,6% del PBI en el año 2018 y una participación en el total de recursos tributarios del 32,6%. La eficiencia “C” es del 47%, lo que muestra que el potencial recaudatorio del IVA es enorme y cualquier posible reforma tributaria debería poner el foco en la mejora del diseño e implementación de este impuesto.
    JEL: H20 E62
    Date: 2019–08
  73. By: ; Claire Greene; Oz Shy
    Abstract: Using a representative sample of the U.S. adult population, we analyze which payment methods consumers use to pay other consumers (p2p) and how these choices depend on transaction and demographic characteristics. We additionally construct a random matching model of consumers with diverse preferences over the use of different payment methods for p2p payments. The random matching model is calibrated to the share of p2p payments made with cash, paper check, and electronic technologies observed from 2015 to 2019. We find about two thirds of consumers have a first p2p payment preference of cash. The remaining one third rank checks first. Approximately 93 percent of consumers rank electronic technologies second. Our empirical analysis finds that the most significant factors in determining the payment method used are the transaction value and the age and education of the payer.
    Keywords: consumer payment choice; person-to-person payments; electronic payments; mixed logit; machine learning; random matching
    JEL: D9 E42
    Date: 2021–02–05
  74. By: Boris Fisera (Slovak Academy of Sciences; Charles University, Prague); Menbere Workie Tiruneh (Slovak Academy of Sciences; Webster Vienna Private University); David Hojdan (Webster Vienna Private University)
    Abstract: We investigate the long-term effect of domestic currency depreciation on the external debt for a panel of 41 emerging economies over the years 1999-2019. Using heterogenous panel cointegration methods, we find that domestic currency depreciation leads to an increase in external debt to GDP ratio over the long-term and it reduces the sustainability of external debt. This is particularly the case for larger depreciations, while smaller depreciations might reduce the external debt burden over the long-term for more developed emerging economies. Poorer emerging economies face a greater increase in external debt burden following domestic currency depreciation. We also find that higher exchange rate volatility and the use of floating exchange rates contributes to an increase in external debt burden over the long-term. Consequently, our results suggest that for emerging economies, having more volatile and floating exchange rates reduces the sustainability of external debt. We find asymmetrical effects of exchange rate depreciation on external debt: higher central bank independence limits the effect of currency depreciation on external debt, while higher financial development and illicit financial flows augment the effect of depreciation on external debt.
    Keywords: external debt, exchange rate, currency depreciation, exchange rate volatility, exchange rate regime, DFE estimator, PMG estimator
    JEL: E50 F31 F34
    Date: 2021–03
  75. By: Pierre-Olivier Gourinchas; Sebnem Kalemli-Ozcan; Veronika Penciakova; Nick Sander
    Abstract: This paper assesses the prospects of a 2021 time bomb in small and medium-sized enterprises (SME) failures triggered by the generous support policies enacted during the 2020 COVID-19 crisis. Policies implemented in 2020, on their own, do not create a 2021 time bomb for SMEs. Rather, business failures and policy costs remain modest. By contrast, credit contraction poses significant risk. Such a contraction would disproportionately affect firms that could have survived COVID-19 in 2020 without any fiscal support. Even in that scenario, most business failures would not arise from excessively generous 2020 policies but rather from the contraction of credit to the corporate sector.
    Keywords: business formation; entrepreneurship; business dynamism; recessions
    JEL: L26 E32 M21
    Date: 2021–01–29
  76. By: Juliane Begenau; Tim Landvoigt
    Abstract: How does the shadow banking system respond to changes in capital regulation of commercial banks? We propose a quantitative general equilibrium model with regulated and unregulated banks to study the unintended consequences of regulation. Tighter capital requirements for regulated banks cause higher convenience yield on debt of all banks, leading to higher shadow bank leverage and a larger shadow banking sector. At the same time, tighter regulation eliminates the subsidies to commercial banks from deposit insurance, reducing the competitive pressures on shadow banks to take risks. The net effect is a safer financial system with more shadow banking. Calibrating the model to data on financial institutions in the U.S., the optimal capital requirement is around 16%.
    JEL: E41 E44 G21 G23 G28
    Date: 2021–02
  77. By: Luis Brandao-Marques; Marco Casiraghi; R. G Gelos; Gunes Kamber; Roland Meeks
    Abstract: This paper focuses on negative interest rate policies and covers a broad range of its effects, with a detailed discussion of findings in the academic literature and of broader country experiences.
    Keywords: Negative interest rates;Monetary policy;Bank lending rates;Nonbank financial institutions;Negative interest rates;monetary policy;bank lending and profitability;nonbank financial institutions
    Date: 2021–03–03
  78. By: Kenichiro McAlinn; Kosaku Takanashi
    Abstract: This paper studies the asymptotic convergence of computed dynamic models when the shock is unbounded. Most dynamic economic models lack a closed-form solution. As such, approximate solutions by numerical methods are utilized. Since the researcher cannot directly evaluate the exact policy function and the associated exact likelihood, it is imperative that the approximate likelihood asymptotically converges -- as well as to know the conditions of convergence -- to the exact likelihood, in order to justify and validate its usage. In this regard, Fernandez-Villaverde, Rubio-Ramirez, and Santos (2006) show convergence of the likelihood, when the shock has compact support. However, compact support implies that the shock is bounded, which is not an assumption met in most dynamic economic models, e.g., with normally distributed shocks. This paper provides theoretical justification for most dynamic models used in the literature by showing the conditions for convergence of the approximate invariant measure obtained from numerical simulations to the exact invariant measure, thus providing the conditions for convergence of the likelihood.
    Date: 2021–03
  79. By: André M. Marques; Gilberto Tadeu Lima
    Abstract: This paper tests for Granger causality in quantiles between the wage share and capacity utilization in twelve advanced countries using annual data ranging from 1960 to 2019. Instead of focusing only on the conditional mean, we test for causality in the full conditional distribution of the variables of interest. This interestingly allows detecting causal relations in both the mean and the entire conditional distribution. Based on confidence intervals generated by bootstrap resampling and the Wald test for joint significance, our main statistically significant results are the following. Capacity utilization positively causes the wage share in seven out of the twelve sample countries. In these countries, the Granger causal effect of capacity utilization on the wage share is strong and heterogeneous across quantiles, it being larger for more extreme quantiles. Capacity utilization positively Granger causes the wage share in all conditional quantiles in the U.S. The wage share negatively Granger causes capacity utilization in most conditional quantiles in Spain. There is no significant Granger causality in either direction between capacity utilization and the wage share in Norway, Canada, Portugal, and Greece.
    Keywords: Granger causality in distribution; quantile regression; bootstrap resampling; wage share; capacity utilization
    JEL: C32 C12 E22 E25
    Date: 2021–03–08
  80. By: Jesús Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
    Abstract: This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing 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.
    JEL: C63 C68 E32
    Date: 2021–02
  81. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: Extraordinary times require extraordinary policy responses. Against the backdrop of macroeconomic uncertainty due to the CoVID-19 pandemic, the union finance minister has announced a high fiscal deficit of 9.5% of gross domestic product (GDP) in revised estimates (RE) 2020–21. This is against the pegged deficit of 3.5% in budget estimates (BE) 2020–21. Simultaneously, the finance minister has also announced an excessive deficit procedure to bring down the high fiscal deficit to 4.5% of the GDP by financial year (FY) 2026. High deficit has no fiscal costs if it can be substantiated with increased public investment or “output gap” reduction. When the monetary policy stance has limitations in triggering growth through liquidity infusion and the status quo policy rates, “fiscal dominance” is crucial for sustained growth recovery.
    Date: 2021–03
  82. By: Anmol Bhandari; Serdar Birinci; Ellen R. McGrattan; Kurt See
    Abstract: This paper examines the reliability of survey data on business incomes, valuations, and rates of return, which are key inputs for studies of wealth inequality and entrepreneurial choice. We compare survey responses of business owners with available data from administrative tax records, brokered private business sales, and publicly traded company filings and document problems due to nonrepresentative samples and measurement errors across several surveys, subsamples, and years. We find that the discrepancies are economically relevant for the statistics of interest. We investigate reasons for these discrepancies and propose corrections for future survey designs.
    Keywords: Survey data; business incomes; valuations; taxes; intangibles
    JEL: C83 E22 H25
    Date: 2019–07
  83. By: Jasmien De Winne; Gert Peersman (-)
    Abstract: Extreme weather events are known to be detrimental for local economic activity, but could also affect countries that are not directly exposed to the extreme weather conditions through global agricultural production shortfalls and price surges induced by such events. For a panel of 75 countries, we show that increases in global agricultural commodity prices that are caused by harvest disruptions or unfavourable weather conditions in other regions of the world significantly curtail economic activity. The impact is considerably stronger in advanced countries, despite the lower shares of food in household expenditures these countries have compared to low-income countries. Furthermore, we find weaker effects in countries that are net exporters of agricultural products, have large domestic agricultural sectors and/or are less integrated in global markets for non-agricultural trade. Once we control for these characteristics, the effects on economic activity become smaller when the country’s income per capita is higher. Overall, these findings suggest that the consequences of climate change on advanced countries may be larger than previously thought.
    Keywords: Agricultural commodity prices, economic activity, harvest disruptions, weather shocks, climate change
    JEL: E32 F44 O13 Q54
    Date: 2021–03
  84. By: Claudia M. Buch; Matthieu Bussiere; Linda S. Goldberg
    Abstract: While policymakers around the world have aggressively and swiftly reacted to the common negative economic shock from COVID-19, the timing and forms of policy responses in the economic recovery stage may be more geographically differentiated. The range in policy responses, along with variations in the financial health of banks, likely will affect the flow of international credit through global banks. In this post, we ask whether, based on historical precedent, global banks are likely to provide additional support to the economic recovery in the locations they serve.
    Keywords: global bank; international capital flow; COVID-19; recovery; spillovers
    JEL: G21 I1 E51 I15 F3
    Date: 2021–03–01
  85. By: Kohei Hasui (Faculty of Economics, Matsuyama University); Teruyoshi Kobayashi (Faculty of Economics, Kobe University); Tomohiro Sugo (Bank of Japan)
    Abstract: Real-world central banks have a strong aversion to policy reversals. Nevertheless, theoretical models of monetary policy within the dynamic general equilibrium framework normally ignore the irreversibility of interest rate control. In this paper, we develop a formal model that incorporates a central bank's discretionary optimization problem with an aversion to policy reversals. We show that, even under a discretionary regime, the optimal timing of liftoff from the zero lower bound is characterized by its history dependence, which arises from the option value to waiting, and there exists an optimal degree of policy irreversibility at which the social loss is minimized.
    Date: 2021–02
  86. By: Alejandro Rojas-Bernal; Mauricio Villamizar-Villegas
    Abstract: We develop a novel pricing strategy that approximates the value of an American option with exotic features through a portfolio of European options with different maturities. Among our findings, we show that: (i) our model is numerically robust in pricing plain vanilla American options; (ii) the model matches observed bids and premiums of multidimensional options that integrate Ratchet, Asian, and Barrier characteristics; and (iii) our closed-form approximation allows for an analytical solution of the option’s greeks, which characterize the sensitivity to various risk factors. Finally, we highlight that our estimation requires less than 1% of the computational time compared to other standard methods, such as Monte Carlo simulations. **** RESUMEN: En este documento proponemos una nueva metodología de valoración de opciones americanas con características exóticas mediante la valoración de un portafolio de opciones europeas con diverso vencimiento. Nuestros resultados muestran que: (i) la met odología es numéricamente robusta en la valoración de opciones americanas simples; (ii) las valoraciones del modelo corresponden a las ofertas y primas observadas en las subastas de un conjunto de opciones multidimensionales que integran elementos de opciones trinquete, asiáticas y barrera; y (iii) la forma cerrada de nuestra aproximación permite la derivación de una solución analítica para las griegas de la opción que caracterizan la exposición a diversos factores de riesgo. Finalmente, resaltamos que nuestro modelo requiere menos del 1% del tiempo de ejecución computacional comparado a otros métodos estándar como simulaciones de Monte Carlo.
    Keywords: Option pricing, exotic currency options, ratchet options, Asian options, American options, Barrier options, Weighted Time Value methodology, Least Squares Monte Carlo, valoración de opciones de divisas, opciones trinquete, opciones asiáticas, opciones barrera, ponderación del valor temporal, mínimos cuadrados de Monte Carlo
    JEL: C53 E58 G13
    Date: 2021–03
  87. By: Hirsch, Patrick; Köhler, Ekkehard A.; Feld, Lars P.; Thomas, Tobias
    Abstract: Are government bond risk premia affected by TV news in addition to the effect of the original event reported? We analyze 1,209,566 human-coded news items from newscasts aired by leading TV stations in Europe and the US between January 2007 and November 2016. We establish causality using instrumental variables that attract media attention and crowd out media coverage on Eurozone related news. We find FIFA and UEFA tournaments as well as major natural disasters and airplane crashes as valid instruments for the empirical analysis. The results show that an exogenous variation in the share of Eurozone related news affects bond spreads. A one percentage point increase in the share of Eurozone related news leads to -7.6 basis points lower bond spreads. Taking the tonality of the news into account paints a more differentiated picture: A one percent higher share of positive Eurozone related news leads to -69.7 basis points lower bond spreads, whereas a one percentage point higher share of negative country-specific news is related to 2.5 basis points higher bond spreads.
    Keywords: Media bias,TV Newscasts,Tonality,Eurozone crisis,GIIPS bond yield spreads
    JEL: E58 G12 L82
    Date: 2020
  88. By: Schreiber, Sven; Schmidt, Vanessa
    Abstract: Using detailed establishment-level micro data, this paper analyzes for the German case the hypothesis by Aghion, Bergeaud, Boppart, Klenow, and Li (2019), stating that officially published figures for real output growth would be systematically understated. The effect rests on overstated inflation estimates due to imputed prices for disappearing goods and services varieties, where measurable plant entry and exit dynamics play a crucial rule. Our main results regarding understated real output growth lie in the range of 0:39 to 0:54 average annual percentage points for 1998-2016, which is quite closely in line with existing findings for France, the USA, and Japan (in different periods). We also find that services sectors appear most affected, and that the effect in East Germany is somewhat larger. We investigate different market share proxies, provide additional robustness analysis and also discuss limitations of the approach.
    Keywords: creative destruction,price imputation,inflation measurement
    JEL: E31 O47
    Date: 2021
  89. By: Jianchao Fan; Jing Liu; Yinggang Zhou
    Abstract: This paper examines how China's local governments make investment via financing vehicles (LGFVs) and provides new insights on often-criticised LGFVs from a different perspective. Using data for 4,432 LGFVs from 1,225 counties across China between 2005 and 2018, we show that since 2014, the function of LGFVs has changed from financing conduits to conglomerate platforms with more diversified investments. While a certain level of diversification can be a blessing for local economic growth, over-diversification is a curse. Such an inverted U-shaped relationship depends on the condition of the local economy. Over-diversification may lead to rising local debt and crowding-out effects on private investment.
    Keywords: local government financing vehicle, diversified investment, government debt, conglomerate
    JEL: E61 G21 H72 O17
    Date: 2021–01
  90. By: Emin M. Dinlersoz; Timothy Dunne; John Haltiwanger; Veronika Penciakova
    Abstract: The trajectory of new business applications and transitions to employer businesses differ markedly during the Great Recession and the COVID-19 recession. Both applications and transitions to employer startups decreased slowly but persistently in the post-Lehman crisis period of the Great Recession. In contrast, during the COVID-19 recession new applications initially declined but have since sharply rebounded, resulting in a surge in applications during 2020. Projected transitions to employer businesses also rise, but this projection is dampened by a change in the composition of applications in 2020 toward applications that are more likely to be nonemployers.
    Keywords: COVID-19; business failures; liquidity; small business
    JEL: D2 E65 G33
    Date: 2021–01–29
  91. By: Dorsaf Elbir Merhbene (Central Bank of Tunisia); ;
    Abstract: This study seeks to determine the relation between non-performing loans (NPLs) and bank profitability in Tunisia. This relation appears non-linear. We estimate a threshold of NPLs using an econometric framework. We examine the determinants affecting profitability over the Q4 2010 - Q4 2019 period for 10 Tunisian banks by estimating a model showing the impact of NPLs on bank profitability. The results indicate that banks with lower non-performing loan tend to have higher profitability.
    Keywords: NPLS; banking profitability
    JEL: G21 E58 P34
    Date: 2021–02–24
  92. By: Roberto Casarin (University Ca'Foscari of Venice); Stefano Grassi (University of Rome Tor Vergata); Francesco Ravazzolo (Free University of Bozen-Bolsano); Herman K. van Dijk (Erasmus University Rotterdam)
    Abstract: A Bayesian dynamic compositional model is introduced that can deal with combining a large set of predictive densities. It extends the mixture of experts and the smoothly mixing regression models by allowing for combination weight dependence across models and time. A compositional model with Logistic-normal noise is specified for the latent weight dynamics and the class-preserving property of the logistic-normal is used to reduce the dimension of the latent space and to build a compositional factor model. The projection used in the dimensionality reduction is based on a dynamic clustering process which partitions the large set of predictive densities into a smaller number of subsets. We exploit the state space form of the model to provide an efficient inference procedure based on Particle MCMC. The approach is applied to track the Standard \& Poor 500 index combining 3712 predictive densities, based on 1856 US individual stocks, clustered in relatively small number of model sets. For the period 2007-2009, which included the financial crisis, substantial predictive gains are obtained, in particular, in the tails using Value-at-Risk. Similar predictive gains are obtained for the US Treasury Bill yield using a large set of macroeconomic variables. Evidence obtained on model set incompleteness and dynamic patterns in the financial clusters provide valuable signals for improved modelling and more effective economic and financial decisions.
    Keywords: Density Combination, Large Set of Predictive Densities, Compositional Factor Models, Nonlinear State Space, Bayesian Inference
    JEL: E37 C15 C11 C53
    Date: 2021–02–10
  93. By: Raphaël DIDIER
    Abstract: Nous nous proposons d’apporter une contribution à la résilience d’une monnaie locale face à la crise liée à la covid-19, en mobilisant les concepts de résilience des organisations et de résilience des territoires. Une enquête de terrain concernant la monnaie locale du Bassin de vie de Nancy, le Florain, nous a permis de mettre en lumière que sa grande capacité de résilience résulte principalement de sa structure (communauté de valeurs, gouvernance, adaptabilité des bénévoles actifs) et de son intégration à un territoire.
    Keywords: monnaie locale, crise, résilience, covid, gouvernance, sociocratie, territoire, valeurs.
    JEL: A14 E42 R11
    Date: 2020
  94. By: Juan C. Palomino (University of Oxford (UK), INET and Department of Social Policy and Intervention.); Juan G. Rodríguez (Universidad Complutense de Madrid (Spain), ICAE, EQUALITAS and CEDESOG.); Raquel Sebastian (Universidad Complutense de Madrid (Spain), ICAE and EQUALITAS.)
    Abstract: We evaluate the distributional consequences of social distancing for the case of Spanish regions. Under 2 months of lockdown plus 10 months of partial functioning our study consistently finds potential wage losses that are sizeable and uneven across the wage distribution all around Spain, but with different intensity depending on the region’s productive structure. The increase of the headcount poverty index oscillates between 8.2 (Navarre) and 19.2 (the Balearic Islands) percentage points, while the Gini coefficient rises between 2.3 (Navarre) and 5.3 (the Balearic Islands) Gini points. We also find that inequality between regions increases, eroding regional cohesion in Spain.
    Keywords: COVID-19; poverty; inequality; teleworking; social distancing; regions; Spain.
    JEL: D33 E24 J21 J31
    Date: 2021–02
  95. By: Jeremy Greenwood; Yueyuan Ma; Mehmet Yorukoglu
    Abstract: A model is developed where traditional and digital advertising finance the provision of free media goods and affect price competition. The economy is not efficient. Media goods are under provided. Additionally, there is too much advertising when ads cannot be perfectly directed toward potential buyers. The tax-cum-subsidy policy that over-comes these inefficiencies in an informationally-constrained economy is characterized. The model is calibrated to the U.S. economy. Digital advertising increases consumer welfare significantly and is disproportionately financed by better-off consumers. The welfare gain from the optimal tax-cum-subsidy policy is much smaller than the one realized by the introduction of digital advertising.
    JEL: E1 L1 O3
    Date: 2021–03

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