nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒03‒22
122 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Investigating a measure of conventional and unconventional stimulus for the euro area By Arne Halberstadt; Leo Krippner
  2. Deep Dynamics By Glenn Mickelsson; Karolina Stadin; Nils Gottfries
  3. Optimal Monetary Policy Under Bounded Rationality By Benchimol, Jonathan; Bounader, Lahcen
  4. Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico By ; Remy Beauregard; Jens H. E. Christensen; Eric Fischer
  5. La recuperación económica en el nuevo normal. El cierre de la economía colombiana en 2020 By División de Análisis Macroeconómico DAMAC
  6. Trust Shocks, Financial Crises, and Money By Jia, Pengfei
  7. Quantitative Easing Home Equity An Alternative Economic Management Tool By De Koning, Kees
  8. A Model of QE, Reserve Demand and the Money Multiplier By Ellen Ryan; Karl Whelan
  9. Are firing costs important for business cycles? Lessons from Bulgaria (1999-2018) By Aleksandar Vasilev
  10. On the transmission of monetary policy to the housing market By Winfried Koeniger; Benedikt Lennartz; Marc-Antoine Ramelet
  11. Determinants of Japanese Household Saving Behavior in the Low-Interest Rate Environment By Sophia Latsos; Gunther Schnabl
  12. Additional Information About the Budget Outlook: 2021 to 2031 By Congressional Budget Office
  13. Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation By Hochmuth, Brigitte; Kohlbrecher, Britta; Merkl, Christian; Gartner, Hermann
  14. Policies to Help the Working Class in the Aftermath of COVID-19: Lessons from the Great Recession By Burkhauser, Richard V.; Corinth, Kevin; Holtz-Eakin, Douglas
  15. Expecting the unexpected: economic growth under stress By Ruiz Ortega, Esther; Rodríguez Caballero, Carlos Vladimir; Gonzalez Rivera, Gloria
  16. American business cycles 1889-1913: An accounting approach By Dou Jiang; Mark Weder
  17. Pandemics and aggregate demand: A framework for policy analysis By Peter Flaschel; Giorgos Galanis; Daniele Tavani; Roberto Veneziani
  18. The Greek Great Depression from a neoclassical perspective By Dimitris Papageorgiou; Stylianos Tsiaras
  19. How do oil shocks transmit through the US economy? Evidence from a large BVAR model with stochastic volatility By Renée Fry-McKibbin; Beili Zhu
  20. Duopolistic competition and monetary policy By Kozo Ueda
  21. Identifying high-frequency shocks with Bayesian mixed-frequency VARs By Alessia Paccagnini; Fabio Parla
  22. The Anatomy of Government Bond Yields Synchronization in the Eurozone By Claudio Barbieri; Mattia Guerini; Mauro Napoletano
  23. An Aggregate-Level Macro Model for the Indian Economy By Yoshino, Naoyuki; Paramanik, Rajendra N; Gopakumar, K U; Taghizadeh-Hesary, Farhad; Revilla, Ma. Laarni; Seetha Ram, K E
  24. The “Matthew effect” and market concentration: Search complementarities and monopsony power By Jesús Fernández-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
  25. Introducing Policy Analysis Croatian MAcroecoNometric Model (PACMAN) By Ozana Nadoveza Jelić; Rafael Ravnik
  26. Covid-19 fiscal support and its effectiveness By Alexander Chudik; Kamiar Mohaddes; Mehdi Raissi
  27. Monetary Policy and Racial Inequality By Alina K. Bartscher; Paul Wachtel; Moritz Kuhn; Moritz Schularick
  28. Growing Like Germany: Local Public Debt, Local Banks, Low Private Investment By Mathias Hoffmann; Iryna Stewen; Michael Stiefel
  29. Inflation Anchoring and Growth: The Role of Credit Constraints By Sangyup Choi; Davide Furceri; Prakash Loungani; Myungkyu Shim
  30. Reserve Accumulation and Firm Investment: Evidence from Matched Bank–Firm Data By Woo Jin Choi; Ju Hyun Pyun; Youngjin Yun
  31. Macroprudential Regulation in the Post-Crisis Era: Has the Pendulum Swung Too Far? By Lyu, Juyi; Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick
  32. Repenser le modèle à correction d’erreurs dans l’analyse macroéconométrique : Une revue By PINSHI, Christian P.
  33. Natural unemployment and activity rates: flow-based determinants and implications for price dynamics By Francesco D'Amuri; Marta De Philippis; Elisa Guglielminetti; Salvatore Lo Bello
  34. Monetary policy, firm heterogeneity, and product variety By Masashige Hamano; Francesco Zanetti
  35. A News-based Policy Index for Italy: Expectations and Fiscal Policy By Daniela Fantozzi; Alessio Muscarnera
  36. The Effect of Monetary Policy on House Prices - How Strong is the Transmission? By Dominika Ehrenbergerova; Josef Bajzik
  37. One Suggestion for Microfoundation of Non-Walrasian Disequilibrium Macroeconomics: Matching Theory with Dual Decision By Ogawa, Shogo
  38. International Fiscal-financial Spillovers: The Effect of Fiscal Shocks on Cross-border Bank Lending By Sangyup Choi; Davide Furceri; Chansik Yoon
  39. Market Depth, Leverage, and Speculative Bubbles By Zeno Enders; Hendrik Hakenes
  40. Oil and fiscal policy regimes By Hilde C. Bjørnland; Roberto Casarin; Marco Lorusso; Francesco Ravazzolo
  41. The Deposits Channel of Monetary Policy. A Critical Review By Rafael Repullo
  42. Liquidity traps in a world economy By Robert Kollmann
  43. Survey-Based Structural Budget Balances By Marcell Göttert; Timo Wollmershäuser
  44. Draft state budget for 2021. Testimony before the Parliamentary Budget Committee, 4 November 2020 By Pablo Hernández de Cos
  45. Unemployment Insurance Reforms in a Search Model With Endogenous Labor Force Participation By Johannes Goensch; Andreas Gulyas; Ioannis Kospentaris
  46. Childcare Support and Public Capital in an Ultra-Declining Birthrate Society By Miyake, Yusuke
  47. International Co-movements of Inflation, 1851-1913 By Stefan Gerlach; Rebecca Stuart
  48. Efectos de los cambios en la composición del empleo sobre la evolución de los salarios en la zona del euro: un análisis con datos de panel By Ángel Luis Gómez
  49. Cross-country Disparities in Skill Premium and Skill Acquisition By Anurag Banerjee; Parantap Basu; Elisa Keller
  50. Implications of the slowdown in trend growth for fiscal policy in a small open economy By Alexander Beames; Mariano Kulish; Nadine Yamout
  51. Modelling Artificial Intelligence in Economics By Gries, Thomas; Naudé, Wim
  52. Childcare Support and Economic Growth in an Ultra-Declining Birthrate Society By Miyake, Yusuke
  53. Measuring the Money Demand in Pakistan: A Time Series Analysis By Roussel, Yannick; Ali, Amjad; Audi, Marc
  54. The macroeconomic effects of commodity price uncertainty By Trung Duc Tran
  55. Priors and the Slope of the Phillips Curve By Callum Jones; Mariano Kulish; Juan Pablo Nicolini
  56. Global uncertainty By Giovanni Caggiano; Efrem Castelnuovo
  57. Life-Cycle inequality: blacks and whites differentials in life expectancy, savings, income, and consumption By Giacomo De Giorgi; Luca Gambetti; Costanza Naguib
  58. Nowcasting Economic Activity with Mobility Data By Kohei Matsumura; Yusuke Oh; Tomohiro Sugo; Koji Takahashi
  59. Lender-Specific Mortgage Supply Shocks and Macroeconomic Performance in the United States By Franziska Bremus; Thomas Krause; Felix Noth
  60. Imperfect information, heterogeneous demand shocks, and inflation dynamics By Tatsushi Okuda; Tomohiro Tsuruga; Francesco Zanetti
  61. Macroeconomic Policy Adjustments due to COVID-19: Scenarios to 2025 with a Focus on Asia By Fernando, Roshen; McKibbin, Warwick J.
  62. Is the Monetary Policy Effect Different for Bank Lending to Households and Firms? By Youngjin Yun; Byoungsoo Cho
  63. Asset Bubbles and Product Market Competition By Francisco Queirós
  64. Macroeconomic Effects of Loan Supply Shocks: Empirical Evidence for Peru By Jefferson Martínez; Gabriel Rodríguez
  65. La dinámica de la inversión privada. El modelo del acelerador flexible en una economía abierta By Waldo mendoza Bellido
  66. Informalidad, ciclos económicos y política fiscal: una exploración de los nexos By Garcia, D; Granda, C
  67. Macroeconomic policy adjustments due to COVID-19: Scenarios to 2025 with a focus on Asia By Roshen Fernando; Warwick J. McKibbin
  68. La independencia de las autoridades y supervisores económicos. El caso del Banco de España. Comparecencia del gobernador del Banco de España ante la Comisión para la Auditoría de la Calidad Democrática / Congreso de los Diputados, el 22 de diciembre de 2020 By Pablo Hernández de Cos
  69. Redesigning EU fiscal rules: From rules to standards By Olivier J Blanchard; Ã lvaro Leandro; Jeromin Zettelmeyer
  70. Okun’s Law under the Demographic Dynamics of the Turkish Labor Market By Evren Erdogan Cosar; Ayse Arzu Yavuz
  71. The Productivity Puzzle – A Critical Assessment and an Outlook on the COVID-19 Crisis By Roth, Felix
  72. Forecasting corporate capital accumulation in Italy: the role of survey-based information By Claire Giordano; Marco Marinucci; Andrea Silvestrini
  73. How Does Automation Affect Economic Growth and Income Distribution in a Two-Class Economy? By Sasaki, Hiroaki; Hagiwara, Takefumi; Pham, Huong; Fukatani, Noriki; Ogawa, Shogo; Okahara, Naoto
  74. How Does the Dramatic Rise of CPS Non-Response Impact Labor Market Indicators? By Bernhardt, Robert; Munro, David; Wolcott, Erin
  75. The Future of Labor: Automation and the Labor Share in the Second Machine Age By Hong Cheng; Lukasz A. Drozd; Rahul Giri; Mathieu Taschereau-Dumouchel; Junjie Xia
  76. A Neural Network Ensemble Approach for GDP Forecasting By Luigi Longo; Massimo Riccaboni; Armando Rungi
  77. WP 05-20 - Évaluation de la précision des prévisions à court terme et des perspectives à moyen terme du BFP - Une mise à jour des Working Papers 12-17 et 13-17 By Ludovic Dobbelaere; Igor Lebrun
  78. Proyecto de presupuestos generales del estado para 2021. Comparecencia ante la Comisión de Presupuestos del Congreso de los Diputados, el 4 de noviembre de 2020 By Pablo Hernández de Cos
  79. A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on their Consumption: Micro-Evidence Using Belgian HFCS Data By Philip Du Caju; Guillaume Perilleux; François Rycx; Ilan Tojerow
  80. Twin Default Crises By Caterina Mendicino; Kalin Nikolov; Juan Rubio-Ramirez; Javier Suarez; Dominik Supera
  81. Time-Varying Impact of Fiscal Shocks over GDP Growth in Peru: An Empirical Application using Hybrid TVP-VAR-SV Models By Álvaro Jiménez; Gabriel Rodríguez
  82. Capital (Mis)allocation and Incentive Misalignment By Alexander Schramm; Alexander Schwemmer; Jan Schymik
  83. The Reversal Interest Rate. A Critical Review By Rafael Repullo
  84. Interest Rates, Market Power, and Financial Stability By David Martinez-Miera; Rafael Repullo
  85. COVID-19 and seasonal adjustment By Barend Abeln; Jan P.A.M. Jacobs
  86. Reparations and Persistent Racial Wealth Gaps By Job Boerma; Loukas Karabarbounis
  87. A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data By Du Caju, Philip; Périlleux, Guillaume; Rycx, Francois; Tojerow, Ilan
  88. Nonlinearities and Asymmetric Adjustment to PPP in an Exchange Rate Model with Inflation Expectations By Christina Anderl; Guglielmo Maria Caporale
  89. U.S. monetary policy uncertainty and RMB deviations from covered interest parity By Zhitao Lin; Xingwang Qian
  90. Revolution Without Revolutionaries: Interrogating the Return of Monetary Financing By Gabor, Daniela
  91. Social security: past, present and future By Piachaud, David
  92. Efficient Solution and Computation of Models With Occasionally Binding Constraints By Gregor Boehl
  93. Stock Market Beliefs and Portfolio Choice in the General Population By Christian Zimpelmann
  94. Retrospective Voting Versus Risk-Aversion Voting By Ray C. Fair
  95. The Effect of the China Connect By Chang Ma; John Rogers; Sili Zhou
  96. Government financing of R&D: a mechanism design approach By Lach, Saul; Neeman, Zvika; Schankerman, Mark
  97. Climate Change Mitigation Policies: Aggregate and Distributional Effects By Cavalcanti, T.; Hasna, Z.; Santos, C.
  98. Potential Growth in Turkey: Sources and Trends By Orhun Sevinc; Ufuk Demiroglu; Emre Cakir; E. Meltem Bastan
  99. The Economic Case for Global Vaccinations: An Epidemiological Model with International Production Networks By Muhammed A. Yildirim; Cem Cakmakli; Selva Demiralp; Sebnem Kalemli-Ozcan; Sevcan Yesiltas
  100. Remittances, monetary institutions, and autocracies By Garriga, Ana Carolina; Meseguer, Covadonga
  101. What goes around comes around: How large are spillbacks from US monetary policy? By Max Breitenlechner; Georgios Georgiadis; Ben Schumann
  102. What has driven the delinking of wages from productivity? A political economy-based investigation for high-income economies By Walter Paternesi Meloni; Antonella Stirati
  103. Modelling Volatility Cycles: The (MF)2 GARCH Model By Christian Conrad; Robert F. Engle
  104. Una revisión sobre los métodos convencionales de la contabilidad del crecimiento: La tiranía de la identidad By Villar Otálora, Juan Camilo
  105. La evolución cíclica de la economía española en el contexto europeo By Luis J. Álvarez; M.ª Dolores Gadea; Ana Gómez Loscos
  106. Do Non-tariff Barriers to Trade Save American Jobs and Wages? By Leonardi, Marco; Meschi, Elena
  107. Risk shocks and divergence between the Euro area and the US in the aftermath of the Great Recession By Brand, Thomas; Tripier, Fabien
  108. Evaluating the impact of labour market reforms in Greece during 2010-2018 By Gatopoulos, Georgios; Louka, Alexandros; Polycarpou, Ioannis; Vettas, Nikolaos
  109. Contingency public funds for emergencies: the lessons from the international experience By Júlia Brunet; Lucía Cuadro-Sáez; Javier J. Pérez
  110. The Eurozone Debt Crisis: Causes and Policy Recommendations By Zhorayev, Olzhas
  111. Fondos públicos de contingencia para situaciones de emergencia: lecciones de la experiencia internacional By Júlia Brunet; Lucía Cuadro-Sáez; Javier J. Pérez
  112. Cyclical patterns of the Spanish economy in Europe By Luis J. Álvarez; M.ª Dolores Gadea; Ana Gómez Loscos
  113. Electrification and welfare for the marginalized: Evidence from India By Ashish Kumar Sedai; Tooraj Jamasb; Rabindra Nepal; Ray Miller
  114. Big Push in Distorted Economies By Francisco J. Buera; Hugo Hopenhayn; Yongseok Shin; Nicholas Trachter
  115. The independence of economic authorities and supervisors. The case of the Banco de España. Testimony by the Governor of the Banco de España before the Audit Committee on Democratic Quality / Congress of Deputies, 22 December 2020 By Pablo Hernández de Cos
  116. The fintech gender gap By Sharon Chen; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Hyun Song Shin
  117. Endogenous Education and Long-Run Factor Shares By Gene M Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson
  118. Narrative based information: is it the facts or their packaging that matters? By Shaun P. Hargreaves Heap; Aikaterini Karadimitropoulou; Eugenio Levi
  119. Estimating Commercial Property Price Misalignment in the CEE Countries By Hana Hejlova; Michal Hlavacek; Blanka Vackova
  120. The 1-2-3 Toolbox of Mainstream Economics: Promising Everything, Delivering Nothing By Bichler, Shimshon; Nitzan, Jonathan
  121. Gender Differences in Financial Advice By Tabea Bucher-Koenen; Andreas Hackethal; Johannes Koenen; Christine Laudenbach
  122. International Macroeconomics With Imperfect Financial Markets By Maggiori, Matteo

  1. By: Arne Halberstadt; Leo Krippner
    Abstract: We investigate the effect of the “Effective Monetary Stimulus” (EMS) on German and euro-area macroeconomic variables using a small-scale vector autoregression (VAR). The EMS is obtained from yield curve data and survey data, and is designed to reflect the influence of monetary policy conducted by conventional and unconventional means. Empirically, using the EMS in our VAR obtains plausible and stable structural relationships with inflation and economic activity across and within conventional and unconventional environments, and more so than short-maturity rates or alternative metrics. These results suggest that the EMS provides a useful practical measure of monetary/financial stimulus for policy makers. Our counterfactual results indicate that EMS shocks have been stimulatory for most of the time since 2007, and more so around episodes of unconventional policy actions by the ECB. In turn, these episodes have been followed by higher outcomes of inflation and economic activity.
    Keywords: Monetary Policy, Zero Lower Bound, Dynamic Term Structure Model.
    JEL: E43 E44 E52
    Date: 2021–03
  2. By: Glenn Mickelsson; Karolina Stadin; Nils Gottfries
    Abstract: How do firms adjust their output, inventories, employment and capital in response to demandsideshocks? To understand this, we estimate a reduced-form model using firm-level panel dataand we construct a theoretical model that can match the estimated impulse-response functions.A combination of convex adjustment costs and implementation lags explains input adjustmentvery well. Although inputs adjust slowly, production responds quickly to the demand shock andthis adjustment is explained by a combination of increasing returns and increased utilization ofthe production factors. To avoid stock-outs, firms increase their inventories when demandincreases.
    Keywords: production function, productivity, Solow residual, labor hoarding, effort, organizational capital, capacity, returns to scale, markup, inventory investment
    JEL: E22 E23 E24 E32
    Date: 2021
  3. By: Benchimol, Jonathan; Bounader, Lahcen
    Abstract: We build a behavioral New Keynesian model that emphasizes different forms of myopia for households and firms. By examining the optimal monetary policy within this model, we find four main results. First, in a framework where myopia distorts agents’ inflation expectations, the optimal monetary policy entails implementing inflation targeting. Second, price level targeting emerges as the optimal policy under output gap, revenue, or interest rate myopia. Given that bygones are not bygones under price level targeting, rational inflation expectations are a minimal condition for optimality in a behavioral world. Third, we show that there are no feasible instrument rules for implementing the optimal monetary policy, casting doubt on the ability of simple Taylor rules to assist in the setting of monetary policy. Fourth, bounded rationality may be associated with welfare gains.
    Keywords: Behavioral macroeconomics; Central bank policy; Cognitive discounting; Heterogeneous expectations; Optimal simple rules
    JEL: C53 E37 E52 D01 D11
    Date: 2021–03
  4. By: ; Remy Beauregard; Jens H. E. Christensen; Eric Fischer
    Abstract: To study inflation expectations and associated risk premia in emerging bond markets, this paper provides estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. In addition to documenting the existence of large and time-varying liquidity premia in nominal and real bond prices that are only weakly correlated, the results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger and more volatile than those in Canada and the United States.
    Keywords: term structure modeling; liquidity risk; financial market frictions; central bank credibility
    JEL: D84 E31 E43 E44 E47 E52 E58 G12
    Date: 2021–03–01
  5. By: División de Análisis Macroeconómico DAMAC
    Abstract: Este documento de la División de Análisis Macroeconómico realiza un análisis del desempeño de la economía en 2020 después de las medidas de confinamiento implementadas desde marzo de 2020 hasta agosto para evitar una propagación masiva de la pandemia COVID-19 y la posterior senda de recuperación hasta diciembre. El documento aborda el análisis de la producción consolidada y por sectores hasta el cuarto trimestre de 2020. El documento hace un análisis sobre los diferentes ritmos de la dinámica de recuperación económica por sector. *** This document from the Macroeconomic Analysis Division carries out an analysis of the performance of the economy in 2020 after the lockdown measures implemented in Colombia from March 2020 to August to prevent a massive spread of the COVID-19 pandemic and the subsequent recovery path until December. The document addresses the analysis of consolidated production and by sectors until the fourth quarter of 2020. The document makes an analysis about the different paces economic recovery dynamic by sector.
    Keywords: análisis macroeconómico, COVID-19, impacto, cuarentena, aislamiento, crisis, Colombia
    JEL: E00 E01 E20 E23 E60
    Date: 2021–03–06
  6. By: Jia, Pengfei
    Abstract: A precondition for a well-functioning monetary system is trust. This paper develops a neoclassical general equilibrium model in which public and private money coexist and the impact of trust shocks on the macroeconomy is examined. In this paper, trust is modelled as limited commitment between borrowers and lenders. A borrower who issues private money can credibly commit to repay at most a fraction of his or her future output. The paper shows that a lack of trust can engineer a financial crisis, with substantial effects on both the real and monetary variables. In the model, an unexpected drop in the trust parameter causes young workers to divert less of their savings into investment goods and more of their savings into consumption goods. A fall in capital investment in turn leads to a decline in real output. I also show that trust shocks can have detrimental effects on both workers and entrepreneurs. In addition, the model shows that, to clear the money market, an increase in the real demand for government money causes the price level to fall, inducing transitory deflation. This is in line with the low inflation episodes during and following the Great Recession. The decline in capital investment and the price level also implies that the amount of deposits has to shrink in a financial crisis. Finally, once trust shocks hit the economy, the money multiplier drops. This is due to the decrease in capital investment and the increase in the real demand for government money.
    Keywords: Trust shocks, Financial crises, Public money, Private money.
    JEL: E31 E32 E41 E44 E51
    Date: 2021–02–26
  7. By: De Koning, Kees
    Abstract: Home equity levels play a key role in the economic experiences of countries. The example of the U.S. situation is very informative. In 2005, the home equity level stood at $14.4 trillion. U.S. government expenditure in the same year was $4.4 trillion. As a consequence of the Great Recession, the combined home equity levels dropped to $8.2 trillion by Q1 2012. This was a not inconsequential loss for many homeowners. By Q3 2020 the level of home equity had risen to $20.4 trillion. The total U.S. home value level rose to $31.2 trillion by Q3 2020. One may compare this to 2020 GDP of $20.924 trillion and more importantly to the share of GDP that flowed to the U.S. government (Federal, State and Local) in 2020 of an estimated amount of $ 7.63 trillion. In 2020, the total home values in the U.S. were just more than 4 times the combined income level of the U.S. Federal, State and Local governments! Even taking away the outstanding housing debt level of $10.2 trillion, the $20.9 trillion home equity level still represents a multiple of 2.74 times of the combined U.S. government tax level in 2020. There are at least three methods to stimulate an economy: 1. Monetary policy is executed by lowering the short-term interest rates so that savers are encouraged to spend more and borrowers can afford to borrow slightly more than at a higher interest rate level. 2. Fiscal policy works in that a government can borrow more in order to spend above its tax income level. This implies that a debt is created that in future years need to be paid back by all households. 3. There is a potential third option: the Home Equity Policy. A government can encourage home equity to be used on a temporary basis to stimulate the economy. “Re-savings” can be made out of future income levels. The beauty of this system is that it is an individual household’s decision and the benefits of more spending go directly to the household that participates in the scheme. The replenishment of the home equity savings level is totally to the benefit of the individual household. The aim of all three methods is the same: increase demand levels and lower unemployment levels without accelerating inflation levels. Why method three might prove to be the most effective is explained in this paper.
    Keywords: U.S.Home Equity, Great Recession. Economic management tools, U.S. Government debt levels,
    JEL: D1 D11 D14 D5 D53 D7 E2 E21 E24 E5 E58
    Date: 2021–03–09
  8. By: Ellen Ryan; Karl Whelan
    Abstract: Quantitative easing programmes have driven unprecedented expansions in the supply of central bank reserves around the world over the past two decades, fundamentally changing the implementation of monetary policy. The collapse in money multipliers following QE episodes has often been interpreted as implying banks are happy to passively hold most of the reserves created by QE. This paper develops a simple micro-simulation model of the banking sector that adapts the traditional money multiplier model and allows for bank reserve demand to be inferred from monetary aggregates. The model allows the use of unwanted reserves by banks to play out over time alongside QE purchases and incorporates both significantly higher reserve demand after 2008 and capital constraints. With these additions, the model explains the persistently lower money multipliers seen in the US following QE, as well as the growth in commercial bank deposits. The model suggests the demand from banks for reserves has increased substantially since the introduction of QE but not to the point where banks are passively absorbing all newly created reserves.
    Keywords: Quantitative easing; Central banks; Money multiplier
    JEL: E51 E52 E58
    Date: 2021–02
  9. By: Aleksandar Vasilev (Lincoln International Business School, UK.)
    Abstract: We introduce firing costs into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). We investigate the importance of such labor market frictions for cyclical fluctuations in Bulgaria. Firing costs decrease employment volatility and pro-cyclicality, where both effects come at odds with data. Besides those, we do not find other important effects of firing costs for business cycle fluctuations in Bulgaria.
    Keywords: business cycle fluctuations, labor markets, firing costs, Bulgaria.
    JEL: E24 E32
    Date: 2021–03
  10. By: Winfried Koeniger; Benedikt Lennartz; Marc-Antoine Ramelet
    Abstract: We provide empirical evidence on the heterogeneous transmission of monetary policy to the housing market across and within countries. We use household-level data from Germany, Italy and Switzerland together with the respective monetary policy shocks identified from high-frequency data. We find that the pass-through of monetary policy shocks to rates of newly originated (fixed-rate) mortgages is twice as strong in Switzerland than in Germany and Italy. After an accommodative monetary policy shock, this is associated in the housing market with a larger immediate, and persistent increase of transitions from renting to owning; a stronger decrease in rents; and an increase of the price-rent ratio. Within Italy, we find a stronger pass-through to mortgage rates, housing tenure transitions and the price-rent ratio in the northern regions that have been characterized in the literature as more financially developed than the southern regions.
    Keywords: Monetary policy transmission, housing market, home ownership, rents, house prices
    JEL: E21 E52 R21
    Date: 2021
  11. By: Sophia Latsos; Gunther Schnabl
    Abstract: This paper scrutinizes the role of prolonged, expansionary monetary policy on the savings behavior of Japanese households, focusing on the dramatic change of the household savings rate since 1998, from high to low savings. The literature generally attributes this change to the country’s shift from high-growth to low-growth and its demographic change. This paper empirically examines changes in the incentives for saving and the ability to save connected to monetary policy. It finds that monetary policy had a significant impact on Japan’s household behavior via the interest rate channel and the redistribution channel but not the labor income channel. There is also evidence that rising wealth boosts savings.
    Keywords: monetary policy, household savings, savings rate, Japan, financial repression
    JEL: E21 E43 E52
    Date: 2021
  12. By: Congressional Budget Office
    Abstract: This document provides additional information about the baseline budget projections that CBO released on February 11, 2021.
    JEL: E20 E23 E60 E62 E66 H20 H60 H61 H62 H63 H68
    Date: 2021–03–05
  13. By: Hochmuth, Brigitte (Friedrich-Alexander University of Erlangen-Nürnberg (FAU) and Institute for Advanced Studies Vienna, Austria (IHS)); Kohlbrecher, Britta (Friedrich-Alexander University of Erlangen-Nürnberg (FAU)); Merkl, Christian (Friedrich-Alexander University of Erlangen-Nürnberg (FAU) and IZA); Gartner, Hermann (Friedrich-Alexander University of Erlangen-Nürnberg (FAU) and Institute for Employment Research (IAB))
    Abstract: This paper proposes a new approach to evaluate the macroeconomic effects of the “Hartz IV” reform, which reduced the generosity of long-term unemployment benefits. We propose a model with different unemployment durations, where the reform initiates both a partial effect and an equilibrium effect. We estimate the relative importance of these two effects and the size of the partial effect based on the IAB Job Vacancy Survey. Our approach does not hinge on an external source for the decline in the replacement rate for long-term unemployed. We find that Hartz IV was a major driver for the decline of Germany’s steady state unemployment and that partial and equilibrium effect were nearly of equal importance. In addition, we provide direct empirical evidence on labor selection, one potential dimension of recruiting intensity.
    Keywords: Unemployment benefits reform, search and matching, Hartz reforms
    JEL: E24 E00 E60
    Date: 2021–03
  14. By: Burkhauser, Richard V. (Cornell University); Corinth, Kevin (Council of Economic Advisers); Holtz-Eakin, Douglas
    Abstract: The COVID-19 pandemic and the associated government mandated shutdowns caused a historic shock to the U.S. economy and a disproportionate job loss concentrated among the working class. While an unprecedented social safety net policy response successfully offset earnings loses among lower-wage workers, the risk of continued and persistent unemployment remains higher among the working class. The key lesson from the Great Recession is that strong economic growth and a hot labor market do more to improve the economic wellbeing of the working class and historically disadvantaged groups than a slow recovery that relies on safety net policies to help replace lost earnings. Thus, the best way to prevent a "K-shaped" recovery is to ensure that safety net policies do not interfere with a return to the strong pre-pandemic economy once the health risk subsides, and that pro-growth policies that incentivize business investment and hiring are maintained.
    Keywords: COVID-19 Recession, Great Recession, income growth, employment, safety-net policy, working class
    JEL: D31 E24 E3 E6 I3 J21 J31
    Date: 2021–03
  15. By: Ruiz Ortega, Esther; Rodríguez Caballero, Carlos Vladimir; Gonzalez Rivera, Gloria
    Abstract: Large and unexpected moves in the factors underlying economic growth should be the main concern of policy makers aiming to strengthen the resilience of the economies. We propose measuring the effects of these extreme moves in the quantiles of the distribution of growth under stressed factors (GiS) and compare them with the popular Growth at Risk(GaR). In this comparison, we consider local and global macroeconomic and financial factors affecting US growth. We show that GaR underestimates the extreme and unexpected fall in growth produced by the COVID19 pandemic while GiS is much more accurate.
    Keywords: Stressed Growth; Multi-Level Factor Model; Growth Vulnerability
    JEL: O41 F47 F44 E44 E32 C55 C32
    Date: 2021–03–15
  16. By: Dou Jiang; Mark Weder
    Abstract: This paper quantitatively investigates the Depression of the 1890s and the 1907 recession in the United States. Business Cycle Accounting decomposes economic fluctuations into their contributing factors. The results suggest that both the 1890s and the 1907 recessions were primarily caused by factors that affect the efficiency wedge, i.e. slumps in the economy’s factor productivity. Distortions to the labor wedge played a less important role. Models with financial market frictions that translate into the efficiency wedge are the most promising candidates for explaining the recessionary episodes.
    Keywords: Business cycles, Depression of the 1890s, Recession of 1907
    JEL: E32 E44 N11
    Date: 2021–01
  17. By: Peter Flaschel; Giorgos Galanis; Daniele Tavani; Roberto Veneziani
    Abstract: This paper studies the interaction between epidemiological dynamics and the dynamics of economic activity in a demand-driven model in the structuralist/post-Keynesian tradition. On the one hand, rising aggregate demand increases the contact rate and therefore the probability of exposure to a virus. On the other hand, rising infection lowers aggregate demand because of reduced household spending. The resulting framework is well-suited for policy analysis through numerical exercises. We show that, first, laissezfaire gives rise to sharp fluctuations in demand and infections before herd immunity is achieved. Second, absent any restrictions on economic activity, physical distancing measures have rather limited mitigating effects. Third, lockdowns are effective, especially at reducing death rates while buying time before a vaccine is available, at the cost of a slightly more pronounced downturn in economic activity compared with alternative policies. This casts some doubt on the so-called “lives versus livelihood” policy trade-off. However, we also highlight the importance of policies aimed at mitigating the effects of the epidemic on workers’ income.
    Keywords: pandemic, aggregate demand, distribution, public policy
    JEL: I1 E6 E25 E12 H0
    Date: 2021–01
  18. By: Dimitris Papageorgiou (Bank of Greece); Stylianos Tsiaras (European University Institute)
    Abstract: This paper follows the great depression methodology of Kehoe and Prescott (2002, 2007) to study the importance of total factor productivity (TFP) in the Greek economic crisis over the period 2008-2017. Using growth accounting and the neo- classical growth model, the paper shows that exogenous changes in TFP are crucial for the Greek depression. The theoretical model reproduces quite well the decline in economic activity over 2008-2013 and the subsequent period of slow recovery found in the data. Nevertheless, it is less successful in predicting the magnitude of the decline in output and the labour factor. In addition, including financial frictions and risk shocks into the neoclassical growth model, does not significantly improve the model’s performance.
    Keywords: Great Depression; Greece; Growth Accounting; DSGE
    JEL: D81 G01 G21 G33 E44 E52 E58
    Date: 2021–02
  19. By: Renée Fry-McKibbin; Beili Zhu
    Abstract: This paper employs a large BVAR model with common stochastic volatility to examine the effects of oil supply shocks, global oil demand shocks and precautionary oil shocks on 17 U.S. macroeconomic and financial market variables from 1986Q1 to 2019Q2. Generalized impulse response functions calculated using stochastic volatility provide a time-varying account of the impacts of the shocks occurring in each quarter. We also compute standard impulse response functions for shocks of the sizes evident in 2019Q2 and 2008Q4. The magnitudes of the generalized impulse response functions vary over time, but the fluctuations are not particularly different except during the global financial crisis. All oil shocks have permanent inflationary effects; there is evidence of long-run adverse effects on several macroeconomic variables because of global oil demand shocks despite rising GDP, and all oil shocks negatively affect the U.S. stock and currency markets in the long term, but the effects on the bond market differ.
    Keywords: Generalised impulse responses, Sign restrictions
    JEL: C32 E31 E32
    Date: 2021–01
  20. By: Kozo Ueda
    Abstract: A standard macroeconomic model based on monopolistic competition (Dixit-Stiglitz) does not account for the strategic behaviors of oligopolistic firms. In this study, we construct a tractable Hotelling duopoly model with price stickiness to consider the implications for monetary policy. The key feature is that an increase in a firm’s reset price increases the optimal price set by the rival firm in the following periods, which, in turn, influences its own optimal price in the current period. This dynamic strategic complementarity leads to the following results. (1) The steady-state price level depends on price stickiness. (2) The real effect of monetary policy under duopolistic competition is larger than that in a Dixit-Stiglitz model, but the difference is not large. (3) A duopoly model with heterogeneous transport costs can explain the existence of temporary sales, which decreases the real effect of monetary policy considerably. These results show the importance of understanding the competitive environment when considering the effects of monetary policy.
    Keywords: Duopoly, monetary policy, strategic complementarities, New Keynesian model
    JEL: D43 E32 E52
    Date: 2021–01
  21. By: Alessia Paccagnini; Fabio Parla
    Abstract: We contribute to research on mixed-frequency regressions by introducing an innovative Bayesian approach. Based on a new “high-frequency” identification scheme, we provide novel empirical evidence of identifying uncertainty shock for the US economy. As main findings, we document a “temporal aggregation bias” when we adopt a common low frequency model instead of estimating a mixed-frequency framework. The bias is amplified when we identify a higher frequency shock.
    Keywords: Bayesian mixed-frequency VAR, MIDAS, uncertainty shocks, macro-financial linkages
    JEL: C32 E44 E52
    Date: 2021–02
  22. By: Claudio Barbieri (Université Côte d'Azur, CNRS, GREDEG, France; Sant'Anna School of Advanced Studies); Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sant'Anna School of Advanced Studies; Sciences Po., OFCE); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School)
    Abstract: We investigate the synchronization of Eurozone’s government bond yields at dierent maturities. For this purpose, we combine principal component analysis with random matrix theory. We find that synchronization depends upon yields maturity. Short-term yields are not synchronized. Medium- and long-term yields, instead, were highly synchronized early after the introduction of the Euro. Synchronization then decreased signicantly during the Great Recession and the European Debt Crisis, to partially recover after 2015. We show the existence of a duality between our empirical results and portfolio theory and we point to divergence trades and fight-to-quality effects as a source of the self-sustained yield asynchronous dynamics. Our results envisage synchronization as a requirement for the smooth transmission of conventional monetary policy in the Eurozone.
    Keywords: Synchronization, Bond Yields, Factor Models, Random Matrix Theory, Monetary policy
    JEL: C38 E43 E58
    Date: 2021–03
  23. By: Yoshino, Naoyuki (Asian Development Bank Institute); Paramanik, Rajendra N (Asian Development Bank Institute); Gopakumar, K U (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Revilla, Ma. Laarni (Asian Development Bank Institute); Seetha Ram, K E (Asian Development Bank Institute)
    Abstract: We make an empirical attempt to model the Indian economy at an aggregate level with annual data, ranging from 1980 to 2019. Our major theoretical premise mimics the New Keynesian framework, which is based on the microeconomic foundations of Keynesian economics. We propose a whole economic structure in the form of nine equations. Aggregate demand is modeled with the help of four equations, representing consumption, private investment, exports, and imports. Aggregate supply assumes the form of a simple neoclassical production function where labor, capital, and exogenous technical progress are considered as inputs. Further, inflation is assumed to follow a New Keynesian representation whereas the LM curve has its standard form with income and short-term rate of interest as its determinants. Subsequently, a linking equation, expressing long-run interest rates as a function of short-term interest rates and government investment, is proposed to unify monetary policy and fiscal policy to the goods market. Finally, tax is estimated as a function of per capita income. A structural equation model is employed for the empirical analysis and findings support the theoretical expectations. Consumption follows the absolute income hypothesis, and private investment is governed by the accelerator principle. Further, the negative sign of nominal interest rates in the investment function confirms an inverse relation between the former and private capital formation. Exports are found to be influenced by world income, exchange rates, and government capital formation, and import demand is determined by domestic income, the difference between domestic and international inflation, and the lagged exchange rate. From the policy perspective, we suggest the suitability of fiscal and monetary policies for increasing growth in the Indian economy. However, the effectiveness of expansionary fiscal policy is observed to have a larger impact on growth than easy monetary policy. This inference is drawn mainly on the basis of a simulation exercise for the proposed structural equation model.
    Keywords: New Keynesian model; structural equation model; Indian economy
    JEL: C36 E10 E27
    Date: 2020–12–08
  24. 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.
    Keywords: Market concentration, superstar firms, search complementarities, monopsony power in the labor market
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2021–02
  25. By: Ozana Nadoveza Jelić (The Croatian National Bank, Croatia, Faculty of Economics and Business, University of Zagreb, Croatia); Rafael Ravnik (Macrodea, Croatia)
    Abstract: This paper describes the latest version of the semi-structural macro model of Croatia – the PACMAN (Policy Analysis Croatian MAcroecoNometric) model. PACMAN is a medium-sized macroeconometric model with a high level of aggregation, which accounts for the relationships among key macroeconomic variables in a systematic manner. Although highly aggregated the model is sufficiently detailed to be able to describe the most important characteristics of the Croatian economy. The model follows the approach of many central banks in the EU (e.g. Austria, France, Poland, Italy and ECB etc.). PACMAN is designed in a way as to be usable for: (i) forecasting, (ii) scenario and (iii) policy simulation exercises at the CNB. PACMAN is also used in the context of financial sector stress testing. The model’s core equations adhere to economic theory but are also modified so as to have a good empirical fit. Due to its theoretical consistency and numerous transmission channels, PACMAN can provide a narrative for sources and consequences of economic developments.
    Keywords: semi-structural model, Croatia, simulations, forecasting
    JEL: C32 C51 C53 E2 E3
    Date: 2021–02
  26. By: Alexander Chudik; Kamiar Mohaddes; Mehdi Raissi
    Abstract: This paper uses a threshold-augmented Global VAR model to quantify the macroeconomic effects of countries’ discretionary fiscal actions in response to the Covid-19 pandemic and its fallout. Our results are threefold: (1) fiscal policy is playing a key role in mitigating the effects of the pandemic; (2) all else equal, countries that implemented larger fiscal support are expected to experience less output contractions; (3) emerging markets are also benefiting from the synchronized fiscal actions globally through the spillover channel and reduced financial market volatility.
    Keywords: TGVAR, Covid-19, threshold effects, fiscal policy
    JEL: C32 E44 E62 F44
    Date: 2021–03
  27. By: Alina K. Bartscher; Paul Wachtel; Moritz Kuhn; Moritz Schularick
    Abstract: This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods.
    Keywords: monetary policy, racial inequality, income distribution, wealth distribution, wealth effects
    JEL: E40 E52 J15
    Date: 2021
  28. By: Mathias Hoffmann (University of Zurich); Iryna Stewen (Johannes Gutenberg University); Michael Stiefel (University of Zurich)
    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 G21 F21 F32 H32
    Date: 2021–01–03
  29. By: Sangyup Choi (Yonsei University); Davide Furceri (IMF); Prakash Loungani (IMF); Myungkyu Shim (Yonsei University)
    Abstract: Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 36 advanced and emerging market economies over 1990–2014 and employ a difference-in-difference strategy based on the theoretical prediction that higher inflation uncertainty particularly depresses investment in industries that are more credit constrained. Industries characterized by high external financial dependence, liquidity needs, and R&D intensity, and low asset tangibility, tend to grow faster in countries with well-anchored inflation expectations. The results, based on an IV approach—using indicators of monetary policy transparency and central bank independence as instruments— confirm our findings.
    Keywords: industry growth; inflation anchoring; inflation forecasts; credit constraints; difference-in-difference; central bank independence
    JEL: E52 E63 O11 O43 O47
    Date: 2020–12–29
  30. By: Woo Jin Choi (Korea Development Institute); Ju Hyun Pyun (Korea University Business School); Youngjin Yun (Bank of Korea)
    Abstract: We match non-financial firms in Korea with their main banks for the period over 2003-2017 to examine whether and how corporate investments are affected by changes in international reserves. We first show that firm investment is negatively associated with international reserves. By tracing the public securities used for sterilization, we further show that investment of a non-financial firm reduces if its main bank increases public securities holdings in accordance with reserve accumulation. Massive supply of sterilization securities shifts banks’ balance sheet composition and adversely affects investments, especially for financially constrained firms.
    Keywords: FX reserves, sterilized intervention, firm investment, bank balance sheet
    JEL: C23 E22 E58 F21 F31
    Date: 2020–11–15
  31. By: Lyu, Juyi (Cardiff Business School); Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: This paper presents an institutional model to investigate the cooperation between a government and a central bank. The former selects the monetary policy and then delegates the organization of macroprudential policy to the latter. Their policy stances are the result of sequential constrained utility maximization. Using indirect inference, we find a set of coefficients that can capture the UK policy stances for 1993-2016. This suggests post-crisis regulation has been overly intrusive. Finally, we show that this regulatory dilemma can be avoided by committing to a highly stabilizing monetary regime that uses QE extensively.
    Keywords: Bank regulation; Financial stability; Monetary policy; Public choice theory
    JEL: E52 E58 G28
    Date: 2021–03
  32. By: PINSHI, Christian P.
    Abstract: The methodology of cointegration filled the void that existed between economic theorists and econometricians in understanding the dynamics, equilibrium and reliability bias of macroeconomic and financial analysis, which is subject to revision non-stationary behavior. This article provides a relevant review of the power of the error correction model. Theorists and econometricians have shown that the error correction model is a powerful machine that offers macroeconomic policy refinement of econometric results.
    Keywords: Cointegration, Error correction model, Inflation, Exchange rate
    JEL: C18 C32 E52 E60 F41
    Date: 2021–03
  33. By: Francesco D'Amuri (Bank of Italy); Marta De Philippis (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Salvatore Lo Bello (Bank of Italy)
    Abstract: Motivated by the magnitude and cyclicality of transitions into and out of the labour force, we jointly estimate natural unemployment and participation rates through a forward-looking Phillips curve informed by structural labour market flows and demographic trends. We find that the estimated reaction of inflation to the participation gap is twice as large as that to the unemployment gap, and that the participation margin accounts for a significant share of total slack. Moreover, by exploiting a far-reaching and unexpected pension reform, we study the effects of a sudden expansion in labour supply that was not directly related to unemployment. The reform triggered a marked reduction in the employment to inactivity transitions of the elderly, determining an increase in natural participation (stronger than that in observed participation) but not in natural unemployment. Thus, the trends in activity explain in part why inflation has been so low in the recent years.
    Keywords: labour market flows, labour supply, demographic trends, phillips curve, business cycles
    JEL: J11 J21 J64 E32
    Date: 2021–02
  34. By: Masashige Hamano; Francesco Zanetti
    Abstract: This study provides new insights on the allocative effect of monetary policy. It shows that contractionary monetary policy exerts an important reallocation effect by cleansing unproductive firms and enhancing aggregate productivity. At the same time, however, reallocation involves a reduction in the number of product variety that is central to consumer preferences and hurts welfare. A contractionary policy prevents the entry of new firms and insulates incumbent firms from competition, reducing aggregate productivity. Under demand uncertainty, the gain of the optimal monetary policy diminishes in firm heterogeneity and increases in the preference for product variety. We provide empirical evidence on US data that corroborates the relevance of monetary policy for product variety resulting from firm entry and exit.
    Keywords: Monetary policy, firm heterogeneity, product variety, reallocation
    JEL: E32 E52 L51 O47
    Date: 2021–01
  35. By: Daniela Fantozzi (ISTAT Italian National Institute of Statistics); Alessio Muscarnera (Università di Roma "Tor Vergata")
    Abstract: In this paper we investigate the effect of a "news-based" policy shock on consumption and investments. To this aim, we construct a new measure of policy announcements, the Policy News Index (PNI), analyzing textual data from the most important Italian business newspaper (Il Sole 24 Ore). To disentangle news and noise from fiscal policy communication, we provide measures of newspaper coverage of policy announcements purged from uncertainty. Using a BVAR, we estimate the response of households and firms to a news on government spending. Results indicate that the "news" or "foresight" shock has delayed effects on government spending, consumption and investments. Agents receive mixed signals from newspapers about changes in government spending and they do not react before changes are fully in place due to a "lack of trust". Additionally, we show in a counterfactual exercise that the "confidence channel" plays a crucial role in in the transmission of the shock. Hence, our results provides evidence that outcomes are expectations-driven.
    Keywords: News-based index, Textual data, Text mining, Fiscal foresight, Agents’ expectations, BVAR.
    JEL: C32 C81 D80 E62
    Date: 2021–03–11
  36. By: Dominika Ehrenbergerova; Josef Bajzik
    Abstract: In the current long-lasting period of low interest rates and overheating housing markets, the discussion of the effect of monetary policy on house prices has arisen again. We examine the broad empirical literature on this topic. We collect 1,447 estimates of the effect of changes in short-term interest rates on house prices. These estimates come from 31 studies and are drawn from vector autoregression models. On average, an increase in the interest rate by one percentage point causes a median decrease in house prices of 0.7 percent for the one-year horizon and 0.9 percent for the two-year horizon. Moreover, we show that at the medium-term (monetary policy) horizon, the effect of monetary policy remains significant after correcting for the publication bias present in the literature. In addition, we collect more than 40 control variables. These capture, first, the context in which the estimates were obtained, and, second, the characteristics of the economies in question. Within both groups of variables we identify several significant aspects explaining differences in the estimates reported in the literature. The most prominent drivers of the heterogeneity are the use of sign restrictions, the inclusion of additional endogenous variables in VAR models, and the level of indebtedness.
    Keywords: House prices, meta-analysis, monetary policy, publication selection, transmission
    JEL: C83 E52 R21
    Date: 2020–12
  37. By: Ogawa, Shogo
    Abstract: In this study, we present a canonical static disequilibrium model which is micro-founded. The model includes standard optimization, stochastic quantity rationing, and market friction. In temporary equilibrium, every agent makes a decision under perceived quantity signals of all markets. This specifies market spill-over effect which could be interpreted as dual-decision effect. In temporary equilibrium, market friction mixes classical and Keynesian mechanism for unemployment so that the non-Walrasian regime dividing becomes obscure.
    Keywords: Non-Walrasian economics; Disequilibrium macroeconomics; Market friction
    JEL: D59 D81 E24
    Date: 2021–03–15
  38. By: Sangyup Choi (Yonsei University); Davide Furceri (IMF); Chansik Yoon (Princeton University)
    Abstract: This paper sheds new light on the degree of international fiscal-financial spillovers by investigating the effect of domestic fiscal policies on cross-border bank lending. By estimating the dynamic response of U.S. cross-border bank lending towards 45 recipient countries to exogenous domestic fiscal shocks (both measured by spending and revenue) between 1990Q1 and 2012Q4, we find that expansionary domestic fiscal shocks lead to a statistically significant increase in cross-border bank lending and the size of the effect is comparable to an exogenous decline in the federal funds rate by about 25bp (50bp) for spending (revenue) shocks. The fiscal-financial spillovers we find are independent of changes in monetary policy or financial conditions measured by the VIX. The effects also depend on the sign of the fiscal shocks and the underlying economic conditions of a source country. While capital controls seem to play some moderating role, we do not find systematic and statistically significant differences in the spillover effects across recipient countries, depending on their exchange rate regime. The extension of the analysis to fiscal shocks for a panel of 16 small open economies largely confirms the U.S. economy’s findings.
    Keywords: Fiscal-financial spillovers; Cross-border banking flows; Local projections; Nonlinear effects; Trilemma
    JEL: E62 F21 F32 F42
    Date: 2020–10–20
  39. By: Zeno Enders; Hendrik Hakenes
    Abstract: We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households optimally decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders’ degree of leverage and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.
    Keywords: Bubbles, Rational Expectations, Market Size, Liquidity, Financial Crises, Leveraged Investment, Capital Structure
    JEL: E44 G01 G12
    Date: 2021–03
  40. By: Hilde C. Bjørnland; Roberto Casarin; Marco Lorusso; Francesco Ravazzolo
    Abstract: We analyse fiscal policy responses in oil rich countries by developing a Bayesian regimes-witching panel country analysis. We use parameter restrictions to identify procyclical and countercyclical fiscal policy regimes over the sample in 23 OECD and non-OECD oil producing countries. We find that fiscal policy is switching between pro- and countercyclial regimes multiple times. Furthermore, for all countries, fiscal policy is more volatile in the countercyclical regime than in the procyclical regime. In the procyclical regime, however, fiscal policy is systematically more volatile and excessive in the non-OECD (including OPEC) countries than in the OECD countries. This suggests OECD countries are able to smooth spending and save more than the non-OECD countries. Our results emphasize that it is both possible and important to separate a procyclical regime from a countercyclical regime when analysing fiscal policy. Doing so, we have encountered new facts about fiscal policy in oil rich countries.
    Keywords: Dynamic Panel Model, Mixed-Frequency, Markov Switching, Bayesian Inference, Fiscal Policy, Resource Rich Countries, Oil Prices
    JEL: C13 C14 C51 C53 E62 Q43
    Date: 2021–01
  41. By: Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: Drechsler, Savov, and Schnabl (2017) claim that increases in the monetary policy rate lead to reductions in bank deposits, which account for the negative effect on bank lending. This paper reviews their theoretical analysis, showing that the relationship between the policy rate and the equilibrium amount of deposits is in fact U-shaped. Then, it constructs an alternative model, based on a simple microfoundation for the households' demand for deposits, where an increase in the policy rate always increases the equilibrium amount of deposits. These results question the theoretical underpinnings of the "deposits channel" of monetary policy transmission.
    Keywords: Monetary policy transmission, banks' market power, deposits channel.
    JEL: E52 G21 L13
    Date: 2020–12
  42. By: Robert Kollmann
    Abstract: This paper studies a New Keynesian model of a two-country world with a zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence of the ZLB generates multiple equilibria. The two countries can experience recurrent liquidity traps induced by the self-fulfilling expectation that future inflation will be low. These “expectations-driven” liquidity traps can be synchronized or unsynchronized across countries. In an expectations-driven liquidity trap, the domestic and international transmission of persistent shocks to productivity and government purchases differs markedly from shock transmission in a “fundamentals-driven” liquidity trap.
    Keywords: Zero lower bound, expectations-driven and fundamentals-driven liquidity traps, domestic and international shock transmission, terms of trade, exchange rate, net exports
    JEL: E3 E4 F2 F3 F4
    Date: 2021–01
  43. By: Marcell Göttert; Timo Wollmershäuser
    Abstract: The budget dispute between Italy and the European Commission in 2018 gave new impetus for the debate about the reliability of output gap estimation methods and their use for calculating structural budget balances. In this paper we review the main properties of the mainstream approaches and compare their performance with structural budget balances, whose calculation is based on a business survey. Our main result is that while the survey-based measure is highly correlated with the existing structural budget balances which are calculated based on some estimates of the output gap, it is significantly less revised over time and almost unbiased. Moreover, the survey-based measure could be easily implemented into the existing EU fiscal rules without any major changes.
    Keywords: fiscal rules, cyclical adjustment, output gaps, real time data
    JEL: E32 E62 H62 H68
    Date: 2021
  44. By: Pablo Hernández de Cos (Banco de España)
    Abstract: In discussing the first Draft State Budget to address the economic and social impact of the COVID-19 pandemic, the Governor begins with an analysis of the economy’s recent behaviour and how it may evolve in the coming quarters, drawing on the Banco de España’s projections. Against this background, he assesses the Government’s macroeconomic forecast underpinning the Draft State Budget. He proceeds to calibrate the Budget’s main proposals in terms of the fiscal policy stance, the composition and appropriateness of public revenue and expenditure, and the risks to meeting the budget deficit target. Lastly, he sets out what he considers to be the key challenges for Spanish fiscal policy in the medium term.
    Keywords: Draft State Budget, macroeconomic forecast, projections and risks, fiscal policy stance, crisis response, fiscal consolidation plan, composition of public expenditure and revenue, mobilisation of European funds, Next Generation EU, public debt dynamics, growth potential
    JEL: H61 H12 H5 H3 E62 E66
    Date: 2021–02
  45. By: Johannes Goensch; Andreas Gulyas; Ioannis Kospentaris
    Abstract: This paper develops a life-cycle search model with a labor force participation decision of workers, job-to-job transitions and endogenous job creation to study unemployment insurance (UI) reforms. The calibrated model replicates the aggregate and life-cycle patterns of labor market flows from the Current Population Survey, as well as the worker labor market histories over four months. The model predicts that an UI extension to 99 weeks leads to a slight decrease in labor productivity, the employment to population ratio and the labor force participation rate, but to a non-trivial increase in the unemployment rate. An equally expensive increase in UI benefits, holding the eligibility duration unchanged, yields a smaller increase in the unemployment rate and a smaller decrease in the labor force participation rate. We show that disregarding the effect of flows in and out of the labor force and job-to-job transitions would significantly bias the response of the unemployment rate and labor productivity to UI reforms.
    Keywords: Unemployment Insurance; Labor Market Flows; Directed Search
    JEL: E24 J63 J64 J65 J68
    Date: 2021–02
  46. By: Miyake, Yusuke
    Abstract: This paper analyzes whether public capital investment oor childcare support maximize the growth rate in an ultra-declining birth rate society using a labor-augmented model with public capital. We clarify the global stability of the private capital-public capital ratio in the steady state. In addition, we analyze the effect of increasing the expenditure share of tax revenue on economic growth. The result of this analysis shows that an increased share of public capital investment brings higher economic growth. This means that if all tax revenue is allocated to public capital investment, the growth rate will be maximized. Furthermore, in the second case, the model is reconstructed in such a way that the child is regarded as a nominal consumer goods in the first period and the childcare cost is regarded as a price. In that case, the impact of increased public capital on growth is shown to be minor compared to the former case.
    Keywords: Public capital investment・ Childcare support・ Income tax・ Economic growth
    JEL: D91 E62 O41
    Date: 2021–03–13
  47. By: Stefan Gerlach; Rebecca Stuart
    Abstract: We study co-movements of inflation in a group of 15 countries before and during the classical Gold Standard by fitting a generalisation of the Ciccarelli-Mojon (2010) model on annual data spanning 1851-1913. We find that international inflation functions as an "attractor" for domestic inflation rates. The cross-sectional dispersion of inflation declined gradually over the sample and Bai-Perron tests for structural breaks at unknown points in time suggest that there are breaks in six of reduced-form inflation equations. However, sub-sample estimates indicate that the overall finding that international inflation is an important influence on domestic inflation.
    Keywords: international inflation, Gold standard, principal components, factor analysis.
    JEL: E31 F40 N10
    Date: 2021–03
  48. By: Ángel Luis Gómez (Banco de España)
    Abstract: En la zona del euro, la composición del empleo experimentó variaciones significativas desde el comienzo de la crisis financiera, particularmente en lo referente a la edad y al nivel educativo de los asalariados, así como en la incidencia de la contratación temporal. En este trabajo se explotan dos nuevos conjuntos de datos de panel para estimar en qué medida los cambios en la composición del empleo desempeñaron un papel importante a la hora de explicar el débil crecimiento de los salarios en el conjunto de la zona del euro y en sus principales países miembros durante la etapa de recuperación económica que siguió a la crisis financiera. Este tipo de análisis, en el que se sigue al mismo individuo durante varios períodos de tiempo, permite tratar econométricamente el efecto de la productividad individual, así como evitar determinados sesgos que podrían afectar al uso de datos de sección cruzada. Se concluye que los cambios en la composición del empleo ejercieron cierto efecto positivo sobre los salarios en la zona del euro entre 2010 y 2012. Sin embargo, a partir de 2013 y hasta 2017, último período para el que se dispone de datos individuales, este efecto cambió de signo y aumentó de magnitud, amortiguando el crecimiento de los salarios agregados. En los dos últimos años analizados, el efecto fue particularmente relevante, situándose su impacto en el entorno de 1 punto porcentual. La corrección del efecto de los cambios de composición en el empleo sobre los salarios permite obtener una relación más estrecha entre estos y las condiciones cíclicas.
    Keywords: efectos de composición, datos de panel, efectos fijos individuales
    JEL: E24 J31
    Date: 2020–11
  49. By: Anurag Banerjee (Durham University Business School); Parantap Basu (Durham University Business School); Elisa Keller (University of Exeter)
    Abstract: Skilled individuals are rewarded more in poor countries than in rich countries. Why aren’t more individuals acquiring skills in poor countries? We study the role of unemployment risk. In a sample of 33 countries, we document that the unemployment rate of the skilled net of that of the unskilled decreases with a country’s level of development. Using a matching model of endogenous occupational choice and skill acquisition, we argue that the cost of doing business is a first order determinant of these unemployment rates and, therefore, of the skill acquisition decision. We then quantify the model and find that decreasing each country’s gap in the cost of doing business to the US by 10% decreases the gap in skill acquisition between rich and poor countries of between 48% and 63%.
    Keywords: Skill acquisition, Unemployment, Business cost
    JEL: O11 J31 J24 E24
    Date: 2021–01
  50. By: Alexander Beames; Mariano Kulish; Nadine Yamout
    Abstract: We set up and estimate a small open economy model with fiscal policy in which trend growth can permanently change. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per capita output is estimated to have fallen from just over 2 per cent to 0.6 per cent annually. The slowdown brings about a lasting transition which in the short-run decreases consumption tax revenues but increases them in the long-run changing permanently the composition of tax revenues and temporarily increasing the government debt-to-output ratio.
    Keywords: Open economy, trend growth, fiscal policy, real business cycles, estimation, structural breaks
    JEL: E30 F43 H30
    Date: 2021–02
  51. By: Gries, Thomas (University of Paderborn); Naudé, Wim (University College Cork)
    Abstract: Economists' two main theoretical approaches to understanding Artificial Intelligence (AI) impacts have been the task-approach to labor markets and endogenous growth theory. Therefore, the recent integration of the task-approach into an endogenous growth model by Acemoglu and Restrepo (AR) is a useful advance. However, it is subject to the shortcoming that it does not explicitly model AI and its technological feasibility. The AR model focuses on tasks and skills but not on abilities, while abilities better characterize AI services' nature. This paper addresses this shortcoming by elaborating the task-approach with AI abilities for use within endogenous growth models. This more ability-sensitive specification of the task-approach allows for more nuanced and realistic impacts of progress in artificial intelligence (AI) on the economy to be captured.
    Keywords: Artificial Intelligence, endogenous growth theory, labor economics, mathematical models
    JEL: O47 O33 J24 E21 E25
    Date: 2021–03
  52. By: Miyake, Yusuke
    Abstract: This paper analyzes weather public capital investment oor childcare support maximize growth rate in an ultra-declining birthrate society using a labor augmented model with the public capital. We clarify the global stability of the private capital-public capital ratio to the steady state. In addition, we analyze the effect of increasing expenditure share of a tax revenue on the economic growth. The result of this analysis shows that increased share on the public capital investment brings the higher economic growth. This means that if all tax revenue is allocated to the public capital investment, the growth rate will be maximized.
    Keywords: Public capital investment・ Childcare support・ Income tax・ Economic growth
    JEL: D91 E62 O41
    Date: 2021–03–05
  53. By: Roussel, Yannick; Ali, Amjad; Audi, Marc
    Abstract: This study has explored the factor impacting money demand in the case of Pakistan from 1980 to 2019. Broad Money is taken as the dependent variable, consumption of the household, consumption of government, interest rate, consumer price index, population growth, and remittances are selected independent variables. Augmented Dickey-fuller (ADF) and Phillip Perron (PP) unit root tests are used for examining the stationary of the variables. ARDL method is used for finding the cointegration among the variables of the model. Granger Causality test is used for examining the causal relationship among variables. The results of this study show that there is mixed order of integration among variables of the model. The estimated results of the study show that socio-economic factors play an important role in determining the money demand in Pakistan. So, socio-economic factors play an important role in determining money demand in the case of Pakistan.
    Keywords: Money demand, consumption, interest rate, population growth, remittances
    JEL: E21 P23 P44
    Date: 2021–03
  54. By: Trung Duc Tran
    Abstract: This paper studies the macroeconomic effects of commodity price uncertainty (CPU) shocks. Using Australia as a case study, an econometric-based CPU index is proposed to reveal that Australia has experienced an unprecedented increase in uncertainty from the commodity market recently. Evidence from a VAR model shows that CPU shocks have a larger recessionary impact than other relevant uncertainty shocks such as financial, economic and trade policy uncertainty. The empirical results are then interpreted in a non-linear multisector DSGE model of the Australian economy by estimating key parameters in the DSGE model to match its responses to the VAR responses. CPU shocks in the DSGE model, via foreign commodity export demand with price rigidity, trigger a precautionary response and cause a decline in real economic activity.
    Keywords: Commodity Price Uncertainty, Small Open Economy, VAR-DSGE
    JEL: C32 F41 E32
    Date: 2021–01
  55. By: Callum Jones; Mariano Kulish; Juan Pablo Nicolini
    Abstract: The slope of the Phillips curve in New Keynesian models is difficult to estimate using aggregate data. We show that in a Bayesian estimation, the priors placed on the parameters governing nominal rigidities significantly influence posterior estimates and thus inferences about the importance of nominal rigidities. Conversely, we show that priors play a negligible role in a New Keynesian model estimated using state-level data. An estimation with state-level data exploits a relatively large panel dataset and removes the influence of endogenous monetary policy.
    Keywords: Slope of the Phillips curve; Priors; State-level data; Bayesian estimation
    JEL: E52 E58
    Date: 2021–03–17
  56. By: Giovanni Caggiano; Efrem Castelnuovo
    Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.
    Keywords: Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier.
    JEL: C32 E32
    Date: 2021–02
  57. By: Giacomo De Giorgi; Luca Gambetti; Costanza Naguib
    Abstract: Life expectancy for Blacks is about 8 year shorter than for Whites. A shorter life expectancy, in line with the theoretical prediction of a simple model, determines a much lower amount of savings and wealth accumulation and therefore a lower degree of insurance. This, in turn, contributes to persistent racial differentials in life-cycle consumption. Starting from the same position in the consumption distribution Blacks end up in a lower percentile than Whites after a few decades. This is particularly marked for those Blacks who start at the top of the consumption distribution, where Whites are much more per- sistent. We document these facts using 40 years of PSID data (1981-2017).
    Keywords: Consumption, Income, Earnings persistence, quintile transitions
    JEL: E21 E63 D12 C3
    Date: 2021–03
  58. By: Kohei Matsumura (Bank of Japan); Yusuke Oh (Bank of Japan); Tomohiro Sugo (Bank of Japan); Koji Takahashi (Bank of Japan)
    Abstract: In this paper, we develop high frequency indexes to measure sales in service industries and production activity in the manufacturing industry by using GPS mobility data from mobile applications. First, focusing on the possibility that the number of customers in service industries can be estimated using mobility data, we develop indicators to capture economic activity in amusement parks, shopping centers, and food services. We show that using GPS mobility data, it is possible to nowcast economic activity in the service industries, in real time, with a high level of precision---something which conventional statistics are largely unable to assist. In addition, by using statistical methods such as clustering, we can construct an indicator with even better nowcasting performance. Second, in the manufacturing sector we identify the locations of relatively large factories using panel data from the Economic Census for Business Activity and by utilizing hourly and daily mobility patterns such as a daytime ratio. We then construct indicators for nowcasting production based on the population in the specified areas. We find that we can nowcast production with a high level of precision for some labor-intensive industries including the transportation equipment and production machinery industries. These results suggest that mobility data are a useful tool for nowcasting macroeconomic activity in a timely manner.
    Keywords: mobility data; nowcasting; clustering
    JEL: C49 E23 E27
  59. By: Franziska Bremus; Thomas Krause; Felix Noth
    Abstract: This paper provides evidence for the propagation of idiosyncratic mortgage supply shocks to the macroeconomy. Based on micro-level data from the Home Mortgage Disclosure Act for the 1990-2016 period, our results suggest that lender-specific mortgage supply shocks affect aggregate mortgage, house price, and employment dynamics at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger are mortgage, house price, and employment growth. While shocks at the level of shadow banks significantly affect mortgage and house price dynamics, too, they do not matter much for employment.
    Keywords: Credit supply shocks, mortgage market concentration, real effects from housing markets
    JEL: E44 G21 R20
    Date: 2021
  60. By: Tatsushi Okuda; Tomohiro Tsuruga; Francesco Zanetti
    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
  61. By: Fernando, Roshen (Asian Development Bank Institute); McKibbin, Warwick J. (Asian Development Bank Institute)
    Abstract: We update the analysis of the global macroeconomic consequences of the COVID-19 pandemic in earlier papers by the authors with data as of late October 2020. It also extends the focus to Asian economies and explores four alternative policy interventions that are coordinated across all economies. The first three policies relate to fiscal policy: an increase in transfers to households of an additional 2% of the GDP in 2020; an increase in government spending on goods and services in all economies of 2% of their GDP in 2020; and an increase in government infrastructure spending in all economies in 2020. The fourth policy is a public health intervention similar to the approach of Australia that successfully manages the virus (flattens the curve) through testing, contact tracing, and isolating infected people coupled with the rapid deployment of an effective vaccine by mid-2021. The policy that is most supportive of a global economic recovery is the successfully implemented public health policy. Each of the fiscal policies assists in the economic recovery with public sector infrastructure having the most short-term stimulus and longer-term growth benefits.
    Keywords: COVID-19; pandemics; infectious diseases; risk; macroeconomics; DSGE; CGE; G-Cubed
    JEL: C54 C68 F41
    Date: 2021–03–02
  62. By: Youngjin Yun (Bank of Korea); Byoungsoo Cho (Bank of Korea)
    Abstract: Monetary policy may affect bank lending differently depending on who the borrower is. We examine both the price and quantity of bank loans in Korea for the 10 years between 2010 and 2019 to study whether the bank lending channel differs for households and firms. Identifying the channel by comparing banks with different amounts of security holdings, we find that the monetary policy effect is significant in business loans, but not in household loans. Evidence suggests that the difference in loan maturities is the reason behind it. Business loans typically have shorter maturities than household loans. Thus, the share of new or refinancing loans, which are more directly influenced by monetary policy shocks, is higher in business loans than in household loans. Our findings provide important policy implications for the cases where household and business sector debts evolve in different directions.
    Keywords: monetary policy, bank lending channel, business loans, household loans
    JEL: E3 E5 G2
    Date: 2021–01–01
  63. By: Francisco Queirós (Università di Napoli Federico II and CSEF)
    Abstract: This paper studies the interactions between asset bubbles and competition. I first document a negative industrylevel relationship between measures of stock market overvaluation and indicators of market power: larger overvaluation is associated with an increase in the number of firms, lower markups and a higher probability of negative earnings. I then construct multi-industry growth model featuring imperfect competition and rational bubbles that sheds light on these findings. By providing an entry or production subsidy, bubbles stimulate competition and reduce monopoly rents. When they are sufficiently large they can, however, lead to excessive entry and competition. I also show that imperfect competition depresses the interest rate, thereby relaxing the conditions for the emergence of rational bubbles.
    Keywords: Rational Bubbles, Competition, Market Power, British Railway Mania, Dotcom Bubble
    JEL: E44 L13 L16
    Date: 2021–03–17
  64. By: Jefferson Martínez (Pontificia Universidad Católica del Perú); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú / Fiscal Council of Peru)
    Abstract: This paper quantifies and assesses the impact of an adverse loan supply (LS) shock on Peruís main macroeconomic aggregates using a Bayesian vector autoregressive (BVAR) model in combination with an identification scheme with sign restrictions. The main results indicate that an adverse LS shock: (i) reduces credit and real GDP growth by 372 and 75 basis points in the impact period, respectively; (ii) explains 11.2% of real GDP growth variability on average over the following 20 quarters; and (iii) explained a 180-basis point fall in real GDP growth on average during 2009Q1-2010Q1 in the wake of the Global Financial Crisis (GFC). Additionally, the sensitivity analysis shows that the results are robust to alternative identification schemes with sign restrictions; and that an adverse LS shock has a greater impact on non-primary real GDP growth. JEL Classification-JEL: C11, E32, E51.
    Keywords: Sistema Bancario, Choque de Oferta de Crédito, Modelo VAR Bayesiano, Restricciones de Signo, Economía Peruana
    Date: 2020
  65. By: Waldo mendoza Bellido (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: En este trabajo se presenta un modelo del acelerador flexible para el caso de una economía abierta. La presentación parte de la determinación del stock del capital deseado u óptimo del empresario, al que se le incorporan los costos de alterar el stock de capital existente a su nivel deseado. En términos formales, es un modelo dinámico en tiempo discreto que permite evaluar los impactos de modificaciones en las variables exógenas sobre las variables endógenas para el corto plazo o periodo de impacto, el tránsito hacia el equilibrio estacionario, y el cambio entre un equilibrio estacionario y otro. Así mismo, el modelo permite hacer dinámicas comparativas, es decir, evaluar el impacto de las variables exógenas sobre la trayectoria de las variables endógenas. JEL Classification-JEL: E22, E32
    Keywords: inversión, acelerador flexible, estática y dinámica comparativa
    Date: 2020
  66. By: Garcia, D; Granda, C
    Abstract: Este trabajo tiene como objetivos ofrecer una visión panorámica acerca de la economía informal, sus determinantes y principales características en el caso colombiano; y, también, explorar las consecuencias de este fenómeno a nivel macroeconómico, enfatizando en los posibles efectos de la informalidad sobre los rasgos específicos de los ciclos económicos en los países emergentes, particularmente en el comportamiento de la política fiscal en Colombia. Para ello, se efectúa una revisión de la literatura pertinente buscando establecer conexiones entre estos aspectos. Se concluye que la debilidad institucional del país no solo incide en una proporción considerable de la economía informal con respecto al PIB, sino que refuerza el impacto de esta sobre la postura procíclica (o desestabilizadora) de la política fiscal. En este sentido, se requiere que el gobierno ajuste sus instrumentos de política en torno a una senda estabilizadora a la par que promueva la formalización laboral y empresarial.
    Keywords: Informalidad; ciclos económicos; política fiscal
    JEL: E32 H30
    Date: 2019–12–03
  67. By: Roshen Fernando; Warwick J. McKibbin
    Abstract: This paper updates the analysis of the global macroeconomic consequences of the COVID-19 pandemic in McKibbin and Fernando (2020c) with data as of late October 2020. It also extends the focus to Asian economies and explores four alternative policy interventions coordinated across all economies. The first three policies relate to fiscal policy: an increase in transfers to households of an additional 2% of GDP in 2020; an increase in government spending on goods and services in all economies of 2% of GDP in 2020; an increase in government infrastructure spending in all economies in 2020. The fourth policy is a public health intervention similar to the approach of Australia that successfully manages the virus (flattens the curve) through testing, contact tracing and isolating infected people, coupled with the rapid deployment of an effective vaccine by mid-2021. The policy that is most supportive of a global economic recovery is the successfully implemented public health policy. Each of the fiscal policies assists in the economic recovery with public sector infrastructure having the most short-term stimulus and longer-term growth benefits.
    Keywords: COVID-19, pandemics, infectious diseases, risk, macroeconomics, DSGE, CGE, G-Cubed
    JEL: C54 C68 F41
    Date: 2021–01
  68. By: Pablo Hernández de Cos (Banco de España)
    Abstract: El gobernador contribuye con su análisis sobre la imparcialidad y la autonomía de las autoridades económicas independientes a la revisión de «las medidas necesarias de refuerzo de la imparcialidad e independencia de autoridades independientes y organismos de regulación» que realiza esta Comisión, ante la que comparece. Para ello, durante su intervención revisa los argumentos que justifican la independencia de las autoridades y los supervisores económicos. Pasa después a tratar los elementos que configuran la independencia formal de una institución y cómo se concretan en el caso del Banco de España. Seguidamente, reflexiona sobre la condición de independencia, como una condición necesaria, pero no suficiente, para el buen desempeño de los organismos independientes. Señala después algunas posibles vías para reforzar la independencia del Banco de España y, a continuación, identifica eventuales mejoras del modelo de supervisión financiera en España. Por último, se refiere a los mecanismos de control y a los estándares de transparencia del Banco de España, así como a algunos aspectos de su gobernanza.
    JEL: E58 G28 E61 F55 K1 Y80
    Date: 2021–02
  69. By: Olivier J Blanchard (Peterson Institute for International Economics); Ã lvaro Leandro (CaixaBank Research); Jeromin Zettelmeyer (Peterson Institute for International Economics)
    Abstract: The European Union’s fiscal rules have been suspended until at least the end of 2021. When they are reinstated, they will need to be modified, if only because of the high levels of debt. Proposals have been made—and more are to come—suggesting various changes and simplifications. Blanchard, Leandro, and Zettelmeyer take a step back and discuss how one should think about debt sustainability in the current and likely future EU economic environment. They argue that, given the complexity of the answer, it is an illusion to think that EU fiscal rules can be simple. But it is also an illusion to think that they can ever be complex enough to accommodate most relevant contingencies. Instead, the authors propose abandoning fiscal rules in favor of fiscal standards, i.e., qualitative prescriptions that leave room for judgment together with a process to decide whether the standards are met. Central to this process would be country-specific assessments using stochastic debt sustainability analysis, led by national independent fiscal councils and/or the European Commission. Disputes between member states and the European Commission on application of the standards should preferably be adjudicated by an independent institution, such as the European Court of Justice (or a specialized chamber), rather than by the Council of the European Union.
    Keywords: interest rates, fiscal policy, public debt, primary balance, fiscal deficit, fiscal rules, fiscal governance, fiscal standards, debt sustainability analysis
    JEL: E62 F42 H60 H61 H62 H63
    Date: 2021–02
  70. By: Evren Erdogan Cosar; Ayse Arzu Yavuz
    Abstract: This study examines the asymmetric relationships between demographic characteristics of labor market variables and Gross Domestic Product (GDP) in the Turkish economy. Both expansions and recessions are considered in a Markov Switching (MS) model, using quarterly data between 1989 and 2019. Okun’s coefficients are estimated for the different age groups, genders and education levels. The results reveal that men are more likely to lose their jobs during recessions in Turkey whereas unemployment rates for 25-39 year-olds and those with at least university degrees are the least affected groups. There is also asymmetry within and between states across the demographic groups due to GDP phases. The study also investigates the gender dynamics of labor force participation rates (LFPR) as a fundamental determinant of unemployment rate. According to the MS models, LFPR responds significantly and positively to GDP expansions for men whereas it is significant and negative for women. That is, as economic activity begins to recover after a recession, women leave the labor force as secondary income earners.
    Keywords: Okun’s law, Demographic composition, Turkey
    JEL: E32 J21 J64
    Date: 2021
  71. By: Roth, Felix
    Abstract: This paper assesses the productivity puzzle critically and gives an outlook on the COVID-19 crisis. It offers two main conclusions. First, it posits that a large fraction of the productivity puzzle can be solved by incorporating intangible capital into the asset boundary of the national accounts. Thus, the productivity puzzle is largely explained as a consequence of fundamental structural changes that are underway, transforming industrial economies into knowledge economies. Secondly, the contribution foresees a post-COVID-19 scenario that will likely lead to a pronounced increase in labour productivity growth. This depends, however, on whether the current push for digitization will be backed by actual investments into digitization and the necessary complementary investments in (business and public) intangible capital.
    Keywords: productivity puzzle,intangible capital,labour productivity growth,structural change,COVID-19 crisis,re-measurement of GDP
    JEL: E22 F45 O32 O34 O47 O52
    Date: 2021
  72. By: Claire Giordano (Bank of Italy); Marco Marinucci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: While there is a vast macroeconomic literature that singles out the main drivers of capital accumulation in advanced economies during and after the global financial and sovereign debt crises' recessionary phase, there is much less research seeking to identify both models and variables that possess out-of-sample forecasting ability for gross fixed capital formation. Moreover, micro-founded variables are scarcely employed in macroeconomic forecasting of real investment. We fill this gap by considering a battery of univariate and multivariate time-series models to forecast investment of non-financial corporations in Italy, an interesting case-study due to its steep downturn during the two afore-mentioned crises. We find that a vector error correction model augmented with firm survey-based variables accounting for business confidence, demand uncertainty and financing constraints generally outperforms the autoregressive benchmark and a series of competing multivariate time-series models in various, alternative, evaluation samples that take into account the impact of both the global financial crisis and the sovereign debt crisis on forecast accuracy.
    Keywords: Real investment, forecasting evaluation, firm survey data, vector error correction model
    JEL: C32 C52 E22 E27
    Date: 2021–02
  73. By: Sasaki, Hiroaki; Hagiwara, Takefumi; Pham, Huong; Fukatani, Noriki; Ogawa, Shogo; Okahara, Naoto
    Abstract: This study uses a growth model with automation technology to consider two classes---workers and capitalists---and investigates how advances in automation technology affect economic growth and income distribution. In addition to the two production factors labor and traditional capital, we consider automation capital as the third production factor. We also introduce Pasinetti-type saving functions into the model to investigate how the difference between the capitalists' and workers' saving rates affect economic growth and income distribution. When the capitalists' saving rate is higher than a threshold level, per capita output exhibits endogenous growth irrespective of the workers' savings rate. In this case, the income gap between workers and capitalists widens over time. When the capitalists' saving rate is less than the threshold level, two different long-run states occur depending on the workers' saving rate: the capitalists' own automation capital share approaches a constant, and it approaches zero. In both cases, the per capita output growth is zero and the income gap between the two classes becomes constant over time.
    Keywords: automation technology; endogenous growth; income distribution
    JEL: E25 O11 O33 O41
    Date: 2021–03–07
  74. By: Bernhardt, Robert; Munro, David; Wolcott, Erin
    Abstract: Since 2010 and before the pandemic hit, the share of households refusing to participate in the Current Population Survey (CPS) tripled. We show that partially-responding households - households that respond to some but not all of the survey's eight panels - account for most of the rise. Leveraging the labor force status of partially-responding households in the months surrounding their non-response, we find that rising refusals artificially suppressed the labor force participation rate and employment-population ratio but had little discernible effect on the unemployment rate. Factors robustly correlated with state-level refusal rates include a larger urban population, a smaller Democratic vote share (our proxy for sentiment towards government), and the economic and social changes brought about by manufacturing decline.
    Keywords: Current Population Survey,Non-Response,Unemployment,Labor Force Participation,Employment-Population Ratio
    JEL: C83 E24 J64
    Date: 2021
  75. By: Hong Cheng; Lukasz A. Drozd; Rahul Giri; Mathieu Taschereau-Dumouchel; Junjie Xia
    Abstract: We study the effect of modern automation on firm-level labor shares using a 2018 survey of 1,618 manufacturing firms in China. We exploit geographic and industry variation built into the design of subsidies for automation paid under a vast government industrialization program, “Made In China 2025,” to construct an instrument for automation investment. We use a canonical CES framework of automation and develop a novel methodology to structurally estimate the elasticity of substitution between labor and automation capital among automating firms, which for our preferred specification is 3.8. We calibrate the model and show that the general equilibrium implications of this elasticity are consistent with the aggregate trends during our sample period.
    Keywords: labor share; labor’s share in income; automation; labor demand; industrial robots
    JEL: D33 E25 O33 J23 J24 E24 O25
    Date: 2021–03–09
  76. By: Luigi Longo (IMT School for advanced studies); Massimo Riccaboni (IMT School for advanced studies); Armando Rungi (IMT School for advanced studies)
    Abstract: We propose an ensemble learning methodology to forecast the future US GDP growth release. Our approach combines a Recurrent Neural Network (RNN) with a Dynamic Factor model accounting for time-variation in mean with a General- ized Autoregressive Score (DFM-GAS). The analysis is based on a set of predictors encompassing a wide range of variables measured at different frequencies. The forecast exercise is aimed at evaluating the predictive ability of each model's com- ponent of the ensemble by considering variations in mean, potentially caused by recessions affecting the economy. Thus, we show how the combination of RNN and DFM-GAS improves forecasts of the US GDP growth rate in the aftermath of the 2008-09 global financial crisis. We find that a neural network ensemble markedly reduces the root mean squared error for the short-term forecast horizon.
    Keywords: macroeconomic forecasting; machine learning; neural networks; dynamic factor model; Covid-19 crisis
    JEL: C53 E37
    Date: 2021–03
  77. By: Ludovic Dobbelaere; Igor Lebrun
    Keywords: Economic budget, Forecast, post mortem assessment, Medium-term projections
    JEL: C53 E6
    Date: 2020–11–16
  78. By: Pablo Hernández de Cos (Banco de España)
    Abstract: En la discusión del Proyecto de los primeros Presupuestos Generales del Estado (PGE) que deberán afrontar el impacto económico y social de la pandemia de COVID-19, el gobernador inicia su comparecencia con un análisis del comportamiento reciente de la economía y de su posible evolución en los próximos trimestres, a la luz de las proyecciones del Banco de España. En ese marco, valora el cuadro macroeconómico del Gobierno en el que se apoya el Proyecto de PGE. A continuación, calibra las principales propuestas del Proyecto en términos del tono de la política fiscal, la composición de los ingresos y gastos públicos y su pertinencia, y los riesgos para el cumplimiento del objetivo de déficit público. Por último, expone los que considera que son los retos más importantes para la política fiscal de España en el medio plazo.
    Keywords: Proyecto de Presupuestos Generales del Estado, cuadro macroeconómico, previsiones y riesgos, tono de la política fiscal, respuesta a la crisis, plan de consolidación fiscal, composición de gastos e ingresos públicos, movilización de fondos europeos, Next Generation EU, dinámica de la deuda pública, potencial de crecimiento
    JEL: H61 H12 H5 H3 E62 E66
    Date: 2021–02
  79. By: Philip Du Caju; Guillaume Perilleux; François Rycx; Ilan Tojerow
    Abstract: This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium. To do so, we use panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of any negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. To explore potential non-linearities in this effect, we perform a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30% as this leads to a substantial reduction of their consumption. The effect appears to be robust to various specifications, including the inclusion of other European countries, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.
    Keywords: Households; Indebtedness; Consumption; Debt-Service-to-Income; Non-linear Heterogeneous Effects
    JEL: D12 D14 E21
    Date: 2021–03–17
  80. By: Caterina Mendicino (European Central Bank); Kalin Nikolov (European Central Bank); Juan Rubio-Ramirez (Emory University); Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros); Dominik Supera (Wharton School)
    Abstract: We study the interaction between borrowers' and banks' solvency in a quantitative macroeconomic model with financial frictions in which bank assets are a portfolio of defaultable loans. We show that ex-ante imperfect diversification of bank lending generates bank asset returns with limited upside but significant downside risk. The asymmetric distribution of these returns and their implications for the evolution of bank net worth are important for capturing the frequency and severity of twin default crises - simultaneous rises in firm and bank defaults associated with sizeable negative effects on economic activity. As a result, our model implies higher optimal capital requirements than common specifications of bank asset returns, which neglect or underestimate the impact of borrower default on bank solvency.
    Keywords: Bank default, firm default, financial crises, bank capital requirements.
    JEL: G01 G28 E44
    Date: 2020–06
  81. By: Álvaro Jiménez (Technical Secretariat of the Fiscal Council); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: This paper estimates hybrid TVP-VAR-SV models suggested by Chan and Eisentat (2018a) in order to identify and quantify the impact of fiscal shocks on the GDP growth of Peru during 1995- 2018. According to Bayesian criteria, the best model present time-varying dynamics but not in all parameters. The results suggest: (i) fiscal shocks are significant according to the calculus of the IRFs, FEVD and HD of the GDP growth; (ii) tax revenue shocks are less important and its impact depends on the selected model and the quarter when the shock occurs; (iii) effect of capital expenditure shocks are the most important drivers of GDP growth; (iv) both fiscal expenditure shocks have been growing over the last 20 years. Finally, we suggest constant revisions of the fiscal multipliers and we think that in the following years, countercyclical fiscal policy in Peru should be mostly driven by capital expenditure. JEL Classification-JEL: C11, C32, E62, H30
    Keywords: Multiplicadores Fiscales, PolÌtica Fiscal, Modelos TVP-VAR-SV HÌbridos, Métodos Bayesianos, EconomÌa Peruana.
    Date: 2020
  82. By: Alexander Schramm; Alexander Schwemmer; Jan Schymik
    Abstract: We study how managerial incentives affect the allocation of capital inside firms. To identify the effect of incentives on investment decisions we use a within-firm estimator that exploits variation across capital goods and a US accounting reform as an exogenous shock to managers' short-termist incentives. Our evidence shows that capital (mis)allocation within firms can be amplified by short-termist incentives. More short-term incentives cause a shift in investment expenditures away from durables towards more short-lived capital goods, effectively shortening the durability of firms' capital stocks. To study the economic implications of this within-firm misallocation channel, we then build a model of firm investments with incentive frictions that we calibrate to the US economy. We show that even moderate increases in short-termist incentives, such as those around the accounting reform, may cause substantial inefficiencies. These inefficiencies lead to large within-firm spreads in the marginal products of capital goods, causing long-run declines in output and real wages.
    Keywords: Corporate investment; Firm dynamics; Capital reallocation; Short-term incentives
    JEL: E22 G31 D24 D25 L23
    Date: 2021–01
  83. By: Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper reviews the analysis in Brunnermeier and Koby (2018), showing that lower monetary policy rates can only lead to lower bank lending if there is a binding capital constraint and the bank is a net investor in debt securities, a condition typically satisfied by high deposit banks. It next notes that BK’s capital constraint features the future value of the bank’s capital, not the current value as in standard regulation. Then, it sets up an alternative model with a standard capital requirement in which profitability matters because bank capital is endogenously provided by shareholders, showing that in this model there is no reversal rate.
    Keywords: Monetary policy, reversal rate, negative interest rates, bank profitability, bank market power, capital requirements.
    JEL: E52 G21 L13
    Date: 2020–10
  84. By: David Martinez-Miera (Universidad Carlos III de Madrid); Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper shows the relevance of market power to assess the effects of safe interest rates on financial intermediaries' risk-taking decisions. We consider an economy where (i) intermediaries have market power in granting loans, (ii) intermediaries monitor borrowers which lowers their probability of default, and (iii) monitoring is costly and unobservable which creates a moral hazard problem with uninsured depositors. We show that lower safe rates lead to lower intermediation margins and higher risk-taking when intermediaries have low market power, but the result reverses for high market power. We examine the robustness of this result to introducing non-monitored market finance, heterogeneity in monitoring costs, and entry and exit of intermediaries. We also consider the effect of replacing uninsured by insured deposits, market power in raising deposits, and funding with both deposits and capital.
    Keywords: Imperfect competition, intermediation margins, bank monitoring, bank risk-taking, monetary policy.
    JEL: G21 L13 E52
    Date: 2020–07
  85. By: Barend Abeln; Jan P.A.M. Jacobs
    Abstract: The COVID19 crisis has a huge impact on economies all over the world. In this note we compare seasonal adjustments of X13 and CAMPLET before and after the COVID19 crisis. We show results of Quasi Real Time analyses for the quarterly series real GDP and the monthly series Consumption of Households in the Netherlands, and STL and CAMPLET seasonal adjustments for the weekly series US Initial Claims. We find that differences in SA values are generally small and that X13 and STL seasonal adjustments are subject to revision. From the analysis of the weekly series initial claims, we learn that STL and CAMPLET SAs follow NSA values closely. In addition, the COVID19 crisis caused a structural increase in initial claims. Before the crisis initial claims fluctuated around a lower level than after the crisis.
    Keywords: COVID19 crisis, seasonal adjustment, real GDP, consumption of households, initial claims
    JEL: C22 E24
    Date: 2021–02
  86. By: Job Boerma; Loukas Karabarbounis
    Abstract: Reparations is a policy proposal aiming to address the wealth gap between Black and White households. We provide a first formal analysis of the economics of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' experiences with entrepreneurship over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We use the model to evaluate reparations and find that transfers eliminating the racial gap in average wealth today do not lead to wealth convergence in the long run. The logic is that century-long exclusions lead Black dynasties to enter into reparations with pessimistic beliefs about risky returns and to forego investment opportunities. We conclude by showing that entrepreneurial subsidies are more effective than wealth transfers in achieving racial wealth convergence in the long run.
    Keywords: Reparations; Race gaps; Wealth; Entrepreneurship; Beliefs
    JEL: E21 D31 J15
    Date: 2021–02–19
  87. By: Du Caju, Philip (National Bank of Belgium); Périlleux, Guillaume (Université Libre de Bruxelles); Rycx, Francois (Free University of Brussels); Tojerow, Ilan (Free University of Brussels)
    Abstract: This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium, using panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. We perform as well a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30%. The effect appears to be robust to various specifications, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.
    Keywords: households, indebtedness, consumption, debt-service-to-income, non-linear heterogeneous effects
    JEL: D12 D14 E21
    Date: 2021–03
  88. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper estimates a model of the real exchange rate including standard fundamentals as well as two alternative measures of inflation expectations for five inflation targeting countries (UK, Canada, Australia, New Zealand, Sweden) over the period January 1993-July 2019. Both a benchmark linear ARDL model and a nonlinear ARDL (NARDL) specification are considered. The results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long- and short-run. In particular, the speed of adjustment towards the PPP-implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones. Monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively. The inflation targeting framework might be especially appropriate for this purpose.
    Keywords: nonlinearities, asymmetric adjustment, PPP, real exchange rate, inflation expectations
    JEL: C32 F31 G15
    Date: 2021
  89. By: Zhitao Lin (Jinan University); Xingwang Qian (SUNY Buffalo State College)
    Abstract: This paper examines how U.S. monetary policy uncertainty (MPU) affects RMB deviations from covered interest parity (CIP) and how this effect is influenced by China’s capital controls, the RMB exchange rate regime, and international reserves that constrain the transmitting channel of U.S. MPU shocks. Our findings show that U.S. MPU has a spillover effect and creates deviations from RMB CIP. Capital controls insulate uncertainty shocks and alleviate the U.S. MPU spillover effect. There are some evidences that international reserves alleviate and the liberalized RMB exchange rate regime magnifies the spillover effect. However, their effects become insignificant in the presence of capital controls. Moreover, the U.S. MPU effect on RMB CIP deviation became prominent after the 2008 global financial crisis.
    Keywords: U.S. MPU; deviation from CIP; RMB cross-currency basis; capital controls; exchange rate regime; international reserves
    JEL: E43 F31 G15
    Date: 2020–12–07
  90. By: Gabor, Daniela
    Abstract: This paper disentangles the claims that we are witnessing a revolution in central banking - the return of large interventions in government bond markets. It argues that not all central bank purchases of government bonds are alike, but they should be evaluated against the objectives of the interventions and the broader macro-financial setup of the economy. It distinguishes two regimes of monetary financing – shadow vs subordinated – across objectives of intervention, targets, institutional hierarchy, macroeconomic paradigm, and accumulation regime/distribution of political power. Shadow monetary financing, it argues, offers a weak framework for monetary-fiscal interactions, one that actively undermines both the rethink of fiscal rules, and fiscal support for the low-carbon transition.
    Date: 2021–03–11
  91. By: Piachaud, David
    Abstract: Over the past century, social security in advanced economies has been transformed, and in this paper the history of its growth and some of the causes are reviewed. Yet poverty has not ended and many question the future of social security. Four systems of social security are discussed: social assistance, social insurance, targeted universal benefits and universal basic income. Possible reforms and steps to promote the survival of social security as a core element of a just and civilised society are proposed.
    Keywords: social security; social protection; poverty; targeting; basic income
    JEL: E6 N0
    Date: 2020–12–07
  92. By: Gregor Boehl
    Abstract: Structural macroeconometric analysis and new HANK-type models with extremely high dimensionality require fast and robust methods to efficiently deal with occasionally binding constraints (OBCs), especially since major developed economies have again hit the zero lower bound on nominal interest rates. This paper shows that a linear dynamic rational expectations system with OBCs, depending on the expected duration of the constraint, can be represented in closed form. Combined with a set of simple equilibrium conditions, this can be exploited to avoid matrix inversions and simulations at runtime for significant gains in computational speed. An efficient implementation is provided in Python programming language. Benchmarking results show that for medium-scale models with an OBC, more than 150,000 state vectors can be evaluated per second. This is an improvement of more than three orders of magnitude over existing alternatives. Even state evaluations of large HANK-type models with almost 1000 endogenous variables require only 0.1 ms.
    Keywords: Occasionally Binding Constraints, Effective Lower Bound, Computational Methods
    Date: 2021–01
  93. By: Christian Zimpelmann
    Abstract: The amount of risk that households take when investing their savings has long-term consequences for their financial well-being. However, a substantial share of observed heterogeneity in financial risk-taking remains unexplained by factors like risk aversion and wealth levels. This study explores whether subjective beliefs about stock market returns can close this knowledge gap. I make use of a unique data set that comprises incentivized, repeated elicitations of stock market beliefs and high-quality administrative asset data for a probability-based population sample. Households with more optimistic stock market expectations hold more risk in their portfolio, where the effect size is about half of the effect size of risk aversion. Furthermore, changes in expectations over time are related to changes in portfolio risk, which demonstrates that cross-sectional correlations are not driven by a time-invariant third variable. The results suggest that stock market expectations are an important component of portfolio choice. More generally, the study shows that subjective beliefs can be reliably measured in surveys and are related to actual high-stakes decisions.
    Keywords: Surveys, Subjective Expectations, Behavioral Finance, Household Finance
    JEL: D14 D84 E21 G11 G4 G5
    Date: 2021–01
  94. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: According to retrospective voting a bad economy hurts the incumbent party and vice versa. According to risk-aversion voting a bad economy favors the Democrats over the Republicans and vice versa. This paper provides a test of both theories and rejects risk-aversion voting.
    Keywords: Retrospective voting, Risk-aversion voting
    JEL: E00
    Date: 2021–03
  95. By: Chang Ma (Fudan University); John Rogers (Federal Reserve Board); Sili Zhou (Fudan University)
    Abstract: Stock market liberalization generates benefits and costs. We estimate these effects using the Shanghai (Shenzhen) - Hong Kong Stock Connect, an important opening that allows foreign investors to trade a subset of mainland Chinese firms. The liberalization brought connected Chinese firms lower funding costs and more investment, but also increased sensitivity to foreign shocks. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We find that both (greater) risk sharing and (lower) funding cost channels explain our results.
    Keywords: Capital Account Liberalization; Capital Controls; Global Financial Cycle; Foreign Spillovers; China Connect; Corporate Investment
    JEL: F38 E40 E52 G15
    Date: 2020–12–07
  96. By: Lach, Saul; Neeman, Zvika; Schankerman, Mark
    Abstract: We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero co-financing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard, allowing for two levels of effort by the entrepreneur, the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing, and a second with a lower interest plus co-financing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, cost of public funds, and effectiveness of the private VC industry.
    Keywords: Mechanism design; Innovation; R&D; Entrepreneurship; Additionality; Government finance; Venture capital
    JEL: E6 F3 G3
    Date: 2020–08–03
  97. By: Cavalcanti, T.; Hasna, Z.; Santos, C.
    Abstract: We evaluate the aggregate and distributional effects of climate change mitigation policies using a multi-sector equilibrium model with intersectoral input–output linkages and worker heterogeneity calibrated to different countries. The introduction of carbon taxes leads to changes in relative prices and inputs reallocation, including labor. For the United States, reaching its original Paris Agreement pledge would imply at most a 0.6% drop in output. This impact is distributed asymmetrically across sectors and individuals. In the US, workers with a comparative advantage in dirty energy sectors who do not reallocate suffer a welfare loss 12 times higher than workers in non-dirty sectors, but constitute less than 1% of the labor force.
    Keywords: Climate change, carbon taxes, worker heterogeneity, labor reallocation
    JEL: E13 H23 J24
    Date: 2021–03–09
  98. By: Orhun Sevinc; Ufuk Demiroglu; Emre Cakir; E. Meltem Bastan
    Abstract: This paper estimates potential growth in Turkey using a production function estimation approach. Our approach aims to measure the inputs of production in the most detailed fashion that is possible and empirically addresses concepts of sustainable potential growth for Turkey. While developing measures of the sources of potential growth, we provide a thorough discussion of the estimated trends in labor force participation, capital growth by asset type, and total factor productivity since the mid-2000s. Our results suggest that the key driver of potential growth has increasingly been capital accumulation. The declining trend in the positive TFP growth stands out as the key area of improvement for potential growth.
    Keywords: Potential growth, Labor force participation, Productivity, Capital accumulation
    JEL: E1 J21 O4
    Date: 2021
  99. By: Muhammed A. Yildirim (Center for International Development at Harvard University); Cem Cakmakli; Selva Demiralp; Sebnem Kalemli-Ozcan; Sevcan Yesiltas
    Abstract: COVID-19 pandemic had a devastating effect on both lives and livelihoods in 2020. The arrival of effective vaccines can be a major game-changer. However, vaccines are in short supply as of early 2021 and most of them are reserved for the advanced economies. We show that the global GDP loss of not inoculating all the countries, relative to a counterfactual of global vaccinations, is higher than the cost of manufacturing and distributing vaccines globally. We use an economic-epidemiological framework that combines a SIR model with international production and trade networks. Based on this framework, we estimate the costs for 65 countries and 35 sectors. Our estimates suggest that up to 49 percent of the global economic costs of the pandemic in 2021 are borne by the advanced economies even if they achieve universal vaccination in their own countries.
    Keywords: COVID-19; Sectoral Infection Dynamics; Globalization; International I-O Linkages
    JEL: E61 F00 C51
    Date: 2021–01
  100. By: Garriga, Ana Carolina; Meseguer, Covadonga
    Abstract: How do remittances affect the choice of exchange rate regimes? Previous research shows that remittances, by easing the ‘impossible trinity’, increase the probability of governments adopting fixed exchange rates. However, that research overlooks the conditioning effect of monetary and political institutions. We argue that remittances, by altering recipient governments’ incentives to use monetary policy counter-cyclically, make central bank independence a credible anti-inflationary tool in less credible regimes; that is, autocracies. Thus, autocracies that receive remittances do not need to rely on fixed exchange rates. In this way, remittances open policy alternatives for developing autocracies. Statistical tests on a sample of 87 developing and transitional countries between 1980 and 2010 support our argument.
    Keywords: Remittances; central bank independence; exchange rate regimes; autocracies; developing countries
    JEL: F3 G3
    Date: 2019–10–02
  101. By: Max Breitenlechner (University of Innsbruck); Georgios Georgiadis (European Central Bank); Ben Schumann (Free University of Berlin)
    Abstract: We quantify spillbacks from US monetary policy based on structural scenario analysis and minimum relative entropy methods applied in a Bayesian proxy structural vector-autoregressive model for the time period from 1990 to 2019. We find that spillbacks account for up to half of the overall slowdown in domestic real activity in response to a contractionary US monetary policy shock. Moreover, spillbacks materialise as stock market wealth effects impinge on US consumption, and as Tobin’s q effects impinge on US investment. In particular, a contractionary US monetary policy shock depresses global equity prices, weighing on the value of US households’ portfolios; and it depresses earnings of US firms through declines in foreign sales inducing them to cut back investment. Net trade does not contribute to spillbacks because US monetary policy shocks affect exports and imports similarly. Finally, spillbacks materialise through advanced rather than through emerging market economies, consistent with their relative importance in US foreign equity holdings and US firms’ foreign demand.
    Keywords: US monetary policy, spillovers, spillbacks, Bayesian proxy structural VAR models
    JEL: F42 E52 C50
    Date: 2021–02–18
  102. By: Walter Paternesi Meloni; Antonella Stirati
    Abstract: The drop in the labor share experienced in high-income countries in the last three to four decades testifies to a general divergence in the growth rates of labor productivity and average wages. In this respect, we first quantify the magnitude of this decoupling; second, we inquire into the factors that prevented wage growth from keeping pace with productivity. We endorse a ‘political economy’ approach – a line of inquiry which has been recently fueled and followed by the post-Keynesian literature – focusing on the effects on wage dynamics of some macroeconomic and institutional factors in a panel of 22 OECD economies for the post-1970 period. We find that, on average and over the cycle, only 50% of increased productivity went to workers. Our empirics indicate that labor market slack and the weakening of pro-labor institutions have acted as wage-squeezing factors; a negative effect is also found for globalization, specifically for trade openness and international capital mobility. Other aspects of the process of financialization, such as market capitalization and the dynamics of the real interest rate, seem not to have exerted a substantial impact on real wage growth.
    Keywords: political economy; income distribution; labor market institutions; labor market slack; globalization; financialization
    JEL: E25 J30 P16
    Date: 2021–03
  103. By: Christian Conrad (Department of Economics, Heidelberg University, Germany; KOF Swiss Economic Institute, Switzerland; Rimini Centre for Economic Analysis); Robert F. Engle (New York University, Stern School of Business, USA; Rimini Centre for Economic Analysis)
    Abstract: We suggest a multiplicative factor multi frequency component GARCH model which exploits the empirical fact that the daily standardized forecast errors of standard GARCH models behave counter-cyclical when averaged at a lower frequency. For the new model, we derive the unconditional variance of the returns, the news impact function and multi-step-ahead volatility forecasts. We apply the model to the S&P 500, the FTSE 100 and the Hang Seng Index. We show that the long-term component of stock market volatility is driven by news about the macroeconomic outlook and monetary policy as well as policy-related news. The new component model significantly outperforms the nested one-component (GJR) GARCH and several HAR-type models in terms of out-of-sample forecasting.
    Keywords: Volatility forecasting, long- and short-term volatility, mixed frequency data, volatility cycles
    JEL: C53 C58 G12
    Date: 2021–03
  104. By: Villar Otálora, Juan Camilo
    Abstract: Mediante la revisión de los aportes realizados a la teoría del crecimiento por los autores neoclásicos y por los autores de la corriente heterodoxa, el trabajo examina la validez empírica de estos modelos en los cuales la función de producción agregada se constituye como punto de partida y su principal herramienta de análisis. Para esto, se presentan dos trabajos que miden la contabilidad del crecimiento bajo el esquema neoclásico y posteriormente se procede a contrastar estos trabajos con la crítica conocida bajo el nombre de la “tiranía de la identidad contable”. A través del uso de la metodología de Mínimos Cuadrados Ordinarios, se concluye que los resultados obtenidos por los trabajos en cuestión son producto de estimaciones mal especificadas de la identidad contable del ingreso nacional.
    Keywords: Contabilidad del Crecimiento. Función de Producción Agregada. Identidad Contable
    JEL: B5 C80 E12 E13 O47
    Date: 2021–03–16
  105. By: Luis J. Álvarez (Banco de España); M.ª Dolores Gadea (Universidad de Zaragoza); Ana Gómez Loscos (Banco de España)
    Abstract: El objetivo principal de este trabajo es, por un lado, proporcionar un conjunto de hechos estilizados sobre las regularidades de los patrones cíclicos en España en relación con los de los principales países europeos y, por otro, analizar la sincronización de la evolución de las principales variables reales de estas economías, que mantienen entre sí estrechas relaciones comerciales y financieras. Se emplea un enfoque sectorial para poder tener en cuenta la heterogeneidad de comportamiento de los diferentes componentes de la oferta y de la demanda.
    Keywords: sincronización, ciclo económico, heterogeneidad
    JEL: E32 O52 C22
    Date: 2021–01
  106. By: Leonardi, Marco (University of Milan); Meschi, Elena (Università Ca’ Foscari di Venezia)
    Abstract: Before the recent rebound due to the US–China trade war, tariffs on international trade were being progressively reduced over the last decades and advanced countries increasingly relied on non-tariff measures (NTMs) to protect their industries from foreign competition. In this paper, we exploit a novel database on NTMs to test their role in shaping the labour market effects of exposure to Chinese import competition over the 2000–2015 period. We relate changes in manufacturing employment to the share of employed workers protected by NTMs across US local labour markets and we instrument NTMs using the industry share of employment in swing states during presidential elections. Our results indicate that NTMs mitigate the negative employment effect of exposure to Chinese imports and have a positive effect on manufacturing wages (especially for the unskilled).
    Keywords: import competition, non-tariff barriers, labour market, Chinese imports
    JEL: E24 J23 J31
    Date: 2021–03
  107. By: Brand, Thomas; Tripier, Fabien
    Abstract: Highly synchronized during the Great Recession of 2008-2009, the Euro area and the US have diverged in the period that followed. To explain this divergence, we provide a structural interpretation of these episodes through the estimation for both economies of a business cycle model with financial frictions and risk shocks, measured as the volatility of idiosyncratic uncertainty in the financial sector. Our results show that risk shocks have stimulated US growth in the aftermath of the Great Recession and have been the main driver of the double-dip recession in the Euro area. They play a positive role in the Euro area only after 2015. Risk shocks therefore seem well suited to account for the consequences of the sovereign debt crisis in Europe and the subsequent positive effects of unconventional monetary policies, notably the ECB's Asset Purchase Programme (APP).
    Keywords: Great Recession, Business cycles, Uncertainty, Divergence, Risk Shocks
    Date: 2021–03
  108. By: Gatopoulos, Georgios; Louka, Alexandros; Polycarpou, Ioannis; Vettas, Nikolaos
    Abstract: In view of long-standing weaknesses in Greece’s labour markets, several labour market reforms were implemented during the economic adjustment programmes with two objectives. Firstly, support the economy’s adjustment through more flexible labour markets and secondly, enhance gains in cost competitiveness. In relation to their objectives, we find evidence that reforms largely fulfilled the second objective and partially the first, albeit left mostly unaddressed some of the long-standing weaknesses, such as low participation rate and high tax wedge. The analysis is backed by two distinct but complementary approaches. From a micro-founded analysis, while the 2014 reduction in social security contributions positively affected incentives for official sector labour participation, those appear to have decreased cumulatively during the overall programme period. From a top-down macroeconomic perspective, findings suggest that Greece’s 2012 labour market reforms had a positive impact on reducing Unit Labour Cost (ULC), increasing the use of flexible forms of employment, slowing down unemployment rate dynamics and slightly accelerating employment growth trends. At the same time, it appears that the 2012 reforms did not improve labour participation rates, while they increased average working hours and inequality.
    Keywords: Greek crisis; labour market reforms; impact assessment; participation tax rate; generalized synthetic control
    JEL: N0 R14 J01 E6
    Date: 2021–02–01
  109. By: Júlia Brunet (Banco de España); Lucía Cuadro-Sáez (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: Should societies (governments) save during economic expansions in order to cover the costs of extraordinary situations, such as natural or biological catastrophes or, more generally, economic crises? This question has been raised once again by the economic and social crisis linked to the confinement measures implemented to control the spread of the COVID-19 pandemic and the enormous public spending required to mitigate its impact. There are two general approaches in the economic literature to this debate, which are not mutually exclusive. First, the more standard approach indicates that governments, in these situations, should resort to borrowing. This allows the impact of shocks to be smoothed over time, as long as governments are sufficiently disciplined to rebuild the necessary room for manoeuvre during upswings. However, the evidence available shows that debt tends to decline only very gradually in post-crisis periods. Under the second approach, governments build up contingency funds or rainy-day funds during economic booms. International experience has numerous examples of national and regional funds of this type. This paper reviews the experience of such funds, with a view to drawing lessons as to their potential usefulness as an instrument of support in crisis situations and fiscal emergencies. Although the international evidence on their use is highly heterogeneous, it shows that when these funds are appropriately structured and sufficiently large they contribute to mitigating the impact of shocks and improving fiscal discipline.
    Keywords: rainy-day funds, economic crises, natural catastrophes, biological catastrophes, government debt
    JEL: H12 E63 H63
    Date: 2020–12
  110. By: Zhorayev, Olzhas
    Abstract: During the first decade of its existence, the Eurozone performed relatively better than other large OECD economies. However, the debt crisis challenged the currency union and tested its resilience. This paper analyses the European debt crisis from the comparative political economy perspective and suggests policy options to address the fundamental roots of the crisis.
    Keywords: Debt crisis, macroeconomic imbalances, currency union, optimal currency area, varieties of capitalism, fiscal consolidation, structural reforms
    JEL: P16 P51
    Date: 2020–01–31
  111. By: Júlia Brunet (Banco de España); Lucía Cuadro-Sáez (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: ¿Deberían las sociedades (Gobiernos) ahorrar en momentos de expansión económica para afrontar los costes de situaciones extraordinarias, como catástrofes naturales o biológicas, o, más en general, crisis económicas? La crisis económica y social vinculada a las medidas de confinamiento para controlar la difusión de la pandemia de Covid-19 y las enormes necesidades de gasto público para mitigar su impacto han vuelto a poner esta cuestión de manifiesto. La literatura económica afronta este debate desde dos ángulos generales, no excluyentes. En primer lugar, la aproximación más estándar indica que, en estas situaciones, los Gobiernos deben recurrir a la deuda. Esto permite suavizar a lo largo del tiempo el impacto de las perturbaciones, siempre que los Gobiernos sean lo suficientemente disciplinados como para reconstruir los márgenes de maniobra necesarios en las fases de expansión. Sin embargo, la evidencia disponible muestra que la deuda tiende a reducirse solo de manera muy progresiva en las etapas posteriores a las crisis. En segundo lugar, la experiencia internacional muestra numerosos ejemplos de fondos de ahorro (nacionales o regionales). En este caso, las Administraciones acumulan recursos en vehículos especiales en momentos de bonanza económica, llamados «fondos de contingencia» o «fondos de estabilización» (rainy-day funds en inglés). En este documento se revisa la experiencia sobre estos fondos, de cara a extraer lecciones sobre su posible utilidad como instrumento de apoyo en situaciones de crisis o emergencias fiscales. Aunque la evidencia internacional sobre su utilización es muy heterogénea, se demuestra que, cuando estos fondos están adecuadamente estructurados y suficientemente dotados, contribuyen a mitigar el impacto de las perturbaciones y mejoran la disciplina fiscal.
    Keywords: fondos de estabilización, crisis económicas, catástrofes naturales, catástrofes biológicas, deuda pública
    JEL: H12 E63 H63
    Date: 2020–12
  112. By: Luis J. Álvarez (Banco de España); M.ª Dolores Gadea (University of Zaragoza); Ana Gómez Loscos (Banco de España)
    Abstract: The main aim of this paper is to provide a set of stylised facts on the regularities of cyclical patterns in Spain compared with those of the major European countries and to analyse the synchronisation of the main real variables of these economies, which have close trading and financial relationships. A sectoral approach is used to take into account the heterogeneous behaviour of the different supply and demand components.
    Keywords: synchronisation, business cycle, heterogeneity
    JEL: E32 O52 C22
    Date: 2021–01
  113. By: Ashish Kumar Sedai; Tooraj Jamasb; Rabindra Nepal; Ray Miller
    Abstract: Uneven electrification can be a source of welfare disparity. Given the recent progress of electrification in India, we analyze the differences in access and reliability of electricity, and its impact on household welfare for marginalized and dominant social groups by caste and religion. We carry out longitudinal analysis from a national survey, 2005-2012, using OLS, fixed effects, and panel instrumental variable regressions. Our analysis shows that marginalized groups (Hindu Schedule Caste/Schedule Tribe and Muslims) had higher likelihood of electricity access compared to the dominant groups (Hindu forward castes and Other Backward Caste). In terms of electricity reliability, marginalized groups lost less electricity hours in a day as compared to dominant groups. Results showed that electrification enabled marginalized households to increase their consumption, assets and move out of poverty; the effects were more pronounced in rural areas. The findings are robust to alternative ways of measuring consumption, and use of more recent data set, 2015-2018. We posit that electrification improved the livelihoods of marginalized groups. However, it did not reduce absolute disparities among social groups.
    Keywords: Electricity access, Electricity reliability, Instrumental variables, Marginalized groups, Welfare
    JEL: D12 D31 E12 I32
    Date: 2021–02
  114. By: Francisco J. Buera; Hugo Hopenhayn; Yongseok Shin; Nicholas Trachter
    Abstract: Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity. This amplification enables our model to nearly fully account for the income gap between India and the US without coordination failures playing a role.
    JEL: E23 L16 O14 O25
    Date: 2021–03
  115. By: Pablo Hernández de Cos (Banco de España)
    Abstract: In his testimony, the Governor’s analysis of the impartiality and autonomy of independent economic authorities contributes to the Committee’s review of the “measures needed to strengthen the impartiality and independence of independent authorities and regulatory agencies”. He first reviews the arguments warranting the independence of economic authorities and supervisors. He then goes on to address the features that conform an institution’s formal independence, detailing their specific form in the case of the Banco de España. Next, he reflects on the status of independence as a necessary, but not sufficient, condition for the proper performance by independent agencies of their functions. He then highlights possible measures for strengthening the independence of the Banco de España, and identifies potential improvements to the financial supervision model in Spain. Lastly, he refers to the Bank’s control mechanisms and transparency standards, and certain aspects of its governance.
    Keywords: independent economic authorities, independent agencies, economic supervisors, independence, accountability, transparency, governance, central bank, governor, financial supervision model, code of conduct, collegiate decisions
    JEL: E58 G28 E61 F55 K1 Y80
    Date: 2021–02
  116. By: Sharon Chen; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Hyun Song Shin
    Abstract: Fintech promises to spur financial inclusion and close the gender gap in access to financial services. Using novel survey data for 28 countries, this paper finds a large 'fintech gender gap': while 29% of men use fintech products and services, only 21% of women do. The gap is present in almost every country in our sample. Country characteristics and several individual-level controls explain about a third of the unconditional gap. Gender differences in the willingness to use new financial technology or fintech entrants if they offer cheaper services account for over half of the remaining gap. The paper concludes by suggesting potential explanations for the gender gap and implications for challenges in fostering financial inclusion with new technology.
    Keywords: fintech, gender, financial inclusion, personal data, privacy
    JEL: E51 J16 O32
    Date: 2021–03
  117. By: Gene M Grossman (Princeton University); Elhanan Helpman (Harvard University); Ezra Oberfield (Princeton University); Thomas Sampson (London School of Economics)
    Abstract: We study the determinants of factor shares in a neoclassical environment with capital-skill complementarity and endogenous education. When more physical capital raises the marginal product of skills relative to that of raw labor, an increase in a broad measure of embodied human capital raises the capital share in national income for any given rental rate. When education is chosen optimally, a dynamic equilibrium is characterized by an inverse relationship between the level of human capital and both the rental rate on capital and the difference between the interest rate and the growth rate of wages. As a consequence,estimates of the elasticity of substitution that fail to account for levels of human capital will be biased upward. We develop a model with overlapping generations, ongoing increases in educational attainment, and technology-driven neoclassical growth, and show that for a class of production functions with capital-skill complementarity, a balanced growth path exists and is characterized by an inverse relationship between the rates of capital- and labor-augmenting technological progress and the capital share in national income.
    Keywords: neoclassical growth, balanced growth, human capital, education, techno-logical progress, capital-skill complementarity, labor share, capital share
    JEL: E25 I26
    Date: 2020–09
  118. By: Shaun P. Hargreaves Heap (Department of Political Economy, King’s College London); Aikaterini Karadimitropoulou (School of Economics, Business and International Studies, Department of Economics, University of Piraeus); Eugenio Levi (Department of Public Economics, Masaryk University)
    Abstract: People typically do not acquire new information about the facts of the economy through consulting official statistics; they read or listen to mediatype reports/stories on the economy where the facts are packaged in a story. This paper tests with an experiment whether the explanatory style used in such media-type stories affects individual decision making. We also compare this particular narrative influence with that of the actual facts contained in the story. Our subjects receive a media-type story about the economy before they play a minimum effort game. The media story has either good or bad background facts about the economy and we use the psychological theory of explanatory styles to present these facts in a narrative style designed to engender either optimism or pessimism. We find evidence that the explanatory style matters more than facts in the sense that optimistic styles support higher equilibria than pessimistic ones while the influence of the facts itself is weaker.
    Keywords: narratives, information, media, minimum effort game
    JEL: E71
    Date: 2021–03
  119. By: Hana Hejlova; Michal Hlavacek; Blanka Vackova
    Abstract: In this article, we estimate the misalignment of commercial property prices. To this end, we propose a semi-structural model which imitates the functioning of various segments of the commercial real estate market. To estimate this model, we use a unique set of data on the markets for two property types (office and industrial) in five CEE countries and Germany, provided by JLL. First, we estimate the model for each property type on a panel of countries to capture the international nature of the markets. Secondly, for the example of the Czech Republic we estimate the model on a panel of property types to capture the possible orientation of individual investors towards a certain country. Finally, we compare the outcomes. The results suggest that investors tend to orientate towards certain property types rather than particular countries. It also shows that our approach avoids the end-point bias which can be present when assessing commercial property prices with an HP filter.
    Keywords: Commercial property, misalignment of prices, types of property
    JEL: C31 E58 R32
    Date: 2020–12
  120. By: Bichler, Shimshon; Nitzan, Jonathan
    Abstract: We write this essay for both lay readers and scientists, though mainstream economists are welcome to enjoy it too. Our subject is the basic toolbox of mainstream economics. The most important tools in this box are demand, supply and equilibrium. All mainstream economists – as well as many heterodox ones – use these tools, pretty much all the time. They are essential. Without them, the entire discipline collapses. But in our view, these are not scientific tools. Economists manipulate them on paper with impeccable success (at least in their own opinion). But the manipulations are entirely imaginary. Contrary to what economists tell us, demand, supply and equilibrium do not carry over to the actual world: they cannot be empirically identified; they cannot be observed, directly or indirectly; and they certainly cannot be objectively measured. And this is a problem because science without objective empirical tools is hardly science at all.
    Keywords: demand,econometrics,equilibrium,neoclassical economics,science,supply
    JEL: E13 C01 O47
    Date: 2021
  121. By: Tabea Bucher-Koenen; Andreas Hackethal; Johannes Koenen; Christine Laudenbach
    Abstract: We show that financial advisors recommend more costly products to female clients, based on minutes from about 27,000 real-world advisory meetings and client portfolio data. Funds recommended to women have higher expense ratios controlling for risk, and women less often receive rebates on upfront fees for any given fund. We develop a model relating these findings to client stereotyping, and empirically verify an additional prediction: Women (but not men) with higher financial aptitude reject recommendations more frequently. Women state a preference for delegating financial decisions, but appear unaware of associated higher costs. Evidence of stereotyping is stronger for male advisors.
    Keywords: credence goods, financial aptitude, consumer protection, financial literacy, discrimination
    JEL: G2 E2 D8
    Date: 2021–03
  122. By: Maggiori, Matteo
    Abstract: A review of recent advances in open economy analysis under segmented international financial markets. A set of modeling tools that have been used to understand ?financial crises, the ensuing policy response (e.g., Quantitative Easing and FX intervention), deviations from arbitrage (CIP deviations), and more generally the impact of capital flows on exchange rates. This modeling approach has also sheds a different light on classic topics such as the exchange rate disconnect, international risk sharing, UIP failures, and the carry trade.
    Date: 2021–03–08

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