nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒03‒29
115 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. ZLB and Beyond: Real and Financial Effects of Low and Negative Interest Rates in the Euro Area By Andrejs Zlobins
  2. Complementarities Between Fiscal Policy and Monetary Policy—Literature Review By Wei Dong; Geoffrey Dunbar; Christian Friedrich; Dmitry Matveev; Romanos Priftis; Lin Shao
  3. Optimal Monetary Policy with Informality: A First Pass By Gomez, M.; Hairault, J.
  4. Inflation expectations in the euro area: indicators, analyses and models used at Banca d’Italia By Sara Cecchetti; Davide Fantino; Alessandro Notarpietro; Marianna Riggi; Alex Tagliabracci; Andrea Tiseno; Roberta Zizza
  5. "Keynes's Theories of the Business Cycle: Evolution and Contemporary Relevance" By Pablo Gabriel Bortz
  6. Housing Demand Shocks and Households’ Balance Sheets By Marc Anderes
  7. Price Level Targeting with Imperfect Rationality: A Heuristic Approach By Vojtech Molnar
  8. Economic Fluctuations and Pseudo-Wealth By Joseph E. Stiglitz
  9. The Impact of COVID on Potential Output By John G. Fernald; Huiyu Li
  10. Exploiting payments to track Italian economic activity: the experience at Banca d’Italia By Valentina Aprigliano; Guerino Ardizzi; Alessia Cassetta; Alessandro Cavallero; Simone Emiliozzi; Alessandro Gambini; Nazzareno Renzi; Roberta Zizza
  11. Optimal monetary policy in a dual labor market: the role of informality By Gomez, M.
  12. The Macroeconomics of Financial Speculation By Alp Simsek
  13. Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico By Remy Beauregard; Jens H. E. Christensen; Eric Fischer; Simon Zhu
  14. Modeling and forecasting macroeconomic downside risk By Delle Monache, Davide; De Polis, Andrea; Petrella, Ivan
  15. On the behavioral antecedents of business cycle coherence in the euro area By Petar Sorić; Ivana Lolić; Marija Logarušić
  16. Forbearance vs foreclosure in a general equilibrium model By Barbaro, Bianca; Tirelli, Patrizio
  17. Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation By Brigitte Hochmuth; Britta Kohlbrecher; Christian Merkl; Hermann Gartner
  18. Natural real rates of interest across Euro area countries: Are R-stars getting closer together? By Tomas Reichenbachas; Linas Jurkšas; Rokas Kaminskas
  19. The Voice of Monetary Policy By Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
  20. Essential and non-essential goods: a dynamic stochastic general equilibrium modeling of the infectious disease coronavirus (COVID-19) outbreak By Nuno José Henriques Baetas da Silva; António Manuel Portugal Duarte
  21. Unconventional monetary policies and expectations on economic variables By Alessio Anzuini; Luca Rossi
  22. Expecting the unexpected: economic growth under stress By Gloria Gonzalez-Rivera; Vladimir Rodriguez-Caballero; Esther Ruiz
  23. Expecting the unexpected: economic growth under stress By Gloria González-Rivera; Carlos Vladimir Rodríguez-Caballero; Esther Ruiz Ortega
  24. Debt-Secular Economic Changes and Bond Yields By Bruno Feunou; Jean-Sébastien Fontaine
  25. The Recovery from the Great Recession: Did the FOMC Learn the Right Lessons? By Robert Hetzel
  26. Real Credit Cycles By Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer; Stephen J. Terry
  27. Cross-Country Connectedness in Inflation and Unemployment: Measurement and Macroeconomic Consequences By Pham, Binh Thai; Sala, Hector
  28. Uneven Growth: Automation's Impact on Income and Wealth Inequality By Benjamin Moll; Lukasz Rachel; Pascual Restrepo
  29. The macroeconomic impact of infrastructure investment: a review of channels By Valerio Ercolani
  30. Monetary policy uncertainty and inflation expectations By Arce-Alfaro, Gabriel; Blagov, Boris
  31. The power of text-based indicators in forecasting the Italian economic activity By Valentina Aprigliano; Simone Emiliozzi; Gabriele Guaitoli; Andrea Luciani; Juri Marcucci; Libero Monteforte
  32. Price setting in Chile: Micro evidence from consumer on-line prices during the social outbreak and Covid-19. By Jennifer Peña; Elvira Prades
  33. Optimal Bailouts in Banking and Sovereign Crises By Sewon Hur; César Sosa-Padilla; Zeynep Yom
  34. A unified approach for jointly estimating the business and financial cycle, and the role of financial factors By Berger, Tino; Richter, Julia; Wong, Benjamin
  35. Productivity-Enhancing Reallocation during the Great Recession:Evidence from Lithuania By Linas Tarasonis; Jose Garcia-Louzao
  36. Partisanship and Fiscal Policy in Economic Unions: Evidence from U.S. States By Gerald Carlino; Thorsten Drautzburg; Robert P. Inman; Nicholas Zarra
  37. Networking the yield curve: implications for monetary policy By Dalhaus, Tatjana; Schaumburg, Julia; Sekhposyan, Tatevik
  38. Estimating Policy-Corrected Long-Term and Short-Term Tax Elasticities for the United States, Germany, and the United Kingdom By Bernd Hayo; Sascha Mierzwa; Umut Unal
  39. How Local is the Local Inflation Factor? Evidence from Emerging European Countries By Cepni, Oguzhan; Clements, Michael P.
  40. The Fed's Discount Window in "Normal" Times By Huberto M. Ennis; Elizabeth C. Klee
  41. The Economic Effects of Financing a Large and Permanent Increase in Government Spending: Working Paper 2021-03 By Jaeger Nelson; Kerk Phillips
  42. Monetary dynamics in a network economy By Antoine Mandel; Vipin Veetil
  43. Monetary dynamics in a network economy By Antoine Mandel; Vipin Veetil
  44. Reforming the Individual Income Tax in Spain By Nezih Guner; Javier Lopez-Segovia; Roberto Ramos
  45. Time Preferences over the Life Cycle and Household Saving Puzzles By Wataru Kureishi; Hannah Paule-Paludkiewicz; Hitoshi Tsujiyama; Midori Wakabayashi
  46. The Impact of Aggregate Uncertainty on Firm-Level Uncertainty By Joshy Easaw; Christian Grimme
  47. Unemployment in the Time of COVID-19: A Flow-Based Approach to Real-time Unemployment Projections By Ayşegül Şahin; Murat Tasci; Jin Yan
  48. The Effect of Macroeconomic Uncertainty on Household Spending By Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Kenny, Geoff; Weber, Michael
  49. Global Stablecoins: Monetary Policy Implementation Considerations from the U.S. Perspective By David Lowe; Matthew Malloy
  50. Saving the American Dream? Education Policies in Spatial General Equilibrium By ; Fabian Eckert
  51. Measuring Macroeconomic Tail Risk By Roberto Marfè; Julien Pénasse
  52. Reported MPC in the Presence of Debt By Sala, Hector; Trivín, Pedro
  53. Does the added worker effect matter? By Nezih Guner; Yuliya A. Kulikova; Arnau Valladares-Esteban
  54. Fiscal policy measures in response to the health crisis in the main euro area economies, the United States and the United Kingdom By Lucía Cuadro-Sáez; Fernando S. López-Vicente; Susana Párraga Rodríguez; Francesca Viani
  55. Central Bank Digital Currency and Balance Sheet Policy By Martina Fraschini; Luciano Somoza; Tammaro Terracciano
  56. Aggregate Output Measurements: A Common Trend Approach By Gabriele Fiorentini; Martín Almuzara; Enrique Sentana
  57. Informality, tax policy and the business cycle: Exploring the links By Granda, C.; García, D.
  58. Risk Shocks and Divergence between the Euro Area and the US in the aftermath of the Great Recession By Thomas Brand; Fabien Tripier
  59. Does the Added Worker Effect Matter? By Nezih Guner; Yuliya Kulikova; Arnau Valladares-Esteban
  60. An analysis of investments and their drivers in Lithuania By Mariarosaria Comunale
  61. Lender-specific mortgage supply shocks and macroeconomic performance in the United States By Bremus, Franziskus; Krause, Thomas; Noth, Felix
  62. Dynamic Equity Slope By Matthijs Breugem; Stefano Colonnello; Roberto Marfè; Francesca Zucchi
  63. The role of information and experience for households' inflation expectations By Conrad, Christian; Enders, Zeno; Glas, Alexander
  64. Subjective Uncertainty, Expectations, and Firm Behavior By Stefan Lautenbacher
  65. From Mancession to Shecession: Women's Employment in Regular and Pandemic Recessions By Alon, Titan; Coskun, Sena; Doepke, Matthias; Koll, David; Tertilt, Michèle
  66. Macroeconomic consequences of pandexit By Phurichai Rungcharoenkitkul
  67. Schumpeter's paradox reconsidered: The need for a theory of circular flow By Seo, Takashi
  68. Do Financial Markets Reward Government Spending Efficiency? By António Afonso; João Tovar Jalles; Ana Venâncio
  69. Some Reflections on Financial Instability in Macro Agents-Based Models. Genealogy and Objectives By Muriel Dal Pont Legrand
  70. Nepotism vs. Intergenerational Transmission of Human Capital in Academia (1088–1800) By de la Croix, David; Goñi, Marc
  71. The Worker-Job Surplus By Ilse Lindenlaub; Fabien Postel-Vinay
  72. Reasonable Seasonals? Seasonal Echoes in Economic Data after COVID-19 By David O. Lucca; Jonathan H. Wright
  73. Synthetic leverage and fund risk-taking By Fricke, Daniel
  74. Quantifying bias and inaccuracy of upper-level aggregation in HICPs for Germany and the euro area By Herzberg, Julika; Knetsch, Thomas A.; Schwind, Patrick; Weinand, Sebastian
  75. Malaysia; 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malaysia By International Monetary Fund
  76. How many (more) lost decades? The great productivity slowdown in Japan By Betts, Caroline
  77. Information Frictions among Firms and Households By Sebastian Link; Andreas Peichl; Christopher Roth; Johannes Wohlfart
  78. Monetary and Macroprudential Policy Complementarities: Evidence from European Credit Registers By Altavilla, Carlo; Laeven, Luc; Peydró, José-Luis
  79. How the New Fed Municipal Bond Facility Capped Muni-Treasury Yield Spreads in the Covid-19 Recession By Michael D. Bordo; John V. Duca
  80. Long-run stability of money demand and monetary policy: the case of Algeria By Raouf Boucekkine; Mohammed Laksaci; Mohamed Touati-Tliba
  81. IMPACT: The Bank of Canada’s International Model for Projecting Activity By Patrick Blagrave; Claudia Godbout; Justin-Damien Guénette; René Lalonde; Nikita Perevalov
  82. Measuring Inequality using Geospatial Data By Jaqueson K. Galimberti; Stefan Pichler; Regina Pleninger
  83. Spain’s tax structure in the context of the European Union By David López-Rodríguez; Cristina García Ciria
  84. COVID-19: Erroneous Modelling and Its Policy Implications By Bar-On, Yinon; Baron, Tatiana; Cornfeld, Ofer; Milo, Ron; Yashiv, Eran
  85. 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, François; Tojerow, Ilan
  86. The Impact of ECB Corporate Sector Purchases on European Green Bonds By Franziska Bremus; Franziska Schütze; Aleksandar Zaklan
  87. The Effect of Public Corruption on Covid-19 Fatality Rate: A Cross-Country Examination By Mohammad Reza Farzanegan
  88. Toothless tiger with claws? Financial stability communication, expectations, and risk-taking By Beutel, Johannes; Metiu, Norbert; Stockerl, Valentin
  89. Looking Back at 10 Years of Liberty Street Economics By Beverly Hirtle
  90. Is financial development shaping or shaking economic sophistication in African countries? By Henri Njangang; Simplice A. Asongu; Sosson Tadadjeu; Yann Nounamo
  91. Is financial development shaping or shaking economic sophistication in African countries? By Henri Njangang; Simplice A. Asongu; Sosson Tadadjeu; Yann Nounamo
  92. The Persistent Compression of the Breakeven Inflation Curve By Richard K. Crump; Nikolay Gospodinov; Desi Volker
  93. The Productivity Consequences of Pollution-Induced Migration in China By Gaurav Khanna; Wenquan Liang; Ahmed Mushfiq Mobarak; Ran Song
  94. Supranational debt and financing needs in the European Union By Mar Delgado-Téllez; Iván Kataryniuk; Fernando López-Vicente; Javier J. Pérez
  95. Labor Market Frictions and Lowest Low Fertility By Nezih Guner; Ezgi Kaya; Virginia Sánchez Marcos
  96. Beautiful Cycles: A Theory and a Model Implying a Curious Role for Interest By Marco Gross
  97. How to Design a Fiscal Strategy in a Resource-Rich Country: Guidance Note on the Excel Template (v1.0) By Olivier Basdevant; John Hooley; Eslem Imamoglu
  98. Convergence et optimalité de la zone ECO : une analyse par un modèle de mélange By TOGBENU, Fo-Kossi Edem; KONDO TOKPOVI, Vénunyé Claude; SAWSSEN, benameur
  99. On the accuracy of linear DSGE solution methods and the consequences for log-normal asset pricing By Meyer-Gohde, Alexander
  100. Municipal Markets and the Municipal Liquidity Facility By ; Nicholas Fritsch; Shawn Nee
  101. Brexit: current situation and outlook By Juan Luis Vega (coord.)
  102. Canada; 2021 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  103. Euro Area Business Confidence and Covid-19 By Ambrocio, Gene
  104. Liquidity in the German corporate bond market: Has the CSPP made a difference? By Boneva, Lena; Islami, Mevlud; Schlepper, Kathi
  105. Corruption and distortion of public expenditures: Evidence from Africa By Harouna Sedgo; Luc-Désiré Omgba
  106. Do Remittances Affect Housing Prices in an Emerging Economy? A Study Case from Colombia By Esteban Callejas Perez
  107. Why Was Keynes Not Awarded the Nobel Peace Prize After Writing "The Economic Consequences of the Peace"? By Jonung, Lars
  108. Measuring the alignment of real economy investments with climate mitigation objectives: The United Kingdom’s buildings sector By Raphaël Jachnik; Alexander Dobrinevski
  109. Natural Resource Discoveries and Fiscal Discipline By Arrouna Keita; Camelia Turcu
  110. Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets By Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas
  111. Islamic Human Resource Management and Turnover Intention among Employees of an Islamic Religious Council By Muhamad Khalil Omar
  112. Welfare Benefits in Highly Decentralized Fiscal Systems: Evidence on Interregional Mimicking By Luis Ayala; Ana Herrero-Alcade; Jorge Martinez-Vazquez
  113. Life-Cycle Welfare Losses from Rules-of-Thumb Asset Allocation By Fabio C. Bagliano; Carolina Fugazza; Giovanna Nicodano
  114. Productivity and the Welfare of Nations By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  115. Strengthening Bank Regulation and Supervision; National Progress and Gaps By Ljubica Dordevic; Caio Ferreira; Moses Kitonga; Katharine Seal

  1. By: Andrejs Zlobins (Latvijas Banka)
    Abstract: This paper studies the effects of low and negative interest rates in the euro area on a wide range of macroeconomic and financial variables and documents the changes in the monetary transmission mechanism once the policy rate reaches the zero lower bound (ZLB). To that end, we employ a set of non-linear time series frameworks, namely a time-varying parameter structural vector autoregression with stochastic volatility and non-linear local projections and perform identification via both sign restrictions and high frequency information approaches. Our findings suggest that the policy rate has continued to support the aggregate demand in the euro area even in sub-zero territory. Despite that, we find that the reaction of inflation and its expectations has significantly deteriorated in the post-ZLB period. Regarding the transmission mechanism, we show that policy rate cuts below zero have a more persistent impact on the term structure and interest rate expectations. In addition to that, our results suggest that negative interest rates do not cause a contraction in lending despite the disconnect of lending rates from the policy rate. In general, our findings contribute to the growing list of literature which questions the empirical relevance of the ZLB.
    Keywords: NIRP, ZLB, monetary policy, euro area, non-linearities
    JEL: C54 E43 E52 E58
    Date: 2020–12–30
  2. By: Wei Dong; Geoffrey Dunbar; Christian Friedrich; Dmitry Matveev; Romanos Priftis; Lin Shao
    Abstract: This paper reviews and summarizes the literature on the complementary relationship between fiscal policy and monetary policy. We focus on four types of fiscal policy: (1) automatic stabilizers, (2) state-contingent non-discretionary fiscal policy, (3) discretionary fiscal stimulus and (4) government credit policies. The literature shows that automatic fiscal stabilizers can play a role in stabilizing business cycle fluctuation. But because they can have multiple policy objectives, their optimal design remains an open question. An alternative policy framework features state-contingent non-discretionary fiscal expenditures with a pre-committed fiscal spending formula triggered by objective macroeconomic conditions. Such a policy offers the advantage of being timely and easy to communicate; but at the same time, it poses challenges for identifying appropriate triggers and program expenditures with high short-run multipliers. The literature also shows that discretionary fiscal expenditures can support aggregate demand, and some expenditures have short-run multipliers close to, or above, 1. While these expenditures can focus on specific policy priorities that are relevant at the time, their discretionary nature may slow the policy response. When interest rates are close to the effective lower bound (ELB), fiscal stimulus can be particularly effective for complementing the stabilizing efforts of monetary policy. Finally, studies show that government credit policies can mitigate economic downturns that are accompanied by severe financial market distress. However, the effects of scaling up this channel are uncertain.
    Keywords: Fiscal policy; Monetary policy
    JEL: E52 E62 E58 E63
  3. By: Gomez, M.; Hairault, J.
    Abstract: Our paper aims to unveil how much the monetary policy shall deviate from the flexible-price allocation in an economy with a large informal sector. First of all, the presence of variable taxes in the formal sector generates an inflation bias under discretionary policy which increases with the size of the informal sector. Secondly, we find that only the formal sector due to tax distortion fluctuations is responsible for cost push shocks which are amplified in a more informal economy. The trade-off between inflation and the formal output gap is then dependent on the elasticity of the former variable with respect to the latter one, which is lower in a more informal economy. However, the optimal management of inflation also depends on the elasticity of the informal output gap with respect to the formal output gap. As this elasticity is decreasing with the size of the informal sector, whether inflation volatility (in terms of the aggregate output gap) is lower or higher in a more informal economy is ambiguous. By simulation, we show that economies with a larger informal sector should stabilize more inflation relative to the two sectoral output gaps.
    Keywords: Informality; optimal monetary policy; New-Keynesian macroeconomics;tax distortion
    JEL: E26 E52 E12 H21
    Date: 2020–06–02
  4. By: Sara Cecchetti (Bank of Italy); Davide Fantino (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Marianna Riggi (Bank of Italy); Alex Tagliabracci (Bank of Italy); Andrea Tiseno (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: This paper illustrates the tools used at Banca d’Italia (BI) to monitor the evolution of inflation expectations. The paper also surveys the analyses conducted at BI to assess how inflation expectations affect agents’ choices and the economy. The first part discusses the measures of inflation expectations derived from the prices of inflation-linked financial instruments and from the surveys of professional forecasters. The second part focuses on the measures of households’ and firms’ inflation expectations collected by BI, along with analyses presenting empirical evidence that expectations do indeed drive agents’ economic choices. The last part analyses the overall effect of exogenous changes of inflation expectations on the real economy, through the lens of the macroeconomic models used at BI.
    Keywords: inflation expectations, anchoring, surveys
    JEL: E31 E32
    Date: 2021–03
  5. By: Pablo Gabriel Bortz
    Abstract: This paper traces the evolution of John Maynard Keynes's theory of the business cycle from his early writings in 1913 to his policy prescriptions for the control of fluctuations in the early 1940s. The paper identifies six different "theories" of business fluctuations. With different theoretical frameworks in a 30-year span, the driver of fluctuations--namely cyclical changes in expectations about future returns--remained substantially the same. The banking system also played a pivotal role throughout the different versions, by financing and influencing the behavior of return expectations. There are four major changes in the evolution of Keynes's business cycle theories: a) the saving–investment framework to understand changes in economic fluctuations; b) the capabilities of the banking system to moderate the business cycle; c) the effectiveness of monetary policy to fine tune the business cycle through the control of the short-term interest rate or credit conditions; and d) the role of a comprehensive fiscal policy and investment policy to attenuate fluctuations. Finally, some conclusions are drawn about the present relevance of the policy mix Keynes promoted for ensuring macroeconomic stability.
    Keywords: John Maynard Keynes; Business Cycle; Fiscal Policy; Monetary Policy; Financial System; Uncertainty
    JEL: B31 E12 E32 E44 E63
    Date: 2021–03
  6. By: Marc Anderes (ETH Zurich, Switzerland)
    Abstract: We examine the dynamic effects of housing demand shocks on a large set of U.S. macroeconomic series and detailed household balance sheet components for four wealth percentile groups. The results show that a positive housing shock translates into a large and persistent boom of economic activity, an expansion of credit and an increase of interest rates. While households of all wealth percentile groups make heavy use of home equity-based borrowing, we find a larger consumer spending sensitivity for weaker balance sheet households. This is supported by the elasticities of consumption with respect to house prices implied by our structural dynamic factor model. A historical decomposition suggests that housing demand shocks have largely contributed to the pronounced drop in poorer households’ consumption during the Great Recession. Variance decompositions indicate that the identified housing shock has high explanatory power for key economic indicators, housing indices and household balance sheet series.
    Keywords: : Housing demand shocks, Household balance sheets, Bayesian dynamic factor model
    JEL: D31 E21 E32 E44 R31
    Date: 2021–02
  7. By: Vojtech Molnar (Charles University, Prague, Czech Republic; Czech National Bank, Prague, Czech Republic)
    Abstract: The paper compares price level targeting and inflation targeting regimes in a New Keynesian model with bounded rationality. Economic agents form their expectations using heuristics—they choose between a few simple rules based on their past forecasting performance. Two main specifications of the price level targeting model are examined—the agents form expectations either about price level or about inflation, which is ex ante not equivalent because of sequential nature of the model. In addition, several formulations of the forecasting rules are considered. Both regimes are assessed by loss function comparison. According to the results, price level targeting is preferred in the case with expectations created about price level under the baseline calibration; but it is sensitive to some model parameters. Furthermore, when expectations are created about inflation, price level targeting over time loses credibility and leads to divergence of the economy. On the other hand, inflation targeting model functions stably. Therefore, while potential benefits of price level targeting have been confirmed under certain assumptions, the results suggest that inflation targeting constitutes more robust choice for monetary policy.
    Keywords: Price level targeting, Inflation targeting, Monetary policy, Bounded rationality, Heuristics
    JEL: E31 E37 E52 E58 E70
    Date: 2021–03
  8. By: Joseph E. Stiglitz
    Abstract: What can explain the large changes in aggregate demand that occur in the absence of any seemingly corresponding shock to the underlying state variables of the economy? We show that macroeconomic volatility can arise from dispersions of beliefs among agents. These dispersions give rise to bets and other trades in speculative assets. Such trades give rise to pseudo-wealth, wealth that individuals believe they have on the basis of expectations of returns on these gambles. In the aggregate, when there are enough opportunities for trade and large enough dispersions in beliefs, this perceived wealth may be dangerously untethered from either market wealth or the real wealth of the economy. Given the increased dispersion in beliefs that naturally arises from unprecedented shocks, the theory of pseudo-wealth provides new understandings of both the origins of unanticipated fluctuations and their magnitude, markedly different from prevailing theories grounded in common knowledge and beliefs among individuals. This paper explores the empirical and theoretical underpinnings of pseudo-wealth, links the concept to observed macroeconomic fluctuations, and lays out a research agenda that might help us better understand the role of pseudo-wealth and the circumstances in which it is pronounced.
    JEL: B22 E03 E21 E44 E60 G01 G12 G18
    Date: 2021–01
  9. By: John G. Fernald; Huiyu Li
    Abstract: The level of potential output is likely to be subdued post-COVID relative to its previous estimates. Most clearly, capital input and full-employment labor will both be lower than they previously were. Quantitatively, however, these effects appear relatively modest. In the long run, labor scarring could lead to lower levels of employment, but the slow pre-recession pace of GDP growth is unlikely to be substantially affected.
    Keywords: Growth accounting; productivity; potential output; covid-19
    JEL: E01 E23 E24 O47
    Date: 2021–02–28
  10. By: Valentina Aprigliano (Bank of Italy); Guerino Ardizzi (Bank of Italy); Alessia Cassetta (Bank of Italy); Alessandro Cavallero (Bank of Italy); Simone Emiliozzi (Bank of Italy); Alessandro Gambini (Bank of Italy); Nazzareno Renzi (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: This paper provides an overview of how information on payments has been recently exploited by Banca d’Italia staff for the purposes of tracking economic activity and forecasting. In particular, the payment data used for this work are drawn from the payment systems managed by Banca d’Italia (BI-COMP and TARGET2) and from the Anti-Money Laundering Aggregate Reports submitted by banks and by Poste Italiane to the Banca d’Italia’s Financial Intelligence Unit (Unità di Informazione Finanziaria, UIF). We show that indicators drawn from these sources can improve forecasting accuracy; in particular, those available at a higher frequency have proved crucial to properly assessing the state of the economy during the pandemic. Moreover, these indicators make it possible to assess changes in agents’ behaviour, notably with reference to payment habits, and, thanks to their granularity, to delve deeper into the macroeconomic trends, exploring heterogeneity by sector and geography.
    Keywords: short term forecasting, high-frequency data, payment systems, TARGET2, money laundering, COVID-19
    JEL: C53 E17 E27 E32 E37 E42
    Date: 2021–03
  11. By: Gomez, M.
    Abstract: In this paper I analyze the optimal monetary policy in emerging countries whose labor markets are mainly characterized by the presence of a large informal sector. I develop a closed economy model with nominal price and wage rigidities, search and matchingfrictions and a dual labor market. A formal one characterized by matching frictions, and nominal wage rigidities, and an informal one where wages are fully flexible. Under this framework, a trade-off between price and wage inflation emerges. I find that informality increases the response of price and wage inflation to aggregate productivity shocks. As a result, the presence of an informal sector increases the inefficient fluctuations of the labor market variables, such as unemployment, labor market tightness, and formal hiring rate. I derive the second-order approximation to the welfare of the representative agent, and then I characterize the optimal monetary policy for standard calibration of the model. I find that optimal policy with informality features significant deviations from price stability in response to aggregate productivity shocks.
    Keywords: Informality; Monetary policy; Nominal wage and price rigidities; Inflation targeting.
    JEL: E26 E52 E12 E61
    Date: 2020–11–03
  12. By: Alp Simsek
    Abstract: I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about worst-case scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare.
    JEL: E00 E12 E21 E22 E32 E44 E50 E70 G00 G01 G11 G12 G40
    Date: 2021–02
  13. By: Remy Beauregard; Jens H. E. Christensen; Eric Fischer; Simon Zhu
    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 E47 E52 E58 G12
    Date: 2021–03–01
  14. By: Delle Monache, Davide (Bank of Italy); De Polis, Andrea (Univeristy of Warwick); Petrella, Ivan (Univeristy of Warwick)
    Abstract: We document a substantial increase in downside risk to US economic growth over the last 30 years. By modelling secular trends and cyclical changes of the predictive density of GDP growth, we find an accelerating decline in the skewness of the conditional distributions, with significant, procyclical variations. Decreasing trend-skewness, which turned negative in the aftermath of the Great Recession, is associated with the long-run growth slowdown started in the early 2000s. Short-run skewness fluctuations imply negatively skewed predictive densities ahead of and during recessions, often anticipated by deteriorating financial conditions, while positively skewed distributions characterize expansions. The model delivers competitive out-of-sample (point, density and tail) forecasts, improving upon standard benchmarks, due to the strong signals of increasing downside risk provided by current financial conditions.
    Keywords: business cycle, financial conditions, downside risk, skewness, score driven models.
    JEL: C12 C22 C51 C53 E37 E44
    Date: 2021–03
  15. By: Petar Sorić (Faculty of Economics and Business, University of Zagreb); Ivana Lolić (Faculty of Economics and Business, University of Zagreb); Marija Logarušić (Faculty of Economics and Business, University of Zagreb)
    Abstract: Departing from the mainstream literature on European monetary integration, we acknowledge the interdependence of economic sentiment synchronization and business cycle co-movements for 17 individual European countries and the euro area (EA). Building upon both hard and soft data, we find that sentiment cycles are in fact the driving force behind general economic cycle synchronization. This finding is robust with respect to different synchronization indicators, different Granger causality test specifications, data frequencies (monthly vs. quarterly), and the targeted EA composition (EA11 vs. EA19). The latter is of particular importance, implying that recent EA enlargements have not decreased its homogeneity in this regard. Our results exhibit a certain degree of dependence upon the business cycle phase. The synchronization of 17 examined countries vis-a-vis the EA seems to be even more intensive in recessions than in expansions. In other words, common monetary policy of the ECB should be able to effectively act as a countercyclical tool when an individual national economy is facing a recession.
    Keywords: economic sentiment, business cycle synchronization, Optimum Currency Areas, Euro
    JEL: C32 E32 E58 E71
    Date: 2021–03–11
  16. By: Barbaro, Bianca; Tirelli, Patrizio
    Abstract: We build a business cycle model characterized by endogenous firms dynamics, where banks may prefer debt renegotiation, i.e. non-performing exposures, to outright borrowers default. We find that debt renegotiations only do not have adverse effects in the event of financial crisis episodes, but a large share of non-performing firms is associated with a sharp deterioration of economic activity in two cases. First, if there are congestion effects in banks ability to monitor non-performing loans. Second, if such loans adversely affect the commercial banks’ moral hazard problem due to their opacity. Aggressive interest rate reductions and quantitative easing limit defaults and the output contraction caused by a financial crisis, without ad- verse effects on the entry of new, more productive firms. The model shows that the observed long-run trend in the share of non-performing loans might be caused by the persistent reduction in technological advancements which drive firm entry rates and firms turnover. JEL Classification: E32, E44, E50, E58
    Keywords: DSGE model, financial frictions, firms entry, non-performing loans, quantitative easing
    Date: 2021–03
  17. By: Brigitte Hochmuth; Britta Kohlbrecher; Christian Merkl; Hermann Gartner
    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
  18. By: Tomas Reichenbachas (Bank of Lithuania); Linas Jurkšas (Bank of Lithuania); Rokas Kaminskas (Bank of Lithuania)
    Abstract: Using two different methodologies, we estimate time-varying natural real rates of interest for a majority of euro area (EA) countries, including Lithuania. We find that natural real rates have been declining, particularly since 2008, albeit to different extent across EA countries. Lower rates could (at least partly) be explained by lower productivity and population growth. In line with previous literature, we find evidence of a substantial dispersion of the natural interest rate across EA economies. This became especially evident during the financial crisis of 2008-2009 and the sovereign debt crisis of 2010-2012, while estimates of natural rates tend to converge during "calm" periods. Estimates of natural rates for Lithuania were significantly above the estimates of core EA countries over 2002-2008, but this has changed after the crisis. From 2011 the estimates of natural rates for Lithuania tend to be close to the average for EA countries.
    Keywords: LEuro area, natural rate of interest, common monetary policy, fragmentation
    JEL: C32 E32 E43 E52
    Date: 2021–03–10
  19. By: Yuriy Gorodnichenko (University of California, Berkeley); Tho Pham (University of Reading); Oleksandr Talavera (University of Birmingham)
    Abstract: We develop a deep learning model to detect emotions embedded in press conferences after the meetings of the Federal Open Market Committee and examine the influence of the detected emotions on financial markets. We find that, after controlling for the Fed's actions and the sentiment in policy texts, positive tone in the voices of Fed Chairs leads to statistically significant and economically large increases in share prices. In other words, how policy messages are communicated can move the stock market. In contrast, the bond market appears to take few vocal cues from the Chairs. Our results provide implications for improving the effectiveness of central bank communications.
    Keywords: monetary policy, communication, voice, emotion, text sentiment, stock market, bond market.
    JEL: E31 E58 G12 D84
    Date: 2021–02
  20. By: Nuno José Henriques Baetas da Silva (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra); António Manuel Portugal Duarte (University of Coimbra, Centre for Business and Economics CeBER and Faculty of Economics)
    Abstract: Making use of a two-country, two-sector, New Keynesian model with essential and nonessential goods we assess the macroeconomic consequences of a labor supply shock in the Euro Area. Our model incorporates health status in the households' maximization problem which depends on the time devoted to leisure. Health status is linked to the consumption of non-essential goods, such that the demand for non-essentials is decreasing with contemporaneous health. After calibrating the model for the case of Portugal and the rest of the Euro Area, our simulations show that, a labor supply shock aecting only the latter, reduces the demand for non-essential goods, generates ination in the Portuguese economy and pushes both regions into economic recession, depriving households from essential goods. If the labor supply shock aects both economies, the negative income eect dominates the decreased demand eect for non-essential goods and that stagation is a plausible scenario. In addition, our calibration scheme allows us to conclude that the asymmetric eects across economies may be due to dierent price rigidities between sectors and to dierent production structures between countries.
    Keywords: Essential goods, Non-essential goods, COVID-19, DSGE, Euro Area..
    JEL: E12 E32 F41 F42
    Date: 2021–04
  21. By: Alessio Anzuini (Bank of Italy); Luca Rossi (Bank of Italy)
    Abstract: We investigate whether forward guidance and large scale asset purchases are effective in steering economic expectations in the US. Using the series of monetary policy shocks recovered in Swanson (2020), local projections, and an algorithm to select the best empirical model, we show that unconventional monetary policies are effective in tilting economic expectations in a direction consistent with central bankers' will. Our empirical findings provide two more insights: responses to LSAP shocks are stronger than those following a FG shock; responses to both types of policies are larger after contractionary shocks as compared to expansionary ones.
    Keywords: unconventional monetary policy, local projections, non-linearities
    JEL: E52 E44 E58
    Date: 2021–03
  22. By: Gloria Gonzalez-Rivera (Department of Economics, University of California Riverside); Vladimir Rodriguez-Caballero (ITAM); Esther Ruiz (Universidad Carlos III de Madrid, Spain)
    Abstract: Large and unexpected moves in the factors underlying economic growth should be the principal 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 COVI19 pandemic while GiS is much more accurate.
    Keywords: Growth vulnerability, multi-level factor model, stressed growth
    JEL: C32 C55 E32 E44 F44 F47 O41
    Date: 2021–03
  23. By: Gloria González-Rivera (University of California, Riverside); Carlos Vladimir Rodríguez-Caballero (Mexico Autonomous Institute of Technology (ITAM) and CREATES); Esther Ruiz Ortega (Universidad Carlos III de Madrid)
    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: Growth vulnerability, Multi-level factor model, Stressed growth
    JEL: C32 C55 E32 E44 F44 F47 O41
    Date: 2021–03–15
  24. By: Bruno Feunou; Jean-Sébastien Fontaine
    Abstract: We build a model for bond yields based on a small-scale representation of an economy with secular declines in inflation, the real rate and output growth. Long-run restrictions identify nominal shocks that influence long-run inflation but do not influence the long-run real rate or output growth. These nominal shocks have loadings that can change over time. The results show that, before the anchoring of inflation around the mid-1990s, nominal shocks lifted the output gap and inflation, leading to higher yields and a steeper yield curve via higher short-rate expectations and term premiums. The short rate peaked after several quarters but only after the responses of growth and inflation started to decline. With inflation anchored, however, nominal shocks have a short-lived impact on inflation, an insignificant impact on output and only a small impact on bond yields via the term premium.
    Keywords: Asset pricing; Econometric and statistical methods; Interest rates; Monetary policy and uncertainty; Potential output
    JEL: E43 G12
    Date: 2021–03
  25. By: Robert Hetzel (Mercatus Center at George Mason University)
    Abstract: In August 2020, monetary policymakers articulated a new framework for conducting monetary policy. That framework reflected the conclusion, drawn from the recovery from the Great Recession, that monetary policy had erred in pursuing preemptive increases in the funds rate. Starting in December 2015, the Federal Open Market Committee (FOMC) had raised the funds rate off the zero lower bound and the inflation rate continued to run below the 2 percent target. Going forward, the FOMC will forgo preemptive increases to ensure an overshoot of its inflation target until the FOMC achieves the goal of ¿maximum employment.¿ What should policymakers have learned from the Great Recession recovery? It was a period of considerable nominal and real stability. In part, that stability was an artifact of an initial moderately contractionary monetary policy that limited the strength of the recovery. But that price stability provided the foundation for the significant decline in the unemployment rate during the recovery.
    Keywords: Federal Reserve System, monetary policy, inflation, COVID-19
    JEL: E5
    Date: 2021–02
  26. By: Pedro Bordalo; Nicola Gennaioli; Andrei Shleifer; Stephen J. Terry
    Abstract: We incorporate diagnostic expectations, a psychologically founded model of overreaction to news, into a workhorse business cycle model with heterogeneous firms and risky debt. A realistic degree of diagnosticity, estimated from the forecast errors of managers of US listed firms, creates financial fragility during good times. This mechanism produces countercyclical credit spreads and yields two key features of observed credit cycles. First, it generates boom-bust dynamics at the firm and aggregate levels: cheap credit predicts future increases in spreads, low bond returns, and investment drops. Second, it produces the spike in spreads observed in 2008-9 from modest negative TFP shocks. Diagnostic expectations offer a parsimonious mechanism generating realistic financial reversals in conventional business cycle models.
    JEL: E03 E32 E44
    Date: 2021–01
  27. By: Pham, Binh Thai (University of Economics Ho Chi Minh City); Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: We bring the notion of connectedness (Diebold and Yilmaz, 2012) to a set of two critical macroeconomic variables as inflation and unemployment. We focus on the G7 economies plus Spain, and use monthly data –high-frequency data in a macro setting– to explore the extent and consequences of total and directional volatility spillovers across variables and countries. We find that total connectedness is larger for prices (58.28%) than for unemployment (41.81%). We also identify asymmetries per country that result in higher short-run Phillips curve trade-offs in recessions and lower trade-offs in expansions. Besides, by exploring time-varying connectedness (resulting from country-specific shocks), we find that volatility spillovers magnify in periods of common economic turmoil such as the Global Financial Crisis. Our results call for an enhancement of international macroeconomic policy coordination.
    Keywords: country-specific shocks, connectedness, Philips curve, G7, common shocks
    JEL: C32 C50 E24 F41 F42
    Date: 2021–03
  28. By: Benjamin Moll; Lukasz Rachel; Pascual Restrepo
    Abstract: The benefits of new technologies accrue not only to high-skilled labor but also to owners of capital in the form of higher capital incomes. This increases inequality. To make this argument, we develop a tractable theory that links technology to the personal income and wealth distributions – and not just that of wages – and use it to study the distributional effects of automation. We isolate a new theoretical mechanism: automation increases inequality via returns to wealth. The flip side of such return movements is that automation is more likely to lead to stagnant wages and therefore stagnant incomes at the bottom of the distribution. We use a multi-asset model extension to confront differing empirical trends in returns to productive and safe assets and show that the relevant return measures have increased over time. Automation accounts for part of the observed trends in income and wealth inequality and macroeconomic aggregates.
    JEL: E21 E22 E24 E25 J31
    Date: 2021–02
  29. By: Valerio Ercolani (Bank of Italy)
    Abstract: This paper provides a critical review of the literature on the macroeconomic effects of public infrastructure investment associated with the main underlying transmission channels. Typically, this type of stimulus fosters economic activity in the medium-to-long run because the public capital stock needs time to build up and to exert its effects. However, under the current circumstances – such as considerable economic slack, policy rates constrained at zero and heightened uncertainty – the stimulus can be expansionary even at shorter horizons, i.e. from one to three years. Given the large infrastructure gaps in most emerging and advanced economies, infrastructure investment could have high returns in terms of individuals’ welfare and productivity growth. Strengthening health infrastructures, supporting maintenance investment, and coordinating infrastructure stimuli across countries emerge as particularly appropriate policies today.
    Keywords: public infrastructure investment, productivity, slack, ZLB, uncertainty, fiscal multipliers, COVID-19, secular stagnation, welfare
    JEL: E62 H51 H54
    Date: 2021–03
  30. By: Arce-Alfaro, Gabriel; Blagov, Boris
    Abstract: Do inflation expectations react to changes in the volatility of monetary policy? Yes, but only until the global financial crisis. This paper investigates whether increasing the dispersion of monetary policy shocks, which is interpreted as elevated uncertainty surrounding monetary policy, affects the inflation expectation formation process. Based on U.S. data since the 1980s and a stochastic volatility-in-mean structural VAR model we find that monetary policy uncertainty reduces both inflation expectations and inflation. However, after the Great Recession this link has disappeared, even when controlling for the Zero Lower Bound.
    Keywords: Monetary policy uncertainty,inflation expectations,SVAR volatility-in-mean,time-varying coefficients
    JEL: C11 C32 E52
    Date: 2021
  31. By: Valentina Aprigliano (Bank of Italy); Simone Emiliozzi (Bank of Italy); Gabriele Guaitoli (University of Warwick); Andrea Luciani (Bank of Italy); Juri Marcucci (Bank of Italy); Libero Monteforte (Ufficio Parlamentare di Bilancio, Bank of Italy)
    Abstract: Can we use newspaper articles to forecast economic activity? Our answer is yes and, to this end, we propose a brand new economic dictionary in Italian with valence shifters, and we apply it to a corpus of about two million articles from four popular newspapers. We produce a set of high-frequency text-based sentiment and policy uncertainty indicators (TESI and TEPU respectively), which are constantly updated, not revised and computed both for the whole economy and for specific sectors or economic topics. To test the predictive power of our text-based indicators, we propose two forecasting exercises. First, by using Bayesian Model Averaging (BMA) techniques, we show that our monthly text-based indicators greatly reduce the uncertainty surrounding the short-term forecasts of the main macroeconomic aggregates, especially during recessions. Secondly, we employ these indices in a weekly GDP growth tracker, achieving sizeable gains in forecasting accuracy in both normal and turbulent times.
    Keywords: Forecasting, Text Mining, Sentiment, Economic Policy Uncertainty, Big data, BMA.
    JEL: C11 C32 C43 C52 C55 E52 E58
    Date: 2021–03
  32. By: Jennifer Peña (Central Bank of Chile); Elvira Prades (Banco de España)
    Abstract: In this paper we analyze the price setting behavior in Chile by using scraped data from public websites of the main retailers including supermarkets, a pharmacy retailer and car dealerships. The data collection started in July 2019 and the dataset covers two major recent events: (1) the social outbreak and (2) the state of emergency declaration due to Covid-19, both episodes led to disruptions in the economy. With information on product varieties that accounts for 22% of the CPI basket, we document several empirical findings as regards price setting behaviour in terms of stickiness, that is, frequency, implied duration and the size of price adjustments. We find that in spite of facing large shocks, prices adjusted very little, at a lower frequency and at a smaller size than prior to these two events. We also find that there was a reduction on product variety availability on-line, a typical feature that also has been found during natural disasters such as earthquakes. The reduction in product availability poses additional difficulties to construct CPI indexes and to properly capture price rigidities, which are relevant for monetary policy.
    Keywords: on-line price data, CPI, prices stickiness, retail distribution
    JEL: E01 E31 L81
    Date: 2021–01
  33. By: Sewon Hur; César Sosa-Padilla; Zeynep Yom
    Abstract: We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with government sometimes finding it optimal to extend guarantees over bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs and possible heightened default risk (i.e., they create a ‘diabolic loop’). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of banking losses that the bailouts would cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the bank- ing crisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: the ‘diabolic loop’ they create is too costly.
    JEL: E32 F34
    Date: 2021–01
  34. By: Berger, Tino; Richter, Julia; Wong, Benjamin
    Abstract: We jointly estimate the U.S. business and financial cycle through a unified empirical approach while simultaneously accounting for the role of financial factors. Our approach uses the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autoregression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheating the business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles.
    Keywords: Business Cycle,Financial Cycle,Financial shocks
    JEL: C18 E51 E32
    Date: 2021
  35. By: Linas Tarasonis (Bank of Lithuania, Vilnius University); Jose Garcia-Louzao (Bank of Lithuania)
    Abstract: This paper studies the impact of the Great Recession on the relationship between reallocation and productivity dynamics in Lithuania. Using detailed microlevel data, we first document the aggregate contribution of firm exit and employment reallocation to productivity growth. Next, we estimate firm-level regressions to confirm the findings and to perform a heterogeneity analysis. This analysis shows that productivity shielded firms from exit, and that this relationship became stronger during the Great Recession. Moreover, we demonstrate that more productive firms experienced on average lower employment losses, and that this effect was even stronger during the economic slump. Taken together, our results suggest that reallocation was productivityenhancing during the Great Recession. However, the analysis also indicates that reallocation intensity varied with sector's dependence on external financing or international trade as well as market concentration.
    Keywords: firm dynamics, job reallocation, productivity, Great Recession
    JEL: E24 E32 L11 J23
    Date: 2021–03–19
  36. By: Gerald Carlino; Thorsten Drautzburg; Robert P. Inman; Nicholas Zarra
    Abstract: Partisanship of state level politicians affect the impact of federal fiscal policy in the U.S. Using data from close gubernatorial elections, we find partisan differences in the marginal propensity to spend federal transfers since the early 1980's: Republican governors spend less. A New Keynesian model of partisan states in a monetary union implies sizable aggregate income effects from these partisan differences. First, the transfer multiplier would rise by 0.60 if Republican governors were to spend as much from federal aid as do Democratic governors. Second, the observed changes in the share of Republican governors imply variation in the fiscal multiplier of 0.40. Local projection regressions support this prediction.
    JEL: C24 E62 F45 H72 H74 H77
    Date: 2021–02
  37. By: Dalhaus, Tatjana; Schaumburg, Julia; Sekhposyan, Tatevik
    Abstract: We introduce a flexible, time-varying network model to trace the propagation of interest rate surprises across different maturities. First, we develop a novel econometric framework that allows for unknown, potentially asymmetric contemporaneous spillovers across panel units, and establish the finite sample properties of the model via simulations. Second, we employ this innovative framework to jointly model the dynamics of interest rate surprises and to assess how various monetary policy actions, for example, short-term, long-term interest rate targeting and forward guidance, propagate across the yield curve. We find that the network of interest rate surprises is indeed asymmetric, and defined by spillovers between adjacent maturities. Spillover intensity is high, on average, but shows strong time variation. Forward guidance is an important driver of the spillover intensity. Pass-through from short-term interest rate surprises to longer maturities is muted, yet there are stronger spillovers associated with surprises at medium- and long-term maturities. We illustrate how our proposed framework helps our understanding of the ways various dimensions of monetary policy propagate through the yield curve and interact with each other. JEL Classification: C21, C53, E43, E44, E52
    Keywords: dynamic networks, monetary policy, yield-curve
    Date: 2021–03
  38. By: Bernd Hayo (University of Marburg); Sascha Mierzwa (University of Marburg); Umut Unal (University of Marburg)
    Abstract: We estimate the elasticities of the most important tax categories using a new quarterly database of discretionary tax measures for the United States, Germany, and the United Kingdom over the period 1980Q1 to 2018Q2. Employing Romer and Romer’s (2009) narrative approach, we construct a policy-neutral dataset based on revenue figures from governmental records. Using this quantitative information, we are able to subtract policy-induced changes, which are typically not considered in the extant literature. Furthermore, we estimate state-dependent elasticities. Our conclusions are as follows. (i) In Germany and the UK, long-term tax-to-base elasticities are generally higher than short-term elasticities, whereas results for the US are mixed. (ii) Short-term base-to-output elasticities tend to be smaller than unity, whereas long-term elasticities are close to unity. (iii) German and UK tax-to-output elasticities in the short term are lower than long-term elasticities, with mixed results for the US. (iv) For tax-to-base elasticities, we find business cycle asymmetries across countries but not within countries. (v) For base-to-output elasticities, our results suggest few asymmetries across countries and more asymmetries across tax types. (vi) Typically, the above conclusions do not hold for corporate income tax.
    Keywords: Tax revenue; tax base; tax elasticity; business cycle; Germany; United Kingdom; United States
    JEL: E62 H20 H30 E32
    Date: 2021
  39. By: Cepni, Oguzhan (Department of Economics, Copenhagen Business School); Clements, Michael P. (ICMA Centre, Henley Business School, University of Reading)
    Abstract: We consider whether inflation is a ‘global phenomenon’ for European emerging market economies, as has been claimed for advanced or high-income countries. We find that a global inflation factor accounts for more than a half of the variance in the national inflation rates, and show that forecasting models of national headline inflation rates that include global inflation factors generally produce more accurate path forecasts than Phillips Curve-type models, and models with local inflation factors. Our results are qualitatively unaffected by allowing for sparsity and non-linearity in the factor forecasting models.
    Keywords: Global inflation; Common factors; Forecasting; Variable selection
    JEL: E31 E52 F42 F62
    Date: 2021–03–18
  40. By: Huberto M. Ennis; Elizabeth C. Klee
    Abstract: We study new transaction-level data of discount window borrowing in the U.S. between 2010 and 2017, merged with quarterly data on bank financial con- ditions (balance sheet and revenue). The objective is to improve our under- standing of the reasons for why banks use the discount window during periods outside financial crises. We also provide a model of the decision of banks to borrow at the window, which is helpful for interpreting the data. We find that decisions to gain access and to borrow at the discount window are meaning- fully correlated with some relevant banks' characteristics and the composition of banks' balance sheets. Banks choose simultaneously to obtain access to the discount window and hold more cash-like liquidity as a proportion of assets. Yet, conditional on access, larger and less liquid banks tend to borrow more from the discount window. In general, our findings suggest that banks could, in principle, adapt their operations to modulate, and possibly reduce, their use of the discount window in "normal" times.
    Keywords: Banking; Central Bank; Federal Reserve; Liquidity
    JEL: E52 E58 G28
    Date: 2021–03–19
  41. By: Jaeger Nelson; Kerk Phillips
    Abstract: In this working paper, we analyze the long-term economic effects of financing a large and permanent increase in government expenditures of 5percent to10percent of gross domestic product (GDP) annually. This paper does not assess the economic effects of the increased government spending and focuses solely on the effects of their financing. The first part of the paper reviews the channels through which different financing mechanisms affect the economy. Specifically, the review focuses on how taxes on labor income, capital income, and consumption affect
    JEL: E62 H20 H31 H62
    Date: 2021–03–22
  42. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of price dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms that are governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal changes in demand and downstream via real changes in supply. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model provides an explanation of the price puzzle: a temporary rise in the price level in response to monetary contractions. In our setting, the puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Keywords: JEL Codes C63,C67,D80,E31,E52 Price Puzzle,Production Network,Money,Monetary Non-Neutrality,Out-of-Equilibrium Dynamics
    Date: 2021–04
  43. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of price dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms that are governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal changes in demand and downstream via real changes in supply. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model provides an explanation of the price puzzle: a temporary rise in the price level in response to monetary contractions. In our setting, the puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Keywords: JEL Codes C63,C67,D80,E31,E52 Price Puzzle,Production Network,Money,Monetary Non-Neutrality,Out-of-Equilibrium Dynamics
    Date: 2021–04
  44. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Javier Lopez-Segovia (CEMFI, Centro de Estudios Monetarios y Financieros); Roberto Ramos (Banco de España)
    Abstract: We study how much revenue can be generated by more progressive personal income taxes in Spain. We build a life-cycle economy with uninsurable labor productivity risk and endogenous labor supply. Individuals face progressive taxes on labor and capital incomes and proportional taxes that capture social security, corporate income, and consumption taxes. An increase (decrease) in labor income taxes for individuals who earn more (less) than the mean labor income generates a small additional revenue. The revenue from labor income taxes is maximized at an e ective marginal tax rate of 51.6% (38.9%) for the richest 1% (5%) of individuals, versus 46.3% (34.7%) in the benchmark economy. The additional revenue from labor income taxes is only 0.82% higher, while the total tax revenue declines by 1.55%. The total tax revenue is higher if marginal taxes are raised only for the top earners. The increase, however, must be substantial and cover a large segment of top earners. The new tax collection from a 3 percentage points increase on the top 1% is just 0.09%. A 10 percentage points increase on the top 10% of earners (those who earn more than e41,699) raises the total taxes by 2.81%.
    Keywords: Taxation, progressivity, top earners, labor supply, Laffer curve.
    JEL: E21 E6 H2 J2
    Date: 2020–06
  45. By: Wataru Kureishi; Hannah Paule-Paludkiewicz; Hitoshi Tsujiyama; Midori Wakabayashi
    Abstract: Most economic models assume that time preferences are stable over time, but the evidence on their long-term stability is lacking. We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. We provide new evidence that discount rates decrease with age and the decline is remarkably linear over the life cycle. Decreasing discounting helps a canonical life-cycle model to explain the household saving puzzles of undersaving when young and oversaving after retirement. Relative to the model with constant discounting, the model’s fit to consumption and asset data profiles improves by 40% and 30%, respectively.
    Keywords: time preferences, preference stability, discount rates, household saving puzzles
    JEL: D15 D91 E21 J10
    Date: 2021
  46. By: Joshy Easaw; Christian Grimme
    Abstract: We analyse the extent to which firm-level uncertainty is affected by aggregate uncertainty. Firm-level uncertainty is constructed from a large and monthly panel dataset of manufacturing firms. We find that aggregate uncertainty has a positive and robust impact on firm-level uncertainty. This effect holds across different types of domestic and international measures of aggregate uncertainty. However, the size of the impact is heterogeneous and depends on certain firm characteristics and the state of the business cycle. For example, the widely used economic policy uncertainty index matters to all firms’ uncertainty only in recessionary periods, while it is relevant over the entire business cycle only to large firms’ uncertainty.
    Keywords: firm-level uncertainty, aggregate uncertainty, survey data
    JEL: C23 E32 E01
    Date: 2021
  47. By: Ayşegül Şahin; Murat Tasci; Jin Yan
    Abstract: This paper presents a flow-based methodology for real-time unemployment rate projections and shows that this approach performed considerably better at the onset of the COVID-19 recession in the spring 2020 in predicting the peak unemployment rate as well as its rapid decline over the year. It presents an alternative scenario analysis for 2021 based on this methodology and argues that the unemployment rate is likely to decline to 5.4 percent by the end of 2021. The predictive power of the methodology comes from its combined use of real-time data with the flow approach.
    JEL: E24 E32 J6
    Date: 2021–02
  48. By: Coibion, Olivier (University of Texas at Austin); Georgarakos, Dimitris (European Central Bank); Gorodnichenko, Yuriy (University of California, Berkeley); Kenny, Geoff (European Central Bank); Weber, Michael (World Bank)
    Abstract: Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes.
    Keywords: uncertainty, household spending, household finance, surveys, randomized control trial
    JEL: E3 E4 E5
    Date: 2021–03
  49. By: David Lowe; Matthew Malloy
    Abstract: This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for U.S. dollar safe assets.
    Keywords: Monetary policy; Banks; Fintech; Stablecoins
    JEL: E40 E50 G21
    Date: 2021–03–22
  50. By: ; Fabian Eckert
    Abstract: Children's education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children's education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. We estimate the model with US county-level data and study the effects of a school funding equalization on education outcomes and social mobility. The reform's direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality.
    Keywords: Intergenerational mobility; Equality of opportunity; School access; Education reform; Regional labor markets; Economic geography; Spatial economics
    JEL: E24 E62 R12 R23 I24 I28
    Date: 2021–03–22
  51. By: Roberto Marfè; Julien Pénasse
    Abstract: This paper proposes a predictive approach to estimate macroeconomic tail risk dynamics over the long run (1876-2015). Our approach circumvents the scarcity of large macroeconomic crises by using observable predictive variables in a large international panel. This method does not require to use asset price information, which allows us to evaluate the empirical validity of rare disasters models. We find that macroeconomic crises are forecastable by a broad array of variables. In particular, our macro risk estimate covaries with asset prices and forecasts future stock returns. This suggests, in line with the rare disaster paradigm, that the equity premium varies over time because agents care about macroeconomic risk. A rare disaster model, calibrated from macroeconomic data alone, further supports this interpretation.
    Keywords: rare disasters, equity premium, return predictability.
    JEL: E44 G12 G17
    Date: 2020
  52. By: Sala, Hector (Universitat Autònoma de Barcelona); Trivín, Pedro (Universitat Autònoma de Barcelona)
    Abstract: We use information from the last wave of the Spanish Survey of Households Finance to study the influence of debt on the self-reported Marginal Propensity to Consume (MPC). The MPC is 43 per cent on average, but indebted households have a smaller MPC than non-indebted households. This negative association increases along with the amount of debt. We also find a lower MPC for households that were subject to liquidity constraints in the previous year, and for those whose reference person is self-employed. We observe that the past relationship between income and consumption is also an important determinant of the MPC as households that invest last year's savings, or hold them for the future, have again a lower MPC. These factors are in line with the predictions of precautionary saving models.
    Keywords: marginal propensity to consume, debt, survey
    JEL: D12 D14 E21
    Date: 2021–03
  53. By: Nezih Guner (CEMFI); Yuliya A. Kulikova (Banco de España); Arnau Valladares-Esteban (University of St. Gallen and Sew)
    Abstract: The added worker effect (AWE) measures the entry of individuals into the labor force due to their partners’ adverse labor market outcomes. We propose a new method to calculate the AWE that allows us to estimate its effect on any labor market outcome. The AWE reduces the fraction of households with two non-employed members by 16% for the 1977-2018 period; 28% in the 1990 recession and 23% during the great recession. The AWE also accounts for why women’s employment is much less cyclical and more symmetric than men’s. Without the AWE, married women’s employment would be as volatile as men and display negative skewness (declining quickly in recessions and recovering slowly in expansions). In recessions, while some women lose their employment, others enter the labor market and find jobs. This keeps female employment relatively stable.
    Keywords: added worker effect, household labor supply, intra-household insurance, female employment, cyclicality, skewness
    JEL: D1 E32 J21 J22
    Date: 2021–03
  54. By: Lucía Cuadro-Sáez (Banco de España); Fernando S. López-Vicente (Banco de España); Susana Párraga Rodríguez (Banco de España); Francesca Viani (Banco de España)
    Abstract: The epidemiological crisis caused by the COVID-19 pandemic has prompted an unprecedented shock. The containment measures adopted by the authorities have involved the temporary shutdown of many productive activities and the general confinement of the population. These events motivated the implementation of extraordinary fiscal policy measures aimed at strengthening the health system and alleviating the adverse effects of the pandemic on the economy, and supporting economic activity in the subsequent recovery phase. This paper provides a descriptive and comparative analysis of the measures adopted in some of the main advanced Western economies (Germany, France, Italy, Spain, the United Kingdom and the United States). The objective is to have a structured view of the similarities and differences in national responses to the health crisis in the area of fiscal policy. To this end, the authors describe the budgetary and “extra-budgetary” (without an immediate direct budgetary cost, such as public guarantees) measures adopted according to their objective and functionality (health spending, support for firms’ liquidity and solvency, employment protection and support for households), their instrumentation and, to a lesser extent, their size. The analysis shows the presence of high cross-country heterogeneity in terms of the amount of the support packages, although not so much in the types of measures adopted. From the analysis, two messages should be highlighted. First, regarding budgetary measures, the countries’ greater commitment to subsidies and direct transfers to firms and households stands out, compared to other more indirect income support alternatives. Second, in relation to extra-budgetary measures, the main novelty of this crisis compared to previous ones is the prominence given to public guarantee programmes for the provision of liquidity to companies. These are generally implemented through public development banks, compared to other support mechanisms managed, for example, by central banks in collaboration with National Treasuries. Finally, during the recovery phase, public support is focusing on sustaining households’ income and firms’ liquidity – extending, in some cases, the temporary measures previously adopted – while stabilising the economy, supporting the solvency of strategic sectors and encouraging business investment.
    Keywords: health crisis, fiscal policy, State aid, grants, public loan guarantees, short-time work schemes
    JEL: E62 E65 H00 H81 J08
    Date: 2020–08
  55. By: Martina Fraschini (University of Lausanne, HEC; Swiss Finance Institute); Luciano Somoza (University of Lausanne, HEC; Swiss Finance Institute); Tammaro Terracciano (University of Geneva, GFRI; Swiss Finance Institute)
    Abstract: This paper studies a stylized economy in which the central bank can hold either treasuries or risky securities against central bank digital currency (CBDC) deposits. The key mechanism driving the results is the reduction in bank deposits that follows the introduction of a CBDC and its impact on the banking sector. With CBDC funds invested in treasuries, the central bank channels funds back to the banking sector via open market operations and the introduction of a CBDC is neutral, consistently with the equivalence theorem of Brunnermeier and Niepelt (2019). However, it is not neutral when accounting for liquidity requirements, quantitative easing, or for CBDC deposits held against risky securities. We reach two main conclusions. First, current monetary policy regimes do matter for CBDC equilibrium effects. Second, there is a trade-off between bank lending to the economy and taxes, as holding risky assets against CBDC deposits leads to lower expected taxes and lower bank lending.
    Keywords: CBDC, central banking, monetary policy, QE
    JEL: E4 E5 G2
    Date: 2021–03
  56. By: Gabriele Fiorentini; Martín Almuzara; Enrique Sentana
    Abstract: We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our framework to U.S. quarterly data on GDP and GDI, obtaining an improved aggregate output measure.
    Keywords: cointegration; GDP; GDI; overdifferencing; signal extraction
    JEL: C32 E01
    Date: 2021–03–01
  57. By: Granda, C.; García, D.
    Abstract: Despite the worldwide prevalence of informality, consensus on a reliable and consistent set of drivers and consequences of this phenomenon has been elusive to both researchers and policymakers. This study partly addresses this shortcoming by exploring the interactions between the informal economy and tax policy and how these are shaped by business cycle fluctuations. To this end, we identify robust determinants of both informality and taxation by means of an econometric analysis that accounts for bi-directional causality. Focusing on two different dimensions of informal activity and three tax policy instruments and employing numerous determinants over dozens of model combinations, we find that the signi cance of the relationship between informality and taxation depends on the speci c tax instrument under consideration. Thus, the informal economy may particularly affect the design of direct taxes. Also, the business cycle may have distinctive influences on informality and tax policy, so direct taxes appear to be acyclical or countercyclical while indirect taxes are strongly procyclical. We conclude by noting that how the business cycle affects the informal economy and taxation allows to substantiate evidence on the role of informality in the adoption of potentially destabilizing scal policies.
    Keywords: Informality; tax policy; business cycle
    JEL: E62
    Date: 2020–07–02
  58. By: Thomas Brand; Fabien Tripier
    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 ?nancial frictions and risk shocks, measured as the volatility of idiosyncratic uncertainty in the ?nancial 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 e?ects of unconventional monetary policies, notably the ECB’s Asset Purchase Programme (APP).
    Keywords: Great recession;Business cycles;Uncertainty;Risk Shocks;Divergence
    JEL: E3 E4 G3
    Date: 2021–03
  59. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Yuliya Kulikova (Banco de España); Arnau Valladares-Esteban (University of St. Gallen)
    Abstract: The added worker effect (AWE) measures the entry of individuals into the labor force due to their partners' job loss. We propose a new method to calculate the AWE, which allows us to estimate its effect on any labor market outcome. We show that the AWE reduces the fraction of households with two non-employed members. The AWE also accounts for why women's employment is less cyclical and more symmetric compared to men. In recessions, while some women lose their employment, others enter the labor market and nd jobs. This keeps the female employment relatively stable.
    Keywords: Household labor supply, intra-household insurance, female employment, cyclicality, skewness.
    JEL: D1 E32 J21 J22
    Date: 2020–01
  60. By: Mariarosaria Comunale (Bank of Lithuania)
    Abstract: The article analyzes recent developments in investments in Lithuania using a broad set of possible drivers, including EU funds. We apply a Bayesian VAR setup with data from 1997Q1 to 2019Q4. We also examine and compare business vs. government investments and different types of investments, especially innovative investments. We find that total investments are basically driven by the data on business investments. The main outcomes are mostly in line with the literature, but we do see some crucial differences across types. Key results include: (1) a small role for lending rates as compared to other factors, largely limited to the global financial crisis; (2) the crucial role of demand-side variables, i.e. foreign demand or private consumption; (3) pro-cyclicality in government investments and a positive correlation with business investments; (4) the importance of uncertainty for some sectors, that positively drives only the more innovative/intangible investments; and (5) despite the fact that EU funds do feed investments, there is a crowding-out in the short run for business-related investments, while there is some positive contribution to public investments.
    Keywords: : investment, uncertainty, EU funds, foreign demand, innovation
    JEL: E32 D24 D61 C32
    Date: 2020–10–21
  61. By: Bremus, Franziskus; Krause, Thomas; Noth, Felix
    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
  62. By: Matthijs Breugem; Stefano Colonnello; Roberto Marfè; Francesca Zucchi
    Abstract: The term structure of equity and its cyclicality are key to understand the risks driving equilibrium asset prices. We propose a general equilibrium model that jointly explains four important features of the term structure of equity: (i) a negative unconditional term premium, (ii) countercyclical term premia, (iii) procyclical equity yields, and (iv) premia to value and growth claims respectively increasing and decreasing with the horizon. The economic mechanism hinges on the interaction between heteroskedastic long-run growth—which helps price long-term cash flows and leads to countercyclical risk premia—and homoskedastic short-term shocks in the presence of limited market participation — which produce sizeable risk premia to short-term cash flows. The slope dynamics hold irrespective of the sign of its unconditional average. We provide empirical support to our model assumptions and predictions.
    Keywords: Term Structure of Equity, Dynamics, General Equilibrium, Expected Growth Volatility.
    JEL: D51 D53 E30 G10 G12
    Date: 2020
  63. By: Conrad, Christian; Enders, Zeno; Glas, Alexander
    Abstract: Based on a new survey of German households, we investigate the role that information channels and lifetime experience play in households' inflation expectations. We show that the types of information channels that households use to inform themselves about monetary policy are closely related to their socioeconomic characteristics. These information channels, in turn, have a major influence on the level of perceived past and expected future inflation, as well as on the uncertainty thereof. The expected future change in inflation and the unemployment rate, however, is strongly influenced by individual experience of these variables. Similarly, the expected response of inflation to a change in the interest rate is also shaped by experience. We propose the interpretation that households obtain inflation numbers from the media, but their 'economic model' is shaped by experience.
    Keywords: Household expectations,inflation expectations,information channels,experience,Bundesbank household survey
    JEL: E31 D84 E71
    Date: 2021
  64. By: Stefan Lautenbacher
    Abstract: Based on a new survey question in a large and representative panel of German firms, this paper introduces a novel measure of managers’ subjective uncertainty. I compare this measure of business uncertainty to respondents’ business expectations and document a strong negative relationship. However, the link is much weaker in bad times, since uncertainty is then persistently high – even when expectations are favorable. I continue by investigating the relative importance of uncertainty and expectations for corporate decisions. Exploiting information on firms’ investment and labor reactions to the COVID-19 crisis, I do not find evidence that uncertainty induced “wait and see” behavior. However, a deterioration in managers’ expectations and in their assessment of their firms’ business situation predicts investment deferral and a reduction in employment.
    Keywords: Subjective uncertainty, expectations, firms, survey data, corporate decisions, business cycles
    JEL: C83 D22 D84 E32 E71
    Date: 2021
  65. By: Alon, Titan (University of California, San Diego); Coskun, Sena (University of Mannheim); Doepke, Matthias (Northwestern University); Koll, David (European University Institute); Tertilt, Michèle (University of Mannheim)
    Abstract: We examine the impact of the global recession triggered by the Covid-19 pandemic on women's versus men's employment. Whereas recent recessions in advanced economies usually had a disproportionate impact on men's employment, giving rise to the moniker "mancessions," we show that the pandemic recession of 2020 was a "shecession" in most countries with larger employment declines among women. We examine the causes behind this pattern using micro data from several national labor force surveys, and show that both the composition of women's employment across industries and occupations as well as increased childcare needs during closures of schools and daycare centers made important contributions. While many countries exhibit similar patterns, we also emphasize how policy choices such as furloughing policies and the extent of school closures shape the pandemic's impact on the labor market. Another notable finding is the central role of telecommuting: gender gaps in the employment impact of the pandemic arise almost entirely among workers who are unable to work from home. Nevertheless, among telecommuters a different kind of gender gap arises: women working from home during the pandemic spent more work time also doing childcare and experienced greater productivity reductions than men. We discuss what our findings imply for gender equality in a post-pandemic labor market that will likely continue to be characterized by pervasive telecommuting.
    Keywords: COVID-19, pandemics, recessions, business cycle, gender equality, school closures, childcare, gender wage gap
    JEL: D13 E32 J16 J20
    Date: 2021–03
  66. By: Phurichai Rungcharoenkitkul
    Abstract: This paper proposes a quantitative framework to analyse the interactions between epidemiological and economic developments, and assesses the macroeconomic impact of managing the late stage of the Covid-19 pandemic. The framework features a susceptible-exposed- infectious-recovered (SEIR)-type model that describes the pandemic evolution conditional on society's mobility choice, and a policy unit that chooses mobility optimally to balance lives and livelihood objectives. The model can be matched to daily data via a fast and robust empirical procedure, allowing a timely policy analysis as situations evolve. As of 10 March 2021, the projected median output loss across 27 advanced and emerging market economies in 2021 is about 2 1/4% of pre-pandemic trends. This projected outcome hinges on a sustained progress in vaccination and no major epidemiological setbacks. Vaccination impediments or a third-wave surge in infection rate could raise median output loss to 3 - 3 3/4%. In the most severe scenario, virus mutations that compromise existing immunity could require more protracted lockdowns. In this case, median output loss may reach 5% in 2021 alone, with further repercussions in subsequent years.
    Keywords: Covid-19 pandemic, health-economic tradeoffs, SEIR model, lockdown, vaccines
    JEL: E00 I18
    Date: 2021–03
  67. By: Seo, Takashi
    Abstract: This study focuses on the well-known theme of Schumpeter’s system of economic theory. Specifically, the study discusses Schumpeter’s paradoxical stance on Walras’ general equilibrium theory, which Louçã (1997) called Schumpeter’s paradox. We reconsider the significance of the notion of circular flow in business cycle theory, after recognising the continuity from static to dynamic theory, and then to business cycle theory that integrates these theories. In doing so, we focus on the fact that Schumpeter called the equilibrium in the cyclical process a circular flow or a stationary process and proposed his own concept of neighbourhoods of equilibrium, which was not found in Walras’ general equilibrium theory. Through such an analysis, we propose that Schumpeter’s paradox is eased to some degree and that the theory of circular flow should be explored further.
    Keywords: Schumpeter, Walras, Kuznets, Business cycles, Circular flow, General equilibrium, Neighbourhood of equilibrium
    JEL: B25 B31 B41 E32
    Date: 2021–03–25
  68. By: António Afonso; João Tovar Jalles; Ana Venâncio
    Abstract: We link governments’ spending efficiency scores, to sovereign debt assessments made by financial markets´, more specifically by three rating agencies (Standard & Poors, Moody´s and Fitch). Public efficiency scores are computed via data envelopment analysis. Then, we rely notably on ordered response models to estimate the response of sovereign ratings to changes in efficiency scores. Covering 34 OECD countries over the period 2007-2018, we find that increased public spending efficiency is rewarded by financial markets via higher sovereign debt ratings. In addition, higher inflation and government indebtedness lead to sovereign rating downgrades, while higher foreign reserves contribute to rating upgrades.
    Keywords: government spending efficiency, DEA, panel analysis, ordered probit (logit);sovereign ratings, rating agencies
    JEL: C14 C23 E44 G15 H11 H50
    Date: 2021–03
  69. By: Muriel Dal Pont Legrand (Université Côte d'Azur, CNRS, GREDEG, France)
    Abstract: This paper analyses how the macro agent-based literature which developed intensively during the last decades, analyses the issue of financial instability. This paper focuses its attention on two specific researchers’ communities which, within this new paradigm, specifically emphasize this question. We examine their common analytical foundations, how they have been influenced by anterior research programs, and we distinguish their modeling strategies and how these distinct strategies led them to follow somewhat different objectives.
    Keywords: Macro agent-based models, financial instability, microeconomic foundations, CATS, K&S, Minsky, Leijonhufvud, Stiglitz
    JEL: B22 B31 B41 E32
    Date: 2021–03
  70. By: de la Croix, David (IRES/LIDAM, UCLouvain & CEPR, London); Goñi, Marc (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: We argue that the waning of nepotism in academia bolstered scientific production in pre-industrial Europe. We build a database of families of scholars (1088–1800), measure their scientific output, and develop a general method to disentangle nepotism from inherited human capital—two determinants of occupational persistence. This requires jointly addressing measurement error in human capital proxies and sample selection bias arising from nepotism. Our method exploits multi-generation correlations together with parent-child distributional differences to identify the structural parameters of a first-order Markov process of human capital transmission with nepotism. We find an intergenerational human capital elasticity of 0.59, higher than that suggested by parent-child elasticities, yet lower than multi-generation estimates ignoring nepotism. In early academia, 40 percent of scholars’ sons achieved their position because of nepotism. Nepotism was lower in science than in law and in Protestant than in Catholic institutions, and declined substantially during the Scientific Revolution and the Enlightenment—two periods of buoyant scientific advancement.
    Keywords: Intergenerational mobility; human capital transmission; nepotism; upper-tail human capital; pre-industrial Europe; simulated method of moments
    JEL: C31 E24 J10
    Date: 2021–03–16
  71. By: Ilse Lindenlaub; Fabien Postel-Vinay
    Abstract: The worker-job surplus — the sum of the worker's and the employer's net values of an employment relationship — is the object that drives decisions in most matching models of the labor market. In this paper, we develop a theory-based empirical method to determine which of the observable worker and job characteristics impact the worker-job surplus in the data. To do so, we exploit the mobility choices of employed workers. Our method further indicates whether workers sort along those surplus-relevant attributes when searching for jobs. It also provides a test of the commonly used single-index assumption, according to which worker and job heterogeneity can each be summarized by scalar indices. We implement our method on US data using the Survey of Income and Program Participation and the O*NET. The results suggest that a relatively sparse model underlies the data. On the job side, a cognitive and an interpersonal skill requirement impact the surplus along with the (dis)amenity of work duration as well as the workplace size. On the worker side, we find that most of the relevant characteristics are symmetric to the selected job requirements. We reject the existence of a single-index representation of these relevant multi-dimensional worker and job attributes. We then use our results in a new approach to defining the economy's labor submarkets, highlighting a potentially important application of our methodology.
    JEL: E24 J0 J20
    Date: 2021–01
  72. By: David O. Lucca; Jonathan H. Wright
    Abstract: Seasonal adjustment is a key statistical procedure underlying the creation of many economic series. Large economic shocks, such as the 2007-09 downturn, can generate lasting seasonal echoes in subsequent data. In this Liberty Street Economics post, we discuss the prospects for these echo effects after last year’s sharp economic contraction by focusing on the payroll employment series published by the U.S. Bureau of Labor Statistics (BLS). We note that seasonal echoes may lead the official numbers to overstate actual changes in payroll employment modestly between March and July of this year after which distortions flip the other way.
    Keywords: seasonal adjustment; COVID-19; Bureau of Labor Statistics (BLS)
    JEL: E2
    Date: 2021–03–25
  73. By: Fricke, Daniel
    Abstract: Mutual fund risk-taking via active portfolio rebalancing varies both in the cross- section and over time. In this paper, I show that the same is true for funds' off- balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of synthetic leverage, which can be estimated based on publicly available information. In the empirical application, I show that German equity funds have increased their risk-taking via synthetic leverage from mid-2015 up until early 2019. In the cross-section, I find that synthetically leveraged funds tend to underperform and display higher levels of fragility.
    Keywords: leverage,risk-taking,derivatives,securities lending,mutual funds
    JEL: E44 G11 G23
    Date: 2021
  74. By: Herzberg, Julika; Knetsch, Thomas A.; Schwind, Patrick; Weinand, Sebastian
    Abstract: Current HICP measurement practices produce an upward bias of about one-ninth of a percentage point in German inflation due to changing consumption being disregarded and the preliminary data being used in the compilation of expenditure weights. The statistical uncertainty produced by these sources of mismeasurement can be illustrated by an interdecile range of about one-quarter of a percentage point. The annual updating of the quantity component of the weights, which was implemented in 2012, has reduced the substitution component, making the disregard of changing consumption virtually a non-issue for the euro area HICP. The measurement of the German HICP is impaired by the extrapolation of expenditure weights, and the use of preliminary national accounts data since 2012 has not led to an improvement. This source of mismeasurement is likely to be relevant for the euro area HICP as well but cannot be quantified due to data constraints. Compilers might identify weight updating techniques as a potential field of HICP quality improvement. For the time being, users have to consider this source of mismeasurement when assessing the precision of the HICP as a measure of "true" inflation.
    Keywords: Inflation measurement,Substitution bias,Updating of expenditure weights,HICP
    JEL: E31 C43
    Date: 2021
  75. By: International Monetary Fund
    Abstract: Malaysia entered the pandemic from a robust economic position but has nonetheless been significantly affected. A synchronous fiscal, monetary and financial policy response has helped cushion the economic impact. As a result, after a deep recession in 2020, and assuming the pandemic is brought under control in Malaysia and globally, growth would rebound to 6.5 percent in 2021 as supply side constraints are lifted and domestic and external demand recover. Large downside risks will remain.
    Date: 2021–03–17
  76. By: Betts, Caroline
    Abstract: I document that, relative to the period 1971 to 1990, Japan has suffered almost three complete “lost” decades of slower growth from 1991 through 2018. The average growth rate of output per working age person, and of labor productivity–measured by both output per hour worked and output per employed person–substantially declined in the 1990s and never returned to pre-1991 values. The average growth rate of output per working age person from 2011–2018 partially recovered, to just 56 percent of its 1980s value. I find this partial recovery was due solely to an increase in hours worked per working age person–labor input growth–which cannot support sustained growth in living standards. By contrast, labor productivity growth–which can support sustained growth in living standards–declined further in the 2010s and averaged just 20 percent of its 1980s value. Growth accounting shows that a large and persistent decline in total factor productivity (TFP) growth was the source of Japan’s slowing labor productivity growth in the 1990s and 2000s, while a falling capital output ratio forced further slowing in the 2010s. Assuming a global trend growth rate of 2 percent per year, the average growth rate of output per working age person in the 20th century United States–commonly viewed as the technology-frontier country, I show that Japan’s TFP collapsed relative to trend in 1992 and has deviated increasingly below it. By contrast, since 1991, US TFP has fallen relative to trend only since 2016. Among the twenty richest OECD countries, in the post-2000 era–widely argued to have witnessed a widespread advanced economy productivity growth slowdown–Japan’s TFP factor was one of only seven to fall more than 15 percent below trend. Japan’s TFP collapse in 1992, and that of several OECD countries after 2000, is due not to slower US-TFP trend growth but to domestic institutions, polices, and practices that have reduced the efficiency of frontier-technology use. Policy reforms that directly address productivity deficits are needed to support faster growth in living standards that is also sustainable.
    Keywords: Aggregate Productivity, Capital-Output Ratio, Economic Growth, Neoclassical Growth Model, Output Growth, Technological Change, Total Factor Productivity, Japan, United States, G-7, OECD.
    JEL: O41 O47 O50
    Date: 2021–03–05
  77. By: Sebastian Link (ifo Institute, LMU Munich, IZA, CESifo); Andreas Peichl (LMU Munich, ifo Institute); Christopher Roth (University of Warwick); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen)
    Abstract: We leverage survey data from Germany, Italy, and the US to document several novel stylized facts about the extent of information frictions among firms and households. First, firms’ expectations about the central bank policy rate, inflation, and aggregate unemployment are more aligned with expert forecasts and less dispersed than households’. Second, there is substantially more heterogeneity in information frictions within households than within firms. Third, consistent with firms having stronger priors, they update their policy rate expectations significantly less compared to households when provided with an expert forecast. Our results have important implications for modeling heterogeneity in macroeconomic models.
    Keywords: information frictions, firms, households, expectation formation, interest rates
    JEL: D83 D84 E71
    Date: 2021–03–24
  78. By: Altavilla, Carlo; Laeven, Luc; Peydró, José-Luis
    Abstract: We show strong complementarities between monetary and macroprudential policies in influencing credit. We exploit credit register data - crucially from multiple (European) countries and for both corporate and household credit - in conjunction with monetary policy surprises and indicators of macroprudential policy actions. Expansive monetary policy boosts lending more in accommodative macroprudential environments. This complementary effect of monetary and macroprudential policy is stronger for: (i) expansionary (as opposed to contractionary) monetary policy; (ii) riskier borrowers; (iii) less capitalized banks (especially when lending to riskier borrowers); (iv) consumer and corporate loans (rather than mortgages); and (v) more (ex-ante) productive firms (especially for less capitalized banks).
    Keywords: credit registers,household loans,corporate loans,monetary policy,macroprudential policy
    JEL: G21 G28 G32 G51 E58
    Date: 2021
  79. By: Michael D. Bordo; John V. Duca
    Abstract: For over two centuries, the municipal bond market has been a source of systemic risk, which returned early in the Covid-19 downturn when borrowing from securities markets became costly for many private and public entities, and some found it difficult to borrow at all. Indeed, just before the Fed announced its unprecedented intervention into the municipal (muni) bond market, spreads of muni over Treasury yields rose in line with the unemployment rate and appeared headed to levels not seen since the Great Depression, when real municipal gross investment plunged 35 percent below 1929 levels. To prevent a repeat, the Fed created the Municipal Liquidity Facility (MLF) to purchase newly issued, (near) investment grade state and local government bonds at normal ratings-based interest rate spreads over Treasury bonds plus a fee of 100 basis points, later reduced to 50 basis points. Despite a modest take-up, the MLF has effectively capped muni spreads at near normal levels plus the Fed fee and limited the extent to which interest rate spreads could have amplified the impact of the Covid pandemic. To establish the MLF the Fed needed Treasury indemnification against default losses. There are concerns about whether the creation of the MLF could undermine the efficiency of the bond market if the facility lasts too long and could induce moral hazard among borrowers. How the MLF will be unwound will affect these downside aspects and help answer the question whether the program’s benefits exceed its costs.
    JEL: E40 E50 G21
    Date: 2021–02
  80. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain); Mohammed Laksaci (Ecole Supérieure de Banque); Mohamed Touati-Tliba (ESC Alger - ESC Alger - ESC ALGER - ESC Alger)
    Abstract: We estimate the demand for money for monetary aggregates M1 and M2, and cash in Algeria over the period 1979-2019, and study its long-run stability. We show that the transaction motive is significant for all three aggregates, especially for the demand for cash, reflecting the weight of informal economy "practices". The elasticity of the scale variable is very close to unity for M2 and M1, and even equal to unity for cash demand (1.006). The elasticity of inflation is also significant for all three aggregates, although its level is higher in the case of cash demand (-6.474). Despite the persistence of certain financial repression mechanisms, interest rate elasticity is significant for all three aggregates, but higher for M1 and cash. The same observation is made for elasticity of the exchange rate, reflecting the effect of monetary substitution, especially for M1 and cash. Finally, our study concludes that the demand for money in terms of M1 remains stable, the same observation being confirmed for the M2 aggregate. However, the demand for fiat currency proves not to be stable. The consequences for the optimal design of monetary policy in Algeria are clearly stated.
    Keywords: monetary policy,money demand,long-run stability,resource-rich countries,Algeria,co-integration
    Date: 2021–01
  81. By: Patrick Blagrave; Claudia Godbout; Justin-Damien Guénette; René Lalonde; Nikita Perevalov
    Abstract: We present the structure and features of the International Model for Projecting Activity (IMPACT), a global semi-structural model used to conduct projections and policy analysis at the Bank of Canada. Major blocks of the model are developed based on the rational error correction framework of Kozicki and Tinsley (1999), which allows the model to strike a balance between theoretical structure and empirical performance. IMPACT divides the world economy into six regions: United States, the euro area, Japan, China, oil-importing emerging-market economies and oil-exporting rest of the world. The model features a rich set of cross-border trade and financial linkages that have been shown in the literature to be crucial to explaining global co-movements in business cycles. It is also globally consistent in the sense that both net foreign assets and net exports must be equal to zero at the global level. These cross-region linkages and the global stock-flow consistency allow IMPACT to generate a rigorous and more complete picture of the evolution of the global economy to better inform policy.
    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Economic models; International topics
    JEL: C68 E37 F47
    Date: 2020
  82. By: Jaqueson K. Galimberti (Auckland University of Technology); Stefan Pichler (ETH Zurich, Switzerland); Regina Pleninger (ETH Zurich, Switzerland)
    Abstract: The main challenge in studying economic inequality is limited data availability, which is particularly problematic in developing countries. We construct a measure of economic inequality for 234 countries/territories from 1992 to 2013 using satellite data on night lights and gridded population data. Key methodological innovations include the use of varying levels of data aggregation, and a calibration of the lights-prosperity relationship to match traditional inequality measures based on income data. We obtain a measure that is significantly correlated with cross-country variation in income inequality. We provide three applications of the data in the fields of health economics and international finance. Our results show that light- and income-based inequality measures lead to similar results in terms of cross-country correlations, but not for the dynamics of inequality within countries. Namely, we find that the light-based inequality measure can capture more enduring features of economic activity that are not directly captured by income.
    Keywords: : Nighttime lights, inequality, gridded population
    JEL: D63 E01 I14 O11 O47 O57
    Date: 2021–03
  83. By: David López-Rodríguez (Banco de España); Cristina García Ciria (Banco de España)
    Abstract: This document describes the structure of the Spanish fiscal system in comparison with the economies of the European Union. Spain stands out because of its persistently lower weight of tax revenue over GDP related with the EU28 average. This lower tax revenue over GDP is mainly due to indirect taxes (VAT, special and environmental taxes), having Spain systematically one of the lowest implicit tax rates over consumption in the EU28. Regarding labor taxation, its tax revenue over GDP is also lower to the EU28 average, although the weight of social security contributions over GDP is higher, in particular the contributions charged on employees. The later shows the lower fiscal pressure on labor income in personal taxes in Spain. Spain presents larger tax revenues over capital, in particular regarding wealth taxes.
    Keywords: fiscal system, tax structure, taxation in the EU
    JEL: H20 E62 H23 H24 H25
    Date: 2020–05
  84. By: Bar-On, Yinon (Weizmann Institute of Science); Baron, Tatiana (Ben Gurion University); Cornfeld, Ofer; Milo, Ron (Weizmann Institute of Science); Yashiv, Eran (Tel Aviv University)
    Abstract: Research in Economics on COVID-19 posits an economy subject to disease dynamics, which are often seriously misspecified in terms of speed and scale. Using a social planner problem, we show that such misspecifications lead to misguided policy. Erroneously characterizing a relatively slow-moving disease engenders dramatically higher death tolls and excessive output loss relative to the correct benchmark. We delineate the latter, employing epidemiological evidence on the timescales of COVID-19 transmission and clinical progression. The resulting sound model is simple, transparent, and novel in Economics.
    Keywords: optimal policy, public health, GDP loss, COVID-19, disease dynamics and scale, misspecification
    JEL: E61 E65 H12 J17
    Date: 2021–03
  85. By: Du Caju, Philip; Périlleux, Guillaume; Rycx, François; Tojerow, Ilan
    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
  86. By: Franziska Bremus; Franziska Schütze; Aleksandar Zaklan
    Abstract: This papers analyzes the effect of the ECB’s Corporate Sector Purchase Programme (CSPP) and the recent Pandemic Emergency Purchase Programme (PEPP) on the yields of eligible green bonds, a new but rapidly growing segment of the corporate bond market. We exploit these policy changes using a difference-in-differences strategy, with ineligible corporate green bonds is- sued in euro, U.S. dollars and Swedish crowns as comparison groups. We find that both programs significantly improve financing conditions for eligible green bonds, thereby increasing the attractiveness of these instruments to issuers and of the euro area as a location of issuance. The effects of the CSPP and PEPP are heterogeneous, both in terms of average impact and persistence of the effects. Yield differences between eligible and ineligible green bonds can last for more than six months. Our analysis informs the debate about new financing options for firms as well as about effects of asset purchase programs on the transition towards a less carbon-intensive economy.
    Keywords: green bonds, bond yields, monetary policy, corporate sector purchase programme (CSPP), pandemic emergency purchase programme (PEPP)
    JEL: E52 E58 G12 G18 Q54
    Date: 2021
  87. By: Mohammad Reza Farzanegan
    Abstract: This paper evaluates whether the level of public corruption influences COVID-19 case fatality rates. Using cross-section data, including 64 countries and multiple regression techniques, we find that the level of corruption is positively and significantly associated with COVID-19 human costs. These results are robust to control of other possible explanatory factors.
    Keywords: Covid-19, case fatality rates, pandemic, corruption, trust, cross-country regression
    JEL: I15 I18 D73 E02 H51
    Date: 2021
  88. By: Beutel, Johannes; Metiu, Norbert; Stockerl, Valentin
    Abstract: We study the effects of central bank communication about financial stability on individuals' expectations and risk-taking. Using a randomized information experiment, we show that communication causally affects individuals' beliefs and investment behavior, consistent with an expectations channel of financial stability communication. Individuals receiving a warning from the central bank expect a higher probability of a financial crisis and reduce their demand for risky assets. This reduction is driven by downward revisions in individuals' expected Sharpe ratios due to lower expected returns and higher perceived downside risks. In addition, these individuals deposit a smaller fraction of their savings at riskier banks.
    Keywords: central bank communication,financial stability,stock market expectations,randomized information experiment
    JEL: C11 D12 D83 D91 E58 G11
    Date: 2021
  89. By: Beverly Hirtle
    Abstract: This month the Liberty Street Economics blog is celebrating its tenth anniversary. We first welcomed readers to Liberty Street on March 21, 2011 and since then our annual page views have grown from just over 260,000 to more than 3.3 million.
    Keywords: Liberty Street Economics; COVID-19; economic inequality
    JEL: E58 D83 I1
    Date: 2021–03–19
  90. By: Henri Njangang (University of Dschang , Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon); Yann Nounamo (University of Douala, Douala, Cameroon)
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2021–01
  91. By: Henri Njangang (University of Dschang , Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon); Yann Nounamo (University of Douala, Douala, Cameroon)
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2021–01
  92. By: Richard K. Crump; Nikolay Gospodinov; Desi Volker
    Abstract: Breakeven inflation, defined as the difference in the yield of a nominal Treasury security and a Treasury Inflation-Protected Security (TIPS) of the same maturity, is closely watched by market participants and policymakers alike. Breakeven inflation rates provide a signal about the expected path of inflation as perceived by market participants although they are also affected by risk and liquidity premia. In this post, we scrutinize the dynamics of breakeven inflation, highlighting some intriguing behavior which has persisted for a number of years and even through the pandemic. In particular, we document a substantial downward shift in the level of breakeven inflation as well as a marked flattening of the breakeven inflation curve.
    Keywords: breakeven inflation; expected inflation; inflation risk premia
    JEL: G1
    Date: 2021–03–22
  93. By: Gaurav Khanna; Wenquan Liang; Ahmed Mushfiq Mobarak; Ran Song
    Abstract: Migration and pollution are two defining features of China's impressive growth performance over the last 30 years. In this paper we study the migration response to pollution in Chinese cities, and its consequences for productivity and welfare. We document a robust pattern in which skilled workers emigrate more in response to pollution than the unskilled. Their greater sensitivity to air quality holds up in cross-sectional variation across cities, panel variation with individual fixed-effects, and when instrumenting for pollution using distant power-plants upwind of cities, or thermal inversions that trap pollution. Pollution therefore changes the spatial distribution of skilled and unskilled workers, which results in higher returns to skill in cities that the educated migrate away from. We quantify the loss in aggregate productivity due to this re-sorting by estimating a model of demand and supply of skilled and unskilled workers across Chinese cities. Counterfactual simulations from the estimated model show that reducing pollution would increase productivity through spatial re-sorting by approximately as much as the direct health benefits of clean air. Physical and institutional restrictions on mobility exacerbate welfare losses. People's dislike of pollution explains a substantial portion of the wage gap between cities.
    JEL: E24 J61 O18 Q52 R12
    Date: 2021–01
  94. By: Mar Delgado-Téllez (Banco de España); Iván Kataryniuk (Banco de España); Fernando López-Vicente (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: The COVID-19 pandemic has substantially affected the financial trajectory of governments, which have seen their financing needs increase significantly. Against this background, the European Union has launched a series of programmes to smooth this financing in the short term, through the activation of credit lines to cover direct or indirect health expenses and temporary unemployment scheme-related expenditure. Further, it has approved a recovery fund (dubbed Next Generation EU), which will transfer resources from the European budget to the Member States for investments that enhance competitiveness and social and environmental sustainability. In this connection, this paper firstly estimates the increase in financing needs at the European level. Secondly, it sets out the supranational measures adopted to address the consequences of the pandemic, to be financed with debt issued by the European Commission, on behalf of the Member States. Finally, it characterises the starting point of this situation, i.e. it provides the main figures on euro-denominated supranational debt currently in circulation and reviews the arguments in favour of the importance of increasing this type of debt and pan-European safe assets.
    Keywords: public debt, European Union, public financing needs, European Recovery Fund
    JEL: E62 F36 F45 H63
    Date: 2020–08
  95. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Ezgi Kaya (Cardiff Business School); Virginia Sánchez Marcos (Universidad de Cantabria)
    Abstract: The total fertility rate is well below its replacement level of 2.1 children in high-income countries. Why do women choose such low fertility levels? We study how labor market frictions affect the fertility of college-educated women. We focus on two frictions: uncertainty created by dual labor markets (the coexistence of jobs with temporary and open-ended contracts) and inflexibility of work schedules. Using rich administrative data from the Spanish Social Security records, we show that women are less likely to be promoted to permanent jobs than men. Temporary contracts are also associated with a lower probability of first birth. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules, which come with a fixed time cost. We then build a life-cycle model in which married women decide whether to work or not, how many children to have, and when to have them. In the model, women face a trade-off between having children early and waiting and building their careers. We show that reforms that reduce the labor market duality and eliminate split-shift schedules increase the completed fertility of college-educated from 1.52 to 1.88. These reforms enable women to have more children and have them early in their life-cycle. They also increase the labor force participation of women and eliminate the employment gap between mothers and non-mothers.
    Keywords: Fertility, labor market frictions, temporary contracts, split-shift schedules.
    JEL: E24 J13 J21 J22
    Date: 2019–12
  96. By: Marco Gross
    Abstract: Where do economic cycles come from? This paper contemplates an utmost minimalistic model and underlying theory that rest on two assumptions for letting them emerge endogenously: (1) the presence of interest-bearing debt; and (2) a degree of downward nominal wage rigidity. Despite its parsimony, the model generates well-behaved, self-evolving limit cycles and replicates six essential empirical facts: (1) booms are long- while recessions short-lived; (2) leverage is procyclical; (3) firm profit and wage shares in GDP are counter- and procyclical, respectively; (4) Phillips curves are downward-sloping and convex, and Okun’s law relation is replicated; (5) default cascades arise endogenously at the turning points to recessions; (6) lending spreads are countercyclical. One can refer to the model as being of a Dynamic Stochastic General Disequilibrium (DSGD) kind.
    Date: 2021–03–05
  97. By: Olivier Basdevant; John Hooley; Eslem Imamoglu
    Abstract: This guidance note describes how to use the Excel-based template developed by the Fiscal Affairs Department (FAD) of the IMF accompanying the note “How to Design a Fiscal Strategy in a Resource-Rich Country.” This template uses data inputs to generate simulations of fiscal policy dynamics. It helps IMF teams and country authorities in RRCs analyze trade-offs associated with alternative fiscal strategies for the use of public resource wealth. Visualizing these trade-offs and assessing their sensitivity to underlying macroeconomic assumptions can help inform policymakers on the most appropriate fiscal strategy, given country-specific circumstances.
    Keywords: Commodity price indexes;Macro-fiscal framework;Fiscal governance;Fiscal multipliers;Fiscal policy;FADHTN,HTN,resource revenue,calibration method,commodity shock,dropdown menu,shock path
    Date: 2021–03–09
  98. By: TOGBENU, Fo-Kossi Edem; KONDO TOKPOVI, Vénunyé Claude; SAWSSEN, benameur
    Abstract: Our study examines the progress made by ECOWAS member countries in creating a single currency. It therefore analyses what the last few years have taught us about the convergence and optimality of the ECOWAS zone based on a Mixture Model approach to classification. The variables used come from the theory of optimal currency zones and convergence criteria. Two periods were considered: 2000-2013 and 2014-2018. Our results show remarkable progress in the convergence of ECOWAS countries. The results for the 2014-2018 period show very little heterogeneity in the ECOWAS countries compared to the results of the previous period. Indeed, the number of classes resulting from this analysis is nine for the first period and two for the second period. The results therefore suggest that a monetary union is possible for ECOWAS countries except Liberia and Nigeria.
    Keywords: ECOWAS, convergence, optimality, Monetary Union, Mixture Model.
    JEL: C10 E0 E00
    Date: 2021–03–24
  99. By: Meyer-Gohde, Alexander
    Abstract: This paper demonstrates a failure of standard, generalized Schur (orQZ) decomposition based solutions methods for linear dynamic stochastic general equilibrium (DSGE) models when there is insufficient eigenvalue separation about the unit circle. The significance of this is demonstrated in a simple production-based asset pricing model with external habit formation. While the exact solution afforded by the simplicity of the model matches post-war US consumption growth and the equity premium, QZ-based numerical solutions miss the later by many annualized percentage points.
    Keywords: Numerical accuracy,Production-based asset pricing,DSGE,Solution methods
    JEL: C61 C63 E17
    Date: 2021
  100. By: ; Nicholas Fritsch; Shawn Nee
    Abstract: Municipal bond markets experienced a significant amount of strain in response to the COVID-19 crisis, creating liquidity and credit concerns among market participants. During the economic shutdown resulting from the pandemic, income tax revenues were deferred and sales tax revenues decreased beginning in spring 2020, while the cost of borrowing significantly increased for municipal issuers. To aid municipal borrowing needs, the Federal Reserve implemented the Municipal Liquidity Facility (MLF) on April 9, 2020. In this analysis we describe the municipal market conditions as they evolved during 2020, we document the response by the Federal Reserve to municipal market distress with a focus on the MLF, and we conduct an event study to examine MLF-related impacts on market index yield spreads. We detail two case studies that compare yield spreads for two issuers that had sold debt to the MLF and find that yield spreads in secondary market transactions for these two issuers were notably reduced after a public announcement of intent to sell debt to the MLF. Our results present additional evidence that the MLF had a positive impact on municipal market functioning during the pandemic period.
    Keywords: onetary Policy; Policy Effects; Stabilization; Bond Market; Security Markets; Government Bonds; Local Government Bonds
    JEL: E50 G51 H74
    Date: 2021–03–22
  101. By: Juan Luis Vega (coord.) (Banco de España)
    Abstract: Almost three years on since the Brexit referendum and two since the intense negotiations between the parties began, the failure by the British Parliament to ratify the November 2018 agreement between the UK Government and the other EU governments has led to a situation of great complexity. With only a few days remaining until the deadline for withdrawal, no consensus plan has emerged yet. Without an alternative plan, a no-deal exit is – excepting postponement – the current default option. This Occasional Paper takes stock of the current situation and outlook for Brexit (i.e. the process of UK withdrawal from the EU) by drawing together a number of studies produced at the Banco de España in connection with the regular monitoring of the process and its potential effects on the Spanish economy. After noting where the current negotiations stand, the paper reviews UK economic developments since the surprise result of the referendum was announced in June 2016. It further lays out the medium-term outlook for the British economy, which hinges crucially on both the type of future trade relationship to be agreed between both areas and the degree of disruption caused by the withdrawal process. As regards Spain, the paper analyses several issues related to its trade and financial exposures to the UK and also provides estimates of the potential effects of Brexit on the Spanish economy under various hypothetical scenarios using the MTBE (i.e. the quarterly macroeconometric model of the Spanish Economy regularly used at the Banco de España for forecasting and policy analysis). Finally, mention is made of the contingency measures adopted, within their respective remits, by the European Commission and the Spanish Government, in the event of an abrupt no-deal exit.
    Keywords: Brexit, United Kingdom, Spai
    JEL: E69 F15 F47 F59
    Date: 2019–04
  102. By: International Monetary Fund
    Abstract: The Canadian economy was operating at close to capacity and had strong policy buffers when the COVID-19 pandemic hit. Economic and social restrictions put in place in March 2020 helped to mitigate the first wave of the virus, but they came at a significant cost. There was an unprecedented decline in activity in the first half of 2020, followed by a strong rebound in the third quarter as virus-related restrictions were eased. With the onset of the second wave of the virus in late September sparking renewed restrictions across the country, the recovery has slowed. Looking ahead, the strength and durability of the recovery hinges on the evolution of the pandemic.
    Date: 2021–03–18
  103. By: Ambrocio, Gene
    Abstract: I study the effects of the Covid-19 pandemic on business confidence in 11 Euro area countries and its consequent impact on economic activity. To obtain causal effects, I instrument business confidence with domestic household confidence as well as average household confidence in neighboring countries. I find evidence suggesting that the confidence and expectations channel was an important component to the economic transmission of Covid-19. A one standard deviation drop in business confidence leads to between 5-6 and 9 percent fall in economic activity in the industrial and wholesale and retail trade sectors respectively. These results highlight the importance of managing confidence and expectations in crises episodes.
    JEL: E23 E66 E71 I12
    Date: 2021–03–15
  104. By: Boneva, Lena; Islami, Mevlud; Schlepper, Kathi
    Abstract: The Eurosystem purchased €178 billion of corporate bonds between June 2016 and December 2018 under the Corporate Sector Purchase Programme (CSPP). Did these purchases lead to a deterioration of liquidity conditions in the corporate bond market, thus raising concerns about unintended consequences of large-scale asset purchases? To answer this question, we combine the Bundesbank's detailed CSPP purchase records with a range of liquidity indicators for both purchased and nonpurchased bonds. We find that while the flow of purchases supported secondary market liquidity, liquidity conditions deteriorated in the long-run as the Bundesbank reduced the stock of corporate bonds available for trading in the secondary market.
    Keywords: Corporate Bond Market,Central Bank Asset Purchases,Market Liquidity
    JEL: E52 F30 G12
    Date: 2021
  105. By: Harouna Sedgo; Luc-Désiré Omgba
    Abstract: This study investigates the effect of corruption on the trade-off between capital and current expenditures in a panel of 48 African countries over the period 2000-2016.Based on statistical yearbooks, we compile disaggregated data on public finances for African countries and find that a high prevalence of corruption distorts the composition of public expenditures at the expense of the share of capital expenditure. Specifically, an increase in corruption by one standard deviation is associated with a decrease in the proportion of capital expenditure from 29\% to 16\%. The results are robust to various specifications and estimation methods, including the fixed effects and instrumental variables approach. The supportive argument demonstrates that it seems more beneficial for corrupted bureaucrats to manipulate public spending in favor of current rather than capital expenditures. The latter relies on formal and traceable procedures, whereas current expenditure is known to be more open to the use of discretionary allocation.
    Keywords: Corruption; capital expenditure; current expenditure; public expenditure; Africa
    JEL: D73 E62 H5 O55
    Date: 2021
  106. By: Esteban Callejas Perez
    Abstract: Remittances amounts on average as two thirds of the FDI inflows of emerging economies. Literature on development and remittances coincides on the fact that when remittances are used as an investment, this investment generally materializes as housing. This work in progress proposes to fill a gap in the literature on remittances and development by studying what is the relation between remittances and housing prices at the aggregate level. This is done by regressing remittances against housing prices and housing approvals taking the Colombian economy as a case of study. The conclusions of the preliminary econometric exercice, suggest that remittances seem to increase the relative supply of housing which in turn reduces housing prices.
    Keywords: Remittances, Macroeconomic Analysis of Economic Housing Supply and Markets, Housing Demand,
    Date: 2021–03
  107. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: John Maynard Keynes became world famous with the publication of The Economic Consequences of the Peace in 1919, a harsh critique of the Versailles peace treaty. As a consequence, Keynes was nominated by German professors in economics for the Nobel Peace Prize three years in a row, 1922, 1923 and 1924. Because Keynes was put on the shortlist of candidates, he was evaluated in an advisory report in 1923, followed by one in 1924, prepared for the Nobel Committee of the Norwegian parliament. This paper summarizes the two reports on Keynes. The appraisals were highly appreciative of Keynes’s book as well as of his subsequent newspaper and journal articles on the peace treaty, raising the question: why did Keynes not receive the Peace Prize? The appraiser of Keynes even informed Keynes that he was “one of the foremost candidates proposed for the Nobel Peace Prize.” However, the Peace Prize was not awarded in 1923 and 1924 although Keynes was declared a worthy laureate. There are no protocols that shed light on this issue. Still, the events surrounding the evaluation process, in particular the public clash between two advisors of the Prize Committee on Keynes’s account of the negotiations at Versailles, encourage a speculative answer.
    Keywords: John Maynard Keynes; Nobel Peace Prize; Treaty of Versailles; reparations; Dawes Plan; Bretton Woods; Norway
    JEL: A11 B10 B31 D70 E12 E60 F30 F50 N10 N40
    Date: 2021–03–03
  108. By: Raphaël Jachnik; Alexander Dobrinevski
    Abstract: This paper explores data and methods to assess the alignment or misalignment with climate mitigation objectives of investments in the construction and refurbishment of residential and non-residential buildings. It takes the United Kingdom (UK) as a case study, where such investments reached GBP 162 billion (EUR 184 billion) in 2019 or 39% of UK gross fixed capital formation. The analysis trials different reference points that lead to varying results and each currently come with limitations in terms of coverage or granularity. Sector-level greenhouse gas (GHG) trajectories indicate that, in aggregate, investments in UK buildings have been insufficient, delayed or not aligned enough with caps set by UK Carbon Budgets, but such trajectories currently lack disaggregation for a more granular and insightful matching with investment data. Energy performance certificates (EPCs) allow for asset-level analyses: for instance, 79% of 2010-2019 investments in new built residential were in relatively energy efficient buildings but only 1% were consistent with more demanding recommendations towards the UK’s objective of reaching net-zero GHG in 2050. The coverage and reliability of EPCs, however, needs to be improved for older buildings, whose deep retrofitting is a major financing challenge. Applying Climate Bonds Initiative criteria for low-carbon buildings identifies investments eligible for green bond financing, but such criteria have partial sectoral coverage and are based on currently most efficient buildings within the existing stock, which makes them relatively easy to meet for investments in new built.Producing more complete and policy relevant assessments of aligned and misaligned investments at national and sectoral levels requires the availability of and access to comparable and granular data on decarbonisation targets and pathways consistent with the Paris Agreement temperature goals, GHG performance of assets, corporate and household investments, as well as underlying sources of financing.
    Keywords: buildings, capital expenditure, climate change, emissions, energy efficiency, finance, investment, low-greenhouse gas development, measurement, scenarios, taxonomy, tracking, United Kingdom
    JEL: E01 E22 G31 G32 H54 Q56 Q54 R31 R33
    Date: 2021–03–29
  109. By: Arrouna Keita (University of Orléans); Camelia Turcu (University of Orléans)
    Abstract: We analyze the impact of natural resource discoveries on fiscal policy, focussing on the effects of expectations due to the discovery of large oil and gas deposits. The response of fiscal policy to resource discoveries is analyzed through changes in its cyclicality. To do this, we use a Local Projection method on two country-groups: high- and upper-middle-income countries (HMICs) and low- and lower-middle-income countries (LMICs) over the period 1984-2012. Our results show that natural resource discoveries do drive a fiscal policy response in HMICs and LMICs. Indeed, following the announcement of a natural resource discovery, we observe, around the first year after the discovery, the beginning of an increasing contracyclicality in total public spending in the HMICs. This contracyclicality is stronger in the presence of fiscal rules, and the response of fiscal policy is faster in the presence of good institutions. Overall HMICs have a disciplined response to a shock of natural resource discoveries. However, for LMICs, discovery shocks have different effects depending on the type of public spending: for public consumption expenditure, there is an increasing procyclicality starting from the first year after discovery, whereas for public investment expenditure, this procyclicality begins in the second year after discovery, after a slight contracyclicality before. These results are robust to different sample sizes, different specifications and various measures of the cyclicality coefficient.
    Keywords: Natural resources discoveries, Fiscal policy, Institutions, Fiscal rules, Local projections
    JEL: E
    Date: 2020
  110. By: Paul Mizen; Frank Packer; Eli Remolona; Serafeim Tsoukas
    Abstract: In this paper, we focus on the surprising phenomenon in which firms face difficulty issuing in domestic currency even in the home market, especially in emerging markets. Could this be due to "original sin" which has been familiar to sovereign bond issuance? In its new incarnation, original sin refers to the difficulty firms in many emerging markets have in borrowing domestically long-term, even in the local currency. We infer the nature of original sin from 5,901 financing decisions by firms in seven Asian emerging markets over a period of 20 years. Our sample period covers an episode when bond issuers had a choice between a less developed but growing onshore market, which varied across countries in the level of development, and a deep and liquid offshore market. We find that even in countries with onshore markets, it is often easier for unseasoned firms to issue offshore (in foreign currency) than to issue onshore, but changes in market development reverses this effect. In addition, once such a firm becomes a seasoned issuer, it is absolved from domestic original sin and is then able to act opportunistically and go to the market favored by interest differentials.
    Keywords: bond financing, offshore markets, emerging markets, market depth, global credit
    JEL: C23 E44 F32 F34 G32 O16
    Date: 2021–03
  111. By: Muhamad Khalil Omar (Faculty of Business and Management, Universiti Teknologi MARA, Selangor, Malaysia Author-2-Name: Nor Aidillah Jamhari Author-2-Workplace-Name: Faculty of Business and Management, Universiti Teknologi MARA, Selangor, Malaysia Author-3-Name: Yusmazida Mohd Yusoff Author-3-Workplace-Name: Faculty of Business and Management, Universiti Teknologi MARA, 40450 Shah Alam, Selangor, Malaysia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Turnover has become a worldwide problem that has puzzled organizations, researchers and experts for years. This study is focused on practices of iHRM that consist of Islamic Staffing, Islamic human resources management, Islamic performance management and Islamic compensation and turnover intention among employees at Islamic Religious Council. This study has 3 research objectives. Firstly, to identify the level of the iHRM. Secondly, to identify the level of turnover intention. Thirdly, to investigate the relationship between iHRM and turnover intention. Methodology/Technique - 300 questionnaires were distributed to all employees at one of Islamic Religious Council in Malaysia as sample for this study and a stratified random sampling method was used. Findings - The research concludes that the level of iHRM and turnover intention is high. The relationship between iHRM and turnover intention also has a positive effect. Novelty - This research is one of few studies to examine the relationship between iHRM and turnover intention. Type of Paper - Empirical.
    JEL: E24 M12
    Date: 2021–03–31
  112. By: Luis Ayala (Facultad de Derecho, Universidad Nacional de Educación a Distancia, Madrid, ES); Ana Herrero-Alcade (Facultad de Derecho, Universidad Nacional de Educación a Distancia, Madrid, ES); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: This paper analyzes the determinants of welfare benefit levels within a highly fiscally decentralized context. More specifically, we analyze the role of mimicking as a driver of the institutional design of subnational government policies in the absence of federal co-ordination and financing. Empirically, we focus on the welfare benefit programs of Spanish regional governments during the period 1996-2015. Our results strongly support the significant role played by mimicking: regional public agents observe what their peers are doing and act accordingly, and this holds even in a context of low mobility of households.
    Date: 2021–03
  113. By: Fabio C. Bagliano; Carolina Fugazza; Giovanna Nicodano
    Abstract: How should workers invest over the life-cycle? Should they follow some typical prescriptions (“rules of thumb”) in personal finance implying higher equity investments when young? We show that the answer hinges on the risk of long-term unemployment spells, entailing permanent declines in workers’ future earnings prospects. Absent unemployment risk, extant prescriptions deliver portfolios that are close to optimal, implying negligible welfare losses. They instead lead to sizable welfare losses (3-9% of annual consumption) when the risk of human capital depreciation following long term unemployment is considered and realistically calibrated to the U.S. labor market. These losses stem from excess risk taking when young investors face uncertainty about future labor and pension incomes. This result points to a new design for pension plans offered by long-term institutional investors.
    Keywords: welfare, life-cycle portfolio choice, unemployment risk, long term unem ployment, age rules.
    JEL: D15 E21 G11
    Date: 2020
  114. By: Susanto Basu (Boston College); Luigi Pascali (Universitat Pompeu Fabra and University of Warwick); Fabio Schiantarelli (Boston College); Luis Serven (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.
    Keywords: Productivity, welfare, TFP, Solow residual.
    JEL: D24 D90 E20 O47
    Date: 2020–06
  115. By: Ljubica Dordevic; Caio Ferreira; Moses Kitonga; Katharine Seal
    Abstract: The paper employs two complementary strategies. First, it is pursues textual analysis (text mining) of the assessment reports to identify successes and challenges the authorities are facing. Second, it analyzes the grades in the Basel Core Principles assessments, including their evolution and association with bank fragility.
    Keywords: Bank supervision;Bank regulation;Basel Core Principles;Global financial crisis of 2008-2009;Macroprudential policy;Bank Supervision;Bank Regulation;Basel Accords;Basel Core Principles;Global Financial Crisis;Prudential Requirements
    Date: 2021–03–18

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