nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒04‒05
98 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Hiring Stimulus and Precautionary Savings in a Liquidity Trap By Rubén Domínguez Díaz
  2. A Monetary Policy Rule using Gravity Models By Peña, Guillermo
  3. La flexibilidad de un instrumento de política monetaria: El caso de las LEBAC en Argentina By Jorge Carrera; Gaspar Maciel; Esteban Rodríguez
  4. The interaction between macroprudential and monetary policies: The cases of Norway and Sweden By Jin Cao; Valeriya Dinger; Anna Grodecka-Messi; Ragnar Juelsrud; Xin Zhang
  5. Estimating hysteresis effects By Francesco Furlanetto; Ørjan Robstad; Pål Ulvedal; Antoine Lepetit
  6. Norges Bank Output Gap Estimates: Forecasting Properties, Reliability and Cyclical Sensitivity By Francesco Furlanetto; Kåre Hagelund; Frank Hansen; Ørjan Robstad
  7. A global database on central banks' monetary responses to Covid-19 By Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
  8. Optimal Lockdown in an Epidemiological-Macroeconomic Model By Paul Levine; Neil Rickman
  9. Financial Conditions and Downside Risk to Economic Activity in Australia By Luke Hartigan; Michelle Wright
  10. Financial and Total Wealth Inequality with Declining Interest Rates By Daniel L. Greenwald; Matteo Leombroni; Hanno Lustig; Stijn Van Nieuwerburgh
  11. Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution By Joachim Hubmer; Pascual Restrepo
  12. Why Are Fiscal Multipliers Moderate Even Under Monetary Accommodation? By Christian Bredemeier; Falko Juessen; Andreas Schabert
  13. A Review on Output-Inflation Trade-off Based on New Classical and New Keynesian Theories By Sim, Chong Yang
  14. Unobserved components models with stochastic volatility for extracting trends and cycles in credit By O'Brien, Martin; Velasco, Sofia
  15. The Evolution of the Earnings Distribution in a Volatile Economy: Evidence from Argentina By Blanco, Andrés; Diaz de Astarloa, Bernardo; Drenik, Andres; Moser, Christian; Trupkin, Danilo
  16. SVARs With Occasionally-Binding Constraints By S. Borağan Aruoba; Marko Mlikota; Frank Schorfheide; Sergio Villalvazo
  17. Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States By Nakatani, Ryota
  18. The Voice of Monetary Policy By Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
  19. The link between unemployment and real economic growth in developed countries By Kitov, Ivan
  20. Exchange Rate Pass-Through to Consumer Prices in Turkey: Nonparametric Kernel Estimation Evidence By Yilmaz, Nejat; Yucel, Eray
  21. The ins and outs of the gender unemployment gap in the OECD By Lydon, Reamonn; Simmons, Michael
  22. Multiple credit constraints and timevarying macroeconomic dynamics By Ingholt, Marcus Mølbak
  23. El excedente económico en economías periféricas: una perspectiva teórica desde los aportes de Baran, Prebisch y Furtado By Manuel Rubio-García; Santiago Castaño-Salas
  24. Fed communication on financial stability concerns and monetary policy decisions: revelations from speeches By Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
  25. The Economic Impact of Yield Curve Compression: Evidence from Euro Area Forward Guidance and Unconventional Monetary Policy By Goodhead, Robert
  26. Keynes’s finance, the monetary and demand-led circuits: a Sraffian assessment By Sergio Cesaratto; Riccardo Pariboni
  28. Caída y convergencia mundial de las tasas de inflación By Carlos Esteban Posada Posada; Wilman Gómez; Remberto Rhenals
  29. Intergenerational redistributive effects of monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  30. Volatility and Economic Systems: Evidence from A Large Transitional Economy By Wang, Boqun; Yang, Dennis Tao
  31. News media vs. FRED-MD for macroeconomic forecasting By Jon Ellingsen; Vegard H. Larsen; Leif Anders Thorsrud
  32. Searching for Hysteresis By Luca Benati; Thomas A. Lubik
  33. Monetary Policy and the Racial Unemployment Rates in the US By Hamza Bennani
  34. Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil By Engbom, Niklas; Gonzaga, Gustavo; Moser, Christian; Olivieri, Roberta
  35. The interaction of forward guidance in a two-country new Keynesian model By Ida, Daisuke; Iiboshi, Hirokuni
  36. Rising Stocks during Lockdown Economic Recessions: Explaining the Phenomenon By Vasconcelos Costa, André
  37. Uncertainty and Monetary Policy during the Great Recession By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  38. Suisse stock return, Macro Factors, and Efficient Market ‎Hypothesis: evidence from ARDL model By NEIFAR, MALIKA
  39. Technical progress and involuntary unemployment under deflation with real balance effect and fiscal policy for full-employment By Tanaka, Yasuhito
  40. Branch Expansion versus Digital Banking: The Dynamics of Growth and Inequality in a Spatial Equilibrium Model By Yan Ji; Songyuan Teng; Robert Townsend
  41. Cross-Country Unemployment Insurance, Transfers, and Trade-Offs in International Risk Sharing By Zeno Enders; David A. Vespermann
  42. The Mortgage Piggy Bank: Building Wealth through Amortization By Asaf Bernstein; Peter Koudijs
  43. Macroeconomic Dynamics and Reallocation in an Epidemic: Evaluating the "Swedish Solution" By Dirk Krueger; Harald Uhlig; Taojun Xie
  44. Childcare Support and Public Capital in an Ultra-Declining Birthrate Society By Miyake, Yusuke
  45. Consequence of Heterogeneous Economic Rents under the MDC-based Procedure By Harashima, Taiji
  46. Long-run neutrality of money and inflation in Spanish economy, 1830-1998 By Rafael Emilio Congregado; Vicente Esteve
  47. Price-setting in the foreign exchange swap market: Evidence from order flow By Olav Syrstad; Ganesh Viswanath-Natraj
  48. Actividad económica en Galicia 2020. Una contracción histórica condicionada por la evolución del COVID By González Laxe, Fernando; Armesto Pina, José Francisco; Sanchez-Fernandez, Patricio
  49. Nowcasting Quarterly GDP Growth in Suriname with Factor-MIDAS and Mixed-Frequency VAR Models By Bhaghoe, Sailesh; Ooft, Gavin
  50. Financialisation and macroeconomic regimes in emerging capitalist economies before and after the Great Recession By Akcay, Ümit; Hein, Eckhard; Jungmann, Benjamin
  51. Multivariate Causality between Stock price index and Macro variables: ‎evidence from Canadian stock market By NEIFAR, MALIKA
  52. An econometric analysis of the effectiveness of fiscal and monetary policies in India By Nadar, Anand
  53. Occasionally Binding Constraints in Large Models: A Review of Solution Methods By Jonathan Swarbrick
  54. Credit Cycles, Fiscal Policy, and Global Imbalances By Callum Jones; Pau Rabanal
  55. Macroeconomic Stability and Inclusive Growth By Hamid R Davoodi; Peter J Montiel; Anna Ter-Martirosyan
  56. Ambiguous business cycles: a quantitative assessment By Sumru Altug; Fabrice Collard; Cem Çakmaklı; Sujoy Mukerji; Han Özsöylev
  57. Structural Changes in Investment and the Waning Power of Monetary Policy By Bloesch, Justin; Weber, Jacob P.
  58. Identification at the Zero Lower Bound By Sophocles Mavroeidis
  59. Regional multipliers across the Italian regions By Sergio Destefanis; Mario Di Serio; Matteo Fragetta
  60. Influenza Pandemics and Macroeconomic Fluctuations in Recent Economic History By Fraser Summerfield; Livio Di Matteo
  61. Impacto de IED en la productividad y salarios en México By Idalid Alamilla-Gachuz; María del Carmen Cervantes-Siurob; Krisztina E. Lengyel-Almos
  62. Countercyclical capital requirement reductions, state dependence and macroeconomic outcomes By Elif C. Arbatli-Saxegaard; Ragnar E. Juelsrud
  63. Imperfect Exchange Rate Pass-through: Empirical Evidence and Monetary Policy Implications By Maryam Mirfatah; Vasco J. Gabriel; Paul Levine
  64. Money supply is endogenous and the Venezuelan hyperinflation is a monetary phenomenon By Juan Barredo-Zuriarrain
  65. Forecasting inflation with twitter By J. Daniel Aromí; Martín Llada
  66. Information Frictions among Firms and Households By Sebastian Link; Andreas Peichl; Christopher Roth; Johannes Wohlfart
  67. Monetary and macroprudential policy complementarities: Evidence from European credit registers By Carlo Altavilla; Luc Laeven; José-Luis Peydró
  68. Monetary Policy, Inflation, and Distributional Impact: South Africa’s Case By Ken Miyajima
  69. Capital Markets, COVID-19 and Policy Measures By Khalid ElFayoumi; Martina Hengge
  70. Stochastic Earnings Growth and Equilibrium Wealth Distributions By Thomas J. Sargent; Neng Wang; Jinqiang Yang
  71. Vue d’ensemble de la COVID-19 : De la définition aux effets spillovers macroéconomiques By PINSHI, Christian P.
  72. COVID-19, recession and fall in real wages in Argentina. Who will be most affected? By Jorge Eduardo Camusso; Ana Inés Navarro
  73. The Impact of Remittance Flow on Real Effective Exchange Rate: Empirical Evidence from The Gambia By Joof, Foday; Touray, Sheriff
  74. The Multiple Dimensions of Liquidity By Garabedian, Garo; Inghelbrecht, Koen
  75. A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data By Philip Du Caju; Guillaume Périlleux; François Rycx; Ilan Tojerow
  76. Labor share and income distribution: Size of the cake or the cake portion? By Anelí Bongers; Benedetto Molinari; José L. Torres
  77. The spatial dimension of productivity in Italian co-operatives By OECD
  78. An evaluation of IFIs impact on EU countries budget deficits By Capraru, Bogdan; Georgescu, George; Sprincean, Nicu
  79. Facing the Global Financial Cycle: What Role for Policy By Nicoletta Batini; Luigi Durand
  80. Sweden; 2021 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  81. The Role of the Largest Companies in the Finnish Economy By Ali-Yrkkö, Jyrki; Ylhäinen, Ilkka; Pajarinen, Mika; Kuusi, Tero
  82. Employment and Labour Market Vulnerabilities during COVID-19. The Case of Romania By CHIVU, LUMINITA; GEORGESCU, GEORGE
  83. Labor and Product Market Reforms and External Imbalances: Evidence from Advanced Economies By Romain A Duval; Davide Furceri; João Tovar Jalles
  84. Barriers to Black Entrepreneurship: Implications for Welfare and Aggregate Output over Time By Pedro Bento; Sunju Hwang
  85. Public capital and productive economy profits: evidence from OECD economies By Trofimov, Ivan D.
  86. Real GDP per capita: global redistribution of economic power By Kitov, Ivan
  87. Inflation Expectations of Euro Area Consumers and Firms By Parle, Conor; Zekaite, Zivile
  88. Rara Avis: Latin American populism in the 21st century By Luciano Campos; Agustín Casas
  89. Southern and Northern Italy in the Great Divergence: New Perspectives from the Occupational Structure By David Chilosi; Carlo Ciccarelli
  90. Property funds and the Irish commercial real estate market By Daly, Pierce; Moloney, Kitty; Myers, Samantha
  91. Implications of Diagnostic Expectations: Theory and Applications By Francesco Bianchi; Cosmin L. Ilut; Hikaru Saijo
  92. Does growing up in a recession increase compassion? The case of attitudes towards immigration By Maria Cotofan; Robert Dur; Stephan Meier
  93. Macro-Fiscal Management Practices in Eastern and Southern Africa By Bryn Battersby; Ian Lienert
  94. Sierra Leone; Request for Disbursement under the Rapid Credit Facility By International Monetary Fund
  95. The interaction of forward guidance in a two-country new Keynesian model By Daisuke Ida; Hirokuni Iiboshi
  96. On a standard Method for Measuring the Natural Rate of Interest By Daniel Buncic
  97. Republic of Korea; 2021 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for the Republic of Korea By International Monetary Fund
  98. Cyclical Patterns of Systemic Risk Metrics: Cross-Country Analysis By Plamen K Iossifov; Tomas Dutra Schmidt

  1. By: Rubén Domínguez Díaz (University of Bonn, Institute for Macroeconomics and Econometrics)
    Abstract: This paper assesses the ability of hiring subsidies to stimulate employment. I build a New Keynesian model with equilibrium unemployment and incomplete markets. Quantitatively, I find that an increase in hiring subsidies reduces unemployment more at the zero lower bound than it does during normal times. Central to this result is a precautionary savings channel. By stimulating labor demand, hiring subsidies reduce unemployment risk and precautionary savings. This increases the demand for consumption goods and generates inflationary pressures. At the zero lower bound, higher inflation expectations reduce the real interest rate, further stimulating consumption and hence amplifying the hiring stimulus.
    Keywords: Unemployment risk, precautionary savings, hiring subsidies, zero lower bound
    JEL: E62 E21 E52
    Date: 2021–03
  2. By: Peña, Guillermo
    Abstract: Monetary policy, when rules-based, usually follows rules regarding inflation or output, but not always quantity, endemic and financial endogenous rules that minimize the gap between optimal and current rates of inflation and output. This paper proposes a rules-based monetary policy focused on reducing differences between short-term Treasury bill and implicit pure interest rate given by gravity models. Satisfying this rule is highly explanatory for reaching potential GDP growth, and for inflation targets such as the 2%. The results are confirmed with worldwide data. Central Banks could follow this rule, or combinations with other complementary alternatives, when deciding rates and amounts.
    Keywords: Pure interest, Policy Rules, Financial Services, Marginal Productivity, Value added
    JEL: D78 E43 E44 E52 E58
    Date: 2021–02–09
  3. By: Jorge Carrera; Gaspar Maciel; Esteban Rodríguez
    Abstract: En este trabajo se analiza el principal instrumento de esterilización utilizado por el Banco Central de la República Argentina entre 2002 y 2018: las LEBACs (Letras del Banco Central). Las mismas han tenido distintas versiones a lo largo de los años, de acuerdo al contexto macroeconómico y los objetivos de política de cada momento. En la primera parte del trabajo se presenta de manera analítica: 1) una comparación entre un Banco Central que utiliza un pasivo propio versus otro que realiza operaciones de mercado abierto con títulos de deuda del Gobierno; y 2) un análisis de cómo son afectadas los balances de los distintos agentes de la economía dependiendo de quién suscribe las letras del banco central y de cuál fue el objetivo de la esterilización. En la segunda parte del trabajo se ejemplifica el análisis previo con lo acontecido en la Argentina en las últimas dos décadas.
    Keywords: Monetary policy, Central bank, Sterilization, Financial system, Reserves, Monetary instruments
    JEL: E41 E43 E44 E51 E52
    Date: 2020–11
  4. By: Jin Cao; Valeriya Dinger; Anna Grodecka-Messi; Ragnar Juelsrud; Xin Zhang
    Abstract: To shed light on the interaction between macroprudential and monetary policies, we study the inward transmission of foreign monetary policy in conjunction with domestic macroprudential and monetary policies in Norway and Sweden. Using detailed bank-level data we show how Norwegian and Swedish banks' lending reacts to monetary policy surprises arising abroad, controlling for the domestic macroprudential stance and the interaction between monetary and macroprudential policies. In both countries, the domestic macroprudential policy helps mitigate the effects arising after foreign monetary surprises.
    Keywords: monetary policy, macroprudential policy, policy interactions, bank lending, inward transmission, international bank lending channel
    JEL: E43 E52 E58 F34 F42 G21 G28
    Date: 2020–07–04
  5. By: Francesco Furlanetto; Ørjan Robstad; Pål Ulvedal; Antoine Lepetit
    Abstract: In this paper we extend the standard Blanchard-Quah decomposition to enable fluctuations in aggregate demand to have a long-run impact on the productive capacity of the economy through hysteresis effects. These demand shocks are found to be quantitatively important in the US, in particular if the Great Recession is included in the sample. Demand-driven recessions lead to a permanent decline in employment while output per worker is largely unaffected. The negative impact of a permanent decline in investment (including R&D investment) on productivity is compensated by the fact that the least productive workers are disproportionately hit by the shock and exit the labor force.
    Keywords: hysteresis, structural vector autoregressions, sign restrictions, longrun restrictions, productivity
    JEL: C32 E24 E32
    Date: 2020–10–07
  6. By: Francesco Furlanetto; Kåre Hagelund; Frank Hansen; Ørjan Robstad
    Abstract: This paper documents the suite of models used by Norges Bank to estimate the output gap. The models are estimated using data on GDP, unemployment, inflation, wages, investment, house prices and credit. We evaluate the estimated output gap series in terms of its forecasting properties, its reliability and its cyclical sensitivity to various measures of demand and supply shocks. A simple un-weighted average of the models features a better forecasting performance than each individual model. In addition, it helps predicting inflation in pseudo real-time and exhibits limited variations when new data become available. The summary measure of potential output responds strongly and rapidly to permanent shocks and to narrative measures of technology shocks but, although to a more limited extent, also to transitory shocks.
    Keywords: Output Gap, Forecasting Inflation, Cyclical Sensitivity, Output Gap Revisions
    JEL: C38 E17 E32
    Date: 2020–07–03
  7. By: Carlos Cantú; Paolo Cavallino; Fiorella De Fiore; James Yetman
    Abstract: The Covid-19 pandemic has been a global shock of unprecedented size that has hit most countries around the world. Central banks have responded quickly, on a massive scale. We present a novel database that provides information on central banks' responses to Covid-19 in 39 economies, including both advanced and emerging market economies. Monetary policy announcements are listed and classified under five types of tools: interest rate measures, reserve policies, lending operations, asset purchase programmes and foreign exchange operations. Within each category, the database provides additional information such as maturity, eligible counterparties, types of assets and the availability of fiscal backup. It also indicates whether the policy tool was newly introduced or had been previously deployed. The database has a companion dashboard to visualise the data graphically.
    Keywords: Covid-19 crisis, monetary policy, lending operations, asset purchase programmes, FX policy, reserve policy
    JEL: E43 E44 E52 E58 G01
    Date: 2021–03
  8. By: Paul Levine (University of Surrey and CIMS); Neil Rickman (University of Surrey)
    Abstract: This paper sets out a coherent framework for studying the economic effects of the Covid-19 pandemic, and policies aimed at controlling both the health and economic trade-offs that it poses. It does this by combining two key epidemiological and macroeconomic models: the SIR model and the RBC model. We argue that much of the present literature can be understood using this framework. The SIR-type epidemiology model in the paper has the novel feature of both no-disease and endemic steady states, two possible outcomes of Covid-19. The stability properties of these equilibria are examined and are shown to depend on the reproduction number and also, possibly, on the complex dynamics introduced by `predator-prey' behaviour of the virus. In addition, we show how endogenous social interaction fits within the model. Lockdown - reducing the size of the susceptible population - is then introduced into the RBC model as a social planner's problem. By linking this epidemiolgy model with a simple RBC model, we provide an integrated framework for examining the economic effects of Covid-related policies and the economic cost of lockdown policies of particular scope and duration. In principle an empirical implementation of this framework can be used to deduce the price of a life implied by a particular lockdown policy. Looking forward, extensions of our framework offer the chance to study economic challenges in areas such as debt financing, human capital shocks, or vaccine production and roll-out, all of which are inevitably emerging.
    JEL: C63 D58 E24 E27 E32 E37
    Date: 2021–03
  9. By: Luke Hartigan (Reserve Bank of Australia); Michelle Wright (Reserve Bank of Australia)
    Abstract: We apply the growth-at-risk framework to the Australian economy. This allows us to estimate how important current financial conditions are in explaining future downside risk to key macroeconomic variables. As such, it provides a way to quantify the economic costs of financial instability. In order to implement this framework, we develop a new financial conditions index for Australia and show that it correlates closely with previous episodes of financial instability. We find that more restrictive financial conditions play an important role in explaining downside risk to growth in both GDP and employment and upside risk to changes in the unemployment rate. Our measure of financial conditions is, however, less useful for explaining risks to growth in household consumption and business investment. Overall, the framework provides a useful characterisation of the relationship between financial stability and economic activity in Australia.
    Keywords: downside risk; dynamic factor model; financial conditions; quantile regression
    JEL: C32 C53 C55 E27 E32 E44
    Date: 2021–03
  10. By: Daniel L. Greenwald; Matteo Leombroni; Hanno Lustig; Stijn Van Nieuwerburgh
    Abstract: Financial wealth inequality and long-term real interest rates track each other closely over the post-war period. Faced with lower returns on financial wealth, households with high levels of financial wealth must increase savings to afford the consumption that they planned before the decline in rates. Lower rates beget higher financial wealth inequality. Inequality in total wealth, the sum of financial and human wealth and the relevant concept for household welfare, rises much less than financial wealth inequality and even declines at the top of the wealth distribution. A standard incomplete markets model reproduces the observed increase in financial wealth inequality in response to a decline in real interest rates because high financial-wealth households have a financial portfolio with high duration.
    JEL: E01 E1 E21 E24 E25 E44 G11 G5
    Date: 2021–03
  11. By: Joachim Hubmer; Pascual Restrepo
    Abstract: The decline in the U.S. labor share is far from uniform across firms. While the aggregate labor share has declined, especially in manufacturing, retail, and wholesale, the labor share of a typical firm in these industries has risen. This paper studies the dynamics of the substitution of capital for labor at the firm level and its implications for market structure and labor shares. We introduce a model of firm dynamics where firms make costly upfront investments to adopt the capital-intensive technologies required to automate additional tasks. Following a decline in the price of capital, large firms automate more of their tasks and become more capital intensive; while the median firm continues to operate a more labor-intensive technology. In line with firm-level data, our model generates transitions in which the labor share of the median firm increases at the same time as the aggregate labor share declines. We use an extension of our model that allows for endogenous markups to study the role of rising competition and reallocation towards more productive and higher-markup firms as another driver of the decline in the labor share during 1982–2012. We provide a quantitative decomposition showing that reallocation played a minor role in explaining the decline in the labor share in U.S. manufacturing but an important role in retail and other sectors. The substitution of labor with cheaper capital in a widening range of tasks played a more dominant role in explaining the decline of the manufacturing labor share.
    JEL: E22 E23 E24 E25
    Date: 2021–03
  12. By: Christian Bredemeier; Falko Juessen; Andreas Schabert (UniversityofCologne,CenterforMacroeconomicResearch,Albertus-Magnus-Platz,50931Cologne, Germany)
    Abstract: Estimated fiscal multipliers for the US are typically moderate, despite evidence for the Fed lowering, rather than raising, interest rates after government spending hikes. We rationalize these puzzling observations building on imperfect substitutability of assets. We document empirically that interest rates important for private borrowing/saving do not follow the response of the monetary policy rate, which is reflected by rising liquidity premia after spending hikes. A model with a structural specification of asset liquidity can replicate these findings and predicts moderate output effects fiscal expansions even when monetary policy rates fall or are fixed at the zero lower bound.
    Keywords: Fiscal multiplier, monetary policy, real interest rates, liquidity premium, zero lower bound
    JEL: E32 E42 E63
    Date: 2021–03
  13. By: Sim, Chong Yang
    Abstract: Any economy is potentially subject to demand-side and supply-side shocks, which may cause output and inflation fluctuations. Thus, most economies have some form of macroeconomic stabilisation policies in place to regulate economic fluctuations. Although macroeconomic stabilisation policies are widely used to stabilise the economic fluctuations in an economy, their effectiveness has proven to be somewhat mixed in past literature. Accordingly, this has led to a long-standing debate between the advocates of interventionism and non-interventionism over the past few decades, particularly between the contending views of new classical and new Keynesians. This paper provides a review of literature on output-inflation trade-off based on new classical and new Keynesian views as an attempt to shed light on this matter.
    Keywords: New classical, New Keynesian, demand management policy, output, inflation, trade-off
    JEL: C22 E23 E31 E61
    Date: 2021–02–05
  14. By: O'Brien, Martin (Central Bank of Ireland); Velasco, Sofia (Central Bank of Ireland)
    Abstract: This paper develops a multivariate filter based on an unobserved component trend-cycle model. It incorporates stochastic volatility and relies on specific formulations for the cycle component. We test the performance of this algorithm within a Monte-Carlo experiment and apply this decomposition tool to study the evolution of the financial cycle (estimated as the cycle of the credit-to-GDP ratio) for the United States, the United Kingdom and Ireland. We compare our credit cycle measure to the Basel III credit-to- GDP gap, prominent for its role informing the setting of countercyclical capital buffers. The Basel-gap employs the Hodrick-Prescott filter for trend extraction. Filtering methods reliant on similar-duration assumptions suffer from endpoint-bias or spurious cycles. These shortcomings might bias the shape of the credit cycle and thereby limit the precision of the policy assessment reliant on its evolution to target financial distress. Allowing for a flexible law of motion of the variance covariance matrix and informing the estimation of the cycle via economic fundamentalsweare able to improve the statistical properties and to find a more economically meaningful measure of the build-up of cyclical systemic risks. Additionally, we find a large heterogeneity in the drivers of the credit cycles across time and countries. This result stresses the relevance in macro prudential policy of considering flexible approaches that can be tailored to country characteristics in contrast to standardized indicators.
    Keywords: Credit imbalances, cyclical systemic risk, financial cycle, macroprudential analysis, multivariate unobserved-components models, stochastic volatility .
    JEL: C32 E32 E58 G01 G28
    Date: 2020–12
  15. By: Blanco, Andrés; Diaz de Astarloa, Bernardo; Drenik, Andres; Moser, Christian; Trupkin, Danilo
    Abstract: This paper studies earnings inequality and dynamics in Argentina between 1996 and 2015. Following the 2001--2002 crisis, the Argentine economy transitioned from a low- to a high-inflation regime. At the same time, the number of collective bargaining agreements increased and the minimum wage adjustments became more frequent. We document that this macroeconomic transition was associated with a persistent decrease in the dispersion of real earnings and cyclical movements in higher-order moments of the distribution of earnings innovations. To understand this transition at the micro level, we estimate processes of regular wage adjustments within job spells. As the Argentine economy transitioned from low to high inflation, the monthly frequency of regular wage adjustments almost doubled, while the distribution of changes in regular wages morphed from having a mode close to zero and being positively skewed to having a positive mode and being more symmetric.
    Keywords: Income Inequality, Income Volatility, Income Mobility, Wage Rigidity, Inflation
    JEL: D31 E24 E31 J31
    Date: 2021–02–04
  16. By: S. Borağan Aruoba; Marko Mlikota; Frank Schorfheide; Sergio Villalvazo
    Abstract: We develop a structural VAR in which an occasionally-binding constraint generates censoring of one of the dependent variables. Once the censoring mechanism is triggered, we allow some of the coefficients for the remaining variables to change. We show that a necessary condition for a unique reduced form is that regression functions for the non-censored variables are continuous at the censoring point and that parameters satisfy some mild restrictions. In our application the censored variable is a nominal interest rate constrained by an effective lower bound (ELB). According to our estimates based on U.S. data, once the ELB becomes binding, the coefficients in the inflation equation change significantly, which translates into a change of the inflation responses to (unconventional) monetary policy and demand shocks. Our results suggest that the presence of the ELB is indeed empirically relevant for the propagation of shocks. We also obtain a shadow interest rate that shows a significant accommodation in the early parts of the Great Recession, followed by a mild and steady accommodation until liftoff in 2016.
    JEL: C11 C22 C34 E32 E52
    Date: 2021–03
  17. By: Nakatani, Ryota
    Abstract: How should small states formulate a countercyclical fiscal policy to achieve economic stability and fiscal sustainability when prone to natural disasters, climate change, commodity price changes, and uncertain donor grants? We study how natural disasters and climate change affect long-term debt dynamics and propose cutting-edge fiscal policy rules. We find the advantages of a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. Our rule-based fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of devastating natural hazards and climatic change.
    Keywords: Fiscal Rule; Natural Disaster; Climate Change; Pacific Islands; Debt Sustainability; Recurrent Expenditure; Resource Revenue; Papua New Guinea; Countercyclical Fiscal Policy; Grants
    JEL: E32 E62 H5 H6 O23 O44 Q22 Q54 Q58
    Date: 2021–02–10
  18. By: Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
    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.
    JEL: D84 E31 E58 G12
    Date: 2021–03
  19. By: Kitov, Ivan
    Abstract: Ten years ago we presented a modified version of Okun’s law for the biggest developed economies and reported its excellent predictive power. In this study, we revisit the original models using the estimates of real GDP per capita and unemployment rate between 2010 and 2019. The initial results show that the change in unemployment rate can be accurately predicted by variations in the rate of real economic growth. There is a discrete version of the model which is represented by a piecewise linear dependence of the annual increment in unemployment rate on the annual rate of change in real GDP per capita. The lengths of the country-dependent time segments are defined by breaks in the GDP measurement units associated with definitional revisions to the nominal GDP and GDP deflator (dGDP). The difference between the CPI and dGDP indices since the beginning of measurements reveals the years of such breaks. Statistically, the link between the studied variables in the revised models is characterized by the coefficient of determination in the range from R2=0.866 (Australia) to R2=0.977 (France). The residual errors can be likely associated with the measurement errors, e.g. the estimates of real GDP per capita from various sources differ by tens of percent. The obtained results confirm the original finding on the absence of structural unemployment in the studied developed countries.
    Keywords: unemployment, GDP, modelling, Okun’s law
    JEL: E1 E3 E32 E50 J64
    Date: 2021–02–07
  20. By: Yilmaz, Nejat; Yucel, Eray
    Abstract: Exchange rate pass-through (ERPT) in the Turkish economy appeared again, especially after mid-2018 when policies to re-balance and soft-land the economy failed to a wide extent. Such re-appearance of the feedback from exchange rates to domestic prices deserves investigative efforts, having recalled that part of the stabilization success of the Central Bank of Turkey in early 2000s directly stemmed from its ability to reduce ERPT. In this paper, we aim to contribute to current policy discussions on Turkey by presenting our nonparametric kernel-based density function and regression estimates of the pass-through effect. Our findings are indicative not only of a sizable level of ERPT but also of its dependence on the size of currency depreciation.
    Keywords: Exchange Rate; Currency Depreciation; Pass-through to Inflation; Consumer Prices; Monetary Policy; Inflation Targeting; Central Bank Performance
    JEL: C51 E52 E58
    Date: 2021–02–08
  21. By: Lydon, Reamonn (Central Bank of Ireland); Simmons, Michael (University of London)
    Abstract: Variations in the unemployment rates of men and women often differ markedly. To understand the dynamics of the gender unemployment gap, this paper estimates the inflows to, and outflows from, unemployment by gender for 18 OECD countries over the last four decades. Whilst there are are cross-country differences in the relative contribution of inflows and outflows by gender, there is a clear common pattern: differences in the variations of the inflow of unemployment explain the majority of the dynamics of the gender unemployment gap for all countries under study. Specifically, in the recessions covered by our data, the flow of males into unemployment is typically larger than the flow of females into unemployment. Using data on output by sector, we show that a candidate explanation for these results for each country is the differing gender composition by sector. Over the four decades of data we analyse, and across all countries, females were more likely to work in sectors less exposed to economic downturns.
    Keywords: Unemployment, gender, inflows, outflows, dynamics.
    JEL: E24 E32 J16 J6
    Date: 2020–12
  22. By: Ingholt, Marcus Mølbak
    Abstract: I explore the macroeconomic implications of borrowers facing both loan-to-value (LTV) and debt-service-to-income (DTI) limits, using an estimated DSGE model. I identify when each constraint dominated over the period 1984-2019: LTV constraints dominate in contractions, when house prices are relatively low – and DTI constraints dominate in expansions, when interest rates are relatively high. I also find that DTI standards were relaxed during the mid-2000s’ boom, and that lower DTI limits or higher interest rates, but not lower LTV limits, would have prevented the boom. Finally, county panel data attest to multiple credit constraints as a source of nonlinear dynamics.
    Keywords: multiple credit constraints, nonlinear estimation of DSGE models, state-dependent credit origination
    JEL: C33 D58 E32 E44
    Date: 2020–08–28
  23. By: Manuel Rubio-García; Santiago Castaño-Salas
    Abstract: Resumen: En la teórica económica, la perspectiva del excedente económico –EE– tiene una doble importancia en las economías periféricas. En primer lugar, su esquema teórico incorpora la cuestión del patrón de desarrollo, esto es, el análisis del grado de cambio en las estructuras productivas y ocupacionales, y en correspondencia, de las transformaciones tanto en la distribución del ingreso como en el perfil de la inserción externa de una formación social dada (Vera, 2013). En segundo lugar, esta perspectiva teórica permite el análisis histórico de diferentes patrones de desarrollo, cuya explicación está centrada en el perfil del conflicto distributivo. En el presente artículo se realiza una exposición de la perspectiva del excedente económico desde las perspectivas de Baran, Prebisch y Furtado para las economías periféricas, así como también, una aproximación al análisis del grado de desarrollo a partir de la noción de fases de transformación productiva. Se concluye que la perspectiva del EE es útil para comprender el grado de diversificación productiva a partir de la interacción entre puja distributiva –apropiación y uso del EE– y las formas de acumulación de capital.
    Keywords: estructuralismo latinoamericano; excedente económico; capital monopolista; desarrollo económico; diversificación productiva; economías périfericas.
    JEL: B15 B52 B51 E11 E24 F43 O11 O14
    Date: 2020–07–01
  24. By: Klodiana Istrefi (Banque de France); Florens Odendahl (Banco de España); Giulia Sestieri (Banque de France)
    Abstract: This paper studies the informational content of speeches of Fed officials, focusing on financial stability, from 1997 to 2018. We construct indicators that measure the intensity and tone of this topic for both Governors and Fed presidents. When added to a standard forward-looking Taylor rule, a higher topic intensity or negative tone is associated with more monetary policy accommodation than implied by the state of the economy. Our results are mainly driven by the information in speeches of Fed presidents. We discuss several channels to rationalize this finding.
    Keywords: monetary policy, Federal Reserve, financial stability, communication
    JEL: E03 E50 E61
    Date: 2021–03
  25. By: Goodhead, Robert (Central Bank of Ireland)
    Abstract: This paper studies the effects of forward guidance and unconventional monetary policy on financial and macro-economic variables using euro area data. I decompose intra-daily variation in response to communication by the ECB Governing Council using sign-restrictions, with the key identifying assumption being whether expansionary communication shocks steepen the yield curve (a forward guidance shock) or flatten it (a spread compression shock). Central bank “information shocks” are extracted via an additional restriction on equities. I employ recently developed non-parametric estimation methods to estimate a medium-scale time-varying parameter SVAR model with high-frequency identification, allowing consideration of multiple transmission channels simultaneously. Expansionary spread compression shocks markedly reduce volatility and persistently lower spreads, and affect activity and prices in line with theory. Spread compression surprises affect macro-economic variables in a manner comparable to forward guidance surprises. The effects of both forward guidance and yield curve compression surprises on inflation increased in the post-European sovereign debt crisis period, as did their effect on unemployment.
    JEL: E52 C32 C11
    Date: 2021–01
  26. By: Sergio Cesaratto; Riccardo Pariboni
    Abstract: This paper aims to stimulate the convergence of the Sraffian approach to demand-led growth theory with insights from monetary circuit theory and stock-flow models. The first Sraffian contribution to this convergence we identify is the extension of Garegnani’s interpretation of Keynes’ General Theory’s originality and limitations to Keynes’ 1937 papers on “finance.” In both cases, it is a question of freeing Keynes from the ties of marginalist theory. After discussing some troubles of the monetary circuit, we identify a complementarity between the Keynesian concept of finance, some insights of the monetary circuit, and the role attributed by the Sraffian take of demand-led growth to the autonomous components of demand (which are also Kalecki’s external markets). This seems to us to be the second Sraffian contribution to this convergence towards a monetary theory of demand-led growth.
    Keywords: Keynes, Finance, Monetary Circuit, Effective Demand, Supermultiplier
    JEL: B26 E12 E43 E50
    Date: 2021–03
  27. By: Luisito BERTINELLI; Olivier CARDI; Romain RESTOUT
    Abstract: Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the labor market effects of technology shocks biased toward the traded sector. Our VAR evidence for seventeen OECD countries reveals that the non-traded sector alone drives the increase in total hours worked following a technology shock that increases permanently traded relative to non-traded TFP. The shock gives rise to a reallocation of labor which contributes to 35% on average of the rise in non-traded hours worked. Both labor reallocation and variations in labor income shares are found empirically connected with factor-biased technological change. Our quantitative analysis shows that a two-sector open econ- omy model with flexible prices can reproduce the labor market effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. When calibrating the model to country-specific data, its ability to account for the cross-country reallocation and redistributive effects we esti- mate increases once we let factor-biased technological change vary between sectors and across countries..
    Keywords: Sector-biased technology shocks; Factor-augmenting effciency; Open economy; Labor reallocation; CES production function; Labor income share.
    JEL: E25 E32 F11 F41
    Date: 2021
  28. By: Carlos Esteban Posada Posada; Wilman Gómez; Remberto Rhenals
    JEL: C12 C23 E31 E52 E65 F41
    Date: 2021–03–19
  29. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw; Narodowy Bank Polski); Michał Brzoza-Brzezina (SGH Warsaw School of Economics; Narodowy Bank Polski); Marcin Kolasa (SGH Warsaw School of Economics)
    Abstract: This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profiles of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations.
    Keywords: monetary policy, life-cycle models, wealth redistribution
    JEL: E31 E52 J11
    Date: 2021
  30. By: Wang, Boqun; Yang, Dennis Tao
    Abstract: This is the �rst paper to study the role played by economic transition in reducing output volatility. A dramatic decline in aggregate output volatility in China from central planning to market-oriented reforms in the past half century is documented in this paper. The output volatility measured by the standard deviation of real gross domestic product (GDP) growth over the speci�ed rolling windows declined by 73% from 1953-�1977 to 1978�-2008. The sharpest reduction occurred in 1978 when China began to initiate a series of market reforms. Since the inception of these reforms, the volatility continued to decline, dropping more than 30% from 1978-�1994 to 1995�-2008. During the planning period, the co-movements in the provincial output, which re�flected the systemic risks associated with the highly centralized economic and political systems in China, were found to be the primary source of the high output volatility.
    Keywords: Output Volatility Moderation, Transitional Economy, China
    JEL: C33 E31 E32 J00 R00
    Date: 2021
  31. By: Jon Ellingsen; Vegard H. Larsen; Leif Anders Thorsrud
    Abstract: Using a unique dataset of 22.5 million news articles from the Dow Jones Newswires Archive, we perform an in depth real-time out-of-sample forecasting comparison study with one of the most widely used data sets in the newer forecasting literature, namely the FRED-MD dataset. Focusing on U.S. GDP, consumption and investment growth, our results suggest that the news data contains information not captured by the hard economic indicators, and that the news-based data are particularly informative for forecasting consumption developments.
    Keywords: forecasting, real-time, machine learning, news, text data
    JEL: C53 C55 E27 E37
    Date: 2020–10–08
  32. By: Luca Benati; Thomas A. Lubik
    Abstract: We search for the presence of hysteresis, which we dene as aggregate demand shocks that have a permanent impact on real GDP, in the U.S., the Euro Area, and the U.K. Working with cointegrated structural VARs, we nd essentially no evidence of such effects. Within a Classical statistical framework, it is virtually impossible to detect such shocks. Within a Bayesian context, the presence of these shocks can be mechanically imposed upon the data. However, unless a researcher is willing to impose the restriction that the sign of their long-run impact on GDP is the same for all draws, which amounts to imposing the very existence of hysteresis e⁄ects, the credible set of the permanent impact uniformly contains zero. We detect some weak evidence only for the U.K., originating from an increase in labor force participation and a fall in the unemployment rate.
    Keywords: Bayesian methods; Transitory Shocks; GDP Growth
    JEL: E2 E3
    Date: 2021–02–01
  33. By: Hamza Bennani
    Abstract: This paper analyses the effects of monetary policy on labor market responses of different racial groups in the US from 1970-2013. Employing a narrative approach to identify monetary policy shocks and local projections, we find that monetary policy has a significant impact on White's unemployment rate. Empirical evidence indicates that an accommodative monetary shock affects positively and significantly White workers, while the effect on African-American workers is more uncertain and not significant for the Hispanic workers. These results are robust when considering unconventional monetary policy measures in the specification and when exploring the impact of monetary policy on different genders and age groups. Finally, we highlight that these results are mainly driven by a \enquote{recession effect}, whereby as a result of occupational, segregation minorities do not benefit from the Federal Reserve's accommodative monetary policy during recessions. Our findings suggest that monetary policy is ineffective in reducing the unemployment gap among minorities in the US, and that the Fed should specifically target the African-American unemployment rate in its reaction function. Finally, structural policies that aim to improve the skills of minorities and the fight against racial discrimination in the labor market, in particular during recessions, are also likely to mitigate the racial unemployment gap.
    Keywords: minorities; monetary policy; employment.
    JEL: E52 E58
    Date: 2021
  34. By: Engbom, Niklas; Gonzaga, Gustavo; Moser, Christian; Olivieri, Roberta
    Abstract: Using a combination of rich administrative and household survey data, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil's formal sector. Higher-order moments of the distribution of earnings innovations show similar cyclical movements in Brazil as in developed countries like the U.S. Earnings mobility is comparatively high, especially at the bottom of the distribution. Compared to the formal sector, earnings are more volatile in the informal sector. Workers who switch between sectors experience earnings innovations that have a positive mean and are positively skewed when moving to the formal sector but have a negative mean and are negatively skewed when moving to the informal sector. A secular shift of employment toward the less volatile formal sector since the early 2000s has contributed to a decline in the economy-wide volatility of earnings.
    Keywords: Earnings Inequality, Earnings Volatility, Earnings Mobility, Informality.
    JEL: D31 D33 E24 E26 J31 J46 J62
    Date: 2021–02–02
  35. By: Ida, Daisuke; Iiboshi, Hirokuni
    Abstract: Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation.
    Keywords: Forward guidance; Zero lower bound on nominal interest rates; Two-country new-Keynesian model; Taylor rule
    JEL: E52 E58 F41
    Date: 2021–03–22
  36. By: Vasconcelos Costa, André
    Abstract: Whilst facing an economic recession, stock prices have been rising consistently since late March of 2020, which has been viewed by many as paradoxical and has led some to consider that the stock market does not represent the real economy. The aim of this paper is to offer a simple, coherent explanation which is capable of showing why this is actually a phenomenon to be expected during the implementation of lockdown measures. The theoretical tool through which this is accomplished is the Life Cycle/Permanent Income Hypothesis and its consumption smoothing implications. I show that the exceptional inability to smooth consumption under current circumstances has been the cause of unprecedented increases in savings which find the stock market as one of their natural destinations.
    Keywords: Stocks, Consumption Smoothing, Permanent Income, COVID-19, Lockdown, Recession.
    JEL: E21 E3 G1
    Date: 2021–03–18
  37. By: Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University); Efrem Castelnuovo (University of Padova); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: We employ a nonlinear VAR framework and a state-of-the-art identification strategy to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We then use the estimated framework to quantify the output loss due to the large uncertainty shock that materialized in 2008Q3. We find such a shock to be able to explain about 60% of the output loss in the 2008-2014 period. The same estimated model unveils the role successfully played by the Federal Reserve in limiting the output loss that would otherwise have occurred had monetary policy been conducted as in normal times. Finally, we show that the rule estimated during the great recession is able to deliver an economic outcome closer to the flexible price one than the rule describing the Federal Reserve’s conduct in normal times.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession
    JEL: C22 E32 E52
    Date: 2021–03–26
    Abstract: This study investigates the short run and the long run equilibrium ‎relationship between Suisse stock market (SSM) prices and a set of ‎macroeconomic variables (inflation, interest rate, and exchange rate) using ‎Monthly data for the period 1999:1 to 2018:4. Different specifications and ‎tests will be carried out, namely unit root tests (ADF and PP), Vector Auto ‎Regression (VAR) to select the optimal lag length and for Granger causality ‎and Toda and Yamamoto (TY) Wald non causality testing, VEC Model and ‎‎(Johansen, 1988)’ test for no cointegration, and ARDL framework and FPSS ‎test of no cointegration hypothesis. ECM representation of the ARDL ‎model confirm temporal causality between (inflation, interest rate, exchange ‎rate) and the stock price. There is dynamic short run adjustment and long ‎run stable equilibrium relationship between macroeconomic variables ‎‎(except exchange rate) and stock prices in the SSM. This imply that the ‎SSM is informationally inefficient because publicly available information on ‎macroeconomic variables (inflation and interest rate) can be potentially used ‎in predicting Suisse stock prices.‎
    Keywords: Suisse Stock market efficiency; Macroeconomic variables; Causality; cointegration; ARDL ‎model‎
    JEL: C32 E44 G14
    Date: 2021–01–30
  39. By: Tanaka, Yasuhito
    Abstract: We study the steady state with involuntary unemployment and fiscal policy to realize full-employment in a situation with technical progress. Under involuntary unemployment the nominal wage rate may decline. Then, the prices of the goods also decline, and the real balance effects work. In a three-generations OLG model of this paper consumptions in the childhood period are financed by borrowing money from the previous generation consumers, and these debts must be repaid in the next period. In such a model there may exist positive or negative real balance effect of decline of the nominal wage rate and the prices. Among others we show the following results. If the deflation (nominal wage rate decline) rate is equal to the technical progress rate, in order to maintain a steady state with constant employment a balanced budget is required. If the deflation rate is smaller than the technical progress rate and there exists a positive (or negative) real balance effect, in order to maintain a steady state with constant employment a budget deficit (surplus) is required. Also we show that fiscal policy to realize full-employment usually requires larger budget deficit. These budget deficits, including those for maintaining full-employment, should be financed by seigniorage not by public debt. If they are financed by public debts, they do not have to be repaid. Conversely, the budget surplus in some cases should not be returned to consumers as tax reduction.
    Keywords: Involuntary unemployment, Three-periods overlapping generations model, Technical progress, Deflation, Real balance effect.
    JEL: E14 E24
    Date: 2021–03–19
  40. By: Yan Ji; Songyuan Teng; Robert Townsend
    Abstract: We develop a heterogeneous-agent model with local spatial markets to study the relationships among bank expansion, growth, and inequality. In the model, households choose their occupations, consumption, and holdings of loans and portfolio assets that vary by liquidity. Banks choose the locations of new branches, which affect the financial frictions facing households across regions. We calibrate the model using a geographic information system to evaluate the rapid bank expansion in Thailand between 1986-1996. The model quantifies the sources of growth and inequality over time and across space and the potential role of digital banking in substantially reducing regional heterogeneity.
    JEL: C54 E23 E44 F43 O11 O16 R11 R13
    Date: 2021–03
  41. By: Zeno Enders; David A. Vespermann
    Abstract: We assess to which degree an international transfer mechanism can enhance consumption risk sharing as well as allocative efficiency and apply our results to the implicit transfers generated by a potential European unemployment benefit scheme (EUBS). Specifically, we first develop a simple model with nominal rigidities to build intuition by deriving analytical results. We then use a rich DSGE model, calibrated to the Core and the Periphery of the euro area, to quantitatively analyze the changing dynamics that a EUBS brings about. We find that a EUBS can provide risk sharing by stabilizing relative consumption as well as unemployment differentials. Following supply shocks, however, the cross-country transfer embodied in the unemployment benefits is spent to a large degree on relatively inefficiently produced goods in the receiving countries. This renders the allocation even more inefficient by opening country-specific labor wedges further, also after government-spending shocks. Yet, since this trade-off between allocative efficiency and consumption risk sharing does not exist after certain demand shocks, the welfare effects of a EUBS depend on the cause for international unemployment differentials. A EUBS that is only active after specific shocks would therefore maximize overall welfare. Even without this feature, a EUBS would raise Core’s welfare in the quantitative model, leaving Periphery’s welfare almost unchanged.
    Keywords: cross-country transfers, international unemployment insurance, EMU European business cycles, optimum currency area, structural reforms
    JEL: F45 F44 E32
    Date: 2021
  42. By: Asaf Bernstein; Peter Koudijs
    Abstract: Mortgage amortization schedules are illiquid savings plans comparable in size to pension programs; however, little is known about their effects on wealth accumulation. Using individual administrative data and plausibly exogenous variation in the timing of home purchase (ex. childbirth-driven) around a 2013 Dutch reform, we find a near one-for-one rise in net worth for each dollar of amortization. Households leave other savings and liabilities unchanged, and instead increase labor supply and reduce consumption. Effects hold even for regular savers and older households. This has important macroprudential implications and suggests homeownership financed via amortizing mortgages is instrumental for household wealth building.
    JEL: D14 D15 E21 E6 G21 G4 G5 G51 J2 R3
    Date: 2021–03
  43. By: Dirk Krueger (University of Pennsylvania, CEPR and NBER); Harald Uhlig (University of Chicago, NBER, CEPR); Taojun Xie (Research Fellow, Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore)
    Abstract: In this paper, we argue that endogenous shifts in private consumption behavior across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. We introduce a SIR epidemiological model into a neoclassical production economy in which goods are distinguished by the degree to which they can be consumed at home rather than in a social, possibly contagious context. We demonstrate within the model, that the "Swedish solution" of letting the epidemic play out without much government intervention and allowing agents to reduce their overall consumption as well as shift their consumption behavior towards relatively safe sectors can lead to substantial mitigation of the economic and human costs of the COVID-19 crisis. We argue that significant seasonal variation in the infection risk is needed to account for the two-wave nature of the pandemic. We estimate the model on Swedish health data and show that it predicts the dynamics of weekly deaths, aggregate as well as sectoral consumption, that accord well with the empirical record and the two-waves for Sweden for 2020 and early 2021. We also characterize the allocation a social planner would choose and how it would dictate sectoral consumption patterns. In so doing, we demonstrate that the laissez-faire outcome with sectoral reallocation mitigates the economic and health crisis but possibly at the expense of unnecessary deaths and too massive a decline in economic activity.
    Keywords: Epidemic, Coronavirus, Macroeconomics, Sectoral Substitution
    JEL: E52 E30
    Date: 2021–03
  44. By: Miyake, Yusuke
    Abstract: This paper analyzes whether public capital investment oor childcare support maximize the growth rate in an ultra-declining birth rate society using a labor-augmented model with public capital. We clarify the global stability of the private capital-public capital ratio in the steady state. In addition, we analyze the effect of increasing the expenditure share of tax revenue on economic growth. The result of this analysis shows that an increased share of public capital investment brings higher economic growth. This means that if all tax revenue is allocated to public capital investment, the growth rate will be maximized. Furthermore, in the second case, the model is reconstructed in such a way that the child is regarded as a nominal consumer goods in the first period and the childcare cost is regarded as a price. In that case, the impact of increased public capital on growth is shown to be minor compared to the former case.
    Keywords: Public capital investment・ Childcare support・ Income tax・ Economic growth
    JEL: D91 E62 O41
    Date: 2021–03–13
  45. By: Harashima, Taiji
    Abstract: If preferences of households are heterogeneous, there is no guarantee that a steady state exists other than corner solutions, and only the most advantaged household will eventually possess all the capital in the economy. This is also true if economic rents are obtained persistently and unevenly among households. I examine whether this is true even if households behave not on the basis of rational expectations but on the basis of keeping the most comfortable capital-wage ratio and show that there is no guarantee in this case as well.
    Keywords: Capital accumulation; Economic rents; Heterogeneity; Inequality; Steady state
    JEL: D63 E21
    Date: 2021–02–05
  46. By: Rafael Emilio Congregado (Universidad de Huelva, Spain); Vicente Esteve (Departamento de Economia Aplicada II, Universidad de Valencia, Avda. dels Tarongers, s/n, 46022 Valencia, Spain)
    Abstract: In this article, we test a classical model of inflation with rational expec- tations for the case of Spain during the period 18301998. The principal testable implication is that money growth and inflation are cointegrated ruling out speculative bubbles. First, to detect episodes of potential explosive behaviour in the Spanish ination rate, we use the recursive unit root tests for explosiveness recently proposed by Phillips, Wu, and Yu (2011), and Phillips, Shi, and Yu (2015a,b). Second, we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a good empirical description of the classical model of ination for Spain over this long period. Our methodology is based on the instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008).
    Keywords: Classical model of ination; Money demand; Money growth; Ination; Explosiveness; Cointegration; Multiple structural breaks
    JEL: C22 E31 E41
    Date: 2021–03
  47. By: Olav Syrstad; Ganesh Viswanath-Natraj
    Abstract: This paper investigates price discovery in foreign exchange (FX) swaps. Using data on inter-dealer transactions, we find that a 1 standard deviation increase in order flow (i.e. net pressure to obtain USD through FX swaps) increases the cost of dollar funding by up to 4 basis points after the 2008 crisis. This is explained by increased dispersion in dollar funding costs and quarter-end periods. We find central bank swap lines reduced the order flow to obtain USD through FX swaps, subsequently affecting the forward rate. In contrast, during quarter-ends and monetary announcements we observe high frequency adjustment of the forward rate.
    Keywords: interest rate parity, exchange rates, currency swaps, order flow, dollar funding
    JEL: E43 F31 G15
    Date: 2020
  48. By: González Laxe, Fernando; Armesto Pina, José Francisco; Sanchez-Fernandez, Patricio
    Abstract: After the slowdown in the rate of GDP growth in 2019, the health crisis caused by COVID and the measures subsequently approved to contain its expansion led to a contraction of Galician economic activity of 8.9% - two points lower than the state measure (11%). Throughout the year, Galicia performed better than the Spanish economy, registering the most negative impact in the second quarter, with a year-on-year drop of 18%. After the rebound experienced in the third quarter, the last months of the year were marked by new outbreaks and new restrictive measures that contributed to a 7.6% year-on-year drop in GDP.
    Keywords: Economy, Galicia, GDP, COVID
    JEL: E01 E02 H12
    Date: 2021–03–01
  49. By: Bhaghoe, Sailesh (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Ooft, Gavin (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: We apply Factor-MIDAS (FaMIDAS) and Mixed-Frequency Vector Autoregression (MF-VAR and MF-Bayesian VAR) to nowcast quarterly GDP growth of Suriname. For this purpose, we use a set of 44 microeconomic indices over the sample period 2012Q1 - 2020Q2. In the target equation, we regress GDP growth upon its first lag and a beta coefficient. In the explanatory equations the first set of monthly regressors explain the variation of growth without lags while the second set of regressors are fitted with two-month lags. We apply three set of samples for model estimations: 2012Q1 – 2019Q3, 2012Q1 – 2020Q1 and 2012Q1 – 2020Q2. Model nowcast accuracy is benchmarked against GDP growth of 2019 and economic activity growth estimated by the monthly GDP indicator of March and June 2020. The models provide mixed results as compared to the benchmark indicators. We select the models with the lowest Root Mean Squared Error (RMSE) and based on own Judgment to nowcast. As the forecast horizon increases from 2019Q4 to 2020Q2, so do the RMSE. To hedge against high biases and variances, we combine the best nowcasts to produce a single nowcast. Furthermore, it appeared that the FaMIDAS and the MF-VAR models deliver adequate results for two nowcast horizons.
    Keywords: FaMIDAS; MF-VAR; MF-BVAR; Nowcasting
    JEL: C22 C53 E37
    Date: 2021–03
  50. By: Akcay, Ümit; Hein, Eckhard; Jungmann, Benjamin
    Abstract: In recent years, diverging demand and growth regimes have received greater scholarly attention. In particular, the intersection between different variants of Comparative Political Economy and the post-Keynesian macroeconomic analysis provides a promising avenue for understanding the main dynamics of various growth regimes. Yet, the majority of these studies has focused on the global North. In this contribution, we expand this analysis to the global South by examining eight large emerging capitalist economies (ECEs) - Argentina, Brazil, China, India, Mexico, Russia, South Africa, and Turkey - during the periods 2000-2008 and 2009-2019. In so doing, we not only uncover the main demand and growth regimes of ECEs for the two periods, but also link these results to the main trends in the demand and growth regimes of developed capitalist economies (DCEs) for both periods. One of the main findings of our research is that ECEs did not follow the same path as DCEs after the Great Recession. While there was a clear shift in the demand and growth regimes of DCEs towards an export orientation, the main pattern in the ECEs remained the continuation of a trend that had already emerged before the 2007-09 crisis, i.e. domestic demand-led models. Finally, we provide some observations on the puzzle of resilient domestic demand-led models in ECEs.
    Keywords: demand and growth regime,financialisation,emerging capitalist countries,post-Keynesian economics,Argentina,Brazil,China,India,Mexico,Russia,South Africa,Turkey
    JEL: E11 E12 E65 F65
    Date: 2021
    Abstract: Currently, the investor considers monetary indicators a vital factor when ‎making any investment in equity prices. This research aim to find the long-‎run relationship between stock returns (DLSP) of Canada and monetary ‎indicators as the exchange rate (LEXC), the interest rate (LINT), and ‎inflation rate (INF). We consider T=232 observations for each variable from ‎January 1999 to April 2018. From the Johansen cointegration approaches, ‎there is no long-run association between stock prices and monetary ‎indicators. Results of the Granger causality tests have demonstrated the ‎unidirectional causation from the stock return to Inflation rate and to ‎Exchange rate growth. While Results of Toda and Yamamoto Wald tests ‎have demonstrated a bidirectional causal relation between stock price and ‎consumer price index and a unidirectional causation from stock price to the ‎interest rate and to the exchange rate growth. Based on IRFs, Inflation rate ‎is shown to be inversely related to stock returns. Thus, it is concluded that ‎the predictability of Canadian stock return relies only on the variations of ‎inflation rate.‎
    Keywords: Canadian stock price index; macroeconomic variables; Granger non causality; Johansen ‎cointegration; Toda and Yamamoto non causality wald test, Impulse–response functions ‎‎(IRFs).‎
    JEL: C32 E44 G14
    Date: 2021–01–30
  52. By: Nadar, Anand
    Abstract: This study investigate the effectiveness of fiscal policy and monetary policy in India. We collected the time series data for India ranging from 1960 to 2019 from World Development Indicator (WDI). We applied the bound test to check the long-run relationship between fiscal policy, monetary policy and economic growth. The short-run and long-run effects of fiscal policy and monetary policy have been estimated using ARDL models. The results showed that there is a long-run relationship between fiscal and monetary policies with economic growth. The estimated short-run coefficients indicated that a few immediate short run impact of fiscal and monetary policies are insignificant. However, the shortrun impacts become significant as time passes. The long-run results suggested that the long-run impact of both fiscal and monetary policies on economic growth are positive and significant. More specifically, the GDP level increases if the money supply and government expenditure increase (Expansionary fiscal and monetary policies). On the other hand, the GDP level decrease if the money supply and government expenditure decrease (contractionary fiscal and monetary policies). Therefore, this study recommend to use expansionary policies to spur the Indian economy.
    Date: 2021–03–26
  53. By: Jonathan Swarbrick
    Abstract: This practical review assesses several approaches to solving medium- and large-scale dynamic stochastic general equilibrium (DSGE) models featuring occasionally binding constraints. In such models, global solution methods are not possible because of the curse of dimensionality. This causes the modeller to look elsewhere for methods that can handle the significant non-linearities and non-differentiable functions that inequality constraints represent. The paper discusses methods—including Newton-type solvers under perfect foresight, the piecewise linear algorithm (OccBin), regime-switching models (RISE) and the news shocks approach (DynareOBC)—and compares the results from a simple borrowing constraints model obtained using projection methods, providing example MATLAB code. The study focuses on the news shocks method, which I find produces higher accuracy than other methods and allows the modeller to study multiple equilibria and determinacy issues.
    Keywords: Business fluctuations and cycles; Economic models
    JEL: C6
  54. By: Callum Jones; Pau Rabanal
    Abstract: We study the role that changes in credit and fiscal positions play in explaining current account fluctuations. Empirically, the current account declines when credit increases, and when the fiscal balance declines. We use a two-country model with financial frictions and fiscal policy to study these facts. We estimate the model using annual data for the U.S. and “a rest of the world” aggregate that includes main advanced economies. We find that about 30 percent of U.S. current account balance fluctuations are due to domestic credit shocks, while fiscal shocks explain about 14 percent. We evaluate simple macroprudential policy rules and show that they help reduce global imbalances. By taming the financial cycle, macroprudential rules that react to domestic credit conditions or to domestic house prices would have led to a smaller and less volatile U.S. current account deficit. We also show that a countercylical fiscal policy rule that stabilizes output growth reduces the level and volatility of the U.S. current account deficit.
    Date: 2021–02–19
  55. By: Hamid R Davoodi; Peter J Montiel; Anna Ter-Martirosyan
    Abstract: We survey the literature on the relationship between macroeconomic stability and inclusive growth and identify gaps in our knowledge. We examine the role of macroeconomic policies (fiscal, monetary, macroprudential, and exchange rate) and measures of inclusiveness (income inequality, consumption inequality, wealth inequality, poverty, and unemployment) across countries at different income levels. Avoiding procyclical macroeconomic policies and mitigating macroeconomic volatility should be on the agenda of all policymakers concerned with promoting inclusive growth. The emerging theory and evidence suggest a strong role for macroeconomic policies in shaping inclusive growth, both in the short-run and the long-run. The two-way relationship between the macroeconomy and inequality underscores the challenge of identifying and estimating causal relationships. Models with heterogeneous agents have much to offer in this area.
    Date: 2021–03–19
  56. By: Sumru Altug (AUB - American University of Beirut [Beyrouth]); Fabrice Collard; Cem Çakmaklı (Koç University); Sujoy Mukerji (QMUL - Queen Mary University of London); Han Özsöylev (Koç University, University of Oxford [Oxford])
    Abstract: In this paper, we examine the cyclical dynamics of a Real Business Cycle model with ambiguity averse consumers and investment irreversibility using the smooth ambiguity model of Klibanoff et al. (2005, 2009). Ambiguity of belief about the productivity process arises as agents do not know the process driving variation in aggregate TFP, and they must make inferences regarding the true process at the same time as they infer the behavior of the unobserved temporary component using a Kalman filtering algorithm. Our findings may be summarized as follows. First, the standard business cycle facts hold in our framework, which are not altered significantly by changes in the degree of ambiguity aversion. Second, we demonstrate a role for information and learning effects, and show that lower initial ambiguity or greater confidence coupled with learning dynamics lowers the volatility and increases the persistence in all of the key macroeconomic variables. Third, comparing the performance of our model to the New Keynesian business cycle model of Ilut and Schneider (2014) with maxmin expected utility, we find that the version of their model without nominal and real frictions turns out to have limited success at matching the moments for the quantity variables. In the maxmin expected utility framework, the worst case scenario instills too much caution on the part of agents who, in the absence of a key set of nominal and real frictions, end up excessively reducing their responses to TFP shocks.
    Keywords: information and learning,ambiguity aversion,Ambiguity,investment irreversibility,Real Business Cycles,New Keynesian model.
    Date: 2020
  57. By: Bloesch, Justin; Weber, Jacob P.
    Abstract: We argue that secular change in both the production and composition of investment goods has weakened private investment's role in the transmission of monetary policy to labor earnings and consumption. We show analytically that fluctuations in the production of investment goods amplify the response of consumption to monetary policy shocks by varying labor income for hand-to-mouth agents. We document three secular changes that weaken this channel: (i) labor's share of value added in investment goods production has declined, (ii) the import share of investment goods has risen, and (iii) the composition of investment has shifted towards components that are less responsive to monetary policy. A small open economy, two agent New Keynesian model calibrated to match these facts implies a 38% and 26% weaker response of labor income and aggregate consumption, respectively, to real interest rate shocks in a 2010's economy relative to a 1960's economy.
    Date: 2021–03–22
  58. By: Sophocles Mavroeidis
    Abstract: I show that the Zero Lower Bound (ZLB) on interest rates can be used to identify the causal effects of monetary policy. Identification depends on the extent to which the ZLB limits the efficacy of monetary policy. I develop a general econometric methodology for the identification and estimation of structural vector autoregressions (SVARs) with an occasionally binding constraint. The method provides a simple way to test the efficacy of unconventional policies, modelled via a `shadow rate'. I apply this method to U.S. monetary policy using a three-equation SVAR model of inflation, unemployment and the federal funds rate. I reject the null hypothesis that unconventional monetary policy has no effect at the ZLB, but find some evidence that it is not as effective as conventional monetary policy.
    Date: 2021–03
  59. By: Sergio Destefanis (Università di Salerno); Mario Di Serio (Università di Salerno); Matteo Fragetta (Università di Salerno)
    Abstract: This paper estimates the multipliers of different types of government spending in the 20 Italian administrative regions throughout 1994–2016. We estimate region-specific multipliers through a Bayesian random effect panel vector autoregressive model. We find that the EU structural funds, compared to the other types of government spending, provide the largest and most pervasively significant GDP multipliers, whereas the effectiveness of nationally funded government investment and government consumption shocks is limited to certain regions. We also find substitutability between EU structural funds and other expenditure variables, which runs counter to the principle of additionality of the EU cohesion policy. An exploratory analysis of the distribution of multipliers across regions and expenditure types suggests that multiplier values are positively associated with the amount of unused resources as well as with the region size.
    Keywords: EU structural funds, government consumption, government investment, Bayesian Vector Autoregressive Model
    JEL: C33 E62 H50
    Date: 2020–07
  60. By: Fraser Summerfield; Livio Di Matteo
    Abstract: COVID-19 and the associated economic disruption is not a unique pairing. Catastrophic health events including the Black Death and the Spanish Flu also featured major economic disruptions. This paper focuses on significant health shocks during 1870-2016 from a singular virus: influenza. Our analysis builds on a literature dominated by long-run analyses by documenting the causal impact of influenza pandemics on short-run macroeconomic fluctuations. We examine 16 developed economies combining the Jorda-Schularick-Taylor Macro History Database with the Human Mortality Database. Our results reveal important negative impacts. Further, we illustrate that these effects operate through different channels over time. Prior to vaccines, pandemic-induced mortality was responsible for economic contractions while modern flu-induced cycles appear to arise because of pandemic-induced consumption decreases.
    Keywords: Pandemics, Business Cycles, Mortality, Consumption, GDP Fluctuations
    JEL: E32 I18
    Date: 2021–03
  61. By: Idalid Alamilla-Gachuz; María del Carmen Cervantes-Siurob; Krisztina E. Lengyel-Almos
    Abstract: Resumen: Este artículo analiza el impacto de algunas variables de interés sobre la Inversión Extranjera Directa –IED– en el sector manufacturero mexicano para el periodo 2007-2018. Se busca mostrar el impacto de IED recibida en este sector sobre la productividad medida en las horas trabajadas en la industria manufacturera y por la capacidad de planta, las remuneraciones pagadas al personal ocupado en establecimientos manufactureros, los salarios al personal obrero y técnico, los salarios pagados al personal administrativo y el número de personal ocupado. Se desarrollaron cuatro modelos aplicando el método de Mínimos Cuadrados Ordinarios, los primeros dos estimando seis variables, uno de ellos aplicando logaritmos; los otros dos modelos contemplando solamente las variables significativas de cada uno de ellos con el fin de simplificar el modelo. El modelo inicial aplicando logaritmos resultó más robusto. Los hallazgos confirman una relación positiva de la productividad del sector manufacturero, el número de personal ocupado y los salarios de obreros y técnicos sobre la IED.
    Keywords: Inversión Extranjera Directa; IED; salarios; productividad; sector manufacturero; MCO multivariable.
    JEL: C39 E24 F21 J31
    Date: 2020–07–01
  62. By: Elif C. Arbatli-Saxegaard; Ragnar E. Juelsrud
    Abstract: We use bank-, loan- and firm-level data together with a quasi-natural experiment to estimate the impact of capital requirement reductions on bank lending and real economic outcomes. We find that capital requirement reductions increase lending both to households and firms at the bank- and loan-level, and that the increased lending to firms translates into higher capital investment at the firm-level. Furthermore, the transmission of lower capital requirements to the real economy has a "double state-dependence". The first state-dependence relates to the characteristics of banks. Specifically, the transmission of lower capital requirements to lending is stronger for banks with lower capital ratios. We interpret this result as capital requirement reductions having a larger effect when they are more binding. The second state-dependence relates to the characteristics of the corporate sector. Specifically, the transmission of lower capital requirements to real economic outcomes - via bank lending - is weaker for firms with higher default risk or more leverage, suggesting that capital requirement reductions is most effective in terms of boosting real economic outcomes when firms are financially sound.
    Keywords: banking, capital requirements, macroprudential regulation
    JEL: E51 G21 G28
    Date: 2020–08
  63. By: Maryam Mirfatah (University of Surrey and CIMS); Vasco J. Gabriel (University of Surrey and NIPE-UM); Paul Levine (University of Surrey and CIMS)
    Abstract: We construct a small open economy (SOE) DSGE model interacting with the rest of the world (ROW). We depart from the standard SOE model along several dimensions. Firstly, we nest two different pricing paradigms: local currency pricing (LCP) alongside producer currency pricing (PCP). Second, the production function incorporates capital and intermediate inputs produced domestically and abroad. Finally, international asset markets are incomplete. Using US and Canadian data, we explore the empirical evidence for PCP vs LCP pricing paradigms through a Bayesian estimation likelihood race and a comparison with the second moments of the data. We then examine the implications of these two paradigms for the conduct of monetary policy using optimized Taylor-type inertial interest rate rules with a zero lower bound constraint. The main results are: first, in a likelihood race LCP easily beats PCP and fits reasonably the second moments of the data; second, whereas for the closed economy ROW the price-level rule closely mimics the optimized general inflation-output rule, for the SOE the corresponding result requires a nominal income rule.
    Date: 2021–03
  64. By: Juan Barredo-Zuriarrain (UPV/EHU - University of the Basque Country [Bizkaia], CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes)
    Abstract: During the last years, Venezuela has experimented both a deep economic crisis and hyperinflation. The US economic blockade and the internal economic crisis has played a main role in the sharp fall of the output levels. But regarding hyperinflation, it must be analyzed as the result of the expansionary policies adopted by the government and the Central Bank in a context of currency overvaluation. In this research, I show the mechanisms that enabled this hyperinflation, which continues today, and explain how the approach to the Venezuelan hyperinflation as a 'monetary phenomenon' is fully consistent with the hypothesis of the endogenous supply of money.
    Keywords: economic growth,hyperinflation,endogenous money,money supply,Venezuela
    Date: 2019–10–24
  65. By: J. Daniel Aromí; Martín Llada
    Abstract: We use Twitter content to generate an indicator of attention allocated to inflation. The analysis corresponds to Argentina for the period 2012-2019. The attention index provides valuable information regarding future levels of inflation. A one standard deviation increment in the index is followed by an increment of approximately 0.4% in expected inflation in the consecutive month. Out-of-sample exercises confirm that social media content allows for gains in forecast accuracy. Beyond point forecasts, the index provides valuable information regarding inflation uncertainty. The proposed indicator compares favorably with other indicators such as media content, media tweets, google search intensity and consumer surveys.
    JEL: E31 C53
    Date: 2020–11
  66. By: Sebastian Link; Andreas Peichl; Christopher Roth; Johannes Wohlfart
    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
  67. By: Carlo Altavilla; Luc Laeven; José-Luis Peydró
    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: 2021–03
  68. By: Ken Miyajima
    Abstract: The South African Reserve Bank has continued to fulfill its constitutional mandate to protect the value of the local currency by keeping inflation low and steady. This paper provides evidence that monetary policy tightening aimed at maintaining low and stable inflation could at the same time reduce consumption inequality over a 12–18 month horizon, commonly understood as the transmission lag of monetary policy action to the real economy, and similar to the distance between survey waves used in the analysis. In response to “exogenous” monetary policy tightening, the real consumption of individuals at lower ends of the consumption distribution declines relatively modestly, or even increases. With greater reliance on government transfers, thus smaller reliance on labor income, and relatively larger food consumption, these individuals appear to benefit mainly from lower inflation. By contrast, the real consumption of individuals at higher ends of the consumption distribution is more likely to decline due to lower labor income, weaker asset price performance, and higher debt service cost.
    Date: 2021–03–19
  69. By: Khalid ElFayoumi; Martina Hengge
    Abstract: The COVID-19 pandemic and associated policy responses triggered a historically large wave of capital reallocation between markets and asset classes. Using high-frequency country-level data, this paper examines if and how the number of COVID cases, the stringency of the lockdown, and the fiscal and monetary policy response determined the dynamics of portfolio flows. Despite more dominant global factors, we find that these domestic factors played an important role, particularly for emerging markets and bond flows, contributing to a global wave of reallocation to safer asset classes. Our results indicate that rising domestic COVID cases had a strong positive effect on portfolio flows, which responded to an increase in financing needs in affected economies. Lockdown and fiscal policy measures also led to an increase in portfolio flows; however, evidence from the CDS market suggests that the increase in flows was dominated by supply forces, reflecting investors' preference for stronger policy responses. In contrast, we find that interest rate cuts led to a decline in portfolio flows as investors searched for higher yield. Finally, we show that COVID policy responses also affected countries' exposure to the global shock and that pre-COVID macroeconomic conditions, such as lower sovereign risk and higher trade openness, contributed to larger flows during the COVID episode.
    Keywords: COVID-19 ;Central bank policy rate;Fiscal stimulus;Credit default swap;Bonds;Capital flows,Lockdown policy,Fiscal policy,Monetary policy,Pull factors,Emerging markets,WP,portfolio flow,Covid case,policy measure,infection shock,monetary policy action,trade openness
    Date: 2021–02–12
  70. By: Thomas J. Sargent; Neng Wang; Jinqiang Yang
    Abstract: The cross-section distribution of U.S. wealth is more skewed than the distribution of labor earnings. Stachurski and Toda (2019) explain how plain vanilla Bewley-Aiyagari-Huggett (BAH) models with infinitely lived agents can't generate that pattern because an equilibrium risk-free rate is lower than the time rate of preference and each person's wealth process is stationary. We provide two modifications of a BAH model that generate this pattern: (1) overlapping generations of agents who have low wealth at birth and pass through N life-stage transitions of stochastic lengths, and (2) labor-earnings processes that exhibit stochastic growth. With only a few parameters such a model can well approximate mappings from the Lorenz curve and Gini coefficient for cross-sections of labor earnings to their counterparts for cross sections of wealth. Three forces amplify inequality in wealth relative to inequality in labor-earnings: stochastic life-stage transitions; a precautionary savings motive for high wage earners that is especially strong after they receive positive permanent earnings shocks; and an energetic life-cycle saving motive for agents who have low wealth at birth. An equilibrium risk-free interest rate that exceeds a time preference rate fosters a fat-tailed wealth distribution.
    JEL: D14 D31 E21
    Date: 2021–03
  71. By: PINSHI, Christian P.
    Abstract: World is gripped by the specter of COVID-19, which is rampant across all planetary systems and straining many parts of our societies and economies in ways we never imagined. A year and two months after the onset of one of the most serious crises, we are slowly understanding the ramifications of the pandemic. This analytical overview provides a basic theoretical framework for understanding some health and macroeconomic implications of the coronavirus epidemic.
    Keywords: COVID-19, Economy
    JEL: E0 I15 P0
    Date: 2021–02–05
  72. By: Jorge Eduardo Camusso; Ana Inés Navarro
    Abstract: This paper explores the aggregate and systematic income risk of formal workers in Argentina, using an extensive longitudinal database that contains information on approximately half a million formal employees in the private sector throughout the country for a span of twenty years (1996-2015). We estimate pooled quantile regression models to measure the sensitivity of remunerations to the economic cycle along the conditional distribution of salaries, which allow us to capture the heterogeneity of Gross Domestic Product (GDP) impacts on different conditional quantiles. The main result is that estimated income risk decreases monotonically along the conditional distribution of salaries, showing that individuals located at the lower part of the distribution are more exposed to the fortunes of the aggregate economy. One important factor that probably explains this difference in salary elasticity is given by the role of the unions. Although this decreasing pattern on elasticity remains when we separate estimates by economic sector and firm size, we found some specificities, since males that work in Construction sector and small firms are those with higher income risk. These estimates allow us to approximate the magnitude of the impact of the current recession in Argentina, which is deepening due to the COVID-19 pandemic.
    Keywords: Business Cycles, COVID-19, Income Risk, Quantile Regression
    JEL: C13 E32 J30 J52
    Date: 2020–11
  73. By: Joof, Foday; Touray, Sheriff
    Abstract: The paper investigates the impact of remittance on real effective exchange rate in The Gambia. The Fully Modified OLS and Dynamic OLS are used on a monthly data from 2009M1 to 2019M12. FMOLS and DOLS estimations revealed that remittance has a positive significant impact on real effective exchange rate in The Gambia, implying that 1% increment in remittance leads to a real appreciation of the Gambian Dalasi (GMD) against the major currencies by 1.5%. Likewise, inflation is positively associated with REER, while the relationship amid foreign reserves and REER is inconclusive. Contrarily, money supply and monetary policy rate were found to have a depreciating impact on REER in both models.
    Keywords: Remittance, Real effective exchange rate, FMOLS, DOLS, The Gambia
    JEL: C1 E6
    Date: 2021–02–11
  74. By: Garabedian, Garo (Central Bank of Ireland); Inghelbrecht, Koen (Department of Economics, Ghent University)
    Abstract: We introduce a novel method to aggregate the different dimensions of liquidity (tightness, depth and resilience) into a single 'unified' market-wide liquidity index. We rely on twenty-four measures of market liquidity divided into eight groups. Each group either represents direct trading costs, which refer to the spread estimates (tightness), or indirect trading costs, which span the price impact estimates (depth and resilience). The weights assigned to the different groups are time-varying and depend on three components: the correlation between groups, the liquidity pressure conveyed through the measures in the group, and their conditional variance. Our liquidity index succeeds in tracking the most important historic episodes of financial stress. Moreover, it shows the expected macroeconomic and financial relationships mentioned in the literature, and has some predictive power for future growth rates. Finally, our methodology can gauge the individual importance of each liquidity group over time. Our results show that price impact measures receive higher weights during tranquil periods, while spread estimates play a prominent role during periods of financial distress.
    Keywords: market liquidity; trading volume; transaction costs; price impact; effective spread; financial crises; signal-to-noise ratio; macro-financial linkages.
    JEL: G01 G12 G14 E44
    Date: 2020–12
  75. By: Philip Du Caju (National Bank of Belgium, Brussels, Belgium); Guillaume Périlleux (Université libre de Bruxelles (SBS-EM : CEB and ECARES), Brussels, Belgium); François Rycx (Université libre de Bruxelles (SBS-EM : CEB and DULBEA), IRES, humanOrg, GLO & IZA, Brussels, Belgium); Ilan Tojerow (Université libre de Bruxelles (SBS-EM : CEB and DULBEA) & IZA, Brussels, Belgium)
    Abstract: This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium, using panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. We perform as well a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30%. The effect appears to be robust to various specifications, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.
    Keywords: Households, Indebtedness, Consumption, Debt-Service-to-Income, Non-linear Heterogeneous Effects
    JEL: D12 D14 E21
    Date: 2021–03–16
  76. By: Anelí Bongers (Department of Economics, University of Málaga, Spain); Benedetto Molinari (Department of Economics, University of Málaga, Spain; Rimini Centre for Economic Analysis); José L. Torres (Department of Economics, University of Málaga, Spain)
    Abstract: This paper analyzes the macroeconomic and distributional effects of declining labor share as observed during the last decades. We use a neoclassical general equilibrium model with two types of households, workers and capitalists, endowed with a CES production function, in which the distributional parameter matches labor share. This implies the existence of a technological nexus between the observed labor share and the distributional parameter of the CES function. We explore that technological nexus and show that both capitalists' and workers' income increase as labor income declines depending on the elasticity of substitution between capital and labor. The effect of labor share changes on income distribution does not depend on the elasticity of substitution, and hence, relative income and relative consumption decrease for workers, increasing inequality. When capital depreciation rate is taken into account, the decline in labor share has a limited impact on the functional distribution of net income.
    Keywords: Functional distribution of income, Labor share, Workers, Capitalists
    JEL: E25 J30
    Date: 2021–03
  77. By: OECD
    Abstract: This report explores the spatial dimension of productivity in the co-operatives of Italy, a country where they make up a relatively large share of total national employment. Co-operatives play a countercyclical role in job creation during crises. In a post-pandemic world, they could make a major contribution to steering the economy towards inclusiveness and sustainability. Productivity growth ensures that co-operatives can achieve both economic and social goals in the future. This report applies a place-based approach to investigate the issue of productivity in co-operatives, given their many interdependencies with local communities. Novel evidence points to the local factors that are linked with the concentration and productivity of co-operatives across regions, sectors and firm size classes in Italy. A comparison with other Italian firms as well as with Spanish co-operatives and other Spanish firms serves to illustrate how productivity performance varies across space and firm types. This report constitutes an empirical test for the analytical approach developed by the OECD Spatial Productivity Lab.
    Keywords: cooperatives, Italy, productivity, regional economics, social economy, Spain
    JEL: D24 E24 J54 L31 O32 O35 P13 Q13 R12
    Date: 2021–03–30
  78. By: Capraru, Bogdan (Romania Fiscal Council); Georgescu, George (Romania Fiscal Council); Sprincean, Nicu (Romania Fiscal Council)
    Abstract: This paper explores the impact of the independent fiscal institutions on public budget deficit in the European Union. We employ a dynamic panel model for the period 2000-2019 and find that these fiscal watchdogs have a positive and significant influence on general government balance for European Union Member States, resulting in smaller public budget deficits. The findings maintain their significance regardless of the year of accession to the European Union (old vs. new members) or euro area status (euro area vs. non-euro area members). However, we find that the independent fiscal institutions play a much important role for countries that established their fiscal institutions before 2013. Moreover, we document that during systemic and banking crises these independent fiscal councils can help reducing public budget deficits. Our results are robust to a variety of specifications and models, including alternative definitions of government balance and after controlling for a set of institutional characteristics.
    Keywords: : Fiscal Balance; Independent Fiscal Institutions; Public Budget Deficit
    JEL: E62 H60
    Date: 2020–11
  79. By: Nicoletta Batini; Luigi Durand
    Abstract: Abstract In this paper we ask whether countries can influence their exposure to changes in global financial conditions. Specifically, we show that even though we can model cross-country capital flows via a global factor that closely tracks changes in global financial conditions, there is a large degree of heterogeneity in the sensitivity of each country to this same global factor. We then evaluate whether this cross-country heterogeneity can be attributed to different policy choices, including measures of capital flow management, such as capital controls and macroprudential policies. In our main results, we show that higher levels of capital controls and macroprudential policies both dampen the sensitivity to the global factor. Furthermore, we show that countries’ monetary and exchange rate policies can also be successfully deployed. Overall, our results have implications that extend beyond the surge that preceded the 2008 global financial crisis, and that closely resonate in light of the financial disruptions that followed the COVID-19 pandemic.
    Keywords: Capital flows;Capital inflows;Capital controls;Capital flow surges;Exchange rates;Global Financial Cycle,Macroprudential Policy,IMF Institutional View.,WP,GFCy spillover,surge episode,capital flow data,capital flow episode happening,capital flow surge episode,capital flows shock
    Date: 2021–02–12
  80. By: International Monetary Fund
    Abstract: Sweden entered the pandemic with substantial buffers and suffered a relatively shallow recession in 2020. The decline in output was moderated by substantial income and liquidity support as well as structural features of the economy. Sweden’s initial less stringent containment strategy seems to have altered the timing of the economic fallout, which intensified towards the middle of the year. This fallout has particularly impacted the youth and foreign-born. Economic recovery is projected over the next two years, but uncertainty has increased due to the new strains of the virus and slow vaccination.
    Date: 2021–03–25
  81. By: Ali-Yrkkö, Jyrki; Ylhäinen, Ilkka; Pajarinen, Mika; Kuusi, Tero
    Abstract: Abstract In this study, we have analysed the role of the largest companies in the Finnish economy. According to the results, the list of ten largest companies in terms of their domestic value added is diverse and includes companies operating in the manufacturing industry, the service industry, as well as the financial industry. In 2019, these top 10 companies together produced 5.7% of the Finnish gross domestic product (GDP). In terms of domestic employment, the significance of this group remains lower, accounting for 3.7% of the employment of the business sector. Although both the share of GDP and employment have declined, the role of these top 10 companies in the Finnish economy remains significant.
    Keywords: Large, Largest, Companies, Firms, GDP, Gross domestic product, Concentration, Group, Granular
    JEL: F23 L25 E22 M21 L11
    Date: 2021–03–25
  82. By: CHIVU, LUMINITA (National Institute of Economic Research - Romanian Academy); GEORGESCU, GEORGE (National Institute of Economic Research - Romanian Academy)
    Abstract: The extremely fragile balance of the Romanian labour market is severely affected by the crisis caused by the COVID-19 pandemic and by the sudden and almost general deterioration of the macroeconomic context and the business environment. The present study aims to argue that, in times of crisis, such as the current one, the labour market policies need to be varied but also synergistic, in order to stimulate employment and capitalize the potential of each category, so as to contribute to the recovery of the country's macroeconomic and financial framework. Despite the Government's anti-crisis and economic support measures, in the short term, the Romanian labour market is facing the unemployment rate increase, at least in 2020, as a result of the restrictions in many activities, exacerbating the vulnerabilities of the employed population structure described in the study. The analyses carried out revealed that, in Romania, the crisis affected practically all the members of society, but in a disproportionate manner, the most exposed being the vulnerable groups, namely people in the "grey" or informal area of the economy, those working in the most affected sectors and workers with low qualification, many deprived of the needed protection and social assistance. In the context of efforts to identify ways to reduce the distortions generated by the crisis, the integration of social security systems with social assistance can be a viable solution. As activities resume, the labour market tensions are expected to be mitigated both by labour market-specific measures, including those presented in the study, and at the macroeconomic level, adapted to the post-COVID-19 restructuring of the economy, with the necessary policy support at central and local level, including in terms of employment
    Keywords: labour market, COVID-19 pandemic, employment, vulnerable groups, protection and social assistance, macroeconomic risks
    JEL: E24 F66 J10 J21 J46 O15
    Date: 2021–03
  83. By: Romain A Duval; Davide Furceri; João Tovar Jalles
    Abstract: We explore the impact of major labor and product market reforms on current account dynamics using a new “narrative” database of major changes in employment protection for regular workers and product market regulation for non-manufacturing industries covering 26 advanced economies over the past four decades. Our main finding is that product market deregulation is associated with a weakening of the current account, while labor market deregulation is associated with an improvement. These effects are transitory and driven by both saving and investment responses. Labor and product market reforms both have a more positive impact on the current account balance when implemented under weak macroeconomic conditions. Our results are broadly consistent with predictions from recent DSGE models with endogenous producer entry and labor market frictions.
    Date: 2021–02–26
  84. By: Pedro Bento (Texas A&M University, Department of Economics); Sunju Hwang (Texas A&M University, Department of Economics)
    Abstract: The number of black-owned businesses in the U.S. has increased dramatically since the 1980s, even compared to the number of non-black-owned businesses and the rise in black labor-market participation. In 1982 less than 4 percent of black labor-market participants owned businesses, compared to over 14 percent of other participants. By 2012 more than 16 percent of black participants owned businesses while the analogous rate for non-black participants increased to only 19 percent. This and other evidence suggest black entrepreneurs have faced significant barriers to starting and running businesses and these barriers have declined over time. We examine the impact of these trends on aggregate output and welfare. Interpreted through a model of entrepreneurship, declining barriers led to a 2 percent increase in black welfare, a 0.7 increase in output per worker, and a 0.7 decrease in the welfare of other labor-market participants. These impacts are in addition to any gains from declining labor-market barriers.
    Keywords: black, minority, distortions, entrepreneurship, business dynamism, misallocation, aggregate productivity, economic growth.
    JEL: E02 E1 J7 J15 O1 O4
    Date: 2021–03–24
  85. By: Trofimov, Ivan D.
    Abstract: This paper examines the effects of public capital and government final consumption expenditure on the rate of profit in the productive sectors of the OECD economies over the period of 1977-2006. Public capital (expressed as a proportion of private capital) is considered in a multivariate setting, alongside other determinants of profit. The panel cointegration and panel vector autoregressive (PVAR) models are used to remedy the shortcomings of the time series analyses in the short samples and the stationary data panel models. The study demonstrates the absence of cointegration between the variables, but the positive and significant effects of public capital that are particularly manifest in the short-run, as well as the negative and insignificant impact of overall government consumption expenditure. The paper highlights the importance of public capital for macroeconomic outcomes, the relevance of the real channels of fiscal policy, and the non-neutrality of the type of government expenditure for economic outcomes.
    Keywords: Public capital, profit, panel data
    JEL: C23 E22 H54
    Date: 2020–03–10
  86. By: Kitov, Ivan
    Abstract: Growth rate of real GDP per capita, GDPpc, is represented as a sum of two components – a monotonically decreasing economic trend and fluctuations related to population change. The economic trend is modelled by an inverse function of GDPpc with a constant numerator which varies for the largest developed economies. In 2006, a statistical analysis conducted for 19 selected OECD countries for the period between 1950 and 2003 showed a very weak linear trend in the annual GDPpc increment for the largest economies: the USA, Japan, France, Italy, and Spain. The UK, Australia, and Canada showed a slightly steeper positive linear trend. The 2012 revision showed that the positive trends became much lower and some of them fell below zero due to the Great Recession. The fluctuations around the trend values are characterized by a quasi-normal distribution with heavy and asymmetric tails. This research revises the previous estimates and extends the set of studied countries by economies in East Europe, Latin America, BRICS, Africa, and Asia including several positive outliers with extremely fast growth. The change in GDP definitions and measuring procedures with time and economic source is discussed in relation to the statistical significance of the trend estimates and data quality requirements for a consistent economic model. The relative performance of all counties since 1960 is compared according to the predicted total GDPpc growth as a function of the initial value. The performance in the 21st century is analyzed separately as revealing potential and actual shifts in the global economic powers.
    Keywords: economic development, GDP per capita, economic trend, business cycle
    JEL: E32 O11 O57
    Date: 2021–02–07
  87. By: Parle, Conor (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This Economic Letter examines what information is most relevant for the inflation expectations of consumers and firms in the euro area. We find that confidence in the economy is very important. However, the relationship between confidence and inflation expectations for consumers is negative, while it is positive for firms. Actual consumer price inflation, especially for food and energy, is also strongly associated with expectations of future inflation but to a varying degree. Producer price inflation is an important predictor of firms’ expectations. In addition, employment expectations are relevant for firms and past economic situation plays a large role for consumers. Our results shed some light as to why euro area consumers’ and firms’ inflation expectations diverged at the start of the COVID-19 crisis.
    Date: 2020–12
  88. By: Luciano Campos; Agustín Casas
    Abstract: At the turn of the century, some new governments in Latin America have been characterized as populist (the so-called new Latin American Left). We focus on the macroeconomic implications of the policies adopted by these governments (instead of their leaders' rhetoric) and we investigate to what extent this characterization holds. To do so, we identify economic populism with a bivariate vector autoregressive model using real and nominal wages and where populist shocks have no long-run effects on the former variable. The underlying idea of this identification is that populist leaders tend to prioritize income distribution with higher nominal wages disregarding the consistency with the evolution of productivity. Our results indicate that economic populism is not as widespread as previously thought, and that our nuanced approach leads to more informative results. For instance, while we find populism in Argentina, the results for Brazil, Bolivia and Ecuador show only sporadic populist events. In the remaining countries, we do not find persistent economic populism.
    Keywords: Macroeconomics of populism, Income redistribution, Structural VARs, Longrun restrictions, Latin America
    JEL: C32 E64 H11 N36
    Date: 2020–11
  89. By: David Chilosi (Department of Political Economy, King’s College London); Carlo Ciccarelli (Department of Economics and Finance, Università degli Studi di Roma Tor Vergata)
    Abstract: Structural transformation is a key indicator of economic development. This paper reconstructs and examines spatial patterns of the occupational structure in pre-unification Italy, combining direct observations and urbanization rates. In 1861, the agricultural labour share was higher in Southern Italy than in the Centre and North. During the Risorgimento, provincial wages converged within the Centre-North. The predicted Centre-North/South GDP per capita ratio declined in the fifteenth and sixteenth centuries, as the Centre-North stagnated and the South grew slowly. Southern Italy forged ahead of China after, and fell behind Britain before, the Centre-North did, but by pre-modern standards it nonetheless emerged as a middle-high income area.
    Keywords: occupational structure, economic growth, regional inequality, Italy: pre-1861
    JEL: E01 N13 N93 O47 R12
    Date: 2021–03
  90. By: Daly, Pierce (Central Bank of Ireland); Moloney, Kitty (Central Bank of Ireland); Myers, Samantha (Central Bank of Ireland)
    Abstract: Irish property funds’ investment in Irish commercial real estate (CRE) has grown in recent years. This growing form of financial intermediation has brought many benefits, including diversification of the financing of CRE away from domestic to international investors and a reduced reliance on debt financing by Irish retail banks. This investment supports domestic economic activity. However, like all forms of financial intermediation, property funds can also contribute to the build-up of risks that need to be monitored. The main contribution of this Note is to review and assess the financial stability risks associated with Irish domiciled investment funds investing in Irish property assets. The analysis is based on the results of a bespoke survey of these property funds carried out by the Central Bank in 2020. In the Note, we show that there is a cohort of property funds that have reported significant levels of leverage. In addition, while the lower frequency of dealing periods limits liquidity mismatches across the sector to some extent, there is a cohort of funds where some of these mismatches remain apparent, given the very illiquid nature of property assets. These characteristics increase the risk that – in response to adverse shocks – some property funds may need to sell property assets over a relatively short period of time, amplifying price pressures in the CRE market. Property funds have a number of options to mitigate this risk, including liquidity management tools. The analysis in this Note supports the need to explore the costs and benefits of possible macroprudential policy interventions in this area, to strengthen the property fund sector’s overall resilience to potential future shocks.
    Date: 2021–02
  91. By: Francesco Bianchi; Cosmin L. Ilut; Hikaru Saijo
    Abstract: A large psychology literature argues that decision-makers' forecasts of their future circumstances appear overly influenced by their perception of the new information embedded in their current circumstances. We adopt the diagnostic expectations (DE) paradigm (Bordalo et al., 2018) to capture this feature of belief formation and develop the micro-foundations for applying DE to a broad class of macroeconomic models. In this environment, DE apply to both exogenous and endogenous variables. We derive three theoretical properties of DE in the presence of endogenous variables: (i) endogenous predictability, (ii) endogenous non-stochasticity, and (iii) the failure of the law of iterated expectations under distant memory. We show that these properties imply (i) a joint determination of actions and DE; (ii) the possibility of silencing DE by policy actions; (iii) the possibility of time-inconsistency. We analyze two approaches to deal with the issue of time inconsistency: naivete and sophistication. We illustrate our analysis’ relevance in two applications. First, we provide a portable solution algorithm to incorporate DE into recursive linear models. In an RBC model, DE generate rich and novel propagation dynamics and a boom-bust cycle. Second, a Fisherian model shows that policy makers' behavior has pervasive macroeconomic effects by activating or silencing DE.
    JEL: D8 D9 E03 E3 E71
    Date: 2021–03
  92. By: Maria Cotofan; Robert Dur; Stephan Meier
    Abstract: Macroeconomic conditions during young adulthood have a persistent impact on people's attitudes and preferences. The seminal paper by Giuliano and Spilimbergo (2014) shows that people who grew up in a recession are more likely to favor government redistribution and assistance to the poor. Moreover, they are more likely to believe that bad luck rather than a lack of hard work causes poverty, i.e. they seem to be more compassionate towards the poor. In this paper, we investigate how inclusive this increase in compassion is by studying how macroeconomic conditions experienced during young adulthood affect attitudes towards immigration. Using data from the General Social Survey and the World Value Survey, we find strong evidence that bad macroeconomic circumstances during young adulthood strengthen attitudes against immigration for the rest of people's lives. In addition, growing up in difficult macroeconomic times increases parochialism, i.e. people become more outgroup hostile --- not just against immigrants. Our results thus suggest that the underlying motive for more government redistribution in response to a recession does not originate from a universal increase in compassion, but rather seems to be more self-interested and restricted to one's ingroup.
    Keywords: immigration, attitudes, social preferences, parochialism, redistribution, macroeconomic conditions, impressionable years
    JEL: D9 E7 J1
    Date: 2021–04
  93. By: Bryn Battersby; Ian Lienert
    Abstract: This paper examines the institutional arrangements of the macro-fiscal function in 16 African countries. Most ministries of finance (MoFs) have established a macro-fiscal department or unit, but their functions, size, structure and outputs vary considerably. Based on a survey, we present data on staff size, functional scope and the forecasting performance of macro-fiscal departments and identify common challenges in the countries reviewed. Some MoFs perform many macro-fiscal functions, but actions of various kinds are needed to strengthen their macro-fiscal departments. This paper provides some guidance for policy-makers in the region for enhancing the quality and scope of macro-fiscal outputs.
    Keywords: Macroeconomic and fiscal forecasts;Budget planning and preparation;Fiscal risks;Fiscal policy;Medium-term budget frameworks;macro-fiscal,macroeconomic,fiscal,function,medium-term,annual,forecasts,projections,policy analysis,fiscal strategy,ministry of finance,organizational,WP,MFD staff,MFD output,MFD characteristic,MFD director,MFDS monitor debt development
    Date: 2021–02–05
  94. By: International Monetary Fund
    Abstract: Sierra Leone continues to grapple with the serious and persistent economic and social effects of the pandemic. Containment measures and trade disruptions in 2020 weakened domestic demand and exports and caused domestic revenues to fall. Moreover, food insecurity has risen from its already-high pre-COVID-19 level. 2021 is set to be another challenging year, with the ‘second wave’ of infections and vaccine-related uncertainties posing further risks to the recovery. As import growth picks up and development partner support returns to pre-2020 levels, Sierra Leone faces urgent external and fiscal financing needs (both around about 2 percent of GDP). Uncertainty about the outlook and larger near-term financing gaps have impeded the immediate resumption of the program under the Extended Credit Facility (ECF). The authorities are therefore requesting a disbursement under the Rapid Credit Facility (RCF) of 17 percent of quota (SDR 35.26 million). This follows the June 2020 RCF (50 percent of quota or SDR 103.7 million) and would bring total access for the past 12-month period to 82 percent of quota (or 5½ percent of GDP), well within the 150 percent of quota annual PRGT access limit. The authorities also received debt relief under the Catastrophe Containment and Response Trust (CCRT) and are participating in the Debt Service Suspension Initiative (DSSI).
    Date: 2021–03–23
  95. By: Daisuke Ida; Hirokuni Iiboshi
    Abstract: Using the method of Haberis and Lipinska (2020), this paper explores the effect of forward guidance (FG) in a two-country New Keynesian (NK) economy under the zero lower bound (ZLB). We simulate the effect of different lengths of FG or the zero interest rate policy under the circumstance of the global liquidity trap. We show that the size of the intertemporal elasticity of substitution plays an important role in determining the beggar-thy-neighbor effect or the prosper-thy-neighbor effect of home FG policy on the foreign economy. And in the former case, by targeting a minimum welfare loss of the individual country alone but not global welfare loss, two central banks can perform interesting FG bargaining in which they cooperatively adopt the same length of FG or strategically deviate from cooperation.
    Date: 2021–03
  96. By: Daniel Buncic
    Abstract: This paper corrects the implementation of Median Unbiased Estimation (MUE) in Stage 2 of Holston, Laubach and Williams' (2017) framework to estimate the natural rate of interest and provides corresponding corrected estimates. The correction is quantitatively important. It yields substantially smaller point estimates of the signal-to-noise ratio parameter $\lambda _{z}$ which determines the size of the downward trend of 'other factor' $z_{t}$ in the natural rate. For US data, the point estimate of $\lambda _{z}$ shrinks from $0.040$ to $0.013$ and is statistically highly insignificant. For data on the Euro Area, the UK and Canada, the $\lambda _{z}$ point estimates are exactly zero. Natural rate estimates from this model are up to 100 basis points larger than originally computed by Holston et al. (2017).
    Date: 2021–03
  97. By: International Monetary Fund
    Abstract: Korea entered the COVID-19 pandemic with sound macroeconomic fundamentals and a resilient financial system. The initial outbreak led to a sharp decline in economic activity and employment and generated substantial economic slack. With the help of an effective COVID-19 containment strategy and comprehensive economic policy response, the overall impact was smaller than in peers, with real GDP growth in 2020 of -1.0 percent. The economy is projected to grow 3.4 percent in 2021, albeit at varying speeds across sectors, and with a high degree of uncertainty centered on the speed of normalization in the COVID situation. Public debt has risen and deficits have widened but remain at manageable levels. Credit continues to grow rapidly, financial markets have normalized quickly, and the financial sector has remained relatively sound to date despite the pandemic. The authorities are pursuing greener and more digital growth, along with a stronger social safety net, through the Korean New Deal.
    Date: 2021–03–25
  98. By: Plamen K Iossifov; Tomas Dutra Schmidt
    Abstract: We analyze a range of macrofinancial indicators to extract signals about cyclical systemic risk across 107 economies over 1995–2020. We construct composite indices of underlying liquidity, solvency and mispricing risks and analyze their patterns over the financial cycle. We find that liquidity and solvency risk indicators tend to be counter-cyclical, whereas mispricing risk ones are procyclical, and they all lead the credit cycle. Our results lend support to high-level accounts that risks were underestimated by stress indicators in the run-up to the 2008 global financial crisis. The policy implications of conflicting risk signals would depend on the phase of the credit cycle.
    Keywords: Credit cycles;Liquidity risk;Solvency;Systemic risk;Private debt;credit cycle.,WP,risk metrics,risk index,risk indices,solvency risk,interest rate,mispricing risk
    Date: 2021–02–05

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