nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒04‒19
ninety papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Asymmetric Effects of Monetary Policy on the Armenian Economy By Haykaz Igityan
  2. Housing Market Drivers and Dynamics in Armenia By Haykaz Igityan; Hasmik Kartashyan
  3. Asymmetric Effects of Monetary Policy in Different Phases of Armenia's Business Cycle By Haykaz Igityan
  4. Structural Reforms in DSGE Model By Vahagn Davtyan; Haykaz Igityan
  5. Monetary policy rules and the effective lower bound in the Euro area By Haavio, Markus; Laine, Olli-Matti
  6. A medium-scale Bayesian DSGE model for Kazakhstan with incomplete exchange rate pass through By Nurdaulet Abilov
  7. Managing households' expectations with unconventional policies By D'Acunto, Francesco; Hoang, Daniel; Weber, Michael
  8. Bargaining Shocks and Aggregate Fluctuations By Thorsten Drautzburg; Jesús Fernández-Villaverde; Pablo Guerron-Quintana
  9. Effective policy communication: Targets versus instruments By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  10. The Fed's response to economic news explains the "Fed information effect" By Bauer, Michael D.; Swanson, Eric T.
  11. How do inequalities affect the natural interest rate, and how do they impact monetary policy? Comparing Germany, Japan and the US By Mariam Camarero; Gilles Dufrénot; Cecilio Tamarit
  12. What Moves Treasury Yields? By Soroosh Soofi-Siavash; Emanuel Moench
  13. Global inflation: Low for long or higher for longer? By Demary, Markus; Hüther, Michael
  14. MEDSEA-FIN A DSGE model of the Maltese economy with housing and financial frictions By William Gatt; Noel Rapa; Luca Brugnolini
  15. Monetary policy, Twitter and financial markets: evidence from social media traffic By Donato Masciandaro; Davide Romelli; Gaia Rubera
  16. Exchange Rate Pass-through in Armenia By Stella Mnoyan
  17. "The Souk Al-Manakh: The Anatomy of a Pure Price-Chasing Bubble" By Frank Veneroso; Mark Pasquali
  18. Risky Business Cycles By Susanto Basu; Giacomo Candian; Ryan Chahrour; Rosen Valchev
  19. Income-specific inflation rates and the effects of monetary policy: the case of North Macedonia By Biljana Jovanovic; Marko Josimovski
  20. COVID-19 Fiscal Support and Its Effectiveness By Alexander Chudik; Kamiar Mohaddes; Mehdi Raissi
  21. How risky is Monetary Policy? The Effect of Monetary Policy on Systemic Risk in the Euro Area By Georg Leitner; Teresa Hübel; Anna Wolfmayr; Manuel Zerobin
  22. Uncertainty and Monetary Policy during the Great Recession By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  23. Divisia Monetary Aggregates for Russia: Money Demand, GDP Nowcasting, and the Price Puzzle By Makram El-Shagi; Kiril Tochkov
  24. Nowcasting in a Pandemic using Non-Parametric Mixed Frequency VARs By Florian, Huber; Koop, Gary; Onorante, Luca; Pfarrhofer, Michael; Schreiner, Josef
  25. Implications of market and political power interactions for growth and the business cycle I: private sector equilibrium By Tryphon Kollintzas; Dimitris Papageorgiou; Vanghelis Vassilatos
  26. The relationship between pandemic containment measures, mobility and economic activity By Corinna Ghirelli; María Gil; Samuel Hurtado; Alberto Urtasun
  27. Efficacité de la politique budgétaire en RDC By Banza Mukalay, M’pya
  29. High-yield bond markets during the COVID-19 crisis: the role of monetary policy By Dmitry Khametshin
  30. Money Matters: Global banks, safe assets and monetary autonomy By Sergio Florez-Orrego
  31. Modelling the Effects of a Health Shock on the Armenian Economy By Ani Asoyan; Vahagn Davtyan; Haykaz Igityan; Hasmik Kartashyan; Hovhannes Manukyan
  32. A newmacro-financial condition index for the euro area By Claudio Morana
  33. Relación entre las medidas de contención de la pandemia, la movilidad y la actividad económica By Corinna Ghirelli; María Gil; Samuel Hurtado; Alberto Urtasun
  34. Political Voice on Monetary Policy: Evidence from the Parliamentary Hearings of the European Central Bank By Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
  35. Financial Spillover and Contagion Risks in the Euro Area in 2007-2019 By Roman Garcia; Dimitri Lorenzani; Daniel Monteiro; Francesco Perticari; Bořek Vašíček; Lukas Vogel
  36. On Optimal Currency Areas and Common Cycles: Are the Acceding Countries Ready to Join the Euro? By Louisa Grimm; Sven Steinkamp; Frank Westermann
  37. International medium-term business cycles By Hirschbühl, Dominik; Spitzer, Martin
  38. Analysis of the Payment Habits in Malta By Charles Saliba; Mary Ann Muscat
  39. Fitting Armenian Data to the Simple DSGE Model with Permanent Productivity Growth By Haykaz Igityan; Hovhannes Manukyan
  40. The Role of the Euro in the Eastern Partnership Countries By Radostin Neykov; Caroline Robert
  41. Timing the Maltese business cycle: A historical perspective By Reuben Ellul
  42. An econometric analysis of the effectiveness of fiscal and monetary policies in India By Nadar, Anand
  43. Cyclical dynamics and the gender pay gap: A structural VAR approach By Kovalenko, Tim; Töpfer, Marina
  44. Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash By Ring, Marius
  45. The Openness Hypothesis in the Context of Economic Development in Sub-Saharan Africa: The Moderating Role of Trade Dynamics on FDI By Asongu, Simplice; Nnanna, Joseph; Acha-Anyi, Paul
  46. Forecasting UK inflation bottom up By Joseph, Andreas; Kalamara, Eleni; Kapetanios, George; Potjagailo, Galina
  47. Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence By Wesley Janson; Randal Verbrugge
  48. Monetary and Macroprudential Policy Complementarities: Evidence from European Credit Registers By Carlo Altavilla; Luc Laeven; José-Luis Peydró
  49. An Assessment of the Macroeconomic Implications of Foreign and Domestic Labour Supply Shocks in Malta By Germano Ruisi
  50. The identification of dominant macroeconomic drivers: coping with confounding shocks By Dieppe, Alistair; Francis, Neville; Kindberg-Hanlon, Gene
  51. Household Finance and Consumption Survey: A Comparison of the Main Results for Malta with the Euro Area By Silvio Attard; Warren Deguara; Valentina Antonaroli
  52. Unconventional monetary policy reaction functions: evidence from the US By Luca Agnello; Vitor Castro; Gilles Dufrénot; Fredj Jawadi; Ricardo Sousa
  53. Real-time analysis of the revisions to the structural position of public finances By Pablo Burriel; Víctor González-Díez; Jorge Martínez-Pagés; Enrique Moral-Benito
  54. An analysis of the shadow economy in Malta: A Currency Demand and MIMIC model approach By Tiziana Marie Gauci; Noel Rapa
  55. A Brief History of Hyperinflation in Argentina By Emilio Ocampo
  56. The effects of the COVID pandemic on the federal budget outlook. By Auerbach, Alan J; Gale, William
  57. How do inequalities affect the natural interest rate, and how do they impact monetary policy? Comparing Germany, Japan and the US By Mariam Camarero; Gilles Dufrénot; Cecilio Tamarit
  58. Impacto de la pandemia y los aislamientos obligatorios por COVID-19 sobre la pobreza total y extrema en Colombia By Jairo Núñez Méndez
  59. Globalization and Female Economic Participation in MINT and BRICS countries By Osinubi, Tolulope; Asongu, Simplice
  60. Update on housing market imbalances and household indebtedness By Mikael Khan; Olga Bilyk; Matthew Ackman
  61. Uncertainty, Risk, and Price-Setting: Evidence from CPI Microdata By Mario Canales; Bernabe Lopez-Martin
  62. Proyecto minero Quebradona. Aspectos económicos, government take y observaciones sobre el estudio de impacto ambiental By Astrid Martínez Ortiz; Martha Delgado; Enrique López Enciso; Eduardo Uribe
  63. The rental sector and the housing block in STREAM By Brian Micallef; Nathaniel Debono
  64. The Economic Gains from Equity By Laura Choi; Mary C. Daly; Lily Seitelman
  65. What Is behind the Global Jump in Personal Saving during the Pandemic? By Matthew Higgins; Thomas Klitgaard
  66. How Foreign- and U.S.-Born Latinos Fare During Recessions and Recoveries By Pia M. Orrenius; Madeline Zavodny
  67. Inflation Thresholds and Policy-Rule Inertia: Some Simulation Results By Cristina Fuentes-Albero; John M. Roberts
  68. Estimating Potential Output at the Central Bank of Armenia By Hayk Karapetyan
  69. Concentration in International Markets: Evidence from US Imports By Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
  70. Publication and Identification Biases in Measuring the Intertemporal Substitution of Labor Supply By Elminejad, Ali; Havranek, Tomas; Horvath, Roman
  71. Output volatility and exchange rates: New evidence from the updated de facto exchange rate regime classifications By Dąbrowski, Marek A.; Papież, Monika; Śmiech, Sławomir
  72. Desk Operations: The New Normal By Lorie Logan
  73. The Relationship between Prices and Output in the UK and the US By Guglielmo Maria Caporale; Gloria Claudio-Quiroga; Luis A. Gil-Alana
  74. Fiscal prudence: It's all in the timing - Estimating time-varying fiscal policy reaction functions for core EU countries By Berger, Tino; Dubbert, Tore; Schoonackers, Ruben
  75. How Long is Forever in the Laboratory? Three Implementations of an Infinite-Horizon Monetary Economy By Janet Jiang; Daniela Puzzello; Cathy Zhang
  76. Macroeconomic Effects of Global Policy and Financial Risks By OGAWA Eiji; Pengfei LUO
  77. Euro area equity risk premia and monetary policy: a longer-term perspective By Kapp, Daniel; Kristiansen, Kristian
  78. Assessing Next Generation EU By Lorenzo Codogno; Paul van den Noord
  79. The dawn of a mobile payment scheme: The case of Movii By Carlos León
  80. Quality of government and regional trade in the EU By Javier Barbero; Giovanni Mandras; Ernesto Rodríguez-Crespo; Andrés Rodríguez-Pose
  81. (A)Synchronous Housing Markets of Global Cities By Bhatt, Vipul; Kishor, N. Kundan
  82. Technology and demand drivers of productivity dynamics in developed and emerging market economies By Dieppe, Alistair; Francis, Neville; Kindberg-Hanlon, Gene
  83. Tree Networks to assess Financial Contagion By Agosto, Arianna; Ahelegbey, Daniel Felix; Giudici, Paolo
  84. Macroprudential Policy and Elections: What Matters? Abstract: By Can Sever; Emekcan Yucel
  85. In Search of Lost Time: Firm Vintage and Macroeconomic Dynamics By HAMANO Masashige; OKUBO Toshihiro
  86. Competitive attention, Superstars and the Long Tail By Andreas Hefti; Julia Lareida
  87. "Interdependent Capital Structure Choices and the Macroeconomy". By Jorge M. Uribe; Jose E. Gomez-Gonzalez; Jorge Hirs-Garzón
  88. The Hammer and the Dance: Equilibrium and Optimal Policy during a Pandemic Crisis By Tiziana Assenza; Christian Hellwig; Fabrice Collard; Martial Dupaigne; Patrick Fève; Sumudu Kankanamge; Nicolas Werquin
  89. Inflation Expectations and Firm Decisions: New Causal Evidence By Coibion, Olivier; Gorodnichenko, Yuriy; Ropele, Tiziano
  90. The link between unemployment and real economic growth in developed countries By Ivan Kitov

  1. By: Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: Whether inflation and output respond symmetrically or asymmetrically to contractionary and expansionary monetary policy shock of the same size has important policy implications. This paper shows the presence of asymmetric responses in Armenian inflation and output to positive and negative monetary policy shocks of the same size by employing econometric models. Contractionary policy decreases inflation less than expansionary policy increases it. Output reacts in the opposite way. An estimated small open economy DSGE model with sticky wages and investment adjustment costs explains about half of the asymmetry observed in the monetary policy transmission mechanism. This paper finds that the main part of inflation reaction asymmetry is a result of a highly convex Phillips curve for the importers. The nonlinearities of the internal economy explain the predominant part of the asymmetry in output reaction.
    Keywords: nonlinear VAR, New Keynesian Model, monetary policy, asymmetries, business cycle, expansion, recession, asymmetric effects of monetary policy
    JEL: C32 E12 E32 E52
    Date: 2021–03
  2. By: Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia); Hasmik Kartashyan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: This paper develops VAR model for Armenia with housing price and estimates the impact of housing price on GDP growth and inflation. Passthrough results show, that 1% increase in real housing price creates from 0.03 to 0.09% inflation and increases GDP by around 0.25% in the long run. Paper then discusses simple housing decision model and incorporates it into DSGE framework. Households are allowed to divide their disposable housing stock into private consumption and lend out to firms for commercial purposes. Having borrowing constraint in the model enables to generate both borrowing and housing cycles. Balance sheet channel allows to explain the empirically observed estimates of the effects of housing prices on the Armenian economy. According to the theoretical model’s results, the long-run response of inflation to the real housing price increase as a result of housing market’s specific shocks is estimated to lie in the interval of 0.045-0.118%, which is very close to empirical estimates. Moreover, model estimated commercial housing preference cycle is consistent with historical events of the Armenian economy.
    Keywords: Commercial and personal housing, Real estate, Housing price, DSGE model, Borrowing constraint, Bayesian Estimation
    JEL: E31 E44 E52 R21
    Date: 2021–01
  3. By: Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: This paper develops empirical models and shows the presence of asymmetric responses of inflation and output in Armenia to the same size of positive and negative monetary policy shocks. Tight monetary policy yields more reduction in output compared to the increase of output in a response to the same size of loose monetary policy. On the other hand, relatively more inflation is created by expansionary policy. The theoretical micro founded model with New Keynesian frictions is developed to explain asymmetries in transmission mechanism of policy. The model is estimated for the Armenian economy using fifteen macroeconomic time series and fifteen structural shocks. Impulse response functions of second order approximated theoretical model, based on estimated structural parameters, match asymmetries from empirical models. The methodology of mixed equations is applied to calculate the contribution of the particular friction in a creation of asymmetry in the transmission mechanism. The asymmetric response of inflation is mostly the result of highly convex Phillips curve of importers. Another part of asymmetry in inflation is created by internal economy’s price setting frictions and labor market rigidities. The significant part of asymmetric response in output is caused by nonlinearities in capital and labor markets. Adding curvatures of the small open economy into the second order approximated model, the size of asymmetry increases through the channel of higher asymmetry in real exchange rate. Third order theoretical moments of simulated models match directions and sizes of observed data. Variance decomposition of output shows that both demand and supply shocks are important drivers of output. The paper does policy experiments in demand and supply driven business cycle environments. In a demand driven growing economy, the aggressive contractionary monetary policy accelerates the decline of output with diminishing effect on inflation. Aggressive expansionary monetary policy increases the efficiency of creating inflation and decreases the stimulation of output in a demand driven recession. When the economy is in supply driven expansion, the increase in reaction of monetary policy accelerates the decline in output with no significant relative impact on inflation. In a supply driven recession, the aggressive response increases the reaction of output with diminishing effect on inflation.
    Keywords: Nonlinear VAR, Simulation, New Keynesian DSGE, Monetary Policy, Asymmetries, Business Cycle, Expansion, Recession, Asymmetric Effects of Monetary Policy
    JEL: C32 E12 E32 E52
    Date: 2019–09
  4. By: Vahagn Davtyan (Monetary Policy Department, Central Bank of Armenia); Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: This paper develops a DSGE model for a small open economy dividing it into tradable and non-tradable sectors in order to evaluate the impact of structural reforms on the economy for developing countries. The model is constructed and solved in a way that the steady state level of each sector’s employment rate is a function of its sector subsidy level. The economic meaning of such a result is that when a government subsidizes one of the sectors can become over employed. We also discuss the effects of exchange rate depreciation as an unconventional monetary policy tool when there is a ZLB problem or as a tool to boost the economy and to improve the current account. The results show that directly subsidizing the tradable sector can be a better policy than the depreciation of nominal exchange rate for making the economy more export oriented. The reason of such outcomes is the price stickiness of the sectors, which was validated by checking the sensitivity of the model with respect to its structural parameters. To conclude, for closing current account deficit or simply, for improving it the government should implement policies aimed at changing the structure of the economy.
    Keywords: small open economy, DSGE, monetary policy, taxes and subsidies, foreign exchange
    JEL: E12 E37 E52 E65 F31 H25
    Date: 2021–02
  5. By: Haavio, Markus; Laine, Olli-Matti
    Abstract: We analyze the economic performance of different monetary policy strategies, or rules, in a low interest rate environment, using simulations with a DSGE model which has been estimated for the euro area. We study how often the effective lower bound of interest rates (ELB) is likely to bind, and how much forgone monetary policy accommodation this entails. Macroeconomic outcomes are measured by the mean levels and the volatility of output (gaps), unemployment and inflation. We present three sets of results. First, the macroeconomic costs of the ELB are likely to grow in a non-linear manner if the monetary policy space (the difference between the normal, or average, level of nominal interest rates and the ELB) shrinks. Second, a point inflation target appears to outperform a target range. Third, the (relative) performance of low-for-long (L4L) monetary policy rules depends on the size of the monetary policy space. The L4L rules tend to perform well, if the monetary space is small, but if the space is larger these rules, while stabilizing inflation, may lead to more volatility in the real economy than flexible inflation targeting.
    JEL: E31 E32 E52 E58
    Date: 2021–04–08
  6. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University)
    Abstract: The paper analyzes the sources of business cycle fluctuations in Kazakhstan and the relevance of various frictions in the economy using a medium-scale DSGE model with imperfect exchange rate pass through. We estimate the model via Bayesian methods and present estimates of structural parameters of the model and highlight the role of various shocks in explaining the actual dynamics of observed variables. In the absence of quality and deseasonalized data we show that the DSGE model with time-varying markups possesses a reasonable level of accuracy as the one-sided Kalman filter predictions match the dynamics of the observable variables. Posterior estimates of the model show that the long-run growth rate of output is 4.5% per annum and the exchange rate pass through to domestic prices is between 33% and 40% within a quarter. We also find that risk premium shocks have played an important role in determining the inflation rate, the interest rate and the real exchange rate in the economy since 2015.
    Keywords: DSGE model; Incomplete exchange rate pass through; Bayesian estimation; Emerging economy; Kazakhstan.
    JEL: C11 E30 E32 E37
    Date: 2020–12
  7. By: D'Acunto, Francesco; Hoang, Daniel; Weber, Michael
    Abstract: Binding lower bounds on interest rates and large government deficits limit the scope of fiscal and monetary policies to stimulate households' spending through financial intermediaries and firms. Policymakers have thus been implementing unconventional policies that aim to increase households' spending directly through managing their expectations. We first show theoretically and empirically that higher in ation expectations increase households' consumption. We then design a difference-in-differences strategy to assess the effectiveness of unconventional fiscal policy and forward guidance, both of which aim to raise aggregate demand via managing expectations. Whereas unconventional fiscal policy increases households' expectations and spending, forward guidance announcements do not.
    Keywords: Expectations,Household Finance,Heterogeneous Beliefs,Fiscal Policy,Monetary Policy,Cognitive Abilities,Behavioral Macroeconomics,Macroeconomics with Micro Data
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2021
  8. By: Thorsten Drautzburg; Jesús Fernández-Villaverde; Pablo Guerron-Quintana
    Abstract: We argue that social and political risk causes significant aggregate fluctuations by changing workers’ bargaining power. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks trigger output and unemployment movements. To quantify the aggregate importance of these distribution shocks, we extend an otherwise standard neoclassical growth economy. We model distribution shocks as exogenous changes in workers’ bargaining power in a labor market with search and matching. We calibrate our economy to the U.S. corporate non-financial business sector, and we back out the evolution of workers’ bargaining power. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 28% of aggregate fluctuations and have a welfare cost of 2.4% in consumption units.
    Keywords: distribution risk, bargaining shocks, aggregate fluctuations, partial filter, historical narrative
    JEL: E32 E37 E44 J20
    Date: 2021
  9. By: D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: Communication targeting households and firms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication manages expectations when it focuses on policy targets and objectives rather than on the instruments designed to reach such objectives. It is especially the least sophisticated demographic groups, which central banks typically struggle to reach, who react more to target-based communication. When exposed to target-based communication, these groups are also more likely to believe that policies will benefit households and the economy. Target-based communication enhances policy effectiveness and contributes to strengthen the public's trust in central banks, which is crucial to guarantee the credibility of their policies.
    Keywords: Behavioral Macroeconomics,Heterogeneous Beliefs,Limited Cognition,Expectations Formation,Household Finance
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2021
  10. By: Bauer, Michael D.; Swanson, Eric T.
    Abstract: High-frequency changes in interest rates around FOMC announcements are a standard method of measuring monetary policy shocks. However, some recent studies have documented puzzling effects of these shocks on private-sector forecasts of GDP, unemployment, or inflation that are opposite in sign to what standard macroeconomic models would predict. This evidence has been viewed as supportive of a "Fed information effect" channel of monetary policy, whereby an FOMC tightening (easing) communicates that the economy is stronger (weaker) than the public had expected. The authors show that these empirical results are also consistent with a "Fed response to news" channel, in which incoming, publicly available economic news causes both the Fed to change monetary policy and the private sector to revise its forecasts. They provide substantial new evidence that distinguishes between these two channels and strongly favors the latter; for example, regressions that include the previously omitted public macroeconomic news, high-frequency stock market responses to Fed announcements, and a new survey that they conduct of individual Blue Chip forecasters all indicate that the Fed and private sector are simply responding to the same public news, and that there is little if any role for a "Fed information effect".
    Keywords: Federal Reserve,forecasts,survey,Blue Chip,Delphic forward guidance
    JEL: E43 E52 E58
    Date: 2021
  11. By: Mariam Camarero (University Jaume I and INTECO, Department of Economics, Castellón (Spain).); Gilles Dufrénot (Aix-Marseille Univ, CNRS, AMSE, Marseille, France and CEPII); Cecilio Tamarit (University of València and INTECO, Department of Applied Economics II, Valencia, Spain.)
    Abstract: In this paper we analyze how growing income/wealth inequality and the functional income distribution inequality have contributed to the sustained low potential growth observed in the industrialized economies during the last two decades, a period that includes the Great Recession (GR). Growing inequality may constitute a drawback for the recovery of these economies, especially after the Great Pandemic (GP). To this aim, we modify the semi-structural model originally proposed by Holston, Laubach and William, by considering the effects of several types of inequalities. We jointly estimate potential growth and the natural interest rates. We show that the latter can substantially modify the time path of the real interest rate that prevails when economies are at full strength and inflation is stable.
    Keywords: potential growth, Inequality, natural interest rate, G7, state-space model
    JEL: E62 E52 E21 C32
    Date: 2021–04
  12. By: Soroosh Soofi-Siavash (Bank of Lithuania, Vilnius University); Emanuel Moench (Deutsche Bundesbank, Goethe University Frankfurt, CEPR)
    Abstract: We characterize the joint dynamics of a large number of macroeconomic variables and Treasury yields in a dynamic factor model. We use this framework to identify a yield curve news shock as an innovation that does not move yields contemporaneously but explains a maximum share of the forecast error variance of yields over the next year. This shock explains more than half, and along with contemporaneous shocks to the level and slope of the yield curve, essentially all of the variation of Treasury yields several years out. The news shock is associated with a sharp and persistent increase in implied stock and bond market volatility, falling stock prices, an uptick in term premiums, and a prolonged decline of real activity and inflation. The accommodative response by the Federal Reserve leads to persistently lower expected and actual short rates. Treasury yields do not react contemporaneously to the yield curve news shock as the positive response of term premiums and the negative response of expected shot rates initially offset each other. Identified shocks to realized and implied financial market volatility imply essentially the same impulse responses and are highly correlated with the yield news shock, suggesting that they act as unspanned or hidden factors in the yield curve.
    Keywords: term structure of interest rates, yield curve, news shocks, uncertainty shocks, structural vector autoregressions, factor-augmented vector autoregressions
    JEL: C55 E43 E44 G12
    Date: 2021–03–31
  13. By: Demary, Markus; Hüther, Michael
    Abstract: Inflation has started to increase, and the return of inflation comes at a time in which economies begin to recover from pandemic-induced and lockdown-induced recessions. This raises questions about how much and how long inflation will go up as well as about whether central banks have to step-up against inflation at the cost of slowing down the economic recovery. Has "low for long" turned into "higher for longer"? We look at the different possible factors that could drive inflation, like pandemic- and lockdown-induced pend-up demand, price-wage-spirals, fiscal policy and other relevant factors. We conclude from our analysis that inflation could possibly rise in the short-term, but that inflation will return to low rates in the medium-term. While pend-up demand will result in higher prices, the inflation effect will only be transitory and moreover concentrated on services related to tourism and accommodation and be absent in other sectors where digital alternatives leading to more competition are available. Even in the case in which the combination of accommodative monetary policy and expansionary fiscal policy would close the output gap and drive the economy towards a state of overheating, we expect a low inflationary effect because of the flat Phillips-curve. Thus, we do not expect any trade-offs for central banks between fighting inflation and supporting the economies to grow and to deleverage. Instead, we see a welcomed return of inflation towards its target value accompanied by an economic recovery that enables central banks to end their asset purchasing programmes and their negative interest rate policies in a natural way, that means we expect higher interest rates without risks to the economic recovery.
    JEL: E31 E52
    Date: 2021
  14. By: William Gatt; Noel Rapa; Luca Brugnolini (Central Bank of Malta)
    Abstract: We extend the Central Bank of Malta’s core DSGE model – MEDSEA – with housing and financial frictions to capture the important theoretical links between house prices, credit and consumption. The model features a rich set of features that are inherent to small open economies in a monetary union. We add a borrowing constraint on a subset of households that is contingent on the value of housing wealth and a maximum loan-to-value (LTV) ratio. We also impose capital requirements on the financial intermediary through a minimum capital-to-assets ratio (CAR) constraint. These two requirements form the basis of a typical macroprudential regime in a developed economy. We show how the macroprudential authority can dampen the rise in credit and consumption during a credit boom by using these two policy tools to ‘lean against the wind’. MEDSEA-FIN is therefore tailored to study macro-financial issues related to housing and credit, and the adequate policy responses.
    JEL: C54 E44 E58 E60
    Date: 2020
  15. By: Donato Masciandaro; Davide Romelli; Gaia Rubera
    Abstract: How does central bank communication affect financial markets? This paper shows that the monetary policy announcements of three major central banks, i.e. the European Central Bank, the Federal Reserve and the Bank of England, trigger significant discussions on monetary policy on Twitter. Using machine learning techniques we identify Twitter messages related to monetary policy around the release of monetary policy decisions and we build a metric of the similarity between the policy announcement and Twitter traffic before and after the announcement. We interpret large changes in the similarity of tweets and announcements as a proxy for monetary policy surprise and show that market volatility spikes after the announcement whenever changes in similarity are high. These findings suggest that social media discussions on central bank communication are aligned with bond and stock market reactions.
    Keywords: monetary policy, central bank communication, financial markets, social media, Twitter, Federal Reserve, European Central Bank, Bank of England
    JEL: E44 E52 E58 G14 G15 G41
    Date: 2021
  16. By: Stella Mnoyan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: In this paper, we develop a semi-structural macroeconomic model to estimate the Exchange Rate Pass-through in Armenia using Bayesian estimation. The pass-through both to import prices and core inflation is somewhat lower than the average results for comparable emerging economies reported in the literature. As we calculate time-varying pass-through rates we also explore critical factors causing shifts over time. The macroeconomic view of exchange rate pass-through incompleteness, especially the monetary policy credibility factor, plays a significant role.
    Keywords: Purchasing Power, Taylor Rule, Risk Premia, Exchange Rates, Exchange Rate Pass-through, Output Inflation, Bayesian Analysis, Econometric Modeling, Simulation
    JEL: F31 E31 E37 C11
    Date: 2019–10
  17. By: Frank Veneroso; Mark Pasquali
    Abstract: It is widely agreed that the Nasdaq during the dot-com era 20 years ago was a full-fledged stock market bubble. Recently, the US stock market according to many metrics has become significantly more speculative and overvalued than it was at the dot-com peak 20 years ago. In both instances, a very broad subset of stocks became so highly valued that speculation in them had to be untethered from all fundamentals: the essence of what we call a "pure price-chasing bubble." This paper, drawn from a book in progress, examines the history of stock markets for comparable pure price-chasing bubbles, finding nine or so which have ever reached such a speculative extreme, with an over-the-counter market in Kuwait in the early 1980s called the "Souk al-Manakh" representing the most extreme example. Based on personal exposure to this Souk al-Manakh almost 40 years ago, we describe this anatomy and thereby make transparent the recurrent dynamics--on the way up and on the way down--of these greatest asset bubbles in human history. When one applies this framework to the current US stock market, one sees that the stock market in the US today will likely follow the disastrous path of the dot-com market.
    Keywords: John Maynard Keynes; Business Cycle; Fiscal Policy; Monetary Policy; Financial System; Uncertainty
    JEL: B31 E12 E32 E44 E63
    Date: 2021–03
  18. By: Susanto Basu (Boston College); Giacomo Candian (HEC Montréal); Ryan Chahrour (Boston College); Rosen Valchev (Boston College)
    Abstract: We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A real model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction.
    Keywords: Business Cycles; Risk Premia; Uncertainty
    JEL: E32 E24
    Date: 2021–04–07
  19. By: Biljana Jovanovic (National Bank of the Republic of North Macedonia); Marko Josimovski (National Bank of the Republic of North Macedonia)
    Abstract: In this paper, we investigate the effects of monetary policy concerning the inflation rates specific for each income group of households. We find that the prices specific for high-income households are generally more rigid and less volatile compared to the prices specific for middle and lower-income households. This means that monetary policy can differently affect the different inflation rates specific for each of the income groups. By using a Factor-Augmented VAR (FAVAR) model, we show that a monetary policy shock affects high-income households less compared to middle and lower-income households, although the differences between the separate income groups are generally small. Then, by using a small scale gap model, we find that the prices of low-income households are the most sensitive to a monetary policy shock, while the prices of the top-income households are the least sensitive to the shock, which is in line with our empirical findings.
    Keywords: Inflation, monetary policy, distributional effects
    JEL: E31 E52
    Date: 2021
  20. By: Alexander Chudik; Kamiar Mohaddes; Mehdi Raissi
    Abstract: This paper uses a threshold-augmented Global VAR model to quantify the macroeconomic effects of countries’ discretionary fiscal actions in response to the Covid-19 pandemic and its fallout. Our results are threefold: (1) fiscal policy is playing a key role in mitigating the effects of the pandemic; (2) all else equal, countries that implemented larger fiscal support are expected to experience less output contractions; (3) emerging markets are also benefiting from the synchronized fiscal actions globally through the spillover channel and reduced financial market volatility.
    Keywords: TGVAR; Covid-19; threshold effects; fiscal policy
    JEL: C32 E44 E62 F44
    Date: 2021–04–06
  21. By: Georg Leitner (Department of Economics, Vienna University of Economics and Business); Teresa Hübel (Department of Economics, Vienna University of Economics and Business); Anna Wolfmayr (Department of Economics, Vienna University of Economics and Business); Manuel Zerobin (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper empirically investigates the effect of monetary policy on systemic risk within the Euro area. We estimate a Bayesian proxy-VAR where we exploit high-frequency identified monetary policy surprises for identification. Employing aggregate as well as market specific systemic risk measures, we provide novel evidence on the heterogeneous risk transmission of conventional and unconventional monetary policy on different financial markets. We find that expansionary conventional monetary policy, near term guidance and forward guidance decrease systemic risk whereas quantitative easing (QE) increases systemic risk. While the effects are qualitatively homogeneous for near term guidance and forward guidance, there exists heterogeneity in the risk transmission of conventional monetary policy and QE across different financial markets. The latter increases systemic risk significantly within bond markets, foreign exchange markets and among financial intermediaries. This might be caused by increased search for yield behaviour as QE distinctively reduces longer term interest rates. Our analysis shows that there is a potential threat to financial stability caused by QE which should be concerned by monetary- and macroprudential policymakers.
    Keywords: Monetary Policy, CISS, Systemic Risk, Bayesian-Proxy-VAR, High-Frequency Identification
    JEL: C32 E44 E52 G10
    Date: 2021–03
  22. By: Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
    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
  23. By: Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Kiril Tochkov (Texas Christian University, Fort Worth, TX, US)
    Abstract: The lack of developed financial markets and well-functioning transmission channels assigns monetary aggregates in emerging economies the potential role of nominal anchor, intermediate target, or informational variable for monetary policy. The effectiveness of this approach relies crucially on the correct measurement of money, which is not fulfilled by the conventional index based on the simple sum of financial assets. This paper calculates alternative Divisia monetary aggregates for Russia over the period 1998-2019, which account for the level of liquidity of a given monetary asset by assigning weights according to the usefulness of that asset for transaction services. Divisia is found to follow a growth pattern markedly different from the simple sum, whereby deviations between the two series are even more pronounced when foreign-currency accounts are included. We conduct three empirical exercises to demonstrate the advantages of Divisia over the simple sum. Divisia confirms the stability of the money demand function and reflects portfolio shifts in response to changes in the opportunity cost of simple sum. Lastly, Divisia mitigates the price puzzle phenomenon relative to the conventional measure. We conclude that Divisia monetary aggregates would improve the effectiveness of monetary policy in Russia.
    Keywords: Monetary policy, monetary aggregates, Divisia, nowcasting, Russia
    JEL: C43 E41 E52 O52
    Date: 2021–01
  24. By: Florian, Huber (University of Salzburg); Koop, Gary (University of Strathclyde); Onorante, Luca (European Commission); Pfarrhofer, Michael (University of Salzburg); Schreiner, Josef (Oesterreichische Nationalbank)
    Abstract: This paper develops Bayesian econometric methods for posterior inference in non-parametric mixed frequency VARs using additive regression trees. We argue that regression tree models are ideally suited for macroeconomic nowcasting in the face of extreme observations, for instance those produced by the COVID-19 pandemic of 2020. This is due to their flexibility and ability to model outliers. In an application involving four major euro area countries, we find substantial improvements in nowcasting performance relative to a linear mixed frequency VAR.
    Keywords: Regression tree models, Bayesian, macroeconomic forecasting, vector autoregressions
    JEL: C11 C32 C53 E37
    Date: 2021–03
  25. By: Tryphon Kollintzas (Athens University of Economics and Business and CEPR); Dimitris Papageorgiou (Bank of Greece); Vanghelis Vassilatos (Athens University of Economics and Business, Econometrics Laboratory, IMOP)
    Abstract: In this paper, we develop a two sector DSGE model with market and political power interactions. These interactions are motivated by the politico-economic systems of several South European countries, over the last half century. In these countries the state permits the existence of industries, typically related to the extended public sector, where firms and workers employed therein have market power (insiders), unlike other firms and workers in the economy (outsiders), as insiders, that dominate the major political parties, cooperate to influence government decisions, including those that pertain to the very existence of such a politico-economic system. Consistently with stylized facts of growth and the business cycle of these countries, the model predicts: (i) large negative deviations of per capita GDP from what these countries would have been capable of, if their politico-economic system was not characterized by the above mentioned frictions; and (ii) deeper and longer recessions in response to negative shocks, as their politico-economic system reacts so as to amplify these shocks.
    Keywords: Growth; Business Cycles; Southern European Economies; Insiders-Outsiders; Politico-economic Equilibrium; Amplification Effect
    JEL: E20 E32 H42 J51 P16
    Date: 2021–03
  26. By: Corinna Ghirelli (Banco de España); María Gil (Banco de España); Samuel Hurtado (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: This paper first constructs a regional-scale indicator that seeks to gauge the volume of measures implemented at each point in time to contain the pandemic. Using textual analysis techniques, we analyse the information in press news. At the start of the pandemic, measures were taken in a centralised fashion; but from June, regional differences began to be seen and increased in the final stretch of the year. Second, using linear estimates, with monthly data and a level of regional disaggregation, the paper documents how most of the reduction in mobility observed in Spain has been due to the restrictions imposed. However, there has been a perceptible change in this relationship over recent months. In the early stages of the pandemic, the reduction in mobility was found to be greater than would be inferred by the restrictions approved. That is to say, at the outset there was apparently some voluntary reduction in mobility. Yet following lockdown-easing, the behaviour of mobility has fitted more closely with what might be attributed to the containment measures in force. Finally, the findings in the paper suggest that most of the decline in economic activity since the start of the crisis can be explained by the reductions observed in mobility. The analysis considers only the short-term effects on activity, which is very useful for preparing the projections on GDP behaviour in the current quarter. Conversely, the methodological approach pursued does not allow for evaluation of the effect of the pandemic containment measures on activity over longer time horizons. In particular, the adverse impact on the economy’s output that occurs concurrently as a result of the restrictions may be countered in the medium term by an effect of the opposite sign, to the extent that the restrictions imposed today may serve to prevent other more forceful ones in the future.
    Keywords: nowcasting, GDP, economic activity, textual analysis, sentiment indicators, soft indicators, pandemic, COVID-19, coronavirus, mobility, restrictions, panel data
    JEL: I18 I12 E32 E37 C53 C23
    Date: 2021–03
  27. By: Banza Mukalay, M’pya
    Abstract: Cette étude fait ressortir l’impact d’une variation des impôts et taxes sur la production nationale et la demande agrégée tout en insistant sur l’influence des ménages non ricardiens. En outre, elle évalue (i) la valeur des multiplicateurs des dépenses et ceux fiscaux ainsi que (ii) les sources des fluctuations de la production. En recourant à l’estimation bayesienne d’un modèle d’équilibre général dynamique et stochastique (DSGE) à l’aide des données trimestrielles de 1998-2018, les résultats démontrent d’un côté qu’une hausse des dépenses publiques accroît significativement la production, la consommation et l’investissement privé–avec un multiplicateur des dépenses évalué en moyenne à 0.36 à court terme–si une grande proportion des dépenses est affectée à l’investissement public. De l’autre côté, une baisse des impôts et taxes a un effet positif et significatif sur la production et la demande globale, avec un multiplicateur fiscal fixé à 0.14 en moyenne et à court terme. Cette efficacité est due au fait que la proportion des ménages non ricardiens (90%) est très élevée, permettant ainsi de stimuler l’économie. En outre, les variations cycliques de la production sont majoritairement expliquées par les chocs d’investissement public et de la taxe sur la consommation.
    Keywords: DSGE; Estimation bayesienne; Ménages ricardiens; Ménages non ricardiens; Multiplicateur; Politique budgétaire
    JEL: E32 E62
    Date: 2021–04
  28. By: Dilem Yıldırım (Department of Economics, Middle East Technical University, Ankara, Turkey); Dilan Aydın (University of Bologna, Department of Economics, Bologna, Italy)
    Abstract: This paper investigates the hypothesis of unemployment hysteresis for GIPS countries (Greece Ireland, Portugal, and Spain) over the period 1998(4)-2019(4). While most of the existing empirical studies assume constant order of integration for unemployment over the sample period, we consider the possibility that, like many macroeconomic variables, unemployment might display changes in persistence, which might result in potential switches between the natural rate and hysteresis hypotheses. In this respect, we adopt a multiple persistence change methodology. Our empirical results suggest that the structural natural rate (hysteresis) hypothesis is supported for Ireland (Portugal) over the entire sample without any change in persistence of the unemployment rate. For the cases of Greece and Spain, on the other hand, our results propose that unemployment is characterized by multiple changes in persistence with the observed dates for persistence changes coinciding with the Great Recession, the European Sovereign debt crisis, and the deepening of economic and labor market reforms launched to retrain the impact of the crises in those countries.
    Keywords: Unemployment, Persistence, Hysteresis, Structural changes, GIPS countries
    JEL: C12 C22 E24 G01
    Date: 2021–04
  29. By: Dmitry Khametshin (Banco de España)
    Abstract: This article documents the difference in corporate bond issuance between the euro area (EA) and the United States (US) in 2020, especially in the high-yield (HY) segment, and discusses the role that the monetary policy measures undertaken by the US Federal Reserve (Fed) and the ECB in response to the Covid-19 crisis may have played in explaining such difference. We document that the issuance of HY bonds since February 2020 has been lower by historical standards in the EA than in the US. The Fed’s measures aimed at the HY segment, mainly the purchase of HY bond exchange traded funds (ETFs), could have reduced credit spreads and improved market liquidity, which in turn could have stimulated debt issuance. Alternatively, HY issuers in the EA may have faced better bank funding conditions due to the ECB’s targeted longer term refinancing operations (TLTRO) and to other measures by national fiscal authorities, leading such issuers to substitute bank credit for bond finance. The article discusses these possibilities and argues that they all may have played a role to a certain extent.
    Keywords: corporate bond purchase programs, monetary policy, COVID-19
    JEL: E58 E43 G12
    Date: 2021–03
  30. By: Sergio Florez-Orrego
    Abstract: This paper depicts an often neglected channel of transmission of monetary policy, namely international safety appetite, as an important source of production and risk-taking international monetary spillovers. The model features a local economy with exogenous financial frictions that lead firms to need both local and foreign financing to pay for their factors of production. Global and local risk-averse banks supply firms with risky loans while buying safe assets to governments to hedge themselves against equity shocks. Monetary policy shocks of a hegemon currency issuer affect returns obtained by banks for the risky loans they concede, altering these agents' risk pricing and balance sheet composition. Main results outline that global monetary policy tightening reduces the returns of risky global loans, inducing global banks to reduce risky loan creation, ultimately decreasing both production and consumption volatility internationally. Two more secondary results arise. First, local monetary authorities may counteract global monetary policy spillovers, but this will entail a trade-off between boosting production and reducing consumption volatility. Second, both global and local expansive monetary policy increase the demand for global safe assets, relaxing the budget constraint of monopolistic global safe asset issuers. Understanding the international safety appetite mechanism of transmission appears to be of critical importance as it may impact the effectiveness of monetary policy in open economies as well as its optimal design.
    Keywords: global currencies, monetary policy spillovers, exorbitant privilege.
    JEL: E42 E44 E52 E63 F42 F44
    Date: 2021–04–07
  31. By: Ani Asoyan (Monetary Policy Department, Central Bank of Armenia); Vahagn Davtyan (Monetary Policy Department, Central Bank of Armenia); Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia); Hasmik Kartashyan (Monetary Policy Department, Central Bank of Armenia); Hovhannes Manukyan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: This paper extends the closed economy DSGE model in order to evaluate the impact of the coronavirus on the economy. Our model makes it clear that people's decisions to reduce consumption and working hours due to the health crisis lead to an economic recession. As a result, the spread of the virus declines. Expansionary monetary policy decreases the size of GDP decline, but it is costly in terms of public health. This result shows that there is a trade-off between the output loss caused by the pandemic and the health consequences of the pandemic.
    Keywords: DSGE, health, epidemic, COVID-19
    JEL: E12 E52 I10
    Date: 2020–12
  32. By: Claudio Morana
    Abstract: In this paper, we introduce a new time-domain decomposition for weakly stationary or trend stationary processes, based on trigonometric polynomial modelling of the underlying component of an economic time series. The method is explicitly devised to disentangle medium to long-term and short-term fluctuations in macroeconomic and financial series, in order to accurately measure the financial cycle and the concurrent long swings in economic activity. The implementation of this decomposition is straightforward and relies on standard regression analysis and general to specific model reduction. Full support to the proposed method is provided by Monte Carlo simulation. In the paper, we also provide a multivariate extension, involving sequential univariate decompositions and Principal Components Analysis. Based on this multivariate approach, we introduce a set of new composite indexes of macro-financial conditions for the euro area and assess their information content. In particular, concerning the current pandemic, the indicators suggest that most of the GDP contraction has been of short-term, cyclical nature. This is likely due to the prompt monetary and fiscal policy responses. Yet our evidence suggests that the financial cycle might have currently achieved a peak area. Hence, the risk of further, deeper disruptions is high, particularly in so far as a new sovereign/corporate debt crisis were not eventually avoided.
    Keywords: trend-cycle decomposition, COVID-19 pandemics, subprime financial crisis, sovereign debt crisis, dot-com bubble, macroeconomic and financial conditions index, euro area
    JEL: C22 C38 E32 F44 G01
    Date: 2021–04
  33. By: Corinna Ghirelli (Banco de España); María Gil (Banco de España); Samuel Hurtado (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: En este trabajo se construye, en primer lugar, un indicador a escala autonómica que trata de medir el volumen de medidas desplegadas en cada momento del tiempo para contener la pandemia. Para ello se analiza, mediante técnicas de análisis textual, la información contenida en las noticias de prensa. Al inicio de la pandemia, las medidas se tomaron de forma centralizada, pero a partir de junio comienzan a observarse diferencias entre regiones, que se intensificaron en la parte final del año. En segundo lugar, utilizando estimaciones lineales, con datos mensuales y con un nivel de desagregación autonómico, se documenta que la mayor parte de la reducción de la movilidad observada en España viene explicada por las restricciones desplegadas. No obstante, se aprecia un cambio en esta relación a lo largo de los últimos meses. Así, en las fases iniciales de la pandemia, se encuentra que la reducción de la movilidad fue superior a la que se desprendería de las restricciones aprobadas. Esto es, al principio se produjo, aparentemente, una cierta reducción de la movilidad de carácter voluntario. Sin embargo, tras la desescalada, el comportamiento de la movilidad se ha ajustado más al explicado por las medidas de contención en vigor. Por último, los resultados del trabajo apuntan a que la mayor parte de la caída en la actividad económica desde el comienzo de la crisis sanitaria puede explicarse por las reducciones observadas en la movilidad. El análisis considera solamente los efectos de corto plazo sobre la actividad, lo que es de gran utilidad para la elaboración de las proyecciones acerca del comportamiento del PIB en el trimestre corriente. La aproximación metodológica que se ha seguido no permite, por el contrario, evaluar el efecto de las medidas de contención de la pandemia sobre la actividad en horizontes temporales mayores. En particular, el impacto adverso sobre el producto de la economía que tiene lugar de forma contemporánea como consecuencia de las restricciones puede verse contrarrestado en el medio plazo por un efecto de signo opuesto, en la medida en que las restricciones impuestas hoy sirvan para evitar otras más contundentes en el futuro.
    Keywords: previsión a corto plazo, pib, actividad económica, análisis textual, indicadores de sentimiento, indicadores cualitativos, pandemia, COVID-19, coronavirus, movilidad, restricciones, datos de panel
    JEL: I18 I12 E32 E37 C53 C23
    Date: 2021–03
  34. By: Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
    Abstract: Previous scholarship on central bank accountability has generally focused on monetary authorities' deeds and words while largely ignoring the other side of the accountability relationship, namely politicians’ voice on monetary policy. This raises a fundamental question: what are central banks held accountable for by elected officials? To answer this question, we employ structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament (MEPs) and the President of the European Central Bank (ECB) from 1999 to 2019. Our findings are twofold. First, we uncover differences in how MEPs keep the ECB accountable for its primary, price stability objective. We show that European politicians also attempt to keep the central bank accountable for a broader set of issues that are connected with, but distinct from, the central bank's primary goal. Second, we show that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. In particular, higher rates of domestic unemployment lead MEPs to devote less voice on issues related to the ECB’s price stability mission. These findings reveal the existence of a "political" Phillips curve reaction function, which enriches our understanding of the principal-agent accountability relationship between politicians and central bankers.
    Keywords: Accountability; European Central Bank; politicians; European Parliament
    JEL: E50 E52 E58
    Date: 2021
  35. By: Roman Garcia; Dimitri Lorenzani; Daniel Monteiro; Francesco Perticari; Bořek Vašíček; Lukas Vogel
    Abstract: This paper analyses empirically the main direct and indirect transmission channels of financial spillovers and contagion risks in the euro area, focusing on the sovereign-to-sovereign, sovereign-to-bank, and bankto-bank channels. We employ correlation analysis, analysis of bank balance sheets, reduced-form models inferring the interconnectedness among agents from market data, and simulated structural models. The value added by this paper to the literature consists both in analysing the recent episodes of financial distress (until 2019), which happened after reforms of the Economic and Monetary Union (EMU) architecture were introduced in response to the euro area debt crisis, and in our reliance on complementary analytical tools (“tool kit”). Overall, the paper suggests that: (i) sovereign-to-sovereign spillover risks have weakened, arguably also due to a more limited role of redenomination risk; (ii) financial spillovers from sovereigns to banks (and vice versa) have become smaller in recent years; and (iii) the bank-to-bank transmission channel remains the most relevant in terms of financial spillovers and potential contagion. Finally, when analysing the impact of financial spillovers on the real economy, we find that higher financial risks can imply sizeable losses in terms of real GDP growth.
    JEL: C01 E43 G01 G21 G28
    Date: 2021–01
  36. By: Louisa Grimm; Sven Steinkamp; Frank Westermann
    Abstract: The former EU president Jean-Claude Junker has proposed that all countries of the European Union should also adopt the euro as their currency and recent research has shown that countries currently pursuing this goal indeed fulfill the classical Optimal Currency Area (OCA) criterion of positively correlated shocks with the European Monetary Union (EMU). We illustrate, however, that not only the correlation of shocks but also a common impulse response pattern over time is needed for a currency area to be optimal. We test this additional OCA criterion using the concept of a common serial correlation test. The test clearly rejects the notion that the potentially acceding countries share a common cyclical response pattern with the EMU aggregate – except for Sweden. Instead, the business cycles in most of the other countries exhibit only a very weak form of codependence.
    Keywords: Codependent Business Cycles; Serial Correlation Common Feature; European Monetary Integration; Seasonality; Optimum Currency Area
    JEL: C32 E32 F36
  37. By: Hirschbühl, Dominik; Spitzer, Martin
    Abstract: Foreign driven medium-term oscillations that originate from fluctuations in technological frontier countries gained widespread attention among policymakers. To study this phenomenon in the context of domestic and other foreign drivers of the euro area business cycle, we develop a medium-scale, two-economy dynamic stochastic general equilibrium model with endogenous growth and estimate it with Bayesian methods for the United States and the euro area for the period from 1984:Q1 to 2017:Q4. The framework suggests that foreign shocks can be a substantial source of medium-term oscillations that contribute to pro-cyclicality of real GDP across countries. Notably, US shocks to liquidity preference and trade demand explain more than a third of the euro area downturn during the Great Recession. JEL Classification: E2, E5, F1, F4, O4
    Keywords: Bayesian estimation, endogenous growth, R&D, resilience, two-economy DSGE
    Date: 2021–04
  38. By: Charles Saliba; Mary Ann Muscat (Central Bank of Malta)
    Abstract: This paper presents an extensive analysis on the means of payment that consumers in Malta use to purchase different goods and services. The aim of this study is to shed light on consumers’ payment behaviour and in particular to improve the understanding of the considerations that shape consumers’ payment choices, based on a survey of 500 households in Malta. Thus, it delivers essential information that should help the Central Bank of Malta and relevant payment systems stakeholders enhance their policies and strategic decisions with a view to improve the efficiency of the cash cycle and the payment systems more generally. Where possible, data are compared with the results of a 2013s survey on the same subject and also with statistics on the use of cash by households in the euro area.
    JEL: E41 E58
    Date: 2020
  39. By: Haykaz Igityan (Monetary Policy Department, Central Bank of Armenia); Hovhannes Manukyan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: This paper discusses the evaluation of structural parameters and estimated potential economic growth of Armenia using different specifications of DSGE models. We extend the simple models so that they are consistent with a balanced steady state growth path driven by deterministic labor-augmenting technological progress. Using a Bayesian likelihood approach, paper estimates DSGE models for the Armenian economy using three macro-economic time series. As a result, the dynamics of estimated potential economic growth of the model with demand and mark-up shocks is consistent with economic stylized facts contrary to other models that have no demand and markup shocks or only have one of these shocks. Additionally, estimated potential economic growth of the model with demand and markup shocks shows high correlation with other estimates of Central Bank of Armenia. Paper then structures and estimates two specifications of simple RBC model and the estimated potential economic growth of the model with persistent permanent productivity is identical with DSGE’s one. We show that our models are able to beat Vector Autoregression (VAR) models in out-of-sample forecasting of economic growth.
    Keywords: Bayesian Estimation, VAR, Real Business Cycles, DSGE
    JEL: C11 C32 E12 E32
    Date: 2020–01
  40. By: Radostin Neykov; Caroline Robert
    Abstract: This paper explores the role of the euro in a number of Eastern neighbours to the EU that are part of the Eastern Partnership (EaP) initiative: Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine. Based on a survey conducted by the European Commission at the end of 2019 on the use of the euro and other currencies in these countries, as well as desk research, it looks into four dimensions: crossborder trade transactions, foreign exchange reserves, external public debt and the commercial bank sector. It finds that most of the EaP countries are skewed towards using the US dollar. This reflects both historical developments and the efficiency of the US dollar financial market. However, the growing political ties and economic exchanges between these countries and the EU provide a rational basis for a greater role of the euro. Since 2014, the euro is steadily increasing its share in trade invoicing and debt stock in a number of countries. Overall, Moldova stands out by a large margin as it uses the euro in more than half of its total international transactions. At the other end of the spectrum are Georgia and Armenia, where the euro plays a more moderate role in most areas. Based on these findings, the paper highlights some areas where the EU could encourage the use of the euro in the region through enhanced economic diplomacy and policy initiatives that would increase its attractiveness such as development of instruments that create sufficient supply of safe euro assets or target niche segments where the EU could play a leading role (for example social bonds, green bonds).
    JEL: E41 E42 E52 E58
    Date: 2021–02
  41. By: Reuben Ellul (Central Bank of Malta)
    Abstract: Despite data limitations, formal methods can still be applied to identify business cycle turning points and hence date appropriately the Maltese business cycle. An extension of the official quarterly GDP time series to the 1970s allows for a historical view on dating the business cycle, leading to the identification of tentative set of recessionary episodes. In line with the business cycle literature, which suggests that multiple data ought to be considered when timing the business cycle, unemployment rate data are also considered. Findings with respect to developments in the labour market are also discussed. The study also highlights pitfalls in the timing of recessions in Malta, relating to problems in the estimation of national accounts, as well as the number of observations of the GDP time-series. This study represents a first step towards maintaining a chronology of Maltese business cycles by collating a dataset, analysing it and focusing on the statistical aspects of business cycles.
    JEL: C24 C25 E32
  42. By: Nadar, Anand
    Abstract: This study investigatesthe 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 co-integration approach to check the long-run relationship between fiscal policy, monetary policy, and economic growth in the context of Indian economy. 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 impacts of fiscal and monetary policies are insignificant. However, the short-run 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 decreasesif the money supply and government expenditure decrease (contractionary fiscal and monetary policies). Therefore, this study recommends to use expansionary policies to spur the Indian economy.
    Date: 2021–04–02
  43. By: Kovalenko, Tim; Töpfer, Marina
    Abstract: Gender pay gaps persist worldwide despite political emphasis to close them. The literature found various drivers of the gaps but remained vastly silent about the role of cyclical dynamics. Using quarterly US data over the period 1979-2019, we study the effects of cyclical dynamics on the gender pay gap based on a structural vector auto-regression model with zero and sign restrictions. The results suggest that technology shocks lead to lower levels of the gender pay gap in the medium run, while higher wage bargaining power reduces the gap in the short run. However, these reductions of the gap come at the cost of increased unemployment. As a policy implication, these results imply a trade-off between lower gender pay gaps and higher unemployment.
    Keywords: Gender pay gap,Vector Auto-Regression (VAR) model,Cyclical dynamics,Macroeconomic shocks
    JEL: E24 J16 J23
    Date: 2021
  44. By: Ring, Marius
    Abstract: I provide evidence that adverse shocks to the wealth of business owners during the Financial Crisis had large effects on their firms' financing, \ employment, and investment. I use individual-level portfolio data from Norway to exploit the dispersion in stock returns during 2008–09 as a source of exogenous variation in entrepreneurs' wealth. I then trace out the effects of these shocks to the entrepreneurs' privately-held firms. I find that the adverse employment and investment effects are primarily driven by young firms who—relative to mature firms—obtain considerably less bank financing following an owner wealth shock. Firms adjust employment primarily through hiring less, rather than firing, consistent with firms providing extensive-margin insurance for existing workers. These findings provide a causal link between asset price shocks and the real economy; \ and document that equity-financing frictions and the procyclicality of entrepreneurial wealth are important channels through which economic shocks amplify.
    Keywords: Financial Crisis; Employment; Entrepreneurs; Equity Financing
    JEL: D14 E24 G01 G32 J23
    Date: 2019–09–15
  45. By: Asongu, Simplice; Nnanna, Joseph; Acha-Anyi, Paul
    Abstract: This study investigates the simultaneous openness hypothesis by assessing the importance of trade openness in modulating the effect of foreign direct investment (FDI) on economic dynamics of gross domestic product (GDP) growth, real GDP and GDP per capita. The focus of the study is on 25 countries in Sub-Saharan Africa over the period spanning from 1980 to 2014. First, trade imports modulate FDI to induce net positive effects on GDP growth and GDP per capita. Second, trade exports moderate FDI to generate overall positive impacts on GDP growth, real GDP and GDP per capita. Implications of the study are discussed, inter alia: (i) both FDI and trade infrastructures are necessary for FDI-focused measures to engender positive economic development outcomes in host communities and countries. (ii) Macroeconomic conditions that are relevant for promoting economic development are necessary for the interactions between trade openness and FDI to generate favorable outcomes in terms of GDP growth, real GDP and GDP per capita.
    Keywords: Economic Output; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–10
  46. By: Joseph, Andreas (Bank of England); Kalamara, Eleni (King’s College London); Kapetanios, George (King’s College London); Potjagailo, Galina (Bank of England)
    Abstract: We forecast CPI inflation in the United Kingdom up to one year ahead using a large set of monthly disaggregated CPI item series combined with a wide set of forecasting tools, including dimensionality reduction techniques, shrinkage methods and non-linear machine learning models. We find that exploiting CPI item series over the period 2011–19 yields strong improvements in forecasting UK inflation against an autoregressive benchmark, above and beyond the gains from macroeconomic predictors. Ridge regression and other shrinkage methods perform best across specifications that include item-level data, yielding gains in relative forecast accuracy of up to 70% at the one-year horizon. Our results suggests that the combination of a large and relevant information set combined with efficient penalisation is key for good forecasting performance for this problem. We also provide a model-agnostic approach to address the general problem of model interpretability in high-dimensional settings based on model Shapley values, partial re-aggregation and statistical testing. This allows us to identify CPI divisions that consistently drive aggregate inflation forecasts across models and specifications, as well as to assess model differences going beyond forecast accuracy.
    Keywords: Inflation; forecasting; machine learning; state space models; CPI disaggregated data; Shapley values
    JEL: C32 C45 C53 C55 E37
    Date: 2021–03–26
  47. By: Wesley Janson; Randal Verbrugge
    Abstract: tatistical agencies track rental expenditures for use in the national accounts and in consumer price indexes (CPIs). As such, statistical agencies should include late payment fees and nonpayment in rent. In the US context, late payment fees are excluded from the CPI. Ostensibly, nonpayment of rent is included in the US CPI; but its treatment is deficient, and we demonstrate that small variations in nonpayment could lead to large swings in shelter inflation, and might have played a role in the 2009 measured shelter inflation collapse. They didn’t: while the national nonpayment incidence is 2-3 percent, in the 1 million plus rent observations in BLS rent microdata from 2000-2016, no nonpayment is recorded. A back-of-the-envelope calculation suggests that, assuming nonpayment undermeasurement continued after 2016, CPI shelter inflation may have been overestimated by about 1 percentage point per month (annualized) in 2020. Late fees and nonpayment are difficult to measure in real time. We offer implementation suggestions that are consistent with CPI procedures.
    Keywords: shelter inflation; nonpayment; eviction; COVID collapse; CPI mismeasurement
    JEL: E31 R31
    Date: 2021–04–06
  48. 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: 2021–04
  49. By: Germano Ruisi (Central Bank of Malta)
    Abstract: Over the recent years Malta has experienced a remarkable increase in its labour force due to a large influx of immigrants and an unprecedented increase in the domestic participation. Driven by the observation of such a phenomenon, this paper aims at assessing the impact of foreign and domestic labour supply shocks on the Maltese economy by estimating a number of structural vector autoregressions (VARs) identified through sign restrictions. The VARs are estimated by using data over the 2004Q1- 2019Q2 period and the results point toward a relevant impact of the identified shocks on domestic production, wages and unemployment as well as on a number of other key variables, e.g., government revenue and expenditure, rents and measures of productivity.
    JEL: C11 C32 E32
    Date: 2020
  50. By: Dieppe, Alistair; Francis, Neville; Kindberg-Hanlon, Gene
    Abstract: We address the identification of low-frequency macroeconomic shocks, such as technology, in Structural Vector Autoregressions. Whilst identification issues with long-run restrictions are well documented, we demonstrate that the recent attempt to overcome said issues using the Max-Share approach of Francis et al. (2014) and Barsky and Sims (2011) has its own shortcomings, primarily that they are vulnerable to bias from confounding non-technology shocks, although less so than long-run specifications. We offer a new spectral methodology to improve empirical identification. This new preferred methodology offers equivalent or improved identification in a wide range of data generating processes and when applied to US data. Our findings on the bias generated by confounding shocks also importantly extends to the identification of dominant business-cycle shocks, which will be a combination of shocks rather than a single structural driver. This can result in a mis-characterization of the business cycle anatomy. JEL Classification: C11, C30, E32
    Keywords: confounding shocks, identification, long-horizon and business-cycle shocks
    Date: 2021–04
  51. By: Silvio Attard; Warren Deguara; Valentina Antonaroli (Central Bank of Malta)
    Abstract: This paper compares the main findings from the third wave of the Household Finance and Consumption Survey (HFCS) for Malta with those for the euro area. This comparative report finds that in 2016 the median Maltese household held more real and financial assets than households in the euro area. The median value of total liabilities of indebted Maltese households also stood higher than in the euro area. Despite higher total liabilities, the debt to-asset ratio indicates that Maltese households have a significantly higher amount of assets to back their debt. Largely reflecting the higher prevalence of homeownership in Malta, the median net wealth in Malta was estimated to be significantly higher than in the euro area as a whole. At the same time, gross income of Maltese households stood notably lower when compared to the euro area. Results also show that Maltese households spend more on food but considerably less on utilities. Against different macroeconomic and socio-demographic backgrounds, the survey results highlight heterogeneous developments between Malta and the euro area as a whole. The latter masks notable cross-country differences.
    JEL: D1 D2 E21 O57
    Date: 2020
  52. By: Luca Agnello (SEAS - University of Palermo, Dept Econ Business & Stat); Vitor Castro (Loughborough University, Sch Business & Econ, NIPE - University of Minho, Econ Policies Res Unit); Gilles Dufrénot (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Fredj Jawadi (Université de Lille); Ricardo Sousa (The Economic Policies Research Unit (NIPE) - The Economic Policies Research Unit (NIPE), LSE - London School of Economics and Political Science)
    Abstract: We specify unconventional monetary policy reaction functions for the Fed using linear and nonlinear econometric frameworks. We find that nonstandard policy measures are largely driven by the dynamics of inflation and the output gap, with the effect being particularly strong during QE rounds. Moreover, we uncover the presence of asymmetry and regime dependence in central bank's actions since the global financial crisis, especially concerning the response of the term spread and the shadow short rate to the growth rate of central bank reserves. From a policy perspective and given the lack of a systematic response of monetary policy to asset price growth in nonstandard times, our findings seem to corroborate the view that concerns about asset price bubbles, financial sector pro-cyclicality and systemic risk should be part of the macro-prudential policy toolkit.
    Keywords: central bank reserves,asset prices,nonlinear models,inflation,output gap,shadow short rate,term spread,unconventional monetary policy reaction function
    Date: 2020–09
  53. By: Pablo Burriel (Banco de España); Víctor González-Díez (Banco de España); Jorge Martínez-Pagés (Banco de España); Enrique Moral-Benito (Banco de España)
    Abstract: Estimating the role of the business cycle on the General Government budget balance plays a key role on the real-time analysis of fiscal policy, especially under the Stability and Growth Pact framework. This paper studies, for a group of EU countries and the United Kingdom, the revisions in the structural balance estimated by the European Commission between its first publication and the most recent figures. The results suggest that revisions were negative (i.e. the budget balance measured ex-post is, on average, less favourable than assessed in real time) and significant for the period prior to 2008, but relatively smaller for later years. Overall, revisions are procyclical but negative on average. Furthermore, data revisions (on public expenditure and revenues as well as GDP growth) are as important as errors in estimating the unobservable potential GDP. According to these findings, the structural efforts required by the EU framework were in general insufficient during the boom up to 2008, since they were based on too optimistic estimates of the structural balances. However, there is no evidence of similar real-time errors in the assessment of fiscal positions during the crisis and the posterior recovery.
    Keywords: public accounts, business cycle, real-time revisions
    JEL: H68 E32
    Date: 2021–03
  54. By: Tiziana Marie Gauci; Noel Rapa (Central Bank of Malta)
    Abstract: The paper applies two commonly used methods in the literature to estimate the shadow economy in Malta, the Currency Demand Approach and the Multiple Indicator Multiple Causes (MIMIC) model. Given the unobservable nature of the shadow economy, estimates are surrounded by a considerable degree of uncertainty. While these two methods differ somewhat on the historical evolution of the size of the Maltese shadow economy, which in turn can be traced back to their different underlying assumptions, both suggest that it has remained relatively stable over the last decade, standing at just below 21% of official GDP in 2019. Where possible, these estimates are compared to other studies on the same subject where we find that the dynamic properties of our variable follow those found in the literature.
    JEL: C32 E26 H26 O17
    Date: 2020
  55. By: Emilio Ocampo
    Abstract: A fiscal deficit of 8.5% of GDP, limited access to credit locally and internationally, country risk premiums at default levels and money supply growing at 80% annually, have led some analysts to predict that Argentina might be heading into a “3-digit modern hyperinflation.” Although this opinion is not widely held, the consensus inflation forecast for 2021 is 47%, a level significantly below any definition of hyperinflation but high by global standards (above the 98th percentile). Even more worrisome, over the last decade inflation has shown a persistent upward trend and since January 2019 has averaged 45%. Given all of the above, it is worthwhile investigating when Argentina experienced it and why. This paper attempts to answer the first part of this question. According to a widely accepted view there was only one hyperinflation between 1989 and 1990. This paper argues that Argentina experienced four hyperinflationary episodes that were part of a long-term cycle that started in 1945.
    Keywords: Argentina, Inflation, Extreme Inflation, Hyperinflation
    JEL: E31 N16
    Date: 2021–04
  56. By: Auerbach, Alan J; Gale, William
    Abstract: We examine the impact of COVID-19 on the federal budget outlook. We find substantial but temporary effects on spending and revenues, with more moderate but permanent effects on the long-term projections. We project that the debt-to-GDP ratio, currently 98%, will rise to 190% in 2050 under current law, compared to a CBO pre-COVID projection of 180%. Sharply lower interest rates projected for the next dozen years help moderate future debt accumulation. Under a "current policy" projection that allows temporary tax provisions-such as those in the Tax Cut and Jobs Act of 2017-to be made permanent, the debt-to-GDP ratio would rise to 222% by 2050 and would continuing rising thereafter. The long-term projections are sensitive to interest rates. We discuss several aspects of these results, including how the current episode compares to past debt changes, the role of historically low interest rates, and the role of recent Federal Reserve Board policies and actions. Because of the macro-stabilization effects of fiscal tightening, and because low interest rates create "breathing room" for fiscal policy, we do not see the large, short-run debt accumulation resulting from the current pandemic as necessitating any immediate offsetting response. But the long-term projections show that significant fiscal imbalances remain and will eventually require attention.
    Keywords: Budget outlook, COVID, Fiscal policy, Economics, Applied Economics
    Date: 2020–10–12
  57. By: Mariam Camarero (University Jaume I, INTECO - Grupo de Investigacion en Integracion Economica); Gilles Dufrénot (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Cecilio Tamarit (Department of Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, Valencia 46022 - affiliation inconnue)
    Abstract: In this paper we analyze how growing income/wealth inequality and the functional income distribution inequality have contributed to the sustained low potential growth observed in the industrialized economies during the last two decades, a period that includes the Great Recession (GR). Growing inequality may constitute a drawback for the recovery of these economies, especially after the Great Pandemic (GP). To this aim, we modify the semi-structural model originally proposed by Holston, Laubach and William, by considering the effects of several types of inequalities. We jointly estimate potential growth and the natural interest rates. We show that the latter can substantially modify the time path of the real interest rate that prevails when economies are at full strength and inflation is stable.
    Keywords: potential growth,inequality,natural interest rate,G7,state-space model
    Date: 2021–04
  58. By: Jairo Núñez Méndez
    Abstract: Cuando se comenzó a elaborar este documento, se conocía poco sobre el virus y nunca se pensó sobre las dimensiones que ha tomado. Los desafíos en pobreza y desigualdad siguen siendo los mismos, pero ahora son más urgentes y de mayor envergadura. Con el objeto de analizar el impacto económico del aislamiento preventivo motivado por la COVID-19 (enfermedad causada por el virus SARS-CoV-2), así como sus repercusiones sobre las políticas sociales, se ha desarrollado un modelo de microsimulaciones con base en la Encuesta nacional de presupuestos de los hogares (ENPH), el cual tiene la capacidad de estimar con cierto grado de precisión los impactos sobre pobreza y desigualdad que se están generando debido a las fuertes contracciones del empleo y los salarios observadas entre abril y junio de 2020.
    Keywords: Impacto Económico, COVID-19Crisis Social, Desigualdad, Distribución del Ingreso, Empleo, Modelos de Microsimulaciones, Pobreza, Pobreza Extrema, Política Social, Colombia
    JEL: E24 D33 D63 O15 C31 I32 O54
    Date: 2020–10–30
  59. By: Osinubi, Tolulope; Asongu, Simplice
    Abstract: This study examines the effect of globalization on female economic participation (FEP) in MINT (Mexico, Indonesia, Nigeria & Turkey) and BRICS (Brazil, Russia, India, China & South Africa) countries between 2004 and 2018. Four measures of globalization are employed and sourced from KOF globalization index, 2018, while the female labour force participation rate is a proxy for FEP. The empirical evidence is based on Pooled Mean Group (PMG) estimators. The findings of the PMG estimator from the Panel ARDL method reveal that political and overall globalization in MINT and BRICS countries have a positive impact on FEP, whereas social globalization exerts a negative impact on FEP in the long-run. It is observed that economic globalization has no long-run effect on FEP. Contrarily, all the measures of globalization posit no short-run effect on FEP in the short-run. This supports the argument that globalization has no immediate effect on FEP. Thus, it is recommended that both MINT and BRICS countries should find a way of improving the process of globalization generally to empower women to be involved in economic activities. This study complements the extant literature by focusing on how globalization dynamics influence FEP in the MINT and BRICS countries.
    Keywords: Globalization; female; gender; labour force participation; MINT and BRICS countries
    JEL: D60 E60 F40 F59
    Date: 2020–08
  60. By: Mikael Khan; Olga Bilyk; Matthew Ackman
    Abstract: Exceptional strength in the housing market during the pandemic is underpinning Canada’s economic recovery. However, two key vulnerabilities—housing market imbalances and elevated household indebtedness—have intensified.
    Keywords: Coronavirus disease (COVID-19); Credit and credit aggregates; Financial stability; Housing; Recent economic and financial developments; Sectoral balance sheet
    JEL: D14 D8 D84 E5 G2 G21 G28 R2 R21
    Date: 2021–04
  61. By: Mario Canales; Bernabe Lopez-Martin
    Abstract: We analyze the role of uncertainty and risk for price setting behavior and inflation. To this end, we exploit the micro-level data underlying the Consumer Price Index of Chile for the period 2010-2018. We consider in our analysis a set of established measures in the literature, among others: the economic policy uncertainty index (EPU) for Chile, the VIX for emerging economies, two indices of real and financial uncertainty constructed by Jurado, Ludvigson and Ng (AER, 2015), and the volatilities of the nominal exchange rate and the domestic stock market index. We find that uncertainty and risk are positively associated with product-level inflation, and with the frequency of positive price changes at the variety-establishment level, as well as a negative association with the frequency of negative price changes. The results are quantitatively important, the values of coefficients can be larger than of those typically estimated for the exchange rate pass-through in the literature and in our own estimations (for fluctuations equivalent to one standard deviation in the explanatory variables). In contrast, we find little association with the magnitudes of price adjustments.
    Date: 2021–03
  62. By: Astrid Martínez Ortiz; Martha Delgado; Enrique López Enciso; Eduardo Uribe
    Abstract: Estudio de Fedesarrollo para acompañar a PROANTIOQUIA en la generación de argumentos técnicos en su participación como tercero interviniente, en el proceso administrativo de licenciamiento del proyecto minero Quebradona ante la Agencia Nacional de Licencias Ambientales – ANLA.
    Keywords: Proyecto Minero Quebradona, Aspectos Económicos, Impacto Ambiental, Minería, Política Minera, Impacto Económico y Social, Estudio de Impacto Ambiental, Finanzas Departamentales, Desarrollo Económico y Social, Finanzas Locales, Jericó (Antioquia), Colombia
    JEL: E60 E01 H23 Q01 Q50 Q56 R11 R51 L72 L78 O13
    Date: 2021–01–29
  63. By: Brian Micallef; Nathaniel Debono (Central Bank of Malta)
    Abstract: In recent years the housing market in Malta has been characterised by significant demand and supply developments reflecting strong economic and population growth. While the determinants of house prices in Malta have long been studied and documented, much less is known about private sector rents, partly due to the absence of official statistics on this sector. This paper uses information from the Estate Agency Rent Survey to construct a proxy for private sector rents in Malta. Using this index, a specification for private sector rents is specified using an error-correction modelling approach and added to the housing block in STREAM. Consistent with theoretical expectations, a one-to-one relationship between rents and house prices is confirmed in the long-run. Short-run dynamics are affected by past developments in rents, the foreign population, the number of tourist nights stayed in private accommodation and the housing stock per household. The housing block in STREAM is modified to accommodate for the inclusion of the rents equation, with the specifications for house prices and dwelling investment modelled following a stock-flow framework in line with Gatt et al. (2018). A simulation using STREAM illustrates the impact on the main macroeconomic variables following a hypothetical 10% increase in real housing investment.
    JEL: R21 R31 E37
    Date: 2020
  64. By: Laura Choi; Mary C. Daly; Lily Seitelman
    Abstract: How much is inequity costing us? Using a simple growth accounting framework we apply standard shift-share techniques to data from the Current Population Survey (1990-2019) to compute the aggregate economic costs of persistent educational and labor market disparities by gender and race. We find significant economic losses associated with these gaps. Building on this finding, we consider which disparities generate the largest costs, paying specific attention to differences in employment, hours worked, educational attainment, educational utilization, and occupational allocation. We also examine gaps in the returns on these variables. Our findings suggest that differences in employment opportunities and educational attainment make the largest contributions by race; differences in returns on these variables also contribute materially to the total costs. Differences by gender are primarily driven by gaps in employment and hours. Given the disproportionate impact of COVID-19 on the labor market outcomes of women and people of color, as well as the fact that the U.S. population is increasingly racially diverse, these costs will only increase in the future.
    Keywords: Economic growth; productivity; labor market gaps; misallocation; equity
    JEL: E24 J15 J7 O4
    Date: 2021–03–25
  65. By: Matthew Higgins; Thomas Klitgaard
    Abstract: Household saving has soared in the United States and other high-income countries during the COVID-19 pandemic, despite widespread declines in wages and other private income streams. This post highlights the role of fiscal policy in driving the saving boom, through stepped-up social benefits and other income support measures. Indeed, in the United States, Japan, and Canada, government assistance has pushed household income above its pre-pandemic trajectory. We argue that the larger scale of government assistance in these countries helps explain why saving in these countries has risen more strongly than in the euro area. Going forward, how freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries.
    Keywords: income; saving; fiscal policy; pandemic; COVID-19; consumption; U.S.; Euro area; Japan; Canada; transfers; wages; benefits
    JEL: D14 F0
    Date: 2021–04–14
  66. By: Pia M. Orrenius; Madeline Zavodny
    Abstract: Latinos make up the nation’s largest ethnic minority group. The majority of Latinos are U.S. born, making the progress and well-being of Latinos no longer just a question of immigrant assimilation but also of the effectiveness of U.S. educational institutions and labor markets in equipping young Latinos to move out of the working class and into the middle class. One significant headwind to progress among Latinos is recessions. Economic outcomes of Latinos are far more sensitive to the business cycle than are outcomes for non-Hispanic whites. Latinos also have higher poverty rates than whites, although the gap had been falling prior to the pandemic. Deep holes in the pandemic safety net further imperiled Latino progress in 2020 and almost surely will in 2021 as well. Policies that would help working-class and poor Latinos include immigration reform and education reform and broader access to affordable health care.
    Keywords: Hispanics; immigrants; working class; business cycle
    JEL: J11 J15 E24
    Date: 2021–04–02
  67. By: Cristina Fuentes-Albero; John M. Roberts
    Abstract: In August 2020, the Federal Open Market Committee approved a revised Statement on Longer-Run Goals and Monetary Policy Strategy (FOMC, 2020) and in the subsequent FOMC meetings, the Committee made material changes to its forward guidance to bring it in line with the new framework. Clarida (2021) characterizes the new framework as comprising a number of key features.
    Date: 2021–04–12
  68. By: Hayk Karapetyan (Monetary Policy Department, Central Bank of Armenia)
    Abstract: Potential output and output gap are important concepts in many areas of economic policy. However they are unobservable and can only be measured with some uncertainty. The paper documents some estimation methods used at the Central Bank of Armenia, discusses some relevant criteria for evaluation of the methods and shows the relative performance of the models across a wide range of criteria.
    Keywords: Potential Output, Output Gap, Multivariate Filter, Production Function Aproach
    JEL: E32 C32
    Date: 2019–10
  69. By: Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia
    Abstract: We use transaction-level data to study changes in the concentration of US imports. Concentration has fallen in the typical industry, while it is stable by industry and origin country. The fall in concentration is driven by the extensive margin: the number of exporting firms has grown, and the number of exported products has fallen relatively more for top firms. Instead, average revenue per product of top firms has increased. At the industry level, top firms are converging, but top firms within country are diverging. Finally, higher concentration from an origin country is associated with a fall in prices, foreign entry and industry growth. These facts suggest that intensified competition in international markets coexists with growing concentration among national producers.
    Keywords: superstar firms, concentration, US imports, firm heterogeneity, international trade
    JEL: E23 F12 F14 L11 R12
    Date: 2021
  70. By: Elminejad, Ali; Havranek, Tomas; Horvath, Roman
    Abstract: The intertemporal substitution (Frisch) elasticity of labor supply governs the predictions of real business cycle models and models of taxation. We show that, for the extensive margin elasticity, two biases conspire to systematically produce large positive estimates when the elasticity is in fact zero. Among 723 estimates in 36 studies, the mean reported elasticity is 0.5. One half of that number is due to publication bias: larger estimates are reported preferentially. The other half is due to identification bias: studies with less exogenous time variation in wages report larger elasticities. Net of the biases, the literature implies a zero mean elasticity and, with 95% confidence, is inconsistent with calibrations above 0.25. To derive these results we collect 23 variables that reflect the context in which the elasticity was obtained, use nonlinear techniques to correct for publication bias, and employ Bayesian and frequentist model averaging to address model uncertainty.
    Keywords: Frisch elasticity,labor supply,extensive margin,meta-analysis,publication bias,Bayesian model averaging
    JEL: E24 J21
    Date: 2021
  71. By: Dąbrowski, Marek A.; Papież, Monika; Śmiech, Sławomir
    Abstract: This paper raises the question of whether the exchange rate regime matters for output volatility. Using the two de facto exchange rate regime classifications, it is demonstrated that the answer to this question is conditional ‘yes’. The key finding is that the exchange rate regime modifies the importance of determinants of output volatility rather than impacts it directly. This point is explained within a macroeconomic model of an open economy and is corroborated with empirical evidence for 48 advanced and emerging market economies. It is found that under the pegged regime the trade openness contributes to a reduction in output volatility, whereas the financial development has an opposite effect. Moreover, bigger economies experience lower output volatility irrespective of the exchange rate regime, albeit the beneficial size effect is stronger under floating regimes. The results do not depend on the classification employed to identify de facto pegs and floats.
    Keywords: exchange rate regime; output volatility; open economy macroeconomics; panel regressions
    JEL: C23 F33 F41
    Date: 2021–04–11
  72. By: Lorie Logan
    Abstract: Remarks at the Annual Primary Dealer Meeting (delivered via videoconference).
    Keywords: pandemic; COVID-19; mortgage-backed securities (MBS); Open Market Trading Desk (the Desk); money markets; open market operations; Treasury; purchases; Federal Reserve; reserves
    Date: 2021–04–08
  73. By: Guglielmo Maria Caporale; Gloria Claudio-Quiroga; Luis A. Gil-Alana
    Abstract: This paper analyses the relationship between CPI and real GDP in both the US and the UK using fractional integration and long-range dependence techniques. All series appear to be highly trended and to exhibit high degrees of integration and persistence, especially in the case of CPI. Since the two variables have different degrees of integration in each of the two countries, fractional cointegration tests cannot be carried out. We assume instead weak exogeneity of each of them in turn and test for causality by regressing the other variable against lagged values of the weakly exogenous one. We find that the only significant relationship implies the existence of a lagged effect of prices on output in the case of the US, which suggests a dominant role for demand shocks.
    Keywords: real output, prices, persistence, fractional integration
    JEL: C22 C23 E32
    Date: 2021
  74. By: Berger, Tino; Dubbert, Tore; Schoonackers, Ruben
    Abstract: When estimating fiscal policy reaction functions (FRF), the literature has well recognized the importance of non-linearities. However, there is yet very little attempt to formally test for the presence and potential sources of a non-linear fiscal responsiveness. In this paper we address this gap by formally adressing model specification of the FRF in a panel of five EU countries. Employing a Bayesian stochastic model specification search algorithm, we provide formal evidence for time-varying fiscal prudence over the last 50 years. The primary balance responsiveness exhibits smooth but significant variation over time and thus confirms the necessity of a non-linear model. Moreover, the extended results show that dynamics can be partially linked to the interest rate growth differential and the level of public debt itself. However, no clear evidence is found in favor of the fiscal fatigue proposition.
    Date: 2021
  75. By: Janet Jiang; Daniela Puzzello; Cathy Zhang
    Abstract: We compare three implementation schemes of an infinite-horizon monetary economy with discounting. Under the standard random termination scheme and its block variation, the economy lasts for an indefinite number of periods and the discounting factor is captured by the probability that the economy continues to the next period. These schemes rely on the belief that the experimenter can credibly implement a game that lasts an arbitrarily long time. We also propose a new method that does not rely on such a belief. Under this scheme, subjects participate in an experiment for a fixed number of periods where the discount factor is captured by a weighting factor that shrinks the payoffs over time. Dynamic incentives are preserved by paying subjects their continuation value, which is based on past market prices. The results show that dynamic incentives are preserved, and behavior is similar in all three implementations. Researchers may decide among these approaches, depending on the research question of interest and more practical concerns, such as the ease of implementation and the need to collect data for multiple supergames when the discount factor is high.
    Keywords: Central bank research; Economic models; Inflation and prices
    JEL: C92 D83 E40
    Date: 2021–04
  76. By: OGAWA Eiji; Pengfei LUO
    Abstract: Globalization has brought larger spillovers of global risks across borders since the 2000s. Specifically, global policy risk has sharply increased due to policy uncertainty in major countries in the recent decade, as seen in Brexit, US-China trade friction, and the COVID-19 pandemic. This paper empirically investigates the effects of both global policy risk and global financial risk on macroeconomy and financial markets in eight major countries from January 1997 to June 2020. We employed a Vector Autoregressive (VAR) framework to obtain interesting empirical results. First, global risks have recessionary effects on the macroeconomy, reducing production, deteriorating employment, lowering long-term interest rates, depressing prices, and reducing global trade. Second, global risks also have recessionary effects on financial markets, reducing stock prices, appreciating safe-haven currencies, and depreciating the other currencies. Third, the macroeconomies and the financial markets respond to global financial risk more significantly than global policy risk. Fourth, the recessionary effects of global risks vary depending on countries.
    Date: 2021–03
  77. By: Kapp, Daniel; Kristiansen, Kristian
    Abstract: This study analyses the effects of euro area monetary policy on equity risk premia (ERP). We find that changes in equity prices during periods of accommodative monetary policy mainly reflected adjustments in the discount factor and economic activity – rather than fluctuations in investors’ required risk compensation. Furthermore, the ERP appears to not have declined much since the introduction of unconventional monetary policy and stands higher than prior to the GFC. Use of identified monetary policy shocks points to insignificant effects of monetary policy on the ERP. Further breakdown of these shocks reveals that monetary policy has a significant upwards impact on the ERP if it is perceived as a negative information surprise, while the opposite prevails in the case of a genuine accommodative monetary policy surprise. Accumulating these effects over time suggests that the two might have largely offset each other since the introduction of unconventional monetary policy. JEL Classification: E22, E52, G12
    Keywords: equity risk premia, monetary policy shocks, monetary policy transmission
    Date: 2021–04
  78. By: Lorenzo Codogno; Paul van den Noord
    Abstract: The unprecedented fiscal package adopted by the European Council in the summer of 2020 ―dubbed Next Generation EU―is vital for the recovery of the euro area from the pandemic shock. However, there are risks that targets will not be met and that it may prove difficult to muster the same degree of European ‘solidarity’ in the future. Computations with a stylised macroeconomic model indicate that an alternative approach, with ex ante risk sharing through the creation of a Eurobond and permanent fiscal capacity at the centre, would be at least as powerful, yet it would be more sustainable, automatic and timely.
    Keywords: Fiscal Policy, Business fluctuations, Safe sovereign assests, Fiscal capacity
    Date: 2021–02
  79. By: Carlos León
    Abstract: Mobile wallets replicate physical wallets on a mobile device, in which users can store different payment instruments (e.g., cards, transfers) to make mobile payments. As the mobile wallet is adopted, a mobile payment scheme emerges, with its users as elements in a network of transfers. In this article, I study the mobile payment scheme of Movii— the first fintech firm in Colombia operating under a financial non-banking license for electronic deposits and payments. Based on a unique dataset of bilateral transfers between Movii’s mobile wallet users, I build, visualize and analyze Movii’s network, daily from November 18, 2017, to November 25, 2020. Besides the anticipated increase in the number of users and the value of transfers, the visual and quantitative complexity of the network of transfers increases over time. This increase in complexity is likely to be linked to the adoption of Movii’s mobile wallet, which results in users finding new ways to use mobile payments beyond person-to-person transfers, including person-to-business and business-to-business. Also, results suggest the Covid-19 pandemic accelerated the evolution of Movii’s mobile payments scheme. **** RESUMEN: Las billeteras móviles replican a las billeteras físicas en un dispositivo móvil, con las que los usuarios pueden utilizar diferentes instrumentos de pago (e.g., tarjetas, transferencias) para realizar pagos móviles. Con la adopción de la billetera móvil surge un esquema de pagos móviles, en el que sus usuarios son elementos de una red de transferencias. En este artículo se estudia el esquema de pagos móviles de Movii—la primera fintech en Colombia que opera bajo una licencia financiera (no bancaria) de depósitos y pagos electrónicos. Con base en una base de datos de transferencias bilaterales entre usuarios de la billetera móvil de Movii, se construye, visualiza y analiza la red de Movii, diaria, desde noviembre 18 de 2017 hasta noviembre 25 de 2020. Además del esperado incremento en el número de usuarios y el valor de las transferencias, se encuentra que la complejidad visual y cuantitativa de la red de transferencias se incrementa a través del tiempo. Este aumento en la complejidad tiene que ver con la adopción de la billetera móvil de Movii, lo cual resulta en que los usuarios encuentran nuevas maneras de utilizar los pagos móviles más allá de transferencias persona a persona, incluyendo pagos de persona a negocio y de negocio a negocio. Así mismo, es evidente que la pandemia por Covid-19 aceleró la evolución del esquema de pagos móviles de Movii.
    Keywords: Payments, mobile, networks, fintech, paytech, complexity, pagos, móvil, redes, fintech, paytech, complejidad
    JEL: L14 D85 E42
    Date: 2021–04
  80. By: Javier Barbero (European Commission - JRC); Giovanni Mandras (European Commission - JRC); Ernesto Rodríguez-Crespo (Universidad Autónoma de Madrid); Andrés Rodríguez-Pose (London School of Economics)
    Abstract: The quality of government and institutions is crucial in determining the socio-economic impact of policies. The European Commission is increasingly underlining the value of good governance and, in 2010, the Directorate-General for Regional and Urban Policy (DG REGIO) started funding research to gather data on the regional quality of government in collaboration with the University of Gothenburg. The analysis reported here presents, for the first time, evidence on the impact of government quality on regional trade flows in the European Union. The returns to trade depend on the quality of government, meaning that the implementation of place-based territorial policies becomes relevant to maximise economic growth, regional development and the gains from trade.
    Keywords: quality of government, institutions, regional policy, gravity model of trade, structural estimation, rhomolo
    JEL: E2 F15 R10
    Date: 2021–04
  81. By: Bhatt, Vipul; Kishor, N. Kundan
    Abstract: In this paper we examine house price synchronization in 15 global cities using real house price data from 1995:Q1-2020:Q2. We find that although there is evidence for bilateral positive phase synchronization, there is no evidence for an integrated global housing market for our sample of cities. Using a hierarchical clustering approach, we identify three clusters of cities with similar housing price cycles that are not solely determined by geographic proximity. We interpret this finding as suggestive of a rather segmented housing market for the global cities in our sample. Using a dynamic factor model with time-varying stochastic volatility we decompose a city's real housing price growth into a global component, a cluster-based component, and an idiosyncratic component. For most cities in our sample, the global component plays a minor role, whereas the cluster-based factor explains a large fraction of the observed variation in real house price growth with its contribution peaking during the Great Recession of 2007-09
    Keywords: Global Housing Market, House Price Synchronization, Cluster Analysis, Dynamic Factor Model
    JEL: C38 E32 F36 F44 R30
    Date: 2021–04–14
  82. By: Dieppe, Alistair; Francis, Neville; Kindberg-Hanlon, Gene
    Abstract: Frequently, factors other than structural developments in technology and production efficiency drive changes in labor productivity in advanced and emerging market and developing economies (EMDEs). This paper uses a new method to extract technology shocks that excludes these influences, resulting in lasting improvements in labor productivity. The same methodology in turn is used to identify a stylized example of the effects of a demand shock on productivity. Technology innovations are accompanied by higher and more rapidly increasing rates of investment in EMDEs relative to advanced economies, suggesting that positive technological developments are often capital-embodied in the former economies. Employment falls in both advanced economies and EMDEs following positive technology developments, with the effect smaller but more persistent in EMDEs. Uncorrelated technological developments across economies suggest that global synchronization of labor productivity growth is due to cyclical (demand) influences. Demand drivers of labor productivity are found to have highly persistent effects in EMDEs and some advanced economies. Unlike technology shocks, however, demand shocks influence labor productivity only through the capital deepening channel, particularly in economies with low capacity for counter-cyclical fiscal policy. Overall, non-technological factors accounted for most of the fall in labor productivity growth during 2007-08 and around one-third of the longer-term productivity decline after the global financial crisis. JEL Classification: C30, E32, O40
    Keywords: advanced economies and emerging and developing economies, productivity, technology and technological diffusion
    Date: 2021–04
  83. By: Agosto, Arianna; Ahelegbey, Daniel Felix; Giudici, Paolo
    Abstract: We propose a two-layered tree network model that decomposes financial contagion into a global component, composed of inter-country contagion effects, and a local component, made up of inter-institutional contagion channels. The model is effectively applied to a database containing time series of daily CDS spreads of major European financial institutions (banks and insurance companies), and reveals the importance of monitoring both channels to assess financial contagion. Our empirical application reveals evidence of a high inter-country and inter-institutional vulnerability at the onset of the global financial crisis in 2008 and during the sovereign crisis in 2011. The results identify France as central to the inter-country contagion in the Euro area during the financial crisis, while Italy dominates during the sovereign crisis. The application of the model to detect contagion between sectors of the European economy reveals similar findings, and identifies the manufacturing sector as the most central, while, at the company level, financial institutions dominate during the 2008 crisis.
    Keywords: Financial crisis; Graphical Lasso; Inter-country contagion; Inter-sector contagion; Inter-institutional contagion; Sovereign crisis; Sparse covariance selection
    JEL: C58 E02 G32
    Date: 2020
  84. By: Can Sever; Emekcan Yucel
    Date: 2020–01
  85. By: HAMANO Masashige; OKUBO Toshihiro
    Abstract: This paper attempts to reproduce the past landscape of the economy with the help of evidence and structural models. For that purpose, we built a theoretical model consisting of endogenous firm entry and firm selection. Given the distribution of firm age and firm sales that we see today, we simulated age-specific technologies and fixed costs for operation. With these simulated parameters, we then reestablished the macroeconomic dynamics of each historical firm. With Japanese data from over 126 years, despite the massive presence of firms created after the Second World War until the oil crisis in the 1970s, we found that these historical firms show relatively low productivity. Old historical firms are subject to high fixed costs and high productivity. Finally, we demonstrated that our counterfactual fixed costs dramatically change the landscape of historical firms, as well as their characteristics.
    Date: 2021–03
  86. By: Andreas Hefti; Julia Lareida
    Abstract: We propose a model of competitive attention based on two key premises: i) People have limited information processing capacities and ii) consideration sets are formed according to relative salience. The equilibrium predictions we obtain can help to understand, and connect, diverse empirical phenomena, such as the Paradox of Choices, the Power Law dispersions of key market data (sales, profits, online clicks,...), the relation between advertising expenditures and market shares, the evolution of market inequality, or why evidence favoring a “Long Tail” effect is mixed at best.
    Keywords: Attention, choice overload, consideration sets, Power Law, Superstar, Long Tail, Matthew Effect
    JEL: D91 D40 D43 E71 L11 M37
    Date: 2021–04
  87. By: Jorge M. Uribe (Faculty of Economics and Business (Universitat Oberta de Catalunya); Riskcenter (Universitat de Barcelona); Esade Business School (Universittat Ramon Llull).); Jose E. Gomez-Gonzalez (Escuela Internacional de Ciencias Económicas y Administrativas, Universidad de La Sabana, Chia. Colombia.); Jorge Hirs-Garzón (Inter-American Development Bank, Washington, D.C., USA.)
    Abstract: This study shows that capital structure choices of US corporations are interdependent across time. We follow a two-step estimation approach. First, using a large cross-section of firms we estimate year-by-year average capital structure choices, i.e., the average firm’s percentage of new funding that is secured through debt, its term composition, and the percentage of new equity represented by retained earnings. Second, these time series are included in a Factor Augmented Vector Autoregressive model in which three factors representing real economic activity, expected future funding conditions, and prices, are included. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions.
    Keywords: Firms’ capital structure, Financing hierarchy, Macroeconomic factors, FAVAR model. JEL classification: D25, G30, L16.
    Date: 2021–04
  88. By: Tiziana Assenza (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Christian Hellwig (Unknown); Fabrice Collard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Martial Dupaigne (Unknown); Patrick Fève (Unknown); Sumudu Kankanamge (Unknown); Nicolas Werquin (Unknown)
    Abstract: We develop a comprehensive framework for analyzing optimal economic policy during a pandemic crisis in a dynamic economic model that trades off pandemic-induced mortality costs against the adverse economic impact of policy interventions. We use the comparison between the planner problem and the dynamic decentralized equilibrium to highlight the margins of policy intervention and describe optimal policy actions. As our main conclusion, we provide a strong and novel economic justification for the current approach to dealing with the pandemic, which is different from the existing health policy rationales. This justification is based on a simple economic concept, the shadow price of infection risks, which succinctly captures the static and dynamic trade-offs and externalities between economic prosperity and mortality risk as the pandemic unfolds.
    Date: 2021–03–31
  89. By: Coibion, Olivier; Gorodnichenko, Yuriy; Ropele, Tiziano
    Keywords: inflation expectations, surveys, inattention
    Date: 2020–08–21
  90. By: Ivan Kitov
    Abstract: Ten years ago we presented a modified version of Okun 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 piece wise 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.
    Date: 2021–03

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