nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒04‒26
95 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Economic Consequences of the Covid-19 Pandemic in Nigeria By Farayibi, Adesoji; Asongu, Simplice
  2. Darkest before the dawn? By Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Selena Duraković; Richard Grieveson; Doris Hanzl-Weiss; Gabor Hunya; Branimir Jovanovic; Niko Korpar; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Bernd Christoph Ströhm; Maryna Tverdostup
  3. How do inequalities affect the natural interest rate, and how do they impact monetary policy? Comparing Germany, Japan and the US By Rafael Mariam Camarero; Gilles Dufrénot; Cecilio Tamarit
  4. What Matters in Households' Inflation Expectations? By Philippe Andrade; Erwan Gautier; Eric Mengus
  5. The Spanish economy in 2019 By Directorate General Economics, Statistics and Research
  6. Risk-Taking and Monetary Policy Transmission: Evidence from Loans to SMEs and Large Firms By Cecilia R. Caglio; R. Matthew Darst; Ṣebnem Kalemli-Özcan
  7. On robustness of average inflation targeting By Honkapohja, Seppo; McClung, Nigel
  8. Output falls and the international transmission of crises By Brinca, Pedro; João, Costa-Filho
  9. A General Methodology to Measure Labour Market Dynamics By Fiaschi, Davide; Tealdi, Cristina
  10. Asymmetry in Okun’s Law Revisited: New evidence on cyclical unemployment–cyclical output trade-off in the Free State Province using NARDL model. By Omoshoro-Jones, Oyeyinka Sunday
  11. Assessing the Role of Sentiment in the Propagation of Fiscal Stimulus By Bijie Jia; Hyeongwoo Kim; Shuwei Zhang
  12. Communicating Monetary Policy Rules By Troy A. Davig; Andrew Foerster
  13. Does the Secular Stagnation hypothesis match with data? Evidence from USA. By Andrea Borsato
  14. Stock prices and monetary policy in Japan: An analysis of a Bayesian DSGE model By Hoshino, Satoshi; Ida, Daisuke
  15. Barro, Grossman, and the domination of equilibrium macroeconomics By Plassard, Romain
  16. What Triggers Stock Market Jumps? By Scott R. Baker; Nicholas Bloom; Steven J. Davis; Marco C. Sammon
  17. Optimal Taxes and Transfers with Household Heterogeneity By Boris Chafwehé; François Courtoy
  18. Risky Business Cycles By Susanto Basu; Giacomo Candian; Ryan Chahrour; Rosen Valchev
  19. Optimal monetary policy with the risk-taking channel By Angela Abbate; Dominik Thaler
  20. Economic depression in Brazil: the 2014-2016 fall By Brinca, Pedro; Costa-Filho, João
  21. Система Galymzhan: online-оценка потребительской инфляции в Казахстане // Galymzhan System: Online Assessment of Consumer Inflation in Kazakhstan By Тулеуов Олжас // Tuleuov Olzhas; Ержан Ислам // Yerzhan Islam; Сейдахметов Ансар // Seidakhmetov Ansar
  22. Sentiment Regimes and Reaction of Stock Markets to Conventional and Unconventional Monetary Policies: Evidence from OECD Countries By Oguzhan Cepni; Rangan Gupta; Qiang Ji
  23. The Forecasts of Individual FOMC Members: New Evidence after Ten Years By Jaime Marquez; S Yanki Kalfa
  24. Budget Deficit to Achieve and Maintain Full-employment Under Growth by Technological Progress By Tanaka, Yasuhito
  25. Rational vs. Irrational Beliefs in a Complex World By Gregor Boehl; Cars Hommes
  26. Subjective Models of the Macroeconomy : Evidence from Experts and a Representative Sample By Andre, Peter; Pizzinelli, Carlo; Roth, Christopher; Wohlfart, Johannes
  27. Macroeconomic disasters and forward-looking consumers: historical evidence and evidence from the Covid-19 pandemic By Lorenzo Pozzi; Barbara Sadaba
  28. Consumer Sentiment during the Covid-19 Pandemic: The Role of Others' Beliefs By Dzung Bui; Lena Dräger; Bernd Hayo; Giang Nghiem
  29. 'Liked', 'Shared', 'Commented': Central Bank Communication on Facebook and Twitter By Yuriy Gorodnichenko; Tho Pham; Oleksandr Talavera
  30. Population aging, relative prices and capital flows across the globe By Andrea Papetti
  31. Barriers to Global Capital Allocation By Bruno Pellegrino; Enrico Spolaore; Romain Wacziarg
  32. The Geography of the Effectiveness and Consequences of Covid-19 Measures: Global Evidence By Asongu, Simplice; Diop, Samba; Nnanna, Joseph
  33. Optimal Constrained Interest-Rate Rules under Heterogeneous Expectations By Gasteiger, Emanuel
  34. Tackling the Volatility Paradox: Spillover Persistence and Systemic Risk By Christian Kubitza
  35. The Macroeconomics of a Pandemic: A Minimalist Framework By Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
  36. Interdependent Capital Structure Choices and the Macroeconomy By Gomez-Gonzalez, Jose Eduardo; Uribe, Jorge M.; Hirs-Garzon, Jorge
  37. Real interest rates and demographic developments across generations: A panel-data analysis over two centuries By Lucas Marc Fuhrer; Nils Herger
  38. The Alpha Beta Gamma of the Labor Market By Victoria Gregory; Guido Menzio; David G. Wiczer
  39. On Optimal Currency Areas and Common Cycles: Are the Acceding Countries Ready to Join the Euro? By Louisa Grimm; Sven Steinkamp; Frank Westermann
  40. The Dynamics of Working Hours and Wages Under Implicit Contracts By Guerrazzi, Marco; Giribone, Pier Giuseppe
  41. Financial Sector Development and Investment in Selected ECOWAS Countries: Empirical Evidence using Heterogeneous Panel Data Method By Iheonu, Chimere; Asongu, Simplice; Odo, Kingsley; Ojiem, Patrick
  42. Exchange rate policy and firm dynamics By Masahige Hamano; Francesco Pappadà
  43. MMT(現代貨幣理論)の理論的根拠について -MMTの数理モデルを目指して- By Tanaka, Yasuhito
  44. Budget deficit for full-employment under growth and inflation by excessive deficit in an OLG model with bequest motive By Tanaka, Yasuhito
  45. Herramientas de Google para la predicción de variables económicas. Una aplicación al Índice Compuesto Coincidente de Actividad Económica de la Provincia de Santa Fe (ICASFe) By Ramiro Emmanuel Jorge
  46. The Distributional Consequences of Social Distancing on Poverty and Labour Income Inequality in Latin America and the Caribbean By Delaporte, Isaure; Escobar, Julia; Peña, Werner
  47. “I Still Haven’t Found What I’m Looking For”: Evidence of Directed Search from a Field Experiment By Haoran He; David Neumark; Qian Weng
  48. (In)efficient Separations, Firing Costs and Temporary Contracts By Andrea Gerali; Elisa Guglielminetti; Danilo Liberati
  49. Tipo de cambio real y finanzas públicas subnacionales: efectos de las depreciaciones reales en Argentina. By Julian Puig; Diego Pitetti
  50. Enhancing Information Technology for Value Added Across Economic Sectors in Sub-Saharan Africa By Asongu, Simplice; Rahman, Mushfiqur; Nnanna, Joseph; Haffar, Mohamed
  51. Predicting Inflation with Neural Networks By Paranhos, Livia
  52. Under the same (Chole)sky: DNK models, timing restrictions and recursive identification of monetary policy shocks By Giovanni Angelini; Marco M. Sorge
  53. Covid-19 Economic Vulnerability and Resilience Indexes: Global Evidence By Diop, Samba; Asongu, Simplice; Nnanna, Joseph
  54. Robert Mundell, 1932-2021: Ahead of his Time By Xafa, Miranda
  55. Productivity Growth and Workers’ Job Transitions: Evidence from Censal Microdata By Elias Albagli; Mario Canales; Chad Syverson; Matias Tapia; Juan Wlasiuk
  56. Taking Stock of the Economic Recovery and the Opportunities to Bolster Financial Stability By Eric S. Rosengren
  57. Repricing Avalanches By Makoto Nirei; José A. Scheinkman
  58. A SIR Macro Model: Comparing the Decentralized Economy and the Optimal Policy By Alejandro Rodríguez
  59. Adoption of digital technologies: Insights from a global survey initiative By James Fudurich; Lena Suchanek; Lise Pichette
  60. Local Fiscal Multipliers and Fiscal Spillovers in the USA By Auerbach, A; Gorodnichenko, Y; Murphy, D
  61. Perspectives on the Eventual Economic Recovery By Eric S. Rosengren
  62. The Long Run Stability of Money in the Proposed East African Monetary Union By Asongu, Simplice; Folarin, Oludele; Biekpe, Nicholas
  63. Monetary-Fiscal Interactions and Redistribution in Small Open Economies By Gergo Motyovszki
  64. Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform By Galassi, Gabriela
  65. Arbitrage Capital of Global Banks By Alyssa G. Anderson; Wenxin Du; Bernd Schlusche
  66. TIPS - TARGET Instant Payment Settlement The Pan-European Infrastructure for the Settlement of Instant Payments By Massimiliano Renzetti; Serena Bernardini; Giuseppe Marino; Luca Mibelli; Laura Ricciardi; Giovanni Maria Sabelli
  67. Построение большой байесовской авторегрессионной модели для Казахстана // Building a Large Bayesian Vector Autoregression Model for Kazakhstan By Константин Орлов // Konstantin Orlov
  68. Discretionary fiscal spending needs to be raised further by allocating more towards MGNREGA By Ghatak, Shambhu; Sengupta, Nabarun
  69. Transmisión Crediticia, Liquidez y Capital Bancario en Colombia By Sergio Clavijo
  70. Juan Sebastián Elcano: 500 años de la Primera vuelta al mundo en los billetes del Banco de España. Historia y tecnología del billete By Ángel Gómez-Carreño García-Moreno
  71. The Impact of Health and Economic Policies on the Spread of COVID-19 and Economic Activity By Matthew Famiglietti; Fernando Leibovici
  72. Generalized Fractal Transforms with Condensation: a Macroeconomic-Epidemiological Application By La Torre, Davide; Marsiglio, Simone; Mendivil, Franklin; Privileggi, Fabio
  73. Distressed Acquisitions Evidence from European Emerging Markets By Iwasaki, Ichiro; Kočenda, Evžen; Shida, Yoshisada
  74. The dawn of a mobile payment scheme: The case of Movii By León, Carlos
  75. Trends in Employer-Sponsored Retirement Plan Access and Participation Rates: Reconciling Different Data Sources By Teresa Ghilarducci; Siavash Radpour; Michael Papadopoulos
  76. Optimal Foreign Reserves and Central Bank Policy Under Financial Stress By Luis Felipe Céspedes; Roberto Chang
  77. Gender, Selection into Employment, and the Wage Impact of Immigration By George J. Borjas; Anthony Edo
  78. Gender, Selection into Employment, and the Wage Impact of Immigration By Borjas, George J.; Edo, Anthony
  79. Gender, Selection into Employment, and the Wage Impact of Immigration By George J. Borjas; Anthony Edo
  80. Information Frictions among Firms and Households By Link, Sebastian; Peichl, Andreas; Roth, Christopher; Wohlfart, Johannes
  81. Trend, Cycles and Chance. By Claude Diebolt
  82. Dating the euro area business cycle: an evaluation By Claudia Pacella
  83. Policy with stochastic hysteresis By Georgii Riabov; Aleh Tsyvinski
  84. The Dynamics of the House Price-to-Income Ratio: Theory and Evidence By Charles Ka Yui Leung; Edward Chi Ho Tang
  85. Inflation Expectations and Firms’ Decisions: New Causal Evidence By Coibion, Olivier; Gorodnichenko, Yuriy; Ropele, Tiziano
  86. Migration Costs, Sorting, and the Agricultural Productivity Gap By Qingen Gai; Naijia Guo; Bingjing Li; Qinghua Shi; Xiaodong Zhu
  87. Pourquoi l'inflation reste faible alors que la masse monétaire augmente ? By François Facchini
  88. Does Policy Communication During COVID work? By Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael
  89. A Machine Learning Approach to Analyze and Support Anti-Corruption Policy By Elliott Ash; Sergio Galletta; Tommaso Giommoni
  90. Y a-t-il optimalité des conditions monétaires actuelles ? Une perspective sous-régionale By Kuikeu, Oscar
  91. Does Policy Communication During COVID Work? By Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael
  92. The Great Transition: Kuznets Facts for Family-Economists By Jeremy Greenwood; Nezih Guner; Ricardo Marto
  93. Forward Guidance and Household Expectations By Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Weber, Michael
  94. Macroeconomic forecasting with statistically validated knowledge graphs By Sonja Tilly; Giacomo Livan
  95. Weekly Economic Activity: Measurement and Informational Content By Philipp Wegmüller; Christian Glocker; Valentino Guggia

  1. By: Farayibi, Adesoji; Asongu, Simplice
    Abstract: The Covid-19 pandemic has generated shocks that have caused economic fluctuations globally, calling for an understanding of the behaviour of macroeconomic variables. This study presents an early review of the macroeconomic impact of the Covid-19 pandemic in Nigeria. The aggregate supply and aggregate demand (AS-AD) model provides the theoretical motivation for the study. From the findings, while the number of infected cases reflects significant correlations with economic activity from the perspective of a trend analysis, the estimates from dynamic ordinary least squares (DOLS) show that nexuses between the number of confirmed cases and attendant macroeconomic outcomes are largely insignificant with the expected signs. The study has therefore shown that the Covid-19 pandemic has insignificant negative impacts on basic macroeconomic variables in Nigeria such as inflation, employment, exchange rate, GDP growth, among others. In other words, time is required before the established correlations withstand empirical scrutiny in terms of causality. As the government has engaged the Economic Sustainable Plan (ESP, 2020), which is a post-Covid-19 recovery plan, it is hoped that the attendant policies would be properly implemented so as to provide the critical mass to repositioning the country’s economy on the path towards inclusive and sustained economic development.
    Keywords: Corona virus, Macroeconomics effects, Covid-19, AS-AD Model, Community Transmission, Nigeria
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–01
  2. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Selena Duraković; Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanovic (The Vienna Institute for International Economic Studies, wiiw); Niko Korpar (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm; Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Currently, CESEE is in the grip of a strong wave of the pandemic, which has pushed health systems to breaking point and necessitated a new series of economically damaging lockdowns. However, the public health backdrop should improve by late Spring, as stringency measures and increased vaccine rollout allow economies to gradually re-open. CESEE should grow by 3.8% on aggregate in 2021, with most countries regaining their pre-pandemic output levels by the end of the year. Once the acute phase of the crisis passes, attention will return to existing challenges, including demographic decline, automation, digitalisation, institutional independence and the fallout from geopolitical tensions.
    Keywords: CESEE, economic forecast, Central and Eastern Europe, Southeast Europe, Western Balkans, EU, euro area, CIS, China, Japan, US, convergence, business cycle, coronavirus, Next Generation EU funds, private consumption, credit, investment, digitalisation, exports, FDI, labour markets, unemployment, short-time work schemes, exchange rates, monetary policy, fiscal policy
    JEL: E20 E21 E22 E24 E32 E5 E62 F21 F31 H60 I18 J20 J30 O47 O52 O57 P24 P27 P33 P52
    Date: 2021–04
  3. By: Rafael Mariam Camarero (University Jaume I and INTECO, Department of Economics, Campus de Riu Sec, E-12080 Castellón (Spain)); Gilles Dufrénot (Corresponding author: AMSE and CEPII. email:; Cecilio Tamarit (University of València and INTECO, Department of Applied Economics II, PO Box 22006 E-46071 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
  4. By: Philippe Andrade; Erwan Gautier; Eric Mengus
    Abstract: We provide survey evidence on how households’ inflation expectations matter for their spending highlighting a behavioral distortion compared to the New Keynesian setup. A large share of households expects prices to remain stable instead of increasing. Such a belief is linked to individual experience with non-durable goods frequently purchased. Households expecting stable prices consume less durable goods than those expecting positive inflation. In contrast, differences across households expecting positive inflation are associated with insignificant differences in durable consumption decisions. That distortion implies that managing aggregate demand through households’ inflation expectations is limited and can run out of ammunition.
    Keywords: behavioural macroeconomics, heterogeneous beliefs, expectation formation, households’ spending, inflation expectation channel, stabilization policies
    JEL: D12 D83 E21 E31 E52
    Date: 2021
  5. By: Directorate General Economics, Statistics and Research (Banco de España)
    Abstract: The Spanish economy prolonged its expansionary phase in 2019. However, its growth rate moderated, owing to the loss of momentum of domestic demand, which countered the larger contribution of the external sector. The deceleration of domestic demand reflected flatter private consumption and investment, while the external demand contribution was the result of an easing in imports and some acceleration in exports. In line with these developments, employment creation grew at a slower pace. In any event, the Spanish economy showed greater resilience to the deterioration of the external context than the euro area, and hence retained its positive growth differential. Inflationary pressures remained contained despite the increase in unit labour costs. Against this background, the Spanish economy moved in early 2020 on a progressively decelerating path towards its potential growth rate. This outlook has been completely changed by the global health crisis caused by COVID-19. It has affected with virulence a large number of countries, including Spain, and is severely disrupting economic activity. The duration and intensity of the crisis is currently shrouded in great uncertainty.
    Keywords: Spanish economy, investment, exports, imports, deficit, prices, employment
    JEL: A10 E21 E22 E24 H6 E31
    Date: 2020–05
  6. By: Cecilia R. Caglio; R. Matthew Darst; Ṣebnem Kalemli-Özcan
    Abstract: Using confidential regulatory firm-bank-loan level data from the U.S., we document four new facts about the credit market. First, private SMEs typically utilize all available bank credit which comprises their entire balance sheet debt, compared to large listed firms who can switch between corporate bonds and drawing from credit lines. Second, SMEs borrow shorter maturity and pay higher interest rates relative to large publicly listed firms. Third, SMEs more frequently use future claims to their enterprise value as collateral rather than physical assets and real estate that can be liquidated upon default. Fourth, the relation between collateral and risk—where risk is measured by the loan spread—is positive for large listed firms but negative for SMEs. Motivated by these facts, we investigate the transmission of monetary policy and risk-taking behavior. We show that, when monetary policy is expansionary, banks do not lend differently to risky and non-risky firms, whether they are private SMEs or publicly listed firms. Instead, risk-taking is driven by credit demand since SMEs who lack collateral in terms of physical assets increase their leverage due to low interest rates, which increases their ability to payback the loan. Since SMEs cover 99 percent of all U.S. firms and over 50 percent of U.S. employment and output, our results have important implications for the aggregate boom-bust cycles in a low interest rate environment.
    JEL: E32 E44 E52 G20 O16
    Date: 2021–04
  7. By: Honkapohja, Seppo; McClung, Nigel
    Abstract: This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable under learning if details about the policy are not publicly available. Near the low steady state with interest rates at the zero lower bound, AIT does not necessarily outperform a standard inflation targeting policy. Policymakers can improve outcomes under AIT by (i) targeting a discounted average of inflation, or (ii) communicating the data window for the target.
    JEL: E31 E52 E58
    Date: 2021–04–21
  8. By: Brinca, Pedro; João, Costa-Filho
    Abstract: Economic crises are usually transmitted across countries via either price or quantity shocks on the balance of payments. This paper complements the literature on international trade and business cycles by analyzing the role of imported intermediates goods inputs during the Great Financial Crisis in small open economies. We find that in an increasingly integrated world, intra-industry international trade is an important channel of propagation of shocks. A depreciation of the real exchange rate rises to costs of intermediate output, which decreases production. Our quantitative model is able to reproduce both the intensity and the velocity of the crisis in Mexico.
    Keywords: Great Recession, Intermediate goods, Business Cycle Accounting
    JEL: E27 E30 E32 E37
    Date: 2021–04–20
  9. By: Fiaschi, Davide (University of Pisa); Tealdi, Cristina (Heriot-Watt University, Edinburgh)
    Abstract: We propose a general methodology to measure labour market dynamics, inspired by the search and matching framework, based on the estimate of the transition rates between labour market states. We show how to estimate instantaneous transition rates starting from discrete time observations provided in longitudinal datasets, allowing for any number of states. We illustrate the potential of such methodology using Italian labour market data. First, we decompose the unemployment rate fluctuations into inflow and outflow driven components; then, we evaluate the impact of the implementation of a labour market reform, which substantially changed the regulations of temporary contracts.
    Keywords: labour market flows, instantaneous transition rates, Markov process in continuous time, labour market forecasting, policy evaluation
    JEL: C18 C53 E32 E24 J6
    Date: 2021–04
  10. By: Omoshoro-Jones, Oyeyinka Sunday
    Abstract: Since 1994, the ineffectiveness of adopted pro-growth policies to reduce the persistently high unemployment rate in the Free State (FS) province has become a conundrum for policymakers, begging the questions: Is Okun’s law that predicts an inverse unemployment-output relationship exists in the FS province? If so, what is the nature of Okun’s relationship? This paper re-examines the asymmetric unemployment–output tradeoff employing the nonlinear autoregressive distributed lag (NARDL) modelling framework. Cyclical components of unemployment and output are generated from annual data covering the period 1994-2019, using Hodrick-Prescott and Corbae-Ouliaris filters. We controlled for structural breaks and performed a sensitivity analysis on the models estimated. Irrespective of the filtering method, our results confirm asymmetric Okun’s relationship among variables in both the long-and-short run. The negative and statistically significant coefficient on changes of the positive cyclical output reveals that a 1% rise in cyclical output could lower cyclical unemployment between –0.87 to –0.70 percentage points, reliant on a sustained economic expansion. Estimated long-run coefficients of changes in the positive cyclical output show that an economic upswing between 1.88% and 2.03% would lower unemployment by 1%, in the FS province, consistent with the accepted 2:1 ratio for Okun’s law in the empirical literature. We also find significant contemporaneous effects of changes in cyclical output on cyclical unemployment, where a 1% increase (decrease) in one-period lagged positive (negative) cyclical output reduces (increases) cyclical unemployment between –0.52 and –0.41 (+0.99 and +0.56) percentages points. The detection of these asymmetries explains the failure of the enacted policies to successfully reduce the prevalent high unemployment rate in the FS province. Based on these findings, some apt remedial actions are suggested to policymakers.
    Keywords: Okun’s Law, cyclical unemployment, cyclical output, NARDL, Free State province
    JEL: C51 E24 E32 J64
    Date: 2021–04–06
  11. By: Bijie Jia; Hyeongwoo Kim; Shuwei Zhang
    Abstract: This paper studies the dynamic effects of the fiscal policy shock on private activity using an array of vector autoregressive models for the post-war U.S. data. We are particularly interested in the role of consumer sentiment in the transmission of fiscal stimulus. Our major findings are as follows. Private spending fails to rise persistently in response to government spending shocks, while they exhibit persistent and significant increases when the sentiment shock occurs. Employing not only linear but also nonlinear state-dependent VAR model estimations, we show that the government spending shock generates consumer pessimism in all phases of business cycle resulting in subsequent decreases in private activity, which ultimately weakens the effectiveness of the fiscal policy. Our counterfactual simulation exercises confirm the important role of sentiment in propagating fiscal stimulus to private spending.
    Keywords: Government Spending; Sentiment Channel;Nonlinear VAR; Counterfactual Simulations; Survey of Professional Forecasters
    JEL: E32 E62
    Date: 2021–04
  12. By: Troy A. Davig; Andrew Foerster
    Abstract: Despite the ubiquity of inflation targeting, central banks communicate their frameworks in a variety of ways. No central bank explicitly expresses their conduct via a policy rule, which contrasts with models of policy. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. The approach requires central banks to specify an inflation target, inflation tolerance bands, and provide economic projections. When inflation moves outside the band, inflation forecasts provide a time frame over which inflation will return to within the band. We show how this communication replicates and provides the same information as a rule-based policy. In addition, the communication strategy produces a natural benchmark for assessing central bank performance.
    Keywords: monetary policy; inflation targeting; Taylor rule; communication
    JEL: E10 E52 E58 E61
    Date: 2021–04–12
  13. By: Andrea Borsato
    Abstract: The paper adds to the debate around Secular Stagnation in four ways. First, considering US historical data since 1870, the use of the term “Secular Stagnation” in the literature is misleading, since it should concern more long runs. Second, the slow growth in real GDP per capita experienced in more recent times represents a return to what US experienced before 1950. Third, we can speak about Secular Stagnation in terms of labour and multifactor productivity growth: their decline since the 1970s is not comparable to any previous period. In this sense, my findings provide views `a la Gordon (2015) and Hein (2016) with some support, but less to Summers (2014b) negative natural rate hypothesis, which suffers from theoretical weaknesses. Fourth, despite the several approaches often implemented, we trace out a complementary or even convergence in policy implications.
    Keywords: Secular Stagnation, Negative interest rates, GDP and Productivity slowdown in growth.
    JEL: E20 E43 E50 E60 O11 O30 O40
    Date: 2021
  14. By: Hoshino, Satoshi; Ida, Daisuke
    Abstract: This paper reevaluates the role of asset price stabilization in Japan during the 1980s through a Bayesian estimation of the dynamic stochastic general equilibrium model. Our results show the presence of the wealth channel from increased stock prices in Japan. In addition, we argue the possibility that the Bank of Japan (BOJ) may have conducted its monetary policy by targeting the stock price stability in addition to inflation and the output gap. The BOJ's response to stock price movements as a matter of policy, however, is subject to considerable uncertainty. Our results indicate that while the BOJ may have reacted to stock prices deviated from their fundamental values, it could not prevent a stock price bubble simply by implementing a contractionary monetary policy shock. Therefore, we conclude that the BOJ's monetary policy stance aimed at stabilizing stock price fluctuations and minimizing macroeconomic volatility, whereas endogenous volatility was caused by bad shocks.
    Keywords: Monetary policy; Bayesian estimation; DSGE model; Stock prices; Wealth effect;
    JEL: E52 E58
    Date: 2021–04–21
  15. By: Plassard, Romain
    Abstract: Under which conditions did Robert Lucas’s microfoundational program come to dominate the field? My article sheds new light on this question. The focus is on why models incorporating rational expectations and market-clearing seduced macroeconomists. My case study is Robert Barro and Herschel Grossman. Drawing on Grossman’s archives, I define a framework for explaining their modeling choices. I show that methodological principles, tractability constraints, and research strategies explained why, at the end of the 1970s, Barro and Grossman preferred equilibrium over disequilibrium macroeconomics.
    Keywords: fluctuations, non-neutrality of money, fixed-price equilibrium models, contract theory, disequilibrium macroeconomics, equilibrium macroeconomics
    JEL: B21 B22 B23 E10 E32
    Date: 2021–04–15
  16. By: Scott R. Baker; Nicholas Bloom; Steven J. Davis; Marco C. Sammon
    Abstract: We examine next-day newspaper accounts of large daily jumps in 16 national stock markets to assess their proximate cause, clarity as to cause, and the geographic source of the market-moving news. Our sample of 6,200 market jumps yields several findings. First, policy news – mainly associated with monetary policy and government spending – triggers a greater share of upward than downward jumps in all countries. Second, the policy share of upward jumps is inversely related to stock market performance in the preceding three months. This pattern strengthens in the postwar period. Third, market volatility is much lower after jumps triggered by monetary policy news than after other jumps, unconditionally and conditional on past volatility and other controls. Fourth, greater clarity as to jump reason also foreshadows lower volatility. Clarity in this sense has trended upwards over the past century. Finally, and excluding U.S. jumps, leading newspapers attribute one-third of jumps in their own national stock markets to developments that originate in or relate to the United States. The U.S. role in this regard dwarfs that of Europe and China.
    JEL: E44 E58 E62 G12 G17
    Date: 2021–04
  17. By: Boris Chafwehé (European Commission (Joint Research Center)); François Courtoy (IRES/LIDAM, UCLouvain)
    Abstract: We investigate the properties of optimal fiscal policy in a framework where householdheterogeneity is accounted for. The Ramsey planner chooses (distortionary) labor taxes andtransfers to maximize aggregate welfare in a two-agent economy. We contrast the propertiesof optimal labor taxes in our model to the ones obtained in the representative agent counter-part. We first show that the presence of household heterogeneity introduces an additionalsource of fluctuations in the optimal tax rate, as varying taxes allows the planner to use trans-fers for redistributive purposes. We then show that, depending on the assumptions that aremade on how transfer receipts are distributed among households, and the type of shockshitting the economy, the structure of government bond markets becomes more or less im-portant in shaping the dynamics of the Ramsey allocation. In some cases, the presence oftransfers brings the incomplete markets allocation close to the one in which the planner hasaccess to state-contingent claims. We finally show that the presence of heterogeneity andoptimal transfers helps bring the behaviour of fiscal variables in the Ramsey model closer totheir counterpart in US data.
    Keywords: Fiscal policy, Household heterogeneity, Optimal taxation, Transfers
    JEL: E32 E62 H21 H23 H31
    Date: 2021–04–16
  18. By: Susanto Basu; Giacomo Candian; Ryan Chahrour; Rosen Valchev
    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.
    JEL: E24 E32 G12
    Date: 2021–04
  19. By: Angela Abbate; Dominik Thaler
    Abstract: Empirical research suggests that lower interest rates induce banks to take higher risks. We assess analytically what this risk-taking channel implies for optimal monetary policy in a tractable New Keynesian model. We show that this channel creates a motive for the planner to stabilize the real rate. This objective conflicts with the standard inflation stabilization objective. Optimal policy thus tolerates more inflation volatility. An inertial Taylor-type reaction function becomes optimal. We then quantify the significance of the risk-taking channel for monetary policy in an estimated medium-scale extension of the model. Ignoring the channel when designing policy entails non-negligible welfare costs (0.7% lifetime consumption equivalent).
    Keywords: Risk-taking channel, optimal monetary policy
    JEL: E44 E52
    Date: 2021
  20. By: Brinca, Pedro; Costa-Filho, João
    Abstract: What is behind the economic depression Brazil experienced within 2014-2016? Using a synthetic control estimations we find that its roots are domestic. With that in mind, we apply the business cycle accounting method and find that the episode was driven by the efficiency wedge. The econometric evidence reveals that the public development bank outlays have a positive (negative) impact in the short (long) run in the efficiency wedge. A dynamic general equilibrium model with financial frictions and a public development bank is able to reproduce the dynamics of output during the crisis.
    Keywords: Business Cycle Accounting, Brazil, DSGE, Financial Frictions
    JEL: E32 E44 E50
    Date: 2021–04–20
  21. By: Тулеуов Олжас // Tuleuov Olzhas (National Bank of Kazakhstan); Ержан Ислам // Yerzhan Islam (National Bank of Kazakhstan); Сейдахметов Ансар // Seidakhmetov Ansar (National Bank of Kazakhstan)
    Abstract: В данной работе описаны методология и результаты построения высокочастотного прокси-показателя инфляции Казахстана в Национальном Банке посредством использования технологии веб-скрепинга, подразумевающей автоматическое получение данных путем их извлечения c веб-страниц, реализованным с помощью программного алгоритма. // This Paper describes the methodology and outcomes of designing a high-frequency inflation proxy in Kazakhstan at the National Bank by using the web scrapping technology, which implies the automated data generation by deriving the data from web pages implemented with a help of a software algorithm.
    Keywords: inflation, web scrapping, Galymzhan, online store, prices, big data, CPI, parsing, consumer goods, инфляция, веб-скрепинг, Galymzhan, онлайн магазин, цены, big data, ИПЦ, парсинг, потребительские товары
    JEL: E31 E37 E39
    Date: 2021
  22. By: Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa); Qiang Ji (Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing 100049, China)
    Abstract: In this paper, we investigate how conventional and unconventional monetary policy shocks affect the stock market of eight advanced economies, namely, Canada, France, Germany, Japan, Italy, Spain, the U.K., and the U.S., conditional on the state of sentiment. In this regard, we use a panel vector auto-regression (VAR) with monthly data (on output, prices, equity prices, metrics of monetary policies, and consumer and business sentiments) over the period of January 2007 till July 2020, with the monetary policy shock identified through the use of both zero and sign restrictions. We find robust evidence that, compared to the low investor sentiment regime, the reaction of stock prices to expansionary monetary policy shocks is stronger in the state associated with relatively higher optimism, both for the overall panel and the individual countries (with some degree of heterogeneity). Our findings have important implications for academicians, investors, and policymakers.
    Keywords: Conventional and unconventional monetary policies, equity prices, sentiment, OECD countries, panel VAR, zero and sign restrictions
    JEL: C32 C33 E30 E51 E52 G15
    Date: 2021–04
  23. By: Jaime Marquez (Johns Hopkins SAIS); S Yanki Kalfa (University of California San Diego)
    Abstract: A central tenet of Macroeconomics is that monetary policy is forward looking. But Romer (2010) uses the forecasts of the participants of the U.S. Federal Open Market Committee’s (FOMC) and shows a remarkable heterogeneity in these participants’ outlooks. What accounts for this forecast heterogeneity? And how can one reconcile the tension between the need for a single monetary and the heterogeneity of forecasts that are steering it? To study these two questions, we continue the line of work initiated by Romer (2010). We study two sources of heterogeneity: Institutional and Dynamic. Institutional Heterogeneity is about differences in participants’ education, voting status, and regional affiliation — and the associated implications for forecast rationality. Dynamic Heterogeneity is about herd behavior, extreme forecasts, temporal aggregation, and macroeconomic shocks. These factors emphasize that forecast heterogeneity is not a given constant but rather, that it changes in response to the alignment between private and social interests of the FOMC. We find that forecast revisions are large and remarkably heterogenous across participants. Specifically, the FOMC’s forecast heterogeneity is systematically related to differences in participants’ education, voting status, and regional affiliation, as Romer anticipated. These results should not be surprising: heterogeneity is a built-in feature of the functioning of the Federal Reserve System and the role of the FOMC is to reconcile the differences. The reconciliation of private and public interests, and the implied heterogeneity of courses of action, involves a conversation in which the Chair gets the benefit of the doubt.
    JEL: E5 C3
    Date: 2021–04
  24. By: Tanaka, Yasuhito
    Abstract: The purpose of this paper is to show, using a simple two-periods overlapping generations (OLG) model in which goods are produced solely by labor in a monopolistically competitive industry, that a continuous budget deficit is necessary to maintain full-employment under economic growth driven by autonomous technological progress. Since the budget deficit must be continuous, it should be financed by seigniorage not by public debt. Also we will show that to achieve full employment in the presence of involuntary unemployment we need extra budget deficit. Budget deficit is necessary under growth because of deficiency of the savings of the older generation. These budget deficits are not debt and do not need to be redeemed. The money supply equals the savings. An increase in the money supply equals an increase in the savings. It equals the budget deficit. The rate of an increase in the savings equals the growth rate and therefore budget deficit does not cause inflation.
    Keywords: overlapping generations model, budget deficit, full-employment, growth
    JEL: E12 E24
    Date: 2021–04–18
  25. By: Gregor Boehl; Cars Hommes
    Abstract: Can boundedly rational agents survive competition with fully rational agents? We develop a highly nonlinear heterogeneous agents model with rational forward looking versus boundedly rational back- ward looking agents and evolving market shares depending on their relative performance. Our novel numerical solution method detects equilibrium paths characterized by complex bubble and crash dy- namics. Boundedly rational trend-extrapolators amplify small deviations from fundamentals, while rational agents anticipate market crashes after large bubbles and drive prices back close to fundamen- tal value. Overall rational and non-rational beliefs co-evolve over time, with time-varying impact, and their interaction produces complex endogenous bubble and crashes, without any exogenous shocks.
    Keywords: Heterogeneous agents, trend-extrapolation, bubbles, numerical solution method
    JEL: C63 E03 E32 E44 E51
    Date: 2021–04
  26. By: Andre, Peter (University of Bonn); Pizzinelli, Carlo (IMF); Roth, Christopher (University of Warwick, briq, CESifo, CAGE); Wohlfart, Johannes (University of Copenhagen, CEBI, CESifo)
    Abstract: Using a sample of 2,200 households representative of the US population and a sample of more than 1,000 experts, we measure beliefs about how aggregate unemployment and inflation respond to different macroeconomic shocks. Expert predictions are quantitatively close to standard DSGE models and VAR evidence. While households' beliefs are directionally aligned with those of experts in the case of oil supply shocks and government spending shocks, they predict an opposite reaction of inflation to monetary policy and income tax shocks. A substantial fraction of deviations of household predictions can be explained by the use of a simple affective heuristic
    Keywords: Expectation Formation ; Subjective Models ; Heuristics ; Macroeconomic Shocks ; Monetary Policy ; Fiscal Policy JEL Classification: D83 ; D84 ; E31 ; E52 ; E71
    Date: 2021
  27. By: Lorenzo Pozzi (Erasmus University Rotterdam); Barbara Sadaba (Bank of Canada)
    Abstract: Macroeconomic disasters (wars, pandemics, depressions) are characterized by drastic shifts and increased volatility of the aggregate consumption to income ratio. By standard intertemporal budget constraint logic, this ratio is linked to expectations of future income and consumption growth rates. We investigate whether these expectations suffice to explain the shifts in the consumption-income ratio that occur during disaster periods or whether, on the other hand, consumers become more forward-looking and therefore give more weight to these expectations during disaster times. Our theoretical framework implies that the predictive ability of the current consumption-income ratio for future income and consumption growth rates is higher during disaster episodes. We check this both for past disasters and the current Covid-19 pandemic through the estimation of panel data regressions for industrial economies using historical annual data (1870 - 2015) and recent quarterly data (1995Q1 - 2020Q4). Our estimations confirm that macroeconomic disasters, contrary to ordinary recessions, make consumers more forward-looking.
    Keywords: consumption, saving, macroeconomic disasters, Covid-19, panel data
    JEL: C23 E21
    Date: 2021–04–19
  28. By: Dzung Bui; Lena Dräger; Bernd Hayo; Giang Nghiem
    Abstract: This paper investigates the direct and indirect effects of others’ beliefs on respondents’ own beliefs and consumer sentiment. Conducting consumer surveys with randomized control trials (RCTs) in Thailand and Vietnam during the COVID-19 pandemic, we implement two information treatments. Both treatments contain cross-country information about others’ beliefs about the appropriateness of the government’s or the general public’s reaction to the pandemic. The first treatment is asymmetric across our sample countries, as it shows opposite appropriateness ratings of the governments’ reaction in Vietnam and Thailand, whereas the second treatment is rather symmetric. We find that the information treatments affect consumer sentiment only in Vietnam, where the sign of the effect suggests that the treatments are viewed as positive news. Moreover, consumer sentiment in Vietnam is strongly affected by both treatments when the information goes against respondents’ prior beliefs.
    Keywords: consumer sentiment, Covid-19, randomized control trial (RCT), survey experiment, second-order beliefs, belief updating, government trust, macroeconomic expectations, Thailand, Vietnam
    JEL: E21 E37 E71 D84 D83
    Date: 2021
  29. By: Yuriy Gorodnichenko (University of California, Berkeley); Tho Pham (University of Reading); Oleksandr Talavera (University of Birmingham)
    Abstract: This study is a comprehensive analysis of the Federal Reserve System (FED) communication on social media and its effectiveness. Our examination shows that although the FED uses both Twitter and Facebook for public outreach, communication via Twitter is more popular and gains greater public engagement. There are heterogeneous effects across different topics of the FED's social media posts, post types, as well as across Twitter user groups. The general public is most active in engaging with the FED accounts, followed by media, investors, academics, and government accounts. Further investigation suggests inconclusive evidence of stock market reactions to the FED communication on social media. However, market participants do update their inflation expectations based on information contained in the FED's social media posts.
    Keywords: central bank communication, social media, public engagement, financial market.
    JEL: E50 E58
    Date: 2021–05
  30. By: Andrea Papetti (Bank of Italy)
    Abstract: This paper develops a multi-country two-sector overlapping-generations model to study the impact of demographic change on the relative price of nontradables and current account balances. An aging population expands the relative demand for nontradables, exerting upward pressure on their relative price (structural transformation), and entails a willingness to save more, as households discount higher survival probabilities, and invest less, as firms face increasing labor scarcity. The general equilibrium reduction of the real interest rate (secular stagnation) dampens the increase in the relative price as savings become less profitable, thus lowering consumption at older ages. The model robustly predicts that faster-aging countries will face greater increases in the relative price of nontradables and unprecedented accumulations of net foreign asset positions (global imbalances) over the twenty-first century.
    Keywords: population aging, relative prices, capital flows, overlapping generations, tradable nontradable, secular stagnation, structural transformation, global imbalances
    JEL: E21 F21 J11 O11 O14
    Date: 2021–04
  31. By: Bruno Pellegrino; Enrico Spolaore; Romain Wacziarg
    Abstract: We quantify the impact of barriers to international investment, using a novel multi-country dynamic general equilibrium model with heterogeneous investors and imperfect capital mobility. Our model yields a gravity equation for bilateral foreign asset positions. We estimate this gravity equation using recently-developed foreign investment data that have been restated to account for offshore investment and financing vehicles. We show that a parsimonious implementation of the model with four barriers (geographic distance, cultural distance, foreign investment taxation, and political risk) accounts for a large share of the observed variation in bilateral foreign investment positions. Our model predicts (out of sample) a significant home bias, higher rates of return on capital in emerging markets, as well as “upstream” capital flows. In our benchmark calibration, we estimate that the capital misallocation induced by these barriers reduces World GDP by 7%, compared to a situation without barriers. We also find that barriers to global capital allocation contribute significantly to cross-country inequality: the standard deviation of log capital per employee is 80% higher than it would be in a world without barriers to international investment, while the dispersion in output per employee is 42% higher.
    JEL: E22 E44 F2 F3 F4 G15 O4
    Date: 2021–04
  32. By: Asongu, Simplice; Diop, Samba; Nnanna, Joseph
    Abstract: This study has: (i) analysed the economic impact of the Covid-19 pandemic, (ii) evaluated the effectiveness and relevance of different measures against the pandemic and (iii) examined nexuses between the corresponding measures and economic outcomes. The study uses a sample of 186 countries divided into four main regions, notably: Asia-Pacific and the Middle East, Europe, Africa and America. 34 preventing and mitigating measures against the Covid-19 pandemic are classified into five main categories: lockdown, movement restrictions, governance and economic, social distancing, and public health measures. The empirical evidence is based on comparative difference in means tests and correlation analyses. The findings show how the effectiveness and consequences of the Covid-19 measures are different across regions. In adopting the relevant policies to fight the ongoing pandemic, the comparative insights from the findings in the study are worthwhile. Inter alia: (i) from a holistic perspective, only European countries have favourably benefited from the Covid-19 measures; (ii) lockdown measures at the global level have not been significant in reducing the pandemic; (iii) the restriction of movement measure has been relevant in curbing the spread in the American continent; (iv) social distancing has been productive in Europe and counter-productive in Africa; (v) governance and economic measures have exclusively been relevant in Europe and (vi) overall public health measures have not had the desired outcomes in flattening the infection curve probably because most of the underlying measures are awareness decisions or oriented toward people already infected.
    Keywords: Novel Coronavirus, Social Distance, Macroeconomics effects
    JEL: E10 E12 E20 E23 I10 I18
    Date: 2020–07
  33. By: Gasteiger, Emanuel
    Abstract: This paper examines optimal monetary policy under heterogeneous expectations. To this end, we develop a stochastic New Keynesian model with a cost-push shock and coexistence of one-step-ahead rational and adaptive expectations in decentralized markets. On the one side, heterogeneous expectations imply an amplification mechanism that has many adverse consequences missing under the rational expectations paradigm. On the other side, even discretionary optimal monetary policy can manipulate expectations via a novel channel. We argue that the incorporation of heterogeneous expectations in both the design and implemen tation of discretionary optimal monetary policy to exploit this channel lowers macroeconomic volatility. We find that: (1.) surprisingly, a more hawkish policy can reduce losses due to volatility, but an overly hawkish policy does not; (2.) overestimating the share of rational expectations in the design and implementation of policy creates additional losses, while the underestimation does not; (3.) credible commitment eliminates or mitigates many of the ramifications of heterogeneous expectations.
    Keywords: heterogeneous expectations,optimal monetary policy,policy design,policy implementation
    JEL: D84 E52
    Date: 2021
  34. By: Christian Kubitza (University of Bonn)
    Abstract: This paper proposes Spillover Persistence as a measure for financial fragility. The volatility paradox predicts that fragility builds up when volatility is low, which challenges existing measures. Spillover Persistence tackles this challenge by exploring a novel dimension of systemic risk: loss dynamics. I document that Spillover Persistence declines when fragility builds up, during the run-up phase of crises and asset price bubbles, and increases when systemic risk materializes. Variation in financial constraints connects Spillover Persistence to fragility. The results are consistent with the volatility paradox in recent macro-finance models, and highlight the usefulness of loss dynamics to disentangle fragility from amplification effects.
    Keywords: Systemic Risk, Fragility, Financial Crises, Asset Price Bubbles, Fire Sales
    JEL: E44 G01 G12 G20 G32
    Date: 2021–04
  35. By: Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
    Abstract: We build a minimalist framework to analyze the macroeconomics of a pandemic, with two essential components. The first is productivity-related: if the virus forces firms to shed labor beyond a certain threshold, productivity suffers. The second component is a credit market imperfection: because lenders cannot be sure a borrower will repay, they only lend against collateral. Expected productivity determines collateral value; in turn, collateral value can limit borrowing and productivity. As a result, adverse shocks have large magnification effects, in an unemployment and asset price deflation doom loop. There may be multiple equilibria, so that pessimistic expectations can push the economy to a bad equilibrium with limited borrowing and low employment and productivity. The model helps identify policies to fight the effects of the pandemic. Traditional expansionary fiscal policy has no beneficial effects, while cutting interest rates has a limited effect if the initial real interest rate is low. By contrast, several unconventional policies, including wage subsidies, helicopter drops of liquid assets, equity injections, and loan guarantees, can keep the economy in a full-employment, high-productivity equilibrium. Such policies can be fiscally expensive, so their implementation is feasible only with ample fiscal space or emergency financing from abroad. We provide macroeconomic evidence consistent with the mechanisms in our model.
    Date: 2020–09
  36. By: Gomez-Gonzalez, Jose Eduardo; Uribe, Jorge M.; Hirs-Garzon, Jorge
    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: D25 G30 L16
    Date: 2021–04
  37. By: Lucas Marc Fuhrer; Nils Herger
    Abstract: This paper empirically examines the effect of population growth on long-term real interest rates. Although this effect is well founded in macroeconomic theory, the corresponding empirical results have been rather tenuous and surprisingly unstable. As the demographic interest rate impact is theoretically based on intergenerational relationships, we not only contemplate gross population growth rates but also distinguish between demographic growth resulting from a birth surplus and net migration. Within a panel covering 12 countries and the years since 1820, our results suggest that there is a positive, statistically significant, and stable effect from the birth surplus on real interest rates. Conversely, the corresponding effect of net migration seems to be much more volatile. Hence, our results suggest that it is mainly population growth occurring through a birth surplus that affects the equilibrium real interest rate.
    Keywords: Demographics, population growth, real interest rate
    JEL: E43 E52 J11
    Date: 2021
  38. By: Victoria Gregory; Guido Menzio; David G. Wiczer
    Abstract: Based on patterns of employment transitions, we identify three different types of workers in the US labor market: α's β's and γ's. Workers of type α make up over half of all workers, are most likely to remain on the same job for more than 2 years and, when they become unemployed, typically find a new job within 1 quarter. Workers of type γ comprise less than one-fifth of workers, have a low probability of staying on the same job for more than 2 years and, when they become unemployed, face a high probability of remaining jobless for more than 1 year. Workers of type β are in between αs and γ's. The earnings losses caused by displacement are relatively small and transitory for α-workers, while they are large and persistent for γ-workers. During the Great Recession, excess unemployment for α-workers rose by little and was reabsorbed quickly; unemployment for γ-workers rose by 20 percentage points and was not reabsorbed 4 years after its peak. We use a search-theoretic model of the labor market to rationalize the different patterns of employment transitions across types. The model naturally explains both the variation in the consequences of job displacement across types, and the variation in the dynamics of unemployment during the Great Recession. Our view is that several puzzling micro and macro phenomena about the labor market are driven by the behavior of the small group of γ-workers.
    JEL: E24
    Date: 2021–04
  39. 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
    Date: 2021
  40. By: Guerrazzi, Marco; Giribone, Pier Giuseppe
    Abstract: In this paper, we explore the dynamics of working hours and wages in a model economy where a firm and its workforce are linked to each other by an implicit contract. Specifically, we develop a deterministic and a stochastic framework in which the firm sets its level of labour utilization by considering that workers' earnings tend to adjust in the direction of a fixed level. Without any uncertainty in firm's profitability, we show that the existence and the properties of stationary solutions rely on factors that usually determine the enforceability of contracts and we provide evidence that wages tend to move countercyclically towards the allocation preferred by the firm. Moreover, we show that adding uncertainty does not overturn the counter-cyclical pattern of wages but is helpful in explaining their dynamic behaviour in response to demand shocks as well as their typical stickiness observed at the macro level.
    Keywords: Implicit contract theory,Consumption smoothing,Out-of-equilibrium dynamics,Stochastic optimal control
    JEL: D86 E24 J41
    Date: 2021
  41. By: Iheonu, Chimere; Asongu, Simplice; Odo, Kingsley; Ojiem, Patrick
    Abstract: This study investigated the impact of financial sector development on domestic investment in selected Economic Community of West African States (ECOWAS) countries for the years 1985 to 2017. The study employed the Augmented Mean Group procedure which accounts for country specific heterogeneity and cross sectional dependence, and the Granger non-causality test robust to cross sectional dependence. The result reveals that (1) the impact of financial sector development on domestic investment depends on the measure of financial sector development utilised, (2) domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS while banking intermediation efficiency (i.e. ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment, (3) cross country differences exist on the impact of financial sector development on domestic investment in the selected ECOWAS countries, and (4) domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends cautiousness in terms of the measure of financial development which is being utilised as a policy instrument to foster domestic investment as well as the importance of employing country-specific domestic investment policies in order to avoid blanket policy measures. Also, domestic credit to the private sector should be given priority when forecasting domestic investment into the future.
    Keywords: Financial Sector Development; Domestic Investment; Augmented Mean Group; Granger non-causality test; ECOWAS
    JEL: C50 E20 E50 G0
    Date: 2020–01
  42. By: Masahige Hamano (Waseda University); Francesco Pappadà (Paris School of Economics and Banque de France)
    Abstract: This paper examines the exchange rate policy in a two-country model with nom- inal wage rigidities and firm dynamics. We show that a exible exchange rate is unable to replicate the exible price allocation under incomplete financial markets. In our setting with heterogeneous firms, a monetary intervention dampens nominal exchange rate uctuations and stabilizes the firm selection in the export market. The reduction in wage setting uncertainty ensured by a fixed exchange rate is par- ticularly relevant when firms are small and homogeneous, thus providing a rationale for currency manipulation in exchange rate policies.
    Keywords: exchange rate policy, firm heterogeneity, nominal rigidities
    JEL: F32 F41 E40
  43. By: Tanaka, Yasuhito
    Abstract: 最近MMT(Modern Monetary Theory,現代貨幣理論)と呼ばれる学派の主張が注目を集めているが,これまであ まり理論的,あるいは数学的な分析がなされることはなかった。本稿では技術進歩による 経済成長を含む世代重複モデルを用いてMMTの主張が理論的に成り立つのかどうかを検 討し,それに概ね肯定的な評価を与える。基本となるのは経済が成長している場合に完全 雇用を維持して行くためには継続的な財政赤字が必要であるということと,不況から回復 させるためにはそれを超える財政赤字が求められ,その赤字は将来の財政黒字によって埋 め合わされる必要はないということである。本稿のモデルは田中(2021)の3世代モ デルを単純化したものであるが,経済成長を取り上げたり,規模に関する収穫逓増・逓減 を仮定したり,インフレーションの分析をしたりなど,分析については拡張している。
    Keywords: 世代重複モデル,独占的競争,完全雇用,財政赤字,MMT
    JEL: E12 E24
    Date: 2021–04–18
  44. By: Tanaka, Yasuhito
    Abstract: We will show, using a simple two-periods overlapping generations (OLG) model with bequest motive in which goods are produced solely by labor in a monopolistically competitive industry, that a continuous budget deficit is necessary to maintain full-employment under economic growth driven by technological progress. Since the budget deficit to maintain full-employment must be continuous, it should be financed by seigniorage not by public debt. Budget deficit is necessary under growth because of deficiency of the consumptions of the older generation. This budget deficit is not debt and does not need to be redeemed. If the budget deficit is excessive, inflation will be triggered. About this excessive budget deficit that has caused inflation, only the excess portion should be reduced, and there is no need to make up for past excesses by creating surpluses or reducing deficits. We also show that insufficient government expenditure causes involuntary unemployment.
    Keywords: overlapping generations model, budget deficit, full-employment, growth, inflation
    JEL: E12 E24
    Date: 2021–04–18
  45. By: Ramiro Emmanuel Jorge
    Abstract: El paper internaliza información proveniente de las herramientas Google Trends y Google Correlate con el objetivo de predecir de manera oportuna el valor del Índice Compuesto Coincidente de Actividad Económica de la Provincia de Santa Fe (ICASFe), indicador que se publica con dos meses de rezago. Para esto, se identifican aquellos términos cuyos patrones de búsqueda tienen mayor correlación con el ICASFe y luego se plantea un método de agregación para incorporarlos la serie target. Las estimaciones obtenidas con el modelo son contrastadas con datos reales de la serie target (ex post). Los resultados indican que las herramientas y el procedimiento adoptado permiten realizar una estimación consistente y ganar oportunidad respecto a las publicaciones oficiales.
    Keywords: Cycles, nowcast, big data, Google tools
    JEL: E27 E32
    Date: 2020–11
  46. By: Delaporte, Isaure; Escobar, Julia; Peña, Werner
    Abstract: This paper estimates the potential distributional consequences of the first phase of the COVID-19 lockdowns on poverty and labour income inequality in 20 Latin American and Caribbean (LAC) countries. We estimate the share of individuals that are potentially able to remain active under the lockdown by taking into account individuals' teleworking capacity but also whether their occupation is affected by legal workplace closures or mobility restrictions. Furthermore, we compare the shares under the formal (de jure) lockdown policies assuming perfect compliance with the shares under de facto lockdowns where there is some degree of non-compliance. We then estimate individuals' potential labour income losses and examine changes in poverty and labour income inequality. We find an increase in poverty and labour income inequality in most of the LAC countries due to social distancing; however, the observed changes are lower under de facto lockdowns, revealing the potential role of non-compliance as a coping strategy during the lockdowns. Social distancing measures have led to an increase in inequality both between and within countries. Lastly, we show that most of the dispersion in the labour income loss across countries is explained by the sectoral/occupational employment structure of the economies.
    Keywords: COVID-19,Social Distancing,Compliance,Employment,Poverty,Labour Income Inequality
    JEL: D33 E24 J21 J31
    Date: 2021
  47. By: Haoran He; David Neumark; Qian Weng
    Abstract: We explore the impact of wage offers on job applications, testing implications of the directed search model and trying to distinguish it from random search. We use a field experiment conducted on a Chinese job board, with real jobs for which we randomly varied the wage offers across three ranges. We find that higher wage offers raise application rates overall, which is consistent with directed search but can also arise with random search. We also find that higher wage offers raise application rates for job seekers with wage offers above reservation wages, and that – among the latter – the increase in application rates is stronger for those with higher reservation wages. The latter two types of evidence are consistent with directed search but not random search. Hence, our evidence lends support to directed search models.
    JEL: E24 J64
    Date: 2021–04
  48. By: Andrea Gerali (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Danilo Liberati (Bank of Italy)
    Abstract: In this paper we study the allocative (in)efficiency of employment protection in relation to firing costs, in a general equilibrium model with labor market frictions. The optimal firing costs depend on the level of unemployment benefits and the degree of centralized wage bargaining, two features of the labor market that induce downward wage rigidity and trigger inefficient employment separations. When restrictions on firing employees with permanent contracts are inefficiently high, the introduction of temporary contracts improves welfare but does not fully restore efficiency. A quantitative analysis for the Italian economy shows that the firing costs before the recent labor market reforms were 30% higher than the optimal level, implying a consumption loss of almost 2% in the steady state. The introduction of fixed-term jobs in the early 2000’s closed one fourth of the gap between inefficient and efficient allocation, although it led to higher unemployment rates and turnover.
    Keywords: employment protection, temporary contracts, labor market institutions, structural reforms, general equilibrium model, search and matching
    JEL: E32 J41 J65
    Date: 2021–04
  49. By: Julian Puig; Diego Pitetti
    Abstract: El presente trabajo estudia el efecto de las depreciaciones reales sobre el escenario fiscal subnacional en Argentina para el período 1960-2017. Se analiza no sólo el efecto sobre gastos, ingresos y deuda subnacional a nivel agregado, sino que también se focaliza en la composición de estas variables. El gasto se analiza según su clasificación económica -corrientes y de capital-, los ingresos según provengan de recaudación propia o de transferencias de otras jurisdicciones -principalmente del Gobierno Nacional- y la deuda según el prestamista -Gobierno Nacional u organismos multinacionales- .Los resultados sugieren que, ante una depreciación real, tanto los gastos como los ingresos caen, experimentando estos últimos una caída de mayor magnitud que deteriora el resultado fiscal y, a su vez, los efectos son heterogéneos entre las provincias. Por otra parte, la deuda pública provincial, reacciona positivamente ante dicho shock dada la elevada proporción de deuda denominada en moneda extranjera respecto del total.
    Keywords: tipo de cambio real, depreciación, finanzas públicas subnacionales
    JEL: E6 H77
    Date: 2020–11
  50. By: Asongu, Simplice; Rahman, Mushfiqur; Nnanna, Joseph; Haffar, Mohamed
    Abstract: This study investigates how enhancing information and communication technology (ICT) affects value added across sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. The following findings are established. First, the enhancement of mobile phone and internet penetrations respectively have net negative effects on value added to the agricultural and manufacturing sectors.Second, enhancing ICT (i.e. mobile phone penetration and internet penetration) overwhelmingly has positive net effects on value added to the service sector. From an extended analysis, enhancing ICT in the agricultural and manufacturing sectors should exceed certain thresholds for value added, notably: 114.375 of mobile phone penetration per 100 people for added value in the agricultural sector and 22.625 of internet penetration per 100 people for added value in the manufacturing sector.
    Keywords: Economic Output; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  51. By: Paranhos, Livia (University of Warwick)
    Abstract: This paper applies neural network models to forecast inflation. The use of a particular recurrent neural network, the long-short term memory model, or LSTM, that summarizes macroeconomic information into common components is a major contribution of the paper. Results from an exercise with US data indicate that the estimated neural nets usually present better forecasting performance than standard benchmarks, especially at long horizons. The LSTM in particular is found to outperform the traditional feed-forward network at long horizons, suggesting an advantage of the recurrent model in capturing the long-term trend of inflation. This finding can be rationalized by the so called long memory of the LSTM that incorporates relatively old information in the forecast as long as accuracy is improved, while economizing in the number of estimated parameters. Interestingly, the neural nets containing macroeconomic information capture well the features of inflation during and after the Great Recession, possibly indicating a role for nonlinearities and macro information in this episode. The estimated common components used in the forecast seem able to capture the business cycle dynamics, as well as information on prices.
    Keywords: forecasting ; inflation ; neural networks ; deep learning ; LSTM model
    Date: 2021
  52. By: Giovanni Angelini; Marco M. Sorge
    Abstract: Recent structural VAR studies of the monetary transmission mechanism have voiced concerns about the use of recursive identification schemes based on short-run exclusion restrictions. We trace out the effects on impulse propagation of informational constraints embodying classical Cholesky-timing restrictions in otherwise standard Dynamic New Keynesian (DNK) models. By reinforcing internal propagation mechanisms and enlarging a model's equilibrium state space, timing restrictions may produce a non-trivial moving average component of the equilibrium representation, making finite order VARs a poor approximation of true adjustment paths to monetary impulses, albeit correctly identified. They can even serve as an independent source of model-based nonfundamentalness, thereby hampering shock identification via VAR methods. This notwithstanding, restricted DNK models are shown to feature (i) invertible equilibrium representations for the observables and (ii) fast-converging VAR coefficient matrices under empirically tenable parameterizations. This alleviates concerns about identification and lag truncation bias: low-order Cholesky-VARs do well at uncovering the transmission of monetary impulses in a truly Cholesky world.
    JEL: C3 E3
    Date: 2021–04
  53. By: Diop, Samba; Asongu, Simplice; Nnanna, Joseph
    Abstract: The study complements the extant literature by constructing Covid-19 economic vulnerability and resilience indexes using a global sample of 150 countries which are categorized into four principal regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. Seven variables are used for the vulnerability index and nine for the resilience index. Both regions and sampled countries are classified in terms of the two proposed and computed indexes. The classification of countries is also provided in terms of four scenarios pertaining to vulnerability and resilience characteristics, notably: low vulnerability-low resilience, high vulnerability-low resilience, high vulnerability-high resilience and low vulnerability-high resilience to respectively illustrate, sensitive, severe, asymptomatic and best cases. The findings are relevant to policy makers especially as it pertains to decision making in resources allocation in the fight against the global pandemic.
    Keywords: Novel coronavirus, Economic vulnerability, Economic resilience
    JEL: E10 E12 E20 E23 I10 I28
    Date: 2020–10
  54. By: Xafa, Miranda (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: I met Bob Mundell in Washington in 1982, when I was already working at the International Monetary Fund, at a conference on the international monetary system. My first impression was the absolute confidence with which he expressed his views. When one of the participants in his panel claimed that the data did not confirm his views, he responded: "If the data do not confirm my views, then the data are wrong." I had the chance to follow his life and career, and to participate in the conferences he organized and chaired in the last two decades in his beloved Palazzo Mundell in Tuscany where he lived. Mundell pioneered the theory that serves as the basis for the design and implementation of economic policies in open economies. He extended the Keynesian closed-economy model, which focused on the relationship between interest rates and output, to open economies by introducing a third dimension: the exchange rate and capital mobility. It is hard to appreciate today his pathbreaking thinking on economic issues that had yet to emerge, at a time when the world was dominated by fixed exchange rates and capital controls. His research formed the foundation of international macroeconomics. In awarding him the 1999 Nobel prize in economics, the Swedish Academy of Sciences notes that: " His contribution to monetary theory and optimum currency areas remains outstanding and has inspired generations of researchers. Mundell chose the problems he analyzed with almost prophetic accuracy, predicting the future course of the international monetary system and international capital markets".
    Date: 2021–04
  55. By: Elias Albagli; Mario Canales; Chad Syverson; Matias Tapia; Juan Wlasiuk
    Abstract: A large body of work has highlighted the importance of employment reallocation as a driver of aggregate productivity growth, but there is little direct evidence on the extent and nature of this process at the worker-firm level. We use an administrative matched employer-employee census for Chile to provide novel insights into the relationship between job transitions and productivity variation across firms. As many theories would predict, worker flows from lower- to higher-productivity firms are larger than those of the opposite sign. Empirically, however, this is only marginally so. Almost half of all transitions occur “down the firm productivity ladder.” This process is also highly heterogeneous along several dimensions. Up-the-ladder flows are more likely for direct job-to-job transitions than those that pass through nonemployment. They are also much more likely for young, high-skilled workers, whose job transitions comprise in an accounting sense the lion’s share of aggregate productivity change. Interestingly, workers with the highest job turnover rates contribute proportionally the least to aggregate productivity changes. Put together, this evidence implies that the productivity mechanics of job reallocation yields a net benefit, but this hides massive and heterogeneous gross flows underneath.
    JEL: D2 E23 J2 J6 L11
    Date: 2021–04
  56. By: Eric S. Rosengren
    Abstract: It seems likely that the economy will grow rapidly this year. This should reduce the slack in the labor markets and eventually return inflation to the Federal Reserve’s 2 percent target. Assuming virus variants do not become especially problematic, we should see an unusually strong post-recession recovery. While the near-term public health and macroeconomic improvements are more than welcome and critically important, I also believe that policymakers across the spectrum should take the time to examine some of the problems brought to the forefront over the past year. In doing so, they can help to ensure we are rebuilding an economy that works for all Americans throughout the inevitable business cycle. The combination of accommodative monetary and fiscal policy, and consumers and firms well positioned to renew spending, should result in returning to full employment much more quickly than after the last financial crisis and Great Recession. However, many of the underlying problems that can disrupt financial stability – as at the outset of the pandemic – still need to be addressed. During the economic recovery, policymakers should be diligent about removing these risks to financial stability, which translate into risks for the economy and every firm and worker in it.
    Keywords: economic outlook; recovery; inclusive economy; COVID-19; financial stability; risks; MMMF; money market mutual funds; CCyB; countercyclical capital buffer; liquidity; bank capital
    Date: 2021–04–12
  57. By: Makoto Nirei; José A. Scheinkman
    Abstract: We present a menu-cost pricing model with a large but finite number n of firms. A firm’s nominal price increase lowers other firms’ relative prices, thereby inducing further nominal price increases. The distribution of these repricing avalanches converges as n→∞ to a mixture of Generalized Poisson Distributions (GPD), with an index of dispersion (variance/mean) that is a function of a single variable θ that is determined by the equilibrium of the continuous limit. The index of dispersion explodes as θ→1. We calibrate the model to the U.S. experience during 1988–2005 and obtain a θ surprisingly close to unity. Simulations show that a GPD fits well the distribution of avalanches but that, once we account for the dynamics, the multiplier effect derived from a firm adjusting prices by paying menu costs is even larger. We also show that the model can account for the positive relationship between inflation level and volatility that was observed in 1988–2005 in the U.S.
    JEL: E31
    Date: 2021–04
  58. By: Alejandro Rodríguez
    Abstract: We present a Simple SIR Macro Model to study the economic impact of an epidemic in a model were agent types are unobservable. We solve for the decentralized economy equilibrium and for optimal solution (subject to the constraint that the planner cannot differentiate between agent types). We find that decentralized economy produces an endogenous lock-down in which economic activity decreases. We find that the decentralized economy will begin its lock-down sooner than what the optimal policy prescribes because agents have an incentive to selfishly avoid infection while waiting for others to get infected, recover and contribute to herd-immunity. The optimal policy in this model is not necessarily about forcing people to stay at home but to force people to get infected early on.
    Keywords: Epidemic, COVID-19, recessions, lock-down, SIR macro model
    JEL: E1 I1 H0
    Date: 2020–11
  59. By: James Fudurich; Lena Suchanek; Lise Pichette
    Abstract: Firms are at the forefront of adopting new technology. Using survey data from a global network of central banks, we assess the effects of digitalization on firms’ pricing and employment decisions.
    Keywords: Firm dynamics; Inflation and prices; Labour markets
    JEL: D22 E31 J21 O33
  60. By: Auerbach, A; Gorodnichenko, Y; Murphy, D
    Abstract: We estimate local fiscal multipliers and spillovers for the USA using a rich dataset based on the US Department of Defense contracts and a variety of outcome variables relating to income and employment. We find strong positive spillovers across locations and industries. Both backward linkages and general equilibrium effects (e.g., income multipliers) contribute to the positive spillovers. Geographical spillovers appear to dissipate fairly quickly with distance. Our evidence points to the relevance of Keynesian-type models that feature excess capacity.
    Keywords: E62, H5, Applied Economics, Banking, Finance and Investment, Economics, Banking, Finance and Investment
    Date: 2020–03–01
  61. By: Eric S. Rosengren
    Abstract: The past year with the pandemic has been grueling. Eleven months after the initial outbreak, economic outcomes for individuals and businesses still remain closely tied to finding and implementing effective public health policy. However, with the successful development of multiple vaccines, it is now possible to imagine much better macroeconomic outcomes ahead. My view is that policymakers must work to ensure that the benefits of the eventual recovery are widely shared. As I’ve mentioned, I believe that as we think about recovery from the pandemic, we should take the time to look for ways that our economy can be reimagined for the better with what we have learned during this trying period. We should learn from the challenges that the pandemic brought to the forefront – but were simmering even before COVID-19. And we should capitalize on the opportunities that stem from realizing new ways of working and extend them more broadly to benefit more workers – especially those in low- and moderate-wage occupations – along with employers, industries, and local economies.
    Keywords: economic outlook; recovery; COVID-19; employment; community development; Connecticut; inclusive economy; working places
    Date: 2021–02–19
  62. By: Asongu, Simplice; Folarin, Oludele; Biekpe, Nicholas
    Abstract: This study investigates the stability of money in the proposed East African Monetary Union (EAMU). The study uses annual data for the period 1981 to 2015 from five countries making up the East African Community (EAC). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries. This divergence is articulated in terms of differences in CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long term determinants and error correction in event of a shock. Specifically, the results show that the demand for money is stable in the cases of Burundi, Rwanda and Tanzania based on the CUSUM and CUSUMSQ tests, while for the remaining countries (Kenya and Uganda) only partial stability is apparent. In event of a shock, Kenya will restore its long run equilibrium fastest, followed by Tanzania and Burundi.
    Keywords: Stable; demand for money; bounds test
    JEL: C22 E41 O55
    Date: 2020–01
  63. By: Gergo Motyovszki
    Abstract: Ballooning public debts in the wake of the covid-19 pandemic can present monetary-fiscal policies with a dilemma if and when neutral real interest rates rise, which might arrive sooner in emerging markets: policymakers can stabilize debts either by relying on fiscal adjustments (AM-PF) or by tolerating higher inflation (PM-AF). The choice between these policy mixes affects the efficacy of the fiscal expansion already today and can interact with the distributive properties of the stimulus across heterogeneous households. To study this, I build a two agent New Keynesian (TANK) small open economy model with monetary-fiscal interactions. Targeting fiscal transfers more towards high-MPC agents increases the output multiplier of a fiscal stimulus, while raising the degree of deficit-financing for these transfers also helps. However, precise targeting is much more important under the AM-PF regime than the question of financing, while the opposite is the case with a PM-AF policy mix: then deficit-spending is crucial for the size of the multiplier, and targeting matters less. Under the PM-AF regime fiscal stimulus entails a real exchange rate depreciation which might offset "import leakage" by stimulating net exports, if the share of hand-to-mouth households is low and trade is price elastic enough. Therefore, a PM-AF policy mix might break the Mundell-Fleming prediction that open economies have smaller fiscal multipliers relative to closed economies.
    Keywords: monetary-fiscal interactions, small open economy, hand-to-mouth agents, redistribution, public debt, Ricardian equivalence
    Date: 2021
  64. By: Galassi, Gabriela (Bank of Canada)
    Abstract: This paper analyzes how firms respond to changes in tax benefits for low-earning workers and how such policies also affect high-earning workers. I explore establishment outcomes around Germany's 2003 Mini-Job Reform, which expanded tax benefits for low-earning workers. I document that highly exposed establishments–high proportion of low-earning workers–increase their employees relative to non-exposed establishments–low proportion of such workers. This relative expansion is tilted towards high-earning workers, not targeted by the tax benefits. Nonexposed establishments substitute employment towards low-earning workers without expanding at the same pace. My findings are consistent with a model in which employment growth the policy intended is accompanied by a reallocation of employment and production between highly exposed firms and non-exposed firms, resulting in an efficiency loss.
    Keywords: tax benefits, firm decisions, spillovers
    JEL: H20 H24 H32 E24 E64 I38 J23 J38
    Date: 2021–04
  65. By: Alyssa G. Anderson; Wenxin Du; Bernd Schlusche
    Abstract: We show that the role of unsecured, short-term wholesale funding for global banks has changed significantly in the post-financial-crisis regulatory environment. Global banks mainly use such funding to finance liquid, near risk-free arbitrage positions—in particular, the interest on excess reserves arbitrage and the covered interest rate parity arbitrage. In this environment, we examine the response of global banks to a large negative wholesale funding shock as a result of the U.S. money market mutual fund reform implemented in 2016. In contrast to past episodes of wholesale funding dry-ups, we find that the primary response of global banks to the reform was a cutback in arbitrage positions that relied on unsecured funding, rather than a reduction in loan provision.
    JEL: E4 F3 G2
    Date: 2021–04
  66. By: Massimiliano Renzetti (Bank of Italy); Serena Bernardini (Bank of Italy); Giuseppe Marino (Bank of Italy); Luca Mibelli (Bank of Italy); Laura Ricciardi (Bank of Italy); Giovanni Maria Sabelli (Bank of Italy)
    Abstract: On 21 November 2017, the European Payments Council (EPC) introduced a new scheme for instant payments (SEPA Instant Credit Transfer- SCT Inst) in the Single Euro Payments Area (SEPA). The new scheme envisaged a maximum execution time of 10 seconds for the processing of each transaction and guaranteed service availability every day of the year, 24 hours a day. One year later, on 30 November 2018, Banca d’Italia – which had been commissioned by the Eurosystem to develop the system – delivered TIPS (TARGET Instant Payment Settlement), a new service for the settlement of instant payments in central bank money, which was also compliant with the SCT Inst scheme. Conceived as a multi-currency settlement platform, TIPS was developed with the aim, inter alia, of fostering the integration of retail payment services offered by the European financial community and of eliminating barriers due to lack of interoperability between different settlement platforms. The TIPS project is part of the Vision 2020 programme, which the Eurosystem has devised with the aim of providing new services to support financial markets, citizens, and businesses in Europe and to foster the innovation of market infrastructures and harmonization of financial services related to securities and cash. The Vision 2020 programme is part of the European Commission's Capital Markets Union project, aimed at achieving full integration of the European financial market. Building TIPS required the fulfilment of a number of particularly challenging technical requirements: virtually instant payment execution (with processing times per payment not exceeding 5 seconds); the capacity to handle a large volume of processed payments (over 43 million transactions per day); very high availability and resilience (reaching 99.9% service availability, and the capacity to restart within 15 minutes in a site disaster scenario); extreme scalability of the system from a performance viewpoint (the ability to sustain a doubling of the volume of payments over a year). About two years after the go-live, the number of payments settled in TIPS still falls short of these expectations and the potential of the service. However, albeit at different speeds in the various European countries, instant payment services are growing and it is reasonable to expect that this trend will only increase in the years to come. It is in this context that Banca d’Italia has already identified a series of actions that aim to prepare TIPS to become an essential component of the foreseeable spread of instant payment services in Europe. This paper is organized as follows: Chapters 1 and 2 illustrate the evolution of instant payment services in Europe and the fundamental principles of the TIPS service, respectively. Chapter 3 gives a detailed description of the TIPS system, outlining its functional perimeter (Section 3.1), presenting the technical characteristics of the platform on which it operates (Section 3.2), as well as the monitoring and management activities for the smooth operation of the service (Section 3.3). The governance of TIPS and the procedures for joining the service are then set out in Chapters 4 and 5. Finally, Chapter 6 outlines the main trends that Banca d’Italia, on the recommendation of the Eurosystem, has identified for TIPS for the years to come, both in terms of activities that are already in progress or being planned (Section 6.1), and with reference to other potential functionalities to be offered to the users in the near future (Section 6.2).
    Keywords: payment systems, instant payments, market infrastructures
    JEL: E42
    Date: 2021–01
  67. By: Константин Орлов // Konstantin Orlov (National Bank of Kazakhstan)
    Abstract: В целях прогнозирования основных макропоказателей мировыми центральными банками, а также различными международными организациями, в последние годы активно развивался и применялся инструментарий байесовских векторных авторегрессионных моделей. В настоящей работе была проведена оценка их эффективности в прогнозировании экономической активности, инфляции, обменного курса и ставки TONIA в Казахстане для различных горизонтов до 1 года в сравнении с более простыми моделями и показана целесообразность применения данных моделей. Поиск оптимальных параметров оцениваемой BVAR-модели проходил на основе точности прогнозов на тестовой выборке. // With a view to forecast the key macro indicators, in the recent years, the central banks worldwide as well as different international organizations have been actively developing and using the tools of the Bayesian vector autoregression models. This Paper presents the conducted assessment of their effectiveness in forecasting the economic activity, inflation, exchange rate and TONIA rate in Kazakhstan for various horizons up to one year in comparison with simpler models; it also shows the practicability of using such models. The search for optimum parameters of the estimated BVAR-model was conducted on the basis of forecast accuracy on the test sample.
    Keywords: прогнозы макроэкономических показателей, байесовские векторные авторегрессионные модели, байесовские методы, forecasts of macroeconomic indicators, Bayesian vector autoregression models, Bayesian methods
    JEL: C32 C52 C53 C82 E17
    Date: 2021
  68. By: Ghatak, Shambhu; Sengupta, Nabarun
    Abstract: The broad areas covered in the attached article are: * Introduction: 1) Rationale behind increasing MGNREGA spending: India’s fiscal deficit as a proportion of the GDP has increased till 11 September, 2020 as a result of more of automatic stabilizers in comparison to discretionary policy action, and also due to more indirect (“below the line” measures) instead of direct fiscal response; 2) “Above the line” versus “below the line measures” of fiscal response in India and how MGNREGA comes as relief through discretionary spending; 3) MGNREGA work provided being less than what is needed in a lockdown induced economy where people have lost their jobs; 4) Revision of MGNREGA wages as part of lockdown relief is a mere eye-wash; * Approved Labour Budget and Work actually generated: Data pertaining to these indicators from ‘At a glance’ section and MIS reports show that the work that has been generated is much less than what is needed. MGNREGA trackers by Peoples' Action for Employment Guarantee (PAEG) highlight how individual’s persondays demanded are hidden easily in the MIS data, thus failing to give the real picture. Even the registration of data in MIS is allegedly fraught with data suppression. * Employment of the last resort for the marginalized: There has been a declining trend of work generated for SCs (in total persondays of work) over the last 6 years while for STs it has remained almost constant. Women are facing a fall in their share in the total persondays of MGNREGA work generated in 2020-21. * Average days of work provided by MGNREGA per household is less than half of the sanctioned 100 days. This has been one of the major criticisms of MGNREGA; * Total number of individuals working under MGNREGA has seen an increasing trend (almost) over the past 6 years; * Average wage under MGNREGA is updated every year to adjust for inflation but is delinked from minimum wages; * The number of Gram Panchayats incurring no expenditure has reduced significantly over the past 6 years; * Share of Category A, Category B works and agriculture and allied activities: Various types of work done under MGNREGA is discussed.
    Date: 2021–02–01
  69. By: Sergio Clavijo
    Abstract: Este documento analiza efectos de la política monetaria expansiva global sobre la velocidad de transmisión crediticia (esto es, la forma en que la repo del banco central afecta el costo final crediticio). El desafío bancario actual consiste en balancear, de una parte, la competencia bancaria que tiende a acelerar dicha transmisión y, de otra parte, los riesgos de contraparte-crediticia. En Colombia, esa velocidad de transmisión crediticia ha sido rápida en cartera corporativa, pero lenta en cartera de consumo, donde en ésta última los plazos se han ido extendiendo (a 6 años) y prevalecen contrataciones a tasas fijas (en un 87%). Así, la profundización de instrumentos de cobertura como los swaps de tasas de interés y la mejor combinación entre el "mercado mostrador" (OTC) y "registro-BVC" ayudarían en agilizar dicha transmisión. También ayudaría la mayor flotación en tasas de interés atadas al IBR, y menos a DTF, tanto en mercado monetario como en mercado de capitales, en línea con el movimiento global de la LIBOR a SOFR. Pero consolidar esta profundización en mercados locales requiere que Colombia logre preservar su "grado de inversión" en 2021-2022. La compresión en margen de intermediación bancaria, el potencial deterioro de la cartera y las mayores exigencias en índices de liquidez de mediano plazo y capital disponible (tier-1) constituyen importantes desafíos en el inmediato futuro. Colombia se ha destacado por su ágil acoplamiento a las exigencias regulatorias a nivel regional, durante 2017-2020, contándose dentro del 42% de la banca regional con estándar Basilea III. No obstante, a Colombia le restan tareas en depuración de capital. Con menores utilidades disponibles durante 2021-2022, por efectos de la pandemia-Covid, la banca que opera en Colombia tendrá exigentes tareas para balancear riesgos de contra-parte crediticia con mayor exigencia de liquidez y capital bancario.
    Keywords: Intereses; política monetaria; instituciones financieras de América Latina.
    JEL: E4 E5 N26
    Date: 2021–04–08
  70. By: Ángel Gómez-Carreño García-Moreno (Banco de España)
    Abstract: This paper guides us through a historic feat: the first circumnavigation of the Earth, completed by Juan Sebastián Elcano. 2021 marks the 500th anniversary of this heroic voyage, which was the result of the expedition to the Moluccas initiated by Ferdinand Magellan (1519-1521). To commemorate this historic event, the Banco de España, with its vast banknote collection, is conducting an informative study aimed at disseminating the strong link between technology and banknote production. In this case, it focuses on two very specific historical banknotes. Firstly, the 500-peseta banknote of the April 25, 1931 series and, secondly, the five-peseta banknote of the March 5, 1948 series. Both are devoted to the Getaria-born captain, thus enshrining him as one of Spain’s most important historical figures. The composition of both banknotes, their security features and the printing technologies used are studied in detail. Through an historiographical lens, an overview of the historical context and reason for the expedition and the way in which it unfolded is also provided.
    Keywords: banknote, expedition, technology, numismatics, first voyage around the world, Elcano, Banco de España UNESCO classification: 530406, 531208, 550402, 550404, 550506, 550624, 550606
    JEL: E52 E58 L69 N64 N74
    Date: 2021–04
  71. By: Matthew Famiglietti; Fernando Leibovici
    Abstract: This paper empirically investigates the causal linkages between COVID-19 spread, government health containment and economic support policies, and economic activity during 2020 in the U.S. We model their joint dynamics as generated by a structural vector autoregression and estimate it using U.S. state-level data. We identify structural shocks to the variables by making assumptions on their short-run relation consistent with salient epidemiological and economic features of COVID-19. We isolate the direct impact of COVID-19 spread and policy responses on economic activity by controlling for demand fluctuations using disaggregate exports data. We find that health containment and economic support policies are highly effective at curbing the spread of COVID-19 without leading to a long-term contraction of economic activity.
    Keywords: COVID-19; Health Containment Policies; Non-Pharmaceutical Interventions; Pandemics; Economic Activity
    JEL: I18 E0 F1
    Date: 2021–04
  72. By: La Torre, Davide; Marsiglio, Simone; Mendivil, Franklin; Privileggi, Fabio (University of Turin)
    Abstract: We establish novel results on generalized fractal operators with condensation and apply them in the analysis of a macroeconomic-epidemiological model characterized by deep uncertainty under the assumption that it is impossible to quantify with certainty the exact number of current and future infectives. The setting is simple: the level of prevalence of a communicable disease determines the size of the healthy labor force, affecting output and consumption; health policy is publicly funded via income taxation but the availability of resources is endogenously determined since depending on disease prevalence. Since the high degree of uncertainty is reflected also in the policymakers' choice of the policy tools to limit the spread of the disease, we investigate how the peculiarities of different policymakers (a short-sighted vs far-sighted approach) affect the asymptotic invariant distribution of macroeconomic activity. Specifically, we exploit the condensation term of the fractal operator to characterize the consequence of short-sighted policies. Through numerical simulations we find that, as we would expect, far-sighted policies lead to asymptotic invariant probability distributions concentrating more mass on high levels of aggregate consumption together with small numbers of infectives, while the invariant distribution reached through short-sighted policies, besides concentrating more mass on low levels of aggregate consumption together with large numbers of infectives, exhibits an additional layer of (uniform) uncertainty generated by the condensation term.
    Date: 2021–04
  73. By: Iwasaki, Ichiro; Kočenda, Evžen; Shida, Yoshisada
    Abstract: We analyze factors behind 23,213 distressed acquisitions in European emerging markets from 2007–2019. Besides the impact of financial ratios, legal form, ownership structure, firm size, and age, we emphasize the role of institutions and channels of their propagation. We show that the quality and enforcement of insolvency laws are linked with the lower probability of distressed acquisitions, followed by corruption control and progress in banking reforms. The impact of institutions is larger in lessadvanced countries as compared to economically stronger ones. The effect of institutions increased after the financial crisis but declined as the economic situation improved.
    Keywords: distressed acquisitions, mergers, European emerging markets
    JEL: C35 D02 D22 E02 G34 K20 L22
    Date: 2021–04
  74. By: León, Carlos
    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.
    Keywords: Payments; Mobile; Networks; Fintech; Paytech; Complexity
    JEL: L14 D85 E42
    Date: 2021–04
  75. By: Teresa Ghilarducci; Siavash Radpour; Michael Papadopoulos (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: Analysts and representatives of the news media often get confused about American workers’ retirement plan coverage due to the complexities behind multiple data sources. Namely, differing methodologies used by each source report different results. This research note updates previous attempts1 to explain the data differences and reports trends between 2000 and 2020 in two measures of employer-sponsored retirement plan coverage: access rate (the share of workers who are offered a retirement plan at work and are eligible to participate in them) and participation rate (the share of all workers who are participating in retirement plans offered at work). We also break down retirement plan access and participation rates by race, gender, and socio-economic status to report disparities in coverage.
    Keywords: older workers, recession, COVID-19, coronavirus, downward mobility, poverty, unemployment, wages, involuntary retirement, retirement, 401k, Medicare, Older Workers Bureau, racial disparities, disparities, inequality, coverage, retirement coverage
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2021–01
  76. By: Luis Felipe Céspedes; Roberto Chang
    Abstract: We study the interaction between optimal foreign reserves accumulation and central bank international liquidity provision in a small open economy under financial stress. Firms and households finance investment and consumption by borrowing from domestic financial intermediaries (banks), which in turn borrow from abroad. Binding financial constraints can cause the domestic rate of interest to rise above the world rate and the real exchange rate to depreciate, leading to inefficiently low investment and consumption. A role then emerges for a central bank that accumulates reserves in order to provide liquidity if financial frictions bind. The optimal level of international reserves in this context depends, among other variables, on the term premium, the depth of financial markets, ex ante financial uncertainty and the precise way the central bank intervenes. The model is consistent with both the increase in international reserves observed during the period 2004-2008 and with policy intervention after the Lehman bankruptcy.
    Date: 2020–09
  77. By: George J. Borjas; Anthony Edo
    Abstract: Immigrant supply shocks are typically expected to reduce the wage of comparable workers. Natives may respond to the lower wage by moving to markets that were not directly targeted by immigrants and where presumably the wage did not drop. This paper argues that the wage change observed in the targeted market depends not only on the size of the native response, but also on which natives choose to respond. A non-random response alters the composition of the sample of native workers, mechanically changing the average native wage in affected markets and biasing the estimated wage impact of immigration. We document the importance of this selection bias in the French labor market, where women accounted for a rapidly increasing share of the foreign-born workforce since 1976. The raw correlations suggest that the immigrant supply shock did not change the wage of French women, but led to a sizable decline in their employment rate. In contrast, immigration had little impact on the employment rate of men, but led to a sizable drop in the male wage. We show that the near-zero correlation between immigration and female wages arises partly because the native women who left the labor force had relatively low wages. Adjusting for the selection bias results in a similar wage elasticity for both French men and women (between -0.8 and -1.0).
    Keywords: Immigration;Wages;Selection;Labor Supply;Female Employment
    JEL: E24 F22 J21 J23
    Date: 2021–04
  78. By: Borjas, George J. (Harvard University); Edo, Anthony (CEPII, Paris)
    Abstract: Immigrant supply shocks are typically expected to reduce the wage of comparable workers. Natives may respond to the lower wage by moving to markets that were not directly targeted by immigrants and where presumably the wage did not drop. This paper argues that the wage change observed in the targeted market depends not only on the size of the native response, but also on which natives choose to respond. A non-random response alters the composition of the sample of native workers, mechanically changing the average native wage in affected markets and biasing the estimated wage impact of immigration. We document the importance of this selection bias in the French labor market, where women accounted for a rapidly increasing share of the foreign-born workforce since 1976. The raw correlations suggest that the immigrant supply shock did not change the wage of French women, but led to a sizable decline in their employment rate. In contrast, immigration had little impact on the employment rate of men, but led to a sizable drop in the male wage. We show that the near-zero correlation between immigration and female wages arises partly because the native women who left the labor force had relatively low wages. Adjusting for the selection bias results in a similar wage elasticity for both French men and women (between -0.8 and -1.0).
    Keywords: immigration, wages, selection, labor supply, female employment
    JEL: E24 F22 J21 J23
    Date: 2021–04
  79. By: George J. Borjas; Anthony Edo
    Abstract: Immigrant supply shocks are typically expected to reduce the wage of comparable workers. Natives may respond to the lower wage by moving to markets that were not directly targeted by immigrants and where presumably the wage did not drop. This paper argues that the wage change observed in the targeted market depends not only on the size of the native response, but also on which natives choose to respond. A non-random response alters the composition of the sample of native workers, mechanically changing the average native wage in affected markets and biasing the estimated wage impact of immigration. We document the importance of this selection bias in the French labor market, where women accounted for a rapidly increasing share of the foreign-born workforce since 1976. The raw correlations suggest that the immigrant supply shock did not change the wage of French women, but led to a sizable decline in their employment rate. In contrast, immigration had little impact on the employment rate of men, but led to a sizable drop in the male wage. We show that the near-zero correlation between immigration and female wages arises partly because the native women who left the labor force had relatively low wages. Adjusting for the selection bias results in a similar wage elasticity for both French men and women (between -0.8 and -1.0).
    JEL: E24 F22 J21 J23
    Date: 2021–04
  80. By: Link, Sebastian (LMU Munich, IZA, CESif); Peichl, Andreas (LMU Munich, ifo Institute); Roth, Christopher (University of Warwick, briq, CESifo, Cage Warwick, CEPR); Wohlfart, Johannes (University of Copenhagen, CESifo, Danish Finance Institute)
    Abstract: We leverage survey data from Germany, Italy, and the US to document several novel stylized facts about the extent of information frictions among firms and households. First, firms’ expectations about the central bank policy rate, inflation, and aggregate unemployment are more aligned with expert forecasts and less dispersed than households’ . Second, there is substantially more heterogeneity in information frictions within households than within firms. Third, consistent with firms having stronger priors, they update their policy rate expectations significantly less compared to households when provided with an expert forecast. Our results have important implications for modeling heterogeneity in macroeconomic models.
    Keywords: Information frictions ; firms ; households ; expectation formation ; interest rates JEL Classification: D83 ; D84 ; E7
    Date: 2021
  81. By: Claude Diebolt
    Abstract: This paper is about the book Trend, Zyklus und Zufall. Bestimmungsgründe und Verlaufsformen langfristiger Wachstumsschwankungen (2002) written by Rainer Metz. It rehabilitates Metz’s somewhat forgotten milestone in the quantitative history literature on economic cycles. For me, it represents an indispensable standard work for anyone who wants to work in this field.
    Keywords: Cliometrics, Economic history, Time series.
    JEL: C01 C22 C32 C82 N01 N14
    Date: 2021
  82. By: Claudia Pacella (Bank of Italy)
    Abstract: In this paper we study the business cycle dating formulated by the CEPR committee for the euro area. We first compare recessions as defined by the CEPR to those obtained using alternative methodologies (e.g. Bry-Boschan algorithm) and we find that the CEPR dating is not fully in line with other dating rules that are based only on GDP dynamics, thus confirming that the committee considers a broader set of variables. We then evaluate the classification of economic activity in recessions and expansions; the underlying business cycle is either based on a single variable or estimated as a latent factor that captures the comovements of several macroeconomic series. We find that the CEPR chronology is more consistent with the estimated common factor than with what is implied by methods solely based on GDP. Finally, we analyze which real variables drive the classification of economic activity by the CEPR and we find that the properties of the CEPR chronology are mainly related to the dynamics of demand components, especially final consumption, and employment.
    Keywords: business fluctuations, cycle, factor models
    JEL: E32 C38
    Date: 2021–04
  83. By: Georgii Riabov; Aleh Tsyvinski
    Abstract: The paper develops a general methodology for analyzing policies with path-dependency (hysteresis) in stochastic models with forward looking optimizing agents. Our main application is a macro-climate model with a path-dependent climate externality. We derive in closed form the dynamics of the optimal Pigouvian tax, that is, its drift and diffusion coefficients. The dynamics of the present marginal damages is given by the recently developed functional It\^o formula. The dynamics of the conditional expectation process of the future marginal damages is given by a new total derivative formula that we prove. The total derivative formula represents the evolution of the conditional expectation process as a sum of the expected dynamics of hysteresis with respect to time, a form of a time derivative, and the expected dynamics of hysteresis with the shocks to the trajectory of the stochastic process, a form of a stochastic derivative. We then generalize the results. First, we propose a general class of hysteresis functionals that permits significant tractability. Second, we characterize in closed form the dynamics of the stochastic hysteresis elasticity that represents the change in the whole optimal policy process with an introduction of small hysteresis effects. Third, we determine the optimal policy process.
    Date: 2021–04
  84. By: Charles Ka Yui Leung (City University of Hong Kong); Edward Chi Ho Tang (Hong Kong Shue Yan University)
    Abstract: The house price-to-income ratio (PIR) is widely used as an affordability indicator. This paper complements the cross-sectionally focused literature by proposing a tractable model for the PIR dynamics. Our model predicts that the PIR is very persistent and is correlated to the lagged aggregate output. Cross-country analysis confirms this prediction and provides evidence for a long-term, positive and significant relationship between PIR and aggregate production. Our results hint at the construction of an early warning system for housing market mispricing. Our tractable formulation of a stochastic money growth rule may carry independent research interest
    Keywords: housing affordability, output dynamics, endogenous house price, wage rigidity, monetary policy rule
    JEL: E30 O40 R30
    Date: 2021–03–07
  85. By: Coibion, Olivier; Gorodnichenko, Yuriy; Ropele, Tiziano
    Keywords: inflation expectations, surveys, inattention
    Date: 2019–04–29
  86. By: Qingen Gai; Naijia Guo; Bingjing Li; Qinghua Shi; Xiaodong Zhu
    Abstract: We use a unique panel dataset and a policy experiment as an instrument to estimate the impact of policy-induced migration cost reductions on rural-to-urban migration and the associated increase in labor earnings for migrant workers in China. Our estimation shows that there exist both large migration costs and a large underlying productivity difference between rural agricultural and urban non-agricultural sectors in China. More than half of the observed labor earnings gap between the two sectors can be attributed to the underlying productivity difference, and less than half of the gap can be attributed to sorting of workers. We also structurally estimate a general equilibrium Roy model and use it to quantify the effects of reducing migration costs on the observed sectoral productivity difference, migration, and aggregate productivity. If we implement a hukou policy reform by setting the hukou liberalization index in all regions of China to the level of the most liberal region, the observed agricultural productivity gap would decrease by more than 30%, the migrant share would increase by about 9%, and the aggregate productivity would increase by 1.1%. In contrast, in a partial equilibrium in which the underlying productivity difference does not change with migration cost, the hukou policy reform would reduce the observed agricultural productivity gap by only 9%, the migrant share would increase by more than 50%, and the aggregate productivity would increase by 6.8%.
    Keywords: Migration cost; sorting; agricultural productivity gap; panel data; general equilibrium Roy model; China
    JEL: E24 J24 J61 O11 O15
    Date: 2021–04–17
  87. By: François Facchini (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Une importante question pour la théorie économique et les anticipations des décideurs se pose depuis la crise de 2008 : Pourquoi l'augmentation de la masse monétaire n'a pas d'effets inflationnistes ? La question repose sur plusieurs croyances qui parfois relèvent des sciences économiques. La première croyance est que la banque centrale européenne a une politique monétaire expansionniste. La politique du quantitative easing (QE) monétise la dette publique et favorise la création monétaire. La politique des taux d'intérêt négatifs soutient le crédit et finalement l'augmentation de la quantité de monnaie ; les crédits faisant les dépôts. La deuxième croyance repose sur la théorie quantitative de la monnaie ou l'équation de Fisher : M.v = P.T avec M pour « Masse monétaire », v pour « Vitesse de circulation de la monnaie », P pour « niveau des prix » et T pour « revenu national réel ». Suivant cette théorie, si la quantité de monnaie (M) augmente plus vite que le montant des transactions (T) pour une vitesse de circulation de la monnaie constante (v), il devrait y avoir une augmentation du niveau général des prix (indice des prix à la consommation, IPC). La masse monétaire depuis 2008 augmente mais l'inflation reste faible. Pourquoi? Cet article se propose de répondre à cette question. La première raison tient au mode de calcul du taux d'inflation (IPC). La seconde raison peut se trouver dans l'équation de Fisher elle-même : l'inflation d'origine monétaire suppose que la masse monétaire augmente plus vite que le revenu réel et que la vitesse de circulation de la monnaie soit constante. Or, il se trouve que la vitesse de circulation de la monnaie baisse. La troisième raison se trouve dans les limites de l'équation de Fisher et l'impuissance des banques centrales qui n'ont pas les moyens d'ajuster en temps réel l'offre à la demande de monnaie.
    Keywords: quantité de monnaie,équation de Fisher,Hayek,concurrence entre les monnaie,inflation,indice de prix à la consommation
    Date: 2020
  88. By: Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael
    Keywords: E31, C83, D84, J26
    Date: 2020–06–09
  89. By: Elliott Ash; Sergio Galletta; Tommaso Giommoni
    Abstract: Can machine learning support better governance? In the context of Brazilian municipalities, 2001-2012, we have access to detailed accounts of local budgets and audit data on the associated fiscal corruption. Using the budget variables as predictors, we train a tree-based gradient-boosted classifier to predict the presence of corruption in held-out test data. The trained model, when applied to new data, provides a prediction-based measure of corruption that can be used for new empirical analysis or to support policy responses. We validate the empirical usefulness of this measure by replicating and extending some previous empirical evidence on corruption issues in Brazil. We then explore how the predictions can be used to support policies toward corruption. Our policy simulations show that, relative to the status quo policy of random audits, a targeted policy guided by the machine predictions could detect almost twice as many corrupt municipalities for the same audit rate. Similar gains can be achieved for a politically neutral targeting policy that equalizes audit rates across political parties.
    Keywords: algorithmic decision-making, corruption policy, local public finance
    JEL: D73 E62 K14 K42
    Date: 2021
  90. By: Kuikeu, Oscar
    Abstract: The African Regional outlook of April 2021 principally means that his economies need to be emulate for example by the accessibility on basic infrastructure as vaccine permits in the case of the covax initiative to immunize his population against the prospects lied under the coronavirus crisis. In the well known economic manual textbook the main channel beside an emulating policy is to place and thus give emphasis to price stability. Considering the subs regional case of economic and Monetary community countries namely CEMAC this emphasis is relevant as the definition and consideration give to this area as a Monetary union. Thus the relevance of the present study to assert on monetary conditions optimality under the main framework of the contemporaneous crisis that gives thanks to the prospects of emulating countries as the main prospects and scenario place in the The African Regional outlook of April 2021. In fact, the scenario of need for emulation is revealed by the outlook on the subsequent year of the contemporaneous crisis by the mainstream that of recovering economic prosperity. Globally Speaking the Obtained Results confirmed well the view that the sub regional case is a convenient baseline to assess on monetary conditions optimality by the way of engine or instrument as Taylor Rule (Taylor 1993) consider most of an one suitable to empirically know the weight and consideration that give the Monetary Authority on consideration and prospects on emulating activity by the species as Monetary instruments as the instrumentation of the economy with indirect monetary instrument as the central bank rate’s of refinancing economies.
    Keywords: Structural Reforms, Monetary conditions, Taylor Rule
    JEL: C31 E52
    Date: 2021–04–19
  91. By: Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael
    Keywords: subjective expectations, fiscal policy, monetary policy, COVID-19, surveys
    Date: 2020–01–01
  92. By: Jeremy Greenwood; Nezih Guner; Ricardo Marto
    Abstract: The 20th century beheld a dramatic transformation of the family. Some Kuznets style facts regarding structural change in the family are presented. Over the course of the 20th century in the United States fertility declined, educational attainment waxed, housework fell, leisure increased, jobs shifted from blue to white collar, and marriage waned. These trends are also observed in the cross-country data. A model is developed, and then calibrated, to address the trends in the US data. The calibration procedure is closely connected to the underlying economic logic. Three drivers of the great transition are considered: neutral technological progress, skilled-biased technological change, and drops in the price of labor-saving household durables.
    JEL: D10 E13 J10 O10
    Date: 2021–04
  93. By: Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Weber, Michael
    Keywords: Expectations management, inflation expectations, surveys, communication, randomized controlled trial
    Date: 2020–02–10
  94. By: Sonja Tilly; Giacomo Livan
    Abstract: This study leverages narrative from global newspapers to construct theme-based knowledge graphs about world events, demonstrating that features extracted from such graphs improve forecasts of industrial production in three large economies compared to a number of benchmarks. Our analysis relies on a filtering methodology that extracts "backbones" of statistically significant edges from large graph data sets. We find that changes in the eigenvector centrality of nodes in such backbones capture shifts in relative importance between different themes significantly better than graph similarity measures. We supplement our results with an interpretability analysis, showing that the theme categories "disease" and "economic" have the strongest predictive power during the time period that we consider. Our work serves as a blueprint for the construction of parsimonious - yet informative - theme-based knowledge graphs to monitor in real time the evolution of relevant phenomena in socio-economic systems.
    Date: 2021–04
  95. By: Philipp Wegmüller; Christian Glocker (WIFO); Valentino Guggia
    Abstract: We construct a composite index to measure real activity of the Swiss economy on a weekly frequency. The index is based on a novel high-frequency data-set capturing economic activity across distinct dimensions over a long-time horizon. An adequate adjustment of raw data prior to deriving the latent factor is crucial for obtaining precise business cycle signals. By means of a real-time evaluation, we highlight the importance of our proposed adjustment procedure: first, our weekly index significantly outperforms a comparable index without adjusted input variables; secondly, the weekly index outperforms established monthly indicators in nowcasting GDP growth. These insights should help improve recently developed high-frequency indicators.
    Keywords: Business cycle index, Dynamic factor model, High-frequency data, Nowcasting
    Date: 2021–04–14

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.