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on Macroeconomics |
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Issue of 2021‒05‒10
131 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Brandão-Marques, Luis; Gelos, Gaston; Narita, Machiko; Nier, Erlend |
| Abstract: | This paper takes a new approach to assess the benefits of using different policy tools-macroprudential and monetary policies, foreign exchange interventions, and capital controls-in response to changes in financial conditions. Starting from quantile regressions, we evaluate policies across the full distribution of future output growth and inflation using loss functions. Tightening macroprudential policy dampens downside risks to growth from loose financial conditions, and is beneficial in net terms. By contrast, tightening monetary policy entails net losses. These findings also hold when reacting to easing global financial conditions, while buying foreign exchange or tightening capital controls yields only small net benefits. |
| Keywords: | capital controls; cost-benefit analysis; FX intervention; macroprudential policy; monetary policy |
| JEL: | E01 E52 E58 F31 G21 G28 O24 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15693&r= |
| By: | Jagjit S. Chadha; Germana Corrado; Luisa Corrado; Ivan De Lorenzo Buratta |
| Abstract: | We develop a DSGE model with heterogeneous agents, where savers own firms and riskpricing banks while borrowers require loans to establish their consumption plans. The bank lends at an external finance premium (EFP) over the policy rate as a function of the asset price, housing collateral, the demand for loans and their perceived riskiness. We suggest that the close relationship between aggregate consumption and house prices is related to collateral effects. We also outline the role of the EFP in determining consumption spillovers between borrowers and lenders. We solve the model with occasionally-binding constraints to examine the redistributive role of macro-prudential policies in terms of welfare. Countercyclical deployment of the loan-to-value constraint placed on borrowers can limit the scale of the downturn from a negative house price shock. Furthermore, when the zero lower bound acts to constrain monetary policy, looser macroprudential policies can act as an effective substitute for lower policy rates. Finally, we show that co-ordinated macroprudential and fiscal policies can also attenuate the welfare losses that arise from uncertainty banks may face about default probabilities. |
| JEL: | E32 E44 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202103&r= |
| By: | Kamalyan, Hayk |
| Abstract: | This paper studies state-dependent effects of monetary policy shocks. I first consider state-dependence of policy actions in a simple static model. The model predicts that effectiveness of monetary policy is positively related to the level of output. I next use an estimated DSGE model to quantitatively assess asymmetries in policy transmission mechanism. Consistent with the intuition of the simple model, I find that the effects of monetary policy on output are less powerful in recessions compared to expansions. By contrast, inflation is more sensitive in recessionary states. The latter implies that the aggregate price flexibility is varying across the business cycle. In particular, prices are more flexible when the economy is in a recessionary state. Conversely, prices become more rigid in expansionary states. |
| Keywords: | Expansions, Recessions, State-Dependent Transmission Mechanism, New-Keynesian Model |
| JEL: | E31 E32 E37 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107489&r= |
| By: | Ryan, Ellen; Whelan, Karl |
| Abstract: | Quantitative easing programmes have driven unprecedented expansions in the supply of central bank reserves around the world over the past two decades, fundamentally changing the implementation of monetary policy. The collapse in money multipliers following QE episodes has often been interpreted as implying banks are happy to passively hold most of the reserves created by QE. This paper develops a simple micro-simulation model of the banking sector that adapts the traditional money multiplier model and allows for bank reserve demand to be inferred from monetary aggregates. The model allows the use of unwanted reserves by banks to play out over time alongside QE purchases and incorporates both significantly higher reserve demand after 2008 and capital constraints. With these additions, the model explains the persistently lower money multipliers seen in the US following QE, as well as the growth in commercial bank deposits. The model suggests the demand from banks for reserves has increased substantially since the introduction of QE but not to the point where banks are passively absorbing all newly created reserves. |
| Keywords: | central banks; Money Multiplier; Quantitative easing |
| JEL: | E51 E52 E58 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15882&r= |
| By: | Broer, Tobias; Kohlhas, Alexandre; Mitman, Kurt; Schlafmann, Kathrin |
| Abstract: | We document systematic differences in macroeconomic expectations across U.S. households and rationalize our findings with a theory of information choice. We embed this theory into an incomplete-markets model with aggregate risk. Our model is quantitatively consistent with the pattern of expectation heterogeneity in the data. Relative to a full-information counterpart, our model implies substantially increased macroeconomic volatility and inequality. We show through the example of a wealth tax that neglecting the information channel leads to erroneous conclusions about the effects of policies. While in the model without information choice a wealth tax reduces wealth inequality, in our framework it reduces information acquired in the economy, leading to increased volatility and higher wealth inequality in equilibrium. |
| Keywords: | Heterogenous information; incomplete markets; precautionary savings; unemployment |
| JEL: | D84 E21 E27 E62 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15934&r= |
| By: | Drautzburg, Thorsten; Fernández-Villaverde, Jesús; Guerron, Pablo |
| Abstract: | We argue that social and political risk causes significant aggregate fluctuations by changing workers' bargaining power. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks trigger output and unemployment movements. To quantify the aggregate importance of these distribution shocks, we extend an otherwise standard neoclassical growth economy. We model distribution shocks as exogenous changes in workers' bargaining power in a labor market with search and matching. We calibrate our economy to the U.S. corporate non-financial business sector, and we back out the evolution of workers' bargaining power. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 28% of aggregate fluctuations and have a welfare cost of 2.4% in consumption units. |
| Keywords: | Aggregate fluctuations; bargaining shocks; Distribution risk; historical narrative; partial filter |
| JEL: | E32 E37 E44 J20 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15979&r= |
| By: | Servaas Storm (Delft University of Technology) |
| Abstract: | Based on comparative empirical evidence for 22 major OECD countries, I argue that country differences in cumulative mortality impacts of SARS-CoV-2 are largely caused by: (1) weaknesses in public health competence by country; (2) pre-existing country-wise variations in structural socio-economic and public health vulnerabilities; and (3) the presence of fiscal constraints. The paper argues that these pre-existing conditions, all favorable to the coronavirus, have been created, and amplified, by four decades of neoliberal macroeconomic policies – in particular by (a) the deadly emphasis on fiscal austerity (which diminished public health capacities, damaged public health and deepened inequalities and vulnerabilities); (b) the obsessive belief of macroeconomists in a trade-off between 'efficiency' and 'equity', which is mostly used to erroneously justify rampant inequality; (c) the complicit endorsement by mainstream macro of the unchecked power over monetary and fiscal policy-making of global finance and the rentier class; and (d) the unhealthy aversion of mainstream macro (and MMT) to raising taxes, which deceives the public about the necessity to raise taxes to counter the excessive liquidity preference of the rentiers and to realign the interests of finance and of the real economy. The paper concludes by outlining a few lessons for a saner macroeconomics. |
| Keywords: | COVID-19; public health emergency; recession; relief spending; fiscal austerity; social determinants of health; economic inequality; excess liquidity; 'disconnect' between the financial and the real worlds |
| JEL: | E00 E24 E50 E64 G20 |
| Date: | 2021–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp152&r= |
| By: | Baqaee, David Rezza; Farhi, Emmanuel; Sangani, Kunal |
| Abstract: | We propose a supply-side channel for the transmission of monetary policy. We show that if, as is consistent with the empirical evidence, bigger firms have higher markups and lower pass-throughs than smaller firms, then a monetary easing endogenously increases aggregate TFP and improves allocative efficiency. This endogenous positive "supply shock" amplifies the effects of the positive "demand shock" on output and employment. The result is a flattening of the Phillips curve. This effect is distinct from another mechanism discussed at length in the real rigidities literature: a monetary easing leads to a reduction in desired markups because of strategic complementarities in pricing. We calibrate the model to match firm-level pass-throughs and find that the misallocation channel of monetary policy is quantitatively important, flattening the Phillips curve by about 70% compared to a model with no supply-side effects. We derive a tractable four-equation dynamic model and show that monetary easing generates a procyclical hump-shaped response in aggregate TFP and countercyclical dispersion in firm-level TFPR. The improvements in allocative efficiency amplify both the impact and persistence of interest rate shocks on output. |
| Keywords: | Incomplete pass-through; Misallocation; monetary policy; productivity |
| JEL: | E0 L1 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15702&r= |
| By: | Moench, Emanuel; Soofi Siavash, Soroosh |
| Abstract: | We characterize the joint dynamics of a large number of macroeconomic variables and Treasury yields in a dynamic factor model. We use this framework to identify a yield curve news shock as an innovation that does not move yields contemporaneously but explains a maximum share of the forecast error variance of yields over the next year. This shock explains more than half, and along with contemporaneous shocks to the level and slope of the yield curve, essentially all of the variation of Treasury yields several years out. The news shock is associated with a sharp and persistent increase in implied stock and bond market volatility, falling stock prices, an uptick in term premiums, and a prolonged decline of real activity and inflation. The accommodative response by the Federal Reserve leads to persistently lower expected and actual short rates. Treasury yields do not react contemporaneously to the yield curve news shock as the positive response of term premiums and the negative response of expected short rates initially offset each other. Identified shocks to realized and implied financial market volatility imply essentially the same impulse responses and are highly correlated with the yield news shock, suggesting that they act as unspanned or hidden factors in the yield curve. |
| Keywords: | Dynamic factor models; factor-augmented vector autoregressions; news shocks; structural vector autoregressions; Term Structure of Interest Rates; Uncertainty shocks; yield curve |
| JEL: | C55 E43 E44 G12 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15978&r= |
| By: | Todorova, Tamara; Kutrolli, Marin |
| Abstract: | This paper revisits the standard multiplier-accelerator model, as advanced by Samuelson. While borrowing on the main assumptions of the multiplier-accelerator, we check the validity of Keynesian theory. Using higher-order difference equations and advanced-level mathematical techniques we solve the tax-augmented multiplier-accelerator model, as well as the open economy one. We find that the values of equilibrium national income are identical to the simple national-income model in the absence of the accelerator. We solve the simple multiplier-accelerator model both in present terms and with prolonged consumption. We solve for equilibrium consumption, tax, and imports which are unaffected by the accelerator. All results conform to Keynesian theory where investment, government spending and exports have a favorable multiplying effect on national income through their respective multipliers. The accelerator coefficient affects neither those multipliers, nor the income and the non-income tax multipliers. Expanding the multiplier-accelerator by the volume of foreign trade, taxation or both does not change the values of Keynesian variables. Adding an accelerator leaves optimal values unaffected but, more importantly, reinforces Keynesian theory. |
| Keywords: | multiplier; accelerator; open economy; difference equations; Keynesian national-income model; tax multiplier; exports multiplier |
| JEL: | C65 E2 E21 E22 |
| Date: | 2019–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107480&r= |
| By: | Simsek, Alp |
| Abstract: | I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about downside tail scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare. |
| Keywords: | aggregate demand recessions; belief disagreements; business cycles; countercyclical risk premium; financial speculation; leverage; macroprudential policy; Rational bubbles; Short selling; Speculative bubbles |
| JEL: | E00 E12 E21 E22 E32 E44 E52 E70 G00 G01 G11 G12 G40 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15733&r= |
| By: | Antolin-Diaz, Juan; Drechsel, Thomas; Petrella, Ivan |
| Abstract: | A key question for households, firms, and policy makers is: how is the economy doing now? We develop a Bayesian dynamic factor model and compute daily estimates of US GDP growth. Our framework gives prominence to features of modern business cycles absent in linear Gaussian models, including secular movements in growth, time-varying uncertainty, and fat tails. We also incorporate newly available high-frequency data on consumer behavior. The model beats benchmark econometric models and survey expectations at predicting GDP growth over two decades, and advances our understanding of macroeconomic data during the COVID-19 pandemic. |
| Keywords: | Bayesian methods; Covid-19 Recession; Daily economic index; Dynamic factor models; Fat Tails; Nowcasting; real-time data |
| JEL: | C32 E01 E23 E32 O47 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15926&r= |
| By: | Kamalyan, Hayk |
| Abstract: | This paper evaluates state-dependence in monetary policy transmission mechanism under Calvo and Rotemberg price adjustment schemes. Although the two models are equivalent to first order, they produce very different results once considered at a higher order. In particular, the Rotemberg model produces more state-dependence compared to the Calvo model. The result is reversed once the macroeconomic wedges are eliminated from the models. |
| Keywords: | State-Dependence, Calvo, Rotemberg, Monetary Policy |
| JEL: | E30 E32 E50 E52 |
| Date: | 2021–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107490&r= |
| By: | Goodhart, Charles A; Masciandaro, Donato; Ugolini, Stefano |
| Abstract: | This paper analyses the monetary policy that the Most Serene Republic of Venice implemented in the years of calamities using a modern equivalent of helicopter money, precisely an extraordinary money issuing, coupled with capital losses for the issuer. We consider the 1629 famine and the 1630-1631 plague as a negative macroeconomic shock that the incumbent government addressed using fiscal monetization. Consolidating the balance sheets of the Mint and of the Giro Bank, and having heterogenous citizens â?? inequality matters - we show that the Republic implemented what was, in effect, helicopter money driven by political economy reasons, in order to avoid popular riots. |
| Keywords: | central banking; Helicopter money; monetary policy; Pandemic; Venice 1630 |
| JEL: | D7 E5 E6 N1 N2 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15715&r= |
| By: | Brandão-Marques, Luis; Gelos, Gaston; Harjes, Thomas; Sahay, Ratna; Xue, Yi |
| Abstract: | The effectiveness of monetary policy transmission in emerging markets and developing countries (EMDEs) remains subject to considerable debate in academia and among policymakers. Can EMDEs effectively steer inflation and output by controlling short-term interest rates? Or do structural features of these economies, in particular a lack of financial market depth, hinder such transmission? We conduct a novel empirical analysis using Jordà 's (2005) approach for 39 EMDEs to answer these questions. We find that interest rate hikes do reduce output growth and inflation, if the exchange rate is allowed to adjust. Inflation targeting frameworks adopted by independent and transparent central banks matter more than structural features, such as financial development. |
| Keywords: | emerging markets; Exchange rate channel; Financial structure; Inflation targeting; monetary policy |
| JEL: | E3 E4 E5 F4 G1 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15931&r= |
| By: | Fernández-Villaverde, Jesús; Mandelman, Federico; Yu, Yang; Zanetti, Francesco |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms' output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong ``Matthew effect'' that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| Keywords: | Market concentration; Monopsony Power; search complementarities; Superstar Firms |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15788&r= |
| By: | Cimadomo, Jacopo; Giannone, Domenico; Lenza, Michele; Monti, Francesca; Sokol, Andrej |
| Abstract: | Monitoring economic conditions in real time, or nowcasting, and Big Data analytics share some challenges, sometimes called the three "Vs". Indeed, nowcasting is characterized by the use of a large number of time series (Volume), the complexity of the data covering various sectors of the economy, with different frequencies and precision and asynchronous release dates (Variety), and the need to incorporate new information continuously and in a timely manner (Velocity). In this paper, we explore three alternative routes to nowcasting with Bayesian Vector Autoregressive (BVAR) models and find that they can effectively handle the three Vs by producing, in real time, accurate probabilistic predictions of US economic activity and a meaningful narrative by means of scenario analysis. |
| Keywords: | Big Data; business cycles; Mixed frequency; Nowcasting; Real time; Scenario analysis |
| JEL: | C01 C33 C53 E32 E37 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15854&r= |
| By: | Dietrich, Alexander; Müller, Gernot; Schoenle, Raphael |
| Abstract: | Using a representative consumer survey in the U.S., we elicit beliefs about the economic impact of climate change. Respondents perceive a high probability of costly, rare disasters in the near future due to climate change, but not much of an impact on GDP growth. Salience of rare disasters through media coverage increases the disaster probability by up to 7 percentage points. We analyze these findings through the lens of a New Keynesian model with rare disasters. First, we illustrate how expectations of rare disasters impact economic activity. Second, we calibrate the model to capture the key aspects of the survey and quantify the expectation channel of climate change: disaster expectations lower the natural rate of interest by about 65 basis points and, assuming a conventional Taylor rule for monetary policy, inflation and the output gap by 0.3 and 0.2 percentage points, respectively. The effect is considerably stronger if monetary policy is constrained by the effective lower bound. |
| Keywords: | climate change; Disasters; Households Expectations; Media focus; monetary policy; Natural rate of interest; Paradox of Communication; survey |
| JEL: | E43 E52 E58 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15866&r= |
| By: | Breugem, Matthijs; Buss, Adrian; Peress, Joël |
| Abstract: | We propose a novel theory and provide supporting empirical evidence that lower long-term interest rates (e.g., because of ``quantitative easing'') harm informational and allocative efficiency. We develop a noisy rational expectations equilibrium model with an endogenous interest rate that investors use to update their beliefs about economic fundamentals. The interest rate reveals information about discount rates, allowing investors to extract more information about cashflows from stock prices. The precision of the interest-rate signal and, hence, stock-price informativeness increase in the interest rate. As a result, informational and allocative efficiency rise with bond and money supplies and with policy transparency. |
| Keywords: | (endogenous) interest rates; capital allocation efficiency; Informational efficiency; Rational Expectations; Unconventional Monetary Policy |
| JEL: | E43 E44 G11 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15766&r= |
| By: | Cakmakli, Cem; Demiralp, Selva; Kalemli-Ozcan, Sebnem; Yesiltas, Sevcan |
| Abstract: | We quantify the macroeconomic effects of COVID-19 for emerging markets using a framework that combines a SIR model with data on international and intersectoral linkages for a small open economy. We use this framework to estimate the sectoral COVID costs for Turkey. Domestic infection rates feed directly into both sectoral supply and sectoral demand shocks. Sectoral demand shocks additionally capture foreign infection rates through external demand. Infection rates at home and abroad can change differentially with different lockdown policies and social distancing measures. We use real-time credit card purchases to pin down the magnitude of these demand shocks. Our results show that the optimal policy, which yields the lowest economic cost and saves the maximum number of lives, can be achieved under an early full lockdown of 39 days at the onset of the pandemic. Economic costs are much larger for an open economy because of the low external demand that amplifies the costs through international input-output linkages. We document a strong relationship between sectoral costs of COVID-19 and net capital flows into that sector, implying a tight connection between domestic fiscal space and external finance in emerging markets. |
| Keywords: | external finance; Globalization; I-O Tables; infections; sectoral heterogeneity |
| JEL: | C51 E61 F00 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15154&r= |
| By: | Aruoba, Boragan; Mlikota, Marko; Schorfheide, Frank; Villalvazo, Sergio |
| Abstract: | We develop a structural VAR in which an occasionally-binding constraint generates censoring of one of the dependent variables. Once the censoring mechanism is triggered, we allow some of the coefficients for the remaining variables to change. We show that a necessary condition for a unique reduced form is that regression functions for the non-censored variables are continuous at the censoring point and that parameters satisfy some mild restrictions. In our application the censored variable is a nominal interest rate constrained by an effective lower bound (ELB). According to our estimates based on U.S. data, once the ELB becomes binding, the coefficients in the inflation equation change significantly, which translates into a change of the inflation responses to (unconventional) monetary policy and demand shocks. Our results suggest that the presence of the ELB is indeed empirically relevant for the propagation of shocks. We also obtain a shadow interest rate that shows a significant accommodation in the early parts of the Great Recession, followed by a mild and steady accommodation until liftoff in 2016. |
| Keywords: | Bayesian inference; effective lower bound; limited dependent variables; sequential Monte Carlo methods; shadow rate; Structural VARs |
| JEL: | C11 C22 C34 E32 E52 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15923&r= |
| By: | Jochen Güntner„; Johannes Henßler |
| Abstract: | Recent advances in the use of high-frequency external instruments to separate the signaling channel of monetary policy from exogenous interest rate changes have solved a number of puzzling responses to supposedly contractionary monetary policy shocks. We show that their effects on U.S. banks' balance sheets, asset markets, and economic activity hinge on the level of geopolitical risk at the time of the FOMC announcement. The S&P500 falls and credit spreads rise by more, while bank balance sheets contract, if geopolitical risk is above its sample median in the quarter or month of the shock. The state-dependent e ects are due to a tightening of credit- and risk-related national financial conditions and imply that, while preparing its monetary policy decisions, the Board of Governors should also keep track of the geopolitical environment. |
| Keywords: | C&I loans; Geopolitical risk; Monetary policy; State-dependent effects |
| JEL: | E43 E44 E51 E52 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2021-09&r= |
| By: | Huber, Kilian |
| Abstract: | The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in postwar Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers. |
| Keywords: | Bank Regulation; Bank size; Economies of Scale; financial regulation; Firm Employment; German History; Large Firms; Manager Compensation; Too Big To Fail |
| JEL: | E24 E44 G21 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15769&r= |
| By: | Madeira, João; Palma, Nuno Pedro G.; van der Kwaak, Christiaan |
| Abstract: | Advanced economies tend to have large but unstable intermediation sectors. We employ a DSGE model with banks featuring limited liability to investigate how risk shocks in the financial sector affect long-run macroeconomic outcomes. With full deposit insurance, banks expand balance sheets when risk increases, leading to higher investment and output. With no deposit insurance, we observe substantial drops in long-run credit provision, investment, and output. These differences provide a novel argument in favor of deposit insurance. Finally, our welfare analysis finds that increased risk reduces welfare, except when there is full deposit insurance and deadweight costs are small. |
| Keywords: | Costly state verification; deposit insurance; endogenous leverage; intermediation; investment; limited liability; Regulation; risk |
| JEL: | E22 E44 G21 O16 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15841&r= |
| By: | Petrosky-Nadeau, Nicolas; Wasmer, Etienne; Weil, Philippe |
| Abstract: | In an economy with frictional goods and labor markets there exist a price and a wage that implement the constrained efficient allocation. This price maximizes the marginal revenue of labor, balancing a price and a trading effect on firm revenue, and this wage trades off the benefits of job creation against the cost of turnover in the labor market. We show under bargaining over prices and wages that a double Hosios condition: (i) implements the constrained efficient allocation; (ii) also minimizes the elasticity of labor market tightness and job creation to a demand shock, and; (iii) that the relative response of wages to that of unemployment to changes in demand flattens as workers lose bargaining power, and it is steepest when there is efficient rent sharing in the goods market between consumers and producers, thereby relating changes in the slope of a wage Phillips curve to the constrained efficiency of allocations. |
| Keywords: | aggregate demand; constrained efficiency; market power; Search and matching frictions; unemployment; Wage Phillips Curve |
| JEL: | E24 E32 J63 J64 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15833&r= |
| By: | Martin F. Hellwig (Max Planck Institute for Research on Collective Goods) |
| Abstract: | The paper gives conditions for dynamic inefficiency of laissez-faire allocations in an overlapping-generations model with safe and risky assets. If the rate of population growth is certain, the conditions given depend only on how the rate of return on safe assets compares to the growth rate. If no safe assets are held, the implicit relative price for non-contingent intertemporal exchanges takes the place of the safe rate of return. Returns on risky assets do not enter the comparison. The conclusion holds regardless of whether welfare assessments are made from an interim perspective, taking account of the information that people have, or from an ex ante perspective. If a laissez-faire allocation is dynamically inefficient, a Pareto improvement can be implemented by a suitable fiscal policy intervention, which includes specific taxes or subsidies that neutralize incentive effects on risky investments and the price effects they induce. |
| Keywords: | Dynamic Inefficiency, overlapping-generations models, safe asset shortages, macro risk allocation, public debt |
| JEL: | D15 D61 E21 E22 E62 H30 |
| Date: | 2021–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:mpg:wpaper:2021_10&r= |
| By: | Carriero, Andrea; Clark, Todd; Marcellino, Massimiliano; Mertens, Elmar |
| Abstract: | We measure the effects of the COVID-19 outbreak on uncertainty, and we assess the consequences of the uncertainty for key economic variables. We use a large, heteroskedastic vector autoregression (VAR) in which the error volatilities share two common factors, interpreted as macro and financial uncertainty. Macro and financial uncertainty are allowed to contemporaneously affect the macroeconomy and financial conditions, with changes in the common component of the volatilities providing contemporaneous identifying information on uncertainty. We also consider an extended version of the model that accommodates outliers in volatility, to reduce the influence of extreme observations from the COVID period. Our estimates yield very large increases in macroeconomic and financial uncertainty since the onset of the COVID-19 period. These increases have contributed to the downturn in economic and financial conditions, but the contributions of uncertainty are small compared to the overall movements in many macroeconomic and financial indicators. That implies that the downturn is driven more by other dimensions of the COVID crisis than shocks to aggregate uncertainty (as measured by our method). |
| Keywords: | Bayesian VARs; Pandemics; stochastic volatility |
| JEL: | C11 C55 E32 E44 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15965&r= |
| By: | Mariia A. Elkina (National Research University Higher School of Economics) |
| Abstract: | Financial repression (FR) allows the government to save on its interest rate payments. However, forcing financial intermediaries to increase the share of government debt in their portfolios can alter transmission of macroeconomic shocks. In this paper, we raise the question whether it is the case. Simulations of a DSGE model with financial frictions indicate that the presence of FR creates an additional link between changes in government fiscal position and dynamics of corporate credit terms. Holding regulatory environment constant, if government wishes to issue more debt, it has to offer higher return on its debt and reduce its FR revenues. Lower FR revenues translate into better borrowing terms for entrepreneurs and higher private investment. Hence, FR can either amplify or dampen output response to the shock, depending on whether this shock increases or decreases government financing needs |
| Keywords: | financial repression, business cycle, government debt, general equilibrium, financial frictions. |
| JEL: | E32 E60 H60 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:246/ec/2021&r= |
| By: | Walter Paternesi Meloni (Department of Economics, Roma Tre University); Davide Romaniello (Department of Economic and Social Sciences, University Cattolica del Sacro Cuore); Antonella Stirati (Department of Economics, Roma Tre University) |
| Abstract: | The paper critically examines the New Keynesian explanation of hysteresis based on the role of long-term unemployment. We first examine its analytical foundations, according to which rehiring long-term unemployed individuals would not be possible without accelerating inflation. Then we empirically assess its validity along two lines of inquiry. First, we investigate the reversibility of long-term unemployment. Then we focus on episodes of sustained long-term unemployment reductions to check for inflationary effects. Specifically, in a panel of 25 OECD countries (from 1983 to 2016), we verify by means of local projections whether they are associated with inflationary pressures in a subsequent five-year window. Two main results emerge: i) the evolution of the long-term unemployment rate is almost completely synchronous with the dynamics of the total unemployment rate, both during downswings and upswings; ii) we do not find indications of accelerating or persistently higher inflation during and after episodes of strong declines in the long-term unemployment rate, even when they occur in country-years in which the actual unemployment rate was estimated to be below a conventionally estimated Non-Accelerating Inflation Rate of Unemployment (NAIRU). Our results call into question the role of long-term unemployment in causing hysteresis and provide support to policy implications that are at variance with the conventional wisdom that regards the NAIRU as an inflationary barrier. |
| Keywords: | Hysteresis; Long-term Unemployment; NAIRU; Inflation; Labor Market. |
| JEL: | E12 E24 J64 |
| Date: | 2021–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp156&r= |
| By: | Monnet, Eric; Puy, Damien |
| Abstract: | We estimate world cycles using a new quarterly macro-financial dataset assembled using IMF archives, covering a large set of countries since 1950. World cycles, real and financial, exist and US shocks drive them. But their strength is modest for GDP and credit. Global financial cycles are much weaker for credit than for asset prices. We also challenge the view that synchronization has increased with globalization. Although this is true for prices (goods and assets), it is not for quantities (output and credit). World business and credit cycles were as strong during Bretton Woods (1950-1972) as during the Globalization period (1982-2006). We investigate the economic and financial forces driving our results, connect them to the existing literature and discuss important policy implications. |
| Keywords: | business cycles; financial cycles; Financial Integration; Globalization; trade integration; US Monetary Policy; World Cycles |
| JEL: | E32 F41 F42 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15958&r= |
| By: | Gnan, Phillipp; Rieder, Kilian |
| Abstract: | This paper provides the first systematic analysis of individual monetary policy-makers' incentives to communicate during so called "quiet periods" in the run-up to policy meetings. We ask why and when monetary policy-makers breach quiet period rules. Based on proprietary compilations by the European Central Bank's (ECB) Directorate General Communications, we construct a novel statement-level data set documenting all public statements by ECB Governing Council members during the 116 quiet periods between October 2008 and January 2020. We describe the broad trends in quiet period communication since 2008. While career concerns and home bias do not explain breaching behavior, we find that members' policy-making experience and expertise are associated with explicit breaches of the quiet period. Following a statement-by-statement review of the ECB's classification of statements, we also provide an alternative series of quiet period breaches. We show that the difference between the original ECB series and our alternative series is driven by diverging records of explicit breaches by ECB Executive Board members before 2014. Finally, we exploit plausibly exogenous variation in the ECB rotational voting schedule to show that Governing Council members' communication behavior during the quiet period is consistent with the narrative of the ECB Governing Council as a collegial, consensus-seeking decision-making body. Our findings directly contribute to the growing literature on free-riding, career concerns and transparency in monetary policy-making. We also discuss several empirically founded policy implications of our paper relevant to the design of the quiet period in the euro area and monetary policy communication more generally. |
| Keywords: | career concerns; central bank communication; Central bank transparency; decision-making; European Central Bank; Home Bias; leaks; monetary policy; quiet period; rotational voting |
| JEL: | D82 D83 E52 E58 E61 G12 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15735&r= |
| By: | Asongu, Simplice; Diop, Samba; Nnanna, Joseph |
| Abstract: | The purpose of this study is to understand how countries have leveraged on their economic resilience to fight the Covid-19 pandemic. The focus is on a global sample of 150 countries divided into four main regions, namely: Africa, Asia-Pacific and the Middle East, America and Europe. The study develops a health vulnerability index (HVI) and leverages on an existing economic resilience index (ERI) to provide four main scenarios from which to understand the problem statement, namely: ‘low HVI-low ERI’, ‘high HVI-low ERI’, ‘high HVI-high ERI’ and ‘low HVI-high ERI’ quadrants. It is assumed that countries that have robustly fought the pandemic are those in the ‘low HVI-high ERI’ quadrant and to a less extent, countries in the ‘low HVI-low ERI’ quadrant. Most European countries, one African country (i.e. Rwanda), four Asian countries (Japan, China, South Korea and Thailand) and six American countries (USA, Canada, Uruguay, Panama, Argentina and Costa Rica) are apparent in the ideal quadrant. |
| Keywords: | Novel coronavirus, health vulnerability, economic resilience |
| JEL: | E10 E12 E20 E23 I10 I18 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107496&r= |
| By: | Jaccard, Ivan |
| Abstract: | This paper studies the effects of imperfect risk-sharing between lenders and borrowers on commercial property prices and leverage. The key friction is that agents use different discount rates to evaluate future flows. Eliminating this pecuniary externality generates large reductions in the volatility of real estate prices and credit. Therefore, policies that enhance risk-sharing between lenders and borrowers reduce the magnitude of boom-bust cycles in real estate prices. We also introduce health shocks to study the effect of the COVID-19 crisis on the commercial property market. JEL Classification: E32, E44, G10, E23 |
| Keywords: | asset pricing, incomplete markets, leverage cycle, pecuniary externalities |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212539&r= |
| By: | Gorodnichenko, Yuriy; Pham, Tho; Talavera, Oleksandr |
| Abstract: | We develop a deep learning model to detect emotions embedded in press conferences after the meetings of the Federal Open Market Committee and examine the influence of the detected emotions on financial markets. We find that, after controlling for the Fed's actions and the sentiment in policy texts, positive tone in the voices of Fed Chairs leads to statistically significant and economically large increases in share prices. In other words, how policy messages are communicated can move the stock market. In contrast, the bond market appears to take few vocal cues from the Chairs. Our results provide implications for improving the effectiveness of central bank communications. |
| Keywords: | Bond market; communication; Emotion; monetary policy; Stock market; text sentiment; voice |
| JEL: | D84 E31 E58 G12 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15932&r= |
| By: | Hoffmann, Mathias; Stewen, Iryna; Stiefel, Michael |
| Abstract: | Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany's banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity. |
| Keywords: | Crowding-Out; firm-level investment; Fiscal austerity; global and intra-European imbalances; local public finance |
| JEL: | E62 F21 F32 G21 H32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15912&r= |
| By: | Andreolli, Michele; Surico, Paolo |
| Abstract: | We study the consumption response to unexpected transitory income gains of different size, using hypothetical questions from the Italian Survey of Household Income and Wealth. Families with low cash-on-hand display a higher Marginal Propensity to Consume (MPC) out of the small gains while affluent households exhibit a higher MPC out of the large gains. The spending behaviour of low-income families is consistent with the predictions of models with borrowing constraints and uninsurable income risk whereas the consumption pattern of higher earners can be accounted for by non-homothetic preferences on non-essentials. Our results suggest that, for a given level of public spending, a fiscal transfer of smaller size paid to a larger group of low-income households stimulates aggregate consumption more than a larger transfer paid to a smaller group. |
| Keywords: | economic stimulus payment size; liquidity constraints; MPC heterogeneity; non-essential spending; non-homothetic preferences |
| JEL: | D12 D14 E21 E62 H23 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15918&r= |
| By: | Furceri, Davide; Ganslmeier, Michael; Ostry, Jonathan D.; Yang, Naihan |
| Abstract: | While the COVID-19 pandemic is affecting all countries, output losses vary considerably across countries. We provide a first analysis of robust determinants of observed initial output losses using model-averaging techniques-Weighted Average Least Squares and Bayesian Model Averaging. The results suggest that countries that experienced larger output losses are those with lower GDP per capita, more stringent containment measures, higher deaths per capita, higher tourism dependence, more liberalized financial markets, higher pre-crisis growth, lower fiscal stimulus, higher ethnic and religious fractionalization and more democratic regimes. With respect to the first factor, lower resilience of poorer countries reflects the higher economic costs of containment measures and deaths in such countries and less effective fiscal and monetary policy stimulus. |
| Keywords: | BMA; COVID-19; Model-Averaging; Recession; resilience; WALS |
| JEL: | E02 G01 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15892&r= |
| By: | Camacho, Maximo; Pacce, Matias Jose; Pérez-Quirós, Gabriel |
| Abstract: | To analyze the international transmission of business cycle fluctuations, we propose a new multilevel dynamic factor model with a block structure that (i) does not restrict the factors to being orthogonal and (ii) mixes data sampled at quarterly and monthly frequencies. By means of Monte Carlo simulations, we show the high performance of the model in computing inferences of the unobserved factors, accounting for the spillover effects, and estimating the model's parameters. We apply our proposal to data from the G7 economies by analyzing the responses of national factors to shocks in foreign factors and by quantifying the changes in national GDP expectations in response to unexpected positive changes in foreign GDPs. Although the share of the world factor as a source of the international transmission of fluctuations is still signifi cant, this is partially absorbed by the spillover transmissions. In addition, we document a pro-cyclical channel of international transmission of output growth expectations, with the US and UK being the countries that generate the greatest spillovers and Germany and Japan being the countries that generate the smallest spillovers. Therefore, policymakers should closely monitor the evolution of foreign business cycle expectations. |
| Keywords: | Business cycle; mixed-frequency; Spillovers |
| JEL: | C22 E32 F41 F42 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15787&r= |
| By: | Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Kenny, Geoff; Weber, Michael |
| Abstract: | Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes. |
| Keywords: | household finance; household spending; randomized control trial; Surveys; uncertainty |
| JEL: | E21 E3 E4 E5 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15966&r= |
| By: | Reis, Ricardo |
| Abstract: | With real interest rates below the growth rate of the economy, but the marginal product of capital above it, the public debt can be lower than the present value of primary surpluses because of a bubble premia on the debt. The government can run a deficit forever. In a model that endogenizes the bubble premium as arising from the safety and liquidity of public debt, more government spending requires a larger bubble premium, but because people want to hold less debt, there is an upper limit on spending. Inflation reduces the fiscal space, financial repression increases it, and redistribution of wealth or income taxation have an unconventional effect on fiscal capacity through the bubble premium. |
| Keywords: | debt limits; debt sustainability; incomplete markets; Misallocation |
| JEL: | D52 E62 G10 H63 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15950&r= |
| By: | Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot; Schmidt, Sebastian |
| Abstract: | The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the classics (Meade, 1951; Friedman 1953), to the more recent open economy literature (Obstfeld and Rogoff, 2000). We confront it with new evidence from Europe. Specifically, we study how shocks that originate in the euro area spill over to its neighboring countries. We exploit the variation of the exchange rate regime across time and countries to assess whether the regime alters the spillovers: it does not---flexible exchange rates fail to provide insulation against euro area shocks. This result is robust across a number of specifications and holds up once we control for global financial conditions. We show that the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond to headline consumer price inflation. However, it remains puzzling that policy makers are ready to forego stabilization of economic activity to the extent we found in the data. |
| Keywords: | dominant currency pricing; effective lower bound; Exchange rate; external shock; Insulation; International spillovers; monetary policy |
| JEL: | E31 F41 F42 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15689&r= |
| By: | David Dam; Sebastian Heise; Davide Melcangi; Will Schirmer |
| Abstract: | The services sector was hit hard during the COVID-19 pandemic. Small businesses were particularly affected, and many of them were forced to close. We examine the state of these firms using micro data from Homebase (HB), a scheduling and time tracking tool that is used by around 100,000 businesses, mostly small firms, in the leisure and hospitality and retail industries. The data reveal that 35 percent of businesses that were active prior to the pandemic are still closed and that most have been inactive for twenty weeks or longer. We estimate that each additional week of being closed reduces the probability that a business reopens by 2 percentage points. Moreover, an additional week of business closure lowers the share of workers that are rehired at reopening. Our estimates imply that only about 4 percent of the workers that are still laid off from the currently closed businesses will eventually be rehired by these businesses. |
| Keywords: | COVID-19; labor market; unemployment |
| JEL: | E24 I15 |
| Date: | 2021–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:91339&r= |
| By: | Avichai Snir (Department of Banking and Finance, Netanya Academic College, Israel); Haipeng (Allan) Chen (Gatton College of Business and Economics, University of Kentucky, USA); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis) |
| Abstract: | We use micro level retail price data from convenience stores to study the link between 0-ending price points and price rigidity during a period of a runaway inflation, when the annual inflation rate was in the range of 60%–430%. Surprisingly, we find that more round prices are less likely to adjust, and when they do adjust, the average adjustments are larger. These findings suggest that price adjustment barriers associated with round prices are strong enough to cause a systematic delay in price adjustments even in a period of a runaway inflation, when 85 percent of the prices change every month. |
| Keywords: | Sticky Prices, Rigid Prices, 0-Ending Price Points, 9-Ending Price points, Runaway Inflation, Hyperinflation, Cost of Price Adjustment, Menu Cost |
| JEL: | E31 L16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:21-10&r= |
| By: | Daan Opschoor (Erasmus University Rotterdam); Dick van Dijk (Erasmus University Rotterdam); Philip Hans Franses (Erasmus University Rotterdam) |
| Abstract: | We analyze output growth risk with respect to financial conditions across U.S. manufacturing industries. Using a multi-level quantile regression approach, we find strong heterogeneity in growth risk, particularly between the more vulnerable durable goods sector and the more resilient nondurable goods sector. Moreover, we show that industry characteristics significantly explain these differences. Large, or material intensive durable goods producing, or energy intensive nondurable goods producing industries are more vulnerable to adverse financial conditions, while industries engaging in labor hoarding, or with a high capital or overhead labor intensity are less susceptible. |
| Keywords: | downside risk, business cycle, quantile regression, manufacturing, financial conditions |
| JEL: | C21 E32 E44 L16 L60 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210036&r= |
| By: | Kamalyan, Hayk |
| Abstract: | In ``The Dynamic Behavior of the Real Exchange Rate in Sticky Price Models'' published in the American Economic Review, Steinsson (2008) argues that a baseline open economy sticky price model with real shocks can rationalize the real exchange rate persistence and hump-shaped dynamics observed in data. The current paper shows that i) the dynamics of the real exchange rate depend upon the parameter values of the Taylor rule, ii) the model cannot simultaneously match the observed dynamics of the real exchange rate and the close co-movement between the real and nominal currency returns. Thus, the baseline framework is not capable of fully capturing the real exchange rate adjustment process. |
| Keywords: | Real exchange rate adjustment, Nominal-real exchange rate co-movement, New Keynesian model, Monetary policy rule |
| JEL: | E52 E58 F31 F41 |
| Date: | 2020–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107491&r= |
| By: | Steven M. Fazzari (Washington University in St. Louis); Ella Needler (Washington University in St. Louis) |
| Abstract: | This article compares inequality in US employment across social groups in the Great Recession and the COVID-19 pandemic. We develop an inequality measure that captures both how much employment declines during a recession and the persistence of those declines. The results show a significant shift of job loss from men in the Great Recession to women in the COVID-19 lockdown. White workers fare better than other racial/ethnic groups in both recessions. Black and Hispanic women are hit especially hard in the COVID-19 pandemic. With our job loss measure, less educated workers had modestly worse outcomes in the Great Recession. However, during COVID-19, less educated workers suffer much more severe employment consequences than more educated groups. We discuss long-term effects of employment inequality and how these findings are relevant to debates about policy responses. |
| Keywords: | Employment, Unemployment, Inequality, Great Recession, COVID-19 |
| JEL: | E24 J21 |
| Date: | 2021–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:inetwp154&r= |
| By: | Björn Brügemann (Vrije Universiteit Amsterdam) |
| Abstract: | This paper show analytically that introducing diminishing returns to labor at the firm level into the Diamond-Mortensen-Pissarides model, followed by recalibration, does not change aggregate dynamics of unemployment and vacancies. This invariance result holds for several standard calibration strategies developed for the model with constant returns, alternative bargaining solutions for the setting with diminishing returns, and different sources of diminishing returns. Invariance makes precise in which sense the common practice of abstracting from diminishing returns is innocuous. It provides an analytical benchmark for quantitative findings obtained in models that do combine a Diamond-Mortensen-Pissarides labor market with diminishing returns at the firm level. |
| Keywords: | Diminishing returns, Diamond-Mortensen-Pissarides model, Aggregate unemployment dynamics, Calibration, Bargaining |
| JEL: | E24 E32 J64 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210034&r= |
| By: | Magud, Nicolas; Spilimbergo, Antonio |
| Abstract: | We analyze the institutional and economic consequences of populism in Latin America in the last 50 years. Populist regimes weaken institutions and macroeconomic (fiscal, monetary, and external) indicators, resulting in crises and worse income distribution. The duration of populist regimes depends on favorable external conditions. In particular, the commodity super-cycle of the 2000s and easy financing conditions allowed populists to stay in power longer than in past episodes. |
| Keywords: | Commodity supercycle; institutions; Latin America; political economy; populism |
| JEL: | E0 N1 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15824&r= |
| By: | Dietrich, Diemo; Gehrig, Thomas |
| Abstract: | We demonstrate that the co-existence of different motives for liquidity preferences profoundly affects the efficiency of financial intermediation. Liquidity preferences arise because consumers wish to take precautions against sudden and unforeseen expenditure needs, and because investors want to speculate on future investment opportunities. Without further frictions, the co-existence of these motives enables banks to gain efficiencies from combining liquidity insurance and credit intermediation. With standard financial frictions, banks cannot reap such economies of scope. Indeed, the co-existence of a precautionary and a speculative motive can cause efficiency losses which would not occur if there were only a single motive. Specifically, if the arrival of profitable future investment opportunities is sufficiently likely, such co-existence implies inefficient separation, pooling, or even non-existence of pure strategy equilibria. This suggests that policy implications derived solely from a single motive for liquidity demand can be futile. |
| Keywords: | competitive bank business models; expenditure needs; Investment opportunities; liquidity insurance; Penalty rates |
| JEL: | D11 D86 E21 E22 G21 L22 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15827&r= |
| By: | Anna, Beliansk; Eyquem, Aurélien; Poilly, Céline |
| Abstract: | Higher uncertainty about government spending generates a persistent decline in the economic activity in the Euro Area. This paper emphasizes the transmission channels explaining this empirical fact. First, a Stochastic Volatility model is estimated on European government consumption to build a measure of government spending uncertainty. Plugging this measure into a SVAR model, we stress that government spending uncertainty shocks have recessionary, persistent and humped-shaped effects. Second, we develop a New Keynesian model with financial frictions applying to a portfolio of equity and long-term government bonds. We argue that a portfolio effect -- resulting from the imperfect substitutability among both assets -- acts as a critical amplifier of the usual transmission channels. |
| Keywords: | Government spending uncertainty; portfolio adjustment cost; stochastic volatility |
| JEL: | E52 E62 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15894&r= |
| By: | Vargas, Jerrick Jan |
| Abstract: | It is necessary for policy makers to understand how the monetary policy is transmitted to the economy through different channels. This study focused on the reduced-form relationships between money, real output and price level and “channel” variables such as domestic credit, exchange rate and real lending interest rate and examined the monetary transmission mechanism in the Philippines, using the vector autoregression approach (VAR). The results derived from the forecast error variance decompositions analyses show that the main sources of variances in output and price level are their “own” shocks. The results of the impulse response functions indicate that monetary policy can affect output and price level and that the effect of monetary policy on output was strongest after two quarters. An expansionary monetary policy increases output in two quarters however; it has a weak effect on price level after two quarters. Furthermore, domestic credit has the most significant effect on output in the Philippines. Theories in monetary economics suggest that an expansionary monetary policy increases output and price level however, in the case of the Philippines, an expansionary monetary policy increases output but have a weak effect on inflation. |
| Keywords: | Monetary Policy, Vector Autoregression |
| JEL: | E52 |
| Date: | 2021–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107507&r= |
| By: | Gatopoulos, George; Louka, Alexandros; Polycarpou, Ioannis; Vettas, Nikolaos |
| Abstract: | In view of long-standing weaknesses in Greece's labour markets, several labour market reforms were implemented during the economic adjustment programmes with two objectives. Firstly, to support the economy's adjustment through more flexible labour markets and secondly, to enhance gains in cost competitiveness. In relation to their objectives, we find evidence that reforms largely fulfilled the second objective and partially the first, albeit left mostly unaddressed some of the long-standing weaknesses, such as low participation rate and high tax wedge. The analysis is backed by two distinct but complementary approaches. From a micro-founded analysis, while the 2014 reduction in social security contributions positively affected incentives for official sector labour participation, those appear to have decreased cumulatively during the overall programme period. From a top-down macroeconomic perspective, findings suggest that Greece's 2012 labour market reforms had a positive impact on reducing the Unit Labour Cost (ULC), increasing the use of flexible forms of employment, slowing down unemployment rate dynamics and slightly accelerating employment growth trends. At the same time, it appears that the 2012 reforms did not improve labour participation rates, while they increased average working hours and inequality. |
| Keywords: | generalized synthetic control; Greek crisis; impact assessment; labor market reforms; participation tax rate; rescue programs; unemployment |
| JEL: | E24 J08 J21 J38 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15860&r= |
| By: | Nobuhiro Kiyotaki; John Moore; Shengxing Zhang |
| Abstract: | Entrepreneurs appear to borrow largely against their near-term revenues, even when their investment has a longer horizon. In this paper, we develop a model of credit horizons. A question of particular concern to us is whether persistently low interest rates can stifle economic activity. With this in mind, our model is of a small open economy where the world interest rate is taken to be exogenous. We show that a permanent fall in the interest rate can reduce aggregate investment and growth, and even lead to a drop in the welfare of everyone in the domestic economy. We use our framework to examine how credit horizons interact with plant dynamics and the evolution of productivity. Finally, we speculate that the measurement of total investment may camouflage the true level of productive investment in plant and human capital, and give too rosy a picture of property-fuelled booms sparked by low interest rates. |
| JEL: | E44 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28742&r= |
| By: | G, Murugan; k, Pushpangadan |
| Abstract: | The paper develops a methodology for impact analysis of Coronavirus 2019 (COVID-19) pandemic based on Solow’s growth theory for a migration-driven subnational economy by a case study of Kerala, India. A log-linear growth equation of output per capita is regressed on capital stock-gross domestic product ratio (CSDR) and real remittances per capita (RRPC) for the period, 1980-2015. The robust regression on regional growth shows that the growth elasticity of CSDR is 0.43 and that of RRPC 0.28 with an explanatory power of 95 %. From growth accounting principle, only 29 % of the remaining variation needs to be accounted by other factors affecting regional growth. The impact of remittances on growth rate of the economy is positive and statistically significant at 1 % level as against the negative and statistically significant relationship observed in majority of cross-country analysis. The gross state domestic product (GSDP) for the year 2020/21 using national accounting framework incorporating unorganised economic activities shows a reduction of 38.85% from the pandemic impact in the region. The corresponding shrinkage of investment share in GSDP is 24. 5 % from its trend value of 0.63 in 2020/21.This alone reduces the growth rate of output per capita by 10.5 %. Similarly, the reduction in trend value of RRPC is 43.1 % and its impact on growth rate of output per capita is a shrinkage of 12.1 %. The impact of COVID19 on the overall growth rate of output per capita in the economy is- 22.6 %, the sum of the separate effects. It is interesting to note that reduction in growth rate is more from international remittances than from the share of investment in GSDP. Therefore, growthrevival strategy for the region requires special component plan compensating for the shortfall in the international remittances. |
| Keywords: | COVID-19, Solow’s growth model, investment-gross domestic ratio, international remittances and Growth accounting. |
| JEL: | E6 E65 E69 |
| Date: | 2021–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107501&r= |
| By: | French, Michael (University of Miami); Gumus, Gulcin (Florida Atlantic University) |
| Abstract: | In light of recent discussions about shifting employees from traditional workplaces to virtual employment, we are motivated by the question of whether this phenomenon will end up saving lives even in the absence of an infectious disease outbreak. Motor vehicle incidents are the leading cause of work-related fatalities in the US, killing more than 1,200 workers each year, which make up about a quarter of all work-related deaths. Not only are motor vehicle crashes the top killer at work, but economic expansions can further increase occupational and traffic deaths as they both tend to be procyclical. In this paper, we examine the effects of business cycles on traffic fatalities in the US with a special focus on work-related deaths. Specifically, we implement a longitudinal design across all 50 states by compiling quarterly data for 2004-2012 and consider macroeconomic fluctuations around the Great Recession. Our findings show that traffic deaths during prosperous times are not solely due to an increase in risky behaviors such as drunk driving, but directly related to work. Given the highly preventable nature of traffic crashes, policy makers, public health advocates, and employers can develop effective strategies, including remote work arrangements, to improve both occupational and traffic safety. |
| Keywords: | traffic fatalities, occupational health, business cycles, unemployment, Great Recession |
| JEL: | E32 I12 I18 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14324&r= |
| By: | Gerlach, Stefan; Stuart, Rebecca |
| Abstract: | We study co-movements of inflation in a group of 15 countries before and during the classical Gold Standard by fitting a generalisation of the Ciccarelli-Mojon (2010) model on annual data spanning 1851-1913. We find that international inflation functions as an "attractor" for domestic inflation rates. The cross-sectional dispersion of inflation declined gradually over the sample and Bai-Perron tests for structural breaks at unknown points in time suggest that there are breaks in six of reduced-form inflation equations. However, sub-sample estimates indicate that the overall finding that international inflation is an important influence on domestic inflation. |
| Keywords: | Factor Analysis; gold standard; international inflation; principal components |
| JEL: | E31 F40 N10 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15914&r= |
| By: | Albanesi, Stefania; Kim, Jiyeon |
| Abstract: | The economic crisis associated with the emergence of the novel corona virus is unlike standard recessions. Demand for workers in high contact and inflexible service occupations has declined, while parental supply of labor has been reduced by lack of access to reliable child care and in-person schooling options. This has led to a substantial and persistent drop in employment and labor force participation for women, who are typically less affected by recessions than men. We examine real time data on employment, unemployment, labor force participation and gross job flows to document the gendered impact of the pandemic. We also discuss the potential long-term implications of this crisis, including the role of automation in depressing the recovery of employment for the worst hit service occupations. |
| Keywords: | COVID-19; employment; gender gaps; labor force participation; unemployment |
| JEL: | E24 J16 J21 J22 J23 J63 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15838&r= |
| By: | Max Gillman (Department of Economics, University of Missouri-St. Louis) |
| Abstract: | A technical appendix for “Income Tax Evasion: Tax Elasticity, Welfare, and Revenue.†This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such fiscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government fiscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output. |
| Keywords: | income tax evasion, tax elasticity, welfare, tax revenue |
| JEL: | E13 H21 H26 H30 H68 K34 K42 O11 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:msl:workng:1018&r= |
| By: | Bartscher, Alina; Kuhn, Moritz; Schularick, Moritz; Wachtel, Paul |
| Abstract: | This paper aims at an improved understanding of the relationship between monetary policy and racial inequality. We investigate the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Specifically, we show that, although a more accommodative monetary policy increases employment of black households more than white households, the overall effects are small. At the same time, an accommodative monetary policy shock exacerbates the wealth difference between black and white households, because black households own less financial assets that appreciate in value. Over multi-year time horizons, the employment effects are substantially smaller than the countervailing portfolio effects. We conclude that there is little reason to think that accommodative monetary policy plays a significant role in reducing racial inequities in the way often discussed. On the contrary, it may well accentuate inequalities for extended periods. |
| Keywords: | income distribution; monetary policy; racial inequality; wealth distribution; Wealth effects |
| JEL: | E40 E52 J15 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15734&r= |
| By: | Kohnert, Dirk |
| Abstract: | Throughout history, nothing has killed more human beings than infectious diseases. Although, death rates from pandemics dropped globally by about 0.8 % per year, all the way through the 20th century, the number of new infectious diseases like Sars, HIV and Covid-19 increased by nearly fourfold over the past century. In Africa, there were reported a total of 4,522,489 confirmed COVID-19 cases and 119,816 death, as of 23 April 2021. The pandemic impacted seriously on the economic and social sectors in almost all African countries. It is threatening to push up to 58 m people into extreme poverty. However, apart from the African poor, the Covid pandemic also affects the growing African middle class, i.e. about 170 million out of Africa’s 1.3 billion people currently classified as middle class. Nearly eight million of may be thrust into poverty because of the coronavirus and its economic aftermath. This setback will be felt for decades to come. Moreover, in recent African History also other infectouse diseases like the 1896–1906 Congo Basin Trypanosomiasis with a death-toll of over 500.000 as well as the 1900–1920 Uganda African trypanosomiasis epidemic with 200,000–300,000 death had tremendous negative impact on Africa’s societies and economies. Actually, other pandemics, like Yellow Fever, Cholera, Meningitis and Measles – not to mention Malaria - contributed to long-lasting economic downturns and seriously affect the social wellbeing for decades. |
| Keywords: | COVID-19, Corona pandemic, pandemics, Africa, socio-economic impact, migration, poverty, violence, ethics in epidemics, ethics dumping, African Studies, Post-Colonialism, |
| JEL: | D63 D74 E24 E26 F15 F22 F35 F52 F54 H12 H51 I14 I15 J46 N37 N97 O17 O55 Z1 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107561&r= |
| By: | Jose Maria Barrero; Nicholas Bloom; Steven J. Davis |
| Abstract: | COVID-19 drove a mass social experiment in working from home (WFH). We survey more than 30,000 Americans over multiple waves to investigate whether WFH will stick, and why. Our data say that 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. We develop evidence on five reasons for this large shift: better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH. We also use our survey data to project three consequences: First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation. Third, our data on employer plans and the relative productivity of WFH imply a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements. Only one-fifth of this productivity gain will show up in conventional productivity measures, because they do not capture the time savings from less commuting. |
| JEL: | D13 D23 E24 G18 J22 M54 R3 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28731&r= |
| By: | Lanteri, Andrea; Rampini, Adriano A. |
| Abstract: | We analyze the constrained-efficient allocation in an equilibrium model of investment and capital reallocation with heterogeneous firms facing collateral constraints. The model features two types of pecuniary externalities: collateral externalities, because the resale price of capital affects firms' ability to borrow, and distributive externalities, because buyers of old capital are more financially constrained than sellers, consistent with empirical evidence. We show analytically and quantitatively that the equilibrium price of old capital is inefficiently high in general, because the distributive pecuniary externality exceeds the collateral externality, by a factor of two in the calibrated model. New investment generates a positive aggregate externality by reducing the future price of old capital, fostering reallocation toward more constrained firms. The constrained-efficient allocation induces a consumption-equivalent welfare gain of 5% compared to the competitive equilibrium, and can be implemented with subsidies on new capital and taxes on old capital. |
| Keywords: | capital reallocation; Collateral; constrained efficiency; Investment Subsidies; Pecuniary externalities |
| JEL: | D51 E22 E44 G31 H21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15690&r= |
| By: | Gai, Yue; Meenagh, David; Minford, Patrick |
| Abstract: | We set up a two-region model to study the policy challenge of bringing the North's income up to the level of the South in the UK. The model focuses on labour costs as the driver of output gains through the international competitiveness channel. The empirical results show that the regional model behaviour fits the regional UK data behaviour over the period of 1986Q1 and 2019Q4, using the demanding Indirect Inference method. We also carry out a Monte Carlo power test, which shows the empirical results we obtain are trustworthy and can provide us a reliable guide for policy reform. The results suggest that in response to tax cuts and labour market reforms GDP in the North increases almost twice as much as GDP in the South. Given that a broad programme of tax cuts and regulatory reform would more than pay for itself in the long run, it must be considered as a highly attractive political agenda. |
| Keywords: | DSGE model; indirect inference; Policy implication; Regional study |
| JEL: | E32 E60 P48 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15635&r= |
| By: | Goenka, Aditya; Liu, Lin; Nguyen, Manh-Hung |
| Abstract: | This paper studies continuing optimal quarantines (can also be interpreted as lockdowns or self-isolation) in the long run if a disease (Covid-19) is endemic and immunity can fail, i.e. the disease has SIRS dynamics. We model how the disease related mortality aects optimal choices in a dynamic general equilibrium neoclassical growth framework. An extended welfare function that incorporates loss from mortality is used. Without welfare loss from mortality, in the long run even if there is continuing mortality, it is not optimal to impose a quarantine. We characterize the optimal decision of quarantines and how the disease endemic steady state changes with eectiveness of quarantine, productivity of working from home, rate of mortality from the disease, and failure of immunity. We also give the suciency conditions for economic models with SIRS dynamics - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable. |
| JEL: | E13 E22 D15 D50 D63 I10 I15 I18 O41 C61 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125549&r= |
| By: | Guter-Sandu, Andrei; Murau, Steffen |
| Abstract: | The original Maastricht regime designed the Eurozone’s fiscal segment in a way that sought to keep member states’ treasury budgets balanced by disciplining them through market forces, reducing the overall volume of public indebtedness, prohibiting monetary financing, and avoiding that Eurozone treasuries bail each other out. In this article, we analyse how these ‘neoliberal’ rules for fiscal governance have been gradually superseded by an alternative approach that we call ‘governing through off-balance-sheet fiscal agencies’ (OBFAs). OBFAs are special purpose vehicles that complement treasuries in supporting public investment, offering solvency insurance for banks, providing capital insurance of last resort for other treasuries, and expanding the stock of safe assets. By sponsoring OBFAs, treasuries can substitute ‘actual’ liabilities on their balance sheets, which are potentially in conflict with the EU’s neoliberal fiscal rules, with ‘contingent’ liabilities – guarantees that do not appear on-balance-sheet. Together, national and supra-national treasuries and OBFAs form a ‘fiscal ecosystem’ in which neoliberal fiscal rules get re-emphasised but in practice are increasingly mitigated. This new mode of Eurozone fiscal governance is reflected not only in multiple policies implemented since 2010 – the Recovery and Resilience Facility for example – but also represents the main strategy in many Eurozone reform proposals. |
| Keywords: | critical macro-finance; neoliberalism; Eurocrisis; European Stability Mechanism; recovery and resilience facility; ES/T008687/1 |
| JEL: | M40 |
| Date: | 2021–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:109790&r= |
| By: | Hetzel, Robert (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise) |
| Abstract: | The monetary aggregate M2 increased from $15,473 billion in February 2020 to $19,670 billion in February 2021, or by 27.1%. Real M2 (M2 deflated by the CPI) increased similarly by 25.3% (https://fred.stlouisfed.org/series/M2REAL). This monetary acceleration, unprecedented outside of wartime, is apparent in a longer-run perspective. From the trough of the last business cycle in June 2009 through February 2020, annualized monthly growth rates for M2 averaged 5.9%. Over the interval March 2020 through June 2020, they averaged 65.6%. Although diminished, rapid M2 growth continued, averaging 12.9% from July 2020 through March 2021. Milton Friedman famously said that inflation is always and everywhere a monetary phenomenon. If he is right, should not this bulge in money lead to an undesirably high rate of inflation? |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:jhisae:0180&r= |
| By: | Michael Junho Lee; Antoine Martin |
| Abstract: | Since the launch of Bitcoin and other first-generation cryptocurrencies, there has been extensive experimentation in the digital currency space. So far, however, digital currencies have yet to gain much ground as a means of payment. Is there a vacuum in the landscape of digital money and payments that central banks are naturally positioned to fill? In this post, Michael Lee and Antoine Martin, economists in the New York Fed’s Money and Payment Studies function, answer some questions regarding the concept of central bank digital currencies (CBDCs). |
| Keywords: | central bank digital currencies |
| JEL: | E58 |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:91222&r= |
| By: | Lee E. Ohanian; Musa Orak; Shihan Shen |
| Abstract: | This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Rios-Rull and Violante (KORV, 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in labor’s share of income that were not present in KORV. We study both labor share of gross income (as in KORV), and income net of depreciation. We also use non-farm business sector output as an alternative measure of production to real GDP. We find strong evidence for continued capital-skill complementarity in the most recent data, and that the model continues to closely account for the skill premium. The model captures the average level of labor share, though it overpredicts its level by 2-4 percentage points at the end of the period. |
| JEL: | E13 E25 J23 J3 J68 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28747&r= |
| By: | Mendoza, Enrique G; Rojas, Eugenio; Tesar, Linda; Zhang, Jing |
| Abstract: | COVID-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for COVID-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with entrepreneurs and workers. The health system moves closer to saturation as the gap between supply and subsistence narrows, which worsens consumption and income inequality. An externality distorts utilization, because firms do not internalize that lower utilization relaxes healthcare saturation. The optimal policy response includes lockdowns and transfers to workers. Quantitatively, strict lockdowns and large transfer hikes can be optimal and yield sizable welfare gains because they prevent a sharp rise in inequality. Welfare and output costs vary in response to small parameter changes or deviations from optimal policies. Weak lockdowns coupled with weak transfers programs are the worst alternative and yet are in line with what several emerging and least developed countries have implemented. |
| Keywords: | COVID; Fiscal policy; pandemia |
| JEL: | E25 E65 I1 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15846&r= |
| By: | Benigno, Pierpaolo; Rossi, Lorenza |
| Abstract: | Nonlinearities embedded in the standard New-Keynesian model show that a welfare-maximizing policymaker should behave in line with a contractionary bias, fearing more expansions in output and inflation rather than contractions. On the contrary, the aggregate-supply equation implies that any upward pressure coming from real marginal costs does not necessarily push up inflation. Once these two forces are combined in the optimal policy, an overall expansionary bias emerges. The nonlinearities of the AS equation combined with changes in volatility can be responsible for a flattening in the estimated linear Phillips curve. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15944&r= |
| By: | Boerma, Job; Karabarbounis, Loukas |
| Abstract: | Reparations is a policy proposal aiming to address the wealth gap between Black and White households. We provide a first formal analysis of the economics of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' experiences with entrepreneurship over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We use the model to evaluate reparations and find that transfers eliminating the racial gap in average wealth today do not lead to wealth convergence in the long run. The logic is that century-long exclusions lead Black dynasties to enter into reparations with pessimistic beliefs about risky returns and to forego investment opportunities. We conclude by showing that entrepreneurial subsidies are more effective than wealth transfers in achieving racial wealth convergence in the long run. |
| Keywords: | beliefs; entrepreneurship; Race Gaps; reparations; wealth |
| JEL: | D31 E21 J15 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15796&r= |
| By: | Mitman, Kurt; Rabinovich, Stanislav |
| Abstract: | We investigate the optimal response of unemployment insurance to economic shocks, both with and without commitment. The optimal policy with commitment follows a modified Baily-Chetty formula that accounts for job search responses to future UI benefit changes. As a result, the optimal policy with commitment tends to front-load UI, unlike the optimal discretionary policy. In response to shocks intended to mimic those that induced the COVID-19 recession, we find that a large and transitory increase in UI is optimal; and that a policy rule contingent on the change in unemployment, rather than its level, is a good approximation to the optimal policy. |
| Keywords: | Markov perfect equilibrium; optimal policy; Unemployment insurance |
| JEL: | E6 H1 J65 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15748&r= |
| By: | Pablo Azar |
| Abstract: | During the COVID-19 pandemic, many industries adapted to new social distancing guidelines by adopting new technologies, providing protective equipment for their employees, and digitizing their methods of production. These changes in industries’ supply chains, together with monetary and fiscal stimulus, contributed to dampening the economic impact of COVID-19 over time. In this post, I discuss a new framework that analyzes how changes in supply chains can drive economic growth in the long run and mitigate recessions in the short run. |
| Keywords: | supply chains; productivity; COVID-19 |
| JEL: | E2 |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:91311&r= |
| By: | Larry D. Wall |
| Abstract: | The global financial crisis of 2007–09 revealed substantial weaknesses in large banks' capital adequacy and liquidity. Bank regulators responded with a variety of prudential measures intended to strengthen both. However, these prudential measures resulted in conflicts with the implementation of monetary policy that helped alter the way the Federal Reserve conducts monetary policy. I review three such conflicts: regulation inhibiting interest on excess reserves arbitrage starting in 2008, regulation inhibiting banks' operations in the repo market in 2019, and regulation inhibiting their operations in the Treasury securities market in 2020. The article concludes with a discussion of the issues associated with changing specific banking regulations and some more general suggestions for dealing with these types of conflicts. |
| Keywords: | banking regulation; capital adequacy; bank liquidity regulation; interest on reserves; Treasury market; repo market |
| JEL: | E52 E58 G28 |
| Date: | 2021–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:91177&r= |
| By: | Hall, Robert E.; Kudlyak, Marianna |
| Abstract: | A remarkable fact about the historical US business cycle is that, after unemployment reached its peak in a recession, and a recovery begins, the annual reduction in the unemployment rate is stable at around one tenth of the current level of unemployment. For example, when the unemployment rate was 7 percent at the beginning of a year, the unemployment rate fell by 0.7 percentage points during the year. The economy seems to have an irresistible force toward restoring full employment. There was high variation in monetary and fiscal policy, and in productivity and labor-force growth during the recoveries, but little variation in the rate of decline of unemployment. We show that the evolution of the labor market involves more than the direct effect of persistent unemployment of job-losers from the recession shock---unemployment during the recovery is elevated for people who did not lose jobs during the recession. We explore models of the labor market's self-recovery that imply gradual working off of unemployment following a recession shock. We emphasize the feedback from high unemployment to the forces driving job creation. These models also explain why the recovery of market-wide unemployment is so much slower than the rate at which individual unemployed workers find new jobs. The reasons include the fact that the path that individual job-losers follow back to stable employment often includes several brief interim jobs. |
| Keywords: | Business cycle; Recession; recovery; unemployment |
| JEL: | E32 J63 J64 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15954&r= |
| By: | Gelos, Gaston; Gornicka, Lucyna; Koepke, Robin; Sahay, Ratna; Sgherri, Silvia |
| Abstract: | The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on changes in global financial conditions, domestic structural characteristics, and policies. The approach allows us to differentiate between short- and medium-term effects. We find that FX- and macroprudential interventions are effective in mitigating downside risks to portfolio flows stemming from adverse global shocks, while tightening of capital controls in response appears to be counterproductive. Good institutional frameworks are not able to shield countries from the increased volatility of portfolio flows in the immediate aftermath of global shocks. However, they do contribute to a more rapid bounce-back of foreign flows over the medium term. |
| Keywords: | capital controls; Capital Flows; emerging markets; foreign-exchange intervention; macroprudential policies |
| JEL: | E52 F32 F38 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15842&r= |
| By: | Michel Cândido de Souza (Universidade Federal dos Vales do Jequitinhonha e Mucuri); Lízia de Figueiredo (CEDEPLAR/UFMG); Mauro Sayar Ferreira (CEDEPLAR/UFMG) |
| Abstract: | We use dynamic panel quantile regressions with fixed effects and instrumental variables (IV) to detect asymmetric responses in the dynamics of economic institutions. The use of IV aims at reducing a potential bias due to correlation between initial conditions and fixed effects. Our conditional mean analyses reach standard results: economic institutions depend positively on regime durability, on the quality of political institutions, on human capital and GDP per capita. But the quantile models identify heterogeneous response of the economic institutions to idiosyncrasies. Adverse events tend to worse the economic institutions of countries with better political institutions and more durable regimes, while positive random circumstances cause the economic institutions of countries with better political institutions and longer political regime to improve more intensively. Less robust results indicate a stronger effort to ameliorate economic institutions when adversities hit a country with higher human capital and higher GDP per capita. These results have not been previously reported. Our exercises include 129 countries ranging from 1984 to 2014. |
| Keywords: | Institutions; Asymmetry; Quantile Regression |
| JEL: | E02 O43 P48 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td631&r= |
| By: | Carriero, Andrea; Clark, Todd; Marcellino, Massimiliano; Mertens, Elmar |
| Abstract: | Incoming data in 2020 posed sizable challenges for the use of VARs in economic analysis: Enormous movements in a number of series have had strong effects on parameters and forecasts constructed with standard VAR methods. We propose the use of VAR models with time-varying volatility that include a treatment of the COVID extremes as outlier observations. Typical VARs with time-varying volatility assume changes in uncertainty to be highly persistent. Instead, we adopt an outlier-adjusted stochastic volatility (SV) model for VAR residuals that combines transitory and persistent changes in volatility. In addition, we consider the treatment of outliers as missing data. Evaluating forecast performance over the last few decades in quasi-real time, we find that the outlier-augmented SV scheme does at least as well as a conventional SV model, while both out-perform standard homoskedastic VARs. Point forecasts made in 2020 from heteroskedastic VARs are much less sensitive to outliers in the data, and the outlier-adjusted SV model generates more reasonable gauges of forecast uncertainty than a standard SV model. At least pre-COVID, a close alternative to the outlier-adjusted model is an SV model with t-distributed shocks. Treating outliers as missing data also generates better-behaved forecasts than the conventional SV model. However, since uncertainty about the incidence of outliers is ignored in that approach, it leads to strikingly tight predictive densities. |
| Keywords: | Bayesian VARs; Forecasts; Outliers; Pandemics; stochastic volatility |
| JEL: | C53 E17 E37 F47 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15964&r= |
| By: | Schönfelder, Bruno |
| Abstract: | In einer vielbeachteten Serie von Publikationen, die in die hier zitierte Buchveröffentlichung mündete, haben von Weizsäcker und Krämer das Argument vorgetragen, dass der erhebliche Rückgang der Zinsen auf "sichere" Staatsschuld, der sich in den letzten 30 Jahren vollzogen hat, Vorbote einer neuen Ära sei, in der Kapital anders als früher nicht mehr knapp, sondern sogar überreichlich vorhanden sei. Daraus leiten sie die wohlfahrtsstaatlicher Politik zweifellos angenehme Empfehlung ab, dass zumindest diejenigen Staaten, die vorläufig noch auf dem linken Aste der Lafferkurve sitzen, mehr Schulden machen sollten. Das umfangreiche statistische Material, das sie präsentieren, deutet bei verständiger Interpretation eher auf das Gegenteil hin: Die relative Kapitalknappheit hat sich verschärft. Der Zins auf "sichere" Staatsschuld ist weniger denn je ein geeigneter Indikator für die Grenzleistungsfähigkeit des Kapitals. |
| Keywords: | Produktionsumweg,natürlicher Zins,Kapitalüberakkumulation,Staatsschuld,Sozialversicherungsvermögen,roundaboutness,natural rate of interest,capital overaccumulation,public debt,social security wealth |
| JEL: | O40 E14 E21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tufwps:202101&r= |
| By: | Grivas Chiyaba (Department of Economics, University of Reading) |
| Abstract: | This study investigates the response of the components of FDI flows to macroeconomic variables within firms. The analysis uses a new firm-level database constructed from anonymised confidential data held by the Zambian Central Bank, covering the period 2008 – 2017. Applying the fixed effects estimation method, the study confirms a positive association between FDI inflows and commodity prices. The study also confirms a positive correlation between reinvested earnings and exchange rate depreciation. Furthermore, the study accepts, but with a qualification, the preference for intra-company debt financing when there is policy uncertainty in a host country. However, the proposition of a positive relationship between equity financing and currency appreciation in the host country is rejected. The study proposes instead a new hypothesis, a negative relationship between equity financing and the exchange rate appreciation. |
| Keywords: | Foreign direct investment, retained earnings, equity, intra-company debt, firm |
| JEL: | E3 F23 F24 F31 H32 |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2021-09&r= |
| By: | Ganau, Roberto; Rodríguez-Pose, Andrés |
| Abstract: | Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity 'puzzle'. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This paper addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003-2015. The results indicate that institutional quality influences regions' labour productivity growth both directly -as improvements in institutional quality drive productivity growth- and indirectly -as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality. |
| Keywords: | Europe; Human Capital; Innovation; institutional quality; labour productivity; Physical Capital; regions |
| JEL: | E24 J24 O47 R11 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15870&r= |
| By: | Gersbach, Hans |
| Abstract: | What happens when banks compete with deposit and loan contracts contingent on macroeconomic shocks? We show that the private sector insures the banking system efficiently against banking crises through such contracts when banks focus on expected profit maximization and failing banks go bankrupt. When risks are large, banks may shift part of the risk to depositors who receive state-contingent contracts. Repackaging of the risk among depositors can improve welfare. In contrast, when failing banks are rescued, new phenomena such as risk creation or magnification emerge, which would not occur with non-contingent contracts. In particular, depositors receive non-contingent contracts with comparatively high interest rates, while entrepreneurs obtain loan contracts that demand high repayment in good times and low repayment in bad times. As a result, banks overinvest and generate large macroeconomic risks, even if the underlying productivity risk is small or zero. |
| Keywords: | Financial intermediation - Macroeconomics risks - State-contingent contracts - Banking regulation |
| JEL: | D41 E4 G2 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15884&r= |
| By: | Adhikari, Tamanna; Whelan, Karl |
| Abstract: | We use the time series variation in the World Bank's ``distance to frontier'' estimates of the ease of doing business to assess the effects of changes in this variable on real GDP per capita. The use of Vector Autoregression techniques allows us to identify shocks to the ease of doing business that are initially uncorrelated with GDP, thus addressing an important endogeneity problem that affects the cross-sectional literature on this topic. The results are surprising. We report a robust finding that improvements to the ease of doing business have at least a temporary negative impact on GDP and find little evidence for a positive effect in the years following these improvements. |
| Keywords: | Doing business; economic growth; Institution |
| JEL: | O43 O47 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15879&r= |
| By: | Ayodele Idowu, Mr |
| Abstract: | This study examined econometric modelling and forecasting foreign direct investment inflows in Nigeria over the next decade using Box-Jenkins ARIMA model approach. The scope of the study is from 1970 to 2020. The correlogram show that the net foreign direct investment inflow in Nigeria is integrated of the first order. Based on the number of significant coefficients, highest adjusted R-squared, lowest volatility and the lowest SBIC and the AIC, the study estimated and presents the ARIMA (1, 1, 3) model. The diagnostic test also shows that the estimated model is not only consistent but good for forecasting the net foreign direct investment inflows in Nigeria and it also explains the dynamics around it. The result of the study shows that net foreign direct investment inflows in Nigeria are likely for exhibit very slow upward trend between 2.80 billion USD and 3.26 billion USD in the next decade which is not significantly different from values of FDI inflows in Nigeria in the recent years. The study also provide policy recommendations so as to assist policy makers and the Nigerian government on better ways to accelerate and maintain higher level of net foreign direct investment inflows in Nigeria. |
| Keywords: | ARIMA, Foreign Direct Investment Inflows, Forecasting, Box-Jenkins, Nigeria. |
| JEL: | E2 F1 F17 F4 F47 |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107466&r= |
| By: | Cassar, Lea; Cotofan, Maria; Dur, Robert; Meier, Stephan |
| Abstract: | Preferences for monetary and non-monetary job attributes are important for understanding workers' motivation and the organization of work. Little is known, however, about how those job preferences are formed. We study how macroeconomic conditions when young shape workers' job preferences for the rest of their life. Using variation in income-per-capita across US regions and over time since the 1920s, we find that job preferences vary in systematic ways with experienced macroeconomic conditions during young adulthood. Recessions create cohorts of workers who give higher priority to income, whereas booms make cohorts care more about job meaning, for the rest of their life. |
| Keywords: | experience; generational difference; macroeconomic condition; preferences for job attributes |
| JEL: | D9 E7 J2 M5 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15639&r= |
| By: | Braggion, Fabio; Meyerinck, Felix; Schaub, Nic |
| Abstract: | Inflation risk represents one of the most important economic risks faced by investors. In this study, we analyze how investors respond to inflation. We introduce a unique dataset containing local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the famous German hyperinflation. We find that investors buy less (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. We also document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with investors suffering from money illusion. |
| Keywords: | behavioral biases; Individual investors; inflation; Investor Behavior; Money illusion |
| JEL: | D14 E31 G11 G41 N14 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15947&r= |
| By: | Alon, Titan; Coskun, Sena; Doepke, Matthias; Koll, David; Tertilt, Michèle |
| Abstract: | We examine the impact of the global recession triggered by the Covid-19 pandemic on women's versus men's employment. Whereas recent recessions in advanced economies usually had a disproportionate impact on men's employment, giving rise to the moniker "mancessions," we show that the pandemic recession of 2020 was a "shecession" in most countries with larger employment declines among women. We examine the causes behind this pattern using micro data from several national labor force surveys, and show that both the composition of women's employment across industries and occupations as well as increased childcare needs during closures of schools and daycare centers made important contributions. While many countries exhibit similar patterns, we also emphasize how policy choices such as furloughing policies and the extent of school closures shape the pandemic's impact on the labor market. Another notable finding is the central role of telecommuting: gender gaps in the employment impact of the pandemic arise almost entirely among workers who are unable to work from home. Nevertheless, among telecommuters a different kind of gender gap arises: women working from home during the pandemic spent more work time also doing childcare and experienced greater productivity reductions than men. We discuss what our findings imply for gender equality in a post-pandemic labor market that will likely continue to be characterized by pervasive telecommuting. |
| Keywords: | Business cycle; COVID-19; Gender equality; gender wage gap; Pandemics; Recessions; School Closures |
| JEL: | D13 E32 J16 J20 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15962&r= |
| By: | Cerina, Fabio; Moro, Alessio; Rendall, Michelle |
| Abstract: | We compare employment and wage polarization in the U.S. using different sample periods and the inclusion or not of agricultural occupations, reporting three main findings. First, a similar degree of employment polarization can emerge together or without wage polarization, depending on the sample period considered. Next, we show that removing agricultural occupations from the sample dramatically changes the results with respect to the case in which these are included: i) wage polarization emerges and the degree of employment polarization increases and ii) the timing of employment polarization changes, and some U-shape of changes in employment shares is observed before 1980. |
| Keywords: | Agricultural Occupations; employment polarization; Wage polarization |
| JEL: | E24 J21 J23 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15797&r= |
| By: | Kollmann, Robert |
| Abstract: | This paper studies a New Keynesian model of a two-country world with a zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence of the ZLB generates multiple equilibria. The two countries can experience recurrent liquidity traps induced by the self-fulfilling expectation that future inflation will be low. These "expectations-driven" liquidity traps can be synchronized or unsynchronized across countries. In an expectations-driven liquidity trap, the domestic and international transmission of persistent shocks to productivity and government purchases differs markedly from shock transmission in a "fundamentals-driven" liquidity trap. |
| Keywords: | domestic and international shock transmission; Exchange rate; expectations-driven and fundamentals-driven liquidity traps; Net exports; terms of trade; zero lower bound |
| JEL: | E3 E4 F2 F3 F4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15631&r= |
| By: | Diop, Samba; Asongu, Simplice |
| Abstract: | This exploratory study aims to assess Africa’s lagging position in global heath in relation to some health care infrastructure before critically examining the situation of Africa in the light of pressing Covid-19 healthcare infrastructural needs in terms of number of hospital beds, intensive care units (ICU) beds and ventilators per 100 000 people. A comparative analysis is provided to showcase which regions are leading in the health facilities in the world in general and Africa in particular as well as countries that are lagging in the attendant healthcare facilities. Analytical insights are provided to illustrate that the Covid-19 pandemic has revealed how Africa cannot reach most Sustainable Development Goals (SDGs), especially SDG-3 on health and wellbeing. Moreover, corresponding inferences suggest that the continent is unprepared for future pandemics in terms of health facilities. |
| Keywords: | Novel coronavirus, Socio-economic effects; Africa |
| JEL: | E10 E12 E20 E23 I10 I18 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107495&r= |
| By: | Forni, Mario; Gambetti, Luca; Sala, Luca |
| Abstract: | An increase in uncertainty is not contractionary per se. What generates a significant downturn of economic activity is a widening of the left tail of the expected distribution of growth, the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty, is mildly expansionary. The reason for why uncertainty shocks have been previously found to be contractionary is because movements in downside uncertainty dominate existing empirical measures of uncertainty. The results are obtained using a new econometric approach which combines quantile regressions and structural VARs. |
| Keywords: | Quantile regression; Skewness; uncertainty; VAR models |
| JEL: | C32 E32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15881&r= |
| By: | John C. Williams |
| Abstract: | Remarks at Women in Housing and Finance 2021 Annual Symposium (delivered via videoconference). |
| Keywords: | economy; COVID-19; pandemic; inflation; labor; growth; jobs; recovery; employment; households; employment-to-population ratio (EPOP); GDP |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:91313&r= |
| By: | Asongu, Simplice; Nnanna, Joseph; Tchamyou, Vanessa |
| Abstract: | The study extends the debate on finance versus institutions and measurement of property rights institutions. We assess the relationships between various components of property rights institutions and private investment, notably: political, economic and institutional governances. Comparative concurrent relationships of financial dynamics of depth, efficiency, activity and size are also investigated. The findings provide support for the quality of institutions as a better positive correlate of private investment than financial intermediary development. The interaction of finance and governance is not significant in potentially promoting private investment, perhaps due to substantially documented surplus liquidity issues in African financial institutions. The empirical evidence is based on 53 African countries for the period 1996-2010. Policy measures are discussed for reducing financial deposits, increasing financial activity and hence, improving financial efficiency. |
| Keywords: | Finance; Institutions; Investment: Property Rights; Africa |
| JEL: | E02 G20 G24 O55 P14 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107498&r= |
| By: | Almuzara, Martin; Fiorentini, Gabriele; Sentana, Enrique |
| Abstract: | We analyze a model for N different measurements of a persistent latent time series when measurement errors are mean-reverting, which implies a common trend among measurements. We study the consequences of overdifferencing, finding potentially large biases in maximum likelihood estimators of the dynamics parameters and reductions in the precision of smoothed estimates of the latent variable, especially for multiperiod objects such as quinquennial growth rates. We also develop an R2 measure of common trend observability that determines the severity of misspecification. Finally, we apply our framework to US quarterly data on GDP and GDI, obtaining an improved aggregate output measure. |
| Keywords: | cointegration; GDI; GDP; Overdifferencing; Signal Extraction |
| JEL: | C32 E01 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15758&r= |
| By: | Cem Cakmakli (Koç University); Selva Demiralp (Koç University); Sebnem Kalemli-Ozcan (University of Maryland, Department of Economics); Sevcan Yesiltas (Koç University); Muhammed A. Yildirim (Koç University & Center for International Development at Harvard University) |
| Abstract: | COVID-19 pandemic had a devastating effect on both lives and livelihoods in 2020. The arrival of effective vaccines can be a major game changer. However, vaccines are in short supply as of early 2021 and most of them are reserved for the advanced economies. We show that the global GDP loss of not inoculating all the countries, relative to a counterfactual of global vaccinations, can be higher than the cost of manufacturing and distributing vaccines globally. We use an economic-epidemiological framework that combines a SIR model with international production and trade networks. Based on this framework, we estimate the costs for 65 countries and 35 sectors. Our estimates suggest that up to 49 percent of the global economic costs of the pandemic in 2021 are borne by the advanced economies even if they achieve universal vaccination in their own countries. |
| Keywords: | COVID-19; Sectoral Infection Dynamics; Globalization; International I-O Linkages. |
| JEL: | E61 F00 C51 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2104&r= |
| By: | Cassan, Guilhem; Keniston, Daniel; Kleineberg, Tatjana |
| Abstract: | Workers' social identity affects their choice of occupation, and therefore the structure and prosperity of the aggregate economy. We study this phenomenon in a setting where work and identity are particularly intertwined: the Indian caste system. Using a new dataset that combines information on caste, occupation, wages, and historical evidence of subcastes' traditional occupations, we show that caste members are still greatly overrepresented in their traditional occupations. To quantify the effects of caste-level distortions on aggregate and distributional outcomes, we develop a general equilibrium Roy model of occupational choice. We structurally estimate the model and evaluate counterfactuals in which we remove castes' ties to their traditional occupations: both through their direct preferences, and also via their parental occupations and social networks. We find that the share of workers employed in their traditional occupation decreases substantially. However, effects on aggregate output and productivity are very smallâ?? and in some counterfactuals even negativeâ??because gains from a more efficient human capital allocation are offset by productivity losses from weaker caste networks and reduced learning across generations. Our findings emphasize the importance of caste identity in coordinating workers into occupational networks which enable productivity spillovers. |
| JEL: | E24 E71 J21 J62 O15 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15778&r= |
| By: | Daniel Kaufmann |
| Abstract: | I simulate the distribution of SNB profits to the Confederation and Cantons under a hypothetical scenario, in which the new agreement between the Swiss National Bank and the Federal Department of Finance would have been in place from 2005-2019. All else equal, the new agreement leads to: (i) a higher average profit distribution; (ii) larger annual fluctuations of profit distributions, complicating fiscal authorities' budget planning; (iii) pro-cyclical profit distributions (lower [higher] during economic recessions [booms]). Having said that, the SNB's profit distributions account for a relatively modest share of total government expenditures. In addition, to offset the volatile and pro-cyclical profit distributions, fiscal authorities may borrow on capital markets. |
| Keywords: | Swiss National Bank, Federal Department of Finance, agreement on profit distribution |
| JEL: | E58 E63 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:irn:polrep:21-01&r= |
| By: | ; Laura Choi; Mary C. Daly; Lily Seitelman |
| Abstract: | How much is inequity costing us? Using a simple growth accounting framework we apply standard shift-share techniques to data from the Current Population Survey (1990-2019) to compute the aggregate economic costs of persistent educational and labor market disparities by gender and race. We find significant economic losses associated with these gaps. Building on this finding, we consider which disparities generate the largest costs, paying specific attention to differences in employment, hours worked, educational attainment, educational utilization, and occupational allocation. We also examine gaps in the returns on these variables. Our findings suggest that differences in employment opportunities and educational attainment make the largest contributions by race; differences in returns on these variables also contribute materially to the total costs. Differences by gender are primarily driven by gaps in employment and hours. Given the disproportionate impact of COVID-19 on the labor market outcomes of women and people of color, as well as the fact that the U.S. population is increasingly racially diverse, these costs will only increase in the future. |
| Keywords: | Economic growth; productivity; labor market gaps; misallocation; equity; covid-19 |
| JEL: | E24 J7 J15 O4 |
| Date: | 2021–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:91221&r= |
| By: | Kodila-Tedika, Oasis; Asongu, Simplice |
| Abstract: | We assess the correlations between tribalism and financial development in 60 countries using data averages from 2000-2010. The tribalism index is used to measure tribalism whereas financial development is measured from perspectives of financial intermediary and stock market developments. The long term finance variable is stock market capitalisation while the short run variable is private and domestic credit. We find that tribalism is negatively correlated with financial development and the magnitude of negativity is higher for financial intermediary development relative to stock market development. The findings are particularly relevant to African and Middle Eastern countries where the scourge of tribalism is most pronounced. |
| Keywords: | Tribalism; Financial Development |
| JEL: | E62 G20 H11 H20 O43 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107531&r= |
| By: | Anthelme N'Dri (LAMPE - Laboratoire d'Analyse et de Modélisation des Politiques Economiques) |
| Abstract: | In this study, we estimate informal economy for Ivory Coast, country from subsaharan Africa. We did it through revisiting of main drivers of informal economy in this area. We use MIMIC methodology for done this and follow Dell'Anno and al. (2018) to calibrate estimate score of informal economy to informal economy as a percentage of GDP from 1991 to 2018. We found with strong evidence that Public Government spending, inflation, trade openness explains negatively informal economy and taxation rates, unemployment rates explain positively informal economy. This study has its place, and is welcome as it is difficult for government officials to gather data and to take public macroeconomic policy to lead struggle against informal economy which predominates in Ivory Coast economy at 90%. We build a database on informal economy for Ivory Coast from 1991 to 2018. Following our estimation, we found in 2015 that informal economy represents 26,700,000,000 USD. |
| Abstract: | Dans cette étude, nous estimons l'économie informelle pour la Côte d'Ivoire, pays d'Afrique subsaharienne. Nous l'avons fait en revisitant les principaux moteurs de l'économie informelle. Nous utilisons la méthodologie MIMIC pour ce faire et suivons Dell'Anno et al. (2018) pour calibrer le score estimé de l'économie informelle de 1991 à 2018. Nous avons trouvé comme résultat que les dépenses publiques, l'inflation, l'ouverture commerciale expliquent négativement l'économie informelle et le taux d'imposition, le taux de chômage expliquent positivement l'informel économie. Cette étude a sa place et est la bienvenue car il est difficile pour les responsables gouvernementaux de collecter des données et de mener de bonne politique macroéconomique publique pour mener la lutte contre l'économie informelle qui prédomine dans l'économie ivoirienne à 90%. Nous construisons donc dans cette étude, une base de données sur l'économie informelle pour la Côte d'Ivoire de 1991 à 2018. Suite à notre estimation, nous avons constaté en 2015 que l'économie informelle s'évaluait autour de 26 700 000 000 USD. |
| Keywords: | Informal economy,resource mobilization,MIMIC,indirect method |
| Date: | 2021–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03211696&r= |
| By: | Javier à vila-Mahecha |
| Abstract: | Este documento es una guía para el usuario de SIVAR, un simulador de acceso abierto basado en información pública, que replica las características fundamentales del impuesto al valor agregado en Colombia, de acuerdo con las condiciones establecidas en la ley 2010 de 2019. El simulador permite estimar algunos efectos del IVA tales como recaudo potencial, tasa de evasión, cobertura de la base gravable, progresividad y productividad del impuesto, valor de la compensación del IVA, impacto en el IPC, incidencia distributiva por deciles de ingreso y sexo del jefe de hogar. Mediante el desarrollo de esta herramienta, el centro de Investigaciones para el Desarrollo de la Universidad Nacional de Colombia pretende contribuir al análisis y discusión de la estructura del IVA, sus reformas e implicaciones financieras y distributivas. *** This document is a guide for SIVAR users, an open access simulator based on public information, which replicates the fundamental characteristics of value added tax in Colombia, in accordance with the conditions established in the 2010 law of 2019. The simulator allows estimating some VAT effects such as potential collection, evasion rate, tax base coverage, progressivity and productivity, value of VAT compensation, impact on the CPI, distributional incidence by income deciles and gender of household head. By means the development of this tool, the Center for Development Research at National University of Colombia intends to contribute to the analysis and discussion of the VAT structure, its reforms, and financial and distributional implications. |
| Keywords: | IVA, progresividad, reforma tributaria, simulador |
| JEL: | D63 E62 H22 H26 |
| Date: | 2021–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:col:000426:019234&r= |
| By: | Emilio Gutierrez (Department of Economics, ITAM); David Jaume (Financial Stability Department, Bank of Mexico); Martín Tobal (Financial Stability Department, Bank of Mexico) |
| Abstract: | This paper studies the extent to which increases in bank credit supply available for small and medium firms can foster formal employment in Mexico. We use a detailed dataset containing loan-level information for all loans extended by commercial banks to private firms in Mexico during the 2010-2016 period, when the economy was relatively stable. To obtain exogenous variation in credit supply, we exploit differences in the regional presence of Mexican banks across local labor markets by combining pre-existing market shares with national-level changes in banks’ credit supply, after accounting for local credit demand shocks. Then, we use employment registry data to compare changes in the number of formal workers registered by small and medium firms in local labor markets differently exposed to these shocks. We find that credit supply shocks have a large impact on formal employment: a positive credit shock of one standard deviation increases yearly employment growth by 0.45 percentage points (13 percent of the mean). Our results differ from the null to small effects identified by previous literature for developed countries, suggesting that credit supply shocks play a more prominent role for employment creation (and destruction) in low and middle-income countries. |
| JEL: | D22 D53 G01 G1 G21 J01 J23 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0277&r= |
| By: | Bar-On, Yinon; Baron, Tatiana; Cornfeld, Ofer; Milo, Ron; Yashiv, Eran |
| Abstract: | We present normative and positive analyses of policy tools to manage epidemics, both current and any future ones. Against the background of serious misspecification of COVID19 dynamics in Economics research, at odds with the evidence, we present a constructive alternative with a sound model. This may guide researchers and place the analysis in Economics on solid footing. We introduce novel NPI tools for the management of epidemics. Rather than using prevalent policies based on population restrictions, these place time at the center of the analysis: time restrictions, relation to timescales of virus transmission, and optimal timing of interventions. Key findings are that the new tools significantly improve social welfare, substantially lessening the trade-offs involved; optimally-derived timings of interventions suppress the disease while maintaining reasonable economic activity; and outcomes are superior to the actual experience of New York State and Florida in the course of 2020. |
| Keywords: | normative analysis; NPI; positive analysis; public health policy; roles of time |
| JEL: | E23 E61 E65 I12 I18 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15939&r= |
| By: | Baqaee, David Rezza; Farhi, Emmanuel |
| Abstract: | How does an increase in the size of the market, say due to fertility, immigration, or globalization, affect welfare? We study this question using a model with heterogeneous firms, Kimball preferences, fixed costs, and monopolistic competition. We decompose changes in welfare from increased scale into changes in technical efficiency and changes in allocative efficiency due to reallocation. We non-parametrically identify residual demand curves with firm-level data from Belgian manufacturing firms and, using these estimates, quantify our theoretical results. We find that around 80% of the aggregate returns to scale are due to changes in allocative efficiency. As markets get bigger, competition intensifies and triggers Darwinian reallocations: socially-valuable firms expand, small firms shrink and exit, and new firms enter. However, important as they are, improvements in allocative efficiency are not driven by reductions in markups or deaths of unproductive firms. Instead, they are caused by a composition effect that reallocates resources from low- to high-markup firms. |
| Keywords: | Allocative Efficiency; Incomplete pass-through; increasing returns; Market Size Effect; monopolistic competition |
| JEL: | E0 L1 O4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15712&r= |
| By: | Mace, Alan; Sitkin, Alan |
| Abstract: | In this article we address scalar issues of power in planning. In the context of the reengineering of governance, including the promotion of localism in England, we focus on local actors’ beliefs in the extent of their power (de facto and de jure) over development decisions pertaining to their jurisdiction, on how misreadings arise and the consequences thereof. Our intervention highlights the extent and cost of ambiguity in England’s discretionary planning system and asks whether and how this should be moderated. |
| Keywords: | localism; London mayor; regeneration; strategic planning; ungovernable |
| JEL: | E6 |
| Date: | 2019–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101921&r= |
| By: | Gechert, Sebastian; Havranek, Tomas; Irsova, Zuzana; Kolcunova, Dominika |
| Abstract: | We show that the large elasticity of substitution between capital and labor estimated in the literature on average, 0.9, can be explained by three issues: publication bias, use of cross-country variation, and omission of the first-order condition for capital. The mean elasticity conditional on the absence of these issues is 0.3. To obtain this result, we collect 3,186 estimates of the elasticity reported in 121 studies, codify 71 variables that reflect the context in which researchers produce their estimates, and address model uncertainty by Bayesian and frequentist model averaging. We employ nonlinear techniques to correct for publication bias, which is responsible for at least half of the overall reduction in the mean elasticity from 0.9 to 0.3. Our findings also suggest that a failure to normalize the production function leads to a substantial upward bias in the estimated elasticity. The weight of evidence accumulated in the empirical literature emphatically rejects the Cobb-Douglas specification. |
| Keywords: | Capital; elasticity of substitution; Labor; Model uncertainty; Publication bias |
| JEL: | D24 E23 O14 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15687&r= |
| By: | Traeger, Christian |
| Abstract: | The paper discusses optimal carbon taxation in an analytic quantitative integrated assessment model (IAM). The model links IAM components and parametric assumptions directly to their policy impacts. The paper discusses the distinct tax impact of carbon versus temperature dynamics and uses the see-through model to illustrate various aspects of IAM calibrations including the differentiation between consumption and investments goods. Novel to analytic IAMs are the explicit temperature dynamics, a general economy, energy sectors including capital, various degrees of substitutability across energy sources, an approximation of capital persistence, and objective functions that include CES preferences and population weighting. ACE opens the door to tractable forward-looking stochastic modeling and dynamic strategic interactions in complex IAMs, explored in accompanying work. |
| Keywords: | capital persistence; carbon cycle; carbon tax; climate change; climate sensitivity; Integrated assessment; population weighting; Social cost of carbon; technological progress; Temperature |
| JEL: | D61 D80 E13 H23 H43 Q54 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15968&r= |
| By: | Bashar, Omar; Mallick, Debdulal |
| Abstract: | Volatility persistence has important welfare consequences. In this paper, we investigate the effect on volatility persistence of the frequency of shocks for which we consider exogenous natural disasters. We find that, on average, volatility persistence is about 5 percent lower in countries that have experienced one more natural disasters per year. However, there is a non-linearity in that volatility persistence initially decreases and then increases with the frequency of natural disasters. The results are explained in terms of disaster resilience—countries that experience natural disasters frequently develop resilience that shields the economy from the destruction of natural disasters and/or expedites economic recovery. Among the factors that potentially create resilience, we find significance of its structural component. |
| Keywords: | Shock; Natural disaster; Resilience; Volatility persistence |
| JEL: | E32 H54 I38 Q54 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107517&r= |
| By: | Nikolay Iskrev |
| Abstract: | In this paper, I show how to perform spectral decomposition of the information about latent variables in dynamic economic models. A model describes the joint probability distribution of a set of observed and latent variables. The amount of information transferred from the former to the latter is measured by the reduction of uncertainty in the posterior compared to the prior distribution of any given latent variable. Casting the analysis in the frequency domain allows decomposing the total amount of information in terms of frequency-specific contributions as well as in terms of information contributed by individual observed variables. I illustrate the usefulness of the proposed methodology with applications to two DSGE models taken from the literature. |
| JEL: | C32 C51 C52 E32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202105&r= |
| By: | TOACĂ, Zinovia; Vîntu, Denis |
| Abstract: | The purpose of the present paper is to describe a model of quarterly GDP forecast, categories of uses, in accordance with the development priorities of the Republic of Moldova in the medium term. The achievement of the main purpose requires to draw up the tasks, among which: - Conceptual approach of time series, with reference to the use of ARIMA technique for estimating the time series; - Economic analysis of the categories of uses, subcomponents of GDP; - Studying time series, using method of indices, where the following indicators were used as: growth rate, structure, degree of influence and influence; - Forecast of categories of uses, for the same reference period 2019-2020 Actuality of the research - Use of the ARIMA technique; - Using econometric package Eviews for estimating and developing the macroeconometric model. Scientific and methodological approaches described in this paper will serve as scientific support for the Ministry of Economy in the process of developing their own economic scenarios and forecasting options. Research methods: identifying trends in economic development; diagnostic analysis; economic forecasts scientifically substantiated, ARIMA methods, regression analysis of time series. |
| Keywords: | Forecast, ARIMA, general domestic product, Student test, Jarque-Bera, Fischer. |
| JEL: | C10 C22 E27 |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107565&r= |
| By: | Bighelli, Tommaso; Di Mauro, Filippo; Melitz, Marc J.; Mertens, Matthias |
| Abstract: | This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| Keywords: | allocative efficiency,European market structure,firm concentration,market power,productivity |
| JEL: | D24 E25 F15 L11 L25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhcom:32021&r= |
| By: | Bighelli, Tommaso; Di Mauro, Filippo; Melitz, Marc J.; Mertens, Matthias |
| Abstract: | This article derives a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. |
| Keywords: | allocative efficiency,European market structure,firm concentration,market power,productivity |
| JEL: | D24 E25 F15 L11 L25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:52021&r= |
| By: | Coibion, Olivier; Gorodnichenko, Yuriy; Weber, Michael |
| Abstract: | Rising government debt levels around the world are raising the specter that authorities might seek to inflate away the debt. In theoretical settings where fiscal policy "dominates" monetary policy, higher debt without offsetting changes in primary surpluses should lead households to anticipate this higher inflation. Are household inflation expectations sensitive to fiscal considerations in practice? We field a large randomized control trial on U.S. households to address this question by providing randomly chosen subsets of households with information treatments about the fiscal outlook and then observing how they revise their expectations about future inflation as well as taxes and government spending. We find that information about the current debt or deficit levels has little impact on inflation expectations but that news about future debt leads them to anticipate higher inflation, both in the short run and long run. News about rising debt also induces households to anticipate rising spending and a higher rate of interest for government debt. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15821&r= |
| By: | Grömling, Michael |
| Abstract: | Die deutsche Wirtschaft befindet sich im Wechselbad der Corona-Pandemie. Infolge der erneut ansteigenden Infektionen wurden zwischenzeitige Lockerungen wieder zurückgenommen. Die damit einhergehende sektorale und regionale Spaltung der Konjunktur zeigt sich in der aktuellen Konjunkturumfrage des Instituts der deutschen Wirtschaft. Bei Produktion, Investitionen und Beschäftigung überwiegen die Unternehmen, die derzeit von einer schwächeren Lage als vor einem Jahr sprechen. Bei den Erwartungen für das gesamte Jahr 2021 dominieren allerdings mit spürbarem Abstand die Optimisten. Fast zwei von fünf Unternehmen sehen für dieses Jahr eine höhere Produktionstätigkeit als 2020. Dagegen erwartet ein Viertel der befragten Betriebe eine schwächere Geschäftstätigkeit als im Krisenjahr 2020. Bei den Investitions- und Beschäftigungserwartungen für das gesamte Jahr 2021 ist der positive Saldo zwischen optimistischen und pessimistischen Firmen nur halb so groß wie bei den Produktionsperspektiven. Eine nur allmählich einsetzende Verbesserung des Beschäftigungs- und Investitionsklimas war auch während der Finanzmarktkrise sichtbar. Im Gefolge der zweiten Infektionswelle zeichnet sich ab Herbst 2020 eine tiefe Spaltung in der deutschen Wirtschaft ab. Im Durchschnitt der Industrieunternehmen ergibt sich ein deutlich positiver Saldo zwischen den optimistischen und pessimistischen Lagebewertungen, im Dienstleistungssektor zeigt sich ein hoher Negativsaldo. Während sich innerhalb der Industrie deutliche Unterschiede abzeichnen - gute Lage im Vorleistungs- und Investitionsgüterbereich versus schlechte Lage bei den industriellen Konsumgüterproduzenten - dominieren im Dienstleistungssektor über alle Teilbereiche hinweg die Belastungen. Diese sektorale Spaltung in der deutschen Wirtschaft reflektiert sich in einer regionalen Spaltung. Strukturelle Unterschiede in den Regionen - etwa anhand der Anteile von Tourismus, Automobilindustrie, Flugzeugbau und Finanzwesen - und strukturell asymmetrische Belastungen - etwa durch starke Einbrüche und Erholungen beim Export oder infolge lokaler Lockdown-Maßnahmen bei binnenwirtschaftlich orientierten Betrieben - prägen in den jeweiligen Wirtschaftsräu-men das aktuelle Geschäft sowie die Perspektiven für das laufende Jahr. In Baden-Württemberg, Nordrhein-Westfalen, Süd-West (Hessen, Rheinland-Pfalz und Saarland) sowie in abgeschwächter Form in Bayern bestimmen die zuversichtlichen Unternehmen deutlich das Erwartungsbild. Im Norden und Nord-Osten Deutschlands ist der Anteil der für 2021 positiv gestimmten Firmen erheblich niedriger. Im Süd-Osten liegen die Optimisten und Pessimisten nahezu gleichauf bei jeweils knapp einem Drittel der Unternehmen. |
| JEL: | C82 E32 I15 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:142021&r= |
| By: | Dellas, Harris; Tavlas, George |
| Abstract: | We discuss the evolution of the debate on policy rules vs discretion. Doctrinal historians place the starting point of the debate in the nineteenth-century controversy between the Currency and Banking Schools in Britain. We establish that this controversy was not about discretion but about the degree of activism under a single rule -- that of the gold standard. The rules vs discretion issue originated with Henry Simons and the Chicago School in the 1930s, and came to center stage following the Great Inflation in the 1970s. Both the 1930s and 1970s literatures were triggered by monetary-policy failures. The modern literature's main innovations concern its (1) comparison of discretion to optimal policy rather than just to rules, (2) shift of focus to benevolent governments that lack commitment, (3) demonstration of discretion's inefficiencies in both stochastic and deterministic environments, and (4) support of activistic policy rules. |
| Keywords: | Banking School; Chicago School; Currency School; Modern debate; monetary policy; Rules Versus Discretion |
| JEL: | B22 E52 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15976&r= |
| By: | Gianni Vaggi (University of Pavia); Luca Frigerio (University of Pavia) |
| Abstract: | Despite the debt relief initiatives at the turn of the century, the external debt of Africa is rising again with some new worrying features: diminishing concessionality, growing private component and a strong presence of opaque Chinese loans. Sub-Saharan countries devote a relevant portion of their fiscal resources to service the debt, this prevents them from increasing development expenditures. The 2020 Debt Service Suspension Initiative, DSSI, by the G20 recognizes these difficulties but it falls shorts from providing long term solutions. We evaluate external debt sustainability in four SSA countries: Cote D’Ivoire, Ethiopia, Ghana, and Kenya plus a composite country called Wakanda, representative of the whole region. We adopt a framework called geometry of Debt Sustainability, GDS, (Vaggi and Prizzon 2014) which focuses on some structural aspects of sustainability, in particular on the current account. We add a Human Development factor to the basic GDS model in order to evaluate how debt sustainability could change if these countries should improve spending on health and education. The results confirm a clear trade-off between debt service and human development expenditures. The model shows that even before the Covid-19 pandemic the four countries and Sub Saharan Africa were on unsustainable debt trajectories; the debt to GDP ratios would stabilize only at extremely high values. The results are coherent with the Debt Sustainability Analysis of the International Monetary Fund and the World Bank. |
| Keywords: | Debt relief, External debt sustainability, Development finance, Public Expenditure Allocation |
| JEL: | E60 F34 H63 O16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0203&r= |
| By: | Kärkkäinen, Samu; Nyholm, Juho |
| Abstract: | We analyze the economic effects of a debt-to-income constraint for the Finnish economy. Our benchmark is a DSGE model which is designed to capture the most prominent features of the Finnish economy and is calibrated using Finnish macroeconomic data. The baseline model incorporates a loan-to-value type of constraint for new mortgage loans. We study the effects of replacing this with a neutral DTI constraint, neutral meaning that the level of the constraint is set so that it would not alter the mortgage loans-to-GDP ratio in the long run. We find that the replacement would have only small long run effects on the economy, and it would poten-tially reduce the volatility of several variables associated with the housing markets. |
| Keywords: | Suomen Pankki,Aino 3.0,DSGE,mallit,Suomi |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:12021&r= |
| By: | Matthias Rottner |
| Abstract: | Motivated by the build-up of shadow bank leverage prior to the Great Recession, I develop a nonlinear macroeconomic model that features excessive leverage accumulation and show how this can cause a bank run. Introducing risk-shifting incentives to account for fluctuations in shadow bank leverage, I use the model to illustrate that extensive leverage makes the shadow banking system runnable, thereby raising the vulnerability of the economy to future financial crises. The model is taken to U.S. data with the objective of estimating the probability of a run in the years preceding the financial crisis of 2007-2008. According to the model, the estimated risk of a bank run was already considerable in 2004 and kept increasing due to the upsurge in leverage. I show that levying a leverage tax on shadow banks would have substantially lowered the probability of a bank run. Finally, I present reduced-form evidence that supports the tight link between leverage and the possibility of financial crises. |
| Keywords: | Financial crises, Shadow banks, Leverage, Credit booms, Bank runs |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2021/02&r= |
| By: | Iddawela, Yohan; Lee, Neil; Rodríguez-Pose, Andrés |
| Abstract: | Despite widespread interest in government quality and economic development, the role of sub-national government has been largely overlooked. This represents an omission in Africa, given ongoing processes of devolution in much of the continent. In this article, we consider the impact of sub-national government institutions on economic development in 356 regions across 22 African countries. We create a novel index of sub-national government quality based on large-scale survey data and assess its impact on regional economies using satellite data on night light luminosity. To address causality concerns, we instrument sub-national government quality with data from pre-colonial societies. Our results show a positive and significant relationship between sub-national government quality and regional economic development, even when controlling for the quality of national level institutions. Better sub-national governments are a powerful but often overlooked determinant of development in Africa. |
| Keywords: | Africa; Decentralisation; institutions; quality of government; regions |
| JEL: | E02 N97 O43 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15651&r= |
| By: | Kohnert, Dirk |
| Abstract: | ABSTRACT & RÉSUMÉ & ZUSAMMENFASSUNG : Throughout history, nothing has killed more human beings than infectious diseases. Although, death rates from pandemics dropped globally by about 0.8 % per year, all the way through the 20th century, the number of new infectious diseases like Sars, HIV and Covid-19 increased by nearly fourfold over the past century. In Africa, there were reported a total of 4,522,489 confirmed COVID-19 cases and 119,816 death, as of 23 April 2021. The pandemic impacted seriously on the economic and social sectors in almost all African countries. It is threatening to push up to 58 m people into extreme poverty. However, apart from the African poor, the Covid pandemic also affects the growing African middle class, i.e. about 170 million out of Africa’s 1.3 billion people currently classified as middle class. Nearly eight million of may be thrust into poverty because of the coronavirus and its economic aftermath. This setback will be felt for decades to come. Moreover, in recent African History also other infectouse diseases like the 1896–1906 Congo Basin Trypanosomiasis with a death-toll of over 500.000 as well as the 1900–1920 Uganda African trypanosomiasis epidemic with 200,000–300,000 death had tremendous negative impact on Africa’s societies and economies. Actually, other pandemics, like Yellow Fever, Cholera, Meningitis and Measles – not to mention Malaria - contributed to long-lasting economic downturns and seriously affect the social wellbeing for decades. RÉSUMÉ : Au cours de l’histoire, rien n’a tué plus d’êtres humains que les maladies infectieuses et la fièvre hémorragique. Bien que les taux de mortalité dus aux pandémies aient chuté de près de 1% par an dans le monde, environ 0,8% par an, tout au long du XXe siècle, le nombre de nouvelles maladies infectieuses comme le Sars, le VIH et le Covid-19 a presque quadruplé par rapport au passé. En Afrique, on a signalé un total de 4 522 489 cas confirmés de COVID-19 et 119 816 décès, au 23 avril 2021. La pandémie a eu de graves répercussions sur les secteurs économique et social dans presque tous les pays africains. Il menace de pousser jusqu'à 58 millions de personnes dans l'extrême pauvreté. Cependant, outre les Africains pauvres, la pandémie de Covid affecte également la classe moyenne africaine en pleine croissance, c'est-à-dire environ 170 millions sur les 1,3 milliard d'africains actuellement classés dans la classe moyenne. Près de huit millions d'entre eux pourraient être plongés dans la pauvreté à cause du coronavirus et de ses conséquences économiques. Ce revers se fera sentir pendant des décennies. En outre, dans l'histoire récente de l'Afrique, d'autres maladies infectieuses comme la trypanosomiase du bassin du Congo de 1896 à 1906 avec un nombre des morts de plus de 500 000 ainsi que l'épidémie de trypanosomose africaine en Ouganda de 1900 à 1920 avec 200 000 à 300 000 décès ont eu un impact négatif considérable sur les sociétés et économies africaines. En fait, d'autres pandémies, comme la fièvre jaune, le choléra, la méningite et la rougeole - sans parler du paludisme - ont contribué à des ralentissements économiques durables et affectent gravement le bien-être social pendant des décennies. --------------------------------------------------------------------------------------------------------------------------------------- ZUSAMMENFASSUNG : Im Laufe der Geschichte hat nichts mehr Menschen getötet als Infektionskrankheiten. Obwohl die Sterblichkeitsrate durch Pandemien im Laufe des 20. Jahrhunderts weltweit um etwa 0,8% pro Jahr gesunken ist, hat sich die Zahl der neuen Infektionskrankheiten wie Sars, HIV und Covid-19 im vergangenen Jahrhundert fast vervierfacht. In Afrika wurden zum 23. April 2021 insgesamt 4.522.489 bestätigte COVID-19-Fälle und 119.816 Todesfälle gemeldet. Die Pandemie hatte schwerwiegende Auswirkungen auf den wirtschaftlichen und sozialen Sektor in fast allen afrikanischen Ländern. Sie droht, bis zu 58 Millionen Menschen in extreme Armut zu treiben. Abgesehen von den afrikanischen Armen betrifft die Covid-Pandemie jedoch auch die wachsende afrikanische Mittelschicht, d. h. etwa 170 Millionen der 1,3 Milliarden Menschen in Afrika, die derzeit als Mittelschicht eingestuft sind. Fast acht Millionen von ihnen könnten aufgrund des Coronavirus und seiner wirtschaftlichen Folgen in Armut geraten. Dieser Rückschlag wird noch Jahrzehnte zu spüren sein. Darüber hinaus hatten in der jüngeren afrikanischen Geschichte auch andere Infektionskrankheiten wie die Trypanosomiasis (Schlafkrankheit) im Kongobecken von 1896–1906 mit einer Zahl von über 500.000 Todesopfern sowie die Trypanosomiasis-Epidemie in Uganda von 1900–1920 mit 200.000–300.000 Todesfällen enorme negative Auswirkungen auf die afrikanischen Gesellschaften und Volkswirtschaften. Tatsächlich haben andere Pandemien wie Gelbfieber, Cholera, Meningitis und Masern - ganz zu schweigen von Malaria - zu lang anhaltenden wirtschaftlichen Abschwüngen beigetragen und das soziale Wohlbefinden über Jahrzehnte hinweg ernsthaft beeinträchtigt. |
| Keywords: | COVID-19, Corona, pandémies, Afrique subsaharienne, impact socio-économique, migration, xénophobie, pauvreté, violence, éthique dans les épidémies, Études Africaines, |
| JEL: | D63 D74 E24 E26 F15 F22 F35 F52 F54 H12 H51 I12 I14 I15 J46 N37 N97 O15 O17 O55 Z1 |
| Date: | 2021–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107573&r= |
| By: | Abugamea, Gaber |
| Abstract: | The objective of this study is to examine the impact of bank-specific and major macroeconomic factors on the profitability of the biggest two Islamic banks in Palestine over the time period 1997-2018. It employs Pooled Regression analysis to investigate the effect of bank’s asset size, capital, loans, liabilities, operating cost, economic growth and inflation on key bank profitability indicators; return on assets (ROA) and return on equity (ROE), respectively. The main findings show that size and capital have positive impact on ROE. Loans are positively correlated with both ROA and ROE. Liabilities are negatively related to ROA and operating cost has negative impact on both ROA and ROE. Moreover, Islamic banks not benefited significantly from both the inflationary environment and economic growth. |
| Keywords: | Banking Profitability, Internal & External Factors, Pooled Regression |
| JEL: | G12 |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107527&r= |
| By: | Joshua Aizenman; Yothin Jinjarak; Hien Thi Kim Nguyen; Donghyun Park |
| Abstract: | This paper examines the association between episodes of large fiscal impulses (expansions and adjustments) and sustainable development indicators (prosperity, resilience, and inclusivity). We provide country studies of Chile, Poland, South Africa, and Thailand, examining the components of government expenses and tax revenues, and reporting four stylized patterns from the analysis. (i) Fiscal expansions led to higher growth rates and reduced negative trade-offs, e.g., pollution and poor-health mortalities associated with economic growth. (ii) Fiscal adjustments led to a more inclusive economy, lowered poverty headcounts, improved sanitation, and cleaner technology access. (iii) Fiscal expansions followed an increase in direct taxes (especially corporate taxes) and a decline in social contributions, and preceded a decline in other direct taxes and an increase in wage bills. (iv) Fiscal adjustments followed a decline in other direct taxes and social contributions, an increase in wage bills, and preceded a decline in government consumption expenditure and transfers. In light of these findings, the domestic resource mobilization should consider the time paths of the taxes and expenditure components to understand their empirical linkages with the sustainable development outcomes in the respective countries. |
| JEL: | E62 F15 F41 O11 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28740&r= |
| By: | Bobasu, Alina; Geis, André; Quaglietti, Lucia; Ricci, Martino |
| Abstract: | This paper sheds light on the impact of global macroeconomic uncertainty on the euro area economy. We build on the methodology proposed by Jurado et al. (2015) and estimate global as well as country-specific measures of economic uncertainty for fifteen key euro area trade partners and the euro area. Our measures display a clear counter-cyclical pattern and line up well to a wide range of historical events generally associated with heightened uncertainty. In addition, following Pier and Podstawski (2018), we estimate a Proxy SVAR where we instrument uncertainty shocks with changes in the price of gold around specific past events. We find that, historically, global uncertainty shocks have been important drivers of fluctuations in euro area economic activity, with one standard deviation increase in the identified uncertainty shock subtracting around 0.15 percentage points from euro area industrial produc-tion on impact. JEL Classification: D81, C11, C55, E32, F41, F62 |
| Keywords: | Economic Activity, Forecast Errors, Proxy SVAR, Stochastic Volatility, Uncertainty |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212541&r= |
| By: | Møller, Stig; Pedersen, Thomas; Schütte, Erik Christian Montes; Timmermann, Allan |
| Abstract: | We develop a new housing seach index (HSI) extracted from online search activity on a limited set of keywords related to the house buying process. We show that HSI has strong predictive power for subsequent changes in house prices, both in-sample and out-of-sample, and after controlling for the effect of commonly used predictors. Compared to the stock market, online search has much stronger predictive power over house prices and its effect also lasts longer. Variation in housing search is a particularly strong predictor of subsequent price changes in markets with inelastic housing supply and high speculation. |
| Keywords: | Forecasting; Housing Demand; housing markets; inelastic housing supply; Internet search |
| JEL: | C10 E17 G10 R3 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15875&r= |
| By: | Dahl, Gordon; Knepper, Matthew |
| Abstract: | We test whether age discrimination rises during recessions using two complementary analyses. EEOC microdata reveal that age-related firing and hiring charges rise by 3.4% and 1.4%, respectively, for each percentage point increase in a state-industry's monthly unemployment. Though the opportunity cost of filing falls, the fraction of meritorious claims increases-a sufficient condition for rising discrimination under mild assumptions. Second, we repurpose data from hiring correspondence studies conducted across different cities and time periods during the recovery from the Great Recession. Each percentage point increase in local unemployment reduces the callback rate for older versus younger women by 15%. |
| Keywords: | age discrimination; Recessions |
| JEL: | J23 J64 J71 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15760&r= |
| By: | Claessens, Stijn; Cornelli, Giulio; Gambacorta, Leonardo; Manaresi, Francesco; Shiina, Yasushi |
| Abstract: | We analyse how macroprudential policies (MaPs), largely applied to banks and to a lesser extent borrowers, affect non-bank financial intermediation (NBFI). Using data for 24 of the jurisdictions participating in the Financial Stability Board's monitoring exercise over the period 2002â??17, we study the effects of MaP episodes on bank assets and on those NBFI activities that may involve bank-like financial stability risks (the narrow measure of NBFI). We find that a net tightening of domestic MaPs increases these NBFI activities and decreases bank assets, raising the NBFI share in total financial assets. By contrast, a net tightening of MaPs in foreign jurisdictions leads to a reduction of the NBFI share â?? the effect of a drop in NBFI activities and an increase in domestic banking assets. Tightening and easing MaPs have largely symmetric effects on NBFI. We find that the effect of MaPs (both domestic and foreign) is economically and statistically significant for all those NBFI economic functions that may pose risks to financial stability. |
| Keywords: | International spillovers; macroprudential policy; non-bank financial intermediation; shadow banking |
| JEL: | G10 G21 O16 O40 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15895&r= |
| By: | Dani Rodrik; Stefanie Stantcheva |
| Abstract: | One of the biggest challenges that countries face today is the very unequal distributions of opportunities, resources, income and wealth across people. Inclusive prosperity – whereby many people from different backgrounds can benefit from economic growth, new technologies, and the fruits of globalization – remains elusive. To address these issues, societies face choices among many different policies and institutional arrangements to try to ensure a proper supply of productive jobs and activities, as well as access to education, financial means, and other endowments that prepare individuals for their participation in the economy. In this paper we offer a simple, organizing framework to think about policies for inclusive prosperity. We provide a comprehensive taxonomy of policies, distinguishing among the types of inequality they address and the stages of the economy where the intervention takes place. The taxonomy clarifies the differences among contending approaches to equity and inclusion and can help analysts assess the impacts and implications of different policies and identify potential gaps. |
| JEL: | A1 E61 H2 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28736&r= |
| By: | Haoyang Liu; Zhaogang Song; James Vickery |
| Abstract: | Agency mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac have historically traded in separate forward markets. We study the consequences of this fragmentation, showing that market liquidity endogenously concentrated in Fannie Mae MBS, leading to higher issuance and trading volume, lower transaction costs, higher security prices, and a lower primary market cost of capital for Fannie Mae. We then analyze a change in market design—the Single Security Initiative—which consolidated Fannie Mae and Freddie Mac MBS trading into a single market in June 2019. We find that consolidation increased the liquidity and prices of Freddie Mac MBS without measurably reducing liquidity for Fannie Mae; this was in part achieved by aligning characteristics of the underlying MBS pools issued by the two agencies. Prices partially converged prior to the consolidation event, in anticipation of future liquidity. Consolidation increased Freddie Mac’s fee income by enabling it to remove discounts that previously compensated loan sellers for lower liquidity. |
| Keywords: | MBS; TBA; Single Security Initiative; UMBS; liquidity |
| JEL: | G12 G18 G21 E58 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:91312&r= |
| By: | Chari, Anusha; Jain, Lakshita; Kulkarni, Nirupama |
| Abstract: | During the global financial crisis, the Reserve Bank of India enacted forbearance measures that lowered capital provisioning rates for loans under temporary liquidity stress. Matched bank-firm data reveal that troubled banks took advantage of the policy to also shield firms facing serious solvency issues. Perversely, in industries and bank portfolios with high proportions of failing firms, credit to healthy firms declined and was reallocated to the weakest firms. By incentivizing banks to hide true asset quality, the forbearance policy provided a license for regulatory arbitrage. The build-up of stressed assets in India's predominantly state-owned banking system is consistent with accounting subterfuge. |
| Keywords: | Non-performing Assets; Regulatory forbearance; Stressed Banks; zombie lending |
| JEL: | E58 G21 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15773&r= |
| By: | Jacks, David S.; Stürmer, Martin |
| Abstract: | We provide evidence on the dynamic effects of fuel price shocks, shipping demand shocks, and shipping supply shocks on real dry bulk freight rates in the long run. We first analyze a new dataset on dry bulk freight rates for the period from 1850 to 2020, finding that they followed a downward but undulating path with a cumulative decline of 79%. Next, we turn to understanding the drivers of booms and busts in the dry bulk shipping industry, finding that shipping demand shocks strongly dominate all others as drivers of real dry bulk freight rates in the long run. Furthermore, while shipping demand shocks have increased in importance over time, shipping supply shocks in particular have become less relevant. |
| Keywords: | Dry bulk; maritime freight rates; structural VAR |
| JEL: | E30 N70 R40 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15956&r= |
| By: | Grafström, Jonas (The Ratio Institute); Poudineh, Rahmat (Oxford Institute for Energy Studies) |
| Abstract: | The learning curve concept, which relates historically observed reductions in the cost of a technology to the number of units produced or the capacity cumulatively installed, has been widely adopted to analyse the technological progress of renewable resources, such as solar PV and wind power, and to predict their future penetration. Learning curves were originally an empirical tool to evaluate learning-by-doing in manufacturing, and the jump to analysis of country-level technological change in renewable energy is an extension that requires careful consideration. This paper provides a review of the problems associated with learning curves for solar and wind power technologies. Issues such as whether the past cost reductions affect the future, learning curve specification problems, changing price ratios and econometric issues are discussed. Learning curves have a place in research, but there are several pitfalls that researchers should be careful not to overlook. |
| Keywords: | learning curve; learning rate; energy technology; wind power; solar power |
| JEL: | E61 O32 Q20 Q58 |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0347&r= |