nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒06‒14
136 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption By Alan Finkelstein Shapiro; Gilbert E. Metcalf
  2. "A Keynesian Approach to Modeling the Long-Term Interest Rate" By Tanweer Akram
  3. Fiscal Multiplier, Monetary Shock and Hand-to-Mouth Household By Fei Guo; Isabel Kit-Ming Yan; Tao Chen; Chuntien Hu
  4. Balanced-Budget Rules and Macroeconomic Stability with Overlapping Generations By Jang-Ting Guo; Yan Zhang
  5. On The Contribution of Interest Expense (Income) on Total Output By Nizam, Ahmed Mehedi
  6. Inflation dynamics and forecast : frequency matters By Martins, Manuel M. F.; Verona, Fabio
  7. The Rise of US Earnings Inequality: Does the Cycle Drive the Trend? By Heathcote, Jonathan; Perri, Fabrizio; Violante, Giovanni L.
  8. Should monetary policy lean against the wind in a small-open economy? Revisiting the Tinbergen rule By Rogelio De la Peña
  9. Revisiting intertemporal elasticity of substitution in a sticky price model By Kilponen, Juha; Vilmunen, Jouko; Vähämaa, Oskari
  10. Cordon of Conformity:Why DSGE models Are Not the Future of Macroeconomics By Servaas Storm
  11. Trade, Unemployment, and Monetary Policy By Cacciatore, Matteo; Ghironi, Fabio
  12. Interest, Reserves, and Prices By Gianluca Benigno; Pierpaolo Benigno
  13. Income Inequality as Long-term Conditioning Factor of Monetary Transmission to Bank Interest Rates in EA Countries By Tomas Domonkos; Boris Fisera; Maria Siranova
  14. Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks By Ravenna, Federico; Walsh, Carl
  15. The Role of Money in Monetary Policy at the Lower Bound By Billi, Roberto M; Söderström, Ulf; Walsh, Carl
  16. Endogenous growth, skill obsolescence and fiscal multipliers By Lechthaler, Wolfgang; Tesfaselassie, Mewael F.
  17. What Do Price Equations Say About Future Inflation? By Ray C. Fair
  18. Estabilizaciones transitorias y permanentes usando al tipo de cambio o la cantidad de dinero como anclas nominales. By Mariano Fernández
  19. Monetary Policy Announcements, Information Schocks, and Exchange Rate Dynamics By Daniel Gründler; Eric Mayer; Johann Scharler
  20. Contagious Unemployment By Niklas Engbom
  21. The natural interest rate in China By Daniel Rees; Guofeng Sun
  22. CAROs: Climate Risk-Adjusted Refinancing Operations By Florian B\¨oser; Chiara Colesanti Senni
  23. Hysteresis without Hope: investigating unemployment persistence in South Africa By Dadam, Vincent; Viegi, Nicola
  24. Capital Controls, Domestic Macroprudential Policy and the Bank Lending Channel of Monetary Policy By Andrea Fabiani; Martha López; José-Luis Peydró; Paul E. Soto
  25. Theories of Consumption By Drakopoulos, Stavros A.
  26. Harrodians and Kaleckians: a suggested reconciliation and synthesis By Mark Setterfield
  27. Macroeconomic Contractions during Impressionable Years and Entrepreneurship in Later Adulthood By Sotirakopoulos, Panagiotis; Guven, Cahit; Ulker, Aydogan; Graham, Carol
  28. US monetary policy and the financial channel of the exchange rate: evidence from India By Shesadri Banerjee; M S Mohanty
  29. The Evolution of the Earnings Distribution in a Volatile Economy: Evidence from Argentina By Andres Blanco; Bernardo Diaz de Astarloa; Andres Drenik; Christian Moser; Danilo Trupkin
  30. Income inequality, mortgage debt and house prices By Kösem, Sevim
  31. Sectoral Fiscal Multipliers and Technology in Open Economy By Olivier Cardi; Romain Restout
  32. Income inequality and the depth of economic downturns By Emanuel Kohlscheen; Marco Jacopo Lombardi; Egon Zakrajšek
  33. Asymmetric Effects of Monetary Policy Easing and Tightening By Debortoli, Davide; Forni, Mario; Gambetti, Luca; Sala, Luca
  34. Misalignments in house prices and economic growth in Europe By Juan Carlos Cuestas; Merike Kukk; Natalia Levenko
  35. Capital Buffers in a Quantitative Model of Banking Industry Dynamics By Dean Corbae; Pablo D'Erasmo
  36. Fiscal Decentralization and Fiscal Multiplier in China By Fei Guo; Isabel Kit-Ming Yan
  37. The Distributional Implications of Climate Policies Under Uncertainty By Ulrich Eydam
  38. Gender Roles and the Gender Expectations Gap By D'Acunto, Francesco; Malmendier, Ulrike M.; Weber, Michael
  39. Financial system regulation in a pandemic: Evidence from Nigeria By Uddin, Godwin
  40. Fiscal and Monetary Anomie in Argentina: The Legacy of Endemic Populism By Emilio Ocampo
  41. Firms, Failures, and Fluctuations: The Macroeconomics of Supply Chain Disruptions By Acemoglu, Daron; Tahbaz-Salehi, Alireza
  42. A quantitative analysis of the countercyclical capital buffer By Faria-e-Castro, Miguel
  43. Sentimental Business Cycles By Lagerborg, Andresa Helena; Pappa, Evi; Ravn, Morten O
  44. When Does Monetary Policy Sway House Prices? A Meta-Analysis By Josef Bajzik; Dominika Ehrenbergerova; Tomas Havranek
  45. Forecasting CPI Inflation Components with Hierarchical Recurrent Neural Network By Oren Barkan; Jonathan Benchimol; Itamar Caspi; Allon Hammer; Noam Koenigstein
  46. U.S. Treasury Auctions: A High Frequency Identification of Supply Shocks By Maxime Phillot
  47. The COVID-19 shock and challenges for time series models By Bobeica, Elena; Hartwig, Benny
  48. Shaping the future: Policy shocks and the GDP growth distribution By Francois-Michel Boire; Thibaut Duprey; Alexander Ueberfeldt
  49. Comfort in Floating: Taking Stock of Twenty Years of Freely-Floating Exchange Rate in Chile By Albagli, Elias; Calani, Mauricio; Hadzi-Vaskov, Metodij; Marcel, Mario; Ricci, Luca Antonio
  50. Identifying the source of information rigidities in the expectations formation process By Mototsugu Shintani; Kozo Ueda
  51. Efficiency in the Housing Market with Search Frictions By Miroslav Gabrovski; Victor Ortego-Marti
  52. La réglementation des fonds propres bancaires peut-elle prévenir ou atténuer les turbulences financières? By Alejandro García; Josef Schroth
  53. Point targets, tolerance bands, or target ranges? Inflation target types and the anchoring of inflation expectations By Ehrmann, Michael
  54. An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies By Hartley, Jonathan S.; Rebucci, Alessandro
  55. What drives euro area financial market developments? The role of US spillovers and global risk By Brandt, Lennart; Saint Guilhem, Arthur; Schröder, Maximilian; Van Robays, Ine
  56. General Equilibrium Effects and Labor Market Fluctuations By Noritaka Kudoh; Hiroaki Miyamoto
  57. El efecto transmisión de los valores públicos con fines de regulación monetaria en las operaciones de ruedo de la Bolsa Boliviana de Valores By Oscar Eduardo Machicado Mendoza
  58. Central bank digital currency: the quest for minimally invasive technology By Raphael Auer; Rainer Boehme
  59. Panel Granger causality between financial development and economic growth By Cândida Ferreira
  60. Using Conventional Monetary Policy Unconventionally: Overturning Inflation and Output Gap Dynamics Using a Super-Inertial Interest Rate Rule By Guy Segal
  61. Robots and Unemployment By Noritaka Kudoh; Hiroaki Miyamoto
  62. Assessing the Economy-wide Impacts of Strengthened Bank Capital Requirements in Indonesia using a Financial Computable General Equilibrium Model By Arief Rasyid; Jason Nassios; Elizabeth L Roos; James Giesecke
  63. Immigration and the UK economy after Brexit By Portes, Jonathan
  64. Barriers to Entry and Regional Economic Growth in China By Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
  65. An Exploration of First Nations Reserves and Access to Cash By Heng Chen; Walter Engert; Kim Huynh; Daneal O’Habib
  66. U.S. Presidential Election Polls and the Economic Prospects of China and Mexico By Hyeongwoo Kim; Madeline Kim
  67. The Aftermath of Sovereign Debt Crises: A Narrative Approach By Esteves, Rui; Kenny, Seán; Lennard, Jason
  68. Overlooking the online world: Does mismeasurement of the digital economy explain the productivity slowdown? By Alejandra Bellatin; Stephanie Houle
  69. Heterogeneity and Aggregate Fluctuations By Minsu Chang; Xiaohong Chen; Frank Schorfheide
  70. Inflation Spike and Falling Product Variety during the Great Lockdown By Jaravel, Xavier; O'Connell, Martin
  71. Combining negative rates, forward guidance and asset purchases: identification and impacts of the ECB’s unconventional policies By Rostagno, Massimo; Altavilla, Carlo; Carboni, Giacomo; Lemke, Wolfgang; Motto, Roberto; Saint Guilhem, Arthur
  72. Export-Led Decay: The Trade Channel in the Gold Standard Era By Bernardo Candia; Mathieu Pedemonte
  73. The Distributional Impact of the Pandemic By Hacioglu Hoke, Sinem; Känzig, Diego R; Surico, Paolo
  74. Moving from a Poor Economy to a Rich One: A Job Tasks Approach By Eran Yashiv
  75. Understanding the German criticism of the Target system and the role of central bank capital By Perotti, Roberto
  76. Paying Too Much? Price Dispersion in the US Mortgage Market By Bhutta, Neil; Fuster, Andreas; Hizmo, Aurel
  77. Efectividad del esquema de extensionistas tecnológicos : estudio base para el Pilar 2 del programa Fábricas de Productividad By Rafael Puyana; Daniel Payares; Indira Porto
  78. Optimal Climate and Fiscal Policy in an OLG economy By Richard Jaimes
  79. Monetary dynamics in a network economy By Antoine Mandel; Vipin Veetil
  80. Humans Against Virus or Humans Against Humans: A Game Theory Approach to the COVID-19 Pandemic By Santiago Forero-Alvarado; Nicolás Moreno-Arias; Juan J. Ospina-Tejeiro
  81. The long-term distributional and welfare effects of Covid-19 school closures By Fuchs-Schündeln, Nicola; Krueger, Dirk; Ludwig, Alexander; Popova, Irina
  82. Does idiosyncratic risk matter for climate policy? By Richard Jaimes
  83. Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk By Krueger, Dirk; Ludwig, Alexander; Villalvazo, Sergio
  84. The Long-lasting Effects of Experiencing Communism on Attitudes towards Financial Markets By Laudenbach, Christine; Malmendier, Ulrike M.; Niessen-Ruenzi, Alexandra
  85. Final Demand-Intermediate Demand Aggregation System of Japan's Producer Price Index By Moegi Inoue; Atsushi Kawakami; Ayako Masujima; Ichiro Muto; Shogo Nakano; Izumi Takagawa
  86. Coping with Disasters: Two Centuries of International Official Lending By Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
  87. Contagious zombies By Bittner, Christian; Fecht, Falko; Georg, Co-Pierre
  88. Rent or Buy? The Role of Lifetime Experiences on Homeownership within and across Countries By Malmendier, Ulrike M.; Steiny Wellsjo, Alex
  89. Gender Inclusive Intermediary Education, Financial Stability and Female Employment in the Industry in Sub-Saharan Africa By Simplice A. Asongu; Yann Nounamo; Henri Njangang; Sosson Tadadjeu
  90. Remittances and Value Added across Economic sub-sectors in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  91. The role of finance in inclusive human development in Africa revisited By Simplice A. Asongu; Rexon T. Nting
  92. Environment, public debt and epidemics By Marion Davin; Mouez Fodha; Thomas Seegmuller
  93. Is financial development shaping or shaking economic sophistication in African countries? By Henri Njangang; Simplice A. Asongu; Sosson Tadadjeu; Yann Nounamo
  94. Around-the-Clock USD/MXN Volatility: Macroeconomic Announcement Spillovers and FX Market Intervention Mechanisms By Wilfrido Jurado Pedroza
  95. Voting right rotation, behavior of committee members and financial market reactions: Evidence from the U.S. Federal Open Market Committee By Michael Ehrmann; Robin Tietz; Bauke Visser
  96. Informality, Consumption Taxes and Redistribution By Bachas, Pierre; Gadenne, Lucie; Jensen, Anders
  97. COVID-19 and Small Businesses: Uneven Patterns by Race and Income By Ruchi Avtar; Rajashri Chakrabarti; Davide Melcangi; Maxim L. Pinkovskiy; Giorgio Topa
  98. Is U.S. real output growth really non-normal? Testing distributional assumptions in time-varying location-scale models By Matei Demetrescu; Robinson Kruse-Becher
  99. Blurred Crystal Ball: investigating the forecasting challenges after a great exogenous shock By Marcelo A. T. Aragão
  100. The Long Shadows of the Great Inflation: Evidence from Residential Mortgages By Botsch, Matthew J.; Malmendier, Ulrike M.
  101. COVID-19 crisis: Liquidity management at Canada’s largest public pension funds By Guillaume Bédard-Pagé; Daniel Bolduc; Annick Demers; Jean-Philippe Dion; Manu Pandey; Léanne Berger-Soucy; Adrian Walton
  102. Does household borrowing reduce the trade balance? Evidence from developing and developed countries By Can Xu; Jan Jacobs; Jakob
  103. Limitaciones de las metodologías basadas en opiniones de expertos. El caso de la automatización del empleo By Sergio Navarro Palacios
  104. COVID-19 and the Public Finances in Ireland By Conefrey, Thomas; Hickey, Rónán; McInerney, Niall
  105. Uncertainty and dispersion in professional interest rate forecasts: International evidence and theory By Cukierman, Alex; Lustenberger, Thomas
  106. An Economic Analysis of ‘Quota 90’ By Davide Bernardi; Roberto Ricciuti
  107. The intergenerational effects of economic sanctions By Moeeni, Safoura
  108. Indicador coincidente de actividad económica en la recesión pandémica: el caso del Caribe colombiano By Antonio José Orozco-Gallo; Pavel Vidal-Alejandro; Johana Sanabria-Domínguez; Jaime Andrés Collazos-Rodríguez
  109. Indicador coincidente de actividad económica en la recesión pandémica: el caso del Caribe colombiano By Antonio José Orozco-Gallo; Pavel Vidal-Alejandro; Johana Sanabria-Domínguez; Jaime Andrés Collazos-Rodríguez
  110. The Conglomerate Network By Kenneth R. Ahern; Lei Kong; Xinyan Yan
  111. Forecasting UK GDP growth with large survey panels By Anesti, Nikoleta; Kalamara, Eleni; Kapetanios, George
  112. The Economy, Inflation, and Forbearance By Patrick T. Harker
  113. THE EFFECTIVENESS OF A NEGATIVE INTEREST RATE POLICY By Marco Onofri; Gert Peersman; Frank R. Smets
  114. Decomposing the Israeli Term Structure of Interests Rates By Daniel Nathan
  115. "Restarting the Greek Economy?" By Dimitri B. Papadimitriou; Christos Pierros; Nikos Rodousakis; Gennaro Zezza
  116. Multimodality in Macro-Financial Dynamics By Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico
  117. On the design of labor market programs as stabilization policies By Euiyoung Jung
  118. Of interest? Estimating the average interest rate on debt across firms and over time. By Richard Fabling
  119. Financial Reforms and Innovation: A Micro-Macro Perspective By Spyridon Boikos; Ioannis Bournakis; Dimitris Christopoulos; Peter McAdam
  120. Awareness of pandemics and the impact of COVID-19 By Alejandro Buesa; Javier J. Pérez; Daniel Santabárbara
  121. Economic Growth and Equity in Anticipation of Climate Policy By Alena Miftakhova; Clément Renoir
  122. Monetary and Macroprudential Policies under Dollar-Denominated Foreign Debt By Hidehiko Matsumoto
  123. Forecasting Macroeconomic Variables in Emerging Economies: An Application to Vietnam By Le Ha Thu; Roberto Leon-Gonzalez
  124. Efectos económicos de la Constitución del 1991, 30 años después By Centro de Investigaciones para el Desarrollo
  125. In the Shadow of Banks: Wealth Management Products and Issuing Banks' Risks in China By Acharya, Viral V.; Qian, Jun; Su, Yang; Yang, Zhishu
  126. Female and male entrepreneurs in Germany: How did the coronavirus pandemic affect their businesses? By Kay, Rosemarie; Welter, Friederike
  127. Climate Change and the Social Cost of Carbon: DICE Explained and Expanded By G. Cornelis van Kooten; Mark E. Eiswerth; Jonathon Izett; Alyssa R. Russell
  128. ¿Cuánto tributan efectivamente el consumo, el trabajo y el capital en Colombia? Cálculos con las Cuentas Nacionales base 2015 By Hernán Rincón-Castro
  129. Sustainable finance, current and future implications for banks and monetary policy: assessing COVID impacts By Ojo/Roedl, Marianne
  130. Emerging Economies' Vulnerability to Changes in Capital Flows: The Role of Global and Local Factors By Yoshihiko Norimasa; Kazuki Ueda; Tomohiro Watanabe
  131. Are genetic traits associated with riots? The political legacy of prehistorically determined genetic diversity By Vu, Trung V.
  132. Gender Differences in Financial Advice By Tabea Bucher-Koenen; Andreas Hackethal; Johannes Koenen; Christine Laudenbach
  133. Climate Policies and Labor Markets in Developing Countries By Noe Reidt
  134. Ouganda : réviser le modèle de croissance tout en préservant la soutenabilité de la dette By Meghann PULOC’H
  135. Financer l’extension de l’assurance sociale aux travailleurs de l’économie informelle à l’aide des transferts de fonds By Alexandre Kolev; Justina La
  136. Censored Density Forecasts: Production and Evaluation By James Mitchell; Martin Weale

  1. By: Alan Finkelstein Shapiro (Tufts University); Gilbert E. Metcalf (Tufts University)
    Abstract: We analyze the quantitative labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates endogenous labor force participation and two margins of adjustment influenced by carbon taxes: firm creation and green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent - roughly the emissions reductions that will be required under the Biden Administration's new commitment under the Paris Agreement - and transfers the tax revenue to households generates mild positive long-run effects on consumption and output; a marginal increase in the unemployment and labor force participation rates; and an expansion in the number and fraction of firms that use green technologies. In the short term, the adjustment to higher carbon taxes is accompanied by gradual gains in output and consumption and a negligible expansion in unemployment. Critically, abstracting from endogenous firm entry and green-technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of these margins for a comprehensive assessment of the labor market and aggregate effects of carbon taxes.
    Keywords: Environmental and Fiscal Policy, Carbon Tax, Endogenous Firm Entry, Green Technology Adoption, Search Frictions, Unemployment, Labor Force Participation
    JEL: E20 E24 E62 H23 O33 Q52 Q55
    Date: 2021–05
  2. By: Tanweer Akram
    Abstract: There are several widely used benchmark models of the long-term interest rate in quantitative finance. However, these models have yet to incorporate Keynes's valuable insights about interest rate dynamics. The Keynesian approach to interest rate dynamics can be readily incorporated in the benchmark models of the long-term interest rate. This paper modifies several benchmark interest rate models. In these modified models the long-term interest rate is related to the short-term interest rate and a Wiener process. The Keynesian approach to interest rate dynamics can be useful in addressing theoretical and policy issues.
    Keywords: Long-Term Interest Rate; Bond Yields; Monetary Policy; Short-Term Interest Rate; John Maynard Keynes
    JEL: E12 E43 E50 E58 E60 G10 G12 G41
    Date: 2021–06
  3. By: Fei Guo (Xian Jiaotong University); Isabel Kit-Ming Yan (City University of Hong Kong); Tao Chen (University of Macau); Chuntien Hu (Xian Jiaotong University)
    Abstract: The crux of policy analyses rests with its effectiveness in altering consumer behavior. However, the vast difference across individuals gives rise to a substantial variation in their response to policy shocks. One of representative heterogeneities is the level of liquid assets held by each family. Using the macro-level and household-level data from 20 European countries, this paper attempts to unravel how Hand-to-Mouth (HtM) households, who retain little or no liquid wealth, affects the transmission of fiscal or monetary measures. After separating poor HtM from wealthy HtM consumers, we discover that both are able to ameliorate spending (tax) multipliers. Additionally, we detect a similar role of HtM families in improving the efficacy of monetary policies.
    Keywords: Fiscal Multiplier; Monetary Shock; Hand-to-Mouth; Household Heterogeneity
    JEL: E21 E62 H20
    Date: 2021–05–31
  4. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Yan Zhang (Zhongnan University of Economics and Law)
    Abstract: In the context of a stylized two-period overlapping generations model, this paper examines the macroeconomic (in)stability effects of a balanced-budget rule whereby constant government spending is financed by endogenous taxation on agents' labor income or consumption expenditures. In sharp contrast to previous studies for a representative-agent framework, our baseline economy always exhibits local determinacy and equilibrium uniqueness, hence both labor and consumption taxes are stabilizing instruments against cyclical fluctuations driven by animal spirits. Moreover, this no-indeterminacy result and associated dynamic equivalence between endogenous labor versus consumption taxation remain qualitatively robust to various modifications in the household-preference or firm-production formulations.
    Keywords: Balanced-Budget Rules; Indeterminacy; Overlapping Generations Model.
    JEL: E32 E62
    Date: 2021–05
  5. By: Nizam, Ahmed Mehedi
    Abstract: A decrease in interest rate in traditional view of monetary policy transmission is linked to a lower cost of borrowing which eventually results into a greater spending in investment and a bigger GDP. However, a decrease in interest rate is also linked to a decrease in interest income which, in turn, affects the aggregate demand and total GDP. So far, no concerted effort has been made to investigate this positive inter-relation between interest income and GDP in the existing literature. Here in the first place we intuitively describe the inter-relation between interest income and output and then provide a micro-foundation of our intuitive reasoning in the context of a small endowment economy with finitely-lived identical households. Then we try to uncover the impact of nominal interest income on the macroeconomy using multiplier theory for a panel of some 04 (four) OECD countries. We define and calculate the corresponding multiplier values algebraically and then we empirically measure them using impulse response analysis under structural panel VAR framework. Large, consistent and positive values of the cumulative multipliers indicate a stable positive relationship between nominal interest income and output. Moreover, variance decomposition of GDP shows that a significant portion of the variance in GDP is attributed to interest income under VAR/VECM framework. Finally, we have shown how and where our analysis fits into the existing body of knowledge.
    Keywords: nominal interest expense, nominal lending rate, domestic credit, GDP, economic multiplier, monetary policy transmission mechanism, banking.
    JEL: E43 E50 E52 G21 H3
    Date: 2021–06–06
  6. By: Martins, Manuel M. F.; Verona, Fabio
    Abstract: Policymakers and researchers see inflation characterized by cyclical fluctuations driven by changes in resource utilization and temporary shocks, around a trend influenced by inflation expectations. We study the in-sample inflation dynamics and forecast inflation out-of-sample by analyzing a New Keynesian Phillips Curve (NKPC) in the frequency domain. In-sample, while inflation expectations dominate medium-to-long-run cycles, energy prices dominate short cycles and business-to-medium cycles once expectations became anchored. While statistically significant, unemployment is not economically relevant for any cycle. Out-of-sample, forecasts from a low-frequency NKPC significantly outperform several benchmark models. The long-run component of unemployment is key for such remarkable forecasting performance.
    JEL: C53 E31 E37
    Date: 2021–06–08
  7. By: Heathcote, Jonathan; Perri, Fabrizio; Violante, Giovanni L.
    Abstract: We document that declining hours worked are the primary driver of widening inequality in the bottom half of the male labor earnings distribution in the United States over the past 52 years. This decline in hours is heavily concentrated in recessions: hours and earnings at the bottom fall sharply in recessions and do not fully recover in subsequent expansions. Motivated by this evidence, we build a structural model to explore the possibility that recessions cause persistent increases in inequality; that is, that the cycle drives the trend. The model features skill-biased technical change, which implies a trend decline in low-skill wages relative to the value of non-market activities. With this adverse trend in the background, recessions imply a potential double-whammy for low skilled men. This group is disproportionately likely to experience unemployment, which further reduces skills and potential earnings via a scarring effect. As unemployed low skilled men give up job search, recessions generate surges in non-participation. Because non-participation is highly persistent, earnings inequality remains elevated long after the recession ends.
    Keywords: Earnings Losses upon Displacement; Non Participation; Recession; Skill Biased Technological Change; Zero Earnings
    JEL: E24 E32 J24 J64
    Date: 2020–06
  8. By: Rogelio De la Peña
    Abstract: It has been debated whether monetary policy should lean against the wind, i.e., if central banks should also respond to the build-up of financial imbalances. I contribute to the debate by showing that targeting the two policy objectives with a single instrument is more costly for a small-open economy than for a closed one. To this end, I develop a small-open economy DSGE model with the Bernanke-Gertler-Gilchrist financial accelerator that features financial frictions and monopolistic competition in goods markets. I then estimate this model for Mexico to explore the policy regimes yielding the lowest welfare cost. My main finding is that the Tinbergen rule is alive and well. In addition, my model is useful to gauge macroprudential measures effectiveness when discriminating against foreign liabilities.
    JEL: C51 E32 E44 E52 E58 E61 F41 G21 G28
    Date: 2021–04
  9. By: Kilponen, Juha; Vilmunen, Jouko; Vähämaa, Oskari
    Abstract: Macroeconomic models typically assume additively separable preferences where consumption enters the utility function in a logarithmic form. This restriction implies that consumption growth is highly sensitive to movements in real interest rates, which in turn implies an unrealistically steep demand curve and intertemporal trade-off. We re-estimate the stylized New Keynesian Model with US data using King-Plosser-Rebelo (1988) preferences with and without habits and show that the equilibrium real interest rate elasticity of output is in the range of 0.05 − 0.20 in the US. Such low real interest rate elasticity is better in line with the empirical consumption Euler equation literature and implies relatively weak transmission of monetary policy to output and inflation.
    JEL: E32 E52 E21
    Date: 2021–06–09
  10. By: Servaas Storm (Delft University of Technology)
    Abstract: The Rebuilding Macroeconomic Theory Project, led by David Vines and Samuel Wills (2020), is an important, albeit long overdue, initiative to rethink a failing mainstream macroeconomics. Professors Vines and Wills, who must be congratulated for stepping up to the challenge of trying to make mainstream macroeconomics relevant again, call for a new multiple-equilibrium and diverse (MEADE) paradigm for macroeconomics. Their idea is to start with simple models, ideally two-dimensional sketches, that explain mechanisms that can cause multiple equilibria. These mechanisms should then be incorporated into larger DSGE models in a new, multiple-equilibrium synthesis to see how the fundamental pieces of the economy fit together, subject to it being 'properly micro-founded'. This paper argues that the MEADE paradigm is bound to fail, because it maintains the DSGE model as the unifying framework at the center of macroeconomic analysis. The paper reviews 10 fundamental weaknesses inherent in DSGE models which make these models irreparably useless for macroeconomic policy analysis. Mainstream macroeconomics must put DSGE models, once and for all, in the Museum of Implausible Economic Models – and learn important lessons from non-DSGE macroeconomic approaches.
    Keywords: New Keynesian DSGE models; rational expectations; micro-foundations; loanable funds model; Lucas critique; multiple equilibria; income distribution; demand-led growth; money and monetary production economy.
    JEL: E20 E60 F60 O10 O40
    Date: 2021–02–14
  11. By: Cacciatore, Matteo; Ghironi, Fabio
    Abstract: We study how trade linkages affect the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. We show that the ability of the model to replicate key empirical regularities following trade integration---synchronization of business cycles across trading partners and reallocation of market shares toward more productive firms---is central to understanding how trade costs affect monetary policy trade-offs. First, productivity gains through firm selection reduce the need of positive inflation to correct long-run distortions. As a result, lower trade costs reduce the optimal average inflation rate. Second, as stronger trade linkages increase business cycle synchronization, country-specific shocks have more global consequences. Thus, the optimal stabilization policy remains inward looking. By contrast, sub-optimal, inward-looking stabilization---for instance too narrow a focus on price stability---results in larger welfare costs when trade linkages are strong due to inefficient fluctuations in cross-country aggregate demand.
    Keywords: Optimal monetary policy; trade integration
    JEL: E24 E32 E52 F16 F41 J64
    Date: 2020–06
  12. By: Gianluca Benigno; Pierpaolo Benigno
    Abstract: We would like to propose a new framework for monetary policy analysis that encompasses, as a special case, the Neo-Wicksellian paradigm. A general form of an aggregate-demand equation reveals a role for liquidity, as well as less effective movements in future real rates with respect to current ones, in stimulating aggregate demand. The quantity of reserves and their interest rate both matter for determining inflation and economic activity.
    Keywords: monetary policy framework; reserves; inflation
    JEL: E31 E43 E52 E58
    Date: 2021–06–01
  13. By: Tomas Domonkos (Slovak Academy of Sciences & Comenius University in Bratislava, Slovakia); Boris Fisera (Slovak Academy of Sciences; Charles University, Prague); Maria Siranova (Slovak Academy of Sciences)
    Abstract: In this paper we investigate the effect of income inequality on the transmission of standard and unconventional monetary policy shocks to bank loan rates. We hypothesize that income inequality might encapsulate important characteristics of credit market demand. We use an interacted panel error correction model to examine a set of EA countries over the years 2008-2016. Our findings suggest that higher income inequality hinders the transmission of standard monetary policy to consumer loans and limits the use of unconventional monetary policy in the housing loans segment. Conversely, more unequal societies are characterized by stronger monetary transmission in the small firm loans segment.
    Keywords: interest-rate pass-through, interacted PMG, income inequality, standard monetary policy, unconventional monetary policy
    JEL: D31 E21 E52 E58
    Date: 2021–05
  14. By: Ravenna, Federico; Walsh, Carl
    Abstract: In a new Keynesian model with random search in the labor market, endogenous selection among heterogeneous workers amplifies fluctuations in unemployment and results in excess unemployment volatility relative to the efficient allocation. Recessions disproportionately affect low-productivity workers, whose unemployment spells are inefficiently frequent and long. We consider a COVID-recession resulting from a negative demand shock and a surge in exogenous separations. High-productivity workers benefit if separations in a pandemic take the form of temporary layoffs, but this is not true for low-productivity workers. The unemployment consequences are especially severe when nominal interest rates are close to the effective lower bound.
    Keywords: COVID-19; Heterogeneity; selection; unemployment; ZLB constraint
    JEL: E24 E32 E52
    Date: 2020–07
  15. By: Billi, Roberto M; Söderström, Ulf; Walsh, Carl
    Abstract: In light of the current low-interest-rate environment, we reconsider the merit of a money growth target (MGT) relative to a conventional inflation targeting (IT) regime, and to the notion of price level targeting (PLT). Through the lens of a New Keynesian model, and accounting for a zero lower bound (ZLB) constraint on the nominal interest rate, we show, not surprisingly, that PLT performs best in terms of social welfare. However, the ranking between IT and MGT is not a foregone conclusion. In particular, although MGT makes monetary policy vulnerable to money demand shocks, it contributes to achieving price level stability and reduces the incidence and severity of the ZLB relative to both IT and PLT. We also show that MGT lessens the need for the fiscal authority to engage alongside the central bank in fighting recessions. To illustrate this fiscal benefit of MGT, we introduce a simple rule for the fiscal authority to raise government purchases when GDP falls below potential. If the government fails to make up for a substantial share of the shortfalls in GDP, then IT performs worse than MGT from the perspective of society.
    Keywords: Automatic Stabilizers; Fiscal policy; Friedman's k-percent rule; ZLB constraint
    JEL: E31 E42 E52
    Date: 2020–06
  16. By: Lechthaler, Wolfgang; Tesfaselassie, Mewael F.
    Abstract: We analyze the effects of government spending in a New-Keynesian model with search and matching frictions featuring endogenous growth through learning-by-doing and skill loss from long-term unemployment. We show that medium-run and long-run output and unemployment multipliers are much larger compared to the standard model that abstracts from endogenous growth and skill loss. In our model the aggregate effect of a temporary fiscal stimulus is amplified via the skill loss channel through lower training costs. Via the learning-by-doing channel, it leads to hysteresis in human capital accumulation and thereby output. These results hold for alternative forms of fiscal financing (lump-sum tax, distortionary tax and government debt) as well as alternative labor market institutions (US and Europe).
    Keywords: Sovereign default,debt restructuring,international financial architecture,creditor Coordination
    JEL: E24 E52
    Date: 2021
  17. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: This paper uses an econometric approach to examine the inflation consequences of the American Rescue Plan Act of 2021. Price equations are estimated and used to forecast future inflation. The main results are: 1) The data suggest that price equations should be speciï¬ ed in level form rather than in ï¬ rst or second difference form. 2) There is some slight evidence of nonlinear demand effects on prices. 3) There is no evidence that demand effects have gotten smaller over time. 4) The stimulus from the act combined with large wealth effects from past household savings, rising stock prices, and rising housing prices is large and is forecast to drive the unemployment rate down to below 3.5 percent by the middle of 2022. 5) Given this stimulus, the inflation rate is forecast to rise to slightly under 5 percent by the middle of 2022 and then comes down slowly. 6) There is considerable uncertainty in the point forecasts, especially two years out. The probability that inflation will be larger than 6 percent next year is estimated to be 31.6 percent. 7) If the Fed were behaving as historically estimated, it would raise the interest rate to about 3 percent by the end of 2021 and 3.5 percent by the end of 2022 according to the forecast. This would lower inflation, although slowly. By the middle of 2022 inflation would be about 1 percentage point lower. The unemployment rate would be 0.5 percentage points higher.
    Keywords: Price equations, Inflation, Fed policy
    JEL: E31 E52
    Date: 2021–05
  18. By: Mariano Fernández
    Abstract: Abstracto Este documento analiza el resultado de algunos programas de estabilización de precios, clasificados en la literatura como Exchange Rate Based Stabilization (ERBS) y Money Based Stabilization (MBS) a la luz de su carácter temporal. Para ello se desarrolla un marco conceptual teórico que permite diferenciar a cada programa y establecer bajo cuales condiciones se los permite clasificar en transitorios y permanentes. A partir de allí, se estudian las particularidades que los diferencian entre sí, y se arriba a conclusiones que están alineadas al consenso teórico de esta literatura. El artículo se focaliza primordialmente en los programas de estabilización de Argentina desde el inicio de la década de 1960. Abstract This paper analyzes the results of some price stabilization programs classified in the literature as Exchange Rate Based Stabilization (ERBS) and Money Based Stabilization (MBS) in connection to their temporary nature for this, a theoretical and analytical framework is developed that allows differentiating each type of program and establishing under what conditions they are allowed to be classified as temporary and permanent. From that point on, their main characteristics are studied and conclusions are reached that are aligned with the theoretical consensus of this literature. The paper focuses primarily on stabilization programs in Argentina since early 1960s.
    JEL: E31 E42 E52 E58 F31 F32
    Date: 2021–05
  19. By: Daniel Gründler; Eric Mayer; Johann Scharler
    Abstract: We study nominal exchange rate dynamics in the aftermath of U.S. monetary policy announcements. Using high-frequency interest rate and stock price movements around FOMC announcements, we distinguish between pure monetary policy shocks and information shocks, which are associated with new information contained in the announcements. Contractionary pure policy shocks give rise to a strong, but transitory, appreciation on impact. Information shocks also appreciate the exchange rate, but the effect builds up only slowly over time and is highly persistent. Thus, we conclude that although the short-run effects on the exchange rate are primarily due to pure policy shocks, the medium-run response is driven by information effects.
    Keywords: central bank information, high-frequency identification, proxy VAR, exchange rate dynamics
    JEL: E44 E52 E30
    Date: 2021
  20. By: Niklas Engbom
    Abstract: Recent micro evidence of how workers search for jobs is shown to have critical implications for the macroeconomic propagation of labor market shocks. Unemployed workers send over 10 times as many job applications in a month as their employed peers, but are less than half as likely per application to make a move. I interpret these patterns as the unemployed applying for more jobs that they are less likely to be a good fit for. During periods of high unemployment, it consequently becomes harder for firms to assert who is a good fit for the job. By raising the cost of recruiting, a short-lived adverse shock has a persistent negative impact on the job finding rate. I provide evidence that firms spend more time on recruiting when unemployment is high, quantitatively consistent with the theory.
    JEL: E24 E32 J63 J64
    Date: 2021–05
  21. By: Daniel Rees; Guofeng Sun
    Abstract: We estimate the natural interest rate in China. The natural interest rate averaged between 3 and 5 per cent between the late 1990s and 2010, but declined over the next decade to around 2 per cent. We attribute around two-thirds of the decline in China's natural interest rate to a lower rate of potential output growth. As the decline in the natural interest rate in China mirrors that observed in many other economies, it is possible that global factors explain part of the decline in the natural rate not explained by lower growth.
    Keywords: real interest rate, natural interest rate, monetary policy
    JEL: E32 E40 E44
    Date: 2021–06
  22. By: Florian B\¨oser (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Chiara Colesanti Senni (Council on Economic Policies)
    Abstract: Policy makers have argued that markets are not pricing climate risk appropriately yet, which may lead to a misallocation of resources and financial instability. Climate risk-adjusted refinancing operations (CAROs) conducted by the central bank are one possible instrument to address this issue. CAROs are characterized by interest rates on reserve loans, which depend on the climate risk exposure of the assets held by the borrowing bank. If private agents and the central bank have differing beliefs about the likelihood of the transition to a low-carbon economy, the allocation emerging without CAROs is, from the central bank’s perspective, suboptimal and may lead to financial instability. We find that an appropriate design of CAROs allows the central bank to influence bank lending in a way that induces the optimal allocation under its beliefs and eliminates financial instability. Moreover, we show that investment into climate risk mitigation reduces the need for central bank intervention, and that CAROs can be used to achieve specific climate-related allocation targets.
    Keywords: central bank, banks, refinancing operations, interest rates, climate risk
    JEL: D84 E42 E43 E44 E58 G21 Q50
    Date: 2021–05
  23. By: Dadam, Vincent; Viegi, Nicola
    Abstract: This paper investigates hysteresis in South Africa's unemployment. First we test the presence of hysteresis in unemployment both by traditional stationarity tests and by us- ing non-linear transformation methods to identify two further characteristics of hysteresis, namely remanence and selective memory. In the second part of the paper we estimate a simple insider-outsider model using a Bayesian VAR methodology to identify the shocks driving the unemployment dynamics. The main �nding is that shocks to nominal wages and mark-up shocks as the main drivers of unemployment. Demand shocks do not play a dominant role. These results point to the di�culty of absorbing the current level of unemployment without signi�cant positive shocks in market structure and wage setting behaviour. The strong hysteresis present in the data shows that this excessive level of un- employment can become "equilibrium": the South African labour market presents features of the worst kind of hysteresis, a hysteresis without "hope". �
    Keywords: hysteresis, unemployment, South Africa
    JEL: E24 E32
    Date: 2021–05–31
  24. By: Andrea Fabiani; Martha López; José-Luis Peydró; Paul E. Soto
    Abstract: We study how capital controls and domestic macroprudential policy tame credit supply booms, respectively targeting foreign and domestic bank debt. For identification, we exploit the simultaneous introduction of capital controls on foreign exchange (FX) debt inflows and an increase of reserve requirements on domestic bank deposits in Colombia during a strong credit boom, as well as credit registry and bank balance sheet data. Our results suggest that first, an increase in the local monetary policy rate, raising the interest rate spread with the United States, allows more FX-indebted banks to carry trade cheap FX funds with more expensive peso lending, especially toward riskier, opaque firms. Capital controls tax FX debt and break the carry trade. Second, the increase in reserve requirements on domestic deposits directly reduces credit supply, and more so for riskier, opaque firms, rather than enhances the transmission of monetary rates on credit supply. Importantly, different banks finance credit in the boom with either domestic or foreign (FX) financing. Hence, capital controls and domestic macroprudential policy complementarily mitigate the boom and the associated risk-taking through two distinct channels. **** RESUMEN: Estudiamos cómo los controles de capital y la política macroprudencial doméstica controlan el auge de la oferta de crédito, específicamente la deuda bancaria local y extranjera. Para lograr identificación, aprovechamos los datos del registro de crédito y los balances de los bancos, y la introducción simultánea de controles de capital en las entradas de deuda en moneda extranjera y un aumento de los requerimientos de reserva sobre los depósitos bancarios nacionales en Colombia durante un fuerte auge de crédito. Nuestros resultados sugieren que, en primer lugar, un aumento en la tasa de política monetaria local, que eleva la diferencial de la tasa de interés con Estados Unidos, permite que más bancos endeudados en moneda extranjera realicen operaciones con fondos cambiarios baratos con préstamos en pesos más caros, especialmente hacia empresas opacas y más riesgosas. Los controles de capitales gravan la deuda en moneda extranjera y rompen el carry trade. En segundo lugar, el aumento de los requerimientos de reserva sobre los depósitos internos reduce directamente la oferta de crédito, y más aún para las empresas opacas y más riesgosas, en lugar de mejorar la transmisión de las tasas monetarias sobre la oferta de crédito. Es importante destacar que diferentes bancos financian el crédito durante el auge con financiación nacional o extranjera. Por lo tanto, los controles de capital y la política macroprudencial interna mitigan de manera complementaria el auge y la asunción de riesgos asociada a través de dos canales distintos.
    Keywords: Capital controls, Macroprudential and monetary policy, Carry trade, Credit supply, Risk-taking, Controles de capital, políticas macroprudencial y monetaria, Carry trade, oferta de crédito, toma de riesgo
    JEL: E52 E58 F34 F38 G21 G28
    Date: 2021–06
  25. By: Drakopoulos, Stavros A.
    Abstract: This chapter explains the role of consumption expenditures in modern economies and their significance for the determination of the level of output and employment in an economy. It starts with a presentation of the theory of intertemporal choice that forms the basis of mainstream consumption functions. Next, it discusses Keynes’s approach to consumption, and particularly his criticism of the standard model of consumer behaviour, his emphasis on the role of consumption for the level of employment, and his analysis of aggregate consumption patterns. It also describes the main mainstream theories of consumption, which are the life cycle income hypothesis, the permanent income hypothesis and the random walk theory of consumption. Finally, the chapter explores the heterodox approaches to consumption, focusing mainly on the relative income hypothesis. Additionally, it shows the consequences of consumption theories for the effectiveness of economic policies towards unemployment and economic downturns.
    Keywords: Consumption expenditure; Fiscal policy; Keynesian consumption function; Life-cycle income hypothesis; Permanent income hypothesis; Relative income Hypothesis
    JEL: B0 B21 E21
    Date: 2021–06
  26. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: The Kaleckian and Harrodian approaches to growth frequently arrive at antagonistic positions with respect to key issues in heterodox macrodynamics, including the treatment of the rate of capacity utilization and the very nature of the long-run growth process. Nevertheless, this paper is devoted to exploring the possibilities for reconciling and even synthesizing these traditions. It does so by directly addressing three key areas of dispute: the Keynesian stability condition; Harrodian instability; and the question as to whether long-run growth is best conceived in terms of a stable steady state or `corridor instability'. It is shown that reconciliation and even synthesis is possible - the latter producing a `corridor within a corridor' conception of the growth process in which the economy switches between Kaleckian and Harrodian dynamics depending on the extent to which the rate of capacity utilization departs from its normal rate.
    Keywords: Keynesian stability condition, Harrodian instability, corridor instability, shifting equilibrium, Kaleckian pseudo-instability, normal rate of capacity utilization
    JEL: E11 E12 E22 O41
    Date: 2021–06
  27. By: Sotirakopoulos, Panagiotis; Guven, Cahit; Ulker, Aydogan; Graham, Carol
    Abstract: We argue that past events experienced during the critical ages of 18-25 can influence an individual's future entrepreneurship based on the "impressionable years hypothesis". Accordingly, we empirically investigate the relationship between bad economic conditions during youth and later-life entrepreneurship using Gallup from 2009 to 2014. The identification is achieved through variations across 77 countries and age cohorts born between 1954 and 1989. Our findings indicate that bad economic conditions when young can significantly predict higher entrepreneurship in later life. For example, experiencing at least one economic contraction during youth increases future self-employment/business ownership propensities by about 6/10% at the outcome means. Graduating from college and entering the job market in a bad economy cannot explain our results. Findings are robust to numerous methods of measuring economic contractions and controlling for behavioural measures as well as economic shocks experienced before and after the impressionable years.
    Keywords: Impressionable Years Hypothesis,Entrepreneurship,Self-employment,Business Ownership,Economic Contractions,Gallup Data
    JEL: L26 E32 E60
    Date: 2021
  28. By: Shesadri Banerjee; M S Mohanty
    Abstract: The effect of US monetary policy on EMEs is one of the fiercely debated issues in international finance. We contribute to this debate using micro- and macro-level analyses from India over the period 2004-2019. Using a dynamic panel estimation model of non-financial firms, we show that US monetary tightening adversely affects firms’ net worth and reduces domestic credit relative to external credit. Using a sign-identified VAR model, we find that the contractionary US monetary policy leads to a significant downturn in the domestic credit and business cycles. The responses of firms and the impact on the domestic credit cycle suggest that the financial channel of the exchange rate is one of the conduits transmitting US monetary policy to India.
    Keywords: US monetary policy, international transmission of monetary policy, dynamic panel estimation, sign-restricted VAR model, financial channel, Indian economy
    JEL: E32 E52 F41 F42 F61 F62
    Date: 2021–05
  29. By: Andres Blanco (University of Michigan); Bernardo Diaz de Astarloa (CEDLAS-IIE-FCE-UNLP and UBA); Andres Drenik (Columbia University); Christian Moser (Columbia University); Danilo Trupkin (UBA)
    Abstract: This paper studies earnings inequality and dynamics in Argentina between 1996 and 2015. Following the 2001–2002 crisis, the Argentine economy transitioned from a low- to a highinflation regime. At the same time, the number of collective bargaining agreements increased, and minimum wage adjustments became more frequent. We document that this macroeconomic transition was associated with a persistent decrease in the dispersion of real earnings and cyclical movements in higher-order moments of the distribution of earnings innovations. To understand this transition at the micro level, we estimate processes of regular wage adjustments within job spells. As the Argentine economy transitioned from low to high inflation, the monthly frequency of regular wage adjustments almost doubled, while the distribution of changes in regular wages morphed from having a mode close to zero and being positively skewed to having a positive mode and being more symmetric.
    JEL: D31 E24 E31 J31
    Date: 2021–06
  30. By: Kösem, Sevim (Bank of England)
    Abstract: This paper studies housing and credit market implications of increasing income inequality and discusses how a low interest rate environment can alter its consequences. I develop an analytical general equilibrium model with a novel borrower risk composition channel of income inequality. Following a rise in income inequality house prices and mortgage debt decline, and aggregate default risk increases. I then show that low real rates mitigate the depressing effect of inequality on house prices at the cost of amplifying the aggregate default risk. Using a panel of US states and instrumental variables approach, I verify the model’s predictions.
    Keywords: Income inequality; mortgage lending; mortgage default; house prices; real interest rates; risk taking; shift-share instruments
    JEL: D31 E44 E58 G21 R21
    Date: 2021–05–21
  31. By: Olivier Cardi; Romain Restout
    Abstract: Motivated by recent evidence pointing at an increase in the TFP following higher government spending, we explore how technology affects sectoral fiscal multipliers in open economy. Our estimates for eighteen OECD countries over 1970-2015 reveal that a government spending shock increases significantly the non-traded-goods-sector share of total hours worked while the response of the value added share of non-tradables (at constant prices) is muted at all horizon. The latter finding is puzzling as government spending shocks are strongly biased toward non-tradables. Our empirical findings show that the solution to this puzzle lies in technology which responds endogenously to the government spending shock. By offsetting the effect of the biasedness of the demand shock toward non-tradables, the rise in traded relative to non-traded TFP ensures that real GDP growth is uniformly distributed across sectors (i.e., in accordance with their value added share). Because a government spending shock also leads non-traded firms to bias technological change toward labor and traded firms to bias technological change toward capital, factor-augmenting technological change rationalizes the concentration of the rise in labor in the non-traded sector. Our quantitative analysis shows that a semi-small open economy model with tradables and non-tradables can reproduce the sectoral fiscal multipliers we document empirically once we let the decision on technology improvement vary across sectors and allow firms to change the mix of labor- and capital-augmenting efficiency over time.
    Keywords: Sector-biased government spending shocks, Endogenous technological change, Factor-augmenting efficiency, Open economy, Labor reallocation, CES production function, Labor income share
    JEL: E25 E62 F11 F41 O33
    Date: 2021
  32. By: Emanuel Kohlscheen; Marco Jacopo Lombardi; Egon Zakrajšek
    Abstract: Using an international panel data set, we analyze the implications of rising income inequality for aggregate consumption. We document that greater concentration of (after-tax) income in the top decile is associated with a significantly larger and more persistent contraction in consumption in the aftermath of economic downturns. These findings are consistent with lower propensities to consume among wealthier households and imply that disparities in income flows at turning points of the business cycle can significantly influence macroeconomic outcomes.
    Keywords: consumption, income inequality, recessions, financial crises, cross-country evidence
    JEL: D31 E20 E32
    Date: 2021–05
  33. By: Debortoli, Davide; Forni, Mario; Gambetti, Luca; Sala, Luca
    Abstract: Monetary policy easing and tightening have asymmetric effects: a policy easing has large effects on prices but small effects on real activity variables. The opposite is found for a policy tightening: large real effects but small effects on prices. Nonlinearities are estimated using a new and simple procedure based on linear Strutural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities.
    Keywords: monetary policy shocks; nonlinear effects; structural VAR models
    JEL: C32 E32
    Date: 2020–07
  34. By: Juan Carlos Cuestas (Department of Economics and Finance, Tallinn University of Technology, Estonia; IEI and Department of Economics, Universitat Jaume I, Castellón, Spain); Merike Kukk (Department of Economics and Finance, Tallinn University of Technology, Estonia); Natalia Levenko (Department of Economics and Finance, Tallinn University of Technology, Estonia)
    Abstract: In this paper we investigate house price misalignments and how they affect the real economy. We estimate the long-term relationship between house prices and the fundamentals that determine long-term house prices for a panel of European countries with dynamic OLS, using data from 2005-2018. We find that income has been the main driver of fundamental house prices in all countries, while the supply of dwellings has calmed the rise in house prices in some of them. We calculate house price misalignments, which are deviations of house prices from the fundamental value, and we employ them in the growth model. The results of the growth regression indicate that house price imbalances amplify business cycles in the short term, but in the long term house price overvaluations slow economic growth down. The findings imply that it is crucial to take measures to stabilise housing cycles.
    Keywords: housing markets, fundamental house price, misalignments, imbalances, overvaluation, economic growth
    JEL: E21 E44 R21 R31 G01
    Date: 2021
  35. By: Dean Corbae; Pablo D'Erasmo
    Abstract: We develop a model of banking industry dynamics to study the quantitative impact of regulatory policies on bank risk taking and market structure. Since our model is matched to U.S. data, we propose a market structure where big banks with market power interact with small, competitive fringe banks as well as non-bank lenders. Banks face idiosyncratic funding shocks in addition to aggregate shocks which affect the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of capital. We show the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We find that regulatory policies can have an important impact on banking market structure, which, along with selection effects, can generate changes in allocative efficiency and stability.
    Keywords: Macroprudential policy; Bank size distribution; Industry dynamics with imperfect competition
    JEL: E44 G21 L11
    Date: 2021–05–26
  36. By: Fei Guo (Xian Jiaotong University); Isabel Kit-Ming Yan (City University of Hong Kong)
    Abstract: A fundamental aspect of China's transition to a market economy is the change of fiscal decentralization marked by the tax reform in 1993. This paper examines the effect of revenue and expenditure decentralization and their divergences on fiscal spending multipliers in China using nationally aggregate and provincial-level data from 1978 to 2017. Our investigations show that expenditure decentralization weakens the efficacy of spending policies, while revenue decentralization enhances the efficacy. Moreover, the divergence of revenue and expenditure decentralization has decreased the aggregate and provincial spending multipliers. The results are robust to the inclusion of off-budgetary expenditure and revenue, using different estimates of multipliers and different measures of fiscal decentralization, considering from a long-run perspective, and addressing the endogeneity issue.
    Keywords: Fiscal decentralization, Government spending, Fiscal multiplier, Tax reform, China
    JEL: E62 H5 H72 R5
    Date: 2021–05–31
  37. By: Ulrich Eydam (University of Potsdam)
    Abstract: Promoting the decarbonization of economic activity through climate policies raises many questions. From a macroeconomic perspective, it is important to understand how these policies perform under uncertainty, how they affect short-run dynamics and to what extent they have distributional effects. In addition, uncertainties directly associated with climate policies, such as uncertainty about the carbon budget or emission intensities, become relevant aspects. We study the implications of emission reduction schemes within a Two-Agent New-Keynesian (TANK) model. This quantitative exercise, based on data for the German economy, provides various insights. In the light of frictions and fluctuations, compared to other instruments, a carbon price (i.e. tax) is associated with lower volatility in output and consumption. In terms of aggregate welfare, price instruments are found to be preferable. Conditional on the distribution of revenues from climate policies, quantity instruments can exert regressive effects, posing a larger economic loss on wealth-poor households, whereas price instruments are moderately progressive. Finally, we find that unexpected changes in climate policies can induce substantial aggregate adjustments. With uncertainty about the carbon budget, the costs of adjustment are larger under quantity instruments.
    Keywords: macroeconomic dynamics, environmental policy, inequality, policy design
    JEL: Q52 Q58 E32 E61
    Date: 2021–06
  38. By: D'Acunto, Francesco; Malmendier, Ulrike M.; Weber, Michael
    Abstract: Expectations about economic variables vary systematically across genders. In the domain of inflation, women have systematically higher expectations than men. We argue that traditional gender roles are a significant factor in generating this gender expectations gap as they expose women and men to different economic signals in their daily lives. Using unique data on the participation of men and women in household grocery chores, their resulting exposure to price signals, and their inflation expectations, we document a tight link between the gender expectations gap and the distribution of grocery shopping duties. Since grocery prices are highly volatile, and consumers focus disproportionally on positive price changes, frequent exposure to grocery prices increases perceptions of current inflation and expectations of future inflation. We show that the gender expectations gap is largest in households whose female heads are solely responsible for grocery shopping, whereas no gap arises in households in which grocery shopping is split equally between men and women. We discuss how gender roles, through the gender expectations gap, can lead women to suboptimal economic choices.
    Keywords: Expectations; Experiences; exposure; Gender Gap; Perceptions
    JEL: C90 D14 D84 E31 E52 G11
    Date: 2020–06
  39. By: Uddin, Godwin
    Abstract: Financial system soundness in world economies remains germane, but in the same vein, the COVID-19 outbreak had made governments scampering for any and every solution as experience has shown the need to incentivize businesses to enable economy-wide recovery. In this perspective, consideration of the Nigerian case is made, to re-echo possible collaboration by the Central Bank of Nigeria (CBN) and an operationally-associated agency - the Asset Management Corporation of Nigeria (AMCON). This viewpoint shows the role that AMCON could play to recoup extended facilities, in view to ensure financial system soundness, amidst others. Thus, efforts to leverage on this collaboration could aid going forward a fruitful operational effectiveness of so established policy responses.
    Keywords: COVID-19 pandemic; Central Bank of Nigeria; economic stimulus packages; Nigeria; financial system soundness; recession
    JEL: E5 E52 E58 G28
    Date: 2021–05–17
  40. By: Emilio Ocampo
    Abstract: Argentina’s modern economic history offers perhaps the clearest evidence in support of a rules-based fiscal and monetary policy framework. From 1899 until 1914 the country abided by the rules of the gold standard and experienced rapid GDP growth with price stability. After WWI and until 1939, when it was mostly off the gold standard, its inflation rate and fiscal balances remained in line with those of the world’s most developed countries. During the 1930s the Argentine Treasury was able to issue long-term debt in pesos at rates between 3% and 4% per annum. Something fundamental happened after 1945 and its effects proved persistent: since then inflation has averaged 143% a year –with several bouts of extreme inflation and hyperinflation. In the last 50 years, persistent and high fiscal imbalances, low growth and recurrent sovereign debt defaults have become semi-permanent features of the Argentine economy. This paper argues that Argentina suffers from a condition that can be described as fiscal and monetary anomie, the roots of which can be traced back to the establishment of a populist-corporatist economic regime in 1946. It also contends that the failure of the 1990s structural reforms reinforced this condition.
    Keywords: Argentina, Economic History, Fiscal Policy, Monetary Policy, Populism
    JEL: E5 E63 N16 O54
    Date: 2021–05
  41. By: Acemoglu, Daron; Tahbaz-Salehi, Alireza
    Abstract: This paper studies how firm failures and the resulting disruptions to supply chains can amplify negative shocks. We develop a non-competitive model where customized supplier-customer relations increase productivity, and the relationship-specific surplus generated between firms and their suppliers is divided via bargaining. Changes in productivity alter the distribution of surplus throughout the economy and determine which firms are at the margin of failure. A firm's failure may spread to its suppliers and customers and to firms in other parts of the production network. We provide existence, uniqueness, and a series of comparative statics results, and show how the response of the equilibrium production network may propagate recessionary shocks.
    Keywords: Amplification; Bargaining; business cycles; Economic Fluctuations; production networks; relationship-specific surplus; Supply Chains
    JEL: D57 E23 E32
    Date: 2020–07
  42. By: Faria-e-Castro, Miguel
    Abstract: What are the quantitative macroeconomic effects of the countercyclical capital buffer (CCyB)? I study this question in a nonlinear DSGE model with occasional financial crises, which is calibrated and combined with US data to estimate sequences of structural shocks. Raising capital buffers during leverage expansions can reduce the frequency of crises by more than half. A quantitative application to the 2007-08 financial crisis shows that the CCyB in the 2:5% range (as in the Federal Reserve's current framework) could have greatly mitigated the financial panic of 2008, for a cumulative gain of 29% in aggregate consumption. The threat of raising capital requirements is effective even if this tool is not used in equilibrium. JEL Classification: E4, E6, G2
    Keywords: countercyclical capital buffer, financial crises, macroprudential policy
    Date: 2021–06
  43. By: Lagerborg, Andresa Helena; Pappa, Evi; Ravn, Morten O
    Abstract: We use fatalities in mass shootings in the U.S. as an instrument for autonomous declines in consumer confi dence to estimate the dynamic causal effects of sentiment shocks. Declining confi dence is recessionary and sets off a severe contraction in the labor market, while having less evident nominal effects. Sentiment shocks explain a non-negligible part of cyclical fluctuations. We demonstrate that in a model with heterogeneous agents, nominal rigidities and search-and-matching frictions, a wave of pessimism can take the economy from a normal state on a path towards a high-unemployment sunspot limit, inducing dynamics that resemble the empirical patterns.
    Keywords: Consumer confidence; Demand Shocks; incomplete markets; instrumental variables; Search and Matching
    JEL: C36 E0 E32
    Date: 2020–07
  44. By: Josef Bajzik (Charles University & Czech National Bank, Prague, Czech Republic); Dominika Ehrenbergerova (Charles University & Czech National Bank, Prague, Czech Republic); Tomas Havranek (Charles University, Prague, Czech Republic & CEPR)
    Abstract: Several central banks have leaned against the wind in the housing market by increasing the policy rate preemptively to prevent a bubble. Yet the empirical literature provides mixed results on the impact of short-term interest rates on house prices: the estimated semi-elasticities range from -12 to positive values. To assign a pattern to these differences, we collect 1,447 estimates from 31 individual studies that cover 45 countries and 69 years. We then relate the estimates to 39 characteristics of the financial system, business cycle, and estimation approach. Our main results are threefold. First, the mean reported estimate is exaggerated by publication bias, because insignificant results are underreported. Second, omission of important variables (liquidity and long-term rates) likewise exaggerates the effects of short-term rates on house prices. Third, the effects are stronger in countries with more developed mortgage markets and generally later in the cycle when the yield curve is flat and house prices enter an upward spiral.
    Keywords: Interest rates, house prices, monetary policy transmission, meta-analysis, publication bias, Bayesian model averaging
    JEL: C83 E52 R21
    Date: 2021–05
  45. By: Oren Barkan (Ariel University); Jonathan Benchimol (Bank of Israel); Itamar Caspi (Bank of Israel); Allon Hammer (Tel-Aviv University); Noam Koenigstein (Tel-Aviv University)
    Abstract: We present a hierarchical architecture based on Recurrent Neural Networks (RNNs) for predicting disaggregated inflation components of the Consumer Price Index (CPI). While the majority of existing research is focused on predicting headline inflation, many economic and financial institutions are interested in its partial disaggregated components. To this end, we developed the novel Hierarchical Recurrent Neural Network (HRNN) model, which utilizes information from higher levels in the CPI hierarchy to improve predictions at the more volatile lower levels. Based on a large dataset from the US CPI-U index, our evaluations indicate that the HRNN model significantly outperforms a vast array of well-known inflation prediction baselines. Our methodology and results provide additional forecasting measures and possibilities to policy and market makers on sectoral and component-specific prices.
    Keywords: Inflation forecasting, Disaggregated inflation, Consumer Price Index, Machine learning, Gated Recurrent Unit, Recurrent Neural Networks
    JEL: C45 C53 E31 E37
    Date: 2021–03
  46. By: Maxime Phillot
    Abstract: We present a novel identification strategy of U.S. Treasury supply shocks based on auction data. We interpret changes in Treasury futures prices around public announcements by the Treasury as shocks to the expected supply of debt securities by the U.S. government. After describing the theoretical mechanism between futures prices and expected debt supply, we isolate the component of price variation in futures pertaining to Treasury announcements between 1998 and 2020. We then study how Treasury supply affects financial markets by means of local projections, using our series of shocks as instrumental variables. We show that surprise increases in Treasury supply have sizable and significant dynamic causal effects on financial markets, as they cause an upward shift of the yield curve, fuelled in part by an increase in the term premium. While stock prices go up and volatility goes down, corporate bond yields increase. As a result, the equity premium rises,the risk premium falls, inflation expectations soar and the liquidity premium decreases.
    Keywords: Treasury supply, high frequency identification, local projections, liquidity premium
    JEL: E44 E62 H63
    Date: 2021–05
  47. By: Bobeica, Elena; Hartwig, Benny
    Abstract: We document the impact of COVID-19 on frequently employed time series models, with a focus on euro area inflation. We show that for both single equation models (Phillips curves) and Vector Autoregressions (VARs) estimated parameters change notably with the pandemic. In a VAR, allowing the errors to have a distribution with fatter tails than the Gaussian one equips the model to better deal with the COVID-19 shock. A standard Gaussian VAR can still be used for producing conditional forecasts when relevant off-model information is used. We illustrate this by conditioning on official projections for a set of variables, but also by tilting to expectations from the Survey of Professional Forecasters. For Phillips curves, averaging across many conditional forecasts in a thick modelling framework offers some hedge against parameter instability. JEL Classification: C53, E31, E37
    Keywords: COVID-19, forecasting, inflation, student's t errors, tilting, VAR
    Date: 2021–05
  48. By: Francois-Michel Boire; Thibaut Duprey; Alexander Ueberfeldt
    Abstract: We incorporate quantile regressions into a structural vector autoregression model to empirically assess how monetary and fiscal policy influence risks around future GDP growth. Using a panel of six developed countries, we find that both policy instruments affect the location of the distribution of future GDP growth, whereas fiscal shocks also impact the shape of the distribution. Fiscal stimulus generates upside risk, paving the path to a faster recovery, especially when the policy rate is constrained by the zero lower bound (ZLB). Unconventional monetary policy during ZLB episodes has a comparable effect on future GDP growth as conventional monetary policy.
    Keywords: Central bank research; Econometric and statistical methods; Financial stability; Fiscal policy; Monetary policy
    JEL: C53 E62
    Date: 2021–05
  49. By: Albagli, Elias; Calani, Mauricio; Hadzi-Vaskov, Metodij; Marcel, Mario; Ricci, Luca Antonio
    Abstract: Chile offers an example of a country that has overcome the fear of floating by reducing balance sheet mismatches, enhancing financial market development, as well as improving monetary, fiscal, and political institutions, and strengthening policy credibility. Under the floating regime, Chile's economic adjustment to external shocks appears significantly improved, and its exchange rate pass-through has substantially declined. Our results reinforce the case that moving to a clear and credible floating regime can be associated with a reduction in the fear of floating via economic transformation (like smaller balance sheet mismatches, a larger hedging market, and a lower exchange rate pass-through).
    Keywords: central bank independence; exchange rate pass-through; Exchange Rate Regime; FX derivatives; Hedging; Policy Credibility
    JEL: E31 E52 F31 F33 F41 G15
    Date: 2020–06
  50. By: Mototsugu Shintani; Kozo Ueda
    Abstract: Coibion and Gorodnichenko (2015) provide a useful framework to test the null hypothesis of full-information rational expectations against two popular classes of information rigidities, sticky information (SI) and noisy information (NI). However, the observational equivalence of SI and NI in average forecast errors gives no power in the test for one against the other. We identify the source of information rigidities by estimating the equations for the average forecast errors and variance of forecasts. The results show the importance of both SI and NI, but favor a type of NI in which agents quickly learn the underlying state.
    Keywords: imperfect information, heterogeneity, sticky information, noisy information, observational equivalence
    JEL: C53 D83 D84 E13 E31 E37
    Date: 2021–06
  51. By: Miroslav Gabrovski (University of Hawaii Manoa); Victor Ortego-Marti (Department of Economics, University of California Riverside)
    Abstract: This paper studies efficiency in the housing market in the presence of search frictions and endogenous entry of buyers and sellers. These two features are essential to explain the housing market stylized facts, in particular to generate an upward-sloping Beveridge Curve in the housing market. Search frictions and endogenous entry create two externalities in the market. First, there is a congestion externality common to markets with search frictions. Sellers do not internalize the effect of listing a house for sale on other sellers' probability of finding a buyer, and on buyers' home finding rate. Second, the endogenous entry of buyers leads to a composition externality, as new entrants in the markets value housing less and worsen the distribution of buyers' valuations and surplus. The equilibrium is inefficient even when the Hosios-Pissarides-Mortensen condition holds. We quantify the size of these externalities and how far the observed housing market is from the optimal allocation. The optimal vacancy rate, time-to-sell, and vacancies are about half their equilibrium counterparts, whereas the optimal number of buyers and homeowners are slightly above their decentralized equilibrium values. Finally, we investigate the effect of housing market policies on the equilibrium and how they can restore efficiency in the housing market.
    Keywords: Housing market; Search and matching; Beveridge Curve; Housing liquidity; Efficiency; housing policy
    JEL: E2 E32 R21 R31
    Date: 2021–05
  52. By: Alejandro García; Josef Schroth
    Abstract: Les volants contracycliques sont un ensemble de mesures réglementaires élaborées en réponse à la crise financière mondiale de 2008-2009. La présente note analytique se penche sur la capacité des volants de fonds propres variables à améliorer la stabilité financière au Canada.
    Keywords: Crédit et agrégats du crédit; Cycles et fluctuations économiques; Fonction de prêteur de dernier ressort; Gestion du risque de crédit; Réglementation et politiques relatives au système financier; Stabilité financière
    JEL: E44
    Date: 2021–06
  53. By: Ehrmann, Michael
    Abstract: Inflation targeting is implemented in different ways – most often by adopting point targets, by having tolerance bands around a point target, or by specifying target ranges. Using data for 20 economies, this paper tests whether the various target types affect the anchoring of inflation expectations at shorter horizons differently. It tests two contradictory hypotheses, namely that targets with intervals lead to (i) less anchoring, e.g. because they provide more flexibility to the central bank, or (ii) better anchoring, because they are missed less often, leading to an enhanced credibility. The evidence refutes the first hypothesis, and generally finds that target ranges or (in some cases) tolerance bands outperform the other types. However, the effects partially depend on the economic context and no target type consistently outperforms all others. This suggests that there are some benefits to adopting intervals, but the central bank can anchor inflation expectations also by other means. JEL Classification: E52, E58, E31
    Keywords: inflation expectations, inflation targeting, point target, target range, tolerance band
    Date: 2021–05
  54. By: Hartley, Jonathan S.; Rebucci, Alessandro
    Abstract: Amid the COVID-19 outbreak and related expected economic downturn, many developed and emerging market central banks around the world engaged in new long-term asset purchase programs, or so-called quantitative easing (QE) interventions. This paper conducts an event-study analysis of 20 COVID-19 QE announcements made by 17 global central banks on their local 10-year government bond yields. We find that the average developed market QE announcement had a statistically significant -0.14% 1-day impact, which is slightly smaller than past interventions during the Great Recession era. In contrast, the average impact of emerging market QE announcements was significantly larger, averaging -0.37% and -0.63% over 1-day and 3-day windows, respectively. Across developed and emerging bond markets, we estimate an overall average 1-day impact of -0.27%. We also show that all 10-year government bond yields in our sample rose sharply in mid-March 2020, but fell substantially after the period of QE announcements that we study in the paper.
    Keywords: Bond Interest Rates; central banks; COVID-19; event study; International Bond Markets; monetary policy; Policy Announcements; Quantitative easing
    JEL: E52 E58 F3 G12 G14
    Date: 2020–06
  55. By: Brandt, Lennart; Saint Guilhem, Arthur; Schröder, Maximilian; Van Robays, Ine
    Abstract: Financial asset prices contain a rich set of real-time information on the economy. To extract this information, it is crucial to understand the driving factors behind financial market developments. In this paper, we exploit daily cross-asset price movements in a sign-restricted BVAR model to analyse the extent to which euro area and US yields, equity prices, and the euro-US dollar exchange rate are jointly driven by monetary policy, macro and global risk factors. A novelty is that we allow for cross-Atlantic spillovers while also accounting for the unique role of the US in the global financial system. Our results underline the importance of US spillovers and shifts in global risk sentiment for understanding the dynamics of euro area financial variables. Euro area shocks transmit much less to US financial markets in comparison, with global risk shocks being more important instead. Using the daily shocks as instruments in a Proxy-SVAR, we demonstrate that the transmission of financial market movements to the macroeconomy depends on the underlying driver, thereby illustrating why it matters to look into the driving factors in the first place. JEL Classification: C32, C54, E44, E52
    Keywords: financial conditions, high-frequency identification, international transmission, large-scale asset purchases, monetary policy
    Date: 2021–05
  56. By: Noritaka Kudoh (; Hiroaki Miyamoto (Tokyo Metropolitan University)
    Abstract: Business cycle models with search-matching frictions are studied to evaluate the importance of general equilibrium effects generated by movements in the stochastic discount factor and the income effect on labor supply. Without variable hours of work, the general equilibrium effect works only through the stochastic discount factor and is quantitatively very weak. With variable hours of work, the income effect generates procyclical movements in the value of leisure and the marginal hourly wage rate. This effect is sizable and dampens labor market fluctuations. We also study discount factor shocks and find that capital formation strongly enhances labor market fluctuations.
    Keywords: labor market search, stochastic discount factor, unemployment volatility
    JEL: E32 J20 J64
    Date: 2021–05
  57. By: Oscar Eduardo Machicado Mendoza (Banco Central de Bolivia)
    Abstract: En este trabajo se analiza el vínculo que hay en el nivel de las tasas con fines de regulación monetaria y el nivel de las mismas en las operaciones de ruedo de la Bolsa Boliviana de Valores (BBV). Se explora los temas relacionados en la literatura y, mediante un modelo GARCH, se muestra como la correlación condicional en el periodo comprendido entre 2010 y 2018, presentando una alta correlación en los periodos donde se tenía una mayor cantidad de títulos públicos en el mercado secundario de la BBV. Los resultados nos aportan una medida de relevancia del efecto de la política monetaria en el mercado de valores, la misma que disminuye a medida que el volumen de valores transados es menor, así como la adjudicación de valores públicos con plazos menores a un año.
    Keywords: GARCH, tasas de interés, operaciones de mercado abierto, mercado de valores
    JEL: C58 E52 E58 G10
    Date: 2019–07
  58. By: Raphael Auer; Rainer Boehme
    Abstract: CBDCs should let central banks provide a universal means of payment for the digital era. At the same time, such currencies must safeguard consumer privacy and maintain the two-tier financial system. We set out the economic and operational requirements for a "minimally invasive" design – one that preserves the private sector's primary role in retail payments and financial intermediation – for CBDCs and discuss the implications for the underlying technology. Developments inspired by popular cryptocurrency systems do not meet these requirements. Instead, cash is the model for CBDC design. Showing particular promise are digital banknotes that run on "intermediated" or "hybrid" CBDC architectures, supported with technology to facilitate record-keeping of direct claims on the central bank by private sector entities. Their economic design should emphasise the use of the CBDC as medium of exchange but needs to limit its appeal as a savings vehicle. In the process, a novel trade-off for central banks emerges: they can operate either a complex technical infrastructure or a complex supervisory regime. There are many ways to proceed, but all require central banks to develop substantial technological expertise.
    Keywords: central bank digital currency, CBDC, payments, cash, privacy, distributed systems
    JEL: E42 E58 G21 G28
    Date: 2021–06
  59. By: Cândida Ferreira
    Abstract: This paper uses panel Granger causality estimations with the approaches developed by NairReichert and Weinhold (2001), and Bangake and Eggoh (2011) as well as the Dumitrescu and Hurlin (2012) test, with the algorithm developed by Lopez and Weber (2017), to analyse the causality relations between all the nine IMF financial development indices, and the real GDP growth considering a sample of 46 countries spread by all continents over the interval 1990-2017. The results obtained reveal the dynamic character of these causality relations and overall,no significant differences were found when comparing the results obtained for the financial institutions indices with those regarding the financial markets indices. The results confirm the existence of bidirectional causality, although not with the same statistical robustness for all the IMF indices, addressing relevant aspects of the financial development: access, depth and efficiency of the financial institutions and markets.
    Keywords: Panel Granger causality; financial development; IMF financial development indices; financial institutions and markets; economic growth.
    JEL: C33 E02 E44 F43 G20 O43
    Date: 2021–05
  60. By: Guy Segal (Bank of Israel)
    Abstract: Using simulations on different macroeconomic models, we show that monetary policy can mitigate the drop in output after a negative demand shock and lead to a positive inflation gap and convergence to its target from above. Thus, the risk hitting the ELB is lower due to the overshooting inflation. Such dynamics are feasible under a super-inertial rule, i.e., when the degree of interest rate smoothing is above a threshold greater than one. The more backward-looking the economy is, the higher the threshold is. Hence, a superinertial policy should be in the toolbox of central banks to support demand-shock dominated crisis.
    Date: 2021–05
  61. By: Noritaka Kudoh (Nagoya University); Hiroaki Miyamoto (Tokyo Metropolitan University)
    Abstract: This paper studies the impact of the robotics revolution on the labor market outcomes through the lens of capital-augmenting technological progress. We develop a tractable search-matching model with labor market segmentation and multi-factor production to find the condition under which the new technology harms the labor market in the long run. The robotics revolution hits the labor market for routine-task intensive jobs harder under a more generous unemployment policy. Automation of abstract tasks may cause a disaster for those who are reallocated to routine-task intensive occupations.
    Keywords: robots, capital-augmenting technological progress, search-matching frictions, unemployment, routinization
    JEL: E32 J20 J64
    Date: 2021–05
  62. By: Arief Rasyid; Jason Nassios; Elizabeth L Roos; James Giesecke
    Abstract: After the 2008 global financial crisis, authorities across the globe stressed the importance of equity capital to absorb losses. While many countries have raised bank capital adequacy requirements (CARs), the comprehensive impact assessment of this policy for emerging economies remains largely unexplored. We use a financial computable general equilibrium (FCGE) model of Indonesia called AMELIA-F to investigate the economy-wide impact of a 100 basis points increase in the CAR of Indonesian banks. We find that this causes small negative consequences on the economy. Bank balance sheets contract as they move away from holding riskier assets. This reduces investment in both non-housing and housing sectors, as equity financing raises banks weighted average costs of capital (WACC). The fall in real investment decreases foreign financing needs.
    Keywords: Financial CGE model weighted average cost of capital capital adequacy ratio macro prudential policy Indonesia
    JEL: C68 D58 E17 E44 G21
    Date: 2021–05
  63. By: Portes, Jonathan
    Abstract: I review trends in migration to the UK since the Brexit referendum, examining first the sharp fall in net migration from the EU that resulted, and then the recent more dramatic exodus of foreign-born residents during the covid-19 pandemic. I describe the new post-Brexit system, and review studies which attempt to estimate both the impact on future migration flows and on GDP and GDP per capita. Finally, I discuss the wider economic impact of the new system and some of the policy implications.
    Keywords: Immigration,Great Britain,productivity
    JEL: E24 J24 J61 M53
    Date: 2021
  64. By: Brandt, Loren; Kambourov, Gueorgui; Storesletten, Kjetil
    Abstract: Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector.
    Keywords: capital distortions; China; convergence; Entry Barriers; Firm entry; growth; output distortions; SOE reform; transition
    JEL: D22 D24 E24 O11 O14 O16 O40 O53 P25 R13
    Date: 2020–06
  65. By: Heng Chen; Walter Engert; Kim Huynh; Daneal O’Habib
    Abstract: Providing bank notes is one of the Bank of Canada’s core functions. The Bank is therefore interested in whether cash is adequately distributed across society, and this also influences the Bank’s thinking on issuing a central bank digital currency. We provide a perspective on these issues by exploring access of First Nations reserves to cash. To do so, we measure the distance between the 637 reserve band offices in Canada and their closest cash sources. In this study, these cash sources are branches of financial institutions (FIs), automated bank machines (ABMs) owned by FIs, and white label ABMs. We measure the distance between band offices and cash sources by geographical distance (“as the crow flies”) and by travel distance (e.g., road routes). We also provide some information on access to financial services more generally and set out questions for future research.
    Keywords: Bank notes; Digital currencies and fintech; Financial institutions; Financial services; Payment clearing and settlement systems
    JEL: E41 E42 E5 G21
  66. By: Hyeongwoo Kim; Madeline Kim
    Abstract: Motivated by Mr. Trump's agendas against China and Mexico, we investigate how a candidate's probability of winning the U.S. presidential election affects the international financial markets that are related to these countries. Unexpected increases in Trump's probability of winning the 2020 election generate significantly negative long-term effects on their home currency and the stock prices, while the default probability responds significantly positively in the long run. Similar responses, though in the short run, were observed when Mr. Biden's probability of winning increases, which tends to dissipate quickly over time. The responses to the Biden shock resemble those to the Trump shock during the 2016 election, implying that the probability shock of the new entrant candidate creates short-run disturbances in the financial market, whereas the probability shock of the incumbent candidate such as Trump in 2020 or Clinton in 2016 helps stabilize financial markets in the short run.
    Keywords: Donald Trump; Joe Biden; Hillary Clinton; Incumbent Candidate; PredictIt; Financial market
    JEL: E44 F31 G15
    Date: 2021–05
  67. By: Esteves, Rui (International Economics and International History Departments, Graduate Institute of International and Development Studies, Geneva); Kenny, Seán (Department of Economic History, Lund University); Lennard, Jason (Department of Economic History, London School of Economics)
    Abstract: Default is as old as sovereign debt. Since 1820, countries that issued sovereign debt have spent 18% of time in a state of default. Despite the scale of the problem, the causes and consequences of defaults are still imperfectly understood. In this paper we quantify the aggregate costof defaults, based on a large panel of 50 sovereigns between 1870and 2010. Since defaults are endogenousto the business cycle, we use the narrative approach to identify plausibly exogenous debt crises. Our estimatesyield significant and persistent costsof defaults starting at 1.6% of GDP and peaking at3.3% before reverting to trend five years after a debt event. Moreover, weidentify a large heterogeneity of costs by the cause of default. Higher costs are associated with defaults initiated bynegative supply shocks, political crises,or adverse terms of trade. In contrast, domestic demand shocks have a moderate effect, quickly reversed. Despite working with a large sample, we document how average estimates of default costs can be sensitive to different dating and definitions of defaults.
    Keywords: Business cycles; narrative approach; sovereign debt crises
    JEL: E32 F34 F41 G01 H63 N10 N20
    Date: 2021–05–21
  68. By: Alejandra Bellatin; Stephanie Houle
    Abstract: Since the mid-2000s, labour productivity has slowed down in Canada despite enormous technological advances that were expected to improve it. This note investigates whether mismeasurement of the digital economy can explain this paradox.
    Keywords: Productivity
    JEL: E01 L86 O33 O51
    Date: 2021–05
  69. By: Minsu Chang (Georgetown University); Xiaohong Chen (Cowles Foundation, Yale University); Frank Schorfheide (University of Pennsylvania, CEPR, PIER, NBER)
    Abstract: We develop a state-space model with a state-transition equation that takes the form of a functional vector autoregression and stacks macroeconomic aggregates and a cross-sectional density. The measurement equation captures the error in estimating log densities from repeated cross-sectional samples. The log densities and the transition kernels in the law of motion of the states are approximated by sieves, which leads to a nite-dimensional representation in terms of macroeconomic aggregates and sieve coefficients. We use this model to study the joint dynamics of technology shocks, per capita GDP, employment rates, and the earnings distribution. We nd that the estimated spillovers between aggregate and distributional dynamics are generally small, a positive technology shock tends to decrease inequality, and a shock that raises the inequality of earnings leads to a small but not signiï¬ cant increase in GDP.
    Keywords: Bayesian Model Selection, Econometric Model Evaluation, Earnings Distribution, Functional Vector Autoregressions, Heterogeneous Agent Models, State-space Model, Technology Shocks
    JEL: C11 C32 C52 E32
    Date: 2021–05
  70. By: Jaravel, Xavier; O'Connell, Martin
    Abstract: We characterize inflation dynamics during the Great Lockdown using scanner data covering millions of transactions for fast-moving consumer goods in the United Kingdom. We show that there was a significant and widespread spike in inflation. First, aggregate month-to-month inflation was 2.4% in the first month of lockdown, a rate over 10 times higher than in preceding months. Over half of this increase stems from reduced frequency of promotions. Consumers' purchasing power was further eroded by a reduction in product variety, leading to a further 85 basis points increase in the effective cost of living. Second, 96% of households have experienced inflation in 2020, while in prior years around half of households experienced deflation. Third, there was inflation in most product categories, including those that experienced output falls. Only 13% of product categories experienced deflation, compared with over half in previous years. While market-based measures of inflation expectations point to disinflation or deflation, these findings indicate a risk of stagflation should not be ruled out. We hope our approach can serve as a template to facilitate rapid diagnosis of inflation risks during economic crises, leveraging scanner data and appropriate price indices in real-time.
    Keywords: Great Lockdown; inflation
    JEL: D12 E31 I30
    Date: 2020–06
  71. By: Rostagno, Massimo; Altavilla, Carlo; Carboni, Giacomo; Lemke, Wolfgang; Motto, Roberto; Saint Guilhem, Arthur
    Abstract: This paper provides new empirical evidence that bears on the efficacy of unconventional monetary policies when the main policy rate is negative. When a negative interest rate policy (NIRP) is deployed in concert with rate forward guidance (FG) and quantitative easing (QE), the identification of the impacts of these unconventional instruments of monetary policy is challenging. We propose a novel identification approach that seeks to overcome this challenge by combining a dense, controlled event study with forward curve counterfactuals that we construct using predictive rate densities derived from rate options. We find that NIRP has exerted a sizeable influence on the term structure of interest rates throughout maturities while, on net, the impact of rate FG has been more muted. QE explains the lion’s share of yield effects, particularly over the back end of the yield curve. We then feed these rate counterfactuals into a large-scale Bayesian VAR and generate alternative histories for the euro area macro-economy that one would likely have observed between 2013 and 2020 in no-NIRP (with or without FG) and in no-QE regimes. According to this conditional forecasting exercise, in 2019 GDP growth and annual inflation would have been 1.1 p.p. and 0.75 p.p. lower, respectively, and the unemployment rate 1.1 p.p. higher than they actually were, had the ECB abstained from using NIRP, FG and QE over the previous six years or so. JEL Classification: C32, C54, C58, E50, E51, E52
    Keywords: forward curve, forward guidance, large-scale asset purchases, monetary policy, negative interest rates, rate options, yield curve
    Date: 2021–06
  72. By: Bernardo Candia; Mathieu Pedemonte
    Abstract: Flexible exchange rates can facilitate price adjustments that buffer macroeconomic shocks. We test this hypothesis using adjustments to the gold standard during the Great Depression. Using prices at the goods level, we estimate exchange rate pass-through and find gains in competitiveness after a depreciation. Using novel monthly data on city-level economic activity, combined with employment composition and sectoral export data, we show that American exporting cities were significantly affected by changes in bilateral exchange rates. They were negatively impacted when the UK abandoned the gold standard in 1931 and benefited when the US left the gold standard in April 1933. We show that the gold standard deepened the Great Depression, and abandoning it was a key driver of the economic recovery.
    Keywords: Exchange rate regime; currency unions; export-led growth; Great Depression; gold standard
    JEL: E32 F45 N12
    Date: 2020–05–25
  73. By: Hacioglu Hoke, Sinem; Känzig, Diego R; Surico, Paolo
    Abstract: The top quartile of the income distribution accounts for almost half of the pandemic-related decline in aggregate consumption, with expenditure for this group falling much more than income. In contrast, the bottom quartile of the income distribution has seen the smallest spending cuts and the largest earnings drop but their total incomes have fallen by much less because of the increase in government benefits. The decline in consumers' spending preceded the introduction of the lockdown, whose partial lifting has triggered a stronger recovery in sectors with a lower contract rate. The largest spending contractions are concentrated in the most affluent regions. These conclusions are based on detailed high-frequency transaction data on spending, earnings and income from a large Fintech company in the United Kingdom.
    Keywords: benefits; Earnings; Heterogeneity; Income; Pandemic; spending
    JEL: D12 E21 G51
    Date: 2020–07
  74. By: Eran Yashiv (The Eitan Berglas School of Economics, Tel Aviv University)
    Abstract: This paper studies outcomes for workers moving from a poor to a rich economy employing a job tasks based approach. It uses a data case, whereby a worker could decide to work in a richer economy and place himself there by a daily or weekly commute. This set-up faciliates the disentanglement of income differences motives from a plethora of other motives. Thus it eschews the bias inherent in many studies. The paper emphasizes the idea that tasks are tied to locations, and workers choose a location-task-wage ‘pack.’ The task demanded, which is a bundle of skills, constrains human capital returns for movers. Relatively low task returns generate a substantial offset to the productivity gain for migrants, stemming from the rich economy having higher TFP and capital.
    Keywords: movers and stayers, rich and poor economies, migranttasks, location-task-wage bundle, pure income effects, TFP differentials, human capital differences, self-selection
    JEL: E24 F22 F66 J24 J31 J61 O15
    Date: 2021–06
  75. By: Perotti, Roberto
    Abstract: Criticism of the Target system by a group of central European scholars has become a widespread argument against the policies of the European Central Bank and even the integrity of the monetary union, and even standard fare in the media and in the political debate in Germany. Most academics and practitioners that have participated in the debate have been dismissive of the German preoccupations. In this paper, I first try and clarify the many remaining misunderstandings about the workings and implications of the Target system. I propose a unified, systematic and simple approach to the study of the workings of the Target system in response to different shocks and in comparison with different alternative regimes. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously, both on theoretical grounds and for its political implications.
    Keywords: Central bank capital; European Monetary Union; Target2 system
    JEL: E58 E63 F33
    Date: 2020–07
  76. By: Bhutta, Neil; Fuster, Andreas; Hizmo, Aurel
    Abstract: We document wide dispersion in the mortgage rates that households pay on identical loans, and show that borrowers' financial sophistication is an important determinant of the rates obtained. We estimate a gap between the 10th and 90th percentile mortgage rate that borrowers with the same characteristics obtain for identical loans, in the same market, on the same day, of 54 basis points--equivalent to about $6,500 in upfront costs (points) for the average loan. Time-invariant lender attributes explain little of this rate dispersion, and considerable dispersion remains even within loan officer. Comparing the rates borrowers obtain to the real-time distribution of rates that lenders could offer for the same loan and borrower type, we find that borrowers who are likely to be the least financially savvy tend to substantially overpay relative to the rates available in the market. In the time series, the average overpayment decreases when overall market interest rates rise, suggesting that a rising level of borrowing costs encourages more search and negotiation. Furthermore, new survey data provide direct evidence that fiancial knowledge and shopping both affect the mortgage rates borrowers get, and that shopping activity increases with the level of market rates.
    Keywords: financial literacy; household finance; mortgage market; price dispersion
    JEL: E43 G21 G51 G53
    Date: 2020–06
  77. By: Rafael Puyana; Daniel Payares; Indira Porto
    Abstract: El programa Fábricas de Productividad es una de las acciones centrales del Ministerio de Comercio, Industria y Turismo y de Colombia Productiva para aumentar la productividad en los sectores de manufacturas, servicios y agroindustria. El Programa cofinancia la prestación de consultorías especializadas en productividad para empresas pequeñas, medianas y grandes, con un esquema en el que los empresarios escogen el extensionista de su preferencia a partir de un conjunto previamente habilitado de consultores. Este estudio evalúa el desempeño de los extensionistas que prestaron sus servicios en la primera versión del programa, y analizar la suficiencia y pertinencia de ese conjunto de consultores habilitados. En términos generales, la evaluación arroja resultados sobresalientes, con altos estándares de diseño y una percepción de efectividad alta. Frente a referentes internacionales, Fábricas de Productividad ha logrado consolidar una base sólida en pocos años de operación, con una red de expertos amplia, y una capacidad de alcance a empresas alto frente a países con programas similares. En los próximos años, el escalamiento del Programa enfrentará el reto de una ampliación de su red de extensionistas, al mismo tiempo que se implementan acciones para aumentar la calidad de los servicios prestados.
    Keywords: Fábricas de Productividad, Productividad, Crecimiento Económico, Desarrollo Productivo, Evaluación Institucional, Evaluación de Programas, Fortalecimiento Institucional, Política Pública, Colombia
    JEL: D24 E24 O40 O47 L38 H53 O54
    Date: 2021–03–04
  78. By: Richard Jaimes
    Abstract: This paper develops a climate–economy model to study the joint design of optimal climate and fiscal policies in economies with overlapping generations. I demonstrate how capital taxation, if optimal, drives a wedge between the market costs of carbon (the net present value of marginal damages using the market interest rate) and the Pigouvian tax (the net present value of marginal damages using the consumption discount rate of successive overlapping generations). In contrast to deterministic infinitely-lived representative agent models, at the optimum, the capital income tax is positive, the carbon price equals the market costs of carbon but it falls short of the Pigouvian tax when (i) preferences are not separable over consumption and leisure; and (ii) labor income taxes cannot be age-dependent. I also show that restrictions on climate change policy provide a novel rationale for positive capital income taxes.
    Keywords: Climate change, Environmental policies, Externalities, Fiscal policy, Optimaltaxation.
    JEL: E62 H21 H23 Q58
    Date: 2021–06–04
  79. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of price dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms that are governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal changes in demand and downstream via real changes in supply. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model provides an explanation of the price puzzle: a temporary rise in the price level in response to monetary contractions. In our setting, the puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Keywords: Out-of-Equilibrium Dynamics,Monetary Non-Neutrality,Money,Production Network,Price Puzzle
    Date: 2021–04
  80. By: Santiago Forero-Alvarado; Nicolás Moreno-Arias; Juan J. Ospina-Tejeiro
    Abstract: Externalities and private information are key characteristics of an epidemic like the Covid-19 pan-demic. We study the welfare costs stemming from the incomplete information environment that these characteristics foster. We develop a framework that embeds a game theory approach into a macro SIR model to analyze the role of information in determining the extent of the health-economy trade-o of a pandemic. We apply the model to the Covid-19 epidemic in the US and find that the costs of keeping health information private are between USD 5:9 trillion and USD 6:7 trillion. We then find an optimal policy of disclosure and divulgation that, combined with testing and containment measures, can improve welfare. Since it is private information about individuals' health what produces the greatest welfare losses, finding ways to make such information known as precisely as possible, would result in significantly fewer deaths and significantly higher economic activity. **** RESUMEN: Las presencia de externalidades y de información privada son características esenciales de una pandemia como la de la COVID-19. En este paper estudiamos los costos de bienestar de un ambiente de información incompleta fomentado por estas características. Desarrollamos una estructura analítica que introuduce un enfoque de teoría de juegos a un modelo Macro-SIR para analizar el rol de la información en la determinación del tamaño del trade-off entre economía y salud en una pandemia. Aplicamos el modelo a la pandemia de COVID-19 en EE.UU y encontramos que los costos de mantener privada la información de salud están entre USD 5,9 billones y USD 6,7 billones. Luego encontramos la política óptima de divulgación que, junto con Testeo y Confinamientos, pueden mejorar el bienestar. Debido a que la información privada sobre los estados de salud de los individuos genera las mayores pérdidas de bienestar en la pandemia, elaborar políticas que hagan pública esta información al máximo nivel de desagregación y precisión posible, resultaría en reducciones significativas de las muertes y un desempeño económico significativamente superior.
    Keywords: COVID-19, epidemic, game theory, information assymetries, macroeconomics, testing, containment policies, disclosure, divulgation, optimal policies, epidemia, teoría de juegos, asimetrías de información, macroeconomía, testeo, políticas de contención, cuarentenas, divulgación, políticas óptimas
    JEL: C7 E1 H0 I1
    Date: 2021–05
  81. By: Fuchs-Schündeln, Nicola; Krueger, Dirk; Ludwig, Alexander; Popova, Irina
    Abstract: Using a structural life-cycle model, we quantify the heterogeneous impact of school closures during the Corona crisis on children affected at different ages and coming from households with different parental characteristics. In the model, public investment through schooling is combined with parental time and resource investments in the production of child human capital at different stages in the children's development process. We quantitatively characterize the long-term consequences from a Covid-19 induced loss of schooling, and find average losses in the present discounted value of lifetime earnings of the affected children of close to 1%, as well as welfare losses equivalent to about 0:6% of permanent consumption. Due to self-productivity in the human capital production function, skill attainment at a younger stage of the life cycle raises skill attainment at later stages, and thus younger children are hurt more by the school closures than older children. We find that parental reactions reduce the negative impact of the school closures, but do not fully offset it. The negative impact of the crisis on children's welfare is especially severe for those with parents with low educational attainment and low assets. The school closures themselves are primarily responsible for the negative impact of the Covid-19 shock on the long-run welfare of the children, with the pandemic-induced income shock to parents playing a secondary role.
    Keywords: Covid-19,school closures,inequality,intergenerational persistence
    JEL: D15 D31 E24 I24
    Date: 2021
  82. By: Richard Jaimes
    Abstract: This paper considers an overlapping generations model with idiosyncratic labor income risk and a climate externality. We illustrate analytically that market-based climate policies must be adjusted when there are other intertemporal distortions in the economy. Specifically, we show that under precautionary savings the government finds it optimal to tax capital and to correct the carbon price accordingly. In a numerical exercise, we find that idiosyncratic risk leads to an optimal capital income tax rate of 48% and a carbon price 11% lower than its Pigouvian level in the first best
    Keywords: Fiscal policy, Optimal taxation, Externalities, Environmental policies.
    JEL: E62 H21 H23 Q58
    Date: 2021–05–28
  83. By: Krueger, Dirk; Ludwig, Alexander; Villalvazo, Sergio
    Abstract: We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium effects of private precautionary saving on factor prices and taxes capital unless the weight on future generations in the social welfare function is sufficiently high. For logarithmic utility a complete analytical solution of the Ramsey problem exhibits an optimal aggregate saving rate that is independent of income risk, whereas the optimal time-invariant tax on capital implementing this saving rate is increasing in income risk. The optimal saving rate is constant along the transition and its sign depends on the magnitude of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently induces a Pareto-improving transition even if the initial equilibrium capital stock is below the golden rule.
    Keywords: Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externalities
    JEL: H21 H31 E21
    Date: 2021
  84. By: Laudenbach, Christine; Malmendier, Ulrike M.; Niessen-Ruenzi, Alexandra
    Abstract: Attitudes towards capital markets and stock-market investment still differ widely between Western and formerly communist countries, but there is also significant heterogeneity within the East. We argue that the speed of convergence is predicted by the quality of life-time experiences under communism. Utilizing novel German brokerage and bank data we document that, decades after Reunification, East Germans invest significantly less in stocks and hold more negative views on capital markets if they had unrelated positive experiences, e.g., from Olympic games or living in celebrated showcase cities. Results reverse for East Germans with negative experiences, like environmental pollution and religious oppression.
    Keywords: Capital Markets; Communism; Life-time experiences; positive versus negative emotional tagging; Stock-market participation
    JEL: D03 D14 D83 D84 E21 G11
    Date: 2020–06
  85. By: Moegi Inoue (Bank of Japan); Atsushi Kawakami (Bank of Japan); Ayako Masujima (Bank of Japan); Ichiro Muto (Bank of Japan); Shogo Nakano (Bank of Japan); Izumi Takagawa (Bank of Japan)
    Abstract: One of the main objectives of the producer price index (PPI) is to serve as an aggregation price index that appropriately represents the overall supply-demand condition regarding goods and services in an economy as a whole. In this respect, the current system of Japan fs PPI system is confronted with the following two challenges: (i) overall inflationary pressures in the entire economy cannot be tracked because the indexes for goods and services are separately constructed and published; and (ii) the effects of price changes in upstream stages in the production flow are exaggerated because the PPI is aggregated as the "all commodities index" in which prices of commodities in different demand stages are aggregated through weight-averaging by gross trade value. In order to overcome those challenges, we construct a price index of Final Demand-Intermediate Demand aggregation system of Japan fs PPI (the FD-ID price index) by assigning commodity-level Japanese PPI indexes for goods and services to the stage of final demand and the four stages of intermediate demand, in an optimal manner in accordance with the production flow in the Input-Output table and by aggregating the indexes in a way that eliminates multiple counting. The use of the FD-ID price index makes it possible to measure inflationary pressures in the entire Japanese economy, including both goods and services sectors. It also becomes possible to track the process of price changes being transmitted from upstream to downstream stages in the production flow across the sectors of goods and services. This study provides detailed explanations of the methodology for constructing the Japanese FD-ID price index and the characteristics of the constructed index.
    Keywords: Producer price index; FD-ID aggregation system; Input-Output table; Multiple counting problem.
    JEL: C82 E31
    Date: 2021–06–04
  86. By: Horn, Sebastian; Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
    Keywords: bail-outs; disaster response; global financial safety net; International Capital Flows
    JEL: E42 F33 F34 F35 F36 G01 G20 N1 N2
    Date: 2020–06
  87. By: Bittner, Christian; Fecht, Falko; Georg, Co-Pierre
    Abstract: Does banks' zombie lending induced by unconventional monetary policy also allow zombie firms to leverage their trade credit borrowing? We first provide evidence suggesting that - even in Germany - particularly weak banks used the European Central Bank's very long-term refinancing operations (VLTROs) to evergreen exposures to zombie firms, which in turn elevated credit risk. Second, we show that zombie firms, which obtained additional funding from banks relying to a larger extent on VLTRO funding, also increased their accounts payable and advance payments received from downstream and upstream firms. And third, zombie firms that obtained further bank funding and such trade credit after the VLTROs had an elevated expected default probability even compared to average zombie firms. This suggests that suppliers relying on banks' lending decisions as a signal about borrowers' credit quality might be misled by banks' zombie lending to extend more trade credit to zombie firms exposing suppliers to elevated contagion risk.
    Keywords: unconventional monetary policy,zombie lending,trade credit
    JEL: G1 G20 E58
    Date: 2021
  88. By: Malmendier, Ulrike M.; Steiny Wellsjo, Alex
    Abstract: What explains the vast differences in homeownership rates across and within countries? We argue that individual lifetime exposure to inflation play a significant role in the decision to become homeowner. First, we show that immigrants' country-of-origin inflation experiences predict their homeownership rates in the US. Second, using household data from 20 European countries, we estimate that a one log-point increase in personally experienced inflation predicts a 19pp increase in the average individual's likelihood of homeownership. The relationship between homeownership and experienced inflation is robust to other determinants of homeownership as well as any differences across countries and over time.
    JEL: D03 D14 D83 D84 E03 E21 G02 G11 R31
    Date: 2020–06
  89. By: Simplice A. Asongu (Yaounde, Cameroon); Yann Nounamo (University of Douala, Cameroon); Henri Njangang (University of Dschang , Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon)
    Abstract: The study examines how financial stability modulates the effect of inclusive intermediary education on female employment in the industry for the period 2008-2018 in Sub-Saharan Africa. The empirical evidence is based on Tobit, Ordinary Least Squares (OLS) and Quantile regressions. There are positive interactive or conditional effects between inclusive intermediary education and financial stability in the Tobit, OLS and bottom quantiles estimations. A net positive (negative) effect is apparent in the 10th quantitle (median) of female employment in the industry distribution. Implications are discussed.
    Keywords: inclusive education; financial sustainability, gender economic inclusion
    JEL: E23 F21 F30 L96 O55
    Date: 2021–01
  90. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This research assesses the relevance of enhancing remittances on value added across economic sectors in sub-Saharan Africa for the period 1980 to 2014 using the Generalised Method of Moments. First, no significant net effects on added value to the agricultural sector are apparent. Second, enhancing remittances engenders a positive net effect on added value to the manufacturing sector. Third, there are negative net effects on added value to the service sector. Given that the unfavourable net incidence of remittances to the service sector is associated with a positive marginal or conditional effect, the analysis is extended by computing thresholds at which remittances induce net positive effects on added value to the service sector. The extended analysis shows that a remittance threshold of 48.5% of GDP is the critical mass needed for further enhancement of remittances to engender positive net effects on value added to the service sector.
    Keywords: Economic Output; Remitances; Sub-Saharan Africa
    JEL: E23 F24 F30 O16 O55
    Date: 2021–01
  91. By: Simplice A. Asongu (Yaounde, Cameroon); Rexon T. Nting (University of Wales, London, UK)
    Abstract: This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries. It employs a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers. This study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.
    Keywords: Banking; human development; Africa
    JEL: E00 G20 I00 O10
    Date: 2021–01
  92. By: Marion Davin (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mouez Fodha (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université)
    Abstract: We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote the convergence to a stable steady state with no epidemics. When public policies are not able to permanently eradicate the epidemic, public debt and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy which eliminates income and welfare inequalities between healthy and infected individuals.
    Keywords: Epidemics,pollution,overlapping generations,public debt
    Date: 2021–05–10
  93. By: Henri Njangang (University of Dschang, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Sosson Tadadjeu (University of Dschang , Cameroon); Yann Nounamo (University of Douala, Douala, Cameroon)
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: G20 G24 E02 P14 O55
    Date: 2021–01
  94. By: Wilfrido Jurado Pedroza
    Abstract: This paper advances the literature on the dynamics of the U.S. Dollar-Mexican Peso (USD/MXN) volatility process by leveraging high-frequency data. First, it documents the factors that characterize the intraday volatility process of the USD/MXN exchange rate at high frequencies based on a sample of five-minute returns from 2008 to 2017. Second, it empirically identifies the effects and the relative impact on the USD/MXN volatility process of various macroeconomic announcements, at different frequencies. The results conclude that the most impactful releases are associated with the monetary policy announcements by the Federal Reserve and Banco de México, together with the publication of some U.S. and China macroeconomic data. Furthermore, the results suggest that the different mechanisms implemented by Mexico's FX Commission have accomplished their objective of stabilizing the volatility of the USD/MXN.
    JEL: E5 F31 G12 G14
    Date: 2021–06
  95. By: Michael Ehrmann (European Central Bank); Robin Tietz (Cass Business School); Bauke Visser (Erasmus University Rotterdam)
    Abstract: Whether Federal Reserve Bank presidents have the right to vote on the U.S. monetary policy committee depends on a mechanical, yearly rotation scheme. Rotation is without exclusion: also nonvoting presidents attend and participate in the meetings of the committee. Does voting status change behavior? We find that the data go against the hypothesis that without the voting right, presidents use their public speeches and their meeting interventions to compensate for the loss of formal influence; rather, they support the hypothesis that the voting right makes presidents more involved. We also find that speeches move financial markets less in years that presidents vote. We argue that these discounts are consistent with their communication behavior.
    Keywords: voting right rotation, monetary policy committee, central bank communication, FOMC, financial market response
    JEL: E58 D71 D72
    Date: 2021–06–05
  96. By: Bachas, Pierre; Gadenne, Lucie; Jensen, Anders
    Abstract: Can consumption taxes reduce inequality in developing countries? We combine household expenditure data from 31 countries with theory to shed new light on the redistributive potential and optimal design of consumption taxes. We use the type of store in which purchases occur to proxy for informal (untaxed) consumption. This enables us to characterize the informality Engel curve: we find that the budget share spent in the informal sector steeply declines with income, in all countries. The informal sector thus makes consumption taxes progressive: households in the richest quintile face an effective tax rate that is twice that of the poorest quintile. We extend the standard optimal commodity tax model to allow for informal consumption and calibrate it to the data to study the effects of different tax policies on inequality. Contrary to consensus, we show that consumption taxes are redistributive, lowering inequality by as much as personal income taxes. Once informality is taken into account, commonly used redistributive policies, such as reduced tax rates on necessities, have a limited impact on inequality. In particular, subsidizing food cannot be justified on equity or efficiency grounds in several poor countries.
    Keywords: Household Budget Surveys; inequality; Informality; redistribution; taxes
    JEL: E26 H21 H23 O23
    Date: 2020–06
  97. By: Ruchi Avtar; Rajashri Chakrabarti; Davide Melcangi; Maxim L. Pinkovskiy; Giorgio Topa
    Abstract: The COVID-19 pandemic resulted in one of the sharpest recessions and recoveries in U.S. history. As the virus spread over the country in a matter of weeks in March 2020, most states rapidly locked down nonessential economic activity, which plummeted as a result. As the first wave of COVID-19 subsided and people gradually learned to “live with the virus,” states reversed most of the initial lockdowns and economic activity rebounded. In our ongoing Economic Inequality series, we have explored many aspects of how the economic turmoil associated with COVID-19 differentially affected households. Here, we turn to small business experience. The first post in this three-part installment seeks to understand if there was variance in small business activity across counties that differed by income and race. In two companion posts, we investigate the experience of small businesses in terms of credit access, looking at characteristics of who received and who benefited from the Paycheck Protection Program (PPP). The analysis finds inequalities in PPP credit access as well as differences in the loan and recipient county characteristics for those who received loans through financial technology (fintech) providers versus other lenders.
    Keywords: COVID-19; pandemic; small business; economic activity; recession; race; income
    JEL: I3 I1 E3
    Date: 2021–05–27
  98. By: Matei Demetrescu (University of Kiel); Robinson Kruse-Becher (University of Hagen and CREATES)
    Abstract: Testing distributional assumptions is an evergreen topic in statistics, econometrics and other quantitative disciplines. A key assumption for extant distributional tests is some form of stationarity. Yet, under time-varying mean or time-varying volatility, the observed marginal distribution belongs to a mixture family with components having the same baseline distribution but different location and scale parameters. Therefore, distribution tests consistently reject when stationarity assumptions are violated, even if the baseline distribution is correctly specified. At the same time, time-varying means or variances are common in economic data. We therefore propose distribution tests that are robustified to such time-variability of the data by means of a local standardization procedure. As a leading case in applied work, we demonstrate our approach in detail for the case of testing normality, while our main results are extended to general location-scale models without essential modifications. In addition to time-varying mean and volatility functions, the data generating process may exhibit features such as generic serial dependence. Specifically, we base our tests on raw moments of probability integral transformations of the series standardized using rolling windows of data, of suitably chosen width. The use of probability integral transforms is advantageous as they accommodate a wide range of distributions to be tested for and imply simple raw moment restrictions. Flexible nonparametric estimators of the mean and the variance functions are employed for the local standardization. Short-run dynamics are taken into account using the (fixed-b) Heteroskedasticity and Autocorrelation Robust [HAR] approach of Kiefer and Vogelsang (2005, Econometric Theory), which leads to robustness of the proposed test statistics to the estimation error induced by the local standardization. To ease implementation, we propose a simple rule for choosing the tuning parameters of the standardization procedure, as well as an effective finite-sample adjustment. The provided Monte Carlo experiments show that the new tests perform well in terms of size and power and outperform alternative tests even under stationarity. Finally, we find in contrast to other studies no evidence against normality of the aggregate U.S. real output growth rates after accounting for time-variation in mean and variance.
    Keywords: Distribution testing, Probability integral transformation, Local standardization, Nonparametric estimation, Heteroskedasticity and autocorrelation robust inference
    JEL: C12 C14 C22 E01 E32
    Date: 2021–05–20
  99. By: Marcelo A. T. Aragão
    Abstract: An event like Covid-19 pandemic brings about a deadly human toll and mayhem to the economy. With such a great exogeneous shock, policy makers and forecasters alike face a set of challenges to keep on contributing to the economic response. Many distinguishing researchers came forward with their own assessments of the lasting macroeconomic impacts of the Covid-19 pandemic. Modestly, this paper attempts a different instance: investigating how a practitioner can cope with some pressing forecasting challenges while avoiding naive pitfalls. Without claiming any quantification, it experiments with usual US economy data sources and macroeconomic models to exemplify these challenges and their possible overcoming. Finally, it summarizes some empirical, pragmatical conclusions.
    Date: 2021–05
  100. By: Botsch, Matthew J.; Malmendier, Ulrike M.
    Abstract: A major puzzle in financial contracting is consumers' aversion to adjustable rates. In the mortgage market, the empirical mix of contracts (80% fixed-rate) is inconsistent with standard life-cycle consumption models. We argue that these choices reflect the longlasting effect of the Great Inflation, and have sizable welfare implications. First, we show that consumers who have experienced higher inflation expect higher future interest-rate increases, which explains their preference for fixed-rate financing. Next, we quantify the influence of personal inflation experiences on mortgage financing using linked data from the Census Bureau's Residential Finance Survey. We estimate a discrete-choice model over mortgage financing alternatives. The structural parameters indicate that one additional percentage point of experienced inflation increases a borrower's willingness to pay for a fixed-rate mortgage by 6 to 14 basis points, compared to the adjustable-rate alternative in a given origination year. This experience effect has a major impact on the product mix of FRMs versus ARMs: Nearly one in seven households would switch to an ARM if not for the longlasting effect of personal inflation experiences. Our simulations suggest that households who would otherwise have switched pay $8,000-$16,000 in year-2000, after-tax dollars for the embedded inflation protection of the FRM.
    Keywords: behavioral finance; Contract choice; household finance; Inflation expectations; Mortgage Choice
    JEL: D14 D83 D84 D91 E31 G41 G51
    Date: 2020–06
  101. By: Guillaume Bédard-Pagé; Daniel Bolduc; Annick Demers; Jean-Philippe Dion; Manu Pandey; Léanne Berger-Soucy; Adrian Walton
    Abstract: This paper examines how the eight largest Canadian public pension funds managed liquidity during the market turmoil in March 2020. The funds were generally resilient to large demands for liquidity and relied heavily on Canada's core funding markets.
    Keywords: Coronavirus disease (COVID-19); Financial institutions; Financial markets
    JEL: E58 G01 G23
    Date: 2021–05
  102. By: Can Xu (University of Groningen); Jan Jacobs (University of Groningen, CAMA and CIRANO); Jakob (University of Groningen and CESifo, Munich)
    Abstract: We examine the dynamic impact of household borrowing on the trade balance using data from 33 developing countries and 36 developed countries over the 1980-2017 period. Our findings suggest that the impact of household borrowing on the trade balance is by and large negative, both in the short and long run. We show that household borrowing’s adverse effects on the trade balance are more pronounced but less persistent in developing countries.
    Keywords: household borrowing; trade balance; dynamic effects; panel ARDL model
    JEL: E21 F32 G21
    Date: 2021–05–21
  103. By: Sergio Navarro Palacios (Universidad Oberta de Cataluña (UOC))
    Abstract: This study examines the problems of reliability of predictions made by human beings (specifically, those considered experts in the subject matter in question). It is found that these people inevitably suffer from biases, heuristics and overconfidence, which cause them to make systematic errors in their predictions. This perspective was applied to the analysis of the investigation of Frey and Osborne (2013) on job automation risk by occupations in the U.S. The results show how, at least for the moment, the predictions of this study seem not to be coming true, both because the experts' opinions seem not to have been too effective, and because the statistical model used seems not to have improved the results. The errors in the experts' predictions are in line with the expected effects of the biases and heuristics previously described. En este estudio, se examinan los problemas de fiabilidad de las predicciones realizadas por seres humanos (en concreto, aquellos considerados expertos en la materia en cuestión). Se comprueba que estas personas adolecen, inevitablemente, de sesgos, heurísticos y exceso de confianza, lo cual les hace incurrir en errores sistemáticos en sus predicciones. Esa perspectiva se aplica al análisis del celebérrimo estudio de Frey y Osborne (2013) sobre riesgo de automatización del empleo por ocupaciones en los EE.UU. Los resultados obtenidos muestran cómo, al menos por el momento, las predicciones de este estudio parecen no estar cumpliéndose, tanto porque las opiniones de los expertos parecen no haber sido demasiado eficaces, como porque el modelo estadístico utilizado parece no haber mejorado los resultados. Los errores en las predicciones de los expertos están en línea con los efectos esperables de los sesgos y heurísticos descritos.
    Keywords: Expertos, sesgos, análisis subjetivos, automatización, Frey y Osborne. Experts, biases, subjective analysis, automation, Frey and Osborne.
    JEL: C53 E24 J31 J62 O33
    Date: 2021–04
  104. By: Conefrey, Thomas (Central Bank of Ireland); Hickey, Rónán (Central Bank of Ireland); McInerney, Niall (Central Bank of Ireland)
    Abstract: The fiscal response to COVID-19 in Ireland has been significant, with the increase in public spending the second largest in the euro area in the first three quarters of 2020. The necessary fiscal actions have supported the health system and protected the economy from the worst effects of the pandemic. ECB policy has also played an important role in the crisis response – easing financing conditions and boosting growth in the euro area and in Ireland. Policy support will need to be maintained over the short-term in order to stabilise the economy. When health risks diminish, any ongoing support via current expenditure should be targeted and temporary. Outside Covid-19, our analysis shows that permanent increases in current expenditure could only be sustainably accommodated if accompanied by offsetting revenue raising measures. Long-lasting increases funded by debt would amplify the risks to fiscal sustainability and potentially limit the scope for an expansionary fiscal response to future crises.
    Date: 2021–03
  105. By: Cukierman, Alex; Lustenberger, Thomas
    Abstract: We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.
    Keywords: forecast dispersion; private noisy information; public information; uncertainty; Variability
    JEL: D8 E4 G0
    Date: 2020–07
  106. By: Davide Bernardi (Department of Economics (University of Verona)); Roberto Ricciuti (Department of Economics (University of Verona))
    Abstract: The revaluation of the Lira against the Pound, the so-called ‘quota 90’, was a major economic policy decision taken by the Fascist government in 1926. The economic history literature has seen this policy as the domestic implementation of the return to the Gold Exchange Standard characterizing the interwar period, with relatively limited economic consequences. We interpret the effects of this decision through an Error Correction Model and find that the economic cost in terms of output was limited. We claim that the main reason for this muted effect lied in a labor market that Fascist reforms tilted in favor of the firms.
    Keywords: Quota 90, Fascism, fascist economic policy, fixed exchange regime, Italy.
    JEL: N14 E52 C32
    Date: 2021–06
  107. By: Moeeni, Safoura
    Abstract: While economic sanctions are successful in achieving political goals, can hurt the civilian population. These negative effects could be even more detrimental and long-lasting for future generations. I estimate the effects of economic sanctions on children's education by exploiting the United Nations sanctions imposed on Iran in 2006. Using the variation in the strength of sanctions across industries and difference-in-differences with synthetic control analyses, I find that the sanctions decreased children's total years of schooling by 0.1 years and the probability of attending college by 4.8 percentage points. Moreover, households reduced education spending by 58% - particularly on school tuition. These effects are larger for children who were exposed longer to the sanctions. The results imply that sanctions have a larger effect on the income of children than their parents. Therefore, ignoring the effects of sanctions on future generations significantly understates their total economic costs.
    Keywords: Education,Parental investment,Economic sanctions,Intergenerational effects
    JEL: I20 E24 F51
    Date: 2021
  108. By: Antonio José Orozco-Gallo; Pavel Vidal-Alejandro; Johana Sanabria-Domínguez; Jaime Andrés Collazos-Rodríguez
    Abstract: Disponer de información temprana sobre la evolución de la actividad económica regional se ha convertido en una prioridad, especialmente como herramienta para evaluar choques a la economía como el ocurrido con la pandemia del Covid-19. En este estudio se construyó un indicador coincidente mensual de actividad económica (IMAE) para la región Caribe, enmarcado en un modelo factorial dinámico y estimado por medio del filtro de Kalman, para el periodo comprendido entre enero de 2001 y diciembre de 2020. El indicador está compuesto por trece variables representativas de las principales actividades económicas de la región. Los resultados muestran que los movimientos experimentados por el indicador en 2020 se comportaron acorde con las medidas de aislamiento aplicadas y con las tasas de incidencia de contagios. Según cifras preliminares, en 2020 la economía del Caribe cayó en un 6,8%, equivalente al resultado nacional. En particular, el desempeño regional se vio afectado al cierre del año por la parálisis en la actividad minera y las nuevas medidas restrictivas. **** ABSTRACT: The availability of measures of regional economic activity in a timely manner has become a priority, especially for evaluating the economic shocks provoked by the Covid-19 pandemic. In this study, we developed a monthly coincident indicator of economic activity for the Colombian Caribbean region, based on a dynamic factor model and estimated with a Kalman filter, for the period between January 2001 and December 2020. Thirteen variables enter the indicator and represent the region’s main economic activities. The results show that movements in the indicator in 2020 were associated with the lockdown policies and the incidence rates of the epidemic. Our preliminary results imply that the Caribbean economy fell by 6,8% in 2020, which is similar to the national result. By the end of 2020, the regional economy was affected mainly by the collapse in mining activity and the new lockdown measures.
    Keywords: Indicador, filtro de Kalman, región Caribe colombiana, actividad económica, pandemia, Covid-19, Indicator, Kalman filter, Colombian Caribbean region, economic activity, pandemic, Covid-19
    JEL: C32 C82 E32 R11
    Date: 2021–06–10
  109. By: Antonio José Orozco-Gallo; Pavel Vidal-Alejandro; Johana Sanabria-Domínguez; Jaime Andrés Collazos-Rodríguez
    Abstract: Disponer de información temprana sobre la evolución de la actividad económica regional se ha convertido en una prioridad, especialmente como herramienta para evaluar choques a la economía como el ocurrido con la pandemia del Covid-19. En este estudio se construyó un indicador coincidente mensual de actividad económica (IMAE) para la región Caribe, enmarcado en un modelo factorial dinámico y estimado por medio del filtro de Kalman, para el periodo comprendido entre enero de 2001 y diciembre de 2020. El indicador está compuesto por trece variables representativas de las principales actividades económicas de la región. Los resultados muestran que los movimientos experimentados por el indicador en 2020 se comportaron acorde con las medidas de aislamiento aplicadas y con las tasas de incidencia de contagios. Según cifras preliminares, en 2020 la economía del Caribe cayó en un 6,8%, equivalente al resultado nacional. En particular, el desempeño regional se vio afectado al cierre del año por la parálisis en la actividad minera y las nuevas medidas restrictivas. **** ABSTRACT: The availability of measures of regional economic activity in a timely manner has become a priority, especially for evaluating the economic shocks provoked by the Covid-19 pandemic. In this study, we developed a monthly coincident indicator of economic activity for the Colombian Caribbean region, based on a dynamic factor model and estimated with a Kalman filter, for the period between January 2001 and December 2020. Thirteen variables enter the indicator and represent the region’s main economic activities. The results show that movements in the indicator in 2020 were associated with the lockdown policies and the incidence rates of the epidemic. Our preliminary results imply that the Caribbean economy fell by 6,8% in 2020, which is similar to the national result. By the end of 2020, the regional economy was affected mainly by the collapse in mining activity and the new lockdown measures.
    Keywords: Indicador, filtro de Kalman, región Caribe colombiana, actividad económica, pandemia, Covid-19, Indicator, Kalman filter, Colombian Caribbean region, economic activity, pandemic, Covid-19
    JEL: C32 C82 E32 R11
    Date: 2021–06
  110. By: Kenneth R. Ahern; Lei Kong; Xinyan Yan
    Abstract: This paper proposes a network model of the economy in which conglomerate firms transmit idiosyncratic shocks from one industry to another. The strength of inter-industry connections is determined by the conglomerate's share of total industry sales and by the industry's share of the conglomerate's total sales. The empirical results show that industry growth rates comove more strongly within industry pairs that are more closely connected in the conglomerate network. These results hold after controlling for industry-pair and year fixed effects, input-output connections, reverse causality, and in tests that exploit exogenous cross-sectional industry shocks from import tariff changes. Finally, our model also provides a new cross-industry extension for the widely-used Herfindahl index of concentration.
    JEL: E32 G32 L14
    Date: 2021–05
  111. By: Anesti, Nikoleta (Bank of England); Kalamara, Eleni (King’s College London); Kapetanios, George (Bank of England)
    Abstract: By employing large panels of survey data for the UK economy, we aim at reviewing linear approaches for regularisation and dimension reduction combined with techniques from the machine learning literature, like Random Forests, Support Vector Regressions and Neural Networks for forecasting GDP growth at monthly frequency for horizons from one month up to two years ahead. We compare the predictive content of surveys with text based indicators from newspaper articles and a standard macroeconomic data set and extend the empirical evidence on the contribution of survey data against text indicators and more traditional macroeconomic time series in predicting economic activity. Among the linear models, the Ridge and the Partial Least Squares models report the largest gains consistently for most of the forecasting horizons, and for the non‑linear machine learning models, the SVR performs better at shorter horizons compared to the Neural Networks and Random Forest that seem to be more appropriate for longer‑term forecasting. Text based indicators appear to favour more the use of non‑linear models and the expansion of the information set with macroeconomic time series does not appear to add much more predictive power. The largest forecasting gains are overwhelmingly concentrated at the shorter horizons for the majority of models and datasets which provides further empirical support that non‑linear machine learning models appear to be more useful during the Great Recession.
    Keywords: Forecasting; survey data; text indicators; machine learning
    JEL: C53 C55
    Date: 2021–05–28
  112. By: Patrick T. Harker
    Abstract: President Harker delivered a virtual speech to the Women in Housing & Finance on his economic outlook. “At the Fed, we’re planning to keep the federal funds rate low for long, but it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases,” said Harker. “This is not something we are going to do suddenly, though. We need to follow the playbook we had after the Great Recession; that is, start to taper the bond purchases slowly. We will remove accommodation carefully and methodically as the economy continues to strengthen.” Media coverage of his remarks can be found below.
    Date: 2021–06–02
  113. By: Marco Onofri; Gert Peersman; Frank R. Smets (-)
    Abstract: We analyze the effectiveness of a Negative Interest Rate Policy (NIRP) in a quantitative Dynamic Stochastic General Equilibrium model for the euro area with a nancial sector. Similarly to other studies in the literature, we show that a NIRP can have a contractionary effect on the economy when there is a zero lower bound on the interest rate of household deposits, and such deposits are the only source of bank funding and household savings. However, we show that the contractionary effects vanish and the NIRP becomes expansionary when we allow for additional assets in the savings portfolio of households, and when we introduce alternative sources of bank funding in the model, such as bank bonds. These two features, which characterize the euro area very well, are hence essential to study the effectiveness of a NIRP.
    Date: 2021–05
  114. By: Daniel Nathan (Bank of Israel)
    Abstract: This paper decomposes the Israeli term structure of interest rates into two parts: the expected path of real interest rates and the risk premia for 01/1985â12/2019. We carry out the estimation using a discrete-time essentially affine term structure model (ATSM). ATSM models are essentially reduced-form models: they assume that latent factors drive the economy, and are extensively used by major central banks to infer risk premia in the term structure. The results show that part of the decline in real yields since 1985 was accompanied by a substantial decrease in the real risk premium; the compensation investors require to hold government indexed-bonds has gone down substantially. The compensation has been as high as 3% for the 10-year real yield and has gone down to around zero in recent years. The inflation risk premium (an inflation compensation which is part of the nominal yield curve), has also shown a significant drop in recent years. The inflation risk premium has become slightly negative in recent years after being as high as 2.5% in early 2000 for the 10-year nominal yield.
    Date: 2021–03
  115. By: Dimitri B. Papadimitriou; Christos Pierros; Nikos Rodousakis; Gennaro Zezza
    Abstract: The Greek economy--still fragile due to the lingering effects of the 2009-10 crisis--was hit particularly hard by the COVID-19 pandemic. Greece's 2020 GDP decline was one of the worst among the group of EU and eurozone member states, along with the highest levels of unemployment and underemployment. Dimitri B. Papadimitriou, Christos Pierros, Nikos Rodousakis, and Gennaro Zezza update their analysis of the state of the Greek economy on the basis of recently released provisional data for 2020Q4, and model three projections through 2023: (1) a baseline scenario in which no agreement is reached on the disbursement of EU funds (the Recovery and Resilience Facility); (2) a scenario in which EU grants and loans are distributed in a timely manner; and (3) an additional scenario that pairs EU funds with implementation of an employer-of-last resort program. The second scenario would see Greece's GDP growth return to its pre-pandemic trend--albeit still leaving the economy below the level of real GDP it reached in 2008. The third scenario has the most favorable impact on growth and employment--raising real GDP above its pre-pandemic trend. Failure to achieve a proper recovery of GDP in Greece would be directly related to an absence of fiscal policy expansion. This Strategic Analysis is the joint product of the Levy Economics Institute of Bard College and INE-GSEE (Athens, Greece). It is simultaneously issued in both English and Greek.
    Date: 2021–05
  116. By: Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico
    Abstract: We estimate the evolution of the conditional joint distribution of economic and financial conditions. While the joint distribution is approximately Gaussian during normal periods, sharp tightenings of financial conditions lead to the emergence of additional modes. The U.S. economy has historically resolved quickly to the "good" mode, but we conjecture that poor policy choices could lead to prolonged periods of multimodality. We argue that multimodality arises naturally in a macro-financial intermediary model with occasionally binding intermediary constraints.
    Date: 2020–07
  117. By: Euiyoung Jung (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper analyzes the optimal cyclical behavior of labor market policies in an economy with asset and labor market frictions. The policies of interest include unemployment insurance (UI) and employment protection (EP). In addition to their supply-side effects, labor market policies affect the aggregate demand via earning risk and redistribution channels. Under bilateral wage bargaining, I find that procyclical UI and countercyclical EP deliver superior welfare outcomes through stabilization via both supply and demand channels.
    Keywords: new keynesian,uncertainty,unemployment,incomplete markets,labor market policy New Keynesian,Uncertainty,Unemployment,Incomplete markets,Labor market policy JEL Classification: E12,E21,E24,E29,E32,E61,E69,J68,J65
    Date: 2021–05
  118. By: Richard Fabling (Motu Economic and Public Policy Research)
    Abstract: We use tax data from the Longitudinal Business Database to estimate the firm-level average interest rate on liabilities. The mean of this measure has similar time series properties to official statistics on the business borrowing rate, while also enabling detailed disaggregation across different firm types. We document significant variation in interest rate across firms in different industries, and across firms with different apparent borrowing risk. Finally, we compare firms self-reported views on whether they are finance-constrained to an estimated firm-specific interest rate premium, showing that: finance-constrained firms have higher interest rate premia than unconstrained firms; and that at least part of this difference in premia is explained by firm-level differences in risk between constrained and unconstrained firms.
    Keywords: Finance constraints; interest rates; risk premia; Longitudinal Business Database
    JEL: E43 G32 M21
    Date: 2021–05
  119. By: Spyridon Boikos (Department of Economics, University of Macedonia); Ioannis Bournakis (Middlesex University and American University in Cairo,); Dimitris Christopoulos (Department of International and European Economic Studies, Athens University of Economics and Business); Peter McAdam (European Central Bank and UC Berkeley)
    Abstract: We develop a horizontal R&D growth model that allows us to investigate the different channels through which financial reforms affect R&D investment and patent activity. First, a “micro” reformthat abolishes barriers to entry in the banking sector produces a straightforward result: a decrease in lending rates which stimulates R&D investment and economic growth. Second, a “macro” reform that removes restrictions on banks’ reserves and credit controls. While this reform increases liquidity, it also increases the risk of default, potentially raising the cost of borrowing. This we dub the “reserves paradox” – this makes banks offset the rise in the default rate with a higher spread between loans and deposit rates. Thus our model suggests that whilst micro reforms boost innovation, macro reforms may appear negative. We test and find empirical support for these propositions using a sample of 21 OECD countries.
    Keywords: Finance; Growth; Patents; Monitoring; Reserves Paradox; Estimation.Conventional DEA Efficiency.
    JEL: G2 C23 E44 O43
    Date: 2021–06
  120. By: Alejandro Buesa (Banco de España); Javier J. Pérez (Banco de España); Daniel Santabárbara (Banco de España)
    Abstract: “Awareness” about the occurrence of viral infectious (or other) tail risks can influence their socioeconomic inter-temporal impacts. A branch of the literature finds that prior lifetime exposure to signicant shocks can affect people and societies, i.e. by changing their perceived probability about the occurrence of an extreme, negative shock in the future. In this paper we proxy “awareness” by historical exposure of a country to epidemics, and other catastrophic events. We show that in a large cross-section of more tan 150 countries, more “aware” societies suffered a less intense impact of the COVID-19 disease, in terms of loss of lives and, to some extent, economic damage.
    Keywords: socioeconomic impact of pandemics, global health crises
    JEL: E43 F41 N10 N30 N40
    Date: 2021–05
  121. By: Alena Miftakhova (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Clément Renoir (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We study the role of the anticipation of climate policies on equity and economic growth in a numerical model of general equilibrium. The presence of the anticipation period allows the agents to adjust their choices before policy implementation. This period might change the equilibrium dynamics. It might also impact the redistribution of wealth in the economy. We choose the Swiss economy to exemplify and analyze these effects. The supply-side of the economy adjusts by redirecting the investments to “cleaner” sectors with a lower tax burden and higher profitability. On the demand side, welfare impacts by households vary according to their principal source of income. Households that have a high share of their income from capital rents benefit more from the policy’s announcement than others do. We find that, for the most stringent climate policies, the effect of anticipation is strongly positive but also regressive.
    Keywords: Climate policy, Environmental tax, Economic inequality, Endogenous growth, CGE Modelling
    JEL: C63 E62 O44 Q43 Q48
    Date: 2021–05
  122. By: Hidehiko Matsumoto (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Assistant Professor, National Graduate Institute for Policy Studies, E-mail:
    Abstract: This paper studies the optimal monetary and macroprudential policies in a small open economy that borrows from abroad in foreign currency. The model features a novel mechanism in which sudden stops due to an occasionally binding borrowing constraint trigger a sharp currency depreciation through balance of payments adjustments, thereby increase the domestic-currency value of foreign debt and cause severe economic downturns. A policy analysis shows that a contractionary monetary policy mitigates depreciation during a crisis, but the anticipation of policy interventions during the crisis induces larger borrowings ex ante and destabilizes the economy. A combination of an ex ante macroprudential tax on foreign borrowing and ex post monetary policy interventions can stabilize the economy and improve social welfare.
    Keywords: Exchange rate, Balance of payments, Sudden stops, Monetary policy, Macroprudential policy
    JEL: F31 F32 F38 F41
    Date: 2021–05
  123. By: Le Ha Thu (National Graduate Institute for Policy Studies, Tokyo, Japan); Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: Forecasting macroeconomic variables in the rapidly changing macroeconomic envi- ronments faced by developing and emerging countries is an important task for central banks and policy-makers, yet often presents a number of challenges. In addition to the structural changes in the economy, the time-series data are usually available only for a small number of periods, and predictors are available in different lengths and frequencies. Dynamic model averaging (DMA), by allowing the forecasting model to change dynamically over time, permits the use of predictors with different lengths and frequencies for the purpose of forecasting in a rapidly changing economy. This study uses DMA to forecast inflation and growth in Vietnam, and compares its forecast- ing performance with a wide range of other time-series methods. Some results are noteworthy. First, the number and composition of the optimal predictor set changed, indicating changes in the economic relationships over time. Second, DMA frequently produces more accurate forecasts than other forecasting methods for both the inflation and the economic growth rate of Vietnam.
    Keywords: Bayesian, dynamic model averaging, forecasting macroeconomic variables, Vietnam
    Date: 2021–06
  124. By: Centro de Investigaciones para el Desarrollo
    Abstract: Este ano recorre el aniversario de la Constitución del 1991. Los profesores de la Facultad de Ciencias Económicas y los investigadores del CID fueron invitados a escribir sobre las consecuencias económicas de la Carta, con libertad de coautoría, enfoque teórico y metodología. Las contribuciones salieron publicadas por el diario El Espectador. *** ***This year marks the anniversary of the 1991 Constitution. Professors of the School of Economics and researchers of the CID were invited to write about its economic consequences, with freedom of co-authorship, theoretical approach and methodology. The contributions were published in the newspaper El Espectador.
    Keywords: constitución; control fiscal; estabilidad monetaria; salud; voz; política fiscal; política monetaria; igualdad de género; eficiencia agrícola; descentralización
    JEL: J16 H55 E58 E63 H51 M48 H77 D74 N56
    Date: 2021–05–25
  125. By: Acharya, Viral V.; Qian, Jun; Su, Yang; Yang, Zhishu
    Abstract: We study the rise and risks in bank issuance of Wealth Management Products (WMPs), which are off-balance-sheet substitutes for deposits without the regulatory interest rate ceilings and constitute the largest shadow banking segment in China. We show that competition for deposits has a causal effect on the WMP issuance of small and medium sized banks (SMBs), where we instrument deposit competition by SMBs' geographical exposure to the large (Big Four) banks. The Big Four banks substantially increased their loan supply to support the RMB 4 trillion stimulus initiated in response to the global financial crisis, and thereafter grew more aggressive in the deposit markets in order to stay below the regulatory ceiling on the loan-to-deposit ratio. In response, SMBs issued more WMPs and more frequently, besides also establishing fewer branches in cities with greater competition from the Big Four banks. We find that this growth of WMPs imposed rollover risks for all the bank issuers, as reflected in higher yields on new WMPs, higher borrowing rates in the inter-bank market, and adverse stock market performance of WMP-issuing banks on days with heightened rollover risks.
    Keywords: deposit competition; financial fragility; regulatory arbitrage; Rollover Risk; shadow banking
    JEL: E4 G2 L2
    Date: 2020–06
  126. By: Kay, Rosemarie; Welter, Friederike
    Abstract: Restrictions in the wake of the coronavirus pandemic have affected and continue to affect the operations of entrepreneurs. A wide range of support measures were designed to mitigate their consequences. This paper traces the economic development in the various sectors and provides an overview of the support measures. Based on the specifics of women's businesses, first answers will be given to the question whether women entrepreneurs and the businesses they run are particularly affected by the coronavirus crisis and whether they are supported in an appropriate way in overcoming the crisis.
    Keywords: entrepreneurs,gender,coronavirus pandemic,turnover development,support measures
    JEL: E60 J16 O10
    Date: 2021
  127. By: G. Cornelis van Kooten; Mark E. Eiswerth; Jonathon Izett; Alyssa R. Russell
    Keywords: climate science and climate modelling; energy balance; ocean heat; climate feedbacks; reforestation
    JEL: Q54 C61 E17 F64 H23
    Date: 2021–06
  128. By: Hernán Rincón-Castro
    Abstract: A partir de un análisis que no es contable ni financiero sino económico, Rincón-Castro y Delgado-Rojas (2017) calculan para Colombia las tasas efectivas promedio de tributación sobre el consumo y los factores de producción trabajo y capital para el período comprendido entre 1994 y 2016. Para su estudio los autores utilizan las Cuentas Nacionales del DANE bases 1994 y 2005. El objetivo del presente estudio es realizar los mismos cálculos y con la misma metodología para el período 2005-2019, pero con las Cuentas Nacionales base 2015. Los resultados indican que el cambio de base produjo una reducción sustancial de las tasas efectivas del trabajo y del capital. Por ejemplo, para 2016, la tasa efectiva promedio del trabajo se redujo en 3 puntos porcentuales y del capital en 6 puntos porcentuales. ¿Cuál es la explicación? Los cambios de las bases tributarias que introdujo la nueva base de la contabilidad nacional, ya que la metodología de cálculo, las definiciones de las tasas, los parámetros y los supuestos no cambian. Entre 2017 y 2019 se suman los efectos de las leyes de reforma tributaria 819 de 2016 y 1943 de 2018. Los cálculos para 2019 indican que la tasa efectiva promedio de tributación del consumo es 12,7%, del trabajo es 18% y del capital es 15%. La desagregación de la tasa del trabajo muestra que la tasa de los salarios es 2,3%, de la nómina es 2,7% y de la seguridad social es 13%. La desagregación de la tasa del capital muestra que la de los hogares, quienes son los dueños del capital, es 3,8%, mientras que la de las sociedades es 21,1%. Así, los impuestos en Colombia no son efectivamente tan altos, pero tampoco tan bajos ni tan bien repartidos. **** ABSTRACT: From an analysis that is neither accounting nor financial but economic, Rincón-Castro and Delgado-Rojas (2017) calculate for Colombia the average effective rates of taxation on consumption and the factors of production labor and capital, for the period between 1994 and 2016. They use the National Accounts of DANE bases 1994 and 2005. The objective of this study is to perform the same calculations and with the same methodology for the period 2005-2019, but with the National Accounts base 2015. The results indicate that the change in the base produced a substantial reduction in the effective rates on labor and capital. For example, for 2016, the average effective rate on labor decreased by 3 percentage points and on equity by 6 percentage points. What is the explanation? The changes in the tax bases introduced by the new national accounting base, since the calculation methodology, the definitions of the rates, the parameters and the assumptions do not change. Between 2017 and 2019, the effects of the tax reform law 819 of 2016 and 1943 of 2018 are added. The calculations for 2019 indicate that the average effective tax rate on consumption is 12.7%, on work it is 18% and on capital it is 15%. The breakdown of the rate on work shows that on wages is 2.3%, that of payroll 2.7% and social security 13%. The breakdown of the capital rate shows that, that of households, who are the owners of capital, is 3.8%, while that of corporations is 21.1%. Thus, taxes in Colombia are not actually as high, but neither are they as low or as well distributed.
    Keywords: Tasas efectivas promedio de tributación, consumo, trabajo, capital, resto de ingresos, Average effective tax rates, consumption, labor, capital, rest of incomes
    JEL: E62 H22 H24 H25
    Date: 2021–06
  129. By: Ojo/Roedl, Marianne
    Abstract: The implications of COVID developments for monetary policy will certainly extend beyond the increased use of digital platforms and payments. The current environment is also focused on smart green techniques and green initiatives aimed at promoting a transition to a net zero based carbon emissions economy. During the onset of the pandemic, it was initially thought that carbon emissions would fall drastically – given the impact of the pandemic, not only on the airlines industry, but also as a result of “Stay at Home” measures imposed by jurisdictions, which even made it illegal to drive to certain places, where purposes for doing so were unjustified. However, the pandemic has also witnessed unprecedented levels in digital subscriptions, online sales and marketing – also fueled through digital payments and the use of digital platforms and distributed ledger technologies in facilitating cashless payments – cash, namely bank notes and coins, also being considered to be a medium of COVID transmission. Coupled with attributes such speed, convenience and ease, the need for financial inclusion has also become an objective in facilitating the era of innovative digital means of payments. As well as considering the current implications of measures that have been instigated to address the impacts of the pandemic, drawing from past and current lessons from selected jurisdictions, this paper also considers why the transition to a net zero carbon economy may prove more challenging than may first appear. However, jurisdictional differences and historical developments will play a part in determining how sustainable certain implemented policies and measures are – as well as in facilitating a transition to normality.
    Keywords: EU Green Deal; sustainable finance, interest rates; inflation; pandemic asset purchase program (PEPP); APP asset purchase program; longer term financing operations; transition risks; financial stability; CBDCs
    JEL: E5 G21 G28 G3 G38 K2
    Date: 2021–06–02
  130. By: Yoshihiko Norimasa (Bank of Japan); Kazuki Ueda (Bank of Japan); Tomohiro Watanabe (Nippon Life Insurance Company)
    Abstract: This study uses panel quantile regression to examine the risk of capital outflows in times of stress (capital flows-at-risk, CFaR) for 16 emerging economies. Our analysis shows that changes in financial conditions in advanced economies and in the monetary policy stance of the United States affect the risk of large capital outflows for some countries. In particular, we find that tighter financial conditions in advanced economies during a phase when the U.S. monetary policy stance is changing significantly affect emerging economies' CFaR. Further, using government debt as a measure of emerging economies' structural vulnerability, we find that an increase in government debt substantially raises the risk of capital outflows in times of stress. Moreover, while in the case of debt investment, CFaR tend to be greater the higher the level of government debt, in the case of other investment (consisting mainly of bank lending), CFaR tend to increase when financial conditions in advanced economies deteriorate.
    Keywords: Risk of Capital Outflows (CFaR: Capital Flows-at-Risk); Global Factors; Local Factors; Panel Quantile Regression; Relative Entropy
    JEL: E52 F32 F34 F37
    Date: 2021–05–26
  131. By: Vu, Trung V.
    Abstract: This paper establishes that the worldwide distribution of political instability has its deep historical roots in genetic diversity, predetermined over the prehistoric course of the exodus of Homo sapiens from East Africa tens of thousands of years ago. It proposes that the relationship between prehistorically determined genetic diversity and contemporary political instability follows a U-shaped pattern. More specifically, genetic diversity at first reduces the persistence of political instability by increasing the opportunity cost of engaging in riots and revolts. However, genetically fragmented societies tend to suffer from interpersonal mistrust and the under-provision of public goods, which plausibly undermine the establishment of politically stable regimes. Using an ancestry-adjusted index of predicted genetic diversity, this paper consistently finds precise estimates that genetic diversity imparts a U-shaped influence on different measures of political instability and the probability of observing the occurrence of riots and revolts across 141 countries. Furthermore, the contribution of genetic diversity to political instability is at least partially mediated through income/productivity levels, the provision of public goods, income inequality and social trust.
    Keywords: genetic diversity,fractionalization,political instability,riots,conflict
    JEL: E02 F50 N30 O11 Z13
    Date: 2021
  132. By: Tabea Bucher-Koenen (ZEW-Leibniz Centre for European Economic Research and Mannheim University); Andreas Hackethal (Goethe University Frankfurt and SAFE); Johannes Koenen (ARCEcon); Christine Laudenbach (University of Bonn)
    Abstract: We show that financial advisors recommend more costly products to female clients, based on minutes from about 27,000 real-world advisory meetings and client portfolio data. Funds recom-mended to women have higher expense ratios controlling for risk, and women less often receive rebates on upfront fees for any given fund. We develop a model relating these findings to client stereotyping, and empirically verify an additional prediction: Women (but not men) with higher financial aptitude reject recommendations more frequently. Women state a preference for delegat-ing financial decisions, but appear unaware of associated higher costs. Evidence of stereotyping is stronger for male advisors.
    Keywords: credence goods, financial aptitude, consumer protection, financial literacy, discrimination
    JEL: G2 E2 D8
    Date: 2021–05
  133. By: Noe Reidt (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: This paper investigates the impact of climate policies on the labor markets in developing countries characterized by a large informal economy. I conduct the analysis employing a dynamic general equilibrium model, which incorporates the three prevalent working groups in developing countries: informal self-employment, informal employment, and formal employment. To capture the mobility of workers between these groups, I use a search and match mechanism with search frictions for formal and informal firms and with on-thejob search. The model is calibrated to India to elaborate on the impact of climate policies envisioning a tax on energy with different redistribution schemes of the tax revenue. The results show that climate policies strengthening the position of the productive formal sector can lead to a triple dividend effect: emissions drop due to the energy tax, whereas the redistribution scheme increases the formal labor share and welfare. Developing countries with widespread informality can utilize climate policies to improve labor conditions while reaching their climate targets.
    Keywords: development, climate policies, employment, search frictions, informality
    JEL: C68 E26 J46 J64 Q56
    Date: 2021–05
  134. By: Meghann PULOC’H
    Abstract: L’Ouganda, pays de la région des grands lacs et membre de la Communauté de l’Afrique de l’Est (CAE), a connu deux décennies (1990-2010) de forte croissance et de transformation structurelle qui lui ont permis d’améliorer significativement ses indicateurs sociaux. Mais l’économie ougandaise reste confrontée à une informalité forte, à une concentration des emplois dans le secteur agricole, peu productif, et à un secteur bancaire qui ne finance que peu le secteur privé.
    Keywords: Ouganda
    JEL: E
    Date: 2021–05–31
  135. By: Alexandre Kolev; Justina La
    Abstract: L'emploi informel, défini par l'absence de protection sociale basée sur l'emploi, constitue la majeure partie de l'emploi dans les pays en développement, et entraîne un niveau de vulnérabilité à la pauvreté et à d'autres risques qui sont supportés par tous ceux qui dépendent des revenus du travail informel. Les résultats de la base de données des Indicateurs clés de l’informalité en fonction des individus et leurs ménages (KIIbIH) montrent qu'un nombre disproportionné de travailleurs de l'économie informelle de la classe moyenne reçoivent des transferts de fonds. Ces résultats confirment que les stratégies de gestion des risques, telles que la migration, jouent un rôle dans la minimisation des risques potentiels du travail informel pour les ménages informels de la classe moyenne qui peuvent ne pas être éligibles à l'aide sociale. Ils suggèrent en outre que les travailleurs informels de classe moyenne peuvent avoir une demande solvable d'assurance sociale, de sorte que, si des régimes d'assurance sociale adaptés aux besoins des travailleurs informels leur étaient accessibles, les transferts de fonds pourraient potentiellement être canalisés pour financer l'extension de l'assurance sociale à l'économie informelle.
    Keywords: développement, migration, mutualisation des risques, transferts de fonds, travailleurs de la classe moyenne, travailleurs informels, travailleurs émigrés, épargne
    JEL: E26 F22 F24 G52 H55 I38
    Date: 2021–06–10
  136. By: James Mitchell; Martin Weale
    Abstract: This paper develops methods for the production and evaluation of censored density forecasts. Censored density forecasts quantify forecast risks in a middle region of the density covering a specified probability, and ignore the magnitude but not the frequency of outlying observations. We propose a new estimator that fits a potentially skewed and fat-tailed density to the inner observations, acknowledging that the outlying observations may be drawn from a different but unknown distribution. We also introduce a new test for calibration of censored density forecasts. An application using historical forecast errors from the Federal Reserve Board and the Monetary Policy Committee at the Bank of England illustrates the utility of censored density forecasts when quantifying forecast risks after shocks such as the global financial crisis and the COVID-19 pandemic.
    Keywords: Forecast uncertainty; Outliers; Fan charts; Skewed densities; Best critical region; Density forecasting; Censoring; Forecast evaluation
    JEL: C24 C46 C53 E58
    Date: 2021–05–27

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