nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒06‒21
130 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Hysteresis and full employment in a small open economy By Timothy Watson; Juha Tervala
  2. Monetary Policy, Trends in Real Interest Rates and Depressed Demand By Paul Beaudry; Césaire Meh
  3. Assessing the (De)Stabilizing Effects of Unemployment Benefit Extensions By Alexey Gorn; Antonella Trigari
  4. Risk-Taking, Capital Allocation and Optimal Monetary Policy By Joel M. David; David Zeke
  5. Switching-Track after the Great Recession By Francesca Vinci; Omar Licandro
  6. Demand or Supply? Price Adjustment during the Covid-19 Pandemic By Balleer, Almut; Link, Sebastian; Menkhoff, Manuel; Zorn, Peter
  7. The Anatomy of the Transmission of Macroprudential Policies By Acharya, Viral V.; Bergant, Katharina; Crosignani, Matteo; Eisert, Tim; McCann, Fergal
  8. The U.S. Great Recession Experience. The Reasons why Losses in Jobs and in Home Equity Savings reinforced each other By De Koning, Kees
  9. Sectoral comovement, monetary policy and the credit channel By Di Pace, Federico; Görtz, Christoph
  10. What Matters in Households' Inflation Expectations? By Andrade, Philippe; Gautier, Erwan; Mengus, Eric
  11. One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area By Corsetti, Giancarlo; Duarte, Joao; Mann, Samuel
  12. Insider-Outsider Labor Markets, Hysteresis and Monetary Policy By Galí, Jordi
  13. Nonlinear unemployment effects of the inflation tax By Mohammed Ait Lahcen; Garth Baughman; Stanislav Rabinovich; Hugo van Buggenum
  14. The Macroeconomics of Government Spending: Distinguishing Between Government Purchases, Government Production, and Job Guarantee Programs By Thomas Palley
  15. Gains from Wage Flexibility and the Zero Lower Bound By Billi, Roberto M; Galí, Jordi
  16. Effectiveness and Addictiveness of Quantitative Easing By Karadi, Peter; Nakov, Anton
  17. Conditional macroeconomic forecasts: Disagreement, revisions and forecast errors By Glas, Alexander; Heinisch, Katja
  18. ECB Communication: What Is It Telling Us? By Rokas Kaminskas; Modestas Stukas; Linas Jurksas
  19. The Preferential Treatment of Green Bonds By Francesco Giovanardi; Matthias Kaldorf; Lucas Radke; Florian Wicknig
  20. The Stable Transformation Path By Francisco J. Buera; Joseph P. Kaboski; Martí Mestieri; Daniel G. O'Connor
  21. Initial monetary policy response to the COVID-19 pandemic in inflation targeting economies By Joanna Niedźwiedzińska
  22. Risk-Adjusted Capital Allocation and Misallocation By Joel M. David; Lukas Schmid; David Zeke
  23. Estimating the elasticity of intertemporal substitution using mortgage notches By Best, Michael Carlos; Cloyne, James; Ilzetzki, Ethan; Kleven, Henrik Jacobsen
  24. Supply of Sovereign Safe Assets and Global Interest Rates By Thiago Revil T. Ferreira; Samer Shousha
  25. The Liquidity Channel of Fiscal Policy By Bayer, Christian; Born, Benjamin; Luetticke, Ralph
  26. Determinacy without the Taylor Principle By George-Marios Angeletos; Chen Lian
  27. Priming in inflation expectations surveys By Monique Reid; Hanjo Odendaal; Pierre L. Siklos; Stan Du Plessis
  28. MPCs, MPEs and Multipliers: A Trilemma for New Keynesian Models By Auclert, Adrien; Bardóczy, Bence; Rognlie, Matthew
  29. The fuel of unparalleled recovery: Monetary policy in South Africa between 1925 and 1936 By Swanepoel, Christie; Fliers, Philip
  30. Exposure to Grocery Prices and Inflation Expectations By Malmendier, Ulrike M.
  31. Optimal Taxation of Capital in the Presence of Declining Labor Share By Orhan Erem Atesagaoglu; Hakki Yazici
  32. The Short-Run Macro Implications of School and Child-Care Closures By Fuchs-Schündeln, Nicola; Kuhn, Moritz; Tertilt, Michèle
  33. The Financial US Uncertainty Spillover Multiplier: Evidence from a GVAR Model By Afees A. Salisu; Rangan Gupta; Riza Demirer
  34. Economic vulnerability is state dependent By Leopoldo Catania; Alessandra Luati; Pierluigi Vallarino
  35. Zombie Credit and (Dis-)Inflation: Evidence from Europe By Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
  36. Aging and the Real Interest Rate in Japan: A Labor Market Channel By Shigeru Fujita; Ippei Fujiwara
  37. Capital Buffers in a Quantitative Model of Banking Industry Dynamics By Dean Corbae; Pablo D'Erasmo
  38. Optimal Unemployment Benefits in the Pandemic By Mitman, Kurt; Rabinovich, Stanislav
  39. reaction model for a Central Bank against shocks on labor market - Part I By Martin, José Manuel
  40. Dampening Global Financial Shocks: Can Macroprudential Regulation Help (More than Capital Controls)? By Bergant, Katharina; Grigoli, Francesco; Hansen, Niels-Jakob; Sandri, Damiano
  41. FAQ: How do I measure the Output gap? By Canova, Fabio
  42. UK inflation forecasts since the thirteenth century By James M. Nason; Gregor W. Smith
  43. Uncovered Interest Parity, Forward Guidance and the Exchange Rate By Galí, Jordi
  44. Distribution of household income, consumption and saving in line with national accounts: Methodology and results from the 2020 collection round By Jorrit Zwijnenburg; Sophie Bournot; David Grahn; Emmanuelle Guidetti
  45. Questioning the puzzle: fiscal policy, real exchange rate and inflation By Laurent Ferrara; Luca Metelli; Filippo Natoli; Daniele Siena
  46. Financial Vulnerability and Risks to Growth in Emerging Markets By Acharya, Viral V.; Bhadury, Soumya; Surti, Jay
  47. Interdependence Between Monetary Policy And Asset Prices In Asean-5 Countries By Solikin M. Juhro; Bernard N. Iyke; Paresh K. Narayan
  48. Can regulating bank capital help prevent and mitigate financial downturns? By Alejandro García; Josef Schroth
  49. The decline in euro area inflation and the choice of policy strategy By Wieland, Volker
  50. Economic policy uncertainty in banking: a literature review By Ozili, Peterson Kitakogelu;
  51. Quantiles of growth: Household debt and growth vulnerabilities in Finland By Nyholm, Juho; Voutilainen, Ville
  52. International Capital Flows: Private Versus Public Flows in Developing and Developed Countries By Yun Jung Kim; Jing Zhang
  53. The Long-Term Effects of Capital Requirements By Gianni De Nicolò; Nataliya Klimenko; Sebastian Pfeil; Jean-Charles Rochet
  54. Back to the Present: Learning about the Euro Area through a Now-casting Model By Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
  55. Revisiting Capital-Skill Complementarity, Inequality, and Labor Share By Lee E. Ohanian; Musa Orak; Shihan Shen
  56. Epidemics in the Neoclassical and New-Keynesian Models By Eichenbaum, Martin; Rebelo, Sérgio; Trabandt, Mathias
  57. DGE model for assessing macro-fiscal vulnerabilities in Algeria By Emmanuel Pinto Moreira; Baris Alpaslan
  58. Optimal Monetary Policy in Production Networks By La'O, Jennifer; Tahbaz-Salehi, Alireza
  59. On the Green Interest Rate. By Nicholas Z. Muller
  60. Automation and Sectoral Reallocation By Dennis C. Hutschenreiter; Tommaso Santini; Eugenia Vella
  61. Global Banks and Systemic Debt Crises By Juan M. Morelli; Pablo Ottonello; Diego J. Perez
  62. What drives portfolio capital inflows into emerging market economies? The role of the Fed’s and ECB’s balance sheet policies By Michał Ledóchowski; Piotr Żuk
  63. Income-Driven Labor-Market Polarization By Diego Comin; Ana Danieli; Martí Mestieri
  64. Das House Kapital By Grossmann, Volker; Larin, Benjamin; Steger, Thomas M.
  65. The Financial (In)Stability Real Interest Rate, R** By Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó
  66. Mind the gap! Stylized Dynamic Facts and Structural Models. By Fabio Canova; Filippo Ferroni
  67. GLOBAL UNCERTAINTY By Giovanni Caggiano; Efrem Castelnuovo
  68. COVID-19 and (gender) inequality in income: The impact of discretionary policy measures in Austria By Christl, Michael; De Poli, Silvia; Kucsera, Dénes; Lorenz, Hanno
  69. Supply, Demand, and Specialized Production By James D. Hamilton
  70. Migration, Diversity and Regional Risk Sharing By Ventura, Luigi; Ventura, Maria
  71. Debt Crises, Fast and Slow By Corsetti, Giancarlo; Maeng, Seung Hyun
  72. From Micro to Macro: A Note on the Analysis of Aggregate Productivity Dynamics Using Firm-Level Data By Daniel A. Dias; Carlos Robalo Marques
  73. Modelling and Estimating Large Macroeconomic Shocks During the Pandemic By Luisa Corrado; Stefano Grassi; Aldo Paolillo
  74. Modelling and Estimating Large Macroeconomic Shocks During the Pandemic By Luisa Corrado; Stefano Grassi; Aldo Paolillo
  75. Pandemic Recessions and Contact Tracing By Leonardo Melosi; Matthias Rottner
  76. Aggregate Demand Externalities, Income Distribution, and Wealth Inequality By Luke Petach; Daniele Tavani
  77. Does Immigration Grow the Pie? Asymmetric Evidence from Germany By Nicolo Maffei-Faccioli; Eugenia Vella
  78. The Rise in Foreign Currency Bonds: The Role of US Monetary Policy and Capital Controls By Bacchetta, Philippe; Cordonier, Rachel; Merrouche, Ouarda
  79. Regime Changes and Fiscal Sustainability in Kenya with Comparative Nonlinear Granger Causalities Across East-African Countries By William Nganga Irungu; Julien Chevallier; Simon Wagura Ndiritu
  80. The Relationship between Debt and Output By Yun Jung Kim; Jing Zhang
  81. Coronavirus: Impact on Stock Prices and Growth Expectations By Gormsen, Niels Joachim Christfort; Koijen, Ralph
  82. The Making of Hawks and Doves By Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
  83. The price vs. non-price competitiveness conundrum: a post-Keynesian comparative political economy analysis By Walter Paternesi Meloni
  84. Liquidity Creation, Investment, and Growth By Beck, Thorsten; Döttling, Robin; Lambert, Thomas; Van Dijk, Mathijs A
  85. A behavioral explanation for the puzzling persistence of the aggregate real exchange rate By Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga
  86. Shocks to bank capital position: Do they matter for lending to firms and how they are channelled? Evidence from Senior Loan Officer Opinion Survey for Poland By Ewa Wróbel
  87. Earnings Dynamics in Germany By Ana Sofia Pessoa
  88. Colocación de cartera y crecimiento sectorial By Joab D. Valdivia C.
  89. Household Expenditures and the Effective Reproduction Number in Japan: Regression Analysis By Hajime Tomura
  90. Hedging Against Inflation: Housing vs. Equity By Daniel Fehrle
  91. Waning Immunity and the Second Wave: Some Projections for SARS-CoV-2 By Giannitsarou, Chryssi; Kissler, Stephen; Toxvaerd, Flavio
  92. Political Connections, Allocation of Stimulus Spending, and the Jobs Multiplier By Joonkyu Choi; Veronika Penciakova; Felipe Saffie
  93. Classification of monetary and fiscal dominance regimes using machine learning techniques By Hinterlang, Natascha; Hollmayr, Josef
  94. Recent German migration laws: A contribution to fiscal sustainability By Manthei, Gerrit
  95. Learning about Housing Cost: Survey Evidence from the German House Price Boom By Fabian Kindermann; Julia Le Blanc; Monika Piazzesi; Martin Schneider
  96. The elusive quest for the holy grail of an impact of EU funds on regional growth By Jan Fidrmuc; Martin Hulényi; Olga Zajkowska
  97. Scarred Consumption By Malmendier, Ulrike M.; Shen, Leslie Sheng
  98. Will the AI revolution be labour-friendly? Some micro evidence from the supply side By Damioli, Giacomo; Van Roy, Vincent; Vertesy, Daniel; Vivarelli, Marco
  99. Credible Emerging Market Central Banks could embrace Quantitative Easing to fight COVID-19 By Gianluca Benigno; Jon Hartley; Alicia García-Herrero; Alessandro Rebucci; Elina Ribakova
  100. Coronavirus panic fuels a surge in cash demand By Ashworth, Jonathan; Goodhart, Charles A
  101. Trade Integration, Global Value Chains, and Capital Accumulation By Michael Sposi; Kei-Mu Yi; Jing Zhang
  102. Environment, public debt and epidemics By Marion Davin; Mouez Fodha; Thomas Seegmuller
  103. Determinantes del ciclo crediticio en Bolivia By Joab D. Valdivia C.
  104. Consumption Inequality across Heterogeneous Families By Alexandros Theloudis
  105. Why Didn't the College Premium Rise Everywhere? Employment Protection and On-the-Job Investment in Skills By Doepke, Matthias; Gaetani, Ruben
  106. Switching from cash to cashless payments during the COVID-19 pandemic and beyond By Tomasz Piotr Wisniewski; Michal Polasik; Radoslaw Kotkowski; Andrea Moro
  107. Monetary Policy Spillovers Under Covid-19: Evidence from U.S. Foreign Bank Subsidiaries By Mark M. Spiegel
  108. Prudential Policy with Distorted Beliefs By Eduardo Dávila; Ansgar Walther
  109. FX Intervention to Stabilize or Manipulate the Exchange Rate? Inference from Profitability By Sandri, Damiano
  110. A Macroeconomic Model of Healthcare Saturation, Inequality and the Output-Pandemia Tradeoff By Enrique G. Mendoza; Eugenio Rojas; Linda L. Tesar; Jing Zhang
  111. Automation, job polarisation, and structural change By Luca Eduardo Fierro; Alessandro Caiani; Alberto Russo
  112. Does Household Borrowing Reduce the Trade Balance? Evidence from Developing and Developed Countries By Can Xu; Jan Jacobs; Jakob de Haan
  113. Digital Retailing as a Promoter of Employment: Evidence from China By Xu, Tao
  114. Effects of Preferential Tax Treatment on German Homeownership By Stefanie Braun
  115. Higher-order comoment contagion among G20 equity markets during the COVID-19 pandemic By Renée Fry-McKibbin; Matthew Greenwood-Nimmo; Cody Yu-Ling Hsiao; Lin Qi
  116. Essays on Financial and Fiscal Development By Beni Kouevi Gath
  117. Bank capital and the European recovery from the COVID-19 crisis By Schularick, Moritz; Steffen, Sascha; Tröger, Tobias
  118. El carácter cíclico de la política monetaria en Bolivia By María Eugenia Carmona Morales
  119. Bagehot for Central Bankers By Laurent Le Maux
  121. Covid-19 Outbreak and CO2 Emissions: Macro-Financial Linkages By Julien Chevallier
  122. Interdependence of Growth, Structure, Size and Resource Consumption During an Economic Growth Cycle By Carey W. King
  123. The Global Transmission of Real Economic Uncertainty By Juan M. Londono; Sai Ma; Beth Anne Wilson
  124. The Relationship between Foreign Direct Investment and Economic Growth: A Case of Turkey By Orhan Gokmen
  125. The long-term growth impact of refugee migration in Europe: A case study By Manthei, Gerrit
  126. COVID-19’s reality shock for external-funding dependent emerging economies By Alicia García-Herrero; Elina Ribakova
  127. Home truths: options for reforming residential property taxes in England By Cheshire, Paul; Hilber, Christian A. L.
  128. Out-of-Sample Predictability of Gold Market Volatility: The Role of US Nonfarm Payroll By Afees A. Salisu; Elie Bouri; Rangan Gupta
  129. Social Accounting Matrix for Ghana 2015 By Valeria Ferreira; Miguel Ángel Almazán-Gómez; Victor Nechifor; Emanuele Ferrari
  130. The Augmented Synthetic Control Method By Eli Ben-Michael; Avi Feller; Jesse Rothstein

  1. By: Timothy Watson; Juha Tervala
    Abstract: We simulate a small open economy Two Agent New Keynesian (TANK) model featuring ‘learning by doing’ in production whereby changes in employment generate hysteresis in productivity and output. Credit constraints and hysteresis amplify the efficacy of Fiscal stimulus in a small open economy with a floating exchange rate and inflation-targeting central bank such that output multipliers can exceed unity; welfare multipliers can be positive; and the degree of hysteresis, output and employment multipliers match empirical evidence well. Fiscal stimulus helps reverse output hysteresis, and price-level targeting provides superior macroeconomic stabilisation compared to other simple monetary rules combined with fiscal stimulus.
    Keywords: Hysteresis, open economy macroeconomics, monetary policy, fiscal policy
    JEL: E32 E63 F41
    Date: 2021–06
  2. By: Paul Beaudry; Césaire Meh
    Abstract: Over the last few decades, real interest rates have trended downward in many countries. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors such as income inequality. In this paper we explore the claim that these trends may have been amplified by certain features of monetary policy. We show that when long-run asset demands by households are C-shaped in relation to real interest rates, a feature we motivate through bequest motives, monetary policy has the potential to affect steady-state properties even if money is neutral in the long run. In particular, we show that if monetary policy reacts aggressively to inflation, this supports a steady state where inflation is close to the central bank’s target. However, the same aggressive policy simultaneously favours the emergence of, and the convergence to, a second stable and determinate steady state where both the real interest rate and inflation are lower and monetary policy is constrained by the effective lower bound. We discuss how fiscal policy can be used to escape this low-real-rate, low-inflation trap with the potential for a discontinuous response of long-run inflation.
    Keywords: Debt management, Economic models, Fiscal policy, Inflation and prices, Interest rates, Monetary policy
    JEL: E2 E43 E44 E5 E52 E62 E63 H3 H6 H63
    Date: 2021–06
  3. By: Alexey Gorn; Antonella Trigari
    Abstract: We study the stabilizing role of unemployment benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for both a stabilizing aggregate demand channel and a destabilizing labor market channel of unemployment insurance. We characterize analytically the workings of each channel. Stabilizing aggregate demand effects marginally prevail in the U.S. economy and the unprecedented benefit extensions introduced during the Great Recession played a limited role for unemployment dynamics. Instead, unemployment from the model tracks actual unemployment with a combination of labor market shocks and a shock to the consumers’ borrowing capacity
    Keywords: Unemployment insurance; cyclical benefit extensions; heterogeneous agents; redistribution; precautionary motives; opportunity cost of employment; nominal rigidities; search frictions
    JEL: E24 E32 E52 J63 J64 J65
  4. By: Joel M. David; David Zeke
    Abstract: We study the role of firm heterogeneity in affecting business cycle dynamics and optimal stabilization policy. Firms differ in their degree of cyclicality, and hence, exposure to aggregate risk, leading to firm-specific risk premia that influence resource allocations. The heterogeneous firm economy can be recast in a representative firm formulation, but where total factor productivity (TFP) is endogenous and depends on the resource allocation. The model uncovers a novel tradeoff between the long-run level and volatility of TFP. Inefficiencies distort this tradeoff and result in either excessive volatility or depressed output, implying a role for corrective policy. Embedding this mechanism into a workhorse New Keynesian model, we show that allocational considerations can strengthen the incentives for leaning against the wind, i.e., optimal policy is more strongly countercyclical than in an observationally equivalent economy that abstracts from heterogeneity. A quantitative exercise suggests that the losses from ignoring heterogeneity can be substantial, which stem largely from a less productive allocation of resources and so depressed TFP and output.
    Keywords: monetary policy; heterogeneous firms; misallocation; productivity
    JEL: D24 E23 E32 E44 E52 E62
    Date: 2021–01–13
  5. By: Francesca Vinci; Omar Licandro
    Abstract: We propose a theoretical framework to reconcile episodes of V-shaped and L-shaped recovery, encompassing the behaviour of the U.S. economy before and after the Great Recession. In a DSGE model with endogenous growth, negative demand shocks destroy productive capacity, moving GDP to a lower trajectory. A Taylor rule policy designed to reduce the output gap may counterbalance the shocks, preventing the destruction of economic capacity and inducing a V-shaped recovery. However, when shocks are deep and persistent enough, like during the Great Recession, they call for a downward revision of potential output measures, the so-called switching-track, weakening the recovering role of monetary policy and inducing an L-shaped recovery. When calibrated to the U.S. economy, the model replicates well the L-shaped recovery and switching-track that followed the Great Recession, as well as the V-shaped recoveries that followed the oil shock recessions.
    Keywords: Great Recession, economic recovery, endogenous growth, hysteresis, trend shift, switching-track, supply destruction prevention, economic capacity, monetary policy
    JEL: E12 E22 E32 O41 E52
    Date: 2021
  6. By: Balleer, Almut; Link, Sebastian; Menkhoff, Manuel; Zorn, Peter
    Abstract: We study price-setting behavior in German firm-level survey data to infer the relative importance of supply and demand during the Covid-19 pandemic. Supply and demand forces coexist, but demand shortages dominate in the short run. A reported negative impact of Covid-19 on current business is associated with a rise in the probability to decrease prices up to eleven percentage points. These results imply a role for aggregate demand stabilization policy to buffer the economic consequences of Covid- 19 while containing the pandemic.
    Keywords: COVID-19; demand; Fiscal policy; Producer price setting; Supply
    JEL: D22 E31 E32 E60 H50
    Date: 2020–06
  7. By: Acharya, Viral V.; Bergant, Katharina; Crosignani, Matteo; Eisert, Tim; McCann, Fergal
    Abstract: We analyze how regulatory constraints on household leverage-in the form of loan-to-income and loan-to-value limits-affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in "hot" housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.
    Keywords: House Prices; household leverage; macroprudential regulation; Residential Mortgage Credit
    JEL: E21 E44 E58 G21 R21
    Date: 2020–06
  8. By: De Koning, Kees
    Abstract: In a previous paper: “Quantitative Easing Home Equity: an Alternative Economic Management Tool” (MPRA Paper 106528), the writer did analyze some of the Great Recession’s experiences for different groups of U.S. households. In Q4 2005, the home equity level stood at $14.4 trillion for all households. As a result of the Great Recession this level dropped to $8.2 trillion by Q1 2012. This loss in wealth level lasted the longest for the bottom 50% of households. For this group it took over 10 years which was nearly 5 years longer than for the two household groups making up the top 50% of households. The latter groups took five years to get back to the income and wealth levels as assessed in 2007. Why was losing $6.2 trillion in home equity savings over the period Q4 2005 to Q1 2012 such a disaster? The first aspect is the value of savings made and the recovery period to earn back such savings losses. A savings loss of 43% on home values was an extreme percentage of losses, mainly due to two factors. The first was the reinforcement factor. When doubts crept into the mortgage backed securities markets in 2007, the snowball started rolling. Banks and other financial companies as well as some households were over extended. Defaults started to go up and the mood in the markets turned from overly optimistic to severely negative. Foreclosure levels were racing up and unemployment levels increased rapidly. The second aspect was the relationship between house prices and the home equity savings levels embedded in such home values. A home is for nearly all households a necessity rather than a luxury. If a household cannot afford to buy outright, a mortgage is often needed as the household will still need a place to live in. The downward housing prices –from a U.S. average of $257,400 in Q1 2007 to the bottom of $208,400 in Q1 2009 and back to $258,400 by Q1 2013 brought on a misery for many U.S. households. This paper will attempt to show that there can be a different solution to such market upheaval: a reversal method that helps households to spend more of their home equity level when needed. The household’s macro economic motto could be: “Save in good times and spend from your home equity in economic downturns”. To make it a success, a system needs to be developed to make such spending possible.
    Keywords: U.S.Great Recession period; home equity in U.S.; home mortgage levels, home wealth levels; a household help to buy scheme based on home equity
    JEL: E2 E21 E24 E4 E42 E44 E5 E6
    Date: 2021–06–09
  9. By: Di Pace, Federico (Bank of England); Görtz, Christoph (University of Birmingham)
    Abstract: Using a structural vector autoregression, we document that a contractionary monetary policy shock triggers a decline in durable and non-durable outputs as well as a contraction in bank equity and a rise in the excess bond premium. The latter points to an important transmission channel of monetary policy via financial markets. It has long been recognized that a standard two-sector New Keynesian model, where durable goods prices are flexible and non-durable and services sticky, does not generate the empirically observed sectoral comovement across expenditure categories in response to a monetary policy shock. We show that introducing financial frictions in a two-sector New Keynesian model can resolve its disconnect with the empirical evidence: a monetary tightening generates not only comovement, but also a rise in credit spreads and a deterioration in bank equity.
    Keywords: Financial intermediation; sectoral comovement; monetary policy; financial frictions; credit spreads
    JEL: E22 E32 E44 E52
    Date: 2021–06–11
  10. By: Andrade, Philippe; Gautier, Erwan; Mengus, Eric
    Abstract: We provide evidence that households discretize their inflation expectations so that what matters for durable consumption decisions is the broad inflation regime they expect. Using survey data, we document that a large share of the adjustment in the average inflation expectation comes from the change in the share of households expecting stable prices; these households also consume relatively less than the ones expecting positive inflation. In contrast, variations of expectations across households expecting a positive inflation rate are associated with much smaller differences in individual durable consumption choices. We illustrate how this mitigates the expectation channel of monetary policy.
    Keywords: adjustment costs; Euler Equation; imperfect information; Inflation expectations; Stabilization policies; survey data
    JEL: D12 D84 E21 E31 E52
    Date: 2020–06
  11. By: Corsetti, Giancarlo; Duarte, Joao; Mann, Samuel
    Abstract: We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity. We find this to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. We build a small open economy model featuring a housing sector and calibrate it to Spain. We show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the response of output and private consumption.
    Keywords: Adjustable Mortgage Rates; High-Frequency Identification; housing market; Loan-to-value Ratio; monetary policy; monetary union
    JEL: E21 E31 E44 E52 F44 F45
    Date: 2020–06
  12. By: Galí, Jordi
    Abstract: I develop a version of the New Keynesian model with insider-outsider labor markets and hysteresis that can account for the high persistence of European unemployment. I study the implications of that environment for the design of monetary policy. The optimal policy calls for strong emphasis on (un)employment stabilization which a standard interest rate rule fails to deliver, with the gap between the two increasing in the degree of hysteresis. Two simple targetiing rules are shown to approximate well the optimal policy. The properties of the model and effects of different policies are analyzed through the lens of the labor wedge and its components.
    Keywords: monetary policy tradeoffs; New Keynesian Model; Unemployment fluctuations; Wage Phillips Curve; Wage stickiness
    JEL: E24 E31 E32
    Date: 2020–06
  13. By: Mohammed Ait Lahcen; Garth Baughman; Stanislav Rabinovich; Hugo van Buggenum
    Abstract: We argue that long-run inflation has nonlinear and state-dependent e ects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks - productivity and monetary - and frictions in labor and goods markets. Inflation lowers the surplus from a worker-firm match, in turn making it sensitive to productivity shocks or to further increases in inflation. We calibrate the model to match the US postwar labor market and monetary data and show that it is consistent with observed cross-country correlations. The model implies that the welfare cost of inflation is nonlinear in the level of inflation and is amplified by the presence of aggregate shocks.
    Keywords: Money, search, inflation, unemployment, unemployment volatility, fundamental surplus, product-labor market interaction
    JEL: E24 E30 E40 E50
    Date: 2021–06
  14. By: Thomas Palley (Economics for Democratic and Open Societies (US))
    Abstract: This paper reconstructs the Keynesian income – expenditure (IE) model to include distinctions between government purchases of private sector output, government production, and government job guarantee program (JGP) employment. Analytically, including those distinctions transforms the model from a single sector model into a multi-sector model. It also surfaces the logic behind the automatic stabilizer property of JGP employment. The model is then extended to include Kaleckian income distribution effects which contribute to explaining why expenditure multipliers vary by type of fiscal expenditure. The Kaleckian version generates a new balanced budget multiplier driven by changed composition of government spending. It also illuminates some macroeconomic implications of privatization of government produced services.
    Keywords: Government spending, government production, balanced budget multiplier, automatic stabilizers, job guarantee program
    JEL: E10 E12 E62
    Date: 2021–06
  15. By: Billi, Roberto M; Galí, Jordi
    Abstract: We analyze the welfare impact of greater wage flexibility in the presence of an occasionally binding zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment.
    Keywords: labor-market flexibility; nominal rigidities; optimal monetary policy with commitment; Taylor rule; ZLB constraint
    JEL: E24 E32 E52
    Date: 2020–06
  16. By: Karadi, Peter; Nakov, Anton
    Abstract: This paper analyses optimal asset-purchase policies in a macroeconomic model with banks, which face occasionally-binding balance-sheet constraints. It proves analytically that asset-purchase policies are effective in offsetting large financial disturbances, which impair banks' capital position. It warns, however, that the policy is addictive because it flattens the yield curve, reduces the profitability of the banking sector and therefore slows down its recapitalization. Consequently, optimal exit from large central bank balance sheets is gradual.
    Keywords: Balance-Sheet-Constrained Banks; Large-scale asset purchases
    JEL: E32 E44 E52
    Date: 2020–06
  17. By: Glas, Alexander; Heinisch, Katja
    Abstract: Using data from the European Central Bank's Survey of Professional Forecasters, we analyse the role of ex-ante conditioning variables for macroeconomic forecasts. In particular, we test to which extent the heterogeneity, updating and ex-post performance of predictions for inflation, real GDP growth and the unemployment rate are related to assumptions about future oil prices, exchange rates, interest rates and wage growth. Our findings indicate that inflation forecasts are closely associated with oil price expectations, whereas expected interest rates are used primarily to predict output growth and unemployment. Expectations about exchange rates and wage growth also matter for macroeconomic forecasts, albeit less so than oil prices and interest rates. We show that survey participants can considerably improve forecast accuracy for macroeconomic outcomes by reducing prediction errors for external conditions. Our results contribute to a better understanding of the expectation formation process of experts.
    Keywords: assumptions,disagreement,forecast accuracy,forecast revisions,survey forecasts
    JEL: C53 D84 E02 E32
    Date: 2021
  18. By: Rokas Kaminskas (Bank of Lithuania, ISM University of Management and Economics); Modestas Stukas (Bank of Lithuania); Linas Jurksas (Bank of Lithuania, Vilnius University)
    Abstract: This paper examines changing ECB communication and how it has impacted euro area financial markets over the past two decades. We applied a combination of topic modelling and sentiment analysis for over 2000 public ECB Executive Board member speeches, as well as over 200 ECB press conferences. Topic analysis revealed that the ECB’s main focus has shifted from strategy and objectives, at the inception of the euro area, to various policy actions during the global financial crisis and, more recently, to instruments and economic developments. Sentiment analysis showed an expected trend of a more negative communication tone during periods of turmoil and a gradual shift to a more dovish monetary policy tone over time. Regression analysis revealed that sentiment indices had the expected impact on financial market indicators, while press conferences showed substantially stronger effects than speeches.
    Keywords: ECB, speeches, press conferences, text analysis, sentiments, financial markets
    JEL: C80 E43 E44 E58 G12
    Date: 2021–05–11
  19. By: Francesco Giovanardi (University of Cologne, Center for Macroeconomic Research); Matthias Kaldorf (University of Cologne, Center for Macroeconomic Research. Sibille-Hartmann-Str. 2-8, 50969 Cologne, Germany); Lucas Radke (University of Cologne, Center for Macroeconomic Research); Florian Wicknig (University of Cologne, Center for Macroeconomic Research)
    Abstract: We study the preferential treatment of green bonds in the Central Bank collateral framework as an environmental policy instrument. We propose a macroeconomic model with environmental and financial frictions, in which green and conventional entrepreneurs issue defaultable bonds to banks that use them as collateral. Collateral policy solves a financial stability trade-off between increasing bond issuance and subsidizing entrepreneur default risk. In a calibration to the Euro Area, optimal collateral policy features substantial preferential treatment, implying a green-conventional bond spread of 73bp. This increases the green bond share by 0.69 percentage points, while the green capital share increases by 0.32 percentage points, which in turn reduces pollution. The limited response of green investment is caused by higher risk taking of green entrepreneurs. When optimal Pigouvian taxation is available, collateral policy does not feature preferential treatment, but still improves welfare by addressing adverse effects of taxation on financial stability.
    Keywords: Green Investment, Central Bank Policy, Collateral Framework, Corporate De-fault Risk, Environmental Policy
    JEL: E44 E58 E63 Q58
    Date: 2021–06
  20. By: Francisco J. Buera; Joseph P. Kaboski; Martí Mestieri; Daniel G. O'Connor
    Abstract: Standard dynamic models of structural transformation, without knife-edge and counterfactual parameter values, preclude balanced growth path (BGP) analysis. This paper develops a dynamic equilibrium concept for a more general class of models | an alternative to a BGP, which we coin a Stable Transformation Path (STraP). The STraP characterizes the medium-term dynamics of the economy in a turnpike sense; it is the path toward which the economy (quickly) converges from an arbitrary initial capital stock. Calibrated simulations demonstrate that the relaxed parameter values that the STraP allows have important quantitative implications for structural transformation, investment, and growth. Indeed, analyzing the dynamics along the STraP, we show that the modern dynamic model of structural transformation makes progress over the Neoclassical growth model in matching key growth and capital accumulation patterns in cross-country data, including slow convergence.
    Keywords: Growth; Investment Dynamics; Non-balanced Growth
    JEL: E13 E21 E22 E23
    Date: 2020–10–23
  21. By: Joanna Niedźwiedzińska (Narodowy Bank Polski)
    Abstract: The monetary policy response to COVID-19 was, in many ways, exceptional. This paper investigates some aspects of this exceptionality among 28 inflation targeters. Evidently, the reviewed central banks assessed the pandemic to be a clear-cut case for loosening by promptly announcing expansionary decisions, often at extraordinary meetings, using a possibly broad set of measures, with not much hesitation before reaching for unconventional ones. One of the key aspects of the analysed monetary policy response was also how quickly the authorities reacted to the shock. It turned out that, on average, advanced economies announced their initial policy actions within a month, whereas emerging market economies were twice as fast. This difference could be, however, to a great extent, explained by the timing of registering the first COVID-19 cases in a country, having room for policy manoeuvre with respect to nonstandard measures and being in need of liquidity provisions with a less deep financial system.
    Keywords: Monetary Policy, Central Banking, Policy Design.
    JEL: E31 E52 E58 E61
    Date: 2020
  22. By: Joel M. David; Lukas Schmid; David Zeke
    Abstract: We develop a theory linking “misallocation,” i.e., dispersion in marginal products of capital (MPK), to macroeconomic risk. Dispersion in MPK depends on (i) heterogeneity in firm-level risk premia and (ii) the price of risk, and thus is countercyclical. We document strong empirical support for these predictions. Stock market-based measures of risk premia imply that risk considerations explain about 30% of observed MPK dispersion among US firms and rationalize a large persistent component in firm-level MPK. Risk-based MPK dispersion, although not prima facie inefficient, lowers long-run aggregate productivity by as much as 6%, suggesting large “productivity costs” of business cycles.
    Keywords: misallocation; productivity; costs of business cycles; risk premia
    JEL: D24 D25 E22 E32 G12 O47
    Date: 2020–12–21
  23. By: Best, Michael Carlos; Cloyne, James; Ilzetzki, Ethan; Kleven, Henrik Jacobsen
    Abstract: Using a novel source of quasi-experimental variation in interest rates, we develop a new approach to estimating the Elasticity of Intertemporal Substitution (EIS). In the U.K., the mortgage interest rate features discrete jumps - notches - at thresholds for the loan-to-value (LTV) ratio. These notches generate large bunching below the critical LTV thresholds and missing mass above them. We develop a dynamic model that links these empirical moments to the underlying structural EIS. The average EIS is small, around 0.1, and quite homogeneous in the population. This finding is robust to structural assumptions and can allow for uncertainty, a wide range of risk preferences, portfolio reallocation, liquidity constraints, present bias, and optimization frictions. Our findings have implications for the numerous calibration studies that rely on larger values of the EIS.
    JEL: D14 E40 E43 D10 H31 E21 E20 H30
    Date: 2020–03–01
  24. By: Thiago Revil T. Ferreira; Samer Shousha
    Abstract: We estimate that the supply of sovereign safe assets is a major driver of neutral interest rates--real rates consistent with both economic activity and inflation at their trends. We find this result using an empirical cross-country model with many economic drivers for the neutral rates of 11 advanced economies during the 1960-2019 period. The increasing availability of safe assets after 2008 has pushed up neutral rates, preventing them from continuing their previous decline because of other drivers. We also evaluate the "global savings glut" hypothesis. We estimate that since 1994 the global accumulation of international exchange reserves in safe assets has lowered the availability of these assets to the private sector and, thus pushed down neutral rates. Finally, we find that economies' neutral rates are subject to important global spillovers from developments in other economies.
    Keywords: Neutral interest rates; Safe assets; International reserves; Global savings glut
    JEL: E43 E21 E52
    Date: 2021–04–30
  25. By: Bayer, Christian; Born, Benjamin; Luetticke, Ralph
    Abstract: We provide evidence that expansionary fiscal policy lowers the return difference between more and less liquid assets---the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice, in which public debt affects private liquidity. In this environment, the short-run fiscal multiplier is amplified by the countercyclical liquidity premium. This liquidity channel stabilizes investment and crowds in consumption. We then quantify the long-run effects of higher public debt, and find a sizable decline of the liquidity premium, increasing the fiscal burden of debt, but little crowding out of capital.
    Keywords: Bayesian estimation; business cycles; Fiscal policy; HANK; incomplete markets; liquidity premium
    JEL: C11 D31 E32 E63
    Date: 2020–06
  26. By: George-Marios Angeletos; Chen Lian
    Abstract: A long-standing issue in the theory of monetary policy is that the same path for the interest rate can be associated with multiple bounded equilibrium paths for inflation and output. We show that a small friction in memory and intertemporal coordination can remove this indeterminacy. This leaves no space for equilibrium selection by means of either the Taylor Principle or the Fiscal Theory of the Price Level. It reinforces the logical foundations of the New Keynesian model’s conventional solution (a.k.a. its fundamental or MSV solution). And it liberates feedback rules to serve only one function: stabilization.
    JEL: D8 E4 E5 E7
    Date: 2021–06
  27. By: Monique Reid; Hanjo Odendaal; Pierre L. Siklos; Stan Du Plessis
    Abstract: Since the global financial crisis of 2007/2008, there has been increased attention on inflation expectations and the use of central bank communication as a tool to achieve a central bank’s objective for inflation. However, much of this research analyses the survey data with limited consideration of the survey design that generated the data, or the differences across surveys and countries. In this research note, we focus on one element of South Africa’s Bureau of Economic Research household inflation expectation survey question – the inclusion of a historical inflation number in the survey question. Using a dataset created by Pienaar (2018), we are able to evaluate the impact of its inclusion on the data created. We find that the inclusion of a historical inflation number into the survey question, distorts survey responses, particularly a group considered to be relatively ‘less rational’. We do not investigate whether this bias is caused by anchoring (Tversky & Kahneman (1974), learning (Cavallo, Cruces, & Perez-Truglia, 2017), or any other theory, but we do argue that the observed bias should raise concern about the interpretation of surveys, where the question includes any form of extra information (priming). The impact not only distorts the level of the response, it also leads to changes in the distribution.
    Keywords: inflation expectations, survey design, priming
    JEL: E51 E58 E71
    Date: 2021–05
  28. By: Auclert, Adrien; Bardóczy, Bence; Rognlie, Matthew
    Abstract: We establish an impossibility result for New Keynesian models with a frictionless labor market: these models cannot simultaneously match plausible estimates of marginal propensities to consume (MPCs), marginal propensities to earn (MPEs), and fiscal multipliers. Sticky wages provide a solution to this trilemma.
    Keywords: Fiscal multipliers; HANK; MPC; MPE
    JEL: D52 E52 E62 H31
    Date: 2020–06
  29. By: Swanepoel, Christie; Fliers, Philip
    Abstract: The newly established South African Reserve Bank (SARB) was tasked to protect the currency by navigating the interwar gold standard, and, from March 1933, maintaining parity with the Pound Sterling. We find that South Africa's exit from gold secured an unparalleled and rapid recovery from the Great Depression. South Africa's exit was accompanied by an inextricable link of the SARB's policy rate to the interest rate set by the Bank of England (BoE). This sacrifice of independent monetary policy allowed the SARB to fix the country's exchange rate without impeding the flow of gold to London. The SARB fuelled the economy by reducing its policy rates and accumulating gold. Had South Africa not devalued, the country would have suffered a severe depression and persistent deflation. An alternative to the devaluation, was for the SARB to pursue a cheap money strategy. By setting interest rates historically low, we find that South Africa could have achieved higher levels of economic growth, at the cost of higher inflation. Ultimately, South Africa's unparalleled recovery can be ascribed to the devaluation, however the change in the SARB monetary policy and the bank's control over the gold markets were of paramount importance.
    Keywords: monetary policy management,interwar gold standard,South Africa
    JEL: N14 N20 E42 E52 E58 F33
    Date: 2021
  30. By: Malmendier, Ulrike M.
    Abstract: We show that, when forming expectations about aggregate inflation, consumers rely on the prices of goods in their personal grocery bundles. Our analysis uses novel representative micro data that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. The data also reveal that the weights consumers assign to price changes depend on the frequency of purchase, rather than expenditure share, and that positive price changes loom larger than similar-sized negative price changes. Prices of goods offered in the same store but not purchased (any more) do not affect inflation expectations, nor do other dimensions such as the volatility of price changes. Our results provide empirical guidance for models of expectations formation with heterogeneous consumers.
    Keywords: behavioral finance; Beliefs formation; Heterogeneous Agents; household finance; Inflation expectations; macroeconomics with micro data
    JEL: C90 D14 D84 E31 E52 G11
    Date: 2020–06
  31. By: Orhan Erem Atesagaoglu; Hakki Yazici
    Abstract: We analyze the implications of the decline in labor’s share in national income for optimal Ramsey taxation. It is optimal to accompany the decline in labor share by raising capital taxes only if the labor share is falling because of a decline in competition or other mechanisms that raise the share of pure profits. This result holds under various alternative institutional arrangements that are relevant for optimal taxation of capital income. A quantitative application to the U.S. economy shows that soaring profit shares since the 1980's can justify a significantly increasing path of capital income taxes.
    Keywords: capital income tax, labor share, profit share, market power
    JEL: E60 E61 E62
    Date: 2021
  32. By: Fuchs-Schündeln, Nicola; Kuhn, Moritz; Tertilt, Michèle
    Abstract: The COVID19 crisis has hit labor markets. School and child-care closures have put families with children in challenging situations. We look at Germany and quantify the macroeconomic importance of working parents. We document that 26 percent of the German workforce have children aged 14 or younger and estimate that 11 percent of workers and 8 percent of all working hours are affected if schools and daycare centers remain closed. In most European countries, the share of affected working hours is even higher. Policies to restart the economy have to accommodate the concerns of these families.
    Keywords: child-care; children; COVID-19; Labor market; Parents; workforce
    JEL: E24 E32 J22
    Date: 2020–06
  33. By: Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan, Ibadan, Nigeria); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA)
    Abstract: This study examines the role of the Global Financial Cycle (GFCy) in the propagation of uncertainty shocks from the U.S. to global economies. Specifically, we construct a large-scale global vector autoregressive (GVAR) model of 33 countries and analyze the response of real Gross Domestic Product (GDP) to uncertainty shocks associated with the U.S. as well as the domestic economy, conditional on the state of the Global Financial Cycle. While our findings confirm the dominant role of U.S. uncertainty over global economic dynamics, we show that the global financial cycle plays a moderating role over the spillover effects of such shocks. U.S. uncertainty shocks, compared to own domestic uncertainty shocks, are found to have a more prominent negative impact on output, during overstressed financial markets implied by the low values of the GFCy, while the impact turns largely insignificant during high global financial cycle states. The effects are particularly evidence in the case of the European and other G7 economies, highlighting the strong connection across these developed economies compared to their emerging counterparts. Overall, the findings provide evidence in favor of a U.S. uncertainty spillover multiplier, suggesting that the design of expansionary monetary policy as a response to U.S. uncertainty needs to be contingent on the state of the integrated global financial markets, captured by the global financial cycle.
    Keywords: Uncertainty Shocks, Global Financial Cycle, Real GDP, Global Vector Autoregressive Model
    JEL: C32 D8 E32 G15
  34. By: Leopoldo Catania (Aarhus University and CREATES); Alessandra Luati (University of Bologna); Pierluigi Vallarino (Aarhus University and CREATES)
    Abstract: This paper shows that different states of the financial system command a different effect in worsening financial conditions on economic vulnerability. As soon as financial conditions start deteriorating, the economic outlook becomes more pessimistic and uncertain. No increase in macroeconomic uncertainty is expected when financial conditions worsen from an already tighter than usual situation. We also find that past information on GDP growth is paramount to study and predict economic vulnerability. Both these findings have relevant forecasting and policymaking implications, and persist once we consider other measures of the real economic activity. From a methodological perspective, we carry out the analysis under a novel approach which relies on the state of the art in dynamic modelling of multiple quantiles. The proposed methodology exploits the entire information of past GDP growth, can accommodate a state dependent effect of financial conditions and allows for statistical inference under the standard quasi maximum likelihood setting.
    Keywords: Economic vulnerability, Macro-financial linkages, Growth-at-Risk, Score driven models
    JEL: C32 C53 E32 E44
    Date: 2021–06–15
  35. By: Acharya, Viral V.; Crosignani, Matteo; Eisert, Tim; Eufinger, Christian
    Abstract: We show that cheap credit to impaired firms has a disinflationary effect. By helping distressed firms to stay afloat, "zombie credit" can create excess production capacity, and in turn, put downward pressure on markups and prices. We test this mechanism exploiting granular inflation and firm-level data from twelve European countries. In the cross-section of industries and countries, we find that a rise of zombie credit is associated with a decrease in firm defaults and entries, firm markups and product prices; lower productivity; and, an increase in aggregate sales as well as material and labor cost. These results hold at the firm-level, where we document spillover effects to healthy firms in markets with high zombie credit. Our partial equilibrium estimates suggest that without a rise in ...
    Keywords: Disinflation; eurozone crisis; Firm productivity; Under-capitalized Banks; zombie lending
    JEL: E31 E44 G21
    Date: 2020–06
  36. By: Shigeru Fujita; Ippei Fujiwara
    Abstract: This paper explores a causal link between aging of the labor force and declining trends in the real interest rate in Japan. We develop a search/matching model that features heterogeneous workers with respect to their ages and firm-specific skills. Using the model, we examine the long-run implications of the sharp drop in labor force entry in the 1970s. We show that the changes in the demographic structure induce significant low-frequency movements in per capita consumption growth and the real interest rate. The model suggests that aging of the labor force accounts for 40 percent or more of the declines in the real interest rate observed between the 1980s and 2000s in Japan. We also examine the impacts of other long-term developments such as a slowdown of TFP growth and higher shares of female and non-regular workers.
    Keywords: Aging; Real interest rate; Japan
    JEL: E24 E43
    Date: 2021–06–08
  37. 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 as well as the feedback effect of market structure on the efficacy of policy. 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. 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 net worth. 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 then conduct a series of policy counterfactuals motivated by those proposed in the Dodd-Frank Act (size and state dependent capital requirements and liquidity requirements). 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: 2021–06–11
  38. By: Mitman, Kurt; Rabinovich, Stanislav
    Abstract: How should unemployment benefits vary in response to the economic crisis induced by the COVID-19 pandemic? We answer this question by computing the optimal unem- ployment insurance response to the COVID-induced recession. We compare the optimal policy to the provisions under the CARES Act-which substantially expanded unemployment insurance and sparked an ongoing debate over further increases-and several alternative scenarios. We find that it is optimal first to raise unemployment benefits but then to begin lowering them as the economy starts to reopen - despite unemployment remaining high. We also find that the $600 UI supplement payment implemented under CARES was close to the optimal policy. Extending this UI supplement for another six months would hamper the recovery and reduce welfare. On the other hand, a UI extension combined with a re-employment bonus would further increase welfare compared to CARES alone, with only minimal effects on unemployment.
    Keywords: COVID-19; Epidemic; optimal policy; Unemployment insurance
    JEL: E6 H1 J65
    Date: 2020–06
  39. By: Martin, José Manuel
    Abstract: There’s a practical rule in financial and monetary economics: if unemployment rises, the economy needs stimulus, therefore, interest rates will fall. This rule of thumb is derived from the Phillips Curve and the Taylor rule. However, this effect is not formally included in those models. Thus, with small adjustments to the Phillips Curve and Taylor’s rule framework one can include the impact of shocks and expectations in the labor market, to overcome shocks on inflation and to improve the adjustments of central bank’s interest rate.
    Keywords: Econometrics, Central Bank, Inflation
    JEL: D84 E31 N1
    Date: 2020–12–09
  40. By: Bergant, Katharina; Grigoli, Francesco; Hansen, Niels-Jakob; Sandri, Damiano
    Abstract: We show that macroprudential regulation can considerably dampen the impact of global financial shocks on emerging markets. More specifically, a tighter level of regulation reduces the sensitivity of GDP growth to VIX movements and capital flow shocks. A broad set of macroprudential tools contribute to this result, including measures targeting bank capital and liquidity, foreign currency mismatches, and risky forms of credit. We also find that tighter macroprudential regulation allows monetary policy to respond more countercyclically to global financial shocks. This could be an important channel through which macroprudential regulation enhances macroeconomic stability. These findings on the benefits of macroprudential regulation are particularly notable since we do not find evidence that stricter capital controls provide similar gains.
    Keywords: capital controls; macroprudential policies; monetary policy
    JEL: E5 F3 F4
    Date: 2020–06
  41. By: Canova, Fabio
    Abstract: I investigate the properties of potentials and gaps, of permanent and transitory fluctuations using a variety of DSGE models. Model-based gaps display low frequency variations; have similar frequency representation as potentials, and are correlated with them. These features depend on the properties of the disturbances but not on frictions or modeling principles. Permanent and transitory fluctuations display similar features, but are uncorrelated. I use a number of filters to extract trends and cycles from simulated data. Distortions are large. Gaps are best approximated with a polynomial filter; transitory fluctuations with a differencing approach. I design a filter which reduces the biases of existing filters.
    Keywords: Cyclical fluctuations; Filtering; gain functions; Gaps and potentials; permanent and transitory components
    JEL: C31 E27 E32
    Date: 2020–06
  42. By: James M. Nason; Gregor W. Smith
    Abstract: Historians have suggested there were waves of inflation or price revolutions in the UK (and earlier England) in the 13th, 16th, and 18th centuries, prior to the ongoing inflation since 1914. We study retail price inflation since 1251 and model its forecasts. The model is an AR(n) but allows for gradually evolving or drifting parameters and stochastic volatility. The long-horizon forecasts suggest only one inflation wave, that of the 20th century. We also use the model to measure inflation predictability and price-level instability from the beginning of the sample and to provide measures of real interest rates since 1695.
    Keywords: inflation, price revolutions, stochastic volatility, time-varying parameters
    JEL: E31 E37
    Date: 2021–03
  43. By: Galí, Jordi
    Abstract: Under uncovered interest parity (UIP), the size of the effect on the real exchange rate of an anticipated change in real interest rate differentials is invariant to the horizon at which the change is expected. Empirical evidence using US, euro area and UK data points to a substantial deviation from that invariance prediction: expectations of interest rate differentials in the near (distant) future are shown to have much larger (smaller) effects on the real exchange rate than is implied by UIP. Some possible explanations are discussed.
    Keywords: forward guidance puzzle; open economy New Keynesian model; unconventional monetary policies; uncovered interest rate parity
    JEL: E43 E58 F41
    Date: 2020–06
  44. By: Jorrit Zwijnenburg; Sophie Bournot; David Grahn; Emmanuelle Guidetti
    Abstract: Economic inequality has been a matter of concern for policy makers and citizens. Evidence-based policies around important topics such as inequality need to rely on systematic, robust data and indicators. For that reason, the OECD and Eurostat have developed methodology and engaged in several rounds of data collection to measure disparities in line with national accounts (DNA). These estimates complement existing indicators on economic inequality by providing more comprehensive measures of inequality, by extending the analysis from income to consumption and saving, and by providing results that are fully consistent with macroeconomic aggregates, also ensuring a high degree of international comparability. This paper presents the latest developments of the DNA work.
    JEL: D31 C82 E01 E21
    Date: 2021–06–18
  45. By: Laurent Ferrara; Luca Metelli; Filippo Natoli; Daniele Siena
    Abstract: The paper re-investigates the effects of government spending shocks on the real exchange rate and inflation, using US data. In opposition to some previous puzzling results, we find that an increase in government spending appreciates the real exchange rate and generates inflationary pressures. Positive spending shocks also induce a trade balance deficit and an increase in the nominal interest rate. The discrepancy with the existing literature lies in the identification of fiscal shocks: embedding a narrative instrument within a proxy-SVAR model is what makes the difference. Findings are robust and coherent with a standard open economy business cycle model. Our analysis suggests that proxy-SVAR models are more immune to structural changes in US fiscal policy.
    Keywords: Fiscal shocks, real exchange rate, inflation, proxy-SVAR, narrative shocks
    JEL: E62 F41
    Date: 2021–04
  46. By: Acharya, Viral V.; Bhadury, Soumya; Surti, Jay
    Abstract: This paper introduces a new financial vulnerability index for emerging market economies by exploiting key differences in their business cycles relative to those of advanced economies. Information on the domestic price of risk, cost of dollar hedging and market-based measures of bank vulnerability combine to generate indexes significantly more effective in capturing macro-financial vulnerability and stress compared to those based on information in trade and global factors. Our index significantly augments early warning surveillance capacity, as evidenced by out-of-sample forecasting gains around a majority of turning points in GDP growth relative to distributed lag models that are augmented with information from macro-financial indexes that are custom-built to optimize such forecasts.
    Keywords: business cycles; early warning indicators; financial conditions; price of risk; Vulnerability
    JEL: C53 E32 E44
    Date: 2020–06
  47. By: Solikin M. Juhro (Bank Indonesia); Bernard N. Iyke (APAEA); Paresh K. Narayan (APAEA)
    Abstract: In this paper, we investigate the interdependence between monetary policy and asset prices in ASEAN-5 countries. Within country-specific models and proxying asset prices by the composite stock market indices of these countries, we find strong interdependence between monetary policy and asset prices. We show that real stock prices decline as interest rates increase due to a contractionary monetary policy shock. Interest rates rise in response to an increase in real stock prices induced by a stock price shock, although it does so after a couple of months after the shock. We find the interdependence of monetary policy and asset prices to hold up within panel models. The delay in interest rate response to stock price shocks originates from three of the ASEAN-5 countries, namely Indonesia, the Philippines, and Thailand.
    Keywords: Monetary Policy, Asset Prices, ASEAN-5 Countries
    JEL: E52 E58 E61 G12
    Date: 2020
  48. By: Alejandro García; Josef Schroth
    Abstract: Countercyclical capital buffers are regulatory measures developed in response to the global financial crisis of 2008–09. This note focuses on how time-varying capital buffers can improve financial stability in Canada.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies; Lender of last resort
    JEL: E44
    Date: 2021–06
  49. By: Wieland, Volker
    Abstract: This note argues that the European Central Bank should adjust its strategy in order to consider broader measures of inflation in its policy deliberations and communications. In particular, it points out that a broad measure of domestic goods and services price inflation such as the GDP deflator has increased along with the euro area recovery and the expansion of monetary policy since 2013, while HICP inflation has become more variable and, on average, has declined. Similarly, the cost of owner-occupied housing, which is excluded from the HICP, has risen during this period. Furthermore, it shows that optimal monetary policy at the effective lower bound on nominal interest rates aims to return inflation more slowly to the inflation target from below than in normal times because of uncertainty about the effects and potential side effects of quantitative easing.
    Date: 2021
  50. By: Ozili, Peterson Kitakogelu;
    Abstract: This paper is a survey of the most important research in the economic policy uncertainty literature. Economic policy uncertainty, although still under-researched relative to mainstream topics in economics and finance, has recently received increased scholarly attention. Through synthesizing common themes in the literature, the paper highlights the progress made so far and suggest some avenues for future research which allows future researchers to position their research and differentiate themselves from other studies in the literature. The paper finds that economic policy uncertainty affects banks through a reduction in credit supply and loan re-pricing. High economic policy uncertainty compel bank managers to discretionary distort bank financial reporting in ways that help them to mitigate the depressing effect of economic policy uncertainty on their profitability.
    Keywords: economic policy uncertainty, banking, banks, uncertainty, index, news, government, tax code, inflation, elections.
    JEL: E52 E61 G18 G20 G21 G24 G28
    Date: 2021
  51. By: Nyholm, Juho; Voutilainen, Ville
    Abstract: We analyze the relationship of the distribution of future GDP growth and accumulation of household debt in Finnish macroeconomic data from 1980 to 2019. We find clear evidence that exuberant accumulation of household debt is related to the thickening of the left tail of the future growth distribution, while reaction in the right tail of the distribution is more damped. Thus, there is a link between rapid household debt growth and increase in probabilities of more severe downturns. We also re-establish the result of Mian, Sufi, and Verner (2017) that, on average, rapid household debt accumulation is associated with slower subsequent economic growth. While the relationship of the debt growth and negative tail effects is robust along our sample period, the association between debt growth and median of the GDP growth distribution varies from significantly negative to zero, depending on the estimation sample and especially if the Finnish Great Depression of early 1990's is included.
    Keywords: household debt,GDP forecasting,quantile regression
    JEL: E44 E47 G51
    Date: 2021
  52. By: Yun Jung Kim; Jing Zhang
    Abstract: Empirically, net capital inflows are pro-cyclical in developed countries and counter-cyclical in developing countries. That said, private inflows are pro-cyclical and public in flows are counter-cyclical in both groups of countries. The dominance of private (public) in flows in developed (developing) countries drives the difference in total net inflows. We rationalize these patterns using a dynamic stochastic two-sector model of a small open economy facing borrowing constraints. Private agents over-borrow because of the pecuniary externality arising from constraints. The government saves abroad to reduce aggregate debt, making the economy resilient to adverse shocks. Differences in borrowing constraints and shock processes across countries explain the empirical patterns of capital inflows.
    Keywords: reserves; pecuniary externality; cyclicality of net capital ows
    JEL: E44 F32 F34 F41
    Date: 2020–11–13
  53. By: Gianni De Nicolò; Nataliya Klimenko; Sebastian Pfeil; Jean-Charles Rochet
    Abstract: We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases, which raises bank profitability and the market-to-book value of bank capital. Hence, banks build up larger capital buffers which (i) lowers the public losses in case of a systemic crisis and (ii) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our model’s dynamic implications in a panel VAR estimation, which suggests that bank lending has even increased in the long-run after the implementation of Basel III capital regulation.
    Keywords: bank capital requirements, credit crunch, systemic risk
    JEL: E21 E32 F44 G21 G28
    Date: 2021
  54. By: Danilo Cascaldi-Garcia; Thiago Revil T. Ferreira; Domenico Giannone; Michele Modugno
    Abstract: We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.
    Keywords: Now-casting; Euro area; Dynamic factor models
    JEL: C33 C53 E37
    Date: 2021–03–30
  55. By: Lee E. Ohanian; Musa Orak; Shihan Shen
    Abstract: This paper revisits capital-skill complementarity and inequality, as in Krusell, Ohanian, Rios-Rull and Violante (KORV, 2000). Using their methodology, we study how well the KORV model accounts for more recent data, including the large changes in the labor's share of income that were not present in KORV. We study both labor share of gross income (as in KORV), and income net of depreciation. We also use nonfarm business sector output as an alternative measure of production to real GDP. We find strong evidence for continued capital-skill complementarity in the most recent data, and we also find that the model continues to closely account for the skill premium. The model captures the average level of labor share, though it overpredicts its level by 2-4 percentage points at the end of the period.
    Keywords: Capital-skill complementarity; Elasticity of substitution; Inequality; Labor share; Skill premium; Technological change
    JEL: E13 E25 J23 J30 J68
    Date: 2021–05–19
  56. By: Eichenbaum, Martin; Rebelo, Sérgio; Trabandt, Mathias
    Abstract: We analyse the effects of an epidemic in three standard macroeconomic models. We Ã?nd that the neoclassical model does not rationalize the positive comovement of consumption and investment observed in recessions associated with an epidemic. Intro- ducing monopolistic competition into the neoclassical model remedies this shortcoming even when prices are completely áexible. Finally, sticky prices lead to a larger recession but do not fundamentally alter the predictions of the monopolistic competition model.
    Keywords: comovement; Epidemic; investment; Recession
    JEL: E1 H0 I1
    Date: 2020–06
  57. By: Emmanuel Pinto Moreira; Baris Alpaslan
    Abstract: In this paper, we present a Dynamic General Equilibrium (DGE) model to address the macro-fiscal vulnerabilities and the effects of fiscal policy on growth and employment in Algeria. We first discuss a baseline scenario throughout the projection period, 2021-2040 and then conduct several experiments; an increase in the efficiency of public spending on infrastructure investment, a gradual reduction in the share of noninterest government spending in GDP, the same gradual reduction in spending with a permanent increase in the share of investment in infrastructure in total noninterest government expenditure, and a composite fiscal reform program, respectively. The results show that with a well-designed fiscal program, there may be no trade-off between fiscal consolidation and economic growth.
    Keywords: DGE model, macro-fiscal vulnerabilities, fiscal policy, Algeria
    JEL: C68 E62 O23
    Date: 2021–03
  58. By: La'O, Jennifer; Tahbaz-Salehi, Alireza
    Abstract: This paper studies the optimal conduct of monetary policy in a multi-sector economy in which firms buy and sell intermediate goods over a production network. We first provide a necessary and sufficient condition for the monetary policy's ability to implement flexible-price equilibria in the presence of nominal rigidities and show that, generically, no monetary policy can implement the first-best allocation. We then characterize the constrained-efficient policy in terms of the economy's production network and the extent and nature of nominal rigidities. Our characterization result yields general principles for the optimal conduct of monetary policy in the presence of input-output linkages: it establishes that optimal policy stabilizes a price index with higher weights assigned to larger, stickier, and more upstream industries, as well as industries with less sticky upstream suppliers but stickier downstream customers. In a calibrated version of the model, we find that implementing the optimal policy can result in quantitatively meaningful welfare gains.
    Keywords: Misallocation; nominal rigidities; Optimal monetary policy; production networks
    JEL: D57 E52
    Date: 2020–06
  59. By: Nicholas Z. Muller
    Abstract: This paper demonstrates how a central bank might operationalize an expanded role inclusive of managing risks from environmental pollution. The analysis introduces the green interest rate (rg) which depends on temporal changes in the pollution intensity of output. This policy instrument reallocates consumption from periods when output is pollution intensive to when output is cleaner. In economies on a cleaning-up path, rg exceeds r*. For those growing more polluted, rg is less than r*. In the U.S. economy from 1957 to 2016, rg exceeded r* by 50 basis points. Federal environmental policy reversed the orientation between rg and r*.
    JEL: E21 E43 E63 Q51 Q53 Q54 Q56 Q58
    Date: 2021–06
  60. By: Dennis C. Hutschenreiter; Tommaso Santini; Eugenia Vella
    Abstract: Empirical evidence in Dauth et al. (2021) suggests that industrial robot adoption in Germany has led to a sectoral reallocation of employment from manufacturing to services, leaving total employment unaffected. We rationalize this evidence through the lens of a general equilibrium model with two sectors, matching frictions, and endogenous participation. Automation induces firms to create fewer vacancies and job seekers to search less in the automatable sector (manufacturing). The service sector expands due to the sectoral complementarity in the production of the final good and a positive wealth effect for the household. Analysis across steady states shows that the reduction in manufacturing employment can be offset by the increase in service employment. The model can also replicate the magnitude of the decline in the ratio of manufacturing employment to service employment in Germany between 1994 and 2014.
    Keywords: automation, manufacturing, services, sectoral reallocation, participation, matching frictions, vacancy creation, productivity
    JEL: E24 O14 O33 J22
    Date: 2021–06–12
  61. By: Juan M. Morelli; Pablo Ottonello; Diego J. Perez
    Abstract: We study the role of global financial intermediaries in international lending. We construct a model of the world economy, in which heterogeneous borrowers issue risky securities purchased by financial intermediaries. Aggregate shocks transmit internationally through financial intermediaries' net worth. The strength of this transmission is governed by the degree of frictions intermediaries face in financing their risky investments. We provide direct empirical evidence on this mechanism showing that around Lehman Brothers' collapse, emerging-market bonds held by more distressed global banks experienced larger price contractions. A quantitative analysis of the model shows that global financial intermediaries play a relevant role in driving borrowing-cost and consumption fluctuations in emerging-market economies, during both debt crises and regular business cycles. The portfolio of financial intermediaries and the distribution of bond holdings in the world economy are key to determine aggregate dynamics.
    JEL: E3 F3 F41
    Date: 2021–06
  62. By: Michał Ledóchowski (Narodowy Bank Polski); Piotr Żuk (Narodowy Bank Polski)
    Abstract: This paper provides an empirical investigation of the impact of balance sheet policies undertaken by the Fed and the ECB since the Global Financial Crisis of 2009 on portfolio capital flows to emerging market economies (EMEs). The analysis is based upon a panel dataset covering 31 EMEs from different regions throughout the period of 2009-2019. Our results show that quantitative easing by the Fed has translated into capital inflows into EMEs throughout the world. The Fed’s operations have affected both equity and debt flows. However, no such effect could be confirmed in the case of the balance sheet policies launched by ECB, even in the case of economies that remain closely integrated with the eurozone economy such as those from Central and Eastern Europe. These results have relevant policy implications, in particular in light of major central banks expanding their balance sheets in response to the Covid-19 pandemic. Most of all, in those EMEs that remain most vulnerable to capital flows volatility, changes in the Fed’s balance sheet policies may warrant domestic macroeconomic policy adjustment in order to mitigate capital flow volatility to these economies.
    Keywords: capital flows, emerging market economies, unconventional monetary policy spillovers, quantitative easing, balance sheet policies, longer-term refinancing operations
    JEL: E52 F32
    Date: 2020
  63. By: Diego Comin; Ana Danieli; Martí Mestieri
    Abstract: We propose a mechanism for labor-market polarization based on the nonhomotheticity of demand that we call the income-driven channel. Our mechanism builds on a novel empirical fact: expenditure elasticities and production intensities in low- and high-skill occupations are positively correlated across sectors. Thus, as income grows, demand shifts towards expenditure-elastic sectors, and the relative demand for low- and high-skill occupations increases, causing labor-market polarization. A calibrated general-equilibrium model suggests this mechanism accounts for 90% and 35% of the increase in the wage-bill share of low- and high-skill occupations observed in the US during 1980-2016, and for 64% and 28% of the rise in the employment shares of low- and high-skill occupations. This mechanism is similarly important for the polarization of labor markets in Western Europe during 1980-2016, as well as in the US during earlier decades and, possibly, the near future.
    Keywords: Labor-market polarization; Nonhomothetic Demand
    JEL: E21 E23 J23 J31
    Date: 2020–10–23
  64. By: Grossmann, Volker; Larin, Benjamin (University of St. Gallen); Steger, Thomas M.
    Abstract: The housing wealth-to-income ratio has been increasing in most developed economies since the 1950s. We provide a novel theory to explain this long-term pattern. We show analytically that house prices grow in the steady state if i) the housing sector is more land-intensive than the non-housing sector. Despite growing house prices and housing wealth, the housing wealth-to income ratio is constant in steady state. We hence study the dynamics in the housing wealth-to-income ratio by computing transitions. The model is calibrated separately to the US, UK, France, and Germany. On average, we replicate 89 percent of the observed increase in the housing wealth-to-income ratio. The key for replicating the data is the differentiation between residential land as a non-reproducible factor and residential structure as reproducible factor. The transition process from the calibrated model points to two driving forces of an increasing housing wealth-to-income ratio: i) A long-lasting construction boom that brought about a pronounced build-up in the stock of structures and ii) an increase in the demand for residential land that resulted in surging residential land prices.
    Keywords: Housing Wealth; Economie Growth; Wealth-to-Income Ratio; House Price; Land Price
    JEL: E10 E20 O40
    Date: 2021–06–11
  65. By: Ozge Akinci; Gianluca Benigno; Marco Del Negro; Albert Queraltó
    Abstract: We introduce the concept of financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector measured by an increase in leverage are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial condition index and show how it is related to the gap between the natural and financial stability interest rates.
    Keywords: r**; Financial crises; Financial stability; Occasionally binding credit constraint
    JEL: E40 E50 G00
    Date: 2021–01–29
  66. By: Fabio Canova; Filippo Ferroni
    Abstract: We study what happens to identified shocks and to dynamic responses when the data generating process features q disturbances but q1
    Keywords: Deformation; state variables; dynamic responses; structural models; house price shocks; uncertainty shocks.
    JEL: C32 E27 E32
    Date: 2020–11–13
  67. By: Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Padova)
    Abstract: We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is.
    Keywords: Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier
    JEL: C32 E32
    Date: 2021–02
  68. By: Christl, Michael; De Poli, Silvia; Kucsera, Dénes; Lorenz, Hanno
    Abstract: This paper analyzes the impact of the COVID-19 crisis on household income in Austria, using detailed administrative labor market data, in combination with micro-simulation techniques, that enable specic labor market transitions to be modeled. We find that discretionary fiscal policy measures in Austria are key to counteracting the inequality- and poverty-enhancing eect of COVID-19. Additionally, we find that females tend to experience a greater loss in terms of market income. The Austrian tax-benet system, however, reduces this gender dierences. Disposable income has dropped by around 1% for both males and females. By comparison, males profit mainly from short-time work scheme, while females profit especially from other discretionary policy measures, such as the one-off payment for children.
    Keywords: COVID-19,short-time work scheme,labour market,inequality,EUROMOD,micro-simulation,STW,automatic stabilizers
    JEL: D31 E24 H24
    Date: 2021
  69. By: James D. Hamilton
    Abstract: This paper develops a growth model characterized by equilibrium unemployment and sustained monopoly power. The level of demand is a key factor in deviations from the steady-state growth path with a Keynesian-type spending multiplier despite the absence of any nominal rigidities. The key friction in the model is the technological requirement that production of certain goods requires a dedicated team of workers that takes time to train and assemble.
    JEL: E0
    Date: 2021–06
  70. By: Ventura, Luigi; Ventura, Maria
    Abstract: The economic consequences of migration have become the topic of many recent contributions in theoretical and applied economics. However, only a handful of papers have dealt with the implications of migration for risk sharing. We intend to fill in this gap in the literature by exploring the effects of migration and the ensuing cultural diversity on risk sharing in receiving economies, by using data on US states in the period 2000-2015. Our empirical results strongly suggest that migration enhances risk sharing in host economies, but non monotonically so. Moreover, cultural diversity is key in this risk sharing-enhancing effect of migration.
    Keywords: Regional risk sharing, Consumption insurance, Migration, Diversity
    JEL: C23 C51 E21 F36
    Date: 2021–05
  71. By: Corsetti, Giancarlo; Maeng, Seung Hyun
    Abstract: With the Covid-19 pandemic, public debt around the world is rising to unprecedented heights in peacetime. We revisit the mechanisms by which, driven by self-fulfilling expectations, both slow-moving and rollover (fast) crises are pervasive at intermediate and high levels of debt, respectively. In both strategic-default and debt-limit models, belief-driven shifts in market assessment of risk translate into shifts of the market debt tolerance thresholds---to such an extent that sovereigns may lose market access even if they were able to borrow risk free in a ``good equilibrium''. Long debt maturities may/may not shield countries from this adverse scenario. In a sunspot equilibrium, the threat of belief-driven crises may not be enough for the government to deleverage in a recession, and bring debt to default-free levels. Unless the initial debt is close enough to the critical threshold above which the country becomes vulnerable to such crises, the government will keep borrowing, gambling on economic recovery in the future.
    Keywords: debt sustainability; Expectations; Self-fulfilling Crises; sovereign default
    JEL: E43 E62 H50 H63
    Date: 2020–06
  72. By: Daniel A. Dias; Carlos Robalo Marques
    Abstract: In the empirical literature, the analysis of aggregate productivity dynamics using firm-level productivity has mostly been based on changes in the mean of log-productivity. This paper shows that there can be substantial quantitative and qualitative differences in the results relative to when the analysis is based on changes in the mean of productivity, and discusses the circumstances under which such differences are likely to happen. We use firm-level data for Portugal for the period 2006-2015 to illustrate the point. When the mean of productivity is used, we estimate that TFP and labor productivity for the whole economy increased by 17.7 percent and 5.2 percent, respectively, over this period. But, when the mean of log-productivity is used, we estimate that these two productivity measures declined by 4.3 percent and 1.8 percent, respectively. Similarly disparate results are obtained for productivity decompositions regarding the contributions for productivity growth of surviving, entering and exiting firms.
    Keywords: Jensen's inequality; Productivity decomposition; Geometric mean
    JEL: D24 E32 L25 O47
    Date: 2021–04–02
  73. By: Luisa Corrado (University of Rome Tor Vergata); Stefano Grassi (University of Rome Tor Vergata and CREATES); Aldo Paolillo (University of Rome Tor Vergata)
    Abstract: This paper proposes and estimates a new Two-Sector One-Agent model that features large shocks. The resulting medium-scale New Keynesian model includes the standard real and nominal frictions used in the empirical literature and allows for heterogeneous COVID-19 pandemic exposure across sectors. We solve the model nonlinearly and we propose a new nonlinear, non-Gaussian filter designed to handle large pandemic shocks to make inference feasible. Monte Carlo experiments show that it correctly identifies the source and time location of shocks with a massively reduced running time, making the estimation of macro-models with disaster shocks feasible. The estimation is carried out using the Sequential Monte Carlo sampler recently proposed by Herbst and Schorfheide (2014). Our empirical results show that the pandemic-induced economic downturn can be reconciled with a combination of large demand and supply shocks. More precisely, starting from the second quarter of 2020, the model detects the occurrence of a large negative demand shock in consuming all kinds of goods, together with a large negative demand shock in consuming contact-intensive products. On the supply side, our proposed method detects a large labor supply shock to the general sector and a large labor productivity shock in the pandemic-sensitive sector.
    Keywords: COVID-19, Nonlinear, Non-Gaussian, Large shocks, DSGE
    JEL: C11 C51 E30
    Date: 2021–06–15
  74. By: Luisa Corrado; Stefano Grassi; Aldo Paolillo
    Abstract: This paper proposes and estimates a new Two-Sector One-Agent model that features large shocks. The resulting medium-scale New Keynesian model includes the standard real and nominal frictions used in the empirical literature and allows for heterogeneous COVID-19 pandemic exposure across sectors. We solve the model nonlinearly and we propose a new nonlinear, non-Gaussian filter designed to handle large pandemic shocks to make inference feasible. Monte Carlo experiments show that it correctly identifies the source and time location of shocks with a massively reduced running time, making the estimation of macro-models with disaster shocks feasible. The estimation is carried out using the Sequential Monte Carlo sampler recently proposed by Herbst and Schorfheide (2014). Our empirical results show that the pandemic-induced economic downturn can be reconciled with a combination of large demand and supply shocks. More precisely, starting from the second quarter of 2020, the model detects the occurrence of a large negative demand shock in consuming all kinds of goods, together with a large negative demand shock in consuming contact-intensive products. On the supply side, our proposed method detects a large labor supply shock to the general sector and a large labor productivity shock in the pandemic-sensitive sector.
    Keywords: COVID-19, Nonlinear, Non-Gaussian, Large shocks, DSGE
    JEL: C11 C51 E30
    Date: 2021–06
  75. By: Leonardo Melosi; Matthias Rottner
    Abstract: We study contact tracing in a new macro-epidemiological model in which infected agents may not show any symptoms of the disease and the availability of tests to detect these asymptomatic spreaders of the virus is limited. Contact tracing is a testing strategy aiming at reconstructing the infection chain of newly symptomatic agents. A coordination failure arises as agents fail to internalize that their individual consumption and labor decisions raise the number of traceable contacts to be tested, threatening the viability of the tracing system. The collapse of the tracing system considerably aggravates the pandemic's toll on the economy and mortality. A timely, limited lockdown solves the coordination failure allowing policymakers to buy time to expand the testing scale and to preserve the tracing system. We provide theoretical underpinnings to the risk of becoming infected in macro-epidemiological models. Our solution method is not affected by curse-of-dimensionality problems.
    Keywords: Contact tracing; testing; COVID-19; infection chain; pandemic; lockdown; SIR; macro model; heterogeneous agent model
    JEL: E10 I10 D62
    Date: 2020–11–20
  76. By: Luke Petach; Daniele Tavani (Colorado State University (US))
    Abstract: We study a two-class model of growth and the distribution of income and wealth at the intersection of contemporary work in classical political economy and the post-Keynesian tradition. The key insight is that aggregate demand is an externality for individual firms: this generates a strategic complementarity in production that results in equilibrium under- utilization of the economy’s productive capacity and hysteresis in real GDP per-capita in balanced growth. This equilibrium inefficiency reverberates into both the functional dis- tribution of income and the distribution of wealth: both the wage share and the workers’ wealth share would be higher at full capacity. Consequently, fiscal allocation policy that achieves productive efficiency also attains a higher labor share and a more equitable dis- tribution of wealth. Demand shocks also have permanent level effects. Extensions look at temporary growth and employment effects of fiscal policy with dynamic increasing re- turns, and employment hysteresis. These findings are useful as an organizing framework for thinking through the lackluster economic record of the so-called Neoliberal era, the sluggish recovery of most advanced economies following the Great Recession, and what to expect regarding the recovery from the Covid-19 shock.
    Keywords: Externalities, Capacity Utilization, Factor Shares, Wealth Inequality
    JEL: D31 D33 D62 E12
    Date: 2021–06
  77. By: Nicolo Maffei-Faccioli; Eugenia Vella
    Abstract: We provide empirical evidence suggesting that net migration shocks can have substantial demand effects, potentially acting like positive Keynesian supply shocks. Using monthly administrative data (2006-2019) for Germany in a structural VAR, we show that the shocks stimulate vacancies, wages, house prices, consumption, investment, net exports, and output. Unemployment falls for natives (dominant jobcreation effect), driving a decline in total unemployment, while rising for foreigners (dominant job-competition effect). The geographic origin of migrants and the education level of residents matter crucially for the transmission. Overall, the evidence implies that the policy debate should focus on redistributive strategies between natives and foreigners.
    Keywords: Migration, job creation, job competition, Keynesian supply shocks
    JEL: C11 C32 E32 F22
    Date: 2021–05–10
  78. By: Bacchetta, Philippe; Cordonier, Rachel; Merrouche, Ouarda
    Abstract: An unintended consequence of loose US monetary policy is the increase in currency risk exposure abroad. Using firm-level data on corporate bond issuances in 17 emerging market economies (EME) between 2003 and 2015, we find that EME companies are more likely to issue bonds in foreign currency when US interest rates are low. This increase occurs across the board, including for firms more vulnerable to foreign exchange exposure, and is particularly strong for bonds issued in local markets. Interestingly, capital controls on bond inflows significantly decrease the likelihood of issuing in foreign currency and can even eliminate the adverse impact of low US interest rates. In contrast, macroprudential foreign exchange regulations tend to increase foreign currency issuances of non-financial corporates, although this effect can be significantly reduced using capital controls.
    Keywords: capital controls; corporate bonds; currency risk; emerging markets; foreign currency
    JEL: E44 G21 G30
    Date: 2020–06
  79. By: William Nganga Irungu; Julien Chevallier; Simon Wagura Ndiritu
    Abstract: This study seeks to investigate the nature of fiscal policy regime in Kenya, and the extent to which fiscal policy is sustainable in the long run by taking into account periodic regime changes. Markov switching models were used to determine fiscal policy regimes endogenously. Regime switching tests were used to test whether the No-Ponzi game condition and the debt stabilizing condition were met. The results established that the regime-switching model was suitable in explaining regime sustainable and sustainable cycles. An investigation of fiscal policy regimes established that both sustainable and unsustainable regimes were dominant and each lasted for an average of four years. There was evidence to suggest the existence of procyclical fiscal policy in Kenya. Regime switching tests for long-run sustainability suggested that the No-Ponzi game condition weakly holds in the Kenyan economy. Regime-based sensitivity analysis suggests that the persistence of unsustainability regime for more than four years could threaten long-run fiscal sustainability. Sensitivity tests are conducted by resorting to (i) Self-Exciting Threshold Autoregressive Models at the country-level, and (ii) non-linear Granger causalities across a FeedForward Artificial Neural Network composed of East-African countries (Burundi, Kenya, Rwanda, Tanzania and Uganda).
    Keywords: Fiscal policy; Markov-switching; No-Ponzi game condition; SETAR; Non-linear Granger causality; Feed-Forward Artificial Neural Network
    JEL: E62 F30 H61
    Date: 2020–01–01
  80. By: Yun Jung Kim; Jing Zhang
    Abstract: In this paper we empirically explore the relationship between debt and output in a panel of 72 countries over the period 1970–2014 using a vector autoregression (VAR). We document two puzzling empirical findings that contrast with what is predicted by a standard small open economy model by Aguiar and Gopinath (2007), where debt and output endogenously respond to total factor productivity (TFP) shocks. First, developing countries’ debt falls after a positive output shock, while the model predicts a debt expansion. Second, output declines in developed and developing countries after a debt shock, while the model predicts higher output. The relationship between debt and output depends on the sector taking on debt (households, firms, or governments) and the source of financing (domestic versus external) and differs across countries with varying degrees of economic development or different exchange rate regimes.
    Keywords: public debt; household debt; firm debt; foreign debt
    JEL: E44 F32 F34 F41
    Date: 2020–11–19
  81. By: Gormsen, Niels Joachim Christfort; Koijen, Ralph
    Abstract: We use data from the aggregate stock market and dividend futures to quantify how investors' expectations about economic growth evolve across horizons in response to the coronavirus outbreak and subsequent policy responses until June 2020. Dividend futures, which are claims to dividends on the aggregate stock market in a particular year, can be used to directly compute a lower bound on growth expectations across maturities or to estimate expected growth using a forecasting model. We show how the actual forecast and the bound evolve over time. As of June 8, our forecast of annual growth in dividends is down 9% in the US and 14% in the EU compared to January 1, and our forecast of GDP growth is down by 2.0% in the US and 3.1% in the EU. The lower bound on the change in expected dividends is -18% in the US and -25% in the EU at the 2-year horizon. News about fiscal stimulus around March 24 boosts the stock market and long-term growth but did little to increase short-term growth expectations. Expected dividend growth has improved since April 1 in both the US and the EU. We conclude by developing and estimating a simple model of the crisis to understand the joint dynamics of short-term dividend futures, stock markets, and bond markets.
    Date: 2020–06
  82. By: Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
    Abstract: Personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members' FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.
    Keywords: Availability bias; Experience effects; Federal Funds Rate; Inflation forecasts; monetary policy
    JEL: D84 E03 E50
    Date: 2020–06
  83. By: Walter Paternesi Meloni
    Abstract: Recently, several post-Keynesian scholars have entered the debate on comparative political economy. Within this approach, the research on different demand-led growth strategies converges on the idea that differentiated models of capitalism are finding the engines of growth in debt-financed domestic demand or foreign demand, alternatively. Nonetheless, some layers of disagreement emerge when investigating the reasons for a country’s export success, particularly concerning the European core-periphery dualism. On the one side, some studies emphasise the role of price and cost competitiveness. On the other side, other scholars ascribe the huge performance of export-oriented countries to non-price factors (e.g., product quality and diversification). The purpose of this paper is to deepen this specific debate from a post-Keynesian political economy perspective. Besides overviewing the existing literature, we extend Kohler and Stockhammer’s (2021) work on price and non-price competitiveness as growth drivers to export dynamics. Our evidence indicates that both price and non-price competitiveness differentials had been significant in shaping export flows before the outbreak of the great financial crisis of 2007-08. We also observe that methodological issues and large heterogeneity across countries belonging to different models may alter the overall picture on the relative relevance of price and non-price factors. Therefore, we conclude that country-specific analyses based on the estimation of well-specified export equations, explicitly encompassing non-price competitiveness, are necessary to assess the sensitivity of export to price and cost factors.
    Keywords: post-Keynesian economics; comparative political economy; export; price competitiveness; non-price competitiveness
    JEL: E02 O51 P16 P51
    Date: 2021–06
  84. By: Beck, Thorsten; Döttling, Robin; Lambert, Thomas; Van Dijk, Mathijs A
    Abstract: Liquidity creation (the transformation of liquid liabilities into illiquid assets) is a key function of banks. We show that liquidity creation is positively associated with economic growth at both country and industry levels. In particular, liquidity creation helps growth by boosting tangible, but not intangible investment. Our results suggest an important non-linearity; liquidity creation does not contribute to growth in countries with a higher share of industries relying on intangible assets. We rationalize these results using a model in which banks increase aggregate investment by reducing liquidity risk, but low asset tangibility hampers liquidity creation by exacerbating moral hazard problems. Together, these findings provide new insights into the functions of banks, but also highlight their more limited role in supporting innovative industries.
    Keywords: Banking sector development; economic growth; investment; liquidity creation; tangible assets
    JEL: E22 G21 O16 O40
    Date: 2020–06
  85. By: Mario J. Crucini; Mototsugu Shintani; Takayuki Tsuruga
    Abstract: At the aggregate level, the evidence that deviations from purchasing power parity (PPP) are too persistent to be explained solely by nominal rigidities has long been a puzzle (Rogoff, 1996). Another puzzle from the micro price evidence of the law of one price (LOP), which is the basic building block of PPP, is that LOP deviations are less persistent than PPP deviations. To reconcile the empirical evidence, we adapt the model of behavioral inattention in Gabaix (2014, 2020) to a simple two-country sticky-price model. We propose a simple test of behavioral inattention and find strong evidence in its favor using micro price data from US and Canadian cities. Calibrating behavioral inattention with our estimates, we show that our model reconciles the two puzzles relating to the PPP and LOP. First, the PPP deviations are more than twice as persistent as PPP deviations explained only by sticky prices. Second, the LOP deviations decrease to less than twothirds of the PPP deviations in the degree of persistence.
    Keywords: Real exchange rates, Law of one price, Rational inattention, Trade cost
    JEL: E31 F31 D40
    Date: 2021–04
  86. By: Ewa Wróbel (Narodowy Bank Polski)
    Abstract: Basing on data from bank lending surveys, we show that shocks to capital position are an important driver of bank lending standards, terms and conditions. Standards for small and medium-sized enterprises are affected more than those for large entities. Shocks to capital are channelled to firms mostly through these terms and conditions which are related to loan price: average spreads and spreads on riskier loans. The third mostly used channel is required collateral. Adverse shocks to capital position result in a lower lending, in particular for real property acquisition and for financing working capital and on current account.
    Keywords: bank capital, bank lending survey, structural VAR.
    JEL: E44 E51 G21
    Date: 2021
  87. By: Ana Sofia Pessoa
    Abstract: This paper documents earnings dynamics over the life-cycle and income level using a large administrative database from German tax records. I find that labor earnings display important deviations from the typical assumptions of linearity and normality. For the bottom earners, large income changes are driven equally by hours and wages which is consistent with transitions between labor status or jobs, whereas for those at the top, earnings changes are mainly induced by wage rate growth. There are also asymmetries in mean reversion of earnings growth mainly driven by the asymmetric hours dynamics. Finally, there is no evidence of an added-worker effect but government insurance and income pooling can mitigate the pass-through of individual earnings changes to the household level and attenuate the deviations from normality of the male earnings growth distribution.
    Keywords: earnings dynamics, earnings risk, insurance, wages, hours, higher-order earnings risk, skewness, kurtosis
    JEL: E24 H24 J31
    Date: 2021
  88. By: Joab D. Valdivia C. (Banco Central de Bolivia)
    Abstract: La presente investigación examina la relación entre crecimiento sectorial y el crédito destinado al sector productivo en Bolivia. La naturaleza de los datos es de corte longitudinal, por lo cual se optó por la metodología de Efectos Fijos y Vectores Auto-Regresivos en datos de panel (PVAR). Asimismo, se realizó la versión recursiva de ambas metodologías para observar la evolución del impacto en el tiempo de colocación de cartera – PIB sectorial. Bajo la estimación de Efectos Fijos la colocación de cartera afecta positivamente al PIB sectorial en 0,12%; los resultados del modelo PVAR muestran que shocks del financiamiento al producto representan 0,51%; en la tasa de interés el efecto es contractivo (0,05%) y los efectos de la Ley de Servicios Financieros alcanzan a 0,02%. La versión recursiva de ambas metodologías devela un comportamiento similar en la evolución de las elasticidades y las funciones impulso respuesta.
    Keywords: Efectos fijos, efectos aleatorios, panel VAR, estimación recursiva, tasa de interés
    JEL: C50 E51 E52
    Date: 2019–11
  89. By: Hajime Tomura (Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishiwaseda, Shinjyuku-ku, Tokyo, 169-8050, Japan.)
    Abstract: Daily estimates of the effective reproduction number for new coronavirus based on reporting dates are regressed on real household expenditures per household on eating out, traveling, and apparel shopping, as well as mobility in public transportation, using publicly available daily nationwide data from February 15, 2020, to February 1, 2021 in Japan. The effects of absolute humidity, the declaration of states of emergency, and the year-end and new-year holiday period are controlled through dummy variables. The lagged infectious effect of economic activities due to incubation periods is also taken into account. Estimated regression coeffcients indicate that real household ex- penditures for cafe and bar had larger effects on the effective reproduction number per value of spending than the other types of household expenditures in explanatory vari- ables during the sample period. Thus, a loss of aggregate demand is minimized if the effective reproduction number is lowered by restricting only household consumption of cafe and bar. The posterior means of simulations based on the estimated regression coeffcients, however, imply that even if a self-restraint on packaged domestic travels and an endogenous decline in mobility are taken into account, it will be necessary to cut household consumption of cafe and bar by more than 80% of the 2019 level, in order to keep the e ective reproduction number below one on average.
    Keywords: new coronavirus; effective reproduction number; consumption; mobility.
    JEL: E21 I18
    Date: 2021–05
  90. By: Daniel Fehrle (University of Augsburg, Department of Economics)
    Abstract: To which extent do equity and housing hedge against inflation? Despite an extensive literature, there is only little consensus. This paper presents new evidence from the Jordà -Schularick-Taylor Macrohistory Database, which covers return rates on housing and equity as well as consumer price indices of 16 developed countries from 1870 - 2015. The results depend on the time horizon and period considered. Within one, five, and ten years housing hedges, at least partly, against inflation and the hedge has been better in the post-war period. In the long run housing provides an excessive hedge in the whole sample and a perfect hedge in the post-war period. Equity provides no hedge within one-year in the whole sample period and the returns tend to decrease with inflation in the post-war period. The hedge improves slightly with a longer time horizon and is perfect in the long run in the post-war period. Thus, housing is, at least weakly, superior in hedging against inflation. The results are robust to a non-housing consumption price index and an asset price appreciation approach.
    Keywords: hedge, inflation, stocks, real estate, panel cointegration
    JEL: C22 C23 E31 E44 G11 N10
    Date: 2021–06
  91. By: Giannitsarou, Chryssi; Kissler, Stephen; Toxvaerd, Flavio
    Abstract: This paper offers projections of future transmission dynamics for SARS-CoV-2 in an SEIRS model with demographics and waning immunity. In a stylized optimal control setting calibrated to the USA, we show that the disease is endemic in steady state and that its dynamics are characterized by damped oscillations. The magnitude of the oscillations depends on how fast immunity wanes. The optimal social distancing policy both curbs peak prevalence and postpones the infection waves relative to the uncontrolled dynamics. Last, we perform sensitivity analysis with respect to the duration of immunity, the infection fatality rate and the planning horizon.
    Keywords: COVID-19; Economic epidemiology; optimal policy for infection control; SEIRS; Social distancing; waning immunity
    JEL: E61 I18
    Date: 2020–06
  92. By: Joonkyu Choi; Veronika Penciakova; Felipe Saffie
    Abstract: Using American Recovery and Reinvestment Act (ARRA) data, we show that firms lever their political connections to win stimulus grants and that public expenditure channeled through politically connected firms hinders job creation. We build a unique database that links information on campaign contributions, state legislative elections, firm characteristics, and ARRA grant allocation. Using exogenous variation in political connections based on ex-post close elections held before ARRA, we causally show that politically connected firms are 38 percent more likely to secure a grant. Based on an instrumental variable approach, we also establish that a one standard deviation increase in the share of politically connected ARRA spending lowers the number of jobs created per $1 million spent by 7.1 jobs. Therefore, the impact of fiscal stimulus is not only determined by how much is spent, but also by how the expenditure is allocated across recipients.
    Keywords: campaign finance; state grants; public expenditure allocation; American Recovery and Reinvestment Act
    JEL: D22 D72 E62 H57 P16
    Date: 2021–05–13
  93. By: Hinterlang, Natascha; Hollmayr, Josef
    Abstract: This paper identiftes U.S. monetary and ftscal dominance regimes using machine learning techniques. The algorithms are trained and verifted by employing simulated data from Markov-switching DSGE models, before they classify regimes from 1968-2017 using actual U.S. data. All machine learning methods outperform a standard logistic regression concerning the simulated data. Among those the Boosted Ensemble Trees classifter yields the best results. We ftnd clear evidence of ftscal dominance before Volcker. Monetary dominance is detected between 1984-1988, before a ftscally led regime turns up around the stock market crash lasting until 1994. Until the beginning of the new century, monetary dominance is established, while the more recent evidence following the ftnancial crisis is mixed with a tendency towards ftscal dominance.
    Keywords: Monetary-fiscal interaction,Machine Learning,Classification,Markov-switching DSGE
    JEL: C38 E31 E63
    Date: 2021
  94. By: Manthei, Gerrit
    Abstract: The German government recently adopted a large number of changes in migration legislation related to asylum seekers and refugees who have immigrated since 2015. While some reforms may have more socio-political impacts, most also have fiscal implications. This work analyses the effects of individual legislative changes on the German fiscal system based on the established method of generational accounting. The results show that these laws likely will have overall positive effects on future German public finances. They also stress the importance of successful integration in general and the positive financial contributions from the immigration of relatively young, skilled workers.
    Keywords: immigration,law reform,fiscal sustainability
    JEL: E62 F22 H68 K37
    Date: 2020
  95. By: Fabian Kindermann; Julia Le Blanc; Monika Piazzesi; Martin Schneider
    Abstract: This paper uses new household survey data to study expectation formation during the recent housing boom in Germany. The cross section of forecasts depends on only two household characteristics: location and tenure. The average household in a region responds to local conditions but underpredicts local price growth. Renters make on average higher and hence more accurate forecasts than owners, although their forecasts are more dispersed and their mean squared forecast errors are higher. A quantitative model of learning about housing cost can match these facts. It emphasizes the unique information structure of housing among asset markets: renters who do not own the asset are relatively well informed about its cash flow, since they pay for housing services that owners simply consume. Renters then make more accurate forecasts in a boom driven by an increase in rents and recovery from a financial crisis.
    JEL: E0 G0 R0
    Date: 2021–06
  96. By: Jan Fidrmuc (Brunel University); Martin Hulényi (Institute for Strategy and Analysis (ISA)); Olga Zajkowska (Narodowy Bank Polski)
    Abstract: We analyse the impact of EU structural and cohesion funds on economic growth of European regions using 2SLS to tackle their potential endogeneity and estimating a spatial model to account for inter-regional spillovers. We use the presence of environmentally protected areas as instruments for Cohesion Policy funds. We find that the European funds have a significant and positive effect on regional economic growth in the EU. However, there is considerable heterogeneity in the effect of Cohesion Policy across individual EU member states: the effect is stronger in the new member states, and weak or negative in the countries hit by the recent austerity measures. The inter-regional spillovers in the effect of Cohesion Policy on regional growth are found to be important: most of the effect takes place outside the recipient region rather than inside. Finally, our results also confirm the positive impact of institutional quality.
    Keywords: Regional aid; growth; environmental conservation; 2SLS; spatial.
    JEL: C21 C36 F36 E62 O11 P48
    Date: 2020
  97. By: Malmendier, Ulrike M.; Shen, Leslie Sheng
    Abstract: We show that economic downturns can "scar" consumers in the long-run. Having lived through times of high unemployment consumers remain pessimistic about the future financial situation and spend significantly less years later, controlling for income, wealth, and employment. Their actual future income is uncorrelated with past experiences. Due to experience-induced frugality, scarred consumers accumulate more wealth. Using a stochastic life-cycle model we show that the negative relationship between past downturns and consumption cannot arise from financial constraints, income scarring, or unemployment scarring. Our results suggest a novel micro-foundation of fluctuations in aggregate demand and imply long-run effects of macroeconomic shocks.
    JEL: D12 D83 D91 G51
    Date: 2020–06
  98. By: Damioli, Giacomo (European Commission, Joint Research Centre (JRC)); Van Roy, Vincent (European Commission, Joint Research Centre (JRC)); Vertesy, Daniel (UNU-MERIT, and the International Telecommunication Union); Vivarelli, Marco (UNU-MERIT, and Catholic University of Milan)
    Abstract: This study investigates the possible job-creation impact of AI technologies, focusing on the supply side, namely the providers of the new knowledge base. The empirical analysis is based on a worldwide longitudinal dataset of 3,500 front-runner companies that patented the relevant technologies over the period 2000-2016. Obtained from GMM-SYS estimates, our results show a positive and significant impact of AI patent families on employment, supporting the labour-friendly nature of product innovation in the AI supply industries. However, this effect is small in magnitude and limited to service sectors and younger firms, which are the leading actors of the AI revolution. Finally, some evidence of increasing returns seems to emerge; indeed, the innovative companies which are more focused on AI technologies are those obtaining the larger impacts in terms of job creation.
    Keywords: Innovation, technological change, patents, employment, job-creation
    JEL: O31 O33 O34 E24
    Date: 2021–04–20
  99. By: Gianluca Benigno (Associate Professor in the Department of Economics at the London School of Economics); Jon Hartley (MPP Candidate and researcher, Harvard Kennedy School); Alicia García-Herrero (Senior Research Fellow, Bruegel); Alessandro Rebucci (Associate Professor of Finance, Johns Hopkins Carey Business School, CEPR and NBER); Elina Ribakova (Deputy Chief Economist, Institute of International Finance)
    Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimizing the risks of large depreciations and spiralling inflation.
    Keywords: Coronavirus, COVID-19, Quantitative Easing, Emerging Markets, Fiscal Stimulus
    Date: 2020–06
  100. By: Ashworth, Jonathan; Goodhart, Charles A
    Abstract: Over the past decade the media have regularly reported on the imminent death of cash amid rapid innovation in payment technologies. However, cash in circulation has actually been growing strongly in many counties. Perhaps unsurprisingly given Coronavirus-related health concerns, there have been renewed calls to abandon cash and some observers have argued the virus will accelerate its demise. Data thus far suggest, however, that currency in circulation has actually surged in a number of countries. While the economic shutdowns and increased use of online retailing are currently diminishing cash's traditional function as a medium of exchange, it seems that this is being more than offset by panic driven hoarding of banknotes.
    Keywords: Coronavirus; Currency usage; Hoarding in panics; Payment technologies
    JEL: E40 E41 E49 E63 N10
    Date: 2020–06
  101. By: Michael Sposi; Kei-Mu Yi; Jing Zhang
    Abstract: Motivated by increasing trade and fragmentation of production across countries since World War II, we build a dynamic two-country model featuring sequential, multi-stage production and capital accumulation. As trade costs decline over time, global-value-chain (GVC) trade expands across countries, particularly more in the faster growing country, consistent with the empirical pattern. The presence of GVC trade boosts capital accumulation and economic growth and magnifies dynamic gains from trade. At the same time, endogenous capital accumulation shapes comparative advantage across countries, impacting the dynamics of GVC trade: a country becoming more capital abundant concentrates more on the capital-intensive stage of the production.
    Keywords: Multistage production; International trade; Capital accumulation
    JEL: F10 F43 E22
    Date: 2020–11–13
  102. 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 (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); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    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: overlapping generations,public debt,pollution,epidemics
    Date: 2021–05–07
  103. By: Joab D. Valdivia C. (Banco Central de Bolivia)
    Abstract: El ciclo crediticio o financiero en economías en desarrollo tiene un importante rol en la sostenibilidad del crecimiento en el mediano y largo plazo. La sincronización del ciclo crediticio con el económico influye en la duración del periodo expansivo o contractivo de la actividad real. Los episodios de riesgo sistémico ayudan a identificar variables deterioradas para la aplicación de políticas contracíclicas. A partir de la metodología de Holló et al. (2012) y en combinación con cuasi-correlaciones cruzadas se construyó un Indicador Compuesto de Stress Sistémico (ICSS). La descomposición del ICSS en el último periodo indica que la liquidez, crecimiento del crédito, el spread en moneda extranjera y el ciclo de precio de vivienda determinan, en mayor cuantía, el comportamiento del indicador creado, evidenciando escenarios de estrés sistémico.
    Keywords: Riesgo sistémico, ciclo crediticio o financiero, correlaciones cruzadas, modelo MarkovSwitching
    JEL: G01 G10 G20 E44
    Date: 2019–11
  104. By: Alexandros Theloudis
    Abstract: What does preference heterogeneity imply for consumption inequality? This paper studies the link from wage to consumption inequality within a lifecycle model of consumption and family labor supply. Its distinctive feature is that households have general heterogeneous preferences over consumption and labor supply. The paper shows identi?cation of the joint distribution of unobserved household preferences separately from the observed distributions of incomes and outcomes. Estimation on data from the Panel Study of Income Dynamics in the US reveals substantial unexplained heterogeneity in consumption preferences but little unexplained heterogeneity in labor supply preferences. Preference heterogeneity accounts for about a third of consumption inequality in recent years and implies, on average, lower partial insurance of wage shocks compared to recent studies in the literature.
    Keywords: unobserved preference heterogeneity; family labor supply; lifecycle model; partial insurance; PSID
    JEL: D12 D30 D91 E21
    Date: 2020–05
  105. By: Doepke, Matthias; Gaetani, Ruben
    Abstract: Why has the college wage premium risen rapidly in the United States since the 1980s, but not in European economies such as Germany? We argue that differences in employment protection can account for much of the gap. We develop a model in which firms and workers make relationship-specific investments in skill accumulation. The incentive to invest is stronger when employment protection creates an expectation of long-lasting matches. We argue that changes in the economic environment have reduced relationship-specific investment for less-educated workers in the United States, but not for better-protected workers in Germany.
    Keywords: college wage premium; employment protection; Job-Specific Skills
    JEL: E24 J24 J31
    Date: 2020–06
  106. By: Tomasz Piotr Wisniewski (The Open University); Michal Polasik (Nicolaus Copernicus University); Radoslaw Kotkowski (Narodowy Bank Polski); Andrea Moro (Cranfield University)
    Abstract: Using a survey of 5,504 respondents from 22 European countries,we examine preferences regarding cash and cashless payments at the point of sale (POS) during the COVID-19 crisis. Consumers favor cashless transactions when they believe that handling cash presents a higher risk of infection. Moreover, the habits they develop during periods of restrictions and lockdowns appear to further diminish their appetite for transacting in cash. Not only do these factors affect current choice of payment method, but also influence declared future intentions to move away from cash after the pandemic is over.
    Keywords: COVID-19; SARS-CoV-2; Cash; Cashless payments; Payment behavior; Habit change; Fear
    JEL: E41 E42 I12 I18
    Date: 2021
  107. By: Mark M. Spiegel
    Abstract: This paper uses Call Report data to examine the impact of home country monetary policy on foreign bank subsidiary lending in the United States during the COVID-19 pandemic. Examining a large sample of foreign bank subsidiaries and domestic U.S. banks, we find that foreign bank lending growth was positively associated with both lower home country policy rates and negative home country rates. Our point estimates indicate that a one standard deviation decrease in home country policy rates was associated with a 3.5 percentage point increase in lending growth while negative home country policy rates added an additional 3.0 percentage points on average. Disparities in sensitivity to home country rates also exist by bank size, as large banks exhibited more responsiveness to home country policy rate levels, but were less responsive to negative policy rates. Easier home country policy rates are also found to impact negatively in growth in capital ratios and bank income, in keeping with expanded foreign subsidiary activity. However, income responses to negative home country rates are mixed, in a manner suggestive of sophisticated adjustment of global bank balance sheets to changes in relative home and host country monetary policy stances. Overall, our findings confirm that the bank lending channel for global monetary policy spillovers was active during the pandemic crisis.
    Keywords: Monetary policy; negative interest rates; banking; foreign subsidiaries; covid19
    JEL: G14 G18 G32
    Date: 2021–05–25
  108. By: Eduardo Dávila; Ansgar Walther
    Abstract: This paper studies leverage regulation and monetary policy when equity investors and/or creditors have distorted beliefs relative to a planner. We characterize how the optimal leverage regulation responds to arbitrary changes in investors' and creditors' beliefs and relate our results to practical scenarios. We show that the optimal regulation depends on the type and magnitude of such changes. Optimism by investors calls for looser leverage regulation, while optimism by creditors, or jointly by both investors and creditors, calls for tighter leverage regulation. Monetary policy should be tightened (loosened) in response to either investors' or creditors' optimism (pessimism).
    JEL: E52 E61 G21 G28
    Date: 2021–06
  109. By: Sandri, Damiano
    Abstract: We analyze the profitability of FX swaps used by the central bank of Brazil to shed light on the rationale for FX intervention. We find that swaps are profitable in expectation, suggesting that FX intervention is used to stabilize the exchange rate in the face of temporary excessive movements rather than to manipulate it away from fundamental values. In line with this interpretation, we find that the scale of FX intervention responds to the degree of exchange rate misalignment relative to UIP conditions. We also document that intervention is more aggressive when there is less uncertainty about the medium-term level of the exchange rate and when the exchange rate is overvalued rather than undervalued.
    Keywords: Exchange rate; FX intervention; Profitability
    JEL: E58 F31
    Date: 2020–06
  110. By: Enrique G. Mendoza; Eugenio Rojas; Linda L. Tesar; Jing Zhang
    Abstract: Covid-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for Covid-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with entrepreneurs and workers. The health system moves closer to saturation as the gap between supply and subsistence narrows, which worsens consumption and income inequality. An externality distorts utilization, because firms do not internalize that lower utilization relaxes healthcare saturation. The optimal policy response includes lockdowns and transfers to workers.
    Keywords: Covid-19; lockdowns; externality; transfers
    JEL: E13 H23 I14
    Date: 2021–02–22
  111. By: Luca Eduardo Fierro (Department of Management, Università Politecnica delle Marche, Ancona, Italy); Alessandro Caiani (University School for Advanced Studies, Pavia, Italy); Alberto Russo (Department of Management, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The increasing automation of tasks traditionally performed by labor is reshaping the relationship between skills and tasks of workers, unevenly affecting labor demand for low, middle, and high-skill occupations. To investigate the economywide response to automation, we designed a multisector Agent-Based Macroeconomic model accounting for workers’ heterogeneity in skills and tasks. The model features endogenous skill- biased technical change, and heterogeneous consumption preferences for goods and personal services across workers of different skill types. Following available empirical evidence, we model automation as a manufacture-specific, productivity-enhancing, and skill-biased technological process. We show how automation can trigger a structural change process from manufactory to personal services, which eventually polarises the labor market. Finally, we study how labor market policies can feedback in the model dynamics. In our framework, a minimum wage policy (i) slows down the structural change process, (ii) boosts aggregate productivity, and (iii) accelerates the automation process, strengthening productivity growth within the manufactory sector.
    Keywords: agent-based model, automation, structural change, wage polarization, minimum wage
    JEL: C63 E64 L16
    Date: 2021
  112. By: Can Xu; Jan Jacobs; Jakob de Haan
    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
  113. By: Xu, Tao
    Abstract: This paper applies the Digital Retail Development Index, matching employment statistics from 2010 to 2019, to empirically analyze the relationship between the development of digital retailing and employment. Considering endogenous factors, the paper proves that the development of digital retailing plays a significant positive role in promoting popular employment and that production, logistics, service, transaction and environment of digital retailing are positively correlated with employment. Based on mechanism analysis, the paper finds that the optimization of logistics, service and transaction is closely related to the improvement of employment, which reflects the ecosystem and experience of digital retailing.
    Keywords: Digital retailing; Employment; New retailing
    JEL: E2 J21 O32
    Date: 2020–11–01
  114. By: Stefanie Braun
    Abstract: The paper analyzes the effects of mortgage interest deductibility and untaxed imputed rental income on the German homeownership. I use a general equilibrium life-cycle framework, where a minimum down-payment constraint on purchases of housing capital is the critical element of the model framework. I find that both tax policies would increase Germany's low homeownership rate. However, these tax policies would entail substantial welfare losses for individuals of all income quintiles in the long run. Finally, wealth e ects are relatively small and the welfare analysis shows that individuals would prefer to live in an economy without preferential tax treatment of housing.
    Keywords: German homeownership rate; Housing taxation; Imputed rents; Mortgage deductibility; Capital accumulation
    JEL: E62 H3
    Date: 2021–06
  115. By: Renée Fry-McKibbin; Matthew Greenwood-Nimmo; Cody Yu-Ling Hsiao; Lin Qi
    Abstract: We study the distribution of equity returns in the G20 equity markets to test for contagion following the first official report of a COVID19 case in China in December 2019 and the subsequent announcement of a global pandemic in March 2020. We find evidence of contagion of Chinese equity market tail risk in early 2020 followed by widespread evidence of contagion across multiple channels from the U.S. to G20 equity markets after the pandemic announcement. Our results suggest that global equity markets may be exposed to unpriced pandemic risk factors with implications for portfolio diversification, risk management and financial stability.
    Keywords: Financial Contagion, Comoment Contagion Tests
    JEL: C32 E31 E32
    Date: 2021–04
  116. By: Beni Kouevi Gath
    Abstract: This dissertation empirically studies the interplay of government policies, finance, and economic development. More specifically, it considers the impact of corporate taxes on employment, of bank regulation on financial information sharing on banking stability and of banking crises on democracy. Two of the chapters focus on Sub-Saharan African (SSA) countries. The third one takes a more global perspective. Chapter 1 evaluates the impact of corporate income tax rates (CIT) on employment at the firm level for a sample of SSA countries. It finds that on average, firms employ more workers in countries with higher CIT rates. This is consistent with the fact that corporate tax revenues allow governments to provide public goods and infrastructure which are crucial to firm activities. We report estimation results to support this assumption. More specifically, while the marginal effect of CIT decreases with income level or with government expenditures, it increases with the level of democracy. Furthermore, we also find that the effect of CIT rates on employment works partially through improvements in the business environment in which firms operate. Chapter 2 assesses the effects of government policies setting the extent to which credit information on the credit history of borrowers is shared among lenders. It shows that credit information sharing stabilizes banks. Moreover, despite foreign banks having an informational disadvantage over domestic banks due to information frictions and would hence benefit more from credit information sharing, the results indicate that both types of banks are affected in the same way. This suggests that foreign banks rely on alternative strategies to compensate for their informational disadvantage in local markets. Lastly, Chapter 3 documents the impact of banking crises on the level of democracy. It provides evidence that democracy improves in the 10-year window following the occurrence of a banking crisis. The results also highlight the presence of several non-linearities. First, severe banking crises have larger effects on democracy than moderate ones. Second, the positive effect of banking crises on democracy is mostly driven by non-democratic countries. Finally, the bulk of the effect materializes from the third year after the crisis occurred.
    Abstract: Cette thèse étudie empiriquement l'interaction des politiques gouvernementales, de la finance, et du développement économique. Plus précisément, il examine l'impact de la fiscalité des entreprises sur l'emploi, de la réglementation bancaire relative au partage d'informations sur le crédit sur la stabilité bancaire, et des crises bancaires sur la démocratie. Les deux premiers chapitres se focalisent sur les pays d'Afrique subsaharienne. Le troisième adopte une perspective plus globale pour couvrir. Le premier chapitre évalue l'impact des taux d'imposition des sociétés (IS) sur l'emploi au niveau de l'entreprise pour un échantillon de pays d'Afrique subsaharienne. Ses résultats montrent qu'en moyenne, les entreprises emploient plus de travailleurs dans les pays où les taux de taxation des entreprises sont plus élevés. Cela s’explique par le fait que les recettes de l'impôt sur les sociétés permettent aux gouvernements de financer des biens publics et des infrastructures qui sont essentiels aux activités des entreprises. Nous présentons des résultats d'estimation pour soutenir cette hypothèse. Plus précisément, alors que l'effet marginal de l'IS diminue avec le niveau de revenu ou avec les dépenses publiques, il augmente avec le niveau de démocratie. En outre, nous constatons également que l'effet des taux d'IS sur l'emploi s'explique en partie par l'amélioration de l'environnement des affaires dans lequel opèrent les entreprises. Le second chapitre évalue les effets des politiques gouvernementales fixant la mesure dans laquelle les informations sur les antécédents de crédit des emprunteurs sont partagées entre les prêteurs. Il montre que le partage d'informations sur le crédit permet de stabiliser les banques. De plus, bien que les banques étrangères aient un désavantage informationnel par rapport aux banques nationales en raison de frictions d'information et bénéficieraient donc davantage du partage d'informations sur le crédit, les résultats indiquent que les deux types de banques sont affectées de la même manière. Cela suggère que les banques étrangères s'appuient sur des stratégies alternatives pour compenser leur désavantage informationnel sur les marchés locaux. Enfin, le chapitre 3 documente l'impact des crises bancaires sur le niveau de démocratie. Il fournit la preuve que la démocratie s'améliore dans la fenêtre de 10 ans suivant l’occurrence d'une crise bancaire. Les résultats mettent également en évidence la présence de plusieurs non-linéarités. Premièrement, les crises bancaires graves ont des effets plus importants sur la démocratie que les crises modérées. Deuxièmement, l'effet positif des crises bancaires sur la démocratie est principalement attribuable aux pays non démocratiques. Pour finir, l'essentiel de l'effet se matérialise à partir de la troisième année après la survenance de la crise.
    Keywords: public policies; financial development; financial stability; credit information sharing; fiscal development; tax policy; finance and politics; political economy; empirical economics; development economics; financial economics; banking; employment
    Date: 2021–06–16
  117. By: Schularick, Moritz; Steffen, Sascha; Tröger, Tobias
    Abstract: Do current levels of bank capital in Europe suffice to support a swift recovery from the COVID-19 crisis? Recent research shows that a well-capitalized banking sector is a major factor driving the speed and breadth of recoveries from economic downturns. In particular, loan supply is negatively affected by low levels of capital. We estimate a capital shortfall in European banks of up to 600 billion euro in a severe scenario, and around 143 billion euro in a moderate scenario. We propose a precautionary recapitalization on the European level that puts the European Stability Mechanism (ESM) center stage. This proposal would cut through the sovereign-bank nexus, safeguard financial stability, and position the Eurozone for a quick recovery from the pandemic.
    Keywords: bank capital; COVID-19; financial stablity
    JEL: E50 G01 G20
    Date: 2020–06
  118. By: María Eugenia Carmona Morales (Banco Central de Bolivia)
    Abstract: La política monetaria en Bolivia se ha caracterizado por su enfoque heterodoxo y orientación contracíclica. En los últimos años, la caída persistente de los términos de intercambio exacerbó el dilema de política monetaria en varios países de la región donde, a diferencia de Bolivia, se aplicaron políticas monetarias procíclicas. La evidencia presentada en este documento señala que el carácter cíclico de la política monetaria en Bolivia pasó de ser procíclico, aunque estadísticamente no significativo antes de 2006, a ser contracíclico y significativo después de 2006. Entre los factores que han contribuido a este proceso se encuentran la credibilidad de la política monetaria, los espacios monetarios, la bolivianización financiera y el uso de un amplio conjunto de instrumentos. En este contexto, el desempeño del país, en términos de crecimiento e inflación en años recientes, fue uno de los más destacados, asociándose también a la contraciclicidad de la política monetaria, una menor volatilidad del producto.
    Keywords: Política monetaria, políticas contracíclicas
    JEL: E52 F41
    Date: 2019–12
  119. By: Laurent Le Maux (University of Western Brittany)
    Abstract: Walter Bagehot (1873) published his famous book, Lombard Street, almost 150 years ago. The adage 'lending freely against good collateral at a penalty rate' is associated with his name and his book has always been set on a pedestal and is still considered as the leading reference on the role of lender of last resort. Nonetheless, without a clear understanding of the theoretical grounds and the institutional features of the British banking system, any interpretation of Bagehot's writings remains vague if not misleading, which is worrisome if they are supposed to provide a guideline for policy makers. The purpose of the present paper is to determine whether Bagehot's recommendation remains relevant for modern central bankers or whether it was indigenous to the monetary and banking architecture of Victorian times.
    Keywords: Central Banking, Lender of Last Resort
    JEL: B1 E5
    Date: 2021–02–10
  120. By: Solikin M. Juhro (Bank Indonesia)
    Abstract: This paper is aimed to explore salient issues of central banking practices, especially on challenges confronted by central banks in the digital era, lessons learned, as well as their implications. As we have acknowledged, in the midst of major financial crises in the last two decades, central banks faced very complex policy challenges blighted with high uncertainty, all of which have changed the practical and theoretical perspectives of central bank policy. The complexity and uncertainty of issues faced by central banks have and will continue to evolve in line with the advancement of digital technology. Navigating central banking practices in the digital era, therefore, is a very challenges task that requires the central bank's ability to create breakthroughs and orchestrate policy innovations. While the central bank policy mix is still a viable strategy, central banks are required to operate beyond conventional wisdom, with novel practices. Optimizing the benefits of technological advances and becoming a relevant regulator in the digital era must anchor the central bank's strategy in the future.
    Keywords: Central Bank Policy, Digital Transformation, Central Bank Digital Currency
    JEL: E52 E58 O3
    Date: 2021
  121. By: Julien Chevallier
    Abstract: In the Dynamic Conditional Correlation with Mixed Data Sampling (DCC-MIDAS) framework, we scrutinize the correlations between the macro-financial environment and CO2 emissions in the aftermath of the Covid-19 diffusion. The main original idea is that the economy?s lock-down will alleviate part of the greenhouse gases? burden that human activity induces on the environment. We capture the time-varying correlations between U.S. Covid-19 confirmed cases, deaths, and recovered cases that were recorded by the Johns Hopkins Coronavirus Center, on the one hand; U.S. Total Industrial Production Index and Total Fossil Fuels CO2 emissions from the U.S. Energy Information Administration on the other hand. High-frequency data for U.S. stock markets are included with five-minute realized volatility from the Oxford-Man Institute of Quantitative Finance. The DCC-MIDAS approach indicates that Covid-19 confirmed cases and deaths negatively influence the macro-financial variables and CO2 emissions. We quantify the time-varying correlations of CO2 emissions with either Covid-19 confirmed cases or Covid-19 deaths to sharply decrease by ?15% to ?30%. The main takeaway is that we track correlations and reveal a recessionary outlook against the background of the pandemic.
    Keywords: Covid-19; CO2 emissions; time-varying correlations; macroeconomy; stock markets; DCC MIDAS
    JEL: G01 F30 Q54
    Date: 2021–01–01
  122. By: Carey W. King
    Abstract: All economies require physical resource consumption to grow and maintain their structure. The modern economy is additionally characterized by private debt. The Human and Resources with MONEY (HARMONEY) economic growth model links these features using a stock and flow consistent framework in physical and monetary units. Via an updated version, we explore the interdependence of growth and three major structural metrics of an economy. First, we show that relative decoupling of gross domestic product (GDP) from resource consumption is an expected pattern that occurs because of physical limits to growth, not a response to avoid physical limits. While an increase in resource efficiency of operating capital does increase the level of relative decoupling, so does a change in pricing from one based on full costs to one based only on marginal costs that neglects depreciation and interest payments leading to higher debt ratios. Second, if assuming full labor bargaining power for wages, when a previously-growing economy reaches peak resource extraction and GDP, wages remain high but profits and debt decline to zero. By removing bargaining power, profits can remain positive at the expense of declining wages. Third, the distribution of intermediate transactions within the input-output table of the model follows the same temporal pattern as in the post-World War II U.S. economy. These results indicate that the HARMONEY framework enables realistic investigation of interdependent structural change and trade-offs between economic distribution, size, and resources consumption.
    Date: 2021–06
  123. By: Juan M. Londono; Sai Ma; Beth Anne Wilson
    Abstract: Using a sample of 30 countries representing about 65% of the global GDP, we find that real economic uncertainty (REU) has negative long-lasting domestic economic effects and transmits across countries. The international spillover effects of REU are (i) additional to those of domestic REUs, (ii) statistically significant, and (iii) economically meaningful. Trade ties play a key role in explaining why uncertainty generated in one country can affect economic outcomes in other countries. Based on this evidence, we construct a novel index for global REU as the trade-weighted average of all countries' REUs. We disentangle the effects of the domestic and foreign components of global REU and find that, on average, innovations to the foreign component can contribute up to 28% of the future variation in domestic industrial production, with the effect being disproportionately larger on its manufacturing component, the component contributing the most to the tradable goods sector, than on its retail sales component.
    Keywords: Economic effects of uncertainty; International transmission; Spillovers
    JEL: G01 E32 F62 F44
    Date: 2021–04–30
  124. By: Orhan Gokmen
    Abstract: This paper examines the relationship between net FDI inflows and real GDP for Turkey from 1970 to 2019. Although conventional economic growth theories and most empirical research suggest that there is a bi-directional positive effect between these macro variables, the results indicate that there is a uni-directional significant short-run positive effect of real GDP on net FDI inflows to Turkey by employing the Vector Error Correction Model, Granger Causality, Impulse Response Functions and Variance Decomposition. Also, there is no long-run effect has been found. The findings recommend Turkish authorities optimally benefit from the potential positive effect of net incoming FDI on the real GDP by allocating it for the productive sectoral establishments while effectively maintaining the country's real economic growth to attract further FDI inflows.
    Date: 2021–06
  125. By: Manthei, Gerrit
    Abstract: Many questions have been raised about the political and economic consequences of the recent surge in refugee immigration in Europe. Can refugee immigration promote long-term per-capita growth? How are the drivers of per-capita growthinfluenced by immigration? What are the policy implications of refugee immigration? Using an adjusted Cobb-Douglas productionfunction,with labour divided into two complementary groups,this study attempts to provide some answers. By applying the model to current immigration data from Germany, the study finds that refugee immigration can lead to long-term per-capita growth in the host country and that the growth is higher if immigrants are relatively young and have sufficiently high qualifications. Further, capital inflowsare a prerequisite for boosting per-capita growth. These findings can inform the migration policiesof countries that continue to grapple with refugee immigration.
    Keywords: Refugee,Immigration,Growth,Labour Supply,Wages
    JEL: E20 F22 O41
    Date: 2020
  126. By: Alicia García-Herrero (Chief Economist for Asia Pacific, NATIXIS, Department of Economics & Institute for Emerging Market Studies, Hong Kong University of Science and Technology); Elina Ribakova (Deputy Chief Economist at the Institute of International Finance)
    Abstract: The spread of COVID-19 and its associated impacts have again brought into focus the dependence of emerging market economies on external financing. This column analyses the factors that put emerging economies at an increased risk of a sudden reduction in dollar liquidity as a consequence of the COVID-19 outbreak. Based on this analysis, it reviews the key tools at the disposal of emerging economies, the Fed, and the IMF to address this problem. It concludes by offering some policy recommendations on the pecking order that could be followed to potentially shield the emerging economies from the dollar shortage problems related to COVID-19.
    Keywords: COVID-19, Finance, Financial Regulation, Central Banks, Emerging Economies, IMF, Monetary Policy, Emerging Markets
    Date: 2020–05
  127. By: Cheshire, Paul; Hilber, Christian A. L.
    Abstract: England’s system of property taxes is in urgent need of reform. Council Tax, devised in a hurry to resolve political difficulties after the demise of the Poll Tax, hits those in low-value homes hardest, and bears at best only a tenuous relationship to today’s house prices. Stamp Duty acts as a tax on moving house, slowing the housing market and making it harder for people to find the right home for them. This report presents the various options to reform the England’s property taxes, assessing them against both economic and political criteria. It concludes by setting out a new approach to taxing English property to mitigate the regressiveness and distortions of the current system, and help achieve government aims of levelling up and delivering net zero.
    JEL: E6
    Date: 2021–05–01
  128. By: Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan, Ibadan, Nigeria); Elie Bouri (Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa)
    Abstract: In this study, we make a three-fold contribution to the literature on gold market analysis. First, we provide evidence for the predictive value of US Nonfarm Payroll (USNP) in the out-of-sample forecast of gold market volatility. Second, we extend our analysis to other precious metals and the US stock market index for robustness purposes. Third, we utilize mixed data frequencies based on the availability of data, thus, circumventing any bias or information loss due to the use of monthly (low frequency) USNP data and daily (high frequency) gold price data. The results show that the USNP, which reflects gain/loss in US non-farm jobs, is negatively related to gold return volatility implying that deterioration (improvement) in the economy due to job losses (gains) raises (lowers) the gold market volatility as its trading improves (deteriorates) while the reverse is the case for US stocks. The out-of-sample predictive value of USNP in the return volatility of gold is also established as the model which includes the former offers better out-of-sample forecast gains than the benchmark model which ignores it. Additional analyses involving other precious metals, namely palladium, platinum, rhodium, and silver, show the same direction of relationship as gold, albeit with higher forecast gains for silver than the others. Our findings have useful implications for financial analysts and investors.
    Keywords: Gold market volatility, US Nonfarm Payroll, Out-of-sample predictability, GARCH-MIDAS
    JEL: E31 F47 J21 J23
    Date: 2021–06
  129. By: Valeria Ferreira (External Consultant at European Commission – JRC Seville); Miguel Ángel Almazán-Gómez (Centro de Predicción Económica (CEPREDE)- Madrid); Victor Nechifor (European Commission - JRC); Emanuele Ferrari (European Commission - JRC)
    Abstract: A Social Accounting Matrix (SAM) is a comprehensive and economy-wide database recording data on all transactions between production activities, factors of production, institutions, and the rest of the world within a specific economy during a certain period. It has two principal objectives. First, it represents a complete snapshot of the economy showing the economic structure and the circular flow of income and expenditure in the country or region under analysis. Second, in order to analyse how the economy works and to predict the effects of policy interventions, it is used as a database in multisectoral linear models by calculating multipliers, and for the calibration and exploitation of Computable General Equilibrium (CGE) models. This report presents Ghana's SAM for 2015, with the main purpose of providing a suitable database for implementing and evaluating the country's own developmental, social and economic policies and initiatives. To this end, the structure of the SAM is presented in detail, explaining the meaning of each account and indicating some estimations and modifications made. Considering the characteristics of the Ghanaian economy, this SAM shows a special structure to reflect the Home Production for Home Consumption (HPHC) issue and a high disaggregation of the agricultural and food sector. Furthermore, considering the SAM as a database, a descriptive analysis of the Ghanaian economy and the linear multipliers analysis are presented. Annex 2 explains how to download the matrix available online.
    Keywords: Social Accounting Matrices; Ghana: linear multisectoral models; multipliers.
    JEL: E16 Q1
    Date: 2021–05
  130. By: Eli Ben-Michael; Avi Feller; Jesse Rothstein
    Abstract: The synthetic control method (SCM) is a popular approach for estimating the impact of a treatment on a single unit in panel data settings. The "synthetic control" is a weighted average of control units that balances the treated unit's pre-treatment outcomes and other covariates as closely as possible. A critical feature of the original proposal is to use SCM only when the fit on pre-treatment outcomes is excellent. We propose Augmented SCM as an extension of SCM to settings where such pre-treatment fit is infeasible. Analogous to bias correction for inexact matching, Augmented SCM uses an outcome model to estimate the bias due to imperfect pre-treatment fit and then de-biases the original SCM estimate. Our main proposal, which uses ridge regression as the outcome model, directly controls pre-treatment fit while minimizing extrapolation from the convex hull. This estimator can also be expressed as a solution to a modified synthetic controls problem that allows negative weights on some donor units. We bound the estimation error of this approach under different data generating processes, including a linear factor model, and show how regularization helps to avoid over-fitting to noise. We demonstrate gains from Augmented SCM with extensive simulation studies and apply this framework to estimate the impact of the 2012 Kansas tax cuts on economic growth. We implement the proposed method in the new augsynth R package.
    JEL: C21 C23 E62 H71
    Date: 2021–06

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.