nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒07‒12
118 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. De-anchored long-term inflation expectations in a low growth, low rate environment By Guido Bulligan; Francesco Corsello; Stefano Neri; Alex Tagliabracci
  2. Firms' inflation expectations and pricing strategies during Covid-19 By Marco Bottone; Cristina Conflitti; Marianna Riggi; Alex Tagliabracci
  3. Policy mix during a pandemic crisis: a review of the debate on monetary and fiscal responses and the legacy for the future By Giuseppe Ferrero; Massimiliano Pisani; Martino Tasso
  4. Inflation During the Pandemic: What Happened? What is Next? By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  5. U.S. Monetary Policy Spillovers to Emerging Markets: Both Shocks and Vulnerabilities Matter By Shaghil Ahmed; Ozge Akinci; Albert Queraltó
  6. Thinking Beyond the Pandemic: Monetary Policy Challenges in the Medium- to Long-Term By Marek Dabrowski
  7. Flexible inflation targeting with active fiscal policy By Harrison, Richard
  8. US Postwar Macroeconomic Fluctuations Without Indeterminacy By Joshua Brault; Hashmat Khan; Louis Phaneuf; Jean Gardy Victor
  9. Testing external habits in an asset pricing model By Melisso Boschi; Stefano d'Addona; Aditya Goenka
  10. The Drivers of Inflation Dynamics during the Pandemic: (Early) Evidence from Disaggregated Consumption Data By Viacheslav Sheremirov
  11. Monetary Policy and Business Cycle Synchronization in Europe By Rémi Odry; Roman Mestre
  12. Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers By Fumitaka Nakamura; Nao Sudo; Yu Sugisaki
  13. Large Firms and the Cyclicality of US Labour Productivity By Joshua Brault; Hashmat Khan
  14. Optimal Central Banking Policies: Envisioning the Post-Digital Yuan Economy with Loan Prime Rate-setting By King Yoong Lim; Chunping Liu; Shuonan Zhang
  15. Beyond the Interest Rate Pass-through: Monetary Policy and Banks Interest Rates during the Effective Lower Bound By Christophe Blot; Fabien Labondance
  16. Optimal robust monetary policy with parameters and output gap uncertainty By Adriana Grasso; Guido Traficante
  17. The Identification of Non-Rational Risk Shocks By Maximilian Böck
  18. Medium- vs. short-term consumer inflation expectations : evidence from a new euro area survey By Stanisławska, Ewa; Paloviita, Maritta
  19. An Optimal Macroprudential Policy Mix for Segmented Credit Markets By Jelena Zivanovic
  20. An Update to the Budget and Economic Outlook: 2021 to 2031 By Congressional Budget Office
  21. Recent Developments in Measuring Inflation Expectations: With a Focus on Market-based Inflation Expectations and the Term Structure of Inflation Expectations By Ko Adachi; Kazuhiro Hiraki
  22. Endogenous Uncertainty and Credit Crunches By Ludwig Straub; Robert Ulbricht
  23. Monetary Policy and Welfare with Heterogeneous Firms and Endogenous Entry By Dudley Cooke; Tatiana Damjanovic
  24. The Yield Curve as a Predictor of Economic Activity in Mexico: The Role of the Term Premium By Ibarra-Ramírez Raúl
  25. A New Measure of Monetary Policy Shocks By Xu Zhang
  26. Inflation expectations and the ECB’s perceived inflation objective: novel evidence from firm-level data By Marco Bottone; Alex Tagliabracci; Giordano Zevi
  27. Leverage Constraints and Bank Monitoring: Bank Regulation versus Monetary Policy By Florian B\¨oser; Hans Gersbach
  28. A Comprehensive Monetary Analysis of the U.S. During COVID-19 By Krupenin, Kirill; Wu, Kyle; Liu, Katherine; Bacon, Matthew; McElhennon, Gavin; Qiao, Elizabeth
  29. A Theory of Debt Accumulation and Deficit Cycles By Antonio Mele
  30. Container Trade and the U.S. Recovery By Lutz Kilian; Nikos Nomikos; Xiaoqing Zhou
  31. Monetary Policy under Subjective Beliefs of Banks: Optimal Central Bank Collateral Requirements By Florian B\¨oser
  32. One-Stop Source: A Global Database of Inflation By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  33. Dispersion in Dispersion: Measuring Establishment-Level Differences In Productivity By Cunningham, Cindy; Foster, Lucia; Grim, Cheryl; Haltiwanger, John C.; Pabilonia, Sabrina Wulff; Stewart, Jay; Wolf, Zoltan
  34. Central Banks and Digital Currencies By Tobias Adrian; Michael Junho Lee; Tommaso Mancini-Griffoli; Antoine Martin
  35. Anxiety, Expectations Stabilization and Intertemporal Markets: Theory, Evidence and Policy By Francesco Carbonero; Jeremy Davies; Ekkehard Ernst; Sayantan Ghosal; Leaza McSorley
  36. Les cycles économiques de la France : une datation de référence By Antonin Aviat; Frédérique Bec; Claude Diebolt; Catherine Doz; Denis Ferrand; Laurent Ferrara; Eric Heyer; Valérie Mignon; Pierre‐Alain Pionnier
  37. Examining sustainability of government debt in India: post Covid prospects By Srivastava, Dinesh Kumar; Bharadwaj, Muralikrishna; Kapur, Tarrung; Trehan, Ragini
  38. Estrategia de política monetaria e inflación en Japón By Fructuoso Borrallo Egea; Pedro del Río López
  39. The distributive cycle: Evidence and current debates By Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim
  40. Immigration and the UK Economy after Brexit By Portes, Jonathan
  41. Small and smaller: How the economic outlook of small firms relates to size By Chris D'Souza; James Fudurich; Farrukh Suvankulov
  42. An Agent-based Model of Trickle-up Growth and Income Inequality By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  43. Bridge Proxy-SVAR: Estimating the Macroeconomic Effects of Shocks Identified at High-Frequency By Alejandro Vicondoa; Andrea Gazzani
  44. Modeling optimal quarantines with waning immunity By Aditya Goenka; Lin Liu; Nguyen, Manh-Hung
  45. Sentiment and Uncertainty about Regulation By Tara M. Sinclair; Zhoudan Xie
  46. Searching for Hysteresis By Luca Benati; Thomas Lubik
  47. East Asia and East Africa: Different Ways to Digitalize Payments By Qing Xu
  48. Output, Employment, and Price Effects of U.S. Narrative Tax Changes: A Factor-Augmented Vector Autoregression Approach By Masud Alam
  49. A New Approach to Estimating the Natural Rate of Interest By Luca Benati
  50. Revision of the Consumption Activity Index to Capture Recent Changes in Consumption Patterns By Masato Takahashi; Takuji Kondo; Ko Munakata; Tomohiro Okubo; Yuto Iwasaki
  51. Fiscal Foresight and Real Distortions to Firm Behavior: Anticipatory Dips and Compensating Rebounds By Robert S. Chirinko; Daniel J. Wilson
  52. Distrust or speculation? the socioeconomic drivers of U.S. cryptocurrency investments By Raphael Auer; David Tercero-Lucas
  53. Macroprudential Policy Analysis via an Agent Based Model of the Real Estate Sector By Gennaro Catapano; Francesco Franceschi; Valentina Michelangeli; Michele Loberto
  54. Should Hong Kong switch to Taylor Rule?—Evidence from DSGE Model By Meenagh, David; Minford, Patrick; Zhao, Zhiqi
  55. Young People between Education and the Labour Market during the COVID-19 Pandemic in Italy By Fiaschi, Davide; Tealdi, Cristina
  56. The Neoclassical Growth Model with Time-Inconsistent Decision Making and Perfect Foresight By Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
  57. Evaluating the Effects of the Home Affordable Modification Program By Richard Cóndor
  58. China's Long-Term Growth Potential: Can Productivity Convergence Be Sustained? By Takatoshi Sasaki; Tomoya Sakata; Yui Mukoyama; Koichi Yoshino
  59. Status Externalities and Low Birth Rates in Korea By Seongeun Kim; Michèle Tertilt; Minchul Yum
  60. Cultural resilience, religion, and economic recovery: Evidence from the 2005 hurricane season By Hasan, Iftekhar; Manfredonia, Stefano; Noth, Felix
  61. Consumption and saving patterns in Italy during Covid-19 By Elisa Guglielminetti; Concetta Rondinelli
  62. The Impact of Tax Revenues and Domestic Investments on Economic Growth in Tunisia By Mkadmi, Jamel Eddine; Bakari, Sayef; Othmani, Ameni
  63. Dispelling the shadow of fiscal dominance? Fiscal and monetary announcement effects for euro area sovereign spreads in the corona pandemic By Havlik, Annika; Heinemann, Friedrich; Helbig, Samuel; Nover, Justus
  64. Local inequalities of the COVID-19 crisis By Cerqua, Augusto; Letta, Marco
  65. Identifying the transmission channels of credit supply shocks to household debt: price and non-price effects By Varadi, Alexandra
  66. Promotion ban and heterogeneity in retail prices during the Great Lockdown By Hindriks, Jean; Madio, Leonardo; Serse, Valerio
  67. Macro News and Micro News: Complements or Substitutes? By David Hirshleifer; Jinfei Sheng
  68. Heterogeneous Firms, R&D Policies and the Long Shadow of Business Cycles By Cristiana Benedetti-Fasil; Giammario Impullitti; Omar Licandro; Petr Sedlacek
  69. Micro Risks and Pareto Improving Policies with Low Interest Rates By Mark Aguiar; Manuel Amador; Cristina Arellano
  70. Factores que inciden en la decisión de ahorro de los microempresarios By Freddy CASTRO; Daniela LONDOÑO; Álvaro José PARGA CRUZ; Camilo PEÑA GÓMEZ
  71. The Short-Run, Dynamic Employment Effects of Natural Disasters: New Insights By Alessandro Barattieri; Patrice Borda; Alberto Brugnoli; Martino Pelli; Jeanne Tschopp
  72. COVID-19 Pandemic and economic stimulus policy inequality: evidence from quasi-natural experiments By Xingyuan Yao
  73. Search, Screening and Sorting By Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
  74. Belief-driven dynamics in a behavioral SEIRD macroeconomic model with sceptics By Christian R. Proaño; Tomasz Makarewicz
  75. Latin American Experiments in Central Banking at the Onset of the Great Depression By Flores Zendejas, Juan; Nodari, Gianandrea
  76. Dynamic Labor Reallocation with Heterogeneous Skills and Uninsured Idiosyncratic Risk By Ester Faia; Marianna Kudlyak; Ekaterina Shabalina
  77. Modeling the Impact of Corruption, Degree of Freedom to Invest and Democracy on Domestic Investment: Evidence from MENA Countries By Bakari, Sayef; Benzid, Lamia
  78. Assessment of the fiscal stance appropriate for the euro area in 2022 By European Fiscal Board (EFB)
  79. Optimal Informational Interest Rate Rule By Marta Areosa; Waldyr Areosa; Vinicius Carrasco
  80. Graduating from a Less Selective University during a Recession: Evidence from Mobility Report Cards and Employer Recruiting By Weinstein, Russell
  81. The Identification of Non-Rational Risk Shocks By Böck, Maximilian
  82. Effects of Unanticipated Income Shocks on Consumption in Mexico, 2000-2016 By Llamosas-Rosas Irving;Rangel González Erick
  83. Unfulfilled Expectations and Labor Market Interactions: A Statistical Equilibrium Theory of Unemployment By Ellis Scharfenaker, Duncan K. Foley
  84. Financial Stability and Monetary Policy in a Low-Interest-Rate Environment By Loretta J. Mester
  85. A Fireside Chat on Current Economic Conditions By Eric S. Rosengren
  86. The effect of COVID-19 stimulus payments on sales of local small businesses: Quasi-experimental evidence from Korea By Choi, Hoon
  87. Estimating Hysteresis Effects By Francesco Furlanetto; Antoine Lepetit; Ørjan Robstad; Juan Rubio-Ramírez; Pal Ulvedal
  88. Why sustainable, inclusive, and resilient investment makes for efficacious post-COVID medicine By Zenghelis, Dimitri
  89. An agent-based model of trickle-up growth and income inequality By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  90. Central banking for a social-ecological transformation By Cahen-Fourot, Louison
  91. The incremental information in the yield curve about future interest rate risk By Bent Jesper Christensen; Mads Markvart Kjær; Bezirgen Veliyev
  92. Covid-19 and lockdown policies: A structural simulation model of a bottom-up recession in four countries By Robinson, Sherman; Levy, Stephanie; Hernández, Victor; Davies, Rob; Gabriel, Sherwin; Arndt, Channing; van Seventer, Dirk; Pleitez, Marcelo
  93. A liquidity risk early warning indicator for Italian banks: a machine learning approach By Maria Ludovica Drudi; Stefano Nobili
  94. Analyzing supply and demand for business loans using microdata from the Senior Loan Officer Survey By Dylan Hogg
  95. Credit, Income, and Inequality By Manthos D. Delis; Fulvia Fringuellotti; Steven Ongena
  96. Redistributive Policy and R&D-based Growth By Ken Tabata
  97. Were Fourth District Local Governments Ready for a Recession? How the Great Recession Influenced How Much They Save By Cornelius Johnson; Stephan Whitaker
  98. The Effect of Crises on Fiscal and Political Recentralization: Large-Panel Evidence By Gustavo Canavire-Bacarreza; Pablo Evia Salas; Jorge Martinez-Vazquez
  99. South Africa's Health Promotion Levy: excise tax findings and equity potential By Hofman, Karen J.; Stacey, Nicholas; Swart, Elizabeth C.; Popkin, Barry M.; Ng, Shu Wen
  100. Not your average firm: a quantile regression approach to the firm level investment By Doguhan Sundal
  101. Measuring the impact of a bank failure on the real economy. An EU-wide analytical framework By Valerio Paolo Vacca; Fabian Bichlmeier; Paolo Biraschi; Natalie Boschi; Antonio J. Bravo Alvarez; Luciano Di Primio; André Ebner; Silvia Hoeretzeder; Elisa Llorente Ballesteros; Claudia Miani; Giacomo Ricci; Raffaele Santioni; Stefan Schellerer; Hanna Westman
  102. Macroeconomic Forecasting with Large Stochastic Volatility in Mean VARs By Jamie L. Cross; Chenghan Hou; Gary Koop
  103. "Firm Growth, Financial Constraints, andPolicy-Based Finance" By Yuta Takahashi; Naoki Takayama
  104. Towards Building Shared Prosperity in Sub-Saharan Africa: How Does the Effect of Economic Integration Compare to Social Equity Policies? By Ofori, Isaac Kwesi
  105. Achieving Scale Collectively By Vittorio Bassi; Raffaela Muoio; Tommaso Porzio; Ritwika Sen; Esau Tugume
  106. Profitability, Productivity and Growth By Marek Ignaszak; Petr Sedlácek
  107. The return on human (STEM) capital in Belgium By Gert Bijnens; Emmanuel Dhyne
  108. No Credit, No Gain: Trade Liberalization Dynamics, Production Inputs, and Financial Development By David Kohn; Fernando Leibovici; Michal Szkup
  109. Towards Building Shared Prosperity in Sub-Saharan Africa: How Does the Effect of Economic Integration Compare to Social Equity Policies? By Isaac K. Ofori
  110. Towards Building Shared Prosperity in Sub-Saharan Africa: How Does the Effect of Economic Integration Compare to Social Equity Policies? By Isaac K. Ofori
  111. Positional Preferences and Efficiency in a Dynamic Economy By Thomas Aronsson; Sugata Ghosh; Ronald Wendner
  112. Crisis económica del COVID-19 en Colombia y estructura de ingresos de las universidades públicas By Ulloa Villegas Inés Maria; CEBALLOS CANDELO JUAN CAMILO; RODRIGUEZ GONZALEZ DAVID
  113. Performance Evaluation of the Fruit and Vegetable Subsectors in the Azerbaijani Economy: A Combinatorial Analysis Using Regression and Principal Component Analysis By Niftiyev, Ibrahim
  114. Who Pays the Price? Overdraft Fee Ceilings and the Unbanked By Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
  115. Racial Differences in Mortgage Refinancing, Distress, and Housing Wealth Accumulation during COVID-19 By Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
  116. "Commonality, macroeconomic factors and banking profitability". By Orlando Joaqui-Barandica; Diego F. Manotas-Duque; Jorge M. Uribe-Gil
  117. Racial Differences in Mortgage Refinancing, Distress, and Housing Wealth Accumulation during COVID-19 By Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
  118. Fragmentation by design: universal health coverage policies as governmentality in Senegal By Mladovsky, Philipa

  1. By: Guido Bulligan (Bank of Italy); Francesco Corsello (Bank of Italy); Stefano Neri (Bank of Italy); Alex Tagliabracci (Bank of Italy)
    Abstract: This paper provides evidence of de-anchoring of long-term inflation expectations in the euro area based on both time series and panel methods and data from the ECB Survey of Professional Forecasters. Long-term inflation expectations recorded two sharp and permanent declines: the first after the 2013 disinflation, the second in early 2019. Long-term inflation expectations also started reacting to short-term developments in inflation after the 2013 disinflation. Long-term growth expectations have declined continuously since the early 2000s. Looking forward, the increased likelihood of a low growth and low inflation environment may reduce the monetary policy space. The positive correlation between long-term real GDP growth and inflation expectations suggests that forecasters view future macroeconomic developments as driven mainly by demand-side shocks. Under these circumstances, the risk of a further de-anchoring of long-term inflation expectations remains high.
    Keywords: survey data, panel data, professional forecasters, inflation expectations, monetary policy
    JEL: E31 E52 E58
    Date: 2021–06
  2. By: Marco Bottone (Bank of Italy); Cristina Conflitti (Bank of Italy); Marianna Riggi (Bank of Italy); Alex Tagliabracci (Bank of Italy)
    Abstract: We use the Bank of Italy's Survey on Inflation and Growth Expectations to explore how the COVID-19 shock affects firms’ pricing policies and their inflation expectations. We find that the longer the time deemed necessary to return to their normal business levels and the greater the attention they pay to their competitors’ pricing policies, the more likely firms are to reduce their own product prices. Moreover, firms' inflation expectations react to the expected persistence of the macroeconomic effects of the shock. We rationalize this evidence through the lens of a general equilibrium model.
    Keywords: Covid-19, firms’ inflation expectations, firms' pricing strategies, survey data.
    JEL: E2 E31 E32 I10
    Date: 2021–06
  3. By: Giuseppe Ferrero (Bank of Italy); Massimiliano Pisani (Bank of Italy); Martino Tasso (Bank of Italy)
    Abstract: We review the debate on the monetary and fiscal policy measures that were adopted in response to the pandemic shock in advanced economies, as well as others that could be taken in the near future, once the health emergency is over. The pandemic is an exceptional global health shock, which has negatively affected the income, liquidity, and financial conditions of households and firms worldwide. Policy responses adopted in advanced economies in 2020 – based on extraordinary large-scale, swift, targeted monetary and fiscal measures – were appropriate to sustain liquidity, income, and aggregate demand and, thus, helped to avert a devastating financial crisis. Once the health emergency is over, the legacies of the shock will be a recovery of uncertain strength and timing, a low interest rate environment, and high corporate and public debts. Support measures should be removed with caution. A cross-country coordinated policy mix based on (i) accommodative monetary policies (if consistent with central bank objectives), (ii) public investments and (iii) a gradual rebalancing of government accounts, could be effective in sustaining a strong global recovery and reduce private and public debt.
    Keywords: COVID 19, secular stagnation, monetary policy, fiscal policy
    JEL: E52 E58 E62 F01
    Date: 2021–06
  4. By: Jongrim Ha (World Bank, Prospects Group); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (World Bank, Prospects Group; CEPR; CAMA)
    Abstract: We analyze the evolution and drivers of inflation during the pandemic and the likely trajectory of inflation in the near-term using an event study of inflation around global recessions and a factor-augmented vector auto-regression (FAVAR) model. We report three main results. First, the decline in global inflation during the 2020 global recession was the most muted and shortest-lived of any of the five global recessions over the past 50 years and the increase in inflation since May 2020 has been the fastest. Second, the decline in global inflation from January-May 2020 was four-fifths driven by the collapse in global demand and another one-fifth driven by plunging oil prices, with some offsetting inflationary pressures from supply disruptions. The subsequent surge in inflation has been mostly driven by a sharp increase in global demand. Third, both model-based forecasts and current inflation expectations point to an increase in inflation for 2021 of just over 1 percentage point. For virtually all advanced economies and one-half of inflation-targeting emerging market and developing economies (EMDEs), an increase of this magnitude would leave inflation within target ranges. If the increase is temporary and inflation expectations remain well-anchored, it may not warrant a monetary policy response. If, however, inflation expectations risk becoming unanchored, EMDE central banks may be compelled to tighten monetary policy before the recovery is fully entrenched.
    Keywords: Global Inflation; COVID-19; Global Recession; FAVAR; Oil Prices; Global Shocks.
    JEL: E31 E32 Q43
    Date: 2021–07
  5. By: Shaghil Ahmed; Ozge Akinci; Albert Queraltó
    Abstract: We explore how the sources of shocks driving interest rates, country vulnerabilities, and central bank communications affect the spillovers of U.S. monetary policy changes to emerging market economies (EMEs). We utilize a two-country New Keynesian model with financial frictions and partly dollarized balance sheets, as well as poorly anchored inflation expectations reflecting imperfect monetary policy credibility in vulnerable EMEs. Contrary to other recent studies that also emphasize the sources of shocks, our approach allows the quantification of effects on real macroeconomic variables as well, in addition to financial spillovers. Moreover, we model the most relevant vulnerabilities structurally. We show that higher U.S. interest rates arising from stronger U.S. aggregate demand generate modestly positive spillovers to economic activity in EMEs with stronger fundamentals but can be adverse for vulnerable EMEs. In contrast, U.S. monetary tightening’s driven by a more-hawkish policy stance cause a substantial slowdown in activity in all EMEs. Our model also captures the challenging policy tradeoffs that EME central banks face, and we show that these tradeoffs can potentially be improved by clearer communications from them.
    Keywords: financial frictions; U.S. monetary policy spillovers; adaptive expectations
    JEL: E32 E44 F41
    Date: 2021–06–01
  6. By: Marek Dabrowski
    Abstract: The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance. This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
    Keywords: COVID-19 pandemic, monetary policy, forced saving, monetary overhang, quantitative easing, inflation, fiscal dominance
    JEL: E31 E41 E51 E52 E58 E62 E63 F62 H62 H63
    Date: 2021–04–09
  7. By: Harrison, Richard (Bank of England)
    Abstract: This paper studies optimal time‑consistent monetary policy in a simple New Keynesian model with long‑term nominal government debt. Fiscal policy is ‘active’, so that stabilisation of the government debt stock is a binding constraint on monetary policy. Away from the lower bound on the monetary policy rate, optimal monetary policy cannot fully offset the effects of shocks to the natural rate of interest, reducing welfare. At the lower bound, recessionary shocks increase the real value of government debt, generating the anticipation of higher future inflation to stabilise real debt. Higher inflation expectations reduce real interest rates, mitigating the effects of recessionary shocks. If debt duration is long enough, improved performance at the lower bound may outweigh higher welfare losses in normal times, compared with the case in which fiscal policy is ‘passive’.
    Keywords: Optimal monetary policy; fiscal policy; effective lower bound; government debt
    JEL: E52 E58 E62
    Date: 2021–07–02
  8. By: Joshua Brault (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University); Louis Phaneuf (Department of Economics, Universite du Quebec a Montreal); Jean Gardy Victor
    Abstract: We estimate a multi-shock DSGE model with a Bayesian method that differentiates between states of determinacy and indeterminacy. Determinacy is statistically preferred to indeterminacy before and after 1980. Key to this finding is a Taylor rule wherein the Fed targets output growth relative to trend instead of the level of the output gap or a mix of output gap and output growth. This allows us to revisit postwar macroeconomic fluctuations without indeterminacy. Relative to the pre-1980s, we find that the post-1983 contribution of shocks to the marginal efficiency of investment to the cyclical variance of output growth fell from 50% in the pre-1980s to 20% during the Great Moderation. Greater nominal wage flexibility was a main source of decline in the volatility of output and working hours during the Great Moderation, a finding which appears consistent with the post-1980 large deunionization in the private sector. Lower inflation variability resulted mostly from the Fed’s hawkish stance against inflation and changes in preference parameters. Lower trend inflation and smaller shocks were not major factors driving the Great Moderation.
    Keywords: Monetary Policy; Determinacy; Bayesian Estimation; Sources of Business Cycle; Changes in Aggregate Volatility
    JEL: E31 E32 E37
    Date: 2021–02–19
  9. By: Melisso Boschi (Senate of the Republic of Italy); Stefano d'Addona (University of Rome 3); Aditya Goenka (University of Birmingham)
    Abstract: A class of asset pricing models with external habit formation imply a nonlinear relationship between the counter-cyclical equity premium and the surplus consumption over the business cycle. The effect of a shock to surplus consumption on the equity premium will be asymmetric in a boom versus a recession. We test this using a novel approach to the estimation of a time-varying VAR model of the U.S. postwar economy where parameters are conditional on Markov-switching regimes associated to the business cycle phases. We estimate the regime-dependent impulse response functions and show that the equity premium increases following a negative shock to the surplus consumption either in boom or in recession. The response in recession is significantly larger than in boom. These results provide evidence in favor of the external habit formation hypothesis.
    Keywords: Habit formation; Equity premium; Business cycle; Markov-switching models; Time-varying VAR; Regime-dependent impulse response functions
    JEL: E21 E32 E44 G11 G12
    Date: 2021–06
  10. By: Viacheslav Sheremirov
    Abstract: What explains inflation dynamics during the COVID-19 pandemic? This brief focuses on the relative roles of demand and supply factors. Prices and quantities of consumed goods and services are positively correlated following demand changes and negatively correlated in response to supply disturbances. Employing disaggregated indexes from personal consumption expenditures data, this brief documents a positive relationship between prices and quantities during the early stages of the pandemic, followed by a negative relationship in the later period. Thus, while the short deflation episode in March and April 2020 and the following offsetting inflation could be explained by the large fluctuation in demand triggered by the lockdown, the recently elevated inflation readings are likely due to insufficient supply, as global supply chains continue to experience pandemic-related disruptions and many employees are reluctant to return to in-person work until the threat of COVID-19 subsides. The disproportionate influence on April 2021 inflation of consumption categories such as accommodations, public transportation, and used motor vehicles also points to the likely transitory nature of recent inflation. While emphasizing supply factors, this study focuses on a relatively short period, exploiting disaggregated monthly indexes, which are typically volatile. As the recovery still depends on the course of the pandemic, globally as well as domestically, observing inflation over a longer period should deliver a more nuanced picture of inflation dynamics during this episode.
    Keywords: inflation; persistence; price dispersion; disaggregated consumption; COVID-19
    JEL: E01 E21 E31 E32
    Date: 2021–06–23
  11. By: Rémi Odry; Roman Mestre
    Abstract: In this paper, we investigate the role of the monetary policy adopted by the European Central Bank (ECB) in business cycle synchronization in Europe between 2000 and 2018. To this aim, we employ wavelets to compute the pairwise business cycle correlations (BCC) at different frequencies and use Generalized Method of Moments (GMM) dynamic estimators in panel to explain their variations. Our results show that monetary policy has a long-term impact on the synchronization of business cycles in Europe. More specifically, we find that the adopted unconventional monetary policies impact positively the synchronization. Finally, we show that fiscal policies can be used as tools to fix country-specific movements of business cycles.
    Keywords: Business cycle synchronization, Monetary policy, EMU, Europe
    JEL: E52 E58 E37 C01
    Date: 2021
  12. By: Fumitaka Nakamura (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Nao Sudo (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Head of Financial System Research Division, Financial System and Bank Examination Department), Bank of Japan (E-mail:; Yu Sugisaki (Economist, Institute for Monetary and Economic Studies (currently, Research and Statistics Department), Bank of Japan (E-mail:
    Abstract: We study how monetary policy affects the labor status of people of different ages and genders using Japanese data from the late 1990s to the late 2010s, with monetary policy shocks identified using high frequency market data. We first show that expansionary monetary policy shocks reduce the unemployment rate of all ages in both genders by almost the same amount. We then show that the impacts of these shocks are starkly different across ages in terms of changes in the labor force and number of employed. Expansionary monetary policy shocks cause the non- labor force of young and elderly people to join the labor force, leading to an increase in the number of employed of these age groups, leaving the middle-aged less affected. Our findings are consistent with the view that changes in the labor force participation rate play a role in determining the degree of labor market slack for specific ages.
    Keywords: Monetary policy, Age structure, Labor market slack, Wage Phillips curve, High frequency identification
    JEL: E24 E32 E52
    Date: 2021–06
  13. By: Joshua Brault (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University)
    Abstract: We present novel stylized facts on the declining cyclicality of labour productivity for large firms. Changes in their output-labour productivity correlations are close to those observed in the aggregate data, unlike small firms. We find support for the hypothesis that this change is driven by increased labour market flexibility. In response to a 1% increase in real sales large firms’ hire an additional 75 workers in the pre-1985 period, compared to an additional 90 workers in the post-1985 period. Our findings are of direct relevance to the growing literature on the role of large firms in driving US business cycles.
    Keywords: Large Firms, Labour Productivity, Business Cycles
    JEL: D22 E24 E32
    Date: 2021–03–13
  14. By: King Yoong Lim; Chunping Liu; Shuonan Zhang
    Abstract: We develop a DSGE model with cash and digital currency to study the financial stability properties of two potential central banking policies in China. Specifically, a Loan Prime Rate (LPR)-setting policy function and central bank digital currency (CBDC) implementation are examined. Distinguish between a benchmark model and a "Post-CBDC world", we Bayesian-estimate the model. Post-CBDC implementation, we find macroeconomic variables to display greater procyclicality to real shocks. However, we also find a potential LPR-setting policy to exhibit an improved stabilization property in the post-CBDC world. We uncover an optimal design of LPR policy function, which targets more specifically housing and capital asset markets, as well as the growth in CBDC. This suggests a potential policy complementarity between these two seemingly unrelated central banking policies in the financial stability agenda of China going forward.
    Keywords: China, Digital Currency, Loan Prime Rate, Monetary Policy, Bayesian DSGE models.
    JEL: E4 E52 E58 C11
    Date: 2021–06
  15. By: Christophe Blot (Sciences Po – OFCE & Université Paris Ouest Nanterre - EconomiX); Fabien Labondance (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)
    Abstract: We investigate whether monetary policy influences the retail interest rates in the Euro Area when the policy rate reaches the effective lower bound. We estimate a panel-Error Correction Model that accounts for potential heterogeneities in the transmission of monetary policy. The analysis disentangles alternative non-standard measures implemented by the ECB. We find that unconventional measures have influenced banking interest rates beyond the pass-through of the current and expected policy rate. These effects are driven by liquidity provisions in core countries and by covered bond purchase programmes in peripheral ones.
    Keywords: Unconventional measures, retail interest rate, Heterogeneous panel
    JEL: E43 E52 E58 G21
    Date: 2021–07
  16. By: Adriana Grasso (Bank of Italy); Guido Traficante (European University of Rome)
    Abstract: This paper studies optimal robust monetary policy when the central bank imperfectly observes potential output and has Knightian uncertainty about the intertemporal elasticity of substitution and the slope of the Phillips curve. The literature on optimal robust monetary policy has focused on either imperfect observability of some variables or on parameter uncertainty. We characterize robust monetary policy analytically under the two types of uncertainty and show that in general they call for a more aggressive reaction of monetary policy compared with the certainty case.
    Keywords: potential output, parameter uncertainty, optimal monetary policy, Taylor rule
    JEL: E32 E52
    Date: 2021–06
  17. By: Maximilian Böck (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper studies how non-rational risk shocks affect the macroeconomy. Using a novel identification design which exploits survey data on expectations of financial executives in the US, I identify non-rational risk shocks via distortions in beliefs. Belief distortions are measured through surprises in beliefs of credit spreads, defined as the difference between subjective and objective forecasts. They are then used as a proxy for exogenous variation in the risk premium. Belief distortions elicit due to overreaction of credit spreads, eventually leading to exaggerated beliefs on financial markets. Results indicate that the constructed shocks have statistically and economically meaningful effects. This has sizeable consequences for the U.S. economy: A positive non-rational risk shock moves credit spreads remarkably while real activity and the stock market decline.
    Keywords: Business Cycles, Risk Shocks, Belief Distortions
    JEL: C32 E32 E44 E71 G41
    Date: 2021–06
  18. By: Stanisławska, Ewa; Paloviita, Maritta
    Abstract: Using the ECB Consumer Expectations Survey, this paper investigates how consumers revise medium-term inflation expectations. We provide robust evidence of their adjustment to the current economic developments. In particular, consumers adjust medium-term inflation views in response to changes in short-term inflation expectations and, to a lesser degree, to changes in perceptions of current inflation. We find that the strong adverse Covid-19 pandemic shock contributed to an increase in consumer inflation expectations. We show that consumers who declare high trust in the ECB adjust their medium-term inflation expectations to a lesser degree than consumers with low trust. Our results increase understanding of expectations formation, which is an important issue for medium-term oriented monetary policy.
    JEL: D12 D84 E31 E58
    Date: 2021–06–29
  19. By: Jelena Zivanovic
    Abstract: This paper analyzes the design of simple macroprudential rules for bank and non-bank credit markets in a medium-scale dynamic stochastic general equilibrium model. In the model, mutual funds support corporate bond issuance by rms with access to capital markets; a banking sector supplies loans to the remaining producers. This model is used to study the optimal design of monetary and macroprudential rules and to address whether financial stability in the banking and bond markets is welfare improving. First, in response to aggregate productivity and financial shocks, the welfare-maximizing monetary policy rule implies near price stability, while the optimal macroprudential policy rule stabilizes bank credit and bond volumes. Second, there is no trade-off between price and financial stability. Third, if the central bank cannot correctly identify a sector-specific financial shock, responding optimally as if the shock affects both sectors, then welfare outcomes are negligibly worse than those under the optimal policy.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates; Credit risk management; Financial stability; Financial system regulation and policies
    JEL: E30 E44 E50
    Date: 2021–06
  20. By: Congressional Budget Office
    Abstract: In CBO’s projections, the federal budget deficit equals $3.0 trillion in fiscal year 2021 and averages $1.2 trillion per year over the 2022–2031 period, under the assumption that existing laws governing taxes and spending generally remain unchanged. Because of those large deficits, federal debt held by the public is projected to reach 103 percent of GDP at the end of fiscal year 2021 and 106 percent of GDP, the highest level in the nation’s history, in 2031.
    JEL: E20 E23 E60 E62 E66 H20 H60 H61 H62 H63 H68
    Date: 2021–07–01
  21. By: Ko Adachi (Bank of Japan); Kazuhiro Hiraki (Bank of Japan)
    Abstract: Economic surveys and the market price of inflation-linked assets are two major sources for gauging inflation expectations. Recent studies have developed methodologies that use various indicators to estimate underlying inflation expectations and their term structure. This article reviews recent research on inflation expectations, with a focus on Hiraki and Hirata's (2020) study on market-based inflation expectations, and Maruyama and Suganuma's (2019) study on the term structure of inflation expectations. We also describe recent movements in inflation expectations in Japan. Overall, inflation expectations weakened somewhat after the outbreak of COVID-19 in early 2020, but they have been more or less unchanged in recent months. Given the great uncertainty over the consequences of COVID-19 and their impact on domestic and overseas economies, future developments in inflation expectations will also continue to be highly uncertain. It is therefore important to continue monitoring the various indicators of inflation expectations by considering their characteristics.
    Keywords: Inflation expectations; Survey-based inflation expectations; Breakeven inflation rate
    JEL: C32 D84 E31 E43 E52 G12
    Date: 2021–06–25
  22. By: Ludwig Straub (Harvard University); Robert Ulbricht (Boston College)
    Abstract: We develop a theory of endogenous uncertainty in which the ability of investors to learn about firm-level fundamentals is impaired during financial crises. At the same time, higher uncertainty reinforces financial distress. Through this two-way feedback loop, a temporary financial shock can cause a persistent reduction in risky lending, output, and employment that coincides with increased uncertainty, default rates, risk premia and disagreement among forecasters. We embed our mechanism into a standard real business cycle model and show how it manifests as an endogenous and highly internally persistent process for aggregate productivity.
    Keywords: Endogenous uncertainty, financial crises, internal persistence
    JEL: D83 E32 E44 G01
    Date: 2020–06–26
  23. By: Dudley Cooke (University of Exeter); Tatiana Damjanovic (Durham University Business School)
    Abstract: This paper studies the welfare consequences of monetary policy in a stickywage New Keynesian model with heterogenous firms and endogenous entry. Cross-sectional dispersion in price-markups and labor shares is generated by a translog demand structure and aggregate fluctuations in these variables are driven by firm entry and selection. We show that when the distribution of firm-level productivity is Pareto, selection is such that the aggregate price-markup and labor share are fixed. If firm entry is static, the divine coincidence appears, and wage stability is optimal. If firm entry is dynamic, or selection is weakened, optimal stabilization policy accounts for the size distribution of firms. We calculate the welfare loss of ignoring firm entry and selection to be 0.1 − 0.3 percent of steady state consumption.
    Keywords: Firm Entry, Heterogenous Firms, Optimal Monetary Policy, Translog Preferences
    JEL: E32 E52 L11
    Date: 2021–02
  24. By: Ibarra-Ramírez Raúl
    Abstract: This paper analyzes whether there exists a relationship between the slope of the yield curve and future economic activity in Mexico for the period 2004-2019. In particular, we evaluate whether such relationship depends on the term premium. For this purpose, we estimate a threshold model in which the relationship between the yield spread and future economic activity, measured as either output growth or the probability of a contraction, depends on whether the term premium is above or below an estimated threshold. The main results indicate that the slope of the yield curve seems to anticipate the behavior of economic activity only when the term premium is above a threshold. Our results also suggest that the slope of the yield curve has predictive power over the probability of facing a contraction in the future only when the term premium is above a threshold. The estimated value for such threshold depends on the forecast horizon and the measure of economic activity.
    JEL: C53 E32 E37 E43
    Date: 2021–06
  25. By: Xu Zhang
    Abstract: Combining the high-frequency multidimensional approach of Gürkaynak et al. (2005) with Greenbook measures of the Federal Reserve’s information set as in Romer and Romer (2004), I propose a new method of constructing a monetary policy shock that occurs on Federal Reserve announcement days. I provide substantial evidence that the new monetary policy shock is consistent with the predictions of workhorse macroeconomic models for structural monetary policy shocks. The new shock has large and highly statistically significant instantaneous effects on the Treasury yield curve. Using the shock as an external instrument in a VAR analysis, I find that contractionary monetary policy has modest downward effects on both output and inflation over business-cycle frequencies.
    Keywords: Business fluctuations and cycles; Central bank research; Econometric and statistical methods; Interest rates; Monetary policy
    JEL: E5 G0
    Date: 2021–06
  26. By: Marco Bottone (Bank of Italy); Alex Tagliabracci (Bank of Italy); Giordano Zevi (Bank of Italy)
    Abstract: In this paper we use a unique dataset to study how awareness of the formulation of the ECB’s inflation aim, defined as "below, but close to, 2%", shapes the inflation expectations of a representative set of Italian firms. In particular, we show that in the period under consideration such awareness raises firms’ inflation expectations by about 25 basis points at all time horizons with respect to the control group. In the recent period of low inflation, this finding implies that being informed about the ECB’s aim stabilizes firms’ inflation expectations at higher levels, closer to its target. However, this occurs at the expense of a lower correspondence of such expectations with ex-post realized inflation, especially on short-term horizons. When explicitly asked, the majority of firms indicates the ECB inflation aim as being between 1.0% and 1.5%, while just a few of them see it as between 1.7% and 1.9%. This result might be related to the difficulty of interpreting the “below, but close to†formulation, and suggests that a precise definition of the ECB’s inflation aim could be easier to communicate and more likely to be properly understood.
    Keywords: ECB’s inflation aim, firms’ inflation expectations, monetary policy, information treatments, survey data
    JEL: D22 E31 E52 E58
    Date: 2021–06
  27. By: Florian B\¨oser (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Hans Gersbach (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: Bank leverage constraints can emerge from regulatory capital requirements as well as from central bank collateral requirements in reserve lending facilities. While these two channels are usually examined separately, we are able to compare them with the help of a bank money creation model in which central bank reserves have to be acquired to settle interbank liabilities. In particular, we show that with regard to bank monitoring, monetary policy via collateral requirements leads to a unique collateral leverage channel, which cannot be replicated by standard capital requirements. Through this channel, banks can expand loan supply and deposit issuance when they face liquidity constraints, by raising the collateral value of their loans with tighter monitoring of firms. The collateral leverage channel can improve welfare beyond standard bank capital regulation. Our results may inform current policy debates, such as the design of central bank collateral frameworks or the question whether monetary policy remains effective in times with large central bank reserves.
    Keywords: leverage, banks, monitoring, bank regulation, monetary policy
    JEL: E42 E52 E58 G21
    Date: 2021–06
  28. By: Krupenin, Kirill (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Wu, Kyle (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Liu, Katherine (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Bacon, Matthew (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); McElhennon, Gavin (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Qiao, Elizabeth (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: As a response to the economic crisis caused by the COVID-19 pandemic, the Federal Reserve implemented one of the most expansionary monetary policies in its history, renewing asset purchases under quantitative easing and supporting the economy using a wide range of other tools. In this paper, the authors provide an overview of the changes in the balance sheet of the Federal Reserve from February 26th, 2020 to April 7th, 2021 as well as an overview of the main actions taken by the Federal Reserve over the same period. The authors then analyze the impact of the activity of the Federal Reserve on the economy from the monetary perspective. In particular, the authors examine the expansion of the balance sheet of U.S. commercial banks, analyze credit counterparts of broad money, and conduct the golden growth rate analysis for broad money supply growth. The authors conclude the paper by analyzing changes in inflation expectations and Treasury yields.
    Keywords: Money supply; credit; money multipliers; monetary policy
    JEL: E51 E52
    Date: 2021–07–02
  29. By: Antonio Mele (University of Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))
    Abstract: This paper introduces a tractable model of sovereign debt where governments cannot default strategically, but face intertemporal tradeoffs between (i) preferring more primary deficits to less and (ii) avoiding costly defaults. Governments run deficits when debt and, then, the marginal costs of increasing debt are low. However, after an extended period of debt accumulation, default probabilities begin to rise quickly, and so do the marginal costs of running debt. Eventually, debt reaches a critical level relative to the size of the economy, a fiscal tipping point, after which debt accumulation stops, with governments cycling between deficits and surpluses, until perhaps a time of default. The main conclusions are that (i) fiscal tipping points typically occur when distanceto- default is between 10% and 20%; (ii) tipping points are pushed back in a stable macroeconomic environment, such that default premiums are higher in countries that implement austerity earlier and remain positive even when exogenous risk is very small (two “volatility paradoxes”); (iii) liquidity conditions and fiscal reforms may affect default probabilities in an ambiguous way; (iv) fiscal austerity may arrive too late: “debt intolerance” arises around the fiscal tipping point.
    Keywords: government debt; default; fiscal tipping points; austerity; deficit cycles, volatility paradox.
    JEL: G01 G15 G38 E43 E44 E61
    Date: 2021–07
  30. By: Lutz Kilian; Nikos Nomikos; Xiaoqing Zhou
    Abstract: Since the 1970s, exports and imports of manufactured goods have been the engine of international trade and much of that trade relies on container shipping. This paper introduces a new monthly index of the volume of container trade to and from North America. Incorporating this index into a structural macroeconomic VAR model facilitates the identification of shocks to domestic U.S. demand as well as foreign demand for U.S. manufactured goods. We show that, unlike in the Great Recession, the primary determinant of the U.S. economic contraction in early 2020 was a sharp drop in domestic demand. Although detrended data for personal consumption expenditures and manufacturing output suggest that the U.S. economy has recovered to near 90% of pre-pandemic levels as of March 2021, our structural VAR model shows that the component of manufacturing output driven by domestic demand had only recovered to 57% of pre-pandemic levels and that of real personal consumption only to 78%. The difference is mainly accounted for by unexpected reductions in frictions in the container shipping market.
    Keywords: Merchandise trade; container; shipping; manufacturing; consumption; COVID-19; supply chain; recession; recovery; globalization
    JEL: E32 E37 F47 F62
    Date: 2021–06–17
  31. By: Florian B\¨oser (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank’s choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending and bank default. Pessimism, though, can entail insufficient lending and productivity losses. With an appropriate haircut on collateral, the central bank can perfectly neutralize the banks’ belief distortions and always induce the socially optimal allocation. Under uncertainty about beliefs, the central bank’s incentives to set looser collateral standards increase. This reduces the risk of deficient bank lending if sufficiently pessimistic beliefs realize. In extreme cases, monetary policy aims at mitigating productivity losses only, instead of also avoiding bank default.
    Keywords: beliefs, collateral, liquidity, central bank, banks
    JEL: D83 D84 E51 E52 E58 G21
    Date: 2021–06
  32. By: Jongrim Ha (World Bank); M. Ayhan Kose (World Bank; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (World Bank; CEPR; CAMA)
    Abstract: This paper introduces a global database that contains inflation series: (i) for a wide range of inflation measures (headline, food, energy, and core consumer price inflation; producer price inflation; and gross domestic product deflator changes); (ii) at multiple frequencies (monthly, quarterly and annual) for an extended time period (1970-2021); and (iii) for a large number of (up to 196) countries. As it doubles the number of observations over the next-largest publicly available sources, our database constitutes a comprehensive, single source for inflation series. We illustrate the potential use of the database with three applications. First, we study the evolution of inflation since 1970 and document the broad-based disinflation around the world over the past half-century, with global consumer price inflation down from a peak of roughly 17 percent in 1974 to 2.5 percent in 2020. Second, we examine the behavior of inflation during global recessions. Global inflation fell sharply (on average by 0.9 percentage points) in the year to the trough of global recessions and continued to decline even as recoveries got underway. In 2020, inflation declined less, and more briefly, than in any of the previous four global recessions over the past 50 years. Third, we analyze the role of common factors in explaining movements in different measures of inflation. While, across all inflation measures, inflation synchronization has risen since the early 2000s, it has been much higher for inflation measures that involve a larger share of tradable goods.
    Keywords: Prices, global inflation, deflation, inflation synchronization, global factor.
    JEL: E30 E31 F42
    Date: 2021–07
  33. By: Cunningham, Cindy (U.S. Bureau of Labor Statistics); Foster, Lucia (U.S. Census Bureau); Grim, Cheryl (U.S. Census Bureau); Haltiwanger, John C. (University of Maryland); Pabilonia, Sabrina Wulff (U.S. Bureau of Labor Statistics); Stewart, Jay (U.S. Bureau of Labor Statistics); Wolf, Zoltan (U.S. Census Bureau)
    Abstract: We describe new experimental productivity statistics, Dispersion Statistics on Productivity (DiSP), jointly developed and published by the Bureau of Labor Statistics (BLS) and the Census Bureau. Official BLS productivity statistics provide information on aggregate productivity growth. Yet, a large body of research shows that within-industry variation in productivity provides important insights into productivity dynamics. This research reveals large and persistent productivity differences across businesses, even within narrowly defined industries. These differences vary by industry and time and are related to productivityenhancing reallocation. Dispersion in productivity across businesses can provide information about the nature of competition and frictions within sectors, and about the sources of rising wage inequality across businesses. Because there were no official statistics providing this level of detail, BLS and the Census Bureau partnered to create measures of within-industry productivity dispersion. These measures complement official BLS aggregate industry-level productivity growth statistics and thereby improve our understanding of the rich productivity dynamics in the U.S. economy. The microdata underlying DiSP are available for use by qualified researchers on approved projects in the Federal Statistical Research Data Center network. DiSP confirms the presence of large productivity differences, and we hope that it will encourage further research into understanding these differences.
    Keywords: manufacturing, reallocation, within-industry variation, establishments, business cycles
    JEL: D24 E24 E32
    Date: 2021–06
  34. By: Tobias Adrian; Michael Junho Lee; Tommaso Mancini-Griffoli; Antoine Martin
    Abstract: Recent developments in payments technology raise important questions about the role of central banks either in providing a digital currency themselves or in supporting the development of digital currencies by private actors, as some authors of this post have discussed in a recent IMF blog post. In this post, we consider two ways a central bank could choose to become involved with digital currencies and discuss some implications of these potential choices.
    Keywords: central bank digital currency; stablecoin
    JEL: E58 E42
    Date: 2021–06–23
  35. By: Francesco Carbonero; Jeremy Davies; Ekkehard Ernst; Sayantan Ghosal; Leaza McSorley
    Abstract: Anxiety is a negative emotion experienced today in response to future risk. We model how anxiety impacts on risky investment when expected future returns interact with multiple narratives and strategic uncertainty today. A novel anxiety index is constructed via a sentiment analysis of daily online articles in the Daily Mail, Reuters and Press Association; its plausibility is established by comparing it to the corresponding ONS measure over the Covid-19 pandemic. A SVAR analysis shows that anxiety impacts negatively on stock market volatility, a model prediction. We discuss the welfare implications of lighthouse policies focusing on Brexit and the pandemic.
    Keywords: anxiety, investment, uncertainty, strategy, narratives, sentiment, lighthouse, policy, coronacrisis, Brexit
    JEL: C72 D91 E21 E22 I30
    Date: 2021–06
  36. By: Antonin Aviat; Frédérique Bec; Claude Diebolt; Catherine Doz; Denis Ferrand; Laurent Ferrara; Eric Heyer; Valérie Mignon; Pierre‐Alain Pionnier (CY Cergy Paris Université, THEMA)
    Abstract: Cet article propose une datation trimestrielle de référence des périodes de récession et d’expansion de l’économie française depuis 1970, réalisée par le comité de datation des cycles de l’AFSE (Association Française de Science Economique). La méthodologie mise en place repose sur deux piliers : (i) des estimations économétriques à partir d’un ensemble de données pour identifier les périodes candidates, et (ii) une approche narrative qui détaille le contexte économique de l’époque pour finaliser notre datation. De 1970 à nos jours, le comité a identifié quatre périodes de récession économique : les deux chocs pétroliers de 1974-75 et 1980, le cycle d’investissement de 1992-93 et la Grande Récession de 2008-09 engendrée par la crise financière mondiale. Le pic précédant la récession Covid a quant à lui été daté au dernier trimestre 2019.
    Keywords: Cycles économiques, économie française, datation, analyse narrative, modèles économétriques
    JEL: E32 E37 C24 N14
    Date: 2021
  37. By: Srivastava, Dinesh Kumar; Bharadwaj, Muralikrishna; Kapur, Tarrung; Trehan, Ragini
    Abstract: In this paper, we examine the determination of the sustainable level of debt-GDP ratio for the combined debt of central and state governments relative to GDP using (a) an analytical approach which was followed by the Twelfth Finance Commission (FC 12) and (b) an econometric model using threshold estimation. These methods provide results which are quite close to the target debt-GDP ratio of 60% determined by the Fiscal Responsibility and Budget Management (FRBM) review committee of 2018. In order to understand the evolution of government debt in India, we have divided the period from 1991-92 to 2018-19 into two sub-groups (A) consisting of years where a primary deficit was incurred; and (B) years where a primary surplus was shown. In the case of India, all years are characterized by primary deficit. These years are further divided into three sub-categories based on the contribution to the debt-GDP ratio made by (i) primary balance and (ii) excess of nominal growth rate over interest rate. The approach used here provides a modified view of the dynamics of debt as explained by the contribution of cumulated primary deficit and that of the excess of nominal growth over interest rate which was used in Rangarajan and Srivastava (2004). We have shown that this dynamics is well captured by an ARDL estimation which estimates the individual contribution of each of the contributing factor to debt accumulation namely primary deficit to GDP ratio, lagged debt-GDP ratio, nominal GDP growth rate and interest rate. We find that government debt in India is likely to exceed the sustainable debt-GDP threshold by a large margin in the post Covid years and even after normalcy is restored, it would take a long period for sustainability to be restored. It would also require that adequate policy measures are taken to ensure that growth rate exceeds the interest rate over long contiguous periods.
    Keywords: Covid-19, Government Debt, Growth, Inflation, debt
    JEL: E62 G01 H12 H63 H68
    Date: 2021–04–14
  38. By: Fructuoso Borrallo Egea (Banco de España); Pedro del Río López (Banco de España)
    Abstract: Ante un período muy prolongado de baja inflación, el Banco de Japón ha ido modificando su estrategia de política monetaria en las dos últimas décadas y ha sido pionero en la introducción de medidas no convencionales: desde reducir los tipos de interés oficiales a cero y, más recientemente, situarlos en niveles negativos, pasando por varios programas de compra de activos y forward guidance, hasta la política de control de la curva de tipos de interés (Yield Curve Control) que implantó en septiembre de 2016. Pese a todos estos esfuerzos, Japón ha continuado registrando un período muy persistente de baja inflación, con tasas bastante alejadas del objetivo del banco central en las últimas décadas. En este documento se analizan los cambios en la estrategia del Banco de Japón en su lucha contra la baja inflación, con un foco especial en las razones que lo llevaron a adoptar la política de control de tipos de interés, se describen su funcionamiento y sus principales características, y se evalúan los resultados obtenidos bajo esta. Si bien esta nueva estrategia ha permitido al Banco de Japón controlar la curva de rendimientos de una manera más eficaz y sostenible, reducir el volumen de compras de activos y atenuar los potenciales efectos adversos para la estabilidad financiera, el análisis empírico muestra que aún no ha conseguido modificar la naturaleza adaptativa y persistente del proceso de formación de precios y de las expectativas de inflación en Japón.
    Keywords: política monetaria, inflación, expectativas de inflación, tipos de interés
    JEL: E31 E43 E52
    Date: 2021–06
  39. By: Jose Barrales-Ruiz, Ivan Mendieta-Muñoz, Codrina Rada, Daniele Tavani, Rudiger von Arnim
    Abstract: This paper surveys current debates on the distributive cycle. The literature builds on R.M. Goodwin’s seminal 1967 chapter titled “A growth cycle.” We review theoretical motivations for the distributive cycle, which, despite signif-icant differences, all imply that macroeconomic activity leads the labor share in a counter-clockwise cycle in the activity-labor share plane. Subsequently, we summarize and update evidence on the existence of a distributive cycle, with a focus on the post-war US macroeconomy. We analyze activity and labor share series and their interaction in the frequency domain, and also employ stan-dard vector autoregressions. Results confirm the distributive cycle for the US post-war period. We contextualize results vis-`a-vis current debates: (1) we consider a financial cycle, to rebut the theoretical possibility of “pseudo-Goodwin” cycles, (2) demonstrate that a suppressed labor share and stagnation are com-patible with short run Goodwin cycles, and argue that this link presents the way forward for research on secular stagnation.
    Keywords: Distributive cycle; US labor share of income; neo-Goodwin. JEL Classification:E12; E24; E25; E32.
    Date: 2021
  40. By: Portes, Jonathan (King's College London)
    Abstract: I review trends in migration to the UK since the Brexit referendum, examining first the sharp fall in net migration from the EU that resulted, and then the recent more dramatic exodus of foreign-born residents during the covid-19 pandemic. I describe the new post-Brexit system, and review studies which attempt to estimate both the impact on future migration flows and on GDP and GDP per capita. Finally, I discuss the wider economic impact of the new system and some of the policy implications.
    Keywords: immigration, Great Britain, productivity
    JEL: E24 J24 J61 M53
    Date: 2021–05
  41. By: Chris D'Souza; James Fudurich; Farrukh Suvankulov
    Abstract: Firms with fewer than 100 workers employ about 65 percent of the total labour force in Canada. An online survey experiment was conducted with firms of this size in Canada in 2018–19. We compare the responses of small and micro firms to explore how their characteristics and economic outlooks relate to their size.
    Keywords: Business fluctuations and cycles; Firm dynamics
    JEL: C8 C83 D2 D22 E3 E32
    Date: 2021–07
  42. By: Elisa Palagi (Scuola Superiore Sant'Anna, Pisa (Italy)); Mauro Napoletano (Université Côte d'Azur; GREDEG CNRS; OFCE Sciences-Po; SKEMA Business School); Andrea Roventini (Institute of Economics and EMbeDS, Scuola Superiore Sant'Anna; Sciences Po, OFCE); Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France)
    Abstract: We build an agent-based model to study how coordination failures, credit constraints and unequal access to investment opportunities affect inequality and aggregate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each household is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redistribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effect on inequality.
    Keywords: income inequality, social mobility, credit constraints, coordination failures, effective demand, trickle-up growth, fiscal policy.
    JEL: C63 D31 E63 E21
    Date: 2021–06
  43. By: Alejandro Vicondoa; Andrea Gazzani
    Abstract: This paper proposes a novel methodology, the Bridge Proxy-SVAR, which exploits high-frequency information for the identification of the Vector Autoregressive (VAR) models employed in macroeconomic analysis. The methodology is comprised of three steps: (I) identifying the structural shocks of interest in high-frequency systems; (II) aggregating the series of high-frequency shocks at a lower frequency; and (III) using the aggregated series of shocks as a proxy for the corresponding structural shock in lower frequency VARs. We show that the methodology correctly recovers the impact effect of the shocks, both formally and in Monte Carlo experiments. Thus the Bridge Proxy-SVAR can improve causal inference in macroeconomics that typically relies on VARs identified at low-frequency. In an empirical application, we identify uncertainty shocks in the U.S. by imposing weaker restrictions relative to the existing literature and find that they induce mildly recessionary effects.
    Date: 2020
  44. By: Aditya Goenka (University of Birmingham); Lin Liu (University of Liverpool); Nguyen, Manh-Hung (Toulouse School of Economics)
    Abstract: This paper studies continuing optimal quarantines (can also be interpreted as lockdowns or self-isolation) in the long run if a disease (Covid-19) is endemic and immunity can fail, i.e. the disease has SIRS dynamics. We model how the disease related mortality affects optimal choices in a dynamic general equilibrium neoclassical growth framework. An extended welfare function that incorporates loss from mortality is used. Without welfare loss from mortality, in the long run even if there is continuing mortality, it is not optimal to impose a quarantine. We characterize the optimal decision of quarantines and how the disease endemic steady state changes with effectiveness of quarantine, productivity of working from home, rate of mortality from the disease, and failure of immunity. We also give the sufficiency conditions for economic models with SIRS dynamics - a class of models which are non-convex and have endogenous discounting so that no existing results are applicable.
    Keywords: Infectious diseases, Covid-19, SIRS model, mortality, quarantine, sufficiency conditions, lockdown, self-isolation
    JEL: E13 E22 D15 D50 D63 I10 I15 I18 O41 C61
    Date: 2021–06
  45. By: Tara M. Sinclair (The George Washington University); Zhoudan Xie (The George Washington University)
    Abstract: Regulatory policy can create economic and social benets, but poorly designed or excessive regulation may generate substantial adverse effects on the economy. In this paper, we present measures of sentiment and uncertainty about regulation in the U.S. over time and examine their relationships with macroeconomic performance. We construct the measures using lexicon-based sentiment analysis of an original news corpus, which covers 493,418 news articles related to regulation from seven leading U.S. newspapers. As a result, we build monthly indexes of sentiment and uncertainty about regulation and categorical indexes for 14 regulatory policy areas from January 1985 to August 2020. Impulse response functions indicate that a negative shock to sentiment about regulation is associated with large, persistent drops in future output and employment, while increased regulatory uncertainty overall reduces output and employment temporarily. These results suggest that sentiment about regulation plays a more important economic role than uncertainty about regulation. Furthermore, economic outcomes are particularly sensitive to sentiment around transportation regulation and to uncertainty around labor regulation.
    Keywords: Regulation, text analysis, NLP, sentiment analysis, uncertainty
    JEL: E2 E3 K2 O4
    Date: 2021–06
  46. By: Luca Benati; Thomas Lubik
    Abstract: Taking as data-generation process a standard DSGE model, we show via Monte Carlo that reliably detecting hysteresis, defined as the presence of aggregate demand shocks with a permanent impact on output, is a significant challenge, as model-consistent identification schemes (i) spuriously detect it with non-negligible probability when in fact the data-generation process features none, and (ii) have a low power to discriminate between alternative extents of hysteresis. We propose a simple approach to test for the presence of hysteresis, and to estimate its extent, based on the notion of simulating specific statistics (e.g., the fraction of frequency-zero variance of GDP due to hysteresis shocks) conditional on alternative values of hysteresis we impose upon the VAR, and then comparing the resulting Monte Carlo distributions to the corresponding distributions computed based on the actual data via the Kullback-Leibler divergence. Based on two alternative identification schemes, evidence suggests that post-WWII U.S. data are compatible with the notion of no hysteresis, although the most plausible estimate points towards a modest extent, equal to 7 per cent of the frequency-zero variance of GDP.
    Keywords: Hysteresis, permanent shocks, long-run restrictions, sign restrictions, Bayesian methods; Kullback-Leibler divergence
    JEL: E2 E3
    Date: 2021–05
  47. By: Qing Xu (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: Financial digitalization leads to the global payment revolution. M-payment is one of the essential digital payment methods that increase the efficiency of financial and economic activities, especially for developing countries. This chapter presents different development paths and adoption models of m-payment in East Asia & East Africa. China and South Korea are examples of third-party platform-led mobile payment models; Japan is an example of a bank-based mobile payment model; while East African countries implemented originally a mobile operator-led model and then moved toward a hybrid model with more banks and mobile operators involvement. It presents finally some concluding remarks and reflections on other world regions.
    Keywords: digitalize payments, mobile payment, mobile payment operational models, East Asia, East Africa
    JEL: E42 E44 G23
    Date: 2021–06
  48. By: Masud Alam
    Abstract: This paper examines the short- and long-run effects of U.S. federal personal income and corporate income tax cuts on a wide array of economic policy variables in a data-rich environment. Using a panel of U.S. macroeconomic data set, made up of 132 quarterly macroeconomic series for 1959-2018, the study estimates factor-augmented vector autoregression (FAVARs) models where an extended narrative tax changes dataset combined with unobserved factors. The narrative approach classifies if tax changes are exogenous or endogenous. This paper identifies narrative tax shocks in the vector autoregression model using the sign restrictions with Uhlig's (2005) penalty function. Empirical findings show a significant expansionary effect of tax cuts on the macroeconomic variables. Cuts in personal and corporate income taxes cause a rise in output, investment, employment, and consumption; however, cuts in personal taxes appear to be a more effective fiscal policy tool than the cut in corporate income taxes. Real GDP, employment, investment, and industrial production increase significantly and reach their maximum response values two years after personal income tax cuts. The effects of corporate tax cuts have relatively smaller effects on output and consumption but show immediate and higher effects on fixed investment and price levels.
    Date: 2021–06
  49. By: Luca Benati
    Abstract: Building upon the insight that M1 velocity is the permanent component of nominal interest rates–see Benati (2020)–I propose a novel, and straightforward approach to estimating the natural rate of interest, which is conceptually related to Cochrane’s (1994?) proposal to estimate the permanent component of GNP by exploiting the informational content of consumption. Under monetary regimes (such as inflation-targeting) making inflation I(0), the easiest way to implement the proposed approach is to (?) project the monetary policy rate onto M1 velocity–thus obtaining an estimate of the nominal natural rate–and then (??) subtract from this inflation’s sample average (or target), thus obtaining the real natural rate. More complex implementations based on structural VARs produce very similar estimates. Compared to existing approaches, the one proposed herein presents two key advantages: (1) under regimes making inflation I(0), M1 velocity is equal, up to a linear transformation, to the real natural rate, so that the natural rate is, in fact, observed; and (2) based on a high-frequency estimate of nominal GDP, the natural rate can be computed at the monthy or even weekly frequency. In the U.S., Euro area, and Canada the natural rate dropped sharply in the months following the collapse of Lehman Brothers. Likewise, the 1929 stock market crash was followed in the U.S. by a dramatic decrease in the natural rate.
    Keywords: Natural rate of interest; money velocity; structural VARs; unit roots; cointegration.
    Date: 2021–05
  50. By: Masato Takahashi (Bank of Japan); Takuji Kondo (Bank of Japan); Ko Munakata (Bank of Japan); Tomohiro Okubo (Bank of Japan); Yuto Iwasaki (Bank of Japan)
    Abstract: The Research and Statistics Department at the Bank of Japan compiles and publishes the Consumption Activity Index (CAI) to maintain a timely and accurate grasp of household consumption. This paper details revisions made to the compilation methodology of the CAI to improve its accuracy given recent changes in the consumption environment such as the expansion of e-commerce and the spread of the novel coronavirus (COVID-19). First, in addition to updating the weights on goods/services in accordance with the revision of the GDP statistics in December 2020, we replace the source statistics for items significantly impacted by COVID-19, such as food services and accommodations, to reflect the variations within each industry accurately. The revisions improve the performance of the CAI as measured by its correlation with and predictive power for household consumption in the Annual Report of National Accounts. Secondly, by incorporating "alternative data" based on credit card payments, we expand the range of online consumption captured by the CAI Plus, a supplementary index with the latitude to include newer goods/services, even where series of source statistics are short, in order to grasp shifts in consumption patterns promptly. COVID-19 has accelerated the expansion of online consumption, and digitalization is expected to entrench this shift in consumption from physical stores towards e-commerce in future. These trends point towards an increasing need to monitor the CAI Plus in addition to the original CAI going forward.
    Keywords: private consumption; business cycles
    JEL: E21 E32
    Date: 2021–07–07
  51. By: Robert S. Chirinko; Daniel J. Wilson
    Abstract: We study the conditions under which fiscal foresight – forward-looking agents anticipating future policy changes – distorts economic behavior through undesired intertemporal tradeoffs. Somewhat surprisingly, fiscal foresight is far from sufficient for policy and incentives to perversely affect firm behavior. Three necessary conditions are identified for distorting behavior: storable output, diminishing returns, and a non-competitive output market. These conditions suggest that the estimated impacts of fiscal policies may be sensitive to underlying economic characteristics and that policies targeted to specific firms or industries with unique characteristics may not be generalizable.
    Keywords: Fiscal foresight; intertemporal tradeoffs; real distortions; fiscal policy
    JEL: E62 H20
    Date: 2021–06–01
  52. By: Raphael Auer; David Tercero-Lucas
    Abstract: Employing representative data from the U.S. Survey of Consumer Payment Choice, we disprove the hypothesis that cryptocurrency investors are motivatedby distrust in fiat currencies or regulated finance. Compared with the general population, investors show no differences in their level of security concerns with either cash or commercial banking services. We find that cryptocurrency investors tend to be educated, young and digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged. We examine how investor characteristics vary across cryptocurrencies and show that owners of cryptocurrencies increasingly tend to hold their investment for longer periods.
    Keywords: digital currencies, cryptocurrencies, distributed ledger technology, blockchain, payments, digitalisation, banking, household finance, money, bitcoin, ether, xrp, bitcoin cash, litecoin, stellar, eos
    JEL: D14 D91 E42 G11 G12 G28 O33
    Date: 2021–07
  53. By: Gennaro Catapano (Bank of Italy); Francesco Franceschi (Bank of Italy); Valentina Michelangeli (Bank of Italy); Michele Loberto (Bank of Italy)
    Abstract: In this paper, we extend and calibrate with Italian data the Agent-based model of the real estate sector described in Baptista et al., 2016. We design a novel calibration methodology that is built on a multivariate moment-based measure and a set of three search algorithms: a low discrepancy series, a machine learning surrogate and a genetic algorithm. The calibrated and validated model is then used to evaluate the effects of three hypothetical borrower-based macroprudential policies: an 80 per cent loan-to-value cap, a 30 per cent cap on the loan-service-to-income ratio and a combination of both policies. We find that, within our framework, these policy interventions tend to slow down the credit cycle and reduce the probability of defaults on mortgages. However, with respect to the Italian housing market, we only find very small effects over a five-year horizon on both property prices and mortgage defaults. This latter result is consistent with the view that the Italian household sector is financially sound. Finally, we find that restrictive policies lead to a shift in demand toward lower quality dwellings.
    Keywords: agent based model, housing market, macroprudential policy
    JEL: D1 D31 E58 R2 R21 R31
    Date: 2021–06
  54. By: Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Zhao, Zhiqi (Cardiff Business School)
    Abstract: This paper studies the economy of Hong Kong through the lens of a small open economy DSGE model with a currency board exchange rate commitment. It assumes flexible prices and a banking system that provides credit to entrepreneurial household-firms; the money supply is fully backed by reserves under the currency board. We estimate and evaluate the model by Indirect Inference over the sample period of 1994Q1-2018Q3; we find that it matches the data behaviour, as represented by a VAR. We examined the economy’s volatility using bootstrapping of the model innovations, under both the estimated currency board model and a standard alternative regime with floating exchange rate and a Taylor rule; we found that Hong Kong welfare is higher in the currency board, which substantially reduces output volatility.
    Keywords: Currency Board, Monetary Policy, Hong Kong, Indirect Inference
    JEL: E52 F41 G5
    Date: 2021–06
  55. By: Fiaschi, Davide (University of Pisa); Tealdi, Cristina (Heriot-Watt University, Edinburgh)
    Abstract: We analyse the distribution and the flows between different types of employment (self-employment, temporary, and permanent), unemployment, education, and other types of inactivity, with particular focus on the duration of the school-to-work transition (STWT). The aim is to assess the impact of the COVID-19 pandemic in Italy on the careers of individuals aged 15-34. We find that the pandemic worsened an already concerning situation of higher unemployment and inactivity rates and significantly longer STWT duration compared to other EU countries, particularly for females and residents in the South of Italy. In the midst of the pandemic, individuals aged 20-29 were less in (permanent and temporary) employment and more in the NLFET (Neither in the Labour Force nor in Education or Training) state, particularly females and non Italian citizens. We also provide evidence of an increased propensity to return to schooling, but most importantly of a substantial prolongation of the STWT duration towards permanent employment, mostly for males and non Italian citizens. Our contribution lies in providing a rigorous estimation and analysis of the impact of COVID-19 on the carriers of young individuals in Italy, which has not yet been explored in the literature.
    Keywords: labour market flows, transition probabilities, first passage time, school-to-work transition, NLFET, COVID-19
    JEL: C18 C53 E32 E24 J6
    Date: 2021–06
  56. By: Kirill Borissov (European University at St. Petersburg, Russia); Mikhail Pakhnin (European University at St. Petersburg, Russia); Ronald Wendner (University of Graz, Austria)
    Abstract: In this paper, we propose an approach to describe the behavior of naïve agents with quasi-hyperbolic discounting in the neoclassical growth model. To study time-inconsistent decision making of an agent who cannot commit to future actions, we introduce the notion of sliding equilibrium and distinguish between pseudo-perfect foresight and perfect foresight. The agent with pseudo-perfect foresight revises both the consumption path and expectations about prices; the agent with perfect foresight correctly foresees prices in a sliding equilibrium and is naive only about their time inconsistency. We prove the existence of sliding equilibria for the class of isoelastic utility functions and show that generically consumption paths are not the same under quasi-hyperbolic and exponential discounting. Observational equivalence only holds in the well-known cases of a constant interest rate or logarithmic utility. Our results suggest that perfect foresight implies a higher long-run capital stock and consumption level than pseudo-perfect foresight.
    Keywords: Quasi-hyperbolic discounting; Observational equivalence; Time inconsistency; Naive agents; Sliding equilibrium; Perfect foresight.
    JEL: D15 D91 E21 O40
    Date: 2021–08
  57. By: Richard Cóndor
    Abstract: The Home Affordable Modification Program (HAMP) was a loan modification program introduced in 2009, in the U.S., to assist highly indebted homeowners with avoiding foreclosure. This program also encouraged private lenders to offer more sustainable modifications. This paper studies the role of HAMP in preventing higher foreclosures rates during and after the Great Recession, in the context of a general-equilibrium heterogeneous-agents model with two types of households (Borrowers and Savers), uninsurable idiosyncratic risk, and both private and HAMP modifications. The main result is that, without HAMP, the peak in the foreclosure rate could have been 50% larger (3.2 percent vs 2.2 percent in data).
    JEL: G51 E44 C61
    Date: 2021–06
  58. By: Takatoshi Sasaki (Bank of Japan); Tomoya Sakata (Bank of Japan); Yui Mukoyama (Bank of Japan); Koichi Yoshino (Bank of Japan)
    Abstract: This study estimates the growth rate of China's economy until 2035 based on the assumption that productivity will continue converging to that of frontier economies and assesses the feasibility of such an outcome. Our estimates imply that the size of China's economy can potentially double by 2035 as long as the country follows the "catch-up" process achieved by other East Asian economies. However, given the circumstances that China faces, such as the need to maintain agricultural output levels, limits to the growth of its export-dependent manufacturing industry, and the aging of the population, the obstacles to following the other East Asian economies' catch-up process are substantial. To overcome these obstacles and proceed with catch-up, China will need to boost TFP growth by promoting innovation and making steady progress in addressing institutional and resource allocation issues.
    Keywords: China; Catch-up Process (Convergence); Aging of the Population; Savings Rate; Total Factor Productivity (TFP) Growth
    JEL: E21 E22 J11 O11 O47
    Date: 2021–06–30
  59. By: Seongeun Kim; Michèle Tertilt; Minchul Yum
    Abstract: East Asians, especially South Koreans, appear to be preoccupied with their offspring’s education—most children spend time in expensive private institutes and in cram schools in the evenings and on weekends. At the same time, South Korea currently has the lowest total fertility rate in the world. In this paper, we propose a theory with status externalities and endogenous fertility that connects these two facts. Using a quantitative heterogeneous-agent model calibrated to Korea, we find that fertility would be 16% higher in the absence of the status externality. Furthermore, childlessness in the poorest quintile would fall from five to less than one percent. We then explore the effects of various government policies. A pro-natal transfer increases fertility and reduces education while an education tax reduces both education and fertility, with heterogeneous effects across the income distribution. The policy mix that maximizes the current generation’s welfare consists of an education tax of 12% and moderate pro-natal transfers—a monthly child allowance of 3% of average income for 18 years. This would raise average fertility by about 5% and decrease education spending by 16%. Although this policy increases the welfare of the current generation, it may not do the same for future generations as it lowers their human capital.
    Keywords: Fertility, Status, Externality, Education, Childlessness, Korea
    JEL: D13 E24 I2 J10 J13 D62 O40
    Date: 2021–06
  60. By: Hasan, Iftekhar; Manfredonia, Stefano; Noth, Felix
    Abstract: This paper investigates the critical role of religion in the economic recovery after high-impact natural disasters. Exploiting the 2005 hurricane season in the southeast United States, we document that establishments in counties with higher religious adherence rates saw a significantly stronger recovery in terms of productivity for 2005-2010. Our results further suggest that a particular religious denomination does not drive the effect. We observe that different aspects of religion, such as adherence, shared experiences from ancestors, and institutionalised features, all drive the effect on recovery. Our results matter since they underline the importance of cultural characteristics like religion during and after economic crises.
    Keywords: establishment-level productivity,natural disasters,recovery,religion
    JEL: E23 E32 Z12
    Date: 2021
  61. By: Elisa Guglielminetti (Bank of Italy); Concetta Rondinelli (Bank of Italy)
    Abstract: Following the outbreak of the COVID-19 pandemic, household consumption fell dramatically and the propensity to save rose to unprecedented levels. In this paper we investigate the drivers of households' behaviour in Italy from a macro and microeconomic perspective. At the aggregate level, we find that only half of the slump in private consumption can be explained by the deterioration in economic conditions. The residual contribution can be traced back to other pandemic-related factors - such as the fear of infection, the lockdown policies and increased uncertainty about the future - whose relevance varies between expenditure categories. By complementing the macro analysis with microdata from the Bank of Italy's Special Survey of Italian Households, we find that, apart from any economic reasons, spending is held back more by fear of infection and uncertainty about the future than by the restrictive measures. Households where the head is self-employed are mainly discouraged by the fear of infection and uncertainty, whereas those where the head is unemployed are more concerned about their economic situation.
    Keywords: Covid-19, household consumption, saving, fear of contagion, uncertainty, lockdown policies
    JEL: D14 D15 E21
    Date: 2021–06
  62. By: Mkadmi, Jamel Eddine; Bakari, Sayef; Othmani, Ameni
    Abstract: The aim of this work is to study the impact of tax revenues and domestic investments on social and economic well-being in Tunisia over the period 1976 – 2018. This study is based on co-integration analysis and Vector Error Correction Model. Empirical results indicate that in the long run domestic investment has a negative impact on economic growth, while the impact of tax revenues is positive. Also, results indicate that domestic investment and economic growth influence positively tax revenues. However, Tax revenue and economic growth don’t have any effect on domestic investment in the long run. It is seen that in Tunisia the strategy policy of tax revenue is not safe for domestic investment and the strategy policy of domestic investment is not safe for economic growth. Therefore, we should encourage immediate intervention to take the necessary measures before the situation causes a greater disaster.
    Keywords: Tax revenue; Domestic investment; Economic growth, Tunisia
    JEL: E62 H21 H26 O47 O55
    Date: 2021–02
  63. By: Havlik, Annika; Heinemann, Friedrich; Helbig, Samuel; Nover, Justus
    Abstract: We use event study regressions to compare the impact of EU monetary versus fiscal policy announcements on government bond spreads of ten euro member countries. Our motivation is to evaluate which of the two players - the ECB or the EU fiscal level - has been more crucial for the stabilization of euro sovereign bond markets in the crisis environment of the pandemic. This question is of substantial relevance to assess potential risks for the effective independence of the ECB in the future. Our key result is that the pandemic monetary emergency measures through the PEPP have been highly effective, whereas fiscal rescue announcements had much less impact. We document a smaller and statistically significant spread-reducing effect only for the announcement of the 'Next Generation EU' program. In contrast, a temporary relaxation of European fiscal rules through the activation of the emergency-escape clause under the Stability and Growth Pact is associated with rising spreads. Our results have an unpleasant implication for the debate on a looming fiscal dominance of the ECB in the presence of rising public debt levels as so far, the stabilization of sovereign bond markets appears to hinge largely on the Eurosystem's role as a massive buyer of high-debt countries' sovereign bonds.
    Keywords: Sovereign spreads,monetary policy,fiscal policy,fiscal dominance,event analysis
    JEL: E63 H12 H63 H81
    Date: 2021
  64. By: Cerqua, Augusto; Letta, Marco
    Abstract: This paper assesses the impact of the first wave of the pandemic on the local economies of one of the hardest-hit countries, Italy. We combine quarterly local labor market data with the new machine learning control method for counterfactual building. Our results document that the economic effects of the COVID-19 shock are dramatically unbalanced across the Italian territory and spatially uncorrelated with the epidemiological pattern of the first wave. The heterogeneity of employment losses is associated with exposure to social aggregation risks and pre-existing labor market fragilities. Finally, we quantify the protective role played by the labor market interventions implemented by the government and show that, while effective, they disproportionately benefitted the most developed Italian regions. Such diverging trajectories and unequal policy effects call for a place-based policy approach that promptly addresses the uneven economic geography of the current crisis.
    Keywords: impact evaluation,counterfactual approach,machine learning,local labor markets,COVID-19,Italy
    JEL: C53 D22 E24 R12
    Date: 2021
  65. By: Varadi, Alexandra (Bank of England)
    Abstract: Using matched microdata for the UK, I estimate two distinct channels via which credit supply shocks affect mortgage debt: one that operates through price conditions in credit markets; and another that operates through non-price credit conditions and affects the quantity of credit supplied by lenders. I find substantial heterogeneity in the different channels by age, financial situation, borrower type and income. Young households and home-owners respond exclusively to non-price credit conditions, in particular to changes in the supply of riskier lending. First-time buyers, middle-income households and middle-aged borrowers increase debt following shocks to either type of credit conditions. Debt responses of financially constrained borrowers are amplified by a simultaneous loosening in mortgage spreads and in credit availability at high loan to value or high loan to income ratios. In aggregate, household leverage responds more strongly to supply shocks that change the quantity of credit, as they affect households across the distribution, both at the intensive and at the extensive margin. But a loosening in price and non-price credit conditions simultaneously or a contraction in multiple price indicators at a time can also fuel rapid credit growth.
    Keywords: Household finance; bank lending; credit conditions; mortgages
    JEL: D14 E44 G21 G51 O16
    Date: 2021–06–25
  66. By: Hindriks, Jean (Université catholique de Louvain, LIDAM/CORE, Belgium); Madio, Leonardo; Serse, Valerio (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We study the impact of the Belgium lockdown on retail prices using a unique dataset tracking daily prices and promotions for various products in different stores and retail chains.Two distinctive features of our analysis are the ban on promotions during the first two weeks of the lockdown, and the presence of local pricing retail chains (LP) competing with uniform (national) pricing retail chains (UP). We decompose the price changes into the regular price, the frequency, and the size of promotions. The sale price (i.e., the price paid by consumer purchasing on “sale”) increased by 7% within two weeks and by 2.5% within three months. We then provide an heterogeneity analysis of the regular price variation across stores, retailers, products, and over time. We show that LP chains reacted the most to the lockdown with spatial heterogeneity. The heterogeneity in price response also suggests that the price increase was not driven by cost inflation.
    Keywords: COVID-19, pricing, lockdown, retailers
    JEL: D22 E30 E31 L11
    Date: 2021–05–01
  67. By: David Hirshleifer; Jinfei Sheng
    Abstract: We study how the arrival of macro-news affects the stock market’s ability to incorporate the information in firm-level earnings announcements. Existing theories suggest that macro and firm-level earnings news are attention substitutes; macro-news announcements crowd out firm-level attention, causing less efficient processing of firm-level earnings announcements. We find the opposite: the sensitivity of announcement returns to earnings news is 17% stronger, and post-earnings announcement drift 71% weaker, on macro-news days. This suggests a complementary relationship between macro and micro news that is consistent with either investor attention or information transmission channels.
    JEL: E44 G02 G12 G14 G4
    Date: 2021–06
  68. By: Cristiana Benedetti-Fasil (European Commission - JRC); Giammario Impullitti (School of Economics, University of Nottingham); Omar Licandro (School of Economics, University of Nottingham); Petr Sedlacek (Department of Economics, Oxford University)
    Abstract: Growth and business cycles have a long tradition of being studied separately. However, events such as the Great Recession raise concerns that severe downturns may have detrimental implications for growth. If so, what policies may help alleviate such long-lasting effects of large recessions? To study these questions, we develop a tractable general equilibrium model of endogenous growth featuring heterogeneous firms, financial constraints and a range of innovation policies. A preliminary analysis suggests that counter-cyclical tax credits may serve as a powerful automatic stabilizer alleviating the long-lasting negative effects of severe cyclical downturns.
    Keywords: Firm dynamics, innovation policy, endogenous growth, business cycles
    JEL: F12 F13 O31 O41
    Date: 2021–06
  69. By: Mark Aguiar; Manuel Amador; Cristina Arellano
    Abstract: We provide sufficient conditions for the feasibility of a Pareto-improving fiscal policy when the risk-free interest rate on government bonds is below the growth rate. We do so in the class of incomplete markets models pioneered by Bewley-Huggett-Aiyagari, but we allow for an arbitrary amount of ex ante heterogeneity in terms of preferences and income risk. We consider both the case of dynamic inefficiency as well as the more plausible case of dynamic efficiency. The key condition is that seigniorage revenue raised by government bonds exceeds the increase in the interest rate times the initial capital stock. The Pareto improving fiscal policies weakly expand every agent’s budget set at every point in time. The policies improve risk sharing and potentially guide the economy to a more efficient level of capital. In simulations, we find that the government must rely on moderate levels of debt issuance along the transition to the new steady state.
    Keywords: Government debt; Fiscal policy; Heterogeneous agents
    JEL: D20 E20 H20
    Date: 2021–06–28
  70. By: Freddy CASTRO; Daniela LONDOÑO; Álvaro José PARGA CRUZ; Camilo PEÑA GÓMEZ
    Abstract: Periodos de reducción de ingresos como los generados por la pandemia del Covid19, resaltan las bondades de que los microempresarios ahorren. Utilizando los datos de la Encuesta de Micronegocios del DANE de 2019, se estimaron modelos probit con los que se identificaron las variables asociadas con la decisión de que un micronegocio en Colombia ahorre y el vehículo seleccionado para hacerlo. Se encontró que la educación financiera, la asociatividad empresarial, el uso de internet para realizar transacciones y el monto de ventas tienen una correlación positiva con la probabilidad de que un microempresario ahorre en un mecanismo formal. Adicionalmente, variables como la aceptación de medios de pago electrónicos y la formalidad empresarial también favorecieron el uso de instrumentos de depósito formales.
    Keywords: ahorro, inclusión financiera, microempresarios, educaciónfinanciera, capital social empresarial.
    JEL: E21 G38 O16
    Date: 2021–06–30
  71. By: Alessandro Barattieri; Patrice Borda; Alberto Brugnoli; Martino Pelli; Jeanne Tschopp
    Abstract: We study the short-run, dynamic employment effects of natural disasters. We exploit monthly data for over 90 3-digits NAICS industries and 78 Puerto Rican counties over the period 1995-2017. Our exogenous measure of exposure to natural disasters is computed using the maximum wind speed recorded in each county during each hurricane. Using panel local projections, we find that after the “average” hurricane, employment and wages fall by 1% on average. The effects peak after six months and disappear within two years. Across industries, we find substantial heterogeneity in the employment responses. This heterogeneity can be partly explained by input-output linkages. Nous étudions les effets dynamiques à court terme des catastrophes naturelles sur l'emploi. Nous exploitons des données mensuelles pour plus de 90 industries NAICS à 3 chiffres et 78 comtés portoricains sur la période 1995-2017. Notre mesure exogène de l'exposition aux catastrophes naturelles est calculée en utilisant la vitesse maximale du vent enregistrée dans chaque comté lors de chaque ouragan. À l'aide de projections locales en panel, nous constatons qu'après un ouragan " moyen ", l'emploi et les salaires chutent de 1 % en moyenne. Les effets culminent après six mois et disparaissent dans les deux ans. Entre les industries, nous trouvons une hétérogénéité substantielle dans les réponses de l'emploi. Cette hétérogénéité peut s'expliquer en partie par les liens entre les entrées et les sorties.
    Keywords: Natural Disasters,Employment,High-Frequency Data,Local Projections, Catastrophes naturelles,Emploi,Données haute fréquence,Projections locales
    JEL: Q54 E24
    Date: 2021–06–22
  72. By: Xingyuan Yao (Zhejiang Financial College)
    Abstract: This paper investigates the impact of the COVID-19 pandemic on economic stimulus policy inequality. Using the standard DID and continuous variable DID methods with data from 156 economies, empirical results show that, deaths tolls have a greater impact on economic stimulus policies than cases; the cumulative effect is more influential to economic stimulus than the short-term effect. Among other additional socio-economic determinants, economic development level is robustly positively correlated with the economic stimulus intensity, while the medical condition is negatively correlated. Population density and proportion of aging population are positively correlated with the intensity of fiscal policies. Heterogeneity tests show that while economic policies are used in developed economies more often, restrictive measures in developing countries may be used as a substitute for economic stimulus. Our results show that the impact of the epidemic may have increased economic inequality to some extent due to the impact of policy capabilities, requiring international coordination and assistance to low - and middle-income countries.
    Keywords: COVID-19 Pandemic, Economic stimulus policy, Economic inequality, Quasi-natural experiment
    JEL: O23 E50 E62
    Date: 2021–07
  73. By: Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
    Abstract: We investigate the effect of search frictions on labor market sorting by constructing a model which is in line with recent evidence that employers collect a pool of applicants before interviewing a subset of them. In this environment, we derive the necessary and sufficient conditions for sorting in applications as well as matches. We show that positive sorting is obtained when production complementarities outweigh a force against sorting measured by a quality-quantity elasticity. Interestingly, we find that the required degree of production complementarity for positive sorting is increasing in the number of interviews: it ranges from square-root-supermodularity if each firm can interview a single applicant to log-supermodularity if each firm can interview all its applicants.
    Keywords: sorting, complementarity, search frictions, information frictions, heterogeneity
    JEL: D82 D83 E24
    Date: 2021–06–18
  74. By: Christian R. Proaño; Tomasz Makarewicz
    Abstract: The reluctance of a significant number of individuals in the current COVID-19 pandemic to adhere to social distancing measures - and even to get vaccinated - seems to be one of the major obstacles for the long-term success of public health policies around the world. Against this background we study the impact of boundedly rational perceptions for the dynamics of epidemics such as the COVID-19 pandemic in a standard epidemic model extended by a stylized macroeconomic dimension similar to Atkeson et al. (2021). We show through which channels misperceptions or even “scepticism” concerning the infectiousness of the decease or its mortality rate may undermine in the long-run the effectiveness of lockdowns and other public health policies.
    Keywords: Endogenous Cycles, COVID-19 Pandemic, Bounded Rationality, Heterogenous Expectations
    JEL: E3 E7 I1
    Date: 2021–06
  75. By: Flores Zendejas, Juan; Nodari, Gianandrea
    Abstract: This chapter analyzes the role of central banks during the first years of the Great Depression. The literature has focused on central banks' loss of autonomy and on the implementation of innovative, countercyclical monetary policies which fostered economic recovery but also led to higher rates of inflation and exchange rate volatility. However, we show that these kinds of policies had been foreseen by foreign advisors before and during the crisis. Policymakers had been reluctant to implement them due to the fear of a loss of credibility for the gold standard regime. Furthermore, we show that in most cases this shift was short-lived and central banks could avert, to a large extent, the problem of fiscal dominance. Central banks became effective actors, channeling credit to the real economy and also supporting the emergence of state institutions that would promote the development of local industry.
    Keywords: Central banking, Great Depression, Gold standard, Money doctors, Financial crises
    JEL: N0 N26 N16 F38
    Date: 2021
  76. By: Ester Faia; Marianna Kudlyak; Ekaterina Shabalina
    Abstract: Occupational specificity of human capital motivates an important role of occupational reallocation for the economy’s response to shocks and for the dynamics of inequality. We introduce occupational mobility, through a random choice model with dynamic value function optimization, into a multi-sector/multi-occupation Bewley (1980)- Aiyagari (1994) model with heterogeneous income risk, liquid and illiquid assets, price adjustment costs, and in which households differ by their occupation-specific skills. Labor income is a combination of endogenous occupational wages and idiosyncratic shock. Occupational reallocation and its impact on the economy depend on the transferability of workers’ skills across occupations and occupational specialization of the production function. The model matches well the statistics on income and wealth inequality, and the patterns of occupational mobility. It provides a laboratory for studying the short- and long-run effects of occupational shocks, automation and task encroaching on income and wealth inequality. We apply the model to the pandemic recession by adding an SIR block with occupation-specific infection risk and a ZLB policy and study the impact of occupational and aggregate labor supply shocks. We find that occupational mobility may tame the effect of the shocks but amplifies earnings inequality, as compared to a model without mobility.
    Keywords: Occupational Mobility; Heterogeneous Agents; Skills; Income and Wealth Inequality; Discrete Choice Optimization
    JEL: J22 J23 J31 J62 E21 D31
    Date: 2021–06–10
  77. By: Bakari, Sayef; Benzid, Lamia
    Abstract: This study examines the impact of corruption, investment freedom, and democracy on domestic investment in countries in the Middle East and North Africa. In order to achieve this, the GMM model was used to test the annual data from 2011 to 2017. The empirical results show that corruption has a negative impact on domestic investment, but the degree of investment freedom and democracy have a positive impact on domestic investment. One of the major contributions of this work is to assert the requirement to wheel more awareness to the direct link between corruption, governance, investment freedom, and domestic investment.
    Keywords: Corruption; Degree of Freedom to Invest; Democracy; Domestic Investment; MENA Countries
    JEL: E10 E22 H10 H50 O16
    Date: 2021
  78. By: European Fiscal Board (EFB)
    Abstract: The European Fiscal Board (EFB) published on 16 June 2021 the assessment of the appropriate fiscal stance for the euro area in 2022. The report recommends a gradual withdrawal of the fiscal measures implemented since the onset of the crisis and considers the fiscal stance in 2022 implied by current policies appropriate. The rollout of the Covid-19 vaccines and the strong policy response have contributed to the rebound of the economy in the single currency area, after contracting by almost 7% in 2020. The rebound is sustained by the improving global economic outlook, the release of pent up consumer spending, the implementation of the EU’s Recovery and Resilience Facility (RRF) and still substantial fiscal and monetary support. While the recovery is broad-based across the entire euro area, the forecasts for 2022 differ for each country on the basis of the particular impact of the health crisis, structural legacies and the sectoral composition of their economies. Professor Niels Thygesen, Chair of the EFB, argued: “In view of the rapid recovery from a deep downturn, an assessment of the fiscal stance must factor in the operation of automatic stabilisers and the unwinding of emergency measures. Considering that conventional indicators underestimate the strength of fiscal support, the euro area fiscal stance in 2022 implied by current policies appears appropriate.” As the health crisis recedes, beyond its overall size, fiscal support should shift towards the implementation of more targeted initiatives that promote sustainable long-term growth and support the need to achieve the digital and green transitions. The EFB recommends a swift reform of the EU economic governance framework to ensure a smooth normalisation of fiscal and monetary policies after the deactivation of the severe economic downturn clause in 2023.
    Date: 2021–06–16
  79. By: Marta Areosa; Waldyr Areosa; Vinicius Carrasco
    Abstract: We use a sticky-dispersed information model to analyze how price setting changes when the interest rate is understood as a public signal that informs the view of the monetary authority on the current state of the economy. Firms use information to infer one another´s prices, as they face strategic complementarity on pricing decision. We build a counterfactual to isolate the informational effect of the interest rate and study its influence on inflation dynamics. We also obtain the optimal parameters of the policy instrument (regarding three different efficiency criteria), considering that the central bank knows that firms take information from its actions.
    Date: 2021–06
  80. By: Weinstein, Russell (University of Illinois at Urbana-Champaign)
    Abstract: Using mobility report card data, I show graduates of less selective universities experience more adverse impacts of graduating in a recession. I highlight one mechanism: during recessions employers stop recruiting at less selective universities. Using a unique dataset of employer recruiting strategies for 65 prestigious firms, I show they are more likely to stop recruiting at universities that are less selective, smaller, farther, and have less affluent students. Firms also resume recruiting less quickly at less selective and farther campuses. Finally, losing access to prestigious firms while on campus is associated with an additional 13% decline in the 2014 income success rate.
    Keywords: Great Recession, recent college graduates, employer recruiting, university selectivity
    JEL: I26 I23 J23 J31 E32
    Date: 2021–06
  81. By: Böck, Maximilian
    Abstract: This paper studies how non-rational risk shocks affect the macroeconomy. Using a novel identification design which exploits survey data on expectations of financial executives in the US, I identify non-rational risk shocks via distortions in beliefs. Belief distortions are measured through surprises in beliefs of credit spreads, defined as the difference between subjective and objective forecasts. They are then used as a proxy for exogenous variation in the risk premium. Belief distortions elicit due to overreaction of credit spreads, eventually leading to exaggerated beliefs on financial markets. Results indicate that the constructed shocks have statistically and economically meaningful effects. This has sizeable consequences for the U.S. economy: A positive non-rational risk shock moves credit spreads remarkably while real activity and the stock market decline.
    Keywords: Business Cycles, Risk Shocks, Belief Distortions
    Date: 2021–06
  82. By: Llamosas-Rosas Irving;Rangel González Erick
    Abstract: Changes on consumption of Mexican households generated by unexpected shocks in income, both permanent and transitory, are analyzed during the period 2000-2016 following the methodology developed by Blundell et al. (2008), which allows to evaluate which hypothesis on the response of consumption is more in line with the empirical evidence in Mexico: permanent income, complete markets, or partial insurance. The results suggest the presence of partial insurance on consumption in the face of permanent income shocks at the national level, although results are also consistent with the permanent income hypothesis. However, differences are found between regions when replicating the same analysis. Regarding temporary shocks, the coefficient of the effect of income shocks on consumption is not statistically significant at the national or regional level, which suggests a consumption smoothing by households in the face of temporary changes in their income.
    JEL: D12 D31 E21
    Date: 2021–07
  83. By: Ellis Scharfenaker, Duncan K. Foley
    Abstract: We examine the equilibrium wage and employment outcomes in a labor market model comprised of informationally constrained workers and employers whose labor market interactions have a non-zero impact on wages. The model endogenizes employment interactions between workers and employers in terms of a quantal response equilibrium and produces an equilibrium level of frictional unemployment as a statistical feature of a decentralized labor market. Shocks to the economy can produce short-run equilibrium involuntary unemployment arising from unfulfilled expectations. Even after agents align their expectations with market outcomes, unless they also adjust their expectations of the scale of statistical fluctuations in wages, a negative shock to demand can result in higher levels of equilibrium unemployment. In this way the model exhibits a particular type of non-neutrality of money in the short-run and long-run.
    Keywords: Unemployment, Unfulfilled expectations, Wage distribution, Labor market, Statistical equilibrium JEL Classification: C18, D80, E10, E24, E70
    Date: 2021
  84. By: Loretta J. Mester
    Abstract: I thank Kasper Roszbach and the Norges Bank for inviting me to present at this workshop on low-interest-rate and unconventional monetary policy. I applaud the Norges Bank for spurring research on this topic. In a period of less than two decades, the world has experienced two historically deep negative shocks to the global economy and financial system. While their causes were different, the global financial crisis of 2008 and the COVID-19 pandemic crisis each necessitated the intervention of central banks in ways not contemplated in earlier decades. Lessons from the actions taken during the 2008 crisis and recovery and from the large body of research that was generated thereafter helped to inform economic policy during the pandemic. I anticipate that our experience over the past year and a half, as well as research driven by that experience, will help guide policymakers now and in the future. Today, I will share my thoughts on the relationship between monetary policy and financial stability in a low-interest-rate environment. These thoughts are my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.
    Keywords: low interest rates; monetary policy
    Date: 2021–06–22
  85. By: Eric S. Rosengren
    Abstract: Vaccination rates have been better than expected in much of the U.S., and that’s led to a more rapid reopening of the economy than was forecast earlier this year. Forecasts of gross domestic product (GDP) have been significantly upgraded since the start of this year, with the median forecast of Federal Open Market Committee members at 7% growth for 2021. That is unusually high for a U.S. recovery. Despite the positive signs, we still have quite a way to go before we reach full employment, given the most recent unemployment rate was 5.8%, substantially above the 4.5% FOMC participants project by the end of 2021. One reason for that is a slower recovery in public-facing services, including tourism, hospitality, restaurants, and retail. Inflation is higher, but spikes in food and energy prices explain much of this, and those will moderate. Increased inflation can also be attributed to a variety of things that have happened over the last six months because of the unusual facets of coming out of a pandemic – including shortages in a variety of goods and services that we don’t normally experience during a recovery. Low rates and a high degree of stimulus have been appropriate, but it is important over time to watch for conditions that potentially raise financial stability issues.
    Keywords: economic recovery; economic conditions; payroll employment; inflation rate
    Date: 2021–06–23
  86. By: Choi, Hoon
    Abstract: This paper examines how sales of local small businesses can be promoted through COVID-19 stimulus payments. In the beginning of April, 2020, Gyeonggi provincial government in Korea implemented a stimulus payment program worth up to 500 thousand Korean Won (416 US dollars) per person to encourage local consumption. By exploiting unique features of the stimulus payments that restricted the use of the payments in the municipality of residence at establishments accepting local currency, the paper identifies the treatment effect of the stimulus payments, taking a difference-in-difference-in-differences approach. The results suggest that the stimulus payments led to significant increases in card spending in establishments accepting local currency, relative to other establishments. The estimated overall spending effect of 4.1% persisted over three weeks, and the effect is heterogeneous across sectors. While the estimated spending effect of the stimulus payments is larger among sectors such as groceries, furniture, and beauty, sectors such as restaurants, leisure, and travel that experienced substantial sales losses did not gain much from the stimulus payments. This suggests that targeting sectors the most severely affected can be a more effective policy measure in terms of alleviating the gaps in COVID-19 induced economic losses across sectors.
    Keywords: COVID19 stimulus payments; Card transaction data; Local small businesses; Korea; Difference-in-difference-in-differences.
    JEL: D12 E21 H24
    Date: 2021–06–30
  87. By: Francesco Furlanetto; Antoine Lepetit; Ørjan Robstad; Juan Rubio-Ramírez; Pal Ulvedal
    Abstract: In this paper we identify demand shocks that can have a permanent effect onoutput through hysteresis effects. We call these shocks permanent demand shocks.They are found to be quantitatively important in the United States, in particularwhen the Great Recession is included in the sample. Permanent demand shocksdriven recessions lead to a permanent decline in employment and investment (including R&D investment) while output per worker is largely unaffected. We findstrong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects theleast productive workers.
    Date: 2021–06
  88. By: Zenghelis, Dimitri
    Abstract: The global economy is facing an unprecedented challenge, with the risk of a protracted depression following the response to COVID-19. In 2014, I argued here that macroeconomic conditions made it a relatively favorable time to kick-start investments in a resource-efficient, low carbon economy. Yet the opportunity was, for the most part, squandered. Failure to utilize active fiscal policy contributed to growing private indebtedness, limited productivity and wage growth and widened inequality helping erode trust in institutions. All the while, greenhouse gas emissions continued to rise. This time, there are grounds for optimism that a more coordinated response toward generating an ambitious transition to net zero emissions might contribute to a strong, sustainable, and resilient recovery. This article is categorized under: Climate Economics > Economics of Mitigation.
    Keywords: Covid; economy; invest; policy; recovery; sustainable; ES/R009708/1
    JEL: J1
    Date: 2021–07–01
  89. By: Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
    Abstract: We build an agent-based model to study how coordination failures, credit constraints and unequal access to investment opportunities affect inequality and aggregate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each household is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redistribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effects on inequality.
    Keywords: Income inequality; social mobility; credit constraints; coordination failures; effective demand; trickle-up growth; fiscal policy.
    Date: 2021–06–26
  90. By: Cahen-Fourot, Louison
    Abstract: In the perspective of a social-ecological transformation, this article sets the discussion on the future of central banking back in the context of ecological limits to growth. It first surveys the literature on proposals to introduce sustainability in central banking. It then draws from the conceptualization of money as a social relation to discuss central banks’ mandates, independence, governance and instruments. This article therefore adopts a normative stance. Central banks should be politically accountable with a renewed governance and committees composition. In line with the endogenous nature of money, their mandate needs not to include price stability and should focus on fostering full employment, social cohesion and relevant economic development within the ecological limits of the planet. Three policy instruments are then discussed to shift the nature of central banks’ operations responsive to prescriptive: differentiated target interest rates, credit control and qualitative tightening in assets purchasing programs.
    Keywords: monetary policy; central banking; sustainability; social-ecological transformation; post-growth; endogenous money
    Date: 2021–06–30
  91. By: Bent Jesper Christensen (Aarhus University and CREATES and the Dale T. Mortensen Center); Mads Markvart Kjær (Aarhus University and CREATES); Bezirgen Veliyev (Aarhus University and CREATES and the Danish Finance Institute)
    Abstract: Using high-frequency intraday futures prices to measure yield volatility at selected maturities, we find that daily yield curves carry incremental information about future interest rate risk at the long end, relative to that contained in the time series of historical volatilities. Some of the information in the yield curves is not captured by standard affine models. At the short end, time series based forecasts outperform yield curve based forecasts. Both provide utility to a risk averse investor in longerterm instruments, not in short, relative to a random walk. Our results point to the existence of an unspanned volatility factor.
    Keywords: Term structure models, Volatility, Forecasting, Kalman filtering, Yield curve
    JEL: C58 E43 G12
    Date: 2021–07–01
  92. By: Robinson, Sherman; Levy, Stephanie; Hernández, Victor; Davies, Rob; Gabriel, Sherwin; Arndt, Channing; van Seventer, Dirk; Pleitez, Marcelo
    Abstract: This paper considers different approaches to modelling the economic impact of the Covid-19 pandemic/lockdown shocks. We review different modelling strategies and argue that, given the nature of the bottom-up recession caused by the pandemic/lockdowns, simulation models of the shocks should be based on a social accounting matrix (SAM) that includes both disaggregated sectoral data and the national accounts in a unified framework. SAM-based models have been widely used to analyze the impact of natural disasters, which are comparable to pandemic/lockdown shocks. The pandemic/lockdown shocks occurred rapidly, in weeks or months, not gradually over a year or more. In such a short period, adjustments through smooth changes in wages, prices and production methods are not plausible. Rather, initial adjustments occur through changes in quantities, altering demand and supply of commodities and employment in affected sectors. In this environment, we use a linear SAM-multiplier model that specifies a fixed-coefficient production technology, linear demand system, fixed savings rates, and fixed prices. There are three different kinds of sectoral shocks that are included in the model: (1) changes in demand due to household lockdown, (2) changes in supply due to industry lockdown, and (3) changes in demand due to induced macro shocks. At the detailed industry level, data are provided for all three shocks and the model imposes the largest of the three. We applied the model on a monthly time step for the period March to June 2020 for four countries: US, UK, Mexico, and South Africa. The models closely replicate observed macro results (GDP and employment) for the period. The results provide detailed structural information on the evolution of the different economies month-by-month and provide a framework for forward-looking scenario analysis. We also use the SAM-multiplier model to estimate the macro stimulus impacts of policies to support affected households. The model focuses attention on the structural features of the economy that define the multiplier process (who gets the additional income and what do they do with it) and provides a more nuanced analysis of the stimulus impact of income support programs than can be done with aggregated macro models.
    Keywords: MEXICO; LATIN AMERICA; NORTH AMERICA; UNITED STATES; USA; AMERICAS; UNITED KINGDOM; EUROPE; SOUTH AFRICA; SOUTHERN AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; Coronavirus; coronavirus disease; Coronavirinae; COVID-19; models; modelling; pandemics; economic impact; employment; gross national product; households; policies; recession; Social Accounting Matrix (SAM); SAM multipliers; lockdown; lockdown shocks; lockdown policies
    Date: 2021
  93. By: Maria Ludovica Drudi (Bank of Italy); Stefano Nobili (Bank of Italy)
    Abstract: The paper develops an early warning system to identify banks that could face liquidity crises. To obtain a robust system for measuring banks’ liquidity vulnerabilities, we compare the predictive performance of three models – logistic LASSO, random forest and Extreme Gradient Boosting – and of their combination. Using a comprehensive dataset of liquidity crisis events between December 2014 and January 2020, our early warning models’ signals are calibrated according to the policymaker's preferences between type I and II errors. Unlike most of the literature, which focuses on default risk and typically proposes a forecast horizon ranging from 4 to 6 quarters, we analyse liquidity risk and we consider a 3-month forecast horizon. The key finding is that combining different estimation procedures improves model performance and yields accurate out-of-sample predictions. The results show that the combined models achieve an extremely low percentage of false negatives, lower than the values usually reported in the literature, while at the same time limiting the number of false positives.
    Keywords: banking crisis, early warning models, liquidity risk, lender of last resort, machine learning
    JEL: C52 C53 G21 E58
    Date: 2021–06
  94. By: Dylan Hogg
    Abstract: Supply and demand factors each have a role in determining the level of business lending in the economy, with most hard data showing only their combined effect on prices and quantities. The Bank of Canada’s Senior Loan Officer Survey (SLOS) helps to separate supply from demand effects by gathering information from financial institutions on their lending (supply) conditions as well as on customer demand for loans. This note examines the information content of the SLOS using institution-level microdata. We find both supply and demand indicators from the SLOS have leading-indicator properties for future business loan growth. Finally, we conduct a counterfactual exercise using SLOS data to examine the role of supply and demand during the financial crisis. We find that supply and, more specifically, heightened risk perception were the key contributors to the contraction of business credit witnessed in that period.
    Keywords: Credit and credit aggregates, Financial institutions, Financial stability
    JEL: D22 G01 G2
    Date: 2021–06
  95. By: Manthos D. Delis; Fulvia Fringuellotti; Steven Ongena
    Abstract: Access to credit plays a central role in shaping economic opportunities of households and businesses. Access to credit also plays a crucial role in helping an economy successfully exit from the pandemic doldrums. The ability to get a loan may allow individuals to purchase a home, invest in education and training, or start and then expand a business. Hence access to credit has important implications for upward mobility and potentially also for inequality. Adverse selection and moral hazard problems due to asymmetric information between lenders and borrowers affect credit availability. Because of these information issues, lenders may limit credit or post higher lending rates and often require borrowers to pledge collateral. Consequently, relatively poor individuals with limited capital endowment may experience credit denial, irrespective of the quality of their investment ideas. As a result, their exclusion from credit access can hinder economic mobility and entrench income inequality. In this post, we describe the results of our recent paper which contributes to the understanding of this mechanism.
    Keywords: credit constraints; income; business loans; economic mobility; income inequality; regression discontinuity design
    JEL: E51 D63
    Date: 2021–07–01
  96. By: Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: This study examines how redistributive policy attempting to reduce inequality by taxing the bequests of the rich and redistributing the revenue to the poor affects economic growth in an overlapping generations model of R&D-based growth with both product development and process innovation. We show that such a policy simultaneously increases growth and reduces inequality in the long run. When the market structure adjusts, partially reducing inequality in the short run, the effect of redistributive policy on economic growth depends on the values of the social return to variety parameter. However, when the market structure adjusts fully in the long run, the redistributive policy decreases the entry of new firms but raises economic growth and reduces inequality. These favorable predictions of redistributive bequest taxation on growth and inequality are partly consistent with the empirical findings that redistribution is generally benign in terms of economic growth and that lower post-transfer inequality is correlated with faster and more durable growth.
    Keywords: R&D, Product Development, Process Innovation
    JEL: E62 H50 O31 O40
    Date: 2021–07
  97. By: Cornelius Johnson; Stephan Whitaker
    Abstract: While almost no one anticipated the pandemic-induced shutdown of economic activity experienced this year, local government officials know that the business cycle will sooner or later pull down tax revenues. During years of expansion, cities and counties should be setting aside resources that will enable them to lessen the cuts necessary to balance their budgets during a recession. How prepared were the local governments of the Cleveland Fed’s Fourth District for the COVID-19 crisis?1 Looking at the most recent data available for a sample of the District’s largest cities and counties, we find that major local governments in the Fourth District were holding fund balances that were similar to or greater than their reserves in 2007, the year the Great Recession began. Some of the cities that had to slash their spending in 2009 and 2010 appear to have learned from that experience and have built up a deeper financial cushion since then. Likewise, some of the cities and counties that have lower balances now are those that had sufficient reserves in 2007 and were not forced to make deep cuts during the Great Recession.
    Keywords: recession; local government
    Date: 2020–10–22
  98. By: Gustavo Canavire-Bacarreza (Universidad Privada Boliviana, La Paz, Bolivia and The World Bank, Washington D.C., USA); Pablo Evia Salas (trAndeS, Berlin, Germany); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA)
    Abstract: Economic stability plays a key role in any fiscal and political decentralization process. In the face of financial and economic shocks, when revenues and expenditures are reduced, countries may decide to gather resources at the central level—creating a recentralization scenario—or may take away devolved powers and centralize political institutions. Using data for 75 countries, we examine the effects of economic crisis on fiscal and political decentralization. We find that several types of crises lead to fiscal recentralization; only in the case of domestic borrowing crises is the effect further revenue decentralization, probably reflecting the central government’s willingness to empower subnational governments to avoid similar crises in the future. In addition, we explore the effects of economic crisis on political decentralization and find that they are concordant to the fiscal decentralization effects, suggesting an alignment of effects along political and fiscal dimensions of subnational autonomy. We also examine whether economic crises trigger more permanent, rather than just transitory, changes in the level of decentralization. We generally find more long-lasting effects in the case of fiscal decentralization measured from the expenditure side. This pattern is very apparent in the cases of inflation and banking crises and less clear but still present in the cases of currency and external debt crisis. The main results are robust to different specifications, estimation methods, and measurements of decentralization.
    Date: 2021–06–30
  99. By: Hofman, Karen J.; Stacey, Nicholas; Swart, Elizabeth C.; Popkin, Barry M.; Ng, Shu Wen
    Abstract: In 2016, the South African government proposed a 20% sugar-sweetened beverage (SSB) tax. Protracted consultations with beverage manufacturers and the sugar industry followed. This resulted in a lower sugar-based beverage tax, the Health Promotion Levy (HPL), of approximately 10% coming into effect in April 2018. We provide a synthesis of findings until April 2021. Studies show that despite the lower rate, purchases of unhealthy SSBs and sugar intake consumption from SSBs fell. There were greater reductions in SSB purchases among both lower socioeconomic groups and in subpopulations with higher SSB consumption. These subpopulations bear larger burdens from obesity and related diseases, suggesting that this policy improves health equity. The current COVID-19 pandemic has impacted food and nutritional security. Increased pandemic mortality among people with obesity, diabetes, and hypertension highlight the importance of intersectoral public health disease-prevention policies like the HPL, which should be strengthened.
    Keywords: equity; fiscal policy; health promotion; South Africa; 108424-001; P2CHD050924
    JEL: E6
    Date: 2021–05–31
  100. By: Doguhan Sundal
    Abstract: The large majority of the work published on firm investment is done in the neoclassical frame of a rational optimizing firm attempting to achieve optimal size. While this frame addresses one important consideration in firm investment, it has two important shortcomings that this paper will address. First, it doesn’t have a clear interpretation of how the cash-flows are affecting the firm investment decisions. Second, the standard approach operates on an “average firm,” which in fact is significantly different from a firm with modal investment behavior. This study employs a Bayesian quantile regression model that yields two significant results. First concerning the relative responsiveness of these two neglected factors, it determines that the firms with higher investment rates have higher responsiveness to the valuation ratio and lower responsiveness to the profit rate. Second and of broader political economic note, it finds a decline in the responsiveness of firm investment to these factors that is consistent with the widely discussed macroeconomic “secular stagnation” of the US economy, and within that consistency, that the decline varies across sectors, and is more pronounced in firms with higher investment rates.
    Keywords: Tobin’s Q; Investment Rate; Profit Rate; Finance Constraint; Secular Stagnation; Bayesian Econometrics; Bayesian Quantile Regression JEL Classification: D22; D24; E12; E22; G11
    Date: 2021
  101. By: Valerio Paolo Vacca (Banca d'Italia); Fabian Bichlmeier (Deutsche Bundesbank); Paolo Biraschi (Single Resolution Board); Natalie Boschi (Bafin); Antonio J. Bravo Alvarez (FROB Autoridad de Resolución Ejecutiva); Luciano Di Primio (Banca d'Italia); André Ebner (Deutsche Bundesbank); Silvia Hoeretzeder (Oesterreichische Nationalbank); Elisa Llorente Ballesteros (Banco de España); Claudia Miani (Single Resolution Board); Giacomo Ricci (Banca d'Italia); Raffaele Santioni (Banca d'Italia); Stefan Schellerer (Oesterreichische Nationalbank); Hanna Westman (Rahoitusvakausvirasto)
    Abstract: We present an analytical framework for quantifying the potential impact on the real economy stemming from a bank’s sudden liquidation, focusing on the consequences that arise when a credit institution interrupts its lending activities. In a first step, we quantify the potential credit shortfall faced by firms and households due to the sudden liquidation of a bank. In a second step, we estimate the impact of a firm’s credit shortfall on real outcomes via both a Factor-Augmented Vector Autoregression (FAVAR) model and a micro-econometric model. Appropriate reference values (benchmarks) are provided to assess the estimated outcomes. The illustrative results show that this harmonized approach is feasible across the Banking Union and it is applicable to banks of heterogeneous size and significance. Particularly in the case of the medium-sized banks, the implementation of this common analytical framework could provide useful insights to reduce the uncertainty about whether resolution is in the public interest, i.e. to what extent the failure of an institution would endanger financial stability.
    Keywords: bank resolution, bank insolvency, crisis management, public interest assessment
    JEL: E58 G01 G21 G28
    Date: 2021–06
  102. By: Jamie L. Cross; Chenghan Hou; Gary Koop
    Abstract: Vector autoregressions with stochastic volatility in both the conditional mean and variance are commonly used to estimate the macroeconomic effects of uncertainty shocks. Despite their popularity, intensive computational demands when estimating such models have made out-of-sample forecasting exercises impractical, particularly when working with large data sets. In this article, we propose an efficient Markov chain Monte Carlo (MCMC) algorithm for posterior and predictive inference in such models that facilitates such exercises. The key insight underlying the algorithm is that the (log-)conditional densities of the log-volatilities possess Hessian matrices that are banded. This enables us to build upon recent advances in band and sparse matrix algorithms for state space models. In a simulation exercise, we evaluate the new algorithm numerically and establish its computational and statistical effciency over a conventional particle filter based algorithm. Using macroeconomic data for the US we find that such models generally deliver more accurate point and density forecasts over a conventional benchmark in which stochastic volatility only enters the variance of the model.
    Keywords: Bayesian VARs, Macroeconomic Forecasting, Stochastic Volatility in Mean, State Space Models, Uncertainty
    Date: 2021–06
  103. By: Yuta Takahashi (Institute of Economic Research, Hitotsubashi University and CIRJE, The University of Tokyo); Naoki Takayama (Institute of Economic Research, Hitotsubashi University)
    Abstract: The average labor productivity, ALP, growth rates have declined among developed countries since around 2005. We argue that the declines were caused by the universal technological stagnation, which is reflected in the relative investment price movements. In the last decade, the declines of the relative investment prices have slowed down among developed countries, which was largely driven by equipment prices. We construct a multi-capital growth model and apply a growth accounting decomposition in order to back out the technology of each asset class. Our analysis reveals that the estimated technological stagnation of equipment greatly explains the declines of the ALP growth rate across the developed countries. Technological stagnation is especially severe for the US and explains 77% of the decline of the ALP growth rate after 2005.
    Date: 2021–06
  104. By: Ofori, Isaac Kwesi
    Abstract: The debate on the need for Sub-Saharan African (SSA) countries to foster inclusive growth has intensified following the coming into force of the African Continental Free Trade Area (AfCFTA), and the emergence of the coronavirus pandemic. A conspicuous lacuna in the literature is a lack of rigorous empirical work(s) exploring: (1) the joint effect of economic integration and resource allocation, and (2) social equity policies on inclusive growth in SSA. Using data from the World Bank’s World Development Indicators and the Global Consumption and Income Project (1980–2019) for 43 SSA countries, I provide evidence robust to several econometric techniques the fixed-effect, random-effect, and the system generalized method of moments estimators to show that: (1) though economic integration induces inclusive growth, the effect is higher in the presence of greater financial deepening and productive government expenditure; (2) relative to economic integration, social equity policies are rather remarkable in enhancing inclusive growth. Policy recommendations are provided in line with the AfCFTA and the reversals of welfare gains due to the coronavirus pandemic.
    Keywords: AfCFTA,Economic Integration,Financial Deepening,Globalisation,Inclusive Growth,Sub-Saharan Africa,Social Protection,Social Inclusion
    JEL: E6 F14 F15 F6 H5 O55
    Date: 2021
  105. By: Vittorio Bassi; Raffaela Muoio; Tommaso Porzio; Ritwika Sen; Esau Tugume
    Abstract: This paper argues that rental market interactions allow small firms to increase their effective scale and mechanize production, even when each individual firm would be too small to invest in expensive machines. We conduct a novel survey of manufacturing firms in Uganda, which uncovers an active rental market for large machines between small firms in informal clusters. We then build an equilibrium model of firm behavior and estimate it with our data. Our results show that the rental market is quantitatively important for mechanization and productivity since it provides a workaround for other market imperfections that keep firms small. We also show that the rental market shapes the effectiveness of policies to foster mechanization, such as subsidies to purchase machines.
    JEL: E0 O1
    Date: 2021–06
  106. By: Marek Ignaszak; Petr Sedlácek
    Abstract: Recent empirical evidence suggests that firm selection and growth are largely demand-driven. We incorporate this feature into a model of endogenous growth in which heterogeneous firms innovate and survive based on profitability, rather than productivity alone. We show analytically that firm-level demand variation impacts aggregate growth by changing firms’ incentives to innovate. Estimating our model on U.S. Census firm data, we quantify that 20% of aggregate growth is demand-driven and that the macroeconomic impact of growth policies is fundamentally different compared to a model driven by productivity variation alone. We find empirical support for our model mechanism in firm-level data.
    Date: 2021–05–28
  107. By: Gert Bijnens; Emmanuel Dhyne
    Abstract: Whilst overall productivity growth is stalling, firms at the frontier are still able to capture the benefits of the newest technologies and business practices. This paper uses linked employer-employee data covering all Belgian firms over a period of almost 20 years and investigates the differences in human capital between highly productive firms and less productive firms. We find a clear positive correlation between the share of high-skilled and STEM workers in a firm's workforce and its productivity. We obtain elasticities of 0.20 to 0.70 for a firm's productivity as a function of the share of high-skilled workers. For STEM (science, technology, engineering, mathematics) workers, of all skill levels, we find elasticities of 0.20 to 0.45. More importantly, the elasticity of STEM workers is increasing over time, whereas the elasticity of high-skilled workers is decreasing. This is possibly linked with the increasing number of tertiary education graduates and at the same time increased difficulties in filling STEM-related vacancies. Specifically, for high-skilled STEM workers in the manufacturing sector, the productivity gain can be as much as 4 times higher than the gain from hiring additional high-skilled non-STEM workers. To ensure that government efforts to increase the adoption of the latest technologies and business practices within firms lead to sustainable productivity gains, such actions should be accompanied by measures to increase the supply and mobility of human (STEM) capital. Without a proper supply of skills, firms will not be able to reap the full benefits of the digital revolution.
    Keywords: education, human capital, linked employer-employee data, productivity, Skills
    JEL: E24 I26 J24
    Date: 2021–07–08
  108. By: David Kohn; Fernando Leibovici; Michal Szkup
    Abstract: We study the role of financial development on the aggregate and welfare implications of reducing trade barriers on imports of physical capital and intermediate inputs. We document that financially underdeveloped economies feature a slower response of real GDP, consumption, and investment following trade liberalization episodes that improve access to imported production inputs. To quantify the role of financial development, we set up a quantitative general equilibrium model with heterogeneous firms subject to financial constraints and estimate it to match salient features from Colombian plantlevel data. We find that the adjustment to a decline of import tariffs on physical capital and intermediate inputs is significantly slower in financially underdeveloped economies in line with the empirical evidence. These effects reduce the welfare gains from trade liberalization and make them more unequal across agents.
    Date: 2020
  109. By: Isaac K. Ofori (University of Insubria, Varese, Italy)
    Abstract: The debate on the need for Sub-Saharan African (SSA) countries to foster inclusive growth has intensified following the coming into force of the African Continental Free Trade Area (AfCFTA), and the emergence of the coronavirus pandemic. A conspicuous lacuna in the literature is a lack of rigorous empirical work(s) exploring: (1) the joint effect of economic integration and resource allocation, and (2) social equity policies on inclusive growth in SSA. Using data from the World Bank’s World Development Indicators and the Global Consumption and Income Project (1980–2019) for 43 SSA countries, I provide evidence robust to several econometric techniques the fixed-effect, random-effect, and the system generalized method of moments estimators to show that: (1) though economic integration induces inclusive growth, the effect is higher in the presence of greater financial deepening and productive government expenditure; (2) relative to economic integration, social equity policies are rather remarkable in enhancing inclusive growth. Policy recommendations are provided in line with the AfCFTA and the reversals of welfare gains due to the coronavirus pandemic.
    Keywords: AfCFTA, Economic Integration, Financial Deepening, Globalisation, Inclusive Growth, Sub-Saharan Africa, Social Protection, Social Inclusion
    JEL: E6 F14 F15 F6 H5 O55
    Date: 2021–01
  110. By: Isaac K. Ofori (University of Insubria, Varese, Italy)
    Abstract: The debate on the need for Sub-Saharan African (SSA) countries to foster inclusive growth has intensified following the coming into force of the African Continental Free Trade Area (AfCFTA), and the emergence of the coronavirus pandemic. A conspicuous lacuna in the literature is a lack of rigorous empirical work(s) exploring: (1) the joint effect of economic integration and resource allocation, and (2) social equity policies on inclusive growth in SSA. Using data from the World Bank’s World Development Indicators and the Global Consumption and Income Project (1980–2019) for 43 SSA countries, I provide evidence robust to several econometric techniques the fixed-effect, random-effect, and the system generalized method of moments estimators to show that: (1) though economic integration induces inclusive growth, the effect is higher in the presence of greater financial deepening and productive government expenditure; (2) relative to economic integration, social equity policies are rather remarkable in enhancing inclusive growth. Policy recommendations are provided in line with the AfCFTA and the reversals of welfare gains due to the coronavirus pandemic.
    Keywords: AfCFTA, Economic Integration, Financial Deepening, Globalisation, Inclusive Growth, Sub-Saharan Africa, Social Protection, Social Inclusion
    JEL: E6 F14 F15 F6 H5 O55
    Date: 2021–01
  111. By: Thomas Aronsson (Umea University, Sweden); Sugata Ghosh (Brunel University, London); Ronald Wendner (University of Graz, Austria)
    Abstract: In an endogenous growth model, we characterize the conditions under which positional preferences for consumption and wealth do not cause inefficiency and derive an optimal tax policy response in cases where these conditions are not satisfied. The concerns for relative consumption and relative wealth partly emanate from social comparisons with people in other countries. We distinguish between a (conventional) welfarist government and a non-welfarist government that does not attach any social value to relative concerns. We also compare the outcome of Nash-competition among local/national governments with the resource allocation implied by a global social optimum both under welfarism and non-welfarism.
    Keywords: Positional preferences; Endogenous growth; Wealth; Intertemporal distortion, Welfarism; Non-welfarism; Inter-country externalities; Pigouvian taxation.
    JEL: E71 H11 O43
    Date: 2021–07
    Abstract: El objetivo de este trabajo es evaluar los efectos que ha tenido la pandemia del COVID19 sobre la estructura de ingresos de las universidades públicas en Colombia. Particularmente, el interés recae en los ingresos operativos, los cuales provienen de la venta de servicios educativos, asesorías y consultorías, que a su vez dependen de la actividad económica y de los ingresos tributarios regionales. Estimando un modelo de datos panel, tanto balanceado como no balanceado, se encuentra que los ingresos operativos se redujeron por motivo de la pandemia y de la crisis económica a raíz del COVID-19 entre 35% y 44%, ocasionando efectos considerables sobre la generación de ingresos de las universidades públicas. Este resultado evidencia la alta dependencia entre la estructura financiera del Sistema Universitario Estatal (SUE) y el contexto económico y social del país. Lo anterior promueve la búsqueda de nuevas fuentes de ingresos y pone en consideración las fuentes actuales como parte de la financiación estructural de las universidades. Este análisis también considera el contexto macroeconómico de Colombia durante la crisis económica y la magnitud de las medidas gubernamentales tomadas tanto a nivel local como en otros países (cinco latinoamericanos, tres europeos, uno de Oceanía y Estados Unidos) para mitigar los efectos de la crisis sobre los hogares y las empresas.
    Keywords: Crisis económica, COVID-19, estructura financiera, educación superior
    JEL: E65 E66 I22 H83
    Date: 2021–05–28
  113. By: Niftiyev, Ibrahim
    Abstract: Azerbaijan has an oil-led economy, which according to the well-known resource curse and Dutch disease hypotheses decreases the role of non-oil tradable sectors. Nevertheless, the government has actively fostered the growth of non-oil tradable sectors as the export orientation of Azerbaijan is being leveraged by the recently adopted economic policies. However, performance evaluations at the subsectoral level remain rare. The present paper evaluates the performance of the fruit and vegetable subsectors in Azerbaijan from 1995 to 2020 based on multiple key indicators, such as production, profitability, and productivity via principle component analysis (PCA). The purpose of the study was to provide a comparison of two key subsectors in Azerbaijan that are strong candidates for non-oil tradable exports. The results revealed that the vegetable subsector outperformed the fruit subsector in terms of production and profitability from 1999 to 2014; however, it experienced a sharp decline from 2014 to 2015 (the period of the rapid commodity price downturns), which gives rise to the question of whether the extractive industry negatively affected the subsector. Compared to the vegetable subsector, production and profitability in the fruit subsector demonstrated a more stable upward trend. In addition, labor input in both subsectors decreased over time, indicating efficiency gains via new technology transfers and productivity enhancements. Ordinary Least Squares (OLS) results demonstrated a strong and statistically significant negative relationship between the performance of the vegetable subsector with the oil revenue boom period (2008-2015).
    Keywords: Azerbaijan economy,agriculture,subsectoral performance,egetable production,fruit production
    JEL: E01 C38 O13 Q11 Q18
    Date: 2021
  114. By: Jennifer L. Dlugosz; Brian T. Melzer; Donald P. Morgan
    Abstract: Nearly 25 percent of low-income households in the United States are unbanked. High fees are often cited as a reason they remain unbanked, leading some to believe that limiting bank fees would improve financial inclusion. We use the federal preemption of state limits on overdraft fees to study the impact of fee ceilings on low-income households. After preemption, national banks raise overdraft fees relative to state-chartered banks in affected states. However, banks in affected states also provide more overdraft credit and bounce a smaller share of checks following preemption. The share of low-income households that are unbanked decreases, consistent with price ceilings causing the rationing of both overdraft and banking services.
    Keywords: banks; credit; overdraft; unbanked; inclusion; checks; price ceilings; usury
    JEL: D1 E43 G21 G38 G5
    Date: 2021–06–01
  115. By: Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
    Abstract: The COVID-19 pandemic exacerbated racial disparities in U.S. mortgage markets. Black, Hispanic, and Asian borrowers were significantly more likely than white borrowers to miss payments due to financial distress, and significantly less likely to refinance to take advantage of the large decline in interest rates spurred by the Federal Reserve’s large-scale mortgage-backed security (MBS) purchase program. The wide-scale forbearance program, introduced by the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, provided approximately equal payment relief to all distressed borrowers, as forbearance rates conditional on nonpayment status were roughly equal across racial/ethnic groups. However, Black and Hispanic borrowers were significantly less likely to exit forbearance and resume making payments relative to their Asian and white counterparts. Persistent differences in the ability to catch up on missed payments could worsen the already large disparity in home ownership rates across racial and ethnic groups. While the pandemic caused widespread distress in mortgage markets, strong house price appreciation in recent years, particularly in 2020, means that foreclosure risk is lower for past-due borrowers now as compared with the aftermath of the Global Financial Crisis and Great Recession. Furthermore, borrowers who have missed payments have significantly higher credit scores now than those who were distressed in the 2007–2010 period, largely due to the widespread availability of forbearance for federally backed mortgages.
    Keywords: mortgage refinancing; mortgage repayment; home equity; racial inequality.
    JEL: G21 G51 E52 J15
    Date: 2021–06–22
  116. By: Orlando Joaqui-Barandica (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Diego F. Manotas-Duque (Universidad del Valle, Faculty of Engineering, School of Industrial Engineering, Colombia.); Jorge M. Uribe-Gil (Faculty of Economics and Business, Open University of Catalonia and Riskcenter, University of Barcelona, Spain.)
    Abstract: We study banks’ profitability in the US economy by means of dynamic factor models. Our results emphasize the importance of a few common cyclical market factors that greatly determine banking profitability. We conduct exhaustive regressions in a big data set of macroeconomic variables aiming to gain interpretability of our statistical factors. This allows us to identify three main macroeconomic factors underlying banking profitability: the financial burden of households and economic activity; household income and net worth and, in the case of ROA and ROE, corporate indebtedness. We also provide an integrated perspective to analyse banks’ profitability dynamically and to inform policymakers concerned with financial stability issues, for which banks’ profitability is fundamental. Our models allow us to provide several rankings of vulnerable financial institutions considering the common market forces that we estimate. We emphasize the usefulness of such an exercise as a market-monitoring tool.
    Keywords: Banks’ ROA, Indebtedness, Dynamic factors, Financial cycles. JEL classification: E44, G20, G21.
    Date: 2021–06
  117. By: Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen
    Abstract: The COVID-19 pandemic exacerbated racial disparities in U.S. mortgage markets. Black, Hispanic, and Asian borrowers were significantly more likely than white borrowers to miss payments due to financial distress, and significantly less likely to refinance to take advantage of the large decline in interest rates spurred by the Federal Reserve’s large-scale mortgage-backed security (MBS) purchase program. The wide-scale forbearance program, introduced by the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, provided approximately equal payment relief to all distressed borrowers, as forbearance rates conditional on nonpayment status were roughly equal across racial/ethnic groups. However, Black and Hispanic borrowers were significantly less likely to exit forbearance and resume making payments relative to their Asian and white counterparts. Persistent differences in the ability to catch up on missed payments could worsen the already large disparity in home ownership rates across racial and ethnic groups. While the pandemic caused widespread distress in mortgage markets, strong house price appreciation in recent years, particularly in 2020, means that foreclosure risk is lower for past-due borrowers now as compared with the aftermath of the Global Financial Crisis and Great Recession. Furthermore, borrowers who have missed payments have significantly higher credit scores now than those who were distressed in the 2007–2010 period, largely due to the widespread availability of forbearance for federally backed mortgages.
    Keywords: mortgage refinancing; mortgage repayment; home equity; racial inequality; COVID-19
    JEL: E52 G21 G51 J15
    Date: 2021–06–22
  118. By: Mladovsky, Philipa
    Abstract: There is increasing international consensus that countries need to reduce health system fragmentation in order to achieve universal health coverage (UHC). Yet there is little agreement on what drives fragmentation, in particular the extent to which fragmentation has a political purpose. This study analyses a highly fragmented health financing system through a UHC policy that aims to remove user fees for people aged 60 and over in Senegal. 53 semi-structured interviews (SSIs) and focus group discussions with the target population were conducted in four regions in Senegal over a period of six months during 2012. A further 46 SSIs were conducted with key informants at the national level and in each of the four regions. By analysing explanations of the successes and failures of policies, an understanding of power relations in state institutions, communities and individuals is gained. The concept of governmentality is used to interpret the results. The interviewees’ main concern was to implement or resist various techniques of control over the conduct of bureaucrats, health workers, patients and the wider population. These techniques included numeracy and calculation, referral letters, ID cards, data collection, new prudentialism, active citizenship and ethical self-formation through affinities of the community. The techniques sought to make two types of subjects; citizens subjects of rights and obligations; and autonomous subjects of choice and self-identity. A key implication is that in Senegal, and perhaps elsewhere, fragmentation of the health system plays a key role in the formation and control of subjects, in the name of “freedom”. As such, fragmentation may be an inherent feature of UHC. Interventions that aim to reduce fragmentation based on evidence of its inefficiency, inequity and ineffectiveness in reducing poverty and ill health may be missing this point.
    Keywords: universal health coverage; Africa; Senegal; Health systems; fragmentation; governmentality; citizenship; older people
    JEL: E6
    Date: 2020–09–01

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