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on Macroeconomics |
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Issue of 2021‒07‒26
117 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Boris Chafwehé (European Commission - JRC); Charles de Beauffort (Université Catholique de Louvain); Rigas Oikonomou (Université Catholique de Louvain) |
| Abstract: | We study the impact of debt maturity management in an economy where monetary policy is 'passive' and subservient to fiscal policy. We setup a tractable model, to characterize analytically the dynamics of inflation, as well as other macroeconomic variables, showing their dependence on the monetary policy rule and on the maturity of debt. Debt maturity becomes a key variable when the monetary authority reacts to inflation and the appropriate maturity of debt can restore the efficacy of monetary policy in controlling inflation. This requires debt management to focus on issuing long bonds. Moreover, we propose a novel framework of Ramsey optimal coordinated debt and monetary policies, to derive analytically the interest rate rule followed by the monetary authority as a function of debt maturity. The optimal policy model leads to the same prescription, long-term debt financing enables to stabilize inflation. Lastly, the relevance of debt maturity in reducing inflation variability is also confirmed in a medium scale DSGE model estimated with US data. |
| Keywords: | Passive Monetary Policy, Government Debt Management, Fiscal and Monetary Policy Interactions, Bayesian estimation, Ramsey policy. |
| JEL: | E31 E52 E58 E62 C11 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202111&r= |
| By: | Shaghil Ahmed; Ozge Akinci; Albert Queraltó |
| Abstract: | Using a macroeconomic model, we explore how sources of shocks and vulnerabilities matter for the transmission of U.S. monetary changes to emerging market economies (EMEs). We utilize a calibrated two-country New Keynesian model with financial frictions, partly-dollarized balance sheets, and imperfectly anchored inflation expectations. 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 tightenings driven by a more-hawkish policy stance cause a substantial slowdown in activity in all EMEs. Our model also captures the challenging policy tradeos that EME central banks face. We show that these tradeoffs are more favorable when inflation expectations are well anchored. |
| Keywords: | Financial frictions; U.S. monetary policy spillovers; Adaptive expectations |
| JEL: | E32 E44 F41 |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1321&r= |
| By: | Boris Chafwehé (Joint Research Centre European Commission); Charles de Beauffort (National Bank of Belgium and IRES/LIDAM, UCLouvain); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | We study the impact of debt maturity management in an economy where monetary policy is ’passive’ and subservient to fiscal policy. We setup a tractable model, to characterize analytically the dynamics of inflation, as well as other macroeconomic variables, showing their dependence on the monetary policy rule and on the maturity of debt. Debt maturity becomes a key variable when the monetary authority reacts to inflation and the appropriate maturity of debt can restore the efficacy of monetary policy in controlling inflation. This requires debt management to focus on issuing long bonds. Moreover, we propose a novel framework of Ramsey optimal coordinated debt and monetary policies, to derive analytically the interest rate rule followed by the monetary authority as a function of debt maturity. The optimal policy model leads to the same prescription, long term debt financing enables to stabilize inflation. Lastly, the relevance of debt maturity in reducing inflation variability is also confirmed in a medium scale DSGE model estimated with US data. |
| Keywords: | Passive monetary policy, Govenment debt management, Fiscal and monetary policy interactions, Bayesian estimation, Ramsey policy |
| JEL: | E31 E52 E58 E62 C11 |
| Date: | 2021–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2021018&r= |
| By: | Nicolas Caramp; Dejanir H. Silva (Department of Economics, University of California Davis) |
| Abstract: | We study the role of wealth effects, i.e. the revaluation of stocks, bonds, and human wealth, in the monetary policy transmission mechanism. The analysis of wealth effects requires to incorporate realistic asset-pricing dynamics and heterogeneous households’ portfolios. Thus, we build an analytical heterogeneous-agents model with two main ingredients: i) rare disasters and ii) positive private debt. The model captures time-varying risk premia and precautionary savings in a linearized setting that nests the textbook New Keynesian model. Quantitatively, the model matches the empirical response of asset prices as well as the heterogeneous impact on borrowers and savers. We find that wealth effects induced by time-varying risk and private debt account for the bulk of the output response to monetary policy. |
| Keywords: | Monetary Policy, Wealth Effects, Asset Prices, Heterogeneity |
| JEL: | E21 E52 E44 |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:341&r= |
| By: | Minford, Patrick (Cardiff Business School); Ou, Zhirong (Cardiff Business School); Wickens, Michael (Cardiff Business School); Zhu, Zheyi (Cardiff Business School) |
| Abstract: | We construct a macro DSGE model of the eurozone and its two main regions, the North and the South, with the aim of matching the macro facts of these economies by indirect inference and using the resulting empirically-based model to assess possible new policy regimes. The model we have found to fit the facts suggests that substantial gains in macro stability and consumer welfare are possible if the fiscal authority in each region is given the freedom to respond to its own economic situation. Further gains could come with the restoration of monetary independence to the two regions, in effect creating a second 'southern euro' bloc. |
| Keywords: | eurozone; macro stability; fiscal policy; monetary independence |
| JEL: | E32 E52 E62 F41 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/11&r= |
| By: | Takuji Kawamoto (Bank of Japan); Jouchi Nakajima (Bank of Japan); Tomoaki Mikami (Bank of Japan) |
| Abstract: | In its "Inflation-Overshooting Commitment," the Bank of Japan commits to continuing to expand the monetary base until the year-on-year rate of increase in the CPI exceeds the price stability target of 2 percent and stays above the target in a stable manner. Through the commitment, the Bank of Japan is implementing a so-called "makeup strategy," which aims to offset a part of past inflation misses from the target by allowing actual inflation to overshoot the target for some time and thereby stabilizing average inflation over the business cycle. Existing studies have shown that such makeup strategies are actually effective for the U.S. economy. This paper examines the effectiveness of the makeup strategy for Japan's economy, where inflation expectations formation is known to be largely adaptive. Specifically, we build a small-scale macroeconomic model for Japan's economy and conduct simulation analysis to study the implications of adopting the makeup strategy for early achievement of the inflation target as well as the incurring social welfare costs. Simulation results show that when the inflation rate has been below the target, it is effective to stabilize average inflation by offsetting the past inflation misses over some makeup windows. In addition, the results suggest that when the natural rate of interest is lower, the optimal makeup window becomes longer. |
| Keywords: | Monetary Policy; Inflation-overshooting commitment; Makeup strategy; Average inflation targeting; Stochastic simulation |
| JEL: | C53 E31 E47 E52 E58 |
| Date: | 2021–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp21e09&r= |
| By: | Tanweer Akram |
| Abstract: | This paper presents multifactor Keynesian models of the long-term interest rate. In recent years there have been a proliferation of empirical studies based on the Keynesian approach to interest rate modeling. However, standard multifactor models of the long-term interest rate in quantitative finance have not been yet incorporated Keynes's insights about interest rate dynamics. Keynes's insights about the influence of the current short-term interest rate are introduced in two different multifactor models of the long-term interest rate to illustrate how the long-term interest rate relates to the short-term interest rate, the central bank’s policy rate, inflation expectations, the central bank’s inflation target, volatility in financial markets, and Wiener processes. |
| Keywords: | Long-Term Interest Rate; Government Bond Yields; Monetary Policy; Short-Term Interest Rate; Inflation; Inflation Target; John Maynard Keynes |
| JEL: | E12 E43 E50 E58 E60 G10 G12 G41 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_991&r= |
| By: | George M. Constantinides |
| Abstract: | I estimate welfare benefits of eliminating idiosyncratic consumption shocks unrelated to the business cycle as 47.3% of household utility and benefits of eliminating idiosyncratic shocks related to the business cycle as 3.4% of utility. Estimates of the former substantially exceed earlier ones because I distinguish between idiosyncratic shocks related/unrelated to the business cycle, estimate the negative skewness of shocks, target moments of idiosyncratic shocks from household-level CEX data, and target market moments. Benefits of eliminating aggregate shocks are 7.7% of utility. Policy should focus on insuring idiosyncratic shocks unrelated to the business cycle, such as the death of a household’s prime wage earner and job layoffs not necessarily related to recessions. |
| JEL: | D31 D52 E2 E21 E24 E32 E44 G01 G12 J6 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29009&r= |
| By: | Dixon, Huw (Cardiff Business School); Franklin, Jeremy (Bank of England); Millard, Stephen (Bank of England, Centre for Macroeconomics and Durham University Business School.) |
| Abstract: | In this paper, we examine the extent to which monetary policy should respond to movements in sectoral inflation rates. To do this we construct a Generalised Taylor model that takes specific account of the sectoral make-up of the consumer price index (CPI). We calibrate the model for each sector using the UK CPI microdata. We find that a policy rule that allows for different responses to inflation in different sectors outperforms a rule which just targets aggregate CPI, as does a rule that responds only to non food and energy inflation. However, we find that the optimal sectoral rule only leads to a small absolute improvement in terms of extra consumption. |
| Keywords: | CPI inflation, Sectoral inflation rates, Generalised Taylor economy, Financial Intermediation |
| JEL: | E17 E31 E52 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/10&r= |
| By: | David Backus; Mikhail Chernov; Stanley E. Zin; Irina Zviadadze |
| Abstract: | Long-run asset-pricing restrictions in a macro term-structure model identify discretionary monetary policy separately from a policy rule. We find that policy discretion is an important contributor to aggregate risk. In addition, discretionary easing coincides with good news about the macroeconomy in the form of lower inflation, higher output growth, and lower risk premiums on short-term nominal bonds. However, it also coincides with bad news about long-term financial conditions in the form of higher risk premiums on long-term nominal bonds. Shocks to the rule correlate with changes in the yield curve’s level. Shocks to discretion correlate with changes in its slope. |
| JEL: | E43 E52 G12 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28983&r= |
| By: | Bauer, Michael; Chernov, Mikhail |
| Abstract: | Conditional yield skewness is an important summary statistic of the state of the economy. It exhibits pronounced variation over the business cycle and with the stance of monetary policy, and a tight relationship with the slope of the yield curve. Most importantly, variation in yield skewness has substantial forecasting power for future bond excess returns, high-frequency interest rate changes around FOMC announcements, and consensus survey forecast errors for the ten-year Treasury yield. The COVID pandemic did not disrupt these relations: historically high skewness correctly anticipated the run-up in long-term Treasury yields starting in late 2020. The connection between skewness, survey forecast errors, excess returns, and departures of yields from normality is consistent with a theoretical framework where one of the agents has biased beliefs. |
| Keywords: | bond markets,yield curve,skewness,biased beliefs,monetary policy |
| JEL: | E43 E44 E52 G12 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:163&r= |
| By: | Hashmat Khan (Department of Economics, Carleton University); Konstantinos Metaxoglou (Department of Economics, Carleton University) |
| Abstract: | We estimate the aggregate U.S. wage markdown for 1987–2018 using the KLEMS data and the approach in Hershbein, Macaluso and Yeh (2020). Building on the existing literature, our markdown estimates depend on output elasticities of inputs and their shares of gross output. We identify four salient features of the markdown. First, the markdown is above 1, implying an average wage below the competitive level. Second, the markdown has increased over time, mainly during the 2000–2015 period. Third, the variation of the markdown is mostly driven by the input shares and not the output elasticities. Fourth, the markdown is strongly procyclical, implying a larger deviation of wages from their competitive levels during expansions. |
| Keywords: | Employer Market Power, Monopsony, Markdowns, Business Cycles |
| JEL: | E24 E32 |
| Date: | 2021–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:21-06&r= |
| By: | Joshua Bernstein; Michael D. Plante; Alexander W. Richter; Nathaniel A. Throckmorton |
| Abstract: | This paper uses a battery of calibrated and estimated structural models to determine the causal drivers of the negative correlation between output and aggregate uncertainty. We find the transmission of uncertainty shocks to output is weak, while aggregate uncertainty endogenously responds to first moment shocks in the presence of labor market search frictions. This indicates that countercyclical movements in aggregate uncertainty are endogenous responses to changes in output, rather than exogenous impulses. A vector autoregression on simulated data shows recursive identification techniques do not robustly identify structural uncertainty shocks. |
| Keywords: | Uncertainty Shocks; Endogenous Uncertainty; Variance Decomposition; Nonlinear |
| JEL: | C13 D81 E32 E37 J64 |
| Date: | 2021–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:92899&r= |
| By: | Sushant Acharya; Keshav Dogra |
| Abstract: | We present an incomplete markets model to understand the costs and benefits of increasing government debt when an increased demand for safety pushes the natural rate of interest below zero. A higher demand for safe assets causes the ZLB to bind, increasing unemployment. Higher government debt satiates the demand for safe assets, raising the natural rate and restoring full employment. However, this entails permanently lower investment, which reduces welfare, since our economy is dynamically efficient even when the natural rate is negative. Despite this, increasing debt until the ZLB no longer binds raises welfare when alternative instruments are unavailable. Higher in inflation targets instead allow for negative real interest rates and achieve full employment without reducing investment. |
| Keywords: | Fiscal policy; Monetary policy implementation |
| JEL: | E3 E4 E5 G1 H6 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-34&r= |
| By: | Valérie Mignon; Antonin Aviat; Frédérique Bec; Claude Diebolt; Denis Ferrand; Laurent Ferrara; Eric Heyer; Pierre-Alain Pionnier; Catherine Doz |
| Abstract: | This article proposes a quarterly dating of recession and expansion periods of the French economy since 1970, carried out by the AFSE (Association Française de Science Economique)’s cycle dating committee. The methodology used is based on two pillars: (i) econometric estimates from a dataset to identify candidate periods, and (ii) a narrative approach that details the economic context of the time to finalize our dating. From 1970 to nowadays, the committee identified four periods of economic recession: the two oil shocks of 1974-75 and 1980, the investment cycle of 1992-93, and the Great Recession of 2008-09 spawned by the global financial crisis. The peak prior to the Covid recession has been dated to the last quarter of 2019. |
| Keywords: | Business cycles, French economy, dating, narrative approach, econometric models |
| JEL: | E32 E37 C24 N14 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-22&r= |
| By: | Leonid Kogan; Indrajit Mitra |
| Abstract: | We propose a general simulation-based procedure for estimating the quality of approximate policies in heterogeneous-agent equilibrium models, which allows verification that such approximate solutions describe a near-rational equilibrium. Our procedure endows agents with superior knowledge of the future path of the economy, while imposing a suitable penalty for such foresight. The relaxed problem is more tractable than the original, and it results in an upper bound on agents’ welfare. Our method is general and straightforward to implement, and it can be used in conjunction with various solution algorithms. We illustrate our approach in two applications: the incomplete-markets model of Krusell and Smith (1998) and the heterogeneous firm model of Khan and Thomas (2008). |
| Keywords: | numerical solutions; accuracy; approximations; simulations |
| JEL: | E24 E62 J22 |
| Date: | 2021–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:92860&r= |
| By: | John C. Williams |
| Abstract: | Remarks at Bank of Israel/CEPR Conference on “Inflation: Dynamics, Expectations, and Targeting” (delivered via videoconference). |
| Keywords: | average inflation targeting (AIT); R-star; lower bound; Static Average Inflation Targeting (SAIT); dynamic average inflation targeting (DAIT); interest rates; monetary policy |
| Date: | 2021–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:92896&r= |
| By: | Robert Duval-Hernandez; Lei Fang; L. Rachel Ngai |
| Abstract: | Gender gaps in working hours vary widely across member countries of the Organisation for Economic Co-operation and Development. This article summarizes the key results from Duval-Hernández, Fang, and Ngai (2021), who study the source of cross-country differences and what kind of policies can reduce the gap in working hours between women and men. |
| Keywords: | gender ratio; market hours; subsidies on family care; taxes; home production; marketization |
| JEL: | E24 E62 J22 |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:92868&r= |
| By: | Sajid Amin Javed (Research Fellow and heads Policy Solutions Lab at the Sustainable Development Policy Institute (SDPI) Pakistan) |
| Abstract: | This paper assesses the socioeconomic impacts of Covid-19 in three South Asian economies -- Pakistan, Afghanistan, Sri Lanka -- and corresponding fiscal policy responses to mitigate these impacts. Further, it appraises the sufficiency of these fiscal policy responses to support the economic recovery in respective economies. It also estimates fiscal needs to finance the economic recovery and assesses existing fiscal space to meet the fiscal needs. Based on the assessment, it proposes possible option to enhance fiscal space. It also proposes policy measures to align fiscal stimulus to SDGs agenda and possible venues for regional cooperation to reach to a shared recovery. |
| Keywords: | Fiscal Policy, fiscal stimulus, fiscal needs, economic recovery, economic policy, COVID-19, South Asia |
| JEL: | E61 E62 H68 H60 H50 O57 Q01 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:unt:wpmpdd:wp/21/03&r= |
| By: | International Monetary Fund |
| Abstract: | The Icelandic economy has been severely affected by the pandemic. Sharp tourism contraction and containment measures caused real GDP to plummet by 6.6 percent in 2020. A modest recovery will take hold in 2021. Recovery prospects in the tourism sector depend on control of the epidemic and progress in global and domestic vaccine distribution, spelling a challenging outlook with possibly deep medium-term scarring. Fiscal policy should continue to support the economy for now. Policy buffers accumulated over the last decade provided space for a large fiscal support and accommodated substantial automatic stabilizers. Additional stimulus is planned in 2021 to address still large slack in the economy, mitigate scarring, and provide confidence in the event of downside risks. Medium-term policies should ensure that public debt is firmly on a downward path, while limiting the drag on growth. |
| Keywords: | inflation expectation; notification band; family support benefit; monetary policy effort; fiscal policy mix; COVID-19; Tourism; Government finance statistics; Financial statistics; Currency markets; Global; Europe |
| Date: | 2021–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/106&r= |
| By: | División de Análisis Macroeconómico DAMAC |
| Abstract: | Este documento de la División de Análisis Macroeconómico analiza la consolidación de la recuperación económica en Colombia durante los primeros meses del 2021 y profundiza en los aspectos relevantes delinean las dinámicas y los retos en adelante. Se realizan análisis por sectores de la dinámica presentada, como de elementos especiales de cada sector durante el proceso de recuperación. A nivel general, se puede resaltar que la pandemia está aún lejos de terminar, y que la actividad económica debe seguir balanceando este riesgo. A nivel social, las demandas ante el deterioro de bienestar profundizado por la emergencia sanitaria y económica será un tema por monitorear, y solucionar en el corto y el mediano plazo. *** In this document, the Division of Macroeconomic Analysis reviewed the consolidation of the economic recovery in Colombia in the first months of 2021 and delved into relevant aspects outlining the main dynamics and challenges ahead. For each sector, the current dynamics and particular elements ahead of the recovery process are analyzed. At a high level, it can be highlighted that the pandemic is still far from its end, and the economic activity must continue to balance this risk. At the social level, the demands due to the deterioration of welfare deepened by the health and economic emergency will be an issue to monitor and solve in the short and medium-term. |
| Keywords: | análisis macroeconómico, COVID-19, impacto, cuarentena, aislamiento, crisis, Colombia. |
| JEL: | E00 E01 E20 E23 E60 |
| Date: | 2021–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:col:000178:019403&r= |
| By: | Koffi, Siméon |
| Abstract: | La présente étude met en lumière l’effet de la politique budgétaire sur l’économie ivoirienne en mesurant la valeur des différents multiplicateurs keynésiens et en identifiant les origines possibles de la fluctuation du PIB. La méthode quantitative adoptée est l’estimation Bayésienne d’un modèle d’Equilibre Général Dynamique et Stochastique (DSGE) à partir des données de la Direction des Prévisions, des Politiques et des Statistiques Economiques (DPPSE), de la Direction Générale du Budget et des Finances et de la base de données de la Banque Mondiale sur la période 2000Q1-2019Q4. Les résultats montrent que (i) la hausse des dépenses d’investissements publics a un effet positif sur la consommation des ménages, le secteur privé et sur la production nationale. Le multiplicateur keynésien de l’investissement public a été évalué à k_IG = 0,20 ; (ii) la baisse des taux d’imposition est susceptible de relancer l’économie mais son impact demeure faible ; (iii) les dépenses de consommations publiques notamment les dépenses liées au personnel ont un effet négatif sur l’économie ivoirienne. |
| Keywords: | Estimation bayésienne; DSGE; Multiplicateur keynésien; Politique budgétaire |
| JEL: | E32 E62 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:069&r= |
| By: | Edward E. Leamer |
| Abstract: | Using the recession recovery point equal to the month when private payrolls first exceeded their previous peak level, this paper argues that it was the negative secular trend in manufacturing jobs that was the most important determinant of the length and depth of the last three recessions/recoveries. This negative secular trend changed the layoff/recall pattern of jobs in manufacturing into permanent displacements, a malady that lengthened the recovery periods and that is not the explicit target of either traditional monetary policy or traditional fiscal policy. Using the ideas gathered from an examination of the US two-digit sectoral data for the US overall, attention turns to the recession/recoveries of the 50 US states in the last three national recession periods. Regressions that explain the lengths and depths of the recessions in 50 US states reveal the importance of construction jobs, but the most important predictor was manufacturing jobs: the greater the share of manufacturing jobs prior to the recession, the worse was the recession/recovery. |
| JEL: | E3 E32 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28982&r= |
| By: | Yang Zhang; Lena Suchanek; Jonathan Swarbrick; Joel Wagner; Tudor Schlanger |
| Abstract: | In response to the global COVID-19 pandemic, the Bank of Canada aggressively lowered its policy interest rate and provided additional easing using forward guidance and quantitative easing. In this analysis, we use simulations in the Bank of Canada’s projection model—the Terms-of-Trade Economic Model—to consider a suite of extended monetary policies (EMPs) to support the economy following the COVID-19 crisis. We focus on the implementation sequencing of three EMP options when the policy rate is at the effective lower bound: credit easing, forward guidance and quantitative easing. We find that the policy mix that delivers the best outcome for the Canadian economy calls for immediately implementing forward guidance and quantitative easing, followed by credit easing when containment measures are lifted. Furthermore, going “full scale” and implementing all available EMP options effectively helps stabilizing the economy because each of these tools reinforces the others. We also quantify the fiscal response needed to offset the gap in gross domestic product created by the effective lower bound, given operational limitations in scaling up EMPs. |
| Keywords: | Coronavirus disease (COVID-19); Monetary policy; Monetary policy transmission |
| JEL: | E58 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:21-10&r= |
| By: | International Monetary Fund |
| Abstract: | Near-term macroeconomic prospects continue to improve in the context of higher oil prices and a gradual global recovery from the pandemic shock, but the medium-term outlook remains challenging and highly uncertain. Oil production remains muted, debt and inflation remain elevated, and non-oil activity is expected to recover only gradually. However, continued strong fiscal performance (aided by higher oil revenues), exchange rate stabilization, and a return to positive non-oil growth would contribute to a reduction in the debt-to-GDP ratio this year, easing debt vulnerabilities. |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/140&r= |
| By: | Christiane Baumeister; Danilo Leiva-León; Eric R. Sims |
| Abstract: | In this paper, we develop a novel dataset of weekly economic conditions indices for the 50 U.S. states going back to 1987 based on mixed-frequency dynamic factor models with weekly, monthly, and quarterly variables that cover multiple dimensions of state economies. We show that there is considerable heterogeneity in the length, depth, and timing of business cycles across individual states. We assess the role of states in national recessions and propose an aggregate indicator that allows us to gauge the overall weakness of the U.S. economy. We also illustrate the usefulness of these state-level indices for quantifying the main forces contributing to the economic collapse caused by the COVID-19 pandemic and for evaluating the effectiveness of federal economic policies like the Paycheck Protection Program. |
| JEL: | C32 C55 E32 E66 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29003&r= |
| By: | Guilherme Bandeira (New South Wales Treasury); Jordi Caballe (Universitat Autonoma de Barcelona and Barcelona GSE); Eugenia Vella |
| Abstract: | This paper studies the role of emigration in a deep recession when the government implements fiscal consolidation. We build a small open economy New Keynesian model with search and matching frictions, emigration of the labour force, and fiscal details. Our simulations for the austerity mix during the Greek Depression show that fiscal austerity accounts for one third of the output drop and more than 10% of migration outflows, whereas the rest is attributed to the macroeconomic environment. A counterfactual without migration underestimates the fall in output by one fifth. The model also sheds light on the two-way relation between emigration and austerity. Labour income tax hikes induce prolonged migration outflows, while spending cuts exert only a small effect on emigration which can be positive or negative depending on opposite demand and wealth effects. On the flip side, emigration increases the required tax hike and time to meet a given debt target due to endogenous revenue leakage. For tax hikes, emigration acts as an absorber of the austerity shock by diluting the output costs per resident through shrinking population. Yet, in terms of unemployment, temporary gains are reversed over time due to the distortionary effects of taxes on employment. |
| Keywords: | fiscal consolidation, emigration of employed, on the job search, matching frictions, Greek crisis. |
| JEL: | E32 F41 |
| Date: | 2020–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:2035&r= |
| By: | Stéphanie Pamies; Nicolas Carnot; Anda Pătărău |
| Abstract: | This paper explores the determinants of sovereign interest rate spreads of euro area countries (vis-à-vis Germany), using panel regressions with annual data for 2000-2019. It focuses on the role of fundamental factors, namely fiscal, macroeconomic and institutional variables, while considering also some contextual factors such as global risk aversion and controlling for the influence of central banks’ asset purchases. Through extensive testing of various (fiscal) variables, interactions and non-linearities, the analysis confirms that sovereign spreads respond to fundamental variables, especially the government debt, indicating that such response is non-linear. The results also show that structural factors, such as potential growth and the quality of institutions, can largely mitigate the impact from government debt on spreads. Indeed, in countries with the highest potential growth and strongest institutions, the marginal effect of government debt on spreads would be close to zero. From a policy angle, the results are a reminder that, even in an environment of persistently low rates, more solid fundamentals allow governments to benefit from lower borrowing costs and lessrisk exposure. They also highlight that policies aimed at reinforcing potential growth and government effectiveness can be expected to improve investors’ perception of sovereign risk and their forbearance of higher debt. |
| JEL: | H63 E43 E62 C23 O52 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:141&r= |
| By: | Sushant Acharya; Jess Benhabib; Zhen Huo |
| Abstract: | We show that sentiments—self-fulfilling changes in beliefs that are orthogonal to fundamentals—can drive persistent aggregate fluctuations under rational expectations in a beauty contest game. Such fluctuations can occur even in the absence of exogenous aggregate fundamental shocks. Moreover, sentiments alter the volatility and persistence of aggregate outcomes in response to fundamental shocks. We provide (i) necessary conditions under which sentiments can affect aggregate outcomes in equilibrium and (ii) conditions under which sentiments drive persistent fluctuations and when they only affect aggregate outcomes contemporaneously. We also show that sentiment equilibria are stable under least-squares learning while the fundamental equilibrium is not. |
| Keywords: | Business fluctuations and cycles; Economic models |
| JEL: | E20 E32 F44 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-33&r= |
| By: | Cole, Stephen J. (Department of Economics Marquette University); Milani, Fabio (University of California Irvine) |
| Abstract: | This paper uses adaptive learning to understand the heterogeneity of individual-level expectations. We exploit individual Survey of Professional Forecasters data on output and inflation forecasts. We endow all forecasters with the same information set that they would have as economic agents in a benchmark New Keynesian model. Forecasters are, however, allowed to differ in the constant gain values that they use to update their beliefs and in their sentiments. The latter are defined as the degrees of excess optimism or pessimism about the economy that cannot be justified by the learning model. Our results highlight the heterogeneity in the gain coefficients adopted by forecasters. The median values of the gain coefficients occasionally jump to higher values in the 1970-80s, and stabilize in the 1990s and 2000s. Individual sentiment is also persistent and heterogeneous. Differences in sentiment, however, do not simply cancel out in the aggregate: the majority of forecasters exhibit excess optimism, or excess pessimism, at the same time. |
| Keywords: | individual survey forecasts, heterogeneous expectations, constant-gain learning, new Keynesian model, sentiment shocks, waves of optimism and pessimism, evolving beliefs |
| JEL: | C54 D84 E32 E50 E60 E70 E71 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:mrq:wpaper:2021-05&r= |
| By: | Mark A. 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 (r |
| JEL: | E6 H3 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28996&r= |
| By: | International Monetary Fund |
| Abstract: | In Turkey, as in other countries, the human and economic toll of the COVID-19 pandemic has been severe. Thousands of lives have been tragically lost and many livelihoods compromised. The initial policy response to the pandemic—and subsequent sharp growth rebound—set Turkey apart from its peers. Rapid monetary and credit expansion and large liquidity support meant that Turkey was among the few countries to experience positive economic growth in 2020. But these policies also aggravated pre-existing economic and financial vulnerabilities. Higher inflation, increased dollarization, and a large shift in the current account position increased pressure on the lira and gave rise to heavy foreign exchange sales, which led in turn to steep reserve declines from already-low levels. A policy shift in late 2020—mainly towards tighter and more transparent monetary policy and slower credit growth—was both welcome and necessary. But the durability and depth of the shift were called into question in March 2021, following the change in central bank leadership, as the lira weakened markedly and interest rate spreads widened. |
| Keywords: | credit policy; fiscal policy coordination; IFC portfolio implementation; FX rediscount credit repayment; IMF staff calculation; policy uncertainty; COVID-19; State-owned banks; Inflation; Global; Europe |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/110&r= |
| By: | Paul Castillo (Central Bank of Peru); Juan Pablo Medina (Universidad Adolfo Ibanez, Chile) |
| Abstract: | This paper investigates the relevance of foreign exchange intervention in dealing with the global financial cycle in emerging economies. We show in a VAR analysis that a shock to global capital flows has a sizable effect on economic activity, and this effect is amplified in emerging economies with liability dollarization. However, countries that systematically rely on sterilized foreign exchange intervention display lower output and real exchange rate volatility in response to global capital flows shocks. We then develop a small open economy model with liability dollarization and balance sheets effects calibrated to an emerging economy. The model is consistent with the empirical evidence. Model simulations show that liability dollarization amplifies the effects of the global financial cycle and that foreign exchange intervention can reduce macroeconomic volatility and improve welfare. These results point to the importance of foreign exchange reserves in insulating emerging economies from shocks to global capital flows. |
| Keywords: | Foreign Exchange Intervention; Global Financial Cycle; Liability Dollarization; Balance Sheet Effects; Emerging Economies |
| JEL: | E58 F31 F41 |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_27&r= |
| By: | Adesoji O. Farayibi (University of Ibadan, Nigeria); Oludele Folarin (University of Ibadan, Nigeria) |
| Abstract: | The human capital crisis, reflected in the weak global competitiveness of African education, has questioned the effectiveness of public spending in increasing educational outcomes in the continent. Thus, this article examines the impact of government education expenditure on educational outcomes in 31 sub-Saharan African (SSA) countries from 2000-2019 based on a Generalized Method of Moments (GMM). The study sheds light on the priorities of government education spending in the continent. Findings showed that the effect of government education spending on educational outcomes in SSA was driven by the measure of educational outcome used. Government spending in Africa had focused mainly on primary and secondary education to the detriment of tertiary education because it is convenient and generates political gains. Due to institutional rigidities which emanate from the governance structure, the inequitable allocation of government funding had made higher education in Africa less responsive to the changes in global knowledge and labour market demands. Therefore, the following policy agenda becomes imperative in the SSA: (i) government education spending should equitably target all education levels to improve the aggregate human capital development indicators in the region. (ii) There is a need to enhance government institutions' capacity to increase their level of effectiveness and performance. |
| Keywords: | Government Education Expenditure; Educational Outcomes Higher Education; System GMM; sub-Saharan Africa |
| JEL: | E24 E52 E62 J17 J21 J24 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/048&r= |
| By: | Federico S. Mandelman |
| Abstract: | The COVID-19 pandemic produced a massive decline in U.S. consumption in 2020 and swift fiscal and monetary responses. After growing at a rather steady 5 percent rate for decades, the money supply (M2) increased 25 percent over the past year alongside unprecedented fiscal support, raising some inflationary concerns. Concurrent with the reopening of the economy as vaccines roll out, this article derives some lessons from the U.S. experience during and after WWII. The debt-to-GDP ratio increased from 40 percent to 110 percent because of the war effort. Most of it was financed by Fed debt purchases, through a de facto yield curve control that held down short- and long-term interest rates. The money supply doubled in size, but inflation was muted during the conflict as private consumption demand was severely restrained. Private consumption was suppressed, as factories were fully devoted to the rearmament effort, food was rationed, and construction was practically prohibited. Households’ saving boomed as a result. After the war, swift pent-up consumption demand culminated in a short-lived spike in inflation from 2 percent to 20 percent in 1946–47, which quickly returned to 2 percent in 1949. Contractionary monetary and fiscal policies, along well-anchored low inflation expectations inherited from the Great Depression, appeared to have contributed to rapid disinflation. I also discuss the experiences of Japan and Europe in recent decades. |
| Keywords: | Money aggregates; inflation; World War II; pent-up demand; COVID-19 |
| JEL: | E19 I19 |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:92864&r= |
| By: | International Monetary Fund |
| Abstract: | The Slovak Republic faced the pandemic from a position of strength with fiscal space and comfortable banking sector buffers. Effective policy support, through measures aimed at preserving jobs, providing liquidity support, and ensuring credit supply, have limited the economic fallout. Output is expected to reach pre-crisis level before the end of 2021, but uncertainty is high. |
| Keywords: | money market rate; public finance; liability positions vis-à-vis nonresident; policy support; physical capital; COVID-19; Loans; Credit; Commercial banks; Europe; Global |
| Date: | 2021–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/133&r= |
| By: | Antonin Aviat; Frédérique Bec; Claude Diebolt; Catherine Doz; Denis Ferrand; Laurent Ferrara; Eric Heyer; Valérie Mignon; Pierre-Alain Pionnier |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-27&r= |
| By: | Swanepoel, Christie; Fliers, Philip |
| Abstract: | The newly established South African Reserve Bank (SARB) was tasked to protect the currency by navigating the interwar gold standard, and, from March 1933, maintaining parity with the Pound Sterling. We find that South Africa's exit from gold secured an unparalleled and rapid recovery from the Great Depression. South Africa's exit was accompanied by an inextricable link of the SARB's policy rate to the interest rate set by the Bank of England (BoE). This sacrifice of independent monetary policy allowed the SARB to fix the country's exchange rate without impeding the flow of gold to London. The SARB fuelled the economy by reducing its policy rates and accumulating gold. Had South Africa not devalued, the country would have suffered a severe depression and persistent deflation. An alternative to the devaluation, was for the SARB to pursue a cheap money strategy. By setting interest rates historically low, we find that South Africa could have achieved higher levels of economic growth, at the cost of higher inflation. Ultimately, South Africa's unparalleled recovery can be ascribed to the devaluation, however the change in the SARB monetary policy and the bank's control over the gold markets were of paramount importance. |
| Keywords: | monetary policy management,interwar gold standard,South Africa |
| JEL: | N14 N20 E42 E52 E58 F33 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:202105&r= |
| By: | Dan Andrews; Jonathan Hambur; Elif Bahar |
| Abstract: | The consequences of the pandemic for potential output will partly hinge on its impact on high productivity firms, and more generally the ongoing process of productivity-enhancing reallocation – the rate at which scarce resources are reallocated from less productive to more productive firms. While Schumpeter (1939) originally proposed that recessions can accelerate this process, the more ‘random’ nature of the COVID-19 shock coupled with a policy response that prioritised preservation (over reallocation) raises questions about whether job reallocation remained productivity-enhancing over the course of the pandemic. Despite these headwinds, our analysis based on novel high-frequency employment data for Australia shows that job reallocation (and firm exit) remained solidly connected to firm productivity over 2020. The greater resilience of high productivity firms is significant, given that an indiscriminate shakeout of such firms – and the associated destruction of firm-specific intangible capital – would have imparted significant scarring effects. As it turns out, the temporary nature of Australia’s job retention scheme (JobKeeper) made an important (and surprising) positive contribution to this process, with material consequences for aggregate productivity. But the scheme appears to have become more distortive over time, justifying its timely withdraw – on productivity grounds at least. |
| Keywords: | COVID-19, productivity, reallocation, recessions |
| JEL: | E24 E32 J63 O4 |
| Date: | 2021–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1677-en&r= |
| By: | Robert Duval-Hernandez; Lei Fang; L. Rachel Ngai |
| Abstract: | Using micro data from 17 countries in the Organisation for Economic Co-operation and Development, this paper documents a negative cross-country correlation between gender ratios in market hours and wages. We find that market hours by women and the size of the service sector that produces close substitutes to home production are important for the gender differences in market hours across countries. We quantify the role played by taxes and subsidies to family care on the two gender ratios in a multisector model with home production. Higher taxes and lower subsidies reduce the marketization of home production and therefore reduce market hours. The effect is larger for women because of their comparative advantage in producing home services and the corresponding market substitutes. The larger fall in female market hours drives up the female wage relative to the male wage, resulting in higher gender wage ratios. |
| Keywords: | marketization; gender hour ratios; gender wage ratios; subsidies on family care; taxes; home production |
| JEL: | E24 E62 J22 |
| Date: | 2021–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:92861&r= |
| By: | International Monetary Fund |
| Abstract: | Belize has been hit hard by the COVID-19 pandemic, which led to a deep recession and worsened fiscal and external positions from already weak levels. The opposition People’s United Party won the November 2020 elections by a wide margin, which gives the new government a unique opportunity to jump start much needed reforms to reduce large imbalances and anchor strong and inclusive growth. |
| Keywords: | currency peg; exchange regime; homegrown adjustment plan; public debt debt ratio; central bank financing; Fiscal stance; Fiscal consolidation; COVID-19; Caribbean; Global |
| Date: | 2021–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/103&r= |
| By: | Saccal, Alessandro |
| Abstract: | This work supplies additional empirical evidence of responses in real economic activity to shocks in confidence. A structural vector autoregression (SVAR) featuring confidence, real consumption and real output is constructed with respect to the Euro area and eight European nations. Results are mixed: responses exhibit reversibility and irreversibility, suggesting the formulation of a theoretical mechanism capable of formalising such a variety. The potential causes behind confidence in the same nations are moreover evaluated through a panel data regression. Results indicate aversion towards output, inflation, unemployment, monetary independence and financial openness, but favour population, exchange rate rigidity and the accumulation of sovereign debt. |
| Keywords: | confidence; economic activity; Europe. |
| JEL: | C32 C33 E37 |
| Date: | 2021–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108812&r= |
| By: | FORTES, Roberta; Le Guenedal, Theo |
| Abstract: | This article assesses the communication of the European Central Bank (ECB) using Natural Language Processing (NLP) techniques. We show the evolution of discourse over time and capture the main themes of interest for the central bank that go beyond its traditional mandate of maintaining price stability, enlightening main concerns and themes of discussion among board members. We also built sentiment signals compatible with any form of language, both formal and informal, an important step as the ECB aims to enhance communication with non-expert audiences. In a second step, we measure the impact of the ECB's communication on the EUR/USD exchange rate. We found that our quantitative series, both topics and sentiment, improve financial-linked models consistently in all periods analyzed (2.5\% on average). Meaningful signals comprise a broad range of subjects and vary in time. This suggests that overall ECB's talk matters for asset prices, including themes not directly related to monetary policy. This result is particularly important in a context in which the ECB, as well as other major central banks, are moving towards integrating issues closer to the society into their scope of action, implying that subjects, which were considered peripheral, may become central. This emphasizes the importance for markets to effectively track central banks' communication to improve investment processes. |
| Keywords: | Quantitative trading, Central Bank, Fixed Income,Exchange Rates, Text mining, NLP, Euro |
| JEL: | C38 C63 E44 F3 F31 G12 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108746&r= |
| By: | Dan Andrews; Andrew Charlton; Angus Moore |
| Abstract: | The longer run consequences of the pandemic will partly hinge on its impact on high productivity firms, and the ongoing process of labour reallocation from low to high productivity firms. While Schumpeter (1939) proposed that recessions can accelerate this process, the nature of the COVID-19 shock coupled with a policy response that prioritised preservation (over reallocation) raises questions about whether job reallocation remained productivity-enhancing. Using novel, near-real-time data for Australia, New Zealand and the United Kingdom, this paper shows that while labour turnover fell in response to the pandemic, job reallocation remained connected to firm productivity – that is, high productivity firms were more likely to expand and low productivity firms were more likely to contract. The pandemic coincided with a temporary strengthening of the reallocation-productivity link in Australia – but a weakening in New Zealand – which appears related to the design of job retention schemes. Finally, firms that intensively used Apps to manage their business were more resilient, even after controlling for productivity. Thus, while policy partly suppressed creative destruction, the nature of the shock – i.e. one where being online and able to operate remotely were key – favoured high productivity and tech-savvy firms, resulting in a reallocation of labour to such firms. The use of timely, novel data to investigate the allocative effects of the pandemic marks a significant advance, given that the seminal paper on productivity-enhancing reallocation during the Great Recession arrived some six years after Lehman Brothers collapsed. |
| Keywords: | COVID-19, productivity, reallocation, recessions |
| JEL: | E24 E32 J63 O4 |
| Date: | 2021–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1676-en&r= |
| By: | International Monetary Fund |
| Abstract: | Norway’s key challenge is to get the right balance of support for recovery and adjustment until the crisis is firmly in its past. The authorities intend to continue exceptional policy support into 2021, adjusted to reflect the rebound in economic activity and pace of vaccinations in the second half of the year, and with better targeting to affected sectors. This will support the expected closing of the output gap by 2023 and help mitigate scarring, while also facilitating reallocation of capital and labor. |
| Keywords: | staff appraisal; corona crisis; mainland GDP; staff representative; liability positions vis-à-vis nonresident; COVID-19; Loans; Fiscal stance; Global; Europe |
| Date: | 2021–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/104&r= |
| By: | International Monetary Fund |
| Abstract: | The Gambia is experiencing a second wave of COVID-19 cases. The vaccination campaign started in early March 2021, but the pace is slow, due to vaccine availability and hesitancy. Presidential and parliamentary elections are planned for December 2021 and April 2022, respectively. |
| Keywords: | monetary policy stance; public finance; fiscal policy prioritization; transparency policy; vaccination campaign; inflation development; reform agenda; COVID-19; Debt service; Credit; Global |
| Date: | 2021–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/109&r= |
| By: | International Monetary Fund |
| Abstract: | Recent economic developments. Supported by a large policy package, Serbia’s economy rebounded quickly from the initial COVID-19 shock, recording a 1 percent contraction of real GDP in 2020. Job losses have mostly been contained to the informal sector, thanks to policy measures aimed at preserving formal employment. A supplementary budget for 2021 was adopted in April boosting capital expenditure and extending policy support to households and corporates, against the background of third and fourth waves of infections and related containment measures, as well as a weaker-than-expected economic recovery in key trading partners. Inflation remains low. After rising again in late February, infections tapered, helped by new containment measures and the rapid vaccine rollout. |
| Date: | 2021–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/132&r= |
| By: | International Monetary Fund |
| Abstract: | Peru’s very strong macroeconomic policies and institutional policy frameworks have helped anchor strong growth and stability over the past several years and navigate the challenges posed by the COVID-19 pandemic. The confluence of a sound inflation-targeting regime, flexible exchange rate, credible fiscal framework, reflected in very low public debt, and sound financial sector supervision and regulation have allowed the country to deploy a robust policy response to mitigate the socio-economic impact of the pandemic while sustaining strong access to international capital markets. Following the worst economic contraction in 30 years, economic activity is expected to rebound this year as COVID-19 vaccines are rolled out, and the pandemic is gradually brought under control. Real GDP is expected to return to its pre-pandemic level by 2022, supported by improved terms-of-trade and a pick-up in domestic demand. The second round of presidential elections is scheduled for June 6. |
| Date: | 2021–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/129&r= |
| By: | Zulkhibri, Muhamed; Sinay, Joy Blessilda |
| Abstract: | Responding to the crisis, the AMS rolled out numerous fiscal stimulus packages, monetary policy and financial measures, and sector-specific measures and interventions. Business and consumer confidence across the ASEAN region diminished as the impact of the COVID-19 pandemic mounted. Amid uncertainties, the AMSneed to carry on withsystematic interventions andeconomic remedies to pushthe economy forward. Inparticular, i) continue thebroad-based fiscal stimulusand other targeted socio-economic measures; ii)ensure that firms couldreturn to their pre-COVID-19pandemic production and employment levels; iii)formulate a regional socio-economic recovery planpost-COVID-19 to facilitateregional growth; andiv)reinvigorate multilateralismto ensure global resilienceand sustainability post-COVID-19. |
| Keywords: | ASEAN; Regional Integration; Covid-19, Economic Policy |
| JEL: | E3 E6 F5 F6 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108789&r= |
| By: | International Monetary Fund |
| Abstract: | Switzerland has navigated the COVID-19 pandemic well. The pandemic has had major social and economic impacts, but an early, strong, and sustained health and economic policy response helped contain the contraction of activity. Coordinated efforts targeting households and firms stemmed a loss of purchasing power and a rise of unemployment and bankruptcies. Recovery has commenced, but uncertainty and risks remain high, dominated by pandemic dynamics. The rebound should deepen, as vaccination proceeds, containment is eased, and domestic and global demand picks up. Fiscal support has been rightly extended in 2021, and monetary policy remains accommodative. Policies should remain supportive until there are clear signs of sustained recovery; the authorities should expand support if needed. Redirection to fostering green, digital transformation with attention to low-income earners will be needed, including to ensure that prolonged emergency support does not hinder structural changes in the economy. |
| Date: | 2021–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/130&r= |
| By: | Bernd Hayo (University of Marburg); Sascha Mierzwa (University of Marburg) |
| Abstract: | We study state-dependent effects of narratively identified tax shocks in Germany and the UK over the period 1974Q1–2018Q4 using local projections. In addition, we distinguish between aggregated and disaggregated tax types (direct and indirect taxes) as well as look for possible asymmetries between tax hikes and tax cuts. We find a number of differences across the business cycle, and between sample countries, tax types, and direction of tax changes. For instance, aggregated tax cuts initially have a larger effect during times of nonrecession in Germany, whereas we find no state-dependent effects for the UK. When disaggregating tax types, German indirect tax cuts only appear expansionary during downturns, whereas the effect is positive throughout the business cycle in the UK. Furthermore, we find different reactions when considering tax cuts and hikes individually: tax hikes can be expansionary in Germany (UK) when implemented during non-recessionary (recessionary) periods whereas they are contractionary during recessions (non-recessions). When considering tax cuts, German GDP rises only when cuts are enacted in times of non-recession, whereas in the UK, the reactions is positive in either case and mostly symmetric. All these findings are robust to various changes in the econometric setup. |
| Keywords: | Fiscal policy, tax policy, legislated tax changes, state dependence, direct taxes, indirect taxes, asymmetric effects, Germany, United Kingdom, local projections, narrative approach |
| JEL: | E62 E63 H20 H30 K34 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202125&r= |
| By: | James Hebden; Fabian Winkler |
| Abstract: | We propose an efficient procedure to solve for policy counterfactuals in linear models with occasionally binding constraints. The procedure does not require knowledge of the structural or reduced-form equations of the model, its state variables, or its shock processes. Forecasts of the variables entering the policy problem, and impulse response functions of these variables to anticipated policy shocks under an arbitrary policy, constitute sufficient information to construct valid counterfactuals. We show how to compute solutions for instrument rules and optimal discretionary and commitment policies with multiple policy instruments, and discuss various extensions including imperfect information, asymmetric objectives, and limited commitment. Our procedure facilitates the comparison of the effects of policy regimes across models. As an application, we compute counterfactual paths of the US economy around 2015 for several monetary policy regimes. |
| Keywords: | Computation; DSGE; Occasionally Binding Constraints; Optimal Policy; Commitment; Discretion |
| JEL: | C61 C63 E52 |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-42&r= |
| By: | International Monetary Fund |
| Abstract: | Andorra, the IMF’s newest member since October 2020, participated in its first Article IV consultation with a commitment to further enhance transparency. Tourism and banking-related services dominate economic activity in the euroized economy. The country enjoys long-standing political stability, a good track-record of fiscal discipline, a gender-balanced work force, and internationally competitive ski resorts. The authorities are managing the pandemic well with universal testing and expanded hospital capacity that kept fatality rates very low despite high case-loads. The testing strategy helped Andorra implement more targeted internal restrictions than in neighboring countries. At the same time, emergency fiscal measures stabilized real incomes and supported firms. |
| Keywords: | Andorran authorities; AFA team; general government debt; general management; mountain ecosystem; anti-money laundering framework; authorities' desire; money market rate; Public investment spending; COVID-19; Nonperforming loans; Income; Europe |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/107&r= |
| By: | María J. Nieto (Banco de España); Dalvinder Singh (University of Warwick) |
| Abstract: | The goal of expanding participation in the European Banking Union was to allow the “outs” to enter into close cooperation, but it did not include the simultaneous joining of the Exchange Rate Mechanism (ERM II). Focusing on the cases of Bulgaria and Croatia, this paper attempts to respond to various questions. What is the rationale behind the double requirement of having simultaneously to apply to become a member of the ERM II and to prepare to become a member of the Banking Union via the rule-based “close-cooperation” coordination mechanism between the EU non-euro-area national competent authorities (NCAs) and the European Central Bank (ECB)? Does the integration of close-cooperation countries’ banking systems with the euro-area banking systems support the decision to join the ERM II and “opting in” to the Single Supervisory Mechanism (SSM)? What are the advantages of preparing to become a full member of the euro area and the SSM? It is evident from the research undertaken in this paper that there are clear benefits of close cooperation for these member states whose domestic currencies are already linked to the euro, in view of the dominant position eurozone banks have in their respective domestic markets. It is more difficult for a national central bank or NCA to exercise discretion in implementing ECB decisions once it is committed to the path leading to full European Monetary Union (EMU) membership. Hence the commitment to join the EMU minimises the authority risk for the ECB as well as for the Single Resolution Board, as safeguards become non-significant and termination is not an issue. The uncertainty about the functioning and durability of the close-cooperation arrangement is largely removed. |
| Keywords: | Banking Union, close cooperation, ERM II |
| JEL: | E02 E44 F15 G15 G21 H12 K23 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2117&r= |
| By: | Nicolas Caramp (Department of Economics, University of California Davis) |
| Abstract: | What sows the seeds of financial crises, and what policies can help avoid them? I model the interaction between the ex-ante production of assets and ex-post adverse selection in financial markets. Positive shocks that increase market prices exacerbate the production of low-quality assets and can increase the likelihood of a financial market collapse. The interest rate and the liquidity premium are endogenous and depend on the functioning of financial markets as well as the total supply of assets (private and public). Optimal policy balances the economy’s liq- uidity needs ex-post with the production incentives ex-ante, and it can be implemented with three instruments: government bonds, asset purchase programs, and transaction taxes. Pub- lic liquidity improves incentives but implies a higher deadweight loss than private market interventions. Optimal policy does not rule out private market collapses but mitigates the fluctuations in the total liquidity. |
| JEL: | E44 G01 G12 D82 |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:342&r= |
| By: | Michael Christl (European Commission - JRC); Silvia De Poli (European Commission - JRC); Tine Hufkens; Andreas Peichl (Ifo Institute); Mattia Ricci (European Commission - JRC) |
| Abstract: | In this paper, we investigate the impact of the COVID-19 pandemic on German household income using a micro-level approach. We combine a microsimulation model with labour market transition techniques to simulate the COVID-19 shock on the German labour market. We find the consequences of the labour market shock to be highly regressive with a strong impact on the poorest households. However, this effect is nearly entirely offset by automatic stabilisers and discretionary policy measures. We explore the cushioning effect of these policies in detail, showing that short-time working schemes and especially the one-off payments for children are effective in cushioning the income loss of the poor. |
| Keywords: | COVID-19, EUROMOD, microsimulation, short-time work, automatic stabilisers |
| JEL: | D31 E24 H24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202104&r= |
| By: | Robert E. Hall; Marianna Kudlyak |
| Abstract: | Potential workers are classified as unemployed if they seek work but are not working. The unemployed population contains two groups---those with jobs and those without jobs. Those with jobs are on furlough or temporary layoff. This group expanded tremendously in April 2020. They wait out periods of non-work with the understanding that their jobs still exist and that they will be recalled. We show that the resulting temporary-layoff unemployment dissipates quickly following a spike. Potential workers without jobs constitute what we call jobless unemployment. Shocks that elevate jobless unemployment have much more persistent effects. Historical major adverse shocks, such as the financial crisis in 2008, created mostly jobless unemployment and consequently caused extended periods of elevated unemployment. The pandemic of 2020 created a large volume of temporary-layoff unemployment, mostly starting in April. It was mostly dissipated by the end of 2020. It also created a bulge in jobless unemployment. |
| Keywords: | Business cycle; Recovery; Unemployment; Recession; Layoffs; Recall |
| JEL: | E32 J63 J64 |
| Date: | 2021–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:92905&r= |
| By: | International Monetary Fund |
| Abstract: | Guatemala has managed to keep infections and deaths moderate during the pandemic. The economic impact of COVID-19 has been mild given an early reopening of the economy, unprecedented policy support, and resilient remittances and exports. However, despite large-scale government interventions to support households, poverty and malnutrition have deteriorated following COVID-19 and the two major hurricanes battering Guatemala last November. |
| Keywords: | expectations stable; disaster risk policy; remittance inflow; family remittance; public debt level; COVID-19; Remittances; Natural disasters; Government finance statistics; Global; Central America |
| Date: | 2021–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/111&r= |
| By: | Luca Baldo (Bank of Italy); Elisa Bonifacio (Bank of Italy); Marco Brandi (Bank of Italy); Michelina Lo Russo (Bank of Italy); Gianluca Maddaloni (Bank of Italy); Andrea Nobili (Bank of Italy); Giorgia Rocco (Bank of Italy); Gabriele Sene (Bank of Italy); Massimo Valentini (Bank of Italy) |
| Abstract: | In this study, we assess the main drivers of banknote circulation in Italy over the last decades by using a number of econometric tools proposed in the literature. We explore the role played by the banknote flows from abroad, changes in the institutional framework and disentangle domestic demand for transaction purposes from other components, including liquidity hoarding. We find that changes in legal limits on cash payment and money holdings for precautionary reasons explain the bulk of cash dynamics. Moreover, the share of transaction demand declined over time becoming of second-order. Finally, we find that, during the pandemic from Covid-19, the exceptional raise in cash circulation was mostly the result of an increase in precautionary demand due to both economic uncertainty and restrictions to mobility that resulted into a marked decline of lodgments to the central bank. |
| Keywords: | cash circulation, cash, payment habits, Covid-19 pandemic |
| JEL: | E41 E42 G2 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_007_21&r= |
| By: | Michael Christl (European Commission - JRC); Silvia De Poli (European Commission - JRC); Denes Kucsera; Hanno Lorenz |
| Abstract: | This paper analyzes the impact of the COVID-19 crisis on household income in Austria, using detailed administrative labor market data, in combination with micro-simulation techniques, that enable specific labor market transitions to be modeled. We find that discretionary fiscal policy measures in Austria are key to counteracting the inequality- and poverty-enhancing effect of COVID-19. Additionally, we find that females tend to experience a greater loss in terms of market income. The Austrian tax-benefit system, however, reduces this gender differences. Disposable income has dropped by around 1% for both males and females. By comparison, males profit mainly from short-time work scheme, while females profit especially from other discretionary policy measures, such as the one-off payment for children. |
| Keywords: | COVID-19, EUROMOD, microsimulation, short-time work, automatic stabilisers |
| JEL: | D31 E24 H24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202105&r= |
| By: | International Monetary Fund |
| Abstract: | Barbados has made good progress in implementing its Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth. International reserves have increased to US$1.3 billion at end-March 2021, supported by IFI loans. This, and a successful 2018-19 public debt restructuring, have helped rebuild confidence in the country’s macroeconomic framework. However, a virtual standstill in the tourism sector during the pandemic took a significant toll in 2020, with the economy contracting by 18 percent. While Barbados was successful in containing the outbreak during 2020, a surge in COVID-19 cases in early 2021 resulted in the country’s second national lockdown in February. Economic growth is projected at 3 percent for 2021 premised on a modest recovery of tourism in the second half of the year, but the outlook remains highly uncertain, and risks are elevated, also in light of the possible impact of recent volcanic activity in neighboring Saint Vincent. |
| Date: | 2021–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/128&r= |
| By: | International Monetary Fund |
| Abstract: | Denmark entered the pandemic on a strong economic footing and utilized its large policy space built over time to successfully address the crisis and lay the ground for a strong recovery. The outlook is for a rebound in activity, but uncertainty remains elevated with risks tilted to the downside. Macrofinancial vulnerabilities persist as housing price growth has accelerated and household debt remains high. The current account declined but remains in surplus. |
| Date: | 2021–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/112&r= |
| By: | Altermatt, Lukas; Wang, Zijian |
| Abstract: | Oligopolistic competition in the banking sector and risk in the real economy are important characteristics of developed economies, but have so far mostly been abstracted from in monetary economics. We build a dynamic general equilibrium model of monetary policy transmission that incorporates both of these features and document that including them leads to important insights in our understanding of the transmission mechanism. Various equilibrium cases can occur, and policies have differing effects in these cases. We calibrate the model to the U.S. economy in 2016-2019 in order to study how changes in the degree of banking competition or the policy rate would have affected equilibrium outcomes. We find that doubling banking competition would have increased welfare by 1.02\%, but at the cost of increasing the probability of bank default from 0.02\% to 0.44\%. We further find that the policy rate was set optimally to minimize the probability of bank default, but that a decrease in the policy rate by 1pp would have increased welfare by 0.40\%. We also show that bank profits are increasing in the policy rate, in particular when interest rates are low. Thus, a 1pp reduction in the policy rate would have reduced profits per bank by 35.5\% in our calibrated economy. Finally, we document that monetary policy pass-through is incomplete under imperfect competition in the banking sector, as a change in the policy rate by 1pp leads to a change of only 0.92pp in the loan rate, while pass-through to the deposit rate is nearly complete for rate increases, but almost zero for rate reductions due to the zero-lower bound. |
| Keywords: | Oligopoly competition, Risky investment, Monetary policy, Financial intermediation |
| Date: | 2021–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:30728&r= |
| By: | International Monetary Fund |
| Abstract: | The Ugandan authorities reacted swiftly to the COVID-19 crisis, locking down the economy, saving lives and avoiding a public health crisis. However, the resulting economic and social costs have been high. Per capita GDP growth remains below pre-pandemic levels, poverty gains have been reversed, fiscal balances have deteriorated, and pressures on external buffers remain high. |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/141&r= |
| By: | Masahiko Shibamoto (Research Institute for Economics and Business Administration(RIEB), Kobe University, JAPAN); Shoka Hayaki (Graduate School of Business Administration, Kobe University, JAPAN); Yoshitaka Ogisu (Graduate School of Economics, Kobe University, JAPAN) |
| Abstract: | Given that real-world infection-spread scenarios pose many uncertainties, and predictions and simulations may differ from reality, this study explores factors essential for describing a more realistic evolution of an infection situation. It furnishes three approaches to the argument that human mobility can create an acceleration of the spread of the COVID-19 infection and its cyclicality under the simultaneous relationship. First, using time-series data in Japan, the study presents empirical evidence for a stochastic trend and cycle in new infection cases and the information content of human mobility for infection dynamics. Second, it presents a dynamic model comprising the infection–mobility trade-off and mobility demand, where an increase in human mobility can cause the infection explosion and an increase in new infections can be temporary by suppressing mobility. Third, it employs macroeconometrics to ascertain the feasibility of our model predictions. Accordingly, from March 2020 through May 2021, the sources of the COVID-19 infection spread in Japan varied significantly over time, and each change in the trend and cycle in the new infection cases explained approximately half the respective variation. |
| Keywords: | COVID-19; Stochastic trend and cycle; New infection cases; Infection–mobility trade-off; Mobility demand; Macroeconometrics |
| JEL: | C32 E31 E32 I10 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2021-16&r= |
| By: | International Monetary Fund |
| Abstract: | Hungary’s economy entered the COVID-19 pandemic on a strong footing and the authorities responded swiftly and strongly to the crisis it triggered. While the lockdowns weighed heavily on activity, the fast vaccination pace is allowing an early relaxation of containment measures, and the economy has started to rebound. |
| Date: | 2021–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/135&r= |
| By: | Paul Corrigan; Hélène Desgagnés; José Dorich; Vadym Lepetyuk; Wataru Miyamoto; Yang Zhang |
| Abstract: | We present a technical description of the second large-scale update to the Terms-of-Trade Economic Model: ToTEM III. This updated version of the model replaced ToTEM II in 2017. ToTEM III's structure includes key aspects of household indebtedness and improved modelling of the housing market. These new features allow Bank staff to address a broader range of economic issues. Moreover, the model is estimated using a Bayesian methodology with informative priors and a larger set of observable variables, including improved measures of the factors explaining non-commodity exports. These enhancements in the model structure and estimation have contributed to significant improvements in the empirical properties of the model. We also compare the new model’s responses to key macroeconomic shocks with those of ToTEM II and explore two important policy applications. |
| Keywords: | Business fluctuations and cycles, Economic models, Housing, Interest rates, Monetary policy |
| JEL: | E65 F41 G51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocatr:119&r= |
| By: | Michael Christl (European Commission - JRC); Silvia De Poli (European Commission - JRC); Francesco Figari; Tine Hufkens; Chrysa Leventi; Andrea Papini (European Commission - JRC); Alberto Tumino (European Commission - JRC) |
| Abstract: | This paper analyses the extent to which the tax-benefit systems of the EU Member States have protected household incomes during the COVID-19 pandemic. We makes use of EUROMOD, the EU tax-benefit microsimulation model based on 2018 EU-SILC data. Detailed aggregate labour market statistics combined with a novel approach to simulate transitions from work into monetary compensation schemes (short-time work schemes, as well as compensation schemes for self-employed) and into unemployment allows us to replicate the labour market conditions during the COVID-19 crisis in 2020 in the underlying EU-SILC data. Our analysis highlights that most of the countries analysed experienced a significant drop in market incomes, with poorer households hit the hardest. However, our findings also suggest that the tax-benefit systems of the EU Member States have been able to absorb a significant share of the COVID-19 shock, offsetting – or alleviating – its regressive nature on market incomes. Monetary compensation schemes implemented by EU Member States played a key role in cushioning against the fall in household income during the crisis. |
| Keywords: | COVID-19, EUROMOD, microsimulation, EU, automatic stabilisers, compensation schemes |
| JEL: | D31 E24 H24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202102&r= |
| By: | Nicolas Crouzet; Janice C. Eberly |
| Abstract: | In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations — reflected in average Q — and investment — reflected in marginal q — can be decomposed into three terms: the value of installed intangibles; rents generated by physical capital; and an interaction term, measuring rents generated by intangibles. The intangible-related terms contribute significantly to the gap, particularly in fast-growing sectors. Our findings suggest care in a pure-rents interpretation, given the rising role of intangibles. |
| JEL: | D25 D4 E22 G31 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28988&r= |
| By: | International Monetary Fund |
| Abstract: | Ireland entered the COVID pandemic with reduced vulnerabilities and high growth, especially in multinational enterprises (MNEs)-dominated sectors. The pandemic has had a highly asymmetric impact on the economy. The domestic sectors contracted by about 10 percent in 2020 and unemployment reached 30 percent at the peak of the first wave, while MNEs continued to grow strongly, driving overall GDP growth to 3.4 percent. A swift policy response has been effective in mitigating the crisis impact and protecting households and firms. The domestic sectors are expected to partially recover in 2021, with GDP growth projected at 4.6 percent. Downside risks stem from uncertainties surrounding new COVID variants, post-Brexit trade arrangements, and likely changes in international taxation. |
| Keywords: | money market rate; liability positions vis-à-vis nonresident; income support; policy support; cost reduction; COVID-19; Credit; Income; Housing; Europe; Global;Loans |
| Date: | 2021–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/123&r= |
| By: | International Monetary Fund |
| Abstract: | Afghanistan is confronting the Covid-19 pandemic and its socioeconomic fallout amid rising insecurity. Supported by donors, the authorities boosted health and social spending to cushion the pandemic’s impact on the vulnerable. Policy measures kept the output contraction to 2 percent in 2020, but poverty rose and the fiscal deficit widened. Political uncertainty has risen as the peace talks between the government and Taliban stalled and the U.S., NATO, and allies announced the withdrawal of their troops by September. In a strong sign of support for Afghanistan’s development and reforms, donors pledged some US$12 billion civilian grants over 2021–24 at the Geneva conference in November 2020. |
| Date: | 2021–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/138&r= |
| By: | Raphaël Cardot-Martin (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France); Fabien Labondance (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France); Catherine Refait-Alexandre (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France) |
| Abstract: | We assess if capital ratios reduced the occurrence of banking crises in the European Union from 1998 to 2017. We use a Probit model and estimate the effect of two measures: the bank capital to total assets ratio and the bank regulatory capital to Risk Weighted Assets (RWA). We found that both measures affect negatively the probability of crisis. This result is robust to the exclusion of outliers, to the inclusion of various control variables for banking, financial and macroeconomic risks. Finally, we show that while the bank regulatory capital to RWA has always a negative effect on the probability of crisis, the bank capital to total assets ratio is only significant above a threshold, estimated between 10% and 12%. |
| Keywords: | Unconventional measures, retail interest rate, Heterogeneous panel |
| JEL: | G21 E44 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2021-05&r= |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic has interrupted Cyprus’s strong economic growth over the past few years. High dependence on service sectors and strict containment measures led real output to contract by 5.1 percent (yoy) during 2020. Growth is projected to recover to 3 percent in 2021 as the vaccine rollout gathers pace despite the ongoing new wave of infections, but significant downside risks remain, reflecting the high uncertainty of the path of the epidemic. |
| Date: | 2021–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/125&r= |
| By: | Amandeep Kaur; Ranjan Kumar Mohanty; Lekha S. Chakraborty; Divy Rangan |
| Abstract: | Using panel data models, we analyze the flypaper effects--whether intergovernmental fiscal transfers or states' own income determine expenditure commitments--on ecological fiscal spending in India. The econometric results show that the unconditional fiscal transfers, rather than the states' own income, determine ecological expenditure in the forestry sector at subnational levels in India. The results hold when the models are controlled for ecological outcomes and demographic variables. |
| Keywords: | Intergovernmental Transfers; Flypaper Effect; Public Expenditures; Forestry Sector |
| JEL: | E6 H5 H7 Q5 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_990&r= |
| By: | International Monetary Fund |
| Abstract: | The macroeconomic outlook has worsened amid a second wave of the COVID-19 pandemic, higher commodity prices and social unrest, rooted in widening inequality and a lack of opportunities for the youth. The COVID-19 vaccination campaign was launched in February but has so far covered less than 5 percent of Senegal’s population. The President announced in early April an emergency program for youth employment and economic insertion amounting to 3 percent of GDP, spread evenly over 2021–23. |
| Date: | 2021–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/127&r= |
| By: | International Monetary Fund |
| Abstract: | The institutional framework for Macroprudential Policies (MaPP) in the Hong Kong Special Administrative Region (the Hong Kong SAR) is well established. According to the Basic Law, the Government of the Hong Kong SAR shall on its own formulate monetary and financial policies. The Financial Secretary (FS) and the Secretary for Financial Services and the Treasury (SFST) are responsible for policies for maintaining the stability and integrity of the financial system of the Hong Kong SAR. The Hong Kong SAR has a sector-based regulatory structure and the responsibilities and tools for safeguarding financial stability are spread across the Financial Services and the Treasury Bureau (FSTB) and three regulators (namely, the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC) and Insurance Authority (IA)). There are good and well-structured interagency coordination and consultation mechanisms, through the Council of Financial Regulators (CFR) and the Financial Stability Committee (FSC), chaired by the FS and the SFST, respectively. Broad coordination between the CFR and government agencies on taxation and housing supply-side policies has also worked well. MaPP and risk assessment are communicated to the public openly and frequently through speeches, press releases and regular publications, including the Half-Yearly Monetary and Financial Stability Report of the HKMA and the Half-yearly Review Report of the Global and Local Securities Markets of the SFC. |
| Date: | 2021–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/117&r= |
| By: | Ojo/Roedl, Marianne |
| Abstract: | The implications of COVID developments for monetary policy will certainly extend beyond the increased use of digital platforms and payments. The current environment is also focused on smart green techniques and green initiatives aimed at promoting a transition to a net zero based carbon emissions economy. During the onset of the pandemic, it was initially thought that carbon emissions would fall drastically – given the impact of the pandemic, not only on the airlines industry, but also as a result of “Stay at Home” measures imposed by jurisdictions, which even made it illegal to drive to certain places, where purposes for doing so were unjustified. However, the pandemic has also witnessed unprecedented levels in digital subscriptions, online sales and marketing – also fueled through digital payments and the use of digital platforms and distributed ledger technologies in facilitating cashless payments – cash, namely bank notes and coins, also being considered to be a medium of COVID transmission. Coupled with attributes such speed, convenience and ease, the need for financial inclusion has also become an objective in facilitating the era of innovative digital means of payments. As well as considering the current implications of measures that have been instigated to address the impacts of the pandemic, drawing from past and current lessons from selected jurisdictions, this paper also considers why the transition to a net zero carbon economy may prove more challenging than may first appear. However, jurisdictional differences and historical developments will play a part in determining how sustainable certain implemented policies and measures are – as well as in facilitating a transition to normality. |
| Keywords: | EU Green Deal; sustainable finance, interest rates; inflation; pandemic asset purchase program (PEPP); APP asset purchase program; longer term financing operations; transition risks; financial stability; CBDCs |
| JEL: | E5 G21 G28 G3 G38 K2 |
| Date: | 2021–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108844&r= |
| By: | International Monetary Fund |
| Abstract: | Kenya was hit by a third COVID-19 wave in March and April 2021, with renewed containment measures eased in May as the case count moderated. In mid-May, Kenya’s COVID-19 vaccination program faced serious challenges on delays in international vaccine shipments. The authorities are redoubling their efforts to mobilize support and now aim to inoculate 60 percent of the population by mid-2023. General elections are planned for August 2022. |
| Date: | 2021–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/137&r= |
| By: | International Monetary Fund |
| Abstract: | Since the 2019 popular revolution, Sudan’s transitional government has taken difficult steps to right decades of economic mismanagement. The challenges facing the authorities remain significant, but they have fulfilled the necessary conditions to reach the HIPC Decision Point (DP). This is an historic achievement and Sudan is set to clear its arrears and normalize relations with the IMF and other international financial institutions. This will unlock Sudan’s access to new financial resources to fund much needed development and social spending. |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/142&r= |
| By: | Matteo Brachetta; Claudia Ceci |
| Abstract: | We discuss a class of debt management problems in a stochastic environment model. We propose a model for the debt-to-GDP (Gross Domestic Product) ratio where the government interventions via fiscal policies affect the public debt and the GDP growth rate at the same time. We allow for stochastic interest rate and possible correlation with the GDP growth rate through the dependence of both the processes (interest rate and GDP growth rate) on a stochastic factor which may represent any relevant macroeconomic variable, such as the state of economy. We tackle the problem of a government whose goal is to determine the fiscal policy in order to minimize a general functional cost. We prove that the value function is a viscosity solution to the Hamilton-Jacobi-Bellman equation and provide a Verification Theorem based on classical solutions. We investigate the form of the candidate optimal fiscal policy in many cases of interest, providing interesting policy insights. Finally, we discuss two applications to the debt reduction problem and debt smoothing, providing explicit expressions of the value function and the optimal policy in some special cases. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.10491&r= |
| By: | International Monetary Fund |
| Abstract: | The transitional government embarked on a Staff-Monitored Program (SMP) in 2020 to help address major macroeconomic imbalances caused by decades of mismanagement, lay the groundwork for inclusive growth, and establish a track record of sound policies required for eventual HIPC debt relief. The economic challenges facing the authorities remain significant and have been exacerbated by the COVID-19 pandemic, but there have been improvements in both the domestic and external environment. Sudan has cleared its arrears to the World Bank and African Development Bank thereby regaining access to multilateral grant funding. A financing package for the clearance of arrears to the IMF has been identified, and on May 17, 2021 a development partner conference was held in Paris with a side event to promote investment in Sudan. |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/143&r= |
| By: | Giorgio Fabbri (Université de Grenoble); Salvatore Federico (Università degli studi di Genova); Davide Fiaschi (Università degli studi di Pisa); Fausto Gozzi (LUISS Guido Carli, Roma) |
| Abstract: | In this paper we propose a theoretical model including a susceptible-infectedrecovered-dead (SIRD) model of epidemic in a dynamic macroeconomic general equilibrium framework with agents' mobility. The latter affect both their income (and consumption) and their probability of infecting and of being infected. Strategic complementarities among individual mobility choices drive the evolution of aggregate economic activity, while infection externalities caused by individual mobility affect disease diffusion. Rational expectations of forward looking agents on the dynamics of aggregate mobility and epidemic determine individual mobility decisions. The model allows to evaluate alternative scenarios of mobility restrictions, especially policies dependent on the state of epidemic. We prove the existence of an equilibrium and provide a recursive construction method for finding equilibrium(a), which also guides our numerical investigations. We calibrate the model by using Italian experience on COVID-19 epidemic in the period February 2020 - May 2021. We discuss how our economic SIRD (ESIRD) model produces a substantially different dynamics of economy and epidemic with respect to a SIRD model with constant agents' mobility. Finally, by numerical explorations we illustrate how the model can be used to design an efficient policy of state-of-epidemic-dependent mobility restrictions, which mitigates the epidemic peaks stressing health system, and allows for trading-off the economic losses due to reduced mobility with the lower death rate due to the lower spread of epidemic |
| Keywords: | Strategic complementarities, ESIRD, COVID-19, Mitigation policies, Pandemic possibilities frontier |
| JEL: | E1 H0 I1 C72 C73 C62 |
| Date: | 2021–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2021017&r= |
| By: | Christa N. Brunnschweiler; Steven Poelhekke |
| Abstract: | We present a new dataset that tracks changes in legal ownership regimes in the petroleum sector between 1867 and 2008 for a panel of countries. We document that foreign ownership has been taken over by partnerships as the leading ownership regime, while domestic ownership is on the rise again in recent years. We use this dataset to examine whether institutional change in the petroleum sector leads to more oil and gas exploration and discoveries. On average, switching to majority foreign ownership is related to up to a quarter of a standard deviation more discoveries than under majority domestic ownership. Switching to partnership is positively related to drilling activity, but is less likely to be linked to many more discoveries. Petroleum exploration and discoveries may thus be endogenous to industry-specific institutional change. |
| Keywords: | discoveries, oil and gas, natural resources, institutions |
| JEL: | E02 O43 Q30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9169&r= |
| By: | Christian Buelens |
| Abstract: | In the anticipation of a widely accessible vaccine or an effective cure for the Coronavirus disease (COVID19), governments have resorted to non-pharmaceutical measures, notably lockdowns, to limit the number of infections, without overwhelming their health systems. In the short-run, this new objective of “flattening the epidemic curve” may however be at odds with incumbent ones, such as promoting economic growth. To the extent that the epidemic generates a conflict between these objectives, societies and their decisionmakers have to arbitrate between them. Using a stylised static model, this paper proposes a policy rule that determines a country’s optimal lockdown intensity as a function of social preferences, the strength of the epidemic and the characteristics of the economy, namely sectoral structure, health care capacity, fiscal space and lockdown compliance. The optimal lockdown determines a set of ‘outcomes’ in terms of welfare, production, income (which is considered to be related to the post-epidemic economic potential) and untreated infections. The model further takes into account that the sequential outbreak of the epidemic has conferred preparation time to some countries, which has raised the mitigation efficiency of lockdowns. Ceteris paribus, the social welfare loss declines the later an outbreak occurs, implying that the first countries affected act as shock absorbers, providing countries hit at a later stage with a ‘windfall benefit’. Collectively, a sequential outbreak is thus less costly than a symmetric one. Separately, the paper also shows how optimal lockdown policies change when there is uncertainty about the strength of the epidemic and mitigation efficiency, respectively, and how targeted measures (e.g. closure of contact-intensive sectors or the protection of vulnerable groups) alter the nature of the income-infections trade-off with respect to general lockdowns. |
| JEL: | D8 E6 I15 I18 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:143&r= |
| By: | Ardizzi Guerino (Bank of Italy); Alessandro Gambini (Bank of Italy); Andrea Nobili (Bank of Italy); Emanuele Pimpini (Bank of Italy); Giorgia Rocco (Bank of Italy) |
| Abstract: | This paper evaluates the impact of the COVID-19 pandemic on the use of retail payment instruments in Italy. After a brief overview of the trends prevailing in Italy before the spread of the pandemic, we analyse the dynamics of the main indicators on payment habits during the two waves of infection that have affected the country. We estimate the effects on the payment industry using different measures of the intensity of the pandemic in order to capture the impact of fears of contagion on the behaviour of households and businesses and the impact of the measures taken to contain the infection, which imposed constraints on social mobility and productive and commercial activities. The estimates show that the pandemic has increased the use of cards compared with cash at the physical point of sale and has encouraged transactions through more innovative payment technologies that allow physical distancing, such as purchases with contactless cards, those on e-commerce sites, and those made by bank transfer. Moreover, the analysis at the regional level suggests that the increase in more innovative electronic payments was more marked in Central and Southern Italy, areas in which, before the pandemic, the diffusion of electronic means of payment was more contained in comparison with the North of the country. The frequency of online purchases, on the other hand, has grown more in the North, which has a more evolved digital ecosystem and has been more severely affected by health emergency and, therefore, by stricter restrictions. |
| Keywords: | Covid-19, cash, payment cards, other payment instruments |
| JEL: | E41 E42 G2 O3 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_008_21&r= |
| By: | International Monetary Fund |
| Abstract: | Economic Impact of the Pandemic and Policy Responses. Mauritius has been successful in containing the COVID-19 pandemic thanks to strict health measures but the halt in tourism has significantly affected its tourism-dependent economy. A comprehensive set of stimulus measures to mitigate the economic impact of the pandemic, including a wage subsidy and income support for the self-employed, have provided support to firms and households. |
| Date: | 2021–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/139&r= |
| By: | Alessio Terzi |
| Abstract: | Gross Domestic Product (GDP) started to be used during World War II to measure the material production needs of the conflict. Throughout the decades, several issues have been identified with measuring economic success via this single indicator. Most prominently, GDP fails to inform decision makers on how the benefits of growth spread across the population, and to what extent these are concentrated in certain pockets of society. Moreover, it does not take into account the depletion of natural resources and environmental sustainability more broadly. As these have become increasingly pressing concerns for policymakers and the public at large, over the past decade, statistical institutes (including Eurostat) have been developing new complementary indicators, which have been embraced to various degrees by several governments and international organisations. At the current juncture, the challenge is to bring these indicators into more active policy-making in a sensible and manageable way. This paper therefore reviews the pros and cons of some of the ongoing efforts, in Europe and beyond, laying out potential avenues for future scholarship on the topic. |
| JEL: | B20 B40 D78 E01 E66 I30 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:142&r= |
| By: | Erik Andres-Escayola (Banco de España); Juan Carlos Berganza (Banco de España); Rodolfo Campos (Banco de España); Luis Molina (Banco de España) |
| Abstract: | This paper describes the set of Bayesian vector autoregression (BVAR) models that are being used at Banco de España to project GDP growth rates and to simulate macrofinancial risk scenarios for Brazil and Mexico. The toolkit consists of large benchmark models to produce baseline projections and various smaller satellite models to conduct risk scenarios. We showcase the use of this modelling framework with tailored empirical applications. Given the material importance of Brazil and Mexico to the Spanish economy and banking system, this toolkit contributes to the monitoring of Spain’s international risk exposure. |
| Keywords: | macroeconomic projections, risk scenarios, Bayesian vector autoregressions |
| JEL: | C32 C53 F44 F47 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2114&r= |
| By: | Del Bono, Emilia (ISER, University of Essex); Morando, Greta (University of Essex) |
| Abstract: | This paper uses variation in unemployment caused by the 2008 recession to analyse socio- economic gaps in graduate outcomes. Our data comes from a survey which collects information on several cohorts of students from all English universities and reports their destinations at 6 months after graduation. The results show that when students from less advantaged family backgrounds graduate during a recession they are more likely to become unemployed, to work part-time, and to earn less than students from more advantaged families. There is evidence that professional networks established while at university are important in explaining some of these socio-economic gaps in outcomes. |
| Keywords: | graduate employment, socio-economic gap, recession |
| JEL: | E32 I23 I24 I26 J62 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14540&r= |
| By: | Kossi M. Agbékponou (Université de Lomé [Togo]); Léleng Kebalo (Université de Lomé [Togo]) |
| Abstract: | In the context of the worrying new rise in central government debt in ECOWAS, this article determines through a non-linear approach, the debt threshold not to be exceeded so that central government debt has a positive effect on economic growth. By adopting Hansen's (1999) approach, the analysis carried out over the period 2007-2016 reveals the existence of a debt threshold estimated at 30.71% of GDP, threshold below which any additional debt has a positive effect on economic growth. Conversely, above 30.71% of GDP, central government debt has a negative effect on economic growth. The threshold estimated in this article corroborates those in the recent literature. Nevertheless, it should not be considered as a static, optimal threshold that could compromise the validity of the budgetary norm in force in the region, which limits the debt to 70% of GDP. The gap between the two thresholds is due to the fact that the estimated threshold is endogenous, i.e. it takes into account the debt behaviour over the period considered in this paper. The article then proposes economic policies for making fiscal policies more effective, for slowing the rise in debt levels, and finally discusses the potential consequences of the rapid increase in debt on the West African regional monetary integration process. |
| Abstract: | Dans le contexte de la nouvelle montée inquiétante de la dette du gouvernement central dans la CEDEAO, cet article détermine à travers une approche non linéaire, le seuil d'endettement à ne pas excéder de sorte que la dette du gouvernement central ait un effet positif sur la croissance économique. En adoptant l'approche de Hansen (1999), les estimations effectuées sur la période 2007-2016 révèlent l'existence d'un seuil d'endettement estimé à 30,71% du PIB ; seuil en dessous duquel une dette additionnelle a un effet positif sur la croissance économique. En revanche, au-delà de 30,71% du PIB, la dette du gouvernement central a un effet négatif sur la croissance économique. Le seuil estimé dans cet article corrobore ceux de la littérature récente. Néanmoins, il ne doit pas être considéré comme un seuil statique, optimal et pouvant remettre en cause la norme budgétaire en vigueur au sein de la région qui limite la dette à 70% du PIB. L'écart entre les deux seuils est dû au fait que celui estimé est endogène, c'est-à-dire qu'il tient compte du comportement de la dette sur la période d'analyse considérée. L'article propose par la suite des politiques économiques pour rendre plus efficaces les politiques budgétaires, pour ralentir la progression du niveau d'endettement, et discute des conséquences potentielles de la hausse rapide de la dette sur le processus d'intégration monétaire régionale ouest-africaine. |
| Keywords: | Dette du gouvernement central,Croissance économique,Politique budgétaire,Seuils endogènes,CEDEAO |
| Date: | 2019–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02181738&r= |
| By: | Kirill Borissov; Nigar Hashimzade |
| Abstract: | We investigate the dynamics of wealth inequality in an economy where households have positional preferences, with the strength of the positional concern determined endogenously by inequality of wealth distribution in the society. We demonstrate that in the long run such an economy converges to a unique egalitarian steady-state equilibrium, with all households holding equal positive wealth, when the initial inequality is sufficiently low. Otherwise, the steady state is characterised by polarisation of households into rich, who own all the wealth, and poor, whose wealth is zero. A fiscal policy with government consumption funded by taxes on labour income and wealth can move the economy from any initial state towards an egalitarian equilibrium with a higher aggregate wealth. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.00410&r= |
| By: | International Monetary Fund |
| Abstract: | The main macro-financial risks relate to extensive linkages to Mainland China, stretched real estate valuations, and exposure to shifts in global market and domestic risk sentiment, compounded by escalating U.S.-China tensions. Stress tests show that the financial system is resilient to severe macro-financial shocks, but there are pockets of vulnerabilities in foreign bank branches, investment funds, households, and nonfinancial corporates. Hong Kong SAR’s financial sector is also exposed to physical and transition risks from climate change. |
| Keywords: | Hong Kong SAR authorities; liquidity risk monitoring; Hong Kong SAR economy; property market development; risk sentiment; H. investment fund liquidity stress tests; market expectation; Financial Sector Assessment Program; Commercial banks; Stress testing; Financial sector stability; Global; Asia and Pacific |
| Date: | 2021–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/102&r= |
| By: | Stefano Bosi (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay, Université Paris-Saclay); Cuong Le Van (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, IPAG Business School, TIMAS - Institute of Mathematics and Applied Science, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Ngoc-Sang Pham (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie) |
| Abstract: | We show that both real indeterminacy and asset price bubble may appear in an infinite-horizon exchange economy with infinitely lived agents and an imperfect financial market. We clarify how the asset structure and heterogeneity (in terms of preferences and endowments) affect the existence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. Moreover, this paper bridges the literature on bubbles in models with infinitely lived agents and that in overlapping generations models (Tirole, 1985). |
| Keywords: | in- tertemporal equilibrium,borrowing constraint,real indeterminacy,asset price bubble |
| Date: | 2020–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-02993656&r= |
| By: | Baptiste Bridonneau |
| Abstract: | Is the term ‘public debt’, taken in its macroeconomic dimension, the right concept for the reality it tries to capture? There is no immediate indication that macroeconomic ‘public debt’ is a debt, i.e. a reality to be paid back. Indeed, the State, with its allegedly infinite character, may continually postpone its repayment, by rolling over its public debt contracts. Saying that macroeconomic ‘public debt’ always has the properties of a debt is tantamount to naturalizing this reality in the form of a sum to be repaid, and denying the fact that it may never be. The article thus reveals the performative character of the ‘public debt’ concept: it does not acknowledge the existence of a pre-existing macroeconomic debt, but calls for it to exist as such. Hence the symbolic interest of succeeding in thinking of macroeconomic ‘public debt’ as something else than a debt. The article proposes a new concept to replace that of macroeconomic ‘public debt’. |
| Keywords: | public debt; methodological holism; emergent properties; performativity; symbolic power |
| JEL: | B40 B50 H63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-21&r= |
| By: | International Monetary Fund |
| Abstract: | Selected Issues |
| Keywords: | MACROPRUDENTIAL policy calibration; stress test result; labor supply shock; Policy implication; sector comparison; Mortgages; Automobile industry; Loans; Housing prices; Macroprudential policy instruments; Global; Europe |
| Date: | 2021–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/134&r= |
| By: | Kristopher S. Gerardi; Lauren Lambie-Hanson; Paul S. Willen |
| Abstract: | The COVID-19 pandemic was characterized by both high refinancing volumes and high rates of mortgage nonpayment. Refinancing activity differed significantly across racial and ethnic groups, and we show that the benefits from the lower interest rate environment were not shared equally. Compared to white borrowers, Black and Hispanic mortgage borrowers experienced higher rates of nonpayment, which reflected both a greater transition into nonpayment status for Black and Hispanic borrowers and a lower likelihood of resuming payments. However, strong house price appreciation in recent years, particularly in 2020, means that foreclosure risk is lower for past-due borrowers as compared to the 2007–10 period. In addition, borrowers in nonpayment have significantly higher credit scores now than in the 2007–10 period, in part thanks 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 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:92867&r= |
| By: | Daniel Jeong-Dae Lee (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | The COVID-19 pandemic which started in China has resulted in the worst setback in global development in recent decades, with 1.1 million confirmed deaths as of mid-October and some 150 million people expected to fall back into extreme poverty. In the face of such unprecedented crisis, governments around the world have deployed trillions of dollars in emergency health response and relief measures for households and firms. Fiscal policy is also expected to play a central role in the recovery phase, in stimulating the economy and "building forward better." However, it is unclear whether developing countries have the fiscal policy space to sustain necessary countercyclical measures and invest in priority areas such as health, social protection, digital infrastructure, and climate action. This policy brief provides a preliminary assessment of fiscal space in Asia-Pacific developing countries in the wake of COVID-19. It starts by assessing the size and composition of fiscal packages announced in response to the crisis. There are three main findings. First, countries which entered the crisis with limited fiscal space relied on smaller fiscal support packages, at the risk of delaying the recovery. Second, COVID-19 will considerably increase government debt burden over the medium-term, potentially limiting resources for development purposes. Third, for the poorest and most vulnerable countries, international support measures to date are helpful but inadequate; more is needed. In response, three policy suggestions are highlighted. First, countries should avoid premature fiscal consolidation and safeguard development expenditures to build forward better. Second, countries need to expand their fiscal space through revenue reforms, capital market development, and effective public debt management. Third, international support for the poorest and most vulnerable countries should include targeted debt relief. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb116&r= |
| By: | Batiz-Lazo, Bernardo; Buckley, Tom |
| Abstract: | In this article we describe the trials and tribulations in the early stages to introduce cashless retail payments in the USA. We compare efforts by financial service firms and retailers. We then document the ephemeral life of one of these innovations, colloquially known as “Hinky Dinky”. We conclude with a brief reflection on the lessons these historical developments offer to the future of digital payments. |
| Keywords: | cashless, payments, innovation, USA, Hinky Dinky |
| JEL: | E42 L81 N2 N8 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108834&r= |
| By: | Anantha Divakaruni; Peter Zimmerman |
| Abstract: | In April 2020, the US government sent economic impact payments (EIPs) directly to households, as part of its measures to address the COVID-19 pandemic. We characterize these stimulus checks as a wealth shock for households and examine their effect on retail trading in Bitcoin. We find a significant increase in Bitcoin buy trades for the modal EIP amount of $1,200. The rise in Bitcoin trading is highest among individuals without families and at exchanges catering to nonprofessional investors. We estimate that the EIP program has a significant but modest effect on the US dollar–Bitcoin trading pair, increasing trade volume by about 3.8 percent. Trades associated with the EIPs result in a slight rise in the price of Bitcoin of 7 basis points. Nonetheless, the increase in trading is small compared to the size of the stimulus check program, representing only 0.02 percent of all EIP dollars. We repeat our analysis for other countries with similar stimulus programs and find an increase in Bitcoin buy trades in these currencies. Our findings highlight how wealth shocks affect retail trading. |
| Keywords: | Bitcoin; COVID-19; economic impact payments; stimulus checks |
| JEL: | E42 G11 G41 H31 |
| Date: | 2021–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:92898&r= |
| By: | Neva Makgetla |
| Abstract: | The COVID-19 pandemic has had severe economic consequences in Southern Africa, resulting in an unprecedented decline in production and employment. Similar policy responses have emerged across the region, centred on temporary and inadequate relief for workers and businesses; very limited fiscal and monetary stimulus efforts; and vague and under-resourced commitments to accelerate industrialization and infrastructure investment. |
| Keywords: | Southern Africa, COVID-19, Economic policy, Development policy |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2021-113&r= |
| By: | Alexandre Chirat (Université Paris Ouest Nanterre - EconomiX); Guillaume Sekli (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France) |
| Abstract: | This article uses the main tools of cooperative game theory, the core of a game and the Shapley value, to tackle the challenge posed by corporate tax harmonization in order to fight profit shifting. More specifically, these tools are applied to provide a counterfactual evaluation and to assess the credibility of Saez and Zucman (2019) proposal to establish a minimum rate at 25% at the G7/G20 level. Based on the empirical data of Tørsløv et al. (2020), our main results are the following. First, at the G7 level, the more countries involved in the agreement, the more efficient it would be. Second, stability of cooperation at the G7 level can be achieved without giving up fairness consideration in the distribution of the surplus. We then extend our application to the G20 and show that these results do not hold anymore. Third, from this case, we conclude that not only the target rate matters in the perspective of international tax cooperation, but also the numbers of participants and their current effective rates. |
| Keywords: | International taxation, Tax cooperation, Profit shifting, Tax havens, Shapley value |
| JEL: | E62 C71 F42 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2021-04&r= |
| By: | Kugler, Maurice (Impaq International); Viollaz, Mariana (CEDLAS-UNLP); Duque, Daniel (Getulio Vargas Foundation, Brazil); Gaddis, Isis (World Bank); Newhouse, David (World Bank); Palacios-Lopez, Amparo (World Bank); Weber, Michael (World Bank) |
| Abstract: | This paper investigates the impacts of the economic shock caused by the COVID-19 pandemic on the employment of different types of workers in developing countries. Employment outcomes are taken from a set of high-frequency phone surveys conducted by the World Bank and National Statistics Offices in 40 countries. Larger shares of female, young, less educated, and urban workers stopped working. Gender gaps in work stoppage were particularly pronounced and stemmed mainly from differences within sectors rather than differential employment patterns across sectors. Differences in work stoppage between urban and rural workers were markedly smaller than those across gender, age, and education groups. Preliminary results from 10 countries suggest that following the initial shock at the start of the pandemic, employment rates partially recovered between April and August, with greater gains for those groups that had borne the brunt of the early jobs losses. Although the high-frequency phone surveys greatly over-represent household heads and therefore overestimate employment rates, case studies in five countries suggest that they provide a reasonably accurate measure of disparities in employment levels by gender, education, and urban/rural location following the onset of the crisis, although they perform less well in capturing disparities between age groups. These results shed new light on the labor market consequences of the COVID-19 crisis in developing countries, and suggest that real-time phone surveys, despite their lack of representativeness, are a valuable source of information to measure differential employment impacts across groups during a crisis. |
| Keywords: | post-shock differential employment evolution, coping mechanisms, worker displacement, unemployment, pandemic shock, COVID-19, heterogenous labor market impacts, high-frequency phone surveys |
| JEL: | E24 J15 J16 J21 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14519&r= |
| By: | Giacomo Bormetti; Fulvio Corsi |
| Abstract: | We propose an observation-driven time-varying SVAR model where, in agreement with the Lucas Critique, structural shocks drive both the evolution of the macro variables and the dynamics of the VAR parameters. Contrary to existing approaches where parameters follow a stochastic process with random and exogenous shocks, our observation-driven specification allows the evolution of the parameters to be driven by realized past structural shocks, thus opening the possibility to gauge the impact of observed shocks and hypothetical policy interventions on the future evolution of the economic system. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.05263&r= |
| By: | International Monetary Fund |
| Abstract: | The Central Bank of Chile (CBC) has implemented broadly advanced transparency practices. This reflects the CBC’s strong public commitment to transparency, which is anchored in the law and has been designated by the CBC as a strategic objective to fulfill its mandate. This policy has earned the CBC the broad trust of its stakeholders and has paid significant dividends for the CBC in terms of safeguarding its autonomy and ensuring its policy effectiveness. |
| Date: | 2021–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/113&r= |
| By: | Zhenqian Huang (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific); Lulu Zhao (Intern, Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | COVID-19 and the oil prices crash induced by it have imposed a double whammy on fuel-exporting countries in Asia and the Pacific. Compared to other countries, they are likely to experience greater economic weaknesses, as they face not only slowdown in economic activities, but also revenue shortfalls, deteriorating export earnings and capital flight, and depreciation pressure on currencies due to lower-than-expected oil prices. To cope with the immediate negative impacts of COVID-19, countries have introduced timely and necessary large and targeted fiscal and monetary policy measures. However, these immediate policy measures should not take the policy attention away from the long over-due and much-needed structural economic transformation in fuelexporting countries. Excessive dependence on fuels, especially oil, has kept these countries very vulnerable to the commodity boom and bust cycles.Therefore, when designing economic recovery packages, countries should also embed long-term sustainability considerations by introducing measures that can help them diversify their economies and reduce reliance on fossil fuels. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb113&r= |
| By: | Giorgio Fabbri; Salvatore Federico; Davide Fiaschi; Fausto Gozzi |
| Abstract: | In this paper we propose a theoretical model including a susceptible-infected-recovered-dead (SIRD) model of epidemic in a dynamic macroeconomic general equilibrium framework with agents' mobility. The latter affect both their income (and consumption) and their probability of infecting and of being infected. Strategic complementarities among individual mobility choices drive the evolution of aggregate economic activity, while infection externalities caused by individual mobility affect disease diffusion. Rational expectations of forward looking agents on the dynamics of aggregate mobility and epidemic determine individual mobility decisions. The model allows to evaluate alternative scenarios of mobility restrictions, especially policies dependent on the state of epidemic. We prove the existence of an equilibrium and provide a recursive construction method for finding equilibrium(a), which also guides our numerical investigations. We calibrate the model by using Italian experience on COVID-19 epidemic in the period February 2020 - May 2021. We discuss how our economic SIRD (ESIRD) model produces a substantially different dynamics of economy and epidemic with respect to a SIRD model with constant agents' mobility. Finally, by numerical explorations we illustrate how the model can be used to design an efficient policy of state-of-epidemic-dependent mobility restrictions, which mitigates the epidemic peaks stressing health system, and allows for trading-off the economic losses due to reduced mobility with the lower death rate due to the lower spread of epidemic. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.01746&r= |
| By: | Asger Lau Andersen; Niels Johannesen; Adam Sheridan |
| Abstract: | How much and over what horizon do households adjust their consumption in response to stock market wealth shocks? We address these questions using granular data on spending and stock portfolios from a large bank and exploiting lottery-like variation in gains across investors with similar portfolio characteristics. Consistent with the permanent income hypothesis, spending responses to stock market gains are immediate and persistent. The responses cumulate to a marginal propensity to consume of around 4% over a one-year horizon. The estimates differ substantially by household liquidity, but not by financial attention, as measured by the frequency of account logins. |
| Keywords: | wealth shocks, household consumption, marginal propensity to consume, permanent income hypothesis |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9184&r= |
| By: | Isaak D. Mayergoyz; Can E. Korman |
| Abstract: | The paper explores the mathematical modeling of economic hysteresis. First, a general definition of hysteresis as history dependent branching is presented and its relevance to macroeconomic hysteresis is discussed. Then, the classical Preisach modeling of macroeconomic hysteresis is reviewed and the basic facts related to this modeling are outlined. It is stressed that the mathematical structure of the classical Preisach model is intimately related to the origin and nature of macroeconomic hysteresis. Next, to account for the continuous evolution of the economy and its effect on hysteresis, the generalized Preisach model of hysteresis is introduced and its advantages in comparison to the classical Preisach model are discussed. Finally, using Preisach models, it is demonstrated that the sluggishness of economic recovery is an intrinsic manifestation of hysteresis branching. It is shown that this sluggishness can be predicted by using the relevant microeconomic data. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.10639&r= |
| By: | Raphaël DIDIER |
| Abstract: | In this paper, we study the resilience of the community of individual users of a French local currency in the face of an abrupt halt in exchanges during the first containment related to the covid-19 pandemic (March 17, 2020 to May 11, 2020). Our study is based on the local currency of the Nancy Basin, the Florain, for which we have a field survey conducted before the pandemic, three interviews conducted between the first and second containment in France (May 12 and October 30, 2020), observations and figures obtained during participation in the association's general assembly and publications found on the structure's blog. This allowed us to highlight sociological factors (feeling of being a consum’actor, social representations of members and existence of an identity niche among active volunteers) and organizational factors (ethos of active volunteers, sociocratic mode of governance of the association and inscription of the Florain community in a life basin) that contribute to community resilience. However, in the particular case of a local currency, we show that there is also a predominant institutional dimension, linked to its social and political nature, which makes the community of individual users a local monetary community. |
| Keywords: | local currency, crisis, resilience, covid-19, SSE, governance, sociocracy, territory, values, monetary community. |
| JEL: | A14 E42 R11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-32&r= |
| By: | Anja Sonnenburg (GWS - Institute of Economic Structures Research); Ines Thobe (GWS - Institute of Economic Structures Research); Dr. Marc Ingo Wolter (GWS - Institute of Economic Structures Research) |
| Abstract: | Ein funktionierendes Gemeinwesen, individuelle Teilhabe und die Bewältigung von Krisen – all das ist ohne die erfolgreiche Erbringung von Dienstleistungen in kritischen Bereichen nicht denkbar. Das Projekt „Gesellschaftlich notwendige Dienstleistungen sicherstellen: Ist Arbeit am Gemeinwohl attraktiv?“ (GenDis), das vom Soziologischen Forschungsinstitut Göttingen (SOFI), dem Bundesinstitut für Berufsbildung (BIBB) und der Gesellschaft für wirtschaftliche Strukturforschung (GWS) durchgeführt und mit Mitteln des Bundesministeriums für Bildung und Forschung (BMBF) finanziert wird, untersucht die Bereitstellung dieser Dienstleistungen. Häufig sind diese mit schlechten Arbeits- und Beschäftigungsbedingungen verbunden, was ihre Bereitstellung gefährden kann. In regionaler Hinsicht können Verfügbarkeit und Qualität der Dienstleistungen sehr unterschiedlich ausfallen, weshalb sich der Blickwinkel ebenfalls auf regionale Disparitäten richtet. Das 2020 veröffentlichte Working Paper erläutert die konzeptionellen Grundlagen für die weiteren Arbeiten des GenDis-Projekts, indem es erstens den Begriff der gesellschaftlich notwendigen Dienstleistungen erklärt und zweitens einen Vorschlag zur Identifikation von Beschäftigtengruppen, die diese Dienstleistungen herstellen, unterbreitet. Zu den GenDis-Branchen zählen Dienstleistungen im Gesundheits- und Sozialwesen, in der Erziehung und Bildung sowie im Bereich der öffentlichen Sicherheit und des Rechts2. Auf der Basis dieses Konzepts folgen im Rahmen des Projekts empirische Untersuchungen, wie die vorliegende, die sich der Einordnung der identifizierten Dienstleistungen in den Wirtschaftskreislauf und in die Wertschöpfungsketten widmet. Dahinter steht das Ziel, Hinweise zu finden, welche Besonderheiten die Einnahmeseite dieser Dienstleistungen innerhalb des Wirtschaftskreislaufs prägen, da diese auch maßgeblich die Einkommenshöhe der Dienstleistenden beeinflusst. In einem ersten Schritt erfolgt zunächst eine theoretische Einordnung des Begriffs der Dienstleistungen, um deren Eigenheiten innerhalb unseres Wirtschaftssystems zu ergründen. Anschließend nutzt das Papier den Ansatz einer endnachfrageorientierten Produktion, in der sich die GenDis-Branchen wiederfinden. Die empirische Untersuchung im darauf folgenden Abschnitt geschieht anhand der Auswertung der Input-Output-Tabelle für Deutschland, welche die Beziehungen aller Wirtschaftsbranchen untereinander – auch jene unserer identifizierten Dienstleistungsbranchen – mithilfe monetärer Ströme abbildet. Dies verdeutlicht die Stellung der GenDis-Branchen in der Wertschöpfungskette. Anschließend behandelt der Abschnitt, wie es um die GenDis-Branchen im europäischen Vergleich bestellt ist, indem er die Ausgabenanteile für diese Dienstleistungen am Bruttoinlandsprodukt sowie die einhergehenden Auswirkungen auf die Arbeitnehmerentgelte analysiert. Für die regionale Perspektive innerhalb Deutschlands vergleicht Abschnitt 3.3 spezifische Entgelte in den Raumordnungsregionen, um Aussagen über die relative Höhe des Entgelts der Dienstleistenden in den GenDis-Branchen zu erhalten. |
| Keywords: | Input-Output-Analysis, socially necessary services |
| JEL: | E2 I1 I2 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:gws:dpaper:21-2&r= |
| By: | Dr. Marc Ingo Wolter (GWS - Institute of Economic Structures Research); Florian Bernardt (GWS - Institute of Economic Structures Research) |
| Abstract: | Ein funktionierendes Gemeinwesen, individuelle Teilhabe und die Bewältigung von Krisen sind ohne die erfolgreiche Erbringung von Dienstleistungen in kritischen Bereichen nicht denkbar. Das GenDis-Projekt („Gesellschaftlich notwendige Dienstleistungen sicherstellen: Ist Arbeit am Gemeinwohl attraktiv?“) widmet sich der Aufgabe, sowohl Branchen als auch Berufe zu identifizieren, die diese kritischen Dienstleistungen er-bringen. Die grundlegende Frage ist: Wie organisieren wir heute und in Zukunft die Bereitstellung gesellschaftlich notwendiger Güter und Dienstleistungen, derer wir als Konsumenten/-innen, Klienten/-innen, Patienten/-innen oder Bürger/-innen dringend bedürfen? Das Projekt GenDis stellt sich dieser Fragestellung mit einem Methodenmix aus qualitativen und quantitativen Instrumenten. Es wird seit November 2019 vom Soziologischen Forschungsinstitut Göttingen (SOFI), dem Bundesinstitut für Berufsbildung (BIBB) und der Gesellschaft für wirtschaftliche Strukturforschung (GWS) durchgeführt. Finanziert wird das Projekt vom Bundesministerium für Bildung und Forschung (BMBF). Es sind vor allem die Erwerbstätigen der Branchen „Öffentliche Verwaltung, Sicherheit; Sozialversicherung“, „Erziehung und Unterricht“ sowie „Gesundheits- und Sozialwesen“, welche gesellschaftlich notwendige Dienstleistungen im Sinne des GenDis-Projektes erbringen. Diese Branchen werden im Folgenden als GenDis-Branchen bezeichnet. Ein wesentliches Kriterium für die Auswahl der GenDis-Branchen sind die dort erbrachten Leistungen wie z. B. Pflege, Erziehung, Verwaltung oder Sicherheit, die eine starke Interaktion zwischen Personen erfordern. Daraus folgt dann aber auch, dass dieser Personenbezug an einem bestimmten Ort stattfindet. Das ist zumeist der Wohnort des Leistungsempfängers, also entweder direkt zu Hause oder in der Gemeinde. Die Eingangsfrage wird in ihrer Dinglichkeit größer, wenn sie um das Thema „Ort“ ergänzt wird: „Wie organisieren wir heute und in Zukunft die Bereitstellung vor Ort?“ Die Interaktion zwischen Personen bedingt zudem, dass es um die demografische Situation geht: Wie viele Personen gibt es, die vor Ort einer Leistung bedürfen und wie viele Personen gibt es, die diese spezifische Leistung vor Ort erbringen können? Für die (potenziellen) Erwerbstätigen in den GenDis-Branchen stellt sich aber zudem die Frage, welche alternativen Möglichkeiten einer Beschäftigung in anderen Branchen gibt es? In diesem Discussion Paper wird daher für die Region Südniedersachsen eine Bestandsaufnahme der demografischen Entwicklung und der Branchenstruktur vorgenommen. Südniedersachsen setzt sich aus den Landkreisen Göttingen, Northeim und Holzminden zusammen. Um Besonderheiten dieser Region zu identifizieren, werden via den Indikator „Personalausstattung“ Vergleiche zu Niedersachsen und dem Bund vorgenommen. Ferner wird die zukünftige Entwicklung Südniedersachsens in die Entwicklung der übrigen Raumordnungsregionen eingeordnet. Es ergibt sich ein erster Ansatz, um der Frage nach den Bereitstellungsmöglichkeiten gesellschaftlich notwendiger Dienstleistungen vor Ort nachzugehen. |
| Keywords: | Input-Output-Analysis, socially necessary services |
| JEL: | E2 I1 I2 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:gws:dpaper:21-1&r= |
| By: | Sergio Consoli; Luca Tiozzo Pezzoli; Elisa Tosetti |
| Abstract: | We show how emotions extracted from macroeconomic news can be used to explain and forecast future behaviour of sovereign bond yield spreads in Italy and Spain. We use a big, open-source, database known as Global Database of Events, Language and Tone to construct emotion indicators of bond market affective states. We find that negative emotions extracted from news improve the forecasting power of government yield spread models during distressed periods even after controlling for the number of negative words present in the text. In addition, stronger negative emotions, such as panic, reveal useful information for predicting changes in spread at the short-term horizon, while milder emotions, such as distress, are useful at longer time horizons. Emotions generated by the Italian political turmoil propagate to the Spanish news affecting this neighbourhood market. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.15698&r= |
| By: | Manuel Arellano (Institute for Fiscal Studies and CEMFI); Stéphane Bonhomme (Institute for Fiscal Studies and University of Chicago) |
| Abstract: | We propose an optimal-transport-based matching method to nonparametrically estimate linear models with independent latent variables. The method consists in generating pseudo-observations from the latent variables, so that the Euclidean distance between the model’s predictions and their matched counterparts in the data is minimized. We show that our nonparametric estimator is consistent, and we document that it performs well in simulated data. We apply this method to study the cyclicality of permanent and transitory income shocks in the Panel Study of Income Dynamics. We ?nd that the dispersion of income shocks is approximately acyclical, whereas the skewness of permanent shocks is procyclical. By comparison, we ?nd that the dispersion and skewness of shocks to hourly wages vary little with the business cycle. |
| Date: | 2020–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:2/20&r= |
| By: | Florian Huber; Gary Koop |
| Abstract: | Macroeconomists using large datasets often face the choice of working with either a large Vector Autoregression (VAR) or a factor model. In this paper, we develop methods for combining the two using a subspace shrinkage prior. Subspace priors shrink towards a class of functions rather than directly forcing the parameters of a model towards some pre-specified location. We develop a conjugate VAR prior which shrinks towards the subspace which is defined by a factor model. Our approach allows for estimating the strength of the shrinkage as well as the number of factors. After establishing the theoretical properties of our proposed prior, we carry out simulations and apply it to US macroeconomic data. Using simulations we show that our framework successfully detects the number of factors. In a forecasting exercise involving a large macroeconomic data set we find that combining VARs with factor models using our prior can lead to forecast improvements. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.07804&r= |
| By: | International Monetary Fund |
| Abstract: | Hong Kong SAR (HKSAR) is a small and open economy, and a major international financial center with extensive linkages to Mainland China. Over the past two years, Hong Kong SAR’s economy and financial sector were adversely impacted by domestic social unrest, US-China tensions, and the global COVID-19 pandemic, resulting in an unprecedented two consecutive years of negative economic growth. |
| Keywords: | bank solvency stress; HKSAR banking system; bank solvency St result; solvency ANALYSIS; HKSAR GDP growth scenario; incorporated bank; Commercial banks; Liquidity risk; Liquidity; Mortgages; Loans; Global |
| Date: | 2021–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/114&r= |
| By: | Zhenqian Huang (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific); Sweta C. Saxena (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | Governments in the Asia-Pacific region are taking administrative and policy actions to cope with COVID-19 pandemic and its adverse impacts. Most countries and territories have adopted travel restrictions and social distancing policies to slow the spread of the disease. While many countries have rolled out fiscal and monetary stimulus packages, their scale and policy focus differ depending on their national circumstances, implementation capacities and how severely they have been affected by COVID-19 disease. In going forward, the region needs to invest in health and social protection systems and embed long-term sustainability into stimulus packages and recovery policies in order to strengthen resilience to future shocks. Policy coordination across countries is critical to ensure that no one is left behind. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb112&r= |
| By: | van Seventer, Dirk; Arndt, Channing; Davies, Robert J.; Gabriel, Sherwin; Harris, Laurence; Robinson, Sherman |
| Abstract: | As the South African economy emerges from the downturn induced by COVID-19, policy makers are concerned with recovery, reconstruction, and transformation. This paper focuses on the recovery from the severely depressed levels of economic activity that occurred in April 2020. However, before considering the period after the economic trough of April 2020, a mention of economic conditions prior to the pandemic is worthwhile. In brief, economic performance was terrible by almost any metric. Furthermore, economic performance had been poor since 2008, with evidence pointing to ongoing deterioration culminating in the fourth quarter of 2019, when per capita GDP contracted, unemployment ticked upwards to its highest level since 1994, productivity declined, and inequality worsened. The striking difficulties of the South African economy in avoiding/absorbing shocks-whether internally generated, such as shocks to electricity supply, or externally generated, such as changes in terms of trade or investor sentiment in relation to emerging markets-have been an integral part of this disappointing economic performance over time. In short, the situation prevailing prior to the onset of the COVID-19 pandemic was one of economic weakness. Beginning from this position of weakness, the economic shock related to COVID-19 was enormous, likely the largest single economic shock in the history of South Africa. According to official statistics, GDP in the second quarter of 2020 was approximately 17% below the level registered in the second quarter of 2019. In assessing this shock, it is important to recall that GDP is a flow concept. One can, in principle, consider the volume of flow over any arbitrary period: a day, a week, a month, a quarter, a semester, a year, and so forth. The lockdown associated with COVID-19 precipitated an extraordinarily rapid decline in economic activity. Indeed, the available analytics and data point to a trough in economic activity, or flow value of GDP, at less than 70% of the level that would have pertained in the absence of the pandemic, or a greater than 30% decline in the flow rate of GDP (Arndt et al 2020). If we accept a 17% reduction as the average flow rate of GDP over the quarter and we accept that the economic shock related to COVID-19 was unprecedently rapid and drove a decline in the flow value of GDP of much more than 17% at the trough (which probably occurred sometime in late April or early May), then we must also accept a rapid recovery in economic activity in May and June in order to achieve an average decline of 17% over the quarter. Furthermore, this relatively rapid recovery continued. GDP in the third quarter of 2020 was “only†about 6% below the levels recorded for the third quarter of 2019, with the corresponding figure for the fourth quarter at about 4%. Other figures, including recent ones, broadly support this basic story. For example, retail sales in February 2021 were up 2.4% year-on-year, with the previous two months, January and December, having registered only a slight decline year-on-year. Correspondingly, manufacturing production and sales were down by 2.1% in February 2021 year-on-year. A few broad observations emerge from this history and the available data. First, the South African economy has exhibited more resilience to the COVID-19 shock than performance up to December 2019 might have led one to expect. In Mexico, for example, the distance between fourth quarter GDP in 2020 and that in 2019 was greater than for the same comparison in South Africa. At the same time, Mexico registered close to twice as many deaths related to COVID-19 per million population as South Africa. Second, multiplier effects are important. As discussed in Arndt et al (2020), multiplier effects accounted for the bulk of the initial economic contraction. However, they also operate positively, buoying the recovery experienced to date and bringing economic activity back towards the levels of 2019. Third, while having GDP about 4% down year-on-year is much better than the 17% decline observed in the second quarter, 4% down is still a deep recession by ordinary standards. While some sectors are producing at close to levels observed in the fourth quarter of 2019, others are more strongly affected. The incidence of these depressed levels of economic activity remains likely to be tilted toward lower-income households, which are more vulnerable to begin with. Overall, there remains substantial slack in the economy, multiplier effects still apply, and many households remain deeply vulnerable to severe economic hardship. |
| Keywords: | SOUTH AFRICA; SOUTHERN AFRICA; AFRICA SOUTH OF SAHARA; AFRICA; Coronavirus; coronavirus disease; Coronavirinae; COVID-19; economic recovery; gross national product; policies; shock; lockdown |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:2033&r= |