nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒08‒16
122 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Reversal interest rate and macroprudential policy By Darracq Pariès, Matthieu; Kok Sørensen, Christoffer; Rottner, Matthias
  2. Present Bias Amplifies the Household Balance-Sheet Channels of Macroeconomic Policy By David Laibson; Peter Maxted; Benjamin Moll
  3. Modelling the impact of Covid-19 on the UK economy: an application of a disaggregated New-Keynesian model By Cyrille Lenoel; Garry Young
  4. Qualitative and quantitative Central Bank communications and professional forecasts: Evidence from India By Ashima Goyal; Prashant Parab
  5. Fiscal Targeting By Régis Barnichon; Geert Mesters
  6. Consumers' updating, policy shocks and public debt: An empirical assessment of state dependencies By Martin Geiger; Marios Zachariadis
  7. The transmission of Keynesian supply shocks By Cesa-Bianchi, Ambrogio; Ferrero, Andrea
  8. Persistence and scarring in a non-linear new Keynesian model with experienced-based-expectations By Jaqueson K. Galimberti
  9. Daily Monetary Policy Rules and the ECB's Medium-Term Orientation By Jens Klose
  10. Exchange rate pass-through, monetary policy, and real exchange rates - Iceland and the 2008 crisis By Sebastian Edwards; Luis Cabezas
  11. The Economic Effects of Firm-Level Uncertainty: Evidence Using Subjective Expectations By Giuseppe Fiori; Filippo Scoccianti
  12. Expectations, Unemployment and Inflation: an Empirical Investigation By Galstyan, Vahagn
  13. Household Debt, Student Loan Forgiveness, and Human Capital Investment: a neo-Kaleckian Approach By Gustavo Pereira Serra
  14. Measuring heterogeneity in banks’ interest rate setting in Russia By Anna Burova; Alexey Ponomarenko; Svetlana Popova; Andrey Sinyakov; Yulia Ushakova
  15. Credit shocks and equilibrium dynamics in consumer durable goods markets By Gavazza, Alessandro; Lanteri, Andrea
  16. Household Inflation Expectations and Consumer Spending: Evidence from Panel Data By Mary A. Burke; Ali K. Ozdagli
  17. The Mundellian trilemma and optimal monetary policy in a world of high capital mobility By Richard T. Froyen; Alfred V. Guender
  18. Cambios Estructurales e Inestabilidad Monetaria Intrínseca By Jorge C. Ávila
  19. Foreign Vulnerabilities, Domestic Risks: The Global Drivers of GDP-at-Risk By Lloyd, S.; Manuel, E.; Panchev, K.
  20. On the structural determinants of growth-at-risk By Martin Geiger; Elias Hasler; Martin Gächter
  21. The financial market impact of ECB monetary policy press conferences - a text based approach By Parle, Conor
  22. Intangibles, Markups, and the Measurement of Productivity Growth By Nicolas Crouzet; Janice C. Eberly
  23. Heterogeneous Loans and the Effect of Monetary Interventions By Gianluca Cafiso; Giulia Rivolta
  24. Imperfect pass-through to deposit rates and monetary policy transmission By Polo, Alberto
  25. Canadian Labour Market Dynamics During COVID-19 By Stephen R.G. Jones; Fabian Lange; W. Craig Riddell; Casey Warman
  26. Are households indifferent to monetary policy announcements? By Fiorella De Fiore; Marco Jacopo Lombardi; Johannes Schuffels
  27. The Real Effects of Uncertainty Shocks: New Evidence from Linear and Nonlinear SVAR Models By Josué Diwambuena; Jean-Paul K. Tsasa
  28. Using the snowball effect in Indian post Covid-19 paths to fiscal consolidation By Ashima Goyal
  29. It takes two to dance: institutional dynamics and climate-related financial policies By Baer, Moritz; Campiglio, Emanuele; Deyris, Jérôme
  30. The First Harrod Problem and Human Capital Formation By Gustavo Pereira Serra
  31. The Long-Term Effects of Capital Requirements By Gianni De Nicolo; Nataliya Klimenko; Sebastian Pfeil; Jean-Charles Rochet
  32. Arab Republic of Egypt: 2021 Article IV Consultation, Second Review Under the Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund
  33. The Long-Lived Cyclicality of the Labor Force Participation Rate By Tomaz Cajner; John M. Coglianese; Joshua Montes
  34. Dominican Republic: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Dominican Republic By International Monetary Fund
  35. The changing link between labor cost and price inflation in the United States By Bobeica, Elena; Ciccarelli, Matteo; Vansteenkiste, Isabel
  36. Côte d’Ivoire: 2021 Article IV Consultation-Press Release; Staff Report; Informational Annex; Debt Sustainability Analysis; Selected Issues; and Statement by the Executive Director for Côte d’Ivoire By International Monetary Fund
  37. Effects of monetary policy communication in emerging market economies: Evidence from Malaysia By Sui-Jade Ho; Ozer Karagedikli
  38. Panama: First Review Under the Arrangement Under the Precautionary and Liquidity Line-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund
  39. Empirical evidence on the Euler equation for investment in the US By Guido Ascari; Qazi Haque; Leandro M. Magnusson; Sophocles Mavroeidis
  40. Earnings Shocks and Stabilization During COVID-19 By Jeff Larrimore; Jacob Mortenson; David Splinter
  41. Paces of fiscal consolidations, fiscal sustainability, and welfare: An overlapping generations approach By Maebayashi, Noritaka
  42. Fifty shades of QE: comparing findings of central bankers and academics By Jančoková, Martina; Pástor, Ľuboš; Fabo, Brian; Kempf, Elisabeth
  43. Quantitative Analysis of a Wealth Tax in the United States: Exclusions, Evasion, and Expenditures By Moore, Rachel; Pecoraro, Brandon
  44. Tuvalu: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tuvalu By International Monetary Fund
  45. Structural Change in Labor Supply and Cross-Country Differences in Hours Worked By Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama
  46. World Economy Summer 2021 - Post-Corona-boom underway By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  47. Internet Access and its Implications for Productivity, Inequality, and Resilience By Jose Maria Barrero; Nicholas Bloom; Steven J. Davis
  48. Identifying the Effects of Sanctions on the Iranian Economy Using Newspaper Coverage By Dario Laudati; M. Hashem Pesaran
  49. The monetary policy strategy of the European Central Bank: Review and recommendations By Feld, Lars P.; Fuest, Clemens; Haucap, Justus; Schweitzer, Heike; Wieland, Volker; Wigger, Berthold U.
  50. The case for a positive euro area inflation target: evidence from France, Germany and Italy By Adam, Klaus; Gautier, Erwan; Santoro, Sergio; Weber, Henning
  51. A unified framework for CBDC design: remuneration, collateral haircuts and quantity constraints By Assenmacher, Katrin; Berentsen, Aleksander; Brand, Claus; Lamersdorf, Nora
  52. Initial beliefs uncertainty By Jaqueson K. Galimberti
  53. ECB communication as a stabilization and coordination device: evidence from ex-ante inflation uncertainty By Fernandes, Cecilia Melo
  54. Consistent Evidence on Duration Dependence of Price Changes By Fernando E. Alvarez; Katarína Borovičková; Robert Shimer
  55. Bolivia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bolivia By International Monetary Fund
  56. Subjective Life Expectancies, Time Preference Heterogeneity, and Wealth Inequality By Richard Foltyn; Jonna Olsson
  57. The Factor Structure of Disagreement By Edward P. Herbst; Fabian Winkler
  58. Spillovers de la política monetaria no convencional de los países avanzados hacia América Latina By Julián Roa Rozo
  59. The Real Effects of Bank Runs. Evidence from the French Great Depression (1930-1931) By Eric Monnet,; Angelo Riva,; Stefano Ungaro.
  60. Stuck at Zero: Price Rigidity in a Runaway Inflation By Daniel Levy; Avichai Snir; Haipeng (Allan) Chen
  61. Optimal Monetary Policy and Incomplete Information: Does the Real Exchange Matter? By Rodrigo Caputo; Felipe Leal
  62. Ghana: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  63. Cameroon: Requests for Three-Year Arrangements Under the Extended Credit Facility and the Extended Fund Facility-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Cameroon By International Monetary Fund
  64. Economic Support during the COVID Crisis. Quantitative Easing and Lending Support Schemes in the UK By Mahmoud Fatouh; Simone Giansante; Steven Ongena
  65. Canadian labour market dynamics during COVID-19 By Jones, Stephen R. G.; Lange, Fabian; Riddell, William Craig; Warman, Casey
  66. Panama: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund
  67. Carbon Taxation and Inflation: Evidence from the European and Canadian Experience By Maximilian Konradt; Beatrice Weder di Mauro
  68. Rwanda: Fourth Review of the Policy Coordination Instrument and Request of an Extension of the Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda By International Monetary Fund
  69. Democratic Republic of the Congo: Request for a Three-Year Arrangement Under the Extended Credit Facility; Review of Performance Under the Staff Monitored Program-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of Congo By International Monetary Fund
  70. Canadian Labour Market Dynamics during COVID-19 By Jones, Stephen R. G.; Lange, Fabian; Riddell, W. Craig; Warman, Casey
  71. Greening Monetary Policy: Evidence from the People's Bank of China By Macaire Camille,; Naef Alain.
  72. Dash for dollars By Cesa-Bianchi, Ambrogio; Eguren-Martin, Fernando
  73. Philippines: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Philippines By International Monetary Fund
  74. German Economy Spring 2021 - Recovery ready for second take off By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
  75. Guinea-Bissau: Request for a Nine-Month Staff Monitored Program-Press Release; and Staff Report By International Monetary Fund
  76. Kyrgyz Republic: 2021 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  77. Measuring Uncertainty of a Combined Forecast and Some Tests for Forecaster Heterogeneity By Kajal Lahiri; Huaming Peng; Xuguang Simon Sheng
  78. Search and Reallocation in the COVID-19 Pandemic: Evidence from the UK By Carrillo-Tudela, Carlos; Comunello, Camila; Clymo, Alex; Jäckle, Annette; Visschers, Ludo; Zentler-Munro, David
  79. The Inflation Experience of Low Income Households By Jude Darmanin
  80. Ripple effects of monetary policy By Frederic Boissay; Emilia Garcia-Appendini; Steven Ongena
  81. Monetary policy, neutrality and the environment By Faria, Joao Ricardo; McAdam, Peter; Viscolani, Bruno
  82. Efecto del riesgo de tipo de cambio en la rentabilidad de los bonos soberanos en Colombia By Andrea Carolina Vargas-Páez; Carlos David Ardila-Dueñas
  83. Consumption Tax Cuts in a Recession By Francesca Parodi
  84. World Economy in Spring 2021: Recovery stays on track By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  85. Labor adjustment and productivity in the OECD By Dossche, Maarten; Gazzani, Andrea; Lewis, Vivien
  86. Endogenous education and long-run factor shares By Grossman, Gene M.; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
  87. The relation between interest rate and profit rate: the role of bank profitability in an endogenous money framework By Zolea, Riccardo
  88. US Spillovers of US Monetary Policy: Information effects & Financial Flows By Santiago Camara
  89. How do exchange rates respond to political rhetoric by populist leaders? By Cem Cakmakli; Selva Demiralp; Gokhan Sahin Gunes
  90. United States: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the United States By International Monetary Fund
  91. Adaptive Agents May Be Smarter than You Think: Unbiasedness in Adaptive Expectations By Antonio Palestrini; Domenico Delli Gatti; Mauro Gallegati; Bruce C. Greenwald
  92. Real indeterminacy and dynamics of asset price bubbles in general equilibrium By Stefano Bosi; Cuong Le Van; Ngoc-Sang Pham
  93. Analyse du marché du travail à l’aide des données de Google Trends By Hugo Couture; Dalibor Stevanovic
  94. Intuitive Mathematical Economics Series. Linear Algebra Techniques to Measure Business Cycles By Tomás Marinozzi; Leandro Nallar; Sergio A. Pernice
  95. Should Canada’s Capital Gains Taxes be Increased or Reformed? By McMillan, Melville
  96. Use of the Federal Reserve's repo operations and changes in dealer balance sheets By Mark A. Carlson; Zack Saravay; Mary Tian
  97. Financial Frictions, Firm Dynamics and the Aggregate Economy: Insights from Richer Productivity Processes By Ruiz-García, J. C.
  98. “Unusual, Unstable, Complicated, Unreliable and Temporary” Reinterpreting the Ebb and Flow of Globalization By Michael D. Bordo; Catherine R. Schenk
  99. Heterogeneous Responses to the U.S. Narrative Tax Changes: Evidence from the U.S. States By Masud Alam
  100. Labour shortages and wage growth By Frohm, Erik
  101. The Size of Micro-originated Aggregate Fluctuations: An analysis of firm-level input-output linkages in Japan By Yoshiyuki ARATA; Daisuke MIYAKAWA
  102. Analysis of the 2020 President's Budget By Cuenca, Janet S.
  103. German Economy Summer 2021 - Pronounced price pressures By Ademmer, Martin; Beckmann, Joscha; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
  104. Bank and non-bank financial institutions’ crossborder linkages: New evidence from international banking data By Emter, Lorenz; Killeen, Neill; McQuade, Peter
  105. Maldives: Technical Assistance Report-Fiscal Transparency Evaluation By International Monetary Fund
  106. The COVID-19 Pandemic and Disruption in 2020: Developing a Government Response Tracker for Malta By Kurt Sant
  107. The macroeconomic cost of climate volatility By Piergiorgio Alessandri; Haroon Mumtaz
  108. The impact of borrower-based instruments on household vulnerability in Germany By Barasinska, Nataliya; Ludwig, Johannes; Vogel, Edgar
  109. Regional Carbon Markets in China: Cointegration and Heterogeneity By Lyu, Chenyan
  110. U.S. Zombie Firms How Many and How Consequential? By Giovanni Favara; Camelia Minoiu; Ander Perez
  111. Environmental Justice By Julia M. Puaschunder
  112. Cryptocurrencies and Gold - Similarities and Differences By Jens Klose
  113. Financial Dollarization in Emerging Markets: Efficient Risk Sharing or Prescription for Disaster? By Lawrence Christiano; Husnu Dalgic; Armen Nurbekyan
  114. Social discounting and the cost of public funding in practice By Spackman, Michael
  115. Growing Pains? A Comment on “Converging to Convergence” By Rohini Pande; Nils T. Enevoldsen
  116. An Lonn Dubh: Disentangling Market Liquidity Risk for Irish Investment Funds By Fiedor, Pawel; Fragkou, Stamatoula
  117. Interchange Fee Regulation and card payments: a cross-country analysis By Guerino Ardizzi; Diego Scalise; Gabriele Sene
  118. Climate Change in Developing Countries: Global Warming Effects,Transmission Channels and Adaptation Policies By De Bandt Olivier; Jacolin Luc; Lemaire Thibault
  119. A concerted effort to tackle the productivity puzzle during the post-COVID era By Bart van Ark; Venables
  120. Productivity in UK healthcare during and after the Covid-19 pandemic By Diane Coyle; Kaya Dreesbeimdieck; Annabel Manley
  121. Effects of Physical Infrastructure Spending on the Economy and the Budget Under Two Illustrative Scenarios By Congressional Budget Office
  122. R&D Heterogeneity and Countercyclical Productivity Dispersion By Shuowen Chen; Yang Ming

  1. By: Darracq Pariès, Matthieu; Kok Sørensen, Christoffer; Rottner, Matthias
    Abstract: Could a monetary policy loosening in a low interest rate environment have unintended recessionary effects? Using a non-linear macroeconomic model fitted to the euro area economy, we show that the effectiveness of monetary policy can decline in negative territory until it reaches a turning point, where monetary policy becomes contractionary. The framework demonstrates that the risk of hitting the rate at which the effect reverses depends on the capitalization of the banking sector. The possibility of the reversal interest rate gives rise to a novel motive for macroprudential policy. We show that macroprudential policy in the form of a countercyclical capital buffer, which prescribes the build-up of buffers in good times, substantially mitigates the probability of encountering the reversal rate and increases the effectiveness of negative interest rate policies. This new motive emphasizes the strategic complementarities between monetary policy and macroprudential policy.
    Keywords: Reversal Interest Rate,Negative Interest Rates,MacroprudentialPolicy,Monetary Policy,ZLB
    JEL: E32 E44 E52 E58 G21
    Date: 2021
  2. By: David Laibson; Peter Maxted; Benjamin Moll
    Abstract: We study the effects of monetary and fiscal policy in a heterogeneous-agent model where households have present-biased time preferences and naive beliefs. The model features a liquid asset and illiquid home equity, which households can use as collateral for borrowing. Because present bias substantially increases households' marginal propensity to consume (MPC), present bias increases the impact of fiscal policy. Present bias also amplifies the effect of monetary policy but, at the same time, slows down the speed of monetary transmission. Interest rate cuts incentivize households to conduct cash-out refinances, which become targeted liquidity-injections to high-MPC households. But present bias also introduces a motive for households to procrastinate refinancing their mortgages, which slows down the speed with which this monetary channel operates.
    JEL: D14 D15 E03 E2 E21 E5 E62 E71 G4
    Date: 2021–07
  3. By: Cyrille Lenoel; Garry Young
    Abstract: We set out a framework that can be used to evaluate policies intended to mitigate the economic effects of Covid-19. In our framework shocks that affect only certain sectors can spill over to other sectors because of input-output linkages and limited income insurance. We show that policies such as the furlough scheme can prevent the sharp rises in unemployment that might arise in the absence of the scheme, and illustrate how such policies can be evaluated using the framework.
    Keywords: Covid-19, recession, sectoral model, input-output
    JEL: E00 E12 E20 E23 E24 E30 E52 E60 E62
    Date: 2021–08
  4. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Prashant Parab (Indira Gandhi Institute of Development Research)
    Abstract: We analyze the influence of qualitative and quantitative communications of the Reserve Bank of India on inflation expectations of professional forecasters, and draw out implications for the impact of policy variables on expectations. Estimating Carroll-type epidemiological models of expectation formation, we find large speed of adjustment of professional forecasters' expectations. Analysis of the determinants of inflation forecasts, inflation surprises and forecaster disagreement reveals significant influence of quantitative RBI communications in the form of inflation projections. This effect is prominent for shorter horizon forecasts and after the adoption of flexible inflation targeting regime. Macroeconomic fundamentals like lagged inflation and Repo rate too play a significant role in influencing inflation forecasts. Choice of words in the RBI monetary policy statements has more impact since October 2016, after monetary policy committee became the decision-making body.
    Keywords: Inflation expectations, Survey of professional forecasters, Central bank
    JEL: E31 E52 E58
    Date: 2021–04
  5. By: Régis Barnichon; Geert Mesters
    Abstract: Fiscal rules are widely used to constrain policy decisions and promote fiscal discipline, but the design of flexible yet effective rules has proved a formidable task. In this paper, we propose to implement fiscal constraints through a fiscal targeting framework, paralleling central banks' move from monetary rules to inflation targeting. Under fiscal targeting, fiscal policy makers must optimally balance some fiscal objectives (e.g., keeping the deficit below 3%) with their own policy objectives (e.g., stabilizing output at potential). Fiscal targeting can be implemented with minimal assumption on the underlying economic model, and it promises a number of benefits over commonly used fiscal rules: (i) stronger buy-in from policy makers, (ii) higher fiscal discipline, (iii) transparency and ease of monitoring.
    Keywords: fiscal rule, impulse responses, forecasting, stability and growth pact
    JEL: C14 C32 E32 E52
    Date: 2021–07
  6. By: Martin Geiger (Liechtenstein-Institut); Marios Zachariadis (University of Cyprus)
    Abstract: We assess the impact of fiscal and monetary policy shocks on US survey-based consumer expectations within states of low and high public debt. Following an unexpected increase in government spending, consumption intentions rise in the low-debt state and fall in the highdebt state. Overall, such a shock has adverse e ects on expectations in high-debt states. Similarly, contractionary monetary policy shocks induce pessimistic expectations in the highdebt state but not in the low-debt state. The estimated responses suggest that higher public debt fuels considerations regarding its repayment, giving rise to state dependencies in the updating of expectations in response to both fiscal and monetary policy shocks.
    Keywords: expectations, rational inattention, Ricardian, fiscal theory of the price level
    JEL: E31 E52 E62 E63
  7. By: Cesa-Bianchi, Ambrogio (Bank of England); Ferrero, Andrea (Bank of England)
    Abstract: Sectoral supply shocks can trigger shortages in aggregate demand when strong sectoral complementarities are at play. US data on sectoral output and prices offer support to this notion of ‘Keynesian supply shocks’ and their underlying transmission mechanism. Demand shocks derived from standard identification schemes using aggregate data can originate from sectoral supply shocks that spillover to other sectors via a Keynesian supply mechanism. This finding is a regular feature of the data and is independent of the effects of the 2020 pandemic. In a New Keynesian model with input-output network calibrated to three-digit US data, sectoral productivity shocks generate the same pattern for output growth and inflation as observed in the data. The degree of sectoral interconnection, both upstream and downstream, and price stickiness are key determinants of the strength of the mechanism. Sectoral shocks may account for a larger fraction of business-cycle fluctuations than previously thought.
    Keywords: Keynesian supply shocks; input-output matrix; granular fluctuations; approximate factor model
    JEL: C32 E23 E32
    Date: 2021–08–06
  8. By: Jaqueson K. Galimberti
    Abstract: Experienced-based-expectations allow the outcomes people experience to shape their views regarding future outcomes. We describe three forms of experienced-based-expectations and show how they can be applied in general equilibrium. The three expectations processes differ according to the nature of the information people use to form expectations and according to how well people understand their economic environment. In the context of a non-linear new Keynesian business cycle model, we show that experienced-based-expectations generally lead to increased volatility and sustained persistence, akin to scarring, relative to rational expectations. Through this expectations channel, periods of sustained bad outcomes, such as systematically low aggregate technology shocks, lead to persistently lower inflation. Changes in the inflation target have a greater effect on behavior when expectations are formed using outcomes on endogenous variables than when they are formed using outcomes on the shocks.
    Keywords: Experience, expectations, learning, persistence, scarring, macroeconomic dynamics
    JEL: E32 E71
    Date: 2021–08
  9. By: Jens Klose (THM Business School Giessen)
    Abstract: This article develops the first granular database on daily real-time inflation rates and output. Four different European forecast sources and three computation methods are applied to calculate those daily data. These are used in two types of monetary policy rules, for three different interest rates as the dependent variable. The results indicate that the main source of differences in the forecast horizons and response coeffcients is not the data sources or the computation method but, rather, the monetary policy rule applied and the interest rate used. That is, the results differ if unconventional monetary policies are considered. Moreover, the results tend to be time-varying; that is, sudden shifts in the optimal forecast horizon can be identified, leading to substantially altered policy rules.
    Keywords: Monetary policy rules, ECB, medium-term orientation
    JEL: E52 E58
    Date: 2021
  10. By: Sebastian Edwards; Luis Cabezas
    Abstract: We use detailed data for Iceland to examine two often-neglected aspects of the “exchange rate pass-through” problem. First, we investigate whether the pass-through coefficient varies with the degree of “international tradability” of goods. Second, we analyze if the pass-through coefficient depends on the monetary policy framework. We consider 12 disaggregated price indexes in Iceland for 2003-2019, a period that includes Iceland’s banking and currency crisis of 2008. We find that the pass-through declined around the time Iceland reformed its “flexible inflation targeting,” and that the coefficients are significantly higher for tradable than for nontradable goods.
    JEL: E31 E52 E58 F3 F41
    Date: 2020–02
  11. By: Giuseppe Fiori (Board of Governors of the Federal Reserve System); Filippo Scoccianti (Bank of Italy)
    Abstract: This paper uses over two decades of Italian survey data on business managers’ expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms’ demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firmlevel uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises.
    Keywords: uncertainty, business cycles, investment, expectations, cash holdings, downside uncertainty
    JEL: D24 E22 E24
    Date: 2021–07
  12. By: Galstyan, Vahagn (Central Bank of Ireland)
    Abstract: This paper analyses the empirical relation between inflation and unemployment over the past 25 years by using a panel state-space model. After controlling for the global factor, I find that the domestic rate of unemployment explains 11 percent in the variation of headline inflation, suggesting a significant power that domestic slack has in influencing medium-term core inflation. The global factor, in turn, is well explained by global oil and food prices as well as global trade integration. The contribution of the global slack in explaining the global component of inflation is negligible. Additionally, using a set of threshold regressions, I identify break points that split inflation dynamics into various regimes. In particular, I find a higher sensitivity of inflation to unemployment in high-inflation and/or low unemployment regimes. This finding is consistent with less frequent price adjustments of firms in low-inflation and high-unemployment environments.
    Keywords: Phillips Curve, State-Space Model, Non-Linearities
    JEL: E31 E32 E50
    Date: 2021–07
  13. By: Gustavo Pereira Serra (Department of Economics, New School for Social Research)
    Abstract: This paper aims to analyze the sustainability of student debt in the US. For this purpose, I build a neo-Kaleckian model in which households can borrow to either consume or invest in human capital. Next, I calibrate the model using US data to simulate the economic effects of specific policies such as student loan forgiveness. To my knowledge, this is the first study that considers household borrowing for two di erent purposes, consumption and human capital accumulation, in a demand-led macro-modeling framework. The main findings are that i) household debt is sustainable in the long run (i.e., the debt servicing is compatible with the long-term economic growth) for a consumption level greater than 90% of household income; ii) new borrowing boosts short-term economic activity while having ambiguous long-term e ects because of its outcomes to household indebtedness and debt servicing; and iii) student loan cancellation has only short-run economic e ects, whereas reducing loan interest rates and changing the eligibility criterion for student loan forgiveness result in long-term effects.
    Keywords: Household debt, student loans, capacity utilization, human capital
    JEL: E12 E22 E24
    Date: 2021–08
  14. By: Anna Burova (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Svetlana Popova (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation); Yulia Ushakova (Bank of Russia, Russian Federation)
    Abstract: We use credit registry data on all corporate loans issued by all Russian banks since 2017 to decompose the bank interest spreads into a common factor, as well as borrower and lender-related components while controlling for loan characteristics. We find that variation in loan rates associated with lender-specific factors (heterogeneity of banks) and borrower-specific factors (heterogeneity of borrowers) is substantial. We use the identified bank-specific components to measure fragmentation of the corporate credit market in Russia. We illustrate the developments in the Russian credit market during the pandemic using the obtained estimates. The results indicate that heterogeneity in banks’ interest rate setting is high and increased in the early stage of the pandemic. The range of borrower-related premiums charged by banks also widened (mostly due to increase in rates of loans to companies in sectors presumably affected by the pandemic). Finally, our results suggest that banks tightened non-interest loan conditions during the pandemic.
    Keywords: bank interest margin, bank interest spread, corporate credit, credit registry, financial stability, credit market fragmentation, Russian banking sector in the pandemic.
    JEL: E44 E51 E52 E58 G21 G28
    Date: 2021–07
  15. By: Gavazza, Alessandro; Lanteri, Andrea
    Abstract: This article studies equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) indivisible durable goods are vertically differentiated in their quality and (2) trade on secondary markets at market-clearing prices, with households endogenously choosing when to trade or scrap their durables. The model highlights a new transmission mechanism for macroeconomic shocks and successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, which depresses mid-quality car prices. In turn, this effect reduces wealthy households’ incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 (“Cash for Clunkers”).
    Keywords: credit constraints; durable goods; 771004; SES 1756992
    JEL: E21 E32 L62
    Date: 2021–03–18
  16. By: Mary A. Burke; Ali K. Ozdagli
    Abstract: Recent research offers mixed results concerning the relationship between inflation expectations and consumption, using qualitative measures of readiness to spend. We revisit this question using survey panel data of actual spending from the U.S. between 2009 and 2012 that also allows us to control for household heterogeneity. We find that durables spending increases with expected inflation only for selected types of households while nondurables spending does not respond to expected inflation. Moreover, spending decreases with expected unemployment. These results imply a limited stimulating effect of inflation expectations on aggregate consumption, which could be reversed if inflation and unemployment expectations move together.
    Keywords: Inflation expectations; survey data; durable and nondurable goods consumption
    JEL: D12 E52 E58
    Date: 2021–08–03
  17. By: Richard T. Froyen; Alfred V. Guender
    Abstract: This paper proposes that the Mundellian Trilemma remains valid despite the emergence of a world financial cycle. A clear distinction must be made between monetary policy independence and insulation of an open economy’s financial system. A flexible exchange rate allows an optimizing central bank to chart an independent course but does not insulate the domestic economy from foreign monetary or financial shocks. The gains from a flexible exchange rate may be considerable and vary in accordance with the mandate of the central bank. The Mundellian Trilemma highlights the acute shortage of policy instruments. We show that macroprudential policy in the form of an interest equalization tax, enhances the ability of an optimizing central bank to effectively stabilize domestic output and inflation in the presence of policy changes abroad and potentially destabilizing capital flows.
    Keywords: Mundellian Trilemma, policy independence, capital mobility, instrument shortage, capital controls
    JEL: E3 E5 F3
    Date: 2021–07
  18. By: Jorge C. Ávila
    Abstract: Se especula a menudo que si Argentina eliminara su déficit fiscal, la dolarización oficial de la economía sería innecesaria. En la nota discutimos la validez de dicha especulación para una economía bimonetaria. Concluimos que mientras más avanzada sea la dolarización de facto, mayor será la elasticidad de la demanda de dinero y la velocidad de ajuste del nivel de precios. Estos cambios estructurales afectan el funcionamiento del mercado de dinero y magnifican la capacidad de desestabilización de los shocks monetarios. / It´s often argued that if Argentina wiped out its fiscal deficit, official dollarization would not be needed. We discuss the validity of such an argument for a two-currency economy. We conclude that the more advanced the process of currency substitution, the greater the elasticity of the demand for money and the velocity of adjustment of the price level. These structural changes modify the way the money market works and magnify the destabilizing power of monetary shocks.
    JEL: E31 E41 E42
    Date: 2021–08
  19. By: Lloyd, S.; Manuel, E.; Panchev, K.
    Abstract: We study how foreign financial developments influence the conditional distribution of domestic GDP growth. Within a quantile regression setup, we propose a method to parsimoniously account for foreign vulnerabilities using bilateral-exposure weights when assessing downside macroeconomic risks. Using a panel dataset of advanced economies, we show that tighter foreign financial conditions and faster foreign credit-to-GDP growth are associated with a more severe left tail of domestic GDP growth, even when controlling for domestic indicators. The inclusion of foreign indicators significantly improves estimates of ‘GDP-at-Risk’, a summary measure of downside risks. In turn, this yields time-varying estimates of higher GDP growth moments that are interpretable and provide advanced warnings of crisis episodes. Decomposing historical estimates of GDP-at-Risk into domestic and foreign sources, we show that foreign shocks are a key driver of domestic macroeconomic tail risks.
    Keywords: Financial stability, GDP-at-Risk, International spillovers, Local projections, Quantile regression, Tail risk
    JEL: E44 E58 F30 F41 F44 G01
    Date: 2021–07–30
  20. By: Martin Geiger (Liechtenstein-Institut); Elias Hasler (Liechtenstein Financial Market Authority); Martin Gächter (Liechtenstein Financial Market Authority)
    Abstract: We examine structural differences in growth vulnerabilities across countries resulting from time-varying financial risk. Considering differences in trade openness, financial sector size, the public spending ratio and government effectiveness, our findings suggest the existence of both a structural gap as well as a risk sensitivity gap when estimating growth-at-risk (GaR) across countries. Hence, structural factors do not only drive level-differences in GaR, but also give rise to differences in the responsiveness of GaR to varying levels of risk. Furthermore, we show that structural factors affect the term structure of GaR, with the impact of structural characteristics varying over the forecasting horizon. A proper understanding of structural factors in the context of the GaR framework is particularly important to facilitate the use of the concept in macroprudential policy.
    Keywords: Growth-at-risk; vulnerable growth; structural factors; macroprudential policy
    JEL: E27 E32 E44 F43 G01 G20 G28
  21. By: Parle, Conor (Central Bank of Ireland)
    Abstract: Using methods from natural language processing I create two measures of the monetary policy tilt of the ECB entitled the “Hawk-Dove Indices”, that outline the beliefs of the ECB on the current state of the economy and the outlook for growth and inflation. These measures closely track interest rate expectations over the tightening and loosening cycle, and can provide a useful measure of monetary policy tilt at zero lower bound episodes and contains information about the state of the economy. I exploit the time lag between decision announcements and the ECB’s monetary policy press conference to assess the immediate financial market impact of changes in communication within the press conference, free from the effects of the shock from the monetary policy decision. Consistent with the literature on the information channel of monetary policy, I find a non-negligible positive (negative) effect on stock prices of a more hawkish (dovish) tone in the press conference, indicating that the ECB reveals “private information” during these press conferences, and that market participants internalise this as good (bad) news regarding the future state of the economy, rather than internalising a future potential increase (decrease) in interest rates. This effect is stronger prior to the introduction of formal forward guidance, suggesting that since then ECB communication has been less surprising to markets in recent times.
    Keywords: Monetary policy, communication, machine learning, natural language processing, event study, information effects
    JEL: E52 E58 C55
    Date: 2021–05
  22. By: Nicolas Crouzet; Janice C. Eberly
    Abstract: In recent years, measured TFP growth in the US has declined. We argue that two forces contributed to this decline: the mismeasurement of intangible capital, and rising markups. Markups affect input shares, while intangibles omitted from measures of investment affect measured capital growth, each potentially generating downward bias in measured TFP growth. Most importantly, when both forces are simultaneously present, their effects reinforce each other and amplify the downward bias in measured TFP growth. Using input-output data, we estimate that this mechanism could account for one-third to two-thirds of the decline in measured TFP growth.
    JEL: D24 D4 E01 E22 G31
    Date: 2021–07
  23. By: Gianluca Cafiso; Giulia Rivolta
    Abstract: The amount of credit in the economy is a heterogeneous aggregate that can be analyzed across different dimensions. Considering such dimensions provides insights into the effect of monetary policy interventions because the credit components are observed to respond differently. Several possible motivations are behind such a differential response and those relate to either demand and supply factors intrinsic to the transmission mechanism of monetary policy. Our objective is to unveil such a differential response across a couple of relevant dimensions and discuss the possible causes behind what observed. The analysis refers to the US and is based on a vector auto-regression estimated using Bayesian techniques and identified with a combination of sign and zero-restrictions.
    Keywords: bank loans, non-bank loans, monetary interventions, households, corporate business, non-corporate business, Bayesian VAR
    JEL: E44 E51 G20 G21 C11
    Date: 2021
  24. By: Polo, Alberto (Bank of England)
    Abstract: I document three salient features of the transmission of monetary policy shocks: imperfect pass-through to deposit rates, impact on credit spreads, and substitution between deposits and other bank liabilities. I develop a monetary model consistent with these facts, where banks have market power on deposits, a duration-mismatched balance sheet, and a dividend-smoothing motive. Deposit demand has a dynamic component, as in the literature on customer markets. A financial friction makes non-deposit funding supply imperfectly elastic. The model indicates that imperfect pass-through to deposit rates is an important source of amplification of monetary policy shocks.
    Keywords: Monetary policy transmission; deposit rates; banks; market power
    JEL: E43 E52 G21
    Date: 2021–07–30
  25. By: Stephen R.G. Jones; Fabian Lange; W. Craig Riddell; Casey Warman
    Abstract: The Canadian labor market experienced a period of unprecedented turmoil following the onset of the COVID-19 pandemic. We analyze the main changes using standard labor force statistics and new data on job postings. Envisaging a phase of temporary severing of employment relationships followed by a phase of more standard labor market search and matching, we use stock and flow data to understand key developments. We find dramatic changes in employment, unemployment and labor market attachment in 2020 and, looking forward to 2021, signs of an unusual recovery with co-existing strong labor demand and stubborn persistence in depressed employment rates.
    JEL: E24 E32 I14 I18 I3 J21 J23 J31 J63
    Date: 2021–07
  26. By: Fiorella De Fiore; Marco Jacopo Lombardi; Johannes Schuffels
    Abstract: We study the impact of the Fed's monetary policy announcements on households' expectations by comparing responses to the Survey of Consumer Expectations before and after Federal Open Market Committee (FOMC) meetings, over the period 2013-2019. We find that Fed decisions affect expectations of interest rates on savings accounts, particularly for respondents with high financial and numerical literacy. The impact of monetary policy announcements on inflation expectations is muted, even in response to some of the most relevant meetings of the FOMC that took place during that period. Expectations of personal financial conditions are barely affected. Our results stand in contrast to experimental studies that find strong effects of monetary policy and other macroeconomic news on expectations of households receiving a specific treatment, suggesting that the news naturally reaching the general population may provide weaker signals.
    Keywords: households, monetary policy, central bank communication, inflation expectations, survey data
    Date: 2021–08
  27. By: Josué Diwambuena (Free University of Bozen-Bolzano, Italy); Jean-Paul K. Tsasa (Department of Economics, Université du Québec, Montreal)
    Abstract: This paper applies both linear and nonlinear structural vector autoregressive (SVAR) models using two distinct identifications methods to disentangle the macroeconomic effects of uncertainty shocks for a developing country. As an application, we use macroeconomic data for the Democratic Republic of Congo (Congo), one of the largest and least developed countries in the world with a rich history of domestic political instability and high macroeconomic volatility. Our measure of uncertainty is the world uncertainty index for the Congo recently developed by Ahir et al. (2018) for a panel of developed and developing countries. Using a standard SVAR model with sign restrictions, we provide evidence that an unexpected increase in uncertainty triggers contractions in GDP and investment on impact in the Congo. We show that uncertainty shocks are among the greatest drivers of economic fluctuations. Our results are robust across alternative linear and nonlinear SVAR specifications using the Cholesky decomposition.
    Keywords: Uncertainty; SVAR; Sign restriction; Congo.
    JEL: C30 D80 E32 O40
    Date: 2021–07
  28. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: In order to analyze how the excess of growth over the real interest rate can best contribute to Indian post Covid19 debt adjustment paths, we draw on historical experience, past adjustment episodes and special features of emerging markets (EMs). In many EMs growth (g) routinely exceeds real interest rates (r) because of good growth prospects. But borrowing costs are high and unstable. Volatility and uncertainty can raise risk premiums and interest rates. Both domestic and international risks have to be reduced to lower volatility. With regard to domestic policy, India does show a credible fall in primary deficit ratio (PD) as well as off budget items after fiscal responsibility legislation was introduced. The g-r gap was also positive but pro-cyclical macroeconomic policy made this highly variable. Counter-cyclical policy that stabilizes shocks can keep average g-r at around 5. A counter-cyclical PD will contribute, and together with a substantial g-r gap, lower debt most efficiently, creating space for adequate fiscal response to future shocks. Reducing debt in the medium-term is consistent with Covid19 related fiscal spending.
    Keywords: Deficits, Debt, Adjustment paths, Covid19, Emerging markets
    JEL: H63 E62 E63 O11
    Date: 2021–06
  29. By: Baer, Moritz; Campiglio, Emanuele; Deyris, Jérôme
    Abstract: This article studies how institutional dynamics might affect the implementation of climate-related financial policies. First, we propose a three-dimensional framework to distinguish: i) motives for policy implementation (prudential or promotional); ii) policy instruments (informational, incentive or coercive); and iii) implementing authorities (political or delegated). Second, we use this framework to show how sustainable financial interventions in certain jurisdictions - most notably, Europe - rely solely on informational policies to achieve both promotional and prudential objectives. Policymakers in other jurisdictions - e.g., China - also implement incentive or coercive financial policies to achieve promotional objectives. Third, we identify two main institutional explanations for this European ‘promotional gap’: i) limited control of political authorities on financial dynamics; and ii) strong powers and independence of delegated authorities. This governance configuration leads to an institutional deadlock in which only measures fitting with both political and delegated authorities’ objectives can be implemented. Finally, we discuss the scenarios that might originate from the current institutional setting. We identify three possible evolutionary paths: i) a drift towards a green financial technocracy; ii) a re-politicization of delegated authorities; iii) a move towards fiscal-monetary coordination.
    Keywords: sustainable finance; climate change; low-carbon transition; central banks; financial supervisors; delegation; Centre for Climate Change Economics and Policy; 853050
    JEL: E44 E58 G28 G18 G14
    Date: 2021–04–22
  30. By: Gustavo Pereira Serra (Department of Economics, New School for Social Research)
    Abstract: This paper addresses the contribution of human capital accumulation to solving the First Harrod Problem, which relates to the di erence between demand-led and natural growth rates in the long run. To some extent, this paper also relates to the literature on labor-saving technical change represented as a costly process. Moreover, I show how a model that considers human capital accumulation can address overeducation and technical change. I argue that human capital formation and technological progress are complementary in economic growth: the former ensures the stability of the employment rate on the balanced growth path, whereas the latter determines its level.
    Keywords: Human Capital, Post-Keynesian Economics, First Harrod Problem, Harrodian Instability, Aggregate Productivity
    JEL: E11 E12 E24 O40
    Date: 2021–08
  31. By: Gianni De Nicolo (Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)); Nataliya Klimenko (University of Zurich); Sebastian Pfeil (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management (ERIM)); Jean-Charles Rochet (Swiss Finance Institute; University of Geneva - Geneva Finance Research Institute (GFRI); University of Zurich - Swiss Banking Institute (ISB))
    Abstract: We build a stylized dynamic general equilibrium model with financial frictions to analyze costs and benefits of capital requirements in the short-term and long-term. We show that since increasing capital requirements limits the aggregate loan supply, the equilibrium loan rate spread increases, which raises bank profitability and the market-to-book value of bank capital. Hence, banks build up larger capital buffers which (i) lowers the public losses in case of a systemic crisis and (ii) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our model’s dynamic implications in a panel VAR estimation, which suggests that bank lending has even increased in the long-run after the implementation of Basel III capital regulation.
    Keywords: Bank capital requirements, credit crunch, systemic risk
    JEL: E21 E32 F44 G21 G28
    Date: 2021–06
  32. By: International Monetary Fund
    Abstract: The economic and social impact of the COVID-19 pandemic over the past year has been well-managed by the authorities. Timely and prudent fiscal and monetary easing shielded the economy from the full brunt of the crisis, while alleviating the health and social impact of the shock. Sound economic policies helped deliver macroeconomic stabilization, safeguard debt sustainability, and preserve investor confidence. While growth is expected to rebound in FY2021/22, the outlook is still clouded by uncertainty related to the pandemic and the pace of vaccinations. High public debt and large gross financing needs leave Egypt vulnerable to external shocks or changes in financial market conditions for EMs. Near-term fiscal and monetary policies should thus continue to support the recovery without accumulating undue imbalances.
    Date: 2021–07–22
  33. By: Tomaz Cajner; John M. Coglianese; Joshua Montes
    Abstract: How cyclical is the U.S. labor force participation rate (LFPR)? We examine its response to exogenous state-level business cycle shocks, finding that the LFPR is highly cyclical, but with a significantly longer-lived response than the unemployment rate. The LFPR declines after a negative shock for about four years—well beyond when the unemployment rate has begun to recover—and takes about eight years to fully recover after the shock. The decline and recovery of the LFPR is largely driven by individuals with home and family responsibilities, as well as by younger individuals spending time in school. Our main specifications measure cyclicality from the response of the age-adjusted LFPR, and we show that it is problematic to use the unadjusted LFPR when estimating cyclicality because local shocks spur changes in the population of high-LFPR age groups through migration. LFPR cyclicality varies across groups, with larger and longer-lived responses among men, younger workers, less-educated workers, and Black workers.
    Keywords: Labor force participation; Labor supply; Labor force composition; Labor force demographics; Full employment; Okun’s law; Geographic mobility; Labor mobility; Regional migration
    JEL: E24 J21 J22 J61 J64
    Date: 2021–07–30
  34. By: International Monetary Fund
    Abstract: The pandemic interrupted a prolonged growth spell that made the Dominican Republic one of the most dynamic economies in the region amid strong growth, macroeconomic stability and improved social outcomes. This built resilience to the shock—including by maintaining access to markets—and allowed a decisive policy response to address the health emergency, support growth, and protect the vulnerable.
    Date: 2021–07–28
  35. By: Bobeica, Elena; Ciccarelli, Matteo; Vansteenkiste, Isabel
    Abstract: The link between US labor cost and price inflation has weakened notably over the past three decades. In this paper we document this decline and analyse potential contributing factors. We consider four important trends that have shaped the US economy of late: (i) improved anchoring of inflation expectations; (ii) the changing constellation of shocks hitting the economy; (iii) increased trade integration and (iv) rising firm market power. We find that the improved anchoring of inflation expectations has played a particularly relevant role but also that the latter two trends offer promising avenues to understand the decline in pass-through from labor cost to price inflation. Our results also bring supportive evidence to the view taken by the FED in the context of its monetary policy strategy review that a robust job market can be sustained without causing an outbreak of inflation. JEL Classification: C32, E24, E31
    Keywords: inflation, labor costs, pass-through, structural VAR, United States
    Date: 2021–08
  36. By: International Monetary Fund
    Abstract: Côte d’Ivoire has shown strong resilience to the pandemic, owing to the authorities’ swift policy reaction and to a decade of sound macroeconomic policies, as well as the support of the international community including the IMF.
    Date: 2021–08–03
  37. By: Sui-Jade Ho; Ozer Karagedikli
    Abstract: By conducting a high-frequency event study similar to Gürkaynak et al. (2005), we find that two factors are needed to adequately capture the effects of monetary policy announcements for a non-inflation targeting emerging market economy, Malaysia. These factors are the surprise changes in the policy rate (Overnight Policy Rate, OPR) and the information about the future path of monetary policy. We find that the path factor has a strong influence on long-term government bond yields, corporate bond yields and spreads. Our findings are indicative of the view that monetary policy communication is mostly about revealing information pertaining to the central bank’s assessment of the economic outlook, as opposed to an unconditional binding commitment to follow a specific policy path.
    JEL: J31 J64
    Date: 2021–07
  38. By: International Monetary Fund
    Abstract: Macroeconomic vulnerabilities have declined since the peak of the COVID-19 pandemic in 2020. The economy is expected to rebound swiftly in 2021 as activities return to normality and the population is increasingly vaccinated. External imbalances are contained. The fiscal position is gradually consolidated as the authorities remain committed to the revised fiscal rule, which will ensure a declining path for the NFPS debt. The outlook remains subject to elevated risks, including uncertainties arising from possible more contagious variants of the COVID-19 virus. Domestic risks include setbacks in implementing the FATF action plan to exit the grey list, delays in fiscal consolidation, and a prolonged pandemic that could exacerbate socioeconomic hardship and derail economic policies and the recovery.
    Date: 2021–08–02
  39. By: Guido Ascari; Qazi Haque; Leandro M. Magnusson; Sophocles Mavroeidis
    Abstract: The Euler equation model for investment with adjustment costs and variable capital utilization is estimated using aggregate US post-war data with econometric methods that are robust to weak instruments and exploit information in possible structural changes. Various alternative identification assumptions are considered, including external instruments, and instruments obtained from Dynamic Stochastic General Equilibrium models. Results show that the elasticity of capital utilization and investment adjustment cost parameters are very weakly identified. This is because investment appears to be unresponsive to changes in capital utilization and the real interest rate.
    Keywords: Investment, Adjustment costs, Weak identification
    JEL: C2 E22
    Date: 2021–07
  40. By: Jeff Larrimore; Jacob Mortenson; David Splinter
    Abstract: This paper documents the magnitude and distribution of U.S. earnings changes during the COVID-19 pandemic and how fiscal relief offset lost earnings. We build panels from administrative tax data to measure annual earnings changes. The frequency of earnings declines during the pandemic were similar to the Great Recession, but the distribution was very different. In 2020, workers starting in the bottom half of the distribution were more likely to experience large annual earnings declines and a similar share of male and female workers had large earnings declines. While most workers experiencing large annual earnings declines do not receive unemployment insurance, over half of beneficiaries were made whole in 2020, as unemployment insurance replaced a median of 103 percent of their annual earnings declines. After incorporating unemployment insurance, the likelihood of large earnings declines among low-earning workers was not only smaller than during the Great Recession, but also smaller than in 2019.
    Keywords: COVID-19; Wage earnings; Stimulus checks; Unemployment insurance; Countercyclical policy
    JEL: D31 E24 H53 J30 J65
    Date: 2021–08–02
  41. By: Maebayashi, Noritaka
    Abstract: This study investigates expenditure- and tax-based consolidations under the rule of reductions in debt-to-GDP ratios to the target level as well as the effects of these consolidations on fiscal sustainability and welfare, using an overlapping generations model with exogenous growth settings. We derive (i) the global transition dynamics of the economy, (ii) a threshold (ceiling) of public debt to ensure fiscal sustainability, (iii) sustainable paces of these consolidations, and (iv) optimal pace of consolidations from viewpoints of both social welfare and fairness of each generation's welfare. We find that higher paces or lower targets of debt-to-GDP ratio make fiscal policies more sustainable. The pace required of tax-based consolidation to ensure fiscal sustainability is higher than that required of expenditure-based consolidation. As for welfare, countries may differ in their choice of the type of consolidation. It depends on how large outstanding debts relative to capital are and how large the utility derived by individuals from public goods and services is. By contrast, a common result from the viewpoints of both social welfare and fair distribution of welfare across generations is that very slow pace of fiscal consolidation cannot be supported.
    Keywords: Fiscal consolidation, Paces of consolidation, Fiscal sustainability, Welfare
    JEL: E62 H40 H60
    Date: 2021–08–05
  42. By: Jančoková, Martina; Pástor, Ľuboš; Fabo, Brian; Kempf, Elisabeth
    Abstract: We compare the findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers find QE to be more effective than academic papers do. Central bank papers report larger effects of QE on output and inflation. They also report QE effects on output that are more significant, both statistically and economically, and they use more positive language in the abstract. Central bank researchers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production. JEL Classification: A11, E52, E58, G28
    Keywords: career concerns, central bank, economic research, QE, quantitative easing
    Date: 2021–08
  43. By: Moore, Rachel; Pecoraro, Brandon
    Abstract: Macroeconomic analyses of wealth taxes typically treat all household wealth as taxable, despite noted administrative difficulties with including owner-occupied housing and noncorporate equity in the tax base. In this paper, we quantify the macroeconomic and budgetary impact of avoidance due to these exclusions from a stylized, broad-based, top-wealth tax in the United States. We use a two-sector, large-scale overlapping generations model where, in the presence of exclusions, avoidance behavior arises endogenously through households’ reallocation of wealth and firms’ reallocation of economic activity. We find that while the macroeconomic and budgetary effects of the housing exclusion are insignificant, the noncorporate equity exclusion introduces a production-level distortion that results in a significant reallocation of economic activity from the corporate to noncorporate sector. We show that the federal revenue loss due to legal avoidance in the latter case can be similar to the amount lost due to illegal evasion via under-reporting wealth, but nonetheless have a quantitatively distinct path of macroeconomic aggregates. Finally, because interest in a wealth tax is linked to its potential for financing federal outlays, we show how variation in macroeconomic and budgetary effects across alternative expenditures affects the amount of new outlays availed by the tax itself. We find that while dedicating new revenue to public infrastructure investment leads to the largest increase in aggregate output, dedicating new revenue to federal debt reduction leads to the largest increase in outlays.
    Keywords: dynamic scoring; wealth tax; avoidance; evasion;
    JEL: E62 H26 H27
    Date: 2021–08–09
  44. By: International Monetary Fund
    Abstract: Swift implementation of containment measures, limited spillovers from tourism, and COVID-related fiscal spending financed by buoyant fishing revenues and donor grants have allowed Tuvalu—a fragile Pacific micro-state—avoid a recession in 2020. The economy is expected to expand by 2.5 percent in 2021, supported by fiscal expenditures and resumption of infrastructure projects. But significant challenges remain: Tuvalu is vulnerable to the effects of climate change, its economy is dominated by the public sector, and its revenue base is narrow. Uncertainty around donor commitments complicates fiscal planning.
    Date: 2021–08–04
  45. By: Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama
    Abstract: This paper studies how structural change in labor supply along the development spectrum shapes cross-country differences in hours worked. We emphasize two main forces: sectoral reallocation from self-employment to wage work, and declining fixed costs of wage work. We show that these forces are crucial for understanding how the extensive margin (the employment rate) and intensive margin (hours per worker) of aggregate hours worked vary with income per capita. To do so we build and estimate a quantitative model of labor supply featuring a traditional self-employment sector and a modern wage-employment sector. When estimated to match cross-country data, the model predicts that sectoral reallocation explains more than half of the total hours decrease at lower levels of development. Declining fixed costs drive the rise in employment rates at higher levels of income per capita, and imply higher hours in the future, in contrast to the lower hours resulting from income effects and expansions in tax-and-transfer systems.
    JEL: E0 E24 O11 O41
    Date: 2021–07
  46. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: The global economy remained on track in the first months of 2021, despite surging covid-19 infections and renewed containment measures in many countries. The impact of the pandemic was largely confined to the service sectors. Meanwhile, the pronounced upturn in industrial production and global trade continued until spring, but has started to falter as a result of supply bottlenecks and logistical problems. The tensions in the global economic fabric are reflected not least in sharp price increases for raw materials, intermediate goods and transportation services, which have already contributed to a noticeable rise in consumer prices. Continued highly expansionary monetary policy and considerable fiscal policy stimulus, notably in the United States, but also in the euro zone, are fuelling economic activity this year and next. We expect global output (measured on a purchasing power parity basis) to increase by 6.7 percent in 2021 and by 4.8 percent in 2022, which is still substantially above medium-term trend growth. In view of the high economic momentum and higher inflation risks, we expect the Federal Reserve to start tightening earlier than previously expected. This is associated with the risk of a significant deterioration in financing conditions going forward, particularly for some emerging economies
    Keywords: Americas,Asia,Business Cycle World,China,Emerging Markets & Developing Countries,Europe,USA
    Date: 2021
  47. By: Jose Maria Barrero; Nicholas Bloom; Steven J. Davis
    Abstract: About one-fifth of paid workdays will be supplied from home in the post-pandemic economy, and more than one-fourth on an earnings-weighted basis. In view of this projection, we consider some implications of home internet access quality, exploiting data from the new Survey of Working Arrangements and Attitudes. Moving to high-quality, fully reliable home internet service for all Americans (“universal access”) would raise earnings-weighted labor productivity by an estimated 1.1% in the coming years. The implied output gains are $160 billion per year, or $4 trillion when capitalized at a 4% rate. Estimated flow output payoffs to universal access are nearly three times as large in economic disasters like the COVID-19 pandemic. Our survey data also say that subjective well-being was higher during the pandemic for people with better home internet service conditional on age, employment status, earnings, working arrangements, and other controls. In short, universal access would raise productivity, and it would promote greater economic and social resilience during future disasters that inhibit travel and in-person interactions.
    JEL: D24 D84 E24 E27 E71 H54 J22 J24 J31 J81
    Date: 2021–07
  48. By: Dario Laudati; M. Hashem Pesaran
    Abstract: This paper considers how sanctions affected the Iranian economy using a novel measure of sanctions intensity based on daily newspaper coverage. It finds sanctions to have significant effects on exchange rates, inflation, and output growth, with the Iranian rial over-reacting to sanctions, followed up with a rise in inflation and a fall in output. In absence of sanctions, Iran’s average annual growth could have been around 4 - 5 per cent, as compared to the 3 per cent realized. Sanctions are also found to have adverse effects on employment, labor force participation, secondary and high-school education, with such effects amplified for females.
    Keywords: newspaper coverage, identification of direct and indirect effects of sanctions, Iran output growth, exchange rate depreciation and inflation, labor force participation and employment, secondary education, and gender bias
    JEL: E31 E65 F43 F51 F53 O11 O19 O53
    Date: 2021
  49. By: Feld, Lars P.; Fuest, Clemens; Haucap, Justus; Schweitzer, Heike; Wieland, Volker; Wigger, Berthold U.
    Abstract: The European Central Bank (ECB) is currently conducting a review of its monetary policy strategy. The last formal review took place in 2003. Now the focus is on the extent to which this strategy has contributed in recent years to fulfill the mandate set out in the Treaties of the European Union and whether certain elements need to be adjusted. Against this background, the Kronberger Kreis, the academic advisory board of the Stiftung Marktwirtschaft (Market Economy Foundation), examines whether the ECB's monetary policy strategy still holds promise for success, whether its mandate should be reinterpreted and how the use of specific instruments should be assessed. In its analysis, the Kronberger Kreis draws on the experience of the financial crisis, the euro debt crisis and the coronavirus crisis and argues that greater attention should be paid to the side effects and proportionality of monetary policy measures. The central banks of the Eurosystem are now the largest creditors of the member states. Fiscal dominance of monetary policy should be avoided. The ECB's hierarchical mandate prioritizing price stability should not be called into question. The envisaged numerical target for consumer price inflation of below, but close to, two percent remains reasonable. However, the ECB should also consider other measures of inflation in its decisions and their communication. In addition, the ECB should rely more strongly on quantitative benchmarks (interest rate rules, money supply growth). The transparency of monetary policy could be significantly increased, for example, by publishing surveys and forecasts of the ECB's Governing Council. In principle, all measures must take into account the need to strengthen the independence of the ECB and the stability of the monetary union.
    Date: 2021
  50. By: Adam, Klaus; Gautier, Erwan; Santoro, Sergio; Weber, Henning
    Abstract: Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive inflation target. Relative price trends shift the optimal inflation target up from a level of zero percent, as suggested by the standard sticky price literature, to a range of 1.1%- 2.1% in France, 1.2%-2.0% in Germany, 0.8%-1.0% in Italy, and 1.1-1.7% in the Euro Area (three country average). Differences across countries emerge due to systematic differences in the strength of relative price trends. Other considerations not taken into account in the present paper may push up the optimal inflation targets further. The welfare costs associated with targeting zero inflation turn out to be substantial and range between 2.1% and 4.5% of consumption in present-value terms. JEL Classification: E31, E52
    Keywords: micro price trends, optimal inflation target, welfare
    Date: 2021–07
  51. By: Assenmacher, Katrin; Berentsen, Aleksander; Brand, Claus; Lamersdorf, Nora
    Abstract: We study the macroeconomic effects of central bank digital currency (CBDC) in a dynamic general equilibrium model. Timing and information frictions create a need for inside (bank deposits) and outside money (CBDC) to finance production. To steer the quantity of CBDC, the central bank can set the lending and deposit rates for CBDC as well as collateral and quantity requirements. Less restrictive provision of CBDC reduces bank deposits. A positive interest spread on CBDC or stricter collateral or quantity constraints reduce welfare but can contain bank disintermediation, especially if the elasticity of substitution between bank deposits and CBDC is small. JEL Classification: E58, E41, E42, E51, E52
    Keywords: central bank digital currency, monetary policy, search and matching
    Date: 2021–07
  52. By: Jaqueson K. Galimberti
    Abstract: This paper evaluates how initial beliefs uncertainty can affect data weighting and the estimation of models with adaptive learning. One key finding is that misspecification of initial beliefs uncertainty, particularly with the common approach of artificially inflating initials uncertainty to accelerate convergence of estimates, generates time-varying profiles of weights given to past observations in what should otherwise follow a fixed profile of decaying weights. The effect of this misspecification, denoted as diffuse initials, is shown to distort the estimation and interpretation of learning in finite samples. Simulations of a forward-looking Phillips curve model indicate that (i) diffuse initials lead to downward biased estimates of expectations relevance in the determination of actual inflation, and (ii) these biases spill over to estimates of inflation responsiveness to output gaps. An empirical application with U.S. data shows the relevance of these effects for the determination of expectational stability over decadal subsamples of data. The use of diffuse initials is also found to lead to downward biased estimates of learning gains, both estimated from an aggregate representative model and estimated to match individual expectations from survey expectations data.
    Keywords: expectations, adaptive learning, bounded rationality, macroeconomics
    JEL: E70 D83 D84 E37 C32 C63
    Date: 2021–07
  53. By: Fernandes, Cecilia Melo
    Abstract: This paper investigates the impact of ECB communication of its assessment of the economic outlook on ex-ante inflation uncertainty and sheds light on how central bank information shocks operate. The paper finds that ECB communication of new outlook information not only reduces professional forecasters’ disagreement (i.e., the cross-sectional dispersion of their average point forecasts of inflation) but also makes forecasters less uncertain about their own beliefs, thus reducing ex-ante average individual uncertainty. By combining and exploiting these types of ex-ante inflation uncertainty, results suggest that central bank information acts as a “coordination device” able to influence opinions and actions. Most importantly, it generates a “stabilizer effect” by substantially decreasing the dispersion among the inflation point forecasts, which converge towards their unconditional aggregate mean. The results of this paper not only help to explain the impact of new central bank information, but they are also useful for policymakers to define a communication strategy that attenuates ex-ante inflation uncertainty in the most effective way. JEL Classification: D83, E52, E58, E65, G14
    Keywords: central bank communication, euro area, ex-ante inflation uncertainty, inflation expectations
    Date: 2021–08
  54. By: Fernando E. Alvarez; Katarína Borovičková; Robert Shimer
    Abstract: We develop an estimator and tests of a discrete time mixed proportional hazard (MPH) model of duration with unobserved heterogeneity. We allow for competing risks, observable characteristics, and censoring, and we use linear GMM, making estimation and inference straightforward. With repeated spell data, our estimator is consistent and robust to the unknown shape of the frailty distribution. We apply our estimator to the duration of price spells in weekly store data from IRI. We find substantial unobserved heterogeneity, accounting for a large fraction of the decrease in the Kaplan-Meier hazard with elapsed duration. Still, we show that the estimated baseline hazard rate is decreasing and a homogeneous firm model can accurately capture the response of the economy to a monetary policy shock even if there is significant strategic complementarity in pricing. Using competing risks and spell-specific observable characteristics, we separately estimate the model for regular and temporary price changes and find that the MPH structure describes regular price changes better than temporary ones.
    JEL: C14 C41 E31 E50
    Date: 2021–07
  55. By: International Monetary Fund
    Abstract: Following the October 2020 election, the new administration moved to tackle the devastating human and economic effects of the COVID-19 pandemic. The economy shows signs of recovery from its 8.8 percent contraction in 2020. However, fiscal imbalances have increased and international reserves continue to fall. On February 12, Bolivia repurchased the 240.1 million SDR purchase under the Fund’s Rapid Financing Instrument (that was approved by the Fund’s Executive Board in April 2020).
    Date: 2021–08–04
  56. By: Richard Foltyn; Jonna Olsson
    Abstract: This paper explores how heterogeneity in life expectancy, objective (statistical) as well as subjective, affects savings behavior between healthy and unhealthy people. Using data from the Health and Retirement Study, we show that people in poor health not only have shorter actual lifespan, but are also more pessimistic about their remaining time of life. Using a standard overlapping-generations model, we show that differences in life expectancy can explain one third of the differences in accumulated wealth with an important part driven by pessimism among unhealthy people.
    Keywords: Life expectancy, preference heterogeneity, subjective beliefs, life cycle
    JEL: D15 E21 G41 I14
    Date: 2021–07
  57. By: Edward P. Herbst; Fabian Winkler
    Abstract: We estimate a Bayesian three-dimensional dynamic factor model on the individual forecasts in the Survey of Professional Forecasters. The factors extract the most important dimensions along which disagreement comoves across variables. We interpret our results through a general semi-structural dispersed information model. The two most important factors in the data describe disagreement about aggregate supply and demand, respectively. Up until the Great Moderation, supply disagreement was dominant, while in recent decades and particularly during the Great Recession, demand disagreement was most important. By contrast, disagreement about monetary policy shocks seems to play a minor role in the data. Our findings can serve to discipline structural models of heterogeneous expectations.
    Keywords: Disagreement; Forecast Dispersion; Heterogeneous Expectations; Noisy Information; Dynamic Factor Model
    JEL: C33 C38 E37
    Date: 2021–07–30
  58. By: Julián Roa Rozo
    Abstract: En este estudio se estiman los efectos de las políticas monetarias no convencionales realizadas por Estados Unidos, la Zona Euro, Reino Unido y Japón (países avanzados) en las economías de México, Brasil, Colombia, Chile y Perú mediante el uso de un modelo de proyección global con tasas de interés sombra. Se encuentra que los spillovers de nivel de la política monetaria son pequeños y los más relevantes para Latinoamérica son los provenientes de Estados Unidos. También se encuentra que los spillovers de volatilidad de las políticas monetarias no convencionales de los países avanzados son pequeños. Los ejercicios de descomposición histórica muestran que la variable más afectada por los spillovers fue la inflación. Finalmente, se simularon escenarios contrafactuales en ausencia de políticas monetarias no convencionales por parte de los países avanzados en donde se encontraron pérdidas cercanas al 0.5 % del PIB en los países latinoamericanos en 2014T4, y una inflación menor en cerca de 1.5 %. Lo anterior muestra el alto costo de no implementar estas políticas y es de particular relevancia para la crisis del COVID-19.
    Keywords: Políticas monetarias no convencionales, economías emergentes, modelo de proyección global, tasas de interés sombra, límite inferior efectivo.
    JEL: E37 E47 E58
    Date: 2021–07–21
  59. By: Eric Monnet,; Angelo Riva,; Stefano Ungaro.
    Abstract: We investigate the causal impact of bank runs by exploiting a key feature of the French Great Depression (1930-1931) that created exogenous geographical variations in the withdrawals of bank deposits. Unregulated commercial banks coexisted with government-backed saving institutions (Caisses d’épargne). During the crisis, depositors who had an account in Caisses d’épargne were more likely to withdraw from banks. Pre-crisis density of Caisses d’épargne accounts was unrelated to economic and bank characteristics. Using this variable as an instrument, we find that a 1% decrease in bank branches reduced aggregate income by 1%. Our identification highlights how a shift of deposits towards safer institutions can affect financial fragility. It holds lessons for current financial regulation and the design of central bank digital currency (CBDC). <p> Nous étudions l’impact causal des paniques bancaires en exploitant une caractéristique essentielle de la Grande Dépression française (1930-1931) qui entraîna des variations géographiques exogènes des retraits des dépôts bancaires. Les banques commerciales, non réglementées, coexistaient avec les Caisses d’Épargne, régulées par l’État. Pendant la crise, les déposants titulaires d’un compte dans les Caisses d’épargne étaient plus susceptibles de retirer leurs dépôts des banques. La densité des Caisses d’Épargne au niveau départemental avant la crise n’était pas liée aux caractéristiques économiques et bancaires du département. En utilisant cette variable comme instrument, nous constatons qu’une baisse de 1 % des guichets bancaires réduisit le PIB local de 1 %. Notre identification montre comment un transfert des dépôts vers des institutions plus sûres peut affecter la stabilité financière. Elle permet également de tirer des enseignements pour la réglementation financière actuelle et pour la conception des monnaies digitales de banque centrale (CBDC).
    Keywords: bank runs, flight-to-safety, banking panics, Great Depression; ruées bancaires, fuite vers la sécurité, paniques bancaires, Grande Dépression
    JEL: E44 E51 G01 G21 N14 N24
    Date: 2021
  60. By: Daniel Levy (Bar-Ilan University); Avichai Snir; Haipeng (Allan) Chen
    Abstract: We use micro level retail price data from convenience stores to study the link between 0-ending price points and price rigidity during a period of a runaway inflation, when the annual inflation rate was in the range of 60%–430%. Surprisingly, we find that 0-ending prices are less likely to adjust, and when they do adjust, the average adjustments are larger. These findings suggest that price adjustment barriers associated with round prices are strong enough to cause a systematic delay in price adjustments even in a period of a runaway inflation, when 85 percent of the prices change every month.
    Date: 2021–04
  61. By: Rodrigo Caputo; Felipe Leal
    Abstract: In a small economy, with complete markets and domestic price stickiness, a monetary policy rule that reacts to domestic inflation implements the efficient allocation, as long as it also reacts to the natural rate of interest. In this case, a policy response to the exchange rate or any other foreign variable is inefficient. We show that, when the central bank is unable to observe the natural rate of interest, a domestic inflation targeting rule that reacts also to the real exchange rate is optimal. This rule is able to fully stabilize domestic inflation and, at the same time, induces efficient movements in relative prices (terms of trade) through nominal devaluations. Indeterminacy can arise, but a stronger policy response to domestic inflation can prevent this from happening.
    Date: 2021–06
  62. By: International Monetary Fund
    Abstract: Ghana has been hit hard by the pandemic. The government’s proactive response helped contain the spread of COVID-19, protecting lives and limiting the impact on economic activity. However, partly because of the pandemic, the fiscal position worsened considerably last year, with a sharp increase in public sector debt.
    Date: 2021–07–23
  63. By: International Monetary Fund
    Abstract: Cameroon, the largest economy in the Central African Economic and Monetary Union (CEMAC), continues to face the repercussions of the COVID-19 pandemic. Since the onset of the pandemic, the IMF’s Executive Board has approved two disbursements under the Rapid Credit Facility (RCF) totaling SDR 276 million, about US$ 382 million or 100 percent of Cameroon’s quota. Cameroon’s last arrangement under the Extended Credit Facility (ECF) ended in September 2020, without completion of the sixth and final review. The authorities have requested new arrangements from the IMF to help maintain external sustainability, implement their ambitious reform agenda—laid out in the National Development Strategy for 2020-30 (SND30)—and catalyze financial support from other donors.
    Date: 2021–08–10
  64. By: Mahmoud Fatouh (Bank of England); Simone Giansante (University of Bath - School of Management); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: We investigate how the interaction of the Brexit and COVID waves of the Bank of England’s quantitative easing with the leverage ratio capital requirements or government COVID lending support schemes affected bank business lending. We find that the former QE programme was particularly successful in increasing lending to nonfinancial businesses, except for QE-banks subject to the UK leverage ratio, suggesting that the latter ratio incentivized QE-banks to lend to business anyway. The government schemes helped expand lending especially to SMEs post QE COVID, indicating that complementing QE with other credit easing programmes can improve its impact on lending to the real economy. During COVID-stress, changes to the UK leverage ratio supported better market-making in securities markets, and additional QE liquidity boosted stronger repo market intermediation.
    Keywords: Monetary policy, quantitative easing, bank lending, COVID-19
    JEL: E51 G21
    Date: 2021–04
  65. By: Jones, Stephen R. G.; Lange, Fabian; Riddell, William Craig; Warman, Casey
    Abstract: The Canadian labour market experienced a period of unprecedented turmoil following the onset of the COVID-19 pandemic. We analyze the main changes using standard labour force statistics and new data on job postings. Envisaging a phase of temporary severing of employment relationships followed by a phase of more standard labour market search and matching, we use stock and flow data to understand key developments. We find dramatic changes in employment, unemployment and labour market attachment in 2020 and, looking forward to 2021, signs of an unusual recovery with co-existing strong labour demand and stubborn persistence in depressed employment rates.
    Keywords: COVID-19,Coronavirus,Job loss,Unemployment,Employment,Transition rates
    JEL: E24 J21 J31
    Date: 2021
  66. By: International Monetary Fund
    Abstract: After over two decades of unprecedented economic expansion, Panama’s economy contracted sharply in 2020 amidst challenges from the COVID-19 pandemic. As conditions rapidly deteriorated, Panama requested financial support under the Rapid Financing Instrument (RFI) for 100 percent of quota equivalent to US$0.5 billion (SDR 0.4 billion) to address immediate balance of payments needs, which the IMF Executive Board approved on April 15, 2020. Subsequently, uncertainties magnified, and Panama requested a two-year arrangement under the Precautionary and Liquidity Line (PLL) for 500 percent of quota, equivalent to US$2.7 billion (SDR 1.9 billion), as insurance against extreme external shocks, which was approved by the IMF Executive Board on January 19, 2021.
    Date: 2021–07–30
  67. By: Maximilian Konradt (IHEID, Graduate Institute of International and Development Studies, Geneva); Beatrice Weder di Mauro (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: What is the effect of climate policies on inflation and economic activity? Answering this question is critical for central banks trying to achieve price stability. This paper studies the experience from existing carbon taxes in Canada and Europe, introduced over the last 30 years. Based on two separate empirical approaches, we find that carbon taxes do not have to be inflationary and may even have deflationary effects. In particular, our evidence suggests that the increase in energy prices was more than offset by a fall in the prices of services and other non-tradables. Our results are robust for Europe and Canada, as well as a number of different country groupings. At least in case of British Columbia, a contraction in household incomes and expenditures, in particular among the richer households, could explain the deflationary effect.
    Keywords: Carbon taxes; carbon pricing; inflation; monetary policy; climate change
    JEL: E31 E50 Q54 Q43
    Date: 2021–08–12
  68. By: International Monetary Fund
    Abstract: Recent economic developments. Despite a sizeable policy response, the COVID-19 pandemic continues to impact Rwanda’s economy and social fabric, with output contracting by 3.4 percent in 2020. The vaccine rollout is expected to help counter the pandemic and support the economic recovery, but risks remain elevated. While progress was made in several reform areas, some envisaged reforms are being delayed. The authorities requested the extension of the program by one year to make progress on ongoing reforms and policies to support the economic recovery and meet their fiscal consolidation and debt objectives. Rwanda received debt relief under the third tranche of the Catastrophe Containment and Relief Trust (CCRT).
    Date: 2021–07–23
  69. By: International Monetary Fund
    Abstract: The Democratic Republic of the Congo (DRC) is a fragile state and vulnerable to recurrent shocks. Relations with the Fund have been quite active since early 2019, with a Staff Monitored Program (SMP) coupled with a Rapid Credit Facility (RCF) disbursement in December 2019 and a second RCF disbursement in April 2020 to respond to the COVID-19 crisis. Economic activity decelerated sharply in 2020 because of the crisis and reserves decreased to less than two weeks of imports. President Tshisekedi requested a three-year Extended Credit Facility (ECF) arrangement to support his medium-term reform program.
    Date: 2021–07–28
  70. By: Jones, Stephen R. G. (McMaster University); Lange, Fabian (McGill University); Riddell, W. Craig (University of British Columbia, Vancouver); Warman, Casey (Dalhousie University)
    Abstract: The Canadian labour market experienced a period of unprecedented turmoil following the onset of the COVID-19 pandemic. We analyze the main changes using standard labour force statistics and new data on job postings. Envisaging a phase of temporary severing of employment relationships followed by a phase of more standard labour market search and matching, we use stock and flow data to understand key developments. We find dramatic changes in employment, unemployment and labour market attachment in 2020 and, looking forward to 2021, signs of an unusual recovery with co-existing strong labour demand and stubborn persistence in depressed employment rates.
    Keywords: COVID-19, coronavirus, job loss, unemployment, employment, transition rates
    JEL: E24 J21 J31
    Date: 2021–07
  71. By: Macaire Camille,; Naef Alain.
    Abstract: In June 2018, the People’s Bank of China (PBoC) decided to include green financial bonds into the pool of assets eligible as collateral for its Medium Term Lending Facility. The PBoC also gave green financial bonds a “first-among-equals” status. We measure the impact of the policy on the yield spread between green and non-green bonds. We show that pre-reform trends are minor, meaning that both green and non-green bonds yields evolved similarily at the time of the reform. Using a difference-in-differences approach, we show that the policy increased the spread by 46 basis points. Our approach differs from the literature in that we match bonds under review with non-green bonds with similar characteristics and issued by the same firm, which improves the relevance of firm fixed-effects. We also specifically investigate the impact on green bonds. The granularity of the data (daily) also allows us to conduct a dynamic analysis by dividing the sample into weekly, monthly and quarterly observations. Our results also show that the impact of the reform starts to materialize after three weeks, has a maximum effect after three months, and has a persistent effect over six months.
    Keywords: People’s Bank of China, Central Bank Collateral Framework, Green Bonds, Bond Yields, Greenium.
    JEL: E52 E58 Q51 Q54 G12 G18
    Date: 2021
  72. By: Cesa-Bianchi, Ambrogio (Bank of England); Eguren-Martin, Fernando (Bank of England)
    Abstract: Within-firm variation of corporate bond spreads around the Covid-19 outbreak shows that US dollar-denominated bonds experienced larger increases in spreads relative to non-dollar bonds, especially at short maturities. Differently, in the non-dollar sample it was the spreads of longer maturity bonds that widened more markedly. Price pressures arising from a liquidity-driven dash for cash alone cannot rationalize these findings. Instead, the patterns we uncover suggest a ‘dash for dollars’, in which investors sold their dollar-denominated assets first, with a consequent impact on prices. We link these dynamics to the dominant role of the US dollar in the international financial system.
    Keywords: Heterogeneity; credit spreads; liquidity; dash-for-cash; US dollar; Covid-19; event-study; identification
    JEL: E44 E58 G01 G12 G15 G18
    Date: 2021–07–23
  73. By: International Monetary Fund
    Abstract: The economy is recovering after a major, pandemic-induced economic downturn. The authorities have deployed a comprehensive set of policy responses that have helped to mitigate the socioeconomic impact and maintain financial stability. The economic recovery slowed in the first half of 2021 due to a second wave of COVID-19 infections. Vaccination has started and is poised to accelerate from midyear.
    Date: 2021–08–06
  74. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
    Abstract: The second wave of the Covid-19 pandemic has interrupted the recovery in Germany. GDP is set to decline in the first quarter of this year, after stagnating in the previous quarter. However, with the vaccination campaign progressing, the economic burden of the pandemic will ease and the recovery will continue at a rapid pace. Unlike last year, the economic losses are currently much more concentrated on consumer-related service industries and retail trade. Even though the negative impact on private consumer spending is currently even more severe than at the beginning of the pandemic, the overall economic impact will be much smaller. The main reason is that the export business continues to recover. Moreover, with sustained relief in sight for many companies due to the availability of effective vaccines, there will be no major decline in investment. Overall, GDP is expected to pick up strongly with growth rates of 3.7 percent this year and 4.8 percent next year, following the decline of 4.9 per cent in 2020. The recovery at the labor market will take more time. On average, employment is not yet expected to be higher in 2021 than in 2020; it will only pick up noticeably in 2022. Inflation is expected to rise significantly above 2 percent this year. However, temporary factors will contribute significantly to this increase and therefore the inflation rate is expected to decline again in 2022. Finally, the pandemic is also leaving its mark on public budgets. Due to the pandemic-related additional expenditures and revenue shortfalls, the budget deficit this year will once again be well above 4 percent relative to GDP. In 2022, the deficit will probably decline significantly to 1.3 per cent. The debt level will then be just under 70 per cent again.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook,Business Cycle Germany,Fiscal Policy & National Budgets,Labor Market
    Date: 2021
  75. By: International Monetary Fund
    Abstract: Guinea-Bissau is a fragile state with considerable needs to fight the COVID-19 pandemic and address developmental challenges. After an estimated 1.4 percent of GDP contraction in 2020, a modest recovery of about 3.3 percent is projected for 2021 on the back of higher cashew exports, the gradual lifting of COVID containment measures and a more stable political situation. The outlook is subject to considerable uncertainty. An RCF disbursement of SDR 14.2 million (50 percent of quota) was approved in January to provide urgent financing (35 percent of the external gap in 2021) to support critical spending in health and catalyze additional donor resources. The RCF followed two years of protracted political turmoil and delays in reforms, now undertaken by the new government. Public debt was assessed as sustainable in a forward-looking sense based on the authorities’ commitment to sound policies supported by strong donor engagement and a Fund program. Debt service relief under the CCRT has provided some fiscal space and the country’s participation in the DSSI should also help mobilize additional resources. After the 2021 budget approval within the statutory deadlines, significant and sustained reform efforts are required to meet the WAEMU 3 percent of GDP overall balance criteria by 2025 and bring public debt-to-GDP ratio within 70 percent by end-2026.
    Date: 2021–07–30
  76. By: International Monetary Fund
    Abstract: The Kyrgyz economy is highly dependent on remittances and foreign aid and does not have access to international capital markets. Inequality is relatively low, but poverty is widespread. The COVID crisis led to a sharp recession with output contracting by 8.6 percent in 2020, public debt rising by 16.5 percent of GDP to 68 percent, and the som depreciating by 19 percent against the US$. Under the assumption that the global pandemic begins to decisively recede this year, a rebound in growth is expected in 2021–22. However, significant uncertainty surrounds the baseline outlook and the recovery could be delayed if downside risks materialize. In the medium to long term, the main challenge is to create jobs for about 65,000 new jobseekers annually and to reduce labor out-migration. This will require deep structural reforms to transform the economy from a reliance on remittances to more diversified and private sector-led growth that is underpinned by higher investment and exports.
    Date: 2021–08–02
  77. By: Kajal Lahiri (University at Albany, SUNY); Huaming Peng (Rensselaer Polytechnic Institute); Xuguang Simon Sheng (American University)
    Abstract: From the standpoint of a policy maker who has access to a number of expert forecasts, the uncertainty of a combined or ensemble forecast should be interpreted as that of a typical forecaster randomly drawn from the pool. This uncertainty formula should incorporate forecaster discord, as justified by (i) disagreement as a component of combined forecast uncertainty, (ii) the model averaging literature and (iii) central banks’ communication of uncertainty via fan charts. Using new statistics to test for the homogeneity of idiosyncratic errors under the joint limits with both T and n approaching infinity simultaneously, we find that some previously used measures can significantly underestimate the conceptually correct benchmark forecast uncertainty.
    Keywords: Central Bank Communication, Disagreement, Ensemble, Forecast Combination, Panel Data, Uncertainty
    JEL: C12 C33 E37
    Date: 2021–08
  78. By: Carrillo-Tudela, Carlos (University of Essex); Comunello, Camila (University of Essex); Clymo, Alex (University of Essex); Jäckle, Annette (University of Essex); Visschers, Ludo (University of Edinburgh); Zentler-Munro, David (University of Essex)
    Abstract: The impact of the Covid-19 pandemic on the UK labour market has been extremely heterogeneous, with strong variation both by occupation and industrial sector. The extent to which workers adjust their job search behaviour in response to this reallocation of employment has an important bearing on the future course of the labour market. At an aggregate level we see evidence consistent with search responding to changes to the state of the economy. In particular, changes to job search by employees are closely linked to changes in vacancies, and we also see ows from unemployment to inactivity peak at the same time as vacancies bottom-out. A key novelty in this paper is that we can additionally see whether the link between job search and changing employment patterns holds at a micro level, using the COVID supplement of the UK Household Longitudinal Survey, which shows the industries and occupations targeted by job searchers. The vast majority of job searchers target growing occupations and industries, which suggests job searchers are responding to conditions at a micro as well as macro level. This is also suggested by the fact that job searchers who were in occupations that expanded in the pandemic seek to switch occupations less frequently than those in shrinking occupations.
    Keywords: job search, sectoral mobility, COVID-19
    JEL: E24 J23 J63
    Date: 2021–07
  79. By: Jude Darmanin
    Abstract: Consumer price inflation in Malta is officially measured through the Retail Price Index (RPI). The RPI calculates the price change of a basket of goods and services, which is derived from average expenditure shares obtained through the Household Budgetary Survey (HBS). In practice, the representation of an “average†household is skewed towards high income households, whose expenditure makes up a relatively larger share of total consumer spending. As a result, the RPI might not always accurately measure the inflation rate faced by low income households, whose basket differs from the overall average for all households. This study uses HBS data to calculate an estimated inflation rate for household in the bottom income quartile. The results suggest that between 2010 and 2020 these households experienced some periods of higher inflation than suggested by the official rate. This was particularly so during periods of rising food and energy prices in the first half of the sample period. A similar result was found for retired household, who form a large subset of low income household. Despite this, an analysis of the minimum wage and the minimum pension suggests that benefits have maintained their purchasing power since 2010, even when accounting for higher inflation. In part, this was due to ad hoc government allowances on top of automatic annual increments.
    JEL: E30 E31 I31 I38
  80. By: Frederic Boissay; Emilia Garcia-Appendini; Steven Ongena
    Abstract: Is conventional monetary policy transmitted through the demand for and supply of intermediate goods in an economy? Analyzing unique US data on corporate linkages, we document that downstream and upstream corporate financial health are instrumental for the transmission of monetary policy. Our estimates suggest that contractionary changes in monetary conditions lead to reductions in both the demand and the supply of all financially constrained business partners, thereby creating bottlenecks, which induce the linked firms themselves to curtail their own activities ("ripple effects"). Overall, our estimates suggest that changes in monetary conditions may have a quantitatively larger impact on firms' operations through the changes in demand and supply induced by constrained business partners than through the firms' own financial conditions.
    Keywords: monetary policy transmission, supply chain, aggregate demand, cost channel
    Date: 2021–08
  81. By: Faria, Joao Ricardo; McAdam, Peter; Viscolani, Bruno
    Abstract: We study the interaction between monetary and fiscal policies in a Ramsey-Sidrauski model augmented with environmental capital. Equilibrium solutions are studied through the “Green Golden Rule”. Despite the non-separability of money in utility and intertemporally non-separable preferences, money is environmentally neutral. Policy impacts the environment via the marginal rate of transformation rather than the marginal rate of substitution between consumption and environment. Fiscal policies, lump sum and distortionary, under a balanced budget, are also environmentally non-neutral. Only under a non-balanced budget, when deficits are monetized, is money environmentally non-neutral. In alternative approaches (Cash-in-Advance, Transactions Costs), money is environmentally non-neutral. JEL Classification: E52, E62, H23
    Keywords: cash in advance, Chichilnisky et al. conjecture, environmental capital, Friedman rule, green golden rule, Ramsey-Sidrauski, transactions costs
    Date: 2021–07
  82. By: Andrea Carolina Vargas-Páez; Carlos David Ardila-Dueñas
    Abstract: Este documento estudió el impacto de la devaluación y la volatilidad de la tasa de cambio sobre la estructura a plazos de las tasas de interés en Colombia durante el periodo 2008 - 2020. Para este fin se utilizaron modelos de series de tiempo univariados y multivariados con umbrales (TVAR). Entre los resultados se observó un efecto no lineal de la devaluación y la volatilidad de la tasa de cambio sobre el nivel y la pendiente de la curva de rendimientos. El empinamiento generado por un choque de devaluación se duplica en escenarios de alta devaluación y volatilidad sin embargo para este último el impacto es de mayor tamaño y duración. A diferencia de los modelos lineales, encontramos a partir del TVAR que un mayor nivel de endeudamiento genera una desvalorización de los títulos de deuda, ajustando la curva de rendimientos al alza, en escenarios de alta incertidumbre de la tasa de cambio. Además, encontramos que, ante un choque de aversión al riesgo, los inversionistas valoran más niveles bajos de volatilidad que bajas devaluaciones del tipo de cambio. **** ABSTRACT: In this article, we study the impact of exchange rate depreciation and volatility on the sovereign yield curve during the 2008 - 2020 timeframe. We do this by estimating univariate and multivariate time series models and a threshold vector autoregressive model. Our findings support the presence of nonlinearities in the relationship between the exchange rate risk and the yield curve level and slope. The bearish steepening resulting from a depreciation shock is doubled when the depreciation and volatility are above the threshold, however when the volatility is high the impact is bigger and lasts longer. Contrary to lineal models, an increase of the level of the public debt has a significant impact on the yield curve level as sovereign bonds have been devalued during periods of high exchange rate volatility. Besides, our results suggest that in presence of a risk aversion shock, investors appreciate low volatility rather than low exchange rate depreciation.
    Keywords: estructura a plazos de las tasas de interés, TVAR, riesgo de tasa de cambio, no-linealidad, term structure of interest rates, TVAR, exchange rate risk, nonlinearities
    JEL: E44 C22 C32 C58
    Date: 2021–08
  83. By: Francesca Parodi
    Abstract: Consumption taxes are often used across OECD countries as fiscal stimulus tools during recessions. In this paper, I use an estimated structural life-cycle model featuring multiple consumption categories to assess the e ectiveness of temporary cuts to the Value Added Tax (VAT) rates on non-durable luxuries and durables as stimulus instruments. I find a tax elasticity smaller than 1 for non-durable luxuries and a tax elasticity higher than 10 for durables. I show that the tax cut on non-durables has an intratemporal substitu- tion effect on non-durables and an income e ect on durables and savings, while the tax cut on durables acts through an intertemporal substitution mechanism in the purchase of durables that is stronger for high income, liquidity unconstrained, and younger house- holds. Due to the partial irreversibility feature of durables, this mechanism is dampened if households anticipate higher future aggregate uncertainty.
    Keywords: Taxation, Consumption, Durable goods, Saving, Welfare.
    JEL: D11 D15 E20 H20 H31
    Date: 2021
  84. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: The global economy continued to recover in the winter semester, despite the number of new infections with the coronavirus rising sharply and containment measures tightened again in many countries. Industrial production and world trade have already fully catched up with activity levels before the pandemic and appear to be little affected by the second wave of Covid-19. While the European economy did slip into recession again, the decline in GDP is not expected to be dramatic and should be followed by a strong recovery from spring onward, provided that progress in vaccination allows a substantial and sustained relaxation of measures designed to suppress the virus. In the course of this year, the global upturn will thus increasingly extend to economic sectors that remain severely impeded for the time being, such as tourism and entertainment, and to economies that are particularly geared to these activities. On a purchasing power parity basis, global output is expected to increase by 6.7 percent in 2021 and by 4.7 percent in 2022, thus progressively closing the gap to the pre-crisis path of activity towards the end of the forecast period. We have raised our December forecast by 0.6 percent for both this year and next, with a particularly strong improvement in the outlook for the United States. World trade in goods is expected to grow by 7.5 percent this year. With growth of 4.7 percent this year and next, respectively, Towards the end of the forecast horizon world trade will thus be even higher than expected before the crisis.
    Keywords: advanced economies,emerging economies,monetary policy,Americas,Asia,Business Cycle World,China,Emerging Markets & Developing Countries,Europe,USA
    Date: 2021
  85. By: Dossche, Maarten; Gazzani, Andrea; Lewis, Vivien
    Abstract: Labor productivity is more procyclical in OECD countries with lower employment volatility. To capture this new stylized fact, we propose a business cycle model with employment adjustment costs, variable hours and labor effort. We show that, in our model with variable effort, greater labor market frictions are associated with procyclical labor productivity as well as stable employment. In contrast, the constant-effort model fails to replicate the observed cross-country pattern in the data. By implication, labor market deregulation has a greater effect on the cyclicality of labor productivity and on the relative volatility of employment when effort can vary.
    Keywords: effort,hours,labor adjustment,labor market deregulation,labor productivity,structural reform
    JEL: E30 E50 E60
    Date: 2021
  86. By: Grossman, Gene M.; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
    Abstract: We study the determinants of factor shares in a neoclassical environment with capital-skill complementarity and endogenous education. In this environment estimates of the elasticity of substitution between capital and labor that fail to account for human capital levels will be biased upward. We develop a model with overlapping generations, technology-driven neoclassical growth, and ongoing increases in educational attainment. For a class of production functions featuring capital-skill complementarity, a balanced growth path exists and is characterized by an inverse relationship between the rates of capital-and labor-augmenting technological progress and the capital share in national income.
    Keywords: neoclassical growth; balanced growth; human capital; education; technological progress; capital-skill complementarity; capital share; labor share
    JEL: E25 J24 O41
    Date: 2021–06–01
  87. By: Zolea, Riccardo
    Abstract: The relation between interest and profit rate is crucial, as it has a major impact on income distribution, and it is relevant for the interpretation of the functioning of the economic system. After reviewing the literature, I try to interpret this relation between rates using banking profitability as the keystone. The condition that the capital employed in the banking industry should receive a profit rate at least equal to the general profit rate, combined with a careful examination of the functioning of the banking sector, makes conceivable an endogenous determination of the interest rate. The bank interest rate on loans is the price of the "loan" commodity, given the production conditions of the banking sector, where the rate set by the central bank constitutes the price of an input of the banking industry. I also analyse the formation of the interest rate structure, taking as starting points the main refinancing rate set by the central bank and the normal profitability of bank capital, with the lending rate on bank loans being the upper margin and the deposit rate the lower margin of the interest rate corridor. The interest rates structure is thus determined by several elements, confirming Marx's idea of a heterogeneous determination of interest rates. Alternatively, it can be assumed that, as the banking industry is characterized by a high degree of monopoly, its profit rate is higher than the average for the rest of the economy. In Marxian terms this reflects contrast between financial capitalists and productive capitalists, where the high degree of monopoly of the banking sector becomes a weapon to capture a higher share of total profits.
    Keywords: Bank profitability, rate of profit, interest rate, Marx
    JEL: E43 G2
    Date: 2021
  88. By: Santiago Camara
    Abstract: This paper presents evidence of an informational effect in changes of the federal funds rate around FOMC announcements by exploiting exchange rate variations for a panel of emerging economies. For several FOMC announcements dates, emerging market economies' exchange rate strengthened relative to the US dollar, in contrast to what the standard theory predicts. These results are in line with the information effect, which denote the Federal Reserve's disclosure of information about the state of the economy. Using Jarocinski \& Karadi 2020's identification scheme relying on sign restrictions and high-frequency surprises of multiple financial instruments, I show how different US monetary policy shocks imply different spillovers on emerging markets financial flows and macroeconomic performance. I emphasize the contrast in dynamics of financial flows and equity indexes and how different exchange rate regimes shape aggregate fluctuations. Using a structural DSGE model and IRFs matching techniques I argue that ignoring information shocks bias the inference over key frictions for small open economy models.
    Date: 2021–08
  89. By: Cem Cakmakli (Department of Economics, Koç University); Selva Demiralp (Department of Economics, Koç University); Gokhan Sahin Gunes (BETAM, Bahcesehir University)
    Abstract: With the global rise in authoritarianism, there has been an increase in political commentaries by the populist leaders that have criticized their central banks in favor of lower interest rates. We analyze the effects of these political pressures on exchange rates. We provide strong empirical evidence where political commentaries affect both the level and the volatility of exchange rate returns. The intensity of political pressures as well as institutional strength play a key role in determining the size of the impact.
    Keywords: Political pressure, exchange rate, time inconsistency, populism.
    JEL: E5 G1 F31
    Date: 2021–08
  90. By: International Monetary Fund
    Abstract: The new administration’s policies have put the U.S. economy on a strong footing. An effective vaccine rollout has put the number of new COVID-19 cases on a firmly downward path. At the same time, unprecedented fiscal support is quickly restoring the economy back to full employment and generating positive outward spillovers to the world economy. These efforts have not been costless: the path for public debt is far higher; the current account deficit has grown; and very accommodative financial conditions have led to increased corporate and nonbank leverage and rising valuations across a range of assets. The pandemic continues to weigh heavily on those at the lower end of the income distribution, exposing longstanding inequities in access to quality healthcare and education (many of which have an important gender and racial dimension).
    Date: 2021–07–22
  91. By: Antonio Palestrini; Domenico Delli Gatti; Mauro Gallegati; Bruce C. Greenwald
    Abstract: Agents forming adaptive expectations generally make systematic mistakes. This characterization has fostered the rejection of adaptive expectations in macroeconomics. Experimental evidence, however, shows that in complex environments human subjects frequently rely on adaptive heuristics – model-consistent expectations being simply too difficult or impossible to implement – but their forecasting performance is not as inadequate as assumed in the characterization above. In this paper we show that adaptive agents may not be as gullible as we used to think. In a model with adaptive expectations augmented with a Belief Correction term (which takes into account the drift of the macroeconomic variable of interest) the average forecasting error is frequently close to zero, hence (belief amended) adaptive expectations are close to unbiasedness.
    Keywords: heterogeneous adaptive expectations, belief correction, agent based models
    JEL: C63 D83 D84 E71
    Date: 2021
  92. 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
  93. By: Hugo Couture; Dalibor Stevanovic
    Abstract: In this report, we evaluate the relevance of weekly Google search query data for current and next month prediction on several labour market variables in Canada and Quebec. Several types of mixed-frequency models are considered and their performance is evaluated in an out-of-sample forecasting exercise spanning the period 2014M09 - 2019M09. Google Trends improve the accuracy of forecasts of the employment rate, hours worked and unemployment rate. The availability of this data in high frequency is crucial. Their contribution is important especially during the first two weeks of the month, so when Labor Force Survey data are not yet available for the last month. Dans ce rapport, nous évaluons la pertinence des données hebdomadaires des requêtes faites sur le moteur de recherche de Google au niveau de la prédiction du mois courant et du prochain mois sur plusieurs variables du marché d’emploi au Canada et au Québec. Plusieurs types de modèles en fréquence mixte sont considérés et leur performance est évaluée dans un exercice de prévision hors échantillon s’étalant sur la période 2014M09 - 2019M09. Les Google Trends améliorent la précision des prévisions du taux d’emploi, des heures travaillées et du taux de chômage. La disponibilité de ces données en haute fréquence est cruciale. Leur apport est important surtout durant les deux premières semaines du mois, donc lorsque les données de l’Enquête sur la population active ne sont pas encore disponibles pour le dernier mois.
    Keywords: Forecasting,Macroeconomics,Job market,Google Trends,Machine Learning, Prévision,Macroéconomie,Marché d’emploi,Google Trends,Machine Learning
    JEL: C53 C55 E37
    Date: 2021–08–02
  94. By: Tomás Marinozzi; Leandro Nallar; Sergio A. Pernice
    Abstract: Linear algebra is without a doubt a fundamental tool to deal with empirical economic problems. The goal of this paper is to use some of these techniques to treat business cycles. To do that, we present the classic ordinary least square approach to estime the coefficients of a detrended time series in addition to the matrix form of the Hodrick-Prescott (HP) Filter. This is a paper is part of “Intuitive Mathematical Economic Series".
    Keywords: Linear Algebra, business cycles, trend.
    Date: 2021–07
  95. By: McMillan, Melville (University of Alberta, Department of Economics)
    Abstract: Since being introduced in 1972, taxable capital gains in Canada have been based on partial inclusion of nominal capital gains (i.e., the difference between sale and purchase prices). The inclusion rates have varied between 50 and 75 percent but have been 50 percent since 2000. Recently, there has been discussion of increasing capital gains taxes by increasing the inclusion rate (back to) 75 percent. In this paper, I argue that the capital gains tax is a poorly designed and inequitable tax and so, rather than make another ad hoc adjustment to the inclusion rate, a superior option is to reform capital gains taxation by indexing for inflation so as to measure real capital gains (i.e., the increase in purchasing power that is realized). The Toronto Stock Exchange Composite Index and the index of consumer prices are used to determine 40 and 50 year sequences of the differences between real and nominal measures of capital gains under both 50 and 75 percent inclusion rates for an index asset held for 20, 10 and 5 years. The work demonstrates that taxable capital gains are over and under assessed considerably relative to real capital gains. For example, over the period 1996 to 2020, differences between the taxable capital gains under a 75 percent inclusion rate and real gains would have been about 20 percent for a 10-year hold and about 33 percent for a 5 year hold. The results demonstrate the varying disparities between real gains and those under partial inclusion. Such disparities imply wide differences in effective tax rates and so inequities among investors, over time and with other taxpayers. This evidence argues persuasively that Canada’s capital gains taxation should abandon partial inclusion and turn to serious reform by indexing for inflation.
    Keywords: capital gains tax; inclusion rate; inflation; nominal versus real; indexing
    JEL: E62 H20
    Date: 2021–08–05
  96. By: Mark A. Carlson; Zack Saravay; Mary Tian
    Abstract: Before the 2008 financial crisis, the Federal Reserve (Fed) regularly conducted repurchase agreements (repos) in a fairly modest size with primary dealers to adjust the supply of reserves in the banking system and to keep the federal funds rate at the target set by the FOMC. During the economic downturn that followed the financial crisis, the Fed engaged in large scale asset purchases in order to provide additional monetary accommodation, and those purchases significantly increased the supply of reserves and eliminated the need for the Fed to engage in repo operations to increase reserves in the system.
    Date: 2021–08–06
  97. By: Ruiz-García, J. C.
    Abstract: How do financial frictions affect firm dynamics, allocation of resources across firms, and aggregate productivity and output? Is the nature of productivity shocks that firms face primary for the effects of financial frictions? I first use a comprehensive dataset of Spanish firms from 1999 to 2014 to estimate non-parametrically the firm productivity dynamics. I find that the productivity process is non-linear, as persistence and shock variability depend on past productivity, and productivity shocks are non-Gaussian. These dynamics differ from the ones implied by a standard AR(1) process, commonly used in the firm dynamics literature. I then build a model of firm dynamics with financial frictions in which productivity shocks are non-linear and non-Gaussian. The model is consistent with a host of evidence on firm dynamics, financial frictions, and firms’ financial behaviour. In the model economy, financial frictions affect the firm life cycle. Without financial frictions, the size of an entrant firm will be three times larger. Furthermore, profit accumulation, which allows firms to overcome financial frictions, is slow, and it only speeds up when firms are mature. As a consequence, the average exiting firm is smaller than it would be without financial frictions. The aggregate consequences of financial frictions are significant. They result in misallocation of capital and reduce aggregate productivity by 16%. This figure is only 8% if productivity dynamics evolve according to a standard AR(1) process.
    Keywords: Firm Dynamics, Non-Linear Productivity Process, Financial Frictions, Misallocation
    JEL: E22 G32 O16
    Date: 2021–08–03
  98. By: Michael D. Bordo; Catherine R. Schenk
    Abstract: In 1919, John Maynard Keynes wrote his famous tract The Economic Consequences of the Peace. In that work, he anticipated the collapse of the first era of globalization that began in the mid-nineteenth century. He admonished the short-sighted assumption that these years of relative peace and prosperity for many was a permanent norm, interrupted only briefly by the Great War. The diplomatic failures, lapses in leadership, and promotion of narrow interests and vision outlined by Keynes underpinned his prediction of a backslash of economic nationalism, trade protectionism, and recession. The paper revisits the turning points in the evolution of the global economic system since 1919 by focusing primarily on the evolution of the international monetary system and policy cooperation/coordination. We identify three disruptions and examine how each prompted a change in the underlying ideology about how the international monetary system should organize: World War I, Bretton Woods, 1970s Great Inflation and Managed Floating. Each turning point was characterized by different forms and institutions of cooperation, how rules (either explicit or implicit) were designed and implemented, and the crucial importance of the historical context.
    JEL: F02 F33 N10
    Date: 2021–07
  99. By: Masud Alam
    Abstract: This paper investigates the assumption of homogeneous effects of federal tax changes across the U.S. states and identifies where and why that assumption may not be valid. More specifically, what determines the transmission mechanism of tax shocks at the state level? How vital are states' fiscal structures, financial conditions, labor market rigidities, and industry mix? Do these economic and structural characteristics drive the transmission mechanism of the tax changes at the state level at different horizons? This study employs a panel factor-augmented vector autoregression (FAVAR) technique to answer these issues. The findings show that state economies respond homogeneously in terms of employment and price levels; however, they react heterogeneously in real GDP and personal income growth. In most states, these reactions are statistically significant, and the heterogeneity in the effects of tax cuts is significantly related to the state's fiscal structure, manufacturing and financial composition, and the labor market's rigidity. A cross-state regression analysis shows that states with higher tax elasticity, higher personal income tax, strict labor market regulation, and economic policy uncertainties are relatively less responsive to federal tax changes. In contrast, the magnitude of the response in real GDP, personal income, and employment to tax cuts is relatively higher in states with a larger share of finance, manufacturing, lower tax burdens, and flexible credit markets.
    Date: 2021–07
  100. By: Frohm, Erik
    Abstract: Tight labour markets are usually accompanied by mounting wage pressures. Yet, in the past decade, wage growth has remained subdued despite the appearance of widespread labour shortages. This paper re-examines labour market conditions since 2007 through the lens of a novel indicator, relative labour shortages (RLS), based on data from a large representative business survey in Sweden. Four main results emerge from the analysis: (1), the time-series average of RLS suggested much weaker labour market conditions during the 2013–2019 recovery from the Great Recession and during the Covid-19 pandemic in 2020 than qualitative surveys or the vacancy-unemployment ratio. (2), the reason is that RLS contains a time-varying intensive margin of labour shortages not recorded in most surveys, which has been trending downwards since the Great Recession. (3), fixed-effects regressions with several aggregate-, sector, region and establishment-level controls confirm that RLS is strongly and positively correlated with annual wage growth at the establishment level. (4), sector-level wage Phillips curves show that the subdued level of RLS can help explain the sluggish wage growth in Sweden since the Great Recession. JEL Classification: C80, E31, E60, J23, J31
    Keywords: labour markets, survey data, wage inflation
    Date: 2021–07
  101. By: Yoshiyuki ARATA; Daisuke MIYAKAWA
    Abstract: Recent studies (e.g., Acemoglu et al (2012)) argue that microeconomic shocks to firms propagate on input-output linkages and result in aggregate fluctuations. However, little is known about the size of micro-originated aggregate fluctuations given the empirical firm-level input-output linkages. This paper analyzes the size of micro-originated aggregate fluctuations by combining probabilistic methods and the analysis of firm-level input-output linkages in Japan. We find that due to the heterogeneity of the input-output network, microeconomic shocks account for about 30% of observed aggregate variance, consistent with the granular hypothesis. However, we find that microeconomic shocks contribute almost nothing to the tail probability of aggregate output. This is because even when the CLT does not hold, the microeconomic shocks cancel each other out "to some extent", and the resultant distribution of aggregate output is close to a Gaussian. Therefore, given the empirical input-output network in Japan, our results show that microeconomic shocks turn out to cause aggregate fluctuations of a limited size.
    Date: 2021–08
  102. By: Cuenca, Janet S.
    Abstract: The government budget reflects the government’s spending priorities. It is deemed important to assess whether the priorities as outlined in the proposed 2020 President’s Budget are consistent with the policy pronouncements of the current administration. In this light, the study examines whether budget allocation is consistent with the priorities that the government identified in its various policy pronouncements. It also evaluates the overall fiscal picture as projected in the proposed budget and its consistency with the macroeconomic assumptions. In addition, it examines the national revenue program, which together with the national expenditure program, indicates the overall fiscal health in 2020. The budget analysis indicates the high spending priority given to social services sector and economic services sector that is consistent with the policy pronouncements of the government. Nevertheless, the budget cut in the health sector needs further inquiry.
    Keywords: President’s Budget, National Revenue Program, National Expenditure Program, fiscal health, Philippines ?
    Date: 2020
  103. By: Ademmer, Martin; Beckmann, Joscha; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia
    Abstract: The German economy is picking up speed again. After the resurgence of the Covid-19 pandemic had interrupted the economic recovery in the winter half-year, GDP will expand at a fast pace in the further course of the year and exceed its pre-crisis level again. With the removal of the pandemic-related restrictions, activity will rebound, especially in those areas that were previously particularly burdened. Retail trade and contact-intensive services in particular are likely to benefit from the rebound in private household consumption. For the time being, however, the recovery will be delayed in the manufacturing industry. The strong global recovery has brought with it multi-layered supply bottlenecks that are noticeably hampering production in many firms. Despite the very good order situation, production in the manufacturing industry will therefore probably only gradually return to its recovery path in the second half of the year, provided that the supply bottlenecks then gradually ease. With the supply bottlenecks, price pressures have also increased, especially as economic momentum is high worldwide. Thus, prices for raw materials, intermediate goods and transport services have recently been on a broad upward trend. All in all, GDP is expected to grow by 3.9 percent this year and by 4.8 percent in 2022. Consumer prices will rise at a much faster rate of probably 2.6 percent this year and by around 2 percent in 2022.
    Keywords: Corona crisis,COVID19,Business Cycle Germany,Fiscal Policy & National Budgets,Labor Market
    Date: 2021
  104. By: Emter, Lorenz (Central Bank of Ireland); Killeen, Neill (Central Bank of Ireland); McQuade, Peter (Central Bank of Ireland)
    Abstract: This Note examines the factors associated with global banks’ cross-border claims on non-bank financial institutions. In line with the substantial growth of non-bank financial intermediation internationally, banks’ cross-border claims on non-bank financial institutions have grown rapidly in recent years. As a global hub for non-bank financial intermediation, Ireland hosts a large share of the non-bank financial institutions captured within these international banking data. Our results suggest that tightening (loosening) monetary policy can decrease (increase) cross-border bank claims on non-bank financial institutions at a global level. Moreover, we find that the tightening of borrower-based macroprudential policies is associated with an increase in cross-border bank flows to non-bank financial institutions. Our findings illustrate the potential for cross-border spillovers from changes to monetary and macroprudential policies and the importance of closely monitoring cross-border linkages between banks and non-bank financial institutions. Our findings also highlight the need for developing and operationalising the macroprudential policy framework for non-bank financial intermediation given the potential for spillover effects across the financial system.
    Date: 2021–06
  105. By: International Monetary Fund
    Abstract: Reflecting an ongoing commitment to enhancing fiscal transparency, Maldives is the first small island state, and the second country in Asia, to have undertaken a Fiscal Transparency Evaluation (FTE). The Government of the Maldives (GoM) recognizes the importance of transparency in fiscal management and in delivering on its ambitious policy agenda, while responding to current challenges within a tight fiscal environment. This report assesses fiscal transparency practices in Maldives against the first three pillars of the IMF’s Fiscal Transparency Code (FTC).
    Date: 2021–07–23
  106. By: Kurt Sant
    Abstract: This study constructs a COVID-19 response tracker for Malta following the methodology developed by the Oxford COVID-19 Government Response Tracker (OxCGRT) project. The tracker is based on data for 16 indicators that are in turn aggregated into a set of four indices – Government response index; Containment and health index; Economic support index; and Stringency index. After describing the construction of the tracker and outlining how Malta’s response evolved during 2020 and early 2021, the note studies the relationship between movements in this tracker and macroeconomic indicators such as economic sentiment, retail trade, industrial production and labour market variables, as well as with a novel database made available by Google on local mobility during the pandemic. The study also compares developments in Malta’s tracker with those in the Euro Area and its constituent Member States. A heatmap analysis shows how Malta’s response along the different dimensions of the index compared with its European peers.
    JEL: E00 H12 H51 I12 I15 I18 I19
  107. By: Piergiorgio Alessandri; Haroon Mumtaz
    Abstract: We study the impact of climate volatility on economic growth exploiting data on 133 countries between 1960 and 2005. We show that the conditional (ex-ante) volatility of annual temperatures increased steadily over time, rendering climate conditions less predictable across countries, with important implications for growth. Controlling for concomitant changes in temperatures, a +1oC increase in temperature volatility causes on average a 0.9 percent decline in GDP growth and a 1.3 percent increase in the volatility of GDP. Unlike changes in average temperatures, changes in temperature volatility affect both rich and poor countries.
    Date: 2021–07
  108. By: Barasinska, Nataliya; Ludwig, Johannes; Vogel, Edgar
    Abstract: Excessive household borrowing has been identified as an important determinant of financial crises. Borrower-based macroprudential instruments have been proposed as a possible remedy. In Germany, two instruments have been available to macroprudential supervisors since 2017: a cap on the loan-to-value (LTV) ratio and an amortization requirement, but none of them has been activated so far. Therefore, this paper presents a simulation tool that allows the impact of activating of borrower-based instruments to be evaluated ex ante. The simulation is based on microdata from the German Panel on Household Finances (PHF) and is at the same time calibrated to match aggregate developments in the residential real estate market. This micro-macro consistent simulation approach can be used to detect vulnerabilities in household balance sheets and perform an ex ante analysis of the activation and calibration of borrower-based macroprudential instruments. An illustrative example of a hypothetical activation shows that the introduction of a cap on the loan-to-value (LTV) ratio of new mortgage loans in Germany could improve important indicators of household vulnerability.
    Keywords: Household finance,mortgages,macroprudential policy,borrower-based instruments,financial stability
    JEL: D14 G17 G21 G28 R21
    Date: 2021
  109. By: Lyu, Chenyan (Copenhagen School of Energy Infrastructure, Department of Economics, Copenhagen Business School)
    Abstract: China accounts for the largest share of the world’s total greenhouse gas emissions. The scale and growth of industrial activities and energy consumption in China explain the high level of emissions. Achieving “carbon neutrality” through administrative means can be effective but also costly and inefficient. The emission trading scheme is a way to put a price on carbon. The absence of such a mechanism could let low efficiency continue, delay the adoption of clean energy practices, risk a shortage of energy, and even allow corruption in regulation of emissions. In 2013, the government introduced pilot emission trading schemes; and a national ETS, which has started trading since June 2021, is becoming the world’s largest carbon market. This paper focuses on the fragmentation of and integration levels within China’s regional Emission Trading Schemes (ETSs) and the potential models the regional schemes — in Beijing, Shanghai, Shenzhen, Hubei, and Guangdong — offer for national effectiveness. The empirical results from this study suggest the general low level of co-integration in China’s ETS pilots within the sample period may be due to the different economic development levels, energy structures, and degrees of government supervision in each pilot as well as different choices of sector coverage and market threshold in regional ETSs. As the national ETS is at a key stage of construction, greater attention should be paid to exploring reasons for differences among the regional pilot carbon markets, to improve market mechanisms.
    Keywords: Carbon markets; China’s regional emissions trading; Emission allowances; Market architecture; Cointegration
    JEL: C32 E44 Q43 R11
    Date: 2021–08–05
  110. By: Giovanni Favara; Camelia Minoiu; Ander Perez
    Abstract: The unprecedented fiscal and monetary policy support in the wake of the COVID-19 pandemic has brought to the fore concerns that cheap credit could fuel the financing of zombie firms—that is, firms that are unable to generate enough profits to cover debt-servicing costs and that need to borrow to stay alive. Many observers have recently commented that zombie firms may crowd out lending to productive firms and erode the strength of the U.S. economy.
    Date: 2021–07–30
  111. By: Julia M. Puaschunder (The New School, Department of Economics, USA)
    Abstract: This article proposed three innovative and heterodox ways to aid understanding and unleashing a sustainable economy in Three Essays on Environmental Justice: First, behavioral insights are presented about real-world relevant, easily-implementable nudges to steer human into future-oriented discounting. Second, macroeconomic modelling highlights countries’ different economic prospects on a warming globe in order to find a redistribution of benefits and burdens of climate change to share the gains and losses of a warming globe equally within society, between countries and over time. Third, a creative financialization strategy is introduced in bonds that help weight the burden of climate change more equally between today’s and tomorrow’s society.
    Keywords: Climate Bonds, Climate Change, Economics of the Environment, Ecotax, Environmental Justice, Environmental Governance, Fiscal Policy, Green New Deal, Monetary Policy, Multiplier, Sustainability, Teaching
    Date: 2021–05
  112. By: Jens Klose (THM Business School Giessen)
    Abstract: This article investigates similarities and differences between gold and four cryptocurrencies (Bitcoin, Ethereum, Bitcoin Cash and Litecoin). To do so, we estimate a system-GARCH-in-mean with respect to four determinants for the period starting 7/18/2014 at earliest until 7/12/2021. We find that, first, liquidity premia are less important. Second, volatility premia exist in either gold and cryptocurrencies. Third, the response of cryptocurrencies to exchange rate changes is more pronounced than for gold at least if developing countries are included. Fourth, gold exhibits a safe haven status, while cryptocurrencies do not. So those cannot be seen as a store of value but rather as speculative assets.
    Keywords: Cryptocurrencies, Gold, System-GARCH-in-mean
    JEL: E42 G15 C58
    Date: 2021
  113. By: Lawrence Christiano; Husnu Dalgic; Armen Nurbekyan
    Abstract: We present data that suggests financial dollarization is primarily a device for reallocating business cycle income risk between different people within emerging market economies, rather than across different countries. Although we identify sources of fragility in some aspects of dollarization, the common view that financial dollarization is a source of fragility is over-stated. We develop a simple model which formalizes the insurance view, which is consistent with the key crosscountry facts on interest rate differentials, deposit dollarization and exchange rate depreciations in recessions.
    Date: 2021–08
  114. By: Spackman, Michael
    Abstract: This paper is a contribution to the understanding and development of social discounting regimes. It first addresses three, often overlooked implications of how public funding differs from private financing by debt and equity. One implication is that the cost of systematic (income-correlated) risk in public service benefits does not fall as a rate of return, but as an absolute reduction in the value of the benefits. This is quantitatively important. Another is that, while ‘social opportunity cost’ discounting can for some governments be the best practicable option for most cost benefit analysis, it is unsuitable for other applications, which require lower rates. This can be handled by a hybrid regime. Third, with ‘social time preference’ discounting it is usually assumed that the cost of public funding should be handled by an explicit shadow price (≥1) for public spending. However a value-for-money approach, optimising spending from given, constrained budgets, is in important ways superior. The paper then examines US Federal and United Kingdom central government conventions, illustrating hybrid and value-for-money regimes, and also illustrating the difficulties of establishing and maintaining analytically rigorous social discounting procedures in practice.
    Keywords: Centre for Climate Change Economics and Policy
    JEL: F3 G3 E6 J1
    Date: 2021–04–28
  115. By: Rohini Pande; Nils T. Enevoldsen
    Abstract: Early tests of cross-country convergence found evidence only for conditional convergence. In contrast, with more recent data, Kremer, Willis, and You (2021) find evidence that since the mid-1980s there has been a trend towards unconditional convergence culminating in absolute convergence since 2000. Additionally, they find suggestive evidence that one of the major drivers of this trend is an underlying convergence towards development-favored policies. We discuss the implications of this result through the lens of individual welfare and poverty, concluding that the news is not as welcome as it may seem for the world’s poor. We point out that absolute convergence has happened contemporaneously with rising within-country inequality, resulting in more of the world’s poor living in middle-income countries. Next, we argue that domestic redistribution is essential to spread the benefits from industrialization, since the labor share of manufacturing isn’t reaching the heights it did in industrialized countries. Finally, we argue that the democratic institutions that can facilitate this redistribution themselves face headwinds. Democratic backsliding, the Covid-19 pandemic, and a bleak climate outlook all present obstacles to transforming economic growth into economic justice for the poor.
    JEL: E02 O43
    Date: 2021–07
  116. By: Fiedor, Pawel (Central Bank of Ireland); Fragkou, Stamatoula (Central Bank of Ireland)
    Abstract: In recent years, the Central Bank has been building its capabilities to develop a macroprudential stress-testing framework for investment funds. A key dimension of building that framework over time will be incorporating the differential liquidity of asset markets to which investment funds are exposed. As a first step in that direction, in this Note, we investigate the heterogeneity of market liquidity risk for investment funds domiciled in Ireland. We achieve this by utilizing the previously publishedAn Lonn Dubh baseline stress test. We show the effects of varying liquidity shocks across domestic and international asset markets when investment funds face substantial redemptions. Our findings underline Irish domiciled funds’ sensitivity to illiquidity in equity and debt markets. Further, liquidity strains appliedexogenously to US equity, US bank debt, or UK government debt markets, lead to a particularly high volume of‘second round’ losses for funds, reflecting the material exposures of the Irish fund sector to those asset classes.We outline the implications of these results for the continued development of the stress-testing framework, financial stability surveillance, and macroprudential regulation. Finally, our findings also shed light on the potential externalities that funds’ behaviour can impose on financial markets in the face of large redemption shocks and a contraction in market liquidity.
    Date: 2021–07
  117. By: Guerino Ardizzi (Banca d'Italia); Diego Scalise (Banca d'Italia); Gabriele Sene (Banca d'Italia)
    Abstract: We study the relationship between interchange fees and card transactions in a large panel of countries and assess the impact of the Interchange Fee Regulation, introduced in 2015 in the European Union, on card usage. For our purposes, we take advantage of a newly assembled dataset covering almost 50 countries in the last decade and carry out two econometric exercises. Firstly, we estimate the relationship between card transactions per capita and average interchange fees by means of a panel estimator including both country and year fixed-effects, thus exploiting the broad heterogeneity across countries over time. Our results point toward a negative and significant relationship between the number and the growth rate of card-based transactions per capita and the level of interchange fees. Secondly, we adopt a difference-in-difference approach and compare the change in card payments in EU member countries (the treated group), before and after the implementation of the Interchange Fee Regulation in 2015, with that observed in a group of comparable countries (control group), which did not experience any change in interchange fee setting regulations. We find a strong and significant one-off impact of the Regulation immediately after its introduction and considerable propagation effects in the following years. Overall, we support the view that policy actions aiming at containing, but not eliminating, interchange fees can significantly contribute to the diffusion of electronic payments.
    Keywords: Interchange fees, Regulation, card payments
    JEL: E42 G2
    Date: 2021–07
  118. By: De Bandt Olivier; Jacolin Luc; Lemaire Thibault
    Abstract: Using panel data covering 126 low- and middle-income countries over 1960-2017, we find that sustained positive temperature deviations from their historical norms have a non-linear negative effect on economic growth and growth per capita. A sustained 1°C temperature increase lowers real GDP per capita annual growth by 0.74–1.52 percentage points, irrespective of levels of development. We also find that temperature rise affects the households’ intertemporal trade-off between consumption and investment, since the share of private consumption in total value-added increases while the share of investment declines. A sectoral decomposition shows that the share of industrial value-added also declines. While the share of agricultural value-added increases, agricultural output and productivity declines. Taken together, our results suggest that global warming will reinforce development traps, hindering further adaptation to climate change, particularly in the countries with the lowest levels of income given their lower resilience and higher socioeconomic vulnerability.
    Keywords: Climate Change, Economic Growth, Adaptation, Developing Countries
    JEL: C33 E20 O11 O13 Q54
    Date: 2021
  119. By: Bart van Ark (The Productivity Institute, Alliance Manchester Business School, The University of Manchester); Venables (The Productivity Institute, Alliance Manchester Business School, The University of Manchester)
    Abstract: The United Kingdom has suffered an extreme version of the “productivity puzzle†– the strong and largely unexplained slowdown in productivity growth among OECD economies since the mid-2000s. In recognition of the challenges that weak productivity growth and low levels of productivity create for economic performance, living standards, and distribution of income across regions, a new research institute has been set up to advance the understanding of the problem. The Productivity Institute will create a comprehensive and interdisciplinary research agenda and contribute to the frontier of knowledge creation in productivity research in the UK and around the world. The Institute will focus on innovative ways to improve productivity performance, providing new insights to help policy and business leaders understand better how to raise productivity and thereby raise living standards in a sustainable manner. This short paper outlines the overall approach to research, engagement and capacity building by the Institute.
    Keywords: productivity, UK economy
    JEL: D2 E02 L1 O3 O4
    Date: 2021–01
  120. By: Diane Coyle (The Productivity Institute, Bennett Institute for Public Policy, University of Cambridge); Kaya Dreesbeimdieck (University of Cambridge); Annabel Manley (Bennett Institute for Public Policy, University of Cambridge)
    Abstract: Measured health output in the UK has declined sharply during the Covid-19 pandemic, despite the evident increase in some National Health Service (NHS) activities such as critical care, and the new test and trace and vaccination programmes. We identify the measurement methods applied to public services that explain the measured decline, and also explore the likely impact of changes in hospital practices during the pandemic, including increased use of technology, on healthcare productivity. We find that within NHS England the capacity constraints have contributed to substantial falls in non-Covid-19 health care activities, and argue that increased capacity in the social infrastructure of the health service is essential to enable higher productivity in an uncertain environment.
    Keywords: productivity, health care, NHS
    JEL: H51 I10 E01
    Date: 2021–02
  121. By: Congressional Budget Office
    Abstract: Increases in physical infrastructure spending would boost private-sector productivity in the coming decades, contributing to economic growth that could lower the budgetary cost of that spending. To study such increases, CBO examined two illustrative scenarios that would boost federal funding for a mix of types of physical infrastructure by $500 billion over 10 years. The effects of macroeconomic changes on the budget would depend on how additional infrastructure spending was financed and on the time period considered.
    JEL: E60 H40 H50 H60
    Date: 2021–08–06
  122. By: Shuowen Chen; Yang Ming
    Abstract: What causes countercyclicality of industry--level productivity dispersion in the U.S.? Empirically, we construct an index of negative profit shocks and show that both productivity dispersion and R&D intensity dispersion enlarge at the onset of the shock and gradually dissipate. Theoretically, we build a duopolistic technology--ladder model in which heterogeneous R&D costs determine firms' post--shock optimal behaviors and equilibrium technology gap. Quantitatively, we calibrate a parameterized model, simulate firms' post--shock responses and predict that productivity dispersion is due to the low--cost firm increasing R&D efforts and the high--cost firm doing the opposite. We provide two empirical tests for this mechanism.
    Date: 2021–08

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