nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒08‒30
73 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Fiscal Policy at the Zero Lower Bound without Rational Expectations By Riccardo Bianchi Vimercati; Martin S. Eichenbaum; Joao Guerreiro
  2. Understanding Why Fiscal Stimulus Can Fail through the Lens of the Survey of Professional Forecasters By Hyeongwoo Kim; Shuwei Zhang
  3. Time-Varying Dynamics of the German Business Cycle: A Comprehensive Investigation By Magnus Reif
  4. Canal d’incertitude de la COVID-19 : Quelles stratégies et tactiques pour la politique monétaire ? By PINSHI, Christian P.; MALATA, Alain
  5. Macroeconomic and Financial Risks: A Tale of Mean and Volatility By Dario Caldara; Chiara Scotti; Molin Zhong
  6. Financial crises: A survey By Amir Sufi; Alan M. Taylor
  7. Effect of Government Transfer on Money Supply: A Closer Look into the Interaction Between Monetary and Fiscal Policy By Nizam, Ahmed Mehedi
  8. A Large Bayesian VAR of the United States Economy By Richard K. Crump; Stefano Eusepi; Domenico Giannone; Eric Qian; Argia M. Sbordone
  9. A Unified Approach for Jointly Estimating the Business and Financial Cycle, and the Role of Financial Factors By Tino Berger; Julia Richter; Benjamin Wong
  10. Central Bank Digital Currency in Historical Perspective: Another Crossroad in Monetary History By Michael D. Bordo
  11. Fiscal Spillovers: The Case of US Corporate and Personal Income Taxes By Madeline Hanson; Daniela Hauser; Romanos Priftis
  12. Public Debt, Private Pain: Regional Borrowing, Default, and Migration By Grey Gordon; Pablo Guerrón-Quintana
  13. Is Money Essential? An Experimental Approach By Janet Hua Jiang; Peter Norman; Daniela Puzzello; Bruno Sultanum; Randall Wright
  14. Public Debt Bubbles in Heterogeneous Agent Models with Tail Risk By Narayana R. Kocherlakota
  15. Demographics, Wealth, and Global Imbalances in the Twenty-First Century By Adrien Auclert; Hannes Malmberg; Frederic Martenet; Matthew Rognlie
  16. Loan-to-Value Caps, Bank Lending, and Spillover to General-Purpose Loans By Selva Bahar Baziki; Tanju Capacioglu
  17. Whatever it takes to understand a central banker - Embedding their words using neural networks. By Martin Baumgaertner; Johannes Zahner
  18. Wage Setting Under Targeted Search By Anton A. Cheremukhin; Paulina Restrepo-Echavarria
  19. What Can We Learn from Idiosyncratic Wage Changes? By Cynthia L. Doniger
  20. Роль коронавирусной пандемии и развала сделки ОПЕК+ в динамике цены на нефть в 2020 году By Lomonosov, Daniil
  21. Lockdown, Earnings Losses and Household Asset Buffers in Europe By Nolan, Brian; C. Palomino, Juan; Kuypers, Sarah; Marx, Ive
  22. Redistribution of wealth through cross border financial transactions: A closer look By Nizam, Ahmed Mehedi
  23. Corporate debt booms, financial constraints and the investment nexus By Albuquerque, Bruno
  24. Borrowing to Finance Public Investment: A Politico-economic Analysis of Fiscal Rules By Uchida, Yuki; Ono, Tetsuo
  25. Money Market Integration in Spain in the Ninetheen Century: The Role of the 1875-1885 Decade By Emma M., Iglesias; J. Carles, Maixé-Altés
  26. The characteristics associated with the short and long-term unemployed in the Maltese labour market By Rafael Fearne; Ian Borg
  27. Saving behaviour in Malta: Insights from the Household Budgetary Survey By Roberta Montebello; Jude Darmanin
  28. The COVID-19 shock on the labour market: Poverty and inequality effects across Spanish regions By C. Palomino, Juan; G. Rodríguez, Juan; Sebastian, Raquel
  29. United in diversity: Labor markets in the CEE countries By Michal Bencik
  30. Wage inequality and poverty effects of lockdown and social distancing in Europe By C. Palomino, Juan; G. Rodríguez, Juan; Sebastian, Raquel
  31. The Fed Explained By Raul Anibal Feliz
  32. Nowcasting Colombian Economic Activity: DFM and Factor-MIDAS approaches By Franky Juliano Galeano-Ramírez; Nicolás Martínez-Cortés; Carlos D. Rojas-Martínez
  33. Monetary Policy Shocks and Economic Growth in Morocco: A Factor-Augmented Vector Autoregression (FAVAR) Approach By Marouane Daoui; Bouchra Benyacoub
  34. Past Exposure to Macroeconomic Shocks and Populist Attitudes in Europe By Gavresi, Despina; Litina, Anastasia
  35. Mortgage pricing and monetary policy By Benetton, Matteo; Gavazza, Alessandro; Surico, Paolo
  36. Understanding Secular Stagnation By Jean-Baptiste Michau
  37. Epidemics and Macroeconomic Dynamics By Masashige Hamano; Munechika Katayama
  38. Assessing real estate prices in Slovakia – a structural approach By Martin Cesnak; Jan Klacso
  39. Impact des chocs de politique monétaire sur la croissance économique au Maroc : modélisation FECM By Bouchra Benyacoub; Marouane Daoui
  40. The Treasury Market in Spring 2020 and the Response of the Federal Reserve By Annette Vissing-Jorgensen
  41. A Baseline DSGE model of Climate Change for Climate Policy Analysis By Xu, Wenli
  42. Oil Price Shocks, Real Economic Activity and Uncertainty By Amélie Charles; Chew Lian Chua; Olivier Darné; Sandy Suardi
  43. The Neoclassical Model and the Welfare Costs of Selection By Fabrice Collard; Omar Licandro
  44. Money and Foreign Exchange Markets Dynamics in Nigeria: A Multivariate GARCH Approach By Atoi, Ngozi Victor; Nwambeke, Chinedu G.
  45. Perceived Relative Wealth and Risk Taking By Dietmar Fehr; Yannick Reichlin
  46. The Joint Dynamics of Money and Credit Multipliers Since the Gold Standard Era By Luca Benati
  47. Linking the ‘Recovery and Resilience Plan’ and Smart Specialisation. The Portuguese Case By Anabela Santos
  48. Default of Depreciate By Yasin Kürsat Önder; Enes Sunel
  49. In and out of lockdown: Propagation of supply and demand shocks in a dynamic input-output model By Pichler, Anton; Pangallo, Marco; del Rio-Chanona, R. Maria; Lafond, François; Farmer, J. Doyne
  50. Why is productivity slowing down? By Lafond, François; Goldin, Ian; Koutroumpis, Pantelis; Winkler, Julian
  51. Modeling simultaneous supply and demand shocks in input-output networks By Pichler, Anton; Farmer, J. Doyne
  52. Using Macroeconomic Frameworks to Analyze the Impact of COVID-19: An Application to Colombia and Cambodia By Mr. Ales Bulir; Mr. Juan S Corrales; Andres Gonzalez; Dyna Heng; Diego Rodriguez; Daniel Baksa
  53. A Post-Pandemic Assessment of the Sustainable Development Goals By Mr. Abdelhak S Senhadji; Alexander F. Tieman; Mr. Edward R Gemayel; Ms. Dora Benedek
  54. Climate Change Mitigation Policies: Aggregate and Distributional Effects By Tiago Cavalcanti; Zeina Hasna; Cezar Santos
  55. Анализ рисков потребительских кредитов с помощью алгоритмов машинного обучения // Consumer credit risk analysis via machine learning algorithms By Байкулаков Шалкар // Baikulakov Shalkar; Белгибаев Зангар // Belgibayev Zanggar
  56. Chinese Investment in Ethiopia: Contribution, Challenges, Opportunities and Policy Recommendations By Gebrehiwot, Berihu Assefa; Gebreeyesus, Mulu; Weldesilassie, Alebel Bayrau
  57. The Economic Consequences of Pandemics By Shahid Mehmood
  58. Forecasting in the Absence of Precedent By Paul Ho
  59. Dimensionality Reduction and State Space Systems: Forecasting the US Treasury Yields Using Frequentist and Bayesian VARs By Sudiksha Joshi
  60. India’s Employment Challenges and the Demand for Skills By Pallavi Choudhuri
  61. Production networks and epidemic spreading: How to restart the UK economy? By Pichler, Anton; Pangallo, Marco; del Rio-Chanona, R. Maria; Lafond, François; Farmer, J. Doyne
  62. Reversal of Fortune for Political Incumbents: Evidence from Oil Shocks By Arezki, Rabah; Djankov, Simeon; Nguyen, Ha; Yotzov, Ivan
  63. Fates of indebted households during the Corona crisis: Survey results from Slovakia By Alexander Karsay
  64. Consumption baskets of Indian households: Comparing estimates from the CPI, CES and CPHS. By Goyal, Ananya; Pandey, Radhika; Sane, Renuka
  65. Growth constraints and external vulnerability in Argentina By Catelén, Ana Laura
  66. Electrification and Welfare for the Marginalized: Evidence from India By Ashish Kumar Sedai; Tooraj Jamasb; Rabindra Nepal; Ray Miller
  67. Estimating the Footprint of Government on the Economy By Nadeem Ul Haque; Raja Rafi Ullah
  68. The Covid-19 Crisis Response Helps the Poor: The Distributional and Budgetary Consequences of the UK lock-down By Bronka, Patryk; Collado, Diego; Richiardi, Matteo
  69. Growth at Risk From Climate Change By Michael T. Kiley
  70. Malta’s Governance Framework: Insights from International Governance Indicators By Nathaniel Debono
  71. How to Assess Country Risk: The Vulnerability Exercise Approach Using Machine Learning By International Monetary Fund
  72. Towards resilient health systems: New institutions, an invigorated civil society, and global cooperation By Vines, David
  73. Developing thematic satellite accounts: The example of a thematic satellite account for transport By Peter van de Ven

  1. By: Riccardo Bianchi Vimercati; Martin S. Eichenbaum; Joao Guerreiro
    Abstract: We address the question of how sensitive is the power of fiscal policy in the ZLB to the assumption of rational expectations. We do so through the lens of a standard NK model in which people are level-k thinkers. Our analysis weakens the case for using government spending to stabilize the economy when the ZLB binds. The less sophis- ticated people are, the smaller is the size of the government-spending multiplier. Our analysis strengthens the case for using tax policy to stabilize output when the ZLB is binding. The power of tax policy to stabilize the economy during the ZLB period is essentially undiminished when agents do not have rational expectations. Finally, we show that the way in which tax policy is communicated is critical to its effectiveness.
    JEL: E0 E32 E62
    Date: 2021–08
  2. By: Hyeongwoo Kim; Shuwei Zhang
    Abstract: This paper shows that fiscal policy in the U.S. has become ineffective due to lack of coordination between monetary and fiscal policy. We present a New Keynesian model that generates strong output effects of government spending shocks only when monetary policy coordinates well with fiscal policy. Employing the post-war U.S. data, we report strong stimulus effects of fiscal policy during the pre-Volcker era, which rapidly dissipate when we shift the sample period to the post-Volcker era. Finding a negligible role of the real interest rate in the propagation of government spending shocks, we propose an alternative explanation using a sentiment channel. Employing the Survey of Professional Forecasters data, we show that forecasters tend to systematically over-estimate real GDP growth in response to positive innovations in government spending when policies coordinate well with each other. On the other hand, they are likely to formulate pessimistic forecasts when the monetary authority maintains a hawkish stance that conflicts with the fiscal stimulus. The fiscal stimulus, under such circumstances, may generate consumer pessimism, which decreases private spending and ultimately weakens the output effects of fiscal policy. We also provide statistical evidence that confirms an important role of the sentiment channel under different regimes of policy coordination.
    Keywords: Fiscal Policy; Time-varying Effectiveness; Policy Coordination; Sentiment; Survey of Professional Forecasters
    JEL: E32 E61 E62
    Date: 2021–08
  3. By: Magnus Reif
    Abstract: This paper provides insights into the time-varying dynamics of the German business cycle over the last five decades. To do so, I employ an open-economy time-varying parameter VAR with stochastic volatility, which I estimate by quasi-Bayesian techniques. The reduced-form analysis reveals substantial shifts in the variables’ long-run growth rates and shock volatilities over time. German trend inflation has strongly decreased and settled at a historically low level. GDP growth volatility exhibits marked fluctuations over time and has dropped to historically low levels only after the global financial crisis. The structural analysis employs externally identified oil supply shocks along with a recursive identification scheme to identify key macroeconomic shocks. The analysis reveals strong fluctuations in both the impact responses of macroeconomic aggregates to these shocks and the shock propagation processes. Thus, I conclude that business cycle stabilization in Germany is driven by both good policy and good luck.
    Keywords: time-varying parameters, Bayesian vector autoregression, counterfactuals, stochastic volatility, Great Moderation
    JEL: E31 E32 E52 E58
    Date: 2021
  4. By: PINSHI, Christian P.; MALATA, Alain
    Abstract: The Central Bank of Congo (BCC) lowered policy rate in response to uncertainty surrounding COVID-19. The impact of the pandemic on the economy is uncertain and depends on several factors. This cut in the policy rate would not help the economy to limit the fallout from COVID-19, so we should rethink other tactics and strategies, such as a good communication strategy and the deployment of unconventional measures. However, coordination with fiscal policy would be a determining factor in blurring the uncertain effects of the coronavirus crisis.
    Keywords: Monetary policy, Covid-19, uncertainty
    JEL: C32 E32 E44 E52 E63
    Date: 2020–09
  5. By: Dario Caldara; Chiara Scotti; Molin Zhong
    Abstract: We study the joint conditional distribution of GDP growth and corporate credit spreads using a stochastic volatility VAR. Our estimates display significant cyclical co-movement in uncertainty (the volatility implied by the conditional distributions), and risk (the probability of tail events) between the two variables. We also find that the interaction between two shocks--a main business cycle shock as in Angeletos et al. (2020) and a main financial shock--is crucial to account for the variation in uncertainty and risk, especially around crises. Our results highlight the importance of using multivariate nonlinear models to understand the determinants of uncertainty and risk.
    Keywords: Uncertainty; Tail risk; Joint conditional distributions; Main shocks
    JEL: C53 E23 E32 E44
    Date: 2021–08–19
  6. By: Amir Sufi; Alan M. Taylor
    Abstract: Financial crises have large deleterious effects on economic activity, and as such have been the focus of a large body of research. This study surveys the existing literature on financial crises, exploring how crises are measured, whether they are predictable, and why they are associated with economic contractions. Historical narrative techniques continue to form the backbone for measuring crises, but there have been exciting developments in using quantitative data as well. Crises are predictable with growth in credit and elevated asset prices playing an especially important role; recent research points convincingly to the importance of behavioral biases in explaining such predictability. The negative consequences of a crisis are due to both the crisis itself but also to the imbalances that precede a crisis. Crises do not occur randomly, and, as a result, an understanding of financial crises requires an investigation into the booms that precede them.
    JEL: E32 E44 E7 G01 G10 N20
    Date: 2021–08
  7. By: Nizam, Ahmed Mehedi
    Abstract: Although government transfer is a well-known fiscal variable, it can significantly influence the overall supply of money in the economy. Beneficiaries of government transfer program will consume a portion of it while the rest is saved and these initial savings will then be amplified inside the economy through the multiplier effect. Apart from consumption and savings a portion of government transfer will return to government in the form of taxes. Here, in the first place, we intuitively calculate the contribution of government transfer on private consumption, households' savings, government tax revenue and money supply. In the next step we provide a micro-foundation for our intuitive reasoning using a simple endowment economy with finitely lived households. Finally, we empirically calculate our proposed multipliers using impulse response analysis under structural panel VAR framework. Response of money supply to changes in government transfer uncovers a channel through which monetary and fiscal policy may interact. Moreover, variance decomposition of money supply indicates that a significant portion of variance in money supply can be explained in terms of government transfer under structural panel VAR framework.
    Keywords: Government transfer; money supply; fiscal policy; monetary policy; interaction between monetary and fiscal policy
    JEL: E52 E62
    Date: 2021–08–26
  8. By: Richard K. Crump; Stefano Eusepi; Domenico Giannone; Eric Qian; Argia M. Sbordone
    Abstract: We model the United States macroeconomic and financial sectors using a formal and unified econometric model. Through shrinkage, our Bayesian VAR provides a flexible framework for modeling the dynamics of thirty-one variables, many of which are tracked by the Federal Reserve. We show how the model can be used for understanding key features of the data, constructing counterfactual scenarios, and evaluating the macroeconomic environment both retrospectively and prospectively. Considering its breadth and versatility for policy applications, our modeling approach gives a reliable, reduced form alternative to structural models.
    Keywords: bayesian vector autoregressions; conditional forecasts; scenario analyses; financial conditions index
    JEL: C11 C32 C53 C54 E32 E37
    Date: 2021–08–01
  9. By: Tino Berger; Julia Richter; Benjamin Wong
    Abstract: We jointly estimate the U.S. business and financial cycle through a unified empirical approach while simultaneously accounting for the role of financial factors. Our approach uses the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autoregression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheating the business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles.
    Keywords: business cycle, financial cycle, financial shocks
    JEL: C18 E51 E32
    Date: 2021
  10. By: Michael D. Bordo
    Abstract: Digitalization of Money is a crossroad in monetary history. Advances in technology has led to the development of new forms of money: virtual (crypto) currencies like bitcoin; stable coins like libra/diem; and central bank digital currencies (CBDC) like the Bahamian sand dollar. These innovations in money and finance have resonance to earlier shifts in monetary history: 1) The shift in the eighteenth and nineteenth century from commodity money (gold and silver coins) to convertible fiduciary money and inconvertible fiat money; 2) the shift in the nineteenth and twentieth centuries from central bank notes to a central bank monopoly; 3) Then evolution since the seventeenth century of central banks and the tools of monetary policy. This paper analyzes the arguments for a CBDC through the lens of monetary history. The bottom line is that the history of transformations in monetary systems suggests that technical change in money is inevitably driven by the financial incentives of a market economy. Government has always had a key role in the provision of outside money, which is a public good. Government has also regulated inside money provided by the private sector. This held for fiduciary money and will likely hold for digital money. CBDC could make monetary policy more efficient, and it could transform the international monetary and payments systems.
    JEL: E42 E52 E58
    Date: 2021–08
  11. By: Madeline Hanson; Daniela Hauser; Romanos Priftis
    Abstract: This paper extends the identification of unanticipated changes in average federal corporate and personal income tax rates in the United States, as proposed in Mertens and Ravn (2013), to the end of 2019, and assesses their propagation to economies with tight links to the US economy. While cuts in both taxes lead to significant short-run expansions in the US economy, their spillover effects on other countries differ markedly. A cut in corporate taxes can produce negative spillovers, indicating that the contractionary effects associated to the reallocation of investment and jobs by multinational firms outweigh the potential positive effects of increased demand for country-specific goods through trade with the US. The spillover effects of lower personal income taxes are more heterogeneous across countries but are, on average, expansionary, depending on the country-specific monetary policy stance.
    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Exchange rate regimes; Fiscal policy; International topics
    JEL: H20 E62 F44
    Date: 2021–08
  12. By: Grey Gordon; Pablo Guerrón-Quintana
    Keywords: migration; population; debt; default; cities; bankruptcy
    JEL: E21 F22 F34 R23 R51
    Date: 2021–07–30
  13. By: Janet Hua Jiang; Peter Norman; Daniela Puzzello; Bruno Sultanum; Randall Wright
    Keywords: Money; mechanism design; experimental economics
    JEL: E4 E5
    Date: 2021–06–30
  14. By: Narayana R. Kocherlakota
    Abstract: This paper studies the public debt implications of a class of Aiyagari (1994)-Bewley (1977)-Huggett (1993) (ABH) models of incomplete insurance in which agents face a near-zero probability of a highly adverse outcome. In generic models of this kind, there exists a public debt bubble, so that the government is able to borrow at a real interest rate that is perpetually below the economic growth rate. Given an equilibrium with a public debt bubble, the primary deficit and the level of debt are both strictly increasing in the real interest rate and in the fraction of government expenditures used for lumpsum transfers. There is no upper bound on the deficit level or long-run debt level that is sustainable in equilibrium. In a public debt bubble, regardless of its size, agents are better off in the long run if the government chooses policies that give rise to a larger debt and primary deficit.
    JEL: E62 H62 H63
    Date: 2021–08
  15. By: Adrien Auclert; Hannes Malmberg; Frederic Martenet; Matthew Rognlie
    Abstract: We use a sufficient statistic approach to quantify the general equilibrium effects of population aging on wealth accumulation, expected asset returns, and global imbalances. Combining population forecasts with household survey data from 25 countries, we measure the compositional effect of aging: how a changing age distribution affects wealth-to-GDP, holding the age profiles of assets and labor income fixed. In a baseline overlapping generations model this statistic, in conjunction with cross-sectional information and two standard macro parameters, pins down general equilibrium outcomes. Since the compositional effect is positive, large, and heterogeneous across countries, our model predicts that population aging will increase wealth-to- GDP ratios, lower asset returns, and widen global imbalances through the twenty-first century. These conclusions extend to a richer model in which bequests, individual savings, and the tax-and-transfer system all respond to demographic change.
    JEL: E21 F21 J11
    Date: 2021–08
  16. By: Selva Bahar Baziki; Tanju Capacioglu
    Abstract: This paper studies the effect of the introduction of and a subsequent easing in residential credit loan-to-value (LTV) ratio caps on bank lending and borrowers' loan usage with a unique and comprehensive bank-linked individual credit data set in a large emerging economy. We first show that following the introduction of an LTV cap, banks that were previously lending at rates above the limit have reduced residential lending, as targeted by the policy. We find that banks change their balance sheet composition as a response, replacing the reduction in residential lending with higher commercial loans and general-purpose loans issued to new residential borrowers.
    Keywords: Loan to value ratio, Credit risk, Housing loans, General-purpose loans, Credit spillover
    JEL: G21 G28 E51 E58 G20
    Date: 2021
  17. By: Martin Baumgaertner (THM Business School); Johannes Zahner (Philipps-Universitaet Marburg)
    Abstract: Dictionary approaches are at the forefront of current techniques for quantifying central bank communication. This paper proposes embeddings – a language model trained using machine learning techniques – to locate words and documents in a multidimensional vector space. To accomplish this, we gather a text corpus that is unparalleled in size and diversity in the central bank communication literature, as well as introduce a novel approach to text quantification from computational linguistics. Utilizing this novel text corpus of over 23,000 documents from over 130 central banks we are able to provide high quality text-representations –embeddings– for central banks. Finally, we demonstrate the applicability of embeddings in this paper by several examples in the fields of monetary policy surprises, financial uncertainty, and gender bias.
    Keywords: Word Embedding, Neural Network, Central Bank Communication, Natural Language Processing, Transfer Learning
    JEL: C45 C53 E52 Z13
    Date: 2021
  18. By: Anton A. Cheremukhin; Paulina Restrepo-Echavarria
    Abstract: When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two-sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs or market tightness and that labor market tightness and relative costs of search play a key role in the optimal choice of the wage-setting mechanism. Finally, we show that bargaining prevalence is positively correlated with wages, residual wage dispersion and labor market tightness, both in the model and in the data.
    Keywords: wage posting; bargaining; search and matching; information
    JEL: J64 E24 J31
    Date: 2021–08–12
  19. By: Cynthia L. Doniger
    Abstract: I document six facts about wage changes. First, most pay revisions occur at yearly frequency, but a small proportion occur at idiosyncratic times. Second, idiosyncratic pay changes are larger and more dispersed than year-end pay changes and resemble more pay changes occurring at job-to-job transitions. Third, idiosyncratic pay changes are more common for workers with less experience and, forth, in firms higher on the job-ladder. Fifth, industries in which the incidence of idiosyncratic raises have risen have experienced greater declines in labor share. Sixth, industries in which more firms report willingness to negotiate wages have greater concentrations of idiosyncratic revisions. An on-the-job search model with heterogeneous wage contracts can rationalize these facts.
    Keywords: Labor contracts; Idiosyncratic wage changes; Labor share; Job ladder
    JEL: E24 E25 J31 J33 M55 M52
    Date: 2021–08–12
  20. By: Lomonosov, Daniil
    Abstract: World oil prices in 2020 have undergone tangible shocks, which are associated primarily with two events - the collapse of the OPEC+ deal and the coronavirus pandemic. Based on the BVAR model of the oil market, the quantitative role of these events in the dynamics of oil prices was assessed, and the channels of their influence through structural shocks were identified. In the first half of 2020, at the time of the greatest decline, lack of consistency between oil producing countries, expectations of further growth in oil supply and uncertainty about a recovery in global demand played a dominant role, reducing oil prices by 86% at the peak of the decline. The direct contribution of the decline in the economic activity due to restrictive measures was more modest, reducing the price by 27.7% in April 2020. However, after reaching new agreements within the OPEC+ deal and some adaptation to the new conditions of a number of countries, the direction of the dynamics of oil prices changed. The main factor behind the rise in prices in the second half of the year, according to the model, is a noticeable decline in world oil production, which on average has increased the price of oil by 20.8% since May.
    Keywords: Oil prices; pandemic; OPEC+; global economic activity shock; oil supply shock; specific oil demand shock
    JEL: C32 E32 Q43
    Date: 2021–07–11
  21. By: Nolan, Brian; C. Palomino, Juan; Kuypers, Sarah; Marx, Ive
    Abstract: Measures taken to contain the spread of COVID-19 affect some workers' capability to work and hence earnings more than others. The initial impact may be mitigated, for instance by relying on savings and assets. Access to these buffers may, however, also vary considerably within and across countries. In this paper we estimate for Euro Area workers their potential earnings losses related to the COVID-19 labour supply shock (before state responses) using the Lockdown Working Ability Index and relate this to households' savings and assets observed in the Eurosystem Household Finance and Consumption Survey. We find that, on average across the Euro Area, affected households could only offset half of their losses by relying on their liquid assets, ranging from 25% in some countries to 80% in others. We also find that liquid asset buffers of households in the bottom earnings quintiles are often insufficient to prevent them from falling below a low earnings threshold.
    Keywords: earnings, assets, wealth, pandemic, lockdown
    JEL: D31 E24 G51 J21 J31
    Date: 2021–04
  22. By: Nizam, Ahmed Mehedi
    Abstract: Contrary to existing literature, here we consider the foreign exchange reserve balance of a particular country as an indicator of how much goods, services and/or physical asset the country has transferred to the rest of the world in exchange of some fiat foreign currencies. On the other hand, the reserve balances of the rest of the world denominated in the currency of that particular country can be considered as the amount of goods, services and/or physical assets that the particular country has received from the rest of the world in exchange of its own fiat currencies. Hence, if we subtract the second quantity from the first one, we get an estimate of the extent of net non-monetary wealth that the particular country has transferred so far to the rest of the world in exchange of some fiat foreign money. We calculate the amount of net non-monetary wealth (thus defined) transferred to and from some major economies stemming from cross border financial transactions and analyze their long term and short term dynamics using VECM. The main objective of this study is to give a new perspective to what we conventionally mean by foreign exchange reserve of a country: Instead of assuming the reserve balance of a country as an asset we consider it as a measure of gross wealth (i.e., goods, services and physical asset) the country has transferred so far to other countries around the globe in exchange of some paper currencies with no intrinsic value.
    Keywords: Cross border trade, wealth redistribution, hard currencies
    JEL: E01 E21 F14 F41
    Date: 2021–08–25
  23. By: Albuquerque, Bruno (Bank of England)
    Abstract: Does corporate debt overhang affect investment over the medium term? To uncover this association, I measure debt overhang with a concept of debt accumulation or debt boom, and combine leverage with liquid assets to capture financial constraints. Using a large US firm-level panel over 1985 Q1–2019 Q1, I find that debt overhang leads financially vulnerable firms to cut permanently back on investment: a 10 percentage point increase in the three-year change in the leverage ratio is associated with lower investment growth of 5 percentage points after five years compared to the most resilient firms. I also find that vulnerable firms experience weaker intangible capital growth in the aftermath of debt booms. Finally, I find that general equilibrium effects dominate, stressing the risk that firm-specific debt booms in a subset of firms may spill over to the rest of the economy.
    Keywords: Corporate debt booms; firm investment; financial constraints; local projections
    JEL: D22 E22 E32 G32
    Date: 2021–08–13
  24. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: The golden rule of public finance distinguishes public investment from consumption spending when borrowing, permitting the finance of public investment only. This study focuses on public investment in human capital and compares this rule with the balanced budget rule, which rules out debt finance, in an overlapping generations model. In the model, fiscal policy is endogenous, chosen each period by a short-lived government representing existing generations. We evaluate the government's choice and the resulting political distortions for a given fiscal rule from the long-lived planner's perspective. We find that a country with a larger preference for public consumption can minimize distortions by lowering the fraction of debt-financed public investment. We calibrate the model to a sample of OECD countries. On the one hand, we find that the golden rule of public finance in human capital is optimal and politically supported in Greece; on the other hand, the balanced budget rule (no borrowings for human capital investment) is optimal and politically supported in Germany and to a lesser extent in Japan and the United States.
    Keywords: Balanced Budget Rule; Golden Rule of Public Finance; Probabilistic Voting, Overlapping Generations
    JEL: D70 E62 H63
    Date: 2021–08–22
  25. By: Emma M., Iglesias; J. Carles, Maixé-Altés
    Abstract: Are transaction costs and half-lives between two cities the same in both directions in traditional city-based monetary systems? Market conditions and political circumstances may not justify this assumption; and we provide evidence that it does not hold in the 1825-1885 period in Spain. Moreover, we show empirical evidence that market integration in Spain from 1875 to 1885 was a slow process of monetary unification with decreasing transaction costs, and a very inefficient convergence. Therefore, full integration did not happen in the period 1875-1885 and had to wait until mid-1880s, when the Spanish money-market was unified due to financial innovations.
    Keywords: Integration of monetary markets; Nineteenth century; Monetary and financial history; Market Convergence and Efficiency; Western Europe; Private Finance, Capital Markets
    JEL: E02 E42 F02 F15 F31 F36 L10 N13 N73
    Date: 2021–08–22
  26. By: Rafael Fearne; Ian Borg
    Abstract: The evolution of the Maltese labour market in recent years is likely to have a lasting effect on the Maltese economy. Record high growth in combination with active labour market policies pushed unemployment down and labour participation up. This policy note seeks to dissect the unemployed population, highlighting the differences and similarities between the short-term and long-term unemployed. The study approaches this by first investigating what brought about the reduction in the unemployment rate and what policies have been effective in helping reduce the number of unemployed. Then, utilising data from the Labour Force Survey, context is given to the unemployed population in Malta as the short-term and long-term are grouped according to several characteristics. Finally, the paper concludes by reflecting upon the Maltese labour market’s strengths and weaknesses and possible ways to address these going forward.
    JEL: J64 E24 J24
  27. By: Roberta Montebello; Jude Darmanin (Central Bank of Malta)
    Abstract: This paper computes sectoral contributions to real labour productivity growth in Malta during the two decades since 2000. The aim is to give an account of the sectoral developments affecting Malta’s productivity growth in the twenty years since 2000, in the context of significant structural change. To this end, this study employs the exactly additive GEAD technique developed by Tang and Wang (2004), which allows for the decomposition of sectoral productivity growth into efficiency gains and resource reallocation. Real labour productivity growth in Malta averaged 1.2% between 2000 and 2019, double that registered in the euro area. This divergence in growth rates was driven by a consistently positive reallocation level effect in each of the sample subperiods, as a result of the large structural shifts and reforms that have occurred since 2000. On the other hand, the contribution of within-sector efficiency gains in Malta was below that observed in the euro area on average and was the main driver of cyclical fluctuations in Malta’s productivity growth since 2000. Distortions such as government assistance and labour hoarding during recessions magnified these fluctuations. Across sectors, the results suggest that productivity developments were quite heterogenous, with services industries generally recording positive contributions to productivity growth. On the other hand, the manufacturing sector mainly registered negative contributions, as efficiency gains were offset by an outflow of resources towards other sectors.
    JEL: E24 J24 J21 O52
    Date: 2021
  28. By: C. Palomino, Juan; G. Rodríguez, Juan; Sebastian, Raquel
    Abstract: We evaluate the distributional consequences of social distancing for the case of Spanish regions. Under 2 months of lockdown plus 10 months of partial functioning our study consistently finds potential wage losses that are sizeable and uneven across the wage distribution all around Spain, but with different intensity depending on the region's productive structure. The increase of the headcount poverty index oscillates between 8.2 (Navarre) and 19.2 (the Balearic Islands) percentage points, while the Gini coefficient rises between 2.3 (Navarre) and 5.3 (the Balearic Islands) Gini points. We also find that inequality between regions increases, eroding regional cohesion in Spain.
    Keywords: COVID-19, poverty, inequality, teleworking, social distancing, regions, Spain
    JEL: D33 E24 J21 J31
    Date: 2021–01
  29. By: Michal Bencik (National Bank of Slovakia)
    Abstract: We study supply side factors of the labor market in the Czech Republic, Hungary, Poland and Slovakia. Common economic history of these Central European economies suggests that long run relationships should have resembling patterns. While we find that while for the Czech Republic and Hungary there exists a long run relation of equilibrium unemployment rate to real wages, capital stock and terms of trade; such relationship does not hold for Poland and Slovakia. Instead labor market trends are better described by the relationship of equilibrium real wages. This finding uncovers structural differences within the Visegrad countries. These differences relate to the extent, in which labor supply can adapt to shocks. In practice this would suggest that it was more efficient for Slovakia to conduct supply driven policies, as flexible employment contracts or industrial policies, to stabilize labor market conditions. On the contrary, the more efficient tool for the Czech Republic are wage oriented demand driven policies.
    JEL: E24 J31
    Date: 2021–06
  30. By: C. Palomino, Juan; G. Rodríguez, Juan; Sebastian, Raquel
    Abstract: Social distancing and lockdown measures taken to contain the spread of COVID-19 may have distributional economic costs beyond the contraction of GDP. Here we evaluate the capacity of individuals to work under a lockdown based on a Lockdown Working Ability index which considers their teleworking capacity and whether their occupation is essential or closed. Our analysis reveals substantial and uneven potential wage losses across the distribution all around Europe and we consistently find that both poverty and wage inequality rise in all European countries. Under four different scenarios (2 months of lockdown and 2 months of lockdown plus 6 months of partial functioning of closed occupations at 80%, 70% and 60% of full capacity) we estimate for 29 European countries an average increase in the headcount poverty index that goes from 4.9 to 9.4 percentage points and a mean loss rate for poor workers between 10% and 16.2%. The average increase in the Gini coefficient ranges between 3.5% to 7.3% depending on the scenario considered. Decomposing overall wage inequality in Europe, we find that lockdown and social distance measures produce a double process of divergence: both inequality within and between countries increase.
    Keywords: Wage inequality, Poverty, Teleworking, Social distancing, Europe
    JEL: D33 E24 J21 J31
    Date: 2020–05
  31. By: Raul Anibal Feliz
    Abstract: The 11th edition of The Fed Explained: What the Central Bank Does (formerly The Federal Reserve System Purposes & Functions) details the structure, responsibilities, and work of the U.S. central banking system. The Federal Reserve System performs five functions to promote the effective operation of the U.S. economy and, more generally, to serve the public interest. It includes three key entities: the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee.
    Date: 2021–08–11
  32. By: Franky Juliano Galeano-Ramírez; Nicolás Martínez-Cortés; Carlos D. Rojas-Martínez
    Abstract: Economic policy decision-making requires constantly assessing the state of economic activity. However, this is not an easy task: official figures have significant lags, and the timely information is usually partial and has diffierent frequencies. This paper applies two types of short-term forecasting methodologies (Factor-MIDAS and DFM) for Colombian economic activity involving information with mixed frequencies. We present a heuristic process to select relevant variables, and we evaluate the proposed models' fits by comparing them with traditional forecasting methodologies. Overall, DFM and Factor-MIDAS forecasts are better than those generated by conventional methodologies, especially as the flow of information increases. In times of COVID-19, the model with the best relative fit was the DFM. **** RESUMEN: La toma de decisiones de política económica requiere evaluar constantemente el estado de la actividad económica. Sin embargo, ello no es una tarea fácil: las cifras oficiales tienen rezagos importantes y la información más oportuna suele ser parcial y tener frecuencias dispares. Este artículo aplica dos tipos de metodologías de pronóstico de corto plazo (Factor-MIDAS y DFM) para la actividad económica colombiana involucrando información con frecuencias mixtas. Se propone un proceso heurístico para la selección de variables relevantes y se evalúa el ajuste de los modelos comparándolo respecto a metodologías usuales de proyección. En general, los pronósticos de los modelos Factor-MIDAS y del DFM superan los generados por metodologías tradicionales, con resultados más precisos en la medida que aumenta el flujo de información. En tiempos del COVID-19, el modelo con el mejor ajuste relativo fue el DFM.
    Keywords: Colombian economic activity, nowcast, forecast, mixed frequency factor models, actividad económica colombiana, nowcast, pronóstico, modelos de frecuencia mixta con factores
    JEL: C53 E27 E52
    Date: 2021–08
  33. By: Marouane Daoui; Bouchra Benyacoub (FSJES-Fès - Faculté des Sciences Juridiques, Economiques et Sociales de Fès)
    Abstract: In response to the empirical anomalies relating to the use of VAR models in analysing the impact of monetary policy shocks, the Factor-Augmented VAR (FAVAR) models attempt to provide a practical solution. Moreover, these models, based on dynamic factor models (DFM), make it possible to summarize the information present in a large database into a small number of factors common to all the variables. In this paper, we analyse the effects of monetary policy shocks on economic growth using the FAVAR model on a large number of Moroccan macroeconomic time series (117 quarterly time series from 1985Q1 to 2018Q4). First, we present the econometric framework of the FAVAR model, then the data used and their necessary transformations. Next, we determine the number of factors before estimating the model. Then, we focus on the analysis of the impulse response functions of some indicators of economic growth in Morocco. The results of the analysis indicate that, the overall decline in GDP in response to monetary policy shocks suggests that they have a clearly negative impact on economic growth.
    Abstract: En réponse aux anomalies empiriques liées à l'utilisation des modèles VAR dans l'analyse de l'impact des chocs de politique monétaire, les modèles VAR augmentés de facteurs (FAVAR) tentent d'apporter une solution pratique. De plus, ces modèles, basés sur des modèles factoriels dynamiques (DFM), permettent de résumer l'information présente dans une grande base de données en un petit nombre de facteurs communs à toutes les variables. Dans ce papier, nous analysons les effets des chocs de politique monétaire sur la croissance économique en utilisant le modèle FAVAR sur un grand nombre de séries temporelles macroéconomiques marocaines (117 séries temporelles trimestrielles de 1985Q1 à 2018Q4). Dans un premier temps, nous présentons le cadre économétrique du modèle FAVAR, puis les données utilisées et leurs transformations nécessaires. Ensuite, nous déterminons le nombre de facteurs avant d'estimer le modèle. Ensuite, nous nous concentrons sur l'analyse des fonctions de réponse impulsionnelle de certains indicateurs de la croissance économique au Maroc. Les résultats de l'analyse indiquent que, la baisse globale du PIB en réponse aux chocs de politique monétaire suggère que ceux-ci ont un impact clairement négatif sur la croissance économique.
    Keywords: Monetary policy shocks,Economic growth,Dynamic factor model,FAVAR,Morocco
    Date: 2021–03–04
  34. By: Gavresi, Despina; Litina, Anastasia
    Abstract: This paper explores the interplay between past exposure to macroeconomic shocks and populist attitudes. We document that individuals who experienced a macroeconomic shock during their impressionable years (between 18 and 25 years of age), are currently more prone to voting for populist parties, and manifest lower trust both in national and European institutions. We use data from the European Social Survey (ESS) to construct the differential individual exposure to macroeconomic shocks during those years. Our findings suggest that it is not only exposure to current economic shocks that matters (see e.g., \citet{guiso2020economic}) but also past exposure to economic recessions, which has a persistent effect on the rise of populism. Analytically, past economic shocks are associated with a fall in trust in national and European institutions and a rise in anti-immigrant attitudes. Interestingly, the interplay between the two, i.e., past and current exposure to economic shocks, has a mitigating effect on the rise of populism, meaning that individuals who were exposed to economic shocks in the past are less likely to manifest populist attitudes when faced with a current crisis.
    Keywords: Macroeconomic Shocks, Trust, Attitudes, Populism
    JEL: D72 E60 F68 P16 Z13
    Date: 2021–07–25
  35. By: Benetton, Matteo (Haas School of Business, University of California); Gavazza, Alessandro (London School of Economics); Surico, Paolo (London Business School)
    Abstract: This paper provides novel evidence on lenders’ mortgage pricing and on how central bank operations affected it. Using the universe of mortgages originated in the UK, we show that lenders seek to segment the market by offering two-part tariffs composed of interest rates and origination fees, and that during recent periods of unconventional monetary policy, such as UK’s Funding for Lending Scheme, lenders decreased interest rates and increased origination fees. To understand lenders’ pricing strategies and their effects on market equilibrium, we develop and estimate a structural discrete-continuous model of mortgage demand and lender competition in which borrowers may have different sensitivities to rates and fees. We use the estimated model to decompose the effects of central bank unconventional monetary policy on mortgage pricing and lending, finding that central bank operations increased borrower surplus and lender profits. Moreover, although origination fees allow lender to price discriminate and capture surplus, banning fees would lower borrower surplus and aggregate welfare.
    Keywords: origination fees; mortgage demand; heterogeneity; structural estimation; unconventional monetary policy
    JEL: E52 G21
    Date: 2021–08–13
  36. By: Jean-Baptiste Michau (X - École polytechnique)
    Abstract: One of the most severe challenges facing Western economies is a structural lack of demand due to population aging. This results in a situation of secular stagnation, characterized by depressed inflation, weak economic growth, and under-employment. This has been the case in Japan for the past 25 years, and should not evolve in the near future. The Eurozone and, to a lesser extent, the U.S. have now been in a similar situation for over a decade. While monetary policy is ineffective, fiscal policy has the potential to prop up demand. This requires implementing a massive stimulus such as to temporarily "overheat" the economy to permanently escape the low inflation trap. As the pandemic comes to an end, many countries across the world are implementing fiscal stimulus packages of unprecedented magnitudes. This offers a unique opportunity to bring stagnation to an end. The recent stimulus measures announced and implemented in the US correspond to such a strategy. The Eurozone, by contrast, has no such plans.
    Date: 2021–07
  37. By: Masashige Hamano; Munechika Katayama
    Abstract: We propose a novel SIR-macro model in which virus transmission is uncertain. The model is solved with the perturbation method around a deterministic infectious steady state. Assuming a stationary infection process, a positive infection shock increases infection while reducing consumption and hours worked for susceptible individuals. Further, we estimate our model with the recent US data on the COVID-19 outbreak. Historical decomposition obtained with Bayesian techniques finds that the dis-containment rule that encourages people to work more, as well as infection shock and technology shock, play an important role in characterizing US infection and macroeconomic dynamics.
    Date: 2021–07
  38. By: Martin Cesnak (National Bank of Slovakia); Jan Klacso (National Bank of Slovakia)
    Abstract: In this paper, we apply the borrowing capacity approach and the intrinsic value approach to assess property prices in Slovakia. We estimate the maximum attainable house price for a given household. It means that we apply downpayment, DSTI or DTI parameters in line with the macroprudential limits implemented by the NBS. We consider the possible top-up in the form of a consumer loan for households not having enough own capital. Finally, we make use of an internal database of NBS of individual retail loan data that gives us a better picture of the average income of borrowers. Results based on the SBC approach point to a possible overvaluation during the pre-crisis period in 2007 and 2008. After the crisis, lowering interest rates and increasing income led to a robust increase of affordability. Since 2014, the implementation of borrower-based measures decreased the affordability, at least for households with not enough own capital. Based on the results, borrower-based measures could under some circumstances ease the upward pressure on house prices even in an environment of historically low interest rates, unemployment and increasing income.
    JEL: G12 G18 E37
    Date: 2021–06
  39. By: Bouchra Benyacoub (USMBA - Université Sidi Mohamed Ben Abdellah); Marouane Daoui (USMBA - Université Sidi Mohamed Ben Abdellah)
    Abstract: By using a database of 117 quarterly series (from 1985: Q1 to 2018: Q4), we explore in this paper the advantages of combining the benefits of dynamic factor models (the inclusion of a large number of variables) and error correction models (the inclusion of along-run or cointegrating relationships) as the factor augmented error correction model (FECM). Indeed, the main objective is to examine the effects of monetary policy shocks on economic growth in Morocco using the FECM. In order to assess the informational contribution of non-stationarity in dynamic factor modeling, the results obtained by the FECM model are compared to those obtained by the factor augmented vector autoregression (FAVAR) model. The results suggest that the FECM, which exploits information from non-stationary variables, is an empirically important extension of the FAVAR for modeling monetary policy shocks.
    Abstract: En utilisant une base de données de 117 séries trimestrielles (allant de 1985 : T1 à 2018 : T4), nous explorons dans cet article les avantages de combiner les bienfaits des modèles à facteurs dynamiques (tenir compte d'un grand nombre de variables) et ceux des modèles à correction d'erreur (tenir compte des relations de long terme ou de cointégration) sous forme du modèle à correction d'erreur augmentés de facteurs (FECM). En effet, l'objectif principal est d'examiner les effets des chocs de la politique monétaire sur la croissance économique au Maroc en utilisant le modèle FECM. Afin d'évaluer la contribution informationnelle de la nonstationnarité dans la modélisation à facteurs dynamiques, les résultats obtenus par le modèle FECM sont comparés à ceux obtenus par le modèle vectoriel autorégressif augmenté de facteurs (FAVAR).Les résultats suggèrent que le modèle FECM, qui exploite l'information provenant de variables non stationnaires, constitue une extension empiriquement importante du modèle FAVAR pour la modélisation des chocs de la politique monétaire.
    Keywords: FECM,FAVAR,Dynamic factor model,Economic growth,Monetary policy shocks,Impulse responses,Morocco,Chocs de politique monétaire,Croissance économique,Modèle à facteurs dynamiques,Réponses impulsionnelles,Maroc
    Date: 2021–07–21
  40. By: Annette Vissing-Jorgensen
    Abstract: Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed purchases were causal for reducing Treasury yields based on the timing of purchases (which increased on March 19), the timing of yield reversal and Fed purchases in the MBS market, and evidence against confounding factors. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15 Treasury-QE announcement.
    JEL: E5 G12
    Date: 2021–08
  41. By: Xu, Wenli
    Abstract: This note documents a DSGE model of Climate Change. I extend the NK model with geophisical variables, such as greenhouse gas emissions, the carbon cycle, radiative forcing, and climate change. In this model, I specify five different climate policy regimes: no policy, cap, intensive, tax, and mandate.
    Keywords: DSGE, climate change, climate policy
    JEL: E6 Q5
    Date: 2020–09–26
  42. By: Amélie Charles (Audencia Business School); Chew Lian Chua (University of Nottingham Ningbo [China]); Olivier Darné (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes - IUML - FR 3473 Institut universitaire Mer et Littoral - UBS - Université de Bretagne Sud - UM - Le Mans Université - UA - Université d'Angers - CNRS - Centre National de la Recherche Scientifique - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - UN - Université de Nantes - ECN - École Centrale de Nantes); Sandy Suardi (University of Wollongong)
    Abstract: This paper develops a structural factor vector autoregressive (SFVAR) model to study the effect of oil price shock on economic activity. The model allows both types of uncertainty (real economic activity and oil price) to directly affect oil prices and economic activity. More importantly, the factor variable, which is akin to the macroeconomic uncertainty measure of Henzel and Rengel (2017), captures the significant indirect spillover effects of both supplyrelated (oil prices) and demand-related (business cycle) shocks on oil prices and economic activity. By incorporating the indirect effect of this macroeconomic uncertainty, the response of economic activity to oil price shocks is amplified. In some countries the real effect is prolonged. Results for net oil exporting (importing) countries show that an oil price hike has an appreciably positive (negative) effect on economic activity. The factor dynamics of all countries, except for France, are highly correlated with each other, while they are all moderately correlated with some commonly used measures of macroeconomic uncertainty.
    Keywords: Factor model,Outliers,Impulse response,Real Uncertainty,Oil price uncertainty
    Date: 2021
  43. By: Fabrice Collard; Omar Licandro
    Abstract: This paper embeds firm dynamics into the Neoclassical model and provides a simple framework to solve for the transitional dynamics of economies moving towards more selection. As in the Neoclassical model, markets are perfectly competitive, there is only one good and two production factors (capital and labor). At equilibrium, aggregate technology is Neoclassical, but the average quality of capital and the depreciation rate are both endogenous and positively related to selection. At steady state, output per capita and welfare both raise with selection. However, the selection process generates transitional welfare losses that may reduce in around 60% long term (consumption equivalent) welfare gains. The same property is shown to be true in a standard general equilibrium model with entry and fixed production costs.
    Keywords: firm dynamics and selection, neoclassical model, capital irreversibility, investment distortions, transitional dynamics, welfare gains
    JEL: E13 E23 D60 O40
    Date: 2021
  44. By: Atoi, Ngozi Victor; Nwambeke, Chinedu G.
    Abstract: This study examines money market and foreign exchange market dynamics in Nigeria by estimating the dynamic correlation and volatility spillovers between Nigeria Naira/US Dollar Bureau De Change (BDC) exchange rate and interbank call rate with data from January 2007 to August 2019. The study employs a dynamic conditional correlation form of GARCH model (DCC-GARCH) to access the nature of correlation, while an unrestricted bivariate BEKK-GARCH (1, 1) form of multivariate GARCH model is utilized to investigate shocks and volatility spillover of the rates. The estimated DCC-GARCH (1, 1) reveals that interest rate and exchange rate are dynamically linked negatively, suggesting that exchange rate (or interest rate) is inversely sensitive to interest rate (or exchange rate) in Nigeria. This result was substantiated by the estimated BEKK-GARCH(1, 1) model. Furthermore, the effects of news (shocks spillover) are bi-directional across the markets. However, volatility spillover is unidirectional, from exchange rate to interest rate, suggesting that, calming the volatility in foreign exchange market does guarantee moderation of volatility in the money market, whereas the reverse is not the case. The results underscore the growing influence of foreign exchange market in the financial space of the Nigerian economy. Thus, the study recommends that foreign exchange policies aimed at maintaining exchange rate stability should be sustained, having found exchange rate to be more effective in moderating interest rate volatility in Nigeria.
    Keywords: Exchange rate, interest rate, multivariate GARCH, volatility spillover
    JEL: C4 E52 F31 G10
    Date: 2021–08–16
  45. By: Dietmar Fehr; Yannick Reichlin
    Abstract: We show that perceptions of relative rank in the wealth distribution shape individuals’ willingness to take risks. Using a representative large-scale survey, we manipulate perceptions of relative standing by randomly varying response categories when asking respondents about their wealth level. Respondents who are induced to perceive their relative position as low display more tolerance towards risk in a subsequent incentivized lottery task. This effect is mainly driven by individuals who more firmly believe that life outcomes are beyond their control. This interaction between risk preferences and underlying beliefs spotlights the benefits of incorporating personality traits into economic analysis.
    Keywords: relative wealth, risk taking, survey, experiment, locus of control
    JEL: D31 D63 D81 D91 E21 I31
    Date: 2021
  46. By: Luca Benati
    Abstract: Since the XIX century, technological progress has allowed commercial banks to create ever greater amounts of broad money and credit starting from a unit of monetary base. Crucially, however, at the very low frequencies the relative amounts of the two aggregates created out of a unit of base money have remained unchanged over time in each of the 42 countries I analyze. This finding questions the widespread notion that, since WWII, credit has become disconnected from broad money, and suggests that, except for their greater productivity at creating broad money and credit out of base money, today’s commercial banks are not fundamentally different from their XIX century’s counterparts. The implication is that only the ascent of shadow banks has introduced a disconnect between broad money and credit.
    Keywords: Money; credit; Lucas critique; financial crises.
    Date: 2021–08
  47. By: Anabela Santos (European Commission - JRC)
    Abstract: Based on the case study of Portugal, the present study aims to analyse the alignment of investments in the Portuguese ‘Recovery and Resilience Plan’ with the Smart Specialisation Strategies priorities (2021-2027) of this territory, and then identify opportunities for potential synergies and complementary between funding instruments. With the information available in the Plan and its annex, a detailed analysis is performed to identify investments able to enhance Research & Development, and Innovation and/or to improve the regional innovation eco-systems. The analysis shows that up to €6 Billion of the Plan (37%) may potentially support directly and indirectly the Smart Specialisation in Portugal. However, the effect of such contribution will strongly depend on the final beneficiaries, projects selected, absorption capacity, and governance model. The paper also explains the relevance of Smart Specialisation in the Covid-19 recovery and draft some policy recommendations.
    Keywords: Covid-19 crisis; Innovation; Government Policy; Portugal.
    JEL: E32 O31 G38
    Date: 2021–08
  48. By: Yasin Kürsat Önder; Enes Sunel (-)
    Abstract: We propose a theory of domestic and foreign currency debt and limited commitment to exchange-rate and debt repayment policies. Exchange-rate depreciation is costly, but reduces the real value of domestic-currency debt and helps smooth consumption without the full punishment of default. However, during a global liquidity shock, government debt balances endogenously tilt towards hard-currency as in the data, although issuing local-currency debt to foreigners is needed the most to transfer the currency risk. This is because foreign lenders become more risk averse to holding nominal sovereign debt during stress episodes. We show that a modest depreciation of currency following adverse shocks precludes a sovereign default by inflating away outstanding local-currency debt burdens in contrast to a counterfactual economy with fully dollarized sovereign debt. The quantitative application of our theory accounts for the business cycle properties and the currency composition of sovereign debt in Mexico.
    Keywords: Sovereign default, inflationary bias, investor base, original sin
    JEL: E31 F34 F45
    Date: 2021–08
  49. By: Pichler, Anton; Pangallo, Marco; del Rio-Chanona, R. Maria; Lafond, François; Farmer, J. Doyne
    Abstract: Economic shocks due to Covid-19 were exceptional in their severity, suddenness and heterogeneity across industries. To study the upstream and downstream propagation of these industry-specific demand and supply shocks, we build a dynamic input-output model inspired by previous work on the economic response to natural disasters. We argue that standard production functions, at least in their most parsimonious parametrizations, are not adequate to model input substitutability in the context of Covid-19 shocks. We use a survey of industry analysts to evaluate, for each industry, which inputs were absolutely necessary for production over a short time period. We calibrate our model on the UK economy and study the economic effects of the lockdown that was imposed at the end of March and gradually released in May. Looking back at predictions that we released in May, we show that the model predicted aggregate dynamics very well, and sectoral dynamics to a large extent. We discuss the relative extent to which the model's dynamics and performance was due to the choice of the production function or the choice of an exogenous shock scenario. To further explore the behavior of the model, we use simpler scenarios with only demand or supply shocks, and find that popular metrics used to predict a priori the impact of shocks, such as output multipliers, are only mildly useful.
    Keywords: Covid-19, production networks, epidemic spreading
    JEL: C61 C67 D57 E00 E23 I19 O49
    Date: 2020–05
  50. By: Lafond, François; Goldin, Ian; Koutroumpis, Pantelis; Winkler, Julian
    Abstract: We review recent research on the slowdown of labor productivity and examine the contribution of different explanations to this decline. Comparing the post-2005 period with the preceding decade for 5 advanced economies, we seek to explain a slowdown of 0.8 to 1.8pp. We trace most of this to lower contributions of TFP and capital deepening, with manufacturing accounting for the biggest sectoral share of the slowdown. No single explanation accounts for the slowdown, but we have identified a combination of factors which taken together account for much of what has been observed. In the countries we have studied, these are mismeasurement, a decline in the contribution of capital per worker, lower spillovers from the growth of intangible capital, the slowdown in trade, and a lower growth of allocative efficiency. Sectoral reallocation and a lower contribution of human capital may also have played a role in some countries. In addition to our quantitative assessment of explanations for the slowdown, we qualitatively assess other explanations, including whether productivity growth may be declining due to innovation slowing down.
    JEL: O40 E66 D24
    Date: 2021–05
  51. By: Pichler, Anton; Farmer, J. Doyne
    Abstract: Natural and anthropogenic disasters frequently affect both the supply and demand side of an economy. A striking recent example is the Cover-19 pandemic which has created severe industry-specific disruptions to economic output in most countries. Since firms are embedded in production networks, these direct shocks to supply and demand will propagate downstream and upstream. We show that existing input-output models which allow for binding demand and supply constraints yield infeasible solutions when applied to pandemic shocks of three major European countries (Germany, Italy, Spain). We then introduce a mathematical optimisation procedure which is able to determine best-case feasible market allocations, giving a lower bound on total shock propagation. We find that even in this best-case scenario network effects substantially amplify the initial shocks. To obtain more realistic model predictions, we study the propagation of shocks bottom-up by imposing different rationing rules on firms if they are not able to satisfy the emergence of input bottlenecks, making the rationing assumption a key variable in predicting adverse economic impacts. We further establish that the magnitude of initial shocks and network density heavily influence model predictions.
    Keywords: Covid-19, production networks, input-output models, rationing, linear programming, economic shocks, shock propagation, economic impact
    JEL: C61 C67 D57 E23
    Date: 2021–01
  52. By: Mr. Ales Bulir; Mr. Juan S Corrales; Andres Gonzalez; Dyna Heng; Diego Rodriguez; Daniel Baksa
    Abstract: This technical note and manual (TNM) addresses the following issues: • Evaluating the full implications from the policies adopted to mitigate the impact of the COVID-19 pandemic on the economy requires a well-developed macroeconomic framework. This note illustrates how such frameworks were used to analyze Colombia and Cambodia's shock impact at the beginning of the pandemic. • The use of macroeconomic frameworks is not to infer general policy conclusions from abstract models or empirical analysis but to help policymakers think through and articulate coherent forecasts, scenarios, and policy responses. • The two country cases illustrate how to construct a baseline scenario consistent with a COVID-19 shock within structural macroeconomic models. The scenario is built gradually to incorporate the available information, the pandemic's full effects, and the policy responses. • The results demonstrate the value of combining close attention to the data, near-term forecasting, and model-based analyses to support coherent policies.
    Keywords: TNM;potential GDP;fiscal policy variable;monetary policy rate;headline inflation;labor supply shock;modeling literature strand
    Date: 2021–04–01
  53. By: Mr. Abdelhak S Senhadji; Alexander F. Tieman; Mr. Edward R Gemayel; Ms. Dora Benedek
    Abstract: The COVID-19 pandemic hit countries’ development agendas hard. The ensuing recession has pushed millions into extreme poverty and has shrunk government resources available for spending on achieving the United Nations Sustainable Development Goals (SDGs). This Staff Discussion Note assesses the current state of play on funding SDGs in five key development areas: education, health, roads, electricity, and water and sanitation, using a newly developed dynamic macroeconomic framework.
    Keywords: Sustainable Development Goals, Development, Fiscal Policy, Structural Reform; policy option; composite index; case study countries' SDG spending; financing gap; SDG performance; analysis of development strategy; Sustainable Development Goals (SDG); COVID-19; Human capital; Emerging and frontier financial markets; Infrastructure; Sub-Saharan Africa; Global
    Date: 2021–04–27
  54. By: Tiago Cavalcanti (University of Cambridge); Zeina Hasna (University of Cambridge); Cezar Santos (Banco de Portugal)
    Keywords: Climate change, carbon taxes, worker heterogeneity, labor reallocation
    JEL: E13 H23 J24
    Date: 2021–03
  55. By: Байкулаков Шалкар // Baikulakov Shalkar (Center for the Development of Payment and Financial Technologies); Белгибаев Зангар // Belgibayev Zanggar (National Bank of Kazakhstan)
    Abstract: Данное исследование представляет собой попытку оценки кредитоспособности физических лиц с помощью алгоритмов машинного обучения на основе данных, предоставляемых банками второго уровня Национальному Банку Республики Казахстан. Оценка кредитоспособности заемщиков позволяет НБРК исследовать качество выданных кредитов банками второго уровня и прогнозировать потенциальные системные риски. В данном исследовании были применены два линейных и шесть нелинейных методов классификации (линейные модели - логистическая регрессия, стохастический градиентный спуск, и нелинейные - нейронные сети, k-ближайшие соседи (kNN), дерево решений (decision tree), случайный лес (random tree), XGBoost, наивный Байесовский классификатор (Naïve Bayes)) и сравнивались алгоритмы, основанные на правильности классификации (accuracy), точности (precision) и ряде других показателей. Нелинейные модели показывают более точные прогнозы по сравнению с линейными моделями. В частности, нелинейные модели, такие как случайный лес (random forest) и k-ближайшие соседи (kNN) на передискредитированных данных (oversampled data) продемонстрировали наиболее многообещающие результаты. // This project is an attempt to assess the creditworthiness of individuals through machine learning algorithms and based on regulatory data provided by second-tier banks to the central bank. The assessment of the creditworthiness of borrowers can allow the central bank to investigate the accuracy of issued loans by second-tier banks, and predict potential systematic risks. In this project, two linear and six nonlinear classification methods were developed (linear models – Logistic Regression, Stochastic Gradient Descent, and nonlinear - Neural Networks, kNN, Decision tree, Random forest, XGBoost, Naïve Bayes), and the algorithms were compared based on accuracy, precision, and several other metrics. The non-linear models illustrate more accurate predictions in comparison with the linear models. In particular, the non-linear models such as the Random Forest and kNN classifiers on oversampled data demonstrated promising outcomes.
    Keywords: потребительские кредиты, машинное обучение, банковское регулирование, стохастический градиентный спуск, логистическая регрессия, k-ближайшие соседи, классификатор случайных лесов, дерево решений, gaussian NB (Гауссовский наивный Байесовский классификатор), XGBoost, нейронные сети (многослойный персептрон), consumer credits, machine learning, bank regulation, stochastic gradient descent (linear model), logistic regression (linear model), kNN (neighbors), random forest classifier (ensemble), decision tree (tree), gaussian NB (naïve bayes), XGBoost, Neural network (MLP classifier)
    JEL: G21 G28 E37 E51
    Date: 2021
  56. By: Gebrehiwot, Berihu Assefa; Gebreeyesus, Mulu; Weldesilassie, Alebel Bayrau
    Abstract: Recognizing the immense potential for greater Chinese investment promotion and its contribution to Ethiopia’s industrialization and acknowledging the gaps, this paper aims to conduct a rigorous research through analysis of secondary sources and qualitative survey of Chinese enterprise doing business in Ethiopia in various sectors. In this regard, the key policy questions that this study tries to answer are ‘the involvement in and the contribution to Ethiopia’s industrialization and the challenges and opportunities they face. Hence, the overall objective of this research will be to (i) assess the trends in Chinese enterprises involvement in Ethiopia’s industrialization for the last decade, (ii) inform both the Chinese government and Ethiopian government on key business barriers and market failures that are constraining Chinese business entry and growth in Ethiopia; (iii) investigate the immense untapped investment potential from China that can be attracted and opportunities that Ethiopia could offer to Chinese investors; and (iv) propose policy options on how to address the challenges and thereby maximize the opportunities to enhance Chinese investment towards Ethiopia’s industrialization.
    Keywords: Enterprise, Investment, China, Ethiopia, FDI
    JEL: E22
    Date: 2020–03–05
  57. By: Shahid Mehmood (Pakistan Institute of Development Economics, Islamabad.)
    Abstract: The recorded history of human civilisation is replete with instances of recessions that have brought financial despair upon the people. Pandemicinduced recessions are different because the adverse shock to the workings of the economy is purely biological rather than economic or financial. But they are no less destructive in their tendency to deflate economies and put all economic activity in peril. A study of the past episodes offers us a window into the lessons learned that could be valuable in managing today’s as well as future challenges caused by adverse shocks to the system.
    Date: 2021
  58. By: Paul Ho
    Abstract: We survey approaches to macroeconomic forecasting during the COVID-19 pandemic. Due to the unprecedented nature of the episode, there was greater dependence on information outside the econometric model, captured through either adjustments to the model or additional data. The transparency and flexibility of assumptions were especially important for interpreting real-time forecasts and updating forecasts as new data were observed. With data available at the time of writing, we show how various assumptions were violated and how these systematically biased forecasts.
    Keywords: Macroeconomic Forecasting; COVID-1
    Date: 2021–06–16
  59. By: Sudiksha Joshi
    Abstract: Using a state-space system, I forecasted the US Treasury yields by employing frequentist and Bayesian methods after first decomposing the yields of varying maturities into its unobserved term structure factors. Then, I exploited the structure of the state-space model to forecast the Treasury yields and compared the forecast performance of each model using mean squared forecast error. Among the frequentist methods, I applied the two-step Diebold-Li, two-step principal components, and one-step Kalman filter approaches. Likewise, I imposed the five different priors in Bayesian VARs: Diffuse, Minnesota, natural conjugate, the independent normal inverse: Wishart, and the stochastic search variable selection priors. After forecasting the Treasury yields for 9 different forecast horizons, I found that the BVAR with Minnesota prior generally minimizes the loss function. I augmented the above BVARs by including macroeconomic variables and constructed impulse response functions with a recursive ordering identification scheme. Finally, I fitted a sign-restricted BVAR with dummy observations.
    Date: 2021–08
  60. By: Pallavi Choudhuri (National Council of Applied Economic Research)
    Abstract: Over the last two decades, less than half of the Indians who sought jobs actually got them, with many more millions set to enter the job market over the next two decades. Despite extensive unemployment and under-employment, however, there is a growing shortage of skilled workers. One of the ways to address this skills shortage is to train unemployed youth and those who have dropped out of the labour market by imparting them the skills they lack, focusing on higher levels of both cognitive and non-cognitive skills that can enhance the adaptability and employability of workers. Another route is to formally recognise workers with skills acquired through informal and non-formal learning, and enhance the skills of such workers by providing them potential pathways into the formal labour market. A third route is to incentivise on-the-job training, not only in large firms, but also in micro, small, and medium industries (MSMEs), and building greater awareness on the returns to skilling. While the focus of policy makers has been on the creation of jobs, which is a daunting challenge, there is also need for discussions on job creators or entrepreneurs, and on the key skills that can equip more labour market aspirants and the existing workers to become job providers /opportunity entrepreneurs. As production processes have increasingly become more automated, the challenge is to impart transferable skills to workers that can enable them to ride through the wave of automation, and any resulting structural shifts in the labour market. A growing and related challenge is also to address the issue of women’s participation in the workforce. This necessitates not only a rethinking of ways to create appropriate jobs for women, but also equipping more women with the requisite life skills, while also training women to be able to work in both the skill-intensive and capital-intensive sectors in addition to the labour intensive industries.
    Keywords: Occupation, skills mismatch, employability, employment
    JEL: E24 J08 J21 J24
    Date: 2021–05
  61. By: Pichler, Anton; Pangallo, Marco; del Rio-Chanona, R. Maria; Lafond, François; Farmer, J. Doyne
    Abstract: We analyse the economics and epidemiology of different scenarios for a phased restart of the UK economy. Our economic model is designed to address the unique features of the COVID-19 pandemic. Social distancing measures affect both supply and demand, and input-output constraints play a key role in restricting economic output. Standard models for production functions are not adequate to model the short-term effects of lockdown. A survey of industry analysts conducted by IHS Markit allows us to evaluate which inputs for each industry are absolutely necessary for production over a two month period. Our model also includes inventory dynamics and feedback between unemployment and consumption. We demonstrate that economic outcomes are very sensitive to the choice of production function, show how supply constraints cause strong network effects, and find some counter-intuitive effects, such as that reopening only a few industries can actually lower aggregate output. Occupation-specific data and contact surveys allow us to estimate how different industries affect the transmission rate of the disease. We investigate six different re-opening scenarios, presenting our best estimates for the increase in R0 and the increase in GDP. Our results suggest that there is a reasonable compromise that yields a relatively small increase in R0 and delivers a substantial boost in economic output. This corresponds to a situation in which all non-consumer facing industries reopen, schools are open only for workers who need childcare, and everyone who can work from home continues to work from home.
    Keywords: COVID-19, production networks, economic growth, epidemic spreading
    JEL: C61 C67 D57 E00 E23 I19 O49
    Date: 2020–05
  62. By: Arezki, Rabah (African Development Bank and Harvard’s Kennedy School of Government); Djankov, Simeon (London School of Economics and Peterson Institute for International Economics); Nguyen, Ha (World Bank); Yotzov, Ivan (University of Warwick & CAGE)
    Abstract: Using a new dataset of 198 national elections across 48 democracies, this paper is the first to systematically examine the effects of oil price shocks on incumbents’ political fortunes in developed oil-importing countries. We find that oil price increases systematically lower the odds of reelection for incumbents and increase the likelihood of changes in the ideology of the incoming government. These shocks are found to operate through lowering consumption growth.
    Keywords: Elections, Incumbent, Oil Prices, Economic Shocks JEL Classification: D72; E21; P16; Q43
    Date: 2021
  63. By: Alexander Karsay (National Bank of Slovakia)
    Abstract: The study presents main structural and cyclical drivers most likely driving unemployment rate developments in the period of the recent labour market expansion in Slovakia in 2014 – 2019. It presents estimates of the impact of individual drivers on structural unemployment rate using panel regression methods. The contributions of drivers to unemployment developments are presented for V4 countries. We also provide a hint as to likely future drivers of unemployment in the Slovak Republic in coming years. The 2014 – 2019 period in Slovakia was characterised by both a structural and cyclical decline in unemployment. The structural decline was driven by active labour market policies, demography, workforce mobility, to some extent higher quality of human capital and labour productivity. The current pandemic crisis causes an upward adjustment of unemployment unwinding previous imbalance. This is accompanied by efforts to increase efficiency of production processes due to general automation drive as well as potential lagged impacts of dynamic growth of labour costs. These factors could potentially offset other opposite structural forces, namely demography and potential output growth.
    Date: 2021–06
  64. By: Goyal, Ananya (National Institute of Public Finance and Policy); Pandey, Radhika (National Institute of Public Finance and Policy); Sane, Renuka (National Institute of Public Finance and Policy)
    Abstract: A study of inflation requires a fixed consumption basket. The last publicly available data on household consumption baskets is from Consumer Expenditure Survey (CES) 2011-12. A more recent source of data has been the CMIE Consumer Pyramid Household Survey (CPHS). In this paper we compare the weights of various commodities in the Consumer Price Index (CPI) series with the CES 2011-12 and the CPHS 2019. We first document the methodology of construction of the Consumer Price Index (CPI) including details on commodity classification, reference and recall periods. We find that while CPI is based on CES 2011-12, CPI weights closely match those of CES 2011-12 only once the sub-group `Housing' is excluded from the total consumption expenses. For comparison with CPHS, we first map the CPHS commodities to CPI to make them comparable. We find the differences in some categories such as food, household goods and services are less than 2 percentage points. Differences in the shares of commodities such as transport and communication, health, education and intoxicants are larger.
    Date: 2021–08
  65. By: Catelén, Ana Laura
    Abstract: This paper describes the balance-of-payments dominance as a growth constraint to the Argentinian economy and briefly characterizes the unbalanced productive structure of the country as its main cause. Also, understanding that under this constraint domestic economic cycles depend on external shocks, auto-regressive vectors are used to characterize the short-run impact of these shocks on GDP, trade balance, and real wages. Results confirm that there is a bottleneck in the trade balance that blocks future growth possibilities, that GDP and wages are highly sensitive to variations in the terms of trade, that the increase in external debt does not produce economic growth or improvements in the purchasing power of the population, and that there is a vicious dynamic between capital flight and foreign debt. At the same time, there is evidence of the increase in external vulnerability since the change in the accumulation model in the 1970s.
    Keywords: Crecimiento Económico; Balanza de Pagos; Vulnerabilidad Externa;
    Date: 2020
  66. By: Ashish Kumar Sedai (Department of Economics, Colorado State University); Tooraj Jamasb (Copenhagen Business School); Rabindra Nepal (University of Wollongong); Ray Miller (Department of Economics, Colorado State University)
    Keywords: Electricity access, Electricity reliability, Instrumental variables, Marginalized groups, Welfare
    JEL: D12 D31 E12 I32
    Date: 2021–01
  67. By: Nadeem Ul Haque (Pakistan Institute of Development Economics, Islamabad); Raja Rafi Ullah (Pakistan Institute of Development Economics, Islamabad)
    Abstract: Government’s footprint on the economy in Pakistan is more than what annual general government spending (22 percent of GDP) suggests. In addition to spending; about 200 State Owned Entities, SROs culture and cumbersome business regulations combine towards a footprint of the government amounting to approximately 67 percent on Pakistan’s Economy
    Date: 2020
  68. By: Bronka, Patryk; Collado, Diego; Richiardi, Matteo
    Abstract: We nowcast the economic effects of the Covid-19 pandemic and related lock-down measures in the UK and then analyse the distributional and budgetary effects of the estimated individual income shocks, distinguishing between the effects of automatic stabilisers and those of the emergency policy responses. Under conservative assumptions about the exit strategy and recovery phase, we predict that the rescue package will increase the cost of the crisis for the public budget by an additional £26 billion, totalling over £60 billion. However, it will allow to contain the reduction in the average household disposable income to 1 percentage point, and will reduce poverty rate by 1.1 percentage points (at a constant poverty line), with respect to the pre-Covid situation. We also show that this progressive effect is due to the increased generosity of Universal Credit, which accounts for only 20% of the cost of the rescue package.
    Date: 2020–06
  69. By: Michael T. Kiley
    Abstract: How will climate change affect risks to economic activity? Research on climate impacts has tended to focus on effects on the average level of economic growth. I examine whether climate change may make severe contractions in economic activity more likely using quantile regressions linking growth to temperature. The effects of temperature on downside risks to economic growth are large and robust across specifications. These results suggest the growth at risk from climate change is large—climate change may make economic contractions more likely and severe and thereby significantly impact economic and financial stability and welfare.
    Keywords: Climate change; Risk management; GDP at Risk
    JEL: E23 O13 Q54 Q56
    Date: 2021–08–09
  70. By: Nathaniel Debono
    Abstract: Assessments of governance quality are often inspired by indices – such as those constructed in the World Bank’s Worldwide Governance Indicators project – and other assessments made by the credit rating agencies such as Moody’s. In light of the difficulties encountered in properly measuring governance standards, these scores are designed to track and provide information about various aspects of governance. However, despite their usefulness, such assessments are often difficult to make in an accurate and objective manner, as the construction of these indices often relies on subjective views by some, sometimes lacking transparency and proper documentation. The Maltese framework has in recent years attracted considerable attention, resulting in recommendations from the European Commission and Council of Europe. In this light, this note attempts to shed light on Malta’s governance framework primarily using the underlying indicators included in the World Bank’s Worldwide Governance Indicators project and a set of environmental, social and governance scores published by Moody’s. Looking at what has driven recent changes in the Worldwide Governance Indicators, it appears that for the most part, the decline derives from changes in assessments made by a small number of international commercial and non-governmental organisations, while the results of surveys carried out among local households do not tend to show similar trends. The assessments made by Moody’s indicate that although Malta remains somewhat exposed to some environmental and social risks, the country’s credit quality is positively impacted by its strong governance framework, largely due to positive perceptions of Malta’s budget management, transparency and disclosure, and policy credibility and effectiveness.
    JEL: D02 E02 H11
  71. By: International Monetary Fund
    Abstract: The IMF’s Vulnerability Exercise (VE) is a cross-country exercise that identifies country-specific near-term macroeconomic risks. As a key element of the Fund’s broader risk architecture, the VE is a bottom-up, multi-sectoral approach to risk assessments for all IMF member countries. The VE modeling toolkit is regularly updated in response to global economic developments and the latest modeling innovations. The new generation of VE models presented here leverages machine-learning algorithms. The models can better capture interactions between different parts of the economy and non-linear relationships that are not well measured in ”normal times.” The performance of machine-learning-based models is evaluated against more conventional models in a horse-race format. The paper also presents direct, transparent methods for communicating model results.
    Keywords: Risk Assessment, Supervised Machine Learning, Prediction, Sudden Stop, Exchange Market Pressure, Fiscal Crisis, Debt, Financial Crisis, Economic Crisis, Economic Growth
    Date: 2021–05–07
  72. By: Vines, David
    Abstract: A new health-sector institution is necessary at the national level. The UK needs a Health Resilience Commission whose purpose would be to monitor the UK health system and provide policy advice about its ongoing reform. This would be a statutory body holding public enquiries, making use of research skills and quantitative modelling abilities, and delivering reports to Parliament. The Australian Productivity Commission provides an indication of how to build such a body and how it might operate. New health-sector institutions are necessary at the global level. The world needs a reformed WHO, a body with delivery capabilities including crisis management skills, money to spend where necessary, and the ability to train and support national officials. It also needs a Global Health Board which can monitor the global health system and make recommendations about its ongoing reform. This body would have a similar role, at the global level, to the role of the Health Resilience Commission within the UK. The IMF provides a guide as to how a reformed WHO might operate and how it might be governed. The OECD provides a model for a Global Health Board, as does the Financial Stability Board, a body set up to help reform the global financial system after the Global Financial Crisis. All heath systems – both national and global – require greater cooperation between three "poles of delivery": namely markets, government, and civil society. The private sector is flexible, and is where innovation in production happens. Government can respond to crises, spend big money, manage society-wide systems, and enforce system change. Mechanisms involving civil society will come to the fore when markets and government alone cannot solve pressing problems. Civil Society can activate generosity and mobilise group support, and some things are best achieved with the kind of knowledge, skills and capabilities possessed by people who do not work for either the corporate sector or the government sector. Cooperation between these three poles of delivery is essential for health-system reform. Greater international cooperation on health policy is necessary between nation states, and between health-policy makers and the national treasuries and central banks who deliver economic policy.
    Date: 2021–05
  73. By: Peter van de Ven (OECD)
    Abstract: The 2008 System of National Accounts (SNA) provides the international standards for compiling macro-economic statistics. In addition to the core set of accounts, the 2008 SNA also introduces satellite accounts, which are linked to, but distinct from, the central framework of national accounts. One type of satellite accounts involves some rearrangement of central classifications and the possible introduction of complementary elements, to give a more detailed description and monitoring of a certain theme, such as tourism, education, health, the digital economy and transport. They may involve some differences from the standards applied in the central framework, but they generally do not change the underlying concepts of the SNA in a fundamental way. The second type of satellite analysis is mainly based on concepts that are alternatives to those of the SNA. They may include a different production boundary, an enlarged concept of consumption or capital formation, an extension of the scope of assets, and so on. There is a growing demand for satellite accounts, especially for the first type of thematic satellite accounts. This paper aims to clarify the key steps for the compilation of such thematic satellite accounts, using the example of a satellite account for transport.
    JEL: E01 L91
    Date: 2021–08–24

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