nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒09‒06
89 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy and COVID-19 By Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  2. Interest Rate Rules, Rigidities and Inflation Risks in a Macro-Finance Model By Roman Horvath; Lorant Kaszab; Ales Marsal
  3. Welfare Implications of Asset Pricing Facts: Should Central Banks Fill Gaps or Remove Volatility? By Pierlauro Lopez
  4. Interest Rate Cuts vs. Stimulus Payments: An Equivalence Result By Christian K. Wolf
  5. Is the Phillips Curve Still a Curve? Evidence from the Regions By James Bishop; Emma Greenland
  6. Banks’ internalization effect and equilibrium By Chrysanthopoulou, Xakousti
  7. Sovereign Default Risk, Macroeconomic Fluctuations and Monetary-Fiscal Stabilization By Markus Kirchner; Malte Rieth
  8. Idiosyncratic income risk and aggregate fluctuations By Davide Debortoli; Jordi Galí
  9. U.S. Government debts, a dangerous cocktail of borrowing, spending and inflation levels By De Koning, Kees
  10. The Power of Central Bank Balance Sheets By Athanasios Orphanides
  11. Intergenerational redistributive effects of monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  12. Zooming in on Monetary Policy - The Labor Share and Production Dynamics of Two Million Firms By Jan Philipp Fritsche; Lea Steininger
  13. A Model-Based Comparison of Macroprudential Tools By Eyno Rots; Barnabas Szekely
  14. The Nexus between lockdown Shocks and Economic Uncertainty: Empirical Evidence from a VAR model By Lucas Hafemann
  15. Income Business Cycles By Geraldine Dany-Knedlik; Alexander Kriwoluzky; Sandra Pasch
  16. Expectational and Portfolio-Demand Shifts in a Keynesian Model of Monetary Growth Fluctuations By Greg Philip Hannsgen; Tai Young-Taft
  17. A Monetary-Fiscal Theory of Sudden Inflations and Currency Crises By David S. Miller
  18. The Dynamic Effects of Environmental and Fiscal Policy Shocks By Richard Jaimes
  19. Monetary Policy over the Lifecycle By R. Anton Braun; Daisuke Ikeda
  20. Monetary policy financial transmission and treasury liquidity premia By Maxime Phillot; Samuel Reynard
  21. UNCERTAINTY AND MONETARY POLICY DURING THE GREAT RECESSION By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  22. Niedrigzinspolitik und Sparkultur in Japan: Implikationen für die Wirtschaftspolitik By Schnabl, Gunther; Sepp, Tim
  23. Lending Standards and the Business Cycle: Evidence from Loan Survey Releases By Lucas Hafemann; Peter Tillmann
  24. An age-structured model for the effect of interest rate changes on consumption By Kozlov, Roman
  25. Romania: 2021 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  27. Quantifying Spillovers of Next Generation EU Investment By Philipp Pfeiffer; Janos Varga; Jan in 't Veld
  28. Fiscal policy in a monetary union with downward nominal wage rigidity By Matthias Burgert; Philipp Pfeiffer; Werner Roeger
  29. Jordan: Second Review Under the Extended Arrangement Under the Extended Fund Facility, Request for Augmentation of Access, and Modification of Performance Criteria-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Jordan By International Monetary Fund
  30. Sierra Leone: Third and Fourth Reviews Under the Extended Credit Facility Arrangement, Requests for Extension and Rephasing of the Arrangement, Waivers of Nonobservance of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Sierra Leone By International Monetary Fund
  31. Gabon: Request for a Three-Year Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; Supplementary Information, and Statement by the Executive Director for Gabon By International Monetary Fund
  32. Republic of Lithuania: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Lithuania By International Monetary Fund
  33. "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment" By Sam Levey
  34. Impact of e-money on money supply: Estimation and policy implication for Bangladesh By Nizam, Ahmed Mehedi
  35. Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  36. Estimating Fed’s unconventional policy shocks By Jarociński, Marek
  37. Bayesian learning By Isaac Baley; Laura Veldkamp
  38. COVID-19 and (gender) inequality in income: the impact of discretionary policy measures in Austria By Christl, Michael; De Poli, Silvia; Kucsera, Dénes; Lorenz, Hanno
  39. Republic of Latvia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Latvia By International Monetary Fund
  40. Risk and the Misallocation of Human Capital By German Cubas; Pedro Silos; Vesa Soini
  41. Inflation risk? By De Grauwe, Paul
  42. The Financial Channel of Wage Rigidity By Benjamin Schoefer
  43. Returns to labor mobility. Layoff costs and quit turbulence By Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
  44. The Impact of Government Borrowing on Corporate Acquisitions: International Evidence By Azizjon Alimov
  46. Job Displacement and Job Mobility: The Role of Joblessness By Bruce Fallick; John C. Haltiwanger; Erika McEntarfer; Matthew Staiger
  47. A study on the exchange rate pass-through to consumer prices in Malta By Glenn Abela; Noel Rapa
  48. Seychelles: Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Seychelles By International Monetary Fund
  49. Understanding Secular Stagnation By Jean-Baptiste Michau
  50. Luxuries, Necessities, and the Allocation of Time By Lei Fang; Anne Hannusch; Pedro Silos
  51. Household Inventory, Temporary Sales, and Price Indices By Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  52. Rule of Law and Control of Corruption in Managing CO2 Emissions Issue in Pakistan By Mahmood, Haider; Tanveer, Muhamamd; Ahmad, Abdul-Rahim; Furqan, Maham
  53. Public Finance for Children: The case of Indian State of Karnataka By Jacob, Jannet Farida; Chakraborty, Lekha S
  54. Kingdom of the Netherlands—Curaçao and Sint Maarten: 2021 Article IV Consultation Discussions; Press Release and Staff Report By International Monetary Fund
  55. Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore) By Suah, Jing Lian
  56. Accounting for Japan's Lost Score By Betts, Caroline
  57. Reading Keynes’s policy papers through the prism of his Treatise on Probability: information, expectations and revision of probabilities in economic policy By Rivot, Sylvie
  58. Price Change Synchronization within and between Firms By Nilsen, Øivind A.; Skuterud, Håvard; Munthe-Kaas Webster, Ingeborg
  59. Veiled Expectations: The Heterogeneous Impact of Exchange Rate Shocks at the Sectoral-Level By Suah, Jing Lian
  60. Modelling Disaggregated Government Expenditure and Manufacturing Sector Performance Nexus and their Influence on Economic Performance By Idowu, Ayodele; Collins, Tomisin
  61. Financiamiento mediante emisión monetaria en América Latina, 1960-2016 By Pineda Salazar, Ramón; Acevedo, N. Alejandra
  62. COVID-19 Context and the Fifteenth Finance Commission: Balancing Fiscal Need and Macroeconomic Stability. By Chakraborty, Pinaki
  63. Global Capital, the Exchange Rate, and Policy (In)Effectiveness By Biagio Bossone
  64. Trend Capital when Goods and Capital Market Frictions Exist By Valerie Vandermeulen; Werner Roeger
  65. The corporate saving glut and the current account in Germany By Klug, Thorsten; Mayer, Eric; Schuler, Tobias
  66. Growth-at-risk and macroprudential policy design JEL Classification: G01, G20, G28 By Suarez, Javier
  67. Construction of an Aggregated Economy - Aggregated TFP and Price Level - By Junko Doi; Takao Fujii; Shinya Horie; Jun Iritani; Sumie Sato; Masaya Yasuoka
  68. The existential trilemma of EMU in a model of fiscal target zone By Pompeo Della Posta,; Roberto Tamborini
  69. Adverse Working Conditions and Immigrants' Physical Health and Depression Outcomes. A Longitudinal Study in Greece By Drydakis, Nick
  70. The Elusive Explanation for the Declining Labor Share By Gene M. Grossman; Ezra Oberfield
  71. Adverse Selection, Heterogeneous Beliefs, and Evolutionary Learning By Alberto Palermo; Clemens Buchen
  72. Wage inequality under inflationtargeting in South Africa By Serena Merrino
  73. What makes a successful scientist in a central bank? Evidence from the RePEc database By Jakub Rybacki; Dobromił Serwa
  74. A Solution to the estimation of an Enlarged GDP Including Domestic Production: An Estimation on Micro Data By François Gardes
  75. Commodity price uncertainty comovement: Does it matter for global economic growth? By Ferrara, Laurent; Karadimitropoulou, Aikaterini; Triantafyllou, Athanasios
  76. Does Public Debt Ownership Structure Matter for a Borrowing Country? By Carlos Alberto Piscarreta Pinto Ferreira
  77. An Austrian Trade Cycle model with an Endogenous Value of Time By François Gardes
  78. An Austrian Trade Cycle model with an Endogenous Value of Time By François Gardes
  79. جودة مؤشرات الحوكمة وأثرها في التقليل من تقلبات صافي الاستثمار الأجنبي المباشر في دول MENA للفترة 1996-2017 : مقاربة نموذج بانل الديناميكي By Khouiled, Brahim; Saheb, Oualid
  80. Government Debt Maturity in Japan: 1965 to the Present By Junko Koeda; Yosuke Kimura
  81. A Solution to the Estimation of an Enlarged GDP Including Domestic Production: An Estimation on Micro Data By François Gardes
  82. Macroeconomic Impact of COVID-19 in Developing Asia By Sawada, Yasuyuki; Sumulong, Lea R.
  83. A Solution to the Estimation of an Enlarged GDP Including Domestic Production: An Estimation on Micro Data By François Gardes
  84. High-Frequency Contagion between Aggregate and Regional Housing Markets of the United States with Financial Assets: Evidence from Multichannel Tests By Goodness C. Aye; Christina Christou; Rangan Gupta; Christis Hassapis
  85. Romania: Selected Issues By International Monetary Fund
  86. Is tax competition necessarily a Race to the bottom? Optimal tax rate trajectories in the model of tax competition for different objective functions By Sokolovskyi, Dmytro
  87. The Baran Ratio, Investment, and British Economic Growth and Investment By Lambert, Thomas
  88. The impact of digitalisation on productivity: Firm-level evidence from the Netherlands By Martin Borowiecki; Jon Pareliussen; Daniela Glocker; Eun Jung Kim; Michael Polder; Iryna Rud
  89. Adam Smith and The Roots of Populism By Roberto Censolo; Massimo Morelli

  1. By: Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
    Abstract: We study the macroeconomic effects of the COVID-19 epidemic in a quantitative dynamic general equilibrium setup with nominal rigidities. We evaluate various containment policies and show that they allow to dramatically reduce the welfare cost of the disease. Then we investigate the role that monetary policy, in its capacity to manage aggregate demand, should play during the epidemic. We show that treating the observed output contraction as a standard recession leads to a bad policy, irrespective of the underlying containment measures. Then we check how monetary policy should solve the trade-off between stabilizing the economy and containing the epidemic. If no administrative restrictions are in place, the second motive prevails and, in spite of the deep recession, optimal monetary policy is in fact contractionary. Only if sufficient containment measures are being introduced should central bank interventions be expansionary and help stabilize economic activity.
    Keywords: COVID-19; Epidemics; Containment measures; Monetary policy
    JEL: E1 E5 E6 H5 I1 I3
    Date: 2021–07
  2. By: Roman Horvath (Charles University, Prague); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (National Bank of Slovakia)
    Abstract: Long-term bond yields contain a risk-premium, an important part of which is compensation for inflation risks. The substantial increase in the Fed funds rate in the mid-2000s did not raise long-term US Treasury yields due to the reduction in the term premium (so-called Greenspan conundrum) which was typically thought to be exogenous for monetary policy. We show using a New Keynesian macro-finance model that the term premium is endogenous and is greatly influenced by the specification of the Taylor rule. Finally, we extend the model with frictions (richer fiscal setup and wage rigidity) that are known to help jointly match macro and finance data and estimate the model on US data in 1961-2007 by the generalized methods of moments and simulated methods of moments.
    Keywords: zero-coupon bond, nominal term premium, inflation risk, Taylor rule, New Keynesian, labor income taxation, wage rigidity, GMM, SMM
    JEL: E13 E31 E43 E44
    Date: 2021
  3. By: Pierlauro Lopez
    Abstract: More than 20 years of financial market data suggest a term structure of the welfare cost of economic uncertainty that is downward-sloping on average, especially during downturns. This evidence offers guidance in selecting a model to study the benefits of macroeconomic stabilization from a structural perspective. The addition of nonlinear external habit formation to a textbook monetary model can rationalize the evidence. The model is observationally equivalent in its quantity implications to a standard New Keynesian model with CRRA utility, but the optimal policy prescription is overturned. In the model the central bank should prioritize removing consumption volatility (a targeting of risk premia) over filling the gap between consumption and its flexible-price counterpart (inflation targeting).
    Keywords: Welfare cost of business cycles; Macroeconomic priorities; Equity and bond yields; Optimal monetary policy; Financial Stability
    JEL: E32 E44 E61 G12
    Date: 2021–08–30
  4. By: Christian K. Wolf
    Abstract: In a textbook New Keynesian model extended to allow for uninsurable household income risk, any path of inflation and output implementable via interest rate policy is similarly implementable through uniform lump-sum transfers ("stimulus checks"). A dual-mandate policymaker can thus use checks to perfectly substitute for conventional monetary policy when rates are constrained by a lower bound. In a quantitative heterogeneous-agent (HANK) model, the stimulus check policy that implements a given monetary allocation is well-characterized by a small number of measurable sufficient statistics. In the household cross-section, the transfer policy is associated with lower consumption inequality than the equivalent rate cut.
    JEL: E2 E3 E6
    Date: 2021–08
  5. By: James Bishop (Reserve Bank of Australia); Emma Greenland (Reserve Bank of Australia)
    Abstract: The way in which wages respond to very low rates of unemployment remains a key source of uncertainty in Australia, partly due to the lack of historical evidence to draw upon. To help fill this gap, we study data on unemployment rates and wages growth across local labour markets over the past 20 years. The considerable variation in economic conditions across local labour markets allows us to infer the strength of the relationship between unemployment and wages growth (i.e. the wage Phillips curve) at very low unemployment rates that are rarely seen at the national level. We find strong evidence that the wage Phillips curve is indeed a curve, rather than a straight line. When the unemployment rate exceeds 7½ per cent, the Phillips curve is flat and wages growth is unresponsive to changes in unemployment. Wages growth then becomes increasingly responsive to changes in the unemployment rate as the unemployment rate falls to lower and lower levels, most notably below 4 per cent. These findings have implications for monetary policy, particularly at the current juncture given the Reserve Bank of Australia's central forecast for the unemployment rate to fall to multi-decade lows in the next few years.
    Keywords: Phillips curve; unemployment; inflation; wages growth
    JEL: E24 E31 E52
    Date: 2021–08
  6. By: Chrysanthopoulou, Xakousti
    Abstract: This paper extends the standard New Keynesian model to allow for the presence of large banks, when the cost channel of monetary policy matters. It is shown that once the presence of large banks is taken into account the severity of the firms’ credit constraints, the aggressiveness of the central bank in stabilizing inflation and the degree of loan setting centralization jointly affect the steady state output. Moreover, it turns out that the indeterminacy region is not only shrunk due to the presence of a finite number of large banks but also dependent – among others - on the way in which the central bank and the macroprudential authority systematically behave.
    Keywords: Large banks; Cost channel; Indeterminacy; Countercyclical capital buffer
    JEL: E32 E44 E52
    Date: 2021–08–20
  7. By: Markus Kirchner; Malte Rieth
    Abstract: This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilization policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplification between default beliefs, exchange rate and inflation movements. We then use the estimated model to study the implications of sovereign risk for stability, fiscal and monetary policy, and their interaction. We find that a relatively strong fiscal feedback from deficits to taxes, some exchange rate targeting, or a monetary response to default premia are more effective and efficient stabilization tools than hawkish inflation targeting.
    Keywords: Small open economies, sovereign risk, monetary policy, exchange rates, business cycles, DSGE models
    JEL: E58 E63 F41
    Date: 2021
  8. By: Davide Debortoli; Jordi Galí
    Abstract: We study the role of idiosyncratic income shocks for aggregate fluctuations within a simple heterogeneous household framework with no binding borrowing constraints. We derive analytically an Euler equation for (log) aggregate consumption, and show that the impact of idiosyncratic risk on aggregate consumption works through two channels: (i) changes in average consumption uncertainty and (ii) changes in the cross-sectional dispersion of consumption. We show that these two channels are related and tend to offset each other. Their net effect is captured by a sufficient statistic, the consumption-weighted average of changes in uncertainty. We apply this framework to two example economies -an endowment economy and a New Keynesian economy- and show that the net effect of heterogeneity is quantitatively small. By contrast, that effect becomes more significant when considering that borrowing constraints are binding for a sizable fraction of the population.
    Keywords: heterogeneous agents, economic fluctuations, aggregate shocks, idiosyncratic shocks, monetary policy, HANK models.
    JEL: E21 E32 E50
    Date: 2021–07
  9. By: De Koning, Kees
    Abstract: In the U.S. and in other OECD countries, government debt levels as compared to GDP have soared since 2007. According to statistics from the Federal Reserve, the U.S. government debt level reached 62.86% of GDP by Q4 2007 and the debt level has increased to 127.52% by Q1 2021. Q4 2007 was, of course, just before the Great Recession occurred and Q1 2021 was well after the start of the Corona virus crisis. There are three questions to be answered: the first one is who bears the costs of servicing the U.S. government debt levels; the second one is about the applicable interest rates and the third one is about Quantitative Easing (QE), which did not exist in the U.S. until November 2008. Whatever politicians of all convictions claim and however they use budgetary smoke screens to make their tax take look acceptable, it is the household sector that are the ultimate pay masters in whatever country. Households pay in two ways; firstly by suffering from unemployment levels over time and secondly by being the direct and indirect payees of all taxes. A complicating factor is the level of applicable interest rates, which in the EU has gone down to the extreme level of applying negative interest rates over savings. Simple accounting rules make a distinction between assets –the monetary value of what one owns- and liabilities -the amounts one owes to others-. Each household in the U.S. may have some assets like home equity or pension savings, but may also have debts for car loans or student debts for instance. Furthermore households hand over a substantial amount of their income to companies for their products and services on top of paying taxes directly to the U.S. government. The concept that a government owns assets is based on a misunderstanding. The assets are based on savings, ultimately provided by individual households, some of who may live overseas. The aim of this paper is to illustrate that the actions of the U.S. government, including QE, do not only support economic growth levels at times, but can also create barriers to such growth. How these barriers can be turned into opportunities is the main subject of this paper.
    Keywords: U.S. Government debts; U.S. Home equity levels; U.S.Pension savings; Quantitative Easing (QE); Quantitative Easing Home Equity (QEHE); U.S. Households income and expenditure levels;
    JEL: E21 E24 E4 E44 E58 E61 E65
    Date: 2021–08–08
  10. By: Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail:
    Abstract: When interest rate policy is hampered by the Zero Lower Bound (ZLB), quantitative easing and other balance sheet policies become essential tools for responding to a crisis or deflationary shock. By unleashing the power of their balance sheets at the onset of the pandemic, without the hesitation observed in past encounters with the ZLB, the Federal Reserve, the European Central Bank and the Bank of Japan provided monetary easing that cushioned the economic blow, served as a backstop to government securities and private assets that prevented a financial market meltdown and facilitated the financing of an essential fiscal expansion. This paper examines how this policy success materialized, drawing on lessons learned from previous encounters with the ZLB, and discusses policy challenges after the pandemic.
    Keywords: Zero lower bound, Balance sheet policies, Quantitative easing, Eligibility, Fiscal-monetary interactions
    JEL: E52 E58 E61
    Date: 2021–08
  11. By: Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
    Abstract: This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profi les of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations.
    Keywords: monetary policy, life-cycle models, wealth redistribution
    JEL: E31 E52 J11
    Date: 2021–03
  12. By: Jan Philipp Fritsche; Lea Steininger
    Abstract: Conditional on a contractionary monetary policy shock, the labor share of value added is expected to decrease in the basic New Keynesian model. By providing firm-level evidence, we are first to validate this proposition. Using local projections and high dimensional fixed effects, we show that a one standard deviation contractionary monetary policy shock decreases firms' labor share by 0.4 percent, on average. However, reactions are heterogeneous along two dimensions: The labor share is most informative to discriminate firms by their response in payroll expenses, firms' leverage is most informative to discriminate by their response in value added. We inform the policy debate on transmission and redistribution effects of monetary policy.
    Keywords: Monetary policy, firm heterogeneity, labor share, financial frictions, DSGE model validatio
    JEL: D22 D31 E23 E32 C52
    Date: 2021
  13. By: Eyno Rots (Magyar Nemzeti Bank (Central Bank of Hungary)); Barnabas Szekely (Goethe University)
    Abstract: We develop a DSGE model to analyze a macroprudential policy framework. We use it to describe the Hungarian economy and the key regulatory constraints implemented there: the loan-to-value and the debt-service-to-income caps imposed on mortgage borrowers and the minimum capital requirement imposed on banks. Our model is novel in the way it treats the borrowing caps as soft constraints, which makes it easy to analyze multiple non-redundant borrowing constraints. We also show an estimation strategy that involves a variation of impulse-response matching and accounts for the lack of historical data concerning the conduct of macroprudential policy, a common problem.
    Keywords: DSGE, macroprudential, DSTI, LTV, capital requirement, Covid†19.
    JEL: E37 E44
    Date: 2021
  14. By: Lucas Hafemann (Justus-Liebig-University Giessen)
    Abstract: The contribution of this paper is twofold. First, we introduce a daily vector autoregression (VAR) model for the US economy that allows discerning between lockdown shocks and a real business cycle shocks. With this methodology at hand, we then evaluate the impact of lockdown measures on economic uncertainty in a second step. Overall, we only find a moderate positive impact on uncertainty levels that is, in particular, weaker than the impact of the real business cycle shock. Taking a more granular perspective, we observe that in particular uncertainty related to entitlement programs increases and monetary policy uncertainty decreases after a lockdown shock.
    Keywords: COVID-19, lockdown, shock identification, market uncertainty
    JEL: E60 E62 E65 G01
    Date: 2021
  15. By: Geraldine Dany-Knedlik; Alexander Kriwoluzky; Sandra Pasch
    Abstract: Using a wide variety of business cycle dating and filtering techniques, this paper documents the cyclical behavior of the post-tax income distribution in the US. First, all incomes are cyclical and co-move with the business cycle. Second, lower and higher income individuals experience significantly larger fluctuations across the business cycle than middle-income individuals. Third, these fluctuations have become smaller over the course of the Great Moderation for the bottom and the very top income individuals. With the financial crisis starting in 2009 and its repercussions, the volatilities are again increasing; however, not significantly. These findings are independent from the method to extract the business cycle component.
    Keywords: Cyclicity of the income distribution, business cycle
    JEL: E01 E32 D31
    Date: 2021
  16. By: Greg Philip Hannsgen; Tai Young-Taft
    Abstract: We develop a pair of models to show how non-ad-hoc shifts to expectational variables can be used to model tendencies toward crisis. In the Shackle model, as developed in the book Keynesian Kaleidics (1974), uncertainty can lead to a collapse in the marginal efficiency of investment and a jump in liquidity preference. In the Minsky version of the model, excessive private debt can lead to a financial collapse–again an endogenous breakdown in forces supporting growth. We extend the models to indicate how the dynamics of inflation and distribution affect the dynamics.
    Keywords: Post Keynesian macro model, Poisson model of financial fragility, Keynesian dynamics, Hyman Minsky, G.L.S. Shackle, Keynesian Kaleidics, endogenous MEI and liquidity preference, financial fragility hypothesis
    JEL: E12 E32
    Date: 2021–08
  17. By: David S. Miller
    Abstract: Treating nominal government bonds like other bonds leads to a new theory of sudden inflations and currency crises. Holmstrom (2015) and Gorton (2017) describe bonds as having costly-to-investigate opaque backing that consumers believe is sufficient for repayment. Government bonds' nominal return is their face value, their real return is determined by the government's surplus. In normal times, consumers are confident of repayment but ignorant of the true surpluses that will fund that repayment. When consumers' belief in real repayment wavers, they investigate surpluses. If consumers learn surpluses will be insufficient to repay bonds in real terms, the price level jumps. This explains why we observe inflationary crises, but never deflationary.
    Keywords: Currency Crises; Price Level Determination; Monetary Fiscal Interaction; Fiscal Theory of the Price Level
    JEL: E31 E51 E52 E63
    Date: 2021–08–24
  18. By: Richard Jaimes
    Abstract: This paper studies the effects of aggregate shocks to government spending and to the available abatement technology in an economy with a polluting intermediate goods sector and nominal rigidities. The model implies that an abatement cost shock leads to a decline in both output and consumption regardless the type of climate regulation in place. Nonetheless, it turns out that these negative responses are attenuated when environmental policy revenues are used to diminish either consumption or labor income taxes instead of rebating them via lump-sum transfers. On the other hand, the positive effects of a government spending shock on output are maximized when both prices and wages are rigid, there is a carbon tax scheme instead of a cap-and-trade system, and the expansion in public expenditures is financed through lump-sum taxation.
    Keywords: New Keynesian model, environmental policy, macroeconomic dynamics, and fiscal policy
    JEL: E32 E50 Q58
    Date: 2021–08–25
  19. By: R. Anton Braun (Federal Reserve Bank of Atlanta (E-mail:; Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income and consumption depend on its age.
    Keywords: Monetary policy, Lifecycle, Portfolio choice, Nominal government debt
    JEL: E52 E62 G51 D15
    Date: 2021–08
  20. By: Maxime Phillot; Samuel Reynard
    Abstract: We quantify the effects of monetary policy shocks on the yield curve through their impact on Treasury liquidity premia. When the Fed raises interest rates, the spread between less-liquid assets and Treasuries of the same maturity and risk increases, as the liquidity value of holding Treasuries increases when the aggregate volume of banks’ customer deposits decreases. The longer the maturity is, the smaller - but still significant - the increase in the liquidity premium is, as longer-term Treasuries are less liquid. Due to this change in liquidity premia, the spread between a 10-year Treasury bond and a 3-month T-bill yield increases by approximately 5 basis points for a one-percentage-point increase in the policy rate, i.e., the Treasury yield curve steepens, ceteris paribus.
    Keywords: Treasury liquidity premia, monetary policy, yield curve, deposit channel
    JEL: E52 E43 E41
    Date: 2021
  21. By: Giovanni Pellegrino (Aarhus University); Efrem Castelnuovo (University of Padova); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: We employ a nonlinear VAR framework and a state-of-the-art identification strategy to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We then use the estimated framework to quantify the output loss due to the large uncertainty shock that materialized in 2008Q3. We find such a shock to be able to explain about 60% of the output loss in the 2008-2014 period. The same estimated model unveils the role successfully played by the Federal Reserve in limiting the output loss that would otherwise have occurred had monetary policy been conducted as in normal times. Finally, we show that the rule estimated during the great recession is able to deliver an economic outcome closer to the flexible price one than the rule describing the Federal Reserve's conduct in normal times.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession
    JEL: C22 E32 E52
    Date: 2021–03
  22. By: Schnabl, Gunther; Sepp, Tim
    Abstract: Das Papier untersucht die Veränderung der Sparkultur in Japan während mehr als 30 Jahren Niedrig-, Null- und Negativzinspolitik basierend auf einer Analyse der Allokationsfunktion von Zinsen und der Transformationsfunktion der Banken bei der Kreditvergabe. Es wird gezeigt, wie durch die anhaltend lockere Geldpolitik der Bank von Japan die Sparkultur in Japan grundlegend von einer hohen Haushaltssparquote zu einer sehr niedrigen Haushaltssparquote verändert wurde. Es werden aufbauend auf der theoretischen Literatur zu Sparmotiven Kanäle identifiziert, die das Haushalts- und Unternehmenssparen maßgeblich verändert und damit die Wachstumskräfte des Landes anhaltend geschwächt haben.
    Keywords: Japan,Sparen,Sparkultur,Geldpolitik,Haushaltssparen,Unternehmenssparen,Abenomics,Nullzinspolitik
    JEL: E21 E43 E52
    Date: 2021
  23. By: Lucas Hafemann (Justus-Liebig-University Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: The Fed's Senior Loan Officer Opinion Survey (SLOOS) is widely considered a good indicator of banks' lending conditions. We use the change in corporate bond spreads on SLOOS release days to instrument changes in lending standards. A series of estimated IV local projections shows that lending standards have highly significant effects on macroeconomic and financial variables. A relaxation of standards expands economic activity and eases financial conditions. We then use the change in spreads and the change in the VIX index on release days to identify a pure credit supply shock and a risk-taking shock using sign restrictions in a Bayesian VAR model. We find that an easing in lending has different consequences for both types of shocks. While the VIX, the excess bond premium and stock prices decrease after a pure credit supply shock, they increase after a risk-taking shock.
    Keywords: loan survey, credit supply, risk-taking, instrumental variable local projections, shock identification
    JEL: E32 E44 G14
    Date: 2021
  24. By: Kozlov, Roman (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: A model for the effect of an interest rate change on household consumption is developed. The approach is age-structured: households reconsider their consumption patterns at the moment of the interest rate change and the changes of the consumption patterns are age dependent. These changes for different age groups contribute to the modification of aggregate consumption. Numerical simulation shows that a decrease of the interest rate leads to a consumption boost (a substantial increase of consumption in the short run), which diminishes as time passes and consumption gets fully adjusted to the new interest rate value. The consumption boost is achieved by an increase of the debt load.
    Keywords: Interest rate change; consumption; aggregate consumption; debt load
    JEL: E20 E21 E43 G51
    Date: 2021–08–30
  25. By: International Monetary Fund
    Abstract: Among EU countries, Romania suffered a relatively shallow recession in the COVID-19 crisis, aided by macroeconomic easing. A strong recovery is projected in 2021. The new government is committed to balance continued pandemic-related support with the start of a medium-term fiscal consolidation trajectory that corrects pre-pandemic excesses, while implementing a range of structural reforms. These efforts, as well as the medium-term recovery, should be bolstered by large Next Generation EU grants.
    Keywords: expert fund assistance; General government balance sheet; government effectiveness; monetary policy response; headline inflation; COVID-19; Fiscal stance; Fiscal consolidation; Global
    Date: 2021–08–27
  26. By: LOMEMBE, Jacques; NGEWAMPADIO, Remy
    Abstract: Since the beginning of 2020, the global economy and, in particular, the DRC’s, have been shaken by the effects of Covid-19 pandemic. However, this pandemic has affected countries asymmetrically. In advanced economies, the slowdown of GDP is accompanied by a decline in main raw materials prices and low inflation. But, in developping countries, such as the DRC’s, an increase of inflation has been associated to the slowdown. This paper analyses the transmission mechanism of the Covid-19 crisis on the inflation in DRC and suggest some ways of mitigation covid-19 economic impacts. An analysis of availlable data’s in DRC’s economy did not identify clearly the link between Covid-19 crisis an money supply from fiscal deficit which is usually the main cause of inflation, maybe because of fiscal maturities in the end of the month, that hide transitory negative fiscal shock which are observe in the middle of each month. The effect of those transitory fiscal deficits is an increase of liquidity and prices pressure.
    Keywords: COVID-19 crisis, shock on economy, liquidity, inflation
    JEL: E30 E61
    Date: 2021–02
  27. By: Philipp Pfeiffer; Janos Varga; Jan in 't Veld
    Abstract: Next Generation EU (NGEU) is an unprecedented tool that provides significant financial support for reforms and investment, resulting in a coordinated fiscal expansion across the EU in response to the COVID-19 pandemic. Thus, fiscal spillovers are relevant for the assessment of its overall macroeconomic effects. We quantify the effects of the additional investment expenditure for each Member State by extending a standard macro model with a rich trade structure. Our model suggests that the EU-wide GDP effects are around one third larger when explicitly accounting for the spillover effects from individualcountry measures. A simple aggregation of the national effects of individual investment plans would thus substantially underestimate the growth effects of NGEU. For small open economies with smaller NGEU allocations, spillover effects account for the bulk of the GDP impact. We also quantify the role of key transmission channels, such as the zero lower bound, productivity effects and different assumptions on the disbursement speed. However, the paper does not quantify the impact of structural reforms, which can further enhance the growth impact of NGEU.
    JEL: E61 E62 F17 F41 F42
    Date: 2021–07
  28. By: Matthias Burgert; Philipp Pfeiffer; Werner Roeger
    Abstract: We estimate an open economy DSGE model to study the fiscal policy implications of downward nominal wage rigidity (DNWR) in a monetary union. DNWR has significantly exacerbated the recession in the southern euro area countries and is important for the design of fiscal policy. We show that a cut in social security contributions paid by employers (equivalent to wage subsidies) is particularly effective in a deep recession with limited wage adjustment. Such cuts strengthen domestic demand and international competitiveness. Compared to government expenditure increases, the reduction in social security contributions provides more persistent growth effects and enhances the fiscal position. Non-linear estimation methods establish a strong state-dependence of policy.
    Keywords: Downward nominal wage rigidity, currency union, fiscal policy, nonlinear estimation
    JEL: E3 F41 F45
    Date: 2021
  29. By: International Monetary Fund
    Abstract: Early success in containing the spread of COVID-19 has been challenged by two subsequent waves of the pandemic. Timely and effective fiscal and monetary policy responses helped contain the contraction in activity to 1.6 percent in 2020, shallower than the 3 percent expected at the first review. The authorities have also made significant efforts to protect jobs and the most vulnerable. Still, unemployment has surged to a record 25 percent in Q4 2020, with youth unemployment at 55 percent. The impact on fiscal and external balances has been significant, with public debt reaching 88 percent of GDP at end-2020. Nonetheless, despite the challenges from new virus variants and weaker tourism prospects, macroeconomic stability has been maintained, thanks to the authorities’ proactive policy stance; and a moderate 2 percent growth rate is projected for 2021 (slightly below the 2.5 percent projected in the first review), with a near-full reopening expected in the summer. The new parliament extended a vote of confidence to the incoming government in January, and approved the 2021 budget—consistent with the program—in February.
    Date: 2021–08–24
  30. By: International Monetary Fund
    Abstract: Following two emergency Rapid Credit Facility disbursements in June 2020 and March 2021 to assist in addressing the impact of the COVID-19 pandemic, the Sierra Leonean authorities are committed to resuming the program supported by the Extended Credit Facility arrangement. The program is an important policy anchor for the authorities, and its main objectives—revenue mobilization, safeguarding financial stability, and addressing external vulnerabilities—remain valid. While an economic recovery is underway, driven by the mining sector, risks to the outlook are considerable and, the risk of debt distress is high but remains sustainable. This is predicated on the authorities’ ambitious fiscal adjustment and continued reliance on concessional financing and grants. External vulnerabilities are expected to persist over the medium term.
    Keywords: financing assurances review; ECF disbursement; Sierra Leonean authorities; financing pressure; Extended Credit Facility arrangement; financing situation; priority expenditure; Arrears; Credit; Budget planning and preparation; Global
    Date: 2021–08–13
  31. By: International Monetary Fund
    Abstract: The Gabonese economy was gradually recovering from the 2014 oil price shock when it was hit by the Covid-19 pandemic. Decisive confinement measures have helped save lives, but the pandemic and the fall in oil prices have severely hit the economy, increasing unemployment and poverty. With a weak economy and increased COVID-19 related spending, the fiscal deficit has widened, with a sharp increase in public debt. Emergency financing from the IMF through the Rapid Financing Instrument (US$299.61 million) helped meet urgent balance of payment needs in 2020. Growth is expected to resume in 2021 but the pandemic has made the economic outlook very challenging and generated sizable financing needs over the medium term.
    Date: 2021–08–26
  32. By: International Monetary Fund
    Abstract: With a demonstrated resilience to the crisis and the recovery gaining strength, macroeconomic policies should aim at preserving stability and complementing structural reforms that address long-standing challenges. A medium-term plan to rebuild buffers, support potential growth, and target pockets of vulnerability would help address pre-existing disparities and poverty. Sustained productivity growth, supported by the implementation of politically difficult but needed structural reforms, is the only way to support high wage growth and convergence with Western Europe. Failure to do so could jeopardize Lithuania’s hard-earned competitiveness gains.
    Date: 2021–09–01
  33. By: Sam Levey
    Abstract: Many of the claims put forth by Modern Monetary Theory (MMT) center around the state's monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level--that the price level is a function of prices paid by government when it spends--and 2) the claim that the cause of deficient effective demand is the state's failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of "monopoly money" capable of producing these two outcomes.
    Keywords: Modern Monetary Theory; Price Level; Monopoly Money; Durapoly; Deficient Effective Demand
    JEL: E4 E62 B52 D42
    Date: 2021–08
  34. By: Nizam, Ahmed Mehedi
    Abstract: With the rapid proliferation of mobile telephony and the establishment of an IT-enabled payment and settlement system, Bangladesh, nowadays, is experiencing a meteoric rise in the usage of mobile financial services (MFS). As more and more people are opting to use this service, a huge number of mobile accounts are opened every day and a substantial amount of money is deposited, withdrawn and transferred frequently through the mobile network. This ever-increasing amount of mobile money flowing through the network may have a sizeable impact on the overall money supply of the country. Thus far, no systematic study has been conducted to quantify the impact of the mobile money on the conventional money supply of Bangladesh. In this study, we attempt to quantify the contribution of mobile money on the money supply which is an important quantity-based anchor of monetary policy in Bangladesh. Apart from quantifying the impact of digital (mobile) money on the money supply, we also qualitatively discuss its implication on another price-based nominal anchor of monetary policy in Bangladesh, i.e., interest rate. Moreover, in recent times, the government of Bangladesh has capped market interest rate with an intent to boost up business activities and in doing so, it (the government) has irrevocably broken the money market equilibrium which may result into dead-weight loss according to economic theory. Here, we qualitatively argue that financial inclusion through MFS has the potential to substantially reduce market interest rate without any manual intervention by significantly adding to the money supply which is supposed to be resulted into a reduced interest rate as an eventual consequence.
    Keywords: Mobile financial services; Bangladesh; financial inclusion; money supply; money multiplier; monetary policy
    JEL: E51 E52 G21 G28 O11 O33
    Date: 2021–09–02
  35. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present a review of the channels through which the US fiscal and monetary post-pandemic policies may affect the euro area. US spillovers will likely be relevant and worth considering while setting the policy stance in the euro area, at a crossroad between economic global recovery and global overheating. A key role is going to be played by global financial markets, their appetite for open-ended stimulative policies and fears of hard disinflation scenarios affecting central banks' ability to keep the economies on the recovery path and inflation expectations anchored.
    Date: 2021
  36. By: Jarociński, Marek
    Abstract: Fed's monetary policy announcements convey a mix of news about different kinds of conventional and unconventional policies and about the economy. Financial market responses to these announcements are very leptokurtic: often tiny, but sometimes large. I estimate the underlying structural shocks exploiting this feature of the data. I find standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance, and estimate their effects. JEL Classification: E52, E58, E44
    Keywords: Asset purchases, Excess kurtosis, Forward guidance, High-frequency identification, Non-Gaussianity
    Date: 2021–08
  37. By: Isaac Baley; Laura Veldkamp
    Abstract: We survey work using Bayesian learning in macroeconomics, highlighting common themes and new directions. First, we present many of the common types of learning problems agents face-signal extraction problems-and trace out their effects on macro aggregates, in different strategic settings. Then we review different perspectives on how agents get their information. Models differ in their motives for information acquisition and the cost of information, or learning technology. Finally, we survey the growing literature on the data economy, where economic activity generates data and the information in data feeds back to affect economic activity
    Keywords: Bayes’ law, passive learning, active learning, signal extraction, information choice, sticky information, rational inattention, experimentation, data economy, coordination games.
    JEL: D80 D81 D83 D84 E20 E30
    Date: 2021–07
  38. By: Christl, Michael; De Poli, Silvia; Kucsera, Dénes; Lorenz, Hanno
    Abstract: This paper analyzes the impact of the COVID-19 crisis on household income in Austria, using detailed administrative labor market data, in combination with micro-simulation techniques, that enable specific labor market transitions to be modeled. We find that discretionary fiscal policy measures in Austria are key to counteracting the inequality- and poverty-enhancing effect of COVID-19. Additionally, we find that females tend to experience a greater loss in terms of market income. The Austrian tax-benefit system, however, reduces this gender differences. Disposable income has dropped by around 1% for both males and females. By comparison, males profit mainly from short-time work scheme, while females profit especially from other discretionary policy measures, such as the one-off payment for children.
    Keywords: COVID-19,EUROMOD,micro-simulation,STW,automatic stabilizers
    JEL: D31 E24 H24
    Date: 2021
  39. By: International Monetary Fund
    Abstract: The pandemic has caused an unprecedented disruption to economic and social activity, which has been met with swift, strong, and well-coordinated policy responses. These support measures have helped preserve jobs and provide liquidity to companies and income support to vulnerable groups, thereby averting a deeper recession. After contracting by 3.6 percent in 2020, real GDP is projected to grow by 3.6 percent in 2021 and 5.2 percent in 2022, as stimulus and the EU-financed investment works through and vaccinations help control the spread of the virus. However, uncertainty around the outlook is unusually large, given the evolution of the epidemiological situation and the slow start of the vaccination program.
    Date: 2021–09–02
  40. By: German Cubas (Department of Economics, University of Houston); Pedro Silos (Department of Economics, Temple University); Vesa Soini (Department of Economics, Hanken School of Economics and Helsinki Graduate School of Economics)
    Abstract: With risk-averse workers and uninsurable earnings shocks, competitive markets allocate too few workers to jobs with high earnings uncertainty. Using an equilibrium Roy model with incomplete markets we show that risky occupations are inefficiently small and hence talent is misallocated. We obtain analytical expressions for the compensation for risk in the labor market, and for the aggregate level of human capital and output. Misallocation is positively related to the correlation between a worker’s abilities in different occupations. Quantitatively we find that market incompleteness can by itself generate permanent output and welfare losses in the order of one percent of GDP.
    Keywords: Misallocation, Human Capital, Occupations, Risk, Incomplete Markets, Frèchet, Roy Model.
    JEL: E21 D91 J31
    Date: 2021–08
  41. By: De Grauwe, Paul
    Abstract: Inflation is on the rise again in the industrialised world. This has led to fears of a sustained surge in inflation. This article argues that while such fears may make sense in the US, they do not in the eurozone, where the monetary-fiscal policy mix has been much less expansionary than in the US. The fear expressed by some that the monetary overhang from the large injections of liquidity through quantitative easing might lead to inflation in the eurozone does not stand up to scrutiny either. The conclusion offers some observations on the monetary operating procedures in the ECB. It argues that in the future, when interest rates rise again, the ECB risks transferring all (and even more) of its profits to the banking system. This article proposes a way to avoid this unacceptable outcome.
    JEL: N0 F3 G3
    Date: 2021–08–05
  42. By: Benjamin Schoefer
    Abstract: I propose a financial channel of wage rigidity. In recessions, rather than propping up marginal (new hires’) costs of labor, rigid average wages squeeze cash flows, forcing firms to cut hiring due to financial constraints. Indeed, empirical cash flows and profits would turn acyclical if wages were only moderately more procyclical. I study this channel in a search and matching model with financial constraints and rigid wages among incumbent workers, while new hires’ wages are flexible. Individually, each feature generates no amplification. By contrast, their interaction can account for much of the empirical labor market fluctuations—breaking the neutrality of incumbents’ wages for hiring, and showing that financial amplification of business cycles requires wage rigidity.
    JEL: E2 G3 J01
    Date: 2021–08
  43. By: Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
    Abstract: Although they are studied too rarely, returns to labor mobility transmit important forces that decisively shape outcomes in macro-labor models. By focusing on returns to labor mobility, this paper sheds new light on calibrations of influential macro-labor studies and resolves an issue about the turbulence-theoretic explanation of trans-Atlantic unemployment experiences. It does so by invoking a cross-phenomenon restriction - in our case, how returns to labor mobility determine effects on unemployment of changes in layoff costs, on the one hand, and changes in quit turbulence, on the other hand. We also spotlight two distinct perspectives and associated sources of data: one from labor economics and another from the economics of industrial organization. Ultimately, we are reminded of the rule that new theories “must not throw out all the successes of former theories. . . . to preserve the successes of the past is not only a constraint, but also a guide.
    Keywords: labor mobility, quits, turnover, layoff cost, turbulence, unemployment, human capital, skills, matching model, search-island model.
    JEL: E24 J63 J64
    Date: 2021–07
  44. By: Azizjon Alimov (IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France)
    Abstract: This paper examines how variation in the supply of government debt affects corporate acquisition activity. Using data from 50 countries from 1991 to 2017, the paper finds that government debt issuance is strongly negatively associated with acquisition activity at the firm and aggregate levels. In response to increases in government borrowing, firms appear to make better quality deals. Importantly, these effects are stronger for cash-financed deals and for more creditworthy firms whose debt is closer substitute for government bonds. Collectively, these findings suggest that rising government debt leads to “real crowding out” by affecting firm ability to make large investments.
    Keywords: government debt, mergers and acquisitions
    JEL: E62 G34
    Date: 2021–08
  45. By: Solikin M. Juhro (Bank Indonesia); Reza Anglingkusumo (Bank Indonesia)
    Abstract: This paper empirical shows that unconventional monetary policy (UMP) in the US after the global financial crisis (GFC) affects capital inflows to SEACEN economies. For open middle income SEACEN economies, such as Indonesia, capital flows volatility induced by the UMP in the US adds to the complexity of managing monetary policy trilemma (MPT). A recent hypothesis states that in post GFC, it is possible for monetary authority in an open emerging market economy to retain monetary policy sovereignty (MPS) if and only if capital flows is managed, directly or indirectly, regardless the degree of exchange rate flexibility. This paper contends that for the case of Indonesia, MPS remains feasible even without a direct capital control. This supports the argument that MPS depends more on the strength of the policy framework to address domestic policy objectives. We argue that the implementation of central bank policy mix by Bank Indonesia provides such strength.
    Keywords: capital inflows, unconventional monetary policy, monetary policy trilemma
    JEL: E22 F32 F36 F41
    Date: 2020
  46. By: Bruce Fallick; John C. Haltiwanger; Erika McEntarfer; Matthew Staiger
    Abstract: Who is harmed by and who benefits from worker reallocation? We investigate the earnings consequences of changing jobs and find a wide dispersion in outcomes. This dispersion is driven not by whether the worker was displaced, but by the duration of joblessness between job spells. Job movers who experience joblessness suffer a persistent reduction in earnings and tend to move to lower-paying firms, suggesting that job ladder models offer a useful lens through which to understand the negative consequences of job separations.
    JEL: E32 J3 J63
    Date: 2021–08
  47. By: Glenn Abela; Noel Rapa (Central Bank of Malta)
    Abstract: Exchange Rate Pass-Through (ERPT), commonly defined as the extent to which exchange rate changes are reflected in the price levels of an economy, has important implications in a number of policy-relevant areas. Despite this, estimates of ERPT in the Maltese economy are scarce and do not take into account changes in the monetary regime pertaining to the adoption of the euro. In this paper, we use local projections (LP) to estimate linear and non-linear ERPT to consumer prices in Malta after its accession to the European Monetary Union. In line with literature, results point at incomplete ERPT to headline consumer prices, peaking at around 20% by the end of the first year after the exchange rate shock. ERPT to overall HICP inflation seems to be largely driven by the goods component while ERPT to services prices is largely insignificant across the horizon considered. Allowing for non-linearities, we find evidence of asymmetric pass-through with larger changes to as well as depreciations in the nominal effective exchange rate being consistent with larger pass-through estimates
    JEL: E31 F31
    Date: 2021
  48. By: International Monetary Fund
    Abstract: Seychelles was hit hard by the COVID-19 crisis. The authorities reacted swiftly, by locking down the economy, thereby keeping infection and fatality rates low. However, the travel restrictions and global economic downturn triggered unprecedented economic contraction. The authorities responded with measures to mitigate the economic fallout on businesses and households. But the public debt ratio increased sharply, reflecting the primary balance deterioration, exchange rate depreciation, and GDP contraction. As soon as vaccines became available, Seychelles led the world in vaccination coverage and reopened its borders. With tourist arrivals bouncing back, a V-shaped recovery is now expected.
    Keywords: liability management operation; debt sustainability risk; government institution; GDP contraction; financing option; Fiscal stance; Government debt management; Debt management; Global
    Date: 2021–08–23
  49. 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
  50. By: Lei Fang (Federal Reserve Bank of Atlanta); Anne Hannusch (Department of Economics, University of Mannheim); Pedro Silos (Department of Economics, Temple University)
    Abstract: We develop and estimate a novel framework for thinking about the allocation of time by revisiting Becker’s notion that the opportunity cost of time is determined by activities other than market work. These activities are produced by combining time and goods. We document that households engage in two types of activities: luxuries and necessities. An increasing share of time and goods is allocated to luxuries as wages rise. The opposite is true for necessities. To rationalize these facts, we estimate a model with non-homothetic preferences in time use. We use the model to study the effect of wage changes and price changes on hours worked, the allocation of time and goods to activities, and welfare. Our results show that households compensate rises in activity prices or reductions in wages by shifting fromluxuries to necessities. Since activities are highly substitutable and the activity production inputs time and goods can be substituted to a lesser extent, households are able to absorb some of the reduction in income by shifting to time-intensive necessities. As a result, household welfare declines less than income. We argue that these findings have novel implications for thinking about cross-sectional differences in hours worked and the relation between income and welfare inequality.
    Keywords: Time Allocation, Consumption Expenditures, Elasticity of Substitution, Labor Supply, Non-homothetic Preferences
    JEL: J22 E21 D11
    Date: 2021–08
  51. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (University of Tokyo)
    Abstract: Large-scale household inventory buildups occurred in Japan five times over the last decade, including those triggered by the Tohoku earthquake in 2011, the spread of COVID-19 infections in 2020, and the consumption tax hikes in 2014 and 2019. Each of these episodes was accompanied by considerable swings in GDP, suggesting that fluctuations in household inventories are one of the sources of macroeconomic fluctuations in Japan. In this paper, we focus on changes in household inventories associated with temporary sales and propose a methodology to estimate changes in household inventories at the product level using retail scanner data. We construct a simple model on household stockpiling and derive equations for the relationships between the quantity consumed and the quantity purchased and between consumption and purchase prices. We then use these relationships to make inferences about quantities consumed, consumption prices, and inventories. Next, we test the validity of this methodology by calculating price indices and check whether the intertemporal substitution bias we find in the price indices is consistent with theoretical predictions. We empirically show that there exists a large bias in the Laspeyres, Paasche, and T¨ornqvist price indices, which is smaller at lower frequencies but non-trivial even at a quarterly frequency and that intertemporal substitution bias disappears for a particular type of price index if we switch from purchase-based data to consumption-based data.
    Keywords: consumer inventory; consumer inventory; cost-of-living index; temporary sales; inflation; price elasticity
    JEL: C43 D15 E31
    Date: 2021–09
  52. By: Mahmood, Haider; Tanveer, Muhamamd; Ahmad, Abdul-Rahim; Furqan, Maham
    Abstract: The rule of law and control of corruption would play an effective role in managing CO2 emissions in Pakistan. The present research has explored this issue in Pakistan controlling economic growth during 1996-2019. Further, the unit root and cointegration tests are used. We found the long and short-run relationships in the model. Economic growth has a positive effect on CO2 emissions. The rule of law could not impact in the long run and negatively impacts in the short run. Hence, improving law and order conditions would reduce CO2 emissions in the short run, and further improvements in the rule of law could have pleasant long-run environmental effects. The control of corruption has a positive impact on CO2 emissions in the long run. However, the short-run effects of control of corruption with first and second lags are found negative.
    Keywords: The rule of law, control of corruption, economic growth, CO2 emissions
    JEL: E2 E21 O43
    Date: 2021–08–15
  53. By: Jacob, Jannet Farida; Chakraborty, Lekha S
    Abstract: We explore the efficacy of ‘child budgeting’ in public financial management (PFM) to deal with the COVID-19 pandemic in the context of Indian State of Karnataka. We argue that this should be an essential component of government fiscal stimulus responses. The ex-post analysis of public finance for children (PF4C) reveals that in 2020-21 PF4C constitutes15 per cent of total net expenditure, which is 1.68 per cent of GSDP. Of this, 80 per cent is spent on education. The State, despite having allocated 15 per cent of its total net expenditure on child specific programmes, the fiscal marksmanship ratio and the PEFA score for PF4C indicates that there is significant deviation between budget allocation and actual spending. . Growing digital divide and the fragile anthropometric status of children are matters of concern in the State. Karnataka though is a fiscally prudent State, with all its fiscal parameters well within the stipulated limits of “fiscal rules”, has resorted to episodic expenditure compression in social sector which in turn has consequences for PF4C. Given the impact of the COVID-19 pandemic on education, health and income, it is imperative for the State to look beyond the fiscal stimulus packages and strengthen the long term PFM tool like child budgeting.
    Keywords: Public Financial Management, Child Budgeting, State Expenditure, Karnataka
    JEL: E62 H30 H70
    Date: 2021
  54. By: International Monetary Fund
    Abstract: The COVID-19 pandemic inflicted another major shock on the economies of Curaçao and Sint Maarten, which followed category 5 hurricanes in Sint Maarten in 2017 and the spillovers of the Venezuelan crisis on Curaçao. Despite the substantial response measures financed by The Netherlands, the economic contraction in 2020 was severe.
    Keywords: article IV consultation discussion; government operation; Curaçao customs; current price; Policy recommendation; Fiscal stance; COVID-19; Caribbean
    Date: 2021–08–25
  55. By: Suah, Jing Lian
    Abstract: This paper offers two points on the impact of uncertainty and exchange rate shocks on output. (1) A conceptual model where behavioural frictions --- rational inattentiveness and bounded expectations --- interact with uncertainty, generating aggregate fluctuations. Central banks can target these behaviourial frictions to stabilise output and prices. (2) Empirical findings from a panel of advanced and emerging economies. Output and inflation slow in response to uncertainty shocks. Government bond yields moderate and exchange rates depreciate, suggesting within-country and between-country flight-to-safety respectively. Exchange rate appreciation shocks generate similar responses. The Malaysia-specific analysis finds divergent responses in employment and output, likely reflecting compositional effects in more productive tradable and less productive non-tradable sectors. In a panel fixed effects and quantile regression setting, I find indicative interaction between output, exchange rate and uncertainty, and a distributional dimension.
    Keywords: Uncertainty, Rational Inattention, Bounded Rationality, VAR
    JEL: E00 E03
    Date: 2020–11–01
  56. By: Betts, Caroline
    Abstract: This paper develops a quantitative framework to evaluate the sectoral origins of economic growth. First, I decompose growth in aggregate growth accounting variables–GDP per working age person, a capital factor, an hours’ worked factor, and an implied total factor productivity factor–into sectoral contributions. I decompose the TFP factor growth contribution of a sector into 1) sector-share weighted, within-sector TFP factor growth, and 2) several residual allocative effects. Second, I interpret structurally the observed sectoral contributions by comparing them to those predicted by a multi-sector neoclassical growth model. Using the framework to account for Japan’s economic growth slowdown I find that, empirically, two factors quantitatively dominated Japan’s slowing GDP per working age person in the 1990s. First, a large decline in aggregate TFP growth relative to the 1980s, driven by 1) slower within-industrial sector TFP growth, and 2) negative residual effects due to faster value-added reallocation towards services which mediated a larger impact of the sector for aggregate capital deepening. Second, a large fall in hours worked per working age person, originating mainly in smaller industrial sector contributions. In the 2000s, continued GDP per working age person and aggregate TFP growth decay were due largely to slower within-service sector TFP growth. In the 2010s, anemic aggregate TFP factor growth equal to just 18 percent of its 1980s value was depressed by zero service sector TFP growth; a modest growth rate recovery in GDP per working age person originated in rapid increases in hours worked per working age person, via roughly equal increases in industrial and service sector contributions. A calibrated three-sector growth model absent frictions, featuring sectoral TFP time series as inputs, reproduces closely the time-series from 1980–2018 of a) hours shares of sectors, b) GDP per working age person, and c) the aggregate TFP factor. It captures quite well a) sample-average aggregate TFP growth, b) aggregate TFP growth rate changes across decades, c) the decomposition of aggregate TFP factor growth into total “within-sector” TFP and total residual contributions of sectors, and d) “within-sector” TFP growth contributions of agriculture, industry, and services. The model cannot replicate the sources of, or sectoral contributions to, observed–albeit small–TFP growth residual effects. More importantly, the model’s predicted hours factor (hours per working age person): 1) captures only 46 percent of the decline in industry’s contribution to the fall in aggregate hours factor growth in the 1990s; 2) declines in the 2000s, while hours factor growth is positive in the data; 3) captures only 47 percent of observed average hours factor growth in the 2010s; and 4) allocates too much of the 2010s increase in aggregate hours factor growth to industry. A higher intertemporal elasticity of substitution, a higher Frisch elasticity, and an aggregate labor (policy) wedge resolve some, but exacerbate other, model failures.
    Keywords: Economic Growth, Neoclassical Growth Model, Structural Change, Total Factor Productivity, Japan.
    JEL: E13 O41 O47 O53
    Date: 2021–08–21
  57. By: Rivot, Sylvie
    Abstract: When scholars investigate the legacy of Keynes’s Treatise on Probability (1921) for the development of Keynes’s thinking, the attention usually focuses on the connections between Keynes’s probability theory, his conception of decision-making under uncertainty and the theory of the functioning of the macroeconomic system that derives from it - through the marginal efficiency of capital, the preference for liquidity and the self-referential functioning of financial markets. By contrast, the paper aims to investigate the connections between Keynes’s probability theory on the one hand, and his economic policy recommendations on the other. It concentrates on the policy recommendations defended by Keynes during the Great Depression but also after the General Theory. Keynes’s economic policy can be understood as a framework for decision-making in situations of uncertainty: fiscal policy aims to induce private agents to change their “rational” probability statements, while monetary policy aims to allow more weight to these statements.
    Date: 2021–08–24
  58. By: Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Skuterud, Håvard; Munthe-Kaas Webster, Ingeborg
    Abstract: This paper provides evidence on price rigidity at the product- and firm-level in Norway. A strong within-firm synchronization is found supporting the theory of economies of scope in menu costs. The industry synchronization effects are found to be small suggesting that firms either have some monopoly power, or that a firm’s costs of changing their own prices may be larger than the benefit of responding to their competitors’ price changes. These findings have potentially important implications for the micro-foundations of macroeconomic models, and thus the policy advice derived from such models.
    Keywords: Price Setting; Monthly Micro Data; Selection Effects.
    JEL: C35 D43 E31
    Date: 2021–08–26
  59. By: Suah, Jing Lian
    Abstract: This paper examines the sectoral-level impact of nominal exchange rate shocks. I introduce a model where agents face bounded abilities to form expectations, and agents’ foresight depends directly on the state of financial stress. This leads to differential labour market responses to exchange rate movements. When financial stress is low, absent of shocks, exchange rate movements are minimal and pinned down by agents. When financial stress is salient, agents’ foresight is veiled; they fail to form reliable expectations during episodes of sharp depreciation. Workers and firms fail to adjust expected relative wages and future marginal profits respectively, leading to sub-optimal output. Using monthly sectoral data from Malaysia in Simultaneous Equations and Markov-Switching Models, I find heterogeneous labour market responses. In tradable sectors, labour flows were small and concentrated in the manufacturing sector. Likewise, adjustments in non-tradable sectors were small. On the extensive margin, labour market flows diverge between tradable and non-tradable sectors. On the intensive margin, labour market flows in tradable sectors reverse. In contrast, as the model predicts, non-tradable sectors do not react to substantial terms of trade shocks.
    Keywords: Exchange Rate, Labour Market Frictions, Financial Stress, Expectations Formation, Regime-Switching, Simultaneous Equations Model
    JEL: D84 E44 F31 J20
    Date: 2020–11–01
  60. By: Idowu, Ayodele; Collins, Tomisin
    Abstract: The study investigates the influence of manufacturing sector performance and disaggregated government expenditure on economic performance in Nigeria. Government expenditure is disaggregated into social and community services and economic services. The study employed and makes use of time series data from 1981 to 2020. Data on manufacturing sector performance, government expenditure on social, government expenditure on community services and economic services, foreign direct investment, interest rate, population and economic growth were sourced from Central Bank of Nigeria statistical bulletin, World Development Indicators and Nigeria Bureau of Statistics. The Unit root test shows that all variables except foreign direct investment and population are stationary at first difference and the bounds test confirms existence of long run relationship among the variables at 5% significant level. The econometric technique used in estimating the VAR model to run the causality test is the Toda-Yamamoto model while Autoregressive Distributed Lag Model (ARDL) model was the estimation technique used to analyze the main objective of the study to generate short run and long run result. The econometric model estimated reveals that manufacturing sector performance, foreign direct investment, government expenditure on community and social services have a positive and significant impact on economic performance while government expenditure on economic services have a negative and significant impact on economic performance while interest rate does not have a significant impact on economic performance.
    Keywords: Manufacturing Sector performance, Government expenditure, Economic growth, Modelling.
    JEL: E2 E62 O1 O4
    Date: 2021–08–18
  61. By: Pineda Salazar, Ramón; Acevedo, N. Alejandra
    Abstract: Los ingresos por emisión han sido una fuente importante de financiamiento para las economías de la región, promediando el equivalente a 2,9 puntos del PIB y a 20,7% de los ingresos fiscales para el período entre 1960 y 2016. Esta forma de “recaudación” ha cambiado a lo largo del tiempo, siendo en la década del ochenta cuando se empleó de manera más profusa en la región. Pareciera que el uso intensivo de esta forma de financiamiento se produce luego de una caída en los términos de intercambio. Adicionalmente, los datos muestran que los episodios en que este financiamiento ha sido empleado más intensamente coinciden con aumentos de la inflación, caídas del consumo privado, de la inversión y de la actividad económica.
    Date: 2021–07–29
  62. By: Chakraborty, Pinaki (National Institute of Public Finance and Policy)
    Abstract: The objective of this paper is to understand the core recommendations of the Fifteenth Finance Commission in the context of COVID-19 pandemic. Given the macroeconomic uncertainties and rising fiscal needs, the commission focused on fiscal stability, equity and enhancement of fiscal space through higher borrowing with a fiscal exit plan for both Union and States.
    Date: 2021–08
  63. By: Biagio Bossone
    Abstract: In line with JMK’s liquidity preference theory, this article holds that in a world of highly internationally financially integrated economies the exchange rate between any two currencies is determined by the financial market views as to what its value is expected to be in the future. These views are influenced by the policy credibility that markets themselves attribute to the currency-issuing countries. After briefly reviewing the established theories of the exchange rate, the article proposes a very simple, aggregate model of equilibrium exchange rate determination based on market views and discusses its basic features and policy implications. It shows that whereas macro policy shocks in highly credible countries affect mostly real output with only a moderate impact on the exchange rate, the same shocks in poorly credible countries dissipate almost entirely in exchange rate movements. The exchange rate ultimately reflects the space that markets make available to national authorities for effective macro policies.
    Keywords: Credibility; Exchange rate; Global investors and capital; Inflation; Macroeconomic policy
    JEL: F41 F62 G15
    Date: 2021–09
  64. By: Valerie Vandermeulen; Werner Roeger
    Abstract: In the aftermath of the financial crisis, it had become clear the Euro Area was suffering from insufficient investment. Actual capital stock was below benchmark capital, the amount of capital you need to support trend labour and total factor productivity (TFP) growth rates. The current COVID-19 pandemic might enlarge the gap between benchmark and actual capital, since both the private and public sector are facing limitations to invest. In the current paper, benchmark capital is estimated based on trend supply side conditions and trend in capital and goods market frictions, to investigate whether such a gap exists in the Euro Area and the US and how it has evolved over time. The paper is based on the European Commission’s production function method and uses trend labour supply and TFP as basis for trend supply side conditions. The first order condition of the Cobb-Douglas production function are used to calculate goods market and capital market frictions. Capital costs are estimated using world interest rate as a rental price of capital, adjusted for depreciation, taxes and relative investment prices. In the past, benchmark capital was driven by strong growth in supply side factors, but since trend labour and TFP growth rates have declined, capital and goods market frictions are becoming more important in explaining benchmark capital growth. The paper shows that after the 2008 crisis, a gap occurred between benchmark capital and actual capital. As of 2012, the gap started to close, but benchmark capital growth was very low in the Euro Area, much below that of the US. Just before the current 2020 crisis, the capital gap was closed in the Euro Area and was positive in the US, but it is expected that actual capital growth might stop again due to the limitations to private and public investment.
    JEL: D1 D2 D3 E6 H2 H21 J08 J2
    Date: 2021–07
  65. By: Klug, Thorsten; Mayer, Eric; Schuler, Tobias
    Abstract: We investigate, in the case of Germany, the positive correlation between the cyclical components of the corporate saving glut in the non-financial corporate sector and the current account surplus from a capital account perspective. Employing sign restrictions, our findings suggest that mostly labor supply, world demand and financial friction shocks account for the joint dynamics of excess corporate saving and the current account surplus. Household saving shocks, by contrast, cannot explain the correlation. We conclude that, explained through these factors, the corporate saving glut is an important driver of the cyclical component of the current account. JEL Classification: E32, F32, F45
    Keywords: corporate saving, current account, macro shocks
    Date: 2021–08
  66. By: Suarez, Javier
    Keywords: growth-at-risk, macroprudential policy, policy stance, quantile regressions
    Date: 2021–09
  67. By: Junko Doi (Kansai University, Osaka University); Takao Fujii (Kobe City University of Foreign Studies, Kobe University); Shinya Horie (Onomichi City University, Kobe University); Jun Iritani (Osaka Gakuin University); Sumie Sato (Nagoya University of Economics, Kobe University); Masaya Yasuoka (Kwansei Gakuin University)
    Abstract: We aggregate an economy consisting of two commodities, two factors, and two producers into an economy with one commodity, two factors and one producer. Our aggregation method has three characteristic features. One is that an aggregated TFP and price level are defined respectively by individual TFPs and prices of commodities. Another is that our aggregation method includes an aggregation of production functions that has been considered intractable. We resolve that difficulty by specifically devoting attention to equilibrium. The other is that the total values of an original and an aggregated economy are identical.
    Keywords: aggregation, macro production function, price level, TFP
    JEL: E23 D24 B41 O41
    Date: 2021–08
  68. By: Pompeo Della Posta,; Roberto Tamborini
    Abstract: The lesson of the sovereign debt crises of the 2010s, and of the outbreak of the COVID- 19 pandemic is that EMU irreversibility, if not to remain a wishful statement in the founding treaties, necessitates to be completed by carefully designed ramparts for extraordinary times beside regulations for ordinary times. In this paper we wish to contribute to this line of thought in two points. First, we highlight that when exposed to large, systemic shocks the EMU faces a trilemma: its integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both. We elaborate this concept by means of a fiscal target-zone model, where EMU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper bound of their feasible fiscal effort. Second, we show that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. Drawing on the target-zone literature, we show how these devices can be designed in a consistent manner hat minimises their extension and mitigates the moral hazard concerns. The alternative to these devices is not retaining both the EMU irreversibility and the twin orthodoxies, but reformulating the treaties with explicit and regulated exit procedures.
    Keywords: COVID-19 pandemic, Fiscal Target Zone, Public Debt, Speculative Attacks, Fiscal Orthodoxy, Monetary Orthodoxy
    JEL: E65 F34 F36
    Date: 2021
  69. By: Drydakis, Nick
    Abstract: Τhe study examines whether adverse working conditions for immigrants in Greece bear an association with deteriorated physical health and increased levels of depression during 2018 and 2019. Findings indicate that workers with no written contract of employment, receiving hourly wages lower than the national hourly minimum wages, and experiencing insults and/or threats in their present job experience worse physical health and increased levels of depression. The study found that the inexistence of workplace contracts, underpayment, and verbal abuse in the workplace may coexist. An increased risk of underpayment and verbal abuse reveals itself when workers do not have a contract of employment and vice versa. Immigrant workers without a job contract might experience a high degree of workplace precariousness and exclusion from health benefits and insurance. Immigrant workers receiving a wage lower than the corresponding minimum potentially do not secure a living income, resulting in unmet needs and low investments in health. Workplace abuse might correspond with vulnerability related to humiliating treatment. These conditions can negatively impact workers' physical health and foster depression. Policies should promote written employment contracts and ensure a mechanism for workers to register violations of fair practices.
    Keywords: Adverse Working Conditions,Physical Health,Depression,Immigrants,Refugees, Minimum Wages,Written Contracts of Employment,Threats in job,Workplace precariousness
    JEL: J81 O15 E24 I14
    Date: 2021
  70. By: Gene M. Grossman; Ezra Oberfield
    Abstract: A vast literature seeks to measure and explain the apparent decline in the labor share in national income that has occurred in recent times in the United States and elsewhere. The culprits include technological change, increased globalization and the rise of China, the enhanced exercise of market power by large firms in concentrated product markets, the decline in unionization rates and the erosion in the bargaining power of workers in labor markets, and the changing composition of the workforce due to a slowdown in population growth and a rise in educational attainment. We review this literature, with special emphasis on the pitfalls associated with using cross-sectional data to assess this phenomenon and the reasons why the body of papers collectively explains the phenomenon many times over.
    JEL: E25
    Date: 2021–08
  71. By: Alberto Palermo (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Clemens Buchen (WHU – Otto Beisheim School of Management)
    Abstract: We relax the common assumption of homogeneous beliefs in principal-agent relationships with adverse selection. Principals are competitors in the product market and write contracts also on the base of an expected aggregate. The model is a version of a cobweb model. In an evolutionary learning set-up, which is imitative, principals can have different beliefs about the distribution of agents' types in the population. The resulting nonlinear dynamic system is studied. Convergence to a uniform belief depends on the relative size of the bias in beliefs.
    Keywords: Evolutionary game theory, imitation equilibrium, heterogeneous beliefs, adverse selection, cobweb model
    JEL: C61 C73 D82 D83 E32
    Date: 2021–03
  72. By: Serena Merrino
    Abstract: Wage inequality under inflation-targeting in South Africa
    Date: 2021–09–02
  73. By: Jakub Rybacki; Dobromił Serwa
    Abstract: This research analyzes factors affecting scientific success of central bankers. We combine data from the RePEc and EDIRC databases, which contain information about economic publications of authors from 182 central banks. We construct a dataset containing information about 3312 authors and almost 80 thousand scientific papers published between 1965 and 2020. Results from Poisson regressions of citation impact measure called h-index, on a number of research features suggest that economists from the US Federal Reserve Banks, international financial institutions, and some eurozone central banks are cited more frequently than economists with similar characteristics from central banks located in emerging markets. Researchers from some big emerging economies like Russia or Indonesia are cited particularly infrequently by the scientific community. Beyond these outcomes, we identify a significant positive relationship between research networking and publication success. Moreover, economists cooperating with highly cited scientists also obtain a high number of citations even after controlling for the size of their research networks.
    Keywords: RePEc, Scientific Success, h-index, Big data.
    JEL: E58 D02 I23
    Date: 2021–04
  74. By: François Gardes (Centre d'Economie de la Sorbonne, Paris School of Economics & Western Catholic University)
    Abstract: Using a generalization of the Becker's time allocation model to estimate the shadow price of time, the article proposes to evalutate the component of home production which could be substituted by market goods and services. An enlarged households' total expenditure including the production of the informal sector and the value of domestic production and the corresponding enlarged GDP are compared to their monetary counterparts in five developed and under-developed countries. Domestic production substituable to market goods corresponds to 23 to 41% of the GDP in Canada, France, Poland and the US, but much less in Burkina Faso because of much lower opportunity cost of time and elasticity of substitution. Finally, the enlarged GDP including the informal sector is larger by 40% than the official GDP in the three developed countries, 34% in Poland and by 54% in Burkina Faso
    Keywords: Domestic Production; Time Allocation; GDP; Opportunity Cost of Time
    JEL: D31 J22
    Date: 2021–03
  75. By: Ferrara, Laurent; Karadimitropoulou, Aikaterini; Triantafyllou, Athanasios
    Abstract: Global economic activity is surrounded by increasing uncertainties from various sources. In this paper, we focus on commodity prices and estimate a global commodity uncer- tainty factor by capturing comovement in volatilities of major agricultural, metals and energy commodity markets through a group-specific Dynamic Factor Model. Then, by computing impulse response functions estimated using a Structural VAR model, we find that an increase in the common commodity price uncertainty results in a substantial and persistent drop in investment and trade for a set of emerging and advanced economies. We show that a global commodity uncertainty shock is more detrimental for economic growth than usual financial and economic policy uncertainty shocks. Last, our method- ology turns out to be a way to disentangle the macroeconomic effects of "good" and "bad" oil uncertainty: when an oil uncertainty shock is common to all commodities, then the macroeconomic effect is likely to be negative, but when this shock is specific to the oil market, the effect tends to be positive in the short run.
    Keywords: Commodity uncertainty, Factor model, Investment, Trade flows
    Date: 2021–08–23
  76. By: Carlos Alberto Piscarreta Pinto Ferreira
    Abstract: We assess the investor base impact on government borrowing costs and examine how investors react to shocks in sovereign bond yields, across 24 countries and 3 maturities between 2004Q1-2019Q2. Our VAR approach has the advantage of modelling bidirectional causality between yields and investor base. We find that higher foreign holdings are associated with lower yields but link these effects exclusively to foreign banks and mainly to 10-years maturity. Yields in GIIPS and EA core countries react in opposite directions to foreign holdings shocks. Foreign investment is procyclical, namely at the long end and where fundamentals are weaker. Thus, an EA sovereign debt crisis re-run cannot be dismissed requiring readiness to use supporting mechanisms to prevent contagion and an escalation that may jeopardize the monetary union itself. Yields’ response to domestic investment shocks is heterogeneous and seems to bear no significant relation with home bias. No cyclical trading pattern can be clearly associated to each type of domestic investor.
    Keywords: Public Debt, Government Bonds, Debt Structure, Investor Base, Sovereign Risk, VAR
    JEL: C32 C33 E43 G12 F34 G11 G12 H63
    Date: 2021–08
  77. By: François Gardes (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCO - Université Catholique de l'Ouest)
    Abstract: The article proposes an explicit modelization of households behavior by describing the possible relationship between the inter-temporal substitution rate and the opportunity cost of time which could afford the missing link between consumers' choices and macro variables in an Austrian trade cycle tradition. The changes of the value of time during expansions and recessions involve direct and indirect changes of households' demand and saving which create shadow prices. The variations of shadow costs are related to the competitivity of markets restoring equilibria by means of associated changes in monetary prices.
    Keywords: Inter-temporal substitution rate,originary interest,psychological interest rate,psychological time,opportunity cost of time,austrian trade cycle
    Date: 2021–06
  78. By: François Gardes (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCO - Université Catholique de l'Ouest)
    Abstract: The article proposes an explicit modelization of households behavior by describing the possible relationship between the inter-temporal substitution rate and the opportunity cost of time which could afford the missing link between consumers' choices and macro variables in an Austrian trade cycle tradition. The changes of the value of time during expansions and recessions involve direct and indirect changes of households' demand and saving which create shadow prices. The variations of shadow costs are related to the competitivity of markets restoring equilibria by means of associated changes in monetary prices.
    Keywords: Inter-temporal substitution rate,originary interest,psychological interest rate,psychological time,opportunity cost of time,austrian trade cycle
    Date: 2021–06
  79. By: Khouiled, Brahim; Saheb, Oualid
    Abstract: In this paper, we presented concepts on the scissors effect between governance indicators and the fluctuations of net FDI inflows and we applied them to the MENA countries. We used PANEL data for 17 countries with triple averages over the period 1996-2017 to avoid missing some data. We found that the proposed dynamic model by Mijiyawa (2015) is appropriate for this study with the GMM system estimate. The results showed that the quality of the governance indicators was most significant and the effect of reducing the fluctuations of the FDI inflows in the long term, especially the indicator of the political and security situation prevailing in the region.
    Keywords: Governance, Fluctuations of FDI, MENA, Panel Data, GMM, حوكمة, تقلبات الاستثمار الأجنبي المباشر, معطيات بانل, عزوم معممة
    JEL: E31 O49
    Date: 2019–10–02
  80. By: Junko Koeda; Yosuke Kimura
    Abstract: This study constructs a dataset of Japanese government bonds' maturity structure for the fiscal years 1965?2020. Using the maturity structure data at the end of each fiscal year for the past three decades, this study structurally estimates a canonical preferred-habitat term structure model extracting the bond supply factor. The results provide a debt maturity equation in the fiscal-year cycle and demonstrate that two yield factors (bond supply factor and short-term interest rate) can account for annual-frequency variations in Japanese bond yields. The supply factor also explains the continued decline in the long-term interest rate for the past two decades.
    Date: 2021–09
  81. By: François Gardes (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCO - Université Catholique de l'Ouest)
    Abstract: Using a generalization of the Becker's time allocation model to estimate the shadow price of time, the article proposes to evaluate the component of home production which could be substituted by market goods and services. An enlarged households' total expenditure including the production of the informal sector and the value of domestic production and the corresponding enlarged GDP are compared to their monetary counterparts in five developed and underdeveloped countries. Domestic production substituable to market goods corresponds to 23 to 41% of the GDP in Canada, France, Poland and the US, but much less in Burkina Faso because of much lower opportunity cost of time and elasticities of substitution. Finally, the enlarged GDP including the informal sector is larger by 40% than the official GDP in the three developed countries, 34% in Poland and by 54% in Burkina Faso.
    Keywords: Domestic production,Time allocation,GDP,Opportunity cost of time
    Date: 2021–03
  82. By: Sawada, Yasuyuki (Asian Development Bank Institute); Sumulong, Lea R. (Asian Development Bank Institute)
    Abstract: We summarize the unprecedented adverse health and economic impacts as well as policy responses in the Asia and Pacific region and the rest of the world generated by the coronavirus disease (COVID-19) pandemic in 2020. By the end of 2020, over 80 million people had been infected, with developing Asia accounting for 17% of cases. As the pandemic progressed, the Asian Development Bank (ADB) carried out assessments of the impacts on the global economy as well as on the overall economies of its developing members, updating the analyses as more information became available. On the whole, five economic impact assessments were undertaken in 2020 – one each in March, April, May, June, and December. Based on the latest analysis, relative to a no-COVID-19 baseline, global losses were estimated at 5.5%–8.7% of world GDP in 2020 and 3.6%–6.3% of world GDP in 2021, with the corresponding losses for developing Asia amounting to 6.0%–9.5% of regional GDP and 3.6%–6.3% of regional GDP in 2020 and 2021, respectively. These impacts largely originate from declines in domestic demand and tourism, and from global spillovers. As a result of these losses, real GDP of the developing Asian region is estimated to have contracted by 0.4% in 2020. A partial recovery is expected in 2021, with regional growth projected at 6.8%. Further analyses were carried out to study the impacts on micro, small, and medium-sized enterprises; employment; migration and remittances; poverty; nonperforming loans; and debt sustainability. Faced with wide-ranging unfavorable impacts, governments and multilateral lenders responded aggressively to mitigate the adverse effects of the pandemic. Many governments provided direct income support to households and businesses to help them cope with the economic shock. Meanwhile, multilateral lenders like ADB readily provided support in terms of finance, knowledge, and partnerships. In addition, ADB launched a $9 billion vaccine facility, the Asia Pacific Vaccine Access Facility, in December 2020, to support its low- and middle-income member countries in the effective procurement and delivery of COVID-19 vaccines. Despite the availability of vaccines, however, there is no room for complacency, as it will take years for the global population to achieve herd immunity, especially amidst the emergence of new, more transmissible, virus strains. While COVID-19 has brought about long-lasting changes to the global economy, it is up to policy makers to use this opportunity to adapt COVID-19 responses to address longer-term challenges.
    Keywords: COVID-19; economic impact; policy response
    JEL: E17 H30 H60 I15 I32
    Date: 2021–04–08
  83. By: François Gardes (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCO - Université Catholique de l'Ouest)
    Abstract: Using a generalization of the Becker's time allocation model to estimate the shadow price of time, the article proposes to evaluate the component of home production which could be substituted by market goods and services. An enlarged households' total expenditure including the production of the informal sector and the value of domestic production and the corresponding enlarged GDP are compared to their monetary counterparts in five developed and underdeveloped countries. Domestic production substituable to market goods corresponds to 23 to 41% of the GDP in Canada, France, Poland and the US, but much less in Burkina Faso because of much lower opportunity cost of time and elasticities of substitution. Finally, the enlarged GDP including the informal sector is larger by 40% than the official GDP in the three developed countries, 34% in Poland and by 54% in Burkina Faso.
    Keywords: Domestic production,Time allocation,GDP,Opportunity cost of time
    Date: 2021–03
  84. By: Goodness C. Aye (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Christina Christou (School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Christis Hassapis (School of Economics and Management, Department of Economics, University of Cyprus, P.O. Box 20537, CY-1678 Nicosia, Cyprus)
    Abstract: This study examined contagion involving the aggregate and regional housing markets of the United States (US) with other asset markets using multichannel tests during the 2007-2008 global financial crisis based on a unique high-frequency, i.e., daily data set. To arrive at bias free results several contagion tests: the Forbes and Rigobon (FR) correlation test for contagion, the Fry, Martin and Tang coskewness (CS) test for contagion, the Hsiao cokurtosis (CK) test for contagion and the Hsiao covolatility (CV) test for contagion were employed. At the country level, the linear (correlation) channel indicates that contagion is present from (to) average housing returns to (from) the S&P500, with the correlation contagion also running from average housing returns to REITs. Moreover, the coskewness, cokurtosis and covolatility channels are strongly active with contagion running only from average housing returns to the S&P500, bond returns and REITs. At the Metropolitan Statistical Area (MSA) level, our results indicate that the linear (correlation) channel of contagion is relatively inactive, but the coskewness, cokurtosis and covolatility channels are strongly active with contagion running mostly from housing returns to the S&P500. Our results have important implications for investor and policymakers, given the possibility of differential results based on tests and whether we rely on regional or aggregate data.
    Keywords: Contagion, real estate, multichannel tests, United States
    JEL: C12 C58 E44 G01
  85. By: International Monetary Fund
    Abstract: Selected Issues
    Keywords: governance reform; output response; infrastructure response to governance; governance gap; governance Subindices; Infrastructure; Private investment; Public investment spending; Fiscal multipliers; Capital accumulation; Global
    Date: 2021–08–27
  86. By: Sokolovskyi, Dmytro
    Abstract: The work is devoted to research government tax behavior in tax competition conditions. In detail we study followed issues: is necessarily tax competition lead to Race to the bottom & is possible a simultaneous optimum of tax rate for both economies? This work is the continuation of research about, is it necessarily a Race to the bottom Prisoner’s dilemma. Available studies of tax competition generally focus on the analysis, which countries are inherent the trend to tax rate decrease, can this trend be considered a Race to the bottom, but if not, what are the reasons, that a Race to the bottom is not observed? The difference of the proposed work is that we do not consider additional, though important factors. The optimization model of tax competition for 2 economies evidence that even for one factor – the generalized tax burden, without the separation of income tax and “compensatory” taxes, such as taxes on consumption, labor, environment – a Race to the bottom is not necessarily. Under different conditions, the trend can be directed as to decrease as to increase of tax rate. So, it can be argued that tax competition not necessarily leads to Race to the bottom, as well as Race to the bottom is not necessarily modeled by Prisoner’s dilemma. The obtained results can help understand why some countries do not always follow the general trend to tax rate decrease. In addition, it explains not always the optimal tax behavior of some countries those in this way cause a change in the trend in competitors.
    Keywords: tax competition; race to the bottom; prisoner’s dilemma; tax rate trajectory; modelling
    JEL: C6 E62 H30
    Date: 2021–08–21
  87. By: Lambert, Thomas
    Abstract: Investment in capital, new technology, and agricultural techniques has not been considered an endeavor worthwhile in a medieval economy because of a lack of strong property rights and no incentive on the part of lords and barons to lend money to or grant rights to peasant farmers. Therefore, the medieval economy and standards of living at that time often have been characterized as non-dynamic and static due to insufficient investment in innovative techniques and technology. Paul Baran’s concept of the economic surplus is applied to investment patterns during the late medieval, mercantile, and early capitalist stages of economic growth in England and the UK. This paper uses Zhun Xu’s Baran Ratio concept to try to develop general trends to demonstrate and to reinforce other historical accounts of these times that a productive and sufficient level of public and private investment out of accumulated capital income, taxation, and rents does not have a real impact on economic per capita growth until around the 1600s in Britain. This would also be about the time of capitalism’s ascent as the dominant economic system in England. Even then, dramatic increases in investment and economic growth do not appear until the late 18th Century when investment more consistently becomes more than one hundred percent of the level of economic surplus and takes in government spending. The types of investment, threshold amounts of investment out of profits and rents along with government spending seem to matter when it comes to a growth path raising GDP per capita and national income per capita to higher levels. Although much of this knowledge perhaps is embodied in current historical accounts, the Baran Ratio nicely summarizes and illustrates the importance of levels of investment to economic growth.
    Keywords: Baran Ratio, Baran multiplier, capitalism, feudalism, Keynesian multiplier
    JEL: B51 E11 E12 N13
    Date: 2021–09–01
  88. By: Martin Borowiecki; Jon Pareliussen; Daniela Glocker; Eun Jung Kim; Michael Polder; Iryna Rud
    Abstract: This paper analyses the role of intangibles and digital adoption for firm-level productivity in the Netherlands drawing on a newly constructed panel data set of Dutch enterprises. It provides robust evidence on productivity effects of intangibles and digital adoption using firms’ exposure to sector-wide advances in intangible intensity and digital adoption as an instrument. Results show that intangibles as measured by levels of digital skill intensity have a positive and statistically significant impact on firm-level productivity growth in the service sector and for younger firms. Productivity benefits from software investment are strong for low productivity firms. Together, these findings highlight the potential of intangibles to support the productivity catch-up of laggard enterprises. The evidence also suggests that productivity benefits from ICT hardware investment and the uptake of high-speed broadband are positive and sizeable.
    Keywords: digitalisation, intangibles, productivity, skills
    JEL: D24 E22 J24 O33
    Date: 2021–09–08
  89. By: Roberto Censolo; Massimo Morelli
    Abstract: Industry, frugality and prudence can foster growth, and, in turn, growth can sustain individual beliefs that these virtues are the right recipe for the pursuing of happiness. This virtuous circle is an often emphasized contribution of Adam Smith. Equally important but neglected, is the Adam Smith's fear that the opposite vitious cycle can meterialize, especially at stages of development of commercial society characterized by stagnation, alienating working conditions and growming inequality: stagnation of wages, and the frustration coming from the perceived impossibility of trickle down effects from the growing wealth of the few, can degenerate moral sentiments, in ways that we can now associate to may of the current features of populism.
    Keywords: Adam Smith; Moral Sentiments; Secular Stagnation; Inequality
    JEL: B12 E71
    Date: 2021–09–03

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