nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒10‒04
100 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Revisiting Thailand's Monetary Policy Model for an Integrated Policy Analysis By Pongpitch Amatyakul; Tosapol Apaitan; Savaphol Hiruntiaranakul; Nuwat Nookhwun
  2. Estimating business and financial cycles in Slovenia By Lenarčič, Črt
  3. The effects of the ECB's pandemic-related monetary policy measures By Nelimarkka, Jaakko; Laine, Olli-Matti
  4. Analysing euro area inflation outlook with the Phillips curve By Oinonen, Sami; Vilmi, Lauri
  5. More Money for Some: The Redistributive Effects of Open Market Operations By Christian Bustamante
  6. An Economic Response to COVID-19 By Nurdaulet Abilov; Alisher Tolepbergen; Aizhan Bolatbayeva; Zarina Adilkhanova; Erlan Konebayev; Zhandos Ybrayev
  7. Low inflation bends the Phillips curve around the world: Extended results By Kristin J. Forbes; Joseph E. Gagnon; Christopher G. Collins
  8. Human Frictions in the Transmission of Economic Policies By Francesco D’Acunto; Daniel Hoang; Maritta Paloviita; Michael Weber
  9. Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) By Jeremy B. Rudd
  10. Stability and determinants of the public debt-to-GDP ratio: an Input Output – Stock Flow Consistent approach By Di Domenico, Lorenzo
  11. Demand Composition and the Strength of Recoveries By Martin Beraja; Christian K. Wolf
  12. Why the Flow of Funds Don’t Explain the Flow of Funds: Sectoral Balances, Balance Sheets, and the Accumulation Fallacy By Roth, Steve
  13. A unified approach for jointly estimating the business and financial cycle, and the role of financial factors By Berger, Tino; Richter, Julia; Wong, Benjamin
  14. Reserve Bank of India’s Pandemic Responses By Chakraborty, Lekha S
  15. Sovereign debt crisis, fiscal consolidation, and active central bankers in a monetary union By Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  16. The Sahm Rule and Predicting the Great Recession Across OECD Countries By David G. Blanchflower; Alex Bryson
  17. Chaos in the UK New Keynesian Macroeconomy By William Barnett; Giovanni Bella; Taniya Ghosh; Paolo Mattana; Beatrice Venturi
  18. The Bias and Efficiency of the ECB Inflation Projections: a State Dependent Analysis By Eleonora Granziera; Pirkka Jalasjoki; Maritta Paloviita
  19. Have Consumers’ Long-Run Inflation Expectations Become Un-Anchored? By Olivier Armantier; Fatima Boumahdi; Leo Goldman; Gizem Koşar; Jessica Lu; Giorgio Topa; Wilbert Van der Klaauw
  20. Republic of Croatia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Croatia By International Monetary Fund
  21. Post-Compulsory Schooling of Youth in Turkey during the Great Recession: A Case of Pro-cyclical Enrollment By Murat Demirci; Meltem Poyraz
  22. Republic of Tajikistan: 2013 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  23. Oman: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Oman By International Monetary Fund
  24. Information frictions in inflation expectations among five types of economic agents By Camille Cornand; Paul Hubert
  25. Austria: 2021 Article IV Consultation-Press Release; Staff Report; Staff Supplementary Information; and Statement by the Executive Director for Austria By International Monetary Fund
  26. Can the Federal Reserve Effectively Target Main Street? Evidence from the 1970s Recession By John Kandrac
  27. Democratic Republic of São Tomé and Príncipe: Third Review Under the Extended Credit Facility Arrangement and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director By International Monetary Fund
  28. Gespaltene Industriekonjunktur in Deutschland: Stolpersteine auf dem Weg zur Normalisierung By Grömling, Michael; Bardt, Hubertus; Demary, Markus; Hüther, Michael
  29. Georgia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Georgia By International Monetary Fund
  30. Peer Monitoring vs. Search Costs in the Interbank Market: Evidence from Payment Flow Data in Norway By Jon H. Findreng
  31. Are Fiscal Multipliers Estimated with Proxy-SVARs Robust By Giovanni Angelini; Giovanni Caggiano; Efrem Castelnuovo; Luca Fanelli
  32. Brunei Darussalam: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brunei Darussalam By International Monetary Fund
  33. Fiscal Policy in the Age of COVID: Does it ‘Get in all of the Cracks?’ By Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander
  34. From SMP to PEPP: a further look at the risk endogeneity of the Central Bank By Marco Fruzzetti; Giulio Gariano; Gerardo Palazzo; Antonio Scalia
  35. Corporate debt booms, financial constraints, and the investment nexus By Bruno Alexandre Ferreira Albuquerque
  36. Money Creation and Banking: Theory and Evidence By Heon Lee
  37. Lockdown length and strength: labour-market effects in Germany during the COVID-19 pandemic By Bauer, Anja; Weber, Enzo
  38. Belgium: 2021 Article IV Consultation -Press Release; Staff Report; and Statement by the Executive Director for Belgium By International Monetary Fund
  39. Trade Policy is Real News: Theory and Evidence By George Alessandria; Carter Mix
  40. Energy Efficiency and CO2 Emission Fluctuations By Soojin Jo; Lilia Karnizova
  41. Why Does Risk Matter More in Recessions than in Expansions? By Martin M. Andreasen; Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
  42. Heterogeneity of Beliefs and Information Rigidity in the Crude Oil Market: Evidence from Survey Data By Robert L. Czudaj
  43. COVID Response: The Primary Dealer Credit Facility By Antoine Martin; Susan McLaughlin
  44. On the Slope of the Beveridge Curve in the Housing Market By Miroslav Gabrovski; Victor Ortego-Marti
  45. Shortterm impacts and interaction of macroprudential policy tools By Shaun de Jager; Riaan Ehlers; Keabetswe Mojapelo; Pieter Pienaar
  46. The Spillover Effects of COVID-19 on Productivity throughout the Supply Chain By Victoria E. Agwam; Pablo Azar; Kyra Frye
  47. Capital Theory Debates: New Developments and Direction By Tsoulfidis, Lefteris
  48. Is High Inflation the New Challenge for Central Banks? By Luigi Bonatti Roberto Tamborini; Roberto Tamborini
  49. Financial Stress and Effect on Real Economy: The Turkish Experience By Yildirim, Yusuf; Sanyal, Anirban
  50. Republic of Tajikistan: 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  51. Business More Like Usual By John C. Williams
  52. Republic of Tajikistan: 2015 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  53. On the nature of monetary and price inflation and hyperinflation By Laurence Francis Lacey
  54. Monetary Policy and Exchange Rate Response: Evidence from Shock-based SVAR with Uncertainty Measures? By Cheolbeom Park; Seungyoo Shin
  55. Macroprudential policy and the sovereign-bank nexus in the euro area By Hristov, Nikolay; Hülsewig, Oliver; Kolb, Benedikt
  56. United Republic of Tanzania: Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for the United Republic of Tanzania By International Monetary Fund
  57. Republic of Tajikistan: 2017 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  58. Growth-at-risk and macroprudential policy design JEL Classification: G01, G20, G28 By Suarez, Javier
  59. Malta: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malta By International Monetary Fund
  60. COVID Response: The Main Street Lending Program By David M. Arseneau; Jose Fillat; Molly Mahar; Donald P. Morgan; Skander J. Van den Heuvel
  61. The Decline in Capital-Skill Complementarity By Gonzalo Castex; Stanley Cho; Evgenia Dechter
  62. Business Dynamism, Sectoral Reallocation and Productivity in a Pandemic By Guido Ascari; Andrea Colciago; Riccardo Silvestrini
  63. A Q-Theory of Banks By Juliane Beganau; Saki Bigio; Jeremy Majerovitz; Matias Vieyra
  64. Vanuatu: 2021 Article IV Consultation -Press Release; Staff Report; and Statement by the Executive Director for Vanuatu By International Monetary Fund
  65. Money and cooperation in small communities By So Kubota
  66. Education-occupation mismatch in the context of informality and development By Mariya Aleksynska; Alexandre Kolev
  67. COVID Response: The Commercial Paper Funding Facility By Nina Boyarchenko; Richard K. Crump; Anna Kovner; Deborah Leonard
  68. Fiscal rules’ compliance and Social Welfare. By Kea BARET
  69. Mind the Gap By Prydz, Espen Beer; Jolliffe, Dean; Serajuddin, Umar
  70. 60%, -4% and 6%, a tale of thresholds for EU fiscal and current account developments By António Afonso; José Carlos Coelho
  71. Honduras: Fourth Reviews Under the Stand-by Arrangement and the Arrangement Under the Standby Credit Facility, Requests for Augmentation of Access, Extension and Rephasing of the Arrangements, and Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report By International Monetary Fund
  72. Georgia: Financial System Stability Assessment By International Monetary Fund
  73. Did Fiscal Space Foster Covid-19's Fiscal Stimuli ? By Ablam Estel Apeti; Jean-Louis Combes; Xavier Debrun; Alexandru Minea
  74. The evolution of educational wage differentials for women and men, from 1996 to 2019 By Ordemann, Jessica; Pfeiffer, Friedhelm
  75. The Main Street Lending Program By David M. Arseneau; Jose Fillat; Molly Mahar; Donald P. Morgan; Skander J. Van den Heuvel
  76. Online Appendix to Energy Efficiency and CO2 Emission Fluctuations By Soojin Jo; Lilia Karnizova
  77. A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt By Allen N. Berger; Onesime Epouhe; Raluca Roman
  78. COVID Response: The Term Asset-Backed Securities Loan Facility By Elizabeth Caviness; Ankur Goyal; Woojung Park; Asani Sarkar
  79. The Sahm Rule and Predicting the Great Recession Across OECD Countries By David G. Blanchflower; Alex Bryson
  80. Monetary Policy in the Time of COVID By Jerome H. Powell
  81. Estimating firms’ bank-switching costs By Karolis Liaudinskas; Kristina Grigaitė
  82. COVID Response: The Fed’s Central Bank Swap Lines and FIMA Repo Facility By Mark Choi; Linda S. Goldberg; Robert Lerman; Fabiola Ravazzolo
  83. La transformación en el uso de efectivo y pagos digitales durante la pandemia de Covid-19 By Batiz-Lazo, Bernardo; Bautista-González, Manuel A; González-Correa, Ignacio
  84. Online Appendix to "The Delphic forward guidance puzzle in New Keynesian models" By Ippei Fujiwara; Yuichiro Waki
  85. Looking back at the 2008-crisis lesson to help Vietnam’s stock market hold its attraction to investors By Nguyen, Minh-Hoang
  86. The generic economic entity types. A critical analysis of basics of the Keynesian Macro-Model. By ANDREI, Dalina; Andrei, Liviu Catalin
  87. Régimen de crecimiento de la economía uruguaya. Una aproximación desde el lado de la demanda (1908 – 2017) By Pablo Marmissolle
  88. A Nash Equilibrium for Differential Games with Moving-horizon Strategies By Enrico Saltari; Willi Semmler; Giovanni Di Bartolomeo
  89. Overview of the main trends in the execution of consolidated budgets of the regions of the Russian Far East in 2019 and the features of budgetary processes in 2021 By Elena Veprikova; Ilya Shevchenko
  90. Factor Supply Elasticities, Returns to Scale, and the Direction of Technological Progress By Li, Defu; Benjamin, Bental
  91. Macroeconomic forecasting with LSTM and mixed frequency time series data By Sarun Kamolthip
  92. The resource rent in Norwegian aquaculture 1984-2020. Calculations applying the National Accounts By Mads Greaker; Lars Lindholt
  93. Die Kinder- und Jugendhilfe - zwischen lokalen Bedarfen und sozialen Renditen: Eine Bestandsaufnahme By Hünnemeyer, Vanessa R.; Kempermann, Hanno
  94. Sovereign Debt and Supersanctions in Emerging Markets: Evidence from Four Southeast European Countries, 1878-1913 By Andreea-Alexandra Maerean; Maja Pedersen; Paul Sharp
  95. Sorting with Team Formation By Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
  96. Narratives in economics By Roos, Michael W. M.; Reccius, Matthias
  97. Application Machine Learning in Construction Management By Nguyen, Phong Thanh
  98. What we pay in the shadow: Labor tax evasion, minimum wage hike and employment By Nicolas Gavoille; Anna Zasova
  99. Automation and labor market polarization in an evolutionary model with heterogeneous workers. By Florent Bordot; André Lorentz
  100. Allies or Commitment Devices? A Model of Appointments to the Federal Reserve By Schnakenberg, Keith; Turner, Ian R; Uribe-McGuire, Alicia

  1. By: Pongpitch Amatyakul (Bank of Thailand); Tosapol Apaitan (Bank of Thailand); Savaphol Hiruntiaranakul (Bank of Thailand); Nuwat Nookhwun (Bank of Thailand)
    Abstract: The constraints facing conventional monetary policy during the recent COVID-19 pandemic accelerate the central banks' use of integrated policy, using multiple tools to fulfill their macroeconomic objectives. This paper, therefore, aims to improve Thailand's monetary policy model for conducting policy analyses involving multiple tools. We embed macro-financial linkages into our model, which facilitate the identification of various policy tools at the central bank's disposal. The model also features multiple sources of nonlinearity, including an effective lower bound (ELB) constraint, to better capture economic dynamics during crises. We allow for a joint calibration of several tools, including conventional interest rate policy, foreign exchange (FX) intervention, macroprudential regulations and financial measures. Last, given a greater emphasis on financial stability, we attempt to measure macro-financial tail risks, which permit an analysis of policy trade-offs in addressing risks to financial stability. We show three applications of our model to shed light on potential gains from policy complementarity during the aftermath of COVID-19 pandemic: first, assessing the role of financial measures and FX intervention in supporting economic recovery; second, evaluating the interactions of monetary and macroprudential policies in maintaining financial stability; third, showing roles of fiscal policy as the ELB constraint binds.
    Keywords: Monetary Policy, Integrated Policy Framework, Semi-structural Model, Financial Stability
    JEL: C32 E37 E52 E58
    Date: 2021–09
  2. By: Lenarčič, Črt
    Abstract: In this paper we utilize a multivariate STSM model in order to estimate trend and cyclical components on a set of business and financial economic variables for Slovenia. The results show that financial cycles are somewhat longer compared to business cycles. Comparing the standard deviations of financial and business cycles give inconclusive results on average, but excluding particular macroeconomic variables that are by definition more volatile, we see that also standard deviations of financial cycles tend to be larger. From the economic policy implications point of view the results might not come as a surprise, but are utterly important for additionally implementing financial stability goals alongside the monetary policy mandate, as financial cycles seem to be longer and deeper compared to business cycles.
    Keywords: Unobserved components models, financial cycles, housing cycles, business cycles, model-based filters
    JEL: C32 E32 E44
    Date: 2021–10
  3. By: Nelimarkka, Jaakko; Laine, Olli-Matti
    Abstract: We assess the macroeconomic impact of pandemic-related monetary policy measures of the ECB. Conditioning on counterfactual interest rate paths that would have materialised in the absence of the policies, the macroeconomic effects are measured using structural vector autoregressions. In the framework, multiple monetary policy measures may simultaneously be analysed. According to our results, the asset purchase programmes implemented during the crisis have increased the annual GDP growth by approximate 2 percentage points in 2020-2021 and inflation by 0.5 percentage points. The longer-term refinancing operations have contributed positively but more mildly to the economic activity.
    Keywords: Monetary policy,Covid-19,ECB,structural VAR,policy evaluation
    JEL: C32 C54 E43 E52 E58
    Date: 2021
  4. By: Oinonen, Sami; Vilmi, Lauri
    Abstract: This paper presents the New Keynesian Phillips Curve (NKPC) -based framework for analysing euro area inflation outlook. Our NKPC specification, that relies on market- and survey-based inflation expectations, explains well euro area inflation dynamics. Its forecasting performance is also comparable to the performance of the ECB's official forecasts in both short- and long-horizons. Overall, the NKPC is a useful tool for monitoring euro area inflation outlook. Thanks to its fast and light updating procedure it provides almost real-time information on inflation outlook.
    Keywords: euro area,inflation expectations,inflation forecasting,Phillips curve
    JEL: E31 E37
    Date: 2021
  5. By: Christian Bustamante
    Abstract: Using a general equilibrium search-theoretic model of money, I study the distributional effects of open market operations. In my model, heterogeneous agents trade bilaterally among themselves in a frictional market and save using cash and illiquid short-term nominal government bonds. Wealth effects generate slow adjustments in agents’ portfolios following their trading activity in decentralized markets, giving rise to a persistent and nondegenerate distribution of assets. The model reproduces the distribution of asset levels and portfolios across households observed in the data, which is crucial to quantitatively assess the incidence of monetary policy changes at the individual level. I find that an open market operation targeting a higher nominal interest rate requires increasing the relative supply of bonds, raising the ability of agents to self-insure against idiosyncratic shocks. As a result, in the long run, inequality falls, and the inefficiencies in decentralized trading shrink. This leads agents that are relatively poor and more liquidity-constrained to benefit the most by increasing their consumption and welfare.
    Keywords: Inflation and prices; Monetary policy; Monetary policy implementation; Monetary policy transmission
    JEL: E21 E32 E52
    Date: 2021–09
  6. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University); Alisher Tolepbergen (NAC Analytica, Nazarbayev University); Aizhan Bolatbayeva (NAC Analytica, Nazarbayev University); Zarina Adilkhanova (NAC Analytica, Nazarbayev University); Erlan Konebayev (NAC Analytica, Nazarbayev University); Zhandos Ybrayev
    Abstract: Current report presents economic analyses and policy recommendations for Kazakhstan based on the research and models of NAC Analytica (Nazarbayev University) in close coordination with the academics of the Economics Department (Nazarbayev University). The main objective of the report is the formulation of economic policy in response to the pandemic COVID-19 that has infected over 3 million people over the world and poses a substantial risk to the economy of Kazakhstan and of the rest of the world. Hence, there is an impeccable need for designing informed fiscal, monetary and social policy responses to combat in an effective manner a negative impact of the pandemic on the economy.
    Keywords: COVID-19; Fiscal policy; Forecasts; Pandemic; Kazakhstan
    JEL: E17 E32 E37 E61 E62
    Date: 2020–04
  7. By: Kristin J. Forbes (Massachusetts Institute of Technology (MIT)); Joseph E. Gagnon (Peterson Institute for International Economics); Christopher G. Collins (Morgan Stanley)
    Abstract: This paper revises and extends PIIE Working Paper 20-6. It continues to find strong support for a Phillips curve that becomes nonlinear when inflation is "low"—which our baseline model defines as less than 3 percent. The nonlinear curve is steep when output is above potential (slack is negative) but flat when output is below potential (slack is positive) so that further increases in economic slack have little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. When inflation is high, the Phillips curve is linear and relatively steep. These results are robust to placing the threshold between the high and low inflation regimes at 2, 3, or 4 percent inflation or for a threshold based on country-specific medians of inflation. In this nonlinear model, international factors play a large role in explaining headline inflation (albeit less so for core inflation), a role that has been increasing since the global financial crisis.
    Keywords: economic slack, globalization, output gap, price dynamics
    JEL: E31 E37 E52 E58 F62
    Date: 2021–09
  8. By: Francesco D’Acunto; Daniel Hoang; Maritta Paloviita; Michael Weber
    Abstract: Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitive-ability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.
    JEL: D12 D84 D91 E21 E31 E32 E52 E65 E70 E71
    Date: 2021–09
  9. By: Jeremy B. Rudd
    Abstract: Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
    Keywords: Phillips curve; Expectations; Inflation; Wage determination; Wage-price spiral
    JEL: E31 E52
    Date: 2021–09–24
  10. By: Di Domenico, Lorenzo
    Abstract: The paper develops a dynamic Input Output - Stock Flow consistent model based on the Supermultiplier approach. This framework integrates the dimension of output determination with the system of relative prices. Through this model, we define the determinants of the public debt-to-GDP ratio and the conditions for its stability. The main results of the research show that: i) Given the interest rate, the saving rate, the tax rate, the industrial profit rate and the coefficients of production there exist a steady-state value of the public debt-to-GDP ratio ingrained in the economic system. This result calls into question the idea of imposing budgetary rules with threshold levels independently from the very specific features of each economic system; ii) Expansions in the level of public expenditure have a permanent effect on the public debt-to-GDP ratio only in the presence of the accelerator effect, that is, through an induced increase in the share of private indebtedness on GDP and aggregate debt. Because of the accelerator channel, the public debt-to-GDP ratio depends on the capital intensity of the aggregate production process and, thus, on the system of relative prices. With this respect, the capital intensity determines the elasticity of private indebtedness with respect to one-point change in public spending; iii) Conversely to the neoclassical argument, the relationship between the interest rate and public debt-to-GDP ratio goes from the first to the second. In particular, changes in the interest rate modify the public debt-to-GDP ratio through both variations in the quantitative and value dimension. Such variations have a puzzling effect on the steady-state value of the public debt-to-GDP ratio. For instance, the reverse capital deepening implies that an increase in the interest rate produces a decrease in the public debt-to-GDP ratio. Finally, we point out that, in contrast to the standard argument proposed by mainstream macroeconomics, the condition of fiscal balance jointly a positive differential between the growth rate of output and the interest rate has no relevance for the stability conditions of the public debt-to-GDP ratio. In this regard, we develop a taxonomy of the growth regimes depicted by the model deriving such conditions in each scenario. The necessary condition of stability is the absence of budgetary constraints, it becomes sufficient when one of the following is respected: the growth rate of primary public expenditure is higher than zero, the interest rate is higher than zero or the propensity to consume out of wealth is non-zero.
    Keywords: Fiscal policy, Monetary policy, Public debt-to-GDP ratio, SFC models, Input-Output
    JEL: E12 E17 E42 E43 E52 E62
    Date: 2021–09–29
  11. By: Martin Beraja; Christian K. Wolf
    Abstract: We argue that recoveries from demand-driven recessions with expenditure cuts concentrated in services or non-durables will tend to be weaker than recoveries from recessions more biased towards durables. Intuitively, the smaller the bias towards more durable goods, the less the recovery is buffeted by pent-up demand. We show that, in a standard multi-sector business-cycle model, this prediction holds if and only if, following an aggregate demand shock to all categories of spending (e.g., a monetary shock), expenditure on more durable goods reverts back faster. This testable condition receives ample support in U.S. data. We then use (i) a semi-structural shift-share and (ii) a structural model to quantify this effect of varying demand composition on recovery dynamics, and find it to be large. We also discuss implications for optimal stabilization policy.
    JEL: E32 E52
    Date: 2021–09
  12. By: Roth, Steve
    Abstract: This paper highlights and unpacks a little-known reality about the Financial Accounts of the United States: the Flows matrix on page 1 of the Federal Reserve’s quarterly Z.1 report does not explain period-to-period changes in the Levels matrix on page 3. The same is true of the sectoral Flow and Levels tables underlying those matrixes. Nor do those tables provide balance-sheet-complete accounting of household or national wealth accumulation. Measures of net saving/investment/capital formation and accumulation, and national wealth accumulation, diverge by tens of trillions of dollars. The discrepancy is explained and resolved by assembling a balance-sheet-complete empirical derivation of comprehensive U.S. “Haig-Simons” income, based on the Integrated Macroeconomic Accounts. The comprehensive measure is 23% higher than national accounts’ “primary” income. Relationships to the Piketty/Saez/Zucman Distributional National Accounts (DINAs) are discussed, along with implications for economic theory and empirical modeling, both mainstream and heterodox/Post-Keynesian.
    Keywords: wealth; flow of funds; capital; accumulation; integrated macroeconomic accounts; IMAs; income; gains; holding gains; capital gains; haig-simons
    JEL: B4 B5 E21 E22 E25
    Date: 2021–05
  13. By: Berger, Tino; Richter, Julia; Wong, Benjamin
    Abstract: We jointly estimate the U.S. business and financial cycle through a unified empirical approach while simultaneously accounting for the role of financial factors. Our approach uses the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autore-gression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheatingthe business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles.
    Keywords: Business Cycle,Financial Cycle,Financial shocks
    JEL: C18 E51 E32
    Date: 2021
  14. By: Chakraborty, Lekha S
    Abstract: Extraordinary time requires extraordinary policy responses. As the Reserve Bank of India Governor Shri Shaktikanta Das puts it upfront, RBI has responded to a pandemic with “whatever it takes to” narrative and has done “heavy lifting” in terms of policy rates adjustments, liquidity infusion, and the regulatory mechanisms. The covid-19 is a dual crisis - a public health crisis and a macroeconomic crisis. Through the Great Lockdown strategy, we have systematically flattened the curve and moving towards growth recovery. However, strengthening fiscal and monetary linkages is crucial for the sustainability of the economic recovery. The pandemic economics of central banks is twofold. One is the focus on measures that relate to instantaneous economic “firefighting”: for instance, how to adjust the policy rates and also to ensure liquidity infusion into the system to stabilize the market reactions. The second is the long-term policy imperatives, including the regulatory mechanisms. As this crisis is of an unprecedented scale, it calls for unprecedented policy responses. The central banks have responded to the crisis within a “life versus livelihood” framework. This paper analyses the pandemic responses by the central bank of India and its new monetary policy framework of inflation targeting; and concludes with policy suggestions.
    Keywords: Central Bank , Pandemic policy , Covid19, Inflation Targeting, New Monetary Policy framework
    JEL: E52 G28 H63
    Date: 2021
  15. By: Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    Abstract: This paper examines the impact of exogenous shocks on sovereign debts in an incomplete monetary union. We assume that financial stability is a public good which can be undermined by sovereign debt problems in fragile (peripheral) members. Our model shows that, unlike the common misconception, active monetary policies do not induce the peripheral government to relax its fiscal constraints; on the contrary, these policies tend to incentivize fiscal discipline by reducing the cost of balance consolidation. Active monetary policies, in fact, partially reallocate the stabilization costs from the periphery to the core of the union, preserving the common good and facilitating fiscal discipline in the periphery.
    Keywords: Core-periphery models; Stability in a monetary union; Risk sharing; Monetary union institutions; Unconventional policies
    JEL: E02 E58 E63 E65
    Date: 2021–09
  16. By: David G. Blanchflower (Bruce V. Rauner ’78 Professor of Economics, Dartmouth College, Hanover, NH 03755-3514. Adam Smith School of Business, University of Glasgow and NBER); Alex Bryson (Professor of Quantitative Social Science, UCL Social Research Institute, University College London, 20 Bedford Way, London WC1H 0AL)
    Abstract: We examine the start date of the Great Recession across OECD countries based on two successive quarters of negative GDP growth recession. For most OECD countries this establishes the start of recession in Q22008 or Q32008. We find that the Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in other OECD countries it identifies the start in almost every case, after that identified by GDP. But the GDP and labor market data are subject to major revisions, so the turn is not apparent in most countries for some time. We establish our own rule for predicting recession using the fear of unemployment series to predict recession. It involves looking for a ten-point rise in the series compared to its previous twelve month low. These surveys are timely and have the major advantage they are not subject to revision. Across the OECD we confirm this finding with other types of qualitative data and especially so in the UK. Qualitative surveys, we show, in the US in 2006 and 2007 predicted the subsequent recession and they did the same in Europe at the end of 2007 and in the early part of 2008.
    Keywords: Great Recession; business cycles; turning points; Sahm Rule; fear of unemployment
    JEL: E24 E32 E65 J64 J68
    Date: 2021–09–01
  17. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Giovanni Bella (University of Cagliari, Italy); Taniya Ghosh (Indira Gandhi Institute of Development Research, Mumbai, India); Paolo Mattana (University of Cagliari, Italy); Beatrice Venturi (University of Cagliari, Italy)
    Abstract: We study the stability properties and conditions for the onset of Shilnikov chaos in the UK New Keynesian macroeconomy, as well as the shifts in the equilibrium dynamics under various policy regimes. We find that Shilnikov chaos emerges for a restricted part of the free parameters space in the baseline rational expectations UK model with no regime switching. When the UK's central bank showed a weak response to inflation in the high inflation regime, the chaos did not occur at all. But Shilnikov chaos appears easily in the case of the low-inflation regime, which is associated with the Bank of England's use of aggressive monetary policy in recent years. Tightening the monetary policy interest-rate-feedback rule via the Taylor coefficient is one of the policy alternatives proposed by the local analysis for restoring uniqueness. We find that doing so accelerates the emergence of unanticipated phenomena such as Shilnikov's chaotic dynamics. Our results with UK data are thereby consistent with the results with US data by Barnett et al. (2021), who found that the adoption of an active interest rate feedback rule in recent years by the Federal Reserve produces Shilnikov chaos and unintentional downward drift in interest rates towards the lower bound. The source of the chaos and downward drift in interest rates is adoption of a myopic short-run interest-rate feedback rule without a terminal condition as long run anchor. A critical assumption of the results with US and UK data are existence of new Keynesian sticky prices. While the model’s parameters were calibrated with pre-Brexit data, we expect that our results will be highly relevant post-Brexit, as the needed data become available. Changes in the geometry of the Shilnikov fractal attractor set can be expected to be revealing about changes in the level and nature of UK economic risk following Brexit.
    Keywords: Shilnikov chaos criterion, long-term un-predictability, liquidity trap.
    JEL: C61 C62 E12 E52 E63
    Date: 2021–09
  18. By: Eleonora Granziera; Pirkka Jalasjoki; Maritta Paloviita
    Abstract: We test for bias and efficiency of the ECB inflation forecasts using a confidential dataset of ECB macroeconomic quarterly projections. We investigate whether the properties of the forecasts depend on the level of inflation, by distinguishing whether the inflation observed by the ECB at the time of forecasting is above or below the target. The forecasts are unbiased and efficient on average, however there is evidence of state dependence. In particular, the ECB tends to overpredict (underpredict) inflation at intermediate forecast horizons when inflation is below (above) target. The magnitude of the bias is larger when inflation is above the target. These results hold even after accounting for errors in the external assumptions. We also find evidence of inefficiency, in the form of underreaction to news, but only when inflation is above the target. Our findings bear important implications for the ECB forecasting process and ultimately for its communication strategy.
    Keywords: forecast evaluation, forecast eciency, ination forecasts, central bank communication
    JEL: C12 C22 C53 E31 E52
    Date: 2021–04–28
  19. By: Olivier Armantier; Fatima Boumahdi; Leo Goldman; Gizem Koşar; Jessica Lu; Giorgio Topa; Wilbert Van der Klaauw
    Abstract: With the recent surge in inflation since the spring there has been an increase in consumers’ short-run (one-year ahead) and, to a lesser extent, medium-run (three-year ahead) inflation expectations (see Survey of Consumer Expectations). Although this rise in short- and medium-run inflation expectations is relevant for policymakers, it does not provide direct evidence about “un-anchoring” of long-run inflation expectations. Roughly speaking, inflation expectations are considered un-anchored when long-run inflation expectations change significantly in response to developments in inflation or other economic variables, and begin to move away from levels consistent with the central bank’s (implicit or explicit) inflation objective. In that case, actual inflation can become unmoored and risks drifting persistently away from the central bank’s objective. Well-anchored long-run inflation expectations therefore represent an important measure of the success of monetary policy. In this post, we look at the current anchoring of consumers’ long-run inflation expectations using novel data from the Survey of Consumer Expectations (SCE). Our results suggest that in August 2021 consumers’ five-year ahead inflation expectations were as well anchored as they were two years ago, before the start of the pandemic.
    Keywords: inflation expectations; anchoring
    JEL: E31 D84
    Date: 2021–09–24
  20. By: International Monetary Fund
    Abstract: As other emerging economies reliant on tourism (about 25 percent total contribution of tourism-related industries in GDP and employment), Croatia has been hit hard by the pandemic and two devastating earthquakes, leading the economy to contract by 8.0 percent in 2020. Vaccinations have been rolled out to about 38 percent of the population (end-June 2021). Staff projects growth to bounce back to 5.4 percent in 2021, driven by a rebound in the services sector and investment, aided by fiscal and monetary policies, and bolstered by large EU grants over the medium-term.
    Keywords: EU funds; monetary policy stance; expansionary fiscal policy; targeted monetary policy response; EU investment grant; COVID-19; Tourism; Loans; Global
    Date: 2021–09–10
  21. By: Murat Demirci (Department of Economics, Koç University); Meltem Poyraz (Department of Economics, Boğaziçi University)
    Abstract: The impact of recessions on school enrollment is ambiguous. On one hand, recessions might increase the likelihood of enrollment due to decreasing opportunity costs of attending school. On the other hand, recessions might discourage enrollment due to reductions households have in funds available for education and deteriorating expectations about returns to education. In this paper, we empirically analyze how local unemployment rates affect enrollment decisions in Turkey during the period covering the Great Recession of 2008-2009. Our estimates show that the likelihood of enrollment in university undergraduate programs decreases during periods of and in regions experiencing higher unemployment, whereas the enrollment in high schools is not affected. This finding contradicts earlier findings of counter-cyclical enrollment in the context of developed countries. This contrast highlights the variations in the relative importance of the effect of income and expectations and in the potential long-term effects of recessions across countries. In particular, recessions might have longer-lasting negative effects in developing countries due to their adverse effect on human capital accumulation.
    Keywords: The Great Recession, School enrollment, Human capital accumulation, Unemployment, Turkey.
    JEL: E24 E32 I20 J24
    Date: 2021–09
  22. By: International Monetary Fund
    Abstract: Tajikistan successfully completed a 3-year ECF-supported program in May 2012 and needs to continue with ambitious reforms. While growth is robust, it is non-inclusive, leading to large-scale outmigration that makes Tajikistan the most remittance-dependent country in the world. The country remains the poorest of the eight in the Caucasus and Central Asia (CCA) and stands next to last among the seven with rankings in the ease of doing business. Reliance on commodity imports, a narrow export base, and low buffers leave the economy vulnerable. Weak macroeconomic policy frameworks restrict the authorities’ ability to dampen shocks. State-directed lending and investment displace market-financed activity and create fiscal risks. Presidential elections are scheduled for November.
    Keywords: burden indicator; NBT reform action plan; flows shock; creating flow; headline inflation; NBT website; IMF's transparency policy; NBT internal audit; policy discussion; NBT Law; fund request; remittance inflow; Debt sustainability analysis; Monetary statistics; Global; Central Asia and the Caucasus
    Date: 2021–09–03
  23. By: International Monetary Fund
    Abstract: Sultan Haitham ascended to the throne in January 2020 and has committed to implementing strong fiscal and structural reforms to address longstanding vulnerabilities. In addition to persistent fiscal deficits arising from incomplete adjustment to lower oil prices since 2015, Oman faced twin shocks from the COVID-19 pandemic and a collapse in oil prices in 2020 that amplified fiscal and external vulnerabilities. The authorities moved rapidly to contain the spread of COVID-19 infections and provided broad-based policy measures to limit its impact on the economy. In addition, frontloaded fiscal consolidation has been implemented in the 2021 budget as part of the authorities’ Medium-Term Fiscal Plan (MTFP) which aims to eliminate the fiscal deficit over the medium term. Banks have high capital buffers and liquidity, but credit risk is a concern going forward. Structural reforms have been accelerated under Oman Vision 2040 to boost non-oil private sector growth and facilitate job creation.
    Date: 2021–09–12
  24. By: Camille Cornand (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France); Paul Hubert (Banque de France & Sciences Po – OFCE, 31 rue Croix des Petits Champs, 75001 Paris, France)
    Abstract: We compare disagreement in expectations and the frequency of forecast revisions among five categories of agents: households, firms, professional forecasters, policymakers and participants to laboratory experiments. We provide evidence of disagreement among all categories of agents. There is however a strong heterogeneity across categories: while policymakers and professional forecasters exhibit low disagreement, firms and households show strong disagreement. This translates into a heterogeneous frequency of forecast revision across categories of agents, with policymakers revising more frequently their forecasts than firms and professional forecasters. Households last revise less frequently. We are also able to explore the external validity of experimental expectations.
    Keywords: inflation expectations, information frictions, disagreement, forecast revisions, experimental forecasts, survey forecasts, central bank forecasts
    JEL: E3 E5 E7
    Date: 2021
  25. By: International Monetary Fund
    Abstract: Austria entered the crisis from a strong position. Prudent policies prior to the pandemic provided significant policy space. Several lockdowns helped contain the virus but significantly impaired the economy. Real GDP contracted by 6.3 percent in 2020 and declined further in early 2021. The 2021 recovery is expected to be modest; the tourism and hospitality sectors will continue to be affected. Over the medium term, growth will accelerate in 2022 and then stabilize at potential, but the output level will remain somewhat below the pre-COVID trend. Uncertainty remains high.
    Keywords: flash GDP estimate; COVID infection; price development; COVID death; Policy recommendation; COVID-19; External sector statistics; Anti-money laundering and combating the financing of terrorism (AML/CFT); Balance of payments statistics; Income; Central and Eastern Europe; Eastern Europe; Europe; Global
    Date: 2021–09–09
  26. By: John Kandrac
    Abstract: Modern central bankers confront a challenge of providing economic stimulus even when the policy rate is constrained by a lower bound. This challenge has led to substantial innovation by policymakers and a proliferation of new policy tools. In this paper, I offer evidence on the efficacy of a new tool known as funding for lending, which provides banks with subsidized funding to make additional loans. I focus on a historical episode from the United States in which the Federal Reserve provided banks with steeply subsidized loans to promote the expansion of credit within their local communities. I show that the cheap funding succeeded in generating more lending by countering banks' excessive liquidity preference. The additional credit benefited the real economy. Local areas enjoyed higher rates of small business formation and more rapid employment growth. Finally, I show that the cost of the subsidy provided by the government was more than offset by the additional payroll taxes paid out of higher wages and salaries. These results suggest that funding for lending programs deserve consideration for the modern central banker's toolkit and demonstrate that certain unconventional tools can offer monetary policymakers the means to pursue more targeted objectives.
    Keywords: Monetary policy; Funding for lending; Bank lending; Countercyclical policy; Discount window
    JEL: G28 G21 E58 E52
    Date: 2021–09–24
  27. By: International Monetary Fund
    Abstract: São Tomé and Príncipe has maintained macroeconomic stability in the period since the previous ECF review (February 2021). International support and the authorities’ swift actions helped mitigate the impact of the pandemic so far. Growth is estimated at 3 percent in 2020, supported by externally-financed spending. Growth is projected to slow to 2 percent in 2021, reflecting delays in the return of tourists, and to strengthen to 3 percent in 2022. The economic outlook is subject to high uncertainty and downside risks, notably the evolution of the pandemic.
    Date: 2021–09–08
  28. By: Grömling, Michael; Bardt, Hubertus; Demary, Markus; Hüther, Michael
    Abstract: Nach den ersten Infektionswellen im Frühjahr 2020 mit der Folge einer globalen Stillstandsökonomie und den Belastungen im folgenden Winterhalbjahr haben sich die Spielregeln in vielen fortgeschrittenen Volkswirtschaften gewaltig verändert. Der erwachsenen Bevölkerung wurde ein Impfangebot unterbreitet und damit sind wichtige Weichen gestellt, um wieder ein normales Gesellschafts- und Wirtschaftsleben zu realisieren. Das Konsumklima hat sich bereits normalisiert, wenngleich auch im Dienstleistungssektor Personalengpässe die Erholung deckeln. Der Weg zur Normalisierung der Industrie in Deutschland ist jedoch nicht frei von Stolpersteinen. Seit Herbst letzten Jahres stagniert die Industrieproduktion und es zeigt sich eine krasse Spaltung innerhalb der Industrie. Während mit Ausnahme des Maschinenbaus große Teile der Industrie bereits zum Jahresende 2020 die Einbußen infolge der Pandemie weitgehend wettmachen konnten, durchlebte die Automobilindustrie im ersten Halbjahr 2021 einen weiteren enormen Produktionsrückgang. Für die deutsche Industrie insgesamt zeigt sich eine relativ komfortable Nachfragesituation - erkennbar an den stetig wachsenden Auftragsbeständen und am mittlerweile wieder hohen Welthandelsniveau. Die wachsende Divergenz zwischen Nachfrage und Produktion signalisiert ausgeprägte Angebotsrestriktionen. Vielschichtige Gründe für Vorleistungsengpässe verdeutlichen, welche kumulativen Angebotsbelastungen derzeit vor allem für die Industrie einschließlich der Bauwirtschaft bestehen. Diese Ereignisse und Entwicklungen, die derzeit auf der Angebotsseite der Volkswirtschaft zu außergewöhnlichen Anpassungslasten führen, schlagen sich auch in der Preisentwicklung - vor allem bei Import- und Erzeugerpreisen - nieder und haben zuletzt hierzulande dem Thema Inflation eine hohe Aufmerksamkeit verliehen. Für die mittelfristige Entwicklung in Deutschland wird es - neben der Beherrschung der Pandemie durch Impffortschritte - entscheidend sein, die Angebotsverspannung zu lösen. Dies gilt nicht nur für die nationale Perspektive, sondern auch im internationalen Rahmen. Der globale Investitionszyklus wird wegen der Produktionsprobleme in den Investitionsgütersektoren ausgebremst. Bei einer allmählichen Auflösung dieser Liefer- und Wertschöpfungskettenproblematik wird die deutsche Wirtschaft im Jahr 2022 um knapp 4 ¾ Prozent expandieren können. Dagegen ist bei anhaltenden Vorleistungsengpässen allenfalls ein Zuwachs beim realen Bruttoinlandsprodukt von deutlich unter 4 Prozent zu erwarten. Die damit einhergehenden Wertschöpfungsverluste liegen in einer Größenordnung von 30 bis 40 Milliarden Euro.
    Keywords: Konjunktur,Industrie,Weltwirtschaft,Finanzmärkte
    JEL: E2 E3 E5 E6
    Date: 2021
  29. By: International Monetary Fund
    Abstract: High frequency estimates suggest a V-shaped recovery with output now poised to return close to 2019 levels already this year, much earlier than expected. Recently COVID-19 case numbers have risen sharply to new highs while vaccinations have also accelerated significantly after a slow start. The recovery has improved the fiscal outlook and the authorities submitted to Parliament a supplementary budget, with GEL 1.2 billion in additional spending roughly equivalent to the expected increase in revenues. The National Bank of Georgia (NBG) has increased the policy rate by 200 basis points to deal with high inflation driven by lagging effects of depreciation, commodity and food price increases, and supply side constraints.
    Date: 2021–09–21
  30. By: Jon H. Findreng
    Abstract: Bilateral payment flows between banks may provide private information about a borrowing bank’s liquidity position. This paper analyses whether private information on the bilateral payment flow of central bank reserves foster peer monitoring or whether the information is used to reduce search costs in the unsecured interbank market. In the former, banks with outflows of liquidity are penalized by their counterparties, while in the latter, these banks benefit through reduced search costs to find a liquidity provider. I use data from Norges Bank’s real time gross settlement system over the period 2012 to 2015 to identify unsecured overnight interbank loans and payment flows. The results suggest that banks are using private information from payment flows to reduce search costs and not for peer monitoring. This has important implications for regulators’ assessment of the pros and cons of a centralized versus a decentralized interbank market.
    Keywords: peer monitoring, search cost, unsecured overnight interbank market, interest rates, central bank liquidity policy, OTC markets
    JEL: G21 E42 E43 E58
    Date: 2021–05–29
  31. By: Giovanni Angelini (University of Bologna); Giovanni Caggiano (Monash University); Efrem Castelnuovo (University of Padova); Luca Fanelli (University of Bologna)
    Abstract: We estimate government spending and tax multipliers via a flexible proxy-SVAR model, where identification is achieved by combining fiscal and non-fiscal instruments with additional parametric restrictions. We find that, while the spending multiplier is robustly estimated to be larger than one across different models, the estimate of the tax multiplier is sensitive to the combination of instruments that are used. We unveil that the key factor behind these heterogenous estimates is the assumption of orthogonality between the non-fiscal proxy and the tax shock. If this assumption is imposed, the tax multiplier is around one. If it is not imposed, the tax multiplier is three times as large. We provide empirical evidence in favour of the latter specification.
    Keywords: Fiscal multipliers, fiscal policy, identification, instruments, structural vector autoregressions
    JEL: C52 E62
    Date: 2021–09
  32. By: International Monetary Fund
    Abstract: Brunei’s economic performance—which was strong before the COVID-19 pandemic—has been buffeted by the health crisis and a pandemic-induced oil and gas price shock. The authorities responded fast and decisively. The number of new infections was quickly suppressed, thanks to a swift public health response, effective health measures and non-pharmaceutical interventions. Strong fiscal and regulatory policy responses helped sustain production and household income and consumption. Past diversification efforts and reforms bore fruit when it was most needed. As a result, the economy performed strongly in 2020, with real GDP posting positive growth of 1.1 percent—a rare outcome amidst negative growth in the region. Economic activity is projected to strengthen in 2021-22, albeit at varying speeds across sectors, and to continue improving over the medium term on the back of further diversification. The outlook is, however, subject to unusual uncertainty, with significant risks skewed to the downside. Sustained strong policy actions are needed to ensure continued resilience, while nurturing green, digital and inclusive growth.
    Date: 2021–09–20
  33. By: Pierre-Olivier Gourinchas; Ṣebnem Kalemli-Özcan; Veronika Penciakova; Nick Sander
    Abstract: We study the effects of fiscal policy in response to the COVID-19 pandemic at the firm, sector, country and global level. First, we estimate the impact of COVID-19 and policy responses on small and medium sized enterprise (SME) business failures. We combine firm-level financial data from 50 sectors in 27 countries, a detailed I-O network, real-time data on lockdown policies and mobility patterns, and a rich model of firm behavior that allows for several dimensions of heterogeneity. We find: (a) Absent government support, the failure rate of SMEs would have increased by 9 percentage points, significantly more so in emerging market economies (EMs). With policy support it only increased by 4.3 percentage points, and even decreased in advanced economies (AEs). (b) Fiscal policy was poorly targeted: most of the funds disbursed went to firms who did not need it. (c) Nevertheless, we find little evidence of the policy merely postponing mass business failures or creating many ‘zombie’ firms: failure rates rise only slightly in 2021 once policy support is removed. Next, we build a tractable global intertemporal general equilibrium I-O model with fiscal policy. We calibrate the model to 64 countries and 36 sectors. We find that: (d) a sizable share of the global economy is demand-constrained under COVID-19, especially so in EMs. (e) Globally, fiscal policy helped offset about 8% of the downturn in COVID, with a low ‘traditional’ fiscal multiplier. Yet it significantly reduced the share of demand- constrained sectors, preserving employment in these sectors. (f) Fiscal policy exerted small and negative spillovers to output in other countries but positive spillovers on employment. (g) A two-speed recovery would put significant upwards pressure on global interest rates which imposes an additional headwind on the EM recovery. (h) Corporate and sovereign spreads rise when global rates increase, suggesting that EM may face challenging external funding conditions as AEs economies normalize.
    JEL: C67 D2 E62 E65 F32 F41 G33
    Date: 2021–09
  34. By: Marco Fruzzetti (Bank of Italy); Giulio Gariano (Bank of Italy); Gerardo Palazzo (Bank of Italy); Antonio Scalia (Bank of Italy)
    Abstract: This paper examines the evolution of credit risk arising from monetary policy operations and ELA on the Eurosystem balance sheet over the last decade. We employ a dynamic, market-driven risk model relying on the expected default frequencies for sovereigns, banks and corporates provided by Moody’s Analytics. Dependence between defaults is modeled with a multivariate Student t distribution with time-varying parameters. We find that at the end of 2020, risk is slightly above its average value in 2010 and approximately equal to one quarter of the value measured at the peak of the sovereign debt crisis in 2012, notwithstanding the threefold increase in the Eurosystem monetary policy exposure occurred since then. This is due to the launch of the OMT and PEPP, which succeeded in quelling market turmoil, thereby reducing the Eurosystem’s own balance sheet credit risk. The OMT in particular has had a long lasting effect in lowering sovereign risk in the euro area. Our findings support the view that, in periods of severe financial distress, risk for a central bank is largely endogenous.
    Keywords: financial risk measurement, unconventional monetary policy, ELA, sovereign risk, Eurosystem financial risk
    JEL: E58 E52 C15
    Date: 2021–10
  35. By: Bruno Alexandre Ferreira Albuquerque (Bank of England and FEUC)
    Abstract: Does corporate debt overhang affect investment over the medium term? To uncover this association, I measure debt overhang with a concept of debt accumulation or debt boom, and combine leverage with liquid assets to capture financial constraints. Using a large US firm-levelpanel over 1985Q1-2019Q1, I find that debt overhang leads financially vulnerable firms to cutpermanently back on investment: a 10 p.p. increase in the three-year change in the leverageratio is associated with lower investment growth of 5 p.p. after five years compared to the mostresilient firms. I also find that vulnerable firms experience weaker intangible capital growth inthe aftermath of debt booms. Finally, I find that general equilibrium effects dominate, stressingthe risk that firm-specific debt booms in a subset of firms may spill over to the rest of theeconomy.
    Keywords: IFRS 9, IAS 39, CECL, credit risk, transition matrices,stochastic simulation.
    JEL: D22 E22 E32 G32
    Date: 2021–08
  36. By: Heon Lee
    Abstract: This paper develops a monetary-search model where the money multiplier is endogenously determined. I show that when the central bank pays interest on reserves, the money multiplier and the quantity of the reserve can depend on the nominal interest rate and the interest on reserves. The calibrated model can explain the evolution of the money multiplier and the excess reserve-deposit ratio in the pre-2008 and post-2008 periods. The quantitative analysis suggests that the dramatic changes in the money multiplier after 2008 are driven by the introduction of the interest on reserves with a low nominal interest rate.
    Date: 2021–09
  37. By: Bauer, Anja (Institute for Employment Research (IAB), Nuremberg, Germany); Weber, Enzo (Institute for Employment Research (IAB), Nuremberg, Germany)
    Abstract: "This paper evaluates the short-term labour market impact of the COVID-19 containment measures in Germany. It examines two dimensions of the first lockdown in Germany, namely the length and the strength of the lockdown. While the assessment of the length is conducted via variation across regions and time in closing days and curfews, the latter uses the degree of closure in different sectors. For the length of the lockdown we find that an additional day of closure lead to an increase in the separation rate of 2.7 percent and a decrease in the jobfinding rate of 1.8 percent. For the strength of the lockdown the results show that a higher degree of closure increases separations and lower job findings to a similar extent. In both dimensions, we find that the effects are non-linear over time. Given this approach, we find that 31 percent of the considerably increased inflows from employment into unemployment, and 33 percent of the reduced outflows from unemployment to employment in the first wave were due to the treatment effect of the lockdown measures. In sum, the lockdown measures increased unemployment in the short run by 80,000 persons." (Author's abstract, IAB-Doku) ((en))
    Keywords: Bundesrepublik Deutschland ; Pandemie ; Auswirkungen ; Beschäftigungseffekte ; Betriebsunterbrechung ; Dauer ; Entlassungen ; Arbeitslosigkeitsentwicklung ; Kurzarbeit ; Personaleinstellung ; Arbeitsausfall ; 2020-2020
    JEL: E24 J6
    Date: 2021–07–28
  38. By: International Monetary Fund
    Abstract: Belgium was hit hard early by Covid-19, but a timely, strong, and sustained health and economic policy response helped cushion impacts. A coalition government took office in October 2020, giving greater policy clarity and rightly prioritizing the Covid-19 crisis. A highly-effective vaccine rollout has facilitated reopening and recovery.
    Date: 2021–09–15
  39. By: George Alessandria; Carter Mix
    Abstract: We evaluate the aggregate effects of changes in trade barriers when these changes can be implemented slowly over time and trade responds gradually to changes in trade barriers because firm-level trade costs make exporting a dynamic decision. Our model shows how expectations of changes in trade barriers affect the economy. We find that while decreases in trade barriers increase economic activity, expectations of lower future trade barriers temporarily decrease investment, hours worked, and output. Further- more, canceling an expected decline in future trade barriers raises investment and output in the short run but substantially lowers medium-run growth. These effects are larger when the expected reform is bigger. In the data, we find that countries with more trade growth after the General Agreement on Tariffs and Trade (GATT) rounds decreased investment and hours worked in the years leading to the tariff cuts, as predicted by our model.
    Keywords: Trade Policy; Business Cycles; Sunk Costs; Gains from Trade
    JEL: E31 F12
    Date: 2021–09–24
  40. By: Soojin Jo (Yonsei University and Bank of Canada); Lilia Karnizova (Department of Economics, University of Ottawa)
    Abstract: CO2 emissions are commonly perceived to rise and fall with aggregate output. Yet many factors, including energy efficiency improvements, emission coefficient variations, and shifts to cleaner energy, can break the positive emissions-output relationship. To evaluate the importance of such factors, we uncover shocks that by construction reduce emissions without lowering output. These novel shocks explain a substantial fraction of emission fluctuations. We interpret these shocks as changes in the energy efficiency of consumer products, after extensive examinations of their impacts on macroeconomic and environmental indicators. Consequently, models omitting energy efficiency likely overestimate the trade-off between environmental protection and economic performance.
    Keywords: CO2 emissions, energy efficiency, E-DSGE, sign restrictions.
    JEL: E32 Q43 Q50 Q55
    Date: 2021
  41. By: Martin M. Andreasen (Department of Economics and Business Economics, CREATES, Aarhus University, The Danish Finance Institute); Giovanni Caggiano (Monash University, University of Padova); Efrem Castelnuovo (University of Padova); Giovanni Pellegrino (Department of Economics and Business Economics, Aarhus University)
    Abstract: This paper uses a nonlinear vector autoregression and a non-recursive identification strategy to show that an equal-sized uncertainty shock generates a larger contraction in real activity when growth is low (as in recessions) than when growth is high (as in expansions). An estimated New Keynesian model with recursive preferences and approximated to third order around its risky steady state replicates these state-dependent responses. The key mechanism behind this result is that firms display a stronger upward nominal pricing bias in recessions than in expansions, because recessions imply higher inflation volatility and higher marginal utility of consumption than expansions.
    Keywords: New Keynesian Model, Nonlinear SVAR, Non-recursive identification, State-dependent uncertainty shock, Risky steady state
    JEL: C15 C32 C53 E30
    Date: 2021–09–29
  42. By: Robert L. Czudaj (Department of Economics, Chemnitz University of Technology)
    Abstract: This paper assesses information contained in the micro dataset of the ECB Survey of Professional Forecasters regarding quarterly Brent crude oil price forecasts. We examine the expectations building mechanism by referring to the processing of information and confirm the presence of information rigidity within the crude oil market. However, our findings also show that simple models of imperfect information considered in the literature are insufficient to explain the behavior of professional forecasters. We provide additional stylized facts which are helpful for designing more elaborate imperfect information models
    Keywords: Crude oil, Disagreement, Expectations, Heterogeneity, Information rigidity, Survey data
    JEL: D83 D84 E44
    Date: 2021–09
  43. By: Antoine Martin; Susan McLaughlin
    Abstract: The Federal Reserve established a new Primary Dealer Credit Facility (PDCF) in March 2020, to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households, in the face of deteriorating conditions in the market for triparty repo financing due to the coronavirus pandemic. A similar facility had been established in March 2008 to help restore the orderly functioning of the market, following the near-bankruptcy of Bear Stearns, and to prevent the spillover of distress to other financial firms. This paper provides an overview of the 2020 PDCF and compares it to the 2008 version.
    Keywords: Primary Dealer Credit Facility; COVID-19; Federal Reserve lending facilities; pandemic
    JEL: E58 G21 G24
    Date: 2021–09–01
  44. By: Miroslav Gabrovski (University of Hawaii at Manoa); Victor Ortego-Marti (University of California Riverside)
    Abstract: The co-movement of buyers and vacancies, i.e. the Beveridge Curve, is a key determinant of the cyclical properties of the housing market. It determines the sign of the correlation between prices and key measures of liquidity such as vacancies (i.e. houses for sale), sales, and time-to-sell. As recent work has shown, to account for the core stylized facts of the housing market, search and matching models must be consistent with a positively correlated co-movement of buyers and vacancies---the Beveridge Curve must be upward-sloping. This paper provides evidence that buyers and vacancies are indeed positively correlated along the housing cycle, i.e. the Beveridge Curve on the housing market is upward sloping. Using data on vacancies and time-to-sell, we construct a series for buyers and estimate the slope of the Beveridge Curve. This approach requires only one minimal structural assumption: the existence of a matching function. The regression results confirm the positive relationship between buyers and vacancies over the business cycle. In addition, we provide an estimate of the elasticity of vacancies with respect to buyers. A one percent increase in vacancies is associated with around a two percent increase in buyers, confirming recent findings that buyers are more volatile than houses for sale. We hope this estimate will help future researchers in this area.
    Keywords: Housing market; Search and matching; Beveridge Curve; Housing liquidity
    JEL: E2 E32 R21 R31
    Date: 2021–09
  45. By: Shaun de Jager; Riaan Ehlers; Keabetswe Mojapelo; Pieter Pienaar
    Abstract: Short-term impacts and interaction of macroprudential policy tools
    Date: 2021–09–27
  46. By: Victoria E. Agwam; Pablo Azar; Kyra Frye
    Abstract: While the shocks from COVID-19 were concentrated in a handful of contact-intensive industries, they had rippling effects throughout the economy, which culminated in a considerable decline in U.S. GDP. In this post, we estimate how much of the fall in U.S. GDP during the pandemic was driven by spillover effects from the productivity losses of contact-intensive industries.
    Keywords: pandemic; COVID-19; productivity; supply chains
    JEL: E2
    Date: 2021–09–27
  47. By: Tsoulfidis, Lefteris (University of Macedonia)
    Abstract: In recent years, the research on capital theory has shifted from reverse capital deepening and reswitching in techniques to a new direction, which goes beyond the near-linearities of price-rates of profit trajectories and wage-rates of profit curves and explicates the reasons behind them. The reswitching issue remains in the background of these studies as a remote, albeit ever-present, possibility. The article contributes some more evidence to the extant literature by utilizing data from the last available benchmark input-output table of the US economy of the year 2012. The derived near-linearities of price trajectories and wage-rate of profit curves are explained by the low effective rank of the economy’s input-output matrices and not from their seemingly random character. These findings shed additional light on a new and more meaningful direction in the research agenda; that is, the possibility of molding the essential features of the economy through dimensionality reduction.
    Keywords: price rate of profit trajectories; capital controversies; effective rank; eigendecomposition; eigenvalues
    JEL: B24 B51 C67 D46 D57 E11 E32
    Date: 2021–09–22
  48. By: Luigi Bonatti Roberto Tamborini; Roberto Tamborini
    Abstract: In this paper we briefly review the macroeconomic theory of inflation, relating it to the recent developments in the advanced economies. Then, we analyse the drivers of the rise in inflation observed in 2021 in the United States and in Europe, and we illustrate the factors that may affect the inflationary scenario of the advanced economies in the longer term. Finally, we discuss what challenges the Federal Reserve and the European Central Bank have to meet in the face of current inflationary pressures. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 27 September 2021.
    Date: 2021
  49. By: Yildirim, Yusuf; Sanyal, Anirban
    Abstract: In this paper, we aim to analyze empirically how economic activity reacts to the financial stress shocks depending on the stress regime in Turkey. Using quarterly data, the effect of financial stress is examined using two threshold vector autoregression model (TVAR) for consumption, investment and real GDP by using financial stress index, credit growth and inflation rate as endogenous variables. The paper proposes local projection approach for estimating threshold VAR model as robustness check to overcome the data limitations. The main result of this paper is that the effect of financial stress on consumption, investment, and real GDP, such as magnitude and significance, vary greatly depending on the financial stress regime. The paper finds that financial stress is found to affect economic growth when the stress level is already high. This corroborates with the effectiveness of credit channel in the financial friction mechanism. On the contrary, the financial stress does not affect real economic activities to significantly during low stress regime. The effect of financial stress impairs consumption and investment growth during high stress regime which leads to slow down of economic activities.
    Keywords: Financial stress index, Threshold VAR model, Markov Switching Model, Local Projection, Forecast Error Variance Decomposition
    JEL: C01 C32 G01
    Date: 2021–09–21
  50. By: International Monetary Fund
    Abstract: Reported economic activity has been strong in 2018-19 and inflation has picked up. The monetary framework is being strengthened. The external position has deteriorated. The fiscal deficit has widened as revenues have declined. Reforms to place the loss-making energy sector on a sound financial footing are underway. The authorities’ development strategy relies on large infrastructure projects— Roghun dam and other large SOE-implemented projects — that need sizable external financing. The financial sector is recovering from the 2015-16 crisis, with a decline in nonperforming loans and improved profitability. The authorities are making efforts to strengthen bank supervision and regulation. However, two formerly-systemic banks remain insolvent and further reforms are needed to restore public confidence in banks.
    Keywords: debt vulnerability; medium debt-carrying capacity; bank governance; NBT reform action plan; depositor confidence; A. exchange rate Policy; dynamics equation; debt recording; Exchange rate flexibility; Exchange rates; Global; Central Asia
    Date: 2021–09–03
  51. By: John C. Williams
    Abstract: Remarks at the Economic Club of New York (delivered via videoconference).
    Keywords: inflation; pandemic; COVID-19; expectations; employment; New York State; monetary policy
    Date: 2021–09–27
  52. By: International Monetary Fund
    Abstract: Growth has been strong and poverty has fallen in the past decade, though Tajikistan faces rising vulnerabilities. Growth is now softening and the external position has weakened dramatically as remittances have fallen with the sharp slowdown in Russia and earnings from cotton and aluminum exports have dropped due to global market developments. The exchange rate is under pressure and international reserves are thin. The fiscal position has been near balance in recent years and debt has been kept low, while fiscal space is becoming limited by rising debt service and contingent liabilities.
    Keywords: headline inflation; burden indicator; Tajikistan FSAP update; NBT reform action plan; liquidity lending; transparency policy; Public and publicly-guaranteed external debt; Debt sustainability analysis; Exchange rates; South Asia; Central Asia; Global; Middle East and Central Asia; Europe
    Date: 2021–09–03
  53. By: Laurence Francis Lacey
    Abstract: Monetary inflation is a sustained increase in the money supply than can result in price inflation, which is a rise in the general level of prices of goods and services. The objectives of this paper were to develop economic models to (1) predict the annual rate of growth in the US consumer price index (CPI), based on the annual growth in the US broad money supply (BMS), the annual growth in US real GDP, and the annual growth in US savings, over the time period 2001 to 2019; (2) investigate the means by which monetary and price inflation can develop into monetary and price hyperinflation. The hypothesis that the annual rate of growth in the US CPI is a function of the annual growth in the US BMS minus the annual growth in US real GDP minus the annual growth in US savings, over the time period investigated, has been shown to be the case. However, an exact relationship required the use of a non-zero residual term. A mathematical statistical formulation of a hyperinflationary process has been provided and used to quantify the period of hyperinflation in the Weimar Republic, from July 1922 until the end of November 1923.
    Date: 2021–08
  54. By: Cheolbeom Park (Department of Economics, Korea University, Seoul, Republic of Korea); Seungyoo Shin (Department of Economics, Boston University, Boston, Massachusetts, US?)
    Abstract: We examine the response of the exchange rate to monetary policy shocks using structural vector autoregression (SVAR). The SVAR approach employed in this study differs from the approaches used in previous studies in that we add uncertainty measures and employ shock-based identification constraints. Using structural shocks that are in accordance with the event and external variable constraints, we demonstrate that the US real effective exchange rate appreciates immediately in response to contractionary monetary policy shocks, with the maximum appreciation occurring within 1 to 2 quarters. We also provide evidence that recursive identification restrictions or the exclusion of any one of the two types of uncertainty measure can generate anomalous responses by the exchange rate. We further show via variance decomposition that monetary policy shocks explain a substantial portion of exchange rate variability, although they are not the most dominant driving force behind this variability.
    Keywords: Exchange rate, Monetary policy, Structural vector autoregressive, Uncovered interest rate parity
    JEL: C32 E52 F31 F41
    Date: 2021
  55. By: Hristov, Nikolay; Hülsewig, Oliver; Kolb, Benedikt
    Abstract: We explore how changes in capital-based macroprudential regulation affect theexposure of national banking sectors to domestic government debt in the euro area,thus strengthening or weakening the sovereign-bank nexus. To do so, we construct ameasure of macroprudential policy based on theMacroprudential Policy EvaluationDatabaseand estimate responses to theunsystematiccomponent of macroprudentialpolicy in panel vector autoregressive models for euro area 'core" and 'periphery"countries. Our main finding suggests that an unsystematic capital-based macro-prudential policy tightening increases banks' exposure to domestic sovereign bondsin the periphery countries and so deepens the sovereign-bank nexus. By contrast,banks in the core countries expand their loan portfolios rather than adjusting theirdomestic sovereign bond holdings in response to the shock. We show that this re-sult can be tied to the theoretical literature and investigate several transmissionchannels. Our results are highly robust to changes in the econometric setup and themacroprudential indicator used.
    Keywords: macroprudential policy,euro area,sovereign-bank nexus,panel vector autore-gressive model
    JEL: C33 G21 G28
    Date: 2021
  56. By: International Monetary Fund
    Abstract: The COVID-19 pandemic has negatively impacted Tanzania’s macroeconomic outlook, and negatively impacted its population’s health and well-being. Tourism collapsed in the wake of travel restrictions, the economy reportedly decelerated to 4.8 percent growth in 2020, and growth is expected to remain subdued in 2021. The previous government downplayed the presence of the COVID-19 virus in Tanzania and the impact of the pandemic in the country, and budgeted insufficient resources to address the health and economic crisis. This has left the new administration of President Hassan with an enormous and urgent challenge to tackle the COVID-19 pandemic. The new administration is implementing comprehensive plans to immediately address the pandemic, resulting in an urgent balance of payments need.
    Date: 2021–09–17
  57. By: International Monetary Fund
    Abstract: Tajikistan is the poorest of the eight Central Asian and Caucasus countries. Economic growth has been high and funded by inward remittances, but poverty remains significant. Macroeconomic policies were generally prudent before the external shocks (lower oil and commodity prices and weaker growth in trading partners) in 2015-16, but slow progress in structural reforms constrained diversification and employment generation. External shocks (through lower remittances and currency depreciation) and an inadequate policy response weakened the external position, exposed major weaknesses in the banking system, and contributed to a rise in public debt. Program discussions held in 2016 were not concluded. While the authorities launched a bank recapitalization plan in December 2016 to maintain depositor confidence and financial stability, additional banking sector reforms are needed.
    Keywords: bank governance; banking sector governance; Tajik economy; debt indicator; creating flow; Creditor bail-in; Public and publicly-guaranteed external debt; Financial statistics; Central Asia; Global; Europe
    Date: 2021–09–03
  58. By: Suarez, Javier
    Keywords: growth-at-risk, macroprudential policy, policy stance, quantile regressions
    Date: 2021–09
  59. By: International Monetary Fund
    Abstract: The fallout from the COVID-19 crisis has hit the Maltese economy hard, particularly its large tourism sector. Using fiscal buffers accumulated prior to the pandemic, the authorities have taken swift actions to support households, businesses, and the healthcare system. With the rapid rollout of COVID-19 vaccine, the economy has reopened for the summer tourism season. While the outlook is surrounded by a high degree of uncertainty, the Maltese economy is expected to rebound by 5¾ percent this year, up from -7¾ percent in 2020. The financial system has remained stable. In late June 2021, the Financial Action Task Force (FATF) put Malta under increased monitoring due to concerns about effectiveness of its anti-money laundering and combatting the financing of terrorism (AML/CFT) framework.
    Date: 2021–09–17
  60. By: David M. Arseneau; Jose Fillat; Molly Mahar; Donald P. Morgan; Skander J. Van den Heuvel
    Abstract: The Main Street Lending Program was created to support credit to small and medium-sized businesses and nonprofit organizations that were harmed by the pandemic, particularly those that were unsupported by other pandemic-response programs. It was the most direct involvement in the business loan market by the Federal Reserve since the 1930s and 1940s. Main Street operated by buying 95 percent participations in standardized loans from lenders (mostly banks) and sharing the credit risk with them. It would end up supporting loans to more than 2,400 borrowers and co-borrowers across the United States, with an average loan size of $9.5 million and total volume of $17.5 billion. This article describes the facility's goals, its design, the challenges and constraints that shaped its reach, and the characteristics of its borrowers and lenders. We conclude with some lessons learned for future policymakers and facility designers.
    Keywords: Main Street Lending Program; COVID-19; credit demand; bank loans; bank capital; small businesses; Federal Reserve lending programs
    JEL: E3 E58 G2
    Date: 2021–09–01
  61. By: Gonzalo Castex (UNSW School of Economics); Stanley Cho (UNSW School of Economics); Evgenia Dechter (UNSW School of Economics)
    Abstract: We revisit the capital-skill complementarity hypothesis and examine whether and under what conditions this mechanism can explain the developments in wage inequality and labor share in the 1963–2016 period. Krusell, Ohanian, Rios-Rull, and Violante (2000) show that a model with capital-skill complementarity mechanism matches the data well and can account for the changes in wage inequality in the 1963–1992 period. We show that applying the model to the 1963–2016 period delivers a good ï¬ t for the skill premium; however, it does not predict the declining pattern in labor share in the last two decades. We modify the model to allow for a flexible technology structure and show that the degree of capital-skill complementarity is declining over time. The model with time-varying capital-skill complementarity can match the changes in skill premium and labor share in the 1963–2016 period.
    Keywords: capital-skill complementarity, technological change, skill-premium, labor share
    JEL: E13 E25 J23 J31 O33
    Date: 2021–07
  62. By: Guido Ascari; Andrea Colciago; Riccardo Silvestrini
    Abstract: Asymmetric effects across sectors are the distinctive features of the Covid-19 shock. Business Formation Statistics in the United States show a reallocation of entry and exit opportunities across sectors in the initial phase of the pandemic. To explain these facts, we propose an Epidemiological-Industry Dynamic model with heterogeneous firms and endogenous firms dynamics. Our analysis suggests that the cleansing effect on business dynamism of the Covid-19 crisis, which typically characterizes recessions, is sector-specific. The framework can rationalize the dynamics of aggregate productivity during the crisis. Monetary policy and sticky wages are central ingredients to capture reallocation effects. Social distancing, by smoothing out cleansing in the social sector, slows down the reallocation process and prolongs the recession, but saves lives.
    Keywords: Covid-19; Productivity; Entry; Reallocation.
    JEL: E3 L16 I3
    Date: 2021–09
  63. By: Juliane Beganau; Saki Bigio; Jeremy Majerovitz; Matias Vieyra
    Abstract: We document five facts about banks: (1) market and book leverage diverged during the 2008 crisis, (2) Tobin's Q predicts future profitability, (3) neither book nor market leverage appears constrained, (4) banks maintain a market-leverage target that is reached slowly, and (5) pre-crisis, leverage was predominantly adjusted by liquidating assets. After the crisis, the adjustment shifted towards retaining earnings. We present a Q-theory where notions of leverage differ because book accounting is slow to acknowledge loan losses. We estimate the model and show that it reproduces the facts. We examine counterfactuals where different accounting rules produce novel policy tradeoffs.
    Keywords: Coronavirus disease (COVID-19); Domestic demand and components; Payment clearing and settlement systems; Recent economic and financial developments
    JEL: E44 G21 G33
    Date: 2021–09
  64. By: International Monetary Fund
    Abstract: Border closures and other pandemic containment measures have kept Vanuatu free from COVID-19. However, they have dealt a heavy blow to economic activity as tourism has come to a virtual halt. On top of the pandemic, Tropical Cyclone Harold and a volcanic eruption in Tanna Island caused extensive economic damage in 2020. In the context of a continued loss of correspondent banking relationships (CBRs) in the Pacific, Vanuatu also lost a key CBR at end-June 2021. Air Vanuatu, one of the state-owned enterprises (SOEs), is in the process of being restructured.
    Date: 2021–09–14
  65. By: So Kubota (Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishiwaseda Shinjuku-ku, Tokyo 169-8050, Japan.)
    Abstract: In this note, I investigate the circulation of money in small communities. I build a two-player repeated gift-giving game and then show that players can sustain coopera- tion by using money. An ecient outcome is obtained when players are able to hold multiple units of currency.
    Keywords: primitive money, repeated game.
    JEL: C73 E42 N10
    Date: 2021–09
  66. By: Mariya Aleksynska; Alexandre Kolev
    Abstract: Using household data from 15 countries in Latin America and Africa, this paper explores linkages between informality and education-occupation matching. The paper applies a unified methodology to measuring education-occupation mismatches and informality, consistently with the international labour and statistical standards in this area. The results suggest that in the majority of low- and middle-income developing countries with available data, workers in informal jobs have higher odds of being undereducated as compared to workers in formal jobs. Workers in formal jobs, in contrast, have higher chances of being overeducated. These results are consistent for dependent as well as for independent workers. They also hold for men and for women according to the gender-disaggregated analysis. Moreover, in the majority of countries considered in this paper, the matching-informality nexus is also related to the extent of informality in a given area: in labour markets with higher informality, informal workers in particular have a higher chance of being undereducated. The paper discusses policy implications of these findings. Ce document de travail analyse les liens entre l’emploi informel et l’inadéquation entre niveaux de formation et emploi à partir des données d’enquêtes de ménages qui couvrent 15 pays d’Amérique latine et d’Afrique. Il s’appuie sur une méthodologie unifiée pour mesurer l'inadéquation formation-emploi et l'informalité, conformément aux normes internationales du travail et des statistiques dans ce domaine. Les résultats suggèrent que dans la majorité des pays en développement à revenu faible et intermédiaire pour lesquels des données sont disponibles, les travailleurs occupant des emplois informels ont une probabilité plus élevée d'être sous-éduqués que les travailleurs occupant des emplois formels. Ceux-ci ont, a contrario, plus de chances d'être sur-éduqués. Ces résultats sont cohérents tant pour les travailleurs salariés que pour les travailleurs indépendants. Selon l’analyse ventilée par sexe, ils sont également valables pour les hommes comme pour les femmes. De plus, dans la majorité des pays considérés dans ce document, le lien entre l’inadéquation formation-emploi et l'informalité est également lié à l'étendue de l'informalité dans une région donnée : sur les marchés du travail où l'informalité est plus élevée, les travailleurs informels en particulier ont plus de probabilités d'être sous-qualifiés. Le document examine les implications de ces résultats pour les politiques publiques.
    Keywords: developing country, informal employment, occupational mismatch, over-qualification, overeducation
    JEL: E24 E26 I21 J24
    Date: 2021–10–04
  67. By: Nina Boyarchenko; Richard K. Crump; Anna Kovner; Deborah Leonard
    Abstract: The Federal Reserve reestablished the Commercial Paper Funding Facility (CPFF 2020) in response to the disruptions in the commercial paper market triggered by the COVID-19 pandemic and subsequent economic shutdowns. The CPFF 2020 was designed to support market functioning and provide a liquidity backstop for the commercial paper market. This paper provides an overview of the CPFF 2020, including detailing the facility’s design, documenting its usage, and describing its impact on commercial paper markets. In addition, we compare the market conditions and facility design in CPFF 2020 to that of the original CPFF facility.
    Keywords: Federal Reserve; commercial paper market; CPFF; Federal Reserve lending facilities
    JEL: G12 G18 G19
    Date: 2021–09–01
  68. By: Kea BARET
    Abstract: This paper studies the side-effects of fiscal rules’ compliance on the economy and social welfare. It considers Budget Balance Rules’ (BBR) compliance effects on maroeconomic indicators and social welfare proxy indicators in sixteen countries between 2004 and 2015. Instead of fiscal rules strength or fiscal rules presence effectiveness, we focus on fiscal rules’ compliance to assess the impact of governments behavior on the social area. The paper shows that governments go beyond the expected trade-off between BBR’s compliance and GDP Growth by operating a reallocation of their spending. Such choices in public expense lead to an increase in social inequalities highlighted that governments finally face a trade-off between fiscal rules’ compliance and social objectives. The analysis constitutes the first use of double/debiased machine learning for treatment recently developed by Chernozhukov et al. [2018] applied to fiscal discipline issues. Through this method we are able to highlight key determinants for BBR’s compliance and assess the compliance’s effect on different macroeconomic and social indicators. We take care of Voter Preferences by computing a new proxy though Latent Factor Analysis Approach, and show that Voter prefenreces appear as a key variable for BBR’s compliance, giving an empirical proof that Wyplosz [2012]’s bias matters.
    Keywords: Fiscal rules’ compliance; Social Welfare; Fiscal Surveillance; Machine learning.
    JEL: E61 H11 H50 H61 H62
    Date: 2021
  69. By: Prydz, Espen Beer; Jolliffe, Dean; Serajuddin, Umar
    Abstract: Estimates of average per capita consumption and income from national accounts differ substantially from corresponding measures of consumption and income from household surveys. Using a new compilation of more than 2,000 household surveys matched to national accounts data, we find that the gaps between the data sources are larger and more robust than previously established. Means of household consumption estimated from surveys are, on average, 20 percent lower than corresponding means from national accounts. The gap with GDP per capita is nearly 50 percent. The gaps have increased in recent decades and are largest in middle-income countries, where annualized growth rates for consumption surveys are systematically lower than national accounts growth rates. We show that the gaps in measures across these two sources have implications for assessments of economic growth, poverty, and inequality. We find that typical survey measures of consumption and income may exaggerate poverty reduction and underestimate inequality.
    Keywords: National Accounts Systems,Household Income and Expenditure Surveys,Poverty,Inequality
    JEL: I3 I32 E31 F01
    Date: 2021
  70. By: António Afonso; José Carlos Coelho
    Abstract: We study the relationship between the budget balance and the current account balance for European Union (EU) countries, using quarterly data from 1995 to 2020. Through the use of panel Granger causality tests and a panel SUR model, we conclude that the relationship is bi-directional for the EU panel as a whole. Furthermore, we find that in Eurozone countries, before 2010, for those countries with an average current account balance-to-GDP ratio outside the range of -4 to 6%, and also in countries whose average debt-to-GDP ratio is greater than 60%, the impact of the budget balance on the current account balance is greater. Conversely, in non-Eurozone countries, after 2010, in countries with a current account balance-to-GDP ratio of -4 to 6%, and also in countries with an average debt-to-GDP ratio of less than 60%, the impact of the fiscal balance on the current account balance is less relevant.
    Keywords: budget deficit; external deficit; European Union; panel data; time series
    JEL: F32 F41 H62 C32 C33
    Date: 2021–09
  71. By: International Monetary Fund
    Abstract: The protracted pandemic and two tropical storms have hit Honduras hard. Despite authorities’ responses, these shocks continue to weigh on activity; reconstruction needs are high while the outlook remains uncertain. The authorities plan to rebuild a more climate-resilient economy, given Honduras’ vulnerabilities to climate change. Presidential elections are scheduled for November 2021.
    Date: 2021–09–14
  72. By: International Monetary Fund
    Abstract: A recovery from the Covid-19 pandemic now underway in Georgia has benefited from a recent pickup in external demand and substantial fiscal support. Significant exchange rate depreciation, global commodity price increases and supply constraints have contributed to inflationary pressures and provided impetus for the authorities to start tightening monetary policy during 2021. Credit growth slowed during the pandemic but has since picked up again. Household and firm indebtedness is relatively high reflecting rapid credit growth in recent years. Banks face elevated credit risks as they carry high exposure to unhedged borrowers in foreign currency, some of whom are facing debt-servicing difficulties due to the pandemic.
    Date: 2021–09–21
  73. By: Ablam Estel Apeti (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Jean-Louis Combes (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Xavier Debrun; Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: Using a large sample of 125 countries we evaluate the effect of the pre-Covid-19 fiscal space on the size of the fiscal stimulus packages in response to the virus. We find that higher ratings and higher tax revenues (to public debt) predict the size of fiscal stimuli, while public debt (to GDP) does not. These findings vary with countries' level of economic development and the type of fiscal stimuli.
    Keywords: Covid-19,Fiscal space,Economic development
    Date: 2021–03–19
  74. By: Ordemann, Jessica; Pfeiffer, Friedhelm
    Abstract: This paper studies the evolution of three higher education wage differentials from 1996 to 2019 in Germany, a period when significant changes in the educational composition of the workforce took place. Based on regression analysis and samples of male and female workers from the Socio-Economic Panel Study, the study finds that while all three educational wage differentials increased, workers graduating from universities experienced an inverted u-shape pattern, reaching a plateau between 2011 and 2015. We argue that the decline which began after 2015, and which is detectable as well in the occupational prestige scores, may have resulted from a relative educational upskilling of the workforce as well as changes in the subject-choice composition of graduates. We also document differences between East and West Germany that appear to level off over time. The paper concludes with open questions related to these findings and potential future developments.
    Keywords: Educational Wage Differentials,Gender Gaps,Higher Education Expansion,Occupational Prestige,Participation
    JEL: J31 J16 I23 J62 E24
    Date: 2021
  75. By: David M. Arseneau; Jose Fillat; Molly Mahar; Donald P. Morgan; Skander J. Van den Heuvel
    Abstract: The Main Street Lending Program was created to support credit to small and medium-sized businesses and nonprofit organizations that were harmed by the pandemic, particularly those that were unsupported by other pandemic-response programs. It was the most direct involvement in the business loan market by the Federal Reserve since the 1930s and 1940s. Main Street operated by buying 95 percent participations in standardized loans from lenders (mostly banks) and sharing the credit risk with them. It would end up supporting loans to more than 2,400 borrowers and co-borrowers across the United States with an average loan size of $9.5 million and total volume of $17.5 billion. This article describes its goals, its design, the challenges and constraints that shaped its reach, and the characteristics of its borrowers and lenders. We conclude with some lessons learned for future policymakers and facility designers.
    Keywords: Main Street Lending Program; COVID-19; emergency lending facilities; credit demand; bank loans; bank capital; small business
    JEL: E51 E65 G21 H12 H81
    Date: 2021–09–24
  76. By: Soojin Jo (Yonsei University and Bank of Canada); Lilia Karnizova (Department of Economics, University of Ottawa)
    Abstract: This Appendix provides additional information and analyses related to our paper Energy Efficiency and CO2 Emission Fluctuations.'' Section 1 explains the data sources and transformations. Section 2 covers a variety of robustness checks conducted for our baseline VAR results. Section 3 reports the results related to the analysis of emissions and energy consumption by the energy-use sector. Specifically, section 3.1 demonstrates the impact of VAR estimation and model uncertainty on the inference from distributed lag models (DLMs). Section 3.2 reports the responses of energy consumption by sector to a negative correlation (NC) shock. Section 4 lays out a full description of the multi-sector E-DSGE explained in section 3.1 of our main text. Finally, section 5 includes additional results on the implications of weather extremes for our interpretation of NC shocks as changes in the energy efficiency of consumer products.
    Keywords: CO2 emissions, energy efficiency, E-DSGE, sign restrictions.
    JEL: E32 Q43 Q50 Q55
    Date: 2021
  77. By: Allen N. Berger; Onesime Epouhe; Raluca Roman
    Abstract: High levels of subprime consumer debt can create social problems. We test the effects of the Troubled Asset Relief Program (TARP) and Paycheck Protection Program (PPP) bailouts during the Global Financial Crisis and COVID-19 crisis, respectively, on this debt. We use over 11 million credit bureau observations of individual consumer debt combined with banking, bailout, and local market data. We find that subprime consumers with more TARP institutions in their markets had significantly increased debt burdens following these bailouts. In contrast, PPP bailouts were associated with reduced subprime consumer debt. Findings are robust to addressing identification concerns, and yield policy implications regarding bailout structures and strings attached to bailout funds.
    Keywords: Household Debt; Subprime Consumer Debt; Banking; Bailouts; TARP; PPP; Financial
    JEL: G01 G28 D10 D12 E58
    Date: 2021–09–23
  78. By: Elizabeth Caviness; Ankur Goyal; Woojung Park; Asani Sarkar
    Abstract: The COVID-19 pandemic disrupted the asset-backed securities (ABS) market, resulting in higher spreads on ABS and briefly halting the issuance of some ABS. On March 23, 2020, the Federal Reserve established the Term Asset-Backed Securities Loan Facility (TALF) to support the flow of credit to consumers and businesses by re-enabling the issuance of ABS. In this paper, we describe how TALF works, how much it was used, and its effect on the issuance and spreads of TALF-eligible securities relative to those of TALF-ineligible securities. We find that both the introduction of TALF and its subsequent expansion were associated with statistically significant declines in the spreads of TALF-eligible relative to TALF-ineligible ABS. However, the facility did not have a statistically significant effect on issuance. Finally, we compare TALF with an earlier version of the facility that was implemented during the global financial crisis and discuss lessons learned from implementing the program.
    Keywords: TALF; COVID crisis; Fed facility; securitization; ABS market; Federal Reserve lending facilities; COVID-19
    JEL: G01 G18 G23
    Date: 2020–09–01
  79. By: David G. Blanchflower; Alex Bryson
    Abstract: We examine the start date of the Great Recession across OECD countries based on two successive quarters of negative GDP growth recession. For most OECD countries this establishes the start of recession in Q22008 or Q32008. We find that the Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in other OECD countries it identifies the start in almost every case, after that identified by GDP. But the GDP and labor market data are subject to major revisions, so the turn is not apparent in most countries for some time. We establish our own rule for predicting recession using the fear of unemployment series to predict recession. It involves looking for a ten-point rise in the series compared to its previous twelve month low. These surveys are timely and have the major advantage they are not subject to revision. Across the OECD we confirm this finding with other types of qualitative data and especially so in the UK. Qualitative surveys, we show, in the US in 2006 and 2007 predicted the subsequent recession and they did the same in Europe at the end of 2007 and in the early part of 2008.
    JEL: E17 J60 J64
    Date: 2021–09
  80. By: Jerome H. Powell
    Date: 2021–08–27
  81. By: Karolis Liaudinskas; Kristina GrigaitÄ—
    Abstract: We explore Lithuanian credit register data and two bank closures to provide a novel estimate of firms’ bank-switching costs and a novel identification of the hold-up problem. We show that when a distressed bank’s closure forced firms to switch, these firms started borrowing at lower interest rates immediately and permanently. This suggests that firms were held up and overcharged exante, and reveals the lower bound of their ex-ante switching costs. Opaquer firms were overcharged more, which suggests that information asymmetries significantly contribute to switching costs. In line with banks’ reputational concerns, a healthy bank’s closure revealed no overcharging. To policy-makers, our results suggest potential benefits of distressed banks’ closures.
    Keywords: switching costs, lending relationships, hold-up, asymmetric information, bank closures, financial distress
    JEL: D82 E51 G21 G33 L14
    Date: 2021
  82. By: Mark Choi; Linda S. Goldberg; Robert Lerman; Fabiola Ravazzolo
    Abstract: Building on the facility design and application experience from the period of the global financial crisis, in March 2020 the Federal Reserve eased the terms on its standing swap lines in collaboration with other central banks, reactivated temporary swap agreements, and then introduced the new Foreign and International Monetary Authorities (FIMA) repo facility. While these facilities share similarities, they are different in their operations, breadth of counterparties and potential span of effects. This article provides key details on these facilities and evidence that the central bank swap lines and FIMA repo facility can reduce strains in global dollar funding markets and U.S. Treasury markets during extreme stress events.
    Keywords: swap line; dollar; liquidity; repo; Federal Reserve lending facilities
    JEL: F33 F34 G28
    Date: 2021–09–01
  83. By: Batiz-Lazo, Bernardo; Bautista-González, Manuel A; González-Correa, Ignacio
    Abstract: Resumen: No hay evidencia sustancial de que la pandemia de Covid-19 represente un cambio estructural hacia una economía sin efectivo (cashless) en el sector de pagos minoristas. En el corto plazo, los consumidores aumentaron su volumen de pagos digitales y sin contacto (contactless) como respuesta a los confinamientos y creencias de que el efectivo podría propagar el virus. Sin embargo, lo anterior no ha resultado en una reducción permanente en el uso o eliminación de billetes y monedas. Además, en muchos países se observó la “paradoja del efectivo”, es decir, una disminución del efectivo como medio de pago y, simultáneamente un alza en su demanda precautoria ante la incertidumbre y el deterioro en las expectativas económicas.
    Abstract: Definitive and uncontroversial evidence is yet to emerge that the Covid-19 pandemic brought about a structural shift to a cashless economy in the retail payments sector. In the short term, consumers increased their volume of digital and contactless payments in response to lockdowns and beliefs that cash could spread the virus. However, this has not resulted in a permanent reduction in the usage or elimination of banknotes and coins. Moreover, there was a “cash paradox” in many countries, i.e., a decrease in the demand of banknotes as means of payment and, simultaneously, a rise in its precautionary demand of cash given consumers’ heightened uncertainty and the deterioration of economic expectations.
    Keywords: Keywords: cash, cashless economy, cashless society, banknotes and coins, digital payments, Covid-19 pandemic, retail payments, Spain, United States, United Kingdom, Mexico. Palabras Clave: efectivo, economía sin efectivo, sociedad sin efectivo, billetes y monedas, pagos digitales, pandemia de Covid-19, sistema de pagos minorista, España, Estados Unidos, Reino Unido, México.
    JEL: E40 G20 L81 N20
    Date: 2021–09
  84. By: Ippei Fujiwara (Keio University); Yuichiro Waki (University of Queensland)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2021
  85. By: Nguyen, Minh-Hoang
    Abstract: Implementing new economic plans, fiscal and monetary policies to help the economy recover in the new “normal stage” is important, but limiting the rise of inflation must not be neglected.
    Date: 2021–09–18
  86. By: ANDREI, Dalina; Andrei, Liviu Catalin
    Abstract: This below paper focuses on the economic entity concept. Difficult to find that (part of) economic literature not dealing with economic entities and issues. For the sake of better understanding ever on this our text below will start from the JM Keynes’ capital paper of 1936’ focusing on what was called the ‚Macro-Model’, but as critical analysis of this last. There will be aimed a consistent image of basic types of economic entities. These last will be, besides the firms and households, on the ’trunk’( main part) of the macro-flow, already ‚recognized’ since the ‚old classics’, banks(with thier today ‚system’), the State (which is actually Government and/or the State economic sector detached) and the rest of the world, that is not only the widest economic area, but equally the appropriate expression of what is called the ‚open economy’.
    Keywords: economic entity, micro- & macro-economics, firms, banks & banking system, State & Government, rest of the world, flows & stocks
    JEL: B12 C0 D0 H0
    Date: 2020–04–17
  87. By: Pablo Marmissolle (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: work seeks to identify how changes in the functional distribution of income have had an impact on Uruguayan economic growth in the long-run (1908-2017). Through a model of demand-led growth, the impact of changes in the wage, profit and rent shares in total product on the growth of consumption, investment, exports and imports is measured. Based on this impact, the different growth regimes that the country has transited in the aforementioned period are identified. The identification of wage-led, profit-led, or a possible rent-led, regimes depends on the influence that changes in these shares have had aggregate demand. The results show that, on the one hand, increases in the profit share harmed economic growth in Uruguay in the long-run. This negative impact has been greater since the beginning of the seventies. On the other hand, rises in the wage share and in the rent share stimulated economic growth during the entire period under study. The results of this research improve the historical-economic understanding of the effects of the functional income distribution on economic growth. Furthermore, in illuminates the discussion regarding which policies would have best promoted economic growth through their distributive impact. The estimations suggest that public policies should have favored greater participation of wages in income to promote economic growth.
    Keywords: Economic Growth; Functional; Economic Growth; Functional Distribution of Income; Growth Regimes; Uruguay.
    JEL: E12 N16 N36 O49
    Date: 2021–08
  88. By: Enrico Saltari; Willi Semmler; Giovanni Di Bartolomeo
    Abstract: Our paper aims at introducing a moving-horizon interaction in a strategic context. We assume that, in each instant of time, players can predict the effects of their actions and those of their opponents on a finite moving horizon. We define an equilibrium concept which is consistent in this setting and develop an appropriate algorithm to compute it by using nonlinear model predictive control techniques. Focusing on the length of forecasting horizon, we propose two economic interpretations for our equilibrium, based on the limited rationality and political economy literature.To provide some practical insights of our approach, we consider a debt stabilization game in a monetary union.
    Keywords: Strategic interactions; Non–linear models; Model predictive control; Fiscal and monetary policy; Public debt
    JEL: C61 C72
    Date: 2021–09
  89. By: Elena Veprikova; Ilya Shevchenko (Eastern State Planning Center)
    Abstract: The article is about the main trends in the execution of the consolidated budgets of the regions of the Russian Far East in 2019 (as of 01.10.2020). Conclusions are drawn about the preservation of the main trends and characteristics of the budget systems of the Far Eastern regions, which were observed earlier (in 2018). According to the data for 9 months of 2020, the features of the execution of regional consolidated budgets in the Far Eastern Federal District were analyzed in the context of overcoming the consequences of the spread of a new coronavirus infection.
    Keywords: budget system, consolidated budget, Russian Far East
    JEL: E62 H75 H76
    Date: 2020–12
  90. By: Li, Defu; Benjamin, Bental
    Abstract: This paper finds that the steady-state direction of technological progress is determined by the relative size of factor supply elasticities and the returns to scale of the production function, which have so far been ignored. However, the relative price (Hicks, 1932) and relative market size (Acemoglu, 2002) emphasized in the existing literature have only short-term effects. This conclusion is obtained by introducing generalized factor accumulation processes that do not restrict factor supply elasticities, and a generalized production function that does not restrict the returns to scale. It emanates solely from the characterizations of production function, steady-state growth, direction of technological progress and factor supply elasticities. The paper also analyzes a particular micro-founded growth model and uses it to exemplify the conclusions. The findings of this paper provide new explanations to the Uzawa (1961) steady-state theorem puzzle as well as to the Kaldor facts characterization of modern economic growth. It also suggests a way to reconcile falling investment good prices with the Kaldor facts. In addition, it may help explain why technological progress did not increase per capita income before the industrial revolution and what might have led to the modern pattern of economic growth.
    Keywords: Economic Growth, Direction of Technological Progress, Returns to Scale, Factor Supply Elasticities, Uzawa’s Steady-State Theorem, Industrial Revolution, Adjustment Cost
    JEL: E13 E25 O33 O41
    Date: 2021–09–26
  91. By: Sarun Kamolthip
    Abstract: This paper demonstrates the potentials of the long short-term memory (LSTM) when applyingwith macroeconomic time series data sampled at different frequencies. We first present how theconventional LSTM model can be adapted to the time series observed at mixed frequencies when thesame mismatch ratio is applied for all pairs of low-frequency output and higher-frequency variable. Togeneralize the LSTM to the case of multiple mismatch ratios, we adopt the unrestricted Mixed DAtaSampling (U-MIDAS) scheme (Foroni et al., 2015) into the LSTM architecture. We assess via bothMonte Carlo simulations and empirical application the out-of-sample predictive performance. Ourproposed models outperform the restricted MIDAS model even in a set up favorable to the MIDASestimator. For real world application, we study forecasting a quarterly growth rate of Thai realGDP using a vast array of macroeconomic indicators both quarterly and monthly. Our LSTM withU-MIDAS scheme easily beats the simple benchmark AR(1) model at all horizons, but outperformsthe strong benchmark univariate LSTM only at one and six months ahead. Nonetheless, we find thatour proposed model could be very helpful in the period of large economic downturns for short-termforecast. Simulation and empirical results seem to support the use of our proposed LSTM withU-MIDAS scheme to nowcasting application.
    Date: 2021–09
  92. By: Mads Greaker; Lars Lindholt (Statistics Norway)
    Abstract: Extraordinarily high returns in a sector based on the extraction of a natural resource can be referred to as resource rents. This study uses the National Accounts and the definitions of the System of Environmental-Economic Accounting to calculate the resource rents in Norwegian aquaculture in the period 1984-2020. If we know the remuneration of all input factors such as capital, labour and technology except the remuneration of the aquacultural services, the resource rent will appear as the difference between the value of output and the remuneration of all other input factors. We argue that we are to a large extent able to separate other input factors from aquacultural services. We perform various sensitivity analysis as introducing higher rates of return, applying alternative wage costs and by treating the stock of fish as real capital. A robust conclusion is that there has been a significant resource rent in aquaculture since 2000 and that it has risen markedly since 2012. In the period 2016-2020 it has averaged 18-20 billion NOK.
    Keywords: Resource rent; aquaculture; National Accounts; System of Environmental-Economic Accounting
    JEL: Q22 L11 E22
    Date: 2021–08
  93. By: Hünnemeyer, Vanessa R.; Kempermann, Hanno
    Abstract: Jährlich werden rund 54,9 Milliarden Euro für die Kinder- und Jugendhilfe (KJH) verausgabt (Stand 2018). Diese verteilen sich jedoch nicht homogen auf die Gemeinden in der Bundesrepublik, sondern je nach sozialen Herausforderungen. Dabei fehlt es an einer interkommunalen Vergleichbarkeit der Finanzmittel im Rahmen dieser sozialstaatlichen Fürsorge. Im Rahmen einer Machbarkeitsstudie wurden fünf Aspekte eruiert und diskutiert, die eine zielgerichtete und transparente Kinder- und Jugendhilfe erschweren. Ein gemeinsamer Angang über föderale Grenzen hinweg - unter Berücksichtigung guter nationaler und internationaler Beispiele - könnte dieses wichtige Feld weiter stärken.
    JEL: C81 D04 E61 I38
    Date: 2021
  94. By: Andreea-Alexandra Maerean (European Commission (DG Economic and Financial Affairs)); Maja Pedersen (University of Southern Denmark); Paul Sharp (University of Southern Denmark)
    Abstract: Do emerging markets need to sacrifice economic sovereignty in order to borrow more cheaply on the international capital markets? To explore this, we exploit a natural experiment following the Treaty of Berlin in 1878 when four Balkan states - Bulgaria, Greece, Romania, and Serbia - received full or de facto independence. Using a novel dataset of monthly bond prices from the Berlin and London stock exchanges, we find that a sacrifice of national sovereignty or ‘supersanctions’ was one way for these emerging markets to receive more favourable borrowing conditions. Romania never submitted to such measures, however, but was usually able to borrow more cheaply than her neighbours.
    Keywords: Bulgaria, creditworthiness, emerging markets, Greece, Romania, Serbia, sovereign debt
    JEL: E4 E5 G1 N2
    Date: 2021–09
  95. By: Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
    Abstract: We fully solve an assignment problem with heterogeneous firms and multiple heterogeneous workers whose skills are imperfect substitutes, that is, when production is submodular. We show that sorting is neither positive nor negative and is characterized sufficiently by two regions. In the first region, mediocre firms sort with mediocre workers and coworkers such that output losses are equal across all these pairings (complete mixing). In the second region, high skill workers sort with a low skill coworker and a high productivity firm, while high productivity firms employ a low skill worker and a high skill coworker (pairwise countermonotonicity). The equilibrium assignment is also necessarily characterized by product countermonotonicity, meaning that sorting is negative for each dimension of heterogeneity with the product of heterogeneity in the other dimensions. The equilibrium assignment as well as wages and firm values are completely characterized in closed form. We illustrate our theory with an application to show that our model is consistent with the observed dispersion of earnings within and across U.S. firms. Our counterfactual analysis gives evidence that the change in the firm project distribution between 1981 and 2013 has a larger effect on the observed change in earnings dispersion than the change in the worker skill distribution.
    JEL: E0 J0
    Date: 2021–09
  96. By: Roos, Michael W. M.; Reccius, Matthias
    Abstract: There is growing awareness within the economics profession of the important role narratives play in the economy. Even though empirical approaches that try to quantify economic narratives are getting increasingly popular, there is no theory or even a universally accepted definition of economic arratives underlying this research. First, we review and categorize the economic literature concerned with narratives and work out the different paradigms that are at play. Only a subset of the literature considers narratives to be active drivers of economic activity. In order to solidify the foundation of narrative economics, we propose a definition of collective economic narratives, isolating five important characteristics. We argue that, for a narrative to be economically relevant, it must be a sense-making story that emerges in a social context and suggests action to a social group. We also systematize how a collective economic narrative differs from a topic and from other kinds of narratives that are likely to have less impact on the economy. With regard to the popular use of topic modeling as an empirical strategy, we suggest that the complementary use of other canonical methods from the natural language processing toolkit and the development of new methods is inevitable to go beyond identifying topics and be able to move towards true empirical narrative economics.
    Keywords: Narrative economics,complexity economics,narrative turn,textual analysis,NLP
    JEL: D91 E44 E71 B55 B41
    Date: 2021
  97. By: Nguyen, Phong Thanh
    Abstract: Machine Learning is a subset and technology developed in the field of Artificial Intelligence (AI). One of the most widely used machine learning algorithms is the K-Nearest Neighbors (KNN) approach because it is a supervised learning algorithm. This paper applied the K-Nearest Neighbors (KNN) algorithm to predict the construction price index based on Vietnam's socio-economic variables. The data to build the prediction model was from the period 2016 to 2019 based on seven socio-economic variables that impact the construction price index (i.e., industrial production, construction investment capital, Vietnam’s stock price index, consumer price index, foreign exchange rate, total exports, and imports). The research results showed that the construction price index prediction model based on the K-Nearest Neighbors (KNN) regression method has fewer errors than the traditional method.
    Keywords: Artificial Intelligence, K-Nearest Neighbors (KNN), machine learning, price index, construction management
    JEL: C53 C8 E0 L16 L74
    Date: 2020–12–29
  98. By: Nicolas Gavoille; Anna Zasova
    Abstract: The interactions between minimum wage policy and tax evasion remain largely unknown. We study firm-level employment effects of a large and biting minimum wage increase in Latvia conditional on labor tax compliance. The Latvian labor market is characterized by the prevalence of envelope wages, i.e. unreported cash-in-hand complements to the official wage. We apply machine learning to classify firms between compliant and tax-evading using a unique combination of administrative and survey data. We then show that firms engaged in labor tax evasion are insensitive to the minimum wage shock. Our results suggest that these firms use wage underreporting as an adjustment margin, converting (part of) the envelope into legal wage. Increasing minimum wage contributes to tax rule enforcement, but this comes at the cost of negative employment consequences for compliant firms.
    Keywords: Minimum wage; Employment; Tax evasion
    JEL: J08 H26 E26
    Date: 2021–09–21
  99. By: Florent Bordot; André Lorentz
    Abstract: The purpose of this paper is to investigate the mechanisms underlying the relationship between automation and labor market polarization. To do so, we build an agent-based model (ABM) in which workers, heterogeneous in nature and level of skills, interact endogenously on a decentralized labor market with firms producing goods requiring specific set of skills to realize the tasks necessary for the production process. The two scenarios considered, with and without automation, confirm that automation is indeed a key factor in polarizing the structure of skill demand and increasing wage inequality. This result emerges even without reverting to the routine-based technical change (RBTC) hypothesis usually found in the literature, giving some support to the complexity-based technical change (CBTC) hypothesis. Finally, we also highlight that the impact of automation on the distribution of skill demand and wage inequality is correlated with the velocity of technical change.
    Keywords: Automation; Wage Polarization ; Technical Change ; Employment ; Agent-Based Model.
    JEL: C63 E14 J21 J31
    Date: 2021
  100. By: Schnakenberg, Keith; Turner, Ian R (Yale University); Uribe-McGuire, Alicia
    Abstract: We present a model of executive-legislative bargaining over appointments to independent cen-tral banks in the face of an uncertain economy with strategic economic actors. The model highlights the contrast between two idealized views of Federal Reserve appointments. In one view, politicians prefer to appoint conservatively biased central bankers to overcome credible commitment problems that arise in monetary policy. In the other, politicians prefer to appoint allies, and appointments are well described by the spatial model used to describe appointments to other agencies. Both ideals are limiting cases of our model, which depend on the level of economic uncertainty. When economic uncertainty is extremely low, politicians prefer very conservative appointments. When economic uncertainty increases, politicians’ prefer central bank appointees closer to their own ideal points. In the typical case, the results are somewhere in between: equilibrium appointments move in the direction of politician’s preferences but with a moderate conservative bias.
    Date: 2021–09–22

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