nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒10‒11
sixty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Low Inflation Bends the Phillips Curve around the World By Kristin Forbes; Joseph Gagnon; Christopher G. Collins
  2. Household Debt and the Effects of Fiscal Policy By Sami Alpanda; Hyunji Song; Sarah Zubairy
  3. The Heterogeneous Impact of Referrals on Labor Market Outcomes By Benjamin Lester; David A. Rivers; Giorgio Topa
  4. Passive Search and Jobless Recoveries By Alexey Gorn
  5. Oil prices and fiscal policy in an oil-exporter country: empirical evidence from Oman By Aljabri, Salwa; Raghavan, Mala; Vespignani, Joaquin
  6. Income Risk Inequality: Evidence from Spanish Administrative Records By Manuel Arellano; Stéphane Bonhomme; Micole De Vera; Laura Hospido; Siqi Wei
  7. How Expanding EITC Will Benefit 1.5 Million Low-Income Older Workers By Teresa Ghilarducci; Aida Farmand; Bridget Fisher; Siavash Radpour
  8. A Toolkit for Computing Constrained Optimal Policy Projections (COPPs) By Oliver de Groot; Falk Mazelis; Roberto Motto; Annukka Ristiniemi
  9. Reserve tiering and the interbank market By Lucas Marc Fuhrer; Matthias Jüttner; Jan Wrampelmeyer; Matthias Zwicker
  10. Measuring Market Expectations By Christiane Baumeister
  11. Why Does Risk Matter More in Recessions than in Expansions? By Martin M. Andreasen; Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
  12. Financial bubbles and sustainability of public debt: The case of Spain By Vicente Esteve; María A. Prats
  13. What lowered inflation in India: Monetary policy or commodity prices? By Pulapre Balakrishnan; M Parameswaran
  14. The Root Cause of Sovereign Default By Harashima, Taiji
  15. The Aftermath of Debt Surges By M. Ayhan Kose; Franziska Ohnsorge; Carmen Reinhart; Kenneth Rogoff
  16. Oil Prices, Global Demand Expectations, and Near-Term Global Inflation By Jan J. J. Groen; Adam I. Noble
  17. The macroeconomic impact of euro area labour market reforms: evidence from a narrative panel VAR By Rünstler, Gerhard
  18. The Macroeconomic Effects of Universal Basic Income Programs By Andre Luduvice
  19. Estimating Fed’s unconventional policy shocks By Jarociński, Marek
  20. Monetary Policy in a Low Interest Rate Environment: Reversal Rate and Risk-Taking By Heider, Florian; Leonello, Agnese
  21. Evolution of topics in central bank speech communication By Hansson, Magnus
  22. Credit Supply Driven Boom-Bust Cycles By Yavuz Arslan; Bulent Guler; Burhan Kuruscu
  23. Capital Demand Driven Business Cycles: Mechanism and Effects By Karl Naumann-Woleske; Michael Benzaquen. Maxim Gusev; Dimitri Kroujiline
  24. Systems estimation of a structural model of distribution and demand in the US economy By Robert A Blecker; Michael Cauvel; YK Kim
  25. Information Technology and Returns to Scale By D. LASHKARI; A. BAUER; J. BOUSSARD
  26. The Local Fiscal Multiplier of Intergovernmental Grants: Evidence from Federal Medicaid Assistance to States By Seth Giertz; Anil Kumar
  27. The Pandemic Retirement Surge Increased Retirement Inequality By Owen Davis; Bridget Fisher; Teresa Ghilarducci; Siavash Radpour
  28. Make Your Own Luck: The Wage Gains from Starting College in a Bad Economy By Alena Bicakova; Guido Matias Cortes; Jacopo Mazza
  29. Bayesian Learning By Isaac Baley; Laura Veldkamp
  30. Credit Rating Agencies: Evolution or Extinction? By Dimitriadou, Athanasia; Agrapetidou, Anna; Gogas, Periklis; Papadimitriou, Theophilos
  31. Sectoral inflation persistence, market concentration, and imperfect common knowledge By Ryo Kato; Tatsushi Okuda; Takayuki Tsuruga
  32. Decrypting New Age International Capital Flows By Clemens Graf von Luckner; Carmen M. Reinhart; Kenneth S. Rogoff
  33. The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study By Aysit Tansel; Ceyhan Ozturk; Erkan Erdil
  34. Tracking growth in the euro area subject to a dimensionality problem By Comunale, Mariarosaria; Mongelli, Francesco Paolo
  35. What Quantity of Reserves Is Sufficient? By Adam Copeland; Darrell Duffie; Yilin Yang
  36. Inflation in the time of Covid19 II the liquidity surge By Jean-Francois Mercier
  37. Nobody’s child: the Bank of Greece in the interwar years By Andreas Kakridis
  38. Market Power and Labor Share By A. BAUER; J. BOUSSARD
  39. How Short is the Short Run in the Neo-Kaleckian Growth Model? By Ettore Gallo
  40. Inflation and Growth: The Role of Institutions By Hakan Yilmazkuday
  41. Rethinking the Welfare State By Nezih Guner; Remzi Kaygusuz; Gustavo Ventura
  42. The Effects of Biased Labor Market Expectations on Consumption, Wealth Inequality, and Welfare By Almut Balleer; Georg Duernecker; Susanne K. Forstner; Johannes Goensch
  43. The Currency Board Debate of the 1940s-1960s By Thakkar, Parth
  44. The Finance-Growth Nexus in Latin America and the Caribbean: A Meta-Analytic Perspective By Iwasaki, Ichiro
  45. Bubbles, Crashes, Ups and Downs in Economic Growth Theory and Evidence By Pablo A. Guerron-Quintana; Tomohiro Hirano; Ryo Jinnai
  46. Central bank communication with non-experts: a road to nowhere? By Ehrmann, Michael; Wabitsch, Alena
  47. An Update on the U.S.–China Phase One Trade Deal By Hunter L. Clark
  48. The Global Financial Cycle By Silvia Miranda-Agrippino; Hélène Rey
  49. 60%, -4% and 6%, a tale of thresholds for EU fiscal and current account developments By António Afonso; José Carlos Coelho
  50. Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted By Dylan Balla-Elliott Author-1-Name-First: Dylan Author-1-Name-Last: Balla-Elliott; Zoë B. Cullen Author-2-Name-First: Zoë Author-2-Name-Last: Cullen; Edward L. Glaeser Author-3-Name-First: Edward Author-3-Name-Last: Glaeser; Michael Luca Author-4-Name-First: Michael Author-4-Name-Last: Luca; Christopher Stanton Author-5-Name-First: Christopher Author-5-Name-Last: Stanton
  51. Crude Oil Price Changes and Inflation: Evidence for Asia and the Pacific Economies By Jiranyakul, Komain
  52. Hausse des prix immobiliers et mesure du niveau de vie By V. LIN; O. MESLIN
  53. Pandemic Effects in the Solow Growth Model By Carmona, Julio; León, ángel
  54. Expectations-driven productivity in the layered markets By Keiichiro Kobayashi
  55. Why are households saving so much during the corona recession? By Gropp, Reint; McShane, William
  56. What Causes House Prices to Fluctuate? Evidence from South Korea By Jinwoong Lee; Jihee Ann; Cheolbeom Park
  57. Tests for random coefficient variation in vector autoregressive models By Dante Amengual; Gabriele Fiorentini; Enrique Sentana
  58. Misallocation in Indian Agriculture By Marijn Bolhuis; Swapnika Rachapalli; Diego Restuccia
  59. Exposure, Experience, and Expertise: Why Personal Histories Matter in Economics By Ulrike Malmendier
  60. Kurzarbeit in Europa: Die Rettung in der aktuellen Corona-Krise? By Konle-Seidl, Regina

  1. By: Kristin Forbes; Joseph Gagnon; Christopher G. Collins
    Abstract: This paper finds 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.
    JEL: E31 E37 E52 E58 F62
    Date: 2021–10
  2. By: Sami Alpanda (University of Central Florida, Department of Economics); Hyunji Song (Texas A&M University, Department of Economics); Sarah Zubairy (Texas A&M University, Department of Economics)
    Abstract: This paper examines how the effects of government spending shocks depend on the balance-sheet position of households. Employing U.S. household survey data, we find that in response to a positive government spending shock, households with mortgage debt have a large, positive consumption response, while renters have a smaller rise in consumption. Homeowners without mortgage debt, in contrast, have an insignificant expenditure response. We consider a dynamic stochastic general equilibrium (DSGE) model with three types of households: savers who own their housing, borrowers with mortgage debt, and rule-of-thumb consumers who rent housing, and show that it can successfully account for these findings. The model suggests that liquidity constraints and wealth effects, tied to the persistence of public spending, play a crucial role in the propagation of government spending shocks. Our findings provide both empirical and theoretical support for the notion that household mortgage debt position plays an important role in the transmission mechanism of fiscal policy.
    Keywords: Fiscal shocks, Government spending, Household balance sheets, Household debt.
    JEL: E21 E32 E62
    Date: 2021–09–28
  3. By: Benjamin Lester; David A. Rivers; Giorgio Topa
    Abstract: We document a new set of facts regarding the impact of referrals on labor market outcomes. Our results highlight the importance of distinguishing between different types of referrals—those from family and friends and those from business contacts—and different occupations. Then we develop an on-the-job search model that incorporates referrals and calibrate the model to key moments in the data. The calibrated model yields new insights into the roles played by different types of referrals in the match formation process, and provides quantitative estimates of the effects of referrals on employment, earnings, output, and inequality.
    Keywords: labor markets; referrals; networks; search theory; asymmetric information
    JEL: E42 E43 E44 E52 E58
    Date: 2021–10–01
  4. By: Alexey Gorn
    Abstract: For employed workers, passive search is as important as active search. Passive search implies costly poaching by firms. I introduce poaching and passive search into a random matching model of the labor market. In the model, some firms switch from poaching to vacancy posting in recessions. Employed workers respond by increasing active search. By doing so, they crowd out unemployed workers both amplifying and propagating the reaction of unemployment to aggregate shocks. This mechanism can explain the counter-cyclicality of relative on-the-job search inferred from aggregate data. I provide cross-state empirical evidence supporting the mechanism
    Keywords: unemployment, passive search, jobless recoveries, on-the-job search
    JEL: E24 E32 J62 J63 J64
  5. By: Aljabri, Salwa (Tasmanian School of Business & Economics, University of Tasmania); Raghavan, Mala (Tasmanian School of Business & Economics, University of Tasmania); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: This paper studies the impact of oil price shocks on fiscal policy and real GDP in Oman using new unexplored data. We find that an oil price shock explains around 22% and 46% of the variation in the government revenue and GDP, respectively. Decomposing the government revenue and GDP further into petroleum and non-petroleum related components, we find that an oil price shock explains around 26% of the variation in petroleum revenue and 90% of the petroleum-GDP. Though petroleum and non-petroleum GDP respond positively to oil price shocks, government expenditure is not affected by oil prices but is affected by government revenue. The results suggest that the Omani government uses its reserve fund and local and international debt to smooth and reduce the impact of oil price fluctuations
    Keywords: oil price shocks, fiscal policy, GDP, SVAR
    JEL: C32 E17 E62 N15
    Date: 2021
  6. By: Manuel Arellano (CEMFI, Centro de Estudios Monetarios y Financieros); Stéphane Bonhomme (University of Chicago); Micole De Vera (CEMFI, Centro de Estudios Monetarios y Financieros); Laura Hospido (Banco de España); Siqi Wei (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: In this paper we use administrative data from the social security to study income dynamics and income risk inequality in Spain between 2005 and 2018. We construct individual measures of income risk as functions of past employment history, income, and demographics. Focusing on males, we document that income risk is highly unequal in Spain: more than half of the economy has close to perfect predictability of their income, while some face considerable uncertainty. Income risk is inversely related to income and age, and income risk inequality increases markedly in the recession. These findings are robust to a variety of specifications, including using neural networks for prediction and allowing for individual unobserved heterogeneity.
    Keywords: Spain, income dynamics, administrative data, income risk, inequality.
    JEL: D31 E24 E31 J31
    Date: 2021–09
  7. By: Teresa Ghilarducci; Aida Farmand; Bridget Fisher; Siavash Radpour (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: A popular cash transfer program credited with lifting millions out of poverty, the Earned Income Tax Credit (EITC) also reduces wages for non-college educated workers, particularly older workers. Meanwhile, eligibility rules have long prevented most older workers from receiving EITC benefits at the same rate as their younger counterparts. Expanding EITC benefits permanently would offset some of these lost earnings and help stabilize older workers’ earnings. In 2021, Congress enacted a temporary EITC expansion—and our research shows that a permanently expanded EITC would benefit millions of older low-income workers.
    Keywords: Covid-19, Earned Income Tax Credit, EITC, low-income, Workers, Jobs, Unemployment, Risk, Older workers, retirement income, retirement, retirement savings
    JEL: E24 I14 J62 J38 E21 J83 J32
    Date: 2021–10
  8. By: Oliver de Groot; Falk Mazelis; Roberto Motto; Annukka Ristiniemi
    Abstract: This paper presents a toolkit for generating optimal policy projections. It makes five contributions. First, the toolkit requires a minimal set of inputs: only a baseline projection for target and instrument variables and impulse responses of those variables to policy shocks. Second, it solves optimal policy projections under commitment, limited-time commitment, and discretion. Third, it handles multiple policy instruments. Fourth, it handles multiple constraints on policy instruments such as a lower bound on the policy rate and an upper bound on asset purchases. Fifth, it allows alternative approaches to address the forward guidance puzzle. The toolkit that accompanies this paper is Dynare compatible, which facilitates its use. Examples replicate existing results in the optimal monetary policy literature and illustrate the usefulness of the toolkit for highlighting policy trade-offs. We use the toolkit to analyse US monetary policy at the height of the Great Financial Crisis. Given the Fed’s early 2009 baseline macroeconomic projections, we find the Fed’s planned use of the policy rate was close to optimal whereas a more aggressive QE program would have been beneficial.
    Keywords: Optimal monetary policy, Commitment vs. discretion, Lower bound, Asset purchases, Forward guidance puzzle
    JEL: C61 C63 E52 E58
  9. By: Lucas Marc Fuhrer; Matthias Jüttner; Jan Wrampelmeyer; Matthias Zwicker
    Abstract: Since the financial crisis, major central banks have introduced negative interest rates with the help of tiered reserve remuneration. We theoretically and empirically investigate monetary policy implementation via reserve tiering using a unique bank-level dataset from Switzerland. We find that reserve tiering can successfully be used to steer short-term interest rates. Furthermore, reserve tiering helps maintain sufficient activity in the interbank market, which is key for financial stability and reliable interest rate benchmarks. Due to frictions such as collateral constraints, trading costs, and window dressing around regulatory reporting dates, not only the aggregate level of reserves but also the reserve distribution matters for monetary policy implementation.
    Keywords: Interbank market, reserve tiering, negative rates, monetary policy
    JEL: E43 E58 G12 G21
    Date: 2021–09–27
  10. By: Christiane Baumeister (University of Notre Dame; University of Pretoria; NBER; CEPR)
    Abstract: Asset prices are a valuable source of information about financial market participants' expectations about key macroeconomic variables. However, the presence of time-varying risk premia requires an adjustment of market prices to obtain the market's rational assessment of future price and policy developments. This paper reviews empirical approaches for recovering market-based expectations. It starts by laying out the two canonical modeling frameworks that form the backbone for estimating risk premia and highlights the proliferation of risk pricing factors that result in a wide range of different asset-price-based expectation measures. It then describes a key methodological innovation to evaluate the empirical plausibility of risk premium estimates and to identify the most accurate market-based expectation measure. The usefulness of this general approach is illustrated for price expectations in the global oil market. Then, the paper provides an overview of the body of empirical evidence for monetary policy and inflation expectations with a special emphasis on market-specific characteristics that complicate the quest for the best possible market-based expectation measure. Finally, it discusses a number of economic applications where market expectations play a key role for evaluating economic models, guiding policy analysis, and deriving shock measures.
    Keywords: futures markets, risk premia, monetary policy, commodities, market expectations, financial markets, asset pricing, return regressions, affine term structure models, risk adjustment, model uncertainty, forecasting, expectational shocks
    JEL: C52 E31 E43 E52 G14 Q43
    Date: 2021–09
  11. By: Martin M. Andreasen (Aarhus University, CREATES, and the Danish Finance Institute.); Giovanni Caggiano (Monash University and University of Padova.); Efrem Castelnuovo (University of Padova.); Giovanni Pellegrino (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: E32
    Date: 2021–10
  12. By: Vicente Esteve (Universidad de Valencia and Universidad de Alcalá, Spain); María A. Prats (Universidad de Murcia, Spain)
    Abstract: In this paper the dynamics of the Spanish public debt-GDP ratio is analysed during the period 1850-2020. We use a recent procedure to test for recurrent explosive behaviour (Phillips, Wu and Yu, 2011, and Phillips, Shi and Yu, 2015a, 2015b) in order to identify episodes of explosive public debt dynamics and also the episodes of fiscal adjustments over this long period.
    Keywords: Public debt; Fiscal sustainability; Explosiveness; Recursive unit root test; Spain; COVID-19
    JEL: C12 C22 E62 H62 H63
    Date: 2021–09
  13. By: Pulapre Balakrishnan (Ashoka University); M Parameswaran (Centre for Developing Studies)
    Abstract: India has seen lower inflation by historical standards, for the past five years. This has been attributed by some observers to the adoption of inflation targeting by the country’s central bank, the Reserve Bank of India. In particular, it has been asserted that the taming of inflation reflects the anchoring of expectations of it through inflation targeting. We evaluate these claims. Our estimates indicate that there is no basis to the claim that inflation has been lowered due to the anchoring of expectations. On the other hand, we are able to fully account for the trajectory of inflation in India in terms of an explanation of inflation other than the one on which inflation targeting is premised.
    Keywords: Inflation targeting, Inflation models, Monetary policy, India, Structuralist macroeconomics
    Date: 2021–10
  14. By: Harashima, Taiji
    Abstract: Sovereign defaults have occurred more frequently in emerging countries and accompany significant currency depreciation and high inflation. The standard model of sovereign default cannot necessarily explain these facts sufficiently. In this paper, I examine the root cause of sovereign default on the basis of a model of inflation that is built on a micro-foundation of government behavior and conclude that the root cause of sovereign default is an insufficiently independent central bank. Without a sufficiently independent central bank, the government inevitably borrows money excessively, and as a result, inflation and currency depreciation accelerate. This situation will frustrate and anger the population, and the government may then declare a sovereign default in an attempt to place the blame on foreign lenders, at least temporarily.
    Keywords: Central bank; Exchange rate; Government bond; Inflation; International debt; Sovereign default
    JEL: E58 F31 F34 F53 H63
    Date: 2021–10–05
  15. By: M. Ayhan Kose (World Bank, Prospects Group, Brookings Institution, CEPR, and CAMA); Franziska Ohnsorge (World Bank, Prospects Group, CEPR, and CAMA); Carmen Reinhart (World Bank, Harvard Kennedy School, NBER, CEPR); Kenneth Rogoff (Harvard University, NBER)
    Abstract: Debt in emerging market and developing economies (EMDEs) is at its highest level in half a century. In about nine out of 10 EMDEs, debt is higher now than it was in 2010 and, in half of the EMDEs, debt is more than 30 percentage points of gross domestic product higher. Historically, elevated debt levels increased the incidence of debt distress, particularly in EMDEs and particularly when financial market conditions turned less benign. This paper reviews an encompassing menu of options that have, in the past, helped lower debt burdens. Specifically, it examines orthodox options (enhancing growth, fiscal consolidation, privatization, and wealth taxation) and heterodox options (inflation, financial repression, debt default and restructuring). The mix of feasible options depends on country characteristics and the type of debt. However, none of these options comes without political, economic, and social costs. Some options may ultimately be ineffective unless vigorously implemented. Policy reversals in difficult times have been common. The challenges associated with debt reduction raise questions of global governance, including to what extent advanced economies can cast their net wider to cushion prospective shocks to EMDEs.
    Keywords: Debt restructuring; growth; inflation; fiscal consolidation; financial repression; wealth taxes.
    JEL: F62 F34 F44 E32 E63 H6 H63
    Date: 2021–10
  16. By: Jan J. J. Groen; Adam I. Noble
    Abstract: Oil prices have increased by nearly 60 percent since the summer of 2020, coinciding with an upward trend in global inflation. If higher oil prices are the result of constrained supply, then this could pose some stagflation risks to the growth outlook—a concern reflected in a June Financial Times article, “Why OPEC Matters.” In this post, we utilize the demand and supply decomposition from the New York Fed’s Oil Price Dynamics Report to argue that most of the oil price increase over the past year or so has reflected improving global demand expectations. We then illustrate what these changing global demand expectations might mean for near-term global inflation developments.
    Keywords: oil prices; global inflation
    JEL: E2 F00 G1
    Date: 2021–10–04
  17. By: Rünstler, Gerhard
    Abstract: Using new quarterly narrative evidence, this paper examines the macroeconomic impact of reforms of unemployment benefits (UB) and employment protection legislation (EPL) in the euro area from a Bayesian narrative panel VAR. The approach complements existing micro-econometric evidence by aligning short- and mediumterm effects in a unified framework and assessing state dependencies. Liberalising reforms result in temporary wage declines and highly persistent increases in economic activity and employment. In contrast to UB reforms, the effects of EPL reforms on employment emerge only gradually. JEL Classification: E32, J08, O43
    Keywords: discriminant regression, employment protection legislation, narrative identification, unemployment benefits
    Date: 2021–10
  18. By: Andre Luduvice
    Abstract: What are the consequences of a nationwide reform of a transfer system based on means-testing toward one of unconditional transfers? I answer this question with a quantitative model to assess the general equilibrium, inequality, and welfare effects of substituting the current US income security system with a universal basic income (UBI) policy. To do so, I develop an overlapping generations model with idiosyncratic income risk that incorporates intensive and extensive margins of the labor supply, on-the-job learning, and child-bearing costs. The tax-transfer system closely mimics the US design. I calibrate the model to the US economy and conduct counterfactual analyses that implement reforms toward a UBI. I find that an expenditure-neutral reform has moderate impacts on agents’ labor supply response but induces aggregate capital and output to grow due to larger precautionary savings. A UBI of $1,000 monthly requires a substantial increase in the tax rate of consumption used to clear the government budget and leads to an overall decrease in the macroeconomic aggregates, stemming from a drop in the labor supply. In both cases, the economy has more equally distributed disposable income and consumption. The UBI economy constitutes a welfare loss at the transition if it is expenditure-neutral and results in a gain in the second scenario.
    Keywords: Universal Basic Income; Social Insurance; Overlapping Generations; Labor Supply
    JEL: E21 H24 J22
    Date: 2021–09–28
  19. By: Jarociński, Marek
    Abstract: Fed's monetary policy announcements convey a mix of news about different kinds of conventional and unconventional policies and about the economy. Financial market responses to these announcements are very leptokurtic: often tiny, but sometimes large. I estimate the underlying structural shocks exploiting this feature of the data. I find standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance, and estimate their effects. JEL Classification: E52, E58, E44
    Keywords: Asset purchases, Excess kurtosis, Forward guidance, High-frequency identification, Non-Gaussianity
    Date: 2021–08
  20. By: Heider, Florian; Leonello, Agnese
    Abstract: This paper develops a simple analytical framework to study the impact of central bank policy-rate changes on banks’ credit supply and risk-taking incentives. Unobservable expost bank monitoring of loans creates an external-financing constraint, which determines bank leverage. Unobservable, costly ex-ante screening of borrowers determines the level of bank risk-taking. More risk-taking tightens the external-financing constraint. The policy rate affects the external-financing constraint because it affects both the return on outside investors’ alternative investments and loan rates. In a low rate environment, a policy-rate cut reduces bank funding costs less because of a zero lower bound (ZLB) on retail deposit rates. Bank risk-taking is a necessary but not sufficient for a policy-rate cut to become contractionary ("reversal"). Reversal can occur even though banks’ net-interest margins increase. Credit market competition plays an important role for the interplay of monetary policy and financing stability. When banks have market power, a policy-rate cut can increase lending and still lead to risk-taking. We use our analytical framework to discuss the literature on how monetary policy affects the credit supply of banks, with special emphasis on low and negative rates. JEL Classification: E44, E52, E58, G20, G21
    Keywords: bank lending, deposits, equity multiplier, zero-lower bound
    Date: 2021–10
  21. By: Hansson, Magnus (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper studies the content of central bank speech communication from 1997 through 2020 and asks the following questions: (i) What global topics do central banks talk about? (ii) How do these topics evolve over time? I turn to natural language processing, and more specifically Dynamic Topic Models, to answer these questions. The analysis consists of an aggregate study of nine major central banks and a case study of the Federal Reserve, which allows for region specific control variables. I show that: (i) Central banks address a broad range of topics. (ii) The topics are well captured by Dynamic Topic Models. (iii) The global topics exhibit strong and significant autoregressive properties not easily explained by financial control variables.
    Keywords: Central bank communication; Monetary policy; Textual analysis; Dynamic topic models; Narratives
    JEL: C38 C55 E52 E58
    Date: 2021–10
  22. By: Yavuz Arslan (University of Liverpool Management School); Bulent Guler (Indiana University, Department of Economics); Burhan Kuruscu (University of Toronto, Department of Economics)
    Abstract: Can shifts in the credit supply generate a boom-bust cycle similar to the one observed in the US around 2008? To answer this question, we develop a general equilibrium model that combines a rich heterogeneous agent overlapping-generations structure of households who make housing tenure decisions and borrow through long-term mortgages, firms that finance their working capital through short-term loans from banks, and banks whose ability to intermediate funds depends on their capital. Using a calibrated version of this framework, we find that shocks to banks’ leverage can generate sizable boom-bust cycles in the housing market, the banking sector, and the rest of the macroeconomy, which provides strong support for the credit supply channel. The deterioration of bank balance sheets during the bust, the existence of highly leveraged households, and the general equilibrium feedback from the credit supply to household labor income significantly amplify the bust. Moreover, mortgage credit growth across the income distribution is consistent with recent findings that were otherwise argued to be against the credit supply channel. A comparison of the model outcomes across credit supply, house price expectation, and productivity shocks suggests that housing busts accompanied by severe banking crises are more likely to be generated by credit supply shocks.
    Keywords: Credit Supply, House Prices, Financial Crises, Household and Bank Balance Sheets, Leverage, Foreclosures, Mortgage Valuations, Consumption, and Output
    Date: 2021–09
  23. By: Karl Naumann-Woleske; Michael Benzaquen. Maxim Gusev; Dimitri Kroujiline
    Abstract: We develop a tractable macroeconomic model that captures dynamic behaviors across multiple timescales, including business cycles. The model is anchored in a dynamic capital demand framework reflecting an interactions-based process whereby firms determine capital needs and make investment decisions at the micro level. We derive equations for aggregate demand from this micro setting and embed them in the Solow growth economy. As a result, we obtain a closed-form dynamical system with which we study economic fluctuations and their impact on long-term growth. For realistic parameters, the model has two attracting equilibria: one at which the economy contracts and one at which it expands. This bi-stable configuration gives rise to quasiperiodic fluctuations, characterized by the economy's prolonged entrapment in either a contraction or expansion mode punctuated by rapid alternations between them. We identify the underlying endogenous mechanism as a coherence resonance phenomenon. In addition, the model admits a stochastic limit cycle likewise capable of generating quasiperiodic fluctuations; however, we show that these fluctuations cannot be realized as they induce unrealistic growth dynamics. We further find that while the fluctuations powered by coherence resonance can cause substantial excursions from the equilibrium growth path, such deviations vanish in the long run as supply and demand converge.
    Date: 2021–09
  24. By: Robert A Blecker; Michael Cauvel; YK Kim
    Abstract: This paper investigates noncyclical, short-run relationships between income distribution and the components of aggregate demand in the US from 1963-2016. Previous studies using this `structural' methodology have typically found that demand is wage-led in most large, advanced economies. However, these studies have been criticized for treating total output and the wage share as exogenous, potentially leading to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM. Sur- prisingly, these estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models. This paper is also the first to provide separate estimates of nonresidential and residential investment functions and to distinguish the e ects of shocks to di erent underlying determinants of the wage share (unit labour costs and firms' monopoly power), finding that these di er qualitatively.
    Keywords: Income distribution, wage-led demand, profit-led demand, US economy, systems estimation
    JEL: E12 E25 N12 O51 C36
    Date: 2021–10
  25. By: D. LASHKARI (Boston College); A. BAUER (Insee - Crest); J. BOUSSARD (Commission européenne - Crest)
    Abstract: Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features nonhomothetic production functions compatible with this mechanism. Estimating this production function, we identify the nonhomotheticity of IT demand and find an elasticity of substitution between IT and non- IT inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, in response to the fall in the relative price of IT inputs in post-1990 France, the model explains about half of both the observed rise in market concentration and the market reallocations toward low-labor-share firms.
    Keywords: information technology, labor share, competition, production function, nonhomotheticity.
    JEL: E10 E23 E25
    Date: 2020
  26. By: Seth Giertz; Anil Kumar
    Abstract: Advocates of Medicaid expansion argue that federal Medicaid assistance to states fosters economic activity, generating positive local multiplier effects. Furthermore, during economic downturns, Congress regularly tweaks federal match rates for state Medicaid spending – including during the COVID-19 public health emergency – in order to assist states. Despite heavy reliance on Medicaid funding formulas, identifying the economic effect of these federal transfers has proved challenging. This is because federal Medicaid assistance (to states) is endogenous, since funding levels are correlated with unobserved factors driving state economic activity. To address this concern, we construct an instrument based on a slope discontinuity in the federal matching rate for state Medicaid spending. Using state-level panel data from 1990 to 2013, we find that federal Medicaid assistance does stimulate economic activity, but the implied cost per job created is quite high and the multiplier is well below 1. Despite modest economic effects over the entire sample period, we find that federal Medicaid assistance provided powerful fiscal stimulus to states after the Great Recession when the implied multiplier shot up to 1.5.
    Keywords: Fiscal Multiplier; Fiscal Stimulus; Medicaid Matching Grants
    JEL: C31 E62 I38 H31
    Date: 2021–09–24
  27. By: Owen Davis; Bridget Fisher; Teresa Ghilarducci; Siavash Radpour (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: An examination of the status of older workers in June of 2021 reveals three highlights: 1.) Retirement Boom: At least 1.7 million more older workers than expected retired due to the pandemic recession. (2.) Retirement Inequality: At earlier ages, vulnerable older workers retired sooner, while more privileged workers delayed retirement. The share of retired workers among adults aged 55-64 rose 5% for those without a college education but fell 4% for those with a college degree.(3.) Racial Inequality: Black workers without a college degree experienced the highest increase in the share who are retired before age 65. This rate rose 1.5 percentage points, from 16.4% to 17.9%, between 2019 and 2021.
    Keywords: older workers, recession, COVID-19, coronavirus, downward mobility, poverty, unemployment, wages, involuntary retirement, retirement, 401k, Medicare, Older Workers Bureau, racial disparities, disparities, inequality
    JEL: E24 J30 J38 J60 J88 J58
    Date: 2021–06
  28. By: Alena Bicakova; Guido Matias Cortes; Jacopo Mazza
    Abstract: Using data for nearly 40 cohorts of American college graduates and exploiting regional variation in economic conditions, we show robust evidence of a positive relationship between the unemployment rate at the time of college enrollment and subsequent annual earnings, particularly for women. This positive relationship cannot be explained by selection into employment or by economic conditions at the time of graduation. Changes in major field of study account for only about 10% of the observed earnings gains. The results are consistent with intensified effort exerted by students who experience bad economic times at the beginning of their studies.
    Keywords: business cycle; higher education; cohort effects;
    JEL: I23 J24 J31 E32
    Date: 2021–08
  29. By: Isaac Baley; Laura Veldkamp
    Abstract: We survey work using Bayesian learning in macroeconomics, highlighting common themes and new directions. First, we present many of the common types of learning problems agents face---signal extraction problems---and trace out their effects on macro aggregates, in different strategic settings. Then we review different perspectives on how agents get their information. Models differ in their motives for information acquisition and the cost of information, or learning technology. Finally, we survey the growing literature on the data economy, where economic activity generates data and the information in data feeds back to affect economic activity.
    JEL: E0 G14
    Date: 2021–10
  30. By: Dimitriadou, Athanasia (University of Derby); Agrapetidou, Anna (Democritus University of Thrace, Department of Economics); Gogas, Periklis (Democritus University of Thrace, Department of Economics); Papadimitriou, Theophilos (Democritus University of Thrace, Department of Economics)
    Abstract: Credit Rating Agencies (CRAs) have been around for more than 150 years. Their role evolved from mere information collectors and providers to quasi-official arbitrators of credit risk throughout the global financial system. They compiled information that -at the time- was too difficult and costly for their clients to gather on their own. After the 1929 big market crash, they started to play a more formal role. Since then, we see a growing reliance of investors on the CRAs ratings. After the global financial crisis of 2007, the CRAs became the focal point of criticism by economists, politicians, the media, market participants and official regulatory agencies. The reason was obvious: the CRAs failed to perform the job they were supposed to do financial markets, i.e. efficient, effective and prompt measuring and signaling of financial (default) risk. The main criticism was focusing on the “issuer-pays system”, the relatively loose regulatory oversight from the relevant government agencies, the fact that often ratings change ex-post and the limited liability of CRAs. Many changes were implemented to the operational framework of the CRAs, including public disclosure of CRA information. This is designed to facilitate "unsolicited" ratings of structured securities by rating agencies that are not paid by the issuers. This combined with the abundance of data and the availability of powerful new methodologies and inexpensive computing power can bring us to the new era of independent ratings: The not-for-profit Independent Credit Rating Agencies (ICRAs). These can either compete or be used as an auxiliary risk gauging mechanism free from the problems inherent in the traditional CRAs. This role can be assumed by either public or governmental authorities, national or international specialized entities or universities, research institutions, etc. Several factors facilitate today the transition to the ICRAs: the abundance data, cheaper and faster computer processing the progress in traditional forecasting techniques and the wide use of new forecasting techniques i.e. Machine Learning methodologies and Artificial Intelligence systems.
    Keywords: Credit rating agencies; banking; forecasting; support vector machines; artificial intelligence
    JEL: C02 C15 C40 C45 C54 E02 E17 E27 E44 E58 E61 G20 G23 G28
    Date: 2021–10–04
  31. By: Ryo Kato; Tatsushi Okuda; Takayuki Tsuruga
    Abstract: Previous studies have stressed that inflation dynamics exhibit substantial dispersion across sectors. Using US producer price data, we present evidence that sectoral inflation persistence is negatively correlated with market concentration, which is difficult to reconcile with the prediction of the standard model of monopolistic competition. To better explain the data, we incorporate imperfect common knowledge into the monopolistic competition model introduced by Melitz and Ottaviano (2008). In the model, pricing complementarity among firms increases as market concentration decreases. Because higher pricing complementarity generates greater inflation persistence, our model successfully replicates the observed negative correlation between inflation persistence and market concentration across sectors.
    Date: 2021–10
  32. By: Clemens Graf von Luckner; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper employs high frequency transactions data on the world’s oldest and most extensive centralized peer-to-peer Bitcoin market, which enables trade in the currencies of more than 135 countries. We develop an algorithm that allows, with high probability, the detection of “crypto vehicle transactions” in which crypto currency is used to move capital across borders or facilitate domestic transactions. In contrast to previous work which has used “on-chain” data, our approach enables one to investigate parts of the vastly larger pool of “off-chain” transactions. We find that, as a conservative lower bound, over 7 percent of the 45 million trades on the exchange we explore represent crypto vehicle transactions in which Bitcoin is used to make payment in fiat currency. Roughly 20 percent of these represent international capital flight/flows/remittances. Although our work cannot be used to put a price on cryptocurrencies, it provides the first systematic quantitative evidence that the transactional use of cryptocurrencies constitutes a fundamental component of their value, at least under the current regulatory regime.
    JEL: E42 E51 E58 F21 F24 F32 F38
    Date: 2021–10
  33. By: Aysit Tansel (Department of Economics, Middle East Technical University; Institute for the Study of Labor (IZA); Economic Research Forum (ERF)); Ceyhan Ozturk (Department of Economics, Middle East Technical University); Erkan Erdil (Department of Economics, Middle East Technical University)
    Abstract: We examine the relationship between wealth and health through prominent growth indicators and cognitive ability. Cognitive ability is represented by nutritional status. In this study, the proxy variable for nutritional status is BMI since there is a strong relationship between cognitive ability and nutrition. We use the reduced form equation in the cubic specification of time preference rate to estimate this relationship. We assume that the time preference rate is one of the outputs of cognitive ability. The growth indicators utilized are GDP per capita, schooling, overall and manufacturing productivities, and savings. We estimate our models using the FE, GMM estimators, and long difference OLS and IV estimation through balanced panel data for 47 countries for the 1980-2009 period, which is a representative period of the neo-liberal and globalization economic policy implications. Furthermore, by using the 1980-2009 period, we may eliminate the ripple effects of the 2007-2009 financial crisis. Although there is ample evidence that the association between GDP per capita, overall and manufacturing productivities, and BMI could be cubic, we take the results of the long-difference quadratic specification into consideration and conclude that the relationship between all prominent growth indicators and BMI is inverse U-shaped. In other words, cognitive ability has a significant potential to progress growth and economic development only in a healthy status.
    Keywords: Cognitive ability, time preference rate, BMI, productivity, health, schooling, growth, economic development.
    JEL: E21 I15 I25 J24 O11 Q18
    Date: 2021–10
  34. By: Comunale, Mariarosaria; Mongelli, Francesco Paolo
    Abstract: We investigate which variables have supported growth in the euro area over the last 30 years. This is a challenging task due to dimensionality problems: a large set of potential determinants, limited data, and the prospect that some variables could be non-stationary. We assemble a set of 35 real, financial, monetary, and institutional variables for nine of the original euro area countries covering the period between 1990Q1 and 2016Q4. Using the Weighted-Average Least Squares method, we gather clues about which variables to select. We quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of EU institutional integration on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run, as well as a decline in sovereign and systemic stress. Debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to non-financial corporations positively affect the core euro area. An increase in global GDP also supports growth in the euro area. JEL Classification: C23, E40, F33, F43
    Keywords: euro area, fiscal policy, GDP growth, institutional integration, institutional reforms, monetary policy, systemic stress
    Date: 2021–09
  35. By: Adam Copeland; Darrell Duffie; Yilin Yang
    Abstract: A concern of the Federal Reserve is how to manage its balance sheet and whether, over the long run, the balance sheet should be small or large. In this post, we highlight results from a recent paper in which we show how, even during a period of “ample” reserves, the Fed’s management of its balance sheet had material impacts on funding markets and especially the repo market. We argue that the Fed’s “balance-sheet normalization” from March 2017 to September 2019—under which aggregate reserves declined by more than $950 billion—combined with post-crisis liquidity regulations, stressed the intraday management of reserves of large bank holding companies that are active in wholesale funding markets resulting in higher repo rates and spikes in such.
    Keywords: repo rates; reserves; Treasuries; Treasurys; payments; central bank balance sheet
    JEL: G1 E58
    Date: 2021–09–29
  36. By: Jean-Francois Mercier
    Abstract: Inflation in the time of Covid-19: (II) the liquidity surge
    Date: 2021–10–06
  37. By: Andreas Kakridis (Bank of Greece and Ionian University)
    Abstract: Neither history nor economic historians have been kind to Greece’s central bank in the interwar years. Born at the behest of the League of Nations to help the country secure a new international loan, the Bank of Greece was treated with a mixture of suspicion and hostility. The onset of the Great Depression pitted its statutory objective to defend the exchange rate against the incentive to reflate the domestic economy. Its policy response has generally been criticized as either ineffectual or detrimental: the Bank is accused of having pursued an unduly orthodox and restrictive policy, both during but also after the country’s exit from the gold exchange standard, some going as far as to argue that the 1932 devaluation failed to produce genuine recovery. Relying primarily on archival material, this paper combines qualitative and quantitative sources to revisit the Bank of Greece’s birth and operation during the Great Depression. In doing so, it hopes to put Greece on the map of international comparisons of the Great Depression and debates on the role of the League of Nations, the effectiveness of money doctoring and foreign policy interventions more generally. What is more, the paper seeks to revise several aspects of the conventional narrative surrounding the Bank’s role. First, it argues that monetary policy was neither as ineffective nor as restrictive as critics suggest; this was largely thanks to a continued trickle of foreign lending, but also to the Bank’s own decision to sterilize foreign exchange outflows, thus breaking the ‘rules of the game’. Second, it revisits Greece’s attempt to cling to gold after sterling’s devaluation, a decision routinely denounced as a critical policy mistake. Last but not least, it challenges the notion that Greece constitutes an exception to the rule that wants countries who shed their ‘golden fetters’ recovering faster.
    Keywords: central bank; Greece;gold standard; Great Depression; League of Nations
    JEL: E58 E65 N14 N24
    Date: 2021–07
  38. By: A. BAUER (Insee - Crest); J. BOUSSARD (Commission européenne - Crest)
    Abstract: Secular trends in market power and labor share have important implications for inequality and allocative efficiency. Studying them requires comprehensive and detailed firm-level data spanning several decades. For that purpose, we leverage a novel and detailed database on the universe of French firms between 1984 and 2016, that we use to document a rise in concentration in France since the beginning of the 1990s. Despite a relative stability of the aggregate labor share, we show that firms with lower labor shares have been gaining market shares. As low labor share firms also tend to be larger, this market share reallocation has been stronger in industries where concentration increased the most. We rely on markups as proxies of firm-level market power, and on a flexible production function that allows the identification of firm-specific output elasticities and markups. We find that the markup of the typical firm has decreased, but the reallocation of market shares toward larger firms contributed to an increase of the aggregate markup. Finally, we show how taking into account reallocation across firms is essential to understand how the aggregate market power evolution has shaped the dynamics of the aggregate labor share in France.
    Keywords: Labor share, markup, competition, production function
    JEL: E10 E23 E25
    Date: 2020
  39. By: Ettore Gallo (Department of Economics, New School for Social Research)
    Abstract: The paper provides an analytical solution to the differential equation that regulates the motion of the neo-Kaleckian model in the short run. After presenting a simple open economy neo-Kaleckian model with government activity, the paper analytically derives an expression for the time of adjustment, defined as the time required for the system to make a k-percent adjustment from one steady-state to another. The solution shows that there is an inverse relationship between the strength of the Keynesian stability condition and the the time of adjustment. Last, the model is calibrated for the US, showing that vicinity of the new equilibrium is reached after a period of about 4 quarters. By formally analyzing the out-of-equilibrium trajectory of the neo-Kaleckian model, this contribution moves away from the method of comparative dynamics and provides a historical-time representation of the model's traverse.
    Keywords: Neo-Kaleckian Model, time, adjustment period, traverse, effective demand, growth, distribution
    Date: 2021–10
  40. By: Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper investigates the effects of inflation on per capita income growth for 36 developed and developing countries by using structural vector autoregression models that are robust to the consideration of endogeneity by construction. The results show evidence for heterogeneity of such effects across countries that are shown to be further connected to the strength of their institutions. While the effects of inflation on growth are negative and significant in countries with stronger institutions, they are positive and significant in countries with weaker institutions.
    Keywords: Economic Growth, Institutions, Inflation, Structural VAR
    JEL: O11 O23 O43
    Date: 2021–09
  41. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Remzi Kaygusuz (Sabancy University); Gustavo Ventura (Arizona State University)
    Abstract: The U.S. spends non trivially on non-medical transfers for its working-age population in a wide range of programs that support low and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare-improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate. Yet, most households support eliminating current transfers since losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If instead per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, there are transfer levels and associated tax rates that improve upon the current system. Providing per-person transfers to all households is quite costly, and reducing tax distortions helps to provide for additional resources to expand redistribution.
    Keywords: Taxes and transfers, household labor supply, income risk, negative income tax.
    JEL: E62 H24 H31
    Date: 2021–07
  42. By: Almut Balleer; Georg Duernecker; Susanne K. Forstner; Johannes Goensch
    Abstract: Idiosyncratic labor risk is a prevalent phenomenon with important implications for individual choices. In labor market research it is commonly assumed that agents have rational expectations and therefore correctly assess the risk they face in the labor market. We analyse survey data for the U.S. and document a substantial optimistic bias of households in their subjective expectations about future labor market transitions. Furthermore, we analyze the heterogeneity in the bias across different demographic groups and we find that high-school graduates tend to be strongly over-optimistic about their labor market prospects, whereas college graduates have rather precise beliefs. In the context of a quantitative heterogenous agents life cycle model we show that the optimistic bias has a quantitatively sizable negative effect on the life cycle allocation of income, consumption and wealth and implies a substantial loss in individual welfare compared to the allocation under full information. Moreover, we establish that the heterogeneity in the bias leads to pronounced differences in the accumulation of assets across individuals, and is thereby a quantitatively important driver of inequality in wealth.
    Keywords: subjective expectations, labor markets, consumption, asset accumulation, wealth inequality
    JEL: E21 D84
    Date: 2021
  43. By: Thakkar, Parth (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The late 1940s to the 1960s featured a sustained debate about currency boards in underdeveloped (or, in today’s parlance, developing) economies and their desirability compared to the alternative of central banking. Critics of currency boards found fault with them for the foregone cost of their “idle reserves,” their implied deflationary bias, their lack of discretionary monetary policy, and their lack of a lender of last resort, among other things. Defenders of the currency board system argued that the criticisms were either incorrect or irrelevant. After carefully reviewing the debate, I opine on it, coming down mainly on the side of the defenders of currency boards.
    Keywords: Currency board; debate
    JEL: B27 E59 F33 N10
    Date: 2021–10
  44. By: Iwasaki, Ichiro
    Abstract: This paper performs a meta-analysis of the effect of financial development and liberalization on macroeconomic growth in Latin America and the Caribbean using a total of 233 estimates collected from 21 previous works. Meta-synthesis of the collected estimates demonstrates that it is probable that financial development and liberalization enhance economic growth in the region, and these policy measures have the potential to have a meaningful impact on the real economy. The synthesis results also reveal that the choice of financial variables significantly affects reported estimates in the literature. Meta-regression analysis of literature heterogeneity and test for publication selection bias produce findings that are compatible with the synthesis results. The test results of publication selection bias also confirm that the existing literature contains genuine empirical evidence of the growth-promoting effect of finance in the region.
    Keywords: financial development and liberalization, economic growth, meta-analysis, publication selection bias, Latin America and the Caribbean
    JEL: E44 G10 O11 O16 O54
    Date: 2021–10
  45. By: Pablo A. Guerron-Quintana; Tomohiro Hirano; Ryo Jinnai
    Abstract: In order to account for the ups and downs in economic growth in recent decades, we construct a model with recurrent bubbles, crashes, and endogenous growth that can be easily taken to the data. Infinitely lived households expect future bubbles, which crowds out investment and reduces economic growth. For realized bubbles crowd in investment, their overall impact on economic growth and welfare crucially depends on both the level of financial development and the frequency of bubbles. We examine the US economic data through the lens of our model, finding evidence of bubbly episodes by structural estimation. Counterfactual simulations suggest that 1) the IT and housing bubbles together lifted U.S. GDP by almost 2 percentage points permanently; and 2) the U.S. economy could have grown even faster if people had believed that asset bubbles would not arise.
    Date: 2021–09
  46. By: Ehrmann, Michael; Wabitsch, Alena
    Abstract: Central banks have intensified their communication with non-experts – an endeavour which some have argued is bound to fail. This paper studies English and German Twitter traffic about the ECB to understand whether its communication is received by non-experts and how it affects their views. It shows that Twitter traffic is responsive to ECB communication, also for non-experts. For several ECB communication events, Twitter constitutes primarily a channel to relay information: tweets become more factual and the views expressed more moderate and homogeneous. Other communication events, such as former President Draghi’s “Whatever it takes” statement, trigger persistent traffic and a divergence in views. Also, ECB-related tweets are more likely to get retweeted or liked if they express stronger or more subjective views. Thus, Twitter also serves as a platform for controversial discussions. The findings suggest that central banks manage to reach non-experts, i.e. their communication is not a road to nowhere. JEL Classification: E52, E58
    Keywords: central bank communication, monetary policy, non-experts, social media
    Date: 2021–10
  47. By: Hunter L. Clark
    Abstract: A Liberty Street Economics post from last summer by Matthew Higgins and Thomas Klitgaard contained an assessment of the Phase One trade agreement between the United States and China. The authors of that note found that, depending on how successfully the deal was implemented, the impact on U.S. economic growth could have been substantially larger than originally foreseen by many of its critics, as a result of the fact that the pandemic had depressed the U.S. economy far below its potential growth path. Here we take another look at these considerations with the benefit of an additional year’s worth of trade data and a much different economic environment in the United States.
    Keywords: China; trade; tariff
    JEL: E2 F00
    Date: 2021–10–06
  48. By: Silvia Miranda-Agrippino; Hélène Rey
    Abstract: We review the literature on the empirical characteristics of the global financial cycle and associated stylized facts on international capital flows, asset prices, risk aversion and liquidity in the financial system. We analyse the co-movements of global factors in asset prices and capital flows with commodity prices, international trade and world output as well as the sensitivity of different parts of the world to the Global Financial Cycle. We present evidence of the causal effects of the monetary policies of the US Federal Reserve, the European Central Bank and of the People's Bank of China on the Global Financial Cycle. We then assess whether the 2008 financial crisis has altered the transmission channels of monetary policies on the Global Financial Cycle. Finally, we discuss the theoretical modelling of the Global Financial Cycle and avenues for future research.
    JEL: E5 F3
    Date: 2021–10
  49. By: António Afonso (Universidade de Lisboa); José Carlos Coelho (Universidade de Lisboa)
    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: D
    Date: 2021
  50. By: Dylan Balla-Elliott Author-1-Name-First: Dylan Author-1-Name-Last: Balla-Elliott (Harvard Business School); Zoë B. Cullen Author-2-Name-First: Zoë Author-2-Name-Last: Cullen (Harvard Business School, Entrepreneurial Management Unit); Edward L. Glaeser Author-3-Name-First: Edward Author-3-Name-Last: Glaeser (Harvard University); Michael Luca Author-4-Name-First: Michael Author-4-Name-Last: Luca (Harvard Business School, Negotiation, Organizations & Markets Unit); Christopher Stanton Author-5-Name-First: Christopher Author-5-Name-Last: Stanton (Harvard Business School, Entrepreneurial Management Unit)
    Abstract: The COVID-19 pandemic led to dramatic economic disruptions, including government-imposed restrictions that temporarily shuttered millions of American businesses. We use a nation-wide survey of thousands of small business owners to establish three main facts about business owners’ decisions to reopen at the end of the lockdowns. First, roughly 60% of firms planned to reopen within days of the end of legal restrictions, suggesting that the lockdowns were generally binding for businesses - although nearly 30% expected to delay their reopening by at least a month. Second, decisions to delay reopenings did not seem to be driven by concerns about employee or customer health; even businesses in high-proximity sectors with the highest health risks generally reported intentions to reopen as soon as possible. Third, pessimistic demand projections primarily explain delays among firms that could legally reopen. Owners expected demand to be one-third lower than before the crisis throughout the pandemic. Using experimentally induced shocks to perceived demand, we find that a 10% decline in expected demand results in a 1.5 percentage point (8%) increase in the likelihood that firms expected to remain closed for at least one month after being legally able to open. We use follow-up surveys to cross-validate expectations with realized outcomes. Overall, our results suggest that governments were setting more stringent guidelines for reopening, relative to what many businesses would have selected, suggesting that governments may have internalized costs of contagion that businesses did not.
    Keywords: COVID-19; demand forecasting; reopening
    JEL: D22 E32 I15 L23
    Date: 2020–06
  51. By: Jiranyakul, Komain
    Abstract: This paper examines the influence of crude oil price on inflation in eight Asian and two of the pacific economies, which are oil-importing countries. The period of investigation is from 1987M5 to 2019M12. The results of bounds testing for cointegration reveal that there is a stable positive long-run relationship between the consumer price index and crude oil price in most of these countries during the period of low and less fluctuating oil prices. However, the stable long-run relationship is found in eight countries, but this stable relationship is found only in one country during the period of high and more fluctuating oil prices. The long-run pass-through of crude oil prices to consumer prices is partial. In the short run, the relationship between a crude oil price change and inflation indicates that the short-run pass-through is low in most cases, but this pass-through is more apparent during the period of high and more fluctuating oil prices. Therefore, the structural break seems to matter in the pass-through of crude oil price to consumer prices in both the long and short run. The findings suggest accommodative monetary policy measures to alleviate the inflation rate.
    Keywords: Crude oil price, inflation rate, structural break, oil-importing countries
    JEL: Q43
    Date: 2021–06
  52. By: V. LIN (Insee); O. MESLIN (Insee)
    Abstract: Les déflateurs utilisés dans le calcul des mesures usuelles de pouvoir d’achat et de niveau de vie ne retracent qu’une partie de la forte augmentation des prix de l’immobilier observée depuis la fin des années 1990. L’absence de prise en compte des prix immobiliers dans ces mesures serait sans incidence si ces prix n’avaient pas d’effet sur le bien-être agrégé. Trois arguments sont fréquemment avancés en ce sens : neutralité entre ménages (la hausse des prix réduit le pouvoir d’achat des acheteurs mais accroît symétriquement celui des vendeurs), neutralité sur le cycle de vie du ménage (l’effort d’épargne supplémentaire dû à la hausse des prix est compensé par un surcroît de pouvoir d’achat plus tard dans le cycle de vie), compensation par les taux d’intérêt (la baisse des taux compense l’effet de la hausse des prix). Nous reprenons le cadre d’analyse de Bajari et al. (2005) et montrons que la validité de l’hypothèse de neutralité entre ménages dépend du caractère temporaire ou permanent de la hausse des prix. La neutralité sur le cycle de vie est examinée dans le cadre d’un modèle stylisé : elle n’est vérifiée qu’à condition que le logement n’ait pas de valeur d’usage. Lorsqu’elle compense les effets de la hausse des prix pendant la période d’accession à la propriété, la baisse des taux d’intérêt entraîne un surcroît de pouvoir d’achat plus tard dans le cycle de vie. Les effets d’une hausse des prix immobiliers sont hétérogènes selon le revenu en raison de contraintes spécifiques (d’endettement et de surface minimale). Les pertes de bien-être présentent ainsi un profil en marche d’escalier ou en U inversé, et sont maximales pour des revenus intermédiaires. Un indice à utilité constante reflète imparfaitement cette hétérogénéité lorsque la hausse des prix induit un effet d’éviction du marché immobilier.
    Keywords: indices des prix, niveau de vie, demande de logement, modèle de cycle de vie, variation compensatrice, prix immobiliers.
    JEL: C43 D15 E31 R21
    Date: 2020
  53. By: Carmona, Julio (Fundamentos del Análisis Económico. University of Alicante); León, ángel (Fundamentos del Análisis Económico. University of Alicante)
    Abstract: We show how diseases can affect economic growth by using the standard Solow model with population growth and no technical progress as our benchmark. We couple this model in turn with the two most basic models of pandemics: SIS and SIR models. In these two models infections are assumed to take place by random matchings between infected and susceptible individuals according to some basic reproductive number. This number determines in which of the two posible equilibria, the disease free or the pandemic equilibrium, the economy ends. By inserting these two models of disease in the basic Solow growth model, we show that the steady state capital labour ratio is not affected by the disease but output per capita and consumption per capita do.
    Keywords: COVID-19; SIS; SIR; Solow model
    JEL: E00 I15 O40
    Date: 2021–10–06
  54. By: Keiichiro Kobayashi
    Abstract: This paper explores a hypothesis that the macroeconomic expectations may affect the aggregate productivity, even in the business cycle frequencies. The economy consists of the layered markets, in which firms engage in monopolistic competition with free entry. The firms form the division of labor and produce varieties of goods, while the number of varieties determines the productivity. The number of varieties in one market is determined in equilibrium, given the expectations on the number of varieties in another market. Coordination of the expectations between the layered markets generates multiple equilibria, corresponding to high and low productivity. A policy that works on the expectations may change economic organizations and the observed state of technology. Key words: Division of labor, monopolistic competition, multiple equilibria. JEL Classification: E23, E30, O40.
    Date: 2021–09
  55. By: Gropp, Reint; McShane, William
    Abstract: Savings rates among European households have reached record levels during the Corona recession. We investigate three possible explanations for the increase in household savings: precautionary motivations induced by increased economic uncertainty, reduced consumption opportunities due to lockdown measures, and Ricardian Equivalence, i.e. increases in the expected future tax-burden of households driven by increases in government debt. To test these explanations, we compile a monthly panel of euro area countries from January 2019 to August 2020. Our findings indicate that the chief driver of the increase in household savings is supply: As governments restrict households' opportunities to spend, households spend less. We estimate that going from no lockdown measures to that of Italy's in March, would have resulted in the growth of Germany's deposit to Gross Domestic Product (GDP) ratio being 0.6 percentage points higher each month. This would be equivalent to the volume of deposits increasing by roughly 14.3 billion euros or 348 euros per house monthly. Demand effects, driven by either fears of unemployment or fear of infection from COVID-19, appear to only have a weak impact on household savings, whereas changes in government debt are unrelated or even negatively related to savings rates. The analysis suggests that there is some pent-up demand for consumption that may unravel after lockdown measures are abolished and may result in a significant increase in consumption in the late spring/early summer 2021.
    Date: 2021
  56. By: Jinwoong Lee (: Department of Economics, Korea University, 145 Anamro, Seongbukgu, Seoul, Korea 02841); Jihee Ann (Associate Research Fellow, Research Division, Korea Real Estate Research Institute, 52 Bangbaero, Seochogu, Seoul, Korea 06705); Cheolbeom Park (Department of Economics, Korea University, 145 Anamro, Seongbukgu, Seoul, Korea 02841)
    Abstract: In this study, we build a structural vector autoregressive model of the housing market with supply and demand shocks to determine the main causes of house price movements in South Korea. We include housing permits, basic housing demand which is constructed in a similar manner to Mankiw and Weil (1989) and the growth rates of real housing prices in the model, and decompose changes in house prices into three structural components: housing supply shocks, shocks to basic housing demand, and shocks to housing-market-specific demand. We find that the main driver of the movements in house prices is housing-marketspecific demand shocks, and these are associated with beliefs regarding future house prices and the real estate market, as measured by the Consumer Sentiment Indices for the housing market, rather than credit conditions or financial variables such as interest rates or stock returns.
    Keywords: House prices, Shocks to housing-market-specific demand, Beliefs, Credit conditions, Interest rate
    JEL: R30 R21 R31 E30 G10
  57. By: Dante Amengual (CEMFI, Centro de Estudios Monetarios y Financieros); Gabriele Fiorentini (Università di Firenze and RCEA); Enrique Sentana (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We propose the information matrix test to assess the constancy of mean and variance parameters in vector autoregressions. We additively decompose it into several orthogonal components: conditional heteroskedasticity and asymmetry of the innovations, and their unconditional skewness and kurtosis. Our Monte Carlo simulations explore both its finite size properties and its power against i.i.d. coefficients, persistent but stationary ones, and regime switching. Our procedures detect variation in the autoregressive coefficients and residual covariance matrix of a VAR for the US GDP growth rate and the statistical discrepancy, but they fail to detect any covariation between those two sets of coefficients.
    Keywords: GDP, GDI, Hessian matrix, information matrix test, outer product of the score.
    JEL: C32 C52 E01
    Date: 2021–09
  58. By: Marijn Bolhuis; Swapnika Rachapalli; Diego Restuccia
    Abstract: We exploit substantial variation in land-market institutions across Indian states and detailed micro household-level panel data to assess the effect of distortions in land rental markets on agricultural productivity. We provide empirical evidence that states with more rental-market activity feature less misallocation and reallocate land more efficiently over time. We develop a model of heterogeneous farms and land rentals to estimate land-market distortions in each state. Land rentals have substantial positive effects on agricultural productivity: an efficient reallocation of land increases agricultural productivity by 38 percent on average and by more than 50 percent in states with highly distorted rental markets. Both farm and state-level land market distortions are quantitatively important, with state-level wedges accounting for a significant fraction of rental market participation differences across states. Land market distortions contribute about one-third to the large differences in agricultural total factor productivity across Indian states.
    Keywords: Productivity, agriculture, distortions, land rentals, states, India.
    JEL: O4 O5 O11 O14 E01 E13
    Date: 2021–10–05
  59. By: Ulrike Malmendier
    Abstract: Personal experiences of economic outcomes, from global financial crises to individual-level job losses, can shape individual beliefs, risk attitudes, and choices for years to come. A growing literature on experience effects shows that individuals act as if past outcomes that they experienced were overly likely to occur again, even if they are fully informed about the actual likelihood. This reaction to past experiences is long-lasting though it decays over time as individuals accumulate new experiences. Modern brain science helps understand these processes. Evidence on neuroplasticity reveals that personal experiences and learning alter the strength of neural connections and fine-tune the brain structure to those past experiences ("use-dependent brain"). I show that experience effects help understand belief formation and decision-making in a wide area of economic applications, including inflation, home purchases, mortgage choices, and consumption expenditures. I argue that experience-based learning is broadly applicable to economic decision-making and discuss topics for future research in education, health, race, and gender economics.
    JEL: E7 G11 G12 G41
    Date: 2021–10
  60. By: Konle-Seidl, Regina (Institute for Employment Research (IAB), Nuremberg, Germany)
    Abstract: "More countries than ever are using short-time work as a labour market policy instrument to secure employment and limit the social costs of the current Corona crisis. Despite considerable differences in the institutional design and logic of short-time work schemes, the rapid deployment and high take-up of short-time work benefits is a high priority in all European countries. Highlighting the economic rationality of short-time work the report classifies European short-time work programmes into different clusters. The paper describes significant changes in the programme design since March 2020 and discusses possible effects against the background of former empirical findings." (Author's abstract, IAB-Doku) ((en))
    Keywords: Bundesrepublik Deutschland ; Europa ; Pandemie ; Auswirkungen ; Beschäftigungsentwicklung ; Finanzierung ; Arbeitslosigkeitsentwicklung ; institutionelle Faktoren ; internationaler Vergleich ; Krisenmanagement ; Kündigungsschutz ; Kurzarbeit ; Kurzarbeitergeld ; Leistungshöhe ; Rezession ; Arbeitskräftehortung ; Weiterbildung ; 2008-2020
    Date: 2020–06–02

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