nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒10‒18
79 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Wage and employment cyclicalities at the establishment level By Merkl, Christian; Stüber, Heiko
  2. A proposal to use two interest rates in the U.S.; the FED Funds Rate and the Economic Recovery Rate By De Koning, Kees
  3. Preventive monetary and macroprudential policy response to anticipated shocks to financial stability By Konstantin Styrin; Alexander Tishin
  4. Fiscal policy shocks and stock prices in the United States By Haroon Mumtaz; Konstantinos Theodoridis
  5. The Productivity Puzzle and the Decline of Unions By Mitra, Aruni
  6. Central bank digital currency in Nigeria: opportunities and risks By Ozili, Peterson K
  7. Theoretically proposed policy instrument to address the negative effect of inflation inflow into positive macroeconomic growth: the case study of the Sierra Leone economy By Tweneboah Senzu, Emmanuel
  8. A Unified Framework to Estimate Macroeconomic Stars By Saeed Zaman
  9. Forward Guidance in an Advanced Small Open Economy in the Effective Lower Bound By Charlotte André Marine; Guido Traficante
  10. State dependence in labour market fluctuations By Carlo Pizzinelli; Konstantinos Theodoridis; Francesco Zanetti
  11. Fiscal Reform in the Republic of Moldova. Stochastic Dynamic General Equilibrium (SDGE) simulation By Vîntu, Denis
  12. The granular economy of Kazakhstan By Jozef Konings; Galiya Sagyndykova; Venkat Subramanian; Astrid Volckaert
  13. Switching-track after the Great Recession By Vinci, Francesca; Licandro, Omar
  14. Precautionary Liquidity Shocks, Excess Reserves and Business Cycles By Bratsiotis, George J.; Theodoridis, Konstantinos
  15. Income Risk Inequality: Evidence from Spanish Administrative Records By Manuel Arellano; Stéphane Bonhomme; Micole De Vera; Laura Hospido; Siqi Wei
  16. Why Does Risk Matter More in Recessions than in Expansions? By Martin M. Andreasen; Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
  17. Euro Area Housing Markets: Trends, Challenges and Policy Responses By Vítor Martins; Alessandro Turrini; Bořek Vašíček; Madalina Zamfir
  18. Global models for a global pandemic: the impact of COVID-19 on small euro area economies By Garcia, Pablo; Jacquinot, Pascal; Lenarčič, Črt; Lozej, Matija; Mavromatis, Kostas
  19. The Co-Movement between Foreign Reserves, Economic Growth and Money Supply: Evidence from the WAMZ Countries By Joof, Foday
  20. Macroeconomic policy under a managed float: a simple integrated framework By Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
  21. Banks’ interest rate setting and transitions between liquidity surplus and deficit By Tatiana Grishina; Alexey Ponomarenko
  22. Анализ потоков в финансовом счете по секторам экономики // Analysis of the capital account flows by the economy sectors By Оспанов Нурлан // Ospanov Nurlan; Алмагамбетова Меруерт // Almagambetova Meruyert; Құратова Ақбөпе // Kuratova Akbope; Тұрабай Бердібек // Turabai Berdibek; Сейдахметова Клара // Seidakhmetova Klara; Рысбекова Аида // Rysbekova Aida
  23. The future of the Central Bank and its autonomy in the Chilean Constitutional Convention By Castro Azócar, Felipe
  24. Macroprudential Policy and the Sovereign-Bank Nexus in the Euro Area By Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
  25. Designing Macro-Financial Scenarios: The New CNB Framework and Satellite Models for Property Prices and Credit By Miroslav Plasil
  26. Do inflation expectations improve model-based inflation forecasts? By Bańbura, Marta; Leiva-Leon, Danilo; Menz, Jan-Oliver
  27. A time-varying skewness model for Growth-at-Risk By Martin Iseringhausen
  28. Fiscal Substitution in Spending for Highway Infrastructure: Working Paper 2021-13 By Sheila Campbell and Chad Shirley
  29. Investigating government spending multiplier for the US economy: empirical evidence using a triple lasso approach By Zacharias Bragoudakis; Dimitrios Panas
  30. Energy Efficiency and Fluctuations in CO2 Emissions By Soojin Jo; Lilia Karnizova
  31. Borrower Expectations and Mortgage Performance: Evidence from the COVID-19 Pandemic By William D. Larson; Christos Makridis; Chad Redmer
  32. Wealth and History: An Update By Waldenström, Daniel
  33. The global financial resource curse By Gianluca Benigno; Luca Fornaro; Martin Wolf
  34. Warning: Some Transaction Prices can be Detrimental to your House Price Index By Robert J. Hill; Norbert Pfeifer; Miriam Steurer; Radoslaw Trojanek
  35. Low Interest Rates and Banks' Interest Margins: Does Belonging to a Banking Group Matter? By Isabel Argimon; Jayson M. Danton; Jakob de Haan; Javier Rodriguez-Martin; Maria Rodriguez-Moreno
  36. An annual index of Irish industrial production, 1800-1921 By Kenny, Seán; Lennard, Jason; O'Rourke, Kevin Hjortshøj
  37. Investment funds, risk-taking, and monetary policy in the euro area By Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
  38. Pandemic recessions and contact tracing By Melosi, Leonardo; Rottner, Matthias
  39. Household debt and labour supply By Bunn, Philip; Chadha, Jagjit; Lazarowicz, Thomas; Millard, Stephen; Rockall, Emma
  40. A mixed frequency BVAR for the euro area labour market By Consolo, Agostino; Foroni, Claudia; Hernández, Catalina Martínez
  41. Why does risk matter more in recessions than in expansions? By Andreasen, Martin M.; Caggiano, Giovanni; Castelnuovo, Efrem; Pellegrino, Giovanni
  42. "Sorry, You're Blocked." Economic Effects of Financial Sanctions on the Russian Economy By Mikhail Mamonov; Anna Pestova
  43. The long game: Fiscal outlooks to 2060 underline need for structural reform By Yvan Guillemette; David Turner
  44. Learning from trees: A mixed approach to building early warning systems for systemic banking crises By Carmine Gabriele
  45. Striking a bargain: narrative identification of wage bargaining shocks By Budrys, Žymantas; Porqueddu, Mario; Sokol, Andrej
  46. Is financial development shaping or shaking economic sophistication in African countries? By Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann
  47. Financialisation and market concentration in the USA: A monetary circuit theory By Dögüs, Ilhan
  48. Unconventional monetary policy, funding expectations, and firm decisions By Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
  49. Effect of Trade on Income Inequality in sub-Saharan Africa: A note By Ogundari, Kolawole
  50. Tests for random coefficient variation in vector autoregressive models By Dante Amengual; Gabriele Fiorentini; Enrique Sentana
  51. Sticky wages and the Great Depression: evidence from the United Kingdom By Lennard, Jason
  52. Inflation Regimes and Hyperinflation. A Post-Keynesian/Structuralist typology By Sébastien Charles; Eduardo Bastian; Jonathan Marie
  53. Emission distribution and incidence of national mitigation policies among households in Austria By Stefan Nabernegg
  54. The time-varying evolution of inflation risks By Korobilis, Dimitris; Landau, Bettina; Musso, Alberto; Phella, Anthoulla
  55. Tests for random coefficient variation in vector autoregressive models By Dante Amengual; Gabriele Fiorentini; Enrique Sentana
  56. Taxing for inequalities: gender budgeting in the Western Balkans By Bojicic-Dzelilovic, Vesna; Hozić, Aida A
  57. Implications of the expansionary monetary policy for the maize and beef sectors of South Africa By Dushmanitch, V.Y.; Darroch, M.A.G.
  58. Nexus Between Fiscal Discipline And The Budget Process In Africa: Evidence From Nigeria By Adekunle, Wasiu; Bekoe, William; Badmus, Sheriff; Anagun, Michael; Alimi, Wasiu
  59. The Impact of COVID-19 on Supply Chain Credit Risk By Senay Agca; John Birge; Zi'ang Wang; Jing Wu
  60. But clouds got in my way: Bias and bias correction of VIIRS nighttime lights data in the presence of clouds By Ayush Patnaik; Ajay Shah; Anshul Tayal; Susan Thomas
  61. Production structure, output and profits - A note By Dögüs, Ilhan
  62. Credit Shock Propagation Along Supply Chains: Evidence from the CDS Market By Senay Agca; Volodymyr Babich; John Birge; Jing Wu
  63. The COVID-19 consumption game-changer: evidence from a large-scale multi-country survey By Hodbod, Alexander; Hommes, Cars; Huber, Stefanie J.; Salle, Isabelle
  64. Overview of central banks’ in-house credit assessment systems in the euro area By Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
  65. Lessons of Keynes’s Economic Consequences in a Turbulent Century By Clavin, P.; Corsetti, G.; Obstfeld, M.; Tooze, A.
  66. The Impact of Intergovernmental Transfers on Fiscal Behaviour of Local Governments in Ethiopia By Dejene Mamo, Bekana
  67. The tax tribunals: the next ten years By Blackwell, Michael
  68. Macroeconomic Impact and Benefit/Cost Analysis of Transportation and Mining Developments in the Northwest Territories By Neudorf, Russell D.; Hassan, Masood U.
  69. Desperate House Sellers: Distress Among Developers By Eileen van Straelen
  70. Macroeconomic Impact and Benefit/Cost Analysis of Transportation and Mining Developments in the Northwest Territories By Neudorf, Russell D.; Hassan, Masood U.
  71. The impact of business cycles on immigrant household food security By Berning, Joshua P.; Bonanno, Alessandro; Bayham, Jude; Zhou, Siwen
  72. Co-Creation Strategy, New Challenges in Entrepreneurship Education By DIF Aicha
  73. Organization of Knowledge and Taxation By Marek Kapicka; Ctirad Slavik
  74. Institution-building in a decentralized, market-based economy By Katja Kalkschmied; Joern Kleinert; Manuela Mahecha-Alzate
  75. How to Assess Fiscal Risks from State-Owned Enterprises: Benchmarking and Stress Testing By Mr. Paulo A Medas; Ms. Anja Baum; Mouhamadou Sy; Alberto Soler
  76. Discovering new plausibility checks for supervisory data By Romano, Stefania; Martinez-Heras, Jose; Raponi, Francesco Natalini; Guidi, Gregorio; Gottron, Thomas
  77. The Political Economy of the Covid-19 Fiscal Stimulus Packages of 2020 By Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Ilan Noy
  78. Market finance as a spare tyre? Corporate investment and access to bank credit in Europe By Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
  79. Effects of political institutions on the external debt-economic growth nexus in Africa By Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson

  1. By: Merkl, Christian; Stüber, Heiko
    Abstract: We document substantial cross-sectional heterogeneity of German establishments' real wage cyclicality over the business cycle. While wages of the median establishment are moderately procyclical, 36 percent of establishments have countercyclical wages. We estimate a negative connection between establishments' wage cyclicality and their employment cyclicality, thereby providing a benchmark for quantitative macroeconomic models. We propose and calibrate a labor market ow model to match various empirical facts and to perform counterfactual exercises. If all establishments behaved as the most procyclical ones, labor market amplification would drop by one-third. If all followed Nash bargaining, it would drop by more than two-thirds.
    Keywords: Wage Cyclicality,Employment Cyclicality,Labor Market Flow Model,Labor Market Dynamics,Establishments,Administrative Data
    JEL: E32 E24 J64
    Date: 2021
  2. By: De Koning, Kees
    Abstract: The Federal Reserve has indicated that it will gradually reduce its purchases of eligible securities (Quantitative Easing) from November 2021. At the same meeting of the Federal Reserve Board, the Committee members who decide when to start raising interest rates were split equally about a possible starting date. The current guidance rate is between 0% and 0.25%. If the guidance rate is changed, the banking sector follows. An element that needs further attention is how an interest rate rise would affect households and thereby employment levels, profit levels of companies and the tax receipts of the U.S. Government. Take mortgages as an example. A mortgage represents the encumbered element of a home. The second element is the home equity savings element. In case of an increase in base rates, the financial sector can be expected to follow up with an increase in mortgage rates. The borrowers will have no choice but to pay up. There is another option that focuses on the savings element in U.S. home equity, currently estimated at $23.6 trillion. Treating home equity savings as a key to economic expansion needs a system that helps households to temporarily reduce some of such home equity and use it for funding its consumer spending levels. The financial sector cannot lend funds at 0% as they borrow their funds at market rates. However, the Fed can do so by introducing not one but two different rates: one the Fed funds rate, which influences the rate for the financial, commercial and Government borrowing sector and the second one for a temporary release of some home equity for households; the Economic Recovery Rate (ERR). The latter –a 0% rate- can be applied as a micro and equally a macro economic tool to stimulate the U.S. economy as and when needed. Why and how such dual interest rate system could work is explained in this paper.
    Keywords: Economic Recovery Rate; Inflation; Home Equity; Mortgage lending, Economic Adjustment Tools; Quantitative Easing; Federal Reserve.
    JEL: E2 E21 E27 E4 E40 E42 E43 E44 E5
    Date: 2021–10–07
  3. By: Konstantin Styrin (Bank of Russia, Russian Federation); Alexander Tishin (Bank of Russia, Russian Federation)
    Abstract: In this paper, we develop a simple framework to study the optimal macroprudential and monetary policy interactions in response to financial shocks. Our model combines nominal rigidities and capital accumulation, features that have usually been studied separately in previous literature. In our model, we show that agents do not internalise how their asset purchases affect asset prices. Thus, when crises occur, there are fire sales: less demand for capital further reduces prices and agents are worse off. Policy interventions (both monetary and macroprudential) can improve allocations by restricting borrowing ex-ante (during the accumulation of risks and imbalances) and stimulating the economy ex-post (during crises). As a result, we find a complementary relationship between ex-ante monetary policy and preventive macroprudential policy. We also compare this result with a flexible-price model and a frictionless model and conduct several sensitivity analysis exercises.
    Keywords: Macroprudential policy, monetary policy, pecuniary externalities, nominal rigidities, financial frictions, capital accumulation.
    JEL: E44 E58 G28 D62
    Date: 2021–09
  4. By: Haroon Mumtaz (Queen Mary University); Konstantinos Theodoridis (ESM)
    Abstract: This paper uses structural vector autoregressive models (SVARs) to show that the response of US stock prices to fiscal shocks changed in 1980. Over the period 1955-1979, an expansionary spending or revenue shock was associated with higher stock prices. After 1980, the response of stock prices to the same shock became negative. Using a dynamic stochastic general equilibrium (DSGE) model with a detailed fiscal sector, we show the pre-1980 results may be driven by an expansion in supply after the fiscal shock. In contrast, endogenous growth mechanisms appear to be weaker in the post-1980 period with positive fiscal shocks pushing down consumption, total factor productivity (TFP), and causing inflation and the real interest rate to rise.
    Keywords: Fiscal policy shocks, Stock prices, VAR, FAVAR, DSGE
    JEL: E24 E32 J64 C11
    Date: 2021–05–17
  5. By: Mitra, Aruni
    Abstract: What explains the sudden vanishing of the procyclicality of productivity in the U.S. during the 1980s? Using cross-sectional evidence from states and industries, this paper argues that lower costs of hiring and firing workers due to rapid de-unionization can help explain the productivity puzzle. Lower cost of changing employment prompts firms to rely less on labour hoarding, thereby making productivity less procyclical. In a model with endogenous worker-effort and costly employment adjustment, allowing the hiring cost to decrease by the same amount as the decline in union density can match almost the entire drop in cyclical productivity correlations.
    Keywords: productivity, unions, hiring cost, factor utilization, DSGE
    JEL: E22 E23 E24 E32 J50
    Date: 2021–10–03
  6. By: Ozili, Peterson K
    Abstract: This paper discussed the opportunities and risks of central bank digital currency (CBDC) in Nigeria, also known as the eNaira or e-Naira. The opportunities which CBDC present to Nigeria include, improved monetary policy transmission, efficient payments and increased financial inclusion. Some of the identified risks include rising digital illiteracy, increased propensity for cyber-attacks, data theft, and the uncertain role of banks in a full-fledged CBDC economy. This article contributes to the literature by evaluating the pros and cons of fiat digital currency such as a central bank digital currency.
    Keywords: central bank digital currency, eNaira, blockchain, cryptocurrency, central bank, CBDC, bitcoin, payment system, fiat digital currency, distributed ledger, Nigeria.
    JEL: E51 E52 E58 E59 G18 G21
    Date: 2021–10–02
  7. By: Tweneboah Senzu, Emmanuel
    Abstract: The paper empirically examines the predictive factor of the inflation rate observed to be the vector force of macroeconomic management as in the rise and fall of the currency exchange value of the Sierra Leone economy. Thereby adopting a statistical tool of an exogenous univariate auto-regression integrated moving average, to build a forecasting model between the open-market-exchange rate and the inflation rate to establish the degree of correlation effect, as a basis to theoretically prescribe a policy instrument, a means to maximize economic transaction beneficial for sustainable macroeconomic growth. This leads to established findings, that an average price shift of +/- 0.032 of the Leone currency price with the US dollar at the open market, always causes a percentage point change of inflation to the endogenous economy, when all other factors remain constant.
    Keywords: Inflation, Exchange rate, policy instrument, regression models, monetary policy
    JEL: E17 E5 E52 E58
    Date: 2021–10–07
  8. By: Saeed Zaman
    Abstract: We develop a flexible semi-structural time-series model to estimate jointly several macroeconomic "stars" — i.e., unobserved long-run equilibrium levels of output (and growth rate of output), the unemployment rate, the real rate of interest, productivity growth, the price inflation, and wage inflation. The ingredients of the model are in part motivated by economic theory and in part by the empirical features necessitated by the changing economic environment. Following the recent literature on inflation and interest rate modeling, we explicitly model the links between long-run survey expectations and stars to improve the stars' econometric estimation. Our approach permits time variation in the relationships between various components, including time variation in error variances. To tractably estimate the large multivariate model, we use a recently developed precision sampler that relies on Bayesian methods. The by-products of this approach are the time-varying estimates of the wage and price Phillips curves, and the pass-through between prices and wages, both of which provide new insights into these empirical relationships' instability in US data. Generally, the contours of the stars echo those documented elsewhere in the literature — estimated using smaller models — but at times the estimates of stars are different, and these differences can matter for policy. Furthermore, our estimates of the stars are among the most precise. Lastly, we document the competitive real-time forecasting properties of the model and, separately, the usefulness of stars' estimates if they were used as steady-state values in external models.
    Keywords: state-space model; Bayesian analysis; time-varying parameters; natural rates; survey expectations; COVID-19
    JEL: C5 E24 E31 E4 O4
    Date: 2021–10–14
  9. By: Charlotte André Marine; Guido Traficante
    Abstract: We examine forward guidance (with known and uncertain duration) in a New Keynesian model for an advanced small open economy, showing that the response of the economy to this policy depends, both quantitatively and qualitatively, on some structural features through calibrations for Sweden and Spain. In particular, an announcement of future expansionary policy is positively related to the exchange rate pass-through and is larger than in the closed economy counterpart because of a better inflation-output trade-off and the exchange rate channel. We also show that multiple equilibria could arise and that the real exchange rate is a key variable driving this result. In particular, the response of output and inflation is amplified when aggregate supply is negatively related to the real exchange rate. These results could not necessarily be extended to emerging market economies.
    JEL: E31 E52
    Date: 2021–10
  10. By: Carlo Pizzinelli (IMF); Konstantinos Theodoridis (ESM); Francesco Zanetti (University of Oxford)
    Abstract: This paper documents state dependence in labour market fluctuations. Using a Threshold Vector Autoregression model (TVAR), we establish that the unemployment rate, the job separation rate, and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. We calibrate the model to match the standard deviation of the job-transition rates explained by productivity shocks in the TVAR, and show that the model explains 88 percent of the state dependence in the unemployment rate, 76 percent for the separation rate and 36 percent for the job finding rate. The key channel underpinning state dependence in both job separation and job finding rates is the interaction of the firm's reservation productivity level and the distribution of match-specific idiosyncratic productivity. Results are robust across several variations to the baseline model.
    Keywords: Search and Matching Models, State Dependence in Business Cycles, Threshold Vector Autoregression
    JEL: E24 E32 J64 C11
    Date: 2020–12–18
  11. By: Vîntu, Denis
    Abstract: The article describes a dynamic general equilibrium for the Republic of Moldova, in the context of declining oil prices and COVID-19. We try to introduce an intergenerational model with the stochastic component, where we describe each self-employed agent, rather we try to adapt the model in a simulative tax reform, a transition from the progressive system that currently we have to a flat tax. For our hypothesis, it is assumed that there are 4 cohorts of population, selected by level of education (secondary, high school, university and lifelong learning) that pay taxes in a system based on social solidarity. Thus, the first conclusions can be drawn, namely that the tax system with 4 different rates 12, 15, 19 and 23% is the one that best approaches the Pareto type optimum, as opposed to the flat tax, which respects dynamic equilibrium. Public budget revenues are simulated in IS-LM-Laffer framework. And the forecast of budget accumulation is made using 4 distinct prediction models: naïve random walk, ARIMA, univariate model (AR) and vector error correction model (VECM). In addition, the main result is placed on the hypothesis that the empirical testing suggest that, unlike complicated models that have difficulty overcoming naïve random walk imitation, using techniques of associating and including monetary and fiscal indicators in linear regression, as well as adding structural shapes, some parameters of the models are quite significant. Of these, it seems that the closest to the economic reality of the country is the univariate model (AR), being also the most relevant for predicting the out-put gap, but also the stochastic component: the basic interest rate of the NBM's monetary policy.
    Keywords: fiscal reform, monetary policy, cross-country convergence, prediction and forecasting methods, dynamic general equilibrium model, Pareto optimal balance, ARIMA modeling, time series analysis, Box – Jenkins method.
    JEL: C10 C15 E23 E31 E52 E62
    Date: 2021–04–30
  12. By: Jozef Konings (Nazarbayev University, Graduate School of Business); Galiya Sagyndykova (Nazarbayev University, Department of Economics); Venkat Subramanian (Nazarbayev University, Graduate School of Business); Astrid Volckaert (KU Leuven, Faculteit Economie en Bedrijfswetenschappen, Vlaams Instituut voor Economie en Samenleving (VIVES))
    Abstract: This paper analyzes the importance of idiosyncratic firm specific shocks for explaining macroeconomic fluctuations in an emerging economy. To this end, we use detailed quarterly firm level data to document that the firm size distribution is fat-tailed and that idiosyncratic shocks of the largest 30 firms appear to explain nearly 80% of the growth in aggregate total factor productivity. This confirms earlier research for the U.S. of the "granular hypothesis" (Gabaix, 2011). Thus individual firm shocks do not average out in the aggregate as is assumed in most of the macroeconomic literature, instead, macroeconomic questions can be answered by analyzing the behavior of the largest firms.
    Keywords: granularity, firm heterogeneity, aggregate fluctuations, Total Factor Productivity, transitional economies
    JEL: D24 E23 E32 L16 L25 P27
    Date: 2021–10
  13. By: Vinci, Francesca; Licandro, Omar
    Abstract: We propose a theoretical framework to reconcile episodes of V-shaped and L-shaped recovery, encompassing the behaviour of the U.S. economy before and after the Great Recession. In a DSGE model with endogenous growth, negative demand shocks destroy productive capacity, moving GDP to a lower trajectory. A Taylor rule policy designed to reduce the output gap may counterbalance the shocks, preventing the destruction of economic capacity and inducing a V-shaped recovery. However, when shocks are deep and persistent enough, like during the Great Recession, they call for a downward revision of potential output measures, the so-called switching-track, weakening the recovering role of monetary policy and inducing an L-shaped recovery. When calibrated to the U.S. economy, the model replicates well the L-shaped recovery and switching-track that followed the Great Recession, as well as the V-shaped recoveries that followed the oil shock recessions. JEL Classification: E12, E22, E32, O41, E52
    Keywords: economic capacity, economic recovery, endogenous growth, monetary policy, supply destruction prevention
    Date: 2021–10
  14. By: Bratsiotis, George J.; Theodoridis, Konstantinos
    Abstract: This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the banking sector's reluctance to lend to the real economy induced by an exogenous preference change for liquid assets. Through the lens of a DSGE model, the precautionary liquidity shock is shown to work through two channels: reserves (balance sheet) and the deposit rate (intertemporal effect). The overall effect is a downward co-movement in output, consumption, investment, and prices, which is amplified the higher are the long-run risks in the economy and banks' responsiveness to potential risk.
    Keywords: SVAR,Sign and Zero Restrictions,DSGE,Precautionary Liquidity Shock,Excess Reserves,Deposit Rate,Risk,Financial Intermediation
    JEL: C10 C32 E30 E43 E51 G21
    Date: 2021
  15. By: Manuel Arellano (CEMFI); Stéphane Bonhomme (University of Chicago); Micole De Vera (CEMFI); Laura Hospido (Banco de EspaÑa and iza); Siqi Wei (CEMFI)
    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
  16. By: Martin M. Andreasen; Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
    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: C32 E32
    Date: 2021
  17. By: Vítor Martins; Alessandro Turrini; Bořek Vašíček; Madalina Zamfir
    Abstract: The paper discusses the relevance of housing markets for macroeconomic developments from a euro area perspective, reviews trends in house prices and mortgage credit, and discusses policy approaches to prevent housing booms and deal with busts. After years of unsustainably strong house price growth in several Member States in a context of easing credit conditions, downward house price corrections took place after the 2008 financial crisis. A recovery in house prices started after 2013 under different conditions compared with the pre-financial crisis context. The house price recovery appeared to be driven to a greater extent by structural factors and to a lesser extent by buoyant household loans, as credit growth has been lagging behind house price growth in most countries. Prospects for house price growth after the COVID-19 outburst are clouded by uncertainty in light of the changing outlook when economic fundamentals and policy responses play in opposite directions. The current context is also diffeent compared with the period before the global financial crisis because macro-prudential frameworks have been strengthened and macroprudential tools are increasingly used across the euro area. The effectiveness of policy tools needed to address risks linked to boom-bust dynamics in the real estate sector depends on their interaction, design and timely implementation. Policy composition and policy design also appear crucial in dealing with possible trade-offs among policy objectives, including between macro-financial stability and housing affordability.
    JEL: R21 R31 C32 E37 E58
    Date: 2021–09
  18. By: Garcia, Pablo; Jacquinot, Pascal; Lenarčič, Črt; Lozej, Matija; Mavromatis, Kostas
    Abstract: This paper analyses the effects of the COVID-19 pandemic shock on small open economies in a monetary union with an application to the euro area. Accounting for a high degree of openness and a strong dependence on intra and extra union trade, we focus on the size and the direction of international spillovers - both from the shock itself and from the ensuing fiscal response. To do so, we use a unified modelling framework: The Euro Area and the Global Economy (EAGLE) model. Furthermore, within this general framework, we assess the extent to which specific modelling features shape the dynamic responses to the COVID-19 pandemic. The main messages are as follows. First, fiscal spillovers from the rest of the monetary union do matter. Second, the effective lower bound amplifies the size of the spillovers. Third, the design of wage negotiations leads to wage subsidies having negative international fiscal policy spillovers. Fourth, import content of government spending interacts with the effective lower bound, strongly affecting the size and sign of spillovers. Fifth, when households have finite lifetimes, the responses of output and inflation are amplified compared to the case with infinitely lived households. Finally, a next generation EU instrument is more effective when financed using a tax on consumption. JEL Classification: C53, E32, E52, F45
    Keywords: COVID-19, DSGE modelling, euro area, international spillovers, monetary union
    Date: 2021–10
  19. By: Joof, Foday
    Abstract: This paper analyses the impact of foreign currency reserve and economic growth on money supply, using a panel data of five West African Monetary Zone (WAMZs) member states from 2001-2019. The study employed the dynamic Panel techniques (Fully Modified Ordinary Least Square and Dynamic Ordinary Least Square) and the Static method (Fixed Effect model) for robustness check. The long run results showed that foreign currency reserves (FCR) have a positive impact on money supply, implying that a one percent increase in foreign currency reserves augments money supply (M2) by 2.87%, 0.44% and 0.08%, respectively in the long run. Similarly, economic growth is associated with an increase in money supply in both models. Furthermore, the Dumitrescu and Hurlin Causality (2012) estimation revealed a feedback association between foreign currency reserve and money supply. This means that that foreign reserves and money supply are complementary. Conversely, a unidirectional causality moving from economic growth to M2 is observed, demonstrating that economic growth causes M2 and not otherwise. This outcome is explained by the QTM (quantity theory of money) in which the velocity of money is a positive function of total money supply. As money circulates in the economy as a result of a surge in investments, consequently increases money stock. Similarly, investment opportunities that are been exploited day-by-day explains the growing money stock. Central banks should endeavor to monitor the expansionary influence of net foreign assets (NFA) on money supply growth in the WAMZ by establishing suitable methods to sterilize foreign exchange infusions into the economy.
    Keywords: foreign currency reserve, money supply, economic growth, WAMZ, Dynamic Model , Static Model
    JEL: E5 E58
    Date: 2021–10–14
  20. By: Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
    Abstract: This paper presents a simple integrated macroeconomic model of a small, bank-dependent open economy with a managed float and financial frictions. The model is used to study, both analytically and diagrammatically, the macroeconomic effects of five types of policy instruments: fiscal policy, monetary policy, macroprudential regulation, foreign exchange intervention, and capital controls, in the form of a tax on bank foreign borrowing. We also consider a drop in the world interest rate and examine how these instruments can be adjusted jointly to restore the initial equilibrium. Although this analysis is only partial (given, in particular, the static nature of the model and the absence of an explicit account of policy preferences), it provides new insights on how macroeconomic policies operate under a managed float and financial frictions, and how these policies can complement each other in response to capital inflows driven by "push" factors. In particular, the analysis shows that, to stabilize the economy, whether monetary policy should be contractionary or expansionary depends on which other instruments are available to policymakers. The joint use of macroprudential regulation and capital controls is also shown to provide a potent combination to manage capital inflows.
    JEL: E63 F38 F41
    Date: 2021–09
  21. By: Tatiana Grishina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: Assuming that a central bank is successful in steering money market interest rates, commercial banks’ loan rate setting behaviour is not expected to change during a transition between liquidity surplus and deficit. However, this logic does not hold if a bank employs different money market instruments for the lending and borrowing activities. In this environment, it may be appropriate to adjust the loan rates when a bank transitions between liquidity surplus and deficit (i.e. switches between the benchmark money market rates). This strategy is fundamentally different from linking the loan rates to the average cost of funding (i.e. the average between retail and wholesale funding rates). The magnitude of such loan rate adjustment is limited by the (usually moderate) spread between the funding and investment money market rates.
    Keywords: Excess reserves, Lending rates, Fund transfer pricing, Russia
    JEL: E43 E51 E58 G21 C63
    Date: 2021–10
  22. By: Оспанов Нурлан // Ospanov Nurlan (National Bank of Kazakhstan); Алмагамбетова Меруерт // Almagambetova Meruyert (National Bank of Kazakhstan); Құратова Ақбөпе // Kuratova Akbope (National Bank of Kazakhstan); Тұрабай Бердібек // Turabai Berdibek (National Bank of Kazakhstan); Сейдахметова Клара // Seidakhmetova Klara (National Bank of Kazakhstan); Рысбекова Аида // Rysbekova Aida (National Bank of Kazakhstan)
    Abstract: НБРК продолжает цикл исследований, посвященных анализу внешнеэкономической деятельности. Целью данного исследования является разработка целостной системы прогнозирования платежного баланса Казахстана, позволяющей оценить устойчивость внешнего сектора экономики для эффективной реализации денежно-кредитной политики. В исследовании представлен анализ международных потоков капитала и потоков капитала в Казахстане, рассмотрен мировой опыт прогнозирования финансового счета, а также раскрыта система прогнозирования финансового счета в НБРК. // The NBRK continues the series of studies devoted to the analysis of foreign economic activity. The purpose of this study is to develop an integral system of forecasting the balance of payments of Kazakhstan, which allows assessing the sustainability of the external sector of the economy for effective implementation of monetary policy. The study presents the analysis of international capital flows and those in Kazakhstan, considers the world experience of the capital account forecasting, as well as reveals the system of forecasting of the capital account in the NBRK.
    Keywords: финансовый счет, прогноз финансового счета, международное движение капитала, прямые инвестиции, портфельные инвестиции, эконометрические модели, capital account, capital account forecasting, international capital flows, direct investments, portfolio investments, econometric models
    JEL: E22 E27 E44 F01 F41
    Date: 2021
  23. By: Castro Azócar, Felipe
    Abstract: Regarding the discussion on a New Constitution in Chile, the debate on the autonomy of the Central Bank has polarized: Some consider it fundamental for macroeconomic balances, and others question it as an "authoritarian enclave". Should the Constitution settle this issue? It will be seen that it is not so much what it says on paper that matters, but how the autonomy and independence of the Central Bank are articulated in the reality.
    Keywords: Constitutional autonomy; Central Bank autonomy; price stability; Chilean new constitution; economic policy
    JEL: E3 E6 K0 K23
    Date: 2021–10–09
  24. By: Nikolay Hristov; Oliver Hülsewig; Benedikt Kolb
    Abstract: We explore how changes in capital-based macroprudential regulation in the euro area affect the exposure of national banking sectors to domestic government debt, thus strengthening or weakening the sovereign-bank nexus. To do so, we construct a measure of macroprudential policy based on the Macroprudential Policy Evaluation Database (MaPPED) and estimate responses to the unsystematic component of macroprudential policy in panel vector autoregressive models for euro area ”core” and ”periphery” countries. Our main finding suggests that an unsystematic capital-based macroprudential policy tightening increases banks’ exposure to domestic sovereign bonds in the periphery countries and thus deepens the sovereign-bank nexus. By contrast, banks in the core countries expand their loan portfolios, rather than adjusting their domestic sovereign bond holdings, in response to the shock. We show that this result can be tied to the theoretical literature and investigate several transmission channels. Our results are highly robust to changes in the econometric set-up and the macroprudential indicator used.
    Keywords: macroprudential policy, euro area, sovereign-bank nexus, panel vector autoregressive model
    JEL: C33 G21 G28 H63
    Date: 2021
  25. By: Miroslav Plasil
    Abstract: The paper sets out to present the Czech National Bank's new methodological framework for satellite models, i.e. models that link the macroeconomic scenario obtained from the core forecasting model with the evolution of key financial variables. Consistent macro-financial scenarios are particularly needed in macroprudential stress-testing. The paper describes the main underlying concepts of the new framework and provides further technical details on four newly deployed models for residential property prices and for bank loans in the main credit segments (housing loans, consumer loans and loans to non-financial corporations). The key advantage of the new approach is a shift to better-structured and more closely interrelated models. This should help maintain the internal consistency of the macro-financial scenario, facilitate communication of the assumptions behind the projections of financial variables and provide a high degree of robustness to structural changes in the economy.
    Keywords: Gaussian process regression, macroprudential policy, satellite models, stress testing
    JEL: C51 C53 E37 E51
    Date: 2021–09
  26. By: Bańbura, Marta; Leiva-Leon, Danilo; Menz, Jan-Oliver
    Abstract: Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB’s SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019. JEL Classification: C53, E31, E37
    Keywords: Bayesian VAR, forecasting, inflation, inflation expectations, Phillips curve
    Date: 2021–10
  27. By: Martin Iseringhausen (ESM)
    Abstract: This paper studies macroeconomic risks in a panel of advanced economies based on a stochastic volatility model in which macro-financial conditions shape the predictive growth distribution. We find sizable time variation in the skewness of these distributions, conditional on the macro-financial environment. Tightening financial conditions signal increasing downside risk in the short term, but this link reverses at longer horizons. When forecasting downside risk, the proposed model, on average, outperforms existing approaches based on quantile regression and a GARCH model, especially at short horizons. In forecasting upside risk, it improves the average accuracy across all horizons up to four quarters ahead. The suggested approach can inform policy makers' assessment of macro-financial vulnerabilities by providing a timely signal of shifting risks and a quantification of their magnitude.
    Keywords: Bayesian analysis, downside risk, macro-financial linkages, time variation
    JEL: C11 C23 C53 E44
    Date: 2021–06–10
  28. By: Sheila Campbell and Chad Shirley
    Abstract: In this working paper, the Congressional Budget Office provides estimates of how much state and local governments that receive federal grants for highway capital projects substitute that funding for their own spending on highway capital. We find that state and local governments reduce their own per capita spending on highway capital by 26 cents for an additional dollar of annual federal formula grants; that finding is toward the lower end of a broad range of estimates in the existing literature. The rate of substitution decreases as state and local governments run larger
    JEL: E22 E62 H54 H72 H76 H77 R42 R53
    Date: 2021–10–08
  29. By: Zacharias Bragoudakis (Bank of Greece and National and Kapodistrian University of Athens); Dimitrios Panas (Tilburg University and Systemic RM)
    Abstract: An essential dilemma in economics that has yielded ambiguous answers is whether governments should spend more in recessions. This paper provides an extension of the work of Ramey & Zubairy (2018) for the US economy according to which the government spending multipliers are below unity, especially when the economy experiences severe slack. Nonetheless, their work suffered from some limitations with respect to invertibility and weak instrument problem. The contribution of this paper is twofold: Firstly, it provides evidence that a triple lasso approach for the lag selection is a useful tool in removing the invertibility issues and the weak instrument problem. Secondly, the main results using a triple lasso approach suggest multipliers below unity for most cases with no evidence for differences between different states of the economy. Nevertheless, re-running the code in Ramey & Zubairy (2018), the case where WWII is excluded exhibits multipliers above unity, in both the military news and Blanchard-Perotti specifications, contradicting their baseline findings and providing evidence for a more effective government spending in recessions.
    Keywords: government spending; fiscal multipliers; debiased machine learning; triple lasso
    JEL: C52 E62 H50 N42
    Date: 2021–10
  30. By: Soojin Jo; Lilia Karnizova
    Abstract: CO2 emissions are commonly perceived to rise and fall with aggregate output. Yet many factors, including energy-efficiency improvements, emissions 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 emissions fluctuations. After extensively examining their impacts on macroeconomic and environmental indicators, we interpret these shocks as changes in the energy efficiency of consumer products. Our results imply that models omitting energy efficiency likely overestimate the trade-off between environmental protection and economic performance.
    Keywords: Business fluctuations and cycles; Climate change; Econometric and statistical methods
    JEL: E32 Q43 Q55
    Date: 2021–10
  31. By: William D. Larson (Federal Housing Finance Agency); Christos Makridis (Stanford University); Chad Redmer (United States Naval Academy - Economics Department)
    Abstract: We assess issues related to borrower beliefs and mortgage performance using new individual panel data that simultaneously cover borrower expectations, forbearance status during the COVID-19 pandemic, and a wide array of demographic characteristics. First, we establish the determinants of borrower expectations, with local experiences and those of social networks playing important roles. We then show that households who, at origination, were optimistic about future house price appreciation or pessimistic about the possibility of future unemployment were more likely to enter forbearance in 2020. However, by early-2021, appreciation-optimistic borrowers who were in forbearance were likely to have cured or prepaid their loan, while those who expected unemployment were likely to still be in forbearance. We offer three channels by which expectations affect forbearance behavior: choices of initial loan terms, associations with actual future events, and factors related to belief formation that are also plausibly associated with forbearance. Our findings highlight the crucial role borrower expectations play in both leverage choices and mortgage performance.
    Keywords: Behavioral Economics, Employment, Forbearance, Expectations
    JEL: E21 E32 G41 G51 R31
    Date: 2021–10
  32. By: Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: This paper analyzes new evidence on long-run trends in aggregate wealth accumulation and wealth inequality in Western countries. The new findings suggest that wealth-income ratios were lower before World War I than previously claimed, that wealth concentration fell over the past century and has remained low in Europe but increased in the United States, that wealth has changed from being dominated by elite-owned fortunes to consist mainly of popular wealth, and that capital shares in national income have been relatively stable over time, especially in the postwar era. These findings cast doubt on claims that a low-tax, low-regulation capitalism will generate extreme capital accumulation, and that persistent wealth equalization requires large shocks to capital coming from wars or progressive taxation. Instead, institutions that promote household wealth accumulation from below appear to be key for understanding the long-run evolution of wealth in Western societies.
    Keywords: Wealth-income ratios; Wealth Inequality; Capital share; Economic history
    JEL: D30 E21 N30
    Date: 2021–10–14
  33. By: Gianluca Benigno; Luca Fornaro; Martin Wolf
    Abstract: Since the late 1990s, the United States has received large capital flows from developing countries - a phenomenon known as the global saving glut - and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods, inducing a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. This effect, which we dub the global financial resource curse, can help explain why the global saving glut has been accompanied by subdued investment and growth, in spite of low global interest rates.
    Keywords: global saving glut, global productivity growth, international financial integration, capital flows, U.S. productivity growth slowdown, low global interest rates, Bretton Woods II, export-led growth
    JEL: E44 F21 F41 F43 F62 O24 O31
    Date: 2019–12
  34. By: Robert J. Hill (University of Graz, Austria); Norbert Pfeifer (University of Graz, Austria); Miriam Steurer (University of Graz, Austria); Radoslaw Trojanek (Poznan University of Economics and Business, Poland)
    Abstract: There is a broad consensus in international statistical organizations such as Eurostat, the European Central Bank, and the International Monetary Fund that price indices should be constructed using transaction data. However, transaction data often lag behind actual market developments in the primary housing market (i.e., the market for new-builds) as prices are typically set months or years before the transactions are finalized. We find that for two large Polish cities (Warsaw and Poznan), secondary market house price indices (HPIs) (for existing properties) lead primary indices (for new builds) by, on average, eight quarters. In Poland and other countries with large primary-markets, this lag can dramatically distort National HPIs. The lag also affects the European Union’s flagship measure of inflation, the Harmonized Index of Consumer Prices (HICP). This is because the HICP includes owner-occupied housing (on an experimental basis) using exclusively primary market transaction data. We illustrate here that replacing final transactions in the primary market with preliminary agreements would resolve these timeliness issues.
    Keywords: hedonic quality adjustment; dissimilarity metric; HICP; macroprudential supervision; timeliness; primary and secondary housing markets
    JEL: C43 E01 E31 R31
    Date: 2021–10
  35. By: Isabel Argimon; Jayson M. Danton; Jakob de Haan; Javier Rodriguez-Martin; Maria Rodriguez-Moreno
    Abstract: Using data for a large sample of banks from 31 OECD countries over 1995–2018, we analyze the impact of belonging to a banking group on banks’ net interest margins. Our results confirm a positive relationship between interest rates and interest margins, which is stronger in a low-interest rate environment. For banks belonging to an international banking group, we find that interest margins are less sensitive to the local interest rate. Our results show that banks belonging to an international group are sensitive to the interest rate prevailing in the group’s headquarter, but only in a low interest rate environment.
    Keywords: bank profitability, monetary policy transmission, net interest margin, low interest rates, banking groups
    JEL: E43 E52 G21
    Date: 2021
  36. By: Kenny, Seán; Lennard, Jason; O'Rourke, Kevin Hjortshøj
    Abstract: We construct an annual index of Irish industrial output for 1800-1921, the period during which the entire island was in a political Union with Great Britain. We also construct a new industrial price index. Irish industrial output grew by an average of 1.4 per cent per annum over the period as a whole, and by 1.8 per cent per annum between 1800 and the outbreak of World War I. Industrial growth was more rapid than previously thought before the Famine, and slower afterwards. While Ireland did not experience deindustrialization either before the Famine or afterwards, its industrial growth was disappointing when considered in a comparative perspective.
    Keywords: Ireland; industrial production; famine; historical national accounts
    JEL: E01 N13 N14
    Date: 2020–11
  37. By: Giuzio, Margherita; Kaufmann, Christoph; Ryan, Ellen; Cappiello, Lorenzo
    Abstract: We examine the transmission of monetary policy via the euro area investment fund sector using a BVAR framework. We find that expansionary shocks are associated with net inflows and that these are strongest for riskier fund types, reflecting search for yield among euro area investors. Search for yield behaviour by fund managers is also evident, as they shift away from low yielding cash assets following an expansionary shock. While higher risk-taking is an intended consequence of expansionary monetary policy, this dynamic may give rise to a build-up in liquidity risk over time, leaving the fund sector less resilient to large outflows in the face of a crisis. JEL Classification: E32, G11, G23
    Keywords: liquidity management, monetary policy, non-bank financial intermediation
    Date: 2021–10
  38. By: Melosi, Leonardo; Rottner, Matthias
    Abstract: We study contact tracing in a new macro-epidemiological model in which infected agents may not show any symptoms of the disease and the availability of tests to detect asymptomatic spreaders is limited. Contact tracing is a testing strategy that aims to reconstruct the infection chain of newly symptomatic agents. We show that contact tracing may be insufficient to stem the spread of infections because agents fail to internalize that their individual consumption and labor decisions increase the number of traceable contacts to be tested in the future. Complementing contact tracing with a timely, moderate lockdown corrects this externality, allowing policymakers to buy time to expand the testing scale so as to preserve the testing system. If the testing capacity is sufficiently large, contact tracing alone can halt the spread of the virus because it allows policymakers to allocate tests along the reconstructed infection chains. We provide theoretical underpinnings to the risk of becoming infected in macro-epidemiological models. Our methodology to reconstruct infection chains is not affected by curse-of-dimensionality problems.
    Keywords: Contact tracing,testing,quarantine,externality,infection chain,lockdown,epidemics,SIR-macro model,COVID-19
    JEL: E10 D62 I10
    Date: 2021
  39. By: Bunn, Philip (Bank of England); Chadha, Jagjit (National Institute of Economic and Social Research); Lazarowicz, Thomas (University College London); Millard, Stephen (Bank of England); Rockall, Emma (Stanford University)
    Abstract: In this paper, we first develop a theoretical framework with three types of household: outright homeowners, mortgagors and renters. We then examine empirically how household debt affects the response of labour supply to shocks to income, mortgage interest rates and house prices for each type of household. In line with our framework, we find that negative income shocks lead to lower participation among outright homeowners while increasing mortgagors’ desired hours; surprise rises in interest rates lead to increases in desired hours that are larger the higher is the household’s debt level; and falls in house prices increase mortgagors’ desired hours.
    Keywords: Household debt; housing; labour supply; participation; hours worked
    JEL: E21 J22
    Date: 2021–09–24
  40. By: Consolo, Agostino; Foroni, Claudia; Hernández, Catalina Martínez
    Abstract: We introduce a Bayesian Mixed-Frequency VAR model for the aggregate euro area labour market that features a structural identification via sign restrictions. The purpose of this paper is twofold: we aim at (i) providing reliable and timely forecasts of key labour market variables and (ii) enhancing the economic interpretation of the main movements in the labour market. We find satisfactory results in terms of forecasting, especially when looking at quarterly variables, such as employment growth and the job finding rate. Furthermore, we look into the shocks that drove the labour market and macroeconomic dynamics from 2002 to early 2020, with a first insight also on the COVID-19 recession. While domestic and foreign demand shocks were the main drivers during the Global Financial Crisis, aggregate supply conditions and labour supply factors reflecting the degree of lockdown-related restrictions have been important drivers of key labour market variables during the pandemic. JEL Classification: J6, C53, C32, C11
    Keywords: Bayesian VAR, labour market, mixed frequency data
    Date: 2021–10
  41. By: Andreasen, Martin M.; Caggiano, Giovanni; Castelnuovo, Efrem; Pellegrino, Giovanni
    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.
    Date: 2021–10–05
  42. By: Mikhail Mamonov; Anna Pestova
    Abstract: How large are the macroeconomic effects of financial sanctions and how one can distinguish the sanction shocks from other aggregate shocks affecting the economy at the same time? We employ a Bayesian (S)VAR model to estimate the effects of the Western financial sanctions imposed on the Russian economy in 2014 (first wave) and 2017 (second wave). The sanctions decreased the Russia’s corporate external debt and raised the country spread, but their effects were confounded by falling oil prices in 2014 (negative terms-of-trade, TOT, shock) and rising oil prices in 2017. We begin disentangling the sanction and TOT effects with a conditional forecasting approach, in which we simulate pseudo out-of-sample projections of domestic macroeconomic variables conditioned (i) solely on the oil price changes and then (ii) on both oil prices and external debt deleveraging. For each endogenous variable, we treat the difference between the two projections as the effect of sanctions. We then apply a structural approach to identify sanction shocks. Our results consistently indicate that the sanction effects were negative and non-negligible across the two sanction waves, being sizeable for the financial variables (real interest rate and corporate external debt) and moderate for the real variables (output, consumption, investment, trade balance, and the ruble real exchange rate). We argue that the estimated effects of sanctions are in line with the theoretical predictions from the literature on country spread shocks in open economies.
    Keywords: financial sanctions; corporate external debt; country spread shocks; terms-of-trade shocks; Bayesian (S)VAR; sign restrictions; conditional forecasting; small open economy;
    Date: 2021–09
  43. By: Yvan Guillemette; David Turner
    Abstract: This paper updates the long-term scenarios to 2060 last published in July 2018, with a special focus on fiscal sustainability and risks. In a baseline economic and fiscal scenario, trend real GDP growth for the OECD + G20 area declines from around 3% post-COVID to 1½ per cent in 2060, mainly due to a deceleration of large emerging-market economies. Meanwhile, secular trends such as population ageing and the rising relative price of services will keep adding pressure on government budgets. Without policy changes, maintaining current public service standards and benefits while keeping public debt ratios stable at current levels would increase fiscal pressure in the median OECD country by nearly 8 percentage points of GDP between 2021 and 2060, and much more in some countries. Policy scenarios show that reforms to labour market and retirement policies could help boost living standards and alleviate future fiscal pressures. An ambitious reform package combining labour market reforms to raise employment rates with reforms to eliminate early retirement pathways and keep effective retirement ages rising by two thirds of future gains in life expectancy could halve the projected increase in fiscal pressure in the median country, even after taking into account future spending pressures associated with ageing.
    Keywords: fiscal pressure, fiscal sustainability, labour market reform, long-term projection, long-term scenario, retirement age
    JEL: O4 H68 J11 E6
    Date: 2021–10–19
  44. By: Carmine Gabriele (ESM)
    Abstract: Banking crises can be extremely costly. The early detection of vulnerabilities can help prevent or mitigate those costs. We develop an early warning model of systemic banking crises that combines regression tree technology with a statistical algorithm (CRAGGING) to improve its accuracy and overcome the drawbacks of previously used models. Our model has a large set of desirable features. It provides endogenously-determined critical thresholds for a set of useful indicators, presented in the intuitive form of a decision tree structure. Our framework takes into account the conditional relations between various indicators when setting early warning thresholds. This facilitates the production of accurate early warning signals as compared to the signals from a logit model and from a standard regression tree. Our model also suggests that high credit aggregates, both in terms of volume and as compared to a long-term trend, as well as low market risk perception, are amongst the most important indicators for predicting the build-up of vulnerabilities in the banking sector.
    Keywords: Early warning system, banking crises, regression tree, ensemble methods
    JEL: C40 G01 G21 E44 F37
    Date: 2019–10–30
  45. By: Budrys, Žymantas; Porqueddu, Mario; Sokol, Andrej
    Abstract: We quantify the effects of wage bargaining shocks on macroeconomic aggregates using a structural vector auto-regression model for Germany. We identify exogenous variation in bargaining power from episodes of minimum wage introduction and industrial disputes. This narrative information disciplines the impulse responses to a wage bargaining shock of un-employment and output, and sharpens inference on the behaviour of other variables. The implied transmission mechanism is in line with the theoretical predictions of a large class of search and matching models. We also find that wage bargaining shocks explain a sizeable share of aggregate fluctuations in unemployment and inflation, that their pass-through to prices is very close to being full, and that they imply plausible dynamics for the vacancy rate, firms’ profits, and the labour share. JEL Classification: J2, J3, E32, C32
    Keywords: industrial action, minimum wage, narrative restrictions, structural vector autoregression, wage bargaining
    Date: 2021–10
  46. By: Njangang, Henri; Asongu, Simplice; Tadadjeu, Sosson; Nounamo, Yann
    Abstract: This paper aims to investigate the effect of financial development on economic complexity using a panel dataset of 24 African countries over the period 1983-2017. The empirical evidence is based on two different approaches. First, we adopt the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors to account for heteroscedasticity and cross–sectional dependence. Second, we implement the system Generalized Method of Moments to account for endogeneity. The results show that financial development increases economic complexity in Africa. Looking at the regional difference, the results show that this effect is less beneficial for SSA countries.
    Keywords: Financial development, Economic complexity, Panel data analysis, Africa
    JEL: E02 G20 G24 O55 P14
    Date: 2021–01
  47. By: Dögüs, Ilhan
    Abstract: This paper explains the emergence of financialisation of nonfinancial corporations (NFCs) in the USA by way of the increased pension fund savings of white-collar workers which can be considered by Monetary Circuit Theory (MCT) as 'leakages' causing equity issuances to be replenished. The indirect causal nexus can briefly be explained that pension fund savings of white-collar workers have been facilitated by the increasing wage differential between white-collar and blue-collar workers which is driven by the increased market concentration. Since pension funds savings are channelled to financial markets instead of being spent for consumption goods, liquidity deficits of firms being replenished throughout stock markets and because of excess inflows into financial markets, profit expectations of NFCs from liquid financial assets have come to exceed the quasi-rent expectations from illiquid capital assets due to depressed demand for consumption goods. This paper stands as a reconstructive summary of findings of three published articles on each arguments of causal nexus and a contribution to MCT which has not yet considered market concentration.
    Keywords: financialisation,market concentration,white-collar workers,wage differential,Monetary Circuit Theory
    JEL: E44 J31 L1
    Date: 2021
  48. By: Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F.
    Abstract: We study the transmission of (unconventional) monetary policy to the real sector when firm decisions depend on both current and future credit market conditions. For a given level of current credit access, investment and employment increases more at firms expecting bank credit to improve in the future. Three separate unconventional policies by the ECB—the OMT, the introduction of negative rates, and the CSPP—improved expectations of future credit access for SMEs borrowing from banks that were expected to increase SME lending due to the policy. Our results enhance our understanding of the bank balance sheet channel of monetary policy. JEL Classification: D22, D84, E58, G21, H63
    Keywords: corporate investment, funding expectations, Unconventional monetary policy
    Date: 2021–10
  49. By: Ogundari, Kolawole
    Abstract: The paper examines the effect of trade on income inequality in sub-Saharan Africa (SSA) countries. We employ a balanced panel of 11 countries covering 1980-2008 and use a fractional regression model for panel data as a method of estimation. The empirical results show that trade decreases income inequality, which might be an indication that our findings support the Stolper-Samuelson (SS) theorem in the Heckscher-Ohlin (HO) model in SSA. We also found evidence that lack of democracy (i.e., the existence of autocracy) increases income inequality, while higher educational attainment decreases income inequality in the study
    Keywords: fractional regression, income inequality, education, political right, trade, SSA
    JEL: E1 E6 F1 F18
    Date: 2021–10–14
  50. By: Dante Amengual (CEMFI, Spain); Gabriele Fiorentini (Università di Firenze, Italy; Rimini Centre for Economic Analysis); Enrique Sentana (CEMFI, Spain)
    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: 2021–10
  51. By: Lennard, Jason
    Abstract: How sticky were wages during the Great Depression? Although classic accounts emphasize the importance of nominal rigidity in amplifying deflationary shocks, the evidence is limited. In this paper, I calculate the degree of nominal wage rigidity in the United Kingdom between the wars using new granular data covering millions of wages. I find that nominal wages were more flexible downwards than in most modern economies, but that the frequency and magnitude of wage cuts were too low to fully offset deflation
    Keywords: Great Depression; interwar Britain; nominal rigidity
    JEL: E30 N14
    Date: 2021–10–01
  52. By: Sébastien Charles (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Eduardo Bastian; Jonathan Marie (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - USPC - Université Sorbonne Paris Cité - UP13 - Université Paris 13)
    Abstract: The article proposes a typology of inflation regimes that can be applied to any kind of economy based on the Post-Keynesian and structuralist literature. We identify three separate regimes: the low, moderate, and high inflation regimes. Hyperinflation is also defined and described. Each regime presents different characteristics. We identify the key role played by the distributive conflict between workers and capitalists in all the regimes, the role played by the indexation of wages on domestic prices in the moderate and high inflation regimes, and the specific roles played by the widespread indexation on a short term basis in the high inflation regime. Hyperinflation is explained by selffulfilling prophecies about exchange rate variations and by the rejection of the domestic currency. Our analysis underlines the fact that the current fear of inflation is largely groundless.
    Keywords: Inflation,Hyperinflation,Post-Keynesian analysis,Structuralist analysis
    Date: 2021–10–03
  53. By: Stefan Nabernegg (University of Graz, Austria)
    Abstract: One major barrier for the feasibility of national climate policies is limited public acceptance because of distributional concerns. In the literature, different approaches are used to investigate the incidence of climate policies across income groups. We apply three approaches of incidence analysis to the case of Austria, that vary in terms of data and computational intensity: (i) household fuel expenditure analysis, (ii) household carbon footprints and (iii) macroeconomic general equilibrium modelling with heterogeneous households. As concerns about heterogeneity within low-income groups (horizontal equity) were recently articulated as main objection for effective redistributive revenue recycling in the literature, we compare a pricing instrument of a fuel tax with two non-pricing instruments. We find that expenditure analysis, without considering embodied emissions in consumption, overestimates regressivity as well as within group variations of carbon pricing instruments. An economy-wide fuel tax without redistributive revenue recycling shows a slightly regressive distributional effect in the general equilibrium analysis, driven by the households use of income. This is well approximated by the carbon footprint analysis as income source effects play a minor role for this policy. For the two examples of non-pricing policies, we show that income source effects, which can be only evaluated in a closed macroeconomic model, strongly codetermine the mostly progressive distributional effect. Therefore we derive three general aspects that determine the incidence of climate policies: (i) the consumption patterns of households and the corresponding emission intensities of consumption, (ii) the existing distribution and composition of income, and (iii) the specific policy and policy design considered. For the feasibility of climate policy, we conclude that the evaluation as well as the clear communication of distributional effects is essential, as policy acceptance depends on the perceived individual outcome.
    Keywords: policy incidence; carbon footprint; carbon pricing; climate change; Computable General Equilibrium; distribution; fuel tax; heterogenous households; Multi-Regional Input-Output simulation
    JEL: C43 E01 E31 R31
    Date: 2021–10
  54. By: Korobilis, Dimitris; Landau, Bettina; Musso, Alberto; Phella, Anthoulla
    Abstract: This paper develops a Bayesian quantile regression model with time-varying parameters (TVPs) for forecasting inflation risks. The proposed parametric methodology bridges the empirically established benefits of TVP regressions for forecasting inflation with the ability of quantile regression to model flexibly the whole distribution of inflation. In order to make our approach accessible and empirically relevant for forecasting, we derive an efficient Gibbs sampler by transforming the state-space form of the TVP quantile regression into an equivalent high-dimensional regression form. An application of this methodology points to a good forecasting performance of quantile regressions with TVPs augmented with specific credit and money-based indicators for the prediction of the conditional distribution of inflation in the euro area, both in the short and longer run, and specifically for tail risks. JEL Classification: C11, C22, C52, C53, C55, E31, E37, E51
    Keywords: Bayesian shrinkage, euro area, Horseshoe, inflation tail risks, MCMC, quantile regression, time-varying parameters
    Date: 2021–10
  55. By: Dante Amengual (CEMFI, Casado del Alisal 5, E-28014 Madrid, Spain); Gabriele Fiorentini (Università di Firenze and RCEA, Viale Morgagni 59, I-50134 Firenze, Italy); Enrique Sentana (CEMFI, Casado del Alisal 5, E-28014 Madrid, Spain)
    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: 2021–10
  56. By: Bojicic-Dzelilovic, Vesna; Hozić, Aida A
    Abstract: This article seeks to illuminate structural limits of Gender Responsive Budgeting (GRB) by analysing the interplay between economic and fiscal reforms, promoted by International Financial Institutions (IFIs), and gender budgeting initiatives in the Western Balkans. GRB is the core concept bridging revenue mobilization and gender equality in the work of IFIs. However, as the Western Balkans experience demonstrates, GRB initiatives are best characterized as “empty gestures” towards gender equality as they cannot compensate for the continued adverse effects of IFIs overall policies.
    Keywords: gender responsive budgeting; VAT; Western Balkans; revenue mobilization; consumptions-led growth; financialization; households
    JEL: N0 E6
    Date: 2020–11–01
  57. By: Dushmanitch, V.Y.; Darroch, M.A.G.
    Keywords: Political Economy, Livestock Production/Industries
    Date: 2021–10–14
  58. By: Adekunle, Wasiu; Bekoe, William; Badmus, Sheriff; Anagun, Michael; Alimi, Wasiu
    Abstract: This paper examined the nexus between fiscal discipline and the budget process in Nigeria over the period from 1990 to 2020. Findings showed that the level of fiscal discipline in Nigeria as measured by two proxies of fiscal deficit gap and public debt gap is more enhanced under zero-based budgeting than under current incremental budgeting system. The study also established that civilian administrations are more prone to fiscal indiscipline relative to military dispensations. The paper also revealed the significant role of net foreign aid receipts in significantly narrowing fiscal deficit and public debt gaps in the short-run and long-run, as well as, the significant widening impact of an increasing government size on public debt in the long run. The study recommends, among others, the increasing need to restore fiscal discipline in public affairs through reversion to zero-based budgeting system.
    Keywords: Fiscal Discipline, Fiscal Responsibility Act, Debt threshold, Zero-based budgeting, Incremental budgeting, ARDL, Nigeria
    JEL: C32 C53 H61 H68
    Date: 2021–10–07
  59. By: Senay Agca (George Washington University); John Birge (University of Chicago); Zi'ang Wang (Chinese University of Hong Kong); Jing Wu (Chinese University of Hong Kong)
    Abstract: Global supply chains expose firms to multi-regional risks, but also provide benefits by creating a buffer against local shocks. The COVID-19 pandemic and its differential impact on different parts of the world provide an opportunity for insight into supply chain credit risk, and how operational and structural characteristics of global supply chains affect this risk. In this paper, we examine supply chain credit risk during different phases of the COVID-19 pandemic by focusing on Credit Default Swap (CDS) spreads and US-China supply chain links. CDS spreads reflect both the probability of default and expected loss given default, and are available with daily frequency, which allows the assessment of supply chain partners' credit risk in a timely manner. We find that CDS spreads for firms with China supply chain partners increase with the economic shutdown in China during the pandemic, and the spreads go down when the economic activity resumed with the re-opening in China. We consider Swift, Even Flow (SEF) and Social Network Theories (SNT) within our context. Supporting SEF theory, we find that the impact of pandemic-related disruptions to even flow of goods and materials reflected in supply chain credit risk is mitigated for firms with lower inventory turnover and those with better ability to work with longer lead times and operating cycles. Examining supply chain structural characteristics through SNT reveals that spatial and horizontal complexity, as well as network centrality (degree, closeness, betweenness, information) mitigate the impact of supply chain vulnerabilities on supply chain credit risk.
    Keywords: Supply Chains, Credit Risk, CDS, COVID-19, Pandemic
    JEL: E21 E51 F23 G12 G14 G23 G32 L11
    Date: 2021
  60. By: Ayush Patnaik (xKDR Forum); Ajay Shah (xKDR Forum); Anshul Tayal (xKDR Forum); Susan Thomas (xKDR Forum)
    Abstract: The VIIRS nighttime lights dataset constitutes progress in the measurement of night lights radiance, with monthly data at a pixel of roughly 0.5km × 0.5km. We identify a downward bias in the reported radiance when the number of cloud-free images in a month is low. This bias often takes on large values from -10% to -30%. We develop a cautious bias-correction scheme which partially addresses this problem. This scheme is applied upon the pixel-level dataset to create an improved dataset. The bias-corrected data hews closer to the ground truth as seen in household survey data.
    JEL: C8 E0 E1 R1
    Date: 2021–10
  61. By: Dögüs, Ilhan
    Abstract: This paper argues that the case of product differentiation of concentrated markets (i.e., innovation competition) is one where production per unit of profit of non-financial corporations is lower than in competitive mass production and profit share is not an increasing function of capacity utilisation. Rather the desired excess capacity is higher compared since the break-even point where total costs and revenues equalize tends to be lower. The argument is supported with descriptive annual data for the period 1947-2019 in the USA.
    Keywords: product differentiation,market structure,capacity utilisation,profits
    JEL: D24 E12 L11
    Date: 2021
  62. By: Senay Agca (George Washington University); Volodymyr Babich (Georgetown University); John Birge (University of Chicago); Jing Wu (Chinese University of Hong Kong)
    Abstract: Using a panel of Credit Default Swap (CDS) spreads and supply chain links, we observe that both favorable and unfavorable credit shocks propagate through supply chains in the CDS market. Particularly, the three-day cumulative abnormal CDS spread change (CASC) is 63 basis points for firms whose customers experienced a CDS up-jump event (an adverse credit shock). The value is 74 basis points if their suppliers experienced a CDS up-jump event. The corresponding three-day CASC values are −36 and −38 basis points, respectively, for firms whose customers and suppliers, respectively, experienced an extreme CDS down-jump event (a favorable credit shock). These effects are approximately twice as large for adverse credit shocks originating from natural disasters. Credit shock propagation is absent in inactive supply chains, and is amplified if supply-chain partners are followed by the same analysts. Industry competition and financial linkages between supply chain partners, such as trade credit and large sales exposure, amplify the shock propagation along supply chains. Strong shock propagation persists through second and third supply-chain tiers for adverse shocks but attenuates for favorable shocks.
    Keywords: supply chains, credit risk, CDS, propagation, supply networks
    JEL: E43 E51 G12 G14 G23 G24 G32 L11 L22
    Date: 2021
  63. By: Hodbod, Alexander; Hommes, Cars; Huber, Stefanie J.; Salle, Isabelle
    Abstract: Prospective economic developments depend on the behavior of consumer spending. A key question is whether private expenditures recover once social distancing restrictions are lifted or whether the COVID-19 crisis has a sustained impact on consumer confidence, p references, and, hence, spending. The elongated and profound experience of the COVID-19 crisis may durably affect consumer preferences. We conducted a representative consumer survey in five European countries in summer 2020, after the release of the first wave’s lockdown restrictions, and document the underlying reasons for households’ reduction in consumption in five key sectors: tourism, hospitality, services, retail, and public transports. We identify a large confidence shock in the Southern European countries and a shift in consumer preferences in the Northern European countries, particularly among high-income earners. We conclude that the COVID-19 experience has altered consumer behavior and that long-term sectoral consumption shifts may occur. JEL Classification: D12, D81, D84, E21, E60, E71, G51, H30
    Keywords: consumer preferences, consumption, COVID-19, economic resilience, expectations, experiences, fiscal policy, household behavior, sectoral changes, zombification
    Date: 2021–10
  64. By: Auria, Laura; Bingmer, Markus; Graciano, Carlos Mateo Caicedo; Charavel, Clémence; Gavilá, Sergio; Iannamorelli, Alessandra; Levy, Aviram; Maldonado, Alfredo; Resch, Florian; Rossi, Anna Maria; Sauer, Stephan
    Abstract: The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. JEL Classification: E58
    Keywords: credit assessments, credit claims, credit risk models, ICAS, ratings
    Date: 2021–10
  65. By: Clavin, P.; Corsetti, G.; Obstfeld, M.; Tooze, A.
    Abstract: Just over a century old, John Maynard Keynes’s The Economic Consequences of the Peace (1919) remains a seminal document of the twentieth century. At the time, the book was a prescient analysis of political events to come. In the decades that followed, this still controversial text became an essential ingredient in the unfolding of history. In this essay, we review the arc of experience since 1919 from the perspective of Keynes’s influence and his changing understanding of economics, politics, and geopolitics. We identify how he, his ideas, and this text became key reference points during times of turbulence as actors sought to manage a range of shocks. Near the end of his life, Keynes would play a central role in planning the world economy’s reconstruction after World War II. We argue that the “global order†that evolved since then, marked by increasingly polarized societies, leaves the community of nations ill prepared to provide key global public goods or to counter critical collective threats.
    Keywords: Keynes, World War I, Versailles, interwar period, League of Nations, World War II, Bretton Woods, Cold War, multilateralism, global order
    JEL: B30 E10 E30 F30 F40 N10 N20
    Date: 2021–10–05
  66. By: Dejene Mamo, Bekana
    Abstract: This paper examines the effect of intergovernmental fiscal transfers on the fiscal behaviour of local governments in Ethiopia for the period 2004-2018. The empirical findings suggest that central government grants bolster state-level employment and expenditure. However, grants from the central government to states do not crowd out state-level revenue collection. Hence, this paper argues that fiscal decentralisation in Ethiopia has mostly, at least in theory, taken the form of devolution of the power to tax and spend public money. However, on average state-level revenue can only finance up to 26 per cent of their annual expenditure. As a result, fiscal federalism in Ethiopia appears to be a form of delegation of spending responsibilities. It has to be considered in the context of a decentralised tax system, but with a transfer scheme and political hierarchy. The results are found to be robust to alternative econometric estimation techniques.
    Keywords: Economic Development, Finance, Governance,
    Date: 2020
  67. By: Blackwell, Michael
    Abstract: The IFS Tax Law Review Committee’s report, The tax tribunals: the next ten years, identifies causes of dissatisfaction among FTT users to include delay, a lack of communication by the FTT administration, a lack of engagement by some judges during the hearing and the allocation of cases to judges with the appropriate knowledge or skill. Delay is the overriding concern among tribunal users surveyed, especially delay between the hearing and the release of the decision. The report also identifies existing areas of strength of the FTT, including how litigants in person are often assisted by judges taking an inquisitorial approach.
    JEL: F3 G3 E6
    Date: 2021–10–07
  68. By: Neudorf, Russell D.; Hassan, Masood U.
    Keywords: Demand and Price Analysis
    Date: 2021–10–14
  69. By: Eileen van Straelen
    Abstract: Using granular data on home builder housing developments from the 2006-09 housing crisis, I show that builders spread house price shocks across geographically distinct projects via their internal capital markets. Builders who experience losses in one area subsequently sell homes in unaffected areas at a discount to raise cash quickly. Financially constrained firms are more likely to cut prices of homes in healthy areas in response to losses in unhealthy ones. Firms also smooth shocks across projects only during the crisis and not during the boom. These results together suggest firm internal capital markets spread negative economic shocks across space.
    Keywords: Internal capital markets; Financial crises; Financial constraints; Housing markets; Product pricing
    JEL: R30 G30 G31 G01 E30
    Date: 2021–10–13
  70. By: Neudorf, Russell D.; Hassan, Masood U.
    Keywords: Demand and Price Analysis
    Date: 2021–10–14
  71. By: Berning, Joshua P.; Bonanno, Alessandro; Bayham, Jude; Zhou, Siwen
    Keywords: Food Consumption/Nutrition/Food Safety, Consumer/Household Economics, Health Economics and Policy
    Date: 2021–08
  72. By: DIF Aicha (Dr, ISTA, University of Oran 1 Ahmed Ben Bella, Oran, Algeria. Member at Laboratory LAREEM Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - Co-creation in entrepreneurship education is related to the teacher's ability to innovate and develop new practice among the student-teacher relationship; it is also a new way to enhance creativity and student value creation. In this approach, the teacher is considered the first actor of co-creation; he creates value among co-teaching, he is a facilitator for the launch of a start-up, and he is at the core of the entrepreneurial ecosystem. Thus, teaching with value co-creation, as we define, is a learning process that combines co-creation as a venture creation tool and provides personalised support for business plan competition. In the higher education system, innovation is an indicator of quality in teaching in all discipline. For entrepreneurship education, innovation with co-creation is a pedagogical practice based on project learning experimentation. This practice is efficient when it creates value for the learner in a co-creation process that combines knowledge sharing between the stakeholders. However, selecting the appropriate pedagogical practice is a curial element in the skills development in entrepreneurship education. Indeed, using co-creation as co-teaching implicates a pre-selection of the participant. Methodology - In this study, the author uses a qualitative analysis method of interviews made with teachers implicated in a co-creation approach and students who had participated in start-up competition. The sample was selected based on (Science, Technology, Engineering and Mathematics) STEM student entrepreneur experience. Results and findings - In achieving the objective of this paper, which is to understand the use of co-creation as an innovative pedagogical practice in the area of entrepreneurship education. The results show the value creation of co-creation as a co-teaching practice and a challenging tool of enhancing entrepreneurial spirit. Type of Paper - Empirical"
    Keywords: Co-Creation; Entrepreneurship Education; Co-Teaching.
    JEL: M31 E24 I29
    Date: 2021–09–30
  73. By: Marek Kapicka; Ctirad Slavik
    Abstract: This paper studies how labor income taxation interacts with the organization of knowledge and production, and ultimately the distribution of wages in the economy. A more progressive tax system reduces the time that managers allocate to work. This makes the organization of production less efficient and reduces wages at both tails of the distribution, which increases lower tail wage inequality and decreases upper tail wage inequality. The optimal tax system is substantially less progressive than the current one in the United States. However, if wages were exogenous, the optimal tax progressivity would be much higher.
    Keywords: inequality; wages; knowledge based hierarchies; income taxation;
    JEL: E6 H2 D8 L23
    Date: 2021–09
  74. By: Katja Kalkschmied (University of Graz, Austria); Joern Kleinert (University of Graz, Austria); Manuela Mahecha-Alzate (University of Geneva, Switzerland)
    Abstract: Institutions are pervasive and occur in many shapes. They are embodied in rules, norms, organizations and material artifacts such as money. In this paper, we analyze the most important institutions in market economies: markets and firms. We draw on Aoki's (2001) game-theoretic approach to formalize how markets and firms are built, sustained and changed in a decentralized manner by decisions of private parties. Markets and firms are therefore private-order institutions and distinctively different from pragmatic institutions which are outcomes of centralized planning by the state. Yet, the decentralized building of private-order institutions is critically influenced by the state. We discuss how legislation and specific state interventions can direct private-order institution-building in a decentralized, market-based economy. We further discuss the role of ideas for state interventions to be successful.
    Keywords: endogenous institutions; private-order; decentralized institution-building; state interventions
    JEL: E02 L22 P51
    Date: 2021–09
  75. By: Mr. Paulo A Medas; Ms. Anja Baum; Mouhamadou Sy; Alberto Soler
    Abstract: The size and operation of state-owned enterprises (SOEs) can imply significant risks for governments. SOEs are present in virtually every country in the world and are major players in domestic economies and in global markets. In some countries, they number in the thousands and are owned by national or subnational governments. SOEs are among the largest corporations in some advanced economies and comprise a third or more of the largest firms in several emerging markets. Many operate with systematic losses and carry significant liabilities. If SOEs face adverse shocks and financial distress they can impact the government budget or balance sheet through numerous transmission channels. This How to Note describes a newly developed SOE risk assessment tool to help country authorities and IMF country teams. The analysis can provide inputs for annual budgets and medium-term fiscal planning. This includes providing estimates of possible transfers to and from SOEs to the budget and possible financing needs. The note outlines the main steps and elements of the template to assess fiscal risks for governments from individual SOEs. The first step is to collect financial information on SOEs and their relation to the government budget, and to provide a benchmark against other SOEs in similar sectors. A second step is to do a forward-looking analysis based on baseline forecasts and stress scenarios, to identify and analyze possible risks and their impact on government accounts.
    Keywords: Fiscal Affairs Department staff; stress scenario; operating cash flow; current liabilities; performance indictor; SOE financials; Public enterprises; Fiscal risks; Currencies; Financial statements; Stress testing; Global
    Date: 2021–08–19
  76. By: Romano, Stefania; Martinez-Heras, Jose; Raponi, Francesco Natalini; Guidi, Gregorio; Gottron, Thomas
    Abstract: In carrying out its banking supervision tasks as part of the Single Supervisory Mechanism (SSM), the European Central Bank (ECB) collects and disseminates data on significant and less significant institutions. To ensure harmonised supervisory reporting standards, the data are represented through the European Banking Authority’s data point model, which defines all the relevant business concepts and the validation rules. For the purpose of data quality assurance and assessment, ECB experts may implement additional plausibility checks on the data. The ECB is constantly seeking ways to improve these plausibility checks in order to detect suspicious or erroneous values and to provide high-quality data for the SSM. JEL Classification: C18, C63, C81, E58, G28
    Keywords: machine learning, plausibility checks, quality assurance, supervisory data, validation rules
    Date: 2021–10
  77. By: Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Ilan Noy
    Abstract: Almost all countries announced fiscal support programs once COVID-19 hit. However, there was significant diversity in the magnitude and composition of these fiscal stimulus programs. These differences were determined by myriad political, financial, social, and economic factors - these factors are our focus. We ask what were the factors that are associated with the structure of the fiscal programs that governments chose to adopt in the early stage of the pandemic in 2020. We answer this question using details about the fiscal programs that were announced by 98 governments in the first six months of the pandemic, together with a large set of explanatory variables. Maybe not surprisingly, we find that politics played a very significant part in determining the size and composition of these fiscal programs. Governments and societies that are less polarized and more capable were able to mobilise more fiscal resources. We also find that it was governments with bigger debt loads that announced bigger programs, but that sovereign spreads were not so clearly associated with the size of these program plans. There is a limit, however, to what we can glean from these cross-country comparisons. Ultimately, the understanding of the politics and political-economy considerations that led to the specific content of each fiscal program will have to rely on information about the actual deliberations in each government’s halls of power, should these ever become public.
    Keywords: Covid-19, fiscal, political economy of fiscal spending, fiscal space
    JEL: H12 H62 H63 H84
    Date: 2021
  78. By: Andersson, Malin; Maurin, Laurent; Rusinova, Desislava
    Abstract: We estimate a FAVAR with Bayesian techniques in order to investigate the impact of loan supply conditions on euro area corporate investment and its financing structure. We identify shocks to overall demand and loan supply with sign and impact restrictions. Although tightened financial conditions have adversely impacted corporate investment during and after the sovereign debt crisis, the resulting impediments in loan supply, illustrated by lower loan volumes and higher spreads, have been partly alleviated by strengthened corporate debt issuance. We show that (1) part of the protracted increase in debt to loan ratio since the crisis reflects bottlenecks in the provision of bank credit and (2) the tightened loan supply has been more adverse for small corporations with limited market access. Overall, our analysis of macro-financial developments suggests the need for policy actions to deepen the European corporate debt market and enhance market access for smaller corporates. JEL Classification: E22, E66, G21
    Keywords: corporate debt issuance, FAVAR model, financing structure, size spread, small and medium size corporates
    Date: 2021–10
  79. By: Nounamo, Yann; Asongu, Simplice; Njangang, Henri; Tadadjeu, Sosson
    Abstract: The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.
    Keywords: external debt, political institutions, economic growth
    JEL: E00 O10
    Date: 2021–01

This nep-mac issue is ©2021 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.