nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒10‒25
76 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Recovery Beating Expectations By Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Selena Duraković; Richard Grieveson; Doris Hanzl-Weiss; Gabor Hunya; Branimir Jovanović; Niko Korpar; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Bernd Christoph Ströhm; Maryna Tverdostup
  2. Firm Heterogeneity, Market Power and Macroeconomic Fragility By Alessandro Ferrari; Francisco Queirós
  3. The persistent and generalised decline in the U. S. interest rates: an alternative interpretation By Capraro, Santiago; Panico, Carlo; Torres-Gonzalez, Luis Daniel
  4. Regional The Meaning of MMT By Françoise Drumetz; Christian Pfister
  5. Fiscal and Monetary Stabilization Policy at the Zero Lower Bound: Consequences of Limited Foresight By Michael Woodford; Yinxi Xie
  6. Expectations and Aggregate Risk By Lorenzo Bretscher; Aytek Malkhozov; Andrea Tamoni
  7. The Sahm Rule and Predicting the Great Recession Across OECD Countries By David Blanchflower; Alex Bryson
  8. Business News and Business Cycles By Leland Bybee; Bryan T. Kelly; Asaf Manela; Dacheng Xiu
  9. Extracting Firms' Short-Term Inflation Expectations from the Economy Watchers Survey Using Text Analysis By Jouchi Nakajima; Hiroaki Yamagata; Tatsushi Okuda; Shinnosuke Katsuki; Takeshi Shinohara
  10. Macroprudential Policy during COVID-19: The Role of Policy Space By Katharina Bergant; Kristin Forbes
  11. Demographic Effects on Prices: Is Aging Deflationary? By Tomoki Isa
  12. Subjective Models of the Macroeconomy: Evidence From Experts and Representative Samples By Peter Andre; Carlo Pizzinelli; Christopher Roth; Johannes Wohlfart
  13. Japan’s Voluntary Lockdown: Further Evidence Based on Age-Specific Mobile Location Data By Tsutomu Watanabe; Tomoyoshi Yabu
  14. Legislative Tax Announcements and GDP: Evidence from the United States, Germany, and the United Kingdom By Bernd Hayo; Sascha Mierzwa
  15. How excessive endogenous money supply can contribute to global financial crises. By Shvets, Serhii
  16. The network origins of aggregate fluctuations: a demand-side approach By Emanuele Citera; Shyam Gouri Suresh; Mark Setterfield
  17. The Geography of Job Creation and Job Destruction By Moritz Kuhn; Iourii Manovskii; Xincheng Qiu
  18. Significant movements in the debate on the Minimum Wage (1994 - 2019) By Kakkar, Shrey
  19. Faster fiscal stimulus and a higher government spending multiplier in China: Mixed-frequency identification with SVAR By Mingyang Li; Linlin Niu
  20. EU’s Fiscal Rules: Keep It Simple, Not Stupid! By Kuusi, Tero; Puonti, Päivi
  21. Hysteresis in Unemployment: Evidence from OECD Estimates of the Natural Rate By Laurence M. Ball; Joern Onken
  22. Rational expectations and why they matter By Kakkar, Shrey
  23. Greta Thunberg effect and Business Cycle Dynamics: A DSGE model By Busato, Francesco; Chiarini, Bruno; Cisco, Gianluigi; Ferrara, Maria
  24. The impact of the Bank of Canada’s Government Bond Purchase Program By Rohan Arora; Sermin Gungor; Joe Nesrallah; Guillaume Ouellet Leblanc; Jonathan Witmer
  25. Inflation Anchoring and Growth: The Role of Credit Constraints By Sangyup Choi; David Furceri; Prakash Loungani; Myungkyu shim
  26. The long-term effects of experienced macroeconomic shocks on wealth By Viola Angelini; Irene Ferrari
  27. The transmission of euro area monetary policy to financially euroised countries By Moder, Isabella
  28. An Analysis of Monetary and Macroprudential Policies in a DSGE Model with Reserve Requirements and Mortgage Lending By Ben-Gad, M.; Pearlman, J.; Sabuga, I.
  29. Debt-financed fiscal stimulus in South Africa By Hylton Hollander
  30. Persuasion by Dimension Reduction By Semyon Malamud; Anna Cieslak; Andreas Schrimpf
  31. Outsourcing, Inequality and Aggregate Output By Adrien Bilal; Hugo Lhuillier
  32. The ECB's tracker: nowcasting the press conferences of the ECB By Marozzi, Armando
  33. Discount rates, debt maturity, and the fiscal theory By Corhay, Alexandre; Kind, Thilo; Kung, Howard; Morales, Gonzalo
  34. A Global Shock with Idiosyncratic Pains: State-Dependent Debt Limits for LATAM during the COVID-19 pandemic By Juan C. Méndez-Vizcaíno; Nicolás Moreno-Arias
  35. The Impact of Remittances on Monetary Transmission Mechanisms during the Pre and Post-Conflict Eras in Sri Lanka By Jahan Abdul Raheem; Gazi M. Hassan; Mark J. Holmes
  36. The Redistributive Effects of Pandemics: Evidence of the Spanish Flu By Basco, Sergi; Domenech, Jordi; Roses, Joan R.
  37. Job Applications and Labour Market Flows By Serdar Birinci; Kurt See; Shu Lin Wee
  38. Output gaps and cyclical indicators: Finnish evidence By Pönkä, Harri; Sariola, Mikko
  39. What Can Stockouts Tell Us About Inflation? Evidence from Online Micro Data By Alberto Cavallo; Oleksiy Kryvtsov
  40. The great Covid cash surge - digitalisation hasn't dented cash's safe haven role By Ashworth, Jonathan; Goodhart, C. A. E.
  41. The macroeconomic effect of fiscal policy in South Africa: A narrative analysis By Tumisang Loate; Romain Houssa; Nicola Viegi
  42. COVID-19 and Public Investment for Children: The case of Indian State of Karnataka. By Jacob, Jannet Farida; Chakraborty, Lekha
  43. Macroeconomic Forecasting with LSTM and Mixed Frequency Time Series Data By Sarun Kamolthip
  44. What Drives Variation in the U.S. Debt/Output Ratio? The Dogs that Didn't Bark By Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
  45. Revisiting the informal aspects of the activity of countries, studied through Social Accounting and Socio-Demographic Matrices, with an application to Mozambique. By Susana Santos; Mónica Magaua
  46. Occasional Bulletin of Economic Notes 202101 Inflation in the time of Covid19 II the liquidity surge By Jean-Francois Mercier
  47. How do central banks identify risks? A survey of indicators By Banco de España Strategic Plan 2024: Risk identification for the financial and macroeconomic stability
  48. Monetary Policy Implementation: Adapting to a New Environment By Lorie Logan
  49. Survey Non-response in Covid-19 Times: The Case of the Labour Force Survey By Pierre Brochue; Jonathan Créchet
  50. The ECB’s Asset Purchase Programme: Theory, effects, and risks By Benigno Pierpaolo; Canofari Paolo; Di Bartolomeo Giovanni; Messori Marcello
  51. A Q-Theory of Banks By Juliane Begenau; Saki Bigio; Jeremy Majerovitz; Matias Vieyra
  52. Minimum wages and the China Syndrome: Causal evidence from US local labor markets By Milsom, L.; Roland, I.
  53. Demand or supply? An empirical exploration of the effects of climate change on the macroeconomy By Ciccarelli, Matteo; Marotta, Fulvia
  54. Price and wage inflation persistence across countries and monetary regimes By Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco
  55. Revenue Shortfall and GST Compensation: An Assessment. By Mukherjee, Sacchidananda
  56. Corporate debt and state-dependent effects of fiscal policy By Daichi SHIRAI
  57. Tax Policy Design with Low Interest Rates By Alan J. Auerbach; William Gale
  58. Instant payments as a new normal: Case study of liquidity impacts for the Finnish market By Hellqvist, Matti; Korpinen, Kasperi
  59. Rethinking Exchange Rate Regimes By Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
  60. An Application of the Tourist Test to Colombian Merchants By Carlos Alberto Arango-Arango; Yanneth Rocío Betancourt-García; Manuela Restrepo-Bernal
  61. Not all shocks are created equal: assessing heterogeneity in the bank lending channel By Blattner, Laura; Farinha, Luísa; Nogueira, Gil
  62. Estimating the elasticity of consumer prices to the exchange rate: an accounting approach By Camatte, Hadrien; Daudin, Guillaume; Faubert, Violaine; Lalliard, Antoine; Rifflart, Christine
  63. Developing Countries’ Macroeconomic Exposure to the Low-carbon Transition By Etienne ESPAGNE; Antoine GODIN; Guilherme MAGACHO; Achilleas MANTES; Devrim YILMAZ
  64. The channels of banks’ response to negative interest rates By Whelsy Boungou; Paul Hubert
  65. The Internationalization of Domestic Banks and the Credit Channel of Monetary Policy By Morales, Paola; Osorio, Daniel; Lemus, Juan S.; Sarmiento Paipilla, Miguel
  66. Better Two Eyes than One: A Synthesis Classification of Exchange Rate Regimes By Cécile Couharde; Carl Grekou
  67. The View from Here: The Outlook for the U.S. Economy and Implications for Monetary Policy: a speech at The Dykhouse Scholar Program Speakers Series in Money, Banking, and Regulation South Dakota State University, Brookings, South Dakota, October 13, 2021 By Michelle W. Bowman
  68. An evaluation of alternative fiscal adjustment plans By Acocella Nicola; Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco; Felici Francesco
  69. Technological capacity and firms' recovery from Covid-19 By Sebastian Doerr; Magdalena Erdem; Guido Franco; Leonardo Gambacorta; Anamaria Illes
  70. Illuminating the Effects of the US-China Tariff War on China's Economy By Davin Chor; Bingjing Li
  71. What are the drivers of tax capacity in sub-Saharan Africa? By Abrams M.E. Tagem; Oliver Morrissey
  72. A Spatiotemporal Equilibrium Model of Migration and Housing Interlinkages By Wukuang Cun; M. Hashem Pesaran
  73. Global disparities in health-systems financing: A cross-national analysis of the impact of tariff reductions and state capacity on public health expenditure in 65 low- and middle-income countries, 1996–2015 By Barlow, Pepita
  74. L'impact de la numérisation sur la réduction de la pauvreté en Afrique By Kohnert, Dirk
  75. From Just in Time, to Just in Case, to Just in Worst-Case: Simple models of a Global Supply Chain under Uncertain Aggregate Shocks. By Bomin Jiang; Daniel E. Rigobon; Roberto Rigobon
  76. Optimally Targeting Interventions in Networks during a Pandemic: Theory and Evidence from the Networks of Nursing Homes in the United States By Roland Pongou; Guy Tchuente; Jean-Baptiste Tondji

  1. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Selena Duraković; Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Niko Korpar (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm; Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The economic recovery in CESEE has strengthened further in recent months, resulting in a number of additional upgrades to our growth forecasts for 2021, to 5.4% on the regional average. This good performance has been built on two important foundation stones the adaptation of the CESEE economies to the pandemic and the increasing reluctance of their governments to impose restrictions. Labour markets have recovered, too; labour shortages have been on the rise, albeit, paradoxically, underemployment is still an issue. Despite the recent rise in inflation, driven mostly by supply-side disruptions and energy prices, there have been so far few signs of overheating in the region. The pace of recovery is projected to slow to 3.7% next year and 3.5% in 2023. The risks to this forecast are mostly on the downside, and include particularly unfavourable COVID-19 developments, premature fiscal consolidation, and the upcoming monetary tapering in the US.
    Keywords: CESEE, economic forecast, Central and Eastern Europe, Western Balkans, EU, euro area, CIS, Turkey, US, convergence, business cycle, coronavirus, coronavirus restrictions, coronavirus vaccination, Recovery and Resilience Facility, private consumption, credit, investment, exports, labour markets, unemployment, short-time work schemes, monetary policy, fiscal policy
    JEL: E20 E21 E22 E24 E32 E5 E62 F21 F31 H60 I18 J20 J30 O47 O52 O57 P24 P27 P33 P52
    Date: 2021–10
  2. By: Alessandro Ferrari (University of Zurich); Francisco Queirós (Università di Napoli Federico II and CSEF)
    Abstract: We investigate how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states. We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm heterogeneity we find that, relative to 2007, an economy with the 1985 level of firm heterogeneity is 5 to 9 times less likely to experience a very persistent recession. We use our framework to study the 2008-09 recession and show that the model can rationalize the persistent deviation of output and most macroeconomic aggregates from trend, including the behavior of net entry, markups and the labor share. Post-crisis cross-industry data corroborates our proposed mechanism. Firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to a 21% increase in welfare.
    Keywords: Firm heterogeneity, Competition, Market power, Poverty traps, Great recession.
    JEL: E22 E24 E25 E32 L16
    Date: 2021–10–07
  3. By: Capraro, Santiago; Panico, Carlo; Torres-Gonzalez, Luis Daniel
    Abstract: Interest rates in the USA and in other countries have experienced persistent and generalised declines since the 1980s. The main interpretations of this phenomenon ignore the role of monetary factors, such as financial and monetary policy. The essay proposes an alternative interpretation based on the choice of the Federal Reserve (FED) to conduct monetary policy by attributing high priority to financial-stability. The interaction between changes in financial regulation, the transformation of "specialized" banking into "universal", and the FED's concern with financial instability have led the central bank to add to the role of "lender of last resort" that of "lender of first resort" that systematically provides liquidity at a low cost to financial firms. This new conduct of monetary policy has produced the downward trend in interest rates.
    Keywords: interest rates, monetary policy, financial stability, change of financial regulation.
    JEL: E11 E12 E43 E44 E52 E58 G01 G21
    Date: 2021–10–13
  4. By: Françoise Drumetz; Christian Pfister
    Abstract: In the last few years in the U.S. and especially since the publication of Stephanie Kelton’s book, The Deficit Myth (Kelton, 2020) in Europe, the so-called Modern Monetary Theory (MMT) has been gaining prominence in the media and the public. This paper exposes the main proposals of MMT in the light of their doctrinal sources, also confronting them with economic facts and with other currents of economic thought. The first part deals with the approach to money and monetary policy developed by MMT, the second part with its recommendations regarding fiscal policy and aggregate demand management, the third part with the structural policies it advocates, the fourth part with the international aspects of MMT. The fifth part concludes. Overall, it appears that MMT is based on an outdated approach to economics and that the meaning of MMT is a more that of a political manifesto than of a genuine economic theory.
    Keywords: Chartalism, Fiscal Policy, Functional Finance, Modern Monetary Theory, Money, Monetary Policy, Structural Policies
    JEL: B52 E12 E42 E43 E51 E52 E62 E63 H39 H62 H63 I38 J68 Q58
    Date: 2021
  5. By: Michael Woodford; Yinxi Xie
    Abstract: This paper reconsiders the degree to which macroeconomic stabilization is possible when the zero lower bound is a relevant constraint on the effectiveness of conventional monetary policy, under an assumption of bounded rationality. In particular, we reconsider the potential role of countercyclical fiscal transfers as a tool of stabilization policy. Because Ricardian equivalence no longer holds when planning horizons are finite (even when relatively long), we find that fiscal transfers can be a powerful tool to reduce the contractionary impact of an increased financial wedge during a crisis and can even make possible complete stabilization of both aggregate output and inflation under certain circumstances, despite the binding lower bound on interest rates. However, the power of such policies depends on the degree of monetary policy accommodation. We also show that a higher level of welfare is generally possible if both monetary and fiscal authorities commit themselves to history-dependent policies in the period after the financial disturbance that causes the lower bound to bind has dissipated.
    Keywords: Business fluctuations and cycles; Central bank research; Fiscal policy; Monetary policy
    JEL: E52 E63 E7
    Date: 2021–10
  6. By: Lorenzo Bretscher (London Business School - Department of Finance); Aytek Malkhozov (Board of Governors of the Federal Reserve System); Andrea Tamoni (Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick)
    Abstract: We estimate agents’ expectations about future fundamentals using a dynamic stochastic general equilibrium model augmented with anticipated shocks. Accounting for agents’ expectations at the business cycle horizon results in aggregate risk factor innovations that have significant explanatory power for the cross section of stock and bond returns. Further, exposure to macroeconomic fluctuations driven purely by expectations is important to explain the value premium. In contrast, exposure to macroeconomic fluctuations due to realized changes in fundamentals is important for the pricing of long-term bonds and cash-flow duration portfolios. We conclude that accounting for agents’ expectations advances our understanding of the aggregate risk.
    Keywords: News Shocks, Consumption-CAPM, Cross Section of Returns, Market-to-Book Decomposition
    JEL: G12 E32 E21 C63
    Date: 2021–10
  7. By: David Blanchflower; Alex Bryson
    Abstract: We examine the start date of the Great Recession across OECD countries based on two successive quarters of negative GDP growth recession. For most OECD countries this establishes the start of recession in Q22008 or Q32008. We find that the Sahm Rule identifies the start of recession in the US to the beginning of 2008 but in other OECD countries it identifies the start in almost every case, after that identified by GDP. But the GDP and labor market data are subject to major revisions, so the turn is not apparent in most countries for some time. We establish our own rule for predicting recession using the fear of unemployment series to predict the Great Recession. It involves looking for a ten-point rise in the series compared to its previous twelve month low. These surveys are timely and have the major advantage they are not subject to revision. Across the OECD we confirm this finding with other types of qualitative data and especially so in the UK. Qualitative surveys, we show, in the US in 2006 and 2007 predicted the subsequent recession and they did the same in Europe at the end of 2007 and in the early part of 2008.
    Keywords: Great Recession, business cycles, turning points, Sahm Rule, fear of unemployment
    JEL: E24 E32 E65 J64 J68
    Date: 2021–10
  8. By: Leland Bybee; Bryan T. Kelly; Asaf Manela; Dacheng Xiu
    Abstract: We propose an approach to measuring the state of the economy via textual analysis of business news. From the full text of 800,000 Wall Street Journal articles for 1984–2017, we estimate a topic model that summarizes business news into interpretable topical themes and quantifies the proportion of news attention allocated to each theme over time. News attention closely tracks a wide range of economic activities and explains 25% of aggregate stock market returns. A text-augmented VAR demonstrates the large incremental role of news text in modeling macroeconomic dynamics. We use this model to retrieve the narratives that underlie business cycle fluctuations.
    JEL: E32 G0
    Date: 2021–10
  9. By: Jouchi Nakajima (Bank of Japan); Hiroaki Yamagata (Bank of Japan); Tatsushi Okuda (Bank of Japan); Shinnosuke Katsuki (Bank of Japan); Takeshi Shinohara (Bank of Japan)
    Abstract: This paper discusses the Price Sentiment Index (PSI), a quantitative indicator of firms' outlook for general prices proposed by Otaka and Kan (2018). The PSI is developed from the textual data of the Economy Watchers Survey conducted by the Cabinet Office; it is computed by extracting firms' views from survey comments, using text analysis. In this paper, we revisit the PSI and quantitatively analyze the determinants of changes in the PSI and the relationship between the PSI and macroeconomic variables. We also address a shortcoming in the text analysis used for computing the PSI that we discover when examining the performance of the PSI since the COVID-19 outbreak. The results of our analyses show that the PSI tends to precede consumer prices by several months and that it reflects various factors affecting price developments, including demand factors associated with the business cycle and cost factors such as changes in raw materials prices and exchange rates. Our analysis suggests that the PSI is a useful monthly indicator of inflation expectations, in that it captures the price-setting stance of firms responding to the Economy Watchers Survey. While the PSI is subject to large short-term fluctuations, it can be used to complement other indicators used for the analysis of price developments such as the output gap, existing indicators of inflation expectations, and anecdotal information from various sources.
    Keywords: Inflation Expectations; Machine Learning; Text Analysis; Big Data
    JEL: C53 C55 E31 E37
    Date: 2021–10–15
  10. By: Katharina Bergant; Kristin Forbes
    Abstract: This paper uses the initial phase of the COVID-19 pandemic to examine how macroprudential frameworks developed over the past decade performed during a period of heightened financial and economic stress. It discusses a new measure of the macroprudential stance that better captures the intensity of different policies across countries and time. Then it shows that macroprudential policy has been used countercyclically—with stances tightened during the 2010’s and eased in response to COVID-19 by more than previous risk-off periods. Countries that tightened macroprudential policy more aggressively before COVID, as well as those that eased more during the pandemic, experienced less financial and economic stress. Countries’ ability to use macroprudential policy, however, was significantly constrained by the extent of existing “policy space”, i.e., by how aggressively policy was tightened before COVID-19. The use of macroprudential tools was not significantly affected by the space available to use other policy tools (such as fiscal policy, monetary policy, FX intervention, and capital flow management measures), and the use of other tools was not significantly affected by the space available to use macroprudential policy. This suggests that although macroprudential tools are being used countercyclically and should therefore help stabilize economies and financial markets, there appears to be an opportunity to better integrate the use of macroprudential tools with other policies in the future.
    JEL: E58 E61 E63 F38 G18 G28
    Date: 2021–10
  11. By: Tomoki Isa (Visiting Scholar, Policy Research Institute, Ministry of Finance Japan.)
    Abstract: Although the Bank of Japan has continued unconventional monetary easing over the years, it is still far from achieving the inflation target set by the central bank. On the back of this, there has been a growing interest in the relationship between demography and inflation, a relationship which conventional macroeconomics has not discussed much. Analyzing Japanese prefectural panel data, this paper examines demographic effects on inflation with linear regression based on the Phillips curve with some demographic variables. The result shows that the aging population has inflationary pressure on prices, while the declining population has deflationary pressure. The aging population also reduces the impact of population change and economic variation on prices, flattening the Phillips curve. As a result, this paper clarifies a multifaceted relationship between demography and inflation, suggesting that demography is not the main cause of deflation and low inflation in Japan.
    Keywords: inflation, deflation, Philipps curve, monetary policy, demography, aging population, population decline, old-age dependency ratio, Japanese economy
    JEL: C33 E31 E52 J11
    Date: 2021–07
  12. By: Peter Andre (University of Bonn); Carlo Pizzinelli (IMF); Christopher Roth (University of Cologne, ECONtribute); Johannes Wohlfart (Department of Economics, University of Copenhagen, CEBI, CESifo, Danish Finance Institute)
    Abstract: We study people’s subjective models of the macroeconomy and shed light on their at-tentional foundations. To do so, we measure beliefs about the effects of macroeconomic shocks on unemployment and inflation, providing respondents with identical information about the parameters of the shocks and previous realizations of macroeconomic vari-ables. Within samples of both 6,500 US households and 1,500 experts, beliefs are widely dispersed, even about the directional effects of shocks, and there are large differences in average beliefs between households and experts. Part of this disagreement seems to arise from selective retrieval of different propagation channels of macroeconomic shocks. We confirm this mechanism causally by exogenously shifting households’ attention to ei-ther supply-side or demand-side channels. Moreover, households with different personal experiences recall different propagation channels of the shocks, while experts tend to re-call textbook models. Our findings offer a new perspective on the widely documented disagreement in macroeconomic expectations.
    Keywords: Expectation Formation, Subjective Models, Associations, Thoughts, Attention, Experiences, Macroeconomic Shocks, Monetary Policy, Fiscal Policy.
    JEL: D83 D84 E31 E52 E71
    Date: 2021–10
  13. By: Tsutomu Watanabe (Graduate School of Economics, University of Tokyo); Tomoyoshi Yabu (Faculty of Business and Commerce, Keio University)
    Abstract: This paper estimates a money demand function using US data from 1980 onward, including the recent near-zero interest rate period. We show that the substantial increase in the money-income ratio during the period of near-zero interest rates is captured well by the log-log specification, but not by the semi-log specification. Our result is the opposite of the result obtained by Ireland (2009), who found that the semi-log specification performs better. This mainly stems from the difference in the sample period employed: ours contains 24 quarters with interest rates below 1 percent, while Ireland’s (2009) sample period contains only three quarters.
    Keywords: money demand function; cointegration; zero lower bound; welfare cost of inflation; log-log form; semi-log form
    JEL: C22 C52 E31 E41 E43 E52
    Date: 2021–10
  14. By: Bernd Hayo (Philipps-Universitaet Marburg); Sascha Mierzwa (Philipps-Universitaet Marburg)
    Abstract: We study the announcement effect of legislated tax changes on GDP in the US, Germany, and the UK. Using, as the shock of interest, narratively identified information (Romer & Romer, 2009) about future tax changes at the quarter of their introduction to the legislative body, we analyse the dynamic results of Local Projections (Jordà , 2005). We find heterogeneous effects across the three countries: economic activity declines (increases) in the US (the UK), but remains unaffected in Germany. When allowing the responses to vary over the business cycle, we find evidence that US GDP drops regardless of the business cycle, whereas UK GDP rises only during non-recessionary times. We find significant effects for German GDP too: it rises (drops) during recessionary (non-recessionary) times. In general, consumption, investment, and employment follow in the path of GDP.
    Keywords: Fiscal policy, tax policy, legislated tax changes, announcement effect, state dependence, United States, Germany, United Kingdom, local projections, narrative approach
    JEL: E62 E63 H20 H30 K34
    Date: 2021
  15. By: Shvets, Serhii
    Abstract: Financial crises have been a challenge for sustainable growth, given the frequency and intensity of the crisis shocks and their destructive consequences taken place in the last decades. The paper aims to study how the endogenously created excess money supply can contribute to global financial crises. The money supply creation is examined from the Quantity Theory of Money (QTM) and endogenous money perspective, namely Horizontalism, Structuralism, and Modern Money Theory. Considering the prices are not flexible in the short term, advanced volatility in the money market hinders the short-run ready balance between money supply and output. The overall result of money supply accommodation may be unpredictable if monetary authority and commercial banks do not pool their interests, and the money demand volatility becomes extremely high. Examining the correlation between money supply and output has distinguished neutral countries in creating extra liquid assets and countries that can be a potential trigger for excessive money supply volatility. Monitoring the dynamics of M3 and GDP has revealed that before the significant crisis periods of 1997-1998, 2007-2008, and 2019-2020, the money supply growth is more than 8%. The established critical level validates the potential contribution of the endogenously created excess money supply to global financial crises.
    Keywords: the quantity theory of money; endogenous money; financial crisis; monetary policy; quantitative easing
    JEL: B26 E41 E51 E52
    Date: 2021–06–24
  16. By: Emanuele Citera (Department of Economics, New School for Social Research); Shyam Gouri Suresh (Department of Economics, Davidson College and Department of Economics, FLAME University); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: We construct a model of cyclical growth with agent-based features designed to study the network origins of aggregate fluctuations from a demand-side perspective. In our model, aggregate fluctuations result from variations in investment behavior at firm level motivated by endogenously-generated changes in `animal spirits' or the state of long run expectations (SOLE). In addition to being influenced by their own economic conditions, firms pay attention to the performance of first-degree network neighbours, weighted (to differing degrees) by the centrality of these neighbours in the network, when revising their SOLE. This allows us to analyze the effects of the centrality of linked network neighbours on the amplitude of aggregate fluctuations. We show that the amplitude of fluctuations is significantly affected by the eigenvector centrality, and the weight attached to the eigenvector centrality, of linked network neighbours. The dispersion of this effect about its mean is shown to be similarly important, resulting in the possibility that network properties can result in `great moderations' giving way to sudden increases in the volatility of aggregate economic performance.
    Keywords: Aggregate fluctuations, cyclical growth, animal spirits, state of long run expectations, agent-based model, random network, preferential attachment, small world
    JEL: C63 E12 E32 E37 O41
    Date: 2021–10
  17. By: Moritz Kuhn (University of Bonn, Department of Economics); Iourii Manovskii (University of Pennsylvania, Department of Economics); Xincheng Qiu (University of Pennsylvania, Department of Economics)
    Abstract: Spatial differences in labor market performance are large and highly persistent. Using data from the United States, Germany, and the United Kingdom, we document striking similarities in spatial differences in unemployment, vacancies, job finding, and job filling within each country. This robust set of facts guides and disciplines the development of a theory of local labor market performance. We find that a spatial version of a Diamond-Mortensen-Pissarides model with endogenous separations and on-the-job search quantitatively accounts for all the documented empirical regularities. The model also quantitatively rationalizes why differences in job-separation rates have primary importance in inducing differences in unemployment across space while changes in the job-finding rate are the main driver in unemployment fluctuations over the business cycle.
    Keywords: Local Labor Markets, Unemployment, Vacancies, Search and Matching
    JEL: J63 J64 E24 E32 R13
    Date: 2021–10
  18. By: Kakkar, Shrey
    Abstract: Abstract: This article discusses studies and past research with considerable impact on political and economist views about the Minimum Wage policy. The article evaluates studies and conclusions to derive that the minimum wage must be implemented at a greater scale to combat income inequality.
    Keywords: Minimum Wage, Unemployment, Income Inequality
    JEL: E24 H31 H32 J11 O15
    Date: 2021–07–05
  19. By: Mingyang Li; Linlin Niu
    Abstract: Motivating with two scenarios in which the government spending in China timely reacted to output shock within a quarter, this letter points out a downward bias in the estimation of Chinese government spending multiplier using the classical lag restriction for shock identification in a quarterly SVAR framework à la Blanchard and Perotti (2002). By relaxing the lag-length restriction from one quarter to one month, we propose a mixed-frequency identification (MFI) strategy by taking the unexpected spending change in the first month of each quarter as an instrument. The estimation results show that the Chinese government significantly reacts to output shock counter-cyclically within a quarter, with the resulting government spending multiplier being 0.546 on impact and 1.849 at the maximum. A comparison study confirms that results based on the identification strategy of Blanchard and Perotti (2002) suffer severe downward bias in such a case.
    Keywords: government spending multiplier; inside lag; mixed-frequency identification; SVAR model.
    JEL: C32 C36 E23 E62
    Date: 2021–10–19
  20. By: Kuusi, Tero; Puonti, Päivi
    Abstract: Abstract In this paper, we describe key problems of the current EU’s fiscal framework and offer constructive alternatives to reforming it. A comprehensive reassessment of the rules is necessary, as the development of the rules has reached an impasse for both political and technical reasons. In our view, Europe needs fiscal rules to ensure sustainability of public finances. In order to reconcile the freedom and responsibility of member states’ fiscal policies, a balance must be struck in which the rules are simple enough to actually be useful in fiscal policy guidance. This requires that compliance with them can be easily monitored and that the rules are effective enough to allow solidarity to be achieved rarely enough. Our conclusion is that the new rules should emphasize the long-term debt sustainability target more clearly, while at the same time making its monitoring more effective through better short-term indicators, in particular the expenditure benchmark. We provide a proposal for practical implementation option, which is largely consistent with the current rules. At the same time, the expenditure benchmark should be reformed in order to further its countercyclical impact on fiscal policy, and it should replace the structural balance as the operational indicator of fiscal policy stance. Responsibility for economic policy decisions and their consequences should be fully restored to the Member States and the role of national supervisors should be strengthened. Solidarity in times of crisis should be accompanied by strict conditionality that, in good times, the fiscal policy must be in line with the reformed EU framework.
    Keywords: Fiscal policy, EU, Fiscal rules, Public debt, Fiscal stance
    JEL: E61 E62 H60 H63
    Date: 2021–10–12
  21. By: Laurence M. Ball; Joern Onken
    Abstract: This paper studies the dynamics of unemployment (u) and its natural rate (u*), with u* measured by real-time estimates for 29 countries from the OECD. We find strong evidence of hysteresis: an innovation in u causes u* to change in the same direction, and therefore has permanent effects. For our baseline specification, a one percentage point deviation of u from u* for one year has a long-run effect of 0.16 points on both variables. When we allow asymmetry, we find, perhaps surprisingly, that decreases in u have larger long-run effects than increases in u.
    JEL: E24
    Date: 2021–10
  22. By: Kakkar, Shrey
    Abstract: This article discusses existing behavioral economics theory, focused on Rational Expectations. Macroeconomic and market consequences are considered, especially monetary policy on inflation.
    Keywords: Rational Expectations, Expectations, Behavioral Economics
    JEL: B25 C60
    Date: 2021–07–25
  23. By: Busato, Francesco; Chiarini, Bruno; Cisco, Gianluigi; Ferrara, Maria
    Abstract: The increasing concerns for the future effects of global warming have given rise to an unprecedented wave of environmental activism. This paper studies how this call for stronger climate actions could influence macroeconomic dynamics. We explore this topic, employing a Dynamic Stochastic General Equilibrium (DSGE) model extended to consider two classes of goods (i.e., Green and Dirty), variable green preferences, and a "Greta Thunberg" shock affecting consumers' sustainable attitudes. We find that: (i) environmental awareness plays a key role in reducing carbon emissions and green preferences; (ii) Greta Thunberg effect slows down aggregate output and investment; (iii) a green preference shock contributes to around 15 and 29 % of consumption, investment, and labor volatilities at the aggregate level.
    Keywords: Carbon Emissions, Environmental Awareness, DSGE model, General Equilibrium, Global Warming, Green Consumer Behavior
    JEL: E32 Q51 Q54
    Date: 2021–10–14
  24. By: Rohan Arora; Sermin Gungor; Joe Nesrallah; Guillaume Ouellet Leblanc; Jonathan Witmer
    Abstract: We assess the response of Government of Canada bond yields to the Bank of Canada’s initial announcement of the Government Bond Purchase Program (GBPP) as well as to the Bank’s later GBPP purchase operations.
    Keywords: Monetary policy; Monetary policy implementation; Monetary policy transmission
    JEL: E58 E63
    Date: 2021–10
  25. By: Sangyup Choi (Yonsei Univ); David Furceri (IMF); Prakash Loungani (IMF); Myungkyu shim (Yonsei Univ)
    Abstract: Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 39 advanced and emerging market economies over 1990–2014 and employ a difference-in-differences strategy based on the theoretical prediction that higher inflation uncertainty particularly depresses investment in industries that are more credit constrained. Industries characterized by high external financial dependence, liquidity needs, and R&D intensity, and low asset tangibility, tend to grow faster in countries with well-anchored inflation expectations. The results, based on an IV approach—using indicators of monetary policy transparency and central bank independence as instruments—confirm our findings.
    Keywords: industry growth; inflation anchoring; inflation forecasts; credit constraints; difference-in-differences; central bank independence.
    JEL: E52 E63 O11 O43 O47
    Date: 2021–10
  26. By: Viola Angelini (University of Groningen; NETSPAR); Irene Ferrari (Department of Economics, University Of Venice CÃ Foscari; NETSPAR)
    Abstract: This paper examines the long-term effects of experienced macro-economic shocks – defined as multi-year peak-to-trough GDP declines of at least 10 percent – on the wealth distribution, portfolio allocation, and risk attitudes of older individuals in Europe. We show that individuals who have experienced more economic depression episodes have lower wealth in absolute terms, a lower probability to invest in risky assets, and display higher risk aversion. When analysing early investment decisions, we find that individuals hit by a depression substitute risky investments with investment in housing, and that these early choices shape wealth in the long-term.
    Keywords: Wealth distribution, economic depressions, risk aversion, early investments
    JEL: D31 E21 G51
    Date: 2021
  27. By: Moder, Isabella
    Abstract: This paper provides a comprehensive analysis of the interest rate pass-through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroisation and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than one third of all euro retail rates in euroised countries of central, eastern and south-eastern Europe (CESEE) are linked to the euro area shadow rate. Compared to euro area monetary policy, the share of cointegration of the domestic monetary policy rate is lower, suggesting that domestic central banks in euroised countries with independent monetary policy can only partially control the `euro part´ of the interest rate channel. Furthermore, euro area monetary policy shocks are fast and persistently transmitted into euro retail rates outside the euro area, which constitutes an additional channel of international shock transmission. JEL Classification: C22, C32, E43, E52, F42
    Keywords: EU integration, international monetary policy spillovers, monetary policy transmission, unofficial financial euroisation
    Date: 2021–10
  28. By: Ben-Gad, M.; Pearlman, J.; Sabuga, I.
    Abstract: We propose a general equilibrium framework that highlights the interaction of reserve requirements and a conventional monetary policy in a model that combines endogenous housing loan defaults and financial intermediation frictions due to the costs of enforcing contracts. We use the model to examine how the interaction of these policies affect (i) the credit and business cycle; (ii) the distribution of welfare between savers and borrowers; (iii) the overall welfare objectives when monetary and macroprudential policies are optimised together or separately. We find that models with an optimised reserve ratio rule are effective in reducing the sudden boom and bust of credit and the business cycle. We also find that there are a distributive implications of the introduction of reserve ratio where borrowers gain at the expense of savers. However, there is no difference in the overall welfare results whether monetary and macroprudential policies are optimised together or separately.
    Keywords: Reserve requirements; endogenous loan defaults; welfare
    Date: 2021
  29. By: Hylton Hollander
    Abstract: Debt-financed fiscal stimulus programmes directly stimulate aggregate demand through government expenditure or tax cuts, but their effectiveness is highly dependent on direct crowding out of private sector expenditure, spillover effects to the private sector through a higher risk premium on interest rates, and the interaction between fiscal policy and monetary policy.
    Keywords: Public debt, Interest rate, Fiscal sustainability, Fiscal policy, Monetary policy
    Date: 2021
  30. By: Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Anna Cieslak (Duke University - Fuqua School of Business; CEPR; National Bureau of Economic Research (NBER)); Andreas Schrimpf (Bank for International Settlements (BIS) - Monetary and Economic Department; CREATES - Aarhus University)
    Abstract: How should an agent (the sender) observing multi-dimensional data (the state vector) persuade another agent (the receiver) to take the desired action? We show that it is always optimal for the sender to perform a (non-linear) dimension reduction by projecting the state onto a lower dimensional object that we call the "optimal information manifold". We characterize geometric properties of this manifold and link them to the sender's preferences. Optimal policy splits information into "good" and "bad" components. When the sender's marginal utility is linear, it is always optimal to reveal the full magnitude of good information. In contrast, with concave marginal utility, optimal information design conceals the extreme realizations of good information and only reveals its direction (sign). We illustrate these effects by explicitly solving several multi-dimensional Bayesian persuasion problems.
    Keywords: Bayesian Persuasion, Information Design, Signalling
    JEL: D82 D83 E52 E58 E61
    Date: 2021–10
  31. By: Adrien Bilal; Hugo Lhuillier
    Abstract: Outsourced workers experience large wage declines, yet domestic outsourcing may raise aggregate productivity. To study this equity-efficiency trade-off, we contribute a framework in which firms either hire many imperfectly substitutable worker types in-house by posting wages along a job ladder, or rent labor services from contractors who hire in the same frictional labor markets. Three implications arise. First, more productive firms are more likely to outsource to save on higher wage premia. Second, outsourcing raises output at the firm level. Third, contractors endogenously locate at the bottom of the job ladder, implying that outsourced workers receive lower wages. Using firm-level instruments for outsourcing and revenue productivity, we find empirical support for all three predictions in French administrative data. After structurally estimating the model, we find that the rise in outsourcing in France between 1996 and 2007 raised aggregate output by 3% and reduced the labor share by 0.7 percentage points. A 9% minimum wage increase stabilizes the labor share and maintains two thirds of the output gains.
    JEL: E24 E25 E64 F12 J24 J31 J42 O40
    Date: 2021–10
  32. By: Marozzi, Armando
    Abstract: This paper proposes an econometric framework for nowcasting the monetary policy stance and decisions of the European Central Bank (ECB) exploiting the ow of conventional and textual data that become available between two consecutive press conferences. Decompositions of the updated nowcasts into variables' marginal contribution are also provided to shed light on the main drivers of the ECB's reaction function at every point in time. In out-of-sample nowcasting experiments, the model provides an accurate tracking of the ECB monetary policy stance and decisions. The inclusion of textual variables contributes significantly to the gradual improvement of the model performance. JEL Classification: E37, E47, E52
    Keywords: dynamic factor model, forecasting, monetary policy, natural language processing
    Date: 2021–10
  33. By: Corhay, Alexandre; Kind, Thilo; Kung, Howard; Morales, Gonzalo
    Abstract: This paper examines how the transmission of government portfolio risk arising from maturity operations depends on the stance of monetary/fiscal policy. Accounting for risk premia in the fiscal theory allows the government portfolio to affect the expected inflation, even in a frictionless economy. The effects of maturity rebalancing on expected inflation in the fiscal theory directly depend on the conditional nominal term premium, giving rise to an optimal debt maturity policy that is state dependent. In a calibrated macro-finance model, we demonstrate that maturity operations have sizable effects on expected inflation and output through our novel risk transmission mechanism.
    Keywords: Term structure of interest rates,Fiscal theory of the price level,Bond risk premia,Government debt,DSGE models,Nonlinear solution methods
    Date: 2021
  34. By: Juan C. Méndez-Vizcaíno; Nicolás Moreno-Arias
    Abstract: Fiscal sustainability in five of the largest Latin American economies is examined before and after the COVID-19 pandemic. For this purpose, the DSGE model in Bi(2012) and Hürtgen (2020) is used to estimate the Fiscal Limits and Fiscal Spaces for Peru, Chile, Mexico, Colombia, and Brazil. These estimates advance the empirical literature for Latin America on fiscal sustainability by offering new calculations stemming from a structural framework with alluring novel features: government default on the intensive margin; dynamic Laffer curves; utility-based stochastic discount factor; and a Markov-Switching process for public transfers with an explosive regime. The most notable additions to the existing literature for Latin America are the estimations of entire distributions of public debt limits for various default probabilities and that said limits critically hinge on both current and future states. Results obtained indicate notorious contractions of Fiscal Spaces among all countries during the pandemic, but the sizes of these were very heterogeneous. Countries that in 2019 had positive spaces and got closer to negative spaces in 2020, have since seen deterioration of their sovereign debt ratings or outlooks. Colombia was the only country to lose its positive Fiscal Space and investment grade, thereby joining Brazil, the previously sole member of both groups. **** RESUMEN: Antes y después de la pandemia de COVID-19 se examina la sostenibilidad fiscal de cinco de las economías más grandes de Latinoamérica. A través de métodos globales se resuelve el modelo DSGE, desarrollado en Bi(2012) y Hürtgen (2020), para estimar los Límites y Espacios Fiscales de Perú, Chile, México, Colombia y Brasil. Estas estimaciones expanden la literatura empírica sobre la sostenibilidad fiscal en Latinoamérica, al ofrecer nuevos cálculos provenientes de un modelo con varias características enriquecedoras: default del gobierno en el margen intensivo; curvas de Laffer dinámicas; factor de descuento estocástico de hogares aversos al riesgo; y transferencias públicas que siguen un proceso de Markov-Switching con un régimen explosivo. Las adiciones más destacables a la literatura existente para Latinoamérica son las estimaciones de distribuciones de límites de deuda pública para distintas probabilidades de default y que éstas dependen de los estados presentes y futuros de la economía. Los resultados indican que en 2020, si bien hubo heterogeneidad, se dieron contracciones notorias de los Espacios Fiscales en todos los países a raíz de la pandemia. Los países que en 2019 tuvieron espacios positivos y se acercaron a espacios negativos en 2020 han experimentado desde entonces deterioros de las calificaciones crediticias (o perspectivas) de su deuda soberana. Colombia fue el único país que en la pandemia perdió su Espacio Fiscal positivo y el grado de inversión de su deuda; antes del choque sólo Brasil tenía estas características.
    Keywords: State-Dependent Debt Limits, Latin America, Fiscal Space, Fiscal Sustainability, Default, Public Debt, COVID-19, Global Methods, Límites de Deuda Estado-Dependientes, Latinoamérica, Espacio Fiscal, Sostenibilidad Fiscal, Default, Deuda Pública, COVID-19, Métodos Globales
    JEL: E32 E62 H20 H30 H50 H60
    Date: 2021–10
  35. By: Jahan Abdul Raheem (University of Waikato); Gazi M. Hassan (University of Waikato); Mark J. Holmes (University of Waikato)
    Abstract: This study analyses the impact of remittances on the monetary transmission mechanism (MTM) of the Sri Lankan economy during its conflict and post-conflict eras, using monthly data from 1996 to 2009. In addition, the study focuses on how the impact of remittances varied over different intermediate transmission channels, especially credit, asset prices, and exchange rate, in transmitting monetary policy shocks to the economy. The SVAR model is used to analyse the impact of remittances in the transmission of monetary policy shock to real economic variables. The empirical findings reveal that remittances affect the MTM of Sri Lanka in the post-conflict period significantly and their impact on bank credit and asset prices is relatively more intense than the exchange rate channel in the post-conflict period. The findings of this study also suggest that conflict-driven migration and the consequent increase in the inflow of remittances could impact monetary policy measures through wealth and liquidity effects more after the end of the conflict.
    Keywords: remittances;monetary policy;transmission channels;conflict
    JEL: E5 E52 F24 D74
    Date: 2021–10–21
  36. By: Basco, Sergi; Domenech, Jordi; Roses, Joan R.
    Abstract: This paper examines the impact of a pandemic in a developing economy. Measured by excess deaths relative to the historical trend, the 1918 influenza in Spain was one of the most intense in Western Europe. However, aggregate output and consumption were only mildly affected. In this paper we assess the impact of the flu by exploiting within-country variation in “excess deaths” and we focus on the returns to factors of production. Our main result is that the effect of flu-related “excess deaths” on real wages is large, negative, and short-lived. The effects are heterogeneous across occupations, from null to a 15 per cent decline,concentrated in 1918. The negative effects are exacerbated in more urbanized provinces. In addition, we do not find effects of the flu on the returns to capital. Indeed, neither dividends nor real estate prices (houses and land) were negatively affected by flu-related increases in mortality. Our interpretation is that the Spanish Flu represented a negative demand shock that was mostly absorbed by workers, especially in more urbanized regions.
    Keywords: pandemics; Spanish flu; real wages; returns to capital
    JEL: E32 I00 N10 N30
    Date: 2020–05
  37. By: Serdar Birinci; Kurt See; Shu Lin Wee
    Abstract: Job applications have risen over time, yet job-finding rates have remained unchanged. Meanwhile, job separations have declined. We argue that an increase in the number of applications raises the probability of finding a good match rather than the probability of finding a job. Using a search model with multiple applications and costly information, we show that when applications increase, firms invest in identifying good matches, thereby reducing separations. Concurrently, increased congestion and selectivity over which offer to accept temper increases in job-finding rates. Our framework contains testable implications for changes in offers, acceptances, reservation wages, applicants per vacancy, and tenure, factors that enable us to generate the trends in unemployment flows.
    Keywords: Labour markets; Productivity
    JEL: E24 J64
    Date: 2021–10
  38. By: Pönkä, Harri; Sariola, Mikko
    Abstract: The output gap is a commonly used tool to assess the state of the business cycle, and as such, a key input for policy makers. In this article, we employ principal components analysis (PCA) to derive an estimate of the output gap in Finland that summarizes the information of widely used cyclical indicators. This methodology produces an output gap that is similar to the ones obtained from the main methods used at the Bank of Finland and the European Commission, but requiring considerably less modelling effort. The method is also flexible and can readily be adopted to internalize additional information that captures special circumstances, such as the current pandemic. In this spirit, we extend our information set to include a service turnover indicator, and find that it clearly improves the method's ability to capture the exceptional downturn in 2020.
    Keywords: cyclical indicators,output gap,potential output,principal component analysis,service turnover,COVID-19
    JEL: E32 C38
    Date: 2021
  39. By: Alberto Cavallo; Oleksiy Kryvtsov
    Abstract: We use a detailed micro dataset on product availability to construct a direct high frequency measure of consumer product shortages during the 2020–21 pandemic. We document a widespread multi-fold rise in shortages in nearly all sectors early in the pandemic. Over time, the composition of shortages evolved from many temporary stockouts to mostly discontinued products, concentrated in fewer sectors. We show that product shortages have significant but transitory inflationary effects and that these effects can be associated with elevated costs of replenishing inventories.
    Keywords: Inflation and prices; Coronavirus disease (COVID-19)
    JEL: D22 E31
    Date: 2021–10
  40. By: Ashworth, Jonathan; Goodhart, C. A. E.
    Abstract: There is a debate about the effect of the extremely low, or even negative, interest rate regime on bank profitability. On the one hand it raises demand and thereby adds to bank profits, while on the other hand it lowers net interest margins, especially at the Zero Lower Bound. In this paper we review whether the prior paper by Altavilla, Boucinha and Peydro (2018) on this question for the Eurozone can be generalized to other monetary blocs, i.e. USA and UK. While our findings have some similarity with their earlier work, we are more concerned about the possible negative effects of this regime, not only on bank profitability but also on bank credit extension more widely.
    Keywords: cash; banknote issue and withdrawal; Covid-19; panic response; coronavirus
    JEL: E40 E41 E49 N10 N20
    Date: 2021–10–07
  41. By: Tumisang Loate; Romain Houssa; Nicola Viegi
    Abstract: This paper analyses the macroeconomic effect of legislated personal income tax changes in South Africa over the 1996-2019 period. We identify personal income tax shocks using a narrative approach and incorporate these shocks in a proxySVAR model. Our analysis shows that permanent changes in personal income taxes have a larger and significant effect on output through both the investment and consumption channels. We also find that personal tax cuts have a persistent effect on output through the investment channel in the 1996-2010 sub-sample.
    Keywords: Personal income tax, Structural VAR, Instrumental variable, Macroeconomics, South Africa, Fiscal policy, Output
    Date: 2021
  42. By: Jacob, Jannet Farida (National Institute of Public Finance and Policy); Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: The ex-post analysis of public finance for children (PF4C) for the year 2020-21 for the State of Karnataka reveals that it constitutes 15 per cent of the total public expenditure and 1.68 per cent of GSDP. Of this, 80 per cent is spent on education. The fiscal marksmanship ratio and the PEFA score for PF4C indicate that there are significant deviations between budget allocation and actual spending. Karnataka though is a fiscally prudent State, with all its fiscal parameters well within the stipulated limits of "fiscal rules", resorted to episodic expenditure compression in social sector which in turn impacted PF4C. Given the impact of the COVID-19 pandemic on education, health and income, it is imperative for the State to look beyond the transitory fiscal stimulus packages and strengthen the long-term PFM tool like child budgeting.
    Keywords: Public Financial Management ; Child Budgeting ; State Expenditure ; Karnataka
    JEL: H30 H75 E62
    Date: 2021–10
  43. By: Sarun Kamolthip
    Abstract: This paper investigates the potentials of the long short-term memory (LSTM) when applying with macroeconomic time series data sampled at different frequencies. We first present how the conventional LSTM model can be adapted to the time series observed at mixed frequencies when the same mismatch ratio is applied for all pairs of low-frequency output and higher-frequency variable. To generalize the LSTM to the case of multiple mismatch ratios, we adopt the unrestricted Mixed Data Sampling (U-MIDAS) scheme (Foroni et al., 2015) into the LSTM architecture. We assess via both Monte Carlo simulations and empirical application the out-of-sample predictive performance. Our proposed models outperform the restricted MIDAS model even in a set up favorable to the MIDAS estimator. For real world application, we study forecasting a quarterly growth rate of Thai real GDP using a vast array of macroeconomic indicators both quarterly and monthly. Our LSTM with U-MIDAS scheme easily beats the simple benchmark AR(1) model at all horizons, but outperforms the strong benchmark univariate LSTM only at one and six months ahead. Nonetheless, we find that our proposed model could be very helpful in the period of large economic downturns for short-term forecast. Simulation and empirical results seem to support the use of our proposed LSTM with U-MIDAS scheme to nowcasting application.
    Keywords: LSTM; Mixed Frequency Data; Nowcasting; Time Series; Macroeconomic Indicators
    JEL: E37 C35
    Date: 2021–10
  44. By: Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
    Abstract: If the U.S. is on a fiscally sustainable path, then higher U.S. government debt/output ratios should reliably predict higher future surpluses or lower real returns on Treasurys. In the post-war sample, we find no evidence for this. Neither future cash flows nor discount rates account for the variation in the current debt/output ratio. Instead, the future debt/output ratio accounts for most of the variation. Systematic surplus forecast errors can account for part of these findings. Since the start of the GFC, surplus projections have anticipated a large fiscal correction that failed to materialize.
    JEL: E62 G12
    Date: 2021–10
  45. By: Susana Santos; Mónica Magaua
    Abstract: Approaches based on Social Accounting Matrices (SAMs) and Socio-Demographic Matrices (SDMs) will be presented as a way of capturing relevant networks of linkages and the corresponding multiplier effects, which can subsequently be used for modelling the activity of the countries to be studied. Emphasis will be placed on the activity of household unincorporated enterprises that will be identified with the informal sector. Based on methodological principles derived mainly from the works of Richard Stone, a proposal will be made to study the economic activity of Mozambique in 2016 in a matrix format, with special attention to the informal sector in general and, within this, forestry, and logging. Such a proposal includes, on the one hand, people – represented by a SDM – and, on the other hand, activities, products, factors of production and institutions – represented by a SAM. The exposition will mostly be accompanied by an application to the above-mentioned reality. Scenarios, involving changes in functional and institutional distribution of income, will be presented and the macroeconomic effects of these changes, will be summarised in the form of changes in the macroeconomic aggregates, such as, Gross Domestic Product, Gross National Income and Disposable Income.
    Keywords: Social Accounting Matrix; Socio-Demographic Matrices; Informal Economy.
    JEL: E01 E16 J11
    Date: 2021–10
  46. By: Jean-Francois Mercier
    Abstract: Occasional Bulletin of Economic Notes 2021/01 Inflation in the time of Covid-19: (II)) the liquidity surge
    Date: 2021–10–06
  47. By: Banco de España Strategic Plan 2024: Risk identification for the financial and macroeconomic stability (Banco de España)
    Abstract: For central banks, it is crucial to develop and maintain risk identification frameworks that allow them to detect in good time and address potential threats to financial stability with the most appropriate policy tools. This paper reviews the main indicators developed for this purpose by the Banco de España and by other central banks and prudential authorities. In this way, this stocktaking exercise contributes to improving the transparency and effective communication of the financial stability-related tasks carried out at the Banco de España. Some of the indicators are used in regular Banco de España surveillance activities, whereas others pertain to specific research activities. We classify our set of measures into two broad categories depending on the risk monitored: standard or systemic risks. Given the multidimensional nature of systemic risk, its identification goes beyond the sum of the standard risks explored in this paper (namely credit, macroeconomic, market, and liquidity and bank risks). This survey also classifies indicators by the type of institutional segment that triggers risks; namely, sovereigns, households, non-financial corporations, banks, non-bank financial sector, residential real estate and the financial markets. This work shows how the measures developed and regularly used at the Banco de España allow potential vulnerabilities to be comprehensively monitored. Nevertheless, maintaining an adequate risk-identification framework requires continuous adaptation to new theoretical developments and econometric tools, and, more importantly, to emerging challenges. In this respect, there is a current drive to develop new indicators to assess potential risks arising from climate change and those linked to the risk of system-wide cyber incidents. It is expected that the monitoring needs related to these risks will increase in the future.
    Keywords: risk identification, systemic risk, systemic risk indicators, standard risk indicators, financial stability
    JEL: E58 C43 G10 G21 G32 G50
    Date: 2021–09
  48. By: Lorie Logan
    Abstract: Remarks before the Money Marketeers of New York University (delivered via videoconference).
    Keywords: market; Federal Reserve; facility; reserve; Federal Open Market Committee (FOMC); overnight reverse repo (ON RRP) facility; liquidity; counterparties; LIBOR; interest on reserve balances (IORB) rate; Federal Funds rate
    Date: 2021–10–14
  49. By: Pierre Brochue (University of Ottawa); Jonathan Créchet (Department of Economics, University of Ottawa)
    Abstract: With the advent of the Covid-19 pandemic, labour-force survey non-response rates have surged in many countries. We show that in the case of Canada, the bulk of this increase can be explained by the suspension of in-person interviews following the adoption of telework in Federal agencies, including Statistics Canada. Individuals with vulnerabilities to the Covid-19 economic shock—i.e., the young, low-educated, low-salary, low job-tenure individuals, and those working in occupations with low telework potential—have been harder to reach and have been gradually less and less represented in the Canadian Labour Force Survey (LFS) during the pandemic. Using exogenous variation in the assignment of individuals to the different LFS rotations, we present evidence suggesting that the decline in employment and labour-force participation have been underestimated over the March-July 2020 period. We believe, however, that these non-response biases have been moderate when contrasted with the unprecedented severity of the Covid-19 disruption. Furthermore, since attrition only represents a minor part of the non-response increase, we argue that one should not expect additional difficulties when using panels as compared to cross-sectional samples, and when using public-use LFS files instead of restricted-access files. All in all, the LFS remains a reliable data source for analyzing the economic impact of Covid-19 in a timely manner.
    Keywords: COVID-19, Non-response, Survey data, Employment, Unemployment.
    JEL: C81 C83 E24 J60
    Date: 2021
  50. By: Benigno Pierpaolo; Canofari Paolo; Di Bartolomeo Giovanni; Messori Marcello
    Abstract: In response to the COVID-19 crisis, the ECB has relaunched a massive asset purchase programme within its combined-arms monetary strategy. This paper presents and discusses the theory and the evidence of the central bank’s asset purchases, mainly in the euro area. It analyses the role of asset purchase programmes in the ECB’s toolkit and the potential associated risks, focusing specifically on the problems of the programmes’ unwinding. Finally, the paper offers some possible alternatives to the asset purchase programme.
    Date: 2020–12
  51. By: Juliane Begenau; Saki Bigio; Jeremy Majerovitz; Matias Vieyra
    Abstract: We propose a dynamic bank theory with a delayed loss recognition mechanism and a regulatory capital constraint at its core. The estimated model matches four facts about banks’ Tobin’s Q that summarize bank leverage dynamics. (1) Book and market equity values diverge, especially during crises; (2) Tobin’s Q predicts future bank profitability; (3) neither book nor market leverage constraints are binding for most banks; (4) bank leverage and Tobin’s Q are mean reverting but highly persistent. We examine a counterfactual experiment where different accounting rules produce a novel policy tradeoff.
    Keywords: banks, leverage dynamics, market vs. book values, delayed accounting
    JEL: G21 G32 G33 E44
    Date: 2021
  52. By: Milsom, L.; Roland, I.
    Abstract: Exposure to Chinese import competition led to significant manufacturing job losses in the United States. Local labor markets, however, differ significantly in how they fared with respect to manufacturing employment. An important question is whether labor market institutions have an impact on the dynamic response of manufacturing employment to rising import penetration. We contribute to this debate by showing that minimum wages amplified the negative effect of Chinese import penetration on manufacturing employment in US local labor markets between 2000 and 2007. We develop a rigorous double-edged identification strategy. First, we construct shift-share instrumental variables to address the endogeneity of import penetration. Second, we use a border identification strategy to distinguish the effects of minimum wage policies from the effects of other local labor market characteristics that are unrelated to policy. Specifically, we rely on comparing commuting zones that are contiguous to each other but located in different states with different minimum wage policies. The approach essentially considers what happens to the response of manufacturing employment to import penetration when one crosses a policy border.
    Keywords: Import penetration, labor market institutions, minimum wages, manufacturing employment
    JEL: E24 F14 F16 J23 L60 R12
    Date: 2021–10–07
  53. By: Ciccarelli, Matteo; Marotta, Fulvia
    Abstract: The macroeconomic effects of climate-related events and climate policies depend on the interaction between demand- and supply-type of shocks that those events and policies imply. Using a panel of 24 OECD countries for the sample 1990-2019 and a standard macroeconomic framework, the paper tests the combined effect of (1) climate change, (2) environmental policies and (3) environment-related technologies on the macroeconomy. Results show that climate change and policies to counteract them have a significant, albeit not sizeable, macroeconomic effects over the business cycle. We find evidence that physical risks work as negative demand shocks while transition policies or technology improvements resemble downward supply movements. Furthermore, the disruptive effects on the economy are exacerbated for countries without carbon tax or with a high exposure to natural disasters. Overall our results support the need for a uniform policy mix to counteract climate change with a balance between demand-pull and technology-push policies. JEL Classification: C11, C33, E32, E58, Q5
    Keywords: business cycle, environment-related technologies, environmental policy, physical risks, SVAR
    Date: 2021–10
  54. By: Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco
    Abstract: We augmented a macro-model with intrinsic-inflation inertia assuming that prices farer in the past are more likely to be reset. After estimating the model for seven economies, we compared price/wage structures and explored the possibility that their changes can be related to changes in policy stances. We find evidence for duration-dependent-price adjustments. Price and wage stickiness are correlated. Although positively sloped, after few periods, price-hazard functions often become flat as in Calvo-based models. Instead, wage-hazard shapes are in line with Taylor contracts. Regarding monetary policy stances, no systematic effect is found. Observed changes are explained by country-specific factors (e.g., market reforms).
    Date: 2020–12
  55. By: Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Shortfalls in GST compensation cess collection vis-à-vis GST compensation requirements of states for the Fiscal Years 2020-21 and 2021-22 are concerns for the Union as well as State governments. During 2020-21, the Union government borrowed Rs. 1.10 lakh crore against Government of India securities to provide compensation to the States. The Union government has also committed to borrowing 1.59 lakh crore during 2021-22 from the market (as back-to-back loans) to provide compensation to the States. As the GST compensation cess will be extended to pay interest and principal payment liabilities of the debt incurred by the Government of India, in this paper, we estimate whether GST compensation cess collections at the current rate will be sufficient to service the debt cost. We also rank States and their relative dependence on GST compensation for 2018-19 and 2019-20. We find that the economic structure (origin versus consuming state) of a state is an important factor affecting revenues and thereby the level of compensation requirement.
    Keywords: Goods and Services Tax (GST) ; GST Compensation ; GST Transition Period ; Revenue Protection ; India
    JEL: H20 E62 H26
    Date: 2021–10
  56. By: Daichi SHIRAI
    Abstract: This study analyzes fiscal policies in a business cycle model with an endogenous borrowing constraint when firms are heavily in debt. The tightness of the borrowing constraint for working capital loans depends on the level of corporate debt. When the level of corporate debt is modest, an increase in corporate debt amplifies corporate tax cut multipliers. Because the difference in debt levels due to the temporary tax cut remains for a long time, the cumulative effect on welfare becomes large. If the debt level exceeds a certain threshold, it remains at this level and depresses an economy permanently. In this situation, a permanent spending expansion changes the firms capital structure and can eliminate this inefficiency in the long run.
    Date: 2021–10
  57. By: Alan J. Auerbach; William Gale
    Abstract: Interest rates on government debt have fallen in many countries over the last several decades, with markets indicating that rates may stay low well into the future. It is by now well understood that sustained low interest rates can change the nature of long-run fiscal policy choices. In this paper, we examine a related issue: the implications of sustained low interest rates for the structure of tax policy. We show that low interest rates (a) reduce the differences between consumption and income taxes; (b) make wealth taxes less efficient relative to capital income taxes, at given rates of tax; (c) reduce the value of firm-level investment incentives, and (d) substantially raise the valuation of benefits of carbon abatement policies relative to their costs.
    JEL: E43 H20 H23
    Date: 2021–10
  58. By: Hellqvist, Matti; Korpinen, Kasperi
    Abstract: The amount of central bank money, or liquidity, needed to settle payments, depends on the way the settlement is organized. It is largest when payments are settled individually on gross basis and smallest with settlement in one big netting cycle. Retail payments are increasingly processed in instant payment schemes and systems. We evaluate how the result of this transition affects the liquidity needs of the Finnish banks. For the analysis we generate artificial transaction level data, which mimics the Finnish retail payment flows processed in the STEP2 system. This allows us to estimate the difference between the liquidity needs for the settlement in a cycle based model and in a full instant payment mode. We also present a regression model for the bank level additional liquidity needs. A full migration to instant payments is expected to cause only a small aggregate increase in the liquidity needs. However, the variations between banks or between days can be significant and emphasize the need of liquidity buffers.
    Keywords: instant payments,liquidity needs,payment systems,netting
    Date: 2021
  59. By: Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China.
    JEL: E5 F3 F4 N2
    Date: 2021–10
  60. By: Carlos Alberto Arango-Arango; Yanneth Rocío Betancourt-García; Manuela Restrepo-Bernal
    Abstract: Cash is still widely used in Colombia, even among merchants that accept payment cards. Indeed, 60% of these merchants use dissuasive strategies to make their clients pay with cash. This shows that merchant service costs (MSC) for cards are not optimal in the sense of the Tourist Test. We present estimates of MSC compatible with the Tourist Test, such that merchants are indifferent between being paid with cash or cards. We find that cash is less costly than cards at the average retail-sales transaction-value, hence there is no positive optimal MSC at this ticket value. For the average card transaction ticket, the optimal MSC would be positive but far below the rates charge by the industry (0.74% in a short-term scenario). Yet, the additional incentive that sales-tax evasion provides to cash payments reduces the Tourist Test MSC to 0.44%. Our estimates for long-term scenarios yield even lower optimal MSC. An average price cap regulation that strikes a middle ground between these figures, and is complemented with sales-tax evasion measures, should discourage merchant strategies that deter consumers from paying with cards and will accommodate the wide heterogeneity in merchants´ scale, payment processing processes and ticket size. These results should be taken as a guideline as the estimations depend on the underlying assumptions and only consider the merchant´s side of the card industry. **** RESUMEN: En Colombia el efectivo continúa usándose ampliamente, incluso entre los comerciantes que aceptan tarjetas de pago. De hecho, el 60% de los comerciantes utilizan estrategias disuasivas para que sus clientes paguen en efectivo, reflejando que los cargos de los servicios por tarjetas (MSC) para los comerciantes no son óptimos. Este documento presenta estimaciones del MSC compatibles con el Test del Turista (Rochet y Tirole, 2007, 2011), donde el nivel de costos debe ser tal que los comerciantes sean indiferentes entre recibir pagos en efectivo o con tarjeta. Las estimaciones para Colombia muestran que el efectivo es menos costoso que las tarjetas para valores promedio de transacción en ventas minoristas, por lo tanto, no hay un MSC óptimo positivo para estos valores. Para el ticket promedio de transacción con tarjeta, el MSC óptimo sería positivo pero muy por debajo de las tarifas cobradas por la industria (0,74% en el corto plazo). El incentivo adicional generado por la evasión de impuestos a las ventas en efectivo, sin embargo, disminuye el cálculo del MSC de acuerdo con el test del turista a 0,44%. Las estimaciones para escenarios a largo plazo arrojan un MSC óptimo aún más bajo. Una regulación que imponga techos a los precios promedio basados en un nivel medio de estas cifras, complementada con medidas de evasión de impuestos sobre las ventas, debería desalentar las estrategias comerciales que buscan disuadir a los consumidores de pagar con tarjetas, adaptándose a la amplia heterogeneidad en la escala de los comerciantes, a los procesos de procesamiento de pagos y al tamaño del ticket. Es de mencionar que estos resultados deben tomarse como una guía, ya que las estimaciones dependen de los supuestos subyacentes en el modelo y solo consideran el lado comercial de la industria de las tarjetas.
    Keywords: cash, debit and credit cards, tourist test, merchant card fees, merchant interchanges fees, Efectivo, tarjetas débito y crédito, test del turista, tarifas de intercambio
    JEL: D23 D40 G20 G21 G28 E41 E58
    Date: 2021–10
  61. By: Blattner, Laura; Farinha, Luísa; Nogueira, Gil
    Abstract: We provide evidence that the strength of the bank lending channel varies considerably across three major events in the European sovereign debt crisis - the Greek debt restructuring (PSI), outright monetary transactions (OMT), and quantitative easing (QE). We study how lending responds to each shock using detailed bank, firm, and household data from Portugal, a country that was directly exposed to the three events. While the price of sovereign debt securities increased in all three events, banks reduced sovereign debt holdings and realized accumulated capital gains only after QE. As a result, lending to final borrowers reacted more strongly to QE than to the PSI or OMT events. Our results suggest that asset purchases were more effective than signalling events at stimulating the bank lending channel. JEL Classification: E52, E58, G18, G21
    Keywords: asset purchases, bank lending channel, OMT, PSI, QE
    Date: 2021–10
  62. By: Camatte, Hadrien; Daudin, Guillaume; Faubert, Violaine; Lalliard, Antoine; Rifflart, Christine
    Abstract: We analyse the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate, using world input-output tables (WIOT) from 1995 to 2019. In line with the existing literature, we find a modest output-weighted elasticity of around 0.1. This elasticity is stable over time but heterogeneous across countries, ranging from 0.05 to 0.22. Such heterogeneity mainly reflects differences in foreign product content of consumption and intermediate products. Direct effects through imported consumption and intermediate products entering domestic production explain most of the transmission of an exchange rate appreciation to domestic prices. By contrast, indirect effects linked to participation in global value chains play a limited role. Our results are robust to using four different WIOT datasets. As WIOT are data-demanding and available with a lag of several years, we extrapolate a reliable estimate of the HCE deflator elasticity from 2015 onwards using trade data and GDP statistics. JEL Classification: C67, E31, F42, F62
    Keywords: cost-push inflation, global value chains, input-output linkages, spillovers
    Date: 2021–10
  63. By: Etienne ESPAGNE; Antoine GODIN; Guilherme MAGACHO; Achilleas MANTES; Devrim YILMAZ
    Abstract: This paper aims at providing estimates of countries’ macroeconomic exposures to the low-carbon transition. We develop a method to evaluate countries’ external, fiscal and socio-economic exposure, and, considering their capacity to adapt their productive structure, we analyse countries’ vulnerabilities and risks in these different dimensions.
    JEL: Q
    Date: 2021–10–19
  64. By: Whelsy Boungou; Paul Hubert
    Abstract: Faced with a potential zero lower bound on deposit interest rates, how do banks pass on the fall in net interest income due to negative interest rates? This paper aims to investigate the different channels of banks’ responses to negative interest rates using a detailed breakdown of the profit and loss account of 3637 banks in 59 countries from 2011 to 2018. We find that the decrease in interest income due to negative interest rates is mitigated by an increase in non-interest income, but only partially. We find that banks respond to that shock by reducing the interest paid on non-customer deposit liabilities and their personnel expenses. We also show that banks’ responses are not instantaneous and that they adjust their response as negative interest rates persist over time such that how long negative interest rates are implemented matters. Finally, our results suggest that large banks with higher deposits and higher leverage ratios are the most affected by the implementation of negative interest rates.
    Keywords: Bank profitability, Interest flows, Non-interest flows, Deposits, Leverage
    JEL: C2 E5 G2
    Date: 2021
  65. By: Morales, Paola; Osorio, Daniel; Lemus, Juan S.; Sarmiento Paipilla, Miguel (Tilburg University, School of Economics and Management)
    Date: 2021
  66. By: Cécile Couharde; Carl Grekou
    Abstract: This paper proposes a new de facto classification of exchange rate regimes, the synthesis classification. The proposed framework has several advantages over existing de facto classifications. First, it offers a unified framework based on the most divergent classifications, the RR and LYS classifications, leading not only to a broader coverage but also to encompass a broad spectrum of exchange systems. Second, it fits better with the known history of exchange rate regimes developments in the post-Bretton Woods era. Among others, it brings an interesting nuance to the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes —especially in emerging economies since the late 1990s— has essentially involved movement toward more tightly “managed” intermediate regimes and not a shift away from such regimes. As an illustration of the insightfulness of our classification, we empirically revisit the nexus between currency crises and exchange rate regimes. In addition to associate a higher probability of currency crisis to both intermediate and floating regimes, our classification, also displays better statistical performances than other classifications in predicting currency crises.
    Keywords: Currency crisis;De facto classifications;Exchange rate regimes;Probit model;ROC analysis
    JEL: E52 F33 F4 O24
    Date: 2021–10
  67. By: Michelle W. Bowman
    Date: 2021–10–13
  68. By: Acocella Nicola; Beqiraj Elton; Di Bartolomeo Giovanni; Di Pietro Marco; Felici Francesco
    Abstract: What advice can be given to the policymaker to reduce the burden of public debt after a crisis? In this situation, the debt consolidation calls for fiscal surplus based on increases in taxes and/or reductions in public spending. This paper aims at answering to the above question. Specifically, it evaluates different policy options on the table using the estimated model of the Italian dynamic General Equilibrium Model (IGEM). Our main message is that plans aimed at reducing the public debt based on tax increases rather than expenditure reductions are more effective. Therefore, consolidation should be designed on the former.
    Date: 2020–12
  69. By: Sebastian Doerr; Magdalena Erdem; Guido Franco; Leonardo Gambacorta; Anamaria Illes
    Abstract: Can higher technological capacity help firms to recover quicker from recessions? Analyzing the effects of the Covid-19 pandemic on firm revenues in several countries, we find that firms headquartered in jurisdictions with better digital infrastructure generated relatively higher revenue during the shock period. Improving a country's technological capability by one standard deviation is associated with a relative increase in revenues of the average firm by around 4%. The positive effect of technology is more pronounced among smaller firms, suggesting that it could have helped the recovery of SMEs.
    JEL: E23 G10 G38 O30
    Date: 2021–10
  70. By: Davin Chor; Bingjing Li
    Abstract: How much has the US-China tariff war impacted economic outcomes in China? We address this question using high-frequency night lights data, together with measures of the trade exposure of fine grid locations constructed from Chinese firms' geo-coordinates. Exploiting within-grid variation over time and controlling extensively for grid-specific contemporaneous trends, we find that each 1 percentage point increase in exposure to the US tariffs was associated with a 0.59% reduction in night-time luminosity. We combine these with structural elasticities that relate night lights to economic outcomes, motivated by the statistical framework of Henderson et al. (2012). The negative impact of the tariff war was highly skewed across locations: While grids with negligible direct exposure to the US tariffs accounted for up to 70% of China's population, we infer that the 2.5% of the population in grids with the largest US tariff shocks saw a 2.52% (1.62%) decrease in income per capita (manufacturing employment) relative to unaffected grids. By contrast, we do not find significant effects from China's retaliatory tariffs.
    JEL: E01 F10 F13 F14 F16
    Date: 2021–10
  71. By: Abrams M.E. Tagem; Oliver Morrissey
    Abstract: There is limited research on the underlying institutional framework of tax policy and capacity: how tax collection efficiency changes over time and the importance of institutional factors in this process. This paper fills this gap by devising a measure of tax capacity distinct from commonly used measures of tax effort based on residuals from a tax performance (tax/gross domestic product ratio) regression. The paper uses annual data on 44 sub-Saharan African countries covering the period from 1980 to 2018.
    Keywords: Fiscal capacity, General-to-specific, Tax policy, Institutional performance, Institutions
    Date: 2021
  72. By: Wukuang Cun; M. Hashem Pesaran
    Abstract: This paper develops and solves a spatiotemporal equilibrium model in which regional wages and house prices are determined jointly with location-to-location migration flows. The agent’s optimal location choice and the resultant migration process are shown to be Markovian, with the transition probabilities across all location pairs given as non-linear functions of wage and housing cost differentials, endogenously responding to migration flows. The model can be used for the analysis of spatial distribution of population, income, and house prices, as well as for the analysis of the entire dynamic process of shock spill-over effects in regional economies through location-to-location migration. The model is estimated on a panel of 48 mainland U.S. states and the District of Columbia over the training sample (1976-1999) and is shown to fit the data well over the evaluation sample (2000-2014). The estimated model is then used to analyse the size and speed of spatial spill-over effects by computing spatiotemporal impulse responses of positive productivity and land-supply shocks to California, Texas, and Florida. The sensitivity of the results to migration elasticity, housing depreciation rate and local land supply conditions is also investigated.
    Keywords: location choice, joint determination of migration and house prices, spatiotemporal impulse responses, land-use deregulation, counterfactual exercise, population allocation, productivity and land supply shocks, California, Texas and Florida
    JEL: E00 R23 R31
    Date: 2021
  73. By: Barlow, Pepita
    Abstract: Understanding what contributes to cross-national differences in public health spending among low- and middle-income countries (LMICs) can help identify how policy-makers can reduce global disparities. Yet, research on this topic has so far overlooked the potential influence of one of the most strongly recommended economic reforms during the post-war era: reducing international trade taxes, ‘tariffs’. Tariffs are an important source of tax revenue for some LMICs. Tariff declines can impact on government finances, and these changes may constrain public health expenditure where states lack the capacity to tax non-trade activities. We examined the association between tariff changes and public health spending in 65 LMICs, 1996–2015. We identify substantial variation in this association according to one indicator of state capacity, a country's score on the World Governance Indicators government effectiveness (GE) index. For example, tariff declines corresponded to reduced public health expenditures in countries with low GE scores. Our results suggest that tariff changes and domestic taxation capacities have an under-recognised impact on public health expenditure and may contribute to global health spending disparities.
    Keywords: Fiscal space; Global health; Government health expenditure; Health inequalities; International variation in health expenditure; Sustainable development goals (SDGs)
    JEL: E6
    Date: 2020–05–01
  74. By: Kohnert, Dirk
    Abstract: ABSTRACT & RÉSUMÉ : Digitalization in Sub-Saharan Africa enhanced the accessibility of communications by the majority of the poor who had been excluded among others from social media, independent information channels, mobile banking and e-commerce. The creation of new economic opportunities, e.g. the pay-as-you-go business, and increased flow of information also boosted people’s self-esteem, sense of belonging and citizenship. The smartphone became the main source of internet access which also bridged the divide between urban and rural communities. Thus, mobile telecommunications contributed positively to economic growth even in less developed regions, and there is apparently still ample space for further improvement. Yet, Africans were also confronted with new forms of the digital divide between the poor and the rich, between advanced and less advanced African countries, as well as between Africa and the rest of the world. Moreover, the digitalization of the public sphere became a double-edged sword. Autocratic governments like Sudan and Togo shut down the internet during elections to facilitate the rigging of the polls. The lack of transparency and objectivity fuelled fake news which rapidly spread in social media, notably in times of the Corona crisis. Last, but not least, not everybody surfing in the internet had the same access to quality information. For example, disinformation was supported clandestinely by foreign powers to destabilize political regimes, or spy software was provided to governments to control the opposition. Both false news in social media and spy-software impeded poverty relieve in Africa significantly. RÉSUMÉ : La numérisation en Afrique subsaharienne a amélioré l'accessibilité des communications par la majorité des pauvres qui avaient été exclus, entre autres, des médias sociaux, des canaux d'information indépendants, des services bancaires mobiles et du commerce électronique. La création de nouvelles opportunités économiques, par ex. l'activité par répartition et l'augmentation du flux d'informations, ont également renforcé l'estime de soi des personnes, leur sentiment d'appartenance et de citoyenneté. Le smartphone est devenu la principale source d'accès à Internet, ce qui a également permis de combler le fossé entre les communautés urbaines et rurales. Ainsi, les télécommunications mobiles ont contribué positivement à la croissance économique, même dans les régions les moins développées, et il y a apparemment encore amplement de place pour de nouvelles améliorations. Pourtant, les Africains ont également été confrontés à de nouvelles formes fossé digital entre les pauvres et les riches, entre les pays africains avancés et moins avancés, ainsi qu'entre l'Afrique et le reste du monde. De plus, la numérisation de la sphère publique est devenue une arme à double tranchant. Des gouvernements autocratiques, comme le Soudan et le Togo, ont fermé Internet pendant les élections pour faciliter le trucage des élections. De plus, le manque de transparence et d'objectivité a alimenté les fausses informations qui se sont rapidement propagées sur les réseaux sociaux, notamment en période de crise de COVID-19. Enfin, tout le monde qui navigue sur Internet n'a pas le même accès à des informations de qualité. La désinformation était soutenue clandestinement par des puissances étrangères pour déstabiliser les régimes politiques, ou des logiciels espions fournis aux gouvernements pour contrôler l'opposition. Les fausses nouvelles dans les médias sociaux et les logiciels espions ont entravé la pauvreté en Afrique de manière significative.
    Keywords: Digitalization, Sub-Sahara Africa, digital inclusion, poverty alleviation, pro-poor growth, transparency, social media, fake news
    JEL: D31 D63 D83 E26 F35 F54 F63 G21 G23 N37 O17 O33 O55 Q48 Z13
    Date: 2021–10–20
  75. By: Bomin Jiang; Daniel E. Rigobon; Roberto Rigobon
    Abstract: Covid-19 highlighted the weaknesses in the supply chain. Many have argued that a more resilient or robust supply chain is needed. But what does a robust supply chain mean? And how do firms’ decisions change when taken that approach? This paper studies a very stylized model of a supply chain, where we study how the decision of a multinational corporation changes in the presence of uncertainty. The two standard theories of supply chain are Just-in-time and Just-in-case. Just-in-time argues in favor of pursuing efficiency, while Just-in-case studies how such decision changes when the firm faces idiosyncratic risk. We find that a robust supply chain is very different specially in the presence of systemic shocks. In this case, firms need to concentrate on the worst-case. This strategy implies a supply chain where the allocation of resources and capabilities does not correspond to the standard theories studied in economics, but follow a heuristic behavioral rule called “probability matching”. It has been found in nature and in experimental research that subjects appeal to probability matching when seeking survival. We find that a robust supply chain will reproduce this behavioral outcome. In fact, a multinational optimizing under uncertainty, follows a probability matching which leads to an allocation that is suboptimal from the individual producer point of view, but rules out the possibility of supply disruptions.
    JEL: E7 F02 F12 F13 L15
    Date: 2021–10
  76. By: Roland Pongou; Guy Tchuente; Jean-Baptiste Tondji
    Abstract: This study develops an economic model for a social planner who prioritizes health over short-term wealth accumulation during a pandemic. Agents are connected through a weighted undirected network of contacts, and the planner's objective is to determine the policy that contains the spread of infection below a tolerable incidence level, and that maximizes the present discounted value of real income, in that order of priority. The optimal unique policy depends both on the configuration of the contact network and the tolerable infection incidence. Comparative statics analyses are conducted: (i) they reveal the tradeoff between the economic cost of the pandemic and the infection incidence allowed; and (ii) they suggest a correlation between different measures of network centrality and individual lockdown probability with the correlation increasing with the tolerable infection incidence level. Using unique data on the networks of nursing and long-term homes in the U.S., we calibrate our model at the state level and estimate the tolerable COVID-19 infection incidence level. We find that laissez-faire (more tolerance to the virus spread) pandemic policy is associated with an increased number of deaths in nursing homes and higher state GDP growth. In terms of the death count, laissez-faire is more harmful to nursing homes than more peripheral in the networks, those located in deprived counties, and those who work for a profit. We also find that U.S. states with a Republican governor have a higher level of tolerable incidence, but policies tend to converge with high death count.
    Date: 2021–10

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