nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒11‒08
71 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Real-Business-Cycle model with robots: Lessons for Bulgaria By Vasilev, Aleksandar
  2. Evergreening By Miguel Faria-e-Castro; Pascal Paul; Juan M. Sanchez
  3. The ECB's Asset Purchase Programme: Theory, effects, and risks By Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  4. What to Target? Insights from a Lab Experiment By Isabelle Salle
  5. Indebted Demand By Atif Mian; Ludwig Straub; Amir Sufi
  6. How Bad Is Labor Market Concentration?: Evidence From Soviet (Urban) Satellites By Zhuravleva, Nadezhda
  7. Effective Exchange Rate Regimes and Inflation By Harms, Philipp; Knaze, Jakub
  8. The Effects of Fiscal Policy on Households during the COVID-19 Pandemic By Bui, Dzung; Dräger, Lena; Hayo, Bernd; Nghiem, Giang
  9. Life Cycle UI with ex-ante Heterogeneous Workers By Heiler, Simon
  10. Anchoring of long-term inflation expectations: Do inflation target formulations matter? By Große Steffen, Christoph
  11. The Expectations Channel of Climate Change:Implications for Monetary Policy By Müller, Gernot; Dietrich, Alexander; Schoenle, Raphael
  12. Sticky Deposit Rates and Allocative Effects of Monetary Policy By Anne Duquerroy; Adrien Matray; Farzad Saidi
  13. Joined at the hip: monetary and fiscal policy in a liquidity-dependent world By Guillermo Calvo; Andrés Velasco
  14. Temporary VAT Reduction during the Lockdown - Evidence from Germany By Clemens, Marius; Röger, Werner
  15. Talking in a language that everyone can understand? Transparency of speeches by the ECB Executive Board By Müller, Lena Sophia; Glas, Alexander
  16. Lockdown length and strength: labour-market effects in Germany during the COVID-19 pandemic By Bauer, Anja; Weber, Enzo
  17. Non-linear effects of fiscal stimulus on fiscal sustainability Indicators in Turkey By Cem Cebi; K. Azim Ozdemir
  18. The Italian nominal interest rate conundrum: a problem of growth or public finance? By Giovanni Carnazza; Nicola Caravaggio
  19. How quantitatively important are shocks to consumption and income tax rates for business cycle fluctuations? Lessons from Bulgaria (1999-2020) By Vasilev, Aleksandar
  20. Firms’ Inflation Expectations: New Evidence from France By Frédérique Savignac; Erwan Gautier; Yuriy Gorodnichenko; Olivier Coibion
  21. Does Quantitative Easing Affect People’s Personal Financial Situation and Economic Inequality? The View of the German Population By Hayo, Bernd
  22. Uncertainty and the Pandemic Shocks By Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  23. G-multipliers in Canada: How large? And Why? By Fabrice Dabiré; Hashmat Khan; Patrick Richard; Jean-François Rouillard
  24. Testing for Spurious Dynamics in Structural Models with Applications to Monetary Policy By Mikhail Dmitriev; Manoj Atolia
  25. European Central Bank and Banco de España measures against the effects of COVID-19 on the monetary policy collateral framework, and their impact on Spanish counterparties By Jorge Escolar; José Ramón Yribarren
  26. The Non-Linear Response of US State-Level Tradable and Non-Tradable Inflation to Oil Shocks: The Role of Oil-Dependence By Xin Sheng; Hardik A. Marfatia; Rangan Gupta
  27. Risky Financial Collateral, Firm Heterogeneity, and the Impact of Eligibility Requirements By Matthias Kaldorf; Florian Wicknig
  28. Empirical Investigation of a Sufficient Statistic for Monetary Shocks By Fernando Alvarez; Andrea Ferrara; Erwan Gautier; Hervé Le Bihan; Francesco Lippi
  29. A Reversal in the Global Decline of the Labor Share? By Selen Andýc; Michael Christopher Burda
  30. The Transmission Mechanism of Quantitative Easing: A Markov-Switching FAVAR Approach By Luisa Corrado; Stefano Grassi; Enrico Minnella
  31. The macroeconomic implications of zero growth: A post-Keynesian approach By Hein, Eckhard; Jimenez, Valeria
  32. Characterizing and Communicating the Balance of Risks of Macroeconomic Forecasts: A Predictive Density Approach for Colombia By Juan C. Méndez-Vizcaíno; Alexander Guarin; César Anzola-Bravo; Anderson Grajales-Olarte
  33. Cross-country unemployment insurance, transfers, and trade-offs in international risk sharing By Enders, Zeno; Vespermann, David
  34. Serial Entrepreneurs, the Macroeconomy and Top Income Inequality By Sónia Félix; Sudipto Karmakar; Petr Sedlácek
  35. Growth drivers in emerging capitalist economies before and after the Global Financial Crisis By Jungmann, Benjamin
  36. Market Participants Neither Commit Predictable Errors nor Conform to REH: Evidence from Survey Data of Inflation Forecasts By Roman Frydman; Joshua Stillwagon
  37. Traspaso de la tasa de cambio a la inflación básica en Colombia: un análisis de parámetros cambiantes en el tiempo By Hernán Rincón-Castro; Pedro Rubiano-López; Lisseth Yaya-Garzón; Héctor M. Zárate-Solano
  38. Bank risk-taking and monetary policy transmission : Evidence from China By Li, Xiaoming; Liu, Zheng; Peng, Yuchao; Xu, Zhiwei
  39. The Macroeconomic Effects Of Lockdown Policies By Stéphane Auray; Aurélien Eyquem
  40. The global transmission of U.S. monetary policy By Riccardo Degasperi; Seokki Simon Hong; Giovanni Ricco
  41. Early monetary policies of the Tokugawa shogunate and merchants f coping strategies: 1695?1736 By Atsuko Suzuki
  42. Income inequality and monetary policy in the Euro Area By Jérôme Creel; Mehdi El Herradi
  43. On Time-Varying VAR models: Estimation, Testing and Impulse Response Analysis By Yayi Yan; Jiti Gao; Bin Peng
  44. Inflation Regimes and Hyperinflation. A Post-Keynesian/Structuralist typology By Sébastien Charles; Eduardo Bastian; Jonathan Marie
  45. Global value chains and the transmission of exchange rate shocks to consumer prices By Hadrien Camatte; Guillaume Daudin; Violaine Faubert; Antoine Lalliard; Christine Rifflart
  46. The Treasury market in spring 2020 and the response of the Federal Reserve By Annette Vissing-Jørgensen
  47. Inter-agency coordination bodies and the speed of prudential policy responses to the Covid-19 pandemic By Michael Brei; Blaise Gadanecz
  48. The Internationalization of Domestic Banks and the Credit Channel of Monetary Policy By Morales, Paola; Osorio, Daniel; Lemus, Juan S.; Sarmiento Paipilla, Miguel
  49. EU fiscal rules: reform considerations By Olga Francová; Ermal Hitaj; John Goossen; Robert Kraemer; Andreja Lenarčič; Georgios Palaiodimos
  50. An agent-based model of trickle-up growth and income inequality By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  51. Dating business cycles in France: a reference chronology By Antonin Aviat; Frédérique Bec; Claude Diebolt; Catherine Doz; Denis Ferrand; Laurent Ferrara; Eric Heyer; Valérie Mignon; Pierre-Alain Pionnier
  52. Competition, Ageing and Lack of Investment By Kangasharju, Aki; Ali-Yrkkö, Jyrki; Koski, Heli; Kuusi, Tero
  53. Bargaining Power and the Labor Share - a Structural Break Approach By Kraft, Kornelius; Lammers, Alexander
  54. Beschäftigungsstrukturen und Potenziale der Bioökonomie in den deutschen Braunkohlerevieren By Brödner, Romy; Graffenberger, Martin; Kropp, Per; Sujata, Uwe
  55. Macroeconomic transformation of capitalism - How to achieve politically determined growth rates? By Herr, Hansjörg
  56. The Riskiness of Outstanding Mortgages in the United States, 1999 - 2019 By William D. Larson
  57. The persistence of wages By Paulo M.M. Rodrigues; Pedro Portugal; Anabela Carneiro; Pedro Raposo
  58. Fiscal space in the euro area before Covid-19 By Jérôme Creel
  59. Do workers share in firm success? Pass-through estimates for New Zealand By Corey Allan; David C Maré
  60. Bitcoin selection rule and foundational game theoretic representation of mining competition By A. Mantovi
  61. La dette publique au XXIe siècle By Xavier Timbeau; Elliot Aurissergues; Eric Heyer
  62. Big techs in finance: on the new nexus between data privacy and competition By Frederic Boissay; Torsten Ehlers; Leonardo Gambacorta; Hyun Song Shin
  63. Establishing a fiscal dialogue in Europe By Jérôme Creel
  64. Bayesian local projections By Silvia Miranda-Agrippino; Giovanni Ricco
  65. OBSERVATORIO SOBRE EL CICLO ECONÓMICO EN ESPAÑA. Los factores explicativos del ciclo económico un año después del Gran Confinamiento By José E. Boscá; Rafael Doménech; Javier Ferri; Camilo Ulloa
  66. The euro in the world By Gergely Hudecz; Edmund Moshammer; Alexander Raabe; Gong Cheng
  67. Revisiting the Trade Policy Uncertainty Index By Hong, T.
  68. Le multiplicateur d'investissement public By Gilles Le Garrec; Vincent Touze
  69. Class Struggle in a Schumpeterian Economy By Chu, Angus; Kou, Zonglai; Wang, Xilin
  70. China's Transition to a Digital Currency: Does It Threaten Dollarization? By Ahmet Faruk Aysan; Nawaz Farrukh
  71. Post-Covid Recovery Scenarios for the Travel Industry By Kaitila, Ville; Lehmus, Markku

  1. By: Vasilev, Aleksandar
    Abstract: Robots are introduced into a real-business-cycle setup augmented with a detailed government sector. Robots are modeled as an imperfect substitute for labor services. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of robots in the economy is investigated for business cycle fluctuations in Bulgaria. In the presence of robots, wages increase, but employment falls after a technology shock. However, for plausible parameter values, the effect is predicted to be quite small.
    Keywords: business cycles,robots
    JEL: E32 E24
    Date: 2021
  2. By: Miguel Faria-e-Castro; Pascal Paul; Juan M. Sanchez
    Abstract: We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening can affect aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower aggregate productivity.
    Keywords: Evergreening; Zombie-Lending; Misallocation; COVID-19
    JEL: E32 E43 E44 E52 E60 G21 G32
    Date: 2021–10–22
  3. By: Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    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.
    Keywords: Unconventional monetary policies; Central banking; Zero-lower bound
    JEL: E32 E43 E44
    Date: 2021–10
  4. By: Isabelle Salle
    Abstract: This paper compares alternative monetary policy regimes within a controlled lab environment, where groups of participants are tasked with repeatedly forecasting inflation in a simple macroeconomic model featuring only the dynamics of interest rates, inflation and inflation expectations. Average-inflation targeting can approximate the price path observed under price-level targeting in the presence of disinflationary shocks and enable subjects to coordinate on simple heuristics that reflect the concern of the central bank for past inflation gaps. However, this depends on the exact specification of the policy rule. In particular, if the central bank considers more than two lags, subjects fail to form expectations that are consistent with the monetary policy rule, which results in greater inflation volatility. Reinforcing communication around the target helps somewhat anchor long-run inflation expectations.
    Keywords: Inflation targets; Monetary policy communications; Monetary policy framework
    JEL: C92 E31 E52 E7
    Date: 2021–10
  5. By: Atif Mian; Ludwig Straub; Amir Sufi
    Abstract: We propose a theory of indebted demand, capturing the idea that large debt burdens lower aggregate demand, and thus the natural rate of interest. At the core of the theory is the simple yet under-appreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent perpetual youth model, we find that recent trends in income inequality and financial deregulation lead to indebted household demand, pushing down the natural rate of interest. Moreover, popular expansionary policies-such as accommodative monetary policy-generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less conventional macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.
    JEL: E21 E44 E6
    Date: 2021–10
  6. By: Zhuravleva, Nadezhda
    JEL: E24 J30 J31 J42
    Date: 2021
  7. By: Harms, Philipp; Knaze, Jakub
    JEL: F41 E31 E52
    Date: 2021
  8. By: Bui, Dzung; Dräger, Lena; Hayo, Bernd; Nghiem, Giang
    JEL: E21 E62
    Date: 2021
  9. By: Heiler, Simon
    JEL: E24 E21 J24 J64
    Date: 2021
  10. By: Große Steffen, Christoph
    JEL: E42 E52 D84
    Date: 2021
  11. By: Müller, Gernot; Dietrich, Alexander; Schoenle, Raphael
    JEL: E43 E52 E58
    Date: 2021
  12. By: Anne Duquerroy (Banque de France); Adrien Matray (Princeton University); Farzad Saidi (Boston University and CEPR)
    Abstract: This paper documents that monetary policy affects credit supply through banks’ cost of funding. Using administrative credit-registry and regulatory bank data, we find that banks can incur an increase in their funding costs of at least 30 basis points before they adjust their lending. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government and are, thus, not directly affected by the monetary-policy rate.When banks’ funding cost increases and they contract their lending, we observe portfolio reallocations consistent with risk shifting: banks that depend on regulated deposits lend less to large firms, and relatively more to small firms and entrepreneurs.
    Keywords: Monetary-policy transmission; deposits; credit supply; SMEs; savings
    JEL: E23 E32 E44 G20 G21 L14
    Date: 2020–12
  13. By: Guillermo Calvo; Andrés Velasco
    Abstract: We study the effects of monetary and fiscal policies when both money and government bonds provide liquidity services. Because money is the unit of account, the price of money is the inverse of the price level. If prices are sticky, so is the price of money in terms of goods, and this is one important reason why money is liquid and attractive. By contrast, the price of government bonds is free to jump and often does, especially in response to news about changes in fiscal policy and the supply of bonds. Those movements in government bond prices affect available liquidity, and that matters for aggregate demand, inflation and output. Under these conditions, bond-financed fiscal expansions can be contractionary, causing deflation and a temporary recession. To avoid those effects, changes in bond supply must be matched by changes in money supply and in the interest rate on money. We conclude that in a liquiditydependent world, fiscal and monetary policies are joined at the hip.
    JEL: E52 E62 E63
    Date: 2021–10
  14. By: Clemens, Marius; Röger, Werner
    JEL: E62 E65 H2
    Date: 2021
  15. By: Müller, Lena Sophia; Glas, Alexander
    JEL: E52 E58
    Date: 2021
  16. By: Bauer, Anja; Weber, Enzo
    JEL: J6 E24
    Date: 2021
  17. By: Cem Cebi; K. Azim Ozdemir
    Abstract: This study aims at investigating the non-linear effects of government spending shocks on fiscal sustainability indicators in Turkey for the period of 2001:q1 – 2020:q4. Using the local projection method and separating government spending into two main components, namely public consumption and public investment, we examine the effects of a fiscal stimulus shock on debt-to-GDP ratio, Treasury interest rates, CDS risk premiums, output and inflation under two different debt regimes. The debt regimes (high and low) are determined by a logistic transition function regarding with debt-to-GDP ratio. We find some evidence on state-dependent features of fiscal stimulus on macro variables (output and inflation) and fiscal sustainability indicators. Particularly, we conclude that the implementation of expansionary fiscal policy via an increase in government spending in a low-debt regime would help to improve fiscal sustainability as well as the effectiveness of the fiscal policy. On the other hand, an increase in government spending in a high-debt regime generally produces lower output gains and higher budgetary costs. As a result, this study highlights the fact that the timing of fiscal actions, accurate assessment of debt regimes and composition of government spending matters.Creation-Date: 2021
    Keywords: Fiscal policy, Sustainability, Local projection, Non-Linear effects
    JEL: E62 H50 H63 C32
  18. By: Giovanni Carnazza (Università di Roma Tre); Nicola Caravaggio (Università di Roma Tre)
    Abstract: In the economic literature, there has been a large heterogeneity of results in relation to the impact of fiscal variables on interest rates. Focusing on the Italian economy and considering the nature of our interest rate determinants (public finance variables and nominal GDP growth), we decided to undertake a cointegration analysis relying on the Autoregressive Distributed Lag (ARDL) bound test approach, a particular suitable procedure within this peculiar framework, able to disentangle short-run and long-run dynamics. Our results are quite controversial, shedding new light on the role of gross debt and primary balance as a share of GDP in relation to the long-term Italian nominal interest rate. In this context, the ECB has probably played a crucial role, especially in the most severe phases of the Sovereign debt crisis. The European fiscal framework then shows further critical issues in relation to the new role that fiscal variables play within our econometric analysis.
    Keywords: Italian economy; Sovereign bond yield; European Monetary Union; Public finance
    JEL: E43 E58 E62 G12 C13 C22
    Date: 2021–11
  19. By: Vasilev, Aleksandar
    Abstract: This paper analyzes the macroeconomic effects of fluctuations in the marginal tax rates of consumption and income. To this end, stochastic tax rates are introduced as in Braun (1992), into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of stochastic taxation is investigated for the stabilization of cyclical fluctuations in Bulgaria. The quantitative effect of such shocks to the marginal tax rates is found to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles,stochastic consumption and income taxes
    JEL: E32
    Date: 2021
  20. By: Frédérique Savignac; Erwan Gautier; Yuriy Gorodnichenko; Olivier Coibion
    Abstract: Using a new survey of firms’ inflation expectations in France, we provide novel evidence about the measurement and formation of inflation expectations on the part of firms. First, French firms report inflation expectations with a smaller, but still positive, bias than households and display less disagreement. Second, we characterize the extent and manner in which the wording of questions matters for the measurement of firms’ inflation expectations. Third, we document whether and how the position of the respondent within the firm affects the provided responses. Fourth, because our survey measures firms’ expectations about aggregate and firm-level wage growth along with their inflation expectations, we are able to show that expectations about wages are even more condensed than firms’ inflation expectations and almost completely uncorrelated with them, indicating that firms perceive little link between price and wage inflation. Finally, an experimental treatment indicates that an exogenous change in firms’ inflation expectations has no effect on their aggregate wage expectations.
    Keywords: Inflation Expectations, Firms, Survey, Wages.
    JEL: E3 E4 E5
    Date: 2021
  21. By: Hayo, Bernd
    JEL: E58 E71 D31 Z1
    Date: 2021
  22. By: Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    Abstract: The Covid-19 pandemic shocks are an important source of uncertainty on several dimensions. These shocks influence the landscape, in which policymakers operates, and create further uncertainty on policy decisions and on their effectiveness. The aim of this paper is to offer some relative measures of the pandemic uncertainty, and to discuss the impact of this uncertainty on the possible evolution of European economies during the second wave of Covid-19. The emphasis is on the effectiveness of the policies implemented.
    Keywords: Covid19; Central banking; Recessions
    JEL: E32 E58 E65
    Date: 2021–10
  23. By: Fabrice Dabiré (Université de Sherbrooke); Hashmat Khan (Carleton University); Patrick Richard (Université de Sherbrooke); Jean-François Rouillard (Université de Sherbrooke)
    Abstract: We estimate the effects of government spending on GDP in Canada using the sign restrictions approach with quarterly data that spans from 1961 to 2019. The variables that enter our vector autoregressive model are carefully chosen to reflect the distinct characteristics of the economy, in particular, its linkages with US business cycles. We find large multipliers that are above 2 on impact and in the long-run. They are not specific to the state of the economy. Moreover, neither net exports and real exchange rates nor terms-of-trade respond significantly to the government spending shock. Hence, we explore two channels that involve specific closed-economy characteristics of Canada to explain the size of the multipliers. First, the production of public goods in Canada features a much larger labour share than the production of private goods. Second, we argue that the level of public capital relative to its GDP is suboptimal. Based on a general equilibrium model, we show and explain how these two characteristics matter for the multipliers.
    Keywords: government spending multipliers, sign restrictions, Canadian economy
    JEL: E32 E62 C51
    Date: 2021–10
  24. By: Mikhail Dmitriev (Department of Economics, Florida State University); Manoj Atolia (Department of Economics, Florida State University)
    Abstract: We propose a universal and straightforward test for validating assumptions in the structural models. Structural models impose a causal structure, take data as an input, and then produce exact structural parameters. We simulate the new data while breaking the original causal structure. We then feed the model the simulated data and then see whether it produces different results. If its conclusions are the same, then the models’ implications are not sensitive to the underlying data, and the model fails the test. We then apply our test to the models analyzing monetary policy. We find out that simple SVARs successfully pass the test and can be used to identify monetary policy effects. On the other hand, DSGE models estimated via full-information methods such as Smets and Wouters (2007) fail the test and potentially force their conclusions on the data.
    Keywords: VARs, SVARs, DSGE, monetary policy
    JEL: C68 E44 E61
    Date: 2021–10
  25. By: Jorge Escolar (Banco de España); José Ramón Yribarren (Banco de España)
    Abstract: In March and April 2020, the European Central Bank adopted a series of monetary policy measures aimed at providing liquidity support to the financial system and facilitating access to financing for the real economy to mitigate the adverse economic effects of COVID-19. Some of these measures focused on preserving and expanding the universe of assets that counterparties can use as collateral to participate in Eurosystem financing operations. This paper, after a brief summary of the collateral framework for monetary policy operations, studies the measures adopted in this connection by the European Central Bank and the Banco de España and their impact on Spanish counterparties. This study finds that, in overall terms, two measures stand out over the others in terms of the amount of collateral provided: the acceptance of partially government-guaranteed credit claims and the reduction in haircuts. Although all counterparties have been affected by the measures, the extent of the impact has differed widely, determined by the characteristics of the assets used as collateral and their management. Finally, the interaction between the different measures is analysed, since more than one can affect the eligibility and valuation of the same asset.
    Keywords: European Central Bank, Eurosystem, collateral, monetary policy, counterpartie.
    JEL: E42 E52 E58 G21 G32
    Date: 2021–10
  26. By: Xin Sheng (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom); Hardik A. Marfatia (Department of Economics, Northeastern Illinois University, 5500 N St Louis Ave, BBH 344G, Chicago, IL 60625, USA); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: This paper investigates the effects of oil supply, oil-specific consumption demand, oil inventory demand shocks, and global economic activity shocks on state-level tradable and non-tradable inflation in the US. We estimate both linear and non-linear impulse responses using a lag-augmented local projections model in a panel context. Our results from a linear model show that both supply and demand-side oil shocks have a statistically significant impact on both types of inflation. While supply, global economic activity, and demand shocks have a greater impact on tradable inflation, non-tradable inflation responds more strongly to inventory shocks. Further, the non-linear model results provide evidence of heterogeneity in the magnitude and persistence of impact between high- and low-oil dependence regimes. Non-tradable inflation is more sensitive to nearly all components of oil price shocks in the high-oil dependence regime.
    Keywords: Phillips curve, Structural oil shocks, State-level inflation, Local projection method
    JEL: E31 E32 Q43
    Date: 2021–10
  27. By: Matthias Kaldorf (University of Cologne, Center for Macroeconomic Research); Florian Wicknig (University of Cologne, Center for Macroeconomic Research)
    Abstract: This paper studies how collateral premia affect the supply and quality of bonds issued by non-financial firms. Banks increase demand for bonds eligible as collateral, to which eligible firms respond by increasing their debt issuance and default risk. We characterize firm responses and aggregate collateral supply in a heterogeneous firm model with collat-eral premia and endogenous default risk. Using a calibration to euro area data, we study the impact of collateral easing, consistent with the ECB’s policy during the 2008 financial crisis and evaluate the quantitative relevance of firm responses. We find that firm responses substantially deteriorate collateral quality and dampen the total increase in collateral sup-ply. Our analysis suggests that an eligibility covenant conditioning eligibility on leverage and current default risk, is a potentially powerful instrument to mitigate the adverse impact of eligibility requirements on collateral quality while maintaining a high level of collateral supply.
    Keywords: Eligibility Premia, Corporate Bonds, Firm Heterogeneity, Collateral Policy
    JEL: E44 E58 G12 G32 G33
    Date: 2021–10
  28. By: Fernando Alvarez; Andrea Ferrara; Erwan Gautier; Hervé Le Bihan; Francesco Lippi
    Abstract: In a broad class of sticky price models the non-neutrality of nominal shocks is encoded by a simple sufficient statistic: the ratio of the kurtosis of the size-distribution of price changes over the frequency of price changes. We test this theoretical prediction using data for a large number of firms representative of the French economy. We use the micro data to measure the cross sectional moments, including kurtosis and frequency, for about 120 PPI industries and 220 CPI categories. We use a Factor Augmented VAR to measure the sectoral responses to a monetary shock, as summarized by the cumulative impulse response of sectoral prices (CIRP), under three alternative identification schemes. The estimated CIRP correlates with the kurtosis and the frequency consistently with the prediction of the theory - i.e. they enter the relationship as a ratio. The analysis also shows that other moments not suggested by the theory, such as the mean, standard deviation and skewness of the size-distribution of price changes, are not correlated with the CIRP. Several robustness checks are explored.
    Keywords: Impulse Response Function, Monetary Shocks, Sticky Prices, Sufficient Statistic.
    JEL: E31 E52
    Date: 2021
  29. By: Selen Andýc; Michael Christopher Burda
    Abstract: It is widely acknowledged that a secular decline in the labor share has been underway around the world since the early 1980s. We document a sustained break in this trend following the global financial crisis. This holds for a majority of countries and is robust to different methods, measurements and aggregation procedures. When grouped by level of development, labor shares have stabilized in advanced and risen in developing economies since 2008. A novel application of the standard neoclassical growth model links this differential evolution to stronger increases in the growth of capital-output ratios in developing relative to advanced economies.
    Keywords: Labor income share, Functional income distribution, Capital-output ratio, Capital-labor ratio
    JEL: E22 E25 O11
    Date: 2021
  30. By: Luisa Corrado (DEF and CEIS, Università di Roma "Tor Vergata"); Stefano Grassi (DEF and CEIS, Università di Roma "Tor Vergata"); Enrico Minnella (Università di Roma "Tor Vergata")
    Abstract: This article assesses the impact of unconventional monetary policies and sheds light on their transmission mechanism in the United States. Using a three-variable Markov switching factor-augmented vector autoregression (MS-FAVAR) with time-varying transition probabilities and a shadow short-term interest rate, we allow our analysis to be free from arbitrary policy rate decisions and sample-splitting choices. By augmenting our informational set with variables able to grasp the functioning of Quantitative Easing, we can determine the differences between conventional and unconventional expansionary monetary policy shocks. Our results show a leading role for both the duration risk and the credit channels, a role for the default risk channel, and ultimately no evidence of the presence of a signaling channel during Quantitative Easing. We provide evidence that the large-scale asset purchase programs of the Federal Reserve effectively boosted the economy, mainly by modifying the term structure of the interest rates, thus providing strong economic stimulus throughout the financial sector.
    Keywords: Monetary Policy; Financial Crisis; Structural analysis; Non-linear FAVAR
    JEL: C54 E52 G01
    Date: 2021–10–21
  31. By: Hein, Eckhard; Jimenez, Valeria
    Abstract: This paper tries to clarify some important aspects around the zero-growth discussion. Starting from an accounting perspective, we analyse the implications of zero growth and clarify the stability conditions of such an economy. This is complemented with a monetary circuit approach - which, like any model, has to respect the national income and financial accounting conventions. The latter allows us to show that a stationary economy, i.e an economy with zero net investment, is compatible with positive profits and interest rates. It is also argued that a stationary economy does not generate systemic financial instability, in the sense of rising or falling financial assets- or financial liabilities-income ratios, if the financial balances of each macroeconomic sector are zero. In order to analyse the dynamic stability of such an economy, we make use of an autonomous demand-led growth model driven by government expenditures. We show that a stable stationary state with zero growth, positive profits, and a positive interest rate is possible. However, the stable adjustment of government expenditure-capital and government debt-capital ratios to their long-run equilibrium values requires specific maxima for the propensity to consume out wealth and for the rate of interest, assuming a balanced government budget and zero retained earnings of the firm sector.
    Keywords: Ecological macroeconomics,post-Keynesian economics,stationary-state economics,growth imperative
    JEL: Q01 O44 P10
    Date: 2021
  32. By: Juan C. Méndez-Vizcaíno; Alexander Guarin; César Anzola-Bravo; Anderson Grajales-Olarte
    Abstract: Since July 2021, Banco de la República strengthened its forecasting process and communication instruments, by involving predictive densities in the projections of its models, PATACON and 4GM. This paper presents the main theoretical and empirical elements of the predictive density approach for macroeconomic forecasting. This model-based methodology allows to characterize the balance of risks of the economy, and to quantify their effects through a joint probability distribution of forecasts. We estimate this distribution based on the simulation of DSGE models, preserving the general equilibrium relationships and their macroeconomic consistency. We also illustrate the technical criteria used to represent prospective factors of risk through the probability distributions of shocks. **** RESUMEN: Desde julio de 2021, el Banco de la República fortaleció su proceso de pronóstico y sus instrumentos de comunicación al incorporar densidades predictivas en las proyecciones de sus modelos, PATACON y 4GM. Este artículo presenta los principales elementos teóricos y empíricos del enfoque de densidad predictiva para los pronósticos macroeconómicos. Esta metodología basada en modelos permite caracterizar el balance de riesgos de la economía y cuantificar sus efectos mediante una distribución de probabilidad conjunta de los pronósticos. Esta distribución se estima mediante la simulación de los modelos DSGE, preservando las relaciones de equilibrio general y la coherencia macroeconómica. También se ilustran los criterios técnicos utilizados para representar los factores de riesgo prospectivos a través de las distribuciones de probabilidad de los choques.
    Keywords: Macroeconomic forecasts, balance of risks, uncertainty, Bayesian forecasting, monetary policy models, Pronósticos macroeconómicos, balance de riesgos, incertidumbre, pronósticos bayesianos, modelos de política monetaria
    JEL: C11 C53 E17 E52
    Date: 2021–10
  33. By: Enders, Zeno; Vespermann, David
    JEL: F45 F44 E32
    Date: 2021
  34. By: Sónia Félix; Sudipto Karmakar; Petr Sedlácek
    Abstract: Are serial entrepreneurs – owners of multiple firms – important for understanding the sources and aggregate consequences of business dynamism? Using unique administrative data, we show that – compared to other businesses – firms of serial entrepreneurs are larger, more productive, grow faster, exit less often and disproportionately contribute to aggregate job creation and productivity growth. Moreover, even the very first firms of serial entrepreneurs feature these “premia”, suggesting an important role of innate abilities, rather than luck or learning. Finally, we show theoretically and quantitatively that serial entrepreneurship is also important for understanding and modelling of top income inequality.
    JEL: D22 E24 L1
    Date: 2021
  35. By: Jungmann, Benjamin
    Abstract: This paper contributes to the ongoing growth models (GMs) debate by investigating the growth drivers of emerging capitalist economies (ECEs) in the periods before (2000-2008) and after (2009-2019) the Global Financial Crisis (GFC). By drawing mostly on post-Keynesian economics, six growth drivers are considered: Finance, i.e., household debt; changes in income distribution; price and non-price competitiveness, as well as commodity prices; and finally, fiscal policy. By conducting crosscountry simple and multiple linear regressions to explain the growth of 19 ECEs in both periods, we find that post-GFC growth was driven by non-price factors while price competitiveness played a role in neither period. Likewise, commodity prices did not drive growth either. In terms of distribution, our results indicate that cross-country growth was driven by rising income inequality in both periods; however, this relation lacks significance. In the post-crisis period, growth was associated with rising profit shares. While this relation also lacks significance, it has to be assessed against various possibilities for seemingly profit-led growth. Finally, with household debt accelerating and fiscal policy becoming more expansionary after the crisis, our results indicate a potentially more prominent role for these factors in driving post-crisis growth, however, this finding lacks robustness. We argue that the sparse robust findings result from ECEs' heterogeneity, particularly in terms of their growth models and subordinated financialization.
    Keywords: growth model,growth driver,financialization,emerging capitalist economies,post-Keynesian economics
    JEL: E11 E12 E65 F62 F65
    Date: 2021
  36. By: Roman Frydman (New York University); Joshua Stillwagon (Babson College)
    Abstract: We develop a novel characterization of participants` forecasts with a mixture of normal variables arising from a Markov component. Using this characterization, we formulate five behavioral specifications, including four implied by the diagnostic expectations approach, as well as three implied by REH, and derive several new predictions for Coibion and Gorodnichenko`s regression of forecast errors on forecast revisions. Predictions of all eight specifications are inconsistent with the observed instability of individual CG regressions` coefficients, based on inflation forecasts from 24 professionals. Our findings suggest how to build on key insights of the REH and behavioral approaches in specifying individuals` forecasts.
    Keywords: Diagnostic Expectations, Rational Expectations, Model Selection, Structural Change, Inflation Forecasts` Survey
    JEL: C52 D80 D83 D91 E31 E71
    Date: 2021–09–01
  37. By: Hernán Rincón-Castro; Pedro Rubiano-López; Lisseth Yaya-Garzón; Héctor M. Zárate-Solano
    Abstract: Cuánto de las variaciones de la tasa de cambio se traspasa a la inflación es una pregunta de principal interés para la autoridad monetaria, los inversionistas, el sector real y el mismo gobierno. Este documento estima el grado de traspaso de choques de la tasa de cambio del peso sobre la inflación básica en Colombia para cuatro momentos cambiarios críticos que enfrentó la economía: crisis internacional de las (2002), profundización de la crisis financiera internacional ante la quiebra de Lehman-Brothers (2008), colapso del precio internacional del petróleo (2014) y explosión mundial de la pandemia de la Covid-19 (2020). Para lograr el objetivo se utiliza información trimestral del período 2000 a 2020 y un modelo de vectores autorregresivos con parámetros cambiantes estimado por métodos Bayesianos. Los resultados indican que, primero, el grado de traspaso del choque cambiario a la inflación depende del choque y del tiempo. Segundo, un choque de 1% de la tasa de cambio del peso tuvo un traspaso máximo de 0,05% a la inflación básica en la destorcida del precio internacional del petróleo de 2014, de 0,03% en la crisis de las, de 0,02% en la quiebra de Lehman-Brothers y de 0,01% en el estallido de la pandemia del COVID-19. **** ABSTRACT: How much of the changes in the exchange rate is passed through to inflation is a question of main interest to the monetary authority, investors, the real sector, and the government itself. This document estimates the degree of pass-through of shocks from the peso exchange rate to core inflation in Colombia for four critical exchange moments faced by the economy: the international crisis (2002), the deepening of the international financial crisis in the face of the Lehman-Brothers bankruptcy (2008), the international oil price collapse (2014) and the global explosion of the Covid-19 pandemic (2020). To achieve the objective, quarterly information from the period 2000 to 2020 and Bayesian estimates of an autoregressive vector model with changing parameters are used. The results indicate, first, that the degree of pass-through from the exchange shock to inflation depends on the shock and changes over time. Second, a 1% shock to the peso exchange rate passed through 0.05% to core inflation in the detorsion of the international oil price of 2014, 0.03% in the crisis, 0,02% in the bankruptcy of Lehman-Brothers and 0.01% in the outbreak of the COVID-19 pandemic.
    Keywords: Choque de la tasa de cambio del peso, inflación básica, grado de traspaso o pass-through, modelo TPV-VAR-SV, Shock to the exchange rate of the peso, core inflation, degree of pass-through, TPV-VAR-SV model.
    JEL: C15 C52 E31 E52 F31
    Date: 2021–10
  38. By: Li, Xiaoming; Liu, Zheng; Peng, Yuchao; Xu, Zhiwei
    Abstract: We study the impact of China’s 2013 implementation of Basel III on bank risk-taking and its responses to monetary policy shocks using confidential loan-level data from a large Chinese bank. Guided by theory, we use a difference-in-difference identification, exploiting cross-sectional differences in lending behaviors between high-risk and low-risk bank branches before and after the new regulations. We find that, through a risk-weighting channel, changes in regulations significantly reduced bank risk-taking, both on average and conditional on monetary policy easing. However, banks reduce risk-taking by increasing lending to ostensibly low-risk state-owned enterprises (SOEs) under government guarantees, despite their low average productivity.
    JEL: E52 G21 G28
    Date: 2021–10–29
  39. By: Stéphane Auray (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Aurélien Eyquem (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique, CREM - Centre de recherche en économie et management - CNRS - Centre National de la Recherche Scientifique - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - UNICAEN - Université de Caen Normandie - NU - Normandie Université, GREDI - Groupe de recherche en économie et développement international [Sherbrooke] - UdeS - Université de Sherbrooke)
    Abstract: A tractable incomplete-market model with unemployment, sticky prices, and a fiscal side is used to quantify the macroeconomic effects of lockdown policies and the miti-gating effects of raising government spending and implementing UI benefit extensions. We find that the effects of lockdown policies, although we are relatively conservative about the size of the lockdown, are huge: unemployment doubles on impact and al-most triples even for relatively short lockdown durations. Output falls dramatically and debt-output ratios increase by several tens of percentage points. In addition, the surge in unemployment risk triggers a rise in precautionary savings that make such shocks Keynesian supply shocks: aggregate demand falls by more than aggregate supply, and lockdown policies are deflationary. Unfortunately, we find that raising public spending and extending UI benefits stimulate aggregate demand or improve risk-sharing but has little effects on output and unemployment, although they do alleviate the welfare losses of lockdown policies for the households.
    Keywords: Lockdown,Unemployment,Borrowing constraints,Incomplete markets,Government spending,Unemployment insurance
    Date: 2020–04–16
  40. By: Riccardo Degasperi; Seokki Simon Hong; Giovanni Ricco (Departement of Economics - University of Warwick - University of Warwick [Coventry])
    Abstract: We quantify global US monetary policy spillovers by employing a high-frequency identification and big data techniques, in conjunction with a large harmonised dataset covering 30 economies. We report three novel stylised facts. First, a US monetary policy tightening has large contractionary effects onto both advanced and emerging economies. Second, flexible exchange rates cannot fully insulate domestic economies, due to movements in risk premia that limit central banks' ability to control the yield curve. Third, financial channels dominate over demand and exchange rate channels in the transmission to real variables, while the transmission via oil and commodity prices determines nominal spillovers.
    Keywords: monetary policy,trilemma,exchange rates,monetary policy spillovers
    Date: 2021
  41. By: Atsuko Suzuki (Graduate School of Economics, Osaka University)
    Abstract: The Tokugawa monetary system was a new experience in Japanese history, and the Genroku debasement, which was necessitated by the exhaustion of gold and silver resources, was a new experiment for both the shogunate and merchants, the representatives of the townspeople. For the same reason, the shogunate had no choice but to implement a monetary policy gnominalistically, h but the merchants responded gmetallistically. h This was because the merchants valued money as bullion. The conflict between the shogunate and merchants played an important role in invigorating the Tokugawa economy. This study describes the historical economic situation.
    Keywords: commodity money, early modern Japan, fixed and floating exchange rates, Edo and Osaka, nominalistic and metallistic
    JEL: D46 E31 K42 N15 Z13
    Date: 2021–11
  42. By: Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Mehdi El Herradi (Université Bordeaux Montaigne)
    Abstract: This paper examines the distributional implications of monetary policy, either standard, non-standard or both, on income inequality in 10 Euro Area countries over the period 2000-2015. We use three different indicators of income inequality in a Panel VAR setting in order to estimate IRFs of inequality to a monetary policy shock. The identification of monetary shocks follows a one-step procedure and relies only on country-specific determinants of income distribution. Results suggest that: (i) the distributional effects of ECB's monetary policy have been modest and (ii) mainly driven in times of conventional monetary policy measures, especially in countries with a high level of market inequalities, while, overall, (iii) standard and non-standard monetary policies do not significantly differ in terms of impact on income inequality. Results are robust to alternative data sources either for income distribution or for non-standard monetary policies.
    Keywords: Euro Area,Monetary policy,Income distribution,Panel VAR
    Date: 2020–06–01
  43. By: Yayi Yan; Jiti Gao; Bin Peng
    Abstract: Vector autoregressive (VAR) models are widely used in practical studies, e.g., forecasting, modelling policy transmission mechanism, and measuring connection of economic agents. To better capture the dynamics, this paper introduces a new class of time-varying VAR models in which the coefficients and covariance matrix of the error innovations are allowed to change smoothly over time. Accordingly, we establish a set of theories, including the impulse responses analyses subject to both of the short-run timing and the long-run restrictions, an information criterion to select the optimal lag, and a Wald-type test to determine the constant coefficients. Simulation studies are conducted to evaluate the theoretical findings. Finally, we demonstrate the empirical relevance and usefulness of the proposed methods through an application to the transmission mechanism of U.S. monetary policy.
    Keywords: multivariate dynamic time series, time-varying impulse response, testing for parameter stability
    JEL: C14 C32 E52
    Date: 2021
  44. By: Sébastien Charles (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis); Eduardo Bastian; Jonathan Marie (CEPN - Centre d'Economie de l'Université Paris Nord - CNRS - Centre National de la Recherche Scientifique - USPC - Université Sorbonne Paris Cité - UP13 - Université Paris 13)
    Abstract: The article proposes a typology of inflation regimes that can be applied to any kind of economy based on the Post-Keynesian and structuralist literature. We identify three separate regimes: the low, moderate, and high inflation regimes. Hyperinflation is also defined and described. Each regime presents different characteristics. We identify the key role played by the distributive conflict between workers and capitalists in all the regimes, the role played by the indexation of wages on domestic prices in the moderate and high inflation regimes, and the specific roles played by the widespread indexation on a short term basis in the high inflation regime. Hyperinflation is explained by selffulfilling prophecies about exchange rate variations and by the rejection of the domestic currency. Our analysis underlines the fact that the current fear of inflation is largely groundless.
    Keywords: Inflation,Hyperinflation,Post-Keynesian analysis,Structuralist analysis
    Date: 2021–10–03
  45. By: Hadrien Camatte; Guillaume Daudin (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Violaine Faubert; Antoine Lalliard; Christine Rifflart (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: Following the 2008 financial crisis, inflation rates in advanced economies have been at odds with the prediction of a standard Phillips curve. This puzzle has triggered a debate on the global determinants of domestic prices. We contribute to this debate by investigating the impact of exchange rate shocks on consumer prices from 1995 to 2018. We focus on cost-push inflation through global value chains. We build on three sectoral world input-output datasets (WIOD and two versions of TiVA). We assume a Cobb-Douglas production framework and work in a partial equilibrium setting. The construction of World Input-Output tables is data-demanding and WIOTs are typically released with a lag of several years. To address this gap, we use more up-to-date GDP and trade data, thus providing a tool for approximating the partial equilibrium impact of an exchange rate shock on consumer prices from 2015 onwards. Depending on countries, the absolute value of the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate ranges from 0.05 to 0.35, confirming the importance of global value chains in channelling external shocks to domestic inflation. Using data from WIOD on a sample of 43 countries, we find that the mean output-weighted elasticity of the HCE deflator to the exchange rate increased in absolute value from 0.075 in 2000 to 0.094 in 2008. After peaking in 2008, it declined to 0.088 in 2014. Extrapolations based on more up-to-date GDP and trade data suggest that the decline continued until 2016, before reversing in 2017 and 2018. Our findings are robust to using three different datasets.
    Keywords: input-output linkages,spillovers,global value chains,cost-push inflation
    Date: 2021
  46. By: Annette Vissing-Jørgensen
    Abstract: Treasury yields spiked during the initial phase of COVID. The 10-year yield increased by 64 bps from March 9 to 18, 2020, leading the Federal Reserve to purchase $1T of Treasuries in 2020Q1. Fed Treasury purchases were causal for reducing Treasury yields based on (1) the timing of purchases (which increased on March 19), (2) evidence against confounding factors, and (3) the timing of yield reversal and Fed purchases in the MBS market. Treasury-QE worked more via purchases than announcements. The yield spike was driven by liquidity needs of mutual funds, foreign official agencies, and hedge funds that were unaffected by the March 15, 2020 Treasury-QE announcement.
    JEL: E5 G1
    Date: 2021–10
  47. By: Michael Brei; Blaise Gadanecz
    Abstract: This paper investigates whether the presence of inter-agency coordination bodies for financial stability (IABs) has been associated with faster prudential policy responses to the Covid-19 pandemic. Using econometric analysis, we provide evidence that countries with IABs have enacted microprudential measures more quickly than countries without. This is not the case for macroprudential measures for which we find that IABs have been associated with slower responses. We conclude that IABs may have been useful as catalysts for the deployment of microprudential tools for macroprudential purposes.
    JEL: D02 D78 E58
    Date: 2021–10
  48. By: Morales, Paola; Osorio, Daniel; Lemus, Juan S.; Sarmiento Paipilla, Miguel (Tilburg University, Center For Economic Research)
    Keywords: Bank-lending channel; internationalization of banks; banks’ business models; bank risk-taking; macroprudential FX regulation
    Date: 2021
  49. By: Olga Francová (ESM); Ermal Hitaj (ESM); John Goossen (ESM); Robert Kraemer (ESM); Andreja Lenarčič (IMF); Georgios Palaiodimos (Bank of Greece)
    Abstract: This paper discusses the EU fiscal framework reform. It reviews the EU fiscal governance history and reforms, and identifies key challenges. It then takes stock of reform proposals made so far, and finally formulates a reform idea that reconciles the post-pandemic macroeconomic context with existing contributions by leading economists and institutions.
    Date: 2021–10–25
  50. By: Elisa Palagi; Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Andrea Roventini (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Jean-Luc Gaffard (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: We build an agent-based model to study how coordination failures, credit constraints and unequal access to investment opportunities affect inequality and aggregate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each house- hold is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redistribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effects on inequality.
    Keywords: income inequality,social mobility,credit constraints,coordination failures,effective demand,trickle-up growth,fiscal policy
    Date: 2021
  51. By: Antonin Aviat; Frédérique Bec; Claude Diebolt; Catherine Doz; Denis Ferrand; Laurent Ferrara; Eric Heyer (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Valérie Mignon; Pierre-Alain Pionnier
    Abstract: This paper proposes a reference quarterly dating for periods of expansion and recession in France since 1970, carried out by the Dating Committee of the French Economic Association (AFSE). The methodology used is based on two pillars: (i) econometric estimations from various key data to identify candidate periods, and (ii) a narrative approach that describes the economic background that prevailed at that time to finalize the dating chronology. Starting from 1970, the committee has identified four economic recession periods: the two oil shocks 1974-75 and 1980, the investment cycle of 1992-93, and the Great Recession 2008-09 spawned by the Global Financial Crisis. The peak before the Covid-19 recession has been dated to the last quarter of 2019.
    Keywords: business cycles,French economy,dating,narrative approach,econometric modeling
    Date: 2021
  52. By: Kangasharju, Aki; Ali-Yrkkö, Jyrki; Koski, Heli; Kuusi, Tero
    Abstract: Abstract This report discusses factors that have caused a decrease in tangible investments in machinery and equipment, and intangible assets in Finland. A decline in the R&D investments of the electronics industry practically entirely explains a decrease in investments in Finland, which has prolonged the recovery from the collapse of productivity growth during the financial crisis. The corporate sector, which accounts for most investments, also contracted so much during the financial crisis relative to the rest of the economy that the aggregate productive investments remained lower than before. Companies’ investments in relation to their value added did not decrease, however. The main reason for the collapse of the electrotechnical industry is the loss of the Symbian mobile phone operating system in global competition. Together with that, profitability collapsed, and no new R&D investment opportunities of a similar size were found. However, companies should not avoid competition, and instead, the competitive environment, in general, acts as an investment incentive for companies. Developments in the 2010s also highlight the importance of international competition and international trade agreements. The decline in the working-age population that began at the same time as zero growth does not explain the collapse in investments, but it has to do with their slow recovery.
    Keywords: Investments, Competition, Competitiveness, Structural change, Population ageing
    JEL: E22 L16 O52 P45
    Date: 2021–11–01
  53. By: Kraft, Kornelius; Lammers, Alexander
    JEL: D04 E25 J51
    Date: 2021
  54. By: Brödner, Romy (DBFZ Deutsches Biomasseforschungszentrum gemeinnützige GmbH); Graffenberger, Martin (DBFZ Deutsches Biomasseforschungszentrum gemeinnützige GmbH); Kropp, Per (Institute for Employment Research (IAB), Nuremberg, Germany); Sujata, Uwe (Institute for Employment Research (IAB), Nuremberg, Germany)
    Abstract: "The upcoming structural change in Lusatia, Central Germany and the Rhineland in the context of the coal phase-out offers the opportunity to develop attractive, bioeconomic business locations. This study analyzes the status quo and the development of the bioeconomy in the three active German lignite mining regions. The employment structures of the bioeconomy are evaluated and regional bioeconomy industries with specific potential are identified. Overall, about 10 percent of all employees in the regions can be directly attributed to the bioeconomy. Employment within the bioeconomy has developed dynamically in recent years. The proportion of skilled workers, including those with industrial and technical backgrounds, is comparatively high in the bioeconomy. Hence, opportunities for qualified employees of the coal industry also exist within the developing bioeconomy. Furthermore, the identified bioeconomy industries already indicate a balanced structure of the bioeconomic in the regions. Accordingly, a regionally sensitive, strategic promotion of the bioeconomy can strengthen innovation capacity and competitiveness of the regions, secure/generate employment and generally contribute to sustainable development." (Author's abstract, IAB-Doku) ((en))
    JEL: E24 J21 Q57
    Date: 2021–10–25
  55. By: Herr, Hansjörg
    Abstract: An economy with a stable medium-term growth rate of zero - or any other politically determined growth rate - needs new regulations and institutions to realise this target. Such an economy would look very different compared with the existing type of capitalism we have today in the Global North. In the existing capitalist system, investment demand as well as autonomous demand elements like government demand, export demand or autonomous consumption demand drive the dynamic of GDP and the whole economic system. In a zero growth economy the different demand aggregates are determined by economic policy including heavy intervention in income and wealth distribution and the direction of technological development. Whether such an alternative system is understood as a version of highly regulated capitalism or as a new system is a question of taste.
    Keywords: Transformation of capitalism,economic systems,zero growth
    JEL: B20 B52 P41
    Date: 2021
  56. By: William D. Larson (Federal Housing Finance Agency)
    Abstract: This paper introduces summary measures of credit risk for the stock of all outstanding mortgages in the United States for each quarter between 1999 and 2019. Mortgage terminations play a fundamental role in offsetting risk introduced by the flow of new originations because of refinance activity and the often dual nature of home buyers as concurrent sellers. To illustrate these concepts in a policy setting, I show the Home Affordable Refinance Program increased origination risk metrics but reduced overall risk due to the associated terminations of even riskier loans. Generally, book-level risk tends to lag behind originations: while origination risk peaked in 2006, the risk of outstanding mortgages peaked in 2007, and while origination risk bottomed out in 2011 and has been rising since, book-level risk continued its downward trend in 2019. Other results highlight previously rarely-examined market segments, including credit unions, the Federal Home Loan Bank system, and loans guaranteed by the Farm Service Agency/Rural Housing Service.
    Keywords: mortgage risk, systemic risk, housing cycles, stress test
    JEL: E32 G21 G28 H22 R31
    Date: 2021–10
  57. By: Paulo M.M. Rodrigues; Pedro Portugal; Anabela Carneiro; Pedro Raposo
    Abstract: This paper provides comprehensive and detailed empirical regression analyses of the sources of wage persistence. Exploring a rich matched employer-employee data set and the estimation of a dynamic panel wage equation with high-dimensional fixed effects, our empirical results show that permanent unobserved heterogeneity plays a key role in driving wage dynamics. The decomposition of the omitted variable bias indicates that the most important source of bias is the persistence of worker characteristics, followed by the heterogeneity of firms’ wage policy and last by the job-match quality. We highlight the importance of the incidental parameter problem, which induces a severe downward bias in the autoregressive parameter estimate, through both an in-depth Monte Carlo study and an empirical analysis. Using three alternative bias correction methods (the split-panel Jackknife (Dhaene and Jochmans, 2015), an analytical expression (Hahn and Kuersteiner, 2002), and a residual based bootstrap approach (Everaert and Pozzi, 2007, Gonçalves and Kaffo, 2015)), we observe that up to one-third of the reduction of the autoregressive parameter estimates induced by the control of permanent heterogeneity (high dimensional fixed effects) may not be justified.
    JEL: E24 J31 J63 J65
    Date: 2021
  58. By: Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: Numerical simulations of fiscal space in the euro area, based on 12 different situations, point to the large uncertainty surrounding the capacity of Member States to pay back their public debts. Debt sustainability appears to depend crucially on long-term nominal interest rate being lower than nominal growth for a long period. Only in this case do major European countries experience some additional fiscal space. Although the analytics behind this exercise is common knowledge among macroeconomists, it gives an order of the magnitude of fiscal space in the euro area and it confirms that interactions between the ECB and governments are key to escape the public finances consequences of an exogenous global shock like Covid-19.
    Keywords: Fiscal policy,Public debt,Fiscal deficit,Covid-19
    Date: 2020–05–01
  59. By: Corey Allan (Ministry of Business, Innovation & Employment); David C Maré (Motu Economic and Public Policy Research)
    Abstract: We study the extent to which firm financial performance is passed on to workers in the form of higher wages and the degree to which this pass-through has changed over the period 2002-2018. We use both value added per worker and a measure of quasi-rents as measures of financial performance. Value added per worker is the standard measure used internationally. Quasi-rents better approximate the resources available to be shared between workers and firms as it takes into account the rental cost of capital as well as the reservation wages of workers. We estimate the reservation wage bill for each firm using estimates from a two-way fixed-effect model. We estimate models similar to those typically used in the international literature and further decompose the estimated pass-through into the contribution from worker sorting and the contribution from rent-sharing. Our instrumental variables estimates of pass-through are in the range of 0.12 and 0.19 for value added and 0.11 and 0.07 for quasi-rents. Worker sorting explains between 35% and 50% of pass-through. While the extent of overall pass-through is relatively stable over time, the contribution of worker sorting declines dramatically to explain almost none of the estimated pass-through. We contribute to the literature by demonstrating a method to calculate quasi-rents, by testing for changes over time in pass-through, and examining the relative importance of worker sorting over time.
    Keywords: Wage determination, Rent sharing, Worker sorting
    JEL: J31 J71 E25 D22
    Date: 2021–11
  60. By: A. Mantovi
    Abstract: The Bitcoin selection rule shapes the basic mining (rent-seeking) competition, whose unique Nash equilibrium has been thoroughly investigated in terms of best responses to the overall scale of activity and entry thresholds. It is the aim of the present contribution to deepen such game theoretic aspects of Proof-of-Work and provide a unifying perspective on approaches employing absolute and relative levels of activity, and envision a ‘map’ of strategic space that may frame and cross-fertilize more realistic refinements of mining competition and blockchain phenomenology. The additive aggragation property of the selection rule has pivotal implications for thorough investigations of best response dynamics. Potential lines of progress are briefly sketched.
    Keywords: Blockchain; Proof-of-Work; Rent Seeking; Nash Equilibrium; Additive Aggregation;Best Response Dynamics
    JEL: C72 D82 E42 O33
    Date: 2021
  61. By: Xavier Timbeau (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Elliot Aurissergues; Eric Heyer (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: Nous proposons une définition de la soutenabilité de la dette publique basée sur la possibilité de conduire un effort fiscal ou de supporter une trajectoire macroéconomique qui permet d'atteindre une cible de dette publique à un horizon donné. L'effort fiscal comme la trajectoire sont des notions spéculatives parce qu'elles reposent sur l'anticipation de futurs inconnus. En explicitant les paramètres de ces futurs et en les utilisant dans un modèle parcimonieux, on peut générer des trajectoires qui ne sont pas des prévisions mais un moyen d'apprécier l'effort à faire pour atteindre une cible conditionnellement à des hypothèses explicites. Une application web, accessible librement à, permet de réaliser les simulations, sur la France mais aussi sur les autres pays européens et certains pays extra-européens comme les États-Unis, d'en modifier les paramètres et d'échanger les hypothèses avec d'autres. Elle rend possible un calcul transparent (les hypothèses sont connues et on peut les partager), reproductible (les mêmes hypothèses conduisent aux mêmes résultats) et doit permettre d'initier un débat sur les cibles de dette publique et les efforts associés pour une sélection de pays développés. Les principaux résultats sont : ■ Pour stabiliser la dette publique à son niveau actuel, la plupart des pays développés ont des efforts à fournir. Dans le cas de la France, cet effort est entre 1,4 et de 2,6 points de PIB dans le moyen terme. La borne haute est atteinte dans l'hypothèse d'une hausse des taux d'intérêts souverains (voir tableau 1 et infra espace fiscal) ; ■ Un écart entre le taux d'intérêt souverain et la croissance plus négatif facilite l'objectif de stabilisation de la dette. Dans le cas de la France, cela permet de réduire l'effort fiscal de plus d'un point de PIB. De la même façon, la cible d'inflation, ou encore la réaction de la dette publique au taux d'intérêt, jouent de façon importante. Cela pointe l'importance de la politique monétaire mais aussi de la trajectoire des taux d'intérêt dans le monde de demain (tableau 1 et infra l'importance de r – g) ; ■ L'ampleur des effets multiplicateurs est une autre dimension essentielle de l'analyse en influençant notamment le séquençage de la consolidation budgétaire. Elle souligne la nécessité de bien apprécier la façon dont la structure des politiques budgétaires, la conjoncture ou encore la composition des revenus des ménages influent sur les multiplicateurs (infra multiplicateurs) ; ■ Une croissance plus soutenue allège le fardeau de la dette. À moyen terme, les mécanismes d'indexation des dépenses et des prélèvements viennent en limiter les effets. Dans le cas de la France, 1 point de croissance supplémentaire permet une réduction de l'effort fiscal de 2,5 points de PIB (tableau 1 et infra plus de croissance, moins d'effort fiscal).
    Keywords: dette publique,effort fiscal,simulations,application web,PIB,croissance,inflation
    Date: 2021–10–11
  62. By: Frederic Boissay; Torsten Ehlers; Leonardo Gambacorta; Hyun Song Shin
    Abstract: The business model of big techs rests on enabling direct interactions among a large number of users on digital platforms, such as in e-commerce, search and social media. An essential by-product is their large stock of user data, which they use to offer a wide range of services and exploit natural network effects, generating further user activity. Increased user activity completes the circle, as it generates yet more data. Building on the self-reinforcing nature of the data- network-activities loop, some big techs have ventured into financial services, including payments, money management, insurance and lending. The entry of big techs into finance promises efficiency gains and greater financial inclusion. At the same time, it introduces new risks associated with market power and data privacy. The nature of the new trade-off between efficiency and privacy will depend on societal preferences, and will vary across jurisdictions. This increases the need to coordinate policies both at the domestic and international level.
    JEL: E51 G23 O31
    Date: 2021–10
  63. By: Jérôme Creel (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: In this contribution, I use the Fiscal theory of the price level as a backdrop for a discussion on the risks that expansionary fiscal policies may pose on debt sustainability. I recall that a regime of fiscal dominance does not lead to macroeconomic instability. I also review a few empirical papers on fiscal sustainability and I conclude, also based upon own estimates, that it is not a major concern, at least in the short to mid-run. Finally, I argue that Europeans should continue on the fiscal impetus they contributed to in 2020 by fostering coordination and transparency on EU fiscal policies. To achieve this objective, I revisit the idea of an enhanced dialogue on fiscal matters at the European Parliament and propose to establish a Fiscal Dialogue with the EU Member States.
    Keywords: fiscal policy,public debt,fiscal governance,European Union
    Date: 2021
  64. By: Silvia Miranda-Agrippino; Giovanni Ricco (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: We propose a Bayesian approach to Local Projections that optimally addresses the empirical bias-variance tradeoff inherent in the choice between VARs and LPs. Bayesian Local Projections (BLP) regularise the LP regression models by using informative priors, thus estimating impulse response functions potentially better able to capture the properties of the data as compared to iterative VARs. In doing so, BLP preserve the flexibility of LPs to empirical model misspecification while retaining a degree of estimation uncertainty comparable to a Bayesian VAR with standard macroeconomic priors. As a regularised direct forecast, this framework is also a valuable alternative to BVARs for multivariate out-of-sample projections.
    Keywords: local projections,VARs,bayesian techniques,impulse response functions,direct forecasting
    Date: 2021
  65. By: José E. Boscá; Rafael Doménech; Javier Ferri; Camilo Ulloa
    Abstract: En este Observatorio se evalúan los factores que explican el comportamiento cíclico de la economía española entre el segundo trimestre de 2020 y el de 2021. En concreto, se estiman las principales perturbaciones estructurales que explican el crecimiento del PIB por persona en edad de trabajar (PET), el deflactor del PIB y los salarios reales. El foco se centra en el segundo trimestre de 2021 pues, al medirse las variables en términos de tasas de crecimiento interanuales, recoge el efecto sobre la suma de tasas de crecimiento intertrimestrales desde el Gran Confinamiento.
    Date: 2021–09
  66. By: Gergely Hudecz (ESM); Edmund Moshammer (ESM); Alexander Raabe (ESM); Gong Cheng (ESM)
    Abstract: The question of whether the international monetary and financial system is, or should be, moving toward a more ’multipolar’ character has received much attention in recent years. The euro is the second most important global currency, and the euro area’s economic weight lays a solid foundation for its greater role on financial markets. A stronger international role would benefit not only the euro area but also the global financial system. This paper therefore focuses on the main drivers of the euro’s international role and the policies to support it. The ongoing reforms in the European Economic and Monetary Union can support the common currency on the international scene, and there is scope for further policies that strengthen the role of the euro on international capital markets.
    Date: 2021–03–18
  67. By: Hong, T.
    Abstract: Newspaper coverage-based uncertainty measures are made popular by Baker et al. (2016), who created the Trade Policy Uncertainty (TPU) index by analyzing appearances of uncertainty-, economy-, policy- and trade-related search terms. This paper shows their set of search terms leads to systematic inaccuracies such as misclassification and omission of articles. I then construct an improved U.S. TPU index by expanding and modifying the set of search terms, and restricting attention to national newspapers. The new set of search terms uncovers 31 times more articles, and the individual newspaper-level series that aggregate up to the new TPU index are more highly correlated, hence agreeing more with each other about the movements of U.S. trade policy uncertainty. I also provide a detailed mapping between major U.S. trade policy events and the new U.S. TPU index, and shows that Baker et al. (2016)'s U.S. TPU index sometimes mistakes financial market and political uncertainty for trade policy uncertainty.
    Keywords: Trade policy uncertainty, textual analysis, uncertainty shocks
    JEL: D80 E66 F1
    Date: 2021–10–25
  68. By: Gilles Le Garrec (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Vincent Touze (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Abstract: This article gives a summary of the results of the main studies of the impact assessment of public expenditure and in particular of public investment. This assessment is carried out in three successive points: (1) Since public investment is primarily a component of demand, we have f irst looked at its eff ectiveness in terms of general public spending. T he literature leads to a multiplier of public spending on GDP of 0.8 on average, with great variability in the results. (2) Secondly, the productive dimension of public investment is integrated. The economic literature manages to establish a superiority in the long run of the revival by investment in relation to classical expenditure. The contribution of public capital to growth, measured by elasticity, varies between 0.01 and 0.5. These elasticities are high if project selection is eff ective and public capital is properly used. On the other hand, the literature tends to underline the superiority in terms of short-term revival of public consumption over new public infrastructure projects whose implementation times would be ver y long. (3) Finally, the current debate on spending stimulus is in the middle of an economic crisis, the article shows that in the literature the multiplier increases in times of crisis to high values between 1.3 and 2.5. In addition, the result observed in normal times is reversed: the recovery by major public investment projects is stronger than by public consumption.
    Abstract: Cet article dresse un bilan synthétique des résultats des principales études d'évaluation d'impact des dépenses publiques et en particulier celles d'investissement public. Ce bilan est réalisé en trois points successifs : (1) Puisque l'investissement public est en premier lieu une composante de la demande, nous nous intéressons d'abord à son efficacité sous l'angle général de la dépense publique. La littérature conduit à un multiplicateur des dépenses publiques sur le PIB de 0,8 en moyenne, avec une grande variabilité dans les résultats. (2) Dans un second temps, la dimension productive de l'investissement public est intégrée. La littérature économique parvient à établir une supériorité de la relance par l'investissement par rapport à la dépense classique à long terme. La contribution du capital public à la croissance, mesurée par l'élasticité, varie entre 0,01 et 0,5. Ces élasticités sont élevées si la sélection des projets est efficace et si le capital public est correctement utilisé. Par contre, la littérature tend à souligner la supériorité en termes de relance à court terme de la consommation publique sur des projets de nouvelles infrastructures publiques dont les temps de mise en service seraient très long. (3) Enfin, puisque le débat actuel sur la relance par la dépense se situe en pleine crise économique, l'article montre que dans la littérature le multiplicateur augmente en période de crise à des valeurs élevées comprises entre 1,3 et 2,5 à court terme. De plus, le résultat observé en temps normal est inversé : la relance par des grands projets d'investissement public est plus forte que par la consommation publique.
    Keywords: fiscal multiplier,public investment,regime dependance
    Date: 2020
  69. By: Chu, Angus; Kou, Zonglai; Wang, Xilin
    Abstract: This study explores the conflict of interests between workers and capitalists in a Schumpeterian economy. We consider the limit on the market power of monopolistic firms as a policy instrument and derive its optimal levels for workers and capitalists, respectively. Because monopolistic profit provides incentives for innovation, workers may prefer monopolistic firms to have some market power, but they prefer less powerful monopolistic firms than capitalists. Workers' preferred level of monopolistic power is decreasing in their discount rate and increasing in innovation productivity and the quality step size. Capitalists' preferred level of monopolistic power is increasing in the quality step size. We use the difference in levels preferred by workers and capitalists to measure the severity of their conflict of interests, which becomes less severe when workers' discount rate falls or innovation productivity rises. Finally, at a small (large) quality step size, enlarging the step size mitigates (worsens) their conflict.
    Keywords: economic growth; workers; capitalists; class struggle
    JEL: E11 O3 O4
    Date: 2021–11
  70. By: Ahmet Faruk Aysan (HBKU - Hamad Bin Khalifa University); Nawaz Farrukh
    Abstract: This article provides a detailed introduction to China's launching of a digital currency. We conduct a comparative analysis concerning whether digital currency is a more stable and reliable currency than cryptocurrency and investigate whether a digital renminbi (or yuan) could replace the US dollar as a medium of exchange in international transactions. China has gained a first-mover advantage by rolling out a central bank digital currency (CBDC). But the outcome will depend on the US response as well as the future evolution of the US and Chinese economies. Most other articles on this topic focus on domestic use of the Chinese CBDC. But this study is unique in analyzing the prospects of a digital renminbi as a replacement for the US dollar in international commerce.
    Keywords: China,cryptocurrency,digital yuan,People's Bank of China,US. JEL Classifications: E42,E58,G28
    Date: 2021–10–05
  71. By: Kaitila, Ville; Lehmus, Markku
    Abstract: Abstract We assess the recovery of the Finnish travel industry from the covid19 pandemic in 2021–2023. The subject of the study is air and sea passenger traffic, the food service (restaurant) and accommodation industries. The Covid19 virus has proven to be capable of mutations, and the pandemic is by no means over. This increases uncertainty, especially with regard to the recovery of international travel. The travel industry will recover with vaccine coverage and when the pandemic will otherwise subside, but it will take a long time for business travel and intercontinental air transport to recover to pre-pandemic levels.
    Keywords: Forecasting, Services, Transportation, Scenarios, Covid19
    JEL: E27 L83 L93 R41
    Date: 2021–10–29

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