nep-mac New Economics Papers
on Macroeconomics
Issue of 2021‒12‒06
102 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Choosing the European Fiscal Rule By Ginters Buss; Patrick Gruning; Olegs Tkacevs
  2. Precautionary saving and un-anchored expectations By Grimaud, Alex
  3. The ECB's policy measures during the COVID-19 crisis By Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  4. The implementation and the rationale of the new inflation target of the ECB By Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  5. Back to the future: intellectual challenges for monetary policy By Claudio Borio
  6. The natural rate of interest through a hall of mirrors By Phurichai Rungcharoenkitkul; Fabian Winkler
  7. Do term premiums matter? Transmission via exchange rate dynamics By Mitsuru Katagiri; Koji Takahashi
  8. Payment Risk and Bank Lending By Li, Ye; Li, Yi
  9. What does machine learning say about the drivers of inflation? By Emanuel Kohlscheen
  10. Navigating by r*: safe or hazardous? By Claudio Borio
  11. Inflation Targeting Mattered: a multivariate synthetic control approach By Ricardo D. Brito; Robison F. Kudamatsu, Vladimir K. Teles
  12. Uncertainty Shocks, Adjustment Costs and Firm Beliefs: Evidence From a Representative Survey By Andreas Dibiasi; Heiner Mikosch; Samad Sarferaz
  13. Discount Rates, Debt Maturity, and the Fiscal Theory By Alexandre Corhay; Thilo Kind; Howard Kung; Gonzalo Morales
  14. The Misalignment of Fiscal Multipliers in Italian Regions By Francesco Simone Lucidi
  15. Losing traction? The real effects of monetary policy when interest rates are low By Rashad Ahmed; Claudio Borio; Piti Disyatat; Boris Hofmann
  16. Generational Distribution of Fiscal Burdens: A Positive Analysis By Uchida, Yuki; Ono, Tetsuo
  17. Financial Dominance in the Pandemic and Post-Pandemic European Economy By Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
  18. The Persistent Effects of Financial Crises on the Composition of Real Investment By Jiang, Sheila; Li, Ye; Xu, Douglas
  19. Policy Uncertainty Shocks and Small Open Economies in Monetary Union: a Case Study of Ireland By Jonathan Rice
  20. Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis By Takushi Kurozumi; Willem Van Zandweghe
  21. Neoliberalism: An entrenched but exhausted growth regime By Mark Setterfield
  22. Monetary Policy Spillover to Small Open Economies: Is the Transmission Different under Low Interest Rates? By Jin Cao; Valeriya Dinger; Tomas Gomez; Zuzana Gric; Martin Hodula; Alejandro Jara; Ragnar Juelsrud; Karolis Liaudinskas; Simona Malovana; Yaz Terajima
  23. Open Economy Secular Stagnation and Financial Integration By Jean-Baptiste Michau
  25. India: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for India By International Monetary Fund
  26. The Price of Money: How Collateral Policy Affects the Yield Curve By Kjell G. Nyborg; Jiri Woschitz
  27. Central bank’s stabilization and communication policies when firms have motivated overconfidence in their own information accuracy or processing By Camille Cornand; Rodolphe Dos Santos Ferreira
  28. The Effects of Macroprudential and Monetary Policy Shocks in BRICS economies By Kaelo Mpho Ntwaepelo
  29. Oil Prices and Fiscal Policy in an Oil-exporter country: Empirical Evidence from Oman By Aljabri, Salwa; Raghavan, Mala; Vespignani, Joaquin
  30. Bullard Discusses U.S. Economy and Monetary Policy during UBS Panel By James B. Bullard
  31. On the Time-varying Effects of the ECB's Asset Purchases By Andrejs Zlobins
  32. Does Firm Exit Increase Prices? By Suveg, Melinda
  33. Financial instability and economic activity By Fortin, Ines; Hlouskova, Jaroslava; Soegner, Leopold
  34. Kingdom of the Netherlands—the Netherlands: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of the Netherlands—the Netherlands By International Monetary Fund
  35. No Regret Fiscal Reforms By Pierre-Edouard Collignon
  36. Central bank digital currencies: motives, economic implications and the research frontier By Raphael Auer; Jon Frost; Leonardo Gambacorta; Cyril Monnet; Tara Rice; Hyun Song Shin
  37. Social Capital and Monetary Policy By Rustam Jamilov
  38. Monetarist arithmetic at Covid-19 time: a take on how not to misapply the quantity theory of money By Julien Pinter
  39. Labour market transitions across OECD countries: Stylised facts By Orsetta Causa; Nhung Luu; Michael Abendschein
  40. German Economy Autumn 2021 - Protracted catching-up process By Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Stolzenburg, Ulrich
  41. Markups and inflation cyclicality in the euro area By Kouvavas, Omiros; Osbat, Chiara; Reinelt, Timo; Vansteenkiste, Isabel
  42. St. Kitts and Nevis: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for St. Kitts and Nevis By International Monetary Fund
  43. Adapting lending policies in a “negative-for-long” scenario By Oscar Arce; Miguel Garcia-Posada; Sergio Mayordomo; Steven Ongena
  44. Potential output, the Taylor Rule and the Fed By Omar Licandro; Francesca Vinci
  45. Jointly Modeling Male and Female Labor Participation and Unemployment By David H. Bernstein; Andrew B. Martinez
  46. What does digital money mean for emerging market and developing economies? By Erik Feyen; Jon Frost; Harish Natarajan; Tara Rice
  47. Financial crises and political radicalization: How failing banks paved Hitler's path to power By Sebastian Doerr; Stefan Gissler; Jose-Luis Peydro; Hans-Joachim Voth
  48. Union of Comoros: Request for a Staff-Monitored Program-Press Release; and Staff Report By International Monetary Fund
  49. Nowcasting euro area GDP with news sentiment: a tale of two crises By Saiz, Lorena; Ashwin, Julian; Kalamara, Eleni
  50. Income Distribution, Productivity Growth and Workers’s Bargaining Power in an Agent-Based Macroeconomic Model By Lilian N. Rolim; Carolina Troncoso Baltar, Gilberto Tadeu Lima
  51. Burundi: Request for Disbursement Under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Burundi By International Monetary Fund
  52. A Quantitative Evaluation to Interest Rate Marketization Reform in China By Jing Yuan; Yan Peng; Zongwu Cai; Zhengyi Zhang
  53. To be or not to be “green”: how can monetary policy react to climate change? By Boneva, Lena; Ferrucci, Gianluigi; Mongelli, Francesco Paolo
  54. Do NBFCs Propagate Real Shocks? By Ghosh, Saurabh; Mazumder, Debojyoti
  55. Federated States of Micronesia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Federated States of Micronesia By International Monetary Fund
  56. Mexico: 2021 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  57. An Empirical Assessment of the Exchange Rate Pass-through in Mozambique By Felix F. Simione; Edson Manguinhane
  58. The impact of a macroprudential borrower based measure on households’ leverage and housing choices By Sónia Félix; Daniel Abreu; Vítor Oliveira; Fátima Silva
  59. Impacto del Stress Sistémico en el Crecimiento Económico: Caso Guatemala By Valdivia Coria, Joab Dan; Valdivia Coria, Daney David
  60. Heterogeneity, convergence and imbalances in the Euro area By Stéphane Auray; Aurélien Eyquem
  61. International Measures of Common Inflation By Danilo Cascaldi-Garcia; Flora Haberkorn; Eli Nir
  62. Retail Pricing Format and Rigidity of Regular Prices By Ray, Sourav; Snir, Avichai; Levy, Daniel
  63. Assessing Indonesia’s Inclusive Employment Opportunities for People with Disability in the COVID-19 Era By Deni Irawan; Tatsuyoshi Okimoto
  64. 60%, -4% And 6%, a Tale of Thresholds for EU Fiscal and Current Account Developments By António Afonso; José Carlos Coelho
  65. The Macroeconomic Impact of Social Unrest By Metodij Hadzi-Vaskov; Samuel Pienknagura; Luca Antonio Ricci
  66. Firm or bank weakness? Access to finance since the European sovereign debt crisis By Donata Faccia; Giuseppe Corbisiero
  67. Testing for rational bubbles in Australian housing market from a long-term perspective By Vicente Esteve; María A. Prats
  68. Exchange Rate Determination in Asia By Chavan, Sumit Sunil; Shafighi, Najla
  69. Dampening the financial accelerator? Direct lenders and monetary policy By Ryan Niladri Banerjee; José María Serena Garralda
  70. Authorities’ Fiscal Forecasts in Latin America: Are They Optimistic? By Metodij Hadzi-Vaskov; Rene Zamarripa; Mr. Luca A Ricci; Alejandro M. Werner
  71. Factors affecting high unemployment in India By Digvijay, Dilip Bhujbal; shafighi, Najla
  72. Global and Local Components of Output Gaps By Florian Eckert; Nina Mühlebach
  73. Democratic Political Economy of Financial Regulation By Igor Livshits; Youngmin Park
  74. Central Banks’ responses to the Covid-19 pandemic: The case of the Bank of Central African States By Simplice A. Asongu; Nathanael Ojong; Valentine B. Soumtang
  75. License to Spill: How Do We Discuss Spillovers in Article IV Staff Reports By Mr. Mico Mrkaic; Borislava Mircheva; Jelle Barkema; Yuanchen Yang
  76. Fiscal Policies during the Covid-19 Crisis in Austria - A Macroeconomic Assessment By Klaus Weyerstraß
  77. Economic Inequality and Heterogeneous Success Rates of Investment By Harashima, Taiji
  78. Quantitative easing and corporate innovation By Grimm, Niklas; Laeven, Luc; Popov, Alexander
  79. Credit growth, the yield curve and financial crisis prediction: evidence from a machine learning approach By Bluwstein, Kristina; Buckmann, Marcus; Joseph, Andreas; Kapadia, Sujit; Şimşek, Özgür
  80. Impact de la décentralisation fiscale sur l’inclusion sociale au niveau local au Maroc Une analyse empirique à l’aide de l’approche ARDL en séries chronologiques By Boukbech, Rachid; Liouaeddine, Mariem
  81. Perspectives on Global Monetary Policy Coordination, Cooperation, and Correlation: a speech at the "Macroeconomic Policy and Global Economic Recovery" 2021 Asia Economic Policy Conference, sponsored by the Federal Reserve Bank of San Francisco Center for Pacific Basin Studies, San Francisco, California (via webcast), November 19, 2021 By Richard H. Clarida
  82. The Rise in Inequality after Pandemics: Can Fiscal Support Play a Mitigating Role? By Davide Furceri; Pietro Pizzuto; Mr. Prakash Loungani; Mr. Jonathan David Ostry
  83. Republic of South Sudan: First Review under the Staff-Monitored Program-Press Release; and Staff Report By International Monetary Fund
  84. Asymmetric Non-Commodity Output Responses to Commodity Price Shocks By Mr. Amine Mati; Ms. Monique Newiak; James Wilson
  85. Chile: Fiscal Transparency Evaluation By International Monetary Fund
  86. Macroeconomic Impact of Foreign Exchange Intervention: Some Cross-country Empirical Findings By Mr. Zhongxia Jin; Haobin Wang; Yue Zhao
  87. Do Workers Share in Firm Success? Pass-through Estimates for New Zealand By Allan, Corey; Maré, David C.
  88. Analysis of the Effects of Asset Price Changes on Economic Inequality and External Economic Variables By Yoon, Deok Ryong; Rhee, Dong-Eun; Lee, Jinhee
  89. The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7 By Alexander F. Tieman; Jason Harris; Yugo Koshima; Alessandro De Sanctis
  90. Revisiting the Properties of Money By Isaiah Hull; Or Sattath
  91. Capital Flows and Endogenous Growth By Evgenij Komarov
  92. European Structural Funds and Resilient and Recovery Facility Governance By Carlos San Juan Mesonada; Carlos Sunyer Manteiga
  93. On the Validity of Purchasing Power Parity (PPP): The Case of Sierra Leone By Jabbie, Mohamed; Jackson, Emerson Abraham
  94. Deutsche Wirtschaft im Herbst 2021 - Delle im Aufholprozess By Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Stolzenburg, Ulrich
  95. The Fiscal Multiplier of European Structural Investment Funds: Aggregate and Sectoral Effects with an Application to Slovenia By Mr. Raphael A Espinoza
  96. Impact of COVID-19: Nowcasting and Big Data to Track Economic Activity in Sub-Saharan Africa By Reda Cherif; Karl Walentin; Brandon Buell; Carissa Chen; Jiawen Tang; Nils Wendt
  97. Regional Disparities and Fiscal Federalism in Russia By Ms. Annette J Kyobe; Oksana Dynnikova; Mr. Slavi T Slavov
  98. Corruption et sorties illicites de capitaux dans les pays de l’Afrique subsaharienne: La démocratie compte-elle vraiment? By YENLIDE, Tchablemane
  99. Forecasting the Artificial Intelligence Index Returns: A Hybrid Approach By Yue-Jun Zhang; Han Zhang; Rangan Gupta
  100. Macroeconomic Impact of the Itaipú Treaty Review for Paraguay By Ms. Natasha X Che
  101. How to Gain the Most from Structural Conditionality of IMF-Supported Programs By Mr. Jochen R. Andritzky; Ke Wang; Zsuzsa Munkacsi
  102. Пенсионные реформы и теневой сектор: моделирование поведения доходных групп By Danielyan, Vladimir; Polterovich, Victor

  1. By: Ginters Buss (Latvijas Banka); Patrick Gruning (Latvijas Banka, Vilnius University); Olegs Tkacevs (Latvijas Banka)
    Abstract: Contributing to the ongoing discussions at the European Union level about the potential simplification of its fiscal framework, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules – the structural balance rule and the expenditure growth rule – using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes, but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by the modifications of the public expenditure definition in the expenditure growth rule, in particular, the removal of debt service payments. Accounting for debt service payments in fiscal rules strengthens the monetary-fiscal policy interaction but it may turn vicious to macroeconomic stability at business cycle frequencies. Strong-enough debt correction for either fiscal rule contains public debt volatility at little expense to macroeconomic stability in the long run. The households' welfare gain from having the expenditure growth rule instead of the structural balance rule is 4% for a small country in a monetary union and 5% for a country with sovereign monetary policy.
    Keywords: fiscal policy, DSGE, small open economy, fiscal-monetary policy interaction
    JEL: E0 E2 E3 E6 F4 H2 H3 H6
    Date: 2021–11–17
  2. By: Grimaud, Alex
    Abstract: This paper investigates monetary policy in a heterogeneous agent new Keynesian (HANK) model where agents face idiosyncratic income risk and use adaptive learning in order to form their expectations. Households experience different histories and observe different idiosyncratic variables. This gives rise to idiosyncratic learning processes, which naturally implies the existence of heterogeneous expectations. In HANK models, supply shocks generate precautionary saving. The learning setup amplifies this effect and can result in long-lasting disinflationary traps. Dovish Taylor rules focused on closing the output gap dampen the learning effects. Price level targeting improves the inflation and output stabilization trade-off by better anchoring expectations.
    Keywords: Adaptive learning, precautionary saving, restricted perception equilibrium heterogeneous expectations, heterogeneous agents
    JEL: E25 E31 E52
    Date: 2021–07–05
  3. By: Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    Abstract: This paper illustrates the ECB's monetary policies, implemented in response to the Covid-19 crisis, and discusses their macroeconomic impact. By using an event-based analysis, it argues that these policies have stabilised the economic and financial system by incentivising banks' lending to households and businesses and by indirectly creating short-term fiscal capacity for those euro-area member states characterised by high government debt/GDP ratio.
    Keywords: Covid-19; ECB policy announcements; Financial market volatility; ECB policy reaction; Event-study analysis; Bank and Government borrowing costs
    JEL: E58 E44 E52
    Date: 2021–11
  4. By: Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    Abstract: In July 2021, the ECB's target has been revised specifying that the threshold of 2% inflation rate has to be applied symmetrically and with a medium-term orientation. We argue that a symmetric inflation target can offer a strong contribution to anchoring inflation expectations and to limiting the risks due to the zero and effective lower bound constraints. The monetary policy strategy revision plays a key role in the policy mix between fiscal and monetary policies for the post pandemic recovery.
    Keywords: Secular stagnation; zero-lower bound; monetary policy
    JEL: E31 E51 E58
    Date: 2021–11
  5. By: Claudio Borio
    Abstract: The central banking community is facing major challenges – economic, intellectual and institutional. A key economic challenge is the need to rebuild room for policy manoeuvre, which has fallen drastically over time. This lecture focuses on the intellectual challenge, ie facts on the ground are increasingly testing the longstanding analytical paradigms on which central banks can rely to inform their policies. It argues that certain deeply held beliefs underpinning those paradigms can complicate the task of regaining policy headroom.
    Keywords: monetary policy, business cycle, financial cycle, inflation, deflation, natural interest rate
    JEL: E43 E51 E52 E58 E31
    Date: 2021–11
  6. By: Phurichai Rungcharoenkitkul; Fabian Winkler
    Abstract: Prevailing justifications of low-for-long interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector must learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side underestimates the effect of its own action on the other's inference, leading to large and persistent changes in perceived r-star disconnected from fundamentals. Monetary policy, through its influence on the private sector's beliefs, endogenously determines r-star as a result. We simulate a calibrated model and show that this 'hall of mirrors' effect can explain much of the decline in real interest rates since 2008.
    JEL: E43 E52 E58 D82 D83
    Date: 2021–11
  7. By: Mitsuru Katagiri; Koji Takahashi
    Abstract: The macroeconomic effect of term premiums is a controversial issue both theoretically and quantitatively. In this paper, we explore the possibility that term premiums affect inflation and the real economy via exchange rate dynamics. For this purpose, we construct a small open economy model with limited asset market participation, focusing on the empirical observation that uncovered interest parity holds better for longer-term interest rate differentials. A quantitative exercise using Japanese and U.S. data shows that changes in term premiums, particularly those made by the central bank's bond purchases, have sizable effects on Japanese inflation rates via exchange rate dynamics.
    JEL: E31 E52 E58
    Date: 2021–10
  8. By: Li, Ye (Ohio State University); Li, Yi (Board of Governors of the Federal Reserve System)
    Abstract: Deposits finance bank lending and serve as means of payment for bank customers. Under uncertain payment flows, deposits are debts with random maturities. Payment outflows drain reserves, and the risk is most prominent when funding markets are under stress and banks are unable to smooth out payment shocks. We provide the first evidence on the negative impact of payment risk on bank lending, bridging the literatures on payment systems and credit supply. An interquartile increase in payment risk is associated with a decline in loan growth rate that is 10% of standard deviation. Our findings are stronger in times of funding stress and robust across banks of different sizes and loans of long and short maturities. Banks with higher payment risk raise deposit rates to expand customer base and internalize payment flows. Finally, we show that payment risk dampens the bank lending channel of monetary policy transmission.
    JEL: E42 E43 E44 E51 E52 G21 G28
    Date: 2021–11
  9. By: Emanuel Kohlscheen
    Abstract: This paper examines the drivers of CPI inflation through the lens of a simple, but computationally intensive machine learning technique. More specifically, it predicts inflation across 20 advanced countries between 2000 and 2021, relying on 1,000 regression trees that are constructed based on six key macroeconomic variables. This agnostic, purely data driven method delivers (relatively) good outcome prediction performance. Out of sample root mean square errors (RMSE) systematically beat even the in-sample benchmark econometric models, with a 28% RMSE reduction relative to a naïve AR(1) model and a 8% RMSE reduction relative to OLS. Overall, the results highlight the role of expectations for inflation outcomes in advanced economies, even though their importance appears to have declined somewhat during the last 10 years.
    Keywords: expectations, forecast, inflation, machine learning, oil price, output gap, Phillips curve
    JEL: E27 E30 E31 E37 E52 F41
    Date: 2021–11
  10. By: Claudio Borio
    Abstract: The concept of the natural rate of interest, or r*, has risen to prominence in monetary policy following the Great Financial Crisis. No doubt a key reason for the concept's newfound prominence has been the further decline of real and nominal interest rates to new lows, which has further constrained monetary policy's room for manoeuvre. This lecture explores the extent to which the concept can be a useful guide to policy. It concludes that, depending on how it is employed, the concept has the potential of leading policy astray and of complicating the task of regaining the needed policy headroom. If so, within a credible policy regime, there is a premium on flexibility in the pursuit of tightly defined inflation targets – on tolerance for transitory, but possibly persistent, shortfalls of inflation from target.
    Keywords: natural interest rate, central banking, monetary policy
    JEL: E40 E43 E52 E58
    Date: 2021–11
  11. By: Ricardo D. Brito; Robison F. Kudamatsu, Vladimir K. Teles
    Abstract: We use a multivariate synthetic control method that matches the price and output dynamics jointly to evaluate the effects of the inflation targeting regime (IT) on the inflation and output growth of its early adopters (the ITers) – New Zealand, Canada, the United Kingdom, Sweden, and Australia. Once accounting for the inflation-output tradeoff in the conduct of monetary policy, the ITers enjoyed lower inflation and/or higher output growth than their counterfactuals. These performances were economically important to justify IT central banks’ optimism with IT, both case-by-case and on average.
    Keywords: Inflation targeting; Multivariate synthetic control
    JEL: E52 E58
    Date: 2021–11–18
  12. By: Andreas Dibiasi (ETH Zurich, Switzerland); Heiner Mikosch (ETH Zurich, Switzerland); Samad Sarferaz (ETH Zurich, Switzerland)
    Abstract: This paper studies the dynamic effects of an uncertainty shock on firm expectations. We conduct a survey that confronts managers from a representative firm sample with a model-consistent uncertainty shock scenario. An exogenous increase in uncertainty significantly reduces managers’ expected investment, employment and production in the short and mid run. We collect novel direct firm-level mea- sures for different types of capital and labor adjustment costs. Adjustment costs vary strongly across sectors and types. They help explain firms’ reactions to the shock, which provides evidence for the relevance of real-options channels. We compare the findings to DSGE and VAR results.
    Keywords: Uncertainty, Shock, Firms, Survey, Vignette, Expectations, Investment, Employment, Production
    JEL: C83 D83 D84 E22 E23 E24
    Date: 2021–10
  13. By: Alexandre Corhay; Thilo Kind; Howard Kung; Gonzalo Morales
    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: Fiscal policy; Interest rates; Monetary policy
    JEL: E44 E63 G12
    Date: 2021–11
  14. By: Francesco Simone Lucidi
    Abstract: By accounting for the structural heterogeneity between northern and southern economies, this paper estimates fiscal multipliers resulting from shocks to current public expenditure, total public revenues and public investment in Italian regions. The estimation is carried out by estimating a panel Bayesian VAR, where the structural shocks are identified by means of sign restrictions suggested by economic theory. The results shed new light on the magnitude of regional fiscal shocks and their propagation. Moreover, a misalignment of fiscal multipliers is revealed, which is possibly policy relevant for both local and central authorities.
    Keywords: Fiscal multipliers; Public investment; Panel VAR; Sign restrictions
    JEL: E01 E62 E63 H5
    Date: 2021–11
  15. By: Rashad Ahmed; Claudio Borio; Piti Disyatat; Boris Hofmann
    Abstract: Are there limits to how far reductions in interest rates can boost aggregate demand? In particular, as interest rates fall to very low levels, does the effectiveness of monetary policy in boosting the economy wane? We provide evidence consistent with this hypothesis. Based on a panel of 18 advanced countries starting in 1985, we find that monetary transmission to economic activity is substantially weaker when interest rates are low. The results hold even when controlling for potential confounding non-linearities associated with debt levels and the business cycle as well as for the trend decline in equilibrium interest rates. We also find evidence that the effectiveness of monetary policy wanes the longer interest rates stay low. These findings suggest that the observed flattening of the Phillips curve has gone hand in hand with a corresponding steepening of the IS curve. Monetary policy trade-offs may have become more challenging.
    Keywords: monetary policy, low interest rates, monetary transmission mechanism
    JEL: E20 E52 E58
    Date: 2021–11
  16. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: This study presents a political economy model with overlapping generations to analyze the effects of population aging on fiscal policy formation and the resulting distribution of the fiscal burden across generations. The analysis shows that both an increased life expectancy and a decreased population growth rate increase the ratios of government debt and labor income tax revenue to GDP. However, they decrease the ratio of capital income tax revenue to GDP. Furthermore, it also shows that the increased political weight of the elderly creates an increase in the ratios of public debt and labor income tax revenue to GDP, as well as an initial decrease followed by an increase in the ratio of capital income tax revenue to GDP.
    Keywords: Generational burden, Overlapping generations, Political economy, Population aging, Public debt
    JEL: D70 E24 E62 H60
    Date: 2021–11–11
  17. By: Pierpaolo Benigno; Paolo Canofari; Giovanni Di Bartolomeo; Marcello Messori
    Abstract: Differently from past episodes, the European institutions responded to the pandemic shock with an appropriate policy mix. However, the expansionary convergence between monetary and fiscal policies is strengthening the role and the possible distortionary effects of financial dominance. Due to the consequent growing imbalances in financial markets, European institutions could deem it necessary to abandon the current policy approach and to re-attribute the function of the "only game in town" to monetary policy. However, in the post-pandemic context, the ECB could hardly act again as a last-resort player. Hence, it is convenient to pursue the policies that are compatible with sustainable post-pandemic development.
    Keywords: Fiscal dominance; ECB; Monetary policy
    JEL: E31 E51 E58
    Date: 2021–11
  18. By: Jiang, Sheila (University of Florida); Li, Ye (Ohio State University); Xu, Douglas (University of Chicago)
    Abstract: Our paper provides the first cross-country evidence on the distinct dynamics of tangible and intangible investments during and after the global financial crisis. The pre-crisis rise of intangible-to-tangible capital ratio was reversed outside the U.S. due to a greater decline of intangible investment and a much slower recovery. Tangible capital can be externally financed, and its post-crisis recovery benefits from the restoration of credit supply. In contrast, Intangible investment relies on firms’ liquidity holdings that were drawn down in the crisis and can only be rebuilt gradually through retained profits. We provide a unified account of the findings through a dynamic model of corporate investment and liquidity management. Consistent with our model predictions, the divergence between tangible and intangible investments is more prominent in countries with weaker intellectual property protection (less external financing options for intangibles) and riskier government bonds (less robust corporate liquidity holdings).
    JEL: E22 E23 E41 E44 G01 G15 G31 G32
    Date: 2021–11
  19. By: Jonathan Rice (Department of Economics, Trinity College Dublin)
    Abstract: This paper explores the implications of policy uncertainty shocks for Ireland, a small open economy operating within monetary union. Exogenous domestic uncertainty shocks foreshadow persistent declines in Irish investment and employment, with no clear response by the ECB. On the other hand, no such decline in demand is observed following global uncertainty shocks, largely resulting from an accommodative monetary policy stance by the ECB. Results from this paper suggest that policy uncertainty shocks have negative and persistent effects on Irish real activity, only when monetary policy does not counteract these shocks. Common identification problems in the literature are also discussed and suggestions are made for future work in the area.
    Keywords: Small Open Economy, Uncertainty, Investment, Consumption, Interest Rates, Monetary Policy.
    JEL: E2 E3 E4
    Date: 2020–01
  20. By: Takushi Kurozumi (Bank of Japan); Willem Van Zandweghe (Federal Reserve Bank of Cleveland)
    Abstract: Recent studies indicate that, since 1980, the US economy has undergone increases in the average markup and the profit share of income and decreases in the labor share and the investment share of spending. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of individual differentiated goods, a decline of trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, adding a rise of highly productive "superstar firms" to the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms' markups, including the flat median markup.
    Keywords: Average markup; Profit share; Labor share; Trend inflation; Non-CES aggregator; Superstar firm hypothesis
    JEL: E52 L16
    Date: 2021–11–22
  21. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: This paper analyzes Neoliberalism in the US economy with a view to identifying the e ects of Neoliberalism on macroeconomic performance since 1990, underlying problems with the structure of the Neoliberal economy, and the e ects of Neoliberalism on the economic consequences of the COVID-19 pandemic. It is shown that Neoliberalism 'worked' from 1990-2007 by combining an 'incomes policy based on fear' that permitted non-inationary growth and low unemployment with a debt-financed, consumption-led demand regime that, as evidenced by the 2007-09 financial crisis and Great recession, was unsustainable. Since 2009 Neoliberalism has proved to be an entrenched but exhausted growth regime, producing only a 'depressed upswing' 2009-2019 that was terminated by the onset of the COVID-19 recession -- the response to which was neither efficient nor equitable. The paper concludes that at this juncture, the epithet 'build back better' must be applied to the entire US economy.
    Keywords: Neoliberalism, incomes policy based on fear, depressed upswing, COVID-19 recession
    JEL: B52 E12 E31 E32 E64 E66
    Date: 2021–12
  22. By: Jin Cao; Valeriya Dinger; Tomas Gomez; Zuzana Gric; Martin Hodula; Alejandro Jara; Ragnar Juelsrud; Karolis Liaudinskas; Simona Malovana; Yaz Terajima
    Abstract: We explore the impact of low and negative monetary policy rates in core world economies on bank lending in four small open economies - Canada, Chile, the Czech Republic and Norway - using confidential bank-level data. Our results show that the impact on lending in these small open economies depends on the interest rate level in the core. When interest rates are high, monetary policy cuts in core economies can reduce credit supply in small open economies. In contrast, when interest rates in core economies are low, further expansionary monetary policy increases lending in small open economies, consistent with an international bank lending channel. These results have important policy implications, suggesting that central banks in small open economies should watch for the impact of potential regime switches in core economies' monetary policy when rates shift to and from the very low end of the distribution.
    Keywords: Cross-border monetary policy spillover, international bank lending channel, low and negative interest rate environment (LNIRE), portfolio channel
    JEL: E43 E52 E58 F34 F42 G21 G28
    Date: 2021–11
  23. By: Jean-Baptiste Michau (Ecole Polytechnique, France)
    Abstract: What is the optimal policy response to secular stagnation within a small open economy? Secular stagnation is characterized by a persistent lack of demand, resulting in under-employment. Within a small open economy, the degree of fi nancial integration determines the nature of the secular stagnation equilibrium. Under perfect capital mobility, stagnation is due to downward nominal wage rigidities; while under financial autarky, it is due to an excessively high real interest rate. I characterize the planners optimal allocation of resources and solve for the tax policy that implements it within a stagnating economy. Under perfect fi nancial integration, payroll taxes should be falling and labor income taxes rising such as to relax the downward nominal wage rigidity; while under fi nancial autarky, the opposite policy should be implemented such as to generate inflation. Alternatively, full employment can be achieved by setting a sufficiently inflation target and by relying on an exchange rate policy to import inflation from abroad. Policy options are more limited under a fixed exchange rate regime, where effciency can either be reached through a coordinated policy response or by abandoning the peg.
    Keywords: Financial integration, Liquidity trap, Secular stagnation
    JEL: E31 E63 F38 F41
    Date: 2021–11–02
  24. By: TEKILASAYA KAVUNZU, François
    Abstract: This article aimed to analyze the Congolese economic situation during the year 2020 with regard to the volatility observed in the indicators of the economic situation, including the evolution of monthly inflation and the exchange rate during the first eight months. The particular situation observed in the first eight months consisted in the fact that during the first four months, i.e. from January to April, there was recourse to monetary financing of the public deficit but with a lower level of inflation comparatively to the period from May to August during which there was no monetary financing with the consequence of the persistence and aggravation of inflationary pressures. The objective of the paper was to provide explanations for this evolution and to deduce the problem root. In terms of explanations, three explanatory factors have been identified. First, factors related to fiscal policy, second, factors related to the economic situation, and third, factors related to the implementation of monetary policy. As for the fiscal factors, they concern the breakdown of public expenditures in domestic currency that supplies inflation and that in foreign currency that erodes reserves; as for the conjuncture factors, they concern the effects of the COVID-19 and the contrary effects produced by the fiscal easing measures and from the monetary point of view, the maintenance of the negative real interest rate from May to July 2020. The problem root lies in the budgetary tensions and the dollarized nature of the economy.
    Keywords: Monetary financing, public treasury, inflation
    JEL: E58 H3
    Date: 2021–05
  25. By: International Monetary Fund
    Abstract: The ongoing COVID-19 pandemic has created a prolonged health crisis. Economic activity was slowing prior to the pandemic. Two COVID-19 waves have resulted in a deep and broad-based economic downturn with the potential for a longer lasting impact. The authorities have responded with fiscal policy, including scaled-up support to vulnerable groups, monetary policy easing and liquidity provision, and accommodative financial sector and regulatory policies. Despite the pandemic, the authorities have continued to implement structural reforms.
    Keywords: headline consumer price inflation; The Authorities; potential GDP; labour market functioning; monetary policy easing; privatization of government enterprise; COVID-19; Government debt management; Global; Eastern Europe
    Date: 2021–10–15
  26. By: Kjell G. Nyborg (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Jiri Woschitz (University of Zurich)
    Abstract: Central-bank collateral policy governs the convertibility of assets into central-bank money provided directly by the central bank. Focusing on government bonds, we develop clean identification of variation in such convertibility by exploiting differential treatment of same-country government bonds in the euro area. Combining difference-in-differences analysis with yield-curve modeling on four separate events, we show that reduced convertibility lifts yields, but with the effect tapering off at longer maturities. Our findings imply that central-bank money is priced in the market and that a central bank can move and shape the yield curve through collateral policy.
    Keywords: Yield curve, central bank, collateral policy, monetary policy, haircuts, repo, asset prices, liquidity, central-bank money, government bonds
    JEL: G12 E43 E52
    Date: 2021–11
  27. By: Camille Cornand (Univ Lyon, CNRS, GATE. Address: LSE UMR 5824, F-69130 Ecully, France); Rodolphe Dos Santos Ferreira (BETA, University of Strasbourg, 61 avenue de la Forˆet Noire, 67085 Strasbourg Cedex, France and Cat ´olica Lisbon School of Business and Economics)
    Abstract: Using a simple microfounded macroeconomic model with price making firms and a central bank maximizing the welfare of a representative household, it is shown that the presence of firms’ motivated beliefs has stark consequences for the conduct of optimal communication and stabilization policies. Under pure communication (resp. communication and stabilization policies), motivated beliefs about own private information (resp. own ability to process information) reverse the bang-bang solution of transparency (resp. opacity with full stabilization) found in the literature under objective beliefs and lead to intermediate levels of communication (and stabilization).
    Keywords: Motivated beliefs, public and private information (accuracy),overconfidence, communication policy, stabilization policy
    JEL: D83 D84 E52 E58
    Date: 2021
  28. By: Kaelo Mpho Ntwaepelo
    Abstract: This paper examines the macroeconomic effects of the macroprudential and monetary policy shocks, in a framework where the policies target both the price and financial stability objectives. I employ the system-generalised method of moments (system-GMM) technique in a dynamic panel data model, over the 1990-2016 period. The study uses the novel integrated macroprudential policy dataset (iMaPP) in the context of the five major emerging market economies: Brazil, Russia, India, China and South Africa (BRICS). The results indicate that a contractionary monetary policy shock eliminates the excessive growth of credit and house prices but increases the price levels (price puzzle). The presence of a price puzzle after a contractionary monetary policy shock indicates that there is a trade-off between the financial stability and price stability objectives. Similarly, the impulse response function analysis reveals the presence of a negative correlation between the financial variables and output, after a contractionary macroprudential policy shock. Overall, the empirical findings suggest that there is a policy conflict when the policies respond to additional objectives beyond their primary targets. It is therefore beneficial for each policy to focus on its primary objective while considering the spillover effects of the other policy.
    Keywords: emerging markets, macroprudential policy, financial stability, monetary policy, price stability
    JEL: E58 E61 G28
    Date: 2021–11–10
  29. By: Aljabri, Salwa; Raghavan, Mala; Vespignani, Joaquin
    Abstract: This paper studies the impact of oil price shocks on fiscal policy and real GDP in Oman using new unexplored data. We find that an oil price shock explains around 22% and 46% of the variation in the government revenue and GDP, respectively. Decomposing the government revenue and GDP further into petroleum and non-petroleum related components, we find that an oil price shock explains around 26% of the variation in petroleum revenue and 90% of the petroleum-GDP. Though petroleum and non-petroleum GDP respond positively to oil price shocks, government expenditure is not affected by oil prices but is affected by government revenue. The results suggest that the Omani government uses its reserve fund and local and international debt to smooth and reduce the impact of oil price fluctuations.
    Keywords: oil price shocks, fiscal policy, GDP, SVAR
    JEL: E00 E6 F4
    Date: 2021–09–03
  30. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard shared his views on various aspects of the U.S. economy and monetary policy during a panel discussion at the UBS European Conference 2021. Bullard said he thinks that U.S. real GDP growth coming in softer than expected in the third quarter is “a temporary phenomenon,” with growth being pushed out to the fourth quarter and through next year. He expects real GDP growth to be higher than 4% for all of 2022. In discussing the very tight labor market in the U.S., Bullard cited the unemployment-to-vacancies ratio, the unemployment rate and a labor market conditions index. Regarding inflation, Bullard noted that core PCE inflation measured from a year ago is 3.6%, the highest it has been in 30 years. He said that there is a risk of continued inflation pressure in the U.S. in 2022. Bullard discussed the FOMC’s recent decision to begin tapering the Fed’s asset purchases, with current estimates of finishing the purchases in June 2022. “We have some conditionality on that where we’re keeping the option open to move even faster on the taper, if necessary, to contain inflationary pressures,” he said.
    Keywords: monetary policy; real GDP growth; labor market; inflation; federal open market commitee; FOMC
    Date: 2021–11–09
  31. By: Andrejs Zlobins (Latvijas Banka)
    Abstract: This paper (re-)evaluates the effectiveness of central bank asset purchases in the euro area given their prominent role in the ECB's response to the pandemic as well as the evidence from the US suggesting diminishing returns of this policy measure over time. We analyse their macroeco- nomic impact in the euro area using a time-varying parameter structural vector autoregression with stochastic volatility and perform identification via sign and zero restrictions of Arias et al. (2018), their fusion with high frequency information approach akin to Jarocinski and Karadi (2020) and a novel method which merges high frequency identification with narrative sign re- strictions of Antolin-Diaz and Rubio-Ramirez (2018). We find that the potency of the ECB's asset purchases to lift inflation has indeed considerably declined over time with several factors contributing to a more muted response of prices to central bank asset purchases. Our results show that the reanchoring channel is no longer active while the counterproductive effects via the mechanism outlined in Boehl et al. (2020), which we dub the capacity utilization channel, have emerged lately and are further complemented with disinflationary effects stemming from the cost channel. Also, the effects passed through more standard transmission channels of central bank asset purchases like portfolio rebalancing and signalling, while still significant, appear to be less persistent recently. Overall, our findings point to a diminishing returns of the ECB's asset purchases to stabilize inflation and its expectations in the euro area.
    Keywords: quantitative easing, central bank asset purchases, monetary policy, euro area, non-linearities
    JEL: E50 E52
    Date: 2021–10–28
  32. By: Suveg, Melinda (Research Institute of Industrial Economics (IFN))
    Abstract: This paper examines how changes in product market concentration, specifically firm exit, affect prices. I develop a model where firms have variable markups to show that the remaining firms increase their markups and prices after their competitors’ exit. The model predictions are tested using micro-data on Swedish firms. I use the exposure of firms to a bank, which was severely affected by the financial crisis abroad, as an instrument to identify the causal relationship between firm exit and prices. I find that the remaining firms increase their prices by 0.3 percent when firms with a combined market share of one percent exit.
    Keywords: Price setting; Market structure; Financial shocks; Firm exit
    JEL: D43 E31 E32 L13 L16 L60
    Date: 2021–11–08
  33. By: Fortin, Ines (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria and Dept. of Economics, Faculty of National Economy, University of Economics in Bratislava, Slovakia); Soegner, Leopold (Macroeconomics and Business Cycles, Institute for Advanced Studies, Vienna, Austria and Vienna Graduate School of Finance (VGSF), Vienna, Austria)
    Abstract: We estimate new indices measuring financial and economic (in)stability in Austria and in the euro area. Instead of estimating the level of (in)stability in a financial or economic system we measure the degree of predictability of (in)stability, where our methodological approach is based on the uncertainty index of Jurado, Ludvigson and Ng (2015). We perform an impulse response analysis in a vector error correction framework, where we focus on the impact of uncertainty shocks on industrial production, employment and the stock market. We and that financial uncertainty shows a strong significantly negative impact on the stock market, for both Austria and the euro area, while economic uncertainty shows a strong significantly negative impact on the economic variables for the euro area. We also perform a forecasting analysis, where we assess the merits of uncertainty indicators for forecasting industrial production, employment and the stock market, using different forecast performance measures. The results suggest that financial uncertainty improves the forecasts of the stock market while economic uncertainty improves the forecasts of macroeconomic variables. We also use aggregate banking data to construct an augmented financial uncertainty index and examine whether models including this augmented financial uncertainty index outperform models including the original financial uncertainty index in terms of forecasting.
    Keywords: financial (in)stability, uncertainty, financial crisis, forecasting, stochastic volatility, factor models
    JEL: C53 G01 G20 E44
    Date: 2021–11
  34. By: International Monetary Fund
    Abstract: The Dutch economy was more resilient than the average Euro area economy in 2020 owing in part to a high rate of digitalization of activities that allowed a large share of the work force to work remotely, while the strong policy response mitigated the impact of containment measures. A strong recovery is underway, with pre-pandemic GDP level to be exceeded in 2021:Q4, and the labor market has tightened considerably. The economy is forecast to grow by 4.0 percent in 2021 and 3.3 percent in 2022, on the back of strong consumption and investment, supported by increasing coverage of vaccines. Near-term risks to the outlook are roughly balanced, driven by the uncertain trajectory of the pandemic on the downside, while a fuller than expected drawdown of savings accumulated in the pandemic would further support domestic demand and growth. Further out, real estate market developments present additional risks.
    Keywords: government finance statistics yearbook; insolvent firm; housing market vulnerability; household debt; transparency policy; COVID-19; Labor markets; Financial sector risk; Europe; Global
    Date: 2021–11–15
  35. By: Pierre-Edouard Collignon (CREST-Ecolepolytechnique, France)
    Abstract: How should fiscal policy react to shocks ex-post while preserving incentives to work and save ex-ante? The standard solution involves a commitment to a contingent policy, whereby the initial government sets all the policies for all future states of the world. Contingent policies are unrealistic. As an alternative, I introduce ”No Regret Fiscal Reforms”: the government has the discretion to change its fiscal policy provided households do not regret their past decisions. Hence flexibility is provided and incentives to work and save are preserved. Such reforms can be achieved by changing taxes on both capital and labor such that wealth effects exactly compensate substitution effects. In a representative agent framework, I study how a benevolent government uses No Regret fiscal reforms and I make comparisons to the optimal contingent policy. Both approaches yield very similar policies and allocations but No Regret reforms entail a small welfare loss. Second, I consider robustness to Near-Rational Expectations i.e the government is uncertain of the households’ beliefs about the distribution of shocks and implements a policy robust to this uncertainty. No Regret fiscal reforms are fully robust to this departure from rational expectations. Finally, I characterize No Regret fiscal reforms with wealth and skill heterogeneity.
    Keywords: Ramsey model, stochastic publics pending, fiscal rule, discretion
    JEL: E61 E62 H21 H63
    Date: 2021–11–08
  36. By: Raphael Auer; Jon Frost; Leonardo Gambacorta; Cyril Monnet; Tara Rice; Hyun Song Shin
    Abstract: In just a few years, central banks have rapidly ramped up their research and development effort on central bank digital currencies (CBDCs). A growing body of economic research informs these activities, often focusing on the "reserves for all" aspect of CBDCs for retail use. However, CBDCs should be considered in the full context of the digital economy and the centrality of data, which raises concerns around competition, payment system integrity and privacy. This paper gives a guided tour of the growing literature on CBDCs on the microeconomic considerations related to operational architectures, technologies and privacy, and the macroeconomic implications for the financial system, financial stability and monetary policy. A set of questions, particularly on the cross-border dimensions of CBDCs, remains unresolved, and calls for further work to expand the research frontier.
    JEL: C72 C73 D4 E42 E58 G21 O32 L86
    Date: 2021–11
  37. By: Rustam Jamilov
    Abstract: This paper studies the social capital channel of monetary non-neutrality in the United States. Empirically, identification is achieved by combining state-level local projections and high-frequency monetary surprises with survey data on trust, historical accounts of slavery from the 1860 Census, and the Trump vote. I find that states with high social capital - as measured by high trust towards institutions, low slavery intensity, or low Trump vote - are more responsive to monetary policy shocks. Theoretically, I embed a micro-founded circle of trust block into the New Keynesian model in continuous time. Equilibrium reduces to a four-equation NK model with distrust dampening the potency of monetary policy shocks, like in the data, and reducing the possibility of determinate equilibria. The framework also formalizes an equilibrium interaction between social capital, monetary policy and populism cycles - an exogenous decline in institutional trust boosts scepticism and weakens monetary policy.
    Keywords: Social capital, trust, monetary policy, central banking, macroeconomics, populism
    Date: 2021–10–22
  38. By: Julien Pinter (NIPE - University of Minho)
    Abstract: The Covid-19 crisis has revived an old heated debate on whether significant increases in the money supply -such as the ones accompanying central banks’ unconventional policies- ultimately lead to higher inflation. Some observers have alluded to the quantity theory of money for that purpose, sometimes in a misleading way in our view. Against this background, this paper seeks to clarify several aspects of the quantity theory of money and the so-called "monetarist" approach to it, useful to apply it fairly in the current world. First, we review and discuss the meaning of the velocity term in the quantity equation. We argue that it has no relevance as a behavioral concept: there is no such thing as a "desired velocity". Rather, income velocity should be seen as a reduced-form variable, obtained from a larger system of parameters and variables related to money demand, as the monetarist approach clearly puts it. Second, we clarify the practical relevance that the quantity theory approach can bear in the 21st century. We argue that although the quantity theory is unsuitable to explain conventional monetary policies, the mechanism on which it builds bears relevance in analyzing some recent unconventional monetary policies. Third, we review the channels and assumptions underlying the asserted quantity theory link between money growth and inflation. In light of our analysis, we conclude that the high money growth rates seen since the Covid-19 outbreak are not likely to automatically translate into higher inflation rates.
    Keywords: quantity theory of money; quantity equation; money growth; inflation; velocity of money
    JEL: B00 E41 E50 E58
    Date: 2021
  39. By: Orsetta Causa; Nhung Luu; Michael Abendschein
    Abstract: This paper provides a descriptive analysis of patterns and trends of worker transitions across European countries and the United States, with an emphasis on differences across socio-economic groups. Understanding labour market transitions is important to gauge the scope of labour market reallocation and scarring effects from the COVID-19 crisis. Results of this work show that labour market transitions vary significantly from one country to another and also within countries from one socio-economic group to another. For instance, women are much more likely than men to move in and out of jobs. This reflects the unequal burden of family-related work, which contributes to the higher propensity of women to drop out of the labour force. Zooming in on labour market transitions over the great financial crisis provides an illustration of the long-lasting effects and scarring risks associated with recessions on labour market transitions, especially for young people entering the labour market. The results of this granular analysis inform the policy debate for an efficient and inclusive recovery. While current priorities vary across countries based on economic and social context, one overarching challenge for the recovery is to facilitate hiring dynamics and to minimise long-term unemployment and scarring risks among vulnerable groups who have been hardest hit and face higher risks of scarring from the recession, in particular young people and women.
    Keywords: business cycle, COVID-19, cross-country data, differences across socio-economic groups, job mobility, Labour reallocation, labour transitions, worker flows
    JEL: E24 E32 J2 J31 J62
    Date: 2021–12–01
  40. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Stolzenburg, Ulrich
    Abstract: The recovery of the German economy needs more time. Ongoing precautionary measures to protect against infection as well as the supply bottlenecks will slow down the catch-up process in the winter. Especially in those service sector that have been particularly affected by the pandemic the recovery is likely to slow down. Moreover, supply bottlenecks have increased noticeably and will probably only ease gradually. Once the economic burdens of the pandemic and the supply bottlenecks will have eased in the coming spring, the recovery will regain strength and economic activity will quickly return to normal. Overall, GDP will increase by 2.6 percent this year, making up only part of the losses of 2020 when it declined by 4.6 percent. The recovery will become fully visible in the 2022 growth rate of 5.1 percent. In 2023, GDP is also expected to increase markedly by 2.3 percent as some of the previously lost economic activity will still be made up for. The high inflation rate of 2.9 percent this year is largely due to temporary factors. However, they are likely to persist until next year and will lead to another strong increase in consumer prices before inflation moderates again in 2023. On the labour market, the negative impact of the pandemic will probably be overcome quickly and the unemployment rate will fall from 5.9 percent in 2020 to 5.1 percent in 2023. The recovery from the Covid-19 crisis will also be reflected in the public budget. After an increase to about 5 percent relative to GDP this year, the public deficit is expected to fall to 0.7 percent in 2023 amid the phasing out of pandemic-related aid and the recovery of GDP.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook,COVID19
    Date: 2021
  41. By: Kouvavas, Omiros; Osbat, Chiara; Reinelt, Timo; Vansteenkiste, Isabel
    Abstract: Price inflation in the euro area has been stable and low since the Global Financial Crisis, despite notable changes in output and unemployment. We show that an increasing share of high markup firms is part of the explanation of why inflation remained stubbornly stable and low in the euro area over the past two decades. For this purpose, we exploit a rich firm-level database to show that over the period 1995–2018 the aggregate markup in the euro area has been on the rise, mainly on account of a reallocation towards high-markup firms. We document significant heterogeneity in markups across sectors and countries and, by linking these markup developments to the evolution of sectoral level producer and consumer price inflation, we find that (i) inflation in high-markup sectors tends to be less volatile than in low-markup sectors and (ii) inflation in high-markup sectors responds significantly less to oil supply, global demand and euro area monetary policy shocks. JEL Classification: D2, D4, N1, O3
    Keywords: firm markups, inflation, price setting
    Date: 2021–11
  42. By: International Monetary Fund
    Abstract: St. Kitts and Nevis entered the Covid-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues was prudently saved, reducing public debt below the regional debt target of 60 percent of GDP and supporting accumulation of large government deposits.
    Keywords: authorities of St. Kitts and Nevis; CBI revenue; CBI revenue volatility; government target population; CBI program; lower-than-expected CBI receipts; COVID-19; Loans; Caribbean; Western Hemisphere; Global
    Date: 2021–10–28
  43. By: Oscar Arce (Banco de España); Miguel Garcia-Posada (Banco de España); Sergio Mayordomo (Banco de España); Steven Ongena (University of Zurich - Department of Banking and Finance; NTNU Business School; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: What is the long-term impact of negative interest rates on bank lending? To answer this question we construct a unique summary measure of negative rate exposure by individual banks based on exclusive survey data and banks’ balance sheets and couple it with the credit register of Spain and firms’ balance sheets to identify this impact on the supply of credit to firms. We find that only after a few years of negative rates do affected banks (relative to non-affected banks) decrease their supply and increase their rates, especially when lowly capitalized and lending to risky firms. This suggests that the adverse effects of the negative interest rates on banks’ intermediation capacity only show up after a protracted period of ultra-low rates.
    Keywords: negative interest rates, risk taking, lending policies
    JEL: G21 E52 E58
    Date: 2021–11
  44. By: Omar Licandro; Francesca Vinci
    Abstract: The Taylor Rule is widely considered a useful tool to summarise the Fed's policy, but the information set employed in practice to assess the state of economic activity is still an object of debate. The contribution of this paper is to provide evidence in favour of the following hypotheses. First, the original Taylor Rule is a valid representation of the actual working of the Fed's monetary policy. Second, the real time beliefs of the Fed concerning potential output can be proxied by the estimates published by the Congressional Budget Office. Third, potential output estimates were revised down following the Great Recession.
    Keywords: monetary policy, Taylor Rule, Great Recession, Economic recovery
    Date: 2021
  45. By: David H. Bernstein (University of Miami); Andrew B. Martinez (Office of Macroeconomic Analysis, U.S. Department of the Treasury)
    Abstract: The COVID-19 pandemic resulted in the most abrupt changes in U.S. labor force participation and unemployment since the Second World War, and with different consequences for men and women. This paper models the U.S. labor market to help interpret the pandemic's effects. After replicating and extending Emerson's (2011) model of the labor market, we formulate a joint model of male and female unemployment and labor force participation rates for 1980-2019 and use it to forecast into the pandemic to understand the pandemic's labor-market consequences. Gender-specific differences were particularly large at the pandemic's outset; lower labor force participation persists.
    Keywords: Labor force participation, unemployment, general-to-specific modeling, cointegration
    JEL: C32 C52 E24
    Date: 2021–11
  46. By: Erik Feyen; Jon Frost; Harish Natarajan; Tara Rice
    Abstract: Proposals for global stablecoins have put a much-needed spotlight on deficiencies in financial inclusion and cross-border payments and remittances in emerging market and developing economies (EMDEs). Yet stablecoin initiatives are no panacea. While they may achieve adoption in certain EMDEs, they may also pose particular development, macroeconomic and cross-border challenges for these countries and have not been tested at scale. Several EMDE authorities are weighing the potential costs and benefits of central bank digital currencies (CBDCs). We argue that the distinction between token-based and account-based money matters less than the distinction between central bank and non-central bank money. Fast-moving fintech innovations that are built on or improve the existing financial plumbing may address many of the issues in EMDEs that both private stablecoins and CBDCs aim to tackle.
    JEL: E42 E51 E58 F31 G28 O33
    Date: 2021–10
  47. By: Sebastian Doerr; Stefan Gissler; Jose-Luis Peydro; Hans-Joachim Voth
    Abstract: Do financial crises radicalize voters? We study Germany's 1931 banking crisis, collecting new data on bank branches and firm-bank connections. Exploiting cross- sectional variation in pre-crisis exposure to the bank at the center of the crisis, we show that Nazi votes surged in locations more affected by its failure. Radicalization in response to the shock was exacerbated in cities with a history of anti- Semitism. After the Nazis seized power, both pogroms and deportations were more frequent in places affected by the banking crisis. Our results suggest an important synergy between financial distress and cultural predispositions, with far-reaching consequences.
    Keywords: financial crisis, political extremism, populism, anti-Semitism, culture, Great Depression
    JEL: E44 G01 G21 N20 P16
    Date: 2021–11
  48. By: International Monetary Fund
    Abstract: Comoros is a small, fragile island state (population: 850,000) with persistently low and shock-prone growth. The last Article IV Consultation (completed in early 2020) assessed Comoros’ fragility as arising from two vicious circles: economic fragility manifests in low fiscal revenue, insufficient government investment in human and physical capital, and pronounced vulnerability to shocks; while institutional fragility manifests in governance challenges, low government implementation capacity, and a weak judicial system. The circles feed into each other, undermining economic performance and stability. Overcoming fragility requires breaking both circles.
    Keywords: COVID pandemic; SMP design; SMP objective; burden indicator; implementation capacity; IMF's transparency policy; COVID-19; Global; Africa; West Africa; Southern Africa; Sub-Saharan Africa
    Date: 2021–10–29
  49. By: Saiz, Lorena; Ashwin, Julian; Kalamara, Eleni
    Abstract: This paper shows that newspaper articles contain timely economic signals that can materially improve nowcasts of real GDP growth for the euro area. Our text data is drawn from fifteen popular European newspapers, that collectively represent the four largest Euro area economies, and are machine translated into English. Daily sentiment metrics are created from these news articles and we assess their value for nowcasting. By comparing to competitive and rigorous benchmarks, we find that newspaper text is helpful in nowcasting GDP growth especially in the first half of the quarter when other lower-frequency soft indicators are not available. The choice of the sentiment measure matters when tracking economic shocks such as the Great Recession and the Great Lockdown. Non-linear machine learning models can help capture extreme movements in growth, but require sufficient training data in order to be effective so become more useful later in our sample. JEL Classification: C43, C45, C55, C82, E37
    Keywords: business cycles, COVID-19, forecasting, machine learning, text analysis
    Date: 2021–11
  50. By: Lilian N. Rolim; Carolina Troncoso Baltar, Gilberto Tadeu Lima
    Abstract: We investigate the effect of labor productivity growth and workers’s bargaining power on income distribution in a novel agent-based macroeconomic model mostly inspired by the post-Keynesian literature. Its main novelties are a wage bargaining process and a mark-up adjustment rule featuring a broader set of dimensions and coupled channels of interaction. The former allows nominal wages to be endogenously determined by interactions involving firms and workers, which are mediated by workers’s bargaining power. The latter assumes that firms also consider their position relative to workers (through their unit costs) to set their mark-up rates, thus linking the evolution of nominal wages in the bargaining process and labor productivity growth to the functional income distribution. This has implications for the personal income distribution through a three-class structure for households. The model reproduces numerous stylized facts, including those concerning the income distribution dynamics. By capturing the inherent social conflict over the distribution of income, our results show the importance of the coevolutionary interaction between workers’s bargaining power and productivity growth to the dynamics of income inequality and to its relationship with output. This leads to a policy dilemma between promoting productivity growth and improving income equality which can, nonetheless, be attenuated by combining policies and institutions that sustain workers’s strength with policies that stimulate technological innovation and productivity growth.
    Keywords: Agent-based modeling; labor productivity; wage bargaining; personal income inequality; functional income inequality
    JEL: C63 D31 D33 E2
    Date: 2021–11–23
  51. By: International Monetary Fund
    Abstract: Burundi is a fragile state with a history of political tensions and weak institutions. Before the Covid-19 pandemic, Burundi was recovering from an economic recession triggered by the 2015 political crisis stemming from the late President Nkurunziza’s decision to run for a third term. Real GDP growth was positive, at 1.8 percent in 2019, but difficult policy challenges persisted.
    Date: 2021–11–12
  52. By: Jing Yuan (School of Statistics, Shandong Technology and Business University, Yantai, Shandong 264005, China); Yan Peng (School of Statistics, Shandong Technology and Business University, Yantai, Shandong 264005, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Zhengyi Zhang (International School of Economics and Management, Capital University of Economics and Business, Beijing, Beijing 100070, China)
    Abstract: The structure of market yield curve and the relationship between term structure of market interest rates and economic fundamentals are of great concerns to the Chinese economy. Based on the characteristics of monetary policy and bond interest rate term structure, this paper proposes an interest rate model to evaluate quantitatively interest rate liberalization in China. The empirical findings suggest that treasury bond yield react prominently to both benchmark deposit/lending rates and the deposit reserve rate adjustment, while other monetary policy operations have little influence on the change in the yield. Benchmark rates and inflation rate have a high correlation, but the relation between expected inflation rate and market interest rates among all maturities is weak. The proposed model fits well the mean, the variance and the correlations of yields in Chinese bond market, and the fitted value estimated by inflation rate provides better calibration than the results estimated by Langrun Forecast or Baidu consumer price index.
    Keywords: Economic fundamentals; Expected inflation rate, Interest rate term structure, Interest rate marketization reform.
    JEL: G1 E4 C5
    Date: 2021–11
  53. By: Boneva, Lena; Ferrucci, Gianluigi; Mongelli, Francesco Paolo
    Abstract: Climate change has profound effects not only for societies and economies, but also for central banks’ ability to deliver price stability in the future. This paper starts by documenting why climate change matters for monetary policy: it impacts the economic variables relevant to setting the monetary policy stance, it interacts with fiscal and structural responses and it can generate dislocations in financial markets, which are impossible for monetary policy to ignore. Next, we survey several possible ways central banks can respond to climate change. These range from protective actions to more proactive measures aimed at mitigating climate change and supporting green finance and the transition to sustainable growth. We also discuss the constraints and trade-offs faced by central banks as they respond to climate risks. Finally, focusing on the specific challenges faced by inflation-targeting central banks, we consider how certain design features of this regime might interact with, and evolve in response to, the climate challenge. JEL Classification: E52, E58, Q54
    Keywords: climate change, environmental economics, green finance, monetary policy, sustainable growth economics
    Date: 2021–11
  54. By: Ghosh, Saurabh; Mazumder, Debojyoti
    Abstract: In this paper, we try to explain the role of Non-bank Financial Intermediation (NBFI) to percolate and propel a real shock to the rest of the economy through the bank-NBFI interactions. We propose a simple theoretical model which identifies the channels and distinguishes between idiosyncratic, structural and sectoral shocks, cleanly. In our model, the non-deposit taking Non-bank Financial companies (NBFCs) which are the provider of risky, small and fragmented loans, are financed by borrowing from commercial banks. This link connects the NBFCs with the commercial banks and, in turn, with the rest of the economy. A higher realization of the failed firms (idiosyncratic shock) in the NBFC financed sector and a rise in the sector-wide productivity risk (sectoral risk) increase the interest rate charged by the banks and unemployment rate but reduces the real wages and per capita capital formation of the economy. However, when the average number of failed firms increases (structural shock), the reverse happens.
    Keywords: NBFC, Bank-NBFC interaction, Real Shock, Search and matching unemployment
    JEL: E44 G21 G23 J64
    Date: 2021–11–11
  55. By: International Monetary Fund
    Abstract: The COVID-19 pandemic and related containment measures have put severe strains on the economy. The economic policy response has been strong and generally appropriate, helping counter the negative effects of the pandemic. Nevertheless, as the international borders remain shut, the economic contraction is likely to deepen in FY2021. A slow recovery is expected for FY2022 driven by a gradual border reopening. The FSM is facing significant medium-term uncertainty, owing to the possible expiration of grants and other assistance provided under the Compact Agreement with the United States. The FSM is also highly vulnerable to climate change-induced natural disasters.
    Keywords: FSM authority; FSM authorities; policy support; FSM economy; island state; FSM remain; COVID-19; Pacific Islands; Global
    Date: 2021–11–01
  56. By: International Monetary Fund
    Abstract: Spurred by strong U.S. growth and rising vaccination rates, the economy is rebounding. The government has successfully maintained external, financial, and fiscal stability despite the deepest recession in decades. Nonetheless, Mexico is bearing a very heavy humanitarian, social, and economic cost from COVID-19, including over half a million excess deaths, sizable under-employment, an increase in already-high levels of poverty, and learning losses for the young. Real income per capita is continuing its long-run divergence from the U.S., while additional challenges are emerging from technological shifts and climate change.
    Date: 2021–11–05
  57. By: Felix F. Simione; Edson Manguinhane
    Abstract: Determining the magnitude and speed of the exchange rate passthrough (ERPT) to inflation has been of paramount importance for policy-makers in developed and emerging economies. This paper estimates the exchange rate passthrough in Mozambique using econometric techniques on a sample spanning from 2001 to 2019. Results suggest that the ERPT is assymetric, sizable and fast, with 50 percent of the exchange rate variations passing through to prices in less than six months. Policy-makers should continue to pursue low and stable inflation and develop a strong track record of prudent macroeconomic policies for the ERPT to decline.
    Keywords: inflation environment; Philips-perron unit root test; long-run ERPT elasticity; CPI response; speed of the exchange rate passthrough; Exchange rate pass-through; Exchange rates; Inflation; Monetary policy frameworks; Nominal effective exchange rate; Global; Africa; Sub-Saharan Africa
    Date: 2021–05–06
  58. By: Sónia Félix; Daniel Abreu; Vítor Oliveira; Fátima Silva
    Abstract: Banco de Portugal implemented new limits to the loan-to-value (LTV) ratio in July 2018. This paper investigates the impact of these new lending limits on households’ leverage and housing choices. Using credit register data that covers the universe of loans granted to households, which allows us to account for loan and households’ characteristics and bank heterogeneity, we document a decline in the LTV ratio after the implementation of the macroprudential measure. Importantly, using a difference-in-differences estimation strategy we estimate the impact of the policy change on households that were more likely to exceed the new LTV limits in the absence of the policy change. Our results show that the policy change was effective in reducing households’ leverage as constrained households take out smaller loans and have lower loan-to-income ratios. These households pay higher interest rate spreads and have higher loan-service-to-income ratios than the control group. This paper also shows that the policy change affected households’ housing choices as constrained households bought cheaper houses. Overall, our results highlight the improvement of the risk profile of households following the introduction of the LTV limits.
    JEL: D14 E58 E61 G21 G28
    Date: 2021
  59. By: Valdivia Coria, Joab Dan; Valdivia Coria, Daney David
    Abstract: Since financial crisis in 2008 and global health crisis COVID-19, systemic risk monitoring has become a relevant variable to anticipate possible credit crunch episodes. In this paper a Composite Indicator of Systemic Stress (CISS) was constructed for Guatemala, throughout recursive Panel Vector Autoregressive Regression (PVAR) adverse effects on the performance of the economy were estimated. Results shows that shocks in systemic risk generate a fall between 0.04pp and 0.05pp on economic growth with different persistence, when the CISS is at low or high stress levels, respectively.
    Keywords: Systemic Risk, Financial Stability, Panel VAR, recursive estimation.
    JEL: C51 E44 G29
    Date: 2021–02
  60. By: Stéphane Auray; Aurélien Eyquem (UL2 - Université Lumière - Lyon 2)
    Abstract: The inception of the euro allowed countries from the periphery to experience a large fall in the cost of borrowing. Lower nominal rates were only partially offset by lower inflation rates. We rationalize this real interest rate reversal using a two-region model of a monetary union where, consistently with real interest rate data, discount factors are initially heterogeneous, leading the periphery to be borrowing-constrained. We model the inception of the euro as a partial convergence process in inflation rates and a slow rise in the discount factor of the periphery, relaxing the borrowing constraint. This simple setup accounts for the bulk of post-euro fluctuations in both regions. In particular, it replicates very well the observed joint dynamics of current accounts and terms of trade.
    Keywords: monetary union,inflation convergence,current account imbalances,borrowing constraints
    Date: 2021–06
  61. By: Danilo Cascaldi-Garcia; Flora Haberkorn; Eli Nir
    Abstract: A key challenge for monetary policymakers in achieving their inflation goals—particularly important at the current juncture—is to be able to distinguish between persistent inflationary changes and short-term idiosyncratic shocks. The most common approach for filtering out short-term price shocks from inflation is to focus on measures of "core" inflation, traditionally defined as the change in the consumer price index (CPI) excluding food and energy prices.
    Date: 2021–11–05
  62. By: Ray, Sourav; Snir, Avichai; Levy, Daniel
    Abstract: We study different notions of sale and regular prices, and their variability with store pricing-formats. We use data from three large stores with different pricing-formats (EDLP/Hi-Lo/Hybrid) that are located within 1-km radius. Importantly, the data contain both the actual transaction prices and the actual regular prices as displayed on the store shelves. We combine these data with two “generated” regular price series and study their rigidity. Regular-price rigidity varies with store-formats because different format stores define regular-prices differently. Correspondingly, the meaning of price-cuts varies across store-formats. To interpret the findings, we consider the store pricing format distribution across the US.
    Keywords: Price Rigidity,Sticky Prices,Regular Prices,Sale Prices,Filtered Prices,Reference Prices,Transaction Prices,Price Cuts,Pricing Format,Every Day Low Price,EDLP,Hi-Lo,Hybrid
    JEL: E31
    Date: 2021
  63. By: Deni Irawan (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI); Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan); Tatsuyoshi Okimoto (Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia)
    Abstract: This study examines the conditional capital surplus and shortfall dynamics of renewable and non-renewable resource firms. To this end, this study uses the systemic risk index by Brownlees & Engle (2017) and considers two conditional systemic events, namely, the stock market crash and the commodity price crash. The results indicate that generally, companies in the resource sector tend to have conditional capital shortfall before 2000 and conditional capital surplus after 2000 owing to the boom of the commodity sector stock and the moderate-to-careful capital structure management adopted by these companies. This finding is especially valid for resource firms from developed countries, whose observations dominate the dataset used in this study. Furthermore, the analysis using the panel vector autoregressive model indicates a positive influence of commodity price, geopolitical, and economic policy uncertainties on the conditional capital shortfall. These uncertainties have also been proven to increase the conditional failure probability of firms in the sample. Lastly, the performance analysis shows that potential capital shortfall is positively related to market return, reflecting a high-risk high-return trade-off for this sector.
    Keywords: systematic risk index — commodity prices — macroeconomic uncertainties — panel vector autoregression
    JEL: E32 G32
    Date: 2021
  64. By: António Afonso; José Carlos Coelho
    Abstract: We study the relationship between the budget balance and the current account balance for European Union (EU) countries, using quarterly data from 1995 to 2020. Through the use of panel Granger causality tests and a panel SUR model, we conclude that the relationship is bi-directional for the EU panel as a whole. Furthermore, we find that in Eurozone countries, before 2010, for those countries with an average current account balance-toGDP ratio outside the range of -4 to 6%, and also in countries whose average debt-toGDP ratio is greater than 60%, the impact of the budget balance on the current account balance is greater. Conversely, in non-Eurozone countries, after 2010, in countries with a current account balance-to-GDP ratio of -4 to 6%, and also in countries with an average debt-to-GDP ratio of less than 60%, the impact of the fiscal balance on the current account balance is less relevant.
    Date: 2021
  65. By: Metodij Hadzi-Vaskov; Samuel Pienknagura; Luca Antonio Ricci
    Abstract: This paper explores the macroeconomic impact of social unrest, using a novel index based on news reports. The findings are threefold. First, unrest has an adverse effect on economic activity, with GDP remaining on average 0.2 percentage points below the pre-shock baseline six quarters after a one-standard deviation increase in the unrest index. This is driven by sharp contractions in manufacturing and services (sectoral dimension), and consumption (demand dimension). Second, unrest lowers confidence and raises uncertainty; however, its adverse effect on GDP can be mitigated by strong institutions and by a country’s policy space. Third, an unrest “event”, which is captured by a large change in the unrest index, is associated with a 1 percentage point reduction in GDP six quarters after the event. Impacts differ by type of event: episodes motivated by socio-economic reasons result in sharper GDP contractions compared to those associated with politics/elections, and events triggered by a combination of both factors lead to sharpest contractions. Results are not driven by countries with adverse growth trajectories prior to unrest events or by fiscal consolidations, and are robust to instrumenting via regional unrest.
    Keywords: unrest data; policy space; GDP weight; RSUI-implied Unrest Events; E. addressing reverse causality; Fiscal consolidation; Estimation techniques; Consumption; Economic recession; Emerging and frontier financial markets; Global
    Date: 2021–05–07
  66. By: Donata Faccia (Department of Economics, Trinity College Dublin, and European Central Bank); Giuseppe Corbisiero (Central Bank of Ireland)
    Abstract: This paper uses a unique dataset where credit rejections experienced by euro area firms are matched with firm and bank characteristics. This allows us to study simultaneously the role that bank and firm weakness had in the credit reduction observed in the euro area during the sovereign debt crisis, and in credit developments characterising the post-crisis recovery. Compared with the existing literature matching borrowers' and lenders' characteristics, our dataset provides a better representation of euro area firms of small and medium size. Our findings suggest that, while firm balance sheet factors have been strong determinants of credit rejections, in the crisis period bank weakness made it harder to obtain external finance for firms located in stressed countries of the euro area.
    Keywords: Credit supply, Bank lending, Credit crunch, European sovereign debt crisis
    JEL: E44 F36 G01 G21
    Date: 2020–01
  67. By: Vicente Esteve (Universidad de Valencia and Universidad de Alcalá, Spain); María A. Prats (Universidad de Murcia, Spain)
    Abstract: In this article, we use tests of explosive behavior in real house prices with annual data for the case of Australia for the period 1870?2020. The main contribution of this paper is the use of very long time series. It is important to use longer span data because it o¤ers more powerful econo- metric results. In order to detect episodes of potential explosive behavior in house prices over this long period, we use the recursive unit root tests for explosiveness proposed by Phillips, Wu, and Yu (2011), and Phillips, Shi, and Yu (2015a,b). According to the results, there is clear specula- tive bubble behavior in real house prices between 1997-2020, speculative process that has not yet been adjusted.
    Keywords: House price; Explosiveness; Recursive unit root test; Multiple Structural Breaks
    JEL: E31 R21 E62 H62 R39
    Date: 2021–11
  68. By: Chavan, Sumit Sunil; Shafighi, Najla
    Abstract: The main aim of this paper is to validate the Sticky Price Monetary Model in India and China. This aim will be achieved by the investigation of the major determinants of exchange rate in these two economies. One of the main reasons of conducting this research is because the last 25 years were crucial years in developing Asia (especially India and China) after Globalisation. Another reason is because exchange rate is an element of attracting Foreign Direct Investment which has started in India in 1991 and in China mainly after 1980. In this study, we take exchange rate as the dependant variable and money supply, interest rate, Consumer price index and GDP as independent variables based on the sticky price monetary model. A Quantitative Method with the help of regression is implemented for data analysis and to obtain the results. The data from year 1995 to year 2020 for India and China has been collected from the World Bank database. This study will help to understand and identify the major determinants of exchange rate behaviour in the two countries. The empirical results indicate that for the case of China, money supply, GDP, and CPI are found to be significant in the model. The coefficient of money supply and CPI are positive while GDP found to be negative. For the case of India, interest rate, money supply and GDP found to be significant. The coefficient of interest rate and money supply are positive, and GDP is negative. The GDP impact in both economies is negative, an increase in GDP results in a decrease in the exchange rate. More specifically, when GDP increases, the value of the local currency will increase as locals will pay less to get the same amount of foreign currency ($US). These findings will have important information for the policy makers.
    Keywords: Keywords: Exchange rate, money supply, Interest rate, GDP, CPI
    JEL: G0
    Date: 2021–08
  69. By: Ryan Niladri Banerjee; José María Serena Garralda
    Abstract: Direct lenders, non-bank credit intermediaries with low leverage, have become increasingly important players in corporate loan markets. In this paper we investigate the role they play in the monetary policy transmission mechanism, using syndicated loan data covering the 2000-2018 period. We show that direct lenders are more likely to join loan syndicates whenever monetary policy announcements trigger a contraction in borrowers' net worth irrespective of the directional change in interest rates. Thus, our findings suggest that direct lenders dampen the financial accelerator channel of monetary policy.
    Keywords: direct lending, monetary policy, financial accelerator, credit channel
    JEL: G21 G32 F32 F34
    Date: 2021–11
  70. By: Metodij Hadzi-Vaskov; Rene Zamarripa; Mr. Luca A Ricci; Alejandro M. Werner
    Abstract: Do governments in Latin America tend to be optimistic when preparing budgetary projections? We address this question by constructing a novel dataset of the authorities’ fiscal forecasts in six Latin American economies using data from annual budget documents over the period 2000-2018. In turn, we compare such forecasts with the outturns reported in the corresponding budget documents of the following years to understand the evolution of fiscal forecast errors. Our findings suggest that: (i) for most countries, there is no general optimistic bias in the forecasts for the fiscal balance-to-GDP ratio (though there may be for the components); (ii) fiscal forecasts have improved for some countries over time, albeit they have worsened for others; (iii) in terms of drivers, we show that forecast errors for the fiscal balance-to-GDP ratio are positively correlated with GDP growth and terms of trade changes and negatively with GDP deflator surprises; (iv) forecast errors for public debt-to-GDP ratios are negatively associated with surprises to GDP growth; (v) lastly, budget balance rules seem to help contain the size of the fiscal forecast errors.
    Keywords: forecast bias; budget balance rule; GDP ratio; expenditure rule; revenue-to-GDP ratio; Fiscal stance; Budget planning and preparation; Fiscal rules; Caribbean
    Date: 2021–06–04
  71. By: Digvijay, Dilip Bhujbal; shafighi, Najla
    Abstract: The goal of this research is to learn more about India's unemployment condition and how the country's GDP and inflation rate influence unemployment. We used data from the years 2000 to 2019 in our research. In this research, regression analysis is used to determine the relationship between India's unemployment, GDP, and inflation rate. The technique of finding the connections between two or more variables is known as regression analysis. Unemployment is a dependent variable and GDP, and rate of inflation are two independent variables. The findings of the final study are presented as a linear regression analysis. We can readily determine how India's GDP and inflation rate influence unemployment in India using linear regression analysis. Unemployment is greatly influenced by GDP. India's unemployment rate falls as the country's GDP rises. While India's inflation rate has a no significant impact on the country's unemployment rate.
    Keywords: Keywords: unemployment, GDP, Inflation
    JEL: E00
    Date: 2021–08
  72. By: Florian Eckert (ETH Zurich, Switzerland); Nina Mühlebach (ETH Zurich, Switzerland)
    Abstract: This paper proposes a multi-level dynamic factor model to identify common components in output gap estimates. We pool multiple output gap estimates for 157 countries and decompose them into one global, eight regional, and 157 country-specific cycles.Our approach easily deals with mixed frequencies, ragged edges, and discontinuities in the underlying output gap estimates. To restrict the parameter space in the Bayesian state space model, we apply a stochastic search variable selection approach and base the prior inclusion probabilities on spatial information. Our results suggest that the global and the regional cycles explain a substantial proportion of the output gaps. On average, 18% of a country’s output gap is attributable to the global cycle, 24% to the regional cycle, and 58% to the local cycle.
    Keywords: Multi-Level DFM, Bayesian State Space Model, Output Gap Decomposition, Model Combination, Business Cycles, Variable Selection, Spatial Prior
    JEL: C11 C32 C52 F44 R11
    Date: 2021–11
  73. By: Igor Livshits; Youngmin Park
    Abstract: This paper offers a simple theory of inefficiently lax financial regulation arising as an outcome of a democratic political process. Lax financial regulation encourages some banks to issue risky residential mortgages. In the event of an adverse aggregate housing shock, these banks fail. When banks do not fully internalize the losses from such failure (due to limited liability), they offer mortgages at less than actuarially fair interest rates. This opens the door to home ownership for young, low net-worth individuals. In turn, the additional demand from these new home-buyers drives up house prices. This leads to a non-trivial distribution of gains and losses from lax regulation among households. On the one hand, renters and individuals with large non-housing wealth suffer from the fragility of the banking system. On the other hand, some young, low net-worth households are able to get a mortgage and buy a house, and current (old) home-owners benefit from the increase in the price of their houses. When these latter two groups, who benefit from the lax regulation, constitute a majority of the voting population, then regulatory failure can be an outcome of the democratic political process.
    Keywords: Financial stability; Financial system regulation and policies; Housing; Interest rates
    JEL: E44 E63 G12
    Date: 2021–11
  74. By: Simplice A. Asongu (Yaounde, Cameroon); Nathanael Ojong (York University, Toronto, Canada); Valentine B. Soumtang (University of Yaoundé II, Cameroon)
    Abstract: This study explores the responses to the COVID-19 pandemic by the Bank of Central African States (BEAC), which is the central bank for countries in the Central African Economic and Monetary Community (CEMAC), that is, Cameroon, Chad, Gabon, Equatorial Guinea, Central African Republic, and the Republic of Congo. While hitherto, BEAC had fundamentally focused on fighting inflation and promoting monetary integration and financial stability in its member states, the COVID-19 pandemic, among other factors, has motivated it to also shift its policies towards targeted credit programmes and more economic growth. This study sheds light on four core aspects: (i) the socio-economic context of the CEMAC region prior to the COVID-19 pandemic, (ii) BEAC as a lender of last resort, (iii) historical, contemporary, and future insights surrounding targeted credit programmes, and (iv), suggestions for the path forward in terms of reforms, with emphasis on inclusive growth and monitoring economic development at the regional level.
    Keywords: Covid-19 pandemic; monetary policy; central bank responses; CEMAC, BEAC
    Date: 2021–08
  75. By: Mr. Mico Mrkaic; Borislava Mircheva; Jelle Barkema; Yuanchen Yang
    Abstract: This paper dives into the Fund’s historical coverage of cross-border spillovers in its surveillance. We use a state-of-the-art deep learning model to analyze the discussion of spillovers in all IMF Article IV staff reports between 2010 and 2019. We find that overall, while the discussion of spillovers decreased over time, it was pronounced in the staff reports of some systemically important economies and during periods of global spillover events. Spillover discussions were more prominent in staff reports covering advanced and emerging market economies, possibly reflecting their role as sources of global spillovers. The coverage of spillovers was higher in the context of the real, financial, and external sectors. Also, countries with larger economies, higher trade and capital account openess and lower inflation are more likely to discuss spillovers in their Article IV staff reports.
    Keywords: spillover discussion; model performance; discussion of spillover; General spillover pattern; spillover event; IMF staff calculation; Spillovers; Probit models; Machine learning; Capital account; Inflation; Global
    Date: 2021–05–07
  76. By: Klaus Weyerstraß
    Abstract: This EconPol Policy Report assesses the macroeconomic impact of fiscal policy measures introduced by the Austrian government during the Covid-19 crisis in 2020 and 2021. Large parts of the stimulus package aimed at stabilizing companies, employment and private households. According to the study short-term work schemes were particularly successful. Equally effective were measures supporting companies and the self-employed who were directly affected by the containment measures, e.g. liquidity support (fixed cost subsidies and loss compensations), tax reductions and tax deferrals. While support to private consumption generally is not the recommended fiscal policy reaction to a recession which is caused by government measures to restrict consumption possibilities, support to companies, employees and the self-employed who are affected by the closure of some businesses are appropriate, according to the study. At the same time, those companies that would have left the market anyway should not kept alive articifially, as this would hamper structural change. For the same reason, short-time work schemes should only be offered as long as the contaiment measures or other pandemic-related problems such as supply-chain disruptions prevail.
    Date: 2021
  77. By: Harashima, Taiji
    Abstract: Some investments succeed and others fail. Furthermore, the probability of success will differ among people who undertake investments. In this paper, we construct exogenous and endogenous growth models that show that this heterogeneity in success rates of investment can cause extreme economic inequality. A major implication of our models is that even if the success rates are only slightly heterogeneous, people with relatively higher success rates can accumulate a larger amount of capital than those with relatively lower success rates, and as a result, the latter cannot satisfy all of their optimality conditions leading to extremely high debt-to-consumption ratios and large indebtedness to the former group. I then modify the models to consider multilateral behavior and the necessity of government intervention to improve this situation by means of simultaneous heterogeneity. I find that to prevent such extreme economic inequality, it is indispensable for the government to intervene appropriately by transferring appropriate amounts of income from the former to the latter.
    Keywords: Economic inequality; Success rate of investment; Heterogeneous ability
    JEL: D63 E22 H24
    Date: 2021–11–15
  78. By: Grimm, Niklas; Laeven, Luc; Popov, Alexander
    Abstract: To what extent can Quantitative Easing impact productivity growth? We document a strong and heterogeneous response of corporate R&D investment to changes in debt financing conditions induced by corporate debt purchases under the ECB’s Corporate Sector Purchase Program. Companies eligible for the program increase significantly their investment in R&D, relative to similar ineligible companies operating in the same country and sector. The evidence further suggests that by subsidizing the cost of debt, corporate bond purchases by the central bank stimulate innovation through a wealth transfer to innovative companies with low debt levels, rather than by supporting credit constrained firms. JEL Classification: E5, G10, O3
    Keywords: corporate innovation, productivity growth, quantitative easing, unconventional monetary policy
    Date: 2021–11
  79. By: Bluwstein, Kristina; Buckmann, Marcus; Joseph, Andreas; Kapadia, Sujit; Şimşek, Özgür
    Abstract: We develop early warning models for financial crisis prediction by applying machine learning techniques to macrofinancial data for 17 countries over 1870–2016. Most nonlin-ear machine learning models outperform logistic regression in out-of-sample predictions and forecasting. We identify economic drivers of our machine learning models using a novel framework based on Shapley values, uncovering nonlinear relationships between the predic-tors and crisis risk. Throughout, the most important predictors are credit growth and the slope of the yield curve, both domestically and globally. A flat or inverted yield curve is of most concern when nominal interest rates are low and credit growth is high. JEL Classification: C40, C53, E44, F30, G01
    Keywords: credit growth, machine learning, Shapley values, yield curve, financial crises, financial stability
    Date: 2021–11
  80. By: Boukbech, Rachid; Liouaeddine, Mariem
    Abstract: The objective of this article is to assess the impact of fiscal decentralization on social inclusion at the local level in Morocco during the period 2002-2017. To this end, we constructed a social inclusion index (IIS) according to the ACP approach, and we calculated two fiscal decentralization indices (revenue (IDFR) and expenditure (IDFD)) which are alternately the exogenous variables of the two models estimated using time series econometric techniques. The control variables used are gross fixed capital formation (GFCF) and the population growth rate (TxPOP). The empirical results of the study show that the model of fiscal decentralization measured by expenditure is not significant. However, fiscal decentralization measured by revenue has a significant and negative impact on social inclusion. This finding indicates that the effect of fiscal decentralization in Morocco remains limited. The mobilization of local tax revenues could depend not only on the fiscal decentralization system adopted, but also on other political, socio-economic, demographic, etc. factors.
    Keywords: Fiscal decentralization, social inclusion, local level
    JEL: E62 F63 R58
    Date: 2021–11
  81. By: Richard H. Clarida
    Date: 2021–11–19
  82. By: Davide Furceri; Pietro Pizzuto; Mr. Prakash Loungani; Mr. Jonathan David Ostry
    Abstract: Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola and Zika) have been followed by increases in inequality (Furceri, Loungani, Ostry and Pizzuto, 2020). In this paper, we show that the extent of fiscal consolidation in the years following the onset of these pandemics has played an important role in determining the extent of the increase in inequality. Episodes marked by extreme austerity—measured using either the government’s fiscal balance, health expenditures or redistribution—have been associated with an increase in the Gini measure of inequality three times as large as in episodes where fiscal policy has been more supportive. We survey the evidence thus far on the distributional impacts of the COVID-19 pandemic, which suggests that inequality is likely to increase in the absence of strong policy actions. We review the case made by many observers (IMF 2020; Stiglitz 2020; Sandbu 2020b) that fiscal support should not be withdrawn prematurely despite understandable concerns about high public debt-to-GDP ratios.
    Keywords: impact of pandemic; pandemic event; severity of pandemic; pandemic case; pandemic dummy; COVID-19; Income inequality; Fiscal stance; Income; Health care spending; Global
    Date: 2021–04–30
  83. By: International Monetary Fund
    Abstract: A 9-month Staff Monitored Program (SMP) combined with a disbursement under the Rapid Credit Facility (RCF) of 50 percent of quota (about US$174 million) was approved on March 30, 2021 to address BOP challenges and build a track record towards an upper credit tranche financial arrangement. This followed a disbursement under the RCF in November 2020 of 15 percent of quota (about US$52 million), which was the first-ever financial disbursement from the Fund to South Sudan. Progress has continued in implementing the revitalized peace agreement of 2018: following the formation of a unity government in February 2020 and the appointment of state governors in June 2020, the national parliament was sworn into office in August 2021. The humanitarian situation remains dire, with about 60 percent of the population facing high levels of acute food insecurity.
    Date: 2021–11–15
  84. By: Mr. Amine Mati; Ms. Monique Newiak; James Wilson
    Abstract: This paper focuses on identifying potential asymmetric responses of non-commodity output growth in times of positive and negative commodity terms-of-trade shocks. Using a sample of 27 oil-exporting countries and a panel VAR method, the study finds: 1) the short-and medium-run response of real non-commodity GDP growth is larger for negative shocks than positive shocks; 2) this asymmetry is more pronounced in countries with weak pre-existing fundamentals–high levels of public debt and low levels of international reserves–which also serve to amplify the volatility of the response; 3) the output response to positive shocks is stronger following a sustained period of CTOT increases, while the impact of negative shocks on output are more damaging when they occur after a period of CTOT decline.
    Keywords: GDP Response; commodity exporter; terms-of-trade shock; A. commodity exporter; commodity Real GDP; Commodity prices; Commodity price indexes; Commodity price fluctuations; Oil; Global; Central and Eastern Europe; Middle East; North Africa; Central Asia; Caribbean
    Date: 2021–06–11
  85. By: International Monetary Fund
    Abstract: Strong fiscal institutions have contributed to Chile’s macroeconomic stability, and recent reform initiatives have focused on enhancing these institutions and fiscal transparency. This report assesses fiscal transparency practices in Chile in relation to the requirements of the IMF’s Fiscal Transparency Code and confirms that many elements of sound fiscal transparency practices are already in place. Chile’s practices meet the principles of the code at a good or advanced level for 21 out of the 36 principles. This is a good score, compared to the average for Latin American Countries and Emerging Market Economies. On a further nine principles, Chile meets the basic standard of practice. Chile’s fiscal transparency practices are very strong for fiscal forecasting and budgeting, followed by fiscal reporting, while fiscal risk analysis and management demonstrate more mixed results. Further improvements could be achieved relatively easily through the publication of some internal analyses or through a more timely or user-friendly publication of already available information.
    Date: 2021–11–11
  86. By: Mr. Zhongxia Jin; Haobin Wang; Yue Zhao
    Abstract: Based on VAR analyses across 26 countries, we show that, although foreign exchange intervention (FXI) is effective in stabilizing the nominal exchange rate in the short run, its impacts on the real exchange rate are less significant: Limitations on nominal exchange rate flexibility may induce adjustments to the real exchange rate through domestic prices. We find that countries that intervene more heavily in response to external shocks experience greater general and asset price volatility, which is not conducive to countering the impact of external shocks. We show that China’s macroeconomic responses to external shocks are broadly consistent with international experiences among intervening countries. The simple methodological framework adopted in this paper is meant to examine a broad set of macroeconomic variables and bears limitations; our findings serve to motivate more structural analysis on FXI’s macroeconomic impacts going forward.
    Keywords: nominal exchange rate IRF; asset price volatility; housing price IRF; floaters IRF; stock price IRF; Real exchange rates; Nominal effective exchange rate; Asset prices; Real interest rates; Exchange rates; Global
    Date: 2021–04–30
  87. By: Allan, Corey; Maré, David C. (Motu Economic and Public Policy Research Trust)
    Abstract: We study the extent to which firm financial performance is passed on to workers in the form of higher wages and how this has changed over 2002-2018. We measure financial performance as value added per worker and as quasi-rents. Quasi-rents better approximate the resources available to be shared between workers and firms as the measure takes into account the rental cost of capital as well as the reservation wages. We estimate the reservation wage bill for each firm using estimates from a two-way fixed-effect model and further decompose the pass-through into contributions from worker sorting and rent-sharing. Our IV 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.
    Keywords: wage determination, rent sharing, worker sorting
    JEL: J31 J71 E25 D22
    Date: 2021–10
    Abstract: The world economy has experienced rapid polarization and concentration of wealth that has progressed rapidly over the past 30 years. Wealth inequality has caused a variety of socio-economic changes, and economic inequality remains unresolved. This study presented implications for fiscal and external policies by examining the wealth inequality faced by the global economy from various angles. First, we investigated the effect of wealth inequality on growth and consumption in Korea. Based on the results, the authors explored the direction for the redistribution policy and the consumption stabilization policy for the low-income class. Next, to alleviate income inequality, the determinants of income inequality were examined, focusing on the progressive fiscal policy and asset prices. Lastly, the impact of income inequality on the external economy was empirically analyzed to derive implications for future current account balances.
    Keywords: asset price change; economic inequality; external economic variables; growth; consumption; future current account
    Date: 2020–12–11
  89. By: Alexander F. Tieman; Jason Harris; Yugo Koshima; Alessandro De Sanctis
    Abstract: This paper compiles the Intertemporal Public Sector Balance Sheets for all G7 countries and examines their relationship with government borrowing costs. In 2018, all G7 countries have negative Intertemporal Net Financial Worth (INFW), falling short of their intertemporal budget constraint. A decomposition of the evolution of INFW shows that short-term fluctuations are mainly driven by fiscal policy changes, while in the long run demographic changes and health and pension obligations play a larger role. We find that on average a 10 percentage point of GDP increase in INFW reduces the (future) 10-1 year sovereign yield curve spread by 2.8 basis points. This results suggest that financial markets pay attention to governments’ future policy obligations, in addition to its current assets and liabilities.
    Keywords: balance sheet framework; negative Intertemporal Net Financial Worth; INFW 0; evolution of INFW; INTERTEMPORAL NET; Financial statements; Health care spending; Fiscal stance; Pension spending; Global
    Date: 2021–05–06
  90. By: Isaiah Hull; Or Sattath
    Abstract: The properties of money commonly referenced in the economics literature were originally identified by Jevons (1876) and Menger (1892) in the late 1800s and were intended to describe physical currencies, such as commodity money, metallic coins, and paper bills. In the digital era, many non-physical currencies have either entered circulation or are under development, including demand deposits, cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), in-game currencies, and quantum money. These forms of money have novel properties that have not been studied extensively within the economics literature, but may be important determinants of the monetary equilibrium that emerges in the forthcoming era of heightened currency competition. This paper makes the first exhaustive attempt to identify and define the properties of all physical and digital forms of money. It reviews both the economics and computer science literatures and categorizes properties within an expanded version of the original functions-and-properties framework of money that includes societal and regulatory objectives.
    Date: 2021–11
  91. By: Evgenij Komarov (Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland)
    Abstract: So-called "capital flows", i.e. of physical capital from relatively poor to rich countries, are a new phenomenon with yet unclear impact. We develop a unified framework incorporating economic institutions, human capital and physical capital to study the interaction of international capital ows and growth. Analytically, we study conditions under which a positive change of a country's economic institutions can attract inflows of physical capital from abroad, leading to long-term growth via the accumulation of human capital. Our mechanism shows how a small initial difference in the level of institutions can lead to substantial divergence in income over time. We derive conditions under which a country receives in flows of capital over time and increases its investment in human capital. Finally, we provide simulations to illustrate our results.
    Keywords: Growth, International Capital Flows, Inequality, Institutions, Human Capital
    JEL: E02 F21 F43 O41 O43
    Date: 2021–11
  92. By: Carlos San Juan Mesonada; Carlos Sunyer Manteiga
    Abstract: The paper attempts to recover empirical evidence related to the European Structural and Investment Funds (ESIF) to promote growth for the management of the Recovery & Resilience Facility (RRF). We analyse the impact of the EU Cohesion Policy on regional development over the period 1986-2018, using dynamic panel data models. In doing so, we use a neoclassical Solow growth model, extending the current literature in at least three ways. First, we make use of a new dataset, which contains highly detailed data on regional commitments and payments of Structural Funds; secondly, we address the endogeneity via a difference GMM estimator; finally, we control for the spatial interdependence among regions via a Spatial Durbin model. We find that the Cohesion Policy fosters regional growth both in the short and long run, regardless of the Objective considered. The role of the business cycle in the speed of regional convergence is quantified. The funds’ effectiveness is hindered during the crisis, especially in the least developed regions, partly due to lower absorptive rates. Furthermore, human capital and quality of government are crucial growth determinants necessary for improving the performance of the Structural Funds. Finally, we discuss if the combination of ESIF & RRF funds will be appropriate for accelerating the post-pandemic recovery versus the financial recession recovery.
    Date: 2021
  93. By: Jabbie, Mohamed; Jackson, Emerson Abraham
    Abstract: This paper attempts to empirically validate the purchasing power parity (PPP) theory in the context of Sierra Leone. To achieve this objective, cointegration and error correction techniques were utilised to account for both long and short-run dynamics over the period 2007Q1 to 2019Q1. The Engel-Granger cointegration technique was utilised to ascertain the long-run relationship between the exchange rate and the price differential between Sierra Leone and the United States of America, while the redundant variable test was used to attain the parsimonious short-run error correction model. The results indicated a cointegrating relationship, while the coefficient on the price differential was greater than one (1), reflecting that the PPP does not hold for Sierra Leone. Moreover, the short-run results showed a rejection of the theory and rather endorses the presence of depreciation inertia, where past depreciation of the exchange rate is a major determinant of its current depreciating trend.
    Keywords: Purchasing Power Parity, Exchange Rate, Inflation, Cointegration, Sierra Leone
    JEL: C32 E41 F31
    Date: 2020–01–01
  94. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Stolzenburg, Ulrich
    Abstract: Die Erholung der deutschen Wirtschaft verzögert sich. Die Vorsichtsmaßnamen zum Infektionsschutz sowie die anhaltenden Lieferengpässe dürften im Winterhalbjahr zu einer Delle im Aufholprozess führen. So wird sich dann wohl vor allem bei den besonders von der Pandemie belasteten Dienstleistungsbranchen die Erholung verlangsamen. Die Produktionshemmnisse in der Industrie durch die Lieferengpässe haben zuletzt sogar noch einmal spürbar zugenommen und werden sich voraussichtlich erst allmählich mildern. Wenn im kommenden Frühjahr die wirtschaftlichen Belastungen durch die Pandemie größtenteils ausgestanden sind und die Lieferengpässe nachgelassen haben, wird die Erholung wieder an Kraft gewinnen und das Wirtschaftsgeschehen rasch wieder zur Normalität zurückkehren. Insgesamt dürfte das Bruttoinlandsprodukts im laufenden Jahr nach dem Rückgang um 4,6 Prozent im Krisenjahr 2020 mit einem Anstieg von 2,6 Prozent nur einen Teil Einbußen wettmachen. Vollständig sichtbar wird die Erholung im Jahresergebnis 2022 mit einer Zuwachsrate von 5,1 Prozent. Auch im Jahr 2023 wird die Wirtschaftsleistung mit 2,3 Prozent voraussichtlich recht deutlich zunehmen, weil dann noch ein Teil der zuvor entfallenden wirtschaftlichen Aktivität nachgeholt werden wird. Die hohe Inflationsrate von 2,9 Prozent im laufenden Jahr geht größtenteils auf temporäre Faktoren zurück. Sie werden jedoch vorrausichtlich auch in das kommende Jahr hineinreichen und nochmals zu einem kräftigen Anstieg der Verbraucherpreise führen, bevor die Inflation im Jahr 2023 wieder moderater ausfällt. Auf dem Arbeitsmarkt wird die Corona-Krise wohl rasch überwunden werden und die Arbeitslosenquote von 5,9 Prozent im Jahr 2020 auf 5,1 Prozent im Jahr 2023 zurückgehen. Auch im Staatshaushalt wird sich die Erholung von der Corona-Krise deutlich widerspiegeln. Nach einem Anstieg des Defizits auf knapp 5 Prozent in Relation zum Bruttoinlandsprodukt im laufenden Jahr, dürfte es aufgrund der auslaufenden pandemiebedingten Hilfsgelder und Subventionen sowie der höheren Wirtschaftsleistung auf 0,7 Prozent im Jahr 2023 sinken.
    Keywords: Konjunkturprognose,Stabilisierungspolitik,Frühindikatoren,Ausblick,COVID19,business cycle forecast,stabilization policy,leading indicators,outlook,COVID19
    Date: 2021
  95. By: Mr. Raphael A Espinoza
    Abstract: In this paper, we estimate the aggregate and sectoral fiscal multipliers of EU Structural Investment (ESI) Funds and of public investment at the EU level. We complement these results with a specific application to the case of Slovenia. We first analyze aggregate data and find large and significant multipliers and strong crowding-in of private investment. Our main findings show that positive shocks to ESI Funds are followed by an increase in output that ranges from 1.2 percent on impact, to 1.8 percent after 1 year, and by an increase in private investment between 0.7 and 0.8 percent of GDP. We address country heterogeneity by dividing countries according to key characteristics that have been known to affect multipliers. In particular, we find higher multipliers in a group of CEE countries that are important recipients of European funds and are characterized by fixed exchange rate regimes and sound public investment governance (e.g. Croatia and Slovenia). We also complement the aggregate analysis by estimating the effect of different types of public investment and the effect of public investment on different sectors of the economy.
    Keywords: aggregate multiplier; sectoral multiplier; aggregate analysis; public investment; impact multiplier; Public investment spending; Private investment; Public employment; Manufacturing; Employment; Eastern Europe
    Date: 2021–04–30
  96. By: Reda Cherif; Karl Walentin; Brandon Buell; Carissa Chen; Jiawen Tang; Nils Wendt
    Abstract: The COVID-19 pandemic underscores the critical need for detailed, timely information on its evolving economic impacts, particularly for Sub-Saharan Africa (SSA) where data availability and lack of generalizable nowcasting methodologies limit efforts for coordinated policy responses. This paper presents a suite of high frequency and granular country-level indicator tools that can be used to nowcast GDP and track changes in economic activity for countries in SSA. We make two main contributions: (1) demonstration of the predictive power of alternative data variables such as Google search trends and mobile payments, and (2) implementation of two types of modelling methodologies, machine learning and parametric factor models, that have flexibility to incorporate mixed-frequency data variables. We present nowcast results for 2019Q4 and 2020Q1 GDP for Kenya, Nigeria, South Africa, Uganda, and Ghana, and argue that our factor model methodology can be generalized to nowcast and forecast GDP for other SSA countries with limited data availability and shorter timeframes.
    Keywords: model prediction; quantile plot; ML model; GDP YoY; data variable; YoY percent change; Factor models; Machine learning; Time series analysis; Spot exchange rates; Mobile banking; Africa; Sub-Saharan Africa
    Date: 2021–05–01
  97. By: Ms. Annette J Kyobe; Oksana Dynnikova; Mr. Slavi T Slavov
    Abstract: This paper examines how regional disparities have evolved in Russia and how Russia’s system of intergovernmental fiscal relations is managing these disparities. Regional disparities have fallen over the past two decades but remain relatively high. Socioeconomic outcomes remain worse in lagging regions despite faster growth and convergence in income levels. The twin shocks of COVID-19 and lower oil prices appear to have impacted richer regions disproportionately. Compared to other large countries with federal systems of government, Russia stands out with its high reliance on direct taxes as a revenue source for its regions. Transfers from the federal budget to the regions provide some redistribution by reducing the dispersion in real per capita fiscal spending, but also tend to be associated with lower growth. The Russian fiscal system offers degrees of redistribution and risk sharing of around 26 and 18 percent, respectively—with in-kind social transfers contributing the most. Finally, federal transfers in the aggregate tend to be procyclical and are also fairly unresponsive to shocks to regions’ own revenues.
    Keywords: risk sharing; Russia's system; transfers from the federal budget; complex system; inequality in Russia; Income; Income inequality; Disposable income; Fiscal federalism; Global
    Date: 2021–05–20
  98. By: YENLIDE, Tchablemane
    Abstract: The objective of this paper is to analyze the effect of corruption on illicit capital outflows in Sub-Saharan African (SSA) countries. More specifically, we measured the direct effect of corruption on illicit capital flows on the one hand and analyzed the effect of democracy on the relationship between corruption and illicit capital flows on the other. The results obtained using the Generalized Method of Moments (GMM) on a panel of 36 sub-Saharan African countries over the period 2005 to 2013, show that corruption significantly increases illicit capital outflows. However, democracy helps mitigate the positive effect of corruption on illicit capital flight. In sum, aggressive anti-corruption policies and the promotion of democracy in SSA are likely to reduce illicit capital outflows.
    Keywords: Corruption, Democracy, Illicit capital flight, SSA
    JEL: E6 G38 H63 O11
    Date: 2021–11–18
  99. By: Yue-Jun Zhang (Business School, Hunan University, Changsha 410082, China; Center for Resource and Environmental Management, Hunan University, Changsha 410082, China); Han Zhang (Business School, Hunan University, Changsha 410082, China; Center for Resource and Environmental Management, Hunan University, Changsha 410082, China); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: Forecasting of the artificial intelligence index returns is of great significance for financial market stability and the development of artificial intelligence industry. To provide investors more reliable reference in terms of artificial intelligence index investment, this paper selects the Nasdaq CTA Artificial Intelligence and Robotics (AI) Index as the research target, and proposes novel hybrid methods to forecast the AI index returns by considering its nonlinear and time-varying characteristics. Specifically, this paper uses the ensemble empirical mode decomposition (EEMD) method to decompose the AI index returns, and combines the least square support vector machine approach together with the particle swarm optimization (PSO-LSSVM) method and the generalized autoregressive conditional heteroskedasticity (GARCH) model to construct novel hybrid forecasting methods. The empirical results indicate that: first, the decomposition and integration models usually produce superior forecasting accuracy than the single forecasting models, due to the complicated feature of the non-decomposed data. Second, the newly proposed hybrid forecasting method (i.e., the EEMD-PSO-LSSVM-GARCH model) which combines the advantage of traditional econometric models and machine learning techniques can yield the optimal forecasting performance for the AI index returns.
    Keywords: AI index return forecasting, PSO-LSSVM model, GARCH model, Decomposition and integration model, Combination model
    JEL: Q43 G15 E37
    Date: 2021–11
  100. By: Ms. Natasha X Che
    Abstract: With the debt obligation of Itaipú Binational being completed paid off by 2023, the Annex C of the Treaty of Itaipú, which governs the operation and revenue distribution of the Itaipú Dam, is due for review and possible revisions. The implications for Paraguay’s export revenues and fiscal position are potentially significant. The paper reviews the current energy distribution and sales arrangements of Itaipú and the potential implication of the Annex C revision for the future.
    Keywords: revenue distribution; distribution of the Itaipú Dam; sales arrangement; Annex C revision; compensation payment; Electricity; Exports; Fiscal stance; Renewable energy; Natural resources
    Date: 2021–05–05
  101. By: Mr. Jochen R. Andritzky; Ke Wang; Zsuzsa Munkacsi
    Abstract: Structural conditionality of IMF-supported programs is designed to support structural reforms by countries borrowing from the IMF. Taking stock of program conditions and their implementation, this paper finds that conditionality focuses on fiscal, monetary and financial issues—areas where IMF expertise is strong—and shies away from structural areas such as labor or product market reforms. Hence, tackling deep-rooted structural issues during IMF-supported programs often remained elusive. To ensure countries gain most from IMF conditionality, the paper outlines an evaluation matrix for prioritizing and designing structural reforms, and applies it to case studies.
    Date: 2021–05–13
  102. By: Danielyan, Vladimir; Polterovich, Victor
    Abstract: We improve and investigate a dynamic model of the behavior of the population of agents belonging to different income groups during the transition from a pay-as-you-go to a mixed pension system. The model is based on the assumption that wealthier participants are characterized by a lower rate of income discount, which actually means an orientation toward a longer planning horizon. It provides a satisfactory approximation of the trajectories observed in Argentina after the pension reform of 1993, which is largely similar to the Russian reform of 2002. The model shows that as income increases, the proportion of representatives of the corresponding income group who prefer to "keep in the shadow" should decrease. This pattern is consistent with observations. The model explains why pension reforms in many countries have resulted in an expansion of the shadow sector. The impact of the minimum pension, the rate of return on pension savings and the retirement age on the levels of participation of different income groups in the pension system is studied.
    Keywords: pension reform, pay-as-you-go system, fully-funded system, retirement age, minimum seniority, informal sector, participation level
    JEL: D02 E02 H55 O43
    Date: 2021–11–14

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