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on Macroeconomics |
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Issue of 2021‒12‒13
89 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Gorodnichenko, Yuriy (University of California, Berkeley); Sergeyev, Dmitriy (Bocconi University) |
| Abstract: | We document a new fact: in U.S., European and Japanese surveys, households do not expect deflation, even in environments where persistent deflation is a strong possibil- ity. This fact stands in contrast to the standard macroeconomic models with rational expectations. We extend a standard New Keynesian model with a zero-lower bound on inflation expectations. Unconventional monetary policies, such as forward guid- ance, are weaker. In liquidity traps, the government spending output multiplier is finite, and adverse aggregate supply shocks are not expansionary. The possibility of confidence-driven liquidity traps is attenuated. |
| Keywords: | inflation expectations, non-rational beliefs, survey data |
| JEL: | E5 E7 G4 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14853&r= |
| By: | Hervé Le Bihan (Banco de España and Banque de France); Magali Marx (Banque de France); Julien Matheron (Banque de France) |
| Abstract: | A number of central banks in advanced countries use ranges, or bands, around their inflation target to formulate their monetary policy strategy. The adoption of such ranges has been proposed by some policymakers in the context of the Fed and the ECB reviews of their strategies. Using a standard New Keynesian macroeconomic model, we analyze the consequences of tolerance range policies, characterized by a stronger reaction of the central bank to inflation when inflation lies outside the range, than when it is close to the target, i.e., the central value of the band. We show that (i) a tolerance band should not be a zone of inaction: the lack of reaction within the band endangers macroeconomic stability and leads to the possibility of multiple equilibria; (ii) the trade-off between the reaction needed outside the range versus inside appears unfavorable: a very strong reaction, when inflation is far from the target, is required to compensate for a moderately lower reaction within tolerance band; (iii) these results, obtained within the framework of a stylized model, are robust to many alterations, in particular allowing for the zero lower bound. |
| Keywords: | monetary policy, inflation ranges, inflation bands, zero lower bound (ZLB), endogenous regime switching |
| JEL: | E31 E52 E58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2142&r= |
| By: | Sangyup Choi (Yonsei Univ); Junhyeok Shin (Johns Hopkins University); Seung Yong Yoo (Yonsei University) |
| Abstract: | Are government spending shocks inflationary at the zero lower bound (ZLB)? Despite the importance of the inflation channel in amplifying a government spending multiplier at the ZLB, empirical evidence has not provided a clear answer to this question. Exploiting newly constructed high-frequency data on government spending and the price index of the U.S. economy, we find that prices decline persistently in response to a positive government spending shock at the ZLB. When compared to normal times, government spending shocks are less inflationary and less expansionary at the ZLB. Our finding is difficult to reconcile with the larger fiscal multiplier at the binding ZLB often predicted by standard New Keynesian models via rising inflation and a falling real interest rate. High-frequency developments in consumer confidence, economic policy uncertainty, and oil prices, as well as changes in the component of military spending during the ZLB period, do not explain this anomaly. |
| Keywords: | Zero lower bound; Government spending; Online price index; High-frequency data; New Keynesian model; COVID-19 |
| JEL: | E31 E32 E62 F31 F41 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2021rwp-189&r= |
| By: | Daniel Schaefer (Institut für Volkswirtschaftslehre, Johannes-Kepler-Universität Linz); Carl Singleton (Department of Economics, University of Reading) |
| Abstract: | Low inflation has forced the topic of downward nominal wage rigidity (DNWR) back to the centre stage of macroeconomics. We use over a decade of representative payroll data from Great Britain to document novel facts about wage adjustments. We find that basic wages drive the cyclicality of marginal labour costs, which makes them the most relevant wage measure for macroeconomic models that incorporate wage rigidity. Basic wages show substantially more evidence of downward rigidity than previously documented. Every fifth hourly-paid and every sixth salaried employee normally sees no basic wage change from year-to-year, and very few experience cuts. Wage freezes were more common in the Great Recession and are far more likely in smaller firms. We also find evidence that employers compress wage growth when inflation is low, indicating that DNWR constrains wage setting. Further, we show that the wages of new hires and incumbent employees respond equally to the business cycle. These results all point to the importance of including DNWR in macroeconomic and monetary policy models, and our simulations demonstrate that the empirical extent of DNWR can cause considerable long-run output losses. |
| Keywords: | Downward nominal wage rigidity, Hiring wages, Unemployment fluctuations, Macroeconomic policy, Marginal labour costs |
| JEL: | E24 E32 J31 J33 |
| Date: | 2021–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2021-22&r= |
| By: | Saccal, Alessandro |
| Abstract: | The equation of exchange is derived from a standpoint encompassing the physics and economics thereof, whereby the maximisation of a money value function, increasing in real output and decreasing in the real money supply, while accounting for time and space, subjected to a money constraint, at the macroeconomic level, gives rise to an optimal level of real output thereby, expressing the liquidity demand coefficient as the inverse quotient of space over time. The fusion of such a liquidity demand coefficient expression with the money constraint, which is the equilibrium Cambridge equation, in turn gives rise to an equation for space, being the position of money, whose differentiation is precisely instantaneous money velocity and thence the exchange equation as presented by Fisher. The present analysis also derives money position on account of non-constant instantaneous money velocity as instantiated by Fisher, advancing a framework for the macroeconomy’s general money value function and money constraint in the process. It likewise advances simulations of non-constant average and instantaneous money velocity, with a particular application to a stylised closed macroeconomy. It finally proceeds to remodel instantaneous money velocity through the use of ordinary differential equations (ODEs) for the money equations of motion, both generally, by letting the sum of the three equal a corrected exponential random walk with drift, and through a money force model, of free accumulation with financial assets resistance. This work thus remarks in sum that money velocity as customarily calculated, taught and understood is not univocal. |
| Keywords: | Cambridge equation; equation of exchange; liquidity; money position; money velocity; quantity theory of money. |
| JEL: | A12 B59 E21 E23 E31 E41 E43 E51 Z00 |
| Date: | 2021–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110772&r= |
| By: | Jia, Pengfei |
| Abstract: | This paper studies optimal monetary policy in a small open economy DSGE model with non-tradable goods and sticky prices. The introduction of non-traded goods is shown to have important implications for the transmission of shocks and monetary policy arrangements. First, the results show that positive technology shocks need not lead to deflation. In response to technology shocks, real exchange rates and the terms of trade depreciate. The relative price of tradable to non-tradable goods may increase or decrease, depending on the shocks. Second, based on welfare analysis, this paper evaluates the performance of different interest rate rules. The results show that if monetary policy is not very aggressive, the Taylor-type interest rate policy that targets CPI inflation performs the best. However, as monetary policy becomes relatively aggressive, the policy that targets domestic inflation is shown to yield the highest level of welfare. Third, this paper studies the Ramsey policy and optimal allocations. The results indicate that the Ramsey optimal policy stabilizes the inflation rates in both production sectors, while allowing for volatilities in CPI inflation, real exchange rates, the terms of trade, and the relative price of tradable goods. This suggests that the interest rate rules targeting CPI inflation or exchange rates are suboptimal. The results also show that in response to sector specific shocks, the Ramsey planner only cares about the inflation rate in the sector where the shock originates. |
| Keywords: | Optimal monetary policy; Small open economy; Non-tradable goods, Business cycles; Exchange rates |
| JEL: | E31 E32 E52 F31 F41 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110805&r= |
| By: | Iancu, Aurel (Institutul National de Cercetari Economice "Costin C. Kiritescu" al Academiei Române); Olteanu, Dan Constantin (Institutul National de Cercetari Economice "Costin C. Kiritescu" al Academiei Române) |
| Abstract: | In this study we aim to determine the nature of the discretionary fiscal policy practiced by non-euro EU member states (of which Romania is a part) and to deduce some inclinations or preferences of some of these countries for one of the two types of fiscal policies - procyclical or anticyclical. For this purpose, we used time series for the period 1995-2020, of the cyclically-adjusted primary balance, the output gap (actual GDP - potential GDP), as well as additional indicators - public debt, fiscal rules index and election years. From the signs and magnitude of the correlation and regression coefficients, it results that almost all countries have learned the necessary lessons from the economic / financial crisis, in order to move from a pro-cyclical policy, during 1995-2008, to an anti-cyclical policy, in 2009-2020. This is confirmed both by the coefficients calculated for each country and by the average coefficients calculated for the whole group of countries, over the two periods. |
| Keywords: | discretionary fiscal policy, fiscal reaction function, procyclicality, business cycle |
| JEL: | H61 H62 E62 E65 E32 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ror:seince:211130&r= |
| By: | Coleman, Winnie; Nautz, Dieter |
| Abstract: | Using the exact wording of the ECB's definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure long-term inflation expectations and the credibility of the inflation target. Our results indicate that credibility has decreased in our sample period, particularly in the course of the deep recession implied by the COVID-19 pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term. We investigate how inflation expectations and the impact of the pandemic depend on personal characteristics including age, gender, education, income, and political attitude. |
| Keywords: | Credibility of Inflation Targets,Household Inflation Expectations,Expectation Formation,Online Surveys,Covid-19 Pandemic |
| JEL: | E31 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:658&r= |
| By: | Christoph Lauper; Giacomo Mangiante |
| Abstract: | We evaluate household-level inflation rates since 1980, for which we compute various dispersion measures, and we assess their reaction to monetary policy shocks. We find that (i) contractionary monetary policy significantly and persistently decreases inflation dispersion in the economy, and that (ii)different demographic groups are heterogeneously affected by monetary policy. Due to different consumption bundles, middle-income households experience higher median inflation rates, which at the same time are more reactive to a contractionary monetary policy shock, leading to an overall convergence of inflation rates between income groups. These results imply that (iii) the impact of monetary policy shocks on expenditure inequality is significantly more muted once we control for differences in individual inflation rates. |
| Keywords: | monetary policy, inflation inequality, redistributional effects |
| JEL: | E31 E52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:21.02a&r= |
| By: | Camille Cornand; Rodolphe Dos Santos Ferreira |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-49&r= |
| By: | Grytten, Ola Honningdal (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | The present paper seeks to investigate the importance of financial instability during four banking crises, with focus on the small open economy of Norway. The crises elaborated on are the Post First world war crisis of the early 1920s, the mid 1920s Monetary crisis, the Great Depression of the 1930s and the Scandinavian banking crisis of 1987-1993. <p> The paper firstly offers a brief description of the financial instability hypothesis as applied by Minsky, Kindleberger, and in a new explicit dynamic financial crisis model. Financial instability creation basically happens in times of overheating, overspending and over lending, i.e., during significant booms, and have devastating effects after markets have turned into a state of crises. <p> Thereafter, the paper tests the validity of the financial instability hypothesis by using a quantitative structural time series model. The test reveals upheaval of financial and macroeconomic indicators prior to the crises, making the economy overheat and create asset bubbles due to huge growth in debt. These conditions caused the following banking crises. <p> Finally, the four crises are discussed qualitatively. The conclusion is that significant increase in money supply and debt caused overheating, asset bubbles and finally financial and banking crises which spread to the real economy. |
| Keywords: | Financial crises; banking crises; financial stability; macroeconomic; economic history; monetary expansion |
| JEL: | E44 E51 E52 F34 G15 N24 |
| Date: | 2021–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2021_018&r= |
| By: | Chang, Yoosoon; Kwak, Boreum; Qiu, Shi |
| Abstract: | We investigate U.S. monetary and fiscal policy interactions in a regime-switching model of monetary and fiscal policy rules where policy mixes are determined by a latent bivariate autoregressive process consisting of monetary and fiscal policy regime factors, each determining a respective policy regime. Both policy regime factors receive feedback from past policy disturbances, and interact contemporaneously and dynamically to determine policy regimes. We find strong feedback and dynamic interaction between monetary and fiscal authorities. The most salient features of these interactions are that past monetary policy disturbance strongly influences both monetary and fiscal policy regimes, and that monetary authority responds to past fiscal policy regime. We also find substantial evidence that the U.S. monetary and fiscal authorities have been interacting: central bank responds less aggressively to inflation when fiscal authority puts less attention on debt stabilisation, and vice versa. |
| Keywords: | monetary and fiscal policy rules,endogenous regime switching,joint estimation,policy interactions,feedback channels |
| JEL: | C13 C32 E52 E63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:122021&r= |
| By: | Kamila, Anshuman (Economic Division, Department of Economic Affairs, Ministry of Finance) |
| Abstract: | This paper examined fiscal dominance in the Indian context by measuring the impact of Centre's primary fiscal balance on real interest rates and real GDP growth rate in the VECM framework. It was observed that an improvement in fiscal balance had a positive impact on real interest rate prior to 2003, and in the subsequent periods it turned negative. With regard to the impact of primary fiscal balance on real growth rate, it was observed that the period of 1978-2003 remained a period of dominant fiscal presence and an improvement in fiscal balance i.e. a reduction in fiscal deficit had a positive growth effect. The period following 2003, there was no evidence of fiscal dominance in the Indian economy. |
| Keywords: | VECM ; Cholesky impulse response ; fiscal dominance ; FRBM |
| JEL: | E52 E62 H62 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:21/359&r= |
| By: | Jin Cao; Valeriya Dinger; Tomás Gómez; Zuzana Gric; Martin Hodula; Alejandro Jara; Ragnar Juelsrud; Karolis Liaudinskas; Simona Malovaná; 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: | Financial institutions; Monetary policy transmission; International topics |
| JEL: | E43 E58 F34 F42 G28 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-62&r= |
| By: | Adjemian, Stéphane (University of Le Mans); Karamé, Frédéric (University of Le Mans); Langot, François (University of Le Mans) |
| Abstract: | This study demonstrates that nonlinearities, coupled with worker heterogeneity, make it possible to reconcile the Diamond–Mortensen–Pissarides model with the labor market dynamics observed in the United States. Nonlinearities, induced by firings and downward real wage rigidities, magnify adjustments in quantities, whereas heterogeneity concentrates them on the low-paid workers' submarkets. The model fits the job finding, job separation, and unemployment rates well. It also explains the Beveridge curve's dynamics and the cyclicality of the involuntary component of separations. The estimated dynamics of the aggregate shock that allows generating the US labor market fluctuations has a correlation with unemployment that changes of sign during the 80s. We also show that the differences in adjustment between submarkets predicted by the model are consistent with the data of job flows by educational attainment. |
| Keywords: | search and matching, unemployment dynamics, nonlinearities, particle filter, maximum likelihood estimation |
| JEL: | C51 E24 E32 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14822&r= |
| By: | Lutz Kilian; Xiaoqing Zhou |
| Abstract: | Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a year-over-year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, but only by 0.4 percentage points at the end of 2022. In contrast, the impact on measures of core inflation such as trimmed mean PCE inflation is only 0.4 and 0.3 percentage points in 2021 and 2022, respectively. These estimates already account for any increases in inflation expectations under the scenario. The peak response of the 1-year household inflation expectation would be 1.2 percentage points, while that of the 5-year expectation would be 0.2 percentage points. |
| Keywords: | Scenario; inflation; expectation; oil price; gasoline price; household survey; core; pandemic; recovery |
| JEL: | E31 E52 Q43 |
| Date: | 2021–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:93432&r= |
| By: | Adrien Bilal; Niklas Engbom; Simon Mongey; Giovanni L. Violante |
| Abstract: | This paper evaluates the impact of slowing economic growth on labor market dynamism and misallocation. It provides a model of endogenous growth via imitation in a frictional labor market. The framework accounts for rich data on worker job-to-job transitions as well as stochastic and lifecycle properties of firm growth and job reallocation. High productivity entrants gradually replace obsolescing incumbents by poaching their workers, a process that is intermediated via a frictional labor market. When the likelihood of entrants imitating technologies in the tail of the distribution falls (ideas are harder to find), so does growth. Consistent with US data over the past 30 years, firm entry, incumbents’ employment response to productivity shocks, and job-to-job transitions decline, while the share of old firms increases. With lower imitation, however, there is less misallocation, because the slower aggregate rate of obsolescence induces productive firms to invest more in costly hiring and grow faster to their optimal size. |
| JEL: | E23 E24 O4 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29479&r= |
| By: | Kilian, Lutz; Nomikos, Nikos K.; Zhou, Xiaoqing |
| Abstract: | Since the 1970s, exports and imports of manufactured goods have been the engine of international trade and much of that trade relies on container shipping. This paper introduces a new monthly index of the volume of container trade to and from North America. Incorporating this index into a structural macroeconomic VAR model facilitates the identification of shocks to domestic U.S. demand as well as foreign demand for U.S. manufactured goods. We show that, unlike in the Great Recession, the primary determinant of the U.S. economic contraction in early 2020 was a sharp drop in domestic demand. Although detrended data for personal consumption expenditures and manufacturing output suggest that the U.S. economy has recovered to near 90% of pre-pandemic levels as of March 2021, our structural VAR model shows that the component of manufacturing output driven by domestic demand had only recovered to 59% of pre-pandemic levels and that of real personal consumption only to 76%. The difference is mainly accounted for by unexpected reductions in frictions in the container shipping market. |
| Keywords: | Merchandise trade,container,shipping,manufacturing,consumption,COVID-19,supply chain,recession,recovery,globalization |
| JEL: | E32 E37 F47 F62 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:659&r= |
| By: | Krishnamurthy, Arvind (Stanford Graduate School of Business and NBER); Li, Wenhao (Stanford Graduate School of Business and NBER) |
| Abstract: | Bank-created money, shadow-bank money, and Treasury bonds all satisfy investor’s demand for a liquid transaction medium and safe store of value. We measure the quantity of these three forms of liquidity and their corresponding liquidity premium over a sample from 1926 to 2016. We empirically examine the links between these different assets, estimating the extent to which they are substitutes, and the amount of liquidity per-unit-of-asset delivered by each asset. We construct a new broad monetary aggregate based on our analysis and show that it helps resolves the money-demand instability and missing-money puzzles of the monetary economics literature. Our empirical results inform models of the monetary transmission mechanism running through shifts in asset supplies, such as quantitative easing policies. Our results on the substitutability of bank and shadow-bank money also inform analyses of the coexistence of the shadow-banking and regulated banking system. |
| JEL: | E41 E44 E63 G12 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3991&r= |
| By: | Marek Weretka (University of Wisconsin-Madison; Group for Research in Applied Economics (GRAPE)) |
| Abstract: | This paper extends the notion of equivalent variation to an abstract decision problem. It also provides a modern, ordinal variant of the maximum theorem that formulates the assumptions in terms of underlying preferences and demonstrates the continuity of classic preference-based welfare indices (i.e., equivalent and compensating variations, Hicks (1939)). As such indices are formally defined as a minimal distance between certain contour sets, we call our result an ordinal minimum theorem. We also apply the theorem to the relevant economic problems. |
| Keywords: | Collateral Constraints, Adaptive Learning, Financial Shocks, Great Recession |
| JEL: | E32 E44 G18 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:61&r= |
| By: | Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano |
| Abstract: | This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution. |
| Keywords: | credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data |
| JEL: | E24 E44 G21 J21 J31 J63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_169v2&r= |
| By: | Peter Andre (University of Bonn); Ingar Haaland (University of Bergen and CESifo); Christopher Roth (University of Cologne); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen) |
| Abstract: | We survey retail investors at an online bank to study beliefs about the autocorrelation of aggregate stock returns, and how these beliefs shape investment decisions measured in administrative account data. Individuals' beliefs exhibit substantial heterogeneity and predict trading responses to market movements. We inform a random half of our respondents that historically the autocorrelation of aggregate returns was close to zero, which persistently changes their beliefs. Among those initially believing in mean reversion, treated respondents buy significantly less equity during the COVID-19 crash four months later. Our results highlight how heterogeneity in subjective models causally drives trade in asset markets. |
| Keywords: | Narratives, Inflation, Beliefs, Macroeconomics, Fiscal Policy, Monetary Policy |
| JEL: | D83 D84 E31 E52 E71 |
| Date: | 2021–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kucebi:2118&r= |
| By: | Aditya Aladangady; Etienne Gagnon; Benjamin K. Johannsen; William B. Peterman |
| Abstract: | We explore the long-run relationship between income risk, inequality, and the macroeconomy in an overlapping-generations model in which households face uncertain streams of labor income and returns on their savings. To manage those risks, households can apportion their savings to a bond, whose return is safe and identical across households, and a productive asset, whose return is uncertain and can differ persistently across households. We find that greater polarization in households' labor income and returns on their savings generally accentuates households' demand for risk-free assets and the compensation they require for bearing risk, leading to higher measured income and wealth inequality, a lower risk-free real interest rate, and higher risk premiums. These findings suggest that the factors behind the observed rise in inequality over the past few decades might have contributed to the observed fall in the risk-free real interest rate and widening gap between the risk-free real interest rate and the rate of return on capital. We also find that the magnitude of the decline in the risk-free real interest rate and offsetting rise in risk premiums depend importantly on the source of income polarization, with the effects being especially large when greater inequality is caused by increased dispersion in returns on risky assets. Thus, the macroeconomic implications not only depend on the amount of inequality, but also the source of this inequality. |
| Keywords: | Income and wealth inequality; Heterogeneous returns; Risk-free real interest rate; Risk premium |
| JEL: | D31 D33 E21 E25 J11 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-73&r= |
| 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 E52 L1 L11 L16 L22 L81 M10 M21 M30 M31 |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110818&r= |
| By: | Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano |
| Abstract: | This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution. |
| Keywords: | credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data |
| JEL: | E24 E44 G21 J21 J31 J63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_169v1&r= |
| By: | Raphael Auer; Jon Frost; Michael Junho Lee; Antoine Martin; Neha Narula |
| Abstract: | In the past year, a number of central banks have stepped up work on central bank digital currencies (CBDCs – see map). For central banks, are CBDCs just a defensive reaction to private-sector innovations in money, or are they an opportunity for the monetary system? In this post, we consider several long-standing goals of central banks in their support and provision of retail payments, why and how central banks tackle these issues, and where CBDCs fit into the array of potential solutions. |
| Keywords: | CBDC; digital innovation |
| JEL: | E5 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93420&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:246847&r= |
| By: | Adam Remo; Aya Achour; Omar Chafik; Mr. Ales Bulir |
| Abstract: | The Morocco Policy Analysis model (MOPAM) was created in the Bank Al-Maghrib to simulate the impact of external developments, domestic macroeconomic policies, and structural reforms on key macroeconomic aggregates. We describe its structure and demonstrate its operation on two medium-term scenarios: (1) fiscal consolidation to stabilize the debt-to-GDP ratio and (2) the effects of the COVID-19 shock, including the endogenous fiscal and monetary policy response. |
| Keywords: | MOPAM policy option; B. policy scenario; B. scenario assumption; fiscal consolidation scenario; monetary policy response; COVID-19; Fiscal consolidation; Value-added tax; Global; Maghreb |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/122&r= |
| By: | Yongchen Zhao (Department of Economics, Towson University) |
| Abstract: | We propose a procedure that jointly estimates expectation, uncertainty, and disagreement using a flexible hierarchical ordered response model and individual-level qualitative data. Based on the Michigan survey of US consumers, our results reveal how their inflation expectations and the associated uncertainty are affected by various factors, including their perceptions of economic conditions, recollections of relevant news reports, and sociodemographic characteristics. An examination of the dynamics of inflation uncertainty and disagreement produces evidence in support of using the latter as a proxy of the former. However, our results also highlight important episodes (such as the start of the COVID pandemic) in which the two series diverge. |
| Keywords: | Joint estimation, Quantification, Household demographics, Subjective news shocks, Hierarchical ordered response model. |
| JEL: | C53 E31 D80 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2021-03&r= |
| By: | Dean Parker; Moritz Schularick |
| Abstract: | The term spread is the difference between interest rates on short- and long-dated government securities. It is often referred to as a predictor of the business cycle. In particular, inversions of the yield curve—a negative term spread—are considered an early warning sign. Such inversions typically receive a lot of attention in policy debates when they occur. In this post, we point to another property of the term spread, namely its predictive ability for financial crisis events, both internationally and in historical U.S. data. We study the predictive power of the term spread for financial instability events in the United States and internationally over the past 150 years. |
| Keywords: | yield curve; financial crisis |
| JEL: | E58 E5 N0 G01 |
| Date: | 2021–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93395&r= |
| By: | Asier Aguilera-Bravo (Department of Business, Universidad de Navarra); Miguel Casares (Departamento de Economía, Universidad P´ublica de Navarra); Hashmat Khan (Department of Economics, Carleton University) |
| Abstract: | We provide evidence showing that the US business entry rates have been either rising or remained flat over the past decade ending their secular decline observed over previous decades. Although the number of startups relative to incumbents has been increasing, their job-size (intensive margin) has decreased substantially. Controlling for these opposite trends reveals that the size-adjusted entry rates have remained flat after 2010 at historically minimum values. The vigorous business dynamism reflected in actual entry rates, therefore, masks the weakness of employment creation in new businesses. The average number of hirings per new establishment has fallen from around 6 jobs in the 1990s to nearly 3 jobs in recent observations. |
| Keywords: | Business entry rates; Business dynamism; Size-adjusted entry rates; BED; BDS |
| JEL: | E22 E32 |
| Date: | 2021–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:21-03&r= |
| By: | Christophe Blot (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Paul Hubert (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | This Policy brief analyses the recent expansionary decisions of the ECB in September 2019, which are now under scrutiny and have even been criticized. ■ Recent facts confirm the need of an expansionary monetary policy, as inflation expectations are still decreasing and credit remains weak. ■ We pay a special attention to the three types of risk evoked in the public debate. ■ First, it has been argued that low interest rates could increase the households saving rate due to an income effect. We show that this does not materialize on recent data. We observe such a correlation only for Germany, and this already before 2008, casting some doubt on the direction of the causality. ■ Second, it is argued that the banks' profits are at risk because of low interest rates. We show that banks' profits are steady and are recovering since 2012, and that the new measures are not expected to have a negative effect on bank's profits. ■ Third, using a macro-finance assessment of financial imbalances, we do not observe the emerging of bubbles on housing and stock market. ■ Although the downside should be carefully analysed, we conclude that the critics of the recent expansionary monetary policy does not rely on sound evidence. ■ Finally, and in any case, a fiscal expansion would reduce the need for expansionary policies. A discussion of the euro area fiscal stance is needed. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403620&r= |
| By: | Cecchetti, Stephen G.; Suarez, Javier |
| Abstract: | In this report we outline how a formulating normative measure of macroprudential policy stance requires a framework containing objectives, tools and transmission mechanisms. To complement the currently prevailing narrative approach, we apply lessons from the monetary policy to macroprudential policy. We begin with by proposing that the ultimate objective of macroprudential policy is to minimise the frequency and severity of economic losses arising from severe financial distress and then integrate the concept of growth-at-risk into the framework. Implementation of our framework for the evaluation of the macroprudential policy stance faces a series of challenges, including availability of the appropriate data, that policymakers generally have multiple objectives and tools, and the uncertain responses of economic agents to macroprudential policy actions. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkasc:202111&r= |
| By: | Saungweme, Talknice; Odhiambo, Nicholas M |
| Abstract: | The optimal balance between fiscal and monetary policy in achieving price stability has been contestedin literature. In the main, however, it is widely recognised that whether public debts are financed in amonetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy inensuring price stability. This study contributes to the debate by testing the dynamic causal relationshipbetween public debt and inflation in Tanzania covering the period 1970-2020. The study applies theautoregressive distributed lag (ARDL) bounds testing technique to cointegration and the ECM-basedGranger-causality test to explore this relationship. In order to address the omission-of-variable bias,which has been the major methodological deficiency detected in some previous studies, two monetaryvariables, namely money supply and interest rate, were added as intermittent variables alongside publicdebt and inflation. The findings from this study show that there is a consistent long-run cointegratingrelationship between public debt, inflation, money supply and interest rate in Tanzania. However, theresults fail to find evidence of causality between public debt and inflation in Tanzania, irrespective ofwhether the causality is estimated in the short run or in the long run. The findings of this study,therefore, show that Tanzania?s current debt is not inflationary; hence, policymakers may continue topursue the desirable fiscal policies necessary for the country?s long-term optimal growth path. |
| Keywords: | Public debt, inflation, ARDL, Granger-causality, Tanzania |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:28342&r= |
| By: | Tansel, Aysit (Middle East Technical University); Öztürk, Ceyhan (Middle East Technical University); Erdil, Erkan (Middle East Technical University) |
| Abstract: | We examine the relationship between wealth and health through prominent growth indicators and cognitive ability. Cognitive ability is represented by nutritional status. The proxy variable for nutritional status is BMI. We use the reduced form equation in the cubic specification of time preference rate, strongly related to cognitive ability, to estimate this relationship. The growth indicators utilized are GDP per capita, schooling, overall and manufacturing productivities, and savings. We estimate our models using the FE, GMM estimators, and long difference OLS and IV estimation through balanced panel data for the 1980-2009 period. We conclude that the relationship between all prominent growth indicators and BMI is inverse U-shaped. In other words, cognitive ability has a significant potential to progress growth and economic development only in a healthy status. |
| Keywords: | cognitive ability, time preference rate, BMI, productivity, health, schooling, growth, economic development |
| JEL: | E21 I15 I25 J24 O11 Q18 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14727&r= |
| By: | Yasin KürÅŸat Önder; Maria Alejandra Ruiz-Sanchez; Sara Restrepo-Tamayo; Mauricio Villamizar-Villegas |
| Abstract: | We investigate the impact of fiscal expansions on firm investment by exploiting firms that have multiple banking relationships. Further, we conduct a localized RDD approach and compare the lending behavior of banks that barely met and missed the criteria of being a primary dealer, as well as barely winners and losers at government auctions. Our results indicate that a 1 percentage point increase in banks’ bonds-to-assets ratio decreases loans by up to 0.4%, which leads to significant declines in firm investment, profits and wages. Our findings are grounded in a quantitative model with financial and real sectors with which we undertake a welfare analysis and compute the cost of government borrowing on the overall economy. **** RESUMEN: Es este estudio investigamos el impacto que tiene el gasto fiscal sobre la inversión, enfocándonos en firmas colombianas que han tenido múltiples relaciones bancarias. Además, realizamos un enfoque localizado de regresión discontinua en el cual comparamos el comportamiento crediticio de bancos que apenas cumplieron y no cumplieron con los criterios para ser un creador de mercado, así como bancos que apenas ganaron y perdieron en las subastas de TES en el mercado primario. Nuestros resultados indican que un aumento de 1 punto porcentual en la razón de bonos sobre activos de los bancos reduce los créditos hasta en un 0,4%, lo que conduce a caídas significativas en la inversión de las empresas, las ganancias y los salarios. Racionalizamos nuestros hallazgos en un modelo cuantitativo con sectores financieros y reales, y con el que realizamos un análisis de bienestar y también calculamos el costo del endeudamiento público en la economía. |
| Keywords: | fiscal multipliers, regression discontinuity design, crowding-out channel, Regresión Discontinua, multiplicador fiscal, crowding-out |
| JEL: | E44 F34 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1182&r= |
| By: | Christophe Blot (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Bruno Ducoudre (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Eric Heyer (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Raul Sampognaro (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | This Policy brief presents the last OFCE forecasts on the euro area countries and addresses the issue of margins for manoeuvre to cope with an extended period of economic slowdown in the area. Will fiscal rules fetter policy reaction? We forecast a growth rate of 1.2%, but negative risks remain substantial. We then discuss public debt evolution and compute the fiscal policies necessary to reach a 60% public debt over GDP target in 2040. The fiscal consolidation appears unrealistic in some countries, questioning the credibility of this target. In addition, we investigate the (moderate) effect of interest rate on the fiscal consolidation requirement. Finally, the very notion of fiscal space will depend on the speed of adjustment of public debt and on the level of interest rates. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403598&r= |
| By: | Elsby, Michael (University of Edinburgh); Smith, Jennifer C. (University of Warwick); Wadsworth, Jonathan (Royal Holloway, University of London) |
| Abstract: | This paper examines the role of population flows on labour market dynamics across immigrant and native-born populations in the United Kingdom. Population flows are large, and cyclical, driven first by the maturation of baby boom cohorts in the 1980s, and latterly by immigration in the 2000s. New measures of labour market flows by migrant status uncover both the flow origins of disparities in the levels and cyclicalities of immigrant and native labour market outcomes, as well as their more recent convergence. A novel dynamic accounting framework reveals that population flows have played a nontrivial role in the volatility of labour markets among both the UK-born and, especially, immigrants. |
| Keywords: | immigration, worker flows, labour market dynamics |
| JEL: | E24 J6 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14847&r= |
| By: | Saungweme, Talknice; Odhiambo, Nicholas M |
| Abstract: | The study seeks to empirically test the hypothesis that public debt has a significant influenceon inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recenttrends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflationrelated policy. These latest trends have started to ring alarming bells, which raises questionson the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in thecountry. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure tocointegration and an error correction mechanism (ECM), expanded by incorporatingstructural breaks, the study finds evidence in support of positive and significant impact ofpublic debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on thefindings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policycan be considered to be an important determinant of the effectiveness of monetary policy inZimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary. |
| Keywords: | ARDL, inflation, public debt, Zimbabwe |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:28343&r= |
| By: | Mr. Sohrab Rafiq |
| Abstract: | Korea’s stars tell of an economy saddled with a real neutral rate (r-star) that has declined significantly in recent decades and is currently below zero. This reflects a significant decline in trend growth, and two large financial crises that triggered significant shifts in the saving-investment balance. Larger fiscal deficits and frothy financial conditions since 2012 have helped offset rising demand for safer assets, preventing the neutral rate from falling further. Nonetheless, the fall in the neutral rate, coupled with its effects on asset returns, has complicated the task of monetary policy stabilization. Korea’s neutral rate is likely to remain low over the medium-term and could fall further, reflecting a structural savings-investment imbalance owing to declining productivity and a rotation in demographics increasing the demand for precautionary saving and convenience yield, and widening the capital risk premia. The COVID pandemic risks magnifying these trends. |
| Keywords: | Neutral Rate; Risk Premia; Convenience; Demographics; Savings; savings-investment imbalance; author's email; Korea rate expectations decomposition; real rate of interest; Real interest rates; Output gap; Inflation; Return on investment; Global |
| Date: | 2021–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/093&r= |
| By: | Heiner Mikosch (KOF and ETH Zurich); Christopher Roth (University of Cologne, ECONtribute, briq, CESifo, CEPR, CAGE Warwick, C-SEB); Samad Sarferaz (KOF and ETH Zurich); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen, CESifo, Danish Finance Institute) |
| Abstract: | We leverage the small open economy Switzerland as a testing ground for basic premises of macroeconomic models of endogenous information acquisition, using tailored surveys of firms and households. First, we show that firms perceive a greater exposure to exchange rate movements than households, which is reflected in higher levels of information acquisition and less dispersed beliefs about past and future exchange rate realizations. Similarly, within the two samples, acquisition of exchange rate information strongly increases in various proxies for stake size. Second, households who perceive higher costs of acquiring or processing information acquire less infor-mation. Finally, an exogenous increase in the perceived uncertainty of the exchange rate increases firms’ demand for a report about exchange rate developments, but not households’. Our findings inform the modeling of information frictions in macroeconomics. |
| Keywords: | Information acquisition, Uncertainty, Stake Size, Firms, Households |
| JEL: | D12 D14 D83 D84 E32 G11 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:129&r= |
| By: | Pazhanisamy, R.; Selvarajan, E. |
| Abstract: | The overwhelming public response towards the crypto currencies like Bitcoin, Ethorium has gained serious attention among the researchers and policy makers around the various countries. The rationale behind the claim of dis-intermediary of financial system and the low transaction cost effective nature coupled with the absence of the agency problems in the financial market creates an illusion among public to take part and attempt to speculate in it. The reviews of literature on the themes of the economics of the block chain technology used in the cryptos shows that there are high degree of uncertainties of the nature and the impact it create due to the absence regulations both partial and absolute terms on the one hand, the absence of theoretical, empirical, conceptual an methodological clarity from the economic theories on the other hand calls for an enquiry into the crypto's usefulness at the gross root levels for which this present attempt is made. Using a set of realistic assumptions a conceptual framework is prepared and the future of the money market equilibrium is predicted. In the lights of the changes in the money market equilibrium with response to the changes in the crypto currencies it is found that in the long run there will be negative impact on the economy certainly which leads to the collapse the global economics if it is unnoticed to implement necessary policy adjustments at the national and global levels collectively. |
| Keywords: | Block Chain Economics,Crypto Currency,Money Market Equilibrium,Economics of blockchain |
| JEL: | G15 G32 E42 E51 E58 F30 L51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:247260&r= |
| By: | David M. Brasington; Marios Zachariadis |
| Abstract: | We estimate the impact of plausibly exogenous changes in taxes and government spending on income by utilizing regional data and a regression discontinuity design. More specifically, we identify an exogenous cut in local taxes accompanied by an equivalent reduction in local government spending by exploiting voting on renewals of tax levies of local governments in Ohio from 1991 to 2018, using a unique database that tracks city and village-level incomes and local election outcomes over time for the complete census of cities and villages in the state. We find that such “balanced budget†reductions in taxes and spending cause a drop in local incomes. The effects persist for two or three years before petering out. |
| Keywords: | Fiscal policy, balanced budget, exogenous, income, fiscal multiplier |
| JEL: | E62 H72 R11 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:06-2021&r= |
| By: | Bańnkowska, Katarzyna; Borlescu, Ana Maria; Charalambakis, Evangelos; Da Silva, António Dias; Di Laurea, Davide; Dossche, Maarten; Georgarakos, Dimitris; Honkkila, Juha; Kennedy, Neale; Kenny, Geoff; Kolndrekaj, Aleksandra; Meyer, Justus; Rusinova, Desislava; Teppa, Federica; Törmälehto, Veli-Matti |
| Abstract: | The Consumer Expectations Survey (CES) is an important new tool for analysing euro area household economic behaviour and expectations. This new survey covers a range of important topical areas including consumption and income, inflation and gross domestic product (GDP) growth, the labour market, housing market activity and house prices, and consumer finance and credit access. The CES, which was launched as a pilot in January 2020, is a mixed frequency modular survey, which is conducted online. The survey structure and centralised data collection ensures the collection of harmonised quantitative and qualitative euro area information in a timely manner that facilitates direct cross-country comparisons. During the pilot phase, it was conducted for the six largest euro area countries and contained 10,000 individual respondents. In the context of the coronavirus (COVID-19) pandemic, the CES has been used to gather useful information on the impact of the crisis on the household sector and the effectiveness of policy measures to mitigate the effects of the pandemic. The CES also collects information on the public’s overall trust in the ECB, their knowledge about its objectives and the channels through which they learn about its monetary policy and other central bank-related topics. This paper describes the key features of this new ECB survey – including its statistical properties – and offers a first evaluation of the results from the pilot phase. It also identifies a number of areas where the survey can be usefully developed further. Overall, the experience with the CES has been very positive, and the pilot survey is considered to have achieved its main objectives. JEL Classification: C42, D12, D14, E21, E24, E31 |
| Keywords: | consumer behaviour, euro area, expectations, household surveys, micro data set |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021287&r= |
| By: | Kea BARET |
| Abstract: | This paper studies the side-effects of fiscal rules’ compliance on social welfare. It considers national Budget Balance Rules’ (BBR) compliance effects on macroeconomic indicators and social welfare proxy indicators in OECD countries between 2004 and 2015. Instead of fiscal rules strength or fiscal rules presence effectiveness, we focus on fiscal rules’ compliance to assess the impact of fiscal rules’ performance on social welfare. The paper shows that governments seem to operate a reallocation of their spending to ensure both BBR’s compliance and economic objectives. Nevertheless, governments choices regarding their public spending composition seem leading to an increase in social inequalities suggesting that governments finally face a trade-off between fiscal rules’ compliance and social objectives. The analysis constitutes the first use of a causal Machine Mearning approach, namely the Double/Debiased Machine Learning recently developed by Chernozhukov et al. [2018], applied to fiscal rules’ performance assessment issues. This method allows us to highlight the key determinants of national BBR’s compliance as well as assessing the compliance’s effect on different macroeconomic and social indicators. We take care of voter preferences by computing a new proxy variable through Latent Factor Analysis approach and show that voter preferences appear as a key determinant for BBR’s compliance, giving an empirical proof that Wyplosz [2012]’s bias may matter when assessing fiscal rules’ performance. |
| Keywords: | Fiscal rules’ compliance; Social Welfare; Fiscal Surveillance; Machine learning. |
| JEL: | E61 H11 H50 H61 H62 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2021-50&r= |
| By: | Ms. Sally Chen; Katsiaryna Svirydzenka |
| Abstract: | Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output gap are the best leading indicators in advanced markets; in emerging markets, these are equity and property prices and credit gap. Moreover, aggregating this information flags financial crisis many years before the crisis. Lastly, we find that the length of financial cycles is of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers. |
| Keywords: | equity price cycle; property price cycle; banking crisis; BIS-definition credit cycle; C. cycle property; Financial cycles; Banking crises; Credit; Land prices; Business cycles; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/116&r= |
| By: | Bruno Ducoudre (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Paul Hubert (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Guilhem Tabarly (Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper investigates whether economic activity dynamics predict GDP revisions using panel data from 15 OECD countries. We find that economic activity predicts GDP revisions: early releases tend to overestimate GDP growth during slowdowns — and vice-versa. We also find that the source of the predictability could be related to the sampling of information collection. Finally, the predictability comes from short-term economic activity dynamics rather than business cycle position. |
| Keywords: | Revision analysis,National accounts,Gross domestic product |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403017&r= |
| By: | Thibaud Cargoet (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Simon Cornée (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Franck Martin (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Tovonony Razafindrabe (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Fabien Rondeau (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Christophe Tavéra (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France) |
| Abstract: | Cet article ́etudie les implications macro ́economiques associées à la présence d’un secteur bancaire dual au sein d’une ́economie. Ce secteur regroupe à parts égales des banques mutualistes et coopératives (credit unions) et des banques de type capitaliste (cette situation s’observe notamment pour la France). Nous adoptons un modélisation macroéconomique de type DSGE idans laquelle les banques mutualistes et coopératives sont différenciées des banques traditionnelles de la manière suivante : elles pratiquent une interm ́ediation financière traditionnelle centrée sur le couple crédits/dépôts avec un recours plus faible aux activités de portefeuilles ; elles se concentrent principalement sur le financement des ménages et des petites et moyennes entreprises ; elles ont enfin un pass-through de taux d’int érêt plus faible que les banques traditionnelles. Les simulations du modèle montrent que cette configuration du secteur bancaire diminue le caractère contra-cyclique de la politique mon ́etaire mais elle constitue en revanche un facteur stabilisant pour l’économie. This article studies the macroeconomic implications generated by a dual banking sector. By dual sector, we refer to a banking sector including mutual and cooperative banks (credit unions) and traditional banks operate in substantially equal parts (as the case of France for example). We propose a DSGE macroeconomic model integrating a dual banking sector. Mutual and cooperative banks are differentiated from capitalist banks in the following way: they practice traditional financial intermediation centered on the loan - deposit pair with less recourse to portfolio activities; they mainly focus on financing households and small and medium-sized enterprises; Finally, they have a lower interest rate pass-through than traditional banks. Model simulations show that this configuration of the banking sector reduces the counter-cyclical property of monetary policy, but on the other hand it constitutes a stabilizing factor for the economy. |
| Keywords: | Banking sector, Credit Unions, DSGE Model, Monetary Policy |
| JEL: | E47 E52 G2 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2021-03&r= |
| By: | Kapeller, Jakob; Leitch, Stuart; Wildauer, Rafae |
| Abstract: | This policy study asks to what extent large-scale public investment efforts could be a viable tool to provide the necessary infrastructure to break Europe's dependency on fossil fuel and carbon emissions more broadly. We estimate semi-structural VAR models for the EU27. These are used to study the impact of permanent as well as 5-year long public investment programmes. Three key findings emerge: First, government investment multipliers for the EU27 are large and range from 5.12 to 5.25. Second, debt-to-GDP ratios are likely to fall in response to the strong economic impulse generated by additional public investment spending. The study therefore classifies additional public investment spending in the EU27 as sustainable fiscal policy. Third, single country investment initiatives will likely lead to smaller economic expansions when compared to coordinated EU-wide investment, due to Europe's strong intra-member state trade flows. A coordinated approach to fiscal policy is thus substantially more effective not only when it comes to delivering network-dependent infrastructure (rail, grid) but also with respect to the economic stimulus it creates. |
| Keywords: | Fiscal Policy,Sovereign Debt |
| JEL: | E62 H63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifsowp:16&r= |
| By: | Nicolas Soenen; Rudi Vander Vennet (-) |
| Abstract: | Using bank CDS spreads, we examine three types of determinants of Euro Area bank default risk in the period 2008-2019: bank characteristics related to new regulation, the bank-sovereign nexus and the monetary policy stance. We find that Basel 3 regulation improves the banks’ risk profile since higher capital ratios and more stable deposit funding contribute significantly to lower CDS spreads. We confirm the persistence of the bank-sovereign interconnectedness and find that sovereign default risk is transmitted to bank risk with an amplification factor. The ECB monetary policy stance is neutral with respect to bank risk, hence we find no evidence of perceived excessive risk-taking behavior. |
| Keywords: | bank default risk, CDS spreads, monetary policy, sovereign risk |
| JEL: | G21 G32 E52 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:21/1033&r= |
| By: | Radwanski, Juliusz |
| Abstract: | Can the value of a cryptocurrency be uniquely determined by the fundamentals, such as the rule for money growth implicit in the design of the protocol? To answer this question, we construct a recursive asset-pricing model for a single fiat cryptocurrency, similar to actual Bitcoin. We think of our model as an ideal laboratory, in which equilibria correspond to model solutions that can generate actual data. Our approach stresses the role of the value function as an object of rational choice and hence rests on solid micro-foundations. By imposing enough economically motivated restrictions on that choice, we are able to pin down unique equilibrium and hence demonstrate that the value of our cryptocurrency is immune to self-fulfilling expectations. This result depends only on the design of the cryptocurrency protocol. |
| Keywords: | Bitcoin, cryptocurrency, equilibrium, expectations, money, sunspots. |
| JEL: | E40 E50 G12 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110746&r= |
| By: | Inoue, Atsushi; Kilian, Lutz |
| Abstract: | Several recent studies have expressed concern that the Haar prior typically imposed in estimating sign-identified VAR models may be unintentionally informative about the implied prior for the structural impulse responses. This question is indeed important, but we show that the tools that have been used in the literature to illustrate this potential problem are invalid. Specifically, we show that it does not make sense from a Bayesian point of view to characterize the impulse response prior based on the distribution of the impulse responses conditional on the maximum likelihood estimator of the reduced-form parameters, since the the prior does not, in general, depend on the data. We illustrate that this approach tends to produce highly misleading estimates of the impulse response priors. We formally derive the correct impulse response prior distribution and show that there is no evidence that typical sign-identified VAR models estimated using conventional priors tend to imply unintentionally informative priors for the impulse response vector or that the corresponding posterior is dominated by the prior. Our evidence suggests that concerns about the Haar prior for the rotation matrix have been greatly overstated and that alternative estimation methods are not required in typical applications. Finally, we demonstrate that the alternative Bayesian approach to estimating sign-identified VAR models proposed by Baumeister and Hamilton (2015) suffers from exactly the same conceptual shortcoming as the conventional approach. We illustrate that this alternative approach may imply highly economically implausible impulse response priors. |
| Keywords: | Prior,posterior,impulse response,loss function,joint inference,absolute loss,median |
| JEL: | C22 C32 C52 E31 Q43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:660&r= |
| By: | Laura Auria (Bundesbank); Markus Bingmer (Bundesbank); Carlos Mateo Caicedo Graciano (Banque de France); Clémence Charavel (Banque de France); Sergio Gavilá (Banco de España); Alessandra Iannamorelli (Banca d'Italia); Aviram Levy (Banca d'Italia); Alfredo Maldonado (Banco de España); Florian Resch (Oesterreichische Nationalbank); Anna Maria Rossi (Banca d'Italia); Stephan Sauer (European Central Bank) |
| Abstract: | The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. |
| Keywords: | credit assessments, credit risk models, credit claims, ratings, ICAS |
| JEL: | E58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wpmisp:mip_013_21&r= |
| By: | David Chen; Christian Friedrich |
| Abstract: | We examine the impact of the recently introduced Basel III countercyclical capital buffer (CCyB) on foreign lending activities of Canadian banks. Using panel data for the six largest Canadian banks and their foreign activities in up to 94 countries, we explore the variation in CCyB rates across countries to overcome the identification challenge associated with limited time-series evidence on the use of the CCyB in individual jurisdictions. Our main sample focuses on the period from 2013Q2 to 2019Q3, when CCyB rates experienced a prolonged tightening cycle. We show that in response to a 1-percentage-point tightening announcement in a foreign CCyB, the growth rate of cross-border lending between Canadian banks’ head offices and borrowers in CCyB-implementing countries decreases by between 12 and 17 percentage points. Most importantly, due to the CCyB’s unique reciprocity rule, which also subjects foreign banks to domestic regulation, the direction of this effect differs from that of other forms of foreign capital regulation that have been previously examined in the literature. When investigating the underlying transmission channels of a CCyB change, we find that, in particular, large banks are more able than small banks to shield their cross-border lending against the impact of foreign CCyB changes. Finally, when focusing on the loosening cycle in CCyB rates that emerged in early 2020, we show that our findings on the differential effects for large and small banks also carry over to the COVID-19 episode—a time when various jurisdictions rapidly released their CCyBs to stabilize their banks’ lending activities. |
| Keywords: | Credit risk management; Financial institutions; Financial stability; Financial system regulation and policies; International topics |
| JEL: | E32 F21 F32 G28 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-61&r= |
| By: | Thomas McGregor |
| Abstract: | We investigate the role of business dynamism in the transmission of monetary policy by exploitingthe variation in firm demographics across U.S. states. Using local projections, we find that a larger fraction of young firms significantly mutes the effects of monetary policy on the labor market and personal income over the medium term. The firm entry rate and the employment share of young firms are key factors underpinning these results, which are robust to a battery of robustness tests. We develop a heterogeneous-firm model with age-dependent financial frictions that rationalizes the empirical evidence. |
| Keywords: | firm demographics; business dynamism; monetary policy; local projections; U.S. states.; U.S. states; monetary policy shock; entry rate; population demographics; policy function; startup firm; exit rate; firm productivity; growth rate; Employment; Wages; Personal income; Credit ratings; Global |
| Date: | 2021–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/063&r= |
| By: | Jacques Minlend (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Isabelle Cadoret (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France); Tovonony Razafindrabe (Univ Rennes, CNRS, CREM - UMR 6211, F-35000 Rennes, France) |
| Abstract: | While there exist numerous studies on volatility transmission across commodity markets, particularly across oil and agricultural markets, uncertainty diffusion across commodity markets remains absent from the literature. This situation is mainly due to the lack of an appropriate measure of commodity price uncertainty, which is known to be different from volatility. This study focuses on the measure of commodity price uncertainty and how it is transferred from one commodity market to another. Our contribution is twofold: (i) we construct, for each group of commodity markets and different maturities, an aggregate predictability-based measure of uncertainty, and (ii) we analyze uncertainty diffusion across different commodity markets using a vector autoregressive model. Our findings show that: first, there is a bi-causal uncertainty transfer between agriculture, energy and industry markets, except for precious metals markets. Second, the industrial commodity market is also assumed to be the transmission channel of commodity uncertainty spread, given its close link with the global economic activity. Notably, we discuss the fact that industrial uncertainty can be used as a proxy for macroeconomic uncertainty. Finally, precious metals insensitivity to other markets’ shocks reinforces its nature of safe haven. |
| Keywords: | Commodity uncertainty, vector autoregressive model, macroeconomic uncertainty |
| JEL: | Q02 C32 E32 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:tut:cremwp:2021-02&r= |
| By: | Lucyna Gornicka; Peichu Xie |
| Abstract: | Sector-specific macroprudential regulations increase the riskiness of credit to other sectors. Using firm-level data, this paper computed the measures of the riskiness of corporate credit allocation for 29 advanced and emerging economies. Consistently across these measures, the paper finds that during credit expansions, an unexpected tightening of household-specific macroprudential tools is followed by a rise in riskier corporate lending. Quantitatively, such unexpected tightening during a period of rapid credit growth increases the riskiness of corporate credit by around 10 percent of the historical standard deviation. This result supports early policy interventions when credit vulnerabilities are still low, since sectoral leakages will be less important at this stage. Further evidence from bank lending standards surveys suggests that the leakage effects are stronger for larger firms compared to SMEs, consistent with recent evidence on the use of personal real estate as loan collateral by small firms. |
| Keywords: | standards survey; credit vulnerability; leakage effect; credit riskiness; bond credit ratio ma; Credit; Macroprudential policy; Bank credit; Macroprudential policy instruments; Corporate sector; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/113&r= |
| By: | Saungweme, Talknice; Odhiambo, Nicholas M |
| Abstract: | This paper examines the relationship between inflation and economic growth in Kenya froman analytical and empirical standpoint. The paper applies the autoregressive distributed lag(ARDL) bounds testing approach and the multivariate Granger-causality test using time seriesdata covering 1970-2019. Structural breaks in the time series were also conducted using thePerron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporatingstructural breaks into time series increases statistical inference's overall validity. Inflation andeconomic growth in Kenya were found to have structural breaks in 1995 and 1991. These yearsare marked by Kenya's economic, financial, public sector and institutional reforms. The otherfindings of the study revealed that inflation has a statistically significant negative influence onlong-term economic growth. The multivariate Granger-causality results showed a distinctshort-run unidirectional causality from economic growth to inflation in Kenya. In order tomitigate the negative consequences of inflation and the coronavirus on the economy andwelfare, the study recommends that Kenya's government should pursue prudent monetary,financial, and fiscal policies |
| Keywords: | inflation, economic growth, ARDL, Granger-causality, Kenya |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:28344&r= |
| By: | European Fiscal Board (EFB) |
| Abstract: | The report assesses the implementation of the EU fiscal framework during the first year of the Covid-19 pandemic and clarifies the EFB’s reform proposals to account for post-pandemic realities. The Covid-19 pandemic pushed the EU into an economic recession with an average annual decline in real GDP of more than 6% by 2020. Against such a backdrop, a number of important measures provided the necessary room for policy manoeuvre, notably the activation of the severe economic downturn clause of the Stability and Growth Pact, the ECB’s pandemic emergency purchase programme (PEPP) and the EU’s Next Generation EU (NGEU) initiative. At the same time, the policy response also revealed issues in the EU fiscal framework: - the difficulty for some Member States to create fiscal buffers in good economic times - the tendency to improvise new forms of flexibility in the application of the EU fiscal rules or new risk-sharing elements when times turn bad - the lack of clarity on timing and conditions for the deactivation of the severe economic downturn clause. The EFB welcomes the relaunch of the economic governance review, and its declared aim to build consensus well in time for 2023. Professor Niels Thygesen, Chair of the Board, underscored that the EFB’s reform proposals outlined before the pandemic had become more relevant: “the future focus should be on one primary objective, a long-run anchor for public debt, with one main operational rule - an expenditure benchmark - to target a gradual reduction of the debt ratio towards the anchor at a pace tailored to country circumstances. A single escape clause to be applied under well-specified conditions and backed by independent economic analysis would complete the system.” The EFB also advocates maintaining clear and recognizable reference values for a sound fiscal framework. The 3% of GDP deficit threshold remains a useful backstop against unsustainable debt dynamics. Beyond the update of EU fiscal rules, the EFB reiterates the need to create a permanent central fiscal capacity for stabilisation and arrangements to protect government investment. |
| Date: | 2021–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:aon:annual:2021&r= |
| By: | Jan J. J. Groen; Adam I. Noble |
| Abstract: | Despite China’s tighter financial policies and the Evergrande troubles, Chinese financial stress measures have been remarkably stable around average levels. Chinese financial conditions, though, are affected by global markets, making it likely that low foreign financial stress conditions are blurring the state of Chinese financial markets. In this post, we parse out the domestic component of a Chinese financial stress measure to evaluate the downside risk to future economic activity. |
| Keywords: | financial conditions; growth-at-risk; China |
| JEL: | E2 G1 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93391&r= |
| 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: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/076&r= |
| By: | Gianni La Cava (Reserve Bank of Australia) |
| Abstract: | Economists have long been interested in the effect of business sentiment on economic activity. Using text analysis, I construct a new company-level indicator of sentiment based on the net balance of positive and negative words in Australian company disclosures. I find that company-level investment is very sensitive to changes in this corporate sentiment indicator, even controlling for fundamentals, such as Tobin's Q and expected profits, as well as controlling for measures of company-level uncertainty. I explore the mechanisms that link investment to sentiment. The conditional relationship could be because sentiment proxies for private information held by managers about the future prospects of the company or because of animal spirits among managers relative to investors. I find that the effect of sentiment on investment is relatively persistent, which is consistent with the private information story, albeit less persistent than other news shocks, such as Tobin's Q. But the effect of sentiment on investment is not any stronger at 'opaque' companies in which managers are likely to be better informed than investors, which argues against the private information story. Corporate investment has been weak in Australia since the global financial crisis (GFC) and demand-side factors, such as lower sales growth, explain more than half of this persistent weakness. Low sentiment and heightened uncertainty weighed on investment during the GFC but have been less important factors since then. |
| Keywords: | investment; sentiment; text analysis; animal spirits; business cycle |
| JEL: | D22 D25 D84 D91 E22 E71 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2021-11&r= |
| By: | Drydakis, Nick (Anglia Ruskin University) |
| Abstract: | This paper reviews studies on LGBT workplace outcomes published between 2015 and 2020. In terms of earnings differences, in the US, Canada, Europe, and Australia, gay men were found to experience earnings penalties of 7% in comparison to heterosexual men, bisexual men experienced earnings penalties of 9% in comparison to heterosexual men, and bisexual women faced earnings penalties of 5% in comparison to heterosexual women. In the same regions, lesbian women experienced an earnings premium of 7% in comparison to heterosexual women. Trans women, in the US and Europe, faced earnings penalties ranging from 4% to 20%. In terms of job satisfaction, in the US, Canada, and Europe, gay men, and lesbian women experienced 15% and 12%, respectively lower job satisfaction than their heterosexual counterparts. Additionally, bullying against sexual minorities has persisted. In the UK, sexual minorities who experienced frequent school-age bullying faced a 32% chance of experiencing frequent workplace bullying. In relation to job exclusions, in OECD countries, gay men and lesbian women were found to experience 39% and 32%, respectively lower access to occupations than comparable heterosexual men and women. For trans men and women in Europe, comparable patterns are in evidence. Given these patterns, it is not of surprise that LGBT people in the US and the UK experience higher poverty rates than heterosexual and cis people. However, in these two regions, anti-discrimination laws and positive actions in the workplace helped reduce the earnings penalties for gay men, enhance trans people's self-esteem, spur innovation and firms' performance, and boost marketing capability, corporate profiles, and customer satisfaction. The evidence indicated that LGBT inclusion and positive economic outcomes mutually reinforced each other. |
| Keywords: | sexual orientation, gender identity, discrimination, earnings, poverty, bullying, job satisfaction, inclusivity |
| JEL: | C93 E24 J15 J16 J71 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14845&r= |
| By: | François Blondeau; Christophe Planas; Alessandro Rossi |
| Abstract: | The EUCAM software is the officially validated tool for estimating potential growth and output gaps according to the European Union’s Commonly Agreed Methodology. This EUCAM methodology, which is comprehensively described in Havik et al. (2014), has been agreed between the EU’s Member States during discussions held at regular meetings of the Output Gap Working Group. The EUCAM software integrates all the operations that lead to the output gap and potential growth estimates, including data transformations, filtering, model estimation, and forecasts. Its user-friendly environment facilitates multicountry analyses and comparisons across different data vintages. It is open source and distributed together with the data files for EU countries at the publicly accessible repository circabc.europa.eu/ui/welcome (with users then prompted to follow the path “Browse categories - European Commission - Economic and Financial Affairs - Output Gaps - Library - PF method - EUCAM software”). The EUCAM software enables users to quickly replicate the output gap calculations made by the European Commission. |
| JEL: | C10 E60 C87 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:148&r= |
| By: | Vats, Nishant; Kundu, Shohini |
| Abstract: | This paper explores the transmission of non-capital shocks through banking networks. We develop a methodology to construct non-capital (idiosyncratic) shocks, using labor productivity shocks to large firms. We document a change in the relationship between foreign idiosyncratic shocks and domestic economic growth between 1978 and 2000. Contemporaneous changes in banking integration drive this phenomenon as geographically diversified banks divert funds away from economies experiencing negative shocks towards other unaffected economies. Our GIV estimates suggest that a 1% increase in bank loan supply is associated with a 0.05-0.26 pp increase in economic growth. Lastly, this can potentially explain the Great Moderation. JEL Classification: E32, E44, F36, G21, G28, O47, R11, R12 |
| Keywords: | credit, cross-border spillovers, deregulation, financial intermediation, growth, idiosyncratic shocks, the Great Moderation |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021128&r= |
| By: | Mr. Andrew J Swiston |
| Abstract: | Korea’s economy has leaped to high-income status thanks to several decades of sustained high growth. However, population aging and shifts in global demand provide headwinds for future growth and Korea now faces the effects of COVID-19 on economic activity. This paper asseses the expected drag on potential growth from these factors and discusses policies that could provide offsetting upward momentum by facilitating structural transformation. We find that potential output growth slowed to about 2½ percent before the COVID-19 pandemic and would have fallen to 2 percent by 2030, mainly due to demographic factors. Moreover, there is a possibility of scarring from the COVID-19 shock as adjustment frictions from structural rigidities interact with shifts in demand and supply patterns, lowering investment and labor force participation. At the same time, industry-level analysis suggests ample scope to raise productivity, especially in services where productivity gains have lagged. Addressing these rigidities could offset a large proportion of the expected downward pressure on potential output. |
| Keywords: | Korea; productivity; demographics; population aging; potential output; potential growth; multivariate filter; accelerator model; structural reform; COVID-19; growth decomposition; productivity gain; Korea's economy; capacity utilization result; industry categorization; productivity comparison; Labor force participation; Capacity utilization; Total factor productivity; Global |
| Date: | 2021–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/092&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard participated in a virtual discussion with business leaders and bankers from Seymour, Ind., and other areas of Jackson County, Ind. During the event, which was hosted by the St. Louis Fed’s Louisville Branch, he addressed questions on inflationary pressures in 2021, supply chain disruptions, labor force participation, a potential housing bubble, infrastructure spending, the national debt and other topics. Bullard meets regularly with groups in the four zones that make up the St. Louis Fed’s District to share insights on the U.S. economy, as well as to gather views from Main Street. Seymour, Ind., is in the Louisville Zone. |
| Keywords: | inflation; supply chain disruptions; labor force participation; housing; infrastructure spending; national debt |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:93417&r= |
| By: | Mr. Roberto Perrelli; Victor Duarte Lledo |
| Abstract: | This paper uses a novel macroeconomic framework to identify policy and financing options to help Rwanda achieve its sustainable development goals (SDGs). Under current policies, Rwanda would meet its SDGs right after 2050. Active policies that combine fiscal reforms and higher private sector participation could fulfill more than one third of Rwanda’s post-pandemic SDG financing gap, enabling the country to meet its SDG targets by 2040. For Rwanda to meet its SDGs by 2030, active policies would need to be complemented with about 13¾ percentage points of GDP in additional resources annually until then. |
| Keywords: | financing gap; SDG financing option; framework scenario; SDG Needs; financing options in Rwanda; Sustainable Development Goals (SDG); COVID-19; Human capital; Fiscal space; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/115&r= |
| By: | Mr. Francisco Roch; Giselle Montamat |
| Abstract: | We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). On the one hand, there exist welfare gains from internalizing how borrowing decisions in good times affect the value of collateral during a crisis. On the other hand, interventions by a robust planner that has in mind a model far from the true underlying distribution of shocks, can result in negligible welfare gains, or even losses. This is because a policy that is robust to misspecification, as in Hansen and Sargent (2011), is optimal under a "worst-case'' scenario but not under alternative distributions of the state. A robust planner introduces taxes that are 5 percentage points higher but does not achieve a significant increase in welfare gains compared to a non-robust planner when the true underlying model is not the worst-case. If households also make choices that are robust to model misspecification, the gains are significantly reduced and a highly-robust planner "underborrows" and induces welfare losses. If, however, the worst-case scenario is indeed realized, then welfare gains are the largest possible. |
| Keywords: | Robustness; Model Uncertainty; Macroprudential Policy; Sudden Stops. |
| Date: | 2021–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/055&r= |
| By: | Paul Malliet (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Frédéric Reynés (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Gissela Landa (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Meriem Hamdi‑cherif; Aurélien Saussay (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | In response to the COVID-19 health crisis, the French government has imposed drastic lockdown measures for a period of 55 days. This paper provides a quantitative assessment of the economic and environmental impacts of these measures in the short and long term. We use a Computable General Equilibrium model designed to assess environmental and energy policies impacts at the macroeconomic and sectoral levels. We find that the lockdown has led to a significant decrease in economic output of 5% of GDP, but a positive environmental impact with a 6.6% reduction in CO2 emissions in 2020. Both decreases are temporary: economic and environmental indicators return to their baseline trajectory after a few years. CO2 emissions even end up significantly higher after the COVID-19 crisis when we account for persistently low oil prices. We then investigate whether implementing carbon pricing can still yield positive macroeconomic dividends in the post-COVID recovery. We find that implementing ambitious carbon pricing speeds up economic recovery while significantly reducing CO2 emissions. By maintaining high fossil fuel prices, carbon taxation reduces the imports of fossil energy and stimulates energy efficiency investments while the full redistribution of tax proceeds does not hamper the recovery. |
| Keywords: | Carbon tax,CO2 emissions,Macroeconomic modeling,Neo-Keynesian CGE model,Post-COVID economy |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403038&r= |
| By: | Boysen-Hogrefe, Jens; Groll, Dominik; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich |
| Abstract: | Die Wirtschaft im Euroraum nähert sich derzeit mit großen Schritten dem vor der Krise erreichten Produktionsniveau. Nach einem kräftigen Anstieg lag die Wirtschaftsleistung im zweiten Quartal noch 2,5 Prozent unter ihrem Vorkrisenniveau. Frühindikatoren zur Zuversicht von Unternehmen und Verbrauchern zeigen seit dem Frühsommer eine äußerst gute Stimmung an; auch Mobilitätsdaten lassen für das laufende Quartal einen erneut kräftigen Anstieg des privaten Verbrauchs und der Wirtschaftsleistung erwarten. Für das bevorstehende Winterhalbjahr rechnen wir jedoch mit einer langsameren konjunkturellen Gangart. Die pandemiebedingten Rückgänge im Produktionsniveau sind dann größtenteils aufgeholt. Zudem dürfte die Infektionsentwicklung die wirtschaftliche Aktivität dann wieder stärker belasten. Vor diesem Hintergrund erscheint eine vollständige Erholung zunächst unwahrscheinlich. Hinzu kommen Lieferengpässe, die wohl auch in den nächsten Monaten die Produktion behindern werden. Für den Verlauf des kommenden Jahres rechnen wir mit einer nachhaltigen Normalisierung des gesellschaftlichen und wirtschaftlichen Lebens und mit wieder kräftigeren Zuwächsen der Wirtschaftsleistung. Insgesamt dürfte das Bruttoinlandsprodukt im laufenden Jahr um 5,1 Prozent zulegen, gefolgt von 4,4 Prozent (2022) und 2,4 Prozent (2023). Die Verbraucherpreise steigen im laufenden Jahr aufgrund zahlreicher temporärer Sonder- und Basiseffekte wohl mit 2,2 Prozent recht stark. In den Folgejahren dürfte die Teuerung mit 1,8 Prozent (2022) und 1,7 Prozent (2023) wieder unterhalb des Inflationsziels liegen. |
| Keywords: | Euroraum,Europäische Währungsunion,Frühindikatoren,Fiskalpolitik,Produktionslückenschätzung,COVID19,Euro area,European Monetary Union,leading indicators,fiscal policy,output gap estimate,COVID19 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:246844&r= |
| By: | Boysen-Hogrefe, Jens; Groll, Dominik; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich |
| Abstract: | Die Wirtschaft im Euroraum nähert sich derzeit mit großen Schritten dem vor der Krise erreichten Produktionsniveau. Nach einem kräftigen Anstieg lag die Wirtschaftsleistung im zweiten Quartal noch 2,5 Prozent unter ihrem Vorkrisenniveau. Frühindikatoren zur Zuversicht von Unternehmen und Verbrauchern zeigen seit dem Frühsommer eine äußerst gute Stimmung an; auch Mobilitätsdaten lassen für das laufende Quartal einen erneut kräftigen Anstieg des privaten Verbrauchs und der Wirtschaftsleistung erwarten. Für das bevorstehende Winterhalbjahr rechnen wir jedoch mit einer langsameren konjunkturellen Gangart. Die pandemiebedingten Rückgänge im Produktionsniveau sind dann größtenteils aufgeholt. Zudem dürfte die Infektionsentwicklung die wirtschaftliche Aktivität dann wieder stärker belasten. Vor diesem Hintergrund erscheint eine vollständige Erholung zunächst unwahrscheinlich. Hinzu kommen Lieferengpässe, die wohl auch in den nächsten Monaten die Produktion behindern werden. Für den Verlauf des kommenden Jahres rechnen wir mit einer nachhaltigen Normalisierung des gesellschaftlichen und wirtschaftlichen Lebens und mit wieder kräftigeren Zuwächsen der Wirtschaftsleistung. Insgesamt dürfte das Bruttoinlandsprodukt im laufenden Jahr um 5,1 Prozent zulegen, gefolgt von 4,4 Prozent (2022) und 2,4 Prozent (2023). Die Verbraucherpreise steigen im laufenden Jahr aufgrund zahlreicher temporärer Sonder- und Basiseffekte wohl mit 2,2 Prozent recht stark. In den Folgejahren dürfte die Teuerung mit 1,8 Prozent (2022) und 1,7 Prozent (2023) wieder unterhalb des Inflationsziels liegen. |
| Keywords: | Euroraum,Europäische Währungsunion,Frühindikatoren,Fiskalpolitik,Produktionslückenschätzung,COVID19,Euro area,European Monetary Union,leading indicators,fiscal policy,output gap estimate,COVID19 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkkb:82&r= |
| By: | Daniel Levy (Bar-Ilan University); Avichai Snir; Sourav Ray |
| 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. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2021-02&r= |
| By: | Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (University of Tokyo) |
| Abstract: | Large-scale household inventory buildups occurred in Japan five times over the last decade, including those triggered by the Tohoku earthquake in 2011, the spread of COVID-19 infections in 2020, and the consumption tax hikes in 2014 and 2019. Each of these episodes was accompanied by considerable swings in GDP, suggesting that uctuations in household inventories are one of the sources of macroeconomic uctuations in Japan. In this paper, we focus on changes in household inventories associated with temporary sales and propose a methodology to estimate changes in household inventories at the product level using retail scanner data. We construct a simple model on household stockpiling and derive equations for the relationships between the quantity consumed and the quantity purchased and between consumption and purchase prices. We then use these relationships to make inferences about quantities consumed, consumption prices, and inventories. Next, we test the validity of this methodology by calculating price indices and check whether the intertemporal substitution bias we find in the price indices is consistent with theoretical predictions. We empirically show that there exists a large bias in the Laspeyres, Paasche, and Törnqvist price indices, which is smaller at lower frequencies but non-trivial even at a quarterly frequency and that intertemporal substitution bias disappears for a particular type of price index if we switch from purchase-based data to consumption-based data. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf520&r= |
| By: | Mukherjee, Sacchidananda (National Institute of Public Finance and Policy) |
| Abstract: | Keeping in mind the revenue needs of the governments, we assess the revenue implications of restructuring GST rates. The study builds six alternative scenarios based on various assumptions about the tax rate-wise distribution of taxable value and tax liabilities. Unlike previous studies on RNRs, the present study relies on aggregate tax information as captured through GSTR-1. In line with data available from the GSTN database, the study considers only domestic component of GST collection (i.e., CGST, SGST and IGST- domestic component). Our study estimates merger of 12 and 18 per cent tax slabs into 15 per cent and estimates tax rates required to achieve revenue neutrality. The results show that merging 12 per cent and 18 per cent tax rates into any tax rate lower than 18 per cent may result in revenue loss. Based on various estimates, the study proposes that to compensate the revenue loss, the GST council may consider three rate structure of GST by adopting 8 per cent, 15 per cent and 30 per cent and it may help achieve revenue neutrality. In all scenarios, we assume that status quo in special rates will be maintained. |
| Keywords: | Goods and Services Tax ; Tax Base ; Revenue Neutral Rates (RNRs) ; GST Rate Structure ; Tax Buoyancy |
| JEL: | H20 E62 H26 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:21/358&r= |
| By: | Michael Kremer; Jack Willis; Yang You |
| Abstract: | Empirical tests in the 1990s found little evidence of poor countries catching up with rich - unconditional convergence - since the 1960s, and divergence over longer periods. This stylized fact spurred several developments in growth theory, including AK models, poverty trap models, and the concept of convergence conditional on determinants of steady-state income. We revisit these findings, using the subsequent 25 years as an out-of-sample test, and document a trend towards unconditional convergence since 1990 and convergence since 2000, driven by both faster catch-up growth and slower growth of the frontier. During the same period, many of the correlates of growth - human capital, policies, institutions, and culture - also converged substantially and moved in the direction associated with higher income. Were these changes related? Using the omitted variable bias formula, we decompose the gap between unconditional and conditional convergence as the product of two cross-sectional slopes. First, correlate-income slopes, which remained largely stable since 1990. Second, growth-correlate slopes controlling for income - the coefficients of growth regressions - which remained stable for fundamentals of the Solow model (investment rate, population growth, and human capital) but which flattened substantially for other correlates, leading unconditional convergence to converge towards conditional convergence. |
| JEL: | E02 O11 O4 O43 O47 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29484&r= |
| By: | Maksym Ivanyna; Andrea Salerno |
| Abstract: | The government’s ability to deliver inclusive growth crucially depends on the quality of governance. This paper reviews the linkages between governance and inclusive growth, and key policies to improve governance. The policies include (1) structural reform, automation, improving rules and procedures (including for fiscal and monetary policies) to limit the discretion and hence the space for policy errors; (2) human resource policies, capacity building, effective anti-corruption frameworks to incentivize public officials to make decisions in the best public interest; and (3) transparency, accountability, and inclusive political institutions to inform and monitor policymaking. |
| Keywords: | policy advice; poor governance; government discretion; central bank; government regulation; Corruption; Inclusive growth; Anti-money laundering and combating the financing of terrorism (AML/CFT); Civil society; Tax evasion; Global |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/098&r= |
| By: | Daly, Stephen; Hughson, Helen; Loutzenhiser, Glen |
| Abstract: | This paper considers the scale and prevalence of valuation issues under a wealth tax. Valuation issues are frequently cited in the literature as the most difficult aspect of wealth taxes. We examine some of the most problematic asset types from a valuation perspective. We also consider a range of solutions to manage these concerns, drawing on international experience and the approaches already taken for other taxes within the UK system. We conclude that satisfactory options for arriving at a value for wealth tax purposes are available even for the most problematic assets. We also estimate that the absolute number of taxpayers likely to pay substantial valuation fees is small, and that, in aggregate, valuation costs could be contained to around 0.1 per cent or less of total chargeable assets, even if they are substantial for some individual taxpayers. |
| Keywords: | agricultural property; artwork; banding; business assets; net wealth tax; open market value; pension assets; residential property; tax policy; valuation; ES/L011719/1; ES/V012657/1; International Inequalities Institute AFSEE COVID‐19 fund |
| JEL: | E6 J1 |
| Date: | 2021–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112696&r= |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:246845&r= |
| By: | Mr. Simon Johnson; Ms. Priscilla S Muthoora |
| Abstract: | In this paper, we review the role of the political economy in inclusive growth. We find that political economy forces on the demand and supply side have weakened redistribution over time and contributed to a new wave of populism. We document growing support for a rethink of the social contract to make growth more inclusive and discuss some of its broad elements. |
| Keywords: | Political Economy; Inequality; Redistribution; Growth; Labor program; income skew; skew of voter turnout; opposition to Redistribution; public social; Income inequality; Income; Inclusive growth; Fiscal redistribution; Global; Europe; Social protection spending; COVID-19; government policy; populist government; government commitment; inhibiting government responsiveness; government legitimacy |
| Date: | 2021–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/082&r= |
| By: | Jiang, Zhengyang (Northwestern Kellogg); Lustig, Hanno (Stanford GSB, NBER, SIEPR); Van Nieuwerburgh, Stijn (Columbia Business School, NBER, CEPR); Xiaolan, Mindy Z. (UT Austin McCombs) |
| Abstract: | This paper analyzes bond convenience yields in a currency union. The intertemporal government budget constraint requires member countries’ bond convenience yields and default spreads to adjust in response to shocks to their government surpluses. In the data, adjustments to convenience yields explain a larger fraction of the variation in Eurozone bond yields than default spreads. Higher convenience yields are correlated with stronger fiscal conditions both in the cross-section and in the time series. These findings imply large fiscal costs especially on the peripheral countries. If all Eurozone countries could have issued sovereign bonds at the same convenience yields as Germany, they would have raised an extra 281 billion euros in cumulative revenues from bond issuance between 2003 and 2020, representing 2.6% of 2020 Eurozone GDP. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3976&r= |
| By: | Mr. Francisco Roch; Francisco Roldán |
| Abstract: | We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond structure (e.g., the GDP-linked bond issued by Argentina in 2005), the model with robustness generates ambiguity premia in bond spreads that can explain most of what the literature has labeled as novelty premium. While the government would be better off with this bond when facing rational expectations lenders, this additional source of premia leads to welfare losses when facing robust lenders. Finally, we characterize the optimal design of the state-contingent bond and show how it varies with the level of robustness. Our findings rationalize the little use of these instruments in practice and shed light on their optimal design. |
| Keywords: | Sovereign debt; default; state-contingent debt instruments; robust control; ambiguity premia; probability distortion; robust lender; State-contingent debt; ambiguity aversion; debt structure; threshold bond; Bonds; Debt default; Rational expectations; Asset prices |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/076&r= |
| By: | Bindseil, Ulrich; Panetta, Fabio; Terol, Ignacio |
| Abstract: | Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC might crowd out private payment solutions beyond what would be desirable from the perspective of the comparative advantages of private and public sector money. This paper discusses success factors for CBDC and how to avoid the risk of crowding out. After examining ways to prevent excessive use as a store of value, the study emphasises the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users. Finding an adequate functional scope – neither too broad to crowd out private sector solutions, nor too narrow to be of limited use – is challenging in an industry with network effects, like payments. The role of the incentives offered to private sector service providers involved in distributing, using and processing CBDC (banks, wallet providers, merchants, payment processors, acquirers, etc.) is discussed, including fees and compensation. JEL Classification: E3, E5, G1 |
| Keywords: | central bank digital currency, cross-border payments, financial stability, means of payment, payment solution, store of value |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021286&r= |
| By: | D'ANDRIA Diego (European Commission - JRC); DEBACKER Jason; EVANS Richard W.; PYCROFT Jonathan (European Commission - JRC); ZACHLOD-JELEC Magdalena (European Commission - JRC) |
| Abstract: | We study a set of tax reforms introducing a budget-neutral tax shift in Italy, from labour income to consumption taxes. To this end we use a microsimulation model to provide the output with which to estimate the parameters of tax functions in an overlapping-generations computable general equilibrium model. In doing so we make marginal and average tax rates bivariate non-linear functions of capital income and labour income. The methodology allows for the representation of the non-linearities of the tax and social benefit system and interactions between capital and labour incomes. The linked macro model then simulates labour supply, consumption and savings in a dynamic setting, thus accounting for behavioural and general equilibrium effects within a life-cycle optimization framework. Our simulations show that a tax shift made by cutting personal income tax rates might bring significant efficiency gains in Italy, with limited regressive effects, notwithstanding the revenue-compensating increase in consumptions taxes. |
| Keywords: | computable general equilibrium, overlapping generations, taxation, microsimulation, Italy, tax shift |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:202113&r= |
| By: | Klaus-Peter Hellwig |
| Abstract: | I use three decades of county-level data to estimate the effects of federal unemployment benefit extensions on economic activity. To overcome the reverse causality coming from the fact that benefit extensions are a function of state unemployment rates, I only use the within-state variation in outcomes to identify treatment effects. Identification rests on a differences-in-differences approach which exploits heterogeneity in county exposure to policy changes. To distinguish demand and supply-side channels, I estimate the model separately for tradable and non-tradable sectors. Finally I use benefit extensions as an instrument to estimate local fiscal multipliers of unemployment benefit transfers. I find (i) that the overall impact of benefit extensions on activity is positive, pointing to strong demand effects; (ii) that, even in tradable sectors, there are no negative supply-side effects from work disincentives; and (iii) a fiscal multiplier estimate of 1.92, similar to estimates in the literature for other types of spending. |
| Keywords: | Automatic stabilizers; Fiscal multiplier; Labor markets; benefit extension; State UI scheme; benefit duration; emergency unemployment compensation program; benefit transfer; state UI fund; Unemployment; Employment; Unemployment rate |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/070&r= |
| By: | Paul Schreyer (OECD Statistics and Data Directorate) |
| Abstract: | While the Beyond GDP agenda has been with us for some time, it has come centre stage in the Covid crisis. The idea of building back a greener, more inclusive, more resilient economy resonates well with measurement e orts beyond GDP. But the eld of potential indicators is vast and measurement choices need some structure. We present a measurement framework that distinguishes between the production sphere, the well-being sphere and the asset sphere. GDP remains a cornerstone of the production sphere but is not suited to capture people's well-being, or sustainability of produced and natural assets. As one moves beyond GDP, however, ambitions for a single-valued aggregate have to be scaled down in favour of pragmatic choices for indicators. |
| Keywords: | Beyond GDP, green accounting, national accounts, well-being |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqcepa:171&r= |
| By: | Mr. Francisco F. Vazquez |
| Abstract: | This paper studies episodes in which aggregate bank credit contracts alongside expanding economic activity—credit reversals. Using data for 179 countries during 1960‒2017, the paper finds that reversals are a relatively common phenomenon--on average, they occur every five years. By comparison, banking crises take place every eight years on average. Credit reversals and banking crises also appear related to each other: reversals become more likely in the aftermath of banking crises, while the likelihood of crises drops following reversals. In terms of foregone economic activity, reversals are shown to be very costly, at about two-thirds of the costs of banking crises after taking into account their relative frequencies. |
| Keywords: | credit reversal; banking crisis; bank credit contract; credit growth; credit growth distribution; x industrial; credit demand; credit supply and demand; cycle characteristic; banking crises database; Credit; Banking crises; Bank credit; Credit cycles; Global |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/103&r= |
| By: | Xavier Ragot (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Ricardo Pinois (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po) |
| Abstract: | World public debt has increased by 30% of world GDP between 2007 and2017. During the same period, the real interest rate on public debt has fallenby roughly 200 basis points, whereas it should have increased by 100 basispoints according to previous estimates. It reveals that demand for public debthas increased faster than supply. Where does the increase in savings comefrom? To answer this question, we construct the world financial marketequilibrium to identify the country and agents across countries who increasedtheir saving rate. Using the equality between the sum of private and publicsaving and investment at the world level, we find four lessons. First, the worldinvestment rate has been slightly increasing during the period, with animpressive shift of investment to China. The investment rate of China was 4% of world GDP in 2007. It jumps to 12% in 2017. Second, during the period, the world experienced an impressive reduction of global imbalances. The Chinesesaving rate increased less than Chinese investment and the US saving rate increased more than US investment. Third, the increase in the world saving rate comes from highly indebted countries before 2007, mostly from the US and southern Europe. The increase in the current account of Italy, Spain and Greece (from a negative territory) is the order of magnitude of the increase in the US current account. Fourth, there is no clear relationship between the householdsaving rate and national government borrowing, thus not confirming the Ricardian equivalence view. Finally, it seems that the factors generating a highnet saving rate in China are temporary, whereas the deleveraging of US andsouthern Europe may be long-lasting. As a consequence, one can expect lowinterest rates for a long period of time. |
| Keywords: | Public debt,Incomplete markets,Optimal policy |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03403641&r= |
| By: | Amr Hosny |
| Abstract: | This paper finds empirical evidence that faster and smarter containment measures were associated with lower fiscal responses to the COVID-19 shock. We also find that initial conditions, such as fiscal space, income, health preparedness and budget transparency were important in shaping the amount and design of the COVID-19 fiscal response. |
| Keywords: | fiscal measures;containment measures;WP;health index;containment measure;OxCGRT containment;ATL health specification;containment health indices; COVID-19; Fiscal space; Fiscal performance assessment; Income; Middle East and Central Asia; Global; Western Hemisphere |
| Date: | 2021–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/065&r= |