nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒01‒03
68 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Zero Lower Bound on Inflation Expectations By Yuriy Gorodnichenko; Dmitriy Sergeyev
  2. Unemployment Insurance in Macroeconomic Stabilization By Rohan Kekre
  3. Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment By Cooper Howes
  4. High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations By Indrajit Mitra; Taeuk Seo; Yu Xu
  5. Estimating Hysteresis Effects By Francesco Furlanetto; Antoine Lepetit; Ørjan Robstad; Juan F. Rubio-Ramirez; Pål Ulvedal
  6. Comparative analysis of quantitative easing and money-financed fiscal stimulus By Jan Lutynski
  7. Non-Linear Employment Effects of Tax Policy By Domenico Ferraro; Giuseppe Fiori
  8. Inflation Narratives By Peter Andre; Ingar Haaland; Christopher Roth; Johannes Wohlfart
  9. Revisiting the Monetary Sovereignty Rationale for CBDCs By Skylar Brooks
  10. Unraveling the Exogenous Forces Behind Analysts’ Macroeconomic Forecasts By Marcela De Castro-Valderrama; Santiago Forero-Alvarado; Nicolás Moreno-Arias; Sara Naranjo-Saldarriaga
  11. Moderating Macroeconomic Bubbles Under Dispersed Information By Jonathan J Adams
  12. Central Bank Transparency and Disagreement in Inflation Expectations By Shunichi Yoneyama
  13. Monetary Policy over the Life Cycle By R. Anton Braun; Daisuke Ikeda
  14. The Bureau for Economic Research's inflation expectations surveys: Know your data By Monique Reid; Pierre Siklos
  15. Present-biased Government, Creative Accounting and a Pitfall in Balanced Budget Rules By Marcela De Castro-Valderrama
  16. Monetary policy and endogenous financial crises By F. Boissay; F. Collard; Jordi Galí; C. Manea
  17. Debt, Deficits, and Interest Rates By Christopher D. Cotton
  18. Asymmetries in Risk Premia, Macroeconomic Uncertainty and Business Cycles By Christoph Görtz; Mallory Yeromonahos
  19. From Deviations to Shortfalls: The Effects of the FOMC’s New Employment Objective By Brent Bundick; Nicolas Petrosky-Nadeau
  20. Varieties and interdependencies of demand and growth regimes in finance-dominated capitalism By Prante, Franz; Hein, Eckhard; Bramucci, Alessandro
  21. Is There News in Inventories? By Christoph Görtz; Christopher Gunn; Thomas A. Lubik
  22. Constraints and demands on public finances: Considerations of resilient fiscal policy By Łukasz Rawdanowicz; Sébastien Turban; Jörg Haas; David Crowe; Valentine Millot
  23. Remittance Flows and U.S. Monetary Policy By Immaculate Machasio; Peter Tillmann
  24. Macroprudential Policy Interlinkages By Johannes Matschke
  25. Does the Central Bank of Peru Respond to Exchange Rate Movements? A Bayesian Estimation of a New Keynesian DSGE Model with FX Interventions By Gabriel Rodríguez; Paul Castillo; Harumi Hasegawa; Hernán B. Garrafa-Aragón
  26. Corporate Secular Stagnation: Empirical Evidence on the Advanced Economy Investment Slowdown By Strauss, Ilan; Yang, Jangho
  27. Twenty Years of Unconventional Monetary Policies: Lessons and Way Forward for the Bank of Japan By Mr. Niklas J Westelius
  28. Rethinking fiscal rules By Luis Carranza Ugarte; Julian Diaz Saavedra; Jose Enrique Galdon-Sanchez
  29. Wealth Inequality, Uninsurable Entrepreneurial Risk and Firms Markup By Samuel Brien
  30. Measuring the Output Effects of Fiscal Policy in Egypt: A Disaggregated Structural VAR Analysis. By Ibrahim, Omar
  31. Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-Like Design By Jonathan Chiu; Mohammad Davoodalhosseini
  32. The Age for Austerity? Population Age Structure and Fiscal Multipliers By Joseph Kopecky
  33. Welfare and macroeconomic effects of family policies: insights from an OLG model By Oliwia Komada
  34. Sovereign Risk and Financial Risk By Simon Gilchrist; Bin Wei; Vivian Z. Yue; Egon Zakrajšek
  35. Macroprudential policies and Brexit: A welfare analysis By Margarita Rubio
  36. Employment Reconciliation and Nowcasting By Eiji Goto; Jan P.A.M. Jacobs; Tara M. Sinclair; Simon van Norden
  37. Phenomena 2022 – A Glimpse into the Future By Sulander, Tytti; Kangasharju, Aki; Kauhanen, Antti; Koski, Heli; Kulvik, Martti; Kuusela, Olli-Pekka; Kuusi, Tero; Lehmus, Markku; Puonti, Päivi; Ropponen, Olli; Valkonen, Tarmo
  38. What Do We Talk About When We Talk About Output Gaps? By Mr. Mico Mrkaic; Tryggvi Gudmundsson; Jelle Barkema
  39. Debt Maturity Heterogeneity and Investment Responses to Monetary Policy By Minjie Deng; Min Fang
  40. Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway By Elin Halvorsen; Serdar Ozkan; Sergio Salgado
  41. Will it stay or will it go? Analysing developments in telework during COVID-19 using online job postings data By Pawel Adrjan; Gabriele Ciminelli; Alexandre Judes; Michael Koelle; Cyrille Schwellnus; Tara Sinclair
  42. Information and Communication Technologies and Medium-Run Fluctuations By Brianti, Marco; Gati, Laura
  43. The Distributional Implications of the Impact of Fuel Price Increases on Inflation By Mr. Kangni R Kpodar; Boya Liu
  44. Baumol's diseases: a subsystem perspective By Adrián Rial Quiroga
  45. Dilemma and global financial cycle: Evidence from capital account liberalisation episodes By Li, Xiang
  46. China's Easily Overlooked Monetary Transmission Mechanism:Real Estate Monetary Reservoi By Xiao Shuguang; Lai Xinglin
  47. Communicating Data Uncertainty: Multi-Wave Experimental Evidence for UK GDP By Ana B. Galvão; James Mitchell
  48. The financial origins of non-fundamental risk By Sushant Acharya; Keshav Dogra; Sanjay R. Singh
  49. Production and Inventory Dynamics under Ambiguity Aversion By Yulei Luo; Jun Nie; Xiaowen Wang; Eric R. Young
  50. MaGE 3.1: Long-Term Macroeconomic Projections of the World Economy By Lionel Fontagné; Erica Perego; Gianluca Santoni
  51. Can Venezuelan scenario be repeated in Tunisia? The role of remittances in an inflationary context By Refk Selmi; Farid Makhlouf
  52. Ambiguity, Long-Run Risks, and Asset Prices By Bin Wei
  53. Long and short memory in dynamic term structure models By Salman Huseynov
  54. Social policy advice to countries from the International Monetary Fund during the COVID-19 crisis Continuity and change By Razavi, Shahra.; Schwarzer, Helmut,; Durán Valverde, Fabio.; Ortiz, Isabel,; Dutt, Devika.
  55. Budget-neutral capital tax cuts By Frédéric Dufourt; Lisa Kerdelhué; Océane Piétri
  56. Fiscal and Current Account Imbalances: The Cases of Germany and Portuga By António Afonso; José Carlos Coelho
  57. The fiscal implications of strategic investment funds By Håvard Halland
  58. Structural change, productive development and capital flows: Does financial “bonanza” cause premature de-industrialization? By Alberto Botta; Giuliano Toshiro Yajima; Gabriel Porcile
  59. Covid19 and Gender Budgeting: Applying a "gender lens" to Union Budget in India. By Chakraborty, Lekha
  60. An energy-based macroeconomic model validated by global historical series since 1820 By Hervé Bercegol; Henri Benisty
  61. Dividend Momentum and Stock Return Predictability: A Bayesian Approach By Juan Antolin-Diaz; Ivan Petrella; Juan F. Rubio-Ramirez
  62. Accuracy in recursive minimal state space methods By Pierri, Damian Rene
  63. Optimism Bias in Growth Forecasts—The Role of Planned Policy Adjustments By Mr. Roberto Perrelli; Kareem Ismail; Jessie Yang
  64. Gasto Público Social y Crecimiento Económico: Evidencia para América Latina 1990 – 2017 By Ortiz Vargas, Michell; Campo Robledo, Jacobo
  65. Costs and cost-effectiveness of Malaria control interventions: a systematic literature review By Conteh, Lesong; Shuford, Kathryn; Agboraw, Efundem; Kont, Mara; Kolaczinski, Jan; Patouillard, Edith
  66. Larger transfers financed with more progressive taxes? On the optimal design of taxes and transfers By Axelle Ferriere; Philipp Grubener; Gaston Navarro; Oliko Vardishvili
  67. Unconventionally green: A monetary policy between engagement and conflicting goals By Liebich, Lena; Nöh, Lukas; Rutkowski, Felix Joachim; Schwarz, Milena
  68. Public Debt Dynamics and Intra-Year Exchange Rate Fluctuations By Mr. Santiago Acosta Ormaechea

  1. By: Yuriy Gorodnichenko; Dmitriy Sergeyev
    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 possibility. 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 guidance, 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.
    JEL: E5 E7 G4
    Date: 2021–11
  2. By: Rohan Kekre
    Abstract: I study unemployment insurance (UI) in general equilibrium with incomplete markets, search frictions, and nominal rigidities. An increase in generosity raises the aggregate demand for consumption if the unemployed have a higher marginal propensity to consume (MPC) than the employed or if agents precautionary save in light of future income risk. This raises output and employment unless monetary policy raises the nominal interest rate. In an analysis of the U.S. economy over 2008-2014, UI benefit extensions had a contemporaneous output multiplier around 1 or higher. The unemployment rate would have been as much as 0.4pp higher absent these extensions.
    JEL: D52 E21 E62 J64 J65
    Date: 2021–11
  3. By: Cooper Howes
    Abstract: While investment in most sectors declines in response to a contractionary monetary policy shock, investment in the manufacturing sector increases. Using manually digitized aggregate income and balance sheet data for the universe of U.S. manufacturing firms, I show this increase is driven by the types of firms that are least likely to be financially constrained. A two-sector New Keynesian model with financial frictions can match these facts; unconstrained firms are able to take advantage of the decline in the user cost of capital caused by the monetary contraction, while constrained firms are forced to cut back.
    Keywords: Monetary Policy; Investments; Financial Frictions
    JEL: E22 E32 E52
    Date: 2021–08–27
  4. By: Indrajit Mitra; Taeuk Seo; Yu Xu
    Abstract: Ljungqvist and Sargent (2017) (LS) show that unemployment fluctuations can be understood in terms of a quantity they call the “fundamental surplus.” However, their analysis ignores risk premia, a force that Hall (2017) shows is important in understanding unemployment fluctuations. We show how the LS framework can be adapted to incorporate risk premia. We derive an equivalence result that relates parameters in economies with risk premia to those of an artificial economy without risk premia. We show how to use properties of the artificial economy to deduce how risk premia affect unemployment dynamics in the original economy.
    Keywords: risk premia; fundamental surplus; time-varying discounts; unemployment fluctuations
    JEL: E23 E24 E32 E44 J23 J24 J31 J41 J63
    Date: 2021–09–24
  5. By: Francesco Furlanetto; Antoine Lepetit; Ørjan Robstad; Juan F. Rubio-Ramirez; Pål Ulvedal
    Abstract: In this paper, we identify demand shocks that can have a permanent effect on output through hysteresis effects. We call these shocks permanent demand shocks. They are found to be quantitatively important in the United States, in particular when the sample includes the Great Recession. Recessions driven by permanent demand shocks lead to a permanent decline in employment and investment, although output per worker is largely unaffected. We find strong evidence that hysteresis transmits through a rise in long-term unemployment and a decline in labor force participation and disproportionately affects the least productive workers.
    Keywords: hysteresis; structural vector autoregressions; sign restrictions; long-run restrictions; employment; labor productivity; local projections
    JEL: C32 E24 E32
    Date: 2021–11–09
  6. By: Jan Lutynski (Group for Research in Applied Economics (GRAPE))
    Abstract: I study two types of unconventional monetary policy: quantitative easing (QE) and money-financed fiscal stimulus (MFFS), in a modified New Keynesian framework. I compare their effectiveness in stabilizing output and inflation when monetary policy is constrained by the effective lower bound. Money-financed fiscal stimulus performs better than quantitative easing, except the case of the TFP shock. It tends to cause lower inflation and output volatility. Nevertheless, it might be substantially more problematic in implementation as it demands cooperation between the central bank and the fiscal authority. Real reserve targeting (RRT) delivers similar outcomes as quantitative easing but is easier to implement.
    Keywords: unconventional monetary policy, quantitative easing, money-financed fiscal stimulus,
    JEL: E21 E30 E50 E58 E61
    Date: 2021
  7. By: Domenico Ferraro; Giuseppe Fiori
    Abstract: We study the non-linear propagation mechanism of tax policy in a heterogeneous agent equilibrium business cycle model with search frictions in the labor market and an extensive margin of employment adjustment. The model exhibits endogenous job destruction and endogenous hiring standards in the form of occasionally-binding zero-surplus constraints. After parameterizing the model using U.S. data, we find that the dynamic response of employment to a temporary change in the labor income tax is highly non-linear, displaying sizable asymmetries and state-dependence. Notably, the response to a tax rate cut is at least twice as large in a recession as in an expansion.
    Keywords: Search frictions; Job destruction; Heterogeneity; Aggregation; Tax policy
    JEL: E12 E24 E32 E62
    Date: 2021–12–20
  8. By: Peter Andre; Ingar Haaland; Christopher Roth; Johannes Wohlfart
    Abstract: We provide evidence on the stories that people tell to explain a historically notable rise in inflation using samples of experts, U.S. households, and managers. We document substantial heterogeneity in narratives about the drivers of higher inflation rates. Experts put more emphasis on demand-side factors, such as fiscal and monetary policy, and on supply chain disruptions. Other supply-side factors, such as labor shortages or increased energy costs, are equally prominent across samples. Households and managers are more likely to tell generic stories related to the pandemic or mismanagement by the government. We also find that households and managers expect the increase in inflation to be more persistent than experts. Moreover, narratives about the drivers of the inflation increase are strongly correlated with beliefs about its persistence. Our findings have implications for understanding macroeconomic expectation formation.
    Keywords: Narratives, Inflation, Beliefs, Macroeconomics, Fiscal Policy, Monetary Policy
    JEL: D83 D84 E31 E52 E71
    Date: 2021–12
  9. By: Skylar Brooks
    Abstract: As currently articulated, the monetary sovereignty argument for central bank digital currencies (CBDCs) rests on the idea that without them, private and foreign digital monies could displace domestic currencies (a process called currency substitution), threatening the central bank’s monetary policy and lender-of-last-resort (LLR) capabilities. This rationale provides a crucial but incomplete picture of what is at stake in terms of monetary sovereignty. This paper seeks to expand and enhance this picture in three ways. The first is by looking at the consequences of currency substitution that go beyond the functions of a central bank—important considerations that have received less attention in public CBDC discussions. The second is by exploring key differences in monetary policy and LLR capabilities across currency-issuing countries or regions. More specifically, the paper highlights the variation in the degree of monetary sovereignty and the consequences that different countries face should they lose it. The third way is by assessing not only the implications but also the risks of currency substitution and showing how these are also likely to vary across countries. Contrasting the consequences and risks of substitution, the paper concludes by noting a potential inverse relationship between the impact and probability of losing monetary sovereignty.
    Keywords: Debt management; Digital currencies and fintech; Exchange rate regimes; Financial stability; Monetary policy
    JEL: E41 E42 E52 E58 H12 H63
    Date: 2021–12
  10. By: Marcela De Castro-Valderrama; Santiago Forero-Alvarado; Nicolás Moreno-Arias; Sara Naranjo-Saldarriaga
    Abstract: Modern macroeconomics focuses on the identification of the primitive exogenous forces generating business cycles. This is at odds with macroeconomic forecasts collected through surveys, which are about endogenous variables. To address this divorce, our paper uses a semi-structural general equilibrium model as a multivariate filter to infer the shocks behind economic analysts’ forecasts and thus, unravel their implicit macroeconomic stories. By interpreting all analysts’ forecasts through the same lenses, it is possible to understand the differences between projected endogenous variables as differences in the types and magnitudes of shocks. It also allows to explain market’s uncertainty about the future in terms of analysts’ disagreement about these shocks. The usefulness of the approach is illustrated by adapting the canonical SOE semi-structural model in Carabenciov et al. (2008a) to Colombia and then using it to filter forecasts of its Central Bank’s Monthly Expectations Survey during the COVID-19 crisis. **** RESUMEN: La macroeconomía actualmente se centra en la identificación de las fuerzas exógenas primitivas que generan los ciclos económicos reales. En contraste, las encuestas macroeconómicas recogen pronósticos sobre variables endógenas. Con el fin de reconciliar este divorcio, este trabajo usa un modelo semi-estructural de equilibrio general como un filtro multivariado para inferir los choques que estarían detrás de los pronósticos de los analistas de mercado y, por ende, desvelar sus historias macroeconómicas implícitas. Al interpretar los pronósticos de todos los analistas a través de los mismos lentes, es posible entender las diferencias entre las variables endógenas proyectadas a partir de las diferencias en los tipos y magnitudes de los choques implícitos en ellas. Del mismo modo, la incertidumbre del mercado respecto al futuro de la economía puede ser explicada en términos del desacuerdo de los analistas frente a estos choques. La utilidad de este enfoque es ilustrada mediante un caso de estudio, en el cual se adapta a Colombia el modelo semi-estructural canónico de Carabenciov et al. (2008a) para una economía pequeña y abierta, y se utiliza luego para filtrar los pronósticos registrados en la Encuesta Mensual de Expectativas del Banco de la República durante la crisis de la COVID-19.
    Keywords: Expectativas macroeconómicas, pronósticos profesionales, Modelo semi-structural, Suavizado de Kalman, Expectativas de encuestas, Macroeconomic expectations, Professional forecasters, Semi-structural model, Kalman smoother, Survey expectations.
    JEL: C53 E17 E27 E37 E32 E58 E47
    Date: 2021–12
  11. By: Jonathan J Adams (Department of Economics, University of Florida)
    Abstract: Can waves of optimism and pessimism produce large macroeconomic bubbles, and if so, is there anything that policymakers can do about them? Yes and yes. I study a business cycle model where agents with rational expectations receive noisy signals about future productivity. The model features dispersed information, which allows aggregate noise shocks to produce frequent large bubbles in the capital stock. Because of the information friction, a policymaker with an informational advantage can improve outcomes. I consider policies that affect investment incentives by distorting the intertemporal wedge. I calculate the optimal policy rule, and find that policymakers should discourage investment booms after aggregate news shocks.
    JEL: D84 E21 E32
    Date: 2020–09
  12. By: Shunichi Yoneyama (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper measures the transparency of the Federal Reserve Board (FRB) regarding its target inflation rate before its adoption of inflation targeting using data on the disagreement in inflation expectations among U.S. consumers. We construct a model of inflation forecasters employing the frameworks of both an unobserved components model and a noisy information model. We estimate the model and extract the transparency of the FRB regarding the target as the standard deviation of the heterogeneous noise in the inflation trend signal, where the trend proxies the FRB's inflation target. The results show a great improvement in transparency after the mid-1990s as well as its significant contribution to the decline in the disagreement in long- horizon inflation expectations.
    Keywords: Central bank transparency, forecast disagreement, inflation dynamics, imperfect information
    JEL: E50 E37 D83
    Date: 2021–12
  13. By: R. Anton Braun; Daisuke Ikeda
    Abstract: A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household’s exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household’s net worth, disposable income and consumption depend on its age.
    Keywords: monetary policy; lifecycle; portfolio choice; nominal government debt
    JEL: D15 E52 E62 G51
    Date: 2021–08–20
  14. By: Monique Reid (Department of Economics, Stellenbosch University, South Africa); Pierre Siklos (Wilfrid Laurier University, Balsillie School of International Affairs, Waterloo, Canada, and Research Fellow, University of Stellenbosch, South Africa)
    Abstract: Inflation expectations are today keenly monitored by both the private sector and policy makers. Expectations matter, but whose expectations matter and how should this unobservable be measured? Answering these questions involves a number of choices that should be transparent and explicit. In this research note, we focus on these choices with respect to the South African inflation expectations data collected by the Bureau for Economic Research. Being willing to detail the strengths and weaknesses of a particular approach is valuable as it will enable us to choose the appropriate proxy for each application and to interpret the results with insight.
    Keywords: Inflation expectations survey, Bureau for Economic Research, inflation targeting, monetary policy, survey methodology
    JEL: C83 E43 E52 E58 E71
    Date: 2021
  15. By: Marcela De Castro-Valderrama
    Abstract: I propose a general equilibrium model with a quasi-hyperbolic discounting government that optimally decides upon using creative accounting in order to evaluate a balanced budget rule and a debt rule. In that context, I find that a binding balanced budget rule could fail to properly constrain public overindebtedness when government uses creative accounting while a debt rule is effective, since targets are set on total public liabilities. Results suggest that a balanced budget fiscal rule can also deteriorate welfare due to the higher interest rates derived from doing operations under the line, implying future expenditure cuts that are harmful for households, who value public goods and services. A debt rule is also preferred for its capacity to reverse some welfare losses generated by the present-biased government. **** RESUMEN: En un modelo de equilibrio general con un gobierno que descuenta cuasi-hiperbólicamente se evalúan dos reglas fiscales. Los resultados sugieren que una regla fiscal sobre el balance activa y vinculante no garantiza acotar el crecimiento del endeudamiento público cuando el gobierno puede hacer trucos contables y puede generar mayores pérdidas de bienestar en la economía. Por el otro lado, una regla sobre la deuda es efectiva y logra recuperar parte de la pérdida de bienestar generada por el gobierno que descuenta cuasi-hiperbólicamente.
    Keywords: Quasi-Hyperbolic Discounting, Creative Accounting, Balanced Budget Rule, Fiscal Policy, Public Overindebtness, Welfare Analysis, descuento cuasi-hiperbólico, Contabilidad Creativa, Regla Fiscal sobre el balance, Política Fiscal, Sobre endeudamiento público, Análisis de bienestar.
    JEL: E61 E62 G28 H61 H63 E21
    Date: 2021–12
  16. By: F. Boissay; F. Collard; Jordi Galí; C. Manea
    Abstract: We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course.
    Keywords: Financial crisis, monetary policy
    Date: 2021–12
  17. By: Christopher D. Cotton
    Abstract: This paper identifies how a rise in the deficit/debt impacts interest rates by looking at the high-frequency response of interest rates to fiscal surprises. The fiscal surprises are the unexpected components of deficit releases and the changes in official forecasts by the Congressional Budget Office and by the Office of Management and Budget. The paper estimates that a rise in the deficit-to-GDP ratio of 1 percentage point raises the 10-year nominal rate by 8.1 basis points. This is quantitatively similar for other Treasury maturities and for corporate debt interest rates. The paper also investigates which of the theoretical channels is driving this relationship and whether surprises are affecting interest rate expectations or the term premium. These results are used to estimate how recent spending proposals may affect interest rates.
    Keywords: debt; interest rates; deficit; Ricardian equivalence
    JEL: E43 E62 E63
    Date: 2021–12–23
  18. By: Christoph Görtz (Department of Economics, University of Birmingham, UK; Rimini Centre for Economic Analysis); Mallory Yeromonahos (Department of Economics, University of Birmingham, UK)
    Abstract: A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the following recoveries. We show that a model with recursive preferences, in which agents cannot perfectly observe the state of current productivity, can generate the observed asymmetry in the risk premium. Key for this result are endogenous fluctuations in uncertainty which induce procyclical variations in agent's nowcast accuracy. In addition to matching moments of the risk premium, the model is also successful in generating the growth asymmetry in macroeconomic aggregates observed in the data, and in matching the cyclical relation between quantities and the risk premium.
    Keywords: Risk Premium, Business cycles, Bayesian Learning, Asymmetry, Uncertainty, Nowcasting
    JEL: E2 E3 G1
    Date: 2021–12
  19. By: Brent Bundick; Nicolas Petrosky-Nadeau
    Abstract: The Federal Open Market Committee (FOMC) recently revised its interpretation of its maximum employment mandate. In this paper, we analyze the possible effects of this policy change using a theoretical model with frictional labor markets and nominal rigidities. A monetary policy that stabilizes employment “shortfalls” rather than “deviations” of employment from its maximum level leads to higher inflation and more hiring at all times due to firms’ expectations of more accommodative future policy. Thus, offsetting only shortfalls of employment results in higher inflation, employment, and nominal policy rates on average and also produces better outcomes during a zero lower bound episode. Our model suggests that the FOMC’s reinterpretation of its employment mandate could alter the business cycle and longer-run properties of the economy and result in a steeper reduced-form Phillips curve.
    Keywords: Monetary Policy; Equilibrium Unemployment; Nominal Rigidities; Zero Lower Bound
    JEL: A1 A10
    Date: 2021–07–16
  20. By: Prante, Franz; Hein, Eckhard; Bramucci, Alessandro
    Abstract: We outline and simulate a stylised post-Keynesian two country stock-flow consistent model to demonstrate the interconnection of three of the main features/outcomes of finance-dominated capitalism, namely worsening income distribution for the bottom 90% households, the rise of international imbalances and the build-up of financial fragility. In the model, twobasic regimesemerge, depending on the institutional setting of the respective model economy:the debt-led private demand boom regime (DLPD) and the export-led mercantilist regime(ELM). We demonstrate the complementarity and interdependence of these two regimesand show how this constellation transformed after the crisis into the domestic demand-led regime (DDL) stabilised by government deficits, on the one hand, andELMregimes, on the other, depending ontherequired deleveraging of private household debt, distributional developments and fiscal policy.
    Keywords: post-Keynesian macroeconomics,financialisation,growth regimes,institutions,inequality,debt,stock-flow consistent model
    JEL: B59 E02 E11 E12 E25 E65 F41 O41
    Date: 2021
  21. By: Christoph Görtz (Department of Economics, University of Birmingham, UK; Rimini Centre for Economic Analysis); Christopher Gunn (Department of Economics, Carleton University, Canada); Thomas A. Lubik (Research Department, Federal Reserve Bank of Richmond, USA)
    Abstract: We identify total factor productivity (TFP) news shocks using standard VAR methodology and document a new stylized fact: in response to news about future increases in TFP, inventories rise and comove positively with other major macroeconomic aggregates. We show that the standard theoretical model used to capture the effects of news shocks cannot replicate this fact when extended to include inventories. We derive the conditions required to generate a procyclical inventory response by using a wedges approach. To explain the empirical inventory behavior, we consider two mechanisms: sticky wages and the presence of knowledge capital accumulated through learning-by-doing. Only the latter moves the wedges to qualitatively match the empirical behaviour. The desire to take advantage of higher future TFP through knowledge capital drives output and hours choices on the arrival of news and leads to inventory accumulation alongside the other macroeconomic variables. The broad-based comovement a model with knowledge capital can generate supports the view that news shocks are an important driver of aggregate fluctuations.
    Keywords: News shocks, business cycles, inventories, knowledge capital, VAR
    JEL: E2 E3
    Date: 2021–12
  22. By: Łukasz Rawdanowicz; Sébastien Turban; Jörg Haas; David Crowe; Valentine Millot
    Abstract: Over the past several decades, public debt has increased substantially in many OECD countries, particularly in the aftermath of recessions. The extent of this increase and the resulting debt levels varied across countries, partly reflecting differences in average budget balances. Despite rising debt, governments’ interest payments as a share of GDP have declined, reducing concerns about debt sustainability. Still, high debt levels make public finances vulnerable to negative shocks. Thus, governments will have to balance the need to minimise the risk of fiscal stress and the need to satisfy growing demands on public finances related to population ageing, climate change, low growth, inequalities, accelerated digitalisation and cyclical demand stabilisation. Limitations of various numerical indicators of debt sustainability give some support to a more qualitative assessment of fiscal policy and stress the importance of effective and resilient fiscal frameworks. Credible and transparent fiscal frameworks can help make appropriate policy choices, which are affected by numerous political biases and constraints. However, such frameworks do not guarantee positive outcomes. Further research on interactions between various elements of such frameworks, such as fiscal rules, medium‑term expenditure plans, budget transparency and independent fiscal institutions, is needed.
    Keywords: debt sustainability, fiscal frameworks, fiscal rules, independent fiscal institutions, public finances, sovereign debt
    JEL: E61 E62 H11 H20 H50 H62 H63
    Date: 2021–12–14
  23. By: Immaculate Machasio (World Bank); Peter Tillmann (University of Giessen)
    Abstract: Remittance inflows are driven by macroeconomic conditions in the home and the host economies, respectively. In this paper, we study the effect of U.S. monetary policy on remittance flows into economies in Latin American and the Caribbean. The role of Fed policy for remittances has not yet been studied. We estimate a series of panel local projections for remittance inflows into eight countries. A surprise change in U.S. monetary conditions has a strong and highly significant negative effect on inflows. Our finding remains robust if we change the sample period or include additional variables. Hence, our paper establishes a remittance-channel through which the Fed affects the business cycle abroad.
    Keywords: remittances, migration, business cycle, monetary policy, spillovers
    JEL: F24 F41 E52 O11
    Date: 2021
  24. By: Johannes Matschke
    Abstract: Emerging markets are concerned about sudden stops in international capital flows, which may lead to severe recessions associated with vicious spirals of currency depreciations and tightening borrowing constraints. A common prescription is to impose macroprudential policies, including prudential capital controls, to limit international borrowing especially in foreign currency. This paper analyzes the supportive role of macroprudential policies geared toward the domestic financial market, suggesting that emerging markets should resort to a wide mix of policies, even when the domestic financial market is frictionless. A simple formula provides further insights: domestic and international macroprudential policies are imperfect complements rather than substitutes, due to distinctive characteristics of foreign and domestic currency bonds. Furthermore, the relative importance of domestic macroprudential regulation increases in the return of domestic bonds.
    Keywords: Macroprudential Policies; Capital Controls; Emerging Markets; Welfare
    JEL: F34 F41 E44 D62
    Date: 2021–09–30
  25. By: Gabriel Rodríguez (Departamnento de Economía, Pontificia Universidad Católica del Perú.); Paul Castillo (Banco Central de Reserva, Pontificia Universidad Católica del Perú.); Harumi Hasegawa (Pontificia Universidad Católica de Chile); Hernán B. Garrafa-Aragón (Escuela de Ingeniería Estadística de la Universidad Nacional de Ingeniería)
    Abstract: This paper assess the role played by the exchange rate and FX intervention in setting monetary policy interest rates in Peru. We estimate a Taylor rule that includes inflation, output gap and the exchange rate using a New Keynesian DSGE model that follows closely Schmitt-Grohé and Uribe (2017). The model is extended to include an explicit sterilized FX intervention rule as in Faltermeier et al. (2017). The main empirical results show, for the pre Inflation Targeting (IT) and IT periods, that the model that clearly outperforms in terms of marginal log density, features a Taylor rule that does not respond to changes in the nominal exchange rate and an active use of FX intervention by the Central Bank. We also find that the coefficient associated with the response of the Taylor rule to inflation is close to 2 and the one associated with the output gap is greater than 1; and that FX intervention has become more responsive to exchange rate fluctuations during the IT period. Finally, the estimated IRFs shows that FX intervention has contributed to reduce the volatility of GDP in response to productivity and terms of trade shocks in Peru. JEL Classification-JE: C22, C52, F41.
    Keywords: Small Open Economy; Taylor Rule; Monetary Policy Rule; Exchange Rate; Bayesian Methodology; Peruvian Economy; FX interventions; New Keynesian DSGE Model.
    Date: 2021
  26. By: Strauss, Ilan; Yang, Jangho
    Abstract: We detail a secular slowdown in investment rates using a large panel of advanced economy non-financial firms from 18 countries between 1994-2017. We test competing explanations for the investment slowdown using a Bayesian 'mixed effects' model, with time-varying and country-varying coefficients to fully explore variation in financing constraints and investment behaviour. Firms' estimated underlying impetus to invest falls precipitously between 1997-2017, with only a mild recovery between 2003-2008. The slope of the investment demand curve -- approximated by time-varying Q regressions coefficients -- remains roughly constant, indicating that `financialization' or growing monopoly power has not dulled firms' responsiveness to investment opportunities. Contrary to precautionary savings arguments, advanced economy firms are not meaningfully financially constrained. Instead, the corporate sector as a whole is increasingly a net external `releaser' of funds to shareholders, creditors, and bondholders, and this behaviour closely tracks declining investment rates between years.
    Keywords: Secular Stagnation, Investment Slowdown, Hierarchical Model, Finance Constrained, Tobin's Q, Investment Rates, Corporate Savings, Bayesian Econometrics.
    JEL: D22 D24 E12 E22 E23
    Date: 2020–07
  27. By: Mr. Niklas J Westelius
    Abstract: The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan’s reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan’s policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.
    Keywords: Japan;unconventional monetary policy;Bank of Japan;inflation expectations;WP;BoJ staff;inflation expectation;Policy objective;price stability target;inflation target;JGB Holdings;overshooting commitment;Policy strategy; BoJ's willingness; BoJ's policy; BoJ's overshooting commitment; BoJ's inflation; Price stabilization; Inflation; Inflation targeting; Financial sector stability; Unconventional monetary policies; Global
    Date: 2020–11–08
  28. By: Luis Carranza Ugarte (Universidad San Martin de Porres.); Julian Diaz Saavedra (Department of Economic Theory and Economic History, University of Granada.); Jose Enrique Galdon-Sanchez (Universidad Publica de Navarra.)
    Abstract: The Covid 19 pandemic has caused both a decrease in tax revenues and an increase in public spending, forcing governments to increase fiscal deficits to unprecedented levels. Given these circumstances, it is foreseeable that fiscal rules will play a predominant role in the design of many countries’ recovery policies. We develop a general equilibrium, overlapping generations model for a small, open economy in order to study the impact of several fiscal rules upon welfare, public expenditures and growth. We calibrate the model to the Peruvian economy. In this economy, fiscal rules have been widely used and, unlike in other Latin American countries, they have been relatively successful. We find that fiscal rules will generate better results in terms of output and welfare if, in addition to maintaining control over the fiscal result, they also eliminate the bias in favor of current expenditure. We also find that the performance of economies that implement structural rules tends to be better than the performance of economies that implement rules based on current results.
    Keywords: Fiscal policy, Infrastructure, Public spending, Public Deficit, Debt limits.
    JEL: E62 H54 O23
    Date: 2021–12–03
  29. By: Samuel Brien
    Abstract: This paper examines the effect of wealth concentration on firms’ market powerwhen firm entry is driven by entrepreneurs facing uninsurable idiosyncratic risks. Undergreater wealth concentration, households in the lower end of the wealth distribution aremore risk averse and less willing (or able) to bear the risk of entrepreneurial activities.This has implications for firm entry, competitiveness, and market power.I calibrate a Schumpeterian model of endogenous growth with heterogeneous riskaverse entrepreneurs competing to catch up with firms. This model is unique in thatboth household wealth distribution and a measure of firm markup are endogenouslydetermined on a balanced growth path. I find that a spread in the wealth distributiondecreases entrepreneurial firm creation, resulting in greater aggregate firm marketpower. This result is supported by time series evidence obtained from the estimationof a structural panel VAR with OECD data from eight countries.
    Keywords: Wealth inequality, market power, growth, Schumpeterian, endogenous growth, entrepreneur
    JEL: E22 E21 L12 O31 O33
    Date: 2021–11
  30. By: Ibrahim, Omar
    Abstract: This research aims to quantify the effects of fiscal policy on output in Egypt by applying a Structural Vector Autoregressive analysis on quarterly time-series from 2007/8 Q1 to 2019/20 Q4. The research investigates the channels of transmission of fiscal policy by disaggregating the SVAR to analyse the effects of changes in taxation and government spending on economic growth. Results consistently show positive effects on output resulting from government spending shocks, and negative effects resulting from taxation shocks. Public investments and consumption are seen to crowd in private investments with a lag while public consumption crowds out private consumption. Taxation is seen to crowd out private investments and consumption. Overall, the results are in line with the neoclassical theory.
    Keywords: SVAR, Fiscal Policy, GDP, Egypt
    JEL: H2 H3 H5
    Date: 2021–07–01
  31. By: Jonathan Chiu; Mohammad Davoodalhosseini
    Abstract: Should a central bank digital currency (CBDC) be issued? Should its design be cash- or deposit-like? To answer these questions, we theoretically and quantitatively assess the effects of a CBDC on consumption, banking and welfare. Our model introduces new general equilibrium linkages across different types of retail transactions as well as a novel feedback effect from transactions to deposit creation. The general equilibrium effects of a CBDC are decomposed into three channels: payment efficiency, price effects and bank funding costs. We show that a cash-like CBDC is more effective than a deposit-like CBDC in promoting consumption and welfare. Interestingly, a cash-like CBDC can also crowd in banking, even in the absence of bank market power. In a calibrated model, at the maximum, a cash-like CBDC can increase bank intermediation by 5.8% and capture up to 25% of the payment market. In contrast, a deposit-like CBDC can crowd out banking by up to 2.6%, thereby grabbing a market share of about 16.7%.
    Keywords: Digital currencies and fintech; Monetary policy; Monetary policy framework
    JEL: E58
    Date: 2021–12
  32. By: Joseph Kopecky (Department of Economics, Trinity College Dublin)
    Abstract: Advanced economies face two important trends: population aging and rising debt. In the coming years it will be critical to understand how policies undertaken by governments interact with their changing age structures. In a panel of advanced economies, I show that fiscal deficit consolidation multipliers are highly sensitive to changes in demographics. Broadly speaking, these relationships suggest that population age structure may have exerted negative pressure on fiscal multipliers over the period from the 1980s to the mid 2000s. Projecting forward, this effect is less clear. Simple, one variable, controls for population age suggest that multipliers estimated from spending cuts may grow again as countries move from middle to old-aged. However, these are weakly estimated for tax increases. Controlling for movements across the entire age distribution suggests that tax shocks may have stronger state dependence, with mixed implications over the sample period, but uniform pressure on these multipliers to ard zero as economies continue to age. These findings give hope that the age for austerity may arrive just in time to deal with looming debts, and suggest that more work to understand the mechanisms behind this relationship will be valuable.
    Keywords: Fiscal policy, fiscal multipliers, population aging, demographic change
    JEL: E62 H24 H30 H31 J11
    Date: 2021–12
  33. By: Oliwia Komada (Group for Research in Applied Economics (GRAPE))
    Abstract: What are the welfare and macroeconomic effects of family policies and how do they depend on policy composition? I answer those questions in overlapping generations model calibrated to the US. I account for the idiosyncratic income risk, redistribution via social security, and tax and benefit system. I explicitly model child-related tax credit, child care subsidies, and child allowance. I show the expansion of the family policy yields higher welfare. The expenditure on the optimal policy accounts for approximately 3% of GDP. Even though the optimal family policy is three times bigger than the status quo policy, taxes decrease when the optimal policy is implemented. Therefore, reform is self-financing. The structure of family policy is crucial for welfare evaluation. Tax credit and child allowance generate higher welfare gains than child care.
    Keywords: family policy, pension system, welfare, income instability
    JEL: D21 E62 H31 H55
    Date: 2021
  34. By: Simon Gilchrist; Bin Wei; Vivian Z. Yue; Egon Zakrajšek
    Abstract: In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium, which is a measure of the risk-bearing capacity of US financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.
    Keywords: sovereign bonds; CDS; global financial risk; excess bond premium; global financial cycle
    JEL: E43 E44 F33 G12
    Date: 2021–11–24
  35. By: Margarita Rubio
    Abstract: Brexit will bring many economic and institutional consequences. Among other, Brexit will have implications on financial stability and the implementation of macroprudential policies. One immediate effect of Brexit is the fact that the United Kingdom (UK) will no longer be subject to the jurisdiction of the European Supervisory Authorities (ESAs) nor the European Systemic Risk Board (ESRB). This paper studies the welfare implications of this change of regime, both for the UK and the European Union (EU). By means of a Dynamic Stochastic General Equilibrium model (DSGE), I compare the pre-Brexit scenario with the new one, in which the UK sets macroprudential policy independently. I find that, after Brexit, the UK is better off by setting its own macroprudential policy without taking into account Europe's welfare as a whole. Given the small relative size of the UK, this implies just slight welfare loss in the EU.
    Keywords: Brexit, macroprudential policy, DSGE, welfare
    Date: 2021
  36. By: Eiji Goto (University of Missouri-St. Louis); Jan P.A.M. Jacobs (University of Groningen, CAMA and CIRANO); Tara M. Sinclair (The George Washington University and CAMA); Simon van Norden (HEC Montreal, CIRANO and CIREQ)
    Abstract: The monthly release of employment data for the U.S. includes two different estimates from two different surveys. One is based on a survey of establishments (payroll) and the other is based on a survey of households. The presence of two different sources of information on broadly the same theoretical concept leads to an obvious question: can we combine the information to obtain an improved estimate of employment? In this paper we build on the research on combining different measures of output to instead combine different measures of employment. We construct a latent employment estimate which reconciles the information from the two separate surveys as well as incorporating the preliminary data revision process of the payroll data. We find that our reconciled latent employment series looks different than the initial release of payroll employment and is closer to the fully-revised data (benchmarked to a near census of employment), particularly during the Great Recession. Once we move to a real-time exercise, however, our findings suggest that the reconciled employment estimate is remarkably similar to the initial release of payroll employment with near zero weight on the household survey information.
    Keywords: employment, United States, real-time data, news, noise
    JEL: C22 C53 C82 E24
    Date: 2021–12
  37. By: Sulander, Tytti; Kangasharju, Aki; Kauhanen, Antti; Koski, Heli; Kulvik, Martti; Kuusela, Olli-Pekka; Kuusi, Tero; Lehmus, Markku; Puonti, Päivi; Ropponen, Olli; Valkonen, Tarmo
    Abstract: Abstract The third corona year 2022 will not start very brightly as the Omicron variant of COVID-19 continues to spread. However, we are cautiously optimistic about economic development throughout 2022. In Finland, growth will continue, albeit at a slower pace than this year. The most difficult phase of the pandemic is in the early part of the year, but towards the summer, consumption of services will pick up again, and the outlook for the rest of the year is clearly brighter. At the same time, the pressure to pursue a sustainable, growth-friendly and counter-cyclical economic policy in Finland is growing. Globally, the big theme of 2022 economic policy is the return of inflation, which stems from a recovery in demand, large stimulus packages, and a European Green Deal.
    Keywords: Economic growth, Economic policy, Inflation, Fiscal policy, Monetary policy, Climate, Green Deal, Forecast, EU, Euro, Finland, Employment, COVID-19, Pandemic, Omicron
    Date: 2021–12–28
  38. By: Mr. Mico Mrkaic; Tryggvi Gudmundsson; Jelle Barkema
    Abstract: Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.
    Keywords: Output gaps;monetary policy;fiscal policy;WP;output gap estimate;delta real-time output gap;output gap uncertainty;output gaps discussion;output gap coverage;output gap measurement error;overestimated output gap; business cycles; underestimated output gap; Output gap; Potential output; Inflation; Current account balance; Global
    Date: 2020–11–20
  39. By: Minjie Deng (Simon Fraser University); Min Fang (University of Lausanne & University of Geneva)
    Abstract: We study how debt maturity heterogeneity determines firm-level investment responses to monetary policy shocks. We first document that debt maturity significantly affects the responses of firm-level investment to conventional monetary policy shocks: firms who hold more long-term debt are less responsive to monetary shocks. The magnitude of responses due to debt maturity heterogeneity is comparable to the well-documented responses due to debt level heterogeneity. Evidence from credit ratings and borrowing responses indicates that the higher future default risk embedded in long-term debt plays an essential role. We then develop a heterogeneous firm model with investment, long-term and short-term debt, and default risk to quantitatively interpret these facts. Conditional on the level of debt, firms with more long-term debt are more likely to default on their external debt and consequently face a higher marginal cost of external finance. As a result, these firms are less responsive in terms of investment to expansionary monetary shocks. The effect of monetary policy on aggregate investment, therefore, depends on the distribution of debt maturity.
    Date: 2021–12
  40. By: Elin Halvorsen; Serdar Ozkan; Sergio Salgado
    Abstract: Using administrative data from Norway, we first present stylized facts on labor earnings dynamics between 1993 and 2017 and its heterogeneity across narrow population groups. We then investigate the parents’ role in children’s income dynamics—the intergenerational transmission of income dynamics. We find that children of high-income, high-wealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return, high-risk careers. Children of poorer fathers also face more volatile incomes, but theirs grow more gradually and are more left skewed. Furthermore, the income dynamics of fathers and children are strongly correlated. In particular, children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. We also confirm that fathers’ significant role in workers’ income dynamics is not simply spurious because of omitted variables, such as workers’ own permanent income. These findings shed new light on the determinants of intergenerational mobility.
    Keywords: earnings dynamics; top income inequality; heterogeneity; intergenerational mobility
    JEL: E24 J24 J31
    Date: 2021–12–16
  41. By: Pawel Adrjan; Gabriele Ciminelli; Alexandre Judes; Michael Koelle; Cyrille Schwellnus; Tara Sinclair
    Abstract: The COVID-19 crisis has triggered a major shift towards telework and virtual interactions. This paper uses information on job postings from the online job site Indeed to analyse developments in the adoption of telework across 20 countries. It finds, first, that the incidence of advertised telework almost tripled during the pandemic, albeit with large differences both across sectors and across countries. Second, cross-country differences are to a notable extent explained by differences in the extent to which governments restricted mobility during the pandemic. However, while the tightening of restrictions substantially raises advertised telework, their easing only modestly reverses the increase. Third, digital preparedness plays an important role in mediating the response of advertised telework to changes in restrictions. The tightening of restrictions has particularly large effects in sectors that are better prepared to adopt digital business models, while their easing has almost no effect in countries with high-quality digital infrastructure. Overall, these results suggest that telework is here to stay, especially in countries with high levels of digital preparedness. Public policies will need to adapt to reap the potential benefits for productivity and worker well-being.
    Keywords: digital infrastructure, mobility restrictions, telework
    JEL: D23 E24 J23 G18 M50
    Date: 2021–12–16
  42. By: Brianti, Marco (University of Alberta, Department of Economics); Gati, Laura (European Central Bank)
    Abstract: This paper explores the possibility that productivity improvements in information and communication technologies (ICT) are a source of medium-run fluctuations in total factor productivity (TFP). We document in a structural VAR setting that innovations in ICT investment are followed by hump-shaped increases in TFP. Following the ICT literature, we use a two-sector model to suggest a mechanism behind the hump-shaped TFP response: that ICT is a general-purpose technology (GPT). Using impulse-response matching, we show that a model with a spillover from ICT capital is able to match the hump-shaped TFP response, hinting at the importance of the diffusion of ICT.
    Keywords: information and communication technologies; general-purpose technologies; two-sector models; total factor productivity
    JEL: E30
    Date: 2021–12–15
  43. By: Mr. Kangni R Kpodar; Boya Liu
    Abstract: This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.
    Keywords: Fuel prices, inflation, local projections, household welfare
    Date: 2021–11–12
  44. By: Adrián Rial Quiroga (Instituto Complutense de Estudios Internacionales (ICEI), Universidad Complutense de Madrid.)
    Abstract: In his paper “Baumol’s diseases: a macroeconomic perspective”, Nordhaus (2008) applies a new testing framework in order to estimate the six hypotheses that lie at the core of Baumol’s (1967) model, following an industry perspective. In this work, I extend Nordhaus’ testing framework to estimate Baumol’s diseases in the US economy over the period 1999-2018 according to a subsystem perspective, by making use of the US Bureau of Economic Analysis input-output tables. In order to check whether Baumol’s diseases depend on the perspective that is followed, I apply both the usual industry perspective and the novel subsystem framework and compare the results. For both subsystems and industries, I do not find robust evidence in favour of the persistent demand hypothesis and the hypothesis of declining nominal value added shares in the progressive sector, while my results do support the cost and price disease hypothesis, the hypothesis of declining employment shares in the progressive sector and the hypothesis of uniform wage growth. As a result, Baumol’s growth disease does not substantially lower aggregate labour productivity growth over the period across both subsystems and industries. This happens mainly because progressive services increase their real output at a faster rate than the economy’s average, restraining the reallocation of nominal value added towards stagnant subsystems or industries and thereby providing a strong palliative against Baumol’s growth disease.
    Keywords: Baumol’s diseases; Subsystems; Input-output analysis; Labour productivity growth; US economy
    Date: 2021
  45. By: Li, Xiang
    Abstract: By focusing on the episodes of substantial capital account liberalisation and adopting a new methodology, this paper provides new evidence on the dilemma and global financial cycle theory. I first identify the capital account liberalisation episodes for 95 countries from 1970 to 2016, and then employ an augmented inverse propensity score weighted (AIPW) estimator to calculate the average treatment effect (ATE) of opening capital account on the interest rate comovements with the core country. Results show that opening capital account causes a country to lose its monetary policy independence, and a floating exchange rate regime cannot shield this effect. Moreover, the impact is stronger when liberalising outward and banking flows.
    Keywords: average treatment effect,capital control,global financial cycle,monetary policy autonomy,propensity score matching,trilemma
    JEL: E52 F32 F33 F42
    Date: 2021
  46. By: Xiao Shuguang; Lai Xinglin
    Abstract: While the traditional monetary transmission mechanism usually uses the equity and capital markets as monetary reservoirs, due to China's unique fiscal and financial system, the real estate sector has become China's 'invisible' non-traditional monetary reservoir for many years. Firstly, based on the perspective of the real estate sector as a monetary reservoir, this paper constructs a dynamic general equilibrium model that includes fiscal investment and financing and uses Chinese housing market data as well as central bank data on refinancing rates to financial institutions and GDP data for parameter estimation to reveal the laws of the monetary transmission mechanism of the monetary reservoir-fiscal financing investment: firstly, an asset can be financed as long as it satisfies the three criteria of a leveraged trading system:First,there is a commitment to pay and the existence of government utility; second, local governments have an incentive to carry out credit expansion and investment and also financing operations through money pool assets, and there is a financing effect when the tax return on fiscal investment is higher than fiscal financing; third, the bubble effect is greater than the financing effect and it will push the monetisation of fiscal deficits when the financing effect is greater than the bubble effect and then the economic growth masks the credit expansion of local governments.To address the problem of monetary transmission mechanism under the perspective of real estate monetary reservoir, this paper carries out the design of a de-bubble financing mechanism for monetary reservoir assets.
    Date: 2021–11
  47. By: Ana B. Galvão; James Mitchell
    Abstract: Economic statistics are commonly published without any explicit indication of their uncertainty. To assess if and how the UK public interprets and understands data uncertainty, we conduct two waves of a randomized controlled online experiment. A control group is presented with the headline point estimate of GDP, as emphasized by the statistical office. Treatment groups are then presented with alternative qualitative and quantitative communications of GDP data uncertainty. We find that most of the public understands that uncertainty is inherent in official GDP numbers. But communicating uncertainty information improves understanding. It encourages the public not to take estimates at face-value, but does not decrease trust in the data. Quantitative tools to communicate data uncertainty - notably intervals, density strips, and bell curves - are especially beneficial. They reduce dispersion of the public’s subjective probabilistic expectations of data uncertainty, improving alignment with objective estimates.
    Keywords: Experiments; Data Uncertainty; Uncertainty Communication; Data Revisions
    JEL: C82 E01 D80
    Date: 2021–12–23
  48. By: Sushant Acharya; Keshav Dogra; Sanjay R. Singh (Department of Economics, University of California Davis)
    Abstract: We formalize the idea that the financial sector can be a source of non-fundamental risk. Households’ desire to hedge against price volatility can generate price volatility in equilibrium, even absent fundamental risk. Fearing that asset prices may fall, risk-averse households demand safe assets from leveraged intermediaries, whose issuance of safe assets exposes the economy to self-fulfilling fire sales. Policy can eliminate non-fundamental risk by (i) increasing the supply of publicly backed safe assets, through issuing government debt or bailing out intermediaries, or (ii) reducing the demand for safe assets, through social insurance or by acting as a market maker of last resort.
    Keywords: safe assets, self-fulfilling asset market crashes, liquidity, fire sales
    JEL: D52 D84 E62 G10 G12
    Date: 2021–12–19
  49. By: Yulei Luo; Jun Nie; Xiaowen Wang; Eric R. Young
    Abstract: We propose a production-cost smoothing model with Knightian uncertainty due to ambiguity aversion to study the joint behavior of production, inventories, and sales. Our model can explain four facts that previous studies find difficult to account for simultaneously: (i) the high volatility of production relative to sales, (ii) the low ratio of inventory-investment volatility to sales volatility, (iii) the positive correlation between sales and inventories, and (iv) the negative correlation between the inventory-to-sales ratio and sales. We find that the stock-out avoidance motive (Kahn 1987) emerges endogenously in our model, reconciling the long debate in the inventory literature over the production- cost smoothing and the stock-out avoidance models.
    Keywords: Ambiguity Aversion; Robustness; Knightian Uncertainty; Inventories; Production Cost Smoothing
    JEL: D83 E21 F41 G15
    Date: 2021–08–02
  50. By: Lionel Fontagné; Erica Perego; Gianluca Santoni
    Abstract: What will the global economy look like in a generation? The answer depends on the multiple forces driving long-term growth (demography, education, diffusion of technical progress, energy costs, investment and saving behaviour, international capital mobility) and requires a comprehensive framework to conceptualise them. We re-estimate the three-factor (capital, energy, labour) MAcro-econometric model of the Global Economy (MaGE), initially developed by Fouré et al. (2013), with a database covering 170 countries using state-of-the-art methods. We thus establish the long-term structural relationships that drive the dynamics of the World economy. The model projections to 2050 illustrate the expected changes in the World economy and their driving forces. In light of the projected volume of energy consumption, making these projections compatible with climate imperatives calls for increased technology sharing at the international level in order to decouple economic growth from energy use.
    Keywords: Growth Models;Long-term Growth;Energy Use;Total Factor Productivity;Energy Efficiency
    JEL: O E01 F01 F64
    Date: 2021–12
  51. By: Refk Selmi (ESC Pau); Farid Makhlouf (ESC Pau)
    Abstract: Over the past decade, remittances to Tunisia have increased significantly. Meantime, the Tunisian economy has grown by as little as 0.6 percent on average with inflation averaging six percent. With the harmful economic and social consequences of the COVID-19 crisis as well as the political unrest (especially after Tunisian President Kais Saied invoked Article 80 of the country's 2014 constitution to suspend parliament amid nationwide protests calling for the resignation of the government and the dissolution of the parliament), managing inflation risks seems growingly challenging. Our study is the first attempt to examine the relationship between remittances and Tunisia's inflation dynamics in the central and tail distributions over different correlation regimes. Particularly, we use a copula-based approach that sheds a new light on the dynamic dependence between inflation and remittances. This technique allows to control for possible asymmetries in the form of a high or crisis dependence and a low or a normal state dependence. Our results robustly reveal that remittances are prominent factor determining inflation in Tunisia. More interestingly, we show that remittances and inflation are more strongly correlated during high uncertainty conditions rather than low uncertainty regime. Such accurate insights on the dynamic relationship between remittances and inflation would allow the central bank to anticipate more effectively the evolution of inflation and to propose more appropriate instruments to control it in a context of high inflationary pressures and heightened political uncertainty.
    Keywords: Inflation,Remittances,Tunisia,Political instability,Copula-based approach
    Date: 2021–11–15
  52. By: Bin Wei
    Abstract: I generalize the long-run risks (LRR) model of Bansal and Yaron (2004) by incorporating recursive smooth ambiguity aversion preferences from Klibanoff et al. (2005, 2009) and time-varying ambiguity. Relative to the Bansal-Yaron model, the generalized LRR model is as tractable but more flexible due to its separation of ambiguity aversion from both risk aversion and the intertemporal elasticity of substitution. This three-way separation allows the model to further account for the variance premium puzzle besides the puzzles of the equity premium, the risk-free rate, and the return predictability. Specifically, the model matches reasonably well key asset-pricing moments with risk aversion under 5. Model calibration shows that the ambiguity aversion channel accounts for 77 percent of the variance premium and 40 percent of the equity premium.
    Keywords: smooth ambiguity aversion; long-run risks; equity premium puzzle; risk-free rate puzzle; variance premium puzzle; return predictability
    JEL: G12 G13 D81 E44
    Date: 2021–09–08
  53. By: Salman Huseynov (Aarhus University, Department of Economics and Business Economics and CREATES)
    Abstract: I provide a unified theoretical framework for long memory term structure models and show that the recent state-space approach suffers from a parameter identification problem. I propose a different framework to estimate long memory models in a state-space setup, which addresses the shortcomings of the existing approach. The proposed framework allows asymmetrically treating the physical and risk-neutral dynamics, which simplifies estimation considerably and helps to conduct an extensive comparison with standard term structure models. Relying on a battery of tests, I find that standard term structure models perform just as well as the more complicated long memory models and produce plausible term premium estimates.
    Keywords: Dynamic term structure models, Long memory, Affine model, Shadow rate model
    JEL: C32 E43 G12
    Date: 2021–12–20
  54. By: Razavi, Shahra.; Schwarzer, Helmut,; Durán Valverde, Fabio.; Ortiz, Isabel,; Dutt, Devika.
    Abstract: This paper explores whether there has been a change in International Monetary Fund (IMF) policy advice and conditions in its loan programmes and Article IV surveillance by examining the 148 country reports for IMF programmes in 2020, in the context of significant shifts in its global macroeconomic policy framework during the COVID-19 pandemic. It documents the policy recommendations made in these reports and finds that the IMF has supported increased expenditure on health care and cash transfer programmes, often on a temporary basis, even when it meant higher fiscal deficit and public debt. However, it also finds thatthe IMF has supported fiscal consolidation and reduction of public debt even more frequently, in 129 of the 148 reports examined. This seems to corroborate the findings of a number of recent studies. Given the pronounced gaps in social protection coverage, comprehensiveness and adequacy across all countries, it is essential that the measures taken to cope with the emergency do not remain a mere stopgap response, but progressively lead to the establishment or strengthening of rights-based national social protection systems,including floors. To do so, countries can and should pursue diverse financing options that are equitable in order to mobilize the financial resources needed for social investments, including investments in social protection systems and quality public services.
    Date: 2021
  55. By: Frédéric Dufourt (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Lisa Kerdelhué (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Océane Piétri (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We revisit the canonical policy of eliminating capital taxation by increasing labor taxation in a endogenous-labor, heterogeneous-agent model with income and wealth heterogeneity, when the government is subject to a strict (per-period) balancedbudget constraint. By contrast with its non-budget neutral equivalent-associated with a constant tax rate over time and a permanent increase in the level of public debt-we show that the obtained endogenous path for the labor tax rate is sharply increasing in the initial period and decreasing over time. The policy then generates a deeper recession in the short-run and a greater expansion in the long-run, as well as a smaller decline in wealth inequality associated with a reduced incentive to save for precautionary motives. Overall, the policy still generates significant losses in average welfare.
    Keywords: Fiscal Policy,Capital Tax Cut,Tax Composition,Heterogeneous Agents,Wealth Redistribution
    Date: 2021–06–30
  56. By: António Afonso; José Carlos Coelho
    Abstract: We investigate the bilateral relationship between government budget balances and current account balances for Portugal and Germany. We find that the response of the current account balance to the budget balance is greater in Portugal than in Germany. On the other hand, the response of the budget balance to the current balance is higher in Germany than in Portugal. In Portugal and Germany, a fiscal rules index has a negative impact on the current account balance and the government effectiveness index has a positive impact on the government balance. The public debt as a percentage of GDP positively affects the current account balance in Portugal, and in Germany it does not. During the period of implementation of the external assistance programme in Portugal, the current account balance improved, while the government balance did not.
    Date: 2021
  57. By: Håvard Halland
    Abstract: Strategic investment funds (SIFs) are instruments of economic and financial policy, and the operations of these funds have important fiscal implications. These implications span the full cycle of the SIFs’ operations, from funding, through capital allocation, to operations and maintenance of the invested assets. SIFs with a capacity to deploy capital efficiently have the potential to increase the effectiveness of the public expenditure programmes in the SIFs’ respective home countries. However, the establishment and operations of SIFs also carry important fiscal risks, which need to be recognised and addressed. This paper considers the flows of capital into and out of SIFs, as well as the relationship of these flows to the fiscal framework and macro-fiscal context of the SIFs’ home countries. It also looks at the fiscal liabilities that can result from SIFs’ activities, and from their possible insolvency and bankruptcy, offering suggestions for how these risks can be mitigated. Les fonds d'investissement stratégique (SIF pour leur acronyme en anglais) sont des instruments de politique économique et financière, et leurs opérations ont des implications fiscales importantes. Ces implications couvrent un cycle complet, allant du financement à l'allocation de capital, et des opérations à la maintenance des actifs investis. Les SIF capables de déployer efficacement leurs capitaux peuvent accroître l'efficacité des programmes de dépenses publiques dans les pays d'origine des SIF. Cependant, la création et le fonctionnement des SIF comportent également des risques fiscaux importants, qui doivent être reconnus et pris en compte. Ce document examine les flux de capitaux entrant et sortant des SIF, ainsi que la relation de ces flux avec le cadre budgétaire et le contexte macro-budgétaire des pays d'origine des SIF. Il examine également les responsabilités fiscales qui peuvent résulter des activités des SIF et de leur éventuelle insolvabilité et faillite, offrant des recommandations sur la manière dont ces risques peuvent être atténués.
    Keywords: fiscal liabilities, fiscal management, fiscal risk, national development funds, public financial management, sovereign debt, sovereign wealth funds, strategic investment funds
    JEL: G23 G28 H30 H81 O23
    Date: 2021–12–20
  58. By: Alberto Botta; Giuliano Toshiro Yajima; Gabriel Porcile
    Abstract: The outbreak of Covid-19 brought back to the forefront the crucial importance of structural change and productive development for economic resilience to economic shocks. Several recent contributions have already stressed the perverse relation that may exist between productive backwardness and the intensity of the Covid-19 socio-economic crisis. In this paper, we analyze the factors that may have hindered productive development for over four decades before the pandemic. We investigate the role of (non-FDI) net capital inflows as a potential source of premature de-industrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing (EDE) economies in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused the significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that phenomena of “perverse” structural change are significantly more relevant in EDE countries than advanced ones. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful policy tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.
    Keywords: Structural change; premature de-industrialization; capital Inflows; macroprudential policies
    JEL: F32 F38 O14 O30
    Date: 2021–12
  59. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: Gender budgeting is a public financial management (PFM) tool for transparency and accountability. Against the backdrop of covid-19 pandemic, this paper analyses the Union Budget 2021-22 through a "gender lens" to understand the intensity of gender in the budgetary allocations. The analysis of specifically targeted programmes for women and the intrinsic gender components in the mainstream spending revealed that the gender budgeting hovered around only 5 per cent of total budget. The sectoral analysis revealed that higher budgetary allocations per se do not ensure higher spending. The analysis of fiscal marksmanship - the deviation between what is budgeted and what is actual - revealed significant fiscal slippages in various sectoral spending. The economic stimulus package in India has given significance to gender budgeting in energy infrastructure and increased allocation on gender budgeting in a prima facie gender neutral ministry like Petroleum is welcome. However, the framework of gender budgeting as a PFM tool can be explored further to ensure sustainable gender equality outcomes, when economic stimulus packages are short run and there is fiscal normalization procedure. Given the accommodative fiscal stance in times of pandemic, reflected in the flexibility of deficit thresholds, prioritization of spending on gender budgeting can lessen widening inequalities.
    Date: 2021–12
  60. By: Hervé Bercegol (SPEC - UMR3680 - Service de physique de l'état condensé - CEA - Commissariat à l'énergie atomique et aux énergies alternatives - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Henri Benisty (IOGS - Institut d'Optique Graduate School)
    Abstract: Global historical series spanning the last two centuries recently became available for primary energy consumption (PEC) and gross domestic product (GDP). Based on a thorough analysis of the data, we propose a new, simple macroeconomic model whereby physical power is fueling economic power. From 1820 to 1920, the linearity between global PEC and world GDP justifies basic equations where, importantly, PEC incorporates unskilled human labor that consumes and converts energy from food. In a consistent model, both physical capital and human capital are fed by PEC and represent a form of stored energy. In the following century, from 1920 to 2016, GDP grows quicker than PEC. Periods of quasi-linearity of the two variables are separated by distinct jumps, which can be interpreted as radical technology shifts. The GDP to PEC ratio accumulates game-changing innovation, at an average growth rate proportional to PEC. These results seed alternative strategies for modeling and for political management of the climate crisis and the energy transition.
    Keywords: Energy-GDP nexus,global economy,innovation,historical series,technological revolutions,Energy transition
    Date: 2022–02
  61. By: Juan Antolin-Diaz; Ivan Petrella; Juan F. Rubio-Ramirez
    Abstract: A long tradition in macro finance studies the joint dynamics of aggregate stock returns and dividends using vector autoregressions (VARs), imposing the cross-equation restrictions implied by the Campbell-Shiller (CS) identity to sharpen inference. We take a Bayesian perspective and develop methods to draw from any posterior distribution of a VAR that encodes a priori skepticism about large amounts of return predictability while imposing the CS restrictions. In doing so, we show how a common empirical practice of omitting dividend growth from the system amounts to imposing the extra restriction that dividend growth is not persistent. We highlight that persistence in dividend growth induces a previously overlooked channel for return predictability, which we label "dividend momentum." Compared to estimation based on ordinary least squares, our restricted informative prior leads to a much more moderate, but still significant, degree of return predictability, with forecasts that are helpful out of sample and realistic asset allocation prescriptions with Sharpe ratios that outperform common benchmarks.
    Keywords: CS restrictions; Bayesian VAR; optimal allocation
    JEL: C32 C53 G11 G12 E47
    Date: 2021–11–10
  62. By: Pierri, Damian Rene
    Abstract: The existence of a recursive minimal state space (MSS) representation is notalways guaranteed. However, because of its numerical efficiency, this type of equilibrium is frequently used in practice. What are the consequences of computing and simulating a model without a constructive proof? To answer this question, we identify a condition which is associated with a convergent and computable MSSrepresentation in a RBC model with state contingent taxes. This condition ensures the existence of a benchmark equilibrium that can be used to test frequently used algorithms. To verify the accuracy of simulations even if this condition does not hold, we derive a closed form recursive equilibrium which contains the MSS representation. Both benchmark representations are accurate and ergodic. We showthat state of the art algorithms, even if they are numerically convergent, may underestimate capital (and thus overestimate the benefits of capital taxes) by at least 65%, a figure which is in line with recent findings using accurate benchmarks. When an existence proof is not available, we found 2 sources of inaccuracy: the lack of a convergent operator and the absence of a well-defined (stochastic) steady state.Moreover, we identify a connection between lack of convergence and the equilibrium budget constraint which implies that simulated paths may be distorted not only in the long run but also in any period. When we have a constructive proof, inaccuracy is generated by the lack of qualitative properties in the computed policy functions.
    Keywords: Accuracy; Recursive Equilibrium; State Contingent Fiscal Policy
    Date: 2021–12–13
  63. By: Mr. Roberto Perrelli; Kareem Ismail; Jessie Yang
    Abstract: Are IMF growth forecasts systematically optimistic? And if so, what is the role of planned policy adjustments on this outcome? Are program forecasts as biased as surveillance forecasts? We try to answer these questions using a comprehensive database on IMF forecasts of economic growth in surveillance and program cases during 2003–2017. We find that large planned fiscal and external adjustments are associated with optimistic growth projections, with significant non-linearities for both program and surveillance cases. Specifically, we find evidence that larger planned fiscal adjustment is associated with higher growth optimism in IMF non-concessional, non-precautionary financial arrangements. Our results show the tendency for optimism has persisted in the period after the Global Financial Crisis. Moreover, the strong correlation between the magnitude of the optimism and expected fiscal consolidation provides a cautionary signal for the post-COVID IMF projections as countries embark on a path of fiscal adjustment.
    Keywords: Fiscal adjustment;IMF-supported programs;forecast error;optimism bias.;WP;optimism bias;IMF program document;IMF team;policy adjustment;IMF mission
    Date: 2020–11–08
  64. By: Ortiz Vargas, Michell; Campo Robledo, Jacobo
    Abstract: Este documento estudia el efecto del gasto público social en el crecimiento económico a partir de dos modelos (uno agregado y otro desagregado), con el objetivo principal de presentar evidencia empírica del impacto que tiene el gasto público social sobre el PIB per cápita, y por ende en el crecimiento económico a nivel latinoamericano. A través de un modelo de datos panel cointegrado para 11 países, durante el periodo 1990 – 2017, y utilizando los estimadores OLS, FMOLS y DOLS, se presenta evidencia empírica sobre esta relación y se descompone el efecto del gasto social para cada país de la muestra en el modelo agregado y por tipo, esto es, gasto en salud, educación y protección social, en el desagregado. Adicionalmente, se aplica una prueba de causalidad para datos panel con el fin de validar los resultados. Concluyen que el gasto social por sí solo, y en las tres dimensiones (salud, educación y protección social), contribuye significativamente al crecimiento económico. Específicamente, los resultados muestran que los efectos del gasto público en educación, salud y protección social en el crecimiento económico son significativamente positivos. Los resultados son robustos y enfatizan en el hecho de que una amplia gama de factores determina el crecimiento, además del gasto social del gobierno.
    Keywords: Crecimiento económico; gasto público social; datos panel; cointegración; causalidad de Granger; América Latina
    JEL: C33 H55 O11 E60
    Date: 2021–12
  65. By: Conteh, Lesong; Shuford, Kathryn; Agboraw, Efundem; Kont, Mara; Kolaczinski, Jan; Patouillard, Edith
    Abstract: Objectives: To systematically review the literature on the unit cost and cost-effectiveness of malaria control. Methods: Ten databases and gray literature sources were searched to identify evidence relevant to the period 2005 to 2018. Studies with primary financial or economic cost data from malaria endemic countries that took a provider, provider and household, or societal perspective were included. Results: We identified 103 costing studies. The majority of studies focused on individual rather than combined interventions, notably insecticide-treated bed nets and treatment, and commonly took a provider perspective. A third of all studies took place in 3 countries. The median provider economic cost of protecting 1 person per year ranged from $1.18 to $5.70 with vector control and from $0.53 to $5.97 with chemoprevention. The median provider economic cost per case diagnosed with rapid diagnostic tests was $6.06 and per case treated $9.31 or $89.93 depending on clinical severity. Other interventions did not share enough similarities to be summarized. Cost drivers were rarely reported. Cost-effectiveness of malaria control was reiterated, but care in methodological and reporting standards is required to enhance data transferability. Conclusions: Important information that can support resource allocation was reviewed. Given the variability in methods and reporting, global efforts to follow existing standards are required for the evidence to be most useful outside their study context, supplemented by guidance on options for transferring existing data across settings.
    Keywords: cost-effectiveness; disease control interventions; malaria; unit cost
    JEL: E6
    Date: 2021–08–01
  66. By: Axelle Ferriere (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Philipp Grubener (Goethe-University - Goethe-Universität Frankfurt am Main); Gaston Navarro (Federal Reserve Board); Oliko Vardishvili (Yale University [New Haven])
    Abstract: We study the optimal joint design of targeted transfers and progressive income taxes. We develop a simple analytical model and demonstrate an optimally negative relation between transfers and income-tax progressivity, due to both efficiency and redistribution concerns. That is, higher transfers should be financed with lower income-tax progressivity. We next quantify the optimal fiscal plan in a rich dynamic model calibrated to the U.S. economy. Transfers should be generous and financed with moderate income-tax progressivity. To redistribute while preserving efficiency, average tax-and-transfer rates should be more progressive than marginal rates. Transfers, even if lump-sum, precisely allow to disentangle average from marginal rates. Targeted transfers further implement non-monotonic marginal rates, but generate only modest additional gains relative to a lump-sum transfer. Quantitatively, the left tail of the income distribution determines the optimal size of the transfer, while the right tail drives the optimal income-tax progressivity.
    Keywords: Fiscal Policy,Optimal Taxation,Redistribution,Heterogeneous Agents
    Date: 2021–12
  67. By: Liebich, Lena; Nöh, Lukas; Rutkowski, Felix Joachim; Schwarz, Milena
    Abstract: In light of its recently completed strategy review, the ECB has presented a climate action plan, which schedules the consideration of climate criteria within the corporate sector purchase program (CSPP). We study the potential role of the ECB in supporting the transition to a low-carbon economy by decarbonizing the CSPP. We demonstrate that the carbon intensity of CSPP purchases is basically determined by three factors: First, by the CSPP-eligibility criteria as these tend to exclude bonds from low-emission sectors. Second, by the underlying structure of the bond market as this tends to be skewed towards carbon-intensive sectors. Third, among the eligible bonds, the ECB tends to select those from relatively emission-intensive sectors. Consequently, to decarbonize the CSPP, the ECB can theoretically act along these three lines. That is: Adjust the CSPP-eligibility criteria to expand the range of eligible low-carbon assets. Revise the principle of market neutrality to tilt the CSPP portfolio towards low-carbon companies. Or purchase so far neglected low-carbon bonds within the current eligibility and market neutrality framework. We analyze chances and discuss risks with regard to all three options. As we find that all approaches to decarbonize the CSPP have either very limited effects on the carbon intensity of the CSPP portfolio or are associated with significant theoretical and practical concerns, we conclude that the contributions to the success of an active green monetary policy that goes beyond the principle of market neutrality are not guaranteed, while at the same time risks arise for a monetary policy oriented towards price level stability. In contrast, by linking the CSPP to climate-related disclosures, the ECB can contribute to increased transparency and improved risk management and has an important and potentially climate-effective lever in hand that is independent of revising the principle of market neutrality.
    Date: 2021
  68. By: Mr. Santiago Acosta Ormaechea
    Abstract: The public sector, in carrying out its operations, often incurs foreign currency denominated liabilities and, as such, is exposed to exchange rate fluctuations that could affect the value of public debt to GDP ratios over time. This paper shows that converting foreign currency denominated flows and stocks into local currency using the average and the end-of-period exchange rates, respectively, as envisaged in public finance manuals, gives rise to an identifiable stock-flow adjustment term—due to intra-year exchange rate fluctuations—that affects public debt accumulation. Importantly, the inclusion of this often-ignored stock-flow adjustment term is critical to accurately project public debt levels and any related indicator that could in turn inform about the risk of debt distress. Using a novel dataset covering 82 countries during 2008–19, the paper shows that this stock flow adjustment term is sizable in countries experiencing large exchange rate depreciations, namely above the 99th percentile of the full sample, reaching 1.2 percent of GDP. Interestingly, the measurement of policy-related concepts such as interest rate-growth differentials and debt stabilizing primary balances are also affected by intra-year exchange rate fluctuations, and in non-negligible ways.
    Keywords: Public debt dynamics;intra-year exchange rate fluctuations;interest rate-growth differential;debt stabilizing primary balance.;WP;year exchange rate fluctuation;debt projection;accumulation equation;end-of-period exchange rates;heightened exchange rate volatility;nominal exchange rate depreciation; debt stabilizing primary balance; Exchange rates; Fiscal stance; Currencies; Asset valuation; Global
    Date: 2020–11–20

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