|
on Macroeconomics |
|
Issue of 2022‒01‒17
ninety papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Alan J. Auerbach; Yuriy Gorodnichenko; Peter McCrory; Daniel Murphy |
| Abstract: | In response to the record-breaking COVID19 recession, many governments have adopted unprecedented fiscal stimuli. While countercyclical fiscal policy is effective in fighting conventional recessions, little is known about the effectiveness of fiscal policy in the current environment with widespread shelter-in-place (“lockdown”) policies and the associated considerable limits on economic activity. Using detailed regional variation in economic conditions, lockdown policies, and U.S. government spending, we document that the effects of government spending were stronger during the peak of the pandemic recession, but only in cities that were not subject to strong stay-at-home orders. We examine mechanisms that can account for our evidence and place our findings in the context of other recent evidence from microdata. |
| JEL: | E32 E62 H3 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29531&r= |
| By: | Christian K. Wolf |
| Abstract: | I give conditions under which changes in private spending are accommodated in general equilibrium exactly like changes in aggregate fiscal expenditure. Under such demand equivalence, researchers can use time series evidence on fiscal multipliers to recover the general equilibrium "missing intercept" of shocks to private spending identified in the cross section. I apply this method to deficit-financed stimulus checks, and find a) a large direct consumption spending response, and b) a fiscal multiplier of one and so a missing intercept close to zero. I also discuss the robustness of this aggregation approach to empirically plausible violations of demand equivalence. |
| JEL: | E20 E32 E62 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29558&r= |
| By: | Martina Cecioni (Bank of Italy); Adriana Grasso (ECB); Alessandro Notarpietro (Bank of Italy; Bank of Italy) |
| Abstract: | We review the experience of central banks in 12 advanced economies in formulating their price stability objectives during the last 20 years. All central banks under review target a small and positive inflation rate (typically 2%). In most cases, they set a point target, in some a range or a point with bands around it. Range and bands are more common among small open economies. We also conduct a model-based analysis of the macroeconomic performance of different monetary policy strategies when the policy rate is constrained by the effective lower bound (ELB). Under standard inflation targeting, inflation remains, on average, below target (disinflationary bias). ELB incidence and duration are higher the lower the target. A point inflation target performs better than a range, especially if compared to an asymmetric one with the focal point close to the ceiling. Makeup strategies (price level targeting and average inflation targeting) and asymmetric inflation targeting strategies, in which the central bank’s reaction to below-target inflation is stronger compared with the case of above-target inflation, reduce the disinflationary effects of the ELB and have better macroeconomic stabilization properties compared with standard inflation targeting. |
| Keywords: | central banking, monetary policy rules, effective lower bound |
| JEL: | E31 E32 E52 E58 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_660_21&r= |
| By: | Mitra, Aruni |
| Abstract: | This paper argues that rapid de-unionization during the 1980s can explain the sudden vanishing of the procyclicality of productivity in the U.S. I use cross-sectional evidence from U.S. states and industries to argue that the lower cost of hiring and firing workers due to the decline in union power prompted firms to rely less on labour hoarding, making productivity less procyclical. Allowing the hiring cost to decrease by the same proportion as the decline in union density can match almost the entire drop in cyclical productivity correlations in a model with endogenous effort and costly employment adjustment. |
| Keywords: | productivity, unions, hiring cost, factor utilization, DSGE |
| JEL: | E22 E23 E24 E32 J50 |
| Date: | 2021–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110961&r= |
| By: | Goodhart, C. A. E.; Peiris, M. U.; Tsomocos, Dimitrios P; Wang, Xuan |
| Abstract: | The COVID-19 pandemic has coincided with a rapid increase in indebtedness. Although the rise in public debt and its policy implications have received much attention recently, the rise in corporate debt has received less so. We argue that high levels of corporate debt may impede the transmission mechanism of monetary policy and make it less effective in controlling inflation. In an environment with working capital financing requirements, when firms’ indebtedness is sufficiently high, the income effect of higher nominal interest rates offsets or even dominates its usual negative substitution effect on aggregate demand and is quantitatively important. This mechanism is independent of standard financial and nominal frictions and enhances the trade-off between inflation and output stabilisation. |
| Keywords: | coronavirus; covid-19 |
| JEL: | E31 E44 E52 G33 |
| Date: | 2021–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112955&r= |
| By: | James Dean (West Virginia University, Department of Economics); Scott Schuh (West Virginia University, Department of Economics) |
| Abstract: | A Taylor Rule remains the consensus monetary policy specification in macroeconomic models despite unconventional monetary policies (UMP) and the policy rate stuck near zero in 2009-2015. We extend the literature by testing for structural breaks in benchmark macro models at 2007:Q3 that might reflect UMP. Significant breaks occurred altering model shocks, dynamics, and output gaps. The “shadow†funds rate proxies for UMP but has little effect on results. Deducing cause(s) of structural breaks is challenging due to changes in non-policy structure that may be unrelated to UMP and to the omission of UMP from the benchmark models. |
| Keywords: | Taylor Rule, Structural Break, Macroeconomic Models, Unconventional Monetary Policy |
| JEL: | E43 E52 E58 E12 E13 E65 E61 C50 C32 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:wvu:wpaper:21-05&r= |
| By: | William Gamber; James Graham; Anirudh Yadav |
| Abstract: | The COVID-19 pandemic induced an increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020. Lower mortgage rates explain around one third of the price rise, while unemployment shocks and fiscal stimulus have relatively small effects on house prices. We find that young households and first-time home buyers account for much of the increase in housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices. |
| Keywords: | COVID-19, Pandemic, Stay at Home, Housing, House Prices, Consumption, Mortgage Interest Rates, Unemployment, Fiscal Stimulus |
| JEL: | E21 E32 E60 E62 E65 R21 R30 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-97&r= |
| By: | Hinterlang, Natascha; Moyen, Stéphane; Röhe, Oke; Stähler, Nikolai |
| Abstract: | We simulate the fiscal stimulus packages set up by the German government to allevi-ate the costs of the COVID-19 pandemic in a dynamic New Keynesian multi-sectorgeneral equilibrium model. We find that, cumulated over 2020-2022, output lossesrelative to steady state can be reduced by more than 4 PP. On average, welfare costsof the pandemic can be mitigated by 5%, and even by 20% for liquidity-constrainedhouseholds. The long-run present value multiplier of the package amounts to 0.2. Consumption tax cuts and transfers to households primarily stabilize private con-sumption, and subsidies prevent firm defaults. The most cost-efficient measure isan increase in productivity-enhancing public investment. However, it materializesonly in the medium to long-term. |
| Keywords: | Fiscal Policy,COVID-19,DSGE Modelling,Sectoral Heterogeneity |
| JEL: | E1 E2 E62 H2 H30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:432021&r= |
| By: | Lena Dräger (Leibniz University Hannover.); Michael J. Lamla (Leuphana University of Lüneburg and ETH Zurich, KOF Swiss Economic Institute); Damjan Pfajfar (Board of Governors of the Federal Reserve System) |
| Abstract: | Using a new consumer survey dataset, we study the role of macroeconomic preferences for expectations and economic decisions. While household expectations are inversely related to preferences, households with the same ination expectations can di_erently assess whether the level of expected ination and of nominal interest rates is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and a_ects current and planned spending via the intertemporal elasticity of substitution. We also show that the variation in preferences can be explained with risk preferences. Overall, this adds a new dimension to the de_nition of anchored expectations. |
| Keywords: | Macroeconomic expectations, monetary policy perceptions, ination and interestrate preferences, risk preferences, survey microdata |
| JEL: | E31 E52 E58 D84 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:402&r= |
| By: | Benjamin Gardner; Chiara Scotti; Clara Vega |
| Abstract: | While the literature has already widely documented the effects of macroeconomic news announcements on asset prices, as well as their asymmetric impact during good and bad times, we focus on the reaction to news based on the description of the state of the economy as painted by the Federal Open Market Committee (FOMC) statements. We develop a novel FOMC sentiment index using textual analysis techniques, and find that news has a bigger (smaller) effect on equity prices during bad (good) times as described by the FOMC sentiment index. Our analysis suggests that the FOMC sentiment index offers a reading on current and future macroeconomic conditions that will affect the probability of a change in interest rates, and the reaction of equity prices to news depends on the FOMC sentiment index which is one of the best predictors of this probability. |
| Keywords: | Monetary policy; Public information; Probability of a recession; Price discovery |
| JEL: | C53 D83 E27 E37 E44 E47 E50 G10 |
| Date: | 2021–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-74&r= |
| By: | Chakraborty, Lekha S; S, Harikrishnan |
| Abstract: | Against the backdrop of covid-19 pandemic, the paper analyses the economic stimulus packages announced by the national government in the context of India and tries to identify the plausible fiscal and monetary policy co-ordination. The shrinking fiscal space due to revenue uncertainties has led to a theoretical plausibility of a re-emergence of finite monetisation of deficits in India. However, the empirical evidence confirms no direct monetisation of deficit. |
| Keywords: | Fiscal-Monetary Policy Co-ordination, Fiscal Deficits, Monetisation, Covid 19 |
| JEL: | E58 E62 E63 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111230&r= |
| By: | Koenig, Philipp J.; Schliephake, Eva |
| Abstract: | We consider a standard banking model with agency frictions to simultaneously studythe weakening and reversal of monetary transmission and banks' risk-taking in alow-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks' net worth. The pass-throughto deposit rates, the level of excess reserves and the extent of the agency problembetween banks and depositors are crucial determinants of monetary transmission.If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policyrates below the reversal rate further interest rate reductions lead to a disproportionalincrease in risk-taking and a contraction in loan supply. |
| Keywords: | Monetary policy,Bank lending,Risk-taking channel,Reversal rate |
| JEL: | G21 E44 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:422021&r= |
| By: | William L. Gamber |
| Abstract: | The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship between variable input use and revenue in panel data on large firms. Viewed through the lens of my model, my estimates imply that for large firms, the within-firm elasticity of the markup to relative sales is 25 percent. I use the calibrated model to study shocks to entry, finding that a fall in entry can lead to a significant contraction in employment. A shock to entry that replicates the decline in the number of businesses during the Great Recession generates a prolonged 2.5 percent fall in employment in the model. Finally, I show that the declining correlation between revenue and variable input use over the past 30 years implies that the effect of entry on the business cycle has become stronger over time. |
| Keywords: | Macroeconomics; Heterogeneous firms; Business dynamics; Variable markups |
| JEL: | E24 E32 J23 L20 |
| Date: | 2021–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-77&r= |
| By: | Iseringhausen, Martin (European Stability Mechanism); Theodoridis, Konstantinos (European Stability Mechanism and Cardiff Business School) |
| Abstract: | We develop a new data-rich measure of aggregate skewness in the US economy, which is highly correlated with GDP growth skewness conditional on past macro-financial data, as well as with the cross-sectional skewness of firm-level employment growth. An exogenous perturbation to the proposed skewness measure identified using simple recursive (Cholesky-type) restrictions delivers dynamics that are nearly indistinguishable from those produced by the main business cycle shock of Angeletos et al. (2020). We document a strong correlation between both shocks that is robust to controlling for standard measures of macroeconomic volatility and uncertainty. Our findings reinforce previous studies on the impact of skewness shocks despite different methodologies. |
| Keywords: | Asymmetry, principal component analysis, quantile regression, VAR |
| JEL: | C22 C38 E32 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/30&r= |
| By: | Enrique Alberola; Carlos Cantú; Paolo Cavallino; Nicola Mirkov |
| Abstract: | In this paper, we argue that the effect of monetary and fiscal policies on the exchange rate depends on the fiscal regime. A contractionary monetary (expansionary fiscal) shock can lead to a depreciation, rather than an appreciation, of the domestic currency if debt is not backed by future fiscal surpluses. We look at daily movements of the Brazilian real around policy announcements and find strong support for the existence of two regimes with opposite signs. The unconventional response of the exchange rate occurs when fiscal fundamentals are deteriorating and markets' concern about debt sustainability is rising. To rationalize these findings, we propose a model of sovereign default in which foreign investors are subject to higher haircuts and fiscal policy shifts between Ricardian and non-Ricardian regimes. In the latter, sovereign default risk drives the currency risk premium and affects how the exchange rate reacts to policy shocks. |
| Keywords: | Exchange rate, monetary policy, fiscal policy, fiscal dominance, sovereign default |
| JEL: | E52 E62 E63 F31 F34 F41 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2022-01&r= |
| By: | Ozili, Peterson K |
| Abstract: | Cryptocurrencies have become popular. Economic agents use cryptocurrency such as bitcoins to make payments and it pose a threat to fiat currency. Central banks have begun to respond to this threat. They realize that they need to join the race to offer a digital currency and dominate the digital currency landscape which can lead to the collapse of most private digital currencies that are not issued by a central bank or a monetary authority. In this paper, I show how the issuance of a central bank digital currency can lead to the collapse of private digital currencies such as bitcoin. I argue that central banks will leverage on their monetary powers, and the trust that citizens have in government-backed money. This may give central banks strong incentives to issue a central bank digital currency. The issuance of a central bank digital currency can erode trust in cryptocurrencies, and lead to lack of trust in cryptocurrency, thereby leading to the collapse of cryptocurrencies although not immediately. |
| Keywords: | central bank digital currency, cryptocurrency, bitcoin, blockchain, distributed ledger, payment system, central banks, CBDC, digital innovation, cryptoassets, stablecoin, Covid-19, fiat digital currency |
| JEL: | E42 E52 E58 G21 O31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111218&r= |
| By: | Collard, Fabrice; Boissay, Frédéric; Galì, Jordi; Manea, Cristina |
| 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: | 2021–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126275&r= |
| By: | Jorge E. Galán (Banco de España) |
| Abstract: | This document proposes an aggregate early-warning indicator of systemic risk in the banking sector. The indicator is derived from a logistic model based on the variables in the CAMELS rating system, originally developed for the US, and complemented with macroeconomic aggregate variables. The model is applied to the Spanish banking sector using bank-level data for a complete financial cycle, from 1999 to 2021. The performance of the model is assessed not only during the last global financial crisis and the subsequent sovereign crisis, but also during the recent Covid-19 shock. The proposed indicator has a macroprudential orientation, which differs from most of previous studies predicting individual bank defaults. The indicator is found to provide accurate early-warning signals of systemic risk in the banking sector within a two-year horizon. In this context, the indicator provides mid-term signals of systemic risk that complement those derived from macrofinancial indicators and from measures of the materialization of risk. |
| Keywords: | banks, defaults, early-warning performance, macroprudential policy, systemic risk |
| JEL: | C25 E32 E58 G01 G21 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2132&r= |
| By: | Ozili, Peterson K |
| Abstract: | This paper reviews the recent advances in central bank digital currency research in a way that would help researchers, policy makers and practitioners to take a closer look at central bank digital currency (CBDC). The review shows a general consensus that a central bank digital currency is a liability of the issuing central bank and it has cash-like attributes. The review also presents the motivation and benefits of issuing a central bank digital currency such as the need to improve the conduct of monetary policy, the need to enhance the efficiency of digital payments and the need to increase financial inclusion. The review also shows that many central banks are researching the potential to issue CBDCs due to its many benefits. However, a number of studies have called for caution against over-optimism about the potential benefits of CBDC due to the limiting nature of CBDC design and its inability to meet multiple competing goals. Suggested areas for future research are identified such as the need to find the optimal CBDC design that meets all competing objectives, the need for empirical evidence on the effect of CBDC on the cost of credit and financial stability, the need to undertake country-specific and regional case studies of CBDC design, and the need to find a balance between limiting the CBDC holdings of users and allowing users to hold as much CBDC as they want. The implication of the findings of this review is that central bankers need to pay more attention to the design features of CBDC. Central bankers need to first identify the goals they want to achieve with CBDC, and design the CBDC to have those features. Where possible, there should be opportunities to re-design and re-invent the CBDC to meet changing central bank objectives. |
| Keywords: | Keywords: Digital currency, Money, Central bank digital currency, CBDC, Digital finance, Cryptocurrency, Financial inclusion, CBDC design, Blockchain, Distributed ledger technology. |
| JEL: | E42 E51 E52 E58 E59 G21 G28 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111389&r= |
| By: | Galip Kemal Ozhan |
| Abstract: | How does news about future economic fundamentals affect within-country and cross-country credit allocation? How effective is unconventional policy when financial crises are driven by unfulfilled favorable news? I study these questions by employing a two-sector, two-country macroeconomic model with a financial sector in which financial crises are associated with occasionally binding leverage constraints. In response to positive news on the valuation of non-traded sector capital that turns out to be incorrect at a later date, the model captures the patterns of financial flows and current account dynamics in Spain between 2000-2010, including the changes in the sectoral allocation of bank credit and movements in cross-country borrowing during the boom and the bust. When there are unconventional policies by a common authority in response to unfulfilled favorable news, liquidity injections perform better in ameliorating the downturn than direct assets purchases from the non-traded sector. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E44 F32 F41 G15 G21 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-66&r= |
| By: | Michael J. Fleming; Haoyang Liu; Rich Podjasek; Jake Schurmeier |
| Abstract: | In March 2020, massive customer selling of U.S. Treasury securities and agency mortgage-backed securities (MBS) triggered by the COVID-19 pandemic overwhelmed dealers’ capacity to intermediate trades, contributing to a marked deterioration of market functioning. The Federal Reserve promptly took numerous steps to address the market disruptions, including the initiation of market functioning purchases of Treasury securities and agency MBS. Purchases quickly expanded to over $100 billion per day as the Fed announced plans to buy securities “in the amounts needed” to support market functioning and the effective transmission of monetary policy. Market liquidity improved steadily after mid-March, suggesting that the Fed’s efforts were effective, and the security purchases were scaled back accordingly. |
| Keywords: | Federal Reserve; asset purchases; Treasury securities; agency mortgage-backed securities; COVID-19 |
| JEL: | E52 G01 G12 E44 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93540&r= |
| By: | Lutz Kilian; Xiaoqing Zhou |
| Abstract: | Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a year-over-year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, and by 0.4 percentage points at the end of 2022. In contrast, the impact on measures of core inflation such as trimmed mean PCE inflation is only 0.4 and 0.3 percentage points in 2021 and 2022, respectively. These estimates already account for any increases in inflation expectations under the scenario. The peak response of the 1-year household inflation expectation would be 1.2 percentage points, while that of the 5-year expectation would be 0.2 percentage points. |
| Keywords: | scenario, inflation, expectation, oil price, gasoline price, household survey, core, pandemic, recovery |
| JEL: | E31 E52 Q43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9455&r= |
| By: | Daniel H. Cooper; Giovanni P. Olivei |
| Abstract: | This paper evaluates the marginal propensity to consume (MPC) out of the 2020 fiscal stimulus payments using high-frequency, transaction-level data for a sample of low-income cardholders, many of whom are unbanked. Consumers’ MPC out of non-stimulus income and their MPC out of tax refunds are estimated simultaneously. Spending responds less on impact to the stimulus payments than to non-stimulus income (15 cents versus 20 cents per dollar of income), but stimulus-payment spending quickly catches up and is noticeably higher than non-stimulus-income spending on a cumulative basis after 16 weeks (66 cents versus 46 cents). This finding is qualitatively quite robust, and there is relevant heterogeneity in the spending responses across cardholders that includes some pandemic-related effects. |
| Keywords: | consumption; marginal propensity to consume; tax rebates; fiscal stimulus payments; COVID-19 |
| JEL: | E21 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93546&r= |
| By: | Otaviano Canuto |
| Abstract: | Macroeconomic dynamics in the U.S. economy has increasingly become associated with asset price fluctuations in the past few decades. Financial conditions have increasingly become an influential factor shaping the cyclical pace of the macroeconomy. There has been a mismatch between rising financial wealth and the pace of creation and incorporation of new assets. Several secular stagnation hypotheses offer explanations for the insufficient creation of new assets. Public debt—and its partial monetization by central banks—has played a stabilizing role by boosting the net supply of assets available to accommodate the demand for financial assets. The U.S. big balance sheet economy has been on a growth path highly dependent on the continuity of low real interest rates, as well as stretched price-earnings ratios of stocks and high corporate debt. Periodic episodes of downward adjustment of asset prices have been countervailed with lax monetary policies. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ocp:ppaper:pb21-29&r= |
| By: | Guilherme Spinato Morlin |
| Abstract: | The Sraffian supermultiplier model revealed the role of autonomous demand in economic growth. Nevertheless, the long-run sustainability of a growth process driven by autonomous demand requires the stability of the financial stocks behind it. Growth led by government expenditure and exports is thus stable if both public and external debts present convergent dynamics. Thus, in this paper, we develop a supermultiplier model for an open economy with government to assess the stability of growth led by government expenditure and exports. We analyze the stability conditions for public debt and foreign debt ratios. Public debt-to-income ratio stability requires that the interest rate is smaller than the output growth rate. Foreign debt-to-exports ratio stability requires that the international interest rate is smaller than the growth rate of exports. The external constraint may appear as a restriction to external indebtedness, imposing an upper limit to growth. Nonetheless, the presence of a domestic autonomous expenditure may relax the external constraint. The model allows for two demand-led growth regimes: balance of payments constrained and policy constrained. A fiscal policy rule is proposed to keep the foreign debt ratio below an upper limit. Simulations of five cases show the conditions for stability of debt ratios, and the outcomes of the fiscal policy rule and a structural change policy. In the simulations, fiscal policy successfully reduces the equilibrium foreign debt-to-export ratio by decreasing the share of government expenditures in autonomous demand. Successful industrial policies that increase exports’ growth keep the foreign debt ratio below the threshold with a higher growth rate than the fiscal policy rule. Altogether, the model provides stability conditions for growth in an open economy paying its international liabilities in foreign currency |
| Keywords: | : Sraffian supermultiplier; Thirlwall’s Law; demand-led growth; public debt;external debt |
| JEL: | E12 F41 F43 E62 O41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:862&r= |
| By: | Tobias Broer; Karl Harmenberg; Per Krusell; Erik Öberg |
| Abstract: | We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth setting with re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model very similar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by our probability of wage-contract resetting. That is, if wage contracts can be reset very frequently, labor supply behaves in accordance with King, Plosser, and Rebelo (1988) preferences, whereas if they are sticky for a long time, we obtain the setting in Greenwood, Hercowitz, and Huffman (1988), thus allowing significant responses of hours to wage changes. |
| JEL: | E2 E3 J2 J3 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29540&r= |
| By: | Karau, Sören |
| Abstract: | Bitcoin was conceptualized in response to perceived shortcomings in the monetary and financialsystem, not only related to large financial institutions but also to discretionary decision makingin monetary policy. Using high-frequency data and a weekly proxy VAR model, I study theimpact of monetary policy on Bitcoin. The paper shows that monetary shocks have sizableeffects on Bitcoin prices, but that these differ in sign: a disinflationary monetary tightening bythe ECB lowers valuations - consistent with the notion of Bitcoin as a digital gold -, whereasa Fed tightening increases Bitcoin prices. I document similar differences with respect to cen-tral bank information shocks and explore potential explanations by studying various aspects ofthe Bitcoin ecosystem. Exploiting both differences in Bitcoin valuations across currencies andblockchain transaction data, the paper shows that the increased demand for Bitcoin following aUS monetary tightening is primarily driven by emerging markets. I argue that this likely reflectsthe technological and institutional particularities of Bitcoin that make it sought after as globaldigital cashwhen international economic and financial conditions deteriorate. |
| Keywords: | Bitcoin,Blockchain,Monetary policy,Proxy VAR |
| JEL: | E42 G32 L14 O16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:412021&r= |
| By: | International Monetary Fund |
| Abstract: | Suriname faces systemic fiscal and external imbalances as a result of many years of economic mismanagement. Usable foreign reserves were depleted and, in the absence of other sources of budget financing, fiscal deficits were monetized. Inflation has, as a result, surged and there has been a significant depreciation of the exchange rate. Public debt, at 148 percent of GDP at end-2020, is unsustainable. In addition, there are important solvency problems embedded in the domestic banking system. |
| Date: | 2021–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/280&r= |
| By: | Adam Tooze (Columbia University) |
| Abstract: | Central banks are in the crosshairs of public debate about economic policy. Every minute of every day, interest rate decisions are debated and weighed in financial markets. The risks of inflation are assessed. Trillions of dollars hinge on correctly interpreting the next move by key central bankers. Central bank appointments are avidly discussed. Public campaigns are waged for and against particular candidates. This makes guardians of central bank independence nervous. Too much public scrutiny might put that independence at risk. But it should not be surprising that people want to debate the role of central banks. It is not because they are failing. It is because they have such massive effects. Furthermore, what is provocative is not just the scale of their interventions but the things that they are doing. Their role has visibly shifted. It is hard to claim that the status quo is set in tablets of stone, when the actual experience of recent decades is that what central banks do is very much a response to circumstances. Why then should we not go back to basics and ask fundamental questions about their mandate and their role? |
| Keywords: | Central banks, new mandates, ECB, Fed |
| JEL: | E5 E58 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:agz:wpaper:2201&r= |
| By: | Kokkinen, Arto; Obstbaum, Meri; Mäki-Fränti, Petri |
| Abstract: | Population ageing constitutes a central challenge to Finland. Understanding the Finnish economy's likely future trajectory and the key sources of growth is important for the design of policies to counteract these adverse long-term trends. For this purpose, we develop a novel long-run forecast framework based on enodogenous growth theory with human and fixed capital. A central result is a pronounced projected decrease in human capital, substantially weighing on the long-run GDP outlook for Finland. To revert these trends substantial policy efforts are needed. Unless the decline in human capital can be prevented by increasing fertility, skilled immigration, education or employment, even reaching a growth rate of one per cent after the 2040s would require significant measures to increase new fixed capital investments with new technology. |
| Keywords: | Forecasting,GDP,Labour productivity,Human capital,Modern growth theory |
| JEL: | E17 E24 O11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:102021&r= |
| By: | Ogawa, Toshiaki |
| Abstract: | This study examines how micro- and macro-prudential policies work and interact with each other over the credit cycles using a dynamic general equilibrium model of financial intermediaries. Micro-prudential policies restrict the excess risk-taking of individual institutions, while taking real interest rates (prices) as given. By contrast, macro prudential policies control the aggregate credit supplied (equilibrium outcome) by internalizing prices or the general equilibrium effect. The proposed model indicates that: (i) micro-prudential policy alone cannot completely remove inefficient credit cycles; (ii) when macro-prudential policy is conducted jointly with the micro-prudential one, policymakers can improve banks' credit quality and remove inefficient credit cycles completely without sacrificing the total credit supply; and (iii) the contributions of micro and macro-prudential policies to the improvement in social welfare are roughly comparable. |
| Keywords: | Micro-prudential policy; Macro-prudential policy; Moral hazard problem; General equilibrium; Inefficient credit cycles |
| JEL: | E0 E44 G01 G21 G28 |
| Date: | 2022–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111378&r= |
| By: | Michael J. Lamla (Leuphana University Lüneburg and ETH Zürich, KOF Swiss Economic Institute); Dmitri V. Vinogradov (University of Glasgow and National Research University Higher School of Economics) |
| Abstract: | Policy announcements by central banks affect financial markets, but their effect on consumer beliefs is limited. This paper studies the implications of using different communication channels: established media outlets versus social media. Information on the news sources comes from our original consumer surveys administered just before and right after policy announcement events, enabling a causal inference on the announce- ment effect. We focus on the Bank of England, the first central bank to actively adopt accessible language, simplified messages and new forms of communication via its Twitter account. Based on about 10 000 individual consumer responses in 2018-2019, overall we find no statistically significant effect of announcements on perceptions or expectations, yet respondents who receive news have better perceptions and expectations than those who don't. Policy announcement events trigger an increase in the share of consumers who receive monetary policy news, the share of informed consumers is higher among Twitter users, suggesting potential benefits from Twitter communication with the public. However, Twitter users tend to overestimate inflation and interest rates, make a greater expectations/perception error. In addition they report higher confidence in their estimates. In terms of expectations quality, spreading the word of the Central bank via conventional mass media appears to be more effective than tweets. |
| Keywords: | perceptions, expectations, central bank communication, consumer, Twitter |
| JEL: | E52 E58 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:403&r= |
| By: | Parla, Fabio (Central Bank of Ireland) |
| Abstract: | In this paper, we construct a weekly measure of systemic stress across a range of indicators for Irish financial markets, covering money, sovereign bonds, equity, banking and foreign exchange markets by using a time-varying correlation-based approach. We compare the ability of the resulting index to capture known financial market stress events in Ireland with existing alternative measures. Furthermore, we use the indicator as a proxy of financial distress to assess the high-frequency propagation mechanism of financial markets shocks to the macroeconomy. Given that macroeconomic variables are sampled at a monthly frequency, the temporal transmission of shocks is carried through a structural Bayesian mixed-frequency Vector Autoregressive model. We find evidence of a moderate temporal aggregation bias due to aggregating weekly observations of the financial stress indicator to a monthly frequency. In particular, the results suggest that the response of the macroeconomic variables depends on the timing of the shocks within the month. |
| Keywords: | Financial stress index, macro-financial linkages, Mixed-Frequency VAR, MIDAS |
| JEL: | C32 E44 G10 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:7/rt/21&r= |
| By: | International Monetary Fund |
| Abstract: | Kenya’s medium-term economic outlook remains positive, supported by the authorities’ continued firm commitment to their economic program amidst a complex environment. Economic recovery is well underway, but Kenya’s Sustainable Development Goals (SDGs) have suffered significant setbacks, and poverty has increased. The authorities see the program as providing essential support for sound fiscal management ahead of the 2022 elections, reinforcing their multi-year fiscal consolidation plan to reduce debt vulnerabilities and preserve priority social and development spending. |
| Date: | 2021–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2021/275&r= |
| By: | AITOUTOUHEN, latifa |
| Abstract: | In late December 2019, the world is shaken by a pandemic caused by Covid-19 virus which has struck almost every continent without exception and claimed millions of lives. The health crisis caused by this pandemic was very quickly accompanied in several countries by a socio-economic crisis, in particular due to the disastrous implications of the confinement and the shutdown of activity in several economic sectors. Morocco, like almost all the countries of the world, is facing an unprecedented socio-economic scenario, dictated by the spread of the pandemic of the new coronavirus Covid-19. Through this paper, we will deepen an analysis of the various socio- economic effects caused by this crisis of COVID-19 at the national economy. This study also reviews recent trends and updates aimed at further understanding the problem of coronaviruses. |
| Keywords: | COVID-19 Pandemic, Socio-economic impact, contagion, Effect’s spillover, Moroccan economy. |
| JEL: | E23 E24 E26 F13 F43 G01 H12 H63 I15 I25 |
| Date: | 2021–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111114&r= |
| By: | Erosyni Adamopoulou; Francesco Manaresi; Omar Rachedi; Emircan Yurdagul |
| Abstract: | Minimum wages alter the allocation of firm-idiosyncratic risk across workers. To establish this result, we focus on Italy, and leverage employer-employee data matched to firm balance sheets and hand-collected wage oors. We nd a relatively larger pass-through of rm-specic labor-demand shocks into wages for the workers whose earnings are far from the floors, but who are employed by establishments intensive in minimum-wage workers. We study the welfare implications of this fact using an incomplete-market model. The asymmetric pass-through uncovers a novel channel which tilts the benets of removing minimum wages toward high-paid employees at the expense of low-wage workers. |
| Keywords: | Firm-specific shocks, pass-through, minimum wages, linked employer-employee data, general equilibrium, complementarities |
| JEL: | E24 E25 E64 J31 J38 J52 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_326&r= |
| By: | Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland) |
| Abstract: | Inflation rates have risen substantially in many countries over the course of this year. This has led to renewed interest in understanding the inflation process and in the outlook for inflation over the coming years. In the euro area and Ireland, inflation had been persistently low and below the ECB’s target for much of the time since the Global Financial Crisis. This Letter outlines the developments in inflation since the COVID-19 pandemic and explains the drivers of the current high inflation rates. This Letter then discusses the ongoing debate on the inflation outlook and potential monetary policy options. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:7/el/21&r= |
| By: | Saygin Cevik; Dilan Teber |
| Abstract: | This paper investigates the determinants of consumer cash usage in daily transactions in Turkey using a probit model. In doing so, we use the results of the Methods of Payment Survey conducted by the Central Bank of the Republic of Turkey in 2020. The survey results indicate that cash is still the most common form of payment in Turkey, despite recent technological innovations in payment systems. The results show that the likelihood of cash usage increases for the amounts that match currency denominations and convenient prices, while it decreases for the amounts for which the consumer receives a coin change. Also, the likelihood of cash usage decreases with education and income level and increases with age and being a paid employee. As for the transaction characteristics, we find that the likelihood of cash usage decreases with an increase in transaction size and that cash is more frequently used for low-value transactions. It is also worth noting that having greater cash balances at the beginning of the day increases the probability of using cash for all transaction amounts. |
| Keywords: | Cash; Payment behavior; Convenient prices; Probit model |
| JEL: | C25 E42 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2135&r= |
| By: | Falk Bräuning; José Fillat; Gustavo Joaquim |
| Abstract: | Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earnings to fund productive investment. Our model is calibrated to detailed firm- and loan-level data and reproduces stylized empirical facts: Larger, more productive firms rely on more banks and more sources of funding; smaller firms mostly rely on a small number of banks and internal funding. Our quantitative analysis shows that bank credit supply shocks lead to a sizable reduction in aggregate output, with substantial heterogeneity across firms, due to the lack of substitutability among alternative credit sources. Finally, we show that our insights have important implications for the validity of standard empirical methods used to identify credit supply effects (Khwaja and Mian 2008). |
| Keywords: | shock transmission; bank-firm matching; firm financing; credit supply shocks |
| JEL: | E32 E43 E50 G21 G32 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93553&r= |
| By: | Bao-We-Wal Bambe (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This paper analyses the effect of inflation targeting on private domestic investment in developing countries. Using the propensity scores matching method, which allows addressing the self-selection bias in the policy adoption, I find that inflation targeting has increased private domestic investment from 2.05 to 2.53 percentage points in targeting countries compared to nontargeting countries. The estimated coefficients are economically meaningful and robust to a battery of econometric tests and alternative specifications. Finally, I highlight several heterogeneities in the effect of inflation targeting, depending on various factors. |
| Keywords: | E51,E52,E58,590,E62,E220,Inflation targeting,Private domestic investment,Developing countries,Propensity score matching |
| Date: | 2021–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03479679&r= |
| By: | Frank Schorfheide; Dongho Song |
| Abstract: | We resuscitated the mixed-frequency vector autoregression (MF-VAR) developed in Schorfheide and Song (2015, JBES) to generate macroeconomic forecasts for the U.S. during the COVID-19 pandemic in real time. The model combines eleven time series observed at two frequencies: quarterly and monthly. We deliberately did not modify the model specification in view of the COVID-19 outbreak, except for the exclusion of crisis observations from the estimation sample. We compare the MF-VAR forecasts to the median forecast from the Survey of Professional Forecasters (SPF). While the MF-VAR performed poorly during 2020:Q2, subsequent forecasts were at par with the SPF forecasts. We show that excluding a few months of extreme observations is a promising way of handling VAR estimation going forward, as an alternative of a sophisticated modeling of outliers. |
| JEL: | C11 C32 C53 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29535&r= |
| By: | Maxfield, Sean |
| Abstract: | No longer does society consider the full extent of the argument and consequences or benefits of a system change. All the record-breaking economic success of the last few decades simply furthers a divide between people/organizations that have money and people/organizations that need money. However, those that can view this divide assign the capitalistic system as the culprit when in fact it is the modern mutation of capitalism that is at fault. Within modern neoclassical economies, there is no form of value-based meritocracy between people and organizations. |
| Keywords: | economics, econ, economic, economy, economies, neoclassical, classical, capitalism, Adam Smith, socialism, price, prices, markets, valuation, value, hierarchies, hierarchical, monetary, equity, finance, financial, financial services, exchanges, stock markets, secondary markets, businesses, inflation |
| JEL: | A1 A10 A11 A13 A2 A20 B0 B1 B2 B3 B4 E0 E6 G0 N0 N1 P1 P10 P12 P16 P5 P51 |
| Date: | 2021–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111152&r= |
| By: | Despina Gavresi; Anastasia Litina |
| Abstract: | This paper explores the interplay between past exposure to macroeconomic shocks and populist attitudes. We document that individuals who experienced a macroeconomic shock during their impressionable years (between 18 and 25 years of age), are currently more prone to voting for populist parties, and manifest lower trust both in national and European institutions. We use data from the European Social Survey (ESS) to construct the differential individual exposure to macroeconomic shocks during impressionable years. Our findings suggest that it is not only current exposure to shocks that matters (see e.g., Guiso et al. (2020)) but also past exposure to economic recessions, which has a persistent positive effect on the rise of populism. Interestingly, the interplay between the two, i.e., past and current exposure to economic shocks, has a mitigating effect on the rise of populism. Individuals who were exposed to economic shocks in the past are less likely to manifest populist attitudes when faced with a current crisis, as suggested by the experience-based learning literature. |
| Keywords: | macroeconomic shocks, trust, attitudes, populism |
| JEL: | D72 E60 F68 P16 Z13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9451&r= |
| By: | Benalal, Nicholai; Freier, Maximilian; Melyn, Wim; Van Parys, Stefan; Reiss, Lukas |
| Abstract: | A key element of the European reform agenda is to simplify the EU fiscal governance framework by moving towards a single debt anchor and a single operational indicator as the basis for formulating fiscal targets and assessing compliance. This paper puts forward an in-depth analysis of two alternative fiscal performance indicators currently used in the EU fiscal framework: the change in the structural balance and the expenditure benchmark. Comparing these two indicators allows us to identify options for the design of a fiscal performance measure – such as assumptions on cyclical adjustment and the inclusion of fiscal variables – and assess their policy impact. Our paper finds that the expenditure benchmark used in the EU fiscal governance framework has advantages over the change in the structural balance. However, it still has scope for improvement. The paper also shows that taking account of interest payments in the expenditure benchmark would make fiscal policy more supportive of the monetary policy stance. JEL Classification: C54, E62, E65, F54, F47 |
| Keywords: | EMU, euro area, fiscal governance, Stability and Growth Pact. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022288&r= |
| By: | Guilherme Spinato Morlin |
| Abstract: | Exchange rates and international prices are fundamental to explain inflation in open economies. Conflict inflation models account for these variables by including imported inputs and, in some cases, a distributive impact of exchange rates. A different viewpoint emerges from the Classical-Keynesian theory of distribution for a price-taker open economy. Thus, we explore this alternative by developing a conflict inflation model building on Classical Keynesian approach. The paper contributes to the literature by combining the conflicting claims approach with the Classical-Keynesian open economy framework. Including tradable prices, the model considers their direct impact on distribution. Therefore, it addresses a cause of inflation overlooked in the literature. Finally, conflict inflation affects the real exchange rate, which becomes an important distributive variable |
| JEL: | B51 D33 E11 E31 F41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:863&r= |
| By: | Faisanos, Apostolos (Brunel); Lydon, Reamonn (Central Bank of Ireland) |
| Abstract: | We investigate whether household indebtedness affects the response of consumer spending to income and wealth changes. We construct a novel estimate of spending on non-durables to track an unbalanced panel of households between 1993 and 2017. Using this data, we explore how household indebtedness amplifies the response of consumer spending to changes in income and wealth. We assess whether negative and positive shocks imply the same consumption adjustments and whether such mechanism is crisis-specific. Our results indicate that falls in income trigger substantially larger adjustments in consumption than income rises for households with debt, while the findings for wealth are less conclusive. The effects are strongest for households with larger debt-service and debt-to income ratios. These effects are not specific to the financial crisis period. |
| Keywords: | Consumption, Debt, Income, Wealth |
| JEL: | D14 D31 E21 H31 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:8/rt/21&r= |
| By: | Valentin Jouvanceau (Bank of Lithuania) |
| Abstract: | At the aggregate level, I find that the euro changeover did not lead to a significant change in the overall inflation rate between 2015 and 2019 in Lithuania. When the measures are diversified, however, some inflationary effects emerge in sub-categories. I therefore analyze this heterogeneity at the disaggregated level using a large sample of prices that constitutes the CPI from 2010 to 2018. I show that significant price changes have been confined to the low-weighted components of the HICP. This explains why a spike in the overall price level did not occur at the time of the changeover. |
| Keywords: | Euro changeover, synthetic difference-in-differences, regression discontinuity in time, price changes. |
| JEL: | E31 F33 L11 |
| Date: | 2021–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:93&r= |
| By: | Charles M. Kahn; Maarten van Oordt; Yu Zhu |
| Abstract: | An important feature of physical cash payments is resilience, due to their indifference to power outages or network coverage. Many central banks are exploring issuing digital cash substitutes with similar online payment functionality. Such substitutes could incorporate novel features, making them more desirable than physical cash. This paper considers introducing an expiry date for online digital currency balances to automate personal loss recovery. We show that this functionality could substantially increase consumer demand for digital cash, with the time to expiration playing an important role. Having more information available to the central bank improves accuracy of loss recovery but may decrease welfare. |
| Keywords: | Digital currencies and fintech |
| JEL: | E42 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-67&r= |
| By: | Bichler, Shimshon; Nitzan, Jonathan |
| Abstract: | Neoclassical economics is the official scientific underpinning of capitalism as well as its main ideological defence, and according to Keen, it fails in both tasks. Contrary to received opinion, neoclassicism cannot explain capitalism – either in detail or in the aggregate – and the policies it prescribes do not support but undermine the very system it defends. It must be scrapped, says Keen, and the purpose of his book is to explain why and outline what should come in its stead. |
| Keywords: | banks,climate,complex systems,credit,debt,finance,macroeconomics,money,neoclassical economics,policy |
| JEL: | P16 E4 G21 E61 G01 G E13 Q54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:capwps:202107&r= |
| By: | Ibrahim A. Adekunle (Ilishan-Remo, Ogun State, Nigeria); Olumuyiwa G. Yinusa (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Tolulope O. Williams (Olabisi Onabanjo University, Ogun State, Nigeria); Rahmon A. Folami (Olabisi Onabanjo University, Ogun State, Nigeria) |
| Abstract: | While it is clear that financial depth and economic diversity are prerequisites for the realisation of growth and development objectives, heterogeneous factors that determines financial development remains imperfectly understood. This ambiguity in the structural relations between varied causative factors is more pronounced in Africa where conditions for growth and development remains inadequately met. Underexplored aspects such as geographic, political, economic and macroeconomic policy determinant of financial development in Africa could have culminated into the misalignment of the continent financialisation strategies. This paper takes the lead, diverse and holistic approach to assign numerical weights to these unobserved factors to reach conclusions that can redefine policy and research on Africa's financialisation objectives. We compared result along with the mean group (MG), common correlated effect mean group (CCEMG) and Augmented Mean Group (AMG) estimators but relied on the AMG results because of its high precision, relevance and superiority in addressing core issues of cross-sectional dependence and slope homogeneity of regressors.Based on the AMG results, we found geographic, economic and macroeconomic policy factors to lead to financial development in Africa. However, our political/institutional composite index inversely relate to financial development in Africa. This counter-intuitive outcome could be due to Africa, age-long weak institutional capacities. Policy implications were discussed. |
| Keywords: | Financial Development; Geography; Institutions; Macroeconomic Policy; Africa |
| JEL: | D02 G20 P34 Q56 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:21/054&r= |
| By: | Laura Auria (Deutsche Bundesbank); Markus Bingmer (Deutsche Bundesbank); Carlos Mateo Caicedo Graciano (Banque de France); Clémence Charavel (Banque de France); Sergio Gavilá (Banco de España); Alessandra Iannamorelli (Banca d’Italia); Aviram Levy (Banca d’Italia); Alfredo Maldonado (Banco de España); Florian Resch (Oesterreichische Nationalbank); Anna Maria Rossi (Banca d’Italia); Stephan Sauer (European Central Bank) |
| Abstract: | The in-house credit assessment systems (ICASs) developed by euro area national central banks (NCBs) are an important source of credit risk assessment within the Eurosystem collateral framework. They allow counterparties to mobilise as collateral the loans (credit claims) granted to non-financial corporations (NFCs). In this way, ICASs increase the usability of non-marketable credit claims that are normally not accepted as collateral in private market repo transactions, especially for small and medium-sized banks that lend primarily to small and medium-sized enterprises (SMEs). This ultimately leads not only to a widened collateral base and an improved transmission mechanism of monetary policy, but also to a lower reliance on external sources of credit risk assessment such as rating agencies. The importance of ICASs is exemplified by the collateral easing measures adopted in April 2020 in response to the coronavirus (COVID-19) crisis. The measures supported the greater use of credit claim collateral and, indirectly, increased the prevalence of ICASs as a source of collateral assessment. This paper analyses in detail the role of ICASs in the context of the Eurosystem’s credit operations, describing the relevant Eurosystem guidelines and requirements in terms of, among other factors, the estimation of default probabilities, the role of statistical models versus expert analysis, input data, validation analysis and performance monitoring. It then presents the main features of each of the ICASs currently accepted by the Eurosystem as credit assessment systems, highlighting similarities and differences. |
| Keywords: | credit assessments, credit risk models, credit claims, ratings, ICAS |
| JEL: | E58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:2131&r= |
| By: | Friedrich, Benjamin (Northwestern University, Kellogg School of Management.); Laun, Lisa (IFAU - Institute for Evaluation of Labour Market and Education Policy); Meghir, Costas (Yale University) |
| Abstract: | This paper analyzes earnings inequality and earnings dynamics in Sweden over 1985–2016. The deep recession in the early 1990s marks a historic turning point with a massive increase in earnings inequality and earnings volatility, and the impact of the recession and the recovery from it lasted for decades. In the aftermath of the recession, we find steady growth in real earnings across the entire distribution for men and women and decreasing inequality over more than 20 years. Despite the positive trend, large gender differences in earnings dynamics persist. While earnings growth for men is more closely tied to the business cycle, women face much higher volatility overall. Earnings volatility is also substantially higher among foreign-born workers, reflecting weaker labor market attachment and high risk of large negative shocks for low-income immigrants. We document an important role of social benefits usage for the overall trends and for differences across sub-populations. Higher benefits enrollment, especially for women and immigrants, is associated with higher earnings volatility. As the generosity and usage of benefit programs declined over time, we find stronger earnings growth among low-income workers, consistent with higher self-sufficiency. |
| Keywords: | Earnings inequality; earnings volatility; immigration; social insurance |
| JEL: | D31 E24 J15 J31 J61 |
| Date: | 2021–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2021_015&r= |
| By: | John Carter Braxton; Kyle F. Herkenhoff; Jonathan Rothbaum; Lawrence Schmidt |
| Abstract: | For whom has earnings risk changed, and why? To answer these questions, we develop a filtering method that estimates parameters of an income process and recovers persistent and temporary earnings for every individual at every point in time. Our estimation flexibly allows for first and second moments of shocks to depend upon observables as well as spells of zero earnings (i.e., unemployment) and easily integrates into theoretical models. We apply our filter to a unique linkage of 23.5m SSA-CPS records. We first demonstrate that our earnings-based filter successfully captures observable shocks in the SSA-CPS data, such as job switching and layoffs. We then show that despite a decline in overall earnings risk since the 1980s, persistent earnings risk has risen for both employed and unemployed workers, while temporary earnings risk declined. Furthermore, the size of persistent earnings losses associated with full year unemployment has increased by 50%. Using geography, education, and occupation information in the SSA-CPS records, we refute hypotheses related to declining employment prospects among routine and low-skill workers as well as spatial theories related to the decline of the Rust-Belt. We show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption. Lastly, we find that rising persistent earnings risk while employed (unemployed) leads to welfare losses equivalent to 1.8% (0.7%) of lifetime consumption, and larger persistent earnings losses while unemployed lead to a 3.3% welfare loss. |
| Keywords: | Earnings risk; Transitory risk; Persistent risk; Technology adoption; Unemployment |
| JEL: | E24 J30 J60 |
| Date: | 2021–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:93489&r= |
| By: | Gustavo Joaquim; Felipe Netto |
| Abstract: | We assess the role of banks in the Paycheck Protection Program (PPP), a large and unprecedented small-business support program instituted as a response to the COVID-19 crisis in the United States. In 2020, the PPP administered more than $525 billion in loans and grants to small businesses through the banking system. First, we provide empirical evidence of heterogeneity in the allocation of PPP loans. Firms that were larger and less affected by the COVID-19 crisis received loans earlier, even in a within-bank analysis. Second, we develop a model of PPP allocation through banks that is consistent with the data. We show that research designs based on bank or regional shocks in PPP disbursement, common in the empirical literature, cannot directly identify the overall effect of the program. Bank targeting implies that these designs can, at best, recover the effect of the PPP on a set of firms that is endogenous, changes over time, and is systematically different from the overall set of firms that ultimately receive PPP loans. We propose and implement a model-based method to estimate the overall effect of the program and find that the PPP saved 7.5 million jobs. |
| Keywords: | COVID-19; Paycheck Protection Program; small business lending; financial frictions |
| JEL: | E24 G28 H81 J21 |
| Date: | 2021–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93556&r= |
| By: | Oliver de Groot; Alexander Haas |
| Abstract: | Negative interest rates remain a controversial policy for central banks. We study a novel signalling channel and ask under what conditions negative rates should exist in an optimal policymaker’s toolkit. We prove two necessary conditions for the opti mality of negative rates: a time-consistent policy setting and a preference for policy smoothing. These conditions allow negative rates to signal policy easing, even with deposit rates constrained at zero. In an estimated model, the signalling channel dominates the costly interest margin channel. However, the effectiveness of negative rates depends sensitively on the degree of policy inertia, level of reserves, and ZLB duration. |
| Keywords: | Monetary policy, Taylor rule, Forward guidance, Liquidity trap |
| Date: | 2021–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:956&r= |
| By: | Yusuf, Ismaila Akanni; Salaudeen, Mohammed Bashir; Agbonrofo, Hope |
| Abstract: | The study examines the effect of the social and economic indicators on the stock market performance in Nigeria between 1981 and 2019. The study employs secondary data from the World Bank and Central Bank of Nigeria using the ordinary least squares as the technique of estimation. Findings show that regarding the economic drivers, interest rate, exchange rate, and inflation rate negatively impact the stock market while only income exerts a positive impact. However, both income and interest rate are significant economic drivers of stock performance. Regarding social drivers, life expectancy, poverty, and population exert a positive impact on stock performance. Similarly, both life expectancy and population are significant social drivers of stock market performance in Nigeria. The study recommends that monetary authorities should be cautious in avoiding discretionary policies that might hike the exchange rate; otherwise, the flow of funds to the stock market will be derailed. Also, the fiscal authority should invest massively in safety nets programmes to enhance the capacity of the growing population and reduce poverty. |
| Keywords: | Economic Drivers, Social Drivers, Stock Market, Nigeria. |
| JEL: | C1 E5 G1 G12 |
| Date: | 2021–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111086&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Christelle Meniago (Sol Plaatje University, South Africa); Raufhon Salahodjaev (Tashkent, Uzbekistan) |
| Abstract: | This study investigates: (i) the effect of foreign direct investment (FDI) on total factor productivity (TFP) and economic growth dynamics, and (ii) the relevance of value added from three economic sectors in modulating the established effect of FDI on TFP and economic growth dynamics. The geographical and temporal scopes are respectively 25 Sub-Saharan African countries and the period 1980–2014. The empirical evidence is based on non-interactive and interactive Generalised Method of Moments. The following main findings are established. First, FDI has a positive effect on GDP growth, GDP per capita and welfare real TFP. Second, the effect of FDI is negative on real GDP and TFP, while the impact is insignificant on real TFP growth and welfare TFP. Third, values added to the three economic sectors largely modulate FDI to produce negative net effects on TFP and growth dynamics. Policy implications are discussed with particular emphasis on the need to complement added value across various economic sectors in order to leverage on the benefits of FDI in TFP and economic growth. To the best of knowledge, this is the first study to assess how value added from various economic sectors affect the relevance of FDI on macroeconomic outcomes. |
| Keywords: | Economic output, total factor productivity, foreign investment, agricultural sector, manufacturing sector, service sector, sub-Saharan Africa |
| JEL: | E23 F21 F30 F43 O55 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/088&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Christelle Meniago (Sol Plaatje University, South Africa); Raufhon Salahodjaev (Tashkent, Uzbekistan) |
| Abstract: | This study investigates: (i) the effect of foreign direct investment (FDI) on total factor productivity (TFP) and economic growth dynamics, and (ii) the relevance of value added from three economic sectors in modulating the established effect of FDI on TFP and economic growth dynamics. The geographical and temporal scopes are respectively 25 Sub-Saharan African countries and the period 1980–2014. The empirical evidence is based on non-interactive and interactive Generalised Method of Moments. The following main findings are established. First, FDI has a positive effect on GDP growth, GDP per capita and welfare real TFP. Second, the effect of FDI is negative on real GDP and TFP, while the impact is insignificant on real TFP growth and welfare TFP. Third, values added to the three economic sectors largely modulate FDI to produce negative net effects on TFP and growth dynamics. Policy implications are discussed with particular emphasis on the need to complement added value across various economic sectors in order to leverage on the benefits of FDI in TFP and economic growth. To the best of knowledge, this is the first study to assess how value added from various economic sectors affect the relevance of FDI on macroeconomic outcomes. |
| Keywords: | Economic output, total factor productivity, foreign investment, agricultural sector, manufacturing sector, service sector, sub-Saharan Africa |
| JEL: | E23 F21 F30 F43 O55 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/088&r= |
| By: | Falk Bräuning; Viacheslav Sheremirov |
| Abstract: | We study the transmission channels through which shocks affect the global economy and the cross-country comovement of real economic activity. For this purpose, we collect detailed data on international trade and financial linkages as well as domestic macro and financial variables for a large set of countries. We document significant international output comovement following U.S. monetary shocks, and find that openness to international trade matters more than financial openness in explaining cross-country spillovers. In particular, output in countries with a high share of exports and imports responds to U.S. monetary shocks significantly more than output in countries with a low share, whereas we do not find material heterogeneity depending on international investment positions or financial flows in the balance of payments. We further document strong network amplification associated with the patterns of bilateral trade flows, as indirect spillovers account for nearly half of the total effect. Studies that do not account for direct bilateral linkages between national economies — and the indirect linkages through the network they form – may thus present an incomplete view of international business cycles. |
| Keywords: | financial linkages; international spillovers; monetary shocks; trade networks |
| JEL: | E52 F42 F44 G15 |
| Date: | 2021–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93549&r= |
| By: | Gustavo Joaquim; Felipe Netto |
| Abstract: | The Paycheck Protection Program (PPP) was a large and unprecedented small-business support program that allocated $800 billion in loans and grants to small businesses following the onset of the COVID-19 crisis. This paper explores the optimal allocation of funds across firms and the distortions caused by allocating these funds through banks. We show that it can be optimal to allocate funds to the least or most affected firms depending on the underlying distribution of the shock that firms face, the firms’ financial position, and the total budget available for the program. In the model, as in the data, banks distort the allocation toward firms with more pre-pandemic debt and those less affected by the COVID-19 crisis. We characterize how this misallocation depends on the degree of asymmetric information between banks and the government. In an empirical application of our model, we estimate the PPP’s effectiveness and compare it with alternative policies. A policy targeted at the smallest firms could have increased the program’s effectiveness significantly. |
| Keywords: | Paycheck Protection Program; COVID-19; small business lending; financial frictions |
| JEL: | E24 G28 H81 J21 |
| Date: | 2021–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93557&r= |
| By: | Nikolova, Irena |
| Abstract: | The foreign exchange reserves are part of the central bank tools for maintaining the stability of the national legal tender. Several issues are of great importance when analysing the foreign exchange reserves. Firstly, the structure and size of the reserves is determined by the monetary policy of the central bank. Secondly, the monetary policy is different in regards with the applied exchange rate arrangement in the country as the central bank plays a significant role in maintaining the selected exchange rate. These issues are considered when reviewing the impact of the pandemic on the foreign exchange reserves. The aim of the paper is to review the role of the foreign exchange reserves in pandemic and to analyse the opportunities for their future implementation. The statistical methods are applied to assess the present situation compared to the pre-pandemic period, and the data is from the Bank for International Settlements and the International Monetary Fund databases. The conclusion is that the foreign exchange reserves are necessary for the central banks and governments, especially in times of crises and in pandemic. They are applied as a “buffer” for maintaining the stability of the domestic currency and the whole national financial system. Moreover, in recent years the role of the foreign exchange reserves is reviewed as an additional tool of the governments and central banks for introducing new digital currencies on the market. |
| Keywords: | foreign exchange reserves, covid pandemic, currencies, central bank, exchange rate arrangements |
| JEL: | F3 F30 F31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111261&r= |
| By: | M. Ayhan Kose; Peter Nagle; Franziska Ohnsorge; Naotaka Sugawara |
| Abstract: | This paper presents a comprehensive analysis of the impact of COVID-19 on debt, puts recent debt developments and prospects in historical context, and analyzes new policy challenges associated with debt resolution. The paper reports three main results. First, even before the pandemic, a rapid build-up of debt in emerging market and developing economies -dubbed the “fourth wave” of debt - had been underway. Because of the sharp increase in debt during the pandemic-induced global recession of 2020, the fourth wave of debt has turned into a tsunami and become even more dangerous. Second, five years after past global recessions, global government debt continued to increase. In light of this historical record, and given large financing gaps and significant investment needs in many countries, debt levels will likely continue to rise in the near future. Third, debt resolution has become more complicated because of a highly fragmented creditor base, a lack of transparency in debt reporting, and a legacy stock of government debt without collective action clauses. National policy makers and the global community need to act rapidly and forcefully ensure that the fourth wave does not end with a string of debt crises in emerging market and developing economies as earlier debt waves did. |
| Keywords: | Fiscal balance, government debt, private debt, global recessions, resolution |
| JEL: | E62 H62 H63 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-99&r= |
| By: | Gita Gopinath; Oleg Itskhoki |
| Abstract: | A handful of currencies, especially the US dollar, play a dominant role in international trade. We survey the active theoretical and empirical literature that documents patterns of currency use in global trade, the implications of dominant currencies for international transmission of shocks, exchange rate pass-through, expenditure switching, and optimal monetary policy. We describe advances in the endogenous currency choice literature including conditions for the emergence and persistence of dominant currency equilibria. |
| JEL: | F30 F40 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29556&r= |
| By: | Rangel González Erick; Irving Llamosas-Rosas |
| Abstract: | This document presents an alternative to measure informal economic activity at the municipal level for the 2013-2020 period in Mexico. Using satellite images of nightlight and microdata from the 2019 Economic Census, the formal and informal Value Added at the municipal level is estimated using a modified version of the model proposed by Tanaka and Keola (2017). Although there are some measurements in Mexico of informal economic activity, these are not available at the municipal level or on an annual basis. The results indicate that at the national level, most of the municipalities show decreases in their levels of informal activity during the 2013-2019 period, with the North and North central regions concentrating a higher proportion of these, while in the Center the majority of the municipalities remained unchanged in the percentage of informal Value Added. In contrast, an important part of the Southern municipalities registered increases in the percentage of their informal activity during the same period. |
| JEL: | E01 E26 C53 C55 O54 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2021-18&r= |
| By: | Rahman, Abdurrahman Arum |
| Abstract: | Central bank digital currency (CBDC) is a digitized fiat currency. As the nature of the central bank is centralized, the CBDC is also centralized. This paper proposes a decentralized CBDC that is controlled by many central banks together or countries in the world. It is only for international transactions between member countries. While domestic transactions continue to use the national currency of each country. A decentralized CBDC can explore the advantages of digital technologies more deeply than the centralized ones by making reconciliations between central banks in real-time. Furthermore, this system provides international liquidity for all (member) countries in the world sustainably and free of charge. This system eliminates global imbalances, makes the exchange rate more stable, and so makes the whole international monetary system naturally more stable. In doing so, the system does not require economic integration so that all countries in the world may join without many conditions. |
| Keywords: | Cryptocurrency, organic system, global currency, international monetary system, global imbalances. |
| JEL: | E40 E50 O3 |
| Date: | 2022–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111361&r= |
| By: | Dhruv Rawat; Sujay Patni; Ram Mehta |
| Abstract: | The objective of this paper is to find the existence of a relationship between stock market prices and the fundamental macroeconomic indicators. We build a Vector Auto Regression (VAR) model comprising of nine major macroeconomic indicators (interest rate, inflation, exchange rate, money supply, gdp, fdi, trade-gdp ratio, oil prices, gold prices) and then try to forecast them for next 5 years. Finally we calculate cross-correlation of these forecasted values with the BSE Sensex closing price for each of those years. We find very high correlation of the closing price with exchange rate and money supply in the Indian economy. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.08071&r= |
| By: | Antonio Acconcia (Università di Napoli Federico II and CSEF); Elisa Scarinzi (Bank of Italy) |
| Abstract: | We use firm-level data to investigate the causal response of markup to a contraction in local demand and supply. We find that the effects of the two types of drops are symmetric overall, quantitatively heterogeneous among sectors, and amplified by spillovers. For differentiated manufacturing products, transport and business services, markups change quite a lot: they amplify after a decrease in supply while they shrink in response to a decrease in demand. For horizontally differentiated local services, essentially retail, wholesale, accommodation and food, markups change much less mainly because of the adjustment in the labor cost. We also find that in response to the reallocation of demand resulting from a supply contraction, firms with the lowest markups already increase more the markups while highest markup firms mainly gain in terms of market shares. Our findings have implications for business cycle modeling, suggest more market concentration after a deep recession like the one related to the Covid-19 pandemic and caution against the use of aggregate model to understand its impact. |
| Keywords: | Demand/Supply Contraction, Markup, Local Competition, Labor Cost, Reallocation Shock. |
| JEL: | E30 D22 D40 |
| Date: | 2022–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:635&r= |
| By: | Issing, Otmar |
| Abstract: | Historically Central Bank Independence (CBI) was anything but the norm. CBI seems to contradict core principles of democracy. Most economists were also against CBI. After the Great Inflation of the 1970ies many empirical studies demonstrated that there is a strong negative correlation between the degree of CBI and the rate of inflation. In 1990 most major countries had endowed their central bank with the status of independence. Overburdening with elevated expectations and additional competences are threatening the reputation of central banks and undermining the case for CBI. |
| Keywords: | Central banks |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:92&r= |
| By: | DI BARTOLOMEO, Giovanni; D'IMPERIO, Paolo; FELICI, Francesco |
| Abstract: | The COVID-19 pandemic is an unprecedented worldwide event with a massive impact on the economic system. The first Western country that had to face the COVID-19 crisis was Italy, which therefore represents a natural “case study.” By using the microdata and granular policy information available at the Italian Ministry of Economy and Finance, this paper provides a macroeconomic quantitative assessment of the initial emergency fiscal measures introduced in 2020 and an analysis of the impact of the COVID-19 shock during the lockdown. |
| Keywords: | COVID-19, Coronavirus, Macroeconomic impact, Fiscal policies, Lockdowns, Fiscal-policy-study case |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2021006&r= |
| By: | Deni Irawan (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI); Crawford School of Public Policy, Australian National University, Australia; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia); Tatsuyoshi Okimoto (Crawford School of Public Policy, Australian National University, Australia; Research Institute of Economy, Trade and Industry (RIETI), Japan; Centre for Applied Macroeconomic Analysis (CAMA), Australian National University, Australia) |
| Abstract: | Capital structure is one of the most critical decisions for firms in business. This study examines the role of macro (economic and non-economic) uncertainties in affecting firms’ capital structure management. Three prominent capital structure theories are tested for global resource firms: (1) static trade-off, (2) pecking order, and (3) market timing theory. The results suggest that no single theory prevails, although both pecking order and market timing theories have certain explanatory power to explain sample firms’ financing behaviour. The pecking order theory is strongly supported by the results of the leverage target adjustment model. However, the downward cyclical patterns of pecking order coefficients suggest that the resource firms tend to choose debt financing less and less over time, particularly after 2008. The market timing theory holds strong, as indicated by the significance of macro condition (uncertainties) variables in determining sample firms’ capital structure, especially after 2008 and for non-renewable firms. However, the main proxies of the cost of debt are not statistically significant. In conclusion, this study finds that resource firms have a particular pecking order preference when they need financing, and the influence of macro uncertainties are vital in determining their capital structure. |
| Keywords: | capital structure — trade-off theory — pecking order theory — market timing theory — macro uncertainties |
| JEL: | E32 G32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpaper:202168&r= |
| By: | Toman Barsbai; Andreas Steinmayr; Christoph Winter |
| Abstract: | We analyze how economic conditions at the time of arrival affect the economic integration of family-sponsored migrants in the U.S. Our identification strategy exploits long waiting times for family-sponsored immigration visas that decouple the migration decision from economic conditions at the time of arrival. A one pp higher unemployment rate at arrival decreases annual wage income by four percent in the short run and two percent in the longer run. The loss in wage income is the result of substantial occupational downgrading, lower hourly wages, and a reduction in working hours. Family migrants who immigrate into a recession draw on migrant and family networks to mitigate the negative labor market effects. As a result, they take up occupations with higher concentrations of fellow countrypeople. They are also more likely to reside with family members, potentially reducing their geographical mobility. |
| Keywords: | Immigrant integration, family reunification, migrant networks, labor market, business cycle |
| JEL: | E32 F22 J31 J61 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2022-01&r= |
| By: | Neville Arjani; Fuchun Li; Zhentong Lu |
| Abstract: | In this paper, we develop a discrete choice framework to quantify the economic benefits of payments modernization in Canada. Focusing on Canada’s large-value transfer system (LVTS), we first estimate participants’ preferences for liquidity cost, payment safety and the network effect by exploiting intraday variations in the relative choice probabilities of the two substitutable sub-systems in the LVTS (i.e., Tranches 1 and 2). Then, with the estimated model, we conduct counterfactual simulations to calculate the changes in participants’ welfare when the LVTS is replaced by a real-time gross settlement system (RTGS), like Lynx (as an important part of the payments modernization initiative). The results show that, first, compared to the old system, Lynx has higher liquidity costs but is more secure, while the former is considered a more important factor by system participants. Second, when over 90% of current LVTS payments migrate to Lynx, there is an overall welfare gain; however, it maybe difficult to achieve such a high migration ratio in the new market equilibrium. Third, accounting for equilibrium adjustment, about a 75% service level improvement is needed to generate overall net economic benefits to participants. Among other things, adopting a liquidity savings mechanism and reducing risks in the new system could help achieve this improvement. Finally, the welfare changes are quite heterogeneous, especially between large and small participants. |
| Keywords: | Financial institutions; Financial system regulation and policies; Payment clearing and settlement systems |
| JEL: | C3 E42 G1 G28 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-64&r= |
| By: | Jiaqi Li |
| Abstract: | This paper predicts households’ demand for central bank digital currency (CBDC) with different design attributes by applying a structural demand model to a unique Canadian survey dataset. CBDC and its close alternatives, cash and demand deposits, are viewed as product bundles of different attributes. I estimate households’ preferences towards these attributes from how they allocate their liquid assets between cash and demand deposits. The estimated preferences are used to predict the demand for CBDC with a set of design attributes and quantify the impacts of CBDC design choices on CBDC demand. Under a baseline design for CBDC, the aggregate CBDC holdings out of households’ liquid assets could range from 4 to 52%, depending on whether households would perceive CBDC to be closer to cash or deposits. I find that important design attributes include budgeting usefulness, anonymity, bundling of bank services, and rate of return. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E58 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-65&r= |
| By: | Kosteas, Vasilios D.; Renna, Francesco; Scicchitano, Sergio |
| Abstract: | The COVID pandemic that took the world economy by surprise at the beginning of 2020 brought many drastic changes to the way individuals carry on their daily lives. One that will have long lasting effects, even after the spread of the virus is contained, is a shift towards flexible work arrangements, including remote work options. Initially implemented to comply with government imposed stay-at-home orders, many employers decided to allow remote work even after the orders were lifted. In this chapter we will review some of the metrics used in the literature to measure the potential that a specific occupation is suitable for telework. This is important because Working From Home was often the only option for businesses to remain open during the first part of the pandemic. We also review the results of the literature on two important dimensions of inequality: the gender wage gap and income inequality, Moreover, we review some evidence of the effect of WFH on worker's productivity in general and during the pandemic and on physical and mental health. We conclude with a description of what WFH may look like after the pandemic, by describing the process towards a possible "new normal" in the labour market. |
| Keywords: | COVID-19,working from home,inequality,productivity,health |
| JEL: | D13 D23 E24 G18 J22 M54 R3 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1013&r= |
| By: | Javier Olivera (Luxembourg Institute of Socio-Economic Research (LISER)); Philippe Van Kerm (Luxembourg Institute of Socio-Economic Research, and University of Luxembourg) |
| Abstract: | We study attitudes towards the introduction of hypothetical new taxes to finance the cost of the COVID-19 pandemic. We rely on survey data collected in Luxembourg in 2020. The survey asks for the agreement of respondents over: a one-time net wealth tax, an inheritance tax, a temporary solidarity income tax, and a temporary increase in VAT. All questions include different and randomly assigned tax attributes (tax rates and exemption amounts). We find a clear divide with relatively high support for new wealth and inheritance taxes on the one hand and a low support for increases in VAT and income taxes on the other hand. While 58% of respondents agree or strongly agree with a one-time tax levied on net worth, only 24% are in favor of a small increase in VAT. Support for any tax is however negatively associated with the size of the tax as measured by the predicted revenues. Our results indicate that a one-time wealth tax could raise substantial revenues and still garner public support. |
| Keywords: | COVID-19, wealth tax, inheritance tax, income tax, VAT, preference for redistribution |
| JEL: | H2 D31 E62 I38 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2022-597&r= |
| By: | Stungwa, Sanele; Tozamile, Siphuxolo |
| Abstract: | The objective of this study is to test the existence of Okun’s coefficient in South Africa. The study used an annual data spanning from 1995 to 2020. The study employed error correction model(ECM) which tests a short run relationship between the variables under the study. The granger causality test is also applied the check the short run causal relationship between the variables. The findings of the study show that there is a negative and significant relationship between unemployment and gross domestic product in the short run. Therefore, Okun’s Law exists in South Africa. The results from granger causality test show that GDP granger cause unemployment in South Africa. Therefore, the study suggests that policymaker should focus on balancing labour intensive and capital-intensive jobs, and also to encourage entrepreneurship and proper education and training. |
| Keywords: | Gross domestic product, unemployment rate, Okun’s coefficient, South Africa |
| JEL: | C1 J64 O4 |
| Date: | 2021–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110936&r= |
| By: | Jiequn Han; Yucheng Yang; Weinan E |
| Abstract: | We propose an efficient, reliable, and interpretable global solution method, $\textit{Deep learning-based algorithm for Heterogeneous Agent Models, DeepHAM}$, for solving high dimensional heterogeneous agent models with aggregate shocks. The state distribution is approximately represented by a set of optimal generalized moments. Deep neural networks are used to approximate the value and policy functions, and the objective is optimized over directly simulated paths. Besides being an accurate global solver, this method has three additional features. First, it is computationally efficient for solving complex heterogeneous agent models, and it does not suffer from the curse of dimensionality. Second, it provides a general and interpretable representation of the distribution over individual states; and this is important for addressing the classical question of whether and how heterogeneity matters in macroeconomics. Third, it solves the constrained efficiency problem as easily as the competitive equilibrium, and this opens up new possibilities for studying optimal monetary and fiscal policies in heterogeneous agent models with aggregate shocks. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.14377&r= |
| By: | Alexandra Stanczyk; Dana Rotz; Erin Welch; Andrei Streke |
| Abstract: | The COVID-19 pandemic changed employment in dramatic ways worldwide and continues to have lasting impacts. |
| Keywords: | recession, recovery, downturn, business cycle, employment and training, employment, earnings, benefit receipt, educational attainment, interventions, systematic review, Pathways Clearinghouse, meta-analysis, meta-regression |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:35b4d568891a44fd80988313045d4c6b&r= |
| By: | Christian Aubin (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers) |
| Abstract: | This paper reconsiders the Fisherian equation of exchange by explicitly distinguishing two types of transactions associated with industrial circulation, on the one hand, and financial circulation, on the other. In this context, a formal link can be established between the financialization of the economy and the downward trend in the income velocity of money during the last decades. |
| Abstract: | Ce papier reconsidère l'équation fisherienne des échanges en distinguant explicitement deux types de transactions associées, d'une part, à une circulation industrielle et, d'autre part, à une circulation financière. Dans ce cadre, un lien peut être établi entre la financiarisation de l'économie et la baisse tendancielle de la vitesse-revenu de circulation de la monnaie des dernières décennies. |
| Keywords: | money,quantity theory of money,equation of exchange,velocity of money,financialization,monetary policy |
| Date: | 2021–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03494603&r= |
| By: | Tasso Adamopoulos; Loren Brandt; Chaoran Chen; Diego Restuccia; Xiaoyun Wei |
| Abstract: | Developing countries are characterized by frictions that impede the mobility of workers across occupations and space. We disentangle the role of insecure property rights from other labor mobility frictions for the reallocation of labor from agriculture to non-agriculture and from rural to urban areas. We combine rich household and individual-level panel data from China and an equilibrium quantitative framework that features the sorting of workers across locations and occupations. We explicitly model the farming household and the endogenous decisions of who operates the family farm and who potentially migrates, capturing an additional channel of selection within the household. We find that land insecurity has substantial negative effects on agricultural productivity and structural change, raising the share of households operating farms by almost 30 percentage points and depressing agricultural productivity by more than 10 percent. Quantitatively, land insecurity is as important as all other labor mobility frictions. We measure a sharp reduction in overall labor mobility barriers over 2004-2018 in the Chinese economy, all of which can be accounted for by improved land security, consistent with reforms covering rural land in China during the period. |
| Keywords: | land, labor mobility, agriculture, misallocation, household, productivity, China. |
| JEL: | O11 O14 O4 E02 Q1 |
| Date: | 2022–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-717&r= |
| By: | Luis Fernando Melo-Velandia; Camilo Andrés Orozco-Vanegas; Daniel Parra-Amado |
| Abstract: | Given the importance of climate change and the increase of its severity under extreme weather events, we analyze the main drivers of high food prices in Colombia between 1985 and 2020 focusing on extreme weather shocks like a strong El Ni˜ño. We estimate a non-stationary extreme value model for Colombian food prices. Our findings suggest that perishable foods are more exposed to extreme weather conditions in comparison to processed foods. In fact, an extremely low precipitation level explains only high prices in perishable foods. The risk of high perishable food prices is significantly larger for low rainfall levels (dry seasons) compared to high precipitation levels (rainy seasons). This risk gradually results in higher perishable food prices. It is non linear and is also significantly larger than the risk related to changes in the US dollar-Colombian peso exchange rate and fuel prices. Those covariates also explain high prices for both perishable and processed foods. Finally, we find that the events associated with the strongest El Ni˜ño in 1988 and 2016 are expected to reoccur once every 50 years. **** RESUMEN: Dada la importancia del cambio climático y su impacto sobre la ocurrencia de eventos climáticos extremos, se analizan los principales determinantes que explican altos precios de alimentos en Colombia entre 1985 y 2020 haciendo énfasis sobre los choques extremos climáticos como por ejemplo un fenómeno de El Ni˜ño fuerte. Se estima un modelo no estacionario de valores extremos para los precios de alimentos en Colombia y se encuentra evidencia que sugiere que aquellos bienes perecederos son los más expuestos a las condiciones climáticas en comparación con bienes de alimentos procesados. El riesgo asociado a altos precios de alimentos perecederos es significativamente más elevado para bajos niveles de precipitación (temporadas secas) comparados con altos niveles de precipitación (temporada de lluvias). Este riesgo del clima explica en buena parte los altos precios de perecederos el cual no es lineal. Adicionalmente, el riesgo asociado al factor climático es significativamente más alto a aquellos otros determinantes de altos precios como lo son la tasa de cambio peso-dólar y la dinámica de los precios de combustibles. Estas variables también explican altos precios de los alimentos tanto procesados como perecederos. Finalmente, se encuentra evidencia que sugiere que eventos como El Ni˜ño fuerte observados en 1988 y 2016 fueron los más extremos y las estimaciones sugieren que eventos parecidos tienen una re-ocurrencia de una vez cada 50 a˜ños. |
| Keywords: | Extreme weather events, Extreme value theory, Food inflation, Return levels, Relative Risk ratio, Eventos climáticos extremos, Teoría de valor extremo (EVT), precios de alimentos, niveles de riesgo, razones de riesgo relativo |
| JEL: | C32 C50 E31 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1189&r= |
| By: | Hlongwane, Nyiko Worship; Daw, Olebogeng David |
| Abstract: | This study analysis the increase in electricity generation and economic growth in South Africa. The study employs time series data spanning from 1985 to 2020. The study employs an Autoregressive Distributed Lag Model (ARDL), Error Correction Model and Granger causality test to analyse the short and long run relationships between the variables. The empirical results revealed that there is a positive relationship between electricity generation and economic growth both in the short and long run period. The study therefore proposed the increase in electricity generation to increase economic growth in South Africa. |
| Keywords: | Electricity generation, Economic growth, ARDL, Granger causality, South Africa. |
| JEL: | C01 C32 E02 O4 Q43 |
| Date: | 2021–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111018&r= |
| By: | Altavilla, Carlo; Ellul, Andrew; Pagano, Marco; Polo, Andrea; Vlassopoulos, Thomas |
| Abstract: | We investigate whether government credit guarantee schemes, extensively used at the onset of the Covid-19 pandemic, led to substitution of non-guaranteed with guaranteed credit rather than fully adding to the supply of lending. We study this issue using a unique euro-area credit register data, matched with supervisory bank data, and establish two main findings. First, guaranteed loans were mostly extended to small but comparatively creditworthy firms in sectors severely affected by the pandemic, borrowing from large, liquid and well-capitalized banks. Second, guaranteed loans partially substitute pre-existing non-guaranteed debt. For firms borrowing from multiple banks, the substitution mainly arises from the lending behavior of the bank extending guaranteed loans. Substitution was highest for funding granted to riskier and smaller firms in sectors more affected by the pandemic, and borrowing from larger and stronger banks. Overall, the evidence indicates that government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited banks' balance sheets to some extent. |
| Keywords: | loan guarantees,bank lending,COVID-19 pandemic,substitution,credit risk |
| JEL: | G18 G21 E63 H12 H81 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:672&r= |
| By: | Paulie, Charlotte (Uppsala University,) |
| Abstract: | Does increasing product-market competition from foreign firms affect domestic labor shares? By combining detailed Swedish firm-level data with an instrumental variable design, I show that an increase in import penetration caused by increased global competition results in a decrease in domestic industry-level labor shares. The decrease comes both from a reallocation of firms’ market shares and a fall in labor shares at the firm level. The analysis shows that the negative effect of competition on firm-level labor shares is driven by an increase in productivity that is not met by a corresponding increase in compensation to labor. I use these findings to calibrate a heterogeneous-firm model where domestic and foreign firms compete on the domestic product market. The calibrated model predicts that an increase in foreign competition corresponding to a one standard deviation increase in import penetration results in a 1.12 percentage point increase in welfare. |
| Keywords: | Labor Share; Competition; International Trade; Welfare. |
| JEL: | E25 F10 L11 |
| Date: | 2021–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ifauwp:2021_013&r= |
| By: | Juan C. Córdoba; Anni T. Isojärvi; Haoran Li |
| Abstract: | U.S. labor markets are increasingly diverse and persistently unequal between genders, races and ethnicities, skill levels, and age groups. We use a structural model to decompose the observed differences in labor market outcomes across demographic groups in terms of underlying wedges in fundamentals. Of particular interest is the potential role of discrimination, either taste-based or statistical. Our model is a version of the Diamond-Mortensen-Pissarides model extended to include a life cycle, learning by doing, a nonparticipation state, and informational frictions. The model exhibits group-specific wedges in initial human capital, returns to experience, matching efficiencies, and job separation rates. We use the model to reverse engineer group-specific wedges that we then feed back into the model to assess the fraction of various disparities they account for. Applying this methodology to 1998–2018 U.S. data, we show that differences in initial human capital, returns to experience, and job separation rates account for most of the demographic disparities; wedges in matching efficiencies play a secondary role. Our results suggest a minor aggregate impact of taste-based discrimination in hiring and an important role for statistical discrimination affecting particularly female groups and Black males. Our approach is macro, structural, unified, and comprehensive. |
| Keywords: | Search; Unemployment; Discrimination; Statistical Discrimination; Taste-Based Discrimination; Structural; Decomposition |
| JEL: | E20 J60 J70 |
| Date: | 2021–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-80&r= |
| By: | Davide Melcangi; Javier Turen |
| Abstract: | We study the early stages of firm creation under imperfect information. Because startups make error-prone decisions due to rational inattention, the model generates both inefficient entry and labor misallocation. We show that information frictions alter the effects of lump-sum transfers to startups: the total employment gain is amplified due to an unintended increase in inefficient entry, most entrants hire fewer workers, and misallocation goes up. The transfer makes low-size, previously dominated actions profitable, affecting the entire endogenous learning problem and making even productive startups lean toward more conservative hiring. We show that this novel information channel works against well-known mechanisms (for example, financial frictions) and also dampens the effects of alternative policies such as wage subsidies. |
| Keywords: | startups; rational inattention; firm subsidy |
| JEL: | D82 D83 E60 H25 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93504&r= |
| By: | John Michael, Riveros-Gavilanes |
| Abstract: | The present article establishes a set of empirical approximations related to the theorical formulation of the social welfare function of Sen applied to the Latin-American context between 1995 & 2018, this in order to provide estimates of the welfare trends derived from its original version and the generalized version proposed by Mukhopadhaya (2003a; 2003b). The article equally contributes exploring the long-run relationships among welfare, inequality and income with the panel data methodology. The results indicated that long-run relationships exists among these variables, a higher elasticity on the welfare comes from the income distribution rather than the economic growth, in the short-run, only the economic growth was significant to explain the welfare. Finally, for the Latin American countries the ranking of welfare was done considering the predicted values of welfare at country level with the linear predictions of the econometrical model of the long-run, which matches in terms of behavior and rank in the welfare with the original approach of Sen applied to Latin America. |
| Keywords: | Welfare; Inequality; Growth; Income; Latin America. |
| JEL: | D63 E25 O54 O57 |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111268&r= |
| By: | Hlongwane, Nyiko Worship; Mmutle, Tumelo Donald; Daw, Olebogeng David |
| Abstract: | This study investigates the relationship between foreign direct investment and economic growth in SADC region from 2000 to 2019. The study utilises panel data spanning from 2000 to 2019 sourced from the World Bank. The study employs a panel ARDL and panel Error Correction Model to analyse the relationship between foreign direct investment and economic growth in SADC region. The statistical results revealed a positive statistically significant short run relationship and negative statistically significant long run relationship between foreign direct investment and economic growth. |
| Keywords: | Foreign Direct Investment (FDI), Economic Growth, Error Correction Model, SADC, Panel ARDL model |
| JEL: | C01 C22 E41 F15 F43 R11 |
| Date: | 2021–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111008&r= |
| By: | Manuel David Cruz; Ashish Kumar Sedai |
| Abstract: | This study looks at the relationship between corruption and foreign direct investment (FDI) in natural resources using a panel of 20 Latin American countries from 1995-2019. We find that lower levels of corruption have a positive and significant impact on resource FDI supporting the grabbing hand hypothesis. A one-point increase in the Corruption Perception Index (CPI) is associated with an increase between 52-57 million dollars across models with varying controls. Results also show a nonlinear relationship between CPI and resource FDI, suggesting that when a country becomes less corrupt and improves its economic, social and political performance, it usually attracts more resource FDI. The analysis is robust to alternate measures of corruption (CPI, ICRG, and WGI) and different specifications of the dynamic panel model. Finally, the study highlights significant precautions and pre-conditions required to increase economic development when attracting natural resource-based FDI. |
| Keywords: | Foreign direct investment, corruption, natural resources, grabbing hand, Latin America |
| JEL: | F23 F21 E02 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-98&r= |
| By: | Li, Shiyuan |
| Abstract: | Enterprises who are the most responsible for air pollution are also constrained by environmental protection policies the most. As the strictest environmental policy in China, Atmosphere Ten Articles carries the task to balance the relationship between the ecology and economic development. This paper analyzes the impact of this policy on enterprise performance from two perspectives: social performance and economic performance. The corporate life cycle theory is also integrated into the policy evaluation, and enterprise ownership heterogeneity is analyzed. Through decomposition, we found that the policy can promote the enterprises’ economic performance through technological innovation and resource allocation effect. This paper extends the existing environmental policy evaluation framework and provides empirical reference for future research. |
| Keywords: | Corporate Social Responsibility; Total Factor Productivity; Atmosphere Ten Articles; Corporate Life Cycle |
| JEL: | E61 L25 Q56 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110974&r= |