nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒01‒24
102 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy, External Finance and Investment By James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
  2. Identifying Monetary Policy Shocks Using the Central Bank's Information Set By Ruediger Bachmann; Isabel Gödl-Hanisch; Eric R. Sims
  3. Cyclical signals from the labor market By Tino Berger; Paul David Boll; James Morley; Benjamin Wong
  4. A Real-Business-Cycle model with robots: Lessons for Bulgaria By Aleksandar Vasilev
  5. Doves for the Rich, Hawks for the Poor? Distributional Consequences of Systematic Monetary Policy By Nils Gornemann; Keith Kuester; Makoto Nakajima
  6. Pandemi Covid-19: Implikasinya terhadap Permintaan Uang dan Instrumen Pembayaran Lainnya By Nizar, Muhammad Afdi
  7. Firm Heterogeneity, Capital Misallocation and Optimal Monetary Policy By Beatriz González; Galo Nuño; Dominik Thaler; Silvia Albrizio
  8. Fiscal Multipliers in the COVID-19 Recession By Auerbach, Alan; Gorodnichenko, Yuriy; McCrory, Peter B.; Murphy, Daniel
  9. Liberia: Third Review under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Liberia By International Monetary Fund
  10. Equilibrium Job Turnover and the Business Cycle By Carrillo-Tudela, Carlos; Clymo, Alex; Coles, Melvyn
  11. Informal Labor Markets in Times of Pandemic: Evidence for Latin America and Policy Options By Gustavo Leyva; Carlos Urrutia
  12. Understanding Persistent ZLB: Theory and Assessment By Pablo Cuba-Borda; Sanjay R. Singh
  13. Growing apart or moving together? Synchronization of informal and formal economy cycles By Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
  14. Zombie Lending and Policy Traps By Viral V. Acharya; Simone Lenzu; Olivier Wang
  15. Determinants of Inflation Expectations By Richhild Moessner
  16. Estimating Time-Varying Potential Output and NAIRU Using a Multivariate Filter for Turkey By Mert Gökcü
  17. Understanding informality By Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
  18. Oil prices and fiscal policy in an oil-exporter country: Empirical evidence from Oman By Salwa Aljabri; Mala Raghavan; Joaquin Vespignan
  19. News versus Surprise in Structural Forecasting Models: Central Bankers' Practical Perspective By Karel Musil; Stanislav Tvrz; Jan Vlcek
  20. Albania: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Albania By International Monetary Fund
  21. MARTIN Gets a Bank Account: Adding a Banking Sector to the RBA's Macroeconometric Model By Anthony Brassil; Mike Major; Peter Rickards
  22. The Rise, Fall and Stabilization of U.S. Inflation: Shifting Regimes and Evolving Reputation By Robert G. King; Yang K. Lu
  23. Financial Frictions in Mexico: Evidence from the Credit Spread and its Components By Mauricio Carabarín Aguirre; Carlos D. Peláez Gómez
  24. The impact of rising oil prices on U.S. inflation and inflation expectations in 2020-23 By Kilian, Lutz; Zhou, Xiaoqing
  25. Monetary-Fiscal Crosswinds in the European Monetary Union By Lucrezia Reichlin; Giovanni Ricco; Matthieu Tarbé
  26. Welfare gains in a small open economy with a dual mandate for monetary policy By Punnoose Jacob; Murat Özbilgin
  27. A mountain of debt: Navigating the legacy of the pandemic By M. Ayhan Kose; Franziska Ohnsorge; Naotaka Sugawara
  28. Vers une réforme des règles budgétaires dans la zone euro ? By Catherine Mathieu; Henri Sterdyniak
  29. Contracts and firms’ inflation expectations By Saten Kumar; Dennis Wesselbaum
  30. Common and Idiosyncratic Components of Latin American Business Cycles Connectedness By Luciano Campos; Jesús Ruiz Andújar
  31. Reconsidering macroeconomic policy prescriptions with meta-analysis By Sebastian Gechert
  32. Building blocks of a heterodox business cycle theory By Robert Calvert Jump; Engelbert Stockhammer
  33. Barbados: 2021 Article IV Consultation, Sixth Review Under the Extended Arrangement Under the Extended Facility, and Request for Modification of Performance Criteria-Press Release; and Staff Report By International Monetary Fund
  34. The aftermath of debt surges By M. Ayhan Kose; Franziska Ohnsorge; Carmen Reinhart; Kenneth Rogoff
  35. Using a hyperbolic cross to solve non-linear macroeconomic models By Richard Dennis
  36. A Quantitative Microfounded Model for the Integrated Policy Framework By Christopher J. Erceg; Jesper Lindé; Mr. Tobias Adrian; Pawel Zabczyk; Marcin Kolasa
  37. Qualitative Field Research in Monetary Policy Making By Chris D'Souza; Jane Voll
  38. Klare Signale für Wachstum - Ergebnisse der IW-Verbandsumfrage 2021 By Grömling, Michael
  39. United Republic of Tanzania: Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the United Republic of Tanzania By International Monetary Fund
  40. Consolidating the Covid Debt By Keuschnigg, Christian; Johs, Julian; Stevens, Jacob
  41. The Gambia: Article IV Consultation, Third Review under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for The Gambia By International Monetary Fund
  42. Uncertainty and Information Acquisition: Evidence from Firms and Households By Heiner Mikosch; Christoher Roth; Samad Sarferaz; Johannes Wohlfart; Christopher Roth
  43. Australia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Australia By International Monetary Fund
  44. The COVID-19 Economic Crisis in Mexico through the Lens of a Financial Conditions Index By Julio A. Carrillo; Ana Laura García
  45. Is rising inflation a global risk? By Abdelaaziz Ait Ali; Uri Dadush
  46. Republic of Serbia: First Review under the Policy Coordination Instrument -Press Release; and Staff Report By International Monetary Fund
  47. Republic of Armenia: 2021 Article IV Consultation, Fourth and Fifth Reviews Under the Stand-By Arrangement, and Request for Waiver of Nonobservance of Performance Criterion and Monetary Policy Consultation Clause-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Armenia By International Monetary Fund
  48. Pandemic-Induced Wealth and Health Inequality and Risk Exposure By Konstantinos Angelopoulos; Spyridon Lazarakis; Rebecca Mancy; Max Schroeder
  49. Republic of Palau: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Palau By International Monetary Fund
  50. Endogenous Fluctuations and International Business Cycles By Stephen McKnight; Laura Povoledo
  51. Modelling Okun’s Law – Does non-Gaussianity Matter? By Kiss, Tamas; Nguyen, Hoang; Österholm, Pär
  52. Does Macroprudential Policy Leak? Evidence from Non-Bank Credit Intermediation in EU Countries By Martin Hodula; Ngoc Anh Ngo
  53. Zuversicht dominiert für 2022: IW-Konjunkturumfrage Spätherbst 2021 By Grömling, Michael
  54. Real-Time Forecast of DSGE Models with Time-Varying Volatility in GARCH Form By Sergey Ivashchenko; Semih Emre Cekin; Rangan Gupta
  55. The long-run effects of corporate tax reforms By Isaac Baley; Andrés Blanco
  56. Scaling, unwinding and greening QE in a calibrated portfolio balance model By Riedler, Jesper; Koziol, Tina
  57. Learning and Cross-Country Correlations in a Multi-Country DSGE Model By Volha Audzei
  58. Republic of Azerbaijan: 2021 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  59. Malawi: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malawi By International Monetary Fund
  60. The Initial Response to the Inflation Shock of 2021 By James B. Bullard
  61. Enforcement of fiscal rules: Lessons from the fiscal compact By Larch, Martin; Busse, Matthias; Jankovics, László
  62. Simultaneous Search and Adverse Selection By Sarah Auster; Piero Gottardi; Ronald Wolthoff
  63. Niger: Request for a Three-Year Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Niger By International Monetary Fund
  64. Chad: Request for a Three-Year Arrangement under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Chad By Mr. Edward R Gemayel; International Monetary Fund
  65. The Bank of Canada COVID‑19 stringency index: measuring policy response across provinces By Calista Cheung; Jerome Lyons; Bethany Madsen; Sarah Miller; Saarah Sheikh
  66. The Inflation Game By Wolfgang Kuhle
  67. Exchange rate disconnect and the general equilibrium puzzle By Yu-chin Chen; Ippei Fujiwara; Yasuo Hirose
  68. Business Closures and (Re)Openings in Real Time Using Google Places By Thibaut Duprey; Daniel E. Rigobon; Philip Schnattinger; Artur Kotlicki; Soheil Baharian; T. R. Hurd
  69. Comparecencias ante la Comisión de Presupuestos del Congreso de los Diputados, el 25 de octubre de 2021, y ante la Comisión de Presupuestos del Senado, el 30 de noviembre de 2021, en relación con el Proyecto de Presupuestos Generales del Estado para 2022 By Pablo Hernández de Cos
  70. Does economic policy uncertainty reduce financial inclusion? By Ozili, Peterson K
  71. Efficient Estimation of State-Space Mixed-Frequency VARs: A Precision-Based Approach By Joshua C. C. Chan; Aubrey Poon; Dan Zhu
  72. The macroeconomic channels of macroprudential mortgage policies By Aikman, David; Kelly, Robert; McCann, Fergal; Yao, Fang
  73. Squaring the circle: How to guarantee fiscal space and debt sustainability with a European Debt Agency By Massimo Amato; Francesco Saraceno
  74. Measuring U.S. Core Inflation: The Stress Test of COVID-19 By Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra; Mr. Antonio Spilimbergo
  75. Cambodia: 2021 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  76. Central bank swap lines: evidence on the effects of the lender of last resort By Bahaj, Saleem; Reis, Ricardo
  77. Repo over the Financial Crisis By Adam Copeland; Antoine Martin
  78. The Wobbly Economy; Global Dynamics with Phase Transitions and State Transitions By Tomohiro HIRANO; Joseph E. Stiglitz
  79. Asymmetric response of carbon emissions to recessions and expansions and oil market shocks By Xueting Jiang; David I. Stern
  80. Better out than in? Regional disparity and heterogeneous income effects of the euro By Sang-Wook (Stanley) Cho; Sally Wong
  81. Land Speculation and Wobbly Dynamics with Endogenous Phase Transitions By Tomohiro HIRANO; Joseph E. Stiglitz
  82. Effects of Macro Uncertainty on Mean Expectation and Subjective Uncertainty: Evidence from Households and Professional Forecasters By Giulia Piccillo; Poramapa Poonpakdee
  83. Disparate Impacts of Job Loss by Parental Income and Implications for Intergenerational Mobility By Martti Kaila; Emily Nix; Krista Riukula
  84. Welche Inflationsunterschiede bestehen in der Bevölkerung? Eine Auswertung auf Basis der Einkommens- und Verbrauchsstichprobe By Demary, Markus; Kruse, Cornelius; Zdrzalek, Jonas
  85. Reconsidering the Fed’s Forecasting Advantage By Amy Y. Guisinger; Michael W. McCracken; Michael T. Owyang
  86. Republic of Fiji: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji By International Monetary Fund
  87. Argentina: Ex-Post Evaluation of Exceptional Access Under the 2018 Stand-By Arrangement-Press Release and Staff Report By International Monetary Fund
  88. Tariffs and Macroeconomic Dynamics By Marco A. Hernández Vega
  89. Will video kill the radio star? Digitalisation and the future of banking By Beck, Thorsten; Cecchetti, Stephen G.; Grothe, Magdalena; Kemp, Malcolm; Pelizzon, Loriana; Sánchez Serrano, Antonio
  90. International Evidence of Strengthening Taxes and Spending For Sustainable Development By Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Donghyun Park
  91. Reputation and earnings dynamics By Boyan Jovanovic; Julien Prat
  92. Does clarity make central banks more engaging? Lessons from ECB communications By Ferrara, Federico Maria; Angino, Siria
  93. Labor-Management Relations in Autocratic Regimes By Cooke, Fang Lee; Wood, Geoffrey
  94. «¿Había espacio fiscal para enfrentar la pandemia en México? Una revisita a la sostenibilidad fisca» By Fausto Hernández Trillo
  95. Idiosyncratic Shocks and Aggregate Fluctuations in an Emerging Market By Mr. Damiano Sandri; Mr. Francesco Grigoli; Emiliano Luttini
  96. IMF conditionality, social programmes and the impact of women's welfare: an empirical analysis of historical policy responses to financial crises in Latin America and their gendered effects By Krubnik, Alicja
  97. Shadow economy and regional development - an argument in favor of fiscal decentralization By Petranov, Stefan
  98. The household effects of mortgage regulation By Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
  99. The Trend-cycle Connection By Florencia S. Airaudo; Hernán D. Seoane
  100. Boosting mineral revenues in Zambia: Policy options for a sustainable fiscal regime By Andrew Mwaba; Steve Kayizzi-Mugerwa
  101. Comentario al proyecto de ley de startups By Benito Arruñada
  102. ¿Una Enfermedad Holandesa “Fiscal? El Caso de Transferencias entre Jurisdicciones: La Experiencia Argentina hasta 2008 By Alberto José Figueras; Iván Iturralde; Marcelo Capello

  1. By: James Cloyne (University of California Davis/NBER/CEPR); Clodomiro Ferreira (Bank of Spain); Maren Froemel (Bank of England); Paolo Surico (London Business School/CEPR)
    Abstract: In response to a change in interest rates, younger firms not paying dividends adjust both their capital expenditure and borrowing significantly more than older firms paying dividends. The reason is that the debt of younger non-dividend payers is far more sensitive to fluctuations in collateral values, which are significantly affected by monetary policy. The results are robust to a wide range of possible confounding factors. Other channels, including movements in interest payments, product demand, profitability and mark-ups, are also significant but seem unlikely to explain the heterogeneity in the response of capital expenditure. Our findings suggest that financial frictions play a significant role in the transmission of monetary policy to investment.
    Keywords: monetary policy, investment, firm’s debt, collateral, financial frictions
    JEL: E22 E32 E52
    Date: 2021–11
  2. By: Ruediger Bachmann; Isabel Gödl-Hanisch; Eric R. Sims
    Abstract: We identify monetary policy shocks by exploiting variation in the central bank’s information set. To be specific, we use differences between nowcasts of the output gap and inflation with final, revised estimates of these series to isolate movements in the policy rate unrelated to economic conditions. We then compute the effects of a monetary policy shock on the aggregate economy using local projection methods. We find that a contractionary monetary policy shock has a limited negative effect on output but a persistent negative impact on prices. In contrast to alternative identification approaches, we do not observe a price puzzle when analyzing the period from 1987 to 2008. Further, we validate the identification approach in a simple New Keynesian model, augmented by the assumption that the central bank observes the ingredients of the Taylor rule with error.
    JEL: E31 E52 E58
    Date: 2021–12
  3. By: Tino Berger; Paul David Boll; James Morley; Benjamin Wong
    Abstract: We consider which labor market variables are the most informative for estimating and now-casting the U.S. output gap using a multivariate trend-cycle decomposition. Although the unemployment rate clearly contains important cyclical information, it also appears to reflect more persistent movements related to labor force participation that could distort inferences about the output gap. Instead, we show that the alternative U-2 unemployment rate (job losers as a percentage of the labor force) provides a more purely cyclical indicator of labor market conditions. To a lesser extent, but consistent with a link of the output gap to real labor costs in a New Keynesian setting, we also find that average hourly earnings are informative about the output gap.
    Keywords: Nowcasting, output gap, Covid-19, U-2 unemployment rate, average hourly earnings
    JEL: C53 E24 E32
    Date: 2021–10
  4. By: Aleksandar Vasilev (Lincoln International Business School, UK.)
    Abstract: Robots are introduced into a real-business-cycle setup augmented with a detailed government sector. Robots are modelled as an imperfect substitute for labor services. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2020). The quantitative importance of the presence of robots in the economy is investigated for business cycle fluctuations inBulgaria. In the presence of robots, wages increase, but employment falls after a technology shock. However, for plausible parameter values, the effect is predicted to be quite small.
    Keywords: business cycles; robots; Bulgaria
    JEL: E24 E32
    Date: 2022–01
  5. By: Nils Gornemann; Keith Kuester; Makoto Nakajima
    Abstract: We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilization policy is pronounced. The wealth-rich or retired tend to favor inflation targeting. The wealth-poor working class, instead, favors unemployment-centric policy. One- and two-agent alternatives can show unanimous disapproval of inflation-centric policy, instead. We highlight how the political support for inflation-centric policy depends on wage setting, the tax system, and the portfolio that households have.
    Keywords: Monetary policy; Unemployment; Search and matching; Heterogeneous agents; General equilibrium; Dual mandate
    JEL: E12 E21 E24 E32 E52 J64
    Date: 2021–06–29
  6. By: Nizar, Muhammad Afdi
    Abstract: This paper tries to analyze how the Covid-19 pandemic and economic conditions affect the demand for money and other payment instruments. By utilizing data/information in the period before the Covid-19 pandemic and during the outbreak of the Covid-19 pandemic, the analysis was carried out using a descriptive-elaborative approach. The results show that the decline in economic activity due to the impact of Covid-19 has also had an impact on the decline in public demand for cash. As an alternative and at the same time as part of efforts to break the chain of the spread of Covid and accelerate economic recovery, the government and Bank Indonesia encourage the public to use non-cash payment instruments. The use of non-cash instruments, especially digital banking, also helps accelerate an inclusive and efficient digital economy and financial ecosystem
    Keywords: consumption, Covid-19, demand for money, digital banking, electronic money, money supply
    JEL: E21 E40 E41 E42 E51 E58
    Date: 2020–12
  7. By: Beatriz González; Galo Nuño; Dominik Thaler; Silvia Albrizio
    Abstract: We analyze monetary policy in a New Keynesian model with heterogeneous firms and financial frictions. Firms differ in their productivity and net worth and face collateral constraints that cause capital misallocation. TFP endogenously depends on the time-varying distribution of firms. Although a reduction in real rates increases misallocation in partial equilibrium, general-equilibrium effects overturn this result: a monetary expansion increases the investment of high-productivity firms relatively more than that of low-productivity ones, crowding out the latter and increasing TFP. We provide empirical evidence based on Spanish granular data supporting this mechanism. This has important implications for optimal monetary policy. We show how a central bank without pre-commitments engineers an unexpected monetary expansion to increase TFP in the medium run. In the event of a cost-push shock, the central bank leans with the wind to increase demand and reduce misallocation.
    Keywords: monetary policy, firm heterogeneity, financial frictions, misallocation
    JEL: E12 E22 E43 E52 L11
    Date: 2021
  8. By: Auerbach, Alan (University of California, Berkeley); Gorodnichenko, Yuriy (University of California, Berkeley); McCrory, Peter B. (J.P. Morgan Chase); Murphy, Daniel (University of Virginia)
    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.
    Keywords: COVID-19, fiscal multiplier, stimulus
    JEL: E62 E32 H3
    Date: 2021–11
  9. By: International Monetary Fund
    Abstract: Ensuring macroeconomic stability, providing a foundation for sustainable and inclusive growth, and addressing weak governance are the tenets of the ECF-supported program. The COVID-19 pandemic was a painful setback, but economic activity should recover by end-2021 and prospects for growth in 2022 are favorable. Prudent monetary and fiscal policies allowed inflation to decline into the single digits. The authorities are addressing disruptive currency shortages through a comprehensive currency changeover operation. While the SDR allocation provides timely room for supportive policies without compromising macroeconomic stability, the authorities remain committed to their reform program and generally continue to implement the necessary measures.
    Date: 2021–12–10
  10. By: Carrillo-Tudela, Carlos (University of Essex); Clymo, Alex (University of Essex); Coles, Melvyn (University of Essex)
    Abstract: This paper develops and estimates a fully microfounded equilibrium business cycle model of the US labor market with aggregate productivity shocks. Those microfoundations are consistent with evidence regarding the underlying distribution of firm growth rates across firms [by age and size] and, when aggregated, are consistent with macro-evidence regarding gross job creation and job destruction flows over the cycle. By additionally incorporating on-the-job search, we systematically characterise the stochastic relationships between aggregate job creation and job destruction flows across firms, gross hire and quit flows [churning] by workers across firms, as well as the persistence and volatility of unemployment and worker job finding rates over the cycle.
    Keywords: business cycle, firm dynamics, job search
    JEL: E24 E32 J62 J63
    Date: 2021–11
  11. By: Gustavo Leyva; Carlos Urrutia
    Abstract: We document the evolution of labor markets of five Latin American countries during the COVID-19 pandemic, with emphasis on informal employment. We show, for most countries, a slump in aggregate employment, mirrored by a fall in labor participation, and a decline in the informality rate. The latter is unprecedented since informality used to cushion the decline in overall employment in previous recessions. Using a business cycle model with a rich labor market structure, we recover the shocks that rationalize the pandemic recession, showing that labor supply shocks and productivity shocks to the informal sector are essential to account for the employment and output loss and for the decline in the informality rate.
    JEL: E24 E32 F44 J65
    Date: 2021–12
  12. By: Pablo Cuba-Borda; Sanjay R. Singh (Department of Economics, University of California Davis)
    Abstract: Concerns of prolonged stagnation periods with near-zero interest rates and deflation have become widespread in many advanced economies. We build a theoretical framework that rationalizes two theories of low interest rates: expectations-trap and secular stagnation in a unified setting. We analytically derive contrasting policy implications under each hypothesis and identify robust policies that eliminate expectations-trap and reduce the severity of secular stagnation episodes. We provide a quantitative assessment of the Japanese experience from 1998:Q1-2020:Q4. We find evidence favoring the expectations-trap hypothesis and show that equilibrium indeterminacy is essential to distinguish between theories of low interest rates in the data.
    Keywords: Expectations-driven trap, secular stagnation, zero lower bound, robust policies.
    JEL: E31 E32 E52
    Date: 2022–01–12
  13. By: Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
    Abstract: We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movements in informal-sector output.
    Keywords: Informal economy, self-employment, business cycle
    JEL: E26 E32 J46 O17
    Date: 2021–09
  14. By: Viral V. Acharya; Simone Lenzu; Olivier Wang
    Abstract: We build a model with heterogeneous firms and banks to analyze how policy affects credit allocation and long-term economic outcomes. When firms are hit by small negative shocks, conventional monetary policy can restore efficient bank lending and production by lowering interest rates. Large shocks, however, necessitate unconventional policy such as regulatory forbearance towards banks to stabilize the economy. Aggressive accommodation runs the risk of introducing zombie lending and a “diabolical sorting”, whereby low-capitalization banks extend new credit or evergreen existing loans to low-productivity firms. If shocks reduce the profitability gap between healthy and zombie firms, the optimal forbearance policy is non-monotone in the size of the shock. In a dynamic setting, policy aimed at avoiding short-term recessions can be trapped into protracted low rates and excessive forbearance, due to congestion externalities imposed by zombie lending on healthier firms. The resulting economic sclerosis delays the recovery from transitory shocks, and can even lead to permanent output losses.
    JEL: E44 E52 G01 G21 G28 G33
    Date: 2021–12
  15. By: Richhild Moessner
    Abstract: This paper analyses the determinants of short-term inflation expectations based on surveys of professionals, using dynamic cross-country panel estimation for a large number of 34 OECD economies. We find that food consumer price inflation and depreciations of the domestic exchange rate have significant positive effects on professionals’ survey-based inflation expectations. Moreover, core consumer price inflation and the output gap have significant positive effects.
    Keywords: inflation expectations, inflation, food prices, exchange rates
    JEL: E52 E58
    Date: 2021
  16. By: Mert Gökcü
    Abstract: Potential output and NAIRU estimates are crucial to identify the state of the economy for both monetary policymakers and fiscal policy authorities. This paper extends the multivariate filter approach developed for Turkey by integrating the capacity utilization block into the model. Also, broader-defined unemployment rate is included as alternative in the model. The idea is that traditional measure of unemployment rate may not fully capture the cycle conditions of the labor market. The results show that long and deep recessions resulted in hysteresis in the labor market and reduced potential output. While estimate of the slack in the output was smaller in the recent shock (2018-3: 2018-4), the unemployment rate and NAIRU increased sharply with reaching the highest levels historically in recession periods. Due to weak foreign demand and composition of industrial sector products, the slack in capacity utilization rate was higher in the global financial crisis (2008-2: 2009-1).
    Keywords: Potential output, Output gap, NAIRU, Multivariate filter, Bayesian estimation
    JEL: C51 E32 E52
    Date: 2021
  17. By: Ceyhun Elgin; M. Ayhan Kose; Franziska Ohnsorge; Shu Yu
    Abstract: This paper introduces a comprehensive database of informal economic activity. The database focuses on measures that have strong cross-country and over time coverage: it includes both model-based and survey-based measures of informality and covers more than 160 economies for the period 1990-2018. The paper illustrates two applications of the database. First, it distills stylized facts of informal activity, including its declining trend and pervasiveness in emerging market and developing economies (EMDEs). Second, it documents the cyclical features of the informal economy. Overall, informal economy recessions (recoveries) do not differ significantly from those of formal economy. Like formal-economy business cycles, informal-economy business cycles tend to be shallower in advanced economies than in EMDEs. Informal employment in both advanced economies and EMDEs appears to be largely acyclical.
    Keywords: Informal economy, self-employment, employment, output, business cycles
    JEL: E26 E32 J46 O17
    Date: 2021–09
  18. By: Salwa Aljabri; Mala Raghavan; Joaquin Vespignan
    Abstract: This paper studies the impact of oil price shocks on fiscal policy and real GDP in Oman using new unexplored data. We find that an oil price shock explains around 22% and 46% of the variation in the government revenue and GDP, respectively. Decomposing the government revenue and GDP further into petroleum and non-petroleum related components, we find that an oil price shock explains around 26% of the variation in petroleum revenue and 90% of the petroleum-GDP. Though petroleum and non-petroleum GDP respond positively to oil price shocks, government expenditure is not affected by oil prices but is affected by government revenue. The results suggest that the Omani government uses its reserve fund and local and international debt to smooth and reduce the impact of oil price fluctuations.
    Keywords: oil price shocks, fiscal policy, GDP, SVAR
    JEL: C32 E17 E62 N15
    Date: 2021–10
  19. By: Karel Musil; Stanislav Tvrz; Jan Vlcek
    Abstract: The paper deals with the treatment of shocks in central banks' forecasts. Within the rational expectations (RE) concept, which is widely used in structural macroeconomic models, the paper highlights the differences between news and surprise shocks and argues that most shocks in central bank forecasts should be treated as news. The paper also points out some drawbacks of news shocks under the assumption of full information from the practical point of view of forecasting and policy decision-making at central banks. As a potential solution, the paper refers to the LIRE concept as introduced in Brazdik et al. (2020). The paper discusses the properties of the LIRE concept and finds it versatile and useful in dealing with news shocks without abandoning the RE framework. The paper concludes that LIRE can be effectively used for practical structural macroeconomic modelling.
    Keywords: Anticipated shocks, conditional forecast, DSGE models, rational expectations
    JEL: D58 D84 E37 E52
    Date: 2021–12
  20. By: International Monetary Fund
    Abstract: Albania’s economy has shown considerable resilience in the face of the 2019 earthquake and the pandemic. After the hardship endured in 2020, real GDP is rebounding strongly by a projected 7.8 percent in 2021. Policies have played a critical role in preserving lives and livelihoods and thereby paving the way for the recovery. The key challenges now are to invest efficiently in people and the economy to support the continued development of the country and to rebuild room for fiscal policy maneuver by lowering the very high fiscal deficit and public debt.
    Date: 2021–12–07
  21. By: Anthony Brassil (Reserve Bank of Australia); Mike Major (Reserve Bank of Australia); Peter Rickards (Reserve Bank of Australia)
    Abstract: We add a simplified banking sector to the RBA's macroeconometric model (MARTIN). How this banking sector interacts with the rest of the economy chiefly depends on the extent of loan losses. During small downturns, losses are absorbed by banks' profits and the resulting effect on the broader economy is limited to that caused by the lower shareholder returns (which is already part of MARTIN). During large downturns, loan losses reduce banks' capital, and banks respond by reducing their credit supply. This reduction in supply reduces housing prices, wealth and investment; thereby amplifying the downturn (which leads to further losses). Our state-dependent approach is a significant advance on the treatment of financial sectors within existing macroeconometric models. Having a banking sector in MARTIN allows us to explore important policy questions. In this paper, we show how the effectiveness of monetary policy depends on the state of the economy. During large downturns, monetary policy is more effective than usual because it can reduce loan losses and therefore moderate any reduction in credit supply. But at low interest rates, the zero lower bound on retail deposit interest rates reduces policy effectiveness. We also investigate how one of the more pessimistic economic scenarios that could have resulted from COVID-19 might have affected the banking sector, and subsequently amplified the resulting downturn.
    Keywords: banking; financial accelerator; macroeconomic model
    JEL: E17 E44 E51 G21
    Date: 2022–01
  22. By: Robert G. King; Yang K. Lu
    Abstract: The rise, fall, and stabilization of US inflation between 1969 and 2005 is consistent with a model of shifting policy regimes that features a forward-looking New Keynesian Phillips curve, policymakers that can or cannot commit, and private sector learning about policymaker type. Using model-implied inflation forecasting rules to extract state variables from the inflation forecasts in the Survey of Professional Forecasters, we provide evidence that policy regimes without commitment prevailed before 1980 and regimes with commitment prevailed afterward. With theory and quantification, we find that evolution of reputational capital is central to understanding the behavior of inflation.
    JEL: D82 D83 E52
    Date: 2021–12
  23. By: Mauricio Carabarín Aguirre; Carlos D. Peláez Gómez
    Abstract: We investigate the relationship between financial market frictions and economic activity in Mexico by constructing and decomposing a credit spread index from bonds issued by non-financial corporations in domestic markets, following Gilchrist and Zakrajsek (2012). We show that the credit spread is significantly informative about the evolution of economic activity and financial aggregates in Mexico. Moreover, the excess bond premium (EBP), which tracks the relationship between firms'' default risk and their credit spread, is found to be the main driver of this relationship. We show evidence that negative shocks on financial conditions, identified as a sudden increase of EBP, prompt a contraction in economic activity and credit aggregates. Finally, we find evidence of non-linear effects on the responses of economic activity in response to the shock.
    JEL: E32 E44
    Date: 2021–12
  24. By: Kilian, Lutz; Zhou, Xiaoqing
    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 yearover-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
  25. By: Lucrezia Reichlin; Giovanni Ricco (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Matthieu Tarbé
    Abstract: We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.
    Keywords: monetary-fiscal interaction,fiscal policy,monetary policy,intertemporal government budget constraint
    Date: 2021–01–01
  26. By: Punnoose Jacob; Murat Özbilgin
    Abstract: In March 2019, the Reserve Bank of New Zealand was entrusted with a new employment stabilisation objective, that complements its traditional price-stability mandate. Against this backdrop, we assess whether the central bank’s stronger emphasis on the stabilisation of employment, and more broadly, resource utilisation, enhances social welfare. We calibrate an open-economy growth model to New Zealand data. In a second order approximation of the model, we evaluate how lifetime household utility is affected by a wide range of simple and implementable monetary policy rules that target both inflation and resource utilisation. We find that additionally stabilising resource utilisation always improves social welfare at any given level of inflation stabilisation. However, the welfare gains from stabilising resource utilisation get milder as the central bank is increasingly sensitive to inflation.
    Keywords: Optimal simple rules, welfare analysis, monetary policy, dual mandate
    JEL: F41 E52
    Date: 2021–10
  27. By: M. Ayhan Kose; Franziska Ohnsorge; Naotaka Sugawara
    Abstract: The COVID-19 pandemic has triggered a massive increase in global debt levels and exacerbated the trade-offs between the benefits and costs of accumulating government debt. This paper examines these trade-offs by putting the recent debt boom into a historical context. It reports three major findings. First, during the 2020 global recession, both global government and private debt levels rose to record highs, and at their fastest single-year pace, in five decades. Second, the debt-financed, massive fiscal support programs implemented during the pandemic supported activity and illustrated the benefits of accumulating debt. However, as the recovery gains traction, the balance of benefits and costs of debt accumulation could increasingly tilt toward costs. Third, more than two-thirds of emerging market and developing economies are currently in government debt booms. On average, the current booms have already lasted three years longer, and are accompanied by a considerably larger fiscal deterioration, than earlier booms. About half of the earlier debt booms were associated with financial crises in emerging market and developing economies.
    Keywords: COVID-19, fiscal policy, sovereign debt, private debt, deficits
    JEL: E32 E62 G01 H63
    Date: 2021–10
  28. By: Catherine Mathieu (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Henri Sterdyniak
    Abstract: After the COVID-19 crisis, public debts in euro area Member states will stand on average at 100% of GDP. EU fiscal rules were suspended during the crisis and must be reformed. This will be under discussion in 2022. Section 2 discusses the principle of fiscal rules, especially in the EU. Section 3 analyses various reforms proposals. Some consensus seems to be emerging on public expenditure rules, where public expenditure would need to grow less rapidly than nominal GDP, so as to bring the public debt-to-GDP ratio down to 60%. This rule does not allow for satisfactory macroeconomic stabilization, has no guaranteed longer-term, and does not respect national fiscal policies autonomy. In Section 4, we make a proposal inspired by functional finance. Public debts of euro area member states should be guaranteed. Member States should be able to run the fiscal policy relevant in their macroeconomic situation, while fulfilling the inflation target set by the ECB. Member States should be requested to change their fiscal policy only if the latter is harmful to partner countries.
    Abstract: Après la crise sanitaire, les dettes publiques des pays de la zone euro s'établiront en moyenne à 100 % du PIB. Les règles budgétaires de l'UE, suspendues pendant la crise, ne peuvent être remises en vigueur telles quelles. Leur réforme sera discutée en 2022. La section 2 discute le principe des règles budgétaires, en particulier européennes. La section 3 analyse les différents projets de réforme. Un certain consensus semble se faire sur une règle de contrôle des dépenses publiques dont la croissance devrait être inférieure à celle du PIB nominal, de façon à ramener le ratio dette publique/PIB vers 60 %. Cette règle ne permet pas une stabilisation macroéconomique satisfaisante, n'a pas de long terme garanti et ne respecte pas l'autonomie des politiques budgétaires nationales. La section 4 développe une proposition inspirée par la finance fonctionnelle. Les dettes publiques des pays de la zone euro doivent être garanties ; ceux-ci doivent pouvoir pratiquer les politiques budgétaires requises par leur situation macroéconomique, tout en respectant l'objectif d'inflation de la BCE. Ils ne doivent être tenus de changer de politique que si elle nuit à leurs partenaires.
    Keywords: fiscal policy,fiscal rules,European economy,politique budgétaire,règles budgétaires,économie européenne
    Date: 2021–01–01
  29. By: Saten Kumar; Dennis Wesselbaum
    Abstract: We use novel survey data to study firms’ inventory contracts. We document facts about the usage of purchase and sale contracts. We find that firms purchase and sell inventory through three contractual arrangements: fixed price and quantity, fixed price only, and fixed quantity only. The former holds the largest share of contracts. The average duration of purchase contracts is not very different from the average duration of sale contracts. We then find that the upward bias in inflation expectations is a feature of firms that do not purchase or sell largely through contracts. Our findings are useful in the calibration of sticky price models.
    Keywords: Contracts, Inflation Expectations, Survey
    JEL: C83 D84 D86 E31 L14
    Date: 2021–10
  30. By: Luciano Campos (Universidad de Alcalá/RedNIE); Jesús Ruiz Andújar (Universidad Complutense de Madrid)
    Abstract: This paper investigates the evolution of business cycles synchronization in Latin America since the 1990’s. To do so, a Vector Autoregressive model is fed, alternatively, with the countries’ Industrial Production Indexes and with these series filtered by the US financial conditions index, which is considered as a common component affecting business cycles in the region. Additionally, a Markov switching model is estimated to identify regional recessions. Our findings indicate that business cycles connectedness rise significantly during regional recessions and that the common factor plays an important role. The evidence supports the usefulness of policy coordination among Latin American economies to cushion the spillover effects of exogenous shocks, and helps to identify subgroups of countries for which such coordination is recommendable.
    Keywords: Connectedness indexes, Vector autoregressive analysis, Markov switching models, policy coordination, Latin American business cycles.
    JEL: C32 E32 F44 N16
    Date: 2021–11
  31. By: Sebastian Gechert (Department of Economics, Chemnitz University of Technology)
    Abstract: This paper investigates recent developments in meta-analysis, the tool to quantitatively synthesize research in a certain body of literature. After providing a brief overview on how to do a meta-analysis and discussing recent methodological advancements in the field, I review applied contributions to the field of macroeconomics. It turns out that meta-analyses have often questioned the conventional wisdom and established new consensuses in fiscal, monetary and labor market policies by uncovering substantial publication bias and unexpected determining factors in many bodies of literature – in particular those dominated by policy conclusions in the neoclassical tradition like minimum wages, financial regulation and the relative effects of tax and spending policies.
    Keywords: Meta-analysis, macroeconomics, monetary policy, fiscal policy, labor market
    JEL: E50 E60 J30
    Date: 2022–01
  32. By: Robert Calvert Jump; Engelbert Stockhammer
    Abstract: A key characteristic of heterodox theories of the business cycle is their focus on endogenous business cycle mechanisms. This paper provides an overview and comparison of four models in heterodox business cycle theory: multiplier-accelerator models, Goodwin models, Minskyan debt-cycle models, and momentum trader models. A representative model from each theory is formulated as a two-dimensional predator-prey system in continuous time, which allows us to identify the different stabilising and destabilising mechanisms. We argue that the theories are substantially competing, as they posit different mechanisms that explain cycles, but we also argue that these mechanisms are not mutually exclusive. We suggest that heterodox economists work towards a synthesis.
    Keywords: Business cycles; Endogenous cycles; Crises
    JEL: B41 B50 E32
    Date: 2022–01
  33. By: International Monetary Fund
    Abstract: While Barbados has been making good progress in implementing its Economic Recovery and Transformation (BERT) plan to restore fiscal and debt sustainability, rebuild reserves, and increase growth, it continues to face major challenges owing to the global pandemic. International reserves have increased to US$1.4 billion by October 2021 supported by IFI loans. This, and a successful 2018-19 public debt restructuring, have helped rebuild confidence in the country’s macroeconomic framework. However, a virtual standstill in the tourism sector during the pandemic took a significant toll in 2020, with the economy contracting by 18 percent. While Barbados was successful in containing the outbreak during 2020, renewed COVID-19 waves weighed on the economic recovery in 2021. In addition, Barbados was hit by the twin natural disaster shocks of volcanic ashfalls from neighboring St. Vincent in April and category 1 hurricane Elsa in July. Economic growth is projected at 1.6 percent for 2021 premised on a modest recovery of tourism towards the end of 2021—down from 3 percent projected at the time of the fifth EFF review. The outlook remains highly uncertain, and risks are elevated.
    Date: 2021–12–17
  34. By: M. Ayhan Kose; Franziska Ohnsorge; Carmen Reinhart; Kenneth Rogoff
    Abstract: Debt in emerging market and developing economies (EMDEs) is at its highest level in half a century. In about nine out of 10 EMDEs, debt is higher now than it was in 2010 and, in half of the EMDEs, debt is more than 30 percentage points of gross domestic product higher. Historically, elevated debt levels increased the incidence of debt distress, particularly in EMDEs and particularly when financial market conditions turned less benign. This paper reviews an encompassing menu of options that have, in the past, helped lower debt burdens. Specifically, it examines orthodox options (enhancing growth, fiscal consolidation, privatization, and wealth taxation) and heterodox options (inflation, financial repression, debt default and restructuring). The mix of feasible options depends on country characteristics and the type of debt. However, none of these options comes without political, economic, and social costs. Some options may ultimately be ineffective unless vigorously implemented. Policy reversals in difficult times have been common. The challenges associated with debt reduction raise questions of global governance, including to what extent advanced economies can cast their net wider to cushion prospective shocks to EMDEs.
    Keywords: Debt restructuring, growth, inflation, fiscal consolidation, financial repression, wealth taxes
    JEL: F62 F34 F44 E32 E63 H6 H63
    Date: 2021–09
  35. By: Richard Dennis
    Abstract: The paper presents a sparse grid approximation method based on the hyperbolic cross and applies it to solve non-linear macroeconomic models. We show how the standard hyperbolic cross can be extended to give greater control over the approximating grid and we discuss how to implement an anisotropic hyperbolic cross. Applying the approximation method to four macroeconomic models, we establish that it delivers a level of accuracy in par or slightly better than Smolyak’s method and that it can produce good approximations using fewer points than Smolyak’s method.
    Keywords: Hyperbolic cross, Smolyak, non-linear models, projection methods
    JEL: C63 E52 E70
    Date: 2021–11
  36. By: Christopher J. Erceg; Jesper Lindé; Mr. Tobias Adrian; Pawel Zabczyk; Marcin Kolasa
    Abstract: We develop a microfounded New Keynesian model to analyze monetary policy and financial stability issues in open economies with financial fragilities and weakly anchored inflation expectations. We show that foreign exchange intervention (FXI) and capital flow management tools (CFMs) can improve monetary policy tradeoffs under some conditions, including by reducing the need for procyclical tightening in response to capital outflow pressures. Moreover, they can be used in a preemptive way to reduce the risk of a “sudden stop” through curbing a buildup in leverage. While these tools can materially improve welfare, mainly by dampening inefficient fluctuations in risk premia, our analysis also highlights potential limitations, including the possibility that their deployment may forestall needed adjustment in the external balance. Finally, our results also emphasize the power of FXIs to provide domestic stimulus in a liquidity trap.
    Keywords: Monetary Policy, FX Intervention, Capital Controls, Sudden Stops, DSGE Model
    Date: 2021–12–17
  37. By: Chris D'Souza; Jane Voll
    Abstract: Many central banks conduct economic field research involving in-depth interviews with external parties. But very little is known about how this information is used and its importance in the formation of monetary policy. We address this gap in the literature through a thematic analysis of open-ended interviews with senior central bank economic and policy staff who work closely with policy decision-makers. We find that these central bankers consider information from field research programs not just useful but also an essential input for monetary policy making. They use this information in conjunction with quantitative tools primarily to inform their near-term forecasts. The information is considered most valuable at potential turning points in the economy when uncertainty about the pace of economic growth is heightened (in the advent of large shocks to the economy) and when timely official data are not available or are viewed as unreliable. Senior staff also place a high value on maintaining a reliable and credible sample of representative economic agents that can be accessed on an ongoing basis and very quickly when required.
    Keywords: Business fluctuations and cycles; Monetary policy; Monetary policy and uncertainty
    JEL: C83 E52
    Date: 2022–01
  38. By: Grömling, Michael
    Abstract: Die Stimmungslage ist in fast der Hälfte der Verbände in Deutschland zum Jahreswechsel 2021/2022 besser als vor einem Jahr - trotz der erneuten Infektionswelle und der Produktionsstörungen infolge fehlender Vorleistungen. Nur sechs der 48 vom Institut der deutschen Wirtschaft befragten Verbände sprechen derzeit von einer schlechteren Geschäftslage in ihrer Branche. Vor allem der Blick auf 2022 ist sehr zuversichtlich: In keinem der befragten Wirtschaftsverbände wird ein Produktionsrückgang erwartet. 39 Verbände erwarten eine höhere Produktion und neun Branchen bleiben im Jahr 2022 nach Einschätzung der entsprechenden Verbände voraussichtlich auf dem Vorjahresniveau. Das stellt ein außerordentlich optimistisches Erwartungsumfeld für die deutsche Konjunktur dar. Die auch das Jahr 2021 prägende Investitionsschwäche wird im Urteil der Verbände überwunden - die Hälfte der Verbände erwartet für ihren Wirtschaftszweig im kommenden Jahr einen Anstieg der Investitionen. Die Beschäftigungsperspektiven fallen etwas moderater aus. Gleichwohl übertrifft die Anzahl der Verbände mit einem erwarteten Beschäftigungsaufbau (21 Branchen) im Jahr 2022 die Anzahl jener Wirtschaftsbereiche (8), in denen voraussichtlich Personal abgebaut wird.
    Keywords: Konjunktur,Pandemie,Investitionen,Beschäftigung
    JEL: E32 E22 C83
    Date: 2021
  39. By: International Monetary Fund
    Abstract: The COVID-19 pandemic has negatively impacted Tanzania’s macroeconomic outlook. The Tanzanian authorities are implementing a comprehensive emergency pandemic response plan to help mitigate the significant socioeconomic and health effects of the crisis, resulting in an ongoing urgent balance of payments need.
    Date: 2021–12–02
  40. By: Keuschnigg, Christian; Johs, Julian; Stevens, Jacob
    Abstract: One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform-based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
    Keywords: Covid debt, fiscal consolidation, tax and expenditure reform, growth
    JEL: E62 H24 H25 H55 H63
    Date: 2021–12
  41. By: International Monetary Fund
    Abstract: Prior to the onset of the pandemic, The Gambia had shown strong macroeconomic performance in the few years following the remarkable political transition in 2016-17. Economic growth accelerated, debt vulnerabilities decreased, external stability strengthened, structural and legislative reforms advanced, and key social indicators improved. However, the COVID-19 pandemic halted some of the hard-won progress, stagnating economic activity and re-igniting extreme poverty. The Gambia experienced a third wave of the pandemic in mid-2021, which has receded recently. The COVID-19 vaccination rate currently stands at about 12 percent of the adult population. Presidential and parliamentary elections are planned for December 2021 and April 2022, respectively.
    Date: 2021–12–10
  42. By: Heiner Mikosch; Christoher Roth; Samad Sarferaz; Johannes Wohlfart; Christopher Roth
    Abstract: We leverage the small open economy Switzerland as a testing ground for basic premises of macroeconomic models of endogenous information acquisition, using tailored surveys of firms and households. First, we show that firms perceive a greater exposure to exchange rate movements than households, which is reflected in higher levels of information acquisition and less dispersed beliefs about past and future exchange rate realizations. Similarly, within the two samples, acquisition of exchange rate information strongly increases in various proxies for stake size. Second, households who perceive higher costs of acquiring or processing information acquire less information. Finally, an exogenous increase in the perceived uncertainty of the exchange rate increases firms’ demand for a report about exchange rate developments, but not households’. Our findings inform the modeling of information frictions in macroeconomics.
    Keywords: information acquisition, uncertainty, stake size, firms, households
    JEL: D12 D14 D83 D84 E32 G11
    Date: 2021
  43. By: International Monetary Fund
    Abstract: Strong health and economic policies allowed for quick economic recovery from initial COVID-19-related lockdowns in 2020. Renewed outbreaks and lockdowns have created setbacks since mid-2021, with disproportionate impacts on some regions, sectors, and workers. Accommodative macroeconomic policies have been instrumental in cushioning the economic impact.
    Date: 2021–12–06
  44. By: Julio A. Carrillo; Ana Laura García
    Abstract: The COVID-19 pandemic not only generated real shocks affecting economic activity severely, but also a broad uncertainty that unleashed an extreme shock to financial markets. In this paper, we focus on the financial dimension of the pandemic from the viewpoint of an emerging market economy. Accordingly, we estimate a financial conditions index for Mexico since 1993 and find that the acute turmoil generated by the pandemic stands among the four largest episodes of financial distress experienced by the country. In addition, we find evidence suggesting that real variables have responded differently to shocks that worsen financial conditions than to shocks that improve them.
    JEL: C11 C32 E44 G01
    Date: 2021–12
  45. By: Abdelaaziz Ait Ali; Uri Dadush
    Abstract: Mounting inflation in the major financial centers have raised concerns about the consequences on macroeconomic stability, including the Central Bank response they might trigger. In line with official views, we argue that inflation will probably wind down. We show that core inflation remains below pre-Covid levels in most large economies. We also argue that emerging markets are now less prone to “sudden stop” phenomena, in part because many have already started the exit from accommodative monetary policy. However, we also warn against complacency. If the acceleration of prices is sustained for long, nominal wages are bound to follow and feed a once-familiar vicious circle of rising prices and wages; and, if this does not happen, workers will see decline in their purchasing power and a further redistribution of income towards capital.
    Date: 2021–11
  46. By: International Monetary Fund
    Abstract: An economic recovery is underway on the heels of the authorities’ large and timely policy response. By 1Q2021, GDP exceeded its pre-crisis level and growth in 2021 is expected to reach 6.5 percent, supporting a smaller-than-expected fiscal deficit. Headline inflation increased above the 4.5 percent upper limit of the target band in September and October. Regulated energy prices for consumers are not expected to change until next spring, but electricity prices for corporates are set to increase. A new pandemic wave that started in late-July persists though activity seems to have decoupled from infections. With a gradual normalization of demand and supply conditions, growth is projected to reach 4.5 percent in 2022. Inflation is expected to revert to the lower half of the inflation tolerance band in 2H2022 as the effects from this year’s drought wane and energy prices stabilize.
    Date: 2021–12–21
  47. By: International Monetary Fund
    Abstract: Armenia has commenced a robust recovery from the deep 2020 recession, benefiting from strong policies and the lifting of the political uncertainty after the elections in June. A gradual but uneven improvement in the pandemic situation, pent-up demand, and the strengthening of public and private investment are expected to drive 2022 growth. Robust growth is expected over the medium term. Risks. Risks are relatively balanced, although uncertainty remains high. Strong reform implementation and accelerating vaccinations could improve the outlook, while risks of a protracted pandemic, renewed geopolitical tensions, a slowdown in major trading partners, and stress from global financial volatility and/or trade tensions could hamper the recovery.
    Date: 2021–12–21
  48. By: Konstantinos Angelopoulos; Spyridon Lazarakis; Rebecca Mancy; Max Schroeder
    Abstract: The main waves of a pandemic and subsequent disease outbreaks in the following years influence the evolution of the distributions of health and wealth, leading to differences in the ability to mitigate future income shocks. We study consumption smoothing and precautionary behaviour associated with the main pandemic waves and recurrent outbreak risk in a model in which health and wealth are jointly determined under income and health risk that are related to disease outbreak risk. We calibrate the model to the UK and find that the impact shock of COVID-19 and recurrent outbreak risk amplify existing inequalities in wealth and health, implying persistent increases in wealth inequality that are characterised by increases in wealth for households in higher income groups and/or with higher initial wealth, and decreases for those in lower income groups and/or with lower wealth. These changes lead to inequality in exposure to post-pandemic income risk and, in particular, an increase in the vulnerability of those already with very little wealth prior to the pandemic. We assess public insurance policy to mitigate income losses for those with low wealth and find that, by disincentivising wealth accumulation and incentivising investment in health for those with low wealth and health, it reduces health inequality and, in the short run, the probability of low consumption, but increases wealth inequality and, in the medium run, the probability of low consumption.
    Keywords: pandemics, outbreak risk, wealth inequality, health inequality, risk exposure
    JEL: E21 D31 I14 D15 E62
    Date: 2021
  49. By: International Monetary Fund
    Abstract: The COVID-19 pandemic and related containment measures have severely impacted the economy. Border closure and the suspension of commercial flights curtailed tourist arrivals. Real GDP contracted by 9.7 percent in FY2020, notwithstanding policy support. The economic contraction is estimated to have deepened in FY2021, and a gradual recovery is expected in FY2022 as tourism activities resume. While Palau’s public debt remains sustainable, the economic fallout of the pandemic and the cost of the fiscal response have led to a sharp deterioration of the fiscal position and a rapid increase in public debt. The high share of concessional loans from multilateral creditors in Palau’s external debt is an important risk mitigating factor. Palau is vulnerable to climate change and natural disasters.
    Date: 2021–12–09
  50. By: Stephen McKnight (El Colegio de México); Laura Povoledo (University of the West of England)
    Abstract: We introduce equilibrium indeterminacy into a two-country incomplete asset model with imperfect competition to analyze the role of self-fulfilling expectations or beliefs in explaining international business cycles. We find that when self-fulfilling beliefs are correlated with tecnology shocks, the model can account for the counter-cyclical behavior observed for the terms of trade and real net exports, while simultaneously generating higher volatilities relative to output, as in the data. The choice of the labor supply elasticity is shown to be critical for generating a negative correlation between the real exchange rate and relative consumption, thereby resolving the Backus-Smith puzzle.
    Keywords: Indeterminacy, Sunspots and Self-Fulfilling Expectations, International Business Cycles, Net Exports, Terms of Trade, Consumption-Real Exchange Rate Anomaly, Combined Impulse Responses
    JEL: E32 F41 F44
    Date: 2021–11
  51. By: Kiss, Tamas (Örebro University School of Business); Nguyen, Hoang (Örebro University School of Business); Österholm, Pär (Örebro University School of Business)
    Abstract: In this paper, we analyse Okun’s law – a relation between the change in the unemployment rate and GDP growth – using data from Australia, the euro area, the United Kingdom and the United States. More specifically, we assess the relevance of non-Gaussianity when mod-elling the relation. This is done in a Bayesian VAR framework with stochastic volatility where we allow the different models’ error distributions to have heavier-than-Gaussian tails and skewness. Our results indicate that accounting for heavy tails yields improvements over a Gaussian specification in some cases, whereas skewness appears less fruitful. In terms of dynamic effects, a shock to GDP growth has robustly negative effects on the change in the unemployment rate in all four economies.
    Keywords: Bayesian VAR; Heavy tails; GDP growth; Unemployment
    JEL: C11 C32 C52 E32
    Date: 2022–01–17
  52. By: Martin Hodula; Ngoc Anh Ngo
    Abstract: We examine whether macroprudential policy actions affect shadow bank lending. We use a large dataset covering 23 European Union countries and synthesize a narrow measure of shadow banking focused on capturing credit intermediation by non-banks. To address the endogeneity bias inherent to modelling of the effects of macroprudential policy on the financial sector, we consider a novel index of the macroprudential authority's strength in pursuing its goals and use it to instrument for a macroprudential policy variable in an IV estimation framework. We robustly demonstrate that following a macroprudential policy tightening, shadow bank lending increases. We harness the cross-sectional dimension of our data to show that the effect applies especially to low-capitalized banking sectors, where macroprudential policy is expected to be more binding, leading to credit reallocation from banks to non-banks.
    Keywords: European Union, instrumental variables, macroprudential policy, non-bank lending, regulatory leakages
    JEL: G21 G23 G28
    Date: 2021–12
  53. By: Grömling, Michael
    Abstract: Trotz der aktuell bestehenden Produktionsbeeinträchtigungen infolge gestörter Transport- und Lieferketten, der damit einhergehenden Kostenschocks, der erneut stark ansteigenden Corona-Infektionen und der politischen Begleitung dieser Herausforderungen dominiert die Zuversicht für das Jahr 2022. Fast die Hälfte der bei der IW-Konjunkturumfrage teilnehmenden über 2.800 Unternehmen erwartet für das kommende Jahr eine höhere Produktion oder Geschäftstätigkeit, nur 15 Prozent aller Firmen erwarten einen Rückgang. In allen Branchen bestehen positive Produktionsaussichten für das kommende Jahr. Die größte Zuversicht ist in den Dienstleistungs- und Industriefirmen zu verorten. Offensichtlich wurde im Befragungszeitraum November 2021 von den Dienstleistern nicht noch einmal ein umfassender Lockdown wie im letzten Winter erwartet. Die insgesamt guten Produktionsperspektiven der Industrie dürften sich auch aus den starken Rückgängen in diesem Jahr ergeben sowie aus der Zuversicht, dass sich die Zuliefer- und Produktionsprobleme im Zeitablauf zurückbilden. Die wieder anziehende globale Investitionstätigkeit stärkt die Export- und Produktionserwartungen der Investitionsgüterindustrie. Die unterschiedlich starken Belastungen der Wirtschaftsbereiche in diesem Jahr und die damit verbundenen Basiseffekte sind auch auf regionaler Ebene sichtbar. In den von der Industrie und vor allem der Automobilwirtschaft stark geprägten Regionen (Baden-Württemberg, Süd-West und Bayern) fallen die Produktionserwartungen für das kommende Jahr vergleichsweise besser aus. Bei den Beschäftigungsplänen für das kommende Jahr setzen die Dienstleitungsunternehmen bislang positive Akzente. Hinsichtlich der Investitionstätigkeit sind die optimistischen Unternehmen deutlich in der Überzahl. Diese Einschätzung untermauert die Erwartung, dass sich bei den Unternehmen in den letzten Quartalen - verstärkt durch die Lieferprobleme - ein merklicher Investitionsbedarf aufgestaut hat.
    Keywords: Konjunktur,Pandemie,Unternehmensbefragung
    JEL: E32 E22 C83
    Date: 2021
  54. By: Sergey Ivashchenko (The North-Western Main Branch of the Bank of Russia; The Institute of Regional Economy Studies (Russian Academy of Sciences); The Financial Research Institute); Semih Emre Cekin (Department of Economics, Turkish-German University, Istanbul, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: Recent research shows that time-varying volatility plays a crucial role in nonlinear modeling. Contributing to this literature, we suggest a DSGE-GARCH approach that allows for straight-forward computation of DSGE models with time-varying volatility. As an application of our approach, we examine the forecasting performance of the DSGE-GARCH model using Eurozone real-time data. Our findings suggest that the DSGE-GARCH approach is superior in out-of-sample forecasting performance in comparison to various other benchmarks for the forecast of inflation rates, output growth and interest rates, especially in the short term. Comparing our approach to the widely used stochastic volatility specification using in-sample forecasts, we also show that the DSGE-GARCH is superior in in-sample forecast quality and computational effciency. In addition to these results, our approach reveals interesting properties and dynamics of time-varying correlations (conditional correlations).
    Keywords: DSGE, forecasting, GARCH, stochastic volatility, conditional correlations
    JEL: C32 E30 E37
    Date: 2022–01
  55. By: Isaac Baley; Andrés Blanco
    Abstract: We investigate the long-run effects of permanent corporate tax reforms on aggregate capital behavior. In an investment model with fixed adjustment costs and partial irreversibility, we show that corporate taxes and investment frictions jointly determine three interconnected macroeconomic outcomes: (i) capital allocation, (ii) capital valuation, and (iii) capital fluctuations around steady-state. Using corporate tax and firm-level investment data from Chile, we discover that a lower corporate income tax improves the allocation of capital, reduces capital valuation, and accelerates capital fluctuations.
    Keywords: corporate taxes, investment frictions, fixed adjustment costs, irreversibility, lumpiness, capital misallocation, Tobin’s q, transitional dynamics, inaction, propagation
    JEL: D30 D80 E20 E30
    Date: 2022–01
  56. By: Riedler, Jesper; Koziol, Tina
    Abstract: We develop a portfolio balance model to analyze the impact of euro area quantitative easing (QE) on asset yields. Our model features two countries each populated by two agents representing their respective banking and mututal fund sectors. Agents, which differ in their preferences for assets, can trade currencies, bonds and equities. In simulations of the calibrated model we find that 10-year euro area bond returns decline by 31 basis points in response to €1 trillion in central bank bond purchases, which is in line with the empirical literature. QE leads to a substantial flattening of the yield curve and increasing the maturity of purchased bonds increases the average yield impact. When QE is unwound, yields increase quicker than the central bank balance sheet shrinks. This is because the yield impact scales non-linearly with increasing asset purchases. When assessing the potential impact of green QE, we find that it is slightly less effective in reducing bond yields than conventional QE. However, the spread between green and brown bond yields decreases with conventional QE while it increases with green QE.
    Keywords: euro area QE,portfolio balancing channel,yield curve,green QE
    JEL: C63 G11 E52
    Date: 2021
  57. By: Volha Audzei
    Abstract: International spillovers in estimated multi-country DSGE models with trade are usually limited. The correlation of nominal and real variables across countries is small unless correlation of exogenous shocks is imposed. In this paper, I show that introducing adaptive learning (AL) with time-varying coefficients as in Slobodyan and Wouters (2012b and 2012a) increases the international correlation. I use an estimated large-scale model as in de Walque et al. (2017), which has reasonable forecasting performance under rational expectations (RE). The model features the euro area, the US, and an exogenous rest of the world, with endogenous exchange rate determination. I show that the increase in international correlation stems from the varying coefficients and the use of simple forecasting models. The increase in the correlation of international variables goes through two channels: larger shock spillovers through the exchange rate, and correlated adjustment of agents' forecasting model coefficients.
    Keywords: Adaptive learning, Bayesian estimation, Multi-Country DSGE
    JEL: D83 D84 E17 E31
    Date: 2021–12
  58. By: International Monetary Fund
    Abstract: Azerbaijan faced unprecedented challenges in 2020. The combined COVID-19 and oil price shocks pushed the economy into recession. A sizeable relief package helped cushion the economic impact from this shock, and the economy has started to recover. Yet the medium-term outlook remains subdued. The long-term fiscal position is unsustainable as oil resources are expected to run out by mid-century. The authorities have laid out strategic goals of accelerated yet sustainable socio-economic development over the next decade and are developing policy plans to that end.
    Date: 2021–12–22
  59. By: International Monetary Fund
    Abstract: Malawi, a fragile state with one of the highest incidences of poverty, food insecurity and frequent weather-related shocks, has been severely affected by the pandemic. There are signs of gradual recovery and daily COVID-19 positive cases remain relatively low: real GDP growth in 2021 is projected to pick up to 2.2 percent from 0.9 percent in 2020 helped by a good harvest. However, inflation is expected to increase to 9 percent in 2021 from 8.6 percent in 2020, driven by increases in prices of fuel, fertilizer and food, leaving real per capita growth in the negative region.
    Date: 2021–12–20
  60. By: James B. Bullard
    Abstract: During a presentation for the CFA Society St. Louis, St. Louis Fed President Jim Bullard said that U.S. inflation has surprised substantially to the upside in an environment where measures of real economic activity and labor market performance are expected to remain robust. “There has been an initial U.S. monetary policy response to the inflation shock, and this response is already reflected in financial market pricing,” he said. The Federal Open Market Committee “is in good position to take additional steps as necessary to control inflation, including allowing passive balance sheet runoff, increasing the policy rate, and adjusting the timing and pace of subsequent policy rate increases,” Bullard said. He also discussed pandemic risk from the COVID-19 omicron variant. While pandemic risk remains, omicron variant cases are expected to subside in the weeks ahead, he noted.
    Keywords: COVID-19; inflation; labor market; labor force participation rate
    Date: 2022–01–06
  61. By: Larch, Martin; Busse, Matthias; Jankovics, László
    Abstract: In 2012, 22 EU countries signed the Fiscal Compact, an intergovernmental agreement aimed at backing EU fiscal rules with national arrangements. The main objective of the Compact was to strengthen compliance. Based on a survey of national independent fiscal institutions, we take a closer look at the correction mechanism, the core of the Fiscal Compact. As the name suggests, the correction mechanism is meant to automatically trigger fiscal adjustment in case public finances deviate from 'the path of virtue'. While design choices vary considerably across countries, a cluster analysis reveals distinct patterns. In particular, better compliance tend to be associated with a superior design of the correction mechanism, higher government efficiency and a stronger media presence of independent fiscal institutions. Economic growth can make up for a less sophisticated design. Additional inferential analysis confirms the link between compliance, design and other relevant valiables. Our survey also indicates that many countries have linked the trigger of the correction mechanism to formal decisions at the EU level rather than to independent assessors at the national level. This choice defeats the original purpose of correction mechanisms, namely to decouple key fiscal policy decisions from political considerations and discretion.
    Keywords: Fiscal policy,fiscal governance,budgetary forecasts,correction mechanism,Fiscal Compact,independent fiscal institutions,fiscal councils
    JEL: E62 H62 H68 H77
    Date: 2021
  62. By: Sarah Auster; Piero Gottardi; Ronald Wolthoff
    Abstract: We study the effect of diminishing search frictions in markets with adverse selection by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents' types. We find that, when agents can contact sufficiently many trading partners, fully separating equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier.
    Keywords: search, adverse selection, screening, labor market, coordination frictions, search frictions
    JEL: D82 D83 E24
    Date: 2022–01–04
  63. By: International Monetary Fund
    Abstract: Niger’s new government developed an ambitious reform agenda in the face of daunting challenges. The previous ECF-supported program was able to preserve macroeconomic stability and implement some key PFM reforms, notwithstanding the pandemic. However, progress on revenue mobilization was more limited, reflecting capacity constraints and a challenging environment. For the new government to achieve its development goals, it will have to overcome deep-seated social and political divisions and a deteriorating regional security situation. Enhanced reforms and the advent of oil exports over the medium-term offer hope that greater domestic resources can be marshalled to accelerate growth and poverty reduction.
    Date: 2021–12–20
  64. By: Mr. Edward R Gemayel; International Monetary Fund
    Abstract: The COVID-19 pandemic, the volatility in oil prices, heightened insecurity, and a looming food crisis due to climate change have severely stressed an already vulnerable Chadian economy. The two Rapid Credit Facility (RCF) disbursements in April and July 2020 allowed Chad to meet its immediate financing and urgent balance of payment needs in the early stages of the pandemic. The authorities have requested Fund assistance under the ECF to support their post-COVID recovery and their plan to reduce debt vulnerabilities through a combination of a debt workout and a multi-year fiscal consolidation program. However, due to the death of the president following a resurgence of fighting with rebel groups in April and the delayed delivery of donor support, the treasury situation has become extremely tight, threatening social stability.
    Date: 2021–12–15
  65. By: Calista Cheung; Jerome Lyons; Bethany Madsen; Sarah Miller; Saarah Sheikh
    Abstract: We construct an index that systematically measures and tracks the stringency of government policy responses to the COVID-19 pandemic across Canadian provinces. Researchers can use this stringency index to analyze how the pandemic is affecting the economy.
    Keywords: Business fluctuations and cycles; Coronavirus disease (COVID-19); Domestic demand and components; Recent economic and financial developments; Regional economic developments
    JEL: E20 H7 I18 R1
    Date: 2022–02
  66. By: Wolfgang Kuhle
    Abstract: We study a game where households convert paper assets, such as money, into consumption goods, to preempt inflation. The game features a unique equilibrium with high (low) inflation, if money supply is high (low). For intermediate levels of money supply, there exist multiple equilibria with either high or low inflation. Equilibria with moderate inflation, however, do not exist, and can thus not be targeted by a central bank. That is, depending on agents' equilibrium play, money supply is always either too high or too low for moderate inflation. We also show that inflation rates of long-lived goods, such as houses, cars, expensive watches, furniture, or paintings, are a leading indicator for broader, economy wide, inflation.
    Date: 2021–12
  67. By: Yu-chin Chen; Ippei Fujiwara; Yasuo Hirose
    Abstract: This paper conducts general equilibrium (GE) estimation to evaluate the empirical contributions of macroeconomic shocks in explaining the exchange rate disconnect, excess volatility, and the uncovered interest parity (UIP) puzzles. We embed stochastic volatilities and limits-to-international arbitrage in a two-country New Keynesian model and estimate the GE system for the US and Euro area using higher-order approximation and full-information Bayesian methods. Assessing the roles of level vs. volatility shocks and linear vs. higher-order approximations, we find that shocks to macroeconomic fundamentals together with their uncertainties can account for a sizable portion—over 40%—of the observed exchange rate variations. Using the GE estimates, we then evaluate whether the fundamental shocks in our model can deliver the UIP relationship observed in the data, and more importantly, whether the results may differ conditionally vs. unconditionally. In line with findings in previous literature, several fundamental shocks individually can indeed generate patterns consistent with data. However, their contributions unconditionally in the GE setting are quantitatively insufficient to resolve the UIP puzzle. The presence of multiple shocks, their potential interactions, and the need for estimators to fit empirical dynamics of all observables beyond just the exchange rate are all likely reasons behind this “General Equilibrium Puzzle,” which underscores the importance of GE estimation beyond simulations or partial-equilibrium analyses.
    Keywords: Exchange rate, risk premium, international risk sharing, stochastic volatility, nonlinear estimation.
    JEL: E52 F31 F41
    Date: 2021–10
  68. By: Thibaut Duprey; Daniel E. Rigobon; Philip Schnattinger; Artur Kotlicki; Soheil Baharian; T. R. Hurd
    Abstract: We present a new method to measure business opening and closure rates using real-time information from Google Places, the dataset behind the Google Maps service. Our Canadian application confirms the importance of temporary closures and reopenings during the COVID-19 pandemic. Over 50% of the temporarily closed food and retail businesses during the April 2021 lockdown reopened by the end of September. Our estimates align well with the timing of COVID-19 restrictions and are validated by a survey of recently opened businesses. Our framework provides policy-makers with a tool for the timely monitoring of business dynamics.
    Keywords: Firm dynamics; Recent economic and financial developments
    JEL: D22 E32 C55 C81
    Date: 2022–01
  69. By: Pablo Hernández de Cos (Banco de España)
    Abstract: El gobernador interviene en la discusión del Proyecto de Presupuestos Generales del Estado para 2022, que da soporte a las consideraciones de la política fiscal ante la recuperación gradual de la economía española y mundial tras la profunda crisis económica provocada por la pandemia de COVID-19. Inicia sus comparecencias ante la Comisión de Presupuestos del Congreso de los Diputados con un análisis de la evolución de la economía española y de las perspectivas macroeconómicas, y pasa a detallar los desarrollos nacionales e internacionales más recientes y las fuentes de incertidumbre que van a condicionar el avance de la actividad en los próximos años. En ese marco sitúa su visión del papel de las políticas económicas. En relación con el Proyecto de Presupuestos Generales del Estado, ofrece su valoración sobre el cuadro macroeconómico que incorpora la evolución de los ingresos y gastos públicos, el tono resultante de la política fiscal y la dinámica de la deuda pública. Asimismo, plantea los principales retos para la política fiscal española a medio y a largo plazo, que se estructuran en torno a dos ejes estrechamente vinculados: reforzar la sostenibilidad de las finanzas públicas y mejorar la calidad de las cuentas públicas. Para finalizar, dedica unas breves reflexiones a la reforma del Pacto de Estabilidad y Crecimiento. En la comparecencia ante la Comisión de Presupuestos del Senado, el gobernador actualiza la información sobre la situación económica con los datos disponibles más recientes y realiza un análisis más detallado de la evolución de la inflación en el período reciente, sus causas y su potencial persistencia, así como de su impacto sobre la política monetaria del Banco Central Europeo.
    Keywords: Proyecto de Presupuestos Generales del Estado, cuadro macroeconómico, perspectivas, fuentes de incertidumbre, papel de las políticas económicas, política fiscal, deuda pública, sostenibilidad de las finanzas públicas, calidad de las cuentas públicas, eficiencia, NGEU, Pacto de Estabilidad y Crecimiento
    JEL: H61 H12 H5 H3 E62 E66
    Date: 2021–11
  70. By: Ozili, Peterson K
    Abstract: This paper examines whether economic policy uncertainty (EPU) reduces the level of financial inclusion. I predict that high EPU should have a negative effect on the level of financial inclusion. I argue that high EPU will discourage financial institutions from providing basic financial services to low end customers and unbanked adults, and this will lead to a decrease in the level of financial inclusion. Using a sample of 22 countries, I find that EPU does not have a significant impact on financial inclusion. None of the nine indicators of financial inclusion have a significant direct relationship with EPU. Also, I find some evidence that the combined effect of high EPU and high nonperforming loans reduces financial inclusion, particularly through bank branch contraction and a reduction in the use of electronic payments. Meanwhile, the use of formal accounts and credit cards increases in times of high credit supply and high EPU.
    Keywords: Financial inclusion, policy uncertainty, economic policy uncertainty, business cycle, non-performing loan, cost efficiency, cost to income ratio, access to finance, formal account, credit cards, debit cards, mobile payments, electronic payment, borrowings, savings bank branch, unbanked adults.
    JEL: E50 E52 E59 G21 I31
    Date: 2022
  71. By: Joshua C. C. Chan; Aubrey Poon; Dan Zhu
    Abstract: State-space mixed-frequency vector autoregressions are now widely used for nowcasting. Despite their popularity, estimating such models can be computationally intensive, especially for large systems with stochastic volatility. To tackle the computational challenges, we propose two novel precision-based samplers to draw the missing observations of the low-frequency variables in these models, building on recent advances in the band and sparse matrix algorithms for state-space models. We show via a simulation study that the proposed methods are more numerically accurate and computationally efficient compared to standard Kalman-filter based methods. We demonstrate how the proposed method can be applied in two empirical macroeconomic applications: estimating the monthly output gap and studying the response of GDP to a monetary policy shock at the monthly frequency. Results from these two empirical applications highlight the importance of incorporating high-frequency indicators in macroeconomic models.
    Date: 2021–12
  72. By: Aikman, David (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland); McCann, Fergal (Central Bank of Ireland); Yao, Fang (Central Bank of Ireland)
    Abstract: Borrower-based macroprudential policies, such as limits to loan-to-value and loan-to-income ratios, have grown in popularity in the last decade globally. An understanding of their effects, both intended and unintended, is continuously evolving. In this Note, we discuss the macroeconomic channels though which such measures, like all economic policies, can both benefit and impose costs on the economy. System-wide benefits of such measures arise predominantly through the taming of housing-credit cycles, which lower both the probability and the severity of financial recessions, as well as avoiding resource misallocation. Such crises have been shown to have particularly harmful effects, are followed by slow recoveries and can have persistent adverse macroeconomic effects. The macroeconomic costs of such measures operate through liquidity constraints on renters, and reductions in consumption and construction activity that may arise through dampened house prices and expectations. These macroeconomic costs are more likely to be short-term, and less likely to affect the productive capacity of the economy in the long-run.
    Date: 2021–10
  73. By: Massimo Amato; Francesco Saraceno
    Abstract: The paper contributes to the debate on European macroeconomic governance. What is at stake is creating fiscal space for eurozone countries, while ensuring the sustainability of large public debts. Whether fiscal space is created through fiscal rules' reform, the creation of a central fiscal capacity, or a mix of the two, the question of public debt management, past and future, is paramount. Here we discuss a proposal that aims at systematic debt management through an ad hoc European Debt Agency. This EDA would progressively absorb Member States' debt, while keeping them accountable through pricing based on fundamental risk. We further show that (1) a Debt Agency could be designed so as not to imply debt mutualization or moral hazard and that (2) common debt management would allow the ECB to normalize monetary policy without creating instability in sovereign debt markets. An important argument of the paper is that any proposal that does not deal with the entirety of debt risks decreasing sustainability thus being counterproductive.
    Keywords: European Debt Agency; Fiscal Space; EMU Fiscal Governance; Growth and Stability Pact; Fiscal Rules; Risk Sharing; Public Debt; Debt Management
    Date: 2022
  74. By: Mr. Daniel Leigh; Laurence M. Ball; Ms. Prachi Mishra; Mr. Antonio Spilimbergo
    Abstract: Large price changes in industries affected by the COVID-19 pandemic have caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020-2021. The Federal Reserve’s preferred measure of core, the inflation rate excluding food and energy prices (XFE), has performed poorly: over most of 2020-21, it is almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, have been less volatile, but the least volatile have been measures that filter out large price changes in any industry, such as the Cleveland Fed’s median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures have followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy has rebounded. Overall, we find that the case for the Federal Reserve to move away from the traditional XFE measure of core has strengthened during 2020-21.
    Keywords: Inflation, business fluctuations, central banks.
    Date: 2021–12–17
  75. By: International Monetary Fund
    Abstract: The rapid spread of the virus in Cambodia during 2021 has set the economy back again, after external demand collapsed in 2020. The authorities responded to the crisis with measures to support households and firms, including increased healthcare spending; a new system of cash transfers to vulnerable households; loans and guarantees; tax breaks; and wage subsidies and retraining. Despite these measures, growth is estimated to have contracted by -3.1 percent in 2020. Growth in 2021 is expected to be 2.2 percent, slowly recovering to pre-crisis rates of around 6½ percent.
    Date: 2021–12–09
  76. By: Bahaj, Saleem; Reis, Ricardo
    Abstract: Theory predicts that central-bank lending programs put ceilings on private domestic lending rates, reduce ex post financing risk, and encourage ex ante investment. This paper shows that with global banks and integrated financial markets, but domestic central banks, then lending of last resort can be achieved using swap lines. Through them, a source central bank provides source-currency credit to recipient-country banks using the recipient central bank as the monitor and as the bearer of the credit risk. In theory, the swap lines should put a ceiling on deviations from covered interest parity, lower average ex post bank borrowing costs, and increase ex ante inflows from recipient-country banks into privately-issued assets denominated in the source-country’s currency. Empirically, these three predictions are tested using variation in the terms of the swap line over time, variation in the central banks that have access to the swap line, variation on the days of the week in which the swap line is open, variation in the exposure of different securities to foreign investment, and variation in banks’ exposure to dollar funding risk. The evidence suggests that the international lender of last resort is very effective.
    Keywords: liquidity facilities; currency basis; bond portfolio flows; 682288
    JEL: E44 F33 G15
    Date: 2021–11–08
  77. By: Adam Copeland; Antoine Martin
    Abstract: This paper uses new data to provide a comprehensive view of repo activity during the 2007-09 financial crisis for the first time. We show that activity declined much more in the bilateral segment of the market than in the tri-party segment. Surprisingly, we find that a large share of the decline in activity is driven by repos backed by Treasury securities. Further, a disproportionate share of the decline in repo activity is connected to securities dealer’s market-making activity in Treasury securities. In particular, the evidence suggests that at least part of the decline is not driven by clients pulling away from securities dealers because of counterparty credit concerns.
    Keywords: repo; financial crisis; money markets
    JEL: G01 G23 E42
    Date: 2021–12–01
  78. By: Tomohiro HIRANO; Joseph E. Stiglitz
    Abstract: This paper develops a model providing a markedly different picture of the dynamics of capitalism from the standard model with infinitely lived individuals with rational expectations. Using the standard life-cycle model with production, we show that under not implausible conditions, we show that starting from any initial conditions, there can be a plethora of rational expectations dynamics, including wobbly macro-dynamics i.e. the macroeconomy can bounce around infinitely without converging depending on peoples beliefs without regular periodicity. As a result, laissez-faire market economies can be plagued by repeated periods of instabilities, inefficiencies, and unemployment. The characteristics associated with wobbly dynamics is that the state of the economy endogenously changes from a state with a unique momentary equilibrium into a state with multiple momentary equilibria, or vice versa, which we call a phase transition. Depending on how phase transitions occur, various patterns of wobbly dynamics can occur. We identify all possible patterns of dynamics (e.g. unique and multiple, stable and unstable, steady states, with or without wobbly dynamics), providing a complete characterization of the parameter values under which each may occur. Moreover, we provide a complete analytic representation of all the possible state transitions, i.e. how a change in some key parameter changes abruptly the set of feasible global dynamics. In some cases, if a stable high output (an economic boom) benefits from an above trend temporary productivity increase, there is a state transition from a stable regime to an unstable one. The economy enters into a situation where there are multiple equilibria, with the boom now being unstable, leading to the possibility of a large-scale collapse; the economy can enter a stagnation trap characterized by involuntary unemployment. In other cases, an increase in productivity shifts the economy from the economy from the stable boom to a completely wobbly economy in which the economy endogenously fluctuates in both full-employment and involuntary unemployment regions. Thus, the economy can exhibit long run hysteresis effects. There are government interventions which can stabilize the economy and increase societal welfare.
    Date: 2021–12
  79. By: Xueting Jiang; David I. Stern
    Abstract: The 2020 COVID-19 driven recession saw a sharp drop in carbon dioxide emissions as transportation and some other energy uses were curtailed. This was an unusual recession as it was driven by a pandemic. Previous research shows that when GDP declines carbon emissions fall faster relative to GDP than they rise in economic booms. Using monthly US data, we examine each individual recession in the US since 1973 finding that there is an asymmetric response in the 1973-5, 1980, 1990, and 2020 recessions but not in the 1981-2, 2001, or 2008-9 recessions. The former four recessions are associated with negative oil market shocks. In the first three there was a supply shock and in 2020 a demand shock. Changes in oil consumption that are not explained by changes in GDP explain these asymmetries. Furthermore, the asymmetries are due to emissions in the transport and industrial sectors, which are the main consumers of oil.
    Keywords: COVID-19, climate change, business cycle
    JEL: Q43 Q54
    Date: 2021–10
  80. By: Sang-Wook (Stanley) Cho; Sally Wong
    Abstract: This paper conducts a counterfactual analysis on the effect of adopting the euro on regional income and disparity within Denmark and Sweden. Using the synthetic control method, we find that Danish regions would have experienced small heterogeneous effects from adopting the euro in terms of GDP per capita, while all Swedish regions are better off without the euro with varying magnitudes. Adopting the euro would have decreased regional income disparity in Denmark, while the effect is ambiguous in Sweden due to greater convergence among noncapital regions but further divergence with Stockholm. The lower disparity observed across Danish regions and non-capital Swedish regions as a result of eurozone membership is primarily driven by losses suffered by high-income regions rather than from gains to low-income regions. These results highlight the cost of foregoing stabilisation tools such as an independent monetary policy and a floating exchange rate regime. For Sweden in particular, macroeconomic stability outweighs the potential efficiency gains from a common currency.
    Keywords: currency union, euro, synthetic control method, regional income disparity
    JEL: C21 E65 F45 O52 R1
    Date: 2021–10
  81. By: Tomohiro HIRANO; Joseph E. Stiglitz
    Abstract: This paper examines the global macro-dynamics of a dynamic model with capital and land with rational expectations. Through the interactions between capital accumulation and land prices, the economy experiences phase transitions, endogenously moving from back and forth from situations with unique and multiple momentary equilibria. Consequently, there can be a plethora of rational expectation equilibria trajectories, without any smooth convergence properties, neither converging to a steady state or even to a limit cycle—what we call wobbly macro-dynamics. The price of land and other key macro variables (wages, interest rates, output, consumption, wealth, capital stock) endogenously fluctuate within a well-identified range with boom-bust cycles repeatedly. The key disturbance to the economy is endogenous; even with rational expectations, there can be real estate booms, with resource allocation deteriorating as land prices increase, crowding out productive investments; but such unsustainable land price booms inevitably are followed by a crash. We analyze the set of parameter values for which wobbly fluctuations occur, show that with some parameter values, the only r.e. trajectories involve such wobbly dynamics, demonstrate how changes in parameters affect global macro-dynamics, and show how policy interventions can affect stability and social welfare.
    Date: 2021–12
  82. By: Giulia Piccillo; Poramapa Poonpakdee
    Abstract: Macroeconomic uncertainty affects the subjective distribution of individual expectations. Using four panel datasets, we document the effects of macro uncertainty on the mean expectation (first moment) and subjective uncertainty (second moment) of income forecasts. We find that macro uncertainty reduces the mean expectation of income when using professional forecasters’ data as most macroeconomic models assume. However, macro uncertainty does not have a monotonic effect on subjective uncertainty. This finding is at odds with most models, which assume higher individual subjective uncertainty as the microfoundation for the impact of uncertainty on decision-making.
    Keywords: macroeconomic uncertainty, subjective uncertainty
    JEL: D80 D90 E70
    Date: 2021
  83. By: Martti Kaila; Emily Nix; Krista Riukula
    Abstract: Does job loss cause less economic damage if your parents are higher-income, and what are the implications for intergenerational mobility? In this paper we show that following a layoff, adult children born to parents in the bottom 20% of the income distribution have almost double the unemployment compared with those born to parents in the top 20%, with 118% higher present discounted value losses in earnings. Next, we show that these disparate impacts of job loss have important implications for inequality and intergenerational mobility. They increase the 80:20 income inequality ratio for those impacted by 8% and increase the rank-rank coefficient by 34%, implying large reductions in intergenerational mobility. In a simulation based on our main results, we show that the age 40 rank-rank correlation is 3.9% higher due to the disparate impact and incidence of job loss over the preceding decade. In the last part of the paper, we explore mechanisms and show that "baked in" advantages play an important role in explaining these differences.
    Keywords: Intergenerational mobility; Job loss
    JEL: J62 J63 E24
    Date: 2021–09–13
  84. By: Demary, Markus; Kruse, Cornelius; Zdrzalek, Jonas
    Abstract: Inflationssorgen sind zunehmend wieder ein Thema in der Öffentlichkeit. Nach einer ausgedehnten Phase der Niedriginflation sind die Inflationsraten nun, teils auch durch gleichzeitig auftretende Sondereffekte, wieder angestiegen. Dies wirft vor allem Fragen danach auf, welche gesellschaftlichen Gruppen besonders von den Preisanstiegen betroffen sind. Als empirische Grundlage der vorliegenden Untersuchung dienen die Preisindizes des Statistischen Bundesamtes und Daten über das Konsumverhalten von Haushalten aus der Einkommens- und Verbrauchsstichprobe (EVS). Aus den berechneten individualisierten Preisindizes und Inflationsraten zeigt sich, dass ärmere Haushalte einer stärkeren Steigerung ihrer Lebenshaltungskosten gegenüberstehen als reichere Haushalte. Während die Lebenshaltungskosten der einkommensärmsten Haushalte langfristig, d.h. seit 1995, um 33,9 Prozent gestiegen sind, haben sich die Lebenshaltungskosten der einkommensreichsten Haushalte nur um 28,0 Prozent erhöht. Ein Grund hierfür ist, dass die ärmeren Haushalte einen größeren Anteil ihres Einkommens für Wohnen und Lebensmittel ausgeben, die recht stark im Preis gestiegen sind, während die einkommensreicheren Haushalte stärker Elektronikgeräte konsumieren, die qualitätsbereinigt im Preis gefallen sind. Zudem zeigt sich, dass sich ältere Haushalte einer höheren Steigerung der Lebenshaltungskosten gegenüberstehen als jüngere Haushalte. Während die Lebenshaltungskosten basierend auf dem Konsummuster eines 80-jährigen Haushalts langfristig um 42,6 Prozent gestiegen sind, haben sich die Lebenshaltungskosten basierend auf dem Konsummuster eines Haushalts im Alter von 18 bis 24 Jahren nur um 18,7 Prozent erhöht. Ein großer Unterschied liegt hier im Beitrag von Elektronikgeräten zur Inflationsentwicklung, die von den jüngeren stärker konsumiert werden als von älteren Haushalten. Während sich nur geringe Inflationsunterschiede zwischen Mietern und Wohneigentümern zeigen, sind deutlichere Unterschiede hinsichtlich der Arbeitsmarktpartizipation erkennbar. Angestellte weisen geringere Steigerungen ihrer Lebenshaltungskosten auf als Rentner, was auch auf die unterschiedlichen Konsummuster nach Alter zurückgeführt werden kann. Während die Lebenshaltungskosten basierend auf dem Konsummuster der Angestellten langfristig um 27,5 Prozent angestiegen sind, so haben sich die Lebenshaltungskosten basierend auf dem Konsummuster der Rentner um 37,9 Prozent erhöht. Bei den Lebenshaltungskosten von Single-Frauen finden sich langfristig höhere Inflationsraten als bei SingleMännern. Während die Lebenshaltungskosten der Frauen langfristig um 37,2 Prozent gestiegen sind, haben sich die Lebenshaltungskosten der Männer nur um 31,3 Prozent erhöht. Dies liegt unter anderem daran, dass die Männer einen höheren Anteil ihrer Lebenshaltungskosten für Elektronikgeräte ausgeben, die qualitätsbereinigt im Preis gefallen sind. Die Lebenshaltungskosten der Frauen sind in einem ähnlichen Ausmaß gestiegen wie die Lebenshaltungskosten der Alleinerziehenden, welche im Vergleich zu den Single-Männern ebenfalls weniger Geld für im Preis gefallene Güter ausgeben.
    JEL: E21 E31
    Date: 2021
  85. By: Amy Y. Guisinger; Michael W. McCracken; Michael T. Owyang
    Abstract: Previous studies show the Fed has a forecast advantage over the private sector, either because it devotes more resources to forecasting or because it has an informational advantage in knowing the path of future monetary policy. We evaluate the Fed’s forecast advantage to determine how much of it results from the Fed’s knowledge of the conditioning path. We develop two tests—an instrumental variable encompassing test and a path-dependent encompassing test—to equalize the Fed’s information set with the private sector’s. We find that, generally, the Fed does not encompass the private sector when the latter has knowledge of the future of monetary policy. Further, we find that between 20 and 30 percent of the difference between the Fed’s average mean squared forecast error and the private sector’s can be explained by monetary policy.
    Keywords: conditional encompassing; eurodollar futures; fed information
    JEL: C36 C53 E47
    Date: 2022–01–06
  86. By: International Monetary Fund
    Abstract: Fiji has been among the hardest hit by the pandemic—with infection rates at one point among the highest in the world. Despite swift action by the government to close borders, protect the population, and mitigate the worst economic effects, the economic contraction was the worst in Fiji’s history. The crisis has come at a heavy social cost, including large-scale layoffs, surging unemployment, and high non-performing loans. Multilateral and bilateral support has been critical in helping Fiji weather the worst of the crisis and has facilitated a strong government response—including rapid acceleration of the government vaccination program underpinning Fiji’s reopening to international tourism.
    Date: 2021–12–03
  87. By: International Monetary Fund
    Abstract: On June 20, 2018, the Executive Board approved the largest stand-by arrangement in the Fund’s history, in support of Argentina’s 2018-21 economic program. After an augmentation in October 2018, access under the arrangement amounted to US$57 billion (1,227 percent of Argentina’s IMF quota). The program saw only four of the planned twelve reviews completed, and did not fulfil the objectives of restoring confidence in fiscal and external viability while fostering economic growth. The arrangement was canceled on July 24, 2020.
    Date: 2021–12–22
  88. By: Marco A. Hernández Vega
    Abstract: This paper studies the macroeconomic impact of higher tariffs using a two-country DSGE model with endogenous trade and heterogeneous firms. The analysis consists of two scenarios. First, we assume that one country increases tariffs while the other does not. Second, both countries raise tariffs. In the first case, the country that did not raise tariffs suffers an economic contraction due to lower external demand. In turn, the one that imposed higher tariffs ends with a slight gain in output triggered by a surge in internal consumption originated from the transfer of tariff revenue to households. In the second case, however, both countries suffer a significant drop in exports, reducing dividends and wages paid, and decreasing consumption and output.
    JEL: F12 F13 F17 F41 F62
    Date: 2021–12
  89. By: Beck, Thorsten; Cecchetti, Stephen G.; Grothe, Magdalena; Kemp, Malcolm; Pelizzon, Loriana; Sánchez Serrano, Antonio
    Abstract: This report discusses the impact of digitalization on the structure of the European banking system. The recent wave of financial innovation based on the opportunities digitalisation offers, however, has come mostly from outside the incumbent banking system in the form of new financial service providers, either in competition or cooperation with incumbent banks but with the potential for substantial disruption. After discussing how identified risks may evolve and the emergence of new sources of risks, the report introduces three different scenarios for the future European banking system: (i) incumbent banks continue their dominance; (ii) incumbent banks retrench; and (iii) central bank digital currencies (under certain specifications). It also derives macroprudential policy measures.
    Date: 2022–01
  90. By: Joshua Aizenman; Yothin Jinjarak; Hien Nguyen; Donghyun Park
    Abstract: We trace the linkages between the episodes of fiscal expansion and consolidation in 72 advanced and emerging and developing economies. The findings suggest that fiscal expansions are positively associated with economic growth, which in turn is positively linked with better sustainable development outcomes. The association between fiscal consolidation and growth as well as the sustainable development indicators, however, is not clear-cut. Jointly, more tax revenues and expenditures, together with better governance help explain the association between economic growth and inclusive development. High-income, high-tax-revenue, and manufacture-exporting economies have made significant progress on reducing disease-linked mortality and improving environment protection along with economic growth. Meanwhile, emerging and developing, low-tax-revenue, and commodity-exporting economies have gained notable improvement in poverty reduction, pre-primary enrolment and access to basic sanitation services and clean cooking fuels and technologies, and lowering bribery incidence. On average, the sampled economies have persistently achieved better primary goals such as sanitation, clean fuels and technologies. Achievements in mortality reduction, and environmental protection goals are shown more recently.
    JEL: E62 F15 F34 O11
    Date: 2021–12
  91. By: Boyan Jovanovic (NYU - New York University [New York] - NYU - NYU System); Julien Prat (X-DEP-HSS - Département d'Humanités et Sciences Sociales de l'École polytechnique - X - École polytechnique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
    Keywords: Reputation,Career Concerns,Earnings Dynamics,Endogenous Fluctuations
    Date: 2021
  92. By: Ferrara, Federico Maria; Angino, Siria
    Abstract: Despite increasing communication efforts, it may be difficult for central banks to engage the public, as their language is often too difficult to understand for most citizens. Focusing on the case of the European Central Bank (ECB), we hypothesise that greater communication clarity is conducive to stronger engagement. We rely on readability metrics to measure the clarity of ECB communications. We show that communication clarity is a significant and robust predictor of the media engagement generated by the ECB with its speeches, press conferences and tweets. Our findings are validated by a placebo test and have significant policy implications for central bank communication.
    Keywords: Central bank communication; clarity; ECB; engagement; media; readability metrics; 810356
    JEL: F3 G3
    Date: 2021–11–18
  93. By: Cooke, Fang Lee; Wood, Geoffrey
    Abstract: This chapter examines contemporary labor-management relations in autocratic regimes, drawing on two sets of countries, namely transitional peripheral economies in Central Asia (Uzbekistan and Turkmenistan) and hierarchical market economies in Latin America (Colombia and Honduras), for analysis. We discuss the political economy, work, and labor relations of these countries, highlighting the role of the state, business, and international non-government organizations. We also take into account the impact of large-scale (often in millions) migration of workers both internally within the country and cross-border. It is important to note that, just as there are different types of democratic systems, there are also different types of autocratic regimes with distinct political, economic, and social policy orientations, and this directly impacts the nature of labor relations. Under Latin American right-wing authoritarianism, a primary focus is on supporting a relatively small property-owning elite, and any countervailing worker power is seen as a direct attack on the latter. Even if workers have employment rights under the law, this zero-sum game view frequently results in extra-legal attacks on worker activists and their representatives, making union organization an extremely dangerous business. In contrast, the Central Asian autocracies, business elites are tied up within extended clan networks. Especially within Uzbekistan, a much closer emphasis has been placed on the provision of a critical mass of jobs as a means of buying political stability. Unions have been afforded a place in the system both for historical reasons and as proof of an ability to create a critical mass of decent work; at the same time, there is little room for union autonomy.
    Keywords: autocratic regimes,labor-management relations,Central Asia,Latin America,trade unions,international labor organisations
    JEL: E24 E26 F23 F66 J08
    Date: 2022
  94. By: Fausto Hernández Trillo (Centro de Estudios Espinosa Yglesias)
    Abstract: En este artículo se evalúa el espacio fiscal para enfrentar los efectos económicos adversos que provocaría la pandemia en México utilizando un ejercicio de sostenibilidad fiscal desarrollado por Talvi y Vegh (2000). Los resultados arrojan que en la actualidad no hay sostenibilidad fiscal, y que para obtenerla es necesario duplicar el superávit primario promedio de 0.71% del PIB que México ha tenido desde 2001. Sin embargo, en caso de haber introducido el plan económico propuesto por distintos organismos y analistas que ascendía a un nuevo endeudamiento de 3% del PIB, se hubiera tenido, a partir del 2021, que haber incrementado el superávit promedio en 0.74%, es decir, un monto de superávit primario de 0.03% anual adicional al faltante actualmente, cantidad aseaukble sobre todo para paliar los efectos de la crisis del COVID sobre la actividad económica.
    Date: 2020
  95. By: Mr. Damiano Sandri; Mr. Francesco Grigoli; Emiliano Luttini
    Abstract: This paper provides the first assessment of the contribution of idiosyncratic shocks to aggregate fluctuations in an emerging market using confidential data on the universe of Chilean firms. We find that idiosyncratic shocks account for more than 40 percent of the volatility of aggregate sales. Although quite large, this contribution is smaller than documented in previous studies based on advanced economies, despite a higher degree of market concentration in Chile.We show that this finding is explained by larger firms being less volatile and by weaker propagation effects across Chilean firms.
    Keywords: Business cycle, emerging markets, firm-level shocks, granularity, propagation
    Date: 2021–12–10
  96. By: Krubnik, Alicja
    Abstract: Successive debt crises that have affected Latin America since the late 1970s had unique and substantial consequences on women in the areas of, education, health, as well as political and economic participation that exacerbated gender inequalities. During this period, demand increased for social programmes that had the potential to mitigate decreases in women’s welfare. National policy responses to the crises were, however, largely driven by International Monetary Fund (IMF) conditional lending agreements. Though conditionality was primarily motivated by conditionality fiscal austerity, liberalization, deregulation, and privatization, conditions pertaining to redistribution and social policy also existed. This dissertation has two main aims: the first is to determine what effects conditions in different issue areas had on the prevalence of social programmes in Latin America in the late 20th and early 21st centuries and the second is to understand how changes to social programmes have affected women’s welfare in relation to the welfare of men. Building off Kentikelenis et al.’s categorisation of different conditionality issue areas,1 the first analysis makes use of instrumental variable two-stage last-squared (IV 2SLS) estimation to understand the relationship between specific conditions and social programmes. Next, fixed-effects (FE) estimation was leveraged in order to examine the impact of various social programmes on women’s welfare. The findings conclude that while conditionality had mixed effects on social programmes, it diminished those which were determined to positively impact women’s welfare in relation to that of men.
    Keywords: debt crises; Latin America; IMF; conditionality; government social expenditure; women's welfare; gender inequality
    JEL: N0 E6
    Date: 2021–11
  97. By: Petranov, Stefan
    Abstract: The article discusses the regional aspects of the shadow economy in Bulgaria. The main factors that generate motivation for shadow practices are considered and it is concluded that they operate mainly at the national level. It follows that measures to limit and prevent this phenomenon should be primarily national. However, the article argues that regional policies can also be used in this regard. A moderate fiscal decentralization can help to increase the tax morality which is one of the most slowly changing and most intractable factors generating motivation for the implementation of shadow practices. It is also argued that fiscal decentralization in Bulgaria has the potential to improve other aspects of the economic system.
    Keywords: shadow economy, regional development, regional policies, fiscal decentralization, Bulgaria
    JEL: E26 H7 H71 R1
    Date: 2021–06–01
  98. By: Knut Are Aastveit; Ragnar Enger Juelsrud; Ella Getz Wold
    Abstract: We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses – thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.
    Keywords: Household leverage, Financial regulation, Macroprudential policy, Mortgage markets
    Date: 2021–12
  99. By: Florencia S. Airaudo (Universidad Carlos III); Hernán D. Seoane (Universidad Carlos III)
    Abstract: Long-run growth in Latin America over the last 50 years has been low and volatile inthe presence of frequent Sudden Stops. We develop a theory that links long-run growth,financial frictions, and Sudden Stops in Emerging countries. Our theory exploits thefact that reversals in trade balance during Sudden Stops occur through sharp declinesin imports, particularly of imported investment, rather than increases in exports. Imported investment, in turn, has a permanent impact on economic growth. We find thattrend growth deteriorates during Sudden Stops and, even though trend shocks play acrucial role, financial frictions and shocks have a significant impact on its dynamics.We apply our model to the Sudden Stops in Argentina since the 1950s and find thatfinancial crises have a strong permanent effect on the trend. Hence, to a large extent,the trend is the cycle.Long-run growth in Latin America over the last 50 years has been low and volatile inthe presence of frequent Sudden Stops. We develop a theory that links long-run growth,financial frictions, and Sudden Stops in Emerging countries. Our theory exploits thefact that reversals in trade balance during Sudden Stops occur through sharp declinesin imports, particularly of imported investment, rather than increases in exports. Imported investment, in turn, has a permanent impact on economic growth. We find thattrend growth deteriorates during Sudden Stops and, even though trend shocks play acrucial role, financial frictions and shocks have a significant impact on its dynamics.We apply our model to the Sudden Stops in Argentina since the 1950s and find thatfinancial crises have a strong permanent effect on the trend. Hence, to a large extent,the trend is the cycle.Long-run growth in Latin America over the last 50 years has been low and volatile in the presence of frequent Sudden Stops. We develop a theory that links long-run growth, financial frictions, and Sudden Stops in Emerging countries. Our theory exploits the fact that reversals in trade balance during Sudden Stops occur through sharp declines in imports, particularly of imported investment, rather than increases in exports. Imported investment, in turn, has a permanent impact on economic growth. We find that trend growth deteriorates during Sudden Stops and, even though trend shocks play a crucial role, financial frictions and shocks have a significant impact on its dynamics. We apply our model to the Sudden Stops in Argentina since the 1950s and find that financial crises have a strong permanent effect on the trend. Hence, to a large extent, the trend is the cycle.
    Keywords: Emerging markets; Real business cycle; trend shocks; Financial Frictions.
    JEL: F32 F34 F41
    Date: 2021–12
  100. By: Andrew Mwaba; Steve Kayizzi-Mugerwa
    Abstract: Zambia has changed its mineral tax regime repeatedly during the past decades in a bid to raise mineral revenue, but with only modest success. This paper looks at what the country needs to do to create a mining fiscal regime that could sustain operations, boost output, and raise revenues without eroding investment and profitability in the mines. The paper argues that enhancing local ownership of the mines will help assuage resource nationalism while stabilizing the business environment overall.
    Keywords: Fiscal regime, Investment, Mineral tax, Transfer pricing, low-carbon future, Mining taxation
    Date: 2021
  101. By: Benito Arruñada
    Abstract: El Gobierno ha remitido a las Cortes el proyecto de ley de empresas “emergentes”, conocida como “ley de startups”1, en el que se amplía e intenta sistematizar el tratamiento favorable que recibe este tipo de empresas en materia fiscal y regulatoria. Esta iniciativa legislativa, lo mismo que, en general, el tratamiento favorable de la innovación empresarial mediante la variedad de medidas y subvenciones que esta nueva ley pretende ahora dotar de mayor coherencia parece ser aceptado por la opinión pública casi sin discusión. En concreto, el proyecto de ley ha merecido comentarios positivos del sector, al punto de que la mayoría de las criticas señalan que el tratamiento debería ser aún más favorable.
    Date: 2022–01
  102. By: Alberto José Figueras (IEF de la FCE-UNC); Iván Iturralde (IEF de la FCE-UNC); Marcelo Capello (IEF de la FCE-UNC)
    Abstract: In Argentina, despite a redistributive fiscal transfer system between provinces, a process of economic convergence has not been observed. The essay works on the possibilities of the negative effects of the system of fiscal transfers on the growth of the provinces, especially the most relegated (and that receive a greater volume of funds). Our purpose has been to explore this phenomenon at the regional (or provincial) level not only from “gross” transfers but also from “net” transfers (or net fiscal balances). Insubnational jurisdictions, the inflow of gross funds (gross transfers) and net funds (positive net fiscal balances) present two effects: (a) an effect on relative prices; (b) an aggregate demand effect. The first can be seen mainly as a micro effect, through the regional labour market. To study this effect, it is relevant to work with the volume of “gross” transfers. The explanation of the second effect is more connected to a “macro” impact, due to an increase in the volume of aggregate demand of the jurisdiction(when it receives, in net terms, more than it contributed in taxes). In both cases, we are talking about a similar process to that of the famous "Dutch disease" (in this case with a "fiscal" origin). These hypotheses are contrasted with an econometric model. The results depend on the period analysed.
    Date: 2021–10

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