nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒02‒07
38 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The hockey stick Phillips curve and the effective lower bound By Böhl, Gregor; Lieberknecht, Philipp
  2. Heterogeneity and Monetary Policy: A Thematic Review By Felipe Alves; Christian Bustamante; Xing Guo; Katya Kartashova; Soyoung Lee; Thomas Michael Pugh; Kurt See; Yaz Terajima; Alexander Ueberfeldt
  3. Expectations, Stagnation and Fiscal Policy: a Nonlinear Analysis By George W. Evans; Seppo Honkapohja; Kaushik Mitra
  4. Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework By William Barnett; Unal Eryilmaz
  5. Consumption taxation to finance pension payments By Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
  6. Identifying High-Frequency Shockswith Bayesian Mixed-Frequency VARs By Alessia Paccagnini; Fabio Parla
  7. Controlling Chaos in New Keynesian Macroeconomics By William Barnett; Giovanni Bella; Taniya Ghosh; Paolo Mattana; Beatrice Venturi
  8. The Real and Financial Impact of COVID-19 Around the World By Jens Klose; Peter Tillmann
  9. Do inflation expectations improve model-based inflation forecasts? By Bańbura, Marta; Leiva-León, Danilo; Menz, Jan-Oliver
  10. Using energy and emissions taxation to finance labor tax reductions in a multi-sector economy: An assessment with EMuSe By Hinterlang, Natascha; Martin, Anika; Röhe, Oke; Stähler, Nikolai; Strobel, Johannes
  11. Exchange rate depreciations and local business cycles: The role of bank loan supply By Beck, Thorsten; Bednarek, Peter; te Kaat, Daniel Marcel; von Westernhagen, Natalja
  12. Inequality and Growth: How Social Mobility Reshapes The Main Theoretical Channels By Ignacio Campomanes
  13. Is Money Demand Really Unstable? Evidence from Divisia Monetary Aggregates By William Barnett; Taniya Ghosh; Masudul Hasan Adil
  14. Collateral, Household Borrowing, and Income Distribution By Luisa Corrado; Aicha Kharazi
  15. Debt as Safe Asset By Markus K. Brunnermeier; Sebastian A. Merkel; Yuliy Sannikov
  16. Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification By Pablo Ottonello; Wenting Song
  17. The Financial Network Channel of Monetary Policy Transmission: An Agent-Based Model By Michel Alexandre; Gilberto Tadeu Lima, Luca Riccetti, Alberto Russo
  18. Relevance of the collateral constraint form in the analysis of financial crisis interventions By Carmiña O. Vargas; Julian A. Parra-Polania
  19. Transcript of Lorie Logan on the Macro Musings Podcast By Lorie Logan
  20. EOECD Countries' Twin Long-run Challenge: The Impact of Ageing Dynamics and Increasing Natural Disasters on Savings Ratios By Tian Xiong; Kaan Celebi; Paul J.J. Welfens
  21. Not All Shocks Are Created Equal: Assessing Heterogeneity in the Bank Lending Channel By Luísa Farinha; Laura Blattner; Gil Nogueira
  22. Intermediation via Credit Chains By Zhiguo He; Jian Li
  23. Macroeconomic Implications of Student Debt: A State-Level Analysis By Berrak Bahadir; Dora Gicheva
  24. Macroeconomic Research, Present and Past By Philip J. Glandon; Kenneth Kuttner; Sandeep Mazumder; Caleb Stroup
  25. Cognitive Decline, Limited Awareness, Imperfect Agency, and Financial Well-being By John Ameriks; Andrew Caplin; Minjoon Lee; Matthew D. Shapiro; Christopher Tonetti
  26. Too Many Shocks Spoil the Interpretation By Adrian Pagan; Tim Robinson
  27. Aging, Fertility and Macroeconomic Dynamics By Aurelien Eyquem; Masahige Hamano
  28. Optimal Risk Sharing in Society By Aase, Knut K.
  29. An economic model of the Covid-19 pandemic with young and old agents: Behavior, testing and policies By Brotherhood, Luiz; Kircher, Philipp; Santos, Cezar; Tertilt, Michele
  30. Evaluation and Indirect Inference Estimation of Inattentive Features in a New Keynesian Framework By Chou, Jenyu; Cao, Yifei; Minford, Patrick
  31. On the International Spillover Effects of Country-Specific Financial Sector Bailouts and Sovereign Risk Shocks By Matthew Greenwood-Nimmo; Viet Hoang Nguyen; Eliza Wu
  32. Opposite Nonlinear Effects of Unemployment and Sentiment on Male and Female Suicide Rates: Evidence from Australia By Ferdi Botha; Viet H. Nguyen
  33. Nonprofits in Good Times and Bad Times By Christine L. Exley; Nils H. Lehr; Stephen J. Terry
  34. Sticky Wages in a World of Ideas By Kevin X. D. Huang; Munechika Katayama; Mototsugu Shintani; Takayuki Tsuruga
  35. "Structural Change, Productive Development, and Capital Flows: Does Financial 'Bonanza' Cause Premature Deindustrialization?" By Alberto Botta; Giuliano Toshiro Yajima; Gabriel Porcile
  36. The downside of being upbeat: Consumer cognitive biases can affect real economic activity By Edda Claus; Viet Hoang Nguyen
  37. Interest Received by Banks during the Financial Crisis: LIBOR vs Hypothetical SOFR Loans By Urban Jermann
  38. Public Sector Procurements and Reference Prices Estimation with Small Samples in Brazil By Gabriel Lyrio de Oliveira; Andre Luis Squarize Chagas, Denise Leyi Li

  1. By: Böhl, Gregor; Lieberknecht, Philipp
    Abstract: We show that if business cycles are driven by financial shocks, the interplay between the effective lower bound (ELB) and the costs of external financing can generate an additional supply-side channel, which causes a disconnect between inflation and output. In normal times, factor costs dominate firms' marginal costs and hence inflation; credit spreads and the nominal interest rate, which together constitute external financing costs, balance out in response to a financial shock. When nominal rates are constrained by the ELB, larger spreads can partly offset the effect of lower factor costs on firms' price setting. The Phillips curve is hence flat at the ELB, but features a positive slope in normal times and thus an overall hockey stick shape. This mechanism also weakens the effects of forward guidance on inflation, since such policy reduces spreads and thereby financing costs.
    Keywords: Phillips curve,financial frictions,effective lower bound,disinflation,forward guidance
    JEL: C62 C63 E31 E32 E44 E52 E58 E63
    Date: 2021
  2. By: Felipe Alves; Christian Bustamante; Xing Guo; Katya Kartashova; Soyoung Lee; Thomas Michael Pugh; Kurt See; Yaz Terajima; Alexander Ueberfeldt
    Abstract: The heterogeneity of businesses and households impacts aggregate economic fluctuations and, in turn, is shaped by aggregate fluctuations. This view has emerged over the last decade with strong implications for the transmission and conduct of monetary policy. Our thematic review focuses on key aspects of this new theory as well as its underlying assumptions. We place the insights in a Canadian context using relevant microeconomic and macroeconomic data.
    Keywords: Economic models; Monetary policy and uncertainty; Monetary policy transmission
    JEL: D31 E24 E50 E52 D25 E22
    Date: 2022–02
  3. By: George W. Evans (University of Oregon); Seppo Honkapohja (Aalto University School of Business); Kaushik Mitra (University of Birmingham)
    Abstract: Stagnation and fiscal policy are examined in a nonlinear stochastic New- Keynesian model with adaptive learning. There are three steady states. The steady state targeted by policy is locally but not globally stable under learning. A severe pessimistic expectations shock can trap the economy in a stagnation regime, underpinned by a low-level steady state, with falling inflation and output. A large fiscal stimulus may be needed to avoid or emerge from stagnation, and the impacts of forward guidance, credit frictions, central bank credibility and policy delay are studied. Our model encompasses a wide range of outcomes arising from pessimistic expectations shocks.
    Keywords: Stagnation Trap, Expectations, Fiscal Policy, Adaptive Learning, New-Keynesian Model
    JEL: E62 E63 E52 D84 E71
    Date: 2022–01
  4. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Unal Eryilmaz (Ministry of Treasury and Finance, Ankara, Turkey)
    Abstract: We analyze determinacy in the baseline open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy structure causes multifaceted behaviors in the system creating extra challenges for policy making. The degree of openness significantly affects determinacy properties of equilibrium under various forms and timing of monetary policy rules. Conditions for the uniqueness and local stability of equilibria are established. Determinacy diagrams are constructed to display the regions of unique and multiple equilibria. Numerical analyses are performed to confirm the theoretical results. Limit cycles and periodic behaviors are possible, but in some cases only for unrealistic parameter settings. Complex structures of open economies require rigorous policy design to achieve optimality.
    Keywords: Bifurcation; Determinacy; Dynamic systems; New Keynesian; Stability; Open economy; Taylor Principle
    JEL: C14 C22 C52 C61 C62 E32 E37 E61 L16
    Date: 2022–01
  5. By: Ruppert, Kilian; Schön, Matthias; Stähler, Nikolai
    Abstract: This paper assesses how a permanent shift from financing a public pay-as-you-go pension by direct (labour income) taxation towards financing it by indirect(consumption) taxation affects the economy and welfare. To this end, we use anoverlapping-generations-augmented two-region general equilibrium framework withsearch frictions on the labour market. The analysed tax reform partially shifts thetax burden from domestic to foreign producers and lowers marginal costs of domes-tic production and generates positive domestic macroeconomic effects. In addition,the partial postponement of a household's tax burden to retirement leads to highersavings and increases domestic assets. However, for some time after implementationof the tax reform, the policy-induced increase in consumption costs makes retireesand households close to retirement worse off. Moreover, the increase in domesticnet foreign assets implies that consumption of foreign households eventually falls,which stands in contrast to what is commonly found in models without an endoge-nous savings motive.
    Keywords: Fiscal devaluation,OLG models,Pension system,Optimal taxation
    JEL: E24 E62 H21 H55 J26
    Date: 2021
  6. By: Alessia Paccagnini (University College Dublin and CAMA); Fabio Parla (Bank of Lithuania)
    Abstract: We contribute to research on mixed-frequency regressions by introducing an innovative Bayesian approach. We impose a Normal-inverse Wishart prior by adding a set of auxiliary dummies in estimating a Mixed-Frequency VAR. We identify a high frequency shock in a Monte Carlo experiment and in an illustrative example with uncertainty shock for the U.S. economy. As the main findings, we document a “temporal aggregation bias” when we adopt a common low-frequency model instead of estimating a mixed-frequency framework. The bias is amplified in case of a large mismatching between the highfrequency shock and low-frequency business cycle variables.
    Keywords: Bayesian mixed-frequency VAR, MIDAS, Monte Carlo, uncertainty shocks, macro-financial linkages
    JEL: C32 E44 E52
    Date: 2021–12–29
  7. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Giovanni Bella (University of Cagliari, Italy); Taniya Ghosh (Indira Gandhi Institute of Development Research, Mumbai, India); Paolo Mattana (University of Cagliari, Italy); Beatrice Venturi (University of Cagliari, Italy)
    Abstract: In a New Keynesian model, it is believed that combining active monetary policy using a Taylor rule with a passive fiscal rule can achieve local equilibrium determinacy. However, even with such policies, indeterminacy can occur from the emergence of a Shilnikov chaotic attractor in the region of the feasible parameter space. That result, shown by Barnett et al. (2021), implies that the presence of the Shilnikov chaotic attractor can cause the economy to drift towards and finally become stuck in the vicinity of lower-than-targeted inflation and nominal interest rates. The result can become the source of a liquidity trap phenomenon. We propose policy options for eliminating or controlling Shilnikov chaotic dynamics to help the economy escape from the liquidity trap or avoid drifting into it in the first place. We consider ways to eliminate or control the chaos by replacing the usual Taylor rule by an alternative policy design without interest rate feedback, such as a Taylor rule with monetary quantity feedback, an active fiscal policy rule with passive monetary rule, or an open loop policy without feedback. We also consider approaches that retain the Taylor rule with interest rate feedback and the associated Shilnikov chaos, while controlling the chaos through a well-known engineering algorithm using a second policy instrument. We find that a second instrument is needed to incorporate a long-run terminal condition missing from the usual myopic Taylor rule.
    Keywords: Shilnikov chaos criterion, Global indeterminacy, Long-term un-predictability, Liquidity trap, Long-run anchor.
    JEL: C61 C62 E12 E52 E63
    Date: 2022–01
  8. By: Jens Klose (THM Business School Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: In this paper, we study the impact of the COVID-19 pandemic in estimated panel VAR models for 92 countries. The large cross section of countries allows us to shed light on the heterogeneity of the responses of stock markets and NO2 emissions as high-frequency measures of economic activity. We quantify the effect of the number of infections and four dimensions of policy measures: (1) containment and closure, (2) movement restrictions, (3) economic support and (4) adjustments of health systems. Our main findings show that a surprise increase in the number of infections triggers a drop in our two measures of economic activity. Propping up economic support measures, in contrast, raises stock returns and emissions and, thus, contributes to the economic recovery. We also document vast differences in the responses across subsets of countries and between the first and the second wave of infections.
    Keywords: COVID-19, lockdown-measures, panel VAR
    JEL: E44 E52 E62
    Date: 2022
  9. By: Bańbura, Marta; Leiva-León, Danilo; Menz, Jan-Oliver
    Abstract: Those of professional forecasters do. For a wide range of time series models for the euro area and its member states we find a higher average forecast accuracy of models that incorporate information on inflation expectations from the ECB's SPF and Consensus Economics compared to their counterparts that do not. The gains in forecast accuracy from incorporating inflation expectations are typically not large but significant in some periods. Both short- and long-term expectations provide useful information. By contrast, incorporating expectations derived from financial market prices or those of firms and households does not lead to systematic improvements in forecast performance. Individual models we consider are typically better than univariate benchmarks but for the euro area the professional forecasters are more accurate, especially in recent years (not always for the countries). The analysis is undertaken for headline inflation and inflation excluding energy and food and both point and density forecast are evaluated using real-time data vintages over 2001-2019.
    Keywords: Forecasting,Inflation,Inflation expectations,Phillips curve,BayesianVAR
    JEL: C53 E31 E37
    Date: 2021
  10. By: Hinterlang, Natascha; Martin, Anika; Röhe, Oke; Stähler, Nikolai; Strobel, Johannes
    Abstract: In this paper, we introduce a closed-economy version of the dynamicenvironmental multi-sector general equilibrium modelEMuSeto analyze the effects of financing a labor tax reduction through higher consumption, energy or emissions taxation.We find that, for sufficiently high environmental damage, using energy and emission taxes as the financing instrument eventually outperforms the use of consumption taxes due to a positive productivity-like shock. However, it takes time for the positive effects to materialize. Manufacturing, transportation and energy production sectors tend to lose (or gain only a little) while administration, services and research sectors tend to benefit from the implementation of an environmental taxation as a financing instrument. As demand shifts towards sectors less affected by the tax shift, the aggregate economic effects are different in the multi-sector economy compared to a conventional one-sector-economy framework.
    Keywords: EMuSe,Dynamic General Equilibrium Model,Sectoral Heterogeneity,Environmental Tax Policy,Input-Output Matrix
    JEL: E32 E50 E62 H32 Q58
    Date: 2021
  11. By: Beck, Thorsten; Bednarek, Peter; te Kaat, Daniel Marcel; von Westernhagen, Natalja
    Abstract: This paper uses matched bank-firm-level data and the 2014 depreciation of the euro to show that exchange rate depreciations lead to increased bank loan supply of large banks with significant net foreign asset exposure. This increase in lending can be explained by a shift in credit towards both export-intensive firms and small banks without foreign asset exposure that have a higher share of exporting firms in their credit portfolio. We also find that German regions where these reallocation effects are stronger experience higher output growth. In economic terms, we show that such regions grow by 1.2 percentage points more than less exposed regions, cumulatively, in the two years after the depreciation relative to the two pre-depreciation years.
    Keywords: Exchange Rates,Bank Lending,Interbank Markets,Real Effects,Regional Business Cycles,Germany
    JEL: E44 E52 G21 O40
    Date: 2021
  12. By: Ignacio Campomanes (NCID, University of Navarra)
    Abstract: This paper analyzes how the different mechanisms proposed to explain the inequality-growth relation are affected by the introduction of social mobility in a politico-economic environment with imperfect tax enforcement. I show that the direct negative effect of inequality on growth predicted by models of incomplete markets is especially pronounced in societies with low social mobility, while it is lessened in highly mobile economies. This is due the different effects of the increase in inequality on redistribution in each case. Conversely, in models where inequality favors economic growth because of investment indivisibilities or heterogeneity in marginal propensities to save among the population, the opposite result applies. Inequality is especially beneficial for economic growth when social mobility is low, as the compensating effect of redistribution is reduced. Finally, exogenous taxation costs modulate the previous findings depending on whether redistribution helps or retards economic growth. Conditional correlations of market inequality and economic growth across countries point to an important modulating effect of social mobility.
    Keywords: Inequality, Social Mobility, Economic Growth, Taxation
    JEL: E24 E62 O43 P16
    Date: 2022–01
  13. By: William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Taniya Ghosh (Indira Gandhi Institute of Development Research (IGIDR), Gen. A. K. Vaidya Marg, Filmcity Road, Mumbai, 400065, India); Masudul Hasan Adil (Institute Postdoctoral Fellow, Humanities and Social Sciences-Economics, Indian Institute of Technology Bombay (IITB), Mumbai 400076, India)
    Abstract: We revisit the issue of stable demand for money, using quarterly data for the European Monetary Union, India, Israel, Poland, the UK, and the US. We use a modern version of the same linear time-series macro-econometric modeling and specification approach that had previously cast doubt on money demand stability. Autoregressive distributed lag (ARDL) cointegration models are used in the study to establish a long-term relationship among real money balances, real output, interest rate, and real effective exchange rate. For all the countries analyzed, evidence of stable demand for money is found. Broad money in general is better at capturing a stable demand for money than narrow money. The The stability results are especially strong, when broad Divisia money is used instead of its simple sum counterpart. Our results are consistent with the large literature on the Barnett critique, which is based on a different methodological tradition that employs micro-econometric modeling of integrable consumer demand systems. That literature has never found the demand for monetary services, measured using reputable index number and aggregation theory, to be any more difficult to model or less stable than the demand for any other good or service in the economy.
    Keywords: Narrow money demand, broad money demand, simple-sum monetary aggregates, Divisia monetary aggregates, ARDL cointegration approach
    JEL: C23 E41 E52
    Date: 2022–01
  14. By: Luisa Corrado (University of Rome Tor Vergata, Italy); Aicha Kharazi (Free University of Bozen-Bolzano, Italy)
    Abstract: In this article, we integrate a collateral constraint into a model with heterogeneous agents to study the effect of collateral on wealth inequality. We use estimates from US microeconomic data and the simulated time series from our macro model to predict the wealth accumulation response at the top and bottom of the personal income distribution. Debt is modelled as collateral-dependent and its concentration poses a serious concern. Our results indicate that high collateral requirements benefit high-income more than low-income households.
    Keywords: Income distribution, household loans, collateral, inequality.
    JEL: E21 E25 D31 H31
    Date: 2022–01
  15. By: Markus K. Brunnermeier; Sebastian A. Merkel; Yuliy Sannikov
    Abstract: The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers' interest burden and allows the government to run a permanent (primary) deficit without ever paying back its debt. As idiosyncratic risk rises during recessions, so does the value of the service flows bestowing the safe asset with a negative beta. This resolves government debt valuation puzzles. Nevertheless, the government faces a “Debt Laffer Curve”. The paper also has important implications for fiscal debt sustainability.
    JEL: E44 G11 G12
    Date: 2022–01
  16. By: Pablo Ottonello; Wenting Song
    Abstract: We provide empirical evidence of the causal effects of changes in financial intermediaries' net worth in the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries' net worth in a narrow window around their earnings announcements, based on U.S. tick-by-tick data. Using these shocks, we estimate that news of a 1-percent decline in intermediaries' net worth leads to a 0.2-0.4 percent decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.
    JEL: E30 E5 G01 G2
    Date: 2022–01
  17. By: Michel Alexandre; Gilberto Tadeu Lima, Luca Riccetti, Alberto Russo
    Abstract: The purpose of this paper is to contribute to a further understanding of the impact of monetary policy shocks on a financial network, which we dub the “financial network channel of monetary policy transmission†. To this aim, we develop an agent-based model (ABM) in which banks extend loans to firms. The bank-firm credit network is endogenously time-varying as determined by plausible behavioral assumptions, with both firms and banks being always willing to close a credit deal with the network partner perceived to be less risky. We then assess through simulations how exogenous shocks to the policy interest rate affect some key topological measures of the bank-firm credit network (density, assortativity, size of largest component, and degree distribution). Our simulations show that such topological features of the bank-firm credit network are significantly affected by shocks to the policy interest rate, and this impact varies quantitatively and qualitatively with the sign, magnitude, and duration of the shocks.
    Keywords: Financial network; monetary policy shocks; agent-based modeling.
    JEL: C63 E51 E52 G21
    Date: 2022–01–19
  18. By: Carmiña O. Vargas; Julian A. Parra-Polania
    Abstract: We combine two modifications to the standard (current and total income) collateral constraint that has been commonly used in models that analyze financial crisis interventions. Specifically, we consider an alternative constraint stated in terms of future and disposable income. We find that in this case a state-contingent debt tax (effective during crisis only, as opposed to a macroprudential tax) increases debt capacity and lowers the probability of crisis. This shows one more instance to call the attention of academics and policymakers to the fact that the specific form of the borrowing constraint is crucial in determining the appropriate crisis intervention. **** RESUMEN: Combinamos dos modificaciones a la restricción crediticia estándar (i.e., en términos de los ingresos corrientes y totales) que se ha utilizado comúnmente en los modelos que analizan las intervenciones en crisis financieras. Específicamente, consideramos una restricción alternativa expresada en términos de ingresos futuros y disponibles. Encontramos que, en este caso, un impuesto a la deuda dependiente del estado de la economía (efectivo solo durante las crisis, a diferencia de un impuesto macroprudencial) aumenta la capacidad de endeudamiento y reduce la probabilidad de crisis. Este resultado representa un ejemplo más para llamar la atención de académicos y formuladores de políticas sobre el hecho de que la forma específica de la restricción de endeudamiento es crucial para determinar la intervención de crisis adecuada.
    Keywords: Collateral constraint, financial crises, macroprudential tax, ex-post intervention, restricción crediticia, crisis financieras, impuesto macroprudencial, intervención ex post
    JEL: E44 F34 F41 G01 H21
    Date: 2022–01
  19. By: Lorie Logan
    Abstract: A closer look at monetary policy operations, the Fed’s new Standing Repo Facility, and the future of the Fed’s balance sheet.
    Keywords: financial markets; monetary policy; Markets Group; Treasury; Treasury market; reserves; repo facility; normalization
    Date: 2022–01–10
  20. By: Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Kaan Celebi (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: There has been a long-standing debate over the development of savings rates in developed economies, and an emphasis has been placed on ageing societies and a global savings glut. Meanwhile, with rising global temperatures and more frequent extreme weather events becoming an increasingly visible economic and ecological global challenge, the concern of climate-related risks could indeed be an important issue in monetary and real economic analysis. This study aims to investigate the dual long-term challenge of sustainable economic development. By constructing an enhanced growth model and investigating empirically, using a panel approach which employs data from OECD countries between 1980 to 2020, the question as to the extent to which the savings rate is affected by ageing populations and environmental degradation will be addressed in a broad macro perspective. This study explores for the first time the impact of natural disasters on OECD countries and the main findings indicate that ageing populations and natural disasters have significant negative impacts on savings rates. Moreover, the analyses using sub-samples suggest a diminishing role of the real long-term interest rate regarding savings behaviour.
    Keywords: savings rate, ageing, natural disaster, economic growth, panel analysis, OECD
    JEL: E21 E43 J11 O11 Q54 C33
    Date: 2021–12
  21. By: Luísa Farinha; Laura Blattner; Gil Nogueira
    Abstract: We provide evidence that the strength of the bank lending channel varies considerably across three major positive events in the European sovereign debt crisis – the Greek debt restructuring (PSI), outright monetary transactions (OMT), and quantitative easing (QE). We study how lending responds to each event combining credit registry data with security-level bank balance sheet data from Portugal, a country that was directly exposed to all three events. Even though the price of sovereign debt increased by substantially more after the PSI and OMT announcements, only QE had statistically and economically significant effects on lending to firms and households. We find that banks only realized trading gains after QE but not the other two events. These results suggest that banks’ incentives to sell bonds are an important determinant of the transmission of sovereign debt interventions to the real economy.
    JEL: E52 E58 G18 G21
    Date: 2021
  22. By: Zhiguo He; Jian Li
    Abstract: The modern financial system features complicated financial intermediation chains, with each layer performing a certain degree of credit/maturity transformation. We develop a dynamic model in which an entrepreneur borrows from overlapping-generation households via layers of funds, forming a credit chain. Each intermediary fund in the chain faces rollover risks from its lenders, and the optimal debt contracts among layers are time invariant and layer independent. The model delivers new insights regarding the benefits of intermediation via layers: the chain structure insulates interim negative fundamental shocks and protects the underlying cash flows from being discounted heavily during bad times, resulting in a greater borrowing capacity. We show that the equilibrium chain length minimizes the run risk for any given contract and find that restricting credit chain length can improve total welfare once the available funding from households has been endogenized.
    JEL: D85 E44 E51 G21 G23 G33
    Date: 2022–01
  23. By: Berrak Bahadir (Department of Economics, Florida International University); Dora Gicheva (Department of Economics, University of North Carolina at Greensboro)
    Abstract: This paper investigates the macroeconomic implications of the rise in outstanding student debt in the United States using state-level data for the 2003–2019 period. We show that an increase in the state-level student debt-to-income ratio contributes to lower consumption growth in the medium run. The estimated effects are larger when we use an instrumental variable approach relying on exogenous policy changes including variations in state appropriations for higher education, increases in annual limits for subsidized federal student loans, and federal loan interest rate changes. The instrumental variable results show the hypothetical impact of an increase in student debt without an associated increase in educational attainment. We also find suggestive evidence that expansions in student loans lead to subsequent increases in credit card debt.
    Keywords: student loans, household credit, consumption, credit card debt
    JEL: E21 G51 I22
    Date: 2021–12
  24. By: Philip J. Glandon; Kenneth Kuttner; Sandeep Mazumder; Caleb Stroup
    Abstract: How is macroeconomic research conducted and what is it trying to accomplish? We explore these questions using information gleaned from 1,894 articles published in ten leading journals. We find that over the past 40 years there has been a growing emphasis on increasingly sophisticated quantitative theory, such as DSGE modeling, and papers employing these methods now account for the majority of articles in macro journals. The shift towards quantitative theory is mirrored by a decline in the use of econometric methods to test economic hypotheses. Econometric techniques borrowed from applied microeconomics have to a large extent displaced time series methods, and empirical papers increasingly rely on micro and proprietary data sources. Market imperfections are pervasive, and the amount of research involving financial frictions has increased significantly in the past ten years. The frequency with which non-macro JEL codes appear in macro articles indicates a great deal of overlap between macroeconomics and other fields.
    JEL: A11 A14 B22 B41 E00
    Date: 2022–01
  25. By: John Ameriks; Andrew Caplin; Minjoon Lee; Matthew D. Shapiro; Christopher Tonetti
    Abstract: Cognitive decline may lead older Americans to make poor financial decisions. Preventing poor decisions may require timely transfer of financial control to a reliable agent. Cognitive decline, however, can develop unnoticed, creating the possibility of suboptimal timing of the transfer of control. This paper presents survey-based evidence that wealthholders regard suboptimal timing of the transfer of control, in particular delay due to unnoticed cognitive decline, as a substantial risk to financial well-being. This paper provides a theoretical framework to model such a lack of awareness and the resulting welfare loss.
    JEL: D14 E21 G51 G53
    Date: 2022–01
  26. By: Adrian Pagan (School of Economics, University of Sydney; CAMA, Australian National University); Tim Robinson (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: We show that when a model has more shocks than observed variables the estimated filtered and smoothed shocks will be correlated. This is despite no correlation being present in the data generating process. Additionally the estimated shock innovations may be autocorrelated. These correlations limit the relevance of impulse responses, which assume uncorrelated shocks, for interpreting the data. Excess shocks occur frequently, e.g. in UnobservedComponent (UC) models, filters, including Hodrick-Prescott (1997), and some Dynamic Stochastic General Equilibrium (DSGE) models. Using several UC models and an estimated DSGE model, Ireland (2011), we demonstrate that sizable correlations among the estimated shocks can result.
    Keywords: Partial Information; Structural Shocks; Kalman Filter; Measurement Error; DSGE.
    JEL: E37 C51 C52
    Date: 2020–02
  27. By: Aurelien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France; Institut Universitaire de France.); Masahige Hamano (Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishiwaseda Shinjuku-ku, Tokyo 169-8050, Japan.)
    Abstract: A tractable model with heterogeneous households is proposed to analyze the two-way interactions between demographic and macroeconomic variables. Total population and labor market participation are both endogenous and affected by economic as well as demographic factors.In addition, demographic factors have direct effects on aggregate productivity through selection effects on the labor market. We show that aging and negative fertility shocks have opposite predictions in terms of their effects on GDP per capita and aggregate productivity.A quantitative exercise based on Japanese data suggests that an aging shock alone has relatively little effects and falls short in replicating the data, while considering negative fertility shocks fits the data much better.
    Keywords: Heterogeneous workers, Aging, Productivity, Labor markets.
    JEL: E20 J11 J13 J21
    Date: 2021–02
  28. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We consider risk sharing among individuals in a one-period setting under uncertainty, that will result in payoffs to be shared among the members. We start with optimal risk sharing in an Arrow-Debreu economy, or equivalently, in a Borch-style reinsurance market. From the results of this model we can infer how risk is optimally distributed between individuals according to their preferences and initial endow ments, under some idealized conditions. A main message in this theory is the mutuality principle, of interest related to the economic effects of pandemics. From this we point out some elements of a more gen eral theory of syndicates, where in addition, the group of people is to make a common decision under uncertainty. We extend to a compet itive market as a special case of such a syndicate.
    Keywords: Optimal risk sharing; Syndicates; Savage expected utility; Evaluation measures; No-arbitrage pricing; State prices
    JEL: D51 D53 D90 E21 G10 G12
    Date: 2021–12–30
  29. By: Brotherhood, Luiz; Kircher, Philipp (Université catholique de Louvain, LIDAM/CORE, Belgium); Santos, Cezar; Tertilt, Michele
    Abstract: This paper investigates the importance of the age composition in the Covid-19 pandemic. We augment a standard SIR epidemiological model with individual choices on work and non-work social distancing. Infected individuals are initially uncertain unless they are tested. We find that older individuals socially distance themselves substantially in equilibrium. An optimal lockdown then confines the young more. The strictness and economic costs of the optimal lockdown depend on whether or not individuals can telework. Testing and quarantines save lives, even if conducted just on the young. When some testing is available, the optimal lockdown is much lighter and GDP rises even compared with a no-policy benchmark.
    Keywords: Covid-19 ; testing ; social distancing ; age ; age-specific policies
    JEL: E17 C63 D62 I10 I18
    Date: 2021–04–01
  30. By: Chou, Jenyu (School of Economics, University of Nottingham Ningbo China); Cao, Yifei; Minford, Patrick (Cardiff Business School)
    Abstract: We test the standard New Keynesian (NK) Dynamic Stochastic General Equilibrium (DSGE) model under the condition with and without inattentive features, where inattentiveness is modelled in the form of sticky information and imperfect information data revision. All models are tested with the Indirect Inference method, and our test result based on real-time data suggests that the model with sticky information passes the test and consistently outperforms the baseline NK model with full information and rational expectation, while the model with imperfect information data revision fails to pass the test. Furthermore, we show that none of the models passes the test when Survey of Professional Forecaster data are used for model evaluation. Overall, our findings provide important implications on the modelling of expectation formation in the DSGE framework.
    Keywords: Forecasting Popular Votes Shares; Electoral Poll; Forecast combination, Hybrid model; Support Vector Machine
    Date: 2022–01
  31. By: Matthew Greenwood-Nimmo (Department of Economics, The University of Melbourne; Centre for Applied Macroeconomic Analysis, Australian National University); Viet Hoang Nguyen (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Eliza Wu (University of Sydney Business School; Centre for Applied Macroeconomic Analysis, Australian National University)
    Abstract: We use sign-identified macroeconomic models to study the interaction of financial sector and sovereign credit risks in Europe. We find that country-specific financial sector bailout shocks do not generate strong international spillovers, because they primarily transfer private sector risk onto the local sovereign. By contrast, sovereign risk shocks generate substantial spillovers onto the global financial sector and for international sovereign debt markets. We conclude that any financial sector bailout policy that undermines the creditworthiness of the affected sovereign is likely to exacerbate global credit risk. Our findings highlight the unintended global consequences of country-specific financial sector bailout programmes.
    Keywords: Financial sector bailouts; sovereign risk shocks; international spillovers; structural shocks; sign restrictions
    JEL: C58 E61 F42
    Date: 2020–11
  32. By: Ferdi Botha (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne); Viet H. Nguyen (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne)
    Abstract: This paper investigates whether there are gender differences in the effects of unemployment and sentiment on suicide rates. We apply linear and nonlinear auto-regressive distributed lag (ARDL) models to monthly Australian data from February 1990 to September 2018. As expected, we find a positive relationship between the unemployment rate and suicide rate, and a negative relationship between consumer sentiment and the suicide rate. However, there is strong evidence of nonlinearity in the effects of both unemployment and sentiment on suicide rates, with substantial gender differences. For men, an increase in the unemployment rate significantly increases the suicide rate, but an unemployment decrease has no effect; we find the opposite for women. For men, an increase in sentiment tends to have stronger effects on the suicide rate than a decrease in sentiment. Again, we observe the opposite effect for women. Among components of sentiment, forward-looking expectations are stronger predictors of suicide rates than components relating to present conditions. We also find that sentiment has a much stronger effect on male suicide rates than on female suicide rates.
    Keywords: Suicide rate, unemployment rate, consumer sentiment, Australia, asymmetry
    JEL: C22 E24 E70 I10
    Date: 2021–07
  33. By: Christine L. Exley; Nils H. Lehr; Stephen J. Terry
    Abstract: Need fluctuates over the business cycle. We conduct a survey revealing a desire for nonprofit activities to countercyclically expand during downturns. We then demonstrate, using comprehensive US nonprofit data drawn from millions of tax returns, that the public’s hopes are disappointed. Nonprofit expenditure, revenue, and balance sheets fluctuate procyclically: contracting during national and local downturns. This finding is evident even for a narrow group of nonprofits the public most wishes would expand during downturns, e.g., those providing critical needs like food or housing. Our new facts contribute to the charitable giving, nonprofit, and business cycle literatures.
    JEL: D64 E30 L30
    Date: 2022–01
  34. By: Kevin X. D. Huang; Munechika Katayama; Mototsugu Shintani; Takayuki Tsuruga
    Abstract: The search for new ideas by profit-seeking firms and knowledge spillovers are well-known and fundamental sources of modern economic growth. This paper examines the implications of idea production and knowledge capital for monetary business cycles. We construct a sticky-wage model where workers produce goods based on firm-specific knowledge capital and researchers develop new ideas aided by the economywide stock of knowledge. As a quantitatively small group in the economy, researchers are inconsequential for the real effects of monetary shocks when the returns to research are low. However, this intuitive conclusion can be overturned when the returns to research are high. In this situation, monetary shocks can have significant real effects as long as wages are sticky for researchers, even if wages are perfectly flexible for workers, who are quantitatively dominant in the economy.
    Date: 2022–02
  35. By: Alberto Botta; Giuliano Toshiro Yajima; Gabriel Porcile
    Abstract: The outbreak of COVID-19 brought back to the forefront the crucial importance of structural change and productive development for economic resilience to economic shocks. Several recent contributions have already stressed the perverse relationship that may exist between productive backwardness and the intensity of the COVID-19 socioeconomic crisis. In this paper, we analyze the factors that may have hindered productive development for over four decades before the pandemic. We investigate the role of (non-FDI) net capital inflows as a potential source of premature deindustrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing economies (EDE) in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused the significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that phenomena of "perverse" structural change are significantly more relevant in EDE countries than advanced ones. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.
    Keywords: COVID-19; Structural Change; Capital Inflows; Macroprudential Policies
    JEL: O14 O30 F32 F38
    Date: 2022–01
  36. By: Edda Claus (Wilfrid Laurier University); Viet Hoang Nguyen (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: Using a quarterly consumer expectations survey, we propose two novel measures of consumer optimism, ex ante optimism and ex post optimism. We demonstrate empirically that excessive optimism about future family finances impacts the real economy. The excessive optimism (ex ante optimism) compels consumers to save less and borrow more, putting upward pressure on consumption growth. When family finances improve persistently less than expected (ex post optimism), consumers cut back on credit and save more which puts downward pressure on consumption growth. This saving and borrowing channel of the optimism bias is robust to consumer age.
    Keywords: Cognitive Bias, Saving, Borrowing, Consumption, Expectations Survey Data.
    JEL: E71 D12 D14 D84
    Date: 2020–07
  37. By: Urban Jermann
    Abstract: The credit sensitivity of LIBOR helped lenders during the financial crisis. SOFR is not credit-sensitive and would not have provided that support. The cumulative additional interest from LIBOR during the crisis is estimated to be between 1% to 2% of the notional amount of outstanding loans, depending on the tenor and type of SOFR rate used. The amount of LIBOR business loans owned by banks could have been as high as about 2trn, and the overall additional interest income banks received thanks to LIBOR could have been as high as 30bn dollars. The analysis also shows that a compounded SOFR reduces insurance relative to a term SOFR.
    JEL: E43 G21 G28
    Date: 2021–12
  38. By: Gabriel Lyrio de Oliveira; Andre Luis Squarize Chagas, Denise Leyi Li
    Abstract: This paper presents a new and simple estimator for the reference prices of products or services. These reference prices aim to work as boundaries and support the public stakeholders’ decisions at the beginning of their procurements processes. We discuss the advantages of the method compared to the estimator traditionally used all over Brazil, especially in the Federal, State, and Municipal governments, which relies on the computation of averages of a few prices observed in each period. The proposed estimator decomposes the price of a product into a component of its economic sector, sector-time, supplier component representing differences in quality and productivity, and a product-specific component representing the average production-technology level of that product. With this procedure, it is unnecessary to collect the price of all known suppliers of a given product in the same month. This spawns more freedom to plan the interviews over the months, reducing data acquisition costs. To validate the new procedure, we implemented comparison tests between the adjustment of the proposed estimator (Economic) and the traditional (Statistical) to the data of real prices of inputs of the public construction sector in the country. Besides, we developed other tests based on a simulated environment where we know the actual market price and compare it with the two estimates given by the two estimators, calibrating the parameters with the ones observed in the data of real prices. Both tests showed that the proposed method performed better for every period in which not all existent suppliers of a product informed their prices. The Economic Estimator exhibited smaller variance and smaller absolute deviation to the market price.
    Keywords: Public Administration; Procurements; Market Price; Reference Prices; Simulation
    JEL: C53 E31 H57 H83 P35
    Date: 2022–01–21

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