nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒02‒14
eighty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy during unbalanced global recoveries By Luca Fornaro; Federica Romei
  2. Financial Markets and ECB Monetary Policy Communication – A Second QE Surprise By Martin Baumgaertner
  3. On the Wedge Between the PPI and CPI Inflation Indicators By Shang-Jin Wei; Yinxi Xie
  4. Heterogeneity, Bubbles and Monetary Policy By Jacopo Bonchi; Salvatore Nisticò
  5. A Behavioral Heterogeneous Agent New Keynesian Model By Oliver Pfäuti; Fabian Seyrich
  6. Should the ECB Adjust Its Strategy in the Face of a Lower r*? By Philippe Andrade; Jordi Gali; Hervé Le Bihan; Julien Matheron
  7. Central Bank Independence: Metrics and Empirics By Donato Masciandaro; Jacopo Magurno; Romano Tarsia
  8. Central Bank Governance in Monetary Policy Economics (1981-2020) By Donato Masciandaro
  9. Online Appendix for: Two Illustrations of the Quantity Theory of Money Reloaded By Han Gao; Mariano Kulish; Juan Pablo Nicolini
  10. Monetary Policy and Redistribution in Open Economies By Xing Guo; Pablo Ottonello; Diego Perez
  11. From accounting to economics: the role of aggregate special items in gauging the state of the economy By Abdalla, Ahmed; Carabias, Jose M.
  12. The ECB and the Cost of Independence. Unearthing a New Doom-Loop in the European Monetary Union By Armando Marozzi
  13. The Fed’s Latest Tool: A Standing Repo Facility By Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
  14. Money, Credit and Imperfect Competition Among Banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  15. "COVID-19 and Fiscal-Monetary Policy Coordination: Empirical Evidence from India " By Lekha Chakraborty; Harikrishnan S
  16. Optimal monetary policy using reinforcement learning By Hinterlang, Natascha; Tänzer, Alina
  17. Two Illustrations of the Quantity Theory of Money Reloaded By Han Gao; Mariano Kulish; Juan Pablo Nicolini
  18. Monetary policy, Twitter and financial markets: evidence from social media traffic By Donato Masciandaro; Davide Romelli; Gaia Rubera
  19. Growth During the Time of Covid19 By Renato E. Reside, Jr.
  20. Interest Rate Surprises: A Tale of Two Shocks By Ricardo Nunes; Ali K. Ozdagli; Jenny Tang
  21. How the Fed Adjusts the Fed Funds Rate within Its Target Range By Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
  22. How the Federal Reserve’s Monetary Policy Implementation Framework Has Evolved By Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
  23. Jordan: Third Review under the Extended Arrangement under the Extended Fund Facility and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Jordan By International Monetary Fund
  24. The Effects of Natural Disasters on Price Stability in the Euro Area By John Beirne; Yannis Dafermos; Alexander Kriwoluzky; Nuobu Renzhi; Ulrich Volz; Jana Wittich
  25. Risk indeed matters: Uncertainty shocks in an oil-exporting economy By Nurdaulet Abilov
  26. Monetary Policy and Endogenous Financial Crises By Frédéric Boissay; Fabrice Collard; Jordi Galí; Cristina Manea
  27. Public employment agency reform, matching efficiency, and German unemployment By Merkl, Christian; Sauerbier, Timo
  28. The Risks of Adopting the Bond Yield as the Anchor for the EU Fiscal Framework By Andersson, Fredrik N. G.; Jonung, Lars
  29. Rising Allowances, Rising Rates: A Tinbergen Rule for Capital Taxation By Marius Clemens; Werner Röger
  30. Assessing the Impact of Basel III: Evidence from Structural Macroeconomic Models By Olivier de Bandt; Bora Durdu; Hibiki Ichiue; Yasin Mimir; Jolan Mohimont; Kalin Nikolov; Sigrid Roehrs; Jean-Guillaume Sahuc; Valerio Scalone; Michael Straughan
  31. How the Fed’s Overnight Reverse Repo Facility Works By Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
  32. Republic of Moldova: 2021 Article IV Consultation and Requests for an Arrangement under the Extended Fund Facility and an Arrangement under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund
  33. Assessing the Impact of Basel III: Evidence from Structural Macroeconomic Models By Jean-Guillaume Sahuc; Olivier de Bandt; Hibiki Ichiue; Bora Durdu; Yasin Mimir; Jolan Mohimont; Kalin Nikolov; Sigrid Roehrs; Valério Scalone; Michael Straughan
  34. Comment on Iovino, La’O and Mascarenhas, “Optimal Monetary Policy and Disclosure with an Informationally-Constrained Central Banker” By V. V. Chari; Luis Pérez
  35. Alternative Monetary-Policy Instruments and Limited Credibility: An Exploration By Javier García-Cicco
  36. Financial Conditions and Macroeconomic Downside Risks in the Euro Area By Lhuissier Stéphane
  37. Robots and Humans: The Role of Fiscal and Monetary Policies in an Endogenous Growth Model By Óscar Afonso; Elena Sochirca; Pedro Cunha Neves
  38. Nowcasting GDP growth in Russia with an incomplete dataset: A factor model approach By Nurdaulet Abilov; Aizhan Bolatbayeva
  39. Political Voice on Monetary Policy: Evidence from the Parliamentary Hearings of the European Central Bank By Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
  40. Flexible exchange rates in emerging markets: shock absorbers or drivers of endogenous cycles? By Karsten Kohler; Engelbert Stockhammer
  41. Trend Inflation in Sweden By Österholm, Pär; Poon, Aubrey
  42. On the monetary nature of savings: a critical analysis of the Loanable Funds Theory By Giancarlo Bertocco; Andrea Kalajzić
  43. Rwanda: 2021 Article IV Consultation and Fifth Review Under the Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda By International Monetary Fund
  44. Rebalancing the U.S. Economy and Monetary Policy By Loretta J. Mester
  45. Analysing inflation dynamics in Iceland using a Bayesian structural vector autoregression model By Stefán Thórarinsson
  46. Interaction of Cyclical and Structural Systemic Risks: Insights from Around and After the Global Financial Crisis By Martin Hodula; Jan Janku; Lukas Pfeifer
  47. Global dynamics of Gini coefficients of education for 146 countries updated to 1950-2015 By Ziesemer, Thomas
  48. Demand-led industrialisation policy in a dual-sector small balance of payments constrained economy By Nomaler, Önder; Spinola, Danilo; Verspagen, Bart
  49. Democratic Republic of the Congo: First Review under the Extended Credit Facility Arrangement, Request for Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of the Congo By International Monetary Fund
  50. The repo market under Basel III By Gerba, Eddie; Katsoulis, Petros
  51. Economic theories and macroeconomic reality By Loria, Francesca; Matthes, Christian; Wang, Mu-Chun
  52. Senegal: 2021 Article IV Consultation, Fourth Review Under the Policy Coordination Instrument, First Reviews Under the Stand-By Arrangement and the Arrangement Under the Standby Credit Facility, and Request for Modification of Performance Criteria and Quantitative Targets By International Monetary Fund
  53. Seychelles: First Review under the Extended Fund Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Seychelles By International Monetary Fund
  54. Payment Coordination and Liquidity Efficiency in the New Canadian Wholesale Payments System By Francisco Rivadeneyra; Nellie Zhang
  55. EQCHANGE annual assessment 2021 By Carl Grekou
  56. AN AGENT-BASED MODEL OF TRICKLE-UP GROWTH AND INCOME INEQUALITY Documents de travail GREDEG GREDEG Working Papers Series By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  57. COVID-19 Uncertainty Index in Japan: Newspaper-Based Measures and Economic Activities By Morita, Hiroshi; Ono, Taiki
  58. Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the Covid-19 Pandemic By Andrew Glover; Jonathan Heathcote; Dirk Krueger
  59. On the Distributional Effects of International Tariffs By Daniel R. Carroll; Sewon Hur
  60. Is there job polarization in developing economies? A review and outlook. By Soares Martins Neto, Antonio; Mathew, Nanditha; Mohnen, Pierre; Treibich, Tania
  61. Republic of Kosovo: 2021 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  62. Reading the Recovery By John C. Williams
  63. Production delays, technology choice and cyclical cobweb dynamics By Dieci, Roberto; Mignot, Sarah; Westerhoff, Frank H.
  64. High-frequency changes in shopping behaviours, promotions, and the measurement of inflation: evidence from the Great Lockdown By Xavier Jaravel; Martin O'Connell
  65. Growth and Distribution regimes under Global Value Chains: Diversification, Integration and Uneven Development By Arpan Ganguly; Danilo Spinola
  66. Electoral Cycles, Investment, and Institutional Constraints in Developing Democracies By Canes-Wrone, Brandice; Ponce de Leon, Christian; Thieme, Sebastian
  67. What Covid-19 Hath Wrought and Debt Exit Options: A Note on Deficit Financing and Public Debt Management By Dante B. Canlas
  68. Analyse de la performance du secteur agricole et son impact sur la croissance économique du Sénégal By Assietou Dia; Mathurin Founanou; Zaka Ratsimalahelo
  69. Scars of Pandemics from Lost Schooling and Experience: Aggregate Implications and Gender Differences Through the Lens of COVID-19 By Remi Jedwab; Roberto Samaniego; Paul Romer; Asif Islam
  70. Covid-19 outbreak and beyond: A retrospect on the information content of registered short-time workers for GDP now- and forecasting. By Sylvia Kaufmann
  71. Entgeltumwandlung im Jahr 2018: Wer nutzt sie in welchem Umfang? By Johannes Geyer; Ralf K. Himmelreicher
  72. The dynamics of core and periphery in the European monetary union: a new approach By Campos, Nauro F.; Macchiarelli, Corrado
  73. Maldives: Technical Assistance Report-Revising the Fiscal Responsibility Act By International Monetary Fund
  74. Coupling and synchronization dynamics in endogenous business cycles models By Alain Raybaut
  75. Financial development and small firms’ tax compliance in Sub-Saharan Africa By Balde, Racky
  76. A Tale of Different Capital Ratios: How to Correctly Assess the Impact of Capital Regulation on Lending By Simona Malovana; Martin Hodula; Josef Bajzik; Zuzana Gric
  77. "Estimating a Time-Varying Distribution-Led Regime" By Paul Carrillo-Maldonado; Michalis Nikiforos
  78. Macroeconomic and financial management in an uncertain world: What can we learn from complexity science? By Thitithep Sitthiyot
  79. Cyprus: Technical Assistance Report-Debt and Cash Management By International Monetary Fund
  80. The UK Productivity Puzzle: Does Firm Cohort matter for their Performance following the Financial Crisis? By Mustapha Douch; Huw Edwards; Sushanta Mallick
  81. Stablecoins: Growth Potential and Impact on Banking By John Caramichael; Gordon Y. Liao
  82. Boosting the Forecasting Power of Conditional Heteroskedasticity Models to Account for Covid-19 Outbreaks By Massimo Guidolin; Davide La Cara; Massimiliano Marcellino
  83. Social Distancing, Vaccination and Evolution of COVID-19 Transmission Rates in Europe By Alexander Chudik; M. Hashem Pesaran; Alessandro Rebucci
  84. Economic analysis using higher frequency time series: Challenges for seasonal adjustment By Ollech, Daniel
  85. Chasing the Shadow: the Evaluation of Unreported Wage Payments in Latvia By Konstantins Benkovskis; Ludmila Fadejeva
  86. A Simple Endemic Growth Model for Undergraduates By Carmona, Julio

  1. By: Luca Fornaro; Federica Romei
    Abstract: We study optimal monetary policy during times of exceptionally high global demand for tradable goods, relative to non-tradable services. The optimal monetary response entails a rise in inflation, which helps rebalance production toward the tradable sector. While the inflation costs are fully beared domestically, however, part of the gains in terms of higher supply of tradable goods spill over to the rest of the world. National central banks may thus fall into a coordination trap, and implement an excessively tight monetary policy during tradable goodsdriven recoveries.
    Keywords: Asymmetric shocks, reallocation, monetary policy, international monetary cooperation, inflation, global supply shortages
    JEL: E32 E44 E52 F41 F42
    Date: 2022–01
  2. By: Martin Baumgaertner (THM Business School Giessen)
    Abstract: This paper shows that a different communication style of the European Central Bank (ECB) affects stock prices differently. A break in the ECB’s communication from 2016 onwards makes it necessary to adjust the identification of monetary policy surprises in the euro area. By modifying the high-frequency identification of monetary policy shocks in the euro area, I can show that two quantitative easing shocks occur per decision: One during the release and one during the press conference. Although the impact on policy rates is identical, the release window shock seems to have a more pronounced effect on stock prices.
    Keywords: Unconventional Monetary Policy, High-Frequency Data, ECB, Communication
    JEL: E44 E52 E58
    Date: 2022
  3. By: Shang-Jin Wei; Yinxi Xie
    Abstract: While two strands of the literature suggest that PPI inflation, in addition to or instead of CPI inflation, should be a targeting variable in a monetary policy rule, the distinction between the two is only important when they do not co-move strongly. Our first contribution is to document that their correlation has indeed fallen substantially since the start of this century. Our second contribution is to propose a model to understand this divergence based on expanding global supply chains. Our theory produces additional predictions that are also confirmed in the data. As such changes are structural rather than temporary, the standard monetary policy rule that does not target the PPI inflation may have become increasingly problematic.
    Keywords: Inflation and prices; Inflation targets; International topics; Monetary policy
    JEL: E31 E52 E58 F11 F12 F41 F62
    Date: 2022–01
  4. By: Jacopo Bonchi (Department of Economics and Finance and School of European Political Economy, LUISS Guido Carli); Salvatore Nisticò (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: Using a tractable New Keynesian model with heterogeneous agents, we analyze the interplay between households' heterogeneity and rational bubbles, and their normative implications for monetary policy. Households are infinitely-lived and heterogeneous because of two sources of idiosyncratic uncertainty, which makes them stochastically cycle in and out of segmented asset markets, and in and out of employment. We show that bubbles can emerge in equilibrium despite the fact that households are infinitely lived, because of the structural heterogeneity that affects their activity in asset and labor markets. The elasticity of an endogenous labor supply, the heterogeneity in asset-market participation and the level of long-run monopolistic distortions are shown to affect the size of equilibrium bubbles and their cyclical implications. We also show that a central bank concerned with social welfare faces an additional tradeoff implied by bubbly fluctuations which makes, in general, strict inflation targeting a suboptimal monetary-policy regime.
    Keywords: Inequality, Rational bubbles, Optimal monetary policy, HANK
    JEL: E21 E32 E44 E58
    Date: 2022–02
  5. By: Oliver Pfäuti; Fabian Seyrich
    Abstract: We propose a behavioral heterogeneous agent New Keynesian model in which monetary policy is amplified through indirect general equilibrium effects, fiscal multipliers can be larger than one and which delivers empirically-realistic intertemporal marginal propensities to consume. Simultaneously, the model resolves the forward guidance puzzle, remains stable at the effective lower bound and determinate under an interest-rate peg. The model is analytically tractable and nests a wide range of existing models as special cases, none of which can produce all the listed features within one model. We extend our model and derive an equivalence result of models featuring bounded rationality and models featuring incomplete information and learning. This extended model generates hump-shaped responses of aggregate variables and a novel behavioral amplification channel that is absent in existing HANK models.
    Keywords: Behavioral Macroeconomics, Heterogeneous Households, Monetary Policy, Forward Guidance, Fiscal Policy, New Keynesian Puzzles, Determinacy, Lower Bound
    JEL: E21 E52 E62 E71
    Date: 2022–02
  6. By: Philippe Andrade; Jordi Gali; Hervé Le Bihan; Julien Matheron
    Abstract: We address the question in this paper’s title using an estimated New Keynesian DSGE model of the euro area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight-tenths the size of the drop in the real natural rate of interest is warranted. Absent an increase in the inflation target, and assuming the effective lower bound prevents the European Central Bank from implementing more aggressive negative interest rate policies, adjusting the monetary strategy requires considering alternative instruments or policy rules, such as a commitment to make up for recent, below-target inflation realizations.
    Keywords: inflation target; effective lower bound; monetary policy strategy; euro area
    JEL: E31 E52 E58
    Date: 2021–04–01
  7. By: Donato Masciandaro; Jacopo Magurno; Romano Tarsia
    Abstract: This paper reviews the evolution of the literature on Central Bank Independence (CBI) focusing on its metrics as well as on its empirical association with macroeconomic variables. Part One describes the evolution of the CBI indicators, while Part Two analyses the econometric studies devoted to shed light on the relationships between CBI and macroeconomic performances.
    Keywords: Monetary Policy, Central Bank Independence, Inflation, Growth, Sacrifice Ratio, Public Finance, Financial Stability
    JEL: E50 E52 E58
    Date: 2021
  8. By: Donato Masciandaro
    Abstract: The aim of the paper is to shed light on how two factors "central bank's design and central bankers' preferences" progressively assumed a crucial role in the evolution of monetary policy economics in the last four decades. The two factors jointly identify the importance of central bank governance in influencing monetary policy decisions through their interactions with the monetary policy rules, given the assumptions about how macroeconomic systems work.
    Keywords: monetary policy, central bank independence, central banker conservatism, monetary policy committees, political economics, behavioural economics
    JEL: E50 E52 E58
    Date: 2021
  9. By: Han Gao; Mariano Kulish; Juan Pablo Nicolini
    Keywords: Monetary policy; Monetary aggregates; Money demand
    JEL: E41 E51 E52
    Date: 2021–12–17
  10. By: Xing Guo; Pablo Ottonello; Diego Perez
    Abstract: This paper examines how monetary policy affects the asymmetric effects of globalization. We build an open-economy heterogeneous-agent New Keynesian model (HANK) in which households differ in their income, wealth, and real and financial integration with international markets. We use the model to reassess classic questions in international macroeconomics, but from a distributional perspective: What are the effects of monetary policy and external shocks in open economies? And how do alternative exchange-rate regimes compare? Our analysis yields two main takeaways. First, heterogeneity in households’ international integration is a central dimension that drives the inequality in the consumption responses to external shocks more so than do income and wealth. Second, households’ heterogeneity reveals the presence of a stabilization-inequality trade-off for the conduct of monetary policy in open economies, with fixed exchange-rate regimes leading to amplified but less unequal consumption responses to external shocks.
    Keywords: Monetary policy; Exchange rate regimes
    JEL: E32 E52 F41 F44
    Date: 2022–02
  11. By: Abdalla, Ahmed; Carabias, Jose M.
    Abstract: We propose and find that aggregate special items conveys more information about future real GDP growth than aggregate earnings before special items because the former contains advance news about future economic outcomes. A two-stage rational expectations test reveals that professional forecasters fully understand the information content of aggregate earnings before special items, but underestimate that of aggregate special items when revising their GDP forecasts. Using vector autoregressions, we show that aggregate earnings before special items has predictive ability for GDP because, as suggested by previous literature, it acts as a proxy for corporate profits included in national income. In contrast, aggregate special items captures changes in the behavior of economic agents on a timely basis, which, in turn, have real effects on firms' investment and hiring, as well as consumers' wealth and spending. Consistent with news-driven business cycles, we find that aggregate special items produces synchronized movements across macroeconomic aggregates.
    Keywords: aggregate earnings; aggregate special items; GDP growth; asymmetric timeliness; rational expectations; news-driven business cycles
    JEL: E01 E32 E60 M41
    Date: 2022–01–01
  12. By: Armando Marozzi
    Abstract: Central Bank Independence has often been praised as a "free lunch" as it lowers inflation with no costs to output. This paper, instead, claims that in a peculiar monetary union such as the European Monetary Union (EMU) defending the independence during a financial crisis can be macroeconomically costly: unconventional monetary policies may expose the European Central Bank (ECB) to the threat of fiscal dominance which, in turn, might endogenously shift the ECB’s fiscal stance toward fiscal conservatism. Fiscally hawkish signals can then depress GDP and inflation, thereby forcing the ECB to prolong the unconventional stimuli to achieve its target. This paper finds evidence of this new "doom-loop" at the core of the EMU.
    Keywords: ECB, monetary-fiscal interaction, CBI, unconventional monetary policy, EMU, fiscal communication
    JEL: E52 E58 E61 E63
    Date: 2021
  13. By: Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
    Abstract: In July 2021, the Federal Open Market Committee announced a new tool for monetary policy implementation: a domestic standing repurchase agreement facility. In the last post of this series, we explain what this new tool is and how it will support the effective implementation of monetary policy in the floor system through which the Fed implements policy.
    Keywords: standing repo facility; monetary policy implementation
    JEL: E52 E58
    Date: 2022–01–13
  14. By: Allen Head (Queen's University); Timothy Kam (Australian National University); Sam Ng (Australian National University); Isaac Pan (University of Sydney)
    Abstract: Using micro-level data for the U.S., we provide new evidence—at national and state levels—of a positive (negative) relationship between the standard deviation (coefficient of variation)and the average in bank lending-rate markups. In a quantitative theory consistent with theseempirical observations, banks’ lending market power is determined in equilibrium and is a novelchannel of monetary policy. At low inflation, banks tend to extract higher markups from existingloan customers rather than competing for additional loans. As a result, banking activity neednot be welfare-improving if inflation is sufficiently low. This result speaks to concerns regardingmarket power in the banking sectors of low-inflation countries. Normatively, under a giveninflation target, welfare gains arise if a central bank can use additional liquidity-provision (ortax-and-transfer) instruments to offset banks’ market-power incentives
    Keywords: Banking; Credit; Markup Dispersion; Market Power; Stabilization Policy; Liquidity
    JEL: E41 E44 E51 E63 G21
    Date: 2022–02
  15. By: Lekha Chakraborty; Harikrishnan S
    Abstract: Against the backdrop of the COVID-19 pandemic, this paper analyzes the economic stimulus packages announced by the Indian national government and tries to identify some plausible fiscal and monetary policy coordination. The shrinking fiscal space due to revenue uncertainties has led to a theoretical plausibility of a reemergence of finite monetization of deficits in India. However, the empirical evidence confirms no direct monetization of the deficit.
    Keywords: Fiscal-Monetary Policy Coordination; Fiscal Deficits; Monetization; COVID-19
    JEL: E58 E62 E63
    Date: 2022–02
  16. By: Hinterlang, Natascha; Tänzer, Alina
    Abstract: This paper introduces a reinforcement learning based approach to compute optimal interest rate reaction functions in terms of fulfilling inflation and output gap targets. The method is generally flexible enough to incorporate restrictions like the zero lower bound, nonlinear economy structures or asymmetric preferences. We use quarterly U.S. data from1987:Q3-2007:Q2 to estimate (nonlinear) model transition equations, train optimal policies and perform counterfactual analyses to evaluate them, assuming that the transition equations remain unchanged. All of our resulting policy rules outperform other common rules as well as the actual federal funds rate. Given a neural network representation of the economy, our optimized nonlinear policy rules reduce the central bank's loss by over43 %. A DSGE model comparison exercise further indicates robustness of the optimized rules.
    Keywords: Optimal Monetary Policy,Reinforcement Learning,Artificial Neural Network,Machine Learning,Reaction Function
    JEL: C45 C61 E52 E58
    Date: 2021
  17. By: Han Gao; Mariano Kulish; Juan Pablo Nicolini
    Abstract: In this paper, we review the relationship between inflation rates, nominal interest rates, and rates of growth of monetary aggregates for a large group of OECD countries. If persistent changes in the monetary policy regime are accounted for, the behavior of these series maintains the close relationship predicted by standard quantity theory models. With an estimated model, we show those relationships to be relatively invariant to alternative frictions that can deliver quite different high-frequency dynamics. We also show that the low-frequency component of the data derived from statistical filters does reasonably well in capturing these regime changes. We conclude that the quantity theory relationships are alive and well, and thus they are useful for policy design aimed at controlling inflation.
    Keywords: Money demand; Monetary aggregates; Monetary policy
    JEL: E41 E51 E52
    Date: 2021–12–17
  18. By: Donato Masciandaro; Davide Romelli; Gaia Rubera
    Abstract: How does central bank communication affect financial markets? This paper shows that the monetary policy announcements of three major central banks, i.e. the European Central Bank, the Federal Reserve and the Bank of England, trigger significant discussions on monetary policy on Twitter. Using machine learning techniques we identify Twitter messages related to monetary policy around the release of monetary policy decisions and we build a metric of the similarity between the policy announcement and Twitter traffic before and after the announcement. We interpret large changes in the similarity of tweets and announcements as a proxy for monetary policy surprise and show that market volatility spikes after the announcement whenever changes in similarity are high. These findings suggest that social media discussions on central bank communication are aligned with bond and stock market reactions.
    Keywords: monetary policy, central bank communication, financial markets, social media, Twitter, Federal Reserve, European Central Bank, Bank of England
    JEL: E44 E52 E58 G14 G15 G41
    Date: 2021
  19. By: Renato E. Reside, Jr. (School of Economics, University of the Philippines Diliman)
    Abstract: This short piece discusses the results of simple regression analysis using cross country data to determine the factors that have influenced fluctuations in real output during the covid-19 pandemic period. Focus is on explaining not only output growth from 2020 to the first half of 2021, but also the length or duration of recessions. The most prominent factors influencing growth include the ability of a country to contain the spread of infections and vaccinate their population. The size of the covid19-induced fiscal stimulus, also matters, especially health care spending. However, the relationship is nonlinear. Beyond a certain point, fiscal spending leads to lower quarterly growth. Policy recommendations are given.
    Keywords: Economic growth, fiscal policy, government expenditures, covid19, crisis management
    JEL: E6 E62 E65 H11 H12 H51 I18
    Date: 2021–12
  20. By: Ricardo Nunes; Ali K. Ozdagli; Jenny Tang
    Abstract: Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our results show that there is a prominent central bank information component in the widely used high-frequency policy rate surprise measure that needs to be parsed out. When we remove this central bank information component, the estimated effects of monetary policy shocks are more pronounced relative to those estimated using the entire policy rate surprise.
    Keywords: monetary policy; central bank information; high-frequency identification; proxy structural VAR; external instruments
    JEL: C36 D83 E52 E58
    Date: 2022–01–01
  21. By: Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
    Abstract: At its June 2021 meeting, the FOMC maintained its target range for the fed funds rate at 0 to 25 basis points, while two of the Federal Reserve’s administered rates—interest on reserve balances and the overnight reverse repo (ON RRP) facility offering rate—each were increased by 5 basis points. What do these two simultaneous decisions mean? In today’s post, we look at “technical adjustments”—a tool the Fed can deploy to keep the FOMC’s policy rate well within the target range and support smooth market functioning.
    Keywords: technical adjustments; monetary policy implementation
    JEL: E52 E58
    Date: 2022–01–12
  22. By: Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
    Abstract: In a series of four posts, we review key elements of the Federal Reserve’s monetary policy implementation framework. The framework has changed markedly in the last two decades. Prior to the global financial crisis, the Fed used a system of scarce reserves and fine-tuned the supply of reserves to maintain rate control. However, since then, the Fed has operated in a floor system, where active management of the supply of reserves no longer plays a role in rate control, but rather the Fed’s administered rates influence the federal funds rate. In this first post, we discuss the salient features of the implementation framework in a stylized way.
    Keywords: MPI; monetary policy implementation
    JEL: E52 E58
    Date: 2022–01–10
  23. By: International Monetary Fund
    Abstract: Preventive actions and a robust vaccination campaign mitigated the effects of COVID-19 variants on the economy. A nascent recovery, supported by targeted fiscal and monetary measures, is underway, with real GDP growth expected at 2 percent in 2021, strengthening to 2.7 percent in 2022. However, unemployment is persisting at very high levels, particularly for the youth. Core inflation, at 0.7 percent y-o-y in September, is subdued, despite higher fuel prices, reflecting a slow pass-through, but also weak domestic demand. Reserves are comfortable, and dollarization is declining.
    Date: 2022–01–06
  24. By: John Beirne; Yannis Dafermos; Alexander Kriwoluzky; Nuobu Renzhi; Ulrich Volz; Jana Wittich
    Abstract: This paper investigates the impact of natural disasters on price stability in the euro area. We estimate panel and country-specific structural vector autoregression (VAR) models by combining estimated damages of disaster events with monthly data for the Harmonised Index of Consumer Prices (HICP) for all euro area countries over the period 1996-2021. Besides estimating the effect on overall headline inflation, we examine effects on its 12 main sub-indices and further sub-categories of food price inflation. This allows us to disentangle differences in the direction and strength of price effects across consumption categories. Our results suggest significant positive effects of natural disasters on overall headline inflation, with diverging results at the sub-index level. Positive inflation effects are particularly pronounced for prices of food and beverages, while negative effects prevail for other sub-indices. Our country-specific results suggest heterogenous inflation effects of natural disasters across different countries. A key implication of our findings is that climate change is likely to make it increasingly difficult for the European Central bank to achieve its inflation target.
    Keywords: Natural disasters, climate, inflation, monetary policy, European Central Bank
    JEL: E31 E52 Q54
    Date: 2021
  25. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University)
    Abstract: We extend the literature on the role of uncertainty shocks in small open economies using a dynamic stochastic general equilibrium (DSGE) model with stochastic volatility for the economy of Kazakhstan. We build a small-scale DSGE model for Kazakhstan with non-linear time-varying volatility of shock processes. Due to the inherent non-linearity in the model we estimate the parameters of the volatility processes using the Particle filter, and then estimate structural parameters of the model via simulated method of moments (SMM)
    Keywords: DSGE model; Oil price uncertainty; Particle filter; Simulated method of moments; Kazakhstan.
    JEL: E20 E32 E43
    Date: 2021–12
  26. By: Frédéric Boissay (Unknown); Fabrice Collard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jordi Galí (Unknown); Cristina Manea (Unknown)
    Abstract: We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course.
    Keywords: Financial crisis,Monetary policy
    Date: 2022–01–04
  27. By: Merkl, Christian; Sauerbier, Timo
    Abstract: Our paper aims at improving the understanding for the role of public employment agencies in job matching. We analyze the effects of the restructuring of the Federal Employment Agency in Germany (Hartz III labor market reform) for aggregate matching and unemployment. Based on two microeconomic datasets, we show that the market share of the Federal Employment Agency as job intermediary declined after the Hartzreforms. We propose a macroeconomic model of the labor market with a private and a public search channel and fit the model to various dimensions of the data. We show that direct intermediation activities of the Federal Employment Agency did not contribute to the decline of unemployment in Germany. By contrast, improved activation of unemployed workers reduced unemployed by 0.7 percentage points.
    Keywords: Hartz reforms,search and matching,reform of employment agency
    JEL: E24 E00 E60
    Date: 2022
  28. By: Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University)
    Abstract: The EU’s fiscal rules, set out in the Maastricht Treaty of 1993 and the Stability and Growth Pact of 1997, are anchored to GDP. The debt ceiling and the deficit threshold are set to 60 percent and 3 percent of GDP, respectively. Recently, prominent economists and policymakers, have argued that that the debt ceiling should be raised due to falling bond yields. By extension, this argument suggests a shift from GDP anchoring to bond yield anchoring of the EU fiscal framework. We discuss the risks of basing the fiscal rules on the bond yield rather than on the GDP. While such a change would provide short-run relief to highly indebted EU member states, it implies high long-run risks to fiscal sustainability should bond yields rise in the future. We conclude that GDP serves as a better anchor for the EU fiscal framework than the bond rate under present circumstances.
    Keywords: Fiscal framework; European Union; ECB; Stability and Growth Pact; secular stagnation; modern monetary theory; government debt; fiscal policy
    JEL: E50 E60 H60 N10
    Date: 2022–01–19
  29. By: Marius Clemens; Werner Röger
    Abstract: The system of capital taxation consists of two instruments, namely a tax on profits and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a fiscal net revenue target even in cases when a trade off prevails when each instrument is used individually. This is an application of the Tinbergen rule (Tinbergen 1952) to capital taxation. In the current context a fundamental requirement for this rule to work is that the two tax instruments imply different trade offs. As will be shown in the paper, depreciation allowances have a more favorable trade off between growth and net revenue in the long run compared to statutory profit tax rates. Thus, by increasing depreciation allowances and the statutory tax rate at the same time it is possible to both increase growth and fiscal space. In a model simulation calibrated to the German economy and tax system an increase of the tax depreciation rate for all investments from 10% to 25% leads to more than 2 percent GDP increase and more than 6 percent higher private investments in total. Whereas GDP and investment rise steadily over time, the government budget becomes negative in the short run. In the long run the sign of the fiscal budget effect is determined by the assumption about indexation of government consumption to GDP. However, according to the Tinbergen rule for capital taxation slight adjustments of the capital tax rate could balance out these deficits and generate additional fiscal space.
    Keywords: Fiscal Policy, Capital Allowance, Capital Tax
    JEL: E61 E62 H25
    Date: 2021
  30. By: Olivier de Bandt; Bora Durdu; Hibiki Ichiue; Yasin Mimir; Jolan Mohimont; Kalin Nikolov; Sigrid Roehrs; Jean-Guillaume Sahuc; Valerio Scalone; Michael Straughan
    Abstract: This paper reviews the different channels of transmission of prudential policy highlighted in the literature and provides a quantitative assessment of the impact of Basel III reforms using “off-the-shelf” DSGE models. It shows that the effects of regulation are positive on GDP whenever the costs and benefits of regulation are both introduced. However, this result may be associated with a temporary economic slowdown in the transition to Basel III, which can be accommodated by monetary policy. The assessment of liquidity requirements is still an area for research, as most models focus on costs, rather than on benefits, in particular in terms of lower contagion risk.
    Keywords: Basel III Reforms, DSGE Models, Solvency Requirements, Liquidity Requirements
    JEL: E3 E44 G01 G21 G28
    Date: 2022
  31. By: Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel
    Abstract: Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.
    Keywords: overnight reverse repo (ON RRP); monetary policy implementation
    JEL: E52 E58
    Date: 2022–01–11
  32. By: International Monetary Fund
    Abstract: The 2016–20 ECF/EFF helped rehabilitate Moldova’s banking sector, bolstering macro-financial stability. However, the COVID-19 pandemic, drought in 2020, and the ongoing surge in global energy prices, have slowed economic activity, intensified downside risks, and complicated policy making. While emergency financial assistance under a blended RCF/RFI (100 percent of quota) and SDR allocation (US$236 million) helped cushion the pandemic’s impact, Moldova remains among the poorest countries in Europe with long-standing governance and structural weaknesses inhibiting income convergence.
    Date: 2022–01–04
  33. By: Jean-Guillaume Sahuc; Olivier de Bandt; Hibiki Ichiue; Bora Durdu; Yasin Mimir; Jolan Mohimont; Kalin Nikolov; Sigrid Roehrs; Valério Scalone; Michael Straughan
    Abstract: This paper (i) reviews the different channels of transmission of prudential policy highlighted in the literature and (ii) provides a quantitative assessment of the impact of Basel III reforms using "off-the-shelf" DSGE models. It shows that the effects of regulation are positive on GDP whenever the costs and benefits of regulation are both introduced. However, this result may be associated with a temporary economic slowdown in the transition to Basel III, which can be accommodated by monetary policy. The assessment of liquidity requirements is still an area for research, as most models focus on costs, rather than on benefits, in particular in terms of lower contagion risk.
    Keywords: Basel III reforms, DSGE models, solvency requirements, liquidity requirements
    JEL: E3 E44 G01 G21 G28
    Date: 2022
  34. By: V. V. Chari; Luis Pérez
    Abstract: Iovino, La’O and Mascarenhas (forthcoming) ask two important questions regarding the optimal conduct of monetary policy: Should the central bank’s policy depend on information the central bank has that is not available to markets? And should the central bank disclose information that it has but market participants do not? Iovino, La’O and Mascarenhas answer these questions using a simple, stylized model with one-period price stickiness. They show that efficient equilibria can be sustained regardless of whether policy depends on the central bank’s information and regardless of its disclosure policy. We explain the logic behind their irrelevance result and show that if restrictions are imposed on equilibria, then monetary policy should in general depend on the central bank’s information. Finally, we offer some speculative answers to their questions and discuss the sense in which policy is converging towards theory.
    Keywords: Indeterminacy; Implementation of efficient outcomes; Dependence of policy on information; Central bank communication
    JEL: E52 E58 H21
    Date: 2021–11–09
  35. By: Javier García-Cicco
    Abstract: We evaluate the dynamics of a small and open economy under simple rules for alternative monetary-policy instruments, in a model with imperfectly anchored expectations. The inflation-targeting consensus indicates that interest-rate rules are preferred, instead of using either a monetary aggregate or the exchange rate as the main instrument; with arguments usually presented under rational expectations and full credibility. In contrast, we assume agents use econometric models to form inflation expectations, capturing limited credibility. In particular, we emphasize the exchange rate’s role in shaping medium- and long-term inflation forecasts. We compare the dynamics after a shock to external-borrowing costs (arguably one of the most important sources of fluctuations in emerging countries) under three policy rules: a Taylor-type rule for the interest rate, a constant-growth-rate rule for monetary aggregates, and a fixed exchange rate. The analysis identifies relevant trade-offs in choosing among alternative instruments, showing that the relative merits of each of them is indeed influenced by how agents form inflation-related expectations.
    Date: 2022–01
  36. By: Lhuissier Stéphane
    Abstract: Motivated by empirically characterizing the relationship between financial conditions and downside macroeconomic risks in the euro area, I develop a regime-switching skew-normal model with time-varying probabilities of transitions. Using Bayesian methods, the model estimates show that a strong cyclical pattern emerges from the conditional skewness (a measure of the asymmetry of the predictive distribution), which has a tendency to rapidly decline to negative territory prior and during recessions. However, the inclusion of financial-specific information in time-varying probabilities does not help to anticipate such skewness nor more generally to provide advance warnings of tail risks.
    Keywords: Financial Conditions, Downside Risks, Predictability, Regime-Switching Models
    JEL: C11 C2 E32
    Date: 2022
  37. By: Óscar Afonso (Faculty of Economics, University of Porto, CEF.UP and OBEGEF); Elena Sochirca (Department of Management and Economics, University of Beira Interior, NECE and NIPE); Pedro Cunha Neves (Faculty of Economics, University of Porto, CEF.UP and OBEGEF)
    Abstract: In this paper we develop a dynamic general equilibrium growth model in which robots can replace unskilled labor and: i) the government uses tax revenues to invest in social capital and compensate those who do not work; ii) there is monetary policy with cash-in-advance restrictions that impact, for example, wages; iii) social capital increases skilled-labor productivity and facilitates the technological-knowledge progress. Our results confirm that by reducing the unskilled-to-skilled-labor ratio, the robotization process increases the skill premium (and thus wage inequality between skilled and unskilled workers), stimulates economic growth and improves welfare. We also show that fiscal and monetary policies can have important roles in amplifying or mitigating these effects of the robotization process and that implementing specific policies can generate an important efficiency-equity trade-off. Despite the existence of this trade-off, the long-run economic growth is higher with than without the fiscal and monetary policies, which underlines their crucial role in attenuating the negative aspects of Industry 4.0.
    Keywords: Robots; Social Capital; Fiscal Policy; Monetary Policy; Growth
    JEL: E62 I31 I38 O30
    Date: 2022–01
  38. By: Nurdaulet Abilov (NAC Analytica, Nazarbayev University); Aizhan Bolatbayeva (NAC Analytica, Nazarbayev University)
    Abstract: In this paper, we use the modified expectation-maximization algorithm of Banbura and Modugno (2014) to estimate a factor model using an incomplete and mixed-frequency dataset for Russia. We estimate and check the forecast accuracy of factor models that differ in the number of factors, the lag structure of the factors, and the presence of autocorrelation in the idiosyncratic component. We choose the best model using the root mean squared forecast error and use the model to compute news contributions to forecast revisions of GDP growth in Russia around crisis periods. We find that the benchmark model with a medium-size dataset and four factors outperforms all other versions of the factor model, simple AR(1) and random walk models. The news contributions to GDP growth revisions around economic downturns in Russia show that the benchmark factor model is extremely good at capturing the impact of new data releases on GDP growth revisions.
    Keywords: Factor model; EM-algorithm; Nowcasting; Business cycle index; Russia.
    JEL: C53 C55 E32 E37
    Date: 2021–12
  39. By: Federico M. Ferrara; Donato Masciandaro; Manuela Moschella; Davide Romelli
    Abstract: Previous scholarship on central bank accountability has generally focused on monetary authorities' deeds and words while largely ignoring the other side of the accountability relationship, namely politicians’ voice on monetary policy. This raises a fundamental question: what are central banks held accountable for by elected officials? To answer this question, we employ structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament (MEPs) and the President of the European Central Bank (ECB) from 1999 to 2019. Our findings are twofold. First, we uncover differences in how MEPs keep the ECB accountable for its primary, price stability objective. We show that European politicians also attempt to keep the central bank accountable for a broader set of issues that are connected with, but distinct from, the central bank's primary goal. Second, we show that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. In particular, higher rates of domestic unemployment lead MEPs to devote less voice on issues related to the ECB’s price stability mission. These findings reveal the existence of a "political" Phillips curve reaction function, which enriches our understanding of the principal-agent accountability relationship between politicians and central bankers.
    Keywords: Accountability; European Central Bank; politicians; European Parliament
    JEL: E50 E52 E58
    Date: 2021
  40. By: Karsten Kohler; Engelbert Stockhammer
    Abstract: While flexible exchange rates are commonly regarded as shock absorbers, heterodox views suggest that they can play a pro-cyclical role in emerging markets. This article provides theoretical and empirical support for this view. Drawing on post-Keynesian and structuralist theory, we propose a simple model in which flexible exchange rates in conjunction with external shocks become endogenous drivers of boom-bust cycles, once financial effects from foreign-currency debt are accounted for. We present empirical evidence for regular cycles in nominal US-dollar exchange rates in several emerging markets that are closely aligned with cycles in economic activity. An econometric analysis suggests the presence of a cyclical interaction mechanism between exchange rates and output, in line with the theoretical model, in Chile, South Africa, and partly the Philippines. Further evidence indicates that such exchange rate cycles cannot exclusively be attributed to external factors, such as commodity prices, US monetary policy or the global financial cycle. We therefore argue that exchange rate cycles in emerging markets are driven by the interplay of external shocks and endogenous cycle mechanisms. Our argument implies that exchange rate management may be beneficial for macroeconomic stability.
    Keywords: Exchange rates, emerging markets, boom-bust cycles, structuralism, global financial cycle, commodity prices
    JEL: C32 E12 E32 F31
    Date: 2022–02
  41. By: Österholm, Pär (Örebro University School of Business); Poon, Aubrey (Örebro University School of Business)
    Abstract: In this paper, we estimate trend inflation in Sweden using an unobserved components stochastic volatility model. Using data from 1995Q4 to 2021Q4 and Bayesian estimation methods, we find that trend inflation has been well-anchored during the period – although in general at a level below the inflation target – and it does not appear to have been affected much by the recent high inflation numbers.
    Keywords: Unobserved components model; Inflation target; Bayesian estimation
    JEL: C11 C32 C52 E32
    Date: 2022–01–18
  42. By: Giancarlo Bertocco; Andrea Kalajzić
    Abstract: To hypothesize the existence of a relationship between money and savings means questioning a fundamental pillar of the mainstream economic theory: the concept of neutrality of money. According to the traditional theory economic phenomena such as savings can be defined independently from money. The objective of this work is to show that savings cannot be defined independently from money and that savings must be considered as a monetary phenomenon. The paper consists of two parts. Starting from Adam Smith’s analysis and continuing up to the approaches developed by contemporary economists, in the first part we summarize the most significant aspects and the limitations of the mainstream theory. In the second part we specify the reasons of the non-neutrality of money and of the monetary nature of savings.
    Keywords: Savings, money, development, Keynes, Schumpeter
    JEL: B12 B13 B52 E12 E44
    Date: 2022–02
  43. By: International Monetary Fund
    Abstract: Rwanda’s medium-term outlook is positive, supported by the authorities’ large policy package to respond to the evolving COVID-19 pandemic and their continued commitment to the PCI in a challenging environment. Economic recovery is underway with easing of restrictions supported by faster vaccination rates since July. GDP growth is projected at 10.2 percent in 2021 and inflation remained subdued. But Rwanda’s remarkable economic and social progress over the last two decades faces a significant setback, with poverty, unemployment, and gender inequalities on the rise. These pandemic scars, if not addressed, risk reversing hard-won economic and social gains. With a large share of the population still unvaccinated and the emergence of new variants, risks to the outlook remain elevated.
    Date: 2022–01–13
  44. By: Loretta J. Mester
    Abstract: Despite the challenges, U.S. economic growth was very strong last year. Real GDP grew at a 5.5 percent pace, the highest annual pace since 1984. Firms added a record 6.7 million jobs to their payrolls and the unemployment rate moved down to about 4 percent, close to its pre-pandemic level. The economy’s strength reflected very robust demand by households and businesses. This demand was supported by extraordinary fiscal policy and monetary policy, as well as the deployment of vaccinations, which allowed the economy to reopen more fully. But this strong demand came at the same time there were constraints on product supply and labor supply. The imbalances between supply and demand have put significant upward pressures on prices and wages. Inflation readings in the U.S. are at their highest levels in nearly 40 years, and nominal wages are accelerating at a faster pace than we have seen in decades.
    Date: 2022–02–09
  45. By: Stefán Thórarinsson
    Abstract: This paper seeks to determine what drives inflation variation in Iceland and examine the extent to which local currency pricing is present. To that end we define and estimate a Bayesian structural vector autoregression model. For identification we employ the method developed by Baumeister and Hamilton (2015), defining priors on the impact matrix and on the long run behaviour of the model. We find that supply shocks and exchange rate shocks are the largest contributors in short run dynamics of inflation while foreign shocks dominate the medium and long run horizons. Our results strongly suggest that local currency pricing is largely absent. A test of robustness suggests that our results w.r.t. foreign influences on domestic inflation hold. Whether foreign demand or foreign inflation plays a larger role in determining long horizon variation in inflation seems to vary considerably over the period considered.
    JEL: C11 C32 E31 F41
    Date: 2022–01
  46. By: Martin Hodula; Jan Janku; Lukas Pfeifer
    Abstract: We investigate the extent to which various structural risks exacerbate the materialization of cyclical risk. We use a large database covering all sorts of cyclical and structural features of the financial sector and the real economy for a panel of 30 countries over the period 2006Q1–2019Q4. We show that elevated levels of structural risks may have an important role in explaining the severity of cyclical and credit risk materialization during financial cycle contractions. Among these risks, private and public sector indebtedness, banking sector resilience and concentration of real estate exposures stand out. Moreover, we show that the elevated levels of some of the structural risks identified may be related to long-standing accommodative economic policy. Our evidence implies a stronger role for macroprudential policy, especially in countries with higher levels of structural risks
    Keywords: Cyclical risk, event study, financial cycle, panel regression, structural risks, systemic risk
    JEL: E32 G15 G21 G28
    Date: 2021–12
  47. By: Ziesemer, Thomas (UNU-MERIT, Maastricht University)
    Abstract: We update the Gini coefficients of education to include the year 2015, added to the Barro-Lee data set recently. A panel analysis shows that every five years education inequality falls by 2.8 percentage points. A stable average value is predicted to be 0.22. Kernel densities loose their twin peaks when going from 1955 to later years.
    Keywords: Gini coefficients of education, new data, trend, stability, changing global distribution
    JEL: E24 I24 I25 O15 Y1
    Date: 2021–11–26
  48. By: Nomaler, Önder (UNU-MERIT, Maastricht University); Spinola, Danilo (UNU-MERIT, Maastricht University, Birmingham City University, and University of Johannesburg); Verspagen, Bart (UNU-MERIT, Maastricht University)
    Abstract: This article models the process of structural transformation and catching-up in a demand-led Southern economy constrained by its balance of payments. Starting from the Sraffian Supermultiplier Model, we model a dual-sector small open economy divided between traditional and modern sectors that interacts with a technologically advanced Northern economy. We propose two (alternative) autonomous elements that define the growth rate of this demand-led economy: government spending and exports. Autonomous government spending plays a central role in stimulating demand, and thus is a source of growth of the modern sector. Productivity adjusts to the growth rate of output, given by the growth rate of autonomous expenditure. Drawing from the Structuralist literature, the technologically laggard Southern economy catches up by absorbing technology from the Northern economy, potentially closing the technology gap. The gap affects the income elasticity of exports, bringing a supply-side mediation to the growth rates in line with the Balance of Payments Constrained Model. We observe that a demand-led government policy plays a central role in structural change, pushing the modern sector to a take-off. Also, the economy is stable in terms of capacity utilisation and modern sector employment.
    Keywords: Industrialisation, Catching-up, Balance of Payments, Sraffian Supermultiplier
    JEL: O41 E12 E61
    Date: 2021–10–18
  49. By: International Monetary Fund
    Abstract: After a third wave over the summer, COVID-19 cases are declining but vaccination has stalled. Economic activity has improved on the back of strengthened external demand, allowing for a stronger-than-envisaged buildup in international reserves. Inflation and the exchange rate have stabilized. Near-term challenges arise from uncertainty related to the pandemic and the gradual global economic recovery supporting high commodity prices.
    Date: 2022–01–05
  50. By: Gerba, Eddie (Bank of England); Katsoulis, Petros (Bank of England)
    Abstract: This paper assesses the impact of banking regulation (Basel III) on financial market dynamics using the repo market as an important case study. To this end, we use unique proprietary data sets from the Bank of England to examine the individual and joint impact of leverage, capital and liquidity coverage ratios on participants’ trading in all collateral segments of the UK repo market. We find non-uniform effects across ratios and participants and non-linear effects across time. For instance, we find that the leverage ratio induces participants to charge lower (higher) interest margins on repo (reverse repo) trades that are non-nettable compared to the nettable ones. Second,we document a change in market microstructure under the new regulatory regime. Specifically, we evidence a substitution effect of banks’ long-term repo borrowing backed by gilts from dealers to investment funds which can be fragile during times of stress. Likewise, we find an increasing prominence of central counterparties. Third, we find evidence that participants who are jointly constrained by multiple ratios and closer to the regulatory thresholds during times of stress reduce their activity to a greater extent than those that are constrained by a single ratio or not constrained, with implications for market liquidity.
    Keywords: Banking regulation; repo market; market microstructure; liquidity; monetary policy transmission
    JEL: E44 E52 G11 G21 G28
    Date: 2021–12–17
  51. By: Loria, Francesca; Matthes, Christian; Wang, Mu-Chun
    Abstract: Economic theories are often encoded in equilibrium models that cannot be directly estimated because they lack features that, while inessential to the theoretical mechanism that is central to the specific theory, would be essential to fit the data well. We propose an econometric approach that confronts such theories with data through the lens of a time series model that is a good description of macroeconomic reality. Our approach explicitly acknowledges misspecificationas well as measurement error. We highlight in two applications that household heterogeneity greatly helps to fit aggregate data, independently of whether or not nominal rigidities are considered.
    Keywords: Bayesian Inference,Misspecification,Heterogeneity,VAR,DSGE
    JEL: C32 C50 E30
    Date: 2021
  52. By: International Monetary Fund
    Abstract: The COVID-19 pandemic interrupted a decade of high growth and development progress in Senegal. While a recession was avoided in 2020, the pandemic caused severe hardship and most households experienced income and job losses. A dynamic recovery is underway since mid-2020, supported by expansionary fiscal policy. However, higher fiscal deficits and lower growth have resulted in a rapid increase of the debt-to-GDP ratio and fiscal space is narrowing. COVID-19 case numbers remain comparatively low and about 14 percent of the adult population is vaccinated. Recent pandemic waves had little impact on economic activity in the absence of new lockdowns or movement restrictions.
    Date: 2022–01–14
  53. By: International Monetary Fund
    Abstract: The expected macroeconomic recovery has materialized. Seychelles remains a leader in vaccine coverage at home, and the widespread availability of vaccines in Seychelles’ key tourist markets, particularly Europe, is contributing to a strong rebound in tourism. The economic outlook, while positive, remains subject to the uncertain evolution of the COVID-19 pandemic globally.
    Date: 2022–01–13
  54. By: Francisco Rivadeneyra; Nellie Zhang
    Abstract: A new wholesale payments system will launch in Canada in 2021. This real-time gross settlement system called Lynx will have two types of settlement mechanisms, one allowing offsetting and the other not. This paper studies the decision problem of the Bank of Canada: which of the two settlement mechanisms should it use to send its payments. Using extensive simulation, we show that, mainly due to the benefits of liquidity pooling, Lynx would achieve its highest liquidity efficiency—even better than that of the current Large Value Transfer System (LVTS)—if all payments (urgent and non-urgent) from all participants were sent to the mechanism allowing offsetting. The minimum amount of liquidity required to settle all payments by critical deadlines is approximately $10 billion, around half the amount of collateral that LVTS participants allocate (pre–COVID-19). Since time-critical payments sent to the offsetting mechanism could experience a delay, the high level of liquidity efficiency is accompanied by an increase in the number of participants' operational interventions (to pledge more collateral or to alter payment priorities) to ensure that those time-critical payments are never delayed. When coordination does not occur, liquidity efficiency can be far lower than in the LVTS. The results highlight that the Bank of Canada helping with coordination is more important than the specific choice of mechanism.
    Keywords: Payment clearing and settlement systems
    JEL: C C5 E42 E58
    Date: 2022–02
  55. By: Carl Grekou
    Abstract: This publication, accompanying the 2021’s update of EQCHANGE, aims at providing an overview of exchange rate misalignments for 2020. Overall, changes in currency misalignments during 2020 have been rather modest except few EMEs that registered important movements. Among advanced economies, the picture was broadly unchanged. The US dollar registered a slight increase of its overvaluation; the British pound, the Canadian dollar and the Japanese yen registered an upward movement that led to the reduction of the undervaluations. The euro area is again featured with various situations with undervaluations prevailing in Germany, Ireland and the Netherlands while Belgium, France, Italy were close to their equilibrium. In EMEs, the Brazilian real registered the largest swings against the US dollar and have consequently seen a dramatic increase of its undervaluation. The Turkish lira continued its plunge against the US dollar and also increased its undervaluation. In contrast, the Chinese renminbi remained relatively stable and appeared broadly in line with its fundamental value.
    Keywords: EQCHANGE;Exchange Rates;Currency Misalignments;Global Imbalances
    JEL: E3 E4 E5 E6 F3
    Date: 2021–12
  56. By: Elisa Palagi (SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]); Mauro Napoletano (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, SKEMA Business School, SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]); Andrea Roventini (SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa], OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po); Jean-Luc Gaffard (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, SKEMA Business School)
    Abstract: We build an agent-based model to study how coordination failures, credit con- straints and unequal access to investment opportunities affect inequality and aggre- gate income dynamics. The economy is populated by households who can invest in alternative projects associated with different productivity growth rates. Access to investment projects also depends on credit availability. The income of each house- hold is determined by the output of the project but also by aggregate demand conditions. We show that aggregate dynamics is affected by income distribution. Moreover, we show that the model features a trickle-up growth dynamics. Redis- tribution towards poorer households raises aggregate demand and is beneficial for the income growth of all agents in the economy. Extensive numerical simulations show that our model is able to reproduce several stylized facts concerning income inequality and social mobility. Finally, we test the impact of redistributive fiscal policies, showing that fiscal policies facilitating access to investment opportunities by poor households have the largest impact in terms of raising long-run aggregate income and decreasing income inequality. Moreover, policy timing is important: fiscal policies that are implemented too late may have no significant effects on in- equality.
    Keywords: income inequality,social mobility,credit constraints,coordination failures,effective demand,trickle-up growth,fiscal policy JEL classification: C63,D31,E63,E21
    Date: 2022–01–04
  57. By: Morita, Hiroshi; Ono, Taiki
    Abstract: Measuring uncertainty and its economic impact are of major concern during the unprecedented crisis triggered by the coronavirus disease 2019 (COVID-19) pandemic. This paper constructs a newspaper-based measure that captures the uncertainty induced by COVID-19 and examines its economic impacts using a structural VAR model applied to Japanese data. We develop two types of uncertainty indices and identify two types of structural shocks in the VAR model: one measuring an epidemiological uncertainty, the other a policy-related uncertainty. Our findings are summarized as follows. First, the constructed series of uncertainty shows a spike after COVID-19 related events, indicating that our indices work well as a measure of COVID-19 induced uncertainty. Second, stock market variables show statistically significant responses to a policy-related uncertainty shock rather than an epidemiological uncertainty shock. Third, in contrast, real variables such as mobility and consumption tend to respond significantly to an epidemiological uncertainty shock. These findings highlight the importance of considering different types of uncertainty in order to properly assess the impact of COVID-19 induced uncertainty on economic activity.
    Keywords: COVID-19, uncertainty, newspaper-based approach, VAR model
    JEL: C32 D80 E44
    Date: 2022–01
  58. By: Andrew Glover; Jonathan Heathcote; Dirk Krueger
    Abstract: In this paper, we ask how to best allocate a given time-varying supply of vaccines across individuals of different ages during the second phase of the Covid-19 pandemic . Building on our previous heterogeneous household model of optimal economic mitigation and redistribution (Glover et al., 2021), we contrast the actual vaccine deployment path, which prioritized older, retired individuals, with one that first vaccinates younger workers. Vaccinating the old first saves more lives but slows the economic recovery, relative to inoculating the young first. Vaccines deliver large welfare benefits in both scenarios (relative to a world without vaccines), but the old-first policy is optimal under a utilitarian social welfare function. The welfare gains from having vaccinated the old first are especially significant once the economy is hit by a more infectious Delta variant in the summer of 2021.
    Keywords: COVID-19; Vaccination paths
    JEL: E63 E21
    Date: 2022–01–18
  59. By: Daniel R. Carroll; Sewon Hur
    Abstract: We provide a quantitative analysis of the distributional effects of the 2018 increase in tariffs by the U.S. and its major trading partners. We build a trade model with incomplete asset markets and households that are heterogeneous in their age, income, wealth and labor skill. When tariff revenues are used to reduce labor and capital income taxes and increase transfers, the average welfare loss from the trade war is equivalent to a permanent 0.1 percent reduction in consumption. Much larger welfare losses are concentrated among retirees and low-wealth and low-income workers, while only wealthy households experience a welfare gain.
    Keywords: tariffs; inequality; consumption; welfare; taxation
    JEL: E21 F10 F62 H21
    Date: 2022–01–29
  60. By: Soares Martins Neto, Antonio (UNU-MERIT, Maastricht University); Mathew, Nanditha (UNU-MERIT, Maastricht University); Mohnen, Pierre (UNU-MERIT, Maastricht University); Treibich, Tania (SBE, Maastricht University)
    Abstract: This paper analyses the evidence of job polarization in developing countries. We carry out an extensive review of the existing empirical literature and examine the primary data sources and measures of routine intensity. The synthesis of results suggests that job polarization in emerging economies is only incipient compared to other advanced economies. We then examine the possible moderating aspects preventing job polarization, discussing the main theoretical channels and the existing empirical literature. Overall, the literature relates the lack of polarization as a natural consequence of limited technology adoption and the offshoring of routine, middle-earning jobs to some host developing economies. In turn, the limited technology adoption results from sub-optimal capabilities in those economies, including the insufficient supply of educated workers. Finally, we present the main gaps in the literature in developing economies and point to the need for more micro-level studies focusing on the impacts of tech- nology adoption on workers’ careers and studies exploring the adoption and use of technologies at the firm level.
    Keywords: Job polarization, Routine intensity, Skills, Developing countries
    JEL: J24 J63 O15 O33 E24
    Date: 2021–11–25
  61. By: International Monetary Fund
    Abstract: After contracting more than 5 percent in 2020, Kosovo’s economy is projected to have recovered by 7.5 percent in 2021, thanks to mobility normalization, extraordinary diaspora inflows, and strengthened confidence. Improved vaccination rates supported these trends and mitigation and recovery measures provided lifelines to those most affected by the pandemic. Though GDP growth is expected to normalize in 2022, the new omicron variant is a reminder that the pandemic continues to represent the main downside risk.
    Date: 2022–01–12
  62. By: John C. Williams
    Abstract: Remarks at Council on Foreign Relations (delivered via videoconference).
    Keywords: inflation; economy; supply; market; growth; Omicron; COVID-19; unemployment; employment; labor market; monetary policy
    Date: 2022–01–14
  63. By: Dieci, Roberto; Mignot, Sarah; Westerhoff, Frank H.
    Abstract: We develop a cobweb model in which firms, facing a two-period production delay, have access to a flexible (costly) and an inflexible (cheap) production technology. Moreover, firms select between production technologies depending on theirevolutionary fitness, measured in terms of past realized profits. The dynamics of our cobweb model is driven by a four-dimensional nonlinear map. We analytically show that its unique steady state may become unstable due to a Neimark-Sacker bifurcation, a scenario that gives rise to cyclical price dynamics, as observed in actual commodity markets. Simulations furthermore reveal that our cobweb model may also produce chaotic motion.
    Keywords: Cobweb models,production technology,cyclical price dynamics,bounded rationality and learning,stability and bifurcation analysis,chaos
    JEL: D24 E32 Q11
    Date: 2021
  64. By: Xavier Jaravel (Institute for Fiscal Studies and London School of Economics); Martin O'Connell (Institute for Fiscal Studies and University of Wisconsin)
    Abstract: We use real-time scanner data in Great Britain during the COVID-19 pandemic to investigate the drivers of the inflationary spike at the beginning of lockdown and to quantify the impact of high-frequency changes in shopping behaviours and promotions on inflation measurement. Although changes in product-level expenditure shares were unusually high during lockdown, we find that the induced bias in price indices that do not account for expenditure switching is not larger than in prior years. We also document substantial consumer switching towards online shopping and across retailers, but show this was not a key driver of the inflationary spike. In contrast, a reduction in price and quantity promotions was key to driving higher inflation, and lower use of promotions by low-income consumers explains why they experienced moderately lower inflation. Overall, changes in shopping behaviours played only a minor role in driving higher inflation during lockdown; higher prices were the main cause, in particular through a reduced frequency of promotions.
    Date: 2020–10–05
  65. By: Arpan Ganguly; Danilo Spinola
    Abstract: This article aims to theoretically and empirically study the macroeconomic interactions between productive structure and income distribution in the context of the Global Value Chains (GVC). Firstly, we develop a theoretical framework, inspired by the Structuralist macroeconomic literature, establishing distinct regimes in the scenario of globalized production chains. The regimes are defined in terms of (1) a structure/diversification regime, (2) an integration/GVC regime, both drawn from the Balance of Payments Constrained Model (BPCM) literature, and (3) a functional income distribution regime. The theoretical framework guides the selection of proxies used to characterize each regime, measured using Principal Component Analysis (PCA) scores. That allows us to identify country patterns in a structured typology. Finally, we focus on growth trajectories, estimating the causal relationship between each of the beforementioned regimes and per-capita growth, using IV estimations. The dataset consists of 37 countries, with sources from the World Development Indicators (WDI), World Input-Output Database (WIOD), Trade in Value Added (TiVA), and the Penn World Tables (PWT). On one hand, this article contributes to structuralist growth models that typically estimate demand and distribution regimes independently, thereby offering a unified narrative on regimes of economic growth in the context of GVCs. On the other hand, our typology depicts how growth dynamics vary distinctly by geographical regions and how globalization has retained and accelerated processes of uneven development globally. The results show that (1) developed countries are more inclusive in terms of distribution under GVCs, (2) structural change has been exclusive, and growth patterns have been following a specialized pattern, and (3) the growth pattern has been associated with higher integration, but less diversification.
    Keywords: Global Value Chains, Uneven Development, Income Distribution
    JEL: E12 F15 F43 O47
    Date: 2022–02
  66. By: Canes-Wrone, Brandice; Ponce de Leon, Christian; Thieme, Sebastian
    Abstract: A longstanding question is whether policy uncertainty reduces private fixed investment in developing democracies. Yet studying the question empirically has proven challenging given that economic activity can cause as well as result from policy uncertainty. We investigate this issue within the context of electoral business cycles, building on research that suggests elections provide an exogenous source of policy uncertainty. As a central part of this analysis, which involves four decades of data from 57 developing democracies, we examine how institutional constraints moderate the relationship. Three main findings emerge. First, on average, elections are associated with a decline in private fixed investment. Second, however, this effect varies according to the level of institutional constraints; as they increase, the electoral cycle becomes less pronounced, including in specifications that account for the potential endogeneity of the institutions. Third, the effects are larger and more robust in systems with fixed elections.
    Date: 2022–01–27
  67. By: Dante B. Canlas (School of Economics, University of the Philippines Diliman)
    Abstract: This paper opens up a study of deficit financing and management of the public debt in the context of the COVID-19 outbreak in the Philippines. Borrowings of the national government from the monetary authority and from domestic and international financial markets, as well as the options for exiting from the public debt enlarged by such borrowings are assessed. At this juncture, public spending to strengthen social safety nets for truly disadvantaged families and firms are imperatives, but taxation that relieves big corporations and shifts to households and small firms the recovery of foregone corporate income taxes through burdensome indirect taxes must be shunned. Meanwhile, growing out of the public debt through sound monetary policy and structural reforms that embrace rise in total factor productivity is the least painful option to exit out of the newly expanded public debt.
    Keywords: COVID-19; public debt management; deficit financing; Philippines
    JEL: E5 O4
    Date: 2020–06
  68. By: Assietou Dia (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France); Mathurin Founanou (Université Gaston Berger de Saint-Louis, LARES, Sénégal); Zaka Ratsimalahelo (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)
    Abstract: Cet article analyse l'importance du rôle de l'agriculture dans le développement du Sénégal au cours des dernières années. Plus particulièrement, il étudie l’impact des différents programmes qui ont été mis en œuvre pour la relance du secteur agricole. En utilisant un Model dynamique Auto régressif à retards échelonnés (ARDL), nous observons que la production agricole a un impact positif et significatif sur la croissance économique du Sénégal aussi bien à court qu’à long terme. Cependant, la performance de l’agriculture comme levier de croissance reste relativement faible. Ce résultat met en évidence la nécessité d’adapter les programmes agricoles pour le développement pour une croissance socio-économique soutenable.
    Keywords: Production agricole, Croissance économique, ARDL, Sénégal
    JEL: E31 O55 G14
    Date: 2022–01
  69. By: Remi Jedwab (George Washington University); Roberto Samaniego (George Washington University); Paul Romer (NYU Stern); Asif Islam (World Bank)
    Abstract: Pandemic shocks disrupt human capital accumulation through schooling and work experience. This study quantifies the long-term economic impact of these disruptions in the case of COVID-19, focusing on countries at different levels of development and using returns to education and experience by college status that are globally estimated using 1,084 household surveys across 145 countries. The results show that both lost schooling and experience contribute to significant losses in global learning and output. Developed countries incur greater losses than developing countries, because they have more schooling to start with and higher returns to experience. The returns to education and experience are also separately estimated for men and women, to explore the differential effects by gender of the COVID-19 pandemic. Surprisingly, while we uncover gender differences in returns to education and schooling, gender differences in the impact of COVID-19 are small and short-lived, with a loss in female relative income of only 2.5 percent or less mainly due to the greater severity of the employment shock on impact. These findings might challenge some of the ongoing narratives in policy circles. The methodology employed in this study is easily implementable for future pandemics.
    Keywords: Pandemics; Human Capital; Returns to Education; Returns to Experience; Gender; Female Relative Income; Labor Markets; Development Accounting; COVID-19
    JEL: O11 O12 O15 E24 J11 J16 J17 J31
    Date: 2022–02
  70. By: Sylvia Kaufmann (Study Center Gerzensee)
    Abstract: We document whether a simple, univariate model for quarterly GDP growth is able to deliver forecasts in a crisis period like the Covid-19 pandemic, which may serve cross-checking forecasts obtained from elaborate and expert models used by forecasting institutions. We include shocks to the log number of short-time workers as timely available current-quarter indicator. Yearly GDP growth forecasts implied by quarterly forecasts serve cross-checking, in particular at the outbreak of the pandemic.
    Date: 2022–02
  71. By: Johannes Geyer; Ralf K. Himmelreicher
    Abstract: Wir untersuchen anhand von repräsentativen Daten für die Privatwirtschaft (Verdienststrukturerhebung 2018) Anteile und Höhe von umgewandelten Entgelten nach verschiedenen individuellen und betrieblichen Merkmalen von Arbeitnehmerinnen und Arbeitnehmern in Deutschland für das Jahr 2018. Deskriptive wie multivariate Regressionsanalysen weisen sowohl auf eine selektive Teilnahmebereitschaft zur Umwandlung als auch auf eine mit steigendem Einkommen erhöhte Bereitschaft höhere Entgelte umzuwandeln hin. Große Unterschiede bestehen zwischen Frauen und Männern, zwischen Ost- und Westdeutschland sowie zwischen verschiedenen Branchen. Im Mindestlohn- und Niedriglohnbereich ist Entgeltumwandlung kaum verbreitet, und falls doch, dominieren monatliche Beiträge, die 50 Euro selten übersteigen. Bei geringfügig Beschäftigten ist Entgeltumwandlung die seltene Ausnahme. Und umgekehrt ist der Anteil der Arbeitnehmerinnen und Arbeitnehmer am oberen Ende der Einkommensverteilung, die Anteile ihresArbeitsentgeltes umwandeln, besonders hoch; die Höhe ihre umgewandelten Beiträge steigt dabei exponentiell. Gerade für gering qualifizierte Beschäftigte im Mindest- und Niedriglohnbereich in typischen Niedriglohnbranchen wird das sinkende Rentenniveau eher selten durch ergänzende Entgeltumwandlung kompensiert. Insbesondere in Ostdeutschland, wo im Vergleich zu Westdeutschland kleinere Betriebe ohne Tarifbindung und mit niedrigeren Arbeitsentgelten häufiger vorkommen, wird Entgeltumwandlung kaum praktiziert, weshalb Defizite in der betrieblichen Altersvorsorge und somit insgesamt niedrigere Alterseinkünfte in Zukunft zu erwarten sind.
    Keywords: Betriebliche Altersvorsorge, Entgeltumwandlung, Einkommensverteilung
    JEL: D14 D31 E27
    Date: 2021
  72. By: Campos, Nauro F.; Macchiarelli, Corrado
    Abstract: Despite numerous studies about core-periphery in monetary unions, few focus on their dynamics. This paper (i) presents new theory-based, continuous and dynamic measures of the probability of a country being classified as core or periphery; (ii) estimates the determinants of the changes in this probability over time and across countries; and (iii) uses the Phillips-Sul convergence panel framework to investigate the behaviour of core and periphery groups over time. Our main results indicate that the post-EMU decrease of the core-periphery gap that we document was mainly driven by the adoption of the euro and by increasing competition (lower mark-ups).
    Keywords: competition; convergence; core-periphery; Euro; symmetry
    JEL: C50 E30 N10 F40
    Date: 2021–04–01
  73. By: International Monetary Fund
    Abstract: The Fiscal Responsibility Act (FRA) came into effect in 2013 to reduce rising public debt and achieve fiscal stability. Maldives has experienced rapid public debt accumulation over the past decade. The FRA establishes objectives for maintaining debt at a sustainable level and reducing the overall fiscal balance. The Act also sets minimum standards for fiscal transparency and accountability and requires the Government to prepare and publish medium-term fiscal and debt strategy reports.
    Date: 2022–01–14
  74. By: Alain Raybaut (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur)
    Date: 2021–12–30
  75. By: Balde, Racky (UNU-MERIT, Maastricht University)
    Abstract: Lack of fiscal space in sub-Saharan Africa is a major preoccupation, particularly in the context of shocks. The majority of firms in the region are primarily in the informal sector and consequently do not pay taxes. This paper explores the effect of financial development on small firms’ compliance with value-added tax, profit tax and local tax. It equally explores the mitigating impact of informal finance on financial development’s role in driving small firms’ tax compliance. To demonstrate this, we estimate a recursive trivariate probit model. The results show that financial development increases the likelihood of firms being tax compliant. In contrast, access to informal finance decreases that likelihood. It also emerges that the lower the taxes, the greater the effects of low costs of banks on tax compliance. Another finding is that informal finance mitigates the effect of financial development on small firms’ tax compliance.
    Keywords: taxation, Africa, financial development, informal finance, informal economy
    JEL: D22 E26 H26
    Date: 2021–11–01
  76. By: Simona Malovana; Martin Hodula; Josef Bajzik; Zuzana Gric
    Abstract: For almost two decades, quantifying the effect of changes in bank capital and capital regulation on lending has been one of the most important research questions. Yet, the empirical literature has remained largely fragmented in terms of the estimated parameters. In this paper, we collect more than 1,600 estimates on the relationship between bank capital and lending and construct 40 variables that reflect the context in which researchers obtain such estimates. After accounting for potential publication bias, the effect of a 1 percentage point (pp) change to the capital (regulatory) ratio on annual credit growth is set at around 0.3 pp, while the effect of changes to capital requirements is about -0.7 pp. Using Bayesian and frequentist model averaging, we expose the additional layers of fragmentation observed in our results. First, we show that the relationship between bank capital and lending changes over time, reflecting the post-crisis period of increasingly demanding bank capital regulation and subdued profitability. Second, we find the reported estimates of elasticities to be significantly affected by the researchers’ choice of empirical approach.
    Keywords: Bank capital, bank lending, capital regulation, meta-analysis, publication bias
    JEL: C83 E58 G21 G28
    Date: 2021–12
  77. By: Paul Carrillo-Maldonado; Michalis Nikiforos
    Abstract: This paper estimates the distribution-led regime of the US economy for the period 1947-2019. We use a time varying parameter model, which allows for changes in the regime over time. To the best of our knowledge this is the first paper that has attempted to do this. This innovation is important, because there is no reason to expect that the regime of the US economy (or any economy for that matter) remains constant over time. On the contrary, there are significant reasons that point to changes in the regime. We find that the US economy became more profit-led in the first postwar decades until the 1970s and has become less profit-led since; it is slightly wage-led over the last fifteen years.
    Keywords: Wage-led; Profit-led; Distribution; Growth; Time-Varying Parameters (VAR)
    JEL: E11 E12 C11 C3
    Date: 2022–02
  78. By: Thitithep Sitthiyot
    Abstract: This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to better understand how economy and financial market work. This paper argues that understanding characteristics of complex system could greatly benefit financial analysts, financial regulators, as well as macroeconomic policy makers.
    Date: 2021–12
  79. By: International Monetary Fund
    Abstract: In tandem with Eurozone financial market developments and the prevalence of negative interest rates in 2020, Cypriot banks passed through the costs of their liquidity to their customers, reducing the attractiveness of placing PDMO cash surpluses in domestic bank deposits. Suitable investment alternatives to central bank deposits for the PDMO’s liquidity buffer are scarce, given negative yields on other Eurozone sovereign and agency issues. This situation is shared by the PDMO with almost all of its Eurozone peers. While this is likely to persist in the short term, it should not preclude establishing a framework governing the PDMO’s investment policy or a suitable set of guidelines.
    Date: 2022–01–05
  80. By: Mustapha Douch (Bank of Lithuania, The University of Edinburgh); Huw Edwards (Loughborough University); Sushanta Mallick (Queen Mary University)
    Abstract: This paper provides empirical evidence on how the aftermath of the 2008 crisis affected firm productivity in the UK, taking account of the cohort effect of firms established after 2008. We test this using firmspecific and time-varying credit scores to capture firms’ ability to access credit. To overcome the identification problem, a matched sample based on firm’s credit score, firm age, size and ownership status is used by undertaking the propensity score matching approach. While we find evidence that smaller firm size and changes in credit conditions affect productivity, about half of the difference in productivity remains unexplained. We extend the matching analysis to examine sectors and cohorts, and find that, during 2011-2016, the low productivity is driven primarily by newer firms operating in the services sector, rather than in manufacturing. Within services, the underlying productivity puzzle is driven by a cessation of growth in high-productivity financial services, while abundant labour supply has led to a ‘levelling down’ of performance of newer firms in the rest of services, in line with relatively lowproductivity manufacturing.
    Keywords: : Total Factor Productivity, Cohort, Crisis, Firm Survival, Credit Score.
    JEL: E00 D24 E30 G21
    Date: 2022–01–31
  81. By: John Caramichael; Gordon Y. Liao
    Abstract: Stablecoins have experienced tremendous growth in the past year, serving as a possible breakthrough innovation in the future of payments. In this paper, we discuss the current use cases and growth opportunities of stablecoins, and we analyze the potential for stablecoins to broadly impact the banking system. The impact of stablecoin adoption on traditional banking and credit provision can vary depending on the sources of inflow and the composition of stablecoin reserves. Among the various scenarios, a two-tiered banking system can both support stablecoin issuance and maintain traditional forms of credit creation. In contrast, a narrow bank approach for digital currencies can lead to disintermediation of traditional banking, but may provide the most stable peg to fiat currencies. Additionally, dollar-pegged stablecoins backed by adequately safe and liquid collateral can potentially serve as a digital safe haven currency during periods of crypto market distress.
    Keywords: Stablecoins; Digital currencies; Credit intermediation; Banking; Systemic risk; Fintech; Financial innovation; Payment system
    JEL: E40 E50 F33 G10 G20 O30
    Date: 2022–01–31
  82. By: Massimo Guidolin; Davide La Cara; Massimiliano Marcellino
    Abstract: With reference to S&P 500 daily returns, we report evidence of an in-sample predictive accuracy breakdown for realized variance by GARCH models in correspondence to the March 2020 Covid-19 outbreak. However, a variety of macroeconomic risk, political and social media sentiment uncertainty factors, and crucially a few variables capturing the evolution of the Covid-19 pandemics, successfully predict the direction and size of GARCH forecast errors between November 2019 and June 2020. Predictors related to diagnosed cases, their rate of growth, and the progression of the curve of deceased, infected people in the United States are featured prominently. We test a number of “augmented” GARCH models to include the most precisely estimated exogenous variables and find that they offer precise forecasts in samples that include the Covid-19 outbreak. In genuine out-of-sample tests, augmenting GARCH with Covid-19 related exogenous variables increases the percentage of days in which the direction of change in realized variance is correctly predicted.
    Keywords: Conditionally heteroskedastic models, Covid-19, volatility forecasting
    JEL: C32 C53 E47 G01
    Date: 2021
  83. By: Alexander Chudik; M. Hashem Pesaran; Alessandro Rebucci
    Abstract: This paper provides estimates of COVID-19 effective reproduction numbers worldwide and explains their evolution for selected European countries since the start of the pandemic, taking account of changes in voluntary and government-mandated social distancing, incentives to comply, vaccination and the emergence of mutations. Evidence based on panel data modeling indicates that the diversity of outcomes that we document resulted from the non-linear interaction of mandated and voluntary social distancing and the economic incentives that governments provided to support isolation, with no one factor independently capable of lowering the reproduction number below one. However, the importance of these factors declined over time, with vaccine uptake driving heterogeneity in country experiences in 2021. Our approach also allows us to identify the basic reproduction number, R0, and how it changes with mutations. It is precisely estimated and differs little across countries.
    Keywords: COVID-19; multiplication factor; under-reporting; social distancing; self-isolation; SIR model; reproduction number; pandemics; vaccine
    JEL: D0 F60 C4 I12 E7
    Date: 2022–02–04
  84. By: Ollech, Daniel
    Abstract: The COVID-19 pandemic has increased the need for timely and granular information to assess the state of the economy in real time. Weekly and daily indices have been constructed using higher frequency data to address this need. Yet the seasonal and calendar adjustment of the underlying time series is challenging. Here, we analyse the features and idiosyncracies of such time series relevant in the context of seasonal adjustment. Drawing on a set of time series for Germany - namely hourly electricity consumption, the daily truck toll mileage, and weekly Google Trends data - used in many countries to assess economic development during the pandemic, we discuss obstacles, difficulties, and adjustment options. Furthermore, we develop a taxonomy of the central features of seasonal higher frequency time series.
    Keywords: COVID-19,DSA,Calendar adjustment,Time series characteristics
    JEL: C14 C22 C87 E66
    Date: 2021
  85. By: Konstantins Benkovskis (Latvijas Banka, Stockholm School of Economics in Riga); Ludmila Fadejeva (Latvijas Banka)
    Abstract: We develop a novel way to evaluate the size of unreported wage payments at employee level. It is only the reported employer-employee income data combined with firm-level financial statements and survey information on various person-level indicators that are required for this purpose. We estimate the Mincer earning regression by the Stochastic Frontier Analysis approach, proxying the unreported wage payments by the non-negative inefficiency term. Our methodology is tested on the Latvian data: we find that small and young firms engage in illegal wage payments more than other firms. Unofficial payments to employees with small reported wages are more frequent and sizeable, revealing lower wage income inequality in Latvia when the unreported wage is taken into account.
    Keywords: unreported wage, tax evasion, Mincer earning regression, income distribution
    JEL: E26 H26 J08 J31
    Date: 2022–02–09
  86. By: Carmona, Julio (University of Alicante, D. Quantitative Methods and Economic Theory)
    Abstract: The coronavirus SARS-CoV-2 has changed dramatically our lives. Most economic analysis have focused on its short run effects. However, its persistence could raise concerns about its long-run consequences. This is, unfortunately, the case for many emergent countries suffering endemic diseases. To illustrate to our undergraduate students the important consequences of persistent infectious diseases, I couple the standard Solow model, taught in any introductory course to economic growth, with a simple model of persistent diseases, the so called SIS model. Additionally, this will also illustrate the usefulness of the well known Lyapunov theorem, an essential tool for the convergence analysis in many dynamical systems.
    Keywords: SIS Model; Solow Model; Lyapunov Theorem
    JEL: E00 I15 O40
    Date: 2022–01–19

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