nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒02‒21
99 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Structural change in the US Phillips curve, 1948-2021: the role of power and institutions By Mark Setterfield; Robert A. Blecker
  2. How should central banks react to household inflation heterogeneity? By Neyer, Ulrike; Stempel, Daniel
  3. Online Appendix for: The Welfare Costs of Inflation By Luca Benati; Juan Pablo Nicolini
  4. Cross-Sectional Financial Conditions, Business Cycles and The Lending Channel By Thiago Revil T. Ferreira
  5. A Behavioral Heterogeneous Agent New Keynesian Model By Oliver Pfäuti; Fabian Seyrich
  6. Monetary Policy and Determinacy: An Inquiry in Open Economy New Keynesian Framework By Barnett, William A.; Eryilmaz, Unal
  7. Monetary policy transmission, the labour share and HANK models By Lenney, Jamie
  8. Bank Runs, Fragility, and Credit Easing By Manuel Amador; Javier Bianchi
  9. Mainly employment: survey-based news and the business cycle By Masolo, Riccardo M
  10. The Signalling Channel of Negative Interest Rates By Oliver de Groot; Alexander Haas
  12. Bank Credit and Money Creation on Payment Networks: A Structural Analysis of Externalities and Key Players By Li, Ye; Li, Yi; Sun, Huijun
  13. Money, Credit and Imperfect Competition Among Banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  14. Currency demand at negative policy rates By Edoardo Rainone
  15. The Theory of Efficient Growth By Van, Germinal G.
  16. Controlling Chaos in New Keynesian Macroeconomics By Barnett, William A.; Bella, Giovanni; Ghosh, Taniya; Mattana, Paolo; Venturi, Beatrice
  17. Business cycles in the EU: A comprehensive comparison across methods By Mariarosaria Comunale; Dmitrij Celov
  18. The Most Expected Things Often Come as a Surprise: Analysis of the Impact of Monetary Surprises on the Bank's Risk and Activity By Melchisedek Joslem Ngambou Djatche
  19. Central bank securities and FX market intervention in a developing economy By Direye, Eli; Khemraj, Tarron
  20. Monetary/Fiscal Interactions with Forty Budget Constraints By Marco Bassetto; Gherardo Gennaro Caracciolo
  21. A Tiering Rule to Balance the Impact of Negative Policy Rates on Banks By Jean-Guillaume Sahuc; Mattia Girotti; Benoît Nguyen
  22. Inflationary household uncertainty shocks By Ambrocio, Gene
  23. Disaggregate income and wealth effects on private consumption in Greece By Dimitrios Sideris; Georgia Pavlou
  24. Monetary policy and inequality : The Finnish case By Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha
  25. Toward a green economy: the role of central bank's asset purchases By Alessandro Ferrari; Valerio Nispi Landi
  26. Secular Stagnation: Is Immigration part of the solution? By José Alves; Sandro Morgado
  27. The Welfare Costs of Inflation By Luca Benati; Juan Pablo Nicolini
  28. COVID-19 and the GDP fall in Germany: A Business Cycle Accounting Approach By Scholl, Christoph
  29. The Macroeconomic Effects of Funding U.S. Infrastructure By James Malley; Apostolis Philippopoulos
  30. A Macroprudential Perspective on the Regulatory Boundaries of U.S. Financial Assets By David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
  31. The financial network channel of monetary policy transmission: An agent-based model By Michel Alexandre; Gilberto Tadeu Lima; Luca Riccetti; Alberto Russo
  32. Heterogeneity, co-movements and financial fragmentation within the euro area By Arce-Alfaro, Gabriel; Blagov, Boris
  33. Why is World Money World Money? A View from the Functions of Money By Jeremy Srouji
  34. Bank risk-taking and impaired monetary policy transmission By Koenig, Philipp J.; Schliephake, Eva
  35. Why Does Risk Matter More in Recessions than in Expansions? By Martin M. Andreasen; Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
  36. Nowcasting the state of the Italian economy: the role of financial markets By Donato Ceci; Andrea Silvestrini
  37. Macroeconomic risks after a decade of microeconomic turbulence: South Africa 2007-2020 By Douglas Barrios; Federico Sturzenegger; Frank Muci; Patricio Goldstein; Ricardo Hausmann
  38. On Monetary Growth and Inflation in Leading Economies, 2021-2022:Relative Prices and the Overall Price Level By Greenwood, John; Hanke, Steve
  39. Financial Regulation, Interest Rate Responses, and Distributive Effects By Christian Loenser; Joost Röttger; Andreas Schabert
  40. Analysing households' consumption and saving patterns using tax data By Alain Galli; Rina Rosenblatt-Wisch
  41. Economic Forecasting in An Epidemic: A Break from the Past? By Chow, Hwee Kwan; Choy, Keen Meng
  42. Early Warning Performance of Univariate Credit-to-GDP Gaps By Zsuzsanna Hosszu; Gergely Lakos
  43. State-Contingent Forward Guidance By Valentin Jouvanceau; Julien Albertini; Stéphane Moyen
  44. The Ownership of Oil, Democracy, and Iraq’s Past, Present, and Future By Razzak, Weshah
  45. Capital preservation and current spending with Sovereign Wealth Funds and Endowment Funds: A simulation study By Knut Anton Mork; Haakon Andreas Trønnes; Vegard Skonseng Bjerketvedt
  46. Evaluación de procesos Bono de Impacto Social II “Cali Progresa con Empleo†By Ximena Cadena; Norberto Rojas; Sandra Zuluaga; María José Mejía; Alejandro Garavito
  47. Information Frictions among Firms and Households By Sebastian Link; Andreas Peichl; Christopher Roth; Johannes Wohlfart
  48. Wealth Inequality and Social Mobility: A Simulation-Based Modelling Approach By Yang, Xiaoliang; Zhou, Peng
  49. La economía gallega post-COVID By González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio
  50. Optimal Age-Based Vaccination and Economic Mitigation Policies for the Second Phase of the COVID-19 Pandemic By Andrew Glover; Jonathan Heathcote; Dirk Krueger; Jose-Victor Rios-Rull
  51. The financial accelerator mechanism: does frequency? By Foroni, Claudia; Gelain, Paolo; Marcellino, Massimiliano
  52. The Prudential Use of Capital Controls and Foreign Currency Reserves By Javier Bianchi; Guido Lorenzoni
  53. Solving the Life-Cycle Model with Labour Income Uncertainty: Some Implications of Income Volatility for Consumption Plan By Yu-Fu Chen; Hassan Molana
  54. Wealth in the Utility Function and Consumption Inequality By Yulei Luo; Jun Nie; Heng-fu Zou
  55. Consumer Loans Dynamics in 2020 in Argentina: An Approach Using Error Correction Models By Maximiliano Gómez Aguirre Author-Email: Author-Workplace-Name: Central Bank of Argentina; Ariel Krysa
  56. The Exchange Rate as a Shock Absorber and Amplifier: An Analysis of the Transmission Channels and the Policy Toolbox in Small Open Economies By Ariel Dvoskin Author-Email: Author-Workplace-Name: Central Bank of Argentina; Sebastián Katz
  57. The Future of Payments Is Not Stablecoins By Rod Garratt; Michael Junho Lee; Antoine Martin; Joseph Torregrossa
  58. TANK meets Diaz-Alejandro: Household heterogeneity, non-homothetic preferences & policy design By Santiago Camara
  59. Macroeconomic risks after a decade of microeconomic turbulence: South Africa (2007-2020) By Ricardo Hausmann; Federico Sturzenegger; Patricio Goldstein; Frank Muci; Douglas Barrios
  60. Duopolistic Competition and Monetary Policy By Kozo Ueda
  61. Housing prices in Spain: convergence or decoupling? By Corinna Ghirelli; Danilo Leiva-León; Alberto Urtasun
  62. The Federal Reserve's New Framework: Context and Consequences By Richard H. Clarida
  63. Fiscal rules and the reliability of public investment plans: evidence from local governments By Anna Laura Mancini; Pietro Tommasino
  64. The Effects of Climate Risks on Economic Activity in a Panel of US States: The Role of Uncertainty By Xin Sheng; Rangan Gupta; Oguzhan Cepni
  65. Testing the effectiveness of unconventional monetary policy in Japan and the United States By Daisuke Ikeda; Shangshang Li; Sophocles Mavroeidis; Francesco Zanetti
  66. Durable Goods and Consumer Behavior with Liquidity Constraints: Evidence from Norway By H. Youn Kim; José Alberto Molina; Ka Kei Gary Wong
  67. On the Inefficiency of Non-Competes in Low-Wage Labor Markets By Bart Hobijn; Andre Kurmann; Tristan Potter
  68. Multigenerational Effects of Smallpox Vaccination By Lazuka, Volha; Sandholt Jensen, Peter
  69. Fiscal consumption and private consumption in Europe: what have we learned? By Juan Carlos Cuestas; Mercedes Monfort
  70. Scrambling for Dollars: International Liquidity, Banks and Exchange Rates By Javier Bianchi; Saki Bigio; Charles Engel
  71. Women, Violence and Work: Threat of Sexual Violence and Women's Decision to Work By Chakraborty, Tanika; Lohawala, Nafisa
  72. The Trade Effects of Pandemics By João Tovar Jalles; Georgios Karras
  73. Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle By Anusha Chari; Karlye Dilts Stedman; Kristin J. Forbes
  74. Inflation-Inequality Puzzle: Is it Still Apparent? By Edmond Berisha; Orkideh Gharehgozli; Rangan Gupta
  75. Society, Politicians, Climate Change and Central Banks: An Index of Green Activism By Donato Masciandaro; Romano Vincenzo Tarsia
  76. Person-to-business Instant payments: could they work in Colombia? By Carlos A. Arango-Arango; Ana Carolina Ramirez-Pineda; Manuela Restrepo-Bernal
  77. When is the Long Run? – Historical Time and Adjustment Periods in Demand-led Growth Models By Ettore Gallo
  78. The Income Share of Energy and Substitution: A Macroeconomic Approach By Nida Cakir Melek; Musa Orak
  79. Extending Pension Policy in Emerging Asia: An Overlapping-Generations Model Analysis for Indonesia By George Kudrna; John Piggott; Phitawat Poonpolkul
  80. A Proven Solution for Lebanon’s Economic Crisis: A Currency Board By Kandasamy, Ambika
  81. Is a 10 trillion euro European climate investment initiative fiscally sustainable? By Rafael Wildauer; Stuart Leitch; Jakob Kapeller
  82. The risks of exiting too early the policy responses to the COVID-19 recession By Cassola, Nuno; De Grauwe, Paul; Morana, Claudio; Tirelli, Patrizio
  83. Judiciary and Wealth in the Ottoman Empire, 1689–1843 By Zeynep Dörtok Abacı; Jun Akiba; Metin M. Cosgel; Boğaç Ergene
  84. Financial Access and Value Added in Sub-Saharan Africa: Empirical Evidence from the Agricultural, Manufacturing and Service Sectors By Simplice A. Asongu; Nicholas M. Odhiambo
  85. Financial Access and Value Added in Sub-Saharan Africa: Empirical Evidence from the Agricultural, Manufacturing and Service Sectors By Simplice A. Asongu; Nicholas M. Odhiambo
  86. Inflation spike and falling product variety during the Great Lockdown By Xavier Jaravel; Martin O'Connell
  87. International bank credit, nonbank lenders, and access to external financing By Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
  88. Bond Insurance and Public Sector Employment By Natee Amornsiripanitch
  89. Unintended side effects of unconventional monetary policy By Berg, Tobias; Haselmann, Rainer; Kick, Thomas; Schreiber, Sebastian
  90. Foreign Debt, Capital Controls, and Secondary Markets: Theory and Evidence from Nazi Germany By Andrea Papadia; Claudio A. Schioppa
  91. Business challenges and policy suggestions in face of the Covid-19 pandemic. By Amorim Souza Centurião, Daniel; Andressa Welter, Caroline; Boldrine Abrita, Mateus
  92. Inequality and psychological well-being in times of COVID-19: evidence from Spain By Monica Martinez-Bravo; Carlos Sanz
  93. Ratio Working Paper No. 351: Knowledge Spillovers in the Solar energy sector By Grafström, Jonas
  94. Incertitudes (p)endémiques dans les pays en développement : les enjeux d’une interdépendance accrue entre les banques et l’État By Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
  95. Weak street-level enforcement of tax laws: the role of tax collectors’ persistent but broken public service expectations By Schmoll, Moritz
  96. Sovereign Bonds since Waterloo By Josefin Meyer; Carmen M. Reinhart; Christoph Trebesch
  97. Why Diagnostic Expectations Cannot Replace REH By Roman Frydman; Halina Frydman
  98. Rendemic uncertainties in developing countries: Issues arising from an increased interdependence between banks and the state By Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
  99. Re-evaluating RCTs with nightlights - An example from biometric smartcards in India By Stein, Merlin

  1. By: Mark Setterfield (Department of Economics, New School for Social Research); Robert A. Blecker (Department of Economics, American University)
    Abstract: This paper provides an institutional-analytical account of changes in the structure of the US Phillips curve (PC) during the post-war period. It does so by restoring conflict and power to the forefront of macro theory and, in particular, the wage- and price-setting behaviour of workers and firms. The resulting account is consistent with the main stylized facts that characterize the evolution of the US PC since 1948: the disappearance and subsequent reappearance of a ‘standard’ PC (relating the level of the inflation rate, not the change in this rate, to the rate of unemployment); and the flattening of the PC since the 1990s.
    Keywords: Phillips Curve, inflation, unemployment, natural rate hypothesis, bargaining power, institutions
    JEL: E12 E24 E25 E31 N12
    Date: 2022–01
  2. By: Neyer, Ulrike; Stempel, Daniel
    Abstract: Empirical evidence suggests that considerable differentials in inflation rates exist across households. This paper investigates how central banks should react to household inflation heterogeneity in a tractable New Keynesian model. We include two households that differ in their consumer price inflation rates after adverse shocks. The central bank reacts to either an average of the households' consumer price inflation rates or their individual rates, respectively. After a negative demand shock, the consumer price inflation rates of both households diverge less from their steady states when the central bank only considers the individual inflation rate of the household experiencing the higher inflation rate. Furthermore, output fluctuates less under that regime. After a negative supply shock, a central bank only considering the household experiencing the higher inflation rate mitigates the immediate effects of the shock on both consumer price inflation rates more effectively. Our results imply that central banks, which react discretionarily to differing inflation experiences in an economy, lead to a more efficient attainment of an economy-wide inflation target and to lower fluctuations of all inflation rates.
    Keywords: Business cycles,inflation,inequality,household heterogeneity,New Keynesian models
    JEL: E31 E32 E52
    Date: 2022
  3. By: Luca Benati; Juan Pablo Nicolini
    Keywords: Money demand; Lower bound on interest rates
    JEL: E41 E43 E52
    Date: 2021–09–24
  4. By: Thiago Revil T. Ferreira
    Abstract: I document business cycle properties of the full cross-sectional distributions of U.S. stock returns and credit spreads from financial and nonfinancial firms. The skewness of returns of financial firms (SRF) best predicts economic activity, while being a barometer for lending conditions. SRF also affects firm-level investment beyond firms' balance sheets, and adverse SRF shocks lead to macroeconomic downturns with tighter lending conditions in vector autoregressions (VARs). These results are consistent with a lending channel in which cross-sectional financial firms' balance sheets play a prominent role in business cycles. I rationalize this argument with a model that matches the VAR evidence.
    Keywords: Cross-Sectional; Skewness; Business Cycles; Lending Channel
    JEL: E32 E37 E44
    Date: 2022–02–04
  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
  6. By: Barnett, William A.; Eryilmaz, Unal
    Abstract: We analyze determinacy in the baseline open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy structure causes multifaceted behaviors in the system creating extra challenges for policy making. The degree of openness significantly affects determinacy properties of equilibrium under various forms and timing of monetary policy rules. Conditions for the uniqueness and local stability of equilibria are established. Determinacy diagrams are constructed to display the regions of unique and multiple equilibria. Numerical analyses are performed to confirm the theoretical results. Limit cycles and periodic behaviors are possible, but in some cases only for unrealistic parameter settings. Complex structures of open economies require rigorous policy design to achieve optimality.
    Keywords: bifurcation; determinacy; dynamic systems; New Keynesian; stability; open economy; Taylor Principle
    JEL: C14 C22 C52 C61 C62 E32 E37 E61 L16
    Date: 2022–01–12
  7. By: Lenney, Jamie (Bank of England)
    Abstract: I analyse the role of capital income in the transmission of demand shocks, such as monetary policy shocks, in a medium scale DSGE model that produces an empirically consistent counter-cyclical response of the labour share to monetary policy shocks. This is achieved by augmenting the one sector New Keynesian model with an alternate form of labour that seeks to expand the measure of goods available to consumers. I compare and contrast the transmissions of monetary policy shocks in the one sector ‘textbook’ model relative to the augmented model in both a representative agent (RANK) and heterogeneous agent (HANK) setting that includes a fully endogenous wealth distribution. The comparison highlights the role of capital income in the transmission of monetary policy shocks in these models. When the labour share moves counter-cyclically partial equilibrium decomposition’s of monetary policy transmission show a significant contractionary role for capital income.
    Keywords: DSGE; DCT; expansionary labour; HANK; inequality; intangible; New Keynesian; perturbation
    JEL: D31 E12 E21 E52 L29
    Date: 2022–01–07
  8. By: Manuel Amador; Javier Bianchi
    Abstract: We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors’ confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual bank depends on macroeconomic aggregates and how the number of banks facing a run affects macroeconomic aggregates in turn. In general equilibrium, runs can be partial or complete, depending on aggregate leverage and the dynamics of asset prices. Our normative analysis shows that the effectiveness of credit easing and its welfare implications depend on whether a financial crisis is driven by fundamentals or by self-fulfilling runs.
    Keywords: Bank runs; Financial crises; Credit easing
    JEL: E32 E44 E58 G01 G21 G33
    Date: 2021–10–15
  9. By: Masolo, Riccardo M (Bank of England)
    Abstract: Surprises in survey responses on perceived business conditions produce strong comovement in unemployment, consumption, investment, and output, and a muted response of inflation and measured total factor productivity (TFP). This suggests that news play an important role in explaining business cycle fluctuations, but also that attention should not be limited to TFP news. Employment news are the main driver of the overall index of reported business conditions. Vector autoregression impulse responses can be matched by a New Keynesian model in which individual risk, a positive supply of liquid funds, and complementarity between labour and capital inputs are modelled explicitly and the assumption of free entry of vacancies is done away with.
    Keywords: News; unemployment; business cycles; search frictions; individual risk
    JEL: C30 E31 E32
    Date: 2022–01–07
  10. By: Oliver de Groot; Alexander Haas
    Abstract: Negative interest rates remain a controversial policy for central banks. We study a novel signalling channel and ask under what conditions negative rates should exist in an optimal policymaker’s toolkit. We prove two necessary conditions for the optimality of negative rates: a time-consistent policy setting and a preference for policy smoothing. These conditions allow negative rates to signal policy easing, even with deposit rates constrained at zero. In an estimated model, the signalling channel dominates the costly interest margin channel. However, the effectiveness of negative rates depends sensitively on the degree of policy inertia, level of reserves, and ZLB duration.
    Keywords: Monetary policy, Taylor rule, forward guidance, liquidity trap
    JEL: E44 E52 E61
    Date: 2022
  11. By: Jose Santiago Mosquera (Departmento de Economía, Universidad de San Andrés)
    Abstract: By December 2017, the Argentine economy had been experiencing good figures in variables such as GDP, employment, poverty, and inflationary dynamics. However, other variables warned about the process’ sustainability (rising current account deficit and high, relatively stable fiscal deficit). According to a part of the literature, this raises the possibility of the economy being in a situation of multiple equilibria, in which expectations play a key role in determining the actual equilibrium. Since, activity stagnated, and country risk began to increase, as did the exchange rate. Was there an event that broke the trend? In this paper, I implement a robust synthetic control strategy to argue that the change of the inflation targets (on December 28th) eroded the credibility of the central bank, signaling that the government was not willing to pursue the fiscal balance as believed. Consequently, this day acted as a coordinator of expectations towards a worse equilibrium than the one in which the economy was.
    Keywords: Central Bank independence, credibility, synthetic control, multiple equilibria
    JEL: E43 E58 E61 E63 E65
    Date: 2021–12
  12. By: Li, Ye (Ohio State University); Li, Yi (Board of Governors of the Federal Reserve System); Sun, Huijun (Columbia Business School)
    Abstract: This paper documents a strong connection between payment system and credit supply. The dual role of deposits as financing instruments for banks and means of payment for bank customers implies spillover effects of bank lending. After a bank finances loans with new deposits, the deposit holders' payments cause reserves and deposits to flow from the lending bank to the payees' banks. The change in liquidity conditions for both banks and their customers gives rise to two opposing forces that generate respectively strategic complementarity and strategic substitution in banks' lending decisions. We model bank lending through a linear-quadratic game on a random graph of payment flows and structurally estimate the spillover effects using Fedwire data to quantify the probability distribution of payment-flow network. Payment network externalities reduce the average level of aggregate credit supply by 9% while amplify the volatility by 20%. We identify a small subset of banks that have a disproportionately large influence on credit supply due to their special positions in the payment-flow network.
    JEL: E42 E43 E44 E51 E52 G21 G28
    Date: 2021–12
  13. By: Allen Head; Timothy Kam; Sam Ng; Isaac Pan
    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 these empirical observations, banks’ lending market power is determined in equilibrium and is a novel channel of monetary policy. At low inflation, banks tend to extract higher markups from existing loan customers rather than competing for additional loans. As a result, banking activity need not be welfare-improving if inflation is sufficiently low. This result speaks to concerns regarding market power in the banking sectors of low-inflation countries. Normatively, under a given inflation target, welfare gains arise if a central bank can use additional liquidity-provision (or tax-and-transfer) instruments to offset banks’ market-power incentives.
    Keywords: Banking and Credit; Markups Dispersion; Market Power; Stabilization Policy; Liquidity
    JEL: E41 E44 E51 E63 G21
    Date: 2022–02
  14. By: Edoardo Rainone (Bank of Italy)
    Abstract: Following the implementation of negative policy rates, interest rates on bank deposits reached their historic lows, with values close or equal to zero. This paper investigates the implications of such a new environment for the demand of currency. We find evidence of a structural break in the demand of currency when rates on deposits fall below 0.1 per cent. Exploiting time, bank and banknote denomination variation, as well as exogenous reforms that affected currency payments and holdings, our analysis finds that the increase of currency in circulation seems to be mostly driven by transactions instead of store-of-value demand.
    Keywords: financial stability, monetary policy, negative interest rates, deposits, zero lower bound, money demand
    JEL: E41 E42 E52 E58
    Date: 2022–02
  15. By: Van, Germinal G.
    Abstract: The main objective of this paper is to propose an analytical framework to examine the foundations of the theory of efficient growth. The theory of efficient growth is a newly developed theory based on the principles of the neoclassical framework. It argues that an economy grows efficiently under two conditions. First, that the public and the private sectors both perform independently from each other. Second, the sum of their independent performances reaches an equilibrium. This equilibrium determines the optimum point of economic growth, and this optimal point illustrates the efficiency of economic growth.
    Keywords: Economic Growth, Mathematical Economics, Economic Theory, Macroeconomics, Business Cycle, Fiscal Policy
    JEL: C60 E13 E6 E62
    Date: 2022–01–10
  16. By: Barnett, William A.; Bella, Giovanni; Ghosh, Taniya; Mattana, Paolo; Venturi, Beatrice
    Abstract: In a New Keynesian model, it is believed that combining active monetary policy using a Taylor rule with a passive fiscal rule can achieve local equilibrium determinacy. However, even with such policies, indeterminacy can occur from the emergence of a Shilnikov chaotic attractor in the region of the feasible parameter space. That result, shown by Barnett et al. (2021), implies that the presence of the Shilnikov chaotic attractor can cause the economy to drift towards and finally become stuck in the vicinity of lower-than-targeted inflation and nominal interest rates. The result can become the source of a liquidity trap phenomenon. We propose policy options for eliminating or controlling Shilnikov chaotic dynamics to help the economy escape from the liquidity trap or avoid drifting into it in the first place. We consider ways to eliminate or control the chaos by replacing the usual Taylor rule by an alternative policy design without interest rate feedback, such as a Taylor rule with monetary quantity feedback, an active fiscal policy rule with passive monetary rule, or an open loop policy without feedback. We also consider approaches that retain the Taylor rule with interest rate feedback and the associated Shilnikov chaos, while controlling the chaos through a well-known engineering algorithm using a second policy instrument. We find that a second instrument is needed to incorporate a long-run terminal condition missing from the usual myopic Taylor rule.
    Keywords: Shilnikov chaos criterion, global indeterminacy, long-term un-predictability, liquidity trap, long run anchor.
    JEL: C61 C62 E12 E52 E63
    Date: 2022–01–11
  17. By: Mariarosaria Comunale (Bank of Lithuania); Dmitrij Celov (Vilnius University)
    Abstract: Recently, star variables and the post-crisis nature of cyclical fluctuations have attracted a great deal of interest. In this paper, we investigate different methods of assessing business cycles for the European Union in general and the euro area in particular. First, we conduct a Monte Carlo experiment using a broad spectrum of univariate trend-cycle decomposition methods. The simulation aims to examine the ability of the analyzed methods to find the observed simulated cycle with structural properties similar to actual macroeconomic data. For the simulation, we used the structural model’s parameters calibrated to the euro area’s real GDP and unemployment rate. The simulation outcomes indicate the sufficient composition of the suite of models consisting of popular HodrickPrescott, Christiano-Fitzgerald and structural trend-cycle-seasonal filters, then used for the real application. We find that: (i) there is a high level of model uncertainty in comparing the estimates; (ii) growth rate (acceleration) cycles have often the worst performances, but they could be useful as early-warning predictors of turning points in growth and business cycles; and (iii) the best-performing Monte Carlo approaches provide a reasonable combination as the suite of models. When swings last less time and/or are smaller, it is easier to pick a good alternative method to the suite to capture the business cycle for real GDP. Second, we estimate the business cycles for real GDP and unemployment data varying from 1995Q1 to 2020Q4 (GDP) or 2020Q3 (unemployment), ending up with 28 cycles per country. Our analysis also confirms that the business cycles of euro area members are quite synchronized with he aggregate euro area. Some major differences can be found, however, especially in the case of periphery and new member states, with the latter improving in terms of coherency after the global financial crisis. The German cycles are among the cyclical movements least synchronised with the aggregate euro area.
    Keywords: : business cycle, growth cycle, European Union, real GDP, unemployment rate, trend-cycle decomposition, synchronization
    JEL: C31 E27 E32
    Date: 2021–08–26
  18. By: Melchisedek Joslem Ngambou Djatche (Université Côte d'Azur; GREDEG CNRS)
    Abstract: In this paper, we analyse the link between monetary surprises and banks' activity and risk-taking. Some theoretical and empirical studies show that monetary easing increases banks' appetite for risk, affect credit allocation and bank's profitability. Our study adds to analyses of the monetary risk-taking channel considering monetary surprise, i.e. the impact of unexpected changes in monetary policy on bank's risk and activity. Using a dataset of US banks, we find that negative monetary surprises (higher increase or lower decrease of interest rates than expected) lead banks to take more risk, to grant more corporate loans than consumption loans, and to be more profitable. We complement the literature on the risk-taking channel and provide arguments that Central Banks can manage financial stability.
    Keywords: monetary surprise, financial stability, bank risk-taking, VAR model, dynamic panel regression
    JEL: E44 E58 G21
    Date: 2021–12
  19. By: Direye, Eli; Khemraj, Tarron
    Abstract: The Bank of Papua New Guinea has maintained an active policy of foreign exchange market intervention. This monetary tool is associated with a depreciating currency and a worsening shortage of foreign currencies in the domestic market – suggesting that at most the policy instrument leans against existing FX market pressure. However, the one-sided sales of central bank securities (or bills) engender an appreciation of the rate and an easing of the shortage in the domestic FX market. Supported by empirical evidence, we demonstrate that the one-sided sales of central bank bills perform like an instrument of monetary policy for foreign exchange market stability in the presence of persistent non-remunerated excess bank reserves.
    Keywords: Papua New Guinea, central bank bills, one-sided sterilization, foreign exchange intervention
    JEL: E50 E52 E58 F4 F41 H63 O10
    Date: 2021–03–01
  20. By: Marco Bassetto; Gherardo Gennaro Caracciolo
    Abstract: It is well known that monetary and fiscal policy are connected by a common budget constraint. In this paper, we study how this manifests itself in the context of the Eurozone, where that connection links the European Central Bank, the 19 national central banks, the Treasuries of 19 countries, and the European Union. Our goal is twofold. First, we wish to clarify how seigniorage flows from the monetary authority to the budget of each country. Second, we seek to answer the question of how the taxpayers of each country are affected by a default of one of the participants to the union. In answering this question, we analyze the mechanisms that ensure (or do not ensure) that net liabilities across countries stay bounded, and we establish how the answer depends on the liquidity premium that each category of assets commands (cash, excess reserves within the Eurosystem, and government bonds). We find that the official risk-sharing provisions of the policy of quantitative easing (QE), whereby national central banks retain 90% of the risk intrinsic in bonds of their own country, only holds under restrictive assumptions; under plausible scenarios, a significantly larger fraction of the risk is mutualized.
    Keywords: Monetary/fiscal interaction; Fiscal theory of the price level; Eurozone; TARGET2; Monetary union
    JEL: E63 E51 E58 E31 H63
    Date: 2021–12–02
  21. By: Jean-Guillaume Sahuc; Mattia Girotti; Benoît Nguyen
    Abstract: Negative interest rate policy makes excess liquidity costly to hold for banks and this may weaken the bank-based transmission of monetary policy. We design a rule-based tiering system for excess reserve remuneration that reduces the burden of negative rates on banks while ensuring that the central bank keeps control of interbank interest rates. Using euro-area data, we show that under the proposed tiering system, the aggregate cost of holding excess liquidity when the COVID-19 monetary stimulus fully unfolds would be more than 36% lower than that under the ECB’s current system.
    Keywords: Negative interest rates, excess liquidity, tiering system, bank profitability, interbank market
    JEL: E43 E52 G21
    Date: 2022
  22. By: Ambrocio, Gene
    Abstract: I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks do not universally behave like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. Further analysis, including a comparison of results across countries, suggest that factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation.These results lend support to a pricing bias mechanism as an important transmission channel.
    JEL: D84 E30 E52 E71
    Date: 2022–02–14
  23. By: Dimitrios Sideris (Bank of Greece and Panteion University); Georgia Pavlou (Bank of Gerece)
    Abstract: The aim of the present paper is to identify the main determinants of private consumption in Greece for the recent period 2003:Q1- 2020:Q1. The issue is of particular interest for Greece, now that the economy is trying to return to a sustainable growth path following the pandemic episode, since private consumption constitutes the main component of Greek GDP. The study analyses the determinants of private consumption, paying particular attention to the significance of income and wealth. The major novelty of the paper with respect to the Greek literature on consumption is that it assumes that different types of income play a different role in consumers’ behavior: so, disposable income is decomposed into its labour and non-labour components. To this end, four alternative measures of labour income are computed based on quarterly non-financial accounts data of the households’ sector. The results indicate that decomposing disposable income is essential for analyzing private consumption. Labour income turns out to be the most important determinant of private consumption in Greece in the long and the short run. Thus, labour income should primarily be monitored and targeted by the policy makers, in their policies aiming at domestic demand and GDP growth.
    Keywords: Private Consumption; Labour income; Wealth; Cointegration; Error correction model.
    JEL: E21 E44 C22 D12
    Date: 2021–11
  24. By: Mäki-Fränti, Petri; Silvo, Aino; Gulan, Adam; Kilponen, Juha
    Abstract: We use Finnish household-level registry and survey data to study the effects of ECB’s monetary policy on the distribution of income and wealth. We find that monetary easing has a large positive effect on aggregate economic activity in Finland, but its overall net impact on income and wealth inequality is negligible. Monetary easing increases households’ gross income by reducing unemployment and leading to a general rise in wages, while at the same time it boosts asset prices. These different channels have counteracting effects on income and wealth inequality, as measured by the Gini coefficient and the ratios of income and wealth of the 90th percentile to the 50th percentile. The reduction in aggregate unemployment benefits especially households in lower income quintiles, where the initial rate of unemployment is high. Households in the upper income quintiles, where the rate of employment is higher, benefit relatively more from an increase in wages. An increase in house prices benefits all homeowners. In terms of net wealth, households with large mortgages, in the lower wealth quintiles, benefit the most from an increase in house prices due to a leverage effect. An increase in stock prices, in turn, benefits mainly households in the top wealth quintile.
    JEL: D31 E32 E52
    Date: 2022–01–20
  25. By: Alessandro Ferrari (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: In a DSGE model, we study the effectiveness of a Green QE, i.e. a program of green-asset purchases by the central bank, along the transition to a carbon-free economy. The model is characterized by green firms that produce using a clean technology and brown firms that pollute but they can pay a cost to abate emissions. The transition is driven by an emission tax. We analyze the evolution of macroeconomic variables along the transition and we compare different versions of Green QE. We show two main findings, in our baseline calibration, where the green and the brown goods are imperfect substitutes. First, Green QE helps to further reduce emissions along the transition, but its quantitative impact on the stock of pollution is small. Second, we find the largest effects when the central bank invests in green assets in the early stage of the transition. Moreover, we highlight that the elasticity of substitution between the green and the brown good is a crucial parameter: if the goods are imperfect complements (an elasticity lower than one), Green QE raise emissions.
    Keywords: central bank, monetary policy, quantitative easing, climate change
    JEL: E52 E58 Q54
    Date: 2022–02
  26. By: José Alves; Sandro Morgado
    Abstract: In our article we review the secular stagnation hypothesis, firstly postulated by Hansen (1939), to describe the current macroeconomic dynamics faced by developed economies. Based in the existing literature, we elaborate on a workable definition of secular stagnation founded on four pillars: diminished long run growth potential, increasing aggregate demand shortages, lowering of nominal short term interest rates and increasingly immovable unemployment. This four-pillar definition reveals a fundamental problematic faced by these economies; while a diminished long run growth potential, increasing aggregate demand shortages and an increasingly immovable unemployment stress the need for full employment policy measures, the lowering of nominal short term interest rates makes the mostly resorted to full employment policy measure, in the form of expansionary monetary policy, ineffective. This problematic implies an imperative rethinking of the policy framework in times of secular stagnation. For that, we consider one of the most evoked factors causing secular stagnation, demographics in the form of an aging population and a declining working age population, hence highlighting the pertinence of immigration as a possible solution. We do so by empirically observing the pillars of secular stagnation and testing the impact of demographic factors on those features, resorting to panel data analysis. Focusing on the EU15 and US economies, with data ranging from 1965 to 2020, we conclude that the four pillars we based our definition of secular stagnation upon can be empirically observed and that demographic factors play a statistically significant role for those determining features thus highlighting the pertinence of immigration as a possible solution.
    Keywords: Economic stagnation; secular stagnation; financial crisis; immigration; monetary policy.
    JEL: E52 G01 J11 O47
    Date: 2022–01
  27. By: Luca Benati; Juan Pablo Nicolini
    Abstract: We revisit the estimation of the welfare costs of inflation originating from lack of liquidity satiation. We use data for the United States and several other developed countries. Our computations are heavily influenced by the recent experience of very low, even negative, short-term rates observed in the countries we study. We obtain estimates that range between 0.20% and 1.5% of lifetime consumption for the United States and find even higher values for some European countries.
    Keywords: Money demand; Lower bound on interest rates
    JEL: E41 E43 E52
    Date: 2021–09–24
  28. By: Scholl, Christoph
    Abstract: The Business Cycle Accounting method by Chari, Kehoe, and McGrattan (2007) helps identify theories that have quantitative promise in explaining economic fluctuations. In this paper, it will be applied to Germany to study the impact of the COVID-19 pandemic. The efficiency wedge primarily drove Germany’s recession. The extensive lockdowns that prevented existing production factors such as labor and capital from producing at their full potential can explain the productivity loss. This suggests that the lockdowns are well identified as significant drivers of the reduction in economic activity and that their end would predict a sharp recovery in Germany.
    Keywords: Macroeconomics, Business Cycles, Business Cycle Accounting, COVID-19, Germany, GDP Drop, Recession, Productivity,
    JEL: C0 E0 F0
    Date: 2022–01–16
  29. By: James Malley; Apostolis Philippopoulos
    Abstract: This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a neoclassical growth model. We add to the literature by considering a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find that infrastructure spending cannot fully pay for itself despite public and private capital being underprovided. We further find long-run output multipliers above unity if infrastructure spending and rising public debt are financed by consumption, dividend and labour income taxes and below one for corporate taxes. We also show that except for the consumption tax, the size of the multipliers critically depends on the Frisch labour supply elasticity. Finally, when we compute differences in welfare across different public financing regimes, the net welfare gains and losses are relatively minor.
    Keywords: Infrastructure investment, public capital, fiscal multipliers, taxation
    JEL: E62 H41 H54
    Date: 2022–01
  30. By: David M. Arseneau; Grace Brang; Matt Darst; Jacob M. M. Faber; David E. Rappoport; Alexandros Vardoulakis
    Abstract: This paper uses data from the Financial Accounts of the United States to map out the regulatory boundaries of assets held by U.S. financial institutions from a macroprudential perspective. We provide a quantitative measure of the regulatory perimeter—the boundary between the part of the financial sector that is subject to some form of prudential regulatory oversight and that which is not—and show how it has evolved over the past forty years. Additionally, we measure the boundaries between different regulatory agencies and financial institutions that operate within the regulatory perimeter and illustrate how these boundaries potentially become blurred in the face of regulatory overlap. Quantifying the regulatory perimeter and the boundaries for macroprudential regulators within the perimeter is informative for assessing financial stability risks over the credit cycle.
    Keywords: Regulation; Regulatory reach; Boundary problem; Financial institutions
    JEL: E58 G18 G28
    Date: 2022–01–14
  31. By: Michel Alexandre (Central Bank of Brazil and Institute of Mathematics and Computer Science, University of Sao Paulo, Sao Carlos, Brazil); Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo, Brazil); Luca Riccetti (Department of Economics and Law, University of Macerata, Italy); Alberto Russo (Department of Management, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The purpose of this paper is to contribute to a further understanding of the impact of monetary policy shocks on a financial network, which we dub the “financial network channel of monetary policy transmisión”. To this aim, we develop an agent-based model (ABM) in which banks extend loans to firms. The bank-firm credit network is endogenously time-varying as determined by plausible behavioral assumptions, with both firms and banks being always willing to close a credit deal with the network partner perceived to be less risky. We then assess through simulations how exogenous shocks to the policy interest rate affect some key topological measures of the bank-firm credit network (density, assortativity, size of largest component, and degree distribution). Our simulations show that such topological features of the bank-firm credit network are significantly affected by shocks to the policy interest rate, and this impact varies quantitatively and qualitatively with the sign, magnitude, and duration of the shocks.
    Keywords: Financial network, monetary policy shocks, agent-based modeling
    JEL: C63 E51 E52 G21
    Date: 2022
  32. By: Arce-Alfaro, Gabriel; Blagov, Boris
    Abstract: In this article we analyse the degree of commonality across euro area countries in the bank lending rates and credit volumes. Using a time-varying two-level dynamic factor model, we disentangle the relative importance of country-specific and common components in explaining the variance of the macro and financial variables. Our results show that a high share is explained by the common component. However, we find a persistent decline in the importance of the common factor in the bank lending rates, indicating the presence of financial fragmentation. There is heterogeneity across member states, specifically those hit hard by the crisis. We observe high commonality in the financial variables, which increases in periods of high financial volatility.
    Keywords: Co-movements,financial fragmentation,dynamic factor model
    JEL: C11 C38 E43 E52
    Date: 2021
  33. By: Jeremy Srouji (Université Côte d'Azur, France; GREDEG CNRS; International Institute of Social Studies - Erasmus University Rotterdam)
    Abstract: The literature on currency internationalization, with its focus on the essential attributes of an international currency issuer, is largely inadequate for explaining what causes the currency of a country to be adopted and to remain as world money. This paper argues that embedded within the well-known framework of the functions of money – as a medium of exchange, unit of account and store of value – are fundamental assumptions about how Economics defines and understands money. Drawing on conventional and Post Keynesian approaches, it demonstrates that current theories of currency internationalization, and questions of international money more generally, are embedded in underlying theories of money that are very specific about the process through which currencies achieve and maintain an international position. It also finds that a better understanding of the functional approach to money can bring greater theoretical clarity to the positions of various authors on questions of international money. At the same time, it argues that shortfalls in both the conventional and Post Keynesian approaches to money are inevitably also transposed to the international level. These need to be addressed before a more comprehensive theory of currency internationalization can emerge.
    Keywords: international money, international reserves, US dollar, currency internationalization, cryptocurrency
    JEL: E12 E13 E42 E52
    Date: 2021–12
  34. By: Koenig, Philipp J.; Schliephake, Eva
    Abstract: We consider a standard banking model with agency frictions to simultaneously study the weakening and reversal of monetary transmission and banks' risk-taking in a low-interest environment. Both, weaker monetary transmission and higher risk-taking arise because lower policy rates impair banks' net worth. The pass-through to deposit rates, the level of excess reserves and the extent of the agency problem between banks and depositors are crucial determinants of monetary transmission. If the deposit pass-through is sufficiently impaired, a reversal rate exists. For policy rates below the reversal rate further interest rate reductions lead to a disproportionate increase in risk-taking and a contraction in loan supply. JEL Classification: G21, E44, E52
    Keywords: bank lending, monetary policy, reversal rate, risk-taking channel
    Date: 2022–02
  35. By: Martin M. Andreasen (Aarhus University, CREATES, and the Danish Finance Institute); Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (University of Padova); Giovanni Pellegrino (Aarhus University)
    Abstract: This paper uses a nonlinear vector autoregression and a non-recursive identification strategy to show that an equal-sized uncertainty shock generates a larger contraction in real activity when growth is low (as in recessions) than when growth is high (as in expansions). An estimated New Keynesian model with recursive preferences and approximated to third order around its risky steady state replicates these state-dependent responses. The key mechanism behind this result is that firms display a stronger upward nominal pricing bias in recessions than in expansions, because recessions imply higher inflation volatility and higher marginal utility of consumption than expansions.
    Keywords: New Keynesian Model, Nonlinear SVAR, Non-recursive identification, State-dependent uncertainty shock, Risky steady state
    Date: 2021–08
  36. By: Donato Ceci (Bank of Italy); Andrea Silvestrini (Bank of Italy)
    Abstract: This paper compares several methods for constructing weekly nowcasts of recession probabilities in Italy, with a focus on the most recent period of the Covid-19 pandemic. The common thread of these methods is that they use, in different ways, the information content provided by financial market data. In particular, a battery of probit models are estimated after extracting information from a large dataset of more than 130 financial market variables observed at a weekly frequency. The predictive accuracy of these models is explored in a pseudo out-of-sample forecasting exercise. The results demonstrate that nowcasts derived from probit models estimated on a large set of financial variables are, on average, more accurate than standard probit models estimated on a single financial covariate, such as the slope of the yield curve. The proposed approach performs well even compared with probit models estimated on single time series of real economic activity, such as industrial production, or on composite PMI indicators. Overall, the financial indicators used in this paper can be easily updated as soon as new data become available on a weekly basis, thus providing a reliable real-time dating of the Italian business cycle.
    Keywords: financial markets, probit models, factor-augmented probit models, model confidence set, penalized likelihood, forecast evaluation
    JEL: C22 C25 C53 E32
    Date: 2022–02
  37. By: Douglas Barrios (Center for International Development at Harvard University); Federico Sturzenegger; Frank Muci (Center for International Development at Harvard University); Patricio Goldstein (Center for International Development at Harvard University); Ricardo Hausmann (Center for International Development at Harvard University)
    Abstract: This study analyses the performance of macroeconomic policy in South Africa in 2007–2020 and outlines challenges for policy in the coming decade. After remarkable economic growth in 1997–07, South Africa’s progress slowed dramatically in 2009 with the global financial crisis. Real GDP growth decelerated more than in other emerging markets and mineral exporting peers and never recovered pre-crisis levels. In addition, the budget deficit that provided counter-cyclical support to the economy was never reigned in, leading to a rapidly rising public debt load. The study assesses three accounts of South Africa’s post-GFC growth and fiscal slump: (1) an external story; (2) a macro story; and (3) a microeconomic story. Evidence of strong linkages between micro-and political developments and growth performance is provided.
    Keywords: macroeconomic policy, economic growth, emerging markets, South Africa
    JEL: E63 E65 O55
    Date: 2022–01
  38. By: Greenwood, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise); Hanke, Steve (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: In the United States and numerous other economies, we are witnessing a flood of ad hoc explanations for inflation. These deal primarily with supply chain issues that have arisen since the Covid-19 pandemic and the re-opening of economies. There is a widespread view among officials at the Federal Reserve System, economists in the Biden Administration, academics (led by people like Paul Krugman, who claims to be a spokesman for “Team Transitory”), and even large parts of the business community that the current bout of U.S. inflation is largely the result of supply chain disruptions that will turn out to be “transitory,” and that the inflationary pressures will dissipate in 2022 as the supply chain issues are resolved. The authors argue that this consensus will prove to be wrong because of its failure to distinguish between relative price changes and changes in the overall price level. The movement of any single set of relative prices fails to convey information about the overall inflation rate. The overall inflation rate and price level are determined by changes in the money supply broadly measured. The Quantity Theory of Money (QTM) and the equation of exchange confirms this relationship. On the other hand, changes in relative prices result from changes in demand and supply conditions in the real sector of the economy. Relative price changes are, therefore, independent of changes in the money supply. So, while a doubling of the money supply will result in a doubling of all nominal prices, relative prices in the economy will remain unaffected. Due to central banks' monetary mismanagement, excess money has been produced in most countries since the Covid-19 pandemic started in early 2020. As a result of this excess money creation, the authors anticipate that the U.S. and Israel are likely to see increases in their overall price levels of approximately 28% and 20%, respectively, over the next few years, whereas the U.K. will likely see an increase of about 11% in the overall price level over a similar period. Meanwhile, for countries like China, Japan, Switzerland, and New Zealand that did not create excess money, the authors anticipate negligible increases in the rate of overall inflation.
    Date: 2021–12–01
  39. By: Christian Loenser (University of Cologne); Joost Röttger (Deutsche Bundesbank); Andreas Schabert (University of Cologne)
    Abstract: This paper examines financial regulation and distortionary taxes in a heterogeneous-agents economy with pecuniary externalities induced by a collateral constraint. Limiting of the loan-to-value benefits only few unconstrained borrowers and reduces ex-ante social welfare. A Pigouvian-style symmetric debt tax (that subsidizes savings) raises collateral prices and lowers interest rates, which stimulates borrowing and generates welfare gains for almost all income groups. A Pigouvian-style asset subsidy induces a wealth appreciation, while an asset tax particularly benefits low-wealth borrowers and enhances social welfare. Overall, collateral effects are of minor importance and interest rate rather than asset price responses are decisive for welfare effects.
    Keywords: Financial regulation, heterogeneous agents, collateral constraint, pecuniary externalities
    JEL: D31 E44 G28 H23
    Date: 2022–02
  40. By: Alain Galli; Rina Rosenblatt-Wisch
    Abstract: Private consumption, i.e., spending of households, is a key economic variable. While data on private consumption are widely available on a national, aggregate level, disaggregated data on household spending are scarce, particularly in the form of a panel. To fill this gap, we make use of Swiss tax data from the Canton of Bern from 2002 until 2016 to retrieve consumption estimates on a disaggregated level. Since consumption is not directly available from tax records, we show how to transform tax-specific data and information into economically interpretable measures. In particular, we impute consumption based on the simple budget constraint of a household. This approach yields a unique panel of income, wealth and consumption for each taxpayer in the Canton of Bern over time. After discussing and validating the obtained consumption estimates, we analyse consumption and saving patterns of households over the life cycle as well as across different subgroups and show how consumption inequality has evolved over time. We find the typical hump-shaped consumption profile over the life cycle and an increasing savings rate over the working age with a substantial fall with retirement and dissaving thereafter. Our results also suggest that consumption and saving behaviour vary across different household characteristics. Finally, we show that consumption and income inequality remained rather stable between 2002 and 2016. Over the life cycle, however, consumption and income inequality do change: they are rather low at a young age but increase thereafter.
    Keywords: Household finance, consumption measurement, tax data, wealth, income, savings
    JEL: D12 D14 D31 E21 G11
    Date: 2022
  41. By: Chow, Hwee Kwan (Singapore Management University); Choy, Keen Meng
    Abstract: This paper aims to investigate whether the predictive ability and behaviour of professional forecasters are different during the Covid-19 epidemic as compared with the global financial crisis of 2008 and normal times. To this end, we utilise a survey of professional forecasters in Singapore collated by the central bank to analyse the forecasting record for GDP growth and CPI inflation. We first examine the point forecasts to document the extent of forecast failure in the pandemic crisis and test for behavioural explanations of the possible sources of forecast errors such as leader following and herding behaviour. Using percentile-based summary measures of probability distribution forecasts, we then study how the degree of consensus and subjective uncertainty among forecasters are affected by the heightened economic uncertainty during crises. We found the behaviour of forecasters do not differ much between the two crisis episodes for growth projections despite major differences between the two crises. As for inflation forecasts, our findings suggest forecasters suffer less from forecast inertia when predicting short term one-quarter ahead inflation as compared to longer term one-year and two-year ahead inflation.
    Keywords: Survey data; COVID-19; leader following and herding behaviour; disagreement; uncertainty
    JEL: D80 E17
    Date: 2022–02–07
  42. By: Zsuzsanna Hosszu (Magyar Nemzeti Bank (Central Bank of Hungary)); Gergely Lakos (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: We use European and simulated Hungarian data to search for the univariate one-sided credit-to-GDP gap that predicts systemic banking crises most accurately. The credit-to-GDP gaps under review are optimized along four dimensions: (1) definition of outstanding credit, (2) forecasting method for extending credit-to-GDP time series, (3) filtering method and (4) maximum cycle length. Based on European data, we demonstrate that credit-to-GDP gaps calculated with narrow definition of outstanding credit and up to 1-year forecasts of credit-to-GDP outperform other specifications significantly and robustly. Regarding the other two dimensions, the Hodrick–Prescott filter with long cycles (popular in regulatory practice), the Christiano–Fitzgerald filter with medium-term cycles and the wavelet filter with short cycles prove to be the best. All three should be applied to credit-to-GDP time series calculated with narrow credit, and with no credit-to-GDP forecast, except the wavelet filter with short-term forecast. Credit-to-GDP gaps with most informative early warning signals exhibit the highest degree of comovement with the financial cycle, but not the lowest level of endpoint uncertainty. Analysis of Hungarian credit-to-GDP time series extended by ARIMA simulations reinforces the early warning quality of the Hodrick–Prescott credit gap and the wavelet credit gap to a lesser extent.
    Keywords: financial cycle, crises, early warning, univariate filtering methods
    JEL: C20 C52 E32 G28
    Date: 2022
  43. By: Valentin Jouvanceau (Bank of Lithuania); Julien Albertini (GATE, University of Lyon); Stéphane Moyen (Deutsche Bundesbank)
    Abstract: This paper proposes a new strategy for modeling and solving state-dependent forward guidance policies (SCFG). We study its transmission channels using a DSGE model with search and matching frictions in which agents account for the fact that the SCFG is an endogenous regime-switching system. A fully credible SCFG causes a boom in inflation and output but no rapid exit from the ZLB. Thus, the transmission of its effects is primarily through the realization of additional ZLB periods more than through changes in expectations. We next consider the implications of imperfect credibility. In this case of uncertainty, an SCFG is less impactful. Finally, using counterfactual experiments on the December 2012 FOMC statement, we find that it led to about 1.5 pp gain in unemployment and 0.5 pp in inflation.
    Keywords: New Keynesian model, Search and matching, ZLB, Forward guidance.
    JEL: E30 J60
    Date: 2022–01–25
  44. By: Razzak, Weshah
    Abstract: Effectively, the government of Iraq, not the Iraqi people, owns the oil wealth; the oil industry is a government monopoly. We make the case against such monopoly and for a competitive oil industry. We estimate the share of oil in real output to be relatively large, and show that most macroeconomic variables are highly associated with the price of oil. This oil dependence is consistent with the rentier economy. In addition, the elasticity of oil production with respect to global oil consumption is greater than one. Such monopolistic industry would not be suitable for the future in a zero carbon state of the world. We estimate the dynamics of real oil prices and quantity; human capital, the stock of capital, labor, and real GDP, and conduct stress tests by producing dynamic stochastic projections for the period from 2020 to 2050 under the baseline and two adverse counterfactual scenarios. Permanent income is higher under a competitive scenario than a monopolistic one. A quick transfer of ownership of oil to the Iraqi people should guarantee a competitive market economy, a functional democracy, and a better future for the Iraqis.
    Keywords: Iraq, oil share, private ownership, FM-OLS, VAR, Stress testing
    JEL: C1 C53 D24 E17 Q30 Q34
    Date: 2022–01–06
  45. By: Knut Anton Mork (Department of Economics, Norwegian University of Science and Technology); Haakon Andreas Trønnes (Department of Economics, Norwegian University of Science and Technology); Vegard Skonseng Bjerketvedt (Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology)
    Abstract: We study the dynamic performance of a sovereign wealth fund with the dual purpose of preserving wealth to future generations and provide regular contributions to annual budgets. We do not seek to derive optimal results but use stochastic simulations to study the implications of existing rules. Because our immediate focus is on the Norwegian Government Pension Fund Global, popularly referred to as the oil fund, we study rules established for this fund and calibrate our model from data for this fund’s financial returns as well as the Norwegian fiscal policy for which fund withdrawals make up an integral part. However, our results should be of interest to other sovereign wealth funds as well as endowment funds for universities and other non-profit institutions. Withdrawals are limited to the fund’s expected real returns as a first approximation; however, deviations from this rule are allowed to fund automatic stabilizers as well as discretionary fiscal policy. On top of that, the rule also allows smoothing so as to avoid abrupt changes. We find that this combination of rules implies considerable uncertainty regarding the fund’s future development. It does not preserve the fund’s value for future generations, not even in expectation, and will eventually lead to depletion. Keeping risk (equity share) low and withdrawal rates below the expected rate of return are possible remedies. However, for the depletion risk to be eliminated, stricter bounds must be put on countercyclical fiscal policy than the pattern followed in recent decades.
    Keywords: Sovereign wealth funds, Long-term risk, Fiscal smoothing, Depletion risk
    JEL: C63 E62 G11
  46. By: Ximena Cadena; Norberto Rojas; Sandra Zuluaga; María José Mejía; Alejandro Garavito
    Abstract: Entre abril de 2019 y diciembre de 2020 el programa Bonos de Impacto Social de Colombia (SIBs.CO se creó en 2016 como una alianza entre el BID-Lab, la Embajada de Suiza en Colombia – Cooperación Económica y Desarrollo de Suiza (SECO) y la Fundación Corona, con apoyo del Gobierno Nacional a través del Departamento para la Prosperidad Social) implementó el segundo Bono de Impacto Social “Cali Progresa con Empleo†. Este bono es un esquema de inversión social con Financiación Basada en Resultados. Para la evaluación de procesos Fedesarrollo realizó 25 entrevistas a actores que participaron en el bono y un análisis cuantitativo que explora los datos de monitoreo y seguimiento de la gestión del desempeño del bono. Todo con el objetivo de proporcionar recomendaciones para mejorar los programas de empleo y los Bonos de Impacto Social en el país; comenzando con la importancia de seguir desarrollando Bonos de Impacto Social con Financiación Basada en Resultados para poder aprender y mejorar su diseño e implementación.
    Keywords: Bono de Impacto Social, BIS, Cali Progresa con Empleo, Evaluación de Procesos, Empleo, Desempleo, Informalidad, Impacto Social, Mercado Laboral, Política Pública, Cali
    JEL: E24 E20 J40 J46 J48 J60
    Date: 2021–07–30
  47. By: Sebastian Link (ifo Institute, LMU Munich, IZA, CESifo); Andreas Peichl (LMU Munich, ifo Institute); Christopher Roth (University of Cologne, ECONtribute); Johannes Wohlfart (Department of Economics and CEBI, University of Copenhagen, CES ifo, Danish Finance Institute)
    Abstract: We survey samples of German firms and households to document novel stylized facts about the extent of information frictions among the two groups. First, firms’ expecta-tions about macroeconomic variables are closer to expert forecasts and less dispersed than households’, consistent with higher information frictions among households. Second, the degree of dispersion and the distance from expert forecasts varies more across groups of households than across groups of firms. Third, firms update their policy rate expectations less than households when provided with an expert forecast, consistent with holding stronger priors. Our results have implications for modeling choices, macroeconomic dynamics, and policies.
    Keywords: Information frictions, expectation formation, firms, households, interest rates
    JEL: D83 D84 E71
    Date: 2022–01
  48. By: Yang, Xiaoliang (Zhongnan University of Economics and Law, Wuhan, China); Zhou, Peng (Cardiff Business School)
    Abstract: We design a series of simulation-based thought experiments to deductively evaluate the causal effects of various factors on wealth inequality (the distribution) and social mobility (dynamics of the distribution). We find that uncertainty per se can lead to a “natural” degree of inequality and returns-related factors contribute more than earnings-related factors. Based on these identified factors, we construct an empirical, hybrid agent-based model to match the observed wealth inequality measures of the G7 countries and China. The estimated model can generate a power-law wealth distribution for the rich and a positively sloped intra-generational Great Gatsby curve. We also demonstrate how this hybrid model can be extended to a wide range of questions such as redistributive effects of tax and finance.
    Keywords: Wealth Inequality; Social Mobility; Agent-Based Model
    JEL: D31 E21 J60
    Date: 2022–02
  49. By: González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio
    Abstract: This is a crisis like no other. The global economic outlook continues to be uncertain, more than a year after the declaration of the pandemic. Mutations of the virus, deaths and levels of contagion remain a cause for concern, although increases in vaccination rates, technical advances and responsible actions by citizens contribute to optimism. This paper shows the situation of the Galician economy through an analysis of its main magnitudes and variables and the effect of COVID on them.
    Keywords: COVID, Galicia, economy, economic impact, macro-magnitudes
    JEL: E01 E02 H00 H12
    Date: 2021–12
  50. By: Andrew Glover; Jonathan Heathcote; Dirk Krueger; Jose-Victor Rios-Rull
    Abstract: In this paper we ask how to best allocate a given time-varying supply of vaccines during the second phase of the Covid-19 pandemic across individuals of different ages. Building on the heterogeneous household model of optimal economic mitigation and redistribution developed by Glover et al. (2021), we contrast the actual vaccine deployment path that prioritized older individuals with one that first vaccinates younger workers. Vaccinating older adults first saves more lives but slows the economic recovery relative to inoculating younger adults first. Vaccines carry large welfare benefits in both scenarios (relative to a world without vaccines), but the older-first policy is optimal under a utilitarian social welfare function.
    Keywords: COVID-19; Vaccination paths
    JEL: E21 E63
    Date: 2021–12–17
  51. By: Foroni, Claudia; Gelain, Paolo; Marcellino, Massimiliano
    Abstract: We use mixed-frequency (quarterly-monthly) data to estimate a dynamic stochastic general equilibrium model embedded with the financial accelerator mechanism à la Bernanke et al. (1999). We find that the financial accelerator can work very differently at monthly frequency compared to the quarterly frequency, i.e. we document its inversion. That is because aggregating monthly data into quarterly leads to large biases in the estimated quarterly parameters and, as a consequence, to a deep change in the transmission of shocks. JEL Classification: C52, E32, E52
    Keywords: DSGE models, financial accelerator, mixed-frequency data
    Date: 2022–02
  52. By: Javier Bianchi; Guido Lorenzoni
    Abstract: We provide a simple framework to study the prudential use of capital controls and currency reserves that have been explored in the recent literature. We cover the role of both pecuniary externalities and aggregate demand externalities. The model features a central policy dilemma for emerging economies facing large capital outflows: the choice between increasing the policy rate to stabilize the exchange rate and decreasing the policy rate to stabilize employment. Ex ante capital controls and reserve accumulation can help mitigate this dilemma. We use our framework to survey the recent literature and provide an overview of recent empirical findings on the use of these policies.
    Keywords: Capital controls; Foreign exchange interventions; Monetary policy; Macroprudential policies
    JEL: F32 F33 F41 F42 G18
    Date: 2021–11–12
  53. By: Yu-Fu Chen; Hassan Molana
    Abstract: We derive a generalised version of the Ramsey-type consumption function when labour income is assumed to follow the standard geometric Brownian motion, and show how the propensity to consume might depend on its drift and diffusion parameters. This enables us to explain the circumstance in which precautionary savings can arise when a risk averse consumer faces income uncertainty, and to resolve the main consumption puzzles: excess smoothness and excess sensitivity of consumption relative to income and its insensitivity to the real interest rate. Our results also show how labour income uncertainty could explain the existence of a subsistence level of consumption and, in that context, shed light on Kuznets’ paradox regarding constancy of the average propensity to consume in the long run. Finally, we find that using the subjective rate of time preference as the sole measure of a consumer’s impatience to consume could be misleading when the path of labour income is volatile.
    Keywords: life-cycle model; income volatility; geometric Brownian motion; risk aversion; precautionary savings; excess sensitivity; excess smoothness; Kuznets’ paradox
    JEL: C61 D11 E21 D91 D80
    Date: 2022–01
  54. By: Yulei Luo; Jun Nie; Heng-fu Zou
    Abstract: Wealth in the utility function (WIU) has been increasingly used in macroeconomic models and this specification can be justified by a few theories such as Max Weber’s (1904-05, German; 1958) theory on “spirit of capitalism.” We incorporate the WIU into a general equilibrium consumption-portfolio choice model to study the implications of the WIU for consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature. Our general equilibrium framework features recursive exponential utility, uninsurable labor risks, and multiple assets and can deliver closed-form solutions to help disentangle the effects of the WIU in driving the key results. We show a stronger preference for wealth lowers the risk-free rate but increases the consumption inequality and equity premium in the equilibrium. We show these properties improve the model’s performance in explaining the data. We also compare the WIU with a closely related hypothesis, habit formation, and find that they have opposite effects on equilibrium asset returns and consumption inequality.
    Keywords: Wealth; Spirit of Capitalism; Risk free rates; Risk premia; Savings; Consumption inequality; Wealth inequality
    JEL: C61 D81 E21
    Date: 2021–12–22
  55. By: Maximiliano Gómez Aguirre Author-Email: Author-Workplace-Name: Central Bank of Argentina; Ariel Krysa (Central Bank of Argentina)
    Abstract: With the aim of quantifying the effect of the decrease in interest rates on consumer loans (both credit cards and personal loans, in local currency to the non-financial private sector) in Argentina between March and December 2020, monthly error correction models are estimated, and counterfactual scenarios are developed for each of the credit lines. The sample that is used includes the period 2004-2020 and the determinants are the corresponding interest rates and economic activity measures. As an alternative case, it is assumed that interest rates would have been fixed in 2020 at the values of February that year and/or that the parameters of elasticities that operated in the consumer credit markets were those associated with the pre-COVID-19 context. The counterfactual scenarios implemented within the econometric models suggest that the decline in the interest rate would have cushioned, with different magnitudes throughout 2020, the fall caused by effects of the pandemic both in the credit cards and personal loans real balances.
    Keywords: consumption credit, COVID-19 crisis, Argentina, credit cards, personal loans
    JEL: C01 E21 E50
    Date: 2022–01
  56. By: Ariel Dvoskin Author-Email: Author-Workplace-Name: Central Bank of Argentina; Sebastián Katz (Central Bank of Argentina)
    Abstract: What are the most appropriate policy regimes and mix of instruments in small open economies to deal with capital flows volatility and the influence of the global financial cycle? In this article, we review the recent experience of various emerging economies and the arguments in favor of the use of various conventional and unconventional policy tools and approaches. In particular, we analyze the different reasons that prevent full exchange rate flexibility as a shock absorber, which demands, in many circumstances, the use of alternative tools, sometimes as substitutes but in many other cases as complements of FX flexibility: FX markets interventions, macroprudential regulations and capital flow management measures. Our main contribution is to present the FX transmission channels to the macro/financial performance and the tools currently used by many Central Banks to deal with FX shocks identified by an extensive literature in a systematic and orderly manner. We conclude that the most appropriate policy responses critically depend, not only on the nature and intensity of the shock, but also on the structural conditions and particular circumstances that each economy exhibits at the "starting point".
    Keywords: capital flows, capital flow management measures, exchange rate policy, FX markets interventions, macroprudential regulations, small open economies.
    JEL: E58 F31 F38 G28
    Date: 2021–12
  57. By: Rod Garratt; Michael Junho Lee; Antoine Martin; Joseph Torregrossa
    Abstract: Stablecoins, which we define as digital assets used as a medium of exchange that are purported to be backed by assets held specifically for that purpose, have grown considerably in the last two years. They rose from a market capitalization of $5.7 billion on December 1, 2019, to $155.6 billion on January 21, 2022. Moreover, a market that was once dominated by a single stablecoin—Tether (USDT)—now boasts five stablecoins with valuations over $1 billion (as of January 21, 2022; data about the supply of stablecoins can be found here). Analysts have started to pay increased attention to the stablecoin market, and the President’s Working Group (PWG) on Financial Markets released a report on stablecoins on November 1, 2021. In this post, we explain why we believe stablecoins are unlikely to be the future of payments.
    Keywords: digital currencies; stablecoins
    JEL: E5 G21 E42
    Date: 2022–02–07
  58. By: Santiago Camara
    Abstract: This paper studies the role of households' heterogeneity in access to financial markets and the consumption of commodity goods in the transmission of foreign shocks. First, I use survey data from Uruguay to show that low income households have poor to no access to savings technology while spending a significant share of their income on commodity-based goods. Second, I construct a Two-Agent New Keynesian (TANK) small open economy model with two main features: (i) limited access to financial markets, and (ii) non-homothetic preferences over commodity goods. I show how these features shape aggregate dynamics and amplify foreign shocks. Additionally, I argue that these features introduce a redistribution channel for monetary policy and a rationale for "fear-of-floating" exchange rate regimes. Lastly, I study the design of optimal policy regimes and find that households have opposing preferences a over monetary and fiscal rules.
    Date: 2022–01
  59. By: Ricardo Hausmann; Federico Sturzenegger; Patricio Goldstein; Frank Muci; Douglas Barrios
    Abstract: This study analyses the performance of macroeconomic policy in South Africa in 2007-2020 and outlines challenges for policy in the coming decade. After remarkable economic growth in 1997-07, South Africa's progress slowed dramatically in 2009 with the global financial crisis. Real GDP growth decelerated more than in other emerging markets and mineral exporting peers and never recovered pre-crisis levels. In addition, the budget deficit that provided counter-cyclical support to the economy was never reigned in, leading to a rapidly rising public debt load.
    Keywords: Macroeconomic policy, Economic growth, Emerging markets, South Africa
    Date: 2022
  60. By: Kozo Ueda
    Abstract: This study constructs a tractable duopoly model with price stickiness to consider the strategic pricing of duopolistic firms and its implications for monetary policy. Dynamic strategic complementarity, in which an increase in a firm's price increases the optimal price set by the rival firm in the following periods, increases steady-state price and the real effect of monetary policy. However, when temporary sales arise as a mixed strategy, the real effect of monetary policy decreases considerably.
    Date: 2022–02
  61. By: Corinna Ghirelli (Banco de España); Danilo Leiva-León (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: In this article, we measure changes over time in the synchronization of housing price cycles across Spanish cities. In doing so, we rely on a regime-switching framework that identifies the housing price cycles of pairs of cities, and simultaneously infers the evolving relation between those cycles. These bilateral relationships are then summarized into an aggregate synchronization index of city-level housing cycles. The estimates suggest that Spanish housing prices have followed a convergence pattern, which picked in 2009 and slightly decreased afterwards. We also identify the cities that have been the main contributors to this convergence process. Moreover, we show that differences in population growth and economic structure are key factors to explain the evolution of housing price synchronization among Spanish cities.
    Keywords: housing cycles, synchronization, Spain
    JEL: E31 C32 R11
    Date: 2022–01
  62. By: Richard H. Clarida
    Abstract: This paper discusses the Federal Reserve's new framework and highlights some important policy implications that flow from the revised consensus statement and the new strategy. In particular, it first discusses the factors that motivated the Federal Reserve in November 2018 to announce it would undertake in 2019 the first-ever public review of its monetary policy strategy, tools, and communication practices. It then considers the major findings of the review as codified in our new Statement on Longer-Run Goals and Monetary Policy Strategy and highlights some important policy implications that flow from them.
    Keywords: FOMC; Monetary policy
    Date: 2022–01–13
  63. By: Anna Laura Mancini (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: We document that Italian public administrations systematically overestimate capital expenditures, and that the introduction of a cap on this spending item improves the accuracy of their plans. Our analysis relies on a unique dataset including budgetary figures (both planned and realized) for all Italian municipalities, and exploits a national reform which introduced a limit to realized capital expenditures only for municipalities above a given population threshold (5,000 residents). One possible interpretation of our results is that policy-makers, exploiting the imperfect knowledge of voters, benefit from promising over-ambitious investment plans. The introduction of expenditure limits makes these promises less credible, and helps to bring expenditure plans in line with reality. Furthermore, we find that capital revenues are also over-estimated, and that the forecast accuracy of capital revenues improves due to the reform. This is in line with our political-economy interpretation: as there is less room to inflate expenditures, politicians have also less incentive to indulge in window-dressing on the revenue side.
    Keywords: budget rules, budget execution, local public finance, official forecasts, public investment, fiscal transparency
    JEL: E62 H62 H68
    Date: 2022–02
  64. By: Xin Sheng (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, United Kingdom); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey)
    Abstract: We analyse the impact of climate risks (temperature growth and its volatility) on the coincident indicator of the 50 US states in a panel data set-up, over the monthly period of March, 1984 to December, 2019. Using impulse response functions (IRFs) from a linear local projections (LPs) model, we show that climate risks negatively impact economic activity to a similar degree, irrespective of whether such risks are due to changes in temperature growth or its volatility. More importantly, using a nonlinear LPs model, the IRFs reveal that the adverse effect of climate risks is contingent on the regimes of economic and policy-related uncertainty of the states, with the impact being significantly much stronger under relatively higher values of uncertainty, rather than lower values of the same. In addition to this, temperature growth volatility is found to contract economic activity nearly five-times more compared to when temperature growth increases by a similar magnitude in the higher uncertainty-based-regime of the nonlinear model. Understandably, our results have important policy implications.
    Keywords: Climate Risks, Uncertainty, Economic Activity, US States, Linear and Nonlinear Local Projections, Impulse Response Functions
    JEL: C23 D80 E32 Q54
    Date: 2022–01
  65. By: Daisuke Ikeda; Shangshang Li; Sophocles Mavroeidis; Francesco Zanetti
    Abstract: Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop an empirical test of this 'irrel evance hypothesis' based on a simple idea that under the hypothesis, the short rate can be excluded in any empirical model that accounts for alternative measures of mon etary policy. We develop a theoretical model that underpins this hypothesis, and test it empirically for Japan and the United States using a structural vector autoregressive model with the ELB. For each country, we firmly reject the hypothesis but find that UMP has had strong delayed effects.
    Date: 2021–05–04
  66. By: H. Youn Kim (Western Kentucky University); José Alberto Molina (Departamento de Análisis Económico, Universidad de Zaragoza); Ka Kei Gary Wong (University of Macau)
    Abstract: This paper jointly analyzes consumer demand and consumption with allowance for durable goods and liquidity constraints. An indirect utility function is specified with the user cost of durable goods, and demand functions for nondurable and durable goods and a consumption growth equation are derived by incorporating liquidity constraints. The model is estimated for Norwegian consumers for 1979-2018, and results reveals that traditional demand analyses ignoring durable goods leads to a significant bias in the elasticities of nondurable goods. Durable goods are found to be necessities and price-inelastic like most nondurable goods. Norwegian consumers are, in general, impatient with low risk aversion. There is weak evidence for liquidity constraints, which have no important influence on consumption. No strong evidence exists for intertemporal substitution in consumption of nondurable and durable goods. However, there is a considerable effect of uncertainty on consumption, especially for durable goods, which can explain consumption/saving behavior during the current Covid pandemic.
    Keywords: Indirect utility function, User cost of durable goods, Euler equation, Risk aversion, Intertemporal substitution
    JEL: E21 D15 D12
    Date: 2022–01–18
  67. By: Bart Hobijn; Andre Kurmann; Tristan Potter
    Abstract: We study the efficiency of non-compete agreements (NCAs) in an equilibrium model of labor turnover. The model is consistent with empirical studies showing that NCAs reduce turnover, average wages, and wage dispersion for low-wage workers. But the model also predicts that NCAs, by reducing turnover, raise recruitment and employment. We show that optimal NCA policy: (i) is characterized by a Hosios like condition that balances the benefits of higher employment against the costs of inefficient congestion and poaching; (ii) depends critically on the minimum wage, such that enforcing NCAs can be efficient with a sufficiently high minimum wage; and (iii) alone cannot always achieve efficiency, also true of a minimum wage-yet with both instruments efficiency is always attainable. To guide policy makers, we derive a sufficient statistic in the form of an easily computed employment threshold above which NCAs are necessarily inefficiently restrictive, and show that employment levels in current low-wage U.S. labor markets are typically above this threshold. Finally, we calibrate the model to show that Oregon's 2008 ban of NCAs for low-wage workers increased welfare, albeit modestly (by roughly 0.1%), and that if policy makers had also raised the minimum wage to its optimal level (a 30% increase), welfare would have increased more substantially-by over 1%.
    Keywords: Non-compete agreements; low-wage labor markets; minimum wage
    JEL: J62 J63 E24
    Date: 2022–01–18
  68. By: Lazuka, Volha (Department of Economic History, Lund University); Sandholt Jensen, Peter (Linneaus University and University of Southern Denmark)
    Abstract: This paper aims at finding whether vaccination in childhood is an important source of improved health over the life cycle and across generations. We leverage high-quality individual-level data from Sweden covering the full life spans of three generations between 1790 and 2016 and a historical quasi-experiment – a smallpox vaccination campaign. To derive the causal impact of this campaign, we employ the instrumental-variables approach and the siblings/cousins fixed effects. Our results show that the vaccine injection by age 2 improved longevity of the first generation by 14 years and made them much wealthier in adult ages. These effects, with the magnitude reduced by two thirds, persisted to the second and the third generation. Such magnitudes make vaccination a powerful health input in the very long term and suggest the transmission of environmental beyond genetic factors.
    Keywords: intergenerational transmission of health; smallpox vaccination; instrumental- variables; Sweden
    JEL: E24 I12 I15 I18 I38 J24 N43
    Date: 2021–12–13
  69. By: Juan Carlos Cuestas (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain); Mercedes Monfort (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: In this paper we contribute to the long literature on the effect of fiscal policy on the real economy. In particular, we focus on the effect of government consumption on private consumption for a pool of European economies. The results show that the effect is different when comparing the periods before and after 2008.
    Keywords: Great Moderation, fiscal policy, crisis, private consumption
    JEL: C22 F15
    Date: 2022
  70. By: Javier Bianchi; Saki Bigio; Charles Engel
    Abstract: We develop a theory of exchange rate fluctuations arising from financial institutions’ demand for dollar liquid assets. Financial flows are unpredictable and may leave banks “scrambling for dollars.” Because of settlement frictions in interbank markets, a precautionary demand for dollar reserves emerges and gives rise to an endogenous convenience yield on the dollar. We show that an increase in the dollar funding risk leads to a rise in the convenience yield and an appreciation of the dollar, as banks scramble for dollars. We present empirical evidence on the relationship between exchange rate fluctuations for the G10 currencies and the quantity of dollar liquidity, which is consistent with the theory.
    Keywords: Exchange rates; Liquidity premia; Monetary policy
    JEL: E44 F31 F41 G20
    Date: 2021–11–05
  71. By: Chakraborty, Tanika; Lohawala, Nafisa
    Abstract: The stagnancy of women's workforce participation in urban India is alarming and puzzling, considering the pace of economic development experienced in the previous decade. We investigate the extent to which the low workforce participation of women can be explained by growing instances of officially reported crimes against women. We employ a fixed-effects strategy using district-level panel data between 2004-2012. To address additional concerns of endogeneity, we exploit state-level regulations in alcohol sale and consumption and provide estimates from two different strategies - an instrumental variable approach and a border analysis. Our findings indicate that an additional sexual crime per 1000 women in a district reduces the probability that a woman is employed outside her home by roughly 1%. While we find some evidence of heterogeneity across regions and religions, overall, the deterrent effect seems to affect women equally across all economic, demographic, and social groups.
    Keywords: Crime-against-women,Female Labor Supply,Instrumental Variable,Alcohol Regulation
    JEL: E24 J08 J16 J18
    Date: 2022
  72. By: João Tovar Jalles; Georgios Karras
    Abstract: Early evidence suggests that COVID-19 caused a sharp decrease in international trade and a widening of current account imbalances. This paper shows that (qualitatively) similar responses have characterized the effects of previous pandemics. Using data from a sample of 170 countries, we find that a pandemic shock is typically followed by a sizable decrease in output and trade volumes, but an uneven current account response: balances improve in developed (or surplus) economies but deteriorate in developing (or deficit) ones. We also explore potential mechanisms for this asymmetry, and our evidence is pointing to national saving and the business cycle phase as the main reasons behind the divergent current account dynamic responses.
    Keywords: pandemics; current account; local projection; panel data; recessions; nonlinearities
    JEL: C33 E32 F14 F40 I15
    Date: 2022–02
  73. By: Anusha Chari; Karlye Dilts Stedman; Kristin J. Forbes
    Abstract: Evidence suggests that macroprudential policy has small and insignificant effects on the volume of portfolio flows. We show, however, that these minor effects mask very different relationships across the global financial cycle. A tighter ex-ante macroprudential stance amplifies the impact of global risk shocks on bond and equity flows—increasing outflows by significantly more during risk-off episodes and increasing inflows significantly more during risk on episodes. These amplification effects are more prominent at the “extremes,” especially for extreme risk-off periods, and are larger for regulations that target specific risks (such as currency or housing exposures) than those which strengthen generalized cyclical buffers (such as the CCyB). This paper estimates these relationships using a policy-shocks approach that corrects for reverse causality by combining high-frequency risk measures with weekly data on portfolio investment and a new measure of macroprudential regulations that captures the intensity of policy stances. Overall, the results support a growing body of evidence that macroprudential regulation can reduce the volume and volatility of bank flows but shift risks in ways that aggravate vulnerabilities in other parts of the financial system.
    Keywords: Macroprudential regulation
    JEL: F32 F34 F38 G15 G23 G28
    Date: 2021–12–17
  74. By: Edmond Berisha (Feliciano School of Business, Montclair State University, Montclair, NJ 07043); Orkideh Gharehgozli (Feliciano School of Business, Montclair State University, Montclair, NJ 07043); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: US economy is facing inflation jump, which is running at 30 year high. Using inequality and inflation data that are available at a high frequency, i.e. on a quarterly basis for over 30 years, we find evidence that inflation causes swings in income distribution rapidly. The dynamic response of inequality to changes in inflation alters over a fourquarter period. We show that the contemporaneous impact of inflation on inequality is negative; however, after three quarters the impact becomes positive and stronger in magnitude. From our results we learn that over a one year period, higher inflation would exacerbate income inequality in USA. The positive impact of inflation on income inequality is stronger when inflation rate, initially, is above the sample average.
    Keywords: Inflation, Inequality, United States
    JEL: D60 O40 O50
    Date: 2022–01
  75. By: Donato Masciandaro; Romano Vincenzo Tarsia
    Abstract: This paper proposes an index for evaluating central bank activism in addressing climate-change issues. Consistent with a principal-agent approach, this metric assumes that the central bank’s sensibility on climate change depends on both economic and political drivers. The index has been created to include not only actual policies but also participation in green networks and initiatives that signal central bank activism on climate change.
    Keywords: Climate change, central banking, principal-agent, political pressure, monetary policy, financial stability
    Date: 2021
  76. By: Carlos A. Arango-Arango; Ana Carolina Ramirez-Pineda; Manuela Restrepo-Bernal
    Abstract: More than 60 countries in the world have already implemented instant payment systems (IPS). However, in many cases they have been operational mainly for person-to-person transactions. This study looks at the challenges IPS may face in developing economies like Colombia as they advance further into the P2B transactions space. Using a survey on Colombian merchants (IV-2020), the study explores the factors associated with merchants´ propensity to adopt instant payments and those associated with the adoption of current electronic payment alternatives. It shows that IPS will need to have a broad strategy to penetrate the P2B space, as they will have to compete with the low marginal costs and immediacy that cash already offers and the high levels of informality in the commerce sector, especially for micro businesses. Furthermore, IPS will have to meet the high expectations merchants have about instant payments enabling access to other financial services, enhancing their competitiveness, and increasing their bottom line. **** RESUMEN: Más de 60 países en el mundo han implementado sistemas de pagos inmediatos. Sin embargo, en muchos casos dichos sistemas tan solo ofrecen transferencias entre personas. Esta investigación analiza los desafíos que deben enfrentar los sistemas de pagos inmediatos en economías en desarrollo como la colombiana para profundizar sus servicios en el comercio al por menor. Con base en la encuesta a comercios realizada por el Banco de la República en el cuarto trimestre de 2020, la investigación explora los factores asociados a la disposición de los comercios a adoptar pagos inmediatos y otras alternativas electrónicas de pago. Los resultados confirman que los sistemas de pagos inmediatos necesitan de una estrategia clara para lograr consolidarse en el comercio al por menor. En particular, estos deben competir con los bajos costos marginales y la inmediatez en la disponibilidad de los fondos que ofrece el efectivo y los elevados niveles de informalidad, especialmente entre los micro comercios. Además, los servicios de pago inmediatos deberán cumplir con las altas expectativas que tienen los comercios de mejorar el acceso a los servicios financieros, incrementar su competitividad y mejorar su rentabilidad.
    Keywords: Instant payments, faster payments, mobile payments, cash and electronic payments, merchants, retail payments, cards, bank transfers, Pagos inmediatos, pagos móviles, pagos electrónicos, pagos en efectivo, comercios, pagos de bajo valor, pagos con tarjetas, transferencias electrónicas
    JEL: D23 D40 G20 G21 G28 E41 E58
    Date: 2022–02
  77. By: Ettore Gallo (Department of Economics, New School for Social Research)
    Abstract: In recent years, Post-Keynesian models of growth and distribution have substantially shifted their focus from short to long-run analysis. While many authors have focused on the convergence of demand-led growth models to a fully-adjusted equilibrium, relatively little attention has been given to the time required to reach this long-run position. In order to fill the gap, this paper seeks to answer the question of when is the long run in demand-led growth models. By making use of numerical integration, it analyses the time of adjustment from one steady-state to the other in two well-known demand-led growth models: the Sraffian Supermultiplier and the fully-adjusted version of the neo-Kaleckian model. The results show that the adjustment period is generally beyond an economically meaningful time span, suggesting that researchers and policy makers ought to pay more attention to the models’ predictions during the traverse rather than focusing on steady-state positions.
    Keywords: Neo-Kaleckian model, Sraffian Supermultiplier, time, adjustment period, traverse, effective demand, growth
    JEL: B51 E11 E12 B41
    Date: 2022–02
  78. By: Nida Cakir Melek; Musa Orak
    Abstract: As the atmospheric concentration of CO2 emissions has grown to record levels, calls have grown for governments to make steeper emissions cuts, requiring to reduce an economy’s use of fossil energy dramatically. Meanwhile, in the U.S., fossil energy still met 80 percent of the total energy demand as of 2019. This paper examines U.S. energy dependence, measured by its factor share, using a simple neoclassical framework in a systematic way. We find that with empirically plausible differences in substitution elasticities, particularly with a time-varying substitution elasticity between equipment capital and energy, changes in observed factor inputs can account for the variation in the income share of energy. Our analysis suggests that energy-saving technical change may simply be serving as a proxy for capital-energy substitutability. We also use our framework to think about the future. Substitution possibilities among different factor inputs can allow for a decline in the factor share of energy in the long-run.
    Keywords: Energy; Emissions
    JEL: E13 E25 J23 J68 Q41 Q42 Q48
    Date: 2021–12–22
  79. By: George Kudrna; John Piggott; Phitawat Poonpolkul
    Abstract: This paper examines the economy-wide effects of government policies to extend public pensions in emerging Asia particularly pertinent given the region’s large informal sector and rapid population ageing. We first document stylized facts about Indonesia’s labour force, drawing on the Indonesian Family Life Survey (IFLS). This household survey is then used to calibrate micro behaviours in a stochastic, overlapping-generations (OLG) model with formal and informal labour. The benchmark model is calibrated to the Indonesian economy (2000-2019), fitted to Indonesian demographic, household survey, macroeconomic and fiscal data. The model is applied to simulate pension policy extensions targeted to formal labour (contributory pension extensions to all formal workers with formal retirement age increased from 55 to 65), as well as to informal labour (introduction of non-contributory social pensions to informal 65+). First, abstracting from population ageing, we show that: (i) the first set of pension policy extensions (that have already been legislated and are being implemented in Indonesia) have positive effects on consumption, labour supply and welfare (of formal workers) (due largely to the formal retirement age extension); (ii) the introduction of social pensions targeted to informal workers at older age generates large welfare gains for currently living informal elderly; and (iii) the overall pension reform leads to higher welfare across the employment-skill distribution of households. We then extend the model to account for demographic transition, finding that the overall pension reform makes the contributory pension system more sustainable but the fiscal cost of non-contributory social pensions more than triples to 1:7% of GDP in the long run. As an alternative, we examine application of a means-tested social pension system within the overall pension reform. We show that this counterfactual reduces the fiscal cost (of social pensions) and further increases the welfare for both current and future generations.
    Keywords: Informal Labour; Population Ageing; Social Security; Taxation; Redistribution; Stochastic General Equilibrium
    JEL: E26 J1 J21 J26 H55 H24 C68
    Date: 2022–01
  80. By: Kandasamy, Ambika (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: Lebanon is currently facing a financial crisis marked by rising inflation rates and a black-market exchange rate that is significantly diverging day-by-day from the official exchange rate. In this paper, the author dives into Lebanon’s financial history and what actions undertaken by the government since the civil war have led to this crisis. After a thorough examination of the current economy, the author compares Lebanon’s present day financial crisis to the one faced by Bulgaria in the 1990s and concludes that the implementation of a currency board is a viable solution for restoring the strength of the Lebanese pound and ushering in financial stability.
    Keywords: currency board; Lebanon; Bulgaria
    JEL: E51 G01
    Date: 2021–11–13
  81. By: Rafael Wildauer (Department of International Business and Economics, University of Greenwich); Stuart Leitch (University of Greenwich); Jakob Kapeller (Institute for Socio-Economics, University of Duisburg-Essen, Germany; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This policy study asks to what extent large-scale public investment efforts could be a viable tool to provide the necessary infrastructure to break Europe’s dependency on fossil fuel and carbon emissions more broadly. We estimate semi-structural VAR models for the EU27. These are used to study the impact of permanent as well as 5-year long public investment programmes. Three key findings emerge: First, government investment multipliers for the EU27 are large and range from 5.12 to 5.25. Second, debt-to-GDP ratios are likely to fall in response to the strong economic impulse generated by additional public investment spending. The study therefore classifies additional public investment spending in the EU27 as sustainable fiscal policy. Third, single country investment initiatives will likely lead to smaller economic expansions when compared to coordinated EU-wide investment, due to Europe’s strong intra-member state trade flows. A coordinated approach to fiscal policy is thus substantially more effective not only when it comes to delivering network-dependent infrastructure (rail, grid) but also with respect to the economic stimulus it creates.
    Keywords: E62 Fiscal Policy; H63 Sovereign Debt
    Date: 2021–11
  82. By: Cassola, Nuno; De Grauwe, Paul; Morana, Claudio; Tirelli, Patrizio
    Abstract: This policy brief warns about the risks of discontinuing the policy responses to the COVID-19 crisis by pursuing exit strategies too early and/or too sharply. It outlines a comprehensive strategy for limiting such risks globally and offers an in-depth discussion of the European situation. Due to fiscal rules written in a pre- COVID-19 era and excessive emphasis on controlling public debt ratios, the Euro Area could be left with long-lasting scars, so its situation requires special treatment. Therefore, we articulate some policy proposals designed to preserve and strengthen the recovery in the EMU.
    Keywords: Covid-19 pandemic; Euro area; fiscal and monetary policy mix; G20; regulatory policies; sovereign and corporate crises; Covid-19; coronavirus
    JEL: J1
    Date: 2022–06–01
  83. By: Zeynep Dörtok Abacı (Bursa Uludağ University); Jun Akiba (The University of Tokyo); Metin M. Cosgel (University of Connecticut); Boğaç Ergene (University of Vermont)
    Abstract: This article examines the accumulation, temporal variation, and intergroup inequality of wealth in the Ottoman judiciary between the late seventeenth and early nineteenth centuries, based on information from the estate inventories (terekes) found in Istanbul’s kısmet-i askeriye registers. After calculating the gross and net real wealth of the judges at the time of death, we compare them against contemporary economic indicators, which show moderate to modest levels of wealth accumulation. Whereas the levels of mean gross wealth varied significantly between certain groups of the judiciary, no such variations were observed in net wealth. Factors contributing to the variations of wealth levels included the bequest motive and family connections to other members of the judiciary. Wealth levels dropped drastically in the latter part of the eighteenth century, a consequence of the financial strains the Ottoman Empire experienced during this period.
    Keywords: Ottoman, estate inventories, terekes, judiciary, wealth, inequality, kısmet-i askeriye
    JEL: D31 E21 G51 H55 J30 K40 M52
    Date: 2022–01
  84. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This research assesses the importance of financial access on value added in three economic sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. Financial access is measured with private domestic credit, while the three outcome variables are: value added in the agricultural, manufacturing, and service sectors, respectively. Enhancing financial access does not significantly improve value added in the agricultural and manufacturing sectors, while enhancing financial access improves value added in the service sector.An extended analysis shows that in order for the positive net incidence of enhancing credit access on value added to the service sector to be maintained, complementary policies are required when domestic credit to the private sector is between 77.50% and 98.50% of GDP. Policy implications are discussed.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2022–01
  85. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This research assesses the importance of financial access on value added in three economic sectors in 25 countries in Sub-Saharan Africa using data for the period 1980-2014. The empirical evidence is based on the Generalised Method of Moments. Financial access is measured with private domestic credit, while the three outcome variables are: value added in the agricultural, manufacturing, and service sectors, respectively. Enhancing financial access does not significantly improve value added in the agricultural and manufacturing sectors, while enhancing financial access improves value added in the service sector.An extended analysis shows that in order for the positive net incidence of enhancing credit access on value added to the service sector to be maintained, complementary policies are required when domestic credit to the private sector is between 77.50% and 98.50% of GDP. Policy implications are discussed.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2022–01
  86. 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 characterize in?ation dynamics during the Great Lockdown using scanner data covering millions of transactions for fast-moving consumer goods in the United Kingdom. We show that there was a signi?cant and widespread spike in in?ation. First, aggregate month-to-month in?ation was 2.4% in the ?rst month of lockdown, a rate over 10 times higher than in preceding months. Over half of this increase stems from reduced frequency of promotions. Consumers’ purchasing power was further eroded by a reduction in product variety, leading to a further 85 basis points increase in the e?ective cost of living. Second, 96% of households have experienced in?ation in 2020, while in prior years around half of households experienced de?ation. Third, there was in?ation in most product categories, including those that expe-rienced output falls. Only 13% of product categories experienced de?ation, compared with over half in previous years. While market-based measures of in?ation expectations point to disin?ation or de?ation, these ?ndings indicate a risk of stag?ation should not be ruled out. We hope our approach can serve as a template to facilitate rapid diagnosis of in?ation risks during economic crises, leveraging scanner data and appropriate price indices in real-time.
    Date: 2020–06–12
  87. By: Jose-Maria Serena; Marina-Eliza Spaliara; Serafeim Tsoukas
    Abstract: Using a cross-country firm-bank dataset, we examine how an unexpected increase in bank capital requirements by the European Banking Authority (EBA) affects firms' financial choices. Our results first suggest that the regulatory shock implies a reduction in the supply of bank credit, with US firms affected the most. Yet, following the capital exercise, US firms are able to tap into the public bond markets and secure credit lines from nonbank financial institutions. This has implications for their capital structure and their real outcomes. These results suggest that diversified domestic loan markets, in which banks and nonbank financial institutions lend to corporations, can help overcome reductions in cross-border bank funding.
    Keywords: International bank credit, nonbank lenders, external financing
    JEL: G32 E22 F32 D22
    Date: 2022–01
  88. By: Natee Amornsiripanitch
    Abstract: This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show that affected governments’ aggregate expenditures and employment levels in 2017 would have been 6% to 10% higher if bond insurance had remained available
    Keywords: Bond insurance; municipal bonds; real effects; financial crisis
    JEL: E60 G00 G01 G22 H40 H70 J00
    Date: 2022–02–07
  89. By: Berg, Tobias; Haselmann, Rainer; Kick, Thomas; Schreiber, Sebastian
    Abstract: Using granular supervisory data from Germany, we investigate the impact of unconventional monetary policies via central banks' purchase of corporate bonds. While this policy results in a loosening of credit market conditions as intended by policy makers, we document two unintended side effects. First, banks that are more exposed to borrowers benefiting from the bond purchases now lend more to high-risk firms with no access to bond markets. Since more loan write-offs arise from these firms and banks are not compensated for this risk by higher interest rates, we document a drop in bank profitability. Second, the policy impacts the allocation of loans among industries. Affected banks reallocate loans from investment grade firms active on bond markets to mainly real estate firms without investment grade rating. Overall, our findings suggest that central banks' quantitative easing via the corporate bond markets has the potential to contribute to both banking sector instability and real estate bubbles.
    Date: 2022
  90. By: Andrea Papadia; Claudio A. Schioppa
    Abstract: We investigate how internal distribution motives can interfere with the economic objectives of capital controls. In order to do this, we provide a model showing that elite capture can affect optimal debt repatriations and the management of official reserves under capital controls. Relying on these theoretical insights and a wealth of quantitative and qualitative historical evidence, we study one of history’s largest debt repatriations - that of 1930s Germany. We show that the authorities kept private repatriations under strict control, thus avoiding detrimental macroeconomic effects, while allowing discretionary repatriations in order to reap internal political benefits.
    Keywords: Sovereign risk, capital controls, elite capture, Germany, Nazi regime, foreign debt, secondary markets
    JEL: E65 F38 H63 N24
    Date: 2022
  91. By: Amorim Souza Centurião, Daniel; Andressa Welter, Caroline; Boldrine Abrita, Mateus
    Abstract: Given the difficult moment faced as a result of the consequences of the pandemic, the purpose of this work is to better understand the impacts of the pandemic on business, through the exploratory analysis of primary data. To this end, a primary data survey was used, starting with a structured data collection instrument and then applying elements of descriptive statistical analysis. After collecting and analyzing the information it was possible to verify that the crisis generated a great impact in terms of a drop in sales, a great difficulty in relation to access to credit, besides a high concern with working capital and cash flow, also huge difficulties in the payment of taxes, salaries and current expenses. Finally, a more relevant impact on the smallest companies. Therefore, the lack of effectiveness of the State's actions may be determinant to the worsening of this crisis.
    Keywords: Economic impacts; Pandemic; Small business.
    JEL: E20
    Date: 2020–07–15
  92. By: Monica Martinez-Bravo (CEMFI); Carlos Sanz (Banco de España)
    Abstract: Using two novel online surveys collected in May and November 2020, we study the consequences of the first stages of the COVID-19 pandemic on Spanish households. We document a large and negative effect on household income. By May 2020 the average individual lived in a household that had lost 16% of their pre-pandemic monthly income. Furthermore, this drop was highly unequal: while households in the richest quintile lost 6.8% of their income, those in the poorest quintile lost 27%. We also document that the pandemic deepened the gender-income gap: on average, women experienced a three-percentage-point larger income loss than men. While this is consistent with previous findings in the literature, in this paper we document that this effect is driven by women from middle-income households with kids. Finally, we provide evidence that Spanish individuals experienced moderate declines in their levels of psychological well-being. This effect is not different for individuals living in rich or poor households, but the reasons behind well-being losses do differ: richer individuals are more concerned about loss of contact with dear ones, while low-income individuals are more likely to mention loss of income and employment as a key source of emotional distress.
    Keywords: inequality, COVID-19, well-being
    JEL: D31 I14 J31
    Date: 2022–01
  93. By: Grafström, Jonas (The Ratio Institute)
    Abstract: The purpose of this paper is to provide an analysis of the existence and possible direction of international knowledge spillovers in the solar energy sector. Specifically, the paper investigates how the accumulation of solar energy patents and public R&D spending affected the output of domestic granted solar energy patents. The econometric analysis relies on a data set consisting of most of the OECD countries plus China and analyzes two time periods; from 1990 to 2014 and the years 2000 to 2014. To analyze the data material, a Poisson fixed-effects estimator based on the Hausman, Hall and Griliches (1984) method was used. The empirical findings suggest that the domestic accumulation of patents and R&D is important for the potential development of new ones. Indeed, early investment in specific technology can be an indicator of future leadership in that field.
    Keywords: Solar PV; R&D; Spillovers; Patents
    JEL: E61 O32 Q20 Q58
    Date: 2021–12–14
  94. By: Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
    Abstract: Pour faire face aux dépenses générées par la crise Covid-19, le recours accru aux financements du secteur bancaire domestique a été une source de résilience importante pour de nombreux PED. Ce deuxième numéro du Macrodev Panorama semestriel propose une analyse des conséquences d’une hausse de l’endettement souverain vis-à-vis du secteur financier local et des risques associés à cette interconnexion accrue entre l’État, les Banques centrales et les banques commerciales. Dix focus pays viennent également illustrer la variété des enjeux relatifs au financement de ces économies et synthétisent les principaux développements économiques et financiers des géographies concernées.
    Keywords: Cameroun, Éthiopie, Ghana, Kenya, Togo, Brésil, Costa Rica, Indonésie, Liban, République dominicaine
    JEL: E
    Date: 2022–02–02
  95. By: Schmoll, Moritz
    Abstract: What drives ineffective tax collection in developing countries? This widespread phenomenon has been explained by weak ‘state capacity’, rent-seeking bureaucrats, or the influence of political elites. More recently, scholars have also emphasised the role of ‘moral economies’, shared notions of what constitutes fair and legitimate taxation that prevent tax collectors from strictly enforcing the law. However, the literature has thus far missed the ways in which shared notions of what constitutes fair work and employment in the tax administration affect collection. Drawing on two years of fieldwork in Egypt, including ethnographic research among street-level tax collectors, the article finds that the simultaneous persistence and disappointment of historical expectations and feelings of entitlement to a white-collar, middle-class job renders tax collectors unwilling to carry out vital enforcement tasks, and further impedes the building of administrative capacity. Furthermore, the administrative leadership’s buying-into such narratives hollows out its capability to incentivise tax collectors to change their ways. These findings have important implications for our understanding of the micro-foundations of governance and state capacity, underscoring the role of normative-ideational factors not only in shaping the willingness of taxpayers to pay taxes, but also of tax collectors to collect them.
    JEL: E6
    Date: 2020–06–30
  96. By: Josefin Meyer; Carmen M. Reinhart; Christoph Trebesch
    Abstract: This paper studies external sovereign bonds as an asset class. It compiles a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. The main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3-4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on an archive of more than 300 sovereign debt restructurings since 1815, the authors show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.
    Keywords: Sovereign debt, return on investment, sovereign risk
    JEL: E4 F3 F4 G1 N0
    Date: 2022
  97. By: Roman Frydman (Department of Economics, New York University); Halina Frydman (Stern School of Business, New York University.)
    Abstract: Gennaioli and Shleifer (GS) have proposed diagnostic expectations (DE) as an empirically-based approach to specifying participants' expectations, which, like REH, can be applied in every model. Beyond its supposedly general applicability, GS's formalization of DE implies that participants systematically and predictably overreact to news. Here, we present a formal argument that Kahneman and Tversky's compelling empirical findings, and those of other behavioral economists, do not provide a basis for a general approach to specifying participants' "predictable errors." We also show that the overreaction of participants' expectations is not a regularity, but rather an artifact of GS's particular specification of DE.
    Keywords: Rational Expectations Hypothesis, Diagnostic Expectations, Representativeness Heuristic.
    JEL: D80 D84 E71
    Date: 2022–01–18
  98. By: Sylvain Bellefontaine,; Cécile Duquesnay,; Marion Hémar,; Benoît Jonveaux,; Maëlan Le Goff,; Emmanuelle Monat,; Meghann Puloc’h,; Maxime Terrieux,; Luciana Torrellio,; Cécile Valadier,; Alix Vigato.
    Abstract: An increased recourse to financing from the domestic banking sector has proved to be an important source of resilience for many developing countries in their efforts to face expenditures generated by the Covid-19 crisis. The second issue of MacroDev Semestrial Panorama offers an analysis of the consequences of an increase in sovereign indebtedness to the local financial sector and of the risks associated with this closer interconnection between states, central banks and commercial banks. Ten brief country surveys complement the issue and, through a summary of the main economic and financial challenges faced by these countries, illustrate the stakes of financing in developing economies.
    Keywords: Cameroun, Éthiopie, Ghana, Kenya, Togo, Brésil, Costa Rica, Indonésie, Liban, République dominicaine
    JEL: E
    Date: 2022–02–02
  99. By: Stein, Merlin
    Abstract: Satellite data and randomized controlled trials (RCTs) are a powerful combination for analyzing causal effects beyond traditional survey-based indicators. The usage of remotely collected data for evaluating RCTs is cost-effective, objective and possible for anyone with treatment assignment data. By re-evaluating one of the largest RCTs - the smartcard intervention of Muralidharan et al. (2016) covering 20 million people - with Indian nighttime luminosity, this paper finds that nightlights as a specific type of satellite data likely often are too noisy to evaluate RCTs. Building upon a post-treatment and a Difference-in-Differences approach, we do not find any statistically significant effects of the biometric smartcards on nightlights, contrasting Muralidharan et al. (2017)'s results of higher income level in treated areas. This can be mainly explained either with the noisiness-caused inability of nightlights to specifically capture economic effects or the absence of an increased economic activity due to a simple redistributive effect of the intervention. The former is more likely when looking at GDP implications of the noisiness in the luminosity data. Per head estimates, sensitivity checks for spillovers, subdistrict-level instead of village-level observations and different time-wise aggregations of nightlight data do not lead to changed results. Although limited with nightlights, nonetheless, the potential for re-evaluating RCTs with satellite data in general is enormous in three ways: (1) For confirming claimed treatment effects, (2) to understand additional impacts and (3) for cost-effectively understanding long-term impacts of interventions. Using daytime imagery for analyzing RCTs is a promising direction for future research.
    Keywords: RCT,randomized,nightlight,daylight,satellite,remote-sensing,nighttimeluminosity,India,Census,Muralidharan,state capacity,GDP,nightlights
    JEL: C33 C81 C93 E01 H53 H55 I32 I38 J65 O47 R12
    Date: 2021

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