nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒02‒28
128 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Idiosyncratic Income Risk and Aggregate Fluctuations By Davide Debortoli; Jordi Galí
  2. Committed to Flexible Fiscal Rules By Chistoph Grosse-Steffen; Laura Pagenhardt; Malte Rieth
  3. Should We Have Automatic Triggers for Unemployment Benefit Duration And How Costly Would They Be? By Gabriel Chodorow-Reich; Peter Ganong; Jonathan Gruber
  4. The Morocco Policy Analysis Model: Theoretical Framework and Policy Scenarios By Achour, Aya; Bulíř, Aleš; Chafik, Omar; Remo, Adam
  5. When savings are not counted as savings: The missed opportunity to use home equity to stimulate the U.S. economy By De Koning, Kees
  6. Shocks to Inflation Expectations By Jonathan J Adams; Philip Barrett
  7. Structural change in the US Phillips curve, 1948-2021: the role of power and institutions By Mark Setterfield; Robert A Blecker
  8. A Goldilocks Theory of Fiscal Deficits By Atif R. Mian; Ludwig Straub; Amir Sufi
  9. Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity By Chengcheng Jia; Jing Cynthia Wu
  10. Inflation-Forecast Targeting: A New Framework for Monetary Policy? By PINSHI, Christian P.
  11. Inflationary redistribution, trading opportunities and consumption inequality By Timothy Kam; Junsang Lee
  12. Cycles Réel et Financier au Maroc : Une Analyse par les Wavelets By Slaoui, Yassine
  13. Money, credit and imperfect competition among banks By Allen Head; Timothy Kam; Sam Ng; Isaac Pan
  14. The Central Bank, the Treasury, or the Market: Which One Determines the Price Level? By Jean Barthélemy; Eric Mengus; Guillaume Plantin
  15. Asserting Independence: Optimal Monetary Policy When the Central Bank and Political Authority Disagree By Justin Svec; Daniel L. Tortorice
  16. Make-up Strategies with Finite Planning Horizons but Forward-Looking Asset Prices By Stéphane Dupraz; Hervé Le Bihan; Julien Matheron
  17. Mind the Gap! The (unexpected) impact of COVID-19 pandemic on VAT revenue in Italy By Francesco Berardini; Fabrizio Renzi
  18. We study the economics and finance scholars’ reaction to the 2008 financial crisis using machine learning language analyses methods of Latent Dirichlet Allocation and dynamic topic modelling algorithms, to analyze the texts of 14,270 NBER working papers covering the 1999–2016 period. We find that academic scholars as a group were insufficiently engaged in crises’ studies before 2008. As the crisis unraveled, however, they switched their focus to studying the crisis, its causes, and consequences. Thus, the scholars were “slow-to-see,” but they were “fast-to-act.” Their initial response to the ongoing Covid-19 crisis is consistent with these conclusions. By Daniel Levy; Tamir Mayer; Alon Raviv
  19. Business Cycle Accounting for the COVID-19 Recession By Fernandes, Daniel
  20. Macroprudential regulation and bank stability: The credit market signal By Kiemo, Samuel; Kamau, Anne; Rugiri, Irene W.; Talam, Camilla
  21. Why Are Returns to Private Business Wealth So Dispersed? By Corina Boar; Denis Gorea; Virgiliu Midrigan
  22. Credit Cards, Credit Utilization, and Consumption By Scott Fulford; Scott Schuh
  23. Angola: 2021 Article IV Consultation and Six Review under the Extended Arrangement of the Extended Fund Facility and Request for a Waiver of Nonobservance of a Performance Criterion; Press Release; Staff Report; and Statement by the Executive Director for Angola By International Monetary Fund
  24. A Medium-Scale DSGE Model for the Integrated Policy Framework By Mr. Francis Vitek; Vitor Gaspar; Mr. Tobias Adrian
  25. Dissecting the Pandemic Retirement Surge By Owen Davis; Siavash Radpour
  26. Making Money By Gary B. Gorton; Chase P. Ross; Sharon Y. Ross
  27. Central Banks Caught Between Market Liquidity and Fiscal Disciplining: A Money View Perspective on Collateral Policy By Jakob Vestergaard; Daniela Gabor
  28. Euro Area Policies: 2021 Article IV Consultation with Member Countries on Common Euro Area Policies-Press Release; Staff Report; and Statement by the Executive Director for Member Countries By International Monetary Fund
  29. Climate Risk Measurement of Assets Eligible as Collateral for Refinancing Operations – Focus on Asset Backed Securities (ABS) By Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
  30. Extreme inflation and time-varying expected consumption growth By Dergunov, Ilya; Meinerding, Christoph; Schlag, Christian
  31. Is money demand really unstable? Evidence from Divisia monetary aggregates By Barnett, William A.; Ghosh, Taniya; Adil, Masudul Hasan
  32. Earnings Inequality and Dynamics in the Presence of Informality: The Case of Brazil By Niklas Engbom; Gustavo Gonzaga; Christian Moser; Roberta Olivieri
  33. Czech Republic: 2021 Article IV Consultation-Press Release; Staff Report; Supplementary Information; and Statement by the Executive Director for the Czech Republic By International Monetary Fund
  34. The Expected, Perceived, and Realized Inflation of U.S. Households before and during the COVID-19 Pandemic By Weber, Michael; Gorodnichenko, Yuriy; Coibion, Olivier
  35. Descifrar el futuro. La economía colombiana en los próximos diez años By Fedesarrollo
  36. Aggregate and Intergenerational Implications of School Closures: A Quantitative Assessment By Youngsoo Jang; Minchul Yum
  37. Aggregate and Intergenerational Implications of School Closures: A Quantitative Assessment By Youngsoo Jang; Minchul Yum
  38. Influence of Hong Kong RMB offshore market on effectiveness of structural monetary policy in the Mainland China By Qin, Weiguang; Bhattarai, Keshab
  39. State-Level Economic Policy Uncertainty By Scott R. Baker; Steven J. Davis; Jeffrey A. Levy
  40. Capital and inventory investments under quantity constraints: A microfounded Metzlerian model By Ogawa, Shogo
  41. Solomon Islands: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Solomon Islands By International Monetary Fund
  42. Nepal: Request for an Arrangement Under the Extended Credit Facility -Press Release; Staff Report; Debt Sustainability Analysis; Staff Supplement; Statement by the Executive Director for Nepal By International Monetary Fund
  43. Zombies at Large? Corporate Debt Overhang and the Macroeconomy By Oscar Jorda; Martin Kornejew; Moritz Schularick; Alan M. Taylor
  44. Firm Pay Dynamics By Niklas Engbom; Christian Moser; Jan Sauermann
  45. A Note on the Natural Rate of Dollarization: Mathematical Approximation of Limits By PINSHI, Christian P.
  46. France: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France By International Monetary Fund
  47. Robots and Firm Investment By Efraim Benmelech; Michal Zator
  48. Employer-to-Employer Transitions and Time Aggregation Bias By Bertheau, Antoine; Vejlin, Rune Majlund
  49. Central Bank Digital Currency: What Basis Should be Taken for Crypto Assets? By PINSHI, Christian P.
  50. Central African Economic and Monetary Community: Common Policies in Support of Member Countries Reform Programs-Press Release, Staff Report, and Statement by the Executive Director for the Central African Economic and Monetary Community By International Monetary Fund
  51. Uruguay: 2021 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Uruguay By International Monetary Fund
  52. Economic Winners Versus Losers and the Unequal Pandemic Recession By Fernando Cirelli; Mark Gertler
  53. Does uncertainty matter for the fiscal consolidation and capital intensity nexus? By Bournakis, Ioannis; Ramirez-Rondan, Nelson R.
  54. L'inflation : phénomène durable ou transitoire ? Un aperçu historique pour comprendre le temps présent By Jean-Luc Gaffard
  55. Finland: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland By International Monetary Fund
  56. Firm Pay Dynamics By Engbom, Niklas; Moser, Christian; Sauermann, Jan
  57. Is a Secondary Currency Essential? – On the Welfare Effects of a New Currency By Max Fuchs; Jochen Michaelis
  58. El Salvador: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for El Salvador By International Monetary Fund
  59. A Smooth Shadow-Rate Dynamic Nelson-Siegel Model for Yields at the Zero Lower Bound By Daan Opschoor; Michel van der Wel
  60. Monitoring the Economy in Real Time: Trends and Gaps in Real Activity and Prices By Thomas Hasenzagl; Filippo Pellegrino; Lucrezia Reichlin; Giovanni Ricco
  61. The Marginal Propensity to Consume During the COVID-19 Pandemic: Evidence from Thailand and Vietnam By Bui, Dzung; Dräger, Lena; Hayo, Bernd; Nghiem, Giang
  62. Zero-Hours Contracts in a Frictional Labor Market By Dolado, Juan J.; Lalé, Etienne; Turon, Hélène
  63. Political Constraints and Sovereign Default By Marina Azzimonti; Nirvana Mitra
  64. Republic of Nauru: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Nauru By International Monetary Fund
  65. School Closures and Effective In-Person Learning during COVID-19: When, Where, and for Whom By Kurmann, Andre; Lalé, Etienne
  66. The role of value added across economic sectors in modulating the effects of FDI on TFP and economic growth dynamics By Asongu, Simplice; Meniago, Christelle; Salahodjaev, Raufhon
  67. Investment-Specific Technological Change and Universal Basic Income in the U.S. By Vedor, Bernardo
  68. Slowing Women's Labor Force Participation: The Role of Income Inequality By Stefania Albanesi; María José Prados
  69. Spillovers at the Extremes: The Macroprudential Stance and Vulnerability to the Global Financial Cycle By Anusha Chari; Karlye Dilts Stedman; Kristin Forbes
  70. The Marginal Propensity to Consume During the COVID-19 Pandemic: Evidence from Thailand and Vietnam By Dzung Bui; Lena Draeger; Bernd Hayo; Giang Nghiem
  71. This Is What's in Your Wallet...and Here's How You Use It By Tamás Briglevics; Scott Schuh
  72. Income and wealth distribution in macroeconomics: a continuous-time approach By Achdou, Yves; Han, Jiequn; Lasry, Jean Michel; Lions, Pierre Louis; Moll, Ben
  73. Regional Administration: Fiscal Framework By Nazare da Costa Cabral; Carlos Fonseca Marinheiro
  74. Expectations Formation and Forward Information By Nathan Goldstein; Yuriy Gorodnichenko
  75. Inflation and Welfare in a Competitive Search Equilibrium with Asymmetric Information By Lorenzo Carbonari; Fabrizio Mattesini; Robert J. Waldmann
  76. Labor Market Fluidity and Human Capital Accumulation By Niklas Engbom
  77. Worker-Firm Screening and the Business Cycle By Bradley, Jake
  78. Servicios Financieros Digitales en Colombia: Una caracterización y análisis de riesgos potenciales By José Bran-Guevara; Luisa Fernanda Hernández-Ávila; Daniela McAllister-Harker
  79. A Multicountry Model of the Term Structures of Interest Rates with a GVAR By Candelon, Bertrand; Moura, Rubens
  80. Worker Beliefs about Outside Options By Jäger, Simon; Roth, Christopher; Roussille, Nina; Schoefer, Benjamin
  81. Climate Risk Measurement of Assets Eligible as Collateral for Refinancing Operations – Focus on Asset Backed Securities (ABS) By André Loris; Grept AliceLaut Nadia; Plantier GabrielSapey-Triomphe Zako; Weber Pierre-François
  82. People’s Republic of China: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the People’s Republic of China By International Monetary Fund
  83. Measuring market power: macro and micro evidence from Italy By Emanuela Ciapanna; Sara Formai; Andrea Linarello; Gabriele Rovigatti
  84. Monetary Policies, US influence and other Factors Affecting Stock Prices in Japan By Allen, David; Mizuno, Hiro
  85. Public Debt and Welfare in a Quantitative Schumpeterian Growth Model With Incomplete Markets By Marco Cozzi
  86. E-commerce During Covid: Stylized Facts from 47 Economies By Joel Alcedo; Alberto Cavallo; Bricklin Dwyer; Prachi Mishra; Antonio Spilimbergo
  87. Sovereign Debt Sustainability and Central Bank Credibility By Tim Willems; Mr. Jeromin Zettelmeyer
  88. Republic of North Macedonia: Central Bank Transparency Code Review By International Monetary Fund
  89. Pandemic Recession and Helicopter Money: Venice, 1629--1631 By Charles Goodhart; Donato Masciandaro; Stefano Ugolini
  90. Economic growth in Sub-Saharan Africa, 1885–2008: evidence from eight countries By Broadberry, Stephen; Gardner, Leigh
  91. Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach By Sangyup Choi; Tim Willems; Seung Yong Yoo
  92. Gendered Impacts of COVID-19 in Developing Countries By Alon, Titan; Doepke, Matthias; Manysheva, Kristina; Tertilt, Michèle
  93. Do Conservative Central Bankers Weaken the Chances of Conservative Politicians? By Maxime Menuet; Hugo Oriola; Patrick Villieu
  94. What are the new challenges for the fiscal policy in the Central and Eastern Europe countries? By Alexandru Minea; Camelia Turcu
  95. How do Gasoline Prices Respond to a Cost Shock ? By Erwan Gautier; Magali Marx; Paul Vertier
  96. What ails bank deposit mobilization and credit creation in Kenya? By Maturu, Benjamin
  97. Impôt sur les sociétés et investissement : quel lien au Maroc ? By Chafik, Omar
  98. What’s ahead for euro money market benchmarks? By Daniela Della Gatta
  99. Land Security and Mobility Frictions By Tasso Adamopoulos; Loren Brandt; Chaoran Chen; Diego Restuccia; Xiaoyun Wei
  100. Monetary Policy Frameworks: An Index and New Evidence By Mr. Chris Papageorgiou; Hendre Garbers; D. Filiz Unsal
  101. Credit Default Swaps and Credit Risk Reallocation By Dorian Henricot; Thibaut Piquard
  102. Liquidity, Liquidity Everywhere, Not a Drop to Use - Why Flooding Banks with Central Bank Reserves May Not Expand Liquidity By Viral V. Acharya; Raghuram Rajan
  103. What are the effects of fiscal rules on fiscal discipline in the European Union? By Amélie Barbier; Kea Baret; Alexandru Minea
  104. Macroeconomic shocks and cedit risk in the Kenyan banking sector By Atiti, Faith; Kimani, Stephanie; Agung, Raphael
  105. Wage Posting or Wage Bargaining? A Test Using Dual Jobholders By Marta Lachowska; Alexandre Mas; Raffaele Saggio; Stephen A. Woodbury
  106. Inclusive Growth in Sub-Saharan Africa: Exploring the Interaction Between ICT Diffusion and Financial Development By Ofori, Isaac K.; Osei, Dennis B.; Alagidede, Imhotep P.
  107. Economic Activity, Fiscal Space and Types of COVID-19 Containment Measures By Amr Hosny; Kevin Pallara
  108. What role for fiscal rules in the EU former communist countries? By Cezara Vinturis
  109. Machine Learning Time Series Regressions With an Application to Nowcasting By Babii, Andrii; Ghysels, Eric; Striaukas, Jonas
  110. Greece's Investment Gap By Xin Cindy Xu; Shiqing Hua; María Méndez
  111. Asset Prices Under Knightian Uncertainty By Roman Frydman; Soren Johansen; Anders Rahbek; Morten Nyboe Tabor
  112. Le Québec devrait-il augmenter les taxes à la consommation? By David Leung; Markus Poschke
  113. Loss-of-Learning and the Post-Covid Recovery in Low-Income Countries By Mr. Edward F Buffie; Mr. Christopher S Adam; Mr. Kangni R Kpodar; Luis-Felipe Zanna
  114. How do transfers and universal basic income impact the labor market and inequality? By Rauh, C.; Santos, M. R.
  115. The 'Fiscal Presource Curse': Giant Discoveries and Debt Sustainability By Nelson Sobrinho; Matteo Ruzzante
  116. Asymmetric short-rate model without lower bound By Vrins, Frédéric; Wang, Linqi
  117. Bank capital, credit risk and financial stability in Kenya By Kiemo, Samuel; Talam, Camilla; Rugiri, Irene W.
  118. The Time-Varying Multivariate Autoregressive Index Model By G. Cubadda; S. Grassi; B. Guardabascio
  119. Democracy, Institutions, and International Profit-Shifting By Delis, Fotios; Economidou, Claire; Hasan, Iftekhar
  120. The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did it Go There? By David Autor; David Cho; Leland D. Crane; Mita Goldar; Byron Lutz; Joshua K. Montes; William B. Peterman; David D. Ratner; Daniel Villar Vallenas; Ahu Yildirmaz
  121. Inflation forecasts: the analysis has never been so complex By Jean-Michel Servet; André Tiran; Solène Morvant-Roux
  122. Testing for cointegration with structural changes in very small sample By Jérôme Trinh
  123. Gendered Impacts of COVID-19 in Developing Countries By Titan Alon; Matthias Doepke; Kristina Manysheva; Michèle Tertilt
  124. Modélisation de règles budgétaires pour lâaprès-COVID By Bryan Campbell; Michel Magnan; Benoit Perron; Molivann Panot
  125. Corporate Real Estate Holding and Stock Returns: International Evidence from Listed Companies By Ng, Joe Cho Yiu; Leung, Charles Ka Yui; Chan, Suikang
  126. Fiscal Rules and Fiscal Councils: Recent Trends and Performance during the COVID-19 Pandemic By Mr. Paulo A Medas; W. Raphael Lam; Mr. Daniel Garcia-Macia; Alexandra Fotiou; Andresa Lagerborg; Paul Elger; Xuehui Han; Mr. Hamid R Davoodi
  127. Boom-bust Cycles Revisited: The Role of Credit Supply By Kim, Hyo Sang; Choi, Sangyup; Yang, Da Young; Kim, Yuri
  128. La pobreza y la desigualdad en Colombia : el papel del estado y los desafíos de la política social y tributaria By Jairo Núñez Méndez

  1. By: Davide Debortoli; Jordi Galí
    Abstract: We study the role of idiosyncratic income shocks for aggregate fluctuations within a simple heterogeneous household framework with no binding borrowing constraints. We show that the presence of idiosyncratic income shocks affects the economy’s response to an aggregate shock in a way that can be captured by a consumption weighted average of the changes in uncertainty generated by the shock. We apply this framework to two example economies —an endowment economy and a New Keynesian economy— and show that under plausible calibrations the impact of idiosyncratic income shocks on aggregate fluctuations is quantitatively small, since most of the changes in uncertainty are concentrated among poorer (low consumption) households.
    JEL: E21 E32
    Date: 2022–01
  2. By: Chistoph Grosse-Steffen; Laura Pagenhardt; Malte Rieth
    Abstract: We study the impact of fiscal rules on macroeconomic performance. To address the endogeneity of rule adoption, we use data on large, random natural disasters. We document empirically that countries with rules perform significantly better following such exogenous shocks than countries without rules. GDP and private consumption are persistently higher. This is associated with more expansionary fiscal policy and hinges on the existence of fiscal space and escape clauses. We rationalize the findings in a model of sovereign default, which replicates the empirical dynamics and shows that tight rules create fiscal space in good times for deficit-spending in bad times.
    Keywords: Fiscal Policy, Fiscal Regimes, Natural Disasters, Sovereign Default Model, Panel Data
    JEL: E62 C32 E32 H50
    Date: 2021
  3. By: Gabriel Chodorow-Reich; Peter Ganong; Jonathan Gruber
    Abstract: We model automatic trigger policies for unemployment insurance by simulating a weekly panel of individual labor market histories, grouped by state. We reach three conclusions: (i) policies designed to trigger immediately at the onset of a recession result in benefit extensions that occur in less sick labor markets than the historical average for benefit extensions; (ii) the ad hoc extensions in the 2001 and 2007-09 recessions in total cover a similar number of additional weeks as common proposals for automatic triggers, but concentrate coverage more in weaker labor markets; (iii) compared to ex post policy, the cost of common proposals for automatic triggers is close to zero.
    JEL: E24 E32 E62 H53 J65
    Date: 2022–01
  4. By: Achour, Aya (Bank Al-Maghrib, Département de la Recherche); Bulíř, Aleš (IMF); Chafik, Omar (Bank Al-Maghrib, Département de la Recherche); Remo, Adam (IMF)
    Abstract: The Morocco Policy Analysis model (MOPAM) was created in the Bank Al-Maghrib to simulate the impact of external developments, domestic macroeconomic policies, and structural reforms on key macroeconomic aggregates. We describe its structure and demonstrate its operation on two medium-term scenarios: (1) fiscal consolidation to stabilize the debt-to-GDP ratio and (2) the effects of the COVID-19 shock, including the endogenous fiscal and monetary policy response.
    Keywords: Macroeconomicmodeling; Morocco; fiscalstabilization; COVID-19pandemic
    JEL: E32 E47 E52 E58 E62
    Date: 2021–04–01
  5. By: De Koning, Kees
    Abstract: One can describe the accumulation of wealth in home equity as a benefit to the homeowners. However, in practice the release process of such equity into cash is hindered by the fact that a joint ownership of a home by a lending institution and a household turns the equity stake into a debt obligation. If a household attempts to withdraw some cash from their home equity stake, the banking system turns such equity into a new debt obligation. This is -economically speaking- a worst-case scenario for households. When households reduce their shareholdings in companies, in government debt titles or by withdrawing money from their own bank savings, the conversion into cash does not turn itself into a new debt obligation. The result of these latter economic actions “only” reduces their accumulated savings levels. In the U.S., the level of home equity reached $25.3 trillion by the end of the third quarter 2021 according to the statistics from the Federal Reserve. With an estimated nominal GDP for the U.S. of $23.2 trillion for 2021, this single savings category of $25.3 trillion has now exceeded the total U.S. GDP level, a remarkable economic development! For the E.U., the European Central Bank has published a study in 2020 called “Household Wealth and Consumption in the Euro Area”. A rough estimate of net housing stock values in the E.U. showed a net worth in housing stock of Euro 45 trillion or in U.S. dollars $40.3 trillion in 2019. The World Bank estimated the EU GDP at U.S. $15.27 trillion for 2020. The European Central Bank, just like the Fed in the U.S., has helped governments to spend more than their tax receipts with the help of Quantitative Easing exercises. What, in economic terms, seems essential is that Central Banks and their governments take steps to put home equity levels on an equal footing with other forms of accumulated savings. For most countries involved, the level of savings incorporated in home equity represents by far the largest savings category. Why and how this can be done for the U.S. is explained in this paper.
    Keywords: Home equity in the U.S.;Long term trends in home equity;Federal Reserve interest rate policy for home equity; home foreclosures;Unemployment levels.
    JEL: E2 E21 E24 E3 E31 E4 E41 E43 E44 E5 E51 E6
    Date: 2022–01–31
  6. By: Jonathan J Adams (Department of Economics, University of Florida); Philip Barrett (International Monetary Fund)
    Abstract: The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations: we run a structural VAR, where the expectation shock is the single dimension in the time series that causes forecasts to depart from those implied by rational expectations. We measure these shocks for inflation expectations, label them ``sentiment shocks", and study their effects on the macroeconomy. Using data on several measures of inflation expectations and other time series for the United States, we find that a positive sentiment shock causes output and interest rates to fall, but barely affects inflation. These results are a puzzle, incompatible with the standard New Keynesian model which predicts inflation and interest rates should increase.
    JEL: D84 E31 E32 E52
    Date: 2022–02
  7. By: Mark Setterfield; Robert A Blecker
    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: 2022–02
  8. By: Atif R. Mian; Ludwig Straub; Amir Sufi
    Abstract: This paper proposes a tractable framework to analyze fiscal space and the dynamics of government debt, with a possibly binding zero lower bound (ZLB) constraint. Without the ZLB, a greater primary deficit unambiguously raises debt. However, debt need not explode: When R
    JEL: E31 E62 H30 H62 H63
    Date: 2022–01
  9. By: Chengcheng Jia; Jing Cynthia Wu
    Abstract: We study the implications of the Fed’s new policy framework of average inflation targeting (AIT) and its ambiguous communication. The central bank has the incentive to deviate from its announced AIT and implement inflation targeting ex post to maximize social welfare. We show two motives for ambiguous communication about the horizon over which the central bank averages inflation as a result of time inconsistency. First, it is optimal for the central bank to announce different horizons depending on the state of the economy. Second, ambiguous communication helps the central bank gain credibility.
    JEL: E31 E52
    Date: 2022–01
  10. By: PINSHI, Christian P.
    Abstract: This article provides an overview of inflation-forecast targeting (IFT) to build credibility and maintain stability. We show how inflation-forecast targeting is a transparent approach and an ideal strategy for monetary policy. In addition, public understanding would be essential to foster confidence and ensure the effectiveness of monetary policy. To this end, adequate management of expectations and transparent communication are important.
    Keywords: Inflation-Forecast Targeting, Expectations, Communication, Monetary policy
    JEL: E47 E52 E58
    Date: 2022–01
  11. By: Timothy Kam; Junsang Lee
    Abstract: We study competitive search in goods markets in a heterogeneous-agent monetary model. The model accounts for three stylized facts connecting inflation to consumption inequality, to price dispersion, and to the speed of monetary payments. With competitive search, individuals’ endogenous probabilities on trading events give rise to a trading-opportunity (extensive-margin) force that works in opposite direction to well-known redistributive (intensive-margin) effect of inflation. This implies a new trade-off in response to long run inflation targets. Welfare falls but liquid-wealth inequality falls and then rises with inflation as an extensive margin of trade dominates the redistributive intensive margin, when inflation is sufficiently high.
    Keywords: Competitive Search, Inflation, Policy Trade-offs, Redistribution, Computational Geometry
    JEL: E0 E4 E5 E6 C6
    Date: 2022–02
  12. By: Slaoui, Yassine (Bank Al-Maghrib, Département de la Recherche)
    Abstract: Ce travail propose d’analyser les propriétés du cycle financier au Maroc ainsi que ses interdépendances avec le cycle réel. Nous utilisons la méthode Wavelet (Crowley (2007), Aguiar-Conraria et Soares (2011)) afin d’estimer la relation entre ces deux cycles à différents niveaux de fréquence, ainsi que l’évolution de cette relation au cours du temps. Notre analyse suggère que le cycle financier, mesuré à partir du crédit bancaire, est plus long que le cycle réel, estimé à partir du PIB. De manière générale, les mouvements du PIB précèdent ceux du crédit bancaire. Le cycle financier manifeste par ailleurs des interactions fortes, mais à caractère épisodique, avec le cycle réel.
    Keywords: Wavelets; Cyclefinancier; politiquemacroprudentielle; créditbancaire
    JEL: C22 E32 E44 E51 G21
    Date: 2021–12–30
  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: Jean Barthélemy; Eric Mengus; Guillaume Plantin
    Abstract: This paper studies a model in which the price level is the outcome of dynamic strategic interactions between a fiscal authority, a monetary authority, and investors in government bonds and reserves. The ''unpleasant monetarist arithmetic'' whereby aggressive fiscal expansion forces the monetary authority to chicken out and inflate away public liabilities may be contained by market forces: Monetary dominance prevails if such fiscal expansion is met with a higher real interest rate on public liabilities, due for example to the crowding out of private investment opportunities. The model delivers empirical implications regarding the joint dynamics of public liabilities and price level, and policy implications regarding the management of central banks' balance sheets.
    Keywords: Fiscal-Monetary Interactions, Game of Chicken
    JEL: E63 E50 E42 E31
    Date: 2021
  15. By: Justin Svec (College of the Holy Cross); Daniel L. Tortorice (College of the Holy Cross)
    Abstract: A central bank has preferences that differ from the political authority. While the central bank is independent, i.e. it maximizes its own preferences, households do not know this. Instead, households observe the interest rate choices of the central bank and update their beliefs regarding central bank independence using Bayesian learning. We solve for the optimal interest rate policy in a New-Keynesian model where the central bank considers the effect of its policy decision on the households’ beliefs that it is independent. The model provides a theoretical measure of central bank independence and a mapping from this level of independence to expected future losses for the central bank. Because the central bank suffers large losses when it is not perceived as independent, the central bank may choose a policy that is quite distant from its rational expectations counterpart to bolster the perception of its independence. We show that productivity shocks provide greater scope for the central bank to demonstrate its independence than do demand shocks, leading the central bank to deviate more aggressively from the benchmark rational expectations policy choice for the former shock than for the latter. Finally, varying perceptions of independence over time generate time varying volatility in interest rate policy and macroeconomic outcomes.
    Keywords: Monetary Policy, Central Bank Independence, Learning
    JEL: E52 E58 D83
    Date: 2022–02
  16. By: Stéphane Dupraz; Hervé Le Bihan; Julien Matheron
    Abstract: How effective make-up strategies are depends heavily on how forward-looking agents are. Workhorse monetary models, which are much forward-looking, find them so effective that they run into the so-called “forward-guidance puzzle”. Models that discount the future further find them much less effective, but imply that agents discount the very perception of future policy rates. This only evaluates make-up strategies when financial markets do not notice them, or deem them non-credible. We amend one leading solution to the forward-guidance puzzle -namely Woodford's finite planning horizons -to the assumption that financial markets have rational expectations on policy rates, and incorporate them into the long-term nominal interest rates faced by all. Agents still have a limited ability to foresee the consequences of monetary policy on output and inflation, making the model still immune to the forward-guidance puzzle. First, we find that make-up strategies that compensate for a past deficit of accommodation after an ELB episode have sizably better stabilization properties than inflation targeting. Second, we find that make-up strategies that always respond to past economic conditions, such as average inflation targeting, do too but that their stabilization benefits over IT can be reduced by the existence of the ELB.
    Keywords: Make-up Strategies, Forward-Guidance Puzzle, Finite Planning Horizons
    JEL: E31 E52 E58
    Date: 2022
  17. By: Francesco Berardini (Bank of Italy); Fabrizio Renzi (Bank of Italy)
    Abstract: Policy evaluation based on the estimation of dynamic stochastic general equilibrium models with aggregate macroeconomic time series rests on the assumption that a representative agent can be identified, whose behavioural parameters are independent of the policy rules. Building on earlier work by Geweke, the main goal of this paper is to show that the representative agent is in general not structural, in the sense that its estimated behavioural parameters are not policyindependent. The paper identifies two different sources of nonstructurality. The latter is shown to be a fairly general feature of optimizing representative agent rational expectations models estimated on macroeconomic data.
    Keywords: Covid-19, value added tax, vat compliance, vat gap, cashless payments, payment habits, household behavior, consumer preferences.
    JEL: H21 H26 E21 E32
    Date: 2022–02
  18. By: Daniel Levy (Bar-Ilan University); Tamir Mayer; Alon Raviv
    Keywords: Financial crisis, Economic Crisis, Great recession, NBER working papers, LDA textual analysis, Topic modeling, Dynamic Topic Modeling, Machine learning
    JEL: E32 E44 E50 F30 G01 G20
    Date: 2022–02
  19. By: Fernandes, Daniel
    Abstract: We apply the Business Cycle Accounting framework to the COVID-19 recession in the Euro Area and the United States. We conclude that the efficiency wedge had the most important role in the Euro Area, followed by the labor and investment wedges. In the United States, the labor wedge was most crucial, with the investment wedge taking a second place. We present hypotheses, supported by our theoretical framework, for the dichotomy of the role of the efficiency wedge between the studied regions.
    Keywords: Economics COVID-19 Business Cycle Accounting Macroeconomics Financial Crises Financial Frictions Wedges
    JEL: E3 E32 F4 F44
    Date: 2022–01–17
  20. By: Kiemo, Samuel; Kamau, Anne; Rugiri, Irene W.; Talam, Camilla
    Abstract: This paper examines the effectiveness of macroprudential regulations in promoting bank stability and credit in the Kenyan financial system. The study uses bank-level and nonbank credit data for the period 2001-2019 and applies a panel estimation methodology to achieve its objectives. The study finds that bank stability has remained high, though downward trending. The findings also reveal that capital-based and asset-side macroprudential regulations effectively promote bank stability, while the liquidity-related macroprudential regulation is ineffective. Additionally, there is evidence of dampened bank credit market and domestic leakage associated with macroprudential regulations. The paper cautions policymakers to implement macroprudential policies that balance the objectives of bank stability and credit conditions. Furthermore, policymakers should note that implementing the new macroprudential measures may cause financial intermediaries to adjust their behaviour and therefore, should be implemented systematically while observing their impact at each stage.
    Keywords: Macroprudential Regulation,Stability,Lending,Banks
    JEL: E44 E51 G21
    Date: 2021
  21. By: Corina Boar; Denis Gorea; Virgiliu Midrigan
    Abstract: We use micro data from Orbis on firm level balance sheets and income statements to document that accounting returns for privately held businesses are dispersed, persistent, and negatively correlated with firm equity. We also show that firms experience large, fat-tailed, and partly transitory changes in output that are not fully accompanied by changes in their capital stock and wage bill. This implies that capital and labor choices are risky, as fluctuations in output are accompanied by large changes in firm profits. We interpret this evidence using a model of entrepreneurial dynamics in which return heterogeneity can arise from both limited span of control, as well as from financial frictions which generate differences in financial returns to saving. The model matches the evidence on accounting returns and predicts that financial returns to saving are half as large and dispersed as accounting returns. Financial returns mostly reflect risk, as opposed to collateral constraints which play a negligible role due to firms' unwillingness to expand and take on more risk.
    JEL: E2 E44 G32
    Date: 2022–01
  22. By: Scott Fulford (Consumer Financial Protection Bureau); Scott Schuh (West Virginia University)
    Abstract: Credit bureau data show remarkably stable consumer utilization of unsecured debt over the business cycle, life cycle, and individually quarter-to-quarter, despite massive variation in available credit. To explain these new findings, we propose a life-cycle consumption model with heterogeneous preferences, endogenous payment choice, and the option to revolve debt for consumption smoothing. Using diary data to identify payment use, the estimated model matches consumption and credit use at every frequency and suggests that around half the population has an endogenously high marginal propensity to consume. The results suggest understanding credit availability and heterogeneous use may lead to richer counter-cyclical policies.
    Keywords: Credit cards, life cycle, consumption, saving, precaution, buffer-stock, payments
    JEL: D14 D15 E21 E27
    Date: 2020–12–20
  23. By: International Monetary Fund
    Abstract: Policies since 2018 have stabilized the economy in a very difficult environment. Yet many challenges remain for sustainable development, especially high debt and oil dependency. The authorities remain committed to continued reforms.
    Keywords: national bank of Angola; minority stake; monetary policy stance; state reform; EFF arrangement; Oil prices; Inflation; Global
    Date: 2022–01–18
  24. By: Mr. Francis Vitek; Vitor Gaspar; Mr. Tobias Adrian
    Abstract: This paper jointly analyzes the optimal conduct of monetary policy, foreign exchange intervention, fiscal policy, macroprudential policy, and capital flow management. This policy analysis is based on an estimated medium-scale dynamic stochastic general equilibrium (DSGE) model of the world economy, featuring a range of nominal and real rigidities, extensive macrofinancial linkages with endogenous risk, and diverse spillover transmission channels. In the pursuit of inflation and output stabilization objectives, it is optimal to adjust all policies in response to domestic and global financial cycle upturns and downturns when feasible—including foreign exchange intervention and capital flow management under some conditions—to widely varying degrees depending on the structural characteristics of the economy. The framework is applied empirically to four small open advanced and emerging market economies.
    Keywords: Monetary Policy, Foreign Exchange Intervention, Fiscal Policy, Macroprudential Policy, Capital Flow Management, Dynamic Stochastic General Equilibrium Model, Small Open Economy
    Date: 2022–01–28
  25. By: Owen Davis; Siavash Radpour (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: One of the most pressing questions facing policy makers is how quickly the labor force might return to its pre-pandemic strength. Answering this question requires understanding the employment and retirement trajectories of older workers in the pandemic. The labor force is roughly 3.8 million workers short of where it would be if we still lived in the pre-Covid economy, and nearly half of this shortfall is accounted for by those 55 and older. Meanwhile, the retired share of the population is roughly 2 percentage points above its pre-pandemic trend line (Davis, 2021). Dissecting the Pandemic Retirement Surge finds that: In explaining the sharp increase in the retired share since Covid-19 hit, the drop in “unretirement,†that is, the decrease in flows from retirement to employment, plays only a minor role. The most important driver of the recent increase in retirements consists of higher flows into retirement among workers who were employed in the year before the pandemic. The retirement of workers who became unemployed due to the pandemic also contributed significantly to the increased retired share.
    Keywords: older workers, retirement, Covid-19, labor force flows
    JEL: E24 I14 J62 J38 E21 J83 J32
    Date: 2021–12
  26. By: Gary B. Gorton; Chase P. Ross; Sharon Y. Ross
    Abstract: It is difficult for private agents to produce money that circulates at par with no questions asked. We study two cases of privately-produced money: pre-Civil War U.S. private banknotes and modern stablecoins. Private monies are introduced when there are no better alternatives, but they initially carry an inconvenience yield. Over time, these monies may become more money-like, but they do not always achieve a positive convenience yield. Technology advances and reputation formation pushed private banknotes toward a positive convenience yield. We show that the same forces are at work for stablecoins.
    JEL: E02 E4 E41 E42 E51 G1 G21
    Date: 2022–01
  27. By: Jakob Vestergaard (Roskilde University); Daniela Gabor (University of West England)
    Abstract: Despite much attention to unconventional monetary policies after the financial crisis, the collateral policies of central banks are rarely discussed. And when they are, the haircuts applied to assets pledged to access central bank liquidity tend not to be analyzed. An exception to these trends is the recent work by Nyborg (2017), who argues that the collateral policies adopted by the European Central Bank (ECB) aggravated the sovereign debt crisis and put the survival of the euro at risk. Taking our point of departure in the money view literature (Mehrling 2011), we argue however that Nyborg`s critique of the ECB`s crisis response is misguided and that his proposal to deepen and reinforce the ECBs role in the fiscal disciplining of member states would be procyclical and destabilizing. Through our analysis of Nyborg`s work and the ECBs crisis response, we identify core principles for countercyclical collateral policies suitable for market-based financial systems.
    Keywords: Central banks, collateral policy, fiscal disciplining, financial stability, haircuts.
    JEL: E42 E58 F45
    Date: 2021–12–01
  28. By: International Monetary Fund
    Abstract: Following a deep recession in 2020 and further contraction in 2021Q1, the euro area economy recovered rapidly in the second and third quarters thanks to high vaccination levels, increasing household and business adaptability to the virus, and continued forceful policy support. Looking ahead, while supply chain disruptions, elevated energy prices, and resurgences of Covid-19 cases—including those related to the Omicron variant—are likely to pose near-term headwinds to growth, the recovery is set to continue in 2022 as the impact of the pandemic on economic activity continues to weaken over time and supply-side constraints ease. Medium-term output losses relative to pre-crisis trends will vary significantly across countries and sectors as will the extent of labor market scarring. Price pressures are building up as production bottlenecks are set to persist for a while. However, inflation—despite increasing significantly in recent months due to transitory factors—is projected to moderate during 2022 and remain below the ECB’s inflation target over the medium term. Uncertainty surrounding the outlook remains high and largely related to pandemic dynamics and legacies, including induced behavioral and preference changes.
    Date: 2022–02–07
  29. By: Klodiana Istrefi; Florens Odendahl; Giulia Sestieri
    Abstract: Using an extensive dataset on public speaking events by ECB and euro area National Central Bank (NCB) officials, we show that communication outside of ECB regular monetary policy meeting days has a significant effect on daily movements in Eonia rates, market-based inflation expectations and sovereign bond rates. The remarks of ECB presidents are most important and market reactions to them are comparable in size to those on ECB meeting days. In addition, ECB presidents’ remarks given ahead of meetings with policy changes have a significant effect on Eonia rates of the same sign as the subsequent policy decision. Our results suggest that communication outside of regular meeting days contain a monetary policy signal and, thus, highlight the importance of this communication when studying the effects of monetary policy.
    Keywords: Monetary Policy, ECB, Communication, Financial Markets, Event Study
    JEL: E03 E50 E61
    Date: 2022
  30. By: Dergunov, Ilya; Meinerding, Christoph; Schlag, Christian
    Abstract: In a parsimonious regime switching model, we find strong evidence that expected consumption growth varies over time. Adding inflation as a second variable, we uncover two states in which expected consumption growth is low, one with high and one with negative expected inflation. Embedded in a general equilibrium asset pricing model with learning, these dynamics replicate the observed time variation in stock return volatilities and stockbond return correlations. They also provide an alternative derivation for a measure of time-varying disaster risk suggested by Wachter (2013), implying that both the disaster and the long-run risk paradigm can be extended towards explaining movements in the stock-bond correlation.
    Keywords: Long-run risk,inflation,recursive utility,filtering,disaster risk
    JEL: E31 E44 G12
    Date: 2022
  31. By: Barnett, William A.; Ghosh, Taniya; Adil, Masudul Hasan
    Abstract: We revisit the issue of stable demand for money, using quarterly data for the European Monetary Union, India, Israel, Poland, the UK, and the US. We use a modern version of the same linear time-series macroeconometric modeling and specification approach that had previously cast doubt on money demand stability. Autoregressive distributed lag (ARDL) cointegration models are used in the study to establish a long-term relationship among real money balances, real output, interest rate, and real effective exchange rate. For all the countries analyzed, evidence of stable demand for money is found. Broad money in general is better at capturing a stable demand for money than narrow money. The stability results are especially strong, when broad Divisia money is used instead of its simple sum counterpart. Our results are consistent with the large literature on the Barnett critique, which is based on a different methodological tradition that employs microeconometric modeling of integrable consumer demand systems. That literature has never found the demand for monetary services, measured using reputable index number and aggregation theory, to be any more difficult to model or less stable than the demand for any other good or service in the economy.
    Keywords: Narrow money demand, broad money demand, simple-sum monetary aggregates, Divisia monetary aggregates, ARDL cointegration approach
    JEL: C23 E41 E52
    Date: 2022–01–03
  32. By: Niklas Engbom; Gustavo Gonzaga; Christian Moser; Roberta Olivieri
    Abstract: Using rich administrative and household survey data spanning 34 years from 1985 to 2018, we document a series of new facts on earnings inequality and dynamics in a developing country with a large informal sector: Brazil. Since the mid-1990s, both inequality and volatility of earnings have declined significantly in Brazil’s formal sector. Higher-order moments of the distribution of earnings changes show cyclical movements in Brazil that are similar to those in developed countries like the US. Relative to the formal sector, the informal sector is associated with a significant earnings penalty and higher earnings volatility for identical workers. Earnings changes of workers who switch from formal to informal (from informal to formal) employment are relatively negative (positive) and large in magnitude, dispersed, negatively (positively) skewed, and less leptokurtic. Our results suggest that informal employment is an imperfect insurance mechanism.
    JEL: D31 D33 E24 E26 J31 J46 J62
    Date: 2022–01
  33. By: International Monetary Fund
    Abstract: The Czech Republic entered the pandemic on a strong economic footing. Amid another surge in virus infections, the outlook is for a continued rebound in activity. However, the risks are tilted to the downside. Inflation remained marginally above the upper tolerance band in 2020 and increased substantially in late 2021. Pressures in the labor market remain. Macrofinancial vulnerabilities persist as house price growth has reached record highs amid significant risk-taking by lenders.
    Date: 2022–01–27
  34. By: Weber, Michael (University of Chicago); Gorodnichenko, Yuriy (University of California, Berkeley); Coibion, Olivier (University of Texas at Austin)
    Abstract: As the pandemic spread across the U.S., disagreement among U.S. households about inflation expectations surged along with the mean perceived and expected level of inflation. Simultaneously, the inflation experienced by households became more dispersed. Using matched micro data on spending of households and their macroeconomic expectations, we study the link between the inflation experienced by households in their daily shopping and their perceived and expected levels of inflation both before and during the pandemic. In normal times, realized inflation barely differs across observable dimensions but low income, low education, and Black households experienced a larger increase in realized inflation than other households did. Dispersion in realized and perceived inflation explains a large share of the rise in dispersion in inflation expectations.
    Keywords: inflation expectations, COVID-19, surveys
    JEL: E02 E03
    Date: 2022–01
  35. By: Fedesarrollo
    Abstract: Un libro que llega en el mejor momento, cuando la recuperación económica se convierte en un tema central del debate público. Para conmemorar sus cincuenta años, Fedesarrollo reunió a algunos de los mejores investigadores de la entidad en un solo libro. El objetivo: lograr el diagnóstico más completo de la economía colombiana del presente y hacer proyecciones para los próximos diez años. Crecimiento, demografía, pobreza, empleo, educación, infraestructura, energía, sostenibilidad e instituciones son los nueve capítulos que componen este análisis de largo alcance.
    Keywords: Economía Colombiana, Crecimiento Económico, Productividad, Demografía, Tendencias Demográficas, Pobreza, Distribución del Ingreso, Mercado Laboral, Empleo, Educación, Cobertura de la Educación, Deserción Escolar, Infraestructura, Tecnologías de la Información y la Comunicación, TIC, Economía de la Infraestructura, Electricidad, Gas Natural, Transporte, Energía, Transición Energética, Sector Energético, Medio Ambiente, Recursos Energéticos, Fortalecimiento Institucional, COVID-19, Política Pública, Política Social, Política Fiscal, Proyecciones Económicas, Reactivación Económica, Colombia
    JEL: O54 O47 D24 J10 J11 I32 D33 J40 E24 J21 I21 O18 L94 L95 L91 O13 Q43 Q50 Q20 L38
    Date: 2021–04–01
  36. By: Youngsoo Jang; Minchul Yum
    Abstract: A majority of governments around the world unprecedentedly closed schools in response to the COVID-19 pandemic. This paper quantitatively investigates the macroeconomic and distributional consequences of school closures through intergenerational channels in the medium- and long-term. The model economy is a dynastic overlapping generations general equilibrium model in which schools, in the form of public education investments, complement parental investments in producing children's human capital. We calibrate the stationary equilibrium of the model to the U.S. economy and compute the equilibrium responses following unexpected school closure shocks. We find that school closures have moderate long-lasting adverse effects on macroeconomic aggregates such as output. In addition, we find that school closures reduce intergenerational mobility, especially among older children. Finally, we find that lower substitutability between public and parental investments induces larger damages in the aggregate economy and overall lifetime incomes of the affected children, while mitigating negative impacts on intergenerational mobility. In all findings, heterogeneous parental responses to school closures play a key role. Our results provide a quantitatively relevant dimension to consider for policymakers assessing potential costs of school closures.
    Keywords: Intergenerational mobility, lifetime income, parental investments, aggregate loss, substitutability
    JEL: E24 I24 J22
    Date: 2020–11
  37. By: Youngsoo Jang; Minchul Yum
    Abstract: A majority of governments around the world unprecedentedly closed schools in response to the COVID-19 pandemic. This paper quantitatively investigates the macroeconomic and distributional consequences of school closures through intergenerational channels in the medium- and long-term. The model economy is a dynastic overlapping generations general equilibrium model in which schools, in the form of public education investments, complement parental investments in producing children's human capital. We calibrate the stationary equilibrium of the model to the U.S. economy and compute the equilibrium responses following unexpected school closure shocks. We find that school closures have moderate long-lasting adverse effects on macroeconomic aggregates such as output. In addition, we find that school closures reduce intergenerational mobility, especially among older children. Finally, we find that lower substitutability between public and parental investments induces larger damages in the aggregate economy and overall lifetime incomes of the affected children, while mitigating negative impacts on intergenerational mobility. In all findings, heterogeneous parental responses to school closures play a key role. Our results provide a quantitatively relevant dimension to consider for policymakers assessing potential costs of school closures.
    Keywords: Intergenerational mobility, lifetime income, parental investments, aggregate loss, substitutability
    JEL: E24 I24 J22
    Date: 2020–11
  38. By: Qin, Weiguang; Bhattarai, Keshab
    Abstract: We find that the monetary policy in the mainland China will underestimate the volatility of major macro variables when it fails to consider the influence of capital flows to and from the Hong Kong RMB offshore market. Analyses of SVAR model reveals that the Hong Kong RMB offshore market affects money market in the mainland China through changes in the financial flows and exchange rates. In the early stage of the implementation of structural monetary policy (SMP) for macroeconomic stability, the cross-border flows of capital occurs due to changes in arbitrage behavior from the Hong Kong RMB offshore market, which affects not only money supply but also expectations of households and firms about actual interest rate and exchange rates that often produce opposite of intended effects in the price and output. Scenario one of SVAR simulations, that ignored the Hong Kong RMB offshore market came with lower volatilities of the target macro variables but the model generated values of variables did not match well to the actual data. Scenario two of the simulation of the same SVAR model including the Hong Kong RMB offshore market, had model values of model variables closely matching to the actual data though with slightly higher volatilities of those variables.
    Keywords: RMB offshore market, monetary policy, macroeconomic volatility, exchange rate
    JEL: E58 E61 O38
    Date: 2022–01–30
  39. By: Scott R. Baker; Steven J. Davis; Jeffrey A. Levy
    Abstract: We quantify and study state-level economic policy uncertainty. Tapping digital archives for nearly 3,500 local newspapers, we construct three monthly indexes for each state: one that captures state and local sources of policy uncertainty (EPU-S), one that captures national and international sources (EPU-N), and a composite index that captures both. EPU-S rises around gubernatorial elections and own-state episodes like the California electricity crisis of 2000-01 and the Kansas tax experiment of 2012. EPU-N rises around presidential elections and in response to 9-11, Gulf Wars I and II, the 2011 debt-ceiling crisis, the 2012 fiscal cliff episode, and federal government shutdowns. Close elections elevate policy uncertainty much more than the average election. The COVID-19 pandemic drove huge increases in policy uncertainty and unemployment, more so in states with stricter government-mandated lockdowns. VAR models fit to pre-COVID data imply that upward shocks to own-state EPU foreshadow weaker economic activity in the state.
    JEL: D80 E32 E66 G18 H70 R50
    Date: 2022–02
  40. By: Ogawa, Shogo
    Abstract: Although modern analyses of inventory dynamics identify the implicit roles of inventory holding, they do not entirely address its primary role. This study analyzes the correlation between the current quantity constraints and choices in intertemporal optimizations by modeling inventory dynamics. The economy's quantity constraints are reflected in a representative firm's optimization of its current employment and investment based on the perceived sales constraints. Using analytical and numerical methods, the results show that the Metzlerian cycle of inventory and sales expectations survives under the canonical intertemporal optimization framework, as the stable inventory-to-sales ratio is reproduced. Additionally, this Metzlerian model illustrates the qualitative aspects of inventory dynamics in the business cycle. However, the quantitative aspects are not reproduced through the optimization framework because the firm's control is based on a stationary growth path, thereby weakening the effects of sales expectation dynamics.
    Keywords: inventory dynamics, inventory holding, quantity constraints, Metzlerian dynamics
    JEL: D91 E12 E32 O41
    Date: 2022–01–30
  41. By: International Monetary Fund
    Abstract: Strong and timely containment measures have successfully prevented a domestic COVID-19 outbreak but have also weighed on economic activity and aggravated pre-existing socio-economic tensions. Following a contraction in 2020, growth is projected to recover gradually starting this year and to gain strength as containment measures are relaxed and borders re-opened. Elevated pandemic-related uncertainties as well as longstanding social, economic and governance challenges and vulnerability to natural disasters pose headwinds to inclusive growth. Despite strong external buffers, weaker fiscal position increases vulnerability to shocks, while the decline in logging weighs on fiscal revenues and growth prospects.
    Keywords: IMF executive board staff; financing gap; CBSI data; COVID expenditure; land mass; COVID-19; External sector statistics; Pacific Islands; Global
    Date: 2022–01–21
  42. By: International Monetary Fund
    Abstract: The COVID-19 pandemic severely impacted Nepal’s economy. Tourist arrivals collapsed, domestic activity plummeted, and remittances have been volatile. As a result, balance of payments and fiscal financing gaps emerged. After growth was lower than expected in 2019/20, a gradual resumption in economic activity and a corresponding surge in imports and related tax receipts led to higher growth and improved fiscal outturns in 2020/21. However, important fiscal and external financing needs remain to support the COVID-19 response, facilitate a continued recovery, and maintain a comfortable level of reserves.
    Date: 2022–01–27
  43. By: Oscar Jorda (University of California, Davis); Martin Kornejew (University of Bonn); Moritz Schularick (Federal Reserve Bank of New York); Alan M. Taylor (University of California, Davis)
    Abstract: What are the macroeconomic consequences of business credit booms? Are they as dangerous as household credit booms? If not, why not? We answer these questions by collecting data on non-financial business liabilities (primarily bank loans and corporate bonds) for 17 advanced economies over the past 150 years. Unlike household credit, business credit booms are rarely followed by macroeconomic hangovers. Data on debt renegotiation costs—instrumented by a country’s legal tradition—show that frictions to debt resolution make recessions deeper and longer—an important factor in explaining the differences with household credit booms.
    Keywords: corporate debt, business cycles, local projections.
    JEL: E44 G32 G33 N20
    Date: 2021–10–15
  44. By: Niklas Engbom; Christian Moser; Jan Sauermann
    Abstract: We study the nature of firm pay dynamics. To this end, we propose a statistical model that extends the seminal framework by Abowd, Kramarz and Margolis (1999) to allow for idiosyncratically time-varying firm pay policies. We estimate the model using linked employer-employee data for Sweden from 1985 to 2016. By drawing on detailed firm financials data, we show that firms that become more productive and accumulate capital raise pay, whereas firms lower pay as they add workers. A secular increase in firm-year pay dispersion in Sweden since 1985 is accounted for by greater persistence of firm pay among incumbent firms as well as greater dispersion in firm pay among entrant firms, as opposed to more volatile firm pay.
    JEL: D22 D31 E24 J31 M13
    Date: 2022–01
  45. By: PINSHI, Christian P.
    Abstract: This reflection attempts to explain the issue of dollarization in a different and innovative way with new recipes for ideas to understand how dollarization works and slow down its pace. Proceeding by a mathematical reflection of limits, we show that in a period of stability, when the rate of dollarization approaches very closely but is not equal to the total dollarization, all monetary policy interventions limit the rate of dollarization in order to that it does not achieve full dollarization. And when monetary policy interventions aim to de-dollarize the economy, the rate of dollarization becomes equilibrium or natural, so we obtain a natural rate of dollarization
    Keywords: Dollarization, Monetary policy
    JEL: C0 E52 F30
    Date: 2022–01
  46. By: International Monetary Fund
    Abstract: A strong economic recovery is underway in France, bolstered by progress on vaccination, strong fiscal support and solid private sector led investment. Employment has recovered to above pre-crisis levels and unemployment is virtually stable. Inflation is increasing, mainly driven by a rise in energy prices but also due to supply-chain disruptions. The public deficit and debt ratio surged in 2020, reflecting the large amount of emergency support deployed and the drop in activity.
    Date: 2022–01–26
  47. By: Efraim Benmelech; Michal Zator
    Abstract: Automation technologies, and robots in particular, are thought to be massively displacing workers and transforming the future of work. We study firm investment in automation using cross-country data on robotization as well as administrative data from Germany with information on firm-level automation decisions. Our findings suggest that the impact of robots on firms has been limited. First, investment in robots is small and highly concentrated in a few industries, accounting for less than 0.30% of aggregate expenditures on equipment. Second, recent increases in robotization do not resemble the explosive growth observed for IT technologies in the past, and are driven mostly by catching-up of developing countries. Third, robot adoption by firms endogenously responds to labor scarcity, alleviating potential displacement of existing workers. Fourth, firms that invest in robots increase employment, while total employment effect in exposed industries and regions is negative, but modest in magnitude. We contrast robots with other digital technologies that are more widespread. Their importance in firms’ investment is significantly higher, and their link with labor markets, while sharing some similarities with robots, appears markedly different.
    JEL: E22 E24 E25 G31 J23 J24 J3
    Date: 2022–01
  48. By: Bertheau, Antoine (University of Copenhagen); Vejlin, Rune Majlund (Aarhus University)
    Abstract: The rate at which workers switch employers without experiencing a spell of unemployment is one of the most important labor market indicators. However, Employer-to-Employer (EE) transitions are hard to measure in widely used matched employer-employee datasets such as those available in the US. We investigate how the lack of the exact start and end dates for job spells affect the level and cyclicality of EE transitions using Danish data containing daily information on employment relationships. Defining EE transitions based on quarterly data overestimates the EE transition rate by approximately 30% compared to daily data. The bias is procyclical and is reduced by more than 10% in recessions. We propose an algorithm that uses earnings and not just start and end dates of jobs to redefine EE transitions. Our definition performs better than definitions used in the literature.
    Keywords: measurement problems, employer-to-employer transitions, labor market flows, time aggregation bias
    JEL: E24 E32 J63
    Date: 2022–01
  49. By: PINSHI, Christian P.
    Abstract: This note sparks a debate and a state of play in the age of the digital revolution, on the adoption of central bank digital currencies (CBDCs) for central banks.
    Keywords: central bank digital currencies
    JEL: E58
    Date: 2022–01
  50. By: International Monetary Fund
    Abstract: Despite a more favorable external environment, marked by the rebound in global growth, fast-increasing oil prices, and unprecedented Fund financial support, CEMAC is ending 2021 in a fragile external position. Net external reserves fell throughout 2021 to reach their lowest level in decades, and gross reserves are just above three months of imports of goods and services. The launch of a second phase of the regional strategy at the August 2021 CEMAC Heads of States summit saw renewed commitments to accelerate structural, transparency, and governance reforms. The resumption of program engagements with the Fund, combined with high oil prices and significant fiscal adjustments in 2022, should allow for a turnaround, and the build-up in external reserves is expected to resume in 2022. Risks include possible adverse pandemic developments, oil price volatility, possible fiscal slippages, shortfall in external financing, and security issues.
    Keywords: CEMAC authorities; CEMAC country; policy measure; CEMAC member country; further policy commitment; fiscal consolidation policy; Liquidity; Oil prices; Fiscal stance; Monetary base; Global
    Date: 2022–01–21
  51. By: International Monetary Fund
    Abstract: Uruguay entered the pandemic with solid institutions and social cohesion but growing macroeconomic imbalances—especially slow economic growth and weak public finances—as the end of the last commodity price boom in 2014 uncovered structural weaknesses. A new government came to power in March 2020 with a mandate to boost growth and restore fiscal sustainability. Legislation setting the foundations for many of the reforms has been passed and implementation is advancing––including on a new fiscal rule, and state-owned enterprise (SOE) and pension reforms.
    Date: 2022–01–25
  52. By: Fernando Cirelli; Mark Gertler
    Abstract: As is well known, during the pandemic recession firms directly exposed to the virus, i.e. the “contact” sector, contracted sharply and recovered slowly relative to the rest of the economy. Less understood is how firms that “won” by offering safer substitutes for contact sector goods have affected this unequal downturn. Using both firm and industry data, we first construct disaggregated measures of revenue growth that distinguish between contact sector losers, contact sector winners, and the non-contact sector. We show that contact sector losers contracted roughly fifty percent more than the sector average, while winners grew. Further, forecast data suggests that the gap between winners and losers will persist at least through 2022. To explain this evidence, we then develop a simple three sector New Keynesian model with (i) a sector of firms that offers safe substitutes for risky contact sector goods and (ii) learning by doing. Overall, the model captures the unequal sectoral recession. It also accounts for inflation, including the sharp runup in 2021.
    JEL: E3 E4
    Date: 2022–01
  53. By: Bournakis, Ioannis; Ramirez-Rondan, Nelson R.
    Abstract: The paper looks for non-linearities in the relationship between fiscal consolidation and capital intensity (capital per worker). To understand this nexus, we consider the broader state of the economy as it is represented by the degree of economic uncertainty. Based on a sample of 27 OECD countries over the period 1996-2019, we identify low and high uncertainty regimes within which the nature of the relationship between fiscal policy and capital intensity differs substantially. In the low uncertainty regime, fiscal tightening is either irrelevant or has a relatively small negative economic effect on the evolution of capital intensity. In the high uncertainty regime, the negative effect of fiscal tightening on capital intensity can be three times bigger in comparison to the effect in the low uncertainty regime. Our findings maintain a robust pattern of this relationship through a series of sensitivity tests.
    Keywords: Fiscal policy, real sector, threshold model, panel data.
    JEL: C33 D81 E62
    Date: 2022–01
  54. By: Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France)
    Abstract: L'inflation qui avait quasiment disparue depuis quarante ans resurgit. La première réaction est de considérer ce phénomène comme transitoire comme si elle était le signe d'une rupture momentanée d'un équilibre de long terme. Cependant, elle se produit en un moment où des crises successives, financière, sanitaire, écologique deviennent le moteur de changements structurels importants et pourrait, de ce fait, être durable si les déséquilibres observés ne sont pas contenus. La comparaison avec les événements des années 1970, tant sur le plan des faits que sur celui de leur interprétation analytique, peut éclairer sur le sens de la question relative au caractère durable ou transitoire de l'inflation.
    Keywords: anticipations, changement structurel, inflation, politique économique
    JEL: E31 E52 E63 N10
    Date: 2022–02
  55. By: International Monetary Fund
    Abstract: With strong policy support, Finland suffered a relatively mild economic contraction in 2020 followed by a swift recovery in 2021. Medium-term growth prospects are less strong, due to adverse demographics and low productivity growth—trends that precede the pandemic. Public debt has increased due to pandemic-related support and will remain on a rising trajectory in the medium term, largely reflecting permanent spending increases.
    Date: 2022–01–31
  56. By: Engbom, Niklas (New York University); Moser, Christian (Columbia University); Sauermann, Jan (IFAU)
    Abstract: We study the nature of firm pay dynamics. To this end, we propose a statistical model that extends the seminal framework by Abowd, Kramarz and Margolis (1999) to allow for idiosyncratically time-varying firm pay policies. We estimate the model using linked employer-employee data for Sweden from 1985 to 2016. By drawing on detailed firm financials data, we show that firms that become more productive and accumulate capital raise pay, whereas firms lower pay as they add workers. A secular increase in firm-year pay dispersion in Sweden since 1985 is accounted for by greater persistence of firm pay among incumbent firms as well as greater dispersion in firm pay among entrant firms, as opposed to more volatile firm pay.
    Keywords: earnings inequality, worker and firm heterogeneity, firm dynamics, linked employer-employee data, two-way fixed effects model, akm
    JEL: J31 D22 D31 E24 M13
    Date: 2022–01
  57. By: Max Fuchs (University of Kassel); Jochen Michaelis (University of Kassel)
    Abstract: The coexistence of cash and digital currencies constitutes a system of parallel currencies. This paper tackles the question whether a new (digital) currency is essential: Does a new currency allow for a better resource allocation even if a fully accepted currency is in circulation and still remains in circulation? Using the dual currency search model of Kiyotaki and Wright (1993), we show how the introduction of a secondary currency affects average utility. There is some scope for a welfare improvement, the welfare effect depends on differences in returns and costs, and, in particular, the fraction of cash traders who will be replaced by digital money traders.
    Keywords: digital money, dual currency regime, welfare comparison
    JEL: E41 E42 E51
    Date: 2022
  58. By: International Monetary Fund
    Abstract: The pandemic interrupted ten years of growth, but El Salvador is rebounding quickly. Robust external demand, resilient remittances, and a sound management of the pandemic—with the help of a disbursement under the Rapid Financing Instrument (RFI) (SDR287.2 million or US$389 million) approved in April 2020—are supporting a strong recovery. Persistent fiscal deficits and high debt service are leading to large and increasing gross fiscal financing needs.
    Date: 2022–01–28
  59. By: Daan Opschoor (Erasmus University Rotterdam); Michel van der Wel (Erasmus University Rotterdam)
    Abstract: We propose a smooth shadow-rate version of the dynamic Nelson-Siegel (DNS) model to analyze the term structure of interest rates during the recent zero lower bound (ZLB) period. By relaxing the no-arbitrage restriction, our shadow-rate model becomes highly tractable with a closed-form yield curve expression. The model easily permits the implementation of readily available DNS extensions such as time-varying loadings, integration of macroeconomic variables and time-varying volatility. Using U.S. Treasury data, we provide clear evidence of a smooth tran- sition of the yields entering and leaving the ZLB state. Moreover, we show that the smooth shadow-rate DNS model dominates the baseline DNS model in terms of fitting and forecasting the yield curve, while being competitive with a shadow-rate affine term structure model.
    Keywords: Yield curve, zero lower bound, shadow-rate model, Nelson-Siegel curve
    JEL: E43 E47 C53 C58 G12
  60. By: Thomas Hasenzagl; Filippo Pellegrino; Lucrezia Reichlin; Giovanni Ricco
    Abstract: A mixed-frequency semi-structural model is used for estimating unobservable quantities such as the output gap, the Phillips curve and the NAIRU in real time. We consider two specifications: in one the output gap is observed as the official CBO measure, in the other is unobserved and derived via minimal theory-based restrictions. We find that the CBO model implies a smoother trend output but the second model better captures the business cycle dynamics of nominal and real variables. The methodology offers both a framework for evaluating official estimates of unobserved quantities of economic interest and for tracking them in real time.
    Date: 2022–01
  61. By: Bui, Dzung; Dräger, Lena; Hayo, Bernd; Nghiem, Giang
    Abstract: In evaluating surveys conducted in Thailand and Vietnam during the COVID-19 pandemic, we find that the marginal propensity to consume is significantly larger for positive than for negative income shocks. This result contradicts a prediction from the lifecycle permanent income model with borrowing constraints as well as empirical evidence from industrialized countries. However, our finding is consistent with Kahneman and Tversky’s prospect theory, according to which the combination of income uncertainty and loss aversion can induce households to react more strongly to positive than to negative shocks.
    Keywords: Marginal propensity to consume (MPC); Unanticipated income shocks; COVID-19; Thailand; Vietnam
    JEL: E21 H31 D84
    Date: 2022–02
  62. By: Dolado, Juan J. (Universidad Carlos III de Madrid); Lalé, Etienne (University of Québec at Montréal); Turon, Hélène (University of Bristol)
    Abstract: We propose a model to evaluate the U.K.'s zero-hours contract (ZHC) – a contract that exempts employers from the requirement to provide any minimum working hours, and allows employees to decline any workload. We find quantitatively that ZHCs improve welfare by enabling firms with more volatile business conditions to create additional jobs. While weaker than job creation, substitution effects – some jobs that are otherwise viable under regular contracts are advertised as ZHCs – are sizable and likely explain negative reactions against ZHCs. Our model also assesses increased labor-force participation from ZHCs which appeal to individuals who prefer flexible work schedules.
    Keywords: zero-hours contracts, working hours, gig economy, flexibility
    JEL: E24 J22 J23 J63 L84
    Date: 2021–12
  63. By: Marina Azzimonti; Nirvana Mitra
    Abstract: We study how political constraints, characterized by the degree of flexibility to choose fiscal policy, affect the probability of sovereign default. To that end, we relax the assumption that policymakers always repay their debt in the dynamic model of fiscal policy developed by Battaglini and Coate (2008). In our setup, legislators bargain over taxes, general spending, debt repayment, and a local public good that can be targeted to the region they represent. Under tighter political constraints, more legislators have veto power, implying that local public goods need to be provided to a larger number of regions. The resources that are freed after a default have to be shared with a higher number of individuals, which reduces the benefits from defaulting in per-capita terms. This lowers the incentive to default compared to the case with lax political constraints. The model is calibrated to Argentina and the results conform to robust empirical evidence. An event study for the 2001/2002 sovereign debt crisis shows that political constraints had an important role in the buildup that led to the crisis.
    JEL: D72 E43 E62 E65 F34 F41 F44 H2 H4 H63
    Date: 2022–01
  64. By: International Monetary Fund
    Abstract: Early and decisive measures successfully prevented an outbreak of COVID-19 in Nauru, and as of January 2022 there have been no COVID-19 cases on the island. Strong pandemic policy measures supported the economy, which continued to expand in FY20 and FY21. Nauru’s remoteness and size constrain potential growth and it is severely exposed to the negative effects of climate change on sea levels and the ocean stock of tuna. Development challenges are exacerbated by limited capacity and a high incidence of non-communicable diseases (NCDs).
    Date: 2022–02–07
  65. By: Kurmann, Andre (Drexel University); Lalé, Etienne (University of Québec at Montréal)
    Abstract: We match cell phone data to administrative school records and combine it with information on school learning modes to study effective in-person learning (EIPL) in the U.S. during the pandemic. We find large differences in EIPL for the 2020-21 school year. Public schools averaged less EIPL than private schools. Schools in more affluent localities and schools with a larger share of non-white students provided lower EIPL. Higher school spending and federal emergency funding is associated with lower EIPL. These results are explained in large part by regional differences, reflecting political preferences, vaccination rates, teacher unionization rates, and local labor conditions.
    Keywords: COVID-19, school closures and reopenings, effective in-person learning, inequality
    JEL: E24 I24
    Date: 2022–01
  66. By: Asongu, Simplice; Meniago, Christelle; Salahodjaev, Raufhon
    Abstract: This study investigates: (i) the effect of foreign direct investment (FDI) on total factor productivity (TFP) and economic growth dynamics, and (ii) the relevance of value added from three economic sectors in modulating the established effect of FDI on TFP and economic growth dynamics. The geographical and temporal scopes are respectively 25 Sub-Saharan African countries and the period 1980–2014. The empirical evidence is based on non-interactive and interactive Generalised Method of Moments. The following main findings are established. First, FDI has a positive effect on GDP growth, GDP per capita and welfare real TFP. Second, the effect of FDI is negative on real GDP and TFP, while the impact is insignificant on real TFP growth and welfare TFP. Third, values added to the three economic sectors largely modulate FDI to produce negative net effects on TFP and growth dynamics. Policy implications are discussed with particular emphasis on the need to complement added value across various economic sectors in order to leverage on the benefits of FDI in TFP and economic growth. To the best of knowledge, this is the first study to assess how value added from various economic sectors affect the relevance of FDI on macroeconomic outcomes.
    Keywords: Economic output, total factor productivity, foreign investment, agricultural sector, manufacturing sector, service sector, sub-Saharan Africa
    JEL: E23 F21 F30 F43 O55
    Date: 2021–01
  67. By: Vedor, Bernardo
    Abstract: Since 1980, income and wealth inequality increased gradually in the U.S.. Several solutions have been proposed, namely the introduction of a Universal Basic Income (UBI) system. In order to assess whether a UBI financed by a progressive labor tax is a viable solution to reduce inequality, we develop an overlapping generations model, with multiple sources of technological change and four different occupations. Calibrating the model to the U.S. we find that the welfare-maximizing level of UBI is actually quite low, 0.5% of GDP. Even though a higher UBI would decrease income and wealth inequality, it would negatively affect economic efficiency and make all types of agents worse off. The main mechanism is the distortionary effect of higher labor income taxation on capital accumulation which prevents the economy from incorporating the gains from investment-specific technological progress.
    Keywords: Macroeconomics, Income Inequality, Technological Change, Universal Basic Income
    JEL: E21 H21 J31
    Date: 2022–01–25
  68. By: Stefania Albanesi; María José Prados
    Abstract: The entry of married women into the labor force and the rise in women's relative wages are amongst the most notable economic developments of the twentieth century. The growth in these indicators was particularly pronounced in the 1970s and 1980s, but it stalled since the early 1990s, especially for college graduates. In this paper, we argue that the discontinued growth in female labor supply and wages since the 1990s is a consequence of growing inequality. Our hypothesis is that the growth in top incomes for men generated a negative income effect on the labor supply of their spouses, which reduced their participation and wages. We show that the slowdown in participation and wage growth was concentrated among women married to highly educated and high income husbands, whose earnings grew dramatically over this period. We then develop a model of household labor supply with returns to experience that qualitatively reproduces this effect. A calibrated version of the model can account for a large fraction of the decline relative to trend in married women's participation in 1995-2005 particularly for college women. The model can also account for the rise in the gender wage gap for college graduates relative to trend in the same period.
    JEL: E24 J16 J21 J22 J3
    Date: 2022–01
  69. By: Anusha Chari; Karlye Dilts Stedman; Kristin Forbes
    Abstract: The effects of macroprudential policy on portfolio flows vary considerably 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 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 for regulations that target specific risks instead of generalized cyclical buffers. 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.
    JEL: E58 F3 G15 G28
    Date: 2022–01
  70. By: Dzung Bui (University of Marburg); Lena Draeger (Leibniz University of Hannover); Bernd Hayo (University of Marburg); Giang Nghiem (Leibniz University of Hannover)
    Abstract: In evaluating surveys conducted in Thailand and Vietnam during the COVID-19 pandemic, we find that the marginal propensity to consume is significantly larger for positive than for negative income shocks. This result contradicts a prediction from the lifecycle permanent income model with borrowing constraints as well as empirical evidence from industrialized countries. However, our finding is consistent with Kahneman and Tversky’s prospect theory, according to which the combination of income uncertainty and loss aversion can induce households to react more strongly to positive than to negative shocks.
    Keywords: Marginal propensity to consume (MPC); Unanticipated income shocks; COVID-19; Thailand; Vietnam.
    JEL: E62 E71 D12 D83 H31
    Date: 2022
  71. By: Tamás Briglevics (Magyar Nemzeti Bank); Scott Schuh (West Virginia University)
    Abstract: Consumer wallets have more means of payment yet cash still is used most. We develop a dynamic structural model blending cash inventory management and payment instrument choice. For each expenditure, consumers endogenously pay with cash, debit card, or credit card with an option to withdraw cash beforehand. The model is estimated with transaction-level data from a daily consumer payment diary and reveals that utility from payment services exceed cash management costs. For payment card owners, optimal cash holdings are about $50 and jointly determined with the share of cash payments. Eliminating either cash or payment cards reduces consumer welfare significantly.
    Keywords: Money demand, cash inventory management, payment demand, debit cards, credit cards, structural estimation, discrete-continuous choice, Diary of Consumer, Payment Choice
    JEL: E41 E42 D12 D14
    Date: 2020–04
  72. By: Achdou, Yves; Han, Jiequn; Lasry, Jean Michel; Lions, Pierre Louis; Moll, Ben
    Abstract: We recast the Aiyagari–Bewley–Huggett model of income and wealth distribution in continuous time. This workhorse model—as well as heterogeneous agent models more generally—then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (1) an analytic characterization of the consumption and saving behaviour of the poor, particularly their marginal propensities to consume; (2) a closed-form solution for the wealth distribution in a special case with two income types; (3) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including—but not limited to—the Aiyagari–Bewley–Huggett model.
    Keywords: wealth distribution; heterogeneous a; consumption; inequality; continuous time; OUP deal
    JEL: D14 D31 E21 C61 C63
    Date: 2022–01–10
  73. By: Nazare da Costa Cabral; Carlos Fonseca Marinheiro
    Abstract: This paper addresses the budgetary framework of the Portuguese autonomous regions, analysing its consistency with the General Government budgetary framework. The Constitution of the Portuguese Republic grants high financial autonomy to the two autonomous regions of Azores and Madeira, and such autonomy should be reflected in high fiscal responsibility. It is concluded that the numerical fiscal rules applicable to the regions are quite different from those applicable to the General Government, arguing that the former should be closer to the national rules, with the necessary adaptations, considering that the economic stabilisation function is mostly performed by the national budget. Ways of approximation are suggested in compliance with the general principle of mutual solidarity established in the Budgetary Framework Law. However, the specificity and the complexity of designing fiscal rules for sub-national entities recommend a thorough technical preparatory work that precedes the indispensable political discussion. It is also concluded that the Autonomous Regions' Finance Law lacks the specific norms that define the role of the Portuguese Public Finance Council as the entity responsible for giving an opinion on the compliance with the planned budgetary discipline rules. This contradicts national and European legislation provisions, which give this independent body the task of monitoring compliance with numerical fiscal rules.
    Keywords: Fiscal rules; sub-national governments; Fiscal federalism; Independent Fiscal Institutions; Portugal
    JEL: H74 E62 H6
    Date: 2022–01
  74. By: Nathan Goldstein; Yuriy Gorodnichenko
    Abstract: We propose a model where forecasters have access to noisy signals about the future (forward information). In this setting, information varies not only across agents but also across horizons. As a result, estimated persistence of forecasts deviates from persistence of fundamentals and the ability of forecasts at shorter horizons to explain forecasts at longer horizons is limited. These properties tend to diminish as the forecast horizon increases. We document that this novel pattern is consistent with survey data for professional forecasters. We provide further evidence that time-series and cross-sectional variation in professional forecasts is driven by forward information. We propose a simple method for extracting the forward information component from survey and provide several applications of forward information.
    JEL: C83 D84 E31
    Date: 2022–01
  75. By: Lorenzo Carbonari (Università di Roma “Tor Vergata”, Italy); Fabrizio Mattesini (Università di Roma “Tor Vergata”, Italy; EIEF); Robert J. Waldmann (Università di Roma “Tor Vergata”, Italy)
    Abstract: We study an economy characterized by competitive search and asymmetric information. Money is essential. Buyers decide their cash holdings after observing the contracts posted by firms and experience match-specific preference shocks which remain unknown to sellers. Firms are allowed to post general contracts. In the baseline model with indivisible goods, we show that, when the number of potential buyers is fixed, inflation decreases markups. This, in turn, increases aggregate output and ex ante welfare. When goods are divisible the negative effect of inflation on markups holds for unconstrained agents but is ambiguous for constrained agents. Still, optimal monetary policy implies a positive nominal rate. When there is buyers' free entry, asymmetric information causes a congestion effect that can be corrected by monetary policy.
    Date: 2022–02
  76. By: Niklas Engbom
    Abstract: Using panel data from 23 OECD countries, I document that wages grow more over the life-cycle in countries where job-to-job mobility is more common. A life-cycle theory of job shopping and accumulation of skills on the job highlights that a more fluid labor market allows workers to faster relocate to jobs where they can better use their skills, incentivizing accumulation of skills. Lower labor market fluidity reduces life-cycle wage growth by 20 percent and aggregate labor productivity by nine percent across the OECD relative to the US. I derive a set of testable predictions for training and confront them with comparable cross-country training data, finding support for the theory.
    JEL: E24 J24
    Date: 2022–01
  77. By: Bradley, Jake (University of Nottingham)
    Abstract: There has been a substantial body of work modeling the co-movement of employment, vacancies, and output over the business cycle. This paper builds on this literature, and informed by empirical investigation, models worker and firm search and hiring behavior in a manner consistent with recent micro-evidence. Consistent with empirical findings, for a given vacancy, a firm receives many applicants, and chooses their preferred candidate amongst the set. Similarly, workers in both unemployment and employment, can evaluate many open vacancies simultaneously and choose to which they make an application. Business cycles are propagated through turbulence in the economy. Structural parameters of the model are estimated on U.S. data, targeting aggregate time series. The model can generate large volatility in unemployment, vacancies, and worker flows across jobs and employment state. Further, it provides a theoretical mechanism for the shift in the Beveridge curve after the 2008 recession - a phenomenon often referred to as the jobless recovery. That is, persistently low employment after the recession, despite output per worker and vacancies having returned to pre-crisis levels.
    Keywords: Beveridge curve, screening, jobless recovery
    JEL: J63 J64
    Date: 2022–01
  78. By: José Bran-Guevara; Luisa Fernanda Hernández-Ávila; Daniela McAllister-Harker
    Abstract: Este documento presenta un análisis de los avances en servicios de crédito y pagos digitales en Colombia, con énfasis en sus características y riesgos potenciales que enfrentan los usuarios, oferentes de servicios y la banca central. Para cumplir con este propósito se llevaron a cabo consultas y simulaciones de solicitud de servicios en sitios web de algunos oferentes destacados. Entre sus características destaca la existencia de costos para los usuarios que pueden limitar su aceptación y uso. En relación a los riesgos potenciales, es posible reconocer algunos presentes en los servicios financieros tradicionales, como los asociados a la solvencia de los captadores de dinero, el crecimiento del crédito, el riesgo de no pago y el sobreendeudamiento de los hogares; mientras que otros son propios de los servicios digitales, como el fraude electrónico o la participación de actores no regulados en la oferta de servicios financieros, lo que podría afectar la estabilidad financiera y la efectividad de la política monetaria del banco central. Finalmente, el documento resalta la posición actual de la regulación financiera en Colombia frente a la promoción de servicios financieros digitales y algunas medidas que pueden apoyar esta labor y la mitigación de riesgos. Entre otras, son importantes la promoción de la educación económica, financiera y tecnológica, y la actualización de la regulación de los sistemas de pago de bajo valor en el país. **** ABSTRACT: This document analyses recent developments in digital credit and payments platforms in Colombia. It explores digital financial services characteristics, and the potential risks faced by users, providers, and the central bank. We compiled information obtained by simulated products requests on some digital financial services providers' websites. identify We Identified the presence of costs associated with the use of financial digital services, which can constrain users' acceptance and further expansion of these types of services. Furthermore, we recognized intrinsic risks associated with digital services such as electronic fraud and the emergence of unregulated institutions in the financial system, which could impact financial stability and the effectiveness of the monetary policy. Finally, the document presents how digital financial services are promoted in Colombia and some recommendations to financial authorities to foster its usage and mitigate risks. Some of those measures are related to the promotion of economic, financial, and technological education programs and the update of the low-value payment systems regulation.
    Keywords: Crédito digital, pagos digitales, servicios financieros, regulación financiera, digital credit, digital payments, financial services, financial regulation
    JEL: E42 E58 G28 G21
    Date: 2022–02
  79. By: Candelon, Bertrand (Université catholique de Louvain, LIDAM/LFIN, Belgium); Moura, Rubens (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: Global interdependencies have caused affine term structure models (AT SMs) to adopt a multicountry dimension. Nevertheless, recent referenced AT SMs face issues of tractability as the model dimension becomes larger. To close this gap, this paper proposes a AT SM in which the risk factor dynamics follow a global vector-autoregressive (GV AR). AT SM − GV AR renders a parsimonious yield curve parametrization, which allows for a fast estimation process, enables meaningful statistical inference of economic relationships, and produces accurate bond yields out-of-sample forecasting. To empirically illustrate our novel AT SM, we build a markedly integrated economic system composed of three Latin American economies and China. We find that, consequent to its prominent role in the worldwide economy, China’s economic stances have nonnegligible impacts on Latin American yield curve dynamics.
    Keywords: Term Structure of Interest Rates, Global Financial Market, GVAR
    JEL: C58 E44 G15
    Date: 2021–08–01
  80. By: Jäger, Simon (Massachusetts Institute of Technology); Roth, Christopher (University of Warwick); Roussille, Nina (University of California, Berkeley); Schoefer, Benjamin (University of California, Berkeley)
    Abstract: Workers wrongly anchor their beliefs about outside options on their current wage. In particular, low-paid workers underestimate wages elsewhere. We document this anchoring bias by eliciting workers' beliefs in a representative survey in Germany and comparing them to measures of actual outside options in linked administrative labor market data. In an equilibrium model, such anchoring can give rise to monopsony and labor market segmentation. In line with the model, misperceptions are particularly pronounced among workers in low-wage firms. If workers had correct beliefs, at least 10% of jobs, concentrated in low-wage firms, would not be viable at current wages.
    Keywords: wages, beliefs, bias, monopsony, GSOEP, IAB
    JEL: D91 E03 E24 J3 J31 J42 J6
    Date: 2021–12
  81. By: André Loris; Grept AliceLaut Nadia; Plantier GabrielSapey-Triomphe Zako; Weber Pierre-François
    Abstract: This paper analyses the exposure to climate risk of ABS, an asset class frequently pledged as collateral in the European Central Bank (ECB) refinancing operations. This paper focuses on ABS backed by auto loans or loans granted to Small and Medium Enterprises (SMEs) and explores ways to measure their climate risk based on the characteristics of the underlying loans, using existing loan-level data requirements. The ultimate goal was to come up with an alignment metric, i.e. to judge whether ABS related emissions would meet the Paris Agreements objectives, a task hindered by the lack of data available. Despite these limits, we were able to come up with relevant indicators related to ABS carbon impact, enabling the computation of ABS climate related risk proxies. Without necessarily being able to measure a concrete impact, we carved a series of indicators to serve as a reference. However, we conclude that an improved and harmonized framework for the provision of non-financial information seems essential to achieve an accurate analysis and monitoring of the financial sector's exposure to climate change.
    Keywords: Collateral Framework, Asset-Backed Securities (ABS), Securitisation, Climate Change
    JEL: D81 E51 E52 E58 G21 Q51 Q54
    Date: 2022
  82. By: International Monetary Fund
    Abstract: China’s recovery is well advanced—but it lacks balance and momentum has slowed, reflecting the rapid withdrawal of fiscal support, lagging consumption amid recurrent COVID-19 outbreaks despite a successful vaccination campaign, and slowing real estate investment following policy efforts to reduce leverage in the property sector. Regulatory measures targeting the technology sector, intended to enhance competition, consumer privacy, and data governance, have increased policy uncertainty. China’s climate strategy has begun to take shape with the release of detailed action plans. Productivity growth is declining as decoupling pressures are increasing, while a stalling of key structural reforms and rebalancing are delaying the transition to “high-quality”—balanced, inclusive and green—growth.
    Date: 2022–01–28
  83. By: Emanuela Ciapanna (Bank of Italy); Sara Formai (Bank of Italy); Andrea Linarello (Bank of Italy); Gabriele Rovigatti (Bank of Italy)
    Abstract: In this paper, we provide an assessment of the evolution of markups in Italy in the last twenty years. To this aim, we resort to both macro and micro data and estimation techniques, namely reduced forms accounting measures (price-cost margins) and production function model-based indicators. When using aggregate data, we adopt a comparative approach and analyse markup dynamics in the four main euro area countries, whereas the micro-level analysis is focused on Italy. According to our findings i) markups have shown flat/slightly decreasing dynamics in the last decades in the major EU countries, settling on average in level at 1.1; ii) aggregate dynamics hide substantial across sector and firms heterogeneity in markups patterns; iii) the micro-level analysis for Italy indicates the within-firms component as the most relevant in explaining markups behavior; iv) no top firms-driven dynamics emerge; v) our evidence conflicts with the results obtained in De Loecker and Eeckhout (2018) because the latter suffers of two main sources of bias: a strong sample selection, and the assumption of a common technology parameter across countries. Finally, we propose an encompassing measure of market power, summarizing the several indices investigated in a principal component framework. This synthetic indicator describes the markups evolution for the Italian economy and we confirm its effectiveness based on a set of validation variables.
    Keywords: Markups, competition measures, Euro Area, micro-macro data
    JEL: D2 D4 E2 L1 O3
    Date: 2022–02
  84. By: Allen, David; Mizuno, Hiro
    Abstract: This paper explores the influence of monetary policies, US influences, and other factors affecting stock prices in Japan from the beginning of the 1980s. The data set consists of monthly time series, largely taken from the Federal Bank of St. Louis (FRED) database in the USA. A variety of modelling and statistical techniques are applied which include regression analysis (OLS), cointegration and VECM analysis, plus the application of ARDL analysis and simulations. The results suggest that the adoption of QQE policy by the Japanese monetary authorities led to an upswing in Japanese share prices in the post-GFC period, whereas no such effect was apparent in the pre-GFC period
    Keywords: QQE, Japanese Share Prices,, Cointegration, VECM, ARDL, Simulations.
    JEL: E52 G1 G12
    Date: 2021–12–24
  85. By: Marco Cozzi (Department of Economics, University of Victoria)
    Abstract: This paper quantifies the welfare effects of counterfactual public debt policies using an endogenous growth model with incomplete markets. The economy features public debt, Schumpeterian growth, infinitely-lived agents, uninsurable income risk, and discount factor heterogeneity. Two versions of the model are specified, one allowing for households to hold equity in the group of innovating firms. The model is calibrated to the U.S. economy to match the degree of wealth inequality, the share of R&D expenditure in GDP, the firms exit rate, the average growth rate, and other standard long-run targets. When comparing balanced growth paths, I find large long-run welfare gains in equilibria characterized by governments accumulating public wealth. In some parameterizations, the equilibrium response of the growth rate is modest. However, welfare effects decompositions show that the growth component is still an important determinant of the welfare gains in the equilibria characterized by public wealth. The version of the model without equity is easier to solve computationally, allowing to consider transitional dynamics. Taking into account the dynamic adjustment to the new long-run equilibrium shows that the transitional welfare costs are not large enough to change the sign of the welfare effects stemming from a change in public debt. I find that eliminating public debt would lead to a 1.7 increase in welfare, while moving to a debt/GDP ratio of 100% would entail a welfare loss of 0.8%
    Keywords: Public debt, Heterogeneous Agents, Incomplete Markets, Endogenous Growth, Welfare
    Date: 2022–02–15
  86. By: Joel Alcedo; Alberto Cavallo; Bricklin Dwyer; Prachi Mishra; Antonio Spilimbergo
    Abstract: We study e-commerce across 47 economies and 26 industries during the COVID-19 pandemic using aggregated and anonymized transaction-level data from Mastercard, scaled to represent total consumer spending. The share of online transactions in total consumption increased more in economies with higher pre-pandemic e-commerce shares, exacerbating the digital divide across economies. Overall, the latest data suggest that these spikes in online spending shares are dissipating at the aggregate level, though there is variation across industries. In particular, the share of online spending in professional services and recreation has fallen below its pre-pandemic trend, but we observe a longer-lasting shift to digital in retail and restaurants.
    JEL: E2 F00 L81 O3
    Date: 2022–02
  87. By: Tim Willems; Mr. Jeromin Zettelmeyer
    Abstract: This article surveys the literature on sovereign debt sustainability from its origins in the mid-1980s to the present, focusing on four debates. First, the shift from an “accounting based” view of debt sustainability, evaluated using government borrowing rates, to a “model based” view which uses stochastic discount rates. Second, empirical tests focusing on the relationship between primary balances to debt. Third, debt sustainability in the presence of rollover risk. And fourth, whether government borrowing costs below rates of growth (“r
    Keywords: sovereign debt, debt sustainability, fiscal policy, debt crises, fiscal-monetary interactions, central bank credibility
    Date: 2022–01–28
  88. By: International Monetary Fund
    Abstract: The National Bank of the Republic of North Macedonia (NBRNM) is implementing advanced transparency practices. The long-standing commitment to transparency noted by a number of stakeholders and forcefully re-affirmed in the recent period is well anchored in the law, and it has been designated by the NBRNM as a strategic objective to fulfill its mandate. This policy has earned the NBRNM noteworthy trust from stakeholders met by the mission, and it has paid significant dividends in terms of anchoring its autonomy and ensuring policy effectiveness.
    Date: 2022–01–28
  89. By: Charles Goodhart (LEREPS); Donato Masciandaro (LEREPS); Stefano Ugolini (LEREPS)
    Abstract: We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629--31, which was equivalent to a 'net-worth helicopter money' strategy -- a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.
    Date: 2022–01
  90. By: Broadberry, Stephen; Gardner, Leigh
    Abstract: Sub-Saharan Africa (SSA) has been absent from recent debates about comparative long-run growth owing to the lack of data on aggregate economic performance before 1950. This paper provides estimates of GDP per capita on an annual basis for eight Anglophone African economies for the period since 1885, raising new questions about previous characterizations of the region's economic performance. The new data show that many of these economies had levels of per capita income which were above subsistence by the early twentieth century, on a par with the largest economies in Asia until the 1980s. However, overall improvements in GDP per capita were limited by episodes of negative growth or “shrinking”, the scale and scope of which can be measured through annual data.
    Keywords: Africa; economic growth; GDP per capita; shrinking
    JEL: E01 N37 O10
    Date: 2022–01–01
  91. By: Sangyup Choi; Tim Willems; Seung Yong Yoo
    Abstract: By combining industry-level data on output and prices with monetary policy rates for a panel of 88 countries, this paper analyzes how the effects of monetary policy vary with certain industry characteristics. Next to being interesting in their own right, our results are informative on the importance of various transmission mechanisms (as they are expected to vary systematically with the included characteristics). Rather than relying on standard monetary policy shock identification, we overcome the endogeneity problem by taking a differential approach (interacting our monetary policy measure with industry-level characteristics). Our results suggest that monetary contractions reduce output by more in industries featuring assets that are more difficult to collateralize (as predicted by the balance sheet channel) and in industries more reliant on international trade (as predicted by the exchange rate channel). Consistent with the financial accelerator mechanism, we find that the balance sheet channel becomes stronger during bad times. At the same time, we do not find evidence supporting the traditional interest rate channel of monetary policy; the same goes for the cost channel.
    Keywords: Monetary policy transmission; Industry growth; Financial frictions; Asymmetry in transmissions
    Date: 2022–01–28
  92. By: Alon, Titan (University of California, San Diego); Doepke, Matthias (Northwestern University); Manysheva, Kristina (Northwestern University); Tertilt, Michèle (University of Mannheim)
    Abstract: In many high-income economies, the recession caused by the Covid-19 pandemic has resulted in unprecedented declines in women's employment. We examine how the forces that underlie this observation play out in developing countries, with a specific focus on Nigeria, the most populous country in Africa. A force affecting high- and low-income countries alike are increased childcare needs during school closures; in Nigeria, mothers of school-age children experience the largest declines in employment during the pandemic, just as in high-income countries. A key difference is the role of the sectoral distribution of employment: whereas in high-income economies reduced employment in contact-intensive services had a large impact on women, this sector plays a minor role in low-income countries. Another difference is that women's employment rebounded much more quickly in low-income countries. We conjecture that large income losses without offsetting government transfers drive up labor supply in low-income countries during the recovery.
    Keywords: COVID-19, pandemics, women’s labor supply, gender equality
    JEL: E32 J16 J20 O10
    Date: 2022–01
  93. By: Maxime Menuet (LEO - Laboratoire d'Économie d'Orleans - UO - Université d'Orléans - UT - Université de Tours); Hugo Oriola (LEO - Laboratoire d'Économie d'Orleans - UO - Université d'Orléans - UT - Université de Tours); Patrick Villieu (LEO - Laboratoire d'Économie d'Orleans - UO - Université d'Orléans - UT - Université de Tours)
    Abstract: In this paper, we challenge the claim that an independent conservative central bank strengthens the likelihood of a conservative government. In contrast, if an election is based on the comparative advantages of the candidates, an inflation-averse central banker can deter the chances of a conservative candidate because once inflation is removed, its comparative advantage in the fight against inflation disappears. We develop a theory based on a policy-mix game with electoral competition, predicting that the chances of a conservative (i.e., inflation-averse) party is reduced in the presence of tighter monetary policy. To test this prediction, we examine monthly data of British political history between 1960 and 2015. We show that a 1 percentage point increase in the interest rate in the 10 months prior to a national election decreases the popularity of a Tory government by approximately 0.75 percentage points relative to its trend.
    Keywords: monetary policy,elections,United Kingdom,comparative advantage
    Date: 2021–12–14
  94. By: Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Camelia Turcu
    Abstract: This symposium is a selection of four policy-relevant research papers presented at the 2019 GEBA-GDR Money, Banking and Finance Thematic Conference organized by the Faculty of Economics and Business Administration (FEAA) at the University "Alexandru Ioan Cuza" of Iasi (Romania) and supported by the INFER (International Network For Economic Research). Motivated by two observations, namely that Fiscal policy was (and still is) the main tool for stabilization following the 2008-2009 financial crisis and that compared with other economic and monetary unions, including the United States or the two African Economic and Monetary Unions, the European Union is a particular area, the special issue is dedicated to the analysis of fiscal policies in post-communist Central and Eastern European countries.
    Abstract: Ce symposium est une sélection de quatre articles de recherche présentés à la conférence thématique GEBA-GDR Monnaie-Banque-Finance 2019 organisée par la Faculté d'économie et d'administration des affaires (FEAA) de l'Université "Alexandru Ioan Cuza" de Iasi (Roumanie) et soutenue par l'INFER (Réseau International Pour la Recherche Economique). Le numéro spécial est dédié à l'analyse des politiques budgétaires dans les pays post-communistes d'Europe Centrale et de l'Est pour deux raisons. Tout d'abord, parce'que la politique budgétaire a été (et est toujours) le principal outil de stabilisation après la crise financière de 2008-2009 ; et, aussi, car, par rapport aux autres unions économiques et monétaires, l'Union européenne est un espace économique particulier.
    Keywords: Pays communistes,Europe centrale et de l'est,Politique budgétaire
    Date: 2021–06
  95. By: Erwan Gautier; Magali Marx; Paul Vertier
    Abstract: Using several millions of daily prices collected over the period 2007-2018 in France, we investigate how gasoline retail prices respond to a common shock on marginal cost (i.e. the wholesale gasoline price quoted on the Rotterdam market). We find that the pass-through is complete: a 1% change in Rotterdam price translates to a change in retail price of 0.8%, in line with the share of the wholesale gasoline in total costs. The adjustment is gradual: the full pass through takes about 3 weeks. In a broad class of sticky price models, the ratio of the kurtosis over the frequency of price changes is shown to be a sufficient statistic for the cumulative impulse response of prices (CIRP) to a nominal shock. We provide evidence that the sufficient statistic prediction holds when we look at how gasoline prices respond to a common cost shock. Relating, at the gas station level, the CIRP to moments of the price change distribution, we find that the CIRP correlates with the ratio of kurtosis over frequency, but also with both frequency and kurtosis taken separately. The sign and the magnitude of the correlations are fully in line with theoretical predictions. We also show that other moments do not correlate with CIRP as robustly as the frequency and the kurtosis.
    Keywords: Price Rigidity, Gasoline, Sufficient Statistic
    JEL: E31 D43 L11
    Date: 2022
  96. By: Maturu, Benjamin
    Abstract: We estimate a proposed core financial intermediation model built upon an extended classical quantity theory using Bayesian econometric techniques. The findings suggest that the persistent deceleration in bank deposits, bank credit and domestic final output during the most of the second half of the decade ending in Dec. 2019 is due to a downward spiral (or a vicious circle) of bank deposits, bank credit and domestic final output caused by a reversal of hitherto accommodative economic and financial policies meant to revitalise the economy following the 2007 post-election disturbances and to check adverse contagion effects from the global economic and financial crises. With accommodative economic and financial policies including relaxed compliance with provisioning for non-performing bank loans, the gross non-performing bank loans accumulated to unprecedented levels thereby adversely affecting effective demand for and supply of bank credit in the private sector. This situation was aggravated by tightening monetary policy stance using the central bank rate amid tighter requirements for compliance with provisioning for non-performing loans.
    Date: 2021
  97. By: Chafik, Omar (Bank Al-Maghrib, Département de la Recherche)
    Abstract: L’impôt sur les sociétés (IS) est souvent présenté comme un instrument budgétaire efficace pour encourager l’investissement. Ce travail investigue ce lien dans le contexte marocain en utilisant des données macroéconomiques et microéconomiques. Plus précisément, un modèle VAR structurel est utilisé au niveau de l’approche macroéconomique pour étudier la réaction de l’investissement à une baisse de la pression fiscale de l’IS. Au niveau de l’approche microéconomique, des régressions en panel sur les données comptables des entreprises non financières marocaines sont conduites pour apprécier l’impact du taux effectif de l’IS sur l’investissement privé. Sur le plan macroéconomique, il ressort que l’allégement de la pression fiscale de l’IS aurait un effet légèrement positif sur l’investissement au Maroc. Mais en même temps, la baisse des taux d’IS affecterait les recettes fiscales et induirait un creusement du déficit budgétaire. Sur le plan microéconomique, l’analyse effectuée montre que l’effet de l’IS sur l’investissement est significatif mais reste moins important comparativement à l’effet de certaines variables comme la trésorerie ou l’âge de l’entreprise.
    Keywords: Impôt sur les sociétés; investissement; SVAR; données bilancielles; régression en panel
    JEL: C23 C51 E22 H52
    Date: 2021–12–30
  98. By: Daniela Della Gatta (Banca d'Italia)
    Abstract: This paper illustrates the state of play of the interest rate benchmark reform process. Overnight rates that can be considered risk-free, such as the €STR in the euro area, have been introduced in the main currency areas. The production of rates with a maturity of more than one day, which can replace traditional benchmarks, will depend on the availability of money market data and the different indexing needs. It is reasonable to expect that several types of benchmarks will coexist in the future; this could also entail a risk of market liquidity fragmentation.
    Keywords: riforma dei tassi benchmark, tassi privi di rischio, tassi a scadenza, clausole di riserva
    JEL: E43 D47 G21 G23
    Date: 2022–02
  99. By: Tasso Adamopoulos; Loren Brandt; Chaoran Chen; Diego Restuccia; Xiaoyun Wei
    Abstract: Developing countries are characterized by frictions that impede the mobility of workers across occupations and space. We disentangle the role of insecure property rights from other labor mobility frictions for the reallocation of labor from agriculture to non-agriculture and from rural to urban areas. We combine rich household and individual-level panel data from China and an equilibrium quantitative framework that features the sorting of workers across locations and occupations. We explicitly model the farming household and the endogenous decisions of who operates the family farm and who potentially migrates, capturing an additional channel of selection within the household. We find that land insecurity has substantial negative effects on agricultural productivity and structural change, raising the share of households operating farms by almost 30 percentage points and depressing agricultural productivity by more than 10 percent. Quantitatively, land insecurity is as important as all other labor mobility frictions. We measure a sharp reduction in overall labor mobility barriers over 2004-2018 in the Chinese economy, all of which can be accounted for by improved land security, consistent with reforms covering rural land in China during the period.
    JEL: E02 O11 O14 O4 Q1
    Date: 2022–01
  100. By: Mr. Chris Papageorgiou; Hendre Garbers; D. Filiz Unsal
    Abstract: We provide a multidimensional characterization of monetary policy frameworks across three pillars: Independence and Accountability, Policy and Operational Strategy, and Communications (IAPOC). We construct the IAPOC index by analyzing central banks’ laws and websites for 50 advanced economies, emerging markets, and low-income developing countries, from 2007 to 2018. Due to its scope and granularity, our index provides a holistic view of monetary policy frameworks which goes beyond existing measures of transparency or independence, as well as monetary policy or exchange rate regime classifications. Comparing the IAPOC index across countries and over time, we find that monetary policymaking is varied, fast-changing, and eclectic across the Policy and Operational Strategy and Communications pillars, especially in emerging markets and low-income developing countries.
    Keywords: Monetary Policy, Monetary Policy Regime, Exchange Rate Regime, Central Banks, Central Bank Independence, Central Bank Transparency
    Date: 2022–01–28
  101. By: Dorian Henricot; Thibaut Piquard
    Abstract: We use data on granular holdings of debt and Credit Default Swaps (CDS) referencing non-financial corporations across financial investors, to investigate how CDS reallocate credit risk and whether this increases investor-level riskiness. To guide our investigation, we propose a methodology to disentangle CDS positions between three strategies: hedging, speculation, and arbitrage. In our dataset, arbitrage remains anecdotal. We find that CDS reduce exposure concentration, as hedgers shed off their most concentrated exposures, while speculators substitute debt for CDS. CDS also facilitate risk-taking by speculators. Overall, CDS increase portfolio risk metrics, due to a limited effect of hedging strategies compared to speculative ones.
    Keywords: Credit Default Swaps, Credit Risk
    JEL: E44 G11 G20 G23
    Date: 2022
  102. By: Viral V. Acharya; Raghuram Rajan
    Abstract: Central bank balance sheet expansion is financed by commercial banks. It involves not just a substitution of liquid central bank reserves for other assets held by commercial banks, but also a counterpart alteration in commercial bank liabilities, such as in short-term deposits issued to finance reserves and in off-balance-sheet encumbrances pledged against reserves, which are also claims on liquidity. In ordinary times, when these claims are not called on, central bank balance sheet expansion will typically enhance the net availability of liquidity to the system. However, in times of stress when these offsetting claims on liquidity are exercised, the demand for liquidity can be significantly more. Furthermore, liquid commercial banks, desiring to maintain unimpeachable balance sheets, may provide only limited re-intermediation of liquidity and contribute significantly to liquidity shortages. Commercial banks do not fully internalize prospective stress ex ante or take sufficient steps to avoid it. Consequently, central bank balance sheet expansion need not eliminate episodes of stress; it may even exacerbate them. This may also attenuate any positive effects of central bank balance sheet expansion on economic activity.
    JEL: E0 G0
    Date: 2022–01
  103. By: Amélie Barbier; Kea Baret; Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: We study the impact of national fiscal rules on fiscal discipline in the European Union. Our impact analysis, that accounts for potential endogeneity, shows that national fiscal rules significantly improve our new measure of fiscal discipline, namely Global Financial Performance Index (GFPI). In addition, we show that this favorable effect dramatically depends upon the type of fiscal rule and different structural factors. These two features, together with alternative measures of fiscal discipline, are found to be key ingredients that should be taken into account when assessing the effects of fiscal rules on fiscal discipline.
    Abstract: Nous étudions l'impact des règles budgétaires nationales sur la discipline budgétaire dans l'Union Européenne. Notre analyse d'impact, qui tient compte de l'endogénéité potentielle, montre que les règles budgétaires nationales améliorent considérablement notre nouvelle mesure de discipline budgétaire, à savoir le Global Financial Performance Index (GFPI). De plus, nous montrons que cet effet favorable dépend fortement du type de règle budgétaire et des différents facteurs structurels. Ces deux caractéristiques, ainsi que des mesures alternatives de discipline budgétaire, se révèlent être des ingrédients clés à prendre en compte lors de l'évaluation des effets des règles budgétaires sur la discipline budgétaire.
    Keywords: national fiscal rules,fiscal discipline
    Date: 2021–03
  104. By: Atiti, Faith; Kimani, Stephanie; Agung, Raphael
    Abstract: This paper examines how macroeconomic shocks affect credit risk in the Kenyan banking sector. Using an autoregressive distributed lag (ARDL) model within a time-series framework, we establish the existence of both a short-run and long-run nexus between macroeconomic variables and bank-credit risk. We establish a negative relationship between credit risk and GDP growth although not significant. We also find that the relationship between bank profitability and asset quality is negative in the short-run but positive in the long-run. The paper also documents a positive short-run relation between asset quality and private sector credit growth, which turns negative in the longrun. Furthermore, the bank asset quality-capital nexus is positive in the short-run but turns negative in the long-run. The concave relationship suggest that NPLs will rise with increases in capital to a certain threshold (moral hazard effect), after which more capital build ups decrease NPLs (disciplinary or regulatory effect). Finally, the speed of adjustment coefficient is negative and statistically significant. A shock in any period is self-correcting at a rate of 24.96%, implying that the long-run market equilibrium is restored within a period of four quarters.
    Date: 2022
  105. By: Marta Lachowska (W.E. Upjohn Institute for Employment Research); Alexandre Mas (Princeton University); Raffaele Saggio (University of British Columbia); Stephen A. Woodbury (Michigan State University)
    Abstract: This paper examines the behavior of dual jobholders to test a simple model of wage bargaining and wage posting. We estimate the sensitivity of wages and separation rates to wage shocks in a worker’s secondary job to assess the degree of bargaining versus wage posting in the labor market. We interpret the evidence within a model where workers facing hours constraints in their primary job may take a second, flexible-hours job for additional income. When a secondary job offers a sufficiently high wage, a worker either bargains with the primary employer for a wage increase or separates. The model provides a number of predictions that we test using matched employer-employee administrative data from Washington State. In the aggregate, wage bargaining appears to be a limited determinant of wage setting. The estimated wage response to improved outside options, which we interpret as bargaining, is precisely estimated, but qualitatively small. Wage posting appears to be more important than bargaining for wage determination overall, and especially in lower parts of the wage distribution. Observed wage bargaining takes place mainly among workers in the highest wage quartile. For this group, improved outside options translate to higher wages, but not higher separation rates. In contrast, for workers in the lowest wage quartile, wage increases in the secondary job lead to higher separation rates but no significant wage increase in the primary job, consistent with wage posting. We also find evidence in support of the hours-constraint model for dual jobholding. In particular, work hours in the primary job do not respond to wages in the secondary job, but hours and separations in the secondary job are sensitive to wages in the primary job due to income effects.
    Keywords: wages, wage bargaining, wage posting
    JEL: J30 E24
    Date: 2021–10
  106. By: Ofori, Isaac K.; Osei, Dennis B.; Alagidede, Imhotep P.
    Abstract: Despite the momentous rise in ICT diffusion, and financial development in sub-Saharan Africa (SSA), their plausible joint effect on inclusive growth have not been explored, leaving a lacuna in the literature. This study, therefore, examines the direct and indirect effects of ICT diffusion on inclusive growth in 42 SSA countries over the period 1980–2019. We provide evidence robust to several specifications from the dynamic system GMM to show that: (i) ICT skills, access and usage induce inclusive growth in SSA, and (ii) the effects of ICT skills, access and usage are enhanced in the presence of financial development. These findings remain the same when we focussed on financial institution access. Policy recommendations are provided in line with the region’s green growth agenda and striving efforts at improving socioeconomic development.
    Keywords: Financial Development; Financial Inclusion; ICT Diffusion; Inequality; Inclusive Growth; Poverty; Sub-Saharan Africa
    JEL: D63 E5 G2 I3 L96 O11 O55
    Date: 2022–02–07
  107. By: Amr Hosny; Kevin Pallara
    Abstract: This paper argues that the type of COVID-19 containment measures affects the trade-offs between infection cases, economic activity and sovereign risk. Using local projection methods and a year and a half of high-frequency daily data covering 44 advanced and emerging economies, we find that smart (e.g. testing) as opposed to physical (e.g. lockdown) measures appear to be best placed to tackle these trade-offs. Initial conditions also matter whereby containment measures can be less disruptive when public health response time is fast and public debt is low. We also construct a database of daily fiscal announcements for Euro area countries, and find that sovereign risk is improved under a combination of large support packages and smart measures.
    Keywords: COVID-19, fiscal measures, containment measures, fiscal space, sovereign risk.
    Date: 2022–01–28
  108. By: Cezara Vinturis (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne)
    Abstract: This paper shows that, contrary to their favourable effect in the EU non-FCC (Former Communist Countries), fiscal rules are found not to significantly affect fiscal performance in the group of EU FCC. This finding is robust when considering various estimation methods, dividing fiscal rules along various dimensions, and using several observed and computed measures of fiscal performance. In addition, an improvement of the strength of fiscal rules is found to significantly affect fiscal performance in EU FCC, with a magnitude higher than that in EU non-FCC. These findings are particularly important from the perspective of the future Euro zone and EU enlargements.
    Abstract: Cet article montre que, bien qu'elles aient des effets positifs dans les autres pays de l'Union Européenne (UE), les règles budgétaires n'affectent pas de manière significative les performances budgétaires des anciens pays communistes membres de l'UE. Ce résultat demeure robuste lorsqu'on emploie différentes méthodes d'estimation, lorsqu'on divise les règles budgétaires selon différentes dimensions et lorsqu'on utilise différentes mesures de performance budgétaire. Par ailleurs, un renforcement des règles budgétaires a une incidence significative sur les performances budgétaires dans les anciens pays communistes membres de l'UE, plus grande que dans les autres pays de l'UE. Ces résultats sont particulièrement importants dans la perspective des futurs élargissements de la zone euro et de l'UE.
    Keywords: comunist countries,fiscal performance,fiscal rules
    Date: 2021–02
  109. By: Babii, Andrii; Ghysels, Eric (Université catholique de Louvain, LIDAM/CORE, Belgium); Striaukas, Jonas
    Abstract: This paper introduces structured machine learning regressions for high-dimensional time series data potentially sampled at different frequencies. The sparse-group LASSO estimator can take advantage of such time series data structures and outperforms the unstructured LASSO. We establish oracle inequalities for the sparse-group LASSO estimator within a framework that allows for the mixing processes and recognizes that the financial and the macroeconomic data may have heavier than exponential tails. An empirical application to nowcasting US GDP growth indicates that the estimator performs favorably compared to other alternatives and that text data can be a useful addition to more traditional numerical data. Our methodology is implemented in the R package midasml, available from CRAN.
    Keywords: high-dimensional time series, fat tails, tau-mixing, sparse-group LASSO, mixed frequency data, textual news data
    Date: 2021–01–01
  110. By: Xin Cindy Xu; Shiqing Hua; María Méndez
    Abstract: Greece’s investment rate plunged following the Sovereign Debt Crisis (SDC) and remained one of the lowest in the world in 2019. This paper explores recent investment dynamics and compares them against estimated benchmarks. Our results suggest that Greece has been under-investing since the SDC, with private investment notably lagging behind. The estimated investment gap ranges from 1.6–8 percent of GDP in 2019. Structural impediments have constrained corporate investment, while business cycle and balance sheet developments have held back household investment. Structural reforms are recommended to remove bottlenecks to corporate investment, improve efficiency of public investment, and boost household investment.
    Keywords: Investment gap, capital stock, structural reforms
    Date: 2022–01–28
  111. By: Roman Frydman (Department of Economics, New York University); Soren Johansen (Department of Economics, University of Copenhagen); Anders Rahbek (Department of Economics, University of Copenhagen); Morten Nyboe Tabor (Institute for New Economic Thinking)
    Abstract: We extend Lucas's classic asset-price model by opening the stochastic process driving dividends to Knightian uncertainty arising from unforeseeable change. Implementing Muth's hypothesis, we represent participants' expectations as being consistent with our model's predictions and formalize their ambiguity-averse decisions with maximization of intertemporal multiple-priors utility. We characterize the asset-price function with a stochastic Euler equation and derive a novel prediction that the relationship between prices and dividends undergoes unforeseeable change. Our approach accords participants' expectations, driven by both fundamental and psychological factors, an autonomous role in driving the asset price over time, without presuming that participants are irrational.
    Keywords: Asset Prices; Unforeseeable Change; Knightian Uncertainty; Muth's Hypothesis; Model Ambiguity; Rational Expectations (REH); Behavioral Finance.
    JEL: D84 E00 G12 G41
    Date: 2021–12–07
  112. By: David Leung; Markus Poschke
    Abstract: Nous étudions les effets de quatre réformes fiscales à l’aide d’un modèle de cycle de vie avec générations chevauchantes et agents hétérogènes en présence de risque idiosyncratique pour les revenus du travail et du capital dans le cadre d’un système fiscal complexe. Le modèle réplique adéquatement les distributions empiriques conjointes du revenu, de la richesse et des paiements de taxes et d’impôts. Dans une économie où l’impôt sur le revenu des particuliers est fortement progressif, un déplacement à impact neutre sur les revenus publics en provenance de l’impôt vers les taxes à la consommation augmente l’épargne et la production. Cette politique bénéficie particulièrement à ceux disposant d’un faible niveau de richesse par rapport à leur revenu. Plusieurs réformes augmentent le revenu agrégé, malgré de faibles hausses dans les inégalités. To quote this document Leung, D. et Poschke, M. (2022). Le Québec devrait-il augmenter les taxes à la consommation? (2021RP-30). Nous étudions les effets de quatre réformes fiscales à l’aide d’un modèle de cycle de vie avec générations chevauchantes et agents hétérogènes en présence de risque idiosyncratique pour les revenus du travail et du capital dans le cadre d’un système fiscal complexe. Le modèle réplique adéquatement les distributions empiriques conjointes du revenu, de la richesse et des paiements de taxes et d’impôts. Dans une économie où l’impôt sur le revenu des particuliers est fortement progressif, un déplacement à impact neutre sur les revenus publics en provenance de l’impôt vers les taxes à la consommation augmente l’épargne et la production. Cette politique bénéficie particulièrement à ceux disposant d’un faible niveau de richesse par rapport à leur revenu. Plusieurs réformes augmentent le revenu agrégé, malgré de faibles hausses dans les inégalités. Pour citer ce document Leung, D. et Poschke, M. (2022). Le Québec devrait-il augmenter les taxes à la consommation? (2021RP-30).
    Keywords: tax policies,reforms,consumption taxes, politiques fiscales,réformes,taxes à la consommation
    Date: 2022–01–28
  113. By: Mr. Edward F Buffie; Mr. Christopher S Adam; Mr. Kangni R Kpodar; Luis-Felipe Zanna
    Abstract: We analyze the medium-term macroeconomic impact of the Covid-19 pandemic and associated lock-down measures on low-income countries. We focus on the impact over the medium-run of the degradation of health and human capital caused by the pandemic and its aftermath, exploring the trade-offs between rebuilding human capital and the recovery of livelihoods and macroeconomic sustainability. A dynamic general equilibrium model is calibrated to reflect the structural characteristics of vulnerable low-income countries and to replicate key dimensions of the Covid-19 shock. We show that absent significant and sustained external financing, the persistence of loss-of-learning effects on labor productivity is likely to make the post-Covid recovery more attenuated and more expensive than many contemporary analyses suggest.
    Keywords: Covid-19, Public Investment, Growth, Debt, Fiscal Policy Human Capital, Labor Markets, Welfare
    Date: 2022–02–04
  114. By: Rauh, C.; Santos, M. R.
    Abstract: This paper studies the impact of existing and universal transfer programs on vacancy creation, wages, and welfare using a search-and-matching model with heterogeneous agents and on-the-job human capital accumulation. We calibrate the general equilibrium model to match key moments concerning unemployment, wage and wealth distributions, as well as the distribution of EITC and transfers. In addition, unemployment insurance benefits are related to pre-unemployment earnings and subject to exhaustion, after which agents can only rely on transfers and savings. First, we show that existing transfers hamper economic activity but provide sizeable welfare gains. Next, we show that a universal basic income of nearly $12,500 to each household per year, which replaces all existing transfer programs and unemployment benefits, can lead to small aggregate welfare gains. These welfare gains mostly accrue to less skilled individuals despite their sizable fall in wages, and the overall rise in skill premia and wage inequality. Albeit the extra burden of higher taxes to finance UBI, we show that the increased action in hiring is a key channel though which outcomes for low education groups improve with the reform. However, if we keep the UI benefits in place, the positive effects on job creation vanish and UBI does not improve upon the current system.
    Keywords: Transfer programs, EITC, Means-tested transfers, Welfare programs, Labor supply, On-the-job human capital accumulation, Life cycle, Inequality, Universal basic income, UBI, Unemployment, General equilibrium
    Date: 2022–01–31
  115. By: Nelson Sobrinho; Matteo Ruzzante
    Abstract: This paper investigates the dynamic impact of natural resource discoveries on government debt sustainability. We use a ‘natural experiment’ framework in which the timing of discoveries is treated as an exogenous source of within-country variation. We combine data on government debt, fiscal stress and debt distress episodes on a large panel of countries over 1970-2012, with a global repository of giant oil, gas, and mineral discoveries. We find strong and robust evidence of a ‘fiscal presource curse’, i.e., natural resources can jeopardize fiscal sustainability even before ‘the first drop of oil is pumped’. Specifically, we find that giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, specially in countries with weaker political institutions and governance. This evidence suggest that the curse can be mitigated and even prevented by pursuing prudent fiscal policies and borrowing strategies, strengthening fiscal governance, and implementing transparent and robust fiscal frameworks for resource management.
    Keywords: Natural resources; Resource curse; Oil; Mines; Debt sustainability; Fiscal policy; Political institutions
    Date: 2022–01–21
  116. By: Vrins, Frédéric (Université catholique de Louvain, LIDAM/LFIN, Belgium); Wang, Linqi (Université catholique de Louvain, LIDAM/CORE, Belgium)
    Abstract: We propose a new short-rate process which appropriately captures the salient features of the negative interest rate environment. The model combines the advantages of the Vasicek and Cox-Ingersoll-Ross (CIR) dynamics: it is flexible, tractable and displays positive skewness without imposing a strict lower bound. In addition, a novel calibration procedure is introduced which focuses on minimizing the Kullback-Leibler (KL) divergence between the model- and market-implied forward rate densities rather than focusing on the minimization of price or volatility discrepancies. A thorough empirical analysis based on cap market quotes shows that our model displays superior performance compared to the Vasicek and CIR models regardless of the calibration method. Our proposed calibration procedure based the KL divergence better captures the entire forward rate distribution compared to competing approaches while maintaining a good fit in terms of pricing and implied volatility errors.
    Keywords: Finance, affine short-rate model, negative interest rates, Kullback-Leibler divergence, implied density calibration
    JEL: C52 C61 E43 G12 G13
    Date: 2021–08–01
  117. By: Kiemo, Samuel; Talam, Camilla; Rugiri, Irene W.
    Abstract: The paper sought to explore the role of bank capital in mitigating credit risk and promoting financial stability. To achieve this, we constructed a Financial Soundness Index to evaluate financial stability conditions. A Panel Vector Auto Regression Model was employed using annual bank-level data from 2001-2020 for 37 banks, to examine the effect of bank capital on credit risk and financial stability. Overall, financial stability index long-term trend shows banks remain resilient, despite the downward trend from 2011 and instability margins since 2016. The findings also reveal that bank capital, lowers credit risk and strengthens financial stability. The paper conclude that bank capital supports financial stability through mitigating credit risks, and recommends that authorities continue adopting and implementing appropriate capital policies to foster financial stability and promote bank lending.
    Keywords: Bank Capital,Credit Risk,Financial Stability,Panel Vector Auto Regression model
    Date: 2022
  118. By: G. Cubadda; S. Grassi; B. Guardabascio
    Abstract: Many economic variables feature changes in their conditional mean and volatility, and Time Varying Vector Autoregressive Models are often used to handle such complexity in the data. Unfortunately, when the number of series grows, they present increasing estimation and interpretation problems. This paper tries to address this issue proposing a new Multivariate Autoregressive Index model that features time varying means and volatility. Technically, we develop a new estimation methodology that mix switching algorithms with the forgetting factors strategy of Koop and Korobilis (2012). This substantially reduces the computational burden and allows to select or weight, in real time, the number of common components and other features of the data using Dynamic Model Selection or Dynamic Model Averaging without further computational cost. Using USA macroeconomic data, we provide a structural analysis and a forecasting exercise that demonstrates the feasibility and usefulness of this new model. Keywords: Large datasets, Multivariate Autoregressive Index models, Stochastic volatility, Bayesian VARs.
    Date: 2022–01
  119. By: Delis, Fotios; Economidou, Claire; Hasan, Iftekhar
    Abstract: Does constitutional democratization affect profit-shifting strategies among firms? Using a global sample of multinational enterprises, we develop a subsidiary-year measure of profit-shifting and examine how this measure responds to changes in constitutional democracy and the subsequent evolution of the host country’s institutions. Our main findings show that a one-standard-deviation increase in the Polity IV democracy index yields an approximately 37% decrease in profit-shifting to other countries. Protection of property rights, contract enforcement, and superior regulatory quality emerge as the key institutional channels that define the decision to keep profits at home. Our results are robust to an instrumental variables approach and a large battery of additional robustness tests.
    Keywords: profit shifting; multinational enterprises; democracy; institutions; non parametric
    JEL: E02 H26 M48 O50
    Date: 2022–01–28
  120. By: David Autor; David Cho; Leland D. Crane; Mita Goldar; Byron Lutz; Joshua K. Montes; William B. Peterman; David D. Ratner; Daniel Villar Vallenas; Ahu Yildirmaz
    Abstract: The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. This compares unfavorably to the other two major pandemic aid programs, enhanced UI benefits and Economic Impact Payments (i.e. stimulus checks). PPP’s breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise. The more targeted pandemic business aid programs deployed by other high-income countries exemplify what is feasible with better administrative systems. Building similar capacity in the U.S. would enable greatly improved targeting of either employment subsidies or business liquidity when the next pandemic or other large-scale economic emergency occurs, as it surely will.
    JEL: E65 H2 J38
    Date: 2022–01
  121. By: Jean-Michel Servet (IHEID - Institut de hautes études internationales et du développement - University of Geneva [Switzerland], TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique); André Tiran (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique); Solène Morvant-Roux (UNIGE - Université de Genève)
    Abstract: Article d'analyse des perspectives de l'inflation, paru dans The Conversation, 20/04/2021 : nflation-lanalyse-na-jamais-ete-aussi-co mplexe-159279
    Keywords: inflation,prévision
    Date: 2021–04–20
  122. By: Jérôme Trinh (Université de Cergy-Pontoise, THEMA)
    Abstract: This article proposes an adaptation of existing tests of cointegration with endogenous structural changes to very small sample size. Size-corrected critical values for both testing cointegration with endogenous structural breaks and testing structural breaks in the parameters in a cointegration model are computed in this context. We show that the power of such a testing procedure is satisfying in sample sizes smaller than fifty observations. This of interest for macroeconometric studies of emerging economies for which the data history is usually not long enough to apply conventional methods. When the serial correlation is low, we find the tests to be powerful for even less than thirty observations. A combined procedure of testing for cointegration and structural change allows us to improve the power of testing cointegration in very small sample sizes while staying agnostic about the underlying data generating processes. An example using the Chinese data finds a cointegration relationship with two structural breaks between the national household consumption expenditures, the retail sales of consumer goods and the investment in fixed assets during the last four decades.
    Keywords: Time series, cointegration, structural change, very small sample, emerging economies
    JEL: C32 E17
    Date: 2022
  123. By: Titan Alon; Matthias Doepke; Kristina Manysheva; Michèle Tertilt
    Abstract: In many high-income economies, the recession caused by the Covid-19 pandemic has resulted in unprecedented declines in women’s employment. We examine how the forces that underlie this observation play out in developing countries, with a specific focus on Nigeria, the most populous country in Africa. A force affecting high- and low-income countries alike are increased childcare needs during school closures; in Nigeria, mothers of school-age children experience the largest declines in employment during the pandemic, just as in high-income countries. A key difference is the role of the sectoral distribution of employment: whereas in high-income economies reduced employment in contact-intensive services had a large impact on women, this sector plays a minor role in low-income countries. Another difference is that women’s employment rebounded much more quickly in low-income countries. We conjecture that large income losses without offsetting government transfers drive up labor supply in low-income countries during the recovery.
    Keywords: Covid-19, Pandemics, Women's Labor Supply, Gender Equality
    JEL: E3 J2 J7 O1 R2
    Date: 2022–01
  124. By: Bryan Campbell; Michel Magnan; Benoit Perron; Molivann Panot
    Abstract: The purpose of this work is to assess the contribution that the imposition of fiscal rules might have on the return to the 0 deficit announced for 2027-28 in the 2021-22 budget. Our approach simulates many future economic scenarios, each incorporating fiscal rules. This exercise is repeated a large number of times, generating a distribution of budget deficits for each desired time horizon and for each budget rule analyzed. This approach builds on a historical study of budget gaps to develop a model for simulating the gaps that takes into account their evolution over time and their correlation between budget components using a factor model. Our two-step approach allows simulation of future deficits: based on the simulated value of the factor, the gaps of the various budget components are determined. Then, for each budget component, the actual revenue or expenditure is obtained directly from the budgeted value (which reflects the application of a budget rule) and the gap. The simulated value of the deficit can then be calculated. We study by simulation the impact of two broad classes of budget rules. The first limits the growth of expenditures for each mission to 5% per year, while the second allows a higher increase for health and social services, 6%, than for the other missions, 2%. Each of these rules is analyzed under a baseline scenario and two alternative specifications: the first allows for a feedback effect and imposes a decrease in spending if budget targets are missed, while the second considers an increase in economic and fiscal uncertainty. In this report, we take as starting point the deficit path projected by the ministry in last March's budget documents. In particular, we impose a return to a balanced budget in fiscal year 2027-28 and adjust revenues to reflect this constraint. Our simulation results can be found in Tables 1 and 2 and are summarized in Tables 3 and 4. To quote this document Campbell B., Magnan M., Perron B. et Panot M. (2022). Modélisation de règles budgétaires pour l’après-COVID (2021RP-31). Le but du présent travail est d'évaluer l'apport que pourrait avoir l’imposition de règles budgétaires sur le retour au déficit 0 annoncé pour 2027-28 dans le budget 2021-22. Notre approche simule de nombreux scénarios économiques futurs, chacun incorporant des règles budgétaires. Cet exercice est répété un grand nombre de fois, ce qui génère une distribution des déficits budgétaires pour chaque horizon temporel désiré et pour chaque règle budgétaire analysée. Cette approche s’appuie sur une étude historique des écarts budgétaires pour développer un modèle de simulations des écarts qui prend en compte leur évolution dans le temps et leur corrélation entre les composantes budgétaires à l’aide d’un modèle à facteur. Notre approche en deux étapes permet de simuler des déficits futurs : en nous basant sur la valeur simulée du facteur, les écarts des diverses composantes budgétaires sont déterminés. Ensuite, pour chaque composante du budget, le revenu ou dépense avéré est obtenu directement de la valeur prévue au budget (qui reflète l’application d’une règle budgétaire) et de l’écart. La valeur simulée du déficit peut ainsi être calculée. Nous étudions par simulation l’impact de deux grandes classes de règles budgétaires. La première limite la croissance des dépenses de chaque mission à 5% par année alors que la deuxième permet une hausse plus élevée pour la santé et les services sociaux, 6%, que pour les autres missions, 2%. Chacune de ces règles est analysée sous un scénario de référence et deux spécifications alternatives : une première permet un effet de rétroaction et impose une diminution des dépenses si les cibles budgétaires sont ratées, alors que la deuxième considère une augmentation de l’incertitude économique et budgétaire. Dans ce rapport, nous prenons comme point de départ la trajectoire de déficits prévue par le Ministère dans les documents budgétaires de mars dernier. En particulier, nous imposons un retour à l’équilibre budgétaire lors de l’année fiscale 2027-28 et ajustons les revenus pour refléter cette contrainte. Nos résultats de simulation se trouvent aux tableaux 1 et 2 et sont synthétisés aux tableaux 3 et 4 Pour citer ce document / To quote this document Campbell B., Magnan M., Perron B. et Panot M. (2022). Modélisation de règles budgétaires pour l’après-COVID (2021RP-31).
    Keywords: fiscal rules,Covid-19,fiscal policies, règles budgétaires,Covid-19,politiques fiscales
    Date: 2022–01–28
  125. By: Ng, Joe Cho Yiu; Leung, Charles Ka Yui; Chan, Suikang
    Abstract: This study examines the relationship between corporate real estate (CRE) holdings and stock returns before and after the Global Financial Crisis (GFC). We find that (1) the United States and the United Kingdom show a negative relationship before the GFC and positive after the GFC. (2) Firms that pay positive tax or have positive R&D investments are not systematically different from the full sample. This finding cannot support the "scarce capital" theory or the tax incentive explanation, but it is consistent with the “empire building” theory. After the GFC, financial constraints tightened, and both CRE holding and stock returns dropped. (3) European (excluding the United Kingdom) sample shows a positive relationship in the pre-crisis period. This finding is compatible with the "illiquidity premium" theory. However, the association becomes inconclusive in the post-crisis period. (3) The Japanese sample shows a negative association between CRE and stock returns in the pre-crisis period, like the United States and the United Kingdom. However, the relationship becomes statistically insignificant in the post-crisis period, consistent with the theory of financial constraint tightening after the GFC.
    Keywords: Global Financial Crisis, corporate real estate holding, collateral constraint, illiquidity premium, panel regression
    JEL: E44 G10 G30
    Date: 2022–01
  126. By: Mr. Paulo A Medas; W. Raphael Lam; Mr. Daniel Garcia-Macia; Alexandra Fotiou; Andresa Lagerborg; Paul Elger; Xuehui Han; Mr. Hamid R Davoodi
    Abstract: Adoption of fiscal rules and fiscal councils continued to increase globally over the last decades based on two new global datasets. During the pandemic, fiscal frameworks were put to test. The widespread use of escape clauses was one of the novelties in this crisis, which helped provide policy room to respond to the health crisis. But the unprecedented fiscal actions have led to large and widespread deviations from deficit and debt limits. The evidence shows that fiscal rules, in general, have been flexible during crises but have not prevented a large and persistent buildup of debt over time. Experience shows that deviations from debt limits are very difficult to reverse. The paper also presents evidence on the benefits of a good track record in abiding by the rules. All these highlight the difficult policy choices ahead and need to further improve rules-based fiscal frameworks.
    Keywords: Fiscal Rules, Fiscal Councils, COVID-19, pandemic, Public debt, European Union, Deficit limits, independent fiscal institutions.
    Date: 2022–01–27
    Abstract: This study investigates the impacts of credit supply on economic growth and financial crisis. Excess credit supply can make the economy and financial markets more vulnerable. While credit supply can drive economic growth by reallocating resources, it can also make the economy and financial markets more fragile. Asset prices sharply fall when deleveraging occurs in the case of a negative shock to the financial or real sector in a system where credit is excessively supplied. Furthermore, economic activity might be substantially reduced, extending the length and breadth of the recession.
    Keywords: credit supply; economic growth; financial crisis; economy; shock
    Date: 2022–02–03
  128. By: Jairo Núñez Méndez
    Abstract: Análisis sobre los retos en materia de pobreza e inequidad para el país. "el presente documento está dividido en cinco capítulos. En el primero se hace una presentación acerca de la evolución reciente de la pobreza y la desigualdad en Colombia; específicamente, se expone la evolución del fenómeno a lo largo de las dos últimas décadas y la situación reciente. El segundo capítulo analiza la distribución de la riqueza en Colombia; específicamente, se señalan las formas como actualmente está acumulada (tierra, riqueza financiera, ahorro pensional). El siguiente capítulo hace una valoración acerca de la progresividad del sistema tributario y del esquema del gasto público social, en tanto son los componentes centrales del sistema actual de redistribución del ingreso en el país. Por su parte, el cuarto capítulo expone los desafíos futuros que se deben encarar si se ha de propender por la erradicación de la pobreza extrema, reducir la pobreza total y reducir las desigualdades en el ingreso y su acumulación; dichos desafíos se presentan a manera de reformas pendientes y de la desconcentración del poder político y económico. Este capítulo también desarrolla un análisis sobre la crisis generada por el coronavirus, sus impactos y los retos que esta representa ante un crecimiento enorme de la pobreza, que significa un retroceso de una década. Finalmente, el capítulo cinco presenta un resumen y las principales conclusiones del trabajo."
    Keywords: Pobreza, Distribución del Ingreso, Distribución de la Riqueza, Desigualdad SocialGasto Público Social, Redistribución del Ingreso, Pobreza Extrema, COVID-19, Colombia
    JEL: I30 I32 O15 D33 E25 D63 O54
    Date: 2021–04–01

This nep-mac issue is ©2022 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.