nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒03‒14
110 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financial Stability Considerations for Monetary Policy: Empirical Evidence and Challenges By Nina Boyarchenko; Giovanni Favara; Moritz Schularick
  2. Financial Stability Considerations for Monetary Policy: Empirical Evidence and Challenges By Nina Boyarchenko; Giovanni Favara; Moritz Schularick
  3. How to Limit the Spillover from the 2021 Inflation Surge to Inflation Expectations? By Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
  4. The Augmented Bank Balance-Sheet Channel of Monetary Policy By Christian Bittner; Diana Bonfim; Florian Heider; Farzad Saidi; Glenn Schepens; Carla Soares
  5. Structural change in the US Phillips curve, 1948-2021: the role of power and institutions By Mark Setterfield; Robert A. Blecker
  6. Sources of Economic Policy Uncertainty in Nigeria: Implications for Africa By Ozili, Peterson K
  7. Política monetaria y formación de expectativas en un modelo neokeynesiano By Patricia Carballo
  8. Financial Stability Considerations for Monetary Policy: Theoretical Mechanisms By Andrea Ajello; Nina Boyarchenko; Francois Gourio; Andrea Tambalotti
  9. A Personal View from the Wrong Side of the Subsequent Fifty Years By David Laidler
  10. Optimal Fiscal and Monetary Policy with Distorting Taxes By Christopher A. Sims
  11. Central bank digital currency: A review and some macro-financial implications By Hongyi Chen; Pierre Siklos
  12. Refinancing and The Transmission of Monetary Policy to Consumption By Arlene Wong
  13. Asymmetries in risk premia, macroeconomic uncertainty and business cycles By Christoph Görtz; Mallory Yeromonahos
  14. Children matter: Global imbalances and the economics of demographic transition By Tsendsuren Batsuuri
  15. Devaluations, Deposit Dollarization, and Household Heterogeneity By Francesco Ferrante; Nils Gornemann
  16. A Goldilocks Theory of Fiscal Policy By Atif Mian; Ludwig Straub; Amir Sufi
  17. The NAIRU and informality in the Mexican labor market By Ana Aguilar; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
  18. Bullard Discusses Inflation and U.S. Monetary Policy with Bloomberg By James B. Bullard
  19. How production networks amplify shocks By Girish Bahal; Damian Lenzo
  20. Bullard Discusses the Economy and Inflation in Central Banking Journal Interview By James B. Bullard
  21. What Are Consumers’ Inflation Expectations Telling Us Today? By Olivier Armantier; Leo Goldman; Gizem Koşar; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
  22. Micro Risks and Pareto Improving Policies By Mark Aguiar; Manuel Amador; Cristina Arellano
  23. Government procurement and access to credit: firm dynamics and aggregate implications By Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
  24. The network origins of aggregate Fluctuations: A demand-side approach By Emanuele Citera; Shyam Gouri Suresh; Mark Setterfield
  25. The Marginal Propensity to Consume in Heterogeneous Agent Models By Greg Kaplan; Giovanni L. Violante
  26. Pandemics and Aggregate Demand: a Framework for Policy Analysis By Peter Flaschel; Giorgos Galanis; Daniele Tavani; Roberto Veneziani
  27. Market-stabilization QE By Motto, Roberto; Özen, Kadir
  28. Bargaining power, structural change, and the falling U.S. labor share By Michael Cauvel; Aaron Pacitti
  29. Aggregate Demand Externalities, Income Distribution, and Wealth Inequality By Luke Petach; Daniele Tavani
  30. Bullard Discusses U.S. Monetary Policy with CNBC By James B. Bullard
  31. The decline in r* according to a robust multivariate trend-cycle decomposition By James Morley; Trung Duc Tran; Benjamin Wong
  32. Securing green development: Can Asia-Pacific central banks and financial supervisory authorities do more? By Xiang-li Lim; Vatcharin Sirimaneetham
  33. Germany’s Labour Market in Coronavirus Distress – New Challenges to Safeguarding Employment By Alexander Herzog-Stein; Patrick Nüß; Lennert Peede; Ulrike Stein
  34. Learning the HardWay: Expectations and the U.S. Great Depression By Pablo Aguilar; Luca Pensieroso
  35. Bullard Discusses U.S. Monetary Policy, Inflation and Economic Growth with CNBC By James B. Bullard
  36. The Effects of Fiscal Policy on Households during the COVID-19 Pandemic: Evidence from Emerging Economies By Dzung Bui; Lena Dräger; Bernd Hayo; Giang Nghiem
  37. Bullard Speaks with CNN International about U.S. Monetary Policy By James B. Bullard
  38. Making sense of consumer inflation expectations: the role of uncertainty By Reiche, Lovisa; Meyler, Aidan
  39. Bullard Speaks with Fox Business about U.S. Monetary Policy By James B. Bullard
  40. Credit Horizons By Nobuhiro Kiyotaki; John Moore; Shengxing Zhang
  41. Comparing Monetary Policy Tools in an Estimated DSGE model with International Financial Markets By Gelfer, Sacha; Gibbs, Christopher
  42. What drives fluctuations of labor wedge and business cycles? Evidence from Japan By Masaru Inaba; Kengo Nutahara; Daichi Shirai
  43. World Economy Winter 2021 - Temporary slowdown By Gern, Klaus-Jürgen; Kooths, Stefan; Reents, Jan; Stolzenburg, Ulrich
  44. The Effect of borrower-specific Loan-to-Value policies on household debt, wealth inequality and consumption volatility By Ruben Tarne; Dirk Bezemer; Thomas Theobald
  45. The Effect of borrower-specific Loan-to-Value policies on household debt, wealth inequality and consumption volatility By Ruben Tarne; Dirk Bezemer; Thomas Theobald
  46. Bullard Discusses Inflation, Policy Rate with CNBC By James B. Bullard
  47. Classical political economy and secular stagnation By Manuel Cruz Luzuriaga; Daniele Tavani
  48. United States economic outlook: First half of 2021 By -
  49. The anatomy of small open economy trends By Christoph Görtz; Konstantinos Theodoridis; Christoph Thoenissen
  50. What to expect from inflation expectations: theory, empirics and policy issues By Luigi Bonatti,; Andrea Fracasso; Roberto Tamborini
  51. German Economy Winter 2021 - Recovery temporarily on hold By Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
  52. How can green differentiated capital requirements affect climate risks? By Yannis Dafermos; Maria Nikolaidi
  53. Opportunity and Inequality across Generations By Koeniger, Winfried; Zanella, Carlo
  54. Monetary policy shocks and exchange rate dynamics in small open economies By Firmin Doko Tchatoka; Qazi Haque; Madison Terrell
  55. Environment, public debt and epidemics * By Marion Davin; Mouez Fodha; Thomas Seegmuller
  56. Domination française des marchés en Afrique francophone : Le post-colonialisme à son meilleur ? By Kohnert, Dirk
  57. Getting the ROC into Sync By Liu Yang; Kajal Lahiri; Adrian Pagan
  58. Macroeconomic dynamics and the role of market power. The case of Italy By Jasmine Mondolo
  59. What Drives Financial Sector Development in Africa? Insights from Machine Learning By Isaac K. Ofori; Christopher Quaidoo; Pamela E. Ofori
  60. United States economic outlook: Third quarter of 2021 By -
  61. Universal Basic Income: Inspecting the Mechanisms By Jaimovich, Nir; Saporta-Eksten, Itay; Setty, Ofer; Yedid-Levi, Yaniv
  62. Search, Technology Choice, and Unemployment By Angyridis, Constantine; Zhou, Haiwen
  63. Welfare costs of exchange rate fluctuations: Evidence from the 1972 Okinawa reversion By Kazuko Kano; Takashi Kano
  64. Dynamical Structure and Spectral Properties of Input-Output Networks By Ernest Liu; Aleh Tsyvinski
  65. Pandemic Recession and Helicopter Money: Venice, 1629–1631 By Charles Goodhart; Donato Masciandaro; Stefano Ugolini
  66. St. Louis Fed Chief James Bullard Interviewed by Wall Street Journal By James B. Bullard
  67. Restoring Balance By John C. Williams
  68. Bullard Speaks with Bloomberg TV about Tapering, Inflation By James B. Bullard
  69. On the Inefficiency of Non-Competes in Low-Wage Labor Markets By Potter, Tristan; Hobijn, Bart; Kurmann, Andre
  70. Extending pension policy in emerging Asia: An overlapping-generations model analysis for Indonesia By George Kudrna; John Piggott; Phitawat Poonpolkul
  71. The Category of Node-and-Choice Extensive-Form Games By Rory McGee
  72. Immigrating into a Recession: Evidence from Family Migrants to the U.S. By Toman Barsbai; Andreas Steinmayr; Christoph Winter
  73. Foreign Direct Investment, Information Technology and Total Factor Productivity Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  74. Original sin redux: a model-based evaluation By Boris Hofmann; Nikhil Patel; Steve Pak Yeung Wu
  75. Supply or Demand: What Drives Fluctuations in the Bank Loan Market? By Altavilla, Carlo; Boucinha, Miguel; Bouscasse, Paul
  76. Costs of Financing US Federal Debt: 1791-1933 By George Hall; Jonathan Payne; Thomas J. Sargent; Bálint Szőke
  77. Covid-induced Economic Uncertainty, Tasks, and Occupational Demand By Sotiris Blanas; Rigas Oikonomou
  78. Retropolación para series de Cuentas Nacionales Trimestrales. Series de Producto Interno Bruto de Uruguay con frecuencia trimestral para el período 2012-2015 By Marcelo Álvez; Elizabeth Bucacos; Maximiliano Mateauda; Ernesto Pienika
  79. Aggregate Implications of Changing Sectoral Trends By Andrew T. Foerster; Andreas Hornstein; Pierre-Daniel G. Sarte; Mark W. Watson
  80. Stuck at Home: Housing Demand During the COVID-19 Pandemic By Gamber, William; Graham, James; Yadav, Anirudh
  81. Correlation Based Tests of Predictability By Pincheira, Pablo; Hardy, Nicolas
  82. The Elusive Explanation for the Declining Labor Share By Gene M. Grossman; Ezra Oberfield
  83. Caution: do not cross! Capital buffers and lending in Covid-19 times By Couaillier, Cyril; Lo Duca, Marco; Reghezza, Alessio; Rodriguez d’Acri, Costanza
  84. Bullard Speaks with Fox Business about Economic Growth, Jobs and Interest Rates By James B. Bullard
  85. International comparisons of the measurement of non-market output during the COVID-19 pandemic By John Mitchell; James Lewis; Jorrit Zwijnenburg; Rachida Dkhissi; Thomas Prendergast
  86. Household spending and fiscal support during the COVID-19 pandemic: insights from a new consumer survey By Georgarakos, Dimitris; Kenny, Geoff
  87. Living in Rural Areas and Self-Employment By Belloc, Ignacio; Molina, José Alberto; Velilla, Jorge
  88. Costly Inspection and Money Burning in Internal Capital Markets By Rohit Patel; Can Urgun
  89. Monetary Policy and the Top 1%: Evidence from a Century of Modern Economic History By Mehdi El Herradi; Aurélien Leroy
  90. An Investigation on Intercohort Income Inequalities and Millennials Impoverishment in Great Britains Regions By Sarandrea, Marco
  91. Rent-seeking, Reform and Conflict: French Parliaments at the End of the Ancien Régime By Jaaidane, Touria; Musy, Olivier; Tallec, Ronan
  92. Platform-based business models and financial inclusion By Karen Croxson; Jon Frost; Leonardo Gambacorta; Tommaso Valletti
  93. Credit constrained firms and government subsidies: evidence from a European Union program By Eszter Balogh; Adám Banai; Tirupam Goel; Péter Lang; Martin Stancsics; Előd Takáts; Álmos Telegdy
  94. How does economic policy uncertainty affect corporate debt maturity? By Li, Xiang
  95. Political science research on the reasons for the (non) adoption and (non) implementation of EMU reform proposals: The state of the art By Lindner, Vincent; Eckert, Sandra; Nölke, Andreas
  96. What Happens When Banks Tighten C&I Loan Supply? By Andrew Castro; David P. Glancy; Felicia Ionescu; Greg Marchal
  97. Local Projections vs. VARs: Lessons From Thousands of DGPs By Dake Li; Mikkel Plagborg-Møller; Christian K. Wolf
  98. The use of GDP, against sustainable development By Natacha Bourova; Jacques Fontanel
  99. Deutsche Wirtschaft im Winter 2021 - Erholung vorerst ausgebremst By Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
  100. A Unified Model of Learning to Forecast By Evans, George; Gibbs, Christopher; McGough, Bruce
  101. Economic Survey of the Caribbean 2021 By Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Pantin, Machel; Skerrette, Nyasha
  102. What explains the decline in r ∗ ? Rising income inequality versus demographic shifts By Atif Mian; Ludwig Straub; Amir Sufi
  103. Using unit value indices as proxies for international merchandise trade prices By Guannan Miao; Enrico Wegner
  104. COVID-19 and firms’ stock price growth: The role of market capitalization By Markus Brueckner; Wensheng Kang; Joaquin Vespignani
  105. Market Power in Small Business Lending: A Two-Dimensional Bunching Approach By Natalie Cox; Ernest Liu; Daniel Morrison
  106. The Influence of Early-Life Economic Shocks on Aging Outcomes: Evidence from the U.S. Great Depression By Valentina Duque; Lauren L. Schmitz
  107. Políticas anticíclicas y propuesta para el cálculo de la recuperación fiscal de la inversión en infraestructura By Coremberg, Ariel Alberto; Lardé, Jeannette; Sánchez, Ricardo J.; Sanguinetti, Juan
  108. Granular Search, Market Structure, and Wages By Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin
  109. Do corporate tax cuts boost economic growth? By Sebastian Gechert; Philipp Heimberger
  110. Indonesian Economic Policy Universal Basic Income During the Covid-19 Pandemic for National Defense By Yulivan, Ivan

  1. By: Nina Boyarchenko; Giovanni Favara; Moritz Schularick
    Abstract: This paper reviews literature on the empirical relationship between vulnerabilities in the financial system and the macroeconomy, and how monetary policy affects that connection. Financial vulnerabilities build up over time, with both risk appetite and risk taking rising during economic expansions. To some extent, financial crises are predictable and have severe real economic consequences when they occur. Empirically it is difficult to link monetary policy to financial vulnerabilities, in part because financial cycles have long durations, making it difficult to separate effects of changes in monetary policy from other business cycle effects.
    Keywords: monetary policy; financial stability; financial crises; credit; leverage; liquidity; asset prices
    JEL: E44 E52 E58 G2
    Date: 2022–02–01
  2. By: Nina Boyarchenko; Giovanni Favara; Moritz Schularick
    Abstract: This paper reviews literature on the empirical relationship between vulnerabilities in the financial system and the macroeconomy, and how monetary policy affects that connection. Financial vulnerabilities build up over time, with both risk appetite and risk taking rising during economic expansions. To some extent, financial crises are predictable and have severe real economic consequences when they occur. Empirically it is difficult to link monetary policy to financial vulnerabilities, in part because financial cycles have long durations, making it difficult to separate effects of changes in monetary policy from other business cycle effects.
    Keywords: Monetary Policy; Financial Stability; Financial Crises; Credit; Leverage; Liquidity; Asset Prices
    JEL: E44 E52 E58 G20
    Date: 2022–02–15
  3. By: Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
    Abstract: By providing numerical inflation projections. Many central banks currently face inflation well above their targets and with that the challenge to prevent spillovers on inflation expectations. We study the effect of different communication about the 2021 inflation surge on German consumers' inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using information about inflation projections, where numerical information about professional forecasters' projections seems to reduce inflation expectations by more than policymaker’s characterization of inflation as a temporary phenomenon.
    Keywords: Short-run and long-run inflation expectations; inflation surge; randomized control trial; survey experiment; persistent or transitory in inflation shock
    JEL: E31 E52 E58 D84
    Date: 2022–02
  4. By: Christian Bittner (Bundesbank & Goethe University); Diana Bonfim (Banco de Portugal & Católica Lisbon); Florian Heider (ECB & CEPR); Farzad Saidi (University of Bonn & CEPR); Glenn Schepens (ECB); Carla Soares (Banco de Portugal)
    Abstract: This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use creditregistry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks’ funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks’ financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks’ funding costs reduces their ability to lever up and weakens their lending standards.
    Keywords: transmission of monetary policy, bank lending, bank risk taking, bank balance sheets, euro-area heterogeneity
    JEL: E44 E52 E58 E63 F45 G20 G21
    Date: 2022–02
  5. By: Mark Setterfield (The New School for Social Research); Robert A. Blecker (American University)
    Abstract: This paper provides an institutional-analytical account of changes in the structure of the US Phillips curve (PC) during the post-war period. It does so by restoring conflict and power to the forefront of macro theory and, in particular, the wage- and price-setting behaviour of workers and firms. The resulting account is consistent with the main stylized facts that characterize the evolution of the US PC since 1948: the disappearance and subsequent reappearance of a 'standard' PC (relating the level of the inflation rate, not the change in this rate, to the rate of unemployment); and the flattening of the PC since the 1990s.
    Keywords: Philips Curve, inflation, unemployment, natural rate hypothesis, bargaining power, institutions
    JEL: E12 E24 E25 E31 N12
    Date: 2022
  6. By: Ozili, Peterson K
    Abstract: This paper identifies the sources of economic policy uncertainty in Nigeria and draw implications for Africa. The paper finds that economic policy uncertainty in Nigeria has many sources which are interlinked such as: unexpected and sudden central bank intervention; change in government policy after elections; political interference in economic policy making; fall in global oil price, oil price shocks and uncertain government response; recession and unethical public policy and practices.
    Keywords: Economic policy uncertainty, index, bankruptcy, investment, trade, financial institutions, systemic risk, government policy, fiscal policy, monetary policy, political interference, Nigeria.
    JEL: E31 E32 E51 E52 E61 E65
    Date: 2022
  7. By: Patricia Carballo (Banco Central del Uruguay)
    Abstract: This paper studies the relationship between expectation formation and monetary policy in a New Keynesian general equilibrium framework. To do this, a model that incorporates an equation for the formation of private sector inflation expectations, is developed. Based on the results obtained in the gap estimation and shock simulation exercises, the model constitutes an ideal tool for the analysis of monetary policy in Uruguay. The impulse response exercises illustrate the importance of formation of expectations and credibility for the design of monetary policy. Likewise, the results obtained in the decomposition of the variance of the forecast errors show the importance of shocks on the inflation target and private sector expectations to explain the behavior of inflation and the formation of expectations.
    Keywords: semi-structural model, monetary policy, expectations, Uruguay
    JEL: E37 E47 E52 E58 F41
    Date: 2022
  8. By: Andrea Ajello; Nina Boyarchenko; Francois Gourio; Andrea Tambalotti
    Abstract: This paper reviews the theoretical literature at the intersection of macroeconomics and finance to draw lessons on the connection between vulnerabilities in the financial system and the macroeconomy, and on how monetary policy affects that connection. This literature finds that financial vulnerabilities are inherent to financial systems and tend to be procyclical. Moreover, financial vulnerabilities amplify the effects of adverse shocks to the economy, so that even a small shock to fundamentals or a small revision of beliefs can create a self-reinforcing feedback loop that impairs credit provision, lowers asset prices, and depresses economic activity and inflation. Finally, monetary policy may affect the buildup of vulnerabilities, but the sign of the impact along some of its transmission channels is theoretically ambiguous and may vary with the state of the economy.
    Keywords: monetary policy; financial stability; credit; leverage; liquidity; asset prices
    JEL: E44 E52 E58 G2
    Date: 2022–02–01
  9. By: David Laidler (University of Western Ontario)
    Abstract: Lucas (1972) was a paper that permanently changed the course of macroeconomics, even though its “money supply surprise†model lost its central place in the area within a decade because of empirical difficulties. However, Lucas’s novel methodology, based on clearing markets and rational expectations, still dominates orthodox macroeconomic theorising. An unfortunate side effect of this has been that, because mainstream models have no analytic room for money to play a key role in economic activity, the theoretical case for taking that role seriously was undermined just at the time when traditional monetarist macro-models were facing empirical problems. The consequences of all this for today’s monetary policy environment are briefly discussed.
    Keywords: Lucas; neutral money, monetarism, Keynesianism; micro-foundations; clearing-markets; inflation; recession
    JEL: E13 E31 E40 E52 N01
    Date: 2021
  10. By: Christopher A. Sims (Princeton University)
    Abstract: When the interest rate on government debt is low enough, it becomes possible to roll it over indefinitely, never taxing to retire it, without producing a growing debt to GDP ratio. This has been called a situation with zero "fiscal cost" to debt. But when low interest on debt arises from its providing liquidity services, zero fiscal cost is equivalent to finance through seigniorage. Some finance through seigniorage is generally optimal, however, despite results in the literature seeming to show that this is not so.
    Keywords: monetary policy, fiscal policy
    JEL: E52 E62
    Date: 2021–10
  11. By: Hongyi Chen; Pierre Siklos
    Abstract: Central Bank Digital Currency (CBDC) has attracted considerable interest and its deployment on a global scale is imminent. However, digital currencies face several challenges. They include: legal, technological, and political considerations. We summarize those challenges and add a few more that have not received much attention in the literature. We then consider two forms of CBDC: a narrow version that only replaces notes and coins and a broader form with a deposit feature. The narrow CBDC is the most likely one to be first introduced. Next, relying on evidence of past episodes of financial innovation, and using cross-country data, we explore the hypothetical impact of CBDC on inflation and financial stability, based on the historical behaviour of the velocity of circulation and incorporating a CBDC’s impact in McCallum’s policy rule which defines the stance of monetary policy based on money growth. Our simulations suggest that CBDC need not produce higher inflation, but financial stability remains at risk. We provide some policy implications.
    Keywords: Central Bank Digital Currency, Velocity, Money Demand, Monetary Policy, McCallum Rule
    JEL: O31 O33 E41 E42 E51 E52
    Date: 2022–01
  12. By: Arlene Wong (Princeton University)
    Abstract: This paper examines the role of the refinancing channel and the mortgage market structure for the transmission of monetary policy to consumption. First, I document heterogeneous consumption responses to monetary policy shocks. I find a large consumption response for homeowners who refinance or enter new loans, which is concentrated among younger people. Second, I develop a life-cycle model with fixed rate mortgages that explains these facts. Moving from a fixed to a variable rate mortgage structure reduces the heterogeneous effects of monetary policy on consumption by age. At the same time, the aggregate effects of monetary policy on consumption are increased substantially.
    Keywords: Consumption; monetary policy; refinancing; heterogeneous responses; age
    JEL: E52 E21
    Date: 2021–03
  13. By: Christoph Görtz; Mallory Yeromonahos
    Abstract: A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the following recoveries. We show that a model with recursive preferences, in which agents cannot perfectly observe the state of current productivity, can generate the observed asymmetry in the risk premium. Key for this result are endogenous fluctuations in uncertainty which induce procyclical variations in agent’s nowcast accuracy. In addition to matching moments of the risk premium, the model is also successful in generating the growth asymmetry in macroeconomic aggregates observed in the data, and in matching the cyclical relation between quantities and the risk premium.
    Keywords: Risk Premium, Business cycles, Bayesian Learning, Asymmetry, Uncertainty, Nowcasting.
    JEL: E2 E3 G1
    Date: 2021–12
  14. By: Tsendsuren Batsuuri
    Abstract: This paper investigates the effect of child dependency on the economy and external imbalances under an asymmetric demographic and productivity transition within a lifecycle model. It embeds dependent children within a two-country model with lifecycle features to examine child dependency’s effect on the economy and external imbalances. Specifically, the paper compares the effects of the same fertility and mortality shocks across models with and without children. Simulations show that child dependency changes both the steady-state and the transition dynamics under a demographic shock. The paper finds that while child dependency changes the direction of the impact of the fertility transition on external imbalances in the short run, it changes the magnitude of the effects in the long run. Furthermore, the model comparison shows that parameters must be chosen differently across models with and without child dependency to start from the same interest rate in the steady-state. Different calibration affects the magnitude of the transition dynamics of different models. These findings illustrate the importance of considering child dependency in studies that seek to explain the historical contribution of demographic changes to external imbalances, and suggest to approach studies that use models without child dependency for this purpose with caution.
    Keywords: Global imbalances,Trade imbalances, Demographic transition, Life-cycle model
    JEL: D15 E21 E22 E43 E62 F21 F41 J11
    Date: 2022–01
  15. By: Francesco Ferrante; Nils Gornemann
    Abstract: We study the aggregate and re-distributive effects of currency devaluations in a small open economy heterogeneous households model with leverage-constrained banks. Our framework captures three stylized facts about liability dollarization in emerging economies: i) banks and firms borrow in foreign currency; ii) households save in dollar-denominated local bank deposits; and iii) such deposits are mainly held by wealthier households. The resulting currency mismatch causes an erosion of banks' net worth during a devaluation, depressing credit supply. The ensuing macroeconomic downturn is amplified by a strong reduction of consumption among poorer households in response to rising borrowing costs and falling labor income. Richer households are partially insured, as they are holding a larger share of their wealth in foreign currency denominated assets. We show that a larger currency hedging by wealthier households deepens the recession and amplifies the negative spillovers for poorer agents. When deposit dollarization is high, welfare gains can arise if monetary policy dampens a depreciation.
    Keywords: Dollarization; Currency Depreciation; Household Heterogeneity; Redistribution
    JEL: E21 F32 F41
    Date: 2022–02–16
  16. By: Atif Mian (Princeton University and NBER); Ludwig Straub (Harvard University and NBER); Amir Sufi (Chicago Booth and NBER)
    Abstract: Fiscal policy in advanced economies faces a "Goldilocks dilemma": Fiscal consolidation risks prolonged episodes at the zero lower bound (ZLB), while fiscal expansion raises sustainability concerns. This paper proposes a dynamic fiscal policy framework to study fiscal space subject to this trade-off. At the core of our analysis is a deficit-debt diagram, which we use to measure how much fiscal expansion is necessary to avoid the ZLB, when fiscal policy can run deficits indefinitely, and at what debt level the interest rate rises above the growth rate. Rising inequality and weak aggregate demand expand fiscal space, allowing greater indefinite deficits, while slowing growth tightens the ZLB constraint, requiring greater and greater debt levels. We characterize the effects of various tax policies on fiscal space and provide a cross-country comparison.
    Keywords: fiscal policy, "Goldilocks dilemma"
    JEL: E62
    Date: 2021–07
  17. By: Ana Aguilar; Carlo Alcaraz; Claudia Ramírez; Cid Alonso Rodríguez-Pérez
    Abstract: The non-accelerating inflation rate of unemployment (NAIRU) is not directly observable, and the presence of informal workers imposes an additional challenge in its estimation. In this paper, we present an estimation of the traditional NAIRU for Mexico and an alternative measure that includes informality as an indicator of labor underutilization. We find that both measures of NAIRU and the associated labor market slack indicators follow similar patterns over time. However, the slack estimated with the indicator that includes informality seems to predict inflationary pressures more accurately when the unemployment gap is close to zero.
    Keywords: unemployment, informality, NAIRU, business cycle.
    JEL: E26 E32 E52
    Date: 2022–02
  18. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard shared his views on U.S. monetary policy and managing the inflation risk during an interview on Bloomberg Surveillance.
    Keywords: monetary policy; inflation
    Date: 2021–11–16
  19. By: Girish Bahal; Damian Lenzo
    Abstract: In a broad class of macroeconomic models with production networks, it is difficult to discern which set of structural relationships between sectors amplify shocks and shape aggregate outcomes. As a remedy, we provide a formula that sidesteps this issue by considering linkages in isolation, thereby quantifying the macroeconomic significance of specific intersectoral relationships. In an application, we specialize our framework to derive a closed-form expression for network spillovers in efficient economies, where network spillovers are defined as the effect of shocks on GDP due to propagation to other sectors. Empirically, we find significant fluctuations in network spillovers for 43 countries between 2000 and 2014, suggesting this channel to be a key driver of macroeconomic outcomes. In a second application, we quantify the gains of having different hypothetical input-output structures, keeping the final expenditure shares of goods and services the same. We find the United States’ growth rate would have been almost 20 percent higher per year had its input-output architecture been identical to China’s.
    Keywords: Production networks, Hulten’s theorem, disaggregated macroeconomic models
    JEL: D24 D5 D57 E23 E32 O41
    Date: 2022–01
  20. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed various aspects of the U.S. economy and monetary policy during an Oct. 8 interview with Central Banking Journal that was published Oct. 18.
    Keywords: inflation; monetary policy
    Date: 2021–10–18
  21. By: Olivier Armantier; Leo Goldman; Gizem Koşar; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
    Abstract: The United States has experienced a considerable rise in inflation over the past year. In this post, we examine how consumers’ inflation expectations have responded to inflation during the pandemic period and to what extent this is different from the behavior of consumers’ expectations before the pandemic. We analyze two aspects of the response of consumers’ expectations to changing conditions. First, we examine by how much consumers revise their inflation expectations in response to inflation surprises. Second, we look at the pass-through of revisions in short-term inflation expectations to revisions in longer-term inflation expectations. We use data from the New York Fed’s Survey of Consumer Expectations (SCE) and from the Michigan Survey of Consumers to measure these responses. We find that over the past two years, consumers’ shorter-horizon expectations have been highly attuned to current inflation news: one-year-ahead inflation expectations are very responsive to inflation surprises, in a pattern similar to what we witnessed before the pandemic. In contrast, three-year-ahead inflation expectations are now far less responsive to inflation surprises than they were before the pandemic, indicating that consumers are taking less signal from the recent movements in inflation about inflation at longer horizons than they did before. We also find that the pass-through from revisions in one-year-ahead expectations to revisions in longer-term expectations has declined during the pandemic relative to the pre-pandemic period. Taken together, these findings show that consumers expect inflation to behave very differently than it did before the pandemic, with a smaller share of short-term movements in inflation expected to persist into the future.
    Keywords: inflation expectations; inflation; monetary policy
    JEL: E31 D84
    Date: 2022–02–14
  22. By: Mark Aguiar (Princeton University and NBER); Manuel Amador (University of Minnesota); Cristina Arellano (Federal Reserve Bank of Minneapolis)
    Abstract: We provide sufficient conditions for the feasibility of a Pareto-improving fiscal policy when the risk-free interest rate on government bonds is below the growth rate (r
    Keywords: fiscal policy
    JEL: E62 H30
    Date: 2021–08
  23. By: Julian di Giovanni; Manuel García-Santana; Priit Jeenas; Enrique Moral-Benito; Josep Pijoan-Mas
    Abstract: We provide a framework to study how different allocation systems of public procurement contracts affect firm dynamics and long-run macroeconomic outcomes. We start by using a newly created panel dataset of administrative data that merges Spanish credit register loan data, quasicensus firm-level data, and public procurement projects to study firm selection into procurement and the effects of procurement on credit growth and firm growth. We show evidence consistent with the hypotheses that there is selection of large firms into procurement, that procurement contracts provide useful collateral for firms -more so than sales to the private sector- and that procurement contracts facilitate firm growth beyond the contract duration. We next build a model of firm dynamics with both asset-based and earnings-based borrowing constraints and a government that buys goods and services from private sector firms. We use the calibrated model to quantify the long-run macroeconomic consequences of alternative procurement allocation systems. We find that granting procurement contracts to small firms, either by directly targeting them or by slicing large contracts into smaller ones, helps these firms grow and overcome financial constraints in the long run. However, we also find that reducing the average size of contracts -or making it less likely for large firms to access them- removes saving incentives for large firms, whose negative effects on capital accumulation can overcome the expansionary consequences for small firms and hence generate a drop in aggregate output.
    Keywords: Government procurement, financial frictions, capital accumulation, aggregate productivity
    JEL: E22 E23 E62 G32
    Date: 2022–02
  24. By: Emanuele Citera (New School for Social Research); Shyam Gouri Suresh (Davidson College); Mark Setterfield (New School for Social Research)
    Abstract: We construct a model of cyclical growth with agent-based features designed to study the network origins of aggregate fluctuations from a demand-side perspective. In our model, aggregate fluctuations result from variations in investment behavior at firm level motivated by endogenously-generated changes in `animal spirits' or the state of long run expectations(SOLE). In addition to being influenced by their own economic conditions, firms pay attention to the performance of first-degree network neighbours, weighted (to differing degrees) by the centrality of these neighbours in the network, when revising their SOLE. This allows us to analyze the effects of the centrality of linked network neighbours on the amplitude of aggregate fluctuations. We show that the amplitude of fluctuations is significantly affected by the eigenvector centrality, and the weight attached to the eigenvector centrality, of linked network neighbours. The dispersion of this effect about its mean is shown to be similarly important, resulting in the possibility that network properties can result in `great moderations' giving way to sudden increases in the volatility of aggregate economic performance.
    Keywords: Aggregate fluctuations, cyclical growth, animal spirits, state of long run expectations, agent-based model, random network, preferential attachment, small world.
    JEL: C63 E12 E32 E37 O41
    Date: 2021
  25. By: Greg Kaplan (University of Chicago and NBER); Giovanni L. Violante (Princeton University)
    Abstract: We conduct a systematic analysis of heterogeneous agent consumption-saving models to understand whether and how they can generate a large average marginal propensity to consume (MPC). One-asset models without ex-ante heterogeneity feature a trade-off between a high average MPC and a realistic level of aggregate wealth. One-asset models with additional heterogeneity in preferences or rates of return, or behavioral features, can generate high MPCs with the right amount of total wealth, but at the cost of an excessively polarized wealth distribution that understates the wealth held by households in the middle of the distribution. Two-asset models that include both liquid and illiquid assets can resolve these trade-offs without ex-ante heterogeneity or behavioral elements, although these additional features can improve the fit of the model in other dimensions. Across all models, the share and type of hand-to-mouth households is the most important factor that determines the level of the average MPC.
    Keywords: Borrowing Constraints, Consumption, Income Risk, Hand-to-Mouth, Heterogeneity, Liquidity, Marginal Propensity to Consume, Market Incompleteness, Wealth Distribution
    JEL: D15 D31 D52 E21 E62 E71 G51
    Date: 2021–09
  26. By: Peter Flaschel (Department of Economics, Bielefeld University); Giorgos Galanis (Institute of Management Studies, Goldsmiths University of London); Daniele Tavani (Department of Economics, Colorado State University); Roberto Veneziani (School of Economics and Finance, Queen Mary University of London)
    Abstract: This paper studies the interaction between epidemiological dynamics and the dynamics of economic activity in a demand-driven model in the structuralist/post-Keynesian tradition. On the one hand, rising aggregate demand increases the contact rate and therefore the probability of exposure to a virus. On the other hand, rising infection lowers aggregate demand because of reduced household spending. The resulting framework is well-suited for policy analysis through numerical exercises. We show that, first, laissez-faire gives rise to sharp fluctuations in demand and infections before herd immunity is achieved. Second, absent any restrictions on economic activity, physical distancing measures have rather limited mitigating effects. Third, lockdowns are effective, especially at reducing death rates while buying time before a vaccine is available, at the cost of a slightly more pronounced downturn in economic activity compared with alternative policies. This casts some doubt on the so-called “lives versus livelihood†policy trade-off. However, we also highlight the importance of policies aimed at mitigating the effects of the epidemic on workers’ income.
    Keywords: pandemic, aggregate demand, distribution, public policy
    JEL: I1 E6 E25 E12 H0
    Date: 2021
  27. By: Motto, Roberto; Özen, Kadir
    Abstract: We identify a novel dimension of monetary policy from high-frequency changes in asset prices around ECB policy events, orthogonal to surprises extracted from risk-free interest rates. We find that it is present in policy events that were interpreted by real-time market commentaries as containing information about asset purchase programmes aimed to stabilise financial markets and safeguard the monetary policy transmission by implementing asset purchases in a flexible manner across asset classes and euro area countries. We label this dimension of policy “market-stabilization QE” to contrast it with conventional QE programmes such as the APP launched by the ECB in 2015 aimed to extract duration risk. When including our market-stabilization QE, the R2 for the regression of sovereign yields during the sovereign debt crisis increases by about 50 percentage points and the one of the stock market by 35 percentage points; during the COVID-19 pandemic by 25 and 15 percentage points, respectively. Although it moves euro area stressed-country sovereign yields down and German sovereign yields up as a result of the reversal of flight-to-safety dynamics, it generates strong expansionary macroeconomic effects in all euro area countries including Germany. JEL Classification: E43, E44, E52, E58, E65, G01, G14
    Keywords: Central Bank Communication, COVID-19 pandemic, European debt crisis, monetary policy shocks, unconventional monetary policies
    Date: 2022–02
  28. By: Michael Cauvel (University of Southern Maine Portland); Aaron Pacitti (Siena College Loudonville)
    Abstract: One of the most significant stylized facts in the U.S. economy since the 1970s has been the decline in the share of national income accruing to labor. Many recent studies have sought to explain this trend, with most explanations focusing on structural changes such as deindustrialization, globalization, financialization, rising market concentration, and technological change. We argue that all of these forces primarily operate through a bargaining power channel measured by the cost of job loss, and that the reduction in labor's share of income has been driven by lower bargaining power for workers. Moreover, we contend that business cycle fluctuations in the cost of job loss can help to explain the short-run behavior of the labor share as well. We examine these hypotheses for the United States from 1960-2016. We first estimate the relationship between the cost of job loss and labor's share of income using a bounds-testing approach and find significant negative relationships for both the short and long run. However, the short-run effects are sensitive to the inclusion of policy-related control variables. We then create an index of structural change and estimate regressions of the cost of job loss, finding that increases in this index have both increased the cost of job loss and amplified its volatility over the course of the business cycle. Our empirical analysis therefore supports the hypothesis that the decline in the labor share is driven by decreased labor bargaining power and suggests that structural economic changes and weak economic performance in the U.S. have increased inequality.
    Keywords: labor share, bargaining power, cost of job loss, structural change
    JEL: E25 E24 E12
    Date: 2021
  29. By: Luke Petach (Jack Massey College of Business, Belmont University); Daniele Tavani (Department of Economics, Colorado State University)
    Abstract: We study a two-class model of growth and the distribution of income and wealth at the intersection of contemporary work in classical political economy and the post-Keynesian tradition. The key insight is that aggregate demand is an externality for individual firms: this generates a strategic complementarity in production that results in equilibrium underutilization of the economy’s productive capacity and hysteresis in real GDP per-capita in balanced growth. This equilibrium inefficiency reverberates into both the functional distribution of income and the distribution of wealth: both the wage share and the workers’ wealth share would be higher at full capacity. Consequently, fiscal allocation policy that achieves productive efficiency also attains a higher labor share and a more equitable distribution of wealth. Demand shocks also have permanent level effects. Extensions look at temporary growth and employment effects of fiscal policy with dynamic increasing returns, and employment hysteresis. These findings are useful as an organizing framework for thinking through the lackluster economic record of the so-called Neoliberal era, the sluggish recovery of most advanced economies following the Great Recession, and what to expect regarding the recovery from the Covid-19 shock.
    Keywords: Externalities, Capacity Utilization, Factor Shares, Wealth Inequality
    JEL: D25 D31 D33 D62 E12
    Date: 2021
  30. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed inflation, the tapering of the Fed’s asset purchases, and his projections for the policy rate in 2022 during an interview on CNBC’s Squawk Box Europe. The interview was recorded Nov. 9.
    Keywords: inflation; tapering; policy rate
    Date: 2021–11–09
  31. By: James Morley; Trung Duc Tran; Benjamin Wong
    Abstract: Interest rates have fallen worldwide in recent decades, a phenomenon that has been linked at least in part to a decline in the natural rate of interest, r* (a.k.a. “r-star”). To investigate this decline, we consider a multivariate trend-cycle decomposition of real interest rates using a large set of variables hypothesized to explain changes in r*. We develop a robust two-step procedure to address apparent model misspecification that could be due to measurement error in constructed ex ante real interest rates or other variables used in the multivariate trend-cycle decomposition. Our estimates suggest a smooth path for r* without imposing it a priori, with the decline since the Great Recession in particular explained more by slower trend growth than increased demand for safe assets, the effect of which appears to be almost completely offset by higher levels of government debt.
    Keywords: Natural rate of interest, multivariate trend-cycle decomposition, robustness to model misspecification
    JEL: C32 E43 E44
    Date: 2022–01
  32. By: Xiang-li Lim (Green Templeton College, and Saïd Business School, University of Oxford); Vatcharin Sirimaneetham (Economic Affairs Officer, Macroeconomic Policy and Analysis Section, Macroeconomic Policy and Financing for Development Division, ESCAP)
    Abstract: This paper discusses how central banks and financial supervisory authorities (CBFSAs) can foster green development in Asia and the Pacific. It argues that while fiscal policy has received much attention, CBFSAs can certainly play a complementary role in speeding up the transition towards low-carbon, climate-resilient economies. Indeed, CBFSAs are obliged to act as inaction could compromise their mandate of maintaining economic and price stability given that climate change poses an emerging risk to the financial system. The paper first shows that around half of Asia-Pacific central banks either have sustainability-oriented mandates or began integrating climate issues into their policy conduct. It then demonstrates that while the region remains at the early stage of green monetary and financial policies, some CBFSAs are at the forefront in deploying monetary policy tools, prudential measures, and broader initiatives to support green finance. To further promote green central banking, having clear guiding principles, effective communication, and adequate technical capacity to customize the green approach is critical. Moving forward, CBFSAs should be mindful about possible unintended, adverse impacts of sustainable central banking, such as interfering with market neutrality, supporting greenwashing, and crowding out green private investments.
    Keywords: central banking, monetary policy, green development, green finance, climate risks
    JEL: E52 E58
    Date: 2021–12
  33. By: Alexander Herzog-Stein (Macroeconomic Policy Institute (IMK), University of Koblenz-Landau); Patrick Nüß (Kiel University); Lennert Peede (University of Muenster); Ulrike Stein (Macroeconomic Policy Institute (IMK))
    Abstract: We analyse measures of internal flexibility taken to safeguard employment during the Coronavirus Crisis in comparison to the Great Recession. Cyclical working-time reductions are again a major factor in safeguarding employment. Whereas during the Great Recession all working-time instruments contributed to the reduction in working time, short-time work now accounts for almost all of the working-time reduction. Short-time work was more rapidly extended, more generous, and for the first time a stronger focus was put on securing household income on a broad basis. Still, the current crisis is more severe and affects additional sectors of the economy where low-wage earners are affected more frequently by short-time work and suffered on average relatively greater earnings losses. A hypothetical average short-time worker had a relative income loss in April 2020 that was more than twice as large as that in May 2009. Furthermore, marginal employment is affected strongly but not protected by short-time work.
    JEL: E24 E32 J08 J20
    Date: 2021
  34. By: Pablo Aguilar (Bank of Spain and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Luca Pensieroso (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We introduce adaptive learning – a parsimonious, convenient way to model uncertainty – in a dynamic general equilibrium model of the U.S. Great Depression. We show that even the smallest departure from rational expectations increases significantly the data mimicking ability of the model, in particular for what concerns the lack of recovery in detrended GDP after 1933. We conclude that in the case of big, traumatic events like the Great Depression, uncertainty is particularly unfavourable to the recovery phase.
    Keywords: Learning, Great Depression, Dynamic general equilibrium, Bounded rationality
    JEL: E13 E32 N10
    Date: 2022–02–14
  35. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard shared his views on tapering the Fed’s asset purchases, the U.S. economy and inflation during an interview on CNBC’s Closing Bell.
    Keywords: economic outlook; inflation; tapering
    Date: 2021–10–12
  36. By: Dzung Bui (University of Marburg); Lena Dräger (Leibniz University of Hannover); Bernd Hayo (University of Marburg); Giang Nghiem (Leibniz University of Hannover)
    Abstract: In response to the economic crisis created by the COVID-19 pandemic, many governments provided financial assistance to households. Using representative consumer surveys conducted during the pandemic in 2020, we examine the effects of this fiscal policy instrument on households in two emerging economies, Vietnam and Thailand. Our paper contributes to the literature by studying consumer sentiment and durable spending responses to government financial support and the underlying transmission channels for these responses. We find that government support improves consumer sentiment and increases the likelihood of durable spending. Possible channels for these effects include more optimistic macroeconomic expectations and higher trust in the government's ability to deal with the pandemic, as well as less concern about the general impact of the crisis. We also find that financial support improves individuals' mental health and life satisfaction. Our results suggest that government financial support not only helps stimulate the economy but also enhances people's well-being more generally.
    Keywords: Fiscal policy, Financial support of households, Consumer sentiment, Durables spending, Expectations, Government trust, COVID-19, Thailand, Vietnam
    JEL: E62 E71 D12 D83 H31
    Date: 2021
  37. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed the high inflation in the U.S. and shared his views on appropriate monetary policy during an interview on CNN International.
    Keywords: inflation; monetary policy
    Date: 2022–02–17
  38. By: Reiche, Lovisa; Meyler, Aidan
    Abstract: Consumers’ inflation expectations play a key role in the monetary transmission mechanism. As such, it is crucial for monetary policymakers to understand what they are and how they are formed. In this paper we introduce the (un)certainty channel as means to shed light on some of the more puzzling aspects of reported quantitative inflation perceptions and expectations. These include the apparent overestimation of inflation by consumers as well as the negative correlation observed between the economic outlook and inflation expectations. We also show that the uncertainty framework fits with some of the stylised facts of consumers’ inflation expectations, such as their correlation with socio-demographic characteristics and economic sentiment. JEL Classification: D11, D12, D84, E31, E52
    Keywords: consumers, expectations, inflation, uncertainty
    Date: 2022–02
  39. By: James B. Bullard
    Abstract: St. Louis Fed President James Bullard shared his views on tapering the Fed’s asset purchases and other aspects of monetary policy during an interview with Fox Business.
    Keywords: monetary policy; tapering
    Date: 2021–08–27
  40. By: Nobuhiro Kiyotaki (Princeton University); John Moore (The University of Edinburgh); Shengxing Zhang (London School of Economics)
    Abstract: Entrepreneurs appear to borrow largely against their near-term revenues, even when their investment has a longer horizon. In this paper, we develop a model of credit horizons. A question of particular concern to us is whether persistently low interest rates can stifle economic activity. With this in mind, our model is of a small open economy where the world interest rate is taken to be exogenous. We show that a permanent fall in the interest rate can reduce aggregate investment and growth, and even lead to a drop in the welfare of everyone in the domestic economy. We use our framework to examine how credit horizons interact with plant dynamics and the evolution of productivity. Finally, we speculate that the measurement of total investment may camouflage the true level of productive investment in plant and human capital, and give too rosy a picture of property-fuelled booms sparked by low interest rates.
    Keywords: financial markets
    JEL: E44
    Date: 2021–04
  41. By: Gelfer, Sacha; Gibbs, Christopher
    Abstract: We evaluate the dynamics of conventional and unconventional monetary policy using an estimated two-region dynamic stochastic general equilibrium (DSGE) model. In addition to traditional nominal frictions the open-economy model also includes financial frictions, international portfolio balance effects, and correlated global financial shocks. We find that both conventional and unconventional monetary policy is effective in stimulating output and in inflation. However, the type of expansionary monetary policy used has heterogeneous effects on domestic investment, imports, exports and hours worked. Further, including a financial accelerator to the DSGE model significantly dampens the impact of aggregate investment that is expected to occur with quantitative easing. This is because unconventional monetary policy in the model is associated with an expansion in banking deposits and a minimal impact on loan demand, thus creating a fall in the loan to deposit ratio as was seen after the global financial crisis. Using historical decompositions, we find that unconventional monetary policy had a significant positive impact on output and hours worked during the global financial crisis and the preceding years after, but becomes negligible after 2014. Yet, its impact on equity and bond markets remained through 2019.
    Keywords: Unconventional Monetary Policy; Quantitative Easing; International Bond Portfolio; DSGE; Financial accelerator
    Date: 2021–12
  42. By: Masaru Inaba; Kengo Nutahara; Daichi Shirai
    Abstract: The literature has empirically shown that the labor wedge worsens during recessions. Taking this statement into consideration, this study poses two questions: First, what is the main driving force of the labor wedge, and second, is the main driver of the labor wedge the same as that of business cycles? In this study, we employ a commonly used medium-scale dynamic stochastic general equilibrium model with nominal and real frictions to analyze which structural shocks drive the fluctuation of the labor wedge and of business cycles. The model is estimated using Japanese data. Our estimation strategy is a particularly novel approach. In standard Bayesian estimation, the prior distribution of the parameters for the standard deviations of the structural shocks is the inverse gamma distribution, which does not support zero value and assumes the existence of structural shocks. By contrast, we employ a more flexible prior distribution of the parameters for the standard deviations of structural shocks and measurement errors to allow for the non-existence of structural shocks. Under the standard prior distribution, the estimation results imply that the labor wedge is mainly driven by preference and transitory technology shocks, whereas the investment adjustment cost shock is the most important for the business cycle fluctuations. However, under our relaxed prior distribution, which allows for the non-existence of structural shocks, the estimation results imply that both the labor wedge and business cycles are mainly driven by permanent technology and investment adjustment cost shocks. Keywords: Labor wedge; DSGE model; structural shocks; measurement error; prior distribution JEL codes: E32; E37
    Date: 2022–02
  43. By: Gern, Klaus-Jürgen; Kooths, Stefan; Reents, Jan; Stolzenburg, Ulrich
    Abstract: Following an encouraging first half of the year, the recovery of the global economy has lost momentum. Across the globe, resurging Covid-19 infections weighed on economic activity. Supply chain disruptions prevented a further expansion of global industrial production, and the fast-moving recovery of the Chinese economy almost came to a sudden stop. The impact that the Omicron variant of the coronavirus will have on output remains uncertain at this stage. Over the next few months, we expect economic growth to be rather subdued before picking up again in 2022. We forecast global output (measured on a purchasing power parity basis) to increase by 5.7 percent in 2021 and 4.5 percent in 2022, representing a downward revision of our previous forecast by 0.2 and 0.5 percentage points for 2021 and 2022, respectively. For 2023, we have increased our forecast modestly from 3.8 percent to 4.0 percent. Inflation is thought to have peaked as the contribution of the energy component to overall inflation is expected to decline considerably going forward. Nonetheless, upward pressures on prices are expected to persist given continued supply constraints, and inflation rates will likely remain well above their respective pre-Covid levels.
    Keywords: advanced economies,emerging economies,monetary policy,COVID19
    Date: 2021
  44. By: Ruben Tarne (Macroeconomic Policy Institute, University of Groningen); Dirk Bezemer (University of Groningen); Thomas Theobald (Macroeconomic Policy Institute)
    Abstract: This paper analyses the effects of borrower-specific credit constraints on macroeconomic outcomes in an agent-based housing market model, calibrated using U.K. household survey data. We apply different Loan-to-Value (LTV) caps for different types of agents: first-time-buyers, second and subsequent buyers, and buy-to-let investors. We then analyse the outcomes on household debt, wealth inequality and consumption volatility. The households' consumption function, in the model, incorporates a wealth term and income-dependent marginal propensities to consume. These characteristics cause the consumption-to-income ratios to move procyclically with the housing cycle. In line with the empirical literature, LTV caps in the model are overall effective while generating (distributional) side effects. Depending on the specification, we find that borrower-specific LTV caps affect household debt, wealth inequality and consumption volatility differently, mediated by changes in the housing market transaction patterns of the model. Restricting investors' access to credit leads to substantial reductions in debt, wealth inequality and consumption volatility. Limiting first-time and subsequent buyers produces only weak effects on household debt and consumption volatility, while limiting first-time buyers even increases wealth inequality. Hence, our findings emphasise the importance of applying borrower-specific macroprudential policies and, specifically, support a policy approach of primarily restraining buy-to-let investors' access to credit.
    Keywords: Agent-based modeling, Macroprudential regulation, Household indebtedness, Housing market, Wealth inequality
    JEL: G51 E58 C63
    Date: 2021
  45. By: Ruben Tarne (Macroeconomic Policy Institute IMK and Faculty of economics and Business, University of Groningen); Dirk Bezemer; Thomas Theobald (Macroeconomic Policy Institute IMK)
    Abstract: This paper analyses the effects of borrower-specific credit constraints on macroeconomic outcomes in an agent-based housing market model, calibrated using U.K. household survey data. We apply different Loan-to-Value (LTV) caps for different types of agents: first-time-buyers, second and subsequent buyers, and buy-to-let investors. We then analyse the outcomes on household debt, wealth inequality and consumption volatility. The households' consumption function, in the model, incorporates a wealth term and income-dependent marginal propensities to consume. These characteristics cause the consumption-to-income ratios to move procyclically with the housing cycle. In line with the empirical literature, LTV caps in the model are overall effective while generating (distributional) side effects. Depending on the specification, we find that borrower-specific LTV caps affect household debt, wealth inequality and consumption volatility differently, mediated by changes in the housing market transaction patterns of the model. Restricting investors' access to credit leads to substantial reductions in debt, wealth inequality and consumption volatility. Limiting first-time and subsequent buyers produces only weak effects on household debt and consumption volatility, while limiting first-time buyers even increases wealth inequality. Hence, our findings emphasise the importance of applying borrower-specific macroprudential policies and, specifically, support a policy approach of primarily restraining buy-to-let investors' access to credit.
    Keywords: Agent-based modeling, Macroprudential regulation, Household indebtedness, Housing market, Wealth inequality
    JEL: G51 E58 C63
    Date: 2021
  46. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed the upside surprise on inflation and his views on raising the target range for the federal funds rate during an interview on CNBC’s Squawk Box.
    Keywords: inflation; federal funds rate
    Date: 2022–02–14
  47. By: Manuel Cruz Luzuriaga (Colorado State University); Daniele Tavani (Colorado State University)
    Abstract: This paper presents a model of secular stagnation, income and wealth distribution, and employment in the Classical Political Economy tradition, that can be contrasted with the accounts by Piketty (2014) and Gordon (2015). In these explanations, an exogenous reduction in the growth rate g --because of declining fertility or the exhaustion of path-breaking scientific discoveries--increases the difference with the rate of return to capital r. The capital-income ratio rises, and if the elasticity of substitution is above one, the wage share falls. Both Piketty and Gordon assume full employment at all times. In our explanation, which does not presuppose full employment, the key tension is between profit-driven capital accumulation and wage-driven labor-augmenting technical change: both are defining for Classical Political Economy, and have been emphasized in recent heterodox macro literature. Labor-crushing institutional or technological shocks initially foster capital accumulation -which is profit-driven-- and increase wealth inequality. However, the effect on long-run growth is negative, because of the reduced incentives by firms to introduce labor-saving innovation, which is wage-driven. The capital/income ratio must rise in order to restore balanced growth in the long run; and the increase in wealth inequality is permanent. The ultimate effect on long-run employment depends on the strength of the response of labor-augmenting technical change vs. the response of real wage growth to labor market institutions: accordingly, long-run employment can either be wage-led or profit-led. We then test the model using time-series data for the US (1990-2019): the test offers support to the main predictions of our model, and to the employment-population ratio being wage-led.
    Keywords: Secular Stagnation, Factor Shares, Wealth Inequality, Employment
    JEL: D31 D33 E11 E24 E25
    Date: 2021
  48. By: -
    Abstract: The United States rebounded rapidly and robustly from the COVID-19 pandemic recession in the first half of 2021, as federal stimulus spending helped the economy expand at an annualized rate of over 6%. However, the economic recovery remains uneven. The United States economic outlook: first half 2021 presents and analyses macroeconomic developments in the United States economy and examines how they could affect financial conditions in Latin America and the Caribbean. The report includes a gender focus on the labour market impact of the pandemic.
    Date: 2021–10–06
  49. By: Christoph Görtz; Konstantinos Theodoridis; Christoph Thoenissen
    Abstract: We estimate a novel state-space model to jointly identify international technology trend shocks originating in the US economy as well as shocks that are specific to the UK economy. We further differentiate between technological innovations arising from changes in total factor productivity (TFP) and changes in investment specific technology (IST). The long run restrictions used to identify the structural trends in the data are informed by a standard twocountry structural model. We find that international non-stationary technology shocks explain about 26% of the variance of UK GDP. About two thirds of this contribution is driven by the international IST shock. UK-specific disturbances account for the bulk of the volatility in the data. When estimating the effects of international IST and TFP shocks on the remaining G7 countries, we find results are consistent with those for the UK in that the international productivity shocks play a relevant role in explaining aggregate fluctuations. An impulse response function matching exercise shows that the structural model, which informed the long-run restrictions used in our empirical investigation, can generate dynamics consistent with those in the data.
    Keywords: Non-stationary productivity shocks, TFP, investment specific technology shocks, trend shocks, DSGE modelling, state space model
    JEL: E2 E3
    Date: 2022–01
  50. By: Luigi Bonatti,; Andrea Fracasso; Roberto Tamborini
    Abstract: We examine the role of inflation expectations in conditioning monetary policy, addressing three of its facets. The first concerns the channels through which inflation expectations impinge upon actual inflation, and their policy implications. The second facet regards the technical and empirical issues involved in keeping track of inflation expectations for monetary policy purposes. The final facet is an assessment of inflation expectations vis-à-vis the current upsurge of inflation, wondering whether, after being unanchored on the downside, can now become unanchored on the upside.
    Date: 2021
  51. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
    Abstract: The recovery of the German economy is interrupted once again. In the winter, the new Covid-19 wave will particularly hit activity in contact-intensive service sectors as in previous waves. As a result, there will be a setback in private consumer spending and probably also small declines in GDP. To the extent that the burdens of the pandemic ease in the spring, a strong recovery will set in, similar to the pattern observed this year. Economic momentum will likely be particularly high as the supply bottlenecks, which are massively dampening industrial production in this year, are expected to ease. Overall, the renewed slowdown in the recovery process caused by the pandemic will probably be larger than we had expected in our autumn economic outlook. However, the setback will be not as severe as last winter. In 2022, GDP will probably increase by 4 percent and thus less strongly than we had expected three months ago (5.1 percent). For 2023, we revise GDP growth upwards to 3.3 percent (autumn outlook: 2.3 percent). This year, GDP will increase by 2.6 percent. Inflation will remain high for the time being, also because supply bottlenecks continue to increase manufacturing costs and tighten the supply of consumer goods. At the same time, private households have accumulated additional savings of around 200 billion euros since the beginning of the pandemic and therefore have a rather high willingness to pay. Consumer price inflation will probably be around 3 percent both this and next year, before easing again in 2023. The public budget deficit will fall noticeably from 3.8 percent in relation to GDP in 2021 to 1.8 percent in 2022 due to the reduced burden of the pandemic. However, the budgets are still expected to close with a deficit of 1.4 percent in 2023.
    Keywords: world economy,advanced economies,emerging economies,monetary policy,Japan,Russia,ASEAN
    Date: 2021
  52. By: Yannis Dafermos (SOAS University of London); Maria Nikolaidi (University of Greenwich)
    Abstract: Using an ecological macrofinancial model, we explore the potential impact of the `green supporting factor' (GSF) and the `dirty penalising factor' (DPF) on climate-related financial risks. We identify the transmission channels by which these green differentiated capital requirements (GDCRs) can affect credit provision and loan spreads, and we analyse these channels within a dynamic framework in which climate and macrofinancial feedback effects play a key role. Our main findings are as follows. First, GDCRs can reduce the pace of global warming and decrease thereby the physical financial risks. This reduction is quantitatively small, but is enhanced when the GSF and the DPF are implemented simultaneously or in combination with green fiscal policies. Second, the DPF reduces banks' credit provision and leverage, making them less fragile. Third, both the DPF and the GSF generate some transition risks: the GSF increases bank leverage because it boosts green credit and the DPF increases loan defaults since it reduces economic activity. These effects are small in quantitative terms and are attenuated when there is a simultaneous implementation of the DPF and the GSF. Fourth, fiscal policies that boost green investment amplify the transition risks of the GSF and reduce the transition risks of the DPF; the combination of green fiscal policy with the DPF is thereby a potentially effective climate policy mix from a financial stability point of view.
    Keywords: stock-flow consistent modelling, climate change, financial stability, green financial regulation
    JEL: E12 E44 G18 Q54
    Date: 2021
  53. By: Koeniger, Winfried (University of St. Gallen); Zanella, Carlo (University of Zurich)
    Abstract: We analyze how intergenerational mobility and inequality would change relative to the status quo if dynasties had access to optimal insurance against low ability of future generations. Based on a dynamic, dynastic Mirrleesian model, we find that insurance against intergenerational ability risk increases in the social optimum relative to the status quo. This implies less intergenerational mobility in terms of welfare but no quantitatively significant change in earnings mobility. Earnings mobility is thus similar across economies with different incentives and welfare, illustrating that changes in earnings mobility cannot be interpreted readily in welfare terms without further analysis.
    Keywords: asymmetric information, intergenerational mobility, inequality, human capital, schooling, bequests
    JEL: E24 H21 I24 J24 J62
    Date: 2022–02
  54. By: Firmin Doko Tchatoka; Qazi Haque; Madison Terrell
    Abstract: In this paper we provide new insights on the dynamics between monetary policy shocks and real exchange rates in small open economies using a time-varying structural vector autoregression model with stochastic volatility. Identification is achieved using a combination of short-run and long-run restrictions while preserving the contemporaneous interaction between monetary policy and the exchange rate. For several small open economies, we find no evidence of the ‘exchange rate puzzle’ or the ‘delayed overshooting puzzle,’ in line with recent studies on this topic (see e.g. Bj rnland, 2009). However, there is evidence of the ‘forward discount puzzle’ in some countries, suggesting that the uncovered interest parity (UIP) is violated. In addition, a substantial decrease in the volatility of monetary policy shocks is evident in most countries, accompanied by a decline in the importance of policy shocks in explaining the volatility of exchange rates and other macroeconomic variables since the 1990s.
    Keywords: Monetary policy shocks, Exchange rate, TVP-VARs, UIP
    JEL: C32 E52 F31 F41
    Date: 2022–01
  55. By: Marion Davin (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mouez Fodha (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending in health care and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote convergence to a stable disease-free steady state. When public policies are not able to permanently eradicate the epidemic, public debt, and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy that eliminates income and welfare inequalities between healthy and infected individuals.
    Keywords: public debt,overlapping generations,pollution,Epidemics
    Date: 2021–12–06
  56. By: Kohnert, Dirk
    Abstract: Francophone Africa has been dominated to date by the political, economic and cultural repercussions of France’s colonial rule. A major instrument to assert France's interests was the upkeep of a common monetary policy and currency, the CFA Franc. Although this has been increasingly resented by African politicians and economists, who wanted to replace it by a West African currency (the ‘Eco’) the CFA still prevails, due to the social network of French and African political leaders, the ‘messieurs Afrique’ who benefit from the system. Controversial international discussion concentrates on questions of sovereignty and formal political and economic questions. However, the rules of the informal sector proved to be at least as crucial in structuring the CFA-zone as the institutions and policies of the formal economic sector, including its monetary institutions. For decades, for example, prices of French imports were overpriced, due to protection by tied aid and other political and cultural non-tariff barriers to trade. The cost of this rent-seeking was carried not only by the French Treasury, who guarantees the peg, but by the French and EU taxpayers, who financed budgetary bail-outs and development aid, and last, but not least, by the poorer African member countries and social strata. Although this applies strictly speaking only to the CFA zone, there are strong indicators that things haven't changed much since then for Francophone Africa in general. The repercussions of rent-seeking in Francophone Africat impact up to date negatively on economic performance. For example, growth levels have been significantly lower since two decades compared with Anglophone competitors.
    Keywords: : France, Afrique francophone, post-colonialisme, marché régulé, intérêts particuliers, capture réglementaire, politique monétaire, franc CFA, commerce international, zone de libre-échange, union douanière, études africaines
    JEL: E26 E31 E42 E52 F13 F15 F22 F35 F52 F54 L13 N17 N97 O17 R11 R58 Z13
    Date: 2022–02–19
  57. By: Liu Yang; Kajal Lahiri; Adrian Pagan
    Abstract: Judging the conformity of binary events in macroeconomics and finance has often been done with indices that measure synchronization. In recent years, the use of Receiver Operating Characteristic (ROC) curve has become popular for this task. This paper shows that the ROC and synchronization approaches are closely related, and each can be represented as a weighted average of correlation coefficients between a set of binary indicators and the target event. An advantage of such a representation is that inferences on the degree of conformity can be made robust to serial dependence in the underlying series in the standard framework of a linear regression model. Such serial correlation is common in macroeconomic and financial data.
    Keywords: Receiver operating characteristic curve, Synchronization, Correlation, Economic recession, Serial dependence
    JEL: C14 C52 C53 E37
    Date: 2022–01
  58. By: Jasmine Mondolo
    Abstract: In recent years, the US and other advanced countries have experienced macroeconomic dynamics which raise some concerns and which, according to the literature, are at least partly attributable to a rise in product market power. This study mainly aims to understand how Italy performs in terms of five relevant economic variables (i.e., domestic investment rate, labour share, labour force participation, wage inequality and economic dynamism), and whether firms’ markups are on the rise. The picture that emerges is mixed, and the negative performance in terms of business dynamism and wage dispersion may be ascribable to an increase in product market power. The firm-level analysis of the Italian manufacturing sector for the years 2011- 2018, which complements previous empirical analysis on product market power in this country and accounts for labour market power as well, reveals an increment in the average markup which, however, is not particularly pronounced and unsettling, and which is preceded by a period of steady decline. Moreover, this trend is accompanied by a more remarkable increase in the workers’ labour market power, which helps explain the modest growth in the revenue- based labour share observed during the same period.
    Keywords: labour share, market power, markup, investment, inequality
    JEL: E25 J42 L11
    Date: 2021
  59. By: Isaac K. Ofori (University of Insubria, Varese, Italy); Christopher Quaidoo (Legon, Accra, Ghana); Pamela E. Ofori (University of Insubria, Varese, Italy)
    Abstract: This study uses machine learning techniques to identify the key drivers of financial development in Africa. To this end, four regularization techniques— the Standard lasso, Adaptive lasso, the minimum Schwarz Bayesian information criterion lasso, and the Elasticnet are trained based on a dataset containing 86 covariates of financial development for the period 1990 – 2019. The results show that variables such as cell phones, economic globalisation, institutional effectiveness, and literacy are crucial for financial sector development in Africa. Evidence from the Partialing-out lasso instrumental variable regression reveals that while inflation and agricultural sector employment suppress financial sector development, cell phones and institutional effectiveness are remarkable in spurring financial sector development in Africa. Policy recommendations are provided in line with the rise in globalisation, and technological progress in Africa.
    Keywords: Africa, Elasticnet, Financial Development, Financial Inclusion, Lasso, Regularization, Variable Selection
    JEL: C01 C14 C52 C53 C55 E5 O55
    Date: 2021–01
  60. By: -
    Abstract: Economic growth in the United States slowed to 2.1% year-on-year in the third quarter of 2021, from 6.7% year-on-year in the second quarter of 2021. Consumer spending in the third quarter rose at its slowest pace since the recovery began, as durable goods spending fell sharply amid supply shortages and rising inflationary pressures. The labour market remained strong, averaging 651,000 new jobs per month. With the Federal Reserve shifting its stance towards reducing accommodative measures at a faster pace, Latin America and the Caribbean may experience tighter external financial conditions next year. The United States economic outlook: third quarter of 2021 presents and analyses macroeconomic developments in the United States economy and examines how they could affect financial conditions in Latin America and the Caribbean. The report includes the gender perspective of the impact of the pandemic on the labour market.
    Date: 2021–12–23
  61. By: Jaimovich, Nir (University of Zurich); Saporta-Eksten, Itay (Tel Aviv University); Setty, Ofer (Tel Aviv University); Yedid-Levi, Yaniv (Interdisciplinary Center (IDC) Herzliya)
    Abstract: We consider the aggregate and distributional impact of Universal Basic Income (UBI). We develop a model to study a wide range of UBI programs and financing schemes and to highlight the key mechanisms behind their impact. The most crucial channel is the rise in distortionary taxation (required to fund UBI) on labor force participation. Second in importance is the decline in self-insurance due to the insurance UBI provides, resulting in lower aggregate capital. Third, UBI creates a positive income effect lowering labor force participation. Alternative tax-transfer schemes mitigate the impact on labor force participation and the cost of UBI.
    Keywords: universal basic income, labor force participation, inequality
    JEL: E2 E6 J08
    Date: 2022–02
  62. By: Angyridis, Constantine; Zhou, Haiwen
    Abstract: Technology variations among countries account for a significant part of their income differences. In this paper, a firm’s technology choice is embedded in a search theoretic framework for unemployment. A more advanced technology is assumed to have a higher set up cost, but it is more productive. The model is tractable and the following results are derived analytically. An increase in the unemployment benefit leads to an increase in the equilibrium wage rate, giving an incentive to firms to choose a more advanced technology. Thus, this result regarding unemployment insurance in models with wage posting carries through with Nash bargaining as well. As a consequence, the equilibrium unemployment rate increases. Furthermore, an increase in the bargaining power of workers increases the unemployment rate, but has an ambiguous impact on the equilibrium level of technology and the wage rate. Finally, an increase in the exogenous job separation rate or the interest rate increases the unemployment rate and decreases the wage rate but does not affect the equilibrium level of technology.
    Keywords: Job search, technology choice, unemployment
    JEL: E24 J64 O14
    Date: 2022–02–20
  63. By: Kazuko Kano; Takashi Kano
    Abstract: The main tenet of the New Keynesian (NK) paradigm is that price dispersion caused by nominal price stickiness is the primary source of allocative inefficiency. This study empirically evaluates the welfare implications of NK models by observing how internal and external price dispersion responds to two types of large aggregate shocks: high inflation and sharp currency depreciation. For this purpose, we consider the history of US military deployment on a small southern island in Japan called Okinawa following the Pacific War. We investigate unique data variations in micro-level retail prices surveyed in Okinawa and mainland Japan before and after the Okinawan reversion to Japanese sovereignty in May of 1972. By considering the Okinawan experience of three currency regimes during the high inflation period of the early 1970s as valid quasi-natural experiments, we identify statistically significant deteriorations of currency misalignment associated with the sudden exogenous large USD depreciation versus the JPY following the Nixon Shock. Furthermore, we observe that these massive aggregate shocks left the average absolute size of price changes mostly unchanged, but significantly increased the average frequency of price changes in Okinawa. Because a calibrated small open-economy menu cost model fits these empirical findings better than the Calvo model, the welfare costs of exchange rate fluctuations may be more elusive than suggested by the open economy NK literature.
    Keywords: Currency regime, Currency misalignment, Welfare cost, Okinawan reversion, Menu cost model
    JEL: F31 F41 F45
    Date: 2022–01
  64. By: Ernest Liu (Princeton University); Aleh Tsyvinski (Yale University)
    Abstract: We associate a dynamical system with input-output networks and study its spectral properties. Specifically, we develop a dynamic production network model featuring adjustment costs of changing inputs and thus gradual recovery from temporary TFP shocks. First, we explicitly solve for the output and welfare effects of temporary shocks. We show shocks to sectors that generate significant sales through distant linkages to the consumer are most damaging. Second, we eigendecompose the input-output matrix and show, because higher-order linkages take longer to recover, fewer eigenvectors are needed to represent the welfare impact of sectoral shocks in the dynamic economy compared to the Domar weights. Third, we analyze the U.S. input-output structure and show the welfare impact of temporary shocks has a low-dimensional, 4-factor structure (out of 171 eigenvectors). Finally, we revisit the historical use of input-output analysis in target selection or bombing Nazi Germany and Imperial Japan during WWII.
    Keywords: dynamical system, input-output network,
    JEL: E00 E23
    Date: 2021–07
  65. By: Charles Goodhart; Donato Masciandaro; Stefano Ugolini (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - UT2J - Université Toulouse - Jean Jaurès - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)
    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.
    Keywords: Monetary policy,Helicopter money,Pandemic,Venice 1629-1631
    Date: 2022
  66. By: James B. Bullard
    Abstract: Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank should start raising interest rates “sooner rather than later,” and that he sees a March rate rise as likely amid high inflation. He also said a strong job market could push the unemployment rate to under 3% this year, during an interview with The Wall Street Journal’s Michael S. Derby on Wednesday.
    Keywords: interest rates; inflation; labor market; unemployment
    Date: 2022–01–12
  67. By: John C. Williams
    Abstract: Remarks at New Jersey City University (delivered via videoconference).
    Keywords: economy; New Jersey; demand; supply; pandemic; COVID-19; labor; employment; inflation; monetary policy
    Date: 2022–02–18
  68. By: James B. Bullard
    Abstract: In an interview with Bloomberg TV, St. Louis Fed President James Bullard said that the Fed should start phasing out asset purchases and finish early next year to have more flexibility to address inflation if it is an issue in 2022. He spoke before the start of the Kansas City Fed’s annual Jackson Hole Economic Symposium, which is taking place virtually for a second year.
    Keywords: tapering; inflation
    Date: 2021–08–27
  69. By: Potter, Tristan (Drexel University); Hobijn, Bart (Arizona State University & Federal Reserve Bank of San Francisco); Kurmann, Andre (Drexel University)
    Abstract: We study the efficiency of non-compete agreements (NCAs) in an equilibrium model of labor turnover.The model is consistent with empirical studies showing that NCAs reduce turnover, average wages,and wage dispersion for low-wage workers. But the model also predicts that NCAs, by reducing turnover, raise recruitment and employment. We show that optimal NCA policy: (i) is characterized by a Hosios-like condition that balances the benefits of higher employment against the costs of inefficient congestion and poaching; (ii) depends critically on the minimum wage, such that enforcing NCAs can be efficient with a sufficiently high minimum wage; and (iii) alone cannot always achieve efficiency, also true of a minimum wage—yet with both instruments efficiency is always attainable.To guide policy makers, we derive a sufficient statistic in the form of an easily computed employment threshold above which NCAs are necessarily inefficiently restrictive, and show that employment levels in current low-wage U.S. labor markets are typically above this threshold. Finally, we calibrate the model to show that Oregon’s 2008 ban of NCAs for low-wage workers increased welfare, albeit modestly (by roughly 0.1%), and that if policy makers had also raised the minimum wage to its optimal level (a 30% increase), welfare would have increased more substantially—by over 1%.
    Keywords: Non-compete agreements; low-wage labor markets; minimum wage
    JEL: E24 J62 J63
    Date: 2022–01–18
  70. By: George Kudrna; John Piggott; Phitawat Poonpolkul
    Abstract: This paper examines the economy-wide effects of government policies to extend public pensions in emerging Asia - particularly pertinent given the region’s large informal sector and rapid population ageing. We first document stylized facts about Indonesia’s labour force, drawing on the Indonesian Family Life Survey (IFLS). This household survey is then used to calibrate micro behaviours in a stochastic, overlapping-generations (OLG) model with formal and informal labour. The benchmark model is calibrated to the Indonesian economy (2000- 2019), fitted to Indonesian demographic, household survey, macroeconomic and fiscal data. The model is applied to simulate pension policy extensions targeted to formal labour (contributory pension extensions to all formal workers with formal retirement age increased from 55 to 65), as well as to informal labour (introduction of non-contributory social pensions to informal 65+). First, abstracting from population ageing, we show that: (i) the first set of pension policy extensions (that have already been legislated and are being implemented in Indonesia) have positive effects on consumption, labour supply and welfare (of formal workers) (due largely to the formal retirement age extension); (ii) the introduction of social pensions targeted to informal workers at older age generates large welfare gains for currently living informal elderly; and (iii) the overall pension reform leads to higher welfare across the employment-skill distribution of households. We then extend the model to account for demographic transition, finding that the overall pension reform makes the contributory pension system more sustainable but the fiscal cost of non-contributory social pensions more than triples to 1.7% of GDP in the long run. As an alternative, we examine application of a means-tested social pension system within the overall pension reform. We show that this counterfactual reduces the fiscal cost (of social pensions) and further increases the welfare for both current and future generations.
    Keywords: Informal Labour, Population Ageing, Social Security, Taxation, Redistribution, Stochastic General Equilibrium
    JEL: E26 J1 J21 J26 H55 H24 C68
    Date: 2022–01
  71. By: Rory McGee (University of Western Ontario)
    Abstract: Elderly households hold most of their wealth in housing, maintain high levels of wealth throughout retirement, and often leave bequests. The value of their houses are subject to large shocks. To what extent do these shocks affect their savings, consumption, and bequests? Answering this question requires separating precautionary savings, bequest motives, and the desire to remain in one's home. I develop and estimate a structural model of retirement savings decisions with realistic risks, housing, and heterogeneity in bequest preferences. I exploit policy changes to the taxation of housing and bequests to separately identify the different motives for holding wealth. Estimates show approximately half of retirees have no bequest motive. House price changes are quantitatively important, with 1/4 of increases passed on to future generations. I use the estimated model to evaluate means-tested programs insuring retirees' LTC expenses. I find exemptions providing marginal liquidity have larger insurance value than fully eliminating LTC expense risk per pound it costs the government.
    Keywords: savings; housing, long term care, ageing
    JEL: D1 D12 D14 D15 E21 G5
    Date: 2021
  72. By: Toman Barsbai (Toman Barsbai); Andreas Steinmayr (Andreas Steinmayr); Christoph Winter (Christoph Winter)
    Abstract: We analyze how economic conditions at the time of arrival affect the economic integration of family-sponsored migrants in the U.S. Our identification strategy exploits long waiting times for family-sponsored immigration visas that decouple the migration decision from economic conditions at the time of arrival. A one pp higher unemployment rate at arrival decreases annual wage income by four percent in the short run and two percent in the longer run. The loss in wage income is the result of substantial occupational downgrading, lower hourly wages, and a reduction in working hours. Family migrants who immigrate into a recession draw on migrant and family networks to mitigate the negative labor market effects. As a result, they take up occupations with higher concentrations of fellow countrypeople. They are also more likely to reside with family members, potentially reducing their geographical mobility.
    Keywords: Immigrant integration, family reunification, migrant networks, labor market, business cycle
    JEL: E32 F22 J31 J61
    Date: 2022–01
  73. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: Compared to other regions of the world, the potential for information technology penetration in sub-Saharan Africa (SSA) is very high. Unfortunately, productivity levels in the region are also very low. This study investigates the importance of information technology in influencing the effect of foreign direct investment (FDI) on total factor productivity (TFP) dynamics. The focus is on 25 countries in SSA. Information technology is measured with mobile phone penetration and internet penetration, while the engaged TFP productivity dynamics are TFP, real TFP, welfare TFP, and real welfare TFP. The empirical evidence is based on the Generalised Method of Moments. The findings show that, with the exception of regressions pertaining to real TFP growth for which the estimations do not pass post-estimation diagnostic tests, it is apparent that information technology (i.e. mobile phone penetration and internet penetration) modulate FDI to positively influence TFP dynamics (i.e. TFP, welfare TFP, and welfare real TFP). Policy and theoretical implications are discussed.
    Keywords: Productivity; Foreign Investment; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2022–01
  74. By: Boris Hofmann; Nikhil Patel; Steve Pak Yeung Wu
    Abstract: Many emerging markets (EMs) have graduated from "original sin" and are able to borrow from abroad in their local currency. Using a two-country model, this paper shows that the shift from foreign currency to local currency external borrowing does not eliminate the vulnerability of EMs to foreign financial shocks but instead results in "original sin redux" (Carstens and Shin (2019)). Even under local currency borrowing from foreign lenders, a monetary tightening abroad is propagated to EM financial conditions through a tightening of foreign lenders' financial constraints. Moreover, local currency borrowing does not eliminate currency mismatches, but shifts them from the balance sheets of EM borrowers to the balance sheets of financially constrained global lenders, so that amplifying financial effects of exchange rate fluctuations remain. We provide empirical evidence in line with this prediction of the model using data on currency composition of external debt of emerging and advanced economies. Our model-based analysis further suggests that foreign exchange intervention and capital flow management measures can mitigate the adverse effects of capital flow swings in the short run and that a larger domestic investor base can reduce the vulnerability to such swings in the longer run.
    Keywords: emerging market, capital flows, exchange rate, currency mismatch.
    JEL: E3 E5 F3 F4 F6 G1
    Date: 2022–02
  75. By: Altavilla, Carlo; Boucinha, Miguel; Bouscasse, Paul
    Abstract: We propose a new methodology to identify aggregate demand and supply shocks in the bank loan market. We present a model of sticky bank-firm relationships, estimate its structural parameters in euro area credit register data, and infer aggregate shocks based on those estimates. To achieve credible identification, we leverage banks’ exposure to various sectors’ heterogeneous liquidity needs during the COVID-19 Pandemic. We find that developments in lending volumes following the pandemic were largely explained by demand shocks. Fluctuations in lending rates were instead mostly determined by bank-driven supply shocks and borrower risk. A by-product of our analysis is a structural interpretation of two-way fixed effects regressions in loan-level data: according to our framework, firm- and bank-time fixed effects only separate demand from supply under certain parametric assumptions. In the data, the conditions are satisfied for supply but not for demand: bank-time fixed effects identify true supply shocks up to a time constant, while firm-time fixed effects are contaminated by supply forces. Our methodology overcomes this limitation: we identify supply and demand shocks at the aggregate and individual levels. JEL Classification: E51, G21, G32
    Keywords: credit demand, credit supply
    Date: 2022–02
  76. By: George Hall (Brandeis University); Jonathan Payne (Princeton University); Thomas J. Sargent (New York University); Bálint Szőke (Federal Reserve Board)
    Abstract: We use computational Bayesian methods to estimate parameters of a statistical model of gold, greenback, and real yield curves for US federal debt from 1791 to 1933. Posterior probability coverage intervals indicate more uncertainty about yields during periods in which data are especially sparse. We detect substantial discrepancies between our approximate yield curves and standard historical series on yields on US federal debt, especially during War of 1812 and Civil War surges in government expenditures that were accompanied by units of account ambiguities. We use our approximate yield curves to describe how long it took to achieve Alexander Hamilton’s goal of reducing default risk premia in US yields by building a reputation for servicing debts as promised. We infer that during the Civil War suspension of convertibility of greenback dollars into gold dollars, US creditors anticipated a rapid post war return to convertibility at par, but that after the war they anticipated a slower return.
    Keywords: Big data, default premia, yield curve, units of account, gold standard, government debt, Hamiltonian Monte Carlo, Julia, DynamicHMC.jl, pricing errors, specification analysis
    JEL: E31 E43 G12 N21 N41
    Date: 2021–09
  77. By: Sotiris Blanas (IMT School for Advanced Studies Lucca, Piazza San Ponziano 6, 55100, Lucca, Italy); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: In this paper, we provide novel evidence of the impact of Covid-induced economic uncertainty on the relative demand for different occupations in the US, according to a wide range of occupational characteristics. We conduct the analysis using monthly online job postings data at the occupation-US state level in January 2020 { December 2020 together with data on fixed occupational characteristics and monthly measures of economic uncertainty in the US, which are apportioned to occupation-state pairs based on pre-Covid country-wide occupational employment shares. The analysis reveals that Covid-induced economic uncertainty increased the relative demand for occupations with relatively high non-routine cognitive analytical, non-routine cognitive interactive, and non-routine manual task content { especially when these are also non-essential, as well as occupations that have both relatively high non-routine cognitive analytical and social or interaction task content. This evidence is consistent with the secular phenomenon of routine-biased technological change resulting in job polarisation and the growing complementarity between analytical and social tasks, but also with its episodic aspect implying its acceleration during recessions. Additional evidence, however, shows that Covid-induced economic uncertainty decreased the relative demand for customer-oriented occupations (e.g. food service, personal care and service) and increased the relative demand for essential or contact-intensive occupations with relatively high routine manual or routine cognitive task content, as well as occupations that are both contact-intensive and essential or service-oriented (e.g. healthcare practice and support, protective service, community and social service). This evidence is rationalised by idiosyncratic features of the pandemic shock (e.g. major health crisis, social distancing, lockdown). Further research in this direction could help us to understand whether these effects are temporary or long-lasting.
    Keywords: Occupational demand; Occupational characteristics; Tasks; Online Job Postings; Covid-induced economic uncertainty; Covid-19; Pandemic
    JEL: E32 J23 J24 J63 O33
    Date: 2022–02–14
  78. By: Marcelo Álvez (Banco Central del Uruguay); Elizabeth Bucacos (Banco Central del Uruguay); Maximiliano Mateauda (Banco Central del Uruguay); Ernesto Pienika (Banco Central del Uruguay)
    Abstract: The latest statistical and methodological structure for Uruguay's National Accounts is defined with 2012 as the reference year. This important change allowed to update the Quarterly National Accounts (QNA) series for the period 2016-2020, taking 2016 as the base year. These changes entail a loss of consistency between the new National Accounts series (Basis 2016) and the old series (Basis 2005). This paper presents the backcasting for the Uruguayan GDP with annual and quarterly frequency from 2012 to 2015, which is consistent with the QAN series Basis 2016. Methodological improvements and broaden statistical coverage are incorporated, together with Supply and Use Tables (COU, in Spanish) for the years 2012 and 2016. Unlike the new series that cover from 2016 onwards, the backcasted time series for the period 2012-2015 cannot be considered a compilation of National Accounts because of its heavy reliance on statistical techniques.
    Keywords: quarterly national accounts, national accounts, backcasting, gross domestic product, time series
    JEL: C1 C8 E01 Y10
    Date: 2021
  79. By: Andrew T. Foerster (Federal Reserve Bank of San Francisco); Andreas Hornstein (Federal Reserve Bank of Richmond); Pierre-Daniel G. Sarte (Federal Reserve Bank of Richmond); Mark W. Watson (Princeton University and NBER)
    Abstract: We find disparate trend variations in TFP and labor growth across major U.S. production sectors and study their implications for the post-war secular decline in GDP growth. Capital accumulation and the network structure of U.S. production amplify the effects of sector-specific changes in the trend growth rates of TFP and labor on trend GDP growth. We summarize this amplification effect in terms of sectoral multipliers that, for some sectors, can exceed 3 times their value added shares in the economy. We estimate that sector-specific factors have historically accounted for approximately 3/4 of long-run changes in GDP growth, leaving common or aggregate factors to explain only 1/4 of those changes. Trend GDP growth fell by nearly 3 percentage points over the post war period with the Construction sector alone contributing roughly 1 percentage point of that decline between 1950 and 1980. Idiosyncratic changes to trend growth in the Durable Goods sector then contributed an almost 2 percentage point decline in trend GDP growth between 2000 and the end of our sample in 2018. Remarkably, no sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.
    Keywords: trend growth, sectoral linkages, investment network
    JEL: C32 E23 O41
    Date: 2021–04
  80. By: Gamber, William; Graham, James; Yadav, Anirudh
    Abstract: The COVID-19 pandemic induced an increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020. Lower mortgage rates explain around one third of the price rise, while unemployment shocks and fiscal stimulus have relatively small effects on house prices. We find that young households and first-time home buyers account for much of the increase in housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.
    Keywords: COVID-19; Pandemic; Stay at Home; Housing; House Prices; Consumption; Mortgage Interest Rates; Unemployment; Fiscal Stimulus
    Date: 2021–11
  81. By: Pincheira, Pablo; Hardy, Nicolas
    Abstract: In this paper, we propose a correlation-based test for the evaluation of two competing forecasts. Under the null hypothesis of equal correlations with the target variable, we derive the asymptotic distribution of our test using the Delta method. This null hypothesis is not necessarily equivalent to the null of equal Mean Squared Prediction Errors (MSPE). Specifically, it might be the case that the forecast displaying the lowest MSPE also exhibits the lowest correlation with the target variable: this is known as "The MSPE paradox" (Pincheira and Hardy; 2021). In this sense, our approach should be seen as complementary to traditional tests of equality in MSPE. Monte Carlo simulations indicate that our test has good size and power. Finally, we illustrate the use of our test in an empirical exercise in which we compare two different inflation forecasts for a sample of OECD economies. We find more rejections of the null of equal correlations than rejections of the null of equality in MSPE.
    Keywords: Forecasting, time-series, out-of-sample evaluation, mean squared prediction error, correlations.
    JEL: C52 C53 E31 E37 F37 G17
    Date: 2022–02–16
  82. By: Gene M. Grossman (Princeton University and NBER); Ezra Oberfield (Princeton University and NBER)
    Abstract: A vast literature seeks to measure and explain the apparent decline in the labor share in national income that has occurred in recent times in the United States and elsewhere. The culprits include technological change, increased globalization and the rise of China, the enhanced exercise of market power by large firms in concentrated product markets, the decline in unionization rates and the erosion in the bargaining power of workers in labor markets, and the changing composition of the workforce due to a slowdown in population growth and a rise in educational attainment. We review this literature, with special emphasis on the pitfalls associated with using cross-sectional data to assess this phenomenon and the reasons why the body of papers collectively explains the phenomenon many times over.
    Keywords: labor share, national income
    JEL: E01
    Date: 2021–08
  83. By: Couaillier, Cyril; Lo Duca, Marco; Reghezza, Alessio; Rodriguez d’Acri, Costanza
    Abstract: While regulatory capital buffers are expected to be drawn to absorb losses and meet credit demand during crises, this paper shows that banks were unwilling to do so during the pandemic. To the contrary, banks engaged in forms of pro-cyclical behaviour to preserve capital ratios. By employing granular data from the credit register of the European System of Central Banks, we isolate credit supply effects and find that banks with little headroom above regulatory buffers reduced their lending relative to other banks, also when controlling for a broad range of pandemic support measures. Firms’ inability to reallocate their credit needs to less constrained banks had real economic effects, as their headcount went down, although state guarantee schemes acted as partial mitigants. These findings point to some unintended effects of the capital framework which may create incentives for pro-cyclical behaviour by banks during downturns. They also shed light on the interactions between fiscal and prudential policies which took place during the pandemic. JEL Classification: E61, G01, G18, G21
    Keywords: bank lending, Buffer usability, coronavirus, credit register, macroprudential policy, MDA distance
    Date: 2022–02
  84. By: James B. Bullard
    Abstract: St. Louis Fed President James Bullard talked about economic growth, the labor market, the tapering of the Fed’s asset purchases and his interest rate expectations during a Fox Business interview.
    Keywords: economic outlook; labor market; tapering; interest rates
    Date: 2021–11–08
  85. By: John Mitchell (OECD); James Lewis (Office for National Statistics); Jorrit Zwijnenburg (OECD); Rachida Dkhissi (OECD); Thomas Prendergast (Office for National Statistics)
    Abstract: The measurement of non-market output, characterised by providing goods and services without economically significant prices, has always proved challenging for compilers of the National Accounts. Various approaches are available to meet these challenges, often resulting in slight differences in methodology between countries. Government policies, introduced in response to the coronavirus (COVID-19) pandemic exacerbated some of these existing differences, potentially influencing the GDP estimates across countries. This joint paper by the United Kingdom Office for National Statistics (ONS) and the Organisation for Economic Cooperation and Development (OECD) explains the methodological options available to statistical compilers and explores differences in methodologies used by countries to measure non-market output, analysing their implications for international comparisons of GDP growth during the COVID-19 pandemic.
    Keywords: COVID, education, GDP, National Accounts methodology, non-market output
    JEL: H51 H52 C82 E01
    Date: 2022–02–21
  86. By: Georgarakos, Dimitris; Kenny, Geoff
    Abstract: This paper introduces the Consumer Expectations Survey (CES), a new online, high frequency panel survey of euro area consumers’ expectations and behaviour. The paper also investigates whether public perceptions about fiscal support measures introduced during the pandemic have influenced spending behaviour. We show that simple and factual information treatments about government support policies that are communicated to random subsets of respondents can help improve consumers’ perceptions about the adequacy of fiscal interventions relative to the perceptions of an untreated control group. We find evidence that this improvement in beliefs has a causal effect on consumer spending, in particular raising spending on large items like holidays and cars. Moreover, we show that such beliefs also influence household expectations about own income prospects, future access to credit and financial sentiment, while they do not affect expectations about future taxes, implying no evidence of Ricardian effects in household behaviour. We find that perceptions affect spending also among households that did not receive any government support, suggesting that fiscal interventions can have broader consequences as they influence the behaviour of groups beyond the targeted ones. JEL Classification: D12, E21, H31
    Keywords: Consumer Expectations Survey, COVID-19, fiscal policy, household perceptions
    Date: 2022–02
  87. By: Belloc, Ignacio (University of Zaragoza); Molina, José Alberto (University of Zaragoza); Velilla, Jorge (University of La Rioja)
    Abstract: This paper examines whether workers living in rural areas are more likely to be self-employed, compared with those in urban areas. We provide evidence for 35 European countries, using the European Working Conditions Survey for the year 2015. We also study the time devoted to market work, and monthly earnings, of self-employed workers in rural and urban areas. Results show that workers in rural areas are more likely to be self-employed than workers in urban areas, although engaging in self-employment in rural areas is associated with significantly lower monthly incomes. We also report differences by welfare state regime. Self-employment is considered a key mechanism to compensate for the difficulty of developing in rural areas, and this paper shows that workers in rural areas in Europe are more likely to be self-employed, despite more challenging working conditions.
    Keywords: rural areas, self-employment, europe, earnings, work hour
    JEL: E24 L26 O18
    Date: 2022–02
  88. By: Rohit Patel (Northwestern University); Can Urgun (Princeton University)
    Abstract: Bureaucracy and influence activities consume a great deal of managers’ time and effort in an organization. These activities are surplus destroying in the sense that they produce no direct output or information. This paper suggests a positive role for these activities. We develop a model for allocation in internal capital markets that takes a mechanism design perspective and incorporates both costly inspection and money burning (e.g. bureaucracy, influence activities) as tools for the headquarters to pursue optimal allocations. We find that the optimal mechanism deploys both the instruments of costly inspection and money burning, often at the same time on an agent.
    Keywords: costly verification, money burning, capital budgeting, investment, bureaucracy, influence activities
    JEL: C72 D73 G31
    Date: 2021–08
  89. By: Mehdi El Herradi (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Aurélien Leroy (UB - Université de Bordeaux)
    Abstract: This paper examines the distributional effects of monetary policy in 12 OECD economies between 1920 and 2016. We exploit the implications of the macroeconomic policy trilemma with an external instrument approach to analyze how top income shares respond to monetary policy shocks. The results indicate that monetary tightening strongly decreases the share of national income held by the top 1 percent and vice versa for a monetary expansion, irrespective of the position of the economy. This effect (i) holds for the top percentile and the ultrarich (top 0.1 percent and 0.01 percent income shares), while (ii) it does not necessarily induce a decrease in income inequality when considering the entire income distribution. Our findings also suggest that the effect of monetary policy on top income shares is likely to be channeled via real asset returns.
    Date: 2021–12
  90. By: Sarandrea, Marco (University of Warwick)
    Abstract: This paper investigates intercohort income inequalities and Millennials’ impoverishment in Great Britain between 1991 and 2018, focusing on the regional heterogeneity of the phenomena. Results show that Millennials’ cohorts (1980-1984 and 1985-1989) are the first ever to experience intercohort income regressions and that inequalities are extremely diverse among regions. Each cohort’s monthly incomes are compared to the previous cohort’s for Great Britain, England’s macro-areas and for Government offices for the regions (GORs). In Great Britain, the 1980-1984 cohort loses £144 each month compared to the 1975-1979 cohort. The cohort-on-cohort income reduction increases to £297 for the 1985-1989 cohort. In Northern England, Millennials experience intercohort income regressions only for the 1985-1989 cohort. In Southern England, the 1985-1989 cohort sees a higher intercohort income regression than the 1980-1984 cohort in absolute terms (- £368 for 1980-1984 versus - £425 for 1985-1989). The same happens in the North (+ £68 for 1980-1984 versus - £407 for 1985-1989), whereas in the Midlands regressions are constant for both cohorts (- £151 for 1980-1984 and - £148 for 1985-1989). The 1980-1984 cohort undergoes a substantial cohort-on-cohort income loss only in four GORs, even enjoying income increases in three GORs.
    Keywords: Economic Geography ; Regional Inequality ; Spatial ; Intergenerational Income Distribution ; Intergenerational Mobility JEL Classification: R12 ; E24 ; J62
    Date: 2021
  91. By: Jaaidane, Touria; Musy, Olivier; Tallec, Ronan
    Abstract: We analyze the conflicts between French kings and the office-holders who were members of the venal French Parliaments throughout the 18th century using an implicit contract approach in which Parliamentarians protect their rents, the king pays a financial bonus to office holders and obtains their cooperation. Stopping payments or introducing a competing body of civil servants (the intendants) leads to retaliation. We use the model to produce an analytic narrative of the end of the French Ancien Régime. We provide an empirical test of our predictions, which supports the idea that the political opposition of Parliaments was mainly dependent on the reform agenda of the king on matters that would lead to a decline in their income and political power.
    Keywords: Rent-seeking; Rent-protection; Institutional Reform; French Ancien Régime; Parliaments; State Capacity
    JEL: D74 E62 H11 H3 K00 N43
    Date: 2022–02–21
  92. By: Karen Croxson; Jon Frost; Leonardo Gambacorta; Tommaso Valletti
    Abstract: Three types of digital platforms are expanding in financial services: (i) fintech entrants; (ii) big tech firms; and (iii) increasingly, incumbent financial institutions with platformbased business models. These platforms can dramatically lower costs and thereby aid financial inclusion – but these same features can give rise to digital monopolies and oligopolies. Digital platforms operate in multi-sided markets, and rely crucially on big data. This leads to specific network effects, returns to scale and scope, and policy trade-offs. To reap the benefits of platforms while mitigating risks, policy makers can: (i) apply existing financial, antitrust and privacy regulations, (ii) adapt old and adopt new regulations, combining an activity and entity-based approach, and/or (iii) provide new public infrastructures. The latter include digital identity, retail fast payment systems and central bank digital currencies (CBDCs). These public infrastructures, as well as ex ante competition rules and data portability, are particularly promising. Yet to achieve their policy goals, central banks and financial regulators need to coordinate with competition and data protection authorities.
    Keywords: financial inclusion, fintech, big tech, platforms
    JEL: E51 G23 O31
    Date: 2021–12
  93. By: Eszter Balogh; Adám Banai; Tirupam Goel; Péter Lang; Martin Stancsics; Előd Takáts; Álmos Telegdy
    Abstract: We assess the effects of non-repayable subsidies on financially constrained and unconstrained Hungarian SMEs. Using rejected subsidy applicants as control group and bank queries to the credit-registry to identify firms that applied for but did not receive a loan, we show that subsidies generate a sizeable incremental impact on asset growth of constrained firms relative to unconstrained businesses. This effect, however, is transitory and does not translate into higher sales, profitability or productivity. Financing, therefore, may not be the primary hurdle for these SMEs, and credit constraints may reflect other shortcomings, such as lack of good management or viable projects.
    Keywords: SMEs, subsidies, credit constraints, emerging market economies, difference-in-differences, credit registry micro-data
    JEL: G38 G21 E58
    Date: 2021–11
  94. By: Li, Xiang
    Abstract: This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a large firm-level dataset for four European countries, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Moreover, the impacts are stronger for innovation-intensive firms. We use firms' flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as the transmission mechanisms.
    Keywords: capital structure,corporate investment,debt maturity,economic policy uncertainty
    JEL: D81 G32
    Date: 2022
  95. By: Lindner, Vincent; Eckert, Sandra; Nölke, Andreas
    Abstract: There have been numerous attempts to reform the Economic and Monetary Union (EMU) after the Great Recession, however the reform success varies greatly among sub-fields. Additionally, the political science research community has engaged a diverse set of theory- driven explanations, causal mechanisms, and variables to explain respective reform success. This article takes stock of reform policies in the EMU from two angles. First, it outlines distinct theoretical approaches that seek to explain success and failure of reform proposals and second, it surveys how they explain policy output and policy outcome in four policy subfields: financial stabilization, economic governance, financial solidarity, and cooperative dissolution. Finally, the article develops a set of explanatory factors from the existing literature that will be used for a Qualitative Comparative Analysis (QCA).
    Keywords: Economic and Monetary Union,European integration,neoinstitutionalism,political economy,European Banking Union,European Capital Markets Union,economic governance,fiscal solidarity,policy reform
    Date: 2022
  96. By: Andrew Castro; David P. Glancy; Felicia Ionescu; Greg Marchal
    Abstract: The supply of bank credit is an important driver of macroeconomic outcomes, with significant implications for employment and output (Basset et al., 2014; Chodorow-Reich, 2014). However, studying credit supply is not straightforward for several reasons.
    Date: 2022–02–18
  97. By: Dake Li (Princeton University); Mikkel Plagborg-Møller (Princeton University); Christian K. Wolf (University of Chicago)
    Abstract: We conduct a simulation study of Local Projection (LP) and Vector Autoregression (VAR) estimators of structural impulse responses across thousands of data generating processes (DGPs), designed to mimic the properties of the universe of U.S. macroeconomic data. Our analysis considers various structural identification schemes and several variants of LP and VAR estimators, and we pay particular attention to the role of the researcher’s loss function. A clear bias-variance trade-off emerges: Because our DGPs are not exactly finite-order VAR models, LPs have lower bias than VAR estimators; however, the variance of LPs is substantially higher than that of VARs at intermediate or long horizons. Unless researchers are overwhelmingly concerned with bias, shrinkage via Bayesian VARs or penalized LPs is attractive.
    Keywords: external instrument, impulse response function, local projection, proxy variable, structural vector autoregression
    JEL: C32 C36
    Date: 2021–03
  98. By: Natacha Bourova (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UGA - Université Grenoble Alpes - IEPG - Sciences Po Grenoble - Institut d'études politiques de Grenoble - UGA - Université Grenoble Alpes); Jacques Fontanel (CESICE - Centre d'études sur la sécurité internationale et les coopérations européennes - UPMF - Université Pierre Mendès France - Grenoble 2 - IEPG - Sciences Po Grenoble - Institut d'études politiques de Grenoble)
    Abstract: GDP is the most widely used economic aggregate to compare, over time and space, the development of the national economy. International experts usually refer to this indicator to comment on the national economy. Its weight is important in determining the classification of countries according to their degree of development among developed countries. However, the limitations of GDP are both technical and conceptual. Real GDP (removing the effects of inflation) per capita does not refer to the productive and redistributive inequalities of economic actors. It does not include bad goods, pollution and it does not account for many free activities. The unique or dominant reference to GDP is dangerous. Economic actors should no longer be encouraged to go in the direction of an unsustainable form of growth. It is necessary to have indicators on democratic freedoms, citizen solidarity, cultural influence, the rise of the digital economy and artificial intelligence. It is also essential to count the negative effects of growth and their discounted costs, such as the definitive disappearance of certain raw materials, the influence of pollution on the people concerned and, in international relations, its effects on neighboring countries.
    Abstract: Le PIB est l'agrégat économique le plus largement utilisé pour comparer, dans le temps et dans l'espace, le développement de l'économie nationale. Les experts internationaux se réfèrent généralement à cet indicateur pour commenter l'économie nationale. Son poids est important pour déterminer la classification des pays en fonction de leur degré de développement entre pays développés. Cependant, les limites du PIB sont à la fois techniques et conceptuelles. Le PIB réel (en éliminant les effets de l'inflation) par habitant ne fait pas référence aux inégalités productives et redistributives des acteurs économiques. Il n'inclut pas les mauvais biens, la pollution et il ne comptabilise pas beaucoup d'activités gratuites. La référence unique ou dominante au PIB est dangereuse. Les acteurs économiques ne doivent plus être encouragés à aller dans le sens d'une forme de croissance non durable. Il est nécessaire d'avoir des indicateurs sur les libertés démocratiques, la solidarité citoyenne, le rayonnement culturel, l'essor de l'économie numérique et de l'intelligence artificielle. Il est également primordial de compter les effets négatifs de la croissance et leurs coûts actualisés, comme la disparition définitive de certaines matières premières, l'influence des pollutions sur les personnes concernées et, dans les relations internationales, leurs effets sur les pays voisins.
    Keywords: GDP,Sustainable development,public goods.,PIB,Développement durable,biens publics
    Date: 2021–12–14
  99. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
    Abstract: Die Erholung der deutschen Wirtschaft wird abermals ausgebremst. Das Infektionsgeschehen im Winterhalbjahr hemmt wie in früheren Wellen besonders die Aktivität in den kontaktintensiven Dienstleistungsbranchen. Im Ergebnis wird es zu einem Rückschlag bei den privaten Konsumausgaben kommen und wohl auch zu geringen Rückgängen beim Bruttoinlandsprodukt. Wenn die Belastungen seitens der Pandemie mit dem Frühjahr nachlassen, wird ähnlich wie im laufenden Jahr eine kräftige Erholung einsetzen. Die wirtschaftliche Aktivität dürfte dann auch deshalb besonders viel Schwung entfalten, weil die Lieferengpässe, die die Industrieproduktion derzeit massiv belasten, voraussichtlich nachlassen. Insgesamt wird die durch die Pandemie verursachte Delle im Erholungsprozess wohl größer ausfallen als wir in unserer Herbstprognose unterstellt hatten. Der Rückschlag wird aber bei Weitem nicht so gravierend sein, wie im vergangenen Winterhalbjahr. Im kommenden Jahr wird das Bruttoinlandsprodukt demzufolge mit 4 Prozent nicht so kräftig zulegen wie vor drei Monaten erwartet (5,1 Prozent), dafür aber im Jahr 2023 mit 3,3 Prozent deutlich stärker (Herbstprognose: 2,3 Prozent). Für das laufende Jahr zeichnet sich ein Anstieg von 2,6 Prozent ab. Die Inflation wird vorerst hoch bleiben, auch weil die Lieferengpässe weiterhin die Herstellungskosten erhöhen und das Konsumgüterangebot verknappen. Gleichzeitig haben die privaten Haushalte seit dem Beginn der Pandemie zusätzliche Ersparnisse in Höhe von rund 200 Mrd. Euro angehäuft und besitzen deshalb eine recht hohe Zahlungsbereitschaft. Der Verbraucherpreisanstieg wird sowohl im laufenden als auch im kommenden Jahr wohl bei rund 3 Prozent liegen, bevor er sich im Jahr 2023 wieder verringert. Das Defizit der öffentlichen Haushalte wird im kommenden Jahr aufgrund der nachlassenden Belastungen durch die Pandemie spürbar von 3,8 Prozent in Relation zum Bruttoinlandsprodukt im laufenden Jahr auf 1,8 Prozent sinken. Voraussichtlich werden die Haushalte jedoch auch das Jahr 2023 mit 1,4 Prozent noch deutlich im Defizit abschließen.
    Keywords: Weltwirtschaft,Fortgeschrittene Volkswirtschaften,Schwellenländer,Geldpolitik,Japan,Russland,ASEAN
    Date: 2021
  100. By: Evans, George; Gibbs, Christopher; McGough, Bruce
    Abstract: We propose and experimentally test a model of boundedly rational and heterogeneous expectations that unifies adaptive learning, k-level reasoning, and replicator dynamics. Level-0 forecasts evolve over time via adaptive learning. Agents revise over time their depth of reasoning in response to forecast errors, observed and counterfactual. The unified model makes sharp predictions for when and how fast markets converge in Learning-to-Forecast Experiments, including novel predictions for individual and market behavior in response to announced events. The experimental results support these predictions. Our unified model is developed in a simple framework, but can clearly be extended to more general macroeconomic environments.
    Keywords: expectations; adaptive learning; level-k reasoning; behavioral macroeconomics; experiments
    Date: 2021–11
  101. By: Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Pantin, Machel; Skerrette, Nyasha
    Abstract: This survey examines the economic performance of economies of the Caribbean in 2020 and the first few months of 2021 and comprises five chapters. The first chapter gives an overview of global, regional and subregional economic performance in the Caribbean. The second provides an analysis of the subregion’s fiscal performance and debt burden. The third looks at monetary policy and their impacts. The fourth is focused on the external sector, while the fifth concludes.
    Date: 2022–02–11
  102. By: Atif Mian (Princeton University and NBER); Ludwig Straub (Harvard University and NBER); Amir Sufi (Chicago Booth and NBER)
    Abstract: Downward pressure on the natural rate of interest (r∗) is often attributed to an increase in saving. This study uses microeconomic data from the SCF+ to explore the relative importance of demographic shifts versus rising income inequality on the evolution of saving behavior in the United States from 1950 to 2019. The evidence suggests that rising income inequality is the more important factor explaining the decline in r∗. Saving rates are significantly higher for high income households within a given birth cohort relative to middle and low income households in the same birth cohort, and there has been a large rise in income shares for high income households since the 1980s. The result has been a large rise in saving by high income earners since the 1980s, which is the exact same time period during which r∗ has fallen. Differences in saving rates across the working age distribution are smaller, and there has not been a consistent monotonic shift in income toward any given age group. Both findings challenge the view that demographic shifts due to the aging of the baby boom generation explain the decline in r∗.
    Keywords: savings, nature rate of interest, United States
    JEL: E40
    Date: 2021–08
  103. By: Guannan Miao; Enrico Wegner
    Abstract: In light of the need for detailed and timely internationally comparable trade price indices, this paper describes a multi-tiered methodology to mitigate many of the empirical challenges associated with using customs data, to provide more robust estimates of unit value indices (UVIs) by country and product. UVIs are available for both exports and imports, by reporting country and the CPA 2-digit level of classification. Although the approach cannot capture changes in the quality of products nor compositional changes happening at a lower than HS 6-digit classification, the results indicate that at higher levels of aggregation (SITC 1-digit level), estimated UVIs closely follow price changes obtained from other sources. This is observed both for products with significant and rapid quality changes, such as hi-tech products, and for products with a low rate of quality changes, such as commodities, other primary and low-tech goods. Furthermore, products where little quality change occurs over time show similarity between UVIs and price changes from other sources at lower levels of disaggregation. The methodology is used to produce the Merchandise Trade Price Index and the data is made publically available on .Stat under the International Trade and Balance of Payments heading.
    JEL: C43 C82 E31
    Date: 2022–02–17
  104. By: Markus Brueckner; Wensheng Kang; Joaquin Vespignani
    Abstract: This paper studies the role of capitalization on firms’ stock price growth in response to new cases of Covid-19 infections in the United States. Controlling for firm and time fixed effects, our panel model estimates show that the effect of new cases of Covid-19 infections on firms’ stock price growth is significantly increasing in capitalization: For each one standard deviation increase in capitalization, a one standard deviation increase in new cases of Covid-19 infections increases the weekly growth rate of firms’ stock prices by about 0.7 percentage points. Effects of capitalization on the impact that Covid-19 infections have on firms’ stock price growth are largest in the travel, tourism, and hospitality sector. Smaller but still positive effects of capitalization are present in the pharmaceutical products, high-tech, and banking and finance sectors.
    Keywords: Covid-19, performance of firms, stock market capitalization, US stock market
    JEL: G10 E30
    Date: 2021–12
  105. By: Natalie Cox (Princeton University); Ernest Liu (Princeton University); Daniel Morrison (Princeton University)
    Abstract: Do government-funded guarantees and interest rate caps primarily benefit borrowers or lenders under imperfect competition? We study how bank concentration impacts the effectiveness of these policy interventions in the small business loan market. Using data from the Small Business Administration's (SBA) Express Loan Program, we estimate a tractable model of bank competition with endogenous interest rates, loan size, and take-up. We introduce a novel methodology that exploits loan "bunching" in the two dimensional contract space of loan size and interest rates, utilizing a discontinuity in the SBA's interest rate cap. In concentrated markets, we find that a modest decrease in the cap would increase borrower surplus by up to 1.5%, despite the rationing of some loans. In concentrated markets with a 50% loan guarantee, each government dollar spent raises borrower surplus by $0.64, boosts lender surplus by $0.34, and generates $0.02 of deadweight loss.
    Keywords: government, small business, loans, interest rates
    JEL: H81 E43
    Date: 2021–08
  106. By: Valentina Duque; Lauren L. Schmitz
    Abstract: We show that earnings over the life cycle and health and productivity around retirement age vary with exposure to economic conditions in early life. Using state-year-level variation from the most severe and prolonged economic downturn in American history \'96 the Great Depression '96 combined with restricted microdata from the Health and Retirement Study, we find that changes in macroeconomic indicators during the in utero period and early childhood are associated with changes in accumulated earnings, human capital, metabolic syndrome, and physical limitations decades later. After evaluating changes in endogenous fertility responses and mortality rates for Depression-era birth cohorts in the U.S. Census and Vital Statistics Death Records, we conclude that these effects likely represent lower-bound estimates of the true impacts of the economic shock on aging outcomes. Our results could help inform the design of retirement and healthcare systems and pinpoint the long-term costs of business cycles.
    Date: 2021–12
  107. By: Coremberg, Ariel Alberto; Lardé, Jeannette; Sánchez, Ricardo J.; Sanguinetti, Juan
    Abstract: Existe evidencia de que la inversión fomenta el crecimiento económico, con lo cual, se generan mayores recursos al Estado. La cuantía de esta mayor recaudación fiscal depende de diversas condiciones, entre ellas, el momento en que se encuentre el ciclo económico. De acuerdo con la evidencia empírica, el multiplicador de la inversión tiende a ser mayor en condiciones recesivas. Por lo que el actual contexto de pandemia por COVID-19 sería un escenario propicio para potenciar el efecto que la inversión en infraestructura tiene sobre el crecimiento. Este documento presenta una revisión teórica y una sección metodológica cuyo objetivo es el de proponer un procedimiento que permita evaluar en qué medida un aumento de la inversión en infraestructura entrega mayores recursos al Estado.
    Date: 2021–12–23
  108. By: Gregor Jarosch (Princeton University and NBER); Jan Sebastian Nimczik (ESMT Berlin and IZA); Isaac Sorkin (Stanford University and NBER)
    Abstract: We develop a model where labor market structure affects the division of surplus between firms and workers. In a model of random search and large employers, workers might apply to another job controlled by the same employer in the future. This possibility endows firms with size-based market power. The reason is that outside options are truly outside the firm: firms do not compete with their own vacancies. Hence, a worker’s outside option is worse when bargaining with a larger firm, and wages depend on market structure. We calibrate the model to Austrian data and find that such size-based market power depresses wages.
    Keywords: labor market, labor economics
    JEL: E20 J01
    Date: 2021–07
  109. By: Sebastian Gechert (Macroeconomic Policy Institute (IMK)); Philipp Heimberger (Vienna Institute for International Economic Studies (wiiw))
    Abstract: The empirical literature on the impact of corporate taxes on economic growth reaches ambiguous conclusions: corporate tax cuts increase, reduce, or do not significantly affect growth. We apply meta-regression methods to a novel dataset with 441 estimates from 42 primary studies. There is evidence for publication selectivity in favour of reporting growth-enhancing effects of corporate tax cuts. Correcting for this bias, we cannot reject the hypothesis of a zero effect of corporate taxes on growth. Several factors influence reported estimates, including researcher choices concerning the measurement of growth and corporate taxes, and controlling for other budgetary components.
    Keywords: Corporate income taxes, economic growth, meta-analysis
    JEL: E60 H25 O40
    Date: 2021
  110. By: Yulivan, Ivan
    Abstract: The impact of the COVID-19 pandemic has prompted the government to carry out social assistance programs. The purpose of this study is to analyze Universal Basic Income as a response to the COVID-19 pandemic which can simultaneously strengthen economic defenses in Indonesia as a form of peace dividends. This research uses the literature study method to previous relevant research strategy theory by identifying ends, ways, and means. The results of this study support universal basic income as a policy (ways) to deal with the crisis due to COVID-19 pandemic. UBI can provide an increase in Indonesia's economic growth and empower Indonesian people to be better prepared to face risks, which will lead people to innovate more. UBI can also strengthen the defense economy in Indonesia because by reducing poverty, unemployment and social inequality, the crime rate caused by the economy will decrease, human resources will increase, and community relations will be stronger (ends). The resources (Means) needed to implement UBI in Indonesia are the budget, existing regulations, human resources (HR), and the latest Indonesia’s population data.
    Date: 2021–12–27

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