nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒04‒11
109 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Job Ladder and Business Cycles By Felipe Alves
  2. Optimal Monetary Policy with r* By Roberto M. Billi; Jordi Galí; Anton Nakov
  3. The Central Bank Strikes Back! Credibility of Monetary Policy under Fiscal Influence By Antoine Camous; Dmitry Matveev
  4. Household Heterogeneity and the Performance of Monetary Policy Frameworks By Edouard Djeutem; Mario He; Abeer Reza; Yang Zhang
  5. From Low to High Inflation: Implications for Emerging Market and Developing Economies By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  6. From low to high inflation: Implications for emerging market and developing economies By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  7. Disinflation Policies with a Flat Phillips Curve By Marco Del Negro; Aidan Gleich; Shlok Goyal; Alissa Johnson; Andrea Tambalotti
  8. Fiscal policy in the COVID-19 era By Chris Murphy
  9. A New Claims-Based Unemployment Dataset: Application to Postwar Recoveries Across U.S. States By Fieldhouse, Andrew; Howard, Sean; Koch, Christoffer; Munro, David
  10. Bullard Speaks with Wharton about Inflation, Policy Rate, Fed Balance Sheet By James B. Bullard
  11. Monetary policy trade-offs at the zero lower bound By Stefano Eusepi; Christopher G. Gibbs; Bruce Preston
  12. Debt Decomposition and the Role of Inflation: A Security Level Analysis for India By Piyali Das; Chetan Ghate
  13. Inflation Levels and (In)Attention By Anat Bracha; Jenny Tang
  14. A New Approach to Assess Inflation Expectations Anchoring Using Strategic Surveys By Olivier Armantier; Argia M. Sbordone; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
  15. Causal effects of the Fed's large-scale asset purchases on firms' capital structure By Nocera, A.; Pesaran, M. H.
  16. Making sovereign debt safe with a financial stability fund By Yan Liu; Ramon Marimon; Adrien Wicht
  17. To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability By António Afonso; José Alves; João Tovar Jalles
  18. Bullard Speaks with Bloomberg about Raising Rates, Balance Sheet Runoff By James B. Bullard
  19. Forecasting Inflation in France: an Update of MAPI By Youssef Ulgazi; Paul Vertier
  20. Monetary policy in South Africa, 2007-21 By Patrick Honohan; Athanasios Orphanides
  21. Macroeconomic Predictions Using Payments Data and Machine Learning By James Chapman; Ajit Desai
  22. Alternative uses of functional finance: Lerner, MMT and the Sraffiansh By Summa, Ricardo de Figueiredo
  23. Fiscal policy after the crisis: What role for fiscal policy in times of crisis, low interest rates and high public debts? By Heise, Arne
  24. The Effects of Natural Disasters on Price Stability in the Euro Area By John Beirne; Yannis Dafermos; Alexander Kriwoluzky; Nuobu Renzhi; Ulrich Volz; Jana Wittich
  25. Exorbitant Privilege? Quantitative Easing and the Bond Market Subsidy of Prospective Fallen Angels By Viral V. Acharya; Ryan N. Banerjee; Matteo Crosignani; Tim Eisert; Renée Spigt
  26. How to Limit the Spillover from the 2021 Inflation Surge to Inflation Expectations? By Lena Dräger; Michael J. Lamla; Damjan Pfajfar
  27. Central Bank Digital Currency in a Developing Economy: A Dynamic Stochastic General Equilibrium Analysis By Rivera Moreno, Pablo Nebbi; Triana Montaño, Karol Lorena
  28. What’s behind Okun’s law? A multiple equation approach to the Uruguayan labour market. By M. Sylvina Porras-Arena; Mauricio A. Suárez Cal
  29. Central bank digital currency with heterogeneous bank deposits By Remo Nyffenegger
  30. Resolution of Final Crises By Sebastián Fanelli; Martín Gonzalez-Eiras
  31. 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
  32. Drivers of Inflation: The New York Fed DSGE Model’s Perspective By Marco Del Negro; Aidan Gleich; Shlok Goyal; Alissa Johnson; Andrea Tambalotti
  33. A Cautionary Tale of Fat Tails By Chetan Dave; Scott J. Dressler; Samreen Malik
  34. Real Exchange Rate Misalignment and Business Cycle Fluctuations in Asia and the Pacific By Ambaw, Dessie; Pundit, Madhavi; Ramayandi, Arief; Sim, Nicholas
  35. Propuestas de política fiscal orientada al cierre de brechas de género By Ximena Cadena; Martha Elena Delgado; Susana Martínez-Restrepo
  36. Most probable or more prudent? Analysing CFP's macroeconomic projections, 2015-2019 By Nuno Goncalves
  37. Quantitative forward guidance through interest rate projections By Boris Hofmann; Dora Xia
  38. Unconventional Monetary Policy in the Euro Area. Impacts on Loans, Employment, and Investment By António Afonso; Francisco Gomes Pereira
  39. Removing Monetary Policy Accommodation By James B. Bullard
  40. Ciclos económicos y financieros: Una aproximación empírica para Bolivia By Santander Quino, Camila Miriam
  41. On the optimal design of a financial stability fund By Árpád Ábrahám; Eva Cárceles-Poveda; Yan Liu; Ramon Marimon
  42. Calibrating the countercyclical capital buffer for Italy By Pierluigi Bologna; Maddalena Galardo
  43. Federal Reserve Structure and Economic Ideas By Michael D. Bordo; Edward Simpson Prescott
  44. Besides promising economic growth, will the Italian NRRP also produce fewer emissions? By Ilenia Romani; Marzio Galeotti; Alessandro Lanza
  45. Monetary Policy and the Run Risk of Loan Funds By Nicola Cetorelli; Gabriele La Spada; João A. C. Santos
  46. Serial Entrepreneurship in China By Loren Brandt; Ruochen Dai; Gueorgui Kambourov; Kjetil Storesletten; Xiaobo Zhang
  47. Fertility and Savings: The Effect of China’s Two-Child Policy on Household Savings By Scott R. Baker; Efraim Benmelech; Zhishu Yang; Qi Zhang
  48. Transferencias de ingresos entre actividades productivas en Uruguay (1955-2019). Estabilidad, cambio y creciente dispersión. By Carolina Román; Henry Willebald
  49. How Does Monetary Policy Affect Prices of Corporate Loans? By Seung Kwak
  50. Place-Based Consequences of Person-Based Transfers: Evidence from Recessions By Brah J. Hershbein; Bryan A. Stuart
  51. How do Workers Learn? Theory and Evidence on the Roots of Lifecycle Human Capital Accumulation By Xiao Ma; Alejandro Nakab; Daniela Vidart
  52. Pareto-Improving Optimal Capital and Labor Taxes By Katharina Greulich; Sarolta Laczó; Albert Marcet
  53. Bullard Discusses Fed’s Response to Inflation during AIC Remarks By James B. Bullard
  54. Automation and the fall and rise of the servant economy By Krenz, Astrid; Strulik, Holger
  55. Global Issues, Global Implications By John C. Williams
  56. It is not la vie en rose. New insights from Graziani’s theory of monetary circuit By Marco Veronese Passarella
  57. How useful is external information from professional forecasters? Conditional forecasts in large factor models By Hauber, Philipp
  58. Optimal Nonlinear Savings Taxation By Brendon, C.
  59. Don’t let me down: unemployment insurance in the United States By Francesco Spadafora
  60. Labor Substitutability among Schooling Groups By Mark Bils; Barış Kaymak; Kai-Jie Wu
  61. Learning from distant cousins? Post-Keynesian Economics, Comparative Political Economy and the growth models approach By Engelbert Stockhammer; Karsten Kohler
  62. Public Debt and Economic Growth By Puonti, Päivi
  63. Changes, Challenges and Implications of Fiscal and Monetary Policy Directions in the Post Pandemic Era By An, Sungbae
  64. The Finance-Growth Nexus in Europe: A Comparative Meta-Analysis of Emerging Markets and Advanced Economies By Ono, Shigeki; Iwasaki, Ichiro; 岩﨑, 一郎
  65. On the design of a european unemployment insurance system By Árpád Ábrahám; João Brogueira de Sousa; Ramon Marimon; Lukas Mayr
  66. Fiskalische Spielräume für eine offensive Wohnungsbaupolitik By Heine, Michael; Herr, Hansjörg
  67. Does Economic Insecurity Reduce all Types of Expenditures? By Lepinteur, Anthony; Yin, Rémi
  68. The Ownership of Oil, Democracy, and Iraq's Past, Present and Future. By Weshah Razzak
  69. Professionals Forecasting Inflation: The Role of Inattentiveness and Uncertainty By Easaw, Joshy; Golinelli, Roberto; Heravi, Saeed
  70. Asia Digital Common Currency as a Global (International) Currency By Wataru Takahashi; Taiji Inui
  71. Simple Models and Biased Forecasts By Pooya Molavi
  72. Objectified Housing Sales and Rent Prices in Representative Household Surveys: the Impact on Macroeconomic Statistics By Denisa Naidin; Sofie R. Waltl; Michael Ziegelmeyer
  73. Real-time nowcasting with sparse factor models By Hauber, Philipp
  74. Effects of Policy Mix on European Regional Convergence By Ignacio Sacristán López-Bravo; Carlos San Juan Mesonada
  75. High-Dimensional Dynamic Stochastic Model Representation By Aryan Eftekhari; Simon Scheidegger
  76. Charging the macroeconomy with an energy sector: an agent-based model By Ciola, Emanuele; Turco, Enrico; Gurgone, Andrea; Bazzana, Davide; Vergalli, Sergio; Menoncin, Francesco
  77. Capital Flows and the Eurozone's North-South Divide By Karsten Kohler
  78. Foreign Direct Investment, Information Technology and Total Factor Productivity Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  79. Central Bank Liquidity Facilities and Market Making By David Cimon; Adrian Walton
  80. Russia’s Invasion of Ukraine: Assessment of the Humanitarian, Economic and Financial Impact in the Short and Medium Term By Vasily Astrov; Mahdi Ghodsi; Richard Grieveson; Mario Holzner; Michael Landesmann; Olga Pindyuk; Robert Stehrer; Maryna Tverdostup
  81. Covid19 and Unpaid Care Economy: Evidence on Fiscal Policy and Time Allocation in India. By Chakraborty, Lekha
  82. Planned Fiscal Consolidation and Under-Estimated Multipliers: Revisiting the Evidence and Relevance for the Euro Area By Daniel Gros; Alessandro Liscai; Farzaneh Shamsfakhr
  83. Equilibrium in Two-Sided Markets for Payments: Consumer Awareness and the Welfare Cost of the Interchange Fee By Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
  84. How Have the Euro Area and U.S. Labor Market Recoveries Differed? By Thomas Klitgaard
  85. Inflation and income inequality: Does the level of income inequality matter? By Edmond Berisha; Ram Sewak Dubey; Orkideh Gharehgozli
  86. Revisiting the Great Ratios Hypothesis By Chudik, A.; Pesaran, M. H.; Smith, R. P.
  87. Monopsony in the U.S. Labor Market By Chen Yeh; Claudia Macaluso; Brah J. Hershbein
  88. Stablecoins and Central Bank Digital Currencies: Policy and Regulatory Challenges By Barry Eichengreen; Ganesh Viswanath-Natraj
  89. MultiATSM: An R Package for Arbitrage-free Multicountry Affine Term Structure of Interest Rates Models with Unspanned Macroeconomic Risk By Moura, Rubens
  90. Macro-economic Impacts of the COVID-19 Pandemic on Mongolia’s Economy: CGE Analysis with the GTAP 10a Data Base By Enkhbayar Shagdar
  91. The economic implications of Smart Specialisation governance: a general equilibrium analysis for Italy 2014-2020 By Carlo Gianelle; Fabrizio Guzzo; Javier Barbero; Simone Salotti
  92. Is the Age Structure of the Population One of the Determinants of the Household Saving Rate in China? A Spatial Panel Analysis of Provincial Data By Jingwen Yin; Charles Yuji Horioka
  93. Besides promising economic growth, will the Italian NRRP also produce fewer emissions? By Romani, Ilenia; Galeotti, Marzio; Lanza, Alessandro
  94. The Inequality (or the Growth) We Measure: Data Gaps and the Distribution of Incomes By Alvaredo, Facundo; De Rosa, Mauricio; Flores, Ignacio; Morgan, Marc
  95. Interesting Times By Patrick T. Harker
  96. Covid-19 and the Dilemma of the Developing Countries By Hinh T. Dinh
  97. Sovereign bonds since Waterloo By Meyer, Josefin; Reinhart, Carmen M.; Trebesch, Christoph
  98. Stopp russischer Energieeinfuhren würde deutsche Wirtschaft spürbar treffen, Fiskalpolitik wäre in der Verantwortung By Christian Bayer; Alexander Kriwoluzky; Fabian Seyrich
  99. The paradox of governance and natural resource rents in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  100. New historical estimates of the human development index By Luis Bertola; Laura Gatti
  101. Risk-Sharing and Entrepreneurship By Kilström, Matilda; Roth, Paula
  102. The global inequality boomerang By Ravi Kanbur; Eduardo Ortiz-Juarez; Andy Sumner
  103. Informality, Consumption Taxes and Redistribution By Anders Jensen; Pierre Bachas; Lucie Gadenne
  104. History of disinvestment in India: 1991-2020. By Banerjee, Sudipto; Sane, Renuka; Sharma, Srishti; Suresh, Karthik
  105. A measure of well-being efficiency based on the World Happiness Report By Sarracino, Francesco; O'Connor, Kelsey J.
  106. Informal Loans in Thailand: Stylized Facts and Empirical Analysis By Pim Pinitjitsamut; Wisarut Suwanprasert
  107. Association between Time Use Behaviour and Health and Well Being among Elderly: Evidence from the Longitudinal Ageing Study of India By Suresh Sharma; Jyoti Chaudhary
  108. Social Cost Benefit Analysis of the no recourse to public funds (NRPF) policy in London By Benton, Eleanor; Karlsson, Jacob; Pinter, Ilona; Provan, Bert; Scanlon, Kathleen; Whitehead, Christine M E
  109. Had Keynes Read More Veblen: The Imperative of a Scientific Theory of Human Behavior By Jon D. Wisman

  1. By: Felipe Alves
    Abstract: I build a Heterogeneous Agents New Keynesian model with rich labor market dynamics. Workers search both off- and on-the-job, giving rise to a job ladder, where employed workers slowly move toward more productive and better paying jobs through job-to-job transitions, while negative shocks occasionally throw them back into unemployment. The state of the economy includes the distribution of workers over wealth, labor earnings and match productivities. In the wake of an adverse financial shock calibrated to mimic the US Great Recession unemployment dynamics, firms reduce hiring, causing the job ladder to all but “stop working.” This leaves wages stagnant for several years, triggering a sharp contraction and slow recovery in consumption and output. On the supply side, the slow pace in worker turnover leaves workers stuck at the bottom of the ladder, effectively cutting labor productivity growth in the aggregate. The interaction between weak demand and low productivity leads to inflation dynamics that resemble the missing disinflation of that period.
    Keywords: Business fluctuations and cycles; Inflation and prices; Labour markets; Productivity
    JEL: D31 D52 E24 E32
    Date: 2022–03
  2. By: Roberto M. Billi; Jordi Galí; Anton Nakov
    Abstract: We study the optimal monetary policy problem in a New Keynesian economy with a zero lower bound (ZLB) on the nominal interest rate, and in which the steady state natural rate (r*) is negative. We show that the optimal policy aims to approach gradually a steady state with positive average inflation. Around that steady state, inflation and output fluctuate optimally in response to shocks to the natural rate. The central bank can implement that optimal outcome by means of an appropriate state-contingent rule, even though in equilibrium the nominal rate remains at zero most (or all) of the time. In order to establish that result, we derive sufficient conditions for local determinacy in a more general model with endogenous regime switches.
    Keywords: zero lower bound, New Keynesian model, decline in r*, equilibrium determinacy, regime switching models, secular stagnation
    JEL: E32 E52
    Date: 2022–03
  3. By: Antoine Camous; Dmitry Matveev
    Abstract: How should independent central banks react if pressured by fiscal policymakers? We study an environment with strategic monetary-fiscal interactions where the central bank has a limited degree of commitment to follow policies over time and the fiscal authority has none. We contrast the implications of two monetary frameworks: one where the central bank follows a standard rule aiming exclusively at price stability against the other, where monetary policy additionally leans against fiscal influence. The latter rule improves economic outcomes by providing appropriate incentives to the fiscal authority. More importantly, the additional fiscal conditionality can enhance the credibility of the central bank to achieve price stability. We emphasize how the level and structure of government debt emerge as key factors affecting the credibility of monetary policy with fiscal conditionality.
    Keywords: Credibility; Fiscal policy; Monetary policy
    JEL: E02 E52 E58 E61 E62
    Date: 2022–03
  4. By: Edouard Djeutem; Mario He; Abeer Reza; Yang Zhang
    Abstract: We compare the performance of alternative monetary policy frameworks (inflation targeting, average inflation targeting, price level targeting and nominal GDP level targeting) in a tractable HANK model where incomplete financial markets and idiosyncratic earnings risk introduce precautionary savings and consumption inequality. Financial market incompleteness generates an additional source of societal welfare loss due to cyclical fluctuations in inequality on top of those from inflation and output volatility. We find that history-dependent policies are preferred in this framework. However, if central banks put a high weight on curbing inequality, AIT and IT can be preferred over PLT.
    Keywords: Monetary policy framework; Monetary policy transmission; Monetary policy and uncertainty; Economic models
    JEL: D31 D52 E21 E31 E58
    Date: 2022–03
  5. By: Jongrim Ha (World Bank); M. Ayhan Kose (World Bank; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (World Bank; CEPR; CAMA)
    Abstract: Recent energy and food price surges, in the wake of Russia’s invasion of Ukraine, have exacerbated inflation pressures that are unusually high by the standards of the past two decades. High and rising inflation has prompted many emerging market and developing economy (EMDE) central banks and some advanced-economy central banks to increase interest rates. Inflation is expected to ease back towards targets over the medium-term as recent shocks unwind, but the 1970s experience is a reminder of the material risks to this outlook. As inflation remains elevated, the risk is growing that, to bring inflation back to target, advanced economies need to undertake a much more forceful monetary policy response than currently anticipated. If this risk materializes, it would imply additional increases in borrowing costs for EMDEs, which are already struggling to cope with elevated inflation at home before the recovery from the pandemic is complete. EMDEs need to focus on calibrating their policies with macroeconomic stability in mind, communicating their plans clearly, and preserving and building their credibility.
    Keywords: Global Inflation; Commodity Price; War in Ukraine; Global Recession; Great Inflation; Monetary Policy Tightening.
    JEL: E31 E32 E37 Q43
    Date: 2022–03
  6. By: Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
    Abstract: Recent energy and food price surges, in the wake of Russia’s invasion of Ukraine, have exacerbated inflation pressures that are unusually high by the standards of the past two decades. High and rising inflation has prompted many emerging market and developing economy (EMDE) central banks and some advanced-economy central banks to increase interest rates. Inflation is expected to ease back towards targets over the medium-term as recent shocks unwind, but the 1970s experience is a reminder of the material risks to this outlook. As inflation remains elevated, the risk is growing that, to bring inflation back to target, advanced economies need to undertake a much more forceful monetary policy response than currently anticipated. If this risk materializes, it would imply additional increases in borrowing costs for EMDEs, which are already struggling to cope with elevated inflation at home before the recovery from the pandemic is complete. EMDEs need to focus on calibrating their policies with macroeconomic stability in mind, communicating their plans clearly, and preserving and building their credibility.
    Keywords: Global Inflation, Commodity Price, War in Ukraine, Global Recession, Great Inflation, Monetary Policy Tightening
    JEL: E31 E32 E37 Q43
    Date: 2022–04
  7. By: Marco Del Negro; Aidan Gleich; Shlok Goyal; Alissa Johnson; Andrea Tambalotti
    Abstract: Yesterday’s post analyzed the drivers of the surge in inflation over the course of 2021 through the lens of the New York Fed DSGE model. In today’s post, we use the model to study how alternative monetary policy strategies might contribute to bringing inflation back down to 2 percent. Our main finding is that there is no monetary silver bullet. Due to a flat Phillips curve—a well–documented feature of the economic environment of the last three decades—monetary policy can only achieve faster disinflation at a considerable cost in terms of forgone economic activity. This is true regardless of the systematic approach followed by the central bank in the model to pursue its objective.
    Keywords: DSGE; inflation; macroeconomics; monetary policy
    JEL: E2 E52
    Date: 2022–03–02
  8. By: Chris Murphy
    Abstract: This paper analyses the COVID recession and the large fiscal policy response by modelling three scenarios using a macro-econometric model. Scenario comparisons show that the recession mainly arose from restrictions on certain consumer services to limit the spread of COVID-19. The large fiscal response to compensate for the income losses in the restricted industries meant that unemployment was 2 to 3 percentage points lower in 2021-22 and 2022-23 than otherwise would have been the case. However, there was over-compensation: for every $1 of income the private sector lost due to the restrictions, fiscal policy provided $2 of compensation. With the lifting of restrictions, the economy recovered, but the aftereffects of over-compensation generate excess demand driving inflation to a forecast peak of about 6 per cent in 2022 and 2023. Overcompensation can also have disincentive effects, as seen in the three forms of overcompensation in the JobKeeper program that led the fiscal response. The primary lesson for future pandemics is that fiscal policy should compensate, but not overcompensate, for income losses from health restrictions, both in aggregate and at the program level. The secondary lesson is that monetary policy needs to take more account of the stimulus already provided by the fiscal response, so that interest rates do not remain very low for too long.
    Keywords: fiscal policy, COVID, econometric modelling, macroeconomic outlook, JobKeeper
    JEL: E37 E62 E63 H32 H68
    Date: 2022–03
  9. By: Fieldhouse, Andrew; Howard, Sean; Koch, Christoffer; Munro, David
    Abstract: Using newly digitized unemployment insurance claims data we construct a historical monthly unemployment series for U.S. states going back to January 1947. The constructed series are highly correlated with the Bureau of Labor Statics' state-level unemployment data, which are only available from January 1976 onwards, and capture consistent patterns in the business cycle. We use our claims-based unemployment series to examine the evolving pace of post-war unemployment recoveries at the state level. We find that faster recoveries are associated with greater heterogeneity in the recovery rate of unemployment and slower recoveries tend to be more uniformly paced across states. In addition, we find that the pace of unemployment recoveries is strongly correlated with a states' manufacturing share of output.
    Keywords: State-Level Unemployment Rates,Unemployment Insurance,Economic Recoveries,Regional Business Cycles
    JEL: C82 E24 E32 J64 J65 R11
    Date: 2022
  10. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed inflation expectations, monetary policy accommodation removal and unemployment during an interview with Wharton Business Radio’s Behind the Markets program.
    Keywords: inflation; monetary policy; unemployment
    Date: 2022–02–25
  11. By: Stefano Eusepi; Christopher G. Gibbs; Bruce Preston
    Abstract: We study zero interest-rate policy in response to a large negative demand shock when long-run inflation expectations can fall over time. Because falling expectations make monetary policy less effective by raising real interest rates, the optimal forward guidance policy makes large front-loaded promises to stabilize expectations. Policy is too stimulatory in the event of transitory shocks, but provides insurance against persistent shocks. Optimal policy is well-approximated by a constant calendar-based forward guidance, independent of the shock’s realized persistence. This insurance principle qualitatively and quantitatively distinguishes our paper from other recent research on bounded rationality and the forward guidance puzzle.
    Keywords: Optimal Monetary Policy, Learning Dynamics, Expectations Stabilization, Forward Guidance
    JEL: E32 D83 D84
    Date: 2022–03
  12. By: Piyali Das; Chetan Ghate (Institute of Economic Growth, Delhi University, Delhi)
    Abstract: In this paper, to study India’s debt dynamics, we assemble a novel data-set on Indian public debt with consistently defined aggregate annual components from 1951–2018, and Centre-State security level data from 2000–2018. Based on aggregate debt data, we quantify the contribution of inflation, real GDP growth, nominal interest rates and primary deficit/surplus towards India’s debt-dynamics. We find that inflation is an important component in financing India’s government debt historically. From the security level data, using the Hall-Sargent methodology, we find that nominal returns on the marketable and non-marketable portions of the Centre’s debt account for the highest contribution towards changes in public debt. Our paper helps inform the debate on the adoption of flexible inflation targeting in India.
    Keywords: Debt Decomposition, Fiscal Dominance, Indian Economy, Flexible Inflation Targeting, Public Debt in EMDEs.
    JEL: E62 E65 E52 G12 G28
    Date: 2022–02–01
  13. By: Anat Bracha; Jenny Tang
    Abstract: Inflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This paper explores evidence of inattention by constructing two different measures of consumers’ inattention and documents greater inattention when inflation is low. This suggests that there is indeed a risk of an acceleration in the increases in inflation expectations if actual inflation remains high.
    Keywords: inattention; inflation expectations; expectation anchoring
    JEL: D80 E31 E70
    Date: 2022–01–01
  14. By: Olivier Armantier; Argia M. Sbordone; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
    Abstract: We propose a new approach to assessing the anchoring of inflation expectations using “strategic surveys.” Namely, we measure households’ revisions in long-run inflation expectations after they are presented with different economic scenarios. A key advantage of this approach is that it provides a causal interpretation in terms of how inflation events affect long-run inflation expectations. We implement the method in the summer of 2019 and the spring-summer of 2021 when the anchoring of long-run inflation expectations was in question. We find that the risk of unanchoring of expectations was reasonably low in both periods, and that long-run inflation expectations were essentially as well anchored in August 2021 as in July 2019, before the COVID-19 pandemic.
    Keywords: inflation; expectations; anchoring; strategic surveys
    JEL: D12 D84 E31 E52
    Date: 2022–02–01
  15. By: Nocera, A.; Pesaran, M. H.
    Abstract: This paper investigates the short- and long-term impacts of the Federal Reserve’s large-scale asset purchases (LSAPs) on the capital structure of U.S. non-financial firms. To isolate the effects of LSAPs from the impact of concurrent macroeconomic conditions, we exploit cross-industry variations in the ability of firms therein to raise external funds without exhausting their debt capacity. We show that firms’ responses to LSAPs strongly depend on the financing decisions of other peers in the same industry. The higher the proportion of firms without high debt burdens in an industry, the stronger the response of firms within the industry to the Fed’s asset purchases. Overall, our results show that LSAPs facilitated firms’ access to debt financing and that the impacts of LSAPs on firms’ capital structure are likely to be long-lasting.
    Keywords: Capital structure, identification, interactive effects, leverage, quantitative easing, unconventional monetary policy
    JEL: G32 E44 E52 E58
    Date: 2022–04–05
  16. By: Yan Liu; Ramon Marimon; Adrien Wicht
    Abstract: We develop an optimal design of a Financial Stability Fund that coexists with the international debt market. The sovereign can borrow long-term defaultable bonds on the private international market, while having with the Fund a long-term contingent contracts subject to limited enforcement constraints. There is a contract that minimizes the debt absorbed by the Fund, guaranteeing full debt stabilization. In equilibrium, the seniority of the Fund contract, with respect to the privately held debt, is irrelevant. We calibrate our model to the Italian economy and show it would have been a more efficient path of debt accumulation with the Fund.
    Keywords: recursive contracts, limited enforcement, debt stabilisation, Debt Overhang, safe assets, seniority structure
    JEL: E43 E44 E47 E62 F34 F36 F37
    Date: 2022–03
  17. By: António Afonso; José Alves; João Tovar Jalles
    Abstract: We assess the specific need (or its absence) of a country to implement a fiscal consolidation programme by focusing specifically on their degree of success, notably in terms of fiscal sustainability. The “need” to consolidate is based on having a primary balance above or below the debt-stabilizing primary balance (provided by the IMF’s Debt Sustainability Analysis) for each country. We then link the need for and the actual (historical) existence of fiscal adjustments to their sustainability impact. Looking at a large sample of developed and developing economics over the period 1980-2018, we find that, on average, there is a higher need of consolidations in advanced economies than in developing economies. In addition, the implementation of a fiscal consolidation program implies an improvement in the degree of public finances´ sustainability, for in advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises.
    Keywords: fiscal consolidations; cyclically-adjusted primary balance; sustainability; panel data; time-varying.
    JEL: C23 E21 E62 H5 H62
    Date: 2022–03
  18. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard talked about the removal of monetary policy accommodation and his expectations for the U.S. economy during an interview on Bloomberg Surveillance. The interview was live from the St. Louis Fed’s Economy Museum.
    Keywords: monetary policy; inflation
    Date: 2022–03–22
  19. By: Youssef Ulgazi; Paul Vertier
    Abstract: In this paper, we present an updated version of the reference model used at Banque de France to forecast inflation: MAPI (Model for Analysis and Projection of Inflation). While the conceptual framework of the model remains very close to its initial version, our update takes stock of three different factors. First, since the previous version of the model, the underlying nomenclature used at the European level (ECOICOP) to define some of the main aggregates was changed, therefore requiring a careful review of the relevance of initial equations. Second, in the context of the modification in 2019 of the main semi-structural macroeconomic model used for the macroeconomic projections at Banque de France (FR-BDF), it aims at harmonizing the iterations between MAPI and FR-BDF. Finally, large variations in the wage variables in the midst of the sanitary measures related to the Covid-19 pandemics pushed us to use different concepts of wage and compensation variables. At the crossroads of these considerations, we update the model extending the estimation window, correcting specifications and input variables whenever relevant. The resulting model is an up-to-date, simplified and more parsimonious version of the initial model, entailing a stronger harmonization with the central macroeconomic model FR-BDF. It still involves significant pass-through of wages, oil and exchange rate to HICP.
    Keywords: Forecasting, Inflation, Time Series
    JEL: E37 C32 E31 C53
    Date: 2022
  20. By: Patrick Honohan; Athanasios Orphanides
    Abstract: This paper reviews South Africa's monetary policy since 2007 and makes recommendations towards improving the inflation-targeting framework currently in place. Following a surge in inflation into double digits in 2007/08, the South African Reserve Bank managed to guide inflation in line with the 3-6 per cent target band. Estimates of South Africa's potential output underwent successive downward revisions. The resulting output gap misperceptions contributed to the tendency of inflation to be closer to the upper edge of the band in the 2010s.
    Keywords: Monetary policy, Inflation targeting, Output gap, South Africa
    Date: 2022
  21. By: James Chapman; Ajit Desai
    Abstract: Predicting the economy’s short-term dynamics—a vital input to economic agents’ decision-making process—often uses lagged indicators in linear models. This is typically sufficient during normal times but could prove inadequate during crisis periods such as COVID-19. This paper demonstrates: (a) that payments systems data which capture a variety of economic transactions can assist in estimating the state of the economy in real time and (b) that machine learning can provide a set of econometric tools to effectively handle a wide variety in payments data and capture sudden and large effects from a crisis. Further, we mitigate the interpretability and overfitting challenges of machine learning models by using the Shapley value-based approach to quantify the marginal contribution of payments data and by devising a novel cross-validation strategy tailored to macroeconomic prediction models.
    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Payment clearing and settlement systems
    JEL: C53 C55 E37 E42 E52
    Date: 2022–03
  22. By: Summa, Ricardo de Figueiredo
    Abstract: In the present paper, we will construct three comparable 'toy models' to evaluate the alternative uses of functional finance from Lerner, MMT, and the Sraffians. First, we will argue that the general functional finance framework can be separated from the specific views of Lerner on how the private sector and the economy works and its policy recommendations. Then, we use this separation to provide an alternative comparison between Lerner and the MMT to that proposed by Wray (2018), arguing that both agree with the general functional finance framework but disagree on how the private sector and the economy works, the policy objectives and the policy toolkit and recommendations. We argue that Lerner never abandoned his functional finance framework or his theoretical principles towards Monetarism. Finally, we will extend the same scheme to evaluate the functional finance framework from the Sraffian standpoint, motivated by recent attempts to check the compatibility of a specific Sraffian model - the supermultiplier - with functional finance (Skott et al, 2022, Fiebiger, 2021). The presentation of the three comparable 'toy models', by stressing the shared principles and specific disagreements between Lerner, MMT and the Sraffians allows us to discuss different policies and consequences of government's active role in promoting expansionary policies.
    Keywords: Functional finance,Abba Lerner,MMT,Sraffians,Macroeconomic policies
    JEL: E11 E12 E52 E62
    Date: 2022
  23. By: Heise, Arne
    Abstract: In 2009, just before the full outbreak of the global financial crisis, Olivier Blanchard (2009) published an article giving a favourable appraisal of the state of macroeconomics. He came to this verdict on the basis that, after a long period of fierce theoretical debate, the discipline had converged on a model known as new consensus macroeconomics (NCM). In the models that made up NCM, fiscal policy played no role - or, to be more precise, fiscal policy had to follow a balanced-budget rule, with the task of stabilising an economy over the business cycle entrusted entirely to monetary policy (following a Taylor rule). And in the midst of the global financial crisis, Carmen Reinhart and Kenneth Rogoff (2010) proposed the figure of 90% of GDP as a threshold level for public debt which, if exceeded, would harm economic growth, leaving fiscal austerity as the best way to trigger economic recovery. Only a decade later, the economics profession now appears to have taken a very different view on fiscal policy: in order to cope with the next economic crisis, resulting from the coronavirus pandemic, most economists recommend an active fiscal policy stance and even a huge increase in debt-to-GDP levels. This paper will shed some light on these developments in economic policymaking and explore the future of fiscal policy.
    Keywords: Fiscal policy,public debt,stabilisation policy
    JEL: E62 H30 H62
    Date: 2022
  24. By: John Beirne (Asian Development Bank Institute); Yannis Dafermos (Department of Economics, SOAS University of London); Alexander Kriwoluzky (German Institute for Economic Research (DIW Berlin)); Nuobu Renzhi (Capital University of Economics and Business); Ulrich Volz (Department of Economics, SOAS University of London); Jana Wittich (German Institute for Economic Research (DIW Berlin))
    Abstract: This paper investigates the impact of natural disasters on price stability in the euro area. We estimate panel and country-specific structural vector autoregression (VAR) models by combining estimated damages of disaster events with monthly data for the Harmonised Index of Consumer Prices (HICP) for all euro area countries over the period 1996-2021. Besides estimating the effect on overall headline inflation, we examine effects on its 12 main sub-indices and further sub-categories of food price inflation. This allows us to disentangle differences in the direction and strength of price effects across consumption categories. Our results suggest significant positive effects of natural disasters on overall headline inflation, with diverging results at the sub-index level. Positive inflation effects are particularly pronounced for prices of food and beverages, while negative effects prevail for other sub-indices. Our country-specific results suggest heterogenous inflation effects of natural disasters across different countries. A key implication of our findings is that climate change is likely to make it increasingly difficult for the European Central bank to achieve its inflation target.
    Keywords: Natural disasters; climate; inflation; monetary policy; European Central Bank
    JEL: E31 E52 Q54
    Date: 2021–11
  25. By: Viral V. Acharya; Ryan N. Banerjee; Matteo Crosignani; Tim Eisert; Renée Spigt
    Abstract: We document capital misallocation in the U.S. investment-grade (IG) corporate bond market, driven by quantitative easing (QE). Prospective fallen angels—risky firms just above the IG rating cutoff—enjoyed subsidized bond financing since 2009, especially when the scale of QE purchases peaked and from IGfocused investors that held more securities purchased in QE programs. The benefitting firms used this privilege to fund risky acquisitions and increase market share, exploiting the sluggish adjustment of credit ratings in downgrading after M&A and adversely affecting competitors' employment and investment. Eventually, these firms suffered more severe downgrades at the onset of the pandemic.
    Keywords: corporate bond market; investment-grade bonds; large-scale asset purchases (LSAP); credit ratings; credit ratings inflation
    JEL: E31 E44 G21
    Date: 2022–02–01
  26. By: Lena Dräger (Leibniz University Hannover); Michael J. Lamla (Leuphana University of Lüneburg and ETH Zurich, KOF Swiss Economic Institute); Damjan Pfajfar (Board of Governors of the Federal Reserve System)
    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 con-sumers’ 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 inflation shock
    JEL: E31 E52 E58 D84
    Date: 2022–02
  27. By: Rivera Moreno, Pablo Nebbi; Triana Montaño, Karol Lorena
    Abstract: Central Bank Digital Currency (CBDC) has been in the center of discussion of many monetary policy research agendas. We explore how the business cycle behavior of a developing economy is affected by the introduction of this type of money as a second monetary policy tool. We emphasize on the characteristic dual formal and informal labor markets that are present in most developing economies, given its relevance on explaining the business cycle dynamics. Our main contribution is the building of a model that encompasses such characteristics and features the relevance of monetary balances to macroeconomic fluctuations. We find that CBDC has the ability to improve the monetary policy effectiveness, and the response of relevant variables may be amplified or dampened, depending on the nature of the shock. Also the magnitude of the new dynamics introduced by CBDC are also profoundly dependant on its structural parameters. The main transmission mechanisms that are affected by CBDC are the dynamics of distortions generated by transaction costs.
    Date: 2022–04
  28. By: M. Sylvina Porras-Arena (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Mauricio A. Suárez Cal (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: The objective of this research is to overcome the limitations of conventional Okun's coefficient estimations, highlighting the indirect nature of the effect of the GDP over the unemployment rate. To do so, we estimate a multiple equation model composed by a labour demand, a labour supply and a real wages equation. Our results shed light on the determinants of the demand, the supply and wages. We found that both labour demand and supply react positively to GDP and negatively to wages, but the supply side with lower intensity than demand with respect to both variables. Based on simulations of shocks, we analysed how the variations of the GDP impact on unemployment and found that the effect is not as large as previous research have presented. This result suggests that the estimation of Okun's coefficient arising from a single equation model with only unemployment and GDP as variables suffers from the omitted variables bias, as it captures part of the effects of other variables that affect labour demand and/or labour supply.
    Keywords: Okun's law, multiple equation model, unemployment, output, ARDL
    JEL: C30 E23 E24 E27 J21 J23 J31 J51 J64
    Date: 2021–12
  29. By: Remo Nyffenegger
    Abstract: This paper analyses the effects of an introduction of a retail central bank digital currency (CBDC) on bank intermediation in a general equilibrium model with heterogeneous bank deposits and an imperfectly competitive loan market. I find that the impacts of a CBDC strongly differ depending on whether it is used as a medium of exchange or as a saving vehicle. A calibration of the model to the US economy from 1987-2006 shows that if a CBDC is only used as a medium of exchange, a 10% increase in the fraction of people who hold central bank money as a medium of exchange decreases bank lending only by 0.2%. The effect is four times stronger if CBDC is only used as a saving vehicle.
    Keywords: Central bank digital currency, bank lending, new monetarism, overlapping generations
    JEL: E42 E50 E58
    Date: 2022–03
  30. By: Sebastián Fanelli (CEMFI, Centro de Estudios Monetarios y Financieros); Martín Gonzalez-Eiras (University of Copenhagen)
    Abstract: A financial crisis creates substantial wealth losses. How these losses are allocated determines the magnitude of the crisis and the path to recovery. We study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks. For sufficiently large shocks, agents renegotiate. This limits the losses borne by borrowers, shutting the amplification mechanism via asset prices. The range of shocks that trigger renegotiation is decreasing in repossession costs and increasing in default costs, if the latter are public information. Private information may induce equilibrium default but, by allowing agents with high default costs to extract a larger haircut, facilitates the recovery. The model is consistent with evidence from real estate markets in the U.S. during the Great Recession; and rationalizes recent changes in U.S. Bankruptcy Code in the wake of the COVID-19 crisis.
    Keywords: Financial crises, balance sheet recessions, default, renegotiation
    JEL: E32 E44 G01
    Date: 2021–12
  31. 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 data set of administrative data that merges Spanish credit register loan data, quasi-census 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: 2022–02–01
  32. By: Marco Del Negro; Aidan Gleich; Shlok Goyal; Alissa Johnson; Andrea Tambalotti
    Abstract: After a sharp decline in the first few months of the COVID-19 pandemic, inflation rebounded in the second half of 2020 and surged through 2021. This post analyzes the drivers of these developments through the lens of the New York Fed DSGE model. Its main finding is that the recent rise in inflation is mostly accounted for by a large cost-push shock that occurred in the second quarter of 2021 and whose inflationary effects persist today. Based on the model’s reading of historical data, this shock is expected to fade gradually over the course of 2022, returning quarterly inflation to close to 2 percent only in mid-2023.
    Keywords: inflation; DSGE; macroeconomics
    JEL: E2
    Date: 2022–03–01
  33. By: Chetan Dave (Economics Department, University of Alberta); Scott J. Dressler (Department of Economics, Villanova School of Business, Villanova University); Samreen Malik (NYU Abu Dhabi, Division of Social Sciences)
    Abstract: Several macroeconomic time series exhibit excess kurtosis or "Fat Tails" possibly due to rare but large shocks (i.e., tail events). We document the extent to which tail events are attributable to long-run growth shocks. We show that excess kurtosis is not a uniform characteristic of postwar US data, but attributable to episodes containing well-documented growth shocks. A general equilibrium model captures these observations assuming Gaussian business-cycle shocks and a single growth shock from various sources. The model matches the data best with a growth shock to labor productivity while investment-specific technology shocks drive cycles.
    Keywords: fat tails, growth shocks, real business cycles
    JEL: E0 E3
    Date: 2022–03
  34. By: Ambaw, Dessie (University of South Australia); Pundit, Madhavi (Asian Development Bank); Ramayandi, Arief (Asian Development Bank); Sim, Nicholas (Singapore University of Social Sciences)
    Abstract: Real exchange rate (RER) misalignment, which is the deviation between the actual real exchange rate from its equilibrium, occurs frequently among developing economies. Studies have shown that RER misalignment may have negative economic implications, such as a reduction in economic growth, exports and export diversification, and an increased risk of currency crises and political instability. Using quarterly data for 22 sample economies from 1990 to 2018, this paper investigates the impact of RER misalignment on business cycles in Asia and the Pacific by employing a panel vector autoregression involving consumer price index (CPI) inflation, output gap, short-term interest rate, and RER misalignment. We find that RER overvaluation may lead to a reduction in CPI inflation and short-term interest rate. We also find that Asia and the Pacific is highly heterogeneous wherein the output gaps of some economies, particularly those in Southeast Asia, are more susceptible to RER misalignment shocks.
    Keywords: real exchange rate misalignment; business cycle fluctuations
    JEL: D74 E32 F31 F41 O11
    Date: 2022–03–08
  35. By: Ximena Cadena; Martha Elena Delgado; Susana Martínez-Restrepo
    Abstract: El mercado laboral colombiano ha tenido históricamente brechas importantes entre hombres y mujeres, las cuales han contribuido a la desigualdad económica y social entre ambos grupos. En particular, la tasa de desempleo para la población femenina del país ha sido consistentemente mayor a la de los hombres, lo que ha llevado a una alta brecha de desempleo y salarial. La pandemia del COVID-19 tuvo efectos importantes en la economía y en el mercado laboral del país, ampliando estas brechas de género. En este sentido, las autoras recomiendan 4 propuestas de reformas de política fiscal que podrían contribuir al cierre de brechas y a las mejores condiciones laborales y sociales de las mujeres en el país. La primera propuesta es deducir los costos de contratación del servicio doméstico en el impuesto de renta de las personas naturales con el fin de incrementar los niveles de formalidad del empleo doméstico en el país. La segunda propuesta es extender el Programa de Apoyo al Empleo Formal hasta junio de 2022 con énfasis en los sectores de alta participación femenina, sectores que se vieron altamente afectados por la pandemia, y que potencializarlos podría ayudar a reconstruir empleos femeninos. La tercera propuesta es reducir los costos del trabajo formal (aportes a salud y parafiscales) para trabajadores de bajos ingresos. La cuarta propuesta es crear una renta mínima garantizada para reducir la pobreza; la cual reuniría los recursos de los programas Ingreso Solidario, Familias en Acción y Jóvenes en Acción para su creación y destinaría un monto fijo para los hogares en situación de pobreza y pobreza extrema.
    Keywords: Reforma Fiscal, Género, Desigualdad, Pobreza, Mercado Laboral, Colombia
    JEL: D63 E24 E62
    Date: 2021–07–30
  36. By: Nuno Goncalves
    Abstract: The CFP macroeconomic projections provide an independent contribute for the public debate on economic developments and fiscal policy in Portugal. They are an important input for the endorsement of macroeconomic forecasts underlying budgetary programming documents. According to the Law, these must be based on the most likely macro scenario or on a more prudent scenario. Naturally, the CFP projections are also following the same principles, and so it is crucial to assess whether they are the "most probable" or "more prudent". This paper makes a first study of CFP macroeconomic projections regarding forecasting performance and its optimality properties. In general, the results suggest that CFP projections are prudent and fulfil most optimality conditions, proving to be a reliable contribute to policy debate. The findings also show that CFP projection errors are also in line with those of other institutions that develop scenarios under the no policy change assumption.
    Keywords: Macroeconomic forecasts; forecast performance and evaluation; Portugal
    JEL: C53 E37 E60 E66
    Date: 2022–04
  37. By: Boris Hofmann; Dora Xia
    Abstract: We assess quantitative forward guidance through interest rate projections along four key dimensions: (i) predictability, (ii) credibility, (iii) redundancy and (iv) consistency. Based on data for the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank and the Federal Reserve, we find that the interest rate projections released by these four central banks are predictable and credible, but in limited ways. Market expectations of the future path of interest rates predict changes in the central bank projection path, but far from fully. Central bank paths' credibility is limited as markets adjust to path surprises, but far from a one-to-one basis. Both predictability and credibility decrease with the projection horizon. We further find that central bank interest rate projections are not redundant as they impact market expectations also when controlling for the effects of central bank macro projections that are released in parallel. Finally, the interest rate projections are consistent with the macro projections as they are empirically linked by a stabilising Taylor rule.
    Keywords: forward guidance, interest rate projections, central bank communication.
    JEL: E52 E58
    Date: 2022–03
  38. By: António Afonso; Francisco Gomes Pereira
    Abstract: Using a difference-in-differences identification strategy on a micro panel at the bank and firm level, we study the transmission effectiveness of ECB’s large-scale asset purchasing programs programs (i.e. APP and PEPP) in the Euro area. Our findings show: first, balance sheet composition of banks is an important determinant of monetary policy transmission. We tested this hypothesis by showing that banks more exposed to government debt securities had higher loan growth than less exposed banks after the APP announcement. By extension, this could lead to heterogeneous economic impacts depending on the geographical location of exposed banks. For the PEPP, contrary to the APP, we did not find a portfolio-rebalancing channel for banks that were more exposed to government debt securities. Second, using balance sheet data on corporates, we verify that firms that borrowed more increased employment and fixed capital investment, albeit to a lesser degree than before the APP announcement. Furthermore, our sample shows that corporations in countries with banks more exposed to government debt securities had higher borrowing growth and fixed capital growth versus countries with less exposed banks.
    Keywords: unconventional monetary policy, difference-in-differences, euro area, employment, investment.
    JEL: C23 D22 E52 E58 G11 G20
    Date: 2022–03
  39. By: James B. Bullard
    Abstract: During a presentation for Greater St. Louis, Inc., St. Louis Fed President Jim Bullard said that the U.S. real economy has more than fully recovered from the pandemic recession and is expected to grow faster than its longer-run potential growth rate in 2022. Meanwhile, U.S. inflation is running well above the FOMC’s target. Current U.S. monetary policy is set at peak accommodation, which is putting upward pressure on inflation, Bullard said. “This situation calls for rapid withdrawal of policy accommodation in order to preserve the best chance for a long and durable expansion,” he added.
    Keywords: monetary policy; inflation
    Date: 2022–03–02
  40. By: Santander Quino, Camila Miriam (IISEC, Universidad Católica Boliviana)
    Abstract: A partir de las crisis financieras de los últimos años y el creciente desarrollo del sistema financiero, ha surgido la necesidad de entender la relación entre el sector financiero y el sector real de la economía desde una visión integral. Muchos autores han abordado esta relación desde el campo empírico de los ciclos económicos y la reciente noción de los ciclos financieros. En este sentido, el presente trabajo de investigación busca determinar de manera empírica la relación entre el ciclo económico y financiero para el caso boliviano, en el periodo 1990-2019. Mediante el enfoque de filtros estadísticos y puntos de inflexión, se encuentra que la duración y la amplitud de las fases del ciclo financiero son mayores que las del ciclo económico. Además, se encuentra que el ciclo financiero tiene un comportamiento rezagado respecto al ciclo económico y que las fases de ambos están sincronizadas el 60% del tiempo. Posteriormente, mediante un modelo de vectores autoregresivos (VAR) se emplea la prueba de causalidad de Granger, así como las funciones impulso respuesta y la descomposición de la varianza. Se encuentra causalidad bidireccional entre los ciclos, siendo más fuerte y persistente del ciclo económico al financiero. Asimismo, se identifica que la bicausalidad puede deberse a la existencia de una tercera variable que explica a ambas, que podría ser del sector externo o una variable de política económica.
    Keywords: Ciclo económico; Ciclo financiero; Crédito; Descomposición de series
    JEL: C32 E32 E44 G01
    Date: 2022–03–07
  41. By: Árpád Ábrahám; Eva Cárceles-Poveda; Yan Liu; Ramon Marimon
    Abstract: We develop a model of a Financial Stability Fund (Fund) for a union of sovereign countries. By contract design, the Fund never has expected undesired losses while, being default-free, a participant country has greater ability to borrow and share risks than using sovereign debt financing. The Fund contract also provides better incentives for the country to reduce endogenous risks. These efficiency gains arise from the ability of the Fund to offer long-term contingent financial contracts, subject to limited enforcement (LE) and moral hazard (MH) constraints as part of the contingencies. We develop the theory (welfare theorems, with a new price decentralization) and quantitatively compare the constrained-efficient Fund economy with an incomplete markets economy with default. In particular, we characterize how prices and allocations differ, when the two economies are subject to exogenous productivity and endogenous government expenditure shocks. In our economies, calibrated to the euro area 'stressed countries', substantial welfare gains are achieved, particularly in times of crisis. The Fund is, in fact, a risk-sharing, crisis prevention and resolution mechanism, which transforms participant countries’ defaultable sovereign debts into union’s safe assets. In sum, our theory can help to improve current official lending practices and, eventually, to design an European Fiscal Fund.
    Keywords: fiscal unions, recursive contracts, Debt Contracts, partnerships, limited enforcement, moral hazard, debt restructuring, Debt Overhang, sovereign fund
    JEL: E43 E44 E47 E63 F34 F36
    Date: 2022–03
  42. By: Pierluigi Bologna (Bank of Italy); Maddalena Galardo (Bank of Italy)
    Abstract: While the setting of the countercyclical capital buffer (CCyB) is not an automatic decision, insights from indicators, such as the credit-to-GDP gap, are a starting point to inform the policy decision. This paper identifies an optimal rule to map the credit-to-GDP gap adjusted to the guide to set the CCyB. We follow two alternative procedures. First, we apply the criteria suggested by the Basel Committee on Banking Supervision, (BCBS), obtaining 3 percentage points of the adjusted gap as the activation threshold and 8 percentage points as the maximum. Then we depart from the BCBS approach by proposing a procedure based on the maximization of the area under the receiver operating characteristic curve (AUROC), which suggests 1 and 9 percentage points as the minimum and maximum thresholds, respectively. We also explore whether the CCyB, had it been in place, would have mitigated the repercussions of the Great Financial Crisis for the Italian banking system. Based on a stylized exercise, the full release of the CCyB at the outbreak of the crisis would have freed around 40 billion of capital, a value close to the total amount of banks' credit provisions during the three following years.
    Keywords: macroprudential policy, CCyB, buffer calibration, credit cycle
    JEL: E32 G21 G28
    Date: 2022–03
  43. By: Michael D. Bordo; Edward Simpson Prescott
    Abstract: This essay was written in memory of Marvin Goodfriend for a Federal Reserve Bank of Richmond book called Essays in Honor of Marvin Goodfriend: Economist and Central Banker. We discuss his Carnegie-Rochester conference paper titled "The Role of a Regional Bank in a System of Central Banks." In that paper, Marvin argued that the Federal Reserve's decentralized structure allowed for competing ideas about monetary and banking policy to develop with the central bank. In our essay, we describe how Marvin demonstrated this argument during his long career at the Federal Reserve Bank of Richmond. We also describe the institutional developments that led to this competition, including reforms that Chairman William McChesney Martin made to the operation of the Federal Open Market Committee in the 1950s and the introduction of monetary policy ideas such as monetarism and rational expectations by the Reserve Banks.
    Keywords: Federal Reserve structure; monetary policy; governance; Marvin Goodfriend
    JEL: B0 E58 G28 H1
    Date: 2022–01–21
  44. By: Ilenia Romani (Università degli Studi di Brescia and Fondazione Eni Enrico Mattei); Marzio Galeotti (Università degli Studi di Milano and Fondazione Eni Enrico Mattei); Alessandro Lanza (LUISS and Fondazione Eni Enrico Mattei)
    Abstract: The funds allocated by the National Recovery and Resilience Plan (NRRP) aim to trigger a multiplier effect on GDP as they are designed to help the recovery after the Covid-19 pandemic. The GDP increase is in turn expected to drive energy consumption up which will increase CO2 emissions, given that fossil fuels still account for 79% of the Italian total primary energy consumption. At the same time, as the NRRPs are part of the EU Green Deal, an important share of the Plan’s investments is aimed at facilitating the green transition, with expected favorable effects on emissions. Which one of these two effects will prevail remains to be ascertained. In this study we have used the GEM (Global Economic Model) by Oxford Economics to build a number of scenarios and generate the relevant simulations aimed at assessing the impact of the Italian NRRP’s interventions on energy consumption and CO2 emissions. To validate the use of GEM we extensively considered the macroeconomic impact on GDP and unemployment rate generated by the model and compare the results to those presented by other institutions and obtained using different models. The results show that when the green investments of the NRRP display their effects, there are climatic benefits in terms of reduced emissions. Compared to the implementation of the NRRP in 2021, however, the reduction in emissions by 2030 is modest and equal to 5%. As those investments largely refer to the adoption of clean technologies, the climate benefits are likely to be more substantial only in subsequent years and over longer horizons.
    Keywords: National Recovery and Resilience Plan, CO2 emissions, Large-scale macroeconomic model, Post-Covid recovery
    JEL: E37 E61 E62 Q43 Q54 C30
    Date: 2022–02
  45. By: Nicola Cetorelli; Gabriele La Spada; João A. C. Santos
    Abstract: Loan funds are open-end mutual funds holding predominantly corporate leveraged loans. We document empirically that loan funds are significantly more susceptible to run risk than any other category of debt funds, including corporate bond funds. Most importantly, we establish a link between loan funds’ flows and monetary policy, based on the institutional characteristics of their portfolio holdings. We find robust evidence indicating a pro-cyclical relationship between monetary policy and loan-fund flows. This relationship, however, is asymmetric: weaker for policy-rate increases and stronger for policy-rate decreases. Finally, the effect of monetary policy shocks on loan-fund flows also depends on the level of market short-term rates, suggesting that it is not only the direction of the monetary policy change that matters, but also the level of the policy rate at the time of the change. Our results thus identify a novel channel of monetary policy transmission affecting a critical segment of the credit sector, represented by leveraged lending.
    Keywords: mutual funds; monetary policy; leverage lending
    JEL: G23 E52 G28
    Date: 2022–03–01
  46. By: Loren Brandt; Ruochen Dai; Gueorgui Kambourov; Kjetil Storesletten; Xiaobo Zhang
    Abstract: This paper studies entrepreneurship and the creation of new firms in China through the lens of serial entrepreneurs, i.e. entrepreneurs who establish more than one firm, and their differences with non-serial entrepreneurs. Drawing on data on the universe of all firms in China, we document key facts about serial entrepreneurship in China since the early 1990s and develop a theoretical framework to rationalize the role of endowments, ability, and capital market frictions in their behavior. We also examine the key determinants of the sectoral choice for serial entrepreneurs' second firms. Quantitatively, serial entrepreneurs are more productive, raise more capital, and operate larger firms than non-serial entrepreneurs. Moreover, serial entrepreneurs with greater liquidity and whose firms have relatively similar productivity are more likely to operate these firms concurrently rather than sequentially. We also find that less productive serial entrepreneurs are more likely to switch sectors when establishing new firms, with the choice of sector influenced by considerations of risk diversification, upstream and downstream linkages, and sectoral complementarities.
    Keywords: Serial Entrepreneurship; Entrepreneurship; Capital Distortions; Sector Choice
    JEL: D22 D24 E22 E44 L25 L26 O11 O14 O16 O40 O53 P25 R12 D21
    Date: 2022–03–23
  47. By: Scott R. Baker; Efraim Benmelech; Zhishu Yang; Qi Zhang
    Abstract: China’s high household savings rate has attracted great academic interest but remains a puzzle. Potential explanations include demographic, policy, and financial causes. Yet a lack of reliable microlevel data on household finances makes it difficult to assess the relative importance of each factor. This paper uses individual income and spending transactions linked to demographic characteristics and financial information on loan applications and credit availability from a large Chinese bank in Inner Mongolia. We match a large subset of bank customers to administrative records covering marriage and births and obtain a unique view into consumption and saving patterns around important life events. Our results point toward identifying income growth, financial instability, and credit access, rather than such directives as the one-child policy, as the primary causes of high levels of savings among Chinese households.
    JEL: D14 D31 E21 G51
    Date: 2022–03
  48. By: Carolina Román (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Henry Willebald (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: We propose estimates of income intersectoral transfer to approximate the idea of how the inflation process –expressed in terms of different relative price evolutions– has consequences in terms of income inequality and structural change, during the period 1955-2019. Based on the large sectoral aggregates –primary, secondary and tertiary– and, until the 1990s, the transfers of resources between sectors showed a quite stable evolution, without major changes, which meant a smooth reduction of the sectoral dispersion. The tertiary sector turned to be one of the "losers" and the secondary one of the "winners" of the price ́s evolution (especially since the beginning of the 21st century). However, the discrepancies within the aggregates increased and the trajectory of the aggregates little represents their components. In the secondary sector, until the 1990s, the sector performance represented, to a high degree, the movements of the manufacturing industry. However, this pattern changed in the 21st century and construction achieved the predominant role to explain the evolution of the aggregate. In the tertiary sector, communications showed an exceptional trajectory, losing resources after the 1990s. Leaving aside communications, services appear to be the “winning” sector of the 21st century. Continuous, consistent, and homogeneous series of GVA of 13 sectors of activity, at constant and current prices, is an additional result of this research.
    Keywords: intersectoral income transfers, sectorial value-added, inflation, Uruguay
    JEL: E01 E23 E31
    Date: 2021–12
  49. By: Seung Kwak
    Abstract: We study the impact of unanticipated monetary policy news around FOMC announcements on secondary market corporate loan spreads. We find that the reaction of loan spreads to monetary policy news is weaker than that of bond spreads: following an unanticipated monetary policy tightening (easing) shock, loan spreads do not increase (decrease) as much as bond spreads do. Decomposition of the spreads into compensations for expected defaults and risk premiums shows that differential reactions of loan and bond risk premiums are the main driver of the differential spread reactions. We further find that the weaker loan spread reactions to monetary policy shocks are more pronounced for riskier loans. Lastly, reactions of primary market loan spreads to monetary policy shocks are also muted. These findings highlight heterogeneous impacts of monetary policy across different types of corporate credit markets, possibly reflecting heterogeneous investor demand responses to monetary policy in those markets.
    Keywords: Corporate bonds; Monetary policy; Corporate loans
    JEL: E52 G12 G23
    Date: 2022–02–25
  50. By: Brah J. Hershbein (W.E. Upjohn Institute for Employment Research); Bryan A. Stuart (Federal Reserve Bank of Philadelphia)
    Abstract: This paper studies how government transfers respond to changes in local economic activity that emerge during recessions. Local labor markets that experience greater employment losses during recessions face persistent relative decreases in earnings per capita. However, these areas also experience persistent increases in transfers per capita, which offset 16 percent of the earnings loss on average. The increase in transfers is driven by unemployment insurance in the short run, and medical, retirement, and disability transfers in the long run. Our results show that nominally place-neutral transfer programs redistribute considerable sums of money to places with depressed economic conditions.
    Keywords: recessions, safety net, government transfers, demand shocks, local labor markets, event study
    JEL: E32 H50 R12 R28
    Date: 2022–01
  51. By: Xiao Ma (Peking University); Alejandro Nakab (Universidad Torcuato Di Tella); Daniela Vidart (University of Connecticut)
    Abstract: How do the sources of worker learning change over the lifecycle, and how do these changes a˙ect on-the-job human capital accumulation? We use detailed worker quali-fication data from Germany and the US to document that internal learning (learning through colleagues) decreases with worker experience, while external learning (on-the-job training) has an inverted U-shape in worker experience. To shed light on these findings, we build an analytical model where the incentives to engage in each type of skill acquisition evolve throughout the lifecycle due to shifts in the relative position of the worker in the human capital distribution. We embed this two-source learning mechanism in a quantitative Burdett and Mortensen search framework where firms and workers jointly fund learning investments. The model equilibrium replicates our em-pirical lifecycle results, as well as several key findings in the literature on the e˙ects of firm matching and coworker quality in the formation of human capital. Counterfactual analyses imply that aggregate human capital decreases by approximately 30% in the absence of either learning source, and that the two sources are highly complementary in the aggregate. We conduct a policy analysis that highlights key ineÿciencies to learning investments stemming from firms’ role in learning, and shows that subsidizing learning can generate sizeable increases to human capital and aggregate output.
    Keywords: On-the-Job Training, Human Capital Accumulation, Lifecycle Wage Growth
    JEL: J24 E24 M53 O15 J62
    Date: 2022–04
  52. By: Katharina Greulich; Sarolta Laczó; Albert Marcet
    Abstract: We study optimal Pareto-improving fiscal policy in a model where agents are heterogeneous in their labor productivity and wealth and markets are complete. We first argue that recent results that find positive optimal long-run capital taxes in standard models obtain only if the government is allowed to immiserate the economy or if the government would prefer to waste consumption. Excluding these possibilities the Chamley-Judd result reemerges. We find that the long-run optimal tax mix is the opposite of theci shortand medium-run. For a Pareto improvement the length of the transition is very long, more so for policies that benefit the poor. Therefore the traditional focus on long-run optimal taxes is unwarranted. An initial labor tax cut causes early deficits leading to a positive level of government debt in the long run. Welfare weights need to be found endogenously for a Pareto improvement, a Benthamite policy that weighs equally all agents is often not Pareto improving. The optimal fiscal policy is time-consistent if reoptimization requires consensus and heterogeneity is high. We address the sufficiency of first-order conditions for the Ramsey optimum and provide a solution algorithm.
    Keywords: fiscal policy, factor taxation, Pareto-improving tax reform, redistribution
    JEL: E62 H21
    Date: 2022–01
  53. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed the upside surprise on inflation in recent months and the Fed’s response. He spoke at the Asian Investment Conference in an interview that was recorded March 22.
    Keywords: inflation
    Date: 2022–03–22
  54. By: Krenz, Astrid; Strulik, Holger
    Abstract: We develop a macroeconomic theory of the division of household tasks between servants and own work and how it is affected by automation in households and firms. We calibrate the model for the U.S. and apply it to explain the historical development of household time use and the distribution of household tasks from 1900 to 2020. The economy is populated by high-skilled and low-skilled households and household tasks are performed by own work, machines, or servants. For the period 1900-1960, innovations in household automation motivate the decline of the servant economy and the creation of new household tasks motivates an almost constant division of household time between wage work and domestic work. For the period 1960-2020, innovations in firm automation and the implied increase of the skill premium explain the return of the servant economy. We show the robustness of results to the introduction of time trends in skilled-labor supply and the consideration of endogenous demand for leisure. With counterfactual experiments we address the effects of task-dependent disutility of work and of innovations in servant efficiency (the Gig economy). We provide supporting evidence for inequality as a driver of the return of the servant economy in a regional panel of U.S. metropolitan statistical areas for the period 2005-2020.
    Keywords: Automation,Robots,Home production,Inequality,Servants,Maids,Gig economy
    JEL: D13 E24 J22 J24 O11 O30
    Date: 2022
  55. By: John C. Williams
    Abstract: Remarks at the Central Reserve Bank of Peru (BCRP) Centenary Conference (delivered via videoconference).
    Keywords: central banks; monetary policy; pandemic; COVID-19; economies; Ukraine; communication
    Date: 2022–03–25
  56. By: Marco Veronese Passarella (University of Leeds)
    Abstract: The aim of this paper is twofold. First, it shows how a standard stock-flow consistent model (SFCM) can be modified to embed some fundamental insights from Graziani’s theory of monetary circuit (TMC). Second, it aims at addressing some common mis- conceptions about the TMC. More precisely, it is argued that: a) a market-clearing price mechanism does not necessarily imply a neoclassical-like closure of the model; b) the ways in which SFCMs and the TMC define bank loans are mutually consistent, although they are based on different accounting periods; c) consumer credit is final finance, not initial finance; d) the paradox of profit is not a logical conundrum, but an abstract counterfactual that allows shedding light on a neglected role of government spending; e) overall, the TMC can be regarded as a “Marxian” rendition of Keynes’s method of aggregates.
    Keywords: Theory of Monetary Circuit, Stock-Flow Consistent Models, Macroeconomics, Monetary Economics
    JEL: E11 E12 E16 E17
    Date: 2022–03
  57. By: Hauber, Philipp
    Abstract: This paper evaluates forecasts from a factor model estimated with a large real-time dataset of the German economy. The evaluation focuses on a broad cross-section of variables such as activity series including components of the gross domestic product and gross value added, deflators and other price measures as well as several labor market indicators. In addition to unconditional forecasts for these variables, we also investigate to what extent the forecast accuracy improves when we condition on professional forecasters' view on GDP growth and CPI inflation. We find that over the period from 2006 to 2017 the model's unconditional forecasts are broadly in line with autoregressive benchmarks for the majority of the 37 series that we focus on in the evaluation, in some cases performing somewhat better and in others somewhat worse. For a few variables capturing real activity and some price indicators, however, we find large gains in predictive accuracy that persist for forecast horizons of up to two quarters ahead. Conditioning on external information tends to improve the forecast accuracy in some instances but typically only for those series where the unconditional forecasts are already quite accurate. For around a third of the variables under consideration, the differences in forecast accuracy between conditional and unconditional forecasts are statistically significant for density forecasts; for point forecasts on the other hand we find no significant differences. From a methodological point of view, this paper proposes precision-based sampling algorithms to draw from the predictive density - unconditional or conditional on a subset of the system variables - in factor models and other models with unobserved components. Simulations show that these algorithms perform favorably compared to Kalman filter-based alternatives typically used in the literature.
    Keywords: factor models,conditional forecasting,precision-based sampling
    JEL: C11 C53 C55 E37
    Date: 2021
  58. By: Brendon, C.
    Abstract: This paper analyses the design of optimal nonlinear savings taxation, in a multi-period consumption-savings economy where consumers face persistent, uninsurable shocks to the marginal value that they place on consuming. Its main contributions are: (a) to show that shocks of this kind generically justify positive marginal savings taxes, and (b) to characterise these taxes by reference to a limited number of sufficient statistics. The method for obtaining this characterisation is generalisable, and provides a roadmap for reconnecting ‘Mirrleesian’ and ‘sufficient statistics’ approaches to dynamic taxation. Intuitively, dynamic asymmetric information problems imply significant restrictions on intertemporal consumption elasticities. These restrictions keep sufficient statistics representations manageable, despite the multi-dimensional choice setting.
    Keywords: Nonlinear Taxation, Sufficient Statistics, Mirrleesian Taxation, New Dynamic Public Finance
    JEL: D82 E21 E61 H21 H24 H30
    Date: 2022–03–25
  59. By: Francesco Spadafora (Bank of Italy)
    Abstract: The Unemployment Insurance (UI) system in the United States has once again played a decisive lifeline role in effectively mitigating the economic and social impact of the Covid-19 pandemic, which prompted an expansion of UI programmes unprecedented in scope, scale and cost. However, the crisis has exposed afresh some well-known challenges for the programme, perhaps best epitomized by the fact that, on the eve of the pandemic, less than one in three unemployed workers collected UI benefits. The objective of this paper is threefold: first, it provides a comprehensive overview of the main structural characteristics of the UI system; second, it compares the role played by UI programmes in mitigating the impact of both the 2008-09 Great Recession and the 2020 Covid-19 pandemic; and third, it discusses the main reform proposals put forth to address the challenges identified for the UI system. The experience with the UI system provides fundamental lessons that can usefully inform the debate on whether and how to introduce a common unemployment insurance scheme in Europe for macroeconomic stabilization.
    Keywords: unemployment, unemployment insurance, job acceptance, Covid-19, CARES Act
    JEL: E24 H7 J64 J65
    Date: 2022–03
  60. By: Mark Bils; Barış Kaymak; Kai-Jie Wu
    Abstract: Knowing the degree of substitutability between schooling groups is essential to understanding the role of human capital in income differences and to assessing the economic impact of such policies as schooling subsidies, immigration systems, or redistributive taxes. We derive a lower bound for the substitutability required for worldwide growth in real GDP from 1960 to 2010 to be consistent with a stable wage premium for schooling despite the rapid growth in schooling, assuming no exogenous worldwide regress in the technology frontier for workers with only primary schooling. That lower bound for the long-run elasticity of substitution is about 4, which is far higher than values commonly used in the literature. Given our bound, we reexamine the importance of human capital in cross-country income differences and the roles of school quality versus the skill bias of technology in greater efficiency gains from schooling in richer countries.
    Keywords: Elasticity of Skill Substitution; Aggregate Human Capital; Growth and Development
    JEL: E24 J24 O15 O47
    Date: 2022–03–23
  61. By: Engelbert Stockhammer; Karsten Kohler
    Abstract: Since the Global Financial Crisis there has been growing interest in post-Keynesian macroeconomic theory by political economists. In particular the recent growth models approach in Comparative Political Economy (CPE) draws heavily on Kaleckian macroeconomics of demand regimes. This paper, firstly, traces the disintegration of 19th century political economy and highlights that many streams within heterodox economics are a continuation of the political economy project, as are the subfields of CPE and International Political Economy in the social sciences. Secondly, the paper gives an overview of the growth models approach and its relation to post-Keynesian economics (PKE). It clarifies different strategies of identifying growth models empirically, namely GDP growth decomposition versus analysing growth drivers, and it highlights changes in growth models since the Global Financial Crisis. Finally it identifies opportunities and challenges that emerge from a continued engagement of PKE with political economy and with CPE in particular.
    Keywords: Post-Keynesian Economics, Comparative Political Economy, growth models, varieties of capitalism
    JEL: B20 B50 E12 O43 P51
    Date: 2022–03
  62. By: Puonti, Päivi
    Abstract: Abstract Economics literature suggests that, even in the absence of fiscal costs, a persistently high and increasing public debt ratio may have a detrimental effect on long run economic growth in an economy that is not over-accumulating capital like Finland today. High public debt creates expectations about future tax increases and a climate of uncertainty, reducing incentives to save and invest. By being informative about its fiscal plans the government can anchor expectations and create a stable investment climate. The relationship between debt and growth is complex and depends on country-specific factors likely to change over time, providing support for country-specific debt-limits or rates of debt reduction. By reducing debt today, the government prepares for unanticipated events requiring significant public borrowing in the future and contains the distortionary effect of taxation required to service the debt. Reducing debt in an economic upturn, when private demand is strong and when monetary policy is accommodative, results in fiscal policy that is optimal both in the short and long run, minimizing the potentially harmful effect of fiscal consolidation on economic growth. Policies and structural reforms boosting economic growth allow the debt ratio to decline through economic growth, reducing the need for fiscal consolidation.
    Keywords: Public debt, Economic growth, Literature review
    JEL: O40 H60 H30
    Date: 2022–04–04
    Abstract: COVID-19 has changed the way of our lives since it started emerging as a pandemic early 2020. The global experience leave a trauma, and eventually work as a main driver to reconsider and improve our system. The need for change becomes even bigger as the pandemic continues beyond initial expectations. With that, we are now entering the era of the great transformation. The brief focuses on examining the policy environment changed by the COVID-19 pandemic and analyzing the points to be considered when implementing future fiscal and monetary policies.
    Keywords: COVID-19; Post Pandemic; fiscal policy; monetary policy
    Date: 2022–03–04
  64. By: Ono, Shigeki; Iwasaki, Ichiro; 岩﨑, 一郎
    Abstract: This paper performs a meta-analysis of the effect on economic growth of financial development and liberalization in European emerging markets and compares with that in European advanced economies. A meta-synthesis of 893 estimates extracted from 45 studies suggests that finance in emerging markets have a positive effect on growth. Furthermore, our findings indicate that the synthesized effect size in emerging markets was smaller than that in advanced economies. Results from meta-regression analysis and test for publication selection bias, however, show that some synthesis results cannot be reproduced when literature heterogeneity and publication selection bias are taken into consideration.
    Keywords: financial development and liberalization, economic growth, meta-analysis, publication selection bias, European emerging markets and advanced economies
    JEL: E44 O16 O52 P24 P33
    Date: 2021–12
  65. By: Árpád Ábrahám; João Brogueira de Sousa; Ramon Marimon; Lukas Mayr
    Abstract: We study the welfare effects of both existing and counter-factual European unemployment insurance policies using a rich multi-country dynamic general equilibrium model with labour market frictions. The model successfully replicates several salient features of European labor markets, in particular the cross-country differences in the flows between employment, unemployment and inactivity. We find that mechanisms like the recently introduced European instrument for temporary support to mitigate unemployment risks in an emergency (SURE), which allows national governments to borrow at low interest rates to cover expenditures on unemployment benefits, yield sizable welfare gains, contradicting the conventional classical view that costs of business cycles are small. Furthermore, we find that a harmonized benefit system that features a one-time payment of around three quarters of income upon separation is welfare improving in all Eurozone countries relative to the status quo.
    Keywords: labour markets, Unemployment Insurance, job creation, job destruction, risk-sharing, Economic Monetary Union
    JEL: J6 E2
    Date: 2022–03
  66. By: Heine, Michael; Herr, Hansjörg
    Abstract: Fiskalpolitik ist ein zentraler Bereich makroökonomischer Politik. Die Schuldenbremse in Deutschlands und der Fiskalpakt im Bereich der Europäischen Währungsunion haben den Spielraum für die Fiskalpolitik dysfunktional und schädlich eingeschränkt. Als Hintertür verbleiben in Deutschland allerdings Sonderhaushalte, da diese sich verschulden dürfen. Wir plädieren für eine goldene Regel der Fiskalpolitik, die eine mittelfristige Nettoverschuldung in Höhe der staatlichen Bruttoinvestitionen erlaubt. Auch schlagen wir eine staatliche Förderung von Wohnungsbaugenossenschaften vor, die eine wichtige Rolle auf dem deutschen Immobilienmarkt spielen sollten. Wird die Schuldenbremse nicht außer Kraft gesetzt oder modifiziert, sollten zumindest Sonderhaushalte zur Förderung des Wohnungsbaus und insbesondere von Wohnungsbaugenossenschaften auf Länder- und Bundesebene kurzfristig aufgebaut werden. Sinnvoll wären auch Steuererhöhungen auf Kosten der Bezieher hoher Einkommen und hoher Vermögen. So könnte ein permanenter Anstieg der öffentlichen Schuldenquote verhindert werden.
    Keywords: Fiskalpolitik,Schuldenbremse,Wohnungsbau
    JEL: E62 H63 R31
    Date: 2022
  67. By: Lepinteur, Anthony; Yin, Rémi
    Abstract: The prudence theory predicts that economic insecurity reduces all consumption expenditures. We question this prediction by estimating the effect of economic insecurity on various expenditure items using an Australian longitudinal data set (HILDA) and panel regressions. Our results confirm that total consumption declines in response to greater economic insecurity and that this decline is greater for those with high risk aversion. However, we observe a clear gradient related to the degree of necessity of goods and services: the more necessary the consumption items, the weaker the effect of insecurity.
    Keywords: Household expenditures,Economic insecurity,Prudence
    JEL: D11 D12 E21
    Date: 2022
  68. By: Weshah Razzak (School of Economics and Finance, Massey University, Palmerston North)
    Abstract: We show that the share of oil in real output is relatively large, nearly 60 percent. Effectively, the government of Iraq– not the people – owns and manages the oil wealth. This dependence on oil as the main income is also consistent with the rentier economy and the Resource Curse phenomenon. The interest elasticity of oil production with respect to global oil consumption is greater than one. This high dependence on oil as income and the sensitivity of oil production to global oil consumption would not be sustainable in the future, where there is a growing global aversion to hydrocarbon production and consumption. The developed countries aim at zero carbon by 2050. We show that the expected decline in global consumption of oil has an adverse effect on the Iraqi economy. We provide stress tests and produce dynamic stochastic projections from 2020-2050 under a number of adverse scenarios. A quick transfer of ownership of oil to the Iraqi people should guarantee a functional democracy and a better future for the Iraqis.
    Keywords: Iraq, oil share, private ownership, FM-OLS, VAR, Stress Testing
    JEL: C1 C53 D24 E17 Q3 Q34
    Date: 2021
  69. By: Easaw, Joshy (Cardiff Business School); Golinelli, Roberto (Department of Economics, University of Bologna, ITALY); Heravi, Saeed (Cardiff Business School)
    Abstract: The purpose of this paper is to investigate the nature of professionals’ inflation forecasts inattentiveness. We introduce and empirically investigate a new generalized model of inattentiveness due to informational rigidity. In doing so, we outline a novel model that considers the non-linear relationship between inattentiveness and aggregate uncertainty, which crucially distinguishes between macro-economic and data (measurement error) uncertainty. The empirical analysis uses the Survey of Professional Forecasters data and indicates that inattentiveness due to imperfect information explains professional forecasts’ dynamics.
    Keywords: Forecasting Popular Votes Shares; Electoral Poll; Forecast combination, Hybrid model; Support Vector Machine
    Date: 2022–03
  70. By: Wataru Takahashi (Faculty of Economics, Osaka University of Economics and Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN); Taiji Inui (Japan International Cooperation Agency and Asia Development Bank (ADB), JAPAN)
    Abstract: This paper proposes “Asia Digital Common Currency (ADCC)” aiming at fostering Asian financial markets. We are proposing to issue a digital common currency controlled and managed under multilateral governance framework. As a result, the international currency, which should be an international public good, will be governed by a multilateral system. Under our proposed ADCC, each member country can carry out monetary policy independently. It also has a mechanism to maintain currency sovereignty in digital era. In addition, ADCC will contribute to the development of financial market infrastructures in Asia. It will foster the bond markets and standardize the Asian financial system. Asia lags behind Europe in monetary integration, but historically had experiences in common currency circulation. ADCC is an idea that should be thoroughly considered in order to develop the Asian and Japanese economies in the digital age.
    Keywords: Digital currency; Common currency; International currency as an international public good; Currency sovereignty (Münzhoheit); Anonymity; Independence of monetary policy
    JEL: E42 F33 F36
    Date: 2022–03
  71. By: Pooya Molavi
    Abstract: This paper proposes a general framework in which agents are constrained to use simple time-series models to forecast economic variables and characterizes the resulting bias in the agents' forecasts. It considers agents who can only entertain state-space models with no more than d states, where d measures the agents' cognitive abilities. Agents' models are otherwise unrestricted a priori and disciplined endogenously by maximizing the fit to the true process. When the true process does not have a d-state representation, agents end up with misspecified models and biased forecasts. If the true process satisfies an ergodicity assumption, the bias manifests itself as persistence bias: a tendency to attend to the most persistent observables at the expense of less persistent ones. The bias causes agents' foreword-looking decisions to mimic the dynamics of backward-looking, persistent variables in the economy. It also dampens the response of agents' actions to shocks and leads to additional co-movements between various choices. The paper then proceeds to study the implications of the theory in the context of three calibrated workhorse macro models: the new-Keynesian, real business cycle, and Diamond--Mortensen--Pissarides models. In each case, constraining agents to use simple models brings the model's predictions more in line with the data, without adding any parameters other than the integer d.
    Date: 2022–02
  72. By: Denisa Naidin; Sofie R. Waltl; Michael Ziegelmeyer
    Abstract: Reliable macroeconomic housing and wealth statistics as well as counterfactual analyses across housing tenure status require hypothetical sales and rent prices for properties off the market reflecting current market conditions and representing the entire housing stock. We replace subjective values reported by participants in the Luxembourg Household Finance and Consumption Survey by objectified values imputed via hedonic models estimated on observable market data. We find that the participants’ tendency to over- and under-report values is strongly correlated with tenure length, tenure type, type of dwelling, household income and wealth. We find shifts in the wealth distribution, detect large regional variation in price-to-rent, price-to-income and rent-to-income ratios as well as stark affordability concerns: only 18% of all renting households could theoretically afford to purchase the dwelling they rent given current market conditions. These renters are usually younger, placed at the top of the wealth and income distribution, and reside outside Luxembourg City.
    Keywords: Macroeconomic Statistics; Housing Wealth; Subjective Assessments; Affordability; Surveys; Measurement Errors; Housing and Rent Markets
    JEL: E58
    Date: 2022–03
  73. By: Hauber, Philipp
    Abstract: Factor models feature prominently in the macroeconomic nowcasting literature, yet no clear consensus has emerged regarding the question of how many and which variables to select in such applications. Examples of both large-scale models, estimated with data sets consisting of over 100 time series as well as small-scale models based on only a few, pre-selected variables can be found in the literature. To adress the issue of variable selection in factor models, in this paper we employ sparse priors on the loadings matrix. These priors concentrate more mass at zero than those conventionally used in the literature while retaining fat tails to capture signals. As a result, variable selection and estimation can be performed simultaneously in a Bayesian framework. Using large data sets consisting of over 100 variables, we evaluate the performance of sparse factor models in real-time for US and German GDP point and density nowcasts. We find that sparse priors lead to relatively small gains in nowcast accuracy compared to a benchmark Normal prior. Moreover, different types of sparse priors discussed in the literature yield very similar results. Our findings are compatible with the hypothesis that large macroeconomic data sets typically used in now- or forecasting applications are not sparse but dense.
    Keywords: factor models,sparsity,nowcasting,variable selection
    JEL: C11 C53 C55 E37
    Date: 2022
  74. By: Ignacio Sacristán López-Bravo; Carlos San Juan Mesonada
    Abstract: This paper analyses the impact of the fiscal-monetary policy mix on the convergence on per capita income of the least developed regions (Objective 1) of the European Union (EU 28) during the implementation of the three European Structural and Investment Funds (ESIF) programmes between 2000 and 2020. The Solow-Swan growth model with control variables allows us to assess the absorption capacity of regions in the different phases of the economic cycle. The empirical results show the effectiveness of EU Regional and Cohesion Policy. However, the combination of fiscal and monetary policy shows an impact that is asymmetric, depending on the region. Thus, a policy mix of fiscal restraint and monetary expansion would boost growth in all regions, but would slow down the convergence process in Objective 1 regions.
    Date: 2022
  75. By: Aryan Eftekhari; Simon Scheidegger
    Abstract: We propose a scalable method for computing global solutions of nonlinear, high-dimensional dynamic stochastic economic models. First, within a time iteration framework, we approximate economic policy functions using an adaptive, high-dimensional model representation scheme, combined with adaptive sparse grids to address the ubiquitous challenge of the curse of dimensionality. Moreover, the adaptivity within the individual component functions increases sparsity since grid points are added only where they are most needed, that is, in regions with steep gradients or at nondifferentiabilities. Second, we introduce a performant vectorization scheme for the interpolation compute kernel. Third, the algorithm is hybrid parallelized, leveraging both distributed- and shared-memory architectures. We observe significant speedups over the state-of-the-art techniques, and almost ideal strong scaling up to at least $1,000$ compute nodes of a Cray XC$50$ system at the Swiss National Supercomputing Center. Finally, to demonstrate our method's broad applicability, we compute global solutions to two variates of a high-dimensional international real business cycle model up to $300$ continuous state variables. In addition, we highlight a complementary advantage of the framework, which allows for a priori analysis of the model complexity.
    Date: 2022–02
  76. By: Ciola, Emanuele; Turco, Enrico; Gurgone, Andrea; Bazzana, Davide; Vergalli, Sergio; Menoncin, Francesco
    Abstract: The global energy crisis that began in fall 2021 and the following spike in energy price constitute a major challenge for the world economy which risks undermining the post-COVID-19 recovery. In this paper, we develop and validate a new macroeconomic agent-based model with an endogenous energy sector to analyse the role of energy in the functioning of a complex adaptive system and assess the effects of energy shocks on the economic dynamics. The economic system is populated by heterogeneous agents, i.e., households, firms and banks, who take optimal decision rules and interact in decentralized markets characterized by limited information. After calibrating the model on US quarterly macroeconomic data, we investigate the economic and distributional effects of different types of energy shocks, that is an exogenous increase in the price of natural resources such as oil or gas and a decrease in the energy firms' productivity. We find that whereas the two energy shocks entail similar effects at the aggreagate level, the distribution of gains and losses across sectors is largely driven by the subsequent impact on the relative energy price, which varies depending on the type of shock. Our results suggest that, in order to design effective measures in response to energy crises, policymakers need to carefully take into account the nature of energy shocks and the resulting distributional effects.
    Keywords: Political Economy, Production Economics, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy
    Date: 2022–03–07
  77. By: Karsten Kohler
    Abstract: The paper offers a monetary perspective on the role of capital flows in the Eurozone's north-south divide. It argues that finance-centric narratives in Comparative Political Economy rightly emphasise financial instability in the periphery, but that the role of capital flows therein requires clarification. The paper draws on post-Keynesian monetary theory, coherent accounting, and balance-of-payments data to make three main points. First, the focus on the financial account as a driver of current accounts should be abandoned in favour of an analysis of gross capital flows. Gross flows need not stem from excess savings in core countries and can be independent from trade flows. Second, speculative portfolio flows into bond markets and foreign direct investment into real estate are causally more important than interbank flows in driving financial instability. Third, rising spreads in the periphery during the Eurozone crisis and the outbreak of the pandemic were not triggered by balance-of-payments problems but by a reversal of speculative flows in government bond markets. The argument suggests that Comparative Political Economy should dedicate more attention to institutions that render peripheral countries particularly susceptible to speculative capital flows into asset markets.
    Keywords: Gross capital flows, balance-of-payments, current account imbalances, Eurozone crisis, sudden stop, comparative political economy, post-Keynesian macroeconomics
    JEL: E12 F32 F36 F41 O57
    Date: 2022–03
  78. 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: E23; F21; F30; L96; O55
    Date: 2022–01
  79. By: David Cimon; Adrian Walton
    Abstract: In the onset of the COVID-19 crisis, central banks purchased large volumes of assets in an effort to keep markets operational. We model one such central bank, which purchases assets from dealers to alleviate balance sheet constraints. Asset purchases can prevent market breakdown, improve price efficiency and reduce dealer risk positions. A central bank that purchases assets at their expected value is able to achieve market outcomes as if dealers were unconstrained. Absent other concerns, central banks can maximize welfare by purchasing assets at a premium, though they may create market distortions. Alternatively, central banks who bear costs associated with large interventions may only be willing to purchase assets at a discount. In the absence of leverage constraints, lending programs are as effective as asset purchases; when leverage constraints are present, lending programs lose effectiveness.
    Keywords: Coronavirus disease (COVID-19); Economic models; Financial institutions; Financial markets; Market structure and pricing
    JEL: G10 G20 L10
    Date: 2022–03
  80. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The Russian invasion of Ukraine has triggered a humanitarian, economic, financial and political crisis that will reverberate across Europe. In this Policy Note we analyse the short- and medium-term implications of the conflict. We find that the most severe economic and financial impact will be in Ukraine and Russia. Much of Ukraine is already devastated by the war, with around 19m people and over half of the country’s GDP in the regions currently directly affected. Meanwhile we estimate that Russian GDP will contract by 7-8% this year, and inflation will accelerate to close to 30% by the end of 2022. For the rest of Europe, the impact will be felt via various channels, with the most significant so far being inflation on the back of high energy prices. If the EU were to ban imports of energy from Russia, or if Russia itself limits or stops gas exports to the EU, the trade impacts would be much more significant. The medium- and long-term outlook for Ukraine, Russia and the rest of Europe has been changed radically by the events of the last few weeks. For Ukraine, if one part of the country is occupied and the other part remains independent, economic outcomes will be very divergent, but the non-occupied part would see many refugees return, would receive massive Western financial support and could look forward to greater integration with the EU. For Russia, the economy will lose its access to Western technological transfer, and this cannot be fully compensated by China; an already meagre medium-term growth outlook has now deteriorated further. Meanwhile there are four main areas of structural change and lasting impact for the EU and Europe more broadly the EU will get more serious about defence, the green transition will gather pace, broader Eurasian economic integration will be unwound, and the EU accession prospects for countries in Southeast Europe could (and should) improve.
    Keywords: Ukraine, Russia, EU, US, sanctions, energy, CEE
    JEL: F51 E31
    Date: 2022–03
  81. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: Against the backdrop of covid19 pandemic, measuring unpaid care economy is significant to capture the roles and well-being of men and women. The COVID-19 pandemic has slowed down the global economy, however there is an increasing recognition that the care economy was "working harder than ever". The economists and policymakers are increasingly getting aware of the consistently ignored care economy in their models and macroeconomic policies. This paper analyses the unpaid care sector in India using the recent Time Use Survey 2020 and explores the fiscal policy measures to address the sector. In India, the Time Use Survey was conducted in 1999-2000, for only selected six States of India. After twenty years, Government of India published the second macro-level Time Use Survey for all the States and Union Territories in India. The chronology of 1440 minutes a day coded into economic activities under Systems of National Accounts (SNA) and Non-SNA in the Time Use Survey 2020 provides evidence for time poverty and time stress, especially for women in rural and urban India. Time poverty affects the income poverty. The allocation and efficiency of nonmarket working time in the unpaid care economy is important for economic growth along with market working time. As the macro policies are constructed only on the basis of market economy, the nonmarket work in the unpaid care economy continues to remain statistically invisible. The link between fiscal policy and time allocation suggest that worsening public infrastructure investment affects the market work with evident gender differentials. The fiscal policies designed to redress income poverty can be partial if we do not take into account the aspects of time poverty. In the post-pandemic fiscal strategy, strengthening the "Employer of Last Resort" (ELR) policy is crucial for tackling the plummeting employment and the humanitarian crisis. However, unless a comprehensive care economy policy is integrated in the Public Financial Management (PFM) tool like gender budgeting to tackle the time poverty in India, the efficacy of such ELR policies can be partial, due to significant gender differentials in accessing the ELR fiscal space.
    Date: 2022–02
  82. By: Daniel Gros; Alessandro Liscai; Farzaneh Shamsfakhr
    Abstract: The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.
    Date: 2022
  83. By: Kim Huynh; Gradon Nicholls; Oleksandr Shcherbakov
    Abstract: The market for payments is an important two-sided one, where consumers benefit from increased merchant acceptance of payment cards and vice versa. The dependence between the decisions that are made on each side of the market results in various network externalities that are often discussed but rarely quantified. We construct and estimate a structural two-stage model of equilibrium in a market for payments in order to quantify the network externalities and identify the main determinants of consumer and merchant decisions. The estimation results suggest significant heterogeneity in consumer adoption costs and benefits. We discuss the critical characteristics that determine which payment instrument is used at the point of sale. Our counterfactual simulation measures the degree of excessive intermediation by credit card providers.
    Keywords: Bank notes; Digital currencies and fintech; Econometric and statistical methods; Financial services
    JEL: C51 D12 E42 L14
    Date: 2022–03
  84. By: Thomas Klitgaard
    Abstract: The initial phase of the pandemic saw the euro area and U.S unemployment rates behave quite differently, with the rate for the United States rising much more dramatically than the euro area rate. Two years on, the rates for both regions are back near pre-pandemic levels. A key difference, though, is that U.S. employment levels were down by 3.0 million jobs in 2021:Q4 relative to pre-pandemic levels, while the number of euro area jobs was up 600,000. A look at employment by industry shows that both regions had large shortfalls in the accommodation and food services industries, as expected. A key difference is the government sector, with the number of those jobs in the euro area up by 1.5 million, while the government sector in the United States shed 600,000.
    Keywords: labor market; United States; euro area; employment; unemployment rate; public sector; government; leisure; hospitality; pandemic; recovery; COVID-19; job retention schemes
    JEL: J21 J00
    Date: 2022–03–30
  85. By: Edmond Berisha; Ram Sewak Dubey; Orkideh Gharehgozli
    Abstract: In the recent times of global Covid pandemic, the Federal Reserve has raised the concerns of upsurges in prices. Given the complexity of interaction between inflation and inequality, we examine whether the impact of inflation on inequality differs among distinct levels of income inequality across the US states. Results reveal that there is a negative contemporaneous effect of inflation on the inequality which becomes stronger with higher levels of income inequality. However, over a one year period, we find higher inflation rate to further increase income inequality only when income inequality is initially relatively low.
    Date: 2022–02
  86. By: Chudik, A.; Pesaran, M. H.; Smith, R. P.
    Abstract: The idea that certain economic variables are roughly constant in the long-run is an old one. Kaldor described them as stylized facts, whereas Klein and Kosobud labelled them great ratios. While such ratios are widely adopted in theoretical models in economics as conditions for balanced growth, arbitrage or solvency, the empirical literature has tended to find little evidence for them. We argue that this outcome could be due to episodic failure of cointegration, possible two-way causality between the variables in the ratios, and cross-country error dependence due to latent factors. We propose a new system pooled mean group estimator (SPMG) to deal with these features. Using this new panel estimator and a dataset spanning almost one and half centuries and seventeen countries, we find support for five out of the seven great ratios that we consider. Extensive Monte Carlo experiments also show that the SPMG estimator with bootstrapped confidence intervals stands out as the only estimator with satisfactory small sample properties.
    Keywords: Great ratios, debt, consumption, and investment to GDP ratios, arbitrage conditions, heterogeneous panels, episodic cointegration, two-way long-run causality, error cross-sectional dependence
    JEL: B40 C18 C33 C50
    Date: 2022–03–04
  87. By: Chen Yeh (Federal Reserve Bank of Richmond); Claudia Macaluso (Federal Reserve Bank of Richmond); Brah J. Hershbein (W.E. Upjohn Institute for Employment Research)
    Abstract: This paper quantifies the extent to which the U.S. manufacturing labor market is characterized by employer market power and how such market power has changed over time. We find that the vast majority of U.S. manufacturing plants operate in a monopsonistic environment and, at least since the early 2000s, the labor market in U.S. manufacturing has become more monopsonistic. To reach this conclusion, we exploit rich administrative data for U.S. manufacturers and estimate plant-level markdowns—the ratio between a plant’s marginal revenue product of labor and its wage. In a competitive labor market, markdowns would be equal to unity. Instead, we find substantial deviations from perfect competition, as markdowns average 1.53. This result implies that a worker employed at the average manufacturing plant earns 65 cents on each dollar generated on the margin. To investigate long-term trends in employer market power, we propose a novel measure for the aggregate markdown that is consistent with aggregate wedges and also incorporates the local nature of labor markets. We find that the aggregate markdown decreased between the late 1970s and the early 2000s, but has been sharply increasing since.
    Keywords: Monopsony, labor market power, markdowns, secular trends
    JEL: E2 J2 J3 J42
    Date: 2022–03
  88. By: Barry Eichengreen; Ganesh Viswanath-Natraj
    Abstract: Stablecoins and central bank digital currencies are on the horizon in Asia, and in some cases have already arrived. This paper provides new analysis and a critique of the use case for both forms of digital currency. It provides time-varying estimates of devaluation risk for the leading stablecoin, Tether, using data from the futures market. It describes the formidable obstacles to widespread use of central bank digital currencies in cross-border transactions, the context in which their utility is arguably greatest. The bottom line is that significant uncertainties continue to dog the region's digital currency initiatives.
    Date: 2022–02
  89. By: Moura, Rubens (Université catholique de Louvain, LIDAM/LFIN, Belgium)
    Abstract: The R package MultiATSM provides several estimation routines and additional outputs for eight classes of affine term structure of interest rates models (ATSMs). All the ATSMs from this package build on the single-country unspanned macroeconomic risk framework by Joslin, Priebsch, and Singleton (2014). The MultiATSM package also features alternative multicountry extensions based on the settings of Jotikasthira, Le, and Lundblad (2015), which imposes the existence of a dominant (global) economy, and Candelon and Moura (2021), where the joint dynamics of the risk factors are captured by a GVAR setup. For each ATSM, the MultiATSM package produces a set of model outputs that includes: (i) the graphical representations from the model fit, the orthogonalized and generalized versions of impulse response and forecast error variance decomposition from bond yields and risk factors; (ii) a number of bootstrap procedures for constructing confidence intervals, and (iii) out-of-sample forecasting of bond yields.
    Keywords: Term structure of interest rates models ; macrofinance ; international finance ; financialeconomic connectedness ; R ; MultiATSM
    Date: 2022–01–01
  90. By: Enkhbayar Shagdar (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: This paper evaluates macro-economic impacts of the various policy measures implemented by governments in response to the worldwide COVID-19 pandemic by employing the standard GTAP Model and Data Base 10a, with Mongolia as the focus area. The simulation results demonstrate that Mongolia’s real economy would witness a 4.9% contraction, which is relatively compatible with the actual rate of -4.6% in 2020. All components of the welfare indicator are negative, and the country’s total welfare losses would equal $772.2 million. Most welfare deficits are associated with productivity drops followed by the terms of trade in goods and services and allocative efficiency losses. Also, both merchandise exports and imports decline along with worsening of the terms of trade. The pandemic triggers output drops for almost all sectors in Mongolia, including its major industry—the extractive sector. A few industries, such as textiles, other foods, and apparel, would experience output growths despite the pandemic shocks. However, the low self-sufficiency rates of these industries would undermine their output expansions during a prolonged pandemic, such as COVID-19. The Mongolian government’s stimulus packages to minimize the negative impacts of the pandemic on its economy have had positive effects on households by supporting consumption. However, unskilled labor has been the most vulnerable group during the pandemic, so it is desirable to implement targeted programs over universal stimuluses.
    Keywords: COVID-19 impacts, Economic growth, Welfare Impacts, CGE analysis
    JEL: E01 F17 C68
    Date: 2022–03
  91. By: Carlo Gianelle (European Commission - DG REGIO); Fabrizio Guzzo (European Commission - JRC); Javier Barbero (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: This paper provides insights on the potential macroeconomic impact of the European innovation policy for Smart Specialisation governance. We use original empirical data on the governance of the policy, funded through a dedicated financial envelope of the 2014-2020 EU cohesion policy, in a spatial macroeconomic modelling framework capable of gauging the general equilibrium effects of varying degrees of governance quality. Our contribution aims at narrowing the gap between the abstraction of ex-ante impact assessment exercises based on macroeconomic simulations and the reality of how policy interventions may take place. By using data for all Italian NUTS 2 regions, we find that the measured quality of Smart Specialisation governance could increase the pure investment-related impact of the policy by 23 to almost 40 percent. At the same time, we estimate that further potential GDP gains – in the order of an additional 40-50 percent over what was achieved with current levels of governance – would not materialize because of the comparatively low quality of governance in some regions.
    Keywords: Governance, Smart Specialisation, General equilibrium modelling
    JEL: C68 E61 O32
    Date: 2022–03
  92. By: Jingwen Yin (Graduate School of Economics, Kobe University, JAPAN); Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Asian Growth Research Institute, Institute of Social and Economic Research, Osaka University, Institute of Economic Research, Kyoto University, National Bureau of Economic Research, JAPAN)
    Abstract: In this paper, we use provincial panel data on China for the 2002-19 period to conduct a spatial autocorrelation analysis of household saving rates as well as a dynamic panel analysis of the determinants of household saving rates using a spatial Durbin model. To summarize our main findings, we find that, in China, the household saving rate shows significant positive spatial autocorrelation with an overall "high-high" and "low-low" clustering pattern, that, as predicted by the life-cycle hypothesis, the youth dependency ratio and the old-age dependency ratio have a negative and significant impact on the household saving rate, and that the logarithm of per capita household disposable income, the regional economic growth rate, the share of the urban population, the industrialization rate, and the income disparity between urban and rural areas also have a significant impact on the household saving rate.
    Keywords: Age structure of the population; China; Dependency ratio; Household saving rate; Life-cycle hypothesis or model; Old-age dependency ratio; Spatial autocorrelation; Spatial Durbin model; Youth dependency ratio
    JEL: D14 D15 E21 G51 J11 O16 R20
    Date: 2022–03
  93. By: Romani, Ilenia; Galeotti, Marzio; Lanza, Alessandro
    Abstract: The funds allocated by the National Recovery and Resilience Plan (NRRP) aim to trigger a multiplier effect on GDP as they are designed to help the recovery after the Covid-19 pandemic. The GDP increase is in turn expected to drive energy consumption up which will increase CO2 emissions, given that fossil fuels still account for 79% of the Italian total primary energy consumption. At the same time, as the NRRPs are part of the EU Green Deal, an important share of the Plan’s investments is aimed at facilitating the green transition, with expected favorable effects on emissions. Which one of these two effects will prevail remains to be ascertained. In this study we have used the GEM (Global Economic Model) by Oxford Economics to build a number of scenarios and generate the relevant simulations aimed at assessing the impact of the Italian NRRP’s interventions on energy consumption and CO2 emissions. To validate the use of GEM we extensively considered the macroeconomic impact on GDP and unemployment rate generated by the model and compare the results to those presented by other institutions and obtained using different models. The results show that when the green investments of the NRRP display their effects, there are climatic benefits in terms of reduced emissions. Compared to the implementation of the NRRP in 2021, however, the reduction in emissions by 2030 is modest and equal to 5%. As those investments largely refer to the adoption of clean technologies, the climate benefits are likely to be more substantial only in subsequent years and over longer horizons.
    Keywords: Financial Economics, Political Economy, Production Economics
    Date: 2022–02–28
  94. By: Alvaredo, Facundo; De Rosa, Mauricio; Flores, Ignacio; Morgan, Marc
    Abstract: There is a large gap between income estimates used in inequality studies and macroeconomic statistics. This makes it hard to assess how economic growth is distributed across the population, and to what extent mainstream distributional statistics are an accurate representation of income flows. We take stock of these discrepancies by confronting estimates of the income distribution from surveys, administrative records and aggregates from the system of national accounts, thoroughly documenting them over the past two decades for ten Latin American countries. We find that surveys only account for around half of the macroeconomic income in the region. Measurement gaps account for just over half of the overall gap on average, while the rest is due to conceptual differences across data sets. Measurement gaps have been growing fast for many countries, the bulk being due to non-covered capital income. We also compare the top tails in administrative data and surveys, finding diverging averages—especially for non-wage incomes—and different shapes. We discuss the degree to which inequality levels and trends could be affected. (Stone Center on Socio-Economic Inequality Working Paper)
    Date: 2022–03–23
  95. By: Patrick T. Harker
    Abstract: Philadelphia Fed President Patrick T. Harker noted the “underlying strength of the U.S. economy” during his first in-person speech since the pandemic began. Speaking at the Center for Financial Stability, Harker said that job growth is robust and that the housing market is “largely healthy.” However, he voiced concerns about inflation. He said that is why the Fed raised the federal funds rate for the first time since 2018 and that he expects “a series of deliberate, methodical hikes” this year.
    Date: 2022–03–29
  96. By: Hinh T. Dinh
    Abstract: COVID-19 has caused serious damage throughout the entire world. As of mid-2021, the global fiscal cost of COVID-19—excluding the most important consequences, such as human lives, mental health effects, restrictions of human freedom, and other non-pecuniary components, have amounted to at least $16.5 trillion, about 18% of world GDP (Dinh 2021). Financial support has varied across countries depending on income level, political willingness, and the extent of the pandemic in each economy. As a result, fiscal deficits in both developed and developing countries have risen. For the former, the increase in the fiscal deficit comes from both rising expenditures and declining revenues. For the latter, the fiscal deficit increase heavily reflects the collapse in fiscal revenue. However, the saga does not end here. In the coming 12–18 months, developing countries will continue to deal with the pandemic. They will be required to find resources to control the disease. In addition, governments are expected to continue to provide social protection— especially in terms of cash transfers for vulnerable populations—in order to protect the labor supply. These needs will pose massive challenges for countries under tight financial constraints, especially those at risk of debt distress. Thus, we will explore the implications of this necessary spending on the macrostability of selected developing countries.
    Date: 2022–01
  97. By: Meyer, Josefin; Reinhart, Carmen M.; Trebesch, Christoph
    Abstract: This paper studies external sovereign bonds as an asset class. We compile a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering up to 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3-4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds. The observed returns are hard to reconcile with canonical theoretical models and the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median creditor loss (haircut) is below 50 percent.
    JEL: E4 F3 F4 G1 N0
    Date: 2021
  98. By: Christian Bayer; Alexander Kriwoluzky; Fabian Seyrich
    Abstract: Nach dem Einmarsch Russlands in die Ukraine haben viele westliche Länder Sanktionen gegen Russland verhängt, insbesondere gegen die Finanzwirtschaft. Doch zu einer Sanktion konnten sich die EU und auch Deutschland bisher nicht durchringen: ein Embargo auf den Import russi-scher Energieträger. Dieses vielfach kritisierte Zögern begründet die Bundesregierung mit den wirtschaftlichen Auswirkungen, die ein Importstopp für die deutsche Wirtschaft haben könnte. Denkbar ist aber auch, dass Russland seine Lieferungen aussetzt. Die vorliegende Modellrech-nung zeigt, durch welche Wirkungskanäle – mit einem Fokus auf der gesamtwirtschaftlichen Nachfrage und vor allem dem privaten Konsum – ein Embargo oder Lieferstopp Deutschland treffen könnte. In dem Basisszenario erstrecken sich die BIP-Verluste über rund zehn Jahre und erreichen ihren Höhepunkt nach 18 Monaten mit einem Minus von drei Prozent. Gleichzeitig würde ein Importstopp zu einem Anstieg der Inflation um bis zu 2,3 Prozentpunkte führen. Das hier verwendete Modell wird dabei so aufgesetzt, dass es die Schwachpunkte einer kürzlich er-schienenen Studie adressiert, indem es sowohl den privaten Konsum als auch die Wechselwir-kungen im Euroraum miteinbezieht. Beide Studien zusammen ergeben ein immer besseres Bild der Wirkungsmechanismen eines Energieembargos auf die deutsche Wirtschaft. Das Modell macht eine Reihe von Annahmen, die in den meisten Fällen realistisch und angemessen sind. Jedoch muss betont werden, dass es noch nie ein solches Embargo in einer solchen Situation gegeben hat, so dass jegliche Annahmen mit Unsicherheit verbunden sind. Die Resultate auf Basis des Modells deuten die Größenordnung der Effekte eines Embargos an und sollen dazu dienen, der Politik eine Orientierung bei einem möglichen Lieferstopp zu geben.
    Date: 2022
  99. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: In this study, nexuses between governance and natural resource rents are assessed in 44 sub-Saharan African countries using data for the period 1996-2016. The empirical evidence is based on Tobit regressions. The findings show that political governance (entailing “voice & accountability†and political stability) and institutional governance (consisting of the rule of law and corruption control) have a negative effect on resource rents. However, if the conception and definition of attendant governance variables are understood within the framework that such variables are negatively skewed, it becomes apparent that bad governance reduces resource rents. This conclusion clarifies the paradox because negatively skewed governance variables are understood to be representing poor governance. By extension, the negative effect of the rule of law or corruption control on natural resource rents should be the negative effect of the absence of the rule of law or lack of corruption control on natural resource rents. The paradox is further clarified in the light of specific components of the governance dynamics. While the clarification of the paradox is relative, especially if the sample is compared with countries for which governance indicators are largely skewed in the positive direction, from an absolute perspective (i.e. exclusively from the sampled countries), the indicators of the World Bank are standardized such that negative skewness does not affect the estimated results. Another worthwhile argument with which to explain the paradox is that governance has more impact on the nonresource component of GDP.
    Keywords: Natural Resources; Economic Growth; Governance; Sub-Saharan Africa
    JEL: H10 Q20 Q30 O11 O55
    Date: 2022–01
  100. By: Luis Bertola (Programa de Historia Económica y Social, Facultad de Ciencias Sociales, Universidad de la República); Laura Gatti (Programa de Historia Económica y Social, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: This paper discusses different alternatives to construct the conventional Historical Human Development Index that considers three dimensions: income, health,and education. We discuss the outcome of different models in terms of aggregated improvements in human development, the rankings of performance, relative growth, the contributions to performance of the different dimensions, and the tradeoffs between the three dimensions. The purpose of the paper is to propose an index that we consider better fits historical development and that provides the less possible gaps in the tradeoffs between the different components of the index. Such an index can be considered the best proxy on which to base policy recommendations. The paper works with a sample of 18 countries of seven regions for 1900-2010.
    Keywords: human development, tradeoffs, convergence, income, education, health
    JEL: E01 I15 I25 I31 N10
    Date: 2021–07
  101. By: Kilström, Matilda (Stockholm School of Economics); Roth, Paula (Research Institute of Industrial Economics (IFN))
    Abstract: In this paper, we study the role of risk-sharing in entrepreneurship-driven innovation. Studying entrepreneurship and innovation entails modeling an occupational choice and an effort choice. Risk-sharing may increase the number of individuals who become entrepreneurs by limiting the downside risk. The effort of entrepreneurs may, however, be hampered by high risk-sharing if this limits the returns faced by successful entrepreneurs relative to unsuccessful entrepreneurs. We construct a simple theoretical model where risk-sharing may be either private or provided through the welfare state by means of taxation. We show that, in addition to the occupational and effort choice dimensions, the level of public risk-sharing also matters for the characteristics of entrepreneurs.
    Keywords: Innovation; Institutions; Growth risk-sharing; Inequality; Incentives
    JEL: D64 E02 O30 O33 O43 O47
    Date: 2021–02–16
  102. By: Ravi Kanbur; Eduardo Ortiz-Juarez; Andy Sumner
    Abstract: This paper focuses on the past and potential future evolution of income (or consumption) inequality in the world over the period 1981-2040. Inequality in the world has fallen by most common definitions since the late 1980s, and this is largely due to a decline in the between-country component of inequality. We argue that the decline in global inequality over the last decades has spurred a 'sunshine' narrative of falling global inequality that has been rather oversold, in the sense, we argue, it is likely to be temporary .
    Keywords: Global inequality, COVID-19, Pandemic
    Date: 2022
  103. By: Anders Jensen; Pierre Bachas; Lucie Gadenne
    Abstract: Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries we proxy for informal consumption using the type of store where purchases occur. We find that the budget share spent in informal stores steeply declines with income, so that the effective tax rate of a broad consumption tax rises with income. Our findings imply that the widespread policy of exempting food from taxation cannot be justified on equity grounds in low-income-countries.
    Keywords: Budget Surveys, Inequality, Informality, Redistribution, Taxes
    JEL: E26 H21 H23
    Date: 2021–09
  104. By: Banerjee, Sudipto (National Institute of Public Finance and Policy); Sane, Renuka (National Institute of Public Finance and Policy); Sharma, Srishti (National Institute of Public Finance and Policy); Suresh, Karthik (National Institute of Public Finance and Policy)
    Abstract: This paper presents the history of disinvestment in India between March 1991 to December 2020. The history can be divided into four broad phases: 1991-1999 (Phase I), 1999-2004 (Phase II), 2004-2014 (Phase III), and 2014-2020 (Phase IV). There have been relatively few strategic sales, and governments have largely preferred the minority sale route.
    Date: 2022–03
  105. By: Sarracino, Francesco; O'Connor, Kelsey J.
    Abstract: We propose a measure of well-being efficiency to assess countries' ability to transform inputs into subjective well-being (Cantril ladder). We use the six inputs (real GDP per capita, healthy life expectancy, social support, freedom of choice, absence of corruption, and generosity) identified in the World Happiness Reports and apply Data Envelopment Analysis to a sample of 126 countries. Efficiency scores reveal that high ranking subjective well-being countries, such as the Nordics, are not strictly the most efficient ones. Also, the scores are uncorrelated with economic efficiency. This means that the implicit assumption that economic efficiency promotes well-being is not supported. Well-being efficiency can be improved by changing the amount (scale) or composition of inputs and their use (technical efficiency). For instance countries with lower unemployment, and greater healthy life expectancy and optimism are more efficient.
    Keywords: subjective well-being,World Happiness Report,efficiency,Data Envelopment Analysis
    JEL: I31 E23 D60 O47 O15
    Date: 2022
  106. By: Pim Pinitjitsamut; Wisarut Suwanprasert
    Abstract: This paper examines informal loans in Thailand using household survey data covering 4,800 individuals in 12 provinces across Thailand’s six regions. We proceed in three steps. First, we establish stylized facts about informal loans. Second, we estimate the effects of household characteristics on the decision to take out an informal loan and the amount of informal loan. We find that age, the number of household members, their savings, and the amount of existing formal loans are the main factors that drive the decision to take out an informal loan. The main determinations of the amount of informal loan are the interest rate, savings, the amount of existing formal loans, the number of household members, and personal income. Third, we train three machine learning models, namely K–Nearest Neighbors, Random Forest, and Gradient Boosting, to predict whether an individual will take out an informal loan and the amount an individual has borrowed through informal loans. We find that the Gradient Boosting technique with the top 15 most important features has the highest prediction rate of 76.46 percent, making it the best model for data classification. Generally, Random Forest outperforms the other two algorithms in both classifying data and predicting the amount of informal loans.
    Keywords: Informal Loans; Machine Learning; Shadow Economy; Thailand; Loan Sharks
    JEL: E26 G51 O16 O17
    Date: 2022–02
  107. By: Suresh Sharma; Jyoti Chaudhary (Institute of Economic Growth, Delhi University, Delhi)
    Abstract: Ageing is an inevitable demographic process occurring globally. Coming decades are projected to see a substantial increase in the elderly population and with rise in their number, the social, economic and health policy landscape for the elderly would also need upgradation in response to their needs. Thus identifying the drivers of health and well-being in elderly is essential. One such potential driver of health could be the daily routine of the elderly which focuses on the nature of activities being performed by them. Utilizing time use data from the Longitudinal Ageing Study of India (LASI), we examine the time allocation of the elderly, looking into how much time the elderly spend on active participation and how this allocation varies according to their socio-economic and demographic context. We further explore the association between self-rated health, wellbeing and daily activity engagement decisions of the elderly. The results from the analysis provide insight into activity engagement choices of the elderly across varying socio-economic classes. Time spent in working/volunteering and in exercising was found to have significant positive association with health and well-being indicators. Our results also show that the gender difference in nature of time utilisation by elderly is pervasive. For ageing to be successful, an active daily schedule for elderly needs to become a key concept of the social policy. Building employment opportunities for elderly and considering increasing the retirement age in a phased manner would not only lead to financial independence but also contribute to better health and well-being among them. Setting up community elderly associations aimed at teaching and promoting health enhancing activities among elderly can be considered. Length: 18 pages
    Keywords: Elderly, Time-Use Data, Health & Wellbeing, Policy
    JEL: E52 G12
    Date: 2022–02–01
  108. By: Benton, Eleanor; Karlsson, Jacob; Pinter, Ilona; Provan, Bert; Scanlon, Kathleen; Whitehead, Christine M E
    Abstract: This report estimates the monetised social and economic gains (benefits) of removing of the No Recourse to Public Funds (NRPF) condition for certain household in England. It compares this to the costs of allowing them to be able to apply for welfare benefits and various public services paid for from public funds. This is in the form of a Social Cost Benefit Analysis and was prepared as an independent analysis for the Greater London Authority. The households in scope are households and families with visas statuses including the right to work, some of whom are on visa routes that could lead to long-term settlement in the UK. These includes holders of Tier 1, 2 or 5 visas who come to the UK to work and their dependents; those who are in the UK because of family links; dependents or others who are linked to the primary visa holder and those estimated to come via the Hong Kong British National Overseas scheme. The report estimates that there are approximately 362,000 households, including 106,000 households with children, would potentially be affected by lifting the NRPF condition. Access to public funds would be restricted by existing qualifying conditions limiting access to welfare benefits and other services to households in need of this public assistance. It found that, over ten years, removing the NRPF condition just for households with children and other vulnerable individuals would result in a net gain of £872 million. Removing the condition for all those on these visas would result in a £428 million net gain.
    JEL: E6 J1
    Date: 2022–03–22
  109. By: Jon D. Wisman
    Abstract: John Maynard Keynes rejected the strict assumption of rational behavior embraced by neoclassical economists, providing causal importance to instincts, habits, and intuition. However, he mostly failed, as did they, to incorporate in his analysis that human decisions are frequently, if not most often, dependent upon the decisions of others. Further, and more particularly, he failed to grant importance to the fact that humans struggle for the recognition and social status necessary for social and self-respect. Thorstein Veblen also rejected the neoclassical expression of rational behavior, and 37 years before Keynes's The General Theory, focused upon interdependence in decision making and status competition by drawing upon Charles Darwin's theory of evolutionary biology to ground in science his theory of human behavior. Had Keynes read Veblen's The Theory of the Leisure Class (1899), he may have recognized the need in his own theory to account for interpersonal decision making and especially of incorporating the struggle for social recognition and status. This article examines how drawing upon aspects of Veblen's work would have enriched the explanatory power of Keynes's economics as well as that of those engaged in furthering Keynes's project. It concludes with reflections on the necessity that economic analysis, and social science generally, be constructed upon a scientifically-grounded conception of human behavior.
    Keywords: Marginal propensity to consume, Conspicuous consumption, Darwinism, Instinct, Status, Emulation
    JEL: B22 B41 E12 E71
    Date: 2022

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