nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒05‒02
99 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy and Asset Price Overshooting: A Rationale for the Wall/Main Street Disconnect By Ricardo J. Caballero; Alp Simsek
  2. Inclusive Monetary Policy: How Tight Labor Markets Facilitate Broad-Based Employment Growth By Nittai K. Bergman; David Matsa; Michael Weber; Michael Weber
  3. From Low to High Inflation: Implications for Emerging Market and Developing Economies By Ha, Jongrim; Kose, Ayhan M.; Ohnsorge, Franziska
  4. Overshadowed by War and Sanctions By Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Selena Duraković; Richard Grieveson; Doris Hanzl-Weiss; Gabor Hunya; Branimir Jovanović; Artem Kochnev; Niko Korpar; Sebastian Leitner; Isilda Mara; Bernhard Moshammer; Olga Pindyuk; Sandor Richter; Bernd Christoph Ströhm; Maryna Tverdostup; Nina Vujanović; Zuzana Zavarská; Adam Żurawski
  5. Monetary Policy in a Model of Growth By Albert Queraltó
  6. Credible Forward Guidance By Taisuke Nakata; Takeki Sunakawa
  7. Hysteresis, endogenous growth, and monetary policy By Sebastián Amador
  8. When Household Heterogeneity Matters Optimal Fiscal Policy in a Medium-Scale TANK Model By François Courtoy
  9. Optimal Monetary Policy Rules in the Fiscal Theory of the Price Level By Boris Chafwehé; Charles de Beauffort; Rigas Oikonomou
  10. A Reassessment of Monetary Policy Surprises and High-Frequency Identification By Michael D. Bauer; Eric T. Swanson
  11. What Do the Data Tell Us about Inflation Expectations? By Francesco D'Acunto; Ulrike M. Malmendier; Michael Weber; Michael Weber
  12. Appendix for: Optimal Cooperative Taxation in the Global Economy By V. V. Chari; Juan Pablo Nicolini; Pedro Teles
  13. Temperature surprise shocks By Natoli, Filippo
  14. To Consolidate or Not to Consolidate? A Multi-Step Analysis to Assess Needed Fiscal Sustainability By António Afonso; José Alves; João Tovar Jalles
  15. Agency MBS as Safe Assets By Zhiguo He; Zhaogang Song
  16. Nonbank Finance and Monetary Policy Transmission in Asia By Beirne, John; Renzhi, Nuobu; Volz, Ulrich
  17. Getting on the job ladder: The policy drivers of hiring transitions By Orsetta Causa; Michael Abendschein; Nhung Luu; Maria Chiara Cavalleri
  18. Secular Stagnation: Is Immigration Part of the Solution? By José Alves; Sandro Morgado
  19. Does government spending efficiency improve fiscal sustainability? By António Afonso; José Alves
  20. Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine By Lena Dräger; Klaus Gründler; Niklas Potrafke
  21. Israel: 2022 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  22. Working Paper 362 - Economic Growth, Total Factor Productivity and Output Gap in Sierra Leone By Wolassa L. Kumo
  23. The Problems of Inflation Targeting Originate in the Monetary Theory of Knut Wicksell By Jonung, Lars
  24. Cameroon: 2021 Article IV Consultation and First Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements and Requests for Waivers for Performance Criteria Applicability and Nonobservance and Modification Of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Cameroon By International Monetary Fund
  25. Republic of Madagascar: First Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Republic of Madagascar By International Monetary Fund
  26. Politique monétaire et inflation : les enseignements d’une Règle de Taylor By Kuikeu, Oscar
  27. A benefit of monetary policy response to inequality By Kengo NUTAHARA
  28. Trinidad and Tobago: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Trinidad and Tobago By International Monetary Fund
  29. La Macroeconomía de la cuarentena: Un modelo de dos sectores By Gabriel Rodríguez; Paulo Chávez
  30. Uganda: 2021 Article IV Consultation and First Review under the Extended Credit Facility Arrangement and Requests for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Uganda By International Monetary Fund
  31. The economic impact of Next Generation EU: a euro area perspective By Bańkowski, Krzysztof; Bouabdallah, Othman; Domingues Semeano, João; Dorrucci, Ettore; Freier, Maximilian; Jacquinot, Pascal; Modery, Wolfgang; Rodríguez-Vives, Marta; Valenta, Vilém; Zorell, Nico
  32. Estimating Treatment Effects of Monetary Policies and Macro-prudential Policies: From the Perspectives of Macro-economic Policy Evaluation By Zeqin Liu; Zongwu Cai; Ying Fang
  33. Population growth, immigration and labour market dynamics By Elsby, Michael W. L.; Smith, Jennifer; Wadsworth, Jonathan
  34. Unconventional Monetary Policy in the Euro Area. Impacts on Loans, Employment, and Investment By António Afonso; Francisco Gomes Pereira
  35. Pandemic recession and helicopter money: Venice, 1629-1631 By Masciandaro, Donato; Goodhart, Charles; Ugolini, Stefano
  36. The Alpha Beta Gamma of the Labor Market By Victoria Gregory; Guido Menzio; David Wiczer
  37. What Drives Long-Term Interest Rates? Evidence from the Entire Swiss Franc History 1852-2020 By Niko Hauzenberger; Daniel Kaufmann; Rebecca Stuart; Cédric Tille
  38. La Macroeconomía de la cuarentena: Un modelo de dos sectores By Gabriel Rodríguez; Renato Vassallo
  39. Review of the Fiscal Theory of the Price Level By Hidekazu Niwa
  40. Misallocation and Inequality By Guner, Nezih; Ruggieri, Alessandro
  41. The heterogeneity of Okun’s law: A metaregression analysis By Porras, María Sylvina; Martín-Román, Ángel L.
  42. Interpolation and Shock Persistence of Prewar U.S. Macroeconomic Time Series: A Reconsideration By Dezhbakhsh, Hashem; Levy, Daniel
  43. The case for a cautiously optimistic outlook for US inflation By David Reifschneider; David Wilcox
  44. Sistemul financiar-bancar in era Next Generation EU By Danila, Marius Ioan
  45. Have productivity and pay decoupled in the UK? By Teichgräber, Andreas; Van Reenen, John
  46. People’s Republic of China—Hong Kong Special Administrative Region: 2022 Article IV Consultation Discussions-Press Release; and Staff Report By International Monetary Fund
  47. How Money Relates to Value? An Empirical Examination on Gold, Silver and Bitcoin By José Alves; João Quental Gonçalves
  48. La Macroeconomía de la cuarentena: Un modelo de dos sectores By Gabriel Rodríguez; Junior A. Ojeda Cunya
  49. The Lifetime Costs of Bad Health By De Nardi, Mariacristina; Pashchenko, Svetlana; Porapakkarm, Ponpoje
  50. The Incredible Taylor Principle By Pablo Andrés Neumeyer; Juan Pablo Nicolini
  51. Minimum wages and the China syndrome: causal evidence from US local labor markets By Heath Milsom, Luke; Roland, Isabelle
  52. Ukraine: Request for Purchase under the Rapid Financing Instrument and Cancellation of Stand-by Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Ukraine; By International Monetary Fund
  53. Macroeconomic General Constrained Dynamic models (GCD models) By Glötzl, Erhard
  54. Rescue Policies for Small Businesses in the Covid-19 Recession By Alessandro Di Nola; Leo Kaas; Haomin Wang
  55. General Constrained Dynamic (GCD) models with intertemporal utility functions By Glötzl, Erhard
  56. Exports and the Exchange Rate: A General Equilibrium Perspective By Patrick Alexander; Abeer Reza
  57. Rescue policies for small businesses in the COVID-19 recession By Di Nola, Alessandro; Kaas, Leo; Wang, Haomin
  58. The Effect of Investment Risk, Macroeconomics on Stock Prices in IPO Companies during the Covid-19 Pandemic By Supriyanto
  59. Measuring Labor Market Transitions in Europe: Identification and Validation Analysis By Borowczyk-Martins, Daniel; Pacini, David
  60. 160 Years of Aggregate Supply and Demand in Switzerland By Rebecca Stuart
  61. Minimum Wage and Collective Bargaining Reforms: A Narrative Database for Advanced Economies By António Afonso; João Tovar Jalles; Zoe Venter
  62. Search and Reallocation in the Covid-19 Pandemic: Evidence from the UK By Carlos Carrillo-Tudela; Camila Comunello; Alex Clymo; Annette Jäckle; Ludo Visschers; David Zentler-Munro
  63. Independently green? An integrated strategy for a transformative ECB By Klüh, Ulrich; Urban, Janina
  64. The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households By Marco Cipriani; James A. Clouse; Lorie Logan; Antoine Martin; Will Riordan
  65. Firm Bankruptcies and Start-Up Activity in Switzerland During the Corona Crisis By Florian Eckert; Heiner Mikosch
  66. Bangladesh: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh By International Monetary Fund
  67. Is the Impact of Digitization on Domestic Inflation Non-Linear? The Case of Emerging Markets By Emara, Noha; Zecheru, Daniela
  68. State-Level Economic Policy Uncertainty By Baker, Scott R.; Davis, Steven J.; Levy, Jeffrey A.
  69. Population aging and bank risk-taking By Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
  70. This time is not so different: income dynamics during the Covid-19 recession By Bell, Brian; Bloom, Nicholas; Blundell, Jack
  71. Is Trend Inflation at Risk of Becoming Unanchored? The Role of Inflation Expectations By Danilo Cascaldi-Garcia; J. David López-Salido; Francesca Loria
  72. Intangibles and industry concentration: supersize me By Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
  73. The Fed’s Balance Sheet Runoff and the ON RRP Facility By Marco Cipriani; James A. Clouse; Lorie Logan; Antoine Martin; Will Riordan
  74. Estrategias de precio de los supermercados en Uruguay By Cecilia Regueira
  75. Les coûts de l’inflation By Kuikeu, Oscar
  76. Welfare Effects of Health Insurance Reform: The Role of Elastic Medical Demand By Reona Hagiwara
  77. Empirical modeling of South Africa’s external debt on economic growth (1994 -2020): NARDL Cointegration approach By Stungwa, Sanele
  78. Quantifying the Uncertainty of Long-Term Economic Projections: Working Paper 2022-07 By U. Devrim Demirel; James Otterson
  79. Firm-specific, and institutional determinants of corporate investments in Nigeria By M.Ajide, Folorunsho
  80. Dynamics and Developments of Chinese M&A Transactions in the wake of the BRI: A comparison of Germany and CEEC By Kintzinger, Paulina; Horky, Florian
  81. (Don't Fear) The Yield Curve, Reprise By Eric C. Engstrom; Steven A. Sharpe
  82. Monetary policy and the racial wage gap By Edmond Berisha; Ram Sewak Dubey; Eric Olson
  83. Stock Prices and the Russia-Ukraine War: Sanctions, Energy and ESG By Ming Deng; Markus Leippold; Alexander F. Wagner; Qian Wang
  84. Efectos de la inversión extranjera directa sobre la inversión en América Latina 1970-2017 By Gustavo Bittencourt; Nicolás Reig; Cecilia Rodriguez
  85. The dear old holy Roman realm, how does it hold together? Monetary policies, cross-cutting cleavages and political cohesion in the age of Reformation By Volckart, Oliver
  86. Inequality and Income Dynamics in Germany By Moritz Drechsel-Grau; Andreas Peichl; Johannes F. Schmieder; Kai D. Schmid; Hannes Walz; Stefanie Wolter
  87. Improving Macroeconomic Model Validity and Forecasting Performance with Pooled Country Data using Structural, Reduced Form, and Neural Network Model By Cameron Fen; Samir Undavia
  88. Revisiting the Great Ratios Hypothesis By Alexander Chudik; M. Hashem Pesaran; Ron P. Smith
  89. A multi-dimensional free market and income inequality in developing Asia: How does the quality of governance matter? By Huynh, Cong Minh; Le, Quoc Nha
  90. Bitcoin Awareness, Ownership and Use: 2016–20 By Daniela Balutel; Marie-Hélène Felt; Gradon Nicholls; Marcel Voia
  91. Partisan external borrowing in middle-income countries By Cormier, Ben
  92. Inflation and Stock Market Returns in Zimbabwe: Comparison Among the GARCH, EGARCH and TGARCH Models By Mtero, Charles Tapedza; Runganga, Raynold
  93. Valuation of Loyalty Tokens By Shah, Anand
  94. External Shariah Audit Services from Practitioners' Views: The Case of Malaysian Islamic Banks By M R Yasoa
  95. Did small banks trade-off lending with government bond purchases during the Sovereign debt crisis? By Pietrovito, Filomena; Pozzolo, Alberto Franco
  96. The Productive Capacity And Environment: Evidence From OECD Countries By Oluc, Ihsan; Ben Jebli, Mehdi; Can, Muhlis; Guzel, Ihsan; Brusselaers, Jan
  97. The Money Multiplier and Other Measures of Financial Sector Performance By Zinn, Jesse Aaron
  98. EURO DIGITAL – un raspuns firesc la provocarile actuale By Danila, Marius
  99. The information content of sentiment indices for forecasting Value at Risk and Expected Shortfall in equity markets By Naimoli, Antonio

  1. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their steady-state levels consistent with current potential output). Overshooting leads to a temporary disconnect between the performance of financial markets and the real economy, but it accelerates the recovery. When there is a lower-bound constraint on the discount rate, overshooting becomes a concave and non-monotonic function of the output gap: the asset price boost is low for a deeply negative initial output gap, grows as the output gap improves over a range, and shrinks toward zero as the output gap improves further. This pattern also implies that good macroeconomic news is better news for asset prices when the output gap is more negative. Finally, we document that during the Covid-19 recovery, the policy-induced overshooting was large−sufficient to explain the high levels of stock and house prices in 2021.
    Keywords: monetary policy, aggregate demand inertia, lags, output gap, recovery, asset prices, overshooting, Wall/Main Street disconnect, Covid-19, interest rate lower bound, macroeconomic news, market bond portfolio, QE/LSAPs
    JEL: E21 E32 E43 E44 E52 G12
    Date: 2022
  2. By: Nittai K. Bergman; David Matsa; Michael Weber; Michael Weber
    Abstract: This paper analyzes the heterogeneous effects of monetary policy on workers with differing levels of labor force attachment. Exploiting variation in labor market tightness across metropolitan areas, we show that the employment of populations with lower labor force attachment—Blacks, high school dropouts, and women—is more responsive to expansionary monetary policy in tighter labor markets. The effect builds up over time and is long lasting. We develop a New Keynesian model with heterogeneous workers that rationalizes these results. The model shows that expansionary monetary shocks lead to larger increases in the employment of less attached workers when the central bank follows an average inflation targeting rule and when the Phillips curve is flatter. These findings suggest that, by tightening labor markets, the Federal Reserve’s recent move from a strict to an average inflation targeting framework especially benefits workers with lower labor force attachment.
    Keywords: monetary policy, labor markets, heterogeneous agents, federal reserve
    JEL: E12 E24 E31 E43 E52 E58 J24
    Date: 2022
  3. By: Ha, Jongrim; Kose, Ayhan M.; Ohnsorge, Franziska
    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: 2022–03–29
  4. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Selena Duraković; Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Branimir Jovanović (The Vienna Institute for International Economic Studies, wiiw); Artem Kochnev (The Vienna Institute for International Economic Studies, wiiw); Niko Korpar (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Bernhard Moshammer (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm; Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw); Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw); Zuzana Zavarská (The Vienna Institute for International Economic Studies, wiiw); Adam Żurawski
    Abstract: Our Spring 2022 Forecast comes at a time of pronounced global uncertainty, arising from Russia’s invasion of Ukraine and wide-ranging Western sanctions on Russia. To take account of this, we distinguish between two extreme scenarios. In the baseline scenario, which assumes no further major Western sanctions and some kind of a ceasefire by the middle of 2022, recessions this year will be confined to Ukraine and the bulk of the CIS; elsewhere in CESEE, growth forecasts have been revised downwards by 1-2 percentage points compared to Winter. However, in the adverse scenario, which assumes a further war escalation and an immediate EU embargo on Russian energy, half of the CESEE region will slide into recession, while inflation will soar into the double-digit range nearly everywhere.
    Keywords: CESEE, economic forecast, Central and Eastern Europe, Western Balkans, EU, euro area, CIS, Ukraine, Turkey, convergence, business cycle, coronavirus, labour markets, unemployment, Russia-Ukraine war, Russia sanctions, commodity prices, price controls, trade disruptions, Ukrainian refugees, energy embargo, monetary policy, fiscal policy, impact on Austria
    JEL: E20 E21 E22 E24 E32 E5 E62 F21 F31 H60 I18 J20 J30 O47 O52 O57 P24 P27 P33 P52
    Date: 2022–04
  5. By: Albert Queraltó
    Abstract: Empirical evidence suggests that recessions have long-run effects on the economy's productive capacity. Recent literature embeds endogenous growth mechanisms within business cycle models to account for these "scarring" effects. The optimal conduct of monetary policy in these settings, however, remains largely unexplored. This paper augments the standard sticky-price New Keynesian (NK) to allow for endogenous dynamics in aggregate productivity. The model has a representation similar to the two-equation NK model, with an additional condition linking productivity growth to current and expected future output gaps. Absent state contingency in the subsidies that correct the externalities associated with productivity growth, optimal monetary policy sets inflation above target whenever the subsidies fall short of the externalities. In the recovery from a spell at the ZLB, the optimal discretionary policy sets inflation temporarily above target, helping mitigate the long-run damage. Following a cost-push shock that creates inflationary pressure, the central bank tolerates a larger rise in inflation than in a model with exogenous productivity. The gains from commitment include the central bank's ability to make credible promises about future output gaps in a way that allows it to manipulate current productivity growth.
    Keywords: Business cycles; Growth; Optimal monetary policy; Hysteresis; Scarring
    JEL: E32 E43 E52 E58 O31 O42
    Date: 2022–04–01
  6. By: Taisuke Nakata (Associate Professor, Faculty of Economics, University of Tokyo (E-mail:; Takeki Sunakawa (Associate Professor, Faculty of Economics, Hitotsubashi University (E-mail:
    Abstract: How can the central bank credibly implement a "lower-for- longer" strategy? To answer this question, we analyze a series of optimal sustainable policy problems-indexed by the duration of reputational loss- in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates. We find that, even without an explicit commitment technology, the central bank can still credibly keep the policy rate at the ELB for an extended period-though not as extended as under the optimal commitment policy-and meaningfully mitigate the adverse effects of the ELB constraint on economic activity.
    Keywords: Average Inflation Targeting, Effective Lower Bound, Forward Guidance, Sustainable Plan, Time-Consistency
    JEL: E32 E52 E61 E62 E63
    Date: 2022–04
  7. By: Sebastián Amador (Department of Economics, University of California Davis)
    Abstract: I provide evidence of substantial hysteresis (i.e., a situation in which temporary shocks have long-run effects) from monetary shocks on two sources of endogenous growth; human capital and technological adoption. This contribution is the first to test for the presence of this phenomenon in direct measures of the supply-side potential of economies, instead of indirect measures, e.g., TFP. To estimate the effects of exogenous monetary policy shocks, I improve on the the trilemma identification by incorporating a mean-unbiased instrumental variable estimator. Results show substantial hysteresis in both human capital and technological adoption. Importantly, these are found to be asymmetric, as only contractionary shocks result in long lasting responses. I evaluate the aggregate importance of monetary hysteresis with a growth accounting exercise. Across the 17 countries in sample, the accumulated average cost of monetary hysteresis ranges between 1.2 and 9.6% of TFP, for human capital and the adoption of electricity, respectively.
    Keywords: hysteresis, money non-neutrality, endogenous growth
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2022–04–20
  8. By: François Courtoy (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: We investigate the role of household heterogeneity in terms of marginal propensity to consume and of labor income for the design of optimal fiscal policy over the business cycle. We estimate a two agent New-Keynesian (TANK) medium scale model introducing aggregate shocks as in Smets and Wouters (2007) and allowing idiosyncratic shocks to impact household behavior. We further ensure that the government can set lump sum transfers and distortionary taxes to redistribute across households and finance deficit fluctuations across the business cycle. Estimating the model with US data on household earnings shows limited influence on the estimated parameters of the model, however it identifies heterogeneity across household types as a key driving force of the business cycle. Using the estimated model we solve an optimal fiscal policy problem assuming that a benevolent government sets taxes and transfers under commitment. Under optimal policy, fiscal variables display considerable volatility and respond considerably to shocks to labor income at the low end of the distribution. These shocks are also important for the optimal policy model to match the properties of fiscal variables seen in the US data.
    Keywords: Optimal taxation, marginal propensity to consume, DSGE models, Bayesian estimation, Household Heterogeneity
    JEL: E32 E62 H21 H23 H31
    Date: 2022–04–05
  9. By: Boris Chafwehé (Joint Research Centre, European Commission); Charles de Beauffort (National Bank of Belgium); Rigas Oikonomou (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: In the fiscal theory of the price level, inflation and debt dynamics are determined jointly. We derive optimal monetary policy rules that can approximate the Ramsey outcome in this environment. When the government issues a portfolio of bonds of different maturities and buys it back every period the optimal interest rate response to inflation is a simple, transparent function of the average debt maturity. This policy exploits the maturity structure to minimize the intertemporal variability of inflation in response to fiscal shocks. We then turn to the more realistic scenario of a government that does not repurchase and reissue debt in every period. In the case where debt is only long term, the optimal policy equilibrium features oscillations in inflation and simple interest rate rules may lead to explosive inflation dynamics. Issuing both short and long bonds rules out oscillations and implies that simple inflation targeting rules can approximate the Ramsey outcome. Under no repurchases a flat maturity structure of debt is optimal to reduce inflation variability.
    Keywords: Fiscal Theory, Optimal Interest Rates, Government Debt Maturity, Ramsey policy
    JEL: E31 E52 E58 E62 C11
    Date: 2022–03–28
  10. By: Michael D. Bauer; Eric T. Swanson
    Abstract: High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. We address these concerns in two ways: First, we expand the set of monetary policy announcements to include speeches by the Fed Chair, which essentially doubles the number and importance of announcements in our dataset. Second, we explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data. Our subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on financial markets are largely unchanged. Second, estimates of the macroeconomic effects of monetary policy are substantially larger and more significant than what most previous empirical studies have found.
    Keywords: FOMC, policy rule, monetary transmission, SVAR, external instruments
    JEL: E43 E52 E58
    Date: 2022
  11. By: Francesco D'Acunto; Ulrike M. Malmendier; Michael Weber; Michael Weber
    Abstract: Inflation expectations are central to economics because they affect the effectiveness of fiscal and monetary policy as well as realized inflation. We survey the recent literature with a focus on the inflation expectations of households. We first review standard data sources and discuss their advantages and disadvantages. We then document that household inflation expectations are biased upwards, dispersed across individuals, and volatile in the time series. We also provide evidence of systematic differences by gender, income, education, and race. Turning to the underlying expectations formation process, we highlight the role of individuals’ exposure to price signals in their daily lives, such as price changes in groceries, the role of lifetime experiences, and the role of cognition. We then discuss the literature that links inflation expectations to economic decisions at the individual level, including consumption-savings and financial decisions. We conclude with an outlook for future research.
    Keywords: beliefs formation, heterogeneous agents, macroeconomics with micro data, inflation exposure, experience effects, financial sophistication
    JEL: C90 D14 D84 E31 E52 E71 G11
    Date: 2022
  12. By: V. V. Chari; Juan Pablo Nicolini; Pedro Teles
    Abstract: This appendix accompanies Staff Report 581: Optimal Cooperative Taxation in the Global Economy.
    Keywords: Capital income tax; Border adjustment; Origin- and destination-based taxation; Value-added taxes; Production efficiency; Free trade
    JEL: E60 E61 E62
    Date: 2022–03–07
  13. By: Natoli, Filippo
    Abstract: Using daily county-level data since 1970, we construct a series of temperature shocks for the United States that capture the average surprise effect of heat and cold events experienced in each season, net of climate trends and adaptation. Temperature surprise shocks in the global warming era have been a balanced mix of heat and cold surprises and reduced in size in recent times, in contrast to common belief. Estimates made with local projections show a negative impact on the US economy at business cycle frequency via both consumption and investment, while the effect on prices is more muted and varies over time. The central bank does react to the shocks by adjusting its economic projections and cutting interest rates, with effects spreading out through the yield curve.
    Keywords: climate change; temperatures; surprise shocks; business cycle; monetary policy
    JEL: C32 E32 E52 Q54
    Date: 2022–03–29
  14. 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 consolidation, cyclically-adjusted primary balance, sustainability, panel data, time-varying
    JEL: C23 E21 E62 H50 H62
    Date: 2022
  15. By: Zhiguo He; Zhaogang Song
    Abstract: Measured as yield spreads against AAA corporate bonds, the convenience premium of agency MBS averages 47 basis points over 1995 - 2021, about half of the long-term-Treasury convenience premium. Both MBS convenience premium and issuance amount depend on mortgage rate negatively, consistent with a prepayment-driven demand channel. This negative dependence contrasts strikingly with the positive dependence of the MBS-repo convenience premium on the level of interest rates as implied by the “opportunity cost of money” hypothesis. The placing of agencies into conservatorship in 2008 and introduction of liquidity coverage ratio in 2013 affect convenience premium significantly, consistent with the safety and regulatory-constraint channels of MBS demand. Based on “structural” restrictions in standard models, the ratio of MBS to Treasury convenience premia pinpoints the time-varying MBS-specific safe asset demand empirically.
    JEL: E44 E58 G12 G18 G21
    Date: 2022–04
  16. By: Beirne, John (Asian Development Bank Institute); Renzhi, Nuobu (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute)
    Abstract: Focusing on Asian economies over the period 2006 to 2019, we find that while nonbank finance appears to complement rather than substitute credit provision by the traditional banking sector, weaker regulatory quality is an important driving factor. Moreover, while we find that central bank policy rates countercyclically affect credit provision by nonbanks, impulse responses to monetary policy shocks with and without nonbank finance indicate that the effectiveness of monetary policy as a transmission channel to GDP growth, inflation, house prices, and traditional bank credit is weakened in the presence of nonbank finance. Our paper has implications for monetary policy implementation, potentially incorporating nonbanks into central bank operations and liquidity provision, as well as for financial supervisors in mitigating regulatory arbitrage.
    Keywords: nonbank finance; fintech; monetary policy; Asia
    JEL: E44 E50 G20
    Date: 2022–01
  17. By: Orsetta Causa; Michael Abendschein; Nhung Luu; Maria Chiara Cavalleri
    Abstract: This paper delivers new evidence for European countries on the role of a wide range of policies for workers’ mobility in terms of hiring transitions into jobs, with an emphasis on differences across socio-economic groups. Labour market transitions are relevant in the current context where the ongoing recovery from the COVID-19 crisis is characterised by labour shortages and at the same time still low employment in a number of countries. The analysis focuses on the probability to transition from unemployment and selected forms of inactivity (e.g. fulfilling domestic tasks, studying) to jobs and from one job to another. Results of this work show the strong association between hiring flows and the business cycle with specific patterns during recoveries, recessions and expansions. The analysis further reveals that a broad range of policies influence hiring transitions, such as labour market policies, taxes and social support programmes but also product market regulations and regulations affecting certain professions. Country-specific priorities will vary depending on context, challenges and social preferences. Yet common policy objectives at the current recovery context are likely to improve the job prospects of the non-employed, especially youth, low-skilled and women, to help the recovery, foster reallocation and to address labour shortages.
    Keywords: business cycle, COVID-19, cross-country data, differences across socio-economic groups, job mobility, labour reallocation, labour transitions, policy analysis, worker flows
    JEL: E24 E32 J2 J31 J62
    Date: 2022–04–19
  18. By: José Alves; Sandro Morgado
    Abstract: In our article we review the secular stagnation hypothesis, firstly postulated by Hansen (1939), to describe the current macroeconomic dynamics faced by developed economies. Based in the existing literature, we elaborate on a workable definition of secular stagnation founded on four pillars: diminished long run growth potential, increasing aggregate demand shortages, lowering of nominal short term interest rates and increasingly immovable unemployment. This four-pillar definition reveals a fundamental problematic faced by these economies; while a diminished long run growth potential, increasing aggregate demand shortages and an increasingly immovable unemployment stress the need for full employment policy measures, the lowering of nominal short term interest rates makes the mostly resorted to full employment policy measure, in the form of expansionary monetary policy, ineffective. This problematic implies an imperative rethinking of the policy framework in times of secular stagnation. For that, we consider one of the most evoked factors causing secular stagnation, demographics in the form of an aging population and a declining working age population, hence highlighting the pertinence of immigration as a possible solution. We do so by empirically observing the pillars of secular stagnation and testing the impact of demographic factors on those features, resorting to panel data analysis. Focusing on the EU15 and US economies, with data ranging from 1965 to 2020, we conclude that the four pillars we based our definition of secular stagnation upon can be empirically observed and that demographic factors play a statistically significant role for those determining features thus highlighting the pertinence of immigration as a possible solution.
    Keywords: economic stagnation, secular stagnation, financial crisis, immigration, monetary policy
    JEL: E52 G01 J11 O47
    Date: 2022
  19. By: António Afonso; José Alves
    Abstract: We evaluate the impact of government spending efficiency on fiscal sustainability for a panel of 35 OECD countries during the period of 2007-2020. To answer our research question we first compute the magnitude of the responses of government revenues to changes in government spending. Next, we make use of so-called government spending efficiency scores, which efficiently indicate how governments can maintain their level of performance whilst using fewer inputs. Our results show that for the input efficiency scores obtained, countries’ fiscal balance and fiscal sustainability is directly improved by the use of less public resources, whilst maintaining the same level of output. In the cases of the output efficiency scores, the commitment of increased government outputs can lead to higher economic growth and the generation of additional government revenues, which also improves fiscal sustainability. Specifically, rationalising public expenditures without jeopardising the actual level of public goods and provision of services is a stronger determinant of fiscal sustainability, as well as for the improvement of the primary budget balance.
    Keywords: fiscal sustainability; spending efficiency; panel data.
    JEL: C23 E21 E62 H5 H62
    Date: 2022–04
  20. By: Lena Dräger; Klaus Gründler; Niklas Potrafke
    Abstract: How do global political shocks influence individuals’ expectations about economic outcomes? We run a unique survey on inflation expectations among 145 tenured economics professors in Germany and exploit the 2022 Russian invasion in Ukraine as a natural experiment to identify the effect of a global political shock on expectations about national inflation rates. We find that the Russian invasion increased short-run inflation expectations for 2022 by 0.75 percentage points. Treatment effects are smaller regarding mid-term expectations for 2023 (0.47 percentage points) and are close to zero for longer periods. Text analysis of open questions shows that experts increase their inflation expectations because they expect supply-side effects to become increasingly important after the invasion. Moreover, experts in the treatment group are less likely to favour an immediate reaction of monetary policy to the increased inflation, which gives further evidence of the shock being interpreted primarily as a supply-side shock.
    Keywords: inflation expectations, belief formation, natural experiment, 2022 Russian invasion of Ukraine, survey, economic experts
    JEL: E31 E71 D74 D84
    Date: 2022
  21. By: International Monetary Fund
    Abstract: The Israeli economy has weathered the COVID-19 crisis exceptionally well, but risks are high. With substantial fiscal and monetary support, real GDP growth reached 8.1 percent in 2021, driven by consumption and high-tech exports. The rapid vaccination campaign boosted confidence. The outlook is positive but still subject to high uncertainty.
    Date: 2022–03–21
  22. By: Wolassa L. Kumo (African Development Bank)
    Abstract: This study conducts an economic growth decomposition exercise to measure factor contributions to growth in Sierra Leone for the period 1980–2019. It also investigates potential output growth and output gap using the univariate HP filter and production function approaches. The study finds that due to the collapse in total factor productivity (TFP) growth during the civil war period, real GDP and real per capita GDP growth decelerated on average during this period, with real GDP shrinking by 62% in 2001 compared to its level in 1990. Driven by political and economic reforms and macroeconomic stability, TFP growth rebounded in the decade immediately following the conflict, contributing 50% to real GDP growth during 2002–2011. Nevertheless, due to the slow pace of reforms and lingering structural constraints, growth in TFP faltered in the second post-conflict decade. That slowdown, coupled with the twin external shocks of the Ebola virus outbreak and a collapse in iron ore prices, severely undermined economic growth performance during the second postconflict decade. Average TFP growth, therefore, declined during 1980–2019, deducting 22% from average real GDP growth. Furthermore, the Sierra Leonian economy was characterized by a largely negative output gap (excess capacity) during the civil war period and a positive output gap (very high demand) before and after the war. The paper estimates an empirical New Keynesian Phillips Curve and finds a statistically significant positive correlation between the output gap (real sector) and inflation, with important implications for monetary policy. As an economy with abundant natural resources and skills gaps, reforms to boost TFP growth should remain central to Sierra Leone’s development strategy to achieve higher, sustainable, and inclusive growth.
    Keywords: Total factor productivity, potential output, output gap, factor intensity, Hodrick-Prescott filter, production function approach, growth accounting JEL classification: E12, E23, E52, J24, O11, O33, O47
    Date: 2022–03–24
  23. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: The theoretical foundation of inflation targeting was laid out by the Swedish economist Knut Wicksell (1851-1926) in his groundbreaking treatise, Interest and Prices, published originally in German in 1898. Here he proposed price stability as the rule for monetary policy. Today, inflation targeting is considered the best-practice approach to monetary policy across the world. It has contributed to stable and low consumer price inflation since the 1990s in many countries. However, inflation targeting has recently been the subject of several objections. Most prominently, the focus on consumer price stability has fostered financial instability, as reflected in the global financial crisis of 2008-09. In addition, the sharp rise in asset prices has led to growing wealth inequality. <p> Why have these problems emerged? This paper provides an answer by comparing Wicksell’s theory of price level determination in a pure credit economy, the “cumulative process”, to the neo-Wicksellian world of today, characterized by inconvertible fiat money, floating exchange rates, advanced financial systems, unregulated interest rates and well-developed asset markets. In this way, it becomes apparent that the neglect of asset markets and asset prices is the source of the flaws of the present Wicksellian regime of unlimited finance. The shortcomings of the neo-Wicksellian approach can be remedied while remaining within a Wicksellian framework. The key is to combine the nominal anchor of price stability with a reformed financial system that maintains credit stability. The paper uses empirical evidence from Sweden and the United States.
    Keywords: Inflation targeting; price level targeting; natural rate; Knut Wicksell; Milton Friedman; financial crises; credit; asset inflation; central banking
    JEL: B10 B22 E10 E31 E40 E50 G01 G20
    Date: 2022–04–11
  24. By: International Monetary Fund
    Abstract: Cameroon, the largest economy in the Central African Economic and Monetary Union (CEMAC), continues to face the repercussions of the COVID-19 pandemic. In July 2021, the IMF’s Executive Board approved three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for SDR 483 million (about US$ 689.5 million, or 175 percent of Cameroon’s quota) to support the country’s economic and financial reform program. This followed two disbursements in 2020 under the Rapid Credit Facility (RCF) totaling SDR 276 million, equivalent to about US$382 million or 100 percent of Cameroon’s quota.
    Keywords: government arrears; capacity development strategy note update; AFRITAC mission; IMF arrangement; commitment plan; Policy discussion; convergence criterion; IMF team; COVID-19; Auditing; Government debt management; Global; Africa
    Date: 2022–03–11
  25. By: International Monetary Fund
    Abstract: Madagascar continues to be severely affected by the COVID-19 pandemic. After a contraction of GDP estimated at 7.1 percent in 2020, the economic recovery has been sluggish, partly reflecting a delayed reopening of the economy. Postponement of some external budget support, following delays in structural reforms, will open a fiscal financing gap in 2022.
    Date: 2022–03–16
  26. By: Kuikeu, Oscar
    Abstract: While the recent resurgence of inflation all around the world not coming from monetary policies actions and that following the some analysts this increasing trend in prices with no longer reach the mong term nevertheless he becomes of interest to assess the place of central banks facing to this prices increases. For this purpose we have relies on Taylor rule with the main advantage that he gives this ability to model san policymaker as playing only on inflation and product. Globally speaking, with the obtained results he appears that the methods of correcting for autocorrelations between the right hand side and the error term is suitable to understand this kind of subject. With the obtained results we have well assess on the behavior on monetary policy in face of increasing trend in inflation in the sense that the data covers the period just following the cfa franc devaluation of January 1994.
    Keywords: inflation, Taylor Rule, monetary policy
    JEL: C22 E52
    Date: 2022–04–07
  27. By: Kengo NUTAHARA
    Abstract: The main objective of this paper is to investigate a monetary policy response to inequality in a Two-Agent New Keynesian (TANK) model with hand-to-mouth households. I derive the analytical condition for equilibrium determinacy and show that a monetary policy response to inequality is helpful in achieving equilibrium de terminacy. On the other hand, the impulse responses to structural shocks show that a monetary policy response to inequality does not necessarily reduce the volatilities of both inflation and output although it mitigates the volatility of inequality.
    Keywords: Inequality; monetary policy; TANK; hand-to-mouth; equilibrium in determinacy JEL classifications: E25; E31; E32; E52; E58
    Date: 2022–04
  28. By: International Monetary Fund
    Abstract: Trinidad and Tobago faced unprecedented challenges in 2020–21. The combined effects of COVID-19 and energy production and price shocks pushed the economy further into recession. A decisive policy response helped contain the virus spread and protect lives and livelihoods. The fiscal position worsened due to significant tax revenues shortfalls, pushing public debt up. The vaccination pace accelerated recently, but vaccine hesitancy remains high, amid a potential new wave of infections.
    Keywords: Trinidad and Tobago authorities; government plan; gas taxation regime; Trinidad and Tobago economy; decisive emergency response; GDP contraction; COVID-19; Energy sector; External sector statistics; Fiscal stance; Global; Caribbean
    Date: 2022–03–10
  29. By: Gabriel Rodríguez (Departamnento de Economía, Pontificia Universidad Católica del Perú.); Paulo Chávez (Pontificia Universidad Católica del Perú.)
    Abstract: This article quantifies and analyzes the evolving impact of external shocks on Peru’s macroeconomic fluctuations in 1994Q1-2019Q4. For this purpose, we use a group of models with regimeswitching time-varying parameters and stochastic volatility (RS-VAR-SV), as proposed by Chan and Eisenstat (2018). The data suggest a model with contemporaneous coefficients and constant lags and intercepts, but with regime-switching variances; and point to the existence of two regimes. The IRFs, FEVDs, and HDs show that: (i) China growth shocks have a higher impact on Peru’s output growth (around 0.8%); (ii) financial shocks contract domestic output growth by 0.3% and domestic monetary policy is synchronized with Fed rate movements; (iii) external shocks explain 35% and 70% of output fluctuations under regimes 1 and 2, respectively; and (iv) China growth shocks contributed 1.0 p.p. to the 1.1-p.p. increase (around 89%) in Peru’s output growth between regimes 1 and 2. Additionally, we validate these results by performing seven robustness exercises consisting in changing priors, reordering variables, changing variables, and using four different specications for the baseline model. JEL Classification-JE: : C11, C32, C52, E32, F41.
    Keywords: External Shocks, Macroeconomic Fluctuations, Regime-Switching Autoregressive Vectors, Stochastic Volatility, Model Comparison, Peruvian Economy.
    Date: 2022
  30. By: International Monetary Fund
    Abstract: The authorities have reacted to the COVID-19 crisis in an appropriate manner, including through increased spending on health and a rollout of the vaccination program. Nevertheless, the deterioration of socio-economic indicators during the pandemic could create scars that would significantly lower growth if left unaddressed.
    Keywords: vis-à-vis nonresident; asset declaration regime; economic reform reform program; business-centric reform; excise duty regime; COVID-19; Credit; Global; Africa
    Date: 2022–03–15
  31. By: Bańkowski, Krzysztof; Bouabdallah, Othman; Domingues Semeano, João; Dorrucci, Ettore; Freier, Maximilian; Jacquinot, Pascal; Modery, Wolfgang; Rodríguez-Vives, Marta; Valenta, Vilém; Zorell, Nico
    Abstract: This paper assesses the potential economic impact of Next Generation EU (NGEU), focusing on the euro area. Its findings suggest that the envisaged national investment and reform plans present a coherent package to support both recovery from the pandemic-induced crisis and longer-term modernisation of the euro area economy through their digital and green transitions. NGEU, however, can only unfold its full potential if all plans are implemented in a timely and effective way. We estimate the impact of the national plans on output, inflation and public debt using ECB staff economic models under the assumption of successful implementation. Specifically, NGEU is expected to take effect through three channels: structural reform, fiscal stimulus and risk premium. Overall, NGEU may increase gross domestic product (GDP) in the euro area by up to 1.5% by 2026, with the impact expected to be significantly larger in the main beneficiary countries. In Italy and Spain, two of the main beneficiaries, the public debt-to-GDP ratio may be more than 10 percentage points lower by 2031. At the same time, all euro area countries are expected to benefit from NGEU through positive spillovers, greater economic resilience and convergence across countries. Finally, the effect of NGEU on euro area inflation over the medium term is deemed to be contained to the extent that the inflationary effect of additional public expenditure is offset, at least to some degree, by the disinflationary effect of greater productive capacity resulting from the planned structural reform and investment measures. JEL Classification: C54, E02, E22, E62, F45, H87, O52
    Keywords: Next Generation EU (NGEU), public investment, Recovery and Resilience Facility (RRF), structural reform
    Date: 2022–04
  32. By: Zeqin Liu (School of Statistics, Shanxi University of Finance and Economics, Taiyuan, Shanxi 030006, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Ying Fang (The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China and Department of Statistics & Data Science, School of Economics, Xiamen University, Xiamen, Fujian 361005, China)
    Abstract: Since the global financial crisis in 2008, an increasing number of economists, central banks and regulators across the world has realized the occurrence of fundamental changes in the dynamics of the economy. The breakout of the global financial crisis highlights the importance of financial shocks. Aiming to maintaining financial stability, Bank for International Settlements (BIS) initialized macro-prudential policies in the early of 2009. China, as one of important countries pioneering the practice of macro-prudential policies, adopted a so called two-pillar regulatory framework of monetary policies and macro-prudential policies to safeguard the macroeconomic and financial stability. However, due to the coincidence of policy targets and the interdependence in transmission mechanisms between monetary policies and macro-prudential policies, the practice of the two-pillar regulatory framework raises some important coordination issues (Beau et al. 2012). The aim of this paper is to discuss theoretically the coordination mechanisms between monetary policies and macro-prudential policies, and then evaluate empirically the effects of the practice of the two-pillar regulatory framework on policy targets, such as economic growth, inflation, and financial stability in China. One of main contributions of this paper is to estimate the causal effects of China’s two-pillar regulatory framework from 2007 to 2017 by adopting new macroeconomic policy evaluation methods proposed by Angrist and Kuersteiner (2011) and Angrist et al. (2018). Compared to mainstream methods such as dynamic stochastic general equilibrium (DSGE) models, the macroeconomic policy evaluation methods based on Rubin’s causal model alleviate the risk of model misspecification by avoiding to specify how an economy works and how outcome variables are determined. Moreover, the concept of dynamic treatment effect developed in the framework of macroeconomic policy evaluation coincides with the nonlinear impulse function induced by structural models. In other words, the new method can complement the DSGE models by providing parallel estimates insensitive with structural model setup. Another major contribution of this paper is to extend the existing macroeconomic policy evaluation methods by adopting statistical learning methods to estimating policy propensity score functions using macroeconomic big data and proposing a new test statistic for testing the conditional unconfoundedness assumption. It is well known that a major challenge in empirical macroeconomic research is how to capture exogenous policy shocks to identify causal effects. We address this issue in two aspects. First, in order to fully use all information available at the current period, we propose to model policy-making process based on macroeconomic big data and adopt statistical learning methods to solve the high dimensional problem. Moreover, we propose a new statistic to test the exogeneity of the residuals estimated from the policy propensity scores using macroeconomic big data, which is a conditional unconfoundedness in the context of time series data. The latter actually provides a testable method of evaluating the validity of the use of the macroeconomic policy evaluation method. Finally, our empirical findings can be summarized as follows. First, when macro-prudential policies remaining neutral, monetary policies can effectively manage the aggregate demand and fulfill the output target by adjusting money supply and credit growth,while the transmission channel through interest rates does not work effectively. Second, when monetary policies remaining neutral, macro-prudential policies can maintain financial stability as expected, and at the same time, there are little effects on real economy targets. Last, when monetary policies and macro-prudential policies are jointly implemented, a same direction policy combination can further strengthen the effect on the output target and accelerate the process towards the target. However, the same direction combination has no significant exaggerating impact on financial stability variables. In addition, we find that the same direction combination may cause counteracting effects on some target outcome variables, such as the growth rate of capital adequacy ratio and the risk-weighted asset ratio. We ascribe the counteracting effect to the argument that the same direction policy combination weakens the negative correlations between monetary policies and banks’ risk-taking level.
    Keywords: Monetary Policy; Macro-prudential Policy; Two-pillar Regulatory Framework; Macro-economic Policy Evaluation
    JEL: E60 E50 G28
    Date: 2022–04
  33. By: Elsby, Michael W. L.; Smith, Jennifer; Wadsworth, Jonathan
    Abstract: This paper examines the role of population flows on labour market dynamics across immigrant and native-born populations in the United Kingdom. Population flows are large, and cyclical, driven first by the maturation of baby boom cohorts in the 1980s, and latterly by immigration in the 2000s. New measures of labour market flows by migrant status uncover both the flow origins of disparities in the levels and cyclicalities of immigrant and native labour market outcomes, as well as their more recent convergence. A novel dynamic accounting framework reveals that population flows have played a nontrivial role in the volatility of labour markets among both the UK-born and, especially, immigrants.
    Keywords: immigration; worker flows; labour market dynamics
    JEL: E24 J60
    Date: 2021–11–10
  34. 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
  35. By: Masciandaro, Donato; Goodhart, Charles; Ugolini, Stefano
    Abstract: We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629-31, which was equivalent to a 'net-worth helicopter money' strategy - a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.
    Keywords: helicopter money; monetary policy; pandemic; Venice 1629-31
    JEL: F3 G3 N0
    Date: 2022–01–11
  36. By: Victoria Gregory; Guido Menzio; David Wiczer
    Abstract: Using a large panel dataset of US workers, we calibrate a search-theoretic model of the labor market, where workers are heterogeneous with respect to the parameters governing their employment transitions. We first approximate heterogeneity with a discrete number of latent types, and then calibrate type-specific parameters by matching type-specific moments. Heterogeneity is well approximated by 3 types: as, ßs and ?s. Workers of type a find employment quickly because they have large gains from trade, and stick to their jobs because their productivity is similar across jobs. Workers of type ? find employment slowly because they have small gains from trade, and are unlikely to stick to their job because they keep searching for jobs in the right tail of the productivity distribution. During the Great Recession, the magnitude and persistence of aggregate unemployment is caused by ?s, who are vulnerable to shocks and, once displaced, they cycle through multiple unemployment spells before finding stable employment.
    Keywords: Search frictions, Unemployment, Business Cycles
    JEL: E24 O40 R11
    Date: 2022–04
  37. By: Niko Hauzenberger; Daniel Kaufmann; Rebecca Stuart; Cédric Tille
    Abstract: We study domestic and international drivers of long-term interest rates using newly compiled financial market data for Switzerland starting in 1852. We use a time-varying parameter vector autoregressive model to estimate long-term trends in nominal interest rates, exchange rate growth, and inflation. We then decompose the Swiss long-term interest rate trend into various drivers using an interest rate accounting framework. The decline in long-term interest rates since 1970 is mainly driven by a decline in the level of inflation. Comparing Switzerland with the rest of the world, we show that while Swiss real interest rates were higher during the 19th century, the pattern reversed after World War 2 with Swiss nominal and real rates becoming lower than foreign ones. However, this Swiss “low interest rate island” has disappeared in recent years. We document a connection between inflation risk and the Swiss term spread, as well between relative inflation risk and the difference between Swiss and foreign real interest rates.
    Keywords: Natural rate of interest, exchange rate, inflation risk, term spread, uncovered interest parity, historical data
    JEL: E4 E5 F3
    Date: 2022–04
  38. By: Gabriel Rodríguez (Departamnento de Economía, Pontificia Universidad Católica del Perú.); Renato Vassallo (Consejo Fiscal del Perú)
    Abstract: This article provides empirical evidence on the evolution of the impact of external shocks on the macroeconomic dynamics of the Pacific Alliance (PA) countries. For this purpose, we estimate a family of VAR models that allows time variation (or constancy) of parameters, including the variance matrix (TVP-VAR-SV). The results suggest that: (i) fluctuations from China create the most significant and persistent responses: a 1% increase in China’s growth raises growth by 0.3%-0.4% during the first year in Chile, Colombia, and Mexico; and by 0.8% in Peru; (ii) responses to export price shocks evolve considerably over time; e.g., the impact on growth in Chile and Peru tripled in 1994-2009 and then moderated until 2019; and (iii) unexpected Fed rate increases result in significant increases in AP countries’ monetary policy rates, an effect that escalates during crisis periods and further deepens the negative impact on domestic output growth. Additionally, variance decomposition shows that external factors explained over 50% of deviations in the domestic variables considered in this work. In particular, the results show that external shock absorption over the sample is higher in Mexico and Peru. In contrast, the change in domestic dynamics in absence of external disturbances would have been milder in Chile and Colombia. Finally, we perform four robustness exercises, which imply the following modifications to the baseline model: (i) changing priors; (ii) modifying two external variables; (iii) using lowdimensional models (4, 5, and 6 variables); and (iv) expanding the model by adding a fiscal policy variable. The results do not change significantly relative to those found using the baseline model. JEL Classification-JE: C11, C32, F41, F44, F62.
    Keywords: Macroeconomic Fluctuations, External Shocks, Autoregressive Vectors with TimeVarying Parameters, Stochastic Volatility, Bayesian Estimation and Comparison, Pacific Alliance Countries.
    Date: 2022
  39. By: Hidekazu Niwa (Osaka School of International Public Policy,Osaka University)
    Abstract: This study reviews the fiscal theory of the price level (FTPL). Our goal is to briefly explain the following three points. First, how is an equilibrium determined in a simple model where prices are perfectly flexible and only one-period government bonds? Second, what is the intuition for equilibrium determination? Third, how does introducing long-term bonds or nominal price rigidities change results in the simplest case?
    Keywords: Fiscal Theory of the Price Level; Fiscal-Monetary Interaction; Government Solvency
    JEL: E58 E63 E31
    Date: 2022–04
  40. By: Guner, Nezih (Universitat Autònoma de Barcelona); Ruggieri, Alessandro (University of Nottingham)
    Abstract: For a large set of countries, we document how the labor earnings inequality varies with GDP per capita. As countries get richer, the mean-to-median ratio and the Gini coefficient decline. Yet, this decline masks divergent patterns: while inequality at the top of the earnings distribution falls, inequality at the bottom increases. We interpret these facts within a model economy with heterogeneous workers and firms, featuring industry dynamics, search and matching frictions, and skill accumulation of workers through learning-by-doing and on-the-job training. The benchmark economy is calibrated to the UK. We then study how the earnings distribution changes with distortions that penalize high-productivity firms and frictions that reduce match formation. Distortions and frictions reduce employment, average firm size, and GDP per capita. They also affect how much firms are willing to pay workers, how well high-skill workers are matched with high-productivity firms, and how much training workers receive. The model generates the observed cross-country relation between GDP per capita and earnings inequality, as well as a host of cross-country facts on firm size distribution, firms' training decisions, and workers' life-cycle and job tenure earnings profiles.
    Keywords: earnings inequality, labor market frictions, correlated distortions, human capital, on-the-job training, productivity, firm size, life-cycle earning proles
    JEL: E23 E24 J24 O11
    Date: 2022–03
  41. By: Porras, María Sylvina; Martín-Román, Ángel L.
    Abstract: Okun’s law is an extremely influential parameter in empirical research and policy analysis, based on the sizable number of estimates from this perspective. Nevertheless, it is also subject to considerable heterogeneity. We first show graphical and statistical evidence on the existence of a high level of heterogeneity among Okun’s law estimates in existing research, then analyze potential sources of heterogeneity. Using 1,213 estimates of Okun’s law for various countries, regions, and time periods, separate metaregressions are estimated; one using estimates with the unemployment rate as the dependent variable, and the other with output as the dependent variable. Our findings indicate that the specification of the underlying model of the relationship has an effect on the magnitude of Okun’s parameter. Differential labor market characteristics may also explain part of the observed heterogeneity. Finally, the results are also found to be influenced by methodological issues, such as the type of data (time series or panel data), the frequency of the data (annual or quarterly), the spatial coverage of the estimates (country, region, or group of countries), whether more variables are included in estimations, and whether a dynamic or static, symmetric or asymmetric model is estimated. This paper contributes to highlight the heterogeneity affecting the estimates of Okun's law and that needs to be taken into account. In order to know the "true" relationship between unemployment and economic growth, researchers should bear in mind that there are a number of methodological choices that have consequences for the results.
    Keywords: Okun’s Law; heterogeneity; metaregression
    JEL: C55 E23 E24 J60
    Date: 2022–03–18
  42. By: Dezhbakhsh, Hashem; Levy, Daniel
    Abstract: The U.S. prewar output series exhibit smaller shock-persistence than postwar-series. Some studies suggest that this may be due to linear interpolation used to generate missing prewar data. Monte Carlo simulations that support this view generate large standard-errors, making such inference imprecise. We assess analytically the effect of linear interpolation on a nonstationary process. We find that interpolation indeed reduces shock-persistence, but the interpolated series can still exhibit greater shock-persistence than a pure random walk. Moreover, linear interpolation makes the series periodically nonstationary, with parameters of the data generating process and the length of the interpolation time-segments affecting shock-persistence in conflicting ways.
    Keywords: Linear Interpolation; Random Walk; Shock-Persistence; Nonstationary series; Periodic nonstationarity; Stationary series; Prewar US Time Series
    JEL: C01 C02 E01 E30 N10
    Date: 2022–03–17
  43. By: David Reifschneider (former Federal Reserve); David Wilcox (Peterson Institute for International Economics)
    Abstract: The Federal Reserve and most other analysts failed to anticipate the surge in inflation in 2021. Considerable debate now surrounds the question of whether the Fed is too sanguine in anticipating that too-high inflation will mostly take care of itself over the next few years, even as the unemployment rate remains low and monetary policy remains accommodative. This Policy Brief concludes that although the Federal Open Market Committee (FOMC) was too optimistic in the projections it issued in December 2021, the broad contour of its baseline inflation outlook for 2022 and beyond remains sensible. The authors find the 2021 surge in inflation resulted mainly from COVID-19-related sectoral developments rather than the classic situation of aggregate demand outstripping the overall economy's long-run productive potential. The statistical analysis in this Policy Brief was conducted before Russia invaded Ukraine. As a result of the war, the inflation situation will probably get worse before it gets better, and could do so in dramatic manner if Russian energy exports are banned altogether. Nonetheless, if the key considerations identified in this Policy Brief remain in place, and if monetary policymakers respond to evolving circumstances in a sensible manner, the inflation picture should look considerably better in the next one to three years.
    Date: 2022–03
  44. By: Danila, Marius Ioan
    Abstract: The global coronavirus pandemic (COVID-19) has triggered an unprecedented crisis, creating social, political, economic and financial challenges for both Europe and the rest of the world. Faced with all these challenges, governments have implemented ambitious measures to support companies and households. Micro and macro prudential authorities have complemented these efforts, in particular by sending a strong signal to banking institutions to use existing capital buffers in order to continue to provide essential financial services and absorb losses, while avoiding a sudden and excessive reduction in lending, which would be detrimental to the economy. Support from governments and prudential authorities, together with monetary policy measures at European level, has maintained financial stability. Credit risk must be a key priority for the relevant authorities. Ensuring that problematic exposures are properly managed and in a timely manner will be essential to prevent the accumulation of non-performing loans. It is also important for banks to consider all available information and to develop new alternative credit risk indicators that take into account the economic environment, the implementation of moratoriums and other support schemes.
    Keywords: credit risk, uncertainty, NextGenerationEU, non performing loans, asset quality
    JEL: E44 E58 G21
    Date: 2021–05–06
  45. By: Teichgräber, Andreas; Van Reenen, John
    Abstract: In the long-run at the macro level, the real pay of workers tends to follow labour productivity. In recent years, however, there have been concerns that this relationship has broken down and that pay has become "decoupled" from productivity, growing much more slowly. If the mean hourly compensation of workers grows more slowly than GDP per hour, this means the labour share will fall and this has been a well-documented phenomenon in the US since the early 1980s. By contrast, we show that in the UK, employee mean hourly compensation has grown at the same rate as labour productivity between 1981 and 2019. Although there has been no "net decoupling" in this sense, there has been a large divergence between median employee hourly wage growth and productivity growth of about 25 percentage points. About three-fifths of this "total decoupling" is due to increasing inequality (mean wages growing faster than median wages) and one-third is due to the increased non-wage compensation costs, in particular employer pension contributions. However, this analysis relates to employee compensation. The average self-employed worker has seen their income grow by only 50%, compared to 80% for the average employee. Using micro-data, we show that this gap can essentially be all explained by (i) the growth in the numbers of "solo self-employed" (who have relatively low incomes), and (ii) a much greater fall in hours worked by the self-employed than for the employed. Finally, if we "correct" the labour share for self-employment and non-wage labour costs, the UK labour share has fallen by about 3.5 percentage points over the last four decades.
    Keywords: pay; productivity; decoupling; labour share; self-employed
    JEL: E24 J20 J30
    Date: 2021–11–03
  46. By: International Monetary Fund
    Abstract: Hong Kong SAR’s economy is recovering strongly as ample policy space has allowed the enaction of swift and bold policy responses to address the unprecedented crisis emanating from multiple shocks, including notably the pandemic. But the recovery remains uneven, with private consumption lagging, owing, in part, to a zero- COVID tolerance approach. The financial sector has remained resilient supported by significant buffers, strong institutional frameworks, and a well-functioning Linked Exchange Rate System (LERS). Increasing financial linkages with Mainland China bring both opportunities and challenges for growth and financial stability.
    Keywords: housing supply; article IV consultation discussion; rate of HK; improving housing affordability; C. containing housing market; GDP compilation; Housing prices; Housing; Economic recovery; Financial sector stability; External sector statistics; Global
    Date: 2022–03–07
  47. By: José Alves; João Quental Gonçalves
    Abstract: The present work offers a review on two divergent schools of thought regarding the subject of money and highlights why understanding it is important to grasp the workings and nature of the concept of money. We adopt a spontaneous order perspective on social institutions, considering money as one. Such framework allows for the construction of axioms from which we formulate our problem allowing us to ask how old forms of money such as Gold and Silver hold up in today’s world regarding their hedging properties. Moreover, we also do so for Bitcoin since we consider it an appropriate asset due to its specific characteristics and its (at the time of writing) more than 10-year life span. We resort to the Autoregressive Distributed Lag (ARDL) methodology in order to study our three assets in the context of the US dollar and the US Economy for two different time periods. We analyse price dynamics from 1980 to 2020 for gold and silver resorting to annual data. Regarding bitcoin we employ quarterly data from 2009 to 2020. We conclude that the theories that explain what money is, how it comes to be so and how certain types of “money assets” may serve both as an indirect hedge against inflation in the two interpretations of the word and as a “stock of value” have merits that might deserve further investigation. .
    Keywords: money, inflation, gold, silver, bitcoin
    JEL: B25 D46 E42 E51
    Date: 2022
  48. By: Gabriel Rodríguez (Departamnento de Economía, Pontificia Universidad Católica del Perú.); Junior A. Ojeda Cunya (Pontificia Universidad Católica del Perú.)
    Abstract: This study uses a family of VAR models with time-varying coefficients and stochastic volatility (TVP-VAR-SV) to analyze the impact of external shocks on output growth and inflation in Peru in 1992Q1-2017Q1. The statistical relevance of the models is assessed using the deviance information criterion (DIC) and the marginal log-likelihood calculated using the cross-entropy (CE) method. The results show that: (i) it is more relevant to introduce SV than TVP; i.e., the best fitting model admits only varying intercepts and SV; and TVP-VAR and CVAR are the least performing models; (ii) the models impulse response functions indicate that the impacts from external shocks are different under high inflation, economic crisis, and monetary policy change, with a greater impact in episodes of high uncertainty; (iii) the impact and importance of external shocks has increased over time; and (iv) the results are robust to changes in the priors, the lag structure, order of the variables, the external variable, and the variable for domestic economic activity. JEL Classification-JE: C11, C32, E32, F41, F62.
    Keywords: Macroeconomic Fluctuations, External Shocks, Autoregressive Vectors with Time- Varying Parameters, Stochastic Volatility, Bayesian Estimation and Comparison, Peruvian Eco- nomy.
    Date: 2022
  49. By: De Nardi, Mariacristina; Pashchenko, Svetlana; Porapakkarm, Ponpoje
    Abstract: What generates the observed differences in economic outcomes by health? How costly it is to be unhealthy? We show that health dynamics are largely driven by ex-ante fixed heterogeneity, or health types, even when controlling for one’s past health history. In fact, health types are the key driver of long spells of bad health. We incorporate these rich health dynamics in an estimated structural model and show that health types and their correlation with other fixed characteristics are important to account for the observed gap in economic outcomes by health. Monetary and welfare losses due to bad health over the life cycle are large, concentrated, and to a large extent due to factors pre-determined earlier in life. A large portion of the related monetary costs is due to income losses, especially for people of working age, while a substantial portion of the welfare losses arises because health affects life expectancy.
    Keywords: health, health insurance, medical spending, wealth-health gradient, life-cycle models
    JEL: E21 I14
    Date: 2022–03–19
  50. By: Pablo Andrés Neumeyer; Juan Pablo Nicolini
    Abstract: This note addresses the role of the Taylor principle to solve the indeterminacy of equilibria in economies in which the monetary authority follows an interest rate rule. We first study the role of imposing two additional ad-hoc restrictions on the definition of equilibrium. Imposing the equilibrium to be locally unique never delivers a unique outcome. Imposing the equilibrium to be bounded, renders the outcome unique only if the inflation target is the Friedman rule. Second, we show that the Taylor principle is strongly time inconsistent - in a sense we make very precise - and that policies that implement the Friedman rule are the only sustainable policies.
    Keywords: Taylor principle; Uniqueness of equilibrium; Time consistency
    JEL: E40 E50
    Date: 2022–01–28
  51. By: Heath Milsom, Luke; Roland, Isabelle
    Abstract: Exposure to Chinese import competition led to significant manufacturing job losses in the United States. Local labor markets, however, differ significantly in how they fared with respect to manufacturing employment. An important question is whether labor market institutions have an impact on the dynamic response of manufacturing employment to rising import penetration. We contribute to this debate by showing that minimum wages amplified the negative effect of Chinese import penetration on manufacturing employment in US local labor markets between 2000 and 2007. We develop a rigorous double-edged identification strategy. First, we construct shift-share instrumental variables to address the endogeneity of import penetration. Second, we use a border identification strategy to distinguish the effects of minimum wage policies from the effects of other local labor market characteristics that are unrelated to policy. Specifically, we rely on comparing commuting zones that are contiguous to each other but located in different states with different minimum wage policies. The approach essentially considers what happens to the response of manufacturing employment to import penetration when one crosses a policy border.
    Keywords: import penetration; labor market institutions; minimum wages; manufacturing employment
    JEL: E24 F14 F16 J23 L60 R12
    Date: 2021–10–28
  52. By: International Monetary Fund
    Abstract: While geopolitical tensions with Russia had already curtailed Ukraine’s access to markets, the escalation to an invasion of Ukraine by Russia and full-blown war on February 24 has dramatically altered Ukraine’s outlook. A deep recession and large reconstruction costs are to be expected, on the backdrop of a humanitarian crisis. With the war ongoing, the situation remains extremely fluid, and any forecast is at this stage subject to massive uncertainty. The authorities are rightly focusing on ensuring the continuity of critical government operations, preserving financial stability and protecting priority spending.
    Keywords: financing gap; NBU supplies; emergency policy response; financing expenditure; near-term financing; Currencies; Credit; Loans; Global
    Date: 2022–03–10
  53. By: Glötzl, Erhard
    Abstract: In economics balance identities as e.g. C+K'-Y(L,K) = 0 must always apply. Therefore, they are called constraints. This means that variables C,K,L cannot change independently of each other. In the general equilibrium theory (GE) the solution for the equilibrium is obtained as an optimisation under the above or similar constraints. The standard method for modelling dynamics in macroeconomics is DSGE. Dynamics in DSGE models result from the maximisation of an intertemporal utility function that results in the Euler-Lagrange equations. The Euler-Lagrange equations are differential equations that determine the dynamics of the system. In Glötzl, Glötzl, und Richters (2019) we have introduced an alternative method to model dynamics, which is a natural extension of GE theory. It is based on the standard method in physics for modelling dynamics under constraints. We therefore call models of this type "General Constrained Dynamic (GCD)" models. In this paper we apply this method to macroeconomic models of increasing complexity. The target of this labour is primarily to show the methodology of GCD models in principle and why and how it can be useful to analyse the macroeconomy with this method. Concrete economic statements play only a subordinate role. All calculations, even for GCD models of any complexity, can be easily performed with the open-source program GCDconfigurator.
    Keywords: Stephen Smale, Problem 8, macroeconomic models, constraint dynamics, GCD, DSGE, out-of-equilibrium dynamics, Lagrangian mechanics, stock flow consistent, SFC
    JEL: A12 B13 B41 B59 C02 C30 C54 C60 E10
    Date: 2022–03–15
  54. By: Alessandro Di Nola; Leo Kaas; Haomin Wang
    Abstract: While the COVID-19 pandemic had a large and asymmetric impact on firms, many countries quickly enacted massive business rescue programs which are specifically targeted to smaller firms. Little is known about the effects of such policies on business entry and exit, factor reallocation, and macroeconomic outcomes. This paper builds a general equilibrium model with heterogeneous and financially constrained firms in order to evaluate the short- and long-term consequences of small firm rescue programs in a pandemic recession. We calibrate the stationary equilibrium and the pandemic shock to the U.S. economy, taking into account the factual Paycheck Protection Program (PPP) as a specific grant policy. We find that the policy has only a small impact on aggregate employment because (i) jobs are saved predominately in less productive firms that account for a small share of employment and (ii) the grant induces a reallocation of resources away from larger and less impacted firms. Much of this reallocation happens in the aftermath of the pandemic episode. While a universal grant reduces the firm exit rate substantially, a targeted policy is not only more cost-effective, it also largely prevents the creation of “zombie firms” whose survival is socially inefficient.
    Keywords: Covid-19, heterogeneous firms, business subsidies, Paycheck Protection Program
    JEL: E22 E65 G38 H25
    Date: 2022
  55. By: Glötzl, Erhard
    Abstract: In economics balance identities as e.g. C+K'-Y(L,K)=0 must always apply. Therefore, they are called constraints. This means that variables C,K,L cannot change independently of each other. In general equilibrium theory (GE) the solution for the equilibrium is obtained as an optimisation under the above or similar constraints. The standard method for modelling dynamics in macroeconomics are Dynamic Stochastic General Equilibrium (DSGE) models. Dynamics in DSGE models result from the maximisation of an intertemporal utility function that results in the Euler-Lagrange equations. The Euler-Lagrange equations are differential equations that determine the dynamics of the system. In Glötzl, Glötzl, und Richters (2019) we have introduced an alternative method to model dynamics, which constitutes a natural extension of GE theory. This approach is based on the standard method for modelling dynamics under constraints in physics. We therefore call models of this type "General Constrained Dynamic (GCD)" models. In Glötzl (2022b) this modelling method is described for non-intertemporal utility functions in macroeconomics. Since intertemporal utility functions are, however, essential for many economic models, this paper sets out to extend the GCD modelling framework to intertemporal GCD models, referred to as IGCD models in the following. This paper sets out to define the principles of formulating IGCD models and show how IGCD can be understood as a generalisation and alternative to DSGE models.
    Keywords: macroeconomic models, intertemporal utility function, constraint dynamics, GCD, DSGE, out-of-equilibrium dynamics, Lagrangian mechanics, stock flow consistent, SFC
    JEL: A12 B13 B41 B59 C02 C30 C54 C60 E10
    Date: 2022–03–15
  56. By: Patrick Alexander; Abeer Reza
    Abstract: Understanding and predicting the evolution of exports after a change in the nominal exchange rate is of central importance in international economics. Most of the literature focuses on estimating this relationship by reduced form, with the aim of uncovering a single structural parameter, but theory suggests it could differ depending on the shock that drives the movement in the exchange rate. Building on this insight, we develop a small-open-economy SVAR model to derive structural shocks that affect the exchange rate. We then estimate this model using Canadian data and construct the response of exports relative to the response of the exchange rate, conditional on each shock. Our findings suggest that this relationship differs greatly from one shock to another, where domestic shocks generate a much weaker relationship than global shocks. We show that these differences can be reconciled with theoretical results from a small-open-economy New Keynesian model where Canadian exports are largely invoiced in US dollars. Finally, we highlight how our results help to inform recent discussions on the evolution of the exchange rate elasticity over time, the benefits of a flexible exchange rate, and the impact of terms of trade movements on exports.
    Keywords: Balance of payments and components; Business fluctuations and cycles; Exchange rate regimes; Exchange rates; International topics; Monetary policy transmission; Trade integration
    JEL: F31 F32 F33 F41
    Date: 2022–04
  57. By: Di Nola, Alessandro; Kaas, Leo; Wang, Haomin
    Abstract: While the COVID-19 pandemic had a large and asymmetric impact on firms, many countries quickly enacted massive business rescue programs which are specifically targeted to smaller firms. Little is known about the effects of such policies on business entry and exit, factor reallocation, and macroeconomic outcomes. This paper builds a general equilibrium model with heterogeneous and financially constrained firms in order to evaluate the short- and long-term consequences of small firm rescue programs in a pandemic recession. We calibrate the stationary equilibrium and the pandemic shock to the U.S. economy, taking into account the factual Paycheck Protection Program (PPP) as a specific grant policy. We find that the policy has only a small impact on aggregate employment because (i) jobs are saved predominately in less productive firms that account for a small share of employment and (ii) the grant induces a reallocation of resources away from larger and less impacted firms. Much of this reallocation happens in the aftermath of the pandemic episode. While a universal grant reduces the firm exit rate substantially, a targeted policy is not only more cost-effective, it also largely prevents the creation of "zombie firms" whose survival is socially inefficient.
    Keywords: COVID-19,Heterogeneous Firms,Business Subsidies,Paycheck Protection Program
    JEL: E22 E65 G38 H25
    Date: 2022
  58. By: Supriyanto (Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-2-Name: Mohammad Benny Alexandri Author-2-Workplace-Name: Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-3-Name: Nurillah Jamil Achmawati Novel Author-3-Workplace-Name: Department of Administrative Sciences, Padjadjaran University, Bandung, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - This study investigates the effect of investment risk, macroeconomics on stock prices in IPO companies during the Covid-19 pandemic. Methodology/Technique - Financial statements are used to collect sample secondary data. A total of 74 samples from data collection were then used to test hypotheses using SmartPLS software. Findings - The results showed that the Current Assets to Total Assets Ratio (CATAR) and PBV (Price to Book Value) are still new topics that provide great benefits for investing in IPO companies. Novelty - This study adds to the body of knowledge on investment risk and macroeconomics by elucidating the effect of investment on stock prices. Additionally, it provides an overview of the sources of information that can be used to inform investment decisions and to anticipate misinformation received, allowing investors to earn more money with less risk. Type of Paper - Empirical."
    Keywords: Investment Risk; Macroeconomics; Stock Prices; Covid-19
    JEL: G31 E02 E31 E60
    Date: 2022–03–31
  59. By: Borowczyk-Martins, Daniel (Department of Economics, Copenhagen Business School); Pacini, David (University of Bristol)
    Abstract: We consider the problem of measuring transition probabilities across employment, unemployment and nonparticipation when longitudinal data is not available and/or the available retrospective data is measured with error. We establish nonparametric point-identification conditions from time series of cross sections, focusing on the European Union Labor Force Survey (EULFS) microdata released by Eurostat, and assess their validity using auxiliary panel data for Portugal and the United Kingdom. We find that the variables in the EULFS do not satisfy the identification conditions. Consequently, we propose alternative data-releasing solutions allowing users to measure transitions from EULFS data while satisfying the existing legal requirements.
    Keywords: Retrospective data; Measurement error; Labor force surveys
    JEL: C26 C52 E24 J21
    Date: 2022–01–31
  60. By: Rebecca Stuart
    Abstract: This paper studies the causes of movements in inflation and output in Switzerland over 160 years between 1855 and 2015. Aggregate supply and demand shocks are identified in a structural VAR and their evolution and effect on prices and output is discussed. Shocks to the Swiss economy have generally, although not uniformly, declined in magnitude over the sample period. The pre-Gold Standard era and the inter-war period were particularly volatile. Surprisingly, the global financial crisis represented a much smaller shock than either of the World Wars, the deflation of the 1920s, or the Great Depression.
    Keywords: Switzerland, aggregate supply and demand, long time series, SVAR
    JEL: E1 E4 N1
    Date: 2022–03
  61. By: António Afonso; João Tovar Jalles; Zoe Venter
    Abstract: This paper presents and describes a new database of major minimum wage and collective bargaining reforms (and counter-reforms) covering 26 advanced economies over the period 1970-2020. The main advantage of this dataset is the precise identification of the nature and date of major reforms— defined in terms of less regulation or more liberalization—, which is valuable in many empirical applications. Based on the dataset, major changes in minimum wages have been more frequent than in collective bargaining in the last decades, and the majority of these were implemented during the 1980s and 1990s. In our empirical application, we find that minimum wage reforms have a mediumrun positive impact on labor productivity and they lead to a fall in the unemployment rate. Collective bargaining reforms do not seem to affect either productivity or capital formation but they have a clear medium-term effect on the labor market. Moreover, collective bargaining reforms are more sensitive to prevailing business cycle conditions at the time of the reform (vis-à-vis minimum wage reforms).
    Keywords: Labour market policies, minimum wage, collective bargaining, labour productivity, growth, local projection
    JEL: C22 E24 J31 J52
    Date: 2022–04
  62. By: Carlos Carrillo-Tudela; Camila Comunello; Alex Clymo; Annette Jäckle; Ludo Visschers; David Zentler-Munro
    Abstract: The impact of the Covid-19 pandemic on the UK labour market has been extremely heterogeneous across occupation and industrial sectors. Using novel data on job search, we document how individuals adjust their job search behaviour in response to changing employment patterns across occupations and industries in the UK. We observe that workers changed their search direction in favour of expanding occupations and industries as the pandemic developed. This suggests job searchers do respond to occupation-wide and industry-wide conditions in addition to idiosyncratic career concerns. However, non-employed workers and those with low education levels are more attached to their previous occupations and more likely to target declining ones. We also see workers from declining occupations making fewer transitions to expanding occupations than those who start in such occupations, despite targeting these jobs relatively frequently. This suggests those at the margins of the labour market may be least able to escape occupations that declined during the pandemic.
    Keywords: job search, occupation mobility, industry mobility, Covid-19 pandemic
    JEL: E24 J23 J63
    Date: 2022
  63. By: Klüh, Ulrich; Urban, Janina
    Abstract: What should be the role of the ECB in tackling the socio-ecological challenges related to planetary boundaries, such as climate change and loss of biodiversity? A clear answer to this question is still lacking, in spite of the strategy review of 2021. Regretfully, this review has not received the scrutiny it deserves, as the pandemic and the war in Ukraine have taken center stage. Taking these recent developments into account, we provide a critique of the new strategy. We argue that it lacks transformativity, as it subsumes climate change under the policy objective of price stability, assumes that transformations can be mastered within the structures of the past, and refrains from questioning the current institutional set up. In its main part, the paper discusses the historical relevance of what we believe is the main reason for these deficits: The fear that taking up the real issues (such as independence and accountability) would make the ECB a political football in times of rising inflation. Taking these fears seriously, we show that the institutionalization of central banking has always reflected the transformative dynamics of their time. Consequently, if planetary boundaries represent a transformative challenge, they will radically change the ECB, too. Moreover, we provide evidence that central banks' historical transformations have always reflected their peculiar position as mediators between the financial and the political realm. We argue that, at the current juncture, transforming central banking implies moving away from finance and towards politics. This involves risks. However, we argue that the historical experience offers few reasons to fear a closer integration of central banking into the public sphere, as long as the latter is dominated by democratic politics. Consequently, if one comes to the conclusion that the ECB's current corset is too narrow, it can and should be augmented. While we do not offer a blueprint for such augmentation, we conclude our analysis by sketching elements of a sustainable strategy for a transformative ECB.
    Keywords: Monetary Policy,Sustainability,Green Deal,Climate Policy,Central Bank Independence,Central Bank Accountability
    JEL: B15 B25 B26 B52 E02 E58 N2
    Date: 2022
  64. By: Marco Cipriani; James A. Clouse; Lorie Logan; Antoine Martin; Will Riordan
    Abstract: In a Liberty Street Economics post that appeared yesterday, we described the mechanics of the Federal Reserve’s balance sheet “runoff” when newly issued Treasury securities are purchased by banks and money market funds (MMFs). The same mechanics would largely hold true when mortgage-backed securities (MBS) are purchased by banks. In this post, we show what happens when newly issued Treasury securities are purchased by levered nonbank financial institutions (NBFIs)—such as hedge funds or nonbank dealers—and by households.
    Keywords: balance sheet runoff; Federal Reserve; money market funds (MMFs); nonbank financial institutions (NBFIs); treasuries
    JEL: E5 G51
    Date: 2022–04–12
  65. By: Florian Eckert (ETH Zurich, Switzerland); Heiner Mikosch (ETH Zurich, Switzerland)
    Abstract: This paper examines the incidence of rm bankruptcies and start-ups in Switzerland based on unique register data. We propose to assess the frequency of bankruptcies over time using the concept of excess mortality. During the Corona crisis in 2020 and the rst half of 2021, bankruptcy rates were substantially lower and the number of new rm formations was substantially higher as compared to the pre-crisis period. This holds across most industries and regions. The Great Recession and the Swiss Franc Shock showed reverse patterns. Bankruptcies dropped more in industries and cantons, in which the share of rms who received a Covid-19 loan is comparatively high. The strong start-up activity is driven by industries where the pandemic induced structural adjustments.
    Keywords: Firm Bankruptcies, Insolvencies, Excess Mortality, Firm Formations, Start-Ups, Switzerland, Corona Crisis, Industry-Level, Canton-Level
    JEL: E32 G33 M13
    Date: 2021–11
  66. By: International Monetary Fund
    Abstract: Since independence, Bangladesh has achieved impressive economic growth and social development, making steady progress in reducing poverty and significant improvements in living standards. The COVID-19 pandemic interrupted this long period of robust economic performance, deepening some earlier vulnerabilities. Stagnating job growth, rising inequality, and slowing poverty reduction remain challenges. Revenues are low, and financial sector vulnerabilities continue to be high. Substantial productive investment in infrastructure, human capital, and climate resilience is needed to achieve the authorities’ aspiration to reach the upper-middle income status in 2031.
    Keywords: headline CPI inflation; State-Owned Commercial Banks; government finance statistics manual; Bangladeshi authorities; financial asset; data dissemination standard; Bangladesh export; Commercial banks; COVID-19; Credit; Global
    Date: 2022–03–07
  67. By: Emara, Noha; Zecheru, Daniela
    Abstract: The impact of major macroeconomic factors on domestic inflation has long been theorized and analyzed by economists. Nevertheless, the literature that studies the impact of digitization as an important determinant for lower and more stable inflation in both advanced economies and emerging markets is very thin. In this paper, we use panel data from the World Bank World Development Indicators and the Digital Ecosystem Development Index developed by Katz and Callorda (2018), on a sample of 54 advanced economies and emerging markets over the period 2004-2018. Starting from a traditional Phillips Curve with inflation expectations and output gap, we estimate a System Generalized Method of Moments (GMM) panel model. In our estimation of the model, we find a negative statistically significant non-linear (quadratic) relationship between the domestic inflation rate and the digitization index, with a definite cutoff point. This result supports the hypothesis that digitization may initially lower inflation, however, once digitization reaches its cutoff level further improvement in digitization leads to an increase in the rate of inflation. We subsequently re-estimate the main model using eight specific digitization pillars for infrastructure of digital services, digital connectivity, digitization of household, digitization of production, digital industries, factors of digital production, digital competitive intensity, and regulatory framework and public policies. Notably, we find a negative statistically significant non-linear relationship between the domestic inflation rate and all eight pillars of digitization for both the full sample and the emerging markets sample. Because the highest deflationary impact of digitization is derived from the digital infrastructure and factors of digital production, the policy priorities we emphasize include expanding network coverage, increasing fixed and broadband download speed, boosting telecommunications and education investments, as well as strengthening intellectual property rights, enhancing investments in R&D, and incentivizing innovation and patenting. However, our results show that deflationary effects of the improvement in digitization are smaller in emerging markets versus the full sample and that the entire effect of digitization in emerging markets is reinforced by the investment in human capital and the improvement of governance. Hence, our policy recommendations for emerging markets are directed towards maximizing school enrollments, controlling corruption, rule of law, and voice and accountability measures to recoup the maximum benefits of the improvement in digitization on domestic inflation.
    Keywords: Digitization; System GMM; Advanced Economies; Emerging Markets
    JEL: C23 G21 O47
    Date: 2022–02–09
  68. By: Baker, Scott R. (Northwestern University); Davis, Steven J. (University of Chicago); Levy, Jeffrey A. (University of Chicago)
    Abstract: We quantify and study state-level economic policy uncertainty. Tapping digital archives for nearly 3,500 local newspapers, we construct three monthly indexes for each state: one that captures state and local sources of policy uncertainty (ΕPU-S), one that captures national and international sources (EPU-N), and a composite index that captures both. EPU-S rises around gubernatorial elections and own-state episodes like the California electricity crisis of 2000-01 and the Kansas tax experiment of 2012. EPU-N rises around presidential elections and in response to 9-11, Gulf Wars I and II, the 2011 debt-ceiling crisis, the 2012 fiscal cliff episode, and federal government shutdowns. Close elections elevate policy uncertainty much more than the average election. The COVID-19 pandemic drove huge increases in policy uncertainty and unemployment, more so in states with stricter government-mandated lockdowns. VAR models fit to pre-COVID data imply that upward shocks to own-state EPU foreshadow weaker economic activity in the state.
    Keywords: policy uncertainty, elections and uncertainty, COVID-19, state-level economic performance, unemployment
    JEL: D80 E66 G18 H70 R50
    Date: 2022–03
  69. By: Doerr, Sebastian; Kabas, Gazi; Ongena, Steven
    Abstract: Does population aging affect bank lending? To answer this question we exploit geographic variation in population aging across U.S. counties to provide the first evidence on its impact on bank risk-taking. We find that banks more exposed to aging counties experience deposit inflows due to seniors' higher savings rate. They consequently extend more credit, but relax lending standards: Loan-to-income ratios increase and application rejection rates decline. Exposed banks also see a sharper rise in nonperforming loans during downturns, suggesting that population aging may lead to financial instability. These results are in line with an increase in savings and a decline in investment opportunities induced by population aging.
    Keywords: Risk-taking, financial stability, low interest rates, population aging, demographics
    JEL: E51 G21
    Date: 2022
  70. By: Bell, Brian; Bloom, Nicholas; Blundell, Jack
    Abstract: We use a UK employer-employee administrative earnings dataset to investigate the response of earnings and hours to business cycles. Exploiting our long panel of data from 1975 to 2020 we find wide heterogeneity in the exposure of different types of workers to aggregate shocks. Employees who are younger, male, lower-skilled, non-union, and working in smaller private sector firms show the largest earnings response to recessions. The qualitative patterns of earnings changes across workers observed in the COVID-19 recession are broadly as predicted using the previously estimated exposures and size of the GDP shock. This suggests the COVID-19 recession in terms of its impact responses was relatively similar to those that have gone before, but the GDP shock was far larger in absolute size. Compared to aggregate shocks, we find a relatively small role of firm-specific shocks, suggesting macro shocks play an outsized role in individual earnings dynamics.
    Keywords: Covid-19; recession; firm-specific shocks; earnings; coronavirus
    JEL: N0 R14 J01
    Date: 2021–09–02
  71. By: Danilo Cascaldi-Garcia; J. David López-Salido; Francesca Loria
    Abstract: Since the start of the pandemic, views about the evolution of aggregate consumer prices moved swiftly from concerns about deflation to fears about excessive inflation. It is hard to find a parallel in the history of the U.S. economy—or the global economy more generally—to this rapid reversal of risks to the inflation outlook.
    Date: 2022–03–31
  72. By: Bajgar, Matej; Criscuolo, Chiara; Timmis, Jonathan
    Abstract: This paper presents new evidence on the growing scale of big businesses in the United States, Japan and 11 European countries. It documents a broad increase in industry concentration across the majority of countries and sectors over the period 2002 to 2014. The rising concentration is strongly associated with intensive investment in intangibles, particularly innovative assets, software and data, and this relationship is magnified in more globalized and digital-intensive industries. The results are consistent with intangibles disproportionately benefiting large firms and enabling them to scale up and raise their market shares, increasingly over time.
    Keywords: competition; industry and entrepreneurship; innovation
    JEL: E22 L10 L25
    Date: 2021–10–28
  73. By: Marco Cipriani; James A. Clouse; Lorie Logan; Antoine Martin; Will Riordan
    Abstract: A 2017 Liberty Street Economics post described the balance sheet effects of the Federal Open Market Committee’s decision to cease reinvestments of maturing securities—that is, the mechanics of the Federal Reserve’s balance sheet “runoff.” At the time, the overnight reverse repo (ON RRP) facility was fairly small (less than $200 billion for most of July 2017) and was not mentioned in the post for the sake of simplicity. Today, by contrast, take-up at the ON RRP facility is much larger (over $1.5 trillion for most of 2022). In this post, we update the earlier analysis and describe how the presence of the ON RRP facility affects the mechanics of the balance sheet runoff.
    Keywords: balance sheet; Federal Reserve; money market funds; overnight reverse repo (ON RRP)
    JEL: G2 E5
    Date: 2022–04–11
  74. By: Cecilia Regueira
    Abstract: Este trabajo tiene como objetivo de contribuir a la discusión del comportamiento de fijación de precio en los supermercados en Uruguay. Utilizando la información relevada por la Dirección General de Comercio (DGC) en el periodo enero 2011 - diciembre 2019, se buscó indagar si existen estrategias definidas a nivel de cadenas. Los principales resultados indican que en promedio las cadenas cambian el 26% de sus precios cada mes, siendo las variaciones positivas de precios mas frecuentes que las negativas. Existe una relación inversa entre entre la frecuencia y el tamaño de los ajustes a nivel de cadenas, siendo las cadenas que implementan cambios menos frecuentemente las que implementan cambios de mayor magnitud. El análisis a nivel de locales de venta muestra que aquellos pertenecientes a una misma cadena presentan estrategias similares en cuanto a cambios de precios. El análisis de sincronización encontró una heterogeneidad entre las distintas cadenas, variando el índice FK de sincronización de los cambios de precio entre 0.52 y 0.75. Finalmente, el análisis de supervivencia y de función de riesgo evidenció que la probabilidad de que los precios se modifiquen está asociada al pasaje de tiempo, lo que estaría alineado con las teorías 'State Dependent Pricing' sobre fijación de precios.
    Keywords: Sincronización de precio, retail, Función de Hazard, Estrategias de precio, Posición de precio
    JEL: E30 E32 L11 L16
    Date: 2020–11
  75. By: Kuikeu, Oscar
    Abstract: He seems that the literature about the costs ofr inflation remins weak with a lake of empirivcal assessment of this fact. Thus the interest of the following study. Thus in a first time with an convanable measure of Supply Shocks in otherterms of relative prices variability we assess on the cost of inflation. In the second time by taking into accunt the current context of regain in inflation even for countries caractherized with an strong dependency toward abroad we investigate thus the costs of inflation with this pattern that caractherized under developed as well as developed countries as revealing with the contemporaneous ukranian crisis with exhibit the increasing dependancey of Europe around energy furniture coming from Russia like the rest of the world toward food products of these two countries. For this purpose we rely om model of speculative attacks who assess well a relation between the country external assets and inflation.
    Keywords: Supply Shocks, inflation, external assets, speculative attacks
    JEL: C22 C33 F33
    Date: 2022–04–03
  76. By: Reona Hagiwara (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Some medical demand is inelastic to price changes, but not all. In assessing the effects of public health insurance reform on welfare, I examine the role of medical demand elasticity by developing a computational general equilibrium life-cycle model of the Japanese economy. The model features individual heterogeneity in health, income, and wealth. If all medical demand is inelastic, reforming public health insurance by increasing copayments reduces welfare for all current generations. However, if some medical demand is elastic, as is empirically observed, such a reform would improve welfare for current young generations, including those with poor health and low income. Furthermore, future generations benefit from the reform and their welfare increases significantly.
    Keywords: Copayment Increase, Price Elasticity of Medical Demand, Welfare Effects, Overlapping Generations
    JEL: E21 H51 I13 I31
    Date: 2022–04
  77. By: Stungwa, Sanele
    Abstract: The objective of this study is to examine the asymmetric relationship between external debt and economic growth in South Africa for a period spanning from 1994 to 2020. The study consumed an annual time series data. The study further used bounds test cointegration to investigate the long run relationship between GDP and external debt. However, the long run relationship was not found, therefore, the long run NARDL cannot estimated. The short run findings of the study state that the positive and negative shocks in foreign debt stock is -0.198 and -0.288 for each, respectively. Every 1% rise in the foreign debt stock reduces GDP growth by 0.198 percent, whereas every 1% reduction in the external debt stock boosts GDP growth by 0.288 percent When the foreign debt stock value is positive, GDP increases faster than when it is negative. Conversely, falling foreign debt leads to faster GDP growth than rising external debt. Because the estimated elasticities range greatly in importance and direction, it seems that a change in ED has an uneven impact on GDP. Therefore, South African policymakers should concentrate on enacting measures that would allow the South African economy to decrease its foreign debt.
    Keywords: Gross domestic product, external debt, NARDL, South Africa
    JEL: C1 E62 F43 H63
    Date: 2022–03–03
  78. By: U. Devrim Demirel; James Otterson
    Abstract: This paper presents a practical method for assessing the uncertainty of long-term economic projections. Economic variables play a central role in the Congressional Budget Office’s analysis of federal spending and revenues, and the uncertainty of economic projections is a key driver of the uncertainty about the agency’s budget projections. The presented method quantifies the uncertainty of economic variables by using simulations from a multivariate statistical model in which variables are formulated as sums of unobserved stationary and nonstationary components. Experiments
    JEL: C32 C53 E17
    Date: 2022–04–25
  79. By: M.Ajide, Folorunsho (Southwestern University, Nigeria)
    Abstract: We examined the effect of institutional quality and firm-specific factors on corporate investment in Nigeria using fifty-four (54) quoted non-financial firms within the period of 2002–2012. We applied dynamic panel estimator proposed by Arellano–Bond (1991). The results showed that regulatory quality, corruption, political stability and control of corruption have insignificant effect in determining corporate investments in Nigeria. Our results also confirmed that firms’ firm-specific factors influenced corporate investment in Nigeria. While firms’ cash flow displayed positive and significant effect on investment other factors had negative effects oninvestment. Our results showed that investment is constrained to internally generated fund, despite the existence of capital market. In addition, the spill over effect of tightening monetary policy during the period of study had increased the cost of borrowing thereby having a negative effect on investment in the real sector. Were commended that when the monetary authorities are focusing on inflation targeting, they should also not lose sight of its impact on corporate investment and other productivity growth of firms; which is the source of long terms ustainable growth and development of economies. & 2017 Faculty of Commerce and Business Administration, Future University.Production and Hosting by Elsevier B.V..
    Keywords: Institution; Nigeria; GMM; Firm-specific; Investment
    Date: 2022–03–24
  80. By: Kintzinger, Paulina; Horky, Florian
    Abstract: China's "Belt-and-Road" initiative is one of the largest economic policy projects in history to date. It comes hand in hand with investments in almost all areas of life in 164 countries. In this article, dynamics of Chinese M&A activities in Europe related to the BRI are investigated. Germany as Europe's largest economy is compared to the countries of the former 17+1 Forum by using a modern sequential explanatory mixed-methods research design. The investigation examines four main fields: the general scope, dynamics over time, sectoral focus and short-term financial development of target companies. Hereby, we find crucial differences but also similarities of the regions studied. Based on the quantitative results as well as the in-depth expert insights, implications for politics and business are finally derived.
    Keywords: M&A Transactions, CEEC, Germany, BRI, Economic Policy
    JEL: E61 F5 G34
    Date: 2022–04–04
  81. By: Eric C. Engstrom; Steven A. Sharpe
    Abstract: In recent months, financial market perceptions about the future path of short-term interest rates have evolved amidst signals from policymakers suggesting that reduced monetary policy accommodation is in the offing. As with previous episodes of policy tightening, most recently in 2018, one can hear an attendant rise in the volume of commentary about a decline in the slope of the yield curve and the risk of "inversion," whereby long-term yields fall below shorter-maturity yields.
    Date: 2022–03–25
  82. By: Edmond Berisha; Ram Sewak Dubey; Eric Olson
    Abstract: This paper aims to clarify the relationship between monetary policy shocks and wage inequality. We emphasize the relevance of within and between wage group inequalities in explaining total wage inequality in the United States. Relying on the quarterly data for the period 2000-2020, our analysis shows that racial disparities explain 12\% of observed total wage inequality. Subsequently, we examine the role of monetary policy in wage inequality. We do not find compelling evidence that shows that monetary policy plays a role in exacerbating the racial wage gap. However, there is evidence that accommodative monetary policy plays a role in magnifying between group wage inequalities but the impact occurs after 2008.
    Date: 2022–03
  83. By: Ming Deng (University of Zurich - Department of Banking and Finance); Markus Leippold (University of Zurich; Swiss Finance Institute); Alexander F. Wagner (University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute); Qian Wang (University of Zurich - Department of Banking and Finance; Inovest Partners AG)
    Abstract: An extraordinary mix of factors affected firm values in early 2022. In the build-up to and in the weeks after the Russian invasion of Ukraine, stocks strongly exposed to the regulatory risks of the transition to a low-carbon economy did well. This was true especially of US stocks. However, in Europe, these stocks tended to underperform after the invasion, arguably because of stronger expected policy responses supporting renewable energy sources in the face of the pronounced dependence of Europe on Russian oil and gas. Investors thus expect the speed of transition to a low-carbon economy to be diverging between the US and Europe. Relating six different Environmental, Social, and Governance (ESG) ratings with stock price performance yields mixed results, suggesting that investors cannot blindly rely on such ratings in general to indicate corporate resilience against crises. Companies which more frequently refer to inflation in their conference calls with analysts performed worse than their peers. Internationally oriented firms did poorly, and investors were particularly concerned regarding companies' exposure to China. Overall, the results offer a preview of the future economic impact of the Russia-Ukraine war.
    Keywords: Climate transition risk, energy, ESG, event study, inflation, resilience, Russia-Ukraine war, stock returns
    JEL: E3 G14 G01 Q54
    Date: 2022–04
  84. By: Gustavo Bittencourt (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Nicolás Reig (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Cecilia Rodriguez (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: El objetivo general de este trabajo es analizar los efectos de la inversión extranjera directa (IED) sobre la inversión en los países de América Latina en una perspectiva de largo plazo (1970-2017) desde el punto de vista empírico y a nivel macroeconómico. Considerando diversos aspectos teóricos y analíticos, se realiza un análisis descriptivo y empírico del efecto total de la IED sobre la acumulación de capital de las economías, lo que comprende el aporte directo de las inversiones de las Empresas Extranjeras a la Formación Bruta de Capital, y el efecto indirecto, que son los impactos de la presencia de IED sobre las inversiones de las empresas domésticas. Los resultados sugieren que el efecto total fue negativo en el panel conjunto, y para la mayoría de los países, principalmente por el efecto indirecto de sustitución o desplazamiento de las inversiones domésticas por parte de la IED. Se exceptúan algunos países medianos y pequeños, y el panel en el período 2000-2017, que muestran efectos neutrales.
    Keywords: Inversión extranjera directa, Empresas transnacionales, Inversión, Crecimiento económico, América Latina
    JEL: F21 F23 E22 O40
    Date: 2020–08
  85. By: Volckart, Oliver
    Abstract: Research has rejected Leopold von Ranke’s hypothesis that the Reformation emasculated the Holy Roman Empire and thwarted the emergence of a German nation state for centuries. However, current explanations of the Empire’s cohesion that emphasize the effects of outside pressure or political rituals are not entirely satisfactory. This article contributes to a fuller explanation by examining a factor that so far has been overlooked: monetary policies. Monetary conditions within the Empire encouraged its members to cooperate with each other and with the emperor. Moreover, cross-cutting cleavages forced actors on different sides of the confessional divide to frame coherent and fact-oriented monetary-policy arguments. This helped generate trust among the estates involved in the discussions about a common currency between the 1520s and the 1550s and contributed to the success of the negotiations. Monetary policies thus helped bridge the religious divide that had opened within the Empire, and they therefore contributed to its political cohesion.
    Keywords: Holy Roman Empire; Reformation; political cohesion; monetary policies
    JEL: N0
    Date: 2020–09–01
  86. By: Moritz Drechsel-Grau; Andreas Peichl; Johannes F. Schmieder; Kai D. Schmid; Hannes Walz; Stefanie Wolter
    Abstract: We provide a comprehensive analysis of income inequality and income dynamics for Germany over the last two decades. Combining personal income tax and social security data allows us – for the first time – to offer a complete picture of the distribution of annual earnings in Germany. We find that cross-sectional inequality rose until 2009 for men and women. After the Great Recession inequality continued to rise at a slower rate for men and fell slightly for women due to compression at the lower tail. We further document substantial gender differences in average earnings and inequality over the life-cycle. While for men earnings rise and inequality falls as they grow older, many women reduce working hours when starting a family such that average earnings fall and inequality increases. Men’s earnings changes are on average smaller than women’s but are substantially more affected by the business cycle. During the Great Recession, men’s earnings losses become magnified and gains are attenuated. Apart from recession years, earnings changes are significantly right-skewed reflecting the good overall state of the German labor market and increasing labor supply. In the second part of the paper, we study the distribution of total income including incomes of self-employed, business owners, and landlords. We find that total inequality increased significantly more than earnings inequality. Regarding income dynamics, entrepreneurs’ income changes are more dispersed, less skewed, less leptokurtic and less dependent on average past income than workers’ income changes. Finally, we find that top income earners have become less likely to fall out of the top 1 and 0.1 percent.
    JEL: E2 J16 J2 J3
    Date: 2022–03
  87. By: Cameron Fen; Samir Undavia
    Abstract: We show that pooling countries across a panel dimension to macroeconomic data can improve by a statistically significant margin the generalization ability of structural, reduced form, and machine learning (ML) methods to produce state-of-the-art results. Using GDP forecasts evaluated on an out-of-sample test set, this procedure reduces root mean squared error by 12\% across horizons and models for certain reduced-form models and by 24\% across horizons for dynamic structural general equilibrium models. Removing US data from the training set and forecasting out-of-sample country-wise, we show that reduced-form and structural models are more policy-invariant when trained on pooled data, and outperform a baseline that uses US data only. Given the comparative advantage of ML models in a data-rich regime, we demonstrate that our recurrent neural network model and automated ML approach outperform all tested baseline economic models. Robustness checks indicate that our outperformance is reproducible, numerically stable, and generalizable across models.
    Date: 2022–03
  88. By: Alexander Chudik; M. Hashem Pesaran; Ron P. Smith
    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
  89. By: Huynh, Cong Minh; Le, Quoc Nha
    Abstract: This paper empirically examines how a free market, a governance quality, and their interaction simultaneously affect income inequality in 23 Asian developing countries over the period 2000-2019. Especially, different dimensions of a free market proxied by various components of economic freedom are analysed. Results show that the overall economic freedom and three of its components including labour freedom, trade freedom, and investment freedom reduce income inequality; but other components including business freedom, monetary freedom, and financial freedom widen income inequality. Meanwhile, the governance quality not only decreases income inequality, but also intensifies the beneficial impacts of the overall economic freedom and those respective components of economic freedom on income equality. Notably, at certain thresholds of governance quality, the detrimental impacts of business freedom, monetary freedom, and financial freedom on income equality turn into the advantageous ones. The findings consolidate the appropriate combination of free market with specific dimensions and the governance quality in boosting the equality of income distribution in Asian developing countries.
    Keywords: Economic freedom; Free market; Governance quality; Income inequality
    JEL: D31 E02 F14
    Date: 2022–02–16
  90. By: Daniela Balutel; Marie-Hélène Felt; Gradon Nicholls; Marcel Voia
    Abstract: Since 2016, the Bank of Canada has conducted annual surveys to monitor awareness, adoption and usage of Bitcoin and other cryptocurrencies (Henry et al. 2018, 2019a, 2019b). This report incorporates results from the 2019 Bitcoin Omnibus Survey and the November 2020 Cash Alternative Survey. We find that between 2018 and 2020, the level of Bitcoin awareness and ownership among Canadians remained stable: nearly 90% of the population were aware of Bitcoin, while only 5% owned it. We find that about half of Bitcoin owners stated they usually obtained their bitcoins through mobile or web exchanges, while one-fifth used mining. Bitcoin owners were susceptible to certain risks, as evidenced by the fact that about half of current and past owners stated they had been affected by events such as price crashes, losing access to funds, scams or data breaches. The most commonly cited reasons for owning Bitcoin were related to its use for investment or based on interest in the technology. Bitcoin owners displayed greater knowledge about the Bitcoin network than non-owners, yet they scored lower on questions testing financial literacy.
    Keywords: Bank notes; Digital currencies and fintech; Econometric and statistical methods
    JEL: E4 C12 O51
    Date: 2022–04
  91. By: Cormier, Ben
    Abstract: Why do middle-income country governments use costlier sovereign debt markets when cheaper finance is available from official creditors? This research note argues that left-leaning governments with labor and the poor as core constituencies are likely to prioritize markets in their annual foreign borrowings. This is because markets provide an exit option from official creditor conditions that have disproportionately negative effects on working classes. This finding puts limits on disciplinary assumptions that left-leaning governments should have relatively less access to sovereign debt markets and thus use them less. Instead, left-leaning middle-income countries are likely to use proportionally more market finance as they fulfill annual foreign borrowing needs. This, in turn, shapes which middle-income countries are likely to become relatively more exposed to global debt market costs and pressures as they accumulate external debt over time.
    Keywords: borrower autonomy; external borrowing; partisanship; public debt accumulation; sovereign debt
    JEL: E6
    Date: 2022–02–07
  92. By: Mtero, Charles Tapedza; Runganga, Raynold
    Abstract: This paper is an empirical analysis to model the volatility of stock market returns in Zimbabwe. The symmetric Generalised Autoregressive Conditional Heteroscedasticity (GARCH) model and the asymmetric models (Exponential Generalised Autoregressive Conditional Heteroscedasticity (EGARCH) model and the Threshold Generalised Autoregressive Conditional Heteroscedasticity (TGARCH) model) were used to analyze if there exist asymmetries in stock market return volatility. The results show that asymmetric models are better than the symmetric model in modeling the volatility of the stock market for there exist asymmetric shocks on stock market volatility. The results from the GARCH, EGARCH, and TGARCH models showed that inflation has a positive effect on the volatility of the stock market while interest rate has a negative effect on the volatility of stock market returns. The implications of the study results from a managerial perspective are that capital market investors should consider the movement of inflation and interest rate when considering buying stocks for these affect the volatility or riskiness of stocks. Investors should also consider the impact of news when considering buying stocks for they have an asymmetric effect on the volatility of stock market returns.
    Keywords: Inflation, Stock Market Returns, GARCH, EGARCH, TGARCH
    JEL: G11 G12 G14 G3
    Date: 2021–06–29
  93. By: Shah, Anand
    Abstract: Valuation of tokens is a wager on the platform adoption. This study investigates the effect of platform adoption on the valuation of loyalty tokens and the contingent claims with the token as an underlying. The platform adoption is modelled using the classical Bass Model. The example selected is that of airmiles, but the approach could be extended to loyalty token with other numeraires as well. After assuming few monetary policy rules for the platform governance, the proposed simple model predicts that the Bass Model parameters could have significant influence on the valuation of loyalty tokens and the contingent claims with the token as an underlying.
    Keywords: Tokenomics, Cryptocurrencies, Initial Coin Offering (ICO), Blockchain applications, Bass Model, Option pricing with Bass Model parameters
    JEL: E42 G12 G13 L86
    Date: 2022–02–01
  94. By: M R Yasoa (Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-2-Name: S F Muhamad Author-2-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-3-Name: T Abdullah Author-3-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-4-Name: M N H Yusoff Author-4-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-5-Name: N M Said Author-5-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-6-Name: S A Zainuddin Author-6-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-7-Name: N A M Nasir Author-7-Workplace-Name: Faculty of Entrepreneurship and Business, Universiti Malaysia Kelantan, City Campus, 16100 Pengkalan Chepa Kota Bharu, Kelantan, Malaysia Author-8-Name: Author-8-Workplace-Name:)
    Abstract: "Objective - This paper investigates the possibility and feasibility of Malaysia's Islamic banking industry hiring external Shariah audit (ESA) services in the audit fraternity as one of the Shariah governance mechanisms. Some of the scholars argued that ESA is more independent and is able to strengthen the existing Shariah compliance in the industry. Methodology – This study employs a qualitative method by utilising semi-structured interviews with nine key industry players: Shariah auditors, Heads of Shariah audit, Shariah Committee (SC) Member, and Chief Shariah Officer. Data gathered from the interviews was transcribed and analysed using Atlas.ti software. Findings – A series of interviews reveal that given the current practices by the Islamic banking industry, it could be inferred that the Malaysian Islamic banking industry is not ready to exercise the ESA practices. This unreadiness is due to several factors, such as ESA costs outweighing its benefits, the fear of reputational risk, and anxiety of leaking confidential information to rivals. Novelty – The Shariah audit research especially relates to external Shariah audit is considered limited. Type of Paper - Empirical"
    Keywords: External Shariah audit; Islamic Banks; qualitative method; Shariah governance; Malaysia
    JEL: E44 G10 G20
    Date: 2021–12–31
  95. By: Pietrovito, Filomena; Pozzolo, Alberto Franco
    Abstract: At the beginning of the decade, many banks in euro-area periphery countries shifted their portfolios from corporate lending towards sovereign debt holdings. According to some scholars, this was the result of the moral suasion exerted by domestic authorities; others suggest instead that it was the outcome of a free choice of weak banks that bet-for-resurrection increasing the holdings of risky, high yielding government bonds. Our analysis shows that a contemporaneous increase in banks’ total assets and a portfolio readjustment from loans to government bonds is consistent with a surge in the risk-premium required by banks on corporate lending. After briefly describing our hypothesis within a simple model of a bank’s portfolio choice, we test its empirical implications on a large sample of individual loan data granted by over 100 Italian small banks during the post sovereign debt crisis period (2012-2014). Our results provide convincing evidence in support of our hypothesis.
    Keywords: Credit Supply, Government bond purchases, Sovereign debt crisis, Small banks, Bank-firm relationship
    JEL: E51 G21
    Date: 2022–04–11
  96. By: Oluc, Ihsan; Ben Jebli, Mehdi; Can, Muhlis; Guzel, Ihsan; Brusselaers, Jan
    Abstract: There are many economic parameters that may affect environmental degradation. At the forefront of these parameters is the productive economic structures of the countries The present paper discusses the dynamic relationship between carbon dioxide (CO2) emissions, economic growth and productive capacity index (PCI) for a panel of 38 OECD countries spanning the period 2000-2018. The empirical study applied PMG-ARDL approach, panel cointegration techniques and Granger causality tests the examine the short and long-run association between the variables. The cross-sectional dependence test of Pesaran (2004) revealed the use of the second generation panel unit root tests (CADF and CIPS). The cointegration relationships between the variables are proved using Westerlund and Pedroni cointegration tests. The estimated coefficients of PMG-ARDL revealed that the environmental Kuznets curve (EKC) hypothesis is established. Besides, the empirical findings obtained from long-run estimation confirm that productive capacity has a significant role on increasing environmental quality.
    Keywords: Product Capacity Index; CO2 Emissions; Economic Complexity; Economic Structure; Environment
    JEL: E2 F1 F14 Q5 Q54 Q55 Q57
    Date: 2022–03–25
  97. By: Zinn, Jesse Aaron (Clayton State University)
    Abstract: This paper develops and discusses several ratios designed to assess financial intermediation overall, as well as the two steps necessary for financial intermediation: attracting funds and lending them. We find that the money multiplier is, in typical cases, positively related to all of these ratios, suggesting that it also can be interpreted as a measure of how well a financial sector is performing in its role as intermediary between savers and borrowers.
    Date: 2022–04–02
  98. By: Danila, Marius
    Abstract: Current efforts to implement a digital euro protect Europe's autonomy and are a guarantee that some undesirable scenarios could materialize. Such scenarios are not imminent, but both the population and companies must be able to rely on the fact that the responsible authorities are aware of and carefully analyze such dangers and challenges and also have a proactive approach from an early stage. As preparations for the digital euro progress, the views of the public, companies, banks and all stakeholders will be extremely important to ensure that a digital euro is optimally designed and adds value to European society. It is the duty of all of us to help ensure that the regulatory and supervisory framework at EU level remains appropriate.
    Keywords: Euro, currency, digital currency, central bank
    JEL: E42 G15
    Date: 2021–11–12
  99. By: Naimoli, Antonio
    Abstract: The aim of this paper is to investigate the impact of public sentiment on tail risk forecasting. In this framework, we extend the Realized Exponential GARCH model to directly incorporate information from realized volatility measures and exogenous variables. Several indices related to social media and journal articles regarding the economy and stock market volatility are considered as potential drivers of volatility dynamics. An application to the prediction of daily Value at Risk and Expected Shortfall for the Standard & Poor's 500 index provides evidence that combining the information content of realized volatility and sentiment measures can lead to significant accuracy gains in forecasting tail risk.
    Keywords: Realized Exponential GARCH; sentiment indices; economic policy uncertainty; tail risk forecasting; risk management.
    JEL: C22 C53 C58 D80 E66 G32
    Date: 2022–03

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