nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒05‒09
71 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds By Brandyn Bok; Thomas M. Mertens; John C. Williams
  2. Job Search Intensity and Wage Rigidity in Business Cycles By Yuki Uemura
  3. Assessing global potential output growth and the US neutral rate: April 2022 By Kyle Boutilier; Thomas J. Carter; Xin Scott Chen; Eshini Ekanayake; Louis Poirier; Peter Shannon; Akash Uppal; Lin Xiang
  4. Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds By Brandyn Bok; Thomas M. Mertens; John C. Williams
  5. The Inverted Leading Indicator Property and Redistribution Effect of the Interest Rate By Patrick A. Pintus; Yi Wen; Xiaochuan Xing
  6. The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences By Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
  7. A Note on Temporary Supply Shocks with Aggregate Demand Inertia By Ricardo J. Caballero; Alp Simsek
  8. Potential output and the neutral rate in Canada: 2022 reassessment By Guyllaume Faucher; Christopher Hajzler; Martin Kuncl; Dmitry Matveev; Youngmin Park; Temel Taskin
  9. Macroeconomic Effects of Collateral Requirements and Financial Shocks By Aicha Kharazi
  10. Dynamic and Stochastic Search Equilibrium By Camilo Morales-Jimenez
  11. Benchmarks for assessing labour market health By Erik Ens; Corinne Luu; Kurt See; Shu Lin Wee
  12. Fiscal Consolidation Plans with Underground Economy By Maria Ferrara; Elisabetta Marzano; Monica Varlese
  13. Can the Stochastic Discount Factor Explain Unemployment Fluctuations? By Bingsong Wang
  14. Central Bank Communication with the General Public: Promise or False Hope? By Alan S. Blinder; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
  15. A Counterfactual Analysis of the Effects of Climate Change on the Natural Interest Rate By Jair Ojeda-Joya
  16. Economic Policy - the Forth Dimension of the Economic Theory By Olkhov, Victor
  17. Fiscal policy shocks and international spillovers By Sarah Brown; Ayobami E. Ilori; Juan Paez-Farrell; Christoph Thoenissen
  18. Economic Adjustment in the Euro Area and the United States during the COVID-19 Crisis By Mirko Licchetta; Giovanni Mattozzi; Rafal Raciborski; Rupert Willis
  19. On the structural determinants of growth-at-risk By Martin Gächter; Martin Geiger; Elias Hasler
  20. Anchored or Not: How Much Information Does 21st Century Data Contain on Inflation Dynamics? By Michael T. Kiley
  21. Inflación y Covid-19: un ejercicio para Colombia By Edgar Caicedo-García; Jesús Daniel Sarmiento-Sarmiento; Ramón Hernández-Ortega
  22. When the United States and the People’s Republic of China Sneeze: International Real and Financial Spillovers in Asia By Beirne, John; Renzhi, Nuobu; Volz, Ulrich
  24. The Macroeconomic Effects of Funding U.S. Infrastructure By James Malley; Apostolis Philippopoulos; Jim Malley
  25. The Ramsey Steady State Conundrum in Heterogeneous-Agent Economies By YiLi Chien; Yi Wen
  26. A Cautionary Tale of Fat Tails By Dave, Chetan; Dressler, Scott; Malik, Samreen
  27. Minimum Wage Increases and Vacancies By Marianna Kudlyak; Murat Tasci; Didem Tuzemen
  28. Macroeconomic Responses of Emerging Market Economies to Oil Price Shocks: An Analysis by Region and Resource Profile By Sophio Togonidze; Evžen Kočenda
  29. Optimal Unemployment Insurance Requirements By Gustavo de Souza; Andre Luduvice
  32. Nonlinearities in the Exchange Rate Pass-Through: The Role of Inflation Expectations By Christina Anderl; Guglielmo Maria Caporale
  33. The Effects of Conventional and Unconventional Monetary Policy Shocks on US REITs Moments: Evidence from VARs with Functional Shocks By Shixuan Wang; Rangan Gupta; Matteo Bonato; Oguzhan Cepni
  34. Automation, Market Concentration, and the Labor Share By Hamid Firooz; Zheng Liu; Yajie Wang
  35. Wirtschaftliche Effekte des Krieges in der Ukraine: Ausgangslage und Übertragungswege By Grömling, Michael
  36. SHE canÕt afford it and HE doesnÕt want it: The gender gap in the COVID-19 consumption response By Stefanie Huber
  37. Wealth and its Distribution in Germany, 1895-2018 By Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
  38. Expecting Brexit By Swati Dhingra; Thomas Sampson
  39. The accountability gap: deliberation on monetary policy in Britain and America during the financial crisis By Schonhardt-Bailey, Cheryl; Dann, Christopher; Chapman, Jacob
  40. Housing and credit misalignments in a two-market disequilibrium framework By Jaunius Karmelavičius; Ieva Mikaliūnaitė-Jouvanceau; Austėja Petrokaitė
  41. Measuring Shocks to Central Bank Independence using Legal Rulings By Stefan Griller; Florian Huber; Michael Pfarrhofer
  43. Nowcasting India's Quarterly GDP Growth: A Factor Augmented Time-Varying Coefficient Regression Model (FA-TVCRM) By Rudrani Bhattacharya; Bornali Bhandari; Sudipto Mundle
  44. Squaring the circle: How to guarantee fiscal space and debt sustainability with a European Debt Agency By Massimo Amato; Francesco Saraceno
  45. Intangible Capital and Labor Productivity Growth – Revisiting the Evidence: An Update By Roth, Felix
  46. A Journey in the History of Sovereign Defaults on Domestic-Law Public Debt By Aitor Erce; Enrico Mallucci; Mattia Picarelli
  47. Intergenerational Risk Sharing with Market Liquidity Risk By Daniel Dimitrov
  48. Asymmetric Impact of Real Effective Exchange Rate Changes on Domestic Output Revisited: Evidence from Egypt By Sharaf, Mesbah; Shahen, Abdelhalem
  49. Import Competition and Gender Differences in Labor Reallocation By Hani Mansour; Pamela Medina; Andrea Velásquez
  50. Fiscal support and monetary vigilance: Economic policy implications of the Russia-Ukraine war for the European Union By Olivier J Blanchard; Jean Pisani-Ferry
  51. The Taper This Time By Barry Eichengreen; Poonam Gupta; Rishabh Choudhary
  52. Forecasting US Inflation Using Bayesian Nonparametric Models By Todd E. Clark; Florian Huber; Gary Koop; Massimiliano Marcellino
  53. Moldy Lemons and Market Shutdowns By Jin-Wook Chang; Matt Darst
  54. The Return of Expansionary Austerity: Firms’ Investment Response to Fiscal Adjustments in Emerging Markets By Mr. Nicolas E Magud; Samuel Pienknagura
  55. Bank capital: excess credit and crisis incidence By Ray Barrell; Karim Dilruba
  56. Retail Central Bank Digital Currencies (CBDC), Disintermediation and Financial Privacy: The Case of the Bahamian Sand Dollar By Kilian Wenker
  57. Anchored or Not: A Short Summary of a Bayesian Approach to the Persistence of Inflation By Michael T. Kiley
  58. Are all Central Bank Asset Purchases the Same? Different Rationales, Different Effects By Christophe Blot; Caroline Bozou; Jérôme Creel; Paul Hubert
  59. Russia's government budget swings around elections and recessions By Korhonen, Vesa
  60. Dimension Reduction for High Dimensional Vector Autoregressive Models By Gianluca Cubadda; Alain Hecq
  61. Who lends to Africa and how? Introducing the Africa debt database By Mihalyi, David; Trebesch, Christoph
  62. Saving and Wealth Accumulation among Student Loan Borrowers: Implications for Retirement Preparedness By Lisa J. Dettling; Sarena F. Goodman; Sarah Reber
  63. Moving From Broad to Targeted Pandemic Fiscal Support By Friedrich Heinemann
  64. Causal Discovery of Macroeconomic State-Space Models By Emmet Hall-Hoffarth
  65. Slowdown of the Indian Economy during 2019-20: An Enigma or an Anomaly By Poonam Gupta; Abhinav Tyagi
  66. Slowdown of the Indian Economy during 2019-20: An Enigma or an Anomaly By Gupta, Poonam; Tyagi, Abhinav
  67. Financial dynamics, economic state classification and optimal portfolio construction for unseen market conditions: learning from the past 60 years By Nick James; Kevin Chin
  68. COVID-19, Digital Transactions, and Economic Activities: Puzzling Nexus of Wealth Enhancement, Trade, and Financial Technology By Mehar, Muhammad Ayub
  69. Middle Corridor—Policy Development and Trade Potential of the Trans-Caspian International Transport Route By Kenderdine, Tristan; Bucsky, Peter
  70. A Spatiotemporal Equilibrium Model of Migration and Housing Interlinkages By Cun, W.; Pesaran, M. H.
  71. Tasks, Occupations, and Slowbalization: On the Limits of Fragmentation By Steven Brakman; Charles van Marrewijk

  1. By: Brandyn Bok; Thomas M. Mertens; John C. Williams
    Abstract: This paper analyzes a new stylized fact: The correlation between uncertainty shocks and changes in inflation expectations has declined and turned negative over the past quarter century. It rationalizes this fact within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. In such an environment, increases in uncertainty raise the possibility that the central bank will be unable to eliminate inflation shortfalls following negative demand shocks. As a result, the observed decline in the correlation between uncertainty and inflation expectations emerges. Average-inflation targeting policies can mitigate the longer-run effects of increases in uncertainty on the real economy.
    Keywords: interest; uncertainty; inflation; equilibrium; lower bound; shocks; liquidity
    JEL: E52
    Date: 2022–04–01
  2. By: Yuki Uemura (Graduate School of Economics, Kyoto University)
    Abstract: This paper examines the job search behavior of unemployed workers over the business cycle. The paper first constructs a standard search and matching model with endogenous search efforts, wage rigidity, and a generalized matching function. Contrary to the existing literature, the proposed model generates both procyclical and countercyclical search intensity, depending on the degree of wage rigidity and the elasticity parameter of the matching function. The paper then calibrates the model to the U.S. economy and provides various impulse response analyses. The numerical exercises show that the model successfully and simultaneously reproduces countercyclical search efforts and sizable labor market fluctuations.
    Keywords: search intensity; business cycles; wage rigidity; unemployment fluctuations
    JEL: E24 E32 J64
    Date: 2022–04
  3. By: Kyle Boutilier; Thomas J. Carter; Xin Scott Chen; Eshini Ekanayake; Louis Poirier; Peter Shannon; Akash Uppal; Lin Xiang
    Abstract: We expect global potential output growth to increase from 2.7% in 2021 to 2.9% by 2024. Compared with the April 2021 assessment, global potential output growth is marginally slower. The current range for the US neutral rate is 2% to 3%, 0.25 percentage points higher than staff’s last assessment.
    Keywords: Interest rates; Monetary policy; Potential output; Productivity
    JEL: E1 E2 E4 E5 F0 O4
    Date: 2022–04
  4. By: Brandyn Bok; Thomas M. Mertens; John C. Williams
    Abstract: This paper analyzes a new stylized fact: The correlation between uncertainty shocks and changes in inflation expectations has declined and turned negative over the past quarter century. It rationalizes this fact within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. In such an environment, increases in uncertainty raise the possibility that the central bank will be unable to eliminate inflation shortfalls following negative demand shocks. As a result, the observed decline in the correlation between uncertainty and inflation expectations emerges. Average-inflation targeting policies can mitigate the longer-run effects of increases in uncertainty on the real economy.
    Keywords: uncertainty shocks; inflation expectations; bonds; macroeconomic drivers
    JEL: E52
    Date: 2022–04–13
  5. By: Patrick A. Pintus (Aix Marseille Univ, CNRS, AMSE, Marseille, France); Yi Wen (Shanghai Jiao Tong University Antai College of Economics and Management: Shanghai, Xuhui District, CN); Xiaochuan Xing (Yale University)
    Abstract: The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates today forecast future booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when interest-rate movements are driven, in a significant way, by self-fulfilling belief shocks that redistribute income away from lenders and to borrowers during booms. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate and future aggregate economic activity depends critically on the property that the interest rate is state-contingent. Bayesian estimation of our benchmark DSGE model on US data shows that the model driven by redistribution shocks results in a better fit to the data than both standard RBC models and Kiyotaki-Moore type models with unique equilibrium.
    Keywords: endogenous collateral constraints, state-contingent interest rate, redistribution shocks, multiple equilibria
    JEL: E21 E22 E32 E44 E63
    Date: 2022–04
  6. By: Lena Dräger; Michael J. Lamla; Damjan Pfajfar; Lena Dräger
    Abstract: Using a new consumer survey dataset, we show that macroeconomic preferences affect expectations and economic decisions through different channels. While household expectations are on average inversely related to preferences, households with the same inflation or interest rate expectations can differently assess whether the level of the corresponding variable is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and affects durable spending and saving decisions. We also show that the variation in inflation preferences can be explained with risk preferences. Overall, this adds a new dimension to the definition of anchored expectations.
    Keywords: macroeconomic expectations, monetary policy perceptions, inflation and interest rate preferences, risk preferences, survey microdata
    JEL: E31 E52 E58 D84
    Date: 2022
  7. By: Ricardo J. Caballero; Alp Simsek
    Abstract: We study optimal monetary policy during temporary supply contractions when aggregate demand has inertia and expansionary policy is constrained. In this environment, it is optimal to run the economy hot until supply recovers. Positive output gaps in the low-supply phase lessen the negative output gaps expected to emerge once supply recovers. However, the policy does not remain loose throughout the low-supply phase: The central bank undoes the initial interest rate cuts once aggregate demand gains momentum. If inflation also has inertia, the central bank still overheats the economy during the low-supply phase but gradually cools it down over time.
    Keywords: monetary policy, interest rates, temporary supply shocks, aggregate demand inertia, inflation, Taylor rule, divine coincidence, policy frontloading, momentum, output and inflation gaps, the Phillips curve, Covid-19
    JEL: E21 E32 E43 E44 E52 G12
    Date: 2022
  8. By: Guyllaume Faucher; Christopher Hajzler; Martin Kuncl; Dmitry Matveev; Youngmin Park; Temel Taskin
    Abstract: We expect potential output growth to be lower in 2021 than anticipated in the April 2021 assessment. By 2025, growth is expected to reach 2.3%. We assess that the Canadian nominal neutral rate increased slightly to lie in the range of 2.00% to 3.00%.
    Keywords: Economic models; Interest rates; Labour markets; Monetary policy; Potential output; Productivity
    JEL: E2 E3 E4 E5
    Date: 2022–04
  9. By: Aicha Kharazi (Free University of Bozen-Bolzano, Italy)
    Abstract: This article explores the implications of borrower's side collateral constraints have on the real economy. The novel element in this model relative to the industry standard model is that I model the entrepreneurs, which are crucial for investment, as collateral constrained. The model is estimated using Bayesian methods and can be employed to measure the role of collateral. Regarding the results, I document that collateral requirements are highly volatile during the period of 2007–2012, and I find that the effect of an increase in collateral requirements is highly significant. Interestingly, the model assigns an important role for collateral in the shock decomposition, and the contribution of financial shocks is much marked during the financial crisis and substantially shapes macroeconomic fluctuations.
    Keywords: Business Loan, Collateral, Financial Shocks.
    JEL: E32 E44 G21
    Date: 2022–04
  10. By: Camilo Morales-Jimenez
    Abstract: I study the business cycle properties of wage posting models with random search, for which the distributions of employment and wages play a nontrivial role for the equilibrium path. In fact, the main result of this paper is that the distribution of firms is one of the most important elements to understand business cycle fluctuations in the labor market. The distribution of firms (1) determines which shocks are relevant for the labor market, (2) implies that wage rigidity does not significantly amplify shocks, and (3) puts discipline on the relative value of the flow opportunity cost of employment. To assess these type of models quantitatively, I propose a new algorithm that finds the steady state and computes transitional dynamics rapidly. Hence, integrating wage posting models with random search to larger models becomes possible (and easy) with this new algorithm.
    Keywords: Wage Posting; Search and Matching; Stochastic Simulations
    JEL: E24 E25 E32 J31
    Date: 2022–03–31
  11. By: Erik Ens; Corinne Luu; Kurt See; Shu Lin Wee
    Abstract: We propose a range of benchmarks for assessing labour market strength for monetary policy. This work builds on a previous framework that considers how diverse and segmented the labour market is. We apply these benchmarks to the Canadian labour market and find that it has more than recovered from the COVID-19 shock.
    Keywords: Business fluctuations and cycles; Coronavirus disease (COVID-19); Econometric and statistical methods; Labour markets; Monetary policy
    JEL: E E2 E24 J J2 J21 J6
    Date: 2022–04
  12. By: Maria Ferrara; Elisabetta Marzano; Monica Varlese
    Abstract: Fiscal consolidation literature often neglects that there are economies with a sizable underground sector and that most of time it is accounted in GDP statistics. This produces non negligible effects on fiscal multipliers. This paper explores a fiscal consolidation plan calling for a downsizing of the underground sector as well. The analysis refers to the Italian economy that, among European countries, is the second for high public debt and has one of the highest size of tax evasion. Results show that it is possible to both reduce public debt and tax evasion through a temporary cut in public spending associated with a permanent drop in tax rates. In this context a reallocation of resources from the underground to market sector operates.
    Keywords: fiscal consolidation plans, underground economy, DSGE modelling
    JEL: E26 E32 E62 E63 H26
    Date: 2022
  13. By: Bingsong Wang (Department of Economics, University of Sheffield, UK)
    Abstract: Recent developments in Macro-labor show that discount rates may play an important role in unemployment fluctuations. This paper examines this hypothesis by using a standard search model of equilibrium unemployment with the canonical consumption-based stochastic discount factor. When the discount rate is inferred from data on real consumption in the U.S., little fluctuations in unemployment are generated from the model. Moreover, a counterfactual positive correlation between consumption growth and unemployment emerges from the model. This contradicts the post-war U.S. data. Those results hold even if the model contains habit formation in consumption and the wage is assumed to be invariant to discounts. The paper also studies the role of other factors in amplifying the impact of the discount rate shock, including endogenous job separation, variations in firms’ profit per worker and the risk premium.
    Keywords: search frictions; discount rates; unemployment fluctuations
    JEL: E23 E24 E32 J24 J31 J41 J63
    Date: 2022–04
  14. By: Alan S. Blinder (Princeton University); Michael Ehrmann (European Central Bank); Jakob de Haan (University of Groningen); David-Jan Jansen (De Nederlandsche Bank)
    Abstract: Central banks are increasingly reaching out to the general public to motivate and explain their monetary policy actions. One major aim of this outreach is to guide inflation expectations; another is to ensure accountability and create trust. This article surveys a rapidly-growing literature on central bank communication with the public. We first discuss why and how such communication is more challenging than communicating with expert audiences. Then we survey the empirical evidence on the extent to which this new outreach does in fact affect inflation expectations and trust. On balance, we see some promise in the potential to inform the public better, but many challenges along the way.
    Keywords: Banks, Monetary Policy
    JEL: D12 D84 E52 E58 G53
    Date: 2022–03
  15. By: Jair Ojeda-Joya (Banco de la República, Colombia)
    Abstract: Climate change will potentially bring about important macroeconomic effects for all countries in the world and especially for emerging economies. I perform a counterfactual analysis to estimate the potential effect of global warming on the natural interest rate using a state-space semi-structural model of inflation and output determination. The model is estimated with quarterly data for Colombia for the period 1994-2019. I simulate gradual warming of 1°C during this period and include its potential effect on GDP growth and inflation according to recent cross-country estimations in the literature. The estimation with counterfactual data shows that the counterfactual natural interest rate decreases more rapidly to reach near O% at the end of the period. This result is induced by the persistently negative effects of higher temperatures on trend output growth.
    Keywords: Natural Interest Rate; Climate Change; Monetary Policy; Kalman filter
    JEL: E43 E52 Q51
    Date: 2022–05–05
  16. By: Olkhov, Victor
    Abstract: We consider mandatory components of the economic theory: two scales and four dimensions composed by collective agent’s economic variables, transactions and expectations and by the economic policy. We consider all economic variables, transactions and expectations on an equal footing and don’t emphasize any principal. Time scale Δ defines time averaging of economic parameters. “Space” scale 1 defines rate of aggregation of the economic agents distributed by their numeric continuous risk grades in the economic domain. Different scales (l, Δ) produce theoretical approximations of the economy with a different accuracy. Economic policy may perturb agent’s expectations and that cause perturbations of transactions and economic variables. These perturbations may generate small economic waves that can propagate inside and along borders of the economic domain. Amplifications of economic wave amplitudes by positive feedback can significantly penetrate economic sustainability. Agent’s economic activity induces change of agent’s risk grades and that results in collective flows of economic variables, transactions and expectations in the economic domain. These flows cause fluctuations of macroeconomic variables usually called as business cycles. Economic policy may smooth business cycle fluctuations but cannot stop agent’s collective economic flows in the economic domain. Description of uncertainty - volatility of the economic variables, transactions, expectations and the economic policy outcomes requires development of the second-order economic theory that models relations between sums of squares of agent’s variables, transactions and expectations. We point out the theoretical frame and the direction for theoretical approximations of the real economy but this remarkable activity has no final result.
    Keywords: economic theory; economic policy; transactions; expectations; risk grades
    JEL: B41 C00 E00 E03 E3 E32 G00 G1 G12 K0
    Date: 2022–04–08
  17. By: Sarah Brown (Department of Economics, University of Sheffield, UK and IZN Bonn); Ayobami E. Ilori (University of East Anglia.); Juan Paez-Farrell (Department of Economics, University of Sheffield, UK); Christoph Thoenissen (Department of Economics, University of Sheffield, UK and CAMA)
    Abstract: The domestic and international transmission mechanism of fiscal policy shocks are analysed in large developed economies. Using a Bayesian VAR approach, we find that fiscal expansions are associated with increases in output, private consumption and, in many cases, with an in- crease in private investment. The terms of trade, which affect the international transmission of fiscal policy shocks, are found to depreciate in response to a fiscal expansion, thus transferring some of the increased domestic purchasing power abroad. A US government spending shock is expansionary for all non-US G7 members. A German government spending shock is expansion- ary for most, but not all European economies, both within and outside the Euro Area. The dynamics of the BVAR are rationalised using a dynamics stochastic general equilibrium model where heterogeneous households and firms face borrowing constraints.
    Keywords: Fiscal policy, Bayesian VAR, DSGE modelling, International business cycles, spillovers
    JEL: E62 F41 F42
    Date: 2020–11
  18. By: Mirko Licchetta; Giovanni Mattozzi; Rafal Raciborski; Rupert Willis
    Abstract: The COVID-19 crisis was a major economic shock to both the euro area and the United States. The US experienced a larger impact on human health but suffered a smaller economic contraction. Both regions experienced a faster pace of the recovery than during the global financial crisis. In spite of the larger decline in GDP, the labour market in the euro area remained resilient as job retention schemes and other measures have protected employment, while the US saw sharp changes in employment and unemployment and participation rates. There remains also significant uncertainty over the possible impact of COVID-19 on productivity growth. The latest developments should be seen in the context of longer-term trends. Divergence in per capita incomes between the euro area and the US grew after the global financial crisis, with a decline in euro area TFP growth being the most important factor. Despite the employment rate reaching historically high levels in the euro area before COVID-19, it remained lower than iin the US, weighing on the relative growth performance. Capital deepening has stagnated in both regions since the global financial crisis, although private investment in the US has proven more dynamic overall. In stark contrast with the period after the global financial crisis, many euro area governments have now delivered substantial public investment, supported by the Recovery and Resilience Facility. Finally, this paper highlights some tentative lessons for the euro area and it puts forward some issues for further research.
    JEL: E60 E62 E24 E22 H0
    Date: 2022–03
  19. By: Martin Gächter; Martin Geiger; Elias Hasler
    Abstract: We examine structural di erences in growth vulnerabilities across countries associated with financial risk indicators. Considering trade openness, financial sector size, the public spending ratio and government effectiveness, our findings suggest the existence of a structural gap and a risk sensitivity gap. Hence, structural country characteristics not only drive level di erences in growth-at-risk (GaR) but also give rise to di erences in the responsiveness of GaR to financial risks. Furthermore, we show that the impact of structural characteristics varies over the forecasting horizon. A proper understanding of structural country characteristics in the context of the GaR framework is important to facilitate the use of the concept in macroprudential policy.
    Keywords: Growth-at-risk, vulnerable growth, structural characteristics, macroprudential policy
    JEL: E27 E32 E44 F43 G01 G20 G28
    Date: 2022–06
  20. By: Michael T. Kiley
    Abstract: Inflation was low and stable in the United States during the first two decades of the 21st century and broke out of its stable range in 2021. Experience in the early 21st century differed from that of the second half of the 20th century, when inflation showed persistent movements including the "Great Inflation" of the 1970s. This analysis examines the extent to which the experience from 2000-2019 should lead a Bayesian decisionmaker to update their assessment of inflation dynamics. Given a prior for inflation dynamics consistent with 1960-1999 data, a Bayesian decisionmaker would not update their view of inflation persistence in light of 2000-2019 data unless they placed very low weight on their prior information. In other words, 21st century data contains very little information to dissuade a Bayesian decisionmaker of the view that inflation fluctuations are persistent, or "unanchored" . The intuition for, and implications of, this finding are discussed.
    Keywords: Inflation; Phillips Curve; Econometric Modeling
    JEL: E31 C11 E50
    Date: 2022–03–30
  21. By: Edgar Caicedo-García; Jesús Daniel Sarmiento-Sarmiento; Ramón Hernández-Ortega
    Abstract: La pandemia de covid-19 alteró el patrón de consumo de los hogares a nivel mundial. Estos cambios no los incorpora el IPC porque dicha medición se basa en una canasta fija de bienes, lo cual podría estar subestimando la inflación en Colombia. En este documento se hace un ejercicio utilizando una estructura de ponderaciones alternativa para evaluar los cambios que podría presentar el cálculo en el IPC durante el periodo de la pandemia. Los resultados muestran que los precios al consumidor estarían aumentando más rápido de lo que muestran las medidas del IPC con ponderaciones fijas. **** ABSTRACT: The covid-19 pandemic distorted the pattern of household consumption. Consequently, the official fixed basket CPI could be measuring inaccurately the evolution of inflation. The exercise presented in this document, was to update the weighting structure of the basket with alternative information on consumption and household expenditures to explore how the inflation calculations could be affected during the pandemic period. The results indicate that CPI would be increasing faster than the fixed basket CPI measures reveals.
    Keywords: Inflación, COVID-19, patrón de consumo, Índice de precios al consumidor (IPC), inflation, COVID-19, consumption pattern, consumer price index (CPI).
    JEL: C43 D11 E21 E31
    Date: 2022–05
  22. By: Beirne, John (Asian Development Bank Institute); Renzhi, Nuobu (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute)
    Abstract: We examine real and financial spillovers from monetary policy shocks originating in the United States (US) and the People’s Republic of China (PRC) to advanced and emerging economies in Asia over the period 2000 to 2020. Using a structural panel vector autoregression approach, we find that Asian economies overall are more susceptible to spillovers to GDP, inflation, and the current account emanating from monetary policy shocks in the PRC than to those from the US. This is related to high inter-regional trade integration in Asia and is in line with previous research findings. However, while the prevailing literature has highlighted the dominant role of US monetary policy as a transmitter of shocks to global and Asian financial markets, we find more persistence in the response of advanced Asian interest rates to PRC monetary policy shocks. In addition, emerging Asian economies are found to be more susceptible to shocks emanating from the PRC in respect of equity markets and exchange rates. The rising synchronization of Asian financial markets in relation to the PRC as the financial account in the PRC has gradually opened as well as indirect effects via trade and regional value chains help to rationalize our findings.
    Keywords: monetary policy; global financial cycle; international spillovers; US; People’s Republic of China
    JEL: E44 E52 F33 F42
    Date: 2021–11
  23. By: Emna Trabelsi (Unité de Recherche d'Analyses Quantitatives Appliquées - Université de Tunis)
    Abstract: In recent literature, there is a focus on the macroeconomic effects of macroprudential policy instruments. The innovation of this paper is to study the effects of transparent macroprudential policies on price stability. Our results provide the first empirical evidence that macroprudential transparency can aid to achieve stable inflation in emerging and developing countries. The effect is necessarily transmitted through the reduction of the occurrence of banking crisis. We also record a particular advantage of macroprudential transparency for non-inflation targeting countries. Overall, our results are robust to the use of two proxies of price stability.
    Keywords: macroprudential transparency,price stability,banking crisis,dynamic panel,mediation,bootstrapping
    Date: 2021–03–31
  24. By: James Malley; Apostolis Philippopoulos; Jim Malley
    Abstract: This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a neoclassical growth model. We add to the literature by considering a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find that infrastructure spending cannot fully pay for itself despite public and private capital being underprovided. We further find long-run output multipliers above unity if infrastructure spending and rising public debt are financed by consumption, dividend and labour income taxes and below one for corporate taxes. We also show that except for the consumption tax, the size of the multipliers critically depends on the Frisch labour supply elasticity. Finally, when we compute differences in welfare across different public financing regimes, the net welfare gains and losses are relatively minor.
    Keywords: infrastructure investment, public capital, fiscal multipliers, taxation
    JEL: E62 H41 H54
    Date: 2022
  25. By: YiLi Chien; Yi Wen
    Abstract: In infinite horizon, heterogeneous-agent and incomplete-market models, the existence of an interior Ramsey steady state is often assumed instead of proven. This paper demonstrates the critical importance of proving the existence of the Ramsey steady state when conducting theoretical or numerical analysis on optimal fiscal policies. We use an analytically tractable heterogeneous-agent model to make our point by showing that the conditions for the existence of an interior Ramsey steady state are quite sensitive to structural parameter values. In particular, we show that researchers may draw fundamentally misleading conclusions from their analysis when an interior Ramsey steady state does not exist but is erroneously assumed to exist.
    Keywords: Optimal Fiscal Policy; Ramsey Problem; Incomplete Markets; Heterogeneous Agents
    JEL: E13 E62 H21 H30
    Date: 2022–04–14
  26. By: Dave, Chetan (University of Alberta, Department of Economics); Dressler, Scott (Villanova University); Malik, Samreen (New York University Abu Dhabi)
    Abstract: Several macroeconomic time series exhibit excess kurtosis or “Fat Tails” possibly due to rare but large shocks (i.e., tail events). We document the extent to which tail events are attributable to long-run growth shocks. We show that excess kurtosis is not a uniform characteristic of postwar US data, but attributable to episodes containing well-documented growth shocks. A general equilibrium model captures these observations assuming Gaussian business-cycle shocks and a single growth shock from various sources. The model matches the data best with a growth shock to labor productivity while investment-specific technology shocks drive cycles.
    Keywords: fat tails; growth shocks; real business cycles
    JEL: E00 E30
    Date: 2022–03–24
  27. By: Marianna Kudlyak (FRB San Francisco, Hoover, IZA, CEPR); Murat Tasci (Federal Reserve Bank of Cleveland); Didem Tuzemen (Federal Reserve Bank of Kansas City)
    Abstract: Using a unique data set and a novel identification strategy, we estimate the effect of minimum wage increases on job vacancy postings. Utilizing occupation-specific county level vacancy data from the Conference Board’s Help Wanted Online for 2005-2018, we find that state-level minimum wage increases lead to substantial declines in existing and new vacancy postings in occupations with a larger share of workers who earn close to the prevailing minimum wage. We estimate that a 10 percent increase in the state level effective minimum wage reduces vacancies by 2.4 percent in the same quarter, and the cumulative effect is as large as 4.5 percent a year later. The negative effect on vacancies is more pronounced for occupations where workers typically have lower educational attainment (high school or less) and in counties with higher poverty rates. We argue that our focus on vacancies versus on employment has a distinct advantage of highlighting a mechanism through which minimum wage hikes affect labor demand. Our finding of a negative effect on vacancies is not inconsistent with the wide range of findings in the literature about the effect of minimum wage changes on employment, which is driven by changes in both hiring and separation margins.
    Keywords: Minimum Wage; Vacancies; Hiring; Search and Matching.
    JEL: E24 E32 J30 J41 J63 J64
    Date: 2022–04
  28. By: Sophio Togonidze; Evžen Kočenda
    Abstract: We analyze the impact of oil price shocks on the macroeconomic fundamentals in a panel of emerging economies from three regions and with different resource endowments. The existing literature on emerging economies remains inconclusive on how regional factors and resource characteristics affect the response of macroeconomic variables against oil price shocks. We show that (i) exports in Europe and Central Asia are more oil-driven than East Asia and the Pacific, and that (ii) policy-makers in East Asia and the Pacific should be concerned with real exchange appreciation following a positive oil shock to mitigate loss in non-oil export market. Analysis by resource-endowment further reveal that in less-resource-intensive economies oil price shock cause large variation consumption, and a negative and persistent impact on real GDP. In mineral-exporting economies, real GDP and interest rates are largely driven by oil price shocks. The response of real GDP in mineralexporting economies is short-lived. In oil exporting economies, it is only real GDP that has a large variation in response to oil price shock. For policy making, our findings underscores the need for customized policy responses to oil price shocks depending on resourceendowments as we confirm that a "uniform-policy cannot fit all" economies.
    JEL: C11 E32 E37 F44
    Date: 2022–04–25
  29. By: Gustavo de Souza; Andre Luduvice
    Abstract: In the US, unemployed workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement that stipulates the minimum qualifying work spell and a monetary requirement that determines a past minimum wage. This paper develops a heterogeneous agents model with history-dependent UI benefits in order to quantitatively obtain an optimal UI program design. We first conduct an empirical analysis using the discontinuity of UI rules at state borders and find that both the monetary and the tenure requirement reduce unemployment. The monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. We then use a quantitative model to rationalize these results. When the tenure requirement is long, workers tend to accept more low paying jobs to become eligible for UI sooner and to protect themselves from risk, while the monetary requirement works conversely. We show that, because it mitigates moral hazard, the monetary requirement can generate higher welfare levels than an increase in the length of the tenure requirement.
    Keywords: Unemployment Insurance; UI Eligibility; Optimal UI
    JEL: E24 E61 J65
    Date: 2022–04–19
  30. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: The study seeks to empirically test the hypothesis that public debt has a significant influence on inflation in Zimbabwe, covering the period 1980-2020. The study was motivated by recent trends in public debt and domestic inflation in Zimbabwe, and the need to guide debt-inflation related policy. These latest trends have started to ring alarming bells, which raises questions on the effectiveness of fiscal and monetary policies in bringing macroeconomic stability in the country. Applying the Autoregressive Distributed Lag (ARDL) bounds testing procedure to cointegration and an error correction mechanism (ECM), expanded by incorporating structural breaks, the study finds evidence in support of positive and significant impact of public debt on inflation dynamics in Zimbabwe, particularly in the long run. Based on the findings, public debt dynamics matter for inflation process in Zimbabwe. That is, fiscal policy can be considered to be an important determinant of the effectiveness of monetary policy in Zimbabwe. Therefore, the government should be mindful of increases in public debt as this was found to be inflationary.
  31. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: The optimal balance between fiscal and monetary policy in achieving price stability has been contested in literature. In the main, however, it is widely recognised that whether public debts are financed in a monetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy in ensuring price stability. This study contributes to the debate by testing the dynamic causal relationship between public debt and inflation in Tanzania covering the period 1970-2020. The study applies the autoregressive distributed lag (ARDL) bounds testing technique to cointegration and the ECM-based Granger-causality test to explore this relationship. In order to address the omission-of-variable bias, which has been the major methodological deficiency detected in some previous studies, two monetary variables, namely money supply and interest rate, were added as intermittent variables alongside public debt and inflation. The findings from this study show that there is a consistent long-run cointegrating relationship between public debt, inflation, money supply and interest rate in Tanzania. However, the results fail to find evidence of causality between public debt and inflation in Tanzania, irrespective of whether the causality is estimated in the short run or in the long run. The findings of this study, therefore, show that Tanzania’s current debt is not inflationary; hence, policymakers may continue to pursue the desirable fiscal policies necessary for the country’s long-term optimal growth path.
  32. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates nonlinearities in the exchange rate pass-through (ERPT) to consumer and import prices by estimating a smooth transition regression model with different inflation expectations regimes for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) and three non-targeters (the US, the Euro-Area and Switzerland) respectively over the period January 1993-August 2021. Both market and survey measures of inflation expectations are used as the transition variable, and the nonlinear model is also assessed against a benchmark linear model. The pass-through to both consumer and import prices is found to be stronger in the nonlinear model and in some cases is close to being complete. Also, it is stronger for import prices than for consumer prices. Both seem to be more responsive to exchange rate changes when market expectations of both consumers and producers are considered instead of expectations from consumer surveys only. Finally, inflation expectations appear to affect the ERPT more in inflation targeting countries.
    Keywords: exchange rate pass-through, smooth transition regression, nonlinearities, inflation expectations
    JEL: C22 F31 F41
    Date: 2022
  33. By: Shixuan Wang (Department of Economics, University of Reading, Reading, RG6 6EL, UK); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Matteo Bonato (Department of Economics and Econometrics, University of Johannesburg, Auckland Park, South Africa; IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France); Oguzhan Cepni (Copenhagen Business School, Department of Economics, Porcelaenshaven 16A, Frederiksberg DK-2000, Denmark; Central Bank of the Republic of Turkey, Haci Bayram Mah. Istiklal Cad. No:10 06050, Ankara, Turkey)
    Abstract: We use a vector autoregressive model with functional shocks, capturing the shift of the entire term structure of interest rates on monetary policy announcement dates, to empirically evaluate the effects of conventional and unconventional monetary policy decisions on the Real Estate Investment Trusts (REITs) markets of the United States (US). Using 5-minute interval intraday data, we analyze not only the impact on REITs returns, but also its realized variance (RV), realized jumps (RJ), realized skewness (RSK), and realized kurtosis (RKU) over the daily period of September 2008 to June 2021. While the effects of conventional monetary policy shocks on the moments of REITs returns tend to conform with economic theories, the same is not necessarily the case with unconventional monetary policy shocks. In addition, though monetary policy shocks have the most persistent and strongest effects on RJ, the extreme behaviour of the REITs market is also observed through RSK and RKU. Moreover, when we look into 10 REITs sectors, there are indeed heterogeneity in terms of the strength of the effect, but not so much in terms of the sign of responses of the various moments compared to the overall market. Our results have important implications for REITs market participants, given its exponential growth as an asset class.
    Keywords: US REITs, Intraday Data, Higher-Moments, Conventional and Unconventional Monetary Policies, VAR with Functional Shocks
    JEL: C32 E43 E52 R3
    Date: 2022–04
  34. By: Hamid Firooz; Zheng Liu; Yajie Wang
    Abstract: Since the early 2000s, a rising share of production has been concentrated in a small number of superstar firms. We argue that the rise of automation technologies and the cross-sectional variation of robot use rates have contributed to the increases in industrial concentration. Motivated by empirical evidence, we build a general equilibrium model with heterogeneous firms, endogenous automation decisions, and variable markups. Firms choose between two types of technologies, one uses workers only and the other uses both workers and robots subject to an idiosyncratic fixed cost of robot operation. Larger firms are more profitable and are thus more likely to choose the automation technology. A decline in the cost of robot adoption increases the relative automation usage by large firms, raising their market share of sales. However, the employment share of large firms does not increase as much as the sales share because the expansion of large firms relies more on robots than on workers. Our calibrated model predicts a cross-sectional distribution of automation usage in line with firm-level data. The model also implies that a decline in automation costs reduces the labor income share and raises the average markup, both driven by between-firm reallocation, consistent with empirical evidence.
    Keywords: automation; market concentration; labor share; markup; reallocation; heterogeneous firms
    JEL: E24 L11 O33
    Date: 2022–04–01
  35. By: Grömling, Michael
    Abstract: Der Krieg in der Ukraine schafft neue und verschärft bestehende Anpassungslasten für die gesamte Volkswirtschaft. Im folgenden Beitrag werden Orientierungspunkte für die ökonomischen Auswirkungen des Krieges auf die deutsche Wirtschaft aufgezeigt. Diese Effekte hängen von den politischen Konstellationen ab, die sich in den kommenden Wochen oder Monaten abzeichnen werden. Zunächst wird die Ausgangslage für die mit dem Krieg in der Ukraine einhergehenden wirtschaftlichen Herausforderungen dargelegt. Auch ohne die infolge des Krieges in der Ukraine neu auftretenden Verunsicherungen und Störungen auf der Angebots- und Nachfrageseite der Volkswirtschaft hat die bisherige wirtschaftliche Dynamik nach dem starken Wirtschaftseinbruch im Gefolge der Corona-Pandemie noch nicht ganz ausgereicht, um in Deutschland auf das Vorkrisenniveau zurückzukehren. Die kumulativen Angebotsbelastungen schlagen sich seit geraumer Zeit in der Preisentwicklung nieder und haben dem Thema Stagflation eine hohe Aufmerksamkeit verliehen. Der Krieg in der Ukraine setzt somit auf ein makroökonomisches Umfeld auf, das von Produktionsproblemen und hohen Preisanstiegen geprägt ist. Um eine Orientierung dafür zu bekommen, über welche Transmissionskanäle die Unternehmen in Deutschland aufgrund des Krieges in der Ukraine beeinträchtigt werden, hat das Institut der deutschen Wirtschaft unmittelbar nach Ausbruch des russischen Einmarschs begonnen, Unternehmen zu befragen. Die Befragungsergebnisse signalisieren, dass die größten Anpassungslasten über stark ansteigende Preise - auf der Produzentenebene und daraus abgeleitet auch auf der Konsumebene - stattfinden werden. Aber auch ausbleibende Gaslieferungen und Vorleistungsengpässe können die Produktionsprozesse erheblich beeinträchtigen. Mittelfristig werden diese Gefahren sogar höher eingeschätzt. Vor diesem Hintergrund werden die möglichen Auswirkungen des Krieges auf die Konsum- und Investitionstätigkeit in Deutschland diskutiert.
    Keywords: Konjunktur,Arbeitsteilung,Inflation,internationaler Konflikt
    JEL: C82 E31 E32 F51
    Date: 2022
  36. By: Stefanie Huber (Erasmus University Rotterdam)
    Abstract: This paper explores whether and why the pandemic differentially altered women and menÕs consumption behavior. After the 2020 wave of lockdown restrictions were lifted, women reduced consumption more than men. Data on self-reported reasons for consuming less reveals that gender differences in infection risk aversion and precautionary saving motives are small. I find consider- able gender differences in the reporting of affordability constraints and consumer preference shifts. Women report financial constraints more frequently. Men adapted more to the limited consumption possibilities during the lockdown and frequently reported Ònot missingÓ various items as the primary reason for spending less than pre-pandemic.
    Keywords: COVID-19, gender gap, gender equality, household consumption, consumer preferences, experience effects, fiscal policy
    JEL: D12 D14 D30 E21 G50 J16
    Date: 2022–04–15
  37. By: Thilo N. H. Albers (Humboldt University Berlin; Lund University); Charlotte Bartels (DIW Berlin; UCFS; IZA); Moritz Schularick (University of Bonn, Sciences Po Paris, and CEPR)
    Abstract: German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it provides unique insights into the role of country-specific shocks in shaping long-run wealth dynamics. This paper presents the first comprehensive study of wealth and its distribution in Germany since the 19th century. We combine tax and archival data, household surveys, historical national accounts, and rich lists to analyze the evolution of the German wealth distribution over the long run. We show that the top 1% wealth share has fallen by half, from close to 50% in 1895 to 27% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. The interwar period and the wealth taxation in the aftermath of World War II stand out as the great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% halved since 1990. Our findings speak to the importance of historical shocks to the distribution and valuations of existing wealth in explaining the evolution of the wealth distribution over the long run.
    Keywords: Wealth inequality; portfolio heterogeneity; saving; wealth taxation.
    JEL: D31 E01 E21 H2 N3
    Date: 2022–05
  38. By: Swati Dhingra; Thomas Sampson
    Abstract: The Brexit vote precipitated the unravelling of the UK’s membership of the world’s deepest economic integration agreement. This paper reviews evidence on the realized economic effects of Brexit. The 2016 Brexit referendum changed expectations about future UK-EU relations. Studying its consequences provides new insights regarding the economic impacts of news and uncertainty shocks. Voting for Brexit had large negative effects on the UK economy between 2016 and 2019, leading to higher import and consumer prices, lower investment, and slower real wage and GDP growth. However, at the aggregate level, there was little or no trade diversion away from the EU, implying that many of the anticipated long-run effects of Brexit did not materialize before the new UK-EU trade relationship came into force in 2021.
    Keywords: Brexit, trade policy, uncertainty, exchange rates
    JEL: E22 E65 F13 F15 F16 F31 F40
    Date: 2022
  39. By: Schonhardt-Bailey, Cheryl; Dann, Christopher; Chapman, Jacob
    Abstract: We employ multiple methods to gauge empirically the quality of the deliberative process whereby central bankers are held to account for their policy decisions. We use quantitative text analysis on the monetary policy legislative oversight hearing transcripts in the UK and US during the financial crisis. We find that the UK performs significantly better than the US in holding the central bank head to account on monetary policy, namely by engaging in a reciprocal dialogue between the legislative committee and the central banker. We then manually code selected exchanges from these transcripts, according to four criteria of deliberation: partisanship, accountability, narrative and response quality. We find that British MPs invoke almost no partisan rhetoric and target their questions more to relevant aspects of monetary policy; by comparison, their American counterparts seek to appeal more to their constituents and tend to veer away from discussing the details of monetary policy.
    JEL: N0
    Date: 2022–03–21
  40. By: Jaunius Karmelavičius (Bank of Lithuania); Ieva Mikaliūnaitė-Jouvanceau (Vilnius University and Bank of Lithuania); Austėja Petrokaitė (Bank of Lithuania)
    Abstract: During the Covid-19 pandemic, house prices and mortgage credit are growing at a long-unseen pace. However, it is unclear, whether such growth is warranted by the underlying market and macroeconomic fundamentals. This paper offers a new structural two-market disequilibrium model that can be estimated using full-information methods, and applied to analyse housing and credit dynamics. Dealing with econometric specification uncertainty, we estimate a large ensemble of the two-market disequilibrium model specifications for Lithuanian monthly data. Using the model estimates, we identify the historical drivers of Lithuania’s housing and credit demand and supply, as well as price and market quantity variables. The paper provides a novel approach in the financial stability literature to jointly measure house price overvaluation and mortgage credit flow gaps. We find that by mid-2021 Lithuania was experiencing a heating in housing and mortgage credit markets, with home prices overvalued by around 16% and the volume of mortgage credit flow being 20% above its fundamentals.
    Keywords: disequilibrium, fundamentals, misalignments, house prices, mortgage credit, early warning indicators
    JEL: C34 D50 E44 E51 G21
    Date: 2022–04–12
  41. By: Stefan Griller; Florian Huber; Michael Pfarrhofer
    Abstract: We investigate the consequences of legal rulings on the conduct of monetary policy. Several unconventional monetary policy measures of the European Central Bank have come under scrutiny before national courts and the European Court of Justice. These lawsuits have the potential to severely impact the scope and flexibility of central bank policies, and central bank independence in a wide sense, with important consequences for the real and financial economy. Since the number of relevant legal challenges is small, we develop an econometric approach that searches for minimum variance regimes which we use to isolate and measure the effects of these events. Our results suggest that legal rulings addressing central bank policies have a powerful effect on financial markets. Expansionary shocks ease financial conditions along various dimensions, and inflation swap reactions suggest inflationary pressures with stronger effects in the short term.
    Date: 2022–02
  42. By: Talknice Saungweme; Nicholas M. Odhiambo
    Abstract: This paper examines the relationship between inflation and economic growth in Kenya from an analytical and empirical standpoint. The paper applies the autoregressive distributed lag (ARDL) bounds testing approach and the multivariate Granger-causality test using time series data covering 1970-2019. Structural breaks in the time series were also conducted using the Perron (1997) (PPURoot) and Zivot-Andrews (1992) (ZAU Root) techniques. Incorporating structural breaks into time series increases statistical inference's overall validity. Inflation and economic growth in Kenya were found to have structural breaks in 1995 and 1991. These years are marked by Kenya's economic, financial, public sector and institutional reforms. The other findings of the study revealed that inflation has a statistically significant negative influence on long-term economic growth. The multivariate Granger-causality results showed a distinct short-run unidirectional causality from economic growth to inflation in Kenya. In order to mitigate the negative consequences of inflation and the coronavirus on the economy and welfare, the study recommends that Kenya's government should pursue prudent monetary, financial, and fiscal policies.
  43. By: Rudrani Bhattacharya (National Institute of Public Finance and Policy); Bornali Bhandari (National Council of Applied Economic Research); Sudipto Mundle (National Council of Applied Economic Research)
    Abstract: Governments, central banks, private firms and others need high frequency information on the state of the economy for their decision making. However, a key indicator like GDP is only available quarterly and that too with a lag. Hence decision makers use high frequency daily, weekly or monthly information to project GDP growth in a given quarter. This method, known as nowcasting, which started out in advanced country central banks using bridge models. Nowcasting is now based on more advanced techniques, mostly dynamic factor models. In this paper we use a novel approach, a Factor Augmented Time Varying Coefficient Regression (FA-TVCR) model, which allows us to extract information from a large number of high frequency indicators and at the same time inherently addresses the issue of frequent structural breaks encountered in Indian GDP growth. One specification of the FA-TVCR model is estimated using 19 variables available for a long period starting in 2007-08:Q1. Another specification estimates the model using a larger set of 28 indicators available for a shorter period starting in 2015-16:Q1. Comparing our model with two alternative models, we find that the FA-TVCR model outperforms a DFM model in terms of both in-sample and out-of-sample RMSE. The RMSE of the ARIMA model is somewhat lower than the FA-TVCR model within the sample period but is higher than the out-of-sample of the FA-TVCR model. Further, comparing the predictive power of the three models using the Diebold-Mariano test, we find that FA-TVCR model out-performs DFM consistently. In terms of out-of-sample forecast accuracy both the FA-TVC model and the ARIMA model have the same predictive accuracy under normal conditions. However, the FA-TVCR model outperforms the ARIMA model when applied for nowcasting in periods of major shocks like the Covid-19 shock of 2020-21.
    Keywords: Nowcasting, Quarterly Year-on-Year GDP growth, State-Space Model, India
    JEL: C52 C53 O40
    Date: 2021–10
  44. By: Massimo Amato; Francesco Saraceno (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: This paper contributes to the debate on European macroeconomic governance. What is at stake is creating fiscal space for eurozone countries, while ensuring the sustainability of large public debts. Whether fiscal space is created through the reform of fiscal rules, the creation of a central fiscal capacity, or a mix of the two, the question of public debt management, past and future, is paramount. Here we discuss a proposal that aims at systematic debt management through an ad hoc European Debt Agency. This EDA would progressively absorb the Member States' debt, while keeping them accountable through pricing based on fundamental risk. We further show that (1) a Debt Agency could be designed so as not to imply debt mutualization or moral hazard and that (2) common debt management would allow the ECB to normalize monetary policy without creating instability in sovereign debt markets. An important argument of the paper is that any proposal that does not deal with the entirety of debt risks decreasing sustainability, and thus being counterproductive.
    Date: 2022–03–07
  45. By: Roth, Felix
    Abstract: This contribution analyzes the impact of intangible capital on labor productivity growth across countries at the aggregate and sectoral levels by employing an econometric growth-accounting approach. First, our results show that intangible capital deepening accounts for around 50 percent of labor productivity growth at both the aggregate and sectoral level. Second, we find that this positive impact of intangible capital on productivity growth at both levels of aggregation is driven by investments in economic competencies, the only intangible group not covered in the national accounts. Third, our results reveal deep sectoral heterogeneities regarding investments and productivity effects of different intangible types. These findings have important implications for future EU industrial policies and are directly relevant to the EU's efforts to close its productivity gap with the US.
    Keywords: intangible capital,labor productivity growth,cross-country sectoral panel analysis,manufacturing,market services,EU
    JEL: C23 E22 L16 L60 L80 O47 O52
    Date: 2022
  46. By: Aitor Erce; Enrico Mallucci; Mattia Picarelli
    Abstract: We introduce a novel database on sovereign defaults that involve public debt instruments governed by domestic law. By systematically reviewing a large number of sources, we identify 134 default and restructuring events of domestic debt instruments, in 52 countries from 1980 to 2018. Domestic-law defaults are a global phenomenon. Over time, they have become larger and more frequent than foreign-law defaults. Domestic-law debt restructurings proceed faster than foreign ones, often through extensions of maturities and amendments to the coupon structure. While face value reductions are rare, net-present-value losses for creditors are still large. Unilateral amendments and post-default restructuring are the norm, but negotiated pre-default restructurings are becoming increasingly frequent. We also document that domestic-law defaults typically involve debt denominated in local currency and held by resident investors. We complement our analysis with a collection "sovereign histories", which provide the fine details about each episode.
    Keywords: Public debt; Sovereign default; Domestic law; Database
    JEL: E62 E65 F34 G01 H12 H63 K00 K41
    Date: 2022–03–18
  47. By: Daniel Dimitrov (University of Amsterdam)
    Abstract: This paper examines the optimal allocation of risk across generations whose savings mix is subject to illiquidity in the form of uncertain trading costs. We use a stylised two-period OLG framework, where each generation makes a portfolio allocation decision for retirement, and show that illiquidity reduces the range of transferable shocks between generations and thus lowers the benefits of risk-sharing. Higher illiquidity then may justify higher levels of risk sharing to compensate for the trading friction. We still find that a contingent transfers policy based on a reasonably parametrised savings portfolio with liquid and illiquid assets increased aggregate welfare.
    Keywords: intergenerational risk sharing, (il)liquidity, stochastic overlapping generations, funded pension plan
    JEL: G11 G23 E21 H55
    Date: 2022–03–30
  48. By: Sharaf, Mesbah (University of Alberta, Department of Economics); Shahen, Abdelhalem (Alexandria University)
    Abstract: The Egyptian pound has undergone substantial devaluations over the past five years. The Central Bank of Egypt aimed through these currency devaluations to stimulate domestic output. In this paper, we investigate the asymmetric impact of the real effective exchange rate (REER) on Egypt's real domestic output from 1960 to 2020 using a Nonlinear Autoregressive Distributed Lag (NARDL) model. The analyses account for the various channels via which the REER would affect domestic output. Results show evidence of a long-run asymmetry in the output effect of REER changes in which only real currency depreciations have a contractionary impact on output, while the REER has no impact on output in the short run. The Egyptian monetary authority cannot rely on domestic currency depreciation as a policy instrument to boost domestic output.
    Keywords: Asymmetric effects; Domestic output; Egypt; ARDL; Real effective exchange rate
    JEL: E63 F31 F41 F62
    Date: 2022–03–24
  49. By: Hani Mansour; Pamela Medina; Andrea Velásquez
    Abstract: We study gender differences in the labor market reallocation of Peruvian workers in response to trade liberalization. The empirical strategy relies on variation in import competition across local labor markets based on their industrial composition before China entered the global market in 2001. In contrast to much of the existing literature, we find that import competition did not have persistent negative employment effects on men or led them to sort into the non-tradable or informal sectors. The adverse effects on the employment of low-educated women in the tradable sector, however, persist over time leading them to sort into the non-tradable sector or out of the labor force. The results are consistent with a mechanism in which gender occupational and industrial segregation leads to a widening of the gender gap in employment.
    Keywords: import competition, female employment, gender discrimination
    JEL: E24 F14 J16 J71
    Date: 2022
  50. By: Olivier J Blanchard (Peterson Institute for International Economics); Jean Pisani-Ferry (Peterson Institute for International Economics)
    Abstract: The economic shock from the war in Ukraine is forcing Europe to face difficult policy choices, according to Olivier Blanchard and Jean Pisani-Ferry. Governments must decide how best to soften the blow of higher energy and food prices, and how much to rely on debt finance. The European Central Bank must decide how to balance the fight against inflation with the need to sustain aggregate demand, in the face of decreases in real income. The authors analyze the impact of the war on the European economy, discuss the pros and cons of policy options, and call for coherence in balancing sanctions, fiscal measures, and monetary policy. They argue for the use of transfers rather than across-the-board subsidies and point to the room for debt finance. They show the potential role of tripartite wage agreement and also argue that monetary policy can remain on its current trajectory but be ready to adjust.
    Date: 2022–04
  51. By: Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Rishabh Choudhary (An independent economist)
    Abstract: On November 3, 2021, the Federal Open Market Committee announced that it would reduce the scale of its asset purchases by $15 billion a month starting immediately. Do emerging markets, such as India, need to prepare for a replay of the taper tantrum of 2013? We show that emerging markets, including India, have strengthened their external economic and financial positions since 2013. At the same time, fiscal deficits are much wider, and public debts are much heavier. As U.S. interest rates now begin moving up, servicing existing debts and preventing the debt-to-GDP ratio from rising still further will become more challenging. Either taxes have to be raised or public spending must be cut to generate additional revenues for debt servicing.
    Keywords: Capital Flows, Emerging Markets, Monetary Policy, Tapering, India
    JEL: F32 F41 F42 F62
    Date: 2021–11–03
  52. By: Todd E. Clark; Florian Huber; Gary Koop; Massimiliano Marcellino
    Abstract: The relationship between inflation and predictors such as unemployment is potentially nonlinear with a strength that varies over time, and prediction errors error may be subject to large, asymmetric shocks. Inspired by these concerns, we develop a model for inflation forecasting that is nonparametric both in the conditional mean and in the error using Gaussian and Dirichlet processes, respectively. We discuss how both these features may be important in producing accurate forecasts of inflation. In a forecasting exercise involving CPI inflation, we find that our approach has substantial benefits, both overall and in the left tail, with nonparametric modeling of the conditional mean being of particular importance.
    Date: 2022–02
  53. By: Jin-Wook Chang; Matt Darst
    Abstract: This paper studies competitive market shutdowns due to adverse selection, where sellers post nonexclusive menus of contracts. We first show that the presence of the worst type of agents (moldy lemons) causes markets to fail only if their mass is sufficiently large. We then show that a small mass of moldy lemons can lead to a large cascade of exits when buyers possess outside options. Our results suggest a parsimonious way of generating sudden market shutdowns without relying on institutional details or imposing additional structure on the model. Thus, the simple insights on the properties of market shutdowns we consider are applicable to many different markets and contexts.
    Keywords: Asymmetric information; Market unraveling; Non-exclusive contracting
    JEL: D52 D53 D82 E44 G32
    Date: 2022–03–23
  54. By: Mr. Nicolas E Magud; Samuel Pienknagura
    Abstract: We study the response of corporate investment in Emerging Markets to unexpected fiscal shocks. We find that, although firm-level investment decreases on impact following unexpected public expenditure adjustments (classical Keynesian multiplier effect), it quickly rises above pre-shock levels. The rebound in investment is facilitated by fiscal space, flexible exchange rates, and more predictable fiscal policy. We also show that the composition of fiscal adjustments matters for investment’s response—compared to public investment adjustments, reductions in public consumption lead to larger private investment contractions on impact, but drive private investment to above pre-shock levels. Finally, we exploit firm-level heterogeneity in several dimensions, including to show that corporate investment’s recovery is stronger in firms in the tradable sector and in larger and less indebted firms, and to show that the long-run benefits to economic activity of the fiscal shock appear to outweigh its short-run costs.
    Keywords: Fiscal shocks, adjustment, corporate investment, emerging markets
    Date: 2022–04–08
  55. By: Ray Barrell (NIESR - Research Centre of the National Institute of Economic and Social Research - National Institute of Economic and Social Research); Karim Dilruba
    Abstract: There are large and long-lasting negative effects on output from recurrent financial crises in market economies. Policy makers need to know if these financial crises are endogenous and subject to policy interventions or are exogenous events like earthquakes. We survey the literature about the links between credit growth and crises over the last 130 years. We then go on to look at the determinants of financial crises both narrowly and broadly defined in market economies, stressing the roles of bank capital, available on book liquidity, property price bubbles and current account deficits. We look at the role of credit growth, which is often seen as the main link between the macroeconomy and crises, and stress that it is largely absent. We look at the role of the core factors discussed above in market economies from 1980 to 2017. We suggest that crises are largely unrelated to credit developments but are influenced by banking sector behaviour. We conclude that policy makers need to contain banking excesses, not constrain the macroeconomy by directly reducing bank lending.
    Keywords: Financial stability,Banking crises,Macroprudential policy
    Date: 2020–09
  56. By: Kilian Wenker
    Abstract: The fast-growing, market-driven demand for cryptocurrencies worries central banks, as their monetary policy could be completely undermined. Central bank digital currencies (CBDCs) could offer a solution, yet our understanding of their design and consequences is in its infancy. This non-technical paper examines how The Bahamas has designed the Sand Dollar, the first real-world instance of a retail CBDC. It contrasts the Sand Dollar with definition-based specifications. I then develop a scenario analysis to illustrate commercial bank risks. In this process, the central bank becomes a deposit monopolist, leading to high funding risks, disintermediation risks, and solvency risks for the com-mercial banking sector. I argue that restrictions and caps will be the new specifications of a regulatory framework for CBDCs if disintermediation in the banking sector is to be prevented. I identify the anonymity of CBDCs as a comparative disadvantage that will affect their adoption. These findings provide insight into governance problems facing central banks, and coherently lead to the design of the Sand Dollar. I conclude by suggesting that combating cryptocurrencies is a task that cannot be solved by a CBDC.
    Date: 2022–04
  57. By: Michael T. Kiley
    Abstract: Consumer price inflation in the United States, as measured by the Consumer Price Index, jumped to just above 7 percent in the twelve months ending in December 2021. Inflation in 2021 reached the highest level seen since the early 1980s. The jump in inflation outside of the range experienced over several decades has raised questions regarding the speed with which, or the degree to which, inflation may return to the 2-percent range consistent with the Federal Reserve's inflation objective.
    Date: 2022–04–08
  58. By: Christophe Blot (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Caroline Bozou (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Jérôme Creel (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Paul Hubert (Observatoire Français des Conjonctures Economiques - Centre de recherche de la fondation nationale des sciences politiques, Banque de France - Banque de France - Banque de France)
    Abstract: Does policymakers' rationale for a given policy influence the impact of this policy? To answer this question, we exploit the unique setting provided by ECB asset purchase programs. PSPP and PEPP policies consist in purchases of essentially identical assets, but their objectives differ. The PSPP aimed to reduce deflationary risks, while the PEPP was announced in response to the pandemic-driven economic crisis to alleviate sovereign risks. We assess the effects of both policies on both objectives. We find that the PSPP positively affects inflation swaps while the PEPP negatively impacts sovereign spreads but much less evidence of the opposite pattern.
    Keywords: Monetary policy,Asset prices,Central bank communication,Central bank reaction function,Intermediate objectives
    Date: 2021–12
  59. By: Korhonen, Vesa
    Abstract: This policy brief examines the shifts in Russia's government budget flows around election times and economic recessions. The issue is intriguing as Russia has basically pursued a policy of maintaining budget surpluses. Indeed, the government budget sector has shown a positive net financial stock for many years – a rare achievement for almost any country. Large downward and upward shifts in revenue and expenditure have induced sizeable changes in the balance, although in recent years swings in budget revenues have decreased as non-oil revenue streams gained importance.The real volume of government budget expenditure increased strongly around election time a decade ago. Such spending accelerations faded by the election cycle of autumn 2016 to early 2018 and remained subdued around the Duma elections in autumn 2021. Counter-cyclical budget spending policies were implemented around the 2009 and 2020 recessions to contain economic harms. The stimulus focus was on social benefits and corporate subsidies. Russia's spending increases in real terms around the 2009 recession reached the mid-range of increases when compared to twelve European economies and the US. During the 2020 recession, Russia's increases were short-lived and fell short of the hikes in almost all 13 comparison countries relative to size of GDP, but not drops in GDP.
    Keywords: Russia,government budget,recession,election
    Date: 2022
  60. By: Gianluca Cubadda (CEIS & DEF University of Rome "Tor Vergata"); Alain Hecq (Maastricht University)
    Abstract: This paper aims to decompose a large dimensional vector autoregessive (VAR) model into two components, the first one being generated by a small-scale VAR and the second one being a white noise sequence. Hence, a reduced number of common components generates the entire dynamics of the large system through a VAR structure. This modelling, which we label as the dimension-reducible VAR, extends the common feature approach to high dimensional systems, and it differs from the dynamic factor model in which the idiosyncratic component can also embed a dynamic pattern. We show the conditions under which this decomposition exists. We provide statistical tools to detect its presence in the data and to estimate the parameters of the underlying small-scale VAR model. Based on our methodology, we propose a novel approach to identify the shock that is responsible for most of the common variability at the business cycle frequencies. We evaluate the practical value of the proposed methods by simulations as well as by an empirical application to a large set of US economic variables.
    Keywords: Vector autoregressive models, dimension reduction, reduced-rank regression, multivariate autoregressive index model, common features, business cycle shock.
    Date: 2022–03–24
  61. By: Mihalyi, David; Trebesch, Christoph
    Abstract: Africa's sovereign debt markets are not well understood, partly due to a lack of data. This paper introduces the Africa Debt Database (ADD), the most granular and comprehensive dataset on external borrowing by African governments thus far. Our project moves beyond existing aggregate datasets and instead releases information on individual loans and bonds, in particular on the financial terms of each instrument. Taken together, we cover nearly 7000 loans and bonds between 2000 and 2020, with a total volume of 644 billion USD. Using this data, we study Africa's record lending boom of the 2010s in detail. The debt boom was mainly driven by large sovereign bond issuances in London and New York, as well as growing lending by Chinese state-owned banks. The micro data also reveal a large variation in lending terms across countries, time, and creditors. Sovereign external bonds have interest rates of 6 percent, on average, Chinese banks charge 2-4 percent, and multilateral organizations just 1 percent. Strikingly, many governments in Africa simultaneously borrow large amounts from both private and official creditors, at vastly different rates. The large differences in debt servicing costs are indicative of a cross-creditor subsidy, as cheap concessional loans can be used to pay the high interest to private or Chinese creditors.
    Keywords: debt sustainability,debt composition,bond issuances
    JEL: E62 F34 H63
    Date: 2022
  62. By: Lisa J. Dettling; Sarena F. Goodman; Sarah Reber
    Abstract: Borrowing for education has increased rapidly in the past several decades, such that the majority of non-housing debt on US households' balance sheets is now student loan debt. This chapter analyzes the implications of student loan borrowing for later-life economic well-being, with a focus on retirement preparation. We demonstrate that families holding student loan debt later in life have less savings than their similarly educated peers without such debt. However, these comparisons are misleading if the goal is to characterize the experience of the typical student borrower, as they fail to account for student borrowers who already paid off their debt. We develop strategies to locate families that ever financed their education with student loans in two large datasets which enables us to draw more meaningful comparisons. We find that student loan borrowers roughly follow the earnings, saving, and wealth trajectories of other college-educated families into late-career ages and are much better off financially than those that did not attend college.
    Keywords: College; Retirement; Saving; Student loan debt; Survey of consumer finances; Wealth
    JEL: G51 J26 J24 E21 I22
    Date: 2022–04–01
  63. By: Friedrich Heinemann
    Abstract: This paper conceptualizes an appropriate path for fiscal policy starting from the early this yardstick, it assesses the initial fiscal response of Member States. It exploits fiscal projections and program data to analyze the adjustment to the economic recovery. For loan guarantee and short-time work schemes, it identifies program-specific parameters that improve target precision and identifies examples of more and less convincing program designs.
    Date: 2022
  64. By: Emmet Hall-Hoffarth
    Abstract: This paper presents a set of tests and an algorithm for agnostic, data-driven selection among macroeconomic DSGE models inspired by structure learning methods for DAGs. As the log-linear state-space solution to any DSGE model is also a DAG it is possible to use associated concepts to identify a unique ground-truth state-space model which is compatible with an underlying DGP, based on the conditional independence relationships which are present in that DGP. In order to operationalise search for this ground-truth model, the algorithm tests feasible analogues of these conditional independence criteria against the set of combinatorially possible state-space models over observed variables. This process is consistent in large samples. In small samples the result may not be unique, so conditional independence tests can be combined with likelihood maximisation in order to select a single optimal model. The efficacy of this algorithm is demonstrated for simulated data, and results for real data are also provided and discussed.
    Date: 2022–04
  65. By: Poonam Gupta (National Council of Applied Economic Research); Abhinav Tyagi (National Council of Applied Economic Research)
    Abstract: In this paper, we analyze the deep and anomalous economic slowdown in 2019-20, when the Indian economy grew at a rate of 4 percent, the lowest in a decade. We argue that the slowdown was largely confined to one year, 2019-20. The growth rate in the prior years averaged at 7 percent a year, and in none of the other years was it significantly below this average rate of growth. In contrast to some of the prevailing narratives, the slowdown did not permeate widely across sectors and activities. It was concentrated primarily in the manufacturing sector. The agriculture sector grew faster than before, and the services sector experienced only a mild deceleration, that too in the last two quarters of the year. On the demand side, the slowdown was primarily reflected in a sharp contraction in exports. In comparison, consumption decelerated by a milder amount, investment growth was broadly flat, and government expenditure grew at a faster pace than in the previous decade. The slowdown can be accounted for by three factors. First, about a 50 basis points worth of the slowdown was due to the COVID-induced lockdown in the last week of March 2020. Second, more than 100 basis points worth of the slowdown was due to the collapse in exports, attributed both to a large global slowdown in trade, and to the fact that India lost ground to other countries in maintaining its market share in a slowing market. Finally, the credit collapse from banks, Non-Banking Financial Companies, and Housing Finance Companies mattered, which likely made the lack of credit an impediment to production, investment, export, and consumption decisions.
    Keywords: Development, Growth, Exports, Manufacturing, India
    JEL: E65 F40 O11 O47 O53
  66. By: Gupta, Poonam; Tyagi, Abhinav
    Abstract: In this paper, we analyze the deep and anomalous economic slowdown in 2019-20, when the Indian economy grew at a rate of 4 percent, the lowest in a decade. We argue that the slowdown was largely confined to one year, 2019-20. The growth rate in the prior years averaged at 7 percent a year, and in none of the other years was it significantly below this average rate of growth. In contrast to some of the prevailing narratives, the slowdown did not permeate widely across sectors and activities. It was concentrated primarily in the manufacturing sector. The agriculture sector grew faster than before, and the services sector experienced only a mild deceleration, that too in the last two quarters of the year. On the demand side, the slowdown was primarily reflected in a sharp contraction in exports. In comparison, consumption decelerated by a milder amount, investment growth was broadly flat, and government expenditure grew at a faster pace than in the previous decade. The slowdown can be accounted for by three factors. First, about a 50 basis points worth of the slowdown was due to the COVID-induced lockdown in the last week of March 2020. Second, more than 100 basis points worth of the slowdown was due to the collapse in exports, attributed both to a large global slowdown in trade, and to the fact that India lost ground to other countries in maintaining its market share in a slowing market. Finally, the credit collapse from banks, Non-Banking Financial Companies, and Housing Finance Companies mattered, which likely made the lack of credit an impediment to production, investment, export, and consumption decisions.
    Keywords: Development, Growth, Exports, Manufacturing, India
    JEL: E65 F40 O11 O47 O53
    Date: 2022–04
  67. By: Nick James; Kevin Chin
    Abstract: Motivated by the current fears of a potentially stagflationary global economic environment, this paper uses new and recently introduced mathematical techniques to study multivariate time series pertaining to country inflation (CPI), economic growth (GDP) and equity index behaviours. We start by assessing the temporal evolution among various economic phenomena, and complement this analysis with "economic driver analysis", where we decouple country economic trajectories and determine what is most important in their association. Next, we study the temporal self-similarity of global inflation, growth and equity index returns to identify the most anomalous historic periods, and windows in the past that are most similar to current market dynamics. We then introduce a new algorithm to construct economic state classifications and compute an economic state integral, where countries are determined to belong in one of four candidate states based on their inflation and growth behaviours. Finally, we implement a decade-by-decade portfolio optimization to determine which equity indices and portfolio assets have been most beneficial in maximizing portfolio risk-adjusted returns in various market conditions. This could be of great interest to those looking for asset allocation guidance in the current period of high economic uncertainty.
    Date: 2022–03
  68. By: Mehar, Muhammad Ayub (Asian Development Bank Institute)
    Abstract: We examine the role and effectiveness of the several modes of financial inclusion and technology for uninterrupted economic and business activities during the COVID-19 pandemic. Our study is based on empirical analysis through statistical estimation of four mathematical equations. The Cross-Sectional Random-Effects Model in panel least squares (PLS) technique based on 4 years’ data on 102 countries was applied to identify the determinants of GDP growth, shareholders’ wealth, and trade in goods and services. We tested the impacts of the use of credit cards, use of the internet for shopping and payment of utility bills, and electronic transfer of funds on GDP growth, trade in goods and services, and shareholders’ wealth. We envisage that COVID-19 has adversely affected GDP growth, but the use of financial technology for buying goods and services, and receiving money through digital modes during the pandemic crisis, may offset economic losses to some extent. The empirical evidence shows that a higher share of the population receiving payments by digital mode and using the internet to pay bills or buy something online is significant and a robust determinant of trade in goods and services. Similarly, the use of the internet for buying things and for paying utility bills is a significant positive determinant of GDP growth. We also estimate the results for 35 Asian countries separately and found that the COVID-19 pandemic and the use of fintech have affected these Asian countries in a similar way. These conclusions support the promotion of e-money and digital transactions in the economy. Although the role of the provision of domestic credit to the private sector is not significant in the determination of trade in services, it is a highly significant determinant of the value of investors’ wealth and merchandising trade. The positive association of trade in services with the magnitude of merchandising trade indicates that policy makers must consider the interconnectivity of these two types of trade. Another important finding from the policy formulation point of view is the significant role of financial technology in GDP growth. We also observed a significant association between GDP growth and the number of deaths due to COVID-19.
    Keywords: digital payments; payments through the internet; debit/credit card; market capitalization; trade in services; panel least squares
    JEL: E51 F34 G10 O33
    Date: 2021–12
  69. By: Kenderdine, Tristan (Asian Development Bank Institute); Bucsky, Peter (Asian Development Bank Institute)
    Abstract: The Trans-Caspian International Transport Route (TITR), known as the Middle Corridor, is a multilateral institutional development linking the containerized rail freight transport networks of the People’s Republic of China (PRC) and the European Union through the economies of Central Asia, the Caucasus, Turkey, and Eastern Europe. The multilateral, multimodal transport institution links Caspian and Black Sea ferry terminals with rail systems in the PRC, Kazakhstan, Azerbaijan, Georgia, Turkey, Ukraine, and Poland. Trans-Eurasian and intra-Eurasian rail freight development remains fundamentally policy- and subsidy-driven on the PRC side, yet dependent on European Union demand-side drivers to create traffic flow volumes. The development of the Middle Corridor, though, is institutionally independent and potentially transformative for the economies of Central Asia, the Caucasus, and Turkey. We explore the institutional development of transport infrastructure and economic potential from three macroregional angles: policy- and subsidy-driven development, the Central Asia–Caucasus–Turkey physical industrial geography and political institution limitations, and lack of demand-side fundamentals from European Union market agents. The PRC’s supply-side-policy evidence suggests that growth in transcontinental containerized rail transport is politically feasible. However, demand-side factors suggest that trade development potential is largely limited to greater extraregional connectivity from the Middle Corridor economies with little economic rationale for increased PRC–Europe transcontinental freight flows.
    Keywords: transport policy; economic geography; geoindustrial policy; industrial policy; Eurasian economic integration
    JEL: B15 B27 B52 E02 E61
    Date: 2021–05
  70. By: Cun, W.; Pesaran, M. H.
    Abstract: This paper develops and solves a spatiotemporal equilibrium model in which regional wages and house prices are jointly determined with location-to-location migration flows. The agent’s optimal location choice and the resultant migration process are shown to be Markovian, with the transition probabilities across all location pairs given as non-linear functions of wage and housing cost differentials, endogenously responding to migration flows. The model can be used for the analysis of spatial distribution of population, income, and house prices, as well as for spatiotemporal impulse response analysis. The model is estimated on a panel of 48 mainland U.S. states and the District of Columbia using the training sample (1976-1999), and shown to fit the data well over the evaluation sample (2000-2014). The estimated model is then used to analyze the size and speed of spatial spill-over effects by computing spatiotemporal impulse responses of positive productivity and land-supply shocks to California, Texas, and Florida. Our simulation results show that states with a lower level of land-use regulation can benefit more from positive state-specific productivity shocks; and positive land-supply shocks are much more effective in states, such as California, that are subject to more stringent land-use regulations.
    Keywords: location choice, joint determination of migration fl‡ows and house prices, spatiotemporal impulse response analysis, land-use deregulation, population allocation, productivity and land supply shocks, California, Texas and Florida
    JEL: E00 R23 R31
    Date: 2022–04–09
  71. By: Steven Brakman; Charles van Marrewijk
    Abstract: Following the trade collapse in 2009, Globalization has recovered but the growth rate slowed down compared to the preceding period of Hyper Globalization. The persistence of this slowdown is remarkable. We argue that increased awareness of firms for the costs of involvement in global supply chains can explain the recent developments in trade flows. We formalize the existence, length, and consequences of changes in fragmentation cost along global supply chains. From a theoretical point of view, the model endogenizes production fragmentation, allowing for multiple production stages in multiple countries, while remaining tractable. From an empirical point of view, the model explains both, the period of Hyper Globalization and the subsequent Slowbalization in terms of changing fragmentation costs along global supply chains. The model is also consistent with developments regarding labor market polarization associated with modern globalization: the labor market position of medium-skilled workers in advanced countries has deteriorated relative to high- and low- skilled workers, which can be understood by changing global supply chains. Our model implies, however, that even with zero fragmentation costs the demand for certain occupations does not fall to zero for any country.
    Keywords: Hyper Globalization, Slowbalization, global supply chains
    JEL: F10 F12
    Date: 2022

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