nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒05‒16
102 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. An Optimizing IS-LM Model Specification with Inflation Targeting. Microeconomic Evidence for Price Adjustment By Vîntu, Denis
  2. Joined at the Hip: Monetary and Fiscal Policy in a Liquidity-Dependent World By Guillermo A. Calvo; Andrés Velasco
  3. The Natural Rate of Interest Through a Hall of Mirrors By Phurichai Rungcharoenkitkul; Fabian Winkler
  4. The new inflationary environment: How persistent are the current inflationary dynamics and how is monetary policy expected to respond? By Demary, Markus; Herforth, Anna-Lena; Zdrzalek, Jonas
  5. The Euro Area Government Spending Multiplier in Demand- and Supply-Driven Recessions By Mario Di Serio; Matteo Fragetta; Emanuel Gasteiger; Giovanni Melina
  6. Policy Coordination and the Effectiveness of Fiscal Stimulus By Hyeongwoo Kim; Shuwei Zhang
  7. What should the inflation target be? Views from 600 economists By Ambrocio, Gene; Ferrero, Andrea; Jokivuolle, Esa; Ristolainen, Kim
  8. Fiscal and Monetary Policies in an Agent-Based Model By Pongpitch Amatyakul; Nutnicha Theppornpitak
  9. Relația dintre inflație, rata dobânzii, șomaj și creșterea economică By Vîntu, Denis
  10. The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Risk Channel By Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
  11. A Reassessment of Monetary Policy Surprises and High-Frequency Identification By Michael D. Bauer; Eric T. Swanson
  12. Forecasting Inflation with a Zero Lower Bound or Negative Interest Rates: Evidence from Point and Density Forecasts By Christina Anderl; Guglielmo Maria Caporale
  13. Inflation Targeting in India : An Interim Assessment By Gupta, Poonam; Eichengreen, Barry; Choudhary, Rishabh
  14. Asset Bubbles, Entrepreneurial Risks, and Economic Growth By Takeo Hori; Ryonghun Im
  15. Does monetary policy affect the net interest margin of credit institutions? Evidence from Colombia By Javier Eliecer Pirateque-Niño; Daniela Rodríguez-Novoa; José Hernán Piñeros-Gordo
  16. Analysing Union Budget 2022-23: Fiscal Policy and Global Uncertainties By Chakraborty, Lekha S
  17. Effects of Carbon Pricing on Inflation By Richhild Moessner
  18. European Exchange Rate Adjustments in Response to COVID-19, Containment Measures and Stabilization Policies By Jens Klose
  19. A Central Bank Digital Currency for India? By Barry Eichengreen; Poonam Gupta; Tim Marple
  20. A p Theory of Government Debt and Taxes By Wei Jiang; Thomas J. Sargent; Neng Wang; Jinqiang Yang
  21. Inflation expectations and climate concern By Meinerding, Christoph; Poinelli, Andrea; Schüler, Yves
  22. Assessing the Effects of Borrower-Based Macroprudential Policy on Credit in the EU Using Intensity-Based Indices By Lara Coulier; Selien De Schryder
  23. Pandemic-Era Uncertainty By Meyer, Brent; Mihaylov, Emil; Barrero, Jose Maria; Davis, Steven J.; Altig, David; Bloom, Nicholas
  24. Modeling Uncertainty as Ambiguity: a Review By Cosmin L. Ilut; Martin Schneider
  25. Can unconventional monetary policy contribute to climate action? By Alice Eliet-Doillet; Andrea Maino
  26. Coherence of Output Gaps in the Euro Area: The Impact of the Covid-19 Shock By Jakob de Haan; Jan P.A.M. Jacobs; Renske Zijm
  27. Central Bank Digital Currency (CBDC): Critical Issues and the Indian Perspective By D. Priyadarshini; Sabyasachi Kar
  28. Monetary Policy and Bank Liquidity Creation: A Multivariate Markov Switching Approach By Mustafa Caglayan; Kostas Mouratidis
  29. Fiscal Sustainability, Fiscal Reactions, Pitfalls and Determinants By António Afonso; José Carlos Coelho
  30. Inflation Persistence: How Much Is There and Where Is It Coming From? By Martín Almuzara; Argia M. Sbordone
  31. Tackling Large Outliers in Macroeconomic Data with Vector Artificial Neural Network Autoregression By Vito Polito; Yunyi Zhang
  32. Monetary Policy in Disaster-Prone Developing Countries By Mr. Chris Papageorgiou; Mr. Giovanni Melina; Mr. Alessandro Cantelmo; Nikos Fatouros
  33. The Narrow Channel of Quantitative Easing: Evidence from YCC Down Under By David O. Lucca; Jonathan H. Wright
  34. The Savings Glut of the Old: Population Aging, the Risk Premium, and the Murder-Suicide of the Rentier By Joseph Kopecky; Alan M. Taylor
  35. In Search of Dominant Drivers of the Real Exchange Rate By Wataru Miyamoto; Thuy Lan Nguyen; Hyunseung Oh
  36. Consumer Bankruptcy, Mortgage Default and Labor Supply By Wenli Li; Costas Meghir; Florian Oswald
  37. Economic Policy Uncertainty and the Yield Curve By Markus Leippold; Felix Matthys
  38. Bundling Time and Goods: Implications for the Dispersion in Hours Worked By Lei Fang; Anne Hannusch; Pedro Silos
  39. Developing an Income-Distribution- Sensitive Taylor Rule: An Application to South Africa By Capazario, Michele
  40. Hrvatski indeks sistemskog stresa (HISS) By Ervin Duraković Author-Name-First: Ervin
  41. Labor Substitutability among Schooling Groups By Mark Bils; Bariş Kaymak; Kai-Jie Wu
  42. Is the Fed “Behind the Curve”? Two Interpretations By James B. Bullard
  43. Cross-subsidization of Bad Credit in a Lending Crisis By Nikolaos Artavanis; Brian Jonghwan Lee; Stavros Panageas; Margarita Tsoutsoura
  44. Investment Slowdown in India: Role of Fiscal-Monetary policy and Economic Uncertainty By Pravakar Sahoo; Ashwani Bishnoi
  45. Bullard Discusses Policy Rate, Inflation and Unemployment By James B. Bullard
  46. Beyond the Traditional Unemployment Rate during Covid-19 in Lithuania By Jose Garcia-Louzao; Kristijonas Vėlyvis
  47. Shipping Costs and Inflation By Davide Furceri; Mr. Yan Carriere-Swallow; Mr. Pragyan Deb; Daniel Jimenez; Mr. Jonathan David Ostry
  48. A Preferred-Habitat Model of Term Premia, Exchange Rates, and Monetary Policy Spillovers By Pierre-Olivier Gourinchas; Walker D. Ray; Dimitri Vayanos
  49. Nowcasting Bosnia and Herzegovina GDP in Real Time By Antonio Musa
  50. Buoyant or Sinking? Tax Revenue Performance and Prospects in Developing Asia By Hill, Samuel; Jinjarak, Yothin; Park, Donghyun
  51. New Approaches to Forecasting Growth and Inflation: Big Data and Machine Learning By Sabyasachi Kar; Amaani Bashir; Mayank Jain
  52. Fiscal Stimulus and Commercial Bank Lending Under COVID-19 By Joshua Aizenman; Yothin Jinjarak; Mark M. Spiegel
  53. Does the Level of Inflation Matter in the Inflation-Growth Nexus in Ghana? By Prempeh, Kwadwo Boateng; Kyeremeh, Kwadwo; Peprah-Amankona, Godfred
  54. Substance Abuse during the Pandemic: Implications for Labor-Force Participation By Jeremy Greenwood; Nezih Guner; Karen Kopecky
  55. Assessing Debt Stationarity and Sustainability in the Longer Run with Fourier DF Unit Root Tests and Time-Varying Fiscal Reaction Functions. By Jamel Saadaoui; Marco Chi Keung Lau; Yifei Cai
  56. The UK Productivity “Puzzle” in an International Comparative Perspective By John G. Fernald; Robert Inklaar
  57. The Taper This Time By Eichengreen, Barry; Gupta, Poonam; Choudhary, Rishabh
  58. The rule of law and investment in intangible capital: Evidence for the EU-16, 1996-2017 By Roth, Felix
  59. Ovisni o euru: makroekonomski učinci tečajnih promjena u Hrvatskoj By Ozana Nadoveza Jelić; Rafael Ravnik
  60. European investment Bank loan appraisal, the EU climate bank ? By Ebeling Antoine
  61. Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility By Ralf R. Meisenzahl; Karen M. Pence
  62. Characterizing the Schooling Cycle By Sadaba, Barbara; Vujic, Suncica; Maier, Sofia
  63. Are Manufacturing Jobs Still Good Jobs? An Exploration of the Manufacturing Wage Premium By Kimberly Bayard; Tomaz Cajner; Vivi Gregorich; Maria D. Tito
  64. Human capital and labour market resilience over time: a regional perspective of the Portuguese case By Marta Cristina Nunes Simões; João Alberto Sousa Andrade; Maria Adelaide Pedrosa Silva Duarte
  65. Politics of Public Education and Pension Reform with Endogenous Fertility By Uchida, Yuki; Ono, Tetsuo
  66. Household Portfolios and Retirement Saving over the Life Cycle By Jonathan A. Parker; Antoinette Schoar; Allison T. Cole; Duncan Simester
  67. Drivers of Corporate Investment Slowdown in India: A Firm Level Analysis By Pravakar Sahoo; Ashwani Bishnoi
  68. Identifying Financially Remote First Nations Reserves By Heng Chen; Walter Engert; Kim Huynh; Daneal O’Habib
  69. Euroraum im Frühjahr 2022 - Kriegsschock lastet auf Erholung By Boysen-Hogrefe, Jens; Groll, Dominik; Kooths, Stefan; Sonnenberg, Nils; Stolzenburg, Ulrich
  70. Relegating - The GDP Structural Modelling Strategy, The Dynamics in Time-Series Data: Short-Run Shocks, Disequilibrium Shocks and Innovative Shocks to Nuisance By Vîntu, Denis
  71. Historical Time and the Current State of Post-Keynesian Growth Theory By Ettore Gallo; Mark Setterfield
  72. "Why the Feldstein-Horioka "Puzzle" Remains Unsolved" By Jesus Felipe; Scott Fullwiler; Al-Habbyel Yusoph
  73. The Importance of Technology in Banking during a Crisis By Nicola Pierri; Yannick Timmer
  74. Global Corporate Income Tax Competition, Knowledge Spillover, and Growth By Maebayashi, Noritaka; Morimoto, Keiichi
  75. Global Corporate Income Tax Competition, Knowledge Spillover, and Growth By Maebayashi, Noritaka; Morimoto, Keiichi
  76. Twin Deficits through the Looking Glass: Time-Varying Analysis in the Euro Area By António Afonso; José Carlos Coelho
  77. Family Finances and Debt Overhang: Evolving Consumption Patterns of Spanish Households By Sala, Hector; Trivín, Pedro
  78. Investment Behavior in India: What led to Investment Slowdown and how to Revive it? By Pravakar Sahoo; Ashwani Bishnoi
  79. Changes in the Distribution of Economic Well-Being during the COVID-19 Pandemic: Evidence from Nationally Representative Consumption Data By Bruce D. Meyer; Connacher Murphy; James X. Sullivan
  80. The Philosophical interpretation of Fragility as an Economics concept By Tweneboah Senzu, Emmanuel
  81. A Final Report Card on the States’ Response to COVID-19 By Phil Kerpen; Stephen Moore; Casey B. Mulligan
  82. Deutsche Wirtschaft im Frühjahr 2022. Erholung gefährdet - Preisdruck hoch By Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
  83. Fundamental Uncertainty as Model Uncertainty By Owen F. Davis
  84. A Minimalist Model for the Ruble During the Russian Invasion of Ukraine By Guido Lorenzoni; Iván Werning
  85. Weltwirtschaft im Frühjahr 2022 - Verlangsamte Expansion bei hoher Inflation By Gern, Klaus-Jürgen; Kooths, Stefan; Reents, Jan; Sonnenberg, Nils; Stolzenburg, Ulrich
  86. Assessing the mid-term growth outlook for the Indian economy By Barker, Jamie; Herrala, Risto
  87. Are Managers Paid for Market Power? By Renjie Bao; Jan De Loecker; Jan Eeckhout
  88. Intergenerational Mobility Begins Before Birth By Ananth Seshadri; Anson Zhou
  89. Corporatism and Capital Accumulation: The Fate of the Social Corporatist Model By Jonathan Perraton
  90. In the Grip of Whitehall? The Effects of Party Control on Local Fiscal Policy in the UK By Lockwood, Ben; Francesco Porcelli; James Rockey
  91. Fiscal Policies and their Impact on Income Distribution in India By Sridhar Kundu; Maynor Cabrera
  92. A Balance-Sheet Model of Fiscal Policy in Namibia By Federico Sturzenegger; Nicolás Der Meguerditchian
  93. An analysis framework for supply shock effects on production and employment (Japanese) By SANO Tomoki; NAGAMACHI Yuhei
  94. Does the Twin-Deficits doctrine apply to the Gulf Cooperation Council? A dynamic panel VAR-X model approach By AL-JAHWARI, SALIM AHMED SAID
  95. Will Putin"s Ukraine war provoke famine and upheaval in Africa By Kohnert, Dirk
  96. Will Putin's Ukraine war provoke famine and upheaval in Africa? By Kohnert, Dirk
  97. Cliometrics of Climate Change By Olivier Damette; Claude Diebolt; Stephane Goutte; Umberto Triacca
  98. Fiscal support and monetary vigilance- economic policy implications of the Russia-Ukraine war for the European Union By Olivier Blanchard; Jean Pisani-Ferry
  99. The Stealth Erosion of Dollar Dominance: Active Diversifiers and the Rise of Nontraditional Reserve Currencies By Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
  100. New Financial Technologies, Sustainable Development, and the International Monetary System By Prasad, Eswar
  101. Le multiplicateur d'investissement public By Gilles Le Garrec; Vincent Touzé
  102. Digital Technology and Economic Impacts of COVID-19: Experiences of the People’s Republic of China By Huang, Yiping; Qiu, Han; Wang, Jingyi

  1. By: Vîntu, Denis
    Abstract: The article describes a specific canonical form of IS-LM model under Inflation Targeting. Throughout last two decades, economy of Republic of Moldova have gone through recurrent periods of boom and bust. This is the fascinating phenomenon of business cycles and economic fluctuations. Although long periods of high economic growth have sometimes led people to believe that the business cycle was dead, statistical data show that it is still alive and well: economic activity continues to fluctuate in an irregular cyclical manner around its long-run growth trend. and at the start of the present decade the growth rate of real GDP per capita turned negative in all of the three largest OECD economies. A fundamental challenge for macroeconomic theory is to explain why the economy goes through these cyclical movements rather than evolving smoothly over time. The two previous years of COVID-19 implications derived the capitalist market economies of the world through recurrent periods of dynamic trends. At the start of the present decade the growth rate of real GDP per capita turned negative in all of the three largest Eastern European Economies: Russia, Ukraine and Romania. We concludes that that numerous disarrays identifying with the arrangement of strategies utilized by Monetary Policy in a specific space of study financial variables and parameters can reconsider anticipated time-arrangement and/or uncertainty in terms of model errors.
    Keywords: IS-LM model; Joint Analysis of Fiscal and Monetary Policy; Stabilization; discrete regression; stochastic dynamic general equilibrium (SDGE); prices; business fluctuations and cycles; econometric methods.
    JEL: C13 E21 E30 E41 E44
    Date: 2022–03
  2. By: Guillermo A. Calvo; Andrés Velasco
    Abstract: We study the effects of monetary and fiscal policies when both money and government bonds provide liquidity services. Because money is the unit of account, the price of money is the inverse of the price level. If prices are sticky, so is the price of money in terms of goods, and this is one important reason why money is liquid and attractive. By contrast, the price of government bonds is free to jump and often does, especially in response to news about changes in fiscal policy and the supply of bonds. Those movements in government bond prices affect available liquidity, and therefore aggregate demand, inflation and output. Under these conditions, bond-financed fiscal expansions can be contractionary, causing deflation and a temporary recession. To avoid those effects, changes in bond supply must be matched by changes in money supply and in the interest rate on money. We conclude that in a liquidity-dependent world, fiscal and monetary policies are joined at the hip.
    JEL: E12 E4 E42 E44 E52 E58 E62
    Date: 2022–03
  3. By: Phurichai Rungcharoenkitkul; Fabian Winkler
    Abstract: Prevailing explanations of persistently low interest rates appeal to a secular decline in the natural interest rate, or r-star, due to factors outside monetary policy's control. We propose informational feedback via learning as an alternative explanation for persistently low rates, where monetary policy plays a crucial role. We extend the canonical New Keynesian model to an incomplete information setting where the central bank and the private sector learn about r-star and infer each other's information from observed macroeconomic outcomes. An informational feedback loop emerges when each side underestimates the effect of its own action on the other's inference, possibly leading to large and persistent changes in perceived r-star disconnected from fundamentals. Monetary policy, through its influence on the private sector's beliefs, endogenously determines r-star as a result. We simulate a calibrated model and show that this `hall-of-mirrors' effect can explain much of the decline in real interest rates since 2008.
    Keywords: Natural rate of interest; Learning; Misperception; Overreaction; Dispersed information; Long-term rates; Demand shocks; Monetary policy shocks
    JEL: E43 E52 E58 D82 D83
    Date: 2022–03–18
  4. By: Demary, Markus; Herforth, Anna-Lena; Zdrzalek, Jonas
    Abstract: We argue that the period of low inflation has come to an end based on six structural factors, which define the new inflationary environment: [...] How high will inflation rise? How long will the new inflationary environment last? How challenging is it for central banks to counteract these inflationary pressures? A stagflation like in the 1970ies seems possible given these trends. The energy-crisis made the transformation of our energy systems necessary, which is, however, progressing slowly, thereby contributing to a longer lasting energy-triggered inflation. The highest risk will be an energy embargo, resulting in a deep recession together with high inflation. In this case monetary policy might be forced to inject high amounts of liquidity into markets despite high inflation.
    JEL: E31 E32 E52
    Date: 2022
  5. By: Mario Di Serio; Matteo Fragetta; Emanuel Gasteiger; Giovanni Melina
    Abstract: We estimate government spending multipliers in demand- and supply-driven recessions for the Euro Area. Multipliers in a moderately demand-driven recession are 2-3 times larger than in a moderately supply-driven recession, with the difference between multipliers being non-zero with very high probability. More generally, multipliers are inversely correlated with the deviation of inflation from its trend, implying that the more demand-driven a recession, the higher the multiplier. Median multipliers range from -0.5 in supply-driven recessions to about 2 in demand-driven recessions. The econometric approach leverages a factor-augmented interacted vector-autoregression model purified of expectations (FAIPVAR-X). The model captures the time-varying state of the business-cycle including strongly and moderately demand- and supply-driven recessions, by taking the whole distribution of inflation deviations from trend into account.
    Keywords: fiscal multiplier, business cycle, interacted panel VAR, factor models, Euro Area
    JEL: C32 C33 C38 E32 E62
    Date: 2022
  6. By: Hyeongwoo Kim; Shuwei Zhang
    Abstract: This paper shows that government spending shocks in the U.S. has become ineffective due to lack of coordination between monetary and fiscal policies. Employing the post-war U.S. data, we report strong stimulus effects of fiscal policy during the pre-Volcker era, which rapidly dissipate as the sample period is shifted toward the post-Volcker era. We explain the causes of this phenomena via a sentiment channel. Employing the Survey of Professional Forecasters data, we show that forecasters tend to systematically overestimate real GDP growth in response to positive innovations in government spending when policies coordinate well with each other. On the other hand, they are likely to underestimate real GDP responses when the monetary authority maintains a hawkish stance that conflicts with the fiscal stimulus. The fiscal stimulus, under such circumstances, generates consumer pessimism, which reduces private spending and ultimately weakens the output effects of fiscal policy. We further report statistical test results that confirm our claims.
    Keywords: Fiscal Policy; Time-varying Effectiveness; Policy Coordination; Sentiment; Survey of Professional Forecasters
    JEL: E32 E61 E62
    Date: 2022–05
  7. By: Ambrocio, Gene; Ferrero, Andrea; Jokivuolle, Esa; Ristolainen, Kim
    JEL: C38 E31 E52 E58
    Date: 2022–05–09
  8. By: Pongpitch Amatyakul; Nutnicha Theppornpitak
    Abstract: In this paper, we aim to assess the impacts of using monetary policies and fiscal transfers on the economy using an agent-based model. The model used is based on the original model developed by Ashraf et al. (2017), where agents endogenously develop trading networks of goods and labor, to study the impacts of the banking sector, and extended by Popoyan et al. (2017) to include different policy rate rules and macroprudential policy. We evaluate different fiscal policies and their interactions with monetary policy on how the economy performs based on aggregates such as total output and inflation, as well as based on granular data such as the wealth and consumption of the agents at specific percentiles. The findings are that consumption-based policies are best for reducing the aggregate effects on GDP, targeted policies are efficient if the government's goal is to help a specific group, and unconditional transfers are the least efficient of the three. In addition, we analyze the effects of implementing monetary and fiscal policies synchronously after a COVID-19-like crisis, and we do not find conclusive evidence that combining the two policies are better than the sum of the individual effects, but it is likely to be necessary to do both in order to get the economy back to its original path in a timely manner.
    Keywords: Monetary policy; Fiscal policy; Simulation
    JEL: E52 E62
    Date: 2022–04
  9. By: Vîntu, Denis
    Abstract: This paper presents a quarterly estimated structural macro econometric model for the Republic of Moldova, denoted macro econometric data model (MDM). This model has been developed with four uses in mind: the assessment of economic conditions in the Republic of Moldova, macroeconomic forecasting, policy analysis and deepening understanding of the functioning of market economy. Five key features of the model are highlighted. First, it treats the Republic of Moldova as a small and open economy. Second, it is a medium sized model which, while detailed enough for most purposes, is nonetheless sufficient small to be manageable in the context of forecasting and simulation exercises. Third, the model is designed to have a long run equilibrium consistent with classical economic theory, while its short run dynamics are demand driven. Fourth, the current version of the MDM is mostly backward-looking, i.e. expectations are reflected via the inclusion of lagged variables. Finally, the MDM uses a quarterly frequency data, allowing for a richer treatment of the dynamics, and is mostly estimated on the basis of historical data (rather than calibrated). The paper comprises elements of stochastic long run simulations. The relationship between: inflation, interest rate, unemployment and economic growth is significant.
    Keywords: Republic of Moldova, macroeconometric modelling, open and small economy; inflation; interest rate; unemployment; economic growth; classical economics; Keynesian economics.
    JEL: C13 E21 E30 E41 E44
    Date: 2021–10–16
  10. By: Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
    Abstract: This paper aims to provide evidence on the relationship between fiscal and monetary policy in Colombia through an empirical exploration of the credit risk channel. Under this approach, fiscal policy plays an important explanatory role in the sovereign risk premium, which, in turn, could affect the exchange rate and inflation expectations. The Central Bank reacts to inflation expectations using the policy interest rate; consequently, such reaction could be indirectly influenced by fiscal behavior. Using monthly data from January 2003 to December 2019, we estimate both jointly and independently the reduced-form core equations of a system that describes the credit risk channel in a small open economy. Our findings are in line with the model predictions. Fiscal policy affected the country’s sovereign risk during this period, but only slightly. Hence, there is insufficient evidence to sustain the idea that monetary policy has been significantly influenced by government fiscal management. **** Este documento analiza la relación entre las políticas fiscal y monetaria en Colombia, mediante la evaluación empírica del canal de riesgo crediticio. En este enfoque, la política fiscal explicaría la prima de riesgo soberano la cual, a su vez, puede afectar la tasa de cambio nominal y las expectativas de inflación. El Banco Central reacciona a las expectativas de inflación usando la tasa de interés de política; así, dicha reacción estaría influenciada indirectamente por la política fiscal. Utilizando información mensual de 2003 a 2019 se estima, de manera conjunta e independiente, un sistema de ecuaciones que describe de forma reducida el funcionamiento del canal de riesgo de crédito en una economía pequeña y abierta. Nuestros resultados son coherentes con las predicciones del modelo teórico. Se encuentra que la política fiscal afectó el riesgo soberano del país durante el período de estudio, aunque de manera modesta. Sin embargo, no hay suficiente evidencia para afirmar que la política monetaria haya sido influenciada de manera importante por la política fiscal, descartándose situaciones de dominancia fiscal.
    Keywords: Policy interaction, fiscal policy, monetary policy, sovereign credit risk, Interacción de políticas, política fiscal, política monetaria, riesgo de crédito soberano.
    JEL: E61 E63 E62 E52
    Date: 2022–04
  11. By: Michael D. Bauer; Eric T. Swanson
    Abstract: High-frequency changes in interest rates around FOMC announcements are an important tool for identifying the effects of monetary policy on asset prices and the macroeconomy. However, some recent studies have questioned both the exogeneity and the relevance of these monetary policy surprises as instruments, especially for estimating the macroeconomic effects of monetary policy shocks. For example, monetary policy surprises are correlated with macroeconomic and financial data that is publicly available prior to the FOMC announcement. We address these concerns in two ways: First, we expand the set of monetary policy announcements to include speeches by the Fed Chair, which doubles the number and importance of announcements; Second, we explain the predictability of the monetary policy surprises in terms of the “Fed response to news” channel of Bauer and Swanson (2021) and account for it by orthogonalizing the surprises with respect to macroeconomic and financial data that pre-date the announcement. Our subsequent reassessment of the effects of monetary policy yields two key results: First, estimates of the high-frequency effects on asset prices are largely unchanged; Second, estimates of the effects on the macroeconomy are substantially larger and more significant than what previous studies using high-frequency data have typically found.
    JEL: E43 E52 E58
    Date: 2022–04
  12. By: Christina Anderl; Guglielmo Maria Caporale
    Abstract: This paper investigates the predictive power of the shadow rate for the inflation rate in countries with a zero lower bound (the US, the UK and Canada) and in those with negative rates (Japan, the Euro Area and Switzerland). Using shadow rates obtained from two different models (the Wu-Xia (2016) and the Krippner (2015a) ones) and for different lower bound parameters we compare the out-of-sample forecasting performance of an inflation model including a shadow rate interaction term with a benchmark one excluding it. Both specifications are estimated by OLS (Ordinary Least Squares) and includes a range of macroeconomic factors computed by means of principal component analysis. Both point and density forecasts of the inflation rate are evaluated. The models including the shadow rate interaction term are found to outperform the benchmark ones according to both sets of criteria except in countries operating an official inflation targeting regime. The presence or absence of a zero lower bound affects which type of shadow rate produces more accurate inflation forecasts.
    Keywords: shadow interest rates, zero lower bound, inflation forecasting, density forecasts
    JEL: C38 C53 E37 E43 E58
    Date: 2022
  13. By: Gupta, Poonam; Eichengreen, Barry; Choudhary, Rishabh
    Abstract: This paper provides an assessment of India’s inflation-targeting regime. It shows that the Reserve Bank of India is best characterized as a flexible inflation targeter: contrary to criticism, it does not neglect changes in the output gap when setting policy rates. The paper does not find that the Reserve Bank of India became more hawkish following the transition to inflation-targeting; to the contrary, adjusting for inflation and the output gap, policy rates became lower, not higher. Some evidence suggests that inflation has become better anchored: increases in actual inflation do less to excite inflation expectations, indicative of improved anti-inflation credibility. The question is whether the shift to inflation-targeting has enhanced the credibility of monetary policy such that the Reserve Bank of India is in a position to take extraordinary action in response to the Covid-19 crisis. The paper argues that the rules and understandings governing inflation-targeting regimes come with escape clauses allowing central banks to shelve their inflation targets temporarily, under specific circumstances satisfied by the Covid-19 pandemic. The paper provides evidence that inflation-targeting central banks were able to respond more forcefully to the Covid-19 crisis, consistent with the idea that inflation expectations were better anchored, providing more policy room for maneuver.
    Keywords: Inflation targeting, Monetary policy, India
    JEL: E5 E52
    Date: 2021–01
  14. By: Takeo Hori (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology); Ryonghun Im (School of Economics, Kwansei Gakuin University)
    Abstract: Entrepreneurs are exposed to large uninsured risks. The risks may discourage them from creating productive assets. This may generate a productive asset shortage and stimulate speculative demand for bubbles. We introduce within-period entrepreneurial risks into a textbook growth model with in finitely lived agents. In our model, entrepreneurs face no credit constraints. If the degree of entrepreneurial risks is in the middle range, bubbles are likely to emerge. If the degree of entrepreneurial risks is high, bubbles promote growth because of the wealth effect. Otherwise, bubbles lower growth. The effect of the collapse of bubbles also depends on the degree of the risks. Moreover, asset bubbles amplify fundamental shocks.
    Keywords: asset bubbles, idiosyncratic risks, amplification, growth effect, welfare analysis
    JEL: E21 E23 E44 G01 G11
    Date: 2022–04
  15. By: Javier Eliecer Pirateque-Niño; Daniela Rodríguez-Novoa; José Hernán Piñeros-Gordo
    Abstract: This paper analyzes empirically the relationship between monetary policy interventions and the net interest margin of Colombian credit institutions for the 2003 – 2019 period. Considering the endogeneity problem that arises when analysing this relationship, we calculate a series of monetary policy shocks as the residuals of regressing the monetary policy rate on a set of quantifiable variables that the Central Bank of Colombia’s Board of Directors had at each of its monetary policy meetings. Thereafter, we conduct a panel regression analysis in which we relate these shocks, and a set of macroeconomic and bank-specific variables to the net interest margin. Through a non-linear approach, we find a significant quadratic relationship, which reflects that once the endogeneity problem is overcome, the net interest margin increases to policy shocks. The net interest margin increases to positive policy shocks due to the different dynamics of deposits and loans, and increases to negative policy shocks given the higher sensitivity of banks’ funding costs compared to the one of interest income. **** Este documento analiza empíricamente la relación entre las intervenciones de política monetaria y el margen neto de interés de los establecimientos de crédito en Colombia entre 2003 y 2019. Con el fin de controlar por la endogeneidad que subyace a esta relación, se calcula una serie de choques de política monetaria. Estos choques corresponden a los residuales de una regresión entre la tasa de política monetaria y un conjunto de variables cuantificables disponibles para la Junta Directiva del Banco de la República al momento de cada una de sus reuniones de política monetaria. Seguido de esto, se realiza un análisis de panel de datos en el que se utilizan como variables explicativas del margen neto de interés la serie de choques, algunas variables macroeconómicas y algunas propias de cada entidad. Mediante una aproximación no lineal, se encuentra una relación cuadrática significativa, la cual indica que una vez se supera el problema de endogeneidad, el margen neto de interés se incrementa ante choques de política monetaria. Ante choques positivos de política monetaria, el aumento en el margen neto de interés obedece al comportamiento asimétrico de los préstamos y los depósitos. Por su parte, ante choques negativos de política monetaria el margen neto de interés incrementa dada la mayor sensibilidad de los costos de fondeo bancarios frente a los ingresos por intereses.
    Keywords: net interest margin, monetary policy shock, credit intensity, interest rates, margen neto de interés, choques de política monetaria, intensidad del crédito, tasas de interés
    JEL: E43 E44 E52 G21
    Date: 2022–04
  16. By: Chakraborty, Lekha S
    Abstract: Against the backdrop of mounting geopolitical risks and inflationary pressures, if RBI will hike the policy rates, the growth recovery process may slow down. At the same time, keeping the policy rates status quo for prolonged period could catalyse the de-anchoring of inflationary expectations. The union budget 2022-23 has accommodated high fiscal deficits and has emphasised on “crowding-in” effects of public infrastructure investment. The intensity of global macroeconomic uncertainties on economic recovery in India can be lessened through sustainable fiscal and monetary policy co-ordination.
    Keywords: Budget, Inflation, Fiscal Policy , Monetary Policy , Green Bonds , Global Uncertainties
    JEL: E6 H3 H6
    Date: 2022–02
  17. By: Richhild Moessner
    Abstract: We study how carbon pricing has affected inflation ex-post, using dynamic panel estimation of New-Keynesian Phillips curves for 35 OECD economies from 1995 to 2020. As carbon pricing we consider prices of emissions trading systems (ETS) and carbon taxes. We find that an increase in prices of ETS by $10 per ton of CO2 equivalents increases energy CPI inflation by 0.8 percentage points (pp), and headline inflation by 0.08pp, but has no significant effects on food and core CPI inflation. We also find that an increase in carbon taxes by $10 per ton of CO2 equivalents increases food CPI inflation by 0.1pp, but has no significant effects on energy CPI inflation, headline and core CPI inflation.
    Keywords: climate policies, carbon tax, carbon emission trading system, climate change, inflation
    JEL: E31 E52 E58 Q48 Q58
    Date: 2022
  18. By: Jens Klose (THM Business School Giessen)
    Abstract: This paper estimates the effects of nine exchange rates for european countries vis-a-vis the Euro in the COVID pandemic. Using data on COVID cases, three containment and two stabilization measures relative to the euro area counterparts, it is shown that a more severe spread of the virus leads to a depreciation of the domestic currency. The same holds with respect to stricter movement restrictions, health care measures and more supportive monetary policies. More expansionary fiscal policies by the domestic country on the other hand lead to an appreciation of the currency. Two extensions show that the results differ with respect to whether the country is a scandinavian or eastern european country and whether the euro area countries or the other european countries introduce the measures.
    Keywords: Exchange rates, COVID-19, Europe, stabilization policies, containment measures, panel VAR
    JEL: E44 E52 E62
    Date: 2022
  19. By: Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Tim Marple (University of California, Berkeley)
    Abstract: We review arguments for CBDC issuance in India. These include facilitating payments,enhancing financial inclusion, enabling the central bank and government to retain control of the payments system, facilitating cross-border payments, reducing dependence on the dollardominatedglobal payments system, providing an encompassing platform for digital financial innovation. We then compare progress in India with other countries. In setting an end 2022 target date for issuance, India is in line with the other BRICS, but not with other countries with comparable levels of per capita GDP, which have been more reluctant to commit to a date. Nor is it in line with other countries with comparably independent central banks, which have been more cautious about setting a deadline. Finally, we sketch a roadmap and timeline for India’s CBDC project going forward.
    Keywords: Central Bank, Digital Currency, India, Monetary Systems, Payment Systems
    JEL: E40 E42 E51 E50 E58 G21
    Date: 2022–05–03
  20. By: Wei Jiang; Thomas J. Sargent; Neng Wang; Jinqiang Yang
    Abstract: An optimal tax and government borrowing plan in a setting with tax distortions (Barro, 1979) locally pin down the marginal cost of servicing government debt, called marginal p. An option to default determines the government’s debt capacity and its optimal state-contingent risk management policies make its debt risk-free. Optimal debt-GDP ratio dynamics are driven not only by three widely discussed forces, 1.) a primary deficit, 2.) interest payments, and 3.) GDP growth, but also by 4.) hedging costs. Hedging fundamentally alters debt transition dynamics and equilibrium debt-capacity, which are at the center of the recent 'r-g' and debt sustainability discussions. We calibrate our model and make comparative dynamic quantitative statements about the debt-GDP ratio transition dynamics, equilibrium debt capacity, and how long it will take the US to attain debt capacity.
    JEL: E44 E62 G12 H21 H63
    Date: 2022–04
  21. By: Meinerding, Christoph; Poinelli, Andrea; Schüler, Yves
    Abstract: Using survey data from German households, we find that individuals with lower climate concern tend to have higher inflation expectations up to five years ahead. This correlation is most pronounced among individuals with extremely high inflation expectations. Evaluating candidate explanations, we find that part of the link between climate concern and inflation expectations can be associated with individuals' perceived exposures to climate-related risks and with their distrust in the central bank. Overall, our results suggest that climate change perceptions matter for inflation expectations.
    Keywords: climate change,inflation expectations,physical risk,transition risk,central bank distrust,household surveys
    JEL: E31 E50 Q54 Q58
    Date: 2022
  22. By: Lara Coulier; Selien De Schryder (-)
    Abstract: We construct new data-driven intensity-adjusted indices for a broad set of macroprudential policy announcements in the European Union (EU) that are able to capture the restrictiveness and bindingness of the macroprudential policy actions. The indices are used to assess the effectiveness of borrower-based macroprudential policy in reducing credit in the EU from 1995 to 2019. Our results indicate that these instruments have successfully reduced household, housing, and to a smaller extent consumption credit, especially in the long run. Moreover, we find that standard dummy approaches used to measure macroprudential policy signal different effects of borrower-based policies in our sample and are more sensitive to outliers, resulting in deceptive and incomplete results.
    Keywords: Macroprudential policy, intensity-adjustment, household credit, panel data analysis
    JEL: E58 C23 G18 G28
    Date: 2022–04
  23. By: Meyer, Brent (Federal Reserve Bank of Atlanta); Mihaylov, Emil (Federal Reserve Bank of Atlanta); Barrero, Jose Maria (Instituto Tecnológico Autónomo de México Business School); Davis, Steven J. (University of Chicago); Altig, David (Federal Reserve Bank of Atlanta); Bloom, Nicholas (Stanford University)
    Abstract: We examine several measures of uncertainty to make five points. First, equity market traders and executives at nonfinancial firms have shared similar assessments about one-year-ahead uncertainty since the pandemic struck. Both the one-year VIX and our survey-based measure of firm-level uncertainty at a one-year forecast horizon doubled at the onset of the pandemic and then fell about half-way back to pre-pandemic levels by mid 2021. Second, and in contrast, the 1-month VIX, a Twitter-based Economic Uncertainty Index, and macro forecaster disagreement all rose sharply in reaction to the pandemic but retrenched almost completely by mid 2021. Third, Categorical Policy Uncertainty Indexes highlight the changing sources of uncertainty – from healthcare and fiscal policy uncertainty in spring 2020 to elevated uncertainty around monetary policy and national security as of March 2022. Fourth, firm-level risk perceptions skewed heavily to the downside in spring 2020 but shifted rapidly to the upside from fall 2020 onwards. Perceived upside uncertainty remains highly elevated as of early 2022. Fifth, our survey evidence suggests that elevated uncertainty is exerting only mild restraint on capital investment plans for 2022 and 2023, perhaps because perceived risks are so skewed to the upside.
    Keywords: business expectations, uncertainty, subjective forecast distributions, capital investments, COVID-19
    JEL: D80 E22 E32
    Date: 2022–04
  24. By: Cosmin L. Ilut; Martin Schneider
    Abstract: We survey literature on ambiguity with an emphasis on recent applications in macroeconomics and finance. Like risk, ambiguity leads to cautious behavior and uncertainty premia in asset markets. Unlike risk, ambiguity can generate first order welfare losses. As a result, precautionary behavior and ambiguity premia obtain even when agents have linear utility and are reflected in linear approximations to model dynamics. Quantitative work exploits this insight to estimate models that jointly match the dynamics of asset prices and macro aggregates. In micro data, inertia and inaction due to ambiguity help understand patterns such as non-participation in asset markets, price rigidities and simple contracts. Learning under ambiguity generates asymmetric responses to news that help connect higher moments in micro and macro data. Survey evidence is increasingly used to provide direct evidence on ambiguity averse behavior, as well as to discipline quantitative models.
    JEL: D8 E2 E3 E4 G1
    Date: 2022–04
  25. By: Alice Eliet-Doillet (Ecole Polytechnique Fédérale de Lausanne); Andrea Maino (University of Geneva)
    Abstract: This paper investigates the impact of central banks when supporting policies aiming at greening the financial system. The July 2021 Monetary Policy Strategy Review of the European Central Bank unexpectedly dedicated a whole workstream to climate change. The announcement had a significant effect on the pricing and issuance of green bonds in the Eurozone. We find that ECB eligible green bonds’ Yield-to-Maturity decreased following the announcement when compared to equivalent conventional bonds. Firms incorporated in the Eurozone reacted to the announcement by increasing the amount of green bond issued, for both the segments of ECB-eligible and non-ECB-eligible green bonds.
    Keywords: Climate Change, Central Banks, Green Bonds, Carbon Emissions, Quantitative Easing, Monetary Policy, ESG
    JEL: Q58 E52 E58 G12
    Date: 2022–04
  26. By: Jakob de Haan; Jan P.A.M. Jacobs; Renske Zijm
    Abstract: Using the measures proposed by Mink et al. (2012), we reexamine the coherence of business cycles in the euro area using a long sample period. We also analyze the impact of the COVID-19 pandemic on business cycle coherence and examine whether our measures for business cycle coherence indicate a core versus periphery within EMU. Our results suggest that business cycle coherence did not increase monotonically. The COVID-19 pandemic made that the signs of the output gaps of euro area countries became more similar, but we find large differences in the amplitude of the output gaps across countries.
    Keywords: Covid-19 crisis, business cycle coherence, synchronization, output gaps, euro area
    JEL: E32 F02 F42
    Date: 2022
  27. By: D. Priyadarshini; Sabyasachi Kar (Institute of Economic Growth, Delhi)
    Abstract: A large number of Central Banks around the world are planning to introduce Central Bank Digital Currencies (CBDCs) as a legal tender in their countries. The Reserve Bank of India (RBI) has also revealed similar plans with an Indian CBDC expected in the near future. Any evaluation of such a major change in the nature of money requires a broader understanding of the opportunities and challenges arising from the adoption of CBDCs. In this paper, we discuss these issues at the conceptual level and specifically in the Indian context. We show that the conceptual issues can be characterised in three ways – monetary sovereignty issues, issues from the point of view of national sovereignty, and developmental issues. In the Indian context, we analyse these issues from the perspective of the rapid digitalization taking place in the country.
    Keywords: CBDC, Monetary Sovereignty, Disintermediation, Dollarization, Financial Inclusion, Cryptocurrencies
    JEL: E42 E51 E58 G21 G28 O33
    Date: 2021–09
  28. By: Mustafa Caglayan (Edinburgh Business School, Heriot–Watt University, UK); Kostas Mouratidis (Department of Economics, University of Sheffield, UK)
    Abstract: Despite its importance, there is little empirical research on how monetary policy affects bank-liquidity creation. We propose a general Markov switching framework to examine the effects of monetary policy on liquidity creation while accounting for endogenous regime switches and capturing the idea that financial crises could be due to a regime switch from information-insensitive debt to information-sensitive debt. Using total liquidity creation and its components for different bank-size categories, we show that monetary policy has a regime dependent impact. Furthermore, based on the filter probabilities, our analysis also raises the possibility of a future financial turmoil.
    Keywords: Liquidity creation; bank size; monetary policy; policy trade-off; asymmetric effects; Markov switching
    JEL: E32 E52
    Date: 2022–03
  29. By: António Afonso; José Carlos Coelho
    Abstract: We examine the sustainability of public finances and its determinants for 19 Eurozone countries from 1995 to 2020. We conclude for the existence of panel cointegration between government revenues and expenditures; primary government balance and one-period lagged public debt-to-GDP ratio; and public debt-to-GDP ratio and one-period lagged primary government balance. The estimated fiscal reaction functions suggest the existence of a Ricardian fiscal regime. Finally, modelling via time-varying coefficients, we find that fiscal sustainability increases with growth, fiscal balances and fiscal rules indices, and decreases with trade openness, current account balances, government effectiveness index, after 2010, and with sovereign ratings assigned by the main rating agencies.
    Keywords: fiscal sustainability, budget balance, public debt, panel data, time-varying coefficients, Eurozone, sovereign ratings
    JEL: C23 H61 H63 E62
    Date: 2022
  30. By: Martín Almuzara; Argia M. Sbordone
    Abstract: The surge in inflation since early 2021 has sparked intense debate. Would it be short-lived or prove to be persistent? Would it be concentrated within a few sectors or become broader? The answers to these questions are not so clear-cut. In our view, one should ask how much of the inflation is persistent and how much of it is broad-based. In this post, we address this question through a quantitative lens. We find that the large ups and downs in inflation over the course of 2020 were largely the result of transitory shocks, often sector-specific. In contrast, sometime in the fall of 2021, inflation dynamics became dominated by the trend component, which is persistent and largely common across sectors.
    Keywords: trend inflation; sectoral inflation; common persistence
    JEL: E2 B22
    Date: 2022–04–20
  31. By: Vito Polito (Department of Economics, University of Sheffield, UK); Yunyi Zhang (Xiamen University, China)
    Abstract: We develop a regime switching vector autoregression where artificial neural networks drive time variation in the coefficients of the conditional mean of the endogenous variables and the variance covariance matrix of the disturbances. The model is equipped with a stability constraint to ensure non-explosive dynamics. As such, it is employable to account for nonlinearity in macroeconomic dynamics not only during typical business cycles but also in a wide range of extreme events, like deep recessions and strong expansions. The methodology is put to the test using aggregate data for the United States that include the abnormal realizations during the recent Covid-19 pandemic. The model delivers plausible and stable structural inference, and accurate out-of-sample forecasts. This performance compares favourably against a number of alternative methodologies recently proposed to deal with large outliers in macroeconomic data caused by the pandemic.
    Keywords: Tax avoidance; Nonlinear time series; Regime switching models; Extreme events; Covid-19; Macroeconomic forecasting
    JEL: C45 C5 E37
    Date: 2022–03
  32. By: Mr. Chris Papageorgiou; Mr. Giovanni Melina; Mr. Alessandro Cantelmo; Nikos Fatouros
    Abstract: This paper analyzes monetary policy regimes in emerging and developing economies where climate-related natural disasters are major macroeconomic shocks. A narrative analysis of IMF reports published around the occurrence of natural disasters documents their impact on important macroeconomic variables and monetary policy responses. While countries with at least some degree of monetary policy independence typically react by tightening the monetary policy stance, in a sizable number of cases monetary policy was accommodated. Given the lack of consensus on best practices in these circumstances, a small-open-economy New-Keynesian model with disaster shocks is leveraged to evaluate welfare under alternative monetary policy rules. Results suggest that responding to inflation while allowing temporary deviations from its target is the welfare maximizing policy. Alternative regimes such as strict inflation targeting, exchange rate pegs, or Taylor rules explicitly responding to economic activity or the exchange rate would be welfare-detrimental. With climate change projected to expand the list of disaster-prone countries, these findings are likely to be soon relevant also for richer or larger economies.
    Keywords: Natural Disasters, Climate Change, DSGE, Monetary Policy, Exchange Rate Regimes.
    Date: 2022–04–01
  33. By: David O. Lucca; Jonathan H. Wright
    Abstract: We study the recent Australian experience with yield curve control (YCC) of government bonds as perhaps the best evidence of how this policy might work in other developed economies. We interpret the evidence with a simple model in which YCC affects prices of both government and other bonds via “broad” transmission channels, but only government bond prices through “narrow” liquidity channels. YCC seemingly worked well in 2020 while the market expected short rates to stay at zero for long. But as the global recovery and inflation gained momentum in 2021, liftoff expectations moved up, the Reserve Bank of Australia purchased most of the outstanding amount of the targeted government bond, and its yield dislocated from other financial market instruments. The model and empirical evidence point to narrow transmission channels playing more prominent roles than broad channels considered in prior studies of quantitative easing (QE), such as portfolio balance effects and signaling about short term rates. We argue that asset-specific narrow channels may be primary transmission mechanisms of quantity-based QE policies as well.
    Keywords: monetary policy; yield curve control; quantitative easing
    JEL: E4 E5 G1
    Date: 2022–04–01
  34. By: Joseph Kopecky; Alan M. Taylor
    Abstract: Population aging has been linked to a global savings glut and a decline in safe real interest rates. Conversely, risky real returns have not fallen as much, if at all, with equity risk premia on the rise. An existing literature can explain changes in safe rates using demographics. We go further to account for divergent returns on different assets as well as the underlying surge in the wealth-income ratio and its asset composition. Empirical evidence from historical panel data shows that demographic shifts are correlated with asset returns and risk premia. We build a heterogeneous agent life-cycle model with two assets (a safe bond and equity) and with aggregate risk. Aging demographics can help to simultaneously explain three key trends: the rising wealth-income ratio, the falling risk free rate, and an increasing risk premium. The shifts exert less pressure on risky returns as high-wealth elderly reallocate away from equities: aging makes retirement saving a “crowded trade” but more so for bonds. Projecting our model to 2050, aging pushes the safe rate below zero, but the risk premium remains elevated, as post-boomer demographics push asset returns to unprecedented and persistently low levels.
    JEL: E21 E43 G11 J11
    Date: 2022–04
  35. By: Wataru Miyamoto; Thuy Lan Nguyen; Hyunseung Oh
    Abstract: We uncover the major drivers of each macroeconomic variable and the real exchange rate at the business cycle frequency in G7 countries. In each country, the main drivers of key macro variables resemble each other and none of those account for a large fraction of the real exchange rate variances. We then estimate the dominant driver of the real exchange rate and find that (i) the shock is largely orthogonal to macro variables and (ii) the shock generates a significant deviation of the uncovered interest parity condition. We analyze international business cycle models that are consistent with our findings.
    Keywords: real exchange rate; international business cycles; uncovered interest parity
    JEL: E32 F31
    Date: 2022–04–13
  36. By: Wenli Li; Costas Meghir; Florian Oswald
    Abstract: We specify and estimate a lifecycle model of consumption, housing demand and labor supply in an environment where individuals may file for bankruptcy or default on their mortgage. Uncertainty in the model is driven by house price shocks, {education specific} productivity shocks, and catastrophic consumption events, while bankruptcy is governed by the basic institutional framework in the US as implied by Chapter 7 and Chapter 13. The model is estimated using micro data on credit reports and mortgages combined with data from the American Community Survey. We use the model to understand the relative importance of the two chapters (7 and 13) for each of our two education groups that differ in both preferences and wage profiles. We also provide an evaluation of the BACPCA reform. Our paper demonstrates importance of distributional effects of Bankruptcy policy.
    JEL: D14 D18 D52 D53 E21 G33 J22 J31 K35
    Date: 2022–03
  37. By: Markus Leippold (University of Zurich; Swiss Finance Institute); Felix Matthys (ITAM)
    Abstract: This paper analyzes the impact of economic policy uncertainty on the term structure of real and nominal interest rates. We derive a general equilibrium model where the real side of the economy is driven by government policy uncertainty and the central bank sets money supply endogenously following a Taylor rule. We analyze the impact of government and monetary policy uncertainty on nominal yields, short rates, bond risk premia and the term structure of bond yield volatility. Furthermore, we show that our standard affine yield curve model is able to capture both, the shape of the term structure of interest rates as well as the hump-shaped bond yield volatility curve. Finally, the empirical analysis shows that, whereas higher government policy uncertainty leads to a decline in yields, and an increase in bond yield volatility, monetary policy uncertainty does not have a significant contemporaneous effect on movements in the yield or volatility but is however an important predictor for bond risk premia.
    Keywords: Term structure modeling, yield volatility curve, policy uncertainty, bond risk premia
    Date: 2022–04
  38. By: Lei Fang; Anne Hannusch; Pedro Silos
    Abstract: We document that the dispersion in hours worked is large in the cross-section. We study the quantitative effect of wage dispersion on hours dispersion using a model in which households combine their time and market goods to produce consumption activities. We estimate several models with different numbers of activities on the paired expenditures and time use data by consumption activity. The estimated model can account for 25%-87% of the dispersion in hours worked over 2003-2018 with the model incorporating more activities generating more dispersion. The substitutability between goods and time within an activity and across activities is key to the result.
    Keywords: Time Allocation, Consumption Expenditures,Hours Dispersion, Elasticity of Substitution
    JEL: J22 E21 D11
    Date: 2022–04
  39. By: Capazario, Michele
    Abstract: This research has attempted to derive a new Taylor-type monetary policy rule which is sensitive to changes in the functional distribution of income proxied for by the labourer’s share of national income. I then apply this new policy rule to South African data between quarter 4 of 2001 and quarter 4 of 2021. This rule, once applied, yields favorable results in terms of goodness of fit relative to other such rules applied to South African data. The application of this rule to South Africa also yields an interesting finding- the South African Reserve Bank, most likely as a means to stabilise the South African macroeconomic system, reacts more to changes in the functional distribution of income than to an equivalent change in the inflation rate or output growth. I suggest that this formulation of the Taylor rule, and others like it, be used and developed further in future research.
    Keywords: Taylor Rule; Structuralist; Labour Share
    JEL: C26 E00 E5
    Date: 2022–04–13
  40. By: Ervin Duraković Author-Name-First: Ervin (Hrvatska narodna banka, Hrvatska)
    Abstract: Kako bi se prepoznale epizode sistemskog stresa u Republici Hrvatskoj, u radu je konstruiran hrvatski indeks sistemskog stresa (HISS), kompozitni pokazatelj koji primjenom moderne teorije portfelja dnevne pokazatelje financijskog stresa na pojedinim tržištima sintetizira u jedinstven pokazatelj. Na ovaj su način prvi put na sveobuhvatan način i na dnevnoj razini kvantificirani događaji na domaćim financijskim tržištima, pri čemu je uzeta u obzir visoka koreliranost tržišta u razdobljima nepovoljnih događaja. Ovakav metodološki pristup ključan je doprinos ovog rada literaturi na temu sistemskih rizika s obzirom na to da se poremećaji sistemskoga karaktera prelijevaju i propagiraju na više tržišta istodobno uz moguće posljedice na makroekonomsko okružje. Konstruirani pokazatelj identificira tri važnije krizne epizode u Hrvatskoj koje su sistemskoga karaktera: recesiju potkraj devedesetih godina, početak globalne financijske krize 2008. godine te krizu održivosti državnog duga i solventnosti banaka u rubnim zemljama europodručja 2011. i 2012. godine. Robusnost rezultata potvrđena je primjenom nekoliko različitih metodoloških pristupa, a kvantifikacija utjecaja takvih sistemskih šokova na gospodarstvo procijenjena je TVAR modelom, čiji rezultati upućuju na nelinearnu vezu između financijskog sektora i makroekonomske dinamike te definiraju vrijednost indeksa iznad koje šokovi mogu imati znatan utjecaj na gospodarsku aktivnost. Konstruirani indeks mogao bi se primijeniti na širokom polju empirijskih istraživanja, no njegov najveći doprinos zasigurno je na području ocjene makroprudencijalne politike te praćenja procesa neravnoteža u sustavu oblikovanja pravodobne i primjerene politike stabilizicaje.
    Keywords: sistemski stres, financijski stres, teorija portfelja, sistemski rizici, financijska tržišta, TVAR model, sistemski šokovi
    JEL: E44 E50 G01 G10 G20
    Date: 2021–03–10
  41. By: Mark Bils; Bariş Kaymak; Kai-Jie Wu
    Abstract: Knowing the degree of substitutability between schooling groups is essential to understanding the role of human capital in income differences and to assessing the economic impact of such policies as schooling subsidies, immigration systems, or redistributive taxes. We derive a lower bound for the substitutability required for worldwide growth in real GDP from 1960 to 2010 to be consistent with a stable wage premium for schooling despite the rapid growth in schooling, assuming no exogenous worldwide regress in the technology frontier for workers with only primary schooling. That lower bound for the long-run elasticity of substitution is about 4, which is far higher than values commonly used in the literature. Given our bound, we reexamine the importance of human capital in cross-country income differences and the roles of school quality versus the skill bias of technology in greater efficiency gains from schooling in richer countries.
    JEL: E24 J24 O15 O47
    Date: 2022–03
  42. By: James B. Bullard
    Abstract: During a presentation at Princeton University, St. Louis Fed President Jim Bullard presented two interpretations of whether the Federal Reserve is “behind the curve” on raising its policy rate relative to high inflation.
    Keywords: inflation; policy rate
    Date: 2022–04–21
  43. By: Nikolaos Artavanis; Brian Jonghwan Lee; Stavros Panageas; Margarita Tsoutsoura
    Abstract: We study the corporate-loan pricing decisions of a major Greek bank during the Greek financial crisis. A unique aspect of our dataset is that we observe both the interest rate and the “breakeven rate” of each loan, as computed by the bank’s own loan-pricing department (in effect, the loan’s marginal cost). We document that low-breakeven-rate (safer) borrowers are charged significant markups, whereas high-breakeven-rate (riskier) borrowers are charged small and sometimes even negative markups. We rationalize this de-facto cross-subsidization of riskier borrowers by safer borrowers through the lens of a dynamic model featuring depressed collateral values, impaired capital-market access, and limit pricing.
    JEL: E43 E44 G01 G21 G3
    Date: 2022–03
  44. By: Pravakar Sahoo; Ashwani Bishnoi (Institute of Economic Growth, Delhi)
    Abstract: The current study attempts to understand the determinants of investment and the underlying reasons for its current slowdown in India. For the purpose, we estimate the investment functions by using the ARDL bounds-testing approach on quarterly data from 2004-05Q1 to 2019-20Q1 at three levels - aggregate investment, private investment and private corporate investment. The study finds that aggregate investment can be explained by aggregate demand, fiscal policy, monetary policy, financial resources, exchange rate and uncertainty. Similarly for private investment, determinants include public investment, fiscal deficit, cost of capital, business confidence and uncertainty, along with measures for demand and financial sector developments. Finally, private corporate investment is found to be responsive to bonds market development, real exchange rate, debt service ratio, business confidence and economic uncertainty, besides the conventional variables. Thus, in order to counter the current investment slowdown, there is a need to make efforts for developing capital markets, strengthening monetary transmission, implementing appropriate fiscal policies and, reducing uncertainty in the economy.
    Keywords: Investment, India, Fiscal Policy, Monetary Policy, Economic Uncertainty
    Date: 2021–08
  45. By: James B. Bullard
    Abstract: St. Louis Fed President Jim Bullard discussed his expectations for inflation, policy rate targets and labor markets during a virtual meeting of the Council on Foreign Relations.
    Keywords: inflation; policy rate targets; labor market
    Date: 2022–04–18
  46. By: Jose Garcia-Louzao (Bank of Lithuania); Kristijonas Vėlyvis (Bank of Lithuania)
    Abstract: This paper provides empirical evidence on the impact of Covid-19 on unemployment and underemployment in Lithuania. Based on the Labor Force Survey, we document the evolution of the unemployment rate using broader definitions that incorporate the underemployed and marginally attached workers. Our results show that, compared to previous recessions, Covid-19 had a milder impact on the Lithuanian labor market. Moreover, Lithuania fared reasonably well relative to other Eurozone countries. However, the data reveal a substantial increase in marginal workers and underemployment during 2020, with women, young workers and individuals in rural areas being most affected by the pandemic-induced recession.
    Keywords: labor market statistics, labor force, unemployment
    JEL: E24 J21 J64
    Date: 2021–10–18
  47. By: Davide Furceri; Mr. Yan Carriere-Swallow; Mr. Pragyan Deb; Daniel Jimenez; Mr. Jonathan David Ostry
    Abstract: The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays and soaring shipping costs. We study the impact of shocks to global shipping costs—measured by the Baltic Dry Index (BDI)—on domestic prices for a large panel of countries during the period 1992-2021. We find that spikes in the BDI are followed by sizable and statistically significant increases in import prices, PPI, headline, and core inflation, as well as inflation expectations. The impact is similar in magnitude but more persistent than for shocks to global oil and food prices. The effects are more muted in countries where imports make up a smaller share of domestic consumption, and those with inflation targeting regimes and better anchored inflation expectations. The results are robust to several checks, including an instrumental variables approach in which we instrument changes in shipping costs with an indicator of closures of the Suez Canal.
    Keywords: Price shocks, shipping cost, inflation pass-through, monetary policy.; shipping cost; inflation pass-through; inflation expectation; import intensity; import share; Inflation; Import prices; Oil prices; Output gap; Producer prices; Global; Baltics
    Date: 2022–03–25
  48. By: Pierre-Olivier Gourinchas; Walker D. Ray; Dimitri Vayanos
    Abstract: We develop a two-country model in which currency and bond markets are populated by different investor clienteles, and segmentation is partly overcome by global arbitrageurs with limited capital. Our model accounts for the empirically documented violations of Uncovered Interest Parity (UIP) and the Expectations Hypothesis, and for how UIP violations depend on bond maturity, investment horizon, and yield curve slope differentials. Large-scale purchases of long-maturity bonds lower domestic and foreign bond yields, and depreciate the currency. Conventional monetary policy is transmitted to domestic and international bond yields as well, but its international transmission is weaker than for unconventional policy.
    JEL: F31 F41 F42 G11 G12
    Date: 2022–03
  49. By: Antonio Musa (Central Bank of Bosnia and Herzegovina)
    Abstract: The aim of this paper is to evaluate current quarterly nowcasts of the gross domestic product in Bosnia and Herzegovina based on the flow of available monthly economic indicators that are available during the same quarter. The nowcasting performance indicates that it is worthwhile to include a broad group of forecasting models based on the different methodologies. In addition to the models, the choice of the variables and measurement of the loss function in evaluating nowcasting performance are the core of nowcasting. In a time marked by pandemic of corona virus and war in Ukraine, nowcasting models have more profound role than more structural models. The high variance of the specific nowcasting model influences the use of the results of combinations of many models. Using a comprehensive method for preselection of variables and by using the other combination methods, the forecasting errors are lower, even in times of high uncertainty.
    Keywords: Nowcasting; short-term forecasting; uncertainty; pandemic
    JEL: E17 E66 C52 C55 O11
    Date: 2022–04–26
  50. By: Hill, Samuel (World Bank); Jinjarak, Yothin (Asian Development Bank); Park, Donghyun (Asian Development Bank)
    Abstract: How did developing Asian economies perform with respect to tax revenue mobilization before and during the coronavirus disease (COVID-19) pandemic? An analysis of data from developing Asia suggests that both short-run and long-run tax buoyancies, a measure of how tax revenue responds to gross domestic product (GDP), were close to one before COVID-19, which is indicative of fiscal sustainability. COVID-19 had a negative impact on the region’s GDP and thus its tax base, and spurred significant fiscal stimulus including tax measures. At a regional level, the pandemic subtracted a tenth of a percentage point from tax revenue growth after controlling for changes in GDP. Using estimated economy-level tax buoyancy coefficients, a counterfactual analysis is undertaken to estimate excess tax revenue losses in 2020 because of COVID-19. The average GDP-weighted excess tax revenue loss is about half a percentage point of pre-pandemic GDP.
    Keywords: tax collection; business cycles; pandemic crisis
    JEL: E32 H12 H20 H71
    Date: 2022–05–06
  51. By: Sabyasachi Kar; Amaani Bashir; Mayank Jain (Institute of Economic Growth, Delhi)
    Abstract: The use of big data and machine learning techniques is now very common in many spheres and there is growing popularity of these approaches in macroeconomic forecasting as well. Is big data and machine learning really useful in the prediction of macroeconomic outcomes? Are they superior in performance compared to their traditional counterparts? What are the tradeoffs that forecasters need to keep in mind, and what are the steps they need to take to use these resources effectively? We carry out a critical analysis of the existing literature in order to answer these questions. Our analysis suggests that the answer to most of these questions are nuanced, conditional on a number of factors identified in the study.
    Keywords: Forecasting, Big Data, Machine Learning, Supervised Learning, Meta-analysis, Growth, Inflation
    JEL: C14 C45 C52 C53 C55 E17 E37
    Date: 2021–10
  52. By: Joshua Aizenman; Yothin Jinjarak; Mark M. Spiegel
    Abstract: We investigate the implications of extra-normal government spending under the COVID-19 pandemic for commercial bank lending growth between 2019Q4 and 2020Q4 in a large sample of over 3000 banks from 71 countries. We control for pre-pandemic structural factors, bank characteristics and government debt. To address the likely endogeneity of government assistance under the pandemic, we instrument for extra-normal spending using disparities in pre-existing national political characteristics for identification. Our results indicate that while higher government spending was associated with higher commercial bank lending, higher public debt going into the crisis weakened the expansionary effects of higher spending on bank lending at economically and statistically significant levels. Moreover, this sensitivity is higher among weaker banks, suggesting that bank lending responses to government spending under COVID-19 reflected the perceived implications of such spending for government assistance of the banking sector going forward. Our results are robust to a variety of sensitivity analyses, including perturbations in specification, sample, and estimation methodology.
    JEL: E62 F34 G21 H30
    Date: 2022–03
  53. By: Prempeh, Kwadwo Boateng; Kyeremeh, Kwadwo; Peprah-Amankona, Godfred
    Abstract: The study uses a threshold regression model to provide new evidence that the deleterious effects of inflation on growth only “kick in” once inflation hits a certain level. Until then, inflation is beneficial to growth.
    Keywords: Inflation; economic growth; threshold; Ghana
    JEL: C54 G28
    Date: 2022–03–07
  54. By: Jeremy Greenwood; Nezih Guner; Karen Kopecky
    Abstract: The labor-force participation rates of prime-age U.S. workers dropped in March 2020—the start of the COVID-19 pandemic—and have still not fully recovered. At the same time, substance-abuse deaths were elevated during the pandemic relative to trend indicating an increase in the number of substance abusers, and abusers of opioids and crystal methamphetamine have lower labor-force participation rates than non-abusers. Could increased substance abuse during the pandemic be a factor contributing to the fall in labor-force participation? Estimates of the number of additional substance abusers during the pandemic presented here suggest that increased substance abuse accounts for between 9 and 26 percent of the decline in prime-age labor-force participation between February 2020 and June 2021.
    JEL: E24 I12 J11 J21
    Date: 2022–04
  55. By: Jamel Saadaoui; Marco Chi Keung Lau; Yifei Cai
    Abstract: Thanks to various Fourier DF unit root tests and time-varying fiscal reaction functions, this study examines the stationarity and the sustainability of public finance for six industrial countries over the period spanning from 1870 to 2017. Longer-run debt sustainability is not rejected for the UK, Sweden, and for the US. The evidence is more mixed for Canada, Italy and Portugal.
    Keywords: Fourier DF unit root test, Debt sustainability, Public debt, Primary balance.
    JEL: C22 E62 H62
    Date: 2022
  56. By: John G. Fernald; Robert Inklaar
    Abstract: The UK’s slow productivity growth since 2007 has been referred to as a “puzzle”, as if it were a particularly UK-specific challenge. In this paper, we highlight how the United States and northern Europe experienced very similar slowdowns. The common slowdown in productivity growth was a slowdown in total factor productivity (TFP) growth; we find little evidence that capital deepening was an important independent factor. From a conditional-convergence perspective, most of the UK slowdown follows from the slowdown at the U.S. frontier. From the mid-1980s to 2007, the UK’s relative productivity level moved closer to the level of the U.S. and northern Europe, driven by essentially complete convergence in market services TFP. In contrast, manufacturing lost ground relative to the U.S. frontier prior to 2007, and remains far below the frontier. The relative ground lost after 2007 is modest—cumulating to about 4 percentage points—and is largely attributable to somewhat unfavorable industry weights and industry-specific issues in mining, rather than a systematic UK competitiveness problem.
    Keywords: productivity growth; Great Recession; convergence
    JEL: D24 E23 E44 F45 O47
    Date: 2022–03–23
  57. By: Eichengreen, Barry; Gupta, Poonam; Choudhary, Rishabh
    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: 2022–01–14
  58. By: Roth, Felix
    Abstract: This paper analyses the relationship between the rule of law (RoL) and intangible capital investment by businesses within a sample of 16 European countries, over the period from 1996 to 2017. Studies on the effects of RoL on intangible capital investment are scarce, hence, the relevance of empirical research in this area. When controlling for endogeneity, the study found a coefficient of 2.0 for the relationship between RoL and investment in intangibles, confirming the significant and positive relationship between the two and highlighting RoL as a driving factor of investment in intangibles and, hence, labour productivity growth in the EU-16.
    Keywords: rule of law (RoL),intangible capital investment,labour productivity growth,European Union (EU)
    JEL: E02 E22 O34 O43 O52 P14
    Date: 2022
  59. By: Ozana Nadoveza Jelić (Hrvatska narodna banka, Hrvatska & Ekonomski fakultet, Sveučilište u Zagrebu, Hrvatska); Rafael Ravnik (Macrodea, Hrvatska)
    Abstract: U zemljama koje karakterizira neki oblik valutne supstitucije promjene tečaja mogu imati značajne posljedice u gospodarstvu, zbog čega se monetarne vlasti u takvim zemljama katkad odlučuju za neku inačicu upravljanoga tečajnog režima. Hrvatska narodna banka odabrala je jedan od takvih načina upravljanja monetarnom politikom. U Hrvatskoj je među glavnim prednostima odabira tzv. upravljanoga fluktuirajućeg tečaja dugogodišnje održavanje inflacije niskom i stabilnom, a glavni je nedostatak gubitak dijela autonomije u vođenju protucikličke monetarne politike. U Hrvatskoj su zagovornici jačanja autonomije nerijetko poistovjećivali autonomiju s deprecijacijom kune koja bi doprinijela ispravljanju nastalih eksternih neravnoteža. Međutim, realizacija učinaka deprecijacije valute na gospodarstvo ne odvija se samo kroz vanjskotrgovinski kanal i posljedično ispravljanje eksternih neravnoteža, već i kroz utjecaj na bilance svih domaćih sektora, tzv. balance-sheet kanal. Stoga je cilj ovog rada sveobuhvatno analizirati učinke tečajnih promjena na hrvatsku ekonomiju koristeći se jedinstvenim analitičkim okvirom, odnosno makroekonometrijskim modelom PACMAN. Na temelju simulacija provedenih u ovom radu možemo zaključiti da je u Hrvatskoj aktivan kanal preko kojeg deprecijacija negativno utječe na bilance domaćih sektora (engl. balance-sheet channel), a samim time i na domaću potražnju. S druge strane, rezultati pokazuju da je srednjoročna reakcija neto izvoza (engl. trade channel) na deprecijaciju tečaja pozitivna, ali relativno blaga. Iako konačna reakcija BDP-a (neto učinak) ovisi o parametrizaciji i velikom broju pretpostavki, sve simulacije provedene u ovom radu upućuju na isti normativni zaključak prema kojem negativan učinak na bilance domaćih sektora u Hrvatskoj nadmašuje pozitivan vanjskotrgovinski učinak deprecijacije.
    Keywords: polustrukturni makroekonometrijski model, Hrvatska, deprecijacija tečaja, vanjskotrgovinski kanal, balance-sheet kanal.
    JEL: E17 E27 F31 F41 F47
    Date: 2022–01–27
  60. By: Ebeling Antoine
    Abstract: What are the determining factors in the allocation of European Investment Bank (EIB) green investments? Using data describing more than 17,000 EIB loans to European Union (EU) member states from 1960 to 2020, we first break down EIB loans into green, neutral and brown loans. We then provide evidence that EIB green investments tend to be allocated to the most advanced economies, specifically, that green investment is positively correlated with high GDP per capita and increases with national environmental expenditure. Our findings illustrate the dichotomy between economic development and environmental objectives faced by the EIB.
    Keywords: European investments Bank ; Green investment ; Climate policy.
    JEL: E22 G24 Q56
    Date: 2022
  61. By: Ralf R. Meisenzahl; Karen M. Pence
    Abstract: In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer needed, providing liquidity to a wide range of assets, and having borrowers internalize credit risk rather than shift it to the government--were related to institutional differences across nonbanks. Since all TALF borrowers faced the same program terms and conditions, our study is able to highlight the role of these institutional constraints.
    Keywords: Non-Bank Financial Institutions; Securitization; Lender of Last Resort; Term Asset-Backed Securities Loan Facility; TALF
    JEL: E52 E53 G12 G23
    Date: 2022–04–13
  62. By: Sadaba, Barbara (Bank of Canada); Vujic, Suncica (University of Antwerp); Maier, Sofia (European Commission Joint Research Centre (JRC))
    Abstract: This paper develops a novel and tractable empirical approach to estimate the cycle in schooling participation decisions, which we denominate the schooling cycle. The estimation procedure is based on unobserved components time series models that decompose higher education enrollment rates into a slow-moving stochastic trend and a stationary cyclical factor. By doing so, we obtain a full characterization of the cyclical dynamics of schooling participation and analyze its relationship with the business cycle in a time-varying fashion. Using data for 16–24-year-olds attending full-time post-secondary education in the United Kingdom from 1995Q1 to 2019Q4, we find evidence of a very persistent schooling cycle largely, but not exclusively, explained by the business cycle. Additionally, we find that the direction of the response of schooling participation to the business cycle, say, pro-, counter- or a-cyclical, is largely time-dependent, as is the degree of synchrony between both cycles. We note, however, that results are heterogeneous across gender.
    Keywords: human capital, business cycle, state space, kalman smoother
    JEL: E3 I2 J2 C32
    Date: 2022–04
  63. By: Kimberly Bayard; Tomaz Cajner; Vivi Gregorich; Maria D. Tito
    Abstract: This paper explores the factors behind differences in wages between manufacturing and other sectors. Using data from the Current Population Survey, we find that the manufacturing wage premium--the additional pay a manufacturing worker earns relative to a comparable nonmanufacturing worker--disappeared in recent years and that the erosion of the premium has primarily affected workers employed in production occupations, who experienced a wage decline of 2.5 percentage points since the 1990s relative to other workers in production occupations. While the demographic composition and other worker observables introduce level differences in manufacturing premia, our analysis suggests that they are not responsible for the declining trends. A decomposition of the premium by union membership status reveals that declines have been substantially larger across union members. To quantify the role of unionization membership on wage premia, we exploit the heterogeneity in membership status across industries within manufacturing. We find that the decline in union membership explains more than 70 percent of the decline in premia since the 1990s for union members, but the declines in unionization rates have not significantly affected non-union premia, which have instead responded to other factors, such as capital intensity. Our findings suggest that the erosion of "good" manufacturing jobs has contributed to the increase in overall wage inequality and could accelerate the decline of the manufacturing sector.
    Keywords: Wage inequality; Manufacturing; Union membership
    JEL: E24 J31 J51
    Date: 2022–03–18
  64. By: Marta Cristina Nunes Simões (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics); João Alberto Sousa Andrade (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics); Maria Adelaide Pedrosa Silva Duarte (University of Coimbra, Centre for Business and Economics Research, CeBER and Faculty of Economics)
    Abstract: This paper examines the influence of human capital on labour market resilience in the seven Portuguese NUTS-2 over the period 1995-2018. We define resilience as the ability of regional employment to recover from a shock to output over the business cycle. We use the Local Projection (LP) methodology applied to a SVAR model with three variables - employment, human capital, real GDP - and the output gap as the switching variable for the identification of recession and expansion regimes. We explore SVAR specifications that condition the response of the labour market to two scenarios: (a) the shock to GDP occurs during recessions; and (b) the shock to GDP occurs during expansions. The comparison of the employment responses to GDP shocks between the two regimes is informative about the degree of resilience of the labour market. We find evidence of: (i) distinct effects in terms of the sign and amplitude of GDP shocks on regional employment according to the level of educational attainment of the employees; (ii) labour market resilience and jobless recoveries in several regions; and (iii) different regional reactions of human capital to GDP shocks depending on the regime.
    Keywords: Employment resilience, GDP shocks, local projections, structural VARs, NUTS2, Portugal
    JEL: I25 J21 J24 R10 R15
    Date: 2022–01
  65. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: We demonstrate the interaction between short-lived governments’ decisions on education and pension policies and parents’ decisions on fertility in an overlapping generations growth model. Our analysis shows that increased expected life expectancy lowers fertility, decreases the ratio of education expenditure to GDP, and increases the ratio of pension benefits to GDP as well as per capita GDP growth rate. We also consider a reform that reduces pension benefits designed by a long-lived planner and show that the reduction is optimal from a social welfare perspective when the planner gives a large weight to future generations.
    Keywords: Fertility; Public Pension; Public Education; Probabilistic Voting; Overlapping Generations
    JEL: D70 E62 H52 H55
    Date: 2022–04–14
  66. By: Jonathan A. Parker; Antoinette Schoar; Allison T. Cole; Duncan Simester
    Abstract: This paper documents the share of investable wealth that middle-class U.S. investors hold in the stock market over their working lives. This share rises modestly early in life and falls significantly as people approach retirement. Prior to 2000, the average investor held less of their investable wealth in the stock market and did not adjust this share over their working life. These changes in portfolio allocation were accelerated by the Pension Protection Act (PPA) of 2006, which allowed employers to adopt target date funds (TDFs) as default options in retirement saving plans. Young retail investors who start at an employer shortly after it adopts TDFs have higher equity shares than those who start at that same employer shortly before the change in defaults. Older investors rebalance more to safe assets. We also study retirement contribution rates over the life-cycle and find that average retirement saving rates increase steadily over the working life. In contrast to what we find for investment in the stock market, contribution rates have been stable over time and across cohorts and were not increased by the PPA.
    JEL: D14 E21 G11 G23 G28 G51
    Date: 2022–03
  67. By: Pravakar Sahoo; Ashwani Bishnoi (Institute of Economic Growth, Delhi)
    Abstract: Majority of the existing literature has focused on examining the determinants of investment behaviour and the factors responsible for its slowdown at an aggregate level. There have only been a few studies analysing investment behaviour at firm level, and those are confined to the manufacturing sector using static panel models. In this context, we examine the sector specific heterogeneity of investment dynamics in India using firm level investment data spanning the period 2001-19. The study employs dynamic panel models on micro-level data to provide better clarity on the macroeconomic issue of investment slowdown in the country. This paper finds that a variety of factors contributed to the investment decline in India, including slower expansion of profitability and bank credit amounting to the twin balance sheet problem, debt sustainability, higher burden of indirect and corporate taxes, higher policy rates, rising real interest rates and increasing uncertainty related to economic policy.
    Keywords: Corporate Investment, India, Monetary policy, Financial sector, Economic Uncertainty.
    Date: 2021–09
  68. By: Heng Chen; Walter Engert; Kim Huynh; Daneal O’Habib
    Abstract: Chen et al. (2021) show that almost one-third of First Nations band offices in Canada are within 1 kilometre (km) of an automated banking machine (ABM) or financial institution (FI) branch and more than half are within 5 km. Further, over three-quarters of band offices are within 20 km of an ABM or FI branch and almost 90% are within 50 km. We focus on 49 First Nations locations that are more than 100 km away from an ABM or FI branch or do not have an identifiable travel route (by road or boat) to an ABM or FI branch. We refer to these First Nations as financially remote. We show that these locations have small populations and limited access to internet and mobile services. As a result, these First Nations have poor access to cash sources and physical delivery of financial services as well as limited access to digital payments and electronic banking. We also assess the remoteness of these locations according to an alternative method based on measures of agglomeration (community population) and proximity to other communities. We find that, according to this measure, these 49 financially remote First Nations are generally among the most geographically remote communities in Canada. Further, we show that these First Nations are also among the lowest scoring communities in Canada according to a measure of community well-being based on indicators of educational attainment, labour force activity, income and housing. The geographical remoteness of these 49 First Nations, their small populations, limited infrastructure and digital services, and relatively low community well-being all likely contribute to their poor access to cash and financial services.
    Keywords: Bank notes; Digital currencies and fintech; Financial institutions; Financial services; Payment clearing and settlement systems
    JEL: E4 E41 E42 E5 G2 G21
    Date: 2022–05
  69. By: Boysen-Hogrefe, Jens; Groll, Dominik; Kooths, Stefan; Sonnenberg, Nils; Stolzenburg, Ulrich
    Abstract: Die Wirtschaftsleistung im Euroraum hat zuletzt erstmals wieder ihr Vor-Corona-Niveau erreicht. Die konsumbezogene Mobilität war ungeachtet der hohen Infektionszahlen seit Jahresbeginn nur wenig beeinträchtigt, und Frühindikatoren zur Zuversicht von Unternehmen und Verbrauchern zeigten bis zum Februar eine gute Stimmung an. Somit waren im Jahresverlauf eigentlich kräftige Zuwächse der wirtschaftlichen Aktivität und eine vollständige Erholung von den Belastungen der Corona-Pandemie angelegt. Vor allem im ersten Halbjahr 2022 behindern die Auswirkungen des Krieges in der Ukraine jedoch die Konjunktur. Die Wirtschaftstätigkeit wird insbesondere über den Kanal hoher Energiepreise gedämpft, wodurch heimische Kaufkraft abgezogen wird. Wenngleich Russland und die Ukraine als Absatzmärkte vielerorts nur von nachgeordneter Bedeutung sind, dürfte die wirtschaftliche Aktivität auch durch gestörte Lieferketten, weniger Handelstätigkeit und die stark gestiegene Unsicherheit beeinträchtigt werden. Für das zweite Halbjahr und das kommende Jahr erwarten wir wieder eine kräftigere Konjunktur. Insgesamt dürfte das Bruttoinlandsprodukt im Jahr 2022 um 2,8 Prozent zulegen, gefolgt von 3,1 Prozent (2023). Die Verbraucherpreise steigen im laufenden Jahr mit voraussichtlich 5,5 Prozent so stark wie nie zuvor seit Bestehen der Währungsunion. Im Folgejahr dürfte die Teuerung mit 3,1 Prozent erneut klar oberhalb des Inflationsziels liegen.
    Keywords: Euroraum,Europäische Währungsunion,Frühindikatoren,Fiskalpolitik,Produktionslückenschätzung,Euro area,European Monetary Union,leading indicators,fiscal policy,output gap estimate
    Date: 2022
  70. By: Vîntu, Denis
    Abstract: We argue that many confusions relating to the system of methods used in a particular area of study economics and econometrics, if we a considering in time-series forecasting might be considered as arising out of ambivalence or inconclusiveness about the error terms. Relationships between macroeconomic time series are fallacious and, inevitably, the early sentimental frocks-and-romance brigade econometricians concluded that any estimated regression equation, in statistics, an equation constructed to model the relationship between dependent and independent variables would only fit with errors. Beyond dispute, Slutsky concluded that these errors could be interpreted as shocks that constitute wherefore, force behind business cycles. On the other hand, Frisch adjudecated to dissect the errors further into two categories: stimuli, which are analogous to shocks, and irregularity. However, the theory is constraint of providing a statistical framework. Furthermore, Haavelmo interpreted the error term in equations as giving, rather the statistical groundwork for econometric models and making sense that they match up to a priori dispersal assumptions specified in structural models of the stochastic dynamic general equilibrium type, later in 80ths known as simultaneous-equations models intro SDGE approach (proposed in 1982 by Kydland & Prescott.) Because in those days economies required an interpretation in a framework with rather static theoretical models , forming part of the structure of a building simultaneous-equations relegated the dynamics in time-series data frequently to frustration. Relauch of errors interpretation as the shocks in theoretical models came from model-consistent expectations, in that agents inside the model are assumed to "know the model" and on average take the model's predictions as valid. Forecasting of any non-stationary time-series as in our paper are intended to develop vector autoregression modeling giving freshness to the decade in which economic science and econometrics will be put to the test and obstacles. The so-called Sargent, Hansen, and Tallarini’s risk-sensitive permanent income model, and one and two-country stochastic growth models, decomposes the dynamics of the modeled variable into three parts: short-run shocks, disequilibrium shocks, and innovative residuals, with only the first two of these sustaining an economic interpretation.
    Keywords: economic growth and aggregate productivity; the gross domestic product; innovation and communications; cross-country output convergence; prediction and forecasting methods; time series analysis and modelling; ARIMA modelling; Box–Jenkins method.
    JEL: C12 C14 C22 C53 D62 D84 F15 F21 F61 O10 O30
    Date: 2020–10–23
  71. By: Ettore Gallo (Department of Economics, New School for Social Research); Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: This paper discusses Joan Robinson’s remarks on the importance of historical time in economic analysis. On the one hand, Joan Robinson expressed skepticism with equilibrium analysis as such, arguing that as soon as economists take into account the uncertainty of expectations, history needs to replace equilibrium. On the other, Robinson stressed that, while building economic models, one must be aware that it is historical time rather than logical time that rules reality, warning against the methodological mistake of confusing comparisons of equilibrium positions with a movement between them. We argue that these criticisms point to the possibility of thinking in terms of two different ‘levels’ of historical time – a higher (fundamentalist) level, and a practical (and more analytically tractable) lower level. Using this distinction, we provide a taxonomy of existing strands of post-Keynesian growth theory that are consistent with the concept of low-level historical time. It is shown that despite appearances to the contrary, much post-Keynesian growth theory displays fidelity to Joan Robinson’s concern with the importance of historical time.
    Keywords: Historical time, economic growth, provisional equilibrium, traverse, shifting equilibrium
    JEL: B31 B41 E11 E12 O41
    Date: 2022–04
  72. By: Jesus Felipe; Scott Fullwiler; Al-Habbyel Yusoph
    Abstract: This paper argues that the 40-year-old Feldstein-Horioka "puzzle" (i.e., that in a regression of the domestic investment rate on the domestic saving rate, the estimated coefficient is significantly larger than what would be expected in a world characterized by high capital mobility) should have never been labeled as such. First, we show that the investment and saving series typically used in empirical exercises to test the Feldstein-Horioka thesis are not appropriate for testing capital mobility. Second, and complementary to the first point, we show that the Feldstein-Horioka regression is not a model in the econometric sense, i.e., an equation with a proper error term (a random variable). The reason is that by adding the capital account to their regression, one gets the accounting identity that relates the capital account, domestic investment, and domestic saving. This implies that the estimate of the coefficient of the saving rate in the Feldstein-Horioka regression can be thought of as a biased estimate of the same coefficient in the accounting identity, where it has a value of one. Since the omitted variable is known, we call it "pseudo bias."" Given that this (pseudo) bias is known to be negative and less than one in absolute terms, it should come as no surprise that the Feldstein-Horioka regression yields a coefficient between zero and one.
    Keywords: Accounting Identity; Feldstein-Horioka Paradox; Investment; Pseudo Bias; Saving
    JEL: E01 F21 F32 F36 F41 G15
    Date: 2022–04
  73. By: Nicola Pierri; Yannick Timmer
    Abstract: What are the implications of information technology (IT) in banking for financial stability? Data on US banks' IT equipment and the background of their executives reveals that higher pre-crisis IT adoption led to fewer non-performing loans and more lending during the global financial crisis. Empirical evidence indicates a direct role of IT adoption in strengthening bank resilience; this includes instrumental variable estimates exploiting the historical location of technical schools. Loan-level analysis shows that high-IT banks originated mortgages with better performance, indicating better borrower screening. No evidence points to offloading of low-quality loans, differences in business models, or enhanced monitoring.
    Keywords: Technology; Financial Stability; IT Adoption; Non-Performing Loans; Screening
    JEL: D82 D83 E44 G14 G21 O30
    Date: 2022–04–13
  74. By: Maebayashi, Noritaka; Morimoto, Keiichi
    Abstract: In a two-country model of endogenous growth with international knowledge spillover, corporate income tax competition reproduces the second-best allocation attained by tax harmonization, despite complex externalities. This stems from the positive spillover effect across the border and free trading by Ricardian households in the global financial market. However, such a neutrality result does not hold in the extended model, which includes non-Ricardian households. The equilibrium tax rate under the corporate income tax competition can be excessively high or low, depending on the elasticity of the spillover effect to the share of the firms’ locations.
    Keywords: corporate income tax; tax competition; spillover; welfare; economic growth; non- Ricardian household
    JEL: E62 F23 F42 H21 H54
    Date: 2022–04–08
  75. By: Maebayashi, Noritaka; Morimoto, Keiichi
    Abstract: In a two-country model of endogenous growth with international knowledge spillover, corporate income tax competition reproduces the second-best allocation attained by tax harmonization, despite complex externalities. This stems from the positive spillover effect across the border and free trading by Ricardian households in the global financial market. However, such a neutrality result does not hold in the extended model, which includes non-Ricardian households. The equilibrium tax rate under the corporate income tax competition can be excessively high or low, depending on the elasticity of the spillover effect to the share of the firms’ locations.
    Keywords: corporate income tax; tax competition; spillover; welfare; economic growth; non- Ricardian household
    JEL: E62 F23 F42 H21 H54
    Date: 2022–04–08
  76. By: António Afonso; José Carlos Coelho
    Abstract: Using two measures of the fiscal position, the cyclically adjusted primary budget balance (CAPB) and the total budget balance, we assess the Twin Deficit Hypothesis for the Euro Area in the period 1995-2020. Furthermore, we estimate time-varying coefficients of the current account balance responses to changes in the CAPB and in the government balance and we identify the determinants of these responses. The CAPB and the government balance, in addition to being determinants of the current account balance, are also determinants of the time-varying responses of the current account balance. The levels of government balance, current account balance and public debt, as a percentage of GDP, and the temporal period (before and after 2010) also influence these responses.
    Keywords: CAPB, government balance, current account balance, time-varying coefficients, Eurozone, panel data
    JEL: F32 F41 H62 C33
    Date: 2022
  77. By: Sala, Hector (Universitat Autònoma de Barcelona); Trivín, Pedro (Universitat Autònoma de Barcelona)
    Abstract: This paper studies the direct impact of households' debt on consumption over the business cycle. We use household-level panel data for Spain, and focus on a interesting period of analysis, 2002-2017, characterized by large variations in leverage, consumption, and asset prices. We find that debt levels exert a negative impact on consumption, which is particularly strong in periods of high leverage and falling asset prices. This negative effect is persistent in time and significant along the post-Great Recession deleveraging process of Spanish households. We further observe that: (i) changes in households' debt in past periods are not relevant in determining consumption; (ii) households adjust faster their consumption to debt that is non-related to real estate assets; (iii) results are not driven by the characteristics of real estate loans; and (iv) credit constraints do not play a major role in shaping the debt-consumption nexus. We conclude that, in contrast to the spending normalization hypothesis, it is debt overhang what is likely to prevail in a situation of high leverage and financial stress such as the one brought by the Great Recession. Consequently, policies preventing households to embark in excessive leverage in good times and debt relief policies in bad times have a role to play to avoid larger consumption decreases in recessive periods.
    Keywords: consumption, household debt, financial stress, debt overhang, survey
    JEL: D12 D14 E21 G01 G51
    Date: 2022–04
  78. By: Pravakar Sahoo; Ashwani Bishnoi (Institute of Economic Growth, Delhi)
    Abstract: The importance of investment for improved productivity and economic growth has been well established in both theoretical and empirical literature. Investment slowdown has been the subject of intense debate in recent years. Most of the existing debates have been around aggregate investment but disaggregate investment at institution wise and assets wise may respond heterogeneously with respect to the macro-prudential policy measures. The present study goes in depth to explore the investment dynamics at disaggregate level for the period 2004-2019 in the wake of changing economic environment characterized with active utilization of monetary and fiscal policies, varying monetary transmission effect, economic uncertainty, business environment and financial pressure either by credit short-fall or debt overhang.
    Keywords: India, Investment Behaviour, Monetary policy, fiscal policy, economic uncertainty.
    Date: 2021–07
  79. By: Bruce D. Meyer; Connacher Murphy; James X. Sullivan
    Abstract: We examine the distribution of household consumption, income and savings from 2019 through the end of 2020 using the Consumer Expenditure Survey (CE) and other data. This is the first work to study the impact of the COVID-19 pandemic on economic well-being using nationally representative consumption data. We find that low percentiles of the consumption distribution see pre-pandemic growth and little change with the onset of the pandemic. On the other hand, higher percentiles of the consumption distribution do not increase before the pandemic and fall in 2020. Leveraging the rich demographics of our microdata, we find the most pronounced decline for high-educated families near the top of the consumption distribution and seniors in the top half of the distribution. The decrease in the top half is less evident for non-Whites. These patterns for consumption are different than those for income, particularly in the upper part of the distribution. Liquid assets increase in the upper half of the distribution, consistent with the divergence between the upper half of the income and consumption distributions. Our results suggest that the policy response to the pandemic averted a decrease in consumption for the most materially disadvantaged families, while changes in aggregate consumption accord with the observed patterns in the top of the consumption distribution. The changes for various types of consumption, and the distribution of those changes across the material resource distribution, are consistent with reductions in travel to work—which were large for those with greater material advantage—and restrictions on outlets for consumption.
    JEL: D12 D31 E21 H31 I31
    Date: 2022–03
  80. By: Tweneboah Senzu, Emmanuel
    Abstract: The foundation upon which this paper was submitted is to rigorously conceptualize the adoption, and the interpretation in the use of the term ‘Fragility’ in a strict economics perspective, to avoid the continual arbitrary interpretation of the terminology that confuses its explanation power in a strict economic context to that of political economy as a school of thought within the Lexicon of the School of Social Sciences.
    Keywords: Fragility, Concept, Interpretation, Pedagogy, Economics, Political Economy
    JEL: A2 E6 F4 G1 H5 P0
    Date: 2022–04
  81. By: Phil Kerpen; Stephen Moore; Casey B. Mulligan
    Abstract: Almost exactly two years ago COVID-19 spread to the United States. Following the federalism model, the 50 states and their governors and legislators made many of their own pandemic policy choices to mitigate the damage from the virus. States learned from one another over time about what policies worked most and least effectively in terms of containing the virus while minimizing the negative effects of lockdown strategies on businesses and children. This study is an expanded and updated version of an October 2020 report card of how pandemic health, economy, and policy varied across the 50 states and the District of Columbia (Committee to Unleash Prosperity 2020). It examines three variables: health outcomes, economic performance throughout the pandemic, and impact on education.
    JEL: E01 I18 I28
    Date: 2022–04
  82. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Meuchelböck, Saskia; Sonnenberg, Nils
    Abstract: Die deutsche Wirtschaft ist abermals heftigem Gegenwind ausgesetzt. Der Krieg in der Ukraine führt zu hohen Rohstoffpreisen, neuen Lieferengpässen und schwindenden Absatzmöglichkeiten. Die hohen Rohstoffpreise verringern die Kaufkraft der verfügbaren Einkommen und dämpfen damit den privaten Konsum. Zudem belasten zusätzliche Lieferengpässe die Industrie spürbar. Schließlich verschlechtern sich zumindest vorübergehend die Absatzmöglichkeiten aufgrund der Sanktionen sowie der durch den Krieg gestiegenen Unsicherheit. All dies trifft die Wirtschaft in einer Phase, in der die dämpfenden Einflüsse der Pandemie nachlassen und eine kräftige Erholung angelegt war. Die starken Auftriebskräfte - hohe aufgestaute Kaufkraft bei den privaten Haushalten und dicke Auftragspolster der Industrie - federn die Schockwellen aus dem Krieg in der Ukraine ab. Im Ergebnis dürfte sich die Erholung in diesem Jahr fortsetzen, allerdings in spürbar langsamerem Tempo als im Winter erwartet. Insgesamt rechnen wir nun mit einem Anstieg des Bruttoinlandsprodukts von 2,1 Prozent für das laufende Jahr (Winterprognose: 4 Prozent) und von 3,5 Prozent für das Jahr 2023 (Winterprognose: 3,3 Prozent). Die Inflation dürfte in diesem Jahr mit 5,8 Prozent so hoch ausfallen wie noch nie im wiedervereinigten Deutschland. Selbst wenn die Rohstoffpreise nicht mehr weiter steigen und die Lieferengpässe allmählich nachlassen, wird die Inflation im kommenden Jahr mit 3,4 Prozent wohl noch hoch bleiben, auch weil die jüngsten Erzeugerpreisanstiege erst nach und nach bei den Verbrauchern ankommen. Während der Krieg auf dem Arbeitsmarkt kaum Spuren hinterlässt, werden die öffentlichen Ausgaben steigen, so dass die Haushaltsdefizite länger auf erhöhten Niveaus verharren.
    Keywords: Konjunkturprognose,Stabilisierungspolitik,Frühindikatoren,Ausblick,business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2022
  83. By: Owen F. Davis (Department of Economics, New School for Social Research)
    Abstract: Economic agents must form models of their environments in order to develop expectations and make decisions, yet these models are certain to be misspecified. An agent aware of their own inability to perfectly capture the structural relationships of their observed world will entertain model uncertainty. Under the plausible assumptions that the “true” model is not known to the decision-maker and the decision-maker knows this—known as the M-open case in Bayesian statistics—uncertainty over propositions becomes numerically irreducible. The notion of model uncertainty is developed with reference to Post Keynesian theories of fundamental uncertainty as well as relevant areas of study within decision theory, including the growing literature on unawareness. The model uncertainty view poses challenges for both literatures and provides a novel justification for the types of uncertainty associated with Knight and Keynes.
    Keywords: Fundamental uncertainty, model uncertainty, decision theory, Post Keynesian
    JEL: C11 D81 E12
    Date: 2022–04
  84. By: Guido Lorenzoni; Iván Werning
    Abstract: This note isolates an overlooked economic force for the Ruble to appreciate in response to international sanctions limiting exports to Russia. The economic intuition is that when Russians are unable to buy the mix of foreign goods they wish, then foreign goods becomes less attractive, increasing the demand for domestic goods; to reestablish an equilibrium a real appreciation is needed to raise the relative price of domestic goods and incentivizing the accumulation of foreign assets and the import from non-sanctioning countries. We also review well-known forces for a depreciation (e.g. Russian export reduction). Our analysis emphasizes that the exchange rate is an inadequate signal of welfare impacts and the effectiveness of sanctions.
    JEL: E0 F3 F31 F4 F51
    Date: 2022–04
  85. By: Gern, Klaus-Jürgen; Kooths, Stefan; Reents, Jan; Sonnenberg, Nils; Stolzenburg, Ulrich
    Abstract: Der Krieg in der Ukraine belastet die Weltwirtschaft in einer Phase, in der die Inflation bereits stark gestiegen ist und die US-Notenbank das Ende der extrem expansiven Geldpolitik eingeläutet hat. Höhere Rohstoffpreise treiben die Inflation zusätzlich an und führen zusammen mit den Auswirkungen der Sanktionen auf Transportzeiten und Produktionsketten voraussichtlich dazu, dass Lieferengpässe die Produktion in den kommenden Monaten wieder stärker hemmen werden. Wir haben unsere Prognose für die Expansion der Weltwirtschaft deutlich abgesenkt, um 1 Prozentpunkt in diesem und um 0,4 Prozentpunkte im nächsten Jahr. Gleichwohl steigt die globale Produktion (auf der Basis von Kaufkraftparitäten) mit Raten von 3,5 bzw. 3,6 Prozent in beiden Jahren noch etwas stärker als im längerfristigen Trend. Denn die konjunkturellen Auftriebskräfte sind beträchtlich, da die Corona-Pandemie die Weltwirtschaft in immer geringerem Maße beeinträchtigen wird. Covid-19 bleibt aber neben den Unwägbarkeiten im Zusammenhang mit dem Ukrainekonflikt ein gewichtiges Risiko für die Weltwirtschaft, vor allem wenn Maßnahmen zur Eindämmung der Omikron-Variante die Produktion in China empfindlich beeinträchtigen sollten.
    Keywords: Fortgeschrittene Volkswirtschaften,Schwellenländer,Geldpolitik,advanced economies,emerging economies,monetary policy
    Date: 2022
  86. By: Barker, Jamie; Herrala, Risto
    Abstract: Since embarking on economic reform in 1991, India has experienced three decades of rapid economic development. Recently, however, there has been significant uncertainty about the growth outlook of the Indian economy in the mid-term perspective. In this paper we use standard regression techniques to project the path of the Indian economy over the next 4 years. The analysis, which abstracts from the pandemic period, mainly serves as support to forecasting the global economy. After the pandemic, GDP growth is projected to rebound this year and then slide to-wards 6 ‒ 7% in the medium term. The analysis broadly agrees with the recent projections of India's mid-term growth rate by other institutions.
    Keywords: Indian economy,forecasting,GDP growth
    Date: 2021
  87. By: Renjie Bao; Jan De Loecker; Jan Eeckhout
    Abstract: To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for man- agers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Com- pustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so.
    JEL: E2 J2 L1
    Date: 2022–04
  88. By: Ananth Seshadri; Anson Zhou
    Abstract: Nearly 40% of births in the United States are unintended, and this phenomenon is disproportionately common among Black Americans and women with lower education. Given that being born to unprepared parents significantly affects children’s outcomes, could family planning access affect intergenerational persistence of economic status? We extend the standard Becker–Tomes model by incorporating an endogenous family planning choice. When the model is calibrated to match observed patterns of unintended fertility, we find that intergenerational mobility is significantly lower than that in the standard model. In a policy counterfactual where states improve access to family planning services for the poor, intergenerational mobility improves by 0.3 standard deviations on average. When we calibrate the model to match unintended birth rates by race, we find that differences in family planning access alone can account for 20% of the racial gap in upward mobility. Helping women fulfill their goals about family planning and childbearing can improve social mobility and address racial inequality.
    JEL: E6 J11 J13
    Date: 2022–03
  89. By: Jonathan Perraton (Department of Economics, University of Sheffield, UK)
    Abstract: An extensive literature has examined whether corporatist national wage bargaining systems can deliver superior economic performance, but this has mostly focused on short run indicators. Such systems of industrial relations could provide incentives for investment if organized labour can credibly pre-commit to wage moderation. This paper examines this, building on monopoly union models that indicate the response of corporatist wage bargaining arrangements to investment. The paper estimates the response of wage bargaining to capital investment, conditional on outside options, in six key economies widely characterized as having sustained corporatist bargaining arrangements over 1970-2017. The econometric approach allows changes in regimes to be determined endogenously; these shifts appear consistent with wider evidence on changes in bargaining arrangements and financial integration of these economies.
    Keywords: Social corporatism; Capital accumulation; Wage bargaining; Eichengreen hypothesis; Structural breaks
    JEL: E22 J31 J51
    Date: 2022–03
  90. By: Lockwood, Ben (University of Warwick); Francesco Porcelli (University of Bari); James Rockey (University of Birmingham)
    Abstract: This paper uses an instrumental variable approach based on close elections to evaluate the effect of political parties on local fiscal policy in England and Wales over the period 1998-2016. Our main finding is that political control of the council (by Labour, Conservative or Liberal Democrat parties) has no effect on total expenditure, the composition of expenditure, the property tax rate (council tax per band D property) or total council tax revenue. Thus, our results confirm the widely expressed belief that centrally imposed constraints on local government fiscal policy (rate-capping, and more recently, compulsory referenda) hold local government fiscal policy in a tight grip.
    Keywords: Party Control ; Grants ; Government Spending ; Taxation JEL Classification: H70 ; H71 ; D72
    Date: 2022
  91. By: Sridhar Kundu; Maynor Cabrera
    Abstract: Fiscal policies play a key role in reshaping income distribution in India. There are differences in policies at the Union, State, and Municipal or city level, which have an individual and combined impact on the country’s standard of living. These policies include decisions on direct and indirect taxes, subsidies, pensions, and other direct transfers, as well as public spending on education and health. This Commitment to Equity (CEQ) study tries to analyse the individual and combined impact of these policies on poverty and income distribution in India. The report has used household consumption expenditure data from the National Sample Survey (NSS) of such expenditure, undertaken in 2011-12, as the base for its income-distribution analysis. It has also used other surveys, such as the NSS survey of household consumption expenditure on Education and Health, conducted in 2014, the Indian Human Development Survey, and NSS Employment and Unemployment survey in 2011-12, to impute values of cash and in-kind transfers, as well as direct taxes. After a detailed examination of all the policies, we found that government interventions play a significant role in reshaping income distribution by reducing poverty and inequality. India’s taxation policies are progressive, as the lion’s share of taxes is collected from the top 10 per cent of the population. Similarly, policies such as the Public Distribution System (PDS) subsidy, spending on education and health, and direct cash transfers through the rural employment scheme MGNREGS play an equalising role in overall income distribution.
    Keywords: Fiscal Policies, poverty, inequality, direct and indirect taxes, PDS, Electricity Subsidy, MGNREGS, Pensions
    JEL: D31 E62 H22 I14 I24 I38
    Date: 2022–04
  92. By: Federico Sturzenegger (Universidad de San Andrés/Harvard Kennedy School); Nicolás Der Meguerditchian (Universidad de San Andrés)
    Abstract: The issue of debt sustainability has been the focus of continued theoretical and practical interest over the years. In emerging markets, much of the debate has focused on explicit government liabilities, which, while relevant, only represents a small share of government´s liabilities. In contrast the balance-sheet approach estimates all government assets (the most important being the net present value of taxes) and liabilities (the most important being the net present value of expenditures) to compute the government´s net worth. In this paper we apply this methodology to study fiscal sustainability in Namibia. We find that, currently, the Namibian government´s net worth is tilted sharply to the left. We simulate the impact of two types of shocks, a depreciation of the real exchange rate and an additional GDP growth, and find that both produce a further deterioration of the government's balance sheet. Finally, we ask about what type of policies would allow the government to recover the fiscal sustainability and show that, for example, a partial freeze in public salaries allows to recover fiscal sustainability very quickly.
    Date: 2022–04
  93. By: SANO Tomoki; NAGAMACHI Yuhei
    Abstract: This study proposes an input-output analysis framework to quantify supply shock effects on production and employment. Recently we observe many cases where supply shocks in certain industries impact the entire economy, such as the supply bottlenecks caused by COVID-19. To take effective measures under policy resource constraints, it is crucial to understand the quantitative effects of supply shocks on each industry and the whole economy. To this end, we propose a framework and analyze the influence on GDP and employment of 2 scenarios: a reduction of the domestic production base by 10 %, and suspension of imports from certain countries. Such a methodology would allow us to quantify supply shock impacts, reflecting relevant characteristics of industries such as the degree of dependence on imports and interdependence with other industries.
    Date: 2022–04
    Abstract: Economies around the world tend to show a strong link from fiscal to current accounts deficits. The phenomenon is recognized as the twin-deficits doctrine, which stipulates the presence of a uni-directional causal relationship from the fiscal account deficit (FD) to the current account deficit (CD). This relationship is also apparent for the commodity-based economies of the Gulf Cooperation Council States (GCC). The region is well-documented to rapidly succumb to deteriorating fiscal and current account deficits with any prolonged decline in international crude oil prices. This study extends the research of Granger non-causality between budget deficits by employing a macro-panel in a two-dimensional vector autoregression model with an exogenous variable (VAR-X) process where oil is included as the exogenous control variable. The study uses a homogeneous model in the generalized method of moments framework to conduct a comprehensive investigation between the two deficits and analyze if the twin-deficits doctrine applies to the GCC. A heterogeneous model with fixed time coefficients is then used as a robustness check to assess if the twin-deficits phenomenon applies to any of the GCC States. The results indicate that the pooling of data from six GCC States and the inclusion of international oil prices, as the third latent element, leads to the dismissal of the twin-deficits doctrine for the GCC as an integrated unit of analysis, and, for each member State of the GCC individually. Interestingly, the analysis uncovers a reverse direction of causality running from CD to FD.
    Keywords: Twin-Deficits; Granger non-causality; Gulf Cooperation Council; Macro-panels; VAR-X.
    JEL: C23 E62 F32 F41
    Date: 2021–07–31
  95. By: Kohnert, Dirk
    Abstract: Famines are almost always man-made often used as a deterrent. Since ancient times, food and hunger have been a weapon of war. Among the most notorious examples in Africa are the Herero and Namaqua genocide in German South-West Africa (now Namibia) from 1904 to 1908. It was the first genocide of the 20th century. Also, the subsequent famines in Biafra (South-East Nigeria, 1967-1969), when an estimated 1.5 million people starved to death, the 1980 famine in Uganda, one of the worst in African history, when 21% of the population died, and the recurring famines in Ethiopia, Somalia and South Sudan since the 1990s have been burned into human memory. The use of food as a weapon was condemned as a war crime by the Rome Statute of the International Criminal Court in 1998. Since most African countries are Least Developed Countries (LLCs), they will suffer the hardest in the aftermath of Putin's war in Ukraine, especially Africa's poor. They have already suffered the consequences of drought, the corona pandemic and Islamist terrorism. Their already weakened position will be exacerbated by the spill-over effects of Russian aggression in Ukraine, which will further exacerbate hunger and poverty in Africa. All the more so as international development aid to Africa is likely to suffer from a massive redirection of aid to rearmament. Last but not least, Putin's war in Ukraine will have a major impact on EU-Africa relations. In view of the consequences of the Covid-19 pandemic for Africa, it will further damage the mutual trust between both partners. About 86% of Africans have yet to receive two doses of vaccine. A growing number of African heads of state and government no longer see Western countries as reliable partners.
    Keywords: : Russia, invasion, Ukraine, Africa, famine, international trade, global power, food power, arms deals, fragile state, Islamist terrorism, Egypt, Morocco, Algeria, Tunisia, Libya, South Africa, Cameroon, Mozambique, Ethiopia, Kenya, Uganda, Somalia, Namibia, Nigeria, Sudan, energy security, China, EU, USA
    JEL: E26 E31 F02 F13 F35 F51 F54 H56 N47 N57 N77 P26 Z13
    Date: 2022
  96. By: Kohnert, Dirk
    Abstract: Famines are almost always man-made often used as a deterrent. Since ancient times, food and hunger have been a weapon of war. Among the most notorious examples in Africa are the Herero and Namaqua genocide in German South-West Africa (now Namibia) from 1904 to 1908. It was the first genocide of the 20th century. Also, the subsequent famines in Biafra (South-East Nigeria, 1967-1969), when an estimated 1.5 million people starved to death, the 1980 famine in Uganda, one of the worst in African history, when 21% of the population died, and the recurring famines in Ethiopia, Somalia and South Sudan since the 1990s have been burned into human memory. The use of food as a weapon was condemned as a war crime by the Rome Statute of the International Criminal Court in 1998. Since most African countries are Least Developed Countries (LLCs), they will suffer the hardest in the aftermath of Putin's war in Ukraine, especially Africa's poor. They have already suffered the consequences of drought, the corona pandemic and Islamist terrorism. Their already weakened position will be exacerbated by the spill-over effects of Russian aggression in Ukraine, which will further exacerbate hunger and poverty in Africa. All the more so as international development aid to Africa is likely to suffer from a massive redirection of aid to rearmament. Last but not least, Putin's war in Ukraine will have a major impact on EU-Africa relations. In view of the consequences of the Covid-19 pandemic for Africa, it will further damage the mutual trust between both partners. About 86% of Africans have yet to receive two doses of vaccine. A growing number of African heads of state and government no longer see Western countries as reliable partners.
    Keywords: : Russia, invasion, Ukraine, Africa, famine, international trade, global power, food power, arms deals, fragile state, Islamist terrorism, Egypt, Morocco, Algeria, Tunisia, Libya, South Africa, Cameroon, Mozambique, Ethiopia, Kenya, Uganda, Somalia, Namibia, Nigeria, Sudan, energy security, China, EU, USA
    JEL: E26 E31 F02 F13 F35 F51 F54 H56 N47 N57 N77 P26 Q17 Z13
    Date: 2022–04–14
  97. By: Olivier Damette (BETA - Bureau d'Économie Théorique et Appliquée - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Claude Diebolt (BETA - Bureau d'Économie Théorique et Appliquée - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Stephane Goutte (Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines); Umberto Triacca (UNIVAQ - University of L'Aquila [Italy])
    Abstract: This paper presents the findings of climate change impact on a widespread human crisis due to a natural occurrence, focusing on the so-called Little Ice Age period. The study is based on new non-linear econometrics tools. First, we reassessed the existence of a significant cooling period using outliers and structural break tests and a nonlinear Markov Switching with Levy process (MS Levy) methodology. We found evidence of the existence of such a period between 1560-1660 and 1675-1700. In addition, we showed that NAO teleconnection was probably one of the causes of this climate change. We then performed nonlinear econometrics and causality tests to reassess the links between climate shock and macroeconomic indicators. While the causal relationship between temperature and agricultural output (yields, production, price) is strongly robust, the association between climate and GDP identified by the MS Levy model does not reveal a clear causality link. Although the MS Levy approach is not relevant in this case, the causality tests indicate that social disturbance might also have been triggered by climate change, confirming the view of Parker (2013). These findings should inform current public policies, especially with regard to the strong capacity of climate to disrupt social and economic stability.
    Keywords: Economic cycles,Causality,Markov Switching Levy,Non-linear econometrics,Climate change,Little Ice Age,Social crisis
    Date: 2020–04–16
  98. By: Olivier Blanchard; Jean Pisani-Ferry
    Abstract: This Policy Contribution is a version of a Policy Brief published by the Peterson Institute for International Economics. The authors thank Thomas Belaich for research assistance, and Agnès Bénassy-Quéré, Steven Fries, Philip Lane, Elina Ribakova, Guntram Wolff and PIIE colleagues for their comments. Throughout this Policy Contribution, we take mid-April as the cutoff date for data. For Europe, the war in Ukraine is a first-order economic shock. While the direct...
    Date: 2022–04
  99. By: Mr. Serkan Arslanalp; Chima Simpson-Bell; Mr. Barry J. Eichengreen
    Abstract: We document a decline in the dollar share of international reserves since the turn of the century. This decline reflects active portfolio diversification by central bank reserve managers; it is not a byproduct of changes in exchange rates and interest rates, of reserve accumulation by a small handful of central banks with large and distinctive balance sheets, or of changes in coverage of surveys of reserve composition. Strikingly, the decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies and units that, along with the dollar, have historically comprised the IMF’s Special Drawing Rights. Rather, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies. A characterization of the evolution of the international reserve system in the last 20 years is thus as ongoing movement away from the dollar, a recent if still modest rise in the role of the renminbi, and changes in market liquidity, relative returns and reserve management enhancing the attractions of nontraditional reserve currencies. These observations provide hints of how the international system may evolve going forward.
    Keywords: International reserves, currency composition, dollar; USD share; dollar dominance; currency share; dollar share; share of foreign exchange; Reserve currencies; Currencies; International reserves; Reserves management; Asset valuation; Global; Africa
    Date: 2022–03–24
  100. By: Prasad, Eswar (Asian Development Bank Institute)
    Abstract: New financial technologies—including those underpinning cryptocurrencies—herald broader access to the financial system, quicker and more easily verifiable settlement of transactions and payments, and lower transaction costs. Domestic and cross-border payment systems are on the threshold of transformation, with significant gains in speed and lowering of transaction costs on the horizon. For emerging market and developing economies, the digitization of finance carries a number of potential benefits, including broadening of financial inclusion, quicker and cheaper cross-border remittances, and increased convenience of domestic payments. But some of these developments could also increase these countries’ exposure to volatile capital flows. Governments, central banks, and regulatory agencies will face difficult challenges in striking the right balance between fostering innovations and mitigating risks arising from them.
    Keywords: fintech; payment systems; international payments; financial inclusion; capital flows; financial regulation
    JEL: E50 G00
    Date: 2021–07
  101. By: Gilles Le Garrec (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Vincent Touzé (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: Cet article dresse un bilan synthétique des résultats des principales études d'évaluation d'impact des dépenses publiques et en particulier celles d'investissement public. Ce bilan est réalisé en trois points successifs : (1) Puisque l'investissement public est en premier lieu une composante de la demande, nous nous intéressons d'abord à son efficacité sous l'angle général de la dépense publique. La littérature conduit à un multiplicateur des dépenses publiques sur le PIB de 0,8 en moyenne, avec une grande variabilité dans les résultats ; (2) Dans un second temps, la dimension productive de l'investissement public est intégrée. La littérature économique parvient à établir une supériorité de la relance par l'investissement par rapport à la dépense classique à long terme. Par contre, elle tend à souligner la supériorité en termes de relance à court terme de la consommation publique sur des projets de nouvelles infrastuctures publiques dont les temps de mise en service seraient très longs ;(3) Enfin, puisque le débat actuel sur la relance par la dépense se situe dans un contexte de crise économique, l'article montre que dans la littérature le multiplicateur atteint en période de crise des valeurs plus élevée comprises entre 1,3 et 2,5 à court terme. De plus, le résultat observé en temps normal (hors période de crise) est inversé : la relance par des grands projets d'investissement public apparaît plus forte que par la consommation publique.
    Keywords: multiplicateurs budgétaires,investissement public,dépendance au cycle
    Date: 2021
  102. By: Huang, Yiping (Asian Development Bank Institute); Qiu, Han (Asian Development Bank Institute); Wang, Jingyi (Asian Development Bank Institute)
    Abstract: Digital technology has rapidly transformed the economy of the People's Republic of China (PRC) over the past decade, especially in areas of e-commerce and digital finance. In many ways, digital technology changes the pattern of economic operation, as it enlarges business scale, increases economic efficiency, improves user experiences, reduces operating costs, and controls financial risks. Digital technology served as an important economic stabilizer during COVID-19, by accurately tracking down confirmed infected cases, moving a lot of economic activities online ,and issuing consumption coupons by local governments. These not only enabled the PRC to be the first to come out of the pandemic and to achieve impressive V-shaped recovery, but also with 5G and other technological and infrastructural development. The digital economy in the PRC will likely grow more rapidly in the coming years, bringing about more fundamental changes. However, the authorities will also need to address a wide range of policy issues to ensure the smooth development of the digital economy, including the easing of the data inequality problem, protection of individual rights, and regulation of platform behavior.
    Keywords: digital technology; digital economy; COVID-19; PRC
    JEL: E60 G23 O31
    Date: 2021–07

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