nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒05‒30
fifty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Addressing systemic risk in Europe during Covid-19: The role of regulation and the policy mix By Dotta, Vitor
  2. The Relationship between Inflation, Interest Rate, Unemployment and Economic Growth By Vîntu, Denis
  3. The U.S. Economic Dynamics and Inflation Persistence: a Regime-Switching Perspective By Elton Beqiraj; Giuseppe Ciccarone; Giovanni Di Bartolomeo
  4. Malaysia: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malaysia By International Monetary Fund
  5. Money, Exchange Rate and Export Quality By Ganguly, Shrimoyee; Acharyya, Rajat
  6. Causal Effects of the Fed's Large-Scale Asset Purchases on Firms' Capital Structure By Andrea Nocera; M. Hashem Pesaran
  7. A Parsimonious Model of Idiosyncratic Income By Edmund S. Crawley; Martin Holm; Hakon Tretvoll
  8. Republic of Armenia: Sixth Review under the Stand-by Arrangement-Press Release; and Staff Report By International Monetary Fund
  9. European Exchange Rate Adjustments in Response to COVID-19, Containment Measures and Stabilization Policies By Jens Klose
  10. Colombia: Request for an Arrangement under the Flexible Credit Line and Cancellation of the Current Arrangement - Press Release; Staff Report; and Statement by the Executive Director for Colombia By International Monetary Fund
  11. Financial concerns and the marginal propensity to consume in Covid times: evidence from UK survey data By Albuquerque, Bruno; Green, Georgina
  12. Shocks to Inflation Expectations By Jonathan J. Adams; Mr. Philip Barrett
  13. Growing Like Germany: Local Public Debt, Local Bank, Low Private Investment By Mathias Hoffmann; Iryna Stewen; Michael Stiefel
  14. Suriname: First Review under the Extended Arrangement under the Extended Fund Facility, and Financing Assurances Review-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Suriname By International Monetary Fund
  15. Does Government Spending Efficiency Improve Fiscal Sustainability? By António Afonso; José Alves
  16. House price dynamics, optimal LTV limits and the liquidity trap By Ferrero, Andrea; Harrison, Richard; Nelson, Benjamin
  17. Managing Expectations in the New Keynesian Model By Robert G. King; Yang K. Lu
  18. Trust and monetary policy By Paul De Grauwe; Yuemei Ji
  19. Monetary Policy Transmission and Policy Coordination in China By Miss Sonali Das; Wenting Song
  20. The future of European fiscal governance: a comprehensive approach By Marzia Romanelli; Pietro Tommasino; Emilio VadalÃ
  21. Meta-analysis: Fiscal Multiplier By Michal Hlavacek; Ilgar Ismayilov
  22. Cost-Price Relationships in a Concentrated Economy By Falk Bräuning; José Fillat; Gustavo Joaquim
  23. Towards an explanation of a declining trend in capacity utilisation in the US economy By Santiago J. Gahn
  24. What Do Consumers Think Will Happen to Inflation? By Olivier Armantier; Fatima Boumahdi; Gizem Koşar; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
  25. Wealth and Its Distribution in Germany, 1895-2018 By Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
  26. Consolidating the Covid Debt By Christian Keuschnigg; Julian Johs; Jacob Stevens
  27. COVID-19, policy interventions, credit vulnerabilities and financial (in)stability By Kimundi, Gillian
  28. The Term Structure of Inflation at Risk: A Panel Quantile Regression Approach By Yoshibumi Makabe; Yoshihiko Norimasa
  29. Harrod-Domar Formula for Two Sector Growth Models By V.K.Chetty; Basanta K Pradhan
  30. Will the green transition be inflationary? Expectations matter By Alessandro Ferrari; Valerio Nispi Landi
  31. Covid-Induced School Closures in the US and Germany: Long-Term Distributional Effects By Nicola Fuchs-Schündeln
  32. A New Macroeconomic Measure of Human Capital Exploiting PISA and PIAAC: Linking Education Policies to Productivity By Balazs Egert; Christine de la Maisonneuve; David Turner
  33. Costa Rica: First and Second Reviews Under the Extended Arrangement Under the Extended Fund Facility, Request for Extension of the Arrangement, and Rephasing of Purchases-Press Release; Staff Report; and Statement by the Executive Director for Costa Rica By International Monetary Fund
  34. How successful was Germany's first common currency? A new look at the imperial monetary union of 1559 By Volckart, Oliver
  35. Optimal Unemployment Insurance in a THANK Model By Stéphane Auray; Aurélien Eyquem
  36. Impulse response estimation via flexible local projections By Haroon Mumtaz; Michele Piffer
  37. West Bank and Gaza: Report to the Ad Hoc Liaison Committee By International Monetary Fund
  38. Stark bedingte Zuversicht für 2022: IW-Konjunkturumfrage Frühjahr 2022 By Grömling, Michael
  39. Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination By Nathan, Daniel; Ben Zeev, Nadav
  40. Resilience of bank liquidity ratios in the presence of a central bank digital currency By Alissa Gorelova; Bena Lands; Maria teNyenhuis
  41. Addressing COVID-19 outliers in BVARs with stochastic volatility By Carriero, Andrea; Clark, Todd E.; Marcellino, Massimiliano; Mertens, Elmar
  42. Are the East African Community's Countries Ready for a Common Currency? By Kigabo-Rusuhuzwa, Thomas; Heshmati, Almas
  43. Some notes on Ricardo's analysis of the convergence process of the market rate of interest to the natural rate By Ciccone, Michele
  44. Lockdown Spillovers By Hongyi Chen; Peter Tillmann
  45. Transitivity, Substitution Bias and the Fixed Basket Multilateral Walsh Index for International Price and Real Expenditure Comparisons By Abe, Naohito; Rao, D.S. Prasada
  46. Interest rate shocks, competition and bank liquidity creation By Kick, Thomas
  47. United Kingdom: Financial Sector Assessment Program-Systemic Stress, and Climate-Related Financial Risks: Implications for Balance Sheet Resilience By International Monetary Fund
  48. Sovereign Defaults and Debt Sustainability: The Debt Recovery Channel By Ibrahima Diarra; Michel Guillard; Hubert Kempf
  49. Nonparametric Estimation and Testing for Time-Varying VAR Models By Jiti Gao; Bin Peng; Yayi Yan
  50. Jordan: Technical Assistance Report-Forecasting Framework for Currency in Circulation By International Monetary Fund
  51. Modeling stock-oil co-dependence with Dynamic Stochastic MIDAS Copula models By Nguyen, Hoang; Virbickaite, Audrone
  52. Commerce et politiques macroéconomiques : évidence en zone CEMAC By Kuikeu, Oscar
  53. Instinctive versus reflective trust in the European Central Bank By Angino, Siria; Secola, Stefania
  54. The Dynamics of Tax Compliance By Francesco Pappadà
  55. COVID-19 and the finance-economic growth nexus in Kenya By Maturu, Benjamin O.
  56. Public Debt and Real GDP: Revisiting the Impact By Constance de Soyres; Mengxue Wang; Reina Kawai
  57. No strings attached: Corporate welfare, state intervention, and the issue of conditionality By Bulfone, Fabio; Ergen, Timur; Kalaitzake, Manolis
  58. Stellungnahme zum "Entwurf eines Steuerentlastungsgesetzes 2022": Stellungnahme zur öffentlichen Anhörung im Finanzausschuss des Deutschen Bundestags By Beznoska, Martin
  59. Economic diplomacy of developed countries and its impact on FDI flows to Morocco By Mohammed Eddaou

  1. By: Dotta, Vitor
    Abstract: This work examines the impacts which the Covid-19 pandemic brought to the stability of the European financial sector. Lockdowns, businesses unable to operate and uncertainty about how the pandemic would evolve fueled a sharp recession. From the lessons learned in the global financial crises and the Eurozone debt crises, there's an increasing role of macroprudential policies, especially the regiments of the Basel III framework and the monetary policy toolkit. Alongside macroprudential regulation, the European Central Bank provided substantial monetary policy easing, for instance the release of capital buffers and other capital requirements, expanding the TLTRO III and Pandemic Emergency Program which facilitated monetary policy transmission. Authorities also deployed strong fiscal policies which encompassed from tax holidays to direct transfers to households and firms. The combination of fiscal, monetary, and regulatory policy was unprecedented and helped the economy during the shutdown moments. As a result, indicators of systemic risks in the banking sector during the pandemic remained relatively stable.
    Keywords: Systemic Risk,Covid-19 pandemic,banks,banking sector,Europe,Policy Mix,Monetary and Fiscal policy
    JEL: G21 G28 G38 E58 E62 E63
    Date: 2022
  2. By: Vîntu, Denis
    Abstract: This paper presents a quarterly structural macroeconomic model for the Republic of Moldova, which is known as the macroeconomic data model (MDM). This model can be used to assess economic conditions in the Republic of Moldova, forecast the macro economy, analyze policy options, and deepen our understanding of the functioning of a market economy. Some of the key features of the model are highlighted. First, the report looks at the Moldovan economy as a whole and finds that it is a small and open economy. Second, the model is small enough to be manageable for forecasting and simulation exercises, but still has enough detail for most purposes. Third, the model is designed to have a stable equilibrium over a long period of time, in accordance with classical economic theory, while its short-run dynamics are demand-driven. Fourth, the current version of MDM is mostly backward-looking, i.e. Expectations are influenced by the inclusion of lagged variables. The MDM uses a quarterly frequency data set, which allows for a more detailed analysis of the dynamics. The data is mostly estimated based on historical information. The paper includes stochastic long-run simulation results. The relationship between inflation, interest rates, unemployment and economic growth is important.
    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: 2022–03
  3. By: Elton Beqiraj; Giuseppe Ciccarone; Giovanni Di Bartolomeo
    Abstract: This paper revisits the US business cycle accounting for exogenous switches in the inflation intrinsic persistence formalized as changes in the hazard functions. After controlling for Phillips curves shifts, we identify two monetary regimes, leading to a different interpretation from that generally proposed. The Fed operates according to the Brainard Principle by gradually reacting to observed shocks and deviating only episodically to a more active regime. Quantitatively, the main drivers of the business cycle are structural changes in price settings and stochastic volatilities. We also find that structural changes in price and wage adjustments play opposite roles in the Great Inflation. In general, shifts in the Phillips curves are central for correctly understanding the Fed behavior and the business cycle dynamics.
    Keywords: duration-dependent wage adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; Markow-switching
    JEL: E42 E52 E58
    Date: 2022–04
  4. By: International Monetary Fund
    Abstract: Malaysia’s economy is showing signs of a gradual yet steady recovery thanks to the authorities’ impressive vaccine rollout, swift and coordinated implementation of multi-pronged support measures. The recovery nevertheless remains uneven and the output gap sizeable, with significant downside risks. Going forward, the authorities should calibrate macroeconomic policies to the pace of the recovery, while preserving policy space given pandemic-related uncertainties, and simultaneously accelerate structural reforms.
    Keywords: inflation expectation; transitory inflation pricing; staff statement; authorities project headline inflation; Ukraine-Russia conflict; COVID-19; Anti-money laundering and combating the financing of terrorism (AML/CFT); Tax refunds; Global
    Date: 2022–04–28
  5. By: Ganguly, Shrimoyee; Acharyya, Rajat
    Abstract: This paper theoretically examines the effect of an expansionary monetary policy on export quality and its ramifications on the aggregate employment of the unskilled workers in a competitive general equilibrium framework of a small open economy. This issue assumes relevance since monetary policies are often pursued by the central bank of an economy to manage exchange rate fluctuations under a managed float regime, which may have adverse consequences for export-quality choices and thereby for export growth given the growing preference of buyers in richer nations for higher qualities of goods they consume. Under optimal allocation of wealth over a portfolio of cash, domestic assets and foreign assets, we show that an increase in the domestic money supply affects the choice of export-quality primarily in two ways. One is through larger investment, capital formation and consequent endowment effect; the other is through changes in the nominal exchange rate. Under less price-elastic demand for a non-traded good, the export quality is upgraded when higher quality varieties of the export good are relatively capital intensive. On the other hand, though the expansionary monetary policy may raise the aggregate employment of unskilled workers due to its endowment effect, may lower it through changes in the quality of the export good. The overall effect is thus ambiguous. A larger initial size of bequests has a similar effect.
    Keywords: Monetary Policy, Export Quality, Exchange rate, Unemployment, Portfolio choice
    JEL: E24 E5 F11
    Date: 2022–04–29
  6. By: Andrea Nocera; M. Hashem Pesaran
    Abstract: This paper investigates the short- and long-term impacts of the Federal Reserve’s large-scale asset purchases (LSAPs) on the capital structure of U.S. non-financial firms. To isolate the effects of LSAPs from the impact of concurrent macroeconomic conditions, we exploit cross-industry variations in the ability of firms therein to raise external funds without exhausting their debt capacity. We show that firms’ responses to LSAPs strongly depend on the financing decisions of other peers in the same industry. The higher the proportion of firms without high debt burdens in an industry, the stronger the response of firms within the industry to the Fed’s asset purchases. Overall, our results show that LSAPs facilitated firms’ access to debt financing and that the impacts of LSAPs on firms’ capital structure are likely to be long-lasting.
    Keywords: capital structure, identification, interactive effects, leverage, quantitative easing, unconventional monetary policy
    JEL: C32 E44 E52 E58
    Date: 2022
  7. By: Edmund S. Crawley; Martin Holm; Hakon Tretvoll
    Abstract: The standard model of permanent and transitory income is known to be misspecified. Estimates of income volatility in the model differ depending on the type of data moments used—levels or differences—and how these moments are weighted in the estimation. We propose two changes to the standard model. First, we account for the time-aggregated nature of observed income data. Second, we allow transitory shocks to persist for varying lengths of time. With only one additional parameter, our proposed model consistently recover the parameters of the income process irrespective of the estimation method. To the extent that researchers employ the standard model, we advise special caution with the use of first-difference moments.
    Keywords: Income uncertainty; Inequality; Household finance
    JEL: E21 E24 J30
    Date: 2022–05–12
  8. By: International Monetary Fund
    Abstract: Real GDP growth rebounded strongly in 2021 and early 2022, driven by a pickup in construction, trade, and services activities, and benefiting from strong policies and a gradual improvement of the pandemic, notwithstanding its various waves. In 2022, the budget aimed at continuing a gradual fiscal consolidation, while still providing temporary and targeted support to the economy, and monetary policy aimed at continuing its tightening cycle that started in late-2020 to cool down inflation. The favorable near-term outlook, however, is set to be interrupted by the spillovers from the war in Ukraine and the sanctions against Russia, given Armenia’s economic links and exposure to the Russian economy. Growth has been revised down markedly this year, while inflationary pressures are expected to persist, keeping inflation above the Central Bank of Armenia’s (CBA) target in 2022.
    Date: 2022–05–03
  9. 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
  10. By: International Monetary Fund
    Abstract: Colombia’s very strong policy frameworks and comprehensive policy response to the pandemic have supported the economy’s resilience. With stronger-than-expected growth last year, fiscal deficits and public debt are declining faster than anticipated, and the fiscal framework has been reactivated with a new fiscal rule and debt anchor. Further monetary policy tightening should drive inflation towards the central bank’s inflation target by mid-2024. Successful credit support measures in the financial sector are being phased out and, as discussed in the recent FSAP, financial sector supervision and regulation have been enhanced since the previous staff assessment. Overall, the authorities remain committed to maintaining their very strong policy framework as seen by steps taken to normalize policies from a crisis footing in the pandemic. Political assurances on policy continuity from the leading candidates provide a necessary safeguard for the proposed arrangement.
    Keywords: FCL arrangement; term FCL review; tax authorities; inflation dynamics; FCL qualification criteria; FCL staff's report; use of the instrument; fund credit-to-GDP ratio; Current account deficits; Public sector; International reserves; Global
    Date: 2022–05–02
  11. By: Albuquerque, Bruno (International Monetary Fund and University of Coimbra, CeBER, Faculty of Economics); Green, Georgina (Bank of England)
    Abstract: We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the Covid-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. We find that household expectations play a key role in determining differences in MPCs across households: households concerned about not being able to make ends meet have a 20% higher MPC than other households. This novel result holds when controlling for a range of important household-specific characteristics, including liquidity constraints. Our findings suggest that policies targeted to vulnerable and financially distressed households may prove more effective in stimulating demand than providing stimulus payments to all households.
    Keywords: Covid-19; marginal propensity to consume; survey data; household behaviour; expectations; financial concerns; fiscal polic
    JEL: D12 E21 E62 G51 H31
    Date: 2022–03–04
  12. By: Jonathan J. Adams; Mr. Philip Barrett
    Abstract: The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations, estimating a semi-structural VAR where an expectation shock is identified as that which causes measured expectations to diverge from rationality. Using data for the United States, we find that a positive inflation expectations shock is deflationary and contractionary: inflation, output, and interest rates all fall. These results are inconsistent with the standard New Keynesian model, which predicts inflation and interest rate hikes. We discuss possible resolutions to this new puzzle.
    Keywords: Inflation, Sentiments, Expectations, Monetary Policy
    Date: 2022–04–29
  13. By: Mathias Hoffmann; Iryna Stewen; Michael Stiefel
    Abstract: Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Second, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.
    Keywords: local public finance, firm-level investment, crowding-out, fiscal austerity, global and intra-European imbalances
    JEL: E22 E40 E62 G21 G28 F21 F32 H32
    Date: 2021
  14. By: International Monetary Fund
    Abstract: On December 22, 2021, the IMF Executive Board approved a 36-month arrangement under the Extended Fund Facility (EFF) with access of 366.8 percent of quota (SDR 472.8 million or USD 673 million). The Surinamese authorities’ homegrown economic recovery plan aims to address systemic fiscal and external imbalances and chart a course toward debt sustainability, declining inflation, and economic recovery while maintaining social stability. In the first few months of the program, the authorities have made good progress but important risks remain.
    Keywords: staff appraisal; staff representative; Surinamese authorities; RMT regime; rising prices; Arrears; Monetary base; Exchange rates; Caribbean; Global
    Date: 2022–03–25
  15. By: António Afonso; José Alves
    Abstract: We evaluate the impact of government spending efficiency on fiscal sustainability for a panel of 35 OECD countries during the period of 2007-2020. To answer our research question we first compute the magnitude of the responses of government revenues to changes in government spending. Next, we make use of so-called government spending efficiency scores, which efficiently indicate how governments can maintain their level of performance whilst using fewer inputs. Our results show that for the input efficiency scores obtained, countries’ fiscal balance and fiscal sustainability is directly improved by the use of less public resources, whilst maintaining the same level of output. In the cases of the output efficiency scores, the commitment of increased government outputs can lead to higher economic growth and the generation of additional government revenues, which also improves fiscal sustainability. Specifically, rationalising public expenditures without jeopardising the actual level of public goods and provision of services is a stronger determinant of fiscal sustainability, as well as for the improvement of the primary budget balance.
    Keywords: fiscal sustainability, spending efficiency, panel data
    JEL: C23 E21 E62 H50 H62
    Date: 2022
  16. By: Ferrero, Andrea (University of Oxford); Harrison, Richard (Bank of England); Nelson, Benjamin (RCM)
    Abstract: The global financial crisis prompted the rapid development of macro-prudential frameworks and an increased reliance on borrower-based policy tools, which influence the demand for credit. This paper studies the optimal design of one such tool, a loan-to-value (LTV) limit, and its implications for monetary policy in a model with nominal rigidities and financial frictions. The welfare-based loss function features a role for macro-prudential policy to enhance risk-sharing. Optimal LTV limits are strongly countercyclical. In a house price boom-bust episode, the active use of LTV limits alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap.
    Keywords: Monetary and macro-prudential policy; financial crisis; zero lower bound
    JEL: E52 E58 G01 G28
    Date: 2022–03–25
  17. By: Robert G. King (Boston University and NBER); Yang K. Lu (Department of Economics, The Hong Kong University of Science and Technology)
    Abstract: We study the optimal monetary policy in a setting where the private sector is forward-looking and learning about the type of central bank in place. We consider two types of central bank, one patient type that can commit and one opportunistic type that is myopic and cannot commit. Being able to commit or not, the central bank in place chooses inflation policies optimally, taking into account the learning and rational expectation of the private sector. We show that the equilibrium can be obtained as a solution to a recursive optimization of the committed type in which the actions of the opportunistic type are subject to an incentive compatibility constraint. The numerical solution to a calibrated model reveals that the committed central bank with good initial reputation adopts policies similar to the standard solution under full commitment, whereas the committed central bank with poor initial reputation aims at building reputation with anti-inflation policies that involve real costs. If the opportunistic central bank with good initial reputation is in place, there will be lengthy real stimulations with gradually rising actual and expected inflation, followed by stagflation when the history of positive inflation surprises depletes the central bank's reputation.
    Keywords: time inconsistency, reputation game, optimal monetary policy, forwardlooking expectations
    JEL: E52 D82 D83
    Date: 2020–06
  18. By: Paul De Grauwe; Yuemei Ji
    Abstract: We analyze how trust affects the transmission of negative demand and supply shocks. We define trust to have two dimensions: there is trust in the central bank’s inflation target and trust in the future of economic activity. We use a behavioural macroeconomic model that is characterized by the fact that individuals lack the cognitive ability to understand the underlying model and to know the distribution of the shocks that hit the economy. We find, first, that when large negative demand shocks occur the subsequent trajectories taken by output gap and inflation typically coalesce around a good and a bad trajectory. Second, these good and bad trajectories are correlated with movements in trust. In the bad trajectories trust collapses, in the good trajectories it is not affected. This feature is stronger when a negative supply shock occurs than in the case of a negative demand shock. Third, initial conditions (history) matters. Unfavorable initial conditions drive the economy into a bad trajectory, favorable initial conditions produce good trajectories.
    Date: 2022–05
  19. By: Miss Sonali Das; Wenting Song
    Abstract: We study the transmission of conventional monetary policy in China, focusing on the interaction between monetary and fiscal policy given the unique institutional set-up for macroeconomic policy making. Our results suggest some progress but also continued difficulties in the transmission of monetary policy. Similar to recent studies, we find evidence of monetary policy pass-through to interest rates. However, the impact of monetary policy measures that are not coordinated with fiscal policy is significantly weaker than that of coordinated measures. This suggests the need for further improvements to the interest-rate based framework.
    Keywords: monetary policy, monetary fiscal coordination, textual analysis, China; monetary policy transmission; monetary policy measure; monetary policy pass-through; pass-through to interest rates; monetary policy shock; fiscal policy measure; Yield curve; Central bank policy rate; Monetary policy instruments; Deposit rates
    Date: 2022–04–29
  20. By: Marzia Romanelli (Bank of Italy); Pietro Tommasino (Bank of Italy); Emilio Vadalà (Bank of Italy)
    Abstract: We review the general reasons for limiting the discretion of national fiscal policies in the context of a monetary union and, on this basis, we assess the shortcomings of the current Euro area fiscal framework as well as the merits of the main proposals for its reform. Taking into account the elements of consensus that emerged in the debate, we outline a possible revision of the European fiscal rules. The framework we propose aims at public debt sustainability – focusing on those policies which are clearly harmful to member countries – and it is simple and transparent – avoiding the use of unobservable variables. The new framework would be based on a medium-term debt target and a multi-annual headline deficit profile consistent with that target. The new rules should be complemented with a common fiscal capacity, to compensate for the loss of policy discretion at the national level and to internalize cross-country fiscal spillovers. In particular, we suggest introducing a “contingent†facility, which would be activated in cases specified ex ante or for the realization of common projects of exceptional nature (such as the green transition).
    Keywords: fiscal policy rules, fiscal policy, euro area, fiscal federalism, fiscal union
    JEL: F45 E61 E62 H77
    Date: 2022–04
  21. By: Michal Hlavacek (Charles University, Prague); Ilgar Ismayilov (Charles University, Prague)
    Abstract: Interest in fiscal policy has been dynamically improved in the last two decades; the number of research conducted on this topic has significantly increased in recent years. One of the key areas in fiscal policy investigations is the size of the fiscal multiplier, and most studies find contradictory results. In the current study, the unique dataset of 132 studies and more than 3200 observations were used to conduct a meta-analysis on multiplier effects, and several linear and non-linear models were involved in implementing this exercise. Additionally, Bayesian Model Averaging was first implemented to investigate heterogeneity effects in the meta-analysis of the fiscal multiplier. The results show that the fiscal multiplier is significantly less than one in the range of 0.75 - 0.82. Moreover, the main contribution of the current study to the fiscal policy literature is disentangling the existence of selection publication bias in the literature.
    Keywords: fiscal multiplier, meta-analysis, publication bias
    JEL: E62
    Date: 2022–05
  22. By: Falk Bräuning; José Fillat; Gustavo Joaquim
    Abstract: The US economy is at least 50 percent more concentrated today than it was in 2005. In this paper, we estimate the effect of this increase on the pass-through of cost shocks into prices. Our estimates imply that the pass-through becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century. The resulting above-trend price growth lasts for about four quarters. Our findings suggest that the increase in industry concentration over the past two decades could be amplifying the inflationary pressure from current supply-chain disruptions and a tight labor market.
    Keywords: inflation; supply shock identification; cost-price pass-through; industry concentration
    JEL: E30 E31 L11 L16
    Date: 2022–05–23
  23. By: Santiago J. Gahn
    Abstract: In this paper I analyse a declining trend of effective capacity utilisation in the United States. After identifying determinants of normal capacity utilisation in the literature, I find that this declining trend of the FRB’s capacity utilisation is also present in the output-capital ratio of the NBER-CES sectoral database since 1958. Results suggest that permanent changes on technical change (K/L), distribution (W/Y ) and output have transitory effects on the output-capital ratio, my proxy of effective capacity utilisation.
    Keywords: capacity utilisation, technical change, income distribution, Panel Structural VAR
    JEL: B50 E11 E22 O41 O47
    Date: 2022–05
  24. By: Olivier Armantier; Fatima Boumahdi; Gizem Koşar; Jason Somerville; Giorgio Topa; Wilbert Van der Klaauw; John C. Williams
    Abstract: This post provides an update on two earlier blog posts (here and here) in which we discuss how consumers’ views about future inflation have evolved in a continually changing economic environment. Using data from the New York Fed’s Survey of Consumer Expectations (SCE), we show that while short-term inflation expectations have continued to trend upward, medium-term inflation expectations appear to have reached a plateau over the past few months, and longer-term inflation expectations have remained remarkably stable. Not surprisingly given recent movements in consumer prices, we find that most respondents agree that inflation will remain high over the next year. In contrast, and somewhat surprisingly, there is a divergence in consumers’ medium-term inflation expectations, in the sense that we observe a simultaneous increase in both the share of respondents who expect high inflation and the share of respondents who expect low inflation (and even deflation) three years from now. Finally, we show that individual consumers have become more uncertain about what inflation will be in the near future. However, in contrast to the pre-pandemic period, they tend to express less uncertainty about inflation further in the future.
    Keywords: inflation expectations
    JEL: E31 D84
    Date: 2022–05–26
  25. By: Thilo N. H. Albers; Charlotte Bartels; Moritz Schularick
    Abstract: German history over the past 125 years has been turbulent. Marked by two world wars, revolutions and major regime changes, as well as a hyperinflation and three currency reforms, expropriations and territorial divisions, it provides unique insights into the role of country-specific shocks in shaping long-run wealth dynamics. This paper presents the first comprehensive study of wealth and its distribution in Germany since the 19th century. We combine tax and archival data, household surveys, historical national accounts, and rich lists to analyze the evolution of the German wealth distribution over the long run. We show that the top 1% wealth share has fallen by half, from close to 50% in 1895 to 27% today. Nearly all of this decline was the result of changes that occurred between 1914 and 1952. The interwar period and the wealth taxation in the aftermath of World War II stand out as the great equalizers in 20th century German history. After unification in 1990, two trends have left their mark on the German wealth distribution. Households at the top made substantial capital gains from rising business wealth while the middle-class had large capital gains in the housing market. The wealth share of the bottom 50% halved since 1990. Our findings speak to the importance of historical shocks to the distribution and valuations of existing wealth in explaining the evolution of the wealth distribution over the long run.
    Keywords: wealth inequality, portfolio heterogeneity, saving, wealth taxation
    JEL: D31 E01 E21 H20 N30
    Date: 2022
  26. By: Christian Keuschnigg; Julian Johs; Jacob Stevens
    Abstract: One of the main functions of public debt is to smooth taxes and spending over time. In the Covid crisis, the Maastricht deficit restrictions were temporarily suspended to allow for large temporary deficits. As recovery sets in, countries are confronted with the task of consolidating the Covid debt. This paper explores a fiscal consolidation strategy combined with growth enhancing tax and expenditure reform. We quantitatively illustrate that this reform based strategy, by reaping substantial efficiency gains and inducing strong growth, eliminates the Covid debt, protects per capita social entitlements and yet avoids increasing tax rates. With slow consolidation, marginal tax rates are reduced right from the beginning.
    Keywords: Covid debt, fiscal consolidation, tax and expenditure reform, growth
    JEL: E62 H24 H25 H55 H63
    Date: 2021
  27. By: Kimundi, Gillian
    Abstract: At the 2014 Michel Camdessus Inaugural Central Banking Lecture (IMF), Janet Yellen posed the following question, "...How should monetary and other policymakers balance macroprudential approaches ... in the pursuit of financial stability?" This conversation has become more critical following the effects of COVID-19 on economic and financial indicators globally. Using sector-level measures of financial stability, this study seeks to investigate the effect of monetary and fiscal policy interventions on the stability of the banking sector and determine the role (if any) played by the credit environment on financial stability's response to policy interventions. A Bayesian Threshold VAR model is estimated using quarterly data from (Q1) 2005 to June (Q2) 2021, where the Threshold variable is the Credit to GDP Gap, used to define high vs low credit environments. Facilitating the analysis and discussion using expansionary policy interventions implemented during the COVID-19 period (CBR reduction, lower reserves, higher fiscal spending and tax reliefs), the results indicate that the expansionary policy stances have clear implications on financial stability aggregates capturing credit risk (NPL Ratios) and liquidity risk (depository moments). Secondly, policy effects on financial stability indicators vary depending on the credit environment they are implemented in. More of the indicators respond poorly to expansionary fiscal and monetary policy action in a high credit environment. Based on this response, it is arguable that this credit cycle presents a vulnerability to the sector, rather than evidence of financial deepening. The results also point out a critical aspect relating to the choice of monetary policy action. Lower reserves are followed by more negative responses in financial stability aggregates in both credit environments, especially those related to credit risk. Policy recommendations following these results are also discussed.
    Date: 2022
  28. By: Yoshibumi Makabe (Bank of Japan); Yoshihiko Norimasa (Bank of Japan)
    Abstract: This paper uses panel quantile regression to analyze the factors affecting inflation risks defined as the tail of the predictive inflation distribution. We construct a panel going back to the "Great Inflation" period (from the late 1960s) and include variables that capture not only downside risks, which many recent studies have focused on, but also upside risks to examine the developments in both upside and downside risks to inflation in the United States, Germany, and the United Kingdom. Our analysis shows that unit labor costs and real government spending have a significant effect on the upward risks to inflation. We also find that the effect of import prices on inflation risks is short-lived, while the effect of real government spending and unit labor costs persists over the medium term. These results also show that the term structure of the effect on inflation risks differs depending on the factor involved.
    Keywords: Inflation risk; panel quantile regression; term structure
    JEL: C21 E27 E31
    Date: 2022–05–20
  29. By: V.K.Chetty; Basanta K Pradhan (Institute of Economic Growth, Delhi)
    Abstract: In this paper the much celebrated Harrod-Domar model is extended to include a non-consumable capital good. Here, growth rate of capital is directly proportional to saving rate and inversely proportional to weighted harmonic mean of capital output ratios of two sectors. Moreover, our formula includes differential prices for the two goods. Further, here, flexible prices or variable capital output ratio for consumer goods sector help to balance savings and investments avoiding the famed knife-edge problem. Our model can provide explanations for possible relationships between wealth income ratios on one side, and interest rate and rent on the other, and help to confirm the possibilities of Piketty’s well-known empirical observations.
    JEL: E10 E22 O41
    Date: 2020–12
  30. By: Alessandro Ferrari (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: We analyse a progressive increase in the tax on emissions in a simple two-period New Keynesian model with an AS-AD representation. We find that the increase in the tax today exerts inflationary pressures, but the expected further increase in the tax tomorrow depresses current demand, putting downward pressure on prices: we show that the second effect is larger. However, if households do not anticipate a future fall in income (because they are not rational or the government is not credible), the overall effect of the transition may be inflationary in the first period. We extend the analysis in a medium-scale DSGE model and we find again that the green transition is deflationary. Also in this larger model, by relaxing the rational expectations assumption, we show the transition may initially be inflationary.
    Keywords: expectations, AS AD, aggregate prices, climate policy, pollution tax
    JEL: D84 E31 Q58
    Date: 2022–04
  31. By: Nicola Fuchs-Schündeln
    Abstract: Almost all countries worldwide closed schools at the outbreak of the Covid-19 crisis. I document that schooling time dropped on average by -55% in the US and -45% in Germany from the onset of the crisis to the summer of 2021. In the US, schools were closed longer in richer than in poorer areas, while in Germany the regional variation is much smaller. However, Germany exhibited substantial variation by grade level, with a strong U-shaped patterns that implies that children attending middle school faced the longest closures. A structural model of human capital accumulation predicts that the US school closures on average lead to a reduction of life-time earnings of –1.7% for the affected children. While the overall losses are likely somewhat smaller in Germany, the socio-economic gradient in the losses could be larger than in the US, leading to increased inequality and decreased intergenerational mobility.
    Keywords: Covid school closures, long-term effects
    JEL: E24 H75 I21
    Date: 2022
  32. By: Balazs Egert; Christine de la Maisonneuve; David Turner
    Abstract: This paper provides a new measure of human capital using PISA and PIAAC surveys, and mean years of schooling. The new measure is a cohort-weighted average of past PISA scores (representing the quality of education) of the working age population and the corresponding mean years of schooling (representing the quantity of education). In contrast to the existing literature, the relative weights of each component are not imposed or calibrated but directly estimated. The paper finds that the elasticity of the stock of human capital with respect to the quality of education is three to four times larger than for the quantity of education. The new measure has a strong link to productivity with the potential for productivity gains being much greater from improvements in the quality than quantity component of human capital. The magnitude of these potential gains in MFP is considerable but the effects materialise with long lags. The paper simulates the impact of a particular reform to education policy (pre-primary education) on human capital and productivity to demonstrate the usefulness of the new measure for policy analysis.
    Keywords: human capital, PISA, PIAAC, mean years of schooling, education policies, productivity, OECD countries
    JEL: E24 I20 I25 I26 I28
    Date: 2022
  33. By: International Monetary Fund
    Abstract: On March 1, 2021, the IMF Executive Board approved a 36-month arrangement under the Extended Fund Facility (EFF) with access of SDR 1.23749 billion (335 percent of quota, equivalent to US$1.778 billion) to support the country’s response to the pandemic and its reform efforts toward strong, inclusive, and sustainable growth. The authorities’ proactive response to the COVID-19 crisis, combined with sustained export performance, have supported a robust recovery. The outlook remains subject to downside risks, amid tighter global financial conditions, higher commodity prices, and the threat of new COVID variants.
    Keywords: Costa Rican authorities; EFF arrangement; transparency policy; exchange market operation; IMF staff estimate; EFF program; economic reform reform program; Climate change; International reserves; Credit; Global; Central America
    Date: 2022–03–25
  34. By: Volckart, Oliver
    Abstract: The paper starts out from the insight that success or failure of the common currency, on which the diet of the Holy Roman Empire agreed in 1559, cannot be assessed against how modern currencies are functioning. Rather, the benchmark is provided by historical criteria, primarily by the aims of the political authorities that joined the union. The analysis finds that there were two overriding aims: 1) preventing high-ranking economic agents from exploiting their social standing in order to push up prices and rents, and 2) removing the conditions that allowed Gresham’s Law to undermine monetary stability. The participants in the union tried to reach the first aim by retaining regional small change in addition to the Empire-wide larger units. While there is limited evidence for the common currency preventing the functioning of Gresham’s Law within the Empire up to the immediate run-up to the Thirty Years War (1618-48), it failed to prevent inflation and the inflow of foreign coinage. However, in neither respect the post1559 Empire differed from other contemporary polities. On balance, therefore, the Empire’s common currency can be considered a success.
    JEL: E42 E52 N13
    Date: 2022–04
  35. By: Stéphane Auray (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Aurélien Eyquem (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, Université de Lyon)
    Abstract: A Tractable HANK (THANK) model with three agents, incomplete markets, unemployment and sticky prices and wages, is used to analyze the dynamics, welfare and distributional effects of Ramsey-optimal unemployment insurance (UI) policies. First, the optimal transition from a steady state that replicates several empirical regularities of the European labor market to the Ramsey steady state is analyzed. In the long run, the vacancy creation motive dominates, as the replacement rate falls, lowering the unemployment rate. In the short run however, the insurance motive dominates until unemployment falls enough to generate larger welfare gains from a lower unemployment rate. Over the business cycle around the Ramseyoptimal steady state, we nd that the optimal changes in the replacement rate depend (i) on the nature of the shock and (ii) on the presence of price and wage rigidities. After productivity shocks, the vacancy creation motive dominates. After separation shocks, the planner has almost no traction over vacancy creations. Only the insurance and aggregate demand stabilization motives remain, and both point to a counter-cyclical UI policy.
    Keywords: Incomplete markets,Borrowing constraints,Unemployment,Unemployment Insurance
    Date: 2022–04–05
  36. By: Haroon Mumtaz; Michele Piffer
    Abstract: This paper introduces a flexible local projection that generalizes the model by Jord\'a (2005) to a non-parametric setting using Bayesian Additive Regression Trees. Monte Carlo experiments show that our BART-LP model is able to capture non-linearities in the impulse responses. Our first application shows that the fiscal multiplier is stronger in recession than in expansion only in response to contractionary fiscal shocks, but not in response to expansionary fiscal shocks. We then show that financial shocks generate effects on the economy that increase more than proportionately in the size of the shock when the shock is negative, but not when the shock is positive.
    Date: 2022–04
  37. By: International Monetary Fund
    Abstract: This IMF report to the AHLC is the first since September 2018. Following limited engagement over the past three years, policy discussions have intensified in recent months. These discussions have focused mainly on establishing a medium term macro-fiscal framework, including the broad outlines of a reform scenario.
    Keywords: B. PA policy; reform scenario; spending reform; policy discussion; IMF report; Arrears; Pension spending; Middle East and Central Asia
    Date: 2022–05–02
  38. By: Grömling, Michael
    Abstract: Die Ergebnisse der IW-Konjunkturumfrage vom Frühjahr 2022 liefern eine Einschätzung gemäß der zum Befragungszeitpunkt relevanten und erwartbaren Rahmenbedingungen für unternehmerisches Handeln. Deutliche Veränderungen dieses geoökonomischen Umfeldes - etwa durch vollständig ausfallende Gaslieferungen aus Russland - würden eine Neubewertung seitens der Unternehmen erfordern. Im Vergleich zur IW-Konjunkturumfrage vom Spätherbst 2021 haben sich die Geschäftserwartungen der Unternehmen in Deutschland für das Jahr 2022 stark eingetrübt. Gleichwohl dominiert noch das Lager der zuversichtlich gestimmten Unternehmen. Während knapp ein Viertel der befragten Betriebe eine niedrigere Produktion als im Jahr 2021 erwartet, gehen zwei von fünf Unternehmen von einem Anstieg aus. Der Saldo aus positiven und negativen Erwartungen hat sich seit November 2021 jedoch mehr als halbiert. Die sich verschärfenden Produktionsbeeinträchtigungen infolge gestörter Transport- und Lieferketten und der damit einhergehende Kostenschock haben die Produktionsperspektiven in der Bauwirtschaft erheblich verdüstert. Auch die Industrie liegt nahe an der Rezessionsschwelle. Trotz Abwärtskorrekturen dominieren bei den Dienstleistern die Optimisten. In regionaler Perspektive gibt es ein enormes Erwartungsgefälle in Deutschland für das Jahr 2022. Während in Norddeutschland die pessimistisch aufgestellten Unternehmen die Oberhand haben, geben sich die Unternehmen in Nordrhein-Westfalen und Bayern noch relativ zuversichtlich. Auf Basis der gegenwärtig bestehenden Produktionserwartungen der Unternehmen in Deutschland lässt sich derzeit keine Beschäftigungs- und Investitionskrise ableiten.
    Keywords: Unternehmensbefragung,Konjunktur,Geopolitik,Corona-Pandemie
    JEL: C82 E32 F51 I15
    Date: 2022
  39. By: Nathan, Daniel; Ben Zeev, Nadav
    Abstract: The equity hedging channel predicts that institutional investors’ (IIs’) hedging of their foreign equity position’s FX exposure via foreign currency forward contracts leads to a positive relation between this position and IIs’ supply of foreign currency forwards; in equilibrium, this prediction implies a negative relation between foreign equity prices and forward and spot rates. We use novel daily data on Israeli IIs’ FX forward flows to test this equity hedging channel within a suitable Bayesian local projection model, finding strong evidence supporting a meaningful such channel.
    Keywords: Equity Hedging Channel; Foreign Currency Forward Flows; Forward Exchange Rate; Spot Exchange Rate; Global Stock Prices; Institutional Investors; Bayesian Local Projections.
    JEL: E44 F3 F31 G15 G23
    Date: 2022–04–11
  40. By: Alissa Gorelova; Bena Lands; Maria teNyenhuis
    Abstract: Could Canadian banks continue to meet their regulatory liquidity requirements after the introduction of a cash-like retail central bank digital currency (CBDC)? We conduct a hypothetical exercise to estimate how a CBDC could affect bank liquidity by increasing the run-off rates of transactional retail deposits under four increasingly severe scenarios.
    Keywords: Central bank research; Digital currencies and fintech; Econometric and statistical methods; Financial institutions; Financial stability
    JEL: E4 G2 G21 O3 O33
    Date: 2022–05
  41. By: Carriero, Andrea; Clark, Todd E.; Marcellino, Massimiliano; Mertens, Elmar
    Abstract: The COVID-19 pandemic has led to enormous data movements that strongly affect parameters and forecasts from standard VARs. To address these issues, we propose VAR models with outlier-augmented stochastic volatility (SV) that combine transitory and persistent changes in volatility. The resulting density forecasts are much less sensitive to outliers in the data than standard VARs. Predictive Bayes factors indicate that our outlier-augmented SV model provides the best data fit for the pandemic period, as well as for earlier subsamples of relatively high volatility. In historical forecasting, outlier-augmented SV schemes fare at least as well as a conventional SV model.
    Keywords: Bayesian VARs,stochastic volatility,outliers,pandemics,forecasts
    JEL: C53 E17 E37 F47
    Date: 2022
  42. By: Kigabo-Rusuhuzwa, Thomas (University of Rwanda); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: This paper investigates the East African Community (EAC) partner states' readiness for a common currency. It uses recent data to assess the impact of policy coordination in the region during the last seven years of East African Monetary Union's protocol implementation. Despite some similarities in the structures of EAC economies, EAC member states remain susceptible to asymmetric shocks. Inflation is in the process of converging in EAC, but the speed of convergence is slow. Time is needed for preparing and for harmonizing policy before adopting the common currency. Adopting a common currency will lead to considerable costs for EAC countries.
    Keywords: East African Community, monetary union, common currency, policy harmonization, convergence, regional integration
    JEL: E42 F33 N17 O23
    Date: 2022–04
  43. By: Ciccone, Michele
    Abstract: This paper aims to be a preliminary critical discussion about one of the main accepted results of Ricardo’s theory of money and interest, i.e., that the ‘natural’ rate of interest is determined by the profit rate. It will be argued that some logical inconsistencies seem to affect Ricardo’s representation of the tendency of the market rate of interest to the natural rate, with the latter ultimately determined by the rate of profits. According to Ricardo, exogenous changes in the supply of, or demand for money generate short-run changes of the money-prices ratio and the market interest rate, and permanent changes in the price level play the role of bringing them back to their natural values (the natural rate of interest being taken as a fraction of the natural profit rate). We will try to show that the convergence process envisaged by Ricardo seems to be not free from some critical considerations about its internal coherence if one takes into due account what he conceives to be the specific inducement for the public to borrow a larger quantity of money at a lower interest rate—namely, an above normal difference between profit rate and interest rate, together with the behavior of the banking system and with the main institutional features of a monetary system.
    Keywords: David Ricardo, natural and market rates of interest, quantity theory of money
    JEL: B0 B31 E4 E40
    Date: 2022
  44. By: Hongyi Chen (Hong Kong Institute for Monetary and Financial Research); Peter Tillmann (University of Giessen)
    Abstract: Lockdowns imposed to fight the Covid-19 pandemic have cross-border effects. In this paper, we estimate the empirical magnitude of lockdown spillovers in a set of panel local projections. We use daily indicators of economic activity such as stock returns, effective exchange rates, NO2 emissions, mobility and maritime container trade. Lockdown shocks originating in the most important trading partners have a strong and significant adverse effect on economic activity in the home economy. For stock prices and exports, the spillovers can even be larger than the effect of domestic lockdown shocks. The results are robust with respect to alternative country weights used to construct foreign shocks, i.e. weights based on foreign direct investment or the connectedness through value chains. We find that lockdown spillovers have been particularly strong during the first wave of the pandemic. Countries with a higher export share are particularly exposed to lockdown spillovers.
    Keywords: panel local projections, lockdown shocks, spillovers, Covid-19, pandemic
    JEL: E32 F14 F20 F36 F42 F44
    Date: 2022
  45. By: Abe, Naohito; Rao, D.S. Prasada
    Abstract: We advocate the multilateral Walsh index as a viable alternative to the Gini-Eltetö-Köves-Szulc (GEKS) and Geary-Khamis methods used in the Penn World Table and the International Comparison Program (ICP). We show that it is the only symmetric average fixed basket price index that satisfies transitivity, country symmetry, and invariance to proportional changes in quantities. Simplicity and its superior axiomatic properties including identity and monotonicity, and with associated substitution bias comparable to that of the GEKS_Fisher index, and plausibility and comparability of results based on the 2017 ICP data make the multilateral Walsh method an ideal choice for international price comparisons.
    Keywords: Price comparisons, Transitivity, Proportionality, Real expenditures
    JEL: E31 C43
    Date: 2022–05
  46. By: Kick, Thomas
    Abstract: We study the effects of interest rate shocks (IRS) on banks' liquidity creation. A unique supervisory data set from the Deutsche Bundesbank allows identifying banks' liquidity creation for the real economy and the effects of banking market competition. Here, we employ a novel approach to account for IRS that are both unexpected and effective for a bank's business model. We find that higher individual pricing power in the market lowers banks' liquidity creation, which is in line with theory that monopolistic firms undersupply the market when utilizing their high pricing power in the bank competition-liquidity creation nexus. While positive IRS per se lead to an increase in bank liquidity creation, we find that a high bank-individual pricing power curbs this impact on liquidity creation significantly. Moreover, we show that monetary policy was most effective during the global financial crisis and for well-capitalized banks, whereas periods of low interest rates are characterized by the persistent increase in liability-side liquidity creation.
    Keywords: bank liquidity creation,unexpected monetary policy,low interest rate environment,financial crisis,financial markets regulation,banking market competition,dynamic GMM
    JEL: G21 G28 G30 C23
    Date: 2022
  47. By: International Monetary Fund
    Abstract: The FSAP started in an important macro-financial phase right after the second Covid wave and a third lockdown. The balance sheet resilience of major institutional sectors was at the center of policy considerations. Against this backdrop, the FSAP analyzed the pandemic’s potential “scarring” of banks, insurers, corporates, and households balance sheets, focusing on the interplay of macro-financial/structural conditions and financial vulnerabilities.
    Keywords: bank solvency stress test result; fair value; resolvability Assessment framework; D. solvency stress tests result; feedback effect; Macroprudential solvency stress tests; Mortgages; Insurance companies; Stress testing; Insurance; Credit; Global
    Date: 2022–04–08
  48. By: Ibrahima Diarra; Michel Guillard; Hubert Kempf
    Abstract: This paper focuses on the debt recovery channel linking the dynamics of public debt to partial sovereign defaults. We build a simple model which incorporates sovereign default and a debt recovery rule. It depends on a parameter that allows for partial debt recovery. We show that the maximum debt-to-GDP ratio that a country can sustain without defaulting is increasing, nonlinear, and sensitive to the debt-recovery parameter. A higher debt recovery parameter increases the fiscal space but worsens the financial position of a borrowing country after a default episode. We show the empirical relevance of this channel for estimating country-specific fiscal spaces.
    Date: 2022
  49. By: Jiti Gao; Bin Peng; Yayi Yan
    Abstract: Vector autoregressive (VAR) models are widely used in practical studies, e.g., forecasting, modelling policy transmission mechanism, and measuring connection of economic agents. To better capture the dynamics, this paper introduces a new class of time-varying VAR models in which the coefficients and covariance matrix of the error innovations are allowed to change smoothly over time. Accordingly, we establish a set of asymptotic properties including the impulse response analyses subject to structural VAR identification conditions, an information criterion to select the optimal lag, and a Wald-type test to determine the constant coefficients. Simulation studies are conducted to evaluate the theoretical findings. Finally, we demonstrate the empirical relevance and usefulness of the proposed methods through an application on US government spending multipliers.
    Keywords: time-varying impulse response, parameter stability, instrumental variable approach
    JEL: C14 C32 E52
    Date: 2022
  50. By: International Monetary Fund
    Abstract: The currency in circulation forecasting model presently used by the Central Bank of Jordan is aligned with international practices and provides a solid basis for liquidity management. The central bank uses an Auto Regressive Integrated Moving Average (ARIMA) model with many indicator variables to model binary seasonality and to capture special events. The ARIMA model is fitted on daily currency in circulation data using a standard maximum likelihood estimator. This ARIMA approach is aligned with the models traditionally used by central banks in emerging and middle-income countries.
    Keywords: moving average; staff level agreement; IMF team; hierarchy forecasting; ARIMA model; Monetary base; Currency issuance; Open market operations; Global
    Date: 2022–04–07
  51. By: Nguyen, Hoang (Örebro University School of Business); Virbickaite, Audrone (CUNEF Universidad)
    Abstract: Stock and oil relationship is usually time-varying and depends on the current economic conditions. In this study, we propose a new Dynamic Stochastic Mixed data frequency sampling (DSM) copula model, that decomposes the stock-oil relationship into a short-run dynamic stochastic component and a long-run component, governed by related macro- nance variables. We nd that in ation/interest rate, uncertainty and liquidity factors are the main drivers of the long-run co-dependence. We show that investment portfolios, based on the proposed DSM copula model, are more accurate and produce better economic outcomes as compared to other alternatives.
    Keywords: Stock-Oil; Copula; MIDAS; SMC; Portfolio allocation; Hedging
    JEL: C32 C52 C58 G11 G12
    Date: 2022–05–19
  52. By: Kuikeu, Oscar
    Abstract: despite the amount of debate on the adequacy of macroeconomicx policy suitable for sustainable economic growth among the less developed countries the literature remains affordable on this strand of policy making. Mainly a nex strand of literature explains that there is inter related relationship between two kind of these policies to know the Keynesian policy and the international trade. Thus the aim of this paper have been on the one hand to present the literature review on this subject but also to gicve empirical relevance on this regularity for a set of country where the debate on external trade as well as on macroeconomic policy remains at the cornerstone of much of policy makers. Globally speaking, the results are a testimony that the panel data approach is an suitable engine to investigate on this kind of question and the CEMAC area remains an interesting case study to investigate on this kind of subject. In fact, he ha ve been able to investigate on the regularities on this subject for the area.
    Keywords: Keynesian policies, international trade, panel data
    JEL: C33 O47
    Date: 2022–05–04
  53. By: Angino, Siria; Secola, Stefania
    Abstract: Political science research has established that trust in institutions, including central banks, is shaped by socio-economic and demographic factors, as well as by the assessment of institutional features and by slow-moving components such as culture. However, the role of cognitive processes has largely been neglected, especially in the analysis of central bank trust. In this paper we aim to address this gap focusing on the case of the European Central Bank (ECB). We introduce the concepts of “instinctive trust”, which captures an on-the-spot judgement on the institution’s trustworthiness, and of “reflective trust”, which refers to a more pondered opinion on the matter. Using a survey experiment, we find that deeper consideration about the ECB promotes less trust in the institution compared to an on-the-spot judgement. This result is mainly driven by women, and in particular by those who say they possess a low understanding of the central bank’s policies. JEL Classification: C83, D83, E58, Z13
    Keywords: central bank, Institutional trust, survey experiment
    Date: 2022–05
  54. By: Francesco Pappadà (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Banque de France - Banque de France - Banque de France)
    Abstract: The literature on tax compliance has focused on its level but little is known about its dynamics. This paper shows that fluctuations in tax compliance are driven by changes in the state of the economy and the response of tax compliance to them. Tax compliance is markedly volatile and there are large differences in such volatility across countries. A large fraction of these differences (about 70%) is explained by different responses of tax compliance to tax changes and output fluctuations.
    Keywords: Tax compliance,Volatility,Fiscal policy
    Date: 2022–04
  55. By: Maturu, Benjamin O.
    Abstract: We empirically re-examine the finance-economic growth nexus within the context of the COVID-19 pandemic using a financial intermediation model build upon the McKinnonShaw financial repression theory. The study findings show that there is a vicious circle of finance and economic growth which is exacerbated by McKinnon-Shaw-like financial repression. The COVID-19 pandemic labour supply shock adversely affects the human capital depreciation rate which in turn adversely affects the employment level in the economy and economic growth thereby compounding the vicious circle. Since the vicious circle cannot resolve itself, using appropriate socio-economic policies to break it is necessary. The authorities must however contend with the observed partial ineffectiveness of fiscal and monetary policies.
    Date: 2022
  56. By: Constance de Soyres; Mengxue Wang; Reina Kawai
    Abstract: This paper provides new empirical evidence of the impact of an unanticipated change in public debt on real GDP. Using public debt forecast errors, we identify exogenous changes in public debt to assess the impact of a change in the debt to GDP ratio on real GDP. By analyzing data on gross public debt for 178 countries over 1995-2020, we find that the impact of an unanticipated increase in public debt on the real GDP level is generally negative and varies depending on other fundamental characteristics. Specifically, an unanticipated increase in the public debt to GDP ratio hurts real GDP level for countries that have (i) a high initial debt level or (ii) a rising debt trajectory over the five preceding years. On the contrary, an unanticipated increase in public debt boosts real GDP for countries that have (iii) a low-income level or (iv) completed the HIPC debt relief initiative.
    Keywords: Sovereign Debt, Growth, IMF predictions
    Date: 2022–04–29
  57. By: Bulfone, Fabio; Ergen, Timur; Kalaitzake, Manolis
    Abstract: This paper contributes to Comparative Political Economy (CPE), developing an analytical concept of corporate welfare. Corporate welfare - the transfer of public funds and benefits to corporate actors with weak or no conditionality - is a prominent form of state-business relations that CPE scholarship regularly overlooks and misinterprets. Such transfers should be understood as a structural privilege of business in a globalized post-Fordist capitalism, and an increasingly common strategy through which states attempt to steward national economic dynamism within a highly constrained range of policy options. However, without a well-developed concept of corporate welfare - premised upon the key criterion of conditionality - studies that identify a 'return' of the state in industrial planning misrepresent these transfers to business as a reassertion of state influence and control, rather than a reflection of state weakness and subordination. The paper provides the analytical building blocks to properly conceptualize transfers to business, works out the core challenges for empirical research, and provides empirical illustrations of this burgeoning phenomenon from the fields of unconventional monetary policy, privatization, and urban political economy.
    Keywords: Comparative Political Economy,industrial policy,monetary policy,privatization,structural power,subsidies,Geldpolitik,Industriepolitik,Privatisierung,strukturelle Macht,Subventionen,Vergleichende Politische Ökonomie
    Date: 2022
  58. By: Beznoska, Martin
    JEL: H24 H31 E64
    Date: 2022
  59. By: Mohammed Eddaou (Université Mohammed Premier [Oujda])
    Abstract: Since 2007, the majority of FDI flows to Morocco, an average of 74%, have come from developed countries. This reality of FDI in Morocco leads to questions about the determinants of its attractiveness. In fact, the location of multinational firms could emanate either from a rational choice based on the advantages of Morocco, or from a systemic choice linked to the economic policy of the countries and their economic diplomacy. In our paper, we have tried to answer the question: What is the relationship between the economic diplomacy of developed countries and FDI flows to Morocco? In order to provide theoretical insight on our main question, and in the face of this relative reality on the determinants of FDI flows, we have opted for scientific realism as an epistemological position, and the hypothetico-deductive approach as a research approach. A review of the literature has allowed us to explain the flow of FDI to Morocco by the components of economic diplomacy, like the need for fiscal adjustment in developed countries and the military power of the latter on an international scale. To study our research hypotheses, we constructed a sample of panel data from 2007 to 2020 (T=14) covering 6 original developed countries (France, Netherlands, Germany, Italy, Canada and Sweden). As data sources, we used statistics from the University of Sherbrooke, data from Organisation for Economic Cooperation and Development, and data from Moroccan Exchange Office. With the existence of longitudinal data that are represented by a double dimension: individual and temporal, we are obliged to pass by an empirical analysis of the data by using panel data econometrics. The procedure followed to achieve this technique is composed of three steps. The first step is to determine the panel structure using a sequential testing procedure. Then in the second step, calculate the VIF (variance inflation factor) to avoid multicollinearity, and in the third step, use the estimation method related to the result of the procedure. The study conducted an empirical examination to test the relationship between the need for fiscal adjustment in developed countries, their military power and FDI flows to Morocco. The sequential testing procedure led us to a fixed effect econometric model. The results of the study show that the power of developed countries and their need for fiscal adjustment cause FDI flows to Morocco. This means that the economic diplomacy of developed countries causes FDI flows to Morocco. The results of our research are not in line with the conclusions of previous studies on the determinants of FDI in Morocco. Their views of FDI ignores the existence of a real world in which capital movements are only achieved through a coalitional game between unequally strong carrier states. This research suggests that Morocco should invest more in military spending to exceed the military strength of the countries that represent the origin of the substitute FDI. It also suggests that Morocco should take advantage of its current military strength to create new and sustainable localisation and internalisation opportunities for Moroccan-based multinational firms, and to reduce the country's eventual fiscal adjustment needs.
    Abstract: Depuis l'année 2007, la majorité des flux des IDE au Maroc, soit 74% en moyenne, proviennent des pays développés. Cette réalité des IDE au Maroc conduit à se poser des questions sur les déterminants de leur attractivité. Dans le cadre de notre article, nous avons essayé de répondre à la question suivante : Quelle est la relation entre la diplomatie économique des pays développés et les flux des IDE au Maroc ? Devant cette réalité relative sur les déterminants des flux des IDE, nous avons opté pour le réalisme scientifique en tant que positionnement épistémologique et la démarche hypothéticodéductive en tant que démarche de recherche. Une revue de littérature nous a permis d'expliquer le flux des IDE au Maroc par les composantes de la diplomatie économique à savoir le besoin de redressement budgétaire et la puissance militaire des pays développés. Les résultats de l'étude montrent que la puissance des pays développés et leur besoin de redressement budgétaire causent les flux des IDE au Maroc.
    Date: 2022–03–30

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