nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒06‒13
77 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Chronology of Brexit and UK Monetary Policy By Martin Geiger; Jochen Güntner
  2. Managing Monetary Policy Normalization By Gianluca Benigno; Pierpaolo Benigno
  3. Implications for Determinacy with Average Inflation Targeting By Ahmad, Yamin; Murray, James
  4. An application: Pension systems and transitions By Vîntu, Denis
  5. Q-Monetary Transmission By Priit Jeenas; Ricardo Lagos
  6. Monetary and macroprudential policy interactions in a model of the European Union By Richard Dennis; Pelin Ilbas
  7. Government Spending between Active and Passive Monetary Policy By Collin Philipps; Sebastian Laumer
  8. Effectiveness and conduct of macroprudential policy in Indonesia in 2003-2020: Evidence from the structural VAR models By Dąbrowski, Marek A.; Widiantoro, Dimas Mukhlas
  9. "A GARCH Approach to Modeling Chilean Long-Term Swap Yields" By Tanweer Akram; Khawaja Mamun
  10. Shock persistence, uncertainty and news-driven business cycles By Kevin Lee; Kalvinder Shields; Guido Turnip
  11. Regional Consumption Responses and the Aggregate Fiscal Multiplier By Dupor, Bill; Karabarbounis, Marios; Kudlyak, Marianna; Mehkari, M. Saif
  12. How Does the Economic Uncertainty Affect Asset Prices under Normal and Financial Distress Times? By Balcilar, Mehmet; Ozdemir, Zeynel Abidin; Ozdemir, Huseyin; Aygun, Gurcan; Wohar, Mark E.
  13. The Macroeconomic Expectations of U.S. Managers By Ethan M. L. McClure; Olivier Coibion; Yuriy Gorodnichenko
  14. Normalizing the central bank’s balance sheet: Implications for inflation and debt dynamics By Begoña Domínguez; Pedro Gomis-Porqueras
  15. The Budget and Economic Outlook: 2022 to 2032 By Congressional Budget Office
  16. Causal Effects of Countercyclical Interest Rates: Evidence from the Classical Gold Standard By Kris James Mitchener; Gonçalo Pina
  17. heterogeneous Information, Subjective Model Beliefs, and the Time-Varying Transmission of Shocks By Alistair Macaulay
  18. New Zealand: 2022 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  19. Monopsony Makes Firms Not Only Small but Also Unproductive: Why East Germany Has Not Converged By Bachmann, Rüdiger; Bayer, Christian; Stüber, Heiko; Wellschmied, Felix
  20. Uncertainty Shocks, Capital Flows, and International Risk Spillovers By Ozge Akinci; Sebnem Kalemli-Ozcan; Albert Queraltó
  21. The Anatomy of the Global Saving Glut By Luis Bauluz; Filip Novokmet; Moritz Schularick
  22. Why bank money creation? By Gersbach, Hans; Zelzner, Sebastian
  23. Exercise Based Pedagogy to transition to Today's Implementation of Monetary Policy in Macroeconomics Principles By James K. Self; Kim P. Kuynh
  24. Income and Consumption over the Business Cycle: Evidence from Matched Administrative Data By Brancatelli, Calogero; Inderst, Roman
  25. Republic of Moldova: Ad Hoc Review Under the Extended Credit Facility; Request for Augmentation and Rephasing of Access, Modification of Performance Criteria, and Completion of the Inflation Consultation Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund
  26. Minimum Wage Increases and Vacancies By Marianna Kudlyak; Murat Tasci; Didem Tuzemen
  27. Technological progress and institutional adaptations: the case of the Central Bank Digital Currency (CBDC) By Riccardo De Bonis; Giuseppe Ferrero
  28. Minimum Wage Increases and Vacancies By Kudlyak, Marianna; Tasci, Murat; Tüzemen, Didem
  29. Enhancing Stress Tests by Adding Macroprudential Elements By William F. Bassett; David E. Rappoport
  30. The Financial Resource Curse Revisited: The Supply-Side Effect of Low Interest Rates By Simon Hildebrandt; Jochen Michaelis
  31. Output Divergence in Fixed Exchange Rate Regimes: Is the Euro Area Growing Apart? By Yao Chen; Felix Ward
  32. International Portfolio Rebalancing and Fiscal Policy Spillovers By Sami Alpanda; Uluc Aysun; Serdar Kabaca
  33. The role of sentiment in the US economy: 1920 to 1934 By Kabiri, Ali; James, Harold; Landon-Lane, John; Tuckett, David; Nyman, Rickard
  34. Did COVID-19 induce a reallocation wave? By Agostino Consolo; Filippos Petroulakis
  35. The declining fortunes of (most) American workers By Laura A. Harvey; James Rockey
  36. Offshoring via vertical FDI in a long-run Kaleckian model By Woodgate, Ryan
  37. Lognormal (Re)Distribution: A Macrofounded Theory of Inequality By Jon Eguia; Dimitrios Xefteris
  38. Alternative Measures for the Global Financial Cycle: Do They Make a Difference? By Xin Tian; Jan Jacobs; Jakob de Haan
  39. What drove the rise in bank lending rates in Lithuania during the low-rate era? By Jaunius Karmelavičius; Ieva Mikaliūnaitė-Jouvanceau; Andrius Buteikis
  40. Human Capital Growth - with Region and Gender in Perspective By Liu, Gang; Fraumeni, Barbara M.; Managi, Shunsuke
  41. The Collateral Channel and Bank Credit By Arun Gupta; Horacio Sapriza; Vladimir Yankov
  42. The Impossible Quartet in a Demand Led Growth-Supermultiplier Model for a Small Open Economy By Jose Luis Oreiro; Julio Fernando Costa Santos
  43. Exploring the Trade-Off Between Leaning Against Credit and Stabilizing Real Activity By Luca Benati
  44. Fiscal Multipliers and Informality By Emilio Colombo; Davide Furceri; Pietro Pizzuto; Patrizio Tirelli
  45. Model of Government Ponzi Games and Debt Dynamics Under Uncertainty By Vîntu, Denis
  46. Financial cycles under diagnostic beliefs By Camous, Antoine; Van der Ghote, Alejandro
  47. How to Redistribute the Revenues from Climate Policy? A Dynamic Perspective with Financially Constrained Households By Ulrich Eydam; Francesca Diluiso
  48. Does Public Employment Affect Household Saving Rates? Evidence from Chinese Household Data By Can Xu; Andreas Steiner
  49. Optimal bank capital requirements: What do the macroeconomic models say? By Gulan, Adam; Jokivuolle, Esa; Verona, Fabio
  50. Financial Innovations in a World with Limited Commitment: Implications for Inequality and Welfare By Saroj Dhital; Pedro Gomis-Porqueras; Joseph H. Haslag
  51. Gender Effects of the Covid-19 Pandemic in the Swiss Labor Market By Dubois, Corinne; Lambertini, Luisa; Wu, Yu
  52. Effectiveness of Monetary Policy in Stimulating Economic Growth in Nigeria By Igbafe, Timothy
  53. What were they thinking? Estimating the quarterly forecasts underlying annual growth projections By Christian Hepenstrick; Jason Blunier
  54. The Influence of Politicians’ Sex on Political Budget Cycles: An Empirical Analysis of Spanish Municipalities By Israel Garcia; Bernd Hayo
  55. Payments Evolution from Paper to Electronic Payments by Merchant Type By Ruth Cohen; Oz Shy; Joanna Stavins
  56. Effective Rank and Dimensionality Reduction: From Complex Disaggregation Back to a Simple World By Tsoulfidis, Lefteris
  57. Measuring Valuation of Liquidity with Penalized Withdrawals By David Coyne; Itzik Fadlon; Tommaso Porzio
  58. Central bank digital currency and bank intermediation By Adalid, Ramón; Álvarez-Blázquez, Álvaro; Assenmacher, Katrin; Burlon, Lorenzo; Dimou, Maria; López-Quiles, Carolina; Martín Fuentes, Natalia; Meller, Barbara; Muñoz, Manuel A.; Radulova, Petya; Rodriguez d’Acri, Costanza; Shakir, Tamarah; Šílová, Gabriela; Soons, Oscar; Veghazy, Alexia Ventula
  59. The contribution of industrial robots to labor productivity growth and economic convergence: A production frontier approach By Eder, Andreas; Koller, Wolfgang; Mahlberg, Bernhard
  60. What Drives Credit Risk? Empirical Evidence from Southeast Europe By Nikola Fabris; Nina Vujanović
  61. Nowcasting world GDP growth with high‐frequency data By Caroline Jardet; Baptiste Meunier
  62. The quality of public finances By Thöne, Michael
  63. Lockdown and Rural Joblessness in India: Gender Inequality in Employment? By Dutta, Nabamita; Kar, Saibal
  64. Considerations on the Road Ahead for Monetary Policy Implementation By Lorie Logan
  65. Macroeconomic Impacts of the Covid-19 Pandemic in Some European Union Countries: A Counterfactual Analysis By António Portugal Duarte; Fátima Sol Murta
  66. Sanctions and the Exchange Rate By Oleg Itskhoki; Dmitry Mukhin
  67. Historical prevalence of infectious diseases and gender equality in 122 countries By Omang Ombolo Messono; Simplice A. Asongu; Vanessa S. Tchamyou
  68. Global Supply Chain Pressure Index: May 2022 Update By Gianluca Benigno; Julian di Giovanni; Jan J. J. Groen; Adam I. Noble
  69. The return of inflation: a bankerâs perspective By Robert Amzallag
  70. Sans billet retour pour le Rwanda ? Boris Johnson et Paul Kagame forgent des politiques migratoires inhumaines pour leur bénéfice mutuel By Kohnert, Dirk
  71. Don’t Fall in Love with Parity: Understanding Exchange Rate Depreciation By Abdul Jalil
  72. Expectations Data in Asset Pricing By Klaus Adam; Stefan Nagel
  73. The WB Constant Dollar Income Concept: An Interpretation By Syed M. Ahsan; S. Quamrul Ahsan
  74. Debt as Safe Asset By Markus K. Brunnermeier; Sebastian, Sannikov, Yuliy Merkel; Sebastian Merkel
  75. Care, Job Guarantee, and Revisiting “Socialization of Investment”: Insights from Institutional Economics By Zdravka Todorova
  76. Zur Überwälzung der Erzeuger- und Importpreise auf die Verbraucherpreise By Boysen-Hogrefe, Jens
  77. A Tale of Two Networks: Common Ownership and Product Market Rivalry By Florian Ederer; Bruno Pellegrino

  1. By: Martin Geiger (Liechtenstein Institute); Jochen Güntner
    Abstract: The outcome of the referendum on the UK’s membership of the European Union in June 2016 was largely unanticipated by politicians and pundits alike. Even after the “Leave†vote, the uncertainty surrounding the withdrawal process might have affected the UK economy. We draw on an official list of political events published by the House of Commons Library and daily data on UK stock prices, exchange rates, and economic policy uncertainty to construct a novel instrument for Brexit shocks. Including a monthly aggregate of this time series into a vector-autoregressive model of the UK economy, we find that Brexit shocks were quantitatively important drivers of the business cycle in the aftermath of the referendum that lowered gross domestic product, consumer confidence, and monetary policy rates while raising CPI inflation. A counterfactual experiment, in which we shut down the endogenous response of UK monetary policy to Brexit shocks, reveals that the Bank of England fended off a stronger contraction of output in 2016 and 2018.
    Keywords: Brexit, business cycle, economic policy uncertainty, high-frequency identification, monetary policy
    JEL: E02 E31 E32 E44 E58 F15
    Date: 2022–05
  2. By: Gianluca Benigno; Pierpaolo Benigno
    Abstract: We propose a new framework for monetary policy analysis to study monetary policy normalization when exiting a liquidity trap. The optimal combination of reserves and interest rate policy requires an increase in liquidity (reserves) a few quarters after the policy rate is set at the effective lower bound. Removal of accommodation requires that quantitative tightening starts before the liftoff of the policy rate. Moreover, the withdrawal of liquidity takes place at a very slow pace relative to the normalization of the policy rate.
    Keywords: reserve management; central bank balance sheet; quantitative tightening; quantitative easing; interest on reserves
    JEL: E31 E43 E52 E58
    Date: 2022–05–01
  3. By: Ahmad, Yamin; Murray, James
    Abstract: We use a standard New Keynesian model to explore implications of backward- and forward-looking windows for monetary policy with average inflation targeting and investigate the conditions for determinacy. A unique equilibrium rules out sunspot shocks that can lead to self-fulfilling shocks for inflation expectations. We find limitations for the length of the forward window and demonstrate how this depends on other parameters in the model, including parameters governing monetary policy and expectations formation.
    Keywords: Average Inflation Targeting, Determinacy, Monetary Policy
    JEL: E50 E52 E58
    Date: 2022–05–13
  4. By: Vîntu, Denis
    Abstract: The classical IS-LM model does not have inflation and inflation expectation in it; it is exogenous. The LM curve shifts as the price level changes and subsequently the real money supply changes assuming the money stock stays the same. The decreasing interest rate pressure on the private sector translates into an accelerating rise in investments. Suppose an economy is at unemployment equilibrium. Inflation is stable so the central bank has no price-caused reason to intervene. To stimulate the economy, the central bank cuts (nominal) interest rate horizon. One type frequently discussed is when expansionary fiscal policy reduces investment spending by the private sector. The government spending is "crowding out" investment because it is demanding more loanable funds and thus causing increased interest rates and therefore reducing investment spending. This basic analysis has been broadened to multiple channels that might leave total output little changed or even smaller. As Keynesian economics, the Phillips curve provided a menu of tradeoffs for policy-makers: They could use demand management policies to increase output and decrease unemployment, but this could only be done at the expense of higher inflation.
    Keywords: IS-LM model; dynamic general equilibrium (DGE); Monetary Policy, Policy Design and Consistency; discrete regression; prices; econometric methods; IS-LM model; dynamic general equilibrium (DGE); Monetary Policy, Policy Design and Consistency; discrete regression; prices; econometric methods
    JEL: C13 E21 E41 E44
    Date: 2022–05
  5. By: Priit Jeenas; Ricardo Lagos
    Abstract: We study the effects of monetary-policy-induced changes in Tobin's q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary transmission to aggregate investment.
    Keywords: Monetary transmission, stock prices, Tobin's q, investment, capital structure
    JEL: D83 E22 E44 E52 G12 G31 G32
    Date: 2022–05
  6. By: Richard Dennis; Pelin Ilbas
    Abstract: We use the two-country euro-area model developed by Quint and Rabanal (2014) to study policymaking in the European Monetary Union (EMU). We focus on strategic interactions: 1) between an EMU-level monetary authority and an EMU-level macro-prudential authority, and; 2) between an EMU-level monetary authority and regional macro-prudential authorities. In the former, price stability and financial stability are pursued at the EMU level, while in the latter each macro-prudential authority adopts region-specific objectives. We compare cooperative and non-cooperative equilibria in simultaneous-move and leadership environments, each obtained assuming discretionary policymaking. Further, we assess the effects on policy performance of assigning shared objectives across policymakers and of altering the relative importance attached to different policy objectives. In the three-policymaker setting, we find that regional macro-prudential policymakers play an important role in achieving regional stability.
    Keywords: Monetary policy, macro-prudential policy, policy coordination
    JEL: E42 E44 E52 E58 E61
    Date: 2022–04
  7. By: Collin Philipps (Department of Economics and Geosciences, US Air Force Academy); Sebastian Laumer (Department of Economics, University of North Carolina Greensboro)
    Abstract: Theory suggests that the government spending multiplier is larger when monetary policy is passive. We find instead that, regardless of the monetary policy regime at the time of a spending shock, the central bank responds actively towards inflation quickly after the shock. This rapid monetary policy response leaves multipliers ultimately unaffected by whether the initial regime was active or passive. Our analysis highlights the necessity of accounting for the monetary policy reaction to spending shocks. Failure to do so ignores the central bank’s ability to respond to shocks, potentially leading to a misrepresentation of how multipliers depend on monetary policy.
    Keywords: Fiscal Multiplier, Monetary Policy, Nonlinear SVARs
    JEL: C32 E32 E62
    Date: 2022–05
  8. By: Dąbrowski, Marek A.; Widiantoro, Dimas Mukhlas
    Abstract: The paper examines the effectiveness of macroprudential policy in Indonesia and policy reactions to economic developments. Using the structural vector autoregression and data on the regulatory LTV ratio, we investigate the policy effectiveness in controlling credit growth and real property prices along with the effects on economic activity. We find that the LTV-based policy in Indonesia is effective in taming credit growth in the medium run. It, however, is not the case with real property prices whose response to policy changes is counterintuitive and resembles the price puzzle found in the studies on monetary policy. Moreover, our results lend moderate support to the effect of LTV policy on economic activity, especially in the non-Covid-19 sample. We also show that the LTV policy in Indonesia is conducted in an active and circumspective way. In a series of robustness checks, we demonstrate that the results hold when the ordering of variables is changed, alternative proxies for macroprudential policy, output gap, and financial conditions are employed, or the sample is limited to the non-Covid-19 period.
    Keywords: macroprudential policy; loan-to-value policy; structural vector autoregressive models; financial stability
    JEL: E44 E58 F41 G10
    Date: 2022–05–05
  9. By: Tanweer Akram; Khawaja Mamun
    Abstract: This paper econometrically models the dynamics of the Chilean interbank swap yields based on macroeconomic factors. It examines whether the month-over-month change in the short-term interest rate has a decisive influence on the long-term swap yield after controlling for other factors, such as the change in inflation, change in the growth of industrial production, change in the log of the equity price index, and change in the log of the exchange rate. It applies the generalized autoregressive conditional heteroskedasticity (GARCH) approach to model the dynamics of the long-term swap yield. The change in the short-term interest rate has an economically meaningful and statistically significant effect on the change of the interbank swap yield. This means that the Banco Central de Chile's (BCCH) monetary policy exerts an important influence on interbank swap yields in Chile.
    Keywords: Interest Rate Swaps; Swap Yield; Short-Term Interest Rate; Banco Central de Chile (BCCH); Chile
    JEL: E43 E50 E58 E60 G10 G12
    Date: 2022–05
  10. By: Kevin Lee; Kalvinder Shields; Guido Turnip
    Abstract: This paper considers the macroeconomic effects of shocks with different persistence properties identified from surveys of expectations. Using a GARCH-in-Mean model for the US, we present persistence profiles to illustrate how news about events occurring over different time frames plays different roles in explaining output fluctuations in different circumstances. For example, short-lived ‘noise’ shocks have little influence on output beyond their contemporaneous impact, either directly or via the uncertainty they create. But agents recognise the importance of ‘fundamental’ permanent shocks and these drive the news-driven business cycle, generating immediate stock price reactions and gradually building output effects but also having more immediate effects on output during recessions because of the uncertainties they create.
    Keywords: News-Driven Business Cycles, Persistence, Uncertainty, Expectations, Surveys
    JEL: C32 D84 E32
    Date: 2022–05
  11. By: Dupor, Bill (Federal Reserve Bank of St. Louis); Karabarbounis, Marios (Federal Reserve Bank of Richmond); Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Mehkari, M. Saif (University of Richmond)
    Abstract: We use regional variation in the American Recovery and Reinvestment Act (2009-2012) to analyze the effect of government spending on consumer spending. Our consumption data come from household-level retail purchases in the Nielsen scanner data and auto purchases from Equifax credit balances. We estimate that a $1 increase in county-level government spending increases local non-durable consumer spending by $0.29 and local auto spending by $0.09. We translate the regional consumption responses to an aggregate fiscal multiplier using a multi-region, New Keynesian model with heterogeneous agents, incomplete markets, and trade linkages. Our model is consistent with the estimated positive local multiplier, a result that distinguishes our incomplete markets model from models with complete markets. At the zero lower bound, the aggregate consumption multiplier is twice as large as the local multiplier because trade linkages propagate the effect of government spending across regions.
    Keywords: consumer spending, fiscal multiplier, regional variation, heterogeneous agents
    JEL: E21 E62 H31 H71
    Date: 2022–04
  12. By: Balcilar, Mehmet (Eastern Mediterranean University); Ozdemir, Zeynel Abidin (Ankara HBV University); Ozdemir, Huseyin (Gazi University); Aygun, Gurcan (Gazi University); Wohar, Mark E. (University of Nebraska Omaha)
    Abstract: By using a nonlinear VAR model, we investigate whether the response of the US stock and housing markets to uncertainty shocks depends on financial conditions. Our model allows us to change the response of the US financial markets to volatility shocks in periods of normal and financial distress. We find strong evidence that uncertainty shocks have adverse effects on the US financial markets, irrespective of financial conditions. Moreover, our empirical results show that the rebound in US housing prices, which fell sharply in the economic turmoil, is state-dependent. This reflects the Fed's expansionary monetary policy to stabilize the US housing market. Furthermore, our findings reveal that economic agents who closely monitor the impact of uncertainty on the US stock and housing markets should also consider financial frictions in the US economy.
    Keywords: asset prices, economic uncertainty, financial conditions, regime switching, US
    JEL: C32 E32 E44 G01 G12 R31
    Date: 2022–05
  13. By: Ethan M. L. McClure; Olivier Coibion; Yuriy Gorodnichenko
    Abstract: Using responses obtained through the Nielsen Homescan panel survey, we explore the differences between managers’ and non-managers’ expectations and perceptions of inflation and unemployment. By and large, managers and non-managers exhibit similar average inflation and unemployment expectations as well as similar levels of disagreement and sensitivity to information provided in a randomized control trial. Finally, the inflation expectations of managers deviate systematically from the predictions of “anchored” expectations.
    JEL: E3 E4 E5
    Date: 2022–04
  14. By: Begoña Domínguez; Pedro Gomis-Porqueras
    Abstract: We explore the effects of reducing the overall size of the central bank’s balance sheet and lowering its maturity structure. To do so, we consider an environment where fiscal policy is traditionally passive and the central bank follows the Taylor principle. In addition, the monetary authority has also explicit size and compositional rules regarding its balance sheet. Agents in this economy face limited commitment in some markets and government bonds can be used as collateral. When short and long-term public debt exhibit premia, changes in the central bank’s balance sheet have implications for long-run inflation and real allocations. To ensure a unique locally stable steady state, the central bank should target a low enough maturity composition of its balance sheet. In our numerical exercise, calibrated to the United States, we find that long-term debt holdings by the central bank should be less than 0.5 times of their short-term positions. Moreover, the process of balance sheet normalization should aggressively respond to the total debt issued in the economy relative to its target. These findings depend on the degree of liquidity of long-term bonds. The more liquid long-term bonds are, the lower is the value of the composition threshold and the parameter space consistent with unique and stable equilibria is smaller. In addition, we consider a modified Taylor rule that takes into account the premium. Such rule increases the prevalence of multiplicity of steady states and delivers lower welfare. Thus, we argue that the traditional Taylor rule is appropriate for managing interest rates in the presence of premia.
    Keywords: Inflation, Government Bonds, Liquidity, Spreads, Maturity, Balance Sheet.
    JEL: E40 E61 E62 H21
    Date: 2022–05
  15. By: Congressional Budget Office
    Abstract: CBO projects a federal budget deficit of $1.0 trillion in 2022 and an average annual shortfall of $1.6 trillion from 2023 to 2032, under the assumption that existing laws governing taxes and spending generally remain unchanged. Federal debt held by the public is projected to dip to 96 percent of GDP in 2023, but then to rise each year thereafter, reaching 110 percent in 2032, higher than it has ever been.
    JEL: E20 E23 E60 E62 E66 H20 H60 H61 H62 H63 H68
    Date: 2022–05–25
  16. By: Kris James Mitchener; Gonçalo Pina
    Abstract: We estimate the causal impact of countercyclical interest rates on macroeconomic outcomes in open economies. To identify countercyclical interest rates, we construct a new database of short-term interest rates, principal exports, and international commodity prices for 40 economies from 1870 to 1913. This era of capital mobility, nominal anchors, specialization and trade integration, exposed economies to multiple exogenous demand-side shocks. Specialization and trade integration subjected economies to a “commodity lottery” in the form of price fluctuations in world markets. Capital mobility and a currency peg exposed them to interest-rate movements originating in the U.K., the largest economy and linchpin of the classical gold standard. We identify (i) positive effects of commodity-export prices on real GDP and the domestic price level and (ii) negative effects of exogenous changes in short-term interest rates on the same variables. We then show that countercyclical interest rates, defined relative to export-price shocks, stabilized both output and the domestic price level. This stabilization was more effective for the price level than for output.
    Keywords: countercyclical interest rates, stabilization, gold standard, commodity lottery
    JEL: E52 E32 F33 F41 F62 N10
    Date: 2022
  17. By: Alistair Macaulay
    Abstract: Using a novel decomposition, I show that systematic relationships between information and subjective models across agents distort the aggregate transmission of shocks in a general class of macroeconomic models. I document evidence of such a systematic correlation between household information and subjective models around inflation using unique features of the Bank of England Inflation Attitudes Survey: on average, households with more negative beliefs about the impacts of inflation obtain more information about inflation. A model in which acquiring information about inflation is costly, and observed information affects the perceived relationship of inflation and real incomes, can explain the empirical variation in information and subjective models in the cross-section and over time. The model generates time-varying shock transmission, and a selection effect that weakens the role of information frictions in aggregate dynamics. Through a novel channel, transitory spikes in inflation may become ‘baked in’ to inflation expectations, but only among those with the most positive subjective models of the effects of inflation.
    Keywords: information frictions, subjective models, heterogeneous agents, expectations, shock transmission
    JEL: D83 D84 E31 E71
    Date: 2022
  18. By: International Monetary Fund
    Abstract: New Zealand’s management of the pandemic, including health policy and macroeconomic policy support, has been effective in ensuring economic recovery. Output has already recovered to above potential, the labor market is tight, and inflation has risen to above the Reserve Bank of New Zealand’s (RBNZ) target range.
    Date: 2022–05–13
  19. By: Bachmann, Rüdiger (University of Notre Dame); Bayer, Christian (University of Bonn); Stüber, Heiko (University of Erlangen-Nuremberg); Wellschmied, Felix (Universidad Carlos III de Madrid)
    Abstract: When employers face a trade-off between growing large and paying low wages—that is, when they have monopsony power—some productive employers will decide to acquire fewer customers, forgo sales, and remain small. These decisions have adverse consequences for aggregate labor productivity. Using high-quality administrative data from Germany, we document that East German plants (compared to West German ones) face a steeper size-wage curve, invest less into marketing, and remain smaller. A model with labor market monopsony, product market power, and customer acquisition matching these features of the data predicts 10 percent lower aggregate labor productivity in East Germany.
    Keywords: aggregate productivity, plant heterogeneity, unions, monopsony power, size-wage curve, monopolistic competition, customer capital, size distortions
    JEL: E20 E23 E24 J20 J42 J50
    Date: 2022–05
  20. By: Ozge Akinci; Sebnem Kalemli-Ozcan; Albert Queraltó
    Abstract: Foreign investors’ changing appetite for risk-taking has been shown to be a key determinant of the global financial cycle. Such fluctuations in risk sentiment also correlate with the dynamics of uncovered interest parity (UIP) premia, capital flows, and exchange rates. To understand how these risk sentiment changes transmit across borders, we propose a two-country macroeconomic framework. Our model features cross-border holdings of risky assets by U.S. financial intermediaries that operate under financial frictions and act as global intermediaries in that they take on foreign asset risk. In this setup, an exogenous increase in U.S.-specific uncertainty, modeled as higher volatility in U.S. assets, leads to higher risk premia in both countries. This occurs because higher uncertainty leads to deleveraging pressure on U.S. intermediaries, triggering higher global risk premia and lower global asset values. Moreover, when U.S. uncertainty rises, the exchange rate in the foreign country vis-a-vis the dollar depreciates, capital flows out of the foreign country, and the UIP premium increases in the foreign country and decreases in the U.S., as in the data.
    Keywords: financial frictions; risk premia; time-varying uncertainty; intermediary asset pricing; financial spillovers; global financial cycle
    JEL: E32 E44 F41
    Date: 2022–05–01
  21. By: Luis Bauluz; Filip Novokmet; Moritz Schularick
    Abstract: This paper provides a household-level perspective on the rise of global saving and wealth since the 1980s. We calculate asset-specific saving flows and capital gains across the wealth distribution for the G3 economies – the U.S., Europe, and China. In the past four decades, global saving inequality has risen sharply. The share of household saving flows coming from the richest 10% of household increased by 60% while saving of middle-class households has fallen sharply. The most important source for the surge in top-10% saving was the secular rise of global corporate saving whose ultimate owners the rich households are. Housing capital gains have supported wealth growth for middle-class households despite falling saving and rising debt. Without meaningful capital gains in risky assets, the wealth share of the bottom half of the population declined substantially in most G3 economies.
    Keywords: income and wealth inequality, household portfolios, historical micro data
    JEL: D31 E21 E44 N32
    Date: 2022
  22. By: Gersbach, Hans; Zelzner, Sebastian
    Abstract: We provide a rationale for bank money creation in our current monetary system by investigating its merits over a system with banks as intermediaries of loanable funds. The latter system could result when CBDCs are introduced. In the loanable funds system, households limit banks' leverage ratios when providing deposits to make sure they have enough "skin in the game" to opt for loan monitoring. When there is unobservable heterogeneity among banks with regard to their (opportunity) costs from monitoring, aggregate lending to bank-dependent firms is inefficiently low. A monetary system with bank money creation alleviates this problem, as banks can initiate lending by creating bank deposits without relying on household funding. With a suitable regulatory leverage constraint, the gains from higher lending by banks with a high repayment pledgeability outweigh losses from banks which are less diligent in monitoring. Bank-risk assessments, combined with appropriate risksensitive capital requirements, can reduce or even eliminate such losses.
    Keywords: monetary system,banking,money creation,loanable funds,capitalrequirements,leverage constraint,asymmetric information,moral hazard,CBDC
    JEL: E42 E44 E51 G21 G28
    Date: 2022
  23. By: James K. Self (Indiana University, Department of Economics); Kim P. Kuynh (Bank of Canada and Indiana University, Department of Economics)
    Abstract: The process by which most Central Banks target nominal interest rates and implement monetary policy has changed considerably in the last 20 years. Today, the use of interest payments on reserves and the decoupling of rate targets (e.g., the Fed Funds Rate) from reserve targets now play a crucial role in Central Banks policy decisions. However, in introductory macroeconomics textbooks, monetary policy implementation focuses on the relation of reserves in the system to the deposit multiplier and money stock, which leads to a discussion of interest rate targeting resulting from effective adjustments to the money supply. The main problem with that focus is that the target rate is not dependent on the money multiplier or strict control of the money stock. Instead, the current policy uses interest payments on reserves to create a floor that sets the target rate. This process leaves the system's reserves mostly independent of the targeting process. As a result, the current pedagogy leaves students unaware of the actual process used to target rates and an unrealistic interpretation of money multipliers' importance. We survey commonly used introductory macroeconomic books to highlight current pedagogy. Moreover, we show how it can be changed to reflect a Central Bank’s current practice to implement monetary policy. We also provide key learning objectives to transform outdated monetary policy implementation pedagogy consistent with existing Federal Reserve Bank practices.
    Keywords: monetary policy implementation, excess reserves, pedagogy
    Date: 2022–05
  24. By: Brancatelli, Calogero; Inderst, Roman
    Abstract: This paper revisits the effects of income changes on consumption of private households by focusing on a commonly disregarded and yet sizeable component of household expenditures: consumption of food and non-food consumer packaged goods. We exploit a new data source from the Netherlands that combines on the level of individual households administrative data from tax records with household scanner data, thus minimizing measurement error for both expenditures and the key explanatory variable, household disposable income. Even after controlling for differences in needs and for consumption volume, we document significant variation in expenditures and thereby reveal substantial scope for potential savings. Still, even though the Netherlands experienced a recession and a subsequent recovery in the analysed period from 2011 to 2018, we find only an economically small relationship with income, which is also not higher for households with low income or low liquidity. Despite remaining small in magnitude, we document inter alia a much higher coefficient for single households. We can exclude various potentially confounding effects as we show that retailers practice national pricing and as we control for sample composition and potential substitution between in-house and out-of-house consumption.
    Keywords: income effects,consumer-packaged goods,administrative data
    JEL: D12 E21 E32 M30
    Date: 2021
  25. By: International Monetary Fund
    Abstract: The economy rebounded strongly from the pandemic recession last year while prudent macroeconomic management maintained robust buffers. But the war in Ukraine and the international sanctions imposed on Russia and Belarus have resulted in significant spillovers to Moldova, with implications yet to fully play out. At the outbreak of hostilities, FX market pressures triggered significant foreign currency interventions and bank deposit withdrawals, while dollarization has intensified. Moldova has received the highest per capita inflow of Ukrainian refugees (17 percent of the total population), of which about 100,000 refugees (4 percent of the total population) remain in Moldova. Driven by rising food and energy prices, inflation accelerated further above the target band.
    Date: 2022–05–13
  26. By: Marianna Kudlyak; Murat Tasci; Didem Tuzemen
    Abstract: Using a unique data set and a novel identification strategy, we estimate the effect of minimum wage increases on job vacancy postings. Utilizing occupation-specific county-level vacancy data from the Conference Board’s Help Wanted Online for 2005-2018, we find that state-level minimum wage increases lead to substantial declines in existing and new vacancy postings in occupations with a larger share of workers who earn close to the prevailing minimum wage. We estimate that a 10 percent increase in the state-level effective minimum wage reduces vacancies by 2.4 percent in the same quarter, and the cumulative effect is as large as 4.5 percent a year later. The negative effect on vacancies is more pronounced for occupations where workers typically have lower educational attainment (high school or less) and in counties with higher poverty rates. We argue that our focus on vacancies versus on employment has a distinct advantage of highlighting a mechanism through which minimum wage hikes affect labor demand. Our finding of a negative effect on vacancies is not inconsistent with the wide range of findings in the literature about the effect of minimum wage changes on employment, which is driven by changes in both hiring and separation margins.
    Keywords: Minimum Wage; Vacancies; Hiring; Search and Matching
    JEL: E24 E32 J30 J41 J63 J64
    Date: 2022–04–21
  27. By: Riccardo De Bonis (Bank of Italy); Giuseppe Ferrero (Bank of Italy)
    Abstract: The paper summarizes the debate about the proposed introduction of a Central Bank Digital Currency (CBDC). We place the CBDC in the wider context of the different types of money used in market economies. We explore the most important ideas on why economic agents use money, on the history of money and on the distinction between public and private money. We then discuss the digitalization of the payment system and the main characteristics of cryptoassets. We conclude the paper by explaining the reasons for introducing a CBDC as well as the associated risks.
    Keywords: central bank digital currency, history of money, payment system, digitalization, digital euro
    JEL: E42 E58
    Date: 2022–04
  28. By: Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Tasci, Murat (Federal Reserve Bank of Cleveland); Tüzemen, Didem (Federal Reserve Bank of Kansas City)
    Abstract: Using a unique data set and a novel identification strategy, we estimate the effect of minimum wage increases on job vacancy postings. Utilizing occupation-specific county- level vacancy data from the Conference Board's Help Wanted Online for 2005-2018, we find that state-level minimum wage increases lead to substantial declines in existing and new vacancy postings in occupations with a larger share of workers who earn close to the prevailing minimum wage. We estimate that a 10 percent increase in the state-level effective minimum wage reduces vacancies by 2.4 percent in the same quarter, and the cumulative effect is as large as 4.5 percent a year later. The negative effect on vacancies is more pronounced for occupations where workers typically have lower educational attainment (high school or less) and in counties with higher poverty rates. We argue that our focus on vacancies versus on employment has a distinct advantage of highlighting a mechanism through which minimum wage hikes affect labor demand. Our finding of a negative effect on vacancies is not inconsistent with the wide range of findings in the literature about the effect of minimum wage changes on employment, which is driven by changes in both hiring and separation margins.
    Keywords: minimum wage, vacancies, hiring, search and matching
    JEL: E24 E32 J30 J41 J63 J64
    Date: 2022–04
  29. By: William F. Bassett; David E. Rappoport
    Abstract: The use of stress testing for macroprudential objectives is advanced by modeling spillovers within the financial sector or between the real and financial sectors. In this chapter, we discuss several macroprudential elements that capture these spillovers and how they might be added to stress test frameworks. We show how funding spillovers can be modeled as an add-on, using a reduced-form relation between banks' funding cost, bank capital and economic activity. Using a calibration to US data, we project very modest funding spillovers conditional on the DFAST 2018 severely adverse scenario. We describe the pros and cons of modeling different types of spillovers using this approach.
    Keywords: Bank capital; Funding shocks; Macroprudential policy; Stress testing
    JEL: E58 G28
    Date: 2022–05–06
  30. By: Simon Hildebrandt (University of Kassel); Jochen Michaelis (University of Kassel)
    Abstract: Benigno and Fornaro (2014) show that an episode of low interest rates may harm an economy. Low interest rates trigger a consumption boom, labor shifts away from the tradable sector, learning spillovers from foreign technology decline and so do domestic total factor productivity, consumption and welfare. In this paper, we show that their conclusion of a financial resource curse does not hold in a world with capital as production factor. Low interest rates now trigger an investment boom, there is no shift of labor between sectors, total factor productivity remains unaffected. Our model confirms “textbook wisdom†, i.e., an episode of low interest rates enhances welfare in a small open economy.
    Keywords: capital accumulation, endogenous growth, macroeconomic integration
    JEL: E22 F36 F43
    Date: 2022
  31. By: Yao Chen (Erasmus University Rotterdam); Felix Ward (Erasmus University Rotterdam)
    Abstract: Can fixed exchange rate regimes cause output divergence among member states? We show that such divergence is a long-run equilibrium characteristic of a two-region model with fixed exchange rates, heterogeneous labor markets, and endogenous growth. Under flexible exchange rates, monetary policy closes output gaps and realizes the associated maximum TFP growth in both regions. Upon fixing exchange rates, the region with higher structural wage inflation falls into a low-growth trap. When calibrated to the euro area, the model implies a slowdown in the TFP growth rate of the euro areaÕs periphery relative to its core. An empirical analysis confirms that the peripheryÕs higher structural wage inflation rate contributed to its lower TFP growth in the aftermath of joining the euro.
    Keywords: Exchange rate, growth, monetary policy
    JEL: E50 F31 O40
    Date: 2022–04–28
  32. By: Sami Alpanda (University of Central Florida, Orlando, FL); Uluc Aysun (University of Central Florida, Orlando, FL); Serdar Kabaca (Bank of Canada, Ottawa, Canada)
    Abstract: We theoretically and empirically evaluate the spillover effects of debt-financed fiscal policy interventions of the United States on other economies. We first consider a two-country dynamic stochastic general equilibrium model with international portfolio rebalancing effects arising from an imperfect substitutability between short- and long-term domestic and foreign bonds. The model shows that US fiscal expansions financed by long-term debt issuance would, on net, hinder economic activity in the rest of the world (ROW). This is despite the standard trade channel’s net positive effect on the ROW economy given the depreciation in the ROW currency. The fall in ROW output occurs mainly due to the increase in the ROW term premia and long-term rates through the portfolio rebalancing channel, as the relative demand for ROW long-term bonds decreases following the increase in the supply of US long-term bonds accompanying the fiscal expansion. Testing the predictions of our theoretical model by using panel regressions and vector autoregressions, we find empirical support for the negative relationship between ROW output and US fiscal spending. The data also confirm the positive relationship between ROW term spreads and US fiscal spending.
    Keywords: International portfolio rebalancing, international spillover effects of fiscal policy, preferred habitat, DSGE.
    JEL: E62 F41 F42
    Date: 2022–05
  33. By: Kabiri, Ali; James, Harold; Landon-Lane, John; Tuckett, David; Nyman, Rickard
    Abstract: This paper investigates the role of sentiment in the US economy from 1920 to 1934 using digitised articles from The Wall Street Journal. We derive a monthly sentiment index and use a 10-variable vector error correction model to identify sentiment shocks that are orthogonal to fundamentals. We show the timing and strength of these shocks and their resultant effects on the economy using historical decompositions. Intermittent impacts of up to 15 per cent on industrial production, 10 per cent on the S&P 500 and bank loans, and 37 basis points for the credit risk spread suggest a large role for sentiment.
    Keywords: algorithmic text analysis; business sentiment; Great Depression; US interwar economy; EP/P016847/1; ESRC-NIESR Rebuilding Macroeconomics network
    JEL: N12 N22 E32 D89
    Date: 2022–04–25
  34. By: Agostino Consolo (European Central Bank); Filippos Petroulakis (Bank of Greece)
    Abstract: Recent research has argued that the COVID-19 shock has also brought about a real- location shock. We examine the evidence for such an occurrence in the United States, taking a broad perspective. We first consider micro data from CPS and JOLTS; there is no noticeable uptick in occupation or sector switches, nor churn, either at the aggregate level or the cross-section, or when broken down by firms’ size. We then examine whether mismatch unemployment has risen as a result of the pandemic; using an off-the-shelf multisector search and matching model, there is little evidence for an important role for mismatch in driving the elevated unemployment rate. Finally, we employ a novel Bayesian SVAR framework with sign restrictions to identify a reallocation shock; we find that it has played a relatively minor role in explaining labor market patterns in the pandemic, at least relative to its importance in earlier episodes.
    Keywords: Reallocation; COVID-19; mismatch
    JEL: E24 J63
    Date: 2022–03
  35. By: Laura A. Harvey (University of East Anglia); James Rockey (University of Birmingham)
    Abstract: While real US GDP per capita has increased around 80% since 1980, median incomes have remained roughly constant. This paper documents that: 1) This stagnation masks an important intergenerational decline — more recent generations have earned less than less recent ones. 2) This decline is largest amongst white males without college educations. But, we find evidence for similar declines amongst those with college educations. The decline is also sufficiently large to more than offset reductions in the racial and gender wage gaps. 3) Quantile regression estimates suggest that on average only women and non-Whites in the lowest quantiles have seen growth in real incomes, the majority have experienced real declines. 4) Exploiting state and industry variation in workforce composition we obtain race and gender-specific labor share estimates. These data suggest that intergenerational declines in the labor share can account for much of the decline in earnings. 5) We find some evidence that intergenerational reductions in the labor share are due to increased import competition, but no correlation with unionization.
    Keywords: Wages, Intergenerational Differences, Labor Share, Stagnation, Jobs
    JEL: E24 J24 J31 D33 D31
    Date: 2022–05
  36. By: Woodgate, Ryan
    Abstract: This paper develops a two-country Kaleckian model in which "Northern" firms invest a fixed fraction of total investment in foreign affiliates in the low-wage "South" in order to offshore the production of intermediate goods over time and lower overall labour costs. On the back of this setup follows an analysis of the macroeconomic implications of offshoring in the short and long run. Offshoring through vertical FDI is found to lead to a falling wage share and a simultaneously falling price level and rising mark-up in the North, whereas the effect on equilibrium capacity utilisation may be positive or negative. Interestingly, however, regardless of the effect on capacity utilisation and firm profitability, we can show that the structural change implied by offshoring leads to lower rates of capital accumulation and employment in the North relative to the initial (pre-offshoring) values in the short run. The long-run effects on Northern employment and growth, on the other hand, depend crucially on the long-run accumulation rate of the Northern-owned multinational firms. However, the model shows that, if wages endogenously converge during the transition due to higher unemployment in the North and lower unemployment in the South, then the long-run Northern capacity utilisation and accumulation rates are increasingly likely to fall relative to pre-offshoring values. The model appears well suited to shed light on many real-world macroeconomic phenomena, such as rising FDI flows, falling wage shares, rising mark-ups in an era of low inflation, hysteresis, and secular stagnation.
    Keywords: offshoring,foreign direct investment,distribution,stagnation
    JEL: F62 F23 O41 E11 E12
    Date: 2022
  37. By: Jon Eguia; Dimitrios Xefteris
    Abstract: We study how political competition over redistribution determines income inequality under two macrofounded premises: a) the income distribution is approximately log-normal before and after any policy intervention; and b) voters’ income and turnout rates are positively related. The unique equilibrium features substantial income inequality and less than maximal redistribution, even if the voters’ median income is very low. Fitting our model to the US economy, we argue that either the efficiency cost of redistribution is higher than estimates in the literature, or else US’s redistributive policies are optimal for an agent richer than the median voter.
    Keywords: Income inequality; redistribution; lognormal distribution; macrofoundations
    JEL: D72 H20 E62
    Date: 2022–05–25
  38. By: Xin Tian; Jan Jacobs; Jakob de Haan
    Abstract: We construct several measures for the global financial cycle using dynamic factor models and data for 25 advanced and emerging countries over 1980-2019. Our results suggest that global cycles in asset prices and capital flows are highly similar and synchronized, especially during crisis episodes. Our measures for asset-specific global cycles suggest that cycles in credit and house prices are less volatile and have a longer duration than cycles in equity and bond prices. Finally, we find significant co-movement of our global financial cycle measures and two measures as suggested in the literature that are based on top-down and bottom-up approaches.
    Keywords: global financial cycle, national financial cycle, dynamic factor analysis, capital flows, asset prices
    JEL: E44 F32 F36
    Date: 2022
  39. By: Jaunius Karmelavičius (Bank of Lithuania); Ieva Mikaliūnaitė-Jouvanceau (Bank of Lithuania); Andrius Buteikis (Bank of Lithuania)
    Abstract: While Euro area interest rates were responding to accommodative monetary policy and 201519, in stark contrast, Lithuania’s bank lending rates increased. decreasing throughout Although the rates have slightly dropped around t he onset of the pandemic, they are still question, what were the elevated and well above the EA figures. This paper calls into drivers of such interest rate dynamics in Lithuania? By analysing the historical events and practical aspects of loan pricing in Lithuania’s banking industry, we build an empirical lending rate variation across banks, time and lending segments, and model that exploits maps it to different drivers of pricing. We find that the recent changes in lending rates in response to changes can be attributed to avera ge bank margins, which moved largely in market concentration.
    Keywords: interest rates, loan pricing, banking, concentration, capital requirements
    JEL: D22 D40 E43 G21 L11
    Date: 2022–05–20
  40. By: Liu, Gang (Statistics Norway); Fraumeni, Barbara M. (Central University of Finance and Economics); Managi, Shunsuke (Kyushu University)
    Abstract: Chapter 6 from the forthcoming Inclusive Wealth Report 2022 looks at human capital in greater detail, based on the latest human capital estimates from the Inclusive Wealth Report (IWR) project. In the chapter, which is repeated here, the growth of human capital and several of its constituent factors are broken down by gender and by region, and in some cases also by income, since apparently, human capital in the world is not evenly distributed across different regions or countries by income, or between educated males and females, although in almost all country cases total and per capita human capital have grown over time. The purpose is to identify the sources of human capital growth by region, gender, and various determining factors over the observed time period, 1990-2020.
    Keywords: country wealth, human capital, analysis by regions and country income, gender, analysis by regions and country income
    JEL: E24 J16 O57 E01
    Date: 2022–05
  41. By: Arun Gupta; Horacio Sapriza; Vladimir Yankov
    Abstract: Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.
    Keywords: Collateral channel; Firm borrowing constraints; Bank credit allocation; Corporate investment; Macro-finance; Transmission mechanism
    JEL: E44 G21
    Date: 2022–05–10
  42. By: Jose Luis Oreiro; Julio Fernando Costa Santos
    Abstract: The aim of this paper is to investigate the long run sustainability of a growth path led by multiple non-creating capacity autonomous expenditures in a demand led-supermultiplier model for a small open economy. Using two different models the results show that it is impossible to have in the same model long-term economic growth driven by the non-capacity creating component of domestic demand, exogenous income distribution, long-run balance between productive capacity and aggregate demand and balance of payments equilibrium. Economic viability of the balanced-growth path demands growth to be led by exports, at least for small open economies.
    Keywords: Post-Keynesian Economics, Growth and Distribution, Srafian Supermutiplier, Simulation Models
    JEL: E12 E37 P10
    Date: 2022–05
  43. By: Luca Benati
    Abstract: Evidence from monetary VARs for ten countries points towards an unfavorable trade-off between leaning against credit fluctuations and stabilizing real economic activity. Results are robust both across countries, and based on two alternative approaches, i.e. either (i) focusing on the impact of monetary policy shocks, which I identify based on a combination of zero and sign restrictions, or (ii) analyzing ‘modest’ policy interventions in which the central bank reacts weakly, but systematically, to credit fluctuations. In particular, a modest intervention suggests that in the U.S. during the years leading up to the financial crisis a 1% shortfall in real GDP would have been associated with a decrease in credit leverage by 2.5 percentage points.
    Keywords: Credit; structural VARs; sign restrictions; zero restrictions; Lucas critique
    Date: 2022–05
  44. By: Emilio Colombo; Davide Furceri; Pietro Pizzuto; Patrizio Tirelli
    Abstract: This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier. This result holds irrespective of the levels of economic development and institutional quality and is robust to additional country characteristics such as trade, financial openness and exchange rate regime. In a two-sector new-Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector. This reallocation effect increases with the level informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks. Thus, informality raises the size of the unofficial multiplier. A higher degree of non-separability between public and private goods also contributes to rationalize the lower multipliers in high-informality countries.
    JEL: H30 H50 E26 C32
    Date: 2022
  45. By: Vîntu, Denis
    Abstract: This study examines the effects of fiscal policy on the economy under uncertainty of public debt. Fiscal policy refers to the actions of government in collecting and spending private resources. As its title suggests, the paper is concerned with the dynamic aspects of fiscal policy. These include the effects of fiscal policies on capital formation, economic growth, and intergenerational equity; the influence of long-run expectations on short-run outcomes; and the restrictions imposed by current policies on the set of feasible future policies. Dynamic analysis has recently gained favor over static analysis in various fields of economics. It is particularly appropriate for the study of fiscal policy, which, at least in the Republic of Moldova, is frequently adjusted and altered. Such changes are often explicitly legislated in advance, but when not pre-announced they may often be surmised from current fiscal conditions. That fiscal variables are continually modified is not surprising. Current policy changes alter the course of the economy and invariably require additional policy changes in the future. But the anticipation of such future changes also alters current outcomes; indeed the current impact of fiscal decisions cannot be determined without considering the entire future time path of fiscal policy. A dynamic perspective is also crucial in weighting the short-run benefits of particular policies (e.g., tax cuts) against long-run losses (e.g., crowding out) and in evaluating the economic efficiency of alternative policies. Economic efficiency refers to the potential for improving the welfare of some segment of society without reducing that of another. Static analysis is ill-equipped to examine economic efficiency because it ignores a vast segment of society, namely, all future generations. Dynamic analysis considers both current and future generations and permits one to distinguish policies that truly improve economic efficiency from those that simply redistribute resources across generations.
    Keywords: WP; debt ratio; interest rate; output ratio; debt stabilization Debt sustainability; fiscal deficits; Ponzi games
    JEL: E60 H62
    Date: 2022–05–02
  46. By: Camous, Antoine; Van der Ghote, Alejandro
    Abstract: Swift changes in investors' sentiment, such as the one triggered by COVID-19 global outbreak in March 2020, lead to financial tensions and asset price volatility. We study the interactions of behavioral and financial frictions in an environment with endogenous risk-taking and capital accumulation. Agents form diagnostic expectations about future stochastic outcomes: recent realizations of aggregate shocks are expected to persist. This behavioral friction gives rise to sentiment cycles with excessive investment and occasional safety traps. The interactions with financial frictions lead to an endogenous amplification of financial instability. We discuss implications for policy interventions. JEL Classification: E32, E44, E71
    Keywords: diagnostic beliefs, financial cycles, macro-prudential policy
    Date: 2022–05
  47. By: Ulrich Eydam (University of Potsdam); Francesca Diluiso (Mercator Research Institute on Global Commons and Climate Change (MCC))
    Abstract: In light of climate change mitigation efforts, revenues from climate policies are growing, with no consensus yet on how they should be used. Potential efficiency gains from reducing distortionary taxes and the distributional implications of different revenue recycling schemes are currently debated. To account for households heterogeneity and dynamic trade-offs, we study the macroeconomic and welfare performance of different revenue recycling schemes using an Environmental Two-Agent New-Keynesian model, calibrated on the German economy. We find that, in the long run, welfare gains are higher when revenues are used to reduce distortionary taxes on capital, but this comes at the cost of higher inequality: while all households prefer labor income tax reductions to lump-sum transfers, only financially unconstrained households are better off when reducing taxes on capital income. Interestingly, we find that over the transition period relevant to meet short-medium run climate targets, labor income tax cuts are the most efficient and equitable instrument.
    Keywords: double dividend, E-DSGE, environmental tax reform, non-Ricardian households, revenue recycling
    JEL: E62 H23 H31 Q58
    Date: 2022–05
  48. By: Can Xu; Andreas Steiner
    Abstract: This paper investigates the impact of public employment on household saving rates in China using representative household-level data. After controlling for a series of variables such as income, risk attitude, financial literacy, and demographic factors, we show that households headed by public employees have higher saving rates than other households. This positive association holds after controlling for self-selection bias. Public employees are more likely to save for their children and they have a higher saving capacity than non-public employees due to better social security. Our results contribute to a better understanding of Chinese household saving rates, which is of great importance given their extremely high level in international comparison.
    Keywords: public employment, household saving rates, Chinese economy
    JEL: D14 E24 H31 G51
    Date: 2022
  49. By: Gulan, Adam; Jokivuolle, Esa; Verona, Fabio
    Abstract: The optimal level of banks' capital requirements has been a key research topic since at least the introduction of the Basel rules in the late 1980s. In this paper, we review the literature, focusing on recent findings from quantitative structural macroeconomic models. While dynamic stochastic general equilibrium models capture second-round (general equilibrium) effects such as the feedback effects from macroeconomic outcomes back to financial intermediation and the dynamic evolution of the economy following regulatory changes, they suffer from tractability issues, including treatment of nonlinear effects, that typically force modeling simplifications. Additionally, studies tend to be concerned with determining the optimal level of fixed capital requirements. Only a handful offer estimates of the optimal size of the dynamic buffers. Since optimal dynamic macroprudential policies depend heavily on the nature of the underlying shocks, questions arise regarding the robustness and potential side effects of such plicies. Despite progress, the optimal level of bank capital requirements - in either fixed or dynamic form - remains largely an open research question.
    Date: 2022
  50. By: Saroj Dhital (Economics and Business Department, Southwestern University); Pedro Gomis-Porqueras (School of Economics and Finance, Queensland University of Technology, Brisbane, Australia); Joseph H. Haslag (Department of Economics, University of Missouri-Columbia)
    Abstract: Do financial innovations benefit or harm expected welfare? For innovations that provide greater access to banks, researchers have argued that lower transaction costs and better project assessments result in expected welfare gains. Others, however, have shown that with incomplete markets, financial innovations result in expected welfare losses. In this paper, we examine the impacts of financial innovations in economies with incomplete markets and limited commitment. We show that the results critically depend on whether assets are priced fundamentally or not. When priced fundamentally, greater access does improve expected welfare, also resulting in greater consumption inequality. However, when assets carry a premium, there is an additional channel owing to limited commitment. Because of a more severe limited commitment problem, collateral is necessary. A fixed quantity of pledgeable assets are spread across a larger measure of depositors, resulting in less consumption for those with access to banks and consumption inequality decreases. Second, we consider a financial innovation that increases the pledegeability of one type of bank collateral. We also show that the results critically depend on whether assets are priced fundamentally or not. When assets are priced fundamentally, this type of financial innovation does not change welfare nor consumption inequality. In contrast, when assets carry a premium, better collateral results in more consumption for depositors with access to the more sophisticated payment option. We extend our model economy to consider an endogenous decision to access checkable deposits. This allows us to examine the effects of changes in the distribution of costs that are important to the choice of participating in observing buyers’ deposit or not. Third, our analysis demonstrates that collateral in a limited commitment framework provides a mechanism through which financial innovation can increase or decrease the impact that financial innovations have on welfare and inequality.
    Keywords: welfare, financial innovation, financial access, inequality
    JEL: E40 E61 E62 H21
    Date: 2022–05
  51. By: Dubois, Corinne (Department of Economics); Lambertini, Luisa (EPFL); Wu, Yu (EPFL)
    Abstract: We study the impact of the pandemic on gender gaps in labor market outcomes in Switzerland. Using the Swiss labor force survey data, we document a significant increase in the gender gap in labor market participation. We find no evidence of a worsening of unemployment gender gap during the pandemic but we find a large gender gap in being on STW, a government policy that subsidizes wage payments for employees whose hours are cut at companies in temporary distress. Unlike the United States, the presence of children in the household did not worsen labor gender gaps. Sector and occupation, however, play an important role in explaining gender gaps. In particular, we document substantial heterogeneity in the effect of the pandemic on participation, STW, hours worked, and wage outcomes depending on the availability of telework in the respondent’s occupation.
    Keywords: Covid-19; labor market inequality; labor market policies; gender gaps.
    JEL: E24 J01 J08 J21
    Date: 2022–05–20
  52. By: Igbafe, Timothy
    Abstract: This study examined the effectiveness of monetary policy in stimulating economic growth in Nigeria between 1990 and 2019. Secondary data were sourced mainly from CBN publications. The theoretical framework was based on the Keynesian transmission mechanism. In the cause of empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, ARDL Bounds Test and Error Correction Mechanism (ECM) were employed and the result revealed that all the variables were stationary at first difference except monetary policy rate that was stationary at level, meaning that the variables were integrated of different order justifying ARDL Bounds Test and error correction mechanism test. The ARDL Bounds Test result indicated that there is long run relationship among the variables with the lower bound and upper bound less than the calculated at 5% level of significant. The result of the error correction mechanism (ECM) test indicates an 88% adjustment back to equilibrium. It is therefore recommended that since economic growth in Nigeria is greatly influenced in the long-run by interest rate and reserve requirement making monetary policy an effective tool in stimulating economic growth. Nigerian government through its monetary authorities should unveil other policies that will stimulate economic growth not only in the long run but also, in the short run period.
    Keywords: Monetary policy Economic Growth Time Series Dat Error Correction Model.
    JEL: G00
    Date: 2022–01
  53. By: Christian Hepenstrick; Jason Blunier
    Abstract: Many prominent forecasters publish their projections at an annual frequency. However, for applied work, an estimate of the underlying quarterly forecasts is often indispensable. We demonstrate that a simple state-space model can be used to obtain good estimates of the quarterly forecasts underlying annual projections. We validate the methodology by aggregating professional forecasts for quarterly GDP growth in the United States to the annual frequency and then applying our imputation methodology. The imputed forecasts perform as well as the original quarterly forecasts. Applying the imputation methodology to Consensus forecasts for other advanced economies provides further evidence of the good performance of our proposed methodology.
    Keywords: Forecasting, frequency disaggregation, survey expectations
    JEL: C53 E37
    Date: 2022
  54. By: Israel Garcia (University of Marburg); Bernd Hayo (University of Marburg)
    Abstract: Employing a sample of Spanish municipalities from the Madrid region for the period 2010−2019, we study the influence of a politician’s sex on political budget cycles (PBCs). The Madrid region is subject to a homogenous set of budget rules, which allows consistently categorising budget expenditure items as either ‘mandatory’ or ‘non-mandatory’ public services. Differentiating between four sizes of municipalities, the gender influence is studied along two dimensions: mayor’s sex and share of women in government. Except for the largest municipalities, we discover significant evidence of PBC-related changes, ranging between 3% and 7% of average municipal budgets, in mandatory spending for both sexes. On average, male and female mayors tend to increase pre-electoral mandatory spending, even when the government is gender balanced. However, in the (rare) case of female-dominated governments, mayors do not appear to engage in PBC-related activities, and may even decrease mandatory spending, before an election.
    Keywords: Gender, Political budget cycles, Signalling mechanism, Local politicians, Fiscal policy, Spanish municipalities, Madrid region
    JEL: C23 E62 D72 H72 J16
    Date: 2022
  55. By: Ruth Cohen; Oz Shy; Joanna Stavins
    Abstract: The use of paper instruments—cash and checks—has been declining in the United States, and consumers have been gradually replacing paper with cards and electronic payments. Stavins (2021) examines the evolution of payments from paper to cards and electronic payments, while Shy (2020) shows the payments landscape across merchant types. This paper combines the cross-sectional analysis across merchants with the aggregate time series study to analyze the evolution of consumer payments by merchant type. Using data from a representative diary survey of US consumers collected annually over the past several years, we examine changes for each merchant type to assess which transactions shifted from paper to electronic payments and from in-person to remote transactions. We find that cash use declined faster than check use, in large part because transactions shifted from in person to remote. While the cash-use share of transactions dropped for almost all merchant types, changes in check use were much more heterogenous across merchants. COVID-19 accelerated the payments evolution away from cash for some merchant types, as their drop in cash payments was much larger during the pandemic than prior to it. Merchants whose transactions are typically conducted in person experienced the largest decline in cash payments during the pandemic. Regression results show that the probability of using either cash or checks declined significantly in 2019 and 2020, even after controlling for merchant types, the dollar value of transactions, and consumers’ socio-demographic attributes.
    Keywords: consumer payments; merchant category; cash; check; cards; electronic payments; COVID-19
    JEL: D12 D14 E42
    Date: 2022–02–01
  56. By: Tsoulfidis, Lefteris
    Abstract: In recent years there is a revival of political economy and discussions are about the near linearities of price rate of profit trajectories. In this article, we argue that the economy’s input-output data are of low effective dimensionality, meaning that there is overfitting of both data and dimensions and that the fundamental behavior of the economy can be tracked down with the use of a low dimensional system.
    Keywords: Near-linearity, price trajectories, eigendecomposition, effective rank, Shannon entropy
    JEL: B24 B51 C67 D46 D57 E11 E31
    Date: 2022–04–12
  57. By: David Coyne; Itzik Fadlon; Tommaso Porzio
    Abstract: We propose using penalized withdrawals from retirement savings accounts, identified from U.S. tax records, as a revealed-preference tool to characterize households' valuation of liquidity. A simple dynamic model formalizes the notion that the prevalence of withdrawals can be used to characterize American households' valuation of liquidity over time and space. We find pervasive evidence of high valuation of liquidity, hence that shocks are imperfectly insured. Declines in households' income lead to sudden, large, and persistent jumps in the probability of penalized withdrawals. Both local economic conditions and persistent household characteristics play an important role, with the average valuation of liquidity being higher in financially underdeveloped areas as well as in black communities which are plausibly marginalized from the credit market. Finally, applying our tool to the Great Recession, we find that more affected areas saw larger increases in penalized withdrawals, plausibly driven by tightening of local credit conditions. Our analysis offers a new tool to study the valuation of liquidity and our results point to sizable welfare gains from social insurance policies targeted at both households and locations over time.
    JEL: D14 D53 D61 E21 G51 H0 I38 J15 R1
    Date: 2022–04
  58. By: Adalid, Ramón; Álvarez-Blázquez, Álvaro; Assenmacher, Katrin; Burlon, Lorenzo; Dimou, Maria; López-Quiles, Carolina; Martín Fuentes, Natalia; Meller, Barbara; Muñoz, Manuel A.; Radulova, Petya; Rodriguez d’Acri, Costanza; Shakir, Tamarah; Šílová, Gabriela; Soons, Oscar; Veghazy, Alexia Ventula
    Abstract: In July 2021 the Eurosystem decided to launch the investigation phase of the digital euro project, which aims to provide euro area citizens with access to central bank money in an increasingly digitalised world. While a digital euro could offer a wide range of benefits, it could prompt changes in the demand for bank deposits and services from private financial entities (ECB, 2020a), with knock-on consequences for bank lending and resilience. By inducing bank disintermediation, a central bank digital currency, or CBDC, could in principle alter the transmission of monetary policy and impact financial stability. To prevent this risk, options to moderate CBDC take-up are being discussed widely.In view of the significant degree of uncertainty surrounding the design of a potential digital euro, its demand and the prevailing environment in which it would be introduced, this paper explores a set of analytical exercises that can offer insights into the consequences it could have for bank intermediation in the euro area.Based on assumptions about the degree of substitution between different forms of money in normal times, several take-up scenarios are calculated to illustrate how the potential demand for a digital euro might shape up. The paper then analyses the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits. JEL Classification: E42, E51, G21
    Keywords: bank intermediation, bank runs, CBDC, digital euro
    Date: 2022–05
  59. By: Eder, Andreas; Koller, Wolfgang; Mahlberg, Bernhard
    Abstract: This paper investigates the contribution of industrial robots to labor productivity growth and the process of economic convergence in 19 developed and 17 emerging countries in the period 1999 to 2019. To answer our research questions, we extend the non-parametric production frontier framework by considering industrial robots as a separate production factor. Production frontiers and distances to the frontiers are estimated by Data Envelopment Analysis, a method based on linear programming models. Considerable contributions of robotization to labor productivity growth are mainly found in emerging countries and are rather modest in most developed countries. In the period 2009 to 2019 robot capital deepening as a source of productivity growth has gained in importance in emerging countries but not in developed countries. Within the period 1999 to 2019 we find some evidence of i) unconditional β-convergence, ii) a reduction in the dispersion of productivity levels across economies (σ-convergence) and iii) a depolarization (shift from bimodal to unimodal distribution) of the labor productivity distribution. Non-robot physical capital deepening and robotization are the most important drivers of β-convergence. Robot capital deepening contributed to the depolarization of the labor productivity distribution and to σ-convergence. Though, the effect of robot capital deepening on the entire shift of the labor productivity distribution between 1999 and 2019 is modest and dominated by other growth factors such as technological change and non-robot physical capital deepening.
    Keywords: automation; robotization; decomposition; data envelopment analysis; emerging countries; developed countries
    JEL: E24 O33 O47
    Date: 2022–03
  60. By: Nikola Fabris; Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Bank stability is an important aspect of financial stability, especially in bank-centric systems such as those in Southeast Europe. The financial crisis has shown that there is a particular need to monitor credit and other similar risks. Hence, it is important to analyse risks affecting the stability of both the banking sector and the financial system as a whole. To that end, central banks have developed macroprudential policies aiming to safeguard financial stability. However, little is known about the drivers of some financial risks. In that context, this study analyses the determinants of credit risk, which is the most prominent risk in the banking sectors of three selected Southeast European economies – Montenegro, Kosovo* and Bosnia and Herzegovina. Dynamic panel data techniques were applied to 48 banks, which represent almost the entire banking sectors in the respective countries. The empirical evidence has shown that both macroeconomic and bank-specific determinants represent influential factors driving credit risk in Southeast Europe. Particularly important macroeconomic factors affecting credit risk are business cycle and sovereign debt. On the other hand, bank size, capital levels, credit activity and profitability are the most prominent factors influencing credit risk in the region.
    Keywords: Credit Risk, Financial Stability, Southeast Europe, Banking
    JEL: G21 E37
    Date: 2022–05
  61. By: Caroline Jardet (Centre de recherche de la Banque de France - Banque de France); Baptiste Meunier (Centre de recherche de la Banque Centrale européenne - Banque Centrale Européenne, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Although the Covid-19 crisis has shown how high-frequency data can help track the economy in real time, we investigate whether it can improve the nowcasting accuracy of world GDP growth. To this end, we build a large dataset of 718 monthly and 255 weekly series. Our approach builds on a Factor-Augmented MIxed DAta Sampling (FA-MIDAS), which we extend with a preselection of variables. We find that this preselection markedly enhances performances. This approach also outperforms a LASSO-MIDAS—another technique for dimension reduction in a mixed-frequency setting. Though we find that a FA-MIDAS with weekly data outperform other models relying on monthly or quarterly data, we also point to asymmetries. Models with weekly data have indeed performances similar to other models during "normal" times but can strongly outperform them during "crisis" episodes, above all the Covid-19 period. Finally, we build a nowcasting model for world GDP annual growth incorporating weekly data that give timely (one per week) and accurate forecasts (close to IMF and OECD projections but with 1- to 3-month lead). Policy-wise, this can provide an alternative benchmark for world GDP growth during crisis episodes when sudden swings in the economy make usual benchmark projections (IMF's or OECD's) quickly outdated.
    Keywords: big data,high frequency,large factor models,mixed frequency,nowcasting,variable selection
    Date: 2022
  62. By: Thöne, Michael
    Abstract: The concept of the "quality of public finances" (QPF) covers many qualitative and structural issues of fiscal policy. This chapter traces the origins of the concept of QPF to the Lisbon Strategy and the subsequent EPC Working Group on "Quality of Public Finances" (2004-2007). At its core, the QPF focuses on the impact that the composition of public spending has on long-term goals such as economic growth. Growth- and sustainability-enhancing public spending comprises infrastructure investment, human capital investment (education, health, family policy, gender policy) and spending on natural capital and climate protection. Today, QPF indicators can very helpful in national fiscal governance and for the supranational surveillance as in the EU. A future QPF approach for the 2020s should help to prioritize inclusive growth and decoupling economic growth from the use of finite resources. Quality indicators can also help to determine the legit- imate levels of new government debt ("green golden rule").
    Keywords: Quality of public finances (QPF),expenditure composition,growth-enhancing public spending,fiscal governance,decoupling,green golden rule
    JEL: E62 H11 H50 H52 H54 H61
    Date: 2022
  63. By: Dutta, Nabamita (University of Wisconsin, La Crosse); Kar, Saibal (Centre for Studies in Social Sciences, Calcutta)
    Abstract: India experienced one of the strictest lockdowns during COVID-19 and sections of the workforce seemed overwhelmingly disadvantaged. Given substantial poverty still, marginalized daily wage labor and gendered outcomes in the context of India, economic shocks are expected to have disparate implications. Employing World Bank data for rural areas in six states of India, we investigate the probability of female employment during the lockdown period between March and May 2020. Based on marginal estimates of logit specifications, our results show that females, in general, were 8 percent less likely to be employed as compared to males. Females belonging to marginalized castes experienced higher likelihood of being unemployed – between 9 and 14%. Return migrants generally suffered less in terms of finding alternative jobs at the source, but being a female return migrant, the probability of joblessness rises to about 17%. For female return migrants belonging to marginalized castes, the probability of joblessness is about 10%. Lockdown is expected to have raised the economic inequality by gender and needs commensurate interventions.
    Keywords: COVID-19, lockdown, gender, unemployment, return migrants, India
    JEL: J16 F22 E24 C33
    Date: 2022–05
  64. By: Lorie Logan
    Abstract: Remarks at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop, New York City.
    Keywords: digital innovation in money; digital innovation in payments; digital currencies; stablecoins; central bank digital currencies (CBDCs); monetary policy implementation; central banks
    Date: 2022–06–02
  65. By: António Portugal Duarte (Faculdade de Economia da Universidade de Coimbra); Fátima Sol Murta (Faculdade de Economia da Universidade de Coimbra)
    Abstract: The aim of this paper is to analyze the macroeconomic impacts of the Covid-19 pandemic in the European Union (27 countries) and, particularly, in four of its economies – Germany, Spain, Italy and Portugal. For this purpose, a counterfactual analysis was conducted based on an ARIMA forecasting model through which the behavior of a set of macroeconomic variables (Gross Domestic Product, public debt, inflation rate, public deficit, and unemployment rate) is examined in the context of the Covid-19 pandemic against a hypothetical scenario without pandemic. In general, the results point to a significantly better performance of all variables in the four countries and in the European Union if the Covid-19 pandemic had not existed. In a scenario without the Covid-19 pandemic, all countries would have achieved higher product levels, showing, however, relatively weaker economic growth rates when compared to the pandemic situation, namely in 2021 and 2022. The results also point to budget surpluses in Germany and Portugal, in 2020, 2021 and 2022, as well as a sharp reduction (over 20 percentage points) in Spanish public debt. In 2021 and 2022, there is also a lower inflationary pressure for the European Union, Germany, Spain and Italy, after a very sharp rise in prices in 2020. Regarding the labor market, with the exception of Germany and European Union, where the unemployment rate would be relatively higher, especially in 2022, the remaining countries would register lower unemployment rates.
    Keywords: ARIMA, Counterfactual, Covid-19 pandemic, macroeconomic impacts
    JEL: C15 E63 F47 F62
    Date: 2022–05
  66. By: Oleg Itskhoki; Dmitry Mukhin
    Abstract: We show that the exchange rate may appreciate or depreciate depending on the specific mix of sanctions imposed, even if the underlying equilibrium allocation is the same. Sanctions that limit a country's imports tend to appreciate the country’s exchange rate, while sanctions that limit exports and/or freeze net foreign assets tend to depreciate it. Increased precautionary household demand for foreign currency is another force that depreciates the exchange rate, and it can be offset with domestic financial repression of foreign currency savings. The overall effect depends on the balance of currency demand and currency supply forces, where exports and official reserves contribute to currency supply and imports and foreign currency precautionary savings contribute to currency demand. Domestic economic downturn and government fiscal deficits are additional forces that affect the equilibrium exchange rate. The dynamic behavior of the ruble exchange rate following Russia's military invasion of Ukraine in February 2022 and the resulting sanctions is entirely consistent with the combined effects of these mechanisms.
    JEL: E50 F31 F32 F41 F51
    Date: 2022–04
  67. By: Omang Ombolo Messono (University of Douala, Douala, Cameroon); Simplice A. Asongu (Yaoundé, Cameroon); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: This study examines the effects of the historical prevalence of infectious diseases on contemporary gender equality. Previous studies reveal the persistence of the effects of historical diseases on innovation, through the channel of culture. Drawing on the Parasite-Stress Theory, we propose a framework which argues that historical prevalence of infectious disease reduces contemporary gender equality. Using Ordinary Least Squares (OLS) and Two Stage Least Squares (2SLS) in a cross-section with data from 122 countries between 2000 and 2021, we provide support for the underlying hypothesis. Past diseases reduce gender equality both directly and indirectly. The strongest indirect effects occur through innovation output. Gender equality analysis may take these findings into account and incorporate disease pathogens into the design of international social policy.
    Keywords: Africa, Fixed broadband, Economic growth, Non-linear effects
    JEL: E23 F21 F30 L96 O55
    Date: 2022–01
  68. By: Gianluca Benigno; Julian di Giovanni; Jan J. J. Groen; Adam I. Noble
    Abstract: Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. Furthermore, recent developments related to geopolitics and the pandemic (particularly in China) could put further strains on global supply chains. In a January post, we first presented the Global Supply Chain Pressure Index (GSCPI), a parsimonious global measure designed to capture supply chain disruptions using a range of indicators. We revisited our index in March, and today we are launching the GSCPI as a standalone product, with new readings to be published each month. In this post, we review GSCPI readings through April 2022 and briefly discuss the drivers of recent moves in the index.
    Keywords: global supply chain; Global Supply Chain Pressure Index (GSCPI)
    JEL: F0 E31
    Date: 2022–05–18
  69. By: Robert Amzallag
    Abstract: The COVID 19 pandemic followed by the invasion of Ukraine is a two-punch economic strike never seen in recent history. The pandemic not only disrupted many aspects of a tightly knit integrated world but also exposed its fragility. The devastation of Ukraine and the sanctions quickly imposed by most major developed countries have accelerated the retreat of globalization. For many decades, Central Bankers and economists considered stable prices as an almost permanent feature. Today, the consumer price index in the US hit a 40-year high at more than 8 per cent and experts were unable to predict such course of inflation. In this paper, Robert Amzallag, CIRANO Invited Fellow, looks at these recent events in the light of the factors that have altered significantly and reliably inflation since World War II. Despite the dire economic challenges, the economy recovered quickly after the war. The financial imbalances rectified in only a few years and inflation was tamed. Can the same thing be achieved today? The author’s analysis suggests that this is highly improbable. Deep-rooted inflationary forces are at work because of the distortions that the economic order of the last 40 years has created. These distortions, exacerbated by the dual crisis of COVID 19 and the invasion of Ukraine, will take long to repair. La pandémie de COVID 19 et l'invasion de l'Ukraine ont créé un choc économique d’une ampleur jamais vue dans l'histoire récente. La pandémie a perturbé de nombreux aspects d'une économie mondiale tissée serrée. Elle a également mis en évidence sa fragilité. La dévastation de l'Ukraine et les sanctions rapidement imposées par la plupart des grands pays développés ont accéléré le processus de repli de la mondialisation. Pendant de nombreuses décennies, les gouverneurs des banques centrales et les économistes ont considéré la stabilité des prix comme quelque chose de permanent. Aujourd'hui, l'indice des prix à la consommation aux États-Unis a atteint son plus haut niveau depuis 40 ans, à plus de 8 pour cent, une évolution que les experts ont été incapables de prévoir. Dans cet article, Robert Amzallag, Fellow invité CIRANO, examine les événements récents à la lumière de ceux qui ont profondément marqué l’évolution de l'inflation depuis la Seconde Guerre mondiale. Malgré les graves difficultés économiques, l'économie s'est rapidement redressée au sortir de la guerre. En seulement quelques années, les déséquilibres financiers se sont corrigés et l'inflation a été maîtrisée. Est-ce qu’on aura un tel succès aujourd’hui ? Selon l’auteur c’est très improbable. Au cours des 40 dernières années, l’ordre économique a créé des distorsions telles que les forces inflationnistes sont maintenant profondément enracinées. Ces distorsions, exacerbées par le double choc de la COVID 19 et l’invasion de l’Ukraine, mettront du temps à se résorber.
    Keywords: Economic crisis,Inflation,Covid-19,War in Ukraine,Distortions, Crise économique,Inflation,Covid-19,Guerre en Ukraine,Distorsions
    Date: 2022–05–31
  70. By: Kohnert, Dirk
    Abstract: ABSTRACT & RÉSUMÉ & ZUSAMMENFASSUNG : Boris Johnson’s populist policy against immigrants and asylum seekers, dumped in detention camps in Rwanda, may not succeed because of legal constraints. Yet, his political agenda will probably work nevertheless, given the growing xenophobia among his electorate. Against expert advice, Home Secretary Priti Patel promised the autocratic ruler in Kigali, Paul Kagame, responsible among others for retribution killings of his army (RPF), to transfer an initial £120m to deter the migrants and to make them 'settle and thrive' in Rwanda. However, London would have to pay much more in the proposed 'economic transformation and integration fund' for the current cost. It is highly unlikely that Rwanda will be able to cope with additional immigrants as it is already struggling to accommodate its own more than 130,000 refugees. Moreover, in the past, also Denmark and Israel had tried in vain to execute similar policies to get rid of undesirable migrants and settle them in Rwanda and Uganda. Johnson's scheme reminded Britain's foremost historian of Nazi Germany, Sir Richard Evans, of Hitler's ploy to deport Jews to Madagascar. Thus, policies purported to aim at 'migration control' may not control migration, but reconfigure potential host societies along ethnic, racial, linguistic, and xenophobe lines. The burden of colonial heritage persists in attempts to reject 'strangers' through populist politics, culture and public discourse. This policy was revived and adjusted in the post-Brexit era, as exemplified by the preferential treatment given to Ukrainian migrants. Racism works best when it's overtly selective. Treating some migrants as “worthy” and others as “undeserving” avoids accusations of racism. It allows racist voters to be fooled into believing that they are personally virtuous while secretly or unconsciously indulging their basest instincts. RÉSUMÉ : La politique populiste de Boris Johnson contre les immigrés et les demandeurs d'asile, jetés dans des camps de détention au Rwanda, risque d'échouer en raison de contraintes légales. Pourtant, son programme politique fonctionnera probablement néanmoins, étant donné la xénophobie croissante parmi son électorat. Contre l'avis des experts, le ministre de l'Intérieur Priti Patel a promis au dirigeant autocratique à Kigali, Paul Kagame, responsable entre autres des meurtres en représailles de son armée (FPR), de transférer un montant initial de £120m pour dissuader les migrants et les faire « s'installer et prospérer » au Rwanda. Cependant, Londres devrait payer beaucoup plus dans le « fonds de transformation et d'intégration économiques » proposé pour le coût actuel. Il est très peu probable que le Rwanda soit en mesure de faire face à des immigrants supplémentaires car il a déjà du mal à accueillir ses propres 130 000 réfugiés. De plus, dans le passé, le Danemark et Israël avaient également tenté en vain d'exécuter des politiques similaires pour se débarrasser des migrants indésirables et les installer au Rwanda et en Ouganda. Le plan de Johnson a rappelé au plus grand historien britannique de l'Allemagne nazie, Sir Richard Evans, du plan d'Hitler de déporter les Juifs à Madagascar. Ainsi, les politiques censées viser le « contrôle de la migration » peuvent ne pas contrôler la migration, mais reconfigurer les sociétés d'accueil potentielles selon des critères ethniques, raciaux, linguistiques et xénophobes. Le fardeau de l'héritage colonial persiste alors que la politique populiste, la culture et le discours public cherchent à repousser les « étrangers ». Cette politique a été relancée et ajustée dans l'ère post-Brexit, comme en témoigne le traitement préférentiel accordé aux migrants ukrainiens. Parce que le racisme fonctionne mieux quand il est ouvertement sélectif. Traiter certains migrants comme « méritants » et d'autres comme « indignes » évite les accusations de racisme. Cela permet aux électeurs racistes d'être trompés en leur faisant croire qu'ils sont personnellement vertueux tout en se livrant secrètement ou inconsciemment à leurs instincts les plus bas. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ZUSAMMENFASSUNG : Boris Johnsons populistische Politik gegen Einwanderer und Asylsuchende, die in Ruanda in Internierungslagern inhaftiert werden sollen, droht an rechtlichen Zwängen zu scheitern. Dennoch wird seine politische Agenda angesichts der wachsenden Fremdenfeindlichkeit unter seiner Wählerschaft wahrscheinlich trotzdem funktionieren. Gegen den Rat von Experten versprach Innenminister Priti Patel dem autokratischen Führer in Kigali, Paul Kagame, der unter anderem für die Vergeltungsmorde seiner Armee (RPF) verantwortlich ist, eine Anfangsfinanzierung von £120m, um Migranten abzuschrecken und sie dazu zu bringen, sich in Ruanda ‚niederzulassen und zu gedeihen‘. Allerdings müsste London für die laufenden Kosten deutlich mehr in den vorgeschlagenen „Fonds für wirtschaftliche Transformation und Integration“ einzahlen. Es ist höchst unwahrscheinlich, dass Ruanda mit zusätzlichen Einwanderern fertig wird, da es bereits Schwierigkeiten hat, seine eigenen 130.000 Flüchtlinge unterzubringen. Darüber hinaus hatten Dänemark und Israel in der Vergangenheit ebenfalls erfolglos versucht, eine ähnliche Politik durchzuführen, um unerwünschte Migranten loszuwerden und sie in Ruanda und Uganda anzusiedeln. Johnsons Plan erinnerte den führenden britischen Historiker von Nazi-Deutschland, Sir Richard Evans, an Hitlers Plan, Juden nach Madagaskar zu deportieren. Daher kann eine Politik, die angeblich auf „Migrationskontrolle“ abzielt, die Migration möglicherweise nicht kontrollieren, sondern potenzielle Aufnahmegesellschaften entlang ethnischer, rassischer, sprachlicher und fremdenfeindlicher Linien neu konfigurieren. Die Last des kolonialen Erbes besteht fort im Bestreben, „Außenseiter“ durch populistische Politik, Kultur und öffentlichen Diskurs abzuweisen. Diese Politik wurde in der Post-Brexit-Ära wiederbelebt und angepasst, wie das Beispiel der bevorzugten Behandlung ukrainischer Migranten zeigt. Denn Rassismus funktioniert am besten, wenn er offen selektiv ist. Einige Migranten als „würdig“ und andere als „unwürdig“ zu behandeln, vermeidet den Vorwurf des Rassismus. Es ermöglicht rassistischen Wählern glauben zu machen, dass sie persönlich tugendhaft sind, während sie heimlich oder unbewusst ihren niedrigsten Instinkte frönen.
    Keywords: Grande-Bretagne, Rwanda, immigration, réfugiés, migration africaine vers la Grande-Bretagne, études postcoloniales, consolidation de la paix, politiques identitaire, nationalisme, xénophobie, discrimination, pauvreté africaine, famine, Afrique subsaharienne, droits de l'homme, Boris Johnson, Paul Kagame
    JEL: E24 E26 E61 F22 F24 F35 F52 F54 F66 J46 J61 J71 K37 N17 N37 N47 N97 P16 Z13
    Date: 2022–05–17
  71. By: Abdul Jalil (Pakistan Institute of Development Economics)
    Abstract: The Pakistani rupee has depreciated, against the US dollar, around 10 per cent, since May 2021 (see Figure 1). This is a natural response of the exchange rate parity to swelling trade deficit, mounting inflation, and negative real interest rates. Considering the macroeconomic fundamentals of the Pakistani economy, it is expected that the rupee will remain under pressure and will continue on the fall. This situation raises several questions. What should be the response of the State Bank of Pakistan (SBP)? Should SBP intervene in the forex market or not save the parity? If yes, then how much? If not, then why? What should be the course of action of the government and the SBP in the long run?
    Keywords: Understanding, Exchange Rate, Depreciation
    Date: 2021
  72. By: Klaus Adam; Stefan Nagel
    Abstract: Asset prices reflect investors' subjective beliefs about future cash flows and prices. In this chapter, we review recent research on the formation of these beliefs and their role in asset pricing. Return expectations of individual and professional investors in surveys differ markedly from those implied by rational expectations models. Variation in subjective expectations of future cash flows and price levels appear to account for much of aggregate stock market volatility. Mapping the survey evidence into agent expectations in asset pricing models is complicated by measurement errors and belief heterogeneity. Recent efforts to build asset pricing models that match the survey evidence on subjective belief dynamics include various forms of learning about payout or price dynamics, extrapolative expectations, and diagnostic expectations. Challenges for future research include the exploration of subjective risk perceptions, aggregation of measured beliefs, and links between asset market expectations and the macroeconomy.
    JEL: E71 G12 G41
    Date: 2022–04
  73. By: Syed M. Ahsan; S. Quamrul Ahsan
    Abstract: The present note raises the issue of how best to interpret the World Bank’s (WB) much used ‘constant USD per capita income’ concept and similar series. We find that the guide to its construction appearing on the WB data portal to be sketchy. The procedures essentially convert all host-country national accounts data, in USD terms, to a common base year, currently 2015. Laudably, this renders all data internationally comparable, though one may question its cardinality. We show that the concept relies on the market exchange rate of a host-country in the base year, and hence whenever the WB alters its base year as it does every few years, the ‘constant USD’ values are directly affected by the shift in a host country’s market exchange rate during the interim period. The latter feature injects an element of randomness in the resulting income concept to the extent the observed exchange rates deviate even temporarily from what one may consider their equilibrium level. Consequently, we recommend replacing the market rate by its ‘smoothed’ version to render the resulting income series more reliable.
    Keywords: per capita income, constant USD income, current USD income, GDP deflator
    JEL: E31 F31 O11
    Date: 2022
  74. By: Markus K. Brunnermeier; Sebastian, Sannikov, Yuliy Merkel; Sebastian Merkel
    Abstract: The price of a safe asset reflects not only the expected discounted future cash flows but also future service flows, since retrading allows partial insurance of idiosyncratic risk in an incomplete markets setting. This lowers the issuers’ interest burden and allows the government to run a permanent (primary) deficit without ever paying back its debt. As idiosyncratic risk rises during recessions, so does the value of the service flows bestowing the safe asset with a negative ß. This resolves government debt valuation puzzles. Nevertheless, the government faces a “Debt Laffer Curve”. The paper also has important implications for fiscal debt sustainability.
    Keywords: safe asset, government debt, Debt Laffer Curve, Ponzi Scheme, fiscal capacity, I Theory of Money, r vs. g
    Date: 2021
  75. By: Zdravka Todorova
    Abstract: The article discusses commitment to full employment in light of institutional theory and offers a renewed examination of Keynes’s "socialization of investment" concept. The discussion builds on Veblen's theory of human development, predation, and capitalism. It highlights contemporary institutional inquiry in a discussion of ongoing issues of care and social disparities. Based on this, the article formulates problems for a broader inquiry about socialization of investment. The article provides insights about Job Guarantee based on original institutional economics concepts.
    Keywords: job guarantee, care systems, Feminist Post Keynesian-Institutional economics, social stratification, socialization of investment, Modern Money Theory and institutions
    JEL: B52 B54 E12 P16 Z18
    Date: 2022–05
  76. By: Boysen-Hogrefe, Jens
    Abstract: Der Anstieg der Verbraucherpreise wird begleitet von deutlich stärkeren Preisanstiegen bei den Erzeugerpreisen im Verarbeitenden Gewerbe und den Preisen für Warenimporte. Nicht unmittelbar ersichtlich ist dabei jedoch, wieviel von diesen Preisanstiegen bereits an die Verbraucher weitergegeben wurde bzw. wieviel Preisdruck noch in der Pipeline ist. In diesem Beitrag wird mittels der Input-Output-Tabelle des Jahres 2018 (IO2018) von der Preisdynamik auf der Erzeugerstufe und auf der Importseite auf die der Verbraucherpreise geschlossen. Demnach sind die Preisanstiege bei Erzeuger- und Importpreisen aus der zweiten Jahreshälfte 2021 bis zum Februar 2022 noch nicht vollständig auf der Verbraucherpreisebene angekommen.
    Keywords: Inflation,Konjunktur,Konjunktur Deutschland,Deutschland
    Date: 2022
  77. By: Florian Ederer; Bruno Pellegrino
    Abstract: We study the welfare implications of the rise of common ownership in the United States from 1994 to 2018. We build a general equilibrium model with a hedonic demand system in which firms compete in a network game of oligopoly. Firms are connected through two large networks: the first reflects ownership overlap, the second product market rivalry. In our model, common ownership of competing firms induces unilateral incentives to soften competition. The magnitude of the common ownership effect depends on how much the two networks overlap. We estimate our model for the universe of U.S. public corporations using a combination of firm financials, investor holdings, and text-based product similarity data. We perform counterfactual calculations to evaluate how the efficiency and the distributional impact of common ownership have evolved over time. According to our baseline estimates the welfare cost of common ownership, measured as the ratio of deadweight loss to total surplus, has increased nearly tenfold (from 0.3% to over 4%) between 1994 and 2018. Under alternative assumptions about governance, the deadweight loss ranges between 1.9% and 4.4% of total surplus in 2018. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers.
    JEL: D43 D85 E23 G23 G34 L16 L21
    Date: 2022–04

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