nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒06‒20
124 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Exchange rate and inflation under weak monetary policy: Turkey verifies theory By Gürkaynak, Refet S.; Kısacıkoğlu, Burçin; Lee, Sang Seok
  2. Managing Monetary Policy Normalization By Gianluca Benigno; Pierpaolo Benigno
  3. Labor Supply Shocks, Labor Force Entry, and Monetary Policy By Takushi Kurozumi; Willem Van Zandweghe
  4. The Geographic Effects of Monetary Policy By Juan Herreno; Mathieu Pedemonte
  5. Commodity price shocks and macroeconomic dynamics By Ruthira Naraidoo; Juan Paez-Farrell
  6. Big Recessions and Slow Recoveries By Juan Carlos Castro Fernández; Juan Carlos Castro Fernández
  7. How important are shocks to the elasticity of aggregate labor supply for business cycle fluctuations? By Aleksandar Vasilev
  8. The U.S. rise in inflation levels and the loss of purchasing powers. By De Koning, Kees
  9. Exchange Rate and Inflation under Weak Monetary Policy: Turkey Verifies Theory By Refet S. Gürkaynak; Burcin Kisacikoglu; Sang Seok Lee
  10. Q-Monetary Transmission By Priit Jeenas; Ricardo Lagos
  11. Credibility and Explicit Inflation Targeting By Robert G. King; Yang K. Lu
  12. State Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations By Yoon J. Jo; Sarah Zubairy
  13. Global Stagflation By Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
  14. Constructing Density Forecasts from Quantile Regressions: Multimodality in Macro-Financial Dynamics By James Mitchell; Aubrey Poon; Dan Zhu
  15. Is the Bank of Canada concerned about inflation or the state of the economy? By Ke Pang, Christos Shiamptanis
  16. Financial crises and shadow banks: A quantitative analysis By Rottner, Matthias
  17. A baseline stock-flow model for the analysis of macroprudential regulation for Latin America and the Caribbean By Esteban Ramon Perez Caldentey; Lorenzo Nalin; Leonardo Rojas
  18. Internationalizing Like China By Clayton, Christopher; Dos Santos, Amanda; Maggiori, Matteo; Schreger, Jesse
  19. Impact of Occupational Unemployment Risk on Household Spending By Christopher D. Cotton; Vaishali Garga; Justin Rohan
  20. A simple framework for analyzing the macroeconomic effects of inside money By Balázs Világi; Balázs Vonnák
  21. Government Debt and Capital Accumulation in an Era of Low Interest Rates By N. Gregory Mankiw
  22. The Marginal Propensity to Consume in Heterogeneous Agent Models By Greg Kaplan; Giovanni L. Violante
  23. Scarce, Abundant, or Ample? A Time-Varying Model of the Reserve Demand Curve By Gara Afonso; Domenico Giannone; Gabriele La Spada; John C. Williams
  24. Short-time work policies during the COVID-19 pandemic By Julien Albertini; Xavier Fairise; Arthur Poirier; Anthony Terriau
  25. Effects of inflation (consumer price index) and other macroeconomic variables on bank deposits: Evidence from Pakistan By Mushtaq, Saba; Mushtaq, Faiza
  26. Labor Market Institutions, Fiscal Multipliers, and Macroeconomic Volatility By Maximilian Boeck; Jesús Crespo Cuaresma; Christian Glocker
  27. Monopsony Makes Firms Not Only Small but Also Unproductive: Why East-Germany Has Not Converged By Ruediger Bachmann; Christian Bayer; Heiko Stüber; Felix Wellschmied
  28. How well can large banks in Canada withstand a severe economic downturn? By Andisheh (Andy) Danaee; Harsimran Grewal; Brad Howell; Guillaume Ouellet Leblanc; Xuezhi Liu; Xiangjin Shen; Mayur Patel
  29. Uncertainty Shocks, Capital Flows, and International Risk Spillovers By Ozge Akinci; Sebnem Kalemli-Ozcan; Albert Queraltó
  31. Accounting for Risk in a Linearized Solution: How to Approximate the Risky Steady State and Around It By Pierlauro Lopez; J. David López-Salido; Francisco Vazquez-Grande
  32. Identification with external instruments in structural VARs By Agrippino, Silvia Miranda; Ricco, Giovanni
  33. Top Earners: a Labor Productivity Process By Campanale Claudio; Rocio Fernandez-Bastidas
  34. Determinants of public debt in South Africa: A Regime-Switching Approach By Hlongwane, Nyiko Worship; Daw, Olebogeng David
  35. How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers By Katya Kartashova; Xiaoqing Zhou
  36. Labour Market Effects of Supply Chain Bottlenecks By Hummel, Markus; Hutter, Christian; Weber, Enzo
  37. Fiscal Policy and the Slowdown in Trend Growth in an Open Economy By Alexander Beames; Mariano Kulish; Nadine Yamout
  38. Asymmetric Investment Rates By Bai, Hang; Li, Erica X. N.; Xue, Chen; Zhang, Lu
  39. Zombie-Lending in the United States: Prevalence versus Relevance By Maximilian Göbel; Nuno Tavares
  40. Financial Crises and Expectation-driven Recessions By Juan Carlos Castro Fernández; Juan Carlos Castro Fernández
  41. The Theory of Efficient Growth By Germinal G. Van
  42. Inflation Illiteracy – A Micro-Data Analysis By Andersson, Fredrik N G; Hjalmarsson, Erik; Österholm, Pär
  43. Preliminary overview of the economies of the Caribbean 2020–2021 By Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Pantin, Machel; Skerrette, Nyasha; Victor, Keron
  44. Wealth and income inequality in the long run By Philipp Lieberknecht; Philip Vermeulen
  45. Did Doubling Reserve Requirements Cause the 1937-38 Recession? New Evidence on the Impact of Reserve Requirements on Bank Reserve Demand and Lending By Charles W. Calomiris; Joseph R. Mason; David C. Wheelock
  46. Asset Pricing with Free Entry and Exit of Firms By Lorant Kaszab; Ales Marsal; Katrin Rabitsch
  47. Lost in Negative Territory? Search for Yield! By Mattia Girotti; Guillaume Horny; Jean-Guillaume Sahuc
  48. Monetary Policy and Portfolio Flows in an Emerging Market Economy By Martha López-Piñeros; Norberto Rodríguez-Niño; Miguel Sarmiento
  49. State-Contingent Forward Guidance By Julien Albertini; Valentin Jouvanceau; Stéphane Moyen
  50. Central bank swap lines: micro-level evidence By Ferrara, Gerardo; Mueller, Philippe; Viswanath-Natraj, Ganesh; Wang, Junxuan
  51. Optimal Taxation of Risky Entrepreneurial Capital By Corina Boar; Matthew Knowles
  52. International Monetary Spillovers to Frontier Financial Markets: Evidence from Bangladesh By Sardar, Rashedur; Schaffer, Matthew
  53. Monetary Policy and Household Loan Supply: Volume and Composition Effects By Győző Gyöngyösi; Steven Ongena; Ibolya Schindele
  54. A tale of two global monetary policies By Agrippino, Silvia Miranda; Nenova, Tsvetelina
  55. Who Benefited Most from the CARES Act Unemployment Insurance Provisions? By Lei Fang; Jun Nie; Zoe Xie
  56. Heterogeneous effects and spillovers of macroprudential policy in an agent-based model of the UK housing market By Carro, Adrian; Hinterschweiger, Marc; Uluc, Arzu; Farmer, J. Doyne
  57. Evolution of the Exchange Rate Pass-Throught into Prices in Peru: An Empirical Application Using TVP-VAR-SV Models By Calero Roberto; Gabriel Rodríguez; Salcedo Cisnero Roberto
  58. Monetary compensation schemes during the COVID-19 pandemic: Implications for household incomes, liquidity constraints and consumption across the EU By Silvia De Poli; Michael Christl; Francesco Figari; Tine Hufkens; Chrysa Leventi; Andrea Papini; Alberto Tumino
  59. Does unemployment worsen babies’ health? A tale of siblings, maternal behaviour, and selection By De Cao, Elisabetta; McCormick, Barry; Nicodemo, Catia
  60. Employer Reallocation During the COVID-19 Pandemic: Validation and Application of a Do-It-Yourself CPS By Alexander Bick; Adam Blandin
  61. A Functional Analysis of the Banking Industry By Riccardo Zolea
  62. Expectation-Driven Term Structure of Equity and Bond Yields By Ming Zeng; Guihai Zhao
  63. Market Operations under the Three-Tier System- Explanation Using the Reserve Demand Curve Model - By Takuto Arao
  64. Should wages be subsidized in a pandemic? By Brant Abbott; Nam Phan
  65. Applying import-adjustmed demand methodology to trade analysis during the COVID-19 crisis: What do we learn? By Auboina, Marc; Borino, Floriana
  66. LPEM FEBUI Quarterly Economic Outlook 2022 Q1 By Jahen F. Rezki; Syahda Sabrina; Nauli A. Desdiani; Teuku Riefky; Amalia Cesarina; Meila Husna; Faradina Alifia Maizar
  67. The Great Recalibration of U.S. Monetary Policy By Loretta J. Mester
  68. This time is not so different: income dynamics during the Covid-19 recession By Brian Bell; Nicholas Bloom; Jack Blundell
  69. Heterogeneity in imperfect inflation expectations:theory and evidence from a novel survey By Alistair Macaulay; James Moberly
  70. One-way ticket to Rwanda ? Boris Johnson's cruel refugee tactic meets Kagame's shady immigration handling By Kohnert, Dirk
  71. The 2003 Tax Reform and Corporate Payout Policy in the US By Danilo Stojanovic
  72. Evaluation of the credibility of the Brazilian inflation targeting system using mixed causal-noncausal models By Alain Hecq; Joao Issler; Elisa Voisin
  73. A Model of the Relationship between the Interest Rate and the Profit Rate By Zolea, Riccardo
  74. The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases By Richard Finlay; Dmitry Titkov; Michelle Xiang
  75. Finance-Growth Nexus: Evidence from Angola By Manuel Ennes Ferreira; Jelson Serafim; João Dias
  76. The Song Remains the Same By John C. Williams
  77. Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification By Pablo Ottonello; Wenting Song
  78. Advance Information and Consumption Insurance: Evidence from Panel Data By Marcelo Pedroni; Swapnil Singh; Christian Stoltenberg
  79. LPEM FEBUI Quarterly Economic Outlook 2021 Q2 By Jahen F. Rezki; Syahda Sabrina; Nauli A. Desdiani; Teuku Riefky; Amalia Cesarina; Meila Husna; Faradina Alifia Maizar
  80. Sovereign Spreads and Corporate Taxation By Hayley Pallan
  81. A basic macroeconomic agent-based model for analyzing monetary regime shifts By Florian Peters; Doris Neuberger; Oliver Reinhardt; Adelinde Uhrmacher
  82. Characteristics of Price Developments in Japan: Summary of the First Workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic" By Monetary Affairs Department
  83. Reflections on Monetary Policy in 2021: a speech at the 2022 Hoover Institution Monetary Conference, Stanford, California, May 6, 2022 By Christopher J. Waller
  84. Data and Market Power By Jan Eeckhout; Laura Veldkamp
  85. LPEM FEBUI Quarterly Economic Outlook 2021 Q3 By Jahen F. Rezki; Syahda Sabrina; Nauli A. Desdiani; Teuku Riefky; Amalia Cesarina; Meila Husna; Faradina Alifia Maizar
  86. LPEM FEBUI Quarterly Economic Outlook 2021 Q1 By Jahen F. Rezki; Syahda Sabrina; Nauli A. Desdiani; Teuku Riefky; Amalia Cesarina; Meila Husna
  87. The Market-Based Asset Price Probability By Olkhov, Victor
  88. Unstable Coins: The Early History of Central Bank Analog Currencies By William Roberds
  89. Greece 2010-18: What could we have done differently? By Cyrille Lenoël; Corrado Macchiarelli; Garry Young
  90. Influence of Freedom of Choice on Happiness By Koohborfardhaghighi, Somayeh; Summers, Christopher R.; Heshmati, Almas; Altmann, Jörn
  91. Firm Heterogeneity, Market Power and Macroeconomic Fragility By Alessandro Ferrari; Francisco Queir\'os
  92. Policy Choice in Time Series by Empirical Welfare Maximization By Toru Kitagawa; Weining Wang; Mengshan Xu
  93. Housing Demand and Remote Work By John Mondragon; Johannes F. Wieland
  94. The Anatomy of Consumption in a Household Foreign Currency Debt Crisis By Győző Gyöngyösi; Judit Rariga; Emil Verner
  95. LPEM FEBUI Quarterly Economic Outlook 2022 Q2 By Jahen F. Rezki; Syahda Sabrina; Nauli A. Desdiani; Teuku Riefky; Amalia Cesarina; Meila Husna; Faradina Alifia Maizar
  96. Balance preliminar de las economías de Centroamérica y la República Dominicana en 2021 y perspectivas para 2022. Febrero 2022 By -
  97. Supply Chain Network and Credit Supply By Kensuke Fukunaga; Daisuke Miyakawa
  98. Why Do We Have Less Investment Than China and India? By Hafsa Hina
  99. Optimal Management of an Epidemic: Lockdown, Vaccine and Value of Life By Carlos Garriga; Rodolfo E. Manuelli; Siddhartha Sanghi
  100. Measuring U.S. Fiscal Capacity Using Discounted Cash Flow Analysis By Jiang, Zhengyang; Lustig, Hanno; Van Nieuwerburgh, Stijn; Xiaolan, Mindy Z.
  101. Trading volume and liquidity provision in cryptocurrency markets By Bianchi, Daniele; Babiak, Mykola; Dickerson, Alexander
  102. Climate change: macro-fiscal risks and challenges By Erica Marujo; Nuno Goncalves; Rui Dias
  103. The Effect of the War in Ukraine on Global Activity and Inflation By Dario Caldara; Sarah Conlisk; Matteo Iacoviello; Maddie Penn
  104. Konzeptionelle Ansätze zur Messung der Produktivitätseffekte von Digitalisierungskapital By Grömling, Michael; Niebel, Thomas
  105. Going Cashless: Government’s Point Reward Program vs. COVID-19 By Toshitaka Sekine; Toshiaki Shoji; Tsutomu Watanabe
  106. Remittances and Value Added Across Economic Sub-Sectors in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  107. Inflasi pengangguran ekonomi islam By Nur, Yahya
  108. The rise of bond financing in Europe By Papoutsi, Melina; Darmouni, Olivier
  109. Capital-augmenting technical change in the context of untapped automation opportunities By Arthur Jacobs
  110. The Impact of Opportunity Zones on Commercial Investment and Economic Activity By Corinth, Kevin; Feldman, Naomi E.
  111. "Daily Growth at Risk: financial or real drivers? The answer is not always the same". By Helena Chuliá; Ignacio Garrón; Jorge M. Uribe
  112. The Impact of Austerity Policies on Local Income: Evidence from Italian Municipalities By Andrea Cerrato; Francesco Filippucci
  113. Russia-Ukraine War: Short-run Production and Labour Market Effects of the Energy Crisis By Hutter, Christian; Weber, Enzo
  114. Foreign Direct Investment and Economic Growth in Kenya: An Empirical Investigation By Nicholas M. Odhiambo
  115. Inflasi dan Pengangguran Dalam Ekonomi Islam By Rasyid, Andi Syahrul Ramadhan
  116. The rise in the cross-sectoral dispersion of earnings expectations during COVID-19 By Bats, Joost; Greif, William; Kapp, Daniel
  117. How Energy Prices Shape OECD Economic Growth: Panel Evidence from Multiple Decades By Huntington, Hillard G.; Liddle, Brantley
  118. Responding to High Inflation, with Some Thoughts on a Soft Landing: a speech at the Institute for Monetary and Financial Stability (IMFS) Distinguished Lecture, Goethe University Frankfurt, Germany, May 30, 2022 By Christopher J. Waller
  119. The Economic and Fiscal Effects on the United States from Reduced Numbers of Refugees and Asylum Seekers By Clemens, Michael A.
  120. CÁC NGÂN HÀNG TRUNG ƯƠNG SẼ ĐỐI MẶT VỚI VẤN ĐỀ LẠM PHÁT TRÊN TOÀN CẦU NHƯ THẾ NÀO? By Ý, Trần Như; , Le Bao Han; Oanh, Trần Thị Tú; Trang, Đặng Quỳnh; Hải, Trương Minh
  121. How to Record the Allocations of Special Drawing Rights in Government Finance Statistics By International Monetary Fund
  122. Bunching and Taxing Multidimensional Skills By Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
  123. Robot Adoption, Organizational Capital and the Productivity Paradox By Rodimiro Rodrigo
  124. Paying over the odds at the end of the fiscal year. Evidence from Ukraine By Margaryta Klymak; Stuart Baumann

  1. By: Gürkaynak, Refet S.; Kısacıkoğlu, Burçin; Lee, Sang Seok
    Abstract: For the academic audience, this paper presents the outcome of a well-identifted, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal effects of ignoring basic macroeconomics. The Turkish monetary policy experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation, provides an unfortunately clean exogenous variance in the policy rule. The mandate to keep rates low, and the frequent policymaker turnover orchestrated by the government to enforce this, led to the Taylor principle not being satisfted and eventually a negative coefficient on inflation in the policy rule. In such an environment, was the exchange rate still a random walk? Was inflation anchored? Does the "standard model" suffice to explain the broad contours of macroeconomic outcomes in an emerging economy with large identifying variance in the policy rule? There are no surprises for students of open-economy macroeconomics; the answers are no, no, and yes.
    JEL: E02 E31 E52 E58 F31 F41
    Date: 2022
  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: Takushi Kurozumi; Willem Van Zandweghe
    Abstract: Should monetary policy offset the effects of labor supply shocks on inflation and the output gap? Canonical New Keynesian models answer yes. Motivated by weak labor force participation during the pandemic, we reexamine the question by introducing labor force entry and exit in an otherwise canonical model with sticky prices and wages. The entry decision generates an employment channel of monetary policy, and a labor supply shock to the value of nonparticipation in the labor market induces a policy trade-off between stabilization of the employment gap and wage growth. For an adverse labor supply shock, optimal policy dampens the decline in employment to rein in wage growth, which entails a period of higher inflation and a positive output gap. A welfare analysis of policy rules shows that monetary policy should not lean against the employment gap.
    Keywords: Labor supply shock; Labor force entry; Employment channel of monetary policy
    JEL: E24 E31 E52 J21
    Date: 2022–05–24
  4. By: Juan Herreno; Mathieu Pedemonte
    Abstract: We study the differential regional effects of monetary policy exploiting geographical heterogeneity in income across cities in the United States. We find that prices and employment in poorer cities react more to monetary policy shocks. The results for prices hold for a wide range of narrow consumer expenditure categories. The results are consistent with New Keynesian models that allow for a differential share of hand-to-mouth consumers across regions, but not with models in which regions have different slopes of the Phillips curve. We show that an increase in heterogeneity across cities amplifies the effect of monetary policy on prices and employment.
    Keywords: Heterogeneous Effects of Monetary Policy; Monetary Union; TANK
    JEL: E31 E24 E52 E58 F45
    Date: 2022–05–12
  5. By: Ruthira Naraidoo (University of Pretoria); Juan Paez-Farrell (Department of Economics, University of Sheffield, UK)
    Abstract: We analyse the transmission mechanism of commodity price shocks in emerging economies. Using a panel vector autoregression, we find that the shock leads to a real exchange rate appreciation, increases in output, inflation the nominal interest rate and the trade balance, and a fall in the unemployment rate. The transmission mechanism can be understood using a dynamic stochastic general equilibrium model of a small commodity-exporting open economy with nominal as well as search and matching frictions. We find that the conduct of monetary policy is key to both the variables’ dynamics as well as to the magnitude of Dutch disease effects.
    Keywords: Commodity prices, emerging markets, inflation, monetary policy, search and matching, unemployment, Dutch disease, DSGE modelling
    JEL: E31 E32 E44 E52 E61 F42 O11
    Date: 2022–05
  6. By: Juan Carlos Castro Fernández; Juan Carlos Castro Fernández
    Keywords: Financial crises, deep recessions, slow recoveries, local projections, debt overhang
    JEL: E37 E39 E44 G01
    Date: 2022–05–26
  7. By: Aleksandar Vasilev
    Abstract: Stochastic shocks to aggregate labor supply elasticity are introduced into a real-business-cycle setup augmented with a detailed government sector. The model is calibrated to Bulgarian data for the period following the introduction of the currency board arrange-ment (1999-2018). The quantitative importance of a stochastic aggregate labor supply elasticity parameter is investigated for the magnitude of the cyclical fluctuations in Bulgaria. The quantitative effect of such a stochasticity increases the variability of hours, and lowers the correlation between hours and wages, and thus is found to be quantitatively important for the labor market aspect of business cycles.
    Keywords: Business cycles, stochastic aggregate labor supply elasticity, Bulgaria
    JEL: E24 E32
    Date: 2022–03–08
  8. By: De Koning, Kees
    Abstract: Who, in the U.S., is ultimately responsible for servicing government debt levels? They are the individual households, directly and indirectly through the ownership of companies. The number of households increased from 116.01 million as per the end of 2007 to 129.93 million per the end of 2021. The U.S. government debt per household increased from $53,617 per household as at the end of 2007 to $94,444 as per the end of 2021. With a 2021 median household income of $67.463, the U.S. government debt per household is now 1.4 times the median annual household income level over 2021. All central banks aim to stabilise prices when price levels go up. The usual response is to increase interest base rates. It is likely that the Fed will further increase its interest rate levels this year. The option of even more Quantitative Easing is not a very attractive one as the source of repayment of government debts will ultimately have to come from higher taxes on households. U.S. households will bear the brunt of such upward interest rate changes as and when the Fed adjusts its interest rates due to the expected further rise in consumer goods prices. Increases in interest rates are aimed to slow down demand levels to lower inflation pressures. U.S. households are and will be confronted with rising prices, higher taxes and consequently a reduced level of purchasing powers. There are four variables that play a major role in the economic adjustment processes: two are related to current disposable income and tax levels while the other two are linked to savings for pensions and savings in home equity. Conversion of wealth into income levels is rarely a straightforward process. A new approach might need to be considered: “Using existing home equity levels as a generator for economic growth.” Such approach would be an asset-based approach. This approach can be called the bottom-up approach: Quantitative Easing Home Equity (QEHE). It starts with each household individually and the level of purchasing powers they require. To allow households to use some of their home equity at 0% interest rate could provide the U.S. economy with just the boost it needs. It could be a freedom of choice method for households within a macro economic program.
    Keywords: Inflation and Recession; Federal Reserve options; Cash from Home Equity;
    JEL: E21 E24 E3 E31 E4 E42 E44 E6 E61
    Date: 2022–05–07
  9. By: Refet S. Gürkaynak; Burcin Kisacikoglu; Sang Seok Lee
    Abstract: For the academic audience, this paper presents the outcome of a well-identified, large change in the monetary policy rule from the lens of a standard New Keynesian model and asks whether the model properly captures the effects. For policymakers, it presents a cautionary tale of the dismal effects of ignoring basic macroeconomics. The Turkish monetary policy experiment of the past decade, stemming from a belief of the government that higher interest rates cause higher inflation, provides an unfortunately clean exogenous variance in the policy rule. The mandate to keep rates low, and the frequent policymaker turnover orchestrated by the government to enforce this, led to the Taylor principle not being satisfied and eventually a negative coefficient on inflation in the policy rule. In such an environment, was the exchange rate still a random walk? Was inflation anchored? Does the “standard model” suffice to explain the broad contours of macroeconomic outcomes in an emerging economy with large identifying variance in the policy rule? There are no surprises for students of open-economy macroeconomics; the answers are no, no, and yes.
    JEL: E02 E31 E52 E58 F31 F41
    Date: 2022
  10. 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.
    JEL: D83 E22 E44 E52 G12 G31 G32
    Date: 2022–05
  11. By: Robert G. King; Yang K. Lu
    Abstract: In his 2004 inflation targeting manifesto, Marvin Goodfriend described US monetary policy as implicit inflation targeting and advocated explicit targeting. Summarizing the 1965-2000 US inflation experience, he highlighted the importance of evolving Fed credibility, which accords with our recent work using a quantitative New Keynesian model. We define credibility as policy consistency with a publicly announced framework and develop two lessons theoretically. First, under explicit targeting, no conflict arises between flexible inflation targeting and maintaining/accumulating credibility. Second, implicit targeting reduces the effectiveness of expectations management and stabilization policy, as well as opening the door to costly inflation scare episodes
    JEL: E52 E58
    Date: 2022–05
  12. By: Yoon J. Jo; Sarah Zubairy
    Abstract: We consider a New Keynesian model with downward nominal wage rigidity (DNWR) and show that government spending is much more effective in stimulating output in a low-inflation recession relative to a high-inflation recession. The government spending multiplier is large when DNWR binds, but the nature of recession matters due to the opposing response of inflation. In a demand-driven recession, inflation falls, preventing real wages from falling, leading to unemployment, while inflation rises in a supply-driven recession limiting the consequences of DNWR on employment. We document supporting empirical evidence, using both historical time series data and cross-sectional data from U.S. states.
    JEL: E24 E32 E62
    Date: 2022–05
  13. By: Jongrim Ha (World Bank); M. Ayhan Kose (World Bank; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (World Bank; CEPR; CAMA)
    Abstract: Global inflation has risen sharply from its lows in mid-2020, on rebounding global demand, supply bottlenecks, and soaring food and energy prices, especially since the Russian Federation’s invasion of Ukraine. Markets expect inflation to peak in mid-2022 and then decline, but to remain elevated even after these shocks subside and monetary policies are tightened further. Global growth has been moving in the opposite direction: it has declined sharply since the beginning of the year and, for the remainder of this decade, is expected to remain below the average of the 2010s. In light of these developments, the risk of stagflation—a combination of high inflation and sluggish growth—has risen. The recovery from the stagflation of the 1970s required steep increases in interest rates by major advanced-economy central banks to quell inflation, which triggered a global recession and a string of financial crises in emerging market and developing economies. If current stagflationary pressures intensify, they would likely face severe challenges again because of their less well-anchored inflation expectations, elevated financial vulnerabilities, and weakening growth fundamentals.
    Keywords: Inflation; growth; COVID-19; global recession; monetary policy; fiscal policy; disinflation.
    JEL: E31 E32 E52 Q43
    Date: 2022–06
  14. By: James Mitchell; Aubrey Poon; Dan Zhu
    Abstract: Quantile regression methods are increasingly used to forecast tail risks and uncertainties in macroeconomic outcomes. This paper reconsiders how to construct predictive densities from quantile regressions. We compare a popular two-step approach that fits a specific parametric density to the quantile forecasts with a nonparametric alternative that lets the 'data speak.' Simulation evidence and an application revisiting GDP growth uncertainties in the US demonstrate the flexibility of the nonparametric approach when constructing density forecasts from both frequentist and Bayesian quantile regressions. They identify its ability to unmask deviations from symmetrical and unimodal densities. The dominant macroeconomic narrative becomes one of the evolution, over the business cycle, of multimodalities rather than asymmetries in the predictive distribution of GDP growth when conditioned on financial conditions.
    Keywords: Density Forecasts; Quantile Regressions; Financial Conditions
    JEL: C53 E32 E37 E44
    Date: 2022–05–09
  15. By: Ke Pang, Christos Shiamptanis (Wilfrid Laurier University)
    Abstract: This paper examines the historical behaviour of the Bank of Canada (BoC) from 1991, when the BoC adopted inflation targeting, until 2015. We use a newly released dataset that contains quarterly vintages of real-time historical data and BoC staff forecasts, and we present three novel empirical findings. First, over the full sample period we find that the BoC responds both to inflation and the real economy. The long-run coefficient on inflation exceeds unity, satisfying the Taylor principle. Second, we fi nd that there is considerable variation in the monetary policy coefficients. During the early period of our sample, we fi nd a strong response to inflation and no response to the real economy. But over time we fi nd that the response to inflation weakens, the Taylor principle disappears, and the response to the real economy rises substantially. At the later part of our sample, the BoC appears to respond to the real economy, but not to inflation. Third, we investigate if the BoC is responding to an alternative inflation measure that captures persistent inflation deviations, that is inflation that remains away from its target for an extended period. We augment our monetary policy rule with this new inflation measure and find that the BoC responds asymmetrically to positive and negative persistent inflation deviations, suggesting that persistent inflation overshooting and undershooting elicit different responses.
    Keywords: monetary policy, forward looking Taylor rule, real-time data and forecasts, inflation deviations
    JEL: E42 E43 E52 E58
    Date: 2022–05
  16. By: Rottner, Matthias
    Abstract: Motivated by the build-up of shadow bank leverage prior to the financial crisis of 2007-2008, I develop a nonlinear macroeconomic model featuring excessive leverage accumulation and endogenous financial crises to capture the observed dynamics and to quantify the build-up of financial fragility. I use the model to illustrate that extensive leverage makes the shadow banking system runnable, thereby raising the vulnerability of the economy to future financial crises. The model is taken to U.S. data with the objective of estimating and analyzing the probability of a run in the years preceding the financial crisis of 2007-2008. According to the model, the estimated risk of a run was already considerable in 2005 and kept increasing due to the upsurge in leverage. Using counterfactual scenarios, I assess the impact of alternative monetary and macroprudential policy strategies on the estimated build-up of financial fragility.
    Keywords: Financial crises,leverage,credit boom,nonlinear estimation
    JEL: E32 E44 G23
    Date: 2022
  17. By: Esteban Ramon Perez Caldentey; Lorenzo Nalin; Leonardo Rojas
    Abstract: This paper provides a critical view of macroprudential regulation/policies found in mainstream and post-Keynesian economics. The paper provides a macroeconomic framework that can be used as a basis for the analysis of macroprudential guidelines and policies. It is based on on five main principles/guidelines: (i) financial fragility is endogenous and results from the normal functioning of market based economies driven by the profit motive; (ii) financial fragility can originate in the financial and real sectors of an economy; (iii) financial cycles are not necessarily driven by boom and busts and financial fragility need not originate in an economic boom; (iv) macroprudential policies should be viewed from a dynamic perspective, that is they must take into account the changes in the international financial architecture/structure and be region/country specific; and (v) macroprudential regulation/guidelines requires a truly macroeconomic framework. These principles are captured in the specification of a baseline stock-flow model for Latin America and the Caribbean with five sectors (government, central bank, financial sector, private sector, and external sector). The model is a tool that can be used for evaluating other macroprudential policies.
    Keywords: Debt, external constraint, external financial cycle, financial flows, Latin America and the Caribbean, microprudential and macroprudential regulation, stock-flow
    JEL: B59 E32 E52 F21 F41 G15
    Date: 2022–05
  18. By: Clayton, Christopher (Yale School of Management); Dos Santos, Amanda (Columbia Business School;); Maggiori, Matteo (Stanford University Graduate School of Business, NBER, and CEPR;); Schreger, Jesse (Columbia Business School, NBER, and CEPR;)
    JEL: E01 E44 F21 F23 F32 G11 G15 G32
    Date: 2022–04
  19. By: Christopher D. Cotton; Vaishali Garga; Justin Rohan
    Abstract: The life-cycle consumption and permanent income hypotheses predict that if workers face greater likelihood of unemployment in the future that lowers expected future income, they will save more today. In this paper, we test this hypothesis by looking at the expenditure response of workers to the change in unemployment risk measured at the occupational level. We find that occupational unemployment risk does not have a large impact on consumption expenditure. However, despite investigating multiple forms of occupational unemployment risk for multiple expenditure categories in two expenditure surveys (PSID, CEX), we do not obtain narrow confidence intervals for our estimates, so there remains a possibility of a limited impact.
    Keywords: unemployment risk; expenditure; life-cycle consumption; permanent income
    JEL: E21 E24 J64
    Date: 2021–11–01
  20. By: Balázs Világi (Magyar Nemzeti Bank (Central Bank of Hungary)); Balázs Vonnák (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The majority of the New Keynesian DSGE literature assumes that the macroeconomic effects of monetary policy can be satisfactorily described by an interest rate rule without addressing the details of the money supply. We investigate whether this approach remains valid in the presence of inside money created by the banking system. To analyze this issue we present a framework based on the generalization of the IS and LM curves to dynamic general equilibrium models. We find that it is possible to implement a policy based on an interest rate rule even in the presence of inside money, although it requires a more complex toolkit of monetary policy implementation than it is assumed in models with only outside money. We also show that despite some current views, the existence of inside money does not invalidate the common macroeconomic wisdom that investments are linked to savings: both savings and financing matter in determining investments.
    Keywords: monetary policy, interest rate rule, inside money, liquidity, money multiplier.
    JEL: E51 E52 G21
    Date: 2022
  21. By: N. Gregory Mankiw
    Abstract: This essay discusses the reasons for and implications of the decline in real interest rates around the world over the past several decades. It suggests that the decline in interest rates is largely explicable from trends in saving, growth, and markups. In this environment, greater government debt is likely not problematic from a budgetary standpoint. But a Ponzi-like scheme of perpetual debt rollover might fail, and such a failure would make an already-bad state of the world even worse. In addition, even if a perpetual debt rollover succeeds, the increased debt could still crowd out capital, reducing labor productivity, real wages, and consumption.
    JEL: E13 E22 E62 H41 H63
    Date: 2022–05
  22. By: Greg Kaplan; Giovanni L. Violante
    Abstract: What model features and calibration strategies yield a large average marginal propensity to consume (MPC) in heterogeneous agent models? Through a systematic investigation of models with different preferences, dimensions of ex-ante heterogeneity, income processes and asset structure, we show that the most important factor is the share and type of hand-to-mouth households. One-asset models either feature a trade-off between a high average MPC and a realistic level of aggregate wealth, or generate an excessively polarized wealth distribution that vastly understates the wealth held by households in the middle of the distribution. Two-asset models that include both liquid and illiquid assets can resolve this tension with a large enough gap between liquid and illiquid returns. We discuss how such return differential can be justified from the perspective of theory and data.
    JEL: D15 D31 D52 E21 E62 E71 G51
    Date: 2022–05
  23. By: Gara Afonso; Domenico Giannone; Gabriele La Spada; John C. Williams
    Abstract: Does the federal funds rate respond to shocks when aggregate reserves are in the trillions of dollars? Has banks’ demand for reserves moved over time? We provide a structural time-varying estimate of the slope of the reserve demand curve over 2010-21. We estimate a time-varying vector autoregressive model at daily frequency with an instrumental variable approach to address endogeneity. Consistent with economic theory, our estimates show a nonlinear demand function that exhibits a negative slope in 2010-11 and 2018-19 but is flat over 2012-17 and after mid-2020. We also find that the curve has moved outward, both vertically and horizontally.
    Keywords: demand for reserves; federal funds market; monetary policy
    JEL: E41 E43 E52 E58 G21
    Date: 2022–05–01
  24. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Xavier Fairise (GAINS, University of Le Mans); Arthur Poirier (LED, Paris 8 University Vincennes-Saint-Denis); Anthony Terriau (GAINS, University of Le Mans)
    Abstract: In this paper, we analyze the impact of short-time work programs on the French labor market during the COVID-19 pandemic. We develop a dynamic model with incomplete markets, search frictions, human capital, and aggregate and idiosyncratic productivity shocks. We calibrate our model and simulate what the labor market response to a lockdown shock would have been under various STW programs. We show that STW succeeded in stabilizing employment and consumption but generated substantial windfall effects characterized by an excessive reduction in hours worked.
    Keywords: COVID-19, matching frictions, short-time work policies, incomplete markets.
    JEL: E21 E24 J24 J38 J63 J65
    Date: 2022
  25. By: Mushtaq, Saba; Mushtaq, Faiza
    Abstract: Effect of inflation (CPI) and other macroeconomic variable on bank deposits is the empirical issue in many countries but in Pakistan there is no significant work have been done about this relationship. This paper investigates the effect of different macroeconomic variables on bank deposits in Pakistan by using time series data from 1960 to 2010.Least square method and multiple regression model was used to analyze the data. The results clearly indicate that there is a negative relationship between inflation and bank deposits. Other macroeconomic variable which includes broad money, deposit rates, GDP and per capita income have positive impact on bank deposits. It is concluded that by efficient fiscal and monetary policy we can manage this macroeconomic variable in order to increase bank deposits. Per capita income can be increase by different policies and by reducing unemployment. Banks can play a vital role with the help of Government in order to manage these macroeconomic variables by using different policies and step to minimize the effects of these variables.
    Keywords: Bank deposits, Inflation (Consumer Price Index), Per Capita Income, Broad Money, GDP, Deposit rate
    JEL: E6 G21
    Date: 2022–05–16
  26. By: Maximilian Boeck; Jesús Crespo Cuaresma; Christian Glocker
    Abstract: We study empirically how various labor market institutions – (i) union density, (ii) unemployment benefit remuneration, and (iii) employment protection – shape fiscal multipliers and output volatility. Our theoretical model highlights that more stringent labor market institutions attenuate both fiscal spending multipliers and macroeconomic volatility. This is validated empirically by an interacted panel vector autoregressive model estimated for 16 OECD countries. The strongest effects emanate from employment protection, followed by union density. While some labor market institutions mitigate the contemporaneous impact of shocks, they, however, reinforce their propagation mechanism. The main policy implication is that stringent labor market institutions render cyclical fiscal policies less relevant for macroeconomic stabilization.
    Keywords: fiscal policy, fiscal multipliers, labor market institutions, interacted panel VAR
    JEL: E62 C33 J21 J38
    Date: 2022
  27. By: Ruediger Bachmann; Christian Bayer; Heiko Stüber; Felix Wellschmied
    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
  28. By: Andisheh (Andy) Danaee; Harsimran Grewal; Brad Howell; Guillaume Ouellet Leblanc; Xuezhi Liu; Xiangjin Shen; Mayur Patel
    Abstract: We examine the potential impacts of a severe economic shock on the resilience of major banks in Canada. We find these banks would suffer significant financial losses but nevertheless remain resilient. This underscores the role well-capitalized banks and sound underwriting practices play in supporting economic activity in a downturn.
    Keywords: Financial institutions; Financial stability
    JEL: E E27 E37 E44 G1 G23
    Date: 2022–05
  29. 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
  30. By: Carlsson, Mikael (Uppsala University); Clymo, Alex (University of Essex); Joslin, Knut-Eric (Kristiania University College)
    Abstract: We characterize the dispersion of firm-level productivity and demand shocks using Swedish microdata including prices and utilization and analyse the consequences for firms and the aggregate economy. Demand dispersion increases by more than TFPQ dispersion in recessions. Productivity shocks pass through incompletely to prices and have limited effect on sales dispersion. Demand shocks explain most of the variation in sales dispersion. In a heterogeneousfirm model matching the micro facts, demand dispersion has unambiguously negative effects on output via a “wait and see” channel. Productivity dispersion does not generate “wait and see” effects, but affects output negatively by inducing markup dispersion.
    Keywords: demand estimation; productivity; variable markups; business cycles; dispersion; uncertainty; passthrough; adjustment costs
    JEL: D21 D22 D81 E32 L11
    Date: 2022–05–01
  31. By: Pierlauro Lopez; J. David López-Salido; Francisco Vazquez-Grande
    Abstract: We propose a novel approximation of the risky steady state and construct first-order perturbations around it for a general class of dynamic equilibrium models with time-varying and non-Gaussian risk. We offer analytical formulas and conditions for their local existence and uniqueness. We apply this approximation technique to models featuring Campbell-Cochrane habits, recursive preferences, and time-varying disaster risk, and show how the proposed approximation represents the implications of the model similarly to global solution methods. We show that our approximation of the risky steady state cannot be generically replicated by higher-order perturbations around the deterministic steady state, which cannot account well for the effects of risk in our applications even up to third order. Finally, we argue that our perturbation can be viewed as a generalized version of the heuristic loglinear-lognormal approximations commonly used in the macro-finance literature.
    Keywords: Perturbation methods; Risky steady state; Macroeconomic uncertainty; Solving dynamic equilibrium models; Time-varying risk premia
    JEL: C63 G12 E32 E44
    Date: 2022–05–11
  32. By: Agrippino, Silvia Miranda (Bank of England); Ricco, Giovanni (University of Warwick)
    Abstract: IV methods have become the leading approach to identify the effects of macroeconomic shocks. Conditions for identification generally involve all the shocks in the VAR even when only a subset of them is of interest. This paper provides more general conditions that only involve the shocks of interest and the properties of the instrument of choice. We introduce a heuristic and a formal test to guide the specification of the empirical models, and provide formulas for the bias when the conditions are violated. We apply our results to the study of the transmission of conventional and unconventional monetary policy shocks.
    Keywords: Identification with external instruments; structural VAR; invertibility; monetary policy shocks
    JEL: C32 C36 E30 E52
    Date: 2022–04–14
  33. By: Campanale Claudio (Depatment of Economics and Statistics (ESOMAS) University of Torino, Italy); Rocio Fernandez-Bastidas (Departamento de Fundamentos del Analisis Economico (FAE), Universidad de Alicante, Spain)
    Abstract: In the present paper we confront standard wage processes used in the quantitative literature on the optimal tax progressivity and a process with heterogeneous life-cycle profiles that we propose against the data. We find that the former fail to capture several features of the earnings dynamics at the very top of the distribution while our proposed model improves along some of these dimensions.
    Keywords: Top earners, Earnings Dynamics, Heterogeneous Income Growth
    JEL: D31 E24 J24 J31
    Date: 2022–05
  34. By: Hlongwane, Nyiko Worship; Daw, Olebogeng David
    Abstract: The study investigates the determinants of public debt in South Africa. There is a problem of increasing public debt in South Africa accompanied with poor economic growth, high unemployment, high inequality, and proportionately high government spending. The study utilises time series data spanning for the period from 1990 to 2020 collected form secondary online data sources, that is, the South African Reserve Bank, Quantec Easy Data, Statistics South Africa, and the World Bank. The study employed a Simple Switching Regression Model and Granger Causality test to investigate the determinants of public debt in South Africa. Empirical results revealed that government deposits, business confidence, consumer prices inflation, government revenue and unemployment are significant determinants of public debt in both Regime 1 and 2. Government expenditure was found to be an insignificant determinant of public debt in Regime 2 while Gini-coefficient is an insignificant determinant of public debt only in Regime 1. Granger causality revealed that public debt has a causality effect on public debt. The study provided recommendations such as reducing heavy dependency on public debt to finance fiscal stimulus in South Africa.
    Keywords: Public debt, Unemployment, Inflation, Economic Growth, South Africa.
    JEL: E6 E62 H6 H63
    Date: 2022–04–13
  35. By: Katya Kartashova; Xiaoqing Zhou
    Abstract: One of the most important channels through which monetary policy affects the real economy is changes in mortgage rates. This paper studies the effects of mortgage rate changes resulting from monetary policy shifts on homeowners’ spending, debt repayment and defaults. The Canadian institutional setting facilitates the design of identification strategies for causal inference, since the vast majority of mortgages in the country experience predetermined, periodic and automatic contract renewals with the mortgage rate reset based on the prevailing market rate. This allows us to exploit quasi-random variation in the timing of the rate reset and present causal evidence for both rate declines and increases, with the help of detailed, representative consumer credit panel data. We find asymmetric effects of rate changes on spending, debt repayment and defaults. Our results can be rationalized by the conventional cash-flow effect in conjunction with changes in consumer expectations about future interest rates upon the reset. Given the pervasiveness of Canadian-type mortgages in many other OECD countries, our findings have broader implications for the transmission of monetary policy to the household sector.
    Keywords: Mortgage rate; monetary policy; consumption; consumer expectations; household finance
    JEL: D12 D14 E43 E52 G21 R31
    Date: 2022–05–06
  36. By: Hummel, Markus (Institute for Employment Research (IAB), Nuremberg, Germany); Hutter, Christian (Institute for Employment Research (IAB), Nuremberg, Germany); Weber, Enzo (Institute for Employment Research (IAB), Nuremberg, Germany ; Univ. Regensburg)
    Abstract: "During the COVID-19 pandemic there were supply chain bottlenecks all over the world with regard to raw materials and intermediate products. In this article, we examine how these constraints affected labour market development. For an empirical panel analysis, we combine survey data and administrative labour market data for economic sectors in Germany. We find effects on unemployment that are noticeable but still relatively limited. The effect on short-time work, on the other hand, is revealed to be considerable. Whilst short-time work is traditionally imposed where there are slumps in demand, our results show that it is also used in the case of adverse supply shocks. While inflation is rising, this explains why the Phillips curve does not shift outward." (Author's abstract, IAB-Doku) ((en))
    Keywords: IAB-Open-Access-Publikation
    JEL: C23 E24 E31 J63 J64
    Date: 2022–05–11
  37. By: Alexander Beames (Macroeconomic Group, The Treasury); Mariano Kulish (School of Economics, University of Sydney); Nadine Yamout (School of Economics, University of Sydney)
    Abstract: We study the impact that a permanent slowdown in trend growth has on fiscal policy with an estimated small open economy model. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per capita output is estimated to have fallen from just over 2 per cent to 0.6 per cent annually. The slowdown sets off an endogenous response of the private sector which increases capital accumulation acting as an automatic stabilizer. The slowdown also brings about a lasting transition which in the short-run decreases consumption tax revenues but increases them in the long-run changing permanently the composition of tax revenues and temporarily increasing the government debt to output ratio.
    Keywords: Open economy, trend growth, fiscal policy, real business cycles, estimation, structural breaks.
    JEL: E30 F43 H30
    Date: 2022–05
  38. By: Bai, Hang (University of Connecticut); Li, Erica X. N. (Cheung Kong Graduate School of Business); Xue, Chen (University of Cincinnati); Zhang, Lu (Ohio State University - Fisher College of Business; National Bureau of Economic Research)
    Abstract: Integrating national accounting with financial accounting, we provide firm-specific estimates of current-cost capital stocks for the entire Compustat universe, as well as an array of estimates of investment flows, economic depreciation rates, and capital and investment price deflators. The firm-level current-cost investment rate distribution is heavily right-skewed, with a small fraction of negative investment rates, 5.51%, but a huge fraction of positive investment rates, 91.64%. Despite a tiny fraction of inactive investment rates, 2.85%, firm-level investment also seems lumpy, featuring a fraction of 32.66% for positive spikes (investment rates higher than 20%). For a typical firm, 39% of total investment is completed within 20% of the sample years.
    JEL: D22 D25 E22 E44 G12 G31
    Date: 2022–04
  39. By: Maximilian Göbel; Nuno Tavares
    Abstract: Extraordinary fiscal and monetary interventions in response to the COVID-19 pandemic have revived concerns about zombie prevalence in advanced economies. The literature has al- ready linked this phenomenon - observed over the course of the last two decades - to impeding the performance of healthy firms in Japan and Europe. To make the case for the United States, we analyze banks' and capital markets' zombie-lending practices on the basis of a sample of publicly listed U.S. companies. Our results suggest that zombie prevalence and zombie-lending per se are not a defining characteristic of the U.S. economy. Nevertheless, we find evidence for negative spillovers of zombie-lending on productivity, capital-growth, and employment-growth of non-zombies as well as on overall business dynamism. It is predominantly the class of healthy small- and medium-sized companies that is sensitive to zombie-lending activities, with financial constraints further amplifying these effects.
    Keywords: zombie lending; business dynamism; bank credit; non-viable firms; productivity
    JEL: D24 E24 G21 L25 O40
    Date: 2022–05
  40. By: Juan Carlos Castro Fernández; Juan Carlos Castro Fernández
    Keywords: Financial crises, financial frictions, expectations, debt overhang, news shocks, boom– bust cycles.
    Date: 2022–05–26
  41. By: Germinal G. Van
    Abstract: The objective of this paper is to propose an analytical framework to examine the foundations of the theory of efficient growth. The theory of efficient growth is a newly developed theory based on the principles of the neoclassical framework. It argues that an economy grows efficiently under two conditions. First, that the public and the private sectors both perform independently from each other. Second, the sum of their independent performances reaches an equilibrium. This equilibrium determines the optimum point of economic growth, and this optimal point illustrates the efficiency of economic growth.
    Keywords: Economic growth, mathematical economics, economic theory, macroeconomics, business cycle, fiscal policy.
    JEL: E62 O42 O43 R13
    Date: 2022–03–09
  42. By: Andersson, Fredrik N G (Lund University); Hjalmarsson, Erik (University of Gothenburg); Österholm, Pär (Örebro University School of Business)
    Abstract: Survey data indicate that a relatively large share of households is ill-informed about the rate of inflation in the economy, with perceived and expected rates of inflation deviating sub-stantially from official measures. Using Swedish micro-level data, we find that such inflation illiteracy is related to respondent characteristics, including income, education and sex.
    Keywords: Perceived inflation; Inflation expectations; Survey data; Economic literacy
    JEL: E31
    Date: 2022–05–20
  43. By: Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Pantin, Machel; Skerrette, Nyasha; Victor, Keron
    Abstract: This overview examines the economic performance of economies of the Caribbean in 2020 and comprises four chapters. The first chapter provides a comparative analysis across Caribbean economies of the main macroeconomic variables, namely GDP growth, monetary indicators, as well as fiscal and external accounts. The second chapter looks at areas of focus in the Caribbean. The third chapter concludes, while the annex includes individual country briefs that give an overview of the economic situation for the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname and a subregional assessment of the countries of the Eastern Caribbean Currency Union.
    Date: 2022–05–13
  44. By: Philipp Lieberknecht; Philip Vermeulen
    Abstract: This paper analyses the joint long-run evolution of wealth and income inequality. We show that top wealth and income shares were cointegrated over the past century in France and the US. We rationalise this finding using a two-agent version of the Solow growth model. In this framework, the co-movement of top wealth and income shares is determined by the relative saving rate at the top, i.e. the ratio of the saving rate of rich individuals to the aggregate saving rate. The cointegration finding suggests that relative saving rates at the top are fairly stable over time, thus explaining the tight co-movement between top wealth and income shares over the past century.
    Keywords: Income inequality, wealth inequality, top shares, saving rates, cointegration, error correction.
    JEL: D31 E21 E25 N32 N34
    Date: 2022–05
  45. By: Charles W. Calomiris; Joseph R. Mason; David C. Wheelock
    Abstract: In 1936-37, the Federal Reserve doubled member banks' reserve requirements. Friedman and Schwartz (1963) famously argued that the doubling increased reserve demand and forced the money supply to contract, which they argued caused the recession of 1937-38. Using a new database on individual banks, we show that higher reserve requirements did not generally increase banks' reserve demand or contract lending because reserve requirements were not binding for most banks. Aggregate effects on credit supply from reserve requirement increases were therefore economically small and statistically zero.
    Keywords: reserve requirements; reserve demand; excess reserves; money multiplier
    JEL: E51 E58 G21 G28 N12 N22
    Date: 2022–05–04
  46. By: Lorant Kaszab (Central Bank of Hungary); Ales Marsal (National Bank of Slovakia); Katrin Rabitsch (Vienna University of Economics and Business)
    Abstract: We study the asset-pricing implications of changes in the variety of consumption goods which happens through free entry and exit of firms. Fluctuations in varieties drive a wedge between the measured and model-based (including variety growth) consumer price index making the pricing kernel as well as asset prices more volatile without driving up the volatility of consumption growth. Different from earlier endowment economy models of variety growth our model contains production which i) generates the correlations important for the explanation of the high mean and volatility of equity premium endogenously, and ii) leads to an increase of about 140 basis points in the risk-premia relative to the endowment model.
    Keywords: free entry and exit of firms, New Keynesian, asset pricing, equity premium
    JEL: E32 E60 G12
    Date: 2022
  47. By: Mattia Girotti; Guillaume Horny; Jean-Guillaume Sahuc
    Abstract: We study how negative interest rate policy (NIRP) affects banks’ loan pricing. Using contract-level data from France, we show that NIRP affects bank lending rates to firms through a portfolio rebalancing channel: banks holding a one standard deviation more of cash and central bank reserves offer a 8.6 basis points lower loan rate after NIRP is introduced. The impact concentrates on medium-term loans (with maturity comprised between three and six years) but not on loans to risky firms, indicating that banks conduct a search for yield focused on term spreads. These findings suggest that NIRP complements quantitative easing policies.
    Keywords: Negative interest rates, portfolio rebalancing, search for yield, term spreads, banks
    JEL: E43 E58 G21
    Date: 2022
  48. By: Martha López-Piñeros; Norberto Rodríguez-Niño; Miguel Sarmiento
    Abstract: Portfolio flows are an important source of funding for both private and public agents in emerging market economies. In this paper, we study the influence of changes in domestic and US monetary policy rates on portfolio inflows in an emerging market economy and discriminate among fixed income instruments (government securities and corporate bonds) and variable income instruments (stocks). We employ monthly data on portfolio inflows of non-residents in Colombia during the period 2011-2020 and identify the monetary policy shocks using a SVAR model with long-run restrictions. We find a positive and statistically significant response of portfolio inflows in government securities and corporate bonds to changes in both domestic and US monetary policy rates. Portfolio inflows in the stock market react more to changes in the inflation rate and do not react to changes in monetary policy rates. Our findings are consistent with the predictions of the interest rate channel and remark the predominant role of inflation in driving portfolio inflows. The results suggest that domestic and US monetary policy actions have an important effect on the behavior of portfolio inflows in emerging economies. **** RESUMEN: Los flujos de portafolio son una fuente importante de financiamiento para los agentes públicos y privados en las economías emergentes. En este artículo, estudiamos la influencia de los cambios en las tasas de política monetaria doméstica y de los Estados Unidos sobre los flujos de portafolio en una economía emergente, discriminando entre instrumentos de renta fija (títulos del gobierno y bonos corporativos) e instrumentos de renta variable (acciones). Empleamos datos mensuales sobre flujos de portafolio de no residentes en Colombia durante el período 2011-2020. Los choques de política monetaria se identifican utilizando un modelo SVAR con restricciones de largo plazo. Encontramos una respuesta significativa de los flujos de portafolio en títulos del gobierno y bonos corporativos a los cambios en las tasas de política monetaria tanto domésticas como de los Estados Unidos. Los flujos de portafolio en el mercado de acciones reaccionan más a cambios en la tasa de inflación y no reaccionan a cambios en las tasas de política monetaria. Nuestros hallazgos son consistentes con las predicciones del canal de las tasas de interés y resaltan el papel predominante de la inflación sobre la dinámica de los flujos de portafolio. Los resultados sugieren que las acciones de política monetaria doméstica y de los Estados Unidos tienen un efecto importante sobre el comportamiento de los flujos de portafolio en las economías emergentes.
    Keywords: portfolio inflows, emerging market economies, monetary policy, SVAR models, interest rate channel, nflujos de portafolio, economías de mercados emergentes, política monetaria, modelos SVAR, canal de tasas de interés
    JEL: F31 F32 F33 F36
    Date: 2022–05
  49. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France, France); Valentin Jouvanceau (Lietuvos Bankas); Stéphane Moyen (Bundesbank)
    Abstract: This paper proposes a new strategy for modeling and solving state-dependent forward guidance policies (SCFG). We study its transmission channels using a DSGE model with search and matching frictions in which agents account for the fact that the SCFG is an endogenous regime-switching system. A fully credible SCFG causes a boom in inflation and output but no rapid exit from the ZLB. Thus, the transmission of its effects is primarily through the realization of additional ZLB periods more than through changes in expectations. We next consider the implications of imperfect credibility. In this case of uncertainty, an SCFG is less impactful. Finally, using counterfactual experiments on the December 2012 FOMC statement, we find that it led to about 1.5 pp gain in unemployment and 0.5 pp in inflation.
    Keywords: New Keynesian model, Search and matching, ZLB, Forward guidance
    JEL: E30 J60
    Date: 2022
  50. By: Ferrara, Gerardo (Bank of England); Mueller, Philippe (Warwick Business School); Viswanath-Natraj, Ganesh (Warwick Business School); Wang, Junxuan (Warwick Business School)
    Abstract: In this paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. These policies lowered the ceiling on covered interest rate parity violations and reduced volatility following settlement of swap line auctions. We then combine dealer-level dollar repo auctions by the Bank of England with a trade repository that includes the universe of FX forward and swap contracts traded in the UK. We find evidence of a substitution channel: dealers that draw on swap lines reduce their demand for dollars at the forward leg in the FX market. We also find evidence that dealers that draw on swap lines increased their net supply of dollars to non-financial institutions, supporting the rationale for swap lines in providing cross-border liquidity to the real economy.
    Keywords: Swap lines; monetary policy; foreign exchange swaps; covered interest rate parity; central banking
    JEL: E44 F30 F31 F32 F41 G11 G12 G15 G18 G20
    Date: 2022–05–06
  51. By: Corina Boar (New York University); Matthew Knowles (University of Cologne)
    Abstract: We study optimal taxation in a model with endogenous financial frictions, risky investment and occupational choice, where the distribution of wealth across entrepreneurs affects how efficiently capital is used. The planner chooses linear taxes on wealth, capital and labor income to maximize the steady state utility of a newborn agent. Most agents in the model are poor, leading to a redistributive motive for taxation. Optimal tax rates can be written as a closed-form function of the size of the tax bases and their elasticities with respect to tax rates. We find that it is optimal to tax capital income because financial frictions reduce the elasticity of capital income with respect to taxes and because capital income taxes prevent excessive entry into entrepreneurship. Optimal wealth taxes are positive but close to zero, since they strongly discourage capital accumulation.
    Keywords: Entrepreneurship; Financial Frictions; Taxation
    JEL: E2 E6 H2
    Date: 2022–05
  52. By: Sardar, Rashedur (University of North Carolina at Greensboro, Department of Economics); Schaffer, Matthew (University of North Carolina at Greensboro, Department of Economics)
    Abstract: This paper investigates international monetary spillovers to stock prices in Bangladesh, a frontier market that has been excluded from prior studies in the literature. Using daily stock price data for over 300 publicly traded firms in a high-frequency framework, we find that contractionary monetary shocks originating from the US, euro area, and China lower stock prices, with Chinese monetary shocks having the largest impact. Contractionary shocks originating from India, on the other hand, lead to a statistically significant increase in stock returns. The positive response is driven by a small number of policy decisions. When these outlier decisions are removed from the sample, contractionary Indian monetary shocks lead to a decline in stock prices in line with spillovers from the other countries.
    Keywords: Monetary Policy; International Spillovers; Frontier Markets;
    JEL: E58 G15 O53
    Date: 2022–06–16
  53. By: Győző Gyöngyösi (Leibniz Institute for Financial Research SAFE and Magyar Nemzeti Bank (Central Bank of Hungary)); Steven Ongena (University of Zurich, Swiss Finance Institute, KU Leuven, NTNU, and CEPR); Ibolya Schindele (Central European University and Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: We study how monetary conditions change the supply by banks of mortgage credit to households. We exploit the widespread presence of foreign currency mortgages in Hungary and study this country's comprehensive credit registry. Changes in monetary conditions not only affect the supply of credit in volume, but also in its currency and risk composition. Hence, we establish a "bank-lending-to-households2 channel of monetary policy that is heterogeneous. While the availability of foreign currency mortgages weakens the domestic bank-lending channel overall, weakly capitalized domestic banks relying on swap transactions for their foreign currency lending are more sensitive to changes in monetary conditions.
    Keywords: Bank balance-sheet channel, household lending, monetary policy, foreign currency lending.
    JEL: E51 F3 G21
    Date: 2022
  54. By: Agrippino, Silvia Miranda (Bank of England); Nenova, Tsvetelina (London Business School)
    Abstract: We compare the macroeconomic and financial spillovers of the unconventional monetary policies of the Fed and the ECB. Monetary policy tightenings in the two areas are followed by a contraction in global activity and trade, a retrenchment in global capital flows, a fall in global stock markets, and a rise in risk aversion. Bilateral spillovers are also powerful. Fed and ECB monetary policies propagate internationally through the same channels – trade and risk-taking – but the magnitude of ECB spillovers is smaller. We postulate that the relative importance of the euro and the US dollar in the international financial system can help to explain such asymmetries, and produce tentative evidence that links the strength of the ECB spillovers to € exposure in trade invoicing and the pricing of financial transactions.
    Keywords: Unconventional monetary policy; high-frequency identification; international spillovers; Fed; ECB
    JEL: E52 F42 G15
    Date: 2022–04–14
  55. By: Lei Fang; Jun Nie; Zoe Xie
    Abstract: The regular unemployment insurance (UI) program in the United States requires workers to have a minimum amount of earnings as well as a sufficient work history before unemployment. Low-wage workers are more likely to have a short work history before unemployment because they are more likely to be separated from their jobs. Pandemic Unemployment Assistance (PUA) under the CARES Act temporarily eliminated the requirements for minimum past earnings and length of employment, thus making many low-wage workers who were ineligible for UI under the regular program temporarily eligible. The extra weekly benefit provided by Federal Pandemic Unemployment compensation (FPUC) under the CARES Act UI was also more important to low-wage workers. Hence low-wage workers benefited more from the CARES Act UI policies.
    Keywords: CARES Act; pandemic unemployment assistance; unemployment insurance; minimum past earning requirement; labor markets; fiscal policy
    JEL: J64 J65 E24
    Date: 2022–04–07
  56. By: Carro, Adrian (Banco de España); Hinterschweiger, Marc (Bank of England); Uluc, Arzu (Bank of England); Farmer, J. Doyne (Institute for New Economic Thinking (INET) at the Oxford Martin School, University of Oxford)
    Abstract: We develop an agent-based model of the UK housing market to study the impact of macroprudential policy experiments on key housing market indicators. The heterogeneous nature of this model enables us to assess the effects of such experiments on the housing, rental and mortgage markets not only in the aggregate, but also at the level of individual households and sub-segments, such as first-time buyers, homeowners, buy-to-let investors, and renters. This approach can therefore offer a broad picture of the disaggregated effects of financial stability policies. The model is calibrated using a large selection of micro-data, including data from a leading UK real estate online search engine as well as loan-level regulatory data. With a series of comparative statics exercises, we investigate the impact of (i) a hard loan-to-value limit, and (ii) a soft loan-to-income limit, allowing for a limited share of unconstrained new mortgages. We find that, first, these experiments tend to mitigate the house price cycle by reducing credit availability and therefore leverage. Second, an experiment targeting a specific risk measure may also affect other risk metrics, thus necessitating a careful calibration of the policy to achieve a given reduction in risk. Third, experiments targeting the owner-occupier housing market can spill over to the rental sector, as a compositional shift in home ownership from owner-occupiers to buy-to-let investors affects both the supply of and demand for rental properties.
    Keywords: Agent-based model; housing market; macroprudential policy; borrower-based measures; buy-to-let sector
    JEL: D10 D31 E58 R20 R21 R31
    Date: 2022–04–22
  57. By: Calero Roberto (Departamnento de Economía, Pontificia Universidad Católica del Perú.); Gabriel Rodríguez (Pontificia Universidad Católica del Perú.); Salcedo Cisnero Roberto (Pontificia Universidad Católica del Perú.)
    Abstract: We use a set of VAR models with time-varying parameters and stochastic volatility (TVP-VARSV) to estimate the evolution of the exchange rate pass-through (ERPT) into prices for Peru over 1995Q2-2019Q4. According to two Bayesian selection criteria, the best-fitting models allow most parameters and the variances of shocks to evolve over time. The results are divided into two parts: (i) the ERPTs into import and producer prices decline significantly since the end of the 1990s until 2008. However, since 2014 both ERPTs resurge considerably due to exchange rate depreciation associated with the end of Quantitative Easing (QE), falling commodity prices, and global political events. These findings are in line with recent literature using TVP-VARSV and emphasizing ERTP resurgence after the Global Financial Crisis (GFC); (ii) the ERPT into consumer prices declined steadily throughout the sample. This is in line with the existing literature and is explained by a low-inflation context under an Inflation Targeting (IT) regime and by strong Central Bank credibility. Finally, the results are robust to a set of sensitivity exercises, including changes in the variables associated with the external shock and domestic economic activity, as well as in the values of the priors; and an estimation of the ERPT for Colombia. JEL Classification-JE: C11, C32, E31, F31.
    Keywords: Exchange Rate Pass-Through into Prices, Vector Autoregressive Model with TimeVarying Parameters, Stochastic Volatility, Bayesian Estimation and Comparison of Models, Deviance Information Criterion, Marginal Likelihood, Peruvian Economy.
    Date: 2022
  58. By: Silvia De Poli (Joint Research Centre); Michael Christl (Joint Research Centre); Francesco Figari (University of Insubria); Tine Hufkens (Joint Research Centre); Chrysa Leventi (Athens University of Economics and Business); Andrea Papini (Joint Research Centre); Alberto Tumino (Joint Research Centre)
    Abstract: This paper analyses the effect of the COVID-19 pandemic on household disposable income and household demand in the European Union (EU) during 2020, making use of the EU microsimulation model EUROMOD and nowcasting techniques. We show evidence of heterogeneity in the impact of the COVID-19 pandemic on the labour markets in EU Member States, with some countries hit substantially harder than others. Most EU Member States experience a large drop in market incomes, with poorer households hit the hardest. Tax-benefit systems cushioned significantly the transmission of the shock to the disposable income and the household demand, with monetary compensation schemes playing a major role. Additionally, we show that monetary compensation schemes prevent a significant share of households from becoming liquidity constrained during the pandemic.
    Keywords: COVID-19, inequality, microsimulation, EUROMOD, compensation schemes, liquidity constraints, consumption, income stabilizers
    JEL: D13 E24 H24
    Date: 2022–06
  59. By: De Cao, Elisabetta; McCormick, Barry; Nicodemo, Catia
    Abstract: We study in-utero exposure to economic fluctuations on birth outcomes by exploiting geographical variation in the unemployment rate across local areas in England, and by comparing siblings born to the same mother. Using rich individual data from hospital administrative records for 2003–2012, babies’ health is found to be strongly pro-cyclical. This overall result masks marked differences between babies born in the most affluent areas whose health at birth improves in a recession, and babies born in the average-to-lowest income deprived areas whose health deteriorates. Maternal alcohol consumption, smoking, and delay in the first antenatal care assessment - combined with parental income loss, are found to drive the results. While differences in maternal risky behaviours can explain the heterogenous effects.
    Keywords: unemployment rate; birth outcomes; birthweight; fertility; England; ES/T008415/1; NIHR Applied Research Collaboration Oxford and Thames Valley at Oxford Health NHS Foundation Trust
    JEL: E24 I10 I12 J13
    Date: 2022–05–01
  60. By: Alexander Bick; Adam Blandin
    Abstract: Economists have recently begun using independent online surveys to collect national labor market data. Questions remain over the quality of such data. This paper provides an approach to address these concerns. Our case study is the Real-Time Population Survey (RPS), a novel online survey of the US built around the Current Population Survey (CPS). The RPS replicates core components of the CPS, ensuring comparable measures that allow us to weight and rigorously validate our results using a high-quality benchmark. At the same time, special questions in the RPS yield novel information regarding employer reallocation during the COVID-19 pandemic. We document that 26% of pre-pandemic workers were working for a new employer one year into the COVID-19 outbreak in the US, at least double the rate of any previous episode in the past quarter century. Our discussion contains practical suggestions for the design of novel labor market surveys and highlights other promising applications of our methodology.
    Keywords: Online Survey; Employment; Employer Separations; Employer Reallocation
    JEL: C81 C83 E24 J21 J63
    Date: 2022–05–03
  61. By: Riccardo Zolea
    Abstract: This paper proposes a functional analysis of input, output and capital of the banking sector in an endogenous money framework with the aim of determining the aggregates on which to calculate the bank profit rate. Although banks create bank money, State money is not producible by banks, which need it as an input. Deposits are the cheapest source of central bank money already in the system, so it can be argued that deposits are inputs to the banking industry. Assuming that loans are the banking output, we investigate what role regulation plays in defining a banking production technique. The framework developed from Basel Accords imposes a level of equity proportional to the level of risk-weighted bank assets. Thus, a bank capital-to-output ratio defined by these rules is conceivable.
    Keywords: Bank; deposit; capital; input-output analysis; post-Keynesian approach; MMT.
    JEL: E51 E12 G21
    Date: 2022–06
  62. By: Ming Zeng; Guihai Zhao
    Abstract: Recent findings on the term structure of equity and bond yields pose serious challenges to existing models of equilibrium asset pricing. This paper presents a new equilibrium model of subjective expectations to explain the joint historical dynamics of equity and bond yields (and their yield spreads). The movements of equity and bond yields are driven mainly by subjective expectations of dividend and gross domestic product (GDP) growth. Yields on short-term dividend claims are more volatile because the expected short-term dividend growth mean-reverts to its less volatile long-run counterpart. The procyclical slope of equity yields is due to the countercyclical slope of dividend growth expectations. The correlation between equity returns/yields and nominal bond returns/yields switched from positive to negative after the late 1990s, owing mainly to a stronger correlation between expectations of real GDP growth and real dividend growth and only partially to procyclical inflation. Dividend strip returns are predictable, and the predictive power decreases with maturity as a result of predictable forecast errors and revisions. The model is also consistent with the data in generating persistent and volatile price-dividend ratios and excess return volatility.
    Keywords: Asset pricing; Financial markets; Interest rates
    JEL: G00 G12 E43
    Date: 2022–05
  63. By: Takuto Arao (Bank of Japan)
    Abstract: In Japan's money markets, negative interest rate transactions prevail under the three-tier system applied to the financial institutions' current accounts held at the Bank of Japan. This paper explains the mechanism of short-term interest rate formation under the three-tier system and the concept of market operations using a simple reserve demand curve model. Under the three-tier system, in which current deposits are divided into three tiers and different interest rates are applied to each tier, financial institutions have an incentive to conduct money market transactions for arbitrage purposes depending on to which tier their outstanding current account balances fill up prior to money market transactions. The Bank realizes negative interest rates consistent with yield curve control by taking steps so that the "hypothetical policy-rate balance (the policy-rate balance that remains assuming that arbitrage transactions have taken place in full), " is maintained at a certain level. The shape of the reserve demand curve is considered to be downward sloping around the boundaries of each tier due to the uncertainties over future course of current account balances. The shape and position of the reserve demand curve will change depending on the degree of the uncertainties and other factors such as the use of Special Operations in Response to COVID-19 and various loan support programs. Short-term interest rates also change when arbitrage transactions are not conducted in full due to market friction. It can be interpreted that the Bank influences on short-term interest rates by changing the reserve demand curve and the reserve supply curve through setting the Benchmark Ratio and carrying out market operations based on the information about these factors.
    Keywords: Negative interest rate; Tiered remuneration; Interbank market; Monetary policy implementation
    Date: 2022–05–27
  64. By: Brant Abbott; Nam Phan
    Abstract: We use a labor search model with heterogenous households and firms to study the efficacy of a wage subsidy during a pandemic, relative to enhancing unemployment benefits. A large proportion of the economy is forced to shut down, and firms in that sector choose whether to lay off workers or keep them on payroll. A wage subsidy encourages firms to keep workers on payroll, which speeds up labor market recovery after the pandemic ends. However, a wage subsidy can be costlier than enhancing unemployment benefits. If the shutdown is long or profit margins are low then a wage subsidy is preferable, and vice-versa. The optimal mixture of policies includes a wage subsidy that covers 90% the first $200/week of earnings, and expands unemployment benefits to cover all salary up to $275/week. Low income workers, as well as those in less productive jobs, benefit the most from a wage subsidy.
    Keywords: wage subsidy, unemployment insurance, search, pandemic, Covid-19
    JEL: E2 E32 J40
    Date: 2022–05
  65. By: Auboina, Marc; Borino, Floriana
    Abstract: In this paper, we estimated the standard (macro-economic) import equation over the period 1995-2021Q2, using an import intensity-adjusted measure of aggregate demand (IAD) calculated from input-output tables at country level, and compared the results with regressions using GDP. Initially introduced by Bussière (2013), this "synthetic" concept of IAD was perfected, inter alia, by the IMF (2016) and by us (2017), with a view to explaining the "missing" trade flows unpredicted by GDP-based import models during the trade collapse of 2009 and subsequent recovery from it. At the time, it appeared that the integration of IAD helped predict over three-quarters of the changes in global imports, a better performance than if using GDP (two-thirds) or any other measure of aggregate demand. We had found much value to this method, as a complement to existing analytical tools, enabling to measure the relative importance of each component of demand in the variations of country/global imports, over entire economy cycles (a phase of trade expansion, a sudden collapse and a recovery). Moreover, by weighting each aggregate demand component by its direct and indirect traded inputs, import-adjusted integrated a supply-side dimension to such macro-economic modelling. By extending our estimates to cover global trade during the (on-going) Covid-19 pandemic (1995-2021 Q2), we found the IAD-based model to continue performing well, predicting 79% of changes in global imports during the period 1995-2021Q2 (10 percentage points more than when using GDP). We also found that, on average, 97% of the difference in global import growth between the pre-pandemic (2012-2019) and the pandemic period (2020), was attributable to IAD. Most of the variations in imports can be explained by changes in the growth of investment and exports, the two-most trade-intensive elements of demand, by 29% and 45%. The variations of consumption also accounted for a significant share of global import variations during this period (25%).
    Keywords: investment,global outlook, trade policy,trade forecasting,business cycles
    JEL: E22 F01 F13 F17 F44
    Date: 2022
  66. By: Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Syahda Sabrina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Nauli A. Desdiani (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Amalia Cesarina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Meila Husna (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Faradina Alifia Maizar (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: The domestic spread of Delta variant has dragged down the promising upward trend of economic growth from 7.07% (y.o.y) in Q2 2021 to only 3.51% (y.o.y) in Q3 2021 as consumption declined and business activity in various sectors that relies on physical activity was halted. The implementation of PPKM to limit the transmission of Covid-19 hit severely the transportation & storage and accomodation & FnB sectors. Aside from agriculture, Indonesian main economic sectors, such as manufacturing, wholesale & retail trade, and construction, also experienced slower growth in Q3 2021. The second wave has also slammed brakes on all expenditure components of GDP, particularly the household consumption as the biggest contributor of GDP, which was only grew by 1.03% (y.o.y) in Q3 2021, down from 5.93% (y.o.y) in previous quarter. Amidst the ongoing crisis, credit performance has shown a favourable outlook for overall 2021 as it has gradually increased along with the improved business and consumers sentiment as economic recovery intensifies compared to its ruinous trend during 2020. However, the inflation rate throughout 2021 remains below BI’s target range. The low inflation in 2021 was influenced by domestic demand that was not yet fully recovered.
    Keywords: gdp — economic quarterly — economic outlook — inflation — macroeconomics
    Date: 2022–01
  67. By: Loretta J. Mester
    Abstract: It is a pleasure to participate in this policy panel at the International Research Forum on Monetary Policy sponsored by the Euro Area Business Cycle Network, the European Central Bank, and the Federal Reserve Board. The Federal Open Market Committee (FOMC) met last week; so in my brief prepared remarks, I will review the FOMC’s recent decisions and put them into context. As a reminder, the views I present today will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee.
    Keywords: Monetary Policy; Pandemic
    Date: 2022–05–13
  68. By: Brian Bell; Nicholas Bloom; Jack Blundell
    Abstract: We use a UK employer-employee administrative earnings dataset to investigate the response of earnings and hours to business cycles. Exploiting our long panel of data from 1975 to 2020 we find wide heterogeneity in the exposure of different types of workers to aggregate shocks. Employees who are younger, male, lower-skilled, non-union, and working in smaller private sector firms show the largest earnings response to recessions. The qualitative patterns of earnings changes across workers observed in the COVID-19 recession are broadly as predicted using the previously estimated exposures and size of the GDP shock. This suggests the COVID-19 recession in terms of its impact responses was relatively similar to those that have gone before, but the GDP shock was far larger in absolute size. Compared to aggregate shocks, we find a relatively small role of firm-specific shocks, suggesting macro shocks play an outsized role in individual earnings dynamics.
    Keywords: Covid-19, recession, firm-specific shocks, earnings
    Date: 2021–09–02
  69. By: Alistair Macaulay; James Moberly
    Abstract: A given observation of uncertainty in expected inflation could be consistent with many different beliefs about how inflation is formed, with different implications for the aggregate transmission of shocks. We add novel questions to the Bundesbank Survey of Consumer Expectations to elicit (i) how persistent households perceive inflation to be, and (ii) how certain they are in their inflation perceptions. Combining these with existing survey questions, we infer laws of motion for expectations at the individual level. Based on averages alone, a standard model calibrated to our data predicts shocks to inflation generate small and transitory responses in expectations and consumption. Accounting for the large heterogeneity in expectation laws of motion across households, however, increases the transmission of inflation shocks to aggregate consumption through expectations by an order of magnitude, and substantially increases the persistence of the consumption response.
    Date: 2022–04–20
  70. By: Kohnert, Dirk
    Abstract: 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.
    Keywords: United Kingdom, Rwanda, immigration, refugees, African migration to UK, post-colonialism, peace-building, identity politics, nationalism, xenophobia, discrimination, African poverty, famine, Sub-Saharan Africa, human rights, 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: 2022–05–14
  71. By: Danilo Stojanovic
    Abstract: This study explores the hypothesis that the 2003 tax cuts on dividends and capital gains generated an increase in aggregate dividends and aggregate share repurchases in the US after 2003. I find that the 2003 tax reform leads to a rise in both types of payouts in the General Equilibrium setting with sticky wages after incorporating two financial frictions, including the adjustment costs on dividends and endogenous constraint on repurchases. Two motives lie behind the results. First, the 2003 tax reform generates a tax motive for dividends due to higher tax cuts on dividends than tax cuts on capital gains. Second, the 2003 tax reform activates a flexibility motive for repurchases because paying dividends in the current period induces a commitment of firms to future dividend payments. Since any deviation from such a commitment might be costly for firms, those with low excess cash prefer to choose repurchases as a buffer to protect against extra penalties related to higher dividend volatility. Sticky wages in the General Equilibrium aim to provide firms with excess cash.
    Keywords: payout flexibility; capital reallocation; tax reform; heterogeneous firms;
    JEL: D21 E62 G35 H25 H32
    Date: 2022–04
  72. By: Alain Hecq; Joao Issler; Elisa Voisin
    Abstract: This paper uses predictive densities obtained via mixed causal-noncausal autoregressive models to evaluate the statistical sustainability of Brazilian inflation targeting system with the tolerance bounds. The probabilities give an indication of the short-term credibility of the targeting system without requiring modelling people's beliefs. We also investigate the added value of including experts predictions of key macroeconomic variables.
    Date: 2022–05
  73. By: Zolea, Riccardo (Roma Tre University)
    Abstract: In this paper we investigate the relationship between interest rate and profit rate. Considering that the bank must obtain on the invested capital a profit rate at least equal to the normal one, the bank interest rate can be calculated as the price of the bank output, i.e. the loan. The profit rate thus determines the interest rate, through the instrument of the price equation. Central to this study is the analysis of the best way to imagine such a price equation, considering the role of the central bank. We then move on to study the structure of interest rates and their relationship to the profit rate. Finally, by introducing the hypothesis of a bank profit rate permanently higher than the normal one, we confirm and better explain from an analytical point of view some insights expressed by Marx in Book III of Capital.
    Keywords: bank profitability; interest rate; price equation; Marx; finance
    JEL: E11 E43 G21
    Date: 2022–06–13
  74. By: Richard Finlay (Reserve Bank of Australia); Dmitry Titkov (Reserve Bank of Australia); Michelle Xiang (Reserve Bank of Australia)
    Abstract: We examine the effect on government bond yields of three Reserve Bank of Australia policy measures implemented following the onset of the COVID-19 pandemic. We also assess the impact of the three measures on government bond market functioning. The three measures were: purchases to support government bond market function over early 2020; the yield target on 3-year Australian government bonds; and the bond purchase program to lower longer-term yields from late 2020 until early 2022. For purchases to support market function, we find that the announcement lowered short-dated Australian Government Securities (AGS) yields, but did not lower longer-dated AGS yields. We also find that such purchases led to lower yields as and when they were implemented, and that they supported market function by lowering bid-offer spreads. For the yield target, we find a substantial announcement effect and moderate implementation effects on yields. Conversely, the yield target appears to have detrimentally affected some aspects of government bond market function. For the bond purchase program, we find an announcement effect of around 30 basis points for longer-term AGS yields, while any implementation effects were small and temporary.
    Keywords: market function; yield target; quantitative easing; event study
    JEL: E52 E58 G12
    Date: 2202–05
  75. By: Manuel Ennes Ferreira; Jelson Serafim; João Dias
    Abstract: This study examines the relationship between financial development and economic growth in Angola for the period of Q12002 to Q42018. The results show that there is evidence of a long-run relationship between financial development and real GDP per capita, when using the Bound test approach for cointegration. Furthermore, the results of the Error Correction Model (ECM) indicate that financial development has a negative impact on GDP growth when considering credit to private and broad money as proxies for financial development. On the other hand, the degree of intermediation has a positive impact on GDP growth. The Toda–Yamamoto causality test was carried out, which indicates a unidirectional causality relationship, running from real GDP per capita to a purely financial development proxy, which shows demand-following responses. Consequently, policymakers should adopt policies that sustain the benefits of financial developments for economic growth.
    Keywords: Autoregressive-distributed Lag, Economic growth, financial development, Angola
    JEL: C32 E44 O55
    Date: 2022–05
  76. By: John C. Williams
    Abstract: Remarks at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop, New York City.
    Keywords: digital transformation; music; money; payments; digital currency; cryptocurrency; stablecoins; central bank digital currencies (CBDC)
    Date: 2022–06–01
  77. By: Pablo Ottonello; Wenting Song
    Abstract: We provide empirical evidence of the causal effects of changes in financial intermediaries’ net worth on the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries’ net worth in a narrow window around their earnings announcements, based on US tick-by-tick data. Using these shocks, we estimate that news of a 1% decline in intermediaries’ net worth leads to a 0.2% to 0.4% decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.
    Keywords: Asset pricing; Business fluctuations and cycles; Credit and credit aggregates; Financial institutions; Financial markets; Financial system regulation and policies; Monetary and financial indicators
    Date: 2022–05
  78. By: Marcelo Pedroni (University of Amsterdam); Swapnil Singh (Bank of Lithuania); Christian Stoltenberg (University of Amsterdam)
    Abstract: We investigate whether US households possess advance information about their future income and what this means for consumption insurance. Based on insights from a theoretical model, we propose a new test to detect advance information, which requires only panel data on consumption and income. Using the Panel Study of Income Dynamics, we find---in contrast to the existing literature---strong support for the existence of advance information. We use this evidence to estimate a standard incomplete markets model and find that advance information reduces households' income forecast errors by 15%. Our estimation results imply that 27% of all unexpected income changes are passed through to consumption. Ignoring advance information leads to a significant overestimation of consumption insurance and even more so at the bottom of the wealth distribution.
    Keywords: income risk, advance information, consumption insurance, panel data, incomplete markets
    JEL: C23 D12 D31 D52 D81 E21 G52
    Date: 2022–04–15
  79. By: Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Syahda Sabrina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Nauli A. Desdiani (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Amalia Cesarina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Meila Husna (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Faradina Alifia Maizar (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: The Covid-19 pandemic is a crisis like never before. In economic sense, the current crisis is not originated from any economic aspects like credit crunch, banking sector collapse, or sovereign debt overhang. Thus, we are facing a crisis that has never been explained in any economic textbooks and it leaves almost everyone’s clueless. After more than a year living in a pseudo-dystopic world, we have seen enough calamity to the point extraordinary policy measures and practices to weather the crises is a norm. Excessive sovereign debt accumulation, central banks step-in to fund fiscal policies, and the quickest vaccine development in human history has taken place just to save the population from mounting death counts and help the poorest meet their subsistence.
    Keywords: gdp — economic quarterly — economic outlook — inflation — macroeconomics
    Date: 2021–02
  80. By: Hayley Pallan (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: Do sovereign bond investors care about taxation in the countries where they invest? In this paper, I examine the response of sovereign spreads to changes in tax revenues, bases and rates. In simple OLS regressions there is a negligible relationship between sovereign spreads and taxation. However, there are stronger relationships in emerging markets, specifically for corporate taxation. There is a particularly important role of corporate tax base changes in emerging markets for sovereign spreads - this contemporaneous relationship holds using both annual and daily datasets. Additionally, an assessment of how sovereign spreads respond to tax changes under various fiscal environments highlights the role of initial fiscal space in how sovereign spreads respond to aspects of corporate taxation. Finally, I estimate local projections in order to assess the dynamic response of sovereign spreads to corporate taxation. These results are consistent with the finding that corporate tax base expansion (rather than corporate tax rate hikes) are associated with lower borrowing costs for governments in fiscal precarity - most strongly for countries with low levels of fiscal space in the medium term.
    Keywords: Sovereign Spreads, Fiscal Space, Corporate Tax Reform
    JEL: E62 H87 H63
    Date: 2022–06–11
  81. By: Florian Peters; Doris Neuberger; Oliver Reinhardt; Adelinde Uhrmacher
    Abstract: In macroeconomics, an emerging discussion of alternative monetary systems addresses the dimensions of systemic risk in advanced financial systems. Monetary regime changes with the aim of achieving a more sustainable financial system have already been discussed in several European parliaments and were the subject of a referendum in Switzerland. However, their effectiveness and efficacy concerning macro-financial stability are not well-known. This paper introduces a macroeconomic agent-based model (MABM) in a novel simulation environment to simulate the current monetary system, which may serve as a basis to implement and analyze monetary regime shifts. In this context, the monetary system affects the lending potential of banks and might impact the dynamics of financial crises. MABMs are predestined to replicate emergent financial crisis dynamics, analyze institutional changes within a financial system, and thus measure macro-financial stability. The used simulation environment makes the model more accessible and facilitates exploring the impact of different hypotheses and mechanisms in a less complex way. The model replicates a wide range of stylized economic facts, including simplifying assumptions to reduce model complexity.
    Date: 2022–05
  82. By: Monetary Affairs Department (Bank of Japan)
    Abstract: On March 29, 2022, the first workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic," entitled "Characteristics of Price Developments in Japan," was held at the Bank of Japan's Head Office. Taking differences in consumer price developments between Japan, the United States, and Europe in the wake of the COVID-19 pandemic as a starting point, a lively discussion was held on the characteristics of price developments in Japan, involving experts and scholars in economics and empirical analysis. Session 1 focused on the characteristics of Japan's lower consumer price inflation in the wake of the COVID-19 pandemic compared to the US and Europe based on the results of an analysis using the price change distribution and core inflation indicators. In addition, based on empirical results showing that in Japan the interaction between wages and prices is weak, discussions were held on the link between the two, which is regarded as important in terms of the sustainability of inflation. In Session 2, service prices, which are one of the reasons for differences in consumer price developments in Japan, the US, and Europe, were highlighted and issues related to the measurement of service prices, especially rent, were discussed. It was pointed out that which measurement approach is used may have a sizable impact on the measured difference in the rate of inflation between Japan and other countries in the wake of the COVID-19 pandemic. Session 3 consisted of a panel discussion focusing on three main issues: (1) the reason for the differences in consumer price developments between Japan, the US, and Europe; (2) the outlook for future prices; and (3) the challenges for monetary policy based on the current situation of and outlook for prices. With regard to (1), panelists generally agreed that major reasons for the acceleration in inflation in the US include the sharp recovery in demand and the decline in the labor force participation rate; in contrast, no similar developments were seen in Japan, so that consumer price inflation in Japan has remained weak compared to the US. Regarding (2), it was pointed out that on the one hand Japan faced the risk of prices falling again due to chronic deflationary factors that have been in place since before the pandemic and the decline in demand caused by the prolonged impact of COVID-19; on the other hand, there is also the risk of a rise in inflation due to the cost-push shock triggered by the sharp rise in commodity prices. It was then pointed out that the key factor in determining which risk is more likely to materialize is future developments in wages. Regarding (3), panelists shared the view that it is desirable to continue monetary easing in response to weak demand, while it is desirable to respond to price hikes in some items, particularly energy, by measures other than monetary policy.
    Date: 2022–05–23
  83. By: Christopher J. Waller
    Date: 2022–05–06
  84. By: Jan Eeckhout; Laura Veldkamp
    Abstract: Might firms' use of data create market power? To explore this hypothesis, we craft a model in which economies of scale in data induce a data-rich firm to invest in producing at a lower marginal cost and larger scale. However, the model uncovers much richer interactions between data, welfare and market power. Data affects risk, firm size and the composition of the goods firms produce, all of which affect markups. The tradeoff between these forces depends on the level of aggregation at which markups are measured. Empirical researchers who measure markups at the product level, firm level or industry level come to different conclusions about trends and cyclical fluctuations in markups. Our results reconcile and re-interpret these facts. The divergence between product, firm and industry markups can be a sign that firms are using data to reallocate production to the goods consumers want most.
    JEL: D8 E3 L0
    Date: 2022–05
  85. By: Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Syahda Sabrina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Nauli A. Desdiani (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Amalia Cesarina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Meila Husna (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Faradina Alifia Maizar (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: Despite still being in negative territory, GDP growth of Indonesia is the closest it gets to the positive rate since the outbreak. Recorded at -0.74% (y.o.y), the Indonesian economy in Q1 2021 enjoyed a less severe contraction in almost all sectors than the previous three quarters. In addition, several sectors that enjoyed a rather positive growth during the pandemic were still recording an expansion in the first quarter of 2021. Diving deeper to its sectors, manufacturing industry as the biggest sector in the Indonesian economy with the contribution of more than a fifth, recorded a growth of -1.38% (y.o.y) in Q1 2021, a rather substantial increase from -3.13% (y.o.y) in the last quarter of 2020. Similarly, wholesale and retail trade as another major sector in the economy with the contribution of 13% to the national GDP, grew -1.23% (y.o.y) in Q1 2021 from -3.66% (y.o.y) in Q4 2020. As PPKM were in place during most of Q1 2021, it comes as no wonder, all expenditure components of GDP shrank, except for government consumption, exports, and imports. Beside disruption coming from Covid-19 pandemic, negative growth in most expenditure components is because we are comparing with Q1 2020 when the pandemic has not fully escalated domestically.
    Keywords: gdp — economic quarterly — economic outlook — inflation — macroeconomics
    Date: 2021–03
  86. By: Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Syahda Sabrina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Nauli A. Desdiani (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Amalia Cesarina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Meila Husna (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: Resuming the pattern of the first half of 2020, Indonesia’s economic figure in Q3-2020 came as a disappointment to many as it was worse than expected. Recorded at -3.49% (y.o.y), the official GDP growth of Q3-2020 practically puts Indonesia in a technical recession. Observing deeper to its sectors, the top four sectors of Indonesia’s economy (i.e., manufacturing, wholesale & retail trade, construction, and mining & quarrying sectors) which accounted for more than half of the GDP, still experienced a negative growth in Q3 2020. While in the expenditure side, almost all of the GDP components contracted except the government spending. The total credit fell sharply to its lowest level in line with the slowdown in business activities and weak consumer demand. The persistent muted core inflation suggests that the the purchasing power remains weak until the end of the year. Despite the deep economic downturn due to the health crisis, Indonesia recorded eight consecutive months of trade suprluses from May to December 2020. The trade performance has released the pressures on Indonesia’s current account balance and Rupiah, where current account balance recorded surplus in Q3-2020 and Rupiah is relatively manageable until the end of the year. However, the series of trade balance surpluses does not represent a better economic outlook as it was spurred by the significant drop in imports due to weak international and domestic demand. There is no promising sign of the real sector recovery as long as the imports, which are mainly consisted of raw and capital goods, remains low.
    Keywords: gdp — economic quarterly — economic outlook — inflation — macroeconomics
    Date: 2021–01
  87. By: Olkhov, Victor
    Abstract: This paper introduces the market-based asset price probability during time averaging interval Δ. We substitute the present problem of guessing the “correct” form of the asset price probability by description of the price probability as function of the market trade value and volume statistical moments during Δ. We define n-th price statistical moments as ratio of n-th statistical moments of the trade value to n-th statistical moments of the trade volume. That definition states no correlations between time-series of n-th power of the trade volume and price during Δ, but doesn’t result statistical independence between the trade volume and price. The set of price n-th statistical moments defines Taylor series of the price characteristic function. Approximations of the price characteristic function that reproduce only first m price statistical moments, generate approximations of the market-based price probability. That approach unifies probability description of market-based asset price, price indices, returns, inflation and their volatilities. Market-based price probability approach impacts the asset pricing models and uncovers hidden troubles and usage bounds of the widespread risk hedging tool – Value-at-Risk, lets you determine the price autocorrelations and revises the classical option pricing from one to two dimensional problem. Market-based approach doesn’t simplify the price probability puzzle but establishes direct economic ties between asset pricing, market randomness and economic theory. Description of the market-based price and returns volatility, Skewness and Kurtosis requires development of economic theories those model relations between second, third and forth order macroeconomic variables. Development of these theories will take a lot of efforts and years.
    Keywords: asset price; price probability; returns; inflation; market trades
    JEL: C01 C58 E31 E37 G12 G17
    Date: 2022–05–15
  88. By: William Roberds
    Abstract: Recently, there has been much discussion as to whether central bank digital currencies (CBDCs) should be introduced, and if so, how they should be designed. This article offers a historical perspective on this discussion, with a survey of early public bank (proto-central bank) "analog currencies"—circulating banknotes. Public banknotes were an experimental product when they were first issued in sixteenth-century Naples, but by the late nineteenth century, such notes could be found in most European countries. In between came all sorts of implementation difficulties: egregious insider fraud, a real estate finance bubble, hyperinflation, rampant counterfeiting, and complete institutional collapse. Despite these many misfires, central bank–issued notes eventually became the default form of payment in virtually every country worldwide.
    Keywords: central bank digital currency; banknotes
    JEL: E58 N13
    Date: 2022–03–03
  89. By: Cyrille Lenoël; Corrado Macchiarelli; Garry Young
    Abstract: At the beginning of 2010, the fiscal situation of Greece was unsustainable, and an ambitious but costly adjustment plan had to be put in place under a consortium of the International Monetary Fund, the European Commission and the European Central Bank. It took three consecutive adjustment programmes, including debt-relief through private sector involvement, to restore confidence in the economy and achieve a budget surplus. In this paper, we provide a theoretical analysis of the Greek Crisis starting from 2010. We build a series of counterfactuals using the National Institute General Econometric Model (NIGEM) to analyse why the cost of the adjustment in terms of GDP loss and increase in debt-to-GDP ratio turned out to be much worse than expected. In doing so, we analyse three scenarios: (i) one in which we simulate a much more conservative cut in public investment by the Greek central government; (ii) a second scenario of a lower risk-premium, signalling, e.g., lower political and redenomination risks, had the European Central Bank guaranteed its lending of last resort role earlier than 2012; (iii) finally, a similar financial envelope as the one adopted during the first Greek adjustment programme but over a longer period, moving beyond the standard IMF three-year duration programmes. We find that the mix of expenditure cuts and loss of confidence among households and firms explain a large part of the unanticipated costs of the adjustment in the Greek crisis.
    Keywords: Fiscal multipliers; Fiscal policy; Government; Public Expenditure; Public Investment
    Date: 2022–06
  90. By: Koohborfardhaghighi, Somayeh (Deloitte FAS LLP); Summers, Christopher R. (University of Missouri-St. Louis); Heshmati, Almas (Jönköping University, Sogang University); Altmann, Jörn (Seoul National University)
    Abstract: The literature on happiness shows that there are many factors that influence a person’s happiness. Extending previous studies, we investigate the role of the freedom of choice as a key contributing construct in influencing a person’s happiness. We define two hypothetical sub-constructs for the freedom of choice to fully develop a model of happiness. We name those hypothetical sub-constructs (latent variables) as volitional and non-volitional choices, each of which is measured by a variety of indicators (observed variables). The selected indicators are mainly from the social dimensions of happiness within working and living environments, which affect the quality-of-life people enjoy. We use the structural equation modeling approach to test our model. We restrict our empirical studies to four East Asian countries, which are South Korea, Japan, Taiwan, and China. The obtained results of this study, confirm that happiness tends to be closely related to interpersonal connectedness and individuals’ experiences within shared relationships in certain countries. Our findings open new insights on how happiness can be considered as an emerging outcome of the interplay between personal characteristics and societal interactions. Findings of this study can be applied in empowering the cognitive dimension of social capital within an organization.
    Keywords: hedonic and eudemonic approaches, freedom of choice, happiness, structural equation modelling, East Asia region, cognitive social capital
    JEL: C50 D71 E24 J24 O34
    Date: 2022–05
  91. By: Alessandro Ferrari; Francisco Queir\'os
    Abstract: We study how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states. We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm heterogeneity in the US economy, we find that, relative to 2007, an economy with the 1985 level of firm heterogeneity is 5 to 9 times less likely to experience a very persistent recession. We use our framework to study the 2008-09 recession and show that the model can rationalize the persistent deviation of output and most macroeconomic aggregates from trend, including the behavior of net entry, markups and the labor share. Post-crisis cross-industry data corroborates our proposed mechanism. We conclude by showing that firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to up to a 21% increase in welfare.
    Date: 2022–05
  92. By: Toru Kitagawa; Weining Wang; Mengshan Xu
    Abstract: This paper develops a novel method for policy choice in a dynamic setting where the available data is a multivariate time series. Building on the statistical treatment choice framework, we propose Time-series Empirical Welfare Maximization (T-EWM) methods to estimate an optimal policy rule for the current period or over multiple periods by maximizing an empirical welfare criterion constructed using nonparametric potential outcome time-series. We characterize conditions under which T-EWM consistently learns a policy choice that is optimal in terms of conditional welfare given the time-series history. We then derive a nonasymptotic upper bound for conditional welfare regret and its minimax lower bound. To illustrate the implementation and uses of T-EWM, we perform simulation studies and apply the method to estimate optimal monetary policy rules from macroeconomic time-series data.
    Date: 2022–05
  93. By: John Mondragon; Johannes F. Wieland
    Abstract: What explains record U.S. house price growth since late 2019? We show that the shift to remote work explains over one half of the 23.8 percent national house price increase over this period. Using variation in remote work exposure across U.S. metropolitan areas we estimate that an additional percentage point of remote work causes a 0.93 percent increase in house prices after controlling for negative spillovers from migration. This cross-sectional estimate combined with the aggregate shift to remote work implies that remote work raised aggregate U.S. house prices by 15.1 percent. Using a model of remote work and location choice we argue that this estimate is a lower bound on the aggregate effect. Our results imply a fundamentals-based explanation for the recent increases in housing costs over speculation or financial factors, and that the evolution of remote work is likely to have large effects on the future path of house prices and inflation.
    Keywords: housing; house price growth; remote work; location choice; inflation; covid19
    Date: 2022–05–26
  94. By: Győző Gyöngyösi (Leibniz Institute for Financial Research SAFE and Magyar Nemzeti Bank (Central Bank of Hungary)); Judit Rariga (Magyar Nemzeti Bank (Central Bank of Hungary)); Emil Verner (MIT Sloan School of Management)
    Abstract: This paper studies the consumption response to an increase in the domestic value of foreign currency household debt during a large depreciation. We use detailed consumption survey data that follows households for four years around Hungary’s 2008 currency crisis. We find that, relative to similar local currency debtors, foreign currency debtors reduce consumption approximately one†for†one with increased debt service, suggesting a role for liquidity constraints. We document a variety of margins of adjustment to the shock. Foreign currency debtors reduce both the quantity and quality of expenditures, consistent with non†homothetic preferences and "flight from quality." We find no effect on overall household labor supply, consistent with a weak wealth effect on labor supply. However, a small subset of households adjusts labor supply toward foreign income streams. Affected households also boost home production, suggesting a shift in consumption from money†intensive to time†intensive goods.
    Keywords: Household debt, foreign currency debt, consumption.
    JEL: E21 G51
    Date: 2022
  95. By: Jahen F. Rezki (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Syahda Sabrina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Nauli A. Desdiani (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Teuku Riefky (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Amalia Cesarina (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Meila Husna (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Faradina Alifia Maizar (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: Contrary to what was expected in the early last year, Indonesia did not fully recovered in 2021 and did not reach its pre-pandemic level of growth. Ending 2021 with GDP growth of 5.02% (y.o.y) in Q4-2021, Overall economic growth in 2021 is recorded at 3.37% (y.o.y). Waves of several Covid-19 variants has served as the hiccups on the economic recovery progress trajectory throughout 2021. Moreover, sectoral performances indicate that the economic recovery got back to its upward track at the end of 2021 after took a hit in Q3-2021 due to the disruption of Delta variant. Several biggest sectors in the Indonesian economy, such as manufacturing, wholesale retail & trade, and agriculture grew robustly in Q4-2021, suggesting the spur in production activity, household demand, and purchasing power of the population. Furthermore, two sectors that has been hit the hardest during the pandemic, namely transportation & storage and accomodation & FnB, enjoyed a significant growth in Q4-2021, thanks to the pandemic containment that enables people to travel and do leisure activities. From the expenditure components, All household consumption components recorded positive growth during the last three months of 2021. Accounted for more than half of the GDP, consumption grew by 3.55% (y.o.y) and government expenditure accelerated by 5.25% (y.o.y) in Q4 2021, which resulted from accelerating budget realization. As of 31 December 2021, government expenditure was recorded at 101.34% of 2021 budget or IDR2,786.76 trillion. At the same time the National Economic Recovery (PEN) budget realization was recorded at IDR658.6 trillion on 31 Desember 2021 or 88.4% of the total PEN budget of IDR744.77 trillion up from 53% on 17 September 2021.
    Keywords: gdp — economic quarterly — economic outlook — inflation — macroeconomics
    Date: 2022–02
  96. By: -
    Abstract: En el presente documento se hace un balance preliminar de las economías de Centroamérica (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua y Panamá) y la República Dominicana (CARD) en 2021 y se presentan las perspectivas para 2022.
    Date: 2022–04–13
  97. By: Kensuke Fukunaga (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Senior Analyst, UTokyo Economic Consulting Inc., E-mail:; Daisuke Miyakawa (Associate Professor, Hitotsubashi University Business School (E-mail:
    Abstract: How do supply chain networks affect credit supply? To answer this question, we empirically detect clusters of firms by using firm-to- firm transaction data, then measure banks' exposures to those clusters and borrowing firms by using bank-to-firm lending data. Through the panel estimations controlling for unobservable factors potentially affecting credit demand and supply, first, we find that the higher portfolio concentration of banks on the clusters of firms lowers credit supply to less creditworthy firms. Second, we also find that such a pattern is more apparent for banks lending to creditworthy firms. These results suggest that the change in real network propagates to credit supply through banks' risk management.
    Keywords: Credit supply, supply chain network, cluster detection
    JEL: D22 E44 G11 G21
    Date: 2022–05
  98. By: Hafsa Hina (Pakistan Institute of Development Economics)
    Abstract: Pakistan has experienced macroeconomic instability since the early seventies. Because of the country’s persistent macroeconomic uncertainty, savings and private investment have been discouraged, resulting in low aggregate investment and volatile output levels. It has one of the lowest investment-to-GDP ratios that is 15 percent, about half of the South Asian average of 30 percent. Here we will review the evidence from Pakistan to inform policymaking and local research about.
    Keywords: Public Investment, Foreign Direct Investment, Saving
    Date: 2021
  99. By: Carlos Garriga; Rodolfo E. Manuelli; Siddhartha Sanghi
    Abstract: This paper analyzes the optimal management of a pandemic (stay-at-home and vaccination policies) in a dynamic model. The optimal lockdown policies respond to the spread of the virus with significant restrictions to employment, followed by partial loosening before the peak of the epidemic. Upon the availability of a vaccine, the optimal vaccination policy has an almost bang-bang property, despite the loss of immunity of the vaccinated: vaccinate at the highest possible rate, and then rapidly converge to the steady state. The model illustrates interesting trade-offs as it implies that lower hospital capacity requires flattening the infection curve and hence a more stringent lockdown, but lower vaccination possibilities (both the likelihood of a vaccine and the vaccination rate) push the optimal lockdown policy in the opposite direction, even before the arrival of vaccine. The model implies that the “dollar” value of a vaccine decreases rapidly as time passes with the reinfection rate being an important determinant of the monetary value. The value that society assigns to averting deaths is a major driver of the optimal policy. The sensitivity analysis shows that even for reasonable bounds of the economic and epidemiological parameters, the timing and the magnitude of the optimal policy varies substantially.
    Keywords: Optimal Policy; Epidemic; Lockdown; Vaccine; COVID-19; Pandemic
    JEL: E6 I12 I15 I18
    Date: 2022–02–24
  100. By: Jiang, Zhengyang (Northwestern U); Lustig, Hanno (Stanford GSB, NBER, SIEPR); Van Nieuwerburgh, Stijn (Columbia Business School, NBER, CEPR); Xiaolan, Mindy Z. (UT Austin McCombs)
    Abstract: We use discounted cash flow analysis to measure a country's fiscal capacity. Crucially, the discount rate applied to projected cash flows includes a GDP risk premium. We apply our valuation method to the CBO's projections for the U.S. federal government's deficit between 2022 and 2051 and debt in 2051. In spite of low rates, our current measure of U.S. fiscal capacity is lower than the debt/GDP ratio. Because of the backloading of projected surpluses, the duration of the surplus claim far exceeds the duration of the outstanding Treasury portfolio. This duration mismatch exposes the government to the risk of rising rates, which would trigger the need for higher tax revenue or lower spending. Reducing this risk by front-loading the surpluses also requires major fiscal adjustment.
    JEL: E62 G18 H5 H6
    Date: 2022–03
  101. By: Bianchi, Daniele (Queen Mary University of London); Babiak, Mykola (Lancaster University Management School); Dickerson, Alexander (Warwick Business School, University of Warwick)
    Abstract: We provide empirical evidence within the context of cryptocurrency markets that the returns from liq uidity provision, proxied by the returns of a short-term reversal strategy, are primarily concentrated in trading pairs with lower levels of market activity. Empirically, we focus on a moderately large cross section of cryptocurrency pairs traded against the U.S. Dollar from March 1, 2017 to March 1, 2022 on multiple centralised exchanges. Our findings suggest that expected returns from liquidity provision are amplified in smaller, more volatile, and less liquid cryptocurrency pairs where fear of adverse selection might be higher. A panel regression analysis confirms that the interaction between lagged returns and trading volume contains significant predictive information for the dynamics of cryptocurrency returns. This is consistent with theories that highlight the role of inventory risk and adverse selection for liquidity provision.
    Keywords: Liquidity provision; short-term reversal; trading volume; empirical asset pricing; adverse selection.
    JEL: C58 E44 G12 G17
    Date: 2022–05–01
  102. By: Erica Marujo; Nuno Goncalves; Rui Dias
    Abstract: The response to climate change will demand profound transformations in social and economic systems, requiring significant investments from both the public budget and the private sector. This occasional paper contextualizes the issue of climate change in the Portuguese economy and analyses its effects on public finances. This document explains the main concepts underlying climate change and analyses the main theoretical transmission channels to the economy. The empirical evidence for Portugal regarding this issue is reviewed and the policies and financial instruments already adopted in the country to ensure the decarbonization of the economy until 2050 are surveyed. A detailed analysis of the financial dimension of the climate action for Portugal is presented, aiming to clarify the financing strategy of the country to reach carbon neutrality and the allocation of the financial effort to be executed between the public and the private sectors. This study concludes that, in Portugal, despite the approval of several climate action plans, there is a clear need for better articulation between the multiple instruments and to develop their financial dimension in order to ensure greater transparency of the inherent processes and to secure the achievement of the agreed targets. The impact of climate change over the economic growth and other dimensions of the society will be greater the less action taken by policy makers to adopt mitigation and adaptation measures that fulfil the goals of the Paris Agreement.
    Keywords: Climate change; macroeconomic impacts; decarbonization; public investment; public financing; budgetary impact
    JEL: E60 H23 O44 Q51 Q54 Q58
    Date: 2022–05
  103. By: Dario Caldara; Sarah Conlisk; Matteo Iacoviello; Maddie Penn
    Abstract: Global geopolitical risks have soared since Russia's invasion of Ukraine. Investors, market participants, and policymakers expect that the war will exert a drag on the global economy while pushing up inflation, with a sharp increase in uncertainty and risks of severe adverse outcomes. As an example of these concerns, the April 2022 edition of the International Monetary Fund's World Economic Outlook contains more than 200 mentions of the word "war."
    Date: 2022–05–27
  104. By: Grömling, Michael; Niebel, Thomas
    Abstract: Seit geraumer Zeit lassen die Produktivitätszuwächse in den fortgeschrittenen Volkswirtschaften nach. Dies überrascht insofern, als große und breit angelegte technologische Impulse infolge der digitalen Revolution erwartet werden. Eine Analyse für Deutschland weist zunächst auf deutlich nachlassende Produktivitätsimpulse des technischen Fortschritts und vor allem der Kapitalbildung hin. Um die schwächeren Kapitalstockeffekte in Deutschland zu verstehen, wird das Bruttoanlagevermögen nach unterschiedlichen Abgrenzungen betrachtet. Ausgehend von den etablierten Investitions- und Kapitalarten wird diskutiert, wie die empirische Erfassung des Produktionsfaktors Kapital weiterentwickelt werden kann. Der Blick richtet sich dabei auf Intangibles und auf ein breiter definiertes Digitalisierungskapital. Umfassende Indikatoren, um Ausmaß und Entwicklung der generellen Digitalisierung zu beschreiben, bieten zugleich konzeptionelle Ansatzpunkte für eine Definition und Messung von Digitalisierungskapital. Damit kann perspektivisch erfasst werden, welches Digitalisierungskapital für die Inlandsproduktion überhaupt zur Verfügung steht, wie es sich im Zeitablauf entwickelt und welche Wachstums- und Produktivitätsbeiträge aus ihm hervorgehen. Für die Kapitalstockdynamik kommt es darauf an, ob und in welchem Ausmaß die laufenden Investitionen die Abgänge beim Anlagevermögen übertreffen. Jedenfalls lassen ansteigende Investitionen je Arbeitseinheit nicht unbedingt auf eine Zunahme der Kapitalintensität schließen. Besonders moderne Investitionsgüter sind von einem hohen Neuerungstempo und entsprechend hohen Abgängen gekennzeichnet. Dies lässt erwarten, dass selbst vergleichsweise hohe Investitionen auf Basis eines hinsichtlich der Digitalisierung umfassend erweiterten Konzepts nicht unbedingt entsprechend hohe Kapitalstock- und Produktivitätsimpulse auslösen.
    Keywords: Produktivität,Digitalisierung,Kapital
    JEL: D24 E22 O47
    Date: 2022
  105. By: Toshitaka Sekine (Hitotsubashi University); Toshiaki Shoji (Seikei University); Tsutomu Watanabe (University of Tokyo)
    Abstract: Using credit card transaction data, we examine the impacts of two successive events that promoted cashless payments in Japan: the government’s program and the COVID19 pandemic. We find that the number of card users was 9-12 percent higher in restaurants that participated in the program than those that did not. We present a simple framework accounting for the spread of cashless payments. Our model predicts that the impact of the policy intervention diminished as the use of cashless payments increased, which accords well with Japan’s COVID-19 experience. The estimated impact of COVID-19 was around two-thirds of that of the program.
    Keywords: Cash and cashless payments, technology adoption, promotion program, COVID-19
    JEL: E42 O33 O38
    Date: 2022–06
  106. By: Simplice A. Asongu; Nicholas M. Odhiambo
    Abstract: This research assesses the relevance of enhancing remittances on value added across economic sectors in sub-Saharan Africa for the period 1980 to 2014 using the Generalised Method of Moments. First, no significant net effects on added value to the agricultural sector are apparent. Second, enhancing remittances engenders a positive net effect on added value to the manufacturing sector. Third, there are negative net effects on added value to the service sector. Given that the unfavourable net incidence of remittances to the service sector is associated with a positive marginal or conditional effect, the analysis is extended by computing thresholds at which remittances induce net positive effects on added value to the service sector. The extended analysis shows that a remittance threshold of 48.5% of GDP is the critical mass needed for further enhancement of remittances to engender positive net effects on value added to the service sector.
  107. By: Nur, Yahya
    Abstract: Inflasi merupakan keadaan dimana terjadi kenaaikan harga barangsecara terus menerus yang dapat menyebabkan menurunnya daya belimasyarakat karena secara riil tingkat pendapatannya juga menurun. Adamacam-macam inflasi tergantung pada faktor pencetus terjadinya inflasi.Dilihat dari besarnya lajuinflasi dapat dibagi menjadi beberapa macam1,yaitu: Inflasi merayap (creeping inflation), inflasi menengah (moderateinflation),Gallopinginflation,danHyperinflasi. Inflasidigolongkanberdasarkanpenyebabnya,yaitu:Naturalinflation dan Human Eror Inflation, Expected Inflation dan UnexpectedInflation, Demand Full dan Cost Push Inflation, Spiralling Inflation, danImportedInflationdanDomesticInflation .
    Date: 2022–04–25
  108. By: Papoutsi, Melina; Darmouni, Olivier
    Abstract: Using large panel data of public and private firms, this paper dissects the growth of bond financing in the Euro Area through the lens of the cross-section of issuers. In recent years, the composition of bond issuers has shifted, with the entry of many smaller and riskier issuers. New issuers invest and grow, instead of simply repaying bank loans. Moreover, holdings of ‘buy-and-hold’ bond investors are large in aggregate but small for weaker issuers. Nevertheless, the bond investors’ sell-off after March 2020 was largely directed at bonds of larger, safer issuers. This micro-evidence can shed light on the implications of corporate bonds market development for smaller firms and financial stability. JEL Classification: G21, G32, E44
    Keywords: bond investors, Corporate bond market, debt structure, disintermediation, ECB, financial fragility, monetary policy, quantitative easing
    Date: 2022–05
  109. By: Arthur Jacobs (-)
    Abstract: In this study, I explore the effects of capital-augmenting technical change (CATC) in a simple taskbased context where untapped automation opportunities exist. I contribute to the literature by showing analytically that regardless of the value of the elasticity of substitution between capital and labor, CATC lowers the labor share of income in this setting. In contrast to standard production functions, CATC is thus capital-biased even in the face of strong complementarity between capital and labor. The intuitive explanation for this result is that a rise in the effectiveness of capital has two first-round effects on the labor share, namely (1) the standard effect whose sign is fully determined by the elasticity of substitution, and (2) a contraction in the set of tasks in which labor is more cost-effective than capital. Furthermore, I show that CATC increases the wage rate unambiguously. I argue that CATC in the face of untapped automation opportunities can be regarded as a convenient modelling approach to automation and I show that the implications of this approach match recent empirical findings regarding the labor market impact of automation.
    Keywords: automation, capital-augmenting technical change, task-based production function, factor shares
    JEL: E25 O33 O40
    Date: 2022–05
  110. By: Corinth, Kevin (Harris School, University of Chicago); Feldman, Naomi E. (Hebrew University, Jerusalem)
    Abstract: A provision of the Tax Cuts and Jobs Act of 2017 offered tax incentives for investing in certain low-income areas in the United States called Opportunity Zones (OZs). The goal of this provision was to spur private investment in OZs in order to improve the economic well-being of their residents. This paper uses a regression discontinuity design to evaluate the impact of OZs on commercial investment and economic activity. Using data on the universe of all significant commercial investments in the United States, we find that OZ selection led to practically no increase in investment in OZs. These findings are supported by additional data from Mastercard that also show no evidence of increased business activity nor consumer spending. Overall, our findings suggest that the impact of OZs on economic improvement has thus far been limited.
    Keywords: opportunity zones, investment, tax policy, poverty
    JEL: H53 E22 D61
    Date: 2022–04
  111. By: Helena Chuliá (Riskcenter, Institut de Recerca en Economia Aplicada (IREA), Departament d’Econometria, Estadística i Economia Aplicada, Universitat de Barcelona (UB).); Ignacio Garrón (Departament d’Econometria, Estadística i Economia Aplicada, Universitat de Barcelona (UB).); Jorge M. Uribe (Faculty of Economics and Business Studies, Open University of Catalonia.)
    Abstract: We estimate Growth-at-Risk (GaR) statistics for the US economy using daily regressors. We show that the relative importance, in terms of forecasting power, of financial and real variables is time varying. Indeed, the optimal forecasting weights of these types of variables were clearly different during the Global Financial Crisis and the recent Covid-19 crisis, which reflects the dissimilar nature of the two crises. We introduce the LASSO and the Elastic Net into the family of mixed data sampling models used to estimate GaR and show that these methods outperform past candidates explored in the literature. The role of the VXO and ADS indicators was found to be very relevant, especially in out-of-sample exercises and during crisis episodes. Overall, our results show that daily information for both real and financial variables is key for producing accurate point and tail risk nowcasts and forecasts of economic activity.
    Keywords: Vulnerable growth, Quantiles, Machine learning, Forecasting, Value at risk. JEL classification: E27, E44, E66.
    Date: 2022–06
  112. By: Andrea Cerrato (University of California [Berkeley] - University of California); Francesco Filippucci (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Fiscal consolidation is often a necessity for local governments, but the cost of austerity for local economic activity is an open empirical question. Quasi-experimental estimates of local fiscal multipliers range between 1.5 and 1.8, but most of them are obtained from expansionary shocks. We study the extension of tighter budget rules in 2013 to Italian municipalities below 5,000 inhabitants, which generates a persistent increase of about 100 Euros per capita (0.5% of local income) in municipal net budget surplus, mostly driven by a cut in capital expenditures. We find no decrease in local income over a eight-year horizon. The estimated multiplier is always not significantly different from zero, and we can exclude it is above 1.5 with 95% confidence within 4 years from the shock. We find no evidence of spillovers to neighboring municipalities. These results suggest that the cost of fiscal consolidation can be lower than what currently prevailing estimates of local multipliers imply.
    Keywords: Local economy multiplier,Budget deficit,Fiscal policy,Fiscal consolidation
    Date: 2022–05
  113. By: Hutter, Christian (Institute for Employment Research (IAB), Nuremberg, Germany); Weber, Enzo (Institute for Employment Research (IAB), Nuremberg, Germany ; Univ. Regensburg)
    Abstract: "With the Russian war against Ukraine, global economic conditions changed abruptly. We provide first causal evidence of effects of the energy crisis on Germany as Europe’s most important economy. Combining cost structure data, national accounts and administrative labour market data, we identify effects in a sectoral panel setting. The results show that via the channel of energy intensity, production decreased by about 1 percent with the onset of the war, but turnover increased, mirroring sales from stock. Firms safeguard employment via short-time work with 10 percent additional applications. Vacancy posting was reduced already in anticipation by 8 percent." (Author's abstract, IAB-Doku) ((en))
    Keywords: IAB-Open-Access-Publikation
    JEL: E23 H56 J63 Q43
    Date: 2022–05–16
  114. By: Nicholas M. Odhiambo
    Abstract: In this paper, the casual relationship between foreign direct investment (FDI) and economic growth in Kenya during the period 1980-2018 is examined. In an attempt to address the omission-of-variable bias, which has been detected in some previous studies, two variables, namely money supply and trade, are used as intermittent variables, thereby leading to a system of multivariate Granger-causality equations. Using the ARDL bounds testing approach, the results show that there is a unidirectional causal flow from economic growth to FDI in Kenya. These results apply, irrespective of whether the causality is conducted in the short run or in the long run. Based on these results, it can be concluded that the current burgeoning FDI inflows that Kenya has attracted in recent years are largely driven by the strong economic growth and prudent macroeconomic policies that the country has been pursuing in recent decades. To our knowledge, this may be the first study of its kind to examine in detail the causal relationship between FDI and economic growth in Kenya in recent years. Policy implications are discussed.
  115. By: Rasyid, Andi Syahrul Ramadhan
    Abstract: Inflasi merupakan keadaan dimana terjadi kenaaikan harga barang secara terus menerus yang dapat menyebabkan menurunnya daya beli masyarakat karena secara riil tingkat pendapatannya juga menurun. Ada macam-macam inflasi tergantung pada faktor pencetus terjadinya inflasi. Dilihat dari besarnya laju inflasi dapat dibagi menjadi beberapa macam1, yaitu: Inflasi merayap (creeping inflation), inflasi menengah (moderate inflation), Galloping inflation, dan Hyperinflasi.
    Date: 2022–05–09
  116. By: Bats, Joost; Greif, William; Kapp, Daniel
    Abstract: This paper documents a durable increase in the cross-sectoral dispersion of earnings expectations during the COVID-19 crisis. The rise in dispersion of earnings forecasts can be explained by the introduction of lockdown measures, which had a particularly adverse impact on the travel sector. Accordingly, in terms of earnings expectations, countries that are relatively independent of the travel sector were least affected by a tightening of lockdowns. At the same time, vaccinations have been a game changer: more stringent lockdown measures added far less to the cross-sectoral dispersion in earnings expectations once vaccines started to be rolled out in late 2020. Going forward, the dispersion in earnings expectations continues to stand at elevated levels. JEL Classification: E44, G10, G12
    Keywords: COVID-19, cross-sectoral dispersion, earnings expectations, lockdown measures, vaccinations
    Date: 2022–05
  117. By: Huntington, Hillard G.; Liddle, Brantley
    Abstract: New fears about escalating fuel prices and accumulating inflation are raising concerns about the possible dimming of near-term prospects for world economic growth. The role of energy prices in shaping economic growth relates not only to geopolitical risks or environmental taxes but also to a range of strategies that place moratoria on primary energy sources like nuclear, coal, petroleum, and natural gas. Applying a new data set for country-level energy prices since 1960, this study evaluates the effects of energy prices on economic growth in 18 OECD countries by controlling for other important macroeconomic conditions that shape economic activity. Mean-group estimates that control for cross-country correlations are used to emphasize average responses across nations. Averaged across all nations, results suggest that a 10 percent increase in energy prices dampened economic growth by about 0.15 percent. Moreover, some evidence exists that this response may be larger for more energy-intensive economies.
    Keywords: OECD economic growth; energy prices; cross-country panel analysis
    JEL: C23 O47 Q43 Q54
    Date: 2022–04
  118. By: Christopher J. Waller
    Date: 2022–05–30
  119. By: Clemens, Michael A. (Center for Global Development)
    Abstract: International migrants who seek protection also participate in the economy. Thus the policy of the United States to drastically reduce refugee and asylum-seeker arrivals from 2017 to 2020 might have substantial and ongoing economic consequences. This paper places conservative bounds on those effects by critically reviewing the research literature. It goes beyond prior estimates by including ripple effects beyond the wages earned or taxes paid directly by migrants. The sharp reduction in U.S. refugee admissions starting in 2017 costs the overall U.S. economy today over $9.1 billion per year ($30,962 per missing refugee per year, on average) and costs public coffers at all levels of government over $2.0 billion per year ($6,844 per missing refugee per year, on average) net of public expenses. Large reductions in the presence of asylum seekers during the same period likewise carry ongoing costs in the billions of dollars per year. These estimates imply that barriers to migrants seeking protection, beyond humanitarian policy concerns, carry substantial economic costs.
    Keywords: immigration, immigrant, migrant, refugee, asylum, asylee, costs, wages, employment, labor, market, fiscal, public, coffers, welfare, benefits, GDP, growth
    JEL: F62 H60 J61
    Date: 2022–05
  120. By: Ý, Trần Như; , Le Bao Han; Oanh, Trần Thị Tú; Trang, Đặng Quỳnh; Hải, Trương Minh
    Abstract: The primary mission of the world's central banks is to stabilize prices and create sustainable job growth. However, in the context of the pandemic and increasing inflation, can central banks overcome these difficulties?
    Date: 2022–04–29
  121. By: International Monetary Fund
    Abstract: This note provides statistical guidance to IMF staff and country authorities on the recording of the 2021 general allocation of Special Drawing Rights (SDRs) in the government finance statistics (GFS), which is also applicable to previous SDR allocations. SDR allocations received by members are recorded as a liability in the form of SDR allocations vis-à-vis the SDR Department of the IMF, which is part of gross debt of the public sector unit (Ministry of Finance/Treasury or central bank or other publicly controlled entity) on whose balance sheet SDRs are recorded, with a corresponding entry for SDR holdings as a financial asset. No transfer of wealth occurs due to the SDR allocation. It should be stressed that the statistical guidelines do not specify on whose balance sheet SDR holdings and allocations should be recorded, as this decision is determined by the member’s domestic legal and institutional arrangements.
    Keywords: Special drawing rights; SDRs; SDR allocation; fiscal statistics; gross debt; fiscal policy analysis; balance sheet SDR holding; GFS recording; allocations of special drawing rights; government finance division; allocation of SDR; Financial statements; Currencies; Interest payments; Global
    Date: 2022–06–07
  122. By: Job Boerma; Aleh Tsyvinski; Alexander P. Zimin
    Abstract: We characterize optimal policies in a multidimensional nonlinear taxation model with bunching. We develop an empirically relevant model with cognitive and manual skills, firm heterogeneity, and labor market sorting. The analysis of optimal policy is based on two main results. We first derive an optimality condition − a general ABC formula − that states that the entire schedule of benefits of taxes second order stochastically dominates the entire schedule of tax distortions. Second, we use Legendre transforms to represent our problem as a linear program. This linearization allows us to solve the model quantitatively and to precisely characterize the regions and patterns of bunching. At an optimum, 9.8 percent of workers is bunched both locally and nonlocally. We introduce two notions of bunching – blunt bunching and targeted bunching. Blunt bunching constitutes 30 percent of all bunching, occurs at the lowest regions of cognitive and manual skills, and lumps the allocations of these workers resulting in a significant distortion. Targeted bunching constitutes 70 percent of all bunching and recognizes the workers’ comparative advantage. The planner separates workers on their dominant skill and bunches them on their weaker skill, thus mitigating distortions along the dominant skill dimension. Tax wedges are particularly high for low skilled workers who are bluntly bunched and are also high along the dimension of comparative disadvantage for somewhat more skilled workers who are targetedly bunched.
    JEL: E0 H0 H2 H21
    Date: 2022–05
  123. By: Rodimiro Rodrigo (Department of Economics, Georgetown University)
    Abstract: Major technological changes have come with an adjustment period of stagnant productivity before the economy operates at its full potential. The mechanism of this adoption process is still not well understood. Using event studies, I document that productivity increases with a five-year lag after the adoption of industrial robots in Brazilian local labor markets. Combining employer-employee matched data with a novel measure of robot adoption, I provide first evidence of establishment-level labor reorganization and organizational capital depreciation induced by the automation process. During the five years after adoption, labor switching across occupations increases within firms, moving from production to support activities. I show that firms’ organizational capital measured by workers’ firm-occupation-specific experience depreciates and then slowly re-accumulates. When these processes stop, the productivity gains reach their maximum. I use these results to estimate a general equilibrium model with heterogeneous firms, endogenous robot adoption, and organizational capital accumulation. The model accounts for the productivity paradox, the diffusion of industrial robots, and the change in the aggregate skill demand. The model highlights the role of organizational costs accompanying the adoption of new technologies. I illustrate its usefulness by using it to characterize the implications of the “innovator’s dilemma.” Classification- E24, J62, L23, O32, O33
    Keywords: Labor Productivity, Occupational Mobility, Technological Change, Automation
    Date: 2022–02–27
  124. By: Margaryta Klymak; Stuart Baumann
    Abstract: Governments are the largest buyers in most countries and they tend to operate budgets that expire at the end of the fiscal year. They also tend to spend disproportionately large amounts right at year-end. This use-it-or-lose-it spending pattern has been observed in a number of countries and is considered a problem due to possible waste. This could be the case if firms increase their prices to profit from a government’s greater demand at the end of the fiscal year. We investigate this previously unexplored possibility using a novel granular dataset of Ukrainian government procurement auctions over the period between 2017 and 2021. First, we document that the prices bid by firms are significantly higher in the last month of a fiscal year. Second, we employ a neural network technique to infer supplier costs from bidding behaviour. We estimate that suppliers charge around a 7.5% higher margin on less competitive tenders at the end of a fiscal year. Third, we demonstrate how results change depending on the type of the procured good, the length of the buyer-supplier relationship, and whether the procurement was expedited as a result of the Covid-19 pandemic. Our findings imply that substantial government funds could be saved if the extent of the year end spending could be moderated.
    Date: 2022–04–08

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