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on Macroeconomics |
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Issue of 2022‒07‒18
113 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | John H. Cochrane |
| Abstract: | Our current inflation stemmed from a fiscal shock. The Fed is slow to react. Why? Will the Fed's slow reaction spur more inflation? I write a simple model that encompasses the Fed's mild projections and its slow reaction, and traditional views that inflation will surge without swift rate rises. The key question is whether expectations are forward looking or backward looking. If expectations are forward looking, the Fed is right, and inflation will eventually fade without a period of high real interest rates. Price stickiness means inflation will persist past an initial shock. To reduce inflation, fiscal and monetary policy must be coordinated. Without fiscal contraction, an unpleasant arithmetic holds: The Fed can reduce inflation now, but only by increasing inflation later. If the Fed wishes to lower inflation durably via interest rate rises, those must come with fiscal support to pay higher costs on the debt and a windfall to bondholders. Coordinated fiscal, monetary and microeconomic reforms can, and have, swiftly eliminated inflation without the major recession of the early 1980s. Nonetheless, in the very long run, the central bank controls the price level. |
| JEL: | E31 E52 E58 E63 E65 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30096&r= |
| By: | Carlos Goncalves; Mauro Rodrigues, Fernando Genta |
| Abstract: | As first argued in Sargent and Wallace (1981), under certain conditions a tighter monetary policy today might give rise to higher expected inflation if the public perceives that the worsened debt dynamics could end up in debt monetization. This channel is arguably stronger in countries featuring high debt and interest rates, along with weaker economic institutions. Brazil is a large emerging economy that fits the profile. Yet, using a high-frequency identification strategy, we show that higher interest rates lead to unequivocally lower inflation expectations (and local currency appreciation) around Brazil’s Central Bank monetary policy meetings. |
| Keywords: | monetary policy; inflation expectations; Brazil |
| JEL: | E52 E31 E43 |
| Date: | 2022–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2022wpecon16&r= |
| By: | Jose Garcia Revelo; Grégory Levieuge |
| Abstract: | This paper aims to provide a comprehensive analysis of the potential conflicts between macroprudential and monetary policies within a DGSE model with financial frictions. The identification of conflicts is conditional on different types of shocks, policy instruments, and policy objectives. We first find that conflicts are not systematic but are fairly frequent, especially in the case of supply-side and widespread shocks such as investment efficiency and bank capital shocks. Second, monetary policy and countercyclical capital requirements generate conflicts in many circumstances. By affecting interest rates, they both “get in all the cracks”, albeit with their respective targets generally moving in opposite directions. Nonetheless, monetary policy could reduce its adverse financial side effects by responding strongly to the output gap. Third, countercyclical loan-to-value caps, as sector-specific instruments, cause fewer conflicts. Thus, they can be more easily implemented without concerns about generating spillovers, whereas smooth coordination is required between state-contingent capital requirements and monetary policy. |
| Keywords: | Macroprudential Policy, Loan-to-Value, Countercyclical Buffer, Monetary Policy, Conflicts, DSGE Model |
| JEL: | E44 E58 E61 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:871&r= |
| By: | Federico Bennett (Duke University); Giselle Montamat (Uber); Francisco Roch (IMF) |
| Abstract: | We consider how fear of model misspecification on the part of the planner and/or the households affects welfare gains from optimal macroprudential taxes in an economy with occasionally binding collateral constraints as in Bianchi (2011). In this setup, the decentralized equilibrium may differ from the social planner’s equilibrium both because of the pecuniary externalities associated with the collateral constraint and because of the paternalistic imposition of the planner’s beliefs when designing policy. When robust agents have doubts about the model, they create endogenous worst-case beliefs by assigning a high probability to low-utility events. The ratio of worst-case beliefs of the planner over the household’s captures the degree of paternalism. We show that this novel channel could render the directions of welfare gains from a policy intervention ambiguous. However, our quantitative results suggest that doubts about the model need to be large in order to make a “laissez-faire regime” better than an intervention regime. |
| Keywords: | Robust Control, Model Uncertainty, Optimal Taxation, Sudden Stops, Financial Crises |
| JEL: | D62 E32 E44 E62 F32 F41 G01 H21 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:141&r= |
| By: | Yihao Xue (School of Economics at Henan University, Kaifeng, Henan); Qiaoyu Liang (School of Economics at Henan University, Kaifeng, Henan); Bing Tong (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | Based on a New Keynesian model with a transient interest rate peg and energy inputs in production, we examine the impact of China`s interest rate liberalization on the transmission of energy supply shocks. Theoretical analysis shows that in the face of negative supply shocks, output decreases less or even increases while inflation rises more under a fixed interest rate compared with a flexible interest rate. We construct the Divisia energy index based on Chinese data to test the model predictions. We identify energy supply shocks following the strategy of Kilian (2009) and obtain impulse responses using the local projection method proposed by Jordà (2005). The empirical results are consistent with our model predictions. |
| Keywords: | Interest rate liberalization, Energy supply shocks, Divisia Index, New Keynesian model |
| JEL: | E31 E42 E43 E52 E58 Q43 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:202201&r= |
| By: | Antoine Lepetit; Cristina Fuentes-Albero |
| Abstract: | We embed an extension of the canonical epidemiology model in a New Keynesian model and analyze the role of monetary policy as a virus spreads and triggers a sizable recession. In our framework, consumption is less sensitive to real interest changes in a pandemic than in normal times because individuals have to balance the benefits of taking advantage of intertemporal substitution opportunities with the risk of becoming sick. Accommodative monetary policies such as forward guidance result in large increases in inflation but have only limited effects on real economic activity as long as the risk of infection is large. The optimal design of monetary policy hinges on how other tools used to limit virus spread, such as lockdowns, are deployed. If the lockdown policy is conducted optimally, monetary policy should focus on keeping inflation on target. However, if the lockdown policy is not optimal, the central bank faces a trade-off between its objective of stabilizing inflation and the necessity to minimize the inefficiencies associated with virus spread. |
| Keywords: | COVID-19, SIR macro model, statedependent effects of monetary policy, forward guidance, monetary policy trade-offs, optimal monetary policy |
| JEL: | E5 E1 E11 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1018&r= |
| By: | Ricardo J. Caballero; Alp Simsek |
| Abstract: | We propose a model where monetary policy is the key determinant of aggregate asset prices (financial conditions). Spending decisions are made by a group of agents ("households") that respond to aggregate asset prices, but with noise, delays, and inertia. Asset pricing is determined by a different group of forward-looking agents ("the market"). The central bank ("the Fed") targets asset prices to close the output gap. Our model explains several facts, including why the Fed stabilizes asset price fluctuations driven by financial market shocks ("the Fed put/call"), but destabilizes asset prices in response to aggregate demand or supply shocks that induce macroeconomic imbalances (as in the late stages of the Covid-19 recovery). Although the Fed targets asset prices, it "cooperates" with the market to achieve its desired asset price. When the market and the Fed have different beliefs, the market perceives monetary policy "mistakes" that influence the policy rate the Fed needs to set. These perceived "mistakes" induce a policy risk premium and may generate a "behind the curve" phenomenon. |
| JEL: | E32 E43 E44 E52 G12 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30132&r= |
| By: | Hobler, Stephan |
| Abstract: | Standard rational inattention models suppose that agents process noisy signals about otherwise fully revealing data. I show that introducing imperfect data quality yields new insights in settings in which volatility is time-varying. I impose a two-layered signal structure in which agents learn imperfectly about noisy sources. Treating data as only partially revealing of the true fundamental amplifies impulse responses to a second moment shock and, if data quality is sufficiently poor, can change the qualitative direction of the response. I apply my findings to the price-setting problem of firms and find that higher data quality enhances the transmission of monetary policy and reduces macroeconomic volatility. I also show how the empirically documented procyclicality of data quality has non-trivial implications for the Phillips curve. |
| Keywords: | monetary policy; Phillips curve; rational inattention; Elsevier deal |
| JEL: | D80 E31 E32 E42 E52 |
| Date: | 2022–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:114913&r= |
| By: | Luba Petersen; Ryan Rholes |
| Abstract: | We design a new experimental framework to study policy interventions to combat secular stagnations and liquidity traps in an overlapping-generations environment where participants form expectations and make real economic decisions. We observe that participants can learn to coordinate on high inflation full-employment equilibria. Permanent deleveraging shocks induce pessimistic, backward-looking expectations and considerable consumption heterogeneity as the economies experience persistent deflation. We explore the ability of unconventional monetary policy to lead economies out of deflationary traps. Permanently increasing the central bank's inflation target is insufficient to generate inflationary expectations due to low central bank credibility. Negative interest rates stimulate spending and generate the necessary inflation for the economies to escape the zero lower bound. Negative interest rates are more potent than raising the inflation target at shifting consumption to the present. |
| JEL: | C92 E03 E52 E70 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30117&r= |
| By: | Lorant Kaszab (Department of Economics, Vienna University of Economics and Business, Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business, National Bank of Slovakia); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | Survey evidence tells us that stock prices reflect the risks investors associate with long-run technological change. However, there is a shortage of models that can rationalise long-run risks. Unlike the previous literature assuming a fixed number of products our model allows for new product varieties that appear in the form of new firms which face entry costs and delay in the entry process. The fixed variety model has a significant limitation in translating macroeconomic volatility into asset return volatility. Our model with growing varieties induces endogenous low-frequency fluctuations in productivity driving large persistent variations in consumption growth and asset prices. It also changes the valuation of assets through the increase in the volatility of the pricing kernel (with a positive long-run component) and leads to higher excess returns. Our model is motivated with a simple recursively identifed VAR model containing quarterly US data 1992Q3-2019Q4 with the following list of variables: total factor productivity, consumption, a measure of firm entry, and the excess return on stocks. |
| Keywords: | ?rm entry, equity premium, Epstein-Zin, New Keynesian |
| JEL: | E13 E31 E43 E44 E62 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp325&r= |
| By: | Uschi Backes-Gellner; Patrick Lehnert |
| Keywords: | dual apprenticeship, vocational education and training (VET), human capital, training costs and benefits |
| JEL: | E24 J21 J24 J62 M51 M53 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0194&r= |
| By: | Ina Hajdini; Edward S. Knotek; John Leer; Mathieu Pedemonte; Robert W. Rich; Raphael Schoenle |
| Abstract: | Using a novel experimental setup, we study the direction of causality between consumers’ inflation expectations and their income growth expectations. In a large, nationally representative survey of US consumers, we find that the rate of passthrough from expected inflation to expected income growth is incomplete, on the order of 20 percent. There is no statistically significant effect going in the other direction. Passthrough varies systematically with demographic and socioeconomic factors, with greater passthrough for higher-income individuals than lower-income individuals, although it is still incomplete. Higher inflation expectations also cause consumers to report a higher probability that they will search for a new job that pays more. Using our survey findings to calibrate a search-and-matching model, we find that dampened responses of real wages to demand and supply shocks translate into greater fluctuations in output. Taken together, the survey results and model exercises provide a labor market channel to explain why people dislike inflation. |
| Keywords: | inflation; wage-price spiral; expectations; randomized controlled trial |
| JEL: | E31 E24 E71 C83 |
| Date: | 2022–06–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:94384&r= |
| By: | Marijn A. Bolhuis; Judd N. L. Cramer; Lawrence H. Summers |
| Abstract: | There have been important methodological changes in the Consumer Price Index (CPI) over time. These distort comparisons of inflation from different periods, which have become more prevalent as inflation has risen to 40-year highs. To better contextualize the current run-up in inflation, this paper constructs new historical series for CPI headline and core inflation that are more consistent with current practices and expenditure shares for the post-war period. Using these series, we find that current inflation levels are much closer to past inflation peaks than the official series would suggest. In particular, the rate of core CPI disinflation caused by Volcker-era policies is significantly lower when measured using today’s treatment of housing: only 5 percentage points of decline instead of 11 percentage points in the official CPI statistics. To return to 2 percent core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker. |
| JEL: | C43 E21 E31 E37 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30116&r= |
| By: | Ana Aguilar; Carlos Cantú; Claudia Ramírez |
| Abstract: | We model the interaction between fiscal and monetary policy and qualify their effects in a semi-structural small open economy model calibrated for Mexico. In our model, fiscal and monetary policy follow rules tied to specific targets. We estimate how fiscal policy, through deficits and public debt accumulation, and monetary policy, through the interest rate, directly affect the economy. We study the nature of the feedback between policy decisions and examine their indirect effects through the sovereign risk channel. We find that the response of monetary policy to stabilise the economy after a shock depends on how strict is the fiscal rule. A loose fiscal stance pushes a tighter monetary policy stance. Instead, the economy recovers faster when monetary and fiscal policy complement each other. |
| Keywords: | monetary policy, fiscal policy, sovereign risk premium, policy rules |
| JEL: | E52 E58 H5 H63 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1012&r= |
| By: | Ryuichiro Hashimoto (Bank of Japan); Nao Sudo (Bank of Japan) |
| Abstract: | This paper quantitatively assesses the indirect effect of floods on the real economy and financial intermediation in Japan by estimating a dynamic stochastic general equilibrium (DSGE) model that incorporates a mechanism through which floods cause the capital stock and the public infrastructure to depreciate exogenously, using the data on flood damage recorded in the Flood Statistics released by the Japanese government. The result of the analysis is twofold. First, flood shocks dampen GDP from the supply side by reducing the capital stock inputs. The decline in GDP then impairs the balance sheets of firms and financial intermediaries, resulting in disruptions to financial intermediation and thus dampening GDP further from the demand side. Even when the direct damage due to floods is fully covered by insurance, the downward pressure on GDP endogenously deteriorates the balance sheets of these sectors, causing the same mechanism to operate. Second, the quantitative impacts of flood shocks on GDP up to now have been minor compared to the standard structural shocks that are considered important in existing macroeconomic studies, including shocks to total factor productivity (TFP) and the subjective discount factor. According to the estimates that use the relationship between the key variables in our model together with climate change scenarios published by an external organization, the impacts of these shocks could become somewhat larger in the future. |
| Keywords: | Climate change; Natural disasters; Physical risk; Financial System; DSGE model |
| JEL: | E32 E37 E44 Q54 |
| Date: | 2022–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp22e05&r= |
| By: | Guilherme Spinato Morlin |
| Abstract: | We assess the connection between global and domestic inflation in Brazil during the period from 1999 to 2020. Input-output linkages have been shown to be an important cause of inflation synchronization of inflation for advanced and emerging economies. International cost shocks are less studied in the case of Brazil. We therefore estimate a Structural VAR model with an index for producer prices (PPI) of Brazilian trade partners, in addition to the other relevant determinants of inflation. Estimates show a positive effect of the Foreign PPI on Brazilian Consumer Price Index, constituting a relevant explanation for domestic inflation in Brazil during the period 1999-2020. Impulse Response functions show that the Exchange Rate is the main determinant of domestic CPI in Brazil. The results are in line with the literature’s empirical findings showing the overall relevance of international variables in the explanation of inflation. Overall, our results reveal the dominance of shocks related to the external sector (Exchange Rate, Foreign PPI, and Commodity Prices) over domestic shocks (GDP and Interest Rate) to explain inflation in Brazil. The importance of international shocks and of Foreign PPI in particular has important implications for monetary policy. International shocks are not affected by the policy rate pegged by the Central Bank of Brazil. However, the impact of these shocks on Brazilian prices also depend on the exchange rate. Therefore, our results seem to confirm that the inflation targeting regime relied mainly on the exchange rate effect of interest rate increases. Finally, this paper provides an additional variable explaining the effect of external shocks on domestic inflation in Brazil. |
| Keywords: | inflation, monetary policy, global inflation, exchange rate. |
| JEL: | E31 E52 F41 O54 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2022_16.rdf&r= |
| By: | Mark Gertler; Christopher K. Huckfeldt; Antonella Trigari |
| Abstract: | We revisit the role of temporary layoffs in the business cycle, motivated by their unprecedented surge during the pandemic recession. We first measure the contribution of temporary layoffs to unemployment dynamics over the period 1979 to the present. While many have emphasized a stabilizing effect due to recall hiring, we quantify an important destabilizing effect due to “loss-of-recall”, whereby workers in temporary-layoff unemployment lose their job permanently and do so at higher rates in recessions. We then develop a quantitative model that allows for endogenous flows of workers across employment and both temporary-layoff and jobless unemployment. The model captures well pre-pandemic unemployment dynamics and shows how loss-of-recall enhances the recessionary contribution of temporary layoffs. We also show that with some modification the model can capture the pandemic recession. We then use our structural model to show that the Paycheck Protection Program generated significant employment gains. It did so in part by significantly reducing loss-of-recall. |
| JEL: | E0 E24 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30134&r= |
| By: | Shahriyar Aliev; Evžen Kočenda |
| Abstract: | We assess the impact of ECB monetary policy on global aggregate and sectoral commodity prices over 2001-2019. We employ a SVAR model and separately assess periods before and after the global financial crisis. Our key results indicate that contractionary monetary policy shocks have positive effects on commodity prices during both conventional and unconventional monetary policy periods, indicating the effectiveness of unconventional monetary policy tools. The largest impact is documented on fuel and food commodities. Our results also suggest that the effect of ECB monetary policy on commodity prices transmits through the exchange rate channel, which influences European market demand. |
| Keywords: | European Central Bank, commodity prices, short-term interest rates, M2 stock, monetary aggregate, unconventional monetary policy, Structural Vector Autoregressive model, exchange rates |
| JEL: | C54 E43 E58 F31 G15 Q02 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:prg:jnlwps:v:4:y:2022:id:4.008&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard talked about the importance of raising rates to control inflation and discussed his expectations for U.S. economic growth. He spoke during an interview with Fox Business from the St. Louis Fed’s Economy Museum. |
| Keywords: | inflation; monetary policy |
| Date: | 2022–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:94327&r= |
| By: | Chukwuebuka Bernard Azolibe (Nnamdi Azikiwe University Awka, Nigeria); Stephen Kelechi Dimnwobi (Nnamdi Azikiwe University Awka, Nigeria); Chidiebube Peace Uzochukwu-Obi (Nnamdi Azikiwe University Awka, Nigeria) |
| Abstract: | In developing countries, banks play a major role by acting as a conduit for the effective mobilization of funds from the surplus sectors of an economy for onward lending to the deficit sectors for productive investments that will in turn increase the level of employment and economic growth. There has being a rising trend in unemployment rate in Nigeria and South Africa and hence, the need for the study to assess the effectiveness of banking system credit in curbing unemployment rate by making a comparative analysis of Nigeria and South Africa covering period of 1991 to 2018. The study employed the unit root test, Johansen cointegration test, vector error correction model and VAR impulse response function in determining the relationship between the variables. The major findings revealed that banking system credit matters in curbing unemployment rate in South Africa than in Nigeria. Also, other macroeconomic factors such as lending rate, inflation rate, Government expenditure and population growth were significant enough in influencing unemployment rate in South Africa than in Nigeria. While foreign direct investment was a significant factor in reducing unemployment rate in Nigeria than in South Africa. The cointegration test showed a long-run relationship between the variables in both countries while the speed of adjustment coefficient of the vector error correction model is faster in South Africa than in Nigeria. Previous empirical studies on the relationship between banking system credit and unemployment rate have focused much on other regions such as Asia and Europe. Thus, the study is unique as it focused on the African region and also made a comparative analysis by testing the Keynesian theory of employment, interest and money on two emerging African economies which are Nigeria and South Africa. |
| Keywords: | Banking system credit, unemployment rate, macroeconomic factors, comparative analysis |
| JEL: | E51 E24 E6 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/044&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard discussed his outlook for the U.S. economy and the need to bring inflation down to the Fed’s 2% target. During an event hosted by the Energy Infrastructure Council in West Palm Beach, Fla., he also shared his views on recent monetary policy and further anticipated moves. |
| Keywords: | inflation; monetary policy |
| Date: | 2022–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:94324&r= |
| By: | Cornand Camille; Hubert Paul |
| Abstract: | Understanding how the degree of information frictions varies among economic agents is of utmost importance for macroeconomic dynamics. We document and compare the frequency of forecast revisions and cross-sectional disagreement in inflation expectations among five categories of agents: households, firms, professional forecasters, policymakers and participants to laboratory experiments. First, we provide evidence of a heterogeneous frequency of forecast revisions across categories of agents, with policymakers revising more frequently their forecasts than firms and professional forecasters. Households revise less frequently. Second, all categories exhibit cross-sectional disagreement. There is however a strong heterogeneity: while policymakers and professional forecasters exhibit low disagreement, firms and households show strong disagreement. Our analysis suggests that the nature of information frictions is closer to noisy information model features. We also explore the external validity of experimental expectations. |
| Keywords: | Disagreement, Forecast Revisions, Experimental Forecasts, Survey Forecasts, Central Bank Forecasts |
| JEL: | E3 E5 E7 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:873&r= |
| By: | International Monetary Fund |
| Abstract: | The remarkable resilience of the economy during the pandemic, driven by policy support, favorable credit conditions and a favorable external environment, has almost returned the level of GDP to its pre-pandemic projected trend. Reflecting the prevalence of domestic factors, headline inflation eased to 3 percent (the lower limit of the inflation target band) at end-2021. For 2022, growth is expected to moderate while inflation is expected to rise in line with global inflationary pressures. Despite the resilience, social indicators such as poverty and malnutrition remain high. The outlook is very uncertain with significant downside risks, mostly external, including from the pandemic, geopolitical tensions, and the tightening of global financial conditions in response to global inflationary pressures. |
| Date: | 2022–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2022/164&r= |
| By: | Kanya Paramaguru |
| Abstract: | This paper seeks to expand the discussion surrounding the dating of UK business cycles. Two different time-series filters are applied to UK output time-series to investigate what they would imply for the creation of any official recession dates. The NBER has a business cycles dating committee that investigates the dates of turning points in US business cycle providing a consolidation of business cycle dates for the US. There is, at present, no analogous committee or consolidation on UK turning points dates. There is a broad definition adopted in the UK that defines a recession as two or more periods with negative growth. The Office of National Statistics (ONS) uses a series of real GDP (deflated GDP) and then observes two or more periods of negative growth to define a recessions. 2020 has certainly provided an interesting critique to this broad definition, whereby the second quarter of 2020 so a -20 per cent in GDP but then the next quarter recovered by 12 per cent therefore only categorising the first half of 2020 as a recession. However, the decline in economic output within the UK has been more notable than other business cycle recession in recent decades. The aim of this paper is to continue the discussion on defining the turning points of UK business cycles. This study looks at two filters and how they would define UK business cycles. Although the merits of the filters are discussed before being used in estimation. Based on the outcomes of the business cycle dates, the filters that produce the most reasonable results are defined as a better approach. Reasonable approach is defined as one that matches the theory as to how often peaks and troughs can reasonably expected to occur. |
| Keywords: | business fluctuations, cycles, policy coordination, time-series models |
| JEL: | C32 E32 E61 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2021-19&r= |
| By: | Stephen Broadberry; Jagjit S. Chadha; Jason Lennard; Ryland Thomas |
| Abstract: | This paper constructs a new chronology of business cycles in the United Kingdom from 1700 on an annual basis and from 1920 on a quarterly basis. The new chronology points to a number of observations about the business cycle. First, the cycle has significantly increased in duration and amplitude over time. Second, contractions have become less frequent but are as persistent and costly as at other times in history. Third, the typical recession has been tick-shaped with a short contraction and longer recovery. Fourth, the major causes of downturns have been sectoral shocks, financial crises and wars. |
| Keywords: | business cycles, economic history, united kingdom |
| JEL: | E32 N13 N14 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-16&r= |
| By: | Evi Pappa; Andrey Ramos; Eugenia Vella |
| Abstract: | We build a new database by classifying the COVID-19 fiscal measures for twelve EU countries into seven spending categories and examine how the different support packages affected the economy. On average, fiscal measures supported the output recovery without generating significant inflationary pressures. This finding masks substantial heterogeneity: Assistance to small and medium enterprises and specific sectors contributed significantly to stimulating the economy and to maintaining inflation. Direct pandemic spending and unemployment benefits and measures to sustain employment levels generated sizeable output multipliers and had no inflationary costs. Conversely, universal help only had positive effects on inflation and transfers to households did not do much apart from affecting confidence. |
| Keywords: | COVID-19 crisis, fiscal measures, multipliers, sentiment, transfers, assistance to SMEs, inflation |
| JEL: | C23 E62 |
| Date: | 2022–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:2217&r= |
| By: | Abdullah, Muhammad; Gul, Zarro; Waseem, Faiza; Islam, Tanweer |
| Abstract: | Purpose: Higher interest rate policy by the State Bank of Pakistan (SBP) has not only been failed to control inflation in Pakistan but adversely impacted public and private investment. High cost of doing business retarded economic growth as well. Therefore, the aim of this study is to inspects the ineffectiveness of monetary policy measures in Pakistan and suggest possible actions to improve effectiveness of the monetary policy. Method: This study utilizes the monthly data from 2007(4)-2019(8) to compute the variance decomposition and impulse responses using VAR modelling. Findings: The impulse response analysis from the VAR model clearly highlights the ineffectiveness of interest rate channel in trying to control inflation in Pakistan. The empirical results indicate that both domestic food price and exchange rate channels are effective means of managing price levels in the country. It is, therefore, recommended that Pakistan should switch from demand side to supply-side policies when forming strategies to control economic vices like inflation. |
| Keywords: | Inflation, Impulse response functions, Variance decomposition |
| JEL: | C53 C54 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112678&r= |
| By: | Lise Clain-Chamosset-Yvrard (Univ. Lyon, Universite Lumiere Lyon 2, GATE UMR 5824, F-69130 Ecully, France.); Xavier Raurich (Departament d'Economia and CREB, Universitat de Barcelona.); Thomas Seegmuller (Aix-Marseille Univ., CNRS, AMSE, Marseille France.) |
| Abstract: | We provide a unified framework with demand for housing over the life cycle and financial frictions to analyze the existence and macroeconomic effects of rational housing bubbles. We distinguish a housing price bubble, defined as the difference between the housing market price and its fundamental value, from a housing demand bubble, which corresponds to a situation where a pure speculative housing demand exists. In an overlapping generation exchange economy, we show that no housing price bubble occurs. However, a housing demand bubble may occur, generating a boom in housing prices and a drop in the interest rate, when households face a binding borrowing constraint. Multiplicity of steady states and endogenous fluctuations can occur when credit market imperfections are moderate. These fluctuations involve transitions between equilibria with and without a housing demand bubble that generate large fluctuations in housing prices consistent with observed patterns. We finally extend the basic framework to a production economy and we show that a housing demand bubble increases the housing price, housing price to income ratio and economic growth. |
| Keywords: | Bubble; Housing; Self-ful lling uctuations |
| JEL: | E32 E44 R21 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2213&r= |
| By: | Luciano Campos; Danilo Leiva-León; Steven Zapata- Álvarez |
| Abstract: | This paper proposes comprehensive measures of the Latin American business cycle that help to infer the expected deepness of recessions, and strength of expansions, as they unfold in real time. These measures are based on the largest country economies in the region by accounting for intrinsic features of real activity, such as comovement, nonlinearities, asymmetries, and are also robust to unprecedented shocks, like the COVID-19 pandemics. The proposed measures provide timely updates on (i) inferences on the state of the regional economy, (ii) the underlying momentum embedded in short-term fluctuations of real activity, and (iii) the quantification of macroeconomic tail risks. We evaluate as well the time-varying effects of U.S. financial conditions on the Latin American economy by employing the proposed measures, and identify periods of persistent international spillovers. **** RESUMEN: En este documento se proponen diferentes medidas para estimar el ciclo económico de América latina, con las que se permite observar la profundidad de las recesiones y la fuerza de las expansiones de la economía de la región en tiempo real. Estas medidas se construyen con los datos observados de las economías más grandes de latinoamérica y tienen en cuenta diferentes características de la actividad real, capturando los comovimientos, no linealidades y asimetrías que caracterizan la actividad económica de la región, al tiempo que son robustas frente a choques sin precedentes como el de la pandemia COVID 19. Las medidas propuestas proporcionan información sobre; (i) el estado de la economía regional, (ii) el momentum de la actividad económica en el corto plazo, y (iii) la cuantificación de los riesgos de cola macroeconómicos. Usando las medidas propuestas también evaluamos los efectos que tienen las condiciones financieras de EE.UU sobre la economía latinoamericana. |
| Keywords: | Business Cycles, Factor Model, Nonlinear, Latin America, Ciclos Económicos, Modelos de Factores, No linealidad, América Latina |
| JEL: | E32 C22 E27 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1201&r= |
| By: | International Monetary Fund |
| Abstract: | The COVID-19 pandemic had a severe impact on Belize in 2020, leading to a 16.7 percent contraction in real GDP and a rise in public debt to an unsustainable level of 133 percent of GDP. To address this situation, the government presented a medium-term plan to lower public debt to 85 percent of GDP in 2025 and 70 percent in 2030 by implementing fiscal consolidation, structural reforms, and debt restructuring. Significant progress towards restoring debt sustainability was made in 2021. |
| Date: | 2022–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2022/133&r= |
| By: | Andre Teixeira (Universidade de Lisboa); Zoe Venter (Universidade Catolica Portuguesa) |
| Abstract: | This paper assesses the impact of macroprudential policy (MaPP) on aggregate demand in the EU between 2000-2019. Using a difference-in-differences approach, we find that MaPP reduces household consumption and increases firm investment. These effects are relatively mild in the short run but become more pronounced in the long run. Our findings point to a weaker macroeconomic impact than suggested in previous studies. |
| Keywords: | macroprudential policy; aggregate demand; difference-in-difference approach |
| JEL: | E |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2022.04&r= |
| By: | Herbert Sylvérie |
| Abstract: | This paper studies how state-contingent central bank communication can improve welfare when externalities are at play. In the model, a central banker (CB) wants to influence the private sector beliefs, which are heterogeneous, to generate an upward bias in their action. The CB can engender such welfare-improving bias by providing public information, choosing a signalling strategy that is a function of fundamentals. To study this optimal communication strategy, I introduce heterogeneous priors in an otherwise standard Bayesian persuasion model à la Gentzkow and Kamenica (2011) and characterize the dependence of optimal disclosure on the heterogeneity of beliefs. I show that heterogeneity matters in two ways: (i) it is optimal to send moderating signals, which implies sending signals with positive error probabilities in both states, and constitutes a non-trivial departure from the homogeneous beliefs case; (ii) higher dispersion in beliefs leads the monetary authority to send signals with lower error probabilities. I apply my framework to a central bank communication problem in which the policy maker communicates about aggregate conditions to influence firms' investment decisions in presence of investment externalities. I empirically validate the model's predictions by showing that the FOMC unemployment rate forecasts are systematically biased in opposite directions in recessions and expansions. Also in line with the model's predictions, the forecast biases are decreasing in the degree of private sector disagreement for each state. |
| Keywords: | Central Bank Communication, Bayesian Persuasion, Expectations, Forecasts |
| JEL: | E52 E58 D83 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:875&r= |
| By: | Bodnár, Katalin; Nerlich, Carolin |
| Abstract: | The euro area, like many other advanced economies, has entered an era of drastic demographic change. Without appropriate policy responses, population ageing in the euro area is posing formidable challenges for potential growth, monetary policy and public finances. This paper examines – from a central bank’s perspective – the macroeconomic and fiscal effects of population ageing in the euro area and looks at the main challenges ahead in the next decades. Total population in the euro area is projected to decline as of around 2035, while the old-age dependency ratio will rise strongly in the coming 15 years, putting additional burden on pension systems. The analysis in the paper finds that the demographic changes in the euro area present a drag on potential growth, mainly through labour supply and productivity growth – similarly to developments in Japan, which is ahead of the euro area in terms of population ageing. Precautionary savings may be higher, and the natural rate of interest lower, while the effect on trend inflation and wages are not obvious. Population ageing is posing a burden on fiscal policy, through upward pressure on pension spending and adversely affecting the tax bases and the structure of public revenues. Thus, it poses significant challenges for fiscal sustainability, limits fiscal policy space and effectiveness. To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need for fiscal buffers, improved quality of public finance and structural reforms. JEL Classification: E24, E52, E62, J11, J21 |
| Keywords: | euro area, fiscal policy, Japan, labour force, population ageing, potential growth |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2022296&r= |
| By: | Pablo Cotler (Department of Economics - Universidad Iberoamericana Ciudad de Mexico); Rodrigo Carrillo (Department of Economics, Universidad Iberoamericana Ciudad de Mexico) |
| Abstract: | Whenever the Central Bank modifies its interest rate, it is generally thought that all lending interest rates for new loans will follow. Perhaps for this reason, it is seldom analyzed whether changes in the monetary stance have a similar effect on borrowers’ expenditure across the entire income distribution. In this paper we examine this hypothesis by looking at what happened in the personal and payroll loan markets when the Central Bank of Mexico varied its reference rate during the period 2011-2019. Since it is possible that banks may have pricing policies that may differ according to the loan size, our pass-through estimations are done at an aggregate and disaggregate level. Using an autoregressive model with distributed lags that incorporates asymmetric effects, we find two major results. First, changes in the reference rate do not imply that lending rates will move in the same direction. Typically, the pass-through is either zero or negative. Thus, the interest rate channel arising from the markets for personal and payroll loans may not be helpful to reduce the inflation rate. Second, estimations using aggregate data may be misleading since they do not necessarily reflect what happens within loans of different sizes. Finally, the exclusion of control variables may bias the results. However, it also has consequences, one of them being that asymmetric pricing may no longer detected. |
| JEL: | E43 E52 G21 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:smx:wpaper:2022003&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard discussed the Fed’s approach to raising rates to help manage inflation and what he anticipates for U.S. economic growth, during a podcast for The Economist. |
| Keywords: | inflation; monetary policy |
| Date: | 2022–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:94328&r= |
| By: | Lenoël, Cyrille; Macchiarelli, Corrado; Young, Garry |
| 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; DG-ECFIN |
| JEL: | E62 E63 H54 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115240&r= |
| By: | Sara Boni (Free University of Bozen-Bolzano, Italy); Francesco Ravazzolo (Free University of Bozen-Bolzano, Italy; BI Norwegian Business School, Norway) |
| Abstract: | This paper aims to analyze unemployment-generating supply shocks. It proposes a structural vector autoregressive model estimated via a newly assembled identification scheme that relies on a minimum set of sign restrictions dictated by economic the- ory and recent market developments. We show that unemployment-generating supply shocks coexist with standard supply, demand, financial, and investment shocks, and we assess their impact on different macroeconomic variables. An application to the US pharmaceutical industry finds that the supply shock caused by Covid-19 in the sector is one of a kind. Particularly, the newly identified shock increases industrial production while decreasing the unemployment rate and producer prices in the US pharmaceutical industry. |
| Keywords: | Supply Shock; SVAR; Pharmaceutical Industry; Macroeconomic Policy; Unemployment. |
| JEL: | E6 C11 C12 C22 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps94&r= |
| By: | Jarmila Botev; Balázs Égert; David Turner |
| Abstract: | The paper considers whether structural reforms have a different impact on adjusted household disposable income (AHDI) compared to GDP, particularly given that while the latter is currently used as the basis for the OECD Economics Department’s framework for evaluating the effect of structural policy reforms, the former is arguably a better measure of welfare. The main findings are that there are indeed a number of structural policies where the long-run effects on GDP and AHDI are proportionately different, so that percentage changes in the two aggregates are significantly different following a policy reform. One group of structural policies, typically those where the transmission mechanism depends mainly on productivity and capital intensity (including cuts in corporate income tax and policies to simulate business R&D) or which can weaken the bargaining power of labour (for example a loosening of EPL), have weaker long-run positive effects on AHDI than GDP. Other structural reform policies (including in-kind family benefits, family cash benefits and cuts in the income tax wedge) have a magnified effect on AHDI, so that following a policy reform, long-run percentage changes in AHDI are larger than for GDP. Cross-referencing the analysis in the paper with structural reform priorities previously identified in the OECD’s regular Going for Growth surveillance exercise, suggests that increased spending on childcare and early childhood education might usefully be part of any policy package to address the ‘cost of living crisis’ currently being faced by many OECD households. |
| Keywords: | childcare, early childhood education, employment, Household disposable income, in-kind family benefits, productivity, structural reforms, tax wedge |
| JEL: | D24 E17 E24 E25 J08 |
| Date: | 2022–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1718-en&r= |
| By: | International Monetary Fund |
| Abstract: | Grenada’s economy was hit hard by the pandemic, with a decline in real output of 14 percent in 2020 from both a collapse of tourism-related activities and the suspension of in-person classes at Saint George’s University (SGU). Growth in 2021 is estimated to have partly recovered to 5.6 percent, driven by construction and agriculture. The authorities’ policy response helped mitigate the pandemic’s impact through containment measures, increased health and social spending, and an expanded public investment program (including to build resilience to natural disasters). Central government debt rose to 70 percent of GDP in 2021 (from 59 percent in 2019) and the external position has worsened. The financial sector has so far weathered the crisis well. |
| Date: | 2022–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2022/134&r= |
| By: | Gautier, Erwan; Conflitti, Cristina; Faber, Riemer P.; Fabo, Brian; Fadejeva, Ludmila; Jouvanceau, Valentin; Menz, Jan-Oliver; Messner, Teresa; Petroulas, Pavlos; Roldan-Blanco, Pau; Rumler, Fabio; Santoro, Sergio; Wieland, Elisabeth; Zimmer, Hélène |
| Abstract: | Using CPI micro data for 11 euro area countries covering about 60% of the euro area consumption basket over the period 2010-2019, we document new findings on consumer price rigidity in the euro area: (i) each month on average 12.3% of prices change, which compares with 19.3% in the United States; when we exclude price changes due to sales, however, the proportion of prices adjusted each month is 8.5% in the euro area versus 10% in the United States; (ii) differences in price rigidity are rather limited across euro area countries but much larger across sectors; (iii) the median price increase (resp. decrease) is 9.6% (13%) when including sales and 6.7% (8.7%) when excluding sales; cross-country heterogeneity is more pronounced for the size than for the frequency of price changes; (iv) the distribution of price changes is highly dispersed: 14% of price changes in absolute values are lower than 2% whereas 10% are above 20%; (v) the overall frequency of price changes does not change much with inflation and does not react much to aggregate shocks; (vi) changes in inflation are mostly driven by movements in the overall size; when decomposing the overall size, changes in the share of price increases among all changes matter more than movements in the size of price increases or the size of price decreases. These findings are consistent with the predictions of a menu cost model in a low inflation environment where idiosyncratic shocks are a more relevant driver of price adjustment than aggregate shocks. JEL Classification: D40, E31 |
| Keywords: | consumer prices, inflation, micro data, price rigidity |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222669&r= |
| By: | Avril Pauline; Levieuge Grégory; Turcu Camelia |
| Abstract: | We empirically investigate the impact of natural disasters on the external finance premium (EFP), conditional on the stringency of macroprudential regulation. The intensity of natural disasters is measured through an original set of geophysical indicators for a sample of 88 countries over the period 1996-2016. Using local projections, we show that, following storms, the EFP significantly rises (drops) when macroprudential regulation is lax (stringent). This suggests that regulated financial systems could foster favorable financing conditions to replace destroyed capital with more productive capital. Macroprudential stringency seems less crucial in the case of floods, which are more predictable and thus may prompt self-discipline. |
| Keywords: | Financial Stress, External Finance Premium, Macroprudential Policy, Natural Disasters, Local Projections |
| JEL: | E43 E5 Q54 C23 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:874&r= |
| By: | Georgios Magkonis (University of Portsmouth); Eun Young Oh (University of Portsmouth); Shuonan Zhang (University of Portsmouth) |
| Abstract: | We build and estimate a dynamic stochastic general equilibrium model with risky innovation and shadow credits to study the macroeconomic implications of shadow banking (SB), particularly on productivity. Our analysis is motivated by negative relationships between SB development and innovation outcome or total factor productivity (TFP) growth. In our model, information asymmetry associated with technology utilization leads to an agency problem in which shadow intermediation reduces banks’ incentives to screen project quality. An SB boom crowd-out traditional financial services, decreases inno- vation quality and technology efficiency, and thereby reduces TFP. In the light of model mechanisms, we analyse cross-country differences and deliver important implications of SB. SB development mainly driven by financial factors (e.g., the US case) leads to significant loss on TFP while that relatively prompted by real-sided factors (e.g., China and the EA cases), could be less harmful. |
| Keywords: | Shadow Banking; Total Factor Productivity; Endogenous Growth; Financial Development; Bayesian Methods |
| JEL: | C32 E32 O40 |
| Date: | 2022–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:pbs:ecofin:2022-06&r= |
| By: | María Alejandra Hernández-Montes; Ramón Hernández-Ortega; Jonathan Alexander Muñoz-Martínez |
| Abstract: | Este documento evalúa el aporte de las expectativas de los empresarios, capturadas a través de las encuestas del Banco de la República y Fedesarrollo, a los pronósticos de las principales variables macroeconómicas: inflación, desempleo, empleo y crecimiento económico. Este aporte se evalúa mediante la comparación de los errores de pronóstico de uno a cuatro trimestres de dos modelos econométricos anidados. Los resultados sugieren que las expectativas de los empresarios reducen de manera importante el error de pronóstico de la inflación y del crecimiento económico, mientras que los aportes al pronóstico del empleo y el desempleo son limitados. **** ABSTRAC: In this paper we evaluate the contribution of business expectations from surveys of Banco de la República and Fedesarrollo, to the forecasts of the main macroeconomic variables: inflation, unemployment, employment and economic growth. We make this assessment by comparing one to four quarters ahead forecast errors of two nested models econometrics. The results suggest that the expectations of businessmen could have information that improves forecasts of economic growth and inflation and have other lower contributions to employment and unemployment predictions. |
| Keywords: | Expectativas, encuestas, pronósticos, expectations, surveys, forecast |
| JEL: | C53 D84 E37 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1202&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President Jim Bullard talked about the direction of the U.S. economy and controlling inflation during a panel discussion in Zurich hosted by UBS. Asked whether he was concerned about recession risks, Bullard said personal consumption expenditures growth in the U.S. has been strong, and households seem to be “in great position to spend going forward,” with more reopening of the economy, unspent COVID-19 pandemic aid, wealth at high levels and a strong labor market. Bullard also said he is “still bullish” on overall investment, and while the businesses he talks with are reporting issues such as with input and production costs, the fundamental business for a lot of them “sounds very, very good.” “So, I actually think we’ll be fine,” he said. He went on to say that the Fed’s interest rate increases will slow down the economy, but probably to more of a trend pace of growth as opposed to going below trend. He later reiterated that front-loading policy rate increases is a good idea in this situation. “What you would like to do, if we can, is nip inflation in the bud before it gets entrenched in the economy, get inflation back down toward 2% and converge to our long-run balanced growth path from the high side,” he said. He noted that headline PCE inflation is 6.3%, similar to the 1970s median rate of 6.4%. Business inflation expectations have gone up substantially, Bullard said. He said he thinks pricing decisions on the business side, rather than from the labor market, is where the disinflation dynamic will get started and will continue, as businesses start to worry about losing market share if they increase prices. |
| Keywords: | inflation; monetary policy |
| Date: | 2022–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:94399&r= |
| By: | Marenčák, Michal |
| Abstract: | Positive trend inflation resolves the observational equivalence of various sources of real rigidities which are first-order equivalent under zero trend inflation. This paper builds on this observation to assess the empirical performance of three widely used types of real rigidities — firm-specific capital, firm-specific wages and a kinked-demand curve — in matching the U.S. inflation dynamics. Firm-specific wages outperform the kinked-demand curve and firm-specific capital in terms of empirical fit. We document that positive trend inflation might reduce the ability of firm-specific factors to prolong the real affects of monetary disturbances. |
| Keywords: | trend inflation, real rigidity, Calvo pricing, price dispersion, monetary policy, inflation persistence |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:8644&r= |
| By: | Jiazi Chen; Zhiwu Hong; Linlin Niu |
| Abstract: | An extended dynamic Nelson-Siegel (DNS) model is developed with an additional functional demographic (FD) factor that considers the overall demographic age distribution as a persistent long-run driving force. The FD factor in the extended DNS model improves the accuracy of the yield curve forecast by reducing both bias and variance compared to the random walk model, the DNS model, the DNS model with a simple demographic factor of a middle-to-young (MY) age ratio, and a benchmark end-shifting model. The model with an unspanned FD factor performs substantially better than the alternative models for most maturities at forecast horizons between 1 and 5 years. |
| Keywords: | Demographic distribution; Yield curve forecasting; Functional data analysis; Life cycle; Nelson-Siegel model; Semiparametric modeling. |
| JEL: | E31 E43 G12 J11 |
| Date: | 2022–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:wyi:wpaper:002606&r= |
| By: | Rajashri Chakrabarti; Marco Del Negro; Julian di Giovanni; Laura Pilossoph |
| Abstract: | What are the implications of climate change, and climate change–related policies, for macroeconomics in general and monetary policy in particular? This is the key question debated at a recent symposium on “Climate Change: Implications for Macroeconomics” organized by the Applied Macroeconomics and Econometrics Center (AMEC) of the New York Fed on May 13. This post briefly summarizes the content of the discussion and provides links to recordings of the various sessions and the participants’ slides. |
| Keywords: | climate change; macroeconomics |
| JEL: | E2 Q54 |
| Date: | 2022–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94441&r= |
| By: | Lester C Hunt (University of Portsmouth); Anqi Zhang (Fudan University); Shuonan Zhang (University of Portsmouth) |
| Abstract: | We develop an SIR-macroeconomic model with virus detection and inequality to study their implications for economic and health consequences during a pandemic crisis. We find a two-way relationship between the pandemic recession and inequality that exacerbate each other although such a vicious circle could be broken by accurate and extensive testing. This mitigation effect can be improved given complementary arrangements such as social protection. The extensive virus detection could not only be a better alternative intervention to lock-down to break the “life-or-economy” trade-off, but also prevent the economy to be permanently damaged if there is reinfection. |
| Keywords: | COVID-19; SIR-macro model; testing; inequality |
| JEL: | E1 H0 I1 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:pbs:ecofin:2022-05&r= |
| By: | Petar Soric (Faculty of Economics & Business University of Zagreb.); Enric Monte (Department of Signal Theory and Communications, Polytechnic University of Catalunya (UPC).); Salvador Torra (Riskcenter–IREA, University of Barcelona (UB).); Oscar Claveria (AQR–IREA, University of Barcelona (UB).) |
| Abstract: | The present study uses Gaussian Process regression models for generating density forecasts of inflation within the New Keynesian Phillips curve (NKPC) framework. The NKPC is a structural model of inflation dynamics in which we include the output gap, inflation expectations, fuel world prices and money market interest rates as predictors. We estimate country-specific time series models for the 19 Euro Area (EA) countries. As opposed to other machine learning models, Gaussian Process regression allows estimating confidence intervals for the predictions. The performance of the proposed model is assessed in a one-step-ahead forecasting exercise. The results obtained point out the recent inflationary pressures and show the potential of Gaussian Process regression for forecasting purposes. |
| Keywords: | Machine learning, Gaussian process regression, Time-series analysis, Economic forecasting, Inflation, New Keynesian Phillips curve. JEL classification: C45, C51, C53, E31. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202210&r= |
| By: | Elsayed, Ahmed H.; Sousa, Ricardo M. |
| Abstract: | Using daily data over the period August 5, 2013–September 27, 2019, this study investigates the dynamic spillovers between international monetary policies across four major economies (i.e. Eurozone, Japan, UK and US) and three key cryptocurrencies (i.e. Bitcoin, Litecoin and Ripple). In doing so, we apply a Time-Varying Parameter Vector Auto-Regression (TVP-VAR) model, a dynamic connectedness approach and network analysis. The empirical results indicate that cryptocurrency returns and monetary policy spillovers were particularly large when shadow policy rates became negative, moderated during the Fed's ‘tapering process’, and sharpened again more recently as cryptocurrency buoyancy returned. Gross directional spillovers suggest that shadow policy rates have more ‘to give than to receive’, while those from and to cryptocurrency returns are naturally volatile. There is also strong interconnectedness between monetary policy in either the US or the Eurozone and the UK, and between Bitcoin and Litecoin. However, the spillovers across monetary policy and cryptocurrencies tend to be muted. Finally, spillovers were only slightly larger during the Fed's ‘unconventional’ policy compared to the ‘standard’ era, but their composition qualitatively changed over time. |
| Keywords: | cryptocurrency; interconnectedness; international transmission; Monetary policy; spillovers; time-variation |
| JEL: | F3 G3 |
| Date: | 2022–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115305&r= |
| By: | Lorant Kaszab (Department of Economics, Vienna University of Economics and Business, Magyar Nemzeti Bank); Ales Marsal (Department of Economics, Vienna University of Economics and Business, National Bank of Slovakia); Katrin Rabitsch (Department of Economics, 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: | firm entry-exit, risk premium |
| JEL: | E32 E60 G12 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp324&r= |
| By: | Gocheva, Viktoriya; Mudde, Yvo; Tapking, Jens |
| Abstract: | When a bank receives credit from the central bank, its Liquidity Coverage Ratio (LCR) changes. In most cases, the LCR increases. We investigate how this LCR boost from central bank credit affects banks’ behaviour, looking at the euro area during the Corona year 2020. Our theoretical and empirical analyses suggest that banks that get strong LCR boosts from central bank credit tend to take actions that reduce their LCRs. In this sense, banks consume their LCR boosts. In terms of policy conclusions, our analysis suggests that central bank credit operations can provide strong incentives for banks to take actions that reduce their LCRs. Such actions, which could include the provision of additional credit and a shortening of the maturity structure of the liabilities of the banks, plausibly have an impact on the real economy. As such, our analysis reveals what may be called a “LCR channel” of monetary policy transmission. JEL Classification: E52, E58, G28 |
| Keywords: | central bank credit operations, Corona pandemic, Liquidity Coverage Ratio, monetary policy transmission |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222668&r= |
| By: | Fedotenkov, Igor (European Commission); Kvedaras, Virmantas (European Commission); Sanchez-Martinez, Miguel (European Commission) |
| Abstract: | The paper investigates the relationship between employment protection legislation (EPL hereafter) and labour productivity growth in the EU in the context of the Great Recession. We consider the crisis and recovery periods, evaluate the relevance of both levels and changes in EPL for productivity growth, establish the presence of some nonlinearities, and explore the conditioning role played by the skills of the labour force, captured by different levels of education. We find that stricter labour protection reduces labour productivity growth in sectors with a large share of workers with tertiary education, whereas this effect is negligible or positive in sectors where workers with secondary or only primary education are more prevalent, respectively. We establish that overly strict regulation is more harmful, whereas its moderate level can be even beneficial in regular (non-crisis) times. In the long run, we document that an increase in EPL stimulates employers to substitute labour with capital, partially mitigating the overall negative effect on labour productivity growth. We provide several hypotheses that could explain our findings and discuss potential policy implications supported by a back-of-the-envelope calculation. |
| Keywords: | Labour productivity, employment protection legislation, skills, education, Great Recession |
| JEL: | E24 I25 J24 J88 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202204&r= |
| By: | Lei Fang; Anne Hannusch; Pedro Silos |
| Abstract: | Households enjoy utility fromactivities that require a combination of time and goods. We classify activities into two types: luxuries and necessities. Luxuries (necessities) are activities for which time and expenditure shares rise (decline) with income. We develop and estimate a model with nonhomothetic preferences and find that time and goods are substitutable in producing activities. Activities are also substitutable among themselves. Hence, wage and price changes cause large reallocations of time and expenditures across activities. This effect is quantitatively important for welfare inequality. Since 2003, the rise in the price of leisure luxuries has reduced welfare inequality while the rise in wage dispersion has increased it. |
| Keywords: | time allocation, consumption expenditures, luxuries, necessities, activity production, inequality |
| JEL: | J22 E21 D11 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_291&r= |
| By: | Josh Martin; Kyle Jones |
| Abstract: | The coronavirus pandemic exposes some fundamental shortcomings in the accepted methods used to estimate productivity, notably the failure to adjust for variations in the utilisation of capital. In a time of national lockdown, the consequent introduction of furloughing (workers away from jobs but still being paid) and a massive shift to homeworking, capital utilisation is expected to fall rapidly. Official measures of productivity, including those produced by the UK Office for National Statistics (ONS), have not historically taken into account variations in capital utilisation over time. In this case, Multi-Factor Productivity (MFP) appears to fall too far, since measured capital input is near constant. There is no internationally agreed method to adjust for capital utilisation; although the literature offers a number of options, none are widely accepted due to conceptual, data availability and data quality issues. We offer an extension to an existing approach of using labour hours worked as a proxy for capital hours worked, overcoming conceptual issues by matching worker types (occupations) to capital types (assets). We use data from the US O*NET database, mapped to UK occupation codes, to inform the matching of UK occupation codes to assets, then measure the hours worked of those occupations relative to a baseline in order to measure deviations in capital utilisation by asset. We also introduce a conceptual framework to apply these adjustments, noting that not all assets will be subject to variation in utilisation to the same degree. We test a number of sensitivities in the methods, including methods to construct the baseline and the degree of variation allowed for each asset. Our central estimate shows a decline in capital utilisation of around 9 per cent in the UK market sector in the height of the pandemic, recovering over half of this by the end of 2020. This subdues, but does not eliminate, the fall in MFP through 2020. |
| Keywords: | capacity utilisation, capital, coronavirus, multi-factor productivity, official statistics |
| JEL: | D24 E22 E24 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-11&r= |
| By: | International Monetary Fund |
| Abstract: | The Bahamas is experiencing a tourism-led rebound. Real GDP growth in 2021 was close to 14 percent, as stayover tourist arrivals doubled relative to 2020. The economy is projected to expand by 8 percent in 2022. Nonetheless, it will likely take until 2024 to return to the 2019 level of GDP and the pandemic has given rise to significant human and social costs. The country’s medium-term growth challenges are likely worse than before, and public finances are in a more precarious state. Risks are skewed downwards given a difficult near-term financing situation, rising inflationary—and potentially BOP—pressures because of the war in Ukraine, an ongoing threat from the evolving pandemic, and the country’s high vulnerability to natural disasters. |
| Date: | 2022–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2022/131&r= |
| By: | Alex Botsis; Christoph Gortz; Plutarchos Sakellaris |
| Abstract: | Using a novel dataset that combines firms' qualitative survey-based sales forecasts with their quantitative balance-sheet data on realized sales, we document that only major forecast errors (those in the two tails of the distribution) are predictable and display autocorrelation. This result is a particular violation of the Full Information Rational Expectations hypothesis that requires explanation. In contrast, minor forecast errors are neither predictable nor autocorrelated. To arrive at this finding, we develop a novel methodology to quantify qualitative survey data on forecasts. It is generally applicable when quantitative information, e.g. from firm balance sheets, is available on the realization of the forecasted variable. To explain our empirical result, we provide a model of rational inattention. When operating in market environments where information processing is more costly, firms optimally limit their degree of attention to information. This results in larger absolute forecast errors that become predictable and autocorrelated. |
| Keywords: | expectations, firm data, forecast errors, panel threshold models, rational inattention, survey data |
| JEL: | C53 C83 D22 D84 E32 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2021-14&r= |
| By: | Loretta J. Mester |
| Abstract: | I thank the ECB Forum on Central Banking for inviting me to participate on this panel. In my brief prepared remarks, I will discuss the role of inflation expectations from the practitioner’s perspective. The views I present will be my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee (FOMC). |
| Keywords: | inflation |
| Date: | 2022–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:94404&r= |
| By: | Harman, Oliver; Delbridge, Victoria; Haas, Astrid; Venables, Anthony J.; Yusuf, Ahmedi; Manwaring, Priya |
| JEL: | E6 N0 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:115227&r= |
| By: | Justine Pedrono |
| Abstract: | The amplitude of leverage procyclicality is heterogeneous across banks and across countries. This paper introduces international diversification of bank balance sheet as a factor of this observed heterogeneity, with a special emphasis on currency diversification. Based on a new theoretical framework, it shows that the impact of international diversification on leverage procyclicality depends on the relative performance of economies, the global business cycle and the exchange rate regime. By altering the distribution of global bank portfolio, international diversification adds a currency channel to the risk channel of the global leverage cycle. Using granular data on banks located in France, the paper shows that the pre-crisis international diversification of banks increased leverage procyclicality during the 2008-2009 crisis. Focusing on the currency channel, namely the valuation effect of currency diversification, results show that it had a negative effect on leverage procyclicality during this period, hence decreasing procyclicality. The currency channel contributed to offset part of the increased risk due to the crisis and the risk channel. These findings draw attention to the specific role of balance sheet currency diversification in financial stability risk. |
| Keywords: | Bank, Financial Cycles, Leverage, Internationalization, International Portfolio, Currency |
| JEL: | E32 F34 F36 F44 G15 G20 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:870&r= |
| By: | Lucrezia Fanti (Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore, Milano, Italia); Marcelo C. Pereira (Institute of Economics, University of Campinas, Campinas, Brazil); Maria Enrica Virgillito (Institute of Economics, Scuola Superiore Sant’Anna, Pisa, Italia – Dipartimento di Politica Economica, DISCE, Università Cattolica del Sacro Cuore, Milano, Italia) |
| Abstract: | Building on the labour-augmented K+S framework (Dosi et al., 2010, 2017, 2020), we address the analysis of North-South divide by means of an agent-based model (ABM) endogenously reproducing the divergence between two artificial macro-regions. The latter are characterized by identical initial conditions in terms of productive and innovation structures, but different labour market organizations. We identify the role played by different labour markets functioning on the possible divergence across the two regions, by finding that divergences in labour market reverberate into asymmetric productive performance due to negative reinforcing feedback loop dynamics. We then compare alternative policies by showing that investment schemes aimed at increasing machine renewal and higher substitutionary investment are the most effective in fostering the convergence. |
| Keywords: | Agent-Based Models; Technology Gap; Labour Market |
| JEL: | C63 J3 E24 O1 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie5:dipe0027&r= |
| By: | Ashenafi Belayneh Ayenew |
| Abstract: | This paper examines the welfare impact of hosting refugees in Ethiopia, one of the largest refugee-hosting countries worldwide. The findings reveal different implications depending on the type of household welfare metric. While reducing consumption expenditure per capita and increasing the probability of falling into consumption poverty, it has no effect on wealth and the status of wealth poverty. Decomposing consumption expenditure per capita into food, education, and other non-food components, the results further reveal that it alters the composition of consumption, as it solely affects food consumption expenditure. The consumption effects prevail in rural areas with no effects in urban centers while no heterogeneity is found concerning wealth and wealth poverty results. Key mechanisms explaining the adverse consumption effects include displacement of hosts from salaried employment and a spike in prices of agricultural inputs but not changes in the extent of societal cooperation. |
| Keywords: | Refugees, Consumption, Wealth, Poverty, Employment, Price, Cooperation |
| JEL: | O12 O15 E24 Z13 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:hic:wpaper:341&r= |
| By: | Janice Eberly; Jonathan Haskel; Paul Mizen |
| Abstract: | The impact of an economic shock depends both on its severity and the resilience of the economic response. Resilience can include the ability to relocate factors, for example, even when new technologies or skills are not yet at the ready. This resilience per se buffers production and has an economic value, which we estimate. The COVID-19 pandemic caused a widespread decline in recorded GDP. Yet, as catastrophic as the collapse was, it was buffered by an unprecedented and spontaneous deployment of what we call "Potential Capital," the dwelling/residential capital and connective technologies used alongside working from home. Together potential capital and labor working from home provided additional output margins and capacity. We estimate the contribution of this capital, and the remote work that it facilitated, to have roughly halved the decline in GDP in the US reducing the fall in GDP to 9.4 log points in 2020Q2 at the trough of the recession. Similar effects are seen in the 6 OECD countries for which data are available, output fell by 14 log points, but would have fallen by 26 log points had only workplace inputs been available. Accounting for the contribution of "Potential Capital" also revises downwards estimated total productivity gains in the business sector during the pandemic from 8 log points to 5 log points in 2020Q2. We also find an output elasticity of domestic non-dwellings capital to be similar to that of workplace ICT capital, reflecting its role as productive capital. Turning to the future, changes in working from home depend upon relative costs, relative technologies and, crucially, the elasticity of substitution between home and work tasks. We estimate that that elasticity to be more than unity, meaning that the growth of ICT will raise the share of work done remotely. |
| Keywords: | covid-19, productivity growth, working from home |
| JEL: | E01 E22 O47 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2021-15&r= |
| By: | Rabah Arezki; Simeon Djankov; Ha Nguyen; Ivan Yotzov |
| Abstract: | We explore the effect of oil import price shocks on political outcomes using a worldwide dataset on elections of chief executives. Oil import price shocks cause a reduction in the odds of reelection of incumbents, an increase in media chatter about fuel prices, and an increase in non-violent protests. These results are present in democracies but absent in autocracies. To explain the dichotomy, we show that the pass-through from international to domestic fuel prices is limited in autocracies with adverse consequences on levels of debt and international reserves. The results point to the interdependence of goods markets and politics. |
| Keywords: | elections, democracy, autocracy, incumbent, oil prices, economic shocks |
| JEL: | D72 E21 P16 Q43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9763&r= |
| By: | Kevin Lee; Michael J Mahony; Paul Mizen |
| Abstract: | This paper extends the classic Abel (1981) paper to introduce capacity utilisation into a dynamic model with adjustment costs describing investment and hiring decisions of the firm. We provide an analytical solution for the theoretical model and then use survey data form the CBI Industrial Trends Survey to test the model empirically. The results show that firms adjust their capital stock around a long-run equilibrium determined by sales over time. However, the speed of this adjustment depends on whether the model accounts for a capacity error correction term. Specifically, models which do not include a capacity error correction term overestimate the error correcting behaviour of firms, and imply a quicker adjustment speed of capital to its long-run equilibrium value. In other words, excluding capacity dynamics from an accelerator model of investment underestimates the time it takes capital to return to its long-run equilibrium value – providing an explanation for sluggish investment following recessionary periods. |
| Keywords: | capacity utilisation, investment, putty-clay model |
| JEL: | D24 D25 E22 G31 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-03&r= |
| By: | Petre Caraiani (Institute for Economic Forecasting, Romanian Academy, Romania); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Jacobus Nel (Department of Statistics, University of Florida, 230 Newell Drive, Gainesville, FL, 32601, USA); Joshua Nielsen (Boulder Investment Technologies, LLC, 1942 Broadway Suite 314C, Boulder, CO, 80302, USA) |
| Abstract: | We use the LPPLS Multi-Scale Confidence Indicator approach to detect both positive and negative bubbles at short-, medium- and long-run for the stock markets of the G7 countries. We were able to detect major crashes and rallies in the seven stock markets over the monthly period of 1973:02 to 2020:09. We also observed similar timing of strong (positive and negative) LPPLS indicator values across the G7 countries, suggesting synchronized extreme movements in these stock markets. Given this, to obtain an overall picture of the G7, we used a panel VAR model to analyze the impact of monetary policy shocks on the six indicators of bubbles. We found that monetary policy not only impact the bubble indicators, but also responds to them, with the nature of the underlying responses contingent on whether bubbles are positive or negative in nature, as well as the time-scale we are analyzing. In light of these findings, our results have serious implications for monetary authorities of these developed markets. But in general, we can conclude that central banks of the G7 can indeed ``lean against the wind", and they have also been doing so under both conventional and unconventional monetary policy periods. |
| Keywords: | Multi-Scale Bubbles, Panel VAR, Monetary Policy, G7 Countries |
| JEL: | C22 C32 E52 G15 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202230&r= |
| By: | Orazio Attanasio; Costas Meghir; Corina Mommaerts; Yu Zheng |
| Abstract: | We consider risk sharing in rural China during its rapid economic transformation from the late 1980s through the late 2000s. We document an erosion of consumption insurance against both household-level idiosyncratic and village-level aggregate income shocks, and show that this decline is related to observable economic changes: the shift from agriculture to wage employment, the decline of publicly owned Township-and-Village Enterprises, and increased migrant work. Further evidence suggests that as these changes took place at the village level, higher levels of government failed to offset these effects through the tax-and-transfer system, leaving households more exposed to both idiosyncratic and village-aggregate risk. |
| JEL: | D12 E21 O12 P25 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30143&r= |
| By: | Monica Kolesova (Ural Federal University); Anna Gainetdinova (Ural Federal University); Oleg Mariev (Ural Federal University) |
| Abstract: | Consumption and income nexus is determined either by permanent income hypothesis or excess sensitivity hypothesis. Our study is based on the study Campbell and Mankiw (1989), who conducted analysis for the US. In our study, we test the aforementioned hypotheses in the context of Russia using quarterly data. Afterwards, we check whether sensitivity of consumption to disposable income depends on economic development of a country. Therefore, we test permanent and excess sensitivity hypotheses in the context of developed and developing countries. By employing Campbell-Mankiw model we use two-stage least squares method using instrumental variables. The results demonstrate that the best instruments for Russia are lags in income, oil price and interest rate. All Russian agents consume their temporary income, which is an indicator of a risky financial environment. When considering the groups of developed and developing countries, the results demonstrate that developing countries with relatively better financial system comprise two groups of agents: a group consuming permanent income and a group consuming temporary income. At the same time, in some developed countries having less stable financial system, all agents consume their temporary income. |
| Keywords: | Excess sensitivity, consumption, permanent income hypothesis, random walk hypothesis, Friedman function |
| JEL: | E24 O15 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:12513378&r= |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | Crises are a major driving force behind cooperation in the European Union. This holds also for monetary and fiscal policy. During severe crises, cooperation has been enlarged and intensified. The recent covid-19 pandemic is a clear example of this pattern. The pandemic has had huge impact on the conduct of stabilization policies in the EU. Public debt has grown rapidly in many EU member states. The ECB has carried out a highly expansionary monetary policy. In this paper, we discuss the implications for the EU of a move towards increased fiscal federalism following the pandemic. First, the role of crises as a driver of political change is analysed. Next, we examine in greater detail, the effect of crises on the design of stabilisation policies in the EU since the introduction of the euro, the common currency. Finally, we discuss the significance of the recent pandemic-induced steps towards increased federalism for the EU. We raise the question as to whether this is a desirable path for the future of European cooperation. |
| Keywords: | Monetary policy; fiscal policy; fiscal rules; stabilization policy; European Union; ECB; crises |
| JEL: | E60 F42 H60 |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2022_011&r= |
| By: | Grömling, Michael; Bardt, Hubertus |
| Abstract: | Vielfältige Lieferstörungen und Produktionsprobleme führen in vielen Volkswirtschaften zu ungewöhnlich hohen Preisanstiegen. Zuletzt lagen die Verbraucherpreise in Deutschland um fast 8 Prozent über dem Vorjahresniveau. Die russische Invasion in der Ukraine sorgt für zusätzliche Kostenschocks bei den Unternehmen - vor allem für eine erhebliche Verteuerung von Energie und Rohstoffen. Im Vorjahresvergleich stiegen die Erzeugerpreise in Deutschland zuletzt um 33,5 Prozent an - der höchste Anstieg seit Beginn der Erhebung im Jahr 1949. Damit werden die Preiseffekte früherer Kostenschocks Mitte der 1970er, Anfang der 1980er Jahre sowie unmittelbar vor der globalen Finanzmarktkrise bei Weitem übertroffen. Unternehmensbefragungen des Instituts der deutschen Wirtschaft liefern eine empirische Grundlage dafür, welche Determinanten die Erzeugerpreise in Deutschland derzeit bestimmen. Bis zum Jahresende 2022 erwarten über 90 Prozent der befragten Firmen starke und mittlere Effekte von verteuerten Energie- und Rohstoffkosten auf ihre eigenen Preise. Die Unternehmen befürchten mittelfristig höhere Erzeugerpreise infolge steigender Arbeitskosten. Für über 80 Prozent der befragten Firmen gilt dies in starkem und mittlerem Ausmaß. Insgesamt zeigt die Befragung, dass in erster Linie angebotsseitige Bestimmungsfaktoren die Entwicklung der Erzeugerpreise am aktuellen Rand sowie bis zum Jahresende 2022 erklären. Der Vergleich mit der Vorjahresbefragung macht deutlich, dass die angebots- oder kostenseitigen Erklärungsfaktoren an Bedeutung gewonnen haben. Der nachfragebedingte Preisdruck hat dagegen deutlich nachgelassen, was die durch den Krieg in der Ukraine ausgelöste abgeschwächte Weltwirtschaft widerspiegelt. Darauf aufsetzend liefern die IW-Umfragen von 2021 und 2022 eine Orientierung dazu, ob und in welchem Ausmaß die Unternehmen die höheren Produktionskosten an ihre Kunden weiterreichen können. Derzeit können 12 Prozent der Unternehmen die höheren Produktionskosten in einem hohen Ausmaß und 46 Prozent im mittleren Ausmaß an ihre Kunden überwälzen. Im Vergleich mit der Lage im Frühsommer 2021 haben sich Preisspielräume aus Sicht der Unternehmen erweitert, was in erster Linie vor dem Hintergrund der erheblich schlechteren Kostensituation - vor allem infolge der höheren Energiekosten - gesehen werden muss. |
| Keywords: | Inflation,Erzeugerpreise,Konjunktur |
| JEL: | E3 E6 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:362022&r= |
| By: | Nina Boyarchenko; Richard K. Crump; Anna Kovner; Or Shachar |
| Abstract: | Corporate bonds are a key source of funding for U.S. non-financial corporations and a key investment security for insurance companies, pension funds, and mutual funds. Distress in the corporate bond market can thus both impair access to credit for corporate borrowers and reduce investment opportunities for key financial sub-sectors. In a February 2021 Liberty Street Economics post, we introduced a unified measure of corporate bond market distress, the Corporate Bond Market Distress Index (CMDI), then followed up in early June 2022 with a look at how corporate bond market functioning evolved over 2022 in the wake of the Russian invasion of Ukraine and the tightening of U.S. monetary policy. Today we are launching the CMDI as a regularly produced data series, with new readings to be published each month. In this post, we describe what constitutes corporate bond market distress, motivate the construction of the CMDI, and argue that secondary market measures alone are insufficient to capture market functioning. |
| Keywords: | corporate bond market distress; preponderance of metrics |
| JEL: | E58 G12 C58 |
| Date: | 2022–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:94405&r= |
| By: | Mai, Nhat Chi |
| Abstract: | Utilizing annual data over the period 1990–2015 and employing the threshold model developed by Sarel (1996) with some modifications, this paper estimates the inflation threshold in Vietnam and simultaneously examines the linkage between inflation and economic growth. The findings show that the estimated inflation threshold stays at 3%–4%, above which the positive effect of inflation on economic growth vanishes, and this effect starts fading at 5.5%–7.5%. The findings of this paper regarding the inflation threshold and the inflation-economic relationship are expected to help the State Bank of Vietnam (SBV) in conducting its monetary policy, especially the inflation policy. Moreover, the findings also help the government evaluate the role of the gross domestic product’s determinants in promoting the economic growth. |
| Date: | 2021–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:rqbd7&r= |
| By: | Monika Grzegorczyk; Francesco Papadia |
| Abstract: | It is a cliché in official economic institutions’ publications and their leaders’ speeches to lament exceptional uncertainty. The complaint does, however, ring true currently. A solid empirical basis should be given to this view by properly measuring macroeconomic uncertainty. To measure macroeconomic uncertainty, we start from observable forecasts of macroeconomic variables, which are transformations of underlying economic conditions. By observing how forecasts change over time, we measure the flow of... |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:49134&r= |
| By: | Andrea Salvatori |
| Abstract: | This paper provides new evidence on the effect of the 2012 reform on flows from UB to employment. The reform increased the steepness of the time profile of unemployment benefits by raising the initial benefit, lowering its long-term level and increasing the number of steps in-between. The analysis finds no indication that the 2012 reform of the Belgian UB system led to an increase in flows towards employment or inactivity either in the aggregate or when comparing groups of workers whose benefits were affected to different extents. While the results of this paper and recent literature provide little ground in favour of a further accentuation of the steepness of the time profile of UB in Belgium, the system could likely benefit from a simplification of the rules that would enhance its readability for workers and facilitate its administration and evaluation. |
| Keywords: | Unemployment, Unemployment benefits, Unemployment insurance |
| JEL: | J08 J65 E24 |
| Date: | 2022–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:272-en&r= |
| By: | Gary Koop; Stuart McIntyre; James Mitchell; Aubrey Poon |
| Abstract: | Recent decades have seen advances in using econometric methods to produce more timely and higher frequency estimates of economic activity at the national level, enabling better tracking of the economy in real-time. These advances have not generally been replicated at the sub-national level, likely because of the empirical challenges that nowcasting at a regional level present, notably, the short time series of available data, changes in data frequency over time, and the hierarchical structure of the data. This paper develops a mixed-frequency Bayesian VAR model to address common features of the regional nowcasting context, using an application to regional productivity in the UK. We evaluate the contribution that different features of our model provide to the accuracy of point and density nowcasts, in particular the role of hierarchical aggregation constraints. We show that these aggregation constraints, imposed in stochastic form, play a key role in delivering improved regional nowcasts; they prove more important than adding region specific predictors when the equivalent national data are known, but not when this aggregate is unknown. |
| Keywords: | bayesian methods, mixed frequency nowcasting, real-time data, regional data |
| JEL: | C32 C53 E37 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-04&r= |
| By: | Roy Havemann; Hylton Hollander |
| Abstract: | South Africa runs a primary fiscal deficit and the long-term interest rate on government borrowing, r , is greater than the long-term economic growth rate, g . Without intervention, debt will continue to rise until there is a disorderly fiscal stop. Reforms to raise growth have not materialized, leaving fiscal consolidation as the second-best solution to achieve fiscal sustainability. |
| Keywords: | Fiscal sustainability, Fiscal consolidation, Policy coordination, Optimal policy, Fiscal policy |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2022-52&r= |
| By: | Kazandziska, Milka |
| Abstract: | This paper contributes to the financialization literature exploring the dynamics of financialization in eight emerging European economies (EEEs) compared to the Anglo-Saxon countries. Our analysis encompasses the decade before and the years following the financial crisis in 2008, including the latest developments in conjunction with the Covid-pandemic. Hungary, Bulgaria, Croatia, Turkey, and to a lesser extent, Czech Republic and Poland experienced strong financial inflows, and an accumulation of foreign liabilities. Foreign financial flows in Russia were not as significant for the process of financialization, but rather the state itself. In this paper we identify two types of financialization: 'foreign-finance-led' and 'state-led' financialization, where 'foreign-finance-led' financialization is characterized by increase in net capital inflows and subsequently, foreign indebtedness, whereas the government (the state) in the 'state-led' financialization has a predominant role in the financialization process. Most of the EEEs fit the 'foreign-finance-led' financialization, but with a tendency of a significant state involvement in the financial systems during the Covid-pandemic. Based on the analysis of financialization in EEEs, our findings show that EEEs had variegated financialization dynamics. Financialization in the EEEs was less pronounced compared to United States and United Kingdom. Despite this fact, the dynamics of financialization took a significant pace in the EEEs in the years following the financial crisis of 2008, with rising debt levels during the Covid-pandemic. |
| Keywords: | financialization,financial crises,emerging countries,Central Eastern Europe |
| JEL: | E44 F34 F36 F65 G01 G20 P51 P52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1832022&r= |
| By: | Shyam Nath; Yeti Nisha Madhoo |
| Abstract: | This paper empirically tests the suitability of local vs state government expenditure in providing an environmental public good, namely airborne pollution control in two municipal areas in India. We employ an innovative methodology where factual and counterfactual state and local expenditure regimes are constructed to capture different degrees of decentralization. Econometric results highlight higher efficacy of state level expenditure (centralization) as spillover/regional effects become important. Particularly, superiority of state expenditure is evident in the control of suspended particulate matter (SPM), which has wide cross-boundary effects. Local expenditure and the counterfactual of local expenditure for uniform provision (both decentralized provision modes) emerge as more effective than state to control point-source local pollutant SO2. However, they may also supplement the effects generated by state expenditure in the case of NO2 emissions, which entail spillovers and seem amenable to pressure group influence at local level. |
| Keywords: | Environmental governance; fiscal decentralization; atmospheric pollution; spillover effects; non-point source pollution; India |
| JEL: | E31 E61 E65 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pas:asarcc:2021-01&r= |
| By: | International Monetary Fund |
| Abstract: | Lesotho has been simultaneously hit by the pandemic, declining transfers from the Southern African Customs Union (SACU), and the impact of the war in Ukraine. The pandemic exacerbated the impact of sluggish regional performance, climate shocks, and longstanding structural issues such as regulation, governance, political stability, financial inclusion, and diversification. Public expenditure has continued to increase, such that the decline in external transfers precipitated significant financing pressures and growing domestic arrears. With limited inflows to the private sector, the resulting public sector-driven external imbalances have continued to put pressure on international reserves needed to maintain the exchange rate peg. |
| Date: | 2022–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2022/161&r= |
| By: | Itskhoki, Oleg; Mukhin, Dmitry |
| Abstract: | We propose a dynamic general equilibrium model of exchange rate determination that accounts for all major exchange rate puzzles, including Meese-Rogoff, Backus-Smith, purchasing power parity, and uncovered interest rate parity puzzles. We build on a standard international real business cycle model with home bias in consumption, augmented with shocks in the financial market that result in a volatile near-martingale behavior of exchange rates and ensure their empirically relevant comove-ment with macroeconomic variables, both nominal and real. Combining financial shocks with conventional productivity and monetary shocks allows the model to reproduce the exchange rate disconnect properties without compromising the fit of the business cycle moments. |
| JEL: | F3 G3 J1 |
| Date: | 2021–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112140&r= |
| By: | Bakari, Sayef; El Weriemmi, Malek |
| Abstract: | The aim of this investigation is to examine the nexus between domestic investment and economic growth in Arab countries. To attempt our goal, we used annual data for the period 1990 – 2020 and Vector Error Correction Model. Empirical analysis indicates that there is no relationship between domestic investment and economic growth in the long run. However, we find a bidirectional causality between domestic investment and economic growth in the short run. These results provide evidence that domestic investment is necessary in Arab countries’ economy and is presented as an engine of growth since they cause economic growth in the short term. But they are not carried out and treated with a solid and fair manner, which offer new insights into Arabe countries’ investment policy for promoting economic growth. |
| Keywords: | Domestic Investment, Economic Growth, VECM, Arab Countries |
| JEL: | E2 O11 O20 O47 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113079&r= |
| By: | Juan Carlos Hatchondo (Western University); Leonardo Martinez (IMF); Francisco Roch (IMF) |
| Abstract: | We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union. |
| Keywords: | Fiscal Rules, Sovereign Spread, Spread Limit, Debt Dilution, Debt Intolerance |
| JEL: | F34 F41 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:147&r= |
| By: | Leonid Kogan; Indrajit Mitra |
| Abstract: | We propose a general simulation-based procedure for estimating quality of approximate policies in heterogeneous-agent equilibrium models, which allows to verify that such approximate solutions describe a near-rational equilibrium. Our procedure endows agents with superior knowledge of the future path of the economy, while imposing a suitable penalty for such foresight. The relaxed problem is more tractable than the original, and results in an upper bound on agents’ welfare. Our method is general, straightforward to implement, and can be used in conjunction with various solution algorithms. We illustrate our approach in two applications: the incomplete-markets model of Krusell and Smith (1998) and the heterogeneous firm model of Khan and Thomas (2008). |
| JEL: | C02 C18 C63 C68 E00 E37 G1 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30111&r= |
| By: | Rabah Arezki; Caleb Cho; Ha Nguyen; Kate Nguyen; Anh Pham |
| Abstract: | This paper explores the effect of oil price fluctuations on the stock returns of U.S. oil firms using a strategy of identification through heteroskedasticity exploiting the 2020 oil crash. Results are twofold. First, we find that a decline in oil prices statistically significantly reduces stock returns of oil firms. On average, a one percent decline in oil prices leads to a 0.44 percent decline in stock prices. Second, results point to the “irrelevance” of debt in mediating the effect of oil prices on stock returns of oil firms. The liquidity backstop provided by the Federal Reserve appears not to have muted the role of debt for oil firms. |
| Keywords: | oil prices, stock returns, debt |
| JEL: | E44 G12 Q43 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9770&r= |
| By: | Kevin Fox; Peter Levell; Martin O'Connell |
| Abstract: | The increasing availability of supermarket scanner data covering expenditures and prices on a wide range of products has created new opportunities for national statistical institutes, including the possibility of publishing more reliable indicators of monthly price changes. We discuss and evaluate the properties of different multilateral index numbers for measuring high frequency price changes, drawing on household scanner data. We find that use of the Caves-Christensen-Diewert-Inklaar (CCDI) index, updated using the mean splice, is to preferred for both theoretical and empirical reasons. |
| Keywords: | consumer price index, multilateral indices, scanner data |
| JEL: | C43 E31 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-08&r= |
| By: | Giovanni Immordino (Università di Napoli Federico II and CSEF); Tullio Jappelli (Università di Napoli Federico II, CSEF, CFS, CEPR and Netspar); Tommaso Oliviero (Università di Napoli Federico II and CSEF) |
| Abstract: | Using a survey of Italian households administered in November 2021, we study the effect of microeconomic and macroeconomic expectations (about the health crisis and fear of contagion among others) on consumption expectations in 2022. The survey elicits individual-level indicators of income and consumption expectations, distinguishing between consumption at home, away from home, online and total. We find that expected household income and expected aggregate GDP growth are strongly related to consumption expectations; income risk is positively associated with expected consumption growth for richer households, confirming the presence of a precautionary saving motive. |
| Keywords: | Consumption Expectations; Income Expectations; Covid-19 Crisis. |
| JEL: | D14 D15 |
| Date: | 2022–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:647&r= |
| By: | Richard Davies |
| Abstract: | The Covid-19 lockdowns and recession are the most exceptional economic events in living memory and will impact the economy for years to come. One vital channel is via price changes. Price rises and cuts alter real wages, influencing consumer spending power. They have knock-on effects, via the official consumer price index (CPI) on regulated payments and costs including pensions, inflation-protected bonds and utilities. The degree of price flexibility in an economy also influences the impact of monetary policy. The way prices are evolving is thus a vital question in understanding the economic impact of pandemic. While some Covid-19 related questions will take years to answer, the availability of 'micro' data for the UK means that the impact on prices is something we can track in close to real time. The price data used in this briefing come from monthly records collected and published by the Office for National Statistics (ONS). The monthly 'price quote' files track the item sold, the shop selling it, and the UK region in which it is located. Data are available between February 1988 and December 2020. The final clean dataset contains 36m observations. |
| Keywords: | Covid-19, inflation, firm size, price changes |
| Date: | 2021–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepcvd:cepcovid-19-017&r= |
| By: | Wei Cui; Randall Wright; Yu Zhu |
| Abstract: | We study economies where firms acquire capital in primary markets then retrade it in secondary markets after information on idiosyncratic productivity arrives. Our secondary markets incorporate bilateral trade with search, bargaining and liquidity frictions. We distinguish between full and partial sales (one firm gets all or some of the other’s capital). Both exhibit interesting long- and short-run patterns in data that the model can match. Depending on monetary and credit conditions, more partial sales occur when liquidity is tight. Quantitatively, we find significant steady-state and business-cycle implications. We also investigate the impact of search, taxation and persistence in firm-specific shocks. |
| Keywords: | Business fluctuations and cycles; Monetary policy |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:22-27&r= |
| By: | Marco Cozzi (Department of Economics, University of Victoria) |
| Abstract: | I quantify the welfare effects of changing the long-run value of public debt using a two-region OLG model with rich income dynamics over the life-cycle, incomplete insurance, and an integrated asset market. I consider two model calibrations, one for Canada and one for the US. In the former case, I find that changes in public debt cause small interest rate effects. To validate the model, I conduct a formal empirical analysis, which does not reject the two-region theoretical framework. The quantitative model is used to perform a welfare analysis of counterfactual debt policies. In the long-run, for both Canada and the US, I find that negative quantities of public debt involve considerable welfare gains. For the US economy, when taking into account the welfare costs of the transitional dynamics, the result is reversed. However, imposing the empirical correlation between changes in public debt and changes in public expenditure found in the OECD data restores the finding that moving to equilibria with public wealth leads to welfare gains. |
| Keywords: | Public debt, Incomplete markets, Welfare |
| Date: | 2022–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:vic:vicddp:2007&r= |
| By: | Nicholas Oulton |
| Abstract: | According to Paul Krugman (1994, chapter 1), "Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker." But productivity and the standard of living are different concepts and are measured in different ways, so the question is, what is the linkage between them? Productivity is typically measured by GDP per hour. The standard of living has potentially many aspects such as health, longevity, personal security, and relationships. But here I take a narrower view and stick to the national accounts. So the standard of living is measured by the household disposable income of the median individual. I use the median rather than the mean so that inequality is taken into account. I develop a decomposition of the growth of median household income which relates it to the growth of productivity via eight additional factors, one of which is inequality; four other factors are measures of labour market performance. I apply this decomposition to the UK over the period 1977 to 2019. I find that productivity growth was far and away the most important factor in accounting for the growth of living standards which was substantial up to 2007; rising inequality prior to 2007 retarded the growth of living standards but not by much. Since 2007 productivity growth has collapsed as has also the growth of living standards. The fall in the latter has been mitigated a bit by a fall in inequality. |
| Keywords: | inequality, productivity, standard of living, welfare |
| JEL: | D31 E01 I31 O47 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-07&r= |
| By: | Stefan Raychev (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Dobrinka Stoyanova (Department of Economic Science, University of Plovdiv Paisii Hilendarski); Blaga Madzhurova (Department of Economic Science, University of Plovdiv Paisii Hilendarski) |
| Abstract: | The globalization reveals a number of socio-economic perspectives and challenges to the countries. The technological progress and innovation are essential elements of the globalization leaving their indisputable mark on the economic system. Because of this fact, the main objective of this study is to evaluate the effects of the innovation on the economic growth and the labor market (in particular on employment and the dynamics and nature of job positions) and to analyze the social and fiscal state policies. The research methodology includes time series analysis through descriptive, graphical and cross-correlation analyses by major macroeconomic indicators related to the labor market, economic growth and innovation. The results of the study indicate the changes in the nature of the work/ job positions at sectoral level in Bulgaria and the EU. Innovations demonstrate a significant positive link, both with employment and economic growth, and a negative such with unemployment. Specific features and general trends are reflected in changes in employment, innovation and economic growth in Bulgaria and the EU. This requires a reconsidering of the public policies in the social sphere and the tax policy. |
| Keywords: | globalization; innovation; economic growth; labor market; employment; nature of jobs; social and fiscal policy in EU and Bulgaria |
| JEL: | A10 E01 J01 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:12513349&r= |
| By: | Kaszab, Lorant; Marsal, Ales; Rabitsch, Katrin |
| Abstract: | Survey evidence tells us that stock prices reflect the risks investors associate with long-run technological change. However, there is a shortage of models that can rationalise long-run risks. Unlike the previous literature assuming a fixed number of products our model allows for new product varieties that appear in the form of new firms which face entry costs and delay in the entry process. The fixed variety model has a significant limitation in translating macroeconomic volatility into asset return volatility. Our model with growing varieties induces endogenous low-frequency fluctuations in productivity driving large persistent variations in consumption growth and asset prices. It also changes the valuation of assets through the increase in the volatility of the pricing kernel (with a positive long-run component) and leads to higher excess returns. Our model is motivated with a simple recursively identifed VAR model containing quarterly US data 1992Q3-2019Q4 with the following list of variables: total factor productivity, consumption, a measure of firm entry, and the excess return on stocks. |
| Keywords: | firm entry, equity premium, Epstein-Zin, New Keynesian |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:8646&r= |
| By: | Ivan Mendieta-Muñoz, Daniel Ossa |
| Abstract: | We contribute to the study of the conceptualization and measurement of the rate of profit of the financial and nonfinancial sectors. We assemble a new data set for the US economy to construct measures of the profit rate for each sector: the return on equity, the return on assets, and the shareholder's dividend yield. We study how the periodic components of the measures of profitability in each sector have changed over time, how these have been correlated at different frequencies, and what has been the evolution of such correlations. We find that the dominant correlation between the measures of profitability across sectors is located at business cycle frequencies, and that there has been a shift in the lead-lag relationship between financial and nonfinancial profitability: from 1970 to the mid-1990s, profitability in the nonfinancial sector led profitability in the financial sector; while since the mid-1990s the latter has led the former. |
| Keywords: | profitability, financial corporations, nonfinancial corporations, business cycles, financialization. JEL Classification: B50, C32, E11, E32, G20 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2022_02&r= |
| By: | Christopher J. Waller |
| Date: | 2022–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:94362&r= |
| By: | Afees A. Salisu (Centre for Econometrics & Applied Research, Ibadan, Nigeria; Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This paper provides novel mixed-frequency insight to the growing literature on the (monthly) economic policy uncertainty-(daily) stock market volatility nexus by examining the out-of-sample predictive ability of the quality of political signals over stock market volatility at various forecast horizons, and whether or not accounting for the signal quality in forecasting models can help achieve economic gains for investors. Both in- and out-of-sample tests, based on a GARCH-MIDAS framework, show that the quality of the policy signal indeed matters when it comes to the predictive role played by policy uncertainty over subsequent stock market volatility. While high EPU is found to predict high volatility, particularly when the signal quality is high, the positive relationship between EPU and volatility breaks down when the signal quality is low. The improved out-of-sample volatility forecasts obtained from the models that account for the quality of policy signals also helps typical mean-variance investors achieve improved economic outcomes captured by higher certainty equivalent returns and Sharpe ratios. Although our results indicate clear distinctions between the U.S. and U.K. stock markets in terms of how policy signals are processed by market participants, they highlight the role of the quality of policy signals as a driver of volatility forecasts with significant economic implications. |
| Keywords: | Economic policy uncertainty, Signal quality, Market Volatility, Forecasting |
| JEL: | C32 C53 D8 E32 G15 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202232&r= |
| By: | Daniel J. Lewis; Karel Mertens |
| Abstract: | We extend the popular bias-based test of Stock and Yogo (2005) for instrument strength in linear instrumental variables regressions with multiple endogenous regressors to be robust to heteroskedasticity and autocorrelation. Equivalently, we extend the robust test of Montiel Olea and Pflueger (2013) for one endogenous regressor to the general case with multiple endogenous regressors. We describe a simple procedure for applied researchers to conduct our generalized first-stage test of instrument strength and provide efficient and easy-to-use Matlab code for its implementation. We demonstrate our testing procedures by considering the estimation of the state-dependent effects of fiscal policy as in Ramey and Zubairy (2018). |
| Keywords: | instrumental variables; weak instruments test; multiple endogenous regressors; heteroskedasticity; serial correlation |
| JEL: | C26 C36 |
| Date: | 2022–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:94377&r= |
| By: | Samwel J. Kabote; Jires Tunguhole |
| Abstract: | This paper analyses factors for the declining trend in clove exports in Zanzibar using time series data that were collected between 1980 and 2020 and analysed using the vector error correction model, complemented with qualitative analysis. Clove production, producer price, world price, gross domestic product, and the exchange rate showed positive statistically significant impacts in the long run at the one per cent level, while foreign direct investment, population growth rate, rainfall, and gross capital formation showed significant negative association. Inflation had no impact. |
| Keywords: | Exports, Vector error correction, Zanzibar |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp-2022-54&r= |
| By: | Abdul Jalil (Pakistan Institute of Development Economics) |
| Abstract: | Austerity, during the global financial crisis, was the rubric used to define the highly contractionary policies at the cost of domestic social and infrastructural needs (see Varoufakis, 2017). Economies with high fiscal deficits and high debt to GDP ratios are often pushed to adopt austerity IMF programmes (see Box 1 and 2, Alesina, et al. (2019). |
| Keywords: | Austerity |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pid:kbrief:2021:21&r= |
| By: | Giordano Mion; Manuel Tong Koecklin |
| Abstract: | In this paper, we present additional figures and results with respect to Mion and Tong (2021) using an extended sample. More specifically, in Mion and Tong (2021) we focused on MNEs with at least one affiliate located in the UK while imposing a 50 per cent ownership threshold in each step of an ownership chain to assign membership of a firm to an MNE group. Using the language of the IMF Balance of Payments and International Investment Position Manual (Version 6), we thus considered only MNEs' subsidiaries while leaving associate relationships, i.e., relationships involving in between 10 per cent and 50 per cent of ownership, aside. In extending the analysis to associate relationships, we find that the net position of the UK in terms of those who gained or did not gain from our profit shifting exercise is largely unaffected in both 2007 and 2017. At the same time, the number of associate relationships is small compared to the number of subsidiary relationships in our data. In terms of the quantitative importance of associate relationships, for example in terms of share of overall revenues and profits within an MNE group, the situation is very different in 2007 compared to 2017. While back in 2007 associate relationships were quite sizeable in terms of overall MNE group revenues and profits, by 2017 their quantitative importance had become negligible. |
| Keywords: | apportionment, associate, intangible assets, orbis, profit shifting, subsidiary |
| JEL: | E01 F23 |
| Date: | 2022–04 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-09&r= |
| By: | Min Dai; Zhaoli Jiang; Neng Wang |
| Abstract: | Many real-world business opportunities feature second-mover advantages as there are often positive spillovers (externality) from early entrants to followers. We develop a tractable stochastic duopoly entry game with a second-mover advantage. We show that firms engage in a war-of-attrition game with the hope of becoming the follower, resulting in excessively delayed entry opposite to the predictions that competition causes firms to equalize rents (Fudenberg and Tirole, 1985) by exercising their entry options too soon (Grenadier, 1996). We obtain closed-form value functions and entry strategies for both mixed-strategy and pure-strategy equilibria. We develop a separation principle that decomposes the duopoly real-option game into a monopolist's real-option problem and a generalized easy-to-solve war-of-attrition game with stochastic payoffs. Quantitatively, our model predicts substantial option value erosion caused by excessively delayed firm entry. |
| JEL: | E22 G13 G31 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30150&r= |
| By: | Lyu, Chenyan (Department of Economics, Copenhagen Business School); Scholtens, Bert (Department of Finance, University of Groningen) |
| Abstract: | Emission trading is gaining momentum with its increasing market size and constantly improving information transmission mechanisms. With carbon assets becoming prominent as an alternative asset in investment portfolios, the ETS model has engaged a broad range of market participants, including not only emissions-intensive energy corporations but also individual and institutional investors. As arbitrage opportunities arise, price fluctuations are likely to occur, which typically have a mutual spillover effect. This paper examines how market fluctuations (e.g., volatilities) in these markets interact with each other, among carbon prices across four jurisdictions – European Union, New Zealand, California, and Hubei (China) ETS. The data used in this paper consists of weekly return and volatility, constructed by the daily prices from four markets, covering the period 30th April 2014, through 1st December 2021. We focus theoretically on the time-varying parameter (TVP)-VAR methodology, and empirically the connectedness approach. Our empirical results show average return (volatility) spillover is 6.03% (8.25%), which means that the dynamics of each of the carbon market are mainly explained by themselves and not due to spillovers from other markets, indicating that the global carbon prices are largely (albeit not completely) dependent. |
| Keywords: | Carbon markets integration; Volatility connectedness; TVP-VAR; Market risk |
| JEL: | C32 E44 Q43 R11 |
| Date: | 2022–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2022_007&r= |
| By: | Peter Reusens (Economics and Research, National Bank of Belgium); Frank Vastmans (KU Leuven); Sven Damen (University of Antwerp) |
| Abstract: | Hedonic house price indices adjust the average sales prices for the change in the quality of the property sold over time. This paper proposes a framework to disentangle the contribution of each individual dwelling characteristic to this quality change. We apply our framework to a unique dataset for Belgium for the period 2011Q3-2021Q2 in which we combine the universe of residential real estate transactions with the datasets of the energy performance certificates of the regional energy authorities. We find that the price of an identical dwelling has increased by 7 % less over the past decade compared to the average price of the houses sold and this is largely the result of the improved energy performance over the past decade. Moreover, taking into account the energy efficiency in house price indices will only become more important as it will need to improve substantially more to reach the European climate goal of having an energy efficient building stock by 2050. Turning to the recent period, we show that the strong price increases observed in the first year of the COVID-19 pandemic are not due to changes in the quality of the property sold as the average dwelling characteristics remained broadly stable. Furthermore, despite the slightly increased price discount of terraced houses and small garden and dwelling sizes, price growth continued to be slightly higher in cities compared to their rural urban fringe and the commuter belt |
| Keywords: | : House price index, hedonic regression, quality adjustment, housing market, COVID-19 pandemic, energy efficiency |
| JEL: | C43 E30 E31 Q58 R31 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:202205-406&r= |
| By: | Oliver Fritz; Anna Burton (WIFO) |
| Abstract: | Im Gegensatz zum Lockdown-bedingten Totalausfall der Wintersaison 2020/21 in Österreich (Nächtigungen –92,4%) zog die Nachfrage im abgelaufenen Winter nach neuerlichen Betriebsschließungen zu Saisonbeginn im weiteren Verlauf stetig an, sodass sich der Rückstand von November 2021 bis April 2022 zum Vorkrisenniveau von 2018/19 auf durchschnittlich knapp 28% bei Nächtigungen und gut 19% in Bezug auf die nominellen Tourismuseinnahmen verringerte. Die Erwartungen der österreichischen Tourismuswirtschaft für die aktuelle Sommersaison sind durchwegs positiv, nach zwei Jahren pandemiebedingter Einschränkungen ist die Lust, zu verreisen im In- und Ausland groß. Die durch den Krieg in der Ukraine angespannte politische Lage und ihre wirtschaftlichen Auswirkungen, vor allem der massive Preisanstieg, trüben jedoch die Aussichten für die kommenden Monate zunehmend ein. |
| Keywords: | Tourismus, COVID-19-Krise, Teuerung, TP_Ukraine, Inflation |
| Date: | 2022–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:rbrief:y:2022:i:16&r= |
| By: | Katharine G. Abraham; Justine Mallatt |
| Abstract: | There are many reasons to want measures of countries’ investments in human capital and especially their investments in formal education. We review the existing literature on the measurement of human capital. Broadly speaking, economists have proposed three approaches to the measurement of human capital—the indicator approach, the cost approach and the income approach. Studies employing the indicator approach have used single measures such as average years of schooling or created indexes of multiple measures as human capital proxies. The cost approach values human capital investments based on spending. The income approach values human capital investments by looking forward to the increment to expected future earnings they produce. The latter two approaches have the significant advantage of consistency with national income accounting practices and measures of other types of capital, but there are also challenges to their implementation. Measures based on the income approach typically yield far larger estimates of the value of human capital than measures based on the cost approach. We outline possible reasons for this discrepancy and show how changes in assumptions can reconcile estimates based on the two approaches. |
| JEL: | E01 I26 J24 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30136&r= |
| By: | Faty Dembele; Timothy Randall; David Vilalta; Vanessa Bangun |
| Abstract: | Initially launched in 2017, the OECD annual Blended finance Funds and Facilities Survey compiles and analyses information on collective investment vehicles, one of the primary channels for blended finance. In 2020, the third annual edition captured 198 vehicles, representing USD 75 billion assets under management. The survey helps policy makers and private sector actors better grasp the size and shape of a segment of the blended finance market. By bringing together data of different development actors that, collectively, are a significant contributor to sustainable finance, this survey makes an important contribution to enhancing understanding and transparency. Transparency is increased through the data collection and analysis, and understanding is increased through the aggregation of the data that highlight the main investments trends. The quantitative analysis is complemented by OECD statistics on private finance mobilised by official development interventions, as well as by information provided by other specialised institutions. This new evidence confirms trends observed on the broader blended finance market in terms of priority sectors, geographical coverage and the Sustainable Development Goals targeted. This year’s edition also explores additional aspects such as investors, clients and investment instruments, and has a particular focus on gender. |
| Keywords: | blended finance, development finance, dfis, funds and facilities, private sector mobilization, sdgs |
| JEL: | E44 F35 F63 F65 F68 O16 O2 F3 |
| Date: | 2022–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:107-en&r= |
| By: | de Conti, Bruno |
| Abstract: | The Covid-19 pandemic has had unequal effects around the world, not simply in terms of health prospects, but also in terms of economic and social consequences. In all these aspects, Brazil is among the most affected countries. This article aims to analyze the economic and social effects of the Covid-19 pandemic in Brazil, as well as the main macroeconomic policies that were implemented to face the crises. To understand it properly, we take into consideration three elements: i) the structural characteristics of the Brazilian economy; ii) the economic situation in Brazil when the pandemic broke out; iii) the inefficiencies and the negligence of Bolsonaro's government. The article argues that in the public health dimension, the denialist attitude of the president resulted in a lack of national policies for social distancing and a clear mismanagement of the vaccination process which contributed to the seriousness of the crisis. As for the economic and social dimensions, the national government - after some hesitation and under the pressure of the National Congress - implemented a set of policies which have irrefutably served as a cushion for the harms of the pandemic. Nonetheless, it is crucial to underline that these policies have been insufficient to cope with the concrete urgencies of more vulnerable populations in Brazil. The intermittence and the short-termism of the fiscal programs associated with the gradual (and untimely) reduction in the benefited population and in the amounts of the transfers limited the effectiveness of the policies. |
| Keywords: | COVID-19 pandemic,Brazil,macroeconomic policies,social policies,socioeconomic vulnerability |
| JEL: | E65 F62 I18 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1842022&r= |
| By: | Robert Dunn |
| Abstract: | The Office for National Statistics (ONS) has for over 10 years produced annual stock estimates of human capital assets, in real and nominal terms with a variety of demographic decompositions. Similarly, most published papers from both academic and national statistical institutions have focused on the production and analysis of human capital stock estimates. This paper looks to move beyond this by considering the economic flows associated with incorporating human capital assets into the UK Economic Accounts within the context of an experimental satellite account; thereby explaining the movement between two human capital stock positions and the resulting effect on the main national accounts aggregates such as gross value added, savings, net worth, etc. In doing this we draw on the UNECE Guide to measuring human capital (UNECE; 2016) and the examples of the Human Capital Accounts produced by Canada and the United States, as its starting points for integrating the "production" of human capital assets into the economic accounts and then looks at extending that to include the production of services arising from those human capital assets by looking at parallels with how the System of National Accounts treats other produced assets used within a production process where the economic ownership of the asset resides with another institutional unit. This constitutes a key contribution to the existing body of work, and the estimates presented here are the first of their kind for the UK and demonstrates the importance of human capital assets for the economic accounts due to their magnitude in comparison with current total non-financial assets on the UK balance sheet; on average human capital assets are 220 per cent of total non-financial assets for the reference period 2005-2018. |
| Keywords: | human capital, national accounts |
| JEL: | E10 I26 J24 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-12&r= |
| By: | Luis Gruber; Gregor Kastner |
| Abstract: | Vectorautogressions (VARs) are widely applied when it comes to modeling and forecasting macroeconomic variables. In high dimensions, however, they are prone to overfitting. Bayesian methods, more concretely shrinking priors, have shown to be successful in improving prediction performance. In the present paper we introduce the recently developed $R^2$-induced Dirichlet-decomposition prior to the VAR framework and compare it to refinements of well-known priors in the VAR literature. We demonstrate the virtues of the proposed prior in an extensive simulation study and in an empirical application forecasting data of the US economy. Further, we shed more light on the ongoing Illusion of Sparsity debate. We find that forecasting performances under sparse/dense priors vary across evaluated economic variables and across time frames; dynamic model averaging, however, can combine the merits of both worlds. All priors are implemented using the reduced-form VAR and all models feature stochastic volatility in the variance-covariance matrix. |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2206.04902&r= |
| By: | Nurrahma, Ayuni |
| Abstract: | Pengertian pasar barang dan psar uang dalam model IS-LM Adalah investment saving yang berarti pasar barang sedangkan LM adalah liquidity money yang berarti pasar uang.Model pada IS-LM ini di jelaskan terdapat dua interaksi antar pasar yaitu pasar barang dan pasar jasa. |
| Date: | 2022–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:3bgvm&r= |
| By: | Jean-Pierre H. Dubé; Joonhwi Joo; Kyeongbae Kim |
| Abstract: | We establish the Hurwicz-Uzawa integrability of the broad class of discrete-choice additive random-utility models of individual consumer behavior with perfect substitutes preferences and divisible goods. We derive the corresponding indirect uility function and then establish a representative consumer formulation for this entire class of models. The representative consumer is always normative, facilitating aggregate welfare analysis. These findings should be of interest to the literatures in macro, trade, industrial organization, labor and ideal price index measurement that use representative consumer models, such as CES and its variants. Our results generalize such representative consumer formulations to the broad, empirically-relevant class of models of behavior that are routinely used in the discrete-choice analysis of micro data, including specifications that do not suffer from the IIA property and that allow for heterogeneous consumer preferences and incomes. When products are indivisible, we show that Hurwicz-Uzawa integrability fails; although some model variants might satisfy a stronger version of quasi-linear integrability. |
| JEL: | C43 D01 D11 D60 E1 L00 M3 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:30130&r= |
| By: | Oliver Bakreski (University St. Cyril and Methodius Skopje/ Faculty of Philosophy/ Institute for Security, Defense and Peace); Sergej Cvetkovski (University St. Cyril and Methodius Skopje/ Faculty of Philosophy/ Institute for Security, Defense and Peace); Leta Bardjieva Miovska (European University Skopje) |
| Abstract: | This paper aims to present the planning process in the security sector, which is complex, intricate, multi-phase and dynamic and is based on the design of budget requirements for the needs of the security sector. Planning counterpoises an activity in the creation of government draft budgets, which has a significant impact on the execution of budget projections. Hence, planning in the security sector is of great importance in providing the architecture of contemporary budgeting, setting and prioritizing goals and creating security policies. The initial premise in this paper refers to the hypothesis that planning is an essential element of security sector management and addresses the need for continuity in strategic and comprehensive planning in order to prepare and approve a budget that comprises the real needs of the security sector, as well as the necessity of implementation of the principles of cost effectiveness, budget transparency, system of control and balance and democratic oversight of budget implementation.The dependent variable in the context of this hypothesis alludes to the assessment of security risks and threats, the environment, etc., which is in function of achieving the planned goals based on a specific time frame, clear organizational designation and system of accountability.The methodology for this paper includes extrapolation, qualitative presentation and concrete interpretation of theoretical and empirical findings and available data on the specific topic through induction and deduction, analysis of formal government documents, strategies and plans, as well as laws governing this domain. The purpose of this paper is to emphasize the importance of planning as an initial stage in budgeting and the end result of the security resource planning process. |
| Keywords: | planning, goals, security, defense, resources, budgeting, process |
| JEL: | E60 R58 H54 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iefpro:12513352&r= |
| By: | Akbar, Muh. |
| Abstract: | IS-LM terdiri dari IS dan LM. IS adalah Invesment Saving yang berarti pasar barang sedangkan LM adalah Liquidity Money yang berarti pasar uang. Model IS-LM menjelaskan interaksi antara dua pasar, yaitu pasar barang dan pasar uang. |
| Date: | 2022–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:m9736&r= |
| By: | Ana Galvao |
| Abstract: | Different methodologies for computing total annual hours worked are adopted across G7 statistical offices to estimate productivity, and, therefore, we cannot be sure about international comparisons of productivity. This paper describes the design, implementation, and results of an online randomised controlled experiment to assess the impact of communicating this uncertainty in comparing productivity between the UK and the other G7 countries. The online survey results support the proposed communication tools as an effective way of conveying the uncertainty on the estimates of the international comparison of productivity for the UK public. They are effective even for respondents with limited knowledge of what productivity is. But communication tools are likely to be more helpful to members of the public that are familiar with the concept as they are better at making an inference based on the communicated data. |
| Keywords: | g7 countries, productivity measurement, randomised online experiment, uncertainty communication |
| JEL: | C92 E70 O47 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2022-02&r= |